Court of Appeal dismisses Land Remediation Relief claim

In Northern Gas Networks Ltd v HMRC [2022] EWCA Civ 910, the Court of Appeal (CoA) found that Land Remediation Relief was not available to a company as its continued pumping of gas through ageing pipelines had contributed to the contamination.

• Northern Gas Networks Ltd (NGN) owns and operates a regional UK gas distribution network, consisting of 37,000 kilometres of pipeline, which it acquired from its former Parent company via a hive-down in 2005.
• The gas pipeline, being largely of iron construction, is liable to corrode or fracture over time.
  • This presents the risk of harm from escaping or exploding gas and the Health and Safety Executive statutorily requires such pipelines within 30 metres of a building to be replaced or improved over a 30-year period.
• The pipes comprising the gas distribution network were laid underneath various pieces of land, some privately owned (including by NGN) and some publicly owned.
  • NGN obtained certain rights to locate and access those pipes on land owned by others.
  • Neither NGN, its former parent nor any company Connected with them, had originally laid the iron pipes.
• Over three accounting periods, NGN claimed Land Remediation Relief (LRR) on expenditure relating to the replacement or lining of pipes totalling over £100m. 
  • HMRC disallowed the LRR claim. 
• It was agreed that at the time the expenditure was incurred, NGN would have been entitled to LRR were six conditions were met:

1. 1. NGN acquired land in the UK.
   2. The land was acquired for the purposes of NGN’s trade.
   3. At the time of acquisition, all or part of the land was contaminated.
   4. NGN incurred qualifying land remediation expenditure in respect of the land.
   5. The qualifying land remediation expenditure was allowable as a deduction in computing the profits of NGN’s trade.
   6. 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.

• NGN Appealed to the First Tier Tribunal (FTT) which concluded that conditions four and six were not satisfied, but the remaining conditions were met.
• The company then appealed to the Upper Tribunal (UT) which agreed that conditions four and six were not satisfied.
• NGN appealed to the Court of Appeal (CoA). HMRC also challenged the previous decision that condition three was met.

The CoA first considered condition six and found that:

• The contamination of the land arose from the possibility of harm due to an escape of gas.
• The iron pipes themselves did not give rise to any harm.
• The harm, or possibility of harm being caused, arose because NGN pumped gas through the iron pipes.
  • The land would not have been contaminated if no gas had been pumped through the pipes.
  • The pumping of gas was an act by NGN which gave rise to, or caused contamination.

As the contamination arose from an action of NGN, this meant that condition six was not met and LRR was not available.

As condition six was not satisfied, the CoA did not need to consider whether the land was in fact in a contaminated state when acquired (condition three) or whether the expenditure had been incurred in respect of land (condition four).

The CoA dismissed NGN's appeal.

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External link

Northern Gas Networks Ltd v HMRC [2022] EWCA Civ 910