Part IX          

injurious affection where no land is taken

Introduction

Background

                    9.1               The construction and use of public works on land subject to compulsory purchase may cause financial injury to neighbouring owners and occupiers, whether or not any land is taken from them. It may reduce the value of their land, or cause loss of profits. Such losses are normally described as “injurious affection”. As has been explained, the rules for assessment of compensation, where land is compulsorily acquired, include provision for compensation for “severance or injurious affection” to any retained land.[1] Although assessed under a separate head, this is treated as part of a global sum for acquisition of the subject land.[2]

                    9.2               A different set of rules applies to injurious affection where no land is taken. Strictly speaking, these rules are not part of the law of compulsory purchase.  The loss is due to the public works, not to compulsory purchase as such. Indeed, it is usually irrelevant to the person claiming, whether or not the works are on land which has been compulsorily acquired from someone else. The rights to compensation extend to works on land acquired by agreement.[3]

                    9.3               Historically, however, these rules were derived from the compulsory purchase statutes,[4] and have generally been treated as part of the same body of law. In addition, there is considerable overlap with the rules for injurious affection where land is taken, and potential inconsistencies between the two sets of rules need to be addressed.[5] Furthermore, as we saw in the previous Part, the same rules are applied to public works which contravene rights (such as restrictive covenants or easements) attached to adjoining land, where the effect on the owner is much the same as compulsory purchase.[6] Accordingly, it is appropriate for these rules to be considered as part of the present project.

                    9.4               As has been seen, the general principles in the Policy Statement were expressed in wide terms:

… all those affected should be entitled to compensation for any and all of the actual losses which they can show that they have sustained as a result of an acquiring authority’s actions;

such an entitlement should apply irrespective of whether land is actually taken from the claimant for the scheme …[7] (emphasis added)

                    9.5               We do not understand this general statement as intended to pre-empt our review of this issue. When referring to the specific issue of compensation where no land is acquired, the Policy Statement noted that the CPPRAG recommendations on this issue were being considered by the Law Commission. It made clear that the Government looked to the Law Commission to make proposals “to provide adequate and appropriate compensation” for those from whom no land is acquired.[8]

                    9.6               Our conclusion will be that this part of our recommendations is better dealt with as a separate subject from the law relating to compulsory purchase. We shall be proposing that the relevant law is “merged” into an amended and expanded version of the 1973 Act Part I.

Sources of the law

                    9.7               The modern law has two statutory sources. The first is section 10 of the Compulsory Purchase Act, 1965, derived from the 1845 Act. As interpreted by the Courts, this provides a limited right to compensation for depreciation in the value of neighbouring land, caused by the construction of the authorised works, but not for that caused by their use.[9] The principles are now settled, having been recently clarified and re-stated by the House of Lords (Wildtree Hotels v Harrow London BC.[10]). The same rules apply to works on land acquired by agreement.[11]

                    9.8               The other source is more modern. Part I of the Land Compensation Act 1973 provides a self-contained code, under the heading “Compensation for depreciation caused by use of public works”. As the heading implies, the right is not dependent on compulsory acquisition of any land. The 1973 Act followed a “full scale review of the compensation code” by Government, the findings of which were given in a White Paper (“Development and Compensation-Putting People First”).[12] It also seems to have been strongly influenced by a report published by Justice,[13] which drew particular attention to the unsatisfactory gap in the existing law due to the exclusion of damage for use of the works.[14]

Layout of this Part

                    9.9               In the following sections, we discuss first the rules of the 1965 Act relating to damage caused by works (paragraphs 9.10 to 9.24) and then those of the 1973 Act relating to damage caused by use (paragraphs 9.25 to 9.49). We then consider the proposal by CPPRAG (paragraphs 9.50 to 9.56), and the treatment of the same  issues in Australia and Canada (paragraphs  9.57 to 9.64). Finally, we discuss the issues and make our recommendations (paragraphs 9.65 to 9.84).

Existing law - outline

(1) Damage caused by the works

                9.10               The statutory basis of the right to compensation is the 1965 Act, section 10:

 (1)   If any person claims compensation in respect of any land, or any interest in land, which has been taken for or injuriously affected by the execution of the works, and for which the acquiring authority have not made satisfaction under the provisions of this Act, or of the special Act, any dispute arising in relation to the compensation shall be referred to and determined by the Lands Tribunal. 

 (2)   This section shall be construed as affording in all cases a right to compensation for injurious affection to land which is the same as the right which section 68 of the Lands Clauses Consolidation Act 1845 has been construed as affording in cases where the amount claimed exceeds fifty pounds. 

                9.11               As has been frequently observed in the cases, subsection (1) gives little clue as to the content of the substantive right. It appears procedural, but it has been treated as creating a right to compensation, subject to four conditions (sometimes referred to as the “McCarthy rules” [15]):

                                            (1)             Injurious affection must be the consequence of the lawful exercise of statutory powers, otherwise the remedy is action in the civil courts;

                                            (2)             The injurious affection must arise from that which will give rise to a cause of action if done without the statutory authority for the relevant scheme of works;

                                            (3)             The damage or injury for which compensation is claimed must be in respect of some loss of value of the land of the claimant;

                                            (4)             The loss or damage to the claimant’s land must arise from the execution of the works and not from the authorised use of the lands compulsorily acquired following completion of the works.[16]

                9.12               Rules (2) and (4) distinguish compensation under section 10 of the 1965 Act from that under section 7 (injurious affection where some land is taken). Compensation under that section does not depend on establishing a common law right of action, nor is it confined to damage caused by execution of the works.[17]

                9.13               As already noted, these principles were recently re-affirmed by the House of Lords (albeit in a slightly different formulation) in Wildtree Hotels v Harrow London BC.[18] It is unnecessary, therefore, to review in any detail the extensive, and often conflicting, case-law on the subject. However, some brief comments on the four conditions will set the scene for the later discussion.

(1) Lawful exercise of statutory powers

                9.14               The remedy is provided for injury for which the claimant would have had a right of action at common law, but for which immunity is provided by the statutory authority. If injury is caused by unauthorised work or work improperly or negligently performed, it will not be within statutory powers and there is no claim for compensation under the 1965 Act. The claimant must seek a remedy at common law.[19]

                9.15               Although this rule is well established, it may give rise to difficult questions of demarcation. The boundary between what is, and what is not, authorised, is not always clear-cut. Thus, for example, the statutory immunity depends on the powers being exercised without “negligence”:

that word here being used in a special sense so as to require the undertaker, as a condition of obtaining immunity from action, to carry out the work and conduct the operation with all reasonable regard and care for the interests of others.[20]

                9.16               This does not necessarily equate to “negligence” as it is understood in other contexts.[21] Thus, where a claim is based on injury to neighbouring land caused by arguably “negligent” working practices of the authority’s contractors, it may be almost impossible to say where the line is crossed between what is authorised and what is not. In practice, the Tribunal is likely to be unsympathetic to a plea by an authority of its own negligence as an answer to a claim for compensation under a statute.[22] In theory, however, that distinction may be critical to whether the claim should be brought in the Lands Tribunal or in the ordinary courts. In Part VIII, we have made a proposal to extend the Lands Tribunal’s jurisdiction to mitigate this problem.

(2) Actionable apart from the statute

                9.17               This is the corollary of (1). The claimant is not put in a better position under the statute than he would have been at common law. An owner of land may use his land in many ways which depreciate the value of adjoining land, but he will not be liable for damages unless he infringes the legal rights of the adjoining owner. Similarly, a statutory authority is not bound, under this section, to pay compensation for acts for which a private owner of land would not have been liable.

                9.18               Again, however, difficult questions of demarcation may arise. For example, where the injury arises from something which would be regarded as a public nuisance at common law, the claim may fail unless “special” or “particular” damage can be shown. As was explained in Wildtree Hotels:

… a public nuisance, such as an interference with the use of a public highway, is a wrong to the public as a whole and the ordinary common law remedy was a prosecution on indictment. To support an action for damages, the plaintiff has to prove that he suffered particular damage greater than that suffered by members of the public in general. This rule offers considerable scope for dispute on the facts and some of the decisions on injurious affection reflect different judicial views on what amounts to particular damage.[23]

                9.19               The rule also results in a very narrow limit to any claim arising out of the effects of temporary construction works. The common law has always recognised that, in the ordinary course of events, some disturbance to neighbouring occupiers is the inevitable consequence of such activities. This was explained in the leading case, Andreae v Selfridge & Co Ltd:

… when one is dealing with temporary operations, such as demolition and re-building, everybody has to put up with a certain amount of discomfort, because operations of that kind cannot be carried on at all without a certain amount of noise and a certain amount of dust. Therefore, the rule with regard to interference must be read subject to this qualification, and there can be no dispute about it, that in respect of operations of this character, such as demolition and building, if they are reasonably carried on and all proper and reasonable steps are taken to ensure that no undue inconvenience is caused to neighbours, whether from noise, dust, or other reasons, the neighbours must put up with it. [24]

                9.20               The practical result is illustrated by the Wildtree Hotels case, itself. The claimants were owners of a hotel adjacent to land acquired under compulsory purchase by a local authority for the purposes of a five-year road improvement scheme. They claimed under section 10, on the grounds that the obstruction or closure of roads and pavements leading to the hotel during the work, together with the noise, dust and vibration emanating from the site, had "injuriously affected" their land, by causing a diminution in the rental value of the hotel during the work and for a period of time thereafter. The claim for noise, dust and vibration was rejected by the House of Lords, because it had not been shown that a common law claim would have succeeded under the Andreae criteria. Lord Hoffmann noted the lack of previous authority supporting such a claim, which he attributed to the difficulty of finding any “daylight” between the two applicable rules:

Actionability at common law… depends upon showing that the building works were conducted without reasonable consideration for the neighbours. On the other hand, immunity from liability arising out of the construction of works authorised by statute is subject to a condition that the undertaker will "carry out the work and conduct the operation with all reasonable regard and care for the interests of other persons"… I am reluctant to say that no claim for dust, noise or vibration can escape this dilemma because one cannot foresee all cases. But the argument seems to me very compelling and I would normally expect it to apply. [25]

                9.21               This case can be contrasted with another recent case, Clift v Welsh Office,[26] where there was more than “discomfort and inconvenience”.  The claim arose out of major highway works, on land close to the claimants’ property. The claim was for physical damage, including the cost of repairing wall and ceiling cracks, and “making good the effects of dust and mud on external and internal decorations”.[27] The Tribunal’s award was upheld by the Court of Appeal. The Andreae case was distinguished:

As Clerk & Lindsell’s description of the tort of private nuisance shows,[28] the category of private nuisance which consists of interference with one’s neighbour in the comfortable and convenient enjoyment of his land is quite separate and distinct from the category which consists of causing actual damage to his land. … when one is dealing with temporary and normal operations, such as demolition and building, there are good reasons why, as a matter of policy, the law should expect neighbours to put up with a certain amount of discomfort and inconvenience, provided that precautions are taken to see that the nuisance is reduced to a minimum. However, we see no sufficient reason why, as a matter of policy, the law should expect a neighbour to put up with actual physical damage to his property in such circumstances.[29]

(3) Damage to land

                9.22               It is clearly established that compensation is payable for depreciation in the value of land, not for business losses or personal suffering or inconvenience.[30] In Wildtree Hotels, the House of Lords held that this rule did not limit the claim to loss of the capital value of the affected property. In cases where compensation was payable for temporary interference with the affected land (such as by the obstruction to access in that case), a reduction in the letting value of the land was sufficient to sustain the claim, even where the capital value, after the conclusion of the works, would be unaffected:

The claimant is simply entitled to compensation for the damage to his land. Obviously if one is considering damage of which the effects will continue for some time into the future, such as the permanent deprivation of light or a right of way, it is sensible to take a valuation date and capitalise the value of the future loss at that date. But in respect of damage which has occurred in the past, there seems to me no reason why one should not calculate the effect which it has had upon the value of the land in the sense of reducing its letting value in the open market while the damage continued.[31]

Loss of profits might be relevant, but only to the extent that loss of profitability affected the value of the interest in the land.[32] The reference in this passage to the “open market” seems to imply that in this context, as in relation to injurious affection where land is taken, land value is equated with market value.[33]

(4) Damage from execution, not use

                9.23               Following Hammersmith Railway Co v Brand,[34] it is settled law that this provision does not give a right to claim compensation for the depreciation in value of land caused by the use to which the works are put.

                9.24               The facts of the case illustrate the effect of the rule. The company constructed a railway on land near the respondent’s house, no land having being acquired from the respondent for this purpose. A claim for compensation was made against the company, inter alia, in respect of the vibration, noise and smoke caused by passing trains. No physical damage had been caused to the respondent’s property but it was accepted that the working of the railway had the effect of permanently devaluing it. A jury awarded the compensation. The House of Lords held that no compensation was payable, because the loss arose from the authorised use, not the works.

(2) Damage caused by use

Background to the 1973 Act

                9.25               As noted above, Part I of the Land Compensation Act 1973 was designed to mitigate the perceived injustices of the narrow interpretation of section 10, under the McCarthy rules. To understand the format of the new rules, it is helpful to refer to the studies which preceded it. [35]

                9.26               As we have stated, this issue was considered by Justice. In its initial 1969 report, Justice accepted that a distinction should be maintained between injurious affection as part of compensation for the taking of land (under 1965 Act, section 7), and injurious affection where no land was taken. However, it saw injustice in the rule excluding damage due to subsequent use of the statutory works. It proposed that the law should be amended, so that compensation would be paid to any person suffering damage to his property (whether due to works or use), if it would constitute an actionable nuisance at common law, were the damage not authorised by statute.[36]

                9.27               In 1972, at a time when Government proposals were thought to be imminent, Justice published a supplemental report modifying its earlier proposals.[37] The authors were not satisfied that the suggested rule, based on whether the damage would constitute an actionable nuisance at common law, was workable. In particular, they referred to:

…the difficulty of fitting many of the larger kinds of public works, such as highways into the common law concept of nuisance.

Instead, the majority of the Sub-Committee thought that there should be a statutory listing of certain public works and activities to be treated as  actionable nuisances for the purposes of compensation for injurious affection. [38]

                9.28               The Government’s White Paper, published in October 1972,[39] referred to a “full scale review” of the compensation code, which had been carried out.[40] The aim of the White Paper was to achieve a “better balance” for the individual:

 

…the time has come when all concerned with development must aim to achieve a better balance between provision for the community as a whole and the mitigation of harmful effects on the individual citizen. In recent years this balance in too many cases has been tipped against the interests of the individual. A better deal is now required for those who suffer from desirable community developments. The Government is determined to provide this better deal.[41]

                9.29               The White Paper dealt with a number of topics, including injurious affection. It outlined the scheme subsequently embodied in Part I of the 1973 Act. The new right to compensation was to be available to owners and occupiers of residential property and “owner-occupiers of farms and small businesses”.[42] 

Land Compensation Act 1973, Part I

                9.30               The provisions of Part I are complex. For present purposes, an outline of the main points is sufficient.

The basis of claim

                9.31               In summary, the right to compensation arises where: (a) the value of the claimant’s interest in land has been depreciated; (b) the depreciation is caused by “physical factors”; (c) the physical factors are caused directly by the use of “public works”; (d) the use of the public works is immune from an action in nuisance; (e) the claimant’s interest qualifies; (f) the claimant makes his claim at the correct time and in the correct manner; and (g) the compensation claim exceeds £50.[43]

                9.32               The basic rules are set out in section 1:

                                            (1)             “Physical factors” are defined as “noise, vibration, smell, fumes, smoke, and artificial lighting and the discharge on to the land in respect of which the claim is made of any solid or liquid substance”. [44]

                                            (2)             The source of the physical factors “must be situated on or in the public works the use of which is alleged to be their cause”. Where, however, the physical factors are caused by aircraft arriving at or departing from an aerodrome, the aerodrome is to be treated as their cause (even if the aircraft are outside the aerodrome’s boundaries).[45]

                                            (3)             “Public works” are defined as “any highway, any aerodrome and any works on land (not being a highway or aerodrome) provided or used in the exercise of statutory powers”.[46]

                                            (4)             In respect of the use of public works other than highways, compensation is not payable unless immunity from an action in nuisance is conferred on the use of the works (expressly or impliedly) by an enactment relating to those works.[47]

                                            (5)             The “relevant date” is defined, in the case of a highway, as the date on which it is first open to public traffic, and in the case of other public works as the date on which they are first used after completion.[48]

                9.33               By section 9, a right to compensation may also arise following certain alterations or changes of use of existing public works (including highways), if they cause depreciation of value due to those physical factors and the depreciation would not have been caused but for the alterations or change of use. The circumstances in which such a claim can be made are:

                                                                   (a)              the carriageway of a highway has been altered after the highway has been open to public traffic;

                                                                   (b)              any public works other than a highway have been reconstructed, extended or otherwise altered after they have been first used; or

                                                                   (c)              there has been a change of use in respect of any public works other than a highway or aerodrome.[49]

In respect of the use of highways, compensation is payable if the claim relates to noise or vibration directly arising from alteration to a particular section of the highway.[50]

Persons qualifying for compensation

                9.34               The claimant must own a qualifying interest in a dwelling or land before the relevant date:

Dwellings

                9.35               A qualifying interest in land which is a dwelling is called an ‘owner’s interest’ defined[51] as the freehold or a tenancy of which not less than three years remain unexpired at the date of claim. There are special provisions for tenants who are entitled to enfranchisement.[52]

Land other than dwellings

                9.36               Where the claimant’s land is not a dwelling, the claimant must be an ‘owner-occupier’[53] and the land must either be an agricultural unit or have an annual value which is less than the ‘prescribed amount’, which is the same as that prescribed for the purposes of the blight provisions of the Town and Country Planning Act 1990.[54] The current amount prescribed for England and Wales is £24,600.[55]

Special interests

                9.37               A mortgagee may make a claim without prejudicing the mortgagor’s right to make a claim, but if he does so, no compensation is payable in respect of the depreciation in value of his own interest; he can only claim in respect of the mortgagor’s interest. The compensation will be paid to the mortgagee who must apply it as if it were the proceeds of sale.[56]

                9.38               If the interest in the land is held by trustees, and the person beneficially entitled under the trust is entitled to occupy the land, occupation is regarded as occupation by trustees and so they are entitled to compensation.[57] A person who acquired an interest by inheritance is eligible to claim even though he inherited after the ‘relevant date’, provided the person from whom he inherited had a qualifying interest before that date.[58]

The claim

                9.39               The notice of claim must contain the particulars required by section 3(1), including details of the claimant’s interest, and the amount of compensation  claimed.[59]

                9.40               The normal rule is that no claim may be made until the “first claim day”, that is, 12 months after the first use of the works.[60] As an exception, if the claimant has, in that period, made a contract to sell the property,[61] he may submit the claim before the first claim date, and before the disposal; but compensation will not be payable before the first claim day.[62] There is no provision for the claim to be amended, although there appears to be nothing to prevent a claim being withdrawn, and a substitute claim submitted.[63]

Assessment of compensation

                9.41               The compensation is based on the depreciation to the value of the land due to the physical factors caused by the use of the public works.[64] The valuation is made with reference to prices current on the “first claim day”, defined as the day next following the expiration of 12 months after the relevant date.[65] Account is taken of the facts known at that date, and any intensification that may then reasonably be expected of the use of the works in the state in which they are at that date.[66] Account is also to be taken of the benefit of any soundproofing works carried out or available under this Act or other enactments.[67]

                9.42               The statutory test is based on use of the works “as it exists on the first claim day”, and on any intensification which may then be reasonably expected. Accordingly, no account can be taken of evidence, subsequently available to the Lands Tribunal, of the actual intensification. The Tribunal so decided in Dhenin v Department of Transport.[68]That case related to noise disturbance due to the M25. It was argued for the claimant that evidence of actual use could be taken into account, under the so-called Bwllfa principle.[69] The Tribunal held that the wording of the Act did not permit that approach; but added:

It is doubtful if the legislature could have foreseen the special circumstances that arise, as in this case, where a motorway is constructed over a number of years in a series of sections some of which, although open to traffic, lie more or less fallow until they are connected to other sections of the motorway.[70]

                9.43               The value of the claimant’s interest must be assessed (a) by reference to the nature of the interest and the condition of the land as  subsisted on the date of the service of the claim; and (b) in accordance with rules (2) to (4) of the 1961 Act, section 5.[71] However, there must be left out of account any part of the value which is attributable to any building or extension which is first occupied, or to any change of use, after the relevant date.[72] Denyer-Green explains the general approach to valuation:

 

The approach taken in most of the decided cases is to establish a “no-scheme world” value of the affected property, and then make a judgment as to the proper percentage depreciation that can be attributed to physical factors. The second step must be more of a matter of judgment and opinion than the [first] step which can be based on established valuation methods….[73]

                9.44               There is to be set off against the claim any increase in the value for the claimant’s interest in: (a) the land to which the claim relates; or (b) other ‘contiguous or adjacent’ land, to which he is entitled in the same capacity on the relevant date, which is attributable to the existence of or the use or prospective use of the public works.[74]

                9.45               In addition to compensation, the claimant is entitled to reasonable valuation or legal expenses in connection with the claim.[75]

                9.46               The general rule is that the valuation is based on the existing use of the property.[76] Accordingly, it is to be assumed that no permission would be granted for development of the land; and any existing permissions, so far as they relate to development which has not been carried out, are disregarded.[77]

Other Rules

                9.47               If compensation has been paid, or is payable under the 1973 Act, no subsequent claims can be made in relation to the same works and the same land or any part of that land. However, in respect of a dwelling house, this does not prevent separate claims in respect of the freehold and any tenancy.[78]

                9.48               If part of a person’s land is acquired for the purposes of any public works and that person is entitled to compensation in respect of any retained land under section 7 of the 1965 Act for injurious affection and severance, then that person shall not be entitled to any compensation under the 1973 Act in relation to a claim made after the date of service of the notice to treat.[79]

                9.49               Compensation is payable by the ‘responsible authority’ which in respect of a highway is the appropriate highway authority, and in relation to other public works is the person managing them.[80]

Proposals for change

The CPPRAG Review

                9.50               The CPPRAG report made recommendations in relation to both sets of provisions. The report was written before the House of Lords decision in Wildtree Hotels, and took account of the judgment of the Court of Appeal[81] (later reversed) which had disallowed compensation under section 10 for temporary damage. The report stated:

…in certain cases the right to be compensated under section 10 has resulted in an inferior substitute for those of the common law rights, such as the right to bring an action in nuisance. In particular, we draw attention to rule (3) of the McCarthy Rules, that requires the damage or loss suffered by a claimant to be an injury to land and not a personal injury or an injury to trade… The rule may cause particular injustice where the construction of public works (such as a highway) on neighbouring land extends over a prolonged period, causing a landowner to suffer damage or loss from noise, dust and vibration. Such damage may also be significant, particularly if the landowner’s use of his land is for a trade or business which is affected by such disturbance...[82]

                9.51               It recommended that:

…the legislation should be amended to provide that compensation entitlement should be extended to include interference with land from non-physical factors, and any entitlement to compensation should include temporary losses sustained by the landowner.[83]

                9.52               With regard to the 1973 Act, CPPRAG said:

…as with section 10 of the 1965 Act, the correct basis for entitlement to compensation under Part I of the 1973 Act should continue to be by way of analogy with common law actions which are not available to the landowner who has suffered loss. We believe that these provisions command general support. However, we also consider that this objective could have been achieved much more simply than by the provisions of Part I of the 1973 Act if section 10 of the 1965 Act had been amended so as to make it clear that it also provides compensation for the use of public works. We therefore feel that, although Part I of the 1973 Act has existed for over 25 years, consideration should be given when drafting any new statute as to whether a merger of section 10 with Part I might not be simpler to operate and easier for all to understand.[84]

                9.53               CPPRAG also identified a number of detailed points on which modification was thought desirable:[85]

                                            (1)             Consideration should be given to allowing traffic predictions based on the position at the valuation date (normally the first anniversary of the opening of the works) to be revised in the light of any figures available at the hearing.[86] However, it was acknowledged that this would be “a strong disincentive to early settlement”.

                                            (2)             There should be power to revise the claim retrospectively. This would avoid the need to withdraw and resubmit the claim, which can cause problems on a change of ownership.[87]

                                            (3)             Claims should be permitted by a claimant who satisfied the ownership qualification at the relevant date, even if he has sold before the first claim date (since he is likely to have suffered the effect of the depreciation, in a reduced purchase price).

                                            (4)             Practical problems could arise in relation to alterations to the works, especially where there is a succession of alterations. [88] The case of Davies v Mid-Glamorgan CC[89]was given as an example. However, CPPRAG offered no specific suggestions as to how the Act could be modified in this respect.

                9.54               More generally, they also asked for consideration to be given to repealing the provisions in Part I of the 1973 Act which restrict compensation to the existing use value of the claimant’s interest.[90] They also proposed that the limit (£24,600), on the rateable value of business premises for which compensation could be claimed under the 1973 Act, should be removed.[91]

                9.55               The overall recommendation of CPPRAG was expressed as follows[92]:

The group recommends that, in the case of landowners from whom no land is taken, compensation should be assessed on the basis that, but for statutory authority, landowners could recover damages at common law for any loss they have suffered. Furthermore, the group also recommends that:

(i) consideration should be given to merging the provisions of section 10 of the Compulsory Purchase Act 1965 and Part I of the Land Compensation Act 1973;

(ii) a land-owner’s compensation entitlement under section 10 of the Compulsory Purchase Act 1965 should be extended to include interference with his land from non-physical factors and any temporary losses sustained as a direct result of the scheme;

(iii) consideration should be given to repealing those provisions in Part I of the Land Compensation Act 1973 which restrict compensation to the existing use value of the claimant’s interest or limit the right to compensation by reference to the value of the land.

The Policy Statement

                9.56               As already noted, the DTLR Policy Statement did not specifically adopt the CPPRAG proposals, but indicated that this was a matter under consideration by the Law Commission.[93]

Comparative material

                9.57               The issue has also been the subject of detailed consideration in other common law countries. We have been much assisted by the comprehensive review of Australian, English and Canadian law carried out in 1980 by the Australian Law Reform Commission.[94] The ALRC’s discussion of the issues (including the cost implications) and their proposals for reform,[95] together with relevant extracts from the proposed draft Bill,[96] are reproduced in Appendix 4 to this Report.

                9.58               In reading the ALRC discussion, it needs to be borne in mind that in Australian federal law, there was at the time no equivalent to section 10 of the 1965 Act, and therefore no provision for compensation, even for damage caused by the works. Their proposals accordingly dealt with both works and use.[97] In the event, their recommendations on injurious affection were not adopted by the legislature in 1989. The Land Acquisition Act of that year includes compensation for injurious affection where land is acquired,[98] but not otherwise. As appears from the ALRC review, the position in the legislation of the various Australian states was something of a patchwork.[99] None of the statutes reviewed by the ALRC had anything comparable to the extended rights given by the 1973 Act in this country. As we understand it, that remains the position.

                9.59               A similar patchwork exists in Canada. In most Canadian jurisdictions, the criteria for injurious affection where no land is taken are based on the English rules, derived from the 1845 Act.[100] The issues were studied in detail in three reports, all of which made proposals for change.[101] However, the response from the various legislatures was limited. Of these three, only in Ontario did the Commission’s report lead to legislation.[102]

Australia

                9.60               The ALRC, like CPPRAG, started from the basis that in principle injurious affection on a partial taking, and where there is no taking, should be treated in the same way:

The only contrary argument is that it is only by reason of the use of the acquired land that the government authority is able to do the acts which cause the injury and that it is therefore appropriate to treat an owner from whom the land has been acquired as being in a special position. However, the factual situation resulting from the public work is more important. [103] 

                9.61               The ALRC proposed a scheme which would have a list of factors (divided into “construction factors” and “use factors”), but reference would also be made to the law of nuisance:

The solution is to underpin the legislation by referring to the law of nuisance, but to add a list to avoid doubt. This will allow the courts to apply it to new situations and to adapt the compensation entitlement to developments in the law of nuisance.[104]

                9.62               It was noted that the list included two factors, loss of air and overshadowing, which would not ordinarily give rise to an action:

They are losses which may be caused by a private development, as much as a public one, but there is generally a better opportunity to resist adverse private development than public development. This distinction justifies their inclusion.[105]

“Loss of view”, on the other hand, was excluded because of difficulties of assessment.[106]

                9.63               Compensation would be based on loss of value of land. The ALRC rejected the proposal (reflected in the Ontario legislation – see below) that compensation should extend to personal or business losses. It thought that loss of profitability would normally be reflected in the reduced value of the land, which would be relatively easy to prove. “Inquiries into the extent and cause of business losses are likely to be lengthy, complex and expensive.”[107]

Canada

                9.64               The Ontario Act 1990 (reproduced in Appendix 4(iii)) is of particular interest, since it enacts, in a single section, rules relating to injurious affection both where land is taken and where it is not. For the most part it preserves the established distinction between the two. Where no land is taken, compensation is limited to that for which a claim would lie at common law in the absence of the statute. The statute also preserves the 1845 Act rule that, where no land is taken, compensation for the effects of use is excluded. However, unlike the 1845 Act, the Ontario Act allows a claim for “personal and business damages” in addition to loss of land value.

Discussion

                9.65               The issues can be considered under the following headings:

                                            (1)             General approach

                                            (2)             The common law analogy

                                            (3)             Loss of profits

                                            (4)             Other CPPRAG proposals

                                            (5)             A “merged” Code

(1) General approach

Conflicting policies

                9.66               We referred earlier in this Paper to Lord Hoffmann’s discussion, in the Wildtree Hotels case,[108] of the inconsistencies in the development of the law in this area, due to differing opinions on questions of economic and social policy.[109] As we said, there is no single “right” answer. Any solution will be a compromise between different policy objectives, and is likely to attract dissent from some quarters.

The 1973 reforms

                9.67               We have also referred to the history of the studies which preceded the 1973 reforms. It shows, not surprisingly, that there were similar differences of view in what was a prolonged and thorough public debate. The resulting legislation, as the White Paper said, represented a balanced compromise “between provision for the community as a whole and the mitigation of harmful effects on the individual citizen”.[110] The recent view of CPPRAG was that those provisions “command general support”.[111] 

                9.68               The ALRC’s review of other common law jurisdictions in 1980 showed that the 1973 Act was relatively generous in comparative terms. Its own proposals for a more comprehensive scheme were not adopted. Our researches have not disclosed any later statutes, in Australia or elsewhere, which have gone as far as, let alone further than, the 1973 Act.

 Human rights

                9.69               As we have explained, the Convention lays down no specific rules for compensation.[112] There have been suggestions that the less favourable treatment accorded to those from whom no land is taken is incompatible with the rules against arbitrary discrimination.[113] This argument is most persuasive when one compares the position of someone whose land immediately adjoins the works, but loses no land; and a neighbour in exactly the same position, but a small corner of whose land happens to be crossed by part of the works. The latter is compensated for all the effects of the works,[114] but the former’s rights are restricted to those discussed in this Part.

                9.70               As has been seen, the merits of the distinction between the two situations has been subject to a long-running debate, well before the Human Rights Act 1998.[115] The preservation of the distinction in the present legislation follows detailed discussion, both within and without Government, in the period before the 1973 Act. On balance, however, for the reasons given in the next paragraph, we think that there is a justifiable distinction in principle, which would enable the present rules to withstand any challenge under the Human Rights Act.[116]

                9.71               In the case of the person from whom land is acquired, the issue is the price to be paid for what is taken. The rules are designed to arrive at a fair price, having regard to the value to the owner.  In negotiating that price, the owner is entitled to expect the effects on his other land to be taken into account. In the case of the adjoining owner, there is no question of negotiating a price for what is taken. The closest analogy is with the common law rights of any landowner in relation to unreasonable use of his neighbour’s land. Thus, the difference of approach represents a genuine difference in the nature of the claim. However, we invite other views of consultees on this issue.

Change must be justified

                9.72               Thus, our consideration of potential reforms starts from what is in substance (if not form, as regards the 1965 Act) a modern, and relatively generous, framework of law, which is reasonably well regarded.  Except so far as a strong case for change can be made out, therefore, our general approach would be to confine ourselves to a consolidation (including, where necessary, re-statement, in modern form) of the existing law.

 (2) The common law analogy

                9.73               CPPRAG’s first recommendation was that:

Compensation should be assessed on the basis that, but for statutory authority, landowners could recover damages at common law for any loss they have suffered…[117]

                9.74               As has been seen, the starting point of Justice in 1969 was very similar. In our view, however, they were right to move away from that position. It is highly artificial to use the common law of nuisance as a basis for assessing damages from activities for which there is no common law parallel. The common law of nuisance has not had to cater for uses such as motorways, railways, and airports, since they are invariably constructed and operated under statutory powers, which give immunity from action. Thus the concept of “reasonable user”, which is the “very essence” of the law of nuisance,[118] has not been developed to cater for those activities. The problem does not arise to the same extent in relation to the construction period. The impact of construction works is at least similar in kind to that of major private developments, although, as CPPRAG observed, it may be more protracted.

                9.75               It follows that an attempt to model the law of compensation on the common law analogy, at least in relation to the use of public works, would be likely to create uncertainty. The 1973 Act, which does not depend on establishing nuisance in the common law sense, provides a more certain and reliable basis.

                9.76               A separate point arises in relation to injury caused by construction works. The common law analogy, as applied in Wildtree Hotels, has the result that compensation is in practice unavailable for non-physical injury, such as nuisance from noise, dust or vibration. As CPPRAG observed, and as the Wildtree Hotels case illustrates, this may cause serious hardship where the works are substantial and extended over a long period. A departure from the approach of the Andreae case may be justified when dealing with public works, on the basis that in practice they are more likely to be of a substantial scale.

                9.77               Furthermore, this is not a limitation which applies to injurious affection where land is taken (under section 7). In that case the right to compensation applies to any diminution in value caused by the works As a comparison of the Wildtree Hotels and Clift cases shows[119], the distinction may be highly artificial and difficult to apply in practice in valuation. We propose to adopt the list of “physical factors” identified by the 1973 Act. However, we provisionally propose to retain the restriction to circumstances which would give rise to claims at common law, since a change in this respect might add significantly to the cost of works. We invite views.

(3) Loss of profits

                9.78               A case can be made for including compensation for loss of profits, as proposed by CPPRAG. As we have noted, their recommendation was made at a time when it was thought that no claim could be made for temporary damage, even as reflected in rental value. To that extent, their concern was met by the House of Lords in Wildtree Hotels.  As has been seen, the Justice recommendations were based on land value, as were those of the ALRC, which  considered that it would provide a simpler and more certain basis of claim. A different view was taken in Ontario, where “personal and business damages” may be included, but only where they could have been claimed at common law.[120]

                9.79               The same issue arises in respect of injurious affection under section 7 of the 1965 Act (where land is taken). There again the settled position is that the claim is based on reduction in land value, not loss of profits.[121] For the same reasons as discussed in that context,[122] our proposals for the new Code reflect our understanding of the present law. However, we invite views on the desirability and financial consequences of allowing personal and business loss to be claimed.

(4) Other CPPRAG proposals

                9.80               As noted above, the CPPRAG Review also recommended (1) that the rateable value limit, and the existing use restriction, should be removed;[123] and (2) that consideration should be given to “merging” section 10 and Part I of the 1973 Act.

                9.81               Removal of the rateable value limit would be an important extension of the rights under the 1973 Act. Discrimination on the basis of rateable value of business premises is difficult in principle to justify, since the consequences of the scheme may be equally or more serious for those concerned in larger enterprises.[124] We also see force in CPPRAG’s criticism of the existing use restriction. However, both proposals would add to the costs to the acquiring authority, and therefore raise policy issues on which the Government has yet to express a view. We include theses as provisional proposals, but invite views on the merits and likely costs of such changes.

(5) A “merged” Code

                9.82               It is not clear precisely what CPPRAG had in mind when recommending “merger”. However, we think there would be merit in treating this subject as a separate topic from that of compensation for compulsory purchase. As has been seen, the existing rights to compensation are dependent, not on compulsory acquisition, but on public works. The 1973 Act is a modern and reasonably effective code, so far as it goes, but is limited to the effect of “use”. The simplest and most logical approach would be to expand it to include provision dealing with the effect of the works, based on section 10 of the 1965 Act, but updated. Our provisional proposal gives effect to this.

                9.83               A more radical alternative would be a completely new and unified set of rules, covering the effect of both construction and use, and dealing with injurious affection, whether or not land is taken. The new rules could either preserve some of the existing distinctions (as in the Ontario Act), or could provide a uniform approach, as in the ALRC’s draft legislation.[125] We invite views on the merits of either approach.

                9.84               We note the other suggestions made by CPPRAG to address perceived anomalies in the 1973 Act. We do not propose to make specific comments at this stage. If, following consultation, it is decided that Part I of the 1973 Act should be retained in any fom, it would be desirable to review it in detail, to remove such anomalies, and if possible to simplify the structure.

Proposal 17: Compensation for effects of public works

Part I of the Land Compensation Act 1973 will be expanded and amended to provide a complete code for compensation for injurious affection where no land is taken:

(1) A new provision of the 1973 Act (to replace 1965 Act, s 10) will confer a right to compensation where the market value of an interest in land is depreciated by “physical factors” caused by the construction of “public works”,[126] but only to the extent that a claim would have arisen at common law apart from the immunity conferred by the statute.

(2) The 1973 Act, Part I (compensation for depreciation due to the use of public works) will be retained, subject to the following:-

(a) Repeal of:

(i) section 2(3) and (6) (rateable value limit of £24,600, currently applicable to interests other than dwellings or agricultural units);

(ii) section 4(5) (existing use only);

(iii) section 5 (requirement to assume that no permission would be granted for new development).[127]

(b) Other detailed amendments proposed by CPPRAG to be reviewed following consultation.

Consultation issues

                                           (1)             Do consultees agree that the new law:

                                                                   (a)               Should be based substantially on the existing law in 1965 Act section 10 (in modernised form, following the Wildtree Hotels case) and Part I of the 1973 Act; and

                                                                   (b)              That it should take the form of an amended version of Part I of the 1973 Act (rather than being included in the Code for compensation for compulsory purchase)?

                                           (2)             Alternatively, what should be the basis of the provisions in the new Code? (For example, do consultees favour a scheme along the lines of the ALRC proposals in App 4(ii))?

                                           (3)             Should compensation be limited to diminution in market value of the affected land? If not what other matters should be included (for example, loss of profits)?

                                           (4)             Should compensation for the effect of “physical factors” due to construction of the works be restricted to circumstances for which a claim would have arisen at common law?