THE VALUATION TRIBUNAL FOR ENGLAND

Summary of Decision: non-domestic rates, merger of assessments, Woolway (VO) v Mazars, geographical or functional test, chemical works, pipeline connecting, appeal dismissed.

Re: EUROPE LTD LOSTOCK WORKS, MANCHESTER ROAD, , CW9 7NY & TATA CHEMICALS EUROPE LTD , WALLERSCOTE WORKS, WINNINGTON LANE, NORTHWICH, CHESHIRE CW8 4DL

APPEAL NO: 066525358322/539N10

BETWEEN: TATA CHEMICALS EUROPE LIMITED Appellants

and

MR ROBIN HUGHES Respondent (VALUATION OFFICER)

BEFORE: Mr G Garland (President)

SITTING AT: The Tribunal Offices, 2nd Floor, 120 Leman Street, London, E1 8EU

ON: 6 March 2018

APPEARANCES:

The Appellants were represented by Cain Ormondroyd of Francis Taylor Building as advocate.

The Respondent Valuation Officer was represented by Guy Williams of Landmark Chambers as advocate.

Witness Statements were provided by:

Mr Peter Houghton, a Director of Tata Chemicals Europe Ltd;

Mr Ian Charman, an equity partner of Turner Morum LLP; and

Mr Robin Hughes, specialist case worker with the Valuation Office Agency.

Summary of Decision

1. The appeal is dismissed as the hereditaments do not meet the geographical or functional test.

Introduction

2. The proposal made on 25 March 2015 and appeal, sought a merger of the two separate assessments into a single entity on the grounds of geographical layout/contiguity as well as on the grounds of technical, financial and practical mutual interdependence. The parties made application for the appeal to be treated as complex in accordance with the Tribunal’s Consolidated Practice Statements (CPS3). I agreed to the request and issued Directions. By the time of the hearing the parties had agreed a single preliminary point which they advised me underlined the appeal. If I found for the Appellants the parties hoped to agree a valuation for the revised assessment and, if I found for the Respondent the appeal was lost. A bundle and aerial film of the pipeline (expertly taken from a drone) were provided to me in advance of the hearing for which I was grateful.

3. In simple terms this preliminary point considered the question of whether the two individual chemical works occupied by Tata Chemicals Europe Ltd

(TCEL) at Winnington and Lostock which are joined together by a steam pipeline and a high tension electrical supply connection, should properly be regarded as forming one single hereditament for rating purposes with effect from at least 3 February 2014 (which was the material day) onwards.

4. Both sites are chemical plants operated by TCEL. They are located at different sides of the Cheshire town of Northwich and are around 3 miles or 5Km apart from each other. However, the two sites are physically connected by a direct high tension electrical supply and three pipelines: two steam pipelines each of 18” diameter and one condensate pipeline is of 6” diameter.

5. At the date of the proposal (and indeed at the present time), the two sites are shown on the local list as two separate hereditaments for the purposes of national non-domestic rates under the Local Government Finance Act 1988 (“LGFA 1988”).

6. Lostock is a purpose-built chemical plant designed and built for the production of soda ash and sodium bicarbonate as a by-product/further process product of the soda ash manufacturing process. The equipment on site is specialist and on a large scale, a large number of the elements of the plant are rateable including conveyors, conveyor towers, kilns, bunkers and storage silos. I understood that there is no alternative use of these facilities due to the specialist nature of the buildings and the large amount of rateable plant which is accepted to form part of the hereditament.

7. The manufacture of soda ash requires a large supply of process steam and electrical power. I was advised that energy represents some 50% of the cost base of the operation at Lostock, which I am also informed is a relatively high proportion. Electrical power is in theory available from the national grid, although this would be so expensive that it would put the economic sustainability of the operations at risk.

8. The only source of process steam to Lostock, however, is via the system of direct pipelines from Winnington (“the Pipeline”). The Pipeline currently forms part of the Winnington hereditament for rating purposes. Even if steam is

available from elsewhere, Lostock is also economically dependent on receiving low cost steam from Winnington.

9. Some (but not all) of the end product from the Lostock site is transported to Winnington where it is processed into food-grade or healthcare grade sodium bicarbonate. The buildings at Winnington which are used for this process are also large, purpose-built and unsuitable for any other use.

10. I was told that until 2000 there was a power station (dual fuel oil and coal) on site at Lostock and two similar power stations on site at Winnington. The main purpose of all of the power stations was to provide process steam but they also generated the electrical demand on site. The stations became obsolete and a purpose built gas fired Combined Heat and Power plant (“the CHP plant”) was then constructed on part of the Winnington operational site, with cross country steam pipelines to Lostock and a direct power connection. The CHP plant came on line in 2000 and the two power stations at Winnington were subsequently demolished. The power station at Lostock has not yet been demolished but, I believed, was incapable of use.

11. The CHP is in fact split across the two ends of the Pipeline. The main generator is at Winnington but a further generator and steam conditioning station at Lostock but controlled from Winnington.

12. At the time the CHP plant came on line and immediately thereafter, the CHP plant and Pipeline were owned and operated by a third party. It operated at a substantial loss. In 2013, the CHP plant and Pipeline came within the ownership of TCEL.

13. In 2014, TCEL closed down the soda ash production facility at Winnington. This was subsequently decommissioned and partly demolished and it was agreed that the soda ash facilities at Winnington were no longer physically capable of use and all parts were removed from the assessment with effect from 3 February 2014. This left just the CHP plant, the sodium bicarbonate production facility and the main administrative offices, some laboratory and research facilities on site at Winnington.

14. The practical effect of closing down the soda ash production facility at Winnington was twofold. First, Winnington became dependent on Lostock for its supply of soda ash. Second, Lostock became the main source of demand for process steam from the CHP plant.

15. The sodium bicarbonate production facilities at Winnington could, in theory, function without the soda ash production facility at Lostock due to the potential for importing soda ash. However, there is no other soda ash producer in the UK and therefore the ash would need to be acquired from abroad.

16. The Appellants state this would not be at all economically viable due to the very high costs of transporting the soda ash to Winnington, they rely on the economics as being a factor in their argument , in short saying one was not viable without the other.

17. The soda ash production facility at Lostock could not be used for any other purpose and can only be used for soda ash production which in turn requires a large supply of process steam. The only such supply available is from the CHP at Winnington via the Pipeline. Lostock could not be used for its intended purpose without the supply of steam via the Pipeline. There is no alternative source of steam for Lostock.

18. The Appellants state that the CHP plant at Winnington also requires a large demand for process steam in order to operate efficiently (which also brings with it other advantages, notably in terms of tax liability). Furthermore, they state that there is currently no available demand for the amount of process steam that the CHP plant (operating efficiently) generates aside from the demand for process steam from Lostock. About 96% of the output of steam feeds the Lostock site. The remaining 4%feeds Winnington. The CHP could not economically supply the 4% alone. The demand from Lostock is apparently exceedingly high in UK terms, such that there is no other foreseeable need for so much process steam in this location other than to supply Lostock.

19. The Appellants stated that the operations at Lostock and Winnington were only viable when operated in tandem. Put another way, if TCEL did not own

and operate the site at Winnington and supply steam to Lostock at cost price, the operations at Lostock would not be economically viable to run and without owning the supply of soda ash at Lostock and being able to supply it to Winnington at cost price, the operations at Winnington would not be viable. This interdependence reflects the nature of the sites and the facts of the market; it would remain the case whether TCEL or some other party was operating the sites.

20. The appeal for the two properties to be treated as a single hereditament from the effective date onwards has been made on the grounds that since that date, they have been in a single and exclusive occupation by the same ratepayer for the same purpose, and that the two parts currently assessed separately form a geographically distinct whole as well as being functionally essential one to the other.

21. Up until 3 February 2014 each of the two chemical plants had manufactured Soda Ash (both light ash and heavy ash) in parallel with each other. Each plant had also manufactured sodium bicarbonate (Bicarb) as a manufactured partial by-product of the soda ash manufacturing process.

22. Winnington works then (as now) manufactured Bicarb to an extremely high and pure specification for pharmaceutical and food grade purposes.

23. Lostock works then (as now) manufactured Bicarb mainly for flue gas cleaning and purification purposes under the trading name “Briskarb”. Each of the two plants were extremely intensive users of high temperature pressurised steam as a fundamental part of the manufacturing process. Both plants also had a high demand for electrical power.

24. All steam and power to both plants were supplied by a Combined Heat and Power plant (CHP) located at the Winnington site, with the steam to Lostock being supplied via cross country pipelines on a single route also owned and operated by TCEL together with a discrete overhead high tension power supply on a different route. Lostock has no on site steam or power generation facilities and is totally dependent on supply from Winnington, although it can of course take electrical power from the Grid.

25. Following some catastrophic equipment failures at Winnington in 2010 through to 2014 caused by a combination of extreme weather events (prolonged low temperatures) together with the much older buildings and manufacturing equipment at Winnington plant which were unable to deal with such extreme and prolonged low temperatures, TCEL had no practical option other than to close down soda ash manufacturing operations at Winnington permanently. The final date for this end in production was 3 February 2014 for this material change but in reality the kilns had been turned off months earlier and a number of manufacturing vessels had also been taken out of operation. By 3 February 2014 the soda ash plant was physically and economically redundant and the kilns had suffered irreversible damage through the cooling process and a significant proportion of the other manufacturing plant had also been decommissioned irreversibly.

26. Most of the large amount of rateable value associated with the redundant plant and buildings at Winnington had already been removed by prior agreement from the assessment via the Valuation Office Notice against which the subject appeal was made.

27. Since 3 February 2014, circa 96% of the steam produced by the CHP plant at Winnington is supplied to the Lostock plant via the TCEL pipeline. The remaining 4% feeds Winnington for use in the Bicarb manufacturing process, etc. There is no alternative source of steam for Lostock works and so it is entirely dependent upon the supply of steam from the Winnington CHP via the Pipeline. In addition, it is entirely dependent in economic terms on the steam being supplied at cost price. This is a low margin, high volume product and the small profit margin obtained is dependent on maintaining a cost-priced steam supply (as stated by Mr Peter Houghton in evidence).

28. In turn, the CHP at Winnington (which was fundamentally designed to produce steam: electricity is a useful by-product only) can only function efficiently (and effectively at all) as long as there is a constant demand for steam from Winnington Bicarb manufacturing and in particular from the manufacturing process at Lostock works which, as recorded above, takes circa 96% of the steam output from the CHP.

29. Additionally, the Bicarb production at Winnington is entirely dependent upon the supply of soda ash (also at cost price) from the Lostock works.

30. Each of the works is entirely specialist in nature and not capable of being used for any alternative purpose. There is no other UK based manufacturer of Soda Ash.

31. Counsel for the Respondent helpfully set out the following which I accept was the situation:

(a) The hereditament that the Appellants propose as a single hereditament comprises:

(i) At Winnington: A land parcel of approximately 140 acres which contains a chemical plant with substantial buildings, plant and associated facilities as well as a Combined Heat and Power plant , and redundant land and buildings;

(ii) At Lostock a land parcel of approximately 40 acres which contains a chemical plant with substantial buildings, plant and associated facilities;

(iii) A pipeline of 5km length (3.5km outside the land parcels). The pipeline comprises two steam pipelines each with a diameter of 18 inches and one narrower condensate pipe of 6 inches.

(b) Each site is operational, and occupied for the purposes of the Appellants’ business.

(c) At Winnington at the Material Day the production of soda ash had ceased. The site contained considerable redundant buildings and plant associated with this prior use. It also contained offices, and a facility for the manufacture of sodium bicarbonate. In addition, it contained the CHP and associated plant and machinery (at the Material Day the new steam turbine had not yet been installed but I believed nothing turned on that point).

(d) At Lostock at the material day the principal activity was the production of soda ash, but also sodium bicarbonate. It took electricity and steam for these purposes from the CHP at Winnington.

(e) Lostock and Winnington are approximately 4.8km apart by road. Other than the pipeline and electric lines there is no direct connection between the two (it is impossible to walk or travel by vehicle along the whole of the route).

(f) The production of soda ash and sodium bicarbonate like most industrial processes relies on inputs and outputs. The Lostock soda ash operation requires limestone (supplied by rail onto site from Buxton), coke, carbon dioxide, ammonia, many other chemicals, brine, water, heat, and electricity and other inputs. As well as producing soda ash the process gives rise to waste products, which are piped into local water courses (waste water) or into brine cavities (waste solids). At Lostock the sodium bicarbonate process requires soda ash, carbon dioxide, water, electricity and other raw materials.

(g) The pipeline is only used for the supply from the CHP at Winnington of heat (steam) to the Lostock plant. The CHP also provides steam to Winnington. The electricity is fed by power lines which go to Lostock. The electricity is fed to the Appellants plant (mostly), to the Inovyn plant at Lostock, and to the Grid.

(h) The other inputs and outputs are supplied to and depart from Winnington and Lostock by a variety of means: e.g. limestone by rail, water (supply and waste) and brine (and waste) by pipeline; electricity by electric lines, other inputs and outputs by road (e.g. the soda ash supplied to Lostock for the purposes of its operation); personnel by road.

Legislation

32. Both parties initially referred me to the Supreme Court decision in Woolway (Valuation Officer) v. Mazars LLP [2015] UKSC 53. Lord Sumption JSC sets out at paragraph 4 of his decision the statutory test for a hereditament and the challenge for courts and tribunals:

4. “Hereditament” is a somewhat archaic conveyancing term which as a matter of ordinary legal terminology refers to any species of real property which would descend upon intestacy to the heirs at law: see

section 205(1)(ix) of the Law of Property Act 1925. In a conveyance, there is no problem about its bounds. They will be identified by the deed. But notwithstanding more than four centuries of experience, the question how a hereditament is to be identified for rating purposes remains in important respects unclear. Section 64(1) of the Local Government Finance Act 1988 defines a hereditament as anything which would before the passing of the Act have been a hereditament for the purposes of section 115(1) of the General Rate Act 1967. That means a “property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list.” The result, in the absence of further statutory definition, is that the meaning of “hereditament” is left to be elucidated by the courts in accordance with the principles underlying the rating Acts.

33. Both parties cite the wise words of Lord Sumption who, having reviewed earlier case law, derived three broad principles relevant to cases where the question is whether distinct spaces under common occupation form a single hereditament:

First, the primary test is, as I have said, geographical. It is based on visual or cartographic unity. Contiguous spaces will normally possess this characteristic, but unity is not simply a question of contiguity, as the second Bank of Scotland case illustrates. If adjoining houses in a terrace or vertically contiguous units in an office block do not intercommunicate and can be accessed only via other property (such as a public street or the common parts of the building) of which the common occupier is not in exclusive possession, this will be a strong indication that they are separate hereditaments. If direct communication were to be established, by piercing a door or a staircase, the occupier would usually be said to create a new and larger hereditament in place of the two which previously existed. Secondly, where in accordance with this principle two spaces are geographically distinct, a functional test may nevertheless enable them

to be treated as a single hereditament, but only where the use of the one is necessary to the effectual enjoyment of the other. This last point may commonly be tested by asking whether the two sections could reasonably be let separately. Thirdly, the question whether the use of one section is necessary to the effectual enjoyment of the other depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects. The application of these principles cannot be a mere mechanical exercise. They will commonly call for a factual judgment on the part of the valuer and the exercise of a large measure of professional common sense. But in my opinion they correctly summarise the relevant law. They are also rationally founded on the nature of a tax on individual properties. If the functional test were to be applied in any other than the limited category of cases envisaged in the second and third principles, a subject (or in English terms a hereditament) would fall to be identified not by reference to the physical characteristics of the property, but by reference to the business needs of a particular occupier and the use which, for his own purposes, he chose to make of it.

Geographical Test

34. The Appellants argued that contiguity was established as the two hereditaments touched (via the Pipeline), intercommunication was established by virtue of the transfer of steam and condensate down the Pipeline and intercommunication was further established by the existence of the access way providing for movements of people and vehicles.

35. The Appellants provided case law in support of their contention such as Jamieson (VO) v. EON plc [2013] UKUT 0369. However all these cases were prior to Mazars and as counsel for the Respondent drew to my attention, applied the contiguity test rather than the geographic test.

36. Further assistance was provided by the Upper Tribunal in, as I understand, the only reported case following Mazars which addressed this test, John Harding and Sarah Clements & Secretary of State for Transport [2017] UKUT 0135 (LC). Not only was this the first case but it was before the President of

the Tribunal, the Hon. Sir David Holgate (together with Mr Peter McCrea). Whilst it wasn’t a rating case, the case turned on the definition of hereditament for rating purposes. The case concerned a single blight notice under section 150(1) of the Town and Country Planning Act 1990 and whether three freehold titles formed one hereditament.

37. Within the facts of the case it was reported that Plots 1 and 2 were separated by Yartlet Lane (a vehicular highway). The culvert under Yartlet Lane contained three conduits, one of which carried an insulated water pipe within which water was supplied from Plot 1 to Plot 2. The other two conduits were not used. The conduits could not be seen from the Yartlet Lane but were visible from two inspection chambers, one in each plot.

38. Part of the Claimants’ case appeared to be that there was contiguity between the two plots, particularly with reference to the connecting water supply. The Upper Tribunal found at paragraph 71 that there was not a visual or cartographic unity between plots 1 and 2. They appeared as separate areas of land on either side of the highway. Furthermore, it became apparent during their hearing that the soil below the road was owned by the claimants. The Upper Tribunal found:

74. We accept that in the present case there is a degree of contiguity whereas in Mazars there was none at all. However, we do not consider that the contiguity of ownership beneath the surface of the highway and the narrow width of the highway go towards satisfying the geographical test. These arguments could be replicated in many similar situations, but they fail to accord with the principles laid down in Mazars. As Lord Sumption pointed out, “unity is not simply a question of contiguity”. If adjoining houses in a terrace do not intercommunicate and so access from one to another has to be gained via the other property, such as a public street, of which the common occupier of the houses is not in exclusive possession, this is a strong indication that they are separate hereditaments. That is the position in the present case. In order to gain access between the two plots the claimants have to cross a public highway. By definition, they do not have

exclusive possession of that area of land which separates the two plots.

75. The claimants then rely in the three ducts which they have laid in a culvert in the subsoil beneath the Lane and which connects plots 1 and 2. Two of the ducts are not in use, but one contains a water pipe which provides mains water from the metered supply on plot 1 to the water trough inside plot 2 for the horses kept there to drink from. Mr Morshead QC submitted that the water pipe sufficed to provide direct communication between the two plots and satisfy the geographical test.

76. On the facts of this case we do not agree. As Mr Whale (on behalf of the Respondent) pointed out, the “direct communication” described in paragraph 12 of Mazars was a doorway or a staircase inserted into a boundary wall, or in other words a passage which would have enabled humans to pass from one property to another. We are not persuaded that the examples given in that decision were necessarily intended to delimit the type of link which might satisfy the geographical test. They may have been influenced by the nature of the properties and the land use under consideration. But this point has not been fully argued before us and must await another case. For present purposes we need only say that we do not accept that the ducts and the water supply in this case amount to a significant connection for the 0.838 ha area of land on plot 1 to be treated as a single geographical unit with the 2.095 ha area of land on plot 2 from which it is separated by Yartlet Lane. Instead, the water supply is a factor to be considered when applying the functional test.

39. In the appeal before me at Winnington there was a land parcel of approximately 140 acres which contained a chemical plant with substantial buildings, plant and associated facilities as well as a Combined Heat and Power Plant, and redundant land and buildings. At Lostock there was a land parcel of approximately 40 acres which contained a chemical plant with substantial buildings, plant and associated facilities. The Pipeline of 5km length (3.5km outside the land parcels) which connected the two comprised of

two steam pipelines, each with a diameter of 18 inches and one narrower condensate pipe of 6 inches. Other than the Pipeline and electric lines there was no direct connection between the two, as it was impossible to walk or travel by vehicle along the whole of the route the Pipeline travelled and therefore humans could not travel between the two without encroaching on other land. However, there was one difference between this appeal and that of the Upper Tribunal; in this case the Pipeline was part of the hereditament.

40. In deciding the point I must do so with professional common sense. I can only conclude, following the decision of the President of the Upper Tribunal, that based on the lack of access by humans between the two sites and the small diameter of the Pipeline, the appeal hereditaments do not meet the geographical test, even though the Pipeline formed part of the hereditament of one of the constituent properties, the connection as far as I can see is not of such a quality that it could satisfy the geographic test. To do so would seem to me, and indeed what the President was implying, allow separate hereditaments to be treated as one where pipes or dare I say it computer cabling, connects two separate hereditaments. Indeed the second and sixth floors of Tower Bridge House could meet the test by connecting the two with a piece of computer cabling if the Appellants were correct. I am satisfied that the fact that the Pipeline was part of the hereditament of one site did not of itself prove there was true geographical connection of substance.

41. To do anything other than follow the words of the Upper Tribunal President, would contradict both Mazars and Harding, something which I do not feel able to do. . I leave the final words on this point to Lord Neuberger of Abbotsbury PSC:

47. Normally at any rate, both as a matter of ordinary legal language and as a matter of judicial observation, a hereditament is a self- contained piece of property (ie property all parts of which are physically accessible from all other parts, without having to go onto other property), and a self-contained piece of property is a single hereditament. As the Scottish Lands Tribunal said in Burn Stewart Distillers plc v Lanarkshire Valuation Joint Board [2001] RA 110, 140,

“the emphasis on the geographical test is an aspect of recognition that lands and heritages are physical subjects”. Thus, two separate self- contained buildings, even if sharing a common wall, would not be expected to be a single hereditament but two hereditaments. And a building no part of which was self-contained would be expected to be a single hereditament.

The Functional Test

42. In deciding this point I needed to apply the words of Lord Sumption:

Secondly, where in accordance with this principle two spaces are geographically distinct, a functional test may nevertheless enable them to be treated as a single hereditament, but only where the use of the one is necessary to the effectual enjoyment of the other. This last point may commonly be tested by asking whether the two sections could reasonably be let separately. Thirdly, the question whether the use of one section is necessary to the effectual enjoyment of the other depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects.

43. Helpful assistance in this test is set out at paragraphs 8 & 9 of the judgment in Mazars:

8. The point on which Lord Traynor and Lord Wellwood differed, concerning premises which were contiguous but did not interconnect arose for decision a year later in Bank of Scotland v Assessor for Edinburgh [1891) 18 R 936. Lord Wellwood, sitting with Lord Kyllachy, repeated his view that they fell to be separately valued. Lord Kyllachy, said, at p 938:

“The test I think here is whether the houses in question are capable, not merely physically but, all conditions being considered, of being separately let, and having a separate rent or value attached to them. As regards the house occupied by

the messenger, and which has no internal communication with the rest of the bank, I agree with the opinion of Lord Wellwood at the last court. I see no reason, at least none appears in the case, why, if the bank chose, this house should not be separately let to a suitable tenant, or assigned by way of pension to an old servant, or otherwise dealt with as a separate and independent dwelling. “

9. In University of Glasgow v Assessor for Glasgow 1952 SC 504, the Lands Valuation Appeal Court held that various buildings of the University which were physically separate from the main buildings, capable of being separately let and dispersed among buildings belonging to other proprietors, were properly entered on the valuation roll as separate subjects. Lord Keith, delivering the judgment of the court, treated the first Bank of Scotland case as authority for the geographical principle (p 509). He said at p 510:

“The common enclosure in many cases supplies a useful basis, or test, for a “unum quid” entry. It is the reason why a villa with its garden ground, or a mansion house with its policies, and any ancillary buildings are entered as a unum quid. The geographical conception has never been lost sight of in making up entries in the Valuation Roll, and in the case of John Leng & Co v Assessor for Dundee Lord Sands took occasion twice to refer to ‘the ordinary geographical arrangement followed in making up the Valuation Roll’. There may be cases where geographical unity has to be departed from, as where premises within what would otherwise be a single entity are separately let, or lands or buildings within a common enclosure are used for separate purposes. It is not perhaps possible to lay down general rules for all cases. Something must depend on particular circumstances. But the broad general principles are as stated.”

44. I found it useful to also take into consideration the observations of Lord Neuberger of Abbotsbury PSC:

51. Where premises consist of two self-contained pieces of property, it would, in my view, require relatively exceptional facts before they could be treated as a single hereditament. The mere fact that each property may have the same occupier should, at least normally, make no difference. As Lord Keith said in Glasgow University v Assessor for Glasgow 1952 SC 504, 509, “[i]n the ordinary case … the question whether separate buildings, or parts of buildings, should be entered in the Roll as unum quid falls to be decided primarily from the geographical standpoint”.

52. However, it is possible to conceive of facts which would justify a different conclusion. Thus, if one property could not sensibly be occupied or let other than together with the other property, I think that the two properties could, and indeed normally should, be properly treated as a single hereditament. As Lord Keith went on to say in Glasgow University at p 510, quoting Lord Trayner in Bank of Scotland v Assessor for Edinburgh (1890) 17 R 839, 843, for two separate properties to be treated as a single hereditament, it is not enough that one of the properties is “a convenience· or accessory” for the other: it would have to be “impossible or difficult to let them separately”. Strict necessity is not the test. As Lord Sumption says, his three tests set out in para 12 (with which I agree) have to be applied with professional common sense to the facts of each case.

53. A golf course, a shipyard, a distillery or a factory which is, in each case, divided by a public road could properly be treated as a single hereditament. These are all examples given in the decision of the Lands Tribunal for Scotland in Burn Stewart Distillers plc v Assessors for Lanarkshire Valuation Joint Board [2001] RA 110, where it was rightly said that, while “the fact that certain heritable subjects function together as one business will, by itself, be insufficient to demonstrate that they are to be regarded as a unum quid in any physical sense”, “[i]t is impossible to lay down clear rules which will apply in all cases”. The Lands Tribunal also suggested that, while “physical separation of

subjects” would normally prevent them from being a single hereditament (to use the English expression), “[w]here the subjects share characteristics of function which, in a robust practical sense, support the use of a single term to describe the physical subjects, they can be treated as one unit” (p 141). That is well illustrated by the unreported 1982 Scottish case of Lothian Regional Council v Assessor for Lothian Region whose effect is summarised in these terms in Armour on Valuation for Rating (loose leaf, August 2014 ed), para 10- 05:

“[I]t was held to be competent for the assessor to make a single composite entry in the roll in respect of 923 bus shelters maintained by the appellants throughout the region, where the work involved in making separate entries would have been very onerous and unnecessary, there being no suggestion of any prejudice suffered by the appellants as a result.”

45. The Upper Tribunal stated at paragraph 60 of the decision in Harding that ‘separate let ability’ begged the question ‘let for what use?’

46. The President then went on to identify the ‘rebus sic stantibus’ (as things stand) or reality test. He then followed up with citing the two limbs, one relating to the physical state of the property and the other to its use. In reaching this conclusion the President relied on the court of appeal decision in SJ Monk v. Newbigin [2017] 1 WLR 851 which was subsequently overturned by the Supreme Court.

47. However, at this juncture a word of caution. As the President highlighted in his decision, this test must be carried out ‘by reference to the objectively ascertainable character of the property, and not the business or other personal requirements of the occupier, the issue is whether the use of one plot is necessary to the effectual enjoyment of the other’.

48. I say this as if too much focus is spent on how the occupier actually uses the premises, it produces the wrong answer and falls into the trap of asking the wrong question which would be ‘whether the occupation of the two parts is

required for the business?’ Or, ‘based on how the current occupier uses the premises together, could anyone else use part?’ As businesses flourish and grow they decide whether to take on a larger premises either by extending the existing occupation, moving to brand new premises for the business or acquiring additional space in other premises. Invariably the acquisition of additional business space in the vicinity will always meet this test. Indeed I have no doubt that Hickinbottom & Sons Ltd needed a depot for the repair and maintenance of the delivery vans and machinery in the bakery and the University of Glasgow required those additional buildings which were physically separate. If those other buildings were described as University Buildings they probably didn’t have any other use other than that for the University. But as we know from Mazars, that is the wrong test.

49. This is not an easy test to apply. To meet the functional test the use of one premises must be necessary to the effectual enjoyment of the other. The test that Lord Sumption put forward to test this was whether either premises could reasonably be let separately? This needs further analysis. It moves away from the user of the two parts but focuses on whether the premises are an essential requirement of each other (as pointed out by the President of the Tribunal it only has to be one way) and have no other purpose. It does not require evidence that in the real world other tenants could be found for the property in the current economic climate, just simply is there some functional reason to prevent it being separately let? Lord Neuberger makes it clear that two self-contained pieces of property would require relatively exceptional facts before they could be treated as a single hereditament.

50. In deciding this point I am required to undertake not only factual judgment but also a large measure of professional common sense.

51. In his expert witness report, Mr Peter Houghton gives the following evidence:

a. Lostock requires steam and power from the CHP at cost price in order to be viable;

b. Winnington also requires steam and power from the CHP in order to operate profitably. However, the CHP requires steam demand from Lostock in order to operate economically;

c. Winnington requires the supply of soda ash from Lostock at cost price in order to be viable.

d. Lostock has no other market for the 50,000 tonnes of soda ash it currently provides to Winnington, and would not be viable if it produced smaller amounts;

e. The market for soda ash and bicarb is subject to such competitive pressure that to operate a standalone business producing one or the other would be unsustainable.

52. However, prior to the Material Day, E.ON owned the CHP. Powergen, the previous name for E.ON, had initially signed a 15 year supply agreement to supply steam and power to Tata at an index linked figure based on estimated ‘futures’ and was not remotely comparable to the open market. As the market conditions changed, the Appellants stated this agreement became so unfavourable to E.ON that it was incurring significant losses. But at the Material Day there had been no physical changes to any of the CHP, the Pipeline, the Lockstock chemical works or the Winnington chemical works from that which existed the day before. The only change was in ownership. On that basis I found it difficult to conclude anything other than the CHP and Pipeline were capable of separate ownership or being let. The Appellants stated Lockstock was dependent on both Winnington and on the Pipeline. I have no doubt that was correct, but that was the wrong question. The question was, could the hereditament that provided the steam be let?

53. The Appellants case relied on the financial effect of providing a competitive price for steam carried along the Pipeline which would satisfy both the supplier and the user. That seems to me the wrong question when deciding whether or not the hereditaments should be merged in to one. As the Respondent stated, there are a number of inputs in to the industrial process and I considered it would be wrong to place one (steam) above all the others.

Furthermore, who is to say it could not be run independently, it was before. To conclude anything other than that would be to incorporate into rating proposals or challenges for the merger of hereditaments, any business that required a particular location for additional premises to make them profitable.

54. Mr Charman for the Appellants referred to the Gypsum mine located in Robertsbridge (Sussex) which was joined by a conveyor some 4.5km long to a plasterboard factory and which the VOA had merged into one assessment at the end of the 1980’s or the early 1990’s. However, as this was sometime before the decision in Mazars I didn’t find it helpful.

55. Finally, how could these chemical works be anything other than separate hereditaments given their distance from each other and, whilst they may use some of the same inputs, being independent of each other?

56. Using not only factual judgment but also a large measure of professional common sense there was only one conclusion I could reach; the appeal must be dismissed.

APPEAL NO: 066525358322/539N10

President

Registrar

21 March 2018