Judgments - Waters and others (Appellants) v. Welsh Development Agency (Respondents)

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    37.  In one case the Court of Appeal expressly applied Lord Romer's 'friendly negotiation' approach: Lambe v Secretary of State for War [1955] 2 QB 612. As applied in that case this approach was not at odds with the traditional understanding. There the acquiring authority was the sitting tenant and the compulsory purchase order related to the freehold reversion. The Court of Appeal rightly held that rule 3 was inapplicable. The marriage value which a reversion has for a sitting tenant does not clothe the land with a special suitability within that rule. The court decided that the correct measure of value was the price the acquiring authority, in the course of Lord Romer's friendly negotiation, would have been willing to pay for the reversion if it had no compulsory powers. This included the marriage value. In my view this decision was correct. Any other result would have been most unfair. A freehold reversion is invariably worth more to the sitting tenant. Why should the landlord be paid less because the tenant acquires the reversion in the exercise of statutory powers?

    38.  One further point calls for mention. The legislation under consideration in the Indian case contained no equivalent of rule 3. Rule 3 is expressed in absolute terms which appear to leave no room for taking into account a potential use of the land where the acquiring authority is the only person who could turn this potentiality into an actuality. In this regard rule 3 is more restrictive of compensation than the 'value to the owner' principle as clarified on this point by the decision of the Privy Council in the Indian case.

    39.  Over the years the courts have interpreted rule 3 narrowly. In an illuminating report the Law Commission said that in practice rule 3 appears to have little remaining purpose. It has effectively become redundant: see 'Towards a Compulsory Purchase Code: (1) Compensation' (2003) (Law Com No 286, Cm 6071), paras D 94, D 131, pp 203, 216. Some of the court decisions restricting the scope of rule 3 are open to criticism. But, like my noble and learned friend Lord Brown of Eaton-under-Heywood, I would let them be. They do not seem to give rise to difficulties in practice. Where rule 3 is not applied the 'value to the owner' principle operates. Essentially this is a sound basic principle, although in recent years some difficulties have arisen. Subject to statutory provision to the contrary it should continue to be applied generally.

The Pointe Gourde case

    40.  The 'value to the owner' principle, as discussed so far, concerns cases where the value of the subject land is enhanced by the acquiring authority's proposed use of that land. But it would be artificial to confine the scope of the principle to such cases. It would be irrational to exclude cases where the value of the subject land is enhanced by the authority's use or proposed use of other land which is being acquired as an integral part of a single scheme. If a hydro-electric project comprises construction of a reservoir upstream and use of the river falls downstream, it would be extraordinary if the compensation payable for the river falls were inflated by the construction of the reservoir. If the subject land were to comprise both the river falls and the reservoir site, the 'value to the owner' principle would exclude the increased value attributable to both limbs of the project. That should equally be so if the reservoir site and the river falls, both acquired compulsorily, happen to be in separate ownership.

    41.  The courts, rightly, have regarded this wider application of the 'value to the owner' principle as a self-evident aspect of the same principle. The 'value to the owner' principle is apt to embrace enhanced value arising from the proposed use of the subject land and also enhanced value arising from the use made or proposed to be made of other land also being acquired. The Pointe Gourde case concerned enhanced value arising from the proposed use of other land. But, not surprisingly, Lord MacDermott's much quoted observation in the Pointe Gourde case refers to the applicable principle in terms covering both sources of enhanced value. Lord MacDermott said, in quite general terms, that 'compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition': Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, 572.

    42.  In consequence, the phrase 'the Pointe Gourde principle' is often used as a compendious reference covering both types of cases. This can be confusing. It is important to keep in mind that, despite its late arrival on the scene, the expression 'the Pointe Gourde principle' is not a reference to a principle separate and distinct from the 'value to the owner' principle. It is no more than the name given to one aspect of the long established 'value to the owner' principle. In Rugby Joint Water Board v Foottit [1973] AC 202, 213, Lord Pearson described the authorities I have referred to above on the 'value to the owner' principle, including the Indian case, as illustrations of the application of the Pointe Gourde principle. Lord Cross, at p 253, observed that the decision in the Pointe Gourde case appeared to him entirely in accord with and not to be in any way an extension of the principle stated in the Countess of Ossalinsky case.

    43.  Notoriously the practical difficulty with the Pointe Gourde principle lies in identifying the area of the 'scheme' in question. This difficulty does not arise when the enhanced value arises from the authority's proposed user of the subject land. Then, by definition, what is in issue is the proposed use of the subject land. But when regard is had to the authority's use or proposed use of other land the application of the principle is not self-defining. A major development project of a general character, covering a wide geographical area, may proceed in several phases, each phase taking years to implement, and the detailed content and geographical extent of each phase being subject to change and finalised only as the phase nears the time when the work will be carried out. Is that one scheme or several?

    44.  This question arose in one of the earliest cases where the Pointe Gourde principle was applied to enhanced value arising from use of land other than the subject land: Fraser v City of Fraserville [1917] AC 187. One of the grounds on which the arbitrators' award was set aside was that, in valuing the falls of a river and adjacent land acquired for electricity generation purposes, the arbitrators had taken into account the enhanced value emanating from a reservoir being built by the acquiring authority higher up the river. In a much quoted passage at p 194 Lord Buckmaster said that, in ascertaining the value of the property to the owner with all its advantages and possibilities, there should be excluded 'any advantage due to the carrying out of the scheme for which the property is compulsorily acquired', the question of what is the scheme being a question of fact.

    45.  The Privy Council did not decide whether the reservoir works and the work proposed to be carried out at the river falls were two parts of one scheme. That was a question for the fact-finding tribunal. Nor did the Board vouchsafe guidance on the criteria to be applied by the fact finding tribunal when deciding this 'question of fact'.

    46.  This is essentially a problem which has arisen since the Second World War. Sir Michael Rowe QC, sitting in the Lands Tribunal, drew on his experience when he said in Kaye v Basingstoke Corporation (1968) 20 P & CR 417, 455:

    'Before the 1939 war it is broadly, perhaps entirely, true to say that the application of the common law rule was comparatively simple in so far as discovering what "the scheme underlying the acquisition" was. There was usually an Act, public but more often private, or an Order which defined the scheme and the area wherein it was to operate. But in the post-war years a new conception of planning led to a series of measures which gave to local authorities, of one kind or another, planning powers of a much less detailed although more far-reaching character.'

    47.  The Town and Country Planning Act 1947, the New Towns Act 1949 and the Town Development Act 1952 exemplified this trend. When seeking to identify the ambit of a scheme it was no longer sufficient to look to the primary or secondary legislation which empowered the acquisition. It became necessary to look more widely.

The Land Compensation Act 1961

    48.  In 1959 Parliament had in mind the problems arising from these new forms of development schemes when restoring the compensation position to what it had been before the enactment of the Town and Country Planning Act 1947. Parliament sought to make provision for them in the Town and County Planning Act 1959, followed by the Land Compensation Act 1961.

    49.  Their complexity makes summary difficult. For present purposes it is sufficient to say that the broad thrust of section 6 of the 1961 Act as amended appears to be as follows. The value attributable to development, or prospect of development, of land other than the subject land is to be disregarded in a variety of circumstances specified in Part I of the First Schedule. These are: that the other land and the subject land are within the same compulsory purchase order (case 1), or within an area of comprehensive development (case 2) or within a site designated under the New Towns Act 1946 (case 3) or the extension of such a site (case 3A) or a town development area (case 4) or an urban development area (case 4A) or a housing trust action area (case 4B). In these cases changes in the value of the subject land attributable to development or the prospect of development for the same purposes of other land in the same compulsory purchase order are to be disregarded if 'the development … would not have been likely to be carried out if … the acquiring authority had not acquired and did not propose to acquire any of [the land comprised in the compulsory purchase order]': section 6(1)(a). Additionally, where land is within cases 2 to 4B the disregard extends to the effect in value on the subject land of any development, past or prospective, which would not have been likely to be carried out if the area had not been designated, for example, in case 4B, as an urban development area: section 6(1)(b).

    50.  In the case of urban development areas the disregard net is cast even wider by paragraphs 10 and 11 of Schedule 1, introduced by the Local Government, Planning and Land Act 1980. A change in value is not to be excluded from the scope of the disregard merely because it is attributable to a development which was carried out before the area was designated as an urban development area, or to a development of land outside the urban development area, or to development by an authority other than the acquiring authority: paragraph 10. Further, in an apparent reference to the Pointe Gourde principle, paragraph 11 provides that paragraph 10 shall apply also to any change in value to be left out of account 'by virtue of any rule of law relating to the assessment of compensation in respect of compulsory acquisition'.

    51.  The first and most obvious oddity of this enactment is that it makes no provision regarding value attributable to the prospect of development of the subject land itself. It is frankly impossible to believe that Parliament intended that enhancement of value attributable to the prospect of development of associated land should be disregarded but not enhancement in value attributable to the prospect of development of the subject land itself. The statutory assumptions regarding planning permissions in respect of the subject land, set out in sections 14 to 16, do not provide an adequate explanation for this difference in treatment. Planning permission is one thing, the prospect of development is another.

    52.  In Camrose v Basingstoke Corporation [1966] 1 WLR 1100 the Court of Appeal rightly declined to accept that Parliament intended this result. A possible explanation for the absence of a statutory disregard in respect of enhanced value attributable to proposed development of the subject land itself is that, as already noted, in such cases the difficulties inherent in identifying the ambit of the scheme do not arise. This being so, the exclusion of these cases from the scope of the statutory disregard is not to be construed as implicitly changing the law. Rather it is the recognition of a well known situation for which legislation was not necessary: see Russell LJ, at p 1111. Accordingly, in these cases the Pointe Gourde principle should continue to be applied.

    53.  Had the matter rested there section 6 might well have been open to the interpretation that in all other respects the new statutory code was exhaustive. But there is at least one further gaping lacuna in the code. This is illustrated by Wilson v Liverpool Corporation [1971] 1 WLR 302, where an authority acquired some of the land needed for a scheme of development by agreement and made a compulsory purchase order in respect of the remainder. Enhancement in value of the subject land attributable to the development of the land bought by agreement would be outside case 1. Here again, that cannot have been intended by Parliament.

    54.  The courts therefore found themselves driven to conclude that the statutory code is not exhaustive and that the Pointe Gourde principle still applies. This conclusion is open to the criticism that in many instances this makes the statutory provisions otiose. This is so, but this is less repugnant as an interpretation of the Act than the alternative.

Identifying the extent of the scheme

    55.  The co-existence of the section 6 code and the Pointe Gourde principle means that the problems associated with identifying the ambit of the 'scheme' for the purposes of the Pointe Gourde principle remain live problems. Undoubtedly the present state of the law gives rise to serious valuation difficulties. It is unreal to require land to be valued on the basis of what would have been the position if a major development which took place years ago had not been carried out. Lord Denning, in his accustomed style, referred to a valuer having to 'conjure up a land of make-believe' and 'let his imagination take flight to the clouds': see Myers v Milton Keynes Development Corporation [1974] 1 WLR 696, 704. In a recent case in the Lands Tribunal the President had to rewrite the history of Mold in North Wales over 17 years. He described this as a 'virtually impossible task': [2003] RVR 140, para 98.

    56.  There is an even more fundamental problem. This goes to the very fairness of the Pointe Gourde principle as currently applied. The wider the scheme, the greater the potential for inequality between those outside the area of acquisition, whose land values rise by virtue of the scheme, and landowners whose properties are acquired at a value which disregards the scheme. Conversely, the narrower the scheme, the greater the potential for an authority being called upon to pay compensation inflated by its own investment in improved infrastructure or other regeneration activities. Holding the balance between these conflicting interests is pre-eminently a subject for decision by Parliament. But, as matters stand, there are indications that in some cases the application of the Pointe Gourde principle has become too wide-ranging.

    57.  The Law Commission, in its report already mentioned, recommended enactment of a new compensation code which would include provision for a 'statutory project'. This would replace the Pointe Gourde principle, section 6 of the Land Compensation Act 1961 and much else beside. In several respects this 'statutory project' provision is not compatible with section 6. Whilst section 6 remains on the statute book, therefore, the Law Commission's 'statutory project' recommendation does not lend itself to adoption by the courts as a model for the future in place of the existing Point Gourde principle. For present purposes what is important is that, after consulting widely, the Law Commission recognised the need to restrict the area of schemes.

    58.  I turn, then, to the question of how the extent of a scheme should be identified in today's conditions. A scheme essentially consists of a project to carry out certain works for a particular purpose or purposes. If the compulsory acquisition of the subject land is an integral part of such a scheme, the Pointe Gourde principle will apply accordingly. Both elements of a project, the proposed works and the purpose for which they are being carried out, are material when deciding which works should be regarded as a single scheme when applying the Pointe Gourde principle to the subject land.

    59.  The extent of a scheme is often said to be a question of fact. Certainly, identifying the background events leading up to a compulsory purchase order may give rise to purely factual issues of a conventional character. But selecting from these background facts those of key importance for determining the ambit of the scheme is not a process of fact-finding as ordinarily understood.

    60.  Take the present case. The purpose for which the claimants' land was acquired can be identified at two different levels of generality: for use as a nature reserve, or for use as a nature reserve to compensate for loss of the Taff / Ely site of special scientific interest through construction of the Cardiff Bay barrage. Factually each of these stated purposes is correct. Which of these purposes is to be regarded as the more appropriate when identifying the scheme within the meaning of the Pointe Gourde principle is a matter for the tribunal's judgment.

    61.  A similar judgmental exercise is required with regard to the works said to comprise one scheme for the purposes of the Pointe Gourde principle. When deciding, for instance, whether a phased development constitutes a single scheme or more than one scheme the tribunal will consider all the circumstances and decide how much weight, or importance, to attach to the various relevant features. The tribunal will attach to these features the degree of importance it considers appropriate having regard to the purpose of the Pointe Gourde principle. What, then, is the purpose of this principle? Its purpose, in separating 'value to the owner' from 'value to the purchaser', is to forward Parliament's objective of providing dispossessed owners with a fair financial equivalent for their land. They are to receive fair compensation but not more than fair compensation. This is the over-riding guiding principle when deciding the extent of a scheme.

    62.  This statement of general principle does no more than articulate the approach already adopted intuitively by tribunals when faced with making a choice between competing views of the extent of a scheme in a particular case. It is to be hoped that bringing this principle into the open will assist decision-making in difficult cases.

    63.  In applying this general principle there is of course no magical detailed formula which will provide a ready answer in every case. That is in the nature of things, circumstances varying so widely. But some pointers may be useful. (1) The Pointe Gourde principle should not be pressed too far. The principle is soundly based but it should be applied in a manner which achieves a fair and reasonable result. Otherwise the principle would thwart, rather than advance, the intention of Parliament. (2) A result is not fair and reasonable where it requires a valuation exercise which is unreal or virtually impossible. (3) A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties which are not being acquired. (4) When applied as a supplement to the section 6 code, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code. Thus in the class 1 type of case the area of the scheme should be interpreted narrowly, for instance, so as to embrace the property acquired under the compulsory purchase order and property which would probably have been so acquired had it not been bought by agreement. In other cases, such as case 2, Parliament has spread the 'disregard' net more widely. Then it may be appropriate to give the scheme a wider scope. (5) Normally the scope of the intended works and their purpose will appear from the formal resolutions or documents of the acquiring authority. But this formulation should not be regarded as conclusive. (6) When in doubt a scheme should be identified in narrower rather than broader terms.

Ransom value

    64.  One last point should be noted before returning to the present case. This concerns so-called 'ransom' value or, less pejoratively, 'key' value. I have already mentioned that under the 'value to the owner' principle or the Pointe Gourde principle, whichever nomenclature is preferred, the pressing need of an acquiring authority for the subject land as part of a scheme should be disregarded when assessing its value for compensation purposes. The value of the land is not the price a 'driven' buyer would be prepared to pay. But a strip of land may have special value if it is the key to the development of other land. In that event this feature of the land represents part of its value as much for purposes of compensation as on an actual sale in the open market.

    65.  The intersection of these two principles was identified neatly by Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 361:

    'If a premium value is "entirely due to the scheme underlying the acquisition" then it must be disregarded. If it was pre-existent to the [scheme] it must in my judgment be regarded. To ignore the pre-existent value would be to expropriate it without compensation and would be to contravene the fundamental principle of equivalence.'

    66.  In the present case the claimants contend their land had key value because of its importance as compensatory wetlands required for completion of the Cardiff Bay barrage project. Whether this contention is well founded for compensation purposes depends, in accordance with the principle enunciated by Mann LJ, on the ambit of the scheme of which the subject land's acquisition was an integral part.

The present case

    67.  Both the President of the Lands Tribunal and the Court of Appeal held that, for the purposes of the Pointe Gourde principle, the acquisition of the claimants' land for a nature reserve was an integral part of the barrage project. I agree.

    68.  The claimants' land was acquired to meet a need generated by the barrage project. That fact does not of itself mean that the taking of this land was an integral part of the barrage project. Indeed, the claimants' strongest point is that the acquisition of their land was not identified at the outset of the barrage project. It was not identified until October 1995 and by then the barrage project was under way.

    69.  The short answer to this point is that, although the acquisition of the claimants' land was not identified at the outset of the barrage project, the project proceeded throughout on the basis that some such compensatory measures would be provided. In the absence of governmental assurances that a compensatory nature reserve would be provided it is unlikely the Cardiff Bay Barrage Act 1963 would have become law, certainly in its enacted form. The President so found. This being so, it seems to me appropriate to regard the acquisition of the claimants' land, after this was identified as part of the intended compensatory site, as an integral part of the barrage project. This is fair and reasonable. There has been no suggestion that the value of the claimants' land had been enhanced as a possible compensatory nature reserve site before the choice of this site in October 1995.

    70.  I would dismiss this appeal. When assessing compensation payable for the claimants' land the authority's need to acquire the land as a palliative measure necessary as a result of the environmental consequences of the Cardiff Bay barrage is to be disregarded.

LORD WOOLF

My Lords,

    71.  I was intending to deliver a speech of my own. However, having read and reread the speeches of Lord Nicholls of Birkenhead and Lord Brown of Eaton-under-Heywood in draft, I am satisfied that any contribution that I could make would serve no purpose since I am in complete agreement with what they say so clearly, in their speeches. Indeed for me to deliver a separate speech could detract from the result which I hope will follow from their speeches. This is that tribunals and practitioners in future will not find it necessary to refer to any other authority apart from this on the matters covered by their speeches. The process of valuation should be a matter of experienced evaluation of the facts of a particular transaction or transactions within broad general parameters laid down by the law. So far as possible valuation should eschew technical distinctions.

    72.  I have also read Lord Scott of Foscote's speech. At an earlier date there would have been much to be said for his approach.

LORD STEYN

My Lords,

    73.  I would dismiss the appeal for the reasons given by my noble and learned friend Lord Brown of Eaton-Under-Heywood in his opinion. I am also in agreement with the opinion of Lord Nicholls of Birkenhead.

LORD SCOTT OF FOSCOTE

My Lords,

Background

    74.  The appellants' land at Nash, near Newport, Gwent, comprising about 225 acres, was acquired by the Land Authority for Wales ('LAW') under a Compulsory Purchase Order made on 15 January 1997 and confirmed by the Secretary of State for Wales on 14 November 1997. The land, at the time of the Compulsory Purchase Order, was agricultural land. The land was acquired by the LAW in order that it should form part of an area of about 1000 acres bordering the Severn Estuary and intended to become the Gwent Levels Wetlands Reserve, a nature reserve and habitat for birds. The other 775 acres had been acquired by LAW by agreement with the landowners and not under compulsory powers. The respondent before your Lordships, the Welsh Development Agency (the 'WDA'), is the LAW's statutory successor.

    75.  The appellants are, of course, entitled to compensation for the land that has been compulsorily acquired but there is disagreement as to the basis on which the compensation should be assessed. It is common ground that, under section 15 of the Land Compensation Act 1961, the land must be assumed to be entitled to the benefit of planning permission for use as a nature reserve. And it is common ground that the appellants are entitled to compensation calculated by reference to whichever of agricultural use and nature reserve use would yield the higher value. I would observe in passing, my Lords, that it is a woeful commentary on the state of agriculture in this country if a non-commercial use of land such as use as a nature reserve would produce a higher value than would use of the land for the purpose of agriculture. But that is not to the point on this appeal. The issue is whether a particular reason why the land, with the other 775 acres, was needed for transformation into a nature reserve should, or can, be taken into account in assessing its value for compensation purposes.

 
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