England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Judge Rich

		Royal Courts of Justice Strand, London, WC2A 2LL
		28 July 2005

Sir Peter Gibson:

1. The Commissioners of Customs and Excise, now the Commissioners of Revenue and Customs ("the Commissioners"), have been charged with the duty of collecting and managing Value Added Tax ("VAT"). By a practice known to the cognoscenti as the Sheldon doctrine, they, in exercise of their care and management powers, have operated a specific extra-statutory concession whereby they do not collect tax or insist on the strict application of tax rules in individual cases where a taxpayer has been misled by the Commissioners' own error or misapplication of the law. The doctrine was first expressed in a written Parliamentary answer given on 21 July 1978 by the then Financial Secretary to the Treasury, Mr Robert Sheldon. Any such Sheldon ruling in a specific case applies only to the specific taxpayer and may not be relied upon by other taxpayers. As the joint experts instructed by the parties commented in their joint report, in effect this mitigates the common law rule that estoppel does not bind the Crown.
2. The short question originally raised by this appeal was whether the Lands Tribunal, in assessing the compensation to be paid on a compulsory purchase, was entitled to rely on a Sheldon ruling by the Commissioners that they would not seek to recover certain VAT which had been reclaimed by the third claimant, Buckmore Park Services ("Services"). The Lands Tribunal (His Honour Judge Rich QC) held that it was proper to rely on that ruling with the consequence that the recovered VAT was to be left out of account in the assessment of the compensation. As I shall explain later, if further evidence is admitted the question to be answered becomes a little more complex.
3. The facts of this case are unusual but are substantially not in dispute. I summarise the facts as presented to the Lands Tribunal.
4. The Channel Tunnel Rail Link Act 1996 authorised the respondent Secretary of State for the Environment, Transport and the Regions to purchase land required for the improvement of the A2 at Chatham, Kent, and for the improvement of the M2 between junctions 1 and 4. Pursuant thereto, the Highways Agency for the Secretary of State, as the acquiring authority, served notices to treat for the acquisition of some 10.5 acres of land at Buckmore Park, Chatham.
5. Buckmore Park had been used by the Scouts as a scouting and leisure centre since 1952. At all material times the first claimant, Scout Association Trust Corporation, held a lease of Buckmore Park for the fourth claimant, Medway Scouts Council, and the fifth claimant, Strood District Scout Council (together "the Scouts Councils"). A sports hall and other buildings had been built on the land to be acquired by the acquiring authority.
6. In 1994 planning permission was obtained for a replacement sports centre to be built on other land at Buckmore Park. The acquiring authority agreed that pursuant to r.5 of s.5 Land Compensation Act 1961 compensation would be assessed on "the reasonable cost of equivalent reinstatement". This was to exclude compensation for operational enhancements which the acquiring authority considered did not come within equivalent reinstatement.
7. In 1996 two companies limited by guarantee, the second claimant, Buckmore Park Scout Centre ("BPS"), and Services, were incorporated to manage the affairs of the Scouts Councils. Any profits made by Services were to go to BPS which was a charity. Both companies were registered for VAT purposes. In November 1996 the Commissioners advised Services that as it was a profit making body, it did not qualify for VAT exemption and that its main activities would be wholly taxable, allowing for recovery of input tax which it incurred.
8. The reinstatement works were carried out between August 1998 and September 2001. A new sports hall and other buildings were built. Services paid the building contractors VAT as shown on the contractors' invoices. To assist Services in funding the costs of reinstatement the acquiring authority made payments "on account" of compensation totalling some £10 million including VAT on costs liable to VAT and approved by it as costs of equivalent reinstatement.
9. Services made VAT returns to the Commissioners. In those returns VAT on purchases and sales were declared. The VAT paid by Services in respect of supplies to it for the reinstatement was included in the returns. Services recovered £1,562,156 from the Commissioners in respect of such input tax.
10. The Commissioners subsequently took the view that supplies made by Services came within the scope of the sporting exemption provisions and that Services should not have been allowed to deduct input tax incurred on the construction costs of the sports hall. Accordingly, on 8 August 2002 the Commissioners issued an assessment on Services for the recovery of £461,895 input tax and for interest thereon. Services appealed. Following a review by the Commissioners the assessment was withdrawn in March 2003.
11. On 8 August 2003 the Commissioners wrote to Services' solicitors, saying that it was the Commissioners' view that Services, when taken together with BPS, was not operating as a commercial undertaking and was therefore a non-profit- making body, and that the earlier ruling by the Commissioners in November 1996 that Services was-profit making and that its intended supplies were taxable, enabling full recovery of the input tax incurred on the construction of the sports centre, was incorrect. They continued: "Under the terms of the Sheldon doctrine (see paragraph 3.5 of C & E Notice No. 48 concerning misdirection), the Commissioners confirm they will not be pursuing the VAT recovered on the construction of the Sports Centre as a result of this incorrect ruling". The Commissioners then referred to the Capital Goods Scheme ("CGS"). Under the CGS VAT charged by contractors on the construction of buildings costing over £250,000 and to be used for a business use can be recovered. But this is subject to the requirement that any input tax which is claimed at the time of construction is to be adjusted year by year for a period of ten years if and to the extent that the business use of the buildings changed to non-business use. They said that the CGS could not be used to recover VAT which was wrongly allowed in earlier periods and which was prevented by the Sheldon doctrine from being assessed and that therefore there was no longer any question of applying the CGS to the sports centre. I take the references in the letter of 8 August 2003 to the sports centre to refer to the sports hall. However, they left the position open in respect of other matters including VAT incurred on the construction costs of other buildings.
12. Notice No. 48 contains a list published by the Commissioners of extra-statutory concessions as at March 2002. Paragraph 3.5 is in these terms:

"3.5 VAT: Misdirection

If a Customs and Excise officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person's attention."

13. In a further letter of 23 September 2003 the Commissioners informed the Valuation Office Agency ("the VOA"), acting as adviser to the acquiring authority, and the solicitors to the claimants and the acquiring authority respectively that they did not intend to pursue the other matters left open by the letter of 8 August 2003 and did not intend to seek to recover any VAT repaid to Services.
14. The claimants remained uneasy at the resultant position. They suggested to the VOA that the terms of the letter of 23 September 2003 might not preclude the Commissioners from reclaiming tax and they questioned (1) whether the Commissioners had the legal powers to finalise matters in this way and (2) to what extent the taxpayers might be able to rely on the decision for the future. On the first point, by letter dated 29 July 2004, the VOA asked the Commissioners to confirm that the decision not to collect the overclaimed VAT was within their powers. On the second point the VOA asked for confirmation that, in the absence of new facts which might undermine the original decision, Services could rely on the letter of 23 September 2003 now and in the future.
15. For the Commissioners, Mr Ridings, their appeals and reconsiderations officer, replied on 3 August 2004 in the following terms:

"For the avoidance of any doubt, let me restate Customs' position as clearly as I can.

Customs assessed Buckmore Park Services in July 2002. On review, Customs decided there had been positive misdirection to the taxpayer in 1996, which meant that under the terms of the Extra Statutory Concession, (the Sheldon Doctrine), the assessment was not pursued. The authority for this was given by the Director, Regional Business Services and Taxes. In my letter dated 8 August 2003, I highlighted areas that we might have explored further. Subsequently, Customs Assurance Managers using their general discretion under the care and management powers under paragraph 1(1) of schedule 11 to the Value Added Tax Act 1994 and section 6(2) of the Customs and Excise Management Act 1979, decided not to pursue these issues. This decision was conveyed in my letter dated 23 September 2003.

It seems to me that Buckmore Park's advisors have the certainty that they require: On the facts as currently known, Customs will not be re-examining any of the input tax claimed by Buckmore Park Services."

16. Despite that assurance the claimants did not accept that the compensation should be assessed on the footing that the VAT charged by the building contractors and reclaimed by Services should be left out of account. They contended that the compensation should include that VAT because there was a risk that Services might have to make repayment to the Commissioners and so account for the VAT twice, once to the acquiring authority by way of set off and a second time to the Commissioners.
17. To complete the recitation of the facts put before the Lands Tribunal, the reinstatement scheme has proved a disaster. Because of lack of funds the reinstated sports centre operated at a loss and both BPS and Services went into administration in May 2003. The sports centre was closed the next month.
18. On a reference made by the claimants to the Lands Tribunal, a preliminary issue was directed as to whether or not the cost of reinstatement included VAT paid to the building contractors undertaking the reinstatement, irrespective of the claimants' entitlement to recover VAT from the Commissioners. At the hearing in the Lands Tribunal it was agreed that the issue should be determined by reference to whether or not there was a risk of the recovery from Services of the VAT repaid to it.
19. Judge Rich in his decision given on 10 September 2004 said that the VAT payable by a purchaser of building work is part of the cost of that work, but if the purchaser is VAT registered, with the effect that he is able to treat that tax payment as a discharge of his liability to account for tax collected on behalf of the Commissioners from his own customers, that VAT was not part of the cost of the work to him. Similarly when the VAT registered purchaser of the building work does not use his tax payment to discharge a liability to account to the Commissioners because he has not yet collected tax in respect of which he has to account, he is entitled to obtain repayment of the VAT which he has paid and the tax paid is not part of the cost which he incurred in obtaining the building services.
20. The judge referred to an argument advanced for Services and based on the need for adjustment under the CGS and accepted that any repayment of VAT in respect of building works to a value in excess of £250,000 must be treated as conditional only. He said that it was only if there was indeed some risk of repayment that regard must be had to the conditional nature of the repayment. However the judge said that in practice, so far as claims for compensation for equivalent reinstatement are concerned, the circumstances where the CGS might apply would be exceptional and would have to be considered when and if they arose.
21. The judge then rehearsed the circumstances in which the Commissioners came to rule in 1996 that BPS and Services would be operating a commercial undertaking and on that basis made to Services the VAT repayments. He considered the correspondence in which the Commissioners conceded that they did not intend to recover any VAT repaid to Services and concluded that the Commissioners had agreed not to recover from Services the sums paid to it and that therefore the cost to Services of providing the replacement facilities was the cost net of the VAT repaid. He referred to the argument on behalf of Services that the Sheldon doctrine, being extra-statutory could not be binding in law and that reliance should not be placed on the Commissioners' assurances. He cited Stoke-on-Trent City Council v Wood Mitchell & Co. Ltd. [1980] 1 WLR 254 in which Roskill LJ, giving the judgment of this court, said at p.259:

"We take the view that the principles laid down in West Suffolk County Council v W. Rought Ltd. [[1957] AC 403] can only be applied if after examination of the relevant statutory provisions it is clear beyond peradventure that the sum in question would not be taxable in the hands of the claimants. If that is clear, then it would be wrong to require the acquiring authority to compensate the claimants beyond the amount of the loss which the claimants would in truth suffer. But if it is not, then it seems to us unjust that in a doubtful situation the acquiring authority can get the benefit of a reduced payment while leaving the claimants exposed to the risks we have mentioned."

22. Judge Rich continued:

"I think however that it must be proper for the Court to accept the assurances of the [Commissioners], if given, as they have been in this case, formally with the intention that they should be relied upon, in exactly the same way as the Court accepted the assurance of the Inland Revenue in the Rought case."

He therefore determined that the cost to Services of the reinstatement did not include VAT, insofar as VAT has been repaid to Services by the Commissioners.

23. When the claimants sought permission to appeal from this court, they indicated that if the court was not minded to give such permission on the papers they would seek an oral hearing. Chadwick LJ, on considering the papers, said that while not minded to give permission, in view of that indication he would adjourn the application into court. In his judgment at the oral hearing, which was not attended by the Secretary of State, Carnwath LJ expressed the view that a possible answer was that what the Lands Tribunal had to decide was a question of compensation law, namely what was the reasonable cost of equivalent reinstatement, that in doing that the judge needed to take a reasonable view of the effect of taxation on the amounts paid and that the decision was one of fact and fully open to him on the evidence before him. However, Carnwath LJ said that this was an area of the law not the subject of clear consideration in the authorities and that the precise operation for the Sheldon doctrine in such circumstances might justify further attention. Accordingly, he granted permission whilst expressing doubts whether this was a wholly suitable case and saying that the likely result was that the appeal would fail.
24. For the hearing of the appeal in this court, the claimants, without applying to adduce new evidence, caused to be inserted in the bundles for the appeal copies of correspondence which passed between their solicitors and the Commissioners subsequent to the decision of the judge. The correspondence was generated by the claimants six months after that decision in an attempt to assist them on the appeal. By a letter dated 28 April 2005 the claimants' solicitors put to the Chairman of the Commissioners a number of questions relating to the Sheldon ruling. The Commissioners on 31 May replied through Mr Graham Berry of their Technical Division consistently with what had been said previously by them. On 13 June the claimants' solicitors wrote again to Mr Berry, raising further points including some on the operation of the CGS. They said that the current state of affairs, with the reinstatement buildings standing empty, should require as a matter of law that VAT adjustments be made and they noted that the Commissioners had taken a policy decision not to call for any of those adjustments. Mr Berry replied on 15 June. In that letter he said that the only concession granted by the Commissioners related to the recovery of the VAT incurred by Services on the construction of the sports centre. Again I take that to be a reference to the sports hall. In relation to VAT adjustments Mr Berry said: "I agree that it may be appropriate for adjustments to be made in respect of the other buildings other than the sports hall….. and I would emphasise that there has not been any policy decision 'not to call for any of these adjustments'. It is for your clients to establish the correct treatment…. and to calculate and effect any necessary adjustments. You will appreciate that all adjustments will be subject to the three year capping provisions." That last sentence is a reference to the three-year limitation period which applies in the absence of fraud (s.77 Value Added Tax Act 1994).
25. Mr Berry's letter of 15 June appeared to those advising the acquiring authority to disclose the possibility of the Commissioners seeking to recover the input tax on the construction costs of the buildings other than the sports hall, contrary to the Commissioners' previous statements in the letters of 23 September and 3 August 2004. At the start of the hearing of the appeal on 22 June before a different constitution of this court Mr Litton for the acquiring authority indicated that no objection would be taken to the new evidence, but he asked for an adjournment so that advice and instructions on that evidence could be obtained. This court granted the adjournment and ordered the appellants to pay the costs of, and thrown away by, the adjournment.
26. For the adjourned hearing the acquiring authority has produced further evidence in the form of correspondence generated since the adjournment. On 29 June the Treasury Solicitor for the acquiring authority wrote to Mr Berry raising points arising out of Mr Berry's comments in his letter of 15 June. Mr Berry, in his reply on 1 July, confirmed that the Commissioners would not seek to claw back any of the input tax in the costs of the construction of the sports hall. However, he continued to leave open the possibility that there might be CGS adjustments in respect of other buildings.
27. In the light of Mr Berry's letters the Treasury Solicitor wrote to the claimants' solicitors on 30 June, saying that, while it was clear that the input tax in respect of the sports hall would not be recovered by the Commissioners, it was accepted that there might be doubt about the remaining sums; to meet that, an indemnity was offered by the acquiring authority for a period of 10 years until 30 June 2015 with respect to any repayment to the Commissioners for any VAT reclaimed by them on the proper costs of equivalent reinstatement of the buildings other than the sports hall where the claimants can demonstrate to the reasonable satisfaction of the acquiring authority that such sum has been assessed and recovered by the Commissioners.
28. That offer was rejected by the claimants on 1 July.
29. The first question that arises on this appeal is whether the new material sought to be relied on by the claimants at the hearing on 22 June and the further material produced by the acquiring authority, to the allowance of which no objection is taken by the claimants, should be admitted. It was plainly wrong of the claimants to attempt to include evidence which was not before the judge without a formal application. Such evidence will not be received unless this court orders otherwise (CPR 52.11(2)(b)). Had the acquiring authority objected to the receipt of the evidence, in all probability it would not have been admitted. This court should be very slow to encourage appellants to improve their cases on appeal by procuring new evidence which they could have sought to obtain, but chose not to try to obtain, before the hearing in the Lands Tribunal. If this court admits the claimants' new evidence, fairness requires that it also admits the acquiring authority's further evidence, all of which would leave the factual position very different from that before the judge. This court, in that event, would be bound to remit the case to the Lands Tribunal to consider the new evidence unless we took the view that there was only one reasonable conclusion which the Lands Tribunal could reach. However, as the acquiring authority has not objected to the claimants' new evidence, with some hesitation I would be prepared to allow it, provided that the acquiring authority's further evidence is also admitted.
30. Mr Leo Price QC, appearing with Mr Evan Price for the claimants, submitted that it could not be said to be "clear beyond peradventure", in the language of Roskill LJ in Wood Mitchell, that the input tax not only in respect of the buildings other than the sports hall but also in respect of the sports hall would not be recovered by the Commissioners. The judge, he said, was wrong to have placed so much reliance on the assurance given by the Commissioners under the Sheldon doctrine, which was extra-statutory. He pointed out that the concession made by the Commissioners was based on historical events and was in qualified terms, as could be seen from the words "On the facts as currently known" in the final paragraph of the letter of 3 August 2004 (see paragraph 15 above). He relied on the fact that the CGS requires the adjustment of the VAT position which was established in the first year if in the course of the ensuing nine years the intended use of the buildings changed from a business to a non-business use and he pointed to the additional material as supporting the possibility of the Commissioners requiring repayment of the input tax recovered. He stressed that VAT was a tax subject to rulings from the European Court of Justice and he suggested that the Commissioners might be compelled to exact tax which they had conceded would not be recovered. He insisted that Services was entitled to full compensation which included the input tax possibly recoverable by the Commissioners and that any question relating to its recovery should be a matter between Services and the Commissioners to be resolved, if necessary, before a specialist tax tribunal and should not be a matter that concerns the acquiring authority. His clients, he submitted, were entitled to compensation, not an indemnity, the offer of which should be left out of account.
31. These arguments were advanced by Mr Price with characteristic charm and persistence but they could not disguise the fact that he was seeking to recover compensation going beyond the actual loss suffered by Services on the compulsory acquisition. Although Services has recovered the input tax so that as matters now stand it is not out of pocket in respect of that tax, nevertheless he is seeking to include in that compensation a sum in respect of that tax. That is because, he says, there is a risk of the Commissioners recovering that tax, and the indemnity offered by the acquiring authority (which before us was extended to cover all the input tax recovered by Services, including that in respect of the sports hall) should be ignored as falling outside that compensation. Thus although the indemnity is offered to meet the risk which he claims to exist, and although it is offered by the Crown, he says that the law requires that his clients be paid the full amount of the tax which the Commissioners have not yet sought to recover and at least part of which – that in respect of the sports hall – they have repeatedly said they would not recover. Mr Price demurred at the suggestions made by members of the court that he was seeking a windfall for Services; but that it would be a windfall seems to me to be plainly correct.
32. There is no doubt but that compensation for the compulsory acquisition of land includes compensation for disturbance in connection with that acquisition, which is treated as part of the purchase price for the land acquired (Horn v Sunderland Corporation [1941] 2 KB 26 at p 43 per Scott LJ). However, as Scott LJ pointed out at p 49:

"The statutory compensation cannot, and must not, exceed the owner's total loss, for if it does, it will put an unfair burden on the public authority or other promoters who on public grounds have been given the power of compulsory acquisition, and it will transgress the principle of equivalence which is at the root of statutory compensation, the principle that the owner should be paid neither less nor more than his loss."

(For a modern statement of the principle in similar terms see Director of Buildings v Shun Fung Ltd [1995] 2 AC 111 at p 125 per Lord Nicholls.)

I do not suggest that the acquiring authority's interest in not overpaying outweighs the owner's interest in being fully paid for the land being acquired, but it is important not to lose sight of the public interest in ensuring that the compensation does not exceed the owner's loss.

33. Where the owner is being compensated for disturbance which includes loss of profits, the question of taxation may well arise. In British Transport Commission v Gourley [1956] AC 185 the House of Lords held that the damages to be awarded for personal injury including loss of earnings should reflect the fact that tax would have been payable on those earnings in a case where the damages would not be taxable in the hands of the recipient. Thus there were two relevant factors present:

(1) the loss compensated would have been subject to tax:

(2) the compensation was not subject to tax.

34. The Gourley principle was held by the House of Lords in West Suffolk County Council v W Rought Ltd [1957] AC 403 to be applicable to compensation for the compulsory acquisition of land used in a trade or business in a case where it was accepted that the compensation would not be taxable in the owner's hands. Thus the two factors present in Gourley were also present in Rought, the Revenue having indicated that the compensation for loss of profits was not taxable.
35. In Wood Mitchell the question was whether the compensation for disturbance on a compulsory acquisition of land on which the owner company carried on business should be a gross sum without adjustment for corporation tax on the compensation. In that case there was no discussion of the first Gourley factor which must have been accepted as present. However, the second Gourley factor was not present because, unlike Rought, the Revenue had written to the company to say that they would, or at least might, seek to contend that corporation tax was payable on the compensation, and this court, on considering the relevant statutory provisions, agreed. Roskill, LJ pointed to the distinction in that respect from Rought and said that the position of the Revenue was important because if the compensation was reduced on the principle of Rought because that compensation was not taxable in the company's hands but the Revenue succeeded in levying tax on that compensation, a grave injustice would have been done to the company. Roskill LJ said (at p 259):

" Since the purpose of decisions such as those in British Transport Commission v. Gourley [1956] AC 185 and West Suffolk County Council v. W. Rought Ltd. [1957] A.C. 403 was to secure that a successful plaintiff or claimant did not get more by way of damages or compensation than would have been received by him in the absence of his injuries or of the compulsory acquisition in question, as the case might be, it seems somewhat strange that the principle underlying those decisions should be able to be invoked by the acquiring authority in order to produce the result that the claimants, in the absence of any assurance from the Inland Revenue that no attempt would be made to levy tax upon this sum, stood in peril of receiving considerably less than that which they would have received had their capacity to earn continued unaffected by compulsory acquisition. In such circumstances the more natural course, which would avoid any risk of injustice, would be for the claimants to receive the full sum, leaving the question of liability to tax, if any, to be adjusted thereafter between the claimants and the Inland Revenue."

There then followed the passage which I have already cited in paragraph 21 above.

36. It was Mr Price's submission that the "clear beyond peradventure" test applied to the circumstances of the present case. In this context it is right to note that, although the test appears to be a statement of policy for the guidance of the Lands Tribunal and not to be based on specific statutory language governing compensation and although it might be criticised as giving no effect to that part of the principle of equivalence which requires that the owner must not be paid more than his loss, it was referred to without criticism by the Law Commission in its 2002 Consultation Paper, Towards a Compulsory Purchase Code: (1) Compensation (see LCCP No. 165 paragraphs 8-51 ff.), and not dealt with in its final report in 2003 on Compensation (Law Com No. 286). Further, the acquiring authority had been content to apply that test both before the judge and on this appeal, at any rate until the adjourned hearing when this court questioned whether it was the appropriate test. However, Mr Litton before us resiled from that concession, submitting that in a case such as the present it was for the Lands Tribunal to assess the contingency of the Commissioners succeeding in recovering the input tax like any other contingency so as to determine whether that tax should be part of the reasonable cost of equivalent reinstatement.
37. I do not accept that the circumstances of the present case come within the scope of what this court was addressing in Wood Mitchell. What was being considered in that case was the application of the Gourley principle with its two factors designed to avoid double taxation. In Wood Mitchell it was for the acquiring authority to show that the second factor was not present, and this it could not do because the Revenue had indicated that the compensation was or might be taxable, and with that view of the taxing provisions this court agreed. The present case is quite different. It is not concerned with double taxation at all. It is concerned with the risk of the Commissioners seeking to recover, and succeeding in recovering, the VAT input tax which Services had already successfully reclaimed from the Commissioners. In terms of the actual cost of equivalent reinstatement, Services has not incurred expenditure on that VAT by reason of its recovery from the Commissioners. Moreover, the Commissioners have given certain assurances that it will not reclaim the recovered input tax. It must be for Services to show that nevertheless there is a real risk that it would be required to repay the input tax.
38. I would therefore not extend the Gourley principle or the test laid down for its application in Wood Mitchell to the distinguishable circumstances of the present case. In my judgment, as Carnwath LJ suggested on the application for permission to appeal, the function of the Lands Tribunal was not to decide some complicated question of tax law but to decide a question of compensation law as to the reasonable cost of equivalent reinstatement. That required it to take a reasonable view of the likelihood of the recovery of the repaid VAT in the light of the evidence before it. That contingency fell to be assessed like any of the many other contingencies which may affect compensation consequent on a compulsory acquisition of land. On this appeal this court can only interfere with the decision of the Lands Tribunal if the judge made an error of law.
39. If I am wrong and the Wood Mitchell test is applicable to the present case, I cannot see any reason why evidence to show that the peril of injustice to the owner through the reduction of his compensation by taxation is met by an offer by the acquiring authority to give an indemnity or to provide insurance against that peril should not be taken into account in assessing the appropriate compensation. It would be contrary to reality to assess the compensation without regard to such an offer if thereby the peril is removed. It would further offend the principle of equivalence to assess the compensation as including the tax, the recovery of which may be only an unlikely possibility, when the acquiring authority's offer removes any risk.
40. In relation to the tax in respect of the sports hall, the Commissioners have repeatedly and consistently said that they would not seek to recover that tax. Moreover they gave that assurance formally by way of a Sheldon ruling and by reference to the published extra-statutory concession and that was done after they had raised an assessment for that tax but had then withdrawn it. Further, they have maintained that concession, knowing that what they said was to be considered by the Lands Tribunal. Mr Price could give no example from the 27 years in which the Sheldon doctrine has operated of the Crown resiling from a Sheldon ruling, and it seems to me that the judge plainly made no error of law in accepting the Crown's assurance.
41. In relation to the input tax in respect of the other buildings, the judge, while aware of the possibility of adjustments under CGS, took the view that there was no real risk of repayment by Services. That seems to me to be a view which he was entitled to take on the evidence before him. It is true that contrary to the impression given by the Commissioners in the letters of 23 September 2003 and 3 August 2004, the additional evidence in the form of Mr Berry's letters of 15 June and 1 July 2005 does disclose that it is now the Commissioners' view that there is a possibility that adjustments should be made under the CGS. However, Mr Berry also referred to such adjustments being subject to the three year capping provisions and to the absence of fraud in this case. I am not aware of any adjustments having been made and reported to the Commissioners by Services, which we are told is now in liquidation, and it is far from clear that the Commissioners would think it worthwhile after the considerable lapse of time to seek to raise an assessment against this insolvent company. The additional evidence does not show that the judge erred in law.
42. In any event, it is plainly a material factor that the risk of Services having its compensation reduced by a subsequent tax liability has been eliminated by the offer of an indemnity. That offer avoids the risk of injustice which the "clear beyond peradventure" test was expressly designed to meet. To exclude the input tax from the compensation in this case in the light of the indemnity offer would, in my judgment, comply with the principle of equivalence, whereas Mr Price's solution would ignore that principle by, in all probability, overcompensating Services.
43. Is it necessary to remit the case to the Lands Tribunal for it to consider the additional material? I think not. It seems to me that the only reasonable conclusion which the Lands Tribunal could properly reach is, for the reasons given above, that the input tax should be excluded from the compensation.
44. Accordingly I would dismiss this appeal. If there are points which the claimants would wish to take on the precise wording of the indemnity, I would be prepared to hear further argument, though I would hope and expect that the parties would agree that wording without a further hearing.

Scott Baker L.J :

45. I have had the advantage of reading the judgments in draft of Sir Peter Gibson and Waller L.J. I agree with both of them. The difficulty in the present case seems to me to have arisen because of the appellant's attempt to apply the words of Roskill L.J in Wood Mitchell "clear beyond peradventure" to entirely different circumstances from that case.
46. As Sir Peter Gibson points out in paragraph 31 of his judgment, the reality is that the appellants are seeking to recover compensation going beyond the actual loss suffered by Services on the compulsory acquisition. As Scott L.J observed in Horn at p.49:

"The statutory compensation cannot, and must not, exceed the owner's total loss, for, if it does, it will put an unfair burden on the public authority or other promoters who on public grounds have been given the power of compulsory acquisition, and it will transgress the principle of equivalence which is at the root of statutory compensation, the principle that the owner shall be paid neither less nor more than his loss."

Scott L.J went on to describe this principle as "the most fundamental of all".

47. In my judgment Roskill L.J in Wood Mitchell was dealing with a very particular situation which, as my Lords have pointed out, is far removed from the facts of the present case. His words should not be construed as impinging in any way on the fundamental principle enunciated by Scott L.J in Horn.
48. The courts are well experienced in assessing the value of contingencies and in this context I do not think that assessing the reasonable cost of equivalent reinstatement under the Land Compensation Act 1961 requires any novel approach.
49. I too would dismiss the appeal.

Waller LJ:

50. I gratefully adopt the history set out by Sir Peter Gibson, and merely wish to add a word on the application of the "clear beyond peradventure" dictum of Roskill LL in Wood Mitchell in the circumstances of this case.
51. I hope it not unfair to summarise the facts in this way. Mr Leo Price QC's clients seek to recover the reasonable cost of reinstatement of certain buildings. To reinstate the buildings they paid a sum £x, plus 17.5% of £x being the VAT. They then recovered the VAT from Customs and Excise. The Customs and Excise however sought to reclaim the VAT returned but withdrew the assessments and, by letters dated 8^th August 2003 and 23^rd September 2003, gave assurances that they would not seek repayment of the sums returned to Services.
52. By correspondence since the hearing before the Lands Tribunal the assurance so far as part of the buildings are concerned, i.e. the Sports Hall, remains the same but it could be said that it is not quite so clear so far as the remaining buildings are concerned. Owing to that lack of clarity the respondent has offered an indemnity to Services to cover the remote possibility that the Customs and Excise demand repayment of the VAT in relation to "the other buildings".
53. Services seek to claim by way of compensation both the price they paid for the reconstruction of the Sports Hall and the other buildings, plus the VAT on the following basis. They rely on the passage in the judgment of the Court of Appeal in Wood Mitchell to which Sir Peter Gibson has referred and quoted in paragraph 21 of his judgment, and which for convenience I will set out again:-

"We take the view that the principles laid down in West Suffolk County Council v W. Rought Ltd. [[1957] AC 403] can only be applied if after examination of the relevant statutory provisions it is clear beyond peradventure that the sum in question would not be taxable in the hands of the claimants. If that is clear, then it would be wrong to require the acquiring authority to compensate the claimants beyond the amount of the loss which the claimants would in truth suffer. But if it is not, then it seems to us unjust that in a doubtful situation the acquiring authority can get the benefit of a reduced payment while leaving the claimants exposed to the risks we have mentioned."

54. Mr Price suggests that the above dictum applies to the circumstances of this case, and that the respondent cannot show that "it is clear beyond peradventure" that the VAT may not have to be returned in the future and that the consequence is that his clients are entitled to receive, as part of the compensation, 100% of that VAT.
55. Wood Mitchell was a case in which the question arose as to whether the principle laid down in Gourley should apply. The principle established by Gourley was that in an action for damages for a personal injury which was tortiously inflicted, calculation of the claimant's damages in respect of his loss of earnings, both past and prospective at the time of trial, must take into account the tax which would have been payable upon them if two factors were present. The two factors which had to be present were (1) that the sums for the loss for which the damages awarded constituted compensation would have been subject to tax and (2) the compensation awarded to the claimant would not itself be subject to tax. That principle was held to apply to compensation awarded for the compulsory purchase of land in Rought.
56. In Wood Mitchell the compensating authority were seeking to have the principle in Gourley applied. However, the evidence demonstrated that the Inland Revenue were not prepared to give an assurance that tax would not be levied on any compensation paid. In Gourley it was common ground that tax would not be paid on damages. In Rought an assurance had been given that tax would not be paid on the compensation. In both cases the House of Lords had proceeded on the basis that factor (2) had therefore been established. Roskill LJ in Wood Mitchell held that the principle in Gourley would not be applied unless "it is clear beyond peradventure" that the compensation would not be subjected to tax. In their judgment the Court of Appeal then examined the provisions relating to taxation and concluded that far from it being clear beyond peradventure that tax would not be paid on the compensation, tax would in fact have to be paid. In those circumstances the principle in Gourley was not applied i.e. the compensating authority were not entitled to have the compensation reduced by reference to the tax that would have been paid to earn the same.
57. In my view Mr Leo Price seeks to build too much on the statement of Roskill LJ in Wood Mitchell. In this case the respondent is not seeking to take advantage of the principle in Gourley. It is Services who are seeking to establish the reasonable cost of reinstatement of the Sports Hall and the other buildings. At present all they can demonstrate as the reasonable cost of reinstatement is that which they have paid, which is £x, and not £x plus 17.5% VAT. They suggest that it is possible that the VAT will one day be payable because the Commissioners may go back on their assurance, or circumstances may arise in which the indemnity offered by the compensating authority would have to be called on. I cannot see that the proof of such a contingency should be in any different position from any other contingency which a claimant may have to establish to prove his loss. It is quite obvious that if the establishment of a very small risk that VAT would have to be paid automatically entitled Services to 100% of the VAT, the overwhelming likelihood is that they will be over-compensated.
58. I would test the matter in this way. Assume the case were concerned with the assessment of damages for the tortious destruction of the buildings, and at the time of trial the buildings had not actually been rebuilt but damages were being assessed on the basis of the cost of reinstatement. Assume that there were two unknowns (1) whether VAT would be payable, and (2) whether some potential hazard might cause an increase in costs. The VAT would not in my view fall into some special category, and be recovered 100% unless the defendant could show "beyond peradventure" that VAT would not be payable. The two contingencies would have to be assessed on the same principles used for assessing and quantifying a risk.
59. The correct approach as I would see it has to be whether Services have established, on the balance of probabilities, that there is a risk that the VAT may have to be repaid. If they have established the existence of that risk on the balance of probabilities then the Court or the Lands Tribunal would have to evaluate that risk.
60. In my view His Honour Judge Rich was correct in holding that in the light of the assurances received that Services had not established the existence of the risk. He was thus right not to evaluate the same. So far as this Court is concerned, documents have been put in without resistance from the Crown and it could be said that the picture is slightly different. But once again, even on that picture, it seems to me that Services have failed to establish the existence of any risk so far as the Sports Hall is concerned. So far as any risk on the other buildings is concerned, the risk appears to be very small and could be valued in the sum it would take to insure against that risk, but there is no necessity to go through that exercise in the light of the offer of an indemnity which completely obliterates such risk as exists.
61. I agree that there is no purpose in sending the matter back to the Lands Tribunal to consider the new material since there is only one conclusion which that Tribunal could reach. I agree that the appeal should be dismissed.