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TMI Blog1995 (10) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... owned by the lessees of the plant. In consequence they became fixtures. Under the general law, chattels fixed to the land become the property of the owner of the land. But in order to be entitled to capital allowance taxpayers have to show that, at the material times, the plant "belongs" to them. Can this requirement be satisfied in relation to a chattel that has become a fixture ? The facts The full facts are set out in the decision of the special commissioners [1994] S.T.C. 315 and the judgment of Vinelott J. [1995] Ch. 90. For present purposes it is unnecessary to set them out again in full and I will seek only to summarise them from the facts agreed between the parties to this appeal. Each of the five taxpayer companies carries on the trade of acquiring and hiring out plant and machinery to users. The companies are part of the Barclays Mercantile Group. The relevant users of the plant are local authorities who are (or were at the time of affixation) freeholders of the premises in which the items of plant were affixed. There are 28 local authorities involved in the present case. The nature of the plant is such that, for the most part, it has to be fixed to the struc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm, typically, of ten years, renewable on a year to year basis thereafter, the hirer agreeing to pay a rent annually in advance to the taxpayer company for the use of the equipment. (b) The local authority agreed to use the equipment properly and to allow the taxpayer company access to inspect the equipment : clauses 2.2 and 2.6 (c) The local authority agreed to keep the equipment properly repaired and maintained : clause 2.5. (d) The local authority agreed to allow the taxpayer company to indicate its ownership on the equipment being leased : clause 2.7. (e) The local authority agreed to keep the equipment in its sole possession and not to sell, assign, mortgage, charge or sublet the equipment : clause 2.8. (f) The local authority agreed to insure the equipment for the benefit of the taxpayer company : clause 2.9. (g) The local authority agreed to return the equipment to the taxpayer company on the expiry or sooner determination of the lease : clause 3.7. (h) The taxpayer company was given the right to repossess the equipment on the happening of certain specified events including the non-payment of rent and other breaches of the provisions of the agreement by the local authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for capital allowances for fixtures depending upon the date upon which the relevant expenditure was incurred. If it was incurred up to 11 July 1984 the position is regulated by section 44 of the Finance Act 1971 ; if incurred thereafter the position is regulated by section 44 as fundamentally modified and expanded by the Finance Act 1985, section 59 and Schedule 17. I will deal separately with these two periods. Section 44 of the Act of 1971 Section 44(1) provides : " (1) Subject to the provisions of this chapter, where_(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and (b) in consequence of his incurring the expenditure, the machinery or plant belongs, or has belonged, to him, and (c) the machinery or plant is or has been in use for the purposes of the trade, allowances and charges shall be made to and on him in accordance with the following provisions of this section." It is common ground that the requirements of paragraphs (a) and (c) are satisfied in each of these cases. Therefore, the sole question is whether the plant which has at all material times been affixed to land ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncept of a fixture which remains personal or removable property was a contradiction in terms and an impossibility in law. The future right to remove equipment at the expiry of the term or in the event of a default by the local authority did not mean that the equipment "belongs" to the taxpayer company so long as it remains attached to the realty. I agree with the conclusion and reasoning of the Court of Appeal. The equipment in these cases was attached to the land in such a manner that, to all outward appearance, they formed part of the land and were intended so to do. Such fixtures are, in law, owned by the owner of the land. It was suggested in argument that this result did not follow if it could be demonstrated that, as between the owner of the land and the person fixing the chattel to it, there was a common intention that the chattel should not belong to the owner of the land. It was said that clause 3.10 of the master lease disclosed such an intention in the present cases. In support of this argument reliance was placed on the decision in Simmons v. Midford [1969] 2 Ch. 415 where Buckley J. held that even where the outward and visible signs were only consistent wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and a lease back of that part of the "land" by the taxpayer company to the local authority. Such contract of sale, being specifically enforceable in equity, constituted the local authority a trustee for the taxpayer company of that part of the "land." Therefore, it was submitted, in equity the taxpayer company was the sole beneficial owner of the affixed chattel which accordingly "belongs" to it for the purposes of section 44. In my judgment that argument is wholly unrealistic and unsustainable for a number of reasons. I need only mention two. First, the documentation to which we were referred discloses no shred of an intention to enter into such a sale and lease back transaction. Although the parties were plainly proceeding on the basis that at the time of the completion of the schedule the equipment was owned by the taxpayer company, that provides no basis for implying a complicated legal transaction of a kind not contemplated by the parties. The reality of the matter is that the parties were proceeding under a misapprehension as to the ownership of the equipment. Despite such misapprehension, as between the local authority and the taxpayer company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he title in the equipment until it had been fully paid for. It was held that where, before the mortgagee took possession, the supplier had severed it and repossessed the equipment, he was not liable to the mortgagee for so doing. But, as explained in Hobson v. Gorringe [1897] 1 Ch. 182, the decision in that case depended upon the finding that, since the mortgagor was a nurseryman, the mortgagee had impliedly licensed the mortgagor to sever and remove trade fixtures in the course of his trade and that accordingly the mortgagee's rights had not been infringed by the severance and removal of the fixtures : see per Lindley L.J., at p. 720, and Kay L.J., at p. 722. If the mortgagee had taken possession (thereby terminating the authority of the mortgagor to sever the trade fixtures) and subsequently the supplier had sought to recover the equipment, the supplier's claim would have failed : see Hobson v. Gorringe. In my judgment Gough v. Wood and Co. provides no support for the contention of the taxpayer companies. The other cases relied on were In re Samuel Allen and Sons Ltd. [1907] 1 Ch. 575 and In re Morrison, Jones and Taylor Ltd. ; Cookes v. Morrison, Jones and Taylor Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e answered once and for all at one particular date. The question has to be answered in relation to each chargeable period ; moreover, in calculating the disposal value which has to be brought into account for the purpose of the balancing charge, it is necessary to determine whether and when the equipment has ceased "to belong to" the taxpayer : section 44(5)(c). Therefore in construing the word "belongs" as used in section 44 one would expect, first, that the question whether equipment belongs or has ceased to belong to the taxpayer would be capable of a ready answer and, second, that the tax- payer could control, or at least be aware of, circumstances which caused the property to cease to belong to him. Yet if the taxpayer companies' submission is correct, equipment which belongs to them could at any time "cease to belong," thereby giving rise to a balancing charge, without the taxpayer companies knowing anything about it. Vinelott J. [1995] Ch. 90 held (in my view rightly) that even if otherwise the equipment belonged to the local authority, as soon as it granted a tenancy of a council house the equipment in the house could not thereafter be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k one would say that a chattel 'belongs' to X if he merely had the right to use it for five years. " Robert Goff L.J., at page 771, treated the expression "belonging to" as the same as "owned by." In my judgment that case was rightly decided. The same conclusion must apply to the much lesser rights enjoyed in the present case. A long leaseholder enjoys a legal estate in the land (including the fixtures) which gives him immediate possession and enjoyment of the fixtures. In contrast, in the present case the rights enjoyed by the taxpayer company confer no immediate right of any kind to enjoyment of the property and only nebulous, contingent, future rights so to do. In Stokes v. Costain Property Investments Ltd., the Court of Appeal expressed the view that the law as they had found it was not satisfactory. As a result, Parliament enacted further provisions regulating the right to capital allowances in relation to fixtures in the Act of 1985 to which I now turn. The Act of 1985, section 59 and Schedule 17 Section 59 provides : "(1) The provisions of Schedule 17 to this Act apply to determine entitlement to an allowance under Chapter I of Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment lessor and the equipment lessee elect that this paragraph should apply, then, subject to paragraph 7 below, on and after the time at which the expenditure is incurred the fixture shall be treated for material purposes as belonging to the equipment lessor in consequence of his incurring the expenditure. . . . "Expenditure included in consideration for acquisition of existing interest in land. 4(1) In any case where_(a) after any machinery or plant has become a fixture, a person (in this paragraph referred to as 'the purchaser') acquires an interest in the relevant land, being an interest which was in existence prior to his acquisition of it, and (b) the consideration which the purchaser gives for the interest is or includes a capital sum which, in whole or in part, falls to be treated for material purposes as expenditure on the provision of the fixture, and (c) . . . then, subject to paragraph 7 below, on and after the purchaser's acquisition of his interest in the relevant land, the fixture shall be treated for material purposes as belonging to him in consequence of his incurring expenditure as mentioned in paragraph (b) above." Paragraph 1(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; in respect of fixtures. If those words stood alone, it would not be arguable that in a case not provided for by the Schedule an allowance is payable : the allowance has to be "determined" by the Schedule. This construction is much supported by the extremely detailed provisions of the Schedule which deals, so far as I can see, with every conceivable permutation in which there might be competing interests in a fixture as between those who, under the general law, own the land (and therefore the fixture) and others who by incurring expenditure on the fixture have a just claim to an allowance for such expense. Moreover, the Schedule is drafted by reference to the technical concepts of the laws of England and Scotland. It would be strange if, because the Schedule did not cover a particular case (e.g. because an election had not been made), the effect was to throw one back to all the uncertainties as to the person to whom the fixture "belongs" disclosed by Stokes v. Costain Property Investments Ltd. [1984] 1 WLR 763. However, Mr. Aaronson has put forward formidable arguments to the contrary effect. He relies primarily on four points. First, he submits that the 1985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on Schedule 17, paragraph 7(1) as showing that the Schedule did not provide an exclusive code. Paragraph 7 deals with the circumstances under which fixtures are to be treated as ceasing to belong to a person. Subparagraph (1) provides that it is "without prejudice to any other circumstances in which the disposal value of a fixture falls to be brought into account in accordance with section 44 of the Finance Act 1971." I attach no weight to this argument. Under section 44 there are circumstances, other than the property ceasing to belong to the taxpayer, which give rise to a balancing charge, e.g., cesser of the trade or cesser of the use of the equipment in the trade. Therefore the reference in paragraph 7 to section 44 is explicable as being required in order to ensure that these other circumstances giving rise to a balancing charge are not excluded. Finally, Mr. Aaronson relies on an argument to which there is no satisfactory answer. United Kingdom taxpayers are entitled to capital allowances on plant and machinery used by them in their businesses outside the United Kingdom. Some of such equipment is no doubt fixed to the land. If Schedule 17 is a comprehensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in the course of the progress through Parliament of the 1985 Finance Bill. I accept that the language of section 59 and Schedule 17 is ambiguous and obscure and that in consequence it would be helpful to refer to parliamentary materials which clearly indicate Parliament's intention in using the language it did. But, as the speeches in Pepper v. Hart * [1993] AC 593 sought to make clear, the only materials which can properly be introduced are clear statements made by a minister or other promoter of the Bill directed to the very point in question in the litigation : see per Lord Bridge of Harwhich, at page 617B ; Lord Oliver of Aylmerton, at page 620D ; myself, at pages 635A and 640C**. The parliamentary materials sought to be introduced by the revenue in the present case were not directed to the specific statutory provision under consideration or to the problem raised by the litigation but to another provision and another problem. The revenue sought to derive from the ministerial statements on that other provision and other problem guidance on the point your Lordships have to consider. Such process involves the interpretation of the ministerial statement and the question whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest in land." (D) Schedule 17, paragraph 3 Paragraph 3 is expressly directed to claims to capital allowances by equipment lessors. It is common ground that the equipment leases granted by the taxpayer companies to the local authorities satisfy the requirements of subparagraphs 3(1)(a), (b) and (c). It is further accepted that, in a number of the cases, the necessary election has been made under subparagraph (e). The issue is whether the requirements of subparagraph (d) are satisfied. The taxpayer companies contend that, if the local authorities had incurred the expenditure for the purchase of the equipment, the equipment would, by virtue of paragraph 2 of Schedule 17, have been treated for material purposes as belonging to the local authority. Under paragraph 2, the local authority would have incurred the expenditure on the plant which became a fixture at the time when the local authority owned the land. Therefore, contend the taxpayer companies, they are entitled to the allowances under paragraph 3. The revenue, on the other hand, contends that if the local authority had incurred the relevant expenditure the fixture would not by virtue of paragraph 2 have been treated for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 44 of the Act of 1971. In my judgment, fixtures are treated as belonging "for material purposes" to a person if one of the purposes is to identify the person to whom, under Schedule 17, the fixture belongs irrespective of the tax consequences of that person being so identified. For example if, under Schedule 17, the fixture is to be treated as belonging to a local authority, no other person is entitled to an allowance even though the local authority itself is not entitled to an allowance : see section 59(1), second sentence. This view is strengthened by paragraph 5 of the Schedule which deals with incoming lessors. One of the requirements to be satisfied under paragraph 5(1) is that "the lessor would be entitled . . . to an allowance :" paragraph 5(1)(b). Paragraph 5(2) then expressly provides that, if the lessor is not within the charge to tax, it is to be assumed that he is within the charge. Thus when the Schedule is directing its attention to whether a person identified as the owner of the fixture is entitled to any allowance by reason of such ownership it deals with the matter expressly and not by the obscure formula "for material purposes." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will pay the relevant reimbursement invoice." The revenue contends that there are cases where, pursuant to such a letter, the taxpayer company approved the purchase of equipment before 11 July 1984 although the lease schedule relating to the transaction was not completed until after that date. The revenue argues that in such a case the expenditure was incurred on the date on which the local authority incurred the expenditure by ordering the equipment as agent because, at that date, the taxpayer company became liable to indemnify the local authority for the cost. The special commissioners rejected the revenue's claim. They held, first, that on the only case considered by them on the facts (Easington District Council) there was no unconditional "approval" by the tax company for the purposes of paragraph 2 of the facility letter, because the letter of approval disclosed that at that time there was no full agreement on the terms of the lease schedule. But, secondly, they held that because of paragraph 1 of the facility letter no agency could come into existence until the lease schedule was completed. The Court of Appeal broadly upheld their decision. I am unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to each individual case. If it can be shown that in any case (a) the taxpayer company specifically gave unconditional approval to the purchase by the local authority of the equipment and (b) at that time there was final agreement of the terms to be included in the lease schedule, in my judgment the taxpayer company incurred the expenditure when the local authority purchased the equipment because it then came under a liability to reimburse the local authority. In any other case, liability was not incurred until the lease schedule was completed when, for the first time, the full terms of the letting were agreed and the contractual obligation to reimburse arose. I would therefore vary the order of the Court of Appeal by setting aside the declaration made on this issue and remitting the cases to the special commissioners to determine this issue in relation to each of the cases in accordance with your Lordships' decision. On all other issues, I would dismiss all the appeals. Lord Slynn of Hadley. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Browne-Wilkinson. For the reasons he gives, I, too, would dismiss the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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