Northern Gas Networks Ltd v The Commissioners for HMRC

Enhanced land remediation relief is unavailable where land’s contaminated state results partly from the claimant’s own activity or that of a connected person. Under paragraph 12(4) of Schedule 22 to the Finance Act 2001, the inquiry covers the condition of the land when acquired and when expenditure is incurred. The claimant need not have created the contamination wholly or originally: continuing an activity that causes the relevant possibility of harm is sufficient. General policy, including the polluter-pays principle, cannot displace clear statutory language. A passive owner of already contaminated land may raise a different question, but that observation was obiter. Alternative conditions were left undecided.

Northern Gas Networks Ltd sought enhanced land remediation relief for expenditure replacing or lining iron gas pipes. The First-tier Tribunal held that Conditions 1 and 3 were satisfied but Conditions 4 and 6 were not; Conditions 2 and 5 were common ground. The Upper Tribunal held that Condition 6 was not satisfied and expressed the view that Condition 4 was also not satisfied: [2021] UKUT 0157 (TCC).

NGN appealed on Conditions 4 and 6. HMRC sought to challenge the First-tier Tribunal’s conclusion on Condition 3. The central issue before the Court of Appeal was whether the continued transmission of gas through the iron pipes meant that the contaminated state resulted partly from an act of NGN or its connected predecessor.

The appeal was dismissed. The Court of Appeal held that Condition 6 was not satisfied, and that conclusion was sufficient to dispose of the appeal.

1. Statutory construction. The general policy that the polluter should pay could not replace the words enacted by Parliament. The statutory language had to be read in its context, applying the principles discussed in R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] 1 UKSC 3, R v Secretary of State for the Environment ex p Spath Holme Ltd [2001] 2 AC 349, IRC v McGuckian [1997] 1 WLR 991 and Pollen Estate Trustee Co Ltd v HMRC [2013] EWCA Civ 753.
2. Condition 6. Paragraph 12(4) was engaged where the contaminated state resulted wholly or partly from something done or omitted by the claimant or a person with a relevant connection. The phrase requiring the land to be in a contaminated state directed attention both to the date of acquisition and to the date when the expenditure was incurred. The words at any time prevented concentration only on the date when the pipes were originally laid.
3. The iron pipes themselves did not cause harm. The possibility of harm arose from gas being pumped through them. NGT was responsible for the pumping at acquisition, and NGN was responsible thereafter. Although neither had laid the pipes, NGN’s continuing pumping of gas partly caused the contaminated state. It therefore could not obtain the enhanced deduction, although the expenditure remained eligible for an ordinary trading deduction.
4. Obiter observations. A passive owner of land contaminated before acquisition might be treated differently from an owner actively perpetuating contamination. The court also indicated that an omission may require neglect of an action which the person had a moral or legal duty to perform.
5. The court declined to decide Condition 4 or Condition 3, and did not endorse the Upper Tribunal’s reasoning on Condition 4. The fresh-evidence application relating to Condition 4 therefore also required no determination. Lord Justice Baker and Lord Justice Dingemans agreed with Lord Justice Lewison’s judgment.

1. Court of Appeal (Civil Division): dismissed NGN’s appeal, holding that Condition 6 was not satisfied: [2022] EWCA Civ 910.
2. Upper Tribunal (Tax and Chancery Chamber): held that Condition 6 was not satisfied and expressed the view that Condition 4 was also not satisfied; permission to appeal was granted: [2021] UKUT 0157 (TCC), [2021] STC 1776.
3. First-tier Tribunal (Tax Chamber): held that Conditions 1 and 3 were satisfied but Conditions 4 and 6 were not: [2020] UKFTT 0101 (TC).