Judgments - Transport for London (London Underground Limited) (Appellants) v Spirerose Limited (in administration) (Respondents)

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51.  Secondly, the assumption made in the present case appears to bypass, indeed to render redundant, many of the specific assumptions as to assumed planning permission contained in sections 16 and 17 of the 1961 Act. Thus, in summary terms, subsections (2) and (3) of section 16 state that it should be assumed that land has planning permission for a particular use if two conditions are satisfied, namely (a) that it is allocated for that use in a development plan, and (b) that the use is one “for which permission might reasonably have been expected to be granted". If the decision under appeal is correct, then that is a pointless, indeed almost absurd, provision: whenever permission for a change of use “might reasonably have been expected to be granted", one must, if the courts below are correct, apparently assume that it has been granted.

52.  Thirdly, the decision appears to “transgress", as Scott LJ put it in Horn v Sunderland Corporation [1942] 2 KB 26, 49, “the principle of equivalence which is at the root of statutory compensation, the principle that the owner shall be paid neither less nor more than his loss", save, I should add, where the legislation otherwise provides. (In my view, another principle relied on by the appellant acquiring authority, the presumption of reality as described by Megaw LJ in Trocette Property Co Ltd v Greater London Council (1974) 28 P&CR 408, amounts to much the same thing as the principle of equivalence.)

53.  The reasoning which underlay the decisions of the Lands Tribunal and of the Court of Appeal had a number of strands, but, on analysis, I do not consider that, even taken together, they really begin to undermine the force of these three simple points.

54.  The Lands Tribunal primarily relied on the so-called Pointe Gourde principle, which, in summary amounts to this, that the level of compensation for compulsory acquisition of land cannot be increased or decreased by a change in the value of the land which is entirely attributable to the scheme underlying the acquisition. It is hard to see how that principle can assist the respondent land owner in the present case.

55.  The only way the Pointe Gourde principle could be relied on, as a matter of logic, appears to me to be on the basis that, if the scheme in question had not been in existence, then at some time before the valuation date, the respondent land owner would have applied for, and, on the balance of probabilities, obtained permission for mixed development. I do not consider that that would be a legitimate invocation of the Pointe Gourde principle, which is concerned with the effect of the scheme on the value of the owner’s interest, not with the characterisation of that interest - see the remarks of Lord Cross of Chelsea in Rugby Joint Water Board v Shaw-Fox [1973] AC 202, 253, approving a dictum of Russell LJ in Minister of Transport v Pettitt (1968) 67 LGR 449, 462. It may amount to the same point put another way, but, when assessing compensation, it is, at least generally, inappropriate to invoke the principle for the purpose of speculating what might have happened - see per Lord Brown of Eaton-under-Heywood in Waters v Welsh Development Authority [2004] I WLR 1304, para 148, disapproving what was said by Lord Denning MR in Myers v Milton Keynes Development Corporation [1974] 1 WLR 696, 704.

56.  Quite apart from this, I do not consider that it is right to invoke the Pointe Gourde principle, or any other principle developed by the courts, for the purpose of adding a wholly new assumption to the statutory assumptions which have been laid down by the legislature - see per Lord Pearson in Shaw-Fox [1973] AC 202, 214-5. All the more so if that assumption is effectively inconsistent with one or more of the express statutory assumptions. I do not thereby intend to suggest the Pointe Gourde principle has no part to play in this field, but its role is relatively limited. I agree with Lord Collins, when he says in para 127 that it is “a principle of statutory interpretation, mainly designed and used to explain and amplify the expression ‘value'". As Lord Walker implies in para 36, the principle is a factor to be borne in mind when construing the compensation legislation with a view to achieving, so far as possible, a result consistent with its aim of fair compensation. That seems to me consistent with principle and with most of the authorities, including all the decisions of this House and of the Privy Council, to which your Lordships were taken.

57.  In any event, even if it was legitimate to invoke the Pointe Gourde principle in this connection, it seems to me that the result arrived at by the Lands Tribunal and the Court of Appeal would be contrary to the fundamental purpose of the principle. Assuming the scheme would have prevented the land owner obtaining planning permission for mixed use, then what the land owner was deprived of by the existence of the scheme was, according to the Lands Tribunal, not the certainty of getting such permission, but a good prospect of getting it. By awarding compensation on the basis that such permission would be certain to be, or had been, obtained, the courts below were therefore enabling the land owner to be better off than he would have been in the “no scheme world". That appears to me to be contrary to, rather than consistent with, the principle.

58.  While not eschewing the basic reasoning of the Lands Tribunal, the Court of Appeal relied on three further grounds for concluding that planning permission for residential development should be assumed to have been granted. “First and foremost", the unfairness of the land owner in this case being unable to take advantage of a certificate under section 17(4)(b) of the 1961 Act - [2008] EWCA Civ 1230, para 65. Such a certificate would, if granted in respect of residential development of the land, have enabled the respondent to compensation on the basis that planning permission for such development had been granted, and therefore on the basis fixed by the Lands Tribunal. For my part, I would prefer to treat as an open question the issue whether it is right that such a certificate should be based on the situation as at the date of the notice to treat (whether deemed or actual). That was the effect of the decision in Jelson v Minister of Housing and Local Government [1970] 1 QB 243, but it may be appropriate for your Lordships to reconsider the issue one day (not least because of the subsequent decision of this House in Birmingham Corporation v West Midland Baptist (Trust) Association Inc [1970] AC 874). The issue has not been considered in this House, as it was conceded in Fletcher Estates Ltd v Secretary of State [2000] 2 AC 307 that Jelson [1970] 1 QB 243 was rightly decided.

59.  However, assuming that Jelson [1970] 1 QB 243 was rightly decided (as it may very well have been), I cannot accept the Court of Appeal’s view that it helps justify their decision in this case. As Lord Denning MR said in Jelson [1970] 1 QB 243, 250, there are anomalies whichever date was chosen under section 17(4)(b), and therefore anomaly, and hence unfairness, are very suspect grounds for justifying the addition of a non-statutory assumption to the valuation assessment. In any event, it is by no means clear to me that there is a particularly striking anomaly: it makes some sense to select the date of the making of the compulsory purchase order as being the relevant date for the purposes of section 17(4)(b), as that is the date on which the owner’s ability to seek and obtain planning permission becomes fettered.

60.  Even if that is wrong, I would certainly reject the argument that, because it is unfair to the owner that he cannot obtain a section 17(4) certificate from the planning authority by reference to the position as at the valuation date, the court can effectively arrogate to itself an extra-statutory power to grant what amounts to such a certificate to the owner, especially in the light of the factors mentioned in paras 49 to 51 above.

61.  The second point made by the Court of Appeal was that it would render the valuation exercise simpler and less controversial, if one assumed that planning permission had been actually granted, as opposed to embarking on a “hope value” exercise - [2008] EWCA Civ 1230, para 66. First, that is scarcely a principled reason for the Court’s conclusion, let alone a good enough reason for effectively adding a further assumption to the statutory assumptions. Secondly, it is not a persuasive reason: “hope value” valuations, i.e. valuations based on the assessment the market would make of the prospect of an event occurring, and the quantification which it would accord to that prospect, especially the grant of planning permission, are very familiar to any experienced surveyor or property lawyer. Thirdly, it is an unconvincing reason, because a “hope value” valuation would, even on the Court of Appeal’s reasoning, be required where the prospect of obtaining planning permission was less than 50%.

62.  Indeed, this last point highlights a logical incoherence in the Court of Appeal’s approach: if the prospect is 51%, then it is effectively increased to 100%, whereas if it is 49%, it remains at 49%. I accept that this incoherence might be said to be reflected in section 16(2) and (3) of the 1961 Act, but, even assuming that that is right, it is one thing for the legislature to enact a one-sided statutory assumption to benefit those whose land is compulsorily acquired; it is quite another for the courts to add such an assumption when none is to be found in the legislation.

63.  Thirdly, the Court of Appeal suggested that its approach “reflects the common assumption and practice of tribunals, courts, practitioners and valuers” - [2008] EWCA Civ 1230, para 66. I am far from convinced that this is correct; and, even if it is, it cannot justify an erroneous interpretation of the 1961 Act. The Court of Appeal’s observation lies a little unhappily with the observation of the Lands Tribunal in para 24 of its decision in this case, where it said that “this important issue in the law of compensation does not appear to have arisen previously in such starkly defined terms". Your Lordships were also taken to an earlier decision of the Lands Tribunal, Pentrehobyn Trustees v National Assembly for Wales [2003] RVR 140, where, at para 95, the President, Mr George Bartlett QC (who also sat on this case) seems to have reached the opposite conclusion, albeit in somewhat different circumstances.

64.  Accordingly, for the reasons given by Lord Walker and Lord Collins, with which I entirely agree, supplemented by these reasons of my own, I would allow this appeal.

LORD COLLINS OF MAPESBURY

My Lords,

The background

65.  From the earliest days of the law of compensation for compulsory acquisition the value of the land taken has included what was described in 1867 as “not only the present purpose to which the land is applied, but also any other more beneficial purpose to which in the course of events at no remote period it may be applied” (R v Brown (1867) LR 2 QB 630, 631). The Town and Country Planning Act 1947 introduced wide-ranging controls on development, but it was only after the Town and Country Planning Acts 1953 and 1954 that owners of land were fully able to realise the development value of their land if they could get planning permission. Since then development value has been an important element in the assessment of compensation, because the value of land in the open market may depend on what planning permission exists or could be obtained for development on the land. The Land Compensation Act 1961 contains complex provisions (first enacted in the Town and Country Planning Act 1959) designed to deal, at least in part, with the assumptions about planning permission to be made in the valuation process.

66.  The issue on this appeal can be stated shortly: where land is compulsorily acquired, and the Lands Tribunal (“the Tribunal”), in assessing compensation, finds on the balance of probability that but for the compulsory acquisition (in what has been called since the 1970s, in the jargon of compulsory acquisition compensation claims, “the no-scheme world”) planning permission would have been granted by the valuation date, should the Tribunal (a) treat that hypothetical permission as a certainty, to be assessed at its full value (in this case on what is known as the “residual valuation”) or (b) award “hope value,” that is, a percentage of the full value, discounted for the chance that permission would not have been granted?

67.  Transport for London (“TfL”) appeals against the order of the Court of Appeal (Carnwath, Thomas and Etherton LJJ, in a judgment of the court) dated November 13, 2008 by which the Court of Appeal dismissed the appeal of TfL against a decision of the Tribunal (the President and Mr P.R. Francis FRICS) determining the compensation payable to the respondent, Spirerose Ltd (“Spirerose”) for the compulsory acquisition of its land.

68.  The land required by London Underground Ltd (“LUL", to which TfL is the statutory successor) for construction of the East London Line Extension included land in the London Borough of Hackney belonging to Spirerose. The land comprised a small building used as a printing works. In 1993 notice of LUL’s application for the making of an Order for the purpose of carrying out the scheme was published, and in 1997 the Secretary of State for Transport made the London Underground (East London Line Extension) Order 1997.

69.  On November 24, 2003 Spirerose made (or was treated as having made) an application to the local planning authority for a certificate of appropriate alternative development under section 17 of the Land Compensation Act 1961. The development specified by the application was the redevelopment of the land by the demolition of the existing building and the erection of a four storey building and basement with both offices and residential flats. If a valid certificate had been obtained, it would have been assumed (by virtue of provisions in the 1961 Act to which I shall revert) for valuation purposes that planning permission would have been obtained for the development.

70.  The local planning authority resolved to grant a certificate to the effect that permission for the development would have been granted, but on the erroneous basis that the relevant date for consideration of planning policies and circumstances in determining the section 17 application was the date of valuation of Spirerose’s claim for compensation, December 3, 2001, rather than the date of the notice of the application for the making of the Order which had been published in the autumn of 1993. Taking the wrong date made a decisive difference. In the 1990s the London Borough of Hackney Unitary Development Plan sought to restrict residential development so as to preserve the area as a location for local business and industry, and so also to preserve employment opportunities. But by the time LUL served notice of entry in August 2001 and took possession of the land in December 2001, following the Government’s new national planning policies, the local planning authority was adopting a more flexible attitude towards proposals for mixed use development where the characteristics of the land were considered to make that an appropriate form of development.

71.  Consequently the valuation had to be conducted without the benefit of a section 17 certificate. The case for Spirerose before the Tribunal was that, but for the scheme underlying the compulsory acquisition, planning permission would have been granted for mixed use redevelopment of the land, and consequently the land should be valued on the basis of an assumed permission to this effect. TfL’s case was that planning permission would not have been granted for the mixed use redevelopment of the land; but that, in any event, the land could not be valued on the basis of a planning assumption unless one or more of the statutory assumptions applied, which they did not, and the prospect of such permission being granted could only be reflected in hope value.

72.  The figures on these alternative cases were found by the Tribunal to be these. First, the value on the basis that planning permission was not to be assumed, and only “hope value” was to be taken into account, was £400,000. Johnson, Davies and Shapiro, Modern Methods of Valuation of Land, Houses and Buildings, 9th ed (2000) explain hope value in these terms (at pp 279-280):

“A valuation to determine hope value is often impossible other than by adopting an instinctive approach, particularly in the stages when the hope of permission is remote; it can only be a guesstimate of the money a speculator would be prepared to pay. As the hope crystallises into reasonable certainty of a permission at some stage, a valuation can be attempted based on the potential development value deferred for the anticipated period until permission will be forthcoming, but with some end deduction to reflect the lack of certainty. Indeed, since most developers will buy only when permission is certain (preferring an option to buy or a contract conditional on the grant of permission before certainty has been reached) any sale in the period of uncertainty will probably require a significant discount on what might otherwise appear to be the full hope value.”

73.  The second figure was £608,000 on the basis that planning permission was to be assumed. This figure was reached on the basis of a “residual valuation,” because the evidence of comparable transactions was inadequate. The residual basis is this: the value is the surplus after the purchaser has met out of the proceeds from the sale or value of the finished development the costs of construction, costs of purchase and sale, the cost of finance, and an allowance for profits required to carry out the project: Johnson, Davies and Shapiro, op cit at p 165. The third figure was the existing use value, which was £227, 500.

Land Compensation Act 1961 (“the 1961 Act”)

74.  The 1961 Act consolidated earlier legislation relating to the assessment of compensation for compulsory acquisition of interests in land. The only provisions which are directly relevant to the proceedings and this appeal are Rule (2) of section 5, and sections 9, 14(3), 15(5), 17, and 22(2)(a), but Spirerose’s case is that other provisions support its appeal, and it is therefore necessary to set out the effect of other sections of the 1961 Act.

75.  Sections 5 to 16 contain provisions determining the amount of compensation.

Section 5, Rule (2)

76.  Section 5 lays down rules for the assessment of compensation. Rule (2) is: “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.” This is in the same terms as the Acquisition of Land (Assessment of Compensation) Act 1919, section 2, Rule (2).

77.  For more than 100 years it had been accepted that the relevant date for valuation was the date of the notice to treat. But inflation made that an unjust and shocking rule. The law now is that valuation under this Rule is made as of the date when possession is taken by the acquiring authority, or, if earlier, the date of assessment: Birmingham Corp v West Midland Baptist (Trust) Association Inc [1970] AC 874, a decision on Rule (5) of section 2 of the 1919 Act, relating to the cost of reinstatement, applied to Rule (2) of the 1961 Act in Washington Development Corp v Bamlings (Washington) (1984) 52 P & CR 267 (CA), and confirmed by the 1961 Act, section 5A(3), inserted by the Planning and Compulsory Purchase Act 2004, section 103.

Section 6

78.  The broad effect of section 6 and Schedule 1 (which are notoriously complex and obscure) is to make provision for disregarding the increase or diminution in the value of the land acquired attributable to development, or the prospect of development, of land other than the land acquired in a range of specified circumstances “as would not have been likely to be carried out” if the acquiring authority had not acquired or proposed to acquire the land: see Camrose (Viscount) v Basingstoke Corp [1966] 1 WLR 1100, at 1107, per Lord Denning MR; Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304, at [49], per Lord Nicholls of Birkenhead.

Section 9

79.  Section 9, as amended by the Town and Country Planning Act 1968, section 108, and Sched. 11, provides:

“No account shall be taken of any depreciation of the value of the relevant interest which is attributable to the fact that (whether by way of allocation or other particulars contained in the current development plan, or by any other means) an indication has been given that the relevant land is, or is likely, to be acquired by an authority possessing compulsory purchase powers.”

Sections 14 to 16

80.  Sections 14 to 16 provide for assumptions as to planning permission that are to be made in ascertaining the value of the land acquired: section 14(1). These are supplemented in Part III of the Act by provisions dealing with certificates of appropriate alternative development, in particular section 17. None of the assumptions is itself directly applicable to the hypothetical planning permission at issue on this appeal.

81.  The assumptions fall into the following categories. The first is development in accordance with the proposals of the acquiring authority, if there is no existing permission for such development: section 15(1). In such cases it is assumed that planning permission would be granted in respect of the relevant land, such as would permit development in accordance with the proposals of the acquiring authority. In the present case that means that an assumption would have to be made that permission would be granted for the new railway. That permission does not add to the value of the land.

82.  The second category is development included in paragraphs 1 and 2 of Schedule 3 to the Town and Country Planning Act 1990: section 15(3). This is of very limited application and now refers mainly to the rebuilding of war-damaged property.

83.  The third category is development in accordance with the current development plan: section 16. Section 16(1)-(4) provides for assumptions of planning permission in accordance with provisions in statutory development plans, i.e. where sites are defined or allocated for certain development in a plan or are subject to comprehensive development or part of an “action area” in a plan.

84.  The fourth assumption is under section 15(5) in accordance with a certificate issued under section 17. Under section 17 the owner or the acquiring authority may obtain a determination, through the planning system, of the classes of development which “would be appropriate for the land in question if it were not proposed to be acquired by any authority possessing compulsory purchase powers…” (section 17(3)). The local planning authority may issue such a certificate or may issue a certificate stating that planning permission would not have been granted for any development save for the proposals of the acquiring authority. There is a procedure under section 18 for an appeal to the Secretary of State by the owner or the acquiring authority.

85.  The combined effect of section 17 and section 15(5) is that, where a certificate is issued under section 17, it is to be assumed that any planning permission which, according to the certificate, “would have been granted” (as amended by the Local Government, Planning and Land Act 1980, section 193 and Sched 33, para 5, replacing the words “might reasonably have been expected to be granted”) in respect of the acquired land, would be so granted. Once the planning authority comes to the conclusion that permission would more likely than not have been granted, that finding would be equivalent to a certainty because of the statutory assumption in section 15(5): Porter v Secretary of State [1996] 3 All ER 693 at 704.

86.  I have already mentioned the abortive attempt by Spirerose in these proceedings to obtain a certificate. The relevant date for the determination was the date in the autumn of 1993 when statutory notice was first published of the making of the London Underground (East London Line Extension) Order under the Transport and Works Act 1992: section 22(2)(a) of the 1961 Act; Jelson v Minister of Housing and Local Government [1970] 1 QB 243; Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [1999] QB 1144, affd [2000] 2 AC 307, 314 (where the appeal on this point was not pursued).

87.  Section 14(3) ensures that the owner is not precluded by these provisions from arguing that planning permission would have been granted for a development on the land:

“Nothing in those provisions shall be construed as requiring it to be assumed that planning permission would necessarily be refused for any development which is not development for which, in accordance with those provisions, the granting of planning permission is to be assumed ...”

Principles of valuation

 
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