Scottish Court of Session Decisions

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2017] CSIH 39

XA93/16

 

Lady Paton

Lord Menzies

Lord McGhie

OPINION OF THE COURT

delivered by LADY PATON

in the appeal

by

SCOTTISH HYDRO ELECTRIC TRANSMISSION PLC

Appellant

against

AUQUHIRIE LAND COMPANY LIMITED

Respondent

under

Section 11(1) and (7)(b)(ii) of the Tribunals and Inquiries Act 1992

Appellant:  Wilson QC, Gill;  CMS Cameron McKenna LLP

Respondent:  Findlay;  Burness Paull LLP

28 June 2017

Compensation for wayleave:  whether fair notice of “hope value” case

[1]        The respondent, a landowner at Hillhead of Auquhirie Farm, Stonehaven, intended to create a wind farm.  However on 12 October 2010 the Scottish Ministers granted the appellant a wayleave over part of the land for electricity pylons.  The respondent applied for compensation in terms of paragraph 7 of Schedule 4 to the Electricity Act 1989.  The agreed valuation date was 12 October 2010.  The matter came before the Lands Tribunal, and then the Court of Session in the present appeal.

[2]        Initially, the respondent’s case was pled on the basis of a “special assumption”.  A special assumption is defined in the RICS Red Book as “an assumption which assumes facts that differ from the actual facts at the valuation date”.  In the present case, the special assumption was that planning permission for five wind turbines on the relevant part of the land would have been granted by the valuation date.  In fact as at 12 October 2010 there was a “minded to grant” permission dated 31 August 2010 in respect of three turbines of a certain size, but no planning permission in respect of two further turbines of a larger size (T4 and T5).

[3]        In support of the special assumption approach, the respondent incorporated in its pleadings certain planning and valuation reports by Savills.  The appellant also obtained reports.  One of the appellant’s reports (Bidwells dated 21 October 2015) introduced the concept of “hope value” as follows: 

“5.6.10 “Hope value” has long been recognised by valuers in relation to properties which have potential for a more valuable use than the then existing use.  Hope value is a reflection of the general acceptance by the market that an enhanced value may be realisable for a property at some point in the future when a more valuable use is implemented …

6.18 On the valuation date [12 October 2010], planning approval had been obtained for three turbines of 3.9 MW total capacity.  Also, strong indications had been obtained that planning approval would be given for three turbines with 6.9 MW total capacity although the actual consent had not been issued by Aberdeenshire Council.  Significant uncertainties existed regarding the quality of the wind resource, the cost of a grid connection and the connection date, the cost of civil engineering works and funding …

6.21 As regards the value attributable to the proposed additional 2x2.3 MW turbines (T4 and T5), the situation is even more uncertain.  In addition to the uncertainties noted at paragraph 6.18 above, no planning application had ever been submitted to Aberdeenshire Council for these turbines nor had the potential impacts been analysed.  Consequently, the discount from the assessed investment value to market value could be expected to be substantially greater …

7.5 On that basis and using the same methodology as before, I estimate the loss of value to ALC from the inability to develop T4 and T5 until 2025 is £100,000 …”

[4]        In response to the Bidwells report, Mr Green of Savills (a valuer advising the respondent) altered his stance and his methodology.  As explained in his letter to the respondent dated 26 January 2016 (known as “the Response letter”):

“1.3 With reference to clause 2.1.1 of my report [dated 22 August 2014] I would further clarify that my earlier opinion was based on the special assumption that all required consents and agreements, in reference to land agreements, planning consents and grid connection agreements, were in place.  That remains my starting point.  I did not then include any discount but have done so on the basis of current advice and my current views are set out below [emphasis added] …

3.10 Paragraph 5.6.10 of the Bidwells’ report describes the accrual of hope value to a project as it progresses through the development cycle.  Hope value is generally defined as any element of market value that is in excess of the value of the current use, reflecting the prospect of a more valuable future use.  I agree that the use of hope value is appropriate when assessing the value of a project, particularly during the early phases of the development cycle.

3.11 [Mr Green gives further observations about assessing hope value, and continues:]

3.12 I have adopted an alternative methodology to that which I employed in my previous report …

3.13 The methodology that I have used to assess the level of compensation is to calculate the full investment value, of the ‘as built’ three turbine scheme, and separately the hypothetical five turbine scheme, using the discounted cash flow method described above … The difference between the two models is the full investment value to the owner of turbines 4 and 5.  I have then made a reduction to reflect any outstanding planning or development risks …

4.9 et seq [Mr Green considers the uncertainties relating to the site and planning permission, including the fact that there was no planning application for the proposed additional two turbines (T4 and T5), and continues]

4.14 … at the relevant date it was considered that there was a 90% certainty that planning permission would be granted … I am of the opinion that an investor would apply the following discounts from full value:

 

• 10% reduction to reflect residual planning risk
• 10% reduction to allow for latent or unforeseen project risks and allow for an element of developer margin.

 

4.15 [Having drawn attention to the theoretical basis of this part of the report, there being no specific market evidence] … I am of the opinion that at the relevant date the compensation payable resulting from the inability to develop T4 and T5 should be based on 80% of their full investment value …”

[5]        The respondent’s pleadings were adjusted in January 2016 (see paragraph [16] below).  The respondent’s position is that the adjusted pleadings made clear that the basis of the claim for compensation had changed from reliance solely upon the special assumption to reliance upon the hope value of the land (in which the special assumption had a role to play).  The appellant’s position is that matters were not clear;  that, as a result, all necessary evidence was not led before the Tribunal;  and that the Tribunal ultimately erred in law by reaching the decision it did on the basis of insufficient evidence.

 

A two-stage proof 
[6]        There were two procedural hearings before evidence was led in May 2016.  At the first procedural hearing on 17 November 2015, senior counsel for the appellant sought a two-stage proof.  In a note of proposals, it was explained that: 

“2.  Both valuation experts proceed on the basis of the ‘special assumption’ that at the relevant date all necessary consents were in place for the erection, commissioning and operation of five wind turbines …

3.  That special assumption itself depends on the proposition of fact (see paragraph 3.8 of the application) that, in the absence of the necessary wayleave … the [respondent] would at the relevant date have received the necessary consents, and in particular planning permission.  There is a clear dispute between the parties as to that issue of fact …

4.  It is submitted that that is a dispute which logically falls to be determined independently of and prior to issues of valuation.  If the [respondent] cannot demonstrate on the balance of probabilities that Auquhirie Land Company Limited would have received those consents at the relevant date, there would be no reason to explore matters of valuation further.  The [appellant] therefore respectfully proposes that the Tribunal should rule upon the validity of the special assumption as a preliminary issue.

 

5.  This course would have significant potential benefits.  The evidence of the valuation experts, proceeding as it does on the special assumption, would only become relevant to the outcome of the claim for compensation if the Tribunal accepted the validity of the assumption.  That evidence can therefore be heard separately, if necessary …” 

[7]        Initially the appellant’s motion was opposed by counsel for the respondent, who sought one hearing on all matters.  However at a second procedural hearing in March 2016, counsel for the respondent no longer formally opposed the motion (although advising this court of continuing reservations about the appropriateness of such a procedure, bearing in mind the legal analysis in Transport for London v Spirerose Ltd [2009] 1 WLR 1797).  The Tribunal granted the unopposed motion.  No formal interlocutor or order was issued.

[8]        Prior to the leading of any evidence, the respondent produced a note of argument and summary of position.  In the note, an argument based on “hope value” was outlined.  Thereafter, on 13 May 2016, senior counsel for the appellant addressed the Tribunal, pointing out that the respondent appeared to be changing its position from “special assumption” to “hope value”, whereas the focus of Stage 1 of the proof should be whether or not the special assumption was well-founded and established by evidence.  The Tribunal’s ruling on this matter is contained in paragraphs 3 and 4 of its opinion (quoted in paragraph [11] below).

[9]        Evidence was then led over a period of six days.  On behalf of the respondent, evidence was led from Mr Garvie, Mr Neighbour, Mr Jones, and Mr Pattenden.  On behalf of the appellant, evidence was led from Ms Oleksy, Mr Bainsfair, and Mr Black.  Details of the evidence can be found in the Tribunal’s opinion.  After an adjournment, parties lodged written submissions.  On 20 June 2016, a further hearing took place at which both written and oral submissions were presented.

 

 

The Tribunal’s opinion following upon Stage 1
[10]      The Lands Tribunal issued its opinion on 10 August 2016.  The accompanying interlocutor was in the following terms:

“The Lands Tribunal for Scotland, having heard evidence and submissions under reference to their Opinion of today’s date, ASSESS the prospects of obtaining planning permission for two additional 92.5m 2.3 MW wind turbines at the subjects as at the relevant date of 12 October 2010, to be sixty five per cent (65%);  and CONTINUE the application to the valuation hearing already fixed (12 to 15 September 2016).”

[11]      In paragraphs (3), (4), and (268) to (270) of its opinion, the Tribunal referred to the appellant’s contention relating to the respondent’s change of position.  The Tribunal noted:

“(3)      On the morning of 13 May Miss Wilson raised a matter arising out of Mr Findlay’s Note of Argument and Summary of Position, which had been lodged in advance of the hearing.  She was concerned about what she said was a new approach being taken to valuation by the applicants.  It appeared that a case based on a special assumption that planning permission for an additional two turbines would have been granted by the relevant date was being departed from in favour of a case based on hope value.  Mr Findlay denied that such was the case, pointing to paras 3.8, 3.9 and 3.13 of the record.  We heard limited argument on the matter before proceeding with the proof but the issue was to become something of a running sore as between Miss Wilson and Mr Findlay, being returned to in closing submission and, indeed, in letter form, after we had taken matters to avizandum.  We see no merit in rehearsing all that was said on both sides at these various stages.  Suffice to say this:  that although the special assumption formed the basis of the applicants’ case when the application was raised – see paras 3.8, 3.9, 3.34 and in particular 3.35 of the original application – it seems to us to be clear enough from the applicants’ pleadings as adjusted on 26 January 2016 that the case was no longer based on that assumption and was instead based on hope value – see paras 3.8, 3.9, 3.13, 3.35 and 3.38.  Of these, perhaps para 3.8 contains the clearest statement of the applicants’ position:  ‘In the absence of the Wayleave the Applicant’s Property would have been valued as at the relevant date on the basis that it would have been likely to receive planning permission for erection of two further 2.3MW turbines at locations 4 and 5 in addition to those approved on 31 August 2010.’  That likelihood was quantified at para 3.13 of the record in the following terms ‘Savills conclude in the Planning Report that there are no considerations that would have justified the refusal of planning permission for the additional two turbines at locations 4 and 5 assessed as at the relevant date and in the further Planning Report that the prospects of planning permission for the additional two turbines being granted assessed at the relevant date would have been in the order of 90%.’

 

(4)        Accordingly, we are satisfied that, in terms of the record on which the case went to proof, the respondents had sufficient, and sufficiently clear, notice of what the applicants’ case was. 

 

…

 

(268)    In this part of proceedings in this application we are required only to come to a view as to what prospects there were, as at the relevant date and in the absence of the overhead line, of planning permission being obtained, at some later date, for two additional 92.5m turbines. 

 

(269)    Putting matters that way means that we reject the respondents’ contention that what the applicants set out to prove was that by the relevant date all necessary planning consents would be in place for these turbines.  That may be consistent with the application as originally lodged but, as we have explained earlier in this judgment, the case the applicants took to proof was one clearly based on hope value.

 

(270)    This is consistent with the approach taken by the House of Lords in the leading case (admittedly on compulsory purchase) of Transport for London (formerly London Underground Ltd) v Spirerose Ltd (in administration) and by this Tribunal in the recent cases of Steel v Scottish Ministers (another compulsory purchase case) and Gordon v National Grid Gas Plc (a case involving loss arising out of the compulsory acquisition of a servitude over land for the purpose of laying a gas pipeline).  Thus we are not to come to a decision, on a balance of probabilities, as to whether planning permission would be granted, but assess the risk that it might not and discount the full value of the land with the relevant permissions accordingly.  The second part of that exercise – quantification of the value of the land and application of the appropriate discount – is a matter for the second part of the proof, due to take place next month.” 

[12]      At the end of the opinion, the Tribunal again referred to the matter in the course of the following paragraphs:

“(303)  Our finding as to the market perception, as at the relevant date, of the likelihood of receiving planning consent for two further turbines in the ‘no pylon’ world should be treated as an instruction to the valuation witnesses for the purposes of the next hearing in this case.  How, by way of methodology, it is dealt with for the purposes of quantifying the applicants’ claim is, of course, up to them, but in our view it is an exercise which is within the sphere of their normal commercial practice.

 

(304)    We made a further finding with regard to the market perception of timing.  We heard from Mr Black, as referred to previously, that he would not expect an interested party to apply for planning consent for the further two turbines until such time as the minded-to-consent decision for the three taller turbines was converted into a full planning consent, duly documented.  We agree. 

 

(305)    Full consent was obtained in January 2011 but, of course, that was not known at the relevant date.  Both Mr Pattenden and Mr Black were of the view that there was nothing to prevent the grant of full consent but neither expressed a view as to how long it might take to materialise.  In our view, based on the experience of the Tribunal in these matters, it would reasonably have been expected within a period of six months.  Accordingly, we ask the valuers, as far as it may be relevant to their consideration, to assume a six month period from the valuation date for receipt of the full consent for the three turbines. 

 

(306)    For the avoidance of doubt, these directions to the witnesses do not form special assumptions for valuation purposes.  A ‘special assumption’ is defined in the RICS ‘Red Book’ as ‘an assumption which assumes facts that differ from the actual facts at the valuation date.’  Rather, this is an instruction to the parties and expert valuation witnesses as to how the Tribunal has, on the basis of the evidence led, interpreted the market circumstances at the valuation date. 

 

(307)    The parties and their experts should therefore prepare for the next hearing on the basis that the market would perceive that there was a 65% chance of obtaining full planning consent for two more turbines at Hill of Auquhirie, and that the application for that consent would be lodged six months after the valuation date.

 

Procedure

 

(308)    We had almost completed this judgment when we received a further letter from the respondents’ agents continuing the discussion as to whether the applicants had changed their position in this case and, if so, what the consequences of that should be.  A procedural hearing at which the possible need for further planning evidence could be discussed was suggested.  That proposal is not consistent with the view we have taken of criticisms made of the presentation of the applicants’ case earlier in this decision.  Accordingly the case will be continued to the diet of proof on valuation issues already fixed.” 

[13]      The appellant appealed to the Court of Session under section 11(1) and (7)(b)(ii) of the Tribunals and Inquiries Act 1992.

 

Grounds of appeal and questions of law
[14]      In an appeal document, the appellant set out the background to the appeal, culminating in paragraph 29 which gave a detailed outline of the grounds of appeal.  The grounds of appeal are summarised in the appellant’s note of argument as follows: 

“(i) The first error of law:  The Tribunal erred in law in its approach to assessing the prospect of securing planning permission for two additional 2.3MW turbines, as an extension to the approved wind farm development comprising three 2.3 MW turbines, at an uncertain and indeterminate date in the future.

(ii) The second error of law:  The Tribunal erred in law in its procedural decision rejecting without reasons the appellant’s submission, made clear in its agents’ letter of 5 August 2016, that, if the Tribunal considered that there were prospects of the respondent securing permission for an additional two turbines at some undefined date in the future after the relevant date, further planning evidence would be required.

(iii) The third error of law:  The Tribunal erred in law in determining that the respondent’s case was no longer based on the special assumption but based on hope value, thereby proceeding in a manner that was procedurally unfair and gave rise to prejudice to the appellant.”

[15]      The questions of law for the opinion of the court set out in the appeal document are as follows: 

“1.  Did the Tribunal err in law in its approach as to the planning assumptions to be made on the basis of a hypothetical application for planning permission for two additional turbines, after the relevant date?

2.  Did the Tribunal proceed upon an error in law in making the directions that it gave to the parties and their valuation experts, regarding the planning assumptions to be made for valuation purposes?

3.  Did the Tribunal err in law by rejecting the appellant’s submission that if the tribunal considered that there were prospects of the respondent securing permission for an additional two turbines at some uncertain and indeterminate date in the future, further planning evidence would be required and, in so doing, acted in a manner that was procedurally unfair causing prejudice to the appellant’s interests?”

 

Pleadings
[16]      As the appellant contends that there was a lack of fair notice concerning the respondent’s adoption of a hope value approach, we were referred to passages from the pleadings as adjusted in January 2016.  In particular: 

 

The respondent’s pleadings as adjusted:

“3.8  …  In the absence of the Wayleave, the Applicant’s Property would have been valued as at the relevant date on the basis that it would have been likely to receive planning permission for erection of two further 2.3MW turbines at locations 4 and 5 in addition to those approved on 31 August 2010 (‘the five turbine scheme’) …

3.9 … The value of the Applicant’s Property at the relevant date based upon the five turbine scheme would have been £7,483,561.  The value at the relevant date based upon the three turbines agreed to be granted on 31 August 2010 without any prospect due to the presence of 275kV overhead transmission line of the erection of two such further 2.3 MW turbines would have been £2,594,559, being the diminution in value of the Applicant’s Property as at the relevant date taking into account the prospects of achieving the two further turbines and … a deduction in respect of impact on land value …

3.13 Savills conclude in the Planning Report that there are no considerations that would have justified the refusal of planning permission for the additional two turbines at locations 4 and 5 assessed at the relevant date and in the further Planning Report that … the prospects of planning permission for the additional two turbines being granted assessed at the relevant date would have been in the order of 90% … The respondent is called upon to identify each and every ground upon which it contends that planning permission may have been refused …

3.35 The Valuation Report proceeds on the assumption that all required consents and agreements were in place for the erection of two wind turbines with a tip height of 92.5m and a rated capacity of 2.3MW in addition to the existing second consent and ascertains the full investment value.  The Response letter [Savills’ second report dated 26 January 2016] does not proceed on that assumption [i.e. the special assumption] and explains that the Claim is based on 80% of that full investment value … [emphasis added]”

 

The appellant’s answers to the adjusted pleadings: 

The appellant’s answers, as adjusted at 4.3.16, included the following paragraphs:

“3.8 … Explained and averred that the issue for determination in this application is not whether, as at the relevant date, the Applicant would have been likely to receive planning permission for the erection of two further turbines but whether, as at the relevant date, the Applicant would have received planning permission for the erection of five turbines on an undeveloped site …

3.13 … Further explained and averred that the statement that the prospects of planning permission being granted would have been in the order of 90% is a bald assertion which appears only in the final sentence of the Conclusion section of the Further Planning Report.  The Further Planning Report contains no reasoning justifying the figure of 90% …”

 

Evidence available to the Tribunal

[17]      At the proof, the witnesses were led in pairs according to their area of expertise.  For example Mr Neighbour was followed by Ms Oleksy in respect of cultural heritage;  Mr Pattenden was followed by Mr Black in respect of planning matters. 

[18]      Our attention was drawn to certain passages of evidence noted by the Tribunal in its opinion:  

• Mr Tim Neighbour:paragraph (23) of the opinion.
• Ms Oleksy:paragraphs (50) and (51).
• Mr Jones:paragraphs (73), (80) and (81).
• Mr Pattenden:paragraphs (128)-(130), (134)-(135);cross-examination paragraph (138), (146), (157), and (160).In response to questioning by the Tribunal, the following was noted:

  “(169) In response to a question from Mr Oswald as to what his percentage assessment of the likelihood of getting planning permission on a five turbine application was, Mr Pattenden replied that it would be the same – 90% - because the baseline would still include the minded-to-grant decision in respect of three of those turbines.  As to how long planning permission would take to obtain, again in answer to Mr Oswald, he thought, on the basis of the previous applications in this case, nine months was reasonable.”

• Mr Black:paragraphs (175)-(176), (178)-(179).In response to questioning by the Tribunal, the following was noted:

“(198) Asked by Mr Oswald for his assessment of the prospects of success for a second application seeking consent for two additional turbines made after the minded-to-grant decision had become full planning permission, he thought it unlikely to be granted, so less than 50%.  He thought it would take about 14 months for such an application to be processed.”

 

Submissions for the appellant
[19]      The purpose of Stage 1 of the proof had been to ascertain whether the “special assumption” (namely that planning permission for five wind turbines would be secured by the relevant date, 12 October 2010) was well-founded.  It was for the respondent to establish that special assumption by evidence.  However the respondent changed its stance to “hope value”.  Because of that change of stance, certain planning evidence had not been led.  The Tribunal did not therefore have all the necessary evidence.

[20]      The respondent’s planning reports by Mr Pattenden concluded that planning permission for the 5-turbine scheme would be in place by the relevant date.  That was the only issue to be determined at Stage 1.  It might be necessary to have two further stages before the Tribunal, namely further planning evidence about risks after the relevant date;  and then valuation evidence.  Mr Pattenden’s second report dated 22 January 2016 used the same language as his 2014 report, and despite a reference to “prospects” and a “90% near certainty”, adopted the same approach as in his 2014 report, which was clearly based upon the special assumption.  His evidence remained premised on planning permission for five turbines being secured by the relevant date.  He did not address the period beyond the relevant date.  

[21]      As the appellant was under a genuine belief that the scope of the proof at Stage 1 was as set out in paragraph [19] above, the appellant had not led any evidence relating to “hope value”.  The appellant had not led evidence assessing risk factors in the period after the relevant date, but only planning considerations identifiable up to the relevant date.  Following the Stage 1 hearing, the appellant had requested the opportunity to lead further evidence.  That request was refused.

[22]      The result was that the Tribunal had fixed a percentage of 65% without having all the evidence.  There was insufficient material before the Tribunal to support an informed view on any hope value, and any percentage.  Further evidence was required.  It was anticipated that there were risks on the planning horizon which would affect the probability of planning permission being granted. 

[23]      In relation to the pleadings, it was submitted that the appellant was entitled to rely upon the evidence which the respondent had put forward in support of its claim (ie reports and written assessments), and not to go down an evidential route not offered in the reports.  There had been no full and proper consideration of the risk factors for the period following the relevant date, other than those which emerged in oral evidence.  No planning witness gave evidence about the period beyond the relevant date.  Mr Black had not carried out a hope value exercise.  There was not enough material for the Tribunal to reach an informed view on hope value.  Further planning evidence was required, but the second part of the hearing was restricted to “valuation issues only”. 

[24]      Two reports by Mr Green of Savills dated 22 August 2014 and 26 January 2016 (with spread sheets) supported the appellant’s contention.  The “special assumption” remained part of the methodology.  That assumption was the focus of the first part of the hearing.  The date on which the project was to begin (the “shovel-ready” date, namely 12/10/2010 in the spread sheets) was to be examined. 

[25]      In order to assess hope value, the Tribunal would require not only hindsight but also foresight (cf Gordon v National Grid Gas plc unreported, Lands Tribunal for Scotland, 3 June 2016 paragraphs 162 et seq, and 168).  Planning risks had to be identified:  for example, policy considerations might change, planning guidance might be altered.  In paragraph (300), the Tribunal drew inferences from Mr Bainsfair’s evidence, as it was entitled to do.  But it was necessary to anticipate that the longer it took to get to the starting point of the project, the more risk there was that new developments could have a detrimental effect on the obtaining of planning permission.  On this technical matter, the Tribunal’s reasoning was incomplete, as there had been no planning evidence about the type of consideration which might be anticipated in such a time-sensitive issue.  In such circumstances, it was irrational for the Tribunal simply to select 65% as the discount in the absence of further planning evidence.  The gap in the evidence was not one which could be filled either by the Tribunal or by the valuation witnesses at the second part of the hearing.  Evidence was required from witnesses with a working knowledge of Aberdeenshire Planning Committees and the attitude of planning officers.  As could be seen from paragraphs (169) and (198) of the Tribunal’s opinion, two estimates (9 months and 14 months) had been given about how long it would take for planning permission to be obtained. 

[26]      Because the planning witnesses had not applied their minds to hope value, the Tribunal could not know if there were other high risks which had not been discussed.  In relation to unknown risks, it was self-evident that the Tribunal was not able to fill that gap.

[27]      If it were to be suggested that the appellant had chosen, despite fair notice, not to lead such evidence, senior counsel reiterated that there had been an obvious dispute about the scope of the proof for that first session.  The dispute had been drawn to the Tribunal’s attention.  It was clear from the correspondence that the appellant’s position was that it had not addressed hope value and that it had not expected the door to be closed to evidence on hope value.  Other than referring to notice given in the pleadings, the Tribunal had not addressed the matters raised in those letters. 

[28]      The Tribunal had reached a view on the percentage discount on the basis of an error of law, namely by leaving the point at which permission might be granted as undefined and indeterminate.  The Tribunal should have known that that particular date would affect the valuation evidence.  The timeline ran from the date when planning permission might have been secured.  The percentage of 65% had therefore been selected in the absence of a vital component. 

[29]      It was accepted that the third ground of appeal was a difficult one for a court of appeal:  but the appellant had had a genuine belief that it was addressing the special assumption part of the case, notwithstanding the pleadings.  Following the evidence, there had been correspondence between the appellant’s agents and the Tribunal concerning the lack of clarity about the scope of the hearing. While such correspondence might be thought to have limited weight, it could be had regard to on the question of prejudice.

[30]      The appeal should be allowed;  the Tribunal’s decision of 10 August 2016 quashed;  and the case remitted to the Tribunal with a direction that it should hear further planning evidence and reconsider the conclusion reached in the light of the further evidence.

 

Submissions for the respondent
[31]      Counsel submitted that the appeal should be refused.

[32]      Hope value:  The destruction of the development value of land was a legitimate head of compensation (Arnold White Estates Ltd v National Grid Electricity Transmission plc [2014] Ch 385 (CA) paragraphs 23 and 25).  The proper approach was as defined in the House of Lords in Transport for London v Spirerose Ltd  [2009] 1 WLR 1797, paragraphs 88, 94-95, and 99, namely taking the facts as they are at the valuation date, and carrying out a hope value exercise.  The respondent’s case as pled at the outset had been based solely on the special assumption, and was arguably wrong in law.  However there had been further reports and (in January 2016) adjustments to the pleadings such that (i) the case became consistent with the guidance in Spirerose and (ii) clear notice was given that the respondent’s case was now based on hope value.  The special assumption might nevertheless remain of assistance at the valuation stage using a “top-down” discounting approach.  The approach which Savills took to hope value was to start with a full value as at the valuation date, and then discount that value for planning risks and delays.   

[33]      The hope value approach had been adopted in Gordon v National Grid Gas plc (unreported:  Lands Tribunal for Scotland, 3 June 2016) paragraph 197.  In the present case, the Tribunal could have regard to all the evidence which assisted in understanding what a developer would do at the date of valuation;  but events which occurred after the valuation date were not to be taken into account (as the hypothetical valuer would not have known of these).  Changes unknown and unheralded at the time of valuation should be disregarded.

[34]      In paragraphs (268) to (272) of its opinion, the Tribunal looked to the future (including the future beyond the relevant date) in order to:

“assess, in the knowledge of all that was known at the relevant date, the nature and magnitude of such risks as lay in the way of planning permission being granted.”

That approach could not be faulted.

[35]      Fair notice:  Paragraph 3.8 of the respondent’s pleadings, as adjusted in January 2016, set out a clear case based on hope value.  The nature of that case was acknowledged by the appellant in its answers (3.8, 3.11, 3.13, and 3.14).  Thus there was recognition by the appellant in its answers that there had been a change of position on the part of the respondent.  Mr Green’s second Savills report dated 26 January 2016 (“the Response letter”) reflected the respondent’s change of position.  Paragraph 3.35 of the respondent’s adjusted pleadings stated:

“The Valuation Report proceeds on the assumption that all required consents and agreements were in place for the erection of two wind turbines with a tip height of 92.5m and a rated capacity of 2.3MW in addition to the existing second consent and ascertains the full investment value.  The Response letter does not proceed on that assumption [i.e. the special assumption] and explains that the Claim is based on 80% of that full investment value …”

There was therefore a clear signpost that the basis of the respondent’s claim had changed, and that the claim was being put forward on the basis of hope value.  The appellant had been given an opportunity to decide to bring more evidence in the light of the respondent’s changed position, but had not taken the opportunity.

[36]      In addition to the pleadings, counsel referred to the terms of reports intimated to the appellant, in particular the respondent’s Savills report by Mr Green dated 26 January 2016, paragraphs 1.3, 3.10 to 3.13, 4.9 et seq, 4.14, and 4.15.  It was quite clear that the valuation report was based on hope value.  Mr Green had changed his method of valuation.  Applying the hope value concept, he had adopted a “top-down” approach, ie he had started with the full value as at the relevant date, and then discounted that value.  Emphasis was placed upon the time it would take to lodge and process a planning application.  The application looked to the future and made percentage discounts for inter alia future unknown risks.  Moreover valuers (such as Mr Robertson of Bidwells, advising the appellant) had no difficulty dealing with timelines in a planning context.  Referring to Bidwells report dated 2 September 2016 which was to be used at Stage 2 of the proof, counsel submitted that Mr Robertson demonstrated in paragraphs 4.3.1, 5.1.2, 5.1.3, and 5.1.4 that he had no difficulties dealing with planning situations and timings.  Evidence such as his could be led at Stage 2. 

[37]      Furthermore, the respondent’s hope value approach was clear from the note of argument (which pre-dated the start of the evidence).  At no time had there been an application from the appellant to adjourn to enable the appellant to adduce further evidence. 

 

Sufficiency of evidence:  In its opinion, the Tribunal set out the evidence in some detail.  Mr Garvie’s evidence did not assist in the present dispute.  Mr Neighbour (responsible for the chapter on cultural heritage prepared for the three turbines, and also for two further reports) dealt with cultural heritage, landscape and visual impact, and planning.  In paragraph (23) of the opinion, his evidence concerned the “prospects” of obtaining planning permission.  Ms Olesky was also concerned with cultural heritage.  In paragraphs (50) and (51), her evidence was clearly looking to the future when she spoke of advising a client in 2010 as to whether planning consent was “likely” to be granted.  Mr Jones (landscape and visual impact) gave evidence, noted at paragraphs (73), (80) and (81), providing material for the Tribunal’s conclusions.  There was nothing to be noted from Mr Bainsfair’s evidence at paragraph (88) et seq.  However Mr Pattenden’s evidence was clearly directed to “hope value”, as was demonstrated in paragraphs (128) to (130), (134) to (135), (138), (146), (157), (160), and (169) by references to the “prospects” and “likelihood” and “chance” of being granted planning permission for an additional two turbines at a date later than 12 October 2010, and by the discounting of value to reflect planning risk.  Mr Black of Jones Lang Lasalle also gave evidence looking forwards to future prospects (paragraphs (173), (175) to (179), and (198)), with references to the “prospects” of planning permission being granted at some stage in the future, and to the “likelihood” of getting planning permission, again with value being discounted according to planning risk.  There was clearly a sufficiency of evidence.

 

The Tribunal’s reasoning, conclusion, and interlocutor:  The Tribunal’s reasoning, particularly in paragraphs (3)-(4), (268)-(270), and (303)-(308), could not be criticised.  In paragraphs (303) et seq, the Tribunal indicated that its findings were to be treated as an instruction to the valuation witnesses for the purposes of the next part of the hearing (on valuation).  It was for parties to decide how they wished to take matters forward:  no restrictions were placed on methodology or witnesses.  The 6 months assumption from the valuation date until full consent for the three turbines was generous to the appellant.

[38]      The terms of the Tribunal’s interlocutor made clear the restricted nature of the Tribunal’s finding.  The parties were free to lead such evidence as they wished on many matters:  for example, timing (one side’s contention was 14 months, the other’s was 9 months, the key matter being the grid connection).

 

A response to any remaining Grounds of Appeal in paragraph 29:  In respect of any areas of the appellant’s grounds of appeal not already covered by the respondent’s submissions, counsel made the following observations:

 

Ground of Appeal 29(i)(b):  The mere passage of time would have no effect of prospects, unless it was known that certain things would change.  In this case, the site was the subject of two planning applications.  There was no indication that anything unexpected would arise.  The respective estimates of the fruition of the planning application were 9 months and 14 months.  The Tribunal was, on the evidence, entitled to form the view that it was unnecessary to be precise about the likely future date of the grant of planning permission.  No evidence had been led on that matter except in certain answers given in reply to Mr Oswald.  Nothing in the evidence suggested that the Tribunal erred in adopting the approach it did.  The evidence given by the witnesses, looking to the future, was sufficient for the Tribunal’s purposes.

 

Ground of Appeal 29(i)(c):  The Tribunal had sufficient evidence from Mr Pattenden and Mr Black concerning a timeline for securing planning permission for an additional two turbines after the relevant date.  The Tribunal was entitled to proceed on the evidence put before it.

 

Ground of Appeal 29 (ii):  The planning evidence led by the respondent addressed the planning risks associated with securing planning permission, assessed as at the relevant date (and not “assessed by the relevant date”).  It was wrong to assert that the evidence led by the respondent “did not address the planning considerations of relevance to a determination some considerable period after the relevant date”:  the evidence led did address that matter.  Further the matters listed after the words “Those risks included” in paragraph 22 of the appellant’s note of argument in the appeal to the Court of Session were merely assertion:  no evidence had been led in relation to those matters.  (Also if the appellant’s position was that evidence could have been led which would have made a difference, some indication of what that evidence might be should be given.) 

 

Ground of Appeal 29 (iii):  The assertion that the Tribunal proceeded in a manner that was “procedurally unfair and that gave rise to prejudice to the appellant” was at odds with the reality of the pleadings, the admissions in the answers, and the conduct of the case.

 

Final response for the appellant

1.    Analysis of the pleadings:  The planning evidence in Stage 1 of the hearing was concerned with the assumption that planning permission would have been granted “by” the relevant date.  While the respondent could obtain a certain amount of support for its argument from the pleadings, more regard should have been had to the reports and the oral evidence.  In any event, paragraphs 3.11 and 3.13 of the pleadings were relied upon: but properly construed, those paragraphs were concerned with the obtaining of planning permission “by” the relevant date. 

2.    Spreadsheets:  The appellant’s point relating to the spreadsheets was not that the project start date remained the same:  the point was that Savills took the project start date as the relevant date.  The valuation reports made use of the assumption that the project would be “shovel ready” as at the start date, which necessarily assumed that planning permission would be granted.

3.    Mr Findlay’s use of Bidwells’ reports:  Mr Findlay submitted that Bidwells’ report by Mr Robertson dated 2 September 2016 demonstrated (i) that it was normal for a valuer to deal with planning timeline issues;  (ii) that Mr Robertson had no difficulty dealing with certain planning assumptions.  However the context of the report was important.  At the conclusion of the planning evidence, dates were fixed (12-15 September 2016) for the valuation evidence.  At the time the Tribunal issued its opinion on 10 August 2016, the tribunal clerk wrote to parties requesting their co-operation in the preparation of supplementary reports to take account of the Tribunal’s directions in the opinion.  The supplementary reports were to be lodged by 2 September 2016.  Mr Robertson therefore had an obligation to produce a report and update in response to the directions.  He inserted an important qualification in paragraph 5.1.1 (“I have had to assume timescales for each step in the process …”).  When therefore reading paragraphs 4.7.3, 5.1.1, 5.1.3, and 5.1.8, that important qualification had to be taken into account.  This would not be Mr Robertson’s normal practice.

4.    The procedure adopted:  While the respondent initially opposed a split proof, by the time of the second procedural hearing in March 2016, that sense of opposition had gone and the parties presented a united front on the matter.  Senior counsel for the appellant observed that it was strange that the Tribunal, at that second procedural hearing, appeared to have no concerns about fixing a diet to examine the special assumption if it was so clear from the pleadings that the special assumption was no longer relied upon.

5.    Mr Black’s evidence:  Mr Black’s evidence had to be read in context.  In his report dated October 2015 at paragraph 2.2.6 he set out what he understood the special assumption to be.  His report was no more than a rebuttal of Mr Pattenden’s evidence (namely that planning permission would be achieved by the relevant date). 

6.    Evidence insufficient for the Tribunal properly to appraise hope value:  There was simply insufficient in either Mr Black’s or Mr Pattenden’s evidence to allow the Tribunal to have a sound basis for coming to a proper conclusion on future planning probabilities.

7.    What additional evidence could be led:  Contrary to counsel for the respondent’s assertion, senior counsel for the appellant had indicated at least one matter which required to be explored in evidence, namely “landscape character and cumulative impact” (paragraph (285) of the Tribunal’s opinion).  Scottish Natural Heritage (SNH) were reviewing landscape capacity.  It was not known how they would react to five turbines of increased height.  That was a matter upon which evidence could be led, none having been led to date.

 

Discussion

Hope value

[39]      As Lord Collins of Mapesbury explained in the context of compulsory purchase in Transport for London v Spirerose Ltd [2009] 1 WLR 1797 at paragraphs 65, 94 and 99:

“65 … from the earliest days of the law of compensation for compulsory acquisition the value of the land taken has included what was described in 1867 as ‘not only the present purpose to which the land is applied, but also any other more beneficial purpose to which in the course of events at no remote period it may be applied’:  R v Brown (1867) LR 2 QB 630, 631.  The Town and Country Planning Act 1947 introduced wide-ranging controls on development, but it was only after the Town and Country Planning Acts 1953 and 1954 that owners of land were fully able to realise the development value of their land if they could get planning permission.  Since then development value has been an important element in the assessment of compensation, because the value of land in the open market may depend on what planning permission exists or could be obtained for development on the land …

94 … the Privy Council said (through Lord Romer) in Raja Vyricherla Narayana Gajapatiraju v Revenue Division Officer, Vizagapatam [1939] AC 302, 313:

‘[The] land is not to be valued merely by reference to the use to which it is being put at the time at which its value has to be determined … but also by reference to the uses to which it is reasonably capable of being put in the future …

95 I emphasise that the reference is to ‘possibilities of the land and not its realised possibilities’, and that a deduction would have to be made to take account of the fact that the land might not be required for building or might not be required for a considerable time.  This is a powerful confirmation of a principled approach to valuation.  There is no reason why the same principles should not apply when the modern law of town planning is factored in.  It is elementary that the price which the land in question might reasonably be expected to fetch on the open market at the valuation date would be expected to reflect whatever development potential the land has …

99 … it seems to me to be plain on the basis of the statutory provisions and of authority going back more than 100 years, which is entirely in accordance with commercial common sense, that (a) the value of the land is the open market value;  (b) any depression in the price which the land might be expected to fetch which is caused by the scheme is to be disregarded;  (c) the valuation must take into account the potential of the land, including its potential for development;  and (d) the development potential must be valued in the normal way, by discounting for future uncertainties …”

[40]      We therefore accept that, in respect of the land over which the wayleave was granted, it is relevant to take into account “what planning permission exists or could be obtained for development on the land”, “the potential of the land, including its potential for development”, “valued in the normal way, by discounting for future uncertainties”.  In other words, it is relevant to take into account “hope value”.  As we understood counsel’s submissions, that was not disputed.

 

Fair notice

[41]      The grounds of appeal and questions of law are set out in paragraphs [14] and [15] above.  We deal firstly with the question of fair notice.  

[42]      In our opinion, it is well established that it is the parties’ pleadings which should contain fair notice of the case being made.  While productions and ancillary notes may assist, by giving, for example, further detail or explanation, or indicating the way in which averments may be proved, the pleadings themselves should contain sufficient relevant and specific averments to alert the reader to the case sought to be proved.

[43]      In the present case, it was acknowledged that the respondent’s initial pleadings were based solely upon the special assumption, namely that “at the relevant date [10 October 2010] all necessary consents were in place for the erection, commissioning and operation of five wind turbines” (the appellant’s note of proposals dated 12 November 2015).  However following upon the introduction of the concept of “hope value” in a report dated 21 October 2015 by Bidwells, addressed to the appellants, noted in paragraph [3] above, Savills provided the respondent with a Letter of Response dated 26 January 2016, adopting an alternative methodology (paragraph 3.12) and calculating – 

“ … the full investment value, of the ‘as built’ three turbine scheme, and separately the hypothetical five turbine scheme, using the discounted cash flow method … The difference between the two models is the full investment value to the owner of turbines 4 and 5 (paragraph 3.13).”

A reduction was then made “to reflect any outstanding planning or development risks”.

[44]      Further in January 2016 the respondent adjusted its pleadings.  We refer in particular to paragraphs 3.8, 3.9, and 3.35.  In those adjusted pleadings there is reference to the property being “likely to receive planning permission for erection of two further 2.3MW turbines at locations 4 and 5 in addition to those approved on 31 August 2010 (“the five turbine scheme”), “the value of the applicant’s property as at the relevant date taking into account the prospects of achieving the two further turbines”.  In paragraph 3.35 there is an explanation that the Response letter dated 26 January 2016 containing Savills’ alternative methodology did not proceed on the basis of the special assumption but rather the respondent’s claim was based on 80% of the full land value. 

[45]      In our opinion, the adjusted averments gave fair notice that the respondent’s case was now one based on hope value.  Words such as “likely” and “prospects” indicated that regard was being had to “what planning permission exists or could be obtained for development on the land” and “the potential of the land, including its potential for development” (Spirerose, paragraphs [65] and [99]).  The discount to 80% pointed to “discounting for future uncertainties” (Spirerose, paragraphs 65 and 99).  In addition, there was an averment referring to the Response letter by Savills dated 26 January 2016, pointing out that the letter did not proceed on the assumption that all required consents and agreements were in place for an additional two turbines (resulting in full investment value), but rather that the respondent’s claim was based on 80% of that full investment value.  We consider that those averments, taken together and read in context, gave fair notice that the respondent was now offering to prove the hope value of the land.  That did not mean that the special assumption no longer featured:  it could provide useful information in the valuation exercise if a “top-down” approach were to be adopted.

[46]      It might have been helpful had the words “hope value” appeared in the pleadings.  Nevertheless it is our view that the adjusted pleadings, and in particular paragraph 3.35, gave sufficient fair notice of a case based on hope value. 

[47]      We note that the appellant’s own pleadings (Answer 3.8 as adjusted at 4.3.16, quoted in paragraph [16] above) appeared to recognise the hope value case which the respondent was endeavouring to make.  The appellant’s answering averment was that the respondent was addressing the wrong issue.  However there was no written order of the Tribunal restricting the proof solely to proof of the special assumption (which had been the focus of the appellant’s note of proposals in November 2015).  In our opinion the January 2016 adjustments to the respondent’s pleadings gave fair notice of a hope value case.  That had to supersede any pre-existing perception of the parameters of the proof such as might have existed at the time of the appellant’s note of proposals. 

[48]      In the result we do not accept that the Tribunal erred in law in determining that the respondent’s pleadings gave fair notice that the respondent’s case was no longer based solely on the special assumption but was based on hope value, in the assessment of which the special assumption might have a part to play.  Thus we do not accept that the Tribunal acted in a manner that was procedurally unfair, giving rise to prejudice to the appellant (the third error of law set out in paragraph [15] above).  We agree with the Tribunal’s assessment of the circumstances and its ruling as set out in inter alia paragraphs (3), (4), (268)-(270), and (308) of its opinion.  

 

The evidence available to the Tribunal

[49]      As already noted, the Tribunal’s opinion sets out the evidence in some detail.  We do not intend to rehearse the evidence again here.  In our opinion, the passages of evidence referred to in the course of submissions were sufficient for an expert tribunal such as the Lands Tribunal to reach the conclusion it did.  In particular, the Tribunal had sufficient evidence from Mr Pattenden and Mr Black concerning a timeline for securing planning permission for an additional two turbines after the relevant date.  The Tribunal was, on the evidence, entitled to form the view that it was unnecessary to be precise about the likely future date of the grant of planning permission.  There was no indication that anything unexpected would arise.  Nothing in the evidence suggests to us that the Tribunal erred in adopting the approach it did.  The evidence given by the witnesses, looking to the future, was in our opinion sufficient for the Tribunal’s purposes.

[50]      Thus we do not accept that any errors of law (defined as the first and second errors of law in paragraph [15] above) have been identified.  The Tribunal was entitled to reason as it did, and to reach the conclusions it did, on the basis of the evidence before it.

 

Decision

[51]      For the reasons given above, we answer the questions of law in the negative, and refuse the appeal.  We continue the question of expenses.