Urenco Chemplants Ltd and Another v R & C Commissioners
| Jurisdiction | England & Wales |
| Judge | Sir Launcelot Henderson,Lord Justice Arnold,Lady Justice Thirlwall |
| Judgment Date | 01 December 2022 |
| Neutral Citation | [2022] EWCA Civ 1587 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-000653 |
[2022] EWCA Civ 1587
Lady Justice Thirlwall
Lord Justice Arnold
and
Sir Launcelot Henderson
Case No: CA-2022-000653
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Mr Justice Mellor and Upper Tribunal Judge Thomas Scott
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Peacock KC and Michael Ripley (instructed by Enyo Law LLP) for the Appellants (Urenco)
Jonathan Bremner KC and Edward Waldegrave (instructed by the General Counsel and Solicitor to HMRC) for the Respondents (HMRC)
Hearing dates: 5 and 6 October 2022
Approved Judgment
This judgment was handed down remotely at 10.30am on 1 st December 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives
Introduction
This case concerns the availability of capital allowances for expenditure on the construction of a specialised facility for the treatment and management of highly toxic and radioactive waste in the civil nuclear industry, by a process known as “deconversion”. The disputed expenditure was incurred by a company in the Urenco group called Urenco Chemplants Limited, in its yearly accounting periods ended 31 December 2011 to 31 December 2015 inclusive. The facility in question is at Capenhurst in Cheshire, and is known as a “Tails Management Facility” or “TMF”.
Construction of the TMF at Capenhurst was substantially completed in 2018, at a total cost of approximately £1 billion. The treatment for capital allowance purposes of most of this expenditure was agreed between Urenco and the Revenue, but disputes remained in relation to claims for allowances of approximately £192 million. These disputes led to appeals to the First-tier Tribunal (“FTT”) brought by Urenco Chemplants Limited against two discovery determinations and four closure notices made and notified by the Commissioners for HM Revenue and Customs (“HMRC”) in December 2017, covering the five years in issue. There was also a further appeal by another company in the group, Urenco UK Limited, in respect of consequential losses surrendered to it by Urenco Chemplants Limited.
Nothing turns on the separate identity of companies in the Urenco group, and I shall therefore follow the FTT and the Upper Tribunal (“UT”) in generally referring to the two appellant companies, as well as to the corporate group, as “Urenco”.
The FTT (Judge Jonathan Cannan) released its decision (“the FTT Decision”) on 7 August 2019, after a four-day hearing in December 2018 and an earlier one-day site visit on 14 September 2018, when Judge Cannan said that he was “shown all aspects of the TMF” before it became operational: see the FTT Decision, [2019] UKFTT 522 (TC), at [9]. The parties were represented before the FTT, as they have been subsequently, by Mr Jonathan Peacock KC leading Mr Michael Ripley for Urenco, and Mr Jonathan Bremner KC leading Mr Edward Waldegrave for HMRC. I express the gratitude of the court to them all.
The FTT held that Urenco was not entitled to capital allowances for any of the disputed expenditure, because (a) most of it was not incurred “on the provision of plant or machinery” within the meaning of section 11 of the Capital Allowances Act 2001 (“ CAA 2001”), and (b) the whole of the expenditure was, in any event, excluded from allowances by section 21 of CAA 2001, on the grounds that it was expenditure “on the provision of a building”. The FTT also considered whether any of the expenditure was saved from the effect of section 21 by certain exceptions, or “carve-outs”, contained in List C set out in section 23 of CAA 2001 (“List C”). The FTT concluded that none of the exceptions upon which Urenco sought to rely was applicable. Accordingly, Urenco's appeals were all dismissed.
Urenco then appealed to the UT (Mellor J and Judge Thomas Scott), which released its decision (“the UT Decision”) on 28 January 2022: see [2022] UK UT 00022 (TCC). It is notable that Urenco did not challenge any of the FTT's findings of fact, nor did either side contend that the FTT had misunderstood the legal principles which govern the question of what constitutes “plant” for the purposes of CAA 2001. Nevertheless, the UT detected what it considered to be material errors of law in the FTT's treatment of the issues relating to the “provision of plant” and the “provision of a building” under sections 11 and 21 of CAA 2001. The UT therefore set aside the FTT Decision and remitted the case to the FTT to remake the relevant decisions on those two issues. The UT also dismissed Urenco's appeal on the potential applicability of Items contained in List C.
Both sides now appeal to this court against aspects of the UT Decision. HMRC pursue three grounds of appeal, for which permission was granted by the UT. In short, the grounds are that the UT was wrong in law:
a) to set aside the FTT's decision on the “provision of a building” issue (Ground 1);
b) to set aside the FTT's decision that (most of) the disputed assets did not, in principle, constitute “plant” for the purposes of section 11 of CAA 2001 (Ground 2); and
c) to conclude that the part of the disputed expenditure attributable to the walls and first floor slab of the vaporisation facility was “on the provision of” plant or machinery for the purposes of section 11 (Ground 3).
In granting permission to appeal, the UT said that in its view all these grounds “raise important points of principle of wider application”.
Urenco appeals on two grounds, with permission granted for the first by the UT, and for the second by this court (Lewison LJ) on 16 May 2022. The first ground relates to Items 1 and 4 of List C, and contends that, properly construed, they apply to expenditure “on the provision of” those items, and not merely to expenditure “on” them as the UT held. The second ground relates to Item 22 in List C, which provides a carve-out for expenditure on “[t]he alteration of land for the purpose only of installing plant or machinery”; it contends that the UT wrongly held Item 22 did not apply to the disputed assets on the facts found by the FTT.
Facts
At this stage it is unnecessary to give more than a short summary of the basic facts, mainly taken from the “background” section of the UT Decision at [3] to [10].
The Urenco group provides about 30% of the global enriched uranium supply for the civil nuclear industry. The group has uranium enrichment plants in the UK, Germany, the Netherlands and the USA. The UK facility is at Capenhurst.
Depleted uranium hexafluoride, or “Tails”, is a radioactive and highly toxic by-product of uranium enrichment. The TMF at Capenhurst was built to process Tails safely by way of “deconversion”. Tails are not only radioactive and toxic, but also unstable and highly corrosive. The deconversion process carried out in the TMF involves removing the fluorine content of the Tails in the form of hydrofluoric acid, leaving a stable but still radioactive uranium oxide compound which can be stored more easily. The hydrofluoric acid which is produced can be sold for industrial use unless it has any radioactive contamination, in which case it is safely destroyed. The uranium oxide is stored at the TMF.
The TMF at Capenhurst processes Tails from Urenco's facilities in the UK, Germany and the Netherlands. It has eight to ten operators on shift at any one time. Certain areas of the site are designed to be unoccupied save for necessary inspection and maintenance purposes.
There are five key facilities at the TMF, which operate as follows:
i) The “ cylinder handling facility” or “CHF”. Tails arrive at the TMF in large cylinders transported by lorry. Once received, the cylinders are placed on cradles before being transported by an internal rail system to the vaporisation facility. Once emptied, the cylinders remain radioactive and are returned to the CHF to “cool down” for a period of 90 to 100 days.
ii) The “vaporisation facility”. In this facility, full cylinders are heated in autoclaves and the Tails, in gaseous form, are extracted and transferred through a network of pipes to the kiln facility.
iii) The “kiln facility”. This contains two kilns which carry out the deconversion process, producing uranium oxide in powder form and hydrofluoric acid.
iv) The “condenser facility”. The hydrofluoric acid generated by the deconversion process is transferred to this facility, where it is refined to a liquid state in which it can be sold.
v) The “uranium oxide store” or “UOS”. The uranium oxide generated by deconversion is loaded in powder form into steel storage containers, known as DV70s. These are transferred to the UOS, where they are stored for up to 100 years.
As one would expect, Urenco was obliged to comply with stringent regulatory and Health and Safety requirements in respect of the design, construction and operation of the TMF. The FTT made detailed findings of fact about these matters in the FTT Decision, at [24] to [39]. Thus, for example, the Capenhurst site was required to have a nuclear site licence issued by the Office for Nuclear Regulation, and Urenco had to meet safety objectives framed in terms of outcomes which had to be achieved, such as maximum permitted levels of radiation dosages. The FTT also explained, at [26]:
“In order to satisfy the safety objectives, it has been necessary to construct certain “safety significant structures”. The purposes of safety significant structures are:
i) To provide radiation shielding, blocking the path of radiation, and/or
ii) To provide containment, preventing the release of radioactive particles, and/or
iii) To support machinery, equipment and...
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