England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL As at Cardiff Crown Court
		2/03/2009

PITCHFORD J :

1. This is a challenge by the claimants to a decision of the defendants to authorise the making of a compulsory purchase order for the acquisition of land at Heron Quays, Canary Wharf.

The Parties

2. The first claimant holds a long leasehold interest in 8 Heron Quays. The second claimant holds a long leasehold interest in 7 Heron Quays. Both are waterside properties alongside Canary Wharf within the London Borough of Tower Hamlets. The interested party (hereafter CWG) is a wholly owned subsidiary of the Canary Wharf Group plc and the corporate vehicle by which CWG intends to carry out substantial building development at Heron Quays. The defendant is the relevant planning authority.

The Proceedings

3. By a claim issued on 28 July 2008 the claimants sought judicial review of the defendant's decision of 7 May 2008. On 27 November 2008 the application for permission was called in for a "rolled up" oral hearing. I heard argument on 12 February 2009.

The Planning History

4. In January 1992 a planning application was submitted for the redevelopment of Heron Quays together with part of South Dock. It proposed a large single block extending into South Dock, providing office, retail and public space. A new road was proposed through the site. Permission was granted on 7 May 1992, renewed in February 1997 and implemented in 2002, by the construction of Heron Quays Road between Bank Street and Heron Quays roundabout.
5. In November 2007 a new application for permission was submitted. The development proposed incorporated the land at 7 and 8 Heron Quays. It embraced the construction of a multi-storey office block with retail units and underground parking, a subterranean pedestrian link to Jubilee Place, a four storey building containing a training centre, restaurant, café and drinking outlets, relocation of a canal, and the provision of open public space. Permission was granted on 13 March 2008 subject to a section 106 agreement between the defendant and the developer.

Compulsory Purchase Order

6. On 7 May 2008 the defendant's Cabinet resolved to authorise the making of a compulsory purchase order (CPO) under section 226 (1) Town and Country Planning Act 1990 (TCPA) to acquire the claimants' interests in 7 and 8 Heron Quays, subject to (1) an agreement by the developer indemnifying the defendant against all costs and liabilities associated with the making of the order and (2) an agreement between the defendant and the developer for a lease providing space for a training and enterprise centre. The CPO has not yet been issued.
7. Section 226 in its relevant parts provides as follows:

"(1) A local authority to whom this section applies shall, on being authorised to do so by the Secretary of State, have power to acquire compulsorily any land in their area –

(a) if the authority think that the acquisition will facilitate the carrying out of development, re-development or improvement on or in relation to the land;

(b) which is required for a purpose which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated.

(1A) But a local authority must not exercise the power under paragraph (a) of subsection (1) unless they think that the development, re-development or improvement is likely to contribute to the achievement of any one or more of the following objects –

(a) the promotion or improvement of the economic well-being of their area;

(b) the promotion or improvement of the social well-being of their area;

(c) the promotion or improvement of the environment well-being of their area."

Grounds of Claim

8. The claimants rely upon the following grounds which I have paraphrased following argument:

(1) The defendant based its decision upon a material error of fact, namely that the claimants were "refusing to negotiate the surrender of their leases for market value";

(2) The defendant neglected to take account of a material consideration, namely that there was no certainty whether and when the scheme would be implemented;

(3) The defendant neglected to take account of a material consideration, namely that the principal benefit the defendant sought to secure under section 226(1) (the provision of a training centre within the development) would not or might not attach to the land.

9. All three grounds, to a greater or lesser extent, depend for their potency upon the contents of the officer's report to Cabinet. The claimants' case is that there were material inaccuracies and omissions. The third ground also depends upon the proper interpretation of the power given by section 226(1) and the effect of that interpretation upon the exercise of judgment.

Grounds of Resistance

10. The defendant and interested party contend that it is not demonstrated the defendant made any material error in fact or law. Furthermore, permission and/or relief should be refused on the ground that there is an alternative, convenient and more appropriate remedy available to the claimants. Section 226 requires authorisation of a CPO by the Secretary of State before it can take effect. In the event of challenge the Secretary of State will appoint an inspector to hold a public inquiry into the suitability of a CPO in the circumstances of the case. The inspector will be able to examine and hear evidence about the very complaints now made by the claimants.
11. The claimants respond to the alternative remedy argument with the assertion that a public inquiry is an expensive and time-consuming process. The claimants have a strong case that the defendant erred in law. Judgment upon those errors should not be postponed.

Ground 1: Refusing to Negotiate

12. The nominal author of the report to Cabinet was Simon Ryan. The report was presented by the defendant's Assistant Chief Executive and Chief Legal Officer, Isabella Freeman, together with the Corporate Director of Development and Renewal. Ms Freeman, in her witness statement of 30 January 2009, informs me that she and certain of her colleagues drafted the report.
13. In section 3 of the report the officers set out the background which in large measure created the justification for the application for the CPO. Relevant extracts are:

"3.1 The Canary Wharf business district has been growing very quickly over the past few years. Already there are well over 100,000 jobs located on the estate; this is expected to increase by at least 50% in the next ten years…It is now an important retail centre, and increasingly new occupiers on the estate are not just banks and financial services but major legal firms.., media companies, multi-national business corporation such as KPMG and public agencies such as the Olympic Delivery Authority.

3.2 Overall, the Canary Wharf business district has become essential in creating prosperity in East London and the Thames Gateway. Increasing numbers of Tower Hamlet's residents are working in the Business District; employment of local people has improved…

3.3 The Canary Wharf business district and its scope for expansion is similarly critical to the future economic position of London as a whole…

3.4 There are nonetheless some barriers to Canary Wharf's continuing success. The first is accessibility…

3.5 Another barrier…is the supply of well qualified, local labour. A business district on the scale of Canary Wharf needs an ongoing supply of labour to meet all its needs, from top traders, lawyers, highly specialised technical support staff, through the skilled administrators and retail assistants to security staff, cleaners and caterers….Finding ways of addressing the skills shortage is of critical interest to the Council, but also of importance to Canary Wharf if the business district is to fulfil its potential.

3.6 The final barrier is the supply of developable land. Canary Wharf Group has a number of extant planning permissions, but needs to upgrade them to meet the requirements of modern occupiers. The number of sites that it has entirely within its own ownership, however, is now limited. The business district needs room to grow. Canary Wharf Group must work in partnership with the borough and with other landowners to achieve that growth. It is in a joint venture with British Waterways Board to bring forward Wood Wharf. It is working with the Council to produce the masterplan for Aspen Way that might – subject to its acceptability to the Council and other landowners – provide an opportunity for further joint ventures to the north.

3.7 Heron Quays West is a site of 0.65 ha located on the middle dock, just to the west of Heron Quays DLR station. It is currently occupied by low rise commercial buildings known as the Red Sheds. One of these is currently occupied by the Canary Wharf Recruitment and Training Centre, which…is on a short term peppercorn rent from Canary Wharf Group. Canary Wharf Group has a longstanding LDDC consent for a large floor place office building on the site, but has just secured a resolution to grant detailed planning consent…for a greatly enhanced development to a much better…design and specification, plus a replacement, purpose built training and enterprise centre incorporating a training restaurant (the "Scheme").

3.8 However, the site is not currently in the full ownership and control of Canary Wharf Group. Part of the site is occupied under two long commercial leases by third parties who are refusing to negotiate the surrender of their leases for market value to Canary Wharf. This is frustrating the delivery of the Scheme, including the new training and enterprise centre…

3.9 If negotiations for the acquisition of third party interests cannot be concluded within a reasonable timescale, then the only way that the Scheme can proceed is if compulsory purchase (CPO) is used to assemble the site. Private companies such as Canary Wharf Group do not have compulsory purchase powers, and therefore they have sought the assistance of the Council, who do have such powers.

3.10 While Canary Wharf Group is seeking the Council's assistance, the full costs of any CPO and compulsory purchase compensation, including all staff costs and the costs of technical expertise, would have to be met by Canary Wharf Group, and this would have to be secured through a binding contract." [emphasis added]

At paragraph 6 the officers' report gave examples of circumstances in which a CPO may be used and informed Cabinet that they proposed a CPO in the present case "to unlock situations where a scheme is being blocked by an owner (or owners) unwilling to dispose of property either at all or only at a price considerably in excess of market value, a ransom situation".

14. The claimants contend that the factual assertions made in the highlighted part of paragraph 3.8 were at worst untrue and at best misleading. The effect of the inaccuracies was to undermine the basis for the CPO.
15. I have evidence from Ms Freeman of the source of the assertions made. She said in her statement at paragraph 8 that before the report was written she asked CWG to produce evidence of their attempts to negotiate the private sale of the site. She was provided with a bundle of documents comprising letters and notes of meetings.

Negotiation for Sale of Site

16. CWG through their agents, John Peiser Wainwright (JPW), had opened negotiations with Mr Hunt, the second claimant, in 2000. At that stage Mr Hunt and those he represented were not interested in selling. In 2001 CWG acquired the freehold to the site. In 2003 they re-opened negotiations with Mr Hunt (for number 7) and opened negotiations with the then owners of number 8. In 2004 Leeside International Inc (Mr Michael Gross) acquired the long leasehold in number 8. Ms Freeman's first document was a file note of a telephone conversation between Mr Tony McCurley of CWG's agents, CB Richard Ellis, and Mr Gross of 7 August 2006. The note was made by Mr McCurley and included the following:

"TM explained that CBRE were advising Canary Wharf on the opportunities for Heron Quays generally and that they were now interested to see whether he wished to sell his interest prior to making a decision on the way forward…

MG confirmed he had seen a model of Canary Wharf's proposals and he could see that "his land formed the road". He was thus not interested in selling for the "basic value of the property" but was a willing seller at the right price which showed a gain to reflect its importance to the overall development…

TM said that CW were reviewing their plans and that whatever he had seen was historic and that CW were looking at an option which excluded Number 8 for example…

MG…stated again that he saw this as his ransom site, that he had bought it for this reason only as he had done at Euston Station where he owned an interest which was the key to the development…"

17. A meeting took place between Mr Gross and Mr McCurley on 3 October 2006. The notes were made on behalf of CB Richard Ellis. Mr McCurley agreed that CWG wanted to acquire both number 7 and number 8, or neither. He said that the land was not essential to the project. Mr Gross disagreed; he believed "the main value is in the big water frontage that would be opened up if 7 and 8 were demolished". When asked how much CWG was prepared to pay, Mr McCurley suggested 50% over current value. Mr Gross wanted to know what profit CWG would make on 1 million square feet of office space. After a telephone call to a colleague Mr Gross suggested the current value of number 8 was £2.5m. When Mr McCurley offered 50% above that price, Mr Gross said he would "do better at CPO". He was looking for a lot more than £3.75m. At CPO he would be able to secure a price which reflected "the uplift in value of the land with the development in place".
18. On 19 October 2006, Mr Richard Anning, a representative of the first claimant met Mr McCurley to view a scale model of CWG's intended development. In a letter written the following day Mr McCurley was asked for further information. In it, Mr Anning wrote:

"You cajoled me into putting forward a counter offer which I resisted. It was resisted as we are still undertaking our investigations. The presentation you made has significantly assisted us and I am with Michael in the United States next week and I would like to reach a consensus before returning to you.

To meet your desire for an urgent response, I asked you for the following information/clarification:

1. You stated your client had had preliminary discussions with Tower Hamlets about the promotion of a compulsory purchase order for either or both units 7 and 8…" [emphasis added]

19. In answer to the highlighted section of Mr Anning's letter, Mr McCurley replied:

"…We should clarify that compulsory purchase is only an option open to Canary Wharf. This is important as it may not be the preferred route. Canary Wharf would clearly prefer not to pursue a compulsory purchase route for obvious timing reasons if we can negotiate with the owners. The current scheme has been designed so that numbers 7 and/or 8 are not required at all and that may be the ultimate outcome. Should, however, it be decided that the buildings are required and a CPO is pursued, you should understand that the price payable will be assessed under statute and that this is likely to be less than our client's offer…"

20. A further meeting was held at Canary Wharf on 10 November 2006, attended by Mr Gross on behalf of the first claimant and Mr Hunt on his own behalf. A note of the meeting was signed by Mr Richard Archer on 15 November on behalf of CWG. The note was later copied to Ms Freeman. Mr George Iacobescu, Chief Executive of CWG, described CWG's strategy. The existing planning consent permitted 1.3m sq ft of floor space to be constructed at the south side of the site: "…[D]ue to the uncertainty surrounding the ownerships of units 7 and 8, CWG had decided to investigate alternative proposals that included developing around these properties, as shown on the models in the marketing suite…" There would be two new buildings one of 450,000 sq ft and the other of 500,000 sq ft at the north end of the site. The existing road would be re-routed to the south side of the site adjacent to units 7 and 8. Car parking would be provided for units 7 and 8 together with visitor parking and loading/unloading facilities for the new buildings. Mr Iacobescu suggested that once CWG submitted its planning application it would not then be in a position to change the road route. This was a one-off opportunity for Messrs Gross and Hunt to sell their buildings. Mr Hunt and Mr Gross expressed their view that the value of their buildings would, in consequence of the development, increase and they would be "delighted" to keep their investments. Mr Gross believed that they had a combined "ransom value" of £50m. Following the meeting Mr Gross agreed to act on behalf of both claimants in the negotiations.
21. On 14 November 2006 Mr Iacobescu wrote to Mr Gross in the following terms:

"…since you asked me to correspond directly with you I would kindly ask you to confirm that my understanding of your position is correct in that you do not wish to consider a premium over the market values of your units and that you are viewing the units as a ransom strip for which you would seek £50m. I want this clarified so I can present it to the Board in order to see if the Board will authorise a counter proposal."

22. Mr Gross replied by letter of 15 November 2006:

"…I am writing to you at your request to confirm our position as regards [7 and 8 Heron Quays].

This is as follows:

1. You approached myself and Mr Hunt with a request to purchase the properties.

2. You explained to us your development proposals for Heron Quays.

3. You repeated on a number of occasions that you were fully able to proceed with the development and the proposals as outlined to us without recourse to our properties, but preferred to buy them because it was easier and more cost effective to achieve your development objectives by including those properties in the scheme.

4. You made it clear that if we did not agree a price you would merely develop the properties on the north side of the quay and divert the road towards the south side.

5. You indicated that you were prepared to offer a price based on a 50% premium to an unspecified valuation of those properties.

6. We believe but I am not sure that the figure represented by this formula was in the region of £4m-£5m per property.

7. You stated that you intended to apply for planning permission following your Board Meeting in December and we had a short window of opportunity to accept your proposal and if we didn't you would proceed regardless.

8. We rejected that proposal as of being of no interest to us.

9. We indicated that the level at which we would be prepared to treat was £25m per property, ie a total of £50m.

10. You said at that level you were happy to proceed without including our properties in the scheme and that we should remain "good neighbours", a sentiment which I endorsed.

11. You indicated that you would come back with your best offer but rather curiously added that I could then make my counter offer.

This represents my understanding of the position. I trust this will enable you to go back your Board."

23. On 27 November Mr Gross sent a follow up letter informing Mr Iacobescu that, if CWG proceeded without numbers 7 and 8, it was his view the proposed development would affect adversely the loading bay and parking serving the buildings.
24. On 12 December 2006 CWG made a formal offer of £5m for each property. The offer was refused. Mr Iacobescu wrote on 19 December 2006 expressing his view that CWG's offers were for twice open market value. His door would remain open should Mr Gross and Mr Hunt change their minds.

Review of Decision

25. On 15 May 2008 Messrs Howard Kennedy, solicitors for the claimants wrote to Ms Freeman:

"My clients discovered by chance on Wednesday this week that a decision had been made by the London Borough of Tower Hamlets to authorise the making of a compulsory purchase order…

In the event that your Council proceeds on the basis of the Cabinet decision last week I am instructed by my clients to issue proceedings seeking Judicial Review.

I would draw your attention to paragraph 3.8 of the Officers' Report…[paragraph 13 above]

There have been no negotiations between the Canary Wharf Group and my clients in relation to the present scheme PA/07/3088 as was considered by the Strategic Developments Committee of your Council on 13 March this year. The last time our clients were approached by Canary Wharf Group both numbers 7 and 8 were outside the proposed scheme…

Had your Members been advised of the true position as regards negotiations between Canary Wharf Group and my clients it is clear that there would be no basis for them to authorise Compulsory Purchase. I would draw your attention to paragraph 24 of Circular 6/04 which states that Compulsory Purchase should be a "last resort" and paragraph 17 where it states that CPO should only be made where there is a "compelling case"…"

26. Howard Kennedy were referring to ODPM Circular 06/2004 issued on 31 October 2004. Part 1 "provides updated and revised guidance to acquiring authorities in England on the use of compulsory purchase powers". It was submitted on behalf of the defendant that its primary aim was (paragraph 2) to identify "those policy issues, procedures and administrative requirements to which authorities will need to have regard to assist the speedy handling of their orders by the relevant confirming Department". Paragraph 5 re-iterated that Part 1 had no statutory effect and was guidance only.
27. Paragraph 17 advises that a CPO should only be made where there is a "compelling case in the public interest". The authority should be sure that the purposes for which the CPO is made justify interference with the human rights of those with an interest in the land, in particular Art 1 of the First Protocol ECHR (peaceful enjoyment of possessions). By paragraph 18 "each case has to be considered on its own merits and the advice in this Part is not intended to imply that the confirming Minister will require any particular degree of justification. Nor will a confirming Minister make any general presumption that…an acquiring authority must be able to demonstrate that the land is required immediately in order to secure the purpose for which it is to be acquired". The terms of paragraph 24 are:

"Before embarking on compulsory purchase and throughout the preparation and procedural stages, acquiring authorities should seek to acquire land by negotiation wherever practicable. The compulsory purchase of land is intended as a last resort in the event that attempts to acquire by agreement fail. Acquiring authorities should nevertheless consider at what point the land they are seeking to acquire will be needed and, as a contingency measure, should plan a compulsory purchase timetable at the same time as conducting negotiations. Given the amount of time which needs to be allowed to complete the compulsory purchase process, it may often be sensible for the acquiring authority to initiate the formal procedures in parallel with such negotiations. This will also help to make the seriousness of the authority's intentions clear from the outset, which in turn might encourage those whose land is affected to enter more readily into meaningful negotiations."

28. On 21 May Ms Freeman replied to Howard Kennedy asserting that the officers' description of the state of negotiation was, in effect, accurate. On 10 June the defendant's Overview and Scrutiny Committee, using its powers under section 21(3) Local Government Act 2000, reviewed the decision. It was made aware of the issues raised by Howard Kennedy's letter and its attention was drawn to relevant parts of Circular 06/04. The Committee decided to confirm Cabinet's decision.

The Competing Arguments

29. Ms Lieven QC submitted that paragraph 3.8 was expressed in the present tense which must have given the impression to the reader that there had been recent attempts at negotiation when there had not. Negotiations had ceased in December 2006. The Council had never made an approach to the claimants. There had been no negotiation conducted against the background of the current scheme of development, permission for which was given only in March 2008. All previous negotiations had been conducted by CWG on the factual basis that the site was not or need not be integral to the development. The current planning consent made it clear that the site had a significantly enhanced value. Mr Gross had submitted a witness statement in which he chose not to descend to detail in describing previous negotiations because all sides accepted that no negotiations had taken place following permission for the present scheme. Ms Lieven submitted that Cabinet reached its decision under a mistake of incontrovertible fact. Nevertheless, she acknowledged that the dispute was all about money. The claimants were willing sellers at the right price. In their view the value of each unit was £25m, by comparison with offers of £5m. Ms Lieven submitted that the claimants were entitled to commercial negotiation of a Stokes v Cambridge selling price with CWG before the defendant resorted to a CPO. They had been deprived unjustly of that entitlement.
30. Ms Lieven was referring to Stokes v Cambridge Corporation (1962) 13 P & CR 77, a decision of the Lands Tribunal. The issue was the correct valuation of a parcel of land the subject of a CPO by the Corporation. The Tribunal awarded compensation on the basis of its emerging development value.
31. Mr Straker QC and Mr Elvin QC contend that the price the claimants could recover as compensation from the Lands Tribunal would be its value in the "no-scheme world", which would comprise its open market value together with the costs of dispossession. No account should be taken of the effect of the proposed development on the subject land (see Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565; Waters v Welsh Development Agency [2004] 1 WLR 1304; Director of Buildings & Lands v Shun Fung Ironworks Ltd [1995] 2 AC 11, per Lord Nicholls at page 125). On the other hand the market value of the land included its development value, if any. If, for example, agricultural land was included in a Development Plan for future development for residential or industrial use the probability is that its value in the market would increase significantly.
32. The dispute between the parties concerns solely the assessment of market value of the claimants' land. Given the judgment of Tower Hamlets that there was a significant public interest in the proposed development, any negotiations would have to take place against the knowledge that, ultimately, market value would be calculated according to compensatory principles. The gulf in value between the claimants and CWG was so wide that commercial negotiation was not going to resolve the impasse. That was so whether the scheme under consideration was the 1992 or 2008 scheme. The fact that the parties had reached their impasse many months before May 2008 was, in the present circumstances, immaterial. The Cabinet was not misled as to the effect of the history of negotiation.
33. However, the main argument deployed by the defendant and third party is that these proceedings are not appropriate to resolve the point at issue. In this field, the policy is that an appeal process should not be circumvented by applications to the High Court. Section 25 Acquisition of Land Act 1981 provides that subject to the Act's preceding provisions a CPO may not be questioned in any legal proceedings. Section 23 permits an application to the High Court to challenge the validity of a CPO after the CPO has been made. That provision does not operate as an ouster of the High Court's jurisdiction before confirmation (compare R v Cornwall County Council, ex parte Huntington and another; R v Devon County Council ex parte Isaac and another [1994] 1 All ER 694) but it would only be in exceptional circumstances that the Court would intervene in judicial review proceedings when an alternative and appropriate remedy remains available (see R v Huntingdon District Council ex parte Cowan [1984] 1 All ER 59; R v Camden LBC ex parte Comyn Ching & Co (London) Ltd [1984] 47 P & CR 417). In R v Central Manchester Development Corporation [1992] 64 P & CR 392, Hutchison J found established a claim of procedural unfairness when the Corporation resolved to make a CPO without informing the applicants of an intention to consider the matter, but refused to intervene on the ground that the applicants were able to make objections to the resolution under the statutory scheme established by section 10-14 Acquisition of Land Act 1981. By section 13(2) if an objection duly made was not withdrawn the "confirming authority" would hold a public local inquiry or appoint an inspector to consider the objection. The advantage of the statutory procedure was that evidence could be received and tested and all matters relevant to the resolution could be raised. The claimant complained of consequent delay and the blighting effect on the land. Hutchison J concluded:

"…I cannot accept that there is any real ground in the present case for assuming that the opportunity which they will have as objectors to the compulsory purchase order puts the applicants at any disadvantage, or means that the real issues will not be considered. On the contrary, I am satisfied that they can and will be, and that the present is plainly a case in which the existing statutory mechanism is an appropriate alternative to which recourse should be had...I find no real evidence that the applicants' position, so far as raising finance is concerned has been prejudiced, or the blighting argument established."

34. Since one of the main functions of the guidance given in Circular 06/04 is to inform authorities of those matters which will concern the Minister in the confirming process, it is the case for the defendant and CWG that the question whether it was appropriate in the planning context to proceed to a CPO resolution in the circumstances is a matter for consideration by the Secretary of State's inspector rather than the court.
35. Ms Lieven sought to persuade me that notwithstanding the existence of the statutory "objections" procedure, the process was costly and prolonged. The claimants should not be deprived of their opportunity to knock out the resolution on the ground of an error of law before the CPO was made because they should never have been put in the position of defending their property interest in the first place. In consequence of the resolution they are being required to negotiate during a cycle in the property market which is disadvantageous to them.

Ground 2: Lack of Certainty in Timing of Development

36. At paragraph 8.41 of the officer's report to the Strategic Development Committee which considered CWG's application for planning consent it was said:

"The section 106 includes £3,178,000 towards social and physical infrastructure. As with the Riverside South development there are a wide range of mitigation projects the Council considers as necessary arising from the Heron Quays West development. However, given the uncertainties over the timing of the development and in particular the fact that the development may not be completed for a number of years, it is not possible to define these projects in detail at this stage. To this end the Council is seeking 'an additional contribution for social and physical infrastructure' of £3.178m which equates to the equivalent per sq. m. 'additional contribution' that has been agreed for Riverside South. In line with similar developments elsewhere within the Canary Wharf estate the projects/improvements would be defined under specific headings within the section 106 agreement, these being:

Sustainable transport initiatives…

Heritage and culture…

Environmental improvements within and around the site; and

Provision of affordable flexible business space; to assist small/start-up businesses within the Borough."

37. Within the site for development is a training centre which the defendant holds on a short lease. On 11 June 2008 the defendant, the interested party and CWG entered into an agreement by which, in consideration of the defendant passing a CPO resolution, the interested party would, among other things, complete the building work within 7 ½ years of being given vacant possession of the site (the "back stop date"). The interested party would provide on a 35 year lease at a peppercorn rent within the development a custom built training and enterprise centre. By clause 3.3:

"…in the event that the Date of Practical Completion…is not likely to occur prior to the Back Stop Date the Landlord shall provide the Tenant with the Alternative Premises…prior to the back Stop Date…"

The "Alternative Premises" are defined in clause 8 of the agreement. They were to be provided within the Business District within reasonable walking distance of the transport facilities serving that district.

The Competing Arguments

38. The claimant's case is that these documents demonstrate the defendant's officers were aware (when the CPO officers' report was prepared) that the "the timing of the scheme was highly uncertain". Paragraph 21 of Circular 06/04 provides the following guidance to authorities:

"The timing of the availability of funding is also likely to be a relevant factor. It would only be in exceptional (and fully justified) circumstances that it might be reasonable to acquire land where there was little prospect of implementing the scheme for a number of years. Even more importantly, the confirming Minister would expect to be reassured that it was anticipated that adequate funding would be available to enable the authority to complete the compulsory acquisition within the statutory period following confirmation of the order. He may also look for evidence that sufficient resources could be made available immediately to cope with any acquisition resulting from a blight notice."

39. The Cabinet was not informed by the officers that there was any uncertainty about the ability of the developer to implement the scheme within a period of 7 ½ years. The consequence was that Cabinet failed to consider whether it was appropriate on the grounds of uncertainty to grant a CPO. Cabinet thus failed to take account of a material consideration.
40. The defendant and the interested party make the following points. First, the officers were not saying to the planning committee that the timing of implementation of the scheme was highly uncertain. They were saying that the completion of the development may take a number of years. That is by no means unusual with a scheme of development of this magnitude. As the evidence demonstrates the scheme is advanced until prospective lessees can be consulted about their individual requirements. Secondly, the guidance provided by Circular 06/04 was concerned with delay which may be caused by unavailability of funding. Providing that funding was planned timeously the Minister was not expressing concern about the length of time the development took to complete. Thirdly, the Cabinet knew the identity and track record of the developer which was going to provide their Council with a cost indemnity. There were no grounds for concern about the availability of funding.
41. As to the knowledge of members about the reliability of the developer, Ms Freeman said in her witness statement:

"The Cabinet Committee was not provided with information of CWG's financial position, but would have been well aware of the scale of CWG's operations and its record in delivering development at Canary Wharf. The scale of the Canary Wharf estate is obvious to Councillors, because it is on the doorstep of the Council's offices and it is well known that CWG is the driving force behind the Canary Wharf estate…I note from the witness statement of Mr Iacobescu, CEO of CWG that in June 2007 CWG held audited net assets of more than £3 billion."

42. In his second witness statement of 29 January 2009 Mr Iacobescu confirms that the prevailing market conditions will not deter CWG from proceeding with the development:

"6. …This is in line with CWG's continuing policy to anticipate demand rather than respond to short term changes in the development cycle. CWG have historically advanced the preliminary stages of developments on the Estate irrespective of the short term market conditions, such as the development of the Estate which occurred in the early 1990s when we developed three buildings (FC2, FC3 and FC6) comprising over 1.3 million square feet in advance of identifying any significant occupiers. As a result of the development, Canary Wharf was in a position to respond to future demand and these buildings were substantially or fully let in or around 1995.

7. …even in the current market conditions Canary Wharf is still experiencing demand for large office space, evidenced not only by JP Morgan's acquisition of 1.9 million square feet of office space at the Riverside South development, but also by the recent subletting of over 350,000 square feet of office space formerly occupied by Lehman Brothers."

43. Finally, it is submitted that if there is substance in the complaint that there is uncertainty about the implementation of the scheme, this too is a matter which the inspector would well qualified to consider at a local public inquiry.

Ground 3: Accrual of Public Benefit

44. As noted at paragraph 7 above, an authority may acquire land compulsorily (i) in order to facilitate development "of the land" or "in relation to the land", or (ii) which is required in the interests of planning purposes in the area in which the land is situated.
45. At paragraph 4 of the officers' report Cabinet was informed what were the benefits of the scheme.

"4.1 In addition to the general improvements the Scheme will secure to the economic, social and environmental well-being of the borough (see sections 5-7 below and Appendix C), the Council will realise substantial direct benefits through the agreement to use its CPO powers to facilitate the delivery of the Scheme.

4.2 The provision of a permanent training and enterprise centre in Canary Wharf will be a huge benefit to the economy of the borough…Canary Wharf will benefit from the redevelopment of the site and the employment skills training to fill jobs.

4.3 The key benefit that the Council is directly seeking is the provision of a training and enterprise centre, to include a specialist training restaurant, constructed and fitted out to the Council's own specification set out in Appendix B1 and B2, at a peppercorn rental for 35 years (with a right to renew for a further term) plus a substantial contribution via a ring fenced endowment of £5 million towards the overall costs of running that centre…

4.4 …

4.5 The benefits accruing to the Council as a result of resolving to use compulsory purchase powers to facilitate the Scheme are over and above those that would occur if the Scheme were to proceed without the exercise of such powers. The redevelopment of Heron Quays West will necessarily involve the demolition of the Red Sheds and therefore the current recruitment and training facility temporarily located in the Red Sheds will be lost. There is no existing obligation on Canary Wharf Group to re-house the training facility as the buildings are occupied on a short term lease. The Council could seek some financial contribution towards a replacement through the planning obligations on the redevelopment of the site – contributions to skills and training initiatives is a standard benefit. However, under s.106 obligations all contributions must be relevant in scale and kind and the size of a contribution to skills and training would have to be assessed alongside the other contributions required (in the case of a commercial building) for transport, public realm, public art, health etc. The scale of the contribution would relate only to that building, not to the wider Business District and would be significantly less than what is offered under the agreement for lease referred to in paragraph 4.6 below. Moreover, s.106 contributions are "triggered" at specific points in the development process. If development does not proceed (perhaps due to the frustration being caused to land assembly) then s.106 contributions are not paid.

4.6 An agreement for lease between the Council and Canary Wharf Group has been negotiated and is the agreed form. The agreement for lease secures the provision of a state of the art new training and enterprise centre of 15,000 square feet within 7.5 years, including a new training restaurant and a £5 million ring fenced endowment, giving an annual contribution (at present day rates) of approximately £250,000 per annum as a direct contribution to the costs of running the centre. The enhanced offer is in addition to the s.106 contributions that will be negotiated as part of the planning process.

4.7 Canary Wharf Group's obligations under the agreement for lease are subject to three conditions precedent, the first of which is the Council resolving to authorise the making of a compulsory purchase order under section 226(1)(a) of the 1990 Act. The resolutions sought by this report will satisfy this condition. The remaining two conditions precedent are the grant of planning permission free from legal challenge and the acquisition by Canary Wharf Group of all necessary land (whether or not by compulsory means) with vacant possession."

The Competing Arguments

46. The claimants argue that by reason of the terms of the agreement for a lease (paragraph 37 above) it was within the officers' contemplation that the "key benefit" of the development to the Council would not inure to the benefit of the acquired land if the building was not completed by the "Back Stop Date". If that was so it could not be said that the planning benefit contemplated by the scheme related to the acquired land. It would amount to the equivalent of a cash payment for the use of compulsory powers. Thus, the use of the CPO was outside the authority given by section 226.
47. In the alternative, in assessing the merits of the proposal Cabinet was unaware of the possibility that the "key benefit" claimed by the officers' report might not attach to the development which the CPO was intended to achieve. Accordingly, the decision was reached in ignorance of a material consideration.
48. The defendant and interested party submit that the claimants have misread paragraph 4.1. The draftsman was not saying that the training centre was the "key benefit" of the development, but the key benefit to the Council of the agreement to use its compulsory powers to bring the development about. Read in context paragraph 4 explains what additional benefit was available to the Council over that which would accrue through a section 106 agreement in the planning process. The land was undoubtedly required for the development or improvement of "the land" under section 226(1)(a). Section 226(1A)(a)-(c) required the defendant to exercise its authority in pursuit of the section 226(1)(a) purpose only if it thought that the development was "likely to contribute to" the economic, social or environment well-being of its area. Paragraph 4.1 drew members' attention in connection with the "well-being" test to Appendix C to the report. Appendix C in its headline described the relevant factors as:

"(i) the enhancement of the existing Canary Wharf Estate;

(ii) the economic regeneration of the area through substantial job creation;

(iii) the provision of commercial, retail and community uses;

(iv) the provision of additional public realm space and increased pedestrian permeability;

(v) the enhancement of the dock environment."

Appendix C proceeded to describe the detail of the factors identified.

49. The primary obligation of the interested party was, in any event, to use reasonable endeavours to construct the training centre on the development land with 7 ½ years. There was no reason for the officers to draw attention to a contingency which was improbable on the information then available. The purpose of the contingency clause was to ensure that if the improbable occurred CWG remained contractually obliged to replace the training centre, of which possession had been given by the defendant, with a building in the immediate vicinity of the development.
50. Further, the defendant and interested party contend that ground 3 goes to the issue whether the power was appropriately exercised in the factual circumstances, properly interpreted, of the case. This is a matter for inspector's expertise.

Conclusions

Ground 1

51. There were between 2000 and 2006, and particularly during 2006, negotiations between CWG and the claimants or their predecessors for the commercial sale of numbers 7 and 8 Heron Quays. Unsurprisingly, CWG attempted to persuade the claimants to sell on a factual appreciation advantageous to CWG, while the claimants refused to sell on any other basis than the substantial development potential to CWG of a waterfront property alongside Canary Wharf. The claimants made it perfectly clear that they were not taken in by the suggestion that CWG could proceed without numbers 7 and 8. They wanted a combined value of £50m; CWG were prepared to pay £10m. Mr Gross was prepared, if necessary, to argue for his valuation in the CPO process which the claimants knew was under consideration. CWG has, since the resolution was passed, offered to submit to the decision of the Lands Tribunal (George Iacobescu, statement 29 January 2009, paragraphs 8-10). That offer has not been accepted.
52. In the circumstances of the present case it was not, in my view, a material consideration that negotiations had not taken place since 2006, nor was it material that negotiations had not accompanied the revised Scheme. My reason for this conclusion is that the claimants were at no stage taken by surprise or placed at a real disadvantage. It had always been their view that CWG's development plans could not proceed without numbers 7 and 8. They placed a value on their property accordingly. All that the 2008 proposal did was to confirm the claimants' expectation. The feature of the negotiations which dominates is the gulf between the parties. The claimants, through Mr Gross, had made it clear that they did not fear a CPO and believed their view would be vindicated. Ms Lieven's argument, that the claimants have suffered the prejudice of being forced to negotiate in a declining market when they should not have been, presupposes that had a commercial approach been made to them in the first half of 2008 the result would have been more favourable. No evidence has been submitted to support that assertion. On the contrary, it seems to me that the declining market made it less rather than more probable that the parties could reach a commercial price. In any case, the existence of a declining rather than rising market cannot, it seems to me, render inappropriate a CPO which is otherwise properly justified by section 226.
53. It was not necessary for the officers to describe the history of the negotiations provided that Cabinet was provided with a fair summary of the position for the purpose of enabling members to make an informed judgment about the grounds for a CPO (see Oxton Farms v Selby District Council [1997] EG 60). In my view the description of a "ransom" situation was fair. The claimants had taken the view that the development could not proceed without their property and they were going to hold out until the gap in valuation had closed or closed significantly.
54. Cabinet was not qualified to reach a judgment as to what value the Lands Tribunal would place upon the land. Members would, upon full disclosure of the progress of negotiations, have been made aware that (1) CWG wanted the land to advance the original scheme if they could acquire it at the right price; (2) the claimants believed that CWG could not in reality proceed without it; (3) the claimants had been holding out for five times the value placed on the land by CWG on the basis that they held "ransom strips"; (4) CWG decided, as the claimants anticipated, that they needed the land; (5) there had been no further negotiation, and (6) both sides had indicated at different times a preparedness to test their valuations at the Lands Tribunal in the CPO process. If Cabinet had been provided with the details of the negotiations I have no doubt that the result would have been the same.

Ground 2

55. There was, in my view, no uncertainty about "implementing the scheme". CWG had planning consent which it had already implemented. It had reached a commercial decision about the nature of the development and resolved to redesign and to implement it. The evidence about its intentions and its ability to implement the scheme upon receipt of vacant possession is all one way. In particular: as to intention, it is demonstrated that CWG had made considerable and successful efforts in the period 1999 to 2006 to purchase the other leasehold interests on the development site; as to ability, CWG was a developer with an established record in the area. I do not consider that the contents of 8.41 of the planning report arguably undermine the appropriateness of the section 226 resolution. Paragraph 8.41 was not dealing with the ability of the developer to implement the scheme but with the period of time over which the full implications for necessary palliative measures would emerge. There was no failure to take account of a material consideration.

Ground 3

56. The planning considerations which justified the CPO under section 226 had little to do with the alternative provision of the training and enterprise centre. The improvement which the development would bring to the defendant's area, for the purpose of section 226(1)(a) and (1A), was amply demonstrated by the contents of paragraph 3 and Appendix C of the Officers' report to Cabinet. However, the defendant itself was affected by the need to acquire leasehold interests in the land for development since it occupied premises on a short term lease where it provided a training centre. To that limited extent the economic and/or social well-being of the defendant's area was affected. Having satisfied itself of the section 226 qualification for a CPO, Cabinet exercised its authority to pass a resolution in the knowledge that its training and enterprise centre would be replaced on advantageous terms. It does not seem to me that the possibility delay in completion of the scheme would cause the centre to be sited in the vicinity of development (and within the area) rather than within the development itself, either undermined the statutory justification for the CPO, or was a material consideration in the exercise of the statutory authority. If, contrary to my opinion, the consideration was material, I have no doubt that Cabinet would have reached the same conclusion had the purpose of clause 3 of the agreement been fully explained. The reason I reach this view is that the section 226 "well-being" qualification was manifestly passed whether the training centre was provided within or in the vicinity of the development.

Alternative Remedy

57. Had I not reached these views upon the legality of the defendant's resolution I would have refused permission to proceed on the ground that the claimants had failed to avail themselves of an available and more appropriate remedy by making their statutory objection to the CPOs. Each of the complaints made goes to the issue whether in the factual circumstances of the case it was appropriate for the defendant's Cabinet to pass its resolution.
58. I am satisfied that where a CPO requires confirmation from the Secretary of State whose inspector will, on objection, assess the CPO against the guidance provided in Circular 06/04, the appropriate forum in which to test alleged non-compliance with the Circular is the inspector's public inquiry, particularly where matters of disputed fact, interpretation and planning judgment are involved. There will be circumstances in which the Court is asked, appropriately, to intervene before the making of the CPO and before confirmation (see for example R v Camden London Borough Council ex parte Comyn Ching & Co (London) Ltd, paragraph 32 above), but in my judgment those circumstances do not exist in the present case.
59. Permission to proceed is refused.