Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16

Property owners granted leases of unoccupied commercial properties to shell companies (SPVs) solely to avoid business rates liability. The SPVs were then dissolved or placed in liquidation. The Supreme Court held that the rating legislation should be interpreted purposively, meaning the SPVs did not become 'owners' for rates purposes as they had no practical ability to occupy or let the properties.

Facts

The respondent companies owned unoccupied commercial properties and sought to avoid liability for non-domestic rates (business rates) through two related schemes. Both schemes involved creating special purpose vehicles (SPVs) – companies without assets or business – and granting them leases of the properties. Under Scheme A (used by Hurstwood companies), the SPV was dissolved, transferring the lease to the Crown as bona vacantia. Under Scheme B (used by Property Alliance Group Ltd), the SPV was immediately placed into voluntary liquidation to claim exemption under regulation 4(k) of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.

The local authorities claimed unpaid business rates from the respondents, arguing that despite the leases, the respondents remained liable as ‘owners’ of the properties under section 45 of the Local Government Finance Act 1988.

Issues

Primary Issue

Whether the leases to the SPVs were effective to make the SPVs the ‘owners’ of the properties for business rates purposes under section 65(1) of the 1988 Act, which defines owner as ‘the person entitled to possession’.

Secondary Issue

Whether the corporate veil of the SPVs should be pierced under the ‘evasion principle’ to hold the respondent companies liable.

Judgment

The Ramsay Principle and Purposive Interpretation

Lords Briggs and Leggatt, delivering the joint judgment, applied the Ramsay principle of purposive statutory interpretation. They emphasised:

The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case.

The Court identified the purpose of empty property rating as:

partly to reflect the fact that empty properties do benefit from some local authority services – police, fire and so forth – and partly to encourage owners to bring empty property back into use.

Application to the Facts

The Court held that the statutory concept of ‘entitled to possession’ should be given a purposive construction concerned with ‘a real and practical entitlement’ to possession. The SPVs had no practical ability to occupy the properties or bring them back into use:

Parliament cannot sensibly be taken to have intended that the person entitled to possession of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates.

The schemes were designed so that control over occupation remained with the landlords throughout.

Corporate Veil

The Court rejected the piercing the corporate veil argument. Lord Sumption’s ‘evasion principle’ from Prest v Petrodel Resources Ltd was inapplicable because:

It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely on the fact (if it is a fact) that a liability is not the controller’s because it is the company’s. On the contrary, that is what incorporation is about.

Implications

This judgment significantly reinforces the application of purposive statutory interpretation to rates avoidance schemes. It confirms that courts will look beyond formal legal structures to the practical reality when determining tax and rates liabilities. The decision provides important guidance on the limits of the Ramsay doctrine and clarifies that the ‘evasion principle’ for piercing the corporate veil cannot be used to impose fresh liabilities on company controllers for obligations incurred only by the company. The case also highlights judicial condemnation of schemes involving abuse of insolvency and company dissolution procedures.

Verdict: Appeal allowed in part. The claims based on purposive interpretation of the rating legislation (that the SPVs were not ‘owners’ for business rates purposes) were reinstated and should proceed to trial. The claims based on piercing the corporate veil were dismissed.

Source: Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16