Able (UK) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moses,Lord Justice Lawrence Collins,Lord Justice Buxton |
| Judgment Date | 22 November 2007 |
| Neutral Citation | [2007] EWCA Civ 1207 |
| Docket Number | Case No: C3/2006/2410 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 November 2007 |
[2007] EWCA Civ 1207
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT CHANCERY DIVISION
Mr Justice Briggs
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Buxton
Lord Justice Moses and
Lord Justice Lawrence Collins
Case No: C3/2006/2410
Richard Vallat (instructed by Gregory Rowcliffe Milners) for the Appellant
David Rees (instructed by Her Majesty's Revenue and Customs) for the Respondent
Hearing date: 26 th October, 2007
Judgement
Introduction
Able (UK) Limited (the taxpayer) used its land as a landfill tipping site. Following service of a Compulsory Purchase Order in respect of part of the site, the taxpayer was kept out of possession of that part for just over three years, between August 1992 and November 1995, when withdrawal of the Order was confirmed.
The taxpayer was paid compensation in the sum of £2,185,000 following its claim under s.31.(3) of the Land Compensation Act 1961. It took the view that that sum was capital.
The Revenue disagreed and on appeal against its Notice of Amendment the General Commissioners concluded that the sum of compensation should be treated as income. On appeal to the High Court, Briggs J upheld the General Commissioners' determination. Despite the fact that this is a second appeal, permission to appeal was given by this court.
The General Commissioners' Case Stated
The taxpayer did not pursue his challenge to the General Commissioners' findings of fact, which he had advanced before Briggs J. The effect of the period during which the taxpayer was deprived of possession of the site was described by the General Commissioners as follows:—
“The local landfill market changed considerably between 1992 and 1996, due to external factors beyond the taxpayer's control, in particular the market for household/general waste reduced significantly. Consequently, by the time that the CPO site was back within the taxpayer's possession, the only real significant waste disposal market open to the taxpayer was hazardous/contaminated waste. The local and national landfill markets have since changed further, but such changes are not relevant to the issue before us.”
There was no dispute between taxpayer and Revenue as to the essential questions which the General Commissioners had to answer. The correct characterisation of the compensation depends upon the answers to two questions. Firstly, what was the compensation paid for? Secondly, would the sum which the trader ought to have received have been credited as an income receipt of the trade? (see Diplock LJ in London and Thames Haven Oil Wharves Ltd v Attwooll 43 TC 491 at 515).
The General Commissioners answered those two questions as follows:—
“the interruption to the taxpayer's business…had a consequential effect on the taxpayer's business as a whole, in that it was unable to fully exploit (sic) the landfill market as it had intended. This was a loss for which compensation was paid.
The contemporaneous documentation, in particular the detail of claims submitted to the Lands Tribunal, indicated that the taxpayer and its professional advisers regarded the compensation claim to the Lands Tribunal to be for loss of profits.
Applying the five indicia as to whether receipts are of a capital or income nature, we did not accept the taxpayer's contentions that four were applicable. The only one that was clearly applicable was that the compensation was a lump sum payment rather than recurrent and we would not expect compensation by way of a Lands Tribunal award to be any other way.”
Briggs J upheld that conclusion:—
“There has plainly been no permanent or complete sterilisation of the use of the land for landfill, still less the deprivation of one of Able's fixed assets, but only a temporary restriction on Able's trading opportunities, albeit unfortunately during a short-lived market boom caused by a shortage of landfill capacity elsewhere in the region.”
Legal Principles
The instant appeal demonstrates, like so many similar cases before it, that there is no one map which will guide to a particular destination those who travel over such well-trodden territory. A formulaic approach should be avoided. Although the General Commissioners referred to “the five indicia” identified by Dyson LJ in IRC v John Lewis Properties [2002] EWCA Civ 1869, [2003] Ch. 513 at paragraph 80, he himself acknowledged that those indicia might have little application to circumstances which differed from the lump sum pre-payment of rent, representing the discounted value of future rents with which the court was concerned in that appeal. The most reliable judicial Baedeker is surely Templeman J:—
“The forensic field of conflict involved in this appeal is an intellectual minefield in which the principles are elusive…analogies are treacherous…precedents appear to be vague signposts pointing in different directions…and the direction-finder is said to be 'judicial common sense'…the practice of judicial common sense is difficult in Revenue cases.” ( Tucker v Granada Motorway Services Limited 53 TC 92 at 97)
The profit-earning capacity of a capital asset is reflected in its value. The archetype of compensation classified as a capital receipt is a lump sum paid for destruction of the profit-earning capacity of a capital asset, thereby diminishing its value. In Glenboig Union Fireclay Co Ltd v IRC 12 TC 427 Lord Buckmaster described the effect of the interdict against the working of fireclay underneath a railway as the sterilisation or destruction of a capital asset, compensation for which was a capital sum (see page 463–464). But in that case, as in Haig's (Earl) Trustees v IRC TC 22 TC 725 the capital asset itself was not destroyed, it was only its capacity as a source of profit which was exhausted. In Haig's (Earl) Trustees the capital value of the war diaries was realised once the Trustees permitted Mr Duff Cooper access to those diaries for the purposes of his biography, in return for royalties and other payments from the sale of the book. The diaries remained the property of the Trustees but their capacity to earn profits was exhausted.
The principle to be derived from such cases as Glenboig and Haig's (Earl) Trustees is that consideration received for the once and for all realisation of the capital value of an asset is capable of being a capital receipt, notwithstanding that the asset remains in existence and is the property of the recipient (see the proposition enunciated by Sir Nicolas Browne-Wilkinson V-C in McClure v Petre [1988] 1 WLR 1386 at 1393A). That principle may be applied to cases where an asset has the capacity to provide a number of distinct sources of income and the capital value of the asset reflects each of those sources. If one particular source is exhausted or realised, then consideration or compensation paid therefor may constitute a capital receipt if the value of the asset, which had hitherto reflected all those sources of profit to be derived from that asset, is diminished.
That principle explains the decision in McClure v Petre. In McClure the taxpayer retained his interest in his land, part of which was adjacent to a motorway. He continued to receive rent from his agricultural tenant. But once sub-soil from the construction of the motorway had been deposited on the land, it could not be used again for dumping. One of the sources of income derived from the land had been exhausted, although it was still a source of agricultural rent. Compensation could be characterised as a once and for all realisation of that proportion of the capital value of the land which reflected the source of profit from dumping waste: it was a capital receipt.
The Vice-Chancellor put it this way:
“In my judgment ( Haig's (Earl) Trustees) is authority for the proposition that where the value of an asset is attributable to a number of different characteristics the consideration received for a transaction which realises once and for all the Capital value of one of those characteristics (thereby diminishing the remaining value of the whole asset) is capable of constituting capital, not income, and that is so, notwithstanding that the asset itself and all the rights in it remain throughout the property of the taxpayer.” (WLR 1393)
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