NOTE

ITS Corporate Entertainment Ltd v City of Edinburgh Council

The applicants were tenants of land affected by a Compulsory Purchase Order (CPO). When they attempted to discuss a claim for compensation with the respondents as acquiring authority, they were advised, by letter of 10 November 2008 not only that no claim would be entertained but that no further correspondence on the subject would be entered. The main emphasis of the letter might have been thought to lie in the suggestion that, by entering a lease knowing of the proposed CPO, the applicants had failed to mitigate their loss. But the letter also made reference to the significance of the dates in such a way as to show that the respondents’ primary contention was that the applicants had no relevant interest in the land. The applicants did not accept this and applied to the Tribunal for resolution of this matter as a preliminary issue.

We heard debate on 28 July 2009 when the applicants were represented by Ms Louise Cockburn, solicitor, and the respondents by Mr Alasdair Burnet, Advocate.

We started the hearing by expressing some doubt as to the wisdom of seeking resolution of a single legal issue before attempting to formulate a claim. Plainly, the respondents had encouraged this approach but we wondered whether it was necessarily the most efficient way of proceeding. We raised this as part of an attempt to clarify, in our minds, the nature of the claim. Now that we have a better understanding, we think it clear that it was an entirely sensible way of proceeding in the present case.

The principal issue debated before us turned on the respondents’ averments that as the applicants had no interest in the land at the time of service of the Notices intimating the making of the CPO on 6 and 13 September 2002, they could have no competent claim. This was based on the fact that the lease relied on was not finally executed until October 2002. However, the respondents’ pleadings advanced an alternative case based on an assertion of a duty on the applicants to mitigate their losses in the operation of their business. It was agreed that the question of whether that duty only arose after vesting should be determined by us at this stage but that other issues of “mitigation” should be left for proof if the respondents’ main argument was unsuccessful.

Statutory material

Lands Clauses Consolidation (Scotland) Act 1845
Acquisition of Land (Authorisation Procedure) (Scotland) Act 1947
Land Compensation (Scotland) Act 1963
Land Compensation (Scotland) Act 1973
Town and Country Planning (Scotland) Act 1997
European Convention of Human Rights, First Protocol

Authorities

It may be noted that although a number of cases were mentioned in the pleadings and in the list of authorities supplied to the Tribunal, only the following were referred to in the submissions.

Lindon Print Ltd & Another v West Midlands County Council [1987] 2 EGLR 70
Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 (PC)
City of Glasgow Union Railway Co v James M’Ewen & Co 1870 8 R 747

Textbook

Rowan Robinson Compulsory Purchase and Compensation, The Law in Scotland 2nd edition

Submissions

Ms Cockburn opened by suggesting that the argument in the respondents’ pleadings insofar as based on the proposition that the Notice of making of a CPO was equivalent to a Notice to Treat was simply mistaken. The proposition was unsupported and unsupportable. It confused two quite different things. Mr Burnet appeared tacitly to accept this. He did not attempt to advance any argument which relied on the proposition that the September Notices were in any way equivalent to a Notice to Treat.

Ms Cockburn submitted that it was the General Vesting Declaration (GVD) which for present purposes fell to be seen as equivalent to a Notice to Treat. She cited Rowan Robinson at paragraph 3-21.

She made reference to Article 1 of the First Protocol to the European Convention on Human Rights but did not suggest that this required any change of construction of the existing statutory scheme for compulsory purchase and related compensation. We are not satisfied that the reference to Article 1 added anything to the substance of the debate.

Her substantial submission was simply put. Notification of a CPO having been made and of a right to object to it was not equivalent to a Notice to Treat. It was a completely different stage of the procedure. Much could happen between the making of a CPO and the stage of dispossession. The Order might not be confirmed. There might be delays before the acquiring authority required to take possession. There was simply no justification for regarding the Notice of the CPO as relevant to the assessment of relevant interests. Implicit in her submission was the proposition that the date for identification of relevant interests in land was the date of vesting although she did not attempt to support that by direct reference to authority.

She distinguished the decision in City of Glasgow Union Railway Co v James M’Ewen & Co. The claimants in that case had not had a lease at the stage when the railway company was entitled to take possession. That was equivalent to the stage of a Notice to Treat.

Ms Cockburn referred to the provisions of section 117 of the 1845 Act as allowing the acquiring authority to make payment in circumstances where they had failed to identify the relevant interest at the appropriate time. Accordingly it was of no significance that there had been no intimation to the applicants.

In relation to mitigation she submitted that the question of whether the applicants had acted reasonably was an issue of fact. She referred to the 1947 Act at Schedule 2 paragraph 7. She pointed out that the respondents had not attempted to make any case under these provisions.

For the respondents, Mr Burnet stressed that the Council had several arguments which they would intend to deploy to resist any claim to be made by the applicants. In particular they intended to submit that the claim was barred by reference to the said paragraph 7. Another aspect of the background was that there might be a challenge to the date of applicants’ apparent execution of the lease. These matters and general issues relating to mitigation raised issues of fact which would require to be determined after a proof but he contended that there was no basis in law for the applicants’ assertion that there was no duty to mitigate before the date of vesting.

On the main substantive point, Mr Burnet submitted that there was no clear authority pointing to the proper date for identification of the point at which the existence of a relevant interest was to be assessed. He suggested that the cases tended to suggest a need to examine facts and circumstances. Although there was some authority for the proposition that the relevant date was the date of vesting, the existing authorities arose in relation to cases based on the Notice to Treat procedure. The present case was different in that it proceeded by way of GVD.

He said that there was a range of possible choices of date. It might be at the date of making the CPO. It might be the date when the CPO was confirmed. It might be the date of Notice of intimation to make the GVD, or the date of vesting itself. Vesting under the GVD had to be the last date as the interest in the land vested in the local authority at that point. There would be no-one with a title to create any further interest. He submitted that there was no clear authority. The passages from Rowan Robinson at 3-21 and in chapter 5 could not be seen as reliable because the authorities referred to related to Notice to Treat procedure.

He submitted that considerable weight should be attached to the only statutory provision dealing explicitly with the problem. Although it might not apply to the circumstances of the present case, section 34 of the 1973 Act was one place where the date was explicit. For the purposes of “disturbance payments” it is possession at the date of publication of making of the CPO which is decisive. That was consistent with principle. A person with an interest in land had notice at that stage.

On any view that was the point at which parties required to act reasonably and not increase the burden on the acquiring authority.

Mr Burnet submitted that it was clear that a duty to mitigate arose before the date of vesting. At its simplest, it should be seen as a corollary of the well established position that a dispossessed party could have a claim for costs incurred prior to the date of vesting. Plainly such a party had to act reasonably. This was simply another way of expressing the duty to mitigate.

He referred to the said paragraph 7 of Schedule 2 to the 1947 Act. He pointed out that it had no time limit. The arbiter, or now the Tribunal, would have to decide whether creation of an interest was reasonably necessary. He referred to the exposition of principle by Lord Nicholls of Birkenhead in Shun Fung Ironworks, at pages 125 and 126. He submitted that there was nothing to suggest that there was any time limit. It would always be a question of the facts and circumstances in any case. Accordingly it could not be said, in abstract, that there was no duty to mitigate prior to vesting.

In response, Ms Cockburn referred to the decision in Lindon Print Limited. She said that this was a case where the acquiring authority had suggested that there had been a failure to mitigate. However, on the evidence they failed to prove this. She did not point to any particular passage of the decision as establishing any principle but suggested that the absence of any reference to actings prior to vesting was significant. She accepted that there was a duty to act reasonably in all the circumstances. The onus was on the acquiring authority to show that a claimant had not acted reasonably. However, the reference period was from the date of confirmation of the CPO. Although she had opened her response by saying that the question of the likelihood of a CPO was the issue at the crux of the matter, she resisted the suggestion that the duty must start at the point where it could be said that there was a reasonable likelihood of a CPO. She accepted that her position was that a potential claimant was entitled to act as he pleased until he had knowledge of a confirmed CPO.

In relation to the respondents’ reference to section 34, she said simply that it did not apply in the present case. No claim was to be made under that provision. It was accordingly irrelevant.

She repeated that the applicants’ submission was that the relevant date of assessment of interest was the date of vesting. She suggested that it must be at that point that the duty to mitigate arose although we understood that she did not depart from acceptance that the date of confirmation of the CPO was the relevant date for this purpose this.

Discussion

The discussion before us was focussed on the contention in the respondents’ pleadings that the date for fixing of relevant interests in land is the date of intimation of the making of a CPO. That contention was supported, in the pleadings, by the suggestion that such notice was equivalent to a Notice to Treat. That proposition was not advanced before us and is plainly wrong. In the circumstances, it is perhaps unsurprising that Ms Cockburn did not think it necessary to explore authorities bearing on the proper date for ascertainment of the relevant interests. Mr Burnet appeared to accept that there was a weight of authority pointing to the date of vesting as the proper date but we understood him to say that it was unnecessary to consider that material because the authorities in question were based on Notice to Treat procedure.

We are satisfied that, if there is any distinction to be drawn, the position following a GVD is clearer than that following a Notice to Treat. But, for present purposes, we are not persuaded that there is any radical distinction. We are satisfied that guidance given by authority based on the latter procedure can properly be relied on. The effect of the authorities is conveniently summarised by Rowan Robinson at paragraphs 5.08 and 5.09. For completeness it can be noted that, in the English context, the Encyclopaedia of Compulsory Purchase is to the same effect: Volume 1, B-0350.

It is plain that the weight of established authority is that the date upon which interest is to be determined is the date of vesting. The only doubts expressed in the case law relate to possible difficulties when there is, for whatever reason, a delay between vesting and dispossession. No such issues arise in the present case. It was not disputed that vesting took place in January 2005.

Ms Cockburn made much of the practical difficulties which would arise from treating the Notice of making of a CPO as a cut-off point for assessment of relevant interests. We think there is considerable force in this. It cannot be suggested that whenever there is a risk of compulsory purchase it is necessary for a landowner to stop attempting to make any commercial use of his land. For example, we do not think it could be suggested that he was obliged to take steps to curtail the natural growth of any business he carried on simply in order to minimise his eventual claim. Where an owner seeks to allow his land to be used fruitfully for a business he cannot run himself, it will often be necessary to grant a lease. The duration of the lease will depend on the nature of the business. If he is not free to grant leases of an appropriate duration, the land may be sterilised. No doubt this might in some circumstances reduce the claim to be made against the acquiring authority - if the CPO was eventually confirmed. But, it is not hard to see circumstances where it would increase the claim. If the CPO was not confirmed he would simply have to bear the loss himself. We see no reason to treat the scheme of the legislation as bringing about such a result when it would be inconsistent with the established authorities.

Mr Burnet founded on the provisions of section 34 of the 1973 Act as one explicit example of a statutory provision specifying the making of a CPO as the relevant date for possession. These provisions created a specific type of compensation – disturbance payments – available where no other claim is open. We are not persuaded that the express provisions of one Act dealing with particular circumstances can safely be relied on as a guide to proper construction of other legislation where no such provision is made. Indeed, it is a legitimate tool of construction to suggest that where there is an explicit provision in one Act and no such provision in another, the contrast points to an intention to bring about a different result. We place no weight on this latter consideration but do not consider that the inference the respondents sought to draw from section 34 is sufficient to outweigh the weight of authority described above.

In short, we are satisfied that the respondents’ primary argument is misconceived. The mere fact that the lease was entered after a Notice of making a CPO is not an absolute bar. It may be added, for completeness, that in reaching this conclusion we have not required to reach any view as to the effect of the pre-existing missives.

As the parties were agreed that issues of mitigation would fall to be determined after proof it is unnecessary to deal with the matters referred to by way of background in course of the submissions. It may be said that we were a little surprised by the acquiring authority’s insistence that there were a number of reasons, apparently based on their actings at the time of the lease, which were to be advanced as a justification for rejection of the applicants’ claim in its entirety. However, these will have to be considered when the facts are clearer. For the moment, we have simply to deal with the applicants’ contention that there was no duty to mitigate until the date of vesting.

Mr Burnet made the point that it is well established that pre-acquisition losses can be recovered if these are reasonably attributable to the prospective acquisition of the relevant land. We accept that such a right must carry an obligation to act reasonably during the period in respect of which such claims might come to be made. There is no reason why that obligation should depend on whether the losses are actually sustained prior to vesting or at a later stage.

However, we think that this issue is unnecessarily complicated by reference to the concept of a “duty to mitigate loss”. It seems to us that the broad test of reasonableness mentioned by Lord Nicholls of Birkenhead in the Shun Fung case, at page 126F-H is not restricted to circumstances in which there can properly be said to be a duty to mitigate loss. The latter is, no doubt, a convenient expression when describing the situation at a stage when it is clear that a claimant will be looking to another party for compensation. But, at a stage when there is no certainty that any claim will ever be open, the concept of a duty to mitigate seems hardly appropriate. Lord Nicholls referred to the variety of tools suggested by lawyers in relation to the need to distinguish between adverse consequences which trigger a claim for compensation and those which do not. The language used has varied. Ultimately, it may be hard to define the appropriate tests except in terms of reasonableness in all the circumstances. Circumstances which might be relied on as creating a duty to mitigate can be taken into account in any assessment of reasonableness.

Ms Cockburn referred us to the decision in Lindon Print Ltd v West Midlands County Council and we note that, in that case, counsel is noted as having said that as a matter of law, he could not argue that the requirement to mitigate arose before the date on which Notice to Treat was served, but before that date, the company was put on notice that the duty to mitigate would arise. This may be thought to provide some support to the idea of a cut off date but it is hardly authoritative and in any event, the reference to the claimants being put on notice can be seen as a prelude to discussion of issues of reasonableness.

We consider that it will always be necessary to look at the particular circumstances. Ms Cockburn’s contention that there was a cut off point forced her to accept that the inference from that proposition was that, before the cut off, a potential claimant could act in any way he pleased. That is, no doubt, true in one sense. But, it would not mean that all loss incurred as a consequence of such action would be recoverable from the acquiring authority.

Whether matters are assessed by reference to reasonable actings or by reference to a duty to mitigate, the end result may well be the same. It is not necessary, for present purposes, to consider whether there may be situations where a supposed duty to mitigate might lead to a different result from a broad test of reasonableness in assessing what loss should attract compensation. It might be surprising if a businessman facing compulsory acquisition was forced to subordinate the best interests of his business to a duty to the acquiring authority but, it is plain that what is reasonable is always likely to depend on the likelihood and imminence of dispossession. As a matter of terminology we can accept that it is inappropriate to refer to a duty to mitigate until a stage where it is clear that there will be dispossession. We are satisfied that it is unnecessary for us to attempt to express matters more narrowly. If there comes a stage where it is thought that a distinction between a duty to mitigate and a general test of reasonableness has practical importance, we would be prepared to hear further submissions.

The provisions of paragraph 7 of the Second Schedule to the 1947 Act appear to give an acquiring authority additional protection in relation to interests created inappropriately after the possibility of a CPO has become public knowledge. It can be said that this provision is entirely consistent with the substantive decision we have reached in this case. It gives the acquiring authority some protection in relation dealings with the land before the vesting date. In particular, it deals with the risk of actings intended simply to increase a compensation claim. Although Ms Cockburn took the point that there was no reference to paragraph 7 in the pleadings, we do not think that such objection is valid at this stage. The present application was taken to deal with a single point. Other issues may well arise. In the circumstances of a lease of land for a sound commercial purpose, the acquiring authority might face some difficulty in stating a relevant case under this provision but that would be a matter for another day.

Ms Cockburn wished to make it very clear that there was nothing in her clients’ behaviour which could be criticised as unreasonable. She suggested that the duty on a claimant was not a heavy one. She contended that the onus of demonstrating a failure to mitigate was on the respondents. These propositions find support in Lindon Print Ltd: p 205 H-J. But, although the respondents did not find it necessary to dispute them at this stage, it may be observed that the underlying onus will usually be on a claimant to establish his claim and, insofar as that gives rise to questions of reasonableness or remoteness, the question of onus may be of little assistance at the end of the day.


Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 7 August 2009

Neil M Tainsh – Clerk to the Tribunal