PHILIP JOHN CARTWRIGHT (Valuation Officer) v CHERRY VALLEY FARMS LIMITED RA/36/2001

UPPER TRIBUNAL
LANDS CHAMBER
RA/36/2001Case No RA/36/2001
PHILIP JOHN CARTWRIGHT (Valuation Officer)ApplicantCHERRY VALLEY FARMS LIMITEDRespondent
The PresidentVenue 48/49 Chancery Lane, London WC2A 1JRDate 20 January 2003Hearing 5 December 2002 © CROWN COPYRIGHT 2002Property: Factory & Premises, The Feather Plant, Cuxold Road, Rothwell, Market RasenCatchwords: RATING – agricultural exemption – buildings used for washing, drying and packing duck feathers – whether used in connection with duck rearing buildings – Local Government Finance Act 1988 Schedule 5 para 7 – held agricultural buildings exempt from rates
[1]This is an appeal by the valuation officer against a decision from the Lincolnshire Valuation Tribunal, given in writing on 29 June 2001, that buildings known as the Feather Plant, Cuxwold Road, Rothwell, Market Rasen, Lincolnshire, constituted an agricultural building within the meaning of Schedule 5 to the Local Government Finance Act 1988 and were thus exempt from non-domestic rates. The issue in the case is whether the Feather Plant, which I shall refer to as the appeal hereditament, is indeed exempt under this provision. It is agreed that if the appeal should succeed the appeal hereditament should be entered in the list as “Factory and Premises” at a rateable value of £20,750, with effect from 1 April 1995. If the appeal should fail, no entry in the list would fall to be made. Facts[2]There is an agreed statement of facts, from which I abstract the following. The appeal hereditament stands together with other buildings and is reached by means of a short shared private road. The main building at the appeal hereditament is detached and comprises five partially open main bays of block wall construction with a pitched steel/timber supported corrugated asbestos roof. The walls of the building are rendered internally and the roof is lined with insulation board. The building is unheated and has a total area of about 2,240 square metres. It has been sub-divided internally into the main production areas with ancillary storage, wash and unloading bay, baling room, office, mess room and stores. There are also a number of areas that are unused.[3]The respondent is a limited company which, together with its shareholders breeds and rears ducks on a commercial basis. In addition to the appeal hereditament, the respondent also occupies six duck growing farms and a factory at sandbraes (approximately 4½ miles from the Appeal Hereditament) where ducks are killed and prepared for sale (“the duck processing unit”). The duck processing unit handles the entire output of 55 duck growing farms, the six farms which are occupied by the Respondent, and 49 others which are occupied by shareholders of the Respondent. Each consists of poultry houses in which the intensive breeding or rearing of ducks takes place, together with any necessary ancillary land and buildings, and each is contiguous to not less than 2 hectares of agricultural land. Each of the 55 duck growing farms is exempt from non-domestic rates by virtue of paragraph 5(1)(a) of Schedule 5 to the Local Government Finance Act 1988 (and in particular sub-paragraphs (2) and (3) thereof).[4]At the duck processing unit, the respondent produces whole duck carcasses and duck portions. First of all the live ducks are killed. The carcasses are then scalded and de- feathered. Further processes are then applied in order to produce either whole carcasses or portions which are ready for sale. After the birds have been plucked the wet feather is loaded into large plastic barrels to be taken to the appeal hereditament by a dedicated delivery van. Duck feathers differ from chicken feathers in that they have a value after they are washed and 3 dried, whereas chicken feathers are valueless and are simply disposed of. Feather obtained from waterfowl, which contains 10-15% down, is a valuable lightweight insulating material and filler. Such feather and down is used in the manufacture of a variety of garments, duvets, pillows, etc. The appeal hereditament is used by the respondent for treatment of the feather to enable this by-product of the operations carried on in the duck processing unit to be marketed. There are other by-products from which the respondent derives no income and for whose disposal the respondent incurs costs. These are:- a) material which is unfit for consumption; the respondent pays for this to be removed and rendered, after which it is either incinerated or used for landfill; b) blood is removed and mixed with other products to produce fertilizer; again the respondent pays for this to be removed; c) viscera which can be used in the manufacture of pet foods; however, currently the supply of viscera exceeds demand and the respondent therefore has to pay for this to be removed; and d) heads and necks which are suitable for the manufacture of pet food and are currently so used; these are collected from the duck processing unit free of charge by a third party. Disposal of all these by-products takes place direct from the duck processing unit.[5]After the wet feather is delivered to the appeal hereditament it is tipped from the barrels into a pre-wash or “pool” (located in the wash and unloading bay), which consists of a water- filled elevated pit with mechanical paddles which agitate the water. An industrial base cleaner called Cetapol is added to the water. This removes dirt, blood and fat from the feathers and prevents the rapid decomposition which would otherwise occur if the feather was not cleaned. The feathers are then removed from the pool, and taken to the main production area, which has four production lines each of which replicates the same functions. (Any one feather will only pass through one of the four lines.) First the feathers are washed for a second time in a “washer”, again using Cetapol. They are then spurn in a “hydro spinner” – which is, essentially, a centrifuge, driving out water. From the hydro spinner, the feathers are piped into a hot air dryer, which removes much of the moisture, and then to a cooler to remove the heat generated by the preceding processes. The feathers are then piped to the “bag fill”, where they are loaded into sacks, each of which is able to hold 30kg of feathers. All of these processes are semi-automatic. Finally, the loaded sacks are taken to the baling room, where they are compressed and strapped together into bales, each consisting of 10 sacks.[6]The entire feather plant process excluding baling, takes about 3 hours to complete from delivery of the feather. Baling (which is carried out in a separate baling room) normally takes place on the following day to allow the feather to cool completely before it is baled. The bales are then stored at the appeal hereditament until there is a full lorry container load, which is then shipped out of the plant. Feather processing takes place at the appeal hereditament on all days on which the duck processing unit is in operation and approximately 3,000 kilograms of feathers (the by-product of the slaughter of 30,000 ducks) are processed each day. It takes between four and five days production to fill a lorry container. 4[7]Electrical switchgear is located on one wall of the former engine room of the factory, the remainder of which is unused. In addition there is a small office for the manager of the Feather Plant and a mess room for the employees together with toilet facilities. The remainder of the building is used for the storage of redundant plant and machinery, furniture. Etc, or is unused. Outside there is a detached pump house which supplies water from a borehole to the main building. There is also an external car parking area with space for at least five cars.[8]The operations at the appeal hereditament are the minimum required to put the feather into a condition in which it can be sold as feather. After the ducks have been plucked the feather is wet and could not be sold in that state as it would go off and lose its value very quickly. However the feather which is sold by the respondent has to be subjected to further processing involving cleaning, purifying and grading before it can be used for production by garments or bedding.[9]The appeal hereditament was not originally designed as a feather processing plant (it was, in fact, used for the slaughter of ducks prior to the construction of the duck processing unit at Sandbraes). When the appeal hereditament was used for the processing of ducks prior to construction of the present unit at Sandbraes it was also used for feather processing. There is no reason why the feather processing has to take place on a different site. However, when the new duck processing unit was constructed at Sandbraes in 1978 it was decided to leave feather processing at the old site for two reasons, namely:- a) a considerable volume of water is required for processing the feather and there is a borehole at the appeal hereditament which is a suitable source of supply; and b) the equipment used for baling the feather is situated below ground level. However, ground conditions at Sandbraes meant that it would not have been possible to relocate that equipment.[10]These facts were amplified in unchallenged evidence by David Barry Blewitt, Production Director of the respondent company. I will refer to this evidence later. The statutory provisions[11]Exemption from non-domestic rating is conferred by section 51 of the 1988 Act on a miscellany of property to the extent set out in Schedule 5. In relation to agricultural premises the relevant provisions are the following:- “1. A hereditament is exempt to the extent that it consists of any of the following –(a) agricultural land;(b) agricultural buildings… 5(1) A building is an agricultural building if – 5 (a) it is used for the keeping or breeding of livestock… 5(2) Sub-paragraph (1)(a) above does not apply unless – (a) the building is solely used as there mentioned, or (b) the building is occupied together with agricultural land and used also in connection with agricultural operations on that land, and that other use together with the use mentioned in sub-paragraph (1)(a) is its sole use… 5(4) A building (the building in question) is not an agricultural building by virtue of this paragraph unless it is surrounded by or contiguous to an area of agricultural land which amounts to not less than 2 hectares… 7(2) A building is also an agricultural building if it is not a dwelling and – (a) it is used in connection with the operations carried on in a building which, or buildings each of which, is used for the keeping or breeding of livestock and is an agricultural building by virtue of paragraph 5 above, and (b) sub-paragraph (3), (4) or (5) below applies as regards the building first mentioned in this sub-paragraph (the building in question). (3) This sub-paragraph applies if the building in question is occupied by a body corporate any of whose members are [or are together with the body] the occupiers of the building or buildings mentioned in sub-paragraph (2)(a) above. (4) This sub-paragraph applies if the building in question, and the building or buildings mentioned in sub-paragraph (2)(a) above, are occupied by the same persons… (7) Sub-paragraph (2) above does not apply unless the use there mentioned…is its sole use. 8(5) In paragraphs 5 and 7 above ‘livestock’ includes any mammal or bird kept for the production of food or wool or for the purpose of its use in the farming of land.”[12]Each of the 55 duck growing farms, as I have said, is exempt under para 5(1)(a) as an agricultural building that is used for the keeping or breeding of livestock. Since the occupation requirements of para 7 are met, the appeal hereditament will be exempt if it is solely used in connection with the operations carried on in the duck growing farm buildings. The issue in the case is whether it is indeed “used in connection with” those operations. “Used in connection with”[13]The leading case on the meaning of the words “used in connection with” where they appear in relation to the exemption of agricultural buildings is W & J B Eastwood Ltd v Herrod (VO) [1971] AC 160. That was a case that was decided on the definition of “agricultural buildings” in section 2(2) of the Rating and Valuation (Apportionment) Act 6 1928. It concerned the rateability of chicken broiler houses and other buildings used for the purposes of the production of chickens and their preparation for the market. So far as material to that case, agricultural buildings were defined as “buildings…occupied together with agricultural land … and…used solely in connection with agricultural operations … thereon.” The provision thus differed from those that require consideration in the present case, but the words “in connection with” and the requirement that the use should be the sole use appear in the later provisions. It was on these that the decision in Eastwood v Herrod turned, and the words can be taken to bear the same meaning in the later provisions. The House of Lords held that the buildings were not used solely in connection with agricultural operations on agricultural land. Lord Reid said (at 168-169):
“The key words are ‘used in connection with’ agricultural operationson the land. Ordinary usage of the English language suggests that the buildings must be subsidiary or ancillary to the agricultural operations… It is true that attaching to the definition the meaning which I prefer will lead to there being many borderline cases. Rigid dividing lines may often be preferred to making the test one of degree. But on the other hand, as the history of the interpretation of this definition by the courts shows, an unreasonable dividing line leads to even greater difficulty. I do not foresee serious difficulty if ‘used in connection with’ is held to mean use consequential on or ancillary to the agricultural operations on the land which is occupied together with the buildings… It was argued for the respondent that the words ‘used in connection with’ agricultural operations should be strictly and narrowly construed so as to exclude buildings used to deal with the products of these operations. I observe that in the reported argument before the Lands Tribunal in Thompson v Milk Marketing Board (1952) 45 R. & I.T. 184 it was submitted with regard to a dairy farm that what happened to the milk after it had been ‘husbanded’ was in no sense an agricultural operation . One might pour it down the drain or use it in this way or that, but that had nothing to do with the agricultural operations on the land. The ultimate decision of the Court of Appeal in that case is not surprising if that was the kind of far- fetched argument submitted by the valuation officer. The whole object of producing a crop on the agricultural land is to market it in one form or another, and I think that anything done in the farm buildings, including storage and treatment must be held to be done in connection with the agricultural operations on the land. But here again there must be a limit. Everything is saleable at a price, so even storage for a time or very simple treatment is not strictly necessary. One must have regard to ordinary and reasonable practice. But there comes a stage when further operations cannot reasonably be said to be consequential on the agricultural operations of producing the crop. I agree with Lord Hunter when he said in Midlothian Assessor v Buccleuch Estates Ltd 1962 S.C. 453, 459: ‘I would agree that agricultural and pasturage do not cease when the crops are grown on beasts raised, but may properly include operations reasonably necessary to make the product marketable or disposable to profit.’ But I also agree with Lord Sorn when he said in Perty and Kinross Assessor v Scottish Milk Marketing Board, 1963 S.C. 95 that if a farmer set up a butcher’s shop 7 on his farm to sell his fat stock as meat no one would suggest that it should be derated, for the shop would be used for an independent purpose distinct from the farming operations.”
[14]Lord Morris of Borth-y-Gest said (at 174 G-H):
“…The words of the definition of ‘agricultural buildings’ suggest to my mind buildings that are needed as an adjunct or a necessary aid to agricultural operations taking place on agricultural land and used solely in connection with those operations. This does not necessarily involve that the use to which the buildings are put must be of minor or minimal importance but it does involve that no part of the use is unconnected with the agricultural land that is needed as an adjunct or aid to the operations and enterprises for which the layer houses are used.”
[15]Viscount Dilhorne said (at 181B):
“Were the appellants’ buildings ‘used solely in connection with’ these operations? In my opinion, the answer is, No. I think that the language of the definition requires that buildings to come within it must be used as adjuncts to the agricultural operations on the land, or as Donovan L.J. said in Gilmore v Baker-Carr [1962] 1 W.L.R. 1165, 1175 ‘ancillary or complementary to the agricultural purpose of the land, and not vice versa.’”
Evidence[16]In his evidence Mr Blewitt said that the feather from the duck processing unit was unsaleable in the condition in which it was removed from the plucking machines. It was wet, dirty and contaminated with both blood and fat. It carried a high bacterial load and it would deteriorate rapidly if it was not cleaned. The processes carried out in the feather plant, washing, drying and baling, were the minimum required to put the feather into a saleable condition. Unless they were carried out the feather would be a waste product. At the end of those processes it was still raw feather. As such it was a commodity product and it required further purification, separation and grading before it could be used in the production of garments, quilts, etc. The company did not carry out any of those further processes. Instead it sold the raw feather to dealers who in turn sold it on to feather processors in the Far East.[17]Feather from water fowl containing 10-15% down, Mr Blewitt said, was a valuable lightweight insulating material and filler used extensively in the production of duvets, pillows and clothing. Large numbers of geese and ducks were grown commercially and the feather from the birds was collected and sold, making a significant contribution to the viability of the farming operation. Such feather, unprocessed and unsorted, consisted of a mixture of feather types ranging from large coarse quills through various sizes of contour feather and down. Cherry Valley’s feather as sold was not graded and was variable in terms of its composition. In particular the down content of the feather in each batch varied with bird age and strain and the season of the year. 8[18]When it arrived at the feather processor’s plant in the Far East the feather from Cherry Valley would be processed alongside feather from many other sources in the Far East, Europe and America. The processor would start by removing dust and debris from the feather, and it would then be washed and treated with various chemicals to remove fat and other contaminants. Following washing, the feather was centrifuged, dried and cooled before being sorted. The feather sorter could be thought of a lift shaft in which the bales of feather were introduced on the ground floor. An updraft of air caused the feather to float upwards. The heavier feathers would stay near the base of the unit, whereas the down would be lifted to the top. The processor would typically take feather off at 6 or 7 points from within the chamber, discarding the heavy, unwanted quills and separating the contour feathers into a number of different fractions based on their size. The different father fractions were collected and baled separately.[19]The feather processor would not normally be involved in the manufacture of the end product. Typically an end user would agree a specification based on his product requirements for cost, insulation and density. The processor would then blend the required quantities of a number of feather fractions and down to meet the specification. Large commercial blenders would be used to distribute the down consistently within the mix, and the resulting product would then be re-baled and shipped to the manufacturer. Submissions[20]For the valuation officer Mr Timothy Mould submitted that the phrase “used in connection with” in their statutory context, as considered in Eastwood v Herrod, required that the use of the building should be consequential on or ancillary to the agricultural operations carried on in the buildings that were exempt under paragraph 5 – in this case the keeping or breeding of ducks at the duck rearing farms. The link between the processing of the feathers at the appeal hereditament and the keeping and breeding of the ducks at the duck rearing farms, said Mr Mould, was too tenuous to constitute such a relationship. The processing of the feathers was consequential upon or ancillary to the activities carried on at the duck processing unit rather than at the duck rearing farms. The feathers were a valuable by- product of the slaughtering process, not the rearing and breeding process. In the same way, the process of treating cattle hides at a tannery was consequential upon or ancillary to the slaughter of beef cattle for meat. Yet a tannery could not be said to be used in connection with a cattle farm.[21]Mr Mould said that it was to be noted that, for the purposes of paragraphs 5 and 7 of Schedule 5 to the 1988 Act, livestock was defined under paragraph 8(5) as including any mammal or bird kept for the production of food or wool. It was, therefore, the keeping of ducks at the duck rearing farms for the production of food that brought those farms within the scope of the Schedule. The slaughter and processing of the carcasses at the duck processing unit had the necessary degree of connection with that operation to be seen as ancillary to it or consequential upon it. They were integral to the food production process. By contrast the processing of the duck feathers had nothing to do with the process of food production. It was akin to a manufacturing process, in that it was the treatment of raw materials, rather than an operation having a part to play in the process of food production. The question was one of fact and degree. Nevertheless, Mr Mould submitted, the valuation officer’s case was 9 consistent with the ordinary language of paragraph 7 and more closely reflected the underlying logic of Schedule 5 in limiting the exemption to land and buildings used for agricultural activities and their ancillary processes, rather than extending it to industrial processes related to by-products.[22]For the respondent company Mr Simon Berry QC said that approach of the appellant had a number of flaws. Firstly, the duck growing farms were not used for the purpose of food production but for the purpose of keeping or breeding livestock, namely ducks. Furthermore, as was said in Midlothian Assessor v Buccleuch Estates Ltd [1962] RVR 799 at 800, in the passage with which Lord Reid expressed agreement in Eastwood v Herrod ([1971] AC 160 at 169F), agriculture and pasturage do not cease when the crops are grown or the beasts raised, but may properly include operations reasonably necessary to make the product marketable or disposable to profit. Accordingly feathers were not a by-product of the food production processes which were carried on in the duck processing unit. Rather there was carried on in the duck growing farms the keeping and breeding of livestock, which included the operations of producing whole duck carcasses or duck portions; heads and necks which were suitable for the production of pet food; deleterious and unusable material that had to be removed; and feathers. All these were operations that were properly to be regarded as making the ducks “marketable or disposable to profit.”[23]It was to be noted, said Mr Berry, that the definition of “livestock” that appeared in paragraph 8(5) of the 1988 Act did not contain any requirement that the mammal or bird should be kept solely for the production of food. Moreover the washing, drying and packaging of the feather was the minimum process required to enable the feather to be used to produce garments, quilts, etc. It was the purchaser who undertook the further processing required to produce such things. Thus the washing, drying and packaging of the feather was clearly not “an independent process distinct from the farming operations” (here the keeping and breeding of ducks). On the contrary the operations which were carried on at the duck growing farms, the duck processing unit and the feather plant were properly to be regarded as “a single, coherent and continuous operation in agricultural production” (see Covell (VO) v Streatfield Hood & Co Ltd [1984] RA 193 at 200). For those reasons the washing, drying and packaging clearly amounted to use “in connection with the operations carried on in” the duck growing farms. Discussion[24]The question whether the feather plant buildings were used in connection with the operations carried on in the duck rearing farm buildings is, as Mr Mould said, a matter of fact and degree. The issue, in my view, is whether the use was ancillary to or consequential on those operations or whether it is more properly to be seen either as an independent use or as having been part of the manufacturing processes. In my judgment the use was indeed ancillary to operations carried on in the duck rearing buildings. The key feature, it seems to me, is the fact that what was done in the feather plant was no more than was necessary to render the feather fit for marketing and transport as a raw material. It was simply being put into a state in which it would not deteriorate and could be transported. There was no adaptation of the feather for the purpose of its use in the making of garments or furnishings. The tanning of hides, which Mr Mould suggested was analogous to the processes carried on 10 in the feather plant, in my view helpfully points the contrast between a manufacturing activity and the processing of a raw material derived from agricultural production to make it fit for marketing and transport as a raw material. The immersion of hides in a solution of the tannins of bark subjects them to a chemical process that alters their nature so that they are changed from a raw material to a product, leather. The making of this change is properly to be regarded as a manufacturing process. The only change that was made to the feather at the feather plant, by contrast, consisted in it being cleaned so as to prevent the deterioration in its condition that otherwise would have been inevitable and would have prevented its use as a raw material.[25]I can see no particular significance in the fact that the feather was a profitable by-product of meat production. It made a positive contribution to the economics of the duck keeping and breeding that was carried on in the duck rearing buildings in a way that seems to me to be directly analogous to the contribution made by the wool of a flock of breeding ewes. As Mr Berry said, the definition of livestock in paragraph 8(5) does not require that the mammal or bird should be kept solely for the production of meat or wool. The fact that it is the sale of the duck meat, on the one hand, or the fat lambs, on the other, that is the principal purpose for which the ducks or the ewes are kept is immaterial, as also is the size of the contribution that sales of the feather, or the wool, may make to the overall economics of the operation. The fact that wool production is referred to in the definition of livestock does not affect this analogy, since its inclusion seems to me explicable by the need to cover the possibility, remote in present-day Britain, that sheep might be kept for their wool rather than for meat.[26]The valuation officer’s contention appears to draw a distinction between the waste products of the duck slaughtering and the by-products, so that any necessary conditioning or packaging of the waste products of the duck slaughtering so as to fit them for disposal would be a use in connection with the duck rearing operations but the conditioning or packaging of valuable by-products would not. I can see no justification for such a distinction. Nor do I attach any significance to the fact that the feather plant was geographically separate from the duck processing unit. Before the construction of the Sandbraes unit the Cuxwold Road premises were used for the various steps in the duck processing, including treating the feathers, and the feather plant only remained behind after the new unit was opened because of the water supply and the ground conditions at Sandbraes. The use made of the two premises is properly to be seen as a single overall operation designed to make the meat and the feather fit for sale and to separate the waste products for disposal. Conclusion[27]My conclusion is that the washing, drying and baling of the feather in the feather plant constituted a use that was ancillary to or consequential on the operations in the buildings on the duck growing farms. The feather plant was thus used in connection with those operations within the meaning of paragraph 7(2) and was exempt from rating. The appeal must be dismissed. 11[28]The parties are invited to make submissions on costs, and a letter setting out the procedure to be followed accompanies this decision. The decision will become final when, but not until, the question of costs is decided. Dated 24 December 2002 George Bartlett QC, President ADDENDUM ON COSTS[29]The parties have agreed that the appellant should pay the respondent’s costs of the appeal in the sum of £9,800. There will be an order accordingly. Dated 20 January 2003 George Bartlett QC, President 12