England and Wales Lands Tribunal

[2001] EWLands LCA_121_2000 (16 January 2001)

LCA/121/2000

LANDS TRIBUNAL ACT 1949

Water Industry Act 1991 Sched 12 para2(1) - compensation for depreciation in value of land by virtue of exercise of pipe-laying powers - no "ransom value" - non-existence of powers not to be assumed - apportionment of ransom value between intervening owners

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN KETTERING BOROUGH COUNCIL Claimant

and

ANGLIAN WATER SERVICES plc Respondent

Re: Land at Springfield Road/Lewis Road

Kettering

Northamptonshire

Tribunal Member: HIS HONOUR JUDGE MICHAEL RICH QC

Sitting at 48/49 Chancery Lane, London WC2A 1JR

On 8 and 9 January 2001

The following cases are referred to in this decision:

Batchelor v Kent County Council [1990] 1 EGLR 32

Farrell v Alexander [1977] AC 59

Horn v Sunderland Corpn [1941] 2 KB 26

Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426

Nelungaloo Proprietary Limited v Commonwealth (1947) 75 CLR 495

Pointe Gourde Quarrying & Transport Company Limited v Sub-Intendent of Crown Lands [1947] AC 565

Wrotham Park Settled Estates v Hertsmere Borough Council (LT) (1991) 62 P&CR 652 and (CA) 33 RVR 56

For the Claimants: Mr Barry Denyer-Green QC instructed by Mr George Grynowski, head of Legal Services.

For the Respondents: Mr Alan Pardoe QC with Mr Gerald Rabie instructed by Mr Richard McAdam of Anglian Water Services plc Legal section


 


DECISION

Facts and Issues

1. The Claimants seek determination of the compensation due to them under Schedule 12 of the Water Industry Act 1991,for the depreciation of the value of their interest in land adjoining Springfield Road Kettering, consisting of an area of 1.67 hectares laid out as public open space and playing fields. They are entitled to compensation under paragraph 2(1) of that Schedule if the value of their interest is depreciated "by virtue of the exercise by [the Respondents] of their power to carry out pipe-laying works on private land".
2. A public sewer passes through the Claimants' land in a north/south direction. Some 190m to the east lies an area of land in respect of which planning permission was granted on 21st July 1995, for the erection of 21 houses, conditional upon satisfactory disposal of surface water and waste water. I shall refer to this land as "the development land". It is agreed that this land could, in practice, be developed only if connected to the sewer in the Claimants' land by a new sewer passing for some 34m through the Claimants' land and for the remaining 156m through land owned by the Northamptonshire County Council and used for the Southfield School for Girls ("the school site"). The owners of the development land accordingly, immediately before the grant of the planning permission, served on the Respondents, as sewerage undertaker, a requisition under s.98 of the 1991 Act requiring them to provide a sewer connecting their land to the existing public sewer in the Claimants' land, and the Respondents duly exercised their power under s.159 of the Act to lay a 150mm foul water sewer through the school site and the claimants' land, thus making possible the development of the development land for housing.
3. The parties have agreed that the sum of £355 represents full compensation for what I may call the direct effect of the laying of this pipe through the claimants' land and the placing of two manholes upon it. Such sum includes compensation both for any depreciation and any disturbance. The Claimants however claim that the depreciation in the value of their interest should be assessed on the basis that before the laying of the pipe, that value included an amount which reflected their right, by virtue of that interest, to prevent owners of land in the locality, including particularly the owners of the development land, from laying sewers across their land. This has been referred to as "the ransom value".
4. The Respondents deny that the Claimants' land either had or should, for the purpose of assessing compensation, have been assumed to have had the benefit of such ransom value. They have however been able to agree that if a ransom value falls to be assessed, it should be assessed as a share of the development value of the development land. They have also reached agreement that the development value of the development land was, at the date of valuation, £360,000, that the price of the easement necessary to release that value would be one third of that sum, and that a discount of 25% is appropriate to reflect the fact that they are not valuing a supposed easement across the land intervening between the development land and the existing sewer, but the value of a right to prevent such connection. For these reasons they are agreed that the combined ransom value to be apportioned between the owners of the Claimants' land and the school site is £90,000.
5. Mr Martin Pendered FRICS, IRRV, who gave evidence on behalf of the Claimants, had prepared a valuation on the basis that the ransom value should be attributed to the Claimants' land and the school site equally. He accordingly assessed the depreciation of the Claimants' land at £45,000. Since this value could be realised only if a right to construct the sewer were granted, this is, of course in substitution for and not in addition to the agreed depreciation due to the direct effect of laying the pipe, although such valuation implies a total market price for the land before the exercise of the Respondent's powers of £53,350, because the valuers have also agreed the current value of the Claimants' land, disregarding any ransom value, at £8,350.
6. Mr Mark Newton FRICS, who gave evidence on behalf of the Respondents, submitted on the second day of the hearing an alternative valuation apportioning the ransom value between the two sites in proportion to the areas of each site that would be disturbed by the sewerage works needed to enable the development land to be developed. This attributes a larger share to the school site than a comparison of the respective lengths of run, because there is a second 300mm storm water pipe required to make the development land developable. This runs through the school site but connects with an existing stormwater culvert without crossing the Claimants' land. Thus the proportion of the area of disturbance on the two sites which would arise on the Claimants' land is agreed to be 15.1%, leading, on that basis to a ransom value of £13,590. I allowed this valuation to be submitted on terms that costs wasted by the late submission should be the Claimants' in any event.
7. Thus the issues for determination by the Tribunal are the issue of principle as to whether the Claimant is entitled to compensation in respect of the alleged ransom value, and if so, how the agreed figure of £90,000 should be apportioned. It will be convenient before turning to the main issue to consider the short issue as to apportionment, so that alternative figures for compensation dependent on the basis of valuation may be reached.

Apportionment of Ransom Value

8. Mr Pendered reached his equal apportionment by pointing out that each owner had an equal power to prevent the development of the development land; the cooperation of each would therefore be needed equally; accordingly in his judgement a negotiation would lead to equal apportionment of any sum that the owner of the development land would be prepared to pay. He accepted that this meant that if the County Council decided to sell half of its site to a third party, the effect would be to reduce the ransom value of the Claimants' land from £45,000 to £30,000. Since what is being assessed is not the price of an easement, but the value of an interest in land which includes the right to grant an easement, that seems to me to be a significant indicator of the unreliability of his approach, at least for the particular purpose required in this case, even though if I were valuing the right to grant an easement, I might have found his approach more persuasive.
9. Mr Newton's method of apportionment is more robust in this respect. He imagines the owners of the intervening land sharing out the proceeds of sale of rights to the owner of the development land on an equitable basis. What could be more equitable he asks than apportionment by area? There may, I think, be a slight gloss to be put on this approach to equity. The direct effect upon value of the works on the school site have been agreed at a figure which is proportionately less than that agreed for the direct effect upon the Claimants' land. I think that equity would require that such direct effects be brought into account before the parties began apportioning the imagined proceeds of sale of rights to the owner of the development land. The difference is however marginal.
10. Mr Newton's appeal to equity seems to me, however, to pay insufficient attention to the difficulty of the negotiation which he thinks it appropriate to imagine. Assuming there remain only two intervening land-owners, either can prevent the other getting anything. The less an owner has to lose if the grant of rights does not proceed, the less easily will he blink when he requires the other to concede more or get nothing. There will therefore be, as Mr Pendered suggests a tendency towards equal division, if one should be seeking to assess the actual result of a negotiation only between the two intervening land-owners, after they had already agreed a price for the grant of drainage rights to the owner of the development land.
11. It is, however, I think, probable in such case that the owner of the development land would become involved in direct negotiation with each owner. This may involve further consideration of the share of the development value to be apportioned between the intervening land-owners. The owner of the development land may end up paying more than the one third of his development value, but may pay less to one party rather than to another, merely according to their respective negotiation skills or circumstances.
12. But to pursue, in this way, an inquiry into imaginary negotiations for the grant of rights, overlooks the exercise upon which one should, in my judgement, be engaged. Paragraph 3(2) of Schedule 12 applies the rules set out in s.5 of the Land Compensation Act 1961 to the assessment of compensation for depreciation of the value in an interest in land. By Rule (2) "The value of land shall .. be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise .." Thus, the exercise should be to assess the price that would have been paid in the market for the Claimants' land if it had the benefit of a ransom value, as a "before valuation", and then to assess the depreciation in that value arising from the construction of the sewer which makes it possible for the owner of the development land to implement its development without purchasing rights over the intervening land. The assessment of the ransom value, which is the difference, is to be made on that basis.
13. The valuers have agreed the value of the Claimants' land at £8,350 disregarding any ransom value. They have also agreed the value of the easement over the two sites at £120,000. They have however apportioned only £90,000 between the two sites, because they are assessing the market price of the Claimants' land with no more than the potential of realising a share of £120,000. Although this is assumed to be the sum which will be paid by the owner of the development land in order to enable him to implement the development for which permission has been granted immediately before the valuation date, the discount was said by Mr Pendered to be made because there can be no guarantee that he will in fact implement the permission. In my judgement the greater reason for a discount is firstly in case he does not succeed in doing so, because he fails in the necessary negotiation with the owners of the school site, which risk the valuers seem to have taken into account, in so far as they have, in arriving at their respective apportionments of a discounted sum for the rights over the whole of the intervening land.
14. There is however another reason why the assumed value of the easement has to be discounted. If the market price of the Claimants' land with the benefit of the ransom value is to be assessed, any purchaser will require to make a profit on the sale of the rights over it to the owner of the development land. On the assumptions of the valuers that owner himself would gain no benefit from entering the market, except possibly at a very low price, because he would merely then have to pay the whole ransom to the owner of the school site. On the other hand the owner of the school site could avoid a negotiation other than directly with the owner of the development land if he acquired the Claimants' land. Thus it seems to me that the discount on the price of the easement which has been agreed between valuers is largely justified not by uncertainty as to the intentions of the owner of the development land, but by expectations as to the attitude of the owner of the school site. Although the actual attitude of the actual owner could, I think, be taken into account, if it were known, it is not known; and I do not think the owner's willingness to accept compensation without asserting a ransom value allows me to reach any conclusion as to its stance if there were found to be a ransom value.
15. What has to be assessed is the excess over the basic value of £8,350 which the market would pay for the opportunity to take part in the negotiation which the two valuers have been seeking to imagine, or in the case of the owner of the school site for avoiding such negotiation. Since whatever excess may be paid may in the event be entirely lost, and is dependent on the readiness of the owner of the school site to realise a windfall by granting appropriate rights over its land, I think the market would take a cautious view. I think that it would think that there was, at the least, a real risk of the owner of the school site taking up the position that Mr Newton suggests. Thus I think the market is likely to be made up of speculators, plus possibly the owner of the school site. Since any speculator would wish to make a profit on the sale of actual rights, he would be careful to leave to the owner of the school site sufficient incentive to ensure that it was willing to join in a sale to the owner of the development land. For these reasons I would value the land with the benefit of the ransom value at £8350 plus, for the sake of roundness 15% of the full value of the rights namely £120,000 that is to say £18,000, making £26,350. On this basis, if the Claimants are entitled to a ransom value, I would award £18,000 by way of compensation, compared with the alternative agreed figure of £355.

Existence of Ransom Value

16. Mr Pardoe QC, for the Respondents refers me simply to the provision of paragraph 2(1) of Schedule 12 which is the sole provision for compensation arising from the exercise of the Respondents' power to lay pipes across private land. Paragraph 2(2) provides for compensation for disturbance which the Claimants in this case do not claim, and paragraph 2(3) for injurious affection to land other than the relevant land, which again does not arise in this case. Paragraph 4 provides for "full compensation to any person who has sustained damage by reason of the exercise by the undertaker" of powers other than the power to carry out pipe-laying works: see definition of "relevant sewerage provisions" in s.219(1) of the Act. But by paragraph 2(6) the power to carry out pipe-laying works includes all the powers under s.159, that is not only to lay but also to keep, inspect, maintain etc., which are set out in that section.
17. Thus the only provision for compensation for the works undertaken by the Respondents is

"if the value of any interest in [the Claimant's land] is depreciated by virtue of the exercise .. of [the] power to carry out pipe-laying works on private land, [the Claimant] shall be entitled to compensation from the undertaker equal to the amount of the depreciation."

As I have already recited, the rules set out in s.5 of the Land Compensation Act 1961 are applied by paragraph 3(2), but that does not affect the position that compensation is restricted to the amount of the depreciation in the value of the Claimant's interest "by virtue of the exercise .. of any power to carry out pipe-laying works". If, Mr Pardoe submits, the existence of the Respondents' pipe-laying power means that the Claimants' land did not have a ransom value, then the value of their interest has not been depreciated by the exercise of that power save in so far as it has suffered the direct damage, for which compensation is agreed at £355.

18. Paragraph 3(4) of the Schedule provides for the deduction from compensation otherwise to be awarded under paragraph 2, of any amount by which the carrying out of the works has enhanced the value of any other land of the claimant which is contiguous or adjacent to the relevant land. It is not, however, necessary that the basis for assessing any such betterment to other land, should be the same as that for the assessment of depreciation to the relevant land, and no argument has been addressed to me based on this sub-paragraph.
19. Mr Denyer-Green QC, who appeared on behalf of the Claimant, accepted that in the real world, the owner of the development land had the right to serve the requisition which he did serve, with the effect that the Respondents were required to lay and connect the sewers which were needed and which are the pipe-laying works which they carried out in exercise of their powers. Thus the owner of the development land never had any need to purchase any drainage easement and the Claimants' power to prevent owners of adjoining land from themselves laying sewers across their land, did not prevent such owners of adjoining land from developing their own land; such power did not therefore give to the Claimants' land any actual ransom value.
20. Mr Pendered, in his evidence, referred to his own experience in, none the less, successfully negotiating a payment from a developer seeking a drainage easement in circumstances similar to the present. Mr Denyer-Green did not however, base any submission on that evidence. I think he was right not to do so, because even if there may be developers who might be persuaded unnecessarily to pay a land-owner for rights which they could requisition from the statutory undertaker, the market will hardly pay a price for land which reflects that chance. The question for the determination of the Tribunal is whether such payment as Mr Pendered obtained was made unnecessarily.
21. Such payment could be justified only if the Claimants' claim for compensation under paragraph 2(1) is to be assessed as if the statutory powers, whose exercise gives rise to compensation did not exist. If the compensation payable by the undertaker includes an element of ransom value for this reason, then it will be part of "the amount required for the provision of that sewer" for the purpose of calculating the "relevant deficit" under s.100 of the Act, to be paid by the person requisitioning the sewer as a condition of his requisition. Mr Denyer-Green accordingly accepted that he had to submit that the compensation required to be assessed in respect of depreciation by virtue of the exercise of the powers contained in s.159, was to be assessed as if no such powers existed.
22. There is no statutory provision for such assumption, nor has Mr Denyer-Green suggested that there is. He relies however, on the analogy of the provision of an access across a "ransom strip" where such access is required to enable land to be developed. If a Highway Authority exercises powers of compulsory purchase, the land acquired must be valued disregarding any diminution in its value arising from the "scheme" for which it was purchased: see Melwood Units Pty Ltd v. Commissioner of Main Roads [1979] AC 426. Thus if the land acquired had a value as an access before the exercise of compulsory purchase powers, it is to be valued with the value so arising. Only if the premium value is entirely due to the scheme underlying the acquisition is it to be disregarded: see Batchelor v. Kent County Council [1990] 1 EGLR 32. It was held in that case that such ransom value was not to be disregarded even though the land in respect of which compensation fell to be assessed was acquired by the Highway Authority pursuant to an agreement with the owners of the land to be benefitted by the proposed works, made under s.278 of the Highways Act 1980.
23. These are merely examples of the well-known Pointe Gourde principle: see [1947] AC 565, which has arisen by way of statutory interpretation of the word "compensation" in the context of acquisition of land. Mr Denyer-Green accordingly drew my attention to the dictum of Dixon J. in Nelungaloo Proprietary Limited v. Commonwealth (1947) 75 CLR 495 at p.571 where he said:

"Now 'compensation' is a very well understood expression. It is true that its meaning has been developed in relation to the compulsory acquisition of land. But the purpose of compensation is the same, whether the property is real or personal. It is to place in the hands of the owner expropriated the full money equivalent of the thing of which he has been deprived."

The question remains however whether the Claimants have been deprived of a right to prevent adjoining owners from laying sewers over their land by the Respondents' exercise of their powers under s.159 or whether they had already been deprived of that right by the enactment of s.159 and its predecessor legislation without compensation save in respect of the exercise of the power.

24. Mr Pardoe relies on the decision of this Tribunal in Wrotham Park Settled Estates v. Hertsmere Borough Council (1991) 62 P&CR 652, approved by the Court of Appeal at (1993) 33 RVR 56. In that case the beneficiary of a restrictive covenant over land owned by the local authority had sought to prevent the building of houses in breach of such covenant. It had been held that as the Council were carrying out the work in exercise of their statutory powers as housing authority, the claimants were not entitled to enforce the covenant by injunction but were entitled only to compensation under s.10 of the Compulsory Purchase Act 1965 on the ground that their interest in land had been "injuriously affected by the execution of the works." On this formula analogous to "the exercise .. of any power to carry out ..works", the Tribunal held that compensation was to be assessed as

"the difference (if any) between (i) the value of the interest immediately before the commencement of the development with the benefit of the restrictive covenant (but disregarding the power of an authority to override the restrictive covenant) and (ii) the value immediately thereafter given the carrying out of the development."

Mr Denyer-Green drew my attention to the words in brackets in the definition of the "before" valuation and says he is claiming no more than that the undertakers' power to lay pipes should be disregarded. I think however that there is no doubt as to the extent of the disregard envisaged by the Tribunal and accepted by the Court of Appeal which expressly excluded any ransom value. Indeed Sir Thomas Bingham MR, dealing with what he called "general arguments based on justice, fairness and the merits of the case" said at p.59:

"For my part, it does not greatly concern me if it be the case that the landowner does not receive perfect compensation so long as he is compensated for any diminution that he can demonstrate in the value of his remaining estate. If a landowner in such a position is required to make some sacrifice in the wider communal interests represented by the local authority, then it would seem to me that is a sacrifice which falls very short of anything which could be called extortion."

Mr Denyer-Green, for whose careful research and moderation in argument I am most grateful, accepts that that approach is appropriate to construing these statutory provisions, notwithstanding the coming into force of the Human Rights Act, and takes no point on any Convention right. I will not therefore further address the general arguments based on justice, fairness and the merits of the case which Mr Denyer-Green did address to me based on such well-known authorities as Horn v Sunderland Corpn [1941] 2 KB 26. The entitlement to compensation is purely statutory, and the amount to be awarded must be determined by the proper construction of the Statute.

25. Nevertheless there would appear to be an anomaly if the exclusion of a ransom value arose from the power of requisition found in s. 98, which applies only to provision of a public sewer "to be used for the drainage for domestic purposes of premises." The pipe-laying power extends to pipes required for any of the undertakers' functions including therefore both drainage of trade effluent and supply of water. I think however that here is no anomaly, because whereas any occupier of premises has a right under s.106 to have his drains "communicate" with a public sewer, he can discharge trade effluent only with consent under s.118. Thus the provision of a drainage easement would not be sufficient to enable a land-owner to develop his land for purposes involving the discharge of trade effluent. He would need the consent of the undertakers to such discharge, and if they are willing to give such consent there would appear to be no reason why they should not also exercise their pipe-laying powers by agreement under s.129. Thus an adjoining land-owner does not hold a key to release the development value of land whose development is dependent on the discharge of trade effluent into a sewer accessible only across his land, any more than where the drainage required is of domestic sewage only.
26. This consideration of a possible anomaly, which might have forced some further consideration of the restrictive words of the Schedule, clear as they appear on first reading, led me to seek the assistance of counsel as to the origin of the pipe-laying powers and of the provisions for compensation in respect of their exercise. I am most grateful to counsel on both sides for their assiduity in researching these matters, although as Mr Pardoe very properly reminded me I should be careful, except in case of ambiguity, to avoid construing a consolidating statute by reference to antecedent repealed legislation: see Farrell v Alexander [1977] AC 59.
27. The pipe-laying powers now contained in s.159 of the Water Industry Act 1991, are available to the statutory undertakers appointed upon privatisation of the water industry under the Water Act 1989, both for their sewerage and for their water supply functions and the provisions for compensation under Schedule 12 apply equally whichever function is being exercised. Provision for local authorities to lay sewage pipes was made by the Public Health Act 1875, but, it appears that general powers to lay supply pipes were not provided until the Water Act 1945. The Public Health Act by s.308 provide for "full compensation .. where any person sustains damage by reason of the exercise of any powers of this Act in relation to any matter as to which [the person] is not himself in default". That is the identical provision which is now contained in paragraph 4 of Schedule 12 of the 1991 Act in respect of the exercise of powers other than the pipe-laying powers. The same provision for compensation was made by s.19(3) of the Third Schedule to the Water Act 1945 in case of the exercise of the power in that Act to lay water mains.
28. This formula of "full compensation .. for damage", was the subject of judicial consideration which it is not necessary for me to review. It is sufficient to note that it does not appear to have been always consistent: reference may be made to the comprehensive notes to s.15 of the Public Health Act 1936 to be found in the 12th Edition of Lumley, edited by Simes and Scholefield in 1952. The decision of Mr Victor Wellings QC sitting as President of the Lands Tribunal in St. John's College Oxford v Thames Water Authority [1990] 1 EGLR 229 was based on those provisions and is not therefore in point. I am, however, by no means sure that it is entirely consistent with earlier authority on those provisions, but in none of these authorities does it appear that any kind of ransom value was either claimed or awarded.
29. Those provisions are now, as we have seen, replaced in the case of exercise of pipe-laying powers by the much fuller provisions of paragraphs 2 and 3 of Schedule 12 of the 1991 Act. They provide for compensation in respect of depreciation and disturbance on the relevant land and for injurious affection of other land. The provisions reproduce the provisions which were first enacted in paragraph 6 of Schedule 19 of the Water Act 1989. When so enacted they superseded the compensation provisions previously found in the Public Health Act and in the Water Act. They were not as there set out, as they now are, included in a single enactment which provided as it might appear by way of contrast, a provision in other cases for "full compensation [for] damage". The continuance, by paragraph 4 of the Schedule, of that provision for compensation in respect of those provisions derived from the Public Health Act 1936 as opposed to the Water Act 1989 does not therefore seem to me to be a basis for any forced construction of Paragraph 2 of the Schedule so as to give it a different effect from Paragraph 4.
30. The 1989 wording appears me to be no more than a clarification of the provisions for "full compensation for damage" which had been enacted in predecessor legislation. The provision for the making of a requisition now found in s.98 of the 1991 Act are derived directly from s.71 of the 1989 Act, which reproduced the provisions of s.16 of the Water Act 1973, modified however to ensure that the requisitioner bore the whole cost of the pipe-laying he required. The apt place for expecting provision to be made to compensate land-owners for any loss of ransom value would have been in the 1973 Act, for until its passage the owner of development land wishing to procure drainage would have had to obtain an easement and only then could exercise his power to "communicate" to the public sewer. No such provision was contained in the 1973 Act which merely applied the Public Health Act formula of "full compensation [for] damage". The amendment provided by the 1989 Act which restricts compensation to depreciation "by virtue of the exercise ... of ..power" is not, in my judgement, apt to provide compensation on the basis of an unreal assumption, and must therefore, in my judgement be construed as a clarification of rather than amendment of the compensation provisions which remained applicable after the enactment of the 1973 Act.
31. I therefore conclude that the provisions of paragraph 2 of Schedule 12 of the 1991 Act neither require nor permit me to assess compensation on the unreal assumption that the pipe-laying powers of the undertakers contained in s.159 or the requisitioning powers contained in s.98 do not exist. I therefore hold that there is no ransom value to be attributed to the Claimants' land and that compensation is to be assessed at £355.

Costs

32. I have been told that an offer of £355 plus surveyor's fees was made to the Claimants by letter dated 4th September 1998, that is to say long before the reference to the Tribunal was made on 3rd March 2000. In the circumstances I do not think that it is material whether a further formal offer to comply with s.4 of the Land Compensation Act 1961, which is applied by paragraph 3(1) of Schedule 12, was made. The Claimants must pay the Respondents' costs, except those of the surveyor on the second day of the hearing, to be the subject of detailed assessment, if not agreed. The Respondents must in accordance with the Order which I have already made, pay to the Claimants their costs of their surveyor's attendance on the second day of the hearing, again subject to detailed assessment if not agreed.

Dated:

(Signed): MICHAEL RICH