Welford & Ors v EDF Energy Networks (LPN) Ltd

This is an appeal from the Lands Tribunal (The President and Mr NJ Rose) on a short point of law as to whether a claim for loss of profits was too remote in law to form part of a compensation claim under the Electricity Act 1989 for the grant of wayleave for underground cables. Although the point arose under the specific legislative provisions applicable under that Act, the principles applicable were those generally applicable to claims for compensation for the compulsory acquisition of land.

The facts out of which the appeal arises were found by the Tribunal as follows:

The first claimant, the first respondent to the appeal, began a waste separation and transfer business in the 1980s in the East End of London; he sold that business and ceased to be engaged in the waste transfer business (the sorting and reclamation of waste and its ultimate sale or disposal). He subsequently developed with the second claimant, the second respondent to the appeal, a skip hire business which was later based at Millwall Wharf in the East End; this business comprised the hire of skips and the disposal of the waste deposited in the skips by the hirers to others who operated a waste transfer business; they did not conduct a waste transfer business. As Millwall Wharf was to be redeveloped, these two claimants looked for alternative premises in the East End of London from which they could operate a waste transfer business together with the skip hire business as the operation of a waste transfer business would maximise their profits.

0n 21 June 1994 the first and second claimants purchased at auction land (site A) at Canning Town London for £51,000, thereafter negotiating the price down to £41,000. There was a large electricity pylon on the site; its development potential was therefore limited. The sale was completed on 30 April 1995. The intention of the first and second claimants was to transfer their skip hire business to site A and to improve the profitability of their business by undertaking waste transfer themselves by building a waste transfer station on the site. The first and second claimants incorporated the third claimant, the third respondent to the appeal, on 1 December 1994 and transferred all the assets of the business (including a licence to use site A) to the third claimant company, which commenced trading on 1 May 1995; the first and second claimants retained the freehold of site A.

Since 1949 underground electricity cables had run east to west across the middle of site A. This had originally been permitted under a licence granted by the then owner of the site; after the expiry of that licence the presence of the cables was continued by virtue of various statutory provisions. The first and second claimants were unaware of the cables when they purchased the site.

After the purchase of site A, the third claimant spent £10,000 clearing it of fly tipping and £20,000 in improvements to the site, principally by covering it with concrete.

On 23 June 1995, the claimants applied for planning permission to build the waste transfer station – essentially a large shed in which the waste would be sorted and reclaimed prior to sale or disposal; permission was granted on 7 September 1995, subject to certain conditions.

In July 1995, the claimants became aware of the presence of the cables. On 12 September 1995 they gave notice to London Electricity plc, the predecessors of the appellants (EDF), to remove them. The presence of the cables made it impossible to build a waste transfer station on Site A. The Tribunal made a finding which is central to this appeal:

Upon receipt of the notice, London Electricity became entitled to apply for a statutory wayleave for the underground cables under paragraph 6 of Schedule 4 to the Electricity Act 1989. Statutory wayleaves were granted on 17 August 1998 for a term of 15 years.

On 15 October 1997, the claimants purchased an adjoining site (site B) and used this in conjunction with site A for lorry and skip storage; they obtained planning permission, after an initial refusal, in February 1999 and then developed it into a waste transfer station.

As a result of the statutory wayleaves the claimants became entitled to compensation under paragraph 7 of Schedule 4 to the Electricity Act:

The statutory provisions only provided for compensation as at the date the wayleave was granted – 17 August 1998. The claimants considered that they had suffered loss during the period between 12 September 1995 and the grant of the wayleave on 17 August 1998. They commenced proceedings in the High Court but these were compromised by an arbitration agreement referring the dispute to the Lands Tribunal which under paragraph 7 of Schedule 4 had the jurisdiction to determine the compensation for the statutory wayleave. The agreement provided for the compensation to be determined on the same principles as compensation for the statutory wayleaves. It is not necessary for the purposes of this judgment to deal separately with the position in respect of the statutory claim and the claim referred from the High Court as the applicable principles are the same and as there was no change in the underlying land values between 1995 and 1998.

The claims made by the claimants were for:

Injurious affection - diminution in the value of the land in consequence of the grant of the wayleave.

A disturbance claim for loss of profits of over £2m on the basis that they would, but for the presence of the cables, have been able to start their waste disposal business in January 1996. They had been unable to start that business until January 2000.

The dispute under the Act and the dispute referred under the arbitration agreement were heard together in October and November 2005.

EDF accepted that compensation was due for the injurious affection claim but contended that no compensation was payable for disturbance, because the profits alleged to have been lost related to a use of the land which had not commenced on 12 September 1995 and did not flow from disturbance in the use being made of the land at that date.

It was agreed that the Tribunal should determine four principal issues; two, issues (a) and (c), are relevant to this appeal.

The Tribunal decided that the injurious affection claim occasioned by the grant of the wayleave should be determined on the basis of the diminution of the value of the freehold interest of the claimants occasioned by the presence of the cables on the site and the right of EDF to maintain the cables on the site from 12 September 1995 until the grant of the wayleave and thereafter for the period of the wayleave. The Tribunal rejected the evidence of the claimants’ expert who had put forward a valuation on a profits basis; they found the figures did not reflect the market and that the claim was unsupported by evidence. The Tribunal essentially accepted the valuation approach of EDF’s expert which was based on general industrial land values, with various adjustments. There is no appeal from that part of the decision of the Tribunal.

As to the disturbance claim for loss of profits, the Tribunal approached the issue on the basis that the issue was not to be resolved by an analysis of the specific words of paragraph 7(2) of Schedule 4 to the Electricity Act 1989 but on the principles generally applicable to compulsory acquisition.

The Tribunal then analysed the loss of profits claim under the three heads identified by Lord Nicholls in Director of Buildings and Land v Shung Fung Ironworks Limited [1995] 2 AC 111, concluding that a loss of profits claim lay:

Causation: The Tribunal found that the loss of profits claim had to be determined by what had happened as the result of the grant of the statutory wayleaves. It did not matter that the claimants might not have bought the land had they known of the cables. The Tribunal was satisfied that, if the cables had not been present on the site, the claimants would have developed the site in accordance with the 1995 planning permission by building a shed and then using the site as a waste transfer station. Leave to appeal was sought on this point, but refused by Jonathan Parker LJ. The application was not renewed.

Remoteness: The Tribunal concluded that the fact that the claimants had not commenced the use of site A for the waste transfer business in September 1995 did not prevent the recovery of compensation for loss of profits or make the claim too remote, as the waste transfer business was in existence. Leave to appeal on this issue was granted by Jonathan Parker LJ.

Reasonableness: The Tribunal rejected EDF’s contention that the claimants had failed to mitigate their loss by relocating to an alternative site. Leave to appeal was refused by Jonathan Parker LJ on the basis that this was essentially a question for the Tribunal. The application was renewed, but for reasons which I express at paragraphs 34-36 below I would refuse this renewed application.

This appeal is therefore concerned solely with the issue of remoteness.

The statutory provisions under paragraph 7 of Schedule 4 which provide for compensation for the grant of a wayleave make no express reference to the basis on which compensation is payable under sub-paragraphs (1) or (2) in contradistinction to the provisions in respect of compensation for the grant of an easement under Schedule 3; the latter paragraph expressly applies the provisions relating to the compulsory acquisition of land.

However, there was no dispute before us as to correctness of the general approach which, as set out at paragraph 10 above, had been taken by the Tribunal. Although paragraph 7 to Schedule 4 expressly distinguishes between compensation under sub-paragraph (1) for diminution in the value of the land and under sub-paragraph (2) for disturbance, the compensation payable under the whole of paragraph 7 is to be assessed on the general principles applicable to the payment of compensation for compulsory acquisition which recognises these two separate heads as elements of the claim for compensation – injurious affection and disturbance. The distinction drawn in paragraph 7 of Schedule 4 is a necessary distinction in relation to compensation for the grant of a wayleave for a fixed period to enable occupiers and owners of chattels to recover compensation for disturbance.

Although there was that measure of common ground, EDF contended that the Tribunal had made two errors of law; the Tribunal should have decided that:

The claimants had been compensated for the loss of profits by the award in respect of the injurious affection claim for the diminution in the value of the land claim and they therefore were not entitled to any further recovery.

The claimants had not commenced the waste transfer business at Site A (or anywhere else) by 12 September 1995 and the claim was therefore too remote to be recoverable.

EDF’s first contention was that the Tribunal had fully compensated the claimants by the award for the diminution in the value of the land as that award had within it fair and proper compensation for the loss suffered by the claimants by not being able to commence the business at the time that that they would have commenced it.

At paragraph 102 of the judgment, the Tribunal set out its approach to this question:

The general principle was not in dispute. Compensation for the value of the land at its market value will reflect a number of factors including the development potential of the land. The profits that the owner would have made out of the development of the land will therefore generally be reflected in the market value and the owner is not entitled to seek further compensation in such a case: see: Collins v Feltham UDC [1937] 4 All ER 189, George Wimpey & Co Ltd v Middlesex County Council [1938] KB 781, Horn v Sunderland Corporation [1941] 2 KB 26 Ryde International plc v London Regional Transport [2004] EWCA Civ 232, and Corton Caravans and Chalets Ltd v Anglian Water Services Ltd [2003] RVR 323.

However there are circumstances where the owner of the land is entitled to further compensation; if the personal loss he has suffered is not reflected in the value of the land where it has a special value to him, he is entitled to be compensated for that loss. In Horn, Scott LJ, in setting out the principles in classical terms, described the position at page 45:

Applying those principles to EDF’s first contention, there are two answers. The first is short and a complete answer. The compensation for the diminution in the value of the land was compensation payable to the first and second claimants as the owners of the freehold of site A; the claim for loss of profits was sought by the third claimants as the occupiers of the site. The award to the first and second claimants cannot therefore have compensated the third claimants.

The second answer is that, even if the claimants all had the same interests, compensation in respect of the loss of profits was not reflected in the award for the diminution of the value of the land. The Tribunal decided at paragraphs 90-95 of its judgment that the value of the site for general industrial purposes without the cables was £150,000 to which it added £20,000 which had been incurred in works of improvement; the agreed value of the land with the cables was £80,000, giving a permanent diminution of value of £90,000. In determining these values, the Tribunal decided that no adjustment should be made to the value by way of a development premium for use of the site as a waste transfer site; it determined separately the issue of whether the land had a value over and above its market value when it considered the loss of profit claim.

The second and principal submission of EDF was that the Tribunal had been wrong to go on to conclude on the basis of the finding which I have set out at paragraph vi) above that:

EDF contended that there should have been no award for disturbance by way of loss of profits of the waste transfer business as that business had not been commenced on the site at the relevant time – 12 September 1995. The loss was therefore too remote within the second of the three conditions to the award of compensation set out in the opinion of Lord Nicholls in Director of Land v Shun Fung, supra, at p 126:

There was no dispute that if the land has a personal or special value to a claimant over and above its market value, then the owner is entitled to be paid compensation for the special value of the land to him. For example, if a business is being conducted by the owner on the land, the owner is entitled to compensation for the disturbance to his business, where that special value is not reflected in the market value of the land. In such a case there will ordinarily be an assessment of this loss as a loss by disturbance calculated by reference to the costs and expenses of moving that business and any net losses sustained. In a land compensation claim under the general statutory provisions such a disturbance claim will be assessed separately from the value of the land, though as a matter of law there is one award for compensation encompassing both the value of the land and the disturbance claim. As I have set out at paragraph 14, it makes no difference to the approach that under Schedule 4 to the Electricity Act 1989, the disturbance claim is a separate claim.

It was also common ground that difficulty in proving the loss in respect of such a claim makes no difference. In Director of Buildings v Shun Fung, Lord Nicholls gave the following illustration at page 127:

Furthermore, by determining the issue of causation in favour of the claimants, the Tribunal had determined that the presence of the cables had prevented them from developing the site and building the waste transfer station and therefore from making profits from that activity.

However, the claimants could not recover in respect of that loss of profit, if that claim was too remote as a matter of law. The question which arose on the appeal was whether the Tribunal had drawn too narrowly the limit of the circumstances in which a loss is to be considered too remote. It was submitted by EDF that the loss was too remote and therefore irrecoverable because the business had not been commenced on site A. There were two principal submissions:

The claimants had not commenced the use of Site A or any other land for a waste transfer business. There had therefore been no disturbance to the use of site A for which fair compensation was payable. This was different to the position which would have existed if there had been an existing waste transfer business which the claimants had intended to transfer to site A but which because of the presence of the cables, the claimants had not been able to transfer to the site. In such a case it was accepted that the claimants would have been entitled to compensation for loss of profits until they had found an alternative site on which the business could be operated; there would in such a case have been a disturbance to the business which the claimants would in such a case have actually been conducting and which they had intended to transfer to site A.

The Tribunal had been in error when it relied on the decision in Khan v. Miah. The application in that case of the rule that parties who agree upon a joint venture do not become partners until they embark on the activity in question was not relevant to the determination of the issue of whether the claimants had suffered a disturbance to an activity being carried out on the land or which would be carried out on the land.

It is clear that profits from a business which has not been commenced anywhere will generally be regarded as too remote for the purpose of providing fair compensation for land which is to be compulsorily acquired. That is because compensation for the value of that land will ordinarily reflect the cost of that part of the investment in the commencement of the business which is represented by the cost of the land. Therefore, where a person has land on which he is contemplating starting a new business, but the business is not in existence at the time the land is compulsorily acquired, then ordinarily the market value of the land will reflect the business opportunity that is contemplated; it is but part of the overall investment that will have to be made to realise the profits from the contemplated business. The profitability of that business will be subject to all the risks inherent in the start up of a business which is not in existence. Compensation measured by the market value of the land will be treated as fair compensation, as it will enable him to buy other land as part of the investment he will need to make to start the business he is contemplating. A claim for loss of profits will therefore be treated as too remote.

However in the present case, the Tribunal found as a fact that the business of waste transfer (in contradistinction to skip hire and waste disposal) was not merely contemplated, but clearly in existence at the relevant date for the reasons which I have quoted at paragraph vi) above. If this court had jurisdiction to consider findings of fact, it is possible that a powerful argument could have been advanced for questioning that finding. However that was the finding made and it is on that basis that the issue of remoteness must be decided.

Although the Tribunal found that the business of waste transfer was in existence and money had been spent on its development, the use of the site as a waste transfer station had not commenced by the relevant date. Did that make the loss too remote so that it was irrecoverable? The Tribunal considered that the decision in Khan v Miah, was a relevant authority as set out in the passage quoted at paragraph 22 above. The issue before the House of Lords in that case was whether the parties had ever carried on the business of a restaurant in partnership together. Lord Millett who give the sole judgment summarised the agreement between the parties:

Although it may be helpful to have regard to the decision in Khan v, Miah, I do not consider it is of much relevance and it is not in any way determinative of the issue. The issue is one to be determined by the principles applicable to the award of compensation for the compulsory acquisition of land as, for example, set out in Horn to which I have referred at paragraph 19. The question is whether the land has a definite and ascertainable special value to the owner of the land over and above that which is reflected in the ordinary market value of the land. In my view, once the owner of the land has a business in existence, has made the investment in the land on which that business is to be carried out and commenced work in connection with the business on it, then the business has a sufficient relationship to the land for the land to have a special value to the owner arising out of that business so that compensation for the loss occasioned by its disturbance can be recoverable, even though the land is not yet being used for the business. It is the coming into existence of the business and the investment in relation to the land that is sufficient, even though the land is not yet being used for the business. If the business is profitable, then loss by disturbance to the business which is to be conducted on the land will not be reflected in the value of the land. In such a case, the land has more than the development value reflected in the market value; it has a special value to the owner of the land, given the existence of the business and the investment in the land on which that business is to be conducted. As the Tribunal determined on the facts that the business was in existence and work had commenced on the land in connection with the business, then in my view they were right to conclude that a claim for loss of profits from the waste transfer business could be made by the claimants even though site A was not yet being used for that waste transfer business.

EDF contended that such a view would be inconsistent with the decision of the Privy Council in Pastoral Finance Association Limited v The Minister (NSW) [1914] AC 1083 decided under the New South Wales Public Works Act 1900 which provided for three heads of compensation where land was compulsorily acquired – the value of the land, damages by severance and damage caused to other lands of the owner. The claimant company had bought land with the intention of transferring its business to that land; before the buildings necessary to conduct the business had been erected, notice of compulsory acquisition was given. The Minister contended that the claimant was entitled only to the market value of the land and not to the profits that would be made from carrying on the business on the land. It is only necessary to refer to a single passage in the opinion delivered by Lord Moulton:

I therefore conclude that the Tribunal were right in law on the issue of remoteness and I would dismiss the appeal. It is therefore unnecessary to consider the alternative argument raised by the claimants under s.3 of the Human Rights Act 1998, that the provisions of paragraph 7 of Schedule should be read even more broadly so as to make them compatible with Article 1 of the First Protocol.

EDF contended that the Tribunal had fallen into error on the issue of reasonableness. It was EDF’s case that the claimants had not acted reasonably as they had failed to mitigate their loss by locating an alternative site once they discovered the presence of the underground cables. The Tribunal found that the claimants had failed from July 1996 to mitigate their loss by not seeking an alternative site and developing it; they had given no explanation for their failure. Thus EDF’s case succeeded in part.

It was contended that, as the Tribunal had found in the period prior to July 1996 that the claimants had done nothing to search for an alternative site beyond urging London Electricity to acquire an alternative site from National Power, it had made an error of law in finding that EDF had failed to discharge the burden of proving that the claimants had failed to mitigate their loss in that earlier period.

However EDF’s case on that earlier period failed, not because of any error of law, but because on the facts, the claimants had not failed to mitigate their loss prior to that date. It is quite impossible to identify an error of law in the Tribunal’s approach to the issue of mitigation; it was clearly of the opinion that on the facts EDF had not made out its case; for example, they found that EDF had adduced no evidence that suitable alternative sites were available at the material time. In my view an appeal on this issue had no prospects of success and I would accordingly refuse permission to appeal.

Accordingly as I have already stated I would dismiss the appeal on the issue of remoteness and I would accordingly refuse permission to appeal on the issue of reasonableness.

I agree.

I also agree.