Iarnród Éireann v Commissioner of Valuation

• Jurisdiction: Ireland
• Judge: Ms. Justice Siobhán Phelan
• Judgment Date: 30 November 2022
• Neutral Citation: [2022] IEHC 668
• Court: High Court
• Docket Number: [Record No. 2022/5SS]

In the Matter of the Valuation Act 2001

and

In the Matter of a Global Valuation Property 2181796 Irish Rail/Iarnród Éireann

Between

Iarnród Éireann

Appellant

and

Commissioner of Valuation

Respondent

[2022] IEHC 668

[Record No. 2022/5SS]

THE HIGH COURT

Case stated – Valuation – Pay reduction agreement – Valuation Tribunal stating questions of law for the opinion of the High Court – Whether the Valuation Tribunal erred in law in determining that the respondent was not entitled to have regard to the pay reduction agreement concluded in September 2014, while simultaneously accepting that the net annual value of the subject property was to be assessed on the appellant’s 2014 accounts

Facts: The respondent, the Commissioner of Valuation, in November, 2015, issued a global valuation certificate under the Valuation Act 2001 (as amended) for a valuation date of the 31st of March, 2014 on foot of which the net annual value (NAV) of €8,930,000.00 was entered in the Central Valuation List in respect of the subject properties of the appellant, Iarnród Éireann. The global valuation was determined by the Commissioner following consideration of representations made by Iarnród Éireann. Iarnród Éireann appealed against the Commissioner’s valuation on the grounds that the Commissioner failed to make appropriate allowances for depreciation of Iarnród Éireann’s “tenant’s assets” and was wrong to make a deduction in respect of a one-off payroll saving. In a decision delivered on the 9th of June 2020, the Valuation Tribunal agreed with Iarnród Éireann on both counts of its appeal. In essence, the Tribunal held that an allowance for depreciation of tenant’s assets (mainly rolling stock, plant and machinery), was permitted but that the Tribunal required expert evidence regarding the level of allowance to be applied. The Tribunal stated questions of law for the opinion of the High Court pursuant to s. 39 of the 2001 Act upon a request in writing from the Commissioner dated the 30th of June, 2020. The questions of law stated were: (1) Did the Tribunal err in law in determining that depreciation of the appellant’s tenant’s items is an allowable expense in the Receipts and Expenditure (R & E) calculation? (2) Did the Tribunal err in law in determining that the payroll saving of €4,080,000 which resulted from the pay reduction agreement should not have been included as a reduction in the appellant’s costs in the respondent’s R & E calculation? (3) Did the Tribunal err in law in determining that the respondent was not entitled to have regard to the pay reduction agreement concluded in September 2014, while simultaneously accepting that the NAV of the subject property was to be assessed on the appellant’s 2014 accounts?

Held by Phelan J that she did not consider that the Tribunal’s determination that, as a matter of principle, depreciation is an allowable expense when calculating the NAV of the subject property to be erroneous. Phelan J held that the Tribunal had not yet determined the amount that was allowable for depreciation and would only make that determination on the basis of expert evidence addressed to the market value of that proportion of the assets which it could be established had been paid for by Iarnród Éireann. Furthermore, the Court did not consider the Tribunal’s determination that the Commissioner was not entitled to have regard to the payroll saving of €4,080,000 which resulted from the pay reduction agreement concluded in September 2014, while simultaneously accepting that the NAV of the subject property was to be assessed on the 2014 accounts, to be erroneous.

Phelan J, on the questions of law stated, responded as follows: (1) No. (2) No. (3) No. In the circumstances, Phelan J affirmed the decision of the Tribunal.

Case stated.

JUDGMENT of Ms. Justice Siobhán Phelan, delivered on the 30th day of November, 2022

INTRODUCTION

1 . This matter came before me as an appeal by way of case stated from the Valuation Tribunal [hereinafter “the Tribunal”] pursuant to the provisions of s. 39(5) of the Valuation Act, 2001 [hereinafter “the 2001 Act”].

2 . The questions posed in the case stated relate to the treatment of depreciation and a payroll saving under a pay reduction agreement in the calculation of the rateable valuation of the national railway network operated by Iarnród Éireann, a public utilities company, by the Commissioner of Valuation [hereinafter “the Commissioner”] in its valuation certificate issued in November, 2015 on foot a global valuation.

BACKGROUND

3 . In November, 2015, the Commissioner issued a global valuation certificate under the 2001 Act (as amended) for a valuation date of the 31st of March, 2014 on foot of which the net annual value [hereinafter “NAV”] of €8,930,000.00 was entered in the Central Valuation List in respect of the subject properties of Iarnród Éireann. The NAV means, in relation to property, the rent for which the property might reasonably be let from year to year. The global valuation process is the process used to value certain designated public utility undertakings in the State under s. 53 of the 2001 Act (as amended) for rating purposes. Global valuations are carried out on a five-yearly cycle as provided for by section 53(6) of the 2001 Act (as amended)

4 . In this instance, the global valuation was determined by the Commissioner following consideration of representations made by Iarnród Éireann. As with each of two previous global valuations (in 2005 and 2010), the valuation was carried out on a so-called Receipts and Expenditure basis [hereinafter “ R & E”]. The R & E assessment was carried out using the published accounts for Iarnród Éireann for 2014. Iarnród Éireann's published accounts gave a figure for depreciation net of grant amortisation of €28,442,000 as a head of railway undertaking expenditure understood to refer to rolling stock.

5 . The Commissioner's position with regard to claimed depreciation on the rolling stock is that depreciation in the profit and loss accounts is the writing off of the cost of an existing asset and reflects the value of the annual consumption of the economic benefits of that asset but it is not actual expenditure. The Commissioner considered that it is non-specific and imposes no obligation to replace the asset. The Commissioner would accept, however, to make deductions relating to actual expenditure on repairs and renewals and expenditure on maintenance as claimed by Iarnród Éireann was allowed in full. The Commissioner stated:

“The IRRV Guidance Note on the R & E method states that tenant items may need to renew and/or replacement and an allowance may have to be made. However, there is no evidence that Irish Rail make any allowance for rolling stock renewal in their profit and loss account; it is understood that the State funds such renewals directly when the need arises. In this valuation as in previous global valuations it has been assumed that the State pays for the renewal of rolling stock and similar assets.”

6 . In determining the NAV the Commissioner also had regard to payroll savings agreed for a 25-month period (between October, 2014 and October, 2016 inclusive), even though Iarnród Éireann contended that this did not result in annual savings to them and was a once off situation.

7 . Iarnród Éireann appealed against the Commissioner's valuation on the grounds that the Commissioner:

• • failed to make appropriate allowances for depreciation of Iarnród Éireann's “tenant's assets”; and

• • was wrong to make a deduction in respect of a one-off payroll saving.

8 . In the Notice of Appeal dated the 3rd of February, 2016 Iarnród Éireann placed greatest emphasis on the depreciation issue. It was stated that under the parameters agreed by the parties for the “ global” valuation of the entity, it being a public utility undertaking, the whole of the undertaking, including not only its fixed assets (such as infrastructure etc.) but also its moveables (such as rolling stock etc.) were to be valued, with values to be derived from the audited accounts on an application of the R & E method. It was contended that without justification the Commissioner had failed to apply the commonly used principles for the treatment of depreciation under the R & E method.

9 . Iarnród Éireann's position was that if one is to treat its business as being conceptually divided up as between a hypothetical landlord's (fixed) assets and a hypothetical tenant's (moveable) assets, then depreciation ought to be allowed in full as to the tenant's (moveable) assets. Iarnród Éireann contended that the hypothetical tenant should be presumed to have to bear the costs of providing his own moveables (to include rolling stock) for the purpose of arriving at the hypothetical rent, and therefore, in striking the actual rate. It was contended that an integral element of the cost of providing moveables is depreciation of such moveables and this ought to be taken fully into account when arriving at the relevant hypothetical rent. The effect thereof, it is contended, must be to lower that rent, and in turn to lower the rates.

HEARING BEFORE THE TRIBUNAL

10 . There was a large modicum of agreement between the parties before the Tribunal. It was agreed between the parties that the relevant property fell to be globally valued by the R & E method and that the valuation was to be based on Iarnród Éireann's accounts for the year 2014. The parties also agreed all components of the R & E calculation other than the amounts referable to depreciation of tenant's assets and the payroll saving. The Tribunal had the benefit of oral evidence from Iarnród Éireann's Financial Controller, Mr. David Graham, and from Mr. Mark Adamson, a chartered surveyor employed in the Valuation Office.

11 . In his evidence, Mr. Graham said that depreciation is a recognition of the consumption of the economic life of the asset as a...