Hibernian Wind Power Ltd v Commissioner of Valuation

• Jurisdiction: Ireland
• Judge: Mr Justice Maurice Collins
• Judgment Date: 22 May 2023
• Neutral Citation: [2023] IECA 121
• Court: Court of Appeal (Ireland)
• Docket Number: Record No 2021/152

Between

Hibernian Wind Power Limited

Appellant

and

Commissioner of Valuation

Respondent

[2023] IECA 121

Collins J

Whelan J

Haughton J

Record No 2021/152

THE COURT OF APPEAL

CIVIL

Case stated – Valuation – Sinking fund – Appellant appealing the High Court’s determination that the Valuation Tribunal had erred in its treatment of the sinking fund – Whether the judge erred in finding that the Valuation Tribunal was correct in law in determining the net annual value by reference to the appellant’s actual accounts and in rejecting the alternative valuation scheme advanced by the respondent

Facts: The appellant, Hibernian Wind Power Ltd (Hibernian), owned and operated Grouse Lodge Wind Farm, located near Rathkeale, Co. Limerick (the Property). The respondent, the Commissioner of Valuation (the Commissioner), was dissatisfied with a determination of the Valuation Tribunal (the Tribunal) and requested it to state a case. A case stated was duly prepared. The Commissioner’s appeal was heard by the High Court (Owens J). In his judgment of 26 January 2021 ([2021] IEHC 49) he identified the issues to be addressed as follows: (1) whether the Tribunal was correct in assessing the net annual value (NAV) of the Property on the footing that s. 48(3) of the Valuation Act 2001 allows a deduction of an average annual amount calculated over a 15 year period to establish a fund to enable the tenant to replace physical assets which will be worn out at the end of a 20 year period (to which he answered “No”) and (2) whether the Tribunal was correct in law in disregarding valuation evidence extrapolated from financial accounts relating to 10 wind farms in Co. Limerick (including the Property) which used an average price per megawatt hour and an average operational cost per megawatt hour to arrive at an average NAV per megawatt of capacity for the Property (to which he answered “Yes”). The order made by the High Court recited its answers to the two questions it had addressed and, by consent, ordered pursuant to s. 39(6) of the 2001 Act that the appeal be remitted to the Tribunal. The parties were directed to bear their own costs. Hibernian appealed the High Court’s determination that the Tribunal had erred in its treatment of the sinking fund. The Commissioner opposed that appeal and also cross-appealed from the judge’s determination of the second question.

Held by the Court of Appeal (Collins J) that he agreed with the judge that the Tribunal’s finding on the sinking fund issue was wrong in law. Collins J held that the judge was correct in finding that the Tribunal’s conclusion was inconsistent with s. 48(3). Collins J therefore dismissed Hibernian’s appeal. He held that the Tribunal was entitled to conclude that Hibernian’s accounts were a “more reliable” and “more appropriate” basis for assessing the NAV than the basis advocated by the Commissioner. He held that any other conclusion would have been erroneous in law. He held that the Tribunal was right to reject the Commissioner’s scheme of valuation and the judge was right to reject the Commissioner’s appeal. Collins J held that the Commissioner’s appeal to the Court of Appeal failed.

Collins J held that neither party had succeeded in establishing any error on the part of the High Court judge. Accordingly, Collins J dismissed the appeal and the cross-appeal and affirmed the judgment and order of the High Court as to how the questions raised in the case stated should be answered. No order for costs appeared to him to have been the appropriate order, given that each party had partial success. It also appeared to him to be the appropriate order here, where each party had again been partially successful. His provisional view was that the costs order made by the judge should be affirmed and that the Court should make no order for the costs of the appeal and cross-appeal.

Appeal and cross-appeal dismissed.

Unapproved

No redaction required

JUDGMENT of Mr Justice Maurice Collins delivered on 22 May 2023

BACKGROUND

1 In contrast to those who enter the Inferno of Dante, those entering the world of rating law may not be required to abandon all hope. However, as this appeal illustrates, it certainly helps if they are prepared to relax their grip on reality. It is, as the Valuation Tribunal aptly observed, a world where “ fiction prevails over fact”, in which the basic “ rating construct” – the calculation of the net annual value (“ NAV”) in accordance with what is now section 48 of the Valuation Act 2001 (as amended, the “ 2001 Act”) – is premised on a hypothetical or “ imaginary” tenancy, negotiated between an imaginary landlord and an imaginary tenant. 1

2 The Appellant (“ Hibernian”) is a subsidiary of the ESB. It owns and operates Grouse Lodge Wind Farm, a wind turbine electricity generating facility with six 2.5 megawatt (MW) turbines with a total installed capacity of 15 MW, which is located near Rathkeale, Co. Limerick, within in the rating area of Limerick City and County Council. Grouse Lodge Wind Farm was developed in 2010. 2 In this judgment, I shall refer to it as “ the Property”. There is no dispute that the Property is “ relevant property” for the purposes of the 2001 Act (“ wind generators, turbines and generators, together with ancillary plant and electrical equipment, including transformers” are expressly included in Schedule 3) and equally there is no dispute that Hibernian is in rateable occupation of the Property and the “ occupier” of it for the purposes of the 2001 Act.

3 On 6 August 2015, as part of a revaluation of commercial properties in Limerick City and County, and following an internal appeal from an initial higher valuation, 3 the Commissioner of Valuation (“ the Commissioner”) determined the NAV of the Property at €1,128,000 as at 1 March 2012 (the revaluation date). 4 Hibernian appealed that valuation to the Valuation Tribunal on the basis that it was “ excessive, inequitable and bad in law and not in accordance with the provisions of the Valuation Act 2001”. 5 The appeal was heard over 5 days with valuation evidence being called by both sides.

4 The 2001 Act does not prescribe any particular valuation methodology. Section 48(1) provides that the “ value of a relevant property shall be determined under this Act by estimating the net annual value of the property and the amount so estimated to be the net annual value of the property shall, accordingly, be its value.” Section 48(3) then provides

that, subject to section 50, 6 for the purposes of the Act “ ‘net annual value’ means, in relation to a property, the rent for which, one year with another, the property might, in its actual state, be reasonably expected to let from year to year, on the assumption that the probable average annual cost of repairs, insurance and other expenses (if any) that would be necessary to maintain the property in that state, and all rates and other taxes in respect of the property, are borne by the tenant”

5 This hypothetical tenancy is the statutory or rating construct (also referred to in the cases as the “ valuation construct”) referred to above. The rule set out in Section 48(3) is the fundamental rule of all valuation but there are other relevant provisions of the 2001 Act to which it will be necessary to refer in due course.

6 Here the parties were ultimately agreed that, in the absence of open market rental evidence for the Property or for similar properties (i.e. other windfarms), the Property was best valued using the receipts and expenditure (R & E) method (sometimes referred to as the “ profits basis”). 7 The 2001 Act makes no reference to the R & E method but its use is well-established in the area of rateable valuation. Its application is the subject of a detailed Guidance Note entitled “The Receipts and Expenditure Method of Valuation for Non-Domestic Rating” published in 1997 by the Joint Professional Institutions' Rating Valuation Forum, which consists of a number of UK bodies involved in valuation, including the Institute of Revenues Rating and Valuation (IRRV), the Royal Institution of Chartered Surveyors and the Valuation Office (“ the Guidance Note”). While the Guidance Note has no formal legal status in this jurisdiction, it is commonly relied on by valuers, by the Valuation Tribunal and by courts here.

7 The Guidance Note gives the following general outline of the R & E method:

“4.1 An explanation of the R&E method as applied by valuers can be found in the case of Kingston Union AC v Metropolitan Water Board (1926);

‘From the gross receipts of the undertakers for the preceding year they deducted working expenses, an allowance for tenant's profit and the cost of repairs and other statutable deductions and treated the balance remaining (which should presumably represent the rent which a tenant would be willing to pay for the undertaking) as the rateable value of the entire concern.’

4.2 It is necessary to look at this explanation in the light of modern practice and development of the R & E method through caselaw. The methodology is based upon the approach set out below:

(a) Gross Receipts should be determined by taking into account all income reasonably able to be derived from occupation of the property.

(b) The proper Cost of Purchases made in order to produce those receipts should be deducted to determine the Gross Profit.

(c) From the Gross Profit the Working Expenses should be deducted to determine the Divisible Balance.

(d) The Divisible Balance is the sum available to be shared between the landlord and the tenant. It comprises two main elements:

• (i) the Tenant's Share – to provide a return on any tenant's capital employed and a reward to the tenant for his venture reflecting the extent of the risk and the need for profit. This is deducted from the Divisible Balance to leave:

• (ii) The Landlord' s Share, i.e. the rent payable (which becomes the rateable...