Waters & Ors v Welsh Development Agency [2004] UKHL 19 (29 April 2004)

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United Kingdom House of Lords Decisions

You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Waters & Ors v Welsh Development Agency [2004] UKHL 19 (29 April 2004)
URL: http://www.bailii.org/uk/cases/UKHL/2004/19.html
Cite as: [2004] RVR 153, [2004] 1 WLR 1304, [2004] WLR 1304, [2004] 19 EGCS 165, [2004] UKHL 19, [2004] NPC 68, [2004] 2 All ER 915

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Judgments - Waters and others (Appellants) v. Welsh Development Agency (Respondents)

HOUSE OF LORDS

SESSION 2003-04
[2004] UKHL 19
on appeal from: [2002] EWCA Civ 924

OPINIONS

OF THE LORDS OF APPEAL

FOR JUDGMENT IN THE CAUSE

Waters and others (Appellants)

Welsh Development Agency (Respondents)

THURSDAY 29 APRIL 2004

The Appellate Committee comprised:

Lord Nicholls of Birkenhead

Lord Woolf

Lord Steyn

Lord Scott of Foscote

Lord Brown of Eaton-under-Heywood

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Waters and others (Appellants) v. Welsh Development Agency (Respondents)

[2004] UKHL 19

LORD NICHOLLS OF BIRKENHEAD

My Lords,

Compulsory purchase of property is an essential tool in a modern democratic society. It facilitates planned and orderly development. Hand in hand with the power to acquire land without the owner's consent is an obligation to pay full and fair compensation. That is axiomatic: Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111, 125.

Unhappily the law in this country on this important subject is fraught with complexity and obscurity. To understand the present state of the law it is necessary to go back 150 years to the Lands Clauses Consolidation Act 1845. From there a path must be traced, not always easily, through piecemeal development of the law by judicial exposition and statutory provision. Some of the more recent statutory provisions defy ready comprehension. Difficulties and uncertainties abound. One of the most intractable problems concerns the 'Pointe Gourde principle' or, as it is sometimes known, the 'no scheme rule'. On this appeal your Lordships' House has the daunting task of considering the content and application of this principle.

In the Court of Appeal [2002] EWCA 924, [2003] 4 All ER 384, 414, para 116, Carnwath LJ, a judge with unrivalled expertise in this field, was moved to say at the conclusion of his impressive judgment:

I echo Carnwath LJ's views. Meanwhile, until Parliament takes action I suggest your Lordships' House, so far as it may properly do so, should seek to simplify the law, always having in mind that the aim of compensation is to provide a fair financial equivalent for the land taken.

The appeal

This appeal concerns the basis on which compensation should be assessed for the compulsory acquisition of 225 acres of land belonging to the claimants. The land consists of low-lying farm land adjacent to the Severn estuary near Newport, Gwent.

The background to the acquisition was the construction of the barrage across the mouth of Cardiff Bay, undertaken pursuant to the Cardiff Bay Barrage Act 1993. The project was under active consideration for many years before then. It received governmental support in November 1985. In 1987 the Cardiff Bay area became an urban development area under the Local Government, Planning and Land Act 1980. The Cardiff Bay Development Corporation was established as an urban development corporation for the purpose of regenerating this development area. The corporation was empowered by the Cardiff Bay Barrage Act 1993 to carry out the barrage works.

The gestation period of the project was prolonged by problems. There were several abortive attempts to promote a parliamentary Bill. One item of controversy concerned the effect the barrage scheme would have on inter-tidal mudflats in the Taff/Ely estuary designated as a site of special scientific interest. The permanent inundation of Cardiff Bay would destroy these mudflats. The Nature Conservancy Council, succeeded later by the Countryside Council for Wales, vigorously opposed the project from the outset. So did the Royal Society for the Protection of Birds. The proposals would involve an unacceptable loss of nationally important bird habitats. The European Commission also exerted pressure. The new barrage would be incompatible with this country's obligations under E C Council Directives regarding the conservation of wild birds and their habitats.

Ultimately work on the barrage started in June 1994. The project proceeded on governmental assurances that compensatory provision would be made by creating suitable new wetland habitats. Several possible sites alongside the Severn estuary were considered and rejected. In January 1996 the Secretary of State for Wales announced the proposal for the Gwent Levels Wetland Reserve. This would be developed so that within five years it would qualify for Special Protection Area status. The site of this reserve, comprising 1000 acres, would be about ten miles up the coast from the Cardiff Bay barrage. It included the claimants' land.

In 1997 Land Authority for Wales used its statutory powers to acquire this site compulsorily, under the Land Authority for Wales (Gwent Levels Wetlands Reserve, Newport) Compulsory Purchase Order 1997. The Cardiff Bay Development Corporation provided the money needed for the acquisition. The claimants' land, along with other land, was vested in Land Authority for Wales on 25 February 1998, which is the valuation date. Land Authority for Wales thereupon transferred the land to the Cardiff Bay Development Corporation which, in turn, vested the site in the Countryside Council for Wales. Welsh Development Agency, the respondent to this appeal, is the successor to Land Authority for Wales under the provisions of the Government of Wales Act 1998. The history of the project is more fully set out in the judgment of the Court of Appeal: [2003] 4 All ER 384, 387-391, and in the decision of the Lands Tribunal [2001] 1 EGLR 185. The further detail is not material on this appeal. The dispute between the parties is primarily one of legal principle.

Detailed valuation evidence has not yet been submitted to the Lands Tribunal. The claimants put forward three different measures of valuation of the subject land. (1) Agricultural value, said by them to be £4,500 per acre at the relevant date. (2) Value as a nature reserve, said by the claimants to be £13,000 per acre. (3) A measure said by the claimants to comprise the 'particular value' of the land 'consequent upon its indispensable status vis-à-vis the Cardiff Development Scheme'. The President of the Lands Tribunal, Mr George Bartlett QC, described this measure of value as 'ransom value'. The claimants estimate that, valued on this basis, their land was worth £28,000 per acre.

There is no dispute over measures (1) and (2). In principle the claimants are entitled to the higher of these two measures of value, which ever that may prove to be. The Land Compensation Act 1961 allows a claimant the benefit of an actual or assumed permission for the authority's proposed development: sections 14(1), (2) and 15(1). The dispute is over measure (3). The issue is whether the claimants are entitled to compensation based on the increased value their land is said to have possessed because of its important ('indispensable') role as part of the compensatory wetlands provision required by the Cardiff Bay barrage project.

Faced with this dispute the Lands Tribunal, on the application of the claimants, considered two preliminary issues:

Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands

[1947] AC 565

The President answered the first issue in favour of the claimants. Rule 3 does not apply in this case. The subject land has no special suitability or adaptability for the purpose of providing a nature reserve to compensate for the loss of the Taff/Ely SSSI. The President answered the second issue in favour of the acquiring authority. The subject land must be valued leaving out of account any effect on value of the adoption or implementation of the proposal to provide land for the development of a nature reserve to compensate for the loss of the Taff/Ely SSSI through the construction and impoundment of water by the Cardiff Bay barrage. The President added that the scheme underlying the acquisition was the Cardiff Bay barrage although, on his reasoning, this was not an issue which needed to be resolved.

The claimants appealed. The acquiring authority did not appeal against the President's decision on the first preliminary issue. The Court of Appeal, comprising Schiemann, Laws and Carnwath LJJ, dismissed the appeal.

'Value' in the Lands Clauses Consolidation Act 1845

The Lands Clauses Consolidation Act 1845 used the undefined expression 'value' as the yardstick for compensation. When assessing the amount of compensation regard should be had to the value of the land being taken: section 63. The Act did not enlarge on what was meant by 'value' in this context. On the face of the statute nothing could be simpler or fairer. In exchange for his land the owner should receive its financial equivalent. The financial equivalent, at least ordinarily, is the price obtainable by the owner if he had himself sold the land at the relevant time. In other words, the value of land is the price the owner could reasonably expect if he had sold the land in the open market.

Implicit in this 'open market value' approach is the notion that, in the customary jargon, the owner would be a willing seller and the purchaser a willing buyer. Compensation would be assessed by reference to the price a willing seller might reasonably expect to obtain from a willing buyer. The seller should not be regarded as disinclined to sell, nor should the buyer be regarded as under any urgent necessity to buy, to adapt the words of Lord Romer in Raja Vyricherla Narayana Gajapathiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302, 312.

On an arm's length sale in the open market a seller would normally expect to realise any enhanced value possessed by the land because its location makes it specially valuable to a particular buyer or class of buyers. The land might have particular attraction, and therefore value, to an adjoining landowner. Or the land might be particularly adaptable for a certain purpose. Illustrations in the 19th century cases include use as a reservoir or use as part of the route for a railway line. Examples today would include development for housing or as a light industrial estate. A willing seller could reasonably expect to benefit from these characteristics of the land if he were to sell it to an adjoining landowner or a water undertaking or a railway company or a developer. The special suitability, or adaptability, of the land for this or that purpose is part of its market value. Thus a house, worth £750 as a house but £1,000 as an annex to an adjoining nursing home, has a market value of £1,000: Inland Revenue Commissioners v Clay [1914] 3 KB 466.

In principle, subject to one qualification, this approach is equally applicable when assessing value for the purposes of compensation. It is this qualification which has given rise to difficulty. The qualification is that enhancement in the value of the land attributable solely to the particular purpose for which it is being compulsorily acquired, and an acquiring authority's pressing need of the land for that purpose, are to be disregarded. If statute authorises an authority to acquire some ancient graveyards in the City of London and use the land for new buildings and a new street from Blackfriars to the Mansion House, the increased value the land will have when applied to these more profitable secular purposes should be left out of account. This is implicit in the yardstick of 'value' in the Lands Clauses Consolidation Act 1845. When granting a power to acquire land compulsorily for a particular purpose Parliament cannot have intended thereby to increase the value of the subject land. Parliament cannot have intended that the acquiring authority should pay as compensation a larger amount than the owner could reasonably have obtained for his land in the absence of the power. For the same reason there should also be disregarded the 'special want' of an acquiring authority for a particular site which arises from the authority having been authorised to acquire it.

This approach is encapsulated in the time-hallowed pithy, if imprecise, phrase that value in this context means value to the owner, not value to the purchaser. In Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37, 42, the graveyards case, Cockburn CJ said:

Another early application of this principle concerned the acquisition of land bounding Thirlmere in the Lake District for use as a reservoir to supply water to Manchester: Countess of Ossalinsky v Manchester Corporation (1883), reported in Browne and Allan's 'Law of Compensation' (2nd ed, 1903), p 659. The prospect that the land, because of its particular characteristics, would be likely to be developed as a reservoir was a matter which might give the land an enhanced value. That should be taken into account. The particular purpose to which the Manchester Corporation was going to put the land should not be taken into account. But the fact of the acquisition of the land for this particular purpose might have evidential value showing that suggested alternative reservoir development schemes 'are not visionary, but are schemes with a certain probability in them': see Grove J at page 662.

Drawing a distinction between value to the owner and value to the purchaser makes it necessary to distinguish the one from the other. It is necessary to separate from the market value of land any enhancement in value attributable solely to the presence of the acquiring authority in the market as a purchaser of the land in exercise of its statutory powers. It is important to recognise that, for this purpose, it is not the existence of a power of compulsory acquisition which increases the value of land. What is relevant, because this may affect the value of the land, is the use the acquiring authority proposes to make of the land it is acquiring. Accordingly, in identifying any enhanced value which must be disregarded it is always necessary to look beyond the mere existence of the power of compulsory purchase. It is necessary to identify the use proposed to be made of the land under the scheme for which the land is being taken. Hence the introduction of the concept of the 'scheme' or equivalent expressions such as project or undertaking.

Thus in In re Gough and Aspatria, Silloth and District Joint Water Board [1903] 1 KB 574, 576, another reservoir case, Wright J said that if the site had 'peculiar natural advantages' for the supply of water that could be taken into account, but 'there is no value for which compensation ought to be given on this head if the value is created or enhanced simply by the Act or by the scheme of the promoters' (emphasis added). This passage was cited with approval by Lord Alverstone CJ in the Court of Appeal: [1904] 1 KB 417, 422-423.

To the same effect are the well known observations of Fletcher Moulton LJ in In re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16, 29-30. He observed that the value to the owner, as distinct from the value to the purchaser, is 'to be estimated as it stood before the grant of the compulsory powers'. He continued:

before the scheme was authorized by which they are put to public uses

Fletcher Moulton LJ, at p 31, carried this principle further. Where the special adaptability of land gives the land a special value which exists only for a particular purchaser with compulsory powers, that value cannot be taken into consideration when fixing the price. It is otherwise where the special value exists also for other possible purchasers so as to create a real though limited market for that special value.

In Cedars Rapids Manufacturing and Power Co v Lacoste [1914] AC 569, a case concerning a power generation scheme on the St Lawrence River, the opinion of the Board was given by Lord Dunedin. He emphasised, at pp 576-577, that value does not mean the value of 'the realized undertaking as it exists in the hands of the undertaker'. It means the price possible undertakers would give. This should be tested by the imaginary market which would have ruled if the land had been exposed for sale 'before any undertakers had secured the powers, or acquired the other subjects which made the undertaking as a whole a realized possibility'.

The Acquisition of Land (Assessment of Compensation) Act 1919

The 'value to the owner' judicial interpretation of 'value' in the Lands Clauses Consolidation Act 1845 might have been expected to limit the amount of awards. But by 1918 it had become notorious that the compensation paid for the acquisition of property for public purposes was in many cases excessive. That was the view of the Scott Committee in its 2nd report on the Law and Practice relating to the Acquisition and Valuation of Land for Public Purposes (Cd 9229). The committee identified several causes, including the absence of any definition of value in the Lands Clauses Consolidation Act 1845. In its report the committee made recommendations aimed at reducing the amounts awarded. These included recommendations that the customary allowance added to the price of the land should be abolished, and that the standard of value to be paid to the owner should explicitly be stated as the market value of the land as between a willing seller and a willing buyer.

The Acquisition of Land (Assessment of Compensation) Act 1919 gave effect to these recommendations in rules 1 and 2 of section 2. Rule 2 provided that the value of land should be taken to be the amount which 'the land if sold in the open market by a willing seller might be expected to realise'. This reversed 'the old sympathetic hypothesis of the unwilling seller and the willing buyer which underlay judicial interpretation of the Act of 1845': see Scott LJ in Horn v Sunderland Corporation [1941] 2 KB 26, 40. Rules 1 and 2 in section 5 of the Land Compensation Act 1961 are to the same effect.

The Scott Committee also considered the principle that in assessing compensation the special adaptability of the land for a particular purpose could be taken into account, even where that was the very purpose for which the land was being acquired, provided its adaptability was such as to render it available for sale to persons other than the promoters. The committee was of the opinion that this should not be so in respect of potential competition between statutory undertakers. This recommendation led to rule 3 in section 5 of the 1919 Act. As enacted this rule appears to have been legislative affirmation of the approach adopted on this point by Fletcher Moulton LJ in In re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16, 31. Rule 3 also reversed, for compensation purposes, the effect of the decision in Inland Revenue Commissioners v Clay [1914] 3 KB 466. In its present form the successor rule, rule 3 in section 5 of the Land Compensation Act 1961, provides:

The Indian case

Fletcher Moulton LJ's enunciation of the 'value to the owner' principle is capable of working hardly where the only person likely to develop a valuable feature of the subject land is an authority with compulsory powers. In Vyricherla Narayana v Revenue Divisional Officer, Vizagapatam [1939] AC 302 the Privy Council rejected this rigorous application of the principle. This case, normally known by the shorthand title of the 'Indian case', concerned land adjoining a harbour at Vizagapatam which at that time was malarial. The land contained a spring of clean water. The only potential purchaser of the special adaptability of the land as a water supply was the harbour authority. The High Court valued the land as partly waste and partly cultivated.

The Privy Council disagreed. Lord Romer delivered the advice of the Board. In a carefully reasoned judgment he said that the value to be ascertained is not the price a 'driven' buyer would pay to an unwilling seller. Nor should the price be enhanced by the fact that compulsory powers have been obtained for carrying into effect a particular scheme for the profitable use of the subject land's potentiality. The valuation must always be made as though no such powers had been obtained. But the possibility that the acquiring authority, as a willing buyer in a friendly negotiation, might be willing to pay more for land with its potentiality than without was not to be disregarded. That would not be to allow the existence of the scheme to enhance the value of the land. Lord Romer continued [1939] AC 302, 323:

Their Lordships disapproved of the contrary observations of Fletcher Moulton LJ in the Lucas case [1909] 1 KB 16, 31.

Lord Romer's exposition of this aspect of the 'value to the owner' principle is persuasive. It yields a result which, in a broad sense, is fairer than the more rigorous approach of Fletcher Moulton LJ. The resultant compensation, which takes potentiality into account in all cases, approximates more closely to the price an owner could reasonably expect if the property were sold in the open market between a willing seller and a willing buyer. Compulsory purchase is intended to reflect a voluntary sale. Rule 2 so provides. So far as possible the assessment of compensation should reflect what would be likely to happen if the property were actually sold at the relevant date.

In one passage in his judgment, on which the claimants in the present appeal relied, Lord Romer said, at pages 319-320:

if by "scheme" is meant the fact that compulsory powers of acquisition have been obtained

This passage is open to the interpretation that in valuing the subject land the particular use proposed to be made of the land by the acquiring authority can be taken into account. All that has to be disregarded is the 'scheme', meaning thereby the bare fact that compulsory powers have been obtained for that purpose.

It may be that, as applied to the facts of the Indian case, this narrow interpretation of 'scheme' was unremarkable: see Carnwath LJ's suggested explanation in the present case [2003] 4 All ER 384, 410, para 92. Certainly, if applied generally, this narrow interpretation would be at odds with the law as well settled before the Indian case and as applied ever since. If applied generally, this interpretation would empty the 'value to the owner' principle of much of its content as traditionally understood and applied.

I do not think Lord Romer can have so intended. That is not how his observations have been understood. In practice, this aspect of the Indian case seems to have been left largely on one side by the higher courts of this country. Potentiality is part of the market value of land and must be taken into account when assessing compensation. Potentiality should be valued even if the only likely purchaser is the acquiring authority itself. That was decided in the Indian case. But market value does not include enhanced value attributable solely to the particular use proposed to be made of the land under a scheme of which compulsory acquisition of the subject land is an integral part. This element of value is not part of market value because it is not an element the owner could have realised in the open market. That is the traditional view, which has long been acted upon in this country. It is much too late now for judicial interpretation to set the law on an altogether different course, even if that were otherwise appropriate. Potentiality is to be assessed and valued as matters stood before the particular scheme, of which the subject land's acquisition is part, came into being.

In one case the Court of Appeal expressly applied Lord Romer's 'friendly negotiation' approach: Lambe v Secretary of State for War [1955] 2 QB 612. As applied in that case this approach was not at odds with the traditional understanding. There the acquiring authority was the sitting tenant and the compulsory purchase order related to the freehold reversion. The Court of Appeal rightly held that rule 3 was inapplicable. The marriage value which a reversion has for a sitting tenant does not clothe the land with a special suitability within that rule. The court decided that the correct measure of value was the price the acquiring authority, in the course of Lord Romer's friendly negotiation, would have been willing to pay for the reversion if it had no compulsory powers. This included the marriage value. In my view this decision was correct. Any other result would have been most unfair. A freehold reversion is invariably worth more to the sitting tenant. Why should the landlord be paid less because the tenant acquires the reversion in the exercise of statutory powers?

One further point calls for mention. The legislation under consideration in the Indian case contained no equivalent of rule 3. Rule 3 is expressed in absolute terms which appear to leave no room for taking into account a potential use of the land where the acquiring authority is the only person who could turn this potentiality into an actuality. In this regard rule 3 is more restrictive of compensation than the 'value to the owner' principle as clarified on this point by the decision of the Privy Council in the Indian case.

Over the years the courts have interpreted rule 3 narrowly. In an illuminating report the Law Commission said that in practice rule 3 appears to have little remaining purpose. It has effectively become redundant: see 'Towards a Compulsory Purchase Code: (1) Compensation' (2003) (Law Com No 286, Cm 6071), paras D 94, D 131, pp 203, 216. Some of the court decisions restricting the scope of rule 3 are open to criticism. But, like my noble and learned friend Lord Brown of Eaton-under-Heywood, I would let them be. They do not seem to give rise to difficulties in practice. Where rule 3 is not applied the 'value to the owner' principle operates. Essentially this is a sound basic principle, although in recent years some difficulties have arisen. Subject to statutory provision to the contrary it should continue to be applied generally.

The Pointe Gourde case

The 'value to the owner' principle, as discussed so far, concerns cases where the value of the subject land is enhanced by the acquiring authority's proposed use of that land. But it would be artificial to confine the scope of the principle to such cases. It would be irrational to exclude cases where the value of the subject land is enhanced by the authority's use or proposed use of other land which is being acquired as an integral part of a single scheme. If a hydro-electric project comprises construction of a reservoir upstream and use of the river falls downstream, it would be extraordinary if the compensation payable for the river falls were inflated by the construction of the reservoir. If the subject land were to comprise both the river falls and the reservoir site, the 'value to the owner' principle would exclude the increased value attributable to both limbs of the project. That should equally be so if the reservoir site and the river falls, both acquired compulsorily, happen to be in separate ownership.

The courts, rightly, have regarded this wider application of the 'value to the owner' principle as a self-evident aspect of the same principle. The 'value to the owner' principle is apt to embrace enhanced value arising from the proposed use of the subject land and also enhanced value arising from the use made or proposed to be made of other land also being acquired. The Pointe Gourde case concerned enhanced value arising from the proposed use of other land. But, not surprisingly, Lord MacDermott's much quoted observation in the Pointe Gourde case refers to the applicable principle in terms covering both sources of enhanced value. Lord MacDermott said, in quite general terms, that 'compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition': Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, 572.

In consequence, the phrase 'the Pointe Gourde principle' is often used as a compendious reference covering both types of cases. This can be confusing. It is important to keep in mind that, despite its late arrival on the scene, the expression 'the Pointe Gourde principle' is not a reference to a principle separate and distinct from the 'value to the owner' principle. It is no more than the name given to one aspect of the long established 'value to the owner' principle. In Rugby Joint Water Board v Foottit [1973] AC 202, 213, Lord Pearson described the authorities I have referred to above on the 'value to the owner' principle, including the Indian case, as illustrations of the application of the Pointe Gourde principle. Lord Cross, at p 253, observed that the decision in the Pointe Gourde case appeared to him entirely in accord with and not to be in any way an extension of the principle stated in the Countess of Ossalinsky case.

Notoriously the practical difficulty with the Pointe Gourde principle lies in identifying the area of the 'scheme' in question. This difficulty does not arise when the enhanced value arises from the authority's proposed user of the subject land. Then, by definition, what is in issue is the proposed use of the subject land. But when regard is had to the authority's use or proposed use of other land the application of the principle is not self-defining. A major development project of a general character, covering a wide geographical area, may proceed in several phases, each phase taking years to implement, and the detailed content and geographical extent of each phase being subject to change and finalised only as the phase nears the time when the work will be carried out. Is that one scheme or several?

This question arose in one of the earliest cases where the Pointe Gourde principle was applied to enhanced value arising from use of land other than the subject land: Fraser v City of Fraserville [1917] AC 187. One of the grounds on which the arbitrators' award was set aside was that, in valuing the falls of a river and adjacent land acquired for electricity generation purposes, the arbitrators had taken into account the enhanced value emanating from a reservoir being built by the acquiring authority higher up the river. In a much quoted passage at p 194 Lord Buckmaster said that, in ascertaining the value of the property to the owner with all its advantages and possibilities, there should be excluded 'any advantage due to the carrying out of the scheme for which the property is compulsorily acquired', the question of what is the scheme being a question of fact.

The Privy Council did not decide whether the reservoir works and the work proposed to be carried out at the river falls were two parts of one scheme. That was a question for the fact-finding tribunal. Nor did the Board vouchsafe guidance on the criteria to be applied by the fact finding tribunal when deciding this 'question of fact'.

This is essentially a problem which has arisen since the Second World War. Sir Michael Rowe QC, sitting in the Lands Tribunal, drew on his experience when he said in Kaye v Basingstoke Corporation (1968) 20 P & CR 417, 455:

The Town and Country Planning Act 1947, the New Towns Act 1949 and the Town Development Act 1952 exemplified this trend. When seeking to identify the ambit of a scheme it was no longer sufficient to look to the primary or secondary legislation which empowered the acquisition. It became necessary to look more widely.

The Land Compensation Act 1961

In 1959 Parliament had in mind the problems arising from these new forms of development schemes when restoring the compensation position to what it had been before the enactment of the Town and Country Planning Act 1947. Parliament sought to make provision for them in the Town and County Planning Act 1959, followed by the Land Compensation Act 1961.

Their complexity makes summary difficult. For present purposes it is sufficient to say that the broad thrust of section 6 of the 1961 Act as amended appears to be as follows. The value attributable to development, or prospect of development, of land other than the subject land is to be disregarded in a variety of circumstances specified in Part I of the First Schedule. These are: that the other land and the subject land are within the same compulsory purchase order (case 1), or within an area of comprehensive development (case 2) or within a site designated under the New Towns Act 1946 (case 3) or the extension of such a site (case 3A) or a town development area (case 4) or an urban development area (case 4A) or a housing trust action area (case 4B). In these cases changes in the value of the subject land attributable to development or the prospect of development for the same purposes of other land in the same compulsory purchase order are to be disregarded if 'the development … would not have been likely to be carried out if … the acquiring authority had not acquired and did not propose to acquire any of [the land comprised in the compulsory purchase order]': section 6(1)(a). Additionally, where land is within cases 2 to 4B the disregard extends to the effect in value on the subject land of any development, past or prospective, which would not have been likely to be carried out if the area had not been designated, for example, in case 4B, as an urban development area: section 6(1)(b).

In the case of urban development areas the disregard net is cast even wider by paragraphs 10 and 11 of Schedule 1, introduced by the Local Government, Planning and Land Act 1980. A change in value is not to be excluded from the scope of the disregard merely because it is attributable to a development which was carried out before the area was designated as an urban development area, or to a development of land outside the urban development area, or to development by an authority other than the acquiring authority: paragraph 10. Further, in an apparent reference to the Pointe Gourde principle, paragraph 11 provides that paragraph 10 shall apply also to any change in value to be left out of account 'by virtue of any rule of law relating to the assessment of compensation in respect of compulsory acquisition'.

The first and most obvious oddity of this enactment is that it makes no provision regarding value attributable to the prospect of development of the subject land itself. It is frankly impossible to believe that Parliament intended that enhancement of value attributable to the prospect of development of associated land should be disregarded but not enhancement in value attributable to the prospect of development of the subject land itself. The statutory assumptions regarding planning permissions in respect of the subject land, set out in sections 14 to 16, do not provide an adequate explanation for this difference in treatment. Planning permission is one thing, the prospect of development is another.

In Camrose v Basingstoke Corporation [1966] 1 WLR 1100 the Court of Appeal rightly declined to accept that Parliament intended this result. A possible explanation for the absence of a statutory disregard in respect of enhanced value attributable to proposed development of the subject land itself is that, as already noted, in such cases the difficulties inherent in identifying the ambit of the scheme do not arise. This being so, the exclusion of these cases from the scope of the statutory disregard is not to be construed as implicitly changing the law. Rather it is the recognition of a well known situation for which legislation was not necessary: see Russell LJ, at p 1111. Accordingly, in these cases the Pointe Gourde principle should continue to be applied.

Had the matter rested there section 6 might well have been open to the interpretation that in all other respects the new statutory code was exhaustive. But there is at least one further gaping lacuna in the code. This is illustrated by Wilson v Liverpool Corporation [1971] 1 WLR 302, where an authority acquired some of the land needed for a scheme of development by agreement and made a compulsory purchase order in respect of the remainder. Enhancement in value of the subject land attributable to the development of the land bought by agreement would be outside case 1. Here again, that cannot have been intended by Parliament.

The courts therefore found themselves driven to conclude that the statutory code is not exhaustive and that the Pointe Gourde principle still applies. This conclusion is open to the criticism that in many instances this makes the statutory provisions otiose. This is so, but this is less repugnant as an interpretation of the Act than the alternative.

Identifying the extent of the scheme

The co-existence of the section 6 code and the Pointe Gourde principle means that the problems associated with identifying the ambit of the 'scheme' for the purposes of the Pointe Gourde principle remain live problems. Undoubtedly the present state of the law gives rise to serious valuation difficulties. It is unreal to require land to be valued on the basis of what would have been the position if a major development which took place years ago had not been carried out. Lord Denning, in his accustomed style, referred to a valuer having to 'conjure up a land of make-believe' and 'let his imagination take flight to the clouds': see Myers v Milton Keynes Development Corporation [1974] 1 WLR 696, 704. In a recent case in the Lands Tribunal the President had to rewrite the history of Mold in North Wales over 17 years. He described this as a 'virtually impossible task': [2003] RVR 140, para 98.

There is an even more fundamental problem. This goes to the very fairness of the Pointe Gourde principle as currently applied. The wider the scheme, the greater the potential for inequality between those outside the area of acquisition, whose land values rise by virtue of the scheme, and landowners whose properties are acquired at a value which disregards the scheme. Conversely, the narrower the scheme, the greater the potential for an authority being called upon to pay compensation inflated by its own investment in improved infrastructure or other regeneration activities. Holding the balance between these conflicting interests is pre-eminently a subject for decision by Parliament. But, as matters stand, there are indications that in some cases the application of the Pointe Gourde principle has become too wide-ranging.

The Law Commission, in its report already mentioned, recommended enactment of a new compensation code which would include provision for a 'statutory project'. This would replace the Pointe Gourde principle, section 6 of the Land Compensation Act 1961 and much else beside. In several respects this 'statutory project' provision is not compatible with section 6. Whilst section 6 remains on the statute book, therefore, the Law Commission's 'statutory project' recommendation does not lend itself to adoption by the courts as a model for the future in place of the existing Point Gourde principle. For present purposes what is important is that, after consulting widely, the Law Commission recognised the need to restrict the area of schemes.

I turn, then, to the question of how the extent of a scheme should be identified in today's conditions. A scheme essentially consists of a project to carry out certain works for a particular purpose or purposes. If the compulsory acquisition of the subject land is an integral part of such a scheme, the Pointe Gourde principle will apply accordingly. Both elements of a project, the proposed works and the purpose for which they are being carried out, are material when deciding which works should be regarded as a single scheme when applying the Pointe Gourde principle to the subject land.

The extent of a scheme is often said to be a question of fact. Certainly, identifying the background events leading up to a compulsory purchase order may give rise to purely factual issues of a conventional character. But selecting from these background facts those of key importance for determining the ambit of the scheme is not a process of fact-finding as ordinarily understood.

Take the present case. The purpose for which the claimants' land was acquired can be identified at two different levels of generality: for use as a nature reserve, or for use as a nature reserve to compensate for loss of the Taff / Ely site of special scientific interest through construction of the Cardiff Bay barrage. Factually each of these stated purposes is correct. Which of these purposes is to be regarded as the more appropriate when identifying the scheme within the meaning of the Pointe Gourde principle is a matter for the tribunal's judgment.

A similar judgmental exercise is required with regard to the works said to comprise one scheme for the purposes of the Pointe Gourde principle. When deciding, for instance, whether a phased development constitutes a single scheme or more than one scheme the tribunal will consider all the circumstances and decide how much weight, or importance, to attach to the various relevant features. The tribunal will attach to these features the degree of importance it considers appropriate having regard to the purpose of the Pointe Gourde principle. What, then, is the purpose of this principle? Its purpose, in separating 'value to the owner' from 'value to the purchaser', is to forward Parliament's objective of providing dispossessed owners with a fair financial equivalent for their land. They are to receive fair compensation but not more than fair compensation. This is the over-riding guiding principle when deciding the extent of a scheme.

This statement of general principle does no more than articulate the approach already adopted intuitively by tribunals when faced with making a choice between competing views of the extent of a scheme in a particular case. It is to be hoped that bringing this principle into the open will assist decision-making in difficult cases.

In applying this general principle there is of course no magical detailed formula which will provide a ready answer in every case. That is in the nature of things, circumstances varying so widely. But some pointers may be useful. (1) The Pointe Gourde principle should not be pressed too far. The principle is soundly based but it should be applied in a manner which achieves a fair and reasonable result. Otherwise the principle would thwart, rather than advance, the intention of Parliament. (2) A result is not fair and reasonable where it requires a valuation exercise which is unreal or virtually impossible. (3) A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties which are not being acquired. (4) When applied as a supplement to the section 6 code, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code. Thus in the class 1 type of case the area of the scheme should be interpreted narrowly, for instance, so as to embrace the property acquired under the compulsory purchase order and property which would probably have been so acquired had it not been bought by agreement. In other cases, such as case 2, Parliament has spread the 'disregard' net more widely. Then it may be appropriate to give the scheme a wider scope. (5) Normally the scope of the intended works and their purpose will appear from the formal resolutions or documents of the acquiring authority. But this formulation should not be regarded as conclusive. (6) When in doubt a scheme should be identified in narrower rather than broader terms.

Ransom value

One last point should be noted before returning to the present case. This concerns so-called 'ransom' value or, less pejoratively, 'key' value. I have already mentioned that under the 'value to the owner' principle or the Pointe Gourde principle, whichever nomenclature is preferred, the pressing need of an acquiring authority for the subject land as part of a scheme should be disregarded when assessing its value for compensation purposes. The value of the land is not the price a 'driven' buyer would be prepared to pay. But a strip of land may have special value if it is the key to the development of other land. In that event this feature of the land represents part of its value as much for purposes of compensation as on an actual sale in the open market.

The intersection of these two principles was identified neatly by Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 361:

In the present case the claimants contend their land had key value because of its importance as compensatory wetlands required for completion of the Cardiff Bay barrage project. Whether this contention is well founded for compensation purposes depends, in accordance with the principle enunciated by Mann LJ, on the ambit of the scheme of which the subject land's acquisition was an integral part.

The present case

Both the President of the Lands Tribunal and the Court of Appeal held that, for the purposes of the Pointe Gourde principle, the acquisition of the claimants' land for a nature reserve was an integral part of the barrage project. I agree.

The claimants' land was acquired to meet a need generated by the barrage project. That fact does not of itself mean that the taking of this land was an integral part of the barrage project. Indeed, the claimants' strongest point is that the acquisition of their land was not identified at the outset of the barrage project. It was not identified until October 1995 and by then the barrage project was under way.

The short answer to this point is that, although the acquisition of the claimants' land was not identified at the outset of the barrage project, the project proceeded throughout on the basis that some such compensatory measures would be provided. In the absence of governmental assurances that a compensatory nature reserve would be provided it is unlikely the Cardiff Bay Barrage Act 1963 would have become law, certainly in its enacted form. The President so found. This being so, it seems to me appropriate to regard the acquisition of the claimants' land, after this was identified as part of the intended compensatory site, as an integral part of the barrage project. This is fair and reasonable. There has been no suggestion that the value of the claimants' land had been enhanced as a possible compensatory nature reserve site before the choice of this site in October 1995.

I would dismiss this appeal. When assessing compensation payable for the claimants' land the authority's need to acquire the land as a palliative measure necessary as a result of the environmental consequences of the Cardiff Bay barrage is to be disregarded.

LORD WOOLF

My Lords,

I was intending to deliver a speech of my own. However, having read and reread the speeches of Lord Nicholls of Birkenhead and Lord Brown of Eaton-under-Heywood in draft, I am satisfied that any contribution that I could make would serve no purpose since I am in complete agreement with what they say so clearly, in their speeches. Indeed for me to deliver a separate speech could detract from the result which I hope will follow from their speeches. This is that tribunals and practitioners in future will not find it necessary to refer to any other authority apart from this on the matters covered by their speeches. The process of valuation should be a matter of experienced evaluation of the facts of a particular transaction or transactions within broad general parameters laid down by the law. So far as possible valuation should eschew technical distinctions.

I have also read Lord Scott of Foscote's speech. At an earlier date there would have been much to be said for his approach.

LORD STEYN

My Lords,

I would dismiss the appeal for the reasons given by my noble and learned friend Lord Brown of Eaton-Under-Heywood in his opinion. I am also in agreement with the opinion of Lord Nicholls of Birkenhead.

My Lords,

Background

The appellants' land at Nash, near Newport, Gwent, comprising about 225 acres, was acquired by the Land Authority for Wales ('LAW') under a Compulsory Purchase Order made on 15 January 1997 and confirmed by the Secretary of State for Wales on 14 November 1997. The land, at the time of the Compulsory Purchase Order, was agricultural land. The land was acquired by the LAW in order that it should form part of an area of about 1000 acres bordering the Severn Estuary and intended to become the Gwent Levels Wetlands Reserve, a nature reserve and habitat for birds. The other 775 acres had been acquired by LAW by agreement with the landowners and not under compulsory powers. The respondent before your Lordships, the Welsh Development Agency (the 'WDA'), is the LAW's statutory successor.

The appellants are, of course, entitled to compensation for the land that has been compulsorily acquired but there is disagreement as to the basis on which the compensation should be assessed. It is common ground that, under section 15 of the Land Compensation Act 1961, the land must be assumed to be entitled to the benefit of planning permission for use as a nature reserve. And it is common ground that the appellants are entitled to compensation calculated by reference to whichever of agricultural use and nature reserve use would yield the higher value. I would observe in passing, my Lords, that it is a woeful commentary on the state of agriculture in this country if a non-commercial use of land such as use as a nature reserve would produce a higher value than would use of the land for the purpose of agriculture. But that is not to the point on this appeal. The issue is whether a particular reason why the land, with the other 775 acres, was needed for transformation into a nature reserve should, or can, be taken into account in assessing its value for compensation purposes.

The particular reason can be shortly described. The Cardiff Bay Barrage Act 1993, which received the Royal Assent on 5 November 1993, empowered the Cardiff Bay Development Corporation (the 'CBDC') to construct a barrage across the mouth of Cardiff Bay and to carry out various related works in a development area adjacent to the Bay. These works were of social and economic importance.

One of the effects of the construction of the barrage would be to raise the level of the water in the Bay. The raising of the water level would flood the mudflats of the Taff/Ely Estuary and cause serious damage to an area of that Estuary which in 1980 had been designated a site of special scientific interest ('SSSI'). The mudflats within the SSSI were an important breeding site for dunlin and redshank.

Serious concerns about the environmental damage that the barrage across Cardiff Bay would cause were expressed by the Nature Conservancy Council (the 'NIC') and the Royal Society for the Protection of Birds (the 'RSPB'). In addition, the United Kingdom had obligations under the EC Directive 79/409 on the conservation of wild birds and, later, under the EC Directive 92/43 on the conservation of natural habitats. So the proposals for the Cardiff Bay barrage led to correspondence between the European Commission and the United Kingdom government. The Commission was insisting that, in order to comply with its obligations under these Directives, the government provide in the Severn Estuary additional natural habitat land to compensate for the loss of the Taff/Ely Estuary habitat.

Consideration was given by the UK authorities to a number of possible Severn Estuary areas which might constitute the requisite compensatory habitat. First there was an area of 400 acres odd at Wentlooge Levels east of Cardiff. Next an area of about 650 acres at Redwick, to the east of the Usk Estuary was favoured. But for various reasons these two sites were in turn discarded. Eventually it was decided that the most suitable site for providing the compensatory habitat would be the 1000 acres also lying east of the Usk Estuary but to the west of the Redwick land. It is convenient to refer to this 1000 acres as the Uskmouth site. The appellants' land is part of the Uskmouth site.

The construction of the Cardiff Bay barrage began in June 1994. A firm decision that the Uskmouth site was to constitute the compensatory nature reserve had been taken before the end of 1995. A letter of 21 December 1995 from the Welsh Office to the Commission so stated. As I have said, the Compulsory Purchase Order under which the appellants' land was taken was made by LAW on 15 January 1997 and confirmed by the Secretary of State on 14 November 1997. In its statement of reasons for making the CPO LAW said that:

A public inquiry into the CPO and LAW's application for planning permission for the use of the 1000 acres as a nature reserve was held in May 1997. The inspector recommended that the CPO should be confirmed and the planning permission granted. The Secretary of State accepted the recommendation. In his decision letter of 14 November 1997 he said that:

The appellants contend that the value of their land was enhanced by the pressing need of the government, in order to comply with its obligations under the two Directives, to establish the proposed Gwent Levels Wetlands Reserve as compensation for the damage to the Taff/Ely Estuary SSSI. This enhancement of value should, they say, be taken into account in the assessment of the compensation to which they are entitled. In the Lands Tribunal the President held that this enhancement of value (if it existed, which is yet to be determined) should not be taken into account. On appeal Carnwath LJ, with whose judgment the other two members of the Court agreed, agreed that the alleged enhancement should not be taken into account. The appellants have appealed against this ruling to your Lordships' House.

So far, my Lords, the issues which have been presented for adjudication, first to the Lands Tribunal, then to the Court of Appeal and now to this House, have been issues of principle. No one knows whether nature reserve use would justify a higher value for the land than agricultural use. No one knows whether the government's need for a compensatory nature reserve on the Severn Estuary would increase the value of the land, or, if so, by how much. The issues are simply issues of principle.

The statutory background

Compulsory expropriation of land is a creature of statute. There is no common law right or extant crown prerogative that allows such a thing. So it might reasonably be thought that the basis on which compensation would be paid for land compulsorily acquired would be provided for by statute. And so it is. The Law Commission Report Towards a Compulsory Purchase Code: (1) Compensation (Law Com. No. 286), presented to Parliament in December 2003 and largely prepared while Carnwath J (as he then was) was Chairman of the Law Commission, contains in its Appendix C a valuable summary of the historical development of statutory compensation provisions. These were originally to be found in the respective private Acts passed in the late 18th and early 19th centuries whereby the compulsory purchase of land for the construction of canals, railways, harbours and reservoirs was authorised. Standard clauses were developed which were consolidated in the Land Clauses Consolidation Act 1845. Thereafter Acts authorising compulsory purchase were treated as incorporating the 1845 Act clauses.

Over the period between 1845 and the end of the First World War case law, interpreting and applying the 1845 Act clauses, established the principle that compensation was to be assessed on the basis of the value of the land to the owner, not its value to the acquiring undertaker or authority. The principle of "equivalence" became established. The owner was to receive in money the equivalent of his land.

Probably the most important and influential of the pre 1919 cases was In re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16. This was a reservoir case. Land, geographically very suitable for construction of a reservoir, was the subject of a compulsory purchase for that purpose. The circumstances made it very unlikely that anyone other than the Water Board would have wanted, or been able, to construct the reservoir and exploit the water collected in it. In these circumstances, and bearing in mind the "value to the owner" principle, could the site's suitability for use as a reservoir enhance its value to the owner for which the Water Board should pay? The Court of Appeal said that a distinction had to be drawn between the possibility of that use, for which the Water Board should pay, and the realisation of that possibility, for which the Water Board should not have to pay. As Vaughan LJ said "[The arbitrator] ought to value the possibility and not the realized possibility". Fletcher Moulton LJ expressed the solution to the problem thus, at p 31:

The Lucas approach was adopted in two Privy Council cases. The first was Cedar Rapids Manufacturing and Power Company v Lacoste [1914] AC 569. The other was Fraser v Fraserville [1917] AC 187. Both were appeals from Quebec, both related to expropriations of land in or near a river for the purpose of constructing works to exploit the water power. In Cedar Rapids Lord Dunedin, giving the judgment of the Board, said that the principles of compensation had nowhere been stated with greater precision than in Lucas and continued, at p 576:

In Fraser v City of Fraserville [1917] AC 187, 194, Lord Buckmaster, having cited Lucas and Cedar Rapids, said that:

In 1919 the Acquisition of Land (Assessment of Compensation) Act 1919 was passed. The Act followed upon the report of the Scott Committee that in 1918 had been appointed to review the rules relating to the assessment of compensation. In section 2 of the Act six rules, that had been recommended by the Committee, were enacted. The first three of these rules are relevant to the issues in the present appeal. Section 2 provided as follows:

There is, in my opinion, no doubt but that these first three rules were intended to lay down with statutory authority, first, the principle that compensation was to be assessed on the basis of the value of the land to the seller — the compulsory acquisition was not to add to or detract from the value; second, the principle that that value was to be taken to be market value, assuming a willing seller and a willing buyer; and third, that any special suitability of the land was not to be taken into account if the case could be brought with rule (3). Rule (3) was the Parliamentary solution to the problem referred to in Lucas, Cedar Rapids and Fraser. It follows also, in my opinion, that post the coming into effect of the 1919 Act, and until some important statutory amendments were made following the 2nd World War, any special suitability or adaptability of land that was not caught and excluded by rule (3) ought to have been taken into account as constituting an enhancement to value to be reflected in the compensation.

The post Second World War statutory amendments start with the Town and Country Planning Act 1947 under which compensation for compulsorily appropriated land was to be assessed at existing use value. Under that system there could be no question of the value of the land for compensation purposes being enhanced by reference to the suitability of the land for some other use or to the likelihood or even certainty of the land being put to that use. But the Town and Country Planning Act 1959 restored the pre-1947 Act principles and at the same time added additional statutory disregards to those which had been specified in the 1919 Act. These are the principles and rules which, broadly speaking, are still applicable under sections 5 and 6 of the Land Compensation Act 1961. In a case like the present one might think that it ought to be possible, by applying sections 5 and 6 of the 1961 Act to the facts of the case, to resolve the issue raised by this appeal. But it seems, unfortunately, to be not that simple. And the reason it is not is because a few cases between 1919 and the coming into effect of the 1959 Act have been taken to have established principles of compensation which are not based on any statutory language and which have led, in many subsequent cases, including the present, to complexities and uncertainties, both factual and conceptual, of formidable proportions. The President in the Lands Tribunal and the Court of Appeal understandably felt themselves bound by the jurisprudence that has been created. But your Lordships are not. In my respectful opinion this appeal affords an opportunity for a careful re-examination of the basis and justification of the judge-made additions to, and to some extent substitutions for, the statutory principles.

I would start, although chronologically it is not the first of the cases that need to be examined, with the Pointe Gourde case (Point Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565). This was a Privy Council case on appeal from Trinidad and Tobago. Under a wartime agreement in 1941 the government of this country agreed to lease to the US Government some land in Trinidad on which the US could establish a naval base. In order to give effect to this agreement the Crown acquired the Pointe Gourde land, using compulsory powers to do so. Compensation was to be assessed under local legislation, namely, the Land Acquisition Ordinance 1941, section 11(2) rule (3) of which was in the same terms as section 2, rule (3), of the 1919 Act. Part of the land acquired consisted of a limestone quarry which, at the time of acquisition, was being conducted as a profitable going concern. The quarry stone had a particular value to the US authorities because they needed stone for the purpose of building the naval base. The tribunal which assessed the compensation awarded for the quarry land a total sum of $101,000, of which $86,000 represented the value of the quarry as a going concern and the balance of $15,000 was awarded on account of the special value of the quarry having regard to the special needs of the US for the stone. Those needs would, in the tribunal's view, have increased the profits of the quarry if it had remained in the hands of the appellants. So the sum of $15,000 was the measure of the appellants' loss in being deprived of that prospective profit, additional to the future profits the expectation of which had been taken into account in the $86,000 going concern value.

It seems, from the summary of counsels' arguments contained in the law report, that the only point argued by the distinguished counsel who appeared in the case was whether the $15,000 was excluded by rule (3). Lord MacDermott, in an ex tempore judgment, held, at p 572, that the references in rule (3) to "…. a purpose …." to which the land could be applied connoted "a use, actual or potential, of the land itself" and could not be regarded as meaning a purpose "which is only concerned with the use of the products of the land elsewhere". The US authority's special need for the stone was not, his Lordship held, "a special suitability or an adaptability of the land for any purpose" within the meaning of rule (3). But Lord MacDermott then went on to consider a point that, so far as the report of the case reveals, had not been addressed by counsel. He referred to two pre-1919 Act cases, namely, South Eastern Railway Co v London County Council [1915] 2 Ch 252 where Eve J had said that "Increase in value consequent on the execution of the undertaking for or in connection with which the purchase is made must be disregarded" — a re-statement of the "value to the seller" principle — and Fraser v Fraserville to which I have already referred. In reliance on these two authorities Lord MacDermott said that it was:

The dictum of Lord MacDermott's that I have cited has, in the subsequent case law, been examined, pored over and construed as though it had been a sentence in an Act of Parliament. This process, as may be seen from the judgments of the courts below in the present case, is still continuing. In my respectful opinion the process has been and is unwarranted. Lord MacDermott, in his two page ex tempore judgment, came to a conclusion which, if I may respectfully say so, was clearly correct. It was correct because the realisation of the $15,000 depended on what the purchasing authority might do with the quarry after acquisition. The $15,000 did not represent an element of value to the seller at the time of acquisition. The $86,000, the going concern value of the quarry, took into account the future profitability of the quarry; and, in assessing the future profitability, the possibility of a purchaser wanting to use the stone to construct buildings on the land being acquired should have been taken into account. So the $15,000 was either double counting or, if it was not, was attributable to some special need which the US naval authority and only the US naval authority would have. If the later analysis of the facts is the correct one, it is difficult to see why the special need would not have been excluded by rule (3). The unquarried stone at the valuation date was a part of the land. Its commercial potential was an element in the value of the land. The distinction drawn by Lord MacDermott between use of the land and use of its products was, in my respectful opinion, unsound. But Lord MacDermott unquestionably came to the correct conclusion and had no reason to suppose that his ex tempore judgment would come later to achieve the doctrinal elevation that it did.

In both of the courts below particular attention was paid to an earlier Privy Council case, Raja Vyricherla Narayana Gujapatiraju v The Revenue Divisional Officer, Vizagapatam [1939] AC 302 (the Indian case, for short). This was an appeal from the High Court at Madras and concerned the compulsory expropriation of land with a spring which yielded a good supply of clean drinking water. The expropriating authority, the Vizagapatam Harbour Authority, had a particular need for this water in order to make it available to those working on or near the harbour. It would have been difficult but not impossible for the water to have been made available by anyone else. The question was whether, or to what extent, the abundance of good, clean water on the expropriated land (the equivalent of the limestone in the Pointe Gourde quarry) represented a value to be reflected in the compensation. The relevant Indian statute was the Land Acquisition Act of 11 September 1933. The terms of this Act as to compensation differed in no material respect from those of the Land Clauses Act 1845 before the coming into operation of the 1919 Act (see Lord Romer at p. 311). Section 23 of the Indian Act required the compensation to be based on the market value of the land. Section 24 specified a number of things that the valuer should not take into consideration. Among these disregards was "the degree of urgency which has led to the acquisition" and "any increase to the value of the land acquired likely to accrue from the use to which it will be put when acquired."

If sections 23 and 24 of the Indian Act are compared with section 2, rules (1), (2) and (3) of the 1919 Act, it is apparent that rule (3) of the 1919 Act, in its codification of the manner in which special suitability or adaptability is to be dealt with, adds an element not to be found in the Indian Act. But, apart from that, the effect of the two Acts seems to be much the same. Perhaps the Indian Act spells out more explicitly than does section 2 of the 1919 Act that the value to be assessed is the value to the seller. In my opinion, however, the "value to the seller" rule is at least implicit in rule (2) of section 2 of the 1919 Act. It may be noted also that, if the Indian Act had been the Act in force in Trinidad, section 24 would have made it crystal clear that the $15,000 had to be disallowed. Lord MacDermott's judgment could have been even shorter.

The problem in the Indian case was that since, on one view of the facts, there was only one likely potential purchaser, namely, the Harbour Authority, it was difficult to see how the statutory criterion of "market value" could be applied. Lord Romer, who gave the judgment of the Board, said that a willing buyer and a willing seller had to be assumed and that it also had to be assumed that the willing buyer would be willing to pay a reasonable sum for the water potentiality of the expropriated land. He said, in conclusion, that

My Lords I can see no conflict of principle between the Pointe Gourde case and the Indian case. In the Pointe Gourde case the $15,000 was attributed to the US naval authority's special need for the stone. That was not a need that any other potential purchaser of the land would have had, or so one must assume. The tribunal that assessed the compensation had already taken into account the commercial possibilities and value of the stone in the quarry and had come up with the figure of $86,000. The $15,000 was an add-on, a valuation, in Lucas terms, of a realised potentiality, not merely of a potentiality. In the Indian case, on the other hand, the arbitrator was told to assess the commercial potential of the water in the spring. He was not to do so on the footing that the Harbour Authority would, after its purchase, be using the water, but on the footing that a potential purchaser, which might, but would not necessarily, be the Harbour Authority, might exploit the water in the spring. The valuation assessment might be very difficult, but the principle seems to me clear enough and to be consistent with Pointe Gourde.

The Indian case was applied in the Court of Appeal in Lambe v Secretary of State for War [1955] 2 QB 612. This was an ex tempore judgment given by Parker LJ. A property was under lease to a Territorial Army entity. The Secretary of State for War acquired the reversion using compulsory powers. The compensation assessment problem was whether the extra value that would follow from the merger of the freehold with the leasehold interest should be reflected in the compensation and, if so, how? The Court of Appeal held that rule (3) did not apply and, purporting to apply the Indian case, that the assessment should be "on the basis of the value which the acquiring authority, in a friendly negotiation, would be willing to pay in acquiring a freehold interest for its purposes, and as though no compulsory powers of acquisition had been obtained." (p 623).

My Lords, I do not think Lambe was rightly decided. The merger value was a value that the Secretary of State, and only the Secretary of State, could realise. Unlike the Indian case water or the Pointe Gourde limestone, the merger was not a part of the land being sold. It was not an element of the value of the land to the seller. It was an element of value only to a purchaser who happened to own, or control, the leasehold interest, namely, the Secretary of State. It was an element that did not form part of the value of the land for rule (2) purposes. The Indian case was quite different. There the water supply was a part of the land being sold. The water's commercial possibilities, and therefore its value, had to be taken into account and assessed. In Lambe there was nothing comparable to be assessed.

In tracing the development of the jurisprudence I should next refer to the advent of the Town and Country Planning Act 1959. This Act, as I have already said, introduced new statutory disregards. They are to be found in section 9(2) of the Act. None is directly relevant to the present case but the terms of subsection (1) should be noted. Section 1 of the Act restored the 1919 Act section 2 rules and got rid of existing use value as the basis on which compensation was to be assessed. Section 9(1) said that:

Then follow the new disregards. My Lords, it seems to me very difficult, in the face of this statutory language, to take the view that there are other disregards, established by case law and to be found neither in the language of the 1919 Act nor in that of the 1959 Act, which have to be applied in order to reduce the value for compensation purposes of land that has been compulsorily acquired.

Davy v Leeds Corporation [1965] 1 WLR 445 was a decision of this House. The case arose out of a Leeds slum clearance scheme. The Corporation declared an area in which the appellants owned some slum houses to be a slum clearance area and made a compulsory purchase order for the acquisition of the houses in that area. Compensation fell to be assessed under the 1919 Act and the 1959 Act. The appellants were entitled to receive in compensation the value of their land as sites cleared of buildings and available for re-development. The issue was whether this value was to be assessed on the footing that all the other buildings in the clearance area would be cleared away. This would have enhanced the value of the appellants' land. It was held in the Court of Appeal and in this House that the disregards introduced by section 9 of the 1959 Act prevented any such enhancement of value being reflected in the compensation. The interest of the case for present purposes is that Viscount Dilhorne, with whose opinion Lord Cohen expressed agreement, referred to the Pointe Gourde case, cited Lord MacDermott's sentence that I have cited in paragraph 92 above, and continued, at p 453:

My Lords, it must be right that section 9(2) of the 1959 Act, coupled with section 2 rule (3) of the 1919 Act, constituted the statutory intention as to the matters to be excluded from the value of compulsorily acquired land for the purpose of assessment of compensation.

The Court of Appeal cases

A number of Court of Appeal cases have, however, sought to supplement, and in effect have de facto replaced, the statutory disregards. The first of these is Camrose v Basingstoke Corporation [1966] 1 WLR 1100. The corporation was the acquiring authority. Basingstoke was being expanded under the Town Development Act 1952 to receive overspill population from London and the corporation contracted to purchase about 550 acres from a landowner on terms that the price would be assessed as though the land had been compulsorily acquired under the 1952 Act. About 383 of the 550 acres were, in the town development plan, designated for residential development. The question was whether the increase in the value of the intended residential land brought about by the town development scheme should be reflected in the compensation. The relevant Act for assessment of compensation purposes was the Land Compensation Act 1961, a consolidating Act, in which section 5 reproduced section 2 of the 1919 Act, and section 6 replaced section 9 of the 1959 Act. Such differences as there are between the 1961 Act and its statutory predecessors are not material for present purposes.

Section 6 of the 1961 Act has been subjected to a good deal of deserved criticism prompted by the lack of lucidity in its drafting. The first question which arose in Camrose was whether the case fell within one of the new statutory disregards. Lord Denning MR, with whose judgment Davies LJ agreed, held that, on a literal reading of the statutory provisions, any increase in value of the relevant land attributable to the development, or the prospect of development, of the rest of the land in the town development plan was to be excluded, but that any increase in value of the relevant land due to its own inclusion in the town development plan was not excluded. But Lord Denning described this conclusion as "contrary to commonsense". He then sought, at p 1107, to explain section 6:

Pointe Gourde

Davy v Leeds Corporation

Pointe Gourde

I do not think Lord Denning's approach was correct. First, it was not accurate to say that Davy v Leeds Corporation [1965] 1 WLR 445 had approved Pointe Gourde. Viscount Dilhorne (and Lord Cohen) said that section 9(2) of the 1959 Act (the predecessor of section 6(2) of the 1961 Act) had given "statutory expression" to the Pointe Gourde principle. Approval or disapproval was not in point. Second, Lord Denning's reference to a "scheme involving the acquisition" (emphasis added) stretches the concept of the "scheme" much further than Lord MacDermott could have had in mind. The Point Gourde scheme was simply the purchase of land, including the quarry land, for a US naval base. The word "involving" introduces an elasticity into the concept of "scheme" that does not derive from Pointe Gourde.

Russell LJ, agreeing in the result, said, at p 1110:

its

does

Here, too, I must respectfully disagree with the reasoning. Over the years 1947 to 1959, compensation had had to be assessed on an existing use basis. The question at issue in Camrose would not have arisen while compensation continued to be restricted to existing use value. Pre 1947, as I have endeavoured to show, the only relevant compensation principles that had been judicially established were that the value of land for compensation purposes was its value to the seller and that any special suitability of the land for the purposes for which the acquiring authority was acquiring the land was to be ignored. These principles had been incorporated into the statutory regime prescribed by the 1919 Act. The need to extend in 1959 the statutory disregards was surely attributable, first, to the abandonment of the "existing use" restriction and, second, to the special planning considerations brought about by the advent of slum clearance schemes, town development plans, schemes for new towns and the like. Compensation in the pre 2nd World War era had been based on market value, subject to the two principles, value to the seller and the 1919 Act disregards. There was, in my opinion, no justification after the 1959 Act for depriving landowners whose land had been compulsorily acquired of any part of the value of that land to the sellers save such part as fell within one or other of the statutory disregards.

The Camrose land that had been designated for residential use had to be valued on the footing that it had planning permission for residential development (see section 15 of the 1961 Act). Since the existence of the town development plan in relation to all the land comprised therein other than the Camrose land had to be ignored, its relevance to the Camrose land itself would, I suspect have been minimal. The valuer would have had to estimate when the various parts of the Camrose land would have been wanted for actual development, and attribute value accordingly. He would have had to assume that the infrastructure incorporated into the development of the other land was non-existent. This is very like the process of valuation that the valuer in fact undertook, a process that was affirmed by the Court of Appeal. But on the points of principle laid down by the Court of Appeal I think the decision was wrong and should be overruled.

In Wilson v Liverpool Corporation [1971] 1 WLR 302 a similar valuation issue arose as that which had arisen in Camrose. The claimants owned 74 acres of an area of 391 acres in Liverpool which the Corporation wanted to acquire for residential development. The compensation award included a reduction, estimated by the tribunal, attributable to the corporation's "scheme" underlying the acquisition. Lord Denning MR said, at p 309:

not

Pointe Gourde

Camrose

Pointe Gourde

Lord Denning then went on to amplify the concept of a "scheme". He said:

Widgery LJ and Megaw LJ agreed. Widgery LJ, at p 310, said that:

Pointe Gourde

My Lords, my objections in principle to treating Pointe Gourde case as an authority justifying these dicta in Wilson are the same as those I have already expressed. If the "scheme" underlying a compulsory acquisition has become known and has increased the value of the land to the seller (not being attributable to something that would only be of value to the acquiring authority), and if none of the statutory disregards applies, the seller is, in my opinion, entitled in principle to compensation that reflects that increase in value. There is no principled basis entitling the courts to authorise the expropriation without compensation of that element of the land's value.

In Myers v Milton Keynes Development Corporation [1974] 1 WLR 696 the Court of Appeal again applied Pointe Gourde and the Camrose case. The particular issue was whether the required disregard of any increase in value attributable to the "scheme" meant that the valuer should disregard the scheme altogether or permitted him to have regard to it when identifying the "proposals of the acquiring authority" in accordance with which the valuer had to assume planning permission would be granted (see section 15 of the 1961 Act). In other words, was there a conflict between section 15 and the Pointe Gourde rule as it had been interpreted and applied? Lord Denning MR gave the judgment of the court. He said, at p 704:

Camrose (Viscount) v Basingstoke Corporation

The 10 years was the period that, according to the development maps that had been prepared by the corporation, would elapse before the development of the area that included the Walton Manor Estate would commence. So the valuation was to be carried on the basis of an assumed planning permission for residential development "in accordance with the proposals of the acquiring authority" (s. 15(1)). The rest of the development scheme was to be disregarded. But it should have been disregarded, I suggest, not because of some extant rule deriving from the Point Gourde case but because any enhancement of value attributable to the development scheme as it affected the land other than the Walton Manor Estate fell within one or other of the section 6 statutory disregards. The case was correctly decided but, I suggest, for the wrong reason. The judgment of Lord Denning in this case demonstrates how the judicial development of the so-called Pointe Gourde principle had, de facto, ousted and become a substitute for the statutory disregards enacted by Parliament.

In Bird v Wakefield Metropolitan District Council (1978) 37 P & CR 478 the Court of Appeal further developed the Pointe Gourde principle. Browne LJ, with whose judgment Shaw LJ and Megaw LJ agreed, said, at p 487:

This amplification of the "scheme" principle may be logical enough if it is right to abandon the statutory disregards in favour of the judicially developed Pointe Gourde disregard. The complexities inherent in the amplification are obvious.

Batchelor v Kent County Council (1989) 59 P & CR 357 was a case in which the Council had compulsory acquired a plot of land for highway improvement purposes. The plot was within a larger area shown on the town map as scheduled for residential development. Outline planning permission for the residential development of land to the south and east of the plot had been granted but the development could not proceed until the road improvements, including the construction of a roundabout, had been carried out. The compulsorily acquired plot was the site of the roundabout. The Lands Tribunal assessed the compensation for the plot on the basis that it was the key to the residential development. The Court of Appeal held that the value of the plot had to be assessed by reference to its value prior to the acquisition and disregarding any increase in value attributable to the residential development. On the facts, however, the court took the view that there was no ground for holding that the tribunal had failed to have regard to the principle that any such increase in value had to be disregarded (see Mann LJ at p 361). Mann LJ considered also the section 5 rule (3) disregard and the meaning of the statutory words "special suitability". The tribunal had found that "the most suitable access to the land to the south [ie. part of the land to be residentially developed] is that which has been formed on the order land [ie. the roundabout]", but found also "it was unable to find that the order land would have been the only access to the land to the south" (p 362). Mann LJ said that those findings were "decisive against a finding of special suitability". He said:

My Lords, while I would accept that "most suitable" may not be an apt synonym for "specially suitable" it is not necessary, in my opinion, for the land in question to have a unique suitability. The second rule (3) requisite must be borne in mind. Either the special suitability must be for a purpose that can only be achieved with statutory powers or the purpose must be a purpose for which only an authority with compulsory purchase powers would want to acquire the land. In the case of the compulsorily acquired plot, it seems to me that neither alternative would have been satisfied. The suitability of the plot to provide access to unlock the residential development could have been exploited by a private developer; and a private developer might well have been in the market to acquire the plot for that purpose. If an over strict and narrow meaning is attributed to "special suitability", rule 3 will be excluded in many cases in which one or other of the second criterion alternatives is satisfied and in which the "special suitability" of the acquired land is a suitability not available for exploitation by anyone other than the acquiring authority. In these cases, rule 3 should in principle be applied. The rule 3 disregard is not, in my opinion, looking for a unique suitability that is not shared with any other land; it is looking for a particular suitability that only the acquiring authority, or an authority with statutory powers, is able to exploit. Your Lordships should, in my opinion, overrule the Batchelor interpretation of "special suitability".

The compensation principles

The Court of Appeal jurisprudence to which I have referred has, in my opinion, done no favours either to landowners or to acquiring authorities. A compulsory acquisition will always be in pursuance of some scheme or other. A compulsory purchase order may sometimes be self-contained but often is the final stage in the evolution over years of some public project. The project may have different limbs, interlinking but in important respects separate. Each limb may have added some value to land in the vicinity of the project. Lord Denning's comments in Wilson show very clearly how inchoate the concept of a "scheme" may be. But my objection to this jurisprudence is not based upon the complexities it has generated, and is likely, unless curbed, to continue to generate. It is based on its lack of any sound foundation. It is statute that authorises compulsory acquisition; and it does so on the footing that compensation in accordance with the prescribed statutory regime will be paid for what is being taken from the landowner. The statutory compensation regime is based upon an assessment of the value of the land to the expropriated owner. He must be taken to be a willing seller. He is entitled to be compensated for all commercially valuable attributes possessed by the land while in his hands, subject only to the statutory disregards. The statutory disregards properly construed and applied would, I think, produce very much the same answers as those produced in most of the cited cases by application of the judicially constructed Pointe Gourde disregard. But if, and to the extent, that the statutory disregards do not go as far as the Pointe Gourde disregard, the former should rule. A landowner is entitled to be compensated for his expropriated land on the basis of disregards enacted by Parliament and not disregards constructed by judges in substitution for the statutory disregards.

The proposition that Parliament enacted the 1961 Act on the basis that the statutory disregards would be supplemented by the Pointe Gourde disregard is not a tenable one. First, the 1961 Act was a consolidating Act, re-enacting provisions of the 1919 Act and the 1959 Act. Second, the authorities purporting to establish the Pointe Gourde rule as a continuing disregard supplementing the statutory disregards are Court of Appeal authorities post-dating the 1959 Act, and also, for that matter, post-dating the 1961 Act. Third, it is not believable that Lord MacDermott in his short ex tempore judgment thought that he was doing other than applying the valuation principles set out in the 1919 Act and adopted in the local Trinidad Act.

My Lords, the present case is, in my opinion, a simple one in which the President of the Lands Tribunal and the Court of Appeal came to the correct conclusion. But they did so after an extensive and laborious trawl through the case law in order to decide whether the "scheme" that "underlay" the CPO of 15 January 1997 was a scheme that fell within the judicially developed Pointe Gourde rule and whether the assumed enhancement of value of the appellants' land brought about by the government's need for that land in order to comply with its obligations under European law had to be left out of account under that rule. The President and the Court of Appeal had no alternative, given the content of the earlier Court of Appeal decisions that were binding on them and to which I have referred. But I wish to make a plea for simplicity. That trawl should not have been necessary. All that was necessary, since it was clear that the section 6 disregards were irrelevant to the case, was to ask, first, whether the case fell within rule (3) of section 5 and, second, if it did not, to ask whether the alleged enhancement of value was part of the value of the land to the seller.

As to the first question, the President held, following the ruling given by Mann LJ in Batchelor v Kent County Council 59 P&CR 357 that the enhancement was not ruled out of account by rule (3) of section 5. This point was not appealed. But since, for reasons I have already given, Mann LJ's rule was, in my opinion, in error, it follows that I think the President was wrong on the rule (3) point. The appellants' land was specially, not uniquely but specially, suited to constitute part of the compensatory nature reserve that the government had to provide to comply with its obligations under the Directives. Only the government, or some other state authority acting on behalf of the government, could exploit that particular suitability and so only the government would have been in the market to acquire the land for that particular purpose. I think the case falls squarely within rule (3).

It is not necessary, however, for the WDA to rely on rule (3). If it is right that the government's need to provide an adequate nature reserve to compensate for the damage to the Taff/Ely Estuary SSSI means that the land at Uskmouth is worth more to the government than its normal nature reserve value or agricultural value, that extra value is not part of the value of the land to the seller. It is a value only to the government. If it really is a commercial attribute of the land it is an attribute that could not have been exploited by any purchaser other than the government and could only have been realised by a sale to LAW or some other state authority. On the facts of this case the "value to the seller" principle and rule (3) march hand in hand and produce the same result.

I would, for these reasons, dismiss this appeal.

LORD BROWN OF EATON-UNDER-HEYWOOD

My Lords,

Introduction

The Gwent Levels Wetlands Reserve occupies some 1,000 acres of low-lying farmland along the Severn Estuary near Newport in Gwent. The land on which it was created was compulsorily acquired by the Land Authority for Wales (LAW), now the Welsh Development Agency (WDA), early in 1998 and immediately then transferred successively to the Cardiff Bay Development Corporation (CBDC) and the Countryside Council for Wales (CCW) who undertook the necessary development work: the creation of saline pools, seedbeds and managed grassland.

The primary reason for the acquisition and creation of this new nature reserve was to compensate for the loss of inter-tidal mudflats some fifteen miles away in Cardiff Bay upon the impoundment of the water there following the construction of the Cardiff Bay Barrage. Some such compensatory measure had long been recognised to be an essential element of the barrage scheme and as the years passed the government came under ever-increasing pressure, in particular from the European Commission, to provide it. The Gwent Levels land, by the date of its compulsory purchase, appeared the most suitable site for what by then had become an urgently needed compensatory nature reserve.

Some 225 acres of the land belonged to the appellants and at issue before your Lordships is the correct approach to its valuation. The appellants have been offered the land's agricultural value or, if they can show it to be higher, its value as a nature reserve. What, however, they seek is substantially more than this. They say that its acquisition was indispensable to the realisation of the Cardiff Bay barrage project and that its valuation must recognise and reflect this fact. They claim, in short, what is sometimes called the land's 'ransom' or 'key' value—the value of land needed to unlock the development potential of a linked site—called in the court below the land's "barrage inhibition value". Are they entitled to it? That fundamentally is the question raised in these proceedings.

The proceedings thus far

It was originally sought to resolve the question by reference to two preliminary issues identified for determination by the Lands Tribunal. The first was concerned with whether rule 3 of section 5 of the Land Compensation Act 1961 (the 1961 Act) applies in the circumstances of this case:

The President of the Lands Tribunal, applying the restricted approach adopted by Mann LJ in Batchelor v Kent County Council (1989) 59 P & CR 357, 362—"Most suitable does not correspond with specially suitable"—held that the subject land has no special suitability or adaptability for the purpose of providing a compensatory nature reserve: "There are other areas along the Severn Estuary that could have performed the same function". He indicated, however, that, had it been relevant, he would have found for WDA on the other aspect of rule 3: he thought there would have been no market for a nature reserve apart from the requirements of an authority possessing compulsory purchase powers.

The second preliminary issue was formulated in these terms:

Pointe Gourde Quarrying and Transport Co. Ltd

Sub-Intendent of Crown Lands

1947 AC 565

Pointe Gourde has long been regarded as authority for the principle that compensation for compulsory purchase "cannot include any increase in value which is entirely due to the scheme underlying the acquisition"—the so-called Pointe Gourde rule or "no-scheme rule".

This second issue the President resolved in favour of WDA: he held that the scheme underlying the acquisition was the construction of the barrage and that accordingly it is necessary to disregard any increase in value resulting from the need to acquire the subject land as a palliative measure.

The issues developed before the Court of Appeal were somewhat different. Since WDA had not cross-appealed on the rule 3 issue, this was discussed only insofar as it bore upon the Pointe Gourde rule. As for the Pointe Gourde issue, the appellants advanced two main contentions: first, that "the scheme underlying the development" was simply the nature reserve project itself and not the construction of the barrage; secondly, that on a true understanding of the Pointe Gourde rule, WDA must in any event pay the price that it would have been willing to pay in friendly negotiations having regard to the barrage scheme, a price which would include the land's key value. This second submission, as I shall come to explain, rested heavily upon the Privy Council's decision in the so-called Indian case: Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302

The Court of Appeal rejected both those arguments: [2003] 4 All ER 384. It held that "[i]t was open to the President to find on the facts that the nature reserve for which [the] land was needed was an integral part of the barrage project" (p 415, para 117), and it rationalised the Indian case as a two-scheme rather than single-scheme case, thereby defeating the appellants' reliance upon it.

It is the appellants' contention before your Lordships that the Court of Appeal was wrong on both points. Success on either, of course, would bring them victory. If the scheme underlying this development were to be determined as narrowly as the appellants contend for, the second question, as to the extent of the disregard, would simply not arise. Unless the scheme encompassed the barrage and thus the nature reserve's central role as compensation for the environmental losses entailed, on no view would the increased value of the land attaching to that compensatory role fall to be disregarded: such increase would self-evidently not be "due to the scheme". Similarly, of course, if, however the scheme is defined, WDA are required to pay whatever it would willingly have paid in friendly negotiations, then too the appellants will recover whatever key value the subject land may have.

These, then, were the issues debated at length before the House and upon which your Lordships' decision was invited. Are they, however, the real questions which your Lordships should be determining or do they arise only upon a fundamentally false legal premise, namely that compensation for compulsory purchase is indeed properly to be determined by reference to the Point Gourde rule rather than simply by applying the governing provisions of the 1961 Act?

Has the Pointe Gourde rule survived the 1961 Act?

I have had the advantage of reading in draft the speech to be given by my noble and learned friend, Lord Scott of Foscote, and this, I readily acknowledge, makes a telling case for regarding the Pointe Gourde rule, certainly as it has developed, as no more than a misconceived accretion to the legislative scheme which itself, therefore, ought henceforth to be disregarded. But is it not, I wonder, too late in the evolution of this branch of the law to attempt a return to basics of this sort?

Put aside the long series of post-1961 Act Court of Appeal authorities, all decided by reference to the Pointe Gourde rule and all treating it as not merely supplementing but in large part supplanting the complexities of the legislation (itself regularly excoriated for its many obscurities)—see, for example, Camrose v Basingstoke Corporation [1966] 1 WLR 1100, Wilson v Liverpool City Council [1971] 1 WLR 302, Myers v Milton Keynes Development Corporation [1971] 1 WLR 696, Birmingham City Council v Morris and Jacombs Ltd (1976) 33 P & CR 27, Bird v Wakefield Metropolitan District Council (1979) 37 P & CR 478, Batchelor v Kent County Council (1989) 59 P & CR 357, Wards Construction (Medway) Ltd v Barclays Bank Plc (1994) 68 P & CR 391, J A Pye (Oxford) Ltd v Kingswood Borough Council [1998] 2 EGLR 159, and Bolton Metropolitan Borough Council v Tudor Properties Ltd (2000) 80 P & CR 537.

Put aside too the many references to the Pointe Gourde rule in the opinions given by your Lordships' House and the Privy Council, not, it is true, in cases necessarily dependent for their outcome upon the rule's continuing soundness and application but where invariably that assumption is made—see, for example, Davy v Leeds Corporation [1965] 1 WLR 445, Rugby Joint Water Board v Foottit [1973] AC 202, Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426, Director of Buildings and Lands v Shun Fung [1995] 2 AC 111 and Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment [2000] 2 AC 307.

Put aside further the Law Commission's Report No 286 and the entire consultation process underlying it, all of which proceeded on the footing that the existing law is not simply that to be found in the legislation but also, unsatisfactory though this too may be, in the case law surrounding the Pointe Gourde rule. As para D.68 of the Report explains:

Pointe Gourde

What to my mind makes it particularly inappropriate at this late stage simply to ignore all the cases over the last 45 years save those few which have sought to construe and apply the governing legislation is what I take to be Parliament's own recognition, which itself dates back to 1980, that compensation may not fall to be assessed exclusively by reference to the statutory code but may also have to be determined, as to disregards, by "rule of law." Paragraph 11 of Schedule 1 to the 1961 Act, added by section 145 (2) of the Local Government, Planning and Land Act 1980, provides:

As Lord Scott notes in paragraph 107 of his speech, Lord Denning MR in Wilson v Liverpool Corporation [1971] 1 WLR 302, 309, contemplated that counsel might wish to challenge in the House of Lords his earlier decision in Camrose v Basingstoke Corporation [1966] 1 WLR 1100—to the effect that other disregards remain permissible beyond those to be found in the legislation. To attempt this over 30 years later, however, and despite the further entrenchment of the rule in our jurisprudence, is quite another thing.

Nor, moreover, tempting though in one sense it might be to return to the unadorned language of the statute, should your Lordships regard with any particular enthusiasm the prospect of subjecting the next generation of litigants to the very real problems which that language has itself created, admirably summarised by Carnwath LJ in paras.70-80 of his judgment below.

In my opinion, therefore, it is better that your Lordships should now seek to apply, and where necessary modify, the case law as it has evolved over recent years than discard it in its entirety. In this way, moreover, English law will remain in harmony with that of other jurisdictions substantially modelled upon it. Take, for example, section 56 of the Land Acquisition (Just Terms Compensation) Act 1991, operating in New South Wales:

As was observed by the New South Wales Court of Appeal in Roads and Traffic Authority (NSW) v Perry (2001) 116 LGERA 244, 246:

Pointe Gourde

The Indian case is sufficiently described in paras 94-96 of Lord Scott's speech. What, of course, it established was that even where land has a particular value only for one potential purchaser, that purchaser will nonetheless be willing to pay for it. The case, in short, resolved the differing views on this question which were expressed in the cases prior to the Acquisition of Land (Assessment of Compensation) Act 1919 (the 1919 Act), most notably in In re Lucas and Chesterfield Gas and Water Board [1909] 1KB 16. More particularly it may be taken to have determined the proper approach to what were first enacted as rules 1 and 2 of section 2 of the 1919 Act, now substantially reproduced in section 5 of the 1961 Act:

Scott LJ, the chairman of the Committee whose report in 1918 had led to the 1919 Act, was later to say in Horn v Sunderland Corporation [1941] 2 KB 26, 40, that rule 1 had abolished "the 10% addition for compulsory purchase" and that rule 2 had reversed "the old sympathetic hypothesis of the unwilling seller and the willing buyer which underlay judicial interpretation of the Act of 1845". Section 24 of the local legislation under consideration in the Indian case precluded the Court from taking into consideration:

Those provisions to my mind mirror our own rules 1 and 2.

True it is that in the Indian case, [1939] AC 302, 312, Lord Romer said:

It by no means follows, however, that the open market value to the seller will exclude whatever key value the land may have. On the contrary, any such value properly falls to be taken into account, just as it was in Stokes v Cambridge Corporation (1961) 13 P & CR 77, where the Lands Tribunal, determining the value of land compulsorily acquired by the Corporation, recognised that the landowner would himself have had to pay the key value of other land in order to realise the development potential of his own, and reduced the valuation of the order land accordingly. The recognition of the land's key value to a particular purchaser is merely an extreme manifestation of the approach taken in the Indian case.

As for the Point Gourde principle itself, said to be embodied in section 56 (1) (a) of the New South Wales statute, it hardly needs to be pointed out that a disregard in these terms is different, not merely from the various statutory disregards provided for under section 6 of the 1961 Act (none of which, of course, can ever apply to the order land itself) but also, and no less strikingly, from that to be found in rule 3.

I share entirely Lord Scott's view, expressed in paragraph 93 of his speech, that the unquarried stone in Pointe Gourde was a part of the land whose commercial potential, therefore, represented an element in the value of the land, and accordingly that any special need for the stone for the building of the naval base could and should properly have been disregarded under rule 3, rather than under some common law principle which, on a strict view, might well be thought not to have survived the 1919 Act. But, as I have already observed, many years have since passed and not merely has the Pointe Gourde principle apparently survived but rule 3 itself has been increasingly marginalised and the common law principle expanded to fill its place. Paragraphs D.93 and D.94 of the Law Commission's report are instructive in this regard:

Pointe Gourde

Lambe v Secretary of State for War

Batchelor v Kent County Council

Ozanne v Herts County Council

Ozanne

Blandrent Investment Developments Ltd v British Gas Corporation

Again in common with Lord Scott (see his paragraph 112), I believe that rule 3 has hitherto been too narrowly construed, in particular by the Court of Appeal in Batchelor v Kent County Council 59 P & CR 357. But again, rather than attempt to put back the clock and reinstate rule 3 at the expense of the Pointe Gourde rule, I am inclined to treat the latter as the prevailing law. For my part, therefore, I propose to address the arguments advanced on the appeal on the footing that the principle embodied in the Pointe Gourde line of decisions remains a rule of law. But it must also be recognised that on this approach any key value that land may have is to be included within its open market value and is to be disregarded, if at all, solely by reference to the Pointe Gourde rule.

Argument 1: what was the relevant scheme or project?

The first of the appellants' arguments is, as stated, that the Court of Appeal erred in concluding that the nature reserve was an integral part of the barrage project. The concept of determining the ambit of the Pointe Gourde rule by reference to whether or not the order land "forms an integral part" of the scheme postulated to have increased its value first appears in Lord Russell's opinion in Melwood Units Pty Ltd v Main Roads Commissioner [1979] AC 426, 434 and was later crystallised in Lord Nicholls' succinct statement of the rule in Director of Buildings and Land v Shun Fung Ironworks Ltd [1995] 2 AC 111, 136:

The appellants submit that the compulsory acquisition of their land was not an integral part of the barrage project. That statutory project, they point out, itself contained no proposals whatever for mitigating its damaging environmental effects, and plainly did not envisage the acquisition of their particular land. Nor did those promoting and executing the barrage project, in particular CBDC, themselves ever obtain powers of compulsory acquisition over the appellants' land; rather the land was acquired by LAW which itself had no statutory function with regard to the barrage project. All these factors, submit the appellants, in particular taken together, were inconsistent with a conclusion that the creation of the nature reserve was an integral part of the barrage project. Of course the need for the nature reserve arose out of the barrage project, but that is not to say that it was integral to it; rather it was a distinct project and to be regarded as such for the purposes of compensation.

Mr Holgate QC for the appellants invited us to examine this argument in the light of the Law Commission's report, the most directly relevant part of which, under the heading "The Statutory Project rule—Preferred version of the rule," reads:

Pointe Gourde

Wilson v Liverpool City Council

Those recommendations are to be found in rule 13 of the Law Commission's proposed New Code as follows:

[It has been convenient to include at this stage of the judgment sub-rules (4) and (5) although their relevance is rather to the second of the appellant's arguments on the appeal.]

Insofar as "the wide version" of the rule described in para 7.16 (2) of the report involves the disregard of "the planning history over a much wider area [than the order land] and dating back many years", I too would deprecate it. If, indeed, that is thought to be the approach required following Pointe Gourde's reference to the "underlying scheme" as subsequently interpreted, then in my opinion the rule has been developed impermissibly far and should now be narrowed down. Clearly, for example, it cannot be right that the valuer must let his imagination "take flight to the clouds" as Lord Denning MR suggested in Myers v Milton Keynes District Council [1974] 1 WLR 696, 704—see para 78 of Carnwath LJ's judgment below. As, however, Carnwath LJ also observed (in para 89), although the words in Pointe Gourde—"the scheme underlying the acquisition"—were new, it is clear from their context that they were not intended to differ from the words used by Lord Buckmaster in Fraser v City of Fraserville [1917] AC 187, 194, "the scheme for which the property is compulsorily acquired".

It will readily be seen from the proposed new rule 13 (3) that where the meaning of "the statutory project" is disputed, its area would in any event fall to be determined by the Lands Tribunal as a question of fact and it would be open to the acquiring authority (or, of course, the landowner, in a case involving depreciation due to blight) to establish that the order land is part of a larger project, provided, ordinarily, this had been defined in the compulsory purchase order or the documents published with it.

The proposed new rule 13 seems to me to point the way forward quite admirably and indeed to represent a sensible approach to the Pointe Gourde principle as it presently stands. To my mind, however, it is clear that, even assuming the principle were to be applied in that way—or, indeed, that such a rule were already in force—the appellants' argument would fail: the statutory project here would inevitably be found as a question of fact to be the creation of the nature reserve as part of the larger project of the barrage development, that larger project being time and again referred to in the statement of reasons for the compulsory purchase order which included, under the heading History of the Scheme, the following paragraphs:

Although describing the appellants' argument under this head as their "strongest point", Carnwath LJ rejected it for reasons appearing in paras 101-117 of his judgment. I agree with them.

Since drafting this opinion I have had the advantage of reading the speech to be given by my noble and learned friend Lord Nicholls of Birkenhead. At paragraph 58 he turns to consider "how the extent of a scheme should be identified in today's conditions", a most important issue which he then addresses in paragraphs 58-63 inclusive. I respectfully agree with everything there said, all of which I believe to be entirely consistent with my own thoughts on the matter.

Argument 2: what properly must be disregarded?

I turn to the appellants' second argument by which they contend that, even assuming the statutory project ("the scheme for which the property [was] compulsorily acquired", to use Lord Buckmaster's formulation in Fraser) to be the barrage project, the key value of their land—its particular worth as a means of unlocking the value of the Cardiff Bay development which the European Commission might otherwise have thwarted—nevertheless falls to be regarded, not disregarded. Summarised in the appellant's printed case the argument is put thus:

Re-formulated in writing during the hearing the argument runs:

inflated above open market value.

What the argument comes to is this. All that can be disregarded is, first, "the effect on land's value of a power of compulsory acquisition" and, second, "the actual carrying out of the works". As to the first, the valuer must disregard the fact that, in the hands of a purchaser with powers of compulsory acquisition, the land will be more valuable because of that purchaser's power both to acquire such other land as is necessary to develop the order land's potential and also to do so more speedily than would be achievable by a purchaser without such powers. As to the second, the valuer must not assume that the proposed works have already been carried out in pursuance of the scheme (whether on the order land itself or on any other land comprised within the scheme), but only that there is now the potential to carry them out. That potential, however, is to be brought into account in assessing the open market value of the land. It would only fall to be disregarded if rule 3 were to apply. It is not to be disregarded under the Pointe Gourde rule.

I would firmly reject the argument. If correct, it would emasculate the no-scheme rule to the point of extinction. Of course it is right to disregard those particular matters which Mr Holgate recognises must be disregarded. But they would surely fall to be disregarded in any event and without reference to the no-scheme rule: indeed, I find it difficult to see them as enhancing the land's open market value in the first place, particularly in the light of rules 1 and 2. The potential of the land as a result of the scheme (including any key value it may have) is, however, as I readily accept, a factor which enhances the land's open market value and something, therefore, which either is, or is not, to be disregarded under the Pointe Gourde rule. In my judgment it is and there is nothing in the Indian case, on which the appellants' arguments so strongly relies, to gainsay this.

The first point to be made is this. The relationship between the Pointe Gourde principle and Stokes v Cambridge Corporation 13 P & CR 77 was considered, apparently for the first time, in Batchelor v Kent County Council 59 P & CR 357 and on this issue certainly I find Mann LJ's judgment, at p 361, entirely convincing:

Horn v Sunderland Corporation

Assuming, however, that any premium value, or indeed any other particular value, of the land were "entirely due to the scheme underlying the acquisition" (or, if one prefers, Lord Nicholls' formulation in Director of Buildings and Lands v Shun Fung Ironworks Ltd due to the "very scheme of which the [acquisition] forms an integral part"), then in my judgment, notwithstanding that it represents the land's "unrealised potentiality" (to use Mr Holgate's expression), it clearly falls to be disregarded.

Section 6 of the 1961 Act, which is clearly related to the Pointe Gourde rule, has as its sidenote: "Disregard of actual or prospective development in certain cases", and, where it applies, it requires the disregard of "any increase … in … value … attributable to the carrying out or the prospect of so much of the development mentioned … as would not have been likely to be carried out if … the acquiring authority had not acquired and did not propose to acquire any of that land". The Law Commission's proposed new rule 13 (4) (b) (ii), it may be noted, would similarly require in respect of the order land the disregard of "the prospect of" the relevant project.

This approach is entirely consistent too with that adopted in the New South Wales legislation (see para 138 above), requiring as it does the disregard of any increased value in the land "caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired" (emphasis added).

What, then, of the Indian case? Can this avail the appellants? In my judgment not. If the Indian case is properly to be characterised as a two-scheme case—"the acquisition . . . of the shallow basin forming the catchment area of the spring, the site of the spring itself, and a narrow strip of land below the spring" (as Lord Romer described it) being separate from the harbour project—then plainly there could be no disregard of the enhanced value of the water supply through its proximity to the harbour which Lord Romer rightly recognised the acquired land to have. I have no doubt that Carnwath LJ was right to regard the Indian case in that way—see para 93 of his judgment—and note that his approach precisely mirrors that adopted by the New South Wales Court of Appeal in Perry 116 LGERA 244 . As Handley JA said at p 256, para 59:

Pointe

Gourde

Hodgson JA added at p 262, para 96:

Pointe Gourde

I would, accordingly hold that, once the scheme under which the land is being compulsorily acquired has been identified to include some wider project (as here and as in Pointe Gourde but not in the Indian case), the "unrealised potentiality" of the order land due to the scheme falls to be disregarded no less than its "realised potentiality". That, indeed, is why the Law Commission's proposed new rule 13 (4) (a) requires the valuer to assume the scheme's cancellation. The appellants' contrary case as to the true nature of the disregard could succeed only if the Pointe Gourde rule was henceforth to be applied altogether more restrictively than ever before (or, indeed, as Lord Scott would hold, if it were to be found not to have survived the 1961 Act), and if rule 3 (which, of course, Mr Holgate recognises does, where it applies, require unrealised potentiality to be disregarded) was as impotent as for many years it has been thought to be (although which, on Lord Scott's approach, would now be revivified). That the appellants should be right on both limbs of the argument cannot be countenanced. For my part I would hold that their argument fails on the first limb.

In the result I would dismiss this appeal. In doing so, however, I would acknowledge the present highly unsatisfactory state of the law and echo Carnwath LJ's plea in the court below for fresh parliamentary consideration of this important area of the law. There can be, as he put it at p 414, para 116, "few stronger candidates on the statute-book for urgent reform, or simple repeal, than section 6 and Schedule 1 of the 1961 Act". It is to be hoped that your Lordships' opinions on this appeal coupled with the Law Commission's exemplary report may pave the way for further legislation.

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	United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Waters & Ors v Welsh Development Agency [2004] UKHL 19 (29 April 2004) URL: http://www.bailii.org/uk/cases/UKHL/2004/19.html Cite as: [2004] RVR 153, [2004] 1 WLR 1304, [2004] WLR 1304, [2004] 19 EGCS 165, [2004] UKHL 19, [2004] NPC 68, [2004] 2 All ER 915