Able (UK) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BRIGGS |
| Judgment Date | 19 October 2006 |
| Neutral Citation | [2006] EWHC 3046 (Ch) |
| Docket Number | Case No: CH/2006/APP/309 |
| Court | Chancery Division |
| Date | 19 October 2006 |
[2006] EWHC 3046 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Briggs
Case No: CH/2006/APP/309
MR RICHARD VALLAT (instructed by Vantis (Accountants)) appeared on behalf of the Appellant
MR DAVID REES (instructed by HMRC) appeared on behalf of the Defendant
Approved Judgment
No of Folios: 113
No of Words: 8153
Thursday, 19 October 2006
This is an appeal by Able (UK) Limited by way of case stated against a decision of the Commissioners for General Purposes of the Income Tax for the Division of Hartlepool with Stockton-on-Tees ("the General Commissioners") made on 14 April 2005. The only issue in the appeal before the General Commissioners and here was whether a certain compensation payment received by the appellant under section 31(3) of the Land Compensation Act 1961 was income or capital. The General Commissioners decided that the payment was income.
Section 31(3) of the Land Compensation Act provides as follows:
"Where the acquiring authority withdraw a notice to treat under this section, the authority shall be liable be pay compensation to the person to whom it was given for any loss or expenses occasioned to him by the giving and withdrawal of the notice…"
The factual background to this appeal is as follows, and I derive it mainly from a statement of facts not in dispute put by the parties before the General Commissioners and included in the bundle on the appeal. Able commenced trading on 1 June 1987 and on 2 August 1989 it acquired land at Seaton Meadows, Brenda Road, Seaton Crewe in Hartlepool ("the land") from Stephenson Civil Engineering Limited for use in its trade for about £335,000 odd. In April 1990, Able sought planning permission to use part of the land for hazardous waste disposal. That application was refused. In 1991, Northumbrian Water Limited ("NWL") entered into negotiations with Able to acquire the land for the construction of a sewage treatment plant. When the parties failed to agree a price, NWL promoted a compulsory purchase order in respect of part of the land ("the CPO land").
The compulsory purchase order was confirmed by the Secretary of State for the Environment on 22 July 1992. Notice to treat was served on Able by NWL on 14 August 1992. Notice of entry was served on 18 August and NWL took possession of the land on 4 January 1993. In July 1992, prior to service of the Notice of Treat, Able lodged an application for a certificate of appropriate alternative development in respect of the land. The proposed used was for the disposal of hazardous wastes. This certificate was granted on appeal on 14 June 199Able lodged a claim for compensation from NWL for an amount in excess of £22 million on 26 September 1994.
NWL then withdrew its notice to treat on 9 November 1994. On an application by Able for judicial review challenging that withdrawal, the court confirmed in November 1995 that NWL were entitled to withdraw the Notice to Treat. Having withdrawn its original claim for compensation, in July 1997 Able made a new claim for compensation for losses and expenses arising out of the giving and withdrawal of the notice to treat under section 31(3) of the Land Compensation Act 1961. On the second occasion, Able's claim was for £10.2 million.
The Lands Tribunal determined the claim on 2 June 2000 after the parties had reached an agreement as to the amount payable, and awarded Able a payment of £2.185 million, which is the amount of compensation the character of which is to be determined as between income and capital.
Able's corporation tax return for the year ended 31 December 2000 was received by the Inland Revenue on 4 October 2001. An inquiry was opened into the company's self-assessment and returned by the issue of a notice of inquiry in April 2002. After an exchange of correspondence, a notice of closure was issued on 26 November 2003. The company did not agree with the inspector's conclusions. A revenue amendment was issued on 13 January 2004. Able's agent appealed on their behalf against the Revenue amendment in a letter of 6 February 2004 and that led to the appeal before the General Commissioners.
A distinguishing feature of Able's claim to compensation under section 31(3) of the Land Compensation Act, was that it was heavily based upon an allegation that by being temporarily deprived of the use of the land, Able lost a never to be repeated opportunity to bid for and enter into highly profitable long-term general waste disposal contracts, and in particular a contract with Cleveland County Council, at a time when the general waste disposal market was uniquely favourable to it. Able's claim went so far as to assert that, if the land had been available for use during the relevant period, it would have enjoyed a virtual monopoly in the region in respect of general waste disposal. In short, Able's claim was that, by being kept out of the market during a relatively short period in which the land, if it had been available, would have been uniquely valuable to it as a place for general waste disposal, Able suffered a permanent loss rather than the more usual temporary loss, limited that is to the time when the use of the land is actually sterilised between the giving and withdrawal of the Notice to Treat.
I turn to the Case Stated. After summarising the rival arguments and listing the authorities cited, the General Commissioners made their findings of fact and expressed their conclusions on the issue before them as follows in paragraph 9, which I need to read in full:
"We the Commissioners having heard the various representations and contentions considered that:
9.1 That there was no permanent loss of the use of the CPO Land, but rather there was an interruption in its availability for trading purposes for a finite period. The period in question was not significantly large given the total period of time that the whole site would ultimately be in operation.
9.2 Whilst it was demonstrated that the established practice for the capital valuation of a landfill site was to look to the profitability of the operation carried out on the land, rather than by way of comparative values, it is also the way to value a revenue loss caused by an interruption to use.
9.3 The interruption to the Taxpayer's business caused by Northumbrian Water Ltd's actions in respect of the CPO Land had a consequential effect on the Taxpayer's business as a whole, in that it was unable to fully exploit the landfill market as it had intended. This was a loss for which compensation was paid.
9.4 The contemporaneous documentation, in particular the detailed 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.
9.5 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.
9.6 For the reasons above the payment received by the Appellant was a revenue receipt."
The five indicia referred to in paragraph 9.5 of the Case Stated are those set out by Dyson LJ in IRC v John Lewis Properties Plc [2003] STC 117 at paragraphs 80 to 87 in his judgment.
Mr Richard Vallat for Able challenged the decision of the General Commissioners on two main grounds. The first was that the General Commissioners' finding that Able's claim had been for compensation for loss of profits, or, in the words of paragraph 9.3 of the Case Stated, an inability fully to exploit the landfill market as it had intended, was wrong to the point of perversity so as to fall within the error of law narrowly identified in Edwards v Bairstow [1956] AC 14, as facts which no person acting judicially and properly instructed as to the relevant law could have found. He said that the only proper conclusion on the evidence before the General Commissioners was that Able's claim was in respect of a diminution in the value of its land, and therefore by definition a capital loss.
Second, he submitted that in any event the decision was wrong in law because, however characterised, the loss was of such a permanent nature that it was a capital not revenue loss.
Taking the first of those two grounds of appeal, Able's attack originally focused on paragraphs 9.2 to 9.4 of the Case Stated, but the criticism of paragraph 9.2 falls away once it is appreciated, as both parties now do, that it means no more than that profitability plays a part in the capital valuation of a landfill site as well as in the valuation of a revenue loss. That is common sense and was common ground before me. The General Commissioners were not saying that the precise method employed would necessarily be the same in each case.
The main target of Mr Vallat's challenge to the General Commissioners' factual findings is found in paragraph 9.3 in the General Commissioners' conclusion that the loss for which Able obtained compensation was the damage to it business caused by it being unable fully to exploit the landfill market as it had intended.
Closely related to that finding was the General Commissioners' conclusion in paragraph 9.4 that the detailed claim submitted to the Lands Tribunal showed that Able and its advisers regarded the claim as being for loss of profits. This, Mr Vallat challenged with equal...
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