UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2012] UKUT 417 (LC)

UTLC Case Number: ACQ/83/2011

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

COMPENSATION – compulsory purchase – preliminary issue – freehold and long leasehold interests subject to occupational leases – whether value of interests to be assessed on assumption that terms of leases were as they would have been if no proposal to acquire – held they should not – Land Compensation Act 1961 ss 5 & 9

 

IN THE MATTER OF NOTICES OF REFERENCE

 

BETWEEN (1) GPE (HANOVER SQUARE) LIMITED Claimants

(2) 18/19 HANOVER SQUARE (NO.1) LIMITED

(3) 18/19 HANOVER SQUARE (NO.2) LIMITED

and

TRANSPORT FOR LONDON Acquiring

 Authority

 

 

 

Re: 18-19 Hanover Square

and 1A Tenterden Street

London W1

 

Before: The President

 

Sitting at 43-45 Bedford Square, London WC1B 3AS

on 19 and 20 June 2012

 

Neil King QC and Simon Pickles instructed by Berwin Leighton Paisner LLP for the claimants

Michael Barnes QC and Eian Caws instructed by Ashurst LLP for the acquiring authority

 

© CROWN COPYRIGHT 2012

 

 

The following cases are referred to in this decision:

 

Pointe Gourde Quarrying & Transport Co Ltd v Sub-Intendant of Crown Lands [1947] AC 565

South Eastern Railway Co v London County Council [1915] 2 Ch 252

Fraser v City of Fraserville [1917] AC 187

Rugby Joint Water Board v Shaw-Fox [1973] AC 202

Minister of Transport v Pettitt (1968) 20 P & CR 344

Transport for London v Spirerose Ltd [2009] 1 WLR 1797

Persimmon Homes v Secretary of State for Transport [2009] UKUT (LC) 126

Jelson Ltd v Blaby District Council [1977] 1 WLR 1020

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

Bradford Property Trust Ltd v Hertfordshire County Council (1974) 27 P & CR 228

Lewars v Greater London Council (1982) 43 P & CR 129

Thornton v Wakefield MDC (1991) 62 P & CR 441

Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307

Urban Edge Group Ltd v London Underground Ltd [2009] UKUT (LC) 103

Myers v Milton Keynes Development Corporation [1974] 1 WLR 696

Waters v Welsh Development Agency [2004] 1 WLR 1304

Porter v Secretary of State for Transport [1996] 3 All ER 693

London Borough of Hackney v MacFarlane (1970) 21 P & CR 342

Trocette Property Co Ltd v Greater London Council (1974) 28 P & CR 408

 

The following further cases were referred to in argument

 

Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602

Attorney General of New Zealand v Ortiz [1982] QC 349

Blue Circle Industry Plc v Ministry of Defence [1999] Ch 289

Cornwall Coast Country Club v Cardgrange Ltd [1987] 1 EGLR 146

Director of Buildings & Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111

English Property Corporation v Royal Borough of Kingston upon Thames (1999) 77 P & CR 1

Jones v Wrotham Park Settled Estates [1980] AC 74

 

DECISION ON A PRELIMINARY ISSUE

Introduction

1.       The claimants in this reference are the freeholders and long leaseholders of property at 18 and 19 Hanover Square and 1A Tenterden Street, London WC1.  Their interests in the subject property were acquired compulsorily by the compensating authority under powers contained in the Crossrail Act 2008.  Those interests were subject to three occupational leases.  The claim for compensation that is the subject of this reference is advanced on the basis that, had it not been for the Crossrail proposal, occupational leases would have been entered into with other tenants and on terms more favourable to the landlords; and that the freehold and long leasehold interests should be valued on this basis.  The contention is founded both on section 9 and rule (6) of section 5 of the Land Compensation Act 1961.  With the agreement of the parties I ordered that two issues, expressed in the following terms, should be determined as preliminary issues:

“(a) Whether, in assessing the value of the interests of the Claimant in the property acquired at the valuation date of 2 December 2009 under rule (2) of section 5 of the 1961 Act, the effect of section 9 of the 1961 Act is to require or to permit the value of those interests to be assessed on the basis that the parties to and certain terms of certain leases of parts of the property* had not been as they actually were but instead as they would have been likely to have been if no indication had been given that the property was, or was likely, to be acquired by the Acquiring Authority.

*The property was subject to 3 occupational leases: at 18 Hanover Square (which includes 1A Tenterden Street) a retail and an office lease, and at 19 Hanover Square an office lease only.  As to the parties and terms, the Claimant contends that the occupational leases would have been let to equivalent or superior tenants, that the rents achievable for all the occupational leases would have been greater, and that the provisions relating to terms certain and break clauses would have been different.  These contentions as to differences in the tenants and terms of the leases are not agreed by the AA.

(b) On the assumption (made for the purposes of this preliminary issue only) that the rents receivable from the tenancies of the property in the period 1 December 2005 to 1 December 2009 were less than they would have been had it not been anticipated that the property would be acquired compulsorily and had there been no threat of such acquisition, whether the resulting shortfall in rent in respect of that period can be recovered as compensation under rule (6) of section 5 of the 1961 Act.”

2.       After a somewhat long drawn out correspondence between the parties following the hearing I decided that the second issue was not suitable for determination as a preliminary issue because it was or might be dependent on evidence that would need to be called; and that the issue should be postponed for determination at the principal hearing.  This decision is therefore concerned with the first issue only.

Facts

3.       The parties had agreed a statement of facts.  They include the following, which I adopt as the factual basis for this decision.

The Claimants

4.       The claimants are wholly-owned subsidiaries of Great Portland Estates plc, 33 Cavendish Square, London W1G OPW.  As at 2 December 2009 (the valuation date for the purpose of the reference), the claimants held the freehold title absolute in the properties at 18 and 19 Hanover Square and 1A Tenterden Street (titles no. NGL883856, NGL226684 and NGL901470 respectively).  1A Tenterden Street forms the rear of and was held with 18 Hanover Square and is, unless otherwise indicated, included within any reference in this decision to 18 Hanover Square.

5.       Numbers 18 and 19 Hanover Square are situated on the west side of Hanover Square, to the south of Oxford Street and west of Regent Street.  At the valuation date they formed part of a larger portfolio of property owned by GPE known as the Hanover Estate.

18 Hanover Square

6.       At the valuation date 18 Hanover Square comprised accommodation arranged on lower ground, ground and six upper floors.  It was constructed in 1965; and it was refurbished in 2004.  The accommodation comprised an office and showroom property of approximately 3,546.68 sq m (38,173 sq ft).  It provided office accommodation on the first to sixth floors with a self-contained showroom unit and offices on ground floor level with access to Hanover Square via the main reception area, and basement car parking.  Office floor plates were regular with a single line of columns, allowing sub-division or open space planning for occupiers.  The average floor size was approximately 511 sq m (5,500 sq ft).  The sixth floor, which is smaller, had roof terrace areas on two elevations, but no lift between the 5^th and 6^th floors.

7.       There was parking for 22 cars in the basement car park accessed from Tenterden Street, along with a secondary entrance to the property.  A loading bay area for the showroom unit was accessed from Tenterden Street.  The Hanover Square frontage provided the main point of access to the office floors via an entrance hall served by two 8-person passenger lifts.  The lifts did not serve the sixth floor.  There were two additional lifts at the rear of the ground floor area accessed from the secondary entrance from Tenterden Street (albeit these were taken out of service at the time of the refurbishment in 2004).

8.       The remainder of the ground floor was utilised as showroom space with office space to the rear with a return frontage along Tenterden Street.  The total showroom area (including ancillary offices) at ground floor level was 742.17 sq m (7,988 sq ft).  Externally the building was clad with panels and double-glazed, aluminium framed window units and the principal structure comprised an in situ reinforced concrete frame.

19 Hanover  Square

9.       Number 19 Hanover Square was built in 1973.  The building comprised, at the valuation date, a self-contained office building of approximately 2,933 sq m (31,570 sq ft) arranged over basement, ground and five upper floors.  It provided office accommodation on lower ground and first to fifth floors.  A2 use was alternatively allowed at ground floor level.

10.    Parking for 15 cars was provided in a basement car park.  This was accessed through Dering Yard at the rear of the property, from New Bond Street.

11.    The principal structure comprised an in situ reinforced concrete frame with concrete floors and roof.  The property was subject to a major refurbishment and partial extension in 2005 and provided office accommodation on ground, first to fifth floors accessed via an entrance hall at ground floor level.  The works had included removing the pitched roof to the rear of the third floor and forming an extension and installing new plant on the roof.  The office floors ranged in size from 162 sq m (1,747 sq ft) to 599 sq m (6,451 sq ft).  On the larger floors a secondary service core to the rear provided WC facilities in addition to those located in the main lift core.

Other property

12.    Number 1A Tenterden Street was part of and formed the rear of 18 Hanover Square.  Number 67/69 New Bond Street (part) was an undeveloped area of approx 82 sq m (882 sq ft) used as an access way between numbers 67 and 68 New Bond Street.  The access served the rear of 18, 19 and 20 Hanover Square and 1A Tenterden Street.  Dering Yard was an undeveloped area of approx 233 sq m (2,508 sq ft) used as a car park and accessed along the access way between 67 and 68 New Bond Street.  The rear entrances to 18, 19 and 20 Hanover Square and 1A Tenterden Street were off the yard.

Crossrail Act 2008 and compulsory purchase of the subject properties

13.    The first Crossrail Safeguarding Direction was made in October 1991, when a direction relating, inter alia, to the subject properties was issued under Articles 14 and 18 of the Town and Country Planning General Development Order 1988.  This is the date of the “indication” under section 9 of the 1961 Act.  The Crossrail Bill was introduced to the House of Commons on 22 February 2005.

14.    On 22 July 2008, the Crossrail Bill received Royal Assent.  Section 6(1) of the Crossrail Act authorises the Secretary of State to acquire compulsorily land required for the Crossrail project, including, by virtue of section 6(3) and Part 2 of Schedule 6 to the Crossrail Act, by way of general vesting declaration under the Compulsory Purchase (Vesting Declarations) Act 1981.  By virtue of section 6(3) of and Part 2 of Schedule 6 of the Crossrail Act and section 7(1) of the 1981 Act, compensation for land taken by GVD pursuant to the Crossrail Act is to be determined in accordance with Part II of the 1961 Act.

15.    Preliminary notices of the intention of the Secretary of State to make a GVD were served on the Claimants on 28 August 2009.  On 30 October 2009 notices were served on the Claimants stating that the Secretary of State had, on 29 October 2009, made a GVD including the subject properties; and in accordance with that GVD the subject properties vested in the Secretary of State on 2 December 2009.  That date is therefore the valuation date.  Pursuant to section 51 of the Crossrail Act, the Secretary of State’s powers were devolved to TfL by Order on 21 April 2010.  Article 3 of the Order devolved the Secretary of State’s compulsory purchase powers in section 6 of the Crossrail Act to TfL.  Article 6(3) of the Order provided that anything which had been done by or in relation to the Secretary of State for the purposes of or in connection with the functions transferred to TfL by the Order as at 21 April 2010 had continuing effect as if done by or in relation to TfL.

Freehold and long-term leasehold interests

16.    The freehold interest in 18 Hanover Square and 1A Tenterden Street was vested in GPEHS, and HS1 and HS2 held a long leasehold interest in the property.  The freehold interest in 19 Hanover Square was vested in HS1 and HS2.

Occupational leases subsisting at the valuation date: (a) 18 Hanover Square (offices)

17.    The parties to the underlease of the office floorspace at 18 Hanover Square subsisting at the valuation date were HS1 and HS2 as landlord and Avanta Management Services Limited (company no: 04953528), whose registered office is at 1 Hammersmith Grove, London W6 ONB as tenant.  The lease commencement date was 21 December 2005 and the lease term was 10 years (the lease expiry date was therefore 20 December 2015).  The rent commencement date was 21 December 2005 and the rent payment dates were 25 March, 24 June, 29 September and 25 December.  The initial rent (there being no preceding rent free period) was £1,068,775.75 per annum.

18.    The permitted uses defined in the lease were as follows: (i) Part Ground Floor – use as a reception area serving the occupiers of the remainder of the premises; (ii) Lower Ground Floor Car Park – use as a car park ancillary to the use of the premises; and (iii) Remainder of the Premises – use as good quality offices (including serviced or managed offices) with ancillary storage within Class B1 (a) of the Use Classes Order

19.    The lease provided for the rent to be reviewed on 21 December 2010.  The review rent was to be the yearly market rack rental value, which might reasonably be expected to be payable following the expiry of any rent free or concessionary rent period at the beginning of the term negotiated in the open market for the purposes of fitting out, by a willing lessor to a willing lessee with vacant possession on the review date, without a fine or premium, for the residue of the term or ten years, whichever is the greater, calculated from the review date, including the provisions of the actual lease (save for the amount of the rent reserved) and on the usual assumptions, disregarding any contingent obligation to carry out works of reinstatement and restoration at the end of the lease.  The lease provided for upwards only review at a minimum uplift.  The reviewed rent was stipulated to be the higher of the yearly market rack rental value of the premises at the date of the review and a base rent of £1,493,822.50 per annum.  The lease contained provisions permitting interim review if statutory intervention prevented the review being implemented in whole or part.  If the additional rent free applicable to the underlease of the sixth floor between January and May 2010 applied, the rent was to be reduced by an amount equal to this rent free apportioned on a daily basis.

20.    The lease made no provision for break by the tenant.

Occupational leases subsisting at the valuation date: (b) 18 Hanover Square (showroom and offices)

21.    The underlease date was 16 June 2006 and the parties to it were HS1 and HS2 as landlord and Dolce and Gabana UK Limited (company no: 03532657), whose registered office is at Marlow House, Lloyds Avenue, London EC3N 3AL as tenant.  The term was for a period of 15 years from 16 June 2006.  The rent commencement date was 25 March 2008 and the rent payable dates were 25 March, 24 June, 29 September and 25 December.  The initial rent was £225,000 per annum.

22.    The permitted uses were stated to be: (i) Office unit (to the rear of the unit) – use as good quality offices within Class B1 of the Use Classes Order; and (ii) whole of the premises – use as a high quality showroom for the display of high quality clothes and other fashion items within Class A1 of the Use Classes Order (but not for any other A1 use without the landlord’s prior written consent which was not to be unreasonably withheld or delayed), with associated office use and storage ancillary thereto.

23.    The lease provided for the rent to be reviewed on an upward only basis on 16 June 2011 and 16 June 2016.  The review rent was the yearly market rack rental value, which might reasonably be expected to be payable following the expiry of any rent free or concessionary rent period at the beginning of the term negotiated in the open market for the purposes of fitting out, by a willing lessor to a willing lessee with vacant possession on the review date, without a fine or premium, for a term of ten years at the review date, including the provisions of the actual lease (save for the amount of the rent reserved) and on the usual assumptions, disregarding any contingent obligation to carry out works of reinstatement and restoration at the end of the lease.  The lease contained provisions permitting interim review if statutory intervention prevented the review being implemented in whole or in part.

24.    The tenant was permitted to determine the lease on 15 June 2016, subject to the service of at least six months’ written notice of its intention on the landlord.  The valid exercise of the break option was conditional on: the delivery of vacant possession; the tenant’s due payment of the principal rent reserved by the lease and properly demanded; and the tenant’s due performance of its covenants contained in the break clause (except to the extent that the landlord, in its absolute discretion, waived compliance with any of them).  The lease also contained the option to determine in context of reinstatement following damage by an insured or uninsured risk.  A licence permitting fit out works obliged the tenant to reinstate the fit out works with the exclusions of the shop front and toilets and floor coverings.

Occupational leases subsisting at the valuation date: (c) 19 Hanover Square

25.    The parties to the lease of 19 Hanover Square were HS1 and HS2 as landlord and Lend Lease (company no: 2594928), whose registered office is at 142 Northolt Road, Harrow, Middlesex HA2 OEE as tenant.  The term was for a period of 10 years from 21 December 2005 (security of tenure was excluded).  There was a rent free period which applied from commencement until 19 January 2007 and the rent commencement date was therefore 20 January 2007.  The rent payment dates were 25 March, 24 June, 29 September and 25 December.  The initial rent was £1,400,000 per annum.

26.    The permitted use was for use as good quality offices within Class B1(a) of the Use Classes Order except for: (i) Ground Floor Unit, which may be used for any purpose within Class A2 or (if permitted under planning law) B1 of the UCO; and (ii) Basement Car Park which may be used for car parking ancillary to the permitted use of the premises.

27.    The lease provided for the rent to be reviewed on 21 December 2010 on an upward only basis.  The review rent was the yearly open market rental value, which might reasonably be expected to be payable, following the expiry of any period at the beginning of the term negotiated in the open market for the purposes of fitting out, during which no rent or a concessionary rent is payable, if the premises had been let as a whole in the open market, by a willing lessor to a willing lessee with vacant possession on the review date, without a fine or premium, for a term equal to the residue of the actual term at the review date, including the provisions of the actual lease (save as to the reserved rent) and on the usual assumptions, although the premises are assumed to be in the condition and design set out in the schedule annexed to the lease and any obligation to carry out works or reinstatement and restoration at the end of the lease is to be disregarded.

28.    The tenant had the general right to break as at 21 December 2010 on at least 6 months’ written notice, subject to yielding up with vacant possession and there being no breach of any covenant to pay rent or any other sum properly demanded under the lease.  The tenant also had a right to break related to the Crossrail project.

History of claim and settlement to date

29.    The acquiring authority has made payments to date to the claimants in the total sum of £58,981,074 plus VAT of £9,594,793.27.  The first advance payment (pursuant to section 52(1) of the Land Compensation Act 1973) was made to the claimants on 7 December 2009 in the sum of £35,900,000.  This was made up of £35,825,000 in respect of the land value claim and £75,000 as one of two basic loss payments.

30.    On 15 July 2010 the claimants submitted their claim to TfL in respect of the acquisition of their interests in the subject properties.  They claimed compensation under the following headings: (a) the land value claim; (b) the severance and injurious affection claim; (c) the disturbance claim; (d) the reinvestment costs claim; (e) the fees and costs claim; (f) the statutory loss payment claim; and (g) the statutory interest claim.

31.    The second advance payment (pursuant to section 52(4A) of the 1973 Act) was made to the claimants on 28 September 2010 in the sum of £9,193,044.  This was made up of £6,967,387 in respect of the land value claim, £2,060,657 in respect of the reinvestment costs claim, £90,000 in respect of the fees and costs claim and £75,000 in respect of the Second Basic Loss Payment.  A third advance payment was made to the claimants on 29 October 2010 in the sum of £4,900,000.  This was made up of £4,665,521 in respect of the land value claim, £224,667 in respect of the reinvestment costs claim and £9,812 in respect of the fees and costs claim.

32.    On 12 April 2011 TfL, GPEHS, HS1 and HS2 reached agreement in respect of the land value claim in the sum of £56,000,000.  This agreed sum takes no account, however, of the claimants’ claim that there was a depreciation in the value of the property at the valuation date attributable to the fact that an indication had been given that the property was or was likely to be acquired by an authority possessing compulsory powers for the purposes of section 9 of the 1961 Act, and the claimants reserved all their rights in respect of that part of their claim.  In accordance with this agreement of the land value claim, on 12 April 2011 the acquiring authority made a further payment of £8,542,092 (being the balance of the sum agreed in settlement of the land value claim save in respect of any depreciation in the value of the property at the valuation date for the purposes of section 9).  Also in accordance with this agreement, the claimants withdrew their severance and injurious affection claim and agreed not to make any further claim in respect of severance and injurious affection, and the acquiring authority agreed not to proceed with its contention that any compensation due to the claimants is subject to betterment.

33.    On 21 April 2011, in accordance with the agreement, the acquiring authority made a payment to the claimants in the sum of £445,938.  This was made up of £384,676 in respect of the reinvestment costs claim and £61,262 in respect of the fees and costs claim.

History of acquisition by the claimants of their interests

34.    On 18 January 2001 HS1 and HS2 acquired the unexpired residue of a long leasehold interest in 18 Hanover Square and 1A Tenterden Street (this lease having been originally granted to Legal and General Assurance Society Limited on 16 May 1984 for a term of 125 years from 1 April 1984).  Also on that date HS1 and HS2 acquired the freehold interest in 19 Hanover Square.  From that date, both interests were held on trust for GPEHS (then known as Hammerson (18 & 19 Hanover Square) Limited).

35.    On 3 August 2006 HS1 and HS2 and GPEHS became group companies of GPE, having previously been group companies of Hammerson Plc.  The name of GPEHS was changed from Hammerson (18 & 19 Hanover Square) Limited to GPE (Hanover Square) Limited on 11 August 2006.

36.    On 25 April 2007 GPEHS acquired the freehold of 1A Tenterden Street from the City of London Corporation.

37.    On 31 August 2007 GPEHS acquired the freehold interest in 18 Hanover Square and the unexpired residue of a long leasehold interest in 1A Tenterden Street from the Trustees of The Oriental Club (the lease had been originally granted to the Trustees of The Oriental Club on 5 April 1922 for a perpetually renewable term and was commuted to a term of 2,000 years pursuant to Schedule 15 to the Law of Property Act 1922).

38.    GPEHS, HS1 and HS2 are wholly owned subsidiaries of GPE; and – in consequence of the history of acquisition above – they held the freehold title absolute in 18 and 19 Hanover Square and 1A Tenterden Street at the valuation date.  GPEHS held the freehold interests in 18 Hanover Square and 1A Tenterden Street for itself absolutely, while the freehold interest in 19 Hanover Square was held by HS1 and HS2 together on trust for GPEHS.  The freehold interest in 1A Tenterden Street was subject to the long leasehold interest referred to above held by GPEHS, and which was not merged into the freehold.  Both this leasehold interest in 1A Tenterden Street and the freehold in 18 Hanover Square were subject to the further long lease held by HS1 and HS together on trust for GPEHS referred to above.  These interests were together subject to the occupational leasehold interests referred to at paragraphs 16-28.

The statutory provisions

39.    The provisions that require consideration are sections 5 and 9 of the 1961 Act, which are both within Part 1 of the Act.  So far as material these provide:

“5. Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following rules:

(1) No allowance shall be made on account of the acquisition being compulsory;

(2) The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise;…

(6) 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;

and the following provisions of this Part of this Act shall have effect with respect to the assessment.

9. No account shall be taken of any depreciation of the value of the relevant interest which is attributable to the fact that (whether by way of allocation or other particulars contained in the development plan, or by any other means) an indication has been given that the relevant land is, or is likely, to be acquired by an authority possessing compulsory purchase powers.”

Under section 37(1) “land” means any corporeal hereditament and includes any interest in land.

Claimants’ submissions

40.    The claimants’ contention was that the occupational leases would, in the absence of any indication that they would or might be acquired by an authority possessing compulsory purchase powers to implement the Crossrail project, have been concluded on terms significantly more favourable to the claimants.  The terms of the lettings of the properties would have been different from those in fact entered into in the following respects:

(a)   The office floorspace in 18 Hanover Square would have been let to a tenant of superior financial status to Avanta for the same term, commencing on the same date and with no break provision, but at a higher rent and subject to a 5-yearly upward only rent review.

(b)  The retail floorspace in 18 Hanover Square would have been let to D&G or a tenant of equivalent financial standing for the same term, commencing on the same date, but at a higher rent and subject to a 5-yearly upward only rent review and (unlike the actual lease) with no break provision.

(c)   19 Hanover Square would have been let to Lend Lease or a tenant of similar financial standing for the same term, commencing on the same date, at a higher rent and subject to a 5-yearly upward only rent review and (unlike the actual lease) with no break provision.

41.    The claimants’ case on the first preliminary issue was that, by reason of section 9, it was these terms that should be assumed for the purpose of assessing compensation for the acquisition of the claimants’ interests. 

42.    Mr Neil King QC, appearing with Mr Simon Pickles, said that section 9 had its origins in section 51(3) of the Town and Country Planning Act 1947, which provided:

“Without prejudice to any rule of law affecting the assessment of compensation in respect of any compulsory acquisition of land in pursuance of any enactment, no account shall be taken, in calculating the value of an interest in land designated by a development plan under the Act as subject to compulsory acquisition, of any depreciation in the value of that interest which is attributable to the designation.”

43.    Mr King said that by the time of the 1947 Act there was a well-established rule in compensation, which came to be known as the Pointe Gourde principle, that any increase in value due to the scheme was to be disregarded.  When the Privy Council in Pointe Gourde Quarrying & Transport Co Ltd v Sub-Intendant of Crown Lands [1947] AC 565 set out the principle to which the case has lent its name it was reflecting what was by then a well-established principle of compensation law, and it drew in particular on South Eastern Railway Co v London County Council [1915] 2 Ch 252 and Fraser v City of Fraserville [1917] AC 187  It was therefore reasonable to draw the inference that Parliament was enacting the rule that depreciation in value due to the scheme was to be disregarded to complement, and expressly “Without prejudice to” the then established rule relating to increases in value.  Prima facie, therefore, if the indication that the land was likely to be acquired had the effect that any of the terms of the leases that might be relevant to the assessment of the market value of those interests at the valuation date were different from, and less favourable to the claimants than those which would otherwise have been likely to be agreed, then in order to give efficacy to section 9 it was necessary to ensure that the depreciation in the market value of those interests resulting from those less favourable terms was to be left out of account.  There was no direct authority on the application of section 9 in this way.

44.    It was well-established, Mr King said, by Rugby Joint Water Board v Shaw-Fox [1973] AC 202 (approving Minister of Transport v Pettitt (1968) 20 P & CR 344) that the Pointe Gourde principle related to the valuation of the interest in the land transferred to an acquiring authority and not its ascertainment.  The ascertainment of the interest to be valued was to be undertaken on an “as is” basis.  Rugby Joint Water Board was not concerned with section 9, and the claim in the present case did not put in issue the nature of the claimants’ interests as they existed at the valuation date.  Their interest was as freeholder.  The freehold interest was subject to three occupational leases, and the contention was that those occupational leases would have been in place but that certain terms of those leases would have been different but for the section 9 indication.

45.    Mr King submitted that there was nothing in the decisions in Transport for London v Spirerose Ltd [2009] 1 WLR 1797 and Persimmon Homes v Secretary of State for Transport [2009] UKUT (LC) 126, both of which were relied on by Mr Barnes, to support the acquiring authority’s case, while Jelson Ltd v Blaby District Council [1977] 1 WLR 1020 and Melwood Units Pty Ltd v Commissioner of Main Roads  [1979] AC 426, which were consistent with the claimants’ case, had not been overruled in Spirerose.  He referred also to the Lands Tribunal’s decisions in Bradford Property Trust Ltd v Hertfordshire County Council (1974) 27 P & CR 228, Lewars v Greater London Council (1982) 43 P & CR 129 and Thornton v Wakefield MDC (1991) 62 P & CR 441.  In the first case the acquiring authority had sought to rely on the Pointe Gourde rule in relation to the interest to be valued, and in the latter two cases the claimants had unsuccessfully sought to rely on section 9.  The first of these was rejected on the authority of Rugby Joint Water Board v Shaw-Fox, and the other two had failed on causation.  None impacted on the case that he sought to advance.

46.    That case was that the depreciation to be discounted was that due to the indication of the likely acquisition.  The indication could only have operated to depreciate the value of the land at the valuation date by influencing events before that date.  It was therefore integral to the exercise envisaged by section 9 that those events must be examined to establish the effect, if any, of the indication.

47.    The claimants’ case was put shortly and simply in this way.  But Mr King also responded to the much more elaborate submissions of the acquiring authority, and it is convenient if I set out the parts of this response alongside those submissions.

Acquiring authority’s submissions and the claimants’ responses to them

48.    Mr Barnes’s submissions consisted, as he put it, of three basic reasons why section 9 could not have the effect contended for it by the claimants and ten further considerations in support.  Before addressing these, he said that there were four preliminary matters that needed to be borne in mind.  The first was the presumption of reality – the rule that in valuing the land at the valuation date all matters relevant to that value are to be taken to be as they were at that date and as they had in reality been in the past save where the statutory provisions expressly or by necessary implication require otherwise.  Secondly, the Pointe Gourde principle could not be a justification for the proposed adjustments to the terms of the leases save to the extent that the principle, as an aspect of the value to the owner principle, was encapsulated within section 9.  Transport for London v Spirerose Ltd [2009] 1 WLR 1797 made clear that there is no common law or supplementary Pointe Gourde principle outside the statutory provisions – and indeed the claimants did not rely on any such extra-statutory provision.  Thirdly it was to be emphasised that the main provisions in the legislation for giving effect to the value to the owner principle are those in section 6 of and Schedule 1 to the 1961 Act, and the claimants placed no reliance on these provisions.

49.    The fourth preliminary point that Mr Barnes said should be borne in mind was the substitution by the Localism Act 2011 of new sections 14 to 18 in the 1961 Act relating to planning assumptions.  While those new provisions had no application in the present case, their significance, Mr Barnes said, was that they constituted an endorsement by the legislature of the cancellation assumption derived from the way Lord Hope of Craighead in Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307 described the approach to be taken when determining the content of a certificate of appropriate alternative development.  The cancellation assumption was now enshrined for wider purposes in the new section 14.  Thus the theme of the most recent legislation, carrying forward a theme that had emerged repeatedly over the last decade from decisions of the House of Lords, was that an investigation over an unlimited time of events which might have happened in a hypothetical world was to be eschewed.

50.    The first basic reason that Mr Barnes advanced against the claimant’s contention was that it was contrary to the language of section 9.  The fundamental rule for the assessment of compensation, he said, was that contained in rule (2) of section 5 and in section 5A of the 1961 Act, that compensation was the amount of the open market value of the interest in the land acquired at the valuation date.  Section 9 was ancillary to this rule and amplified it.  Section 9 on its ordinary and literal meaning required that in assessing the open market value at the valuation date of the interest acquired there was to be left out of account any depreciation in the value of that interest attributable to the existence of the actual compulsory purchase of the land for the same purpose.  Without this essential provision the interest acquired would often be worthless.  All that was required to be left out of account was any depreciation in the value of the interest acquired attributable to an indication given prior to the valuation date that the land was, or was likely to be, acquired.  So read in accordance with its language section 9 offered no justification for a re-construction of events in hypothetical circumstances which might have occurred years before the valuation date.

51.    Mr King said that what had to be left out of account was any depreciation that was attributable to an indication that the land “is, or is likely, to be acquired” compulsorily.  The “indication” was a one-off event.  If the claimants’ interest in the relevant land was shown, at the valuation date, to be depreciated because of that indication, such depreciation was to be ignored.  The valuation must be carried out at the valuation date but taking account of the effect on value that the earlier indication had had.

52.    Mr Barnes’s second basic reason was that the claim was contrary to the ratio decidendi of the decision of the House of Lords in Transport for London Ltd v Spirerose Ltd [2009] 1 WLR 1797.  In that case the House of Lords had held that when valuing a piece of land acquired it was not permissible in law to investigate whether in the period before the valuation date a planning permission would or might have been granted if there had been no indication of a proposed compulsory purchase of the land.  The same principle must apply, Mr Barnes said, to other hypothetical events in the past such as the grant of leases or the grant of leases on terms different to those on which leases had actually been granted.  Section 9 had been considered by the House in reaching its decision.  It was, therefore, not open on the ordinary doctrine of precedent for the claimants now to assert that section 9 allowed them to investigate and re-configure events in the past relating to leases or property interests.

53.    Mr King said that Spirerose was consistent with and not contrary to the claimants’ primary case.  It was not, in particular, authority for the proposition that it is impermissible to re-examine events prior to the valuation date insofar as they bear on the market value of the land taken at that time.  The issue in Spirerose was whether a finding that planning permission would have been likely to have been granted at the valuation date could be translated for the purposes of valuation into an assumption that planning permission existed at that date.  The ratio of Spirerose was thus in fact quite narrow: that, in valuing land under rule (2) in circumstances where the statutory planning assumptions do not resolve its planning status, the prospect of planning permission must be reflected, in valuation terms, not by making an assumption that planning permission was in place at the valuation date, but only by hope value, the amount of which will depend on the strength of that prospect.

54.    Mr Barnes’s third basic reason arose from the Tribunal’s decision in Persimmon.  There the Tribunal had considered whether it was still permissible to investigate past events in hypothetical circumstances such as the possible grant of a planning permission by virtue of section 9 notwithstanding the decision of the House of Lords in Spirerose.  After careful consideration the Tribunal, on the advice of the President, had concluded that such a process was not permissible.  While that decision did not bind the Tribunal as a matter of precedent, it would be necessary for the claimants to show that it was wrongly decided if they were to succeed.

55.    Mr King noted that in Persimmon the Lands Chamber had said that the House of Lords in Spirerose had not addressed the application of section 9.  There was no reason for it to reconsider its decision and reasoning in Persimmon, which provided no support for the acquiring authority’s case.

56.    If TfL were correct on those three basic reasons, Mr Barnes said, the claimants must fail on the first preliminary issue.  On the other hand if those three reasons were not conclusive of the matter and it was possible that section 9 could as a matter of linguistic interpretation bear the meaning for which the claimants contended there were a series of further considerations which individually and cumulatively argued strongly against the interpretation of section 9 advanced by the claimants and in favour of the more limited interpretation of that provision advanced by TfL.  There were ten such further considerations, which he summarised as follows.

57.    The first consideration was that the Tribunal had recently decided a preliminary issue in Urban Edge Group Ltd v London Underground Ltd [2009] UKUT 103 (LC).  The question before the Tribunal in that case had been whether, in valuing a piece of land acquired and in assessing the likelihood of a particular planning permission being granted for development of that land in the absence of the project of the acquiring authority, it was permissible to consider whether various developments of a similar nature to that suggested for the land being valued would have occurred on other land in the vicinity of the land acquired in the period before the valuation date if there had been no project of the acquiring authority.  The Tribunal had held that such a process was not generally permissible.  That decision was a further indication, Mr Barnes said, that no process of re-ordering past events on the land acquired or elsewhere was generally acceptable and so in an argument against the process being permissible under section 9.  Mr King said that Urban Edge did not take matters further because it was not concerned with the application or meaning of section 9.

58.    The second consideration was the ambit which the courts had in the past allowed to the Pointe Gourde principle.  Even when that principle was sometimes thought to have a greater effect than it had following Spirerose it had been held by the House of Lords and the Court of Appeal that the operation of the principle was confined to the valuation of a piece of land and not to the delineation of the characteristics of the land such as the existence or nature of leases to which the land is subject.  Mr Barnes cited Rugby Water Board v Shaw-Fox and Minister of Transport v Pettitt, which, he said, held that it was not permissible to use the Pointe Gourde principle so as to change a tenancy which was not protected by the Agricultural Holdings Act 1948 into a tenancy which was protected by that legislation.  It had been recognised in Spirerose that the present role of the Pointe Gourde principle, indeed its only present role, was as an aid to the interpretation of provisions in the legislation which were underlain by the value to the owner rule.  Section 9 was such a provision.  Therefore, if the decision of the House of Lords in the Shaw-Fox case was applied by way of guidance to the interpretation of section 9 it must follow that section 9 could not be used in order to change the nature or terms or characteristics of the interest in land which was being valued.  The interests in land being valued in the present case were the reversionary interests of the claimant in the properties in Hanover Square that had been acquired.  It followed that section 9 should not be interpreted so as to permit the alteration of those interests.

59.    Mr King said that in Rugby Water Board v Shaw-Fox it was the scheme itself and not a section 9 indication that had converted the claimant’s reversion to a protected tenancy to an unprotected tenancy.  In the present case the fact that the lease to Lend Lease contained a Crossrail break clause was evidence that its terms were affected by the prospect of the scheme – that is, by the fact that an indication had been given that the subject properties would or might be acquired compulsorily.

60.    The third consideration was the inter-relationship between section 6 and section 9 of the 1961 Act.  These were both provisions, Mr Barnes said, which were underlain by the value to the owner rule or, its offshoot, the Pointe Gourde principle.  Section 6 required a re-configuration of factual events in the area outside the land being acquired, namely the disregard of development which would not have occurred on that land apart from the project of the acquiring authority.  It did not apply to the land acquired, which was specifically excluded from the area of its operation.  The contention of the claimants was that similar effects operated as regards the land acquired, ie a re-configuration of past events relating to that land, by virtue of section 9.  It seemed inherently unlikely, Mr Barnes said, that the draftsman of the Town and Country Planning Act 1959 (which was the origin of the provisions in sections 6 and 9) and of the 1961 Act intended the possibility of a re-configuration of past events to proceed by such a curious and piecemeal fashion.  Furthermore, if the claimants were right then the re-configuration of past events which on their interpretation of section 9 was required could apply to both the land acquired and other land.  It seemed inherently implausible that the legislation was intended to operate in this curious and overlapping fashion.  Those inconsistencies would be avoided if the simple interpretation of section 9 propounded by TfL was held to be correct.

61.    Mr King said that it was self-evident that section 9 did not overlap with section 6 and would not result in its redundancy to any degree.  Even if it did, it could not logically justify the suggestion that section 6 should be applied to events prior to the valuation date and section 9 confined to the valuation date itself.  It was the claimants’ interpretation that produced a coherent result since it secured that an indication of the compulsory purchase of the subject properties (alone) was to be disregarded alongside clear statutory assumptions regarding the development of other land.

62.    The fourth consideration related to the development of the law in this area over the last decade or so.  There was a period in which the Pointe Gourde principle or section 9 or both had been held to require an investigation over a substantial period of time of what might have happened in the general vicinity of the land acquired if there had never been the project of the acquiring authority.  The most extreme point in this process had been the decision of the Court of Appeal in Myers v Milton Keynes Development Corporation [1974] 1 WLR 696 in which Lord Denning described the process as that of allowing the imagination of valuers to take flight to the clouds.  That process had been deprecated in firm tones in three decisions of the House of Lords, namely Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307, Waters v Welsh Development Agency [2004] 1 WLR 1304, and the more recent Spirerose decision.  The operation of section 9 contended for by the claimants was an attempt to resuscitate that discredited process.  In response, Mr King said that this fourth consideration did not appear to engage any issue of principle that was of relevance, and none of the cases referred to in relation to it were concerned with section 9.

63.    Mr Barnes’s fifth consideration concerned the fact that section 9 requires that decreases, but not increases, in value are to be left out of account.  If section 9 could be used to re-configure actual events prior to the valuation date it was, Mr Barnes said, incomprehensible why increases are not also covered.  The explanation, he suggested, is that section 9 could not have been framed so as to apply to disregarding increases in value at the valuation date without conflicting with section 15, which also applies only to events at the valuation date and provides that a planning permission for the scheme of the acquiring authority is to be assumed to exist.  By contrast section 6 is a provision that genuinely, but within a limited sphere, may require a re-configuration of actual events prior to the valuation date in that it requires the disregard of certain development of land that has taken place, with both increases and decreases in value being disregarded.  Mr King submitted that the background to section 9 was sufficient to explain why it referred only to decreases in value and that it was, in any event, a quite unjustifiable leap in logic from the observation that increase in value is omitted from section 9 to the proposition that the re-examination of past events is not permissible in the context of section 9.

64.    The sixth consideration was that if the interpretation of the claimants was correct then no line could be drawn which limited the effect of section 9 in requiring or permitting a reconstruction of events that had happened over what might be a very substantial period in the past.  Thus, for instance, in the absence of the acquisition proposals the subject property might have been redeveloped.  The logic of the claimants’ approach was that it was not the property as it existed at the valuation date that required to be valued but the property notionally redeveloped.  Mr King said that the re-examination required by the claim did not extend to a wholesale re-writing of the history of land ownership and interests and physical development affecting the land concerned or other land in the vicinity.

65.    The seventh consideration was that, on the basis of the claimants’ contentions, the landlord’s interest was to be valued with the rents and other terms of the leases replaced by provisions that increased their value, while the tenants’ interests were to be valued on the basis of the actual, lower, rents.  It was Mr Barnes said, obviously desirable that the basis of compensation should be the same for the acquisition of all interests in the same piece of land and in particular, where there was a landlord and tenant relationship, the same rent should be assumed.  Mr King submitted that there did not appear to be any reason why, as a matter of law, compensation under rule (2) in respect of the market value of the freehold and leasehold interests in the buildings might not be valued consistently since the Pointe Gourde principle and section 9 would apply to each claim under rule (2) to secure that increase or depreciation in value due to the scheme and, specifically, depreciation due to an indication of compulsory acquisition were disregarded.

66.    Mr Barnes advanced his eighth consideration on the basis of the Court of Appeal decision in Porter v Secretary of State for Transport [1996] 3 All ER 693.  That was authority, he said, that where compensation is payable for a person having lost some chance or opportunity of a financial nature what has to be done is to assess the probability of that chance having come to fruition and then to assess compensation accordingly.  If the claimants were correct as to the way section 9 operated what would have to be done would be to assess the numerical probabilities for each individual term of the lease being different.  To arrive at a determination of the possibly different levels of probability and then to merge them together in some arithmetical process to reach the ultimate assessment of compensation would be a task of the greatest difficulty.  Mr King submitted that there was no reason to pre-suppose that the process would be difficult and in any event this could not be a reason for jettisoning the exercise required by section 9.

67.    The ninth consideration was that what might be severe practical difficulties would follow from the operation of section 9 suggested by the claimants.  One such difficulty, for example, would arise from the fact that section 9 required the indication of compulsory acquisition to be left out of account only in relation to the subject land.  No such assumption would fall to be made in relation to adjoining land, and that curious situation would plainly lead to valuation complexities and artificialities.  Mr King said that the disregard required by section 9 was concerned with the valuation consequences of an indication that the claimants’ land was likely to be acquired.  The fact that similar indications were given in relation to other, substantial, areas of land was nothing to the point; those did not fall to be taken into account under section 9.  In the present case the indication given in relation to the subject properties had specific consequences for the terms of the relevant leases, which had the effect of depreciating the value of the claimants’ reversionary interests.  Giving effect to section 9 did not require it to be asked what would have happened on the land if it alone was not to be acquired for the project but all other land remained as areas which were likely to be acquired.  Any depreciation would fall to be assessed as at the valuation date, and the amount of the depreciation would be for the claimant to prove.

68.    The tenth consideration was the potential injustice that would flow from the claimants’ contentions.  For example, a property might be let at a reduced rent because of a proposed public project, and might then be bought, at a price that reflected this reduced rent.  The person buying the property, if the claimants were right, would then be able, if the land was compulsorily acquired, to claim compensation at a price substantially above what he had paid.  That might indeed be the case with the present reference.  Mr King said that the price that the claimants had paid for the subject properties in the open market at the time reflected, of necessity, their perception of the Crossrail risks and the commercial risks and uncertainty that they were able and willing to assume.  Whether the taking of those risks by the claimants turned out well or badly for them had no relevance to the determination of the issue.

Conclusions

69.    From the facts set out above it will be seen that there were six interests in the subject property that were compulsorily acquired pursuant to the powers contained in the Crossrail Act 2008.  They were as follows:

(1)  The freehold interest in 18 Hanover Square and 1A Tenterden Street.  This was vested in GPEHS and was subject to the long leasehold interest of HS1 and HS2 (3);

(2)  The freehold interest in 19 Hanover Square.  This was vested in HS1 and HS2 and was held on trust for GPEHS.  It was subject to occupational lease (6);

(3)  The long leasehold interest in 18 Hanover Square.  This was vested in HS1 and HS2.  It was subject to underleases (4) and (5);

(4)  The underlease of office floorspace in 18 Hanover Square.  This was for 10 years from 21 December 2005 and was vested in Avanta.

(5)  The underlease of showroom and office space in 18 Hanover Square.  This was for a period of 15 years from 16 June 2006 and was vested in Dolce and Gabana.

(6)   The underlease of office floorspace in 19 Hanover Square.  This was for a period of 10 years from 21 December 2005 and was vested in Lend Lease.

70.    I have set these out above.  The claims in respect of (4) and (5), the underleases of parts of 18 Hanover Square and 1A Tenterden Street, are not before the Tribunal, nor is that relating to (6), the lease of 19 Hanover Square.  The claims that I am concerned with relate to (1) the freehold interest in 18 Hanover Square and 1A Tenterden Street that was acquired from the first claimant; (2) the freehold interest in 19 Hanover Square that was acquired from the second and third claimants; and (3) the long leasehold interest in 18 Hanover Square and 1A Tenterden Street that was acquired from the second and third claimants.  Freehold interest (2) was subject to lease (6); and long leasehold interest (3) was subject to underleases (4) and (5).  The contention of the claimants is that, in valuing the interests that are the subject of the claims before the Tribunal, it should be assumed that certain of the terms of those leases were not as they in fact were but as they would probably have been if there had been no indication that the property was or was likely to be compulsorily acquired.

71.    What is before the Tribunal, pursuant to section 1 of the 1961 Act, therefore, is the dispute as to the compensation to be paid for interests (1), (2) and (3).  It is those interests that fall to be valued.  Under section 5A they are to be valued as at the date of vesting.  Section 5 provides that compensation in respect of any compulsory acquisition is to be assessed in accordance with the rules that the section sets out.  Under rule (2) the value of land is its open market value, and under section 37(1) “land” means any corporeal hereditament and includes any interest in land.  So what has to be determined is the open market value of each interest as at the date of vesting.  That must mean, in my judgment, each interest as it actually was – freehold (1) subject to lease (3) as it actually was; freehold (2) subject to lease (6) as it actually was; and long leasehold (3) subject to underleases (4) and (5) as they actually were.  Each leasehold interest consisted of the entirety of its terms.

72.    Section 5 concludes by stating that “the following provisions of this Part of this Act shall have effect with respect to the assessment”.  The function of section 9, therefore, is in relation to the assessment of compensation for the interest for which compensation is to be assessed.  (The same goes for section 6 and other provisions of Part II that lay down particular assumptions that are to be made.)  It is in terms a provision as to valuation, providing as it does that “No account shall be taken of any depreciation of the value of the relevant interest…”  (Under section 39(2), as read with section 7(1) of Compulsory Purchase (Vesting Declarations) Act 1981, “relevant interest” in relation to a compulsory acquisition under a vesting declaration means the interest acquired in pursuance of that vesting declaration.)  As a provision dealing with the valuation of the interest it cannot in my judgment have the effect of creating an assumption that the interest to be valued is other than it actually was.  That, it seems to me, is the short and conclusive answer to the claimants’ contentions in relation to the preliminary issue.

73.    I have said that each leasehold interest consisted of the entirety of its terms, and I do not see how it could be otherwise.  The interests of the claimants fall to be valued, therefore, subject to the relevant occupational leases and to the entirety of the terms of those leases.  Mr King suggested that it was only necessary to treat as the interest to be valued some interest possessing the nature of the actual interest.  This meant, he said, an occupational lease, so that different terms could be assumed as might be appropriate under section 9 (and in the case of leases (4), (5) and (6) the claimants’ contention was that the terms would have differed from those in the actual leases in that the tenant in lease (4) would have been a person other than the actual tenant, the rent in each lease would have been different and the re would have been no break provision).  I can, however, see no basis as a matter of principle for distinguishing between those terms of a lease that go to its “nature” and those that do not.  Mr King suggested that his submission was consistent with the decisions in Minister of Transport v Pettitt and Rugby Joint Water Board v Shaw-Fox.  I do not agree.

74.    In Pettitt the claimant was a tenant from year to year of a farm, part of which was acquired for the construction of a motorway.  The Court of Appeal (Russell and Winn LJJ, Lord Denning MR dissenting) held that, in determining the interest to be valued, it would be correct to have regard to section 24(1) of the Agricultural Holdings Act 1948, which gave protection to a tenant served with notice to quit, but that a notice to quit given by the landlord on the stated ground that the land was required for the construction of a motorway would have been excluded from the operation of section 24(1) by the provisions of section 24(2)(b).  It was not suggested on behalf of the Minister that, but for the coming of the motorway, there would have been any probability of the tenant being disturbed in his possession.  Lord Denning’s view, based on the application of the Pointe Gourde rule was that:

“…the tenant should get no less compensation because of the motorway scheme.  He should, I think, be compensated for the loss of his prospect of remaining in possession had there been no motorway scheme.”  ((1968) 20 P & CR 344 at 349)

75.    The majority of the court rejected this view.  Russell LJ said (at 355):

“…It seems to me that, in determining the likelihood of the tenant’s interest in the land continuing beyond, here, Lady Day 1964, it would be necessary to consider that such a notice would have been unassailable, and to conclude that, in point of time, the interest should not be envisaged as lasting beyond that date.  I do not, with respect, think that this is contrary to the Pointe Gourde principle, which I believe to relate not to the ascertainment of what is the interest to be valued, but to the value of the interest when ascertained.”

Winn LJ said (at 359):

“For myself, I accept in this respect the submission made by [counsel for the Minister], and am satisfied that the value of the claimant’s interest in the 7.5 acres taken must be assessed on the footing that the interest would expire at Lady Day 1964.  I am of the opinion that the member of the Tribunal erred in law in directing himself that Watson’s case and the other cases to which he referred left ‘entirely open the question whether in any given case the market value of such an interest might or might not reflect the chance of continuance beyond the date on which it was liable to be determined.’”

76.    Rugby Joint Water Board was concerned with the valuation of landlords’ freehold interests in agricultural land acquired for a reservoir.  In each case there were tenancies which, in the absence of the scheme, would have been protected and could have been expected to continue.  The House of Lords (Lord Simon of Glaisdale dissenting) held that the interests were to be valued on the basis that the landlords were entitled to turn the tenants out on giving the requisite length of notices prescribed in the respective leases since in each case the interest to be valued was the reversion as it existed on the date of the notices to treat, when it was a reversion to an unprotected tenancy.  The majority, expressing agreement with the decision in Pettitt, rejected the contention that the Pointe Gourde rule applied so as to require the freehold interests to be valued as being subject to the protection that the tenants would have had in the absence of the scheme.

77.    Lord Pearson said this (at 216):

“It seems to me, therefore, that the respondents are entitled to compensation for the interest which they held in the land at the date of the notice to treat, even though the nature of this interest had been altered in their favour by the inception of the appellants’ scheme.  There is the possible argument that the respondents’ reversionary interest remains the same though its value was increased by the appellants’ scheme enabling the respondents to give an effective notice to quit.  But I do not think that argument is right: I think the reversion to an unprotected tenancy is a different interest from a reversion to a protected tenancy.  The respondents’ interest to be valued is the reversion as it existed on the date of the notice to treat, when it was a reversion to an unprotected tenancy.  That is what the respondents had to sell and what the appellants must pay for.  I agree with the majority in Minister of Transport v Pettitt (1968) 67 LGR 449.”

78.    In the present case, to use the words of Lord Pearson, it is the claimants’ interests as they existed at the date of notice to treat that have to be valued.  Section 9 was not referred to in either Pettitt or Rugby Joint Water Board; and the language used (“ascertainment of…the interest”), with the question being whether the tenancies were protected or unprotected, might be thought to suggest a difference from the issue in the present case, which is expressed so as to relate to the terms of the leases.  I do not see any material difference, however.  In each case the question was whether it was the contractual terms of the leases, or those terms as modified by the statutory provisions, that applied.  I can see nothing, therefore, to support Mr King’s contention that it is as a matter of law only necessary to treat as the interest to be valued some interest possessing the nature of the actual interest (in the present case an occupational lease), leaving the terms of such interest, other than the right to occupation, to be assumed to be as they would have been if there had been no indication that the land was, or was likely to be, compulsorily acquired.

79.    I do not consider that any useful assistance as to the application of section 9 in the circumstances of the present case is to be derived from Spirerose.  In the Lands Tribunal the case for the claimants, that such planning permission as could reasonably have been expected in the no-scheme world should be assumed for the purpose of assessing the value of the interest, was based both on Pointe Gourde and section 9.  The House of Lords opinions made only passing reference to section 9, and in Persimmon the Tribunal inferred that the claimant in its appeal had no longer based their case upon it.  Mr Barnes, who appeared with Mr Caws in the House of Lords, put before us the parties’ printed cases, and it is clear from these that section 9 did form part of the claimant’s case, as it had done in the Lands Chamber and the Court of Appeal.  Since the appeal failed, it is necessarily the case that the House of Lords considered that section 9 did not avail the claimant’s argument.  Since, however, it gave no reasons for this conclusion I do not think that the decision can be taken to have established any more in relation to section 9 than that it does not operate so as create an assumption of planning permission where the Tribunal concludes that planning permission could reasonably have been expected.  Expressed in these terms the ratio does not impinge on the question in the present case.

80.    Similarly it does not seem to me that the Tribunal’s decision in Persimmon Homes v Secretary of State for Transport [2009] UKUT 126 is itself fatal to the claimants’ case, as Mr Barnes suggests.  That case, like Spirerose, concerned assumptions as to planning permission, and it is not necessarily the case that, because section 9 may not be invoked for the purpose of making assumptions of planning permission that go beyond those provided for in the 1961 Act, it may not be invoked in respect of other possible assumptions.

81.    However, a number of Mr Barnes’s additional considerations do in my view lend support to the conclusion for which he contends.  In particular the inter-relationship of section 6 and section 9 and the limitation of section 9 to decreases in value; the limitless extent to which past events could be re-constructed if the claimants are right; and the anomaly of treating a lease as having its actual terms when valuing the tenant’s interest and some assumed different terms when valuing the landlord’s interest – all these seem to me to be indications that section 9 does not have the effect for which the claimants contend. 

82.    It does not appear that there are any cases decided under section 9 that give support to the claimants’ case.  In London Borough of Hackney v MacFarlane (1970) 21 P & CR 342 the depreciation in value of the subject property owing to its inclusion in a slum clearance area was left out of account under section 9.  In Trocette Property Co Ltd v Greater London Council (1974) 28 P & CR 408 the claimant’s property was affected by road proposals, in the absence of which, as the Lands Tribunal found, planning permission could reasonably have been expected for a valuable redevelopment of the subject property.  The claim for compensation arose following the acceptance of a purchase notice served by the claimant.  The GLC owned the freehold of the property, and their contention was that the claimant’s interest had no marriage value for the purposes of redevelopment because they would not have been prepared to reach agreement with their tenant with this in mind.  The Court of Appeal (Megaw and Lawton LJJ, Cairns LJ dissenting on this point) held that section 9 operated so as to require there to be left out of account the fact that buyers in the market would be aware that, as a result of the declaration of the highway scheme, the freeholder would not be prepared to reach agreement with the tenant so as to realise the marriage value of their interests for the purposes of a redevelopment.  Both these cases are instances of what appears to me to be the principal, if not the sole, function of section 9 – to leave out of account the blighting effect of an indication that the land is or is likely to be compulsorily acquired.

83.    Mr King did not place reliance on the other cases he referred to – Jelson Ltd v Blaby District Council in the Court of Appeal, the Judicial Committee of the Privy Council decision in Melwood Units Pty Ltd v Commissioner of Main Roads, and the Lands Tribunal decisions in Bradford Property Trust Ltd v Hertfordshire County Council, Lewars v Greater London Council and Thornton v Wakefield MDC – other than to say without further elaboration that they were consistent or not inconsistent with his contentions.  In view of this there is no need for me to say more than that I do not consider that any of them lend any positive assistance to the claimants’ case. 

84.    Accordingly I determine the first preliminary issue in the acquiring authority’s favour.  In assessing the value of the interests of the Claimant in the property acquired at the valuation date of 2 December 2009 under rule (2) of section 5 of the 1961 Act, it is not the effect of section 9 of the 1961 Act to require or to permit the value of those interests to be assessed on the basis that the parties to and certain terms of certain leases of parts of the property had not been as they actually were but instead as they would have been likely to have been if no indication had been given that the property was, or was likely, to be acquired by the acquiring authority.

85.    The parties are now invited to make submissions as to costs, and a letter relating to this accompanies this decision, which will become final when the question of costs has been determined.  Directions for the further conduct of the reference will then be given.

Dated 5 December 2012

 

George Bartlett QC, President

Addendum on costs

86.        The acquiring authority has applied for its costs. The application is opposed by the claimants. The written submissions made on either side have come before me for a decision, my predecessor as President (Mr George Bartlett Q.C.) having now retired. Both parties have indicated that there is no objection to my determining the application (the acquiring authority in their solicitors’ letter to the Tribunal dated 9 April 2013, the claimants in their solicitors’ letter of 3 May 2013).

87.        On behalf of the acquiring authority Mr Barnes seeks an order for the claimants to pay it (1) the whole of its costs of the first preliminary issue, and (2) the abortive costs of the hearing on 19 and 20 June 2012 in so far as they relate to the second preliminary issue.

88.        As to the first part of the acquiring authority’s application, Mr Barnes submits that the acquiring authority has wholly succeeded on the first preliminary issue relating to section 9 of the 1961 Act. It ought to have its costs of this issue in accordance with the general principle followed by the Tribunal in the exercise of its discretion on costs, namely that (as it is put in paragraph 12.3 of the Tribunal’s Practice Directions of 29 November 2010) “the successful party ought to receive their costs”. Mr Barnes says the acquiring authority should have all of its costs on this issue. It won. The questions involved in the issue were self-contained. All the principal submissions made on behalf of the acquiring authority were accepted by the Tribunal, apart from those relating to the ratio decidendi of the House of Lords’ decision in Spirerose and the Tribunal’s decision in Persimmon. The whole of the land value claim has now been dealt with and the compensation paid. On this additional part of the claim under section 9 the claimants have wholly failed and can obtain no further sum. The result of the Tribunal’s decision as to section 9 can have no bearing on the remaining issue under rule (6) of section 5, and vice versa. Therefore, regardless of what happens to the claim under rule (6), there is no reason why the acquiring authority should not now have its costs of the preliminary issue relating to section 9.

89.        As to the second part of the application, Mr Barnes submits that if the claimants persist in the part of their case reflected in the second preliminary issue, that issue will have to be determined, and the Tribunal will then be able to exercise its discretion on any further application for costs made to it. Despite the argument presented both in writing and orally at the hearing on 19 and 20 June 2012, the Tribunal decided – correctly – that it would not be appropriate to determine the second preliminary issue at this stage, and that that issue could only be determined after evidence on it had been heard. The acquiring authority consistently maintained that, whatever questions of law might arise as to rule (6), the claimants had not shown any relevant loss in the relevant period and would not be able to do so. It also pointed out that the Tribunal might have to consider lifting the corporate veil so that relevant share transactions could be looked at. At the hearing Mr King had given an undertaking on behalf of the claimants, the effect of which was that, if they succeeded on the second preliminary issue, the claimants would not later assert that they had acquired a financial interest in the relevant properties through share transactions rather than the transfer of property interests. After the hearing, however, in the course of the protracted correspondence that ensued, the claimants sought to withdraw their undertaking unless the acquiring authority reciprocated with an undertaking of its own – which, of course, it could not and would not do. It was in these circumstances, Mr Barnes submits, that the Tribunal decided not to determine the second preliminary issue. So the time spent at the hearing in making submissions on that issue was wasted. Those submissions will have to be made again, before a differently constituted Tribunal. This was the result of the claimants’ “unwillingness … to give the undertaking which was mentioned well before the oral proceedings started and then due to their unwillingness to continue with the undertaking which was given orally to the President” (paragraph 17 of the acquiring authority’s written submissions on costs).

90.        For the claimants Mr King submits (1) that there should be no order for costs on the first preliminary issue, or, if the Tribunal does consider such an order appropriate, that the claimants be ordered to pay no more than 25% of the acquiring authority’s costs of the issue, less its costs incurred in connection with the Tribunal’s order of 8 May 2012, or such other order as the Tribunal considers appropriate; and (2) that the costs of the second preliminary issue should be reserved.

91.        As to the first preliminary issue, Mr King submits that the general principle stated in paragraph 12.3 of the Practice Directions relates to the final costs order following the determination of the sum of compensation due, and ought not to be applied to the determination of preliminary issues such as arose here. But in any event to apply that principle in this case at this stage would be premature and wrong. In its position statement of 6 September 2011 the acquiring authority emphasized the significance of the issues arising in this reference. It expressly acknowledged not only that the proper interpretation of section 9 of the 1961 Act had still to be decided, but also that this was a matter of wider importance, both for Crossrail and for other projects; in other words, it was an issue that engaged the public interest. The acquiring authority made the reference, and the preliminary issues were agreed so that the interpretation of section 9 could be resolved. The claimants had no sensible alternative but to co-operate. They behaved reasonably throughout. There should therefore be no order for costs on the first preliminary issue.

92.        If, however, the Tribunal were to decide that an order for costs ought to be made in the acquiring authority’s favour, Mr King submits that it should be only a partial award. The costs incurred by the acquiring authority in the preparation of the report of Mr Eden, which was intended to support its submissions on “injustice”, ought in any event to be disallowed. When making its order of 8 May 2012 the Tribunal stressed that it was neither necessary nor appropriate for values to be established or illustrated by evidence at this stage. Mr King’s main point, however, is that although the acquiring authority’s submissions on the first preliminary issue encompassed three basic reasons, four preliminary matters and ten further considerations, the decision on this issue rested on a much narrower basis, relating only to the second of the ten further considerations – as to the ambit of the Pointe Gourde principle. The acquiring authority’s submissions in support of the second further consideration were but a very small proportion of the lengthy and complicated case presented in its statement of case and skeleton argument. The notion that only the submissions made on the decisions in Spirerose and Persimmon had not prevailed was misconceived. By contrast, the claimants’ case had been “shortly and simply” put, as the Tribunal had accepted (in paragraph 47 of the decision), and there had been a “short and conclusive answer” to Mr Barnes’ argument (paragraph 72 of the decision). In these circumstances it would be disproportionate and unfair if any order for costs made in the acquiring authority’s favour failed to reflect the extent to which its case had failed before the Tribunal. Such an award ought not to exceed 25% of the acquiring authority’s costs, less the costs of Mr Eden’s report.

93.        As to the second preliminary issue, the Tribunal having decided to postpone its decision to allow evidence to be adduced, Mr King submits that it is too early to make any order as to costs at this stage. Only when the issue has been determined in the light of all the relevant evidence and submissions will it be possible for the Tribunal to reach a fully informed view on the conduct of the parties. It is wrong to assume, as the acquiring authority does, that the undertakings to which Mr Barnes refers would have resolved or removed the factual issues with which the Tribunal was concerned. The Tribunal did not say they would. And it would be unfair to make an award of costs against the claimants on that assumption. Neither in its statement of case of 5 October 2011 nor in its supplemental statement of case of 28 October 2011 did the acquiring authority seek any undertaking from the claimants. Both parties took the agreed statement of facts as an adequate factual basis for the determination of both preliminary issues. The question of undertakings only arose at the hearing. When it was raised the claimants not unreasonably sought a reciprocal undertaking. But when it became clear that a reciprocal undertaking was not going to be given, the claimants’ own “conditional undertaking” could not stand (paragraph 23 of the claimants’ submissions on costs). The costs of the second preliminary issue should therefore be reserved.

94.        I shall deal in turn with the submissions made on either side on each of the two parts of the acquiring authority’s application for costs.

95.        As to the first part of the application, I cannot accept Mr King’s submission that the general principle stated in paragraph 12.3 of the Practice Directions does not apply to the determination of preliminary issues, or, in particular, to the preliminary issues that have come before the Tribunal in this case.

96.        The principle stated in paragraph 12.3 is a broad one, and it corresponds to the practice set out in the CPR and generally followed by courts and tribunals.

97.            I think the analogy drawn by Mr Barnes with a claim for damages in contract, in which liability and most of the damages are agreed but a particular head of damage remains in dispute and is decided in favour of the defendant, is apt. In such circumstances it is clear that the successful defendant would generally be entitled to his costs of the preliminary issue that had brought the proceedings to an end. In this case the acquiring authority conceded that the claimants were entitled to substantial compensation – a sum of nearly £59,000,000 – under rule (2), but disputed the further element of the claim, which, according to the claimants, amounts to about £9,000,000. The acquiring authority’s position on the first preliminary issue has been vindicated by the Tribunal’s decision. The acquiring authority has won on that issue. No further claim remains under rule (2). In these circumstances I agree with Mr Barnes that the acquiring authority is prima facie entitled to have its costs on the first preliminary issue. To hold otherwise would be to depart from general principle in the absence of any particular circumstances to justify doing so.

98.        I also reject the submission that there should be no order for costs on the first preliminary issue because this was an important matter of law. There is, in my view, no proper distinction to be drawn, at least for the purposes of determining an application for costs, between a preliminary issue that is an important issue of law with wide ramifications and significant public interest attached to it, and a preliminary issue of concern only to the parties in the litigation itself. The same basic principle applies in either situation.

99.        Nor, in my view, does the principle need to be modified, or applied differently, in circumstances where a substantial part of a claim for compensation has been accepted as sound. In this case the first preliminary issue was a discrete issue, separate from the remainder of the claim. It was dealt with on its own, and I see no reason why it should not be viewed distinctly for the purposes of determining the acquiring authority’s application for costs.

100.    I also reject Mr King’s alternative argument, that if an award of costs is to be made in the acquiring authority’s favour on the first preliminary issue it should be only a partial award. As Mr Barnes submits, the issue before the Tribunal did not break down into individual parts, on only some of which the claimants have succeeded. Nor, in my view, can it be said that in pursuing the several strands of argument that it did, the acquiring authority acted unreasonably or in such a way as to disentitle it to a portion of its costs. It is not unusual for complete success to be achieved on a particular issue on a simple basis, though the submissions made on that issue by the successful party have been somewhat more elaborate. Here, I think, the claimants’ submissions as to the novelty and importance of the issue the Tribunal had to determine make their own argument on costs harder to accept. The fact that the crucial question for the Tribunal was the correct construction of section 9 of the 1961 Act and that there was, in the end, a relatively short and simple answer to that question, does not vitiate the acquiring authority’s entitlement to all of its costs. And I think it is artificial to try to compare, in terms of percentage, the aspects of the acquiring authority’s argument that the Tribunal found persuasive and those it did not.   

101.    As the acquiring authority acknowledges, it cannot – at least at this stage – expect to recover any of the costs associated with the preparation of Mr Eden’s report, and it has undertaken not to seek those costs.

102.    For those reasons I shall order that the claimants are to pay the acquiring authority’s costs of the first preliminary issue, such costs to be assessed if not agreed.

103.    I turn to the submissions made as to the costs of the second preliminary issue.

104.    Mr Barnes makes it plain that the acquiring authority is simply seeking its costs of the abortive submissions made on this issue at the hearing. If the issue remains live it will have to be determined, and the costs of preparing for it and attending the main hearing to contest it will necessarily be the subject of a further application for costs in due course. The acquiring authority accepts – indeed, it insists – that this part of its application has nothing at all to do with the merits of the issue itself. It is, they say, simply and wholly a consequence of the claimants’ conduct, and, in particular, the claimants having given and then withdrawn an undertaking as to how they intended to present their case. The acquiring authority said before the hearing that their submissions on the second preliminary issue could only be satisfactorily dealt with by the Tribunal resolving the issue in their favour – which would be difficult, if not impossible, without oral evidence – or by the claimants undertaking that, if the issue were decided in their favour, they would not take any point on the corporate veil. The acquiring authority also maintains that, had the claimants had not resiled from the undertaking they gave, the Tribunal would have gone on to reach a decision on the second preliminary issue. However, that version of events and the true import of the correspondence that followed the hearing are obviously controversial.

105.    What is clear – from paragraph 2 of its decision – is that the Tribunal did not consider the second preliminary issue suitable for determination as a preliminary issue “because it was or might be dependent on evidence that would need to be called”. In the light of this conclusion, which neither party disputes, I believe Mr King is right to submit that for the Tribunal to make a decision on the costs of this issue at this stage would be premature. The critical point here is that the issue was not determined as a preliminary issue and that a decision on it is therefore still to be made. In these circumstances it seems to me preferable that the Tribunal should, in the normal way, deal with the costs of the issue comprehensively once it has reached its decision. Neither party’s interests will be unduly prejudiced if the costs of this part of the reference are dealt with in this way. It will still be open to the acquiring authority to say the claimants ought to have handled this part of their case differently. And it will still be open to the claimants to resist that assertion. The advantage to the Tribunal, and to the parties themselves, is that it will able to consider such submissions fairly in the context of the decision it makes and the conduct on either side, seen as a whole.

106.    For those reasons the costs of the second preliminary issue will be reserved.

 

 

 

 

Dated 28 May 2013

 

 

 

 

 

Sir Keith Lindblom, President