House of Lords
|Session 2003 - 04
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|Judgments - Waters and others (Appellants) v. Welsh Development Agency (Respondents)
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Waters and others (Appellants)
Welsh Development Agency (Respondents)
THURSDAY 29 APRIL 2004
The Appellate Committee comprised:
Lord Nicholls of Birkenhead
Lord Scott of Foscote
Lord Brown of Eaton-under-Heywood
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Waters and others (Appellants) v. Welsh Development Agency (Respondents)
 UKHL 19LORD NICHOLLS OF BIRKENHEAD
1. Compulsory purchase of property is an essential tool in a modern democratic society. It facilitates planned and orderly development. Hand in hand with the power to acquire land without the owner's consent is an obligation to pay full and fair compensation. That is axiomatic: Director of Buildings and Lands v Shun Fung Ironworks Ltd  2 AC 111, 125.
2. Unhappily the law in this country on this important subject is fraught with complexity and obscurity. To understand the present state of the law it is necessary to go back 150 years to the Lands Clauses Consolidation Act 1845. From there a path must be traced, not always easily, through piecemeal development of the law by judicial exposition and statutory provision. Some of the more recent statutory provisions defy ready comprehension. Difficulties and uncertainties abound. One of the most intractable problems concerns the 'Pointe Gourde principle' or, as it is sometimes known, the 'no scheme rule'. On this appeal your Lordships' House has the daunting task of considering the content and application of this principle.
3. In the Court of Appeal  EWCA 924,  4 All ER 384, 414, para 116, Carnwath LJ, a judge with unrivalled expertise in this field, was moved to say at the conclusion of his impressive judgment:
4. I echo Carnwath LJ's views. Meanwhile, until Parliament takes action I suggest your Lordships' House, so far as it may properly do so, should seek to simplify the law, always having in mind that the aim of compensation is to provide a fair financial equivalent for the land taken.
5. This appeal concerns the basis on which compensation should be assessed for the compulsory acquisition of 225 acres of land belonging to the claimants. The land consists of low-lying farm land adjacent to the Severn estuary near Newport, Gwent.
6. The background to the acquisition was the construction of the barrage across the mouth of Cardiff Bay, undertaken pursuant to the Cardiff Bay Barrage Act 1993. The project was under active consideration for many years before then. It received governmental support in November 1985. In 1987 the Cardiff Bay area became an urban development area under the Local Government, Planning and Land Act 1980. The Cardiff Bay Development Corporation was established as an urban development corporation for the purpose of regenerating this development area. The corporation was empowered by the Cardiff Bay Barrage Act 1993 to carry out the barrage works.
7. The gestation period of the project was prolonged by problems. There were several abortive attempts to promote a parliamentary Bill. One item of controversy concerned the effect the barrage scheme would have on inter-tidal mudflats in the Taff/Ely estuary designated as a site of special scientific interest. The permanent inundation of Cardiff Bay would destroy these mudflats. The Nature Conservancy Council, succeeded later by the Countryside Council for Wales, vigorously opposed the project from the outset. So did the Royal Society for the Protection of Birds. The proposals would involve an unacceptable loss of nationally important bird habitats. The European Commission also exerted pressure. The new barrage would be incompatible with this country's obligations under E C Council Directives regarding the conservation of wild birds and their habitats.
8. Ultimately work on the barrage started in June 1994. The project proceeded on governmental assurances that compensatory provision would be made by creating suitable new wetland habitats. Several possible sites alongside the Severn estuary were considered and rejected. In January 1996 the Secretary of State for Wales announced the proposal for the Gwent Levels Wetland Reserve. This would be developed so that within five years it would qualify for Special Protection Area status. The site of this reserve, comprising 1000 acres, would be about ten miles up the coast from the Cardiff Bay barrage. It included the claimants' land.
9. In 1997 Land Authority for Wales used its statutory powers to acquire this site compulsorily, under the Land Authority for Wales (Gwent Levels Wetlands Reserve, Newport) Compulsory Purchase Order 1997. The Cardiff Bay Development Corporation provided the money needed for the acquisition. The claimants' land, along with other land, was vested in Land Authority for Wales on 25 February 1998, which is the valuation date. Land Authority for Wales thereupon transferred the land to the Cardiff Bay Development Corporation which, in turn, vested the site in the Countryside Council for Wales. Welsh Development Agency, the respondent to this appeal, is the successor to Land Authority for Wales under the provisions of the Government of Wales Act 1998. The history of the project is more fully set out in the judgment of the Court of Appeal:  4 All ER 384, 387-391, and in the decision of the Lands Tribunal  1 EGLR 185. The further detail is not material on this appeal. The dispute between the parties is primarily one of legal principle.
10. Detailed valuation evidence has not yet been submitted to the Lands Tribunal. The claimants put forward three different measures of valuation of the subject land. (1) Agricultural value, said by them to be £4,500 per acre at the relevant date. (2) Value as a nature reserve, said by the claimants to be £13,000 per acre. (3) A measure said by the claimants to comprise the 'particular value' of the land 'consequent upon its indispensable status vis-à-vis the Cardiff Development Scheme'. The President of the Lands Tribunal, Mr George Bartlett QC, described this measure of value as 'ransom value'. The claimants estimate that, valued on this basis, their land was worth £28,000 per acre.
11. There is no dispute over measures (1) and (2). In principle the claimants are entitled to the higher of these two measures of value, which ever that may prove to be. The Land Compensation Act 1961 allows a claimant the benefit of an actual or assumed permission for the authority's proposed development: sections 14(1), (2) and 15(1). The dispute is over measure (3). The issue is whether the claimants are entitled to compensation based on the increased value their land is said to have possessed because of its important ('indispensable') role as part of the compensatory wetlands provision required by the Cardiff Bay barrage project.
12. Faced with this dispute the Lands Tribunal, on the application of the claimants, considered two preliminary issues:
13. The President answered the first issue in favour of the claimants. Rule 3 does not apply in this case. The subject land has no special suitability or adaptability for the purpose of providing a nature reserve to compensate for the loss of the Taff/Ely SSSI. The President answered the second issue in favour of the acquiring authority. The subject land must be valued leaving out of account any effect on value of the adoption or implementation of the proposal to provide land for the development of a nature reserve to compensate for the loss of the Taff/Ely SSSI through the construction and impoundment of water by the Cardiff Bay barrage. The President added that the scheme underlying the acquisition was the Cardiff Bay barrage although, on his reasoning, this was not an issue which needed to be resolved.
14. The claimants appealed. The acquiring authority did not appeal against the President's decision on the first preliminary issue. The Court of Appeal, comprising Schiemann, Laws and Carnwath LJJ, dismissed the appeal.
'Value' in the Lands Clauses Consolidation Act 1845
15. The Lands Clauses Consolidation Act 1845 used the undefined expression 'value' as the yardstick for compensation. When assessing the amount of compensation regard should be had to the value of the land being taken: section 63. The Act did not enlarge on what was meant by 'value' in this context. On the face of the statute nothing could be simpler or fairer. In exchange for his land the owner should receive its financial equivalent. The financial equivalent, at least ordinarily, is the price obtainable by the owner if he had himself sold the land at the relevant time. In other words, the value of land is the price the owner could reasonably expect if he had sold the land in the open market.
16. Implicit in this 'open market value' approach is the notion that, in the customary jargon, the owner would be a willing seller and the purchaser a willing buyer. Compensation would be assessed by reference to the price a willing seller might reasonably expect to obtain from a willing buyer. The seller should not be regarded as disinclined to sell, nor should the buyer be regarded as under any urgent necessity to buy, to adapt the words of Lord Romer in Raja Vyricherla Narayana Gajapathiraju v Revenue Divisional Officer, Vizagapatam  AC 302, 312.
17. On an arm's length sale in the open market a seller would normally expect to realise any enhanced value possessed by the land because its location makes it specially valuable to a particular buyer or class of buyers. The land might have particular attraction, and therefore value, to an adjoining landowner. Or the land might be particularly adaptable for a certain purpose. Illustrations in the 19th century cases include use as a reservoir or use as part of the route for a railway line. Examples today would include development for housing or as a light industrial estate. A willing seller could reasonably expect to benefit from these characteristics of the land if he were to sell it to an adjoining landowner or a water undertaking or a railway company or a developer. The special suitability, or adaptability, of the land for this or that purpose is part of its market value. Thus a house, worth £750 as a house but £1,000 as an annex to an adjoining nursing home, has a market value of £1,000: Inland Revenue Commissioners v Clay  3 KB 466.
18. In principle, subject to one qualification, this approach is equally applicable when assessing value for the purposes of compensation. It is this qualification which has given rise to difficulty. The qualification is that enhancement in the value of the land attributable solely to the particular purpose for which it is being compulsorily acquired, and an acquiring authority's pressing need of the land for that purpose, are to be disregarded. If statute authorises an authority to acquire some ancient graveyards in the City of London and use the land for new buildings and a new street from Blackfriars to the Mansion House, the increased value the land will have when applied to these more profitable secular purposes should be left out of account. This is implicit in the yardstick of 'value' in the Lands Clauses Consolidation Act 1845. When granting a power to acquire land compulsorily for a particular purpose Parliament cannot have intended thereby to increase the value of the subject land. Parliament cannot have intended that the acquiring authority should pay as compensation a larger amount than the owner could reasonably have obtained for his land in the absence of the power. For the same reason there should also be disregarded the 'special want' of an acquiring authority for a particular site which arises from the authority having been authorised to acquire it.
19. This approach is encapsulated in the time-hallowed pithy, if imprecise, phrase that value in this context means value to the owner, not value to the purchaser. In Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37, 42, the graveyards case, Cockburn CJ said:
20. Another early application of this principle concerned the acquisition of land bounding Thirlmere in the Lake District for use as a reservoir to supply water to Manchester: Countess of Ossalinsky v Manchester Corporation (1883), reported in Browne and Allan's 'Law of Compensation' (2nd ed, 1903), p 659. The prospect that the land, because of its particular characteristics, would be likely to be developed as a reservoir was a matter which might give the land an enhanced value. That should be taken into account. The particular purpose to which the Manchester Corporation was going to put the land should not be taken into account. But the fact of the acquisition of the land for this particular purpose might have evidential value showing that suggested alternative reservoir development schemes 'are not visionary, but are schemes with a certain probability in them': see Grove J at page 662.
21. Drawing a distinction between value to the owner and value to the purchaser makes it necessary to distinguish the one from the other. It is necessary to separate from the market value of land any enhancement in value attributable solely to the presence of the acquiring authority in the market as a purchaser of the land in exercise of its statutory powers. It is important to recognise that, for this purpose, it is not the existence of a power of compulsory acquisition which increases the value of land. What is relevant, because this may affect the value of the land, is the use the acquiring authority proposes to make of the land it is acquiring. Accordingly, in identifying any enhanced value which must be disregarded it is always necessary to look beyond the mere existence of the power of compulsory purchase. It is necessary to identify the use proposed to be made of the land under the scheme for which the land is being taken. Hence the introduction of the concept of the 'scheme' or equivalent expressions such as project or undertaking.
22. Thus in In re Gough and Aspatria, Silloth and District Joint Water Board  1 KB 574, 576, another reservoir case, Wright J said that if the site had 'peculiar natural advantages' for the supply of water that could be taken into account, but 'there is no value for which compensation ought to be given on this head if the value is created or enhanced simply by the Act or by the scheme of the promoters' (emphasis added). This passage was cited with approval by Lord Alverstone CJ in the Court of Appeal:  1 KB 417, 422-423.
23. To the same effect are the well known observations of Fletcher Moulton LJ in In re Lucas and Chesterfield Gas and Water Board  1 KB 16, 29-30. He observed that the value to the owner, as distinct from the value to the purchaser, is 'to be estimated as it stood before the grant of the compulsory powers'. He continued:
24. Fletcher Moulton LJ, at p 31, carried this principle further. Where the special adaptability of land gives the land a special value which exists only for a particular purchaser with compulsory powers, that value cannot be taken into consideration when fixing the price. It is otherwise where the special value exists also for other possible purchasers so as to create a real though limited market for that special value.
25. In Cedars Rapids Manufacturing and Power Co v Lacoste  AC 569, a case concerning a power generation scheme on the St Lawrence River, the opinion of the Board was given by Lord Dunedin. He emphasised, at pp 576-577, that value does not mean the value of 'the realized undertaking as it exists in the hands of the undertaker'. It means the price possible undertakers would give. This should be tested by the imaginary market which would have ruled if the land had been exposed for sale 'before any undertakers had secured the powers, or acquired the other subjects which made the undertaking as a whole a realized possibility'.
The Acquisition of Land (Assessment of Compensation) Act 1919
26. The 'value to the owner' judicial interpretation of 'value' in the Lands Clauses Consolidation Act 1845 might have been expected to limit the amount of awards. But by 1918 it had become notorious that the compensation paid for the acquisition of property for public purposes was in many cases excessive. That was the view of the Scott Committee in its 2nd report on the Law and Practice relating to the Acquisition and Valuation of Land for Public Purposes (Cd 9229). The committee identified several causes, including the absence of any definition of value in the Lands Clauses Consolidation Act 1845. In its report the committee made recommendations aimed at reducing the amounts awarded. These included recommendations that the customary allowance added to the price of the land should be abolished, and that the standard of value to be paid to the owner should explicitly be stated as the market value of the land as between a willing seller and a willing buyer.
27. The Acquisition of Land (Assessment of Compensation) Act 1919 gave effect to these recommendations in rules 1 and 2 of section 2. Rule 2 provided that the value of land should be taken to be the amount which 'the land if sold in the open market by a willing seller might be expected to realise'. This reversed 'the old sympathetic hypothesis of the unwilling seller and the willing buyer which underlay judicial interpretation of the Act of 1845': see Scott LJ in Horn v Sunderland Corporation  2 KB 26, 40. Rules 1 and 2 in section 5 of the Land Compensation Act 1961 are to the same effect.
28. The Scott Committee also considered the principle that in assessing compensation the special adaptability of the land for a particular purpose could be taken into account, even where that was the very purpose for which the land was being acquired, provided its adaptability was such as to render it available for sale to persons other than the promoters. The committee was of the opinion that this should not be so in respect of potential competition between statutory undertakers. This recommendation led to rule 3 in section 5 of the 1919 Act. As enacted this rule appears to have been legislative affirmation of the approach adopted on this point by Fletcher Moulton LJ in In re Lucas and Chesterfield Gas and Water Board  1 KB 16, 31. Rule 3 also reversed, for compensation purposes, the effect of the decision in Inland Revenue Commissioners v Clay  3 KB 466. In its present form the successor rule, rule 3 in section 5 of the Land Compensation Act 1961, provides:
The Indian case
29. Fletcher Moulton LJ's enunciation of the 'value to the owner' principle is capable of working hardly where the only person likely to develop a valuable feature of the subject land is an authority with compulsory powers. In Vyricherla Narayana v Revenue Divisional Officer, Vizagapatam  AC 302 the Privy Council rejected this rigorous application of the principle. This case, normally known by the shorthand title of the 'Indian case', concerned land adjoining a harbour at Vizagapatam which at that time was malarial. The land contained a spring of clean water. The only potential purchaser of the special adaptability of the land as a water supply was the harbour authority. The High Court valued the land as partly waste and partly cultivated.
30. The Privy Council disagreed. Lord Romer delivered the advice of the Board. In a carefully reasoned judgment he said that the value to be ascertained is not the price a 'driven' buyer would pay to an unwilling seller. Nor should the price be enhanced by the fact that compulsory powers have been obtained for carrying into effect a particular scheme for the profitable use of the subject land's potentiality. The valuation must always be made as though no such powers had been obtained. But the possibility that the acquiring authority, as a willing buyer in a friendly negotiation, might be willing to pay more for land with its potentiality than without was not to be disregarded. That would not be to allow the existence of the scheme to enhance the value of the land. Lord Romer continued  AC 302, 323:
31. Their Lordships disapproved of the contrary observations of Fletcher Moulton LJ in the Lucas case  1 KB 16, 31.
32. Lord Romer's exposition of this aspect of the 'value to the owner' principle is persuasive. It yields a result which, in a broad sense, is fairer than the more rigorous approach of Fletcher Moulton LJ. The resultant compensation, which takes potentiality into account in all cases, approximates more closely to the price an owner could reasonably expect if the property were sold in the open market between a willing seller and a willing buyer. Compulsory purchase is intended to reflect a voluntary sale. Rule 2 so provides. So far as possible the assessment of compensation should reflect what would be likely to happen if the property were actually sold at the relevant date.
33. In one passage in his judgment, on which the claimants in the present appeal relied, Lord Romer said, at pages 319-320:
34. This passage is open to the interpretation that in valuing the subject land the particular use proposed to be made of the land by the acquiring authority can be taken into account. All that has to be disregarded is the 'scheme', meaning thereby the bare fact that compulsory powers have been obtained for that purpose.
35. It may be that, as applied to the facts of the Indian case, this narrow interpretation of 'scheme' was unremarkable: see Carnwath LJ's suggested explanation in the present case  4 All ER 384, 410, para 92. Certainly, if applied generally, this narrow interpretation would be at odds with the law as well settled before the Indian case and as applied ever since. If applied generally, this interpretation would empty the 'value to the owner' principle of much of its content as traditionally understood and applied.
36. I do not think Lord Romer can have so intended. That is not how his observations have been understood. In practice, this aspect of the Indian case seems to have been left largely on one side by the higher courts of this country. Potentiality is part of the market value of land and must be taken into account when assessing compensation. Potentiality should be valued even if the only likely purchaser is the acquiring authority itself. That was decided in the Indian case. But market value does not include enhanced value attributable solely to the particular use proposed to be made of the land under a scheme of which compulsory acquisition of the subject land is an integral part. This element of value is not part of market value because it is not an element the owner could have realised in the open market. That is the traditional view, which has long been acted upon in this country. It is much too late now for judicial interpretation to set the law on an altogether different course, even if that were otherwise appropriate. Potentiality is to be assessed and valued as matters stood before the particular scheme, of which the subject land's acquisition is part, came into being.