Scouts Association Trust Corp & Ors v Secretary of State for the Environment

On an application for permission to appeal, the court indicated that compensation on an equivalent-reinstatement basis is assessed as a question of compensation law: the issue is the reasonable cost of equivalent reinstatement, including a reasonable view of the effect of taxation and VAT. The assessment is ordinarily one of fact. An appeal confined to questions of law will not succeed merely because a different view of the tax risk is arguable. The court may nevertheless grant permission where the interaction between VAT, equivalent reinstatement and the extra-statutory Sheldon doctrine has not received clear consideration, particularly where the facts are unusual and the financial exposure is substantial.

The applicants appealed from a decision of the Lands Tribunal concerning compensation payable on an equivalent-reinstatement basis. The dispute concerned whether the compensation should account for VAT payable in reconstructing the relevant premises.

The applicants had arranged for a separate company to be registrable for VAT purposes. The VAT authorities initially accepted that arrangement, later treated it as mistaken, but indicated that they would not recover VAT wrongly repaid on the original basis. The applicants argued that a future demand remained possible, including under the Capital Goods Scheme, and relied on the reasoning of Roskill LJ in Stoke-on-Trent City v Wood Mitchell & Co.

The central issue was whether the Tribunal had erred in law, rather than merely made a factual assessment of the reasonable cost of equivalent reinstatement and the relevant tax risk.

1. Permission granted. Although the court considered that the appeal was likely to fail, the interaction between VAT, equivalent reinstatement and the Sheldon doctrine had not been the subject of clear consideration in the authorities. The unusual facts and the substantial sum said to be at stake justified allowing the appeal to proceed.
2. The issue before the Lands Tribunal was properly characterised as one of compensation law: what was the reasonable cost of equivalent reinstatement? In answering it, the Tribunal was entitled to take a reasonable view of the effect of taxation and VAT on the amounts paid.
3. The Tribunal’s assessment on that issue was a finding of fact. Since the Court of Appeal was confined to questions of law, there was no apparent basis for altering it merely because the applicants could identify an arguable risk that the VAT authorities might later depart from their assurances.
4. The court noted that the Sheldon doctrine, concerning recovery of tax where a taxpayer has been misled by an error of Customs, was extra-statutory. It also noted that the precise operation of that doctrine in the present circumstances might merit further consideration.
5. The appeal was to be heard by three Lords Justices, or by two Lords Justices and a High Court judge, with at least one judge having Chancery or tax expertise. The application for permission to appeal was granted; the order was not part of the approved judgment.

• Court of Appeal (Civil Division): permission to appeal from the Lands Tribunal was granted. The court indicated that the likely result of the substantive appeal was that it would fail, but made no final determination of the appeal on its merits.