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BACKATED RATES BILLS – A LEGAL PROBLEM SOLVED? (or – Winning your case and losing your money!)

AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

April 2011.

The world of rate collection has been waiting for the proverbial dust to settle after the judgment of Burnett J in the case of North Somerset District Council –v- Honda and Others, which was decided, last July.  It had the potential to be an important decision, although leave was given for the matter to be taken to the Court of Appeal.  The judge, remember, had no known experience in rating matters; but his decision has been accepted by the parties, and it stands (rightly in my respectful view) as a most useful exposition of the law in this area.  There is no substitute for a careful reading of the judgment, even though it runs to more than sixty pages, as it explains, logically, the original primary authority (Encon Insulation Ltd –v- Nottingham City Council [1999] RA 382 (QB)) and reviews  several others.

  The problem has arisen, in my view, because of the exercise by the Valuation Office Agency of the powers which they have had since the rating system was recast in 1988, to backdate assessments beyond the start of the rate year in which the alteration to the list was proposed to be made – which was the rule under the General Rate Act 1967.  In general, the Agency is  not to be criticised for the proper exercise of its statutory duty, although some, most conspicuously the proprietors of a certain steelworks in South Wales and the occupiers of hereditaments in and around our ports, have found cause for complaint.

  This exercise of powers, however, makes a nonsense of the thinking behind the drafting of the collection legislation, as it was declared, in one of the Circulars accompanying the establishment of the present regime in 1990, that the draftsman anticipated that there was no need to postpone the resolution of collection matters to the resolution of valuation disputes, as the latter would, the author opined, be resolved rapidly, and before collection matters came to the fore!  Many cats died in paroxysms of laughter over this particular Olympian pronouncement.

  What makes it worse, of course, is that payments becoming due in consequence of retrospective list alterations, stretching back over a period, fall to be treated by the Collection and Enforcement Regulations as arrears of rates: payment by instalments is not an option: everything falls to be paid within fourteen days, or the case becomes ripe for collection proceedings.  Having regard to the manner in which billing authorities are ridden by central government, in order to produce revenue in accordance with central government predictions, those billing authorities are placed in the difficult and sometimes embarrassing position of having to proceed against a ratepayer who has just been “hit” by a retrospective rating list alteration, freshly notified by the Valuation Office Agency.

   The fact remains that, for all of the “Right First Time” trumpeting by the Agency, they have not got it right: instead, they have been relentlessly downsized, and remorselessly downskilled, such that, while the degree of accuracy which they have achieved is remarkable in the circumstances, they still have a good way to go.  Further (and more important in the present context, the old habit of “walking the dog”, in which a valuer travelled round his “patch” from time to time, keeping abreast of changes, is no longer possible by reason of reductions in both staff and offices.

  Billing authorities might help to bridge this gap, as they are under a duty to report to the Agency what they consider to be value-significant changes in their administrative areas, they do not by any means always do so, and so potential changes in assessment are overlooked by both parties.

  The ultimate victim in all of this, of course, is the ratepayer, who can get a Notice of Alteration, backdated by years, land in his morning post, to be followed by a rate demand, perhaps a week or two later, demanding a large sum of money to be paid within fourteen days – or else.  Sums claimed in relation to periods prior to the beginning of the rate year in which the demand is issued, are treated as though they were arrears; and there is no possibility, officially, of payment by instalments, although, again, not a few billing authorities will allow some kind of instalment plan, usually within the rate year in which the demand was issued.

  Is it any wonder, therefore, that in the interest, sometimes, of their own survival, ratepayers have sought means of avoiding the making of such large and immediate payments?  Probably not, especially when the increases came completely out of the blue.

  Encon Insulation Ltd fixed on Regulation 5 of the Collection and Enforcement Regulations, which prescribes that a rate bill must be issued “….. as soon as practicable” by a billing authority.  It is the meaning off this particular phrase which has caused a lot of the difficulty.

  Encon occupied a building in Nottingham which was shown in the rating list by the City Council was unable to find it in order to deliver a rates bill to the premises.  Eventually, after some years, they managed to find the place and demands were delivered.  Encon refused to pay; and when the case eventually reached the High Court, it was held that they were under no obligation to pay, as the billing authority could have, and should have been able to carry out searches and locate the premises concerned.  They could therefore not be said to have acted “…as soon as practicable”.

  That case set a benchmark.  It was followed, not long afterwards, by another case in which the billing authority (which shall remain nameless) had been working out transition payments with pencil and paper, had been getting them wrong, and was directed by the District Auditor to try to collect.   They went about the collection by sending bills out and following them up with personal visits to the ratepayers (small traders in a market town) by a retired officer, encouraging them to pay.  Some did, but the rest objected, and won.  The case was not appealed and it was followed by an Information Letter which said that the Department had taken advice, and that was that, if the demand was not issued in the rate year in which first it could have been issued, then collection would fail, in all probability.

  Of course, in a case such as the second one mentioned above, the Encon answer was the right one; but was the view taken in Encon too restrictive? In some cases, that might be so, where the bills came as a complete surprise (as with the disaggregation of the major ports cumulo assessments in the 2005 lists).  But what about cases where the ratepayer should reasonably have known that rates bills might be expected but had not appeared?

  Such cases were tackled in the Regentford and  Yem Yom cases, both of which are reviewed in North Somerset.  Gradually the pendulum was swinging away from the absolute answer given by the earlier cases.

  Regentford held that the late arrival of a bill was not necessarily fatal to the billing authority, but it would be, were the ratepayer to show that he had suffered prejudice by reason of the delay.  Such delay would have to be in circumstances, presumably, in which a late increase in assessment was pushed through by the Agency to the billing authority, and where  the authority then delayed in some way in sending out the bill.  The system predicates, remember, that the Agency is no longer bound by the end of a rate year; and so the billing authority must have a reasonable time, following receipt of the relevant schedule from the Agency, implement the changes directed by such schedule to be made.

  Yem Yom goes further, and introduces a balancing exercise between the extent and efficiency of compliance by the billing authority with the required procedures in fulfilment of the objectives of the regulations towards collection of revenue, on the one hand, and the same objectives and the possibility of prejudice to the ratepayer, on the other.

  Such was the test ultimately applied in North Somerset: the Council succeeded in demonstrating that the strict Encon approach was not quite right’ but failed to recover the rates, partly because the 2000 list alterations were notified to the ratepayers when they could no longer appeal the assessments, and partly because of the sheer muddle and delay on the collection side (I apportion no blame to anyone here).

  So the Council won its case and lot its (or rather DCLG’s) money which, no doubt, was the right end result.

  It seems to me, therefore, that the Agency needs to be more vigilant in keeping abreast of changes; that they and billing authorities need to co-ordinate their actions more effectively (not least of all in the matter of identifying hereditaments) and that changes of authority hardware and software can be devastating to accurate record-keeping.  Ratepayers, while they must behave honestly, are entitled to be treated fairly and in a reasonable manner – and, if they are not so treated, they will fight back.

©J.P. Scrafton, 2011

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