Council loses several hundred thousand pounds in business rates after late service of demands

A local authority in the South West looks set to miss out on hundreds of thousands of pounds in business rates after failing to issue bills promptly.

In North Somerset District Council v Honda Motor Europe Ltd & Ors [2010] EWHC 1505, the local authority brought a legal action against Honda, fellow car manufacturer Chevrolet, and local businessman Martin Graham.

A breakdown in the council’s property inspection system meant that it had been unaware that sites occupied by the defendants were in rateable occupation or it had failed to identify who the occupier was. This meant that the local authority did not collect business rates for an extensive period.

Once the mistakes came to light, North Somerset sought to issue retrospective bills. These related to the period between 13 October 2002 and 13 September 2007 in Honda’s case, from 1 November 2002 to 31 March 2005 for Chevrolet and between 19 November 2002 and 22 February 2005 for Mr Graham.

The three defendants refused to pay, arguing that the demand notices upon which North Somerset was suing were not served in accordance with the provisions of Regulation 5 of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989.

The regulations require that notices must be served “on or as soon as practicable…..after 1st April in the relevant year” (the chargeable financial year to which the notice relates).

The defendants argued that a failure to serve the notice in accordance with the provision meant the notice was invalid and consequently no business rates were payable for that year.

They also submitted that even if the notices were not invalid on account of their alleged late service, the council could not recover where there would be substantial or real prejudice to the ratepayer as a result of the delay.

Counsel for North Somerset claimed that a failure to serve the notice as soon as practicable had no legal impact on the ability of the council to enforce recovery of outstanding business rates unless the ratepayer could demonstrate that it would be unconscionable to allow the authority to do so, or there was another public law basis for defeating recovery.

The local authority also denied that the defendants had suffered any prejudice.

Mr Justice Burnett ruled that a failure to serve a demand notice as soon as possible in accordance with the regulations did not result in automatic invalidity.

He said: “Rather, the court determining any issue resulting from such a failure will have regard to the length of delay and the impact of that delay upon the ratepayer, in the context of the public interest in collecting outstanding rates. The greater the prejudice to the ratepayer flowing from the delay, the more likely will be the conclusion that Parliament intended invalidity to follow.”

The judge said the question of prejudice needed to be balanced against the countervailing public interest in the collection of taxes, the interests of other taxpayers and the revenues of the local authority concerned.

In Honda’s case, he concluded that the council’s “repeated failure to comply with its statutory obligations” meant the car manufacturer was denied an opportunity to extinguish its liabilities earlier. On that basis, it would be “conspicuously unfair, that is to say unconscionable” to allow the council to recover the business rates claimed.

In relation to Chevrolet, Mr Justice Burnett ruled that the company had been denied the opportunity to try and recover any additional costs from business rates in the pricing of its vehicles. It had suffered substantial prejudice as a result of the later service of the notices, and so the council should not be able to recover the sums demanded.

The judge also ruled that Mr Graham had suffered substantial prejudice and so would not have to pay the £153,620 claimed by the council.