Factual and Procedural Background
The Petitioner, Company A, owned premises at Units 1B, 2, 5, 18, and 19 Dewar House, Enterprise Way, The City. On 4 May 2023, Company A leased these premises to Company B, which sub-let them to Company C. The rent was nominal (£1), with Company A retaining liability for utilities. Company C claimed 100% non-domestic rates relief on the basis that the premises were used for religious worship.
Following procedures under the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023, the Respondent, The Council, issued a final notice on 6 October 2023 treating Company A as liable for non-domestic rates from 6 November 2023 to 31 March 2024. Company A appealed this decision. After a hearing on 25 November 2024, The Council upheld its decision on 4 December 2024. Company A sought judicial review to quash this decision on grounds of unlawfulness, irrationality, and inadequate reasoning.
Legal Issues Presented
- Whether the decision to treat the Petitioner as liable for non-domestic rates was unlawful and irrational due to lack of supporting evidence.
- Whether the decision was unsupported by adequate reasons, particularly regarding the interpretation and application of the 2023 Regulations and the 2020 Act.
- Whether the 2023 Regulations provide a stand-alone test for determining artificiality in rates-avoidance arrangements or must be read in conjunction with the tests in the 2020 Act.
- The appropriate remedy and whether the matter should be remitted to the same or a differently constituted committee.
Arguments of the Parties
Petitioner's Arguments
- The Respondent lacked evidence to establish the open market rent at the time the leases were entered into, failing valuation, marketability, and temporal requirements.
- No relevant contemporaneous comparators were provided to prove the open market rent.
- Even if regulation 4(6)(d) was satisfied, the Respondent had to prove artificiality under section 40 of the 2020 Act, including conditions A or B, which it failed to do.
- A nominal rent of £1 was commercially realistic given the alternative of no tenant and an empty property.
- The Respondent treated regulation 4(4) as a deeming provision incorrectly and did not provide adequate reasons addressing the principal arguments and statutory conditions.
- The decision should be quashed and the case remitted to a differently constituted committee due to concerns about the adequacy and independence of reasons.
Respondent's Arguments
- Evidence of licence fees charged after the leases and rents sought for other units constituted sufficient evidence of open market rent.
- The committee was entitled to infer that the £1 rent was nominal and significantly below market rent.
- The arrangement was a clear rates avoidance scheme linked to an advertised scheme by a third party.
- The 2023 Regulations provide a mechanism whereby if their tests are satisfied, artificiality under the 2020 Act is ipso facto established, negating the need to separately consider section 40 conditions.
- The Petitioner suffered no prejudice from the reasons given, which made clear the basis of the decision.
- If reasons were inadequate, the matter should be remitted to the same committee to provide adequate reasons.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| De Smith's Judicial Review (9th Edn, 2023), paragraphs 6.039, 9-136 to 9-141, 9-140, 9.151 |
Standards for lawfulness, rationality, and adequacy of reasons in judicial review decisions |
Referenced to assess whether the Respondent's decision was lawful, rational, and supported by adequate reasons; decision found lacking on reasons. |
| R (on the application of Bukartyk) v Welwyn Hatfield BC [2020] HLR 19 at [48] |
Proper consideration of evidence and avoidance of legal error in administrative decisions |
Petitioner cited to argue that the Respondent erred by focusing on some evidence to the exclusion of contrary evidence. |
| A v Secretary of State for the Home Department 2024 SLT 1306 at [17] |
Requirements for adequate reasons in administrative decisions |
Used to support the argument that reasons must identify material facts and address principal arguments, which was not done here. |
| South Bucks District Council and another v Porter (No 2) [2004] 1 WLR 1953, Lord Brown of Eaton-under-Haywood at [36] |
Standard for adequacy and intelligibility of reasons in administrative decisions |
Cited for the principle that reasons must enable understanding of decision rationale and resolution of principal issues; Respondent’s reasons found inadequate. |
| Chief Constable, Lothian and Borders Police v Lothian and Borders Police Board 2005 SLT 315 at [70], [75], [76] |
Discretionary powers regarding remittance of decisions after quashing for inadequate reasons |
Guided the court’s discretion to remit the matter to a differently constituted committee rather than the same committee. |
| English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409, Practice Note |
Context of adequacy of reasons in judicial rather than administrative decisions |
Found of limited assistance; distinguished from the present administrative context. |
Court's Reasoning and Analysis
The court carefully examined the statutory framework comprising the Non-Domestic Rates (Scotland) Act 2020 and the 2023 Regulations. It identified that the 2023 Regulations were intended to supplement, not supplant, the 2020 Act, requiring both to be satisfied before an owner could be held liable for non-domestic rates in avoidance arrangements.
The court noted that regulation 4 narrows the discretion of local authorities by specifying conditions under which an arrangement can be considered artificial, particularly focusing on whether the rent is significantly below open market levels. However, it rejected the Respondent's interpretation that satisfaction of regulation 4(6)(d) alone sufficed to establish artificiality under the Act without further consideration of conditions A or B under section 40.
Regarding the evidence, the court found that the committee was entitled to consider licence fees charged after the leases and rents sought for other units as relevant evidence of open market rent, alongside the nominal £1 rent charged. The court rejected the Petitioner's argument that the lack of contemporaneous comparators invalidated the evidence.
On the adequacy of reasons, the court found the Respondent's decision deficient. The reasoning focused almost exclusively on regulation 4(6)(d) without addressing the requirements of sections 39 and 40 of the 2020 Act or responding to key arguments raised by the Petitioner. This omission created substantial doubt as to whether the decision-maker erred in law.
In exercising its discretion on remedy, the court concluded that the decision should be quashed due to inadequate reasons and remitted to a differently constituted committee for reconsideration. This was to avoid the risk of post hoc rationalisation of reasons and to ensure a fair and independent rehearing.
Holding and Implications
The court GRANTED the petition for judicial review in part, quashing the decision of 4 December 2024 on the ground that it was unsupported by adequate reasons.
The court ordered the Respondent to convene a further hearing of the Petitioner's appeal before a differently constituted Rating Appeal Sub Committee. All other pleas were repelled, and questions of expenses were reserved.
The direct effect is that the liability decision is set aside and must be reconsidered afresh with adequate reasons. No new precedent was established beyond clarifying the interpretative relationship between the 2023 Regulations and the 2020 Act and emphasizing the necessity for adequate reasoning in administrative decisions of this nature.