LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Kingarth Lord Clarke Lord Malcolm	[2010] CSIH 60 XA14/10 OPINION OF LORD KINGARTH on the STATED CASE in the Appeal by THE ASSESSOR FOR LOTHIAN Appellant; against H & M HENNES & MAURITZ UK LIMITED AND OTHERS Respondents: _______

Act: Clarke QC; Simpson & Marwick

Alt: MacIver, Advocate; Brodies LLP

2 July 2010

[1] This appeal relates to a number of shop premises occupied by the respondents in Princes Street, Edinburgh. Following a hearing on 29 October and 10 November 2009, the Lothian Valuation Appeal Committee allowed an appeal by the respondents against the rateable values entered in the roll at the 2005 Revaluation in respect of all of the subjects, on the ground that there had been a material change of circumstances by reason of works, forming part of the Edinburgh tramway project carried out in Princes Street in the course of 2009. Although the respondents had contended for a 30% reduction, in the event, a 20% reduction was allowed in respect of the period while the works were going on outside the premises. The Assessor has appealed against that decision, and in particular the decision to allow any reduction.

[2] Of the respondents H & M Hennes & Mauritz UK Limited, at 85 Princes Street, occupy a retail property extending over three floors, with retail space on the ground and first floor and an 11 metre frontage to Princes Street. BHS Plc, at 64 Princes Street, occupy a store extending over six floors, with a 30 metre frontage to Princes Street. H & M Hennes & Mauritz UK Limited also occupy premises at 41 Princes Street with a 23 metre frontage. The other respondents occupy shops which are similar, although there are variations in size. The premises are all in the same precinct of the street, and were affected by the tramworks at the same time.

[3] The relevant tramworks began in Princes Street on 21 February 2009 (although the eastmost part of the street was affected later, from 6 June). The tramworks were different in character and more extensive than earlier similar works in Shandwick Place. They were executed in a single phase, including both the replacement of utility services and piping as well as the laying of tram tracks, and were executed over a period of about 9 months. Princes Street was completely closed to traffic and the pavement outside the shops was narrowed, with limited cross-over points to Princes Street Gardens. The barrier in Princes Street encroached approximately a third of the pavement width. The junction between The Mound and Hanover Street was closed. Only the reduced pavement on the north side of Princes Street outside the shops was usable between The Mound and South Charlotte Street. Earlier works in Shandwick Place lasted 6 months, and involved replacement and diversion of services only, with track laying to be attended to at a later date.

[4] Having heard evidence given by five different surveyors representing different respondents, and considered evidence given by the Assessor, the Committee found in fact that the extent to which beneficial occupation of the shops forming the subjects of appeal could be enjoyed had been materially reduced during the period of the tram construction works.

[5] In a separate section of the Stated Case the Committee record that they made certain findings in relation to "The Assessor's Practice". They found inter alia that a large number of properties located from Haymarket to Shandwick Pace in the west and St Andrew Square to Leith Walk and surrounding streets in the northeast, were all allowed a 20% end allowance against rateable value during earlier periods when tramworks were undertaken outside them. A short section of Princes Street shops from the foot of Lothian Road to South Charlotte Street was also awarded 20% end allowance during works which took place at the same time as the works in Shandwick Place. In St Andrew Square Harvey Nichols department store had a 20% end allowance during works outside applied to the whole property, and RBS had a 20% allowance applied to their banking hall, as did HBOS, and at the West End, the O2 shop and House of Fraser department store had a 20% reduction in 2008 during works outside. End allowances of that sort had been made during similar tram construction works in Nottingham, Sheffield, Manchester and Croydon. A statement made by the Assessor in the Scottish Ratepayers Forum Newsletter on 3 November 2008 included:

"...based on the anticipated effect on rental values, it was agreed with stakeholders attending the meeting that an allowance of 20% for the net annual value would be given to properties of a retail nature which relied on public resort and were situated on the tram construction path. The allowance would be applied when the tramworks commenced and would be removed when the work stopped ..."

The Assessor was satisfied that the tramworks involved a wholly different scale from normal road works to the extent that could well constitute a material change in circumstances affecting value. That conclusion had been evidenced by information subsequently ingathered and by previous Committee decisions on appeals in the Shandwick Place and Leith Walk stage of disruption. The extent of the disruptive works was estimated in advance by the Assessor. Temporary reductions in rateable values were proactively given for the duration of the works to properties of a retail character whose main customer access was from the street fronting the tramway construction works. The Committee accepted that the proactive allowance was granted by the Assessor without the requirement for individual ratepayers to put forward evidence of turnover, footfall or rent reductions.

[6] Section 2(1)(d) of the Local Government (Scotland) Act 1975 (the 1975 Act) entitles the Assessor, at any time while the valuation roll is in force, to alter the roll to give effect to any alteration in the value of any lands and heritages that is due to a material change of circumstances. Section 37(1) defines "material change of circumstances" as a change of circumstances affecting their value.

[7] Section 3(4), so far as relevant to this case, provides that, without prejudice to Section 3(2), which relates to the right of appeal against a new entry in the Roll;

"... the proprietor, tenant or occupier of lands and heritages which are included in the valuation roll may appeal against the relevant entry but only on the ground that there has been a material change of circumstances since the entry was made ... and, notwithstanding the definition of "material change of circumstances" as set out in section 37(1) of this Act, if in an appeal under this subsection on the ground of a material change of circumstances it is proved that there has been a change of circumstances which has materially reduced the extent to which beneficial occupation of the lands and heritages can be enjoyed, the appeal shall not be refused by reason only that the change of circumstances has not been proved to have affected the value of the lands and heritages to any specific extent."

[8] Senior counsel for the appellant presented two principal arguments in support of this appeal. I deal with each of these in turn. Before doing so, it is important to stress that it was made clear at the outset that the challenge advanced was to the Committee's finding that the extent to which beneficial occupation of the shops forming the subjects of appeal could be enjoyed had been materially reduced during the period of the tram constructions works; if that challenge failed, no issue was taken with the 20% reduction applied.

[9] First, it was submitted that it was clear from the Stated Case, in particular the section headed "Reasons", that the Committee had proceeded on the erroneous basis that, having established a practice relative to retail premises affected by the tramworks elsewhere, the Assessor was bound to follow that practice in respect of Princes Street; or putting it another way, that the Committee proceeded wrongly on the basis that the established practice created an irrebutable presumption in favour of a similar reduction. Alternatively, it could be said that the Committee had erroneously proceeded on the view that, against the background of the established practice, the legal onus was on the Assessor to demonstrate that no allowance should be made.

[10] I do not agree that on a fair reading of the decision as a whole it could be said that the Committee erred in any of the ways suggested.

[11] It is clear from the first paragraph of the Reasons, and before the Committee give any consideration to ealier practice, that the conclusion that there had been a change of circumstances affecting value (and thus a material change of circumstances) is based primarily on evidence accepted from the several surveyor witnesses relating to the particular effects of the tramworks in Princes Street on the shops directly affected there. In concluding this first paragraph the Committee say:

"There was not a member of the Committee who had not seen Princes Street under those circumstances and their experience of it accorded with much of what the surveyor witnesses had said about the disruption and with the photographs. The Committee was quite certain that these circumstances affected the value of the shops during the course of the work outside the individual shops."

Although in the same paragraph they describe the Assessor's contention that there had been no effect on value as "untenable", it is clear that they are simply rejecting her evidence to that effect. Such a rejection does not imply a recognition of any legal onus being upon her.

[12] Further, it is clear that this first paragraph of the Reasons is plainly based on detailed findings made earlier in a relatively long section headed "The effect on Value for Rating". These findings specifically relate to Princes Street and the works which were carried on there. The Committee found inter alia:

"Goods deliveries made to Princes Street were interrupted and diverted to rear areas or more remote locations. Staff in the shops were affected by noise of machinery and steelworks, dust and also transport difficulties for themselves. The normal practice for many occupiers on Princes Street to load and unload at night directly from the street was impossible. There was substantial noise, dirt, pavement restrictions, lack of bus service in the street, unpleasant outlook and disconnection of the north side of the street from the Gardens side with limited crossing points. The street became a very unpleasant shopping environment during the tramworks. The number of shoppers going to the shops reduced during the period of the works. The e-mail from Christine Anderson, the store manageress, at River Island, which is in the Appellants' fifth productions after the photographs, sets out the effect on that shop and its terms are held as repeated herein brevitatis causa. The e-mail from Mr Griffiths, Number 2 in Appellants' production bundle 7, illustrates the effect on the Signet jewellery shop, as does the e-mail on the following page sent from Mr Chowdray. Shop displays were affected by dirt and dust and required more cleaning. Access was restricted and, in general, there was a poor environment for shopping. The number of shoppers was significantly reduced. The statement in The Times of 17^th October 2009, item 5 in Appellant's production 7, "meanwhile, Princes Street is a mess of ripped up tarmac, wire barriers and contractors' lorries. The number of shoppers at retailers, such as Marks & Spencer, have fallen by almost a quarter since January" - is substantially correct. The excavation in Princes Street was relatively deep and much heavy equipment was used. The dust and noise created was a significant disturbance. These circumstances affected adversely the value of the shops forming the subjects of appeal during the period of the tram construction works. The extent to which beneficial occupation of the shops forming the subjects of appeal can be enjoyed has been materially reduced during the period of the tram construction works.

... ...

Footfall statistics, as shown on the Assessor 1/22, are kept by the City of Edinburgh Council and measure the number of people on the pavement on the north side of the Street, which was not enormously reduced during the tramworks but public transport had been diverted to George Street and it is difficult to interpret the footfall figures as any indication of the effect or otherwise of the tramworks on the value of the shops. Footfall on Princes Street, but outside the tramworks zone, was up whereas footfall on Princes Street within the tramworks zone, was down. Rents in Princes Street did not fall, which is unsurprising since most of the landlords are major institutions and the leases do not provide for downward rent review. Landlords' concessions about rent or equivalent matters are frequently the subject of confidentiality agreements."

[13] It is true that the second paragraph of the section headed "Reasons" concentrates on the Assessor's previous practice. In particular, it is said:

"The Assessor's previous yardstick had been a 20% allowance in the first phase of work in Leith Walk, Shandwick Place and other areas. The practice was published in the Forum News Letter and was used consistently and extensively. The ratepayers, as Mr Maciver submitted, are entitled to fair and balanced treatment, taking the previous practice into account. The Committee was not persuaded that there had been an error applying the 20% at the West End. It seemed to the Committee to be perfectly reasonable to apply that allowance both to the utility work done in a first phase on some of those streets and the tramway construction work to be done in a second phase. In Princes Street there was a single phase of work dealing both with replacement of utility piping and the laying of the tramway. The Committee considered that the Assessor had established a practice of making a 20% allowance for retail units affected by tramway works in the street outside. They considered that the practice should also apply to Princes Street and were not satisfied that there were good reasons for any other reduction in value to apply there."

[14] It is clear, however, that this reasoning is mainly, if not entirely, directed to the percentage deduction which should be applied, a matter not challenged by the appellant. In so far as the Committee can be said to have prayed in aid the evidence of practice as part of its reasoning for finding that there had been a material change of circumstances, it is evident, in my opinion, that it did so only as one element of the whole evidence which it required to consider. This it was perfectly entitled to do. In Assessor for Fife v Adamson 1964 SC 384, where there was evidence of a previous practice adopted by the Assessor in respect of houses in his area subject to a demolition order, Lord Kilbrandon said (at page 388):

"The Committee seem to have decided that the demolition orders in question, of themselves and by the mere fact of their having been imposed, indicated a 'deterioration affecting the annual value'. It was said that there was no evidence, always regarding this question as a question of fact, which could justify the Committee in coming to such a conclusion. I cannot agree with that, in the face of the admitted fact that the Assessor, an experienced valuator upon whose opinion the Committee is entitled to rely, had been in the year 1961-1962 of the opinion that, taking a broad view over the whole of his valuation area, and without looking at it house by house, it could be generally said that houses which became subject to demolition orders were reduced in value by 50%. As I say this opinion may have been right or it may have been wrong but, so far as I can see, it was the opinion of a valuator which the Committee were entitled to accept. I have therefore come to the conclusion that this appeal ought to be refused."

Although senior counsel for the appellant sought to distinguish this case on the basis that the evidence of practice was the only evidence there available to justify a reduction, I see no merit in that contention. There is certainly nothing to indicate that the Committee in the presence case misread that case, as was argued in the course of this appeal, as authority for the proposition that an Assessor's practice would be binding on him.

[15] It would, of course, be different if there were obvious and material differences in circumstances between Princes Street and the tramworks there and, for example, Shandwick Place and the tramworks there. The Committee, however, plainly did not find that on the evidence, which was a matter for them. Although one might perhaps have expected more detailed findings, they make it clear in their reasoning that they did not accept that Princes Street was such a "distinct prestigious market" that it could be said to have been unaffected, and explain that they were not satisfied that there were good reasons for any different reduction in value to apply there. They note that the previous practice had related not only to small retail units but had included, for example, the Harvey Nichols department store in St Andrew Square. Although some concern was expressed in the course of argument before us that the Committee had rejected certain proposed adjustments which could have suggested that Princes Street premises were in a special position, it was for the Committee to decide what findings they were prepared to make. Further, the Committee stress that the tramworks in Princes Street were more extensive than earlier similar works in Shandwick Place.

[16] The second principal submission made by senior counsel was that the evidence on which the Committee proceeded was not such that it could reasonably have justified a finding of material change of circumstances. In particular, there was a lack of "hard" evidence. There was no evidence of falls in rents. There was no, or at any rate limited, evidence of falls in turnover in the respondents' premises. There was no, or limited, evidence of a drop in footfall affecting individual premises. To proceed on the basis of disruption, noise and general effect on the shopping environment was not sufficient. Reference was made, in particular, to the decision of this court in The Assessor for Lothian v The Ministry of Defence, the Army Careers Office 2009 CSIH 89.

[17] I am not persuaded that there is any force in this argument either.

[18] It is quite true that in certain respects (as acknowledged by the Committee itself) the evidence produced in respect of the individual respondents could be regarded as limited. This indeed was the main reason for the Committee's rejection of the claim for a 30% reduction. But, as the Committee explained, it was not surprising that rental evidence was not available. They considered, further, as they were entitled to do, that evidence of turnover would, in the context of the statutory hypothesis which had to be applied, have to be treated with caution. It would, for example, be entirely possible for an occupier of premises, by taking exceptional and expensive measures, to be able to maintain previous levels of turnover despite seriously disadvantageous conditions. As the Committee themselves said "...bare sales figures fail to show the expenditure and effort involved in marketing and discounting arrangements and are not directly part of the information used in valuing these shops". Further, although the Committee's findings in respect of the "very unpleasant shopping environment" play an important part in the reasoning, the Committee did have evidence, and made findings, in relation to reductions in footfall.

[19] In any event, having found clear evidence of severe degradation of the shopping environment, it cannot, in my opinion, be said that it was not reasonably open to the Committee to reach the conclusion that there had been a material change of circumstances. It is now well understood that in order to establish a material change of circumstances it is not necessary to adduce expert evidence, and the question requires to be approached, in any case, by the application of common sense. In Ferguson v Assessor for Glasgow 1977 SLT 142 Lord Avonside, having (at p.145) stressed that the standard of proof for alteration of value must, at the very highest, turn on a balance of probabilities, said

"In so approaching the matter it is absurd, in my opinion, to ignore common sense and as an essential demand expert or quasi-expert evidence"

Again, in Assessor for Lothian Region v Wilson 1979 SC 341, at page 349, the same judge said;

"If a ratepayer can lead evidence of facts from which a reasonable committee could deduce that an amenity loss has caused a material change in circumstances which, as a matter of common sense, would affect value then he has done enough and it would absurd to demand as an essential that an expert witness must be produced to confirm the logical deduction arising from proved facts."

Although these cases related to private housing there is no reason to suppose that the judicial comments were restricted thereto (see e.g. Armour on Valuation for Rating at para 3-20).

[20] Much emphasis was placed in argument on the decision of this court in the Assessor for Lothian v The Ministry of Defence, The Army Careers Office. However, that decision was plainly specific to office premises situated a number of floors above Shandwick Place where tramworks were being undertaken. The court held inter alia that limited hearsay evidence that dust, noise, etc had affected the offices was not sufficient of itself to lead to the conclusion that the value of the premises as office premises would be affected (see para [19] of the opinion of the Lord Justice Clerk.) Having noticed the Assessor's practice in relation to retail premises, however, the Lord Justice Clerk said (at para [18]):

"An allowance of that nature was a logical response to the disruptive effect of the work on businesses that supplied goods and services to the public and whose turnover was dependent to a great extent on footfall. It was reasonable to assume that businesses of that nature would sustain a direct impact on their turnover which would affect net annual value on the statutory hypothesis (Valuation and Rating (Scotland) Act 1956, section 6(8)), but the logic of that allowance does not necessarily apply to office premises".

This, in my opinion, is not a statement from which the appellant can derive any real assistance in the circumstances of the present appeal.

[21] In the course of his argument, some concern was expressed by senior counsel about the refusal of the Committee to allow a number of proposed adjustments (in addition to those already mentioned). One subject of complaint was the refusal to include reference to the fact that the statement by the Assessor in the Scottish Ratepayers Forum newsletter 3 November 2008 also included a statement that "All works would be fully considered at the start of each stage to measure the likely impact on value ..." While, in this respect, there may be some justification for the appellant's complaint, I am not persuaded that its absence in the Stated Case can be said to have been material. That is even more true of the other matters to which, in this connection, reference was made, all of which appeared to be entirely peripheral.

[22] It was also submitted that the decision was deficient in that no summary of the Assessor's evidence was set out. This would indeed have given greater clarity, but in circumstances where the Committee chose not to summarise the evidence of any of the witnesses but instead to set out the findings which were made (some obviously consistent with the evidence of the Assessor), I am not persuaded there is real force in this criticism.

[23] Lastly, it was submitted that the Committee had erred in so far as, at one point, it appeared to be under the misapprehension that the larger stores were valued "under the zoning valuation method". Although it was accepted on all sides that this was an error, it is not of significance for the purposes of the appeal since the error appears only as part of the Committee's assessment of the appropriate percentage figure to apply, a matter which the appellant does not seek to challenge.

[24] In all these circumstances, I propose that this appeal be refused.

LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Kingarth Lord Clarke Lord Malcolm	[2010] CSIH 60 XA14/10 OPINION OF LORD CLARKE on the STATED CASE in the Appeal by THE ASSESSOR FOR LOTHIAN Appellant; against H & M HENNES & MAURITZ UK LIMITED AND OTHERS Respondents: _______

Act: Clarke QC; Simpson & Marwick

Alt: MacIver, Advocate; Brodies LLP

2 July 2010

[25] I agree with your Lordship in the chair that this appeal should be refused for the reasons given by your Lordship. I would simply add the following. The submissions made on behalf of the Assessor, in this appeal, and the related appeals, which the court dealt with at the same sitting, betrayed an element of unreality. It must never be forgotten that appeals to this court are appeals from committees who have been specially chosen for their expertise and knowledge of local circumstances. In reaching their decisions on matters which are essentially ones of fact, such as whether or not there has been a material change of circumstance, in terms of section 37(1) of the Local Government (Scotland) Act 1975, they are not to abandon that expertise and knowledge at the door of the hearing. Nor are they expected to abandon common sense and rationality when faced with proved facts and invited to reach deductions from them. In that regard, I respectfully adopt the dicta of Lord Avonside in the cases of Ferguson v Assessor for Glasgow and Assessor for Lothian Region v Wilson, cited by your Lordship which, in agreement with your Lordship, I consider to be dicta of general application.

[26] In the present appeal the Committee, in my judgment, had more than adequate evidence before them, set against the background of their expertise and knowledge, to entitle them to reach the conclusion that a 20% deduction was justifiable. Moreover, I consider that they clearly did so without, in any respect, reversing the onus of proof in that connection. To require more evidence and further findings to justify such a deduction, in the circumstances of this case, and the related appeals, in my judgment, would be to desiderate a level of proof beyond what was, on any view of matters, required, having regard to the facts which were found, including the Assessor's previous practice.

[27] Lastly, for the reasons given by your Lordship in the chair, I am of the opinion that the decision of this court in the case of Assessor for Lothian v Ministry of Defence, the Army Careers Office, is quite clearly distinguishable on its facts from that of the present appeal and provides no support for the approach advanced on behalf of the Assessor.

LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Kingarth Lord Clarke Lord Malcolm	[2010] CSIH 60 OPINION OF LORD MALCOLM on the STATED CASE in the Appeal by THE ASSESSOR FOR LOTHIAN Appellant; against H & M HENNES & MAURITZ UK LIMITED AND OTHERS Respondents: _______

Act: Gill, Advocate; Simpson & Marwick

Alt: Maciver, Advocate; Brodies, LLP

2 July 2010

[28] I have had the benefit of reading a draft of Lord Kingarth's opinion. For the reasons he gives, I agree that the appeal should be dismissed. There is nothing that I can usefully add.