Greenweb Ltd v London Borough of Wandsworth

The issue in this appeal is whether the London Borough of Wandsworth is required by the provisions of the Land Compensation Act 1961 (“the Act”) to pay in compensation to the owner who served a purchase notice a sum that is more than one hundred times its market value.

The appeal is by the London Borough of Wandsworth against the decision of the Lands Tribunal (The President and Mr Francis) given on 17 September 2007 by which it assessed the compensation payable by the Council to Greenweb Limited, following the service of a purchase notice, pursuant to the Act, at £1.6 million.

The parties were agreed that the value of the land in question in the open market was £15,000. It is being used as a park, and has no subsisting planning permission for any other use, and it was unlikely that any such planning permission would be forthcoming in the future. Thus the compensation of £1.6 million bears no relationship to the actual market value of the land in question. Greenweb is the fortunate recipient of an enormous windfall, having paid only £30,000 for the land, about one fiftieth of the compensation it will receive as a result of the Tribunal’s decision.

The Tribunal’s assessment of compensation was made on the basis that the Act compels the assumption to be made that planning permission has been granted for a Victorian terrace which was present on the land but was destroyed by enemy action during the Second World War. In other words the Tribunal assessed compensation on the basis of an assumption that planning permission existed for a development which has not been present on the land for more than 60 years.

The facts relevant to the decision of the Tribunal and to this appeal were sensibly and helpfully agreed between the parties.

In the 1880’s nine three-storey dwelling houses were constructed on the site, of agreed dimensions. There was also a commercial building. They were all severely bomb-damaged during the Second World War, and as a result all of the buildings were cleared from the site at some time before 1 July 1948. On that date four prefabricated houses were present on part of the site. They had been removed by about 1978. From about 1979 the site was used as public open space. Deemed planning permission for use as public open space was granted in June 1979, and that permission was implemented. The site was sold by the London Residuary Body in 1988 and came into private ownership.

In April 2000, since Wandsworth were then negotiating for the purchase of the land from the owner, he applied under section 17 of the Act for a certificate of alternative development, specifying as the development dwelling houses or a day nursery or a mix of the two. In June 2000 the owner of the land made an application for planning permission for the erection of 5 2-bedroom mews houses. Wandsworth failed to determine either application, and the owner appealed. The land was purchased by Greenweb on 31 January 2001 for £30,000. In February 2001 a public inquiry was held, and on 15 May 2001 the Secretary of State, accepting the recommendations of the inspector, dismissed both appeals. The effect, as far as the section 18 appeal was concerned, was that the deemed nil certificate stood: planning permission would be granted for any development for which the land was being acquired by Wandsworth but not for any other development.

On 10 May 2002 Greenweb served a purchase notice on Wandsworth, who accepted it by letter dated 23 October 2002. By section 139(3)(b) of the Town and Country Planning Act 1990 Wandsworth was deemed to have served a notice to treat in respect of the land. A claim for compensation pursuant to the Land Compensation Act 1961 therefore arose.

Before the Tribunal it was agreed that the compensation payable to Greenweb should be assessed on one of three bases:

with an assumed planning permission for the carrying out of the rebuilding of 9 dwelling houses and one commercial building (“Basis 1);

with an assumed planning permission for the carrying out of the rebuilding of four prefabricated houses with additional “hope value” (Basis 2); or

As public open space only (“Basis 3”).

The parties also agreed:

the amount of compensation to which Greenweb was entitled on Basis 1 was £1.6 million;

the amount of compensation to which Greenweb was entitled on Basis 2 was £1.2 million; and

the amount of compensation to which Greenweb was entitled on Basis 3 was £15,000.

Lastly, it was agreed that on any of the above bases the assumed planning permission was capable of implementation.

The provisions determining the amount of compensation payable by an acquiring authority are in Part II of the Act. Section 5 sets out a number of general rules or principles, of which rules (1) and (2) are fundamental:

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

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;

Sections 6 to 16 contain more specific provisions, all of which are drafted in terms that appear to make their application mandatory to cases to which they apply. Section 14(1) provides:

Section 15 provides:

This case concerns section 15(3)(a). Paragraph 1 of Schedule 3 to the Town and Country Planning Act 1990, to which it refers, is as follows:

Section 15(4) has no bearing on the present case. Schedule 10 to the 1990 Act concerns the conditions relating to floor space applicable to rebuilding, and, I can assume, was taken into account in arriving at the agreed values under Basis 1 and Basis 2.

It can be seen that the facts of this case fall within paragraph 1(a): the Victorian dwelling houses were in existence before 1 July 1948 and were destroyed or demolished after 7 January 1937. The case for Greenweb is and was straightforward. An assumption mentioned in section 15 is applicable to the relevant land: the facts relating to the land satisfy the requirements of section 15(3). Section 14(1) requires that assumption to be made; and on that assumption, the value of the land is £1.6 million.

The case for Wandsworth is necessarily rather less straightforward. In fact, the owner of the land has no planning permission to carry out the development to which the assumed planning permission relates: the Secretary of State refused such planning permission when he dismissed the appeals to which I have referred. Apart from the right to compensation from Wandsworth, the land is worth no more than £15,000. The purpose of the provisions in Part II of the Act is to arrive at a fair market value of the land in question, apart from any value attributable to compulsory purchase. In opening Wandsworth’s appeal, Mr Elvin QC disclaimed a submission that section 5(2) and section 15 are inconsistent. He submitted that it was not, and cannot have been, the intention of Parliament to require a public authority to pay for land a value bearing no relationship to its true market value. It follows that section 15(3) must be interpreted as directory rather than mandatory, so that the assumption to which it refers is displaced if it results in a value that is inconsistent with the true value of the land, and is incompatible with the principle of equivalence.

In support of his succinct and cogent submissions, Mr Elvin QC referred us to the well known statements of Lord Nicholls in Director of Buildings & Lands v Shun Fung Ironworks [1995] 2 AC 111, 125 and Waters v Welsh Development Agency [2004] 1 WLR 1304 at paragraph 1. In his judgment in the former case, Lord Nicholls referred to the statutory provisions relating to the determination of compensation in Hong Kong and said:

I fully accept Mr Elvin’s basic submission: Parliament could not have intended the provisions of section 14 and 15 to work as they have been held to work in this case. No possible legislative purpose has been suggested by Mr Male QC, on behalf of Greenweb, for conferring on the Respondent the windfall created by the statutory provisions if the decision of the Tribunal is correct. My difficulty, and I think Mr Elvin’s, is that save in the most exceptional cases the Courts must apply what Parliament has provided in a statute, and not what the Court believes it could or should have provided; and the Tribunal, in my judgment, correctly applied what Parliament has provided.

Sections 14 and 15, like other provisions of Part II of the Act, contain a number of provisions expressed in mandatory terms. Thus, section 141(5) provides that certain determinations “shall be made on the following assumptions”. The verb “shall” means that the making of the assumption is mandatory. The use of the word “assumption” itself indicates that what is to be assumed may not be factual.

Mr Elvin accepts that the ordinary meaning of the phrase “applicable to the relevant land” in section 14(1) requires the Tribunal to determine whether facts relating to the land fall within the statutory words identifying in what cases the assumption is to be made. He accepts that on that basis the 1961 Act if literally interpreted required the Tribunal to assume that the land was subject to planning permission entitling the owner to replace the buildings destroyed during the Second World War. He accepts also that the verb “shall” in its natural meaning in section 15(3) denotes a mandatory requirement. Before the Tribunal, Wandsworth concentrated their attack on the word “applicable”, and submitted that an assumption could not be applicable if it produced a valuation divorced from the actual value of the land that infringed the principle of equivalence to which Lord Nicholls referred. Before us, Mr Elvin focused more on the authorities that in his submission showed that in certain cases the Courts may interpret “shall” as meaning “may”.

I do not think that there is any ambiguity in the words “applicable to the relevant land”. In relation to “shall”, Mr Elvin cited Brayhead (Ascot) Ltd. v. Berkshire County Council [1964] 2 Q.B. 303. The issue in that case was whether a condition of a planning permission for which no reason had been stated was of no effect. The applicable statutory instrument stated that a local planning authority that granted permission subject to conditions “shall state their reasons in writing”. The Divisional Court of the Queen’s Bench Division held that a failure to state a reason did not nullify a condition. However, they reached that conclusion not by holding that the requirement of reasons was not mandatory, but by deciding that a failure to comply with the duty to give reasons did not nullify the condition. The judgment of the Court was given by Winn J:

Mr Elvin also relied upon the decision of the House of Lords in Attorney-General v. Parsons [1956] A.C. 421. The issue was whether the phrase “shall be forfeited” in s. 1(1) of the Mortmain and Charitable Uses Act 1888 meant that forfeiture would automatically result from the failure to obtain a licence -

In contrast to the statutory provisions considered in Attorney-General v. Parsons, in the present case there is no ambiguity, there is no contextual support for anything other than a mandatory provision, and, as will be seen, the background to and history of the 1961 Act do not support Mr Elvin’s submissions.

The judgment of the Court of Appeal in Re Turner’s Will Trusts [1937] Ch. 15 is the most helpful from Wandsworth’s point of view. The Court declined to construe section 31(1)(ii) of the Trustee Act 1925 as imposing an absolute duty on a trustee to pay income of trust property which was in conflict with the directory provisions of the trust deed. The provision in question was:

The Court noted that the 1925 Act merely consolidated reforms of two previous statutes. Romer L.J. said, at 26:

The authoritative statement of the circumstances in which the Court may depart from a clear and unambiguous meaning when construing a statute is to be found in Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231. Viscount Dilhorne, with whom the other members of the Appellate Committee agreed, said, at 234-5:

The last sentence of this citation is particularly pertinent. Lord Simon of Glaisdale was equally clear. He said, at 237:

In my judgment, the conditions set out by Lord Simon are not met in the present case. The most obviously absent is the last. Lord Scarman said, at 238:

Again, in my judgment the consequences of the application of the clear statutory words in the present case are not so absurd that one can see that Parliament must have made a drafting mistake. As has been seen, section 15 contains the phrase “it shall be assumed that” in a number of places. So does section 16. Section 14 also sets out a number of apparently mandatory requirements, such as that in subsection (5). These mandatory directions must have been given by Parliament quite deliberately. Furthermore, if section 15(3) is to be read as merely directory, in accordance with normal rules of statutory interpretation so must the same words elsewhere. This would defeat, not carry out, the legislative intention as expressed in the Act.

In my judgment there is no ambiguity in the word “shall”, or in the phrase “it shall be assumed that …” The assumption is mandatory. The phrase does not and cannot mean “it may be assumed that”. Moreover, if it could be read as “may”, one would have to read into the section the criteria or guidance to enable the compensating authority or the Tribunal to know when it is, and when it is not, to make the assumption in question. That would be to add to the statute words that are not there. It would be to legislate, not to interpret. Moreover, if the assumption is only to be made when it is supported by the facts, it ceases to be an assumption, and the express provision becomes otiose.

Section 14(2) refers to a planning permission “which is to be assumed in accordance with any of the provisions” of sections 15 and 16. If section 15(3) is to be read as permissive rather than mandatory, either that wording is inappropriate (because it has to be read as “Any planning permission which is to be or may be assumed …”) or it cannot be read as referring to the assumption referred to in that subsection. To my mind, the drafting of section 14(2) simply confirms that Parliament intended all of the assumptions to which it refers to be mandatory. The express exclusion of section 15 in section 14(3A)(b) also indicates that Parliament intended the section 15 assumptions to be mandatory.

The Tribunal’s judgment includes a comprehensive review of the history of what is now section 15(3)(a) of the Act. In my judgment, it would be unfortunate if those seeking to apply the clear words of Part II of the Act had to research its history in order correctly to construe and to apply it, and it is unnecessary for them to do so. The citizen should be able to understand the law as it is now enacted. For this reason, and because the accuracy of the Tribunal’s historical account is accepted by both sides and is publicly available on the Lands Tribunal website at http://www.landstribunal.gov.uk and on the BAILII website at http://www.bailii.org , I do not propose to set it out in this judgment. It is sufficient to note two matters. First, as the Tribunal pointed out at paragraph 14 of its decision, the purpose of the statutory provisions (contained in the Town and Country Planning Act 1947) from which the applicable provisions of the 1961 Act are descended was to exclude from nationalisation and to allow the owner to retain the development value of land to which the Third Schedule applied. The mandatory provisions were appropriate for that purpose. There has been no relevant change in the wording of the statutory provisions in question. Secondly, until 1988 the assumption required by section 15(3) of the 1961 Act was generally realistic, because General Development Orders gave permission for the rebuilding of war damaged buildings. That permission was not included in the 1988 Order. Thus, when it was passed, the 1961 Act would not have been regarded as creating an anomaly such that a departure from its clear words could have been justified. The meaning of the Act could not be changed by the change in the General Development Order.

Lastly, an assumed planning permission will only have a material affect on the value of land if it is capable of being implemented. The great majority of sites to which Paragraph 1 of Schedule 3 to the Town and Country Planning Act 1990 might apply (i.e. on which there was a “building which was in existence on 1st July 1948, or … any building) which was in existence before that date but was destroyed or demolished after 7th January 1937”, including war damaged buildings, have already been rebuilt. There must be very few sites on which there were buildings on or between 7 January 1937 and 1 July 1948 that are open spaces and on which there are no tree preservation orders or other restrictions preventing redevelopment. The number of anomalies created by the statutory provisions to which this appeal relates must therefore be small. Unfortunately for Wandsworth, this case concerns one of them. This factor too militates against a forced construction of those provisions.

For these reasons, in my judgment this appeal must be dismissed. This is a conclusion I feel compelled to reach, and I do so most reluctantly, as I hope the opening paragraphs of my judgment indicate. I respectfully endorse the recommendation of the Law Commission in its Final Report on Compensation for Compulsory Purchase, Law Com No. 286, at paragraph 8.39, that section 15(3) and (4) of the 1961 Act should be repealed without replacement.

I agree. The conclusion is inevitable given the wording of the Act. It is, however, for reasons given by Buxton LJ and Stanley Burnton LJ, a highly regrettable conclusion for the tax payers of the London Borough of Wandsworth. Those taxpayers, not, it seems, the Government in Whitehall, must now fund a payment of over 100 times the value of the land under legislation which should have been amended through the initiative of the relevant Department in Whitehall in accordance with the recommendations of the Law Commission and the observations of Lord Oliver to which Buxton LJ has referred. I too would hope that Parliamentary time could be found to effect an amendment at the earliest possible opportunity; any business case or cost benefit analysis would demonstrate that a very small amount of Parliamentary time and a very small cost in civil service time in the Department (which should have acted long ago) was all that was needed to avoid the risk that tax payers of other municipalities would have to fund windfall gains to developers which cannot, on any rational basis, be justified.

Like my Lord, I see no escape from the conclusion that he has reached. Like him, I find that outcome utterly deplorable.

The only sensible explanation for requiring the making of assumptions as to planning permission such as are collected in sections 14-16 of the Act is to ensure that persons whose land is purchased do not suffer by receiving compensation less than the potential but as yet unlocked value that the land would have once the relevant planning permission was granted. They cannot have been intended to increase the compensation over and above the value, actual or potential, that the land had before the compulsory purchase process was initiated: as is the effect of provisions relied on in the factual circumstances of the present case. But unfortunately Parliament has not stated that as the purpose of the sections, no doubt because it never occurred to anyone that it was necessary to do so. That being the case, we are obliged to apply the wording that Parliament has adopted, without adjusting it to an unspoken premise: with the result that the Tribunal and my Lord have so clearly demonstrated.

The recommendation of the Law Commission referred to by my Lord in his §36 might on one view have been seen as something of a tidying-up provision. The Law Commission was not faced with, and did not set out, the possibly dire consequences of this legislation, which are demonstrated in practice in this case. That may be why the recommendation has not been acted on. But another very weighty authority has also urged the review of these provisions. In Colley v Canterbury City Council (No 2) [1993] AC 401, where the provisions as to rebuilding did have practical effect, albeit in a different sense from that of the present case, Lord Oliver, speaking at p 409C for a unanimous House of Lords, described the provisions as an anachronistic relic, and urged their reconsideration. That was fifteen years ago. Lord Oliver’s call has not been heeded. This case shows that it must be heeded now. If the government is not prepared to act of its own motion, local authorities, who are faced with the unmeritorious deprivation of very scarce funds that occurred in this case, must exert political pressure to achieve the correction of the anomaly.