ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
MR JUSTICE HART
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE POTTER
LORD JUSTICE MUMMERY
and
LORD JUSTICE SCOTT BAKER
Between :
LINGFIELD PARK (1991) LIMITED | Appellant |
- and - | |
SHOVE | Respondent |
MR DAVID MILNE QC & MISS ELIZABETH WILSON (instructed by Nicholson Graham & Jones) for the Appellant
MR TIMOTHY BRENNAN QC (instructed by the Solicitor of Inland Revenue) for the Respondent
Hearing dates : 15th March 2004
JUDGMENT
Lord Justice Mummery :
Capital Allowances: General
This appeal is about a disputed claim against tax for a large sum of capital expenditure on the installation of an artificial track for horse racing. It turns on whether that item was “plant” within s 24 of the Capital Allowances Act 1990 (the 1990 Act). As there is no statutory definition of “plant,” the capital allowance provisions in the 1990 Act and in the earlier legislation have inevitably attracted a mass of judicial interpretation, which remains relevant, even though the provisions have been repealed, rewritten and replaced in the Capital Allowances Act 2001.
Section 24 provided that-
“(1) Subject to the provisions of this Part, where-
(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly or exclusively for the purposes of the trade, and
(b) in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section.”
In Commissioners of Inland Revenue v. Scottish & Newcastle Breweries Ltd (1982) 55 TC 251 at Lord Wilberforce reflected on the interpretation of undefined expressions in fiscal legislation, such as “trade”, “income” “office” and “plant”-
“ It naturally happens that as case follows case, and one extension leads to another, the meaning of the word gradually diverges from its natural or dictionary meaning. This is certainly true of “plant.” No ordinary man, literate or semi-literate, would think that a horse, a swimming pool, moveable partitions, or even a dry dock was plant-yet each of these has been held to be so: so why not such equally improbable items as murals, or tapestries, or chandeliers?”
Lord Wilberforce’s trawl through the authorities (which he observed display “some agreeable casuistry”) led him to this general conclusion at p 271A-B-
“There is no universal formula which can solve these puzzles. In the end each case must be resolved, in my opinion, by considering carefully the nature of the particular trade being carried on, and the relation of the expenditure to the promotion of the trade. I do not think that the court should shrink, as a backstop, from asking whether it can really be supposed that Parliament desired to encourage a particular expenditure out of, in effect, taxpayers’ money, and perhaps ultimately, in extreme cases, to say that this is too much to stomach.”
In this case the court does not have to resort to the “too much to stomach” approach. The “business use test” and the “premises test” laid down in the cases are a sound legal foundation for deciding whether or not the taxpayer’s artificial racecourse is plant.
The Proceedings
The taxpayer company, Lingfield Park (1991) Limited (Lingfield), carries on the trade of organising and promoting horse races at Lingfield Park Racecourse. On 6 March 1991 Lingfield acquired the assets and business of a company in receivership, Lingfield Park Limited, which had carried on a similar trade. For the purposes of its trade that company had installed, alongside the existing grass racecourse, an artificial race track called an All-Weather Race Track (AWT). The total contract price was £4m. The grass track and the AWT were part of a large leisure complex site consisting of access roads, squash courts, gymnasium, golf course, grandstand, restaurants, bars, car parks, horse walks, stabling, betting shops and waiting areas.
Lingfield claimed that capital expenditure of £2,962,650 incurred on the installation of the AWT, which included track drainage, “equitrack” surfacing and safety fencing, was expenditure on plant for the purposes of s 24 and that the sum was deductible under the 1990 Act. The Commissioners of Inland Revenue refused the claim. Lingfield’s appeal was allowed by the Epsom, Reigate and Tanbridge General Commissioners. For the reasons set out in the Case Stated dated 6 December 2002 the General Commissioners were satisfied that “ the All-Weather Track constitutes plant for the purposes of the Capital Allowances Act 1990.”
The Crown appealed to the High Court. According to paragraph 10 of the Case Stated the question of law for determination on the appeal was:
“ …… whether on the facts found or admitted and on the proper construction of s24 Capital Allowances Act 1990 we were entitled to conclude that the All-Weather Track at Lingfield Park is plant for the purposes of s 24 Capital Allowances Act 1990 during the accounting period to 31st December 1991.”
Now there is a second appeal, brought with the permission of Chadwick LJ, from the order of Hart J dated 11 July 2003 (reported at [2003] STC 1003.) He allowed the appeal by the Crown against the decision of the General Commissioners on the ground that the only reasonable conclusion was that, although the AWT passed the “business use test” as it is used in carrying on Lingfield’s business, it functioned as part of the premises at Lingfield Park Racecourse, the place where the business was carried on, and therefore not as plant. He said:
“16. From their description of the mode of construction of the AWT and its (obvious) purpose in the respondent’s business, I cannot see how any other conclusion was open to the commissioners than that it functioned as part of the premises of that business. This does not appear to me to be a question of fact and degree on which the court is bound by their findings. It is a question of the meaning of the premises test as elaborated by the authorities. In my judgment the commissioners were wrong and it is my duty so to rule.”
The case is of considerable interest to the whole of the modern leisure industry, as well as to the Inland Revenue. Large sums of money are invested in the provision of all-weather, all-year round leisure and sporting facilities for participants and spectators. There is proceeding in the Court of Session an appeal by the Crown from the decision of the Special Commissioners in Anchor International Limited v. IRC [2003] STC (SCD) 115 that the installation of synthetic grass turf “carpet” for five-a-side football pitches was plant, as it was not a fixed structure: it was held to be “the means by which the appellant generates profits rather than merely the setting. (paragraph 25)”
The Question of Law for this Court
The issue in this court is the same as that formulated by Nourse LJ in Gray v. Seymours Garden Centre (Horticulture) (1995) 67 TC 401 at 411-
“ It is agreed that the question for this Court, as it was for the Judge, is whether the facts found by the Commissioners are such that no person acting judicially and properly instructed as to the relevant law could have come to the decision to which the Commissioners came or, if you prefer it in the other form, whether their decision is contradicted by the true and only reasonable conclusion from the facts found.”
Gray was also a case in which the General Commissioners’ decision that an item was “plant” was reversed by the judge on appeal as an impossible conclusion. As for the relevant legal principles, Nourse LJ observed in his judgment (with which Kennedy and Beldam LJJ agreed) dismissing the appeal:
“ Few subjects in revenue law can have engaged so much judicial attention over the years as plant, especially in recent years, perhaps because of the significant benefits accruing to traders from the new system of allowances and charges in respect of machinery and plant which was introduced by the 1971 Act….Many of the authorities demonstrate the difficulties encountered by the Courts when seeking to apply principles laid down in earlier decisions to facts not contemplated at the time.
That said, I do not doubt that the more recent authorities have stated the principles with sufficient force and clarity to render any lengthy examination of the law unnecessary for a decision in this case. The essential question here is whether the structure which is the taxpayer’s planteria can reasonably be called apparatus with which their trade is carried on as opposed to premises in which it is carried on, it being established that a large structure used for the purposes of the trade may be capable of falling into the former category, see e.g. Inland Revenue Commissioners v. Barclay Curle & Co Ltd [1969] 1 WLR 675 (dry dock used in trade of ship builders, ship repairers and marine engineers).”
Counsel in this case (Mr David Milne QC for Lingfield and Mr Timothy Brennan QC for the Crown) are agreed that the approach of this Court in Gray is the correct one in the present state of the authorities. There is also a very helpful statement of the principles to be applied in the judgment of the Vice-Chancellor (Sir Donald Nicholls) in Carr v. Sayer (1992) 65 TC 15. The question is whether the item (i.e. Lingfield’s AWT) can reasonably be called apparatus with which the trade of organising and promoting horse racing is carried on, as opposed to premises in or on which it is carried on.
In answering the question that distinguishes between the premises, in or on which the business is carried on, and the plant, with which the business is carried on, it is necessary to identify the item in question, to consider its use in the business and then to ask what the item “functions as”- whether as plant or as premises. In Wimpy International Ltd v. Warland (1988)61 TC 51 at 97BFox LJ referred to the “premises test”, mentioned by Hart J above
“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.” (See also Lloyd LJ at p97).
The application of the “premises test” by the courts in capital allowance cases is exemplified by the judgment of Peter Gibson LJ in Anduff Carwash Ltd v. Attwood (1997) 69 TC 575, where the trade in question was the operation of automatic car wash sites. The item, for which the claim was made, was the entirety of a wash hall, which was a special system housed within a building incorporating washing machinery and control equipment, and surrounded by tarmac areas used for circulation, queuing and parking. The taxpayer contended that the entirety of the site, alternatively the entirety of the wash hall, was a single item of plant qualifying for capital allowances. The Inspector of Taxes accepted that some of the car wash facilities were plant, but not each entire site. The Special Commissioners allowed the taxpayer’s appeal. The Crown succeeded on appeal to the judge (Carnwath J) and his decision was upheld by the Court of Appeal.
Applying the business use test and the premises test expounded in the authorities, in particular in the judgments of Hoffmann J at first instance and of Fox and Lloyd LJJ in the Court of Appeal in Wimpy International Ltd v. Warland (1988)61 TC 51, Peter Gibson LJ (with whom Robert Walker and Beldam LJJ agreed) held that the only reasonable conclusion was that neither an entire site nor an entire wash hall (i.e. the building housing the car wash machinery) could be regarded as a unit of plant: although they satisfied the business use test, they failed the premises test, as both the entire site and the wash hall functioned as premises, not as plant. He made a particular point of considering 7 authorities, in which structures had been held to be plant. He concluded at p 608C that
“It is hard to see how land, as distinct from a structure could ever be apparatus functioning as plant.”
The Facts
The General Commissioners made the findings of fact, to which the business use test and the premises test must be applied. As the detailed findings make clear there is more to the AWT than an artificial surface item covering the land in its natural state. The expenditure claimed was in respect of installation, “equitrack” surfacing, drainage and fencing.
The foundations consist of a trench 1 foot deep. The trench is filled with limestone chips to a depth of 10.” That is capped with a 2” layer of compacted limestone screening. Drainage is also installed in the form of a series of drains running across the site of the track, under the foundations. The surfacing of the AWT is installed on top of the limestone by using special “equitrack” material consisting of graded silicas and particles, to which a synthetic binder or oil has been applied. 4” of material is compressed and a 2” top layer goes down in a semi-loose state and is harrowed to provide the correct surface and consistency. The equitrack surfacing incorporated a camber and there was a safety fence around the outside of it. The principal benefit was that the going of the AWT was maintained as standard, whatever the weather conditions. It required daily maintenance. The AWT was guaranteed for 5 years and had a life expectancy of 10 years. In fact 5,000 tons of the old “equitrack” surface material was sold off by Lingfield and replaced by new polytrack, which was installed on top of the original layer of compressed stones and on top of the old foundations.
On applying the law to the facts the General Commissioners concluded that the AWT was not land in its natural state; that the AWT retained its separate identity and had not become part of the premises; that the AWT was part of the plant with which the business was carried on; that the foundations and their ancillaries, together with the surface of the AWT, were to be regarded for the purposes of the case as one unit; and that the construction of the surface drains were incidental to the whole. They held that
“ 8.9 …the AWT had retained a separate identity from the grass racetrack and buildings at Lingfield Park, that it functioned as plant and not as part of the premises and they were therefore satisfied that the all-weather track constituted plant for the purposes of the 1990 Act.”
Lingfield’s Submissions
In the course of Lingfield’s submissions Mr Milne took the court through all the recent cases of note making points in support of the general argument that, in the light of their findings of fact, the Commissioners reached the right decision that AWT is plant. It was, he submitted, a decision on a matter of fact and degree that was reasonably open to them and one with which Hart J was not entitled to interfere by substituting his own decision. The following cases were cited in chronological order: IRC v. Barclay Curle & Co Ltd (1969) 45 TC 221 ( excavation and construction of dry dock for ship repair, held to be provision of plant); Cooke v. Beach Station Caravans Ltd (1974) 49 TC 514 ( excavation and construction of 2 swimming pools in caravan park held to be provision of plant, not premises or setting); Benson v. Yard Arm Club Ltd (1979) 53 TC 67 ( purchase and conversion of a vessel and barge to be used as permanently moored floating restaurant held not to be provision of plant); CIR v. Scottish & Newcastle Breweries(1982) 55 TC 252 ( expenditure on refurbishment, decor and fittings in hotels held to be plant though forming part of the setting); Wimpy International Ltd v. Warland ( 1988) 61 TC 15 ( expenditure on modernising restaurants with shop fronts, floor and wall tiles, wall finsihes, suspended ceilings, raised floors, fire doors and fire proofings held not to be plant); Carr v. Sayer (1992) 65 TC 15 (expenditure on purpose built permanent quarantine kennels held not to be plant); Gray v. Seymour’s Garden Centre (Horticulture) (1995) 67 TC 401 ( expenditure on construction of specialist green house at garden centre-“planteria”-held not to be plant); Attwood v. Anduff Car Wash Ltd (1997) 69 TC 575 (expenditure on automatic car wash sites, held car wash hall and site not plant).
Mr Milne QC emphasised the following points:
(1) The Commissioners have correctly applied the premises test. The AWT was not premises and did not become such by being fixed to the ground or by being substantial in extent or by discharging the additional function of providing a place where the trade of horse racing was carried on: it was neither land in its natural state, in contrast to the grass track, nor did it function as premises normally do, as in the provision of shelter or security or as a setting for the trade. The AWT was fundamentally different in character from the grass track, which it was agreed not capable of being plant, or from the buildings, like the grandstand. It was more like the swimming pool, a structure sunk into the ground which was held to be plant. As that case and the dry dock cases show it is possible, though it may be rare, for the same item to be a physical part of premises and yet to function as plant.
(2) The AWT retained a separate identity from the land, having regard to the way it was constructed and maintained. It was an artificial manufactured item, with a limited life, placed on suitably prepared land. Its separateness and its lack of permanence was demonstrated by the fact that the “equitrack” surface had been removed and disposed of separately from the land.
(3) Neither the mode of construction nor its purpose made the AWT part of the premises. It functioned as apparatus, and not as premises, like the swimming pool, even though it involved excavation and building works. It was the means by which the trade of Lingfield was carried on throughout the year.
(4) The AWT differed significantly from those parts of Lingfield’s site, which did function as premises, such as the spectator stands.
Conclusion
Like Hart J, I am unconvinced by Lingfield’s submission that the decision of the Commissioners on this point is simply one of fact and degree, with which the appellate court should not interfere. I agree with him that it was not open to the General Commissioners, on the facts found by them, to conclude that the AWT functioned as plant. The only reasonable conclusion, on the facts found by them and on a proper application of the premises test, is that the AWT functions as premises on which the trade of horse racing is carried on by Lingfield.
The purpose, use, construction and nature of the AWT are such that the AWT functions as premises for horse racing, as does the grass racecourse running parallel with it. It is common ground that the grass track is not plant; nor is the construction of a replacement or additional grass track; nor is the construction of a building to cover in the grass track, so that it can be used for racing in all weathers. None of these are items of plant. It would be an inaccurate use of language to describe any of them as the means, apparatus, equipment or tool by which or with which Lingfield’s trade is carried on. It is more accurate to describe them as a place or premises, or part of a place or premises, on or in which the trade of organising and promoting horse racing is carried on.
In my judgment, the same is true of the AWT. 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.
As for the supposed separate identity of the AWT, it is no more separate from the premises in or on which Lingfield’s trade is conducted than the grass racecourse or the other parts of the premises at Lingfield Park. Nor does the fact that the top surface can be dug up and carted away for valuable re-sale give the AWT an identity separate from the premises. I agree with Hart J when he said at paragraph 15-
“ For my part I am quite unable to see how, without doing violence to the way in which language is used, one can describe the AWT as being, or functioning, otherwise than as part of the premises on which the business was conducted. It was no doubt separately identifiable from other parts of the premises both as a matter of visual inspection and having regard to the way in which it had been constructed and maintained. I cannot, however, see that this made it lose its character as part of the premises for the purposes of the premises test.”
I would dismiss the appeal.
Lord Justice Scott Baker:
Although my mind wavered somewhat during the course of argument, in the end I have concluded that the appeal should be dismissed for the reasons given by Mummery L.J. Absent the weight of authority about the meaning of ‘plant’ Mr Milne would have a strong argument that the General Commissioners’ decision was one of fact and degree with which this court should not interfere. Unfortunately for the taxpayer, however, that is not the case.
Lord Justice Potter
I also agree.