The Law Commission

PART I


THE LAW COMMISSION

Report on a reference to the Law Commission under section 3(1)(e) of the Law Commissions Act 1965

TOWARDS A COMPULSORY PURCHASE CODE – (1) COMPENSATION

FINAL REPORT

To the Right Honourable the Lord Falconer of Thoroton, Lord High Chancellor of Great Britain

PART I

INTRODUCTION

Terms of reference

1.1      On 12 July 2001 the Lord Chancellor^[1] approved terms of reference for the Law Commission in the following terms:

To review the law (legislation, case law and common law rules) relating to compulsory purchase of land and compensation, with particular regard to

(i) the implementation of compulsory purchase orders

(ii) the principles for the assessment of compensation on the acquisition of land

(iii) compensation where compulsory purchase orders are not proceeded with

(iv) compensation for injurious affection

and to make proposals for simplifying, consolidating and codifying the law.

As part of the Review, the Law Commission will give priority to consideration of the rules relating to the disregard of changes in value caused by the scheme of acquisition.

We now present this report to the Lord Chancellor in fulfilment of (ii) and (iv).

Background to this report

The existing law

1.2      Essential background for the recommendations in this report is an understanding of the tortuous development of the law of compulsory purchase, over more than 150 years since the 1845 Act (parts of which survive virtually unchanged in the current statutes). In Part II of CP 165, we gave an account of that history, and of the main features and sources of the law, as it stood before any reforms resulting from the present review. For ease of reference we reproduce that Part in Appendix C of this report.

CPPRAG Review

1.3      The reference arose out of a recommendation of the Compulsory Purchase Policy Review Advisory Group ("CPPRAG"), established by the Department of the Environment, Transport and the Regions ("DETR").^[2] Their Final Report (referred to in this report as "the CPPRAG Review") was published in July 2000.^[3]
1.4      The CPPRAG Review commented that the law had become "an unwieldy and lumbering creature"; they found "the existing legislative base… complex and convoluted" and requiring simplification and codification.^[4] The problem was seen as lying partly in the fact that the legislation was derived from 1845^[5] or earlier, and that:

Even where the provisions of that Act have been subject to later amendment or re-enactment, the Victorian concepts and antiquated phraseology have often been carried forward, leading inevitably to difficulties in interpretation, or even comprehension.^[6]

1.5      The CPPRAG Review made a number of recommendations for detailed improvements of the law. However, the first recommendation proposed a direct role for the Law Commission in preparing new legislation "consolidating, codifying, and simplifying the law".^[7] They added:

In framing the new statute, particular care should be taken to bring the language up to date and to standardise procedures except where that would create difficulties of its own. The new statute(s) should set out procedures as well as a clearly defined Compensation Code.

Work since the CPPRAG Review

1.6      First, the Law Commission published a preliminary paper ("the Scoping Paper") in March 2001. This included a draft framework for a new Code, and discussion of the main issues and a suggested programme for further work.^[8] The Law Commission's proposals were generally accepted by the DETR, and were reflected in the terms of reference set out above.
1.7      Next, the Law Commission published a discussion paper relating to the priority issue identified in the Scoping Paper ("disregarding the scheme") in October 2001.^[9]
1.8      The Government published its response to CPPRAG in a Policy Statement in December 2001.^[10] This Statement set out the Government's proposals for change and the Minister's foreword makes clear that, although further responses were being invited on certain specific issues, it was intended to represent a firm indication of policy with regard to most matters.^[11]
1.9      Following expiry of the consultation period on its Policy Statement, the ODPM, as successor to the DTLR for planning-related functions, published its Policy Response Document in July 2002. That document set out the Government's proposals for a simpler, fairer and quicker system. It also indicated that the Law Commission, in its Consultative Report, would be seeking views on a number of issues, including:

(a) The principles relating to the disregard of the effects of "the scheme" in determining value;

(b) The principles for assessing disturbance;

(c) A consistent set of principles for determining compensation for severance/injurious affection where land is taken and where no land is taken;

(d) Compensation where a compulsory purchase order is not implemented.^[12]

1.10      On 24 July 2002 the Law Commission published a Consultative Report directed to items (ii) (compensation principles) and (iv) (compensation for injurious affection) of the terms of reference.^[13] We will refer to that report as "CP 165".
1.11      On 18 December 2002 the Law Commission published a second Consultative Report, this time directed mainly to issues of procedure: items (i) (implementation) and (iii) (abortive orders) of the terms of reference.^[14] We will refer to that report as "CP 169".
1.12      This report takes forward the proposals and questions contained in CP 165. In doing so it addresses the four issues specifically identified by ODPM in July 2002 for further work by the Commission. We plan to publish our report on the issues of procedure (including abortive orders) in 2004.

Government policy

1.13      The 2001 Policy Statement set out the general approach which the Government expected to be reflected in the new Code. The intention was to promulgate new legislation:

… to provide a single statutory Compensation Code giving effect to the Law Commission's recommendations for achieving the principle that, in all cases, a claimant should [be] properly compensated for all the losses incurred as a direct result of the compulsory purchase order, with no differentiation according to the powers under which any particular order may be made, whether or not it is implemented and whether or not land is actually taken from the claimant.^[15]

1.14      The Policy Statement highlighted the need for "simpler compensation arrangements, based on unambiguously defined principles", to ensure that:

(1) those from whom land is taken are restored, as far as possible, to the position they would have been in if there had been no compulsory purchase;

(2) in addition to the value of the land taken, all those affected should be entitled to compensation for any and all of the actual losses which they can show that they have sustained as a result of an acquiring authority's actions;

(3) such an entitlement should apply irrespective of whether land is actually taken from the claimant for the scheme and even if the acquiring authority decides not to proceed after the compulsory purchase order has been confirmed; and

(4) it is not appropriate for there to be any differentiation in entitlement solely as a result of the powers under which a particular order has been made.^[16]

1.15      The Government in its Policy Statement assessed the likely financial implications of the changes proposed. In setting the context for both implementation and compensation changes the paper says:

The cost of implementing the proposals set out in this policy statement will be partially influenced by the extent to which the revised procedures, accompanied by a fairer and more clearly defined compensation code, result in acquiring authorities making increased use of their compulsory purchase powers. Furthermore, the extent to which any such cost has to be borne by the public sector will depend on the degree to which the availability of more efficient compulsory purchase powers makes replacement schemes more attractive as investment opportunities for private sector bodies working in partnership with acquiring authorities.^[17]

1.16      With regard to changes to the law on compensation, the Government's view is that:

[a] clearly defined, and better understood, compensation code should help to reduce the amount of professional time needed to negotiate compensation settlements. Clear but flexible statements of principles can be expected to reduce the number of cases which need to be referred to the Lands Tribunal and the courts, as both claimants and acquiring authorities will have a better idea of what particular elements of the compensation package are intended to cover and of the basis on which they should be calculated. …^[18]

1.17      The paper goes on to accept that:

Against such potential savings, it has to be accepted that … some of the proposals intended to make the compensation package fairer are also likely to increase the amount payable to some of those whose property is acquired. For example, the proposal that provision for disturbance payments should be expressed in legislation as a statement of principles is likely to widen the range of costs and losses which can be recompensed. However, we are satisfied that additional expenditure can be justified in terms of equity and regard for the human rights of those whose private property is directly affected by schemes for the public good.^[19]

Planning and Compulsory Purchase Bill 2002/03

1.18      The Planning and Compulsory Purchase Bill 2002/2003, which was first introduced in December 2002, included a number of changes to planning law, which are not relevant to this project. It also sought to implement certain parts of the Government's proposals for improving the law of compulsory purchase and compensation. The latter included some aspects relevant to the Law Commission's report.
1.19      The compulsory purchase provisions in the Bill amend the powers available to local planning authorities to acquire land compulsorily.^[20] They provide those authorities with powers to acquire land to facilitate the carrying out of development, re-development or improvement which they think will be of economic, social or environmental benefit to their area. The 1990 Act already gives local planning authorities the power to acquire land compulsorily for development, redevelopment or improvement, but there is some uncertainty about the interpretation of these powers, and so the Bill seeks to provide greater certainty. The aim is to encourage greater use of these powers.^[21]
1.20      The Bill also creates an extended "loss payments" regime which is intended to make the compensation package payable more attractive.^[22] Again, this is intended to encourage the use of powers of compulsory acquisition.
1.21      On 17 September 2003 the Government tabled amendments to Part 7 of the Planning and Compulsory Purchase Bill 2002/03. The intention is "to help acquiring authorities to assemble land more quickly for regeneration, new major infrastructure projects and other schemes aimed towards implementing the Sustainable Communities initiative."^[23]
1.22      The amendments will:

(1) widen the definition of "statutory objector", with the effect that more people will be entitled to be heard at an inquiry;

(2) extend to all acquiring authorities the power to require information about occupiers or those with an interest in the land they seek to acquire;

(3) provide for all types of CPOs to be confirmed in stages where appropriate;

(4) allow for rules for the consideration of written objections to CPOs;

(5) enable acquiring authorities to confirm their own orders if unopposed; and

(6) define the valuation dates.^[24]

1.23      The Government also proposes to table amendments at the Commons Report stage to allow advance payments of compensation to be made direct to mortgagees. Those provisions are currently in draft and being consulted upon.
1.24      The most significant amendments, for the purposes of this report, are those which define the dates to be used for valuation purposes.
1.25      In the course of this report, we shall refer in more detail to the provisions of the Bill where relevant to our recommendations.

The Law Commission's approach

1.26      The Law Commission has a statutory duty to keep under review the laws of England and Wales, with a view to their "systematic development and reform", including in particular

… the codification of such law, the elimination of anomalies, the repeal of obsolete and unnecessary enactments, the reduction of the number of separate enactments and generally the simplification and modernisation of the law^[25]

1.27      There can be few areas of the law which are in more obvious need of radical treatment, under each of the heads mentioned in the statute, than the law of compulsory purchase. We have already referred to CPPRAG's description of the "unwieldy and lumbering creature" represented by the present law, as a result of piecemeal evolution over more than 150 years,^[26] and the Government's own recognition of the defects of the present law.
1.28      Such a position is unacceptable in a modern society, particularly in an area of the law which has such direct relevance to human rights guaranteed by the Human Rights Act 1998. Modernisation of the law is a key policy objective of the present Government.^[27] The Commission's central role in that task has been underlined on numerous occasions.^[28]

Sorting out the law

1.29      As we indicated in CP 165,^[29] this has been in some respects an unusual Law Commission project. It does not fit naturally into any one of the normal categories – law reform, consolidation or statute law revision. It combines elements of all three. Apart from certain specific areas in which substantive issues remained to be settled, our principal task has been that of sorting out, rather than reforming, the law. That itself has proved to be a challenging task. CPPRAG's description of the existing law as "complex and convoluted" and as "an unwieldy and lumbering creature" has been powerfully endorsed by our own researches, and the responses to consultation. That unhappy position represents the result of more than 150 years of piecemeal and often incoherent development. It cannot be regarded as an acceptable legislative basis, in a modern society, for regulating an issue directly affecting human rights to the protection of property.

Policy framework

1.30      Again unusually, we came in at a relatively late stage of the review. Most of the main policy issues relating to the substance of the law had already been examined in detail by CPPRAG and made subject to public consultation; and the Government's conclusions had been made known. Accordingly, in developing the draft Code for the purposes of consultation, we took account of the reforms proposed in the Policy Statement. Insofar as they represented firm policy conclusions following consultation, we did not see it as our task to reopen them. The questions raised on consultation were therefore generally directed to the issues identified by Government as requiring further work by us, or on other matters which we considered had not been fully examined in the early studies.

Preserving the balance

1.31      We have also had to take a clear view of the proper division between the respective roles of the law reformer and the policy-maker. The development of the law of compensation over its long history has reflected society's fluctuating views of the balance between the public interest in the use of compulsory purchase to promote necessary development, and the protection of the interests of individual owners and occupiers. In the recent Wildtree Hotels case,^[30] Lord Hoffmann referred to 19^th century decisions on compulsory acquisition of land for railways, and noted how conflicting judgments often reflected differing opinions on questions of economic and social policy, rather than strictly legal differences:

The construction of the railways, which gave rise to most of the 19th century cases on injurious affection, involved massive changes in the urban and rural landscape of the United Kingdom and the disruption of the lives and businesses of very large numbers of people. It is not surprising that strong views were held about the respective claims of the winners and losers in this revolution and the judicial decisions often reveal the opinions of individual judges on questions of economic and social policy. Some were in favour of full compensation for all whose property had been adversely affected by the railway and others thought that the public interest required that liability should be kept within narrow bounds.^[31]

1.32      The tension between those two view-points was no less marked in the twentieth century. Our review of the development of the law since 1845 showed how sharp changes in political philosophies and public needs were reflected in shifts in the emphasis of case-law and of statutory reforms.^[32] For example, the market value principle was established by the 1919 Act, in the context of post-war reconstruction led by public authorities, and as a reaction from the generous awards given to claimants when most acquisitions were profit-driven. Another legislative upheaval occurred immediately after the Second World War, when compensation was confined for a period to existing use value, until the market value principle was restored in 1959. Those are only the most dramatic examples. The last 40 years have seen further changes of direction, resulting from political change, as well as a succession of piecemeal reforms, not always reflecting a consistent overall view of the law.^[33]
1.33      It is clear that there can be no single "right" answer to the balance between private and public interests.^[34] A policy of providing more generously for those affected will increase costs for acquiring authorities, and may therefore detract from the public objective of promoting development. On the other hand, a more generous compensation regime may mitigate public resistance to a scheme, and thus achieve savings by reducing delay and procedural costs. The present law represents a compromise between those interests, developed over more than 150 years.
1.34      Against this background, our consultation paper adopted the general position of respecting the existing balance of competing interests, unless it appeared to produce obvious anomalies or unfairness.^[35] That remains our approach. Our primary aim has been to preserve the underlying principles, in so far as they are settled and accepted, to resolve the conflicts and to clear away the dead wood. Where, however, we have seen that reform is needed to remove unfairness or anomalies, we have taken the opportunity to propose recommendations for reform.

No draft Bill

1.35      Lastly, we draw attention to the fact that, contrary to our normal practice in a final report, we have not prepared a draft Bill to accompany our recommendations. This is for two connected reasons. First, as we have said, this is not a self-contained study. It has been designed to contribute to a project initiated by the Government involving the fundamental review of the law in this area. We are grateful to the ODPM for the close collaboration we have been able to enjoy. Work on the present report has proceeded in parallel with the preparation by the ODPM, and presentation to Parliament, of a Bill relating to the same subject-matter. Further legislation will need to take account of the progress and final form of that Bill. Secondly, our primary task within the overall project has been to sort out the existing law, and to make recommendations for the general content and shape of the new Code, and for repeals of existing legislation. Until those issues have been considered by Government, in the light of our recommendations, it would not have been a sensible use of our limited drafting resources, to embark on the preparation of a detailed Bill.
1.36      We emphasise, therefore, that the "Code" which we are presenting in this report is intended solely as an indicative framework for possible future legislation. Although we use the term "rules" in the recommendations, that is solely for ease of presentation and analysis. They are not intended to be treated as draft legislation, in any sense; nor to prejudge the form and language of the draft Bill as it may emerge, following instructions to Parliamentary Counsel in due course.

Outline of the Compensation Code

1.37      The Code is designed to maintain the main features of the existing law within a simpler and more logical structure, and using more accessible labels. We believe that a Code which makes the law clear is itself a major step forward. We believe also that where the Code represents a change to the law, it makes for a more equitable distribution of the losses to be borne.^[36]
1.38      This Report follows the structure of the new Framework for a Compensation Code (which is itself set out at pages 140–152 below).
1.39      The Code retains the basic features of the present law, including:

(1) the overall principle of "fair compensation", and

(2) the traditional heads of compensation: market value, injury to retained land (currently known as injurious affection) including severance, consequential loss (currently called disturbance), and equivalent reinstatement.

Parts II, III and IV describe these standard provisions of the Code.

1.40      Rules of general application are explained in Part V. Part VI contains our recommended rule on the date for valuation, and two matters to be disregarded in assessing compensation.
1.41      In Part VII we discuss the problems and solutions to the thorny issue of the "no-scheme rule". We set out our recommended rules relating to disregard of the statutory project and planning assumptions in Part VIII.
1.42      Other related rules are addressed also. The Code encompasses:

(1) particular interests (Part IX):

(a) compensation for the acquisition of new rights;

(b) compensation for interference with existing rights;

(c) minor tenancies; and

(2) incidental matters (Part X):

(a) advance payments;

(b) extended Lands Tribunal jurisdiction; and

(c) interest on compensation.

1.43      We also make a recommendation in respect of compensation for depreciation caused by public works (currently known as injurious affection where no land is taken) in Part XI.

Acknowledgements

1.44      We were assisted in drawing up our consultative proposals by many groups and people. The memberships of those groups, and those other individuals who helped and responded to earlier papers are detailed in Appendix 8 of CP 165. We repeat our grateful acknowledgement of their assistance.
1.45      Since CP 165 we have been assisted by all those who responded to the consultative report, who are listed at Appendix E of this report. We are very grateful to consultees for the time spent in considering and responding to our provisional proposals. We are also indebted to the officers of the ODPM, in particular, Jean Nowak and Richard Mackley, for the assistance and support they have provided throughout the project.
1.46      We wish to pay special tribute to the help and expert guidance we have had from George Bartlett QC, President of the Lands Tribunal. Many of the proposals, particularly those relating to the intractable problem of "disregarding the scheme" are derived directly from his suggestions, following long discussion with the team. We emphasise of course that we take full responsibility for the recommendations.

Note 1    The Government announced on 12 June 2003 that the post of Lord Chancellor would be abolished and replaced by the post of Secretary of State for Constitutional Affairs. Legislation will be needed formally to abolish the role of Lord Chancellor. References in this report will continue to be to the Lord Chancellor.    [Back]

Note 2    Subsequently the Department of Transport, Local Government and the Regions (“DTLR”) and now the Office of the Deputy Prime Minister (“ODPM”).    [Back]

Note 3    Fundamental Review of the Laws and Procedures Relating to Compulsory Purchase and Compensation: Final Report (July 2000). Its publication was announced in a Parliamentary Answer by the Minister (Nick Raynsford MP) on 27 July 2000. The DETR published at the same time a report, by Gerald Eve and Co and the University of Reading, on the operation of the “Crichel Down” rules (the administrative rules under which, following compulsory purchase, land surplus to requirements is offered back to the original owners). The Minister invited views on the two reports, which would be taken into account in preparing the government’s response.    [Back]

Note 4    CPPRAG Review, p 7, para iii.    [Back]

Note 5    The Lands Clauses Consolidation Act 1845 (largely re-enacted in the Compulsory Purchase Act 1965) remains the foundation of much of the law. Judges have commented on the difficulty of keeping “the primitive wording ... in some sort of accord with the realities of the industrial age”: Argyle Motors (Birkenhead) Ltd v Birkenhead Corporation [1975] AC 99, 129 per Lord Wilberforce. The problem is not limited to the older enactments: see eg Davy v Leeds Corporation [1964] 1 WLR 1218, 1224, per Harman LJ, describing s 6 of the Land Compensation Act 1961 as “a monstrous legislative morass”.    [Back]

Note 6    CPPRAG Review, para 20.    [Back]

Note 7    CPPRAG Review, para 24.    [Back]

Note 8    Compulsory Purchase and Compensation: a Scoping Paper (Law Commission, March 2001). The text is available on the Law Commission’s website (www.lawcom.gov.uk).    [Back]

Note 9    Compulsory Purchase and Compensation: Disregarding “the Scheme” – A Discussion Paper (Law Commission, October 2001) (also on the Law Commission’s web-site).    [Back]

Note 10    Compulsory Purchase and Compensation: delivering a fundamental change (DTLR, December 2001) referred to in this Report as the “Policy Statement”.     [Back]

Note 11    Policy Statement, foreword by Lord Falconer of Thoroton, then Minister for Housing, Planning and Regeneration.     [Back]

Note 12    Ibid, p 3.    [Back]

Note 13    Towards a Compulsory Purchase Code (1): Compensation (2002) Consultation Paper No 165.    [Back]

Note 14    Towards a Compulsory Purchase Code (2): Procedure (2002) Consultation Paper No 169.    [Back]

Note 15    Policy Statement, para 4.2.    [Back]

Note 16    Policy Statement, para 4.2.    [Back]

Note 17    Policy Statement, Appx, para 6.1.    [Back]

Note 18    Policy Statement, Appx, para 6.4.    [Back]

Note 19    Policy Statement, Appx, para 6.5.    [Back]

Note 20    See Part 8 of the Bill before Parliament as amended, on re–committal, by Standing Committee A.    [Back]

Note 21    ODPM, Planning and Compulsory Purchase Bill: Regulatory Impact Assessment (2002), para 80.    [Back]

Note 22    ODPM, Planning and Compulsory Purchase Bill: Regulatory Impact Assessment (2002), para 37. Basic and occupier’s loss payments may be made by an acquiring authority where (broadly) the claimant: has a qualifying interest (as defined) in the subject land; the interest is compulsorily acquired; to the extent that he is not entitled to a home loss payment; and where applicable, the claimant occupied the land for the requisite period.    [Back]

Note 23    ODPM, “Background Briefing on Compulsory Purchase Amendments” (Sept 2003) Source: www.odpm.gov.uk.    [Back]

Note 24    The tabled amendments seek to achieve these effects by amendment of the 1981 Act: ODPM, “Background Briefing on Compulsory Purchase Amendments” (Sept 2003) Source: www.odpm.gov.uk.    [Back]

Note 25    Law Commissions Act 1965, s 3(1).    [Back]

Note 26    Para 1.4 above.    [Back]

Note 27    See White Paper, Modernising the Law, Cm 4155 (December 1998), para 1.11.    [Back]

Note 28    In a speech to a Law Commission Conference in 2001 (“Catching the Eye of Government”), Lord Bach (Parliamentary Under-Secretary to the Lord Chancellor) confirmed the Government’s commitment to keeping the law “up-to-date, relevant and useable”, and to “keeping the Law Commission at the centre of the law reform process”.    [Back]

Note 29    CP 165, para 1.9.    [Back]

Note 30    Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1. The case was directly concerned with the rules for compensation for injurious affection where no land is taken; see para 11.6 below.    [Back]

Note 31    [2001] 2 AC 1, 8B.    [Back]

Note 32    CP 165, Part II, reproduced as Appx C to this report.    [Back]

Note 33    A curious example is the law relating to additional compensation for subsequent planning permissions, which was enacted in 1959, repealed in 1967 and re-enacted in 1991; our respondents were unable to provide any examples of its use in practice: see para 8.37 below.    [Back]

Note 34    In Appx 7 of CP 165 we referred to the discussion by Hutchison and Rowan-Robinson, “Utility wayleaves: a compensation lottery?” [2002] JPIF 159, where they identify five different approaches to compensation, in summary: (i) “utilitarian” – a small balance of advantage to encourage speedier settlement; (ii) “Rawlsian or justice as fairness” – those faced with expropriation should in fairness end up “marginally better off”; (iii) “financial equivalence”, by analogy with damages claims, the claimant should be as well off, but no better off, than before the acquisition; (iv) “householder’s surplus” – extra payment as a measure of solace to reflect loss of local ties etc (the same may apply to businesses); (v) “redistribution of profit” – offering owners a share of the equity from the subsequent development.    [Back]

Note 35    Including potential conflict with the Human Rights Act 1998.    [Back]

Note 36    The Government, in its Policy Statement, notes that more equitable rules may mean the amounts of compensation payable may increase, and that a consequence may be that acquisitions proceed more swiftly (see paras 1.15 – 1.17 above). We agree with this statement.    [Back]