Secretary of State for Transport v Christos & Anor

This appeal concerns the assessment of compensation on the compulsory acquisition of residential property and surrounding land in Kent for the purposes of the construction of the Channel Tunnel Rail Link between St Pancras in London and Castle Hill in Folkestone. The appellant Secretary of State for Transport, formerly the Secretary of State for the Environment, Transport and the Regions (the acquiring authority), exercised powers of compulsory purchase under the Channel Tunnel Rail Link Act 1996 (the 1996 Act) to acquire property belonging to the respondents, Mr and Mrs Christos.

On 1 May 2001 Mr and Mrs Christos gave notice of reference to the Lands Tribunal (the Tribunal) to determine the amount of compensation. By an order dated 8 November 2002 the Tribunal determined the amount of compensation payable in respect of the compulsory acquisition of the freehold interests of Mr and Mrs Christos in their property at the sum of £618,945. The determination was made by Mr NJ Rose FRICS following a 10 day hearing in April and May 2002.

On 6 January 2003 Schiemann LJ granted the acquiring authority permission to appeal. By an order dated 24 March 2003 Laws LJ granted the respondents permission to cross appeal.

Mr and Mrs Christos were the owners of a freehold dwelling house with 35 acres of land at Torver Beck, Sittingbourne Road, Detling, near Maidstone (the Property). The house consisted of 2 bungalows knocked into a large single dwelling. There was a heated outdoor swimming pool and a stable block. In addition to 35 acres of surrounding land Mr and Mrs Christos also claimed title by adverse possession to an area of 3.6 acres of woodland (the Blue Land). Their claim to register possessory title to the Blue Land was rejected by the Land Registry in letters dated 15 October and 25 October 1999. It is common ground that the Property was difficult to value.

Between 18 December 1998 and 2 March 1999 the acquiring authority issued notices to treat and served notices of entry in relation to part of the Property.

On 10 March 1999 the acquiring authority, represented by Mr Stephen Bowman FRICS of Union Railways Property, attended a “without prejudice” meeting with Mr and Mrs Christos and their solicitor, Mr Houghton, in order to discuss the range of prices appropriate on the compulsory purchase of the Property. On 12 March 1999 Mr Bowman wrote two letters to Mr Houghton. The first letter was headed “subject to contract and without prejudice save as to costs”. Mr Bowman referred to the discussions on 10 March:

“I confirm that in order to settle this matter I am prepared to offer to purchase the whole of your clients’ property in the sum of £500,000 (five hundred thousand) together with the usual heads of claim for disturbance and fees.

This offer is made subject to the following conditions:-

(1)

It is open for acceptance for a period of 3 months from the date of this letter.

(2)

If it is necessary to take action to achieve forcible possession of the property then the offer is deemed to have been withdrawn.

(3)

Your client is able to show good and marketable title to the property as shown on the attached plan….”.

The second letter on the same date was also headed “subject to contract”. The letter referred to the meeting of 10 March at Mr Bowman’s offices and stated that he agreed that “looking at the whole property, it is unique and difficult to value”. The letter concluded

“I must advise that we will be taking possession of the property on or after 18 March. I hope that we can do this by agreement and work together with your client to limit the impact of our works upon him and his family.

I confirm the view expressed at our meeting that in the event of forcible possession action being needed and if the site is occupied by protestors who are on the site at the instigation or invitation of your client then we will seek to recover the costs from your client. I confirm that it is our wish to work with your client and to reach agreement by negotiation on the various issues that were raised but we are governed by the rules of compulsory purchase and cannot submit to blackmail or threats such as were made at our meeting.

This is an open letter and I reserve the right to refer to it in any future litigation.”

On 17 March 1999 Mr Houghton, on behalf of Mr and Mrs Christos, served on the acquiring authority a counter-notice to take the whole Property. Although the counter-notice referred to section 8 (1) and (2) of the Compulsory Purchase Act 1965, the right to serve such a counter-notice was in fact conferred by paragraph 11 of Schedule 4 to the 1996 Act, which applies instead of section 8 of the 1965 Act. The acquiring authority has, however, accepted that it was a valid counter-notice and that, by virtue of paragraph 11(4) of Schedule 4, the effect of the service of the counter-notice was that the notice to treat already given by the acquiring authority is “deemed to be a notice to treat in addition for the remainder of the land subject to the counter-notice.”

On 17 May 1999 the acquiring authority entered onto that part of the Property specified in the original notices to treat. Mr and Mrs Christos continued to occupy the house on the remaining part of the Property. 17 May 1999 is a crucial date in these proceedings because, as recorded in the Tribunal’s decision, it was the agreed valuation date. Although there is no written record of the terms of the agreement reached between the representatives of the parties, it was not disputed on the appeal that the tribunal accurately referred to the agreement to the following terms (paragraph 61)-

“Whilst possession of the subject property was taken on two different dates it was clearly appropriate to value the property as a single entity at a single date. The parties had agreed that that single date should be 17 May 1999, the date when the acquiring authority entered the first part of the land. The acquiring authority accepted that the property should be valued at prices prevailing at that date, but they did not accept that the condition of the entire property should be taken as at that date.”

On 10 June 1999 Mr Houghton wrote to Mr Bowman confirming that he had been instructed by Mr and Mrs Christos

“…to accept the offer made by you in your letter dated 12 March 1999 to purchase the whole of their property as shown on the plan attached to that letter in the sum of £500,000 (Five Hundred Thousand Pounds) together with the usual heads of claim for disturbance and fees”

In the following months “subject to contract” correspondence took place between Mr Houghton and the solicitors acting for the acquiring authority, Cripps Harries Hall. It should be noted that the acquiring authority had already obtained a valuation of the Property for compensation purposes from Knight Frank. They had inspected the Property on 14 April 1999. In their opinion the open market value of the Property freehold with vacant possession as at the date of inspection could be fairly represented in the sum of £350,000.

On 15 October 1999 Mr Christos wrote personally to Mr Bowman about the difficulties that he was having in dealing with Bruton Knowles (the acquiring authority’s valuers) and in arranging a meeting to discuss aspects of his case. He said

“…it would seem that they are trying to renege and renegotiate on the original agreed purchase of my house of £500,000.

At this stage I feel this is totally unethical and unfair to put us through still further Torment.”

Mr Bowman replied by letter on 26 October 1999 saying

“I have discussed your letter with Colin Smith of Bruton Knowles in view of the serious allegations that you are making.

I am advised by Mr Smith that he has not been aware of requests for a meeting until recently and this has now been set up with yourself and your valuer for the 2nd November.

I would confirm that Bruton Knowles have no instructions to renege and re-negotiate the original agreed price of your house at £500,000 and I do not know what has given rise to this particular concern

I would suggest that following your meeting on 2nd November, I receive a full report from Colin Smith on the situation and if necessary you and I can meet to review any outstanding issues.

I do appreciate the fact that living adjacent to a major construction site will be noisy and disruptive which is the reason we agreed to purchase the whole property from you at the outset.”

On 2 November 1999 a meeting took place. It was attend by Mr Colin Smith of Bruton Knowles, Mr Neil Altman (the surveyor acting for Mr and Mrs Christos) , and Mr and Mrs Christos and their solicitor, Mr Houghton. One of the matters discussed at the meeting was the decision of the Land Registry of 25 October 1999 to cancel the application of Mr and Mrs Christos for first registration of the Blue Land based on adverse possession. Mr Smith advised Mr and Mrs Christos that the acquiring authority wished to amend the price payable for the Property to reflect the title defect and would be seeking appropriate valuation advice. It is contended on behalf of Mr and Mrs Christos that representations were advanced at the meeting on 2 November 1999 to the effect that the price of the Property, previously agreed to be £500,000, would be that sum, less some small discount to reflect the defective title.

On 3 November 1999 Mr Houghton wrote to the acquiring authority

“…to confirm that we anticipate being in a position to exchange contracts for the purchase of the alternative property that George and Maureen [Christos] have now found very shortly.

We are hopeful of agreeing a completion date on or around 23rd November 1999 and I will write to you again once contracts have been exchanged.

You will appreciate that George and Maureen will be keen to synchronise completion of the purchase of their new property with finalising the outstanding aspects of the compensation claim as they will be reliant on the money being available to complete the purchase”.

On 4 November 1999 Mr and Mrs Christos entered into a contract to purchase another property, Oak Manor, Newington, near Sittingbourne at the price of £650,000.

Also on 4 November 1999 Mr Colin Smith of Bruton Knowles wrote to Mr Houghton referring to his undertaking at the meeting of 2 November to provide an overall figure for the Property and disturbance payable in accordance with the compensation code, having due regard to the title defect in respect of part of the woodland.

On 26 November 1999 Mr Smith wrote to Mr Altman making a “without prejudice” offer to pay a full and final settlement figure to Mr and Mrs Christos in the sum of £565,000. That included compensation for disturbance and a home loss payment, as well as a figure of £480,000 for “ the house, buildings and land (subject to defective title on part) as at date of entry understood to be May this year.”

He confirmed that the purchase was proceeding on the basis of the counter-notice and as a result interest at the varying statutory rate was payable from the date of entry. He also stated that he was advised that the continued occupation of the Property by Mr and Mrs Christos since the date of entry had been as licensees and that the rental implication arising from that would have to be considered as part of the overall settlement.

On 9 December 1999 Mr Houghton wrote to the acquiring authority’s solicitors saying that it was absolutely vital for them to confirm that the acquiring authority would be releasing the sum of £400,000 to their clients in order to complete the purchase of their alternative property, the completion date being 17 December 1999.

An advance payment to the sum of £405, 411.67 was made.

On 7 January 2000 Mr and Mrs Christos vacated the Property. It remained vacant until the acquiring authority entered the remainder of the Property on 12 October 2000. The solicitors for the acquiring authority had written to Mr Houghton on 3 February 2000 recording their understanding that Mr and Mrs Christos had left the property and were living elsewhere and stated

“Until the transfer of the property is completed, your clients will remain responsible for it. Your clients should, therefore, maintain their existing insurance arrangements and we recommend that appropriate steps are taken to ensure that the property is not broken into; that pipes do not burst; the water is turned off, etc.

Just before completion of the transfer, our client’s surveyor will need to re-inspect the property to ensure that on completion of the transfer, the property is in the state our client would expect to find it”.

Unfortunately, the Property suffered damage in the interim period. It was discovered by the acquiring authority in August 2000 that the Property had suffered water damage. The parties’ valuers agreed that the damage would have reduced the price paid for the house on the Property by £8,500. The occurrence of that damage has given rise to a dispute between the parties about its relevance to the assessment of compensation for the Property.

No formal contracts were ever exchanged between the parties in relation to the sale of the Property by Mr and Mrs Christos to the acquiring authority. The negotiations between the parties collapsed. As already indicated, on 1 May 2001 Mr and Mrs Christos gave notice of reference to the Tribunal to determine the amount of compensation payable to them, contending, inter alia, that £500,000 should be paid in respect of the value of the Property by reason of the agreement reached on that figure between them and Mr Bowman.

The Tribunal determined the value of the land to be £485,000. That figure was reached by taking the sum of £500,000, that being the sum offered by the acquiring authority in its letter of 12 March 1999, and by then deducting £15,000 in respect of the inability of Mr and Mrs Christos to show good title to the entire Property. The Tribunal found that the effect of the defect in the title to the Blue land on the value of the Property was £15,000. The Tribunal rejected the contention of the acquiring authority that an agreed figure of £8,500 should also be deducted from the compensation to reflect the deterioration of the condition of the Property caused by water damage subsequent to the agreed valuation date of 17 May 1999.

The case of Mr and Mrs Christos that they were entitled to £500,000 in respect of the acquisition of the Property was put to the Tribunal in two ways. First, it was contended that there was a binding contract that the acquiring authority would purchase the Property from them for £500,000. The Tribunal held (paragraph 30) that

“….there was no binding contract for a sale at £500,000, because the agreement was at all times “subject to contract”. Alternatively, if there was a contract, it was subject to the condition precedent relating to title, which was never waived. This condition was never satisfied.”

That conclusion was reached after detailed reference to the meetings, the correspondence and the oral evidence of the parties, including the evidence of Mr Christos himself that he knew that “ subject to contract” meant that the matter was not binding until a contract had been signed (paragraph 22).

Equitable estoppel was the second plank of the case that the acquiring authority was bound by the figure of £500,000, less only a small deduction for defective title of part. The Tribunal held that, because of representations made on its behalf, the acquiring authority could not rely on its valuation evidence to show that the value of the Property, assuming good marketable title, was other than £500,000 (paragraph 54). The Tribunal arrived at that conclusion by the following route

As the Tribunal held that the four requirements of equitable estoppel were satisfied, it concluded that the acquiring authority was estopped from producing evidence to show that the value of the subject property was other than £500,000 for good and marketable title to the Property.

The third point decided by the Tribunal, against which the acquiring authority appeals, was that the figure for damage suffered by the Property, agreed at £8,500, should not be deducted from the compensation payable. The acquiring authority contended that it should be deducted to reflect the deterioration in the condition of the property caused by the flooding of the house in about August 2000, that is, after Mr and Mrs Christos had vacated that part of the property, but before the acquiring authority had entered upon it. As already indicated, no contract had been entered into between the parties for the transfer of title to the property and no transfer had in fact occurred, because of the continuing dispute as to the amount of compensation payable. The agreed figure of £8,500 reflected the cost of remedying the water damage to the house, which existed at the date when the acquiring authority took possession of the remainder of the Property on 12 October 2000.

The Tribunal held that the property was to be valued in its visible condition as at the date of valuation, that is 17 May 1999. As already mentioned, the decision of the Tribunal recorded the fact that the parties had agreed that, although possession of the property was taken on two different dates, it was appropriate to value it as a single entity at a single date and that date was agreed to be 17 May 1999. The Tribunal observed that, if Mr and Mrs Chrtistos were liable to the acquiring authority for the damage that had occurred subsequent to the valuation date, the Tribunal was not the proper forum to resolve such a claim. It also noted Mr Christos’s offer to assign the benefit of his insurance claim to the acquiring authority.

Although the contract point arises on the cross appeal of Mr and Mrs Christos and the estoppel and post-valuation date damage points arise on the acquiring authority’s appeal, I find it convenient to deal with the points in the order in which they were argued by Mr Guy Roots QC for the acquiring authority rather than in the reverse order adopted (for quite understandable reasons) by Mr Jonathan Gaunt QC in his submissions for Mr and Mrs Christos.

I have reached the conclusion that the cross appeal on the contract point should be dismissed, that the acquiring authority’s appeal on the estoppel point should be allowed, but that the acquiring authority’s appeal on the post-valuation date damage should be dismissed. In the absence of agreement between the parties, it would be necessary for the matter to be remitted to the Tribunal in order to re-determine the amount of compensation payable in the light of this judgment.

Contract Point

In my judgment, the Tribunal correctly held that no binding contract was made between the parties for the payment of the sum of £500,000 for the acquisition of the property. The offer made by the acquiring authority in its letter of 12 March 1999 was marked “ subject to contract.” As everybody, including Mr Christos himself, knows, that expression, when used in relation to the sale of land, means that, although the parties have reached an agreement, no legally binding contract comes into existence until the exchange of formal written contracts takes place. As Lord Denning MR said in Tiverton Estates Limited –v- Wearwell Limited [1975] Ch 146 at 159 H:

“…for over a hundred years, the courts have held that the effect of the words “subject to contract” is that the matter remains in negotiation until a formal contract is executed”

In this case no formal contracts were ever exchanged between the parties. The acquiring authority was not, and never became, contractually bound by the figure of £500,000 proposed as an “offer to settle” in its letter of 12 March 1999. The letter of acceptance on 10 June 1999 by Mr and Mrs Christos was an acceptance of the “subject to contract” offer. It could not therefore create a binding contract. The correspondence between the solicitors for the parties continued on a “subject to contract” basis.

Mr Gaunt QC attempted to argue that the suspensive effect of the expression “subject to contract” had ceased as a result of the statement in the letter of 26 October 1999 that the acquiring authority was not seeking to renege on and re-negotiate the figure of £500,000. He argued that the effect of that statement was that the figure of £500,000 was no longer provisional and open to further negotiation. At that point, he said, a final and binding contract had been reached.

I do not agree. The effect of the expression “subject to contract” is that, unless and until that condition is waived, there is no binding agreement in the absence of the execution of formal contracts. In my judgment, the letter of 26 October was simply referring back to the agreement, which had been made as a result of the offer of 12 March 1999 and the acceptance of 10 June 1999, both of which were made in the “subject to contract” setting. The 26 October letter was simply a reference to not re-negotiating the figure proposed as a “subject to contract” offer to settle. There was no waiver of the suspensive “subject to contract” condition.

I would also reject the contention that the expression “subject to contract” was meaningless in this case and could be ignored, as the parties were in a compulsory purchase situation, which did not envisage any further formal contract, rather than in the conventional vendor /purchaser relationship: see Michael Richards Properties v. St Saviours [1975] 3 All ER 416. It is true, as observed by Lord Denning MR in Munton –v- Greater London Council [1976] 1WLR 649 at 652, that compulsory purchase differs from an ordinary contract sale and purchase in a number of respects.

“First, when notice to treat is given, it binds the acquiring authority to purchase and the owner to sell at a price to be ascertained… Second, when there is an unconditional agreement fixing the price – whether in writing or by word of mouth – it is the equivalent of a binding contract between the parties…. Once, therefore a notice to treat has been served and there is an agreement on the price, a binding obligation is created which is equivalent to a contract between the parties.”

That means that, after the notice to treat has been given in respect of a particular property, neither party is free to back out of the legal obligation to buy and sell thereby created. That is not, however, the situation in this case. First, the notices to treat served before the letter of 12 March 1999 related only to part of the Property. The whole of the Property only became included in the notice to treat by reason of the statutory deeming process, which occurred on the service of the counter-notice on 27 March. The position as at 12 March was that the acquiring authority was making a “ offer to settle” for the purchase of the whole of the Property at the figure of £500,000. Secondly, the sum of £500,000 was “subject to contract” which, as was held in Munton, prevented the agreement on price from being contractually binding.

As, in my judgment, there was never any binding contract for the sale and purchase of the Property at the price of £500,000, it is unnecessary to consider whether the contract was subject to a condition precedent relating to title, and, if so, whether the condition was satisfied or waived.

Estoppel Point

In my judgment, the Tribunal was wrong to hold that the acquiring authority was estopped from adducing evidence that the value of the Property was other than £500,000. On this part of the case the Tribunal appear to have overlooked the pervasive significance of the fact that the offer to settle for £500,000 was, and remained throughout, “subject to contract”. The sum to be paid for the Property was still “subject to contract” at the date when the Tribunal found that representations had been made on behalf of the acquiring authority in the letter of 26 October 1999 and at the meeting on 2 November 1999.

The difficulty in establishing equitable estoppel in the context of an offer or agreement made “subject to contract” was explained by Lord Templeman when delivering the judgment of the Judicial Committee of the Privy Council in Attorney General of Hong Kong –v- Humphreys Estate (Queen’s Gardens) Limited [1987] 1 AC 114 at 127 G to 128 A. He said

“In the present case the government acted in the hope that a voluntary agreement in principle expressly made “subject to contract” and therefore not binding would eventually be followed by the achievement of legal relationships in the form of grants and transfers of property. It is possible but unlikely that in circumstances at present unforeseeable a party to negotiations set out in a document expressed to be “subject to contract” would be able to satisfy the court that the parties had subsequently agreed to convert the document into a contract or that some form of estoppel had arisen to prevent both parties from refusing to proceed with the transactions envisaged by the document. But in the present case the government chose to begin and elected to continue on terms that either party might suffer a change of mind and withdraw.”

In my judgment, that was the position in this case. The offer to settle for £500,000 was “subject to contract.” So was the acceptance of that offer and the subsequent conduct of the parties with respect to compensation for the Property. It is true that, following the notice to treat given by the acquiring authority and the counter-notice given by Mr and Mrs Christos, it was not open to either party to withdraw from the compulsory acquisition of the Property. It was, however, open for either party to withdraw on the amount to be paid, as the offer to settle for £500,000 “subject to contract” signified that was not intended to be legally binding until the exchange of formal contracts.

In view of the continuing “subject to contract” status of the communications between the parties, it was not open to the Tribunal to conclude that statements made on behalf of the acquiring authority in the letter of 26 October and at the meeting of 2 November were representations or promises capable of creating an estoppel binding the acquiring authority to pay £500,000 for the Property.

The Tribunal’s reliance on the passage quoted from the first instance decision in Salvation Army Trustee Co Ltd v. West Yorkshire Metropolitan CC (1980) 41 P& C R 179 was misplaced. The governing principle enunciated by Lord Templeman in the Hong Kong case , was cited to, but was not referred to in the decision of, the Tribunal. Lord Templeman discussed the Salvation Army case at [1987] 1 AC 126G-127G and distinguished it. It had been cited to the Judicial Committee as an instance of specific performance of an agreement “subject to contract”. Lord Templeman disagreed. He explained that, in the particular circumstances of that case, the “subject to contract” nature of the arrangement was irrelevant to the amount of compensation on the basis of equivalent re-instatement, which a local authority had proposed to pay for the acquisition of the site of the Salvation Army’s meeting hall for road widening purposes. The “subject to contract” arrangement was that the Salvation Army should acquire from the local authority an alternative site on which to build a new hall in place of the old meeting hall. After the Salvation Army had entered on the new site, and built the hall on it and paid for it in the expectation of receiving payment of compensation for the old site on the equivalent re-instatement basis, the successor local authority abandoned the road widening scheme and then refused to acquire the site of the old meeting hall or to pay equivalent reinstatement compensation for it. An estoppel binding the local authority to acquire the old site and to pay statutory compensation for it arose from the representations of the local authority to the Salvation Army as to its intentions to acquire the site and to pay compensation on the basis of equivalent re-instatement. The Salvation Army had, to their detriment, relied on those representations, which were not made “subject to contract”, when, to the knowledge of the local authority, they entered and built on the new site. As Sedley LJ observed in the course of argument, if those facts occurred today, it is likely that the same outcome would result from the application of the public law doctrine of legitimate expectation on a judicial review of the lawfulness of the actions of the acquiring authority.

I should add that in his careful and clear submissions, Mr Gaunt QC rightly accepted that the acquiring authority had not made any representations as to the value of the property, which could give rise to an estoppel. All that the acquiring authority had done was to make a “subject to contract” offer to settle for the acquisition of the Property at the figure of £500,000. The offer to settle for that sum indicated a willingness to negotiate on that figure. It did not constitute a representation or statement by the acquiring authority as to what in fact was the value of the Property.

Post-valuation date damage point

In my judgment, the Tribunal correctly held that the Property was to be valued in its physical condition at the agreed date of valuation and that the deterioration in the condition of the Property occurring after the agreed valuation date had no effect on the compensation payable to Mr and Mrs Christos. The Tribunal referred to a number of authorities on this point. On the hearing of the appeal Birmingham Corporation v. West Midland Baptist (Trust) Association Inc [1970] AC 874 at 903E-908C and Chilton v. Telford Development Corporation [1987] 1 EGLR 12 were cited on the question of the relevant date for the assessment of compensation for compulsory purchase when, following the service of a notice to treat, physical possession or control of the land is taken by the acquiring authority over a period, and whether the risk of damage to or deterioration of the property should pass before the physical possession or control by the acquiring authority of the part affected has been taken.

It is, however, unnecessary to examine the authorities on those points, as the legal position in this case is settled beyond doubt by the fact that, as recorded by the Tribunal, the acquiring authority agreed to take a single date for the valuation of the property (ie 17 May 1999), even though it did not enter into the whole of the Property until a later date after the damage had been suffered by the Property. The inevitable consequence of the agreement on a single date was that the Property was to be valued in the condition in which it was on that date, and not in the condition in which it was on any other date. What happened to the Property after the agreed valuation date may give rise to other claims, which the Tribunal has no power to determine. Its function in this case was confined to determining, so far as the value of the Property was concerned, its value at the agreed valuation date in the condition in which it was on that date.

I would allow the acquiring authority’s appeal on the estoppel point. I would dismiss the cross appeal by Mr and Mrs Christos on the contract point. I would remit the matter to the Tribunal to re-determine the amount of compensation payable for the acquisition of the Property on the basis that the acquiring authority is not estopped from adducing valuation evidence. In the absence of agreement, no deduction from the amount of compensation should be made in respect of the deterioration in the condition of the Property after the agreed valuation date of 17 May 1999.

I agree.

I also agree.