Case No: C3/2015/1126/LATRF
Neutral Citation Number: [2016] EWCA Civ 1150
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
DEPUTY PRESIDENT MARTIN RODGER QC and MR McCREA FRICS
CASE No: RA/61/2012
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 23/11/2016

Before:

THE CHANCELLOR OF THE HIGH COURT
LADY JUSTICE GLOSTER 
and
LADY JUSTICE SHARP

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Between:

	ICELAND FOODS LIMITED

	Appellant	
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JANE A BERRY (VALUATION OFFICER)

Respondent

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Mr Daniel Kolinsky QC and Mr Luke Wilcox (instructed by TLT LLP) for Iceland Foods Limited
Mr Tim Morshead QC and Mr Zack Simons (instructed by HMRC Solicitor) for the Valuation Officer

Hearing dates: 9th and 10th November 2016

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Judgment
Sir Geoffrey Vos, Chancellor of the High Court: 
1.	The central issue in this appeal can be shortly stated.  It is whether the air handling system used by Iceland Foods Limited (“Iceland”) in its retail store at 4 Penketh Drive, Liverpool (the “premises”) is plant or machinery “used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes” within the meaning of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (the “2000 Regulations”).  The Valuation Tribunal for England (“VTE”) decided on 18th October 2012 that it was, but the Upper Tribunal (Lands Chamber) reversed that decision on 14th January 2015 concluding that it was not.   Iceland now appeal to this court contending, in essence, that its air handling system is plant used “in connection with services mainly or exclusively as part of [its] trade processes”.  If Iceland is right, the air handling system would be ignored in calculating the rateable value of the premises.  If the respondent Valuation Officer, Ms Jane Berry (the “VO”) is right, a value would be attributed to the air handling system thereby increasing the rateable value of the premises.
2.	It is common ground that the appeal to the Upper Tribunal was an appeal under regulation 42 of the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) Regulations 2009 (SI 2269/2009).  By regulation 42(5) the Upper Tribunal had the power to confirm, vary, set aside, revoke or remit the VTE’s order.  In fact, the Upper Tribunal allowed the appeal in part and made new findings of fact, which are not challenged before us.  It is, therefore, not necessary for us to consider the detail of the VTE’s decision.  The Upper Tribunal determined that the premises were to be entered in the local non-domestic rating list with a rateable value of £104,000 with effect from 1st April 2010.  The VTE had ordered the VO to reduce the assessment of the premises from a rateable value of £108,000 to a rateable value of £98,000 with effect from 1st April 2010.   
3.	The figures are not, however, in issue before us.  All we have to decide is the question of the proper construction of the 2000 Regulations.  Before dealing with that question, however, I shall need to set out the factual background, which I am able to take directly from the decision of the Upper Tribunal as follows:-
“8. Iceland is a well-known supermarket operator specialising in the sale of refrigerated foods, both frozen and chilled, and, to a lesser extent, in the sale of general groceries. It operates from more than 800 stores in the UK and Ireland of which the appeal property is typical.
9. The [premises are] a small retail warehouse which forms part of a larger retail development known as the Speke Centre, comprising a mix of retail warehousing, smaller shops and a large Morrisons superstore, all surrounding a shared central car park. At the rear of the appeal property is a secure service yard which it shares with adjacent units.
10. The [premises have] a ground floor sales area of 449.25m2 with a single public entrance at the front, and a further 134.62m2 of ancillary accommodation arranged on one side at the rear which provides staff rooms, a small office and goods-in and storage areas … 
11. Iceland took occupation of the [premises] in May 2007 under a 10-year lease on full repairing and insuring terms at an annual rent of £109,216. The appeal property was let in a shell condition and as part of its fitting out works Iceland installed an air handling system designed with its own style of trading in mind. 
12. The air handling system provides a ventilating, heating and cooling service to the [premises], and comprises three main elements. A large air handling unit with a mechanical cooling capacity of approximately 85 kW is located outside and to the rear of the building; this unit serves a network of ducts by which warm or cold air is supplied to and extracted from the retail area through an array of ceiling mounted diffusers and grilles. On our inspection we were able to observe the air handling unit and to contrast it with the very much smaller units on the rear walls of adjoining stores - one of which is considerably larger than the [premises]. Iceland’s equipment occupies its own fenced compound and in size and shape resembles a very large refuse skip (4.5 metres by 2.35 metres in area) from which rise two vertical supply and return air ducts, each a metre square, which enter the rear wall of the building 4 metres above the ground. A separate but linked mechanical extract system is located at the rear of the retail area, furthest from the entrance, to deal with the removal of excess heat in that area. Finally, the whole system is controlled by means of a computerised control unit located adjacent to the air handling unit. …
14. The opening hours of the store vary from day to day but in a typical week the store trades for 67.5 hours over 7 days. Staff will usually be present for a further two hours a day outside opening hours for cleaning, loading cabinets and other tasks. In total, therefore, customers or staff will typically be present in the store for a little under half of the total hours in a week. 
15. Although Iceland stocks a modest selection of general or “ambient” groceries, its business is mainly focused on the sale of refrigerated products which represent roughly 80% of its sales by value, divided evenly between chilled and frozen lines. 
16. Frozen and chilled products are stored and displayed in refrigerated cabinets arranged around the perimeter of the sales floor and in four aisles running from front to rear. The total number of these refrigerated cabinets has fluctuated between 79 and 84 since the store opened in 2007. As at 1 April 2010 there were 82 cabinets comprising 71 glass topped “integral” freezer cabinets, 3 open topped “integral” freezer cabinets, 7 open-fronted multi-deck “integral” chiller cabinets and one “remote” roll-in milk chiller. 
17. All of the equipment in use at the [premises] on the material day was classified as “climate class 3” under the main British and European test standard used for testing retail display cabinets. This classification indicates that the cabinets are designed to operate at a surrounding air temperature of up to 25º C. …
18. The description of some refrigerated display cabinets as “integral” and others as “remote” is of significance. The object of any refrigerator is to maintain the internal temperature (and thus that of the goods stored in it) at the desired level by absorbing heat from within the cabinet and expelling it outside the cabinet by means of a condenser. Integral cabinets achieve this using refrigeration equipment and condensers installed within the body of the cabinet itself, and by expelling heat to the environment immediately surrounding the cabinet. Remote cabinets, in contrast, employ refrigeration equipment at a distance from the cabinets; heat is absorbed by a liquid refrigerant which is conveyed to the cabinet through pipes permanently installed in the store and is expelled remotely through condensers located outside the building. 
19. The advantages of integral over remote cabinets include flexibility, in that integral cabinets can be easily unplugged and moved around or replaced, whereas remote cabinets depend on their connection to a fixed network of pipes and centralised plant. Integral cabinets also minimise the risk of loss of stock in the event of refrigeration failure, as each cabinet is self-contained and operates independently. The disadvantage of integral cabinets is that not only do they generate heat in their own right, but the heat which they absorb from within is expelled from beneath or behind the cabinet into the surrounding space, causing the temperature of that space to rise. 
20. As integral cabinets are designed to operate below a particular ambient temperature (25º C in the case of Iceland’s climate class 3 cabinets) the heat generated by the cabinets themselves must be controlled to ensure that they perform as intended and do not malfunction. Where a large number of integral cabinets is present in a confined space, it is necessary to provide an air handling system with a correspondingly large cooling capacity. If the design parameters of the cabinets are exceeded the permitted product storage temperature within the cabinets may be breached causing a deterioration in the quality of the products stored or displayed in them. 
21. Iceland values the flexibility and lower capital cost associated with integral cabinets and they represent the great majority of the refrigerated cabinets in almost all of its stores. [On the premises] only the milk-chiller operates on the “remote” principle, with pipework allowing heat to be rejected outside the building. The remaining 81 cabinets are of the integral variety and reject heat directly into the sales floor. 
22. The air handling system functions at all times, day and night. It is designed and programmed to maintain the store temperature during trading hours at an acceptable level for both the functioning of the refrigerated cabinets and the comfort of staff and customers, within a range between 18ºC and 23 ºC. This range is reduced to between 16º and 23ºC outside trading hours. 
23. The temperature of the air extracted from the store is measured by a single sensor in the return air duct. As the air in that part of the return duct has been drawn from all parts of the store, the sensor is unable to gauge the temperature on different parts of the shop floor. It is agreed that the temperature range across the floor will vary by +/- 2º. The air handling system has no localised cooling or heating capacity (although additional heating is provided by a heat curtain over the door and by separate fan heaters above the check-out area, neither of which is part of the air handling system). 
24. To achieve the acceptable temperature range during trading periods Iceland’s control strategy targets a temperature within the store of 21ºC which is in the middle of the range of comfortable temperatures for staff and customers recommended by the Chartered Institute of Building Services Engineers. 
25. For the majority of the time an acceptable temperature is maintained on the sales floor without the use of mechanical cooling; warm air is extracted through the ducts and replaced by cooler fresh air from outside the building (a technique referred to as “free cooling”). At 21ºC mechanical cooling commences, with full cooling capacity becoming engaged when an average temperature of 23ºC is reached. By aiming to maintain a target temperature of 21ºC during trading hours Iceland seeks to ensure that the maximum temperature at which the cabinets are designed to function is not exceeded (or at least not exceeded regularly or for prolonged periods). 
26. Test data suggests that mechanical cooling was required on 123 days in a year, of which on 106 days mechanical cooling was required at times when the store was not trading. 
27. The air handling system also contains two 12kW electric heaters. When the temperature within the store falls below 18.4ºC during trading hours the heating function is engaged. Because the cabinets generate their own heat within the store the need for additional heating occurs relatively infrequently and is engaged for only 2% of the time (about 3% of trading time). No heating is employed outside trading hours. 
28. The cabinets would operate comfortably at much lower temperatures than the 21ºC targeted during trading hours or the 18.4ºC at which the air handling system is designed to commence heating.
29. … It is sufficient to note that a substantial proportion of the heat load was generated by sources other than the cabinets, although these were by far the largest single contributor, exceeding half of the total on some approaches to the assessment and by any measure accounting for between about 40% and about 60% of the heat which required to be dealt with within the store. It is also clear that, without the integral cabinets, the air handling system installed in the store would not be required and a very much smaller system would be sufficient.” 

The relevant statutory rating provisions
4.	Schedule 6 to the Local Government Finance Act 1988 (“Schedule 6”) determines the rateable value of non-domestic hereditaments.  Paragraph 2(1) of Schedule 6 provides that the rateable value shall be taken to be an amount equal to the amount at which it is estimated the hereditament might reasonably be expected to let from year to year on certain specified assumptions. 
5.	The 2000 Regulations made under paragraph 2(8) of Schedule 6 provided as follows:-
  	“2. For the purpose of determining the rateable value of a hereditament for any day on or after 1 April 2000 in applying the provisions of sub-paragraphs (1) to (7) of paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 - 

  	(a) In relation to a hereditament in or on which there is plant or machinery which belongs to any of the classes set out in the Schedule to these Regulations, the prescribed assumptions are that:

  	(i) any such plant or machinery is part of the hereditament; and

  	(ii) the value of any other plant and machinery has no effect on the rent to be estimated as required by paragraph 2(1); and

  	(b) in relation to any other hereditament, the prescribed assumption is that the value of any plant or machinery has no effect on the rent to be so estimated”.
6.	The Schedule to the Regulations categorises certain plant and machinery into four classes, all of which are to be assumed to be part of the hereditament. It is Class 2 that is of particular relevance to this case, but it is useful to note the provisions of Classes 1, 3 and 4 also.  I will start, however, with Class 2 which provides as follows:-
  	“2.	Plant and machinery specified in Table 2 below (together with the appliances and structures accessory to such plant or machinery and specified in paragraph 2 of the List of Accessories set out below) which is used or intended to be used in connection with services to the hereditament or part of it, other than any such plant or machinery which is in or on the hereditament and is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes.

  	In this Class, “services” means heating, cooling, ventilating, lighting, draining or supplying of water and protection from trespass, criminal damage, theft, fire or other hazard.”

7.	The plant and machinery specified in Table 2 under Class 2 includes under the heading “Heating, Cooling and Ventilating” (i) water heaters, (v) refrigerating machines, (vii) fans and blowers, (viii) air intakes, channels, ducts, gratings, louvres and outlets, (ix) plant for filtering, warming, cooling, humidifying, deodorising and perfuming, and for the chemical and bacteriological treatment of air, and (x) pipes and coils when used for causing or assisting air movement.   It also includes headings for service plant providing lighting, draining, supplying water and the protection from hazards.
8.	The List of Accessories relating to Class 2 includes (i) foundations and supports for plant and machinery (iii) travellers and cranes, (v) pipes, ducts, valves, filters, and coolers, and (viii) instruments and apparatus attached to the plant and machinery, including computers, meters, gauges, measuring and recording instruments, automatic or programmed controls, temperature indicators, alarms and relays.
9.	In broad terms, Class 1 specifies plant and machinery used for generating or storing power, and Class 3 specifies plant and machinery used for moving goods, electricity or fuel.  Class 4 specifies certain bulky items of plant and machinery such as blast furnaces, chimneys, fixed cranes, turntables, turbines and generators, but excludes smaller movable items and those that are not themselves in the nature of a building or structure. 
The Upper Tribunal’s decision
10.	The Upper Tribunal recorded that it was common ground that the air handling system was not used in relation to any manufacturing operation, and that it was not used exclusively in relation to trade processes.  The first question was, therefore, whether it was used at all as part of “trade processes”.  The secondary question was whether, if the air handling system was used as part of trade processes, it was used “mainly” as part of trade processes.  The second question was answered in the affirmative and there is no cross-appeal by the VO against that aspect of the decision.  This is potentially significant because of the way that Iceland argued its appeal.  
11.	The Upper Tribunal’s reasoning on the main question was contained at paragraphs 57-67 of its decision.  In outline, it held that:-
i)	The subjective labels attached to the plant and machinery did not assist.  The VO had called the air handling system an “air-conditioning system”, and Iceland had called it a “process cooling system”.
ii)	The expression “trade processes” was a composite one which ought to be interpreted as expressing a single, coherent concept in the context in which it is used, twinned with the cognate expression “manufacturing operations”.  The issue should not be addressed by asking first if the relevant activity is a “process”, and then by seeking to relate it to the trade of the ratepayer.  The relevant question was not whether the plant or machinery is used in connection with something which can be described as a process, for the benefit of someone conducting a trade (the Lands Tribunal in Hays v. Raley (VO) [1986] 1 EGLR 226 was wrong to say there was a two stage approach).
iii)	The scope of the general rule was that plant or machinery within any of the categories or classes set out in Schedule 6 is assumed to be part of the hereditament and therefore rateable.  Only plant or machinery not within any of the classes has no rateable value. There are limited exceptions, the most important of which is plant and machinery in connection with the supply of services used mainly or exclusively in connection with manufacturing operations or trade processes.
iv)	Considering the Regulations as a whole, it cannot have been intended that the exemption in Class 2 for manufacturing operations or trade processes should be interpreted so widely as to reduce the service plant and machinery liable to rating to such as has no trade connection at all. The consensus against that position highlights the difficulty of finding a satisfactory line to distinguish between uses which amount to trade processes and those which do not.  
v)	The statutory language speaks for itself, and must be applied to different situations as they arise.  Both the conjunction of the expression with manufacturing operations and the fact that it is an exception to a general rule point to a less expansive approach to the scope of trade processes.  
vi)	The common defining characteristic of manufacturing operations and trade processes is activity bringing about a transition from one state or condition to another, including by the creation, completion, repair or improvement of the subject matter of that activity.  While there may be exceptions, the display or storage of goods in itself could not ordinarily be said to involve any trade process.  The creation of an environment conducive to the display or storage of goods (at least in the context of a retail warehouse) is not properly regarded as involving a trade process. The fact that the environment appropriate to the storage and display of the goods of a particular retailer requires more substantial or powerful equipment than is normally found in retail premises does not create a relevant distinction.  The fact that the equipment in which the goods are stored and displayed depends for its efficient operation on the maintenance of a particular environment also does not give rise to such a distinction.  The fact that the plant and equipment was mainly for the preservation of the cabinets, rather than the stock within them, made it more difficult to regard it as being used in connection with trade processes.
vii)	Since all retail warehouses require heating, cooling and ventilation, the plant and machinery installed to provide those services cannot properly be regarded as being used as part of manufacturing operations or trade processes. The fact that Iceland’s premises have a large number of integral cabinets creating heat, so that malfunction of the air handling system would put its stock at risk, is not a critical difference.  Iceland’s particular needs create a greater need for air handling services than the norm, but that did not make its air handling system an exception to the general rule that such plant and machinery is to be assumed to be part of the hereditament and therefore rateable.
Iceland’s argument
12.	Iceland mounted three main attacks on the decision of the Upper Tribunal which can be summarised as follows:-
i)	It approached the meaning of “trade processes” in an unduly restrictive way, regarding it as an exception for plant and machinery used in the tenant’s business rather than accepting that the words being construed were simply a proviso to the main provisions in Class 2.
ii)	It was wrong to consider that the common defining characteristic of manufacturing operations and trade processes was “activity bringing about a transition from one state or condition to another”.
iii)	It wrongly thought that it was relevant to suggest that the air handling system was more remote from Iceland’s trade process, because it was cooling the hot air produced by the storage cabinets rather than cooling any hot air produced by the preservation of the frozen food itself. 
13.	In the course of oral argument, I pressed Mr Daniel Kolinsky QC, leading counsel for Iceland, to say what Iceland submitted was the “trade process” it was undertaking at the premises within the proper meaning of the 2000 Regulations.  Ultimately he said that the relevant trade process was “the application of a continuous treatment of refrigeration at all times using equipment to maintain food in an artificial condition where but for the refrigeration it would be rendered worthless”.
14.	In support of its contention that the Upper Tribunal’s approach to the meaning of the term “trade processes” was unduly restrictive, Iceland relied on a chronological analysis of the approach to the rating of plant and machinery as showing how the 2000 Regulations fit with the pre-existing legal position.  The analysis began before 1925, when it was submitted that rateability of plant and machinery was determined by reference to whether or not it was attached to the land.  Mr Kolinsky referred to the case of Kirby v. Hunslet Union Assessment Committee [1906] A.C. 43 at 49 as a “game changer”, because that case decided that a tenant’s machinery could, even if not affixed to the land, be rateable.  
15.	Kirby was followed by the report of the Inter-Departmental Committee on the Rating of Machinery and Plant in England and Wales on 6th February 1925 (the “Shortt report”), to which both parties made extensive reference.  Mr Kolinsky relied particularly on the recommendation at paragraph 15 of the Shortt report to the effect that there was practical agreement that the principle was recognised as being to include as rateable such plant as the landlord would normally provide called “motive power”, and to exclude from rateability “process” machinery.  The report continued by saying that the only practicable plan was to define certain classes of machinery and plant by reference to the purposes they served.
16.	The Shortt report was followed by section 24 of the Rating and Valuation Act 1925 (the “1925 Act”) which provided as follows:- 
“For the purpose of the making or revision of valuation lists under this Part of this Act, the following provisions shall have effect with respect to the valuation of any hereditament …:-
(a) All such plant or machinery in or on the hereditament as belongs to any of the classes specified in the Third Schedule to this Act shall be deemed to be a part of the hereditament.
(b) Subject as aforesaid, no account shall be taken of the value of any plant or machinery in or on the hereditament.
17.	The Third Schedule to the 1925 Act provided as follows:-
“CLASSES OF MACHINERY AND PLANT TO BE DEEMED TO BE PART OF THE HEREDITAMENT.
1. Machinery and plant (together with the shafting, pipes, cables, wires, and other appliances and structures accessory thereto) which is used or intended to be used, mainly or exclusively in connection with any of the following purposes, that is to say:-
(a) the generation, storage, primary transformation or main transmission of power in or on the hereditament; or
(b) the heating, cooling, ventilating, lighting, draining, or supplying of water to the land or buildings of which the hereditament consists, or the protecting of the hereditament from fire:
Provided that, in the case of machinery or plant which is in or on the hereditament for the purpose of manufacturing operations or trade processes, the fact that it is used in connection with those operations or processes for the purpose of heating, cooling, ventilating, lighting, supplying water, or protecting from fire shall not cause it to be treated as falling within the classes of machinery or plant specified in this Schedule.”
18.	Iceland invited the court to have regard to a debate in the House of Commons that gave rise to these provisions of the 1925 Act on the basis of the principles in Pepper v. Hart [1993] A.C. 593, though the point was not much pressed in oral argument.  Intriguingly, the passage relied upon was a statement by Mr Neville Chamberlain M.P., then the responsible Government minister, who said this in the Standing Committee on 4th August 1925:-
“One word with regard to the second paragraph, which deals with heating, lighting, cooling and so forth. I understand that the new words which my Hon. Friend desires to introduce are for the purpose of excluding from the clause such processes as really belong to the precise work which is being carried on in the shops, no part of the general heating or ventilating of the plant, but where, for instance, a man is polishing at a buff, and there is a fan drawing off the dust so that it shall not go down his throat, that is to be treated as part of the machinery, and not as part of the heating or ventilating plant which is run. That seems to me to be quite reasonable, and if he will accept the words which I will suggest to him, instead of his own words, then I would propose to accept his amendment.”
19.	Iceland suggests that the Third Schedule to the 1925 Act refers to the provision of services to the hereditament, which it submits is consistent with the principle that rateability of plant is tied to the notion of the usual provision by the landlord.
20.	Iceland then placed reliance on the post-1925 case of Townley Mill Co (1919) Ltd v. Assessment Committee for the Assessment Area of Oldham [1936] 1 K.B. 585 (Divisional Court), [1937] A.C. 419 (House of Lords).  In the Divisional Court, Lord Hewart CJ (with whom Hawke and Lawrence JJ. agreed) said this at pages 598, 602-3:
“When one turns to the Third Schedule of the [1925] Act, it is apparent that it enumerates that type of machinery and plant which is conveniently described in the case as motive machinery; it is the machinery without which the mill could not begin to work, as, for example, the generation of power, heating and cooling, lifts and elevators, railways, tramlines and tracks, and other things, the foundation of that which was to become the work of the mill. When the machinery and plant referred to in the Third Schedule are eliminated, what is left is the kind of machinery which is concisely described in this case as process plant and machinery, operative plant and machinery, working and manufacturing plant and machinery.” 

“… the effect of this [1925] Act, intended to be an Act beneficial to those interested in the carrying on of industry, was to get rid of all the doctrine of enhanced value and to lay it down that what is called process plant and machinery must henceforth be disregarded where the problem is to ascertain the rateable value of the hereditament where plant and machinery are used. It is nothing to the purpose, in my opinion, to say apart from the use of the machinery and plant, there may be buildings called warehouses which for other commercial purposes do store or keep dry machinery and plant. It is not to be said that they are not to be rated because they contain machinery and plant. Of course, that could not be said. We are concerned with the rating of a hereditament which contains machinery and plant for the purpose of the carrying on of the work in that hereditament. The statute, in my opinion, makes it quite plain that in such a case and for such purposes, process plant and machinery are to be excluded.”

21.	Lord Russell of Killowen said this at pages 428 and 429 in the House of Lords (reinstating and agreeing with the Divisional Court’s decision):-
“The plant and machinery referred to in [section 24 of the 1925 Act] include plant and machinery whose function is, not to execute any manufacturing operation or trade process, but to generate and transmit power to, or to warm, or cool, or ventilate, or light, etc., the hereditaments in question. They may be conveniently called “motive plant and machinery,” while manufacturing or trade process plant and machinery may be conveniently referred to as “process plant and machinery.”” …

“The Lord Chief Justice … thought that on the construction of s. 24 the matter was plain, and that on its clear language the object of the section was to get rid of the old doctrine that although machinery not forming part of a hereditament could not be rated, nevertheless the rateable value of a hereditament was to be enhanced by reference to the machinery which was in it, and which made it appropriate to the particular industry carried on therein. Under the section motive plant and machinery is to be deemed part of the hereditament which is being valued; as to process plant and machinery, no account is to be taken of its value with respect to the valuation of the hereditament.”

22.	Section 24 of and the Third Schedule to the 1925 Act were then replaced by similar language in section 21 and schedule 3 to the General Rate Act 1967, before the provisions were ultimately moved into secondary legislation by the Local Government Finance Act 1988.  Iceland places reliance on the wording of Class 1B in the original Valuation for Rating (Plant and Machinery) Regulations 1989, though I cannot see that it differs in substance from the wording employed in the Third Schedule to the 1925 Act. 
23.	Next, Iceland relied on the terms of Mr Derek Wood QC’s report on the rating of plant and machinery prepared for the government in 1993 (the “Wood report”), which drew attention to the arbitrary line that had been drawn to indicate where plant or machinery is or is not rateable when it is installed for the purpose of providing general services, such as light, heat or ventilation, but is also closely bound up with the trade process.  Mr Wood pointed out at paragraph 8.8 the impossibility in practical terms at some point of disentangling the service from the process function.  Mr Wood then said this at paragraph 9.11, a passage particularly relied upon by Mr Kolinsky:-
“It appears to us that the underlying purpose of this lengthy definition [of Class 1B plant] is to ensure that service plant or machinery, other than plant which mainly or exclusively provides services for manufacturing operations or trade processes, is rated. The definition is not, however, free from ambiguity, and has opened the door to disputes about when plant should be treated as falling under Class 1B. An example of the problems created is in the treatment of air-conditioning plant. This may have been installed to facilitate a particular process – for instance computer suites or clean rooms – or to enhance the working conditions of employees but it is impossible to distinguish between these purposes.”
24.	The Valuation for Rating (Plant and Machinery) Regulations 1994 followed the Wood report and incorporated its recommendations.  The wording of the 2000 Regulations largely reflected the terms of the 1994 Regulations.
25.	Against this historical background, Iceland seek to advance the following general propositions:
i)	A core underlying purpose of the statutory intervention into the rating of plant and machinery was to ensure that plant is rateable only to the extent that the notional landlord for the type of property in question would usually provide it;
ii)	By contrast, where plant is present in the hereditament to facilitate the particular business of the actual occupier, it was intended to be non-rateable;
iii)	The distinction is traditionally reflected in the terms “motive” plant (which is rateable) and “process” plant (which is not), which underpinned the 1925 Act and led to the introduction into the statutory scheme of “manufacturing operations or trade processes” as a test for distinguishing between rateable and non-rateable plant;
iv)	In the case of service plant, such as Iceland’s air handling system, the distinction is between plant which serves the hereditament (which is rateable) and plant which serves the occupier (which is not).  This is the effect of the words “used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes” now found in the Regulations.
26.	In further support of these propositions, Iceland relied on Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 366, where Lord Pearce referred at page 382 to the distinction between the essential human realities which are taken into account for rating purposes (e.g. the fact that a house is more desirable because it is by the sea) and the accidental human realities which are not (e.g. that the owner was shrewd or rich).
27.	Finally, Iceland relied on four cases with facts closer to our own:-
i)	In Union Cold Storage Co. Ltd v. Assessment Committee of the Metropolitan Borough of Southwark [1932] R&IT 160, a Divisional Court of the Queen’s Bench Division considered what is now Class 4 of the 2000 Regulations in relation to the rateability of certain cooling chambers in a warehouse used for storing food.  Only Macnaughten J said anything substantive about the cold storage plant and refrigerating plant in the building at page 164 where he recorded that it was “admittedly plant on the hereditament for the purpose of manufacturing operations or trade processes” (emphasis added).  The report does not reveal precisely what went on at the premises, but it appears that 25% of what was undertaken there may have been freezing food and the remaining 75% storing food.
ii)	In Union Cold Storage Ltd v. Bancroft [1931] AC 446, the House of Lords considered whether refrigeration equipment was for storage purposes or for the purposes of altering or adapting goods for sale.  It concluded that it was for storage purposes, although the refrigeration was described as being by means of an “elaborate process” and it was accepted that a freezing process might alter the goods (Viscount Dunedin at page 492-3). 
iii)	In Leda Properties Ltd v. Howells (VO) [2009] RA 165, the parties agreed that a sophisticated air handling system of a computer hall which was recorded as providing “the temperature and humidity control necessary for process purposes” was not rateable (see paragraphs 3 and 11).   The case is referred to in the VOA’s Rating Manual at paragraph 7.5 of volume 4, section 3.  
iv)	In Assessor for Lothian Region v. BP Oil Grangemouth Refinery Ltd (1985) SLT 453, the Scottish Lands Tribunal proceeded on the basis that a marine terminal at a petrochemical works used solely for the purpose of loading refined oil was “premises which were used in an industrial or trade process” (see Lord Ross at page 459). 

The VO’s argument
28.	The VO submitted that Iceland’s submissions raise issues that were never argued in the hearings below, and should be disregarded as they could or should have been supported by evidence.  This point was not pressed in oral argument.  The VO argued more substantively that the Upper Tribunal’s decision was correct and should be accorded particular respect as an expert tribunal operating in this specialist field.  The term “trade processes” provides for a narrow exception from rateability, which if construed too broadly would frustrate the function of the general rule and be a misuse of language.  As a matter of ordinary language a retailer who keeps stock-in-trade is engaged in trade, not in trade processes.   This is so, whether or not the stock has to be kept at a particular temperature.  If Iceland were right, it would reduce rateability of Class 2 items to a “residual category of service plant and machinery with no trade connection at all”.   
29.	The VO submits that the 2000 Regulations use the term “trade processes” to capture a concept close to “manufacturing operations”, so that the former might refer to mending a chattel and the latter to its manufacture.  Maintaining the temperature of stock exposed for retail sale is far from these concepts.  If Iceland were right, the word “processes” would be redundant in the definition and all that would be asked was whether the plant and machinery was used mainly in connection with Iceland’s trade.
30.	The VO then relies on Godiva (UK) Limited v. City of London (VO) 20th December 1991 where the Valuation Tribunal decided that air-conditioning plant used to keep chocolate cool in a chocolate shop was rateable.  She also relies on cases concerning the meaning of the word “process” in relation to exemptions from capital allowances, where the word embodied the concept of taking a step in or towards the manufacture and sale of something (see, for example, Lindsay J in Girobank plc v. Clarke [1996] STC 540 at 551, though the Court of Appeal expressed no view on the point at [1998] 1 W.L.R. 942 at 948 per Nourse LJ, with whom Schiemann and Brooke LJJ agreed).
31.	In oral argument, Mr Tim Morshead QC, leading counsel for the VO, submitted that Iceland’s historical analysis supported his own case.  All that he said it showed was that:-
i)	The paradigm case in the mind of the legislature is and always has been “industry”, so that it should come as no surprise if Iceland cannot fit its retail operation into that regime;
ii)	The background material does not show that one should ask whether the air handling system serves the hereditament or the occupier, but whether it is a tool of the occupier’s trade;
iii)	The policy of the legislature has been to create a narrow exception to redress a perceived imbalance between industry on the one hand and other forms of commerce on the other, not to confer a benefit on one kind of retail operation over other kinds.
In support of these propositions, Mr Morshead referred us to various sections of the Shortt report and the Wood report that did indeed refer to the disproportionate burden borne by industry.  In 1925 that may have been the result of the Kirby decision, but that was not the case thereafter.  It was then as a result of the drafting of the 1925 Act and the subsequent regulations.  I would note in this connection that Mr Wood’s recommendations changed that drafting to introduce the current wording where the “proviso”, rather than the main provision, included the requirement that the service plant be “mainly” used for manufacturing operations or trade processes. 
Discussion
32.	The starting point for any question of statutory construction must be the words of the statute and the regulation being construed.  I shall not repeat them, but it is important to understand that the scheme of the 2000 Regulations is that the plant and machinery described in the four scheduled Classes is rateable as part of the hereditament (see paragraph 2(a)(i)).  Class 2 makes rateable certain plant and machinery used “in connection with services to the hereditament”. It contains a general exception prefaced by the words “other than”, which is for “any such plant or machinery which is in or on the hereditament and is used … in connection with services mainly or exclusively as part of manufacturing operations or trade processes”.  Class 1 makes clear that plant and machinery used for generation, storage or transmission of power is rateable.  Class 3 makes certain transportation and distribution equipment rateable.  Class 4 concerns other specialist industrial equipment where it is or is part of a building or structure.  Within Class 2 itself, the items of plant and machinery enumerated as rateable in Table 2 include all kinds of heating, cooling and ventilating, lighting, water supply, draining and hazard protection equipment.  At first sight, therefore, it would seem that plant and machinery used to keep the air in a building within a particular temperature range would be “used in connection with services to the hereditament” and, therefore, rateable.  Moreover, at first sight, the exception for “plant or machinery … used in connection with services mainly or exclusively as part of manufacturing operations or trade processes” would seem to be directed towards services used as part of some manufacturing or process activity undertaken by the occupier on the hereditament.   
33.	It is important then to see whether the authorities or the legislative history shed any light on the proper meaning of “trade processes”.  I have followed carefully Iceland’s historical argument, and I do not accept the VO’s submission that it was not open to Iceland to advance it.  It is useful for the court to see how legislation of this kind has come about.  It does not, however, mean that the usual principles of statutory construction are supplanted.  And even more importantly, I do not think that the historical argument supports Iceland’s case.  Indeed, rather the reverse.
34.	It is not necessary to look at Mr Chamberlain’s speech to the Standing Committee to see that the Third Schedule to the 1925 Act made plant and machinery used or intended mainly or exclusively for the heating, cooling, and ventilating of the hereditament rateable, except where the plant or machinery was on the hereditament for the purpose of manufacturing operations or trade processes.  In that situation, the fact that it was used in connection with those “operations or processes” for the purpose of heating, cooling, or ventilating did not make it rateable.  Mr Chamberlain’s example of a “man … polishing at a buff [with] is a fan drawing off the dust so that it shall not go down his throat” would be a classic example of ventilation equipment used in connection with a manufacturing operation or a trade process, but there could have been numerous other similar examples, so no assistance is gained from the reference, interesting though it was.  Iceland may be right to say that the 1925 Act made plant and equipment rateable where it provided services to the hereditament, which the landlord might usually provide, but that does not assist with the determination in a case like this of whether or not the particular air handling system is being used here as part of a trade process.
35.	Nor do I gain much assistance from the several dicta extracted from Townley Mill Co (1919) Ltd v. Assessment Committee for the Assessment Area of Oldham supra.  They demonstrate no more than is reasonably clear from the words of the 1925 Act, namely that plant and machinery whose function is not to execute any manufacturing operation or trade process, but is to warm or cool the air in or to ventilate the hereditament are rateable.  The high point for Mr Kolinsky was when Lord Russell suggested that “the object of [section 24] was to get rid of the old doctrine [see the Kirby case] that … the rateable value of a hereditament was to be enhanced by reference to the machinery which was in it, and which made it appropriate to the particular industry carried on therein”.   But that begs the question of whether the plant and machinery in this case “made [the hereditament] appropriate to the particular industry carried on therein”, and whether, under the 2000 Regulations, there was a trade process going on at the premises at all.  Mr Morshead was, in my judgment, right to point out that these rating provisions were about industrial operations and processes, and the exclusion was, originally at least, intended for the tenant’s tools of the trade.
36.	I turn then to consider the Wood report which does admittedly use an air-conditioning plant “installed to facilitate a particular process” such as a computer suite or clean room as an example of an ambiguity in the definition in the 1989 Regulations.  But again I am far from sure that Mr Wood QC was suggesting that a computer suite was something that obviously constituted a “trade process”.  But even if he was, his view can hardly be regarded as conclusive, since it was expressed in the context of legislation that he regarded as ambiguous.
37.	Lady Justice Gloster asked Mr Morshead in the course of argument whether air conditioning equipment used to keep a modern trading floor packed with computer screens cool would properly be regarded as plant used as part of a trade process.  His answer was that it might be and that it would depend on evidence as to what the process was that the computers were undertaking.  Mr Kolinsky broadly agreed in reply saying that if the computers were data processing, it would be a trade process and that it might well be even if they were just executing trades.
38.	I do not think we need to decide the question of whether an air conditioning system, even a sophisticated one, used to cool computers would or would not be used as part of a trade process.  When, however, it comes to Mr Kolinsky’s core arguments, it may be observed that they are framed using rather partial shorthand.  First, there is nothing to suggest that the underlying statutory purpose was to ensure that plant was rateable “only” to the extent that a notional landlord would “usually” provide it.  Most service plant is rateable.  The question is the extent of the exception.  Secondly, it is not right to say that “where plant is present in the hereditament to facilitate the particular business of the actual occupier” it was intended to be non-rateable.  All heating, cooling and ventilating plant is present to facilitate the business (particular or otherwise) of the occupier.  The statement begs the question of when such plant is used mainly or exclusively as part of a trade process.  The same applies to Iceland’s summary submission to the effect that if the plant serves the hereditament it is rateable, but that if it serves the occupier it is not.  Plant that serves the hereditament necessarily also serves the occupier.  The old-fashioned distinction between “motive” and “process” plant is certainly helpful, but it does not answer the statutory question before us.
39.	So far as the numerous more modern cases cited to us are concerned, I have gained only limited assistance from them.  Those from different contexts seeking to define the word “process” do not help when the phrase to be construed is “trade process”.  The rating cases have not fully considered the question.  The point was conceded in Leda Properties in relation to a sophisticated air handling system used for a computer hall, and the Godiva case points against Iceland’s submissions. 
40.	In these circumstances, we are very much left, as was the Upper Tribunal, to the usual principles of construction.
41.	I do not think that the Upper Tribunal said that the common defining characteristic of all manufacturing operations and trade processes was activity bringing about a transition from one state or condition to another.  It allowed, quite rightly, as would I, for the possibility of exceptions.  I am not sure that it is easy to imagine all the possible trade processes that may exist.  Manufacturing operations and trade processes are activities that will normally bring about a transition from one state or condition to another, but I would not wish to say with certainty that that will always be the case.   I am also sure that manufacturing operations and trade processes will normally include the creation, completion, repair or improvement of the subject matter of that activity.  
42.	Subject to what I have just said, I find myself in substantial agreement with the reasoning of the Upper Tribunal that I have summarised in paragraph [10] above.  The relevant sub-clause is indeed an exception, not a proviso.  The cases referring to a proviso were considering statutes or regulations that used the words “provided that” rather than “other than” as in the 2000 Regulation.  The distinction is anyway not material.  The carve out (to use a neutral word) in Class 2 should be construed quite narrowly, and certainly not so broadly as to deprive the rateability provisions for service plant in the schedule to the 2000 Regulations of proper effect.  
43.	I also very much endorse the Upper Tribunal’s view that the statutory language should speak for itself, and should be applied to different situations as they arise.  
44.	There is, however, one point on which I specifically agree with Mr Kolinsky.  He is right to say that, insofar as the Upper Tribunal thought that the remoteness of the air handling system from the alleged trade process was relevant, they were wrong.  I cannot see why it should matter that the air handling system is to cool the warm air expelled from the freezer cabinets rather than to cool the stock itself. 
45.	As it seems to me, however, the display of goods for retail sale is the antithesis of a trade process.  One might imagine examples of the creation of an appropriate environment for particular goods as amounting to a trade process; for example, if there were equipment to create bottled liquid nitrogen from gaseous nitrogen in the air.  More prosaically, I can imagine that the process of freezing chickens rather than just keeping them frozen to be offered for sale would in all likelihood be a trade process.  But I agree with the Upper Tribunal that the fact that the environment appropriate to the storage and display of the goods of a particular retailer requires more substantial, powerful or even complex equipment than is normally found in retail premises does not turn plant and machinery used for cooling the air in and ventilation of Iceland’s shop into “plant or machinery … used … in connection with services mainly or exclusively as part of … trade processes”.  
46.	In my judgment, Mr Kolinsky’s formulation of the relevant “trade process” supports the Upper Tribunal’s decision.  It is not, in normal parlance, a trade process to apply “a continuous treatment of refrigeration at all times using equipment to maintain food in an artificial condition where but for the refrigeration it would be rendered worthless”.  If one removes the cumbersome wording, one can see that keeping food in its same frozen state so that it may be sold is not any kind of trade process.  Once that is clear, all the other arguments fall away.  I would, however, reiterate that the question is not whether the plant serves the hereditament or the tenant, but whether the plant is used in connection with services mainly or exclusively as part of a trade process.  Retail warehouses undertake a trade but not normally any trade process, certainly not so far as keeping the shop or the equipment therein at an appropriate temperature is concerned.  Mr Kolinsky places too much weight on the requirement that the plant is used in connection with services mainly as part of a trade process.  That is a secondary control, but not a primary one.  Service equipment will be rateable unless it is used as part of a trade process.  Keeping Iceland’s freezers cool is not, in my judgment, a trade process, properly so called. 
Disposal
47.	For the reasons I have sought shortly to give, I would dismiss this appeal.
Lady Justice Gloster:
48.	I agree.
Lady Justice Sharp:
49.	I also agree.