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Appeal No. VA07/2/041
AN BINSE LUACHÁLA Tynagh Energy Ltd. APPELLANT RE: Electricity Generating Station at Lot No. 15F.17J,
Derryfrench, Bracklagh, Loughrea, County Galway. B E F O R E JUDGMENT OF THE VALUATION TRIBUNAL By Notice of Appeal dated the 10th day of May, 2007 the appellant appealed against the determination of the Commissioner of Valuation in fixing a rateable valuation of €34.170.00 on the above-described relevant property. The grounds of Appeal are set out in a letter attached to the Notice of Appeal, a copy of which is at Appendix 1 to this Judgment. 1. This appeal proceeded by way of an oral hearing held in the offices
of the Tribunal, Ormond House, Ormond Quay Upper Dublin 7, on the 9th,
13th and 19th days of July, 2007. The Property Concerned 6. Rating History Agreed Facts Legal Submissions Findings and Determination 2. At the hearing a number of issues arose which were comprehensively dealt with by counsel. Inter alia these matters included the grounds of appeal advanced by the appellant in the appeal lodged with the Valuation Tribunal under section 34 of the Valuation Act, 2001 and the inclusion of certain items of plant and machinery in the valuation of the property concerned. We propose to deal with the issues so raised as follows. The Valuation Act, 2001 4. Whilst schedule 1 of the Act repealed all then current rating enactments, many of the provisions contained therein were carried into the 2001 Act. The basis of valuation continues to be net annual value (section 48) whilst section 49 sets down the method of valuing property at revision. Inter alia the Act also introduced new measures for dealing with the functions of the Commissioner of Valuation and the valuation and revision process generally. The Grounds of Appeal 6. Under section 30 of the Act the occupier and other interested parties as listed in the section may lodge an appeal in writing to the Commissioner against the decision of the Revision Officer in relation to a number of matters as provided for under the section. An appeal made under section 30 shall specify the grounds of appeal and where appropriate the appellant's opinion of the rateable valuation of the property concerned (section 31). 7. Section 34 enables the occupier and other interested parties to lodge an appeal to the Valuation Tribunal against the determination of the Commissioner of Valuation following his/her consideration of the appeal made under section 30. Such an appeal shall again specify the grounds of appeal and where appropriate the appellant's opinion of the rateable valuation of the property concerned (section 35). 8. The determination of the Tribunal is final in relation to matters
of valuation and is subject to an appeal to the High Court on a point
of law only. "This Tribunal is of course a creature of statute. It is not a Court established by or under the Constitution or by or under the Courts (Establishment & Constitution) Act 1961. Whilst its existence depends on the 1988 Act, the validity of its actions and decisions must surely be constitutionally safe as falling within the Provisions of Article 37 thereof. In any event it would in our view be quite invidious for a Tribunal of this nature to have a rule of practice or procedure or to adopt a jurisprudence which is at variance with that practiced in the Courts above mentioned and in particular in the Supreme Court. It seems to us therefore that we ought, and indeed must follow the principles enunciated in the cases above identified. Accordingly it is our firm view that it would be quite wrong to have a practice of exclusion which, given the importance of the case and the interests of justice, did not permit of exceptions or deviations therefrom. So, it is therefore our decision that whilst, as a general rule, where a ground of appeal has not been advanced before the Commissioner it will not be possible to raise it before us nevertheless, in exceptional circumstances where the interest of justice requires, this Tribunal will permit the raising of a ground, the reception into evidence and the reliance on a point of law none of which have previously been so raised or so adduced. We are satisfied that the previous judgments of this Tribunal, on this point, were all intended to be read and understood in this manner." As to what are "exceptional circumstances" is of course a subjective judgment to be formed following consideration of the particular circumstances of the appeal before the Tribunal. 10. The appeal to the Commissioner received on 16th October, 2006 contained
the following grounds of appeal: 11. The appeal to this Tribunal dated 10th May, 2007 specified the grounds
of appeal in the following terms: 12. In our opinion the grounds of appeal submitted under sections 30 and 34 are not materially different and the items of machinery referred to in ground number 4 of the appeal to this Tribunal could be reasonably described as being integral parts of or ancillary to the items of plant and machinery referred to paragraphs 1 and 2 of the original submission. Bearing in mind the nature of the property concerned we are of the opinion that in the circumstances of this appeal the interests of justice would not be best served if we were to exclude from consideration ground number 4 as stated in the grounds of appeal to this Tribunal. 13. As outlined above, the 2001 Act affords an occupier a number of opportunities to raise any matter pertaining to the valuation of the property concerned at various stages of the revision process. In this regard, the Tribunal would expect that any person having made representations under section 29(2) and/or an appeal under section 30 would pursue the appeal with all the urgency and intensity that the circumstances would warrant. Equally we would expect the Revision Officer and the Appeal Officer as the case may be to consider all the issues raised by the appellant and that his/her report would show clearly the reasoning behind his/her recommendation to the Commissioner of Valuation. Needless to say we would expect both parties to co-operate fully with each other in the provision of such information as may be reasonably necessary for the purpose of dealing with any issue that might arise in the consideration of the revision and/or the appeal. Given the fact that rating is a form of taxation based upon the beneficial occupation of the property it is important that all stages of the revision process and more particularly the appeal process from a procedural point of view be seen to be transparent in operation and performed in a manner consistent with the principles of fairness and in accordance with the law. 14. From the evidence put before the Tribunal it would appear that the interaction between the Appeal Officer and the appellant's representative during the pursuit of the appeal was meagre. Following receipt of the appeal on 16th October, 2006 the Appeal Officer appointed by the Commissioner wrote to the appellant's representative on 1st December, 2006 and again on 5th February, 2007 inviting him "to make any further submissions or to provide any further information that you would feel would be of assistance". Not having received any response to these letters the Appeal Officer rang Mr. Donnelly on 12th April i.e. three days before the date on which the Commissioner was required to issue his determination in accordance with section 33(6) of the Act. Mr. Donnelly at that time was on holiday and in the event the Appeal Officer had a brief conversation of little consequence with a colleague of Mr. Donnelly's. 15. In the conversation with Mr. Donnelly's colleague the Appeal Officer
pointed out that due to statutory time constraints the appeal had to be
decided immediately and the decision could not be delayed until Mr. Donnelly
returned from holiday. Not surprisingly perhaps, the Appeal Officer's
decision taken on the same day, that is 12th April, 2007, was to "make
no change". Notwithstanding that Mr. Donnelly did not make contact
with the Appeal Officer despite the two letters requesting him to do so,
the Appeal Officer did have before him the grounds of appeal. In the circumstances
and given the importance of the issues raised regarding the valuation
of certain items of plant and machinery one would have expected the Appeal
Officer's report to contain some notes setting out his response to the
grounds of appeal as submitted, accompanied by a statement of reasons
for their ultimate rejection. As it is there is nothing in the Appeal
Officer's report to show that the Appeal Officer had considered the issues
so identified and had rejected them with what he considered to be a good
reason. The interests of fairness and transparency and indeed the reputation
of the appeal process itself would have been better served if his report
had included notes of how and why he had arrived at his decision to make
no change. 17. In Section 3(1) "Relevant property shall be construed in accordance with Schedule 3." 18. Section 50 states: "If, in determining the net annual value of property or any part of it in accordance with section 48, a method of valuation relying on the notional cost of constructing or providing the property or part is used, then, notwithstanding subsection (3) of that section, the net annual value of the property or part, for the purposes of that section, shall be an amount equal to 5 per cent of the aggregate of the replacement cost, depreciated where appropriate, of the property or part and the site value of the property or, as the case may be, part." 19. Section 51 states "(1) In determining, under any provision of
this Act, the value of a relevant property, the following shall be valued
and taken account of in such determination - 20. Schedule 3(1) states: "Property (of whatever estate or tenure) which falls within any of the following categories and complies with the condition referred to in paragraph 2 of this Schedule shall be relevant property for the purposes of this Act." 21. Schedule 3(1)(m) states: "electricity generating stations, including
where appropriate- 22. Schedule 5 states: "1.-All constructions affixed to a relevant
property (whether on or below the ground) and used for the containment
of a substance or for the transmission of a substance or electric current,
including any such constructions which are designed or used primarily
for storage or containment (whether or not the purpose of such containment
is to allow a natural or a chemical process to take place), but excluding
any such constructions which are designed or used primarily to induce
a process of change in the substance contained or transmitted. 23. In the past the valuation of certain items of plant and machinery
in buildings erected for manufacturing or other similar purposes was expressly
provided for in the Valuation Acts. Section 7 of the Annual Revisions
of Rateable Property (Ireland) Amendment Act, 1860 clarified the situation
somewhat and provided as follows: 24. Despite the fact that machinery was not defined in the Act, section 7 as drafted endured for over a 100 years when it was replaced by a new section 7 under the provisions of the Valuation Act, 1986 accompanied by the addition of a schedule after section 15 of the Act of 1860. These changes were introduced in light of a number of major court decisions which resulted in certain items of plant formerly considered to be rateable being declared to be machinery for the purposes of section 7. The intention of the amended section 7 and the new schedule added by section 8 of the 1986 Act together with sections 1 and 2 of the 1986 Act was to reverse the effect of the various court decisions. 25. Section 51 of the 2001 Act is very similar to section 7 and maintains the situation whereby "machinery (not being machinery that constitutes plant specified in schedule 5)……..unless it is machinery erected and used for the production of the motive power concerned" is not to be valued for rating purposes. 26. Schedule 5 of the 2001 Act is identical in form to the new schedule added to section 8 of the Act of 1860 by the 1986 Act. The effect of section 51 and schedule 5 is, in a general sense, to maintain the situation introduced under the 1986 Act. 27. Schedule 3 lists the categories of property which are "relevant property" for the purposes of the Act. Under paragraph 1(m) an electricity generating station of whatever type is distinguished as being a specific category of property concerned and which falls to be valued in a manner distinct from all other facilities used for manufacturing purposes. 28. It is accepted as a matter of fact that electricity generating stations come in different types using a variety of means of production. Paragraph 1(m) recognises this fact and hence the words "where appropriate" as they appear in the paragraph are to be interpreted as including all buildings, structures, plant and other installations particular to the type of generating station being included in the valuation of the property concerned. In our opinion, it was the clear intention of the legislature to ensure that in valuing electricity generating stations all plant and machinery therein regardless of whether or not or how it is affixed to the freehold is to be valued. To take the view that the provisions contained in section 51 and schedule 5 apply equally to electricity generating stations as they do to other categories of relevant property would render paragraph 1(m) redundant and unnecessary. Paragraph 1(m) is there for a specific purpose and that purpose, in our opinion, is that when valuing electricity generating stations of whatever type, all plant and machinery therein whether moveable or not, is to be included in the valuation of the property concerned. The Contractor's Basis of Valuation 30. Mr. Donnelly as part of his written presentation provided the Tribunal with a copy of a document entitled 'The Contractor's Basis of Valuation for Rating Purposes - A Guidance Note' published by the Joint Professional Institutions Rating Valuation Forum in November 1995. The Rating Forum is a U.K. based body comprising of representatives of the major professional bodies engaged in rating valuation practice and representatives of the Valuation Offices in England, Scotland and Wales. In our opinion, the principles of valuation contained in the Guidance Note are equally applicable in this jurisdiction and indeed paragraphs 1.5 and 1.6 of the introduction to the Guidance Note as quoted below are a useful and legally accurate statement of the principles of the contractor's basis of valuation as referred to in section 50 of the Act. 31. "1.5 - It should be assumed that the property is owned by a hypothetical landlord who wishes to let it and that there is a hypothetical tenant who is willing to pay a rent in order to occupy it. However, although the parties to this transaction are hypothetical, the property is real and the valuer's concern is therefore with the rental value of the actual property." 32. "1.6 - Whilst interest on cost as a guide to rental value is the basis of the method, it is not envisaged that the hypothetical tenant should be considered as constructing an actual property, but that the rental value of the property concerned is being "tested" by having regard to the annualised equivalent of the estimated cost of construction. It is considered inappropriate to make an assumption that either the hypothetical tenant, or someone else, could or would build an alternative property, or that such a person has already built an alternative property suitable for occupation by the hypothetical tenant." 33. It should be said that section 50 of the Valuation Act does not contain any definition of the contractor's basis of valuation or in what circumstances it is to be used. Section 50 provides that "the aggregate of the replacement cost, depreciated where appropriate, of the property or part and the site value of the property or, as the case may be, part" shall be decapitalised at the rate of 5% in order to arrive at the net annual value. That is the sole purpose of section 50. 34. Mr. O'Floinn in his valuation included all costs incurred by the appellant in procuring the relevant property including financing costs of €22.14 million and bank advisor fees of €4.322 million. Mr. O'Floinn said his valuation was in accordance with the provisions of section 50 and his decision to include the financing costs and bank advisor fees was supported by an extract from a document issued by the Commission for Energy Regulation entitled "Best New Entrant Price 2006 - A Decision and Response Paper". Paragraph 5.14 of this document deals with the total investment cost estimate for a BNE Generating Plant (same as subject) which includes financing and legal costs and interest costs during the construction period. A copy of this document is to be found in Appendix 4 attached to this judgment. 35. Mr. Donnelly omitted the financing costs and bank advisor fees and
said that such costs were specifically excluded under section 3.15 of
the Guidance Note which says as follows. 36. Mr. Donnelly also excluded the cost of those items of plant and machinery which he contended should not be included in the valuation under the provisions of section 51 and schedule 5. 37. In our opinion, financing costs and bank advisor fees should not
be included in estimating replacement costs as identified in paragraph
3.1.1 in the Guidance Note which states: 38. The contractor's basis of valuation is a hypothetical exercise based on the estimated or actual cost of the property concerned as outlined in paragraphs 3.1.1 and 3.1.2 above. Financing costs and bank advisor fees are not elements of the cost of the property itself but costs incurred in this instance by the appellant company as a consequence of how they decided to conduct their business affairs. Determination Valuation on Contractor's Basis of Valuation |