Neutral Citation Number: [2016] EWHC 101 (Admin)
Case No: CO/4044/2015
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
ON APPEAL FROM GRANTHAM MAGISTRATES’ COURT
DEPUTY DISTRICT JUDGE NOBLE

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 27/01/2016

Before :

LORD JUSTICE ELIAS
and
MR JUSTICE NICOL
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Between :

	SOUTH KESTEVEN DISTRICT COUNCIL	Appellant	
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	DIGITAL PIPELINE LIMITED	Respondent	

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Mr CAIN ORMONDROYD (instructed by Wilkin Chapman LLP) for the Appellant
Ms JENNY WIGLEY (instructed by Cripps LLP) for the Respondent

Hearing date: 18 December 2015
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Judgment
Lord Justice Elias :
INTRODUCTION
1.	This is an appeal by way of case stated arising from a decision of Deputy District Judge Noble (“the judge”)  in Grantham Magistrates’ Court on 5 May 2015 to dismiss an application to make liability orders for non-domestic rates in respect of the occupation of the former Curry’s building, London Road Retail Park, Grantham NG31 6HP (“the premises”). 
2.	The question before the judge was whether the respondent (the defendant below) a bona fide charity which leased the premises, had to pay non-domestic rates in relation to the building.  There were two separate periods in issue:  first, the occasional and infrequent days it actually carried out its charitable activities face to face with the public, known as “appeal” days; and second, the period between appeal days.  
3.	As to the periods between the appeal days, there was an issue as to whether the respondent was occupying the premises. The appellant argued that it was. The judge held that it did not. There is no challenge to his decision on this point. If premises are unoccupied, the person liable to pay rates is the “owner” – see Local Government Finance Act 1988 (“LFGA”) s.45(1). For these purposes the “owner” is the person entitled to possession – see LGFA s.65(1). Since the respondent held a lease of the premises for the entire period (i.e. the appeal days and the periods between them) it was the “owner” for rating purposes. However, by s.45A(2) of the LGFA, there is no liability at all for rates for an unoccupied hereditament where “(a) the ratepayer is a charity or trustees for a charity, and (b) it appears that when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”.
4.	For the appeal days themselves, the effect of LGFA s.43(5) is that the respondent would be relieved from paying at least 80% of the rates which would otherwise be payable if the condition in s.43(6)(a) was fulfilled, i.e. that, “the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes”. I say that the charity would then be relieved of at least 80% of the rates which would otherwise be payable, because the charging authority has a discretion to waive the remaining 20%, but that was not a power which the present appellant chose to exercise.
5.	In this case the judge held that, on the appeal days, the hereditament was mainly used for charitable purposes. Because of s.43(6) that meant the respondent was liable for only 20% of the rates for those days. Because of s.45A, his finding also meant that the respondent did not have to pay any rates for the periods between the appeal days.
6.	On this appeal by case stated, the Council contends that the judge was not entitled to find that on the appeal days the hereditament was wholly or mainly used for charitable purposes.  It submits that, on the contrary, the judge was obliged to find that it was not used for such purposes, with the consequence that full rates were payable throughout.  Alternatively, the case should be remitted because of errors in the approach of the judge.
The relevant facts
7.	The facts found by the judge are set out in the case  stated as follows (paras 1-9):
1. 	The premises were leased to the Defendant from 22 June 2012 until 10th June 2014 by a Meanwhile Use lease on a peppercorn rent. The premises comprise a large retail warehouse with a supported storage floor or mezzanine. The valuation agency list entry, according to which rates are charged, gives the floor area for the ground floor as 1395.10 m2 and the mezzanine as 226.91 m2.
2. The Defendant is a bona fide registered charity. The charity’s aim is to collect unwanted IT equipment from donors in the UK, process it and transport it to Africa with a view to providing access to functioning IT equipment to those who would not otherwise have access to computers in schools. To achieve this aim the Defendant holds quarterly public access appeals at various locations in the UK.
3. It is agreed that the Defendant has held public access appeals at the premises on 10 separate 2 day periods between June 2012 and June 2014.
4. These appeals were well planned and advertised in advance through adverts in local newspapers and press releases. Letters were sent to local councillors, local schools, local businesses and libraries.
5. On appeal days 2 employees of the Defendant attend the premises and set up according to a standardised pattern. The set up consists of (1) a board outside the premises (2) around 50 boards detailing facts on African countries (3) a small number of boards seeking financial sponsorship (4) a gazebo containing adverts for sponsorship (5) (a gazebo containing projection equipment (6) a replica or mock up of a classroom in a container.
6. In addition large flags representing each of the 53 African countries were suspended from the ceiling. These were hung from 26 June 2012 to 20 June 2014. They remained in situ between each appeal day. 
7. Also present outside the premises was a sign affixed to the Premises advertising the Defendant although it disintegrated throughout the period of the lease.
8. The Defendant on the ‘Appeal Days’ used approximately 42% of the available space in the premises.
9. Other than the Defendant there was no other occupation or use of the premises on the appeal days.”
8.	I interpose here what both counsel accept lay behind the judge’s finding in paragraph 8.  The judge heard evidence from Mr Johnson, the Revenues Recovery Team Coordinator for the Council. Mr Johnson visited the site on three occasions and gave evidence that the unused parts of the premises consisted in effect of four different elements: the mezzanine floor referred to by the judge; a similarly sized downstairs storage area which matched it; a reception/kitchen area; and that part of the sales floor which he considered was not actually used by the charity or the customers who were attracted into the hall.  The first three areas could be seen to be distinct and separate from the sales hall itself, and no activities were going on in those areas. The fourth element, which I shall call the “notional unused area” was not marked out in any way but was the witness’s own assessment of that part of the hall which was not in fact used by anyone in connection with the charitable activities.
9.	The judge later summarised the submissions and his conclusions with respect to the principal issue as follows (paras 18-24): 
“Were the premises used “wholly or mainly for charitable purposes on the appeal days?
18. In arriving at my judgment on this issue I looked at the evidence presented by both parties and weighed up the evidence using a broad approach as suggested by the court in Sheffield City Council v Kenya Aid Programme [2013] EWHC 54 (Admin); [2014] Q.B.62.
19. I therefore took into consideration that:
a. the display by the Defendant on the appeal days uses less than 50% of the available space;
b. when Mr Johnson of the Council visited the appeals on 4 separate occasions for 30 minutes he was the only visitor; and
c. some of the stands encouraged visitors to sponsor the charity’s projects.
20. I have not taken into account that possibly more suitable premises could have been found by the Defendant.
21. On behalf of the charity I have taken into account that:
a.	the appeal days raised a total of 640 pieces of equipment (which the Defendant says was a success);
b.	the Council visited the site for only a fraction of the time the premises were open;
c.	whilst there were quiet periods, at times there was a steady flow of visitors;
d.	there was no direct fund raising on the site, i.e. no collection boxes, no taking of sponsors’ names; and
e.	the Defendant accepted that the premises were not ideal, but ‘beggars can’t be choosers’.
22. I also noted that whilst less than 50% was used, nothing else happened in the remainder. It was not a case where 40% was used by the charity and the remainder or a significant proportion was used by a commercial organisation. On appeal days the only thing happening was the appeals.
23. Weighing all those factors up, and taking into account the fact that nothing else at all was happening at the premises, i.e. the other 50+% of the premises were empty, I was of the view that the premises were being used mainly for charitable purposes.
24. Therefore I found for the Defendant and dismissed the Council’s application.”
10.	The question the judge posed for this court was the following: 
“The question for the opinion of the High Court is:

Whether on the facts found about the amount and nature of the use of the hereditament [i.e. premises] I was correct to decide that the hereditament was “wholly or mainly used for charitable purposes” pursuant to s43(6) of the Local Government Finance Act 1988 on appeal days?”	
11.	I would propose that the question should be amended by substituting “entitled” for “correct”.  The question is whether the judge made a decision properly open to him on the evidence; the question posed suggests that there was a single “correct” decision.
The relevant law
12.	We were referred to three cases which have considered this statutory formula. In chronological order they are the Scottish case of English Speaking Union v City of Edinburgh Council [2010] S.C.L.R. 517; a decision of the Divisional Court (Treacy LJ and King J) in Sheffield City Council v Kenya Aid Programme [2013] EWHC 45; and a decision of Sales J, as he was, in the Administrative Court in Public Safety Charitable Trust v Milton Keynes Council [2013] EWHC (Admin) 1237. It is common ground that they establish the following propositions. 
13.	First, the test is not whether the activity being conducted on the premises is wholly or mainly charitable; it is whether the premises are being used wholly or mainly for charitable activity.  The English Speaking Union case provides a clear example of the distinction between the two approaches. In that case a charity leased a building with eight floors and its charitable activity took place only over one floor.  It was the only activity in the building and so if the test were whether charitable activities were the sole or main activity, that test was satisfied. But the judge held that this was not the test; the question was whether the premises were being used wholly or mainly for charitable activity and they plainly were not. Seven floors were not being used for charitable activity (or indeed any activity) at all. So the premises did not attract the rate relief. At paragraph 11 Lord Bonomy trenchantly observed: 
“ ‘Wholly’ in section 4(2)(a) is not synonymous with ‘solely’. The notion that an office building which is unused for any purpose throughout seven of its eight floors is ‘wholly used’ for the purpose for which the one floor is actually in use does not accord with common sense.”
14.	Treacy LJ agreed with this view in Sheffield City Council v Kenya Aid Programme [2013] EWHC 45 (Admin) para. 35 when he said: 
“The natural reading and meaning of the words used are, in my judgment, apt to cover not only consideration of the purpose of the use, but also the extent or amount of the actual use. It follows therefore that I would hold that the Judge was right to take account of and place weight upon the extent to which the premises were used.”
15.	In Public Safety Charitable Trust v Milton Keynes Council [2013] EWHC 1237. Sales J followed the Kenya Aid case, saying that he agreed with its reasoning. He explained why this construction was compatible with the nature of the exemption granted (para. 34): 
“It is reasonable to infer that Parliament intended that the substantial mandatory exemption from rates for a charity in occupation of a building should depend upon the charity actually making extensive use of the premises for charitable purposes (i.e. use of the building which is substantially and in real terms for the public benefit, so as to justify exemption from ordinary tax in the form of non domestic rates), rather than leaving them mainly unused.”
16.	Second, if as a matter of fact the premises are being used wholly or mainly for charitable purposes, it matters not that they could have been run more efficiently or that strictly only part of the premises need have been used: see the observations of the Treacy LJ  in the Kenya Aid case, para. 36.  The test has to be applied to the facts as they are, not as they might have been. 
17.	Third, it is widely appreciated that the rules on charitable exemption can be manipulated to the advantage of both the owner of business premises and the charity leasing the premises. The landlord of unoccupied business premises will have to pay rates. However, if he lets it to a charity which carries on charitable activities, the landlord is no longer the ratepayer within the statutory definition in section 65. But the charity is able to take advantage of the charitable exemption. If, as is typically the case and is the position here, it simply has to pay a peppercorn rent and especially where the landlord pays a premium to the charity, both the charity and the landlord benefit. If the premium at least exceeds the 20% rate which remains payable for the appeal days, the charity is in profit, but so is the landlord who has avoided altogether the duty to pay rates. However, when determining whether the exemption applies or not, it is immaterial that the purpose of the arrangement between landlord and the charitable tenant is to reduce or avoid the payment of business rates: see Kenya Aid para. 38. There is nothing unlawful in parties seeking to arrange their affairs so as to avoid paying taxes which they would otherwise have to pay, if they can lawfully do so.
The arguments before the court
18.	The appellant submits that the judge was not entitled to find that the premises were used wholly or mainly for charitable purposes. Mr Ormondroyd, counsel for the appellant, advanced three interrelated arguments. First, the judge erroneously interpreted the meaning of the phrase “wholly or mainly used”.  “Mainly” must bear its ordinary meaning of “more than half”. The Judge found as a fact that less than 50% of the premises were used for charitable purposes on appeal days, and this should have been determinative of the case. That was the extent of the use and it could not, therefore, be said that the premises were mainly used for the charitable objects. There would have to be a compelling case for departing from the logic of that undisputed statistic.  It was irrational to say that the premises were mainly used for charitable purposes.
19.	This error was compounded by the fact that the judge regarded it as important that the Premises were not being used for any other purpose. This was not a proper consideration for the judge to put in the balance. The judge failed to appreciate that premises can be mainly unused. In the Public Safety Charitable Trust case, para. 34, Sales J said that the exemption:
“should depend upon the charity actually making extensive use of the premises for charitable purposes … rather than leaving them mainly unused” (emphasis added)
20.	Finally, the judge also took into account two further irrelevant considerations when applying the “wholly or mainly used” test, namely the factors set out in para. 21(a) and (e) respectively (see para.7 above). The amount of equipment donated had no bearing on the issue. Similarly, the fact that the premises were not ideal but that “beggars cannot be choosers” merely explained why the charity was using these rather than some other premises. It did not assist in determining the relevant question of what proportion of the premises was devoted to charitable purposes. All in all, the judge’s decision was legally flawed. The only proper decision on the undisputed facts was that the condition in section 43(6) was not satisfied and the rates were payable for the whole period. The court should quash the determination and substitute one to that effect. Alternatively, if the court did not consider that this was the only proper decision, the matter should at least be remitted for a proper assessment in accordance with the law, without regard to the irrelevant considerations.
21.	The respondent says that there was no error by the judge. This is a classic area where the determination is a question of fact for the judge alone. There was oral evidence from five witnesses as to the nature and extent of the activity on the appeal days. The judge made a careful analysis of the evidence with no misdirection. As Lord Bonomy said in the English Speaking Union case, the question should be answered on a broad common sense basis. This is precisely what the judge did.  
22.	More specifically, Ms Wigley, counsel for the respondent, submitted that although the extent of the use made of the premises is relevant to the “wholly or mainly” test, it is merely a factor, albeit an important one, to be taken into account. It should not be the only or determining consideration. It will be relevant, for example, to consider the nature of the charitable activity and whether the use is exclusive or not. There is no rigid floor space rule such as a 50% rule, and indeed, premises might quite properly be treated as wholly used for charitable purposes even though some of the floor space is never in use at all.  This proposition is supported by the observation of Sales J in the Public Safety Charitable Trust case when he said this (para. 37):
“A building may fairly and properly be described as being wholly used for a particular purpose even though not every square metre of floor space is in constant use all the time. For instance, the whole of a room used as an office can be described as being wholly used as an office, even though it is spacious and not crammed with people working. I also think it can fairly be described as being wholly used as an office, albeit it is closed and left vacant during the night.” (PSCT, [37])
23.	The building in this case was not part mothballed as in the English Speaking Union case. On the contrary, the principal area was actively used by staff in attracting and greeting visitors, taking and logging equipment, and by visitors attending, donating computer equipment and viewing the displays and exhibits. The judge was entitled to adopt a broad brush approach and to find that the test was satisfied notwithstanding that some parts of the premises were not in use.
24.	The Deputy District Judge did not take into account irrelevant factors. The amount of computer equipment donated shows the nature of the activity and also establishes, in so far as there might have been doubt about it, that the operation was genuine. Also the Deputy District Judge was not wrong to refer to the evidence that the charity had accepted that the premises were not “ideal” for the charity’s purposes but “beggars can’t be choosers”. He was merely recounting something which had cropped up in the evidence.
Discussion
25.	I do not accept the appellant’s submission that once the floor space in use was only 42%, it was perverse for the judge to make a finding that the premises were wholly or mainly used for the charitable purpose. Nor, in my view, was there a presumption to that effect which could only be rebutted by compelling evidence.  In some cases the amount of floor space in use may be minimal, depending on the nature of the charitable activity.  A charity may, for example, store books to be sent to Africa in the bookshelves around a room it leases.  For much of the time the room will be empty. Even when the room is in use to shelve or remove the books, there is likely to be a portion of the middle of the floor which is virtually never in use.  That would not prevent the inference that the room was used wholly for a charitable purpose, as Sales J, as he was, observed in the Public Safety Charitable Trust case (see para. 20 above).  
26.	Moreover, if the appellant’s approach were correct, it would sometimes have arbitrary results.  In this case the area notionally deemed to be not in use was a space behind the boards which the charity had erected, where the public did not go or need to go. I would accept that if the boards are placed in a way which is clearly designed to hive off a particular part of a much wider space, that would justify treating the excluded space as an area not being used for charitable purposes. But if the boards are placed away from the wall for presentation purposes, so that it can reasonably be inferred that the whole space is being used as a discreet area, albeit that not all of the space is actually in use, it is not in my view legitimate to exclude the area not actually in use. The “wholly or mainly” question should not turn on the arbitrary decision how the premises are arranged for presentational purposes provided it can fairly be said that there is a clearly demarcated area in which the services are being provided, even if they are not all actually in use.   This is not a case such as the English Speaking Union case where most of the premises were mothballed. The courts have emphasised that a broad brush approach is required - the antithesis of the approach suggested by the appellant.
27.	However, I accept the appellant’s second argument, namely that the District Judge erred in placing as much weight as he did on the fact that there was no other activity taking place on the premises.  I accept that had there been another activity sharing the same premises, this would have been material to the “wholly or mainly” question.  If, for example, some public body had set up an official at a desk in the same hall as the respondent charity, giving advice to members of the public, that sharing of the premises would plainly be a factor to take into account when asking whether the premises were wholly or mainly used by the charity, since it would dilute the use by the charity.  But I do not think that the converse is true. If, having regard to the nature and extent of the use, the conclusion was that the premises could not properly be said to be wholly or mainly used by the charity, this conclusion could not change simply because the rest of the premises were empty.  It seems to me that the judge was assuming that this could be the case and that the fact that the premises were otherwise unused was a positive factor in the charity’s favour. 
28.	If the judge’s conclusion had been clear-cut, I would not have considered this error to be material. But it is not self-evident on the facts whether a judge would find that the premises were used wholly or mainly for a charitable purpose or not.  I would not go so far as the appellant in describing this factor as “decisive” but it plainly was seen by the judge as a matter of some weight. In those circumstances I cannot be sure that the decision would necessarily have been the same even if this factor had been ignored.  Accordingly I would on this ground quash the decision and remit the matter to the judge. 
29.	As to the other two matters alleged to constitute irrelevant considerations, I am inclined to agree that strictly they were if the judge intended to suggest that they cast light on the “wholly or mainly” question. But I very much doubt whether the judge was intending to suggest that the five matters he referred to in paragraph 21 were all relevant to that question.  Some of them - in particular the second relating to the evidence about Mr Johnson’s visits to the site - could not conceivably have been directly relevant and in my view no judge could sensibly have thought that it was. It seems plain that there was some dispute as to the actual extent to which the public used the premises and some of the factors referred to by the judge bear upon that question.  The amount of equipment provided is some indication of the extent of use. I doubt, however, whether the extent of the public’s involvement was strictly relevant once it was conceded, as it apparently was, that the charity was bona fide. Whether the charity was successful or not in bringing in potential donors does not seem to me to be relevant to the extent of use. But even if that factor were relevant, I would accept that the fifth factor, namely that the charity had conceded that the premises were not ideal and had taken them because “beggars cannot be choosers”, could not conceivably be material to the extent of use question. I cannot believe that the judge thought that it was. It seems to me that there may have been some suggestion, at least implicit, that this was a collusive plan designed to avoid paying the rates, and that other premises would have been more suitable.  I suspect that the judge is simply recounting the charity’s response to that. As I have said, it would not affect the proper legal analysis even if there had been such a plan, but the charity may have wanted to emphasise that in fact this was not the case. In any event, I would not have been willing to assume that the judge understood this factor to bear upon the extent of use issue.  
30.	However, for the reasons I have given, I would uphold the appeal. I would therefore answer the question posed that the District Judge was not entitled to take into account as a factor, when assessing whether the premises were wholly or mainly used for a charitable purpose, the fact that the premises were not being used for any other purpose. To that extent, his decision was flawed. I would remit the matter for further consideration. 
Mr. Justice Nicol:
31.	I agree.