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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Northern Gas Networks Ltd v Commissioners for Her Majesty's Revenue and Customs [2022] EWCA Civ 910 (01 July 2022) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2022/910.html Cite as: [2022] STC 1241, [2022] EWCA Civ 910, [2022] BTC 20, [2023] Env LR 6 |
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ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
MR JUSTICE MEADE and UPPER TRIBUNAL JUDGE RICHARDS
[2021] UKUT 157 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE BAKER
and
LORD JUSTICE DINGEMANS
____________________
NORTHERN GAS NETWORKS LTD |
Appellant |
|
| - and - |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
David Yates QC (instructed by HMRC Solicitor's Office) for the Respondent
Hearing date : 23 June 2022
____________________
VERSION
OF APPROVED JUDGMENT
Crown Copyright ©
Lord Justice Lewison:
Introduction
Northern
Gas
Networks
Ltd ("NGN") is entitled to land remediation relief under Schedule 22 to the Finance Act 2001. Both the FTT (Judge Beare and Mr Adrain) and the UT (Meade J and Judge Jonathan Richards) decided that it was not. The decision of the FTT is at [2020] UKFTT 101 (TC); and that of the UT is at [2021] UKUT 157 (TCC), [2021] STC 1776.
The facts
gas
distribution
networks
in the UK. It acquired that
network
in 2005 and thereby obtained, and became responsible for, some 37,000 kilometres of
gas
pipeline much of which was made of iron. Iron pipes are liable to corrode or fracture over time and thus gave rise to the risk of escaping
gas
and
gas
explosions. In consequence, the Health and Safety Executive has, since 2001, introduced a compulsory requirement for
gas
distribution companies, such as NGN, to update and improve their
networks
of iron pipes. That programme was known as the "30/30 Programme" because it required the replacement or improvement, over a 30-year period, of "at risk" mains pipelines located within 30 metres of a building. Following its acquisition of the
network
in 2005, NGN complies with this requirement by replacing certain of its iron pipes with high density polyethylene ("HDPE") pipes or lining existing iron pipes with HDPE pipes.
gas
distribution business by means of a purchase of assets (referred to as the "hive down") from National Grid Transco plc ("NGT") in 2005. At the time of the hive down, NGN was a subsidiary of NGT. The relationship of parent and subsidiary is a "relevant connection" for the purposes of land remediation relief. A few months after the hive down, the shares in NGN were sold out of the NGT group with the result that, at that point, NGN ceased to be a subsidiary of NGT.
gas
distribution
network.
Those pipes were laid underneath
various
pieces of land, some privately owned (including by NGN itself) and some publicly owned. It was common ground both before the FTT and the UT that the pipes themselves remained chattels and had not become part of the land. Although I have some doubts whether that common ground was correct, I do not seek to disturb it.
Gas
Act 1986.
gas.
It was common ground that neither NGN, NGT or any company connected with either of them had themselves originally laid the iron pipes that were the object of the expenditure in dispute.
network
of iron pipes. It was common ground that, when performing work on a particular pipe, NGN would ensure that the flow of
gas
through that pipe was suspended. It was also common ground that it would not have been practicable for NGN to pause all transmission of
gas
through iron pipes until those pipes were satisfactorily renewed or replaced. Such a pause would have lasted for several years at least, would have prevented many households in the North and North East of England from obtaining
gas
during that period, and would have caused NGN to be in breach of its statutory and regulatory obligations where necessary.
The legislation
"2 Qualifying land remediation expenditure
(1) For the purposes of this Schedule "qualifying land remediation expenditure" of a company means expenditure of the company that meets the conditions in sub-paragraphs (2) to (6).
(2) The first condition is that it is expenditure on land all or part of which is in a contaminated state (see paragraph 3).
(3) The second condition is that the expenditure is expenditure on relevant land remediation directly undertaken by the company or on its behalf (see paragraph 4).
(4) The third condition is that the expenditure is incurred–
(a) on employee costs (see paragraph 5), or
(b) on materials (see paragraph 6),
or is qualifying expenditure on sub-contracted land remediation (see paragraphs 9 to 11).
(5) The fourth condition is that the expenditure would not have been incurred had the land not been in a contaminated state (see paragraph 7).
(6) The fifth condition is that the expenditure is not subsidised (see paragraph 8).
3 Land in a contaminated state
(1) For the purposes of this Schedule land is in a contaminated state if, and only if, it is in such a condition, by reason of substances in, on or under the land, that–
(a) harm is being caused or there is a possibility of harm being caused…
4 Relevant land remediation
(1) For the purposes of this Schedule relevant land remediation, in relation to land acquired by a company, means–
(a) activities falling within sub-paragraph (2), and
(b) if there are such activities, preparatory activity falling within sub-paragraph (4) which satisfies the condition in sub-paragraph (5).
(2) The activities referred to in sub-paragraph (1)(a) are the doing of any works, the carrying out of any operations or the taking of any steps in relation to–
(a) the land in question,
(b) any controlled waters affected by that land, or
(c) any land adjoining or adjacent to that land,
for the purpose described in sub-paragraph (3).
(3) The purpose referred to in sub-paragraph (2) is that of–
(a) preventing or minimising, or remedying or mitigating the effects of, any harm, or any pollution of controlled waters, by reason of which the land is in a contaminated state; or
(b) restoring the land or waters to their former state. …
12 Entitlement to relief
(1) This paragraph applies if–
(a) land in the United Kingdom is, or has been, acquired by a company for the purposes of a Schedule A business or a trade carried on by the company,
(b) at the time of acquisition all or part of the land is or was in a contaminated state, and
(c) the company incurs qualifying land remediation expenditure in respect of the land.
(2) A company is entitled to land remediation relief for an accounting period if the company's qualifying land remediation expenditure is deductible in that period.
(3) The company's qualifying land remediation expenditure is deductible in that period if it is allowable as a deduction in computing for tax purposes the profits for that period of a Schedule A business or a trade carried on by the company.
(4) A company is not entitled to land remediation relief in respect of expenditure on land all or part of which is in a contaminated state, if the land is in that state wholly or partly as a result of any thing done or omitted to be done at any time by the company or a person with a relevant connection to the company.
31 Interpretation
In this Schedule–
(1) "harm" means–
(a) harm to the health of living organisms,
(b) interference with the ecological systems of which any living organisms form part,
(c) offence to the senses of human beings, or
(d) damage to property…
"land" means any estate, interest or rights in or over land…
"substance" means any natural or artificial substance, whether in solid or liquid form or in the form of agas
or
vapour."
i) NGN acquired "land" in the UK.
ii) The land was acquired for the purposes of NGN's trade.
iii) At the time of acquisition, all or part of the land was in a "contaminated state".
iv) NGN incurred qualifying land remediation expenditure in respect of the land.
v)
The qualifying land remediation expenditure was allowable as a deduction in computing the profits of NGN's trade.
vi)
The land must not have been in a contaminated state wholly or partly as a result of anything done or omitted to be done at any time by NGN or a person with a relevant connection to NGN.
The decisions below
gas
through the pipes (which was in the nature of an easement), it was a right in land and thus fell within the definition of "land". For the purpose of Condition (3), however, "land" meant the physical land over or under which the right subsisted (the servient land). That interpretation was necessary because it cannot be said that an incorporeal hereditament is contaminated; nor can one spend money on an incorporeal hereditament, as opposed to the servient land. That, in turn, meant that the word "land" could not, or could not necessarily, be given a consistent meaning throughout the schedule. The FTT also decided, contrary to NGN's submissions, that Condition (4) was not satisfied. That was enough to dispose of NGN's claim for land remediation since NGN needed to satisfy all of Conditions (1) to (6). However, the FTT went on to conclude that Condition (6) was not satisfied either.
view
that Condition (4) was not satisfied either.
Condition (6)
"A company is not entitled to land remediation relief in respect of expenditure on land all or part of which is in a contaminated state, if the land is in that state wholly or partly as a result of any thing done or omitted to be done at any time by the company or a person with a relevant connection to the company"
i) The main problem with iron pipes is their potential to fracture. If a pipe fails while there is
gas
flowing through it then there is a risk of
gas
escaping and causing an explosion: paragraph [12] (11).
ii) The iron pipes themselves pose no risk to persons or property; instead it is the presence of
gas
within those pipes that does so: paragraph [12] (12); and
iii) The
gas
which flows through the pipes does not increase the risk of fracture or cause or contribute to the corrosion of the pipes: paragraph [12] (11).
gas)
is not attributable to the iron pipes alone or to the
gas
alone. It is the combination of the two that gives rise to the harm. The possibility of harm arises from the fact that if the iron pipes are corroded or fractured the
gas
could escape. At [36] the UT proceeded on the assumption that that was correct. Nevertheless, the UT reasoned that the land was contaminated at least partly because
gas
was being pumped through the pipes. NGN pumped the
gas
through the pipes and the harm was, therefore, partly a result of acts of NGN, namely the pumping of the
gas
through the pipes. Since Condition (6) is not satisfied if the land is in a contaminated state "wholly or partly" as a result of anything done or omitted to be done by the company, Condition (6) was not satisfied.
gas
through the pipes did not exacerbate the risk of harm. NGN acquired land that was already contaminated because it acquired land in which there were iron pipes and
gas
was being pumped through them. Neither NGN nor NGT was responsible for the land becoming contaminated. At best, NGN's action in pumping
gas
through the pipes continued the contamination that already existed at the date of acquisition. It did not in any sense add to the contamination. Indeed, as its replacement programme took effect, the level of contamination was progressively reduced. The real question is whether NGN (or before it NGT) was responsible for the combined state of affairs consisting of the transport of
gas
through the iron pipes. The logical outcome of the UT's analysis is that if a company acquires contaminated land and does not immediately rectify the contamination; or if it only mitigates the contamination, then it is denied relief. That is inconsistent with the definition of relevant land remediation in paragraph 4 which expressly includes work for the purpose of "minimising … or mitigating the effects of, any harm."
v
Secretary of State for the Home Department [2022] 1 UKSC 3, [2022] 2 WLR 343 at [29]. Thus statutory interpretation is an exercise which requires the court to identify the "meaning borne by the words in question in the particular context" (R
v
Secretary of State for the Environment ex p Spath Holme Ltd [2001] 2 AC 349, 396). An appeal to a purposive interpretation of an enactment is of particular utility where there is no obvious meaning of the words that Parliament has used (IRC
v
McGuckian [1997] 1 WLR 991, 999) but it still requires the court to interpret the language that Parliament has used (Pollen Estate Trustee Co Ltd
v
HMRC [2013] EWCA Civ 753, [2013] 1 WLR 3785 at [24]). In this case, I cannot see that the words that Parliament has used leave room for doubt.
gas
was being pumped through the iron pipes. The entity responsible for the pumping of
gas
at the date of acquisition was NGT (which had a relevant connection with NGN) and the entity responsible for pumping
gas
between the date of acquisition and the date of the expenditure was NGN itself.
gas
through them. If no
gas
had been pumped, the land would not have been contaminated. NGN has done that since it acquired the land, and continues to do so; and it is the continuing pumping of the
gas
through the pipes that gives rise to the need for the works. The reason why the land "is" contaminated is NGN's continued pumping of the
gas.
That is an "act" of NGN which gives rise to (or causes) the contamination. I accept that because NGN did not itself lay the iron pipes the contamination is not "wholly" as a result of its acts or omissions. But I cannot escape from the conclusion that it is "partly" the result of its acts or omissions. Even on NGN's argument it is continuing the contamination that existed when it acquired the land. So if one poses Mr Peacock's question: is NGN responsible for the combined state of affairs, namely the combination of iron pipes and the transmission of
gas,
I consider that the only possible answer is that it is partly responsible for that state of affairs. Mr Peacock also argued that the "thing done" which caused the contamination was the laying of the iron pipes. But that seems to me to be inconsistent with the finding of the FTT that the iron pipes themselves pose no risk to persons or property; instead it is the presence of
gas
within those pipes that does so.
"The non-performance or neglect of an action which one has a moral duty or legal obligation to perform"
gas.
gas
transporter, could never claim the enhanced deduction. That may well be right, but that is because NGN continued to pump
gas
through the pipes. Had it ceased to pump the
gas,
then the likelihood is that at the time when the expenditure was incurred it would not have been possible to say that the land "is" contaminated, as required by paragraph 2 (2).
"We quite accept that imperfect or partial land remediation is capable of attracting relief. However, we think it is a quite different issue from that which confronts us. The question before us is whether para 12(4) is engaged in NGN's factual situation. Paragraph 12(4) is concerned to ensure that a company should not obtain enhanced relief where the harm or risk of harm results, wholly or partly, from the actions of the company or a person with a relevant connection. In this case, NGN is seeking enhanced relief for expenditure incurred on remedying a 'harm' that results quite clearly in part from its activity, and the activity of NGT before it, of distributinggas.
NGT is entitled to an ordinary trading deduction for that expenditure. However, both the policy behind the legislation and the clear words of para 12(4) disqualify it from entitlement to the enhanced deduction. There is no anomaly in a company having no responsibility for the contaminated state of land obtaining enhanced relief for imperfect remediation, while a company which had at least partial responsibility for the contamination obtains no such enhanced relief."
v
Conservators of Wimbledon and Putney Commons [2008] EWCA Civ 200, [2008] 1 WLR 1172 at [31]:
"In general, it is unwise to deliver judgments on points that do not have to be decided. There is no point in cluttering up the law reports with obiter dicta, which could, in some cases, embarrass a court having to decide the issue later on."
Condition 4
view
to providing NGN with safe, durable pipes which it could use in its business of transporting
gas.
Consequently, the requisite connection with land was not present. Since satisfaction or otherwise of Condition 4 is not relevant either to the appeal before the UT or the appeal to this court, and I have some doubt whether the basis of the discussion is correct, I prefer not to express a
view
about it. I should not be taken as endorsing the reasoning of the UT on this point.
Condition 3
view
about Condition 3, especially since we do not have the considered
views of the UT on that issue, although my impression is that the reasoning of the FTT on this point is persuasive.
Result
Lord Justice Baker:
Lord Justice Dingemans: