Chevron U.K. Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 08 June 1995 |
| Date | 08 June 1995 |
| Court | Chancery Division |
Chancery Division.
Sir John Vinelott.
Graham Aaronson QC and Terence Mowschenson (instructed by Herbert Smith) for Chevron.
Alan Moses QC and Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
BP Oil Development Ltd v IR Commrs TAXTAXTAX[1988] BTC 8079 (ChD); [1990] BTC 8082 (CA); [1992] BTC 8003 (HL)
Luke v IR Commrs ELR[1963] AC 557
O'Rourke (HMIT) v Binks TAX[1991] BTC 326
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
Petroleum revenue tax - Tariff receipts allowance - Taxation of payment received for use of pipeline - Cash equivalent of oil allowed before receipts taxable - Participators in another "user" field bought 15 per cent share of pipeline but transported more oil than the 15 per cent interest entitled them to - Whether allowance calculated in relation to all the oil transported or only oil to which tariff receipts related -Oil Taxation Act 1983 schedule 3 subsec-or-para 1Oil Taxation Act 1983, Sch. 3, para. 1(2)Oil Taxation Act 1983 schedule 3 subsec-or-para 2.
This was an appeal by Chevron UK Ltd and nine other oil companies from a decision of the special commissioners as to the calculation of tariff receipts allowance in respect of petroleum revenue tax ("PRT") liability for royalty payments for the use of shared pipeline facilities.
Chevron was one of ten participators in the Ninian oil field. Oil from the Ninian field was transported through a pipeline constructed by the participators in the field to a terminal in the Shetlands.
In 1978 the participators in another oil field, the Magnus field, bought an undivided 15 per cent share of the pipeline and the terminal so that they could pass oil from the Magnus field through the Ninian pipeline. The Ninian pipeline could carry about one million barrels of oil per day and the 15 per cent share of the participators in the Magnus field gave them the right to pass up to approximately 150,000 barrels per day through it.
When the Magnus field proved more successful than had been anticipated it became capable of producing more than the 150,000 barrels per day to which the Magnus field was entitled by virtue of the 15 per cent ownership of the Ninian pipeline. An arrangement was therefore agreed under which additional Magnus oil would be carried on payment of a royalty for each additional barrel of oil.
Tariff receipts received from a "user field" by a "principal field" were brought into charge to PRT by the Oil Taxation Act 1983 section 9Oil Taxation Act 1983, s. 9. They were included in the "positive amounts" for the purposes of PRT and were calculated according to a formula set out in the Oil Taxation Act 1983 schedule 3 subsec-or-para 2Oil Taxation Act 1983, Sch. 3, para. 2(1).
One of the elements in the formula was "the amount, in metric tonnes, of the oil to which those qualifying tariff receipts relate". The question was whether that amount referred to the total amount of oil from the user field which Magnus was entitled to pass through the facilities including its 15 per cent ownership entitlement ("the equity oil") or only to the amount in respect of which the tariff was paid ("the additional oil").
Chevron contended that only the additional oil was to be taken into account in applying the formula.
The Revenue contended that all the oil passed through the facilities from the user fields should be taken into account.
Held, allowing Chevron's appeal:
1. Although literally construed, and giving full effect to the use of the definite article in the phrase "the oil won from that user field which is dealt with by means of the asset to which the qualifying tariff receipts are referable", might have the effect contended for by the Revenue, a statute should be considered in the context and scheme of the Act as a whole. Its purpose should be regarded to produce a coherent and reasonable result.
2. Looking at the body of the Oil Taxation Act 1983, the purpose was to give to the participators in a principal field, who allowed the facilities of that field to be used by a user field in exchange for a tariff, an allowance of the cash equivalent of 250,000 tonnes before qualifying tariff receipts had to be brought into charge as part of the positive amounts. The Oil Taxation Act 1983 schedule 3Oil Taxation Act, Sch. 3, therefore, was to be read in a way which gave effect to the inferred purpose of the Act unless the language was wholly incapable of such a construction. It would be inconsistent with that purpose to include in the 250,000 tonnes of oil for which no tariff was paid. The Oil Taxation Act 1983 schedule 3 subsec-or-para 1Oil Taxation Act 1983, Sch. 3, para. 1(2) could be read in a way which was consistent with that purpose if the reference to "the oil won from that user field" was read as impliedly limited to oil to which qualifying tariff receipts related.
1. On 27 and 28 September 1993 sitting together in London we (Mr D C Potter QC and Mr Malcolm J F Palmer) heard at a consolidated hearing the appeals against assessment to petroleum revenue tax ("PRT") of ten separate appellants, one of whom is the appellant above-named ("the appellant"), namely:
Chevron UK Ltd
Chevron Petroleum (UK) Ltd
Enterprise Petroleum Ltd
Lasmo North Sea plc
Murphy Petroleum (Old) Ltd (in liq.) formerly called Murphy Petroleum Ltd
Murphy Petroleum Ltd (formerly Ocean Exploration Co Ltd)
Ranger Oil (UK) Ltd
Oryx UK Energy Co
Neste North Sea Ltd and
Britoil plc
The appellant appealed against eight assessments, each covering a chargeable period of six months being one-half of a calendar year. The first such period is six months ending June 1989 and the last is six months ending December 1992.
2. The facts were not in dispute. The same issue for determination arose as respects all chargeable periods of all the appellants, namely the true construction and effect of statutory provisions which confer on taxpayers an amount of tariff receipts allowance, in particular theOil Taxation Act 1983 section 9 schedule 3 subsec-or-para 1 schedule 3 subsec-or-para 2Oil Taxation Act 1983, s. 9 and Sch. 3, para. 1 and 2.
3. At the consolidated hearing we considered the said issue in respect of one period of one appellant namely Chevron Petroleum (UK) Ltd for the chargeable period ending 31 December 1988. It is common ground that our determination in principle in relation to that period governs all the appeals for all the chargeable periods under appeal.
4. and 5. [Paragraphs 4 and 5 described the documents referred to at the hearing.]
6. We gave our decision in principle in writing on 16 December 1993. Consequent thereon figures of chargeable profit and of tariff receipts allowance were agreed in respect of each chargeable period of this appellant and we made our final determination of each appeal on 1 March 1994 accordingly. Each appellant thereupon expressed dissatisfaction and asked us to state a case for the opinion of the court.
7. Rather than annex a copy of our said decision to each case stated, we now formally incorporate the said decision herein as if annexed hereto. We record that in our decision we wrongly stated the number of chargeable periods relating to these appeals. The points of law under appeal are not affected. We also wrongly describe Heather and Alwyn North as "user fields".
8. There are two questions of law for the opinion of the court:
(2) Whether the reference to "the asset" in the Oil Taxation Act 1983 schedule 3 subsec-or-para 1Oil Taxation Act 1983, Sch. 3, para. 1(2) means not the pipeline itself but the ownership interest in the pipeline.
(3) Whether we erred in law in deciding the question of construction of the relevant statutory provisions.
On 27 and 28 September 1993 sitting together in London we heard at a consolidated hearing the appeals against assessment to PRT of ten separate appellants namely:
Chevron UK Ltd
Chevron Petroleum (UK) Ltd
Enterprise Petroleum Ltd
Lasmo North Sea plc
Murphy Petroleum (Old) Ltd (in liq.) formerly called Murphy Petroleum Ltd
Murphy Petroleum Ltd (formerly called Ocean Exploration Co Ltd)
Ranger Oil (UK) Ltd
Oryx UK Energy Co
Neste North Sea Ltd and
Britoil plc
Petroleum revenue tax ("PRT") is imposed by the Oil Taxation Act 1975 as amended by the Oil Taxation Act 1983. It is assessed by reference to chargeable periods each of six months and being one-half of a calendar year. This appeal deals with 90 assessments, covering nine chargeable periods of six months each of each of the appellants, the first such period being the second half of 1988, the last being the second half of 1992. The tax is charged by reference to the assessable profit or the allowable loss of each appellant or other taxpayer where that profit or allowable loss accrues to the appellant as a participator in any chargeable period. The assessable profit or allowable loss accruing in each period of six months is the difference between the sum of the "positive amounts" for that period and the sum of the "negative amounts" for that period there being generally no distinction between amounts of an income and amounts of a capital nature.
It is agreed that the facts relating to each appellant are not materially distinguishable from those relating to the other appellants and that the same facts govern all nine chargeable periods in respect of each appellant. For convenience the facts were presented to us primarily in respect of the second named appellant Chevron Petroleum (UK) Ltd for the chargeable period being the six months ending 31 December 1988. We were given a pro-forma PRT assessment made on Chevron Petroleum (UK) Ltd showing details relevant to this appeal; that assessment is (the parties agree) for present purposes typical of all the assessments under appeal.
The dispute between the appellants and the Inland Revenue is confined to one element only in the PRT assessments for each period...
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