Fairmount Investments Ltd v Secretary of State for the Environment

Southwark CPO–Inspector’s report contained a case different from that made at the hearing–Reference from out of blue to ‘tell-tale’ hearing–Order rightly uashed This was an appeal by the Secretary of State for the Environment from an order of the Court of Appeal reversing a decision of Cusack J and quashing, at the instance of the respondents, Fairmount Investments Ltd, the London Borough of Southwark (Aldbridge Street) (no 1) Compulsory Purchase Order 1973. The decision of the Court of Appeal was reported at 238 EG 337, [1976] 1 EGLR 7. P Archer QC, W J Glover QC and H K Woolf (instructed by the Treasury Solicitor) appeared for the appellant, and Michael Mann QC, D Robins and Christine Gorna (instructed by Laytons, agents for J Gorna & Co, of Manchester) represented the respondents. In a brief speech, LORD DIPLOCK said that he agreed with the speech prepared by Lord Russell of Killowen and would dismiss the appeal. LORD DILHORNE: The respondents are the owners of 64 out of 68 houses in an area of about 2.94 acres declared by the Southwark Borough Council to be a clearance area as in their view the houses were unfit for human habitation and the most satisfactory way of dealing with the conditions in the area was to demolish all the houses. On January 9 1973 the council made a compulsory purchase order which, if confirmed by the Secretary of State, would enable them to acquire the respondents’ 64 houses on payment of site value. The respondents also owned houses within a quarter of a mile which the inspector in his report said were ‘almost identical . . . in design and condition’ but ‘inferior for rehabilitation purposes.’  In 1973 the council gave the respondents notice of their intention to acquire those houses to improve them ‘in order to deal in some measure with their long housing list, put at 8,242 families.’  The council sought to acquire the respondents’ 64 houses not to provide homes fit for human habitation for those on their housing list but to make the area an open space. In June 1970 the respondents’ agent had met the council’s surveyor, and together they had inspected some of the 64 houses which were typical of the rest. Following the inspection the respondents were told that the council would consider an application for improvement grants in respect of five houses, typical of the others. The respondents submitted plans and specifications in relation to two houses showing what they proposed to do to improve them, and on August 6 1970 the council’s property surveyor wrote to the respondents saying: ‘After careful inspection I can see no reason that your scheme should not be adopted and I await your formal applications.’  Before formal application was made, the respondents were told that it would be a waste of time for them to proceed further as the council proposed to make the area an open space. On April 6 1972 the respondents were told by letter that that was the council’s intention. As the respondents objected to the compulsory purchase order and did not withdraw their objection, a public local inquiry was ordered. It was held in September 1973 and lasted two days. After the hearing the inspector inspected the houses. He reported in favour of the compulsory acquisition of the respondents’ 64 houses under Part III of the Housing Act 1957, which meant their acquisition for site value. His findings, conclusions and recommendations were generally accepted by the Secretary of State, with some modifications immaterial to this case. The respondents then applied unsuccessfully to the High Court for an order quashing the compulsory purchase order, but their appeal to the Court of Appeal (Cairns, James and Shaw LJJ) succeeded, all the members of that court being in favour of allowing the appeal. From that decision the Secretary of State now appeals. The respondents alleged that the requirements of natural justice had not been met and that they had in consequence been substantially prejudiced. In 1957 the Committee on Administrative Tribunals and Inquiries (commonly referred to as the Franks Committee) reported (Cmnd 218). It inter alia considered and made recommendations as to the procedure to be followed in relation to inquiries, stressing the need for an authority seeking to acquire land to inform those affected of its reasons for doing so in order that they might be better able to prepare and present their case (paragraphs 280, 281) and that the right of individuals to state their case cannot be effective unless the case of the authority is adequately presented at the inquiry (paragraph 306). Following that report, the Compulsory Purchase by Local Authorities (Inquiries Procedure) Rules 1962 (SI 1962 no 1424) were made. They do not apply, we were told, to acquisitions under Part III of the Housing Act 1957. They only have legal effect in relation to local inquiries held under the Acquisition of Land (Authorisation Procedure) Act 1946, and no similar rules have been made in relation to acquisitions under Part III. Nevertheless we were told that in practice local authorities seeking to acquire under Part III have regard to them. They embody certain recommendations of the Franks Committee designed to secure fairness and natural justice. Under them an acquiring authority has to serve on ‘statutory objectors,’ who include the owners of the land affected, a written statement of their reasons for making the order (rule 4 (4)), and the inspector appointed to hold the inquiry can allow the reasons stated to be altered and added to, ‘but shall (if necessary by adjourning the inquiry) give every statutory objector an adequate oppor19 tunity of considering any fresh reason. . . .’ (rule 7 (5)). Similar provisions are contained in the Town and Country Planning (Inquiries Procedure) Rules 1974 (SI 1974 no 419). Their object clearly was to ensure that the requirements of natural justice were met, and that an objector knew what case he had to meet. In the present case no criticism can be made of the conduct of the borough council in relation to the inquiry, but to decide whether or not there was a failure to comply with the requirements of natural justice, one must consider what was their case and the case the respondents had to meet. The respondents were served with a summary of the principal grounds on which the council based its opinion that the houses were unfit for human habitation. It included the following: Stability– External: Settlement with some bulged and fractured walls Internal: Uneven settlement in floors In compliance with schedule 3 (4) to the Housing Act 1957 they were also served with a document in relation to each house in the area, including, it appears, houses which they did not own, stating in detail the defects in the house. All these documents mentioned settlement, but only in one, and that not one of the appellants’ houses, was there said to be ‘progressive settlement.’  In houses of this type, built in the 1880s, some settlement is perhaps to be expected. From these documents it might be inferred that save in respect of that one house, it was not suggested that the settlement was continuing, and that the case respondents had to meet was that the settlement which had occurred, together with the other defects, rendered the houses unfit for habitation and led to the conclusion that the best way of dealing with the area was to demolish them. What is significant is that in none of these documents was there any reference to foundations. It was not suggested that the foundations were so defective as to rule out any question of rehabilitation. Indeed such a suggestion would have been inconsistent with the council’s surveyor’s statement that after careful consideration he saw no reason why the respondents’ improvement scheme should not be adopted, and inconsistent too, if the foundations of the respondents’ other houses ‘almost identical . . . in design and condition’ were similar, with the council’s action in seeking to acquire them to improve them. At the inquiry the respondents put forward two contentions, first that the houses were not unfit, and secondly that if they were, their demolition was not the best way of dealing with the conditions in the area, as they were capable of rehabilitation. The respondents put forward proposals for that directed to showing that, taking into account improvement grants, rehabilitation was an economic proposition. A surveyor gave evidence on their behalf at the hearing. He testified that there was no evidence of instability which would constitute a threat to the occupants of any house, and that ‘the existence of settlement did not indicate the probability, nor indeed the slight possibility, of further movement, and this was no ground for unfitness.’  The foundations of the houses were not referred to at the hearing. If they had been, perhaps the inspector would have thought it desirable, if necessary by adjourning the inquiry, to give the respondents an opportunity of considering their position. In his report, under the heading of ‘Stability,’ he described what he had seen of the settlement and included in it a reference to a ‘tell-tale’ which he had seen in one house and which had sheared through. The document served on the respondents by the council as to that house did not refer to a tell-tale, and there was no evidence as to the date when it had been put up and when it had sheared through. If the inspector had not attached importance to this tell-tale, he presumably would not have mentioned it. He did not state what inference he drew from it, but presumably he thought it showed that movement was still continuing. In his conclusions he said: The settlement which is evident in all the houses in clearance area no 1 would appear to be due to the foundations not having been taken deeply enough into the clay so as to avoid that area which is subject to seasonal expansion and contraction. Because of this and other previously stated defects I am of the opinion that satisfactory rehabilitation would not be a financially viable proposition and that the award of discretionary grants would be unlikely. I do not think that the inspector can be criticised either for referring to the tell-tale, if, as appears to be the case, he thought that significant, or for giving his expert opinion on what appeared to him to be the cause of the settlement and to lead to the conclusion that there was seasonal movement. It was his duty to report on what he saw on his inspection. The respondents’ complaint is twofold. They were given no opportunity of showing that what appeared to the inspector to be the case was not so in fact. No trial holes had been bored which would have established whether or not the foundations were inadequate. They (the respondents) were given no opportunity of showing that if the foundations were inadequate, that did not make satisfactory rehabilitation not a financially viable proposition. It was on account of his belief as to the inadequacy of the foundations that the inspector, taking that into account with the other defects, ruled out rehabilitation. So it appears that the inspector attached great weight to a factor which formed no part of the council’s case, of which the respondents had not been given notice and with which they had been given no opportunity of dealing. In my opinion there is great substance in the respondents’ complaints. Just as it would have been contrary to natural justice if the Secretary of State in making his decision had taken into account evidence received by him after an inquiry without an objector having an opportunity to deal with it, so here in my view it was contrary to natural justice for his decision to confirm the order to be based to a very considerable extent on an opinion, which investigation might have shown to be erroneous, that the foundations were not taken down deep enough, and an opinion, which also might have been shown to be erroneous, that the inadequacy of the foundations showed that rehabilitation was impractical. By the failure to give the respondents any opportunity to deal with these matters, they were in my opinion substantially prejudiced, and for the reasons I have given, in my view the Court of Appeal came to the right conclusion and this appeal should be dismissed. LORD SIMON OF GLAISDALE said that he agreed with the speeches of Viscount Dilhorne and Lord Russell of Killowen and for the reasons they gave would dismiss the appeal. LORD EDMUND-DAVIES also agreed with the speeches of Viscount Dilhorne and Lord Russell of Killowen. LORD RUSSELL OF KILLOWEN: This appeal by the Secretary of State for the Environment is from an order of the Court of Appeal reversing a decision of Cusack J and quashing a compulsory purchase order (the London Borough of Southwark (Aldbridge Street) (no 1) Compulsory Purchase Order 1973), confirmed by the Secretary of State for the Environment after a public inquiry ordered and held by an appointed inspector, an architect, and on the basis of the inspector’s report. The grounds for quashing the order were that the inspector formed and expressed an opinion that rehabilitation of buildings belonging to the respondent objector (‘Fairmount’) on the site the subject of the order was not a financially feasible alternative to their demolition, in part due to the unsatisfactory nature of their foundations; that at the hearing no suggestion was made that the foundations were other than satisfactory; that on the contrary, the history recited in the report was against such an inference; and that it was contrary to the principles of natural justice that20 this inference of inadequate foundations should have been relied upon against Fairmount without its being given any opportunity either to challenge the inference, or (if the inference were correct) to refute the conclusion that rehabilitation was not financially a feasible alternative to the demolition proposed. The local authority resolved on May 2 1972 that an area containing 68 terraced houses approaching 100 years old, of which 64 in multiple occupation belonged to Fairmount, should be a clearance area under section 42 of the Housing Act 1957. Section 42 provides as follows: (1)  Where a local authority, upon consideration of an official representation or other information in their possession, are satisfied as respects any area in their district (a) that the houses in that area are unfit for human habitation . . . and (b) that the most satisfactory method of dealing with the conditions in the area is the demolition of all the buildings in the area; the authority shall cause that area to be defined on a map . . . and shall pass a resolution declaring the area so defined to be a clearance area, that is to say, an area to be cleared of all buildings. . . . Section 4 (1) of the Act deals with the question of unfitness for human habitation: In determining . . . whether a house is unfit for human habitation, regard shall be had to its condition in respect of the following matters, that is to say (a) repair; (b) stability; (c) freedom from damp; (cc) internal arrangement; (d) natural lighting; (e) ventilation; (f) water supply; (g) drainage and sanitary conveniences; (h) facilities for . . . preparation and cooking of food and for the disposal of waste water; and the house shall be deemed to be unfit for human habitation if and only if it is so far defective in one or more of the said matters that it is not reasonably suitable for occupation in that condition. Under section 43, following upon a clearance resolution the local authority may either make a clearance order or make a compulsory purchase order for submission for confirmation to the Secretary of State and carry out the demolition of the buildings themselves. In the present case the authority chose the latter course and made the compulsory purchase order on January 9 1973: they wanted the area for an open space, and in adopting that course would only have to pay site value. Schedule 3 to the Act provides for advertisement and notices of the compulsory purchase order and for objections. Paragraph 3 (3) provides: If any objection duly made is not withdrawn, the [Secretary of State] shall, before confirming the order, either cause a public local inquiry to be held or afford to [an objector] . . . an opportunity of appearing before and being heard by a person appointed by the [Secretary of State] for the purpose, and, after considering any objection . . . and the report of the person who held the inquiry or of the person appointed as aforesaid, may, subject to the provisions of this part of this schedule, confirm the order. . . . As already indicated, a public local inquiry was directed to be held, and it was held on September 18 and 19 1973. Before that the local authority had promulgated two documents not strictly required by statute or regulation, but in accordance with practice. One (document no 14) was a statement of reasons for the compulsory purchase proposal, designed to show that acquisition of the land was the more desirable course having regard to the open space intention. The other (document no 15) was a summary of the principal grounds of unfitness, making brief comments under nearly all the heads found in section 4 (1); in particular it said: Stability– External: Settlement with some bulged and fractured walls Internal: Uneven settlement in floors On January 26 1973 Fairmount lodged a notice of grounds of objection to the compulsory purchase order (see the Act, sched 3, para 6). This asserted that (1) the houses were not unfit for human habitation, and (2) the most satisfactory way of dealing with the conditions in the area was not by demolition of all the buildings in the area but by the renovation of the buildings. The second objection is of course directed to section 42 (1) (b), and is an alternative ground of objection should the first not be sustained. The final pre-inquiry document is appendix part 3 of the record, containing in considerable detail in respect of each building in the area the facts alleged by the local authority as their principal grounds for being satisfied that the building is relevantly unfit (see the Act, sched 3, para 4). At the hearing evidence was called by the local authority and by Fairmount. The latter maintained its opposition on both the grounds mentioned above: but the inspector having concluded and reported, and the Secretary of State having accepted, that unfitness for human habitation had been established, that is no longer disputed by Fairmount. What is complained of is that for the purposes of section 42 (1) (b) the inspector should have arrived at a conclusion (which the Secretary of State accepted) that rehabilitation as a satisfactory alternative to demolition was not financially feasible, having regard in part to an inference that the foundations were inadequate to prevent further settlement, without giving Fairmount any opportunity to deal with that suggestion. Before returning to the facts of the case, I refer to the statutory provisions under which the matter came before the court. The Act, sched 4, para 2, provides that when the order is confirmed, as it was: If any person aggrieved by such an order . . . desires to question the validity thereof on the ground that it is not within the powers of this Act or that any requirement of this Act has not been complied with, he may, within six weeks after the publication of the notice of confirmation of the order . . . make an application for the purpose to the High Court, and where any such application is duly made the court . . . (ii) if satisfied upon the hearing of the application that the order . . . is not within the powers of this Act or that the interests of the applicant have been substantially prejudiced by any requirement of this Act not having been complied with, may quash the order . . . either generally or in so far as it affects any property of the applicant. Paragraph 3 of the same schedule provides comprehensive terms against any other form of challenge to the validity of the confirmed order, and enacts that subject to paragraph 2 the order shall become operative at the expiration of the six weeks’ period. There was a certain amount of discussion before your Lordships on the significance and applicability of the phrase ‘may quash’ and on the difference between the phrase ‘not within the powers of this Act’ and ‘the interests of the applicant have been substantially prejudiced by any requirement of this Act not having been complied with.’  In my view the instant appeal does not require discussion of these points, for I am satisfied that if the true conclusion is that the course which events followed resulted in that degree of unfairness to Fairmount that is commonly referred to as a departure from the principles of natural justice, it may equally be said that the order is not within the powers of the Act and that a requirement of the Act has not been complied with. For it is to be implied, unless the contrary appears, that Parliament does not authorise by the Act the exercise of powers in breach of the principles of natural justice, and that Parliament does by the Act require, in the particular procedures, compliance with those principles. At the hearing before the inspector there was evidence, which was not challenged by Fairmount except as a matter of degree, that in most if not all of the houses there had been some settlement: this was included in the schedule of particulars of unfitness put in by the local authority, but nowhere in that schedule was it suggested that settlement was other than static in any of the Fairmount houses, or that the foundations were inadequate, so as to lead to an inference that settlement might be progressive. Indeed there21 was a sharp contrast drawn in the particulars of unfitness (appendix part 3) between the Fairmount houses and one non-Fairmount site house, the former having noted under ‘Stability’ the word ‘settlement’ and the latter (reference p 17) the words ‘progressive settlement,’ with a note, ‘Progressive structural settlement has been noted in these premises over a period of five years.’  Professional evidence given for Fairmount was summarised by the inspector in his report thus: ‘The existence of settlement did not indicate the probability, nor indeed the slight possibility, of further movement. . . .’  As recently as 1970 Fairmount had been in discussion with the council’s surveyor about proposed rehabilitation or improvement of typical examples of Fairmount’s houses on the site. The surveyor inspected them, and in August 1970 Fairmount submitted informally plans and specifications of its proposals for two of the houses and the surveyor replied, ‘After careful inspection I can see no reason that your scheme should not be adopted and I await your formal applications.’  These applications would of course be for improvement grants for rehabilitation under the Housing Act 1969. This matter went no further because of the council’s open space scheme. It indicated, however, that it did not occur to the council’s surveyor that rehabilitation of those typical houses was not a satisfactory and feasible project: and in particular that it did not occur to him that the foundations (for which the specifications made no provision) were or might be inadequate. At the hearing Fairmount advanced in evidence a sample scheme of rehabilitation which was criticised by the local authority, not on the ground that it was not financially feasible but on the ground that a maisonette over a ground-floor flat was unsuitable on social grounds, with a reference to a fire risk, and the need to keep a pram in a 3-ft 3-in common entrance passage. One other matter was put by Fairmount before the inspector at the hearing and not sought to be controverted by the local authority: that the latter had served notice on Fairmount under Part V of the Act to acquire other houses of Fairmount almost identical in design and condition within a quarter of a mile of the present site for the very purpose of improving them for housing. At the end of the hearing the inspector visited the site and inspected some of the houses agreed to be typical examples. Such an inspection is a customary and indeed important part of the functions of such an inspector leading to his report. He is not only the ears of the Minister but also the eyes. The passages in the inspector’s report, accepted by the Secretary of State in his reasons for confirming the compulsory purchase order, of which Fairmount now complain are these. First there is paragraph 78 (b), which occurs in that part of the report dealing with the heads of unfitness: There is evidence of settlement in all of these properties which is evidenced in many humped and sloping ground floors, sloping first floors, the majority of door heads are out of alignment varying from about 1/4 inch to 1 1/2 inches in the worst cases. Many side back addition walls are bulged; some of these walls have been rebuilt owing to war damage, but some others appear to have been rebuilt pre-war; this is apparent by materials and workmanship. These rebuilt walls are generally sound. Most back walls to the back additions appear to be somewhat bulged outwards. This is evidenced by excessive mortar filling between the sash window and the wall in the external window reveal. The back walls of the three-storeyed blocks appear to be bulged outwards at second-floor level and this is evidenced by long vertical cracks in the staircase partition walls at or near their junctions with the back walls. These cracks extend through the partition walls from staircase to bedrooms. A ‘tell-tale’ has been secured across a typical crack in Reference P62 and this has sheared through. A number of the lean-to scullery blocks are pulling away from the main building at the roof intersection level with the main back addition wall and fractured brickwork is frequently evident at this point. The italics are mine. Then paragraph 81 (c): The settlement which is evident in all the houses in clearance area no 1 would appear to be due to the foundations not having been taken deeply enough into the clay and so as to avoid that area which is subject to seasonal expansion and contraction. Because of this and other previously-stated defects I am of the opinion that satisfactory rehabilitation would not be a financially viable proposition and that the awards of discretionary grants would be unlikely. Finally in his conclusions the inspector said: The properties in the order are largely held by one owner who wishes to rehabilitate and improve his dwellings. Since for reasons already stated, I do not consider this to be a financially viable proposition. . . . It was not disputed by the Secretary of State before your Lordships that the conclusion of the inspector under section 42 (1) (b), that the most satisfactory method of dealing with the conditions of unfitness in this area was demolition, was based on his view that rehabilitation was not a financially feasible method, and that that view was based in part upon his inference or view that the foundations were inadequate in the respect stated. For Fairmount it is contended that this suggestion of inadequate foundations was truly a bolt from the blue, a suggestion so contrary to everything that had emerged both before and at the hearing that Fairmount has been unfairly deprived of an opportunity in defending its property in a matter of considerable financial consequence to it, of either demonstrating that the inference as to inadequacy of foundations was erroneous or of demonstrating that any inadequacy that exists can be cured within the bounds of financial feasibility. For the Secretary of State it was in substance submitted that the question of stability and settlement had been raised, and therefore Fairmount should reasonably have anticipated all possible causes by leading evidence directly as to the state of the foundations; consequently it was not right to say that Fairmount had been deprived of the opportunity, as would have been the case had the inspector at the hearing cast doubt on the foundations but refused to hear evidence designed to correct his doubt. This submission for the appellant appears to me to be at the core of this appeal, and I do not, in the circumstances of the case that I have rehearsed, accept it. I entirely accept that such an inspector, in a case such as this, is not merely trying an issue or issues between the local authority and the objector owner, and may from his professional experience supply deficiencies in the case as presented by the local authority. I equally accept that he is not bound to accept as established a contention in evidence for the objector owner simply because it is not, or is not adequately, challenged or contested on the part of the acquiring authority at the hearing. Part of his function lies in his own knowledge of the subject. Nor would I wish to introduce into procedures such as this–which include, prior to report, his inspection of the site–a rigidity more appropriate to a private issue to be decided by a judge: and in that connection I do not believe that a ‘view’ by a judge is to be equated in any way with such a site inspection by such an inspector, a possibility which (it was said) might have been in the mind of the Court of Appeal in the instant case. But in this case I am unable, consonant with the essential principles of fairness in a dispute, to uphold this compulsory purchase order. All cases in which principles of natural justice are invoked must depend on the particular circumstances of the case. I am unable in the instant case to generalise. I can only say that in my opinion, in the circumstances I have outlined, Fairmount has not had–in a phrase whose derivation neither I nor your Lordships could trace–a fair crack of the whip. A passage at p 682 of22 R v Paddington and St Marylebone Rent Tribunal ex parte Bell London and Provincial Properties Ltd [1949] 1 KB 666 on being taken by surprise is of relevance here. I would only add two points. The first is the suggestion that the inspector should perhaps have kept silent about his views or inference as to the foundations. With this I wholly disagree: it was not suggested by Fairmount. What he should have done was either to reconvene the hearing or to invite the Department to do so: or, in a relatively straightforward case such as this, have in writing invited views on his provisional conclusions as to the foundations and financial feasibility. There is nothing either in the statute or in any rules to prevent this. The second point is the question of the sheared tell-tale. Of course we know nothing of the details of this. For the appellant it was argued that this fact should have been known to Fairmount, and so Fairmount should have anticipated a possible conclusion, based upon it, as to progressive settlement, and therefore due, in even these old houses, to foundation inadequacy. I agree that it was reasonable for the inspector to suppose that Fairmount knew of the existence of a ‘tell-tale,’ just as in the Paddington Rent Tribunal case (supra) it might be supposed that the landlord knew that the ceilings were only eight feet; but that is not the same as reasonably anticipating the inference that might be drawn, and we know nothing of the date of the tell-tale, or of its shearing. Its existence does not persuade me that Fairmount was not taken by surprise in a relevantly unfair way by the conclusions of the inspector accepted by the Secretary of State. I do not wish to be thought to impute any moral blame to the inspector by my conclusion that the procedure in this case involved unfairness. No one can be expected to be perfect in all circumstances, and he may take comfort from the fact that one judicial mind thought that he was in no way at fault. For these reasons I would uphold the quashing of the confirmed compulsory purchase order by the Court of Appeal and dismiss this appeal.