Towards “fair compensation”?

This article is based in part on a presentation given by Raj at the Compulsory Purchase Association’s Annual Conference 2024.

We have a busy Autumn ahead of us – a new iteration of the Government’s Guidance on Compulsory Purchase and the Crichel Down Rules and a new Planning and Infrastructure Bill. According to the Government’s background briefing for the King’s Speech, the Bill will:

“further reform compulsory purchase compensation rules to ensure that compensation paid to landowners is fair but not excessive where important social and physical infrastructure and affordable housing are being delivered.”

We suspect that the emphasis will be on the “not excessive” but let’s see.

Finally, we can expect the Law Commission to launch its consultation to inform its review of CPO procedure and the assessment of compensation. The Commission’s terms of reference include a requirement

“To review, and consult stakeholders about, compulsory purchase powers with a view to identifying possible anomalies or inconsistencies that make them unfit for purpose.”

The 2003 Law Commission Report

The law governing the assessment of compulsory purchase compensation is not only complex but inaccessible, even in the age of the internet. Sure, for professionals who can afford them, there are a number of excellent textbooks including Denyer-Green, Barnes, Roots et al and the Sweet & Maxwell encyclopaedia. But the affected landowner or non-specialist will be led into a maze of different statutes and cases. Her best bet for trying to make sense of it all is to read the Law Commission December 2003 report “Towards a Compulsory Purchase Code (1) Compensation” (the second dealt with procedure).

Twenty years on, some sections are out of date. For example, there have been two statutes and at least three House of Lords/Supreme Court decisions on the apparently unresolvable no-scheme principle. But for the most part, the law and particularly the principles underlying it are still applicable today and set out in a logical order and in clear prose.

The new Commission will almost certainly take its predecessor’s report as a jumping off point.

So, what can we expect from the upcoming consultation?

Principle

The Law Commission’s review creates an opportunity to devise a freestanding principle on which the value of compensation is based, rather than having to rely on the common law principle of equivalence.

The 2003 report recommended:

“Compensation shall be assessed in accordance with the principle of fair compensation…”

This reflected the statement of Lord Nicholls in Shun Fung that the purpose of the system is to provide fair compensation for a claimant. In Curzon Park last year, the Supreme Court also referred to “fair compensation” as being the same concept as the principle of equivalence i.e. that the landowner should be put in no better and no worse financial position than she would have been had her land not been taken.

This principle is by no means unique to land compensation claims – it applies in assessing any form of damage in the law of tort – from personal injury to trespass.

It seems to us that the difficulties in applying the general concept in land compensation law arise from the fact that it is usually a dispute between a public authority authorised to take land for the public good, as opposed to an unauthorised act by a private entity. As a consequence, the principle of equivalence is subject to adjustments by Parliament for public policy reasons – most strikingly in the removal of hope value with the aim of increasing house building (in the Levelling Up and Regeneration Act 2023, which may well be extended in the forthcoming Planning and Infrastructure Bill).

So, the first questions the Commission is likely to have for us are:

(a) should there be a statement of overall principle at all?

(b) if so, is “fair compensation” the right term, or is it too imprecise? Should there instead be specific reference to the principle of equivalence?

The Valuation Date, interest and injurious affection

As things stand, there is one single day of relevance: the Valuation Date, being the date on which the acquired land vests in the acquiring authority (or where a notice to treat is served, the date on which the authority enters on the land).

Statutory interest on compensation is applied from that date, even though that compensation may include losses incurred after the Valuation Date.

In the 2003 report, the Commission proposed that the Tribunal should decide the date or dates from which statutory interest should be applied. This could of course cut both ways for claimants and acquiring authorities, and could be quite a complex calculation where (say) there is a loss of profit for a company in the shadow of the scheme on a daily basis. It could, however, be seen as fairer in applying interest from the date of the actual loss.

The application of Bwllfa principle (which allows post-Valuation Date events to be taken into account in assessing disturbance) to injurious affection claims has never been entirely clear. In the recent Cheshire Lounge decision, the Tribunal proceeded on the basis that post-Valuation Date events could not be taken into account, but the point was not fully argued. The difficulty arises because injurious affection can encompass both depreciation in the market value of land and disturbance. The 2003 report proposed a compromise:

“Our recommendation, therefore, requires values to be taken as those prevailing at the valuation date, but allows hindsight in respect of changes in circumstances so far as they would have affected the value of the retained land at that date.”

Also up for consideration might be betterment, and how the value to be ascribed to that should be dealt with: set off against the whole of the claim, or just against the injurious affection element?

Consequential loss

In its last review, the Law Commission proposed the replacement of the currently rather opaque rule 6 in section 5 of the Land Compensation Act 1961 with the integration of a new category of “consequential loss” into rule 5. The proposal then was to set out clearly the tests for causation and remoteness and the approach to business extinguishment, which can currently be discerned only through case law. It would be unrealistic to expect that precise criteria set out in legislation can account for the circumstances that arise in each individual case, but the principle that the law should be accessible and clear to all suggest a codification of the duty to mitigate fairness to claimants will demand that, if the duty to mitigate losses is to be maintained, this is provided for expressly in the legislation. The Law Commission may invite views on the extent to which the claimant’s personal circumstances should be referred to.

Temporary possession

The use of temporary possession powers in 2003 was rare. Since the Planning Act 2008, such powers have been applicable in a wider range of projects and are being used more imaginatively by authorities. In some cases, land is temporarily occupied for more than a decade and is handed back with obligations on the landowner (e.g. to maintain environmental mitigation works). The Law Commission didn’t have this problem to deal with twenty years ago. Provisions for the of temporary possession powers (included in the Neighbourhood Planning Act 2017) has never been brought into force, but the current review gives occasion to consider how fairly the powers are being used in current practice and consider the fairness with which dispossessed landowners are treated.

Consolidation

One of the greatest prizes to be seized from the Law Commission’s review will be the opportunity to consolidate and set the law out in just one place so that it can be understood by those affected.

The recommendations within 2003 Report were not implemented by then Government, partly because the Commission had not been asked to provide a draft Parliamentary Bill. The terms of reference for the current Commission imposes a requirement:

“To produce a draft Bill or Bills, consolidating and codifying such law and making technical changes, ensuring that the law is modernised, simplified, accessible, technically sound and internally consistent as necessary.”

It seems likely that there will be two consolidating Acts of Parliament, one to deal with the process of compulsory purchase and the other with compensation.

In making its recommendations to Parliament, then, the Law Commission will have competing considerations to balance. Is Parliament going to be disposed to legislate for fairness in compensation anyway? The clear mood music is for economic growth and net zero, and speedy and fair compensation for claimants will not always easily align with that agenda. We await the consultation paper and hope that practitioners will help the Commission by passing on their experience of how the current system works in practice and how it can be improved and simplified.