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

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    76.  The particular reason can be shortly described. The Cardiff Bay Barrage Act 1993, which received the Royal Assent on 5 November 1993, empowered the Cardiff Bay Development Corporation (the 'CBDC') to construct a barrage across the mouth of Cardiff Bay and to carry out various related works in a development area adjacent to the Bay. These works were of social and economic importance.

    77.  One of the effects of the construction of the barrage would be to raise the level of the water in the Bay. The raising of the water level would flood the mudflats of the Taff/Ely Estuary and cause serious damage to an area of that Estuary which in 1980 had been designated a site of special scientific interest ('SSSI'). The mudflats within the SSSI were an important breeding site for dunlin and redshank.

    78.  Serious concerns about the environmental damage that the barrage across Cardiff Bay would cause were expressed by the Nature Conservancy Council (the 'NIC') and the Royal Society for the Protection of Birds (the 'RSPB'). In addition, the United Kingdom had obligations under the EC Directive 79/409 on the conservation of wild birds and, later, under the EC Directive 92/43 on the conservation of natural habitats. So the proposals for the Cardiff Bay barrage led to correspondence between the European Commission and the United Kingdom government. The Commission was insisting that, in order to comply with its obligations under these Directives, the government provide in the Severn Estuary additional natural habitat land to compensate for the loss of the Taff/Ely Estuary habitat.

    79.  Consideration was given by the UK authorities to a number of possible Severn Estuary areas which might constitute the requisite compensatory habitat. First there was an area of 400 acres odd at Wentlooge Levels east of Cardiff. Next an area of about 650 acres at Redwick, to the east of the Usk Estuary was favoured. But for various reasons these two sites were in turn discarded. Eventually it was decided that the most suitable site for providing the compensatory habitat would be the 1000 acres also lying east of the Usk Estuary but to the west of the Redwick land. It is convenient to refer to this 1000 acres as the Uskmouth site. The appellants' land is part of the Uskmouth site.

    80.  The construction of the Cardiff Bay barrage began in June 1994. A firm decision that the Uskmouth site was to constitute the compensatory nature reserve had been taken before the end of 1995. A letter of 21 December 1995 from the Welsh Office to the Commission so stated. As I have said, the Compulsory Purchase Order under which the appellants' land was taken was made by LAW on 15 January 1997 and confirmed by the Secretary of State on 14 November 1997. In its statement of reasons for making the CPO LAW said that:

    "The proposal for the Gwent Levels Wetlands Reserve arises from the need for an agreement between the UK Government and the European Commission to provide compensatory measures for the loss occasioned by the construction of the Cardiff Bay Barrage of the site of Special Scientific Interest in the Taff/Ely Estuary."

    81.  A public inquiry into the CPO and LAW's application for planning permission for the use of the 1000 acres as a nature reserve was held in May 1997. The inspector recommended that the CPO should be confirmed and the planning permission granted. The Secretary of State accepted the recommendation. In his decision letter of 14 November 1997 he said that:

    "…. the provision of a [nature] reserve has been proposed because of the need for compensatory measures due to the construction of Cardiff Bay Barrage and the consequent loss of the inter-tidal mud flats when impoundment of the water in the Bay occurs."

    82.  The appellants contend that the value of their land was enhanced by the pressing need of the government, in order to comply with its obligations under the two Directives, to establish the proposed Gwent Levels Wetlands Reserve as compensation for the damage to the Taff/Ely Estuary SSSI. This enhancement of value should, they say, be taken into account in the assessment of the compensation to which they are entitled. In the Lands Tribunal the President held that this enhancement of value (if it existed, which is yet to be determined) should not be taken into account. On appeal Carnwath LJ, with whose judgment the other two members of the Court agreed, agreed that the alleged enhancement should not be taken into account. The appellants have appealed against this ruling to your Lordships' House.

    83.  So far, my Lords, the issues which have been presented for adjudication, first to the Lands Tribunal, then to the Court of Appeal and now to this House, have been issues of principle. No one knows whether nature reserve use would justify a higher value for the land than agricultural use. No one knows whether the government's need for a compensatory nature reserve on the Severn Estuary would increase the value of the land, or, if so, by how much. The issues are simply issues of principle.

The statutory background

    84.  Compulsory expropriation of land is a creature of statute. There is no common law right or extant crown prerogative that allows such a thing. So it might reasonably be thought that the basis on which compensation would be paid for land compulsorily acquired would be provided for by statute. And so it is. The Law Commission Report Towards a Compulsory Purchase Code: (1) Compensation (Law Com. No. 286), presented to Parliament in December 2003 and largely prepared while Carnwath J (as he then was) was Chairman of the Law Commission, contains in its Appendix C a valuable summary of the historical development of statutory compensation provisions. These were originally to be found in the respective private Acts passed in the late 18th and early 19th centuries whereby the compulsory purchase of land for the construction of canals, railways, harbours and reservoirs was authorised. Standard clauses were developed which were consolidated in the Land Clauses Consolidation Act 1845. Thereafter Acts authorising compulsory purchase were treated as incorporating the 1845 Act clauses.

    85.  Over the period between 1845 and the end of the First World War case law, interpreting and applying the 1845 Act clauses, established the principle that compensation was to be assessed on the basis of the value of the land to the owner, not its value to the acquiring undertaker or authority. The principle of "equivalence" became established. The owner was to receive in money the equivalent of his land.

    86.  Probably the most important and influential of the pre 1919 cases was In re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16. This was a reservoir case. Land, geographically very suitable for construction of a reservoir, was the subject of a compulsory purchase for that purpose. The circumstances made it very unlikely that anyone other than the Water Board would have wanted, or been able, to construct the reservoir and exploit the water collected in it. In these circumstances, and bearing in mind the "value to the owner" principle, could the site's suitability for use as a reservoir enhance its value to the owner for which the Water Board should pay? The Court of Appeal said that a distinction had to be drawn between the possibility of that use, for which the Water Board should pay, and the realisation of that possibility, for which the Water Board should not have to pay. As Vaughan LJ said "[The arbitrator] ought to value the possibility and not the realized possibility". Fletcher Moulton LJ expressed the solution to the problem thus, at p 31:

    "…. where the special value exists only for the particular purchaser who has obtained powers of compulsory purchase it cannot be taken into consideration in fixing the price, because to do otherwise would be to allow the existence of the scheme to enhance the value of the lands to be purchased under it. But when the special value exists also for other possible purchasers, so that there is, so to speak, a market, real though limited, in which that special value goes towards fixing the market price, the owner is entitled to have this element of value taken into consideration, just as he would be entitled to have the fertility or the aspect of a piece of land capable of being used for agricultural purposes."

    87.  The Lucas approach was adopted in two Privy Council cases. The first was Cedar Rapids Manufacturing and Power Company v Lacoste [1914] AC 569. The other was Fraser v Fraserville [1917] AC 187. Both were appeals from Quebec, both related to expropriations of land in or near a river for the purpose of constructing works to exploit the water power. In Cedar Rapids Lord Dunedin, giving the judgment of the Board, said that the principles of compensation had nowhere been stated with greater precision than in Lucas and continued, at p 576:

    "For the present purpose it may be sufficient to state two brief propositions: (1) The value to be paid for is the value to the owner as it existed at the date of the taking, not the value to the taker. (2) The value to the owner consists in all advantages which the land possesses, present or future, but it is the present value alone of such advantages that falls to be determined.

    Where, therefore, the element of value over and above the bare value of the ground itself (commonly spoken of as the agricultural value) consists in adaptability for a certain undertaking …. the value …. is merely the price, enhanced above the bare value of the ground which possible intended undertakers would give. That price must be tested by the imaginary market which would have ruled had the land been exposed for sale before any undertakers had secured the powers, or acquired the other subjects which made the undertaking as a whole a realised possibility."

I would venture respectfully to suggest that the principles of compensation, relating in particular to the relevance of the special adaptability or suitability of the land for some particular purpose, have never been more succinctly and clearly expressed.

    88.  In Fraser v City of Fraserville [1917] AC 187, 194, Lord Buckmaster, having cited Lucas and Cedar Rapids, said that:

    "…. the value to be ascertained is the value to the seller of the property in its actual condition at the time of expropriation with all its existing advantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for which the property is compulsorily acquired …."

    89.  In 1919 the Acquisition of Land (Assessment of Compensation) Act 1919 was passed. The Act followed upon the report of the Scott Committee that in 1918 had been appointed to review the rules relating to the assessment of compensation. In section 2 of the Act six rules, that had been recommended by the Committee, were enacted. The first three of these rules are relevant to the issues in the present appeal. Section 2 provided as follows:

    "In assessing compensation, an official arbitrator shall act in accordance with the following rules

    (1)  No allowance shall be made on account of the acquisition being compulsory.

    (2)  The value of the land shall, subject as hereinafter provided be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise ….

    (3)  The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the special needs of a particular purchaser or the requirements of any Government Department or any local or public authority …."

There is, in my opinion, no doubt but that these first three rules were intended to lay down with statutory authority, first, the principle that compensation was to be assessed on the basis of the value of the land to the seller — the compulsory acquisition was not to add to or detract from the value; second, the principle that that value was to be taken to be market value, assuming a willing seller and a willing buyer; and third, that any special suitability of the land was not to be taken into account if the case could be brought with rule (3). Rule (3) was the Parliamentary solution to the problem referred to in Lucas, Cedar Rapids and Fraser. It follows also, in my opinion, that post the coming into effect of the 1919 Act, and until some important statutory amendments were made following the 2nd World War, any special suitability or adaptability of land that was not caught and excluded by rule (3) ought to have been taken into account as constituting an enhancement to value to be reflected in the compensation.

    90.  The post Second World War statutory amendments start with the Town and Country Planning Act 1947 under which compensation for compulsorily appropriated land was to be assessed at existing use value. Under that system there could be no question of the value of the land for compensation purposes being enhanced by reference to the suitability of the land for some other use or to the likelihood or even certainty of the land being put to that use. But the Town and Country Planning Act 1959 restored the pre-1947 Act principles and at the same time added additional statutory disregards to those which had been specified in the 1919 Act. These are the principles and rules which, broadly speaking, are still applicable under sections 5 and 6 of the Land Compensation Act 1961. In a case like the present one might think that it ought to be possible, by applying sections 5 and 6 of the 1961 Act to the facts of the case, to resolve the issue raised by this appeal. But it seems, unfortunately, to be not that simple. And the reason it is not is because a few cases between 1919 and the coming into effect of the 1959 Act have been taken to have established principles of compensation which are not based on any statutory language and which have led, in many subsequent cases, including the present, to complexities and uncertainties, both factual and conceptual, of formidable proportions. The President in the Lands Tribunal and the Court of Appeal understandably felt themselves bound by the jurisprudence that has been created. But your Lordships are not. In my respectful opinion this appeal affords an opportunity for a careful re-examination of the basis and justification of the judge-made additions to, and to some extent substitutions for, the statutory principles.

    91.  I would start, although chronologically it is not the first of the cases that need to be examined, with the Pointe Gourde case (Point Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565). This was a Privy Council case on appeal from Trinidad and Tobago. Under a wartime agreement in 1941 the government of this country agreed to lease to the US Government some land in Trinidad on which the US could establish a naval base. In order to give effect to this agreement the Crown acquired the Pointe Gourde land, using compulsory powers to do so. Compensation was to be assessed under local legislation, namely, the Land Acquisition Ordinance 1941, section 11(2) rule (3) of which was in the same terms as section 2, rule (3), of the 1919 Act. Part of the land acquired consisted of a limestone quarry which, at the time of acquisition, was being conducted as a profitable going concern. The quarry stone had a particular value to the US authorities because they needed stone for the purpose of building the naval base. The tribunal which assessed the compensation awarded for the quarry land a total sum of $101,000, of which $86,000 represented the value of the quarry as a going concern and the balance of $15,000 was awarded on account of the special value of the quarry having regard to the special needs of the US for the stone. Those needs would, in the tribunal's view, have increased the profits of the quarry if it had remained in the hands of the appellants. So the sum of $15,000 was the measure of the appellants' loss in being deprived of that prospective profit, additional to the future profits the expectation of which had been taken into account in the $86,000 going concern value.

    92.  It seems, from the summary of counsels' arguments contained in the law report, that the only point argued by the distinguished counsel who appeared in the case was whether the $15,000 was excluded by rule (3). Lord MacDermott, in an ex tempore judgment, held, at p 572, that the references in rule (3) to "…. a purpose …." to which the land could be applied connoted "a use, actual or potential, of the land itself" and could not be regarded as meaning a purpose "which is only concerned with the use of the products of the land elsewhere". The US authority's special need for the stone was not, his Lordship held, "a special suitability or an adaptability of the land for any purpose" within the meaning of rule (3). But Lord MacDermott then went on to consider a point that, so far as the report of the case reveals, had not been addressed by counsel. He referred to two pre-1919 Act cases, namely, South Eastern Railway Co v London County Council [1915] 2 Ch 252 where Eve J had said that "Increase in value consequent on the execution of the undertaking for or in connection with which the purchase is made must be disregarded" — a re-statement of the "value to the seller" principle — and Fraser v Fraserville to which I have already referred. In reliance on these two authorities Lord MacDermott said that it was:

    "…. well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition."

    93.  The dictum of Lord MacDermott's that I have cited has, in the subsequent case law, been examined, pored over and construed as though it had been a sentence in an Act of Parliament. This process, as may be seen from the judgments of the courts below in the present case, is still continuing. In my respectful opinion the process has been and is unwarranted. Lord MacDermott, in his two page ex tempore judgment, came to a conclusion which, if I may respectfully say so, was clearly correct. It was correct because the realisation of the $15,000 depended on what the purchasing authority might do with the quarry after acquisition. The $15,000 did not represent an element of value to the seller at the time of acquisition. The $86,000, the going concern value of the quarry, took into account the future profitability of the quarry; and, in assessing the future profitability, the possibility of a purchaser wanting to use the stone to construct buildings on the land being acquired should have been taken into account. So the $15,000 was either double counting or, if it was not, was attributable to some special need which the US naval authority and only the US naval authority would have. If the later analysis of the facts is the correct one, it is difficult to see why the special need would not have been excluded by rule (3). The unquarried stone at the valuation date was a part of the land. Its commercial potential was an element in the value of the land. The distinction drawn by Lord MacDermott between use of the land and use of its products was, in my respectful opinion, unsound. But Lord MacDermott unquestionably came to the correct conclusion and had no reason to suppose that his ex tempore judgment would come later to achieve the doctrinal elevation that it did.

    94.  In both of the courts below particular attention was paid to an earlier Privy Council case, Raja Vyricherla Narayana Gujapatiraju v The Revenue Divisional Officer, Vizagapatam [1939] AC 302 (the Indian case, for short). This was an appeal from the High Court at Madras and concerned the compulsory expropriation of land with a spring which yielded a good supply of clean drinking water. The expropriating authority, the Vizagapatam Harbour Authority, had a particular need for this water in order to make it available to those working on or near the harbour. It would have been difficult but not impossible for the water to have been made available by anyone else. The question was whether, or to what extent, the abundance of good, clean water on the expropriated land (the equivalent of the limestone in the Pointe Gourde quarry) represented a value to be reflected in the compensation. The relevant Indian statute was the Land Acquisition Act of 11 September 1933. The terms of this Act as to compensation differed in no material respect from those of the Land Clauses Act 1845 before the coming into operation of the 1919 Act (see Lord Romer at p. 311). Section 23 of the Indian Act required the compensation to be based on the market value of the land. Section 24 specified a number of things that the valuer should not take into consideration. Among these disregards was "the degree of urgency which has led to the acquisition" and "any increase to the value of the land acquired likely to accrue from the use to which it will be put when acquired."

    95.  If sections 23 and 24 of the Indian Act are compared with section 2, rules (1), (2) and (3) of the 1919 Act, it is apparent that rule (3) of the 1919 Act, in its codification of the manner in which special suitability or adaptability is to be dealt with, adds an element not to be found in the Indian Act. But, apart from that, the effect of the two Acts seems to be much the same. Perhaps the Indian Act spells out more explicitly than does section 2 of the 1919 Act that the value to be assessed is the value to the seller. In my opinion, however, the "value to the seller" rule is at least implicit in rule (2) of section 2 of the 1919 Act. It may be noted also that, if the Indian Act had been the Act in force in Trinidad, section 24 would have made it crystal clear that the $15,000 had to be disallowed. Lord MacDermott's judgment could have been even shorter.

    96.  The problem in the Indian case was that since, on one view of the facts, there was only one likely potential purchaser, namely, the Harbour Authority, it was difficult to see how the statutory criterion of "market value" could be applied. Lord Romer, who gave the judgment of the Board, said that a willing buyer and a willing seller had to be assumed and that it also had to be assumed that the willing buyer would be willing to pay a reasonable sum for the water potentiality of the expropriated land. He said, in conclusion, that

    "…. even where the only possible purchaser of the land's potentiality is the authority that has obtained the compulsory powers, the arbitrator in awarding compensation must ascertain to the best of his ability the price that would be paid by a willing purchaser to a willing vendor of the land with its potentiality in the same way that he would ascertain it in a case where there are several possible purchasers …. " (p 323)

    97.  My Lords I can see no conflict of principle between the Pointe Gourde case and the Indian case. In the Pointe Gourde case the $15,000 was attributed to the US naval authority's special need for the stone. That was not a need that any other potential purchaser of the land would have had, or so one must assume. The tribunal that assessed the compensation had already taken into account the commercial possibilities and value of the stone in the quarry and had come up with the figure of $86,000. The $15,000 was an add-on, a valuation, in Lucas terms, of a realised potentiality, not merely of a potentiality. In the Indian case, on the other hand, the arbitrator was told to assess the commercial potential of the water in the spring. He was not to do so on the footing that the Harbour Authority would, after its purchase, be using the water, but on the footing that a potential purchaser, which might, but would not necessarily, be the Harbour Authority, might exploit the water in the spring. The valuation assessment might be very difficult, but the principle seems to me clear enough and to be consistent with Pointe Gourde.

    98.  The Indian case was applied in the Court of Appeal in Lambe v Secretary of State for War [1955] 2 QB 612. This was an ex tempore judgment given by Parker LJ. A property was under lease to a Territorial Army entity. The Secretary of State for War acquired the reversion using compulsory powers. The compensation assessment problem was whether the extra value that would follow from the merger of the freehold with the leasehold interest should be reflected in the compensation and, if so, how? The Court of Appeal held that rule (3) did not apply and, purporting to apply the Indian case, that the assessment should be "on the basis of the value which the acquiring authority, in a friendly negotiation, would be willing to pay in acquiring a freehold interest for its purposes, and as though no compulsory powers of acquisition had been obtained." (p 623).

    99.  My Lords, I do not think Lambe was rightly decided. The merger value was a value that the Secretary of State, and only the Secretary of State, could realise. Unlike the Indian case water or the Pointe Gourde limestone, the merger was not a part of the land being sold. It was not an element of the value of the land to the seller. It was an element of value only to a purchaser who happened to own, or control, the leasehold interest, namely, the Secretary of State. It was an element that did not form part of the value of the land for rule (2) purposes. The Indian case was quite different. There the water supply was a part of the land being sold. The water's commercial possibilities, and therefore its value, had to be taken into account and assessed. In Lambe there was nothing comparable to be assessed.

    100.  In tracing the development of the jurisprudence I should next refer to the advent of the Town and Country Planning Act 1959. This Act, as I have already said, introduced new statutory disregards. They are to be found in section 9(2) of the Act. None is directly relevant to the present case but the terms of subsection (1) should be noted. Section 1 of the Act restored the 1919 Act section 2 rules and got rid of existing use value as the basis on which compensation was to be assessed. Section 9(1) said that:

    "In addition to the rules applicable in accordance with section two of the Act of 1919 …. the following provisions of this section shall have effect for the purpose of assessing the compensation payable in respect of compulsory acquisitions to which section one of this case applies:"

Then follow the new disregards. My Lords, it seems to me very difficult, in the face of this statutory language, to take the view that there are other disregards, established by case law and to be found neither in the language of the 1919 Act nor in that of the 1959 Act, which have to be applied in order to reduce the value for compensation purposes of land that has been compulsorily acquired.

    101.  Davy v Leeds Corporation [1965] 1 WLR 445 was a decision of this House. The case arose out of a Leeds slum clearance scheme. The Corporation declared an area in which the appellants owned some slum houses to be a slum clearance area and made a compulsory purchase order for the acquisition of the houses in that area. Compensation fell to be assessed under the 1919 Act and the 1959 Act. The appellants were entitled to receive in compensation the value of their land as sites cleared of buildings and available for re-development. The issue was whether this value was to be assessed on the footing that all the other buildings in the clearance area would be cleared away. This would have enhanced the value of the appellants' land. It was held in the Court of Appeal and in this House that the disregards introduced by section 9 of the 1959 Act prevented any such enhancement of value being reflected in the compensation. The interest of the case for present purposes is that Viscount Dilhorne, with whose opinion Lord Cohen expressed agreement, referred to the Pointe Gourde case, cited Lord MacDermott's sentence that I have cited in paragraph 92 above, and continued, at p 453:

    "By section 9(2) of the Act of 1959 Parliament, it seems to me, has given statutory expression to the principle which Lord MacDermott stated was well settled. Just as it would be wrong if the price to be paid for land compulsorily acquired was to be reduced if compulsory acquisition reduced its value, so, equally, would it be wrong if the price to be paid was increased as a result of what was proposed."

My Lords, it must be right that section 9(2) of the 1959 Act, coupled with section 2 rule (3) of the 1919 Act, constituted the statutory intention as to the matters to be excluded from the value of compulsorily acquired land for the purpose of assessment of compensation.

The Court of Appeal cases

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