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You are here: BAILII >> Databases >> The Law Commission >> TOWARDS A COMPULSORY PURCHASE CODE: (1) COMPENSATION (A Consultative Report) [2002] EWLC 165(4) (24 June 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/165(4).html Cite as: [2002] EWLC 165(4) |
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Part IV
The compensation code-
core principles (1)
4.1 In this Part we consider the following issues:
(1) Statement of right to compensation
(2) Preliminary issues
(3) Market value
(4) Disturbance
4.3 For example, section 52 of the Land Acquisition Act 1989 (Cth) (“LAA (Cth)”) of Australia provides:
Entitlement to compensation
A person from whom an interest in land is acquired by compulsory process is entitled to be paid compensation by the Commonwealth in accordance with this Part in respect of the acquisition.
4.4 However, the Code also needs to take account of cases where the compensation is for adverse effects on an existing interest, rather than acquisition as such,[1] for example:
(1) Acquisition of new rights;
(2) Interference with existing easements and other rights;
(3) Injurious affection where no land is taken.
These issues will be considered in later Parts.
Subject to the provisions of the Code, any person from whom an interest, in
existence at the date of notice to treat, is acquired by compulsory purchase,
or whose interest in the subject land is diminished or adversely affected by or
pursuant to compulsory purchase, is entitled to compensation assessed in
accordance with the following rules.
4.6 There is at present no statutory statement in the Act of the general principle of “fair compensation”, which is said to underlie the compensation rules.[2] Such a statement of principle could be used in interpreting and applying the more detailed rules. Alternatively, the Tribunal could be given a discretion to depart from the detailed rules in exceptional cases, in order to achieve “fair compensation”.
4.7 The latter approach is adopted by the Australian Commonwealth Act. The LAA (Cth), s 55(1) provides:
(1) The amount of compensation to which a person is entitled under this Part in respect of the acquisition of an interest in land is such amount as, having regard to all relevant matters, will justly compensate the person for the acquisition.
(2) In assessing the amount of compensation to which the person is entitled, regard shall be had to all relevant matters, including: (emphasis added)
The individual heads of compensation (market value etc) are then set out. There is therefore a measure of discretion to depart from the standard heads to achieve “just compensation”.[3]
The list will specify the ingredients which, in the overwhelming majority of cases, will provide just compensation to the claimant. However, cases may arise where that list will provide a measure of compensation which in the opinion of the court is inadequate properly to compensate the loss. It is important, in terms of both constitutional validity and justice to the claimant, to provide a means whereby the court may increase the award of compensation to a figure which, in its opinion, will fully compensate the loss. With this in mind, it would be desirable to start the statutory list by a formula providing that the amount of compensation payable to a person who had an interest that has been divested, extinguished or diminished by the acquisition is such amount as will justly compensate the person in respect of the acquisition.[4]
4.9 The reference to “constitutional validity” in this passage is a reference to the constitutional requirement in Australia that laws for the acquisition of property should provide for “just terms”.[5]
4.10 There is no direct analogy in this country with the constitutional requirement for “just terms”,[6] so that the comparison must be approached with caution. However, the recent affirmation by the Privy Council of the principle of “fair compensation” underlying the statutory scheme[7] provides a firm basis for stating such a principle expressly in the new Code.
4.11 On balance, we do not think it right to follow the ALRC by expressly allowing a discretion to depart from the rules to achieve fair compensation (a “fair compensation override”). We think that would introduce an undesirable element of uncertainty, and would conflict with the objective of “unambiguously defined principles”.[8] On the other hand, a statement of the principle of fair compensation by way of introduction to the detailed rules should help to ensure that they are construed liberally with that objective in mind.
Any attempt to use different words would inevitably be tested in the courts to measure how far the new wording was intended to change their applicability.[9]
We agree. The general intention is substantially to reproduce, in codified form, the established principles. Therefore, there seems no good reason to change the traditional terms, unless one is able to offer other, more modern terms, which better express the underlying concepts. None of the comparisons we have considered offers any clearly preferable alternatives.[10]
4.13 As we have noted,[11] in spite of the separate heads under which compensation is traditionally assessed, it is said to represent “in essence one sum”. Historically, the rule was important in relation to tax law, which treated the compensation payment as a whole, as the price for sale of the land. However, this position has been modified by statute, which allows apportionment between capital and income elements.[12] It may also be significant in other respects. For example, the statute provides for interest to run on the whole compensation sum from the date of entry, and makes no distinction between the different elements.[13]
4.14 We think it is convenient to retain the established principle in the new Code.[14] As a matter of drafting, this can be achieved by expressing the right to compensation as a right to “an amount”, to be achieved having regard to the detailed rules.[15] We invite comments on any other practical implications of the rule, which need to be taken into account in the drafting of the Code.
Do consultees agree that:
(1) The Code should include a statement of the objective of “fair compensation”?
(2) This should be expressed as principle of interpretation only (rather than as permitting the Tribunal any general discretion to depart from the detailed rules)?
(3) The right to compensation should be a right to a single (“global”) amount, assessed having regard to the detailed rules (market value, disturbance etc)?
4.15 The “market value” rule was established by rule (2) of the 1919 rules, now 1961 Act, section 5(2):
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.
Although the rule refers only to a “willing seller”, [16] it is implicit that both parties are willing:
The compensation must be determined… by reference to the price which a willing vendor might reasonably expect to obtain from a willing purchaser. The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded.[17]
4.16 There is some uncertainty as to whether rule (2) applies only to the valuation of the land which is being acquired, or whether it applies generally, wherever land value is relevant to the assessment of compensation. In our view, the latter is the correct interpretation. Section 5 is expressed in general terms as applying to “compensation in respect of any compulsory acquisition”, without referring to any particular head of compensation; and rule (2) refers to “the value of land” (not value of the land,[18] or of “the relevant land”[19]). As we discuss below, this issue may have some practical implications for the scope of compensation for injurious affection.[20] In any event, it is desirable that the position should be clarified in the new Code, and that any exceptions to the “market value” principle are specifically identified.
For the purposes of this Division, the market value of an interest in land at a particular time is the amount that would have been paid for the interest if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer.[21]
However, there is no suggestion in the cases that the different language implies a difference of substance.
We have therefore come to the conclusion that open market value seems to present the fairest basis for assessing the compensation payable for the land taken. However, as previously mentioned, valuation cannot be an exact science and the application of the principles used to define open market value will always produce a range of figures. We would therefore wish to encourage acquiring authorities to consider whether there would be advantage in adopting a more flexible approach to negotiations on the open market value of any particular site within the limits set by such principles…[22]
(1) “Market value” of any land means the amount (not less than nil) which the
land might be expected to realise if sold in the open market by a willing
seller to a willing buyer.
(2) Except as otherwise provided, for the purpose of any provisions of the Code which depend on the value of land (including any reduction or increase in the value of land), value means “market value” as so defined.
Do consultees agree that:
(1) “Market value” should be defined as the amount for which the land might be sold by a willing buyer to a willing seller?
(2) The market value test should apply (except as otherwise stated) to any provisions of the Code depending on the value of land?
4.20 The right to compensation for disturbance is not in terms conferred by statute. It was derived from cases under the 1845 Act, which treated such personal loss as part of the “the value to the owner” or “the fair price of the land”.[23] It was preserved, following the introduction of the “market value” test under rule (2), by what is now section 5(6) of the 1961 Act:
The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.
For the purposes of the present Report, it is unnecessary to do more than summarise some of the main points derived from the case law.[24]
4.21 The principles considered below are applicable to those who have compensatable interests in the subject land. The 1973 Act introduced provision for similar payments to occupants without compensatable interests, covering the reasonable expenses of removal, and business losses.[25]
4.22 An often cited statement of the rule is that in Harvey v Crawley DC:
Any loss sustained by a dispossessed owner which flows from a compulsory acquisition may properly be regarded as the subject of compensation for disturbance provided first that it is not too remote and, second, that it is the natural and reasonable consequence of the dispossession of the owner.[26]
4.23 The application of this rule to business losses was explained by the Privy Council in the leading case of Director of Buildings and Land v Shun Fung Ironworks:[27]
Compensation should cover this disturbance loss as well as the market value of the land itself. The authority which takes the land on resumption or compulsory acquisition does not acquire the business, but the resumption or acquisition prevents the claimant from continuing his business on the land. So the claimant loses the land and, with it, the special value it had for him as the site of his business. The expenses and any losses he incurs in moving his business to a new site will ordinarily be the measure of the special loss he sustains by being deprived of the land and disturbed in his enjoyment of it. If, exceptionally, the business cannot be moved elsewhere, so it simply has to close down, prima facie his loss will be measured by the value of the business as a going concern.[28]
4.24 It is to be noted that this head of compensation is not confined to “disturbance” in the narrow sense (that is, the financial effects of displacement), but covers any other losses properly attributable to the acquisition, “not directly based on the value of land”.[29] In practice, the word “disturbance” has been used in a broad sense, to include such general financial consequences. This usage seems to follow the leading judgment of Scott LJ in Horn v Sunderland Corporation, where he used the term disturbance “for brevity” to describe those elements of “value to the owner”, in addition to market value, which were preserved by rule (6) of the 1919 rules.[30]
4.25 Disturbance losses may take many forms. Typical examples are:
(1) Moving house (removal costs, adaptation of furnishings, etc);
(2) Relocating a business (cost of search for new premises, removal costs, adaptation of new premises, temporary loss of profits, partial loss of goodwill etc.);
(3) Where the business cannot be relocated, value of the business on a “total extinguishment” basis (including value of goodwill, closure costs etc.);
(4) Legal and professional fees;[31]
(5) Additional tax liabilities.[32]
4.26 This issue requires fuller discussion, since it was identified by the Policy Statement as one for consideration by the Law Commission.[33] Generally, where the subject land is occupied for business purposes, the owners of the business will be willing and able to relocate it, and this will be the cheaper option for the authority. In some cases, however, there may be an issue whether compensation is to be assessed on a “relocation” or “total extinguishment” basis.
4.27 This was the main issue in the Shun Fung case.[34] The relevant questions were explained by Lord Nicholls:
Three principal questions arise on relocation claims. (1) Can the business be relocated, or has it effectually been extinguished? Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exist. If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis. (2) Does the claimant intend to relocate? The claimant must have reached a firm decision to relocate his business, and he must be reasonably assured that he will be able to do so. (3) Would a reasonable businessman relocate the business?[35]
4.28 In Shun Fung the relocation claim failed, under both the first and the third tests. The latter requires some comment. On this aspect, the facts of the case were unusual, in that the assessed compensation on a relocation basis was almost four times that on a total extinguishment basis.[36] In normal circumstances, the disparity is unlikely to be so great. However, (in a passage headed “no rigid limitations”) Lord Nicholls made clear that the mere fact that “relocation” compensation would exceed that for “total extinguishment” would not of itself rule out the claim:
A businessman may spend large sums of money in setting up a new business. Before the business has time to prove itself, his premises are acquired compulsorily. Having no profit record, the business may be worth little. The compensation payable on an extinguishment basis would be paltry. But a reasonable businessman, spending his own money might consider it worthwhile incurring expenditure in fitting out new premises nearby and continuing his business there. Fairness requires that in such a case the claimant should be entitled, in respect of the disturbance of his business, to his reasonable costs incurred in the removal of his business and in setting it up again at the new property.[37]
In such a case, the tribunal or court will need to scrutinise the relocation claim with care, to see whether a reasonable businessman having adequate funds of his own might incur the expenditure…Compensation is not intended to provide a means whereby a dispossessed owner can finance a business venture which, were he using his own money, he would not countenance. However, when considering these matters the tribunal or court might allow itself a moderate degree of latitude in approving as reasonable the relocation of a family business…[38]
4.30 On the facts of the case, in the Tribunal’s view, the project was not economically feasible by ordinary commercial standards, because the estimated return on the required capital investment fell short of what a reasonable businessman would require for such a project.[39] For this reason, the Privy Council agreed with the Tribunal that the claimant was not entitled to claim on the relocation basis:
He would not be so entitled because a reasonable businessman would not take this course. The acquiring authority cannot be expected to be responsible for expenses which no reasonable businessman would incur.[40]
… according as it was reasonable or unreasonable for the appellants in the circumstances, having been deprived of their existing business premises, to substitute other business premises and transfer their business to the substituted premises.[41] (emphasis added)
4.32 More recently, in upholding the Lands Tribunal’s refusal to award compensation on a reinstatement basis[42] for the acquisition of the Festiniog railway, [43] Ormerod LJ commented:
…if an undertaking in question is a business undertaking, then the question of the relation between the cost of reinstatement and the value of the undertaking is relevant and may be paramount in considering the question of reasonableness…
Having decided on the evidence that the undertaking was a business one, [the Tribunal] realised that the cost of the proposed reinstatement was out of all proportion to the value of the undertaking, and in those circumstances felt bound to come to the conclusion that reinstatement was not a reasonable basis of compensation.[44] (emphasis added)
4.33 Arguably, such an approach allows the Tribunal greater flexibility to take into account the reasonable interest of a dispossessed owner in carrying on an established business (which may have been his main occupation and livelihood), even where it might not be justified by ordinary commercial considerations, as applied to a new project. Lord Nicholls himself accepted that the “reasonable businessman” test needs to be applied flexibly, and that the degree of the disparity of cost was an important factor. He was prepared to allow “a moderate degree of latitude” in relation to a family business.[45] Accordingly, in our provisional proposal below, we prefer a test of “reasonableness”, rather than one tied to the “reasonable businessman”.
The law expects those who claim recompense to behave reasonably. If a reasonable person in the position of the claimant would have taken steps to eliminate or reduce the loss, and the claimant failed to do so, he cannot fairly expect to be compensated for the loss or the unreasonable part of it. Likewise if a reasonable person in the position of the claimant would not have incurred, or would not incur, the expenditure being claimed, fairness does not require that the authority should be responsible for such expenditure. Expressed in other words, losses or expenditure incurred unreasonably cannot sensibly be said to be caused by, or be the consequence of, or be due to the resumption.[46]
4.35 The onus lies on the authority to establish a failure by the claimant to mitigate.[47]
4.36 In a case in 1965, the Court of Appeal held that where a claimant was unable to re-establish his business, and thereby mitigate his loss, because of ill health, he could not claim compensation for the total extinguishment of goodwill.[48] The state of his health was not caused by the acquisition, and was regarded as an extraneous consideration.
4.37 This rule was strongly criticised. For example, a Justice report commented:
We believe that it is right in such circumstances to draw an analogy with the liability which arises with regard to personal injury in the law of tort, whereby the wrongdoer is required to take his victim as he finds him, and to suffer the greater liability if that victim should possess an egg-shell skull…[T]he personal circumstances of the claimant, such as age and state of health, [should] be taken fully into account.[49]
4.38 The rule was mitigated by statute in 1973, by giving traders over 60, in certain circumstances, a statutory right to claim compensation on the basis of total extinguishment, even where relocation might be possible.[50] In other cases, the rule remains.
… losses incurred in anticipation of the resumption and because of the threat which resumption presented are to be regarded as losses caused by the resumption as much as losses arising after resumption.[51]
It is dispossession caused by the taking of lands which gives rise to compensation, not the threat of dispossession or the effects of publication of plans for the execution of the works.[52]
Since Shun Fung, it is clear that loss due to “the threat of dispossession” may be claimed,[53] but it is uncertain how far the consequences of the wider scheme may be taken into account.
4.41 Disturbance compensation is not normally payable for the cost of new premises, even if they are more expensive. There is a presumption of “value for money”, that is, that any extra costs will be reflected in improvements which represent value for money in the hands of the claimant.[54] However, that presumption is rebuttable. Thus, in J A Bibby & Sons Ltd v Merseyside County Council,[55]it was held that increased operating costs were a possible head of claim, but such a claim would only succeed where it was shown that there was no reasonable alternative to accepting the increased costs, and that the claimants were in no better position than they were previously.[56]
4.42 The cost of structural adaptations or additions may be disallowed on the same basis;[57]or a deduction may be made to reflect the improvement.[58]
4.43 The disturbance claim must be consistent with the basis of the claim for value of the land. So, if the site is valued as having potential for development which would involve displacing the business in any event, no separate claim can be made for disturbance[59] (The same principle applies to other heads of compensation, such as severance.[60] Accordingly, it will be expressed as a separate rule in the Code[61]).
4.44 Disturbance is an accepted part of compensation in most other common law jurisdictions, although not always under that name. Sometimes the right is expressed in the statute; sometimes it is simply treated in the cases as part of the “value to the owner”.[62] Statutory formulations vary from a simple statement of principle to a more detailed list.[63]
any loss, injury or damage suffered, or expense reasonably incurred, by the person that was, having regard to all relevant considerations, including any circumstances peculiar to the person, suffered or incurred by the person as a direct, natural and reasonable consequence of:
(i) the acquisition of the interest; or
(ii) the making or giving of the pre-acquisition declaration… (emphasis added)
4.46 This wording follows the recommendation of the ALRC. The italicised words were designed to ensure that personal circumstances could be taken into account, following criticism of the Bailey case.[64] The ALRC agreed with that criticism:
Age or ill health might have forced the owner to retire in any case. However, but for the acquisition, he would have been able to sell the business as a going concern. Also the acquisition may hasten retirement. Continuing to carry on an established business is very different from re-establishing in a new location, particularly for the elderly and infirm. In determining compensation for disturbance, the court should have regard to circumstances peculiar to the claimant.[65]
4.47 Express provision is made for legal costs: LAA(Cth), s 55(2)(e):
(e) any legal or other professional costs reasonably incurred by the person in relation to the acquisition, including the costs of:
(i) obtaining advice in relation to the acquisition, the entitlement of the person to compensation or the amount of compensation; and
(ii) executing, producing or surrendering such documents, and making out and providing such abstracts and attested copies, as the Secretary to the Attorney-General's Department… requires.
4.48 There is also a statutory statement of the “consistency” principle[66] under section 57:
Where the market value of an interest in land acquired by compulsory process is assessed upon the basis that the land had potential to be used for a purpose other than the purpose for which it was used at the time of acquisition, compensation shall not be allowed in respect of any loss or damage that would necessarily have been suffered, or expense that would necessarily have been incurred, in realising that potential.
(1) to define general principles for assessing disturbance so as to include all actual costs and losses which are incurred reasonably and justifiably, are not too remote and represent a natural and reasonable consequence of the dispossession (Law Commission);
(2) to codify the principles established in case law with regard to relocation v extinguishment (Law Commission), and to confirm the current age-related provisions;
(3) to provide that all appropriate professional fees (surveyors, lawyers and accountants) should be paid on a reasonable costs basis.[67]
4.50 In relation to the first, it favours a general “broad but unequivocal” expression of the principle, thereby retaining “the flexible and common sense approach which has long been established by case law…,” rather than a statement of specific heads of compensation:[68]
It seems obvious… that any attempt to specify in statute the specific matters for which disturbance compensation might be considered could never be comprehensive and so would be of no benefit. Indeed, it could be counter-productive if it were to inhibit acquiring authorities from adopting a pragmatic approach.[69]
…relying on the flexibility provided by a statement of qualitative principles accompanied by the scope for the determination of any particularly difficult case on its own merits, if necessary by the Lands Tribunal.[70]
4.52 As already explained, the Report proposes a fixed starting point for disturbance compensation, the date of the first notice of the order.[71]
4.53 There are other points of detail in the Policy Statement:
(1) Business loss should not be ruled out merely because the business has ceased operating before the date of possession;[72]
(2) Compensation may include elements of both relocation and extinguishment;[73]
(3) The statement of principles should include provision to offset adverse tax consequences of the acquisition:
… in line with current case law,[74] we consider that the statement of the principles to be applied in assessing compensation should include provision for any additional tax incurred as a direct result of the compulsory acquisition of a claimant’s land, as well as the cost of any loan incurred solely, and justifiably, in order to be able to acquire land in time to benefit from capital gains roll-over relief.[75]
(1) Wording of the causation test;
(2) Failure to mitigate;
(3) Personal circumstances;
(4) The test of “reasonableness” in relation to relocation versus extinguishment;
(5) Partial relocation;
(6) Starting date for disturbance compensation;
(7) Other points of detail.
… provided, first, that it is not too remote and, secondly, that it is the natural and reasonable consequence of the dispossession of the owner.”[76]
In the LAA (Cth) the equivalent test refers, more concisely, to the “direct, natural and reasonable consequence of” the acquisition.
4.56 The use of the word “direct” in this context was in fact contrary to the recommendation of the ALRC, which was concerned that it might result in too narrow an approach.[77] However, it is difficult to see that the use of the word “direct”, instead of “not too remote”, makes a material difference.[78] As Lord Nicholls said, in the Shun Fung case, precision in the language of causation is difficult to achieve:
The familiar and perennial difficulty lies in attempting to formulate clear practical guidance on the criteria by which remoteness is to be judged in the infinitely different sets of circumstances which arise. The overriding principle of fairness is comprehensive, but it suffers from the drawback of being imprecise, even vague, in practical terms. The tools used by lawyers are concepts of chains of causation and intervening events and the like. ‘Reasonably foreseeable’, ‘not unlikely’, ‘probable’, ‘natural’, are among the descriptions which are or have been used in particular contexts. Even the much maligned epithet ‘direct’ may still have its uses as a limiting factor in some situations.[79]
4.57 Against this background, it seems unnecessary and possibly confusing to over-complicate the definition of causation. We shall use the expression “fairly attributable” as sufficiently encompassing the principles discussed by Lord Nicholls.[80]
4.58 As noted by Lord Nicholls,[81] the claimant’s duty to mitigate is implicit in the ordinary principles of causation. However, for completeness it may be desirable to include a specific statement in the Code. This will also make clear that the duty to mitigate runs from the first notice date[82] and the burden of proof of the failure to mitigate is on the acquiring authority.[83] Although most relevant to disturbance, it could in principle be relevant in other contexts (for example, equivalent reinstatement, or temporary loss caused to retained land). Accordingly, it will be covered by a separate Proposal in the new Code (see Part V, para 5.70 below).
4.60 The Policy Statement proposes that the case law principles with regard to relocation should be “codified”, but then suggests that this should take the form of a statement of “qualitative principles”, allowing flexibility in particular cases. As already noted,[84] the most recent authoritative statement in case law is in Shun Fung,where the tests were expressed as three questions:
(1) Can the business be relocated, or has it effectively been extinguished?
(2) Does the claimant intend to relocate?
(3) Would a reasonable businessman relocate the business?
4.62 Accordingly, our provisional view is that a detailed statement of the rules for relocation versus extinguishment is unnecessary.[85] However, it would be helpful to confirm that compensation on the relocation basis may be allowed, even if it exceeds that on extinguishment. For the reasons discussed earlier,[86] we think the “reasonable businessman” test, as applied in Shun Fung, may be unduly restrictive for the generality of cases. We provisionally propose, as the test, whether relocation is “reasonable in all the circumstances”, including any personal to the claimant.
4.63 The Policy Statement suggested a need to make clear that compensation may include elements of both relocation and extinguishment. This is already accepted in the case law.[87] However, it ties in with an issue raised by CPPRAG and the Policy Statement in relation to injurious affection.[88] This is the lack of compensation for the replacement of agricultural buildings, made necessary by severance, where the cost is not adequately reflected by compensation based on reduction in market value.[89] The Policy Statement suggests that this is more appropriately dealt with as part of compensation for disturbance.[90]
4.65 We agree that the starting date for compensation will be as proposed by the Policy Statement. We propose to define this as “the first notice date”, as mentioned earlier in the Report.[91]
4.66 Other matters for which the Policy Statement[92] proposes specific provision are:
(1) Professional fees;
(2) Businesses ceasing to operate before date of entry;
(3) Extra tax burdens and loan costs arising from acquisition.
4.67 We agree that there should be express provision in relation to (1), given that a change of practice is proposed.[93] The others are matters covered by existing case law, where no change is proposed. For the reasons already discussed in Part I, we see no purpose in spelling out such matters of detail, unless there is an intention to change the existing law. The issue of tax is discussed in more detail in Part VIII.
4.68 On the other hand, although not dealt with in the Policy Statement, the “consistency principle” should, we think, be set out in the statute. Since “disturbance” is to be expressed as a separate head of compensation, rather than as simply an aspect of “value to the owner”, it needs to be made clear that there should be consistency between the different heads. The LAA (Cth) provides a model.[94] (see Part V, para 5.69 below).
(1) “Disturbance” means any monetary loss or expense, not directly based on the
value of land, suffered or incurred by the claimant and fairly attributable to
displacement[95] in
consequence of the compulsory acquisition of the subject land;
(2) Without prejudice to the generality of (1), in assessing compensation for disturbance, the following rules apply:
(a) All relevant circumstances are to be taken into account, including any circumstances personal to the claimant;
(b) Disturbance includes the amount of any legal or other professional costs reasonably incurred by the claimant in connection with the acquisition;
(c) Where compensation is claimed on the basis of the relocation of a business from the subject land, compensation on the relocation basis shall not be refused solely because it exceeds the compensation which would be payable on the extinguishment basis,[96] unless, in the opinion of the Tribunal, it is unreasonable in all the circumstances (including the cost to the authority and the value of the business to the claimant) to assume relocation of the business;
(d) Compensation for disturbance may, if the the Tribunal so determines, include costs reasonably incurred in replacing buildings, plant or other installations (whether or not on the land acquired) where (i) they are required for a business to be continued on the retained land; (ii) the need for replacement is fairly attributable to the acquisition, and is reasonable in all the circumstances ((having regard to the cost to the authority and to the likely benefit to the claimant); (iii) the cost is not adequately reflected in any other head of compensation; but (iv) subject to such deduction (if any) as the Tribunal may determine should be made to reflect any improvement in the facilities so obtained over those replaced;
(e) Compensation for disturbance is not payable for loss or expense suffered or incurred before the first notice date;
(f) Where a claimant who was not in occupation of the subject land incurs incidental charges or expenses in acquiring, within one year of the date of entry, an interest in other land in the United Kingdom, those charges and expenses may be claimed as disturbance;[97]
(3) Without prejudice to (2)(a), the rights of traders over 60 years of age to claim compensation on the total extinguishment basis, in the circumstances defined by the 1973 Act, s 46, will be preserved in the new Code.
(1) Do consultees agree that:
(a) The term “disturbance” is a suitable shorthand for all heads of compensation currently assessed under rule (6) (of 1961 Act, s 5)? If not, what term should be used?
(b) Compensation under this head should (as now) exclude any loss “directly based on the value of land”?
(2) The matters to be taken into account should include “circumstances personal to the claimant”?
(3) In determining, on the displacement of a business, whether compensation should be on the “relocation” or “extinguishment” basis:
(a) Should the test be a simple test of “reasonableness”, rather than the “reasonable businessman” test (as explained in the Shun Fung case)?
(b) Is it unnecessary for the Code to prescribe the circumstances in which compensation on either basis will be regarded as reasonable?
(4) Should there be:
(a) Specific provision for compensation to include costs reasonably incurred in replacing buildings, plant or other installations needed for a business, if fairly attributable to the acquisition, and not adequately reflected in other heads?
(b) If so, do consultees agree that:
(i) The right should apply to all types of business (not simply agricultural);
(ii)
The right should apply whether the buildings
are on the land subject acquisition or on retained land?
[1]Cf Land Acquisition and Compensation Act 1986 (Vic) (“LACA (Vic)”), s 30, which confers a right provides on every person with an interest in land “that is divested or diminished by the acquisition of the interest to which that notice relates”. In Part IX (below), we propose that any injurious affection where no land is taken should be covered by an amended 1973 Act.
[2]See para 4.2 above.
[3]Cf the Victorian legislation: LACA (Vic), s 41 provides that “in assessing the amount of compensation…regard must be had to the following factors…” (emphasis added). The standard heads are then set out. There is no discretion to depart from them.
[4]Op cit, ALRC,para 237. It followed a similar proposal by the Ontario Law Reform Commission, which was not adopted by the legislature there (ibid, para 227).
[5]Section 51(xxxi) of the Australian Constitution gives Parliament the power to make laws for “the acquisition of property on just terms…” This has been interpreted as imposing an obligation to ensure that legislation “must affirmatively provide for just terms for such acquisition…”: W H Blakeley Ltd v Commonwealth (1953) 87 CLR 501, 521.
[6]Nor is there any direct equivalent in the European Convention of Human Rights: see Part II, para 2.19 above.
[7]See Part III, para 3.2 above.
[8]See Part III, para 3.7 above.
[9]Policy Statement, App, para 3.37 (referring to “severance” and “injurious affection”).
[10]Although the ALRC proposed to retain the traditional terms (draft Bill cl 35(2), 82), they were abandoned in the 1989 Act, but without substituting any alternatives (LAA (Cth), s 55).
[11]See Part III, para 3.4 above.
[12]See Part VIII, paras 8.51-52 below.
[13]See Part VIII, para 8.33 below.
[14]See Part I, para 1.9 above.
[15]Cf LAA (Cth), s 55(1).
[16]The intention of the specific reference to a “willing seller” was to avoid compensation being increased by assumed reluctance on the part of the seller - the “old hypothesis of the unwilling seller and the willing buyer”: see Horn v Sunderland Corp [1941] 2KB 26, 40, per Scott LJ.
[17]Vyricherla Narayana Gajapativaju v The Revenue District Officer, Vizagapatan (The “Indian case”) [1939] AC 302, 312, per Lord Romer.
[18]The omission of “the” was noted by Lord Bridge in Hughes v Doncaster Council [1991] 1 AC 382, 393.
[19]Cf 1961 Act, s 9, which refers to depreciation in value of “the relevant land”, defined (by s 39(2)) as the land subject to acquisition.
[20]Part V, paras 5.11-13 below.
[21]The language seems to be based on the classic statement by Isaacs J jn Spencer v Commonwealth (1907) 5 CLR 418, 441: “To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.” The “willing” but “not anxious” seller is sometimes referred to in the UK cases: see e.g. IRC v Clay [1914] 3 KB 466, 478; Glass v IRC 1915 SC 449, 465.
[22]Policy Statement, App, para 3.15.
[23]See Horn v Sunderland Corp [1941] 2 KB 26 at pp 32, 45.
[24]For a more detailed treatment, see Butterworths, op cit, para E-2022ff.
[25]1973 Act, ss 37-8. See Part VIII, para 8.81 below.
[26]Harvey v Crawley DC [1957] 1 QB 485, per Romer LJ.
[27][1995] 2 AC 111. See Part IV, para 4.27 below.
[28][1995] 2 AC 111, 124.
[29]For example, professional fees, or additional tax liabilities (see para 4.25 below). Loss of a service contract with a company was compensated for under this head: Wrexham Maelor Borough Council v MacDougall [1993] 2 EGLR 23. A recent example is Ryde International plc v London Regional Transport LT 6.2.01 (ACQ/147/2000) in which the Tribunal allowed a claim (under rule 5(6)) for holding costs, in the form of additional interest charges, resulting from delayed sales of properties blighted by the threat of acquisition. Conversely, pre-acquisition losses relating to unimplemented rent reviews, being based on the value of the land, are compensatable (if at all) as part of market value under rule (2): see Green Motor Holdings v Preseli Pembrokeshire DC [1991] 1 EGLR 211, LT.
[30][1941] 2 KB 26, 43. This judgment is of particular authority, since Scott LJ (as L Scott QC) had been Chairman of the Committee whose report led to the 1919 Act (see para 2.5 above).
[31]London County Council v Tobin [1959] 1 AII ER 649.
[32]See Alfred Golightly & Sons v Durham CC (1981) 260 EG 1045. See further Part VIII, para 8.59 below.
[33]See para 4.49 below.
[34]The subject land was a steel-works in Hong Kong; compensation on a relocation basis (to China, in the absence of a suitable site in Hong Kong) was substantially higher than a valuation based on the total extinguishment of the business.
[35]Shun Fung, op cit, at p 128.
[36]HK$519, as awarded by the Court of Appeal on the relocation basis; compared to HK$131m, awarded by the Tribunal on a total extinguishment basis: ibid, pp115-6. (The Privy Council in substance restored the Tribunal’s award). The disparity was attributable to a number of factors, some peculiar to the Hong Kong situation, including the fact that the only practicable relocation site was in China.
[37]Shun Fung, op cit, at p 127B-D.
[38]Ibid, at p 127G-H, approving Wells J in Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 S.A.S.R. 215, 222.
[39]Ibid, p 131A-E. The return fell “far short of the return an investor would expect for a China project with its attendant risks.” This view was supported by the fact that Shun Fung’s parent company, which had adequate funds, had not been willing to fund the project on its own merits, but only if it received sufficient compensation.
[40]Ibid,p 131G.
[41]A & B Taxis Ltd v Secretary of State of Air [1922] 2 KB 328, 342, per Atkin LJ (a case relating to war compensation).
[42]Under the “equivalent reinstatement” rule, 1961 Act, s 5(5). See Part V, para 5.36 below.
[43]Festiniog Railway Co v Central Electricity Generating Board (1962) 13 P&CR 248.
[44]Ibid, at 258, citing (inter alia) the A & B Taxis case (above).
[45]In the context of smaller businesses, his endorsement of the reasoning of Wells J in the Shipp case is significant. As Wells J said (p 222), in such cases:
“the court is not assessing the standing of the subject business in the market as a possible investment; it is determining whether the claimant is acting reasonably in seeking to transplant his business…. Their business may represent more than just a means of getting a living – it may represent too their chosen way of life. Even though conventional accounting practice could represent such a company as making only small profits, the salary and wages received, and other direct and indirect benefits derived from the company may provide the shareholders with satisfactory emoluments, and reasonably inspire in them a determination to carry on elsewhere which the Court should endorse…”
[46]Shun Fung (above), at 126.
[47]Lindon Print Ltd v West Midlands CC [1987] EGLR 200, LT.
[48]Bailey v Derby Corporation [1965] 1 ALL ER 443.
[49]Justice Report: Compensation for Compulsory Acquisition and Remedies for Planning Restrictions (1969) together with a Supplemental Report, (Stevens, London, 1973), para 41; cited with approval by the ALRC: see para 4.46 below.
[50]1973 Act, s 46(1) provides that, where the sole trader, partners or major shareholders of a business up to a specified annual rateable value (currently set at £24,600 or less), are more than 60 years old on the date of displacement, compensation may be assessed on the assumption that it is not reasonably practicable to relocate. The claimant is required to give undertakings that he will not dispose of the goodwill, or engage in any other business of the same kind within the area defined by the authority: s 46(3).
[51]Ibid, p137. The company was informed that the land was to be used as part of a New Town, but the actual resumption did not take place until four years later. In the meantime, the business was run down in anticipation of resumption. The resulting losses were led to be “due to” resumption and so compensatable.
[52]Emslie v Aberdeen DC [1994] 1 EGLR 33, 38, per Lord President Hope.
[53]See e.g. Ryde International plc v London Regional Transport LT 6.2.01 (ACQ/147/2000) (loss due to delayed sales of properties blighted by the threat of acquisition).
[54]See Service Welding Ltd v Tyne & Wear County Council (1979) 38 P&CR 352, CA where Bridge LJ said: “. . . there is a presumption in law, albeit a rebuttable presumption, that the purchase price paid for the new premises is something for which the claimant has received value for money. . . . If the claimant has made a bad bargain and has paid a great deal more for the new premises to which he is moving than they are really worth, that is not something for which the acquiring authority can properly be charged.”
[55](1979) 39 P&CR 53, CA.
[56]The claim in Bibby failed before the LT and the CA because the claimants were unable to prove that they had not derived benefit from the increased expenditure.
[57]See eg. Smith v Birmingham Corpn (1975) 29 P&CR 265, LT.
[58]Tamplin’s Brewery Ltd v County Borough of Brighton (1971) 22 P&CR 746, LT.
[59]Horn v Sunderland Corp [1941] 2 KB 26.
[60]See Part V, para 5.3 below.
[61]See para 4.68 below.
[62]See Commonwealth v Milledge (1953) 90 CLR 157. For a review of the pre-1980 Australian statutes, see ALRC, op cit , para 241, pages 122-123.
[63]Some Australian statutes have more detailed statements of some of the elements of the disturbance. See e.g. Land Administration Act 1997 (WA), s 241(6), which requires regard to be had to “the loss or damage, if any, sustained by the claimant by reason of” identified items, including “removal expenses”; “disruption and reinstatement of a business”; “halting of building works”(including abortive architect’s fees or quantity surveyor’s fees); and “any other facts which the acquiring authority or the court considers it just to take account in the circumstances of the case”. An equal variety of formulations is found in the Canadian statutes. An example is the Canadian Expropriation Act 1985, which contains a general statement of the normal principle, but offers the alternative of a percentage allowance, not exceeding 15% of the market value, if the relocation costs are difficult to estimate or determine.
[64]See para 4.36 above.
[65]ALRC, op cit,para 245, pages 125-126.
[66]Based on Horn v Sunderland Corp: see para 4.43 above.
[67]Policy Statement, p 28, para 4.16. Professional fees should be paid “on the basis of the actual expenditure reasonably incurred”, replacing (in the case of surveyors) the Ryde’s Scale: (1996) (published by the Valuation Office Agency on behalf of the Department of the Environment, now the DTLR) p 26, para 4.14 and App, paras 3.58-62. The Ryde’s Scale is a scale of charges (based on the amount of compensation) used by most acquiring or compensating authorities for assessing the amount of surveyor’s fees to be reimbursed to the claimant in respect of services of a surveyor in preparing, negotiating and settling the claim for compensation. It is not mandatory and has no statutory status, but the acquiring/compensating authorities will not normally depart from it except if it is agreed that a quantum meruit fee (which the Scale recognises may occasionally be appropriate) should be paid.
[68]Policy Statement, App, para 3.52. The same rule would apply to “those who are directly affected but have no interest in the land”, currently provided for by LCA 1973, s 37: see Part VIII, para 8.81 below.
[69]Ibid.
[70]Ibid,App, paras 3.53-57.
[71]See Part III, para 3.8 above.
[72]Policy Statement, App, para 3.55. This proposal gives effect to the existing law as stated in Glossop Sectional Buildings Ltd v Sheffield Development Corporation[1994] 2 EGLR 29, CA. That case related to a claim under the 1973 Act, s 46 (see para 4.38 above), but the reasoning appears to be of general application, and is consistent with Shun Fung (see paras 4.39-40 above). Although the claimant vacated before the notice of entry, this was due to “the whole process of acquisition,” and therefore the cost was properly claimed: p 31K-L.
[73]Policy Statement, App, para 3.56. This is accepted under the existing case law: see e.g. Tamplin’s Brewery v Brighton CBC (1971) 22 P&CR 746.
[74]Citing Alfred Golightly & Sons Ltd v Durham CC (1981) 260 EG 1045. See Part VIII, para 8.59 below.
[75]Policy Statement, para 4.16, and App, para 3.63.
[76]Harvey v Crawley DC [1957] 1 QB 485, 494, per Romer LJ.
[77]ALRC, op cit, page 123-124, para 242: “For example, is the cost of buying new curtains or carpets really a loss resulting directly from acquisition?”
[78] See A & B Taxis (above) at p 336, per Bankes LJ. See also the examples of “direct” and “indirect” consequences, given by Denning LJ in Harvey v Crawley DC (above) at p 493.
[79][1995] 2 AC 111, 126 D-E. Earlier he had referred to “losses fairly attributable to the taking of (the) land…” ibid, p 125 D.
[80]Cf 1973 Act, ss 37-38 (which provide a statutory disturbance payment for those without compensatable interests who are “displaced…in consequence of” compulsory purchase) refers simply to loss sustained “by reason of the disturbance of (the trade) consequent upon…having to quit the land.” This has been accepted as generally equivalent to disturbance under the 1961 Act: see e.g. Prasad v Wolverhapton BC [1983] Ch 333, 353-4.
[81]See para 4.34 above.
[82]As proposed in the Policy Statement. See Part III, paras 3.8-9 above.
[83]See para 4.35 above.
[84]See para 4.27 above.
[85]It is to be remembered that the discussion in this Law Commission Report, and the policy on which it was based, can be taken into account in interpreting the resulting statute (see e.g. Yaxley v Gotts [2000] Ch 162, 182).
[86]See para 4.33 above.
[87]See e.g. Tamplin’s Brewery v Brighton CBC (1971) 22 P&CR 746 (cost of replacing a bottling plant, which was part of an industrial undertaking, was allowed as disturbance, subject to deduction to reflect “new for old”).
[88]See Part V, para 5.22 below.
[89]CPPRAG Review, para 129(ii). This possible unfairness was highlighted in the Cook v Secretary of State (1973) 27 P&CR 234, LT. (See Part V, paras 5.9 and 5.22 below).
[90]Policy Statement, App, para 3.39.
[91]See Part III, para 3.8 above and Part XI, (A) General definitions, below.
[92]See paras 4.49(3) and 4.53(1) and (3) and n 67 above.
[93]By no longer automatically applying the Ryde’s Scale: n 67 above.
[94]Para 4.47 above. This will need to extend also to other heads of compensation.
[95]Cf Land Compensation Act 1973, Part III, ss29, 34 and 37.
[96]See generally the Shun Fung case [1995] 2 AC 111. The “relocation basis” assumes that the owners of the business are able to relocate it; compensation will normally cover the costs of relocation and any temporary losses. The “extinguishment basis” assumes that the business is closed down; compensation is based on the value of the business. In most cases, relocation will be the preferable option for both parties; but provision needs to be made for those cases where the claimant wishes to relocate, even though total extinguishment would be the cheaper option for the authority.
[97]This is intended to reproduce 1961 Act, s 10A.
