H J Banks & Company Ltd v Speight & Anor [2005] EWLands RA_239

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[2005] EWLands RA_239_1995 (31 January 2005)

RA/239,329-334 & 373-375/1995 (consolidated)

LANDS TRIBUNAL ACT 1949

RATING – private opencast coal sites – valuation – royalties and market evidence – comparison with British Coal assessments – tone of the list – methods of valuation – respondent valuation officers' valuations accepted.

IN THE MATTER OF NOTICES OF APPEAL

BETWEEN H J BANKS AND COMPANY LIMITED Appellants

and

ANTHONY SPEIGHT

And Respondents

COLIN ROBERT SNOWBALL

(Valuation Officers)

Re: Opencast coal sites in West Yorkshire and Northumberland

Before: P H Clarke FRICS

Sitting at: Procession House, London EC4 on 6-9, 13-16, 20-23 and 28 July and 23 September 2004 with closing submissions in writing received on 13 September and 4, 21 and 22 October 2004

Matthew Horton QC and Richard Glover instructed by Dickinson Dees solicitors for the appellants.David Holgate QC and Timothy Mould instructed by Solicitor of the Inland Revenue for the respondents.

The following cases are referred to in this decision:

Eastbourne Borough Council and Wealden District Council v Allen (VO) [2001] RA 273Hoare (VO) v National Trust [1998] RA 391East End Dwellings Co Limited v Finsbury Borough Council [1951] 2 All ER 587Poplar Assessment Committee v Roberts [1922] 2 AC 93Tivydale Coal Co Limited v Hanstock (VO) [1966] RA 225Marks v Eastaugh (VO) [1993] RA 11Humber Limited v Jones (VO) & Rugby Rural District Council (1960) 53 R & IT 293Inland Revenue Commissioners v Gray [1994] RVR 129Robinson Brothers (Brewers) Limited v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 445Denaby and Cadeby Colliery Co v Doncaster Union Assessment Committee (1898) 78 LT 388F R Evans (Leeds) Limited v English Electric Co Limited [1978] 1 EGLR 93Tomlinson(VO) v Plymouth Argyll Football Co Limited & Plymouth City Council (1960) 53 R & IT 297O'Brien v Harwood (VO) [2003] RA 244Ladies Hosiery and Underwear Limited v West Middlesex Assessment Committee [1932] 2 KB 679K Shoe Shops Limited v Hardy (VO) & Westminster City Council [1983] RA 26 (CA)Shearson Lehman Brothers Limited v Humphrys (VO) & Hackney London Borough Council [1991] RA 125Lotus & Delta Limited v Culverwell (VO) & Leicester City Council [1976] RA 141Marks v Grose (VO) [1995] RA 49Jafton Properties Limited v Prisk (VO) [1997] RA 137Williams (VO) v Scottish and Newcastle Retail Limited [2001] RA 41Stirk and Sons Limited v Halifax Assessment Committee [1922] 1 KB 264Baker Britt & Co Limited v Hampsher (VO) [1974] RA 69R v Rhymney Railway Co (1869) LR 4 QB 276Mersey Docks & Harbour Board v Birkenhead Union Assessment Committee [1901] AC 175Mersey Docks & Harbour Board v Liverpool [1873] LR 9 QB 84Dawkins (VO) v Ash Brothers & Heaton Limited [1969] 2 AC 367British Coal Corporation v Aspinall (VO) [1988] RA 78Arbuckle Smith & Co Limited v Greenock Corporation [1960] AC 813Sole v Henning(VO) [1959] 3 All ER 398Garton v Hunter (VO) [1969] RA 11Bruce v Howard (VO) [1964] RA 139McQuade v Lane (VO) (1965) 11 RRC 353R v Paddington Valuation Officer ex p Peachey Property Corporation Limited [1965] RA 177Pointer v Norwich Union Assessment Committee [1922] 2 KB 471Land Securities Plc v Westminster City Council [1992] 44 EG 153W Clibbett Limited v Avon County Council [1976] RVR 131Burroughs Machines Limited v Mooney (VO) [1977] RA 45Shrewsbury Schools v Shrewsbury Borough Council & Plumpton (VO) (1960) 7 RRC 313Imperial College of Science & Technology v Ebdon (VO) and Westminster City Council [1984] RA 213Lamb v Minards (VO) [1974] RA 153Howarth v Price (VO) (1965) 11 RRC 196Kingston Union Assessment Committee v Metropolitan Water Board [1926] AC 331Bluebell Railway Limited v Ball (VO) [1984] RA 113Sandown Park Limited v Esher Urban District Council and Castle (VO) (1954) 47 R & IT 351

DECISION

These are appeals by the ratepayers, H J Banks & Co Limited (Banks) ,against decisions of local valuation tribunals determining the assessments in the 1990 rating list for opencast coal sites in West Yorkshire and Northumberland. Both parties use the same method of valuation, a royalty rent per tonne for coal and surface applied to agreed output, less disability allowances (agreed) plus the annual values of buildings and rateable plant and machinery (also agreed). Only the royalty rents are in dispute. The claimants' case is that there is insufficient market evidence of coal royalties and therefore the royalty rent must be found indirectly, namely by a financial comparison between British Coal opencast sites, where a royalty rent for rating purposes of £6 per tonne was agreed, and the appeal hereditaments. This comparison produces royalty rents for the appeal sites of between £1.98 and £2.87 per tonne. It is the respondents' case that sufficient and reliable market evidence of coal royalties exists to find the royalty rent for the appeal hereditaments, which is £6 per tonne. It is not necessary to use an indirect method of valuation, but if such a method is used this should be a conventional receipts and expenditure (or profits basis) valuation, which supports £6 per tonne.

Matthew Horton QC and Richard Glover appeared for the appellants and called: (i) Ian Anthony Charles Parkin FRICS, Director of the appellants' property division and Director and Vice Chairman of the National Association of Licensed Opencast Operators (NALOO); (ii) Colin Leonard Godfrey BSc CEng MEI, Managing Director of CLG Energy Consultants Limited of South Cerney, Gloucestershire; and (iii) Andrew Philip Sedgeley Crawford MRICS MIQ IRRV, Principal of Crawford's chartered surveyors of Teddington, Middlesex.

David Holgate QC and Timothy Mould appeared for the respondent valuation officers and called: (i) Graham Shuttleworth MPhil MA, Director in the Energy Practice of the London Office of National Economic Research Associates; (ii) Professor Gordon Alexander Hughes PhD MA, Honorary Professor of Economics at the University of Edinburgh and Director in the Water and Energy Practices of the London office of National Economic Research Associates; (iii) Ray William Willson FRICS FIME CEng, formerly valuer in charge of the Mineral Valuer's office of the Valuation Office Agency (VOA) in Birmingham and since 1997 responsible for these appeals on behalf of the respondent valuation officers; and (iv) Gerald Stewart Biddle BSc FRICS Dip Rating, valuer in charge of the London Specialist Rating Unit and National Specialist Valuer for major airports in the south east for the VOA.

I mention here the position of Mr Paul Powis FRICS. Mr Powis was originally instructed on behalf of the appellants and prepared two expert reports which are included in the trial bundles. Mr Powis unfortunately died before the hearing and his place was taken by Mr Crawford. Parts of Mr Powis's reports were referred to at the hearing and some of his evidence has been adopted. I have taken this evidence into consideration but I have not taken into account other parts of his reports not referred to which I do not regard as evidence before this Tribunal.

Having regard to the way in which the parties presented their cases, I have not thought it helpful to inspect the land where the appeal hereditaments previously existed, and where coal extraction has now ceased, nor the other opencast sites referred to in evidence.

I have been assisted by a daily transcript of the hearing.

COAL INDUSTRY

Before proceeding further with this decision I set out as essential background a brief explanation of the coal industry before and after the antecedent valuation date (AVD) in these appeals, 1 April 1988.

Under the Coal Act 1938 the freehold interests in all coal and mines of coal in Great Britain were (with limited exceptions) vested on 1 July 1942 in a newly created Coal Commission. One of the exceptions was alienated or non-vested coal, defined in section 17(3) of the 1938 Act. This vesting under the 1938 Act was the transfer into public ownership of unworked coal but not of the industry itself. This was effected by the Coal Industry Nationalisation Act 1946, which established the National Coal Board (NCB) in which were vested on 1 January 1947 unworked coal and mines of coal, colliery concerns and interests of the Coal Commission (subject to certain exceptions). The NCB had three duties: mining coal, securing the efficient development of the coal mining industry and making supplies of coal available in the public interest. On 5 March 1987 the NCB was renamed the British Coal Corporation (British Coal) which then exercised the existing functions and powers until privatisation.

Privatisation of the coal industry was introduced in two stages. The first was in 1990 when limits were raised on the numbers of men who could be employed underground or on the tonnage of coal which could be extracted by opencast mining under licence from British Coal. The second stage of privatisation, under the Coal Industry Act 1994, was the return of the industry to the private sector, operating under a licensing system. The Act established the Coal Authority, which succeeded to the interests of British Coal in unworked coal and coal mines on 31 October 1994. From that date there was a prohibition of coal mining otherwise than by licence under the 1994 Act or the 1946 Act. At that time British Coal remained the largest operator of coal mines. The Coal Authority did not have powers to undertake mining operations. The Secretary of State granted licences to British Coal in respect of deep and opencast mines and the Coal Authority granted to British Coal leases of the relevant coal and mines. Subsequently, the coal mining undertaking of British Coal was vested by restructuring schemes made by the Secretary of State in separate companies wholly owned by the Crown, known as "successor companies". The Coal Authority assumed powers and duties relating to licensing these companies before they were sold, which occurred at various dates in 1994 and 1995. British Coal now has limited residual functions and powers and the shell company will eventually be dissolved. The European Commission approved the plan to modernise, rationalise and restructure the coal industry and authorised the grant of Government aid.

Coal is worked by mining or quarrying. Mining essentially refers to the extraction of coal from underground or deep mines. Quarrying refers to the working of coal from the surface (opencast mining), which involves the removal of the surface or overburden, the extraction of the coal and the replacement of the soil. The ratio between the volume of overburden and the tonnage of coal recovered is known as the "works factor" or "ratio". It is usually in the range of 10-20 to 1, indicating that 10-20 cu m of overburden had to be removed for each tonne of coal extracted.

In opencast mining costs are incurred by the operator before the extraction of coal (pre-production costs). These include prospecting surveys, obtaining planning permission, the provision of access and other costs of setting up the site and the initial cut (the boxcut) to expose the first seam of coal to be extracted. Material from the boxcut is stored above ground. Successive excavation proceeds across the site to expose new seams of coal with the deposit of the excavated soil in the preceding void. Coal quarries are generally referred to as opencast coal sites. Opencast mining resumed in this country in 1942.

Underground mines are usually long-term projects with high levels of investment in permanent equipment and are more labour intensive in terms of manpower than opencast sites. These latter tend to have shorter lives, varying from a few months to a few years, with lower operating costs. Although opencast coal sites can be capital intensive, large earth moving machines are used which can be moved from site to site. In 1988-89 the comparative costs per tonne were £39.20 and £27.24 for deep mine and opencast coal respectively, with average selling prices of £40.76 per tonne for deep mine coal and £43.53 per tonne for opencast coal.

Opencast coal sites differ from each other and profitability varies widely. Factors affecting profitability include coal quality (determined primarily by reference to the heat content (or calorific value) measured in Gigajoules (GJ)), location, size and works factor or ratio. The size of an opencast coal site may have a major impact on coal selling price.

The largest market for coal in the United Kingdom is the electricity generating industry. Coal has to meet an agreed specification and price is determined by reference to its calorific value. In 1948 the electricity supply industry was brought into public ownership and in 1957 the Central Electricity Generating Board (CEGB) was established with responsibility in England and Wales for the development and maintenance of an efficient, co-ordinated and economical system of bulk electricity supply, for generating or acquiring supplies of electricity and for providing bulk supplies of electricity to Area Boards. The CEGB operated coal and oil-fired power stations until April 1990. The Electricity Act 1989 established a new system for the generation, transmission and supply of electricity. It removed the industry from direct state ownership and control by vesting the generation of electricity in National Power and Powergen in England and Wales, companies initially owned by the Crown and subsequently privatised.

Before 1979 there was no formal long-term agreement between the CEGB and the NCB for the supply of coal. In October 1979 these bodies entered into a Joint Understanding for guaranteed supplies of coal and coal prices for the period to March 1985. This was modified in November 1982 and renegotiated from November 1983 as the Revised Joint Understanding (RJU). In June 1986 a new RJU provided for the supply of coal in three tranches for the period between April 1986 and March 1991.

In April 1988 a private operator could only extract coal vested in British Coal by licence or agreement. These were of three types. Under a royalty licence the operator located and prospected the site, negotiated surface rights with the landowner, obtained planning permission and was granted a licence by British Coal to extract vested coal on payment of a royalty per tonne. The operator was usually free to dispose of the coal as he wished. The upper limit for opencast licences was 25,000 tonnes under the Coal Industry Nationalisation Act 1946, as amended by the Opencast Coal Act 1958 (50,000 tonnes by the practice of issuing two licences), later increased to 250,000 tonnes by the Coal Industry Act 1990. Under a delivered licence the operator delivered the coal extracted to a specified Coal Disposal Point and received a fixed price from British Coal. An operator usually chose a delivered licence in preference to a royalty licence where he believed that he would be unable to make a profit at the level of royalty or for other reasons. Delivered licences were not granted by British Coal after the latter part of 1990. The third type of licence was in respect of a single tender site. This was a hybrid, similar to a delivered licence but used where the tonnage of coal to be extracted was too large for such a licence. The operator worked the coal as a contractor for British Coal with delivery and payment as for a delivered licence. On 31 October 1994 licensing arrangements became the responsibility of the Coal Authority, which was required to secure the "best terms reasonably available" (Coal Industry Act 1994, section 3(4)).

For British Coal opencast sites (authorised sites) the coal was extracted by operators contracted to British Coal to work the coal for a price.

FACTS

The parties have prepared statements of agreed facts. From these statements and the evidence I find the following facts.

Appeal hereditaments: description and tenure

These appeals relate to six opencast coal sites, five in West Yorkshire and one in Northumberland.

Bullcliffe Farm Extension is located 4.5 miles south west of Wakefield, West Yorkshire with access from the A636 Danby Dale Road. It was worked between 28 June 1993 and 3 June 1994. The tonnage recovered was 80,936 tonnes (annual equivalent 86,632 tonnes) at a works factor (actual) of 19.53. The coal had actual calorific values of 26.36 GJ/t (net) and 27.56 GJ/t (gross) with an average price of £37.42 per tonne (equivalent to £32.80 at the AVD). The market was Eggborough Power Station (28.5 miles distant).

Under an agreement dated 7 May 1993 the appellants had a working rights agreement with the surface owner for two years from 7 May 1993 at a payment of £142,500.

Under a licence dated 6 May 1993 from British Coal the appellants had the right to work by opencast operations, carry away and dispose of vested coal at a royalty of £2 per tonne.

Bullcliffe Farm is located 4.5 miles south west of Wakefield, close to Netherton with access from the A636 Denby Dale Road. The coaling period was from 4 October 1992 to 5 March 1993. The tonnage recovered was 28,671 tonnes (annual equivalent 68,398 tonnes) at a works factor (actual) of 14.31. The coal had actual calorific values of 26.679 GJ/t (net) and 27.879 GJ/t (gross) with an average price of £35.08 per tonne (equivalent to £33.18 per tonne at the AVD). The market was Eggborough Power Station.

Under an option agreement dated 20 January 1989 the appellants had the right to occupy the land, excavate for coal and associated minerals by opencast methods and to use the land for associated works for a payment of £70,000 in two instalments plus £500 for the option.

Under a licence dated 24 August 1992 from British Coal the appellants paid royalties of £4.50 per tonne up to 50,000 tonnes and £5 per tonne thereafter for the right to work by opencast operations, carry away and dispose of vested coal.

West Farm is located approximately three miles north east of Wakefield close to Stanley with access from the B6135 Castle Gate Road. It was worked between 29 September 1992 and 23 August 1993. The tonnage recovered was 52,412 tonnes (including West Farm Extension which produced 17,148 tonnes) (annual equivalent 58,147 tonnes) at a works factor (actual) of between 6.51 and 9.58. The coal had actual calorific values of 22.115 GJ/t (net) and 23.315 GJ/t (gross), blended to produce 23.756 and 24.956 GJ/t. The average coal price was £32.44 per tonne (equivalent to £27.74 at the AVD). The market was Eggborough Power Station (16.5 miles distant).

Under a surface licence granted in December 1990 for four years the appellants had the right to extract, carry away and dispose of coal and associated minerals at a minimum rent of £15,000 per annum merging with coal royalties of £4 per tonne when the overburden is up to five times the average coal thickness and £2.20 per tonne when the overburden is more than five times the coal thickness. For other minerals the royalty was 10% of the net sales value. Under an agreement with the surface owner of West Farm Extension the coal royalty was £2 per tonne with 12,420 tonnes worked.

Under a licence (date unknown) from British Coal the appellants agreed to pay royalties of £5.50 per tonne up to 50,000 tonnes and thereafter £6 per tonne for the right to work by opencast operations, carry away and dispose of vested coal. The parties agree that the British Coal royalty was £4.50 per tonne up to 1 April 1993 and then £2 per tonne.

Thorntree Hill is situated approximately three miles south east of Wakefield, one mile south east of Walton and south west of Crofton with access from a farm track to Shay Lane (B6378). It was worked from November 1991 to May 1994. The tonnage recovered was 214,000 tonnes at a works factor (actual) of 14.87. The output from 25 November to 31 December 1991 was 11,078 tonnes (equivalent to 109,283 tonnes per annum) and from 1 January to 31 December 1992 it was 79,035 tonnes (for a full year), a total annual equivalent of 188,318 tonnes. The coal had actual calorific values of 23.975 GJ/t (net) and 25.175 GJ/t (gross) with an average price of £36.86 per tonne (equivalent to £29.96 per tonne at the AVD). The market was Eggborough Power Station (19 miles distant).

There were four surface rights agreements with three owners. Under a licence granted in August 1989 the appellants had the right to occupy the land and to win, work and make merchantable and carry away by opencast methods all coal, fireclay and brickshale for the company's own benefit. The term of the licence was 2.5 years from 11 August 1989 at a lump sum payment of £195,000. Under a lease and licence granted in March and November 1991 the appellants had the right to enter the land, to search for, dig, win, work by excavation, coal and associated minerals and to carry away and dispose of for the tenants' benefit. The term was three years and the royalties payable were: £3.08 per tonne up to 17,000 tonnes and £3.25 per tonne thereafter for coal and 10% of the net sales value of other minerals, with a minimum rent of £18,500 per annum. Under an agreement dated 10 January 1991 for a term of four years the appellants were granted the right to enter on the land, to dig, work and get by excavation and quarrying the minerals and carry away, make merchantable and dispose of for the tenants' benefit. The minimum payment was £33,000 on entry and royalties of £2.75 per tonne for coal and for fireclay and brickshale the greater of 10% of the selling price and 50p per tonne. Under a licence dated 25 November 1992 for four years the appellants were granted the right to occupy the land for searching for, digging, winning, working and making merchantable and carrying away by opencast methods, all coal, fireclay and brickshale for their own benefit. The fourth surface agreement was a licence dated 25 November 1992 for four years at a minimum payment of £14,000 plus VAT for Area B with a royalty of £2 per tonne plus VAT for coal and a minimum payment of £40,000 plus VAT for Area C with royalties of £3 per tonne plus VAT up to 62,000 tonnes and £1 per tonne thereafter for coal and 40p per tonne plus VAT for fireclay. The rights granted to the appellants were to occupy the land for the searching for, digging, winning, working and making merchantable and carrying away by opencast methods coal, fireclay and brickshale for the company's own benefit.

Under a licence dated 4 November 1991 from British Coal the appellants were granted the right to work by opencast operations, carry away and dispose of vested coal. The royalty payable was £5 per tonne up to 50,000 tonnes and £6 per tonne thereafter. During the working period the coal royalty was reduced to £2 per tonne.

Birkwood Farm is situated at Normanton, 2.5 miles north east of Wakefield with access from Birkwood Road, which links Stanley Ferry and Altofts. It is adjacent to the Aire and Calder Canal. It was worked between 6 August 1993 and 9 March 1994. The tonnage of coal recovered was 36,913 tonnes (annual equivalent 62,376 tonnes) at a works factor (actual) of 14.18. The coal had calorific values of 22.53 GJ/t (net) and 23.73 GJ/t (gross) with an average price of £31.51 per tonne (equivalent to £28.24 per tonne at the AVD). The market was Ferrybridge Power Station 9 miles distant by canal.

Under an option dated 29 June 1989 the appellants were granted rights to occupy the land and to win, work and carry away by opencast methods coal and marketable minerals for a term of three years from 31 may 1991 at an initial payment of £3,000 and royalties of £2.75 per tonne for coal and 10% of the existing site value for other minerals. The appellants paid British Waterways £325 per month (equivalent to 6p per tonne) for the right to cross their land with a mobile conveyor.

Under a licence dated 6 May 1993 from British Coal the appellants were granted the right to work and dispose of vested coal by opencast operations at a royalty of £2 per tonne.

Broomley Fell Plantation is in Northumberland, about 16 miles west south west of Newcastle upon Tyne and 1.25 miles south of Riding Mill. Access is from the A68 via a narrow unclassified road. It was worked from 27 September 1991 to 23 July 1992. The tonnage recovered was 53,180 tonnes (annual equivalent of 64,487 tonnes) at a works factor (actual) of 21.34. The coal had calorific values of 23.0 – 24.1 GJ/t (net) and 24.2 – 25.3 GJ/t (gross) with an average price of £36.70 per tonne (equivalent to £28.80 per tonne at the AVD). The market was Blyth Power Station. The coal from this site was sent for blending to Lumley Blending Yard, 24 miles distant, then a further 26 miles to the power station.

Under a licence dated 5 April 1991 the appellants were granted to right to enter the land to extract coal for a term of 3 years from 1 March 19991 for agreed payments of £25,000 for the first 10,000 tonnes and a royalty of £2.50 per tonne thereafter.

Under a licence dated 5 August 1991 from British Coal the appellants were granted the right to work by opencast operations, carry away and dispose of vested coal at royalties of £5.50 per tonne up to 50,000 tonnes and £6 per tonne thereafter.

Appeal hereditaments: rating

By a notice of alteration dated 27 October 1993 the valuation officer entered Bullcliffe Farm Extension in the 1990 rating list with a rateable value of £300,000 with effect from 28 June 1993. Proposals to reduce the assessments were made by Banks on 8 and 9 November 1993. The resultant appeals were referred to West Yorkshire Valuation Tribunal. By a decision dated 5 September 1995 the Tribunal reduced the assessment to rateable value £262,896 with effect from 28 June 1993. On 2 October 1995 Banks lodged an appeal to this Tribunal in respect of the LVT decision arising out of the proposal dated 8 November 1993. On 24 October 1995 Banks were granted leave to appeal out of time in respect of the LVT decision arising out of the proposal dated 9 November 1993 (RA/329 & 373/95).

By a notice of alteration dated 28 April 1993 the valuation officer entered Bullcliffe Farm in the 1990 rating list with a rateable value of £153,500 with effect from 28 September 1992. Banks made a proposal on 30 April 1993 to reduce the assessment and change the effective date. The resultant appeal was referred to West Yorkshire Valuation Tribunal. By a decision dated 5 September 1995 the tribunal increased the assessment to rateable value £208,194 with effect from 5 September 1995. Banks lodged an appeal to this Tribunal against that decision on 2 October 1995 (RA/330/95).

By an undated notice of alteration the valuation officer entered West Farm in the 1990 rating list at a rateable value of £243,000 with effect from 29 September 1992. Proposals to reduce the assessment were made by Banks on 11 and 14 June 1993. The resultant appeals were referred to West Yorkshire Valuation Tribunal. By a decision dated 5 September 1995 the tribunal reduced the assessment to rateable value £177,141 with effect from 29 September 1992. Banks appealed to this Tribunal on 2 October 1995 in respect of the LVT decision arising out of the proposal dated 14 June 1993. On 24 October 1995 Banks were granted leave to appeal out of time in respect of the LVT decision arising out of the proposal dated 11 June 1993 (RA/331 & 374/95).

By a notice of alteration dated 28 January 1992 the valuation officer entered Thorntree Hill in the 1990 rating list with a rateable value of £303,000 with effect from 19 November 1991 and by an undated notice with a rateable value of £240,105 with effect from 1 April 1993. Banks made proposals to reduce these assessments on 28 February 1992 and 29 March 1994. The resultant appeals were referred to West Yorkshire Valuation Tribunal. By a decision dated 5 September 1995 the tribunal determined the appeal arising out of the proposal dated 28 February 1992 at rateable value £330,849 with effect from 5 September 1995 and the appeal arising out of the proposal dated 24 March 1994 was determined at rateable value £240,105 with effect from 1 April 1993. Appeals to this Tribunal were made by Banks on 2 October 1995 (RA/332 & 333/95).

By a notice of alteration dated 27 October 1993 the valuation officer entered Birkwood Farm in the 1990 rating list with a rateable value of £255,000 with effect from 6 August 1993. Banks made proposals to reduce the assessment on 13 and 14 December 1993. The resultant appeals were referred to West Yorkshire Valuation Tribunal. By a decision dated 5 September 1995 the tribunal reduced the assessment to rateable value £189,828 with effect from 6 August 1993. Banks appealed to this Tribunal on 2 October 1995 in respect of the LVT decision arising out of the proposal dated 14 December 1993. On 1 November 1995 leave was given to Banks for an appeal out of time in respect of the LVT decision arising out of the proposal dated 13 December 1993 (RA/334 & 375/95).

By a notice of alteration dated 12 March 1992 the valuation officer entered Broomley Fell Plantation in the 1990 rating list with a rateable value of £256,030 with effect from 27 September 1991. By a proposal dated 16 March 1992 Banks sought a reduction in the assessment and by a proposal dated 3 September 1992 they claimed that beneficial occupation had ceased. The resultant appeals were referred to Northumberland Valuation Tribunal (four appeals, two arising out of the proposals and two deemed appeals). By a decision dated 19 June 1995 the tribunal reduced the assessment to rateable value £155,799 with effect from 27 September 1991, in respect of the appeal arising out of the proposal dated 16 March 1992 in respect of the other appeals the tribunal took the hereditament out of rating with effect from 24 June 1992. On 11 July 1995 Banks appealed to this Tribunal in respect of the assessment determined by the LVT (RA/239/95).

The LVT decisions referred to above all included acceptance of the valuation officer's royalty rent (surface and coal) of £6 per tonne.

All appeals to this Tribunal are on the grounds that the assessments determined by the LVTs are incorrect, excessive and bad in law.

By an order dated 10 September 1997 the Registrar consolidated the appeals. Coal royalties

Between 1980-1993 the standard royalties required by British Coal for the extraction of coal were:-

Date	Royalty £ per tonne
27 April 1980	14.75
24 May 1981	15.50
28 March 1982	16.00
1 March 1987	13.50
17 December 1987	11.00*
1 April 1990	5.50
	(to 50,000 t)
	6.00
	(above 50,000 t)
24 May 1992	4.50
	(to 50,000 t)
	5.00
	(above 50,000 t)
1 April 1993	2.00

* The royalty of £13.50 was reduced in May 1988 to £11 backdated to 17 December 1987.

Standard royalties applied to all sites although in a few cases the royalty was reduced before work commenced. In 1986-87 and 1987-88 there were 30 and 40 applications for opencast licences, two reductions were given in 1986-87 and one in 1987-88. In 1988-89 two reductions were given in 39 applications. No reductions were given in 1989-90 (14 applications), 1990-91 (34 applications) and 1991-92 (44 applications).

The parties have agreed that royalties charged by the Coal Authority, as successors to British Coal , have been substantially lower than £2 per tonne since 1995. Royalties were about 50p per tonne average in the period 1995-2000. Royalties have continued to fall since 2000.

Surface rent

The parties have agreed that the surface rent payable at opencast coal sites at the AVD was about £2 per tonne.

Rating list 1990

In valuation lists prior to 1990 hereditaments occupied by the NCB and British Coal were assessed by statutory formula. Private coal mines and quarries were assessed by conventional methods.

In the rating list 1990 British Coal hereditaments were not assessed by statutory formula; all coal mines and quarries were valued by conventional methods. On 19 September 1989 British Coal and the Valuation Office agreed a royalty rent of £6 per tonne for coal and surface for the assessment of British Coal opencast sites in the 1990 list.

Instructions for the valuation of British Coal and private sector opencast sites for the 1990 rating list were contained in Valuation Office Minerals Circular 18/89, addressed to all mineral valuers. The basis of assessment was :-

(i) for the mineral element, £6 per tonne unadjusted rateable value (URV) for coal and the open market royalty for other minerals, inclusive of all land values, surface rights, wayleaves, etc;

(ii) the rate for coal may be subject to allowances for difficult geological and working conditions at individual sites;

(iii) site improvements, roads, buildings, rateable plant and machinery to be valued on the contractor's basis.

The parties have agreed the following for the purposes of the valuations in these appeals:-

(i) Bullcliffe Farm Extension

(a) equivalent annual output of coal, 86,632 tonnes;

(b) buildings and rateable plant and machinery, RV £2,675;

(c) no disability allowance.

(ii) Bullcliffe Farm

(a) equivalent annual output of coal, 68,398 tonnes;

(b) buildings and rateable plant and machinery, RV £2,500;

(c) disability allowance, 5%.

(iii) West Farm

(a) equivalent annual output of coal, 58,147 tonnes;

(b) buildings and rateable plant and machinery, RV £2,525;

(c) no disability allowance.

(iv) Thorntree Hill

(a) equivalent annual output of coal, 109,283 tonnes (1991) and 79,035 tonnes (1992);

(b) buildings and rateable plant and machinery, RV £2,375;

(c) no disability allowance.

(v) Birkwood Farm

(a) equivalent annual output of coal, 62,376 tonnes;

(b) buildings and rateable plant and machinery, RV £2,350;

(c) disability allowance, 10%

(vi) Broomley Fell Plantation

(a) equivalent annual output of coal, 64,487 tonnes;

(b) buildings and rateable plant and machinery, RV £1,030;

(c) disability allowance, 20%.

ISSUES

The parties have identified the issues to be determined by this Tribunal as:-

"(1) The royalty rent to be applied to the annual output of coal produced at each of the six appeal hereditaments.

(2) The most appropriate method of valuation to be adopted in determining the rent for rating purposes for each of the appeal hereditaments in accordance with Law."

I will decide the two issues identified by the parties but, having regard to the way in which the case developed during the hearing, I think that the issues can also be expressed as a fundamental question leading to two further questions. The fundamental question is: does sufficient reliable value evidence exist to enable a royalty rent to be determined for each of the appeal hereditaments as at the AVD? If the answer to this question is yes, then the second question is what, on the basis of this evidence, were the royalty rents at the AVD for the appeal hereditaments? Alternatively, if the answer to the first question is that insufficient reliable value evidence exists, then the second question is: how should the royalty rents be fixed – by reference to Mr Crawford's valuations or by reference to Mr Willson's alternative receipts and expenditure valuations? If the alternative second question applies, then a third question is what were the royalty rents at the AVD, assessed in accordance with the preferred method of valuation?

APPELLANTS' CASEEvidence

Mr Parkin gave evidence of fact, mainly the background to the dispute, including British Coal's licensing policy, the coal market at the AVD, obtaining opencast sites and alleged discrimination under the ECSC Treaty. He said that at the AVD there was no market in rights to unworked coal and therefore no open market rents or royalties for opencast coal sites.

The biggest single market for coal producers in the UK was sale to the electricity industry (CEGB). The only other market of significance available to the private sector was that offered by British Coal under delivered licences. Consequent upon arrangements engineered by British Coal and the Government, the CEGB market was only available to private operators at a coal price of £30 per tonne compared to £43 available to British Coal. Royalties of £13.50 and then £11 per tonne had to be paid to British Coal making it uneconomic to mine coal other than from shallow seams with higher calorific values. Under the licensing arrangements with British Coal, private operators could only operate sites rejected by British Coal. These were inferior in many ways, eg British Coal sites contained 40% more coal and were five times more profitable.

Mr Parkin said that the VOA decided not to undertake individual assessments for the 1990 rating list but to agree a position with British Coal (£6 per tonne) and then apply it to all other sites, without appreciating that private sites were worth much less. Many private opencast operators objected but decided to accept a £6 per tonne assessment under duress and for commercial reasons. Mr Willson is wrong to use royalties payable for the extraction of non-vested coal as evidence of value for opencast sites. They are not comparable: non-vested sites are essentially clay quarries. The appellants believe that the compilation of the 1990 list did not meet the requirements of rating law nor ECSC rules on discrimination. The appellants occupied more sites than other operators and were developing a future programme. They felt it important to have their complaints resolved.

For subsequent rating lists the VOA has changed its position several times, reducing the royalty on each occasion. The structure of the coal industry has changed. Coal royalties have continued to fall and are now settled more realistically. The appellants wish to have their 1990 assessments settled at a level which fairly reflects national and European legislation.

Mr Godfrey gave evidence of coal prices to rebut the evidence of Mr Shuttleworth and Professor Hughes.

He reviewed world and UK coal market prices, particularly the 1986 agreement between the CEGB and the NCB for the purchase and supply of coal (the RJU), and reached three conclusions. First, that Mr Shuttleworth and Professor Hughes did not understand the coal market between the mid-1980s and early 1990s and failed to take into account published information. They have arrived at erroneous conclusions. Second, the RJU was a reasonable commercial agreement. The lower prices for the second and third tranches of coal under that agreement took account of the potential benefit to the CEGB of increasing imports of coal at the expense of NCB production. There was no state subsidy associated with the RJU. In cross examination, however, Mr Godfrey accepted that under the RJU the coal price of £43 per tonne compared to a world price of £28 showed a hidden subsidy to the NCB for deep mines, although he did not accept the amount of that subsidy given by Lord Marshall, Chairman of the CEGB in his evidence to the Energy Committee of the House of Commons on 19 March 1986. Third, British Coal received a price of £1.82 per GJ under the RJU for its opencast production compared to £1.25 per GJ received by licensed opencast producers.

Mr Crawford said that, although he approached the valuation of the appeal hereditaments on a royalty basis, much of the value evidence is of no assistance. In the absence of good direct evidence he has prepared a valuation having regard to revenue and expenditure and to the accounts of British Coal related to the agreement of £6 per tonne royalty for rating purposes. Royalties paid by the appellants to the Coal Authority are a check. Although these started about six years after the AVD they are similar to the landlord and tenant relationship under the rating hypothesis. That is not the case with British Coal royalties. There are significant differences between British Coal sites and those of private operators. Although these differences might be reflected in end allowances it is the valuer's task to assess the royalty likely to be agreed at the commencement of the tenancy to reflect conditions already encountered. Mr Crawford's fundamental point is that a coal royalty is directly related to the selling price of coal and the costs of extraction. The physical characteristics of each opencast site are different and affect operating costs. A combination of cost and price affect profit and the payment of royalty. Factors to be taken into account include coal quality, the works factor (ratio) and size of operation.

The hypothetical tenant of each appeal hereditament could have been the appellants or any other operator capable of occupying the site. For rating purpose British Coal agreed £6 per tonne for all their sites and this was then applied to other opencast sites regardless of different characteristics. An average British Coal site differed significantly from the appeal hereditaments with regard to size, output, works factor and productive life.

Mr Crawford considered the value information available. Alienated coal was likely to be coal worked with other minerals of significant commercial value where that value affects the cost of access to the coal. Alienated coal can be distinguished from the vested coal worked at the appeal hereditaments. Mr Crawford considered the alienated coal transactions referred to by Mr Willson but found this information to be of no use due to significant differences between these sites and the appeal hereditaments. Royalties paid for non-vested coal are generally paid for clay quarries and are to be distinguished.

Next, Mr Crawford considered other sites operated by the appellants and made comparisons with the appeal hereditaments. As to sites operated on delivered licences, he said that it is important to take into account the period it takes to develop a site for working. At the AVD the evidence shows that British Coal were demanding royalties which were not affordable. British Coal stop granting delivered licences in 1990 when the price of coal rose and royalty levels were reduced.

Mr Crawford referred to the creation of the Coal Authority in 1994 and emphasised that, unlike British Coal, the Coal Authority had no competitive trading position as against private operators. It was required to obtain the best terms reasonable available when disposing of assets. Mr Crawford used the Coal Authority evidence to indicate what might have happened at the AVD in the absence of the British Coal monopoly. The position under the Coal Authority can be contrasted with the position under British Coal, which only granted licences on sites which it did not intend to operate. Negotiations between the Coal Authority and private operators are closer to the hypothetical landlord and tenant relationship in rating than the arrangements with British Coal. From the formation of the Coal Authority to August 2003 the appellants agreed 24 licences with an average royalty of 63p per tonne. Surface access payments were about £2 per tonne. Coal Authority royalties were between 0.85% and 4.02% of the coal selling price (average 2.16%). Royalties were between 25p and £1.20 per tonne. Applying 2.16% to the average price of coal prevailing under the Coal Authority arrangements results in a coal royalty of 63p per tonne, to which a surface royalty must be added. Under the Coal Authority, royalties fell to 70p per tonne in 1998. Although there was still an element of monopoly this level indicates what the position might have been at the AVD. Coal Authority royalties continued to fall and reflected the circumstances at each site. The market under the Coal Authority improved and a hypothetical tenant would have bid more in 1998 than in 1988. Coal Authority agreements are more relevant to the level of royalty which would have been secured at the AVD if the market had been "open". Mr Crawford said that the average of Coal Authority royalties is 63p per tonne and adding a surface royalty of £2 produces a total royalty of £2.63, a figure close to his royalties for the appeal hereditaments.

Mr Crawford drew the following conclusions from the royalty information. Up to 1986 there was no reliable information. There were three royalty payments at the AVD and each site exhibited circumstances suggesting that it was more advantageous to work the site on a royalty basis rather than on a delivered licence basis, albeit that royalties were not open market transactions. The delivered licences at Drighlington, Bitchburn, Eclipse and Hepper Hill show that the appellants could not afford to work these sites on the only royalty basis available. Delivered licences suggest that operating under British Coal royalties was not feasible for private operators except for exceptional sites. Even then the royalty was accepted because it was all that was available. In 1990 the coal price of private operators rose by £8 per tonne and British Coal reduced their royalty to £4.50 - £5 per tonne following complaints to the European Commission and the courts. The size of sites available to private operators increased from 50,000 to 250,000 tonnes. British Coal stopped delivery licences and only royalty arrangements were available to private operators. By 1994 royalties had fallen to £2 per tonne. The selling price of coal was then £35 per tonne and operating costs were marginally better than at the AVD.

Surface royalties for the appeal hereditaments range from £1 to £3.25 per tonne. It is agreed that the average surface rent at the AVD was £2 per tonne. Surface royalties were influenced by the arrangements with British Coal, who paid less for surface access than private operators. Under delivered licences the arrangements included up to £2 per tonne to the surface owner and this payment was therefore irrelevant because it was passed on to British Coal. £2 per tonne therefore became the norm but it does not represent the value of surface access as between a willing landlord and tenant under the rating hypothesis. Under Coal Authority royalties the surface royalty remained at £2. Surface access payments are of no assistance in assessing a rating royalty for the appeal hereditaments, although, when measured against Coal Authority royalties, they give support to his valuations. Surface royalties must be considered in the context of the total payable: it is not automatically £2 per tonne. A hypothetical tenant may not be able to afford £2 for the surface having regard to the additional coal royalty. In answer to questions from me, however, Mr Crawford said that all the appeal hereditaments except Thorntree Hill could have sustained a surface rent of £2 per tonne at the AVD.

Because lease and licence information is of no direct assistance in assessing the appeal hereditaments, Mr Crawford reviewed other sources of information. He referred to the European Commission decision in 1990 and said that Mr Willson and Professor Hughes have quoted parts of it out of context. At the time of the decision the coal price available to private operators was £8 per tonne higher than at the AVD, with greater gross margins. The reference in the decision to the royalty as "not unreasonably high" related only to deep mine coal, not opencast sites. In relation to these the decision only states that a royalty of £5.50 - £6 per tonne was not sufficiently high as to be unlawful but it does not say that the opencast royalty was not unreasonably high. Mr Crawford did not use this decision to support his valuation.

There have been two revaluations since 1990. For the 1995 and 2000 rating lists royalty levels are lower than in the 1990 list. If Coal Authority royalties represent what would had happened in negotiations free from the British Coal position in 1988, then the 2000 assessments of 65p to £3.30 per tonne might be a good indication of the level for the 1990 list. The market for coal was different in 1998 compared to 1988 but prices and profits were similar. Mr Crawford also referred to decisions of local valuation tribunals in 1995 (Methley South, £3.60 per tonne) and 2000 (Moss Carr, £2.45 per tonne).

When British Coal agreed a rating royalty of £6 per tonne they had in mind a coal price of £40. British Coal's accounts for 1987-88 show £43.39 per tonne. A coal price of about £40-£43 per tonne was part of the background to the settlement of a rating royalty of £6. If British Coal representatives did not have in mind this coal price when agreeing £6 per tonne rating royalty then more emphasis should be placed on the Coal Authority evidence and later negotiations in the open market. Operating costs for opencast operations in 1988 were £26.68 per tonne and profit £16.71 per tonne. Profit was 40.1% (1987) and 36% (1988). These show that, although a royalty of £6 per tonne may have been appropriate for an average British Coal site, it cannot be correct for the appeal hereditaments which operated in a fundamentally different market. The appeal hereditaments were only able to secure a coal price of about £30 per tonne.

Mr Crawford said that it is apparent from the notes of a meeting with British Coal on 5 July 1989 that Mr Willson had in mind assessing the coal royalty for British Coal sites on the basis of 15% of a coal price of £40 per tonne plus a surface royalty. A royalty of £6 was agreed on this evidence, which may be appropriate to the valuation of the larger British Coal sites. Private sites are however very different. With the transfer of licensing to the Coal Authority, royalties were negotiated having regard to revenue and costs and were agreed at an average of 2.16% of revenue. This is a more reliable basis of assessment than the arbitrary 15% adopted in negotiations with British Coal (even this figure might require adjustment for the British Coal monopoly).

Mr Willson refers to rating settlements of opencast sites (133 out of 163 assessments settled). He does not mention, said Mr Crawford, other important facts, eg. 31 appeals outstanding, and financial reasons for settlement to secure a cash flow (see Eastbourne Borough Council and Wealden District Council v Allen (VO) [2001] RA 273). These settlements are not reliable comparables. There is evidence of assessments settled at royalties below those proposed for the appeal hereditaments.

Mr Crawford referred to settled assessments of reclamation sites, such as Bowmans Harbour and Ravenhead Park, where much lower royalties have been agreed. Although Mr Willson has argued that these sites are not comparable to the appeal hereditaments, the same comment could apply to alienated coal sites, on which Mr Willson places much reliance. Mr Crawford also referred to Clee Hill, where he agreed the 1990 list assessment at £2.50 per tonne royalty. Reclamation sites show that royalties for these properties have been agreed at figures substantially lower than £6 per tonne. In these cases Mr Willson has ignored the licence evidence which is directly comparable to that which he has used to support his valuations of the appeal hereditaments.

In the absence of reliable royalty evidence, Mr Crawford suggested two other approaches to the valuation of the appeal hereditaments: a comparison with British Coal's agreed royalty of £6 per tonne having regard to financial performance and by reference to revenue and costs to reflect the approach adopted by operators in the real world (eg. see the Coal Authority royalty negotiations).

Mr Crawford valued the appeal hereditaments by the following method. His valuations are summarised in Appendix 1 to this decision. Mr Crawford assessed the royalty rent (coal and surface) in three stages. First, he established the revenue and costs underlying the agreed British Coal royalty rent of £6 per tonne, which he accepted as correct. From British Coal accounts he took a coal selling price of £43.39 per tonne, costs at £26.68 per tonne and operating profit at £16.71 per tonne. Mr Crawford then reduced the costs to £20.75 per tonne to exclude pre-production costs of £5.93 to put his costs on the same basis as that adopted by Mr Willson. Second, Mr Crawford analysed the agreed British Coal royalty rent by reference to the coal price and costs which he said had led to the agreed figure. The coal price of £43.39 per tonne, less adjusted costs of £20.75 per tonne produced a divisible balance (or adjusted operating profit) of £22.64. The agreed royalty rent of £6 represented the landlord's share (26.5%). The remainder (£16.65) represented the tenant's share (73.5%). At the third stage Mr Crawford adjusted the landlord's share to reflect the greater risks borne by the tenants of the appeal hereditaments compared to British Coal sites. A comparison with Mr Willson's divisible balances for the appeal hereditaments and £22.64 for the British Coal sites produced an average difference of £8.25, a figure 36.5% lower than the profit from British Coal sites (£22.64 per tonne). This 36.5% reduction was applied to the British Coal landlord's share of 26.5% (to reduce it to 16.8%) to produce the following royalty rents per tonne for the appeal hereditaments (surface and coal):-

Bullcliffe Farm Extension £2.59Bullcliffe Farm £2.45West Farm £2.87Thorntree Hill £1.98Birkwood Farm £2.20Broomley Fell Plantation £2.46

Mr Crawford has agreed Mr Willson's disability allowances. In answer to a question from me, he said that it is not double counting to include disability allowances and different royalty rents in the same valuation. The royalty rent is that agreed in anticipation of circumstances at the site; the disability allowance reflects the fact that those circumstances vary from those anticipated when the royalty was agreed.

Combining the above royalty rents (as applied to the agreed annual output), the agreed values of buildings and rateable plant and machinery and the agreed disability allowances, Mr Crawford's assessments for the appeal hereditaments are:-

Bullcliffe Farm Extension RV £114,863 Bullcliffe Farm RV £82,098 West Farm RV £85,965 Thorntree Hill RV £110,565(1991) Thorntree Hill RV £80,619(1993) Birkwood Farm RV £64,102 Broomley Fell Plantation RV £64,485

Mr Crawford said in re-examination that an opencast coal site becomes a hereditament for rating purposes on the first excavation of coal. The hereditament which the hypothetical landlord lets to the hypothetical tenant is a permitted site without excavation. The first boxcut is carried out (and paid for) by the tenant to expose the coal. This evidence appeared to differ from that given in cross examination where Mr Crawford agreed that, as a matter of law, the right approach is to take the tenement as ready for use by the hypothetical tenant, in the sense that all pre-production costs have already been incurred by the hypothetical landlord. I therefore gave leave for Mr Holgate to cross examine again (with re-examination) in the interests of clarity. Mr Crawford then said that he wished to change his previous answers. The hereditament comes into existence when excavation starts but, in making his rental bid, the operator will take into account pre-production costs which include putting the site into a state ready for operation (eg boreholes, site investigation, provision of access roads and buildings) and includes the first box cut. Thus, the hypothetical tenant will not be able to start excavation for a few weeks until the site has been set up and will take those costs into account in his rental bid. Mr Crawford said that this approach was not previously set out in his evidence because he did not consider pre-production costs: he merely accepted Mr Willson's exclusion of those costs. His valuation proceeded by a comparison with British Coal assessments. It is not necessary to make any adjustments to his estimated royalties for the appeal hereditaments.

Submissions

Mr Horton QC said that this is the first time that the Tribunal has had to grapple with the principles applicable to the rating of private opencast coal mines, certainly since British Coal sites ceased to be rated by formula. The appellants come to the Tribunal with a sense of grievance: their mines have been rated unfairly compared to those of British Coal. Article 4(b) of the European Coal and Steel Community Treaty prohibits discrimination between coal producers. It is clear that in the real world at the AVD there was discrimination against private opencast operators. The valuation officers have rated British Coal hereditaments and private sites on the same basis and this has aggravated the appellants' sense of grievance. Coal quarries cannot be compared to a parade of shops. The complaint of discrimination is based on a comparison of profitability. The Lands Tribunal can remove the discrimination by fixing the rateable values of the private mines in this appeal at a lower level than the £6 per tonne agreed for the more profitable British Coal sites.

Mr Horton said that, having regard to the detail and complexity of the evidence, the Tribunal should have in mind a few fundamental propositions. Unlike the real world, a hypothetical tenant is not constrained by accidental factors, such as the need to take a site at a loss for continuity of trading or for an inadequate return, but will occupy for commercial reasons: to achieve a satisfactory profit. Profitability is of key importance. The following factors emerge from the settlement between the VOA and British Coal. It was based on an average British Coal site where the coal price was at least £40 per tonne, with profitability of £16.29 per tonne. The valuation officers do not impugn their rating list.

To set against these factors it is known that an average British Coal site was more valuable per tonne of coal than private sites. So the first indicator that the assessments of the appeal hereditaments are wrong is a comparison with the settlement in respect of an average British Coal site. The assessments of the appeal hereditaments must be below the agreed £6 per tonne. The second indicator is provided by the agreements between private operators and the Coal Authority, at a time when the market was closer to an open market than it was at the AVD. This is an unusual case: both parties agree that the real market at the AVD differed materially from the hypothetical rating market. The valuer can have no confidence in transactions at the AVD; therefore Coal Authority transactions are preferable.

In the rating world two fundamental principles apply: reality (Hoare (VO) v National Trust [1998] RA 391 at 408) and the principle that the consequences of an imaginary state of affairs must be taken into account (East End Dwellings Co Limited v Finsbury Borough Council [1951] 2 All ER 587 at 599). The respondents have not defined the hypothetical world of rating. At the AVD an open market did not exist whereas it did exist in the National Trust case. Subject to that qualification, the factors governing the market in rating should be as close as possible to the real market at the AVD, including actual coal prices, the RJU and the dominance of British Coal and the CEGB.

In the real world British Coal was a competitor, motivated to use its monopoly position to protect its own production. In the rating world the hypothetical landlord is willing to let at the best price reasonably obtainable (see National Trust at 415-16). At the AVD only sites up to 25,000 tonnes could be licensed to private operators but it is accepted that, for rating purposes, it is to be assumed that this would not have prevented a private operator from occupying the appeal hereditaments. British Coal dominated the market at the AVD, particularly in dealing with the CEGB. The principle of reality requires it to be assumed that the rating market at the AVD was as it actually existed at that date. Crucially, a British Coal hereditament would have been of interest to a potential tenant who had the benefit of the agreement between British Coal and the CEGB. The appeal hereditaments did not benefit from this agreement. It was this agreement which shaped the market at the AVD.

As to the ownership of coal in the rating hypothesis, Mr Horton said that under the principle of reality it cannot be ignored that most of the coal is in single ownership. At British Coal hereditaments it may not be possible to say that British Coal rented the coal from itself. That could not happen in law. The important point is that, in the hypothetical world, as in the real world, the majority of coal was in single ownership and the owner (British Coal) was willing to enter into rental transactions. Consequently, the hypothetical tenant would have negotiated with a body representing the nation as the owners of the coal.

The principal factors relevant to the valuation of the appeal hereditaments are: the selling price of coal and profitability, risk and the security of the market. At the appeal hereditaments all these factors were poorer than at British Coal sites; it is counter-intuitive to say that they would have commanded the same royalty rent.

In his review of the respondents' case Mr Horton noted that the evidence of Mr Shuttleworth, Professor Hughes and Mr Biddle was not relevant to Mr Willson's valuation. Mr Shuttleworth did not produce his evidence until 13 years after the valuation officer had agreed £6 per tonne royalty with British Coal. Even if Mr Shuttleworth is right that there was a subsidy in the price of £43 per tonne received by British Coal, this does not alter the mineral royalty. It could only do so if the rating hypothesis required it to be assumed that the hypothetical tenant of a British Coal site obtained a lower price than the actual occupiers did. This matter is not addressed in the respondents' case. The principle of reality requires the valuer to use the coal price which was obtained in the real world.

As to the evidence of Professor Hughes, Mr Crawford has shown that it is of no assistance to a rating valuer. Various points arising from this evidence show that Professor Hughes did not understand the rating hypothesis. This led him to the false premise that the royalties paid by Banks provided a sound starting point from which to deduce the level of royalty payable in the rating world.

Mr Biddle's reports are directed to the principles of receipts and expenditure valuations and to their application in this case. However, Mr Crawford has not carried out such a valuation and Mr Willson considered the method unreliable. Mr Biddle's evidence is therefore not of central importance. The problem with receipts and expenditure valuation is that it can only assist where there is coherent evidence to allow the identification of a reliable tenant's share. Mr Willson has undermined his valuation by this method by rejecting the use of a receipt and expenditure valuation for the assessment of coal quarries.

The evidence of Mr Willson has a fundamental problem. He approached the available information with the pre-conceived assumption that, in terms of mineral royalty, there was no value-significant difference between sites and consequently that there should be a standard royalty for all opencast coal sites. He did not test that assumption; had he done so he would have found it to be incorrect. Mr Willson's judgment was flawed in assuming that British Coal royalties were a tool which could be used to identify the figure which would have emerged in negotiations for any of the appeal hereditaments. An outside measure would be necessary, but if this could be found it would be capable of use in direct comparison with the appeal hereditaments. As to the settlements of rateable value relied upon by Mr Willson these fall into two categories: settlements by private operators and the settlement by British Coal. The former may not genuinely disclose that the surveyors endorsed £6 per tonne. A ratepayer may settle for reasons entirely divorced from the correctness of the rateable value (see Eastbourne Borough Council at 319). As to the British Coal settlement, we do not know the means by which British Coal established the rateable value but we know that it agreed £6 per tonne for an average site. There is no reason to believe that there were extraneous reasons that drove it to settle at this figure. Here we do have evidence of two parties negotiating an agreed figure. It is a reliable comparable. But what needed to be done was to adjust that agreed figure to allow for the fact that an average British Coal site justified a higher royalty than the appeal hereditaments. Mr Crawford has made this adjustment; Mr Willson has not.

Mr Willson relied primarily on alienated coal royalties. There were material differences between these sites and the appeal hereditaments. It is not possible from the available information to identify the position on important value-significant factors at the alienated sites, let alone compare them to the appeal hereditaments. Mr Willson has acknowledged that his argument by extrapolation from surface royalties is flawed.

Mr Horton said that in law a valuer may devise a method of valuation where all other methods are inadequate. There is no single method of valuation (compare National Trust at 405). Mr Crawford was right to devise his own comparative approach to value.

As to the question of pre-production costs, this is linked to the dispute as to when a quarry hereditament comes into existence. This is when excavation starts, not when the first coal is extracted. This reduces the pre-production costs. The issue is one of approach: who bears these costs? The respondents ask the Tribunal to assume that they were borne by the hypothetical landlord and increase the royalty rent. Mr Willson, however, did not use this approach when valuing the British Coal sites and it would be unfair to do so when valuing the appeal hereditaments. In the hypothetical rating world the correct approach to pre-production costs is as follows. The principle of reality requires the tenant to act as he would have done in the real world unless there is a compelling reason to do otherwise. In reality a tenant bears pre-production costs and these would reduce his rental bid. There is no statutory provision which requires the assumption to be made that in the rating hypothesis those costs would be incurred by a person other than the operator. The purpose of rating is to establish the value to the occupier of his occupation (Poplar Assessment Committee v Roberts [1922] 2 AC 93 at 104). This suggests that pre-production costs should not be taken into account to the disadvantage of the operator. The arguments advanced by the respondents, that pre-production costs fall on the landlord in rating, are unrealistic; the Tribunal, on grounds of reality and fairness, should adopt an approach in accordance with those principles. This is that the hypothetical tenant bears those costs, as a real tenant does. A genuine problem presents itself to the valuer if reality and fairness are to be respected. The situation involves a legal dimension; it is not solely for the valuers to resolve.

It has been submitted by the respondents that Mr Crawford's valuation is based upon the fundamental legal error that it involves the rating of profitability. That is not correct. His starting point is a comparison of British Coal sites and the appeal hereditaments. Valuation by comparison is unimpeachable. The valuation officers have not suggested that the British Coal assessments are wrong, nor that privately operated sites are less attractive commercially. Consequently, these assessments should be lower, especially if correctness is not to be sacrificed to uniformity (as the valuation officers recognise must be achieved). Mr Crawford has been criticised for failing to give weight to other evidence (eg royalties for alienated coal) but this overlooks the fact that it was those royalties which were one of the factors in agreeing the British Coal assessments. It should follow that, if private quarries are inferior, those royalties cannot be used to assess private quarries at the same level.

RESPONDENT VALUATION OFFICERS' CASE

Evidence

Mr Shuttleworth gave evidence on the economics of the market for coal at the AVD, dealing with two main topics: the market value of British Coal's opencast output and the effect of British Coal's monopoly on the royalties charged to private operators.

Mr Shuttleworth accepted the appellants' figure of £30 per tonne as a useful marker for the open market price of coal at the AVD but said that the actual price at any site would have depended on location and quality. British Coal only achieved a price of £43 per tonne because of the agreement with the CEGB, where prices above market level were paid for fixed volumes of coal. British Coal would not, however, have received this higher price for exploiting the output from their opencast mines. The value to British Coal of this output was either the third tranche price under the RJU or the open market price. Both were about £30 per tonne. Thus, British Coal's opencast mines faced similar market conditions to those of independent operators. There were no grounds for treating the appellants' sites differently from British Coal sites nor for the allegation of discrimination.

The relatively high coal prices for the first and second tranches of the RJU contained a state subsidy to the deep mines of British Coal, because costs were higher than the market price. Mr Shuttleworth said that he calculated this subsidy by reference to the price of imported coal, £30 per tonne. This follows standard economic practice and was also used by the CEGB for the House of Commons Energy Committee. The exact amount of subsidy is not material but the price of £43 per tonne included some contribution to the high costs of British Coal's deep mines and exceeded the revenue achievable from opencast mines (by British Coal or a hypothetical tenant). British Coal's accounting policy did not show the subsidy explicitly in their accounts.

British Coal's opencast mines had production costs in line with market prices. The protection offered by the first and second tranche prices under the RJU, and the associated commitment to maintain production, did not apply to British Coal's opencast sites.

Mr Shuttleworth said that, given that British Coal could decide whether, and by how much, to produce from each opencast site, the economic value of this output depended on the additional (or marginal) revenue that British Coal gained by a decision to produce. If British Coal had opened another mine or increased production at an existing mine, sales would have increased at the third tranche price (if taken by the CEGB or at the market price). Both prices were about £30 per tonne. The average price of £43 per tonne, much relied on by the appellants, provides no guide to the revenue that British Coal or a hypothetical tenant would have earned from operating any particular opencast mine.

As to the appellants' reliance on Coal Authority royalties as good evidence of value, Mr Shuttleworth said that the price of coal fell substantially between the British Coal era and the Coal Authority era, by enough to explain the reduction in royalties that any landlord could have achieved. The inland, pit-head equivalent of the marker price fell from about £39 per tonne in 1988-89, to £35 in 1990-92 and £33 in 1993-95. These changes in price are more than enough to explain the decline in royalties over this period, if costs remained the same or increased. Thus, the reason for the decline in royalties between 1988-89 and 1993-95 lies in changing economic conditions, not in any change in the character or behaviour of the monopoly landlords.

Professor Hughes said that the central concept in mineral economics is the resource rent, which is no greater than the mine gate price less the cost of extraction. This rent covers coal and surface and is therefore on the same basis as rateable value. The monopoly exercised by British Coal is not unusual: it is a standard arrangement in major coal basins around the world. The licensor is often also an operator. Uniform royalty terms are also usual. In many countries royalty is expressed as a percentage of selling price. Under the rating hypothesis it is appropriate to rely on evidence of royalties paid by private operators.

Professor Hughes said that there were three major changes in economic circumstances affecting profitability between the AVD and the coming into operation of the appeal hereditaments. First, British Coal royalties fell from £11 to £2 by April 1993. Second, the ex-pit price of coal received by the appellants rose from £1.19 GJ (gross) to between £1.45 and £1.52 GJ at the beginning of 1991 before gradually falling to £1.25-£1.39 in 1993. Third, the cost of opencast mining rose by 20% to 25% from the AVD to 1991, then stabilised and declined after 1992. Although the reduction in royalty and the increase in coal prices were material factors in decisions made by Banks, the other factors must also be taken into consideration. Particular attention should be paid to the chronology of economic change and the evolution of mining costs over the period from the AVD to the development of the quarries.

As to these relative costs alternative cost indices are in dispute. Professor Hughes rejected Mr Crawford's index based on overburden removal costs incurred by Banks because it does not compare like with like over a period of time and has an inherent downward bias. He used an index based on reported costs by British Coal Opencast Executive. This is not perfect but is closest to a true index because it reflects the actual cost of operating a relatively stable set of pits accounting for most of opencast coal production in the United Kingdom. Professor Hughes said that, by the use of his index, it can be shown that the increase in mining costs exceeded or was the same as the increase in ex-pit prices for the most of the appellants' pits developed between 1991 and 1993.

The conclusion to be drawn is that a hypothetical tenant would have been willing to pay a coal royalty at the AVD, expressed as a percentage of the ex-pit price of coal, that was at least as large a percentage of the price that Banks actually agreed to pay prior to the development of their pits from 1990 to 1993. Banks would have been willing to pay royalties of more than £4 per tonne for all pits which commenced operation between 1990 and 1993. In 10 out of 14 cases Banks would have been willing to pay more than £4.50 a tonne. On the other hand, a British Coal royalty of £11 at the AVD was sufficiently high to discourage production under a royalty licence. By "willing to pay" Professor Hughes meant the maximum difference between price and cost, including a normal rate of profit.

Expressed as a percentage of coal price the royalties paid by Banks from 1990 to 1992 varied from 12.8% to 17.1%, giving in all cases a coal royalty in excess of £4. Professor Hughes concluded that a hypothetical tenant would have been willing to pay a coal royalty of £4.50 or £5 for the appeal sites. The application of a royalty rent of 15% would imply coal royalties in excess of £4 at the AVD. The use of percentage royalties is consistent with practice in the coal industry in the United Kingdom.

Professor Hughes produced figures to show that the amounts per tonne available for rates and royalties at each of the appeal hereditaments varied from £3.96 (Thorntree Hill) to £12.93 (West Farm), with an average of £7.02. The average level of rates at the AVD was 48p per tonne, leaving £6.54 available for royalty plus whatever share of pre-production costs is borne by the hypothetical landlord.

As to the amount of tenant's share in a receipts and expenditure valuation, Professor Hughes produced figures to show that Banks were demonstrably willing to accept a tenant's share of less than 50%, much lower than Mr Crawford's 83.5%.

Professor Hughes said that British Coal sites cannot be compared with private opencast sites and the latter cannot be valued by reference to British Coal sites. You have to look at the willingness of private operators to pay for the right to exploit coal deposits, not by reference to British Coal sites.

Mr Willson said that there is sufficient evidence of royalty rents paid by opencast operators to enable rents for the appeal hereditament to be established at the AVD. Analysis of the evidence shows that the appropriate royalty at the AVD was £6 per tonne. For three of the hereditaments disability allowances of 5%, 10% and 20% have been given, reducing the royalties to £5.70 (Bullcliffe Farm), £5.40 (Birkwood Farm) and £4.80 (Broomley Fell Plantation). Mr Willson's primary valuations are summarised in Appendix 2 to this decision.

Although analysis of rental evidence is the best method to establish the royalty rents, Mr Willson said that he has also produced receipts and expenditure valuations for the appeal hereditaments which confirm that £6 a tonne is not excessive. These valuations (amended) are summarised in Appendix 3 to this decision.

Mr Willson produced evidence of royalties paid at five sites where non-vested (or alienated) coal was extracted (Blakeley Hall Farm, Bonnybridge at Falkirk, Benthall, Caughley and Hepworth (Woodville)). All except Caughley are of equal weight. This is the best available evidence to indicate the royalties which would have been agreed in open market negotiations where the landlord owned both coal and surface. Costs of extraction, profits and selling prices are similar for vested and non-vested coal. The reference in section 17(3) of the Coal Act 1938 to coal of small value refers to the circumstances which existed in 1938 when opencast mining was virtually unknown. Circumstances in 1988 were completely different. Mr Willson analysed these five transactions to show coal royalties per tonne of £7.73, £6, £5.50-£8.25, £7.50 and £5.95. The value evidence for non-vested coal sites shows a sequence of fairly consistent values before, at and after the AVD.

Mr Willson rejected Mr Crawford's criticism that alienated coal sites are not comparable because clay is also worked. He said that two of the sites did not work clay; the clays extracted at Benthall and Falkirk are fireclays which lie beneath the coal seams. Coal had to be extracted before the fireclays could be worked. Five of the appeal hereditaments had planning permission to extract clay and the appellants are major clay producers. There are many similarities between non-vested coal sites and the appeal hereditaments, including the working of clay.

Mr Willson said that in 1988 the appellants occupied 11 coal quarries, five on a royalty basis and six on delivered licences. At three sites the standard British Coal royalty of £11 per tonne was paid and in two cases British Coal had agreed lower royalty payments of £8.50 and £7.50 respectively per tonne. These lower figures show that British Coal royalties were not always on a take it or leave it basis. At three of the delivered licence sites Banks had made offers of royalties of £5.24, £7.40 and £7 per tonne which were not accepted by British Coal. These offers are compelling evidence. In all relevant years (including 1988) royalty paid tonnage exceeded delivered licence tonnage. In the period ended 31 December 1987 91% of the appellants' production paid royalties of £13.50 per tonne.

Mr Willson said that at four of the appeal hereditaments the appellants paid total royalties of between £4.75 and £10 a tonne. At the other two sites agreed coal royalties were £5 per tonne with substantial capital payments for surface access. This evidence supports £6 per tonne and casts doubt on Mr Crawford's much lower figures. The royalties paid by Banks for the appeal hereditaments are reliable market evidence of the royalty which would have been paid by a hypothetical tenant to a hypothetical landlord at the AVD.

It has been agreed that the surface access rent at the AVD was £2 per tonne. Surface royalties are open market agreements and take several forms, eg capital payment, lease, licence or working rights agreement. Payments take the form of a royalty per tonne of coal extracted, premium, wayleave or compensation. A surface agreement may contain restoration conditions. The surface access evidence shows royalties of between £1 and £6.40 per tonne of coal extracted, with an average figure of £2 to £2.50. Around the AVD the range of surface royalties was £1.65 to £3 per tonne. Surface rents may be extrapolated by reference to the relationship between that rent and the full rent to show the level of the latter figure. In Mr Willson's opinion the surface element equated to approximately one-third of the full rent, eg at Blakeley Hall Farm and Broomley Fell Plantation the surface royalties were 33-35% and 29% respectively of the full rent. More generally surface rents were £2 - £2.50 per tonne compared to full rents of £5.50 - £8.25 per tonne.

Mr Willson said that most coal quarry operators paid royalties to British Coal. At the AVD the standard royalty was £13.50 per tonne, later reduced to £11 per tonne with effect from December 1987. It was therefore effectively £11 at the AVD. The VOA considered this royalty to be higher than the open market value in April 1988 and reduced it to £5.50 having regard to the non-vested coal evidence and the decision in Tivydale Coal Co Limited v Hanstock (VO) [1966] RA 225. In a letter dated 13 May 1988 from NALOO to British Coal it was indicated that a royalty of £11 would be accepted as reasonable. The decision of the European Commission in May 1991 on NALOO's complaint stated that royalties of £5.50 - £6 a tonne were not excessive. The addition of a surface royalty of £2 to a British Coal reduced royalty of £5.50 suggests a total royalty rent of £7.50 per tonne, above the figure of £6 used for the appeal hereditaments.

The position in December 2003 regarding settlements was that the assessments of 153 opencast sites in the 1990 list had been settled by agreement, withdrawal or LVT decision. These sites included 52 British Coal or former British Coal sites. There were 23 assessments outstanding (excluding these appeals): 16 were occupied by Banks, a further six were represented by former agents of Banks and the remaining appeal is awaiting this decision (the assessment having previously been settled). A site occupied by Banks in Scotland was agreed in 1992 at a royalty of £7 per tonne with a 5% disability allowance. Some settlements may have been due to cash flow problems or other difficulties or due to inappropriate advice (although there is no evidence of this), but most settlements were by substantial companies with competent professional advice. These were not "beach hut type" settlements with naïve ratepayers as in Marks v Eastaugh (VO) [1993] RA 11. These settlements support £6 per tonne royalty rent for the appeal hereditaments.

Mr Willson said that he has prepared receipts and expenditure valuations as secondary valuations (summarised in Appendix 3 to this decision (as amended)). These support £6 per tonne royalty rents. Receipts and expenditure valuations are approximate and not a reliable guide to the assessment of a coal quarry due to the unreliable nature of the information used and the need to make judgments in the calculations. No coal quarries have been valued for rating on the profits basis since at least 1963. Mr Willson said that his receipts and expenditure valuations are to be preferred to Mr Crawford's primary valuations. They follow a conventional approach (not the hybrid approach adopted by Mr Crawford), they are based on information from the appellants, which was known before the material day, and they are not inconsistent with his primary valuations.

An opencast coal hereditament comes into existence on the day coaling starts. This follows the preparation of the site and the erection of buildings and plant by the hypothetical landlord. In the rating hypothesis (and contrary to the real world) these pre-production costs are borne by the landlord to create the hereditament. Mr Willson said that, to avoid argument and to concentrate on important issues, he accepted Mr Powis's figures and then Mr Crawford accepted his pre-production costs of £5.93 per tonne (previously agreed with Mr Powis). These comprised operating costs of £3.68 and overheads of £2.25 (including a proportion of head office expenses).

All works and costs before the first box cut are the responsibility of the hypothetical landlord. After this stage the coal seam is available for working and the hereditament available for letting to the hypothetical tenant. It is then that the tenant would start to pay royalties in the real world. In the rating world this is the stage when the hypothetical landlord has provided the hereditament and the tenant has taken up the tenancy and starts to pay royalties. It follows therefore that pre-production costs are excluded in a receipt and expenditure valuation.

There should be an equal apportionment of the divisible balance in a receipts and expenditure valuation. The tenant's risk is reduced because the rent is related to the actual tonnage sold. The landlord shares the tenant's risk because it is also based on output. The tenant has the right to deprive the landlord of his coal and the landlord has only one opportunity to obtain an income from this mineral. The extraction of coal involves the removal of the top surface and the disturbance of other minerals to the detriment of the landlord.

Mr Willson said that in the preparation of the 1990 list private coal quarries were valued earlier than, and independently of, British Coal sites. Private quarries were valued by conventional methods in the 1963 and 1973 lists and this has continued; British Coal quarries were previously valued by formula. The coal price of £40 per tonne referred to in the discussions between the VOA and British Coal had no relevance to private quarries. Rental evidence was available for the assessment of these sites. Coal price was not used for private sites. It was of secondary importance only for British Coal sites where the royalty of £6 per tonne was based on rental evidence. There is only one body of rental evidence for opencast sites and it is not surprising therefore that both British Coal and private sites were valued at the same royalty, although their valuations were different exercises.

The VOA had separate discussions with British Coal and private operators regarding the 1990 list. British Coal sites had never been assessed on the conventional basis; private sites were always assessed by conventional methods; it was not necessary to involve the private sector in British Coal negotiations. Fourteen meetings with the private sector were held but it was not until 1995 that alternative valuations were put forward on behalf of private operators. By then three-quarters of private coal quarry assessments had been agreed. The British Coal settlement was not imposed on the private sector. Rating is not an exercise in comparing profitability: British Coal sites have different characteristics to private sites and cannot usefully be compared for rating purposes.

Mr Willson said that reclamation sites are essentially civil engineering operations where coal is extracted as part of the reclamation process. They are potential development sites but with ground problems which include the removal of coal. They are not comparable to the appeal hereditaments. Clee Hill, referred to by the appellants, is a stone quarry, wholly different from the appeal hereditaments. There has never been an entry in the rating list for Clee Hill as a coal quarry.

Mr Crawford's valuation gives the landlord a rent only 16.8% of the profit, leaving 83.2% in the tenant's hands. It is unlikely that any landlord faced with the extraction of his coal would accept such a share of the divisible balance. Mr Crawford's valuation is neither a receipts and expenditure valuation nor a comparative rental valuation. This hybrid valuation method is not necessary having regard to the available rental evidence. It is not necessary to look behind that evidence because rents encapsulate all the problems faced by private operators, eg profitability, risk, overburden. Mr Crawford's indirect method has numerous defects, eg incorrect indexing of costs to the AVD, no foundation in the market, no impartial evidence. Mr Crawford's valuations are based on inappropriate information, with inaccurate calculations and unreasonable opinions; they are inconsistent with the more reliable royalty evidence.

Mr Willson said that Mr Crawford now claims that Coal Authority royalties support his figures. These later royalties relate to a period 7-15 years after the AVD and are relevant only to the 1995 and 2000 lists. There have been major economic changes since the AVD, including the closure of deep mines, the increase in size and duration of private sector opencast sites and an increase in coal imports. Although the Coal Authority is a willing landlord it is still required to get the best price and negotiations are with private operators who have already secured planning permission and surface rights. No other operators are in the market for the particular site. This may be one of the reasons why Coal Authority royalties continued to fall to 10p per tonne in April 2003.

Where on inspection a quarry was found to have exceptional mining or geological conditions a disability allowance would be made by the VOA to reduce the standard royalty. Plus and minus factors would be taken into account. This is similar to the approach adopted by British Coal, where sometimes similar reductions were agreed to the standard royalty. The rating valuation process for minerals comprises an initial assessment based on the standard royalty at the commencement of production, with a later review.

Any comparison between British Coal sites and private sector sites must be made in the hypothetical rating world. Audited accounts for the appeal hereditaments have not been made available (although requested) and there is no evidence to support the contention that British Coal sites were more profitable. A comparison in the rating world between British Coal and private sites is complex, eg the hypothetical tenant of a British Coal site would not be the freeholder; he would pay rent for the coal extracted and would not be subsidised by royalties from private sites; he would not benefit from coal sales (mostly deep mined coal) as part of a large public corporation. The hypothetical tenant of a British Coal quarry would pay the same mineral and surface rents as a private tenant and receive the same price for his coal. He would also employ contractors. In the hypothetical rating world it must be assumed that a hypothetical body owned all coal deposits (other than alienated coal) but was not an operator. In rating the hereditament is the actual coal quarry and tonnage extraction limits would apply. The hereditament comprises land beneath which there is a stratum of coal.

Mr Willson's primary valuations of the appeal hereditaments comprise a standard royalty rent of £6 per tonne (surface and coal) applied to the agreed equivalent annual tonnage, less the agreed disability allowances for three of the hereditaments and plus the agreed annual rents of the buildings and rateable plant and machinery (Appendix 1). These valuations are:-

Bullcliffe Farm Extension	RV £262,571
Bullcliffe Farm	RV £197,434
West Farm	RV £176,966
Thorntree Hill	RV £330,224 (1991)
Thorntree Hill	RV £239,480 (1993)
Birkwood Farm	RV £170,765
Broomley Fell Plantation	RV £155,799

Mr Willson's alternative receipts and expenditure valuations (produced different and higher royalty rents for each hereditament and higher rateable values to those listed above (Appendix 3).

Mr Biddle give evidence about receipts and expenditure valuations and their application to the appeal hereditaments. Where there is a lack of rental evidence a receipts and expenditure basis may be used to find the notional rent from the profits of the business carried on at the hereditament. A full receipts and expenditure valuation is seldom carried out in practice; it is mainly used for leisure properties. Only a small proportion of the 1.8m assessments in each rating list use receipts and expenditure valuations. For the appeal hereditaments this method should not be used because a sufficient pool of rental evidence exists.

The appeal hereditaments are to be valued in their physical state at the relevant dates as opencast coal mines provided by the hypothetical landlord. Pre-production costs to make the hereditament ready for rateable occupation would be borne by the landlord. In determining the rent he would have regard to the average costs of £5.93 per tonne plus the coal and surface royalties. The costs incurred by an operator in the real world cannot be imposed on the hypothetical tenant, who has no interest in the property until a letting takes place.

Mr Crawford has said that his valuations are comparative valuations but he does not compare the appeal hereditaments with other similar properties but makes a comparison between receipts and outgoings at the appeal sites and £6 per tonne royalty rent agreed for British Coal sites. But the appellants also assert that British Coal sites are not comparable. In his valuations Mr Crawford has deducted pre-production costs but commented that it made no difference to his valuation if those costs are included. That is not correct. Mr Biddle produced figures showing differences according to the deduction or inclusion of pre-production costs. Mr Crawford's valuation method is misconceived: rating is not a tax on profits or earnings. In comparing the appeal hereditaments with British Coal sites Mr Crawford has incorporated two different measures which cannot be reconciled: a divisible balance for the appeal hereditaments and operating profits for British Coal.

Submissions

Mr Holgate QC referred to Schedule 6 para 2(1)(6) and (7) to the Local Government Finance Act 1988 (the 1988 Act) and said that the appeal hereditaments are to be valued as vacant and to let; an annual tenancy is assumed to be between parties acting reasonably. The rental formula provides the yardstick by which the value of the occupation of a rateable hereditament is to be measured (Humber Limited v Jones (VO) & Rugby Rural District Council (1960) 53 R & IT 293). The concept of the hereditament is linked to rateable occupation (Ryde on Rating paras C [113]-[123]).

In Hoare (VO) v National Trust [1998] RA 391, the Court of Appeal emphasised that a rating valuation should not depart from the real world further than the rating hypothesis compels (the reality principle) (at 408 and 415, see also Inland Revenue Commissioners v Gray [1994] RVR 129, 136). The reality principle is explained in more detail in Robinson Brothers (Brewers) Limited v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 445 at 461-2, 470-1, 471-2 and 478-9.

The usual valuation method for mineral sites comprises the addition of the mineral and surface elements and the annual value of buildings, roads and rateable plant and machinery, the mineral and surface rents being reduced by 50% (Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989, reg 5). The issue in these appeals relates to the mineral element. Although the profits (or receipts and expenditure) method was used for the valuation of a coal mine in Denaby and Cadeby Colliery Co v Doncaster Union Assessment Committee (1898) 78 LT 388, this was an old case and has not been followed in modern rating practice.

There is no legal reason why the economic realities of the letting of minerals should be ignored in a rating valuation. The fact that an owner requires a certain rent to be paid and that no letting is achieved (or hereditament created) until the market can support that rent does not of itself mean that the rent is "tainted" and not to be regarded as evidence of market value.

Mr Holgate reviewed the evidence of Mr Crawford and Mr Willson and said that it is not disputed that opencast operators agreed to pay British Coal standard royalties. It is accepted by the valuation officers that British Coal was not a wholly willing landlord (see F R Evans (Leeds) Limited v English Electric Co Limited [1978] 1 EGLR 93, 94 H-J). British Coal attempted to promote its own supplies to the CEGB and discourage private sector supply. But British Coal were willing to reduce royalties in some cases. These factors do not justify Mr Crawford's effective deduction of over 90% of the value. Mr Willson, relying primarily on alienated coal transactions, reduced the British Coal mineral royalty to £4 from £11.

The appeal hereditaments were created when coal was exposed for extraction. It must follow, therefore, that pre-production costs are assumed to have been borne by the hypothetical landlord, resulting in the tenant's ability to pay a higher rent. The royalty rent must exceed pre-production costs of £5.93 per tonne. It is agreed that part of the rateable value includes the annual value of buildings, plant and machinery and, as a matter of law, a tenant can only pay rent for these items if they form part of the demise, provided by the hypothetical landlord at his own cost. Mr Crawford's royalty rents of £1.98 to £2.87 per tonne cannot be right where the hypothetical landlord has incurred higher pre-production costs. The appellants submit that the decision in Poplar supports the proposition that pre-production costs should be treated, wholly or partly, as borne by the hypothetical tenant. This decision was concerned with the value of the rateable occupier's occupation, not with the time at which the hereditament came into existence. The appellants' reliance on Poplar seeks to avoid the concession made in evidence.

Mr Crawford accepted that there would have been more than one bidder for each of the appeal hereditaments, including Banks. It has not been argued that the financial position of the tenant should be taken into account (see Tomlinson(VO) v Plymouth Argyll Football Co Limited & Plymouth City Council (1960) 53 R & IT 297). No attempt was made to undermine Mr Willson's receipts and expenditure valuations.

In the National Trust decision reference was made to the well-established principle that profits are not rated (at 394 and see also Ryde at E [612] - [615]). Profits may indicate a level of affordable rent but rating law requires uniformity of treatment on the basis of a single yardstick, namely rental value on a yearly tenancy (O'Brien v Harwood (VO) [2003] RA 244, 250 (paras 20 and 21)). Fairness and equality are achieved by individual valuation applying the common measure at a common date. There is no justification for assessing rateable value by reference to some other yardstick, eg a percentage of profits or a share of divisible balance. Mr Crawford's valuations proceed upon a fundamental legal error: he confirmed in cross examination that his method depends upon the relative difference in the levels of profitability of British Coal and private operators. It must be rejected as not in accordance with the statutory rating hypothesis. The appellants' opening submissions and Mr Parkin's discrimination complaint show the same misunderstanding of rating law. The appellant's case has nothing to do with affordability or the level of affordable rent. The submission that profits influence rent is a red herring.

The appellants' case uses the £6 per tonne British Coal royalty as a benchmark which cannot be impugned. Mr Crawford has not said whether he agrees with that figure and has not given any evidence to support it. His approach is that £6 is correct and private operators should pay less based on a comparison of profitability. This approach breaches the principle of rating law that each hereditament should be individually valued (eg O'Brien at para 21 and Ryde para E [252]). In Ladies Hosiery and Underwear Limited v West Middlesex Assessment Committee [1932] 2 KB 679, the Court of Appeal rejected the argument that an assessment was unfair and excessive compared to other premises. Each hereditament should be independently assessed and correctness should not be sacrificed to uniformity (at 686 and 688). These principles still hold good despite later legislative changes (see K Shoe Shops Limited v Hardy (VO) & Westminster City Council [1983] RA 26, 36-7). Mr Crawford has not given any weight to other value evidence but has relied on a comparison of profitability without considering the correctness of the £6 per tonne for British Coal sites (see Ladies Hosiery at 690).

The central question is whether the available evidence supports a royalty of at least £6 per tonne for private sites. If it does then that conclusion cannot be undermined by the argument that this figure is too high in relation to the British Coal royalty. The respondents' submissions do not involve impugning the list as regards British Coal sites (see Shearson Lehman Brothers Limited v Humphrys (VO) and Hackney London Borough Council [1991] RA 125, 149 and Ryde para E [486]).

Guidelines for the consideration of value evidence were laid down in Lotus & Delta Limited v Culverwell (VO) & Leicester City Council [1976] RA 141, 153, and are now well-established. Mr Willson's primary material comprises royalties of similar properties; the British Coal assessments relied upon by Mr Crawford do not even fall into the category of other comparable assessments because he does not regard British Coal sites as comparable, nor do they comprise a review of other assessments (category (vi) in Lotus and Delta).

Discrimination under article 4(b) of the European Coal and Steel Community Treaty was raised in Mr Parkin's evidence. The appeal was not opened by reference to any legal argument on discrimination. Mr Parkin's evidence is therefore irrelevant. His argument is based on differences in rate liability but rateable value is not a tax on earnings but a tax on annual value. Mr Parkin's grievances are nothing to the point; they involve the same misconception as Mr Crawford's "comparative" valuation. Discrimination emerged again in the appellants' closing submissions. During the hearing there was a lengthy exchange on this issue in which Mr Horton agreed with the Tribunal's statement that it was simply concerned with the question whether the assessments of the appeal hereditaments are correct. The appellants have not advanced a legal case in their closing submissions to support allegations of discrimination. The Tribunal should reject the appellants' case in this respect.

Mr Crawford confirmed during the hearing that, if the Tribunal reject his sole valuation, he had no other valuation to put in its place. Mr Holgate said that Mr Crawford's valuation method contained flaws and absurdities and should be completely rejected.

Mr Willson's valuation approach reflects the established practice of the Tribunal to value by reference to rents and assessments, as opposed to valuation by reference to profits (recently re-affirmed in O'Brien) having regard to the authoritative guidance in Lotus and Delta. Rental evidence reflects all the factors in the mind of an operator bidding for an opencast site.

The appellants have argued that no weight should be given to settled assessments, relying on the Tribunal's recent decision in Eastbourne, where it found that there was a substantial possibility that all settlements were influenced by cash refunds. Mr Willson's evidence is that not all the settlements relating to private quarries were entered into with a view to collateral financial advantages of this kind. The Tribunal's approach to settlements is set out in O'Brien and Lotus and Delta (see also Marks v Grose (VO) [1995] RA 49,65 and Jafton Properties Limited v Prisk (VO) [1997] RA 137, 166-7). Considerable weight should be given to the settlement evidence.

DISCUSSION

Law and principles

I look first at the relevant statutory provisions. The Local Government Finance Act 1988 requires the valuation officer to prepare and maintain local rating lists showing the assessments of relevant non-domestic hereditaments situated in the area of the relevant local authority (sections 41 and 42). A hereditament is a unit of property to be shown as a separate item in the list (section 64(1) and section 115 of the General Rate Act 1967). A relevant hereditament includes property described as "coal mines" and "mines of any other description, other than a mine of which the royalty or dues are for the time being wholly reserved in kind" (section 64(4)(b)(c)). It is not in dispute that the appeal hereditaments fall within this definition.

The measure or yardstick for rating liability is rateable value. In these appeals the definition in Schedule 6 para 2(1) before amendment by the Rating (Valuation) Act 1999 applies:-

"The rateable value of a non-domestic hereditament …. shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year if the tenant undertook to pay all usual tenant's rates and taxes and to bear the costs of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command that rent."

In arriving at the estimated rent for a mine or quarry "no account shall be taken of sums payable in respect of the extraction of minerals from such land in so far as such sums are attributable to the capital value of minerals extracted". The capital value is assumed to be 50%. Land from which the minerals are extracted does not include "buildings, structures, roads, shafts, adits or other works" (Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989, reg 5(2)(3)). Thus, the estimated royalty rents for the surface and coal at the appeal hereditaments (Mr Crawford's £1.98 - £2.87 per tonne, Mr Willson's £6 per tonne are unadjusted rateable values (URV)) and are reduced by 50% to arrive at the rateable value (RV) under Schedule 6 para 2(1).

In these appeals the rateable value for each of the appeal hereditaments is to be assessed having regard to the level of values at the AVD, 1 April 1988, and to the circumstances at the day on which the hereditament came into existence (the material day). The circumstances at the material day are assumed to have been in existence at the AVD although the appeal hereditaments came into being after the 1990 list was compiled (Schedule 6 para 2 (3)(b)(6)(7); Rating Lists (Valuation Date) Order 1988, para 2). There is no dispute on these matters.

I turn now to three principles of rating which are relevant to these appeals. The first is uniformity, fairness and equality. In Williams (VO) v Scottish and Newcastle Retail Limited [2001] RA 41, Robert Walker LJ said (at 61-62 para 63):-

"The principle of uniformity also commands ready agreement, so far as fairness generally requires comparable properties to be valued by the same yardstick (but that does not make one single method of valuation uniquely appropriate, as a matter of law, for a particular type of hereditament: see Garton v Hunter, a case about a caravan site)."

Equality of rating is and should be one of the main objects of all rating systems (Poplar Assessment Committee v Roberts [1922] 2 AC 93 at 109). These requirements are achieved by the individual valuation of each hereditament and the application to all properties of the same yardstick or measure (rental value on an annual tenancy) by reference to a common valuation date (see Stirk and Sons Limited v Halifax Assessment Committee [1922] 1 KB 264 and Ladies Hosiery at 686-7). Uniformity of assessment is not, however, to be sacrificed to correctness. In Ladies Hosiery the appellants objected to the assessment of their premises on the grounds that they had been incorrectly and unfairly assessed because seven other properties of the same class and in the same list had been assessed at lower figures. The appellants, however, had called no evidence to show that their assessment was incorrect and their only witness agreed that the rent would be at least equal to the assessment. The appellants did not seek to alter the figures for the other seven properties. The Court of Appeal held that, the appellants' hereditament having been entered in the list at the proper figure, evidence that seven other properties had lower assessments was irrelevant and of no weight and could not justify a reduction. It could only be used to correct the inaccuracy of the other hereditaments. Scrutton LJ said (at 688):-

"The appellants here, however, say that besides the principle of independent valuation, there is another vital principle: that as between different classes of hereditaments, and as between different hereditaments in the same class, the valuation should be fair and equal. I agree, but in my view there is a third important qualification, that the assessing authority should not sacrifice correctness to ensure uniformity, but, if possible, obtain uniformity by correcting inaccuracies rather than by making an inaccurate assessment in order to secure uniform error."

Slesser LJ said (at 694):-

"However that may be, it is clear to my mind that the appellants have taken the wrong course in attempting to correct their grievance of unfairness. If the grievance be, as it may well be, that there is economic inequality in requiring competing businesses to pay less proportionately than the appellants, that inequality can only be removed by increasing the assessments of their competitors. But I find it quite impossible to hold that the mandatory requirements of the Rating and Valuation Act as to the assessment of gross value in a particular case can be avoided or modified by a consideration of unfairness."

This is still good law (see K Shoe Shops Limited at 36-7 and Baker Britt & Co Limited v Hampsher (VO) [1974] RA 69, 85). It has particular relevance to these appeals where the appellants' case rests on a comparison between the royalty rent adopted for British Coal hereditaments and the same figure for the appeal hereditaments, which they say is too high having regard to higher coal prices and profitability at British Coal sites. Under the rule in Ladies Hosiery, however, the correct question is: are the assessments of the appeal hereditaments correct? It is not: are the assessments of the appeal hereditaments too high by comparison with British Coal assessments?

The second principle is ability to pay. Except for a few exceptional cases where there is restricted demand (which is not the position in these appeals), the ability of the hypothetical tenant or the actual ratepayer to pay rent or rates can only (at most) be of indirect relevance to the assessment of rateable value. It cannot be conclusive or even a predominant consideration. Although it was soon established that an occupier should contribute to the poor rate, and subsequently to local and non-domestic rates, according to his ability to pay, this ability has always been measured by the rental value of the property occupied and not by the occupier's financial means. The relevant question is what amount would a hypothetical tenant pay in rent on an annual tenancy? It is not what can or should the actual occupier (or a hypothetical occupier) pay in rent or rates? An occupier is not rated in respect of the profit he may make or the income he may receive from his use of the property, although these may be reflected in the rent he is prepared to pay (see R v Rhymney Railway Co (1869) LR 4 QB 276, 283; Mersey Docks & Harbour Board v Birkenhead Union Assessment Committee [1901] AC 175, 180-1; Hoare (VO) v National Trust [1998] RA 391, 394). Still less is an assessment to be determined by reference to different price or profit levels arising out of the occupation of different properties (see Mersey Docks and Harbour Board v Liverpool [1873] LR 9 QB 84, 97).

Lastly, I refer to the principle of reality. In National Trust, Schiemann LJ said (at 408):-

"The statutory hypothesis is only a mechanism for enabling one to arrive at a value for a particular hereditament for rating purposes. It does not entitle the valuer to depart from the real world further than the hypothesis compels."

And Peter Gibson LJ said (at 415):-

"In particular I would emphasise the necessity to adhere to reality subject only to giving full effect to the statutory hypothesis, so that the hypothetical lessor and lessee act as a prudent lessor and lessee. I would call this the principle of reality, …"

It is common ground that this principle should be applied in these appeals, although the extent of such application is in dispute. In my judgment, two departures from the real world are necessary to give effect to the rating hypothesis.

The first relates to the ownership of the coal at the appeal hereditaments and elsewhere. In the real world at all relevant dates in these appeals the coal at the appeal hereditaments was vested coal, owned by British Coal and extracted by the appellants under licence, paying royalties to British Coal and the surface owners. All other coal in the United Kingdom (with the exception of non-vested or alienated coal) was also owned by British Coal. The rating hypothesis, however, assumes the letting of the hereditament (coal and surface) by a landlord to a tenant. In Dawkins (VO) v Ash Brothers & Heaton Limited [1969] 2 AC 367, Lord Pearson said (at 391E):-

"The hypothetical landlord, Mr X, must be the owner of (or at any rate in a position to let) the entire hereditament and must not have let any portion of it already …

… the hypothetical landlord is assumed to have granted, and the hypothetical tenant to have taken, a tenancy from year to year of the entire hereditament, …"

For the hereditament being valued therefore the reality of the position must yield to the statutory hypothesis which necessarily requires the assumption to be made that the entire hereditament (coal and surface) is let by a hypothetical landlord to a hypothetical tenant.

The position is, however, less clear regarding the ownership of coal outside the hereditament being valued. In my judgment, it is not necessary to assume that at all other hereditaments the vested coal is owned by the landowner and not by British Coal. To value a particular hereditament it must be assumed, to give effect to the statutory hypothesis, that the coal is owned and then let by the hypothetical landlord but it is not necessary to depart further from reality by assuming that at all the other coal sites the coal is also in the ownership of the landowner. The real world position can prevail without being inconsistent with the assumed position at the hereditament being valued. There is, however, conflicting authority on this point.

In Humber Limited v Jones (VO) and Rugby Rural District Council (1960) 53 R & IT 293, Willmer LJ said (at 296-7):-

"The fact is that it is impossible to get away from the situation that the statute postulates not only a hypothetical tenant but also a hypothetical landlord, and, as the Lands Tribunal said in the passage cited, in the context of a hypothetical world in which the hypothetical tenant cannot become the owner of the premises and cannot get a lease for a term of years. Moreover, one has to postulate a world in which not only the hypothetical tenant is in that position, but everybody else is in the same position. In the end, therefore, we are in a world of make-believe."

But in the later National Trust case Schiemann LJ appeared to suggest that the real world should be assumed to exist outside the letting of the hereditament being valued. He said (at 408):-

"The statutory hypothesis compels one to assume that the subject hereditament is held on a lease on the statutory terms. Counsel for the valuation officers submitted that the statutory hypothesis also compels one to assume that the freehold of the subject hereditament would not be available to the Trust. I would accept that submission. He did not submit that the statutory hypothesis compels one to assume that in the real world no other property in the country would be available to the National Trust save on the statutory terms. I think he was right not to make this submission. Hypothetical bargaining to establish the hypothetical rent would take place in a world in which the Trust owned a number of properties, desired to acquire a freehold in a number of other properties around the country provided that they were fully endowed and was interested in acquiring the hereditament in respect of which the statutory hypothesis was being applied. In the real world one of the factors which the Trust takes into account in helping it choose which property to take is the financial drain on the Trust's resources which that property is likely to represent."

The editors of Ryde express the opinion that the real world exists outside the hypothetical tenancy of the hereditament being valued (para E [255] – [260]):-

"Therefore, while it is true that when each hereditament comes to be valued, it has to be assumed that it is vacant and to let on the statutory terms and will in fact be let on those terms, and in that sense Wilmer LJ's dictum is undoubtedly correct, it does not follow that in making that valuation all other hereditaments have to be assumed to be occupied or available for occupation on those terms."

My conclusion therefore is that, although there is a need to depart from reality when valuing a particular opencast coal hereditament, in order to give effect to the hypothesis that the landlord owns and lets the whole of the hereditament (coal and surface), it is not necessary to take this departure from reality further when considering the world outside the hereditament. Here, reality prevails and vested coal is still in the ownership and control of British Coal.

The second departure from reality concerns pre-production costs, that is to say those costs incurred in obtaining planning permission, carrying out surveys, providing access and buildings and otherwise preparing the site for the opencast extraction of coal. It is common ground that in the real world these costs are borne by the operator. Disagreement arose during the hearing, however, as to whether, in the hypothetical rating world, these costs would be borne by the landlord to provide the hereditament to be let to the tenant.

Mr Crawford deducted these costs (agreed at £5.93 per tonne) when comparing the appeal hereditaments with British Coal sites. He changed his evidence on this matter, however, during his second cross examination to state that the operator would take into account pre-production costs when making his rental bid. The hypothetical tenant would not start to work the site until a few weeks after taking occupation to allow him to prepare it for excavation. Mr Horton submitted that the principle of reality should prevail: it should be assumed, as in the real world, that the hypothetical tenant bears pre-production costs, which will reduce his rental bid. Statute did not require a departure from reality.

Mr Willson said that a hypothetical tenant takes an opencast site ready for excavation and therefore pre-production costs are the responsibility of the hypothetical landlord. Mr Holgate submitted that the appeal hereditaments were created when the coal was exposed for extraction and it must follow that pre-production costs are assumed to have been borne by the landlord.

I agree with the respondents. There must be a necessary departure from reality to give effect to the hypothesis that the tenant takes an opencast site physically ready for the extraction of coal. He does not take the site at an earlier stage when it was available for preparatory works to make it ready for the extraction of coal. In Ryde the position is stated shortly: "mines under construction are not rateable" (para C [572]). In these appeals it is agreed that the assessments of the appeal hereditaments include the rental value of the buildings and rateable plant and machinery at each site. It must follow that they were provided by the hypothetical landlord as part of the hereditament, not by the tenant. This matter is allied to the concepts of the hereditament and rateable occupation.

In British Coal Corporation v Aspinall (VO) [1988] RA 78, the issue before this Tribunal was whether certain surface structures at six inter-linked new deep coal mines under construction were rateable. The Tribunal (V G Wellings QC) held that they were not rateable on the grounds (inter alia) that: the use and occupation by British Coal of all the structures had but one purpose, namely the development of the mine; this use and occupation were at an antecedent stage and the structures were not in use according to their nature (i.e. as part of the working mine); the structures were not in beneficial occupation until the mine was operational. The member was referred to the decision of the House of Lords in Arbuckle Smith & Co Limited v Greenock Corporation [1960] AC 813, where Viscount Kilmuir LC said (at 821):-

"The sole purpose of the appellants in acquiring the premises was to use them as a bonded store in connection with their business as warehouseman. The alterations were necessary in order that this purpose might, if the alterations were approved by the Customs and Excise, receive effect. Yet activity carried on in relation to premises, the sole object of which is to make the premises fit for the only use which is contemplated, does not amount to the kind of actual user as is essential to rateable occupation. So long as the activities were confined to making the premises fit for a contemplated purpose, the premises were not serving the appellants' purposes as warehouseman. The premises were not being applied to the purpose for which they existed but were in an antecedent stage. It must be remembered that under rating law it is open to the owner to sterilise a property – whether by leaving a house without furniture or otherwise – which is perfectly capable of being let for a valuable rent. If, therefore, there is no use of premises according to their nature I find it difficult to see how there is occupation attracting liability for rates."

My decision on this point is that the appeal hereditaments are to be valued as ready for the extraction of coal, with the necessary buildings, access and rateable plant and machinery (for which annual values have been agreed), all provided by the hypothetical landlord. The costs of preparing the hereditament for letting (including the erection of buildings and the provision of plant and machinery), the pre-production costs, are assumed to have been borne by the landlord. Although costs do not necessarily equate to value and the parties have agreed rental values for the buildings, plant and machinery at the appeal hereditaments to give a return on part of the pre-production costs, a hypothetical landlord would bear these costs in mind when negotiating the royalty rent for coal and surface. This position must cast doubt on the low figures per tonne put forward by Mr Crawford, well below the agreed pre-production costs of £5.93 per tonne.

Discrimination and jurisdiction

Before moving to the first issue in these appeals I deal with another preliminary matter, the question of discrimination raised by the appellants, which has relevance to the jurisdiction of this Tribunal.

In opening the appellants' case Mr Horton said that Banks come to the Tribunal with a sense of grievance as to the way in which their opencast mines have been rated compared to British Coal sites, and necessarily as to the way in which all private mines were rated. Mr Parkin referred in his evidence to discrimination against Banks by the VOA contrary to article 4(b) of the European Coal and Steel Community Treaty and sought to show that Banks would have to pay a greater proportion of their income in rates than British Coal.

It is clear that behind this case there is a grievance which is wider than the rating assessments under appeal. It relates to the position of private coal operators during the period immediately before privatisation and the establishment of the Coal Authority. It has produced a substantial body of complaint and litigation on the part of Banks and NALOO, including two references to the European Commission, three cases in the European Court of Justice, a complaint to the Director General of Fair Trading and judicial review of his decision (later withdrawn). I believe litigation is still in progress. It has influenced the way in which the appellants have structured their case (particularly the valuation approach used by Mr Crawford) and has led to a volume of evidence beyond the valuation evidence needed for the determination of these appeals. On day 11 of the hearing, following an exchange between counsel, I thought this issue had been resolved to the question of the correctness of the assessments of the appeal hereditaments, in Mr Horton's words I can resolve the question of discrimination "by simply getting the assessment right". In his closing submissions, however, he returned to the matter in wider terms. He referred to discrimination contrary to the ECSC Treaty, including the use of the same basis of assessment by the VOA for all opencast sites despite differences of treatment between private operators and British Coal. He submitted that the Tribunal can avoid discrimination by setting the rateable values of the appeal hereditaments at a lower level than the £6 royalty rent agreed by British Coal.

Against this background it is important to be clear as to the jurisdiction of this Tribunal. The manner in which Banks and other private opencast operators were treated as part of the privatisation of the coal industry is not a matter on which I can enter except insofar as it is relevant to the determination of rateable value, which is my sole concern. Discrimination under the ECSC Treaty is not a matter for the Lands Tribunal, nor is the question of the relative liabilities for rates between Banks and British Coal. Rating law has its own underlying principles affecting what may be loosely termed "discrimination": these relate to uniformity, fairness and equality, ability to pay and reality, all discussed above. The principle of uniformity, and its application under the Ladies Hosiery decision, is particularly important in the context of these appeals. Applying these principles, and not discrimination in a wider sense, I am solely concerned with the correctness of the decisions made by the LVTs which are the subject of these appeals. These relate solely to the appeal hereditaments, not to British Coal assessments. The question I am required to answer is: have the appellants been able to show on the evidence and submissions before this Tribunal that these decisions are wrong (see Sole v Henning(VO) [1959] 3 All ER 398, 399H)?

Value evidence: quantity, quality and reliability

It is against this somewhat lengthy background that I now consider the substantive issues in these appeals. The appellants' case is, in effect, that there is no, or no sufficient, market evidence of coal royalties at or about the AVD and therefore it is necessary to find the rateable values of the appeal hereditaments by a comparison (largely financial and economic) between the agreed royalty rent for British Coal sites and the appeal hereditaments. The availability and reliability of value evidence is therefore of crucial importance: it is fundamental to the appellants' case (and must be proved by them) that this evidence does not exist or is not reliable, although as their case developed some reliance seems to have been placed on Coal Authority royalties and assessments and LVT decisions in respect of the 1995 and 2000 rating lists. It is important to have in mind at the outset the words of Lord Denning MR in Garton v Hunter (VO) [1969] RA 11 at 14:-

"Nowadays we do not confine ourselves to the best evidence. We admit all relevant evidence. The goodness or badness of it goes only to weight, and not to admissibility."

It is not argued by the appellants that the royalty and settlement evidence used by Mr Willson is inadmissible, but Mr Crawford's complete rejection of it as unreliable and of no weight produces the same effect. In short, the essential dispute is not the complete exclusion of evidence but the weight to be given to it. Only if no weight whatever can be given to a category of evidence should it be excluded.

The fundamental question I must answer is: does sufficient reliable value evidence exist to enable a royalty rent to be determined directly for each of the appeal hereditaments as at the AVD? This involves consideration of each of the categories of value evidence referred to by the parties, first and generally, to decide whether it is reliable enough for the determination of rent under a hypothetical annual tenancy and, if so, as a second question, what were the royalty rents for the appeal hereditaments having regard to that evidence? If I conclude on the first question that the appellants are correct in their assertion that the value evidence is insufficient and/or unreliable then I must value the appeal hereditaments using the indirect valuations put in evidence, Mr Crawford's primary and only valuations and Mr Willson's secondary receipts and expenditure valuations.

It is a truism that, except in those unusual cases where there is an absence of rental evidence, rating valuation proceeds by a comparison with rents of other properties. This direct means of finding annual value is the preferred approach of this Tribunal. As Mr Willson said (and I agree) rental evidence encapsulates all matters influencing the tenant when deciding what he can pay for a property, including prices, costs and profitability. Although it may be necessary to look behind a rent to see whether it is truly a market rent or to gauge the weight to be given to it, it is unnecessary to look at the factors which led to the calculation of amount (this point is also considered under ability to pay). Two comments in Ryde stress the importance of rents in rating valuation:-

"None the less actual rents where they are available and cannot be impeached should be the best guide to rateable value." (para E [403]).

"… it remains true to say that actual rents must be the starting point in the quest for rateable value for all hereditaments … of a kind which are normally offered and taken on lease in the open market." (para E [405]).

The burden of proof is on the appellants to persuade me that I should reject the direct evidence of rents and royalties to which I have been referred and find the royalty rents for the appeal hereditaments by an indirect method of valuation (although referred to by Mr Crawford as a comparative method).

I look first at the evidence relating to alienated or non-vested coal which has been left in private ownership. An operator works this coal under private arrangements with the landowner, without the need for a licence from British Coal. It is the closest of the coal and surface transactions to the hypothetical annual tenancy in rating. It is given the most weight by Mr Willson but wholly rejected by Mr Crawford.

Section 17(3) of the 1938 Act contains the definition of alienated or non-vested coal:-

"The Commission shall not alienate for any freehold interest any coal or mine of coal, other than coal that is necessary to be dug or carried away in the course of operations for purposes other than coal-mining or a mine that is necessary to be used in the course of such operations, or coal present among other minerals that is of so small value that the working thereof is unlikely to be undertaken except as an operation subsidiary to the working of those other minerals, or a mine used primarily for purposes other than coal-mining."

Thus, as a matter of law, coal falls within this category where it is extracted in the course of other operations, or is of small value and present among other minerals or is in a mine primarily used for other purposes. Mr Willson referred to five alienated sites, two in Shropshire, one in Co Durham, one in Leicestershire and one at Bonnybridge near Falkirk. The transactions ranged in time from 1982 to 1990, and varied in form, eg payments related to the ex-pit price of the coal extracted, lump sum payments for specific quantities, annual royalties per tonne of non-vested coal.

I do not think it is disputed that these are open market transactions. Mr Crawford, however, rejected them as reliable evidence of value on several grounds. He said that alienated coal sites are wholly dissimilar to vested coal sites ("different animals" was the description he used in his oral evidence): they are clay quarries where small amounts of coal are extracted as part of the primary purpose, the extraction of clay. The transactions are difficult to analyse and some are many years before or after the AVD. There is a lack of information which adds to the difficulties of analysis.

Mr Willson, on the other hand, said that he believes this to be the best evidence of value, open market transactions relating to coal and surface. The alienated sites are comparable to the appeal hereditaments and other vested coal sites: all the comparable sites referred to produced alienated and vested coal, two of them did not work clay. At two of the alienated sites the fireclay worked was below the coal. All the operators were coal contractors. Five of the appeal hereditaments had planning permission to extract clay in addition to coal; Banks are major producers of clay. Mr Willson said that Mr Crawford relied on the definition of alienated coal in the 1938 Act in support of his objection but this related to the position in 1938, when opencast mining had not been resumed, and referred to deep mining. The position in 1988 was wholly different where mining of thin seams of coal by opencast methods was normal practice. The values, costs and profits arising out of alienated coal are the same for vested coal of the same quality.

Before I give my findings on this evidence it will be a convenient here to set out my overall view of the two expert valuers, and explain why in the remainder of this decision I usually accept the evidence of Mr Willson in preference to that of Mr Crawford.

I do not doubt Mr Crawford's expertise as a mineral valuer and I appreciate that he was in an unusual (and perhaps unsatisfactory) position, taking over from Mr Powis at a late stage in the proceedings. My conclusion, however, from his reports and from observing him giving evidence over two and half days and reading that evidence again in transcript, is that he was essentially putting a case rather than giving objective expert evidence. The thrust of his evidence was to support the appellants' underlying grievance that they have been treated unfairly compared to British Coal. I do not believe that, with his knowledge and experience of mineral rating, he would have reached some of the conclusions he did if he had considered the matter entirely objectively, eg his wholesale rejection of all the value evidence and his use of a novel method of valuation which, as I explain later, I believe to be fundamentally unsound and flawed in detail. Mr Crawford had answers to all the questions put to him but I found them unconvincing and on two matters at least, pre-production costs and the effect of the agreement of £2 per tonne surface rent, he found himself in difficulties.

On the other hand, I found Mr Willson to be a reliable and objective witness. This was particularly seen in his oral evidence given over three days and a later reading of the transcript. Mr Willson has considerable experience in the valuation of minerals (he retired from the VOA in 1992 after 40 years experience) and first hand knowledge of the valuation of opencast coal quarries for the 1990 rating list. I found his answers to be wholly objective. He naturally defended the decisions he and his colleagues made when valuing the British Coal and private quarries for the 1990 list but did so objectively. His short, common sense answers showed a wide knowledge and experience of minerals and were helpful and convincing.

Against this background I return to the question of the reliability of the alienated coal transactions. I prefer Mr Willson's opinion on this evidence. I think Mr Crawford concentrated too much on the definition of alienated coal in the 1938 Act despite Mr Willson's observation (which I accept) that the coal world of 1988 was different from that of 1938. Comparability is a question of fact: in valuation it is rarely possible to find a true comparable and I do not think that the differences between the alienated coal quarries (particularly extraction of clay at three of them) and the appeal sites merit the complete rejection of this market evidence. Similarly, I do not think that the difficulties of analysis justify their rejection. More care and more information have to be used to find an equivalent royalty per tonne but analysis of complicated transactions is part of the daily life of a valuer. In my judgment, although lack of comparability and difficulties of analysis may affect the weight to be given to this evidence, they should not cause it to be excluded from all consideration. I find these alienated coal transactions reliable enough to be considered further as evidence of the hypothetical rents of the appeal hereditaments.

I consider next surface rents, that is to say payments to the landowner for the right to enter the land, dig through the surface and extract either vested coal under licence from British Coal or alienated coal under the same or a separate agreement with the landowner.

The parties have agreed "that at the AVD the surface rent at private opencast coal sites was about £2 per tonne." In addition I have evidence of surface rents for two alienated coal quarries, all the appeal hereditaments and eleven other opencast sites, the transactions covering the period 1986 to 1994. The arrangements are usually expressed as payments per tonne of coal extracted, a lump sum or payment per acre for surface area.

Mr Crawford rejected the agreed surface rent of £2 per tonne as representative of the value of surface access between landlord and tenant in the rating hypothesis. He said that it is a figure which became the norm due to arrangements with British Coal but has remained constant despite the fall in coal royalties. It must be considered in the context of the total payment for coal and surface. A hypothetical tenant may not be able to afford £2 per tonne having regard to the additional coal royalty. In his answers to me Mr Crawford accepted that all the appeal hereditaments except Thorntree Hill could sustain surface rents of £2 per tonne. Mr Willson said that surface access agreements are open market transactions. Payments take several forms. They are an element of the total rent (coal and surface) and can be extrapolated to show the likely level of the full rent.

I cannot accept Mr Crawford's reasons for rejecting these rents. Furthermore, this rejection is inconsistent with the parties' agreement that at the AVD the surface rent of private opencast mines was £2 per tonne and his evidence that all the appeal hereditaments except Thorntree Hill could sustain those rents. There is no evidence to show that they were not negotiated in the open market. Even if the average rent remained constant over a period of time this is not evidence that they were other than market rents. This value evidence can be used to assess the surface royalty as part of the full royalty rent and to test the relationship between surface rent and full rent (Mr Willson's rule of thumb of one to three). The parties have agreed the surface rent for private opencast sites at the AVD at £2 per tonne and I should have regard to that agreement and Mr Crawford's later admission of sustainability in my decision. It would be wrong not to give effect to these statements or to the other surface rents referred to in evidence. I find that this evidence is reliable and should be taken into account when determining the royalty rents on the hypothetical lettings of the appeal hereditaments.

I consider next coal royalties paid to the NCB until March 1987 and then to British Coal until October 1994. After this date licensing of the extraction of coal passed to the Coal Authority. I consider their royalties in the next part of this decision. The parties have agreed the standard royalties fixed between 1980 and 1993. These show a rise from £14.75 per tonne in April 1980 to £16 in March 1982 and then a continuing fall to £2 in 1993. At the AVD the royalty was £11 per tonne. In addition to this general picture I have evidence of royalties paid at the appeal hereditaments and in respect of six other sites operated by Banks and at another site worked by a different operator. Also I include under this evidence three rejected offers of reduced royalties made by Banks for sites which they then worked under delivered licences.

Mr Crawford, supported by Mr Parkin, rejected this evidence on the grounds that these royalties were not open market transactions and do not assist in assessing rents under the rating hypothesis. The NCB and then British Coal were monopoly owners of coal and competitors in the market. They could adopt a take it or leave attitude. They would only licence sites which they did not wish to work themselves. The coal prices achievable by Banks and other private operators were lower than those achievable by British Coal. In short, an open market did not exist and there is therefore no open market evidence which could be of assistance in the rating world during the NCB and British Coal licensing period.

Mr Willson said that that these royalties are good evidence of value and show what the appellants were willing to pay for the extraction of coal, particularly at the appeal hereditaments. The offers made by Banks are compelling evidence. These royalties can be adjusted to remove the monopoly element and show what a willing tenant would have paid at the AVD under the rating hypothesis.

This is not the first time that this particular issue has been before the Tribunal. I was referred to Tivydale Coal Co Limited v Hanstock (VO) [1966] RA 225, where a small underground mine was assessed in the 1963 valuation list at two shillings per ton, representing the royalty payable to the NCB of four shillings per ton reduced to allow for monopoly ownership and control and lack of a free market (a deduction of one shilling and four pence), for tonnage absorbed in operating the mine and supplying miners' home coal (a deduction of three pence) and for services furnished by the Board (a deduction of three pence). The ratepayers put forward similar arguments to those put forward by Banks in these appeals for rejecting the NCB royalty as evidence of annual value, that is to say that "it was not truly in the nature of a rent, the relationship not being a straightforward landlord and tenant arrangement" (at 233). The member (R C G Fennell FRICS) rejected this argument (at 235):-

"While the rent actually paid for a hereditament is prima facie the best evidence, it is not conclusive unless it can be shown to be a rack rent. The rents for licensed mines are the only recently negotiated rents of their kind in evidence and, despite the fact that they are found to require adjustments, the payment made for the appeal underground property and rights undoubtedly presents the most reliable basis for the assessment of open market value in terms of the rating hypothesis.

As the Tribunal pointed out in Bruce v Howard [1964] RA 139, 141

'It is not what might be regarded as a reasonable rent – a question on which many different opinions might be held, but what might reasonably be expected to be paid – in other words what would be the probable rent in the market … The rent reasonably to be expected must depend on the question of supply and demand.'"

I am, of course, not bound to follow this decision which depended on the evidence before the member. I must look at the evidence in these current appeals but I agree with the principle underlying the Tribunal's decision, namely that it will be slow to reject rents or royalties actually paid, even though substantial adjustments may be necessary to relate them to the rating hypothesis. I also agree with the part of the decision in Howard cited above (see also McQuade v Lane (VO) (1965) 11 RRC 353 at 357). This is a point of current relevance where the underlying argument of Banks is that British Coal royalties must be rejected because they were excessive and were imposed on the licensees without negotiation, in short they were not reasonable. In my judgment, the question is less whether British Coal royalties were agreed in an open market or were fair to the operators, but of more relevance, whether they are of assistance (even with substantial adjustment) in determining the royalty rents for the appeal hereditaments under the rating hypothesis? This involves some investigation of the guidelines and practices adopted by British Coal when fixing these standard royalties at the AVD, in comparison with the rating hypothesis of an annual tenancy.

The licensing of opencast coal sites by the NCB and later British Coal was authorised by section 36(2)(c) of the Coal Industry Nationalisation Act 1946 (paragraph (c) being inserted by section 46(1) of the Opencast Coal Act 1958). A licence could be unconditional or subject to conditions, revocable or irrevocable, general or particular; it could contain conditions requiring "payment in the nature of rent" and conditions as to the sale or supply of coal and the price.

At the AVD British Coal were operating the licensing system under five guidelines established in 1981, four of which applied to opencast sites. The first was that opencast sites with up to 35,000 (sic) tonnes of reserves would be licensed and there would be a resumption of the practice of considering a second licence for adjacent sites, bringing the total to 50,000 tonnes. The second guideline applied to deep mines. Guideline three referred to the phasing out of the practice of requiring opencast licensees to deliver their coal to the Board. The last two guidelines were directly relevant to royalties: "to set royalties at levels which will permit efficiently managed operators to develop their business profitably" and "to reduce royalties for new licences in any case where accounting evidence is provided which demonstrates that profit expectations would otherwise be cut to unreasonably low levels."

On 31 March 1988 British Coal wrote to NALOO enclosing a draft statement of licensing policy, intended to introduce more flexibility and to improve "transparency" of practice. It appears that this statement reached a final form in about July 1989. Guidelines four and five under the 1981 guidelines were confirmed. In setting the standard level of royalties the general health of the licence sector is to be taken into account. Mining and other sites specific risks must be a matter for the operator. A royalty level agreed would not be adjusted except as part of the general adjustment of the standard royalty but British Coal will discuss mining difficulties on specific sites.

In my judgment, the guidelines and practice adopted for British Coal royalties are not sufficiently inconsistent with, or removed from, the hypothetical annual tenancy in rating to require that they be wholly disregarded when valuing the appeal hereditaments. To do so would exclude relevant evidence of value which is of assistance. Allowances have to be made for the monopoly position of British Coal and their position as a competitor, but the need for these adjustments is not a reason for the complete exclusion of this evidence from further consideration, as suggested by Mr Crawford. Mr Willson has made a substantial reduction for these factors; in Tivydale the NCB royalty was considered with several adjustments. Very little rental evidence today for all types of property fits the definition in paragraph 2(1) of Schedule 6 to the 1988 Act but it is not excluded from consideration. Departures from the statutory definition are dealt with by adjustment and weight, not by exclusion. In R v Paddington Valuation Officer ex p Peachey Property Corporation Limited [1965] RA 177, Lord Denning MR said (at 199):-

"The rent prescribed by the statute is a hypothetical rent, as hypothetical as the tenant. It is the rent which an imaginary tenant might be reasonably expected to pay to an imaginary landlord for a tenancy of this dwelling in this locality, ….. I do not suppose that throughout the length and breadth of Paddington you could find a rent corresponding to this imaginary rent. Take hereditament after hereditament; go through the rental returns; you will find in case after case that the actual rent is no useful guide. … But nevertheless an expert valuer may by analysis of rental returns and by looking at comparable cases be able to form an opinion as to what rent may reasonably be expected."

When using British Coal royalties to find the rental value for rating, the site and output are the same, the landlord and tenant are hypothetical (as in every rating valuation), the ownership of the coal is necessarily different for the particular hereditament (as explained above) and the market in which the hypothetical landlord and hypothetical tenant are assumed to negotiate is essentially the same as the real world. Mr Crawford placed emphasis on the fixed nature of British Coal royalties and the alleged absence of negotiation (in rating terms "the higgling of the market") which distinguished them from the annual rent for rating. Although British Coal royalties were essentially standard figures of general application there is evidence of departures from the standard and the 1981 and 1989 guidelines show a willingness to consider individual circumstances, although the parties have agreed that few reductions were actually negotiated.

This category of evidence includes royalties paid by Banks for the appeal hereditaments (albeit after the AVD) and for other sites worked by them (some close to the AVD). It is well-established that this type of evidence, although not now looked at to the exclusion of all other evidence, is in a superior category (see Garton v Hunter at 16 and Lotus & Delta at 153). It would, in my judgment, be wrong to wholly exclude it from consideration. It needs adjustment and must be carefully considered as to weight but it should not be wholly rejected. I find this evidence to be relevant to the assessment of the appeal hereditaments.

I turn now to Coal Authority royalties. On 31 October 1994 the Coal Authority took over the licensing of coal extraction from British Coal but had no powers to carry out mining operations. The parties have agreed general information regarding Coal Authority royalties and specific information regarding three sites worked by the appellants in 1995 and 1998 where the Coal Authority royalties were £2 per tonne (reducing in the case of the 1998 agreement to 70p). It is common ground that Coal Authority royalties were individually assessed and were lower than British Coal royalties.

As I understand Mr Crawford's evidence he did not rely on these royalties as direct evidence of value at the AVD but said that, because they were closer to the hypothetical landlord and tenant situation in rating, they showed what might have happened at the AVD in the absence of the British Coal monopoly. Mr Willson found these royalties of no assistance. They were relevant to the 1995 and 2000 rating lists but relate to a period 7-15 years after the AVD when there had been major economic changes in the coal industry.

I agree with Mr Willson that Coal Authority royalties, all agreed after October 1994, are of no assistance in valuing the appeal hereditaments as at 1 April 1988, although I accept Mr Crawford's contention that they are closer to the assumed rating hypothesis than British Coal royalties. The Tribunal does not usually exclude post-AVD value evidence as a matter of course but the circumstances at the later date must be similar to those at the date of valuation if the later evidence is to carry any weight. That is not the position here. I accept Mr Willson's evidence that there were at least three major changes: the closure of deep mines, the increase in size and duration of private sector opencast mines and the increase in coal imports. This was supported by Mr Shuttleworth's evidence. He referred to the reduction in the price of coal between the British Coal and Coal Authority eras which, he said, is enough to explain the reduction in the amount of royalty. This reduction is due to economic change not to a change in the character or behaviour of the monopoly landlords. Between 1988 and 1998 total annual coal production fell from 102m tonnes to 40m tonnes. In 1988 opencast production was about 18m tonnes; this fell to 14m tonnes in 2001. The decline in the production of deep mined coal was dramatic: from 83.5m tonnes in 1988 to 65.8m tonnes in 1992 and 3.15m tonnes in 2001. During the time that domestic production was falling coal imports were rising, from 12m tonnes in 1988 to 20.4m tonnes in 1992 and 35.5m tonnes in 2001. Between 1988 and 1994 coal prices fell by 23%. The Coal Industry Act 1990 raised the tonnage limit for opencast sites from 25,000 tonnes to 250,000 tonnes and British Coal undertook to licence sites up to this limit. The coal industry at the time of the Coal Authority was materially different from the position in 1988. For these reasons I find Coal Authority royalties to be of no assistance and will not consider them further.

Both parties have referred to settled assessments in the 1990 list. Mr Crawford's valuation is based on the agreed royalty rent for rating purposes of £6 per tonne for British Coal opencast sites, from which he has deduced much lower figures for the appeal hereditaments. Mr Willson criticised this approach on many grounds including lack of comparability between British Coal sites and those occupied by Banks. Mr Crawford also referred to agreed assessments for several reclamation sites and a stone and coal quarry which he said were at least as reliable as evidence of value as alienated coal sites. The assessments agreed are considerably lower than £6 per tonne. Mr Willson rejected these sites as reliable evidence of value because they are wholly different from the appeal hereditaments. He relied on a substantial volume of settlements with private operators. Mr Crawford criticised their reliability on the grounds that many of them had been agreed for financial reasons.

The settlements referred to in these appeals fall into three categories: the single agreement with British Coal that a standard royalty of £6 per tonne should be applied to their opencast sites; the substantial volume of agreements with operators that £6 per tonne royalty should be applied to private sector sites; and the agreed assessments of reclamation sites and a stone and coal quarry, where (with substantial disability allowances) figures below £6 per tonne have been agreed.

It is now well-settled that evidence of comparable assessments is admissible. In Pointer v Norwich Union Assessment Committee [1922] 2 KB 471, Atkin LJ said (at 477):-

"When the Assessment Committee are considering the rent which the hypothetical tenant would give for the appellant's premises, any evidence which is relevant to that question is in law admissible, and it must depend on the circumstances of the case whether evidence of the rateable value of premises which are said to be in approximately the same position as the appellant's premises is worth admitting or not. It is a question of degree. ……. In my opinion evidence of the rateable value must be admissible and for two reasons. In the first place, in cases in which both premises are in the same Union, it is evidence against the Assessment Committee in the nature of an admission. And secondly, it may be the only way in which you can get at the rent at which the appellant's premises are worth to let by the year."

The two reasons given correspond closely to the reasons for the parties' reliance on settlements. Mr Crawford uses the British Coal settlement as an admission by the valuation officer that this is correct for British Coal sites, warranting lower figures for the appeal hereditaments; and he says that the valuation officer has been prepared to agree royalty rents for reclamation sites and a stone and coal quarry at figures well below £6 per tonne. Mr Willson uses the private sector settlements to support his assessments of the appeal hereditaments by supplementing the evidence of royalty rents. All the settlements have some disadvantages as evidence of value. The British Coal settlement is in essence a single agreement covering a number of sites which, it is agreed, are not comparable to the appeal hereditaments. Mr Willson conceded that some of the settlements he relied upon were no doubt agreed for financial considerations and some may have been the result of poor advice, but he relied on the substantial number of agreements and the expertise in the mineral field of the surveyors involved. The reclamation sites and the stone and coal quarry differ greatly from private sector coal quarries. These factors are, however, all questions of weight. I find this 1990 list settlement evidence to be sufficiently reliable to be considered further.

I consider next the level of assessments in the rating lists for 1995 and 2000. The approach adopted by the Valuation Office Agency (VOA) for the rating of opencast coal sites in the 1995 and 2000 lists was to divide these sites into three categories:-

(i) Greenfield sites (mainly agricultural land), where the primary or sole purpose of occupation was the winning and working of coal for the commercial market as part of the operator's normal activities in the coal business. For the 1995 list the proposed range was £3.50 to £4.50 per tonne and for the 2000 list, £2.30 to £3.30 per tonne.

(ii) Brownfield sites, where coal extraction was a major element of occupation while not being the primary purpose. These were sites where coal extraction was a means to restore the land for alternative use. For the 1995 list the proposed range was £2 to £3.65 per tonne and for the 2000 list, £1.30 to £2.65 per tonne.

(iii) Reclamation sites, where restoration and reclamation were the sole or primary purpose of occupation and coal recovery was ancillary thereto, and in many cases, part of the site remediation. For the 1995 list the proposed range was 75p to £2.75 per tonne and for the 2000 list, 65p to £2 per tonne.

Mr Crawford said that, if Coal Authority royalties can represent what free market negotiators would have agreed in 1988, then the 2000 rating list figures are a good indication of the level for the 1990 list. Prices and profits were similar in 1988 and 1998. Mr Crawford also referred to LVT decisions in 1995 and 2000. As I understand Mr Crawford's evidence he was looking at the position under the Coal Authority to indicate what would have happened in 1988 if the market had not been dominated by British Coal, as licensors and producers. Mr Willson had no involvement with rating in 1995 and 2000 (he retired in 1992) and the assessments in these lists played no part in his evidence.

The AVDs for the 1995 and 2000 rating lists were 1 April 1993 and 1998, five and ten years after the AVD in these appeals. The assessments in these lists were determined in different markets and have the same disadvantages as Coal Authority royalties as evidence of value, as discussed above. I cannot accept Mr Crawford's opinion that assessments in the 1995 and 2000 lists are indicative of what assessments might or should have been in 1988 in a more open market situation. I find this evidence of no assistance and will not consider it further. Similarly, I reject the LVT decisions in 1995 and 2000, due to the different market conditions and also to the fundamental objection to a tribunal decision as evidence of value, namely that it is solely a decision based on the evidence before that tribunal and is not admissible to prove a fact in other proceedings (see Land Securities Plc v Westminster City Council [1992] 44 EG 153 at 155).

Finally, I consider the decision of the European Commission. On 23 May 1991 the Commission of the European Communities gave a decision on complaints by NALOO and others in March 1990 under the treaties establishing the European Coal and Steel Community and the European Economic Community. These complaints referred to the supply of coal for the generation of electricity and to royalty levels fixed by British Coal. It was alleged that British Coal and the generating companies abused their dominant position by agreeing favourable terms for the supply of coal for electricity generation to the detriment of the competitive position of small private licensed mine operators. It was alleged that the royalty imposed by British Coal on licensed producers (then £11 per tonne for opencast mining) was excessive and made licensed producers uncompetitive.

On 24 October 1990 the UK authorities, on behalf of British Coal, National Power and Powergen, made final offers to the complainants. These included a reduction in the royalties for licensed opencast production to flat rate figures inclusive of administrative charge of £5.50 a tonne for the first 50,000 tonnes at each site and £6 per tonne thereafter. The offers were rejected. The terms offered relating to coal prices and volumes, include a retrospective statement to 1 April 1990, were, however, incorporated into contracts with licensed operators by National Power and Powergen. British Coal reduced its royalties to £5.50 and £6 per tonne from 1 April 1990.

The Commission determined that the complaints of discrimination were justified in so far as they concerned the situation after 1 April 1990 when the coal supply contracts entered into operation (para 81). If the terms of the October 1990 offers are incorporated into contracts on the basis set out in the decision, the licensed mines will no longer be discriminated against in comparison with British Coal. The complaints regarding purchase conditions were no longer valid and were rejected (para 82). The new royalty levels set by British Coal, operative from 1 April 1990, were "not unreasonably high" and this complaint, in so far as it related to the present situation, was rejected (para 83).

Mr Crawford did not rely on this decision. Mr Willson found support for his valuations in the conclusion of the Commission that royalties of £5.50 to £6 per tonne were not excessive.

The complaints made to the European Commission related to competition and discrimination, not to value. The Commission were concerned with those matters and did not act as a valuation tribunal when stating that royalties of £5.50 and £6 per tonne were not unreasonably high. I give no weight to this decision as a reliable evidence of value and do not consider it further.

I have considered all the categories of value evidence and am now able to answer my first question. In my judgment, sufficient reliable value evidence exists to enable royalty rents to be determined directly for the appeal hereditaments as at the AVD, namely by reference to alienated coal royalties, surface royalties and payments, British Coal royalties and settled assessments in the 1990 rating list. It follows therefore that I reject the fundamental premise underlying the appellants' case that reliable value evidence does not exist and that the rateable values of the appeal hereditaments must be found indirectly by a financial comparison with British Coal assessments. I therefore reject Mr Crawford's valuations.

Value evidence: application

Having regard to the answer to my first question, I must now consider, on the basis of the evidence which I find helpful, what were the correct royalty rents at the AVD for the appeal hereditaments?

I propose to adopt a similar approach to that put forward by this Tribunal (J H Emlyn Jones FRICS) in Lotus and Delta (at 153), namely to consider each category of evidence – alienated coal and surface royalties, British Coal royalties and settled assessments – and then, according to weight and comparability, to arrive at a conclusion as to the royalty rent or rents for the appeal hereditaments.

I look first at alienated coal royalties. I have information on five sites for the period 1982 to 1990. I give no weight to the 1982 agreements in respect of Blakeley Hall Farm, six years before the AVD. The other four sites merit further consideration.

Benthall opencast site at Broseley, Shropshire was operated by Coal Contractors Limited under a lease dated 2 September 1986 for five years from 1 June 1985 at royalties of 25% of the ex-pit price for non-vested coal (£1 for inferior coal) and 10% of the ex-pit price for clay, with a minimum rent of £20,000 per annum. A separate surface rent of £135 per acre was payable. A wayleave was granted for the right to carry "foreign" minerals over the land at 7.6% of the vested coal royalty. Vested coal was also worked at this site under licence from British Coal. This quarry was worked to 1989. Output in 1988 was 39,435 tonnes of non-vested coal, 1,969 tonnes of inferior coal and 91,189 tonnes of clay. The Mineral Valuer's inspection notes dated 13 April 1987 state that the selling price of coal was between £22 and £33 per tonne with inferior coal at £4 per tonne.

Mr Willson analysed the non-vested coal royalty to show £5.50 to £8.25 per tonne (1987 prices) which he said is good market evidence of a full coal royalty. The site was similar to many others where clay and coal were extracted. Mr Crawford saw the site as a clay quarry which also produced coal, the latter being a bonus with only the cost of lifting it from the ground. I note, however, that in terms of royalty paid, coal, although the lesser mineral in terms of extraction, produced the greater royalty payment. The 39,435 tonnes of alienated coal extracted in 1988 produced a total royalty of between £216,892 and £325,339 compared to the greater production of clay, 91,189 tonnes, which yielded a much lower royalty of £41,035.

Caughley quarry, also at Broseley, was operated by Ibstock Brick (Telford) Limited from 1987 on a lease dated 15 May 1990 for 20 years from 25 March 1988 at royalties of 30% of the ex-pit price of non-vested coal (but not less than £5 per tonne), 15% of the ex-pit price of vested coal (not less than £3 per tonne) and 45p per tonne for clay, with a minimum rent of £15,000 per annum. The terms were reviewed every third year. The landlords had the right to take 500 tonnes of clay each year free of charge. There was a surface rent of not less than £150 per acre. Vested coal was also worked under licence from British Coal.

This site was worked for clay from 1987 with coal extracted between 1992 and 1994. During this period 18,237 tonnes of non-vested coal were extracted and 310,430 tonnes of clay. It is agreed that the price of coal in February 1989 was £25 per tonne. Mr Willson analysed the non-vested coal royalty to show £7.50 per tonne (30% of £25 per tonne) (with a minimum of £5 per tonne). The minimum royalty of £3 per tonne for vested coal is market evidence of a rent payable to a landlord with a part interest in the land for access to vested coal. Mr Crawford said that this is a clay quarry producing 17 tonnes of clay for every one tonne of coal. As noted above, however, it is the non-vested coal which yielded the greater royalty when clay and coal were extracted. In 1992 the total royalty for non-vested coal was £108,427 compared to £11,291 from 25,092 tonnes of clay (excluding the 500 tonnes provided to the landlord free of charge). The assessment of this quarry in the 1990 list was agreed by chartered surveyors for the operators at £6 per tonne for coal and 30p per tonne for clay.

Bonnybridge quarry at Roughcastle near Falkirk was operated by Coal Contractors Limited from 1984 to 1991 under a lease dated 14 August 1984 for 21 years from 31 January 1984 at a royalty of 14% of the selling price of coal (£1 per tonne access royalty for vested coal) with a minimum rent of £250,000 per annum and provision for advance royalties. The tenants were required to dig and load or stockpile fireclay free of charge for use by the landlords. Wayleave payments of 34p per tonne of coal and 10p for fireclay were payable to owners of part of the surface. A surface rent of £15,000 per annum was payable. Vested coal was also worked on licence from British Coal.

There is no direct evidence regarding output but in the period 1985 to 1991 projected output was 813,000 tonnes of non-vested coal and 323,000 tonnes of vested coal plus an unspecified amount of clay. In 1989 the coal price was £31 per tonne (equivalent to £26.01 per tonne in 1988). The coal royalty of 14% of selling price produces figures of £4.34 and £3.64 per tonne in 1989 and 1988 respectively. Mr Willson's analysis, however, shows a higher figure of £6 per tonne to reflect two unusual conditions: payment of substantial advance royalties in the first year and the fireclay requirement. Mr Willson added 6-8% to the royalty for these conditions, increasing it to at least 20% (from 14%). Mr Willson's analysis represented 20% of £30 per tonne; he said £6 per tonne represented good market evidence of the full royalty for coal. Mr Crawford did not accept this analysis of a complicated transaction which he said showed a full royalty of £4.48 per tonne for non-vested coal and surface plus 34p (£4.82) where the surface was owned by a third party. The assessment for this site in the 1990 list was agreed at £6 per tonne.

Hepworth Brickworks site at Woodville, Leicestershire was operated by Coal Contractors Limited under an agreement in 1990 which provided for royalties for severed non-vested coal of £3.95 per tonne up to 101,665 tonnes and £2 per tonne thereafter. The tenants were required to restore the site to a condition suitable for brickworks development. Coal Contractors owned the surface overlying the coal. Vested coal on this site was also worked on licence from British Coal.

Mr Willson said that this is good market evidence to show at least £3.95 per tonne for coal which would be higher if the cost of the unusual restoration requirements is included. The assessment of this quarry was agreed with chartered surveyors acting for the operators at £6 per tonne less a disability allowance of 7.5%.

These alienated coal transactions show a range of royalties for the period 1987 to 1990, from £3.64 to £8.25 per tonne of coal. I find Benthall to be the most helpful with a coal royalty of between £5.50 and £8.25 per tonne at 1987 prices. Caughly shows £7.75 per tonne (minimum £5) at 1989 prices; Bonnybridge produces royalties of £3.64 in 1988 and £4.34 in 1989 but I accept Mr Willson's evidence that the two unusual conditions should be reflected in the analysis: his higher figure of £6 per tonne is reasonable; Hepworth Brickworks produces a lower figure of £3.95 per tonne in 1990 but would have shown a higher figure if the tenant's costs of restoration were not taken into account. All these royalties are for coal only.

I draw two conclusions from this category of evidence. First, they show that the coal royalty of £4 per tonne used for the appeal hereditaments is not excessive; second, they show that Mr Crawford's royalty rents for the appeal hereditaments of between £1.98 and £2.87 for coal and surface (£2 per tonne) are clearly too low. All the alienated coal royalties are above the coal and surface figures put forward by Mr Crawford.

I look now at surface payments. I can deal briefly with this category of value evidence having regard to the parties' agreement on the amount of the surface rent and part of the oral evidence given by Mr Crawford. The parties have agreed that "at the AVD the surface rent at private opencast coal sites was about £2 per tonne." I asked Mr Crawford why, in view of this agreement, a hypothetical landlord of each of the appeal hereditaments would accept for surface and coal a royalty rent slightly below £2 per tonne for one site (Thorntree Hill) and figures a little above £2 per tonne for the other sites? He said that a tenant may not be able to afford £2 per tonne surface royalty: it is a general figure. I then asked him about the appeal hereditaments (day 6 pages 21-22):-

"Q. So the essential point you are making is that for every one of the appeal hereditaments, none of them could sustain £2 per tonne?

A. No, with the exception of Thorntree Hill they could all sustain £2 per tonne.

Q. And the additional amount, above the £2 in your royalty rent, is for the minerals?

A. Would be the coal royalty, if you chose to apportion it that way, yes. What I look at is the total royalty –

Q. Some of your total royalties are above £2?

A. Yes, with the exception of Thorntree Hill, they are all above £2. If you follow the general guide that the surface rent is £2 per tonne, for instance, Bullcliffe Farm Extension, my total royalty is £2.59, you could apportion that £2 to the surface and 59p to the coal. Bullcliffe Farm itself, £2 to the surface, 45p to the coal. West Farm, £2.87 total, £2 to the surface, 87 – "

In my judgment, this explanation and the agreement referred to above, indicate that, with the exception of Thorntree Hill, it is agreed that the surface rents for the appeal hereditaments at the AVD were £2 per tonne. I was not told why Thorntree Hill should be below this figure; I note that no disability allowance has been agreed for this site. Having regard to this agreement it is not necessary for me to look further at the evidence of surface rents except to say that it clearly supports the agreed figure of £2 per tonne.

The next evidence comprises British Coal royalties. This falls into four categories: the standard royalty; royalties paid by Banks in respect of the appeal hereditaments; royalties paid by Banks and other operators for other sites; royalty offers made by Banks.

At the AVD the British Coal standard royalty was £13.50 per tonne. It was reduced in May 1988 to £11 backdated to 17 December 1987. £11 per tonne was therefore effectively the standard royalty at the AVD.

All the appeal hereditaments came into operation after the AVD, between September 1991 and August 1993, and all paid royalties below the standard royalty of £11 per tonne which had fallen to £5.50 and £6 in April 1990, £4.50 and £5 in May 1992 and £2 in April 1993. The appeal hereditaments all yielded lower royalties fixed at later dates and are therefore of limited assistance in determining royalty rents at the AVD.

I have evidence of four other sites operated by Banks close to the AVD under British Coal licences. Lockoford Farm, Chesterfield was operated under licence dated 6 January 1988 at a royalty of £13.50 per tonne, subsequently reduced to £11. At Breakley Lane, Banks paid a royalty of £13.50 reduced to £11 per tonne. The date of this licence is not known but, from the royalty payments, it would have been granted between March 1987 and May 1988. At Ibstock/Lords, St Helens Banks had a licence dated 26 February 1988 at a royalty of £10 per tonne later reduced to £7.50. The parties have agreed that in 1987-88 Banks took a licence to extract vested coal at South Bitchburn at a royalty of £11 per tonne subsequently reduced to £8.50. This information was subsequently disputed by Mr Crawford on the grounds that this site was operated under a delivered licence. The parties have agreed that North Bitchburn was worked under a delivered licence. I have evidence in Mr Willson's appendices that one of the Bitchburn sites was worked on a royalty licence and, in the absence of conclusive evidence otherwise, I will use the agreed facts. The evidence includes one other site worked close to the AVD on a British Coal licence by another operator. Coal Contractors Limited worked vested coal at Benthall during 1987-88 at £13.50 per tonne royalty.

Finally, I refer to three offers made by Banks in respect of sites which they subsequently worked on delivered licences. These relate to quarries at Drightlington (offer of £5.24 royalty on 29 May 1987), Hepper Hill (offer of £7.40 royalty on 14 July 1987) and Eclipse (offer of £7 royalty on 15 July 1987). At the time of these offers the standard royalty was £13.50 per tonne.

The British Coal royalty evidence shows the levels of royalty which Banks and other operators paid or offered to pay close to the AVD. It is, in my view, immaterial whether or not the royalties were fair or reasonable: they were paid or offered and therefore evidence of what might reasonably be expected to have been paid under the hypothetical annual tenancy (see Tivydale at 235 and Howard at 141). Adjustments must be made to reflect the monopoly position of British Coal at the AVD. Mr Willson reduced £11 to £4 as the statutory rent for rating, a reduction of 64%. He based this figure on alienated coal royalties and the Tivydale decision. I reject Tivydale as support for this reduction: this was a decision of fact (a 50% reduction) and, like all decisions of fact by this Tribunal, rested on the evidence. It should not be treated as evidence of fact in a later case (W Clibbett Limited v Avon County Council [1976] RVR 131 at 132). Mr Willson is on firmer ground with the alienated coal royalties, where £4 per tonne is at the lower end of this royalty evidence. The appropriate reduction is a matter of judgment; I accept Mr Willson's opinion based on his long experience of mineral valuation. I do not have a convincing opinion from Mr Crawford to the contrary. The offers by Banks to British Coal are helpful in showing what they were willing to offer in royalty in 1987, shortly before the AVD. The offers (from £5.24 to £7.40 per tonne) are all above the £4 coal royalty adopted for the appeal hereditaments and materially above Mr Crawford's figures for coal and surface.

Finally, I look at assessments in the 1990 rating list. This evidence comprises the British Coal settlement (much relied upon by Mr Crawford as the underlying basis of his valuation), settlements relating to private opencast sites with ratepayers and their agents (relied upon by Mr Willson to support his assessments of the appeal hereditaments based on royalty evidence) and assessments of reclamation sites and a quarry at Clee Hill, relied upon by Mr Crawford to show that royalty rents lower than £6 per tonne have been agreed in the 1990 list. It is now well-established that assessments of comparable properties in the rating list may be considered as evidence of value, to supplement other evidence or, in the absence of such evidence, as the only way of arriving at the annual value of the property under consideration (Pointer at 477).

The majority of the assessments referred to have been agreed. This is relevant to the weight to be given to them as evidence of value and requires a consideration of tone of the list. Rateable value is usually based on market rents or, as in these appeals, royalties paid for surface access and for the extraction of coal. These rents or royalties usually vary, sometimes considerably, and it is often difficult to find a general pattern. When preparing a rating list the valuation officer is required to value each hereditament individually and to have regard to the underlying principle of uniformity, fairness and equality. Although rents and royalties may vary greatly assessments must show a uniform pattern. This has led to assessment by use of common unit figures for classes of hereditaments and location (in these appeals a royalty of £6 per tonne for all opencast coal sites) with individual adjustments for the particular characteristics of each property (in this case the deduction of disability allowances for difficult geological and working conditions).

There are three stages leading to the establishment of tone of the list. At first, when a new rating list is put on deposit, the assessments will carry relatively little weight: they are opinions of value by the valuation officer, as yet unchallenged and untested by negotiation. Over time assessments will be challenged and agreed or determined by an LVT or this Tribunal or accepted by lack of challenge. Finally, a stage is reached when enough assessments have been agreed or determined or are unchallenged to establish a pattern of values, a tone of the list. The list is then said to have settled (K Shoe Shops at 353, LT; Jafton Properties at 166-7; O'Brien at 257). Where a list has settled rents will be largely subsumed into assessments. At that stage rating surveyors will have little regard to rents and pay considerable attention to assessments (K Shoe Shops at 353; Burroughs Machines Limited v Mooney (VO) [1977] RA 45 at 55). The position at any time regarding the tone of the list is a question of fact. When an assessment is challenged before a tribunal the correct time for deciding whether the tone of the list has been established is immediately before the hearing (Jafton at 167-8; O'Brien at 257).

Generally, the concept of tone of the list is applied by reference to assessments of comparable properties in the same locality and in the same rating list. Where, however, the hereditaments under consideration are in a special class, and particularly where rental evidence is absent or lacking, then agreed assessments over a wider geographical area may be considered (Shrewsbury Schools v Shrewsbury Borough Council & Plumpton (VO) (1960) 7 RRC 313 at 322 (public schools); Imperial College of Science & Technology v Ebdon (VO) and Westminster City Council [1984] RA 213 at 234 (universities)). No objection has been raised in these appeals to consideration of assessments of opencast coal sites covering a very wide area.

The weight to be given to agreed comparable assessments as evidence of value will depend on the circumstances in each case. There may be circumstances where little of no weight is given to settled assessments, eg. where acceptance of an assessment is more acceptance of rate liability than value (Lamb v Minards (VO) [1974] RA 153 at 162; Eastbourne Borough Council at 318 paras 135-6); or where a body of settlement evidence rests on a single settlement (Marks v Eastaugh (VO) at 22).

It is against this background that I consider the settlement evidence relied upon by the parties, starting with the British Coal settlement. In March 1986 the Department of the Environment advised the Valuation Office of a proposed review of formula rating for the 1990 rating lists and the setting up of working groups to consider which industries might more appropriately be rated by normal valuation methods. Mr Willson was the Valuation Office representative on the British Coal Working Group. On 20 September 1988 the Secretary of State for the Environment wrote to the Chairman of British Coal informing him that British Coal collieries will be assessed by conventional means from 1990 onwards. On 11 October 1988 it was confirmed that this decision also applied to opencast sites. A first consultation meeting between representatives of the Valuation Office (including Mr Willson) and British Coal was held on 5 July 1989. The Valuation Office proposed a standard royalty of £8 per tonne (surface and coal) at British Coal opencast sites. Presumably there were further meetings and discussions and on 19 September 1989 the Chief Planning and Lands Officer of British Coal confirmed agreement to an overall royalty of £6 per tonne. I believe that 52 British Coal opencast sites were covered by this agreement (Mr Willson's figure). He said that individual assessments were then agreed with British Coal in-house surveyors or their agents. After 1994 the new occupiers challenged the agreed assessments but all were again agreed at £6 per tonne. There were eleven of these hereditaments (Mr Willson's figure).

The appellants' case, and in particular Mr Crawford's valuation, rests wholly on the agreement between the Valuation Office and British Coal. As Mr Crawford explained, there is a lack of valid or useful comparable rental evidence, there was a monopoly situation, a completely artificial situation, but we have certain known factors, namely that British Coal agreed a £6 royalty in the light of a known coal price, and there is a different known coal price for the appeal hereditaments. A comparison can be made between the known factors to arrive at the royalties for the appeal hereditaments.

I derive no assistance from the British Coal settlement for two reasons. First, it is common ground that British Coal opencast sites were wholly different from private opencast sites (and the appeal hereditaments) at the AVD. Mr Crawford and Mr Parkin gave evidence of major differences, including size, selling price of coal, location, length of production period, need for planning permission and works factors. The argument underlying the appellants' case is that British Coal opencast sites commanded a higher annual value than private sites so that, by comparison with a £6 royalty rent for British Coal quarries, the appeal hereditaments should be rated at only one-third to one-half of this figure. Mr Willson did not agree that the appeal hereditaments should have lower values by comparison with British Coal, but he did agree that British Coal and private opencast sites were wholly different. Private sector sites had their own advantages and disadvantages compared to British Coal sites. British Coal quarries were larger. But where the balance rested on a comparative approach is impossible to say because the comparison is complex. In my view, it is clear that British Coal sites and private sites differed materially and cannot usefully be compared (physically or financially) for the purposes of valuation. There is no evidence to show that private sites had lower rental values than British Coal sites. The two types of opencast site were different. The essence of valuation by reference to settled assessments is that comparison is made with similar properties. In Howarth v Price (VO) (1965) 11 RRC 196, the Tribunal (R C Walmsley FRICS) said (at 199):-

"Where however there is a paucity of satisfactory direct rental evidence, then the best evidence as to rental value is likely to be the 'indirect' evidence provided by the gross values of similar hereditaments; and the greater the similarity between these other hereditaments to the particular hereditament in physical respects such as nature of property, type, age, design, size and surroundings, the better is the evidence so provided. Should there be available as comparables a number of hereditaments all equally similar to the particular hereditament in all material physical respects, then those which are in the same locality as the particular hereditament normally provide better evidence as to rental value than those which are in some other locality, because the former are more likely to be in similar economic sites and therefore the more truly comparable."

The second reason why I derive no assistance from the British Coal settlement is that it rests on a single agreement by British Coal made at a time when the assessment of their properties was changing from statutory formula to conventional valuation. One of the criticisms made by Mr Crawford and Mr Parkin of the opencast assessments in the 1990 list is that, due to previous formula assessment, the VOA and the profession had limited experience of the valuation of opencast sites. I do not accept that criticism as applicable to the VOA and surveyors advising private operators, because private sites have always been assessed by conventional methods, but it may well have some force as applied to British Coal. The essential disadvantage of the British Coal settlement is that it is a single agreement covering 52 sites. Agreement on a royalty rent of £6 per tonne appears to have been reached without independent professional advice on the part of British Coal, although many individual assessments were later agreed by a well-known firm of rating surveyors. This single settlement will inevitably carry less weight than numerous separate agreements on individual sites or groups of sites. It is the number of separate agreements which gives weight to settled assessments as evidence of value. In Eastaugh the Tribunal (T Hoyes FRICS) rejected the valuation officer's evidence of a volume of established assessments (45 beach hut assessments) because it rested on the narrow foundation of agreement between the valuation officer and the surveyor acting for the charging authority, with later acquiescence by lay persons, which may have been more acceptance of rate liability than of rateable value.

I turn now to the settlements relating to private opencast sites relied upon by Mr Willson to support his royalty rent of £6 per tonne for the appeal hereditaments. He said that by December 2003 assessments of 153 opencast sites in the 1990 list had been settled by agreement, withdrawal or LVT decision. These included 52 British Coal or former British Coal sites, including 11 sites taken over by independent operators after privatisation in 1994 (Mr Parkin's figure is 51 British Coal and former British Coal sites). The assessments of 23 hereditaments, excluding the 6 hereditaments subject to these appeals, have not been agreed; 16 of which were occupied by the appellants (with outstanding appeals), a further six were represented by former agents of the appellants, and the remaining site had been agreed but there is now a further appeal awaiting the outcome of these current proceedings. On my calculation there are therefore 101 private sites (153 less 52 British Coal sites) where assessments have been agreed with 29 outstanding appeals (including these current appeals). All settlements were at £6 per tonne with disability allowances where appropriate.

Mr Parkin said that the position of the 40 companies occupying opencast sites at the AVD was that they either had to accept £6 per tonne royalty rent or appeal. Having regard to the small tonnage involved, their economic position and with the knowledge that at least one company was going to test the VOA's approach, they took a commercial decision to accept the proposed assessments. Many operators settled under pressure from the VOA or to release substantial funds where they had cash flow difficulties. He particularly referred to R&A Young Mining Limited. In short, settlements were under duress. He included in his evidence a list of settled assessments prepared by the VOA and sent to the appellants in August 2000 which showed a total of 163 opencast hereditaments, of which 133 had been settled and 30 were outstanding. The settled assessments of 108 sites (or 66%) were with chartered surveyor agents or surveyors employed by the occupiers. Mr Parkin put in evidence letters written in April 1995 from Young Group Plc (written by Mr Parkin as a director at that time), RGB Mining (UK) Limited, Andrew Golightly Limited and Hutchinson Mining explaining why they had agreed assessments for financial and commercial reasons. The VOA's list shows that the opencast sites operated by these companies were: Young (8), RJB (10 and a further 7 taken over from British Coal in 1994), Golightly (4), Hutchinson (2), a total of 24 opencast sites excluding British Coal quarries.

Thus, the position regarding the 101 private sites where assessments in the 1990 list have been agreed is that 24 were agreed for financial or commercial reasons, representing just under 24% of the total. I have no evidence as to the reasons for the agreement of the remaining 76% of settled assessments (77 hereditaments). I note from the VOA's list that many of the operators were represented by well-known firms of surveyors. Although no doubt some assessments were settled for financial or commercial reasons, there is nevertheless a substantial number of settlements in the 1990 list where it is likely that £6 per tonne royalty rent was accepted as correct without any underlying financial or commercial reasons. I particularly note that many of the British Coal opencast sites which passed to private operators after 1994 were settled again at the same royalty rent of £6 per tonne, an indication that, although not comparable, British Coal and private sites had the same level of value.

The appellants rely on the decision of this Tribunal in Eastbourne to support their contention that no weight should be given to this settlement evidence. In my judgment, this decision depended upon the particular facts. In Eastbourne the valuation officer placed reliance on settled assessments of 256 leisure centres outside London and a further 31 in London to support his valuations on the contractor's basis. The appellant's expert valuer, however, said that he had settled a number of appeals but "in all cases the settlements represented substantial reductions on the list figures and provided substantial cash refunds for the ratepayers." The reductions agreed were 30% or more and the refunds were significant. The Tribunal (the President and N J Rose FRICS) accepted this evidence and rejected the agreed assessments as reliable comparables on the grounds that "there is a substantial possibility that the attraction of the cash refund that a settlement would provide to a revenue-constrained council will have influenced decisions to settle and the levels of the assessments agreed" (para 136). The evidence in these current appeals, however, is different. No reductions in the royalty rent used by the VOA were achieved and only in 24 out of 101 settlements (or 24%) is there any evidence to suggest that £6 per tonne royalty rent was agreed for financial and commercial reasons.

My conclusion from the private opencast settlement evidence is that the tone of the list for these sites is established at £6 per tonne. The 1990 list can be said to have settled in this respect. Considerable weight should be given to this evidence.

Finally, I consider assessments of reclamation sites and a quarry at Clee Hill in the 1990 list, relied upon by Mr Crawford to show that lower royalty rents than £6 per tonne have been agreed. The parties have recorded that, for the purposes of the 1995 and 2000 rating lists, the VOA defined reclamation sites as follows:-

"Sites at which the restoration and reclamation are the sole and primary purpose for the site. The coal recovery is purely ancillary to that process and in many cases is simply part of the site remediation plans. These sites normally form part of large urban regeneration schemes of industrial dereliction. Many are grant aided but not exclusively so; most will involve the treatment ex situ and in situ of major contaminants and specific restoration requirements (ie fit for immediate redevelopment for industrial, residential or other purposes). It is quite common at such sites to find that the areas from which the coal is extracted are often very small in comparison with the overall area being restored. Another factor which is also common at such sites is that in the absence of the overall reclamation or remediation scheme, such sites would not form the basis of a viable commercial opencast coal prospect, either as a greenfield or brownfield site."

I do not understand the appellants to disagree with this definition for sites in the 1990 list.

I have been referred to four reclamation sites in the 1990 list. Ravenhead Park, St Helens and the Timber Yard Reclamation Site at Canal Street, St Helens were both assessed at a royalty rent of £6 per tonne with a 66.7% disability allowance, reducing the royalty to £2. At Bowmans Harbour, Wednesfield, Wolverhampton the royalty rent was £6 per tonne with a disability allowance of 75%, reducing it to £1.50. At Reedswood Reclamation Site, Rayboulds Bridge, Walsall the royalty rent adopted was £6 per tonne less 66.7%, equivalent to £2. Mr Crawford also referred to Clee Hill Quarry, near Ludlow, Shropshire assessed at royalty rents of 22p per tonne for stone, 11p per tonne for waste stone and £2.50 for coal, all agreed with the occupier's surveyors.

Mr Crawford said that these sites were just as comparable to the appeal hereditaments as alienated coal sites. The assessments show that royalties substantially below £6 per tonne have been adopted, contrary to the level of values shown by the relevant licences for each site. Substantially higher volumes of coal were extracted from these sites than from the appeal hereditaments. Mr Crawford agreed the Clee Hill assessment himself and discussed with his client the possibility of an appeal. The reduced royalty rent was accepted due to the substantial cash savings secured by the agreement.

Mr Willson said that reclamation sites are not comparable to the appeal hereditaments. They are essentially civil engineering operations where the extraction of coal is part of reclamation. In all cases a serious ground problem was coal seams with old workings, with the likelihood of major subsidence which could only be dealt with by extracting the coal. Clee Hill is a stone quarry, wholly different from the appeal hereditaments. It has never been rated as a coal site. Coal in shallow seams was extracted from the overburden above the stone to assist in landscaping.

I accept Mr Willson's evidence. It is clear that the four reclamation sites and Clee Hill quarry are wholly dissimilar from the appeal hereditaments. The essential ingredient of comparability is absent. Furthermore, I note that all the reclamation sites have been assessed at the standard coal royalty rent of £6 per tonne. It is the substantial disability allowances (66.7% and 75%) adopted which reduce the general figure, figures well above the disability allowances now agreed for the appeal hereditaments. I give no weight to these assessments.

My conclusions regarding the three categories of assessment evidence are that I derive no assistance from the British Coal settlement due to an agreed lack of comparability between British Coal opencast sites and the appeal hereditaments and to the fact that it rests on a single agreement covering 52 sites, apparently made by British Coal without independent professional advice at a time when the method of assessment had changed from formula to conventional valuation. Similarly, I give no weight to the assessments of reclamation sites and Clee Hill quarry due to lack of comparability. I give considerable weight to the settled assessments of private opencast sites. I find that the tone for the 1990 list for private opencast sites has settled at a standard royalty rent (coal and surface) of £6 per tonne.

I have now considered the four categories of value evidence and can form an opinion as to the royalty rent for the appeal hereditaments. Transactions related to alienated coal show a range of royalties for the period 1987 to 1990 of between £3.64 and £8.25 per tonne. Benthall Quarry is the most helpful with a royalty of between £5.50 and £8.25 per tonne at 1987 prices. The parties have agreed that at the AVD the surface rent at private opencast sites was about £2 per tonne and I have found that this figure has been agreed for the appeal hereditaments, except Thorntree Hill. British Coal royalties show the level of payment which Banks and other operators paid or offered to pay at or about the AVD. The standard British Coal royalty at the AVD was effectively £11 per tonne. I accept Mr Willson's opinion that this should be reduced to £4 to reflect the monopoly position of British Coal at the AVD. In May and July 1987 Banks offered royalties of £5.24, £7.40 and £7 per tonne on sites which they subsequently worked on delivered licences. The royalty payments for the appeal hereditaments were all fixed after the AVD, when the standard royalty had fallen and are therefore of limited assistance. Banks were paying royalties at the standard rate or a little below on other sites close to the AVD. The tone of the list has settled for private opencast sites at £6 per tonne (coal and surface).

This evidence, taken individually and as a whole, clearly supports a royalty rent of £6 per tonne (coal and surface) for the appeal hereditaments. This is Mr Willson's figure and the figure accepted by the LVTs in the decisions under appeal. With the application of the agreed disability allowances the royalty rents per tonne for the appeal hereditaments are: Bullcliffe Farm Extension, £6; Bullcliffe Farm, £5.70; West Farm, £6; Thorntree Hill, £6; Birkwood Farm, £5.40; Broomley Fell Plantation, £4.80. These are Mr Willson's figures which I accept.

In my judgment, there is no supporting evidence for Mr Crawford's much lower royalty rents of between £1.98 and £2.87 per tonne. In addition to the market evidence relating to coal and surface royalties, which would persuade a hypothetical landlord to seek much higher royalty rents than those put forward by Mr Crawford, there are two other indications that these latter figures are too low. The first is that a hypothetical landlord of each of the appeal hereditaments who had spent £5.93 per tonne on pre-production costs to provide the opencast site ready for letting would have been unlikely to accept Mr Crawford's low figures. Second, a hypothetical landlord who would have been aware that the market rate for surface access was £2 per tonne at the AVD and that the relationship between surface and coal royalty showed that the latter was always higher than the former (and may have been in the ratio of one to three), would have been unlikely to agree royalty rents which in one case is below £2 and in the other cases only between 20p and 87p per tonne above the surface figure. A coal and surface royalty of under £2, which is below the market rate for surface access alone (Thorntree Hill), and coal royalties of between 20p and 87p when the surface rent is £2 are wholly inconsistent with the market pattern of values. I accept Mr Willson's opinion, based on his experience and the evidence, that the surface element is generally about one-third of the full rent for surface and coal.

The answer to my second question is therefore that the royalty rents at the AVD for the appeal hereditaments were not less than £6 per tonne (surface and coal). This decision is sufficient to justify acceptance of Mr Willson's valuations in Appendix 2 (all other elements in the valuations – output, value of buildings, plant and machinery and disability allowances – having been agreed). Strictly, it is unnecessary to answer my alternative second question and my third question: that is to say what is the preferred method of valuation in the absence of sufficient and reliable market evidence, and the amounts of the royalty rents assessed in accordance with the preferred method. For completeness, however, and to assist in the event of an appeal, I will consider Mr Crawford's primary (and only) valuations and Mr Willson's alternative receipts and expenditure valuations, which he relied upon as a check on his market based valuations.

Alternative valuations

I look first at Mr Crawford's valuations (Appendix 1). He said that he has used this particular method because there was a monopoly position with British Coal at the AVD and a lack of valid or useful rental evidence. There were certain known factors, namely that British Coal agreed a royalty rent in the light of a known coal price and that the appeal hereditaments had a different price. It is possible to compare known factors to arrive at the royalties attributable to the appeal hereditaments. Mr Crawford referred to his valuation as a comparative valuation; Mr Willson and Mr Biddle said that it is a receipts and expenditure valuation. Mr Crawford's valuation relies greatly on figures agreed by Mr Powis and Mr Willson. It has three stages.

First, Mr Crawford said he established the revenue and costs underlying the agreed British Coal royalty of £6 per tonne, which he accepted as correct. These were taken from the British Coal Mining Operation Statement for opencast mining in 1988 and comprised a coal price of £43.39 per tonne, costs of £26.68 and operating profit of £16.71. He then reduced the operating costs by £5.93 per tonne (the agreed average figure for pre-production costs at the appeal hereditaments) to produce £20.75, on the assumption that pre-production costs at British Coal sites were included in their operating costs and were the same per tonne as those at the appeal hereditaments. This reduction was made to put his figures on the basis used by Mr Willson in his receipts and expenditure valuations, but he said that Mr Willson's approach has no regard to the circumstances behind the British Coal agreement and therefore made no comparison between this agreement and his proposed application of £6 per tonne to the appeal hereditaments.

Second, Mr Crawford analysed the agreed British Coal royalty rent by reference to the coal price and operating costs which he said led to the agreed figure. The coal price of £43.39 per tonne less adjusted operating costs of £20.75 produced a divisible balance (or adjusted profit) of £22.64. The agreed royalty rent of £6 represents the landlord's share (26.5%). The remainder (£16.65 or 73.5%) represents the tenant's share (ie British Coal's share).

Third, Mr Crawford adjusted the landlord's share downwards to reflect the greater risks borne by the tenants of the appeal hereditaments compared to the risks at British Coal sites. The tenant of an appeal hereditament would have wished to retain a greater percentage of his smaller profit. The landlord's share would therefore be less than 26.5% and the tenant's share greater than 73.5%. This adjustment should be made by reference to the percentage difference in profits which would have been secured at a private site compared to a British Coal site. Adopting Mr Willson's adjusted figures to British Coal costs to put them on a comparable basis with Mr Willson's approach, Mr Crawford said that he knew that the profits of the appeal hereditaments would have been on average 36.5% lower than those at a British Coal site. This figure is calculated by taking the divisible balance (or adjusted profit) for British Coal of £22.64 and deducting the average of the divisible balances for the appeal hereditaments in Mr Willson's receipts and expenditure valuations (£14.39), to give a difference of £8.35 which is 36.5% lower than the profit from British Coal sites (£22.64). This 36.5% reduction is then applied to the landlord's share of 26.5% applicable to British Coal sites to produce reduced royalty rents for each of the appeal hereditaments, equivalent to 16.8% of the divisible balance. Thus, the landlord's share of the divisible balance is reduced to 16.8% and the tenant's share is increased to 83.2% for each of the appeal hereditaments.

Mr Crawford has produced a novel form of valuation. He said that he has not previously put it before this Tribunal and did not know of any other expert who has used it. I have not encountered it before; Mr Willson, with his greater experience of mineral valuation, has not seen it used elsewhere to determine royalties. The fact that it is a new method of valuation does not, of course, mean that it should not be accepted. The history of rating has many examples of the ingenuity of valuers in producing new valuation methods or techniques to make the system work when market evidence is lacking or to assist in uniformity of valuation. The contractor's and profits bases of valuation were once new methods; the zoning of shops and the application of quantity allowances are common techniques of rating valuation, once new but now widely used. A new valuation method must, however, be soundly based on valuation principles and in accordance with rating law and practice, particularly where, as here, it is put forward in opposition to accepted methods of valuation, namely by reference to royalties and assessments and by reference to receipts and expenditure. In my judgment, Mr Crawford's method does not meet these requirements and I reject it as fundamentally unsound for the following reasons.

First, it is a comparison of prices and profitability, not of rental value, the correct comparative measure. I agree with Mr Holgate that Mr Crawford's valuation contains a fundamental legal error in this respect and does not accord with the statutory rating hypothesis. In his oral evidence Mr Crawford confirmed that his approach is to adjust the private sector information to take account of the difference in profitability between British Coal and the private sector. He said that we know that British Coal agreed a royalty in the light of a known coal price and that the appeal hereditaments had a different price. We are dealing with the same mineral, albeit at different prices, and therefore there are certain factors for comparison. He compared the known factors to arrive at the unknown factor, the royalty rents for to the appeal hereditaments. In my judgment, Mr Crawford's fundamental error is to apply the rating principle of ability to pay by reference to income and profits and not by reference to rental value, the correct yardstick for comparison and ability to pay (see para154 above). In Mersey Docks and Harbour Board v Liverpool [1873] LR 9 QB 84, Blackburn J said (at 97):-

"If the hereditaments are such as to afford peculiar facilities for carrying on any kind of business, that facility does, beyond all question, enhance the value of the occupation; but though the profits which may be reasonably expected to arise from such a business no doubt form an element in estimating the enhanced value of the occupation of the premises, the actual profits made do not form any element, except in so far as they afford evidence of what might be reasonably expected to be made from the occupation of premises affording facility for carrying on such business. For instance, to explain our meaning, there can be no doubt that the annual rent of a shop in Cheapside is higher than the annual rent of a similar shop in a back street; and that the reason why tenants give a higher rent is because of the superior facility for carrying on business there. But the rent and the rateable value of the shop are quite independent of the amount of the shopkeeper's actual gains. The rateable value is the same whether the tenant is a flourishing trader or is carrying on business at a loss."

(emphasis added).

In my judgment, it is wrong to compare the profitability of two properties to arrive at rental value. It is wrong to seek the rental values for the appeal hereditaments (agreed to be wholly different from British Coal quarries), not by reference to the locational and physical characteristics of British Coal sites, but by reference to the profitability of the whole of the British Coal opencast operation. Mr Crawford's method can be likened to seeking the rental value of a small independent chemist's shop in a secondary location by reference to the rental value of a large Boots store in a primary location, but not by reference to the different characteristics of the two properties, but by reference to the different prices of goods sold and the different profit levels of the independent chemist and the Boots Group as a whole. This form of comparison is fundamentally wrong.

Even if it is correct to make a comparison between the different selling prices of coal at the British Coal sites and the appeal hereditaments in order to find the royalty rents for the latter, the use of £43.39 per tonne British Coal price is flawed in two respects. First, this figure included royalties paid by private opencast operators and received by British Coal as owners of vested coal at other sites. It does not solely represent income from the coal extracted and sold from British Coal's opencast sites. Second, it included a hidden subsidy to offset the higher cost of deep mined coal. This is considered in the evidence of Mr Godfrey and Mr Shuttleworth. The existence of a subsidy was initially in dispute but Mr Godfrey and Mr Crawford eventually conceded that British Coal's revenue of £43.39 per tonne included an element of hidden subsidy (from the CEGB under the RJU); although the amount remained in dispute.

The second reason why Mr Crawford's valuation is unsound is that it rests on two assumptions of fact that have not been proved and may be wrong. The first is that the £6 royalty rent agreed for rating by British Coal is correct. The respondents have not, of course, impugned their lists and have not suggested that British Coal assessments (including the £6 royalty rent) are incorrect. In Shearson Lehman Brothers Limited v Humphreys (VO) and Hackney London Borough Council [1991] RA 125, this Tribunal (Judge Marder QC and C R Mallett FRICS) said (at 149):-

"We do not think there is an absolute rule which has to be expressed in the form that 'a valuation officer may not impugn an entry in his own list.' In our view the true rule amounts to no more than this, that where a value appears in the list, either as the result of an unchallenged proposal by the valuation officer, or in consequence of an agreement between valuation officer and ratepayer, then the valuation officer should not normally be heard to say that the assessment was incorrect at the time it was made. The proposal or agreement will be evidence against the valuation officer as to the correctness of the assessment."

I agree with that statement of the rule. The British Coal assessments, based on an agreed royalty rent of £6 per tonne, are evidence against the valuation officers but I do not think that I should go further and accept £6 per tonne as necessarily correct, that is to say as a benchmark for private sector assessments. It may be too high or too low: the Mineral Valuer initially proposed £8 per tonne royalty rent. As I have observed, the question in these appeals is whether the assessments of the appeal hereditaments are correct, not whether they are too high in comparison with British Coal assessments?. Mr Crawford's evidence is that he accepted £6 as correct. This may or may not be a correct assumption on his part.

The second unproved assumption underlying Mr Crawford's valuation is that British Coal agreed a royalty rent of £6 per tonne in the light of a coal price of £43.39 per tonne. This seemed to be fundamental to his valuation but when I sought confirmation he said this coal price was background information only, not a vital ingredient in his valuation. If British Coal did not actually have in mind a coal price of £40 or £43 per tonne when they agreed £6 royalty, but merely thought £6 to be a reasonable figure, then he would place more emphasis on Coal Authority royalties as evidence of value.

I do not accept Mr Crawford's evidence that he thought the price of £43.39 per tonne was merely in the background when British Coal agreed a royalty rent of £6. In my judgment, Mr Crawford's valuation is firmly based on the assumption that £6 was agreed because the coal selling price was £43.39 per tonne. This figure is one of the foundations of his valuation (with cost and profit) clearly linked to the £6 royalty rent. If it is not correct that British Coal agreed £6 because the coal price was £43, then his valuation is flawed at the outset.

I cannot find any evidence to show that British Coal agreed £6 because their coal selling price was £43.39; on the contrary, there is material which points to a different reason for this agreement. In cross examination it was put to Mr Crawford that there is no evidence to suggest that the agreement of £6 was dependent on a coal price of £43 per tonne. He accepted that there is no document to this effect but pointed to British Coal accounts, containing the figure of £43.39 per tonne revenue, and to the notes of a meeting at which the Mineral Valuer referred to £40 per tonne price, and with which he said British Coal did not disagree. At this meeting on 5 July 1989 (attended by Mr Willson) the Mineral Valuer's representatives suggested a royalty rent for British Coal sites of £8 per tonne, supported by reference to alienated coal and surface royalties, evidence of lettings of other minerals on a percentage of selling price (with reference to 15% of a coal price of £40 per tonne) and British Coal royalties (discounted). The subsequent agreement by British Coal to a lower royalty of £6 per tonne is contained in a letter dated 19 September 1989. The important part of this letter is as follows:-

"After much discussion it was agreed that the unadjusted rateable value should be based upon evidence of both the coal element and payment for surface rights and access to land

We jointly considered the market evidence available to our organisations and I am now able to confirm agreement to the tonnage factor of £6/tonne."

There is no suggestion here (nor in the minutes of the earlier meeting) that British Coal had in mind a coal price of £40 - £43 when they agreed £6 per tonne royalty rent. There is no evidence that they agreed £6 because their coal selling price was £40 to £43. The above letter expressly refers to "market evidence". The conclusion I draw is that British Coal agreed £6 per tonne in the light of royalties for alienated coal and surface access and their own standard royalties (discounted for monopoly) and any other market evidence they may have obtained. They may have also considered coal selling prices and royalty as a percentage of price but there is no indication that coal price was otherwise of dominant, or indeed of any, importance to their agreement.

The third reason why Mr Crawford's valuation is unsound is that it rests on the assumption that British Coal in its form in the real world was the hypothetical tenant of each of the British Coal hereditaments. This cannot be correct. British Coal as owners of vested coal in the real world cannot be the hypothetical tenant of that coal in the rating world. I discussed this point earlier, under the principle of reality (paras 156 to 161 above). In my judgment, for the hereditament being valued (in this context each of the British Coal sites), reality must yield to the statutory hypothesis which necessarily requires the assumption to be made that the entire hereditament (coal and surface) is owned by the hypothetical landlord and let to the hypothetical tenant. That landlord, unlike the real world landowner, owns coal and surface; that tenant, unlike British Coal, does not own the coal. The hypothetical tenant may be a large organisation similar to British Coal, but it cannot be British Coal in its real world form. Any real world advantages enjoyed by British Coal would not necessarily have been enjoyed by the hypothetical tenant of a British Coal opencast site. This is not a matter which was considered in any depth at the hearing. Mr Horton in his opening said that he did not wish to depart from the reality that British Coal owned all vested coal, but acknowledged that British Coal cannot rent the coal from itself. I need not take this interesting point further for the purposes of this decision. It is a problem with which Mr Crawford did not grapple in his evidence. It is sufficient for me to find that the hypothetical tenant of each of the British Coal hereditaments was not British Coal in its real world form, although it may have been an organisation with similar characteristics, and therefore the figure of £6 per tonne, which Mr Crawford linked so closely with the real world financial position of British Coal, becomes an unreliable figure for comparison purposes when comparing price and costs in the private sector with those of British Coal.

The fourth reason why Mr Crawford's valuation is unsound is that there can be no reliable comparison between the profitability of British Coal and their opencast sites on the one hand and the profitability of Banks and the appeal hereditaments on the other. It is common ground that British Coal quarries were materially different from the appeal hereditaments (and private opencast sites generally). British Coal sites were operated by contractors and managed by the Corporation (producing two profits from the income, one to British Coal and one to the contractor); the appellants' sites did not use contractors. Essentially, Mr Crawford's valuation approach involved a comparison between the receipts, expenditure and coal prices for British Coal with an annual output of 15.1 million tonnes and the appeal hereditaments with equivalent annual outputs of between 58,147 and 109,283 tonnes. Furthermore, the figures in the Coal Mining Operating Statement (only part of the accounts of British Coal), a large government controlled public body, are not a suitable starting point for the valuation of privately operated coal quarries. This lack of comparability, physical and financial, removes or at least greatly reduces any degree of accuracy for the resultant valuations of the appeal sites. In short, it is not possible to produce reliable valuations for the appeal hereditaments by reference to the accounts for a body and in respect of sites which are wholly different from the appellants and the appeal hereditaments.

I have set out above the main reasons why I reject Mr Crawford's valuation method. These show it to be fundamentally unsound. Numerous criticisms of detail were also made by Mr Willson. I need not increase the length of this decision by considering these further, with the exception of the apportionment of the divisible balance which I consider below when dealing with Mr Willson's alternative receipts and expenditure valuations.

I turn now to Mr Willson's alternative, or check, valuations (as amended) (Appendix 3). These are on a receipts and expenditure, or profits, basis. This is a well-established method of valuation. In Kingston Union Assessment Committee v Metropolitan Water Board [1926] AC 331, Lord Cave LC said that, although the precise date at which it was devised and its first inventor do not clearly appear, adoption was immediate and enduring. It was approved by the courts as early as 1847; it has since been followed in innumerable assessments and "constantly approved by the court, and by this House" (at 339-340). It has, however, limitations. It is an indirect method of valuation, useful where there is an absence of comparable rental evidence but inherently unreliable. Profits are not rateable, the measure of liability for non-domestic rating being rental value, but the ability to earn profits may affect value and may, in the absence of direct rental evidence, provide some guidance as to rental value. A coal mine may be assessed on the profits basis (Denaby and Cadeby Colliery Co v Doncaster Union Assessment Committee (1898) 78 LT 388), although where there is sufficient royalty evidence, as I have found to be the position in these appeals, rateable value can be more accurately determined by reference to comparable royalties, plus the rental value of buildings and rateable plant and machinery with allowance for disabilities (if any). Despite the shortcomings of receipts and expenditure valuation, however, it is well-established. I regard it as a more reliable method of valuation than Mr Crawford's novel and hybrid approach to value, part receipts and expenditure and part comparison. Mr Willson is aware of the limitations of the receipts and expenditure method and put forward valuations on this basis as alternative figures should I find there to be a lack of reliable market evidence, also as valuations to check his royalty rent of £6 per tonne arrived at on a comparative basis.

There are many varieties of receipts and expenditure or profits valuation. Mr Willson has used what is usually termed the traditional or full profits basis. He has prepared two alternative valuations for each of the appeal hereditaments, producing the same royalty rent per tonne but different rateable values depending on small differences in the grossed up annual output for each site. These valuations are summarised as follows:-

Site	Royalty per tonne	Rateable Value	Rateable Value
		Alternative valuation 1	Alternative valuation 2
	£	£	£
Bullcliffe Farm Extension	7.70	315,853	333,533
Bullcliffe Farm	7.26	232,350	248,285
West Farm	8.52	233,589	247,706
Thorntree Hill	5.86	267,492	-
wef 25/11/91	5.86	-	320,199
wef 1/4/93	5.86	-	231,573
Birkwood Farm	6.54	179,055	203,970
Broomley Fell Plantation	7.30	166,531	235,378

Mr Willson used the same approach in each valuation. He used Mr Powis's figures to limit areas of difference. His valuations have three steps:-

(i) From the ex-pit price of coal produced at each site he deducted costs (which included production and restoration costs, rates, overheads, sundries and levies but excluded pre-production costs) to produce a divisible balance.

(ii) Fifty per cent of this divisible balance was deducted as the tenant's share leaving the remaining 50% as royalty rent (or landlord's share).

(iii) The resultant royalty rent was then multiplied by the grossed up annual output to find the unadjusted rateable value, then reduced by 50% to produce the rateable value; this included the annual value of buildings, plant and machinery and reflected any disabilities.

Since Mr Willson prepared his alternative valuations the parties have agreed revised coal prices for the appeal hereditaments at the AVD (document 61 table 3A col 10) and the equivalent annual output for each of the appeal hereditaments. I have therefore amended Mr Willson's valuations to incorporate these agreed figures. I have also applied the 50% reduction from URV to RV solely to the royalty rent for coal and surface by the deduction of the agreed values of buildings, plant and machinery. The amended valuations are set out in Appendix 3 to this decision. A summary is as follows, with Mr Willson's primary valuations shown for comparison purposes:-

	Alternative valuations	Primary valuations	Primary valuations
	Royalty per tonne	Rateable value	Rateable value
	£	£	£
Bullcliffe Farm Extension	7.61	330,972	262,571
Bullcliffe Farm	8.14	279,130	197,434
West Farm	7.99	233,559	176,966
Thorntree Hill
wef 25/11/91	5.67	311,005	330,224
wef 1/4/93	5.67	225,251	239,480
Birkwood Farm	6.16	193,239	170,765
Broomley Fell Plantation	5.95	192,364	155,799

With the exception of Thorntree Hill, the alternative valuations, both Mr Willson's original figures and my amended figures, are greater than his primary valuations and the assessments determined by the LVTs.

The criticisms of Mr Willson's receipts and expenditure valuations focused on two matters: the treatment of pre-production costs and the tenant's share. I have discussed pre-production costs under the principle of reality. I conclude that in the rating world they were borne by the hypothetical landlord (see paras 162 to 167 above). In my judgment Mr Willson is correct to exclude those costs from the tenants' costs.

There is disagreement between Mr Willson and Mr Crawford as to the tenant's share, to be deducted from the divisible balance to find the rent or landlord's share. Mr Willson used a 50% tenant's share, leaving the other 50% for rent. He said that mineral agreements provide for a sharing of risk between landlord and tenant by relating payment to the mineral extracted. If unexpected problems arise with a consequent reduction in output, the rent is reduced. Agreements for the extraction of minerals are unlike leases of other types of property because the tenant has the right to remove and sell part of the owner's land, that is to say the coal or other mineral. A landlord of coal has only one opportunity to obtain an income from this part of his property. Extraction by opencast quarrying involves the removal of the surface and the disturbance of other minerals, eg brickmaking clay. The agricultural value will also be temporarily reduced. For these reasons the risks should be equally shared: the hypothetical landlord would expect at least 50% of the divisible balance. Mr Biddle gave evidence regarding the calculation of tenant's share, by reference to four approaches including the one used by Mr Willson and Mr Crawford, a percentage of the divisible balance. In his experience the usual range for the tenant's share is between 45% and 55%; he has never dealt with a case with more than 60%.

Mr Crawford in his valuation analysed the British Coal royalty of £6 per tonne to show a tenant's share of 73.5% and then increased it further to 83.2% to reflect the different and greater risks encountered at the appeal hereditaments compared to British Coal quarries. He referred to less secure markets, shorter lives, smaller reserves of coal against which to set the risks, lower prices and smaller margins. He responded to Mr Willson's reasons for adopting an equal apportionment of the divisible balance. He said that the tenant takes the greater risk if the tonnage extracted falls because at the appeal hereditaments he will have fewer minerals to offset his capital outlay. Mineral leases usually provide for a minimum tonnage to be worked with a minimum total royalty. Although it is true that a landlord of minerals has only one opportunity to obtain an income from them, minerals are usually located in rural areas and that income will be significantly higher than income from other uses. Following extraction the land will be restored and produce a further return. Opencast mining disturbs the surface and other minerals but may also produce income. Mr Willson's equal apportionment of the divisible balance is not justified mathematically or by direct evidence. There is no indication in Mr Biddle's evidence that he has ever valued a mineral hereditament. Even if pre-production costs are excluded, an opencast site still requires significant capital outlay.

In a full receipts and expenditure valuation, as undertaken by Mr Willson, the deduction of costs or outgoings from revenue produces a divisible balance. The whole of this balance is not available for rent. In Bluebell Railway Limited v Ball (VO) [1984] RA 113, the Tribunal (J H Emlyn-Jones FRICS) said (at 134):-

"The traditional approach is that at this point the tenant's share is first to be calculated and the balance represents the hypothetical rent and the actual rates calculated on that rent as rateable value. The theory upon which the calculation of the tenant's share is based is that no tenant would carry on a commercial undertaking with the intention of passing on the whole of any surplus realised to the landlord. The return which the tenant would seek for himself should take account of the risk, some reward for his enterprise, and a return on the capital which he has invested in the undertaking."

(In Mr Willson's valuations rates have been deducted in the costs leaving the divisible balance to be reduced only by the tenant's share to produce the landlord's share or rent).

Various methods are used to calculate the tenant's share but "all methods are but means to an end, namely, the proper answer to the question, what allowance for tenant's profits would be sufficient to induce the hypothetical tenant to take the hereditament at the supposed rent?" (Ryde at para E[678]). The landlord's position must also be considered. Although an opencast undertaking (or any other commercial undertaking) is not a joint venture between the hypothetical landlord and the hypothetical tenant (Sandown Park Limited v Esher Urban District Council and Castle (VO) (1954) 47 R & IT 351), the rent is assumed to be the result of negotiation and must leave the landlord with a sufficient amount to persuade him to incur the pre-production costs to produce the hereditament and to compensate him for the loss of his coal and the disturbance of his land.

Mr Willson and Mr Crawford have given their reasons for a 50% tenant's share in Mr Willson's valuations and an 83.2% tenant's share in Mr Crawford's valuations. I do not accept Mr Crawford's evidence that a hypothetical tenant would require 83.2% of his operating profit (or divisible balance) to induce him to take a tenancy of the appeal hereditaments and that the hypothetical landlord would agree to accept only 16.8% by way of rent. These figures are, in my judgment, wholly unrealistic. Mr Crawford attempted to justify them mathematically but a consideration of the underlying reasons and, perhaps more importantly, common sense show that they cannot be correct. I accept Mr Willson's opinion and his reasons and the supporting evidence of Mr Biddle. In my view, it is correct to deduct 50% of the divisible balance at each of the appeal hereditaments as the tenant's share. That is the figure which I think would have been agreed in negotiations leading to the grant of the hypothetical tenancy of each site. I particularly rely on three reasons given by Mr Willson and Mr Biddle. First, that the fixing of a royalty rent based on output, although to some extent placing the risk on the tenant by, in effect, stating a minimum rent, is nevertheless the fixing of a rent directly related to production and closer to a joint venture and a sharing of risk than other types of letting. Second, that in a tenancy of an opencast coal site the landlord loses not only the use of this land during the period of the letting but also part of the capital value by the extraction and sale of his coal (reflected in rating by the 50% reduction from URV to RV under the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989). This is a permanent loss. Third, I accept the evidence of Mr Willson and Mr Biddle regarding the extent of tenant's capital, on which a return is required as part of the tenant's share. The pre-production costs are assumed to have been borne by the hypothetical landlord in providing the hereditament, eg. buildings and access roads. Tenant's capital would comprise any plant and machinery purchased by the hypothetical tenant in order to work the site. In Mr Willson's valuations much of the cost of plant and machinery appears in the production costs, payments on leased plant and equipment, reducing capital outlay and interest thereon in the tenant's share.

The royalty rents in my table in para 278 above, based on Mr Willson's alternative valuations (as amended), include the rental value of buildings, plant and machinery. They can be compared more accurately with the net royalty rents (adjusted for disability allowances) for coal and surface in Mr Willson's primary valuations by deducting the agreed value of the buildings, plant and machinery in terms of value per tonne. The comparative position is as follows and illustrates the support given to £6 per tonne royalty rent for coal and surface by Mr Willson's amended receipts and expenditure valuations:-

	Primary valuations	Alternative valuations
Site	Royalty rent (less disability allowance)	Royalty rent (less buildings & plant)
	£ per tonne	£ per tonne
Bullcliffe Farm Extension	6.00	7.58
Bullcliffe Farm	5.70	8.10
West Farm	6.00	7.95
Thorntree Hill
wef 25/11/91	6.00	5.65
wef 1/4/93	6.00	5.64
Birkwood Farm	5.40	6.12
Broomley Fell Plantation	4.80	5.94

My overall conclusion is that I reject Mr Crawford's valuation method and his calculated royalty rents and I accept the range of royalty rents produced by Mr Willson's receipts and expenditure valuations as amended in the light of later agreed figures. The amended valuations show a range between £5.67 and £8.14 per tonne (without adjustment for buildings, plant and machinery and disability allowances) and between £5.64 and £8.10 per tonne (with adjustments). These figures can be compared to Mr Willson's primary valuations where the royalty rents are £6 throughout (without adjustment for disabilities and exclusive of buildings, plant and machinery) and between £4.80 and £6 (adjusted for disabilities). It is common ground that the receipts and expenditure method has disadvantages: it is an indirect approach to rental value, it relies on the accuracy of the component figures and requires judgment as to the amount of the tenant's share. Nevertheless, it is useful as a check valuation. In my view, Mr Willson's alternative valuations give support to a royalty rent of £6 per tonne for the appeal hereditaments, subject to the agreed disability allowances.

Accordingly, if I had found that there is a lack of reliable market evidence to enable royalty rents to be fixed by direct reference to that evidence, I would have been left with Mr Crawford's only method of valuation and Mr Willson's alternative receipts and expenditure valuations with which to determine the royalty rents for the appeal hereditaments. I would have rejected Mr Crawford's valuations for the reasons given and accepted Mr Willson's alternative valuations (as amended). I would have concluded that they support a uniform royalty rent of £6 per tonne for the appeal hereditaments which would then have produced the same figures as in Mr Willson's primary valuations, using the agreed output and the agreed annual values of buildings and rateable plant and machinery and the disability allowances.

Conclusions

I have now dealt with all the relevant issues in these appeals and can summarise my conclusions. As to the two issues put to me by the parties my decisions are as follows:-

1. The royalty rent to be applied to the annual output of coal produced at each of the appeal hereditaments is £6 per tonne.

2. The most appropriate method of valuation to be adopted in determining the rent for rating purposes for each of the appeal hereditaments is by direct comparison with market evidence, that is to say by direct comparison with alienated or non-vested coal royalties, surface royalties and by reference to comparable assessments for private opencast sites which have established the tone of the 1990 rating list for this category of hereditament.

As to the questions which I have formulated, the answers are as follows:-

(1) Sufficient reliable value evidence exists to enable a royalty rent to be determined for the appeal hereditaments at the AVD, namely by reference to royalties for alienated coal, surface royalties and comparable assessments. Mr Willson's primary valuations employing a direct comparison with this evidence are accepted (Appendix 2) and Mr Crawford's indirect method of valuation is rejected (Appendix 1).

(2) On the basis of this comparable evidence, the royalty rent at the AVD for the appeal hereditaments was not less than £6 per tonne (exclusive of buildings, plant and machinery and before the deduction of disability allowances).

(3) If I had found that there is a lack of reliable value evidence to enable royalty rents for the appeal hereditaments to be found by comparison, I would have fixed those rents by reference to Mr Willson's alternative receipts and expenditure valuations (Appendix 3). I would have rejected Mr Crawford's valuations. (Appendix 1)

(4) I would have concluded that Mr Willson's alternative receipts and expenditure valuations (in their original form and as amended) support a uniform royalty rent of £6 per tonne for the appeal hereditaments, which would have produced the same assessments as in his primary valuations.

I reject the claimants' case for three main reasons. First, it is based on the premise that there is a lack of reliable value evidence as at the AVD and therefore it is necessary to find the royalty rents for the appeal hereditaments by an indirect method of valuation. I have found this to be a false premise. There is sufficient reliable value evidence, and Mr Willson's primary valuations, which make a direct comparison with that evidence, are the more accurate assessments of value and are to be preferred to Mr Crawford's valuations. Second, even if I had found there to be a lack of good value evidence, I would have rejected Mr Crawford's valuation as fundamentally unsound and flawed in detail. It is a contrived and artificial form of valuation produced to support the appellants' grievance that they have been rated unfairly compared to British Coal. This would leave the royalty rent for the appeal hereditaments to be found by Mr Willson's alternative receipts and expenditure valuation. This is an established method of valuation which, despite its defects, is more reliable than Mr Crawford's method of valuation. Third, the claimants' case, which is based on a grievance of competitive unfairness, is fundamentally wrong. The correct approach to the assessments of the appeal hereditaments is to ask whether they are correct, not whether they are too high by comparison with British Coal assessments, assumed to be correct and a benchmark for other assessments. The assessments of the appeal hereditaments are supported by the value evidence. Furthermore, with the rejection of Mr Crawford's valuation, there is no evidence to show that they are too high compared with British Coal.

I would add that, although at first glance it appears to be a paradox that two different types of opencast site – British Coal and private – should be assessed at the same royalty rent, this is not necessarily an error for two reasons. First, although it is common ground that British Coal and private sites are not comparable, it does not automatically follow as a matter of valuation that they must have different values. A prime shop in a small town may have the same rental value per sq m zone A as a secondary shop in a nearby regional centre, although in physical and locational terms they are materially different and lack comparability. The use of £6 per tonne for the different British Coal and private sites is not necessarily an error in assessment, particularly having regard to the use of disability allowances and the separate valuation of buildings and plant and machinery to reflect differences in value between sites. Second, with the rejection of Mr Crawford's valuation, I have no evidence to indicate that the appeal hereditaments should be assessed at levels below British Coal sites nor that they have been assessed unfairly by the use of the same royalty rent. In short, I am satisfied that the assessments of the appeal hereditaments are correct; there is no evidence to indicate that British Coal sites commanded a higher royalty rent than the appeal hereditaments or that they were more profitable; and there is no evidence to show that the appeal hereditaments have been assessed inconsistently or unfairly by comparison with British Coal sites.

Accordingly, I accept Mr Willson's primary valuations (set out in Appendix 1 to this decision). With the exception of Broomley Fell Plantation, where his valuation corresponds with the LVT decision, Mr Willson's figures are a little below the determinations made by the LVTs. It follows therefore that, although I have rejected the appellants' case, Mr Willson's use of lower assessments in this Tribunal has the effect that the appeals, other than Broomley Fell Plantation, are allowed to a limited extent. I direct that the 1990 rating lists be amended to show the following assessments for the appeal hereditaments in place of those determined by the LVT:-

Bullcliffe Farm Extension RV £262,571

(RA/329&373/95)

Bullcliffe Farm RV £197,434

(RA/330/95)

West Farm RV £176,966

(RA/331&374/95)

Thorntree Hill RV £330,224

(RA/332/95)

Thorntree Hill RV £239,480

(RA/333/95)

Birkwood Farm RV £170,765

(RA/334&375/95)

The appeal in respect of Broomley Fell Plantation (RA/239/95) is dismissed; the assessment remains as determined by the LVT at RV £155,799.

This decision determines the substantive issues in these appeals. It will take effect as a decision for the purposes of any appeal when the outstanding issue of costs has been determined. The parties are invited to make submissions as to costs and a letter accompanying this decision sets out the procedure for representations in writing.

DATED: 31 January 2005

(Signed) P H Clarke

APPENDIX 1

Valuations of Andrew Philip Sedgeley Crawford MRICS MIQ IRRV

on behalf of the appellants

Analysis of British Coal royalty rent
	£ per tonne
British Coal revenue	43.39
less: costs (exclusive of pre-production costs)	20.75
Divisible balance	22.64
less: tenant's shore (73.5%)	16.64
Royalty rent (landlord's share (26.5%))	6.00

Bullcliffe Farm Extension
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	15.39	15.39
Landlord's share (British Coal) at 26.5%	0.265	0.265
	4.08	4.08
Less: adjustment for private site, 36.5%	1.49	1.49
Royalty rent	2.59	2.59
	£	£
86,632 t. at £2.59 URV	224,376	224,376
Less: 50%	112,188	112,188
RV	112,188	112,188
Add: buildings, plant & machinery	2,675	2,675
RV	114,863	114,863
Bullcliffe Farm
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	14.52	14.52
Landlord's share (British Coal) at 26.5%	0.265	0.265
	3.85	3.85
Less: adjustment for private site, 36.5%	1.40	1.40
Royalty rent	2.45	2.45
	£	£
68,398 t. at £2.45 URV	167,575	167,575
Less: disability allowance, 5%	8.379	8.379
URV	159,196	159,196
Less: 50%	79,598	79,598
RV	79,598	79,598
Add: buildings, plant & machinery	2,500	2,500
RV	82,098	82,098

West Farm
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	17.04	17.04
Landlord's share (British Coal) at 26.5%	0.265	0.265
	4.52	4.52
Less: adjustment for private site, 36.5%	1.65	1.65
Royalty rent	2.87	2.87
	£	£
58,147 t. at £2.87 URV	166,881	166,881
Less: 50%	83,441	83,441
RV	83,440	83,440
Add: buildings, plant & machinery	2,525	2,525
RV	85,965	85,965
Thorntree Hill
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	11.72	11.72
Landlord's share (British Coal) at 26.5%	0.265	0.265
	3.11	3.11
Less: adjustment for private site, 36.5%	1.13	1.13
Royalty rent	1.98	1.98
	£	£
(i) 109,283 t. at £1.98 URV	216,380	216,380
Less: 50%	108,190	108,190
RV	108,190	108,190
Add: buildings, plant & machinery	2,375	2,375
RV	110,565	110,565
(ii) 79,035 t at £1.98 URV	156,489	156,489
Less: 50%	78,245	78,245
RV	78,244	78,244
Add: buildings, plant & machinery	2,375	2,375
RV	80,619	80,619
Birkwood Farm
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	13.07	13.07
Landlord's share (British Coal) at 26.5%	0.265	0.265
	3.46	3.46
Less: adjustment for private site, 36.5%	1.26	1.26
Royalty rent	2.20	2.20
	£	£
62,376 t. at £2.20 URV	137,227	137,227
Less: disability allowance, 10%	13,723	13,723
URV	123,504	123,504
Less: 50%	61,752	61,752
RV	61,752	61,752
Add: buildings, plant & machinery	2,350	2,350
RV	64,102	64,102
Bromley Fell Plantation
	£ per tonne	£ per tonne
Divisible balance (Mr Willson)	14.60	14.60
Landlord's share (British Coal) at 26.5%	0.265	0.265
	3.87	3.87
Less: adjustment for private site, 36.5%	1.41	1.41
Royalty rent	2.46	2.46
	£	£
64,487 t. at £2.46 URV	158,638	158,638
Less: disability allowance, 20%	31,728	31,728
URV	126,910	126,910
Less: 50%	63,455	63,455
RV	63,455	63,455
Add: buildings, plant & machinery	1,030	1,030
RV	64,485	64,485

APPENDIX 2

Primary valuations of Ray William Willson FRICS FIME CEng

on behalf of the respondents

Bullcliffe Farm Extension
	£
86,632 t. at £6 URV	519,792
Less: 50%	259,896
RV	259,896
Add: buildings, plant & machinery	2,675
RV	262,571
Bullcliffe Farm
	£
68,398 t. at £6 URV	410,388
Less: disability allowance, 5%	20,519
URV	389,869
Less: 50%	194,935
RV	194,934
Add: buildings, plant & machinery	2,500
RV	197,434

West Farm
	£
58,147 t. at £6 URV	348,882
Less: 50%	174,441
RV	174,441
Add: buildings, plant & machinery	2,525
RV	176,966
Thorntree Hill
	£
(i) 109,283 t. at £6 URV	655,698
Less: 50%	327,849
RV	327,849
Add: buildings, plant & machinery	2,375
RV	330,224
(ii) 79,035 t at £6 URV	474,210
Less: 50%	237,105
RV	237,105
Add: buildings, plant &machinery	2,375
RV	239,480

Birkwood Farm
	£
62,376 t. at £6 URV	374,256
Less: disability allowance, 10%	37,426
URV	336,830
Less: 50%	168,415
RV	168,415
Add: buildings, plant & machinery	2,350
RV	170,765

Bromley Fell Plantation
	£
64,487 t. at £6 URV	386,922
Less: disability allowance, 20%	77,384
URV	309,538
Less: 50%	154,769
RV	154,769
Add: buildings, plant & machinery	1,030
RV	155,799

APPENDIX 3

Alternative valuations (amended) of Ray William Willson FRICS FIME CEng

on behalf of the respondents

Bullcliffe Farm Extension
	£ per tonne
Coal price	32.80
Less: costs	17.57
Divisible balance	15.23
Less: tenant's share, 50%	7.62
Royalty rent	7.61
	£
86,632 t. at £7.61 URV	659,269
Less: buildings, plant & machinery	2,675
URV	656,594
Less: 50%	328,297
RV	328,297
Add: buildings, plant & machinery	2,675
RV	330,972

Mr Willson's original figures, RV £315,853 & £333,533
Bullcliffe Farm
	£ per tonne
Coal price	33.18
Less: costs	16.90
Divisible balance	16.28
Less: tenant's share, 50%	8.14
Royalty rent	8.14
	£
68,398 t. at £8.14 URV	556,760
Less: buildings, plant & machinery	2,500
URV	553,260
Less: 50%	276,630
RV	276,630
Add: buildings, plant & machinery	2,500
RV	279,130

Mr Willson's original figures, RV £232,350 & £248,285

West Farm
	£ per tonne
Coal price	27.74
Less: costs	11.76
Divisible balance	15.98
Less: tenant's share, 50%	7.99
Royalty rent	7.99
	£
58,147 t. at £7.99 URV	464,594
Less: buildings, plant & machinery	2.525
URV	462,069
Less: 50%	231,035
RV	231,034
Add: buildings, plant & machinery	2,525
RV	233,559

Mr Willson's original figures, RV £233,589 & £247,706

Thorntree Hill
	£ per tonne
Coal price	28.96
Less: costs	18.62
Divisible balance	11.34
Less: tenant's share, 50%	5.67
Royalty rent	5.67
	£
(i) 109,283 t. at £5.67 URV	619,635
Less: buildings, plant & machinery	2,375
URV	617,260
Less: 50%	308,630
RV	308,630
Add: buildings, plant & machinery	2,375
RV	311,005
Mr Willson's original figure, RV £320,199

(ii) 79,035 t at £5.67 URV	448,128
Less: buildings, plant & machinery	2,375
URV	445,753
Less: 50%	222,877
RV	222,876
Add: buildings, plant &machinery	2,375
RV	225,251
Mr Willson's original figure, RV £231,573

Birkwood Farm
	£ per tonne
Coal price	28.24
Less: costs	15.19
Divisible balance	12.33
Less: tenant's share, 50%	6.17
Royalty rent	6.16

	£
62,376 t. at £6.16 URV	384,236
Less: buildings, plant & machinery	2,350
URV	381,886
Less: 50%	190,943
RV	190,943
Add: buildings, plant & machinery	2,350
RV	193,293

Mr Willson's original figures, RV £179,055 & £203,970

Bromley Fell Plantation
	£ per tonne
Coal price	28.80
Less: costs	16.90
Divisible balance	11.90
Less: tenant's share, 50%	5.95
Royalty rent	5.95

	£
64,487 t. at £5.95 URV	383,698
Less: buildings, plant & machinery	1,030
URV	382,668
Less: 50%	191,334
RV	191,334
Add: buildings, plant & machinery	1,030
RV	192,364

Mr Willson's original figures, RV £166,531 & £235,378

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	England and Wales Lands Tribunal
You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> H J Banks & Company Ltd v Speight & Anor [2005] EWLands RA_239_1995 (31 January 2005) URL: http://www.bailii.org/ew/cases/EWLands/2005/RA_239_1995.html Cite as: [2005] EWLands RA_239_1995