BANK OF CHETTINAD, Appellant, and MUNICIPAL COUNCIL OF COLOMBO, Respondent

101-NLR-NLR-V-55-BANK-OF-CHETTINAD-Appellant-and-MUNICIPAL-COUNCIL-OF-COLOMBO-Respondent.pdf

GRATIAEN J.—Bank of Chettinad v. Municipal Council of Ccloivbo
361
1954Present: Gratiaen J. and Gunasekara J.BANK OF CHETTINAD, Appellant, and MUNICIPALCOUNCIL OF COLOMBO, Bespondent
S. C. 329—D. C. Colombo, 22,991
Municipal Councils Ordinance, No. 29 of 1947—Sections 236 (I) and 325 {1)—Annualvalue of premises—Scope of assessee’s objection to assessment—Principlesapplicable in assessing annual value—Relevancy of economic factors of supplyarid demand—Rent Restriction Act, No. 29 of 1948.
When the annual value of a house is assessed for rating purposes, the ownermay, under section 236 (1) of the Municipal Councils Ordinance, institute anaction against the Municipal Council to have the annual value increased sothat the premises may be taken outside the scope of the Rent RestrictionAct.
In assessing the annual value of premises which, at the time of assessment,are not rent-conwohed, the proper test of “ annual value ” as defined in section325 (1) of the Municipal Councils Ordinance is what a man of ordinary prudenceand foresight, who has duly advised himself as to the state of the market existingat the relevant time, would offer to pay as rental for the premises rather thanfail to obtain the tenancy. The test prescribed is concerned only with thereasonableness of the expectation that a certain rent would be obtained in acommercial transaction ; the “ fairness ” of the bargain is irrelevant.
.^hPPEAL from a judgment of the District Court, Colombo.
H. V. Perera, Q.G., with G. T. Samarawickreme, for the plaintiffappellant.
G. Wikramanayake, Q.G., with N. Nadarasa, for the defendantrespondent.
Cur. adv. vult.
April 2, 1954. Gratiaen J.—
The appellant Company owns four residential bungalows, preciselysimilar to one another in all respects, which were erected in Park Koad,Havelock Town, Colombo, during the year 1949. After their completion,the respondent Council served a notice on the appellant under theMunicipal Councils Ordinance, No. 29 of 1947, assessing the “ annualvalue ” of each bungalow for rating purposes at Rs. 1,245. The-appellantobjected to the assessments and instituted this action against tiie Councilto have the annual value increased in each case to Bs. 2,100,
16LV
2J. N. B 35520—1,590 (5/54)
362
GRATIAEN J.—Bank of CheUinad v. Municipal Council of Colombo
An issue was raised at the trial as to whether the action was maintain-able, the Council’s argument being that the appellant could not properlyclaim to be “ aggrieved ” by the assessments within the meaning ofsection 236 (1) of the Ordinance. If (so it was contended) the assess-ments were in fact too low, the appellant stood to gain financially bythe under-assessments. Under normal circumstances, this argumentwould no doubt have carried conviction. But in the present case, thefoundation of the appellant’s “ grievance ” was that the under-valuationcomplained of would have the consequence of bringing each bungalowwithin the scope of the Rent Restriction Act, No. 29 of 19k8, whereasthe correct assessments would have the opposite effect. It is thereforeperfectly clear that the appellant had a pecuniary interest in securingassessments beyond the limit of statutory rent control. For these reasons,
I agree with the learned Judge that this preliminary objection was withoutsubstance. It is interesting to note that in ft. v. Surrey (Mid-EasternArea) Assessment Committee1 Lord Goddard C.J. explained that a“ person aggrieved ” for the purposes of the Rating & Valuation Act1925 “ must mean a person who considers that he is aggrieved ”,
With regard to the merits of the dispute, the learned Judge took theview that the appellant had not discharged the bur dan of proving thatthe assessments were too low, and the action was accordingly dismissedwith costs. The conclusion at which I have arrived is that the principleunderlying the Council’s assessments, as explained by its expert witnessMr. Ferdinands (a retired officer of the Assessor’s Department), waserroneous, and that the undisputed evidence led at the trial justifiedthe contention that the Council’s valuations should be increased.
Section 325 of the Ordinance defines “ the annual value ” of rateablepremises as “ the annual rent which a tenant might reasonably beexpected, taking one year with another, to pay for (the premises) ifthe tenant undertakes to pay all public rates and taxes, and if the land-lord undertakes to bear the cost of repairs, maintenance and upkeep,if any, necessary to maintain the (premises) in a state to command thatrent ”.
These words have been authoritatively interpreted in the EnglishCourts in rating cases. For instance.
“ The directions given by the Act are equivalent to Saying that
one must look to all possible tenants, and the phraseologydoes not exclude an owner who himself occupies the premises ”—per Lord Esher in R. v. School Board of London 1 2.
“ Although the tenant is imaginary, the conditions in which his
rent is to be determined cannot be imaginary. They are theactual conditions affecting the hereditament at the time whenthe valuation is made ”—per Lord Buckmaster in PoplarAssessment Committee v. Roberts 3.
1 (194'8) 1 All E. R. 856 at 858.2 (1886) 17 Q. B. D. 538 at 740,
2 (1922) 2 A. C. 93 at 103■
GRATIAEN" J.—Bank of Chettinad v. Municipal Council of Colombo 363
“ The hypothetical rent which the (hypothetical) tenant would
give is estimated with reference to the hereditament in itsactual physical condition {rebus hie stantibus), and a continuationof the existing state of things is prima facie to be presumed ”—per Lord Maugham in Toumley Mill Co. {1919) Ltd. v. OldhamAssessment Committee 1.
The acute shortage of residential accommodation in the city of Colombounder post-war conditions is so notorious that very little evidence, if any,would have been necessary to bring it to the formal notice of a Courtof law, and there was no justification for assuming in 1949 that the situa-tion would improve within a measurable distance of time. In the caseof uncontrolled premises in particular, the landlord could virtuallydictate his terms, and hardly any limit (beyond the limits of his ownconscience) was placed on his ability to exact a bargain which undernormal circumstances would have been impossible. In this context,.at any rate, Colombo was certainly not the capital of Utopia.
O
The Council’s expert disregarded the prevalence of these regrettableconditions, although he admitted that “ if a house falls vacant, there arehundreds of prospective tenants to outbid one another. Because tenantsare prepared to pay large sums in respect of premises, there is competi-tion He further conceded that, but for the provisions of the RentRestriction Act, controlled premises would also have been able to com-mand far higher rents than they were doing in 1949. The evidenceestablished that, by way of contrast, there bad been no housing shortagein Colombo, and no such competition between prospective tenantsbidding against one another for vacant bungalows before the year 1941.
This witness very candidly explained the formula which he had adoptedfor computing the annual value of the appellant’s bungalows in November1949 ; he took as his “ yardstick ” the annual value of a {structurally)comparable pre-war bungalow which was subject to rent control legislation,and merely added to that figure an allowance for the circumstance thata new bungalow (because it was new) could generally command a slightlyhigher rental than an older one. He was asked why no further allowancewas made for the fundamental change which had taken place in theconditions of the market during the intervening period. To this questionhe succintly replied :
“ I am not concerned whether a (tenant) is willing to pay or not.
I never assess the value on (that) basis. What I consider is whetherit is a fair rental.”
Bar be it from me to condemn the philosophy which underlies thismethod of approach. But, in disposing of rating cases, a Judge or aMunicipal Assessor must not be influenced by his individual predilectionsfor “ social engineering His duty is to administer • the law as it hasbeen enacted, and not the law which, in his private opinion, ought to bein force..
The proper test of £c annual value ” as defined in the MunicipalCouncils Ordinance, is what a man of ordinary prudence and foresight,who has duly advised himself as to the state of the market existing at1 (1937) A. C. 419 at 436, 437.
364
GRATIAEN J.—Bank of Ohettinad v. Municipal Council of Colombo
the relevant time, would offer to pay as rental for the premises concernedrather than fail to obtain the tenancy. This formula is adapted from thatlaid down by the Privy Council for estimating the “ value ” of propertyin compulsory acquisition cases—Pastoral Finance Association Ltd. v.The Minister x. If the prevailing conditions lend themselves to the ex-ploitation of prospective tenants by landlords, they cannot- be excludedfrom consideration of the problem unless Parliament has stepped in toextend its protection to the hypothetical tenant. The test prescribedis concerned only with the reasonableness of the expectation that a certainrent would be obtained in a commercial transaction ; the “fairness ”of the bargain is unfortunately irrelevant.
The evidence of another witness who was called by the Council repealedthe true picture. Mr. A. O. Weerasinghe, a member of the Ceylon CivilService, was appointed in June 1948 to assume duties in the office of theMinistry of Commerce, and from that time he had tried in vain to findsuitable accommodation for himself and his family in Colombo. Heapplied for the tenancy of a Government bungalow, but failed. He °advertised in the local press, but there was no response. In the result,he was put to the inconvenience and expense of living in Gampaha andtravelling daily from there to his office in Colombo” Ultimately, hecame to learn that the construction of the appellant’s bungalows (towhich these assessments relate) were nearing completion. Negotiationswith the appellant Company followed, and on 7th September, 1949, hesecured the tenancy of one of the bungalows in question at a monthlyTental of Rs. 225, the terms of the contract providing that the landlordshould pay the rates and taxes and meet the cost of all except minorrepairs. At the time when Mr. Weerasinghe gave evidence on 13thJanuary, 1951, he was still in occupation of the bungalow under thisagreement. He explained that he was “ almost compelled ” to acceptthe situation because he was unable to find other suitable accommodationat a lower rental. He further complained that he did so “ more or lessunder duress ”, but such “ duress ” was in truth created only by thecircumstances of the market, and was certainly not of a kind whichwould have entitled him to claim legal relief from the onerous terms ofa contract of tenancy into which he had reluctantly but voluntarilyentered.
Mr. Weerasinghe’s experience was obviously characteristic of thedifficulties encountered by innumerable other prospective tenants placedin a similar situation, and this transaction demonstrates that the rentalwhich he had agreed to pay represented what the “ hypothetical tenant ”of rating law would “ reasonably be expected ” to be willing to pay forthe bungalow rather than lose the tenancy. He was the victim of theordinary laws of supply and demand, and the Ordinance gives us nooption but to assess “annual- value” by reference<to those economicfactors. We cannot ignore the realities of the situation prevailing atthe time without also ignoring the requirements of the statute which itis our duty to obey.
I readily accept the proposition that “ the actual rent paid is nocriterion unless, indeed, it happens to be the rent that the imaginarytenant might reasonably be expected to pay in the circumstances
1 (1914) A. C. 1083.
GttATTAEN J.—J. Bank of Chettinad v. Municipal Council of Colombo
365
mentioned in the section (which defines ‘annual value ') —Poplar Assess -merit Committee v. Roberts (supra). The reason is obvious. In one case,the rent which a landlord actually receives might be only nominal, becausethe tenant is a friend, a relative or an employee ; in another case, itmight well exceed the true annual value because it “ includes the pricepaid for the goodwill of the business previously carried on there ”—Ryde on Rating (8th Ed.), p. 231. But where, ashappened in the case ofMr. Weerasinghe, the rental agreed upon was referable solely to “ thehiggling of the market ”, it affords very valuable material from which thetrue annual value can be assessed. Mr. Ferdinands himself conceded,during the closing stages of his cross-examination, the force and relevancyof the following observations in Witton Booth’s Valuations for Rating(1947 Ed.), p. 125 :
“ To be proper evidence of value, a rent should be determinedexclusively by those economic factors which would influence thehypothetical tenant in his negotiations with the hypothetical landlord.One of the principal factors governing all rental values is the ordinarylaw of supply and demand. This scarcely needs emphasis at a timelike the present, when post-war conditions have so materially increasedthe letting value of houses, and particularly those not under the controlof the Rent Restriction Acts." .
The error into which the learned judge has fallen in upholding the assess-ments made by the Council was that he attached too much weight to thecircumstance that the maximum rental of certain bungalows in the city(no doubt comparable to the appellant's bungalows in respect ofaccommodation and attractiveness) happened to be controlled by theprovisions of the Rent Restriction Act. He therefore decided that theappellant’s buildings should be similarly controlled. Hence the confusionbetween (1) the sum which an unprotected hypothetical tenant wouldreasonably be expected to pay in fact for a bungalow which was notrent-controlled, and (2) the maximum “ fair rental ” whch the landlordought to be compelled to accept for such a bungalow.
In England, Bankes L.J., whose minority judgment in the Court ofAppeal in the Poplar Assessment Committee’s case (supra) was expresslyapproved by the House of Lords, pointed out that, even in the case ofrent-controlled houses :
“ Although the Rent (restrictions) Act 1920 may affect the rateablevalue, it does not fix the rateable value ”—(1922) 1 K.B. 25 at 44.
It is unnecessary for the purposes of this appeal to decide whether, (andif so, to what extent) the annual value of rent-controlled premises inCeylon can ever be assessed at more than the authorised rent. Sufficeit to point out that, in the present state of the law, no artificial restrictionsare permissible in the ease of premises which, at the time of assessment,are not rent-controlled.
In the present case, there was also evidence of the rental paid in theimmediate locality by tenants for comparable bungalows which werenot rent-controlled. In 1948 another landlord had constructed four
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366 GRATIAEN J.—Bank of Chettinad v. Municipal Council of Colombo
bungalows in Park Terrace, Havelock Town, each of which Mr.[Ferdinands (in his official capacity) had originally assessed, by theapplication of his “ fair rental ” method of valuation, at Rs. 1,385 perannum (as against Us. 1,245 per annum for the appellant’s bungalows).In consequence of an appeal by the landlord concerned, the (then)Municipal Commissioner increased the annual value of those bungalowsto Rs. 2,250 and according to the evidence, the actual monthly rentalsubsequently paid for each of them varied between Rs. 240 and Rs. 300—i.e., a little more than Mr. Weerasinghe had agreed in 1949 to pay forone of the bungalows with which this action is concerned. r'
The learned Judge rejected the argument that these four bungalows inPark Terrace were suitable standards for comparison because he feltthat there seemed to be “ a certain amount of suspicion ” attaching tothose particular assessments. There is no evidence on the record tojustify any such vague suspicion. Admittedly, the bungalows them-selves were structurally and in other respects comparable to those withwhich thi- action is concerned, and the correctness of the (then) MunicipalCommissioner’s final assessments was confirmed by the rents which thelandlord concerned actually received in a “landlord’s market”. TheCouncil had not thought fit since 1948 to revise the ^stessments of thesebungalows under section 239 of the Ordinance.
In my opinion the concrete evidence of the rents paid by the tenantsof comparable bungalows which are not rent-controlled and by the tenantof one of the appellant’s bungalows under assessment made it quiteunnecessary to seek a solution by reference to the controversial and lessreliable calculations suggested by the experts who applied the“ contractor’s test ” or the “square foot method ”. The Council's assess-ments must be rejected because they were based on a principle ofcomputation which ignored the realities of the prevailing market forvacant bungalows. The definition of “ annual value ” in the MunicipalCouncils Ordinance of 1947 has not been subjected to statutorymodification by the provisions of the Rent Restriction Act, 1948.
T would allow the appeal with costs in both Courts, ?nd direct that theannual value of each bungalow to which the action relates should beassessed at Rs. 2,100. These bungalows, according to the admittedevidence, could reasonably have been expected to command only aslightly lower rental than those paid during the relevant period for thebungalows in Park Terrace, Havelock Town, whose assessments stillstand at Rs. 2,250 per annum per bungalow.■
The present state of the law is no doubt calculated in many cases toexpose prospective tenants of uncontrolled premises to exploitation.Whether the law should be amended is for Parliament, and not the Courts,to decide.a
Gtjnasekaba J.—1 agree.
Appeal allowed.