Compulsory purchase — Compensation — Mortgage — Whether acquiring authority under any duty to redeem mortgage — Whether claimants entitled to compensation representing additional interest where authority fails to redeem timeously — Whether Lands Tribunal has jurisdiction to determine claim
In January 1982 the respondent acquiring authority
declared a housing action area. The claimant mortgagors had acquired one of the
houses in the area in 1974 with the aid of a mortgage granted by another local
authority. In 1984 the acquiring authority made a compulsory purchase order
that included the property; the order was confirmed in August 1985. At that
date mortgage instalments were in arrears. A notice to treat was served in
February 1987. No notice to treat was served on the mortgagee authority. In
April 1994 a notice of entry was served under section 11 of the Compulsory
Purchase Act 1965. Entry was taken in November 1996. By 1994 the mortgage
arrears totalled over £23,000, and, by 1996, they exceeded £28,000. On a
reference by the acquiring authority to the Lands Tribunal, the parties agreed
the compensation payable for the property at £85,000, being its market value on
the date of entry. However, the tribunal decided that it had no jurisdiction to
determine the date on which the acquiring authority should have redeemed the
mortgage. The mortgage was redeemed in April 1998 for just over £33,000. The
claimant mortgagors appealed contending that once their property was subject to
the compulsory purchase order, they could not sell it; they were unable to
redeem the mortgage; it was unreasonable of the acquiring authority not to have
redeemed the mortgage earlier; and they were entitled to compensation
representing the interest that had accrued from the date on which the authority
ought to have redeemed the mortgage.
dismissed. The acquiring authority were never obliged to redeem the mortgage or
purchase it, although they were entitled to. Neither were they obliged to the
claimant mortgagors to discharge their liabilities to the mortgagees under the
mortgage. The taking of possession of the property by the acquiring authority
does not have this effect. There is no basis for the mortgagors claiming
compensation for the fact that the acquiring authority have not discharged the
mortgage liabilities. Rule 6 of section 5 of the Land Compensation Act 1961
does not give any right. It only leaves unaffected any earlier judge-made law.
No such earlier law provides for compensation of the type claimed. In any
event, the compensation claimed was not loss or damage that flowed from, or was
caused by, the compulsory purchase order. Prior to taking possession, there was
no enforceable obligation on the acquiring authority to take possession of the
property, and the mortgagors never acquired a contractual right against the
authority that the authority should redeem the mortgage. The Lands Tribunal had
no jurisdiction to decide whether the acquiring authority were under an
obligation to redeem the mortgage.
This was an appeal by way of case stated by the
first two claimants, Abubakare Olayiwola Shewu and Salimot Adetola Shewu, from
a decision of the Lands Tribunal, which had declined jurisdiction to determine
the date on which a mortgage of their property should have been redeemed by the
respondent acquiring authority, Hackney London Borough Council, following the
inclusion of the property in a compulsory purchase order. Richmond upon Thames
London Borough Council, as mortgagees of the property, were joined as third
claimants.
Peter Village (instructed by JP Scrafton) appeared
for the appellants; Mary Cook (instructed by the solicitor to Hackney London
Borough Council) represented the respondents; the third claimants did not
appear and were not represented.
Giving the first judgment, Schiemann LJ said: The underlying
problem that gives rise to this appeal by way of case stated from a decision of
the Lands Tribunal (PH
mortgagor for interest on property that is compulsorily purchased from him by a
local authority. Mr Peter Village, who appears on the mortgagors’ behalf,
submits that the burden of paying interest on the mortgage should not fall on
the mortgagors after one or other of a number of dates:
The date of confirmation of the CPO — 30.8.1985
The date of the service of the Notice to Treat —
17.2.1987
The date of submission of the claim form —
9.10.1989
The date of the service of the Notice of Entry —
21.4.1994
The date of the taking of possession by the
authority — 22.11.1996
He seeks to persuade the court to accept a date as
early as possible.
The value of the unencumbered freehold interest as
at the date of taking of possession was agreed before the Lands Tribunal as
being £85,000. It is common ground that this was the appropriate date to take
as the valuation date. The outstanding amount on the mortgage was well below
that. The tribunal held that it had no jurisdiction to determine how much
interest was owed at any one time on the mortgage or who was responsible for
paying that interest. It is against that holding that the mortgagors appeal.
With that introduction I turn now to the history
of the matter, which is not in dispute. In January 1982 Hackney London Borough
Council declared an area in the borough containing some 600 houses, of which
over half were in private ownership, to be a housing action area — that is, an
area where living conditions are unsatisfactory and should be improved. In
relation to the houses in such an area, the local authority have a number of
powers that they can use to cajole owners to improve their properties. A
reserve power is the power to force the owner to sell to the council.
By 1984 many of these houses had been improved
with the aid of grants, but no progress had been made in relation to some. We
are concerned with one of these, which belonged to Mr and Mrs Shewu and which,
we were told, they had purchased in 1974 with the aid of a 100% 25-year mortgage
on a repayment basis from another local authority at a price of £9,200. It
seems that, in the early 1980s, they had gone to Nigeria, leaving a manager in
charge and some tenants in residence. The manager apparently left in 1983 and
Hackney thought that the house gave every sign of having been effectively
abandoned by the Shewus. They did not make any application for a grant towards
the improvement of the house. So the council made a compulsory purchase order
in 1984, which covered the Shewus’ house and another. The Shewus did not object
to the making of this order, but, since there was an objection by the owner of
the other property, there was an inquiry. The inspector found that the Shewus’
house was a partially void two-storey terrace house in bad repair. The CPO was
confirmed on 30 August 1985.
At that point it seems that payments under the
Shewus’ mortgage were in arrears. The local authority mortgagees were seeking
possession, but did not pursue the proceedings once the CPO had been confirmed.
They waited for Hackney to acquire the property, and expected the mortgage to
be paid off in due course.
The problems in this case arise from the fact that
matters progressed extremely slowly. Hackney sent a notice to treat to the
Shewus in Nigeria on 17 February 1987. At that time the amount outstanding on
the mortgage was about £9,000. We do not know when this notice to treat reached
the Shewus. In any event, they did not reply to it until 9 October 1989. They
did not have a solicitor to help them. They said that they were claiming
£25,000 ‘being the last valuation did (sic) in 1976′. The council told
them that they found this figure acceptable, but the Shewus wrote to say that
they wanted a valuation as at a later time, and, so, no agreement was reached
on £25,000. In 1993 a new claim form was sent on the Shewus’ behalf, this time
prepared by solicitors and surveyors. It contained a claim of £105,000, as
being the value of the claimants’ interest ‘together with contingent interest,
surveyors’ fees and legal costs’. In answer to a request to state whether the
claim included a claim for disturbance, the solicitors wrote that this was not
applicable. On 21 April 1994 notice of entry was sent to Nigeria under section
11 of the Compulsory Purchase Act 1965 (the Compulsory Purchase Act). On
22
Meanwhile, Hackney were in communication with the
mortgagees. Hackney did not send them a notice to treat for their interest but
instead relied on being able to sort the matter out either by agreement or by
use of the provisions of section 14 of the Compulsory Purchase Act. From time
to time the mortgagees wrote to Hackney asking what progress had been made
towards settling the matter, and kept Hackney informed of the continued rise in
the amount outstanding on the mortgage. By 1989 this was over £13,000; by 1994
the figure was in excess of £23,000; by 1996 this figure had risen to over
£28,000. The mortgagees throughout have been happy to have the mortgage
redeemed. The Shewus, we were told, were not in a position to redeem it.
Hackney referred the disputed compensation claim
to the tribunal on 30 June 1994. The Shewus joined the mortgagees (Richmond
upon Thames London Borough Council) as claimants before the tribunal, although
the mortgagees had made no claim and indeed had not been served with notice to
treat for their interest. Richmond are not properly described as claimants,
although they were rightly joined in the reference given the contentions that
the mortgagors were seeking to advance. The parties agreed that the market
value of the freehold interest in the property as at 22 November 1996 was
£85,000. The tribunal’s decision was in March 1998. The tribunal said in its
decision:
On payment by Hackney of the agreed
compensation for the acquisition of the freehold interest the mortgage will be
redeemed and the mortgage debt outstanding which is less than the agreed
compensation will be deducted from the agreed sum and paid to (the mortgagees),
leaving a net sum payable to the claimants. It is the contention of the
claimants that, due to delay by Hackney in redeeming the mortgage, a date
should be determined by the Lands Tribunal as the date when the mortgage should
have been redeemed by Hackney. The lower sum of principal and interest
outstanding on the mortgage at that time would then be deducted from the agreed
(or perhaps a greater) market value (due to higher house prices at the earlier
date), leaving a larger net balance payable to the claimants but with an
outstanding mortgage debt still owing to (the mortgagees), for which then
claimants would still be contractually liable, although as they now live in
Nigeria enforcement would be more difficult.
At the start of the hearing I expressed
doubts as to whether the Lands Tribunal has jurisdiction to make the
determination sought by the claimants and it was agreed that I would decide
this question as a preliminary issue.
Mr Scrafton, on behalf of the claimants,
prepared a written skeleton of his submissions, but they appeared to be in
support of a claim for compensation under r 6 of section 5 of the Land
Compensation Act 1961 (the 1961 Act), ie compensation for ‘any other matter not
directly based on the value of land’. Numerous well-known authorities were
cited but I had some difficulty in relating them to the question of the
determination of a date when the mortgage should have been redeemed, and, in
particular, to the tribunal’s jurisdiction to deal with this issue. If a claim
for compensation under r (6) had been made then these authorities might well
have been relevant but I did not find them relevant to the narrower issues of
jurisdiction. I sought clarification and Mr Scrafton confirmed that he is
seeking a determination as to the correct date for the redemption of the
mortgage and is not making a claim for compensation under r 6.
The tribunal referred to section 1 of the 1961 Act
and sections 6 and 14-17 of the Compulsory Purchase Act, and continued:
I can find nothing in these provisions giving the
Lands Tribunal jurisdiction to fix the date when an acquiring authority should
have exercised their powers under section 14 of the 1965 Act to purchase or
redeem the interest of the mortgagee in the land.
The tribunal held that it had no jurisdiction to
determine the date when Hackney should have redeemed the mortgage on the
subject property. It therefore heard no evidence on the point. The mortgage was
redeemed by Hackney in April 1998 for just over £33,000, shortly after the
tribunal’s decision.
The question upon which the decision of this court
is required is whether the tribunal erred in law in holding that it had no
jurisdiction to determine the date when the mortgage on the property under the
mortgage should have been redeemed.
Legal framework
The jurisdiction of the Lands Tribunal in the
present context springs from section 1 of the Land Compensation Act 1961 (the
1961 Act) and section 6 of the Compulsory Purchase Act. The former provides:
Where by or under any statute… land is authorised
to be acquired compulsorily, any question of disputed compensation… shall be
referred to the Lands Tribunal and shall be determined by the Tribunal in
accordance with the following provisions of this Act.
The latter provides:
If a person served with a notice to treat… and
the acquiring authority do not agree as to the amount of compensation to be
paid by the acquiring authority for the interest belonging to him or which he
has power to sell… the question of disputed compensation shall be referred to the
Lands Tribunal.
In the present case, the only question of disputed
compensation that was before the Lands Tribunal was how much the acquiring
authority were obliged to pay for the interest belonging to the Shewus. The
mortgagees were never served with notice to treat, and, therefore, the Lands
Tribunal had no jurisdiction to determine what compensation, if any, was
payable by Hackney to the mortgagees. The fact of the matter is that the
acquiring authority had not set in motion any process for acquiring
compulsorily the interest of the mortgagees. They no doubt rightly thought that
this would not be necessary as between two local authorities.
The statutory provisions as to the assessment of
the amount of compensation is contained in section 5 of the 1961 Act, which
provides, as far as presently relevant:
Compensation in respect of any compulsory
acquisition shall be assessed in accordance with the following rules…
(2) The value of the land shall… be taken to be
the amount which the land if sold in the open market by a willing seller might
be expected to realise;…
(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 the land.
Once a compulsory purchase order has been made the
land affected is frequently blighted. Yet, traditionally, an owner affected by
this blight has been without a remedy until such time as a notice to treat has
been served by the authority on him, and a price has been either agreed or
determined by the Lands Tribunal. We were referred to Simpsons Motor Sales
(London) Ltd v Hendon Corporation [1963] 1 Ch 57 CA (affirmed on
appeal [1964] AC 1088) where Upjohn LJ, delivering the judgment of the court,
said at p82:
First, when a notice to treat has been served, it
is the duty of the acquiring authority to proceed to acquire the land within a
reasonable time. Mr Molony, for the corporation, has argued that mere delay in
proceeding to enforce the notice never disentitle the acquiring authority from proceeding
thereunder, but that some additional circumstance is necessary before the owner
can object to the enforcement of the notice to treat against him. We do not
accept this proposition. If the acquiring authority do not proceed within a
reasonable time to acquire the property and pay the compensation, they may well
lose their rights to enforce the notice. It would be most unreasonable to
permit an acquiring authority, having given a notice to treat, to sit on their
rights and defer enforcement of the notice until it suits them…
The following
sentence is reproduced thus in the law report. One suspects that the words ‘is
that’ should appear after ‘public purposes’ rather than after ‘Parliament’
The underlying assumption of Parliament is that
in conferring compulsory powers upon statutory authorities for public purposes,
the acquiring authority will act reasonably in the public interest, that is,
not only in the interests of their own ratepayers or shareholders, as the case
may be, but with due regard to the interests of the person being dispossessed.
What is a reasonable time for this purpose must depend upon the facts and
circumstances of each case.
Although the lord justice refers to the ‘duty’ of
the acquiring authority to proceed to acquire, he is, as the rest of that
passage makes clear, using that phrase to signify that unless they proceed to
acquire they will be disentitled from proceeding on the notice. He is not
suggesting that a failure to proceed will result in an award of compensation or
of damages. Just as a failure to proceed does not result in an award of
compensation or of damages, so a delay in proceeding will not result in such an
award. Because of the hardship that can be caused by delay, the position now is
regulated by amendments to section 5 of the Compulsory Purchase Act, which were
inserted by the Planning and Compensation Act 1991, which, broadly, provide for
the notice to treat to lapse after three years, unless compensation has been
agreed or referred to the tribunal, or the authority has taken possession or
executed a vesting declaration. It was not suggested that those amendments
applied to the present case.
Land that authorities seek to acquire compulsorily
is frequently mortgaged. Mortgagees pose a potential threat to acquiring authorities.
They cannot contractually require the authority to make any payments in respect
of the mortgage because the authority is not a party to the mortgage. However,
mortgagees have rights against the land that can be exercised if payments under
the mortgage are not kept up. Once the mortgagor has been dispossessed of his
land he will not be keen to continue to make payments under the mortgage.
Unless the mortgage is in due course cleared, the authority are likely to find
their rights to do what they like with the acquired land inhibited by the
rights of the mortgagees to enforce their security. Thus, in Martin v London
Chatham & Dover Railway Co (1866) 1 Ch App 501 the mortgagee bankers
sought to enforce their security in respect of land that had been compulsorily
purchased. Lord Cranworth LC stated:
In my opinion it was clearly the duty of the
company to have given notice under the 18th section, not only to Sterne and
Lane, but also to the mortgagees, as parties interested,… [the Bankers] are
equitable mortgagees. No proceedings have been duly taken by any person under
the statute to deprive them of their rights as equitable mortgagees; and to
those rights they are therefore entitled as if nothing had been done… The
company had a right , under the statute, to take possession, and had a right to
convert the land, against all the world, into the railway which they have made.
They had a right to do that under the provisions of the 85th section:
therefore, if what they have done has diminished the value of the security, I
do not think that the plaintiffs have any right, legally or equitably, to
complain of that; neither have the company any right to complain if, having
dealt with that piece of land without having a proper title to it, they are now
in such a condition that a slice of their railway may be taken away from them,
which would, in other words be a proceeding in the nature of a distress,
compelling them to pay whatever can be lawfully demanded from them… If the
company chose to deal with the owners of the equity of redemption, so to say,
and not with the mortgagees, the mortgagees were helpless, and could do
nothing.
The Compulsory Purchase Act now gives special
powers to acquiring authorities in relation to mortgagees. The Act deals
separately with those cases where the value of the mortgaged land is less than
the amount secured on the land and those cases where value of the mortgaged
land is more than the amount secured.
Section 15 provides:
(1) If the value of any such mortgaged land is
less than the principal, interest and costs secured on the land, the value of
the land, or the compensation to be paid by the acquiring authority in respect
of the land, shall be settled by agreement between the mortgagee and the person
entitled to the equity of redemption on the one part and the acquiring
authority on the other part, or, if they fail to agree, shall be determined by
the Lands Tribunal .
(2) The amount so agreed or awarded shall be paid
by the acquiring authority to the mortgagee in satisfaction or part
satisfaction of his mortgage debt…
(6) The making of payment to the mortgagee … of
the amount agreed or awarded shall be accepted by the mortgagee in
satisfaction, or part satisfaction, of his mortgage debt, and shall be a full
discharge of the mortgaged land from all money due thereon.
(7) All rights and remedies possessed by the
mortgagee against the mortgagor… other than a right to the land, shall remain
in force in respect of so much of the mortgage debt as has not been satisfied
by payment to the mortgagee…
It is clear that in subsection (1) the reference
to the value of the mortgaged land is a reference to its unencumbered value.
Thus, in such cases the acquiring authority acquire the land for the value of
the unencumbered freehold, and the mortgagee has no more rights over the land
once that value has been transferred to the mortgagee. He can, however,
continue to enforce his contract against his contractual partner, the
mortgagor. If the mortgagor wishes to be rid of that liability he must pay off
the mortgage.
In the present case, the mortgagors were in the
happy position that the value of the land exceeded what was owing on the
mortgage. This situation is covered by section 14 of the Act.
(1) The acquiring authority may purchase or
redeem the interest of the mortgagee of any of the land subject to compulsory
purchase in accordance with either of the two following subsections.
(2) The acquiring authority may pay or tender to
the mortgagee the principal and interest due on the mortgage, together with his
costs and charges, if any, and also six months additional interest, and
thereupon the mortgagee shall immediately convey or release his interest in the
land comprised in the mortgage to the acquiring authority, or as they may
direct.
(3) Alternatively, the acquiring authority may
give notice in writing to the mortgagee that they will pay all the principal
and interest due on the mortgage at the end of six months, computed from the
day of giving the notice; and if they have given any such notice, or if the
person entitled to the equity of redemption has given six months notice of his
intention to redeem, then at the expiration of either of the notices, or at any
intermediate period, on payment or tender by the acquiring authority to the
mortgagee of the principal money due on the mortgage, and the interest which
would become due at the end of six months from the time of giving either of the
notices, together with his costs and expenses, if any, the mortgagee shall
convey or release his interest in the land comprised in the mortgage to the
acquiring authority, or as they may direct.
(4) If, in a case under subsection (2) or
subsection (3) of this section, on such payment or tender the mortgagee fails
to convey or release his interest in the mortgage as directed by the acquiring
authority, or fails to make out a good title to that interest to the
satisfaction of the acquiring authority, it shall be lawful for the acquiring
authority to pay into court the sums payable under subsection (2) or subsection
(3) of this section, as the case may be.
(5) When the acquiring authority have paid those
sums into court, it shall be lawful for them to execute a deed poll in the
manner provided by section 9(3) of this Act.
(6) On execution of the deed poll, as well as in
the case of a conveyance by the mortgagee, all the estate and interest of the
mortgagee (and of all persons in trust for him, or for whom he may be a
trustee) in the land shall vest in the acquiring authority and, where the
mortgagee was entitled to possession of the land, the acquiring authority shall
be entitled to possession of the land.
(7) This section shall apply —
(a) whether or not the acquiring authority
have previously purchased the equity of redemption,
(b) whether or not the mortgagee is a
trustee,
(c) whether or not the mortgagee is in
possession of the land, and
(d) whether or not the mortgage includes
other land in addition to the land subject to compulsory purchase.
It can be seen from subsection (7) that parliament
envisaged both circumstances in which the equity of redemption had been
purchased by the acquiring authority prior to coming to terms with the
mortgagee and circumstances in which this was not the case. In either event,
the acquiring authority are in a position by paying off the mortgagee to get
rid of the threat posed by him.
Further, it can be seen from subsection (3) that
if the person entitled to the equity of redemption gives notice of his
intention to redeem, the authority can step in and make the payment itself, and
force the mortgagee to give up his interest.
The scheme of the Act is that the acquiring
authority are in a position where they can get rid of the charge by paying the
mortgagee the lower of the value of the freehold interest or the amount owing
on the mortgage. If the mortgagor has paid off the mortgage, he is entitled to
the value of his interest in the land. If he has not, then:
1. If the amount owing exceeds the value of the
land, he gets nothing from the authority, save a part-payment of his mortgage,
because his equity of redemption is worth nothing, and no one in the market
would pay anything for it — he does not need compensation for being deprived of
it.
2. If the amount owing is less than the value of
the land, he gets the difference between the value of the land and the amount
outstanding on the mortgage — that is, in broad terms, the value of his equity
of redemption. That is all he has to sell, and it is for the deprivation of
that that he is to be compensated.
Thus, very broadly, the seller to the local
authority receives what he would receive were he to sell in the open market.
In principle, a seller of land will not be
entitled to the price until the price is agreed or determined. However, an
acquiring authority are in a position under statute to enter before that date
by serving notice of entry. They did so in the present case, and, in due
course, entered. The statute provides that, in such circumstances, the
acquiring authority must pay interest on the purchase price from the date of
entry into possession. Parliament might have provided that interest should be
paid from the date of the giving of the notice of entry, but it has not so
provided.
However, delay in receiving compensation can
clearly harm an owner possession of whose land is taken. Unless he is wealthy,
he will be prevented from buying an alternative property or paying off a
mortgage that is of no future use to him. So, parliament has provided in
section 52 of the Land Compensation Act 1973 for advance payments of 90% of
what the acquiring authority accept is going to be payable by way of
compensation. That provision was not activated in the present case.
Mortgagor’s submissions
Mr Peter Village, on behalf of the mortgagors,
submitted, in essence, that his clients, since the confirmation of the CPO, had
not been in a position to realise their property. Until such time as Hackney
redeemed the mortgage, the Shewus were liable under a mortgage that they could
not pay off. Hackney had delayed a long time, and that delay had caused the
Shewus damages (namely a liability for interest) for which they ought to be
compensated. He submitted that it was unreasonable for Hackney not to redeem earlier
and that the Lands Tribunal had jurisdiction to determine whether this were so,
and, if it were so, to award the Shewus compensation for the damage that had
been caused to them by this delay. That damage he said was a matter of
calculation — the amount of interest accrued between the time when Hackney
ought to have redeemed and the time when, in fact, they redeemed. He submitted
that, by reason of the delay, Hackney were now liable to pay more for the land
than it was worth, and that the Lands Tribunal had jurisdiction to decide how
much more.
He submitted that the mortgagees were entitled to
a notice to treat, relying on Cooke v London County Council
[1911] 1 Ch 604. However, in argument, I think he accepted that that case is
not authority for any proposition wider than that, absent a notice to treat in
relation to his interest, a mortgagee is not to be prejudiced by the exercise
of compulsory powers in relation to the mortgagor’s interest. He pointed out
that the mortgagees had an interest as well as the freeholder, and that the
mortgagees had been joined as claimants, and he submitted that the tribunal had
jurisdiction to decide matters of disputed compensation. He submitted that the
tribunal had erred in not realising that there were two separate compensatable
interests in play here — the freeholders’ and the mortgagees’. He submitted
that, since all the acquiring authority were prepared to pay his clients was
£85,000, less what they had paid to the mortgagees, whereas the Shewus claimed
that more ought to be paid to them, there was a question of disputed
compensation that the Lands Tribunal had jurisdiction to decide. He submitted
that what his clients were claiming fell within section 5 r 6 of the 1961 Act.
He was, however, unable to produce any statutory provision or precedent in
support of such a submission.
Finally, Mr Village submitted that Hackney, in
refusing to bear the interest costs on the mortgage, were in breach of the
Shewus’ rights under the First Protocol to the European Convention on Human
Rights. This provides:
Every natural or legal person is entitled to the
peaceful enjoyment of his possessions. No-one shall be deprived of his
possessions except in the public interest and subject to the conditions
provided for by law and by the general principles of international law.
Conclusion
I can deal shortly with this last point. I suspect
that, on reflection, Mr Village accepted that this Article was of no relevance
to the present case, for he did not press the point. For my part, I cannot see
any, and I say no more about it.
In my judgment, Mr Village’s submissions should
fail both as a matter of substance and as a matter of jurisdiction. I deal
first with the substance.
It is important to keep conceptually separate the
mortgagors’ liabilities to the mortgagees, the acquiring authority’s liabilities
to the mortgagees and the authority’s liabilities to the mortgagors.
The Shewus entered into a mortgage contract with
the mortgagees. The Shewus’ liabilities to the mortgagees cannot be taken away
without the mortgagees’ consent or the authorisation of statute. There was no
such consent, and there is no statutory authorisation for the removal of the
mortgagees’ rights prior to payment. Mr Village has not contended the contrary.
Hackney, when they redeemed the mortgage, did, of
course, pay off the outstanding capital and interest. They wished, at that
point, to acquire title to the land, and this was the only method by which this
could be achieved. However, Hackney were never obliged to redeem the
mortgage or to purchase it. Hackney were merely entitled so to do. So,
it is confusing to refer to the mortgagees as having a compensatable interest.
Nor have Hackney any obligation to the Shewus to
discharge their liabilities to the mortgagees under the mortgage. Such an
obligation was not assumed by contract nor is it imposed by statute. The fact
that the acquiring authority move into possession of the property does not have
that effect. There is no reason in principle why it should. Section 15(7) of
the Land Compensation Act makes clear that moving into possession and acquiring
title does not have that effect.
The Shewus are entitled to compensation for having
their interest in the land compulsorily acquired. But there is, in my judgment,
no basis for claiming compensation for the fact that the acquiring authority
have not discharged the Shewus’ mortgage liabilities.
In so far as the Shewus have any complaint, it is
that Hackney failed earlier to exercise a power either to acquire the
mortgagees’ interest or to pay off the mortgage. That power is given, not for
the benefit of the mortgagor, but for the benefit of the acquiring authority.
In my judgment, the Shewus cannot sue for any breach of statutory duty or
failure to exercise this power. As I understood him, Mr Village accepted that
this was so.
Rule 6 of section 5 of the 1961 Act does not
itself give any rights. It merely seeks to leave unaffected earlier judge-made
law. No earlier judge-made law provides for compensation of the type that Mr
Village seeks on behalf of his clients nor am I persuaded that it is justified,
in principle, to make such compensation.
Hackney entered into possession on 22 November
1996. Prior to that time, they were under no enforceable obligation either to
enter into possession or to acquire the Shewus’ interest. Hackney had a statutory
right to do so at a time of their own choosing but no obligation. Correlatively,
the Shewus were entitled to let the property or sell it or pay off the
mortgage. There was no agreement for Hackney to buy the Shewus’ interest in the
property, and there was no statutory obligation to do so. If there was no
obligation to acquire the Shewus’ interest, there was even less obligation to
acquire the mortgagees’ interest or to pay off the Shewus’ mortgage. The Shewus
never acquired a contractual right against Hackney that Hackney should redeem
their mortgage nor does statute impose any such duty upon Hackney. If Hackney
had acquired the mortgagees’ interest, that would not have had the effect of
releasing the Shewus from their obligations under their mortgage — it would
merely have substituted a different mortgagee to whom they were indebted.
The position after 22 November 1996 is not
different. The Shewus are entitled to £85,000 and interest on that sum as from
that date. That entitlement would not have arisen without the mortgagees’ 100%
loan, and it would be unjust to the mortgagees to deprive them of their
security while permitting the Shewus to keep the profit on the house without
requiring them to repay that loan and the interest thereon.
A person whose property is being compulsorily
purchased can do a number of things to hurry along the process of acquisition.
If he cannot agree a price, he can refer the dispute to the Lands Tribunal. The
Shewus did not do so. If he needs money to pay off the mortgage he can, after
the authority have taken possession, ask for compensation on account. The
Shewus did not do so. We have not been told whether there is a difference in
the rate of interest payable to the Shewus on the £85,000 since the date
of possession and the rate of interest payable by them under their local
authority mortgage, and, if so, whether that difference leaves the Shewus
better off or worse off. In my judgment, if that difference leaves the Shewus
better off, then they can keep the difference; if it leaves them worse off,
then they must bear the loss.
So far as jurisdiction is concerned, it was
evidently sensibly agreed between the parties at the Lands Tribunal hearing
that Hackney should, out of the £85,000, pay off the mortgage debt, and there was
no dispute as to the amount of that debt. I can see circumstances in which it
might be appropriate for the Lands Tribunal to concern itself with the terms of
a mortgage. A dispute might arise between a mortgagee and an acquiring
authority if the authority were seeking to acquire the mortgagee’s interest.
However, that was not the case here. Although the mortgagees are described as
claimants, they are not. An early redemption might result in a penalty charge,
which might be recoverable by the mortgagor as a consequence flowing from the
compulsory acquisition. But that is not so in this case. The question with
which the Lands Tribunal was asked to concern itself was whether or not Hackney
were under an obligation to pay off the Shewus’ mortgage debt or to assume
liability, either to the mortgagees or to the mortgagors, for the continued
payment of interest as from a particular date. In my judgment, the tribunal was
quite right to decline jurisdiction on the basis that this did not constitute
the resolution of a dispute concerning ‘the amount of compensation to be paid
by the acquiring authority for the interest’ belonging to the landowner. I
acknowledge that claims for disturbance and suchlike are within the
jurisdiction of the tribunal, but that position has been reached on the basis
that compensation under r 6 is part of the value of the land to the seller and
required to make him a willing seller, as required in r 2. In any event, if the
tribunal had assumed jurisdiction to decide the question, the correct answer in
law is that the authority were not liable to the Shewus to assume
responsibility for any part of the capital or interest that the Shewus were
contractually liable to pay to the mortgagees.
I would dismiss this appeal.
Agreeing, Jonathan
Parker J said: In this case the parties (that is to say Mr and Mrs
Shewu, Hackney and Richmond, although Richmond have never formally made a
claim) agreed that. for the purposes of r 2 in section 5 of the Land
Compensation Act 1961, the correct date for valuing the land the subject of the
compulsory purchase order was 22 November 1996 (the date on which Hackney took
possession), and that the value of the land at that date was £85,000. On the
face of it, that agreement determined all questions of compensation arising
under the order. However, the Shewus sought a ruling from the Lands Tribunal as
to the date on which Hackney ‘should’ have redeemed Richmond’s mortgage, with a
view to increasing their share of the agreed compensation. The Lands Tribunal
held that it had no jurisdiction to determine that issue.
In my judgment, the Lands Tribunal reached the
right conclusion, for the following reasons:
1. The fact that the land was subject to a
mortgage did not affect its value for the purposes of r 2. The interest in the land
that fell to be valued under r 2 was the interest that Hackney were acquiring,
that is to say the unencumbered fee simple. This is, in my judgment, consistent
with the reference in section 6 of the Compulsory Purchase Act 1965 to ‘the
interest belonging to [a person served with a notice to treat], or which he
has power to sell…’ (my emphasis). The fact that for an acquiring
authority to acquire an unencumbered fee simple where land is subject to a
mortgage it is in practice necessary for the compensation to be applied, first,
in or towards redemption of the mortgage is, in my judgment, irrelevant for the
purposes assessing ‘the value of [the] land’ under r 2.
2. Section 14 of the Compulsory Purchase Act 1965
confers on an acquiring authority the power to ‘purchase or redeem the interest
of the mortgagee of any… land’. It does not impose a duty to do so. The Shewus’
claim, if it has any substance, appears to me to be in the nature of a claim
for compensation for failure to exercise a statutory power. At all events, it
cannot, in my judgment, be said to involve ‘any question of disputed
compensation’ for the purposes of section 1 of the Land Compensation Act 1961.
3. Nor, in my judgment, could the Shewus’ claim be
presented as a claim under r 6 to additional compensation — over and above the
agreed figure of £85,000 — for some ‘other matter not directly based on the
value of land’, since the loss or damage in respect of which compensation is
sought did not flow from (ie was not caused by) the compulsory purchase order.
In the circumstances, it is not necessary to
address Mr
would only comment on what he described as his ‘long-stop’ argument, to the
effect that, at the very least, Hackney should be liable for mortgage interest
as from the date when they went into possession (22 November 1996). For my
part, however, I can see no basis for that claim. To uphold it would, in my
judgment, be to insert an additional element into the statutory scheme. As
Schiemann LJ has pointed out, the Shewus are entitled to interest on the agreed
compensation as from the date on which possession is taken; and, as from that
date, they also had the right under section 52 of the Land Compensation Act
1973 (which, as it happens, they did not invoke) to require an advance payment
of compensation.
For those reasons, therefore, and those given by
Schiemann LJ, I, too, would dismiss this appeal.
Also agreeing, Evans LJ said: I agree that he member was correct to hold
that the Lands Tribunal had no jurisdiction to decide the issues that the
appellants sought to raise before him. The agreed market value of the house
when the acquiring authority took possession of it on 22
£85,000. He was not concerned with the rights and liabilities of the owners, as
mortgagors, and the mortgagees (also a local authority) under the terms of the
long-outstanding mortgage.
He duly determined the market value of the
property in the agreed figure. It appears from his decision that there was some
misunderstanding between him and the solicitor for the appellants, because he
said that he was told that there was no claim for compensation under r 6,
whereas Mr Village tells us that such a claim was intended to be made. Mr
Village included this claim in his submissions to us, and, in my judgment, for
the reasons given by my lords, it should fail as a matter of law, even if
jurisdiction were established.
The decision records what appears to have been an
agreed method of apportioning the payment of ‘the agreed sum’ (sc
£85,000) between the owners and the mortgagees:
On payment by Hackney of the agreed compensation
for the acquisition of the freehold interest the mortgage will be redeemed and
the mortgage debt outstanding (which is less than the agreed compensation) will
be deducted from the agreed sum and paid to Richmond, leaving a net sum payable
to the claimants (p3).
Apart from the owners’ contention that the
mortgage should have been redeemed at an earlier date, which the tribunal had
no jurisdiction to decide, there was a possible further ground for contending
that, as between themselves and the acquiring authority, the owners should not
be responsible for mortgage interest after the date when the authority took
possession of the property. Their contractual liability to the mortgagees
remained, but they could perhaps have argued that the acquiring authority, if
they chose not to redeem the mortgage, were liable to indemnify them against
the further interest payments that they became liable to make to the
mortgagees. The statutory right to be paid interest by the authority from the
date when possession was taken might preclude such a right to indemnity, but,
even if there were a claim, possibly under r 6, it would be limited to the
difference, if any, between the contractual and the statutory rates. For the
reasons given by Schiemann LJ, I doubt whether the claim could succeed, and, in
any event, it is not open in the present case, where the payment made by the
authority was apportioned in the manner referred to above.
I, too, would dismiss the appeal.
Appeal dismissed.
