The Law Commission

PART IV

THE COMPENSATION CODE – HEADS C AND D

Head C: consequential loss

Introduction

Existing law

4.1      In CP 165 we described the history of the right to compensation for "disturbance",^[1] and its preservation, following the introduction of the "market value" test under rule (2), by what is now section 5(6) of the 1961 Act:

The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.^[2]

We noted one frequently cited statement of the rule:

… any loss sustained by a dispossessed owner…^[3] which flows from a compulsory acquisition may properly be regarded as the subject of compensation for disturbance provided first that it is not too remote and, second, that it is the natural and reasonable consequence of the dispossession of the owner.^[4]

4.2      We noted typical examples of claims allowed under this rule:

(1) Moving house (removal costs, adaptation of furnishings, etc);

(2) Relocating a business (cost of search for new premises, removal costs, adaptation of new premises, temporary loss of profits, partial loss of goodwill etc.);

(3) Where the business cannot be relocated, value of the business on a "total extinguishment" basis (including value of goodwill, closure costs etc.);

(4) Legal and professional fees;

(5) Additional tax liabilities.^[5]

Consultation proposals

4.3      Our Proposal 4 retained the traditional term "disturbance". It began with a general definition:

"Disturbance" means any monetary loss or expense, not directly based on the value of land, suffered or incurred by the claimant and fairly attributable to displacement in consequence of the compulsory acquisition of the subject land.

There were then set out six sub-rules, to be applied "without prejudice to the generality" of the definition, covering:

(1) Personal circumstances;

(2) Legal and professional costs;

(3) Compensation for relocation of a business;

(4) Replacement of buildings and other installations;

(5) No claim for losses before the first notice date;

(6) Non-occupiers' expenses of acquiring replacement land.

The reasons for these sub-rules were discussed in the Paper.^[6] Finally, we proposed that the existing rules^[7] allowing traders over 60 to claim business compensation on a "total extinguishment basis" should be preserved.

"Disturbance" or "consequential loss"?

4.4      In using the term "disturbance", we recognised that it was a form of shorthand,^[8] since this head of compensation was not confined to the effects of disturbance, in the sense of displacement of occupation. We noted that other categories of losses, such as professional fees,^[9] have been allowed under rule (6), not as "disturbance" but as matters "not directly based on the value of land".^[10]
4.5      Some consultees,^[11] however, have proposed that the term "disturbance" is misleading, and should be discarded, in favour of a more general term, such as "consequential loss". They have also pointed out that our proposed general definition, which confines this head of claim to the consequences of "displacement",^[12] fails to give effect to the second part of rule (6). We agree with these comments.
4.6      They have led us to review in more detail the authorities relating to the second part of rule (6), notably the 1993 decision of the Court of Appeal in Wrexham Maelor BC v MacDougall.^[13] Our attention has also been drawn to a 1996 decision of the Irish Supreme Court, Dublin City v Underwood,^[14] which contains a valuable discussion of the authorities in the context of the identical rule in that jurisdiction.^[15] Although the Wrexham case does not appear to have been cited to the Irish court, the reasoning of the two decisions is similar. Taken together they strongly support the RICS view that the term "disturbance" fails to reflect the full scope of rule (6).
4.7      It appears that the significance of these authorities, in relation to claims of non-occupiers, may not be widely appreciated. We therefore think it useful to describe the facts and reasoning of each case in some detail, before considering whether and (if so) how they should be reflected in the new Code.

The Wrexham case

4.8      The first claimant, M, had a leasehold interest in office premises, which were compulsorily acquired by the Council. He had carried on there an insurance business through two companies, one of which, C Ltd, was also a claimant. He and his wife owned all the shares in C Ltd, and he also had a service agreement with it. C Ltd itself had no compensatable interest in the property, but the Lands Tribunal awarded it £263,000 as compensation for the extinguishment of the business, under section 37 of the 1973 Act.^[16] M, as owner of the lease, was entitled to compensation for the value of that interest (under rule (2)), but he also made a claim, under rule (6), for loss of the value of his service agreement, on the extinguishment of the business. The Tribunal held that this was a valid separate claim, not involving any "double-counting", and awarded him some £61,000. This was upheld by the Court of Appeal.^[17]
4.9      The case is obscured by some aspects of the factual background and of the course of the proceedings. However, the only relevant aspect for present purposes is the court's treatment of the claim under rule (6). The council had disputed M's claim on grounds of causation, remoteness, and "most important" that

… not having been in occupation of the premises acquired he had no right in law to such an award.^[18]

On the latter point, counsel for M conceded that there could be no claim for "disturbance" by an owner not in occupation, but rested his claim on the second part of rule (6).^[19] Ralph Gibson LJ accepted that there was nothing in the decided cases to confine the words "compensation for any other matter" to items of cost only.^[20] He expressed surprise that the point had not previously been considered in the Court of Appeal, but observed:

It must, I think, be uncommon for the owner of an interest which is compulsorily acquired, and who is not in occupation, to be able to point to some significant damage, consequent upon the taking of his interest, other than costs and expenses, which is the natural and reasonable consequence of the taking of his interest and not too remote.^[21]

4.10      He also noted the decision of the House of Lords in Woolfson v Strathclyde Regional Council,^[22] where on facts "strikingly similar" to those before him, no award was allowed for the "special value" of the land to the owner (W) by reason of his control of the company (C) carrying on business there. Lord Keith said:

This line of argument was unsupported by authority and in my opinion it also lacks any foundation of principle. The fact of the matter is that C was the occupier of the land and the owner of the business carried on there. Any direct loss consequent on disturbance would fall upon C, not W. In so far as W would suffer any loss, that loss would be suffered by virtue of his position as principal shareholder in C, not by virtue of his position as owner of the land. His interest in the loss is at best an indirect one…^[23]

4.11      Ralph Gibson LJ did not regard this decision as fatal to M's case. He noted, and apparently accepted, counsel's submission that Lord Keith was addressing a claim based on "disturbance" only, and that the claim failed because on the facts the loss had been found not to be directly consequential on the taking.^[24] Finally, he said that he could see no sensible legislative purpose in the distinction drawn by the council's case.^[25] He concluded:

I have reached the conclusion that the council has failed to identify any error of law by the member in holding that M was entitled to claim in respect of the loss of the service agreement. Such a claim is not excluded merely because M was not in occupation. Further, in my judgement, upon the facts before the member and as found by him, it was, I think, open to the member to conclude that such a claim was not excluded as too remote in law.^[26]

The Dublin case

4.12      The council compulsorily acquired two properties, in which the claimant held a leasehold interest, but which he did not occupy. He had bought them as investments. It was found that he intended to use the compensation money to buy a suitable replacement property investment, and that the cost of reinvestment (including stamp duty and legal and agents fees) would be 8.5% of the purchase price. The issue was whether he was entitled to recover this cost under rule (6).
4.13      The council relied on "a series of English decisions" as having established that a claimant in such a position could not recover his re-investment costs in addition to the market value under rule (2). However, having reviewed the authorities, the court concluded that the only support for the council's case was in a passage in the judgment of Denning LJ in Harvey v Crawley DC,^[27] and a Lands Tribunal decision "which was presumably based on those observations".^[28] The passage in question was discussing the compensation payable on compulsory acquisition of a house. Denning LJ contrasted the compensation payable for disturbance to an owner-occupier, with the position of an investor:

Supposing a man did not occupy a house himself but simply owned it as an investment. If he chose to put the money into stocks and shares, he could not claim the brokerage as compensation. That would be much too remote. It would not be the consequence of the compulsory acquisition but the result of his own choice in putting the money into stocks and shares instead of putting it on deposit at the bank. If he chose to buy another house as an investment, he would not get the solicitors' costs on the purchase. Those costs would be the result of his own choice of investment and not the result of the compulsory acquisition.^[29]

Keane J accepted that this passage reflected the view that in a case such as that before him the cost of re-investment would not be recoverable; but he also noted that the passage was "clearly obiter" and was not expressly assented to by the other members of the court.

4.14      Keane J agreed with the court below that, in the absence of authority, the issue had to be decided as one of principle, in line with Horn v Sunderland Corporation, and that

… the (claimant) was entitled to be compensated on the basis of equivalence and… should recover neither less nor more than his total loss.^[30]

Reference was also made to the "constitutional prohibition of unjust attacks on the property rights of citizens".^[31] The claim was allowed. The claimant had held the properties as an investment; he would have continued to hold them as such if they had not been compulsorily acquired; and he wished to replace them with a corresponding investment. Unless he were paid the costs of replacing the properties he would not have been fully compensated for the loss of his existing investment property. Keane J saw no reason for treating such re-investment costs as too remote:

They are the immediate and direct consequence of the compulsory acquisition of the (claimant's) property. While it may be that the expression "compensation for disturbance" should properly be confined to those losses which are sustained by a person actually in occupation of the acquired premises, I see no reason why such costs should not be recoverable as one of the "other matter(s) not directly based on the value of land" which are the subject of compensation under rule (6).^[32]

Comments

4.15      In our view, the Wrexham case must be taken as binding Court of Appeal authority for the proposition that, in relation to a claim by a person with a compensatable interest:

(1) compensation under the second part of rule (6) is not limited to loss to occupiers;

(2) it is not limited to claims for costs or expenses; and

(3) it extends to any loss attributable to the compulsory acquisition, subject only to the ordinary principles of causation and remoteness.^[33]

The Dublin case is strong persuasive authority in support of a similar approach, at least in relation to (1) and (3), and in particular for including loss to investor-owners in limited circumstances. Its persuasive weight is increased by the fact that it was arrived at independently of the reasoning in the Wrexham case, and after full consideration of the other leading English authorities.

4.16      At the same time regard must be had, in both cases, to the particular facts. Each case depended on a favourable finding on causation and remoteness. In the Wrexham case, it was held that the loss of the service agreement was the natural and reasonable result of the acquisition and was not too remote.^[34] In Dublin the court attached importance to the facts that the property was held for investment purposes, and that the compensation was to be used for precisely the same purpose. A similar claim probably would not have been allowed, if, for example, an owner-occupier following compulsory purchase had chosen to rent a home, and put his money into investment property.^[35]
4.17      We conclude that the distinction between the two parts of rule (6) is redundant. The general rule should be that any loss caused by the acquisition should be allowable, provided it is not too remote, whether or not the claimant is in occupation. We think there is advantage in retaining the equivalent of 1961 Act section 10A, in the interests of certainty, but this should be without prejudice to the general rule.^[36] Accordingly, in our recommendation, we have decided to adopt the terms "consequential loss" rather than disturbance; and to omit the limitation to loss attributable to "displacement".

Particular issues

4.18      In CP 165,^[37] we commented on a number of issues relevant to our proposals for disturbance. The particular issues were:

(1) Wording of the causation test;

(2) Failure to mitigate;

(3) Personal circumstances;

(4) The test of "reasonableness" in relation to relocation versus extinguishment;

(5) Partial relocation;

(6) Starting date for disturbance compensation;

(7) Other points of detail

4.19      Generally, our approach was supported on consultation, and it is unnecessary to repeat the previous discussion. We comment only on those points on which we have revised our proposals following consultation.

Wording of the general rule

Causation

4.20      Our intention is that the Code should include a general rule apt to reproduce the established principles under rule (6). In the Consultation Paper,^[38] we noted Lord Nicholls' comments in Shun Fung on the "familiar and perennial difficulty" in seeking to achieve precision in the criteria to be applied "in the infinitely different sets of circumstances which arise".^[39] We adopted his expression "fairly attributable" as sufficiently encompassing the ordinary principles.^[40]
4.21      The precise formulation of such a general rule will be a matter for the draftsman in due course. However, on further consideration, we think that it may be preferable to base it more closely on the traditional wording. There is in effect a two-fold test for loss to qualify: first, that it is not too remote and, secondly, that it is the natural and reasonable consequence of the acquisition.^[41] Use of such wording would not only underline the link with the existing case-law,^[42] but also emphasise the significance of remoteness as a limit on the width of the principle, as illustrated by the Wrexham and Dublin cases.

Matters based on the value of land

4.22      It is implicit in the case-law, and expressly stated in rule (6), that compensation for consequential loss excludes items "directly based on the value of land".^[43] Loss represented by the value of the subject land, or by the diminution in value of retained land, is compensated under other heads; it must therefore be excluded from rule (6).

Value for money

4.23      A similar approach is reflected in the rebuttable presumption that, where a higher price is paid for relocation premises, the claimant has received "value for money", and cannot therefore claim the extra cost under rule (6).^[44]

Example1 The claimant's office premises were compulsorily acquired. They leased new premises. However, these were larger than their original premises and although they sub-let the accommodation which was surplus to their needs they were not able to do so immediately and, when they did so, they did not make a profit for 4 years. The claimants sought to recover compensation for disturbance in respect of a range of items including the increased operating costs at the new premises and the initial loss they incurred on the sub-letting. They were disallowed by the Lands Tribunal, and their decision was upheld by the Court of Appeal.2 1   J A Bibby & Sons Ltd v Merseyside County Council (1980) 39 P&CR 53. 2   Increased operating costs were only compensatable "..if it were shown, first, that the claimant, as a result of compulsory purchase, had no alternative but to incur the increased operating costs concerned, and, secondly, that he had had no benefit as a result of the extra operating costs that would have made incurring them worthwhile" (ibid p 60 per Brandon LJ).

4.24      Circumstances where it has been considered that value for money has been provided, and therefore the presumption not rebutted, include: structural improvements to new premises;^[45] higher rental for better premises;^[46] interest incurred on a bridging loan that the claimant could have avoided by making earlier reference to the Lands Tribunal;^[47] and delay in the payment of compensation until new premises were built and the old vacated, resulting in interest being incurred to finance the erection of a new building.^[48]

The new Code

4.25      It is our intention that these principles (including the presumption of value for money) should be retained in the new Code.
4.26      It has been suggested by one consultee^[49] that the wording of rule (6) ("directly based" on the value of land) may be too wide, since

…some disturbance losses are directly based on land value such as fees, and replacement accommodation cost (albeit not subject land or retained land value).

We see some force in this point, although it depends on the weight given to the word "directly". This will be largely a matter of drafting in the new Code. However, we agree that it needs to be made clear that items such as fees are not excluded merely because the amount is fixed by reference to the value of land.^[50] Furthermore, extra costs relating to replacement accommodation are likely to be excluded by the "value for money" principle; but not solely because they are measured by reference to the value of land.

Personal circumstances and mitigation

4.27      We proposed that the rules should provide expressly that, in assessing consequential loss, the personal circumstances of the claimant were a relevant factor.^[51]
4.28      This was largely in response to criticism, in this country and elsewhere, of a 1965 case, in which the Court of Appeal held that where a claimant was unable to re-establish his business, and thereby mitigate his loss, because of ill health, he could not claim compensation for the total extinguishment of goodwill.^[52]

Example1 The acquiring authority compulsorily purchased the claimant's premises. The claimant purchased other premises which would have been suitable for transfer of the business, but, due to his ill health, he let them to another company, in which he took salaried employment. The tribunal found that, if he had been in good health, he would have been able to transfer the business. It rejected his claim for compensation on a total extinguishment basis. The decision was upheld by the Court of Appeal. 1 Ibid.

The rule was partly mitigated by statute in 1973, by giving traders over 60, in certain circumstances, a statutory right to claim compensation on the basis of total extinguishment, even where relocation might be possible.^[53]

4.29      There was general support for this proposal from consultees. However, the terms of some of the responses have caused us concern that a reference to "personal circumstances", unless more clearly defined, may introduce undesirable uncertainty. For example, one consultee welcomed the proposal as providing a possible means to compensation for the effects of negative equity for mortgagors. Another referred to compensating for the loss of land with "sentimental value". A contrary view was that it was impractical for authorities to "budget for the personal circumstances of the claimant". While we recognise the problems of negative equity, it was not our intention, and we do not think it appropriate, to find a solution by a significant widening of the law of consequential loss.^[54] Nor was it our intention to allow the amount payable for the land to be increased by sentimental considerations peculiar to the claimant.
4.30     The particular problem we were seeking to address was concerned with inability to mitigate loss by relocating the business, as illustrated by the Bailey case. We remain of the view that the new Code should go beyond the limited amendments made by the 1973 Act. Compensation should not be reduced, where, due to such factors as age, illness or disability, the claimant cannot reasonably be blamed for his failure to mitigate his loss. However, we now think that this is best addressed in the context of the rules relating to relocation and mitigation, rather than by introducing an express reference to "personal circumstances" under the general rule for consequential loss.^[55]

Relocation versus extinguishment

4.31      Where a business is displaced by the acquisition, the question may arise whether compensation should be paid on the "relocation" or "total extinguishment" basis. Normally it will be in the interests of both claimant and authority for the business to be relocated. Compensation will be based on the costs of moving, and any temporary loss of profits. However, in some cases it may be impracticable to relocate the business on another site, in which case the business will be extinguished, and compensation will be based on its value as a going concern.
4.32      In some cases it may only be possible or necessary to relocate part of a business:^[56]

Example1 The authority compulsorily purchased land, comprising a bottlery which was part of the claimant's brewery. The claimants constructed a new bottling plant on a site sold to it by the authority. The Lands Tribunal held that, since the bottling plant was a vital part of a single undertaking, the proper measure of compensation for disturbance was, not the market value of the old plant, but the cost of providing a replacement bottlery of equivalent standard. A deduction was made from the actual cost of the new bottlery to take account of the facts (1) that at the end of 10 years the claimants would have a better bottlery than they would have had; and (2) that the new bottlery would be cheaper to operate. 1 Tamplin's Brewery Ltd v County Borough of Brighton (1971) 22 P&CR 746.

4.33      In the Consultation Paper we discussed the existing case law on this issue, including the important decision of the Privy Council in Director of Buildings and Land v Shun Fung Ironworks.^[57] The subject land in that case was a steel-works in Hong Kong. The case was unusual in that the compensation assessed by the Tribunal on a relocation basis (to China, in the absence of a suitable site in Hong Kong) was substantially higher than that based on the total extinguishment of the business. It was therefore, exceptionally, in the interests of the authority to argue against the relocation basis.
4.34      The relevant questions were explained by Lord Nicholls:

Three principal questions arise on relocation claims. (1) Can the business be relocated, or has it effectually been extinguished? Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exist. If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis. (2) Does the claimant intend to relocate? The claimant must have reached a firm decision to relocate his business, and he must be reasonably assured that he will be able to do so. (3) Would a reasonable businessman relocate the business?^[58]

4.35      We considered but rejected the suggestion that the new Code should contain a detailed statement of the rules governing the choice between the two bases of claim.^[59] However, we thought it helpful to confirm that compensation on the relocation basis may be allowed, even if it exceeds that on extinguishment. We also had doubts about the suitability of the "reasonable businessman" test, stated in Shun Fung, as a criterion for general application.^[60] Accordingly, we proposed the following (as Proposal 4(2)(c)):

Where compensation is claimed on the basis of the relocation of a business from the subject land, compensation on the relocation basis shall not be refused solely because it exceeds the compensation which would be payable on the extinguishment basis, unless, in the opinion of the Tribunal, it is unreasonable in all the circumstances (including the cost to the authority and the value of the business to the claimant) to assume relocation of the business.

4.36      The responses to consultation showed general agreement as to the principles to be applied. There was, however, a considerable divergence of views as to how they should be expressed in the Code, particularly as to the requirement of "reasonableness", and the burden of proof. Part of the difficulty lies in the diversity of circumstances which need to be considered. The presumption should normally be in favour of relocation, as being in the interests of both parties. However, their interests may not necessarily be served by relocation, as the Shun Fung case demonstrates. Although the facts of that case were exceptional, the Code needs to cater for cases where the authority rather than the claimant is arguing for compensation on a total extinguishment basis.
4.37      In the light of these considerations, we think it is desirable to spell out in rather more detail the rules relating to this issue. In principle, we think that the presumption should be in favour of relocation, and that the burden of proof should lie on the party which seeks to establish compensation on a different basis. We adhere to the view that the test in the Code should be a modified form of the Shun Fung guidance. For the reasons explained in the Consultation Paper, we prefer not to express the general test in terms of the "reasonable businessman", although that test may provide a suitable criterion of reasonableness in some cases.^[61]
4.38      Our recommendations, giving effect to these principles, are set out below.

Replacement of buildings

4.39      There was general agreement with our proposal that there should be specific provision for the cost of replacement buildings and other installations.^[62] This arose from an issue raised by CPPRAG in relation to injurious affection,^[63] relating to the lack of compensation for the replacement of agricultural buildings, made necessary by severance, where the cost is not adequately reflected by compensation based on reduction in market value.^[64] The Policy Statement suggested that this was more appropriately dealt with as part of compensation for disturbance.^[65] We agreed, as did most of our respondents.^[66] There was also general agreement with our view that this right should extend to all type of businesses; and that, subject to the test of reasonableness, it should apply whether the building which needs to be replaced is on the subject land or retained land, and wherever the replacement building is to be located.

Example1 Part of the claimant's farm was compulsorily purchased. All the farm buildings with the exception of a modern corn store had to be demolished as they were on the acquired land, and the area of the farm was reduced by 9 acres. It was necessary to construct a new road to serve the farmhouse, and cattle had to be transported in trucks from one part of the farm to the other. The Tribunal disallowed a claim for the cost of the new buildings and works on the retained land, and limited the claim to one for severance, based on the diminution in value of the retained land.2 Under our proposals, the cost of replacement would be allowed as consequential loss, if not adequately reflected in the award for injury to retained land (based on decrease in market value). 1 Cooke v Secretary of State for the Environment (1974) 27 P&CR 234, LT. 2 The Tribunal held (following Re Stockport Ry (1864) 33 LJQB 251) that compensation was to be assessed by reference to "the difference between the value of the land not taken before the severance or other injurious affection and the value after that date", and that the values are to be arrived "on the same basis as the value of the land acquired, ie by reference to market values…" (27 P&CR 234, 238). In reading the case, it needs to be borne in mind that, although the farm was owned by the claimant, he was not the occupier. It had been let to the claimant's son, who had made a separate claim which had been settled (on terms which are not disclosed in the report). The Tribunal proceeded on the basis that the claimant, not being in occupation, could not claim under rule (6). In the light of the Wrexham case (see para 4.15 above) this assumption is doubtful.

Starting date for disturbance compensation

4.40      The Shun Fung case established that losses incurred from the time of the announcement of the proposed acquisition, even though preceding the date of acquisition or entry, could be included in the claim:

… losses incurred in anticipation of resumption and because of the threat which resumption presented are to be regarded as losses caused by the resumption as much as losses arising after resumption.^[67]

We followed the Policy Statement in proposing that there should be a starting-date for such losses, and that it should be the "first notice date".^[68] We did not consult in terms on this issue, which had already been subject to consultation following the CPPRAG report.

4.41      In subsequent discussions with the ODPM, we have suggested that this rule needs to be qualified to allow for special cases where the claimant reasonably moves before, and in anticipation of, the making of a compulsory purchase order. For the protection of the authority, this should normally only apply where there has been prior agreement. However, we think there ought also to be provision for special cases where, although there has been no agreement, it would be unfair in the circumstances^[69] to deny compensation.
4.42      We accordingly recommend:

Rule 5 Consequential loss

(1) "Consequential loss" means loss suffered or expense reasonably incurred, so far as it is

(a) the natural and reasonable consequence of the compulsory acquisition;

(b) not too remote;

(c) not reflected in compensation based on the value of land, under Rule 3 or 4;

(d) incurred after the first notice date, save that compensation for earlier losses may be granted:

(i) by agreement;

(ii) if the Tribunal determines that, having regard to the special circumstances of the case, it would be unfair to refuse compensation.

(2) Where compensation is claimed for the displacement of a business:

(e) compensation shall be assessed by reference to either:

(i) the reasonable costs of relocating the business (wholly or partially), loss of profits and any loss or expense incidental to relocation (the "relocation" basis); or

(ii) the value of the business (or part of the business) as a going concern at the valuation date, and any loss or expense incidental to closure (the "total extinguishment" basis); or

(iii) a combination of the two methods.

(f) the claimant will be entitled to claim on the relocation basis, if

(i) it is reasonably practicable to relocate the business (wholly or partially);

(ii) it has been relocated, or the claimant intends to relocate it (or complete its relocation); and

(iii) it is not shown to be unreasonable in all the circumstances for compensation to be paid on that basis.

(g) the claimant will not be entitled to claim on the extinguishment basis, except:

(i) in the circumstances defined by section 46 of the 1973 Act (rights of traders over 60 years of age to claim compensation on the total extinguishment basis);

(ii) if he has not relocated, and does not intend to relocate, the business; and he shows either

(A) that relocation was or is not reasonably practicable; or

(B) that it is reasonable in all the circumstances for him not to relocate.

(h) For the avoidance of doubt, in deciding what is reasonable under (b) or (c):

(i) the personal circumstances of the claimant (including age, illness, disability or financial circumstances) shall be taken into account;

(ii) the fact that higher compensation is payable on the relocation basis than on the extinguishment basis does not of itself make it unreasonable for compensation to be assessed on the relocation basis.

(i) Unless the contrary is shown, where premises acquired for relocation have a greater market value than the premises acquired from the claimant, it shall be presumed that the difference in value reflects advantages for which compensation is not payable.

(3) Without prejudice to the above rules:-

(j) Consequential loss includes the amount of any legal or other professional costs reasonably incurred by the claimant in connection with the acquisition;

(k) Where land on which a business is carried on is severed by the acquisition, compensation shall include costs reasonably incurred in replacing buildings, plant or other installations (whether or not they were on the subject land) if or to the extent that

(i) they are required to enable the business to be continued on the retained land, or other adjacent land acquired for the purpose;

(ii) the need for replacement is caused by the acquisition;

(iii) the cost is not adequately reflected in any other head of compensation; and

(iv) it is not shown to be unreasonable in all the circumstances for compensation to include such costs.

Provided that the compensation may be reduced to such extent (if any) as the Tribunal may determine to reflect any improvement in the facilities so obtained over those replaced.

(l) Where a claimant who was not in occupation of the subject land incurs incidental charges or expenses in acquiring, within one year of the date of entry, an interest in other land in the United Kingdom, those charges and expenses may be claimed as consequential loss.

Head D: equivalent reinstatement

Introduction

4.43      Compensation may be awarded on an "equivalent reinstatement" basis, where the provisions of rule (5) are satisfied.^[70] The main requirements are that the land is used for a purpose for which there is "no general demand or market", and that reinstatement is "bona fide intended". Typical examples of possible qualifying uses are premises used for religious or charitable purposes.^[71] Even where the conditions are met, the Tribunal has a discretion to refuse to allow compensation on this basis if the cost would be disproportionate.^[72]

Example1 The acquiring authority compulsorily acquired part of a railway line, station and tunnel. The railway had closed in 1946 but had subsequently been acquired by the claimants, a group of railway enthusiasts, who cleared and partially reopened the line. The restored line had historic interest and also became an amenity for holidaymakers. The claimants had also intended to clear and reopen a further part of the line, some of which went through a tunnel. However, this was compulsorily acquired and flooded to make a reservoir. If this further section of the line was to be reopened it would, therefore, be necessary to divert it along the side of the reservoir and construct a new tunnel. The cost of this was substantial and exceeded the value of the claimants' entire assets. The claimants sought compensation in this amount as representing the cost of equivalent reinstatement. It was accepted by the Court that the claimants had a genuine intention to reinstate the railway. However, since the cost of reinstatement was wholly disproportionate to the total value of the claimants' assets, it was not a reasonable basis for compensation. 1 Festiniog Railway Company v Central Electricity Generating Board (1962) 13 P&CR 248.

4.44      In CP 165 we followed CPPRAG and the Policy Statement in proposing no significant change to the present rules, which we understood to have worked reasonably well in practice.^[73] We considered that it would be useful to define the circumstances in which compensation might be refused. Among other points, we agree that no specific provision should be made for any deduction to be made to reflect any enhancement in the new accommodation. We accepted that such a deduction might accord "with a strict application of the principle of equivalence". However, we thought it might frustrate the purposes of awarding compensation on this basis, where the owner is unable to finance the shortfall.
4.45      Accordingly, we proposed:

(1) Subject to (2), where (a) the subject land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, and (b) reinstatement in some other place is genuinely intended, compensation shall (at the option of the claimant) be assessed on the basis of the reasonable cost of equivalent reinstatement.

(2) Compensation on this basis may be refused by the Tribunal, if satisfied that it is in all the circumstances unreasonable, having regard to the cost to the authority and to the likely benefit to the claimant. ^[74]

Consultation

4.46      There was a large measure of agreement with the proposal to retain the substance of the existing law.^[75] One respondent disagreed with the view that the provisions had worked well in practice, and suggested that more specific criteria were needed. It was said that the words "general demand or market" led the Lands Tribunal to take an unduly restrictive view of the rule, limiting it in effect to charitable purposes. Furthermore, the reference to the use of the land, rather than the nature of the land, was illogical, since it was the marketability of the premises which was relevant.^[76]
4.47      However, these views were not generally shared by respondents. We think it right that the rule should apply only in exceptional cases. Its purpose is to cover cases where market value is not a fair test, because there is no general market for premises of that kind. In such cases, market value cannot be used as a fair criterion either of the value of the premises to the claimant, or of the cost of their replacement. The rule has not been confined in practice to charitable uses,^[77] although it is less likely that it will apply to businesses, simply because there is more likely to be a market for business premises.

Example1 The claimants owned a livestock market in Carlisle which the defendant county council agreed to acquire for a price based on compensation for compulsory purchase. The Tribunal's decision, that it should be assessed on the reinstatement basis (under rule (5)), was upheld by the House of Lords. On the evidence there was neither a "market" nor a "general demand" for land for use as a livestock market. 1 Harrison and Hetherington Ltd v Cumbria County Council (1985) 50 P&CR 396.

4.48      With regard to the apparent emphasis on use, rather than the nature of the premises, we noted that this has been qualified by case-law:^[78]

"Devoted to a purpose" in this context has been construed by the courts on several occasions. It is clear that the words are designed to go beyond a mere statement of present actual use or purpose: they import the need to ascertain the intended purpose of the building or structure^[79] (although it appears that the building does not have to have been specifically designed for that use or purpose). The use of the premises for the devoted purpose must, however, be one to which they had been deliberately and voluntarily devoted.^[80] The purpose itself should not be construed in too narrow a way.^[81]

4.49      We accept that it would be desirable for the new provisions to clarify the effect of the case-law, noted above, relating to "devoted to a purpose". We propose to substitute the phrase "adapted and normally used", which is intended to have the same effect as the existing law, as interpreted in the cases.

Example1 The authority compulsorily acquired a hall, which had been built for the charitable and religious purposes of a trust. During the Second World War the hall ceased to be used for these purposes and was let to a business firm. That was the position at the date of the notice to treat. The trust proposed to build a new hall some 4 miles away. The Tribunal awarded compensation on the equivalent reinstatement basis. The court upheld this decision. The words "devoted to a purpose" introduced a concept of intention, not solely dependent on actual use at the date of the notice to treat. The temporary interruption caused by the war was to be disregarded. 1 Aston Charities Trust Ltd v The Metropolitan Borough of Stepney [1952] 2 QB 642.

4.50      There was general agreement among respondents that there should be a discretion to refuse in some cases, but some difference over how the test should be expressed. One respondent thought that the refusal should be based on whether reinstatement is reasonable and will result in likely benefit to the claimant, not on the cost to the authority. Its costs are relevant to whether the scheme should proceed, but are not a reason for reducing what would otherwise be fair compensation. We agree that the proposal in the Consultation Paper should be amended to show that the issue is whether the cost is disproportionate in relation to the benefit to the claimant, rather than to the burden on the authority.
4.51      A minority of respondents thought there should be some provision to allow for a deduction for "betterment" represented by enhanced premises. However, the majority agreed with our view that this could frustrate the purpose of the provision. No such deduction is normally made in assessing common law damages, in cases where the replacement of premises is held to be the proper measure of the loss.^[82] The reference to the "reasonable cost" of equivalent reinstatement should provide sufficient protection against excessive claims.
4.52      Finally, it was suggested that there should be some mechanism to ensure that the payments were used for their intended purpose, for example, by providing for staged payments. We agree that the authority, where necessary, should be able to exercise some control over the matter, and that there should be power to impose conditions for this purpose, whether in the timing of the payments, or by undertaking to repay the excess if the money is not used for the intended purpose.

Example1 The council made a compulsory purchase order of a property used by the defendants as a unique facility that was integral to their functions as a trade union. The defendants intended to reinstate, using the façade of the original building. The parties agreed two valuations: the first, based on market value and the second (higher) based on cost of reinstatement. The statutory arbitrator (in 1985) made an award for the higher figure. By 1991 no attempt had been made to reinstate the building. The council began court proceedings to recover the excess over market value, on the basis of unjust enrichment. The claim was rejected by Irish Supreme Court. The arbitrator's award was final, and could not be reopened in the absence of a statutory provision to that effect. 1 City of Dublin v The Building and Allied Trade Union (1996) 1 IR 468.

Our attention has not been drawn to any similar cases in this country. This suggests that it is not a frequent problem. It may be that in practice, where compensation is awarded on this basis, arrangements are made for staged payments as the work proceeds. However, we think it desirable that there be specific provision to protect the authority's interest in this respect.

4.53      Accordingly we recommend:

Rule 6 Equivalent reinstatement

(1) Compensation may be claimed on the basis of the reasonable cost of equivalent reinstatement –

(a) in the circumstances, and subject to the rules, defined by section 45 of the 1973 Act (dwellings adapted for the disabled);

(b) if it is shown that –

(i) the subject land is, and but for the compulsory acquisition would continue to be, adapted and normally used for a purpose of such a nature that there is no market or general demand for land or premises for that purpose; and

(ii) reinstatement in some other place is genuinely intended.

(2) Where a claim is made under (1)(b) –

(c) The cost of reinstatement shall be assessed by reference to the date at which reinstatement becomes reasonably practicable.

(d) Compensation on the basis of equivalent reinstatement may be refused, if it is shown that the cost is disproportionate having regard to the likely benefit to the claimant.

(3) Where reinstatement has not been carried out before compensation is determined, the award of compensation under this Rule may be made subject to conditions (including provision for staged payments) to ensure that any payment is used for the intended purpose, or (if not) that any excess over the compensation otherwise due is repaid.

Note 1    CP 165, para 4.20ff; see Horn v Sunderland Corp at pp 32, 45.    [Back]

Note 2    These principles are applicable to those who have compensatable interests in the subject land. The 1973 Act contains provisions for similar payments for displacement of lawful occupants without compensatable interests: 1973 Act, ss 37–8. Since these are not confined to displacement by compulsory purchase, we have not dealt with them in detail in this project: see CP 165, paras 8.81 – 8.82.    [Back]

Note 3    The omitted words were “(at all events one who occupies his house)”. In practice, the statement of principle has not been treated as limited to residential occupiers. The position of non-occupiers requires further discussion: see para 4.7 below.     [Back]

Note 4    Harvey v Crawley DC [1957] 1 QB 485, per Romer LJ. A more recent authoritative explanation (in relation to business loss) is in Director of Buildings and Land v Shun Fung Ironworks [1995] 2 AC 111, 124 per Lord Nicholls.    [Back]

Note 5    See Alfred Golightly & Sons v Durham CC (1981) 260 EG 1045. See further CP 165, para 8.59.    [Back]

Note 6    CP 165, paras 4.54ff.    [Back]

Note 7    1973 Act, s 46.    [Back]

Note 8    We noted that Scott LJ, in the leading case of Horn v Sunderland Corp at p 43, used the term disturbance “for brevity” to describe all those elements of “value to the owner”, in addition to market value, which were preserved by rule (6) of the 1919 rules. We were also following the usage of the leading textbooks: see eg Butterworths Encyclopedia Part E cap 6.    [Back]

Note 9    See Lee v Minister of Transport [1966] 1 QB 111, where the claim for professional fees was allowed, even though the statute (relating to acquisition following a purchase notice) excluded compensation for “disturbance”.    [Back]

Note 10    For example, additional tax liabilities. Loss of a service contract with a company was compensated under this head: Wrexham Maelor Borough Council v MacDougall [1993] 2 EGLR 23, see below. Conversely it has been held that pre-acquisition losses relating to unimplemented rent reviews, being based on the value of the land, are compensatable (if at all) as part of market value under rule (2): see Green Motor Holdings v Preseli Pembrokeshire DC [1991] 1 EGLR 211, LT.    [Back]

Note 11    We are grateful in particular to the RICS for encouraging us to reconsider this issue.    [Back]

Note 12    The term “displacement” was taken from the 1973 Act s 37(1).    [Back]

Note 13    [1993] 2 EGLR 23. This case was noted in CP 165, para 4.24 n 29, but not discussed in detail. By “the second part of rule (6)” we mean “any other matter not directly based on the value of the land”.    [Back]

Note 14    1997 1 IR 117. The judgment of Budd J (reported as part of the same citation) also provides a detailed discussion of the authorities, including reference to a prescient and illuminating article on this issue by Michael Mann QC (subsequently Mann LJ) written in 1974.    [Back]

Note 15    Irish law continues to be based on the Acquisition of Land (Assessment of Compensation) Act 1919, s 2 of which enacted the rules now contained in the 1961 Act, s 5, including rule (6).    [Back]

Note 16    Compensation for disturbance for those with no compensatable interest: see CP 165, para 4.21.    [Back]

Note 17    The leading judgment was given by Ralph Gibson LJ, with whom Mann and Nolan LJJ agreed.    [Back]

Note 18    [1993] 2 EGLR at p 31C.    [Back]

Note 19    Ibid p 31F. The court noted that counsel for M (Michael Barnes QC) accepted that there was “no reported case in which a claim to loss of earnings, or to loss of business profits, has been awarded to an owner who was not in occupation”, but submitted that none of the authorities precluded such a claim.     [Back]

Note 20    Ibid p 31F–32G, based on a review of the leading authorities, including Horn v Sunderland Corp andHarvey v Crawley DC.    [Back]

Note 21    Ibid p 32J–K.    [Back]

Note 22    (1979) 38 P&CR 521.    [Back]

Note 23    Ibid p 527.    [Back]

Note 24    [1993] 2 EGLR at p 33B–C.    [Back]

Note 25    Ibid p 32D.    [Back]

Note 26    Ibid p 33F.    [Back]

Note 27    [1957] 1 QB 485.    [Back]

Note 28    Dublin Corporation v Underwood [1997] 1 IR 117, 129. The leading judgment was given by Keane J, with whom Hamilton CJ, and O’Flaherty J agreed.    [Back]

Note 29    [1957] 1 QB 485, 493.    [Back]

Note 30    Dublin Corporation v Underwood [1997] 1 IR 117, 129.    [Back]

Note 31    In England and Wales, Article 1 of the First Protocol to the ECHR might be regarded as similar in effect: see Appx C, para C.18 below.    [Back]

Note 32    Dublin Corporation v Underwood [1997] 1 IR 117, 130. Keane J noted an argument based on the English Planning and Compensation Act 1991, s 70; Sched 15, part I, para 2; inserting a new s 10A in the 1961 Act, giving a specific right to compensation for expenses of reinvestment within a fixed period. He thought it consistent with the UK Parliament having taken the view, in the light ofHarvey v Crawley DC, that “it was at least arguable that an owner not in occupation would not be entitled to recover the re-investment costs”. However, it had no relevance to Ireland, where there had been no such legislative intervention.     [Back]

Note 33    These principles are discussed further below: paras 4.20 – 4.21.    [Back]

Note 34    In holding that the loss was not too remote, the court followed Lee v Sheard [1956] 1 QB 192, in which (in a common law claim for damages for personal injury) it was held that the plaintiff, who was a shareholder and director of a company, and was prevented from working by the injury, could include a claim for the loss represented by his share of the reduced earnings of the company.     [Back]

Note 35    See Keane J’s comments on Harvey v Crawley DC at p 129.    [Back]

Note 36    See Rule 5(3)(c). For example, on the facts of Dublin (see n 32 above), the claim would not have been covered by 1961 Act, s 10A, unless the replacement property was bought within one year of entry. Although it is not entirely clear from the report, it appears that at the hearing before the arbitrator the claimant had not yet bought the replacement property, presumably because he had not received the compensation. If there is a genuine intention to re-invest (cf the Shun Fung tests for business relocation: para 4.34 below), but the claimant is unable to do so until the compensation is paid, an arbitrary time-limit of one year may be unfair.    [Back]

Note 37    CP 165, paras 4.54ff.    [Back]

Note 38    CP 165, para 4.56.    [Back]

Note 39    [1995] 2 AC 111, 126 D–E.     [Back]

Note 40    Lord Nicholls had referred to “losses fairly attributable to the taking of (the) land…”ibid, p 125D (emphasis added).    [Back]

Note 41    Following the words used in Harvey v Crawley DC at p 494, per Romer LJ. Having regard to the Wrexham case (above), we have referred to “compulsory acquisition” rather than “dispossession” (the word used by Romer LJ).     [Back]

Note 42    For the same reason, we propose to omit the word “monetary” (CP 165 Proposal 4(1) referred to “monetary loss or expense”). It is not part of the rule as stated in the authorities, and may be seen as implying a further limit on those principles.    [Back]

Note 43    1961 Act, s 5(6).    [Back]

Note 44    CP 165, para 4.41.     [Back]

Note 45    Smith v Birmingham Corp (1974) 29 P&CR 265.    [Back]

Note 46    J A Bibby & Sons Ltd v Merseyside County Council (1980) 39 P&CR 53; Yorkshire Traction Co Ltd v South Yorkshire PTE [2003] RVR 67.    [Back]

Note 47    Simpson v Stoke-on-Trent City Council (1982) 1 EGLR 195. If the authority in these circumstances takes possession the claimant will be entitled to 90% advance payment of the authority’s estimate. In Harris v Welsh Development Agency [1999] 3 EGLR 207 a claim in respect of a bridging loan was dismissed because the claimant had not applied for an advance payment.    [Back]

Note 48    The purchase price paid for new premises included an element for interest. It was held that the purchase price paid for the premises was something for which the claimant had received value for money and therefore the interest charges were not recoverable.    [Back]

Note 49    Michael Curry, a member of the Northern Ireland Lands Tribunal.    [Back]

Note 50    See eg the expenses in the Dublin case, which were assessed as 8.5% of the cost of the replacement land.    [Back]

Note 51    CP 165, para 4.59.    [Back]

Note 52    Bailey v Derby Corp [1965] 1 All ER 443.    [Back]

Note 53    1973 Act, s 46(1) provides that, where the sole trader, partners or major shareholders of a business up to a specified annual rateable value (currently set at £24,600 or less), are more than 60 years old on the date of displacement, compensation may be assessed on the assumption that it is not reasonably practicable to relocate. The claimant is required to give undertakings that he will not dispose of the goodwill, or engage in any other business of the same kind within the area defined by the authority: s 46(3).    [Back]

Note 54    We would regard that loss as one “based on the value of land”, and therefore excluded by rule (6).    [Back]

Note 55    See Rule 5(2)(d)(i).    [Back]

Note 56    CP 165, para 4.63.     [Back]

Note 57    [1995] 2 AC 111. See CP 165, paras 4.27 – 4.28.    [Back]

Note 58    Shun Fung, at p 128.    [Back]

Note 59    CP 165, para 4.62.    [Back]

Note 60    CP 165, para 4.33.    [Back]

Note 61    We note that there is an element of circularity in the test, since in many cases a businessman’s decision whether to relocate, and his ability to do so, may be reasonably influenced by the amount of compensation he is going to receive. Again, Shun Fung cannot be taken as typical in this respect. The claimant company was controlled by a major property company, which would have been able to finance a new steelworks in China, if it had thought it a worthwhile project. Its unwillingness to do so, unless it was financed by compensation, was taken as an indication of the project’s lack of “economic feasibility”, and underlined the unreasonableness of awarding compensation on the relocation basis: see [1995] 2 AC 111, 131.     [Back]

Note 62    CP 165, paras 4.63 – 4.64.    [Back]

Note 63    CP 165, para 5.22.    [Back]

Note 64    CPPRAG Review, para 129(ii). This possible unfairness was highlighted in Cooke v Secretary of State (1974) 27 P&CR 234, LT (see example below).    [Back]

Note 65    Policy Statement, Appx, para 3.39.    [Back]

Note 66    Some respondents made points on the detailed wording of the proposal, which can be taken into account in drafting the appropriate provision.    [Back]

Note 67    [1995] 2 AC 111,137. The company was informed that the land was to be used as part of a New Town, but the actual resumption did not take place until four years later. In the meantime, the business was run down in anticipation of resumption. The resulting losses were led to be “due to” resumption and so compensatable. (The term “resumption” is used in Shun Fung to describe the compulsory acquisition of land. It derives from the Crown Lands Resumption Ordinance (Laws of Hong Kong 1991)).    [Back]

Note 68    The “first notice date” was our term for the date of publication of notice of the making of the compulsory purchase order, as required by the 1981 Act, s 11, 12: see CP 165, paras 2.30(1), 3.8, 4.65.    [Back]

Note 69    Perhaps a misleading impression created by agents of the authority; or a genuine misunderstanding of the legal position, which has caused no detriment to the authority.    [Back]

Note 70    1961 Act, s 5(5): see CP 165, paras 5.36 ff.    [Back]

Note 71    See the examples in CP 165, para 5.40.    [Back]

Note 72    Ibid, para 5.42; Festiniog Ry Co v Central Electricity Generating Board (1962) 13 P&CR 248.    [Back]

Note 73    CP 165, paras 5.49 – 5.54.    [Back]

Note 74    CP 165, Proposal 6. We also proposed the retention of the special right for equivalent reinstatement of dwellings adapted for the disabled (1973 Act, s 46).     [Back]

Note 75    One respondent suggested that the right should be confined to owner-occupiers, as opposed to lease-holders. We find it hard to justify such a clear-cut distinction, since a long leasehold may for practical purposes be as good as a freehold. We think that “reasonable” reinstatement implies that the replacement will be reasonably related to the nature of the interest which is lost.     [Back]

Note 76    For example, ordinary premises (such as a dwelling-house) might be used for an unusual purpose, such as for religious meetings, without affecting the marketability of the premises.    [Back]

Note 77    Harrison and Hetherington Ltd v Cumbria County Council (1985) 50 P&CR 396, HL (rule (5) applied to a livestock market, because although there was some demand, that demand was intermittent rather than general).    [Back]

Note 78    CP 165, para 5.38.    [Back]

Note 79    See Aston Charities Trust v Stepney Corp [1952] 2 QB 642, CA where it was held that a temporary interruption of a charitable purpose did not amount to abandonment of that purpose (even though the actual use for that period was as storage). In Zoar Independent Church Trustees v Rochester Corp [1975] QB 246 a chapel had to be vacated because of a collapsed roof and the small congregation (who relocated) did not feel justified in effecting repairs with an acquisition pending. It was held that the chapel remained devoted to a public worship purpose (which would have been resumed but for the acquisition). In essence the test is: at the time of notice to treat is there genuine intention to continue the purpose?    [Back]

Note 80    Central Methodist Church, Todmorden (Trustees of) v Todmorden Corp (1960) 11 P&CR 32.    [Back]

Note 81    Trustees of the Manchester Homeopathic Clinic v Manchester Corp (1970) 22 P&CR 241: homeopathic clinic held to be for purpose of medical consultation, diagnosis and treatment.    [Back]

Note 82    See Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447, 473, per Widgery LJ.    [Back]