The Supreme Court has handed down its decision in R (on the application of Cobalt Data Centre 2 LLP) v. HMRC, in which Edward Waldegrave appeared for HMRC. The case addresses important and difficult questions concerning the construction of capital allowances legislation, and the general law of contract.
The dispute concerned a claim for enhanced capital allowances known as “enterprise zone” allowances. In outline, enterprise zone allowances were introduced in the 1980s to encourage investment in economically depressed parts of the country. Where other conditions are satisfied, they are available in respect of expenditure incurred on the construction of a building in a designated “enterprise zone”. Section 298(1) of the Capital Allowances Act 2001 provides that such expenditure must be incurred either (i) within 10 years of the site being included in an enterprise zone; or (ii) within 20 years of that date if the expenditure is incurred “under a contract entered into” within the first 10-year period.
In this case there was a contract (known as the “Golden Contract”) entered into two days before the expiry of the initial 10-year period which provided for the construction of one of six different buildings on the relevant site. Some years later, buildings were constructed which differed from any of the projects originally envisaged. The overarching question was whether the expenditure on these buildings had been incurred “under” the Golden Contract.
The first question considered by the Supreme Court concerned whether section 298 enables expenditure incurred pursuant to a contractual variation which occurs outside the first 10-year period to be treated as expenditure “under” the original contract. It decided this was not the case; on its correct construction the legislation requires (in summary) the expenditure on the building as actually constructed to have been the subject of a contractual commitment at the end of the first 10-year period. The Supreme Court then considered the taxpayers’ argument that the original Golden Contract in fact gave the developer a unilateral right to require the changes which had occurred (such that there was no “variation” of the Golden Contract) and concluded that it did not. These conclusions were sufficient to dispose of the appeal but the Supreme Court also considered whether the question of whether a contract is varied – as opposed to replaced with a new contract – when a change is made depends solely on the intention of the parties. It decided that, in general terms (leaving aside certain exceptional scenarios) this is the case.
Edward acted for HMRC as part of a team led by David Ewart KC, and which also included Stephen Kosmin and Laura Ruxandu. The Supreme Court’s decision is available here.
