Lands Tribunal for Scotland

NOTE

McEwan v East Dunbartonshire Council

Summary

The applicants own two blocks of industrial units which admittedly suffered damage during flood prevention works carried out by the respondents in exercise of their powers under the Flood Prevention (Scotland) Act 1961 (‘the Act’). The respondents admit that the applicants are entitled to compensation in terms of Section 11(1) of the Act but the parties are in dispute about the measure of compensation. In particular, the respondents oppose the applicants’ claim for compensation for the reinstatement cost of one of the blocks which the applicants claim required to be demolished as a result of the damage. The Tribunal was asked to rule on the correct approach to compensation.

In the Tribunal’s opinion, the costs of repair or reinstatement, including re-building, while not irrelevant to the assessment of compensation under Section 11 of the Act, cannot be recovered directly under that provision, which provides compensation for either depreciation in value or disturbance or both. The applicants will require to amend their application accordingly.

Procedure

This is an application in respect of subjects at Units 17B and 17C Old Mill Park, Kirkintilloch, Glasgow. The subjects comprise two blocks each of four small industrial workshop units built on a site close to a bend in the River Kelvin. The applicants own the site as an investment. The respondents, in implementation of the River Kelvin Flood Prevention Scheme under the Act, constructed certain flood defence works at this location. These works admittedly caused damage at the subjects. The applicants’ claim is in three parts:-

(a) rebuilding costs of Unit 17B, which they claim required to be demolished;

(b) repair/reinstatement costs of Unit 17C; and

(c) loss of rental income, upset and inconvenience and incidentals.

The respondents dispute in particular the basis of assessing loss under part (a). They have made an alternative offer based on an open market valuation. In relation to part (b) they indicate that they have offered to repair this unit. They do not dispute the relevancy of part (c).

A hearing of the application had been arranged, but parties jointly requested a legal debate on the correct basis for valuing compensation.

At the debate, the applicants were represented by Jonathan Brown, Advocate, instructed by Messrs Miller Beckett & Jackson, Solicitors, and the respondents by Alistair Clark, Advocate, instructed by the Solicitor to East Dunbartonshire Council. The parties had helpfully provided outlines of their arguments, and the Tribunal is indebted to counsel for their clear submissions. Mr Clark did not seek dismissal of the application or any part of it and parties were agreed that if the Tribunal did not accept the applicants’ basis of compensation the applicants should be given an opportunity to amend their application appropriately.

The Law

The Act provides inter alia as follows:-

“1. (1) For the purpose of preventing or mitigating the flooding of land in their area, not being agricultural land, any council to whom this section applies may, so far as they think fit and subject to the provisions of this Act, exercise all or any of the powers specified in subsection (1) of the next following section.

2. (1) The powers referred to in subsection (1) of the foregoing section are powers to carry out operations of the following descriptions-

(f) the reinstatement of land damaged by operations carried out by virtue of this Act.

11. (1) Where on a claim being made under this section it is shown that (after taking into account the effect of any operations that may have been carried out by the local authority under paragraph (f) of subsection (1) of section two of this Act) the value of an interest of any person in land has been depreciated, or that any person has suffered damage by being disturbed in his enjoyment of land, in consequence of the carrying out of any flood prevention operations, the local authority by whom, or on whose behalf, the operations were carried out shall pay to the person whose interest has been depreciated or who has suffered the damage compensation equal to the amount of the depreciation or damage:

Provided that a person shall not be entitled to compensation under this subsection unless the act or omission causing the depreciation or disturbance would have been actionable at his instance if it had been done or omitted otherwise than in the exercise of statutory powers.

(3) A local authority shall not be required to entertain a claim for compensation under this section unless it has been made before the expiration of two years from the depreciation becoming apparent or, as the case may be, the first occurrence of the disturbance, or ten years from the completion of the flood prevention operations, whichever is the earlier.

12. (1) A local authority may make contributions towards expenditure incurred-

(a) by any other person in the carrying out of operations which could properly have been carried out by the local authority under this Act …”

Authorities referred to

Hutchison v Davidson 1945 SC 395
Re Coast Protection Act 1949 (1956) 106 Law Journal 108 (Lands Tribunal)
European Convention on Human Rights, First Protocol, Article 1
Land Compensation (Scotland) Act 1963
James v U. K. (1986) 8 E.H.R.R. 123
Pressos Compania Naviera S.A. and Others v Belgium(1996) 21 E.H.R.R. 301
Human Rights Act 1998

Submissions

On behalf of the respondents, Mr Clark indicated that there was apparently no reported authority on the correct basis of compensation under the Act and, although there were statutes with analogous provisions, no authority which directly bore on the question. In his submission, Section 11 was to be construed giving the words their ordinary natural meaning. The Act provided two heads of compensation – one relating to depreciation of the value of an interest in land, which involved identifying the value before depreciation and then the value as depreciated; the other relating to damage by being disturbed. They were not disjunctive - both might be claimed - but the section limited the right to compensation to the two heads referred to. Mr Clark referred to Section 12 of the Land Compensation (Scotland) Act 1963 in relation to compensation for compulsory purchase, where the basic approach was a market value approach (Rule 2), supplemented by a provision for equivalent reinstatement (Rule 5), for which there was no corresponding provision in Section 11 of the present Act. Re Coast Protection Act 1949 gave an indication of the approach based on difference in values, under an English statute which used the same language as the Act. The Act did not go as far as allowing for cases in which the rebuilding costs exceeded the change in market values. ‘Disturbance’ did not include the cost of repair. Injurious affection came into account under the market value approach, i.e. the first part of the provision. Upon consideration of a question put by the Tribunal, Mr Clark suggested that there might here be one interest in land, i.e. the applicants’ interest as owners of the site, rather than separate interests in the two blocks, but it did not affect the question of construction.

Alternatively, Mr Clark suggested that if, contrary to his submission, there were, exceptionally, cases in which the market value approach was not appropriate, it was for the applicants to say why depreciation in market value would not provide adequate compensation, and they would require to amend their application to spell out the basis.

On behalf of the applicants, Mr Brown agreed that there was one single interest in land: the claim was so presented, albeit under three heads. He developed a distinction between depreciation in the sense of ‘obvious, intentional’ loss, anticipated from the outset, the scheme being pursued in the wider interest, and damage, which included accidental damage as well as ‘pure’ disturbance. It was too restrictive a meaning of the language of the section to restrict compensation to the two situations of before and after market value and pure disturbance. Damage by being disturbed in the enjoyment of land included the cost of repair. Repair (unless de minimis) amounted to disturbance, even if the property could still be occupied fully. In many cases, in practice there would be no difference. If the site value was increased by the works, it must be a valid plea for the authority to say that there was no loss. In compulsory purchase, the idea that the claimant might want to carry out repairs and stay where he was did not arise. There could be depreciation without damage, but where there was damage there would almost inevitably be depreciation: the first part of the provision could be taken to refer to the first of these situations, the second part to damage. He asked how otherwise an owner could recover demolition costs (although in the present case, as he acknowledged, the respondents had in fact carried out the demolition). The cleared site would be of little value and difficult to sell. Compensation based on depreciation would not be full compensation for the applicants. They wished to be put back in the position they were in before the damage: there should be no difference in this respect between this measure of damage and the approach in a conventional claim for damages. A depreciation measure involved a legal fiction that the sum provided would enable them to replace the subjects in the market. That would not meet the situation.

Mr Brown further submitted that if there was any doubt about the correct interpretation, Section 3 of the Human Rights Act 1998 should be invoked to read and give effect to Section 11 of the Act so as to be compatible with the rights contained in Article 1 of the First Protocol of the Convention. He referred to James v United Kingdom, particularly at para. 50,as indicating that although there was a wide margin of appreciation in the implementation of social objectives, there had to be proportionality in the means employed so as to avoid an excessive burden on individuals. Article 1 had three distinct rules: firstly, the general principle of peaceful enjoyment of property; secondly, the rule against deprivation of possessions except under certain conditions; and thirdly, the recognition that member states are entitled to control the use of property in accordance with the general interest. Interference with peaceful enjoyment, falling short of deprivation, engaged the right, and was permitted only where the means used were proportionate to the legitimate interest in question. This depended on there being a fair measure of compensation. Mr Brown also referred to Pressos Compania Naviera SA and Others v Belgiumat para. 38. What was required was a reasonable relationship between compensation and value, rather than full compensation. Although Mr Brown acknowledged the difficulty of looking at the figures at this stage, he referred to the comparison between the respondents’ offer of £50,000 and the claim of £128,545. The depreciation measure was potentially disproportionate.

Replying briefly, Mr Clark submitted that to construe Section 11 as effectively providing for conventional damages depended on giving the words a very wide meaning, in which case it was difficult to see why it was necessary to have the provision about depreciation in value. More generally, why should this relatively elaborate language be used at all? In relation to the Convention right, the provision clearly had two parts, market value and disturbance, and there was no material on which it could be said to be disproportionate.

Tribunal’s Consideration

We have reached the view that the costs of repair or reinstatement, including rebuilding, while not irrelevant to the assessment of compensation under the Act, cannot be recovered directly as items of damage suffered by being disturbed in the enjoyment of land. It follows that the applicants will require to amend their application and, as agreed at the hearing, will be allowed time to do so.

In considering what ruling we could give at this stage, we have been careful to avoid proceeding on the basis of any view of the facts of the case. The facts canvassed in the application and answers appear to us to leave a number of gaps, but this is not a case in which the applicants were alerted, by a plea to the relevancy or specification of their application, to the need for fuller specification. Rather, we have considered, as a matter of interpretation, whether in a claim for compensation under the Act, where it is accepted that the applicants’ property was damaged and they are entitled to some compensation, rebuilding costs or repair and reinstatement costs are directly recoverable.

Mr Brown’s submission as to the structure of these compensation provisions was attractively presented. He suggests, as we understand it, that the first limb – depreciation – applies in a variety of circumstances where depreciation of adjoining land is, as it were, incidental to, perhaps in a sense a natural consequence of, the flood prevention works. “Depreciation without any damage” was another expression he used. Then the second limb – damage by disturbance – can be given a wide meaning so as to include, not just ‘pure’ disturbance as he described it, but any kind of damage to the property. Since the general aim of statutory schemes for compensation for public interference with private property can perhaps be equated with the aim of common law damages, to put the claimant back in the same position as before the damage was suffered, such an interpretation would enable cases involving damage to be fully compensated on the basis of actual costs rather than in some circumstances being limited by reference to depreciation in value.

We are, however, unable to accept this argument for a number of reasons.

We are unable to give such an extended meaning to the expression, “any person has suffered damage by being disturbed in his enjoyment of land”. In our view, ‘damage’ is here used in the sense of loss and the type of loss is specified, namely loss caused by disturbance in the enjoyment of land. The concept of disturbance in possession is well recognised, and is distinct from questions of actual damage to property. Damage may be caused to a building, but if the occupier can continue in full possession without any interruption, he has not been disturbed in his enjoyment. The damage may or may not produce a depreciation in value in consequence of the operations. If possession is interrupted, it is the loss consequential on that interruption which is damage caused by disturbance, not the cost of repairing the damage to the building. Part (c) of the applicants’ claim is clearly a claim for alleged damage by disturbance.

We agree with Mr Clark that the wording of the proviso to Section 11(1) and of Section 11(3), where the reference to this limb of compensation is to disturbance and not damage, helps in pointing the distinction.

In our view, the ordinary meaning of the words used in the second limb of the provision for compensation is so clear that if there is apparent hardship in a case such as the present, Parliament must be taken to have intended that. The policy of compensating on the basis of the effect of the interference in the property right on the value of the property, although that may not be the same as the actual loss incurred by the owner, is, and was at the date of passing of this Act, well established. The statutory purpose, “preventing or mitigating the flooding of land”, of this particular legislation conferring powers on the local authority, without providing any means of recovering the cost of the flood prevention works, may be relevant. Further, the Act authorises local authorities themselves to reinstate land damaged by their operations (Section 2(1)(f)) or contribute towards the cost of such work (Section 12(1)(a)). In the present case we note that the local authority paid for the demolition and there was discussion of what further work might be carried out, but there was apparently some disagreement as to the extent of further work required.

That said, we are of the clear view that the cost of repair or rebuilding can be relevant to the assessment of depreciation in value under Section 11. A damaged building will often (though not necessarily always) be worth less than before it was damaged. A bare site, following demolition of a damaged building, will often (though again not necessarily always) be worth less than the previous value of the site with the building. A site with a building requiring to be demolished may be worth less still, the demolition cost being reflected in the value. In the present case it is suggested that the cost of rebuilding Unit 17B far exceeds the offer of compensation based on depreciation in the market value of that unit. As we discussed with the parties at the hearing, it may be that the ‘interest in land’ under consideration, i.e. the unit of valuation, is in fact the whole parcel of land including both Unit 17B and Unit 17C and that on that basis the figures may come to look rather different.

We think it is also worth pointing out that the formulation, “value of an interest of any person in land has been depreciated” is not the same as the basic formulation of the measure of compensation for compulsory purchase under Section 12, Rule 2, of the Land Compensation (Scotland) Act 1963, which refers in terms to open market value. We do not express any view on the application of that test when the whole circumstances of the present case are considered, but we are of the clear view that an applicant for compensation for damage or destruction of a building is entitled to lead evidence of repair or rebuilding costs as potentially relevant, along with other considerations which could be expected also to include market value evidence, in determining the amount of depreciation in the value of the applicant’s interest. The Tribunal then requires to reach an opinion, on a consideration of all the material placed before it, as to the extent of depreciation in value. It should be made clear, however, that fair notice must be given of the formulation of the claim, the circumstances relied on and the basis for contending for the level of depreciation suggested.

In their written note of argument the respondents referred to Hutchison v Davidson, an Inner House decision on damages at common law in relation to damage to a building. We have found reference to that case interesting in endeavouring to consider the context of this compensation provision, although, as Mr Clark pointed out, Section 11 is clearly not simply a statutory formulation of the common law.

We reject the applicants’ argument under reference to the interpretation obligation under Section 3 of the Human Rights Act 1998 and Article 1 of the First Protocol to the Convention. Mr Brown referred to James, which was a case of complete deprivation of the owner of his interest. He submitted that Article 1 also covers interference with the right to peaceful enjoyment of possession. That may very well be right, but on any view this provision does compensate for disturbance of enjoyment of possession. On the material available, we could not find that this compensation scheme produces a measure of compensation which does not bear a reasonable proportion to the aim sought to be realised, it being clear that there is a wide margin of appreciation in providing a fair balance and proportionality. The other case referred to, Pressos, involved deprivation, by retrospective legislation, of an established right to damages. There is nothing of that kind here. Section 11 as we interpret it is in our view compatible with the Convention right.

Decision

In these circumstances, we shall allow further periods for amendment, if so advised, of this application and answers. The parties may wish to consider their respective positions and explore the possibility of resolution, and the Tribunal’s order will allow appropriate time for that purpose.