Palatine Graphic Arts Co Ltd v Liverpool City Council

Compensation for acquisition of premises by agreement but on compulsory purchase compensation basis — In present case claimants’ lease had only a nominal value but a substantial sum was due by way of compensation for disturbance — Part of the sum payable for disturbance was in respect of works which attracted a regional development grant under the Industry Act 1972 amounting to 22% of the capital expenditure involved — The issue was as to whether the amount of the grant should be deducted from the compensation payable for disturbance — The Lands Tribunal decided that the amount of the grant should not be deducted and the acquiring authority appealed — The authority, relying on Horn v Sunderland Corporation, argued that if the claimants received both the cost of carrying out the works as disturbance compensation and the regional development grant, the result would ‘transgress the principle of equivalence’ by paying the claimants more than their loss — The authority also cited in their favour by analogy the decisions in British Transport Commission v Gourley and West Suffolk County Council v W Rought Ltd about the deduction of tax in the assessment of damages for loss of profits — The Court of Appeal, however, rejected these submissions and held that the case was governed by the principles applied by the House of Lords in Parry v Cleaver, when they refused to deduct from the damages awarded to a policeman injured in a car accident the amount of a police disability pension to which he had contributed — Applying these principles, it would be wrong in the present case to deduct the regional development grant from the disturbance compensation (1) because it would be contrary to public policy and (2) because such a grant is wholly different in kind from compensation for disturbance — Indeed, it is not compensation at all but an incentive for industrial expansion — Authority’s appeal dismissed This was an appeal by case stated by Liverpool City Council, the acquiring authority, from a decision of the Lands Tribunal (Mr C R Mallett FRICS) holding that the amount of a regional development grant should not be deducted by the authority from the compensation for disturbance payable under certain heads, following the acquisition of the factory held under lease by the respondents (claimants) at 5 Hood Street, Liverpool. Michael Kershaw QC and Miss Jane Tracy Forster (instructed by W I Murray, City Solicitor, Liverpool) appeared on behalf of the appellants; Andrew Gilbart (instructed by Lacies & Co, of Manchester) represented the respondents. Giving the first judgment at the invitation of the Master of the Rolls, GLIDEWELL LJ said: This is an appeal by way of case stated from a decision of the Lands Tribunal (Mr C R Mallett FRICS) dated June 11 1984 of a disputed issue as to the compensation payable by Liverpool City Council for the acquisition of premises formerly occupied by the respondent company, Palatine Graphic Arts. The question at issue as set out in the case stated is: whether an amount equivalent to a regional development grant paid by the government, or some lesser amount, should be deducted from the compensation payable by the local authority in respect of disturbance following the acquisition of the claimants’ property. Palatine are long-established printers, specialising in the high-quality printing of labels and packaging. Until 1980 they occupied, under a lease expiring on December 31 1983, a factory at 5 Hood Street, near the city centre of Liverpool. They used machines of considerable value, and the process necessitated special equipment for dust extraction, treatment of effluent, silver recovery and lighting. The city council desired to acquire the Hood Street premises in order to carry out a scheme of redevelopment. The council could have used powers of compulsory purchase. However, the parties reached agreement that Palatine should sell to the council their interest in the premises at a price equivalent to the compensation which would have been payable if the acquisition had been by way of compulsory purchase order. In order to carry on their business, Palatine needed to acquire alternative premises. It was agreed that such premises need not have been in Liverpool. Palatine used two printing processes, letter press and offset-litho. By 1980, the offset-litho process dominated. In relation to this, the case stated contains the following extract from an agreed statement of facts: This has led to difficulties in the Liverpool area in training and maintaining sufficient qualified staff in the offset litho process, said to be due in part to the attitude of the local trade unions which sought to retain the letter press process. Although the business has been established in Liverpool for many years local trade has declined considerably so that now about 80% of the custom is outside the Liverpool area and 60-70% outside Merseyside and the surrounding area of Lancashire. At the material time it would have eased customer and staff problems to relocate the claimants’ business in Manchester or elsewhere. Against this was the advantage of staying in Liverpool which was a special development area for the purpose of regional development grants paid by Government as part of their incentive to industry scheme introduced by the Industry Act 1972. In special development areas grants of 22% were made towards investment in new buildings, or works to new or existing buildings, and new plant or machinery. The cost thereof, before deducting the grant, could be offset against tax. At the material date Manchester was in an intermediate area where 20% grants were available, but only in respect of building works. In the event, the claimant company decided to retain their business in Liverpool at a single storey purpose built factory unit in Fox Street and spent some £250,000 on the basic shell, a further £200,000 on fitting out and about £500,000 on plant and machinery, half of which was on hire purchase or lease. All or most of these expenditures qualified for a regional development grant of 22%. Palatine entered into an agreement for the erection and acquisition of the Fox Street factory on March 6 1978 and completed the move to those premises on July 1 1980. It has long been accepted law (and it is agreed by both parties to the present dispute) that the owner of an interest in land which is compulsorily acquired is entitled to be compensated both for the value of his interest as such and for any loss he may suffer as a result of being dispossessed of his land. This latter category is compendiously called ‘compensation for disturbance’. It embraces, among other matters, the cost of removal to new premises and any loss of the profits of a business proved to be attributable to the dispossession. Although the principle of disturbance compensation was generally accepted before the passage of the Lands Clauses Consolidation Act 1845 — see eg Jubb v Hull Dock Co (1846) 9 QB 443, based upon a Private Act of earlier date — the right to compensation for disturbance is not expressly granted by statute. Neither the 1845 Act nor its successor, the Compulsory Purchase Act 1965, gives such a right in terms. The reason is always said to be that the dispossessed owner is entitled to receive compensation based upon the value to him of his land and premises. Since he is likely to incur expense and loss if he leaves the land and moves elsewhere, or indeed if he ceases to carry on his business as a result of the compulsory acquisition, the value to him may comprehend not merely the value of his interest in the land as such but also the right to be compensated for that consequential loss. As Scott LJ said in the leading case of Horn v Sunderland Corporation [1941] 2 KB 26 at p 45: None the less, the owner in a proper case — that is, in a case where he really does incur a loss of money by disturbance due to the taking over and beyond the loss for which he is to be reimbursed in respect of the land taken — is entitled, because it has to do with the land, to have that element of personal loss taken into the reckoning of the fair price of the land, as has been held by the courts from a very early stage. This right to compensation for disturbance, though not deriving from statute, has been preserved by statute. Section 5 of the Land Compensation Act 1961, which repeats a similar provision in the Acquisition of Land (Assessment of Compensation) Act 1919, provides: Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following rules . . . (2)  The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise . . . The proviso which preserves disturbance compensation is in rule (6): The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land. It is, of course, necessary for the open market value of the land acquired and the disturbance compensation to be assessed separately, but once agreed or awarded, the sums are aggregated and the total is the price at which the land is conveyed to the acquiring authority: see Horn v Sunderland Corporation. In the present case, almost the whole of the price to be paid consists of the compensation for disturbance. The value of Palatine’s interest in their leasehold is agreed at £5. Taking into account the second matter on which Palatine succeeded before the Lands Tribunal and which is not in dispute before us, various items of disturbance are also agreed in the total sum of £83,324.82. The dispute centres on the remaining items. In order to equip their new premises for their machinery and processes, Palatine carried out various works at a total cost of £102,748 which, it is agreed, properly fall within ‘disturbance’. However, the city council argued that they are not obliged to pay the whole of this sum by way of compensation since in respect of this expenditure Palatine applied for and received regional development grant at the rate of 22%, namely £22,605. This last sum the city council seek to deduct from the compensation they are otherwise liable to pay. The member of the Lands Tribunal found in favour of Palatine on this issue, hence this appeal. At the relevant date, regional development grant was payable under section 1 of the Industry Act 1972, which provided: Grants for buildings, machinery, plant and certain works; (1)  The Secretary of State may make a grant to a person towards approved capital expenditure incurred by that person, being expenditure of any description in column 1 of the Table below. (2)  The amount of a grant under this section shall be the prescribed percentage of the expenditure in respect of which it is made. Subsection (3) and the table which followed prescribed the percentage appropriate for Palatine’s works as 22%. Both counsel are agreed that there is no direct authority on the question whether regional development grant should be deducted from the compensation. Mr Kershaw for the city council relies upon another principle conveniently expressed in Horn v Sunderland Corporation. In his judgment at [1941] 2 KB 26 at pp 48 and 49 Scott LJ summarised the principles upon which compensation for disturbance should be assessed. At p 49 he said: . . . on a compulsory sale the principle of compensation will include in the price of the land, not only its market value, but also personal loss imposed on the owner by the forced sale, whether it be the cost of preparing the land for the best market then available, or incidental loss in connection with the business he has been carrying on, or the cost of reinstatement, because otherwise he will not be fully compensated. (6) But here we come to the other side of the picture. The statutory compensation cannot, and must not, exceed the owner’s total loss, for, if it does, it will put an unfair burden on the public authority or other promoters who on public grounds have been given the power of compulsory acquisition, and it will transgress the principle of equivalence which is at the root of statutory compensation, the principle that the owner shall be paid neither less nor more than his loss. Mr Kershaw submits that if Palatine receive both the whole of the cost of carrying out the necessary works as disturbance compensation and the sum of £22,605 as RDG, they will have been paid more than their loss. To ensure that they receive no more, the amount of the RDG must be deducted. Mr Gilbart for Palatine starts his submission by arguing that compensation for compulsory purchase, including compensation for disturbance, is to be assessed on the same basis as would damages at common law. In other words, if the acquiring authority had no power of compulsory acquisition, but had simply evicted the landowner from his property, he would have a right of action in trespass, and the basis upon which damages would be assessed for a trespass which deprived him of his property permanently provides the test for the assessment of compensation. In my judgment, this submission is correct. In Ricket v Metropolitan Railway Co (1865) 34 LJQB 257, in the Court of Exchequer Chamber, Erle CJ, giving the judgment of the majority, said at p 261: . . . the company, claiming to take land by compulsory powers, expel the owner from his property and are bound to compensate him for all the loss incurred by the expulsion; and the principle of compensation then is the same as in trespass for expulsion; and so it has been determined in Jubb v Hull Dock Co. Although this passage in the judgment was strictly obiter dictum, it has been generally followed and applied. Mr Kershaw submits that, even if the principles are the same as those for common law damages, compensation ought to be assessed after deduction of RDG on the same basis as assessment of damages or loss of future earnings in a personal injury case, where the relevant figure is that of the earnings after deduction of tax. The principle in British Transport Commission v Gourley [1956] AC 185 was followed by the House of Lords in West Suffolk County Council v W Rought Ltd [1957] AC 403, which decided that, if compensation for loss of future profits as part of disturbance on compulsory purchase was not itself subject to tax, then the assessment ought to be based on the net figure of the profits after deduction of tax. Mr Gilbart replies that the taxation cases are concerned with deciding what is the true loss suffered by a plaintiff at common law or a claimant to compensation on compulsory purchase. This is distinct from the present situation, in which the claimants have received following the compulsory purchase an additional payment from another source. The principles to be applied in this case, he submits, are those derived from the decision of the House of Lords in Parry v Cleaver [1970] AC 1. In that case the plaintiff police constable was severely injured in a car accident for which the defendant was liable. As a result of his injuries he was discharged from the police force. During his service he had made compulsory contributions to a police pension fund, and on his discharge he was entitled to and did commence to draw a disability pension from the fund. It was argued on behalf of the defendant that the amount of the pension should be deducted from the plaintiff’s loss of earnings in assessing damages. By a majority the House of Lords rejected this argument. At the beginning of his speech Lord Reid said at p 13: Two questions can arise. First, what did the plaintiff lose as a result of the accident? . . . And secondly, what are the sums which he did in fact receive as a result of the accident but which he would not have received if there had been no accident?  And then the question arises whether the latter sums must be deducted from the former in assessing the damages. His Lordship then said that Gourley’s case dealt with the first question but not at all with the second. He said in relation to the second question: The common law has treated this matter as one depending on justice, reasonableness and public policy. So I must inquire what are the real reasons, disregarding technicalities, why these two classes of receipts are not brought into account. (pp 13-14). 20 Lord Reid considered whether a sum received following the accident as a result of benevolence would have to be taken into account in assessing damages. He said: It would be revolting to the ordinary man’s sense of justice, and therefore contrary to public policy, that the sufferer should have his damages reduced so that he would gain nothing from the benevolence of his friends or relations or of the public at large, and that the only gainer would be the wrongdoer. We do not have to decide in this case whether these considerations also apply to public benevolence in the shape of various uncovenanted benefits from the welfare state, but it may be thought that Parliament did not intend them to be for the benefit of the wrongdoer. As regards moneys coming to the plaintiff under a contract of insurance, I think that the real and substantial reason for disregarding them is that the plaintiff has bought them and that it would be unjust and unreasonable to hold that the money which he prudently spent on premiums and the benefit from it should enure to the benefit of the tortfeasor. Later at p 15D he said: If remoteness has any relevance here it is quite a different kind of remoteness — the connection or absence of connection between the source of the benefit and the source of the wages. But what has that got to do with the defendant?  It is rational to make the extent of the defendant’s liability depend on remoteness from his point of view — on what he knew or could or should have foreseen. But it is, to my mind, an irrational technicality to make that depend on the remoteness or closeness of relationship between the plaintiff’s source of loss and source of gain. Surely the distinction between receipts which must be brought into account and those which must not must depend not on their source but on their intrinsic nature. It will be seen that Lord Reid based his decision that the pension moneys were not deductible in assessing damages on two reasons: (i) because deduction would be contrary to public policy and (ii) because the pension moneys and the earnings loss were intrinsically different. Mr Gilbart submits and I agree that both reasons apply in the present case. On the facts found in this case the prospect of obtaining regional development grant was an important inducement to Palatine to relocate themselves in Liverpool rather than moving elsewhere in Lancashire. To the extent that the amount of RDG was deducted from their compensation, that inducement would be lessened. That seems to me to be contrary to the policy of assisting development areas of which the payment of RDG was a part. This was one of the reasons which led to the decision of the member of the Lands Tribunal that the RDG should not be deducted from disturbance compensation, and in this respect he was in my view correct. Second, the loss caused by disturbance on compulsory purchase and the payment of RDG are different in kind. The loss on disturbance flowed from the fact that the landowner had been forced to give up occupation of his land and premises as a result of the acquisition of his interest. The RDG was paid in respect of part of the expenditure incurred when moving into new premises. For both these reasons I therefore conclude that the decision of the Lands Tribunal in this case was correct and that the compensation for disturbance should be assessed without any deduction in respect of the payment of regional development grant. I should add for completeness that Mr Gilbart before the Lands Tribunal advanced another argument, why RDG should be disregarded, namely that its payment was not as of right but a matter of discretion for the Secretary of State. The member of the Lands Tribunal based his decision in part on this reason. Before us Mr Gilbart did not advance this argument. In this respect only I disagree with the decision of the Lands Tribunal. Discretionary or not, RDG was in fact paid to Palatine, and if for other reasons it should have been taken into account the discretionary nature of the Secretary of State’s power to pay RDG would in my view be irrelevant. However, for the other reasons set out above I am of the opinion that the decision of the Lands Tribunal was correct. I would dismiss the appeal. MAY LJ agreed with the judgment of Glidewell LJ and also with the judgment of the Master of the Rolls below and did not add anything. Agreeing that the appeal should be dismissed, SIR JOHN DONALDSON MR said: The leading authority on compensation for disturbance by compulsory purchase is Horn v Sunderland Corporation [1941] 2 KB 26 and, in particular, the judgment of Scott LJ at p 40. This establishes that such compensation has no existence separate from the price of the land, but is an element in assessing that price. It also establishes, at p 49, that: the statutory compensation cannot, and must not, exceed the owner’s total loss, for, if it does, it will put an unfair burden on the public authority . . . and it will transgress the principle of equivalence which is at the root of statutory compensation, the principle that the owner shall be paid neither less nor more than his loss. Scott LJ went on to say that: the enunciation of this principle, the most fundamental of all, is easy enough. Its justice is self-evident, but its application to varying facts is apt to be difficult. It is not easy to spell out of it a general criterion which will afford a practical test in all cases. He then illustrated this by reference to the facts of that appeal, where the compulsory sale had enabled the owner to realise the full value of the land as building land, which he could not, or would not, have done but for the compulsory sale. He said that it was a false interpretation of the compulsory purchase legislation to hold that in all circumstances ‘disturbance’ loss must be added to ‘the actual price of the land’, by which I understand him to mean its full market value and, on the facts of that case, he held that compensation based on market value as building land would adequately make good the owner’s loss of the land valued on the basis of its actual user as agricultural land together with disturbance loss. Although the appellants submit that this points conclusively to a decision that the owner must give credit for regional development grant to the extent that it is related to work done or expenditure incurred which would also form the basis of a claim for disturbance loss, I do not so understand it. Horn’s case decides no more than that there shall not be over-compensation — ‘the owner shall be paid neither less nor more than his loss’. So be it, but it is necessary to determine what exactly was the respondents’ loss by way of disturbance. A similar problem can arise in the assessment of damages and I have derived considerable assistance from the decision of the House of Lords in Parry v Cleaver [1970] AC 1 and, in particular, from the speech of Lord Reid at p 13. He said that three questions arose: (i) ‘What did the plaintiff lose as a result of the accident?  What are the sums which he would have received but for the accident but which by reason of the accident he can no longer get?’  (ii) ‘What are the sums which he did in fact receive as a result of the accident but which he would not have received if there had been no accident?’  (iii) ‘To what extent must the latter sums be deducted from the former in the assessment of damages?’ On the facts of this case, there is no dispute but that the respondents incurred disturbance expenditure in the amount, I think, of £147,478, although the precise figures do not matter, and that this expenditure would not have been incurred but for the compulsory purchase. There is also no dispute that some of this expenditure attracted regional development grant. The sole question in dispute is whether the disturbance loss is properly to be regarded as being the disturbance expenditure as abated pro tanto by the regional development grant. If it is, then the amount of the compulsory purchase price can only take account of the disturbance expenditure so abated, as otherwise it would amount to over-compensation and offend against the principles enunciated in Horn’s case. If it is not, the compulsory purchase price can take account of the full disturbance expenditure, since that, and not the abated sum, represents the disturbance loss. It is at this point that it is necessary to take a closer look at the nature of a regional development grant, just as the House of Lords took a closer look at the nature of a police pension in Parry v Cleaver (supra). A regional development grant is not paid in compensation for dispossession or disturbance. It is payable whether or not there is a change of ownership or location, so long as it relates to expenditure of a relevant kind incurred in a relevant geographical area. It is therefore different in kind from compensation for disturbance. Indeed it is not compensation at all. Regional development grants are, as one of the Department of Industry booklets rightly describes them, ‘Incentives for Industry in the Areas for Expansion’. This analysis leads me to conclude that in the instant and similar cases, (i) the person whose land is compulsorily acquired incurs disturbance expenditure in re-establishing his business, (ii) other things being equal, this expenditure is the same wherever he incurs it, (iii) this expenditure is prima facie the measure of his disturbance loss, (iv) his disturbance loss is not reduced if he chooses to incur the disturbance expenditure in a particular area and is rewarded — not21 compensated — for so doing by the receipt of an incentive payment in the form of a regional development grant. In principle this is no different from the mail order customer who buys goods for £100 and has his name entered in a draw for a prize of £100. The goods will cost him £100, whether he wins or loses. If he wins, he will have paid £100 for the goods and received a prize of £100. He will not have received the goods for nothing. One can reach the same conclusion by a slightly different route. It is the dispossessed owner who chooses where to re-establish himself. Although regional development grants were not available when the relevant land compensation statute was enacted in 1961, it can hardly have been the intention of Parliament that incentives to establish or re-establish a business in a particular area should be taken into account in assessing the compulsory purchase price, since to do so would involve giving an incentive to the compensating authority which cannot choose where the business is to be established and taking away from the person who can so choose. This would be pure ‘Alice in Wonderland’. The appeal was dismissed with costs. An application for leave to appeal to the House of Lords was refused.