Tesco Stores Ltd v Secretary of State for Communities and Local Government

This claim under s.288 of the Town and Country Planning Act 1990 challenges the Secretary of State’s decision to dismiss the appeal of Tesco Stores Ltd (‘Tesco’) against the non-determination of planning permission by Liverpool City Council (‘LCC’) for a superstore and associated development at Great Homer Street, Liverpool.

Tesco’s application was made to LCC on 23^rd June 2008. By 18^th May 2009 LCC had not made a decision on it and Tesco exercised its right under s.78 of the 1990 Act to appeal to the Secretary of State. On 7^th July 2009, LCC resolved that, had it determined the application, it would have refused it. The Secretary of State appointed an Inspector who held an inquiry (including a site visit and an oral hearing). The Inspector issued his decision letter on 1^st December 2009 dismissing the appeal. This claim was issued on 11^th January 2010. At the hearing, submissions were made on behalf of Tesco, the Secretary of State and LCC, as an interested party.

Tesco’s application related to a site which is in the northern part of Liverpool to the west of Great Homer Street and to the east of Scotland Road. It is about 5.5 hectares. It includes the St. Anthony’s shopping centre, an area of industrial units, some vacant units, an indoor market and a large surface car park. Tesco’s scheme would have involved the demolition of some of the existing buildings, the erection of an A1 superstore with associated car parking, petrol filling station, service yard, landscaping and ancillary works, together with the construction of one indoor and one outdoor market.

This area of Liverpool suffers from a high level of deprivation. In the 2000 Index of Multiple Deprivation, Everton Ward (which includes the site) was ranked 4^th worst out of 8414 wards nationally. On the opposite side of Great Homer Street from the site (i.e. on the east side of Great Homer Street) is a Local Centre. As well as retail space, this includes a library, a dentist and fast food outlets. This Local Centre has deteriorated over recent years, with the lowest amount of occupied A1 retail floor space of any centre in Liverpool. All parties to the inquiry agreed that the physical environment was poor and there was a significant and urgent need for environmental improvement. It is not surprising in these circumstances that the Inspector said that he gave considerable weight to the need to redevelop the wider area in a way which promotes a sustainable mixed community. Indeed he identified the one main issue in the case as the effect of the Tesco proposal on the comprehensive treatment of the Great Homer Street area.

The need for this area to be revitalised is well recognised. It led to an initiative known as ‘Project Jennifer’ which was intended to transform the Local Centre into a new District Centre for the area. In 2004 LCC appointed St. Modwen’s Developments Ltd (‘St. Modwen’) as its development partner in this regard. A Master Development Agreement was reached between LCC and St. Modwen in 2005 and outline planning permission was granted to St. Modwen in 2007. A modification to one of the conditions was made in January 2009. Like the Tesco proposal, the St. Modwen plan was for a superstore (both envisaged a store on ‘stilts’ and so primarily at first floor level), a car park, petrol filling station, open and closed market. However, the St Modwen plan also included community facilities, leisure use, residential development and light industrial units. In addition, whereas the Tesco proposal was confined to the western side of Great Homer Street, the St. Modwen plan extended to the eastern side of that Street and embraced the current Local Centre. It also included a proposed purpose built community building to house the Primary Care Trust which would be on the western side of Great Homer Street but to the South of the site where St. Modwen (and Tesco) planned their superstores. At one time, Tesco had negotiated with St Modwen to provide the superstore as part of their plan. Those discussions did not, however, bear fruit. Subsequently, St. Modwen did reach agreement with Sainsburys.

Some of the land within the area which Tesco proposed to develop was already owned by them but a significant portion was owned by LCC. Still other plots were owned or leased by third parties.

Any decision on an application for planning permission has to be in accordance with the development plan unless material considerations require otherwise – see Planning and Compulsory Purchase Act 2004 s.38(6). The Regional Spatial Strategy (‘RSS’) in this case supported retail investment where it promotes regeneration and economic growth. Investment should be consistent with the scale and function of a particular centre and should not undermine the vitality and viability of any other centre. The Liverpool Unitary Development Plan identified Great Homer Street as a Local Centre in retail terms. The parties to the Inquiry agreed that the scale of the proposed development was excessive if the bench mark was the current Local Centre. The current UDP did not envisage Great Homer Street being upgraded to a District Centre, but the parties agreed that this was in the process of reconsideration. A study in 2003 (adopted in 2005) recommended that Great Homer Street should become a District Centre. This was to address a perceived shortfall in modern retail space and to encourage the transformation of the area which in turn, it was hoped, would act as a catalyst for wider regeneration. The Council’s intention was to bring about this change, but, as the Inspector noted, the process still had some way to go, the suggested upgrading to a District Centre remained a draft policy, although one to which some weight should be given.

As I have said, the Inspector gave considerable weight to the need to redevelop the wider area (that is wider than the land which was the immediate subject of the Tesco application). Although it was not his task to judge the St Modwen plan (it already had outline planning permission), its existence was relevant if it still constituted a viable means of achieving that wider redevelopment within a reasonable timescale. Tesco questioned whether it was still viable. Another third party (the Rotunda House Group) had described the whole of Project Jennifer as stalled and discredited. The Inspector rejected these criticisms. He said that, although there was no absolute guarantee of the delivery or the timescale of the St Modwen development, there were a number of factors which, even in the current poor economic climate, gave a reasonable degree of certainty that the first phase of the St Modwen development would proceed.

The Inspector then turned to what he considered to be the main issue in the Inquiry: whether the Tesco scheme would prejudice the comprehensive treatment of the area.

All the parties were agreed that a superstore was the key element of any wider regeneration project. It was the only viable part of the overall Project Jennifer in terms of producing profit and revenue. A superstore would conflict with the current development plan because of its scale, its impact on the Local Centre and the loss of existing employment floor space. Nonetheless, LCC saw it as consistent with the emerging revision to its local development plan and indispensable if wider regeneration was to be achieved. Thus it was not the principle of a superstore that divided the parties but whether the Tesco application which was essentially for just a superstore (together with indoor/outdoor markets) would prejudice the prospect for wider regeneration.

The predicted effect of a superstore on the existing Local Centre was likely to be dramatic. It was estimated that 99% of its convenience trade would be lost. This would not be unusual and is one reason why national policy does not favour locating large scale new developments near existing Local Centres. The LCC nonetheless explained its support for the St Modwen proposal (which included a similar superstore) because the totality of phase 1 of that scheme would amount to a District Centre. It was therefore consistent with its emerging local development plan that the area should be upgraded from a Local to a District Centre. By contrast, the Inspector found that the Tesco application for a superstore, indoor and outdoor markets would not, on their own, comprise a District Centre. Later in his report the Inspector returned to the question of whether the Tesco development would stimulate other development.

Before doing so, however, he considered the question of delay. Since his reasoning in this regard is the subject matter of the first challenge to his decision, I should set it out in full. He said,

The Inspector then considered more closely the precise location of the site of the Tesco proposal. He concluded that the Tesco plan would be more likely to inhibit than encourage development in the surrounding areas. Retained industrial units along Scotland Road would divorce the site visually and functionally from that important traffic artery. The proposed indoor and outdoor markets along the west side of Great Homer Street would act as a significant barrier to movement further eastwards. The appeal scheme did not include any development on the eastern side of Great Homer Street (unlike the St Modwen plan). There would be no particular attractor to pull people over to that side of the street. Overall, the Inspector considered that the appeal proposal would be isolated from its surroundings and would not produce the wider regeneration benefits which were urgently needed. It would not be well integrated with its surroundings and for this reason would conflict with the local development plan.

The Inspector acknowledged that the development of a superstore and markets would upgrade the perception of the area and might over time lead to other proposals coming forward, but this possible catalytic effect, he thought, fell well short of meeting the legitimate aims of the Council and local people about the timely delivery of development to upgrade the area.

Tesco argued that there was another route by which further development could take place. LCC owned a significant proportion of the land on the appeal site. It was implacably opposed to a development which was limited to the superstore and markets which Tesco proposed. It could refuse to sell its land to Tesco unless the latter undertook to support the wider development which was thought to be so important. In this way (possibly incorporated into a development agreement) LCC could achieve the broader regeneration of the area. The Inspector’s response to these arguments is the source of Tesco’s second challenge to his decision. He said,

A further argument advanced by LCC was that the simple grant of planning permission to Tesco would have a negative effect on the St Modwen plan. LCC submitted that the land which Tesco owned on its appeal site would increase in value because of the grant of planning permission. The higher price which St Modwen would then have to pay for that land if it wanted to pursue its plan would mean that its scheme was no longer financially viable. The Inspector was not persuaded by this argument because of a lack of evidence as to precisely what effect the grant of planning permission would have on land values or the viability of the St Modwen scheme.

The Inspector expressed his conclusion on the main issue in this way:

Finally the Inspector considered a number of miscellaneous matters. These included an offer by Tesco to provide £1.1 million to be directed at a range of projects together with £50,000 to fund a study as to how this money should be best spent. However, Tesco accepted that these sums would only fund part of the facilities referred to in the proposed obligation. There was no clear linkage between the development and the suggested facilities. The Inspector gave the offer only limited weight.

Mr Warren, on the Claimant’s behalf, submits that the Inspector has erred in law in three respects. I will consider these in turn.

Mr Warren argued that the Inspector’s comments on the delay which would be occasioned by the Tesco scheme in paragraphs 45-47 and paragraph 67 were irrational or inadequately reasoned. The Inspector could not have had in mind the effect of the grant of planning permission itself (as opposed to actual development according to the permission). He had previously decided that LCC, Sainsbury and St Modwen were committed to their plan and there was a reasonable chance that it would come about. The Inspector also rejected the contention that the mere grant of planning permission to Tesco would so increase the value of its land holdings in the appeal site that the St Modwen plan would be jeopardised. On the other hand, the Inspector’s comments about additional delay were irrational if he had in mind the development itself. The Tesco development and the St Modwen plan were mutually exclusive. If the Inspector was considering the scenario of the Tesco development going ahead, it could only be on the premise that the St Modwen plan had dropped out of the picture. But if that was part of the premise, it made no sense for the Inspector to speak of additionaldelay in bringing about the Tesco development as a matter which weighed against the Tesco scheme. Some extra time would be needed to go through the process of tendering and negotiation of land purchases/compulsory purchase and possibly a development agreement with LCC. As the Inspector recorded, it was agreed that these processes would take some further time (between 2 – 4 years), but the Inspector ought to have treated this as a neutral factor. If it was part of the necessary premise for this scenario that the Tesco scheme was the only game in town, it made no sense to compare the time it would take to be achieved with an alternative scheme which, for these purposes, ought to have been ignored.

I agree with Mr Warren that the Inspector cannot at this part of his report have been considering the effect of the grant of planning permission itself (although Mr Warren’s written submissions suggested that this was what the Inspector had had in mind and criticised him for it). The additional delay to which the Inspector refers in paragraph 67 is a reference back to paragraphs 45 and 46. The extra period of 2 - 4 years is explained by the need (to some extent at least) that there would be to re-tender, re-negotiate and assemble the land. These are all features of actual development, not merely the grant of planning permission. I also agree with Mr Warren, that this extra period was premised on an assumption that St Modwen’s abandoned their plan. The Inspector says so in terms at the beginning of his paragraph 45.

However, where I disagree with Mr Warren is his conclusion that it was then irrational for the Inspector to compare the time for the Tesco plan to be realised with the time that it would take St Modwen’s plan to be developed. It might be different if the Tesco proposal was actually (as opposed to part of a hypothetical exercise) the only game in town. But it was not. The Inspector found that there was a reasonable degree of certainty that the first phase of St Modwen would proceed. In those circumstances, there was no objection to his use of the St Modwen proposal as a bench mark in terms of how long or how quickly regeneration could be achieved. In addition, the Inspector found that the need for redevelopment of the wider area was urgent. It was a point which he made repeatedly. In those circumstances, in my judgment, he was entitled to take into account that the working out of the Tesco scheme would take some additional time over and above that which would be necessary for the St Modwen scheme. He was also entitled to regard that additional delay as a negative factor which counted against the grant of planning permission to Tesco.

Mr Warren argues that the Inspector could not rationally have concluded that there was a very real risk that the Tesco scheme would end up as a stand alone superstore. He submits that this is to ignore (a) the Council’s firm view that this was undesirable and (b) its ability effectively to veto a development which might otherwise have this effect because of its ownership of a significant part of the land comprising the appeal site.

Mr Ponter for the Secretary of State and Mr Tucker QC for LCC disagree. They observe that before St Modwen was granted outline planning permission, it had entered into a development agreement that committed it to proceeding with all of the elements of phase one of the project. That same agreement precluded LCC currently from entering into anything similar with Tesco, but Tesco were not even offering to enter into any particular agreement. Nor had Tesco offered to commit itself to a s.106 agreement that was of sufficient breadth. The nearest offer it had made was the unilateral planning obligation for £1.1 million and to fund a study to the extent of £50,000, both of which the Inspector found to be inadequate. So far as wider development and regeneration were concerned, Tesco did anticipate a negotiation with LCC as the owner of parts of the site, however, Tesco’s representative had said that these would be arm’s length negotiations. The Inspector was entitled to comment at paragraph 59 ‘These would be commercial negotiations, and the outcome is entirely unknown at this time. The applicant has said that the Council would not allow the appeal scheme to go ahead without capturing its value for cross-subsidy in some way. However that is entirely uncertain at present and there is no mechanism in place, or even suggested to ensure that this happens.’

Mr Warren submits that the Inspector could not rationally say that there was ‘no mechanism in place, or even suggested’ when it was clearly suggested that the mechanism would be negotiation over sale of the Council’s interest in the land that Tesco would have to purchase if the scheme was to go ahead. In my judgment, this criticism is misplaced. The Inspector was, of course, aware of the need for such negotiations. He refers to them in the very same paragraph. But he was entitled to say that neither these, nor any suggested mechanism could ensure that the value of the superstore was captured to provide some form of cross subsidy.

Mr Warren says that LCC’s land ownership would put it in a strong bargaining position with Tesco and allow it to insist that it would not sell unless Tesco agreed to fund the wider redevelopment. In my judgment, though, the Inspector was entitled to conclude that that would not necessarily be so. Currently, LCC was committed to the St Modwen scheme and so no negotiations with Tesco were likely. They would only take place if, for some reason the St Modwen scheme fell through. Then LCC’s bargaining position would then be much weaker and it might feel compelled to sell its land interest so as to obtain at least such price as Tesco was prepared to pay and a superstore for this deprived area even if Tesco offered little, if anything, by way of wider regeneration as well. I also bear in mind that the Inspector’s comment that there was a very real risk that the development would end up as a stand alone superstore and markets came in a paragraph which began by recalling that the appeal proposal would be isolated from its surroundings. This allusion back to his earlier comments about the location of the site of the Tesco application was a further reason why the Inspector was entitled to come to his conclusion. I reject Mr Warren’s submission that the Inspector’s decision in this regard was irrational or insufficiently reasoned.

Mr Warren argues that it was unlawful for the Inspector to hold against the Tesco proposal that it conflicted with the extant retail policy of the Council. While that was the case, all parties before the Inquiry agreed that the policy needed to, and would, be changed so that what was currently a Local Centre would be upgraded to a District Centre.

I disagree. Section 38(6) of the 2004 Act obliged the Inspector to have regard to the development plan of which the retail policy was part. The Inspector acknowledged that the plan was in the process of revision. He said (accurately) that the proposal to upgrade the Local Centre to a District Centre was only a draft policy, but he added (appropriately) that the draft policy was a matter to which some weight can be attached. In these circumstances, the Inspector not only could, but had to, measure the proposal against the existing policy. Consistently with his earlier comment and with s.38(6), he did not stop there. He also considered the application against the draft policy. The difficulty for Tesco was that their application failed on both scores. It conflicted with the present policy because it constituted development of inappropriate scale next to a Local Centre. It failed to accord with the draft policy because it was not itself a District Centre. Its location meant that it was not likely to act as a catalyst for further development. For the reasons already given, it was wholly uncertain whether LCC would be able to negotiate for Tesco to fund wider development through LCC’s position as owner of some of the land in the application site.

I have rejected all of the Claimant’s challenges to the Inspector’s decision. Consequently, this application is dismissed.