COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SCOTT BAKER
LORD JUSTICE THOMAS
| TERRENCE WELFORD
IOD SKIP HIRE LTD
|- and -
|EDF ENERGY NETWORKS (LPN) LTD
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Romie Tager QC and Philip Kremen (instructed by Hughmans) for the Respondents
Hearing date: 15 February 2007
Crown Copyright ©
Lord Justice Thomas :
i) The first claimant, the first respondent to the appeal, began a waste separation and transfer business in the 1980s in the East End of London; he sold that business and ceased to be engaged in the waste transfer business (the sorting and reclamation of waste and its ultimate sale or disposal). He subsequently developed with the second claimant, the second respondent to the appeal, a skip hire business which was later based at Millwall Wharf in the East End; this business comprised the hire of skips and the disposal of the waste deposited in the skips by the hirers to others who operated a waste transfer business; they did not conduct a waste transfer business. As Millwall Wharf was to be redeveloped, these two claimants looked for alternative premises in the East End of London from which they could operate a waste transfer business together with the skip hire business as the operation of a waste transfer business would maximise their profits.
ii) 0n 21 June 1994 the first and second claimants purchased at auction land (site A) at Canning Town London for £51,000, thereafter negotiating the price down to £41,000. There was a large electricity pylon on the site; its development potential was therefore limited. The sale was completed on 30 April 1995. The intention of the first and second claimants was to transfer their skip hire business to site A and to improve the profitability of their business by undertaking waste transfer themselves by building a waste transfer station on the site. The first and second claimants incorporated the third claimant, the third respondent to the appeal, on 1 December 1994 and transferred all the assets of the business (including a licence to use site A) to the third claimant company, which commenced trading on 1 May 1995; the first and second claimants retained the freehold of site A.
iii) Since 1949 underground electricity cables had run east to west across the middle of site A. This had originally been permitted under a licence granted by the then owner of the site; after the expiry of that licence the presence of the cables was continued by virtue of various statutory provisions. The first and second claimants were unaware of the cables when they purchased the site.
iv) After the purchase of site A, the third claimant spent £10,000 clearing it of fly tipping and £20,000 in improvements to the site, principally by covering it with concrete.
v) On 23 June 1995, the claimants applied for planning permission to build the waste transfer station essentially a large shed in which the waste would be sorted and reclaimed prior to sale or disposal; permission was granted on 7 September 1995, subject to certain conditions.
vi) In July 1995, the claimants became aware of the presence of the cables. On 12 September 1995 they gave notice to London Electricity plc, the predecessors of the appellants (EDF), to remove them. The presence of the cables made it impossible to build a waste transfer station on Site A. The Tribunal made a finding which is central to this appeal:"the first and second claimants had done more than simply purchase the land with the intention of using it as a waste transfer station. They had also devoted substantial time and money in clearing the site and laying concrete in order to fit it for use for this purpose. They had had plans drawn up and had applied for (and had received) planning permission for this use. They were using the land for skip storage, which was a component part of the proposed waste transfer use (albeit it could, and did at the time, constitute a use in itself). Even though the use of the site as a waste transfer station had not begun, the business was clearly in existence."
vii) Upon receipt of the notice, London Electricity became entitled to apply for a statutory wayleave for the underground cables under paragraph 6 of Schedule 4 to the Electricity Act 1989. Statutory wayleaves were granted on 17 August 1998 for a term of 15 years.
viii) On 15 October 1997, the claimants purchased an adjoining site (site B) and used this in conjunction with site A for lorry and skip storage; they obtained planning permission, after an initial refusal, in February 1999 and then developed it into a waste transfer station.
"(1) Where a wayleave is granted to a licence holder under paragraph 6 above
(a) the occupier of the land; and(b) where the occupier is not also the owner of the land, the ownermay recover from the licence holder compensation in respect of the grant.
(2) Where in the exercise of any right conferred by such a wayleave any damage is caused to land or to moveables, any person interested in the land or moveables may recover from the licence holder compensation in respect of that damage; and where in consequence of the exercise of such a right a person is disturbed in his enjoyment of any land or moveables he may recover from the licence holder compensation in respect of that disturbance. "
i) Injurious affection - diminution in the value of the land in consequence of the grant of the wayleave.
ii) A disturbance claim for loss of profits of over £2m on the basis that they would, but for the presence of the cables, have been able to start their waste disposal business in January 1996. They had been unable to start that business until January 2000.
"(a)Whether in the light of the evidence the claim for loss of profits properly falls within and is in accordance with the Electricity Act 1989 Schedule 4 paragraph 7
"(c)In relation to that part of the claim relating to the value of the land:
(i) whether this should be assessed in relation to both site A and site B or to site A alone;
(ii) whether the land should be valued on the profits basis, as contended by the claimants, and what is the diminution in the value of the land pursuant to the Electricity Act 1989 and the arbitration agreement."
The determination by the Tribunal
"As we have said, that provision creates an entitlement to compensation for disturbance that is effectively the same as that arising under the compulsory purchase legislation and the claim falls to be determined in accordance with the same rules."
i) Causation: The Tribunal found that the loss of profits claim had to be determined by what had happened as the result of the grant of the statutory wayleaves. It did not matter that the claimants might not have bought the land had they known of the cables. The Tribunal was satisfied that, if the cables had not been present on the site, the claimants would have developed the site in accordance with the 1995 planning permission by building a shed and then using the site as a waste transfer station. Leave to appeal was sought on this point, but refused by Jonathan Parker LJ. The application was not renewed.
ii) Remoteness: The Tribunal concluded that the fact that the claimants had not commenced the use of site A for the waste transfer business in September 1995 did not prevent the recovery of compensation for loss of profits or make the claim too remote, as the waste transfer business was in existence. Leave to appeal on this issue was granted by Jonathan Parker LJ.
iii) Reasonableness: The Tribunal rejected EDF's contention that the claimants had failed to mitigate their loss by relocating to an alternative site. Leave to appeal was refused by Jonathan Parker LJ on the basis that this was essentially a question for the Tribunal. The application was renewed, but for reasons which I express at paragraphs 34-36 below I would refuse this renewed application.
The general approach to the award of compensation under the statutory provisions
i) The claimants had been compensated for the loss of profits by the award in respect of the injurious affection claim for the diminution in the value of the land claim and they therefore were not entitled to any further recovery.
ii) The claimants had not commenced the waste transfer business at Site A (or anywhere else) by 12 September 1995 and the claim was therefore too remote to be recoverable.
I will deal with each in turn.
(i) The extent of the compensation for the loss in the award in respect of the diminution of the value of the land
In general, in our view, it would only be in exceptional circumstances that an award of compensation in respect of loss of profits for a business that was not being conducted at the relevant date could be justified. The market value of the land will usually reflect what someone contemplating the commencement of the business in question would pay for the land. He would pay that amount in contemplation that with further investment in terms of development and the employment of his time and others' labour he could realise a profit. The profit, however, would represent his reward for making the investments and assuming the risks associated with the business. If, therefore, the effect of the use of the compulsory powers is to prevent him from starting his business, it also had the effect of relieving him of the risks and the need to make the investments. In these circumstances to award him compensation for loss of the profit that would have represented his reward for such risk-taking would not be appropriate because it would not represent his actual loss. It was on the basis of reasoning similar to this that the Court of Appeal in Ryde International plc v London Regional Transport  RVR 60 rejected a claim for loss of profits, although that was a case in which the profits would have been made from the land itself; see also the decision of this Tribunal in Corton Caravans Ltd v Anglian Water Services Ltd  RVR 323 at paragraphs 112-120.
"the owner in a proper case that is in a case where he really does incur a loss of money by disturbance due to the taking over and beyond the loss for which he is to be reimbursed in respect of the land taken is entitled, because it has to do with the land, to have that element of personal loss taken into the reckoning of the fair price of the land, as has been held by the courts from a very early stage."
Scott LJ went on to say that the personal loss imposed by the compulsory acquisition could include the incidental loss in connection with the business he had been carrying on. However, although the owner is entitled to have that element of loss brought into account, he is not entitled to more than his total loss. The application of that principle gives rise to difficulties; Scott LJ gave at page 49 following illustration:
"A farmer sells his land with its farm buildings by private treaty, not intending to farm any more. The land is sold and bought as agricultural land, so that it will fetch in the market only agricultural value. The farmer may sell his stock, implements, etc., but he will get nothing for his loss by "disturbance" out of the purchaser. If the same farmer owner is compelled by law to sell, the statutory principle of equivalent compensation entitles him to recover his personal loss arising out of the compulsory sale in addition to the agricultural value of the land. But now suppose that his land has potential building value. As a result of the statutory compulsion he is forthwith put, by the notice to treat, in a position where he is entitled as at that moment to be paid the present building value of the land. If the land is "ripe for development" that value will represent a sum of money many times as much as the agricultural value. If he had sold voluntarily he would have had to set off his "disturbance" loss against the purchase price to ascertain the net price realized. How can it be said that, by the compulsory acquisition, he has been caused a loss which is not fully compensated by the present payment of full building value? In my opinion, there is nothing in either Act to give him anything further. I think that it is a false interpretation of the Acts to suppose that, in all circumstances and whatever the evidence, such a loss must, as a matter of law, be added to the actual price of the land to ascertain its legal price under the Act. Where, by reason of the notice to treat, an owner is enabled to effect an immediate realization of prospective building value and thereby obtains a money compensation which exceeds both the value of the land as measured by its existing user and the whole of the owner's loss by disturbance, to give him any part of the loss by disturbance on the top of the realizable building value is, in my opinion, contrary to the statutes.
(ii) The loss of profit claim; the commencement of the business
"It is the fact that the business had come into existence and that time and money had been spent on it that is in our view relevant, rather than the fact that the use for which the business was established had not started, and we agree with Mr Tager that Khan v Miah is a relevant authority. There Lord Millett said ( 1 WLR 2123 at 2127D):
"The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view to ultimate profit, and formed part of the business which the parties agreed to carry on in partnership together."
We do not consider, therefore, that the fact that the waste transfer use had not commenced on either valuation date is a bar to the recovery of compensation for loss of profits or that this head of claim should be treated as too remote."
The adverse consequences to a claimant whose land is taken may extend outwards and onwards a very long way, but fairness does not require that the acquiring authority shall be responsible ad infinitum. There is a need to distinguish between adverse consequences which trigger a claim for compensation and those which do not. A similar problem exists with claims for damages in other fields. The law describes losses which are irrecoverable for this reason as too remote. In Harvey v Crawley Development Corporation  1 Q.B. 485, 493, Denning L.J. gave the example of the acquisition of a house which is owner-occupied. The owner could recover the cost of buying another house as his home, but not the cost of buying a replacement house as an investment. The latter would be too remote.
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.
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. Otherwise he would not be properly compensated for his loss; he would not be placed in a financially equivalent position.
i) The claimants had not commenced the use of Site A or any other land for a waste transfer business. There had therefore been no disturbance to the use of site A for which fair compensation was payable. This was different to the position which would have existed if there had been an existing waste transfer business which the claimants had intended to transfer to site A but which because of the presence of the cables, the claimants had not been able to transfer to the site. In such a case it was accepted that the claimants would have been entitled to compensation for loss of profits until they had found an alternative site on which the business could be operated; there would in such a case have been a disturbance to the business which the claimants would in such a case have actually been conducting and which they had intended to transfer to site A.
ii) The Tribunal had been in error when it relied on the decision in Khan v. Miah. The application in that case of the rule that parties who agree upon a joint venture do not become partners until they embark on the activity in question was not relevant to the determination of the issue of whether the claimants had suffered a disturbance to an activity being carried out on the land or which would be carried out on the land.
"They did not agree merely to take over and run a restaurant. They agreed to find suitable premises, fit them out as a restaurant and run the restaurant once they had set it up. The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view of ultimate profit, and formed part of the business which the parties agreed to carry on in partnership together"
He then stated the principle:
"The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader"
The determination of the issue was a factual question and Lord Millett concluded that on the facts the judge had come to the right factual conclusion that the parties had embarked on the business of running a restaurant.
"That which the appellants were entitled to receive was compensation not for the business profits or savings which they expected to make from the use of the land, but for the value of the land to them. No doubt the suitability of the land for the purpose of their special business affected the value of the land to them, and the prospective savings and additional profits which it could be shewn would probably attend the use of the land in their business furnished material for estimating what was the real value of the land to them. But that is a very different thing from saying that they were entitled to have the capitalized value of these savings and additional profits added to the market value of the land in estimating their compensation. They were only entitled to have them taken into consideration so far as they might fairly be said to increase the value of the land. Probably the most practical form in which the matter can be put is that they were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it. Now it is evident that no man would pay for land in addition to its market value the capitalized value of the savings and additional profits which he would hope to make by the use of it. He would no doubt reckon out these savings and additional profits as indicating the elements of value of the land to him, and they would guide him in arriving at the price which he would be willing to pay for the land, but certainly if he were a business man that price would not be calculated by adding the capitalized savings and additional profits to the market value."
In Ryde International v London Regional Transport, Carnwath LJ observed that, although the case was of high authority, it was concerned with the Australian equivalent of the Land Clauses Consolidation Act of 1845 and was therefore an unsafe interpretation of the rules introduced into England and Wales in 1919. I agree with that view and do not consider that the decision assists. In any event that case was concerned with land on which nothing had been done for the purposes of commencing the business, in contradistinction to the position in the present case; therefore I do not think that the conclusion which I have reached is inconsistent with that decision, even on the assumption that it was safe to continue to rely on it in relation to compensation claims in this jurisdiction.
The issue of reasonableness
Lord Justice Chadwick
Lord Justice Scott Baker