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|Judgments - Transport for London (London Underground Limited) (Appellants) v Spirerose Limited (in administration) (Respondents)
HOUSE OF LORDS
 UKHL 44
on appeal from:EWCA Civ 1230
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Transport for London (London Underground Limited) (Appellants) v Spirerose Limited (in administration) (Respondents)
Lord Scott of Foscote
Lord Walker of Gestingthorpe
Lord Neuberger of Abbotsbury
Lord Collins of Mapesbury
Michael Barnes QC
(Instructed by Eversheds LLP )
(Instructed by Lodders Solicitors LLP)
8 and 9 JUNE 2009
THURSDAY 30 JULY 2009
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Transport for London (London Underground Limited) (Appellants) v Spirerose Limited (in Administration) (Respondents)
 UKHL 44
LORD SCOTT OF FOSCOTE
1. The issue for decision in this appeal relates to the basis on which compensation for compulsory purchase should be assessed in a case where the land in question has an unrealised potential for development but where the success of an application for the requisite planning permission is, although probable, not a certainty. More particularly, the issue is whether, in such a case, compensation should be assessed on the basis that planning permission for the development would be granted, or whether the amount that such an assessment would produce should be discounted to reflect the lack of certainty. I have had the advantage of reading in advance the opinions of my noble and learned friends Lord Walker of Gestingthorpe and Lord Collins of Mapesbury and agree with their conclusion that the assessment of compensation should take into account that lack of certainty and that, accordingly, this appeal should be allowed. I want, however, to add just a few words of my own and for that purpose gratefully adopt the recital of the relevant facts to be found in paragraphs 67 to 72 of Lord Collins opinion.
2. Compulsory purchase is a creature of statute and the compensation to be paid to the expropriated owner is likewise provided for by statute. The current statute is the Land Compensation Act 1961, which consolidated earlier legislation. Rule (2) of section 5 re-enacts the principle set out in section 2 of the Acquisition of Land (Assessment of Compensation) Act 1919, but that had been established earlier by judicial decisions interpreting and applying provisions in the Land Clauses Consolidation Act 1845, that compensation was to be assessed on the basis of the value of the land to its expropriated owner, not on the basis of its value to the acquiring authority. Rule (2) says that
The value of 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. It is obvious that once land has been made the subject of a compulsory purchase order and notice to treat has been served by the acquiring authority, the value of the land to the seller in the open market cannot be ascertained by an actual sale. The market value becomes a matter of valuation and for that purpose a hypothetical open market has to be assumed and the attributes of the land for the purposes of the hypothetical sale in that market become important. The 1961 Act provides both for certain matters relating to the land to be assumed and for other matters to be disregarded. Section 6 of the Act provides for certain disregards (see para 77 of Lord Collins opinion), none of which, fortunately, is relevant in the present case, and section 9 requires any depreciation in the value of the land caused by the acquiring authoritys compulsory purchase plans to be disregarded.
4. Bearing in mind the importance of development potential in the assessment of market value, it is not surprising that sections 14 to 16 of the Act provide for certain assumptions about planning permission to be made. None of these is relevant in the present case. One of the statutory assumptions, namely, an assumption that planning permission for the land in accordance with a certificate issued under section 17 of the Act would have been granted, might have been relevant but, in the event, was not (see paras 83 to 85 of Lord Collins opinion which explains why not).
5. Nonetheless section 14(3) of the Act expressly keeps open for the expropriated owner the right to have included in his compensation the value to be attributed to any development potential the land may have. His compensation does not have to be confined to the existing use value of the land.
6. The Tribunal found in the present case that there was a probability that planning permission for a valuable re-development of the land in question would have been granted. But they awarded compensation on the basis of a valuation of the land not on the footing that the permission would probably have been granted but on the footing that it would have been granted. They attributed a value of £608,000 to the land on that latter footing but a value of only £400,000 on the footing that permission is not as a matter of law to be assumed and only hope value is to be taken into account". The Court of Appeal affirmed the Tribunals decision and the issue for your Lordships is whether the Tribunal was justified in law in treating a probability as a certainty.
7. The proposition that if an application for planning permission would probably have succeeded it should, for statutory compensation purposes, be assumed that planning permission would have been granted, cannot be derived from statute. That assumption is not one of the statutory assumptions to be found in the 1961 Act. If a section 17 certificate had been obtained the assumption would have been required by section 15(5) of the Act but that had not happened. Moreover the extra-statutory assumption of a certainty of planning permission appears inconsistent with Rule (2) of section 5. It could not be supposed that the sale of a property, in respect of which it could be concluded that a grant of planning permission would probably succeed, would produce as high a price in the open market as a sale of the property with the benefit of an actual grant of the planning permission. The open market can be expected to attribute a premium to certainty or, conversely, to apply a discount to reflect a lack of certainty. The difference between the Tribunals £608,000 on a certainty basis but £400,000 on a hope basis recognised that market reality. So why did the Tribunal apply an extra-statutory assumption in awarding compensation of £608,000 and why did the Court of Appeal confirm the Tribunals decision?
8. It may be that part of the thinking was based on the jurisprudence relating to the burden of proof in civil cases. The party on whom lies the burden of proving a relevant fact can succeed in discharging that burden on the so-called balance of probabilities". If the existence of the fact is more probable than not, the burden of proof is satisfied. But this is to do with proof of historic fact. It has nothing to do with valuation. A search for the market value of land at a particular date must take account of the attributes of the land at that date. Absent statutory intervention there is no warrant for adding attributes that the land does not possess nor, for that matter, for subtracting attributes that the land does possess. The land in the present case had a promising potential for the grant of planning permission but it did not have the benefit of an actual grant of planning permission. To transform a probability of planning permission into a certainty of planning permission on the footing that the civil standard of proof, the balance of probabilities, has been satisfied misunderstands, in my respectful opinion, the nature of the valuation exercise that Rule (2) of section 5 requires.
9. Another suggested source of the proposition that a grant of planning permission should be assumed is the so-called Pointe Gourde principle (see Pointe Gourde Quarrying and Transport Co. Ltd v Sub-Intendent of Crown Lands  AC 565). The Pointe Gourde case has been analysed by Lord Walker (paras 10, 18 and 19 of his opinion) and by Lord Collins (paras 118 to 127 of his opinion). I am in respectful agreement with the opinion expressed by each of them that the principle is one of statutory interpretation (Lord Walker at para 11, Lord Collins at para 127) relating to the value to the seller concept underlying the assessment of compensation. In Waters v Welsh Development Agency  1 WLR 1304 I expressed my own view of the Pointe Gourde principle but my view did not attract support from my colleagues. I find myself, however, in complete agreement with what Lord Walker and Lord Collins have said about Pointe Gourde in their respective opinions in the present appeal. I agree that the principle provides no warrant for a valuation of the land with which this case is concerned on the basis that a grant of planning permission was a certainty. I would, therefore, for the reasons given by my noble and learned friends allow the appeal.
LORD WALKER OF GESTINGTHORPE
10. I have had the privilege of reading in draft the opinion of my noble and learned friend Lord Collins of Mapesbury. Lord Collins deals clearly and comprehensively with all the issues in this appeal. I am in full and respectful agreement with his reasoning, and having studied his draft opinion I have been doubtful whether it would serve any useful purpose to publish the opinion which I had already prepared. But concurrent opinions have their supporters as well as detractors (Dr F A Mann, The Single Speech (1991) 107 LQR 519; James Lee, A Defence of Concurring Speeches  PL 305) and it may be worthwhile to make some observations on the Pointe Gourde principle.
The statutory background and the Pointe Gourde principle
11. In this appeal there has been a good deal of debate about what the Pointe Gourde principle is, and whether it is relevant to the determination of the appeal (see Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands  AC 565). In my opinion it is an imprecise principle, in the nature of a rebuttable presumption, adopted by the court in the interpretation of statutes concerned with compensation for the compulsory acquisition of land. It can be stated at several different levels of generality (see for instance Waters v Welsh Development Agency  1 WLR 1304 paras 42 (Lord Nicholls of Birkenhead) and 146 (Lord Brown of Eaton-under-Heywood, citing the Law Commissions Report No 286). It is only if the principle is stated at a fairly high level of generality (that the court approaches the statute expecting Parliament to intend compensation to be assessed on a no-scheme basis) that it has much to do with the determination of this appeal.
12. The principle is essentially concerned with statutory construction. It is not (unlike the Barras principle: see Barras v Aberdeen Sea Trawling & Fishing Co. Ltd  AC 402 and Bennion, Statutory Interpretation, 5th ed. pp 599-604) concerned with the meaning of a particular word or phrase which has appeared in a succession of statutes dealing with the same subject-matter, but with the general attitude and expectation with which the court should approach a statute dealing with compensation for the compulsory acquisition of land. It is interesting to note that Bennion mentions Pointe Gourde once only (at p 442) as an illustration of the following observation:
When an area of law is of long standing, and is made up of enactments some with a long history, finding the legal meaning may be especially difficult to ascertain. Here certain special interpretative conventions may have grown up.
Example 150.1 Such conventions have arisen in the compulsory purchase of land. One of these is known as the no-scheme rule or Pointe Gourde rule'. As stated by Lord MacDermott:
It is well settled that compensation for a compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.
This rule may operate to influence the legal meaning of a relevant enactment.
13. The law of compensation for compulsory acquisition of land has a long history, having its origins about two centuries ago in the construction of canals, railways and other infrastructure of the industrial revolution. Other fields of law that Bennion may have had in mind include patents, bankruptcy, rating and income tax. Until well into the 20th century Acts of Parliament were expressed in much plainer language than they are today, and in all the fields which I have instanced successive generations of judges have interpreted and developed the meaning of simple undefined statutory expressions. In this way a judge-made body of doctrine came into existence. But as over the years statute law has changed both in its substance and in its style of drafting, it is sometimes difficult to discern whether Parliament intended to carry forward, or modify, or supplant the freight of judicial exposition of earlier statutes (for an unusual example, in the field of compulsory purchase, of Parliament expressly carrying forward judicial doctrine, see the observations of Lord Hoffmann on injurious affection under section 10 of the Compulsory Purchase Act 1965 in Wildtree Hotels Ltd v Harrow LBC  2 AC 1, 6-7; there are also some interesting observations at pp295-296 about the opinions of individual [Victorian] judges on questions of economic and social policy.)
14. The history of compensation for compulsory purchase of land is fully explained in the opinions of Lord Nicholls of Birkenhead, Lord Scott of Foscote and Lord Brown of Eaton-under-Heywood in Waters. It is not therefore necessary to repeat it at length, but it may be helpful to identify the most important milestones. The first is the Land Clauses Consolidation Act 1845, which set out standard provisions, the form of which had been developed over two or more generations in private or local Acts enabling land to be compulsorily acquired for the construction of canals, railways and similar works. Section 63 of the 1845 Act used the simple expression value as the statutory measure of compensation for land taken.
15. Judicial exposition of this simple expression (in an age which tended to set a higher value on private property rights than on communal needs) favoured the landowner by building in a premium because the purchase was compulsory, and reinforced this by what Scott LJ (in Horn v Sunderland Corporation  2 KB 26, 40) referred to as
the old sympathetic hypothesis of the unwilling seller and the willing buyer which underlay judicial interpretation of the Act of 1845.
Scott LJ was in a position to speak with authority as he had chaired a committee which reviewed the law and led to the Acquisition of Land (Assessment of Compensation) Act 1919. The main purpose of that Act was, as he said,
to mitigate the evil of excessive compensation which had grown up out of the theory [of the unwilling seller and willing buyer], evolved by the Courts
The 1919 Act achieved this purpose by six rules, set out in section 2. These now appear in almost exactly the same language in section 5 of the Land Compensation Act 1961.
16. Judicial interpretation was not however wholly predisposed in favour of landowners. Indeed the most important element of judicial exposition, during the half-century before the 1919 Act, was the development of the principle which Lord Nicholls (in Waters, paras 18-19) explained as follows:
When granting a power to acquire land compulsorily for a particular purpose Parliament cannot have intended thereby to increase the value of the subject land. Parliament cannot have intended that the acquiring authority should pay as compensation a larger amount than the owner could reasonably have obtained for his land in the absence of the power. For the same reason there should also be disregarded the special want of an acquiring authority for a particular site which arises from the authority having been authorised to acquire it.
This approach is encapsulated in the time-hallowed pithy, if imprecise, phrase that value in this context means value to the owner, not value to the purchaser. In Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37, 42, the graveyards case, Cockburn CJ said:
'When Parliament gives compulsory powers, and provides that compensation shall be made to the person from whom property is taken, for the loss that he sustains, it is intended that he shall be compensated to the extent of his loss; and that his loss shall be tested by what was the value of the thing to him, not by what will be its value to the persons acquiring it.
17. The graveyards case was an unusually clear example since (although there was then no general planning control) the Bishop of London was unlikely to grant permission for corpses to be exhumed and reinterred elsewhere, in the absence of some pressing public need. The graveyards were therefore of no commercial value to the rector in whom they were vested. But questions arose in less extreme cases as to the special adaptability of land for some public purpose (such as the construction of a reservoir). Here the court took a more nuanced approach, as appears from the decision of the Court of Appeal in Re Lucas and Chesterfield Gas and Water Board  1 KB 16. The judgments of Vaughan Williams LJ and Fletcher Moulton LJ are not easily reconciled. The former recognised (at p28) that the possibility (or probability) of special use could be recognised in the valuation, but not the realised probability. The latter (at p35) was more restrictive:
The scheme which authorises the new reservoir only entitles the owner of the land to receive as compensation the value of the land unenhanced by that scheme, and, unless its situation and peculiarities create a market for it as a reservoir site for which other possible bidders exist, I do not think that the single possible purchaser that has obtained parliamentary powers can be made to pay a price based on special suitability merely by reason of the fact that it was easy to foresee that the situation of the land would lead to compulsory powers being some day obtained to purchase it.
18. Fletcher Moulton LJs approach received legislative affirmation, as Lord Nicholls put it (in Waters at para 28) in rule 3 of section 2 of the 1919 Act which was (apart from a transitional proviso) in the following terms:
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.
This provision was re-enacted, in almost the same terms, as rule 3 of section 5 of the 1961 Act. Vaughan Williams LJs distinction between a possibility and a realised possibility was echoed by the Privy Council, as Lord Collins notes, in Gajapatiraju v Revenue Divisional Officer, Vizagapatan  AC 302, 313.
19. Pointe Gourde was a decision of the Judicial Committee of the Privy Council on an appeal from Trinidad and Tobago. In 1941 the British Government made an agreement with the United States Government for the latter to construct a naval base in Trinidad, and the appellant companys land, the most important feature of which was a limestone quarry, was compulsorily acquired for the use of quarried stone in building the naval base. The applicable statute was the Land Acquisition Ordinance 1941, section 11(2) of which was in terms very similar to those of rule of section 2 of the 1919 Act. The tribunal assessed compensation at $101,000, including $15,000 on account of an expected increase in profits because of the special needs of the construction work. The Privy Council held that section 11(2) did not apply so as to disallow the $15,000 award, but reached the same conclusion on the more general ground that it was well settled that compensation should not include an increase in value entirely due to the scheme underlying the compulsory acquisition. Lord MacDermott quoted from the judgment of Eve J (approved by the Court of Appeal) in a case antedating the 1919 Act, South Eastern Railway Company v LCC  2 Ch 252, 258:
Increase in value consequent on the execution of the undertaking for or in connection with which the purchase is made must be disregarded.
This quotation was arguably rather out of context, since the South Eastern Railway case involved the acquiring authority trying to reduce the amount of compensation on the ground of betterment (through opening up a Strand frontage) of other land in the same ownership.
20. Quite apart from its subsequent history, I find Pointe Gourde itself a rather surprising decision. Section 2(3) of the 1919 Act, mirrored by section 11(2) of the Trinidad Ordinance, was evidently intended to give express statutory confirmation to the special adaptability rule discussed in cases like Lucas. It would not, I think, have been stretching its language unduly to treat it as covering the expected increase in profits from the quarry. Instead the Privy Council seems to have taken the view that the extra profits were outside the express statutory provision, but were nevertheless within the general value to owner principle, illustrated by the 19th century cases such as the graveyards case and embodied in the Trinidad equivalent of rule 2 of section 2 of the 1919 Act. By focusing on a hypothetical sale by a willing vendor without any identification of the hypothetical purchaser, the value to owner principle transports the court into a no-scheme world. That is the view that Lord Nicholls took, with the agreement of the majority, in Waters, para 42:
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.
Lord Pearson made some illuminating remarks to the same effect in Rugby Joint Water Board v Shaw-Fox  AC 202, 213-215, some of which are quoted by Lord Collins.
21. As it happens, the Privy Councils advice to His Majesty in Pointe Gourde was given shortly before the passing of the Town and Country Planning Act 1947, which introduced unprecedented statutory control of the use and physical development of land in England and Wales. It was a very important milestone in the history of compensation for the compulsory purchase of land. Parliament was faced with a momentous choice, whether to compensate landowners for no more than the value of their land in its current use and state of physical development (as enhanced by any actual permission or general development rights under the 1947 Act) or to extend compensation to the hope value of obtaining permission for development in the future. Parliament took the former view, treating future development rights as public property. (That notion was not wholly novel in this country, as demonstrated by Lloyd Georges increment value duty introduced by the Finance (1909-10) Act 1910; the intricacies of that long-defunct tax explain why, surprisingly, it was the Revenue that was arguing - unsuccessfully - for a lower value in IRC v Clay  3 KB 466; Clay was not a compulsory purchase case at all but was cited by the respondents counsel in Pointe Gourde and described by him as having disturbed the waters".)