Court of Appeal: waste used to line landfill cells is subject to landfill tax

• Question is not whether site operators ‘used’ the material
• Fluff disposed of with intention of discarding it, so taxable
• HMRC v Devon Waste Management Ltd [2021] EWCA Civ 584 

Background

Devon Waste Management and other landfill site operators argued that materials placed in a landfill cell to protect the membrane lining the cell were not subject to landfill tax.

Landfill sites contain 'cells' which are typically large holes in the ground into which waste is tipped. The bottom of the cell has to be lined with a thick, impermeable membrane to stop polluting liquid produced by the decomposing waste from seeping into the surrounding earth. In order to ensure that the membrane is not pierced or otherwise damaged,  landfill site operators make sure that the first thick layer of material placed on top of the membrane and part way up the sides of a new cell is ‘fluff’. Fluff is normal black bin waste inspected to ensure it does not contain sharp objects which could damage the membrane. It protects the membrane when waste subsequently added is compacted. A thick layer of compacted fluff or shredded black bag waste known as EPV is added to the top of the cell when it is full to protect the materials used to cap the cell.

Landfill tax is charged on a “taxable disposal”. At times relevant to the case, one condition for a disposal to be a taxable disposal is that it is “a disposal of material as waste”.  A disposal of material is a disposal of it as waste “if the person making the disposal does so with the intention of discarding the material”. 

In 2008 the Court of Appeal decided in a case concerning Waste Recycling Group (WRG) that inert material laid over a landfill site daily to prevent the waste deposited that day from blowing away, giving off odour or attracting vermin (daily cover) or inert material used for roads within the site was not subject to landfill tax because it was not discarded. The word 'discard' was used in its ordinary meaning of 'cast aside', 'reject' or 'abandon' and did not comprehend the retention and use of the material for the purposes of the owner of it, the court said in WRG.

Following the WRG case, HM Revenue & Customs (HMRC) invited applications for repayment of landfill tax for past periods where materials were put to use on the site. It received a large number of claims relating to fluff and in 2017 said that it would no longer accept claims for fluff used on the base or side of cells. It stated that fluff used on top of the cells had always been subject to landfill tax, notwithstanding the WRG decision.

In response to the WRG case, certain activities were expressly prescribed by regulations as being subject to landfill tax with effect from 1 September 2009. These included daily cover and “the use of material placed against the drainage layer or liner of the disposal area to prevent damage to that layer or liner”. The dispute in the Devon Waste Management case therefore related to fluff used on the bottom or sides of a landfill cell before 2009 and fluff used on top of the cells at any time, since the 2009 regulations did not expressly mention this.

The landfill site operators argued that WRG and other case law had established that if the person making the disposal ‘uses’ the material being disposed of, then that negates any intention on their part to discard that material, so that the disposal is not taxable.

HMRC argued that the site operators were not really using the fluff or EPV to do anything; they were simply placing all the waste, including these first and last layers of fluff or EPV, carefully into the landfill cell so as not to damage the infrastructure of the cell and to maintain the integrity on top of the completed cells.

The First-tier Tribunal (FTT) found for HMRC, deciding that the fluff or EPV was disposed of and therefore gave rise to a landfill tax liability. The Upper Tribunal decided that the waste site operators were ‘using’ the fluff and the EVP and that this meant that they did not have any intention to discard it so that it was not taxable.

Court of Appeal decision

The Court of Appeal allowed HMRC’s appeal and reaffirmed the decision of the FTT. The conclusion was that the disposal of fluff and EVP was with the intention of discarding the material as waste despite its use as a protective layer in the landfill cell. The FTT were right in their application of the statutory provisions and that the use the taxpayers had made of the fluff and EVP was insufficient to negate their otherwise obvious intention to discard the material, the Court of Appeal said.

The Court of Appeal said that it was a mistake to rely too heavily on discussion from case law and instead the focus should be the wording of the legislation. In particular, the court criticised the parties’ focus on the WRG case and the concept of ‘use’ as this term is not used in the relevant parts of the legislation. “The statutory question is not whether the [landfill site operators] used the fluff or the EVP but whether they disposed of it as waste because they disposed of it with the intention of discarding it,” Lady Rose said in her judgment.

The Court of Appeal did not consider that ‘use’ was the opposite of ‘discard’ and said it was incorrect to try to disprove an intention to discard by showing that the material was used. The fact that Sir Andrew Morritt concluded in the WRG case, on different facts, that WRG did not discard the material used for road building or daily cover did not mean that fluff and EVP were not discarded here.

'Discard' is not defined in the legislation and there is no suggestion that it has any technical meaning in the context of landfill site operations so it must be intended to bear its ordinary meaning. The court stressed that there is no one size fits all definition of discard which will work in this context and as such the facts are extremely important.

Lady Rose explained that the following non-exhaustive list of factors should be considered when assessing who is the relevant disposer, and whether their intention at the time was to discard the material:

• whether the material is placed somewhere within the perimeter of the landfill site but not being placed in the cell;
• whether it is processed in some way by or on behalf of the landfill site operators;
• whether it is separated out from the main body of waste and stored for a time or conversely whether it is placed in the cell immediately or soon after it arrives at the landfill site;
• whether it is put into the cell with the expectation that it will stay there permanently;
• whether there has been a passage of title to the disposer;
• the economic circumstances surrounding the acquisition of the materials in question – who paid whom for the material, and whether the disposer would need to buy in alternative material if there was not enough of the material in dispute; and
• the practicality of applying or disapplying the tax to the material in question.

Lady Rose confirmed that not everything that goes into the cell at the landfill site will be regarded as discarded for these purposes, even if there is no expectation or intention that it will ever be retrieved from the site. For example, she said that the cell membrane, gravel drainage layers and the piping placed in the cell for drainage or for collecting and evacuating methane gas were clearly not intended to be subject to landfill tax.

Although to discard something or abandon it may in ordinary usage connote an intention to give up ownership or possession of it, Lady Rose said that the UK parliament cannot have intended to exclude from the tax any material which is not discarded in that sense because title in and possession of all the waste material deposited in the cell typically remain with the landfill site operator until well after any relevant disposal has taken place.

Although the specific circumstances of the Devon Waste Management case are largely of historic interest, due to the change in law in 2009 and reforms to landfill tax in 2018, making it clear that fluff used to line the cell is now expressly subject to landfill tax, the case is still of interest because of the guidance on the meaning of ‘discard’.

Both Lady Rose and Lord Justice Nugee found an example given by the FTT as a helpful analogy. This was of a householder using some bubble wrap to wrap a broken glass before throwing both away. The judges regarded this as an illustration that there is nothing necessarily inconsistent about a person throwing something away but doing so in such a way as to make use of some of its properties for their own purposes.

In the Court of Appeal’s view, the fact that the fluff or EVP was black bag waste and was going into the landfill cell in any case, meant that it was subject to landfill tax. It was not being placed in the cell only to serve a function, such as the membrane itself, it was just being discarded in a particular way in order to serve a double purpose. The fact that the waste was ‘used’ did not change the fact it was also discarded. If the sites did not have the fluff they would have bought in a product, described as ‘super-duper bubble wrap’. This would not be ‘discarded’ on the analysis of this case.

As large sums of landfill tax are at stake, the landfill tax operators may seek to appeal the decision to the Supreme Court, so the Court of Appeal’s decision may not be the final word on this issue.

Steven Porter and Sam Wardleworth are landfill tax experts at Pinsent Masons, the law firm behind Out-Law.