PART I

Introduction

Terms of reference

                    1.1               On 12 July 2001 the Lord Chancellor approved terms of reference for the Law Commission in the following terms:

To review the law (legislation, case law and common law rules) relating to compulsory purchase of land and compensation, with particular regard to

(i)The implementation of compulsory purchase orders

(ii)The principles for the assessment of compensation on the acquisition of land

(iii) Compensation where compulsory purchase orders are not proceeded with

(iv)Compensation for injurious affection

and to make proposals for simplifying, consolidating and codifying the law.

As part of the Review, the Law Commission will give priority to consideration of the rules relating to the disregard of changes in value caused by the scheme of acquisition.

Background

CPPRAG Review

                    1.2             The reference arose out of a recommendation of the Compulsory Purchase Policy Review Advisory Group (“CPPRAG”), established by the Department of the Environment, Transport and the Regions (“DETR”). Their Final Report (referred to in this Report as the  “CPPRAG Review”) was published in July 2000.[1]

                    1.3             The CPPRAG Review commented that the law had become “an unwieldy and lumbering creature”; they found “the existing legislative base… complex and convoluted” and requiring simplification and codification.[2] The problem was seen as lying partly in the fact that the legislation was derived from 1845[3] or earlier, and that:

Even where the provisions of that Act have been subject to later amendment or re-enactment, the Victorian concepts and antiquated phraseology have often been carried forward, leading inevitably to difficulties in interpretation, or even comprehension.[4]

                    1.4             The CPPRAG Review made a number of recommendations for detailed improvements of the law. However, the first recommendation proposed a direct role for the Law Commission in preparing new legislation "consolidating, codifying, and simplifying the law".[5] They added:

In framing the new statute, particular care should be taken to bring the language up to date and to standardise procedures except where that would create difficulties of its own. The new statute(s) should set out procedures as well as a clearly defined Compensation Code.

Law Commission – preliminary work

                    1.5               In December 2000, following discussion with the Law Commission, the DETR and the Lord Chancellor’s Department (“LCD”) approved terms of reference for a preliminary study to identify the likely features of such a project. In March 2001, the Law Commission published a preliminary paper (“the Scoping Paper”). This included a draft framework for a new Code, and discussion of the main issues and a suggested programme for further work.[6] The Law Commission’s proposals were generally accepted by the DETR, and were reflected in the terms of reference set out above.

                    1.6               A discussion paper relating to the priority issue identified in the Scoping Paper (“disregarding the scheme”) was published in October 2001.[7] It formed the subject of a seminar held at the Institute of Advanced Legal Studies in the same month, and led to a number of helpful written responses on this issue.[8]

The DTLR Policy Statement

                    1.7             The Government’s response to the CPPRAG Review and its proposals for reforming the law were contained in a Paper published in December 2001.[9]  It accepted that “the most basic step” in the process of modernisation would be to “consolidate, codify and simplify the legislation as soon as the opportunity arises” and undertook to work with the Law Commission to achieve this.[10] It indicated that the Law Commission would be producing a Consultative Report setting out proposals to codify and consolidate the existing legislation. Detailed proposals were made in relation to most of the issues raised by the CPPRAG Review. Although further responses were invited on certain issues (see below), it is clear from the Minister’s introduction that it was regarded as representing a firm policy statement on most matters.[11]

                    1.8             The Paper identified four particular issues on which further responses were invited:

                                                                   (a)          A time-limit for submitting compensation claims;

                                                                   (b)          A time-limit for reference of compensation disputes to the Lands Tribunal;

                                                                   (c)          Provision for appointment of an “independent complaints adviser”;

                                                                   (d)          A statutory duty to provide accommodation works.

It also indicated that the Law Commission, in its Consultative Report, would be seeking views on a number of issues, including:

                                                                   (a)          The principles relating to the disregard of the effects of “the scheme” in determining value;

                                                                   (b)          The principles for assessing disturbance;

                                                                   (c)          A consistent set of principles for determining compensation for severance/injurious affection where land is taken and where no land is taken;

                                                                   (d)          Compensation where a compulsory purchase order is not implemented.[12] 

The Law Commission’s approach

                    1.9             This is in some respects an unusual Law Commission project. It does not fit naturally into any one of the normal categories - law reform, consolidation or statute law revision; but combines elements of all three. Furthermore, we have come in at a relatively late stage of the review. Most of the main policy issues relating to the substance of the law have already been examined in detail by CPPRAG and have been subject to public consultation; and the Government’s conclusions have been made known. Apart from certain specific areas in which substantive issues remain to be settled, our principal task is that of sorting out, rather than reforming, the law.

                1.10             This involves more than pure consolidation. The present statutory code is an amalgam of provisions, which have been developed over more than 150 years, and which have been supplemented by case law over the same period. Underlying it is a framework, which, as the CPPRAG Review concluded, is “basically sound”.[13] However, some parts of the code are redundant, others are ill-conceived or unduly complex, the language is often archaic, and much of the case-law is confused or conflicting.

                1.11             Against this background, our task is to develop a coherent code, in modern form and language.[14] The aim is to preserve the underlying principles, in so far as they are settled and accepted, to resolve the conflicts and to clear away the dead wood. The main purpose of this Consultative Report is to provide an opportunity for comments on the shape, style and content of the new Code, before submission to Parliamentary Counsel for detailed drafting.

                1.12             In developing the draft Code, we have taken full account of the reforms proposed in the Policy Statement. Insofar as they represent firm policy conclusions following consultation, we do not see it as our task to reopen them. As indicated above, however, certain issues have been specifically identified in the Policy Statement as requiring further consideration and consultation. Others have emerged in the course of our work. In relation to those issues, we shall be making provisional recommendations, based on our own studies and research, but will be inviting comments on alternative options.

Preserving the balance

                1.13             The Government’s Policy Statement, therefore, sets the scene for our work. However, we have also had to address those issues on which the Policy Statement has expressed no view, or which it has left specifically for further consideration by the Law Commission. On those, our first task (not always easy) has been to work out the content of the present law. But we have also considered to what extent we should ourselves make proposals for substantive change.  

                1.14             The law has to balance the public interest in the use of compulsory purchase to promote necessary development, with the protection of the interests of individual owners and occupiers. In the recent Wildtree Hotels case,[15] Lord Hoffmann referred to the long history of debate over the balancing of public and private interests. Apparently conflicting judgments in the 19th century cases reflected differing opinions on questions of economic and social policy. Some judges put the emphasis on full compensation for all those adversely affected by public works; others on the need, in the public interest, for liability to be kept within narrow bounds.[16]

                1.15             It is clear therefore that there can be no single “right” answer to the balance between private and public interests.[17] A policy of providing more generously for those affected will increase costs for acquiring authorities, and may therefore detract from the public objective of promoting development. On the other hand, a more generous compensation regime may mitigate public resistance to a scheme, and thus achieve savings by reducing delay and procedural costs. The present law represents a compromise between those interests, developed over more than 150 years. In spite of several dramatic shifts of political direction over that period (as outlined in the next Part), a reasonably settled body of law has evolved on most issues. We have no reliable empirical evidence, which would enable us to reach a firm conclusion on the merits of any particular change to the present balance.

                1.16             Accordingly, on issues not covered by the Policy Statement, our proposals for the new Code are based generally on codification rather than reform. This implies respect for the existing balance of competing interests, unless it produces obvious anomalies or unfairness.[18] However, our review of the existing law has disclosed a number of issues on which the case for substantive change justifies further discussion. Examples are: what elements of value should be excluded under the “no-scheme rule”?[19] Should compensation for injurious affection extend to loss of profits?[20]  Should compensation for acquisition of rights be based solely on the diminution in the value of the land, or should it reflect in some way the market value of the right?[21]

                1.17             On such issues, we are not at this stage making provisional proposals for change. Our proposals for the new Code reflect, except where otherwise stated, our best understanding of the existing law. Possibilities for further change are identified in the consultation questions. We will be inviting comments not only on the general merits of such changes, but also their potential costs and benefits. The responses will be taken into account in our final recommendations.

Comparative sources

                1.18             In view of the relatively confined nature of our task, we have not conducted an extensive review of comparative sources.[22] We have, however, been assisted by the studies carried out by law reform bodies in other Commonwealth countries. This country led the way in the 19th century by exporting the 1845 Act to many countries within the former British Empire, and, as will be seen, the case law of the Privy Council, in appeals from those countries, has played a central part in the development of the law. However, in more recent times, this country has lagged far behind others, notably Canada[23] and Australia,[24] in bringing the law into modern form.[25]

                1.19             Of particular value for our purpose has been the 1980 Report by the Australian Law Reform Commission on the Commonwealth legislation in that country. This takes account of English and Canadian law, as well as the laws of the individual Australian state legislatures. It also reviews the earlier Canadian studies. The Report led to legislation in 1989, which contains a useful model of a codified system of law.[26] Although there are significant differences in some aspects of Australian law, the ALRC discussion is of direct relevance and assistance on  many of the issues we have had to consider. [27]

                1.20             Our preliminary studies suggested that we were unlikely to derive similar assistance from other developed systems of law, which lack the common 1845 source. However, as an example of a European system, we have considered the French Expropriation Code.[28] Generally, the French legal system is too different to be a useful source for what is, as we have explained, largely an exercise of codification. However, we will be making some reference to the French parallels, where relevant.

Scope of the Project

Two stages

                1.21             Within the constraints of time and resources, our approach has necessarily been selective. The considerations affecting the choice of subjects for inclusion were discussed in the Scoping Paper, and were taken into account in the Terms of Reference.

                1.22             In agreement with the DTLR, we have decided, for the purposes of the Consultative Report, to consider the issues in the Terms of Reference in two stages. The first relates to items (ii) and (iv) in the Terms: in summary, the principles of compensation, including compensation for injurious affection where no land is taken. These issues are addressed in the present report, which concludes with proposals for a “Compensation Code”. We include a detailed review of the no-scheme rule (identified as a priority task in the Terms), and the other issues allocated to the Law Commission by the Policy Statement.[29] In order to avoid undue complexity in the basic Code, we have not at this stage undertaken a review of special categories of land, such as land of statutory undertakers, commons, minerals etc. These will need to be addressed once the form of the new Code is agreed.

                1.23             The second stage will deal with the largely procedural issues raised by paragraph (i) of the Terms (implementation of CPOs), and also paragraph (iii) (abortive orders). This stage is unlikely to raise significant policy issues, beyond those addressed in the Policy Statement. The Law Commission’s task under this head is largely technical and mechanical. It is that of finding a way through the thickets of the 1965 Act, clearing away the dead wood, and extracting a coherent statement of the essential law.

Making and authorisation

                1.24             The issues specifically identified in the Terms of Reference did not include the making and authorisation of compulsory purchase orders. This was for two reasons: first, the law was in reasonably coherent form, having been consolidated in the Acquisition of Land Act 1981; and, secondly, the involvement of Ministers at the authorisation stage was subject to challenge under the Human Rights Act 1998, in a case then pending before the House of Lords.[30] We suggested that the issue might be reviewed following the House of Lords decision.[31]

                1.25             We will not be making detailed proposals on this issue, but it will be included in the subjects discussed in the Implementation Report. The decision of the House of Lords has confirmed the validity of the existing procedures. This makes it unnecessary to consider any radical alteration to the law, as set out in the 1981 Act. However, our further work has identified scope for improving and simplifying the 1981 law. It has also underlined the desirability of a consistent approach across the whole process of compulsory acquisition beginning with the making of the Order. For example, the proposals of the Policy Statement in relation to compensation for disturbance are directly linked to the statutory date of notification of the making of the Order, as are the proposals for compensation for abortive orders.[32] 

The compensation code

                1.26             In this Report we consider the contents of the Compensation Code. Before doing so, in Part II, we outline the background history, and the derivation and sources of the existing law. The following Parts develop a model for the new Code:

Part III - The Compensation Code – Introduction This Part outlines the features of the present law, and the policy guidelines given by the Policy Statement, and provides an overview of the new Code.

Part IV - Core Principles (1) In this and the next Part, we make proposals for the treatment in the Code of the basic principles, and the main heads of compensation. This Part covers market value and disturbance.

Part V - Core Principles (2) This Part covers principles of the compensation code relating to effects on retained land (severance and injurious affection; betterment); equivalent reinstatement; date for assessment; and incidental rules (prospects of lease renewal; illegal uses; enhancements with a view to increased compensation; and consistency).

Part VI - Disregarding the scheme This is a review of the problems arising from the no-scheme rule, taking account of the history discussed in Appendix 5. We also review the associated problem of planning assumptions.

Part VII – The new Code- Disregards and Assumptions We make proposals for a new set of statutory “disregard” rules, to replace the existing statutory and judicial rules; together with revised rules for planning assumptions.

Part VIII – Compensation- Related issues This covers other incidental matters, which need to be considered for possible inclusion in the Compensation Code.

Part IX - Injurious affection where no land is taken We discuss the existing law, under section 10 of the Compulsory Purchase Act 1965 and Part I of the Land Compensation Act 1973; and make proposals for “merging” the two.

Part X – Repeals

Part XI - The Compensation Code- The Proposals

Part XII – Consultation Questions

Part XIII -  Conclusion

                1.27             The Appendices comprise:-

                                            (1)             Glossary- Abbreviations of statutes;

                                            (2)             A list of statutes conferring compulsory purchase powers;[33]

                                            (3)             Selected extracts from English statutes relating to compensation:

                                                                   (a)              Land Compensation Act 1961, sections 5, 6, 7, 9, 14, 15, 16, 17, 18, 21, 22 and Schedule I;

                                                                   (b)              Compulsory Purchase Act 1965, sections 7, 10 and 20(1)-(2);

                                                                   (c)              Land Compensation Act 1973, Part I, sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 15, 16, 17, 18 and 19; Part IV, sections 45, 46, 50, 52 and 54;

                                                                   (d)              Acquisition of Land Act 1981, section 4.

                                            (4)             Comparative material:

                                                                   (a)              An Australian Legislative Code:

                                                                                             (i)             Land Acquisition Act 1989 (Cth), sections 52, 55, 56, 57, 58 and 60.

                                                                   (b)              Australian and Canadian material on injurious affection where no land is taken:

                                                                                             (i)             Extracts from the Australian Law Reform Commission Report No 14: Lands Acquisition and Compensation (1980), chapter 11, paragraphs 305-312 and 319-332;

                                                                                           (ii)             ALRC draft legislation: Draft Lands (Acquisition and Compensation) Bill, Part XIII- Compensation for Injurious Affection;

                                                                                          (iii)             A Canadian example: Ontario Expropriations Act 1990, section 1(1).

                                            (5)             The No-scheme rule - history;

                                            (6)             The No-scheme rule – illustrative cases;

                                            (7)             Compensation for acquisition of rights: article by N E Hutchison and J Rowan-Robinson;[34]

                                            (8)             Acknowledgements;

                                            (9)             Bibliography.