Petition of Heptagon Portfolio Arbroath LTD for Judicial Review by Angus Council (Court of Session)

Factual and Procedural Background

The Petitioner challenged a decision by the Respondent local authority to treat the Petitioner as liable to pay non-domestic rates in respect of certain commercial units located in a shopping centre in The City. The Respondent had issued a notice to the Petitioner indicating this liability, applying anti-avoidance regulations introduced under the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023. The Petitioner appealed this decision, which was considered by the Respondent’s Non-Domestic Rates Subcommittee on 20 June 2024. The subcommittee decided to uphold the decision, issuing a letter dated 4 July 2024 with reasons for treating the Petitioner as liable. The Petitioner then sought judicial review of this decision.

Legal Issues Presented

1. Whether the Respondent correctly applied regulation 4(2)(a) of the 2023 Regulations by assessing if the tenancy or arrangement had as its main purpose, or one of its main purposes, the gaining of an advantage within the meaning of the Non-Domestic Rates (Scotland) Act 2020.
2. Whether the tenancy or arrangement was an artificial non-domestic rates avoidance arrangement under sections 39 and 40 of the 2020 Act and regulation 4(2)(b), particularly focusing on whether the rent charged was significantly below the level reasonably obtainable on the open market.
3. The adequacy of the reasons provided by the Respondent for its decision.
4. Whether the Respondent’s decision-making process was procedurally fair, including the timing and disclosure of evidence.

Arguments of the Parties

Petitioner's Arguments

• The Respondent failed to consider the subjective intention of the relevant directors involved in the tenancy arrangements, which was required by the regulation; instead, the Respondent improperly relied on the effect or motive of the transaction.
• The reasons provided by the Respondent were inadequate as they merely recited the statutory test without identifying supporting facts or explaining the conclusions.
• The Respondent incorrectly assessed whether the rent was significantly below market level by focusing only on whether a higher rent could be achieved, rather than on the reasonableness of the rent compared to the open market.
• The Respondent relied on rental comparators that were not true comparators, failed to address criticisms of those comparators, and ignored evidence that the Petitioner had unsuccessfully sought tenants at higher rents.
• The decision was irrational due to the above failings and the inadequate explanation of how the conclusions were reached.
• The Petitioner suffered procedural unfairness because evidence about rental values was disclosed only four working days before the hearing, limiting the ability to respond effectively.
• The Respondent wrongly concluded the arrangement was artificial without adequate factual support or explanation.

Respondent's Arguments

• The reasons provided were adequate to inform the Petitioner of the basis for the decision; if not, the proper remedy would be an order for better reasons rather than setting aside the decision.
• The subjective intention was not necessary; the purpose of the arrangement could be judged objectively by reference to its nature and context.
• The conclusions regarding rent were reasonable inferences based on facts, including the nominal rent of £1 per annum and higher rents for comparable retail units nearby.
• The decision on rent level was a factual finding for the Respondent, not subject to judicial review on the merits, and the Respondent was entitled to rely on the comparators presented.
• The Respondent considered the Petitioner’s criticisms of the comparators and evidence, as evidenced by the decision letter.
• The letter of reasons, read as a whole and in context, demonstrated that the Respondent applied the correct test regarding the significance of the rent differential.
• There was no procedural unfairness; the Petitioner had notice of the evidence and the opportunity to respond, and had waived any right to object by proceeding with the hearing.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Inland Revenue Commissioners v Brebner [1967] 2 AC 18	Requirement to consider subjective intention in assessing purpose.	Supported the Petitioner's argument that subjective intention is relevant under the regulation.
JTI Acquisition Company (2011) Limited v HMRC [2024] EWCA Civ 652	Clarification on subjective intention as the relevant test for purpose.	Confirmed that subjective intention is the appropriate focus for determining purpose under the regulations.
Tchenguiz v Director of the Serious Fraud Office [2013] EWHC 2297	Objective intention may be relevant in legal privilege context but not for assessing purpose here.	Distinguished from the present case; court emphasized subjective intention is key for this decision.
Three Rivers District Council and Others v The Governor and Company of the Bank of England (No. 5) [2003] QB 1556	Court's role in determining dominant purpose based on evidence.	Supported the approach that the court infers subjective intention from objective evidence.
Wordie Property Co Ltd v Secretary of State 1984 SLT 345	Standards for adequacy of reasons in administrative decisions.	Applied to assess that the reasons given by the Respondent were sufficient.
South Buckinghamshire District Council v Porter [2004] 1 WLR 1953	Reasonableness of interpreting decision letters and adequacy of reasons.	Used to justify reading the Respondent’s letter in context and not requiring exhaustive reasons.
Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374	High threshold for irrationality in judicial review.	Applied to reject the Petitioner's claim of irrationality in the Respondent's decision.
Clancy v Caird 2000 SC 441	Waiver of right to object by proceeding with a hearing despite knowledge of evidence.	Supported the Respondent’s position on procedural fairness and waiver of objections.
De Smith's Judicial Review (9th ed, 2023)	Principles on adequacy of reasons and remedies for inadequate reasons in judicial review.	Guided the court’s approach to remedies and sufficiency of reasons.

Court's Reasoning and Analysis

The court analysed the two key statutory requirements under regulation 4(2) in turn. Regarding subparagraph (a), the court agreed with the Petitioner that subjective intention is the relevant test for determining whether the arrangement’s main purpose was to gain an advantage, as supported by binding authority. However, the court acknowledged that subjective intention must be inferred from objective evidence. The subcommittee’s findings—that without the tenancies the Petitioner would be liable for rates, the arrangements lacked reasonable business conduct, and the arrangements conferred an advantage not reflected in business risks—were sufficient factual bases from which to infer the requisite subjective purpose. Consequently, the Respondent had not erred in law or fact in reaching its conclusion or in the adequacy of its reasons.

Turning to subparagraph (b), the court found that, read in context, the Respondent’s decision letter demonstrated that the subcommittee applied the correct test regarding whether the rent was significantly below the market level. The court rejected the Petitioner’s argument that the letter’s language was insufficiently precise, emphasizing that the letter was addressed to a party familiar with the background, and that reasons need not be exhaustive.

The court held that challenges to the quality or selection of rental comparators were not justiciable on judicial review, as these were factual determinations for the Respondent. The court found no basis to conclude irrationality, as the Respondent’s conclusions were reasonable inferences from the evidence. The Respondent had also considered the Petitioner’s criticisms of the comparators and evidence, as reflected in the decision letter.

Regarding procedural fairness, the court found no unfairness in the timing of evidence disclosure, noting the Petitioner had notice of the issues and opportunity to respond, and had waived any right to object by proceeding with the hearing. The court applied established principles that a party proceeding with knowledge of a factor waives the right to later object.

Finally, the court concluded the reasons provided by the Respondent were adequate when read as a whole and in context, meeting the relevant legal standards.

Holding and Implications

The court refused the petition, sustaining the Respondent’s pleas-in-law and repelling those of the Petitioner.

The direct effect is that the Respondent’s decision to treat the Petitioner as liable for non-domestic rates on the specified properties stands. No new legal precedent was established, and the decision affirms the application of the anti-avoidance regulations, the necessity of subjective intention assessed through objective evidence, and the standards for adequacy of reasons and procedural fairness in this context.