Veolia ES Landfill Ltd & Anor, R (on the application of) v HM Revenue & Customs, Court of Appeal - Administrative Court, July 25, 2016, [2016] EWHC 1880 (Admin)

Resolution Date:July 25, 2016
Issuing Organization:Administrative Court
Actores:Veolia ES Landfill Ltd & Anor, R (on the application of) v HM Revenue & Customs

Case Nos: CO/1486/2014 & CO/1554/2014

Neutral Citation Number: [2016] EWHC 1880 (Admin)




Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 25/07/2016



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THE QUEEN on the application of: Claimants






And Between :

THE QUEEN on the application of: Claimants










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Sam Grodzinski QC (instructed by Simmons & Simmons LLP) for the Veolia Claimants

Francis Fitzpatrick QC (instructed by Ashfords LLP) for the Viridor Claimants

Melanie Hall QC and Brendan McGurk (instructed by HM Revenue and Customs)

for the Defendants

Hearing dates: 9-12 February 2016

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Mr Justice Nugee:


  1. There are two applications for judicial review before the Court which have been heard together, one by two companies in the Veolia group, and one by a number of companies in the Viridor group. Although it is necessary to distinguish between the two groups of claimants, it is not necessary to distinguish between the companies within each group and I will refer to them collectively as ``Veolia'' and ``Viridor'' respectively. The claims are brought against Her Majesty's Commissioners for Revenue and Customs (``HMRC'').

  2. Both Veolia and Viridor are in the business of waste management. In particular they operate a number of landfill sites around the country. As such they are liable for a tax known as landfill tax, which is a tax charged on the disposal of material as waste by way of landfill at a landfill site. Material is disposed of ``as waste'' if the person making the disposal does so with the intention of discarding it.

  3. The claims concern material known in the industry as `fluff'. Put very simply, household rubbish (or black-bag waste) that goes to landfill is placed in cells lined with a liner to protect the environment. The practice of landfill site operators is to sort the waste before it is first placed in a cell so that the layer on the base of the cell does not contain sharp or heavy objects which might puncture the liner. This layer, typically 2 metres deep, has come to be known as `base fluff'. A similar practice is adopted on the sides of the cell as the cell is filled up, and this material has come to be known as `side fluff'.

  4. In July 2008 the Court of Appeal gave judgment in Waste Recycling Group Ltd v HMRC [2008] EWCA Civ 849 (``WRG''). This decided that a landfill site operator who had used various inert materials for building roads and for `daily cover' on a landfill site had not had the intention of discarding it, as it had retained and used the material for its own purposes. Following WRG HMRC issued a public notice called Revenue & Customs Brief 58/08, dated 22 December 2008 (``Brief 58/08''). This confirmed that HMRC would not be appealing the decision in WRG, summarised the effect of the decision as being that material put to use on a landfill site was not taxable, gave illustrative examples of such use, and invited claims for repayment of landfill tax which fell within such examples. I will have to consider its detailed terms in due course.

  5. Landfill site operators, including Veolia and Viridor, submitted various claims for repayment, including claims for repayment of tax paid on base and side fluff. In mid-2009 HMRC decided that base and side fluff claims were in principle well founded, and proceeded to process such claims. That took some time due to the need to verify the quantum of claims, and also the resolution of certain issues which arose such as `capping' (how far back a claim could go) and `unjust enrichment' (the principle that where a landfill site operator had passed on the charge to tax to its customer, it could not obtain a repayment without undertaking to reimburse the customer); but HMRC did make substantial repayments in relation to base and side fluff. In Viridor's case HMRC in February 2012 paid part of its claim for base and side fluff, but held back the balance pending the sorting out of the unjust enrichment arrangements. In Veolia's case HMRC in February 2013 formally agreed the quantum of its claim for base and side fluff subject to capping and unjust enrichment, and later agreed the quantum attributable to those issues too.

  6. HMRC however also started receiving claims for `top fluff' or `reverse fluff', that is for a similarly sorted layer placed at the top of the cell underneath the overlying layers. The cells have sloping sides, or in other words a trapezoidal cross-section. This means that they are wider at the top than the bottom, with the result that the quantum of a top fluff claim is much larger than the quantum of a base fluff claim for the same cell. HMRC could find no trace of the term `top fluff' being used before Brief 58/08 and suspected that the idea had been invented to generate tax repayments or, as Mrs Hall QC, who appeared before me for HMRC, described it, that it was ``an accountant's construct''. I am not directly concerned with any top fluff claims, and it is not suggested that I should decide whether HMRC are right about this - this may be a matter for a tribunal in due course - but the fact that HMRC took this view is relevant, or at least arguably so, to the matters that I do have to decide.

  7. The upshot was that HMRC determined to resist paying out on top fluff claims. This was announced in Revenue & Customs Brief 15/12 dated 18 May 2012 (``Brief 15/12''), stating HMRC's conclusion that top fluff constituted careful placement of soft waste that was and always had been liable to landfill tax. Brief 15/12 was supplemented on 1 June 2012 by Revenue & Customs Brief 18/12 which contained some clarification but did not affect the substance.

  8. In December 2013 however HMRC went further and decided to stop repaying on base and side fluff as well. That decision was taken at the top level within HMRC, by three of the six individual Commissioners. It was announced in Revenue & Customs Brief 02/14 dated 23 January 2014 (``Brief 02/14'') which stated that HMRC would make no further payment of base and side fluff claims, although it would not seek to reclaim any payments that had been made. Letters were sent to Viridor on 7 February 2014 and to Veolia on 11 February 2014 stating that in accordance with Brief 02/14 the claims for repayment were refused.

  9. The practical effect for Viridor was that although it had been paid part of its fluff claim, it has been denied repayment of the balance which was subject to the unjust enrichment provisions; the practical effect for Veolia is that it has received no part of its fluff claim. Veolia say (and it has not been suggested that they are wrong) that they are one of six major players in the industry (Viridor being another of the six), and that they alone of those six have received nothing.

  10. Veolia and Viridor, as well as many other landfill site operators, have appealed HMRC's refusal of their fluff claims to the First-tier Tribunal. The question in those proceedings will be whether the material used as fluff was or was not taxable as a matter of law. The taxpayers' contention in the appeals is in summary that because the material has been used as fluff it has not been discarded and hence it has not been disposed of as waste; HMRC's contention is in effect that all the taxpayers have done is discard it carefully. Those issues are not before me, and I propose to say no more about the underlying substantive question. Indeed when in May 2014 Thirlwall J gave permission to Veolia and Viridor to bring these applications for judicial review, she expressly directed that the claims should proceed on the basis that HMRC's current interpretation of the relevant statutory provisions relating to landfill tax is correct, and I therefore proceed on the basis that as a matter of tax law material used as fluff is disposed of as waste, and is and always has been taxable.

  11. In these claims by contrast the issue is not who is right on the substantive question of tax law, but whether HMRC acted unlawfully in reversing its decision to pay out on base and side fluff claims. Viridor say that for HMRC to depart from the terms of Brief 58/08 is unfair, a breach of their legitimate expectations and an abuse of power. Veolia says much the same, but has a separate point that it has been treated differently from other landfill site operators (its commercial competitors), and that for both reasons HMRC has acted so conspicuously unfairly that its conduct constitutes an abuse of power and is unlawful.

  12. HMRC for their part deny that Brief 58/08 said anything to the effect that fluff claims would be paid; assert that the taxpayers do not come with clean hands; and in any event say that the decision to stop paying out on base and side fluff claims was objectively justifiable.

  13. HMRC also have a contingent application for a stay pending the tribunal proceedings. It is contingent because Mrs Hall accepts that if I came to certain conclusions, there would be no risk of an overlap between my views and those of the tribunal and no ground for a stay; but if I reached other views, she says that there would be such an overlap and a risk of inconsistent findings such that my judgment should be stayed. I will come back to the details of this submission in...

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