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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Cheshire Cavity Storage 1 Ltd & Anor v Commissioners for Her Majesty's Revenue and Customs [2022] EWCA Civ 305 (10 March 2022) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2022/305.html Cite as: [2022] STC 622, [2022] RA 382, [2022] STI 480, [2022] EWCA Civ 305, [2022] BTC 7 |
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(formerly A3/2021/0949) |
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
UT/2019/0156
Judge Timothy Herrington
Judge Swami Raghavan
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE BAKER
and
LADY JUSTICE WHIPPLE
____________________
(1) CHESHIRE CAVITY STORAGE 1 LIMITED (2) EDF ENERGY (GAS STORAGE HOLE HOUSE) LIMITED |
Appellants |
|
-and- |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondent |
____________________
JONATHAN
PEACOCK
QC
& SARAH BLACK (instructed by Enyo Law LLP) for the Appellants
APARNA NATHAN QC
(instructed by HMRC Solicitors Office) for the Respondent
Hearing date : 1 March 2022
____________________
Crown Copyright ©
Lord Justice Lewison:
Introduction
The facts
"I am prepared to accept that the cavities did have a plant like function similar to that of a pump/compressor in that the manner of construction (a large hole in the ground connected by pipes to the NTS) meant that when the pressures were right and the valves open, gas would free flow to or from the cavity. However, I accept the evidence that that was an incident of the construction and not the reason they were constructed in that manner. The main reason gas was stored in salt cavities, as I understood it, was that that gas cavities were a safe method of storing very large amounts of gas in a way that would enable it to be fast-cycled, and thus opened up the possibility of arbitrage on gas prices. I had no evidence that their plant-like ability to act like a pump/compressor was essential: on the contrary, the evidence which I had was that the appellants had little control over when they would be able to free flow gas and they had compressors to move the gas when it was not possible. From the evidence I had I was unable to conclude how often free flow took place and the appellants have therefore failed to show that it was common let alone a main function of the cavities." (Emphasis added)
"While the evidence was that the cavity itself might influence the temperature of the gas, it was not the main influence and, in any event, altering the temperature of the gas was clearly not a function of the cavity."
"But I consider that the purpose of the high pressure was simply to store more gas. So, the ability of the cavities to store gas at high pressure was a premises like function as it meant that the cavities were just very good premises for storing gas. Merely being purpose built and very good at performing their premises-like function of storage did not make the cavities plant."
The legislation
"(1) Allowances are available under this Part if a person carries on a qualifying activity and incurs qualifying expenditure.
…
(4) The general rule is that expenditure is qualifying expenditure if –
(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, and
(b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.
(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3."
The meaning of "plant"
"There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business,—not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business…"
"… the word "plant" in the relevant sense, although admittedly not a term of art, and therefore part of the general English tongue, is not, in this sense, an ordinary word, but one of imprecise application, and, so far as I can see, has been applied to industrial and commercial equipment in a highly analogical and metaphorical sense, borrowed…from the world of botany."
"But the word can mean a vegetable organism deliberately placed in an artificially prepared setting. A gardener can say "I am going to dig my flower beds in readiness for my plants" or: "I am going to buy some plants at my garden centre." It is this sense which gives it its analogical meanings, e.g. in medicine ("an organ transplant"), in crime ("it was planted on me"), or in industry, which is the sense we are now discussing, as the means by which a trade is carried on in an appropriately prepared setting. In each case, the contrast is between the thing implanted, i.e. the plant, and the prepared setting into which it is placed."
Previous cases
"I would agree, however, that there may be cases, like J Lyons & Co Ltd v A-G, where an asset or some article can be excluded from the definition because it is more a part of the setting than part of the apparatus for carrying on the trade. In the present case, however, the contrary is found." (Emphasis added)
There can be no doubt, therefore, as to the main principles to be applied, and the short question in this case is whether the partitioning is part of the premises in which the business is carried on or part of the plant with which the business is carried on. Either view could have been taken. It could have been said that the so-called partitioning, when erected, constitutes the internal walls of the building…. So regarded, the partitioning would be part of the premises and not plant. The other possible view is that the respondent company, instead of having internal walls in their office building, need to have, and do have, for the special requirements of their business, movable partitioning … On that view of the facts, the partitioning undoubtedly can be regarded as "plant." I think the commissioners have, in effect, preferred the second view, and it cannot be said that there was no evidence to support it, or that any error of principle was involved." (Emphasis added)
"As the commissioners observed, buildings or structure and machinery and plant are not mutually exclusive… Undoubtedly this concrete dry dock is a structure but is it also plant? The only reason why a structure should also be plant which has been suggested or which has occurred to me is that it fulfils the function of plant in the trader's operations. And, if that is so, no test has been suggested to distinguish one structure which fulfils such a function from another. I do not say that every structure which fulfils the function of plant must be regarded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient." (Emphasis added)
"Here it is apparent that there are two stages in the respondents' operations. First the ship must be isolated from the water and then the inspection and necessary repairs must be carried out. If one looks only at the second stage it would not be difficult to say that the dry dock is merely the setting in which it takes place. But I think that the first stage is equally important, and it is obvious that it requires massive and complicated equipment. … It seems to me that every part of this dry dock plays an essential part in getting large vessels into a position where work on the outside of the hull can begin, and that it is wrong to regard either the concrete or any other part of the dock as a mere setting or part of the premises in which this operation takes place. The whole dock is, I think, the means by which, or plant with which, the operation is performed." (Emphasis added)
"Clearly land in its natural state is not plant although its configuration may be such that its use is an essential element in a trading operation. The soil on a farm is not plant although cultivation has greatly improved it. So a loch which impounds water is not plant although a trader uses it as the source of the water he needs. And a dam is generally simply an improvement of the loch giving a better supply. But I could imagine circumstances in which a dam would be such an integral part of the means required for a trading operation that it should be regarded as plant."
"So the question is whether, if the dock is plant, the cost of making room for it is expenditure on the provision of the plant for the purposes of the trade of the dock owner. In my view, this can include more than the cost of the plant itself because plant cannot be said to have been provided for the purposes of the trade until it is installed: until then it is of no use for the purposes of the trade. This plant, the dock, could not even be made until the necessary excavating had been done. All the commissioners say in refusing this part of the claim is that this expenditure was too remote from the provision of the dry dock. There, I think, they misdirected themselves. If the cost of the provision of plant can include more than the cost of the plant itself, I do not see how expenditure, which must be incurred before the plant can be provided, can be too remote." (Emphasis added)
"The conjunction of "machinery" and "plant" suggest to me that they both must perform some active function. In order to decide whether a particular subject is an "apparatus" it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary." (Emphasis added)
"The function which the dry dock performs is that of a hydraulic lift taking ships from the water onto dry land, raising them and holding them in such a position that inspection and repairs can conveniently be effected to their bottoms and sides. It is unrealistic, in my view, to consider the concrete work in isolation from the rest of the dry dock. It is the level of the bottom of the basin in conjunction with the river level which enables the function of dry docking to be performed by the use of dock gates, valves and pumps. To effect this purpose excavation and concrete work were necessary."
"The excavation was a necessary preliminary to the construction of the dry dock…. "Provision" must cover something more than the actual supply. In this case it includes the excavation of the hole in which the concrete is laid."
"The dry dock ought, I think, for present purposes to be regarded as a whole with all its appurtenances of operating machinery, power installations, keel blocks, tubular side shores, and so on. So regarded, is it "plant" or not?"
"But in the present case this dry dock, looked upon as a unit, accommodates ships, separates them from their element and thus exposes them for repair; holds them in position while repairs are effected, and when this is done returns them to the water. Thus the dry dock is, despite its size, in the nature of a tool of the respondents' trade and, therefore, in my view, "plant." I think it differs from a dam which, for the moment at least, I regard more as a storehouse for water."
"As regards the cost of the necessary excavation, I think this comes within the words "expenditure on the provision of machinery or plant" in section 279 (1), again regarding the dry dock as a whole. Similar expenditure incurred in relation to a building or structure is now regarded as "expenditure on the construction" of such building or structure for the purposes of section 265 (1) without any further or more express provision, and I think rightly so."
"Considering the function of the silos in relation to this trade, we found that they served an essential part of the overall trade activity. Their own separate function was to hold grain in a position from which it could conveniently be discharged in varying quantities."
"… illuminates their function of reception and distribution, cooling and turning over, and, if necessary, fumigation, in connection with the company's trade of grain importing, in which, as the commissioners have found in para 16, 'storage played only a trifling part'."
"I conclude, accepting Mr. Nolan's argument for the company, (1) that the commissioners were entitled to find that the silos, which were admittedly structures, were also plant, (2) that plant does not require to be mechanically active in its operation (although, to the extent that it is so, the distinction from a mere structure is easier to appreciate), and (3) that the question for decision must be considered in relation to the trading activities as a whole, in the same way as the courts in Barclay, Curle looked at the concrete sides and bed of the dry dock in the light of the mechanical plant with which they were combined. I also accept his submission that the commissioners' decision gains support from the analogy of the water tower and the dry dock and that the silos were not mere shelters for men or gain.
If I may borrow Lord Guthrie's expression in Barclay, Curle at p. 274E, in my opinion the commissioners addressed themselves to the correct legal issue and properly applied the law to the facts found by them. In those circumstances their decision of a question which I regard as one of fact and degree should stand." (Emphasis added)
"My opinion on the point as it is now presented to us is that the workhouse and the rest of the silo have to be considered as one unit and that, according to the decision we have reached in affirmance of the commissioners, the former takes its colour from the character of the entire silo and is therefore plant. It would, moreover, be in my view unrealistic to regard the three external walls and the roof of the warehouse as a building capable of a rational existence independently of the fourth wall and of the hoisting machinery within the workhouse. To say that they constituted the mere setting within which the trade was carried on appears to be less appropriate than to regard them as a part of the apparatus with which it is carried on. This part of the apparatus is a covered hoist forming a portion of the entire plant." (Emphasis added)
"It plainly appears, therefore, that if, and only if, land, premises or structures in addition to their primary purpose perform the function of plant, in that they are the means by which a trading operation is carried out, then for the purposes of income tax and corporation tax the land, premises or structures are treated as plant…. If land, premises or structures operate as the means by which a trading operation is carried out, then they rank as plant."
"Premises only become plant if they perform the function of plant."
"(2) The law does not supply a definition of plant or prescribe a detailed or exhaustive set of rules for application to any particular set of circumstances, and there are cases which, on the facts found, are capable of decision either way. (3) A decision in such a case is a decision on a question of fact and degree and cannot be upset as being erroneous in point of law unless the commissioners show by some reason they give or statement they make in the case stated that they have misunderstood or misapplied the law in some relevant particular." (Emphasis added)
"It is important to notice the various discriminations which are stated or implied in this description. First, it excludes anything which is not used for carrying on the business. Secondly, it excludes stock-in-trade both expressly and because, although used for the purposes of the business, its use lacks permanence. Thirdly, it excludes things which are not "apparatus … goods and chattels, fixed or moveable, live or dead" or not employed in the business. This excludes the premises or place in or upon which the business is conducted.
Before going any further I must say something about the third distinction and the way in which the courts in subsequent cases have refined the boundary between plant and premises. The words 'apparatus ... goods and chattels, fixed or moveable, live or dead' might suggest that the distinction turns upon whether the item is a chattel or fixture on the one hand or a building or structure on the other. This was the view of the minority in the House of Lords in IRC v Barclay, Curle & Co Ltd… But the majority held that even a building or a structure (in that case a dry dock) could be plant if it was more appropriate to describe it as apparatus for carrying on the business or employed in the business than as the premises or place in or upon which the business was conducted. By this test a swimming pool used in connection with the operation of a caravan park has been held to be plant, in Cooke (Inspector of Taxes) v Beach Station Caravans Ltd…, while conversely, in Benson (Inspector of Taxes) v Yard Arm Club…, a ship used as a floating restaurant, although a chattel, was held not to be plant because it was the place in which the business was conducted: see Lord Lowry in IRC v Scottish Newcastle Breweries Ltd…." (Emphasis added)
"There is a well established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. In its simplest form that is illustrated by Lord Lowry's example of the creation of atmosphere in a hotel by beautiful buildings and gardens on the one hand and fine china, glass and other tableware on the other. The latter are plant; the former are not. The former are simply the premises in which the business is conducted.
The distinction, however, needs to be elaborated, for present purposes, by reference to Lord Lowry's further formulation, namely that the fact that different things may perform the same function of creating atmosphere is not relevant: one thing may function as part of the premises and the other as part of the plant. Thus, "something which becomes part of the premises instead of merely embellishing them is not plant except in the rare case where the premises are themselves plant". The latter part of those observations is a reminder that it is not sufficient to say that something is part of the real property. It can still be plant as the Barclay Curle and Beach Station Caravan cases show. Moreover, the test is not whether the item is a fixture. Central heating apparatus must, I think, be plant. But there may be cases in which the degree of affixation is a matter to be taken into consideration." (Emphasis added)
"It is proper to consider the function of the item in dispute. But the question is what does it function as? If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is, by its construction particularly well-suited to the business, or indeed was specially built for that business, does not make it plant. Its suitability is simply the reason why the business is carried on there. But it remains the place in which the business is carried on and is not something with which the business is carried on." (Emphasis added)
"I would agree with Hoffmann J that the question is whether it would be more appropriate to describe the item as part of the premises rather than as having retained a separate identity." (Emphasis added)
i) Plant carries with it a connotation of equipment or apparatus, either fixed or unfixed. It does not convey a meaning wide enough to include buildings in general.
ii) The expression "machinery or plant" is apt to include equipment of any size. The equipment does not cease to be plant because it is so substantial that, when fixed, it attracts the label of a structure or, even, a building.
iii) Equipment does not cease to be plant merely because it also discharges an additional function, such as providing the place in which the business is carried out. For example, when a ship is repaired in a dry dock, the dock also provides the place where the repair work is carried out.
iv) Buildings, which are not normally be regarded as plant, do not cease to be buildings and become plant simply because they are purpose-built for a particular trading activity.
v) One of the functions of a building is to provide shelter and security for people using it and for goods inside it. A building used for those purposes is being used as a building. Thus a building does not partake of the character of plant simply, for example, because it is used for storage by a trader carrying on a storage business.
"I recognise that the consequence of this is to draw a stark contrast in the present case between the temporary movable kennels and the permanent immovable kennels. The former are plant, and the latter are not. I do not find this odd. Both perform a similar function, of housing and segregating the animals. But the latter, unlike the former, have been constructed in such a way that they are on the buildings or premises side of the boundary line drawn by the legislation."
"Here there is no doubt that the planteria passes the business use test and is not used as stock-in-trade. So the question is whether it can reasonably be held to pass the premises test."
"The fact that the planteria provides the function of nurturing and preserving the plants while they are there cannot transform it into something other than part of the premises in which the business is carried on. The highest it can be put is that it functions as a purpose-built structure. But as Fox LJ and Sir Donald Nicholls V-C make clear, that is not enough to make the structure plant."
"It is not enough, in my view, to point to particular features of parts of the structure which perform plant-like functions in London Electricity's business, and conclude from those features that it is more appropriate to describe the structure as a whole, (i.e. the entity rather than its parts), as apparatus for carrying on London Electricity's business than as the premises in which the business is carried on."
"It is hard to see how land, as distinct from a structure, could ever be apparatus functioning as plant."
"The question in each case is, as Fox LJ said (in Wimpy [1989] STC 273 at 280): does the item function as premises or plant? To answer this may involve deciding whether it is more appropriate to describe the item as apparatus for carrying on the business or as the premises in or upon which the business is conducted." (Emphasis added)
"I agree with Mr Milne that the AWT is not land in its natural state. It is synthetic in nature. It has a limited life, unlike land in its natural state. I also agree with him that the AWT is not a building affording shelter or security. Those features of the AWT do not, however, prevent the AWT from functioning as premises on or in which the trade of horse racing is conducted. The effect of the AWT is to enlarge the area of the racecourse space available to Lingfield to function as premises, on which more frequent horse racing can take place."
Are the cavities plant?
"The question in each case is whether the item functions as premises or plant. To answer this may involve deciding whether it is more appropriate to describe the item as apparatus for carrying on the business or as the premises in or upon which the business is conducted."
The test in this court
"Often a statutory test will require a multi-factorial assessment based on a number of primary facts. Where that it so, an appeal court (whether first or second) should be slow to interfere with that overall assessment – what is commonly called a value-judgment."
"So, on a challenge to an evaluative decision of a first instance judge, the appeal court does not carry out a balancing task afresh but must ask whether the decision of the judge was wrong by reason of some identifiable flaw in the judge's treatment of the question to be decided, "such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion"."
Result
Lord Justice Baker:
Lady Justice Whipple: