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We have reported previously regarding a dispute as to the rateability of a specialised air conditioning system installed by Iceland, the frozen foods retailer, at one of its stores. The Court of Appeal both determined that the system was rateable as part of the plant and machinery providing services to the store, because it did not fall within the exemption granted to plant and machinery used in connection with “manufacturing operations or trade processes”. Iceland was granted leave to appeal to the Supreme Court against that decision. The Supreme Court has now issued its judgment in the matter – Iceland Foods Limited v Berry (VO) (2018) UKSC 15.
Iceland argued that the Court of Appeal misunderstood the purpose of the legislation and had adopted an unduly restrictive interpretation of the exemption. The trade process was one of continuous freezing or refrigeration of goods to preserve them in an artificial state, without which they would be worthless. The air handling plant was installed to deal with the heat generated by the freezers and refrigerators and was, therefore part of that trade process and thereby excepted from rateability.
The Valuation Officer contended that the decision of the Court of Appeal was correct because the regulations provided an exception from the general rule of rateability and it was therefore correct to interpret that exception narrowly. The composite phrase of “manufacturing operations or trade processes” must be read as a whole. It was not sufficient that the activity carried on by the ratepayer could be described as a trade and that one of the things that it did could be described as a process. In any event, the concept of a process involved changing the state or condition of goods, and maintaining products in a frozen or chilled state could not be described as a “process”. The exception conveyed in the regulations was directed towards plant serving productive activities in industry and not towards commercial activities generally.
The Supreme Court judgment was a unanimous one, delivered by Lord Carnwath. On the broader question, as to whether the exception from rateability was applicable only to productive activities in industry and not with other commercial activities, the Supreme Court found the Valuation Officer’s contention that this was the case to be “an impossible one”. Neither the regulations themselves, nor the background to them, supported such a view. The phrase “manufacturing operations or trade processes” was an alternative one, and it was clear from the background to the regulations, in the Wood Committee report and elsewhere, that it was intended to be treated as such.
The Court of Appeal (and the Upper Tribunal) had treated the wording in the regulations as an “exception to a general rule” and therefore to be interpreted narrowly, and had considered that a trade process was likely to involve a change of state of goods from one condition to another. But the general rule is that plant and machinery should not be valued for rating purposes unless if falls within one of the named classes of rateable items, so the exception of “trade process” items is itself an exception to an exception. There is nothing in the word “process” that implies a transition or change. In the context of Iceland’s trade the word “process” is apt to cover the continuous freezing or refrigeration of goods. Because the services provided by the relevant plant were held to be mainly or exclusively for that trade process, the plant itself should be excluded from valuation for rating purposes. Iceland’s appeal was therefore allowed.
While the Supreme Court decision is based firmly in the facts of the particular property and the plant concerned, it is one that all rating valuers will want to study carefully for two principal reasons. Firstly, it restates clearly the fundamental principle that plant and machinery (as opposed to land and buildings) is not generally rateable unless it falls within one of the defined classes of rateable items contained within the Plant and Machinery Order. The general rule is, as the Supreme Court has reminded us, one of non-rateability to which there are exceptions, rather than the reverse.
The second reason to look carefully at the judgment is that it make clear that the phrase “trade processes”, which allows an exemption from rateability, must be looked at separately from the phrase “manufacturing operations”, and not as part of a composite test of the activity concerned. Valuers dealing with retail and distribution properties, as well as with industrial premises, will want to look carefully at items of plant and machinery that are alleged to be rateable; an obvious example might be security systems, and to consider whether they should properly be excluded in the light of this decision.
