Halstead v Manchester City Council

Compulsory purchase — Compensation for acquisition of land — R (4) equivalent reinstatement — Interest — Whether interest payable on reinstatement costs — Whether interest payable from date of dispossession to compensation payment — Limitation Act 1980 — Determination of date of cause of action

The plaintiff
sued on behalf of a church mission which in 1972 was the owner of two churches
included within slum clearance compulsory purchase orders made by the defendant
council. Entry was effected on April 4 1974, but works to provide a single
replacement church did not start until December 1980. The council made stage
payments totalling £718,420 between 1980 and November 6 1986, although the
mission achieved practical reinstatement by moving into the new church in
October 1982. The parties failed to agree what further sum, if any, was due as
interest. The court below gave judgment to the plaintiff on his claim for
interest from the date of entry to the date of the last stage payment (November
6 1986) and further interest up to the date of the writ (May 21 1990) amounting
in total to £783,949.68. The council appealed contending that: (1) by receiving
interest the mission obtained a windfall to which they were not entitled; (2)
the period of any interest liability should cease on the date when the mission
achieved reinstatement; and (3) the claim for interest for which a cause of
action accrued more than six years before the writ was statute barred.

Held: The appeal was dismissed. (1) The mission was entitled to recover
interest in accordance with the express terms of section 11(1) of the
Compulsory Purchase Act 1965 on the amount of the compensation which was agreed
from the time of entry in 1974. The mission did not receive any windfall; it
was dispossessed between the date of entry until reinstatement and during that
period had neither the land nor its value, and was compensated for non-payment
of the land’s value by the award of interest. (2) Section 11(1) provides that
the right to interest continues until the compensation is paid and not until a
claimant achieves reinstatement. (3) The statutory right to recover interest
does not arise until the amount on which interest becomes payable is awarded or
agreed. The trial judge’s finding that agreement was reached on but not before
November 25 1985 precluded the council from asserting that agreement was
reached at some earlier date; the claim for interest was not statute-barred.

The following
cases are referred to in this report.

Aston
Charities Trust Ltd v Stepney Metropolitan
Borough Council (1992) 2 P&CR 289, LT

Birmingham
Corporation v West Midland Baptist (Trust)
Association (Inc) [1970] AC 874; [1969] 3 WLR 389; [1969] 3 All ER 172;
(1969) 67 LGR 571, HL

Cunningham
(Trustees of the Roman Catholic Diocese of Hexham and Newcastle) v Sunderland County Borough Council (1963) 14 P&CR 208,
LT

Director
of Buildings and Lands v Shun Fung Ironworks Ltd
[1995] 2 AC 111; [1995] 2 WLR 404; [1995] 1 All ER 846; [1995] 1 EGLR 19;
[1995] 19 EG 147, [1995] RVR 124 PC

Harrison
& Hetherington Ltd v Cumbria County Council
(1985) 50 P&CR 396; [1985] 2 EGLR 37; 275 EG 457; [1986] JPL 349, HL

Hillingdon
London Borough Council v ARC Ltd [1997] 2
EGLR 21; [1997] 29 EG 125

Lane v Dagenham Corporation (1961) 12 P&CR 374, LT

Moore v Gadd The Times February 17 1997

Riches v Westminster Bank Ltd [1947] AC 390; [1947] 1 All ER 469;
(1947) 63 TLR 211, HL

Trustees
of the Nonentities Society v Kidderminster
Borough Council (1971) 22 P&CR 224; [1971] JPL 121, LT

West
Midland Baptist (Trust) Association (Inc) v Birmingham
Corporation [1968] 2 QB 188; [1968] 2 WLR 535; [1968] 1 All ER 205; (1968)
19 P&CR 9; 66 LGR 348, CA

This was an
appeal by the defendants, Manchester City Council, from a decision of Buckley J
who gave judgment to the plaintiff, David Halstead, suing for himself and
others, the members of Whalley Range Methodist Church Council and for Custodian
Trustees for Methodist Church Purposes, in his claim for interest under section
11(1) of the Compulsory Purchase Act 1965 on compulsory purchase compensation.

Charles George
QC and Peter Keenan (instructed by the solicitor to Manchester City Council)
appeared for the appellants; Andrew Gilbart QC and Mark Harper (instructed by
Pannone & Partners, of Manchester) represented the respondent.

Giving
judgment, EVANS LJ said: This appeal raises two issues regarding a claim
for interest on compensation paid by an acquiring authority under the
compulsory purchase legislation. The first question is whether, and if so for
what period, interest becomes due under section 11(1) of the Compulsory
Purchase Act 1965. The second is the date when the cause of action for
statutory interest arises, for the purposes of applying the Limitation Act
1980, section 9(1).

Facts

The plaintiff
sues on behalf of Manchester and Salford Methodist Mission (the mission) which
in 1972 was the owner of two churches, one in the Moss Side district of
Manchester and the other in Whalley Range. These became known as ‘site B’ and
‘site C’ respectively. Both sites were included within slum clearance
compulsory purchase orders made by the defendants, Manchester City Council, in
1972. Notices of entry were served on June 9 1972, but entry was not effected
until April 4 1974.

After much discussion,
it was agreed that a single replacement church would be built on the Whalley
Range site, site C, at the cost of the council. Work started on December 8 1980
under a contract between the mission and the builders, and the council
reimbursed the mission for the sums that became due under that contract and for
associated professional fees and the like. The council made 23 stage payments
in all, between April 24 1980 and November 6 1986, 2 totalling £718,420. The contract works were completed in February 1983, but the
mission was able to begin using the new church in 1982. The parties’ final
agreement as to the amount of compensation due was recorded in a letter from
the council dated November 25 1985.

They failed,
however, to reach agreement as to what further sum, if any, was due as
interest. The plaintiff’s writ issued on May 21 1990 claimed interest on the
sum paid (£718,420) from the date of entry until the date of payment ‘namely
the 6th November 1986’, giving credit for each of the stage payments as and
when it was made. The total claim, up to the date of the writ, was for
£783,949.68. The council raised a number of defences, including some which were
abandoned or which failed before the judge and have not been revived on appeal.

The trial took
place before Buckley J at Manchester in December 1993. There was oral evidence
on certain factual issues, as well as legal argument on the issues now raised
before us.

The council’s
view, ably presented by Mr Charles George QC, is that the mission has no valid
claim for interest on the sums which the council have paid for reinstatement of
the two churches, now combined in one modern purpose-built structure on site C.
The mission was never out of pocket in relation to the building costs, and the
council moreover have indemnified the mission against certain bank interest
which became due when its account was overdrawn. There was only a short period
during which the mission could not use a church, either the old or the new
building on site C, and if it had wished to do so, it could have rented some
other premises for use during that period, at a much lower cost than the
interest now claimed. This represents a ‘windfall’ for the mission and it
means, if the full amount is rightly claimed, that financially it is far better
off as a result of the compulsory purchase of site B. This would be, Mr George
submits, a breach of the fundamental principle of ‘equivalence’ which requires
the acquiring authority to pay as much as, but no more than, is necessary to
compensate the owner for the loss of the property acquired.

Mr Andrew
Gilbart QC submits that the mission clearly is entitled to recover interest
under the express provisions of section 11(1) of the 1965 Act; moreover, from
1974 until compensation was fully paid, the council had the benefit both of
possessing site B, which they redeveloped for housing purposes, and of the
amount of compensation which they were already liable to pay, notwithstanding
that the amount of compensation was not established until 1985.

These submissions
are not directly relevant to the correct interpretation of the statutory
provisions, but they do underline why the amount of the claim is as large as it
is. There was an unusually long period between the council’s entry into
possession of site B (April 1974) and the agreement to build the new church on
site C (1980).

The cost of
rebuilding then agreed with the contractor was increased in the usual way by
escalation clauses in the building contract allowing for inflation during the
contract period, and the rate of inflation during that period was notoriously
high. So it comes about that the cost of reinstatement under the 1980 contract,
as eventually agreed in 1985, was much greater than it would have been under a
contract agreed in or soon after April 1974. This highlights a fortuitous
element, Mr George submits, which itself provides a reason why the present
claim should not succeed.

Interest

Section 11(1)
of the Compulsory Purchase Act 1965 provides as follows:

Powers of
entry

11. — (1) If the acquiring authority have served notice to treat in
respect of any of the land and have served on the owner, lessee and occupier of
that land not less than 14 days notice, the acquiring authority may enter on
and take possession of that land, or of such part of that land as is specified
in the notice; and then any compensation agreed or awarded for the land of
which possession is taken shall carry interest at the rate prescribed under
section 32 of the Land Compensation Act 1961, from the time of entry until compensation
is paid, or is paid into court in accordance with this Act …

(2) The
acquiring authority may also enter on and take possession of any of the land by
following the procedure in Schedule 3 to this Act …

(4) Except as
provided by the foregoing provisions of this section, the acquiring authority
shall not, except with the consent of the owners and occupiers, enter on any of
the land subject to compulsory purchase until the compensation payable for the
respective interests in that land has been agreed or awarded, and has been paid
to the persons having those interests or had been paid into court in accordance
with this Act.

Reference
should also be made to section 5 of the Land Compensation Act 1961:

Rules for
assessing compensation

5. — 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 …

(5) Where the
land is, and but for the compulsory acquisition would continue to be, devoted
to a purpose of such a nature that there is no general demand or market for
land for that purpose, the compensation may, if the Lands Tribunal is satisfied
that reinstatement in some other place is bona fide intended, be assessed on
the basis of the reasonable cost of equivalent reinstatement:

(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 …

Essential to
Mr George’s submission is some understanding of the alternative bases for
assessing compensation under section 5: r (2) (open market value) and r (5)
(‘reasonable cost of equivalent reinstatement’). R (5) applies when there is no
general demand or market for land used for the purpose to which the acquired
land is being put (and would have continued to be put) and there is a bona fide
intention to reinstate (sc use for the same purpose) ‘in some other place’. In
such circumstances, there is no ‘open market value’ for the land for its
continued use for the purpose in question, although it could be said that the
land itself has a market value, in the present case a mere £8,000. The measure
of compensation may then be equivalent to the reasonable cost of reinstatement,
although in deciding whether or not r (5) applies the r (2) open market value
(for some other purpose) should not be ignored: Harrison & Hetherington
Ltd v Cumbria County Council (1985) 50 P&CR 396* at p397.

*Editor’s
note: Also reported at [1985] 2 EGLR 37

The underlying
principle of equivalence is clearly established by the House of Lords’ decision
in Birmingham Corporation v West Midland Baptist (Trust) Association
(Inc) [1970] AC 874, where it was held that the correct date for assessing
the value and therefore the amount of compensation (unless previously agreed or
assessed) is the date of entry rather than, as previously supposed, the date of
the earlier notice to treat. This ruling was found to be necessary in order to
avoid great injustice to the landowner at a time of rising land values: per
Lord Donovan at p910 and per Salmon LJ in West Midland Baptist
(Trust) Association (Inc) v Birmingham Corporation [1968] 2 QB 188
at pp210–211.

Undoubtedly,
the same principle gives rise to the statutory right to interest under section
11(1). This is made clear by Lord Nicholls’ speech in Director of Buildings
and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111*, at pp125 and
139. Since neither the principle nor its specific application in relation to
interest are challenged in this appeal, it is unnecessary to quote the relevant
passages here.

*Editor’s
note: Also reported at [1995] 1 EGLR 19

Mr George’s
submission is that there is no scope for a claim for interest in a
reinstatement (r (5)) case. The acquiring authority pay for the reasonable cost
of acquiring other land which can be used for the same purpose as the acquired
land. The owner of the land is never out of pocket as regards the costs of
reinstatement, and if he incurs costs during the intervening period between
being deprived of the acquired land and obtaining possession of other
equivalent land, then he is entitled to recover these as compensation for
disturbance under r (6). The situation therefore is quite different, he
submits, from ‘open market value’ compensation paid under r (2), where the
landowner 3 clearly should be entitled to be paid the value of the land from the moment he
is dispossessed, for the reasons expressed in the West Midland case, and
to recover interest as compensation for any delay in payment thereafter. No
question regarding interest arose in West Midland‘s, where ‘the
claimants had been allowed to remain in possession on the terms that they
claimed no interest on the compensation and paid no rent’: headnote, [1970] AC
874, at p875A.

The appellants
acknowledge that on a literal reading of section 11(1) the claim for interest
does arise; the amount of ‘any compensation agreed or awarded for the land …
shall carry interest … from the time of entry until the compensation is paid …
‘. If the claim is allowed on this basis, however, the claimant in a r (5) case
receives a windfall benefit in excess of what is necessary to compensate him
for his actual loss, and so the principle of equivalence is breached. The
appropriate result can be achieved, Mr George submits, in any of three ways,
which, in the circumstances, is a proper interpretation of section 11(1).

First, by
limiting the award of interest to an amount calculated by reference to the open
market value of the land, as if it was a r (2) case. Even this would give the
claimant some additional benefit, because in a case of prompt reinstatement he
would suffer no financial loss at all.

The judge
rejected this submission on the ground that it would be inconsistent with r (5)
to assess section 11 interest as if it was a r (2) case. In my judgment, he was
right to do so, for the reason which he gave. Although regard must be had to r
(2) in deciding whether or not compensation is payable under r (5), the
decision or agreement that r (5) does apply cannot be reopened, in my view, for
the purpose of assessing what interest is payable under section 11(1).

Mr George’s
second submission is that the costs of reinstatement, which in fact were
incurred between 1980 and 1986, by reference for the most part to the terms of
a contract agreed in 1980, should be ‘discounted’ to an equivalent figure which
would be valid for the date of entry in April 1974. Discounting implies that
the actual figure is reduced by the reverse application of an appropriate
annual percentage figure. This is therefore precisely equivalent, if an interest
rate percentage figure is used, to negativing an award of interest in respect
of the period between the date of entry and the payment of compensation; yet
the right to such an award is what the claimant is given by section 11(1).

The judge held
that this too would be ‘contrary to the clear words of section 11’, and again I
agree with him. The appellants submit that he failed to appreciate that the
reason for the discounting was to seek to achieve fairness and equivalence and
the pivotal role of the date of valuation, ie the date of entry in the context
in which section 11 was enacted. This however merely restates the windfall
argument which, in my judgment, itself begs the question whether section 11(1)
does give the claimant a right to interest from the date of entry in a r (5)
reinstatement case.

Finally, Mr
George suggests an approach which was not put forward below. This would involve
both discounting the agreed figure to a 1974 value and also deducting ‘the
difference between the compensation already paid and the discounted amount’.
This seems to me, if I have understood it correctly, to deprive the claimant
twice over of the right to claim interest on the discounted figure in respect
of the period between the date of entry and the payment of compensation which
is given to him by the express words of section 11(1). I would reject this
suggestion also.

Mr George
referred a number of reported r (5) cases where a claim for interest may have
arisen but was nowhere referred to (Lane v Dagenham Corporation
(1961) 12 P&CR 374, Cunningham (Trustees of the Roman Catholic Diocese
of Hexham and Newcastle) v Sunderland County Borough Council (1963)
14 P&CR 208 and Trustees of the Nonentities Society v
Kidderminster Borough Council (1971) 22 P&CR 224) and to Aston
Charities Trust Ltd v Stepney Metropolitan Borough Council (1992) 2
P&CR 289 where passing reference was made to the question of interest in a
Lands Tribunal decision: see p295. He did not suggest, however, that there is
clear guidance in any of the authorities on the issue as to the application of
section 11(1) in a r (5) case which we have to decide.

I therefore
would uphold the judge’s ruling that the mission is entitled to recover
interest in accordance with the express terms of section 11(1), that is to say,
on the amount of compensation which was agreed, from the time of entry in 1974.
The essential answer to the ‘windfall’ objection, in my judgment, is that the
amount of interest depends upon the value given to the land by r (5) and the
length of the period from the time of entry until reinstatement; in other
words, the period during which the claimant is dispossessed. During that time,
and possibly thereafter (how long the period continues is the second question
raised under this head), he has neither the land nor its value, and he is
compensated for non-payment of its value by the award of interest; the classic
function of such an award: see Riches v Westminster Bank Ltd
[1947] AC 390. It is relevant also that during the same period the acquiring
authority are free to use the land for their own purposes and, if the
appellants are correct, they would also retain for their own benefit the
compensation due to the claimant for the land. In my judgment, that would
breach the principle of fair compensation or equivalence, rather than the
reverse, as Mr George submits. As regards the suggested discounting exercise,
to 1974, this overlooks the fact that discounting is the accepted method of
adjusting the value of money over a period, to take account both of inflation
and its earning capacity (interest rates). The discounted 1974 figure is not
the real equivalent of the amount agreed in 1985.

Period

Interest is
payable under section 11(1) ‘until the compensation is paid’. The compensation
due in the present case was measured by the cost of reinstatement (r (5)) which
was paid in instalments between 1980 and 1986. Meanwhile, in October 1982 the
mission achieved practical reinstatement by moving into the new church on site
C. Mr George submits that this marks the end of the period during which
interest should run. The mission was reinstated in equivalent land and it had
no liability for the cost of reinstatement against which it was not entitled to
be indemnified by the council. The builders effectively were paid by the
council direct.

The fact
remains, however, that section 11(1) provides that the right to interest
continues until the compensation is paid. I do not see how these express words
can be read as meaning ‘until reinstatement takes place’. In a case where the
claimant has contracted with, and therefore is liable to, the builder of new
premises, he remains under that liability until the price is fully paid. His
right to receive compensation from the acquiring authority is independent of
his relations with the builder, and if compensation is due but unpaid, then
there is no reason why interest should not be paid as compensation for late
payment. Conversely, the authority have the use of the money until such time as
payment is made.

I would hold,
again in agreement with the judge, that the clear wording of section 11(1)
applies.

Limitation

Section 9(1)
of the Limitation Act 1980 reads as follows:

(1) An action
to recover any sum recoverable by virtue of any enactment shall not be brought
after the expiration of six years from the date on which the case of action
accrued.

There is no
appeal from the judge’s decision that this provision governs the claim for
interest made under section 11(1) of the 1965 Act in the present case.

The issue
raised before us was whether the mission’s cause of action accrued when the
amount of compensation was agreed vis November 25 1985, or pro rata on
the date when each instalment was paid, vis between 1980 and 1986.

The writ was
issued on May 21 1990. If the former view is correct, then there is no
limitation defence. If the second view is correct, as the council submit, then
the claim is statute-barred save as regards interest (to the date of the final
payment) claimed in respect of the last three payments, which were the only ones
made after May 21 1984, six years before the writ was issued.

The payments
were described as ‘payments on account of compensation payable for the property
… in accordance with Rule V of section 5 of the Land Compensation Act 1961’. It
is common ground that no payment was made on account of the claim for interest.
This claim was raised when the amount of compensation was discussed. The judge
found that overall agreement on compensation was not reached until November
1985.

He also found
that ‘the question of the mission’s statutory right to interest, a legal point’
was expressly reserved at a meeting held on January 29 1981. The mission’s
representative’s note of the meeting was that the parties agreed not to hold up
reinstatement on this point which was basically a matter of law, and the judge
recorded that the council’s witness accepted the note ‘as likely to be accurate
and in accordance with his general recollection of what was agreed at the
time’.

There is no
finding that the parties agreed, at any time, to extend the time within which
interest might be claimed. No such agreement was alleged.

Mr George
submits that there was agreement by January 29 1981 at the latest about the
base cost of reinstatement, which would be adjusted in accordance with the
terms of the building contract up to such time as the final settlement took
place. He contends that each instalment was a part payment of this amount and
that the mission could have put forward an unanswerable claim for interest due
in respect of each payment as it was made.

In my
judgment, however, the statutory right to recover interest does not arise until
the amount on which interest becomes due is awarded or agreed. That is the
amount on which interest is payable, and the clear intention is that the right
to interest will compensate the claimant for non-payment during the intervening
period. The judge’s finding that there was agreement on, but not before,
November 25 1985 therefore precludes the council from asserting that agreement
was reached at some earlier date. I would hold that the claim is not
statute-barred.

I should also
refer to correspondence which took place in July, following the judgment of Mr
Stanley Burnton QC, sitting as a deputy judge, in Hillingdon London Borough
Council v ARC Ltd* (unreported, June 12 1997). By letter dated July
2, Mr George sent us copies of this judgment and of the Court of Appeal’s
judgment in Moore v Gadd (February 5 1997, reported in The Times
February 17 1997) which is referred to in it. These were concerned with the
date when the cause of action for compensation accrued. Mr Gilbart replied that
his submissions were not concerned with the right to recover compensation as
distinct from the statutory right to recover interest. He also submitted that
the deputy judge’s judgment was wrong. Mr George, by a further letter dated
July 16, confirmed that the right to compensation is not in issue in the
present case and that he had referred to the Hillingdon case only in relation
to the narrow issue whether it is necessary for the quantum of
principal/compensation to have been agreed before time can run; for this
reason, he did not reply to Mr Gilbart’s submissions in detail. As already
indicated, the statutory right to interest arises, in my judgment, when the
compensation is awarded or agreed, and it then becomes payable in respect of
the intervening period after the date when entry occurred. That is what section
11(1) says. The deputy judge’s judgment and Moore v Gadd were not
concerned with such a claim.