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AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

March 2009.

Until the House of Lords gave judgment in the Spirerose case, this Summer, there was growing hope among practitioners in compulsory purchase that the time might have arrived when Whitehall could be moved to stir itself to contemplate active reform of the legislation governing planning assumptions to be made in the determination of compensation payments.


I have written about this business of the planning assumptions before (Sections 14-16, Land Compensation Act 1961) before, and about the need for their substantive reform, as for reform of the (closely-related) Section 17, which deals with certificates of appropriate alternative development.  In an earlier article I wrote:-


By common consent among practitioners four major problems have arisen:


1.          In some cases, the assumptions apply planning policies relevant to a date which is not the valuation date prescribed for the assessment of compensation.  This can cause (to put it mildly) valuation difficulties where the valuation date is many years later than the relevant date for the ascertainment of policies in relation to planning assumptions.

2.          Some of the statutory assumptions are derived from development plans which may have had a particular meaning and effect when the legislation was introduced in 1959 but which are quite often almost meaningless under the current regime for the formation of planning policies at local level.

3.          The provisions for the certification by a planning authority of appropriate alternative developments are cumbersome and unnecessary.

4.          The assumptions of planning permission for developments the value of which was not nationalised in 1947 can result in compensation payments greater than the no scheme world values.


When the opportunity came, in Spirerose, neither the Lands Tribunal nor the Court of Appeal hesitated in declaring that a claimant for compensation was not necessarily limited to hope value in the absence of a planning permission or a Section 17 certificate; although there was no suggestion that the door was open to speculative claims. As far as this particular case is concerned, it should be borne firmly in mind that the Tribunal was entitled to find on the evidence before it, and that it should not be assumed that, where there was a prospect that planning permission would have been granted before the relevant valuation date, then such permission would have been granted: the evidence must be lead and the argument proved, in every case.


In this case, that Tribunal concluded, on the planning assumption issue, after extensive review of the authorities, that (para 70):-


(a) On the basis of the Pointe Gourde rule compensation may be awarded on the assumption that planning permission for development would have been granted in the no-scheme world even though no such assumption may fall to be made under the provisions of sections 15 and 16.


(b) If the conclusion of the Tribunal is that planning permission would have been granted at the valuation date, it is to be assumed, in the absence of evidence to the contrary, that the hypothetical willing seller would have applied for permission in time for it to be granted by that date.


(c) The assumption of such planning permission under Pointe Gourde is discretionary, and the purpose is to ensure that the claimant receives fair compensation; but there is no requirement that it may only be made where the compensation on the statutory assumptions would be far removed fromo what would be fair.


(d)  Whether planning permission would have been granted in the sn-scheme world is to be determined by reference to the decision that a reasonable planning authority would have made.  By contrast hope value is to be assessed by reference to the view that the market would have taken as to the prospects of achieving planning permission


(e) Jelson v Blaby is authority that section 9 (1961 Act – JPS) enables a claimant to rely on such planning permission as would have been granted in the no-scheme world.


The facts in Spirerose were a little unusual, it should be said, in that the claimant made an application for planning permission in 2003, by which time possession had been taken.  Perhission was granted, however, although it was quashed by consent on appeal, and the Council treated the application thereafter as one for a s17 certificate, even though no notice was served on the acquiring authority.  Adopting the wrong date for its certificate, the Council resolved to grant one, on advice, but no certificate was ever issued and no appeal was made.


The Tribunal was able to find, on the bases both of planning policy and planning decisions laid before it, that there was ample evidence for it to conclude that there was a reasonable prospect of planning permission being obtained, although at the relevant date for the purpose of section 17 (Autumn 1993) it was reasonable to assume, on the evidence, that no section 17 certificate would have been forthcoming (Note the discrepancy between the s17 date and the date of valuation, possession having been taken in December 2001).


On the basis that the valuation was to be based on hope value, the Tribunal found no evidence to suggest that the market would have reached a conclusion different from their own.  


In a strong judgment, the Court of Appeal commenced by saying:-


[1]  The Claimants were the owners of industrial premises ("the site") on the south side of Holywell Lane, in the area known as South Shoreditch, a mixed-use area on the northern fringe of the City of London. The site was compulsorily acquired by Transport for London ("TfL") under the London Underground (East London Line Extension) Order 1997 ("the order"), as part of the project for the construction of the East London Line Extension, a new railway line between Dalston and Whitechapel.


[2]  Public notice of the proposed order had been given in autumn 1993 under the Transport and Works Act 1992. The order was confirmed by the Secretary of State on 20 January 1997. Notice to treat was served on the Claimant on 24 August 2001. Possession was taken on 3 December 2001, which was therefore the valuation date for the purposes of compensation.




[3]  The principal issue is whether the site should be valued on the basis (a) (as the tribunal held) of its full value with planning permission for a mixed use development; or (b) as TfL argued, a percentage only of that value ("hope value") reflecting the probability of the permission being granted, as perceived by the market in the no-scheme world. The alternative valuations (in accordance with the findings of the tribunal, which are not now in dispute) are £608,000 on basis (a) £400,000 on basis (b).


[4]  The resolution of this issue depends on the correct application of the so-called Pointe-Gourde, or "no-scheme" rule. In simple terms the rule is that compensation for the compulsory acquisition of land must be assessed in a "no-scheme world", that is, excluding any increase or decrease in the value of the land that is wholly due to the scheme underlying the acquisition.


[5]  The rule is long-established, and has attracted more than a century of judicial learning, not all easy to reconcile. In Waters v Welsh Development Authority [2002] EWCA Civ 924, [2003] 4 All ER 384, [2002] RVR 298, the Court of Appeal, commented on the colourful history of the rule:


"The case-law (takes) one on an engrossing historical tour of the jurisdiction of the Judicial Committee of the Privy Council from its heyday at the beginning of the last century: railway-building in the jungles of Zanzibar (Secretary of State for Foreign Affairs v Charlesworth [1901] AC 373); hydro-electric works in Canada (Cedar Rapids Co v Lacoste [1914] AC 569; Fraser v Fraserville City [1917] AC 187); anti-malarial works related to harbour development in India (the 'Indian case': Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302); a quarry needed to build a US naval base in Trinidad (the Pointe Gourde case itself); a shopping centre in Queensland (Melwood Units Ltd v Main Roads Commissioner [1979] AC 426); and, most recently, displacement of a steel-works to make way for a new town in Hong Kong (Director of Buildings and Land v Shun Fung Ironworks Ltd [1995] 2 AC 111).


Not surprisingly, given the extraordinary variety of subject matter and location, the statements made in these cases are not always easily reconcilable with each other, nor readily transferable to the conditions of post-war Great Britain. Such statements must always be read in the factual context in which they occur. But the very diversity of the contexts encourages the hope that underlying it all is a principle of some robustness and universality." (Paragraphs 37-8 per Carnwath LJ)


[6]  The history has been exhaustively discussed in a Law Commission Report (Towards a Compulsory Purchase Code: (1) Compensation, LC 286, see especially app D), and in the speeches in the House of Lords in Waters v Welsh Development Authority [2004] UKHL 19, [2004] 2 All ER 915, [2004] 1 WLR 1304. For present purposes, it is enough to note that in 1959, following the restoration of the principle of market value compensation, an attempt was made by statute to provide for the application of the no-scheme rule for use in the modern planning system. Those provisions with some amendments are now found in the Land Compensation Act 1961 Pts II and III. Most relevant for present purposes is s 17, which allows the Claimant to apply to the local planning authority for a "certificate of appropriate alternative development", with (under s 18) a right to appeal to the Secretary of State against an adverse decision. We shall need to return to the detail of those provisions, which though not directly applicable are relied on by way either of contrast (Mr Barnes for TfL) or of analogy (Mr Nardecchia for the Claimants). The 1959 Act code created as many problems as it solved. The Law Commission recommended the replacement of the common law and statutory versions of the no-scheme rule in a comprehensive statutory code. That plea has so far gone unheeded by the legislature.


[7]  The report was however taken into account by the House of Lords in Waters, which can be seen as signalling a new, more flexible approach to the rule. Indeed Lord Woolf expressed the hope that - ". . . that tribunals and practitioners in future will not find it necessary to refer to any other authority apart from this on the matters covered by their speeches. The process of valuation should be a matter of experienced evaluation of the facts of a particular transaction or transactions within broad general parameters laid down by the law. So far as possible valuation should eschew technical distinctions." (Paragraph 71)


[8]  A majority of the House confirmed that the judicial version of the rule was not to be treated as displaced by the relevant provisions of the Land Compensation Act 1961. As Lord Nicholls explained: "The courts . . . found themselves driven to conclude that the statutory code is not exhaustive and that the Pointe Gourde principle still applies. This conclusion is open to the criticism that in many instances this makes the statutory provisions otiose. This is so, but this is less repugnant as an interpretation of the Act than the alternative." (Paragraph 54)


He provided some general guidance on the purpose of the principle and its practical application. Although the case was concerned principally with the definition of the scope of the "scheme", which is not at issue in this case, much of the guidance is of general relevance. He said: "61 . . . What, then, is the purpose of this principle? Its purpose, in separating 'value to the owner' from 'value to the purchaser', is to forward Parliament's objective of providing dispossessed owners with a fair financial equivalent for their land. They are to receive fair compensation but not more than fair compensation. This is the overriding guiding principle when deciding the extent of a scheme.


62 This statement of general principle does no more than articulate the approach already adopted intuitively by tribunals when faced with making a choice between competing views of the extent of a scheme in a particular case. It is to be hoped that bringing this principle into the open will assist decision-making in difficult cases.


63 In applying this general principle there is of course no magical detailed formula which will provide a ready answer in every case. That is in the nature of things, circumstances varying so widely. But some pointers may be useful:


(1) The Pointe Gourde principle should not be pressed too far. The principle is soundly based but it should be applied in a manner that achieves a fair and reasonable result. Otherwise the principle would thwart rather than advance the intention of Parliament.


(2) A result is not fair and reasonable where it requires a valuation exercise which is unreal or virtually impossible.


(3) A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties which are not being acquired.


(4) When applied as a supplement to the s 6 code, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code . . . ."


[9]  The last point was directed specifically to s 6 and Sch 1, parts of which are notoriously obscure (once described by Harman LJ as a "monstrous legislative morass" or "Slough of Despond": Davy v Leeds Corporation [1964] 3 All ER 390, 394, 62 LGR 628, [1964] 1 WLR 1218). However, use of the statute by way of analogy can be a useful tool on other points of difficulty. A similar point had been made in the Court of Appeal in Waters "Even if the judicial rule is needed to fill the gaps, and mitigate the anomalies, in a flawed statutory regime, it may still be appropriate to look to the statute for guidance as to the underlying policy." ([2003] 4 All ER at para 79, per Carnwath LJ)


The Court, lead by Carnwath LJ, whose extensive experience at the Bar, on the Bench and at the Law Commission cannot be in doubt, indorsed the view taken by the Lands Tribunal.


Hope for reform fell at the last fence, however.  The House of Lords (per Lord Scott) held that:-


[8]  It may be that part of the thinking was based on the jurisprudence relating to the burden of proof in civil cases. The party on whom lies the burden of proving a relevant fact can succeed in discharging that burden on the so-called "balance of probabilities". If the existence of the fact is more probable than not, the burden of proof is satisfied. But this is to do with proof of historic fact. It has nothing to do with valuation. A search for the market value of land at a particular date must take account of the attributes of the land at that date. Absent statutory intervention there is no warrant for adding attributes that the land does not possess nor, for that matter, for subtracting attributes that the land does possess. The land in the present case had a promising potential for the grant of planning permission but it did not have the benefit of an actual grant of planning permission. To transform a probability of planning permission into a certainty of planning permission on the footing that the civil standard of proof, the balance of probabilities, has been satisfied misunderstands, in my respectful opinion, the nature of the valuation exercise that r (2) of s 5 requires.


A justification for ascribing statutory force to the Pointe Gourde principle might have been appropriate had there been a lacuna to be filled which, in the opinion of the Committee, could not be filled by a conventional statutory construction approach.


Lord Collins refutes this, declaring that there wass no anomaly for the Court to seek to rectify  by extension of statutory assumption, and certainly no right to add a new one


[127]  What is the juridical basis of the Pointe Gourde principle? Lord Nicholls of Birkenhead said in Waters v Welsh Development Agency [2004] UKHL 19, [2004] 1 WLR 1304 at 42 that the principle is no more than the name given to one aspect of the long established "value to the owner" principle.


[128]  In my opinion it is a principle of statutory interpretation, mainly designed and used to explain and amplify the expression "value". It is in this sense that it has sometimes been referred to as a common law principle: see eg Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307, 315, per Lord Hope of Craighead; Waters v Welsh Development Agency at 142 per Lord Brown of Eaton-under-Heywood. In Rugby Joint Water Board v Shaw-Fox [1973] AC 202 at 213 to 215 Lord Pearson reviewed the authorities and concluded that although the Pointe Gourde principle had been described as a "common law principle", it could not be such a principle "because compulsory acquisition and compensation for it are entirely creations of statute" (at 214). He went on: "The Pointe Gourde principle in my opinion involves an interpretation of the word 'value' in those statutory provisions which require the compensation for compulsory acquisition to include the value of the lands taken" (at 214-215). I am satisfied that this the right approach and that there is nothing in Lord Nicholls' speech in Waters which is inconsistent with this view.


[129]  It follows that there is no basis in authority or in principle for the conclusion that it is open to the court in effect to establish an assumption that planning permission would be obtained, by analogy with the specific statutory rules which create the assumption. I have already endeavoured to show that the authorities relied on by the tribunal do not provide such a basis. Waters v Welsh Development Agency is an example of an extended interpretation of the concept of value in the context of determining the extent of a scheme in order to give effect to a Parliamentary intention to provide dispossessed owners with a fair financial equivalent: see at 61. The underlying basis of the decision in Waters is that the extent of the scheme to be ignored for the purposes of valuation is not limited by the express provisions of s 6 and Sch 1. It does not go further, and does not support the conclusion of the Court of Appeal.


[130]  Nor do I understand how the Court of Appeal could have concluded, given its decision on the approach to the consequences of a finding on the balance of probabilities, that where there would have been a possibility, but less than a probability, of planning permission, the land owner should have the benefit of hope value. That conclusion seems to me to undermine the principal conclusion that a finding of probability leads not to hope value but to valuation on an assumption that planning permission would certainly have been obtained.


[131]  I accept TfL's fundamental point that it is not the role of the court to re-write legislation by adding additional assumptions of planning permission. As Lord Denning MR said in Jelson v Minister of Housing and Local Government [1970] 1 QB 243, 250, whichever date was taken there would be anomalies: "So much so that I think we must go simply by the construction of the statute." There is a difference between legitimate purposive construction and impermissible judicial legislation. The 1961 Act has dealt with the present case by providing not only for the s 17 procedure, but also by providing in s 14(3) that, even if the statutory assumptions do not apply, nothing in those provisions shall be construed as requiring it to be assumed that planning permission would necessarily be refused. That enables development value to be taken into account. In my opinion for the court to depart from the normal method of valuation of land which has potential development value by adding an assumption that planning permission will be obtained by analogy with those provisions which do provide for assumptions is not a permissible exercise of statutory construction.


[132]  I am not persuaded in any event that there is any real anomaly. It is true that the fact that the s 17 determination date was a date in 1993 would have made a proper determination under that section valueless to Spirerose, because in 1993 there would have been little prospect of obtaining planning permission for a mixed use development. It is also true that if the s 17 determination date had been in 2001, then planning permission would have been assumed, and Spirerose would have had the advantage of the full development value. But the anomaly, if that is what it can be called, arises only on the facts of this case. Developments in planning policy may make the earlier date as at which the s 17 determination is to be made more favourable than the valuation date. In addition, there is much to be said for the submission on behalf of TfL that the date of publication of the notice of the making of the compulsory order is a rational choice by the legislature, because that is the date on which the prospect of obtaining valuable development rights is taken from the owner.


While this passage may arguably give a correct decision in Spirerose, Lord Collins and Lord Neuberger, in particular, go further than perhaps they need have done, by declaring that there is no lacuna at all, and that there is absolutely nothing wrong or unfair in having a certificate date years ahead of the valuation date. 


The Compulsory Purchase Association has made submissions on the need for reform, and the professions of the land seem to be unanimously in favour of change.  It seems to me, at least, mere vile and vulgar attorney, though I may be, to be anomalous or otherwise totally wrong that sections 14-18 of the 1961 Act are founded as to their concepts in the 1947 Act, when the law of planning has metamorphosed almost beyond recognition in the last sixty-two years.


This gives Whitehall yet another excuse to leave compensation in the “too hard” pile, and to continue to do little or nothing.


If only judicial meiosis could have been contained a little……… 


©J.P. Scrafton, 2009

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