Vtesse Networks Ltd v Valuation Officer [2006] EWCA Civ 1339

Case No C3 2006/0298[2006] EWCA Civ 1339
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
GEORGE BARTLETT Q.C., PRESIDENT
RA/50/2004 and RA/63/2004
ON APPEAL FROM THE BERKSHIRE VALUATION TRIBUNAL
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Thursday 19th October 2006
Before
LORD JUSTICE MUMMERYLORD JUSTICE SEDLEYLORD JUSTICE LLOYD
Between
VTESSE NETWORKS LIMITEDAppellantALAN ROY BRADFORD (Valuation Officer)Respondent
(Transcript of the Handed Down Judgment ofWordWave International LtdA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7421 4040 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Derek Wood Q.C. and Robert Walton (instructed byField Fisher Waterhouse) for AppellantDavid Holgate Q.C. and Timothy Morshead (instructed bySolicitor, HM Revenue and Customs) for Respondent
Judgment
[1]The Appellant, Vtesse Networks Ltd (Vtesse), provides fibre optic telecommunications networks for customers. This appeal is about a network which runs between Henley-on-Thames and Goswell Road in London, via Marlow, Slough, Ruislip and Stoke Newington, with spur extensions from Reading to Theale and from Acton to Brentford. As at 1 April 2003 the network extended over some 147 kilometres, of which about 4 km was in cables and ducts owned by Vtesse and 143 km in cables and ducts belonging to third parties. The question on the appeal is whether the entire network constitutes a rateable hereditament, of which Vtesse is in occupation, so that Vtesse is liable for non-domestic rates on the whole, rather than only on such parts of it as are within areas otherwise owned and occupied by Vtesse. The Respondent valuation officer proposed to enter the whole network in the rating list for Slough, to which Vtesse objected. The Berkshire Valuation Tribunal upheld Vtesse’s objection. The Respondent appealed to the Lands Tribunal, which allowed his appeal, on the basis of a statement of agreed facts, amplified by oral and written evidence. Vtesse appeals, with permission granted by Jonathan Parker LJ. (There were two decisions by the Berkshire Valuation Tribunal, and two appeals to the Lands Tribunal, resulting from an original decision by the Respondent and a later decision as regards an extension to the network. Nothing turns on this.)[2]There is an entirely separate issue as to valuation, with an unusual feature, namely that Vtesse contends that it has been discriminated against as compared with the basis on which similar installations by BT are treated. The latter point has been taken up by the European Commission. The question of the extent of the rateable hereditament was the subject of a preliminary issue ordered by the Lands Tribunal. The appeal is from the decision on that issue, which was heard with oral evidence. The issue was defined as follows:
“Whether, under domestic law and without regard to any considerations relating to European Community law, the Vtesse telecommunications network the subject of the original list entry and its revision, or any part of that network (and if so what part) should be entered as a hereditament in the rating list.”
[3]The Local Government Finance Act 1988 deals with non-domestic rates, but refers back to the General Rate Act 1967 as to what constitutes a rateable hereditament, in section 64(1):
“A hereditament is anything which, by virtue of the definition of hereditament in section 115(1) of the 1967 Act, would have been a hereditament for the purposes of that Act had this Act not been passed.”
[4]The definition in section 115(1) of the 1967 Act is as follows:
“‘hereditament’ means property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list.”
Apart from the reference to a “unit of … property”, this definition does not illuminate the question.[5]Under the 1988 Act, local non-domestic rating lists are required to include each hereditament which fulfils various conditions, including that “it is a relevant non-domestic hereditament”: see section 42(1). No issue arises as to the non-domestic condition. A relevant hereditament is defined by section 64(4):
“A hereditament is a relevant hereditament if it consists of property of any of the following descriptions: (a) lands”
The definition also includes other things such as mines, the right to use land for advertising and the right to use land for a meter to measure a supply of gas or electricity.[6]A fibre optic telecommunications network is not itself land, or otherwise within a relevant description. By itself it is a chattel, or a series or collection of chattels. However, there is no rule that, just because something is a chattel, it can never be rated. This question was considered in LCC v. Wilkins (Valuation Officer) [1957] AC 362 in relation to builders’ huts placed on a building site (otherwise not rateable) and used for the purposes of the building process on the site over a considerable period, though not fixed to the land. Viscount Kilmuir LC said at 373-4 that the test was whether the structures were enjoyed with the land and enhanced its value. Lord Radcliffe, at 378, said this:
“No one supposes, of course, that a man is rateable in respect of the enjoyment of chattels as he is in respect of the occupation of land. But, on the other hand, I think that that is a long way from saying that the presence of chattels on land can never be a relevant factor either in determining the assessment of the rateable value of a hereditament or in determining whether there is a rateable occupation or not. For instance, in 1906, before the rating of plant and machinery had come under statutory regulation by the Rating and Valuation Act, 1925, this House held in Kirby v. Hunslet Union Assessment Committee, [1906] AC 43, that a factory’s assessment to poor rate must be based on the standing equipment of machinery in the factory, irrespective of whether or not it was affixed to the freehold so as to form part of it. In doing so, as Lord Macnaghten pointed out at page 50, the House was doing no more than affirm a rule that had constantly been applied throughout the preceding 50 years. On the second point, I think it equally well established that a structure placed upon another person’s land can with it form a rateable hereditament, even though the structure remains in law a chattel and as such the property of the person who placed it there. It has been habitual practice to treat gas and water pipes, drains and sewers, telegraph posts placed in and telegraph or telephone wires placed over land as being themselves rateable subjects, yet I do not think that there is any foundation for supposing that when the undertaker, equipped either with the licence of the owner of the soil or with statutory powers, affixes his apparatus to a building or lays it in or on the soil the law regards him as thereby making it part of the freehold.”
Later, at page 380, he said:
“When the owners of pipes, cables, posts, etc., are rated as occupiers they are rated in respect of those things themselves, by means of which they occupy land, not merely in respect of the land that is occupied: just as in Cory v. Bristow (1877) 2 App Cas 262 it was the moorings themselves that were treated as the rateable hereditament. Indeed, in Mitchell Brothers v. Worksop Union Assessment Committee (1904) 92 LT 62, a case which I regard as indistinguishable in all essentials from that now under appeal, the result was achieved of rating the contractor’s huts as rateable hereditaments without any alteration of the rating assessment of the area of land on part of which they stood.”
[7]We were shown a number of decided cases about rating giving examples of the treatment of conducting media, such as telephone or telegraph wires or cables. In each case attention has to be given to the particular facts, both as to the physical position and as to the use made of the relevant things. Accordingly, before looking at the assistance to be obtained from decided cases, I must refer to the facts.[8]The parties before us agreed that the President’s decision fairly summarised the facts at paragraphs 7 to 16, and I gratefully quote that part of his decision. “7. In June 2003 the Vtesse network was in the course of construction. Vtesse only builds network as and when it is required to fulfil arrangements made with a particular customer. The system uses optical fibre for transmission of telecommunications signals. What is transmitted is light, and the signals are binomial, consisting of a decipherable pattern of on-off transmission. 8. Individual fibres are very small, not very much greater in circumference than a human hair. They are contained in optical fibre cables. A cable comprises optical fibres consisting of finely stretched glass, each with an individual plastic coating. These are grouped within plastic sheaths and run in the form of extended spirals round a steel or plastic core. Outside them is sheathing and, in some cases, armouring. Fibres are individually identified by colouring or marking their plastic coating. Cables vary from about 6mm to 25 mm in diameter and typically contain between 12 and 296 fibres. 9. While some cables are suspended from poles, especially in the BT local access network, most are buried in the public highway or are laid alongside railway lines and canals. They can be directly buried in the ground, but this makes repair and replacement more difficult. In consequence most buried cables are installed in ducts. Ducts are pipes, nowadays plastic, with a typical outer diameter of about 114 mm. It is usual to install up to four sub-ducts, each of about 40 mm diameter, in the duct. This is done for a number of reasons, notably in order to facilitate the installation of new cables and the withdrawal of old cables. Use of sub-ducts increases the number of cables that can in practice be installed in a duct. 10. Ducts are laid in trenches, the size of which is determined by the number of ducts to be installed and the nature of the ground. For ducts laid in the public highway (and these constitute the vast majority) most aspects of the trench specification – its size, methods of refilling and the reinstatement of the highway surface – are prescribed in a code of practice issued by the Highways Authorities and Utilities Committee set up under the provisions of the New Roads and Street Work Act 1991. Duct routes are built with jointing chambers and access chambers. Jointing chambers accommodate the splice enclosure between cable lengths and also spare coils of cable which enable the cable ends to be pulled out of the cable for jointing and provide slack for repairs to be carried out if the cable is damaged between jointing chambers. Access chambers are provided to allow the cable to be pulled into the duct, typically at intermediate points between chambers and in particular where the duct route changes sharply. 11. When used to extend, or interconnect with, the cables owned by another operator, Vtesse’s own-build fibres are generally fusion-spliced to the other operator’s fibre at a convenient jointing chamber in the street. Alternatively Vtesse may build to a “co-location centre”. The jointing chamber belongs to the other operator and splicing with his cables is carried out by him. 12. Vtesse designs and implements fibre optic communications links between one or more premises of client companies. In essence the method adopted is to look for existing fibre optic cables belonging to third parties which pass reasonably close to each of the client premises, to enter into an agreement for the use of such cables and to construct a spur from the premises to the cables. The result is a network consisting mainly of spare capacity in other people’s cables. Agreements for the use of cables have been entered into with Level 3 Communications Ltd, Tyco Networks (UK) Ltd, Global Crossing (UK) Telecommunications Ltd and Telewest Ltd. At the end of May 2003 the network consisted of four separate routeings: London to Henley-on-Thames (Northern Route), Henley-on-Thames to London (Southern Route), Dorking to Slough and London, and Salisbury to London and elsewhere. The total length of lit fibre as at 1 April 2003 was 147 route kilometres, of which about 4 km was own-build and 143 km was leased fibres. As at 2 May 2003 the network extended to 154.5 km. 13. The London to Henley-on-Thames (Northern Route) connection was established to connect two customer sites, one in Finsbury Square, EC1, and the other at Station Road, Henley-on-Thames. Fibres from Level 3, Telewest and Tycom were used and the connection was completed by a number of Vtesse own-build sections. The connection provided two transparent fibre paths between the two sites, one for each direction of transmission. The Henley-on-Thames to London (Southern Route) was designed to link the Finsbury Square site to another site of the customer in Henley, at Perpetual Park. Another network operator provided the connection between the two Henley sites. By June 2003 only a section of own-build from Perpetual Park to Twyford and the customer tail at Finsbury Square had been constructed. 14. The connection from Dorking to Slough and London was designed to link a customer site at Pixham End, Dorking, to another site in London. By June 2003 only the section between Dorking and Slough, using Global Crossing fibres with local own-build connections, had been constructed. The fourth part of the network, from Salisbury to London and elsewhere, was designed to connect a customer site at Castle Street, Salisbury, with several other sites of the same customer. By June 2003 only a short length of own-build cable in Salisbury had been installed. 15. The agreements under which Vtesse had the use of fibres belonging to other operators were for the use of what is referred to as “dark fibre”, that is to say fibre that has not been “lit” or activated. The fibres in each of the component parts of the network are lit by Vtesse using its own (non-rateable) plant and machinery. Fibres are lit by the generation of a laser pulse from Vtesse’s own equipment so that photons, or particles of light, are pulsed through the fibres. The laser pulse operates continuously, whether data is being transmitted or not, and data is sent by changing the pattern of the laser pulse. The receiver has to be synchronised, and synchronisation is carried out by Vtesse. Vtesse’s equipment was situated in co-location space or rack space in the buildings of other telecommunications operators and in customer premises. At the material dates Vtesse was not in exclusive occupation of any of the rooms within which such plant and machinery was located. 16. There was an agreed summary of faults and outages on Vtesse’s network. Twelve incidents were identified, all of them after the relevant dates and all but two of them on the post-May 2003 network. Five of the outages were for a minute or less. The others were either planned outages (for instance to allow the diversion of a cable) or were due to the cable being damaged. In each case the party responsible for the cable (Telewest or Global Crossing) made the necessary reconnection. To the extent that the Vtesse network provides resilient diverse routeings for customers, not all of the outages would necessarily have caused a loss of service to the end customer.”[9]Thus, what the Respondent contends for as a rateable hereditament is a network consisting of a pair of optic fibres, connecting two premises of a customer of Vtesse, of which the parts at the connection with the customer’s premises are Vtesse’s own-build, and some intermediate parts may also be own-build, but the majority of the network consists of fibre provided by third parties passing through cables and ducts in trenches dug by those third parties, to which connections have been made pursuant to agreements between Vtesse and the third party under which Vtesse has the right to the exclusive use of the particular pair of fibres. Once all the connections have been made, at each end and all along the network, the fibre is able to be brought into operation, or “lit”. It is at that stage that the Respondent contends that the network consisting of the pair of fibres, extending between the two relevant premises of Vtesse’s customer, is a rateable hereditament, of which it is said that Vtesse is in occupation. Vtesse denies that conclusion, and argues that the limits of the hereditament of which it is in occupation coincide with the limits of the area within which it has provided the fibre itself. It argues that the length of fibre which is the subject of an exclusive use agreement with a third party is a separate hereditament (or more than one if there are several agreements for different lengths of the connecting fibres). To judge from the plan which accompanies the statement of agreed facts before the Lands Tribunal, the network which runs between a customer’s premises in Finsbury Square and in Henley includes own-build areas at or adjacent to each of those premises, and three other lengths of own-build fibre, but also lengths of fibre which are the subject of agreements with as many as three different third parties.[10]No doubt the third parties’ fibres over these lengths of the network run through cables and ducts which enclose many other fibres, some of which may already have been lit at the relevant time, and others which may not yet have been lit by then. The Respondent would argue that the other lit fibres form part of one or more quite different hereditaments from that at issue in the present case, but on a similar basis, together with the own-build areas of whatever other telecommunications operator, comparable to Vtesse, obtained the right to use those particular fibres by agreement with the third party. The Appellant, on the other hand, would argue that either all the lit fibre, or possibly all the fibre whether lit or not, in the third party’s ducts and cables forms part of the third party’s hereditament, separate from that in respect of which Vtesse is rateable.[11]One might suppose that, in economic terms, the end result might be much the same sooner or later (subject to the question whether dark fibre is rateable), in that, if the third party is rateable in respect of lit fibre in its own ducts, it would pass on the economic burden of the obligation to pay the appropriate part of those rates to its customer under an agreement for the exclusive use of a given pair of fibres. Similarly, Vtesse would presumably pass on to its customer the economic burden of the obligation to pay rates on the network which Vtesse provides for the customer, whether levied directly on Vtesse (at least in respect of own-build areas or, if the Lands Tribunal is right, for the whole network) or passed on to Vtesse by a third party provider. However, the economic circumstances have not been investigated, and I do not assume that nothing turns, in real terms, on the result of the appeal in this respect.[12]The Berkshire Valuation Tribunal decided the case in favour of Vtesse by drawing an analogy with the way in which parts of the British Telecom copper wire network is treated for rating purposes. It held that Vtesse was not in paramount control of the fibres provided by third parties, and therefore was not in occupation of anything other than its own-build areas. In coming to this conclusion they relied above all on two propositions: first that Vtesse can be disconnected by the third party if there is an accident to the cable, or a failure of the third party’s network, or if Vtesse fails to met prescribed quality standards, and secondly that Vtesse does not occupy a specific fibre in the cable and their traffic can be routed through any particular fibre at the discretion of the third party.[13]The Lands Tribunal disagreed, having considered the written and oral evidence placed before it. The essence of the President’s decision is set out at paragraphs 38, 39, 40 and 42, as follows:
“38. The issue in the present case is whether the leased fibres that are spliced to Vtesse’s own-build fibres but are physically located within the cables and ducts of the leasing companies should be treated as forming, with the own-build parts of Vtesse’s telecommunications system, a single hereditament in the occupation of Vtesse or as constituting parts of the telecommunications hereditaments of the leasing companies. There is no dispute that neither their extremely small diameter nor the fact that they are physically bound in to the cables of the leasing companies prevents them from forming part of Vtesse’s hereditament. Whether they should be treated as doing so depends on an application of the principles established in the Westminster case to the facts that I have set out above. It may well be that the logical starting point is to observe that, except at either end where they are spliced to Vtesse’s own-build fibres, they are physically part of the leasing companies’ cables and then to consider (as in the Westminster case) whether a separate occupation has been carved out of the cables by virtue of the use of the fibres by Vtesse. The circumstances are not exactly parallel to those in the Westminster case because the parts of Victoria station that were there held to be separate hereditaments (the kiosks, for example) were not, as the leased fibres are, connected to property owned and occupied by the lessee or licensee. But the inquiry is essentially the same. 39. There are, in my judgment, three features of Vtesse’s use of the leased fibres that are of the greatest significance. The first is that Vtesse’s entitlement under each of the agreements is to the use of particular fibres. Reliance was at one time placed by Vtesse on the fact that under certain of the agreements (the Global Crossing one, for instance) the leasing company undertook to provide for Vtesse’s use a pair of fibres, without tying the obligation to any particular identified fibres. However, as Mr Wood accepted, once a pair of the company’s fibres had been spliced to Vtesse’s own-build fibres, Vtesse’s rights under the agreements related to the particular fibres that had been so spliced. The leasing company was thus not providing a service for Vtesse through the routeing of signals along any fibres that it might choose to employ for this purpose but was providing specific fibres for the use of Vtesse. The second significant feature is that Vtesse’s use of the leased fibres was exclusive. No one, neither the leasing company nor another operator, could use those particular fibres. Thirdly, it was Vtesse, and Vtesse alone, that activated the fibres for the transmission of signals. It did this through the generation of a laser pulse in its own equipment, and it synchronised the receiver so that a meaningful signal could be transmitted. By this means, through its active operation of its system, Vtesse was able to provide a service for its customers. The leasing companies simply provided, and maintained, the fibres. 40. These features are, in my judgment, decisive in determining that Vtesse was in rateable occupation of the leased fibres and that its system constituted a single hereditament. The leasing companies retained no control over Vtesse’s use of the fibres. They had the right to substitute other fibres for the ones that had been spliced to Vtesse’s fibres. The nature of this right was clearly different from those of the landowners in the East London Waterworks and Electric Telegraph cases to require the relocation of the pipes and wires, since there the pipes and wires were and remained in the ownership of the operators. But the right to substitute other fibres was limited by the agreements, and on the evidence there has been extremely little interruption of the continuous use by Vtesse of the leased fibres. The duty of the leasing companies to maintain the fibres to an agreed standard is no different from the duty of a landlord under the lease of premises. Similarly the fact that Vtesse did not know where the leased fibres were and had no right to access them physically is of little significance. It did not need to know where they were or to have physical access to them in order to enjoy their use. … 42. Similarly I do not think that the robust, common-sense approach urged by Mr Wood – that these fibres physically form part of the cables and are really too small to be sensibly treated separately from the cables – is the one by which the right result is reached. It may well be, as I have said, that it is a sensible starting point to consider the ducts and the cables as potential hereditaments or components of hereditaments. But the inquiry does not stop there, and, if the facts show, as they do here, that separate occupations have been carved out of component elements of the cables, those elements, no matter how small in diameter, are properly to be treated as parts of the hereditaments with which they are occupied.”
[14]Because liability for rates depends on occupation, many of the cases about what is a hereditament have focussed on the question of occupation, rather than on the physical characteristics of what is said to be the hereditament. Even when an issue arises as to the extent of the hereditament, it is often affected by questions of occupation, for example as to whether adjacent premises are to be treated as all one rateable hereditament, or as several, either answer to which may be beneficial or otherwise to the occupier depending on the circumstances.[15]In this case, unusually, the Appellant’s case is that the extent of the hereditament must be determined without regard to occupation, or at least on the basis that the factor of occupation is not decisive, because occupation is a secondary issue and ought not to be addressed until one knows what is the hereditament in question.[16]For the Appellant, Mr Wood Q.C. contended that this was a case in which to start with the question of occupation would beg the question of what was the right unit of property. He described as separate installations the aggregate of trenches, ducts, sub-ducts, cables and fibres as they lay within a given area over which either Vtesse or a third party provider had relevant rights. He argued that separate installations belonging to Vtesse and to third party providers were complete and separate units of property which constituted separate hereditaments. While Vtesse was rateable in respect of all fibres within its own separate installation, it was not rateable in respect of a given pair of fibres embedded within a cable in a sub-duct and in turn a duct in a trench provided by the third party, because that pair of fibres was not separate or separable from the aggregate but was an integral part of the whole. It made no difference that Vtesse had the right, by agreement, to enjoy the use of a pair of fibres. The fibre optic telecommunications network constituted by Vtesse’s connection of a pair of its own-build fibres with those of third parties to connect premises of a customer could not, he said, sensibly be called a “unit of property” at all.[17]Exploring the implications of the Lands Tribunal’s decision, he asked rhetorically what was the status, as regards rating, of other fibres in the third party’s installation. It seems to me, with the benefit of Mr Holgate Q.C.’s submissions, that the answer would be that dark fibre is not rateable at all, and other lit fibres are rateable as part of other hereditaments consisting of the particular network of which they form part, on the same principle as that applied by the Lands Tribunal to Vtesse’s network, but I do not need to, and I do not, decide whether that is so. Mr Wood criticised the conclusion that dark fibre was not rateable, on the basis that, even without being connected up, the presence in a duct of fibres could of itself enhance the value of the land through which it passed and which it could serve. By analogy, a building which was equipped with ducts for a communications network, and all the more so one equipped with fibre optics in those ducts, could command an enhanced letting value for office use as compared with one into which ducts and fibres had yet to be installed. He made that point in his oral submissions in reply; so far as I am aware it had not been made previously, so that we do not have the benefit of the Respondent’s or the Lands Tribunal’s comments on it. He made the point in response to Mr Holgate asserting that unconnected fibre, even if capable of occupation at all, was not capable of beneficial occupation, and therefore not rateable. Mr Wood did not accept Mr Holgate’s analogy between dark fibre and premises which are under construction or undergoing major alteration so as not to be capable of beneficial use in the meantime, which were held not to be rateable in Arbuckle Smith & Co Ltd v Greenock Corporation [1960] AC 813. Whether that is the right proposition, or whether it is a question of unconnected fibres being mere chattels until they are connected up to a user’s premises so as to be capable of functioning as a communications network, it is unnecessary to consider. Equally, it is unnecessary to decide how dark fibre falls to be treated for rating purposes. If the Lands Tribunal is right, lit fibre is part of a separate rateable hereditament consisting of the particular network connecting two sites of a particular user. If the Appellant is right, the lit fibre which forms part of a network is part of several hereditaments, according to the identity of the provider of the particular stretch of fibre.[18]There is something rather striking and, at first sight, surprising about the idea that a network consisting of two fibres, themselves not much more than the size, in cross-section, of a human hair, though each encased in a protective plastic coating, but stretching for some 147 kilometres, should constitute a single hereditament. However, cables have for many years been treated as separate hereditaments. Though not, perhaps, as narrow as optic fibre, they can be seen as analogous to a fibre optic network. They may not have extended over so great a distance, and in any event only the cables situated within the area of a particular rating authority would have been involved in any given case in the past, because of the different rules then applicable about the contents of a local rating list, before the enactment of the provisions as to “cross-boundary property” in regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989, SI 1989/1060, which apply to any unit of property which by virtue of section 64(1) of the Act comprises separate hereditaments solely by reason of being divided by a boundary between billing authorities. Such a unit of property is to be treated as one hereditament. (This was only possible with the change, in 1990, from the position in which a separate rate was set by each rating authority, to the setting of a uniform business rate by the Government.) Nevertheless the cases are of assistance in setting out the correct approach in principle.[19]In R v Chelsea Waterworks (1833) 1 B & Ad 156 the waterworks company was held rateable in respect of water pipes under St James’ Park leading to and from a reservoir which it maintained. In Electric Telegraph Co v. Salford (1855) 11 Ex 181, the company which had constructed posts, with fastenings, wires and apparatus for telegraphic communication along the line of the London and North Western Railway Company’s track, was held rateable in respect of the posts and the wires, though they passed through the air above ground rather than passing under the ground itself, and this notwithstanding a right of the railway company to vary the location of the posts if they interfered with the running of the railway. In Pimlico Peckham and Greenwich Street Tramway Company v Greenwich (1873) LR 9 QB 9, the tramway company was held rateable in respect of the tramlines laid on the road. In Lancashire and Cheshire Telephone Exchange Company v Manchester (1884) 14 QBD 267 the telephone company was held rateable in respect of telephone wires connected to fittings on the houses of subscribers. The principles applied in these cases were not questioned in the more recent cases of Amalgamated Relays Ltd v Burnley [1950] 2 KB 183, and Jackson (Valuation Officer) v London Rediffusion Service Ltd (1951) 44 R & IT 439.[20]A similar principle was applied in Halkyn District Mines Drainage Companyv. Holywell [1895] AC 117. In that case the owner of land had granted to the drainage company the exclusive right of drainage though a tunnel and a watercourse in his land, with the right of placing works in the tunnel and the watercourse and of making other tunnels in connection therewith, reserving to himself mineral and other rights. The Court of Appeal held that the company had no more than an easement, and was not in rateable occupation of anything. The House of Lords allowed the appeal, holding that the company was in occupation of the tunnel and watercourse for the purposes of and in connection with the enjoyment of the easement, and had the exclusive use of them for the purposes of drainage, the rights reserved to the landowner being subordinate to those granted to the company. In response to the submission on the part of the company that occupation, to be rateable, had to be exclusive, and that the rights reserved by the landowner showed that the company did not have exclusive occupation, Lord Herschell LC said, at page 126:
“It was strongly contended, on behalf of the respondents, that they could not be liable to be rated, inasmuch as they were not in exclusive occupation. There are many cases where two persons may, without impropriety, be said to occupy the same land, and the question has sometimes arisen which of them is rateable. Where a person already in possession has given to another possession of a part of his premises, if that possession be not exclusive he does not cease to be liable to the rate, nor does the other become so. A familiar illustration of this occurs in the case of a landlord and his lodger. Both are, in a sense, in occupation, but the occupation of the landlord is paramount, that of the lodger subordinate.”
[21]Similarly, at page 133-4 Lord Davey said this:
“But then it is said that the occupation is not exclusive, inasmuch as the Duke of Westminster has reserved certain rights to himself and his licensees over the tunnels and water-course, and in pursuance of such reserved rights the Halkyn Mining Company have laid a tramway along one of the tunnels and have placed ventilating pipes there. Two questions arise: What is meant by exclusive occupation when used in connection with the subject of rating? And, What are the conditions subject to which the Duke exercises his reserved rights? It is clear that exclusive occupation does not mean that nobody else has any rights in the premises. The familiar case of landlord and lodger is an illustration. The cases shew that if a person has only a subordinate occupation subject at all times to the control and regulation of another, then that person has not occupation in the strict sense for the purposes of rating, but the rateable occupation remains in the other, who has the right of regulation and control.”
[22]The question of paramount and subordinate occupation recurred in the leading case of Westminster Council v. Southern Railway [1936] AC 511. Lord Russell of Killowen said this at 529:
“In the next place I would make a few general observations upon rateable occupation. Subject to special enactments, people are rated as occupiers of land, land being understood as including not only the surface of the earth but all strata above or below. The occupier, not the land, is rateable; but, the occupier is rateable in respect of the land which he occupies. Occupation, however, is not synonymous with legal possession: the owner of an empty house has the legal possession, but he is not in rateable occupation. Rateable occupation, however, must include actual possession, and it must have some degree of permanence: a mere temporary holding of land will not constitute rateable occupation. Where there is no rival claimant to the occupancy, no difficulty can arise; but in certain cases there may be a rival occupancy in some person who, to some extent, may have occupancy rights over the premises. The question in every such case must be one of fact - namely, whose position in relation to occupation is paramount, and whose position in relation to occupation is subordinate; but, in my opinion, the question must be considered and answered in regard to the position and rights of the parties in respect of the premises in question, and in regard to the purpose of the occupation of those premises. In other words, in the present case, the question must be, not who is in paramount occupation of the station, within whose confines the premises in question are situate, but who is in paramount occupation of the particular premises in question. A familiar instance of this competing occupancy is the case of the lodger. It has long been settled on the one hand that, in the case of lodgers in a lodging house, the lodgers are not rateable in respect of their occupancy of their rooms, but that the landlord is the person who is rateable in respect of his occupancy of the entire house. In view of the frequently fleeting nature of the occupancy of a lodger, the convenience of this view, indeed the necessity for it, is obvious; but it purports to be based upon the paramountcy of the landlord’s occupation, arising from his control of the front door and his general control over and right of access to the lodgers’ rooms for the proper conduct of the lodging house. And the same view as to rateability has prevailed in the case of the business lodger. On the other hand the occupation of a person residing in a flat is such that he is (generally speaking) rateable, although as a matter of practice, the owner of the block of flats usually pays the rates charging the tenant an inclusive rent. My Lords, I cannot but feel that the position of the lodger in relation to rateability is an exceptional one, and is largely the product of practical considerations. But it can I think be justified and explained when we remember that the landlord, who is the person held to be rateable, is occupying the whole premises for the purpose of his business of letting lodgings, that for the purpose of that business he has a continual right of access to the lodgers’ rooms, and that he, in fact, retains the control of ingress and egress to and from the lodging house, notwithstanding that the power of ingress and egress at all hours, is essential to the lodger. The general principle applicable to the cases where persons occupy parts of a larger hereditament seems to be that if the owner of the hereditament (being also in occupation by himself or his servants) retains to himself general control over the occupied parts, the owner will be treated as being in rateable occupation; if he retains to himself no control, the occupiers of the various parts will be treated as in rateable occupation of those parts. What I may call the landlord-control principle has been applied to cases other than lodgers. Thus in Allan v. Liverpool Overseers (1874) LR 9 QB 90 and Rochdale Canal Co. v. Brewster [1894] 2 QB 852, the Mersey Dock Board were held to be in rateable occupation of premises (part of their dock system) which they had appropriated to the use of others. In each of these cases the true ground of the decision was, I think, that the use to be made of the appropriated premises by the occupiers thereof was subject to the general control of the Dock Board. Lopes LJ in Rochdale Canal Co. v. Brewster put it thus: “In this case I have come to the conclusion that there is such a predominating right of control reserved to the Board as to prevent the occupation being so exclusive as to be rateable. In my judgment, what passed to the respondents was the licence to use the accommodation of the cranes, quays, land and water berths subordinated to the superintending control of the Board - a mere incorporeal right. They could not exclude the Board.”
The Lord Justice is pointing out in other words that the Board had retained the right of control over the use made of the appropriated part by the occupants thereof. On the other hand a different result was reached in the case of Young v. Liverpool Assessment Committee [1911] 2 KB 195. There such rights as were reserved to the Mersey Dock Board did not involve any control over or interference with the carrying on of their business on the appropriated parts by the occupants thereof.”[23]He expressed his conclusion on this point at page 532:
“In truth the effect of the alleged control upon the question of rateable occupation must depend upon the facts in every case; and in my opinion in each case the degree of the control must be examined, and the examination must be directed to the extent to which its exercise would interfere with the enjoyment by the occupant of the premises in his possession for the purposes for which he occupies them, or would be inconsistent with his enjoyment of them to the substantial exclusion of all other persons.”
[24]That principle is said to be relevant to the present case, in the sense that Mr Wood submitted that Vtesse did not have actual or exclusive occupation of the fibres. That, however, is a secondary submission, in case his first point, that the network is not a unit of property at all, fails.[25]Turning back, therefore, to the question whether the network is a unit of property, the analogy of a network of telegraph or telephone wires suggests that it could be. Mr Wood differentiated the decided cases about conducting media on the basis that, in those cases, the same party had installed the media as owned them and was in control of them, being thus in occupation of them. Here, on the other hand, Vtesse had only installed the own-build sections whereas third parties had installed the largest parts of the network. However, it is clear that ownership is not a relevant factor for the decision whether something is a unit of property so as to constitute a hereditament (see, for example, Halkyn v Holywell [1895] AC at 125, and Westminster Council v. Southern Railway [1936] AC at 533, 552). He also relied on the characteristics of the physical structures involved, and the inaccessibility to Vtesse of the pair of fibres in a third party’s ducts. No doubt it is right to have regard to the physical features of the installations, the network and what else is within the ducts and sub-ducts through which the fibres pass. Among the relevant physical features, however, are the connections effected between the third party fibres and those installed by Vtesse itself, and, in turn, the customer’s premises. This is what is necessary to enable the network to be used and thus to be of value.[26]Mr Holgate pointed out that the pair of fibres was not so small as to be incapable of being the subject of a commercial agreement for their use as a network, and submitted that there was therefore no reason why they should be regarded as too small to comprise a hereditament. As the President said at paragraph 38, in the second sentence, the fibres in a third party’s duct are capable of forming part of a hereditament with the rest of the network provided by Vtesse; the question for him to decide was whether they did.[27]Mr Holgate showed us the decision of this court in Gilbert (Valuation Officer) v. S Hickinbottom & Sons Ltd [1956] QB 40. That case was concerned with two premises on opposite sides of a street, the one being a bakery and the other being a depot for the repair and maintenance of delivery vans and of the machinery of the bakery, thereby providing facilities which it was essential should be available in or close to the bakery in order that the supply of bread to customers should be maintained. Both premises were in the same occupation and both were entered in the rating list as a single hereditament, with beneficial consequences for the occupier because if the depot had been a separate hereditament it would not have been entitled to industrial derating, which it was as part of a single hereditament. The valuation officer proposed that the list be amended to include the two premises as separate hereditaments. The Lands Tribunal rejected the proposal. The valuation officer’s appeal failed. The Court of Appeal held that, the question being one of fact and degree to be decided by the tribunal of fact, the court could not allow the appeal unless there had been a misdirection. In particular Lord Denning MR at page 50 found it difficult to see how the Lands Tribunal had distinguished a number of previous cases in which premises on opposite sides of the road had been held to be separate hereditaments, but he said this:
“Those cases commend themselves to my mind: and I confess that I find it very difficult to distinguish our present case from those on the facts; but there must be some distinction because the chairman of the Lands Tribunal had those cases well in mind; and he had the advantage of a view, which we have not. We can only reverse his decision if it was one to which he could not reasonably come. I am not prepared to go so far and I would therefore dismiss the appeal.”
Morris LJ and Parker LJ gave judgments to similar effect.[28]In the present case, as is apparent from the passage which I have already cited from the President’s decision, he addressed the question whether the network, being capable of forming a hereditament, did in fact constitute one. He dealt with the physical characteristics of the installations in paragraph 38, and came to Mr Wood’s argument from practical common sense at paragraph 42. He rejected that argument. Mr Wood submitted that he misdirected himself by giving too much importance to the question of occupation. He also questioned the last sentence of paragraph 42, as to what the President meant by “the hereditaments with which they are occupied” (my emphasis).[29]More fundamentally, Mr Wood took issue with the proposition, put forward in Ryde on Rating, at C [113]-[123], that “the concept of the hereditament for rating purposes is inextricably bound up with the concept of rateable occupation”. He said that it was certainly closely connected with the question of occupation, which might in some cases be decisive, but that it was logically a distinct question, prior to that of occupation.[30]It does not seem to me that it is necessary to decide whether the proposition in Ryde is correct, or whether it overstates the interdependence of the two concepts, in order to decide this appeal. Plainly the physical features of the items under consideration are relevant, and were considered by the President. Equally plainly their use may be relevant, not least because it is the use of chattels that makes them relevant to rating, as discussed above. For the same reason, it may be relevant to consider the terms of agreements entered into as regards their use.[31]I can see no basis for saying that the President misdirected himself in any way when he considered the question whether the network was a unit of property, so as to form a hereditament. It seems to me that what he meant in the last sentence of paragraph 42 is clear from the penultimate sentence of paragraph 38, where he spoke of the fibres provided by third parties as being “connected to property owned and occupied by” Vtesse, that is to say the own-build fibres, by way of contrast with the facts of the Westminster Council v. Southern Railway case. I do not feel anything of the surprise at the result which Lord Denning felt at the decision of the Lands Tribunal in the Gilbert case. The President’s conclusion in this case was one which was open to him and was not reached as a result of any error of law.[32]Turning then to Mr Wood’s alternative ground of appeal, that Vtesse was not in occupation of the third party’s fibres, in John Laing & Son Ltd v. Kingswood [1949] 1 KB 344, at 350, Tucker LJ said that there were four necessary ingredients to rateable occupation:
“first, there must be actual occupation; secondly, that it must be exclusive for the particular purposes of the possessor; thirdly, that the possession must be of some value or benefit to the possessor; and, fourthly, the possession must not be for too transient a period.”
The question in the present case, as in that case, concerns actual occupation and exclusive occupation. Mr Wood submitted that, even if Vtesse has the right to the exclusive use of the pair of fibres, that is not the same as actual occupation, and he said that even if Vtesse did have any form of occupation, it was subordinate to that of the third party provider.[33]Taking first the question of use as opposed to occupation, it is clear from the terms of the relevant agreements, which Mr Wood showed us and which the President summarised at paragraphs 17 to 21 of his decision, that Vtesse has the right under them to the exclusive use of the particular pair of fibres. There are limitations on what Vtesse can do, so that, for example, the third party controls access to the fibres, and is responsible for maintenance. However, Vtesse is the only person entitled to use the fibres for the only purpose for which they are useful and valuable. Given the connection between its own fibres and the third party’s fibres, it does not need physical access to the third party’s fibres in order to make use of them. It seems to me that the question whether a party is in occupation of a particular hereditament must be decided by reference to the nature of the hereditament in question. That follows from what Lord Russell of Killowen said in Westminster Council v. Southern Railway at page 532, cited above. In the case of a different kind of hereditament, it could be meaningful to differentiate between possession, occupation and use. In relation to these optical fibres, it seems to me that the party who has the sole right to use them for the sole purpose for which they are intended can, at the very least, properly be held to be in actual occupation. I do not need to decide whether that is the only possible conclusion; it is certainly a possible conclusion.[34]The next question is whether that occupation is exclusive, or whether the third party is also in occupation and, if so, whose occupation is paramount. Mr Wood submitted that Vtesse’s rights were very similar to those of a lodger as compared with the position of the landlord, so that the third party, equivalent to the landlord, should be regarded as in paramount occupation. The President did not expressly refer to the discussion of lodgers in the cases, but he cited extensively from Westminster Council v. Southern Railway, including from passages which include discussion of the lodger. He cannot have overlooked that discussion.[35]In support of this submission Mr Wood relied on the fact that Vtesse had no right to physical access to the fibres in question and to the fact that the third party allocates them, effects the necessary connection with Vtesse’s own fibres, maintains the fibres and, if necessary, can change them for others.[36]The President rejected this argument in paragraphs 39 and 40 of his decision. He held that the third party had no control over Vtesse’s use of the fibres, which he regarded as essential if the third party was to be regarded as having paramount occupation. It seems to me that he was right to regard this as essential: it follows from the third paragraph quoted from Lord Russell of Killowen at paragraph [22] above. He also held that the third party’s right to change the fibres in use for others was insufficient to deprive Vtesse of exclusive occupation. Unless that conclusion is one which cannot stand in law on the facts found, the appeal must fail. Mr Wood submitted that on the facts found the only possible conclusion was that Vtesse was not in occupation at all, or not in exclusive but rather in subordinate occupation to that of the third party.[37]It seems to me, however, that it was open to the President to conclude that Vtesse was in actual occupation, and that this occupation was exclusive, not being shared with, and therefore not subordinate to, that of the third party. He considered the questions which fell for decision, and did so by reference to the relevant facts as regards the physical circumstances and the terms of the agreements. I cannot detect any misdirection in what he said at paragraphs 39 and 40 on this point. The points most relevant to this argument which he identified in his decision are the second and third mentioned in paragraph 39, which are really different aspects of the same point. For my part I too find those significant and cogent.[38]I would therefore dismiss the appeal, on the basis that the President was entitled to hold, as he did, that the network was a single hereditament and that Vtesse was in occupation of it for rating purposes.[39]I agree that the decision of the President of the Lands Tribunal contains no error of law, including in that class perversity of fact-finding. It is nevertheless a matter of concern that liability to business rates can depend so heavily on the uncertain meanings of the two key concepts, hereditament and rateable occupation.[40]Mr Wood is right to segregate the two things and to insist that until a hereditament is identified, occupation cannot arise, if for no other reason than that what amounts to occupation will ordinarily depend upon the physical and legal character of the hereditament. The key to the apparently circular definition given by s.115(1) of the General Rate Act 1957, which defines a hereditament by its liability to rating, is that it assumes and relies on an existing fund of knowledge of what is and is not capable of being shown as a separate item in the valuation list. Hence the centrality of an expert tribunal’s sense of the case, and the troubling fact that here two such tribunals have reached different conclusions. If the President had reached the conclusion for which Mr Wood contends on this limb of the appeal, I doubt whether we could have overset it; and for the reasons given by Lord Justice Lloyd, I do not consider that we may overset his decision that a fibre-optic cable link, at least when lit, is a hereditament.[41]As to whether it is in rateable occupation, I would reject Mr Wood’s analogy with the lodger in a boarding house. The lodger is a recognised anomaly in rating law. Lord Russell of Killowen, in the passage of his speech in Westminster Council v Southern Railway [1936] AC 511 quoted at paragraph [22] above by Lord Justice Lloyd, recognised this and acknowledged that the landlord’s liability arose as a matter of practicality from “the frequently fleeting nature of the occupancy of a lodger”.[42]Although Lord Russell goes on to offer legal grounds for his conclusion, I would respectfully venture two comments on these. First, it seems doubtful that the ordinary landlord really does have “a continual right of access to the lodgers’ rooms”. Secondly, if he did, the want of rateable occupation on the lodger’s part would not need to be described, as Lord Russell described it, as “exceptional”.[43]It therefore seems to me useful, in deciding the present argument, to decide whether in truth the lodger’s position in rating law is orthodox or heterodox. I would hold that it is the latter. It follows that unless Mr Wood can demonstrate similar or analogous reasons of practicality in the case of fibre-optic cables – and he cannot - he derives no assistance from the nature of a lodger’s occupancy.[44]I agree that the appeal should be dismissed for the reasons given by Lord Justice Lloyd.

Cited in 8 later judgments