The Commissioners for HM Revenue and Customs v LG Park HT1 Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Falk,Lord Justice Newey,Lady Justice King |
| Judgment Date | 17 October 2023 |
| Neutral Citation | [2023] EWCA Civ 1193 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-001764 |
[2023] EWCA Civ 1193
Lady Justice King
Lord Justice Newey
and
Lady Justice Falk
Case No: CA-2022-001764
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MR JUSTICE ADAM JOHNSON AND JUDGE THOMAS SCOTT
Royal Courts of Justice
Strand, London, WC2A 2LL
Hui Ling McCarthy KC, Michael Ripley and Edward Hellier (instructed by HMRC Solicitor's Office and Legal Services) for the Appellants
Rupert Baldry KC and Quinlan Windle (instructed by Norton Rose Fulbright LLP) for the Respondents
Hearing date: 5 October 2023
Approved Judgment
This judgment was handed down remotely at 10.00am on 17 th October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This appeal concerns a case management decision of the First-tier Tribunal (“FTT”) in a long running dispute between HMRC and the 10 respondent taxpayers (collectively “LG Parks”). The dispute relates to the stamp duty land tax (“SDLT”) payable on grants of leases made in January 2010 over land forming part of the London Gateway port development in Essex. By its decision (the “FTT Decision”), the FTT refused LG Parks' application (the “Application”) to refer the question of the market value of the leases to the Upper Tribunal (Lands Chamber) (the “Lands Chamber”) pursuant to paragraph 45 of Schedule 10 to the Finance Act 2003 (“FA 2003”). The Upper Tribunal (TCC) (the “UT”) allowed LG Parks' appeal against that refusal, and the decision was remade by a direction which referred the question of market value pursuant to paragraph 45 while confirming that all other aspects of the appeals remained with the FTT (the “UT Decision”). HMRC appeal against the UT Decision with the leave of this court. In the meantime, the FTT has continued to case manage the appeals, which are now due to be heard by the FTT at a four day hearing in late 2024, and has not proceeded with the reference.
It is important to note at the outset that, although the dispute has already proved to be a very lengthy one, the Application was made only very shortly after notices of appeal had been submitted to the FTT, before HMRC had been required to produce a statement of case and before any other case management steps had been taken. In short, enquiries into the relevant SDLT returns were first opened in August 2010. Although closure notices were issued on 31 December 2013, the parties continued to engage in further correspondence and discussion for over five years, culminating in a formal review by HMRC which completed on 15 March 2019 with a confirmation that HMRC's earlier decisions should be upheld. Appeals were lodged with the FTT on 14 April 2019 and the Application was made on 8 May 2019, less than a month later. The FTT Decision was made following a case management hearing to determine the Application on 11 February 2020.
Factual background
The factual background was summarised by the FTT as follows:
“The following summary of the background to the application is taken from both LG Parks' and HMRC's Skeleton Arguments and the transaction documents. It does not represent agreed facts or my findings of fact. The evidence will be considered for this purpose if the matter progresses to a substantive appeal hearing.
3. On 4 September 2000, P&O Ports (Europe) Limited (“P&O Ports”), The Peninsular and Oriental Steam Navigation Company (“POSNCo”) and several subsidiaries of Royal Dutch Shell plc (“Shell”) entered into an agreement relating to the development of a deep-water port (the “Port”) and a logistics site (the “Park”), which together would form the London Gateway. This Master Agreement was conditional on statutory consents for the development of the Port and the Park being obtained.
4. Under the Master Agreement P&O Ports was to acquire the land required to develop the Port (the “Port Land”) by a Port Sale Agreement. The Port Sale Agreement would impose on P&O Ports the ‘minimum port requirement’ (“MPR”), which required P&O Ports to develop the Port, and if it did not, allowed Shell to re-acquire the Port Land for the sale price adjusted for inflation. Under the Master Agreement, if the statutory consents were obtained, Shell and POSNCo would enter into a Development Agreement to develop land (the “Park Land”) into the Park.
5. In 2006, DP World acquired P&O Ports. At the times relevant to these appeals, the ten Appellants were all subsidiaries of DP World, a Dubai headquartered business. One of the Appellants, LG Park HT2 Limited, has since been sold and it is now called UPS SGP Limited. Fifty per cent of another Appellant has also been sold.
6. In 2007, the statutory consents were obtained for the development of both the Port and the Park. At this stage arbitration proceedings were entered into between Shell and DP World regarding a dispute about whether the relevant conditions had in fact been satisfied. This was in part prompted by a rise in the market value of both the Park Land and the Port Land.
7. On 28 February 2008, the Port Sale Agreement was exchanged between a subsidiary of DP World and Shell. The Port Sale Transfer set out (in paragraph 19) a covenant that the MPR had to be satisfied no later than 28 February 2013 and that if the transferee did not comply with the covenant, the transferor may, as agreed compensation and in substitution for a claim for damages, require the transferee to transfer the Port Land back to the transferor (“the MPR Call Option”).
8. In June 2008, the arbitration proceedings relating to the development of the Park were put on hold and the parties began to discuss a buyout whereby DP World would acquire the Park Land from Shell. The removal of the MPR would have been one of the terms of any compromise of the proceedings. If the MPR had not been waived or satisfied Shell would have otherwise been entitled to reacquire the Port Land for a price below market value and without reimbursing DP World for the money spent developing the Port Land.
9. On 31 December 2009, a number of agreements were entered into, including the agreement for Shell to grant 200-year leases over ten plots of the developable part of the Park Land to the ten Appellants (the “Plot Leases”). The division into ten plots was to enable distinct areas of the Park to attract separate investments. The agreement provided that in consideration for the grant of the Plot Leases, the Appellants would (a) pay “the Price” (a total of £112,568,994 plus VAT) and (b) grant Shell land options over the part of the Park Land covered by their respective Plot Lease.
10. The Plot Leases were granted on 14 January 2010.
11. On 15 January 2010, an Omnibus Deed was entered into between Shell and various DP World companies, including LG Parks. The Omnibus Deed provides that with effect from the date of the deed, certain variations to the Port Sale Agreement and the Port Land Transfer should have effect. This includes a provision that paragraph 19 of the Port Land Transfer (summarised in paragraph 7 above) should cease to have effect. This released DP World from the MPR and the MPR Call Option (the “MPR Release”), meaning Shell's potential right to reacquire the Port Land fell away.
12. Land transaction returns were filed electronically [on] behalf of LG Parks on 12 February 2010. Copies of the returns are not included in the Tribunal's bundles. LG Parks state that the SDLT was calculated on the basis that they were granted the Plot Leases in consideration for, in part, their granting options over the land covered by the Plot Leases and that the transaction was therefore an exchange within the meaning of section 47 Finance Act 2003. Paragraph 5, Schedule 4, Finance Act 2003 (as it applied at the time) provides that the chargeable consideration for SDLT purposes is the market value of the Plot Leases.
13. King Sturge had been instructed to provide various valuations in November 2009, and these put the market value of the Plot Leases at £30.56m. SDLT was paid by reference to King Sturge's market valuation of the Plot Leases, totalling £1,227,636.
14. On 1 March 2010, Norton Rose Fulbright LLP (“NRF”) wrote to HMRC setting out details of the transactions, explaining that the calculation of SDLT in the land transaction returns was by reference to the King Sturge market valuation. The letter went on to explain that the reason for the discrepancy between the consideration paid and the market value of the Plot Leases was that LG Parks were compelled to pay above market value because (i) “the price was the minimum price that Shell was prepared to accept after considerable negotiation” (ii) buying the Park Land was essential to deliver the Port as a viable operation (iii) it was not appropriate for LG Port to acquire the land.
15. On 27 August 2010, HMRC opened enquiries into the LG Parks' land transaction returns. There followed a period of extended correspondence and further discussions between the parties, including meetings between representatives of DP World and the Valuation Office Agency, and a revised valuation of £38.7m was put forward by DP World following advice from KMPG. It appears from the extracts of the correspondence provided to me that at some time between May and October 2013 DP World raised the claim that the price paid was “representative of a number of factors and not merely value of the subject property”. Their letter of 28 October 2013 cites the removal of the MPR as one factor, which “coupled with the fact that Shell refused to sell the subject property for less than the price...
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