appendix 6
the no-scheme rule – illustrative cases

Introduction

                  A.1             In this appendix, we have selected two cases, for the purposes of illustrating the effect of the present law: (A) applying compulsory purchase principles under the 1961 Act; (B) applying a “willing parties” approach, not subject to the 1961 Act. The facts and reasoning in each case illustrate the practical application of the different approaches in arriving at a figure of compensation.

                  A.2             We have referred in the historical review to the judgment of the Court of Appeal, as settling the modern form of the judicial rule.[1] However, the decision of the Lands Tribunal[2] (which was upheld by the Court of Appeal) gives a fuller statement of the facts, and the steps by which the Tribunal arrived at the figure of compensation. It also illustrates the operation of the 1961 Act provision for deduction of “betterment” on adjoining land, [3] which were not in issue in the Court of Appeal.

                  A.3             The case concerned a compulsory purchase order made in 1964 relating to 73 acres of land owned by Mr Wilson (the “subject” land). It formed part of an area of 391 acres of agricultural land (the “yellow” land), some 6 miles to the east of the centre of Liverpool, for which at that time the Council were seeking to develop for residential and ancillary purposes. Mr Wilson also owed a further area of 36.5 acres (the “green” land), which was contiguous to the subject land, but outside the yellow land.

                  A.4               The background was as follows:-

                  A.5             The Lands Tribunal held that £343,465 compensation was payable, representing £392,808 for the subject land (£5,350 per acre), less £49,343 for “betterment” of the green land (£1,350 per acre). The main points were:

                                            (1)             There was in existence at the date of the notice to treat[4] a scheme underlying the acquisition of the claimants’ land within the Pointe Gourde principle. The scheme was the Council’s proposal to develop the whole area of 391 acres. It was sufficiently precise to enable the owners of the land to find out what was in it on the Minister’s grant of planning permission (1963) or at the latest at the confirmation of the compulsory purchase order in 1965.[5]

                                            (2)             The subject land had to be valued with the benefit of the existing permission for housing development (1961 Act, s 14(2)), and an assumed permission for development in accordance with the Council’s proposal (s 15(1)), regardless of whether they would have been granted in the absence of the scheme.

                                            (3)             The sale of the green land at £6,700 was evidence of the “dead ripe” value of land for residential development, but that figure was in part attributable to the purchaser’s knowledge of the scheme, and the fact that roads and sewers would be available. Without that knowledge, the price for land (even assuming an existing permission) would have reflected a likely deferment for 2 years, and a deduction for the cost of sewers and wayleaves; giving a figure of £5,350 per acre.

                                            (4)             Applying the same approach, the “betterment” on the adjoining land (to be deducted under 1961 Act, s 7[6]) was assessed at  £6,700 - £5,350 = £1,350 per acre.[7]

(B) “Willing parties” outside the 1961 Act

Mercury Communications Ltd v London and India Dock Investments Ltd (1995)[8]

                  A.6             Mercury needed to lay and use cable ducts under a private road owned by the defendants (“LIDI”). The ducts were needed to provided additional telecommunications links between Mercury’s “Earth Station” in East London, and the development at Canary Wharf. Under the Telecommunications Act 1984, the County Court had power to make a compulsory order granting the necessary rights, subject to terms as to compensation, that is:

                  A.7             Mercury argued that compulsory purchase principles were applicable; and that accordingly the consideration should  be nil, or nominal, since any increase in value due to the Mercury scheme must be ignored.  LDDI argued that compulsory purchase principles did not apply, and that they should be treated as entitled to negotiate for an annual payment, based on a share of Mercury’s anticipated profits from the Canary Wharf operation (by analogy with the approach in Stokes v Cambridge Corp[9]). They put this at £24,175 p. a.

                  A.8             The Court held that:

                                            (1)             The words “fair and reasonable” necessarily involved “an element of subjective judicial opinion”, depending on the judge’s own perception, rather than a purely objective assessment of “market value”.[10]

                                            (2)             Both grantor and grantee must be assumed to be “willing”.[11] Relevant guidance was to be obtained from cases dealing with the meaning of “willing” seller and purchaser, in the compensation context. But, otherwise, compulsory purchase rules, including the Pointe Gourde principle, had no application under the Code.[12]

                                            (3)             The share of profits basis, proposed by LDDI, was not appropriate, except where what is in issue is a single capital payment, and the “benefit to the developer/payer can be relatively easily quantified, as in the typical Stokes v Cambridge situation.”[13]

                                            (4)             The appropriate payment should be a capital payment or annual rent, reflecting “the anticipated use of the right and thus its importance and the value to the grantee.”[14] This could only be determined by reference to evidence of comparable transactions.

                                            (5)             The best starting-point was the agreements entered into by the parties in 1987-8, authorising the installation of the original ducts, which had provided for annual payments, equivalent to £4,000 at current values. Although this figure had involved a “horse-deal”, and had been affected by Mercury’s “anxiety to settle” because of the constraints at the time, it appeared to the judge to be “in the right sort of bracket” and “of a kind that appears fair to both parties and reasonable”. The figure had to be adjusted it, (inter alia) downwards to discount the element of “anxiety”, and upwards to take account of the numbers of cables.[15]

                                            (6)             Having made these adjustments, the judge arrived at an annual figure of £9,000, which he determined to be “fair to both parties and reasonable on the basis that the deed of grant was given willingly”.[16]