The Law Commission

PART XI

COMPENSATION WHERE NO LAND IS ACQUIRED

Compensation for depreciation caused by public works

Introduction

11.1      Limited compensation rights are given by the current law to those in the vicinity of public works from whom no land is acquired, but who may nevertheless be adversely affected and, therefore, suffer loss as a consequence of the works. Such losses are traditionally described as "injurious affection".^[1] The existing law distinguishes between damage sustained during the construction of public works and damage sustained subsequently as a result of the use of the public works.
11.2      Strictly speaking, injurious affection where no land is taken from the claimant is not part of the law of compulsory purchase. The right to compensation is not dependent on compulsory purchase, but on loss in the value of land due to public works. It may arise where the land on which the works are carried out has been acquired by agreement.^[2] Historically, however, the rules were derived from the compulsory purchase statutes, and the claims are likely to arise out of the same projects as those giving rise to compulsory purchase.^[3] Accordingly, we considered it appropriate to deal with this issue as part of our review of compensation for compulsory purchase.^[4]

Existing law

11.3      The history and content of the relevant law was discussed in detail in CP 165.^[5] For present purposes, a summary of the present law is sufficient. It has two statutory sources:

(1) Section 10 of the 1965 Act, derived from section 68 of the 1845 Act, gives a right to compensation in respect of injurious affection caused by the "execution of the works". It is settled law that this section only gives a right to claim compensation for injurious affection caused by the construction of public works.^[6]

(2) Part I of the Land Compensation Act 1973 ("the 1973 Act"), which was introduced to mitigate the perceived defects of the existing law,^[7] gives a right to compensation where the value of land is depreciated by "physical factors" caused by the use of public works.

Section 10 of the 1965 Act: injurious affection due to the construction of public works

11.4      The wording of section 10 of the 1965 Act^[8] is opaque and on the face of it gives little clue to the content of the substantive right. Case-law, based on the equivalent section 68 of the 1845 Act, has established that the right to compensation is subject to four points (sometimes referred to as the "McCarthy rules"^[9]):

(1) The injurious affection must be the consequence of the lawful exercise of statutory powers, otherwise the remedy is action in the civil courts;

(2) The injurious affection must arise from that which will give rise to a cause of action if done without the statutory authority for the relevant scheme of works;

(3) The damage or injury for which compensation is claimed must be in respect of some loss of value of the land of the claimant;

(4) The loss or damage to the claimant's land must arise from the execution of the works and not from the authorised use of the lands compulsorily acquired following completion of the works.^[10]

These principles were recently re-affirmed by the House of Lords (albeit in a slightly different formulation) in Wildtree Hotels v Harrow London BC.^[11]

11.5      Rules (2) and (4) distinguish compensation under this section from compensation for injurious affection due to a claimant from whom land has been acquired (under section 7 of the 1965 Act).^[12] Rule (3) has the effect that compensation must be based on the diminution in the value of land, not personal inconvenience or loss of profits.^[13]
11.6      Rule (2) provides the conceptual basis for the claim. It is compensation for the deprivation by statute of the rights protected by the common law. Thus, if there would be no right of action under the common law, then no right has been lost, and no compensation is due. However, at common law there is no general liability for nuisance caused by construction works unless they are carried out without reasonable consideration.^[14] By the same token, compensation under section 10 is rarely due for noise and inconvenience caused during the construction period, unless actual damage has been caused to the claimant's building.^[15] The difficulty was explained by Lord Hoffmann in the Wildtree Hotels case:

Actionability at common law… depends upon showing that the building works were conducted without reasonable consideration for the neighbours. On the other hand, immunity from liability arising out of the construction of works authorised by statute is subject to a condition that the undertaker will "carry out the work and conduct the operation with all reasonable regard and care for the interests of other persons"…^[16]

Thus, if the work is carried out without reasonable consideration, it will be outside the scope of the statute altogether, and any remedy would have to be found, not in section 10, but in the common law.^[17]

Example (1) The claimants owned a hotel adjacent to land acquired under compulsory purchase by a local authority for the purposes of a five-year road improvement scheme. They claimed that the obstruction or closure of roads and pavements leading to the hotel, together with the noise, dust and vibration emanating from the site, had "injuriously affected" their land, by causing a diminution in the rental value of the hotel both during the works and for a period of time thereafter. They sought compensation under section 10 of the 1965 Act. It was held by the House of Lords: (i) The claim based on noise, dust and vibration caused by the construction of the works was rejected. The claimants had not established that they had an actionable common law claim, for which they would have to show that the works were constructed without reasonable consideration for neighbours.2 (ii) The obstruction of roads and pavements could be an actionable nuisance at common law, and the fact that it was temporary was not a bar to compensation under section 10. Compensation for temporary interference could be calculated by assessing the reduction in the letting value of the affected land during the period of interference. 1 Wildtree Hotels. 2 If they had demonstrated unreasonableness, the likely result would have been that the works would not be covered by statutory immunity, and their claim would have been for common law nuisance, rather than under s 10. It was accepted by the House of Lords that the combination of these considerations made it very unlikely that any such claim based on noise, dust and vibration would succeed under s 10 of the 1965 Act. Example (2)3 The Welsh Office undertook a major scheme of improvement of the A55. The claimants made a claim for compensation for the depreciation in value of their property due to the obstruction of their access and disturbance by physical damage (cracks to walls and ceilings due to vibration) caused by the construction of the works. The Lands Tribunal found in favour of the claimants and awarded them damages of £400. The Court of Appeal upheld the award. It drew a distinction between "the category of private nuisance that consists of interference with one's neighbour in the comfortable and convenient enjoyment of his land" and "the category that consists of causing actual damage to his land". It held that the Andreae principle did not extend to a nuisance that caused actual physical damage to the neighbour's land. 3 Clift v Welsh Office [1999] 1 WLR 796.

11.7      This restriction of compensation for nuisance during the construction period has been criticised, as not fairly reflecting the loss which may be caused by major public works. In the CPPRAG Review particular attention was drawn to this requirement:

The rule may cause particular injustice where the construction of public works (such as a highway) on neighbouring land extends over a prolonged period, causing a landowner to suffer damage or loss from noise, dust and vibration. Such damage may also be significant, particularly if the landowner's use of his land is for a trade or business which is affected by such disturbance.^[18]

Part I of the 1973 Act: injurious affection due to the use of public works

11.8      The provisions of Part I are complex. In brief, the right to compensation arises where: (a) the value of the claimant's interest in land has been depreciated; (b) the depreciation is caused by "physical factors"; (c) the physical factors are caused directly by the use of "public works"; (d) the use of the public works is immune from an action in nuisance; (e) the claimant's interest qualifies; (f) the claimant makes his claim at the correct time and in the correct manner; and (g) the compensation claim exceeds £50.^[19] It is not necessary to show that the injury would have been actionable apart from statutory authority.
11.9      The basic rules are set out in section 1:

(1) "Physical factors" are defined as "noise, vibration, smell, fumes, smoke, and artificial lighting and the discharge on to the land in respect of which the claim is made of any solid or liquid substance". ^[20]

(2) The source of the physical factors "must be situated on or in the public works the use of which is alleged to be their cause". Where, however, the physical factors are caused by aircraft arriving at or departing from an aerodrome, the aerodrome is to be treated as their cause (even if the aircraft are outside the aerodrome's boundaries).^[21]

(3) "Public works" are defined as "any highway, any aerodrome and any works on land (not being a highway or aerodrome) provided or used in the exercise of statutory powers".^[22]

(4) In respect of the use of public works other than highways, compensation is not payable unless immunity from an action in nuisance is conferred on the use of the works (expressly or impliedly) by an enactment relating to those works.^[23]

(5) The "relevant date" is defined, in the case of a highway, as the date on which it is first open to public traffic, and in the case of other public works as the date on which they are first used after completion.^[24]

11.10      The claimant must own a qualifying interest in a dwelling or land before the relevant date. In the instance of land which is a dwelling this is called an 'owner's interest' and defined^[25] as the freehold or a tenancy of which not less than three years remain unexpired at the date of claim. There are special provisions for tenants who are entitled to enfranchisement.^[26] Where the claimant's land is not a dwelling, the claimant must be an 'owner-occupier'^[27] and the land must either be an agricultural unit or have an annual value which is less than the 'prescribed amount', which is the same as that prescribed for the purposes of the blight provisions of the 1990 Act.^[28] The current amount prescribed for England and Wales is £24,600.^[29]

Consultation proposals

11.11      In CP 165 we discussed the development of the law, including the review which led to the 1973 Act.^[30] We also considered comparable provisions in other common law systems, including Australia and Canada.^[31] We thought there was justification for the differences in the rules for injurious affection, depending on whether land had been taken from the claimant:

In the case of the person from whom land is acquired, the issue is the price to be paid for what is taken. The rules are designed to arrive at a fair price, having regard to the value to the owner. In negotiating that price, the owner is entitled to expect the effects on his other land to be taken into account. In the case of the adjoining owner, there is no question of negotiating a price for what is taken. The closest analogy is with the common law rights of any landowner in relation to unreasonable use of his neighbour's land. Thus, the difference of approach represents a genuine difference in the nature of the claim…^[32]

We took the view that, by comparison with the other jurisdictions reviewed, the present rules could be regarded as -

… in substance (if not form, as regards the 1965 Act) a modern, and relatively generous framework of law, which is reasonably well regarded.^[33]

11.12      We concluded:

The 1973 Act is a modern and reasonably effective code, so far as it goes, but is limited to the effect of "use". The simplest and most logical approach would be to expand it to include provision dealing with the effect of the works, based on section 10 of the 1965 Act, but updated…^[34]

11.13      Accordingly, we proposed that the two regimes should in effect be merged on the basis of the provisions in Part I of the 1973 Act with the exception that where the market value of an interest in land is depreciated by "physical factors" caused by the construction of "public works",^[35] there should only be a right to compensation to the extent that a claim would have arisen at common law apart from the immunity conferred by the statute. Part I of the Land Compensation Act 1973 would, therefore, provide a complete code for compensation for injurious affection where no land is taken.
11.14      We also noted, without detailed discussion, the proposals by CPPRAG^[36] for the repeal of certain limits on the scope of Part I of the 1973 Act:

(i) The rateable value limit of £24,600, currently applicable to interests other than dwellings or agricultural units;^[37]

(ii) The requirement that loss of value is assessed by reference to existing use,^[38] and without regard to the prospect of new development. ^[39]

We commented that the rateable limit was difficult in principle to justify, since the consequences of the scheme "may be equally or more serious for those concerned in large enterprises";^[40] and that we saw force in CPPRAG's criticisms of the "existing use" rule. However, we considered that the potential cost implications raised policy issues which would need to be addressed by Government.^[41]

Consultation

11.15      We sought views of consultees on the following issues:

(1) whether the new law should be based substantially on the existing law, as established by the Wildtree Hotels case, and Part I of the 1973 Act;

(2) whether or not the provisions in respect of construction and use should be merged, and if so whether this should be on the basis of Part I of the 1973 Act;

(3) whether compensation should be limited to diminution in the market value of the affected land;

(4) should compensation for the effect of "physical factors" due to construction of the works be restricted to circumstances for which a claim would have arisen at common law?

11.16      There was general support for the proposals that the new law should be based substantially on the existing law, and that it should take the form of an amended version of Part I of the 1973 Act.
11.17      The other two issues proved more controversial. As to whether compensation should be limited to diminution in the market value of the affected land, as we have said, under the present law, compensation is payable only for the depreciation in value of the land, not for business losses or personal suffering or inconvenience. Any expansion of the extent of compensation, for example to include loss of profits, temporary or permanent, would represent a significant change to the current law. The responses of consultees were divided. Predictably, those likely to be undertaking public works were generally opposed to expanding the range of compensatable losses, while those representing the interests of landowners supported it.^[42] Some authorities, while acknowledging the fairness of compensating for temporary or permanent losses which could be shown to be directly attributable to the project, were concerned at the likely compensation costs, and the impact that these might have on the financial viability of a project.^[43]
11.18      There was a similarly divided response to the question whether compensation for the effect of the construction of the works should continue to be restricted to circumstances for which a claim would have arisen at common law. Those who opposed the restriction emphasised the fact that many public works constructions were on a large scale and could last for several years, and, therefore, were different in nature from private projects for which the common law had been designed. Those who supported it were concerned at the difficult of setting clear limits to the right, and the additional costs which would be caused.

Conclusion

11.19      Three clear points emerged from our review:

(1) Compensation for injury to land caused by the use of public works should continued to be governed by Part I of the 1973 Act, subject to limited amendment;

(2) Section 10, governing the compensation for injury caused by the execution of public works, needs to be recast in modern form;^[44]

(3) Since neither right is dependent on compulsory acquisition, it would be logical for the revised section 10 to be enacted by way of insertion into Part I of the 1973 Act, rather than by inclusion in the new compulsory purchase code.

11.20      Our recommendation is designed to preserve the balance of the existing law, which does not give rise to obvious anomaly or unfairness. We are sympathetic to the view expressed by CPPRAG, that the scale of many public works makes it inappropriate to apply to them the same criteria as to private operations. However, if that criterion is removed, the nature of the right changes. It is no longer simply compensation for loss of an existing right, given by the common law, but the creation of a new more extensive right, applicable only to injury caused by public works. That indeed is the effect of the 1973 Act in relation to the use of public works. However, the detailed rules have been designed to produce a workable scheme with defined limits.
11.21      The decision whether to make a similar extension to the rights of those affected by the construction period must be one of policy, taking account of the additional costs which it would entail for public authorities. In order to restrict the multiplicity of claims, it might be appropriate to consider practical limitations (for example, by setting a threshold related to the amount of the claim; or limits by reference to the timescale of the works, or the distance of the claimant's property from the site of the works). It will also be necessary to establish detailed rules for the assessment of the claim. Detailed work of this kind must await a policy decision on the issues of principle.
11.22      We are on firmer ground when considering the extension of compensation beyond loss in the value of land. Although this also would add to the costs imposed on public authorities, there is no reason in principle why the extent of compensation should differ materially from the corresponding common law right which is not so limited.^[45] It would be consistent with our proposals for compensation for acquisition of land, where such losses would be included as "consequential loss".^[46] Furthermore, in view of the limited circumstances in which the right to compensation can arise under the present law,^[47] the additional cost is unlikely to be substantial. This approach follows that of the relevant Ontario statute, which has this definition of "injurious affection":

… where the statutory authority does not acquire part of the land of the owner,

(i) such reduction in the market value of the land of the owner,

(ii) such personal and business damages,

resulting from the construction and not the use of the works by the statutory authority, as the statutory authority would be liable for if the construction were not under the authority of a statute.^[48]

Example The claimants were tenants of premises from which they carried on a car dealing business. The corporation, under the authority of a local Act (which contained a provision equivalent to section 10 of the 1965 Act)2 undertook redevelopment work in the adjoining area. No land was acquired from the claimants, but access to their premises was interrupted temporarily during the construction period, and permanently by the completed works. They claimed compensation for loss of profits. The claim was rejected by the House of Lords, because compensation could only be recovered for depreciation in the value of the claimant's interest in land. Under the Law Commission's recommendation loss of profits could in principle be recovered as consequential loss, if not adequately reflected in the decrease in the value of land. 1 Argyle Motors (Birkenhead) Limited v Birkenhead Corp [1975] AC 99. 2 For simplicity, we have omitted reference to the particular terms of the local Act, which were a complicating feature of the case.

Recommendation

11.23      Our proposals under this Part will not form part of the compulsory purchase code, and they are subject to policy decisions on a number of issues noted above. Accordingly, we make the following provisional recommendations:

Rule 22 Depreciation caused by public works

(1) Compensation will be payable for depreciation caused by the construction or use of public works where no land is taken, in accordance with Part I of the Land Compensation Act 1973 (expanded and amended to provide a complete code of compensation for such depreciation).

(2) The following rules should apply in relation to loss caused by construction:

(a) The claim may be made by any person with a qualifying interest (as defined in section 2 of the 1973 Act) at the date of commencement of the works;

(b) Compensation shall be payable for any depreciation in the market value of the qualifying interest, and any consequential loss (not reflected in the value of land),

(i) which was caused by the construction of the works under statutory authority; and

(ii) for which the statutory authority would have been liable to pay damages if the construction had not been authorised by statute.

(3) The following provisions of the 1973 Act, Part I should be repealed:

(a) sections 2(3) and (6) (rateable value limit of £24,600, currently applicable to interests other than dwellings or agricultural units);

(b) section 4(5) (existing use only);

(c) section 5 (requirement to assume that no permission would be granted for new development).

Note 1    This term is not defined in statute. The term “injuriously affected” has been interpreted in the context of ss 7 and 10 of the 1965 Act as referring to circumstances where land is affected in such a way that its value is depreciated.    [Back]

Note 2    See Re Elm Avenue, New Milton [1984] 1 WLR 1398.    [Back]

Note 3    See CP 165, para 9.3.    [Back]

Note 4    This view was echoed in the Policy Statement, para 3.77: Although the right to compensation where no land is taken does not depend on compulsory acquisition, it makes sense to consider it in parallel with the compulsory purchase compensation code. Not only do both types of claim often arise in connection with the same scheme, it is also appropriate to consider the extent to which the compensation payable where no land is taken should be analogous with that payable with regard to the retained land where part of the claimant’s land is acquired compulsorily.    [Back]

Note 5    This is discussed in CP 165 at paras 9.10ff.    [Back]

Note 6    Hammersmith and City Railway Co v Brand (1869) LR 4 HL 171; see CP 165, paras 9.23 – 9.24.    [Back]

Note 7    See CP 165, para 9.8 and 9.25ff.    [Back]

Note 8    1965 Act s 10 provides: If any person claims compensation in respect of any land, or any interest in land, which has been taken foror injuriously affected by the execution of the works, and for which the acquiring authority have not made satisfaction under the provisions of this Act, or the special Act, any dispute arising in relation to the compensation shall be referred to and determined by the Lands Tribunal. The emphasised words provide the sole statutory basis for compensation where no land is taken. The “works” are defined as “the works… of whatever nature, authorised to be executed by the special Act” (1965 Act s 1(4)); the “special Act” means “the enactment under which the purchase is authorised and the compulsory purchase order”: (1965 Act s 1(2)).    [Back]

Note 9    After the leading case, Metropolitan Board of Works v McCarthy (1874) LR 7 HL 243. Although the principles were established in that case, the House of Lords did not state the “rules” as such, and the formulations vary in the cases.    [Back]

Note 10    This formulation is taken from counsel’s submissions, adopted by the Court of Appeal in Clift v Welsh Office [1999] 1 WLR 796, 801. He added a fifth rule: “(5) The amount of compensation must be ascertainable in accordance with the general principles which apply to damages in tort.” However, the rules are more usually expressed as four rules (the fifth, no doubt, being treated as implicit): see eg the CPPRAG Review, para 193.    [Back]

Note 11    [2001] 2 AC 1.    [Back]

Note 12    See Part III above.    [Back]

Note 13    Argyle Motors (Birkenhead) Ltd v Birkenhead Corp [1975] AC 99.    [Back]

Note 14    Andreae v Selfridge & Co Limited [1938] Ch 1 (the “Andreae principle”).    [Back]

Note 15    See Clift v Welsh Office [1999] 1 WLR 796, where the claim was allowed in so far as it related to actual damage, as opposed to inconvenience.    [Back]

Note 16    Wildtree Hotels at p 13C.    [Back]

Note 17    This theoretical problem should be mitigated by our proposal to give extended jurisdiction to the Lands Tribunal, to deal with common law claims arising out of the same facts as a statutory claim: see Rule 20 above.     [Back]

Note 18    CPPRAG, para 196.    [Back]

Note 19    Reproduced from Butterworths Compulsory Purchase and Compensation Service Division F para [302].    [Back]

Note 20    1973 Act, s 1(2). Physical factors involving vehicles on the highway, or accidents involving aircraft, are excluded: s 1(7).    [Back]

Note 21    1973 Act, s 1(5).     [Back]

Note 22    1973 Act, s 1(3).    [Back]

Note 23    1973 Act, s 1(6).    [Back]

Note 24    1973 Act, s 1(9).    [Back]

Note 25    1973 Act, s 2(3)(a).    [Back]

Note 26    See the Leasehold Reform Act 1967, Part I and Leasehold Reform, Housing and Urban Development Act 1993, Part I.    [Back]

Note 27    1973 Act, s 2(3)(a), defined by s 2(5).    [Back]

Note 28    1973 Act, s 2(3), (5), (6).    [Back]

Note 29    Town and Country Planning (Blight Provisions) (England) Order 2000, SI 2000, No 539; Town and Country Planning (Blight Provisions) (Wales) Order 2000, SI 2000, No 1169.    [Back]

Note 30    CP 165, para 9.65ff.    [Back]

Note 31    CP 165, para 9.57ff. We included, as Appx 4 to CP 165, the comprehensive discussion of this issue by the Australian Law Reform Commission in 1980, together with extracts from their proposed draft Bill (not in the event adopted); and s 1 of the Ontario Expropriations Act RSO 1990.     [Back]

Note 32    CP 165, para 9.71. We disagreed with suggestions that this difference could be regarded as contravening the European Convention on Human Rights: ibid para 9.69 – 9.70.    [Back]

Note 33    CP 165, para 9.72.    [Back]

Note 34    CP 165, para 9.82.    [Back]

Note 35    “Physical factors” and “public works” will be defined as in 1973 Act, s 1.    [Back]

Note 36    CP 165, para 9.55.    [Back]

Note 37    1973 Act, s 2(3), (6).    [Back]

Note 38    1973 Act, s 4(5).    [Back]

Note 39    With the exception that planning permission would granted for “third schedule development” (s 5(1), the prospect of any new development (whether under an existing permission or an assumed future permission) is to be disregarded (s 5(4)). If, as we propose the concept of “third schedule development” is abolished (Rule 15), the exception will become redundant.     [Back]

Note 40    We thought it arguable that such discrimination might breach Article 14 of the European Convention on Human Rights.    [Back]

Note 41    CP 165, para 9.81.     [Back]

Note 42    As well as support for compensation for business losses, mention was made of the need for compensation for the loss of view, which could significantly affect the valuation of country houses.    [Back]

Note 43    We are grateful to the Independent Compensation Surveyors’ Association for drawing our attention to a parallel with compensation for pipe-laying works under Water Industry Act, Sched 12, para 2. Compensation is payable for depreciation in the value of the subject land or land held with it (para 2(1)), and for loss which would be subject to a claim for disturbance, if the land had been compulsorily acquired (para 2(2)).    [Back]

Note 44    It needs to be borne in mind that 1965 Act s 10 (or 1845 Act s 68) have been referred to in many local or private Acts. In order to minimise the need for detailed consideration of these Acts (many of which are likely to be obsolete), it may be impracticable to repeal s 10 outright.     [Back]

Note 45    See eg Grosvenor Hotel Co v Hamilton [1894] 2 QB 836, 840.     [Back]

Note 46    Part IV above.    [Back]

Note 47    See para 2.9ff above.     [Back]

Note 48    Ontario Expropriations Act RSO 1990 s 1(1)(b): see CP 165, p 277. In CP 165, para 9.77, we proposed to confine the right to damage caused by “physical factors” as defined by the 1973 Act, s 1 (see para 11.9 above). However, this definition may be too narrow, if, as we think, the rule should reproduce the common law position (for example, the list does not include interruption of access: cf Clift v Welsh Office [1999] 1 WLR 796 where the court found that the claimants had suffered special damage sufficient to form the basis of an action under section 10 due to the interference with their use of roads and footpaths providing access to their property).    [Back]