Pennine Raceway Ltd (Appellant v Kirklees Metropolitan Council (Respondent(compensating Authority)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CROOM-JOHNSON,LORD JUSTICE RALPH GIBSON,LORD JUSTICE STUART-SMITH |
| Judgment Date | 02 December 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J1202-7 |
| Docket Number | 88/1040 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 December 1988 |
[1988] EWCA Civ J1202-7
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
Royal Courts of Justice
Lord Justice Croom-Johnson
Lord Justice Ralph Gibson
and
Lord Justice Stuart-Smith
88/1040
MR. WILLIAM MASSEY (instructed by Messrs Penningtons Ward Bowie; London Agents for Messrs Booth & Co., Leeds) appeared on behalf of the Appellant/Claimant.
MR. SIMON MATHEW (instructed by Messrs Sharpe Pritchard; London Agents for the Chief Legal Officer of Kirklees Metropolitan Council) appeared on behalf of the Respondent/ Compensating Authority.
This is an appeal by way of Case Stated by Pennine Raceway Ltd., from the decision of the Lands Tribunal given on 22nd March 1984.
There is an airfield at Crosland Moor, Huddersfield owned by Mr. Witham. In September 1974 Pennine were incorporated, but before that Mr. Whitham had granted to its promoters an oral licence to use the airfield for the purpose of drag motor racing. Drag racing is a race between two motor vehicles over a furlong from a standing start. A speed up to 165 miles an hour may be reached. The cars have parachute brakes. It is a sport recognised by the governing bodies of motor sports, and is supervised by the Royal Automobile Club. Two-day meetings covering 14 days a year were covered by the permission contained in Article 3 of the Town and Country Planning General Development Order 1973, and Class IV, paragraph 2 of the first schedule thereto. Meetings were held on this airfield in July and August 1974. After Pennine was incorporated the licence was put into the form of a deed between Mr. Whitham and the company. There were mutual covenants in the deed, which need not be recited. The company was to pay Mr. Whitham £500 per meeting except for the first full year.
On 8th November 1974 the Kirklees Council made a direction under the Town and Country Planning General Development Order 1973, article 4, that the previous permission should not apply to the use of the airfield for the purpose of motor car or motorcycle racing. The direction was confirmed by the Secretary of State for the Environment on 13th December 1974. The company made an application for appropriate planning permission which was refused.
An appeal to the Secretary of State was dismissed on 9th June 1976.
The company made a claim for compensation, under the Town and Country Planning Act 1971, section 164(1), which reads:
"Where planning permission is revoked or modified by an Order under Section 45 of this Act..…then if, on a claim made to the local planning authority…it is shown that a person interested in the land—
(a) has incurred expenditure in carrying out work which is rendered abortive by the revocation or modification; or
(b) has otherwise sustained loss or damage which is directly attributable to the revocation or modification,
the local planning authority shall pay to that person compensation in respect of that expenditure, loss or damage."
The Council took the view that the company was not "a person interested in the land" within the meaning of the section. The company made a reference to the Lands Tribunal. The Tribunal, on a preliminary point of law, upheld the Council. The Court of Appeal ( [1983] 1 Q.B.383) reversed the Tribunal. Accordingly the claim for compensation was heard by the Tribunal in November and December 1983.
The claim covered expenditure in preparing the airfield for racing, loss of advertising revenue, expenditure on printing advertising leaflets, a loss made on an unsuccessful attempt at mitigation, and the estimated cost of reinstatement if racing were discontinued (which was an obligation of the company under the deed of licence). But the principal item of claim was for loss of income. There were a large number of agreed facts going to the loss of profits claim.
The company limited its claim for loss of profits for the individual years up to 1979, because since 1980 drag racing had been hit by the general recession and because of rising petrol and motoring costs and unemployment. An alternative method which was proposed was the award of a capital sum based on the loss for 1979 and applying a generous multiplier. The method adopted by the Tribunal was to take each of the years up to 1979 and add them together.
Apart from factual evidence about the prospects for drag racing and for the company, the financial evidence for the company was given by its auditor, Mr. Marshall. He calculated the expected profits for each of the relevant years. He said he made no allowance for corporation income tax against the profits for each year, because he assumed the Inland Revenue would tax the profits as trading receipts when the compensation was paid. The evidence for the Council was given by Mr. Townend, one of its officials. In the course of his evidence he said that tax should be deducted from the alleged loss of profits although he provided no calculation as to the manner in which this should be done or as to the rates of tax which ought to be applied. We asked counsel if those accounts of the evidence of Mr. Marshall and Mr. Townend, which we have taken from the award of the member of the Tribunal, fully represented all the evidence given on the subject of tax. We were told, on instructions, that they did.
After making various deductions, the member concluded that the year 1975 resulted in a small actual loss. He therefore concluded that it would be unfair to award the compensation in the form of a capital sum reached by applying a multiplier to the year 1974 or 1975, owing to the difficulty of assessing notional profits for those years, which had shown actual losses. He was influenced in that decision by the failure of the Council to provide any figures to which the multiplier might be applied. He accordingly assessed the actual lost profits for the succeeding years, and aggregated them. The result was as follows:
| 1975 | (£413) loss |
| 1976 | £11,505 |
| 1977 | £39,821 |
| 1978 | £61,346 |
| 1979 | £90,485 |
| £202,744 |
Without having heard argument on the subject, he then made a further adjustment "to reflect the corporation income tax which would have been payable by the company if those profits had in fact been earned in the relevant years. I am not satisfied that the compensation for loss of profits will be assessed to corporation income tax in the hands of the recipients". He accordingly deducted figures from the above sums and awarded these figures:
| 1975 | Nil | |
| 1976 | £11,505—the 1975 loss £413 less 42% tax— | £6,433 |
| 1977 | £39,821—42% tax | £23,096 |
| 1978 | £61,346—52% tax | £29,466 |
| 1978 | £90,485—52% tax | £43,432 |
| £102,407 |
Those deductions were expressly made on the principle of British Transport Commission v. Gourley [1956] A.C.185, which had been followed in West Suffolk County Council v. W. Rought Ltd. [1957] A.C.403. In Gourley's case the tax was deducted from the damages awarded because the damages would not be taxable in the recipient's hands.
To that sum was added £692 representing the loss incurred in the unsuccessful attempt at mitigation. The total awarded as thus £103,100, and that sum was paid by the Council.
After dealing with Gourley's case, the member added:
"I have received no argument on the question whether the profits, after deduction for corporation income tax, ought to be grossed up for corporation capital gains tax. The compensation is not intended to be a capital sum but the aggregation of five payments for loss of income. Further, if technically the compensation constitutes a capital payment, it is not derived from an asset, nor paid as compensation for any damage or injury to assets or for the loss, destruction or dissipation of assets or for any depreciation or risks of depreciation of any asset within the meaning of Section 20(1) of the Capital Gains Tax Act 1979. Accordingly I make no provision for grossing up."
We were told that there was no argument from either side on whether Gourley's case was applicable.
In view of the form of the award, Pennine did not appeal. It was assumed, since tax had been deducted in arriving at the figure for compensation, that there would be no further liability to tax. On 19th April 1984 the time for appealing expired.
Unfortunately, the Inland Revenue took a different view. They asked about the Land Tribunal's award and on 9th October 1986 it wrote to Pennine stating that it considered the sum was liable to taxation, although it was not sure of what kind. It said that the sum awarded by the Lands Tribunal had considered tax as "no more than a process to arrive at the final figure to be paid. There was for example no corresponding provision for Kirklees Council to account for this Corporation Tax on behalf of the Company nor could the Revenue go to the Council seeking payment of it." The letter continued that the Revenue must consider whether the compensation was chargeable as a trading profit or under Schedule A as a receipt from the exploitation of the company's interest in land. "Alternatively it may be that the compensation is chargeable to Capital Gains Tax as a capital sum derived from the company's assets (the interest in land)." Pennine obtained legal advice from tax counsel, and warned Kirklees of the attitude being taken by the Revenue.
Faced thus with double-taxation, the company obtained an extension of time for requiring a case to be stated by the Lands Tribunal. On 27th July 1987 extension of time was granted. To complete this part of...
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