1. This is a referral for determination of disputed compensation in respect of the compulsory acquisition of a servitude. It concerns a strip of land required for the purposes of a gas pipeline. The pipeline has been constructed and is known as Feeder 24. The central dispute relates to the applicants’ contention that the existence of the servitude has sterilised the servitude land and adjoining land for the purposes of a wind farm development. A wind farm has been constructed upon the applicants’ land consisting of four turbines. It is maintained that the applicants have sustained a loss because but for the existence of the servitude, a further two turbines could have been developed thus diminishing the value of the land. One of the “lost” turbines lies on an area covered by a Certificate of Appropriate Alternative Development (“the CAAD”). The other lies just outwith the CAAD area. There are ancillary claims relating to the impact of the servitude upon the built wind farm which is said to have been delayed, for loss of further development potential and failure to provide a crossing point for heavy equipment. There is an associated agricultural claim which has now been settled. There are various other claims including claims which the applicants have sought to reserve at this stage.
2. At the hearing over six days in February-March 2016, the applicants were represented by Mr James Findlay, advocate and the respondents were represented by Mr Roy Martin, QC. Mr Findlay led evidence from Miss Isobel Gordon who is one of the applicants and was project manager for the wind farm development; Mr Charles Morelli, BEng of AARDVaRC Ltd, Aviation Analysts; Richard Boddington, MSci MSc of SgurrEnergy Ltd, Renewable Energy Consultants; David Stewart, MA (Cantab) DipTP MRTPI of David Stewart Associates and Ian Thornton-Kemsley MRICS ACIArb FAAV, a consultant with Strutt & Parker LLP. Mr Martin called Michael Watson CEng MIET of Pager Power, Aviation Consultants, Mr Brian Punton CEng MIET of SHE Transmission Ltd; Iain Michie MRTPI MRICS of Montagu Evans LLP and Alasdair Reynolds FRICS of Bell Ingram Limited. We carried out a site inspection.
Abbey Homesteads Group v Secretary of State for Transport - (1982) 2 EGLR 198
Acrofame Properties v London Development Agency -  UKUT 107 (LC)
Arnold White Estates Ltd v National Grid Electricity Transmission plc  EWCA Civ 216
Bailey v Derby Corporation -  1 WLR 213
Birmingham Corporation v West Midland Baptist (Trust) Association Inc -  AC 874
Bishopsgate Parking No2 Limited v Welsh Ministers -  UKUT 22 (LC)
Bolton Metropolitan Council v Waterworth - (1981) 42 P & CR 289
BSA International SA v Irvine - 2009 SLT 1180
Bwllfa & Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Company -  AC 426
Caledonian Railway Co v Ogilvy - (1855) 18 D (HL) 20
Christies of Scotland v Scottish Ministers - LTS/COMP/2014/2
Christos v Secretary of State for the Environment, Transport and the Regions -  RVR 191
Cooke v Secretary of State for the Environment - (1974) 27 P & CR 234
Cowper-Essex v Acton Local Board – (1889) LR 14 App Cas 153
Danzan Trust & The Dundas Trust v Edinburgh City Council - LTS/COMP/2005/03
Director of Buildings and Land v Shun Fung Ironworks Ltd -  2 AC 111
Duke of Buccleuch and Queensbury v Metropolitan Board of Works - (1871-72) 5 LR HR 418
Elitestone Limited v National Grid Gas plc  UKUT 0452 (LC)
Glenmore v Transco - LTS/COMP/2003/06
Grampian Regional Council v Secretary of State for Scotland - 1984 SLT 212
Harvey v Crawley Development Corporation -  1 QB 485
Hobbs (Quarries) Ltd v Somerset County Council - (1975) 30 P & CR 286
Horn v Sunderland Corporation -  2 KB 26
Inland Revenue commissioners v Clay  3 K.B. 466
Lynall v IRC  AC 680
Kennedy v Cordia (Services) LLP -  UKSC 6
McEwing & Sons Limited v Renfrewshire CC 1960 SC 53
Matthews v The Environment Agency - LCA/192/2000
National Justice Compania Naviera SA v Prudential Assurance Co Ltd ("The Ikarian Reefer") -  2 Lloyd's Rep 68
Optical Express (Southern) Ltd v Birmingham CC -  RVR 230
Penny’s Bay Investments Co Ltd v Director of Lands FACV No 8 of 2009
Ramac Holdings Ltd v Kent CC -  JPL 897
Ripley v Great Northern Railway Co - (1874-75) LR 10 Ch App 435
Ryde International Ltd v LRT -  RVR 59
Scarborough Muir Group Limited v Scottish Ministers  CSIH 5
Smith v Strathclyde Regional Council - 1982 SLT (Lands Tr) 2
Steel v Scottish Ministers - 2015 SLT (Lands Tr) 81
Stoke-on-Trent City Council –v- Wood Mitchell & Co Ltd -  1 WLR 254
Thomas Newall Ltd v Lancaster City Council -  EWCA Civ 802
Transport for London (formerly London Underground Ltd) v Spirerose Ltd (in administration) –  1 WLR 1797
Welford & others v EDF Energy Networks (LPN) plc -  EWCA Civ 293
Acquisition of Land (Authorisation Procedure) (Scotland) Act 1947
Electricity Act 1989
Gas Act 1986 (“the 1986 Act”)
Land Compensation (Scotland) Act 1963 (“the 1963 Act”)
Land Clauses Consolidation (Scotland) Act 1845 (“the 1845 Act”)
Taxation of Chargeable Gains Act 1992
3. Schedule 3 of the 1986 Act provides:
“24. For section 61 of the Lands Clauses Consolidation (Scotland) Act 1845 (estimation of compensation) there shall be substituted the following section—
61. In estimating the purchase money or compensation to be paid by the promoters of the undertaking in the Special Act, in any of the cases aforesaid, regard shall be had not only to the extent (if any) to which the value of the land over which the right is to be acquired is depreciated by the acquisition of the right, but also to the damage (if any) to be sustained by the owner of the land by reason of its severance from other land of his, or injuriously affecting that other land by the exercise of the powers conferred by this or the Special Act.”
4. The unamended section 61 of the 1845 Act provides as follows:
“61. In estimating the purchase money or compensation to be paid by the promoters of the undertaking, in any of the cases aforesaid, regard shall be had not only to the value of the land to be purchased or taken by the promoters of the undertaking, but also to the damage, if any, to be sustained by the owner of the lands by reason of the severing of the lands taken from the other lands of such owner, or otherwise injuriously affecting such land by the exercise of the powers of this or the special Act, or any other Act incorporated therewith.”
5. Section 12 of the 1963 Act provides:
“Rules for assessing compensation.
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:
… (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:
and the following provisions of this Part of this Act shall have effect with respect to the assessment.”
6. Section 23(5) of the 1963 Act provides:
“Where a certificate is issued under the provisions of Part IV of this Act, it shall be assumed that any planning permission which, according to the certificate, would have been granted in respect of the relevant land or part thereof if it were not proposed to be acquired by any authority possessing compulsory purchase powers would be so granted, but, where any conditions are, in accordance with those provisions, specified in the certificate, only subject to those conditions and, if any future time is so specified, only at that time.”
Rowan Robinson; Compulsory Purchase and Compensation: The Law in Scotland (3rd ed)
7. The outstanding claims can be summarised thus:-
|Landowner’s and developer’s interest in lost turbines||£2,449,000|
|Effect on built wind farm (delay)||£397,984|
|Costs of the CAAD and landowner’s time||£3,600|
|Compensation for servitude rights granted||£23,720|
|Loss of further development potential, severance etc||£95,000|
|Capital Gains Taxation||not quantified|
|Professional and Other Fees||not quantified|
8. Parties are agreed that the valuation date is 5 June 2004. This was the date when the respondents, then Transco plc, served a notice to treat upon the applicants, which coincided with the service of a notice of intention to enter upon land. The respondents took possession on 7 June 2004.
9. The applicants are Marjory Gordon and Hugh Gordon as individuals, and Marjory Gordon, Hugh Gordon and Isobel Gordon as executors of the late Hugh Gordon. They are owners of Clochnahill Farm. Miss Isobel Gordon is the daughter of Marjory Gordon and the late Hugh Gordon. The current Hugh Gordon is the son of Marjory Gordon and the late Hugh Gordon.
10. The farm is a 607 acre arable and stock farm located a few miles to the south west of Stonehaven, immediately adjoining the A90(T). It is a long established family farm. The farm is operated by a partnership whose firm name is Hugh Gordon (“the firm”) and in which the partners are Marjory Gordon, Hugh Gordon and Isobel Gordon.
11. The land generally slopes upwards from the A90 north-west to the highest point some 236m above sea level on Carmont Hill. It is part of the wide valley known as the Howe of Mearns.
12. The land has been described as a pinch point for third party infrastructure installations. There are separate 275 kV, 132 kV, 33 kV and 11 kV overhead electrical power lines running across it. There is a BP oil pipeline and a Shell oil pipeline running underground. There is an underground gas pipeline known as Feeder 13. There are fibre optic cables on the 275 kV and 132 kV lines. The respondents’ gas pipeline Feeder 24 which is the subject of the present dispute was installed in 2004-05.
13. The applicants had been contemplating developing a windfarm at least since 2000. In April 2002 the Renewables Obligation Scotland (“ROS”) obliged electricity suppliers to obtain a proportion of their electricity from renewable sources by statutory instrument. This created a trading market for electricity. In the applicants’ opinion a wind farm began to look viable at this point. In November 2003 the applicants were contacted by Powergen Renewables and in December 2003 were contacted by National Wind Power to discuss wind farm development. These approaches appear to have followed informal contact at trade stances. A representative of the latter visited the farm and was encouraged by good wind speed and potential electrical grid and road access. There was also a later approach by West Coast Energy in September 2004.
14. The applicants decided to develop the project themselves without appointing a developer, thereby avoiding the necessity to lease the subjects or enter into a joint venture agreement with another party. In October 2004 meteorological office data was purchased. The firm engaged Scotrenewables Ltd to produce an environmental impact assessment for the planning process. Bird studies commenced in about November 2004. An application to SSE Power Distribution Ltd (“SSE”) on behalf of Scottish Hydro Electric Power Distribution Limited (“SHEPDL”) and Scottish Hydro Electric Transmission Limited (“SHETL”) was made in December 2004 for grid connection. A planning application for an anemometer mast was made in January 2005.
15. During the scoping and preparation period of the environmental statement, various constraints were identified. During the installation of Feeder 24 the applicants were advised on 4 March 2005 by the respondents that wind turbines should be kept a certain distance apart from Feeders 13 and 24. The distance was equal to the maximum height of the proposed installation (to tip of turbine blade in vertical position) plus 20 metres. It would appear that the proposed turbine coordinates were finalised in November 2005.
16. The environmental statement was completed in April 2006 and a planning application for four 1.3MW turbines was made to Aberdeenshire Council on 6 May 2006. The proposed turbines would have a maximum tip height to blade top of 76m with a hub height of 45m and were to be located at approximately 190m above sea level.
17. The application was refused by the council on 22 March 2007. It was refused only for an aviation reason. This was because the proposal would give rise to electro-magnetic interference to the radar and air traffic control systems of National Air Traffic Systems (“NATS”) and the British Aviation Authority (“BAA”) responsible for Aberdeen Airport. A radar stationed at Perwinnes served both interests. BAA had objected because the site was within 29.7km of the aerodrome reference point for the airport which had a 30km consultation zone. They had maintained that the turbines would cause false returns on the air traffic controllers’ screens thus causing a rerouting of aircraft and more track miles with a consequential detrimental effect on the capacity of the airport.
18. The applicants appealed. Following a public local inquiry on 12 December 2007 a reporter allowed the appeal. NATS did not object at the appeal stage. The consultation zone for the airport was in fact extended during the determination process. The reporter noted that the BAA objection was belatedly withdrawn. The applicants had produced a report by Pager Power in 2006 whose model suggested at 76m blade tip height the proposed turbines T1, T3 and T4 would not be visible to radar but the T2 top blade would be partially visible. Pager Power advised that the turbines be restricted to this height. A NATS assessment indicated that all turbines would be visible to tip height and none to hub height. The applicants commissioned a detailed report from QinetiQ in June 2007. This indicated that two of the four turbines, T1 and T2 would partially be in line of sight to the radar. The QinetiQ study indicated that whilst it was accepted there would be minor effects for the Perwinnes Air Traffic Control radar caused by the proposed development, the overall effect to ATC operations at Aberdeen Airport would be minimal.
19. The withdrawal of the BAA objection was stated to be because of information gleaned from another wind farm at Mackie some 20km north-west of the airport which had been operational since July 2007, which had shown that while the turbines were visible to the Aberdeen radar, the impacts were proving to be manageable and acceptable. Since BAA could no longer sustain its objection, the council also withdrew its objection and presented no case.
20. Defence Estates raised no objections provided the wind turbine heights were as described in the application. The environmental statement records the fact that the MOD had expressed an initial objection regarding the proposal, being in line of sight of air defence radar at RAF Buchan. It had undertaken an assessment of the potential impact and operation of the air defence radar there. A verbal assurance by Defence Estates had been given that the initial objection would be withdrawn, as subsequently happened.
21. The reporter granted planning consent by letter dated 17 January 2008. Condition 12 restricted each turbine to a height of no more than 76m in order to meet the requirements of Defence Estates.
22. The applicants’ firm subsequently applied to vary Condition 12 in order to construct turbines of a height of 81m at the same locations specified in the existing permission. This was granted on 17 June 2008. There was no aviation objection.
23. By letter dated 15 November 2004 SSE gave an indication to the applicants’ agents that there were capacity limitations on the Scottish and Southern transmission network due to significant generation connection activity within their licenced transmission area. If generation export capacity was greater than 2.5MW or greater than the minimum summer demand of the grid supply point to which it was to be connected, the provision of a connection offer would be conditional on completion of necessary transmission reinforcements. It was said such works could be likely to take a number of years to complete. The letter also indicated that a grid connection offer would be made under the current trading arrangements but indicated that the arrangements would be replaced when a system known as BETTA was introduced in April 2005. This would produce a single GB-wide set of transmission access and trading arrangements.
24. The applicants’ firm by letter of 13 December 2004 indicated to SSE that they wished to proceed with a feasibility study to gain a connection offer for a proposed 6MW windfarm. This letter appears to have been treated as the application for connection. The relevant forms indicated a proposal of three 2MW turbines at that stage. SSE again mentioned the issue of capacity limitations by letter of 16 March 2005 and, on 30 June 2005 the National Grid Company plc indicated there had been an unprecedented level of applications in Scotland to the extent there was a methodology for managing the queue for access to the transmission system. A vital aspect was the capacity each user had requested and the letter suggested decreasing the capacity initially applied for, in order to allow for earlier connection dates to be offered.
25. Discussions between Econnect on behalf of the applicants and the relevant grid company on 25 November 2005 indicated that Clochnahill could connect to the 33kV line leading to Temple of Fiddes substation. As the connection would be for less than 5MW the need to wait for upgrades in the form of the Beauly-Denny transmission powerline would be avoided. Although the application had been for 6MW what was by then being proposed were four Siemens 1.3MW turbines with a total output of 5.2MW. To reduce output to 4.99MW, just below the stated threshold of 5MW, was not considered material from the applicants’ point of view. The applicants’ firm confirmed that they decreased their connection application to capacity for 4.99MW by letter dated 16 December 2005. A formal offer of grid connection was given by SSE on 20 January 2006. The offer was described as “interactive” as SHEPDL had issued connection offers to other applicants that were deemed to interact with development, therefore the development should be considered at risk until the connection offer had been accepted. The offer was accepted by the firm on 17 February 2006.
26. As confirmed by a letter from SSE dated 31 October 2007, there would be an on-site substation which would connect to the existing 33kV overhead line on the farm via an underground cable. The connection did not require any upgrade to the SHEPDL network in the area and was not dependent upon any transmission upgrades including the proposed Beauly-Denny line.
27. In 2008 there was a delay when in January Siemens indicated they were not interested in selling the SWT 1.3 turbines to smaller windfarms and that production of the model was to cease. The applicants turned their attention to the manufacturer of a Falcon 1.25MW model. The manufacturer IWP were unable to supply the turbines due to the financial crisis in September 2008. The applicants approached Siemens again and were informed that the SWT 1.3 was being reintroduced and that they could be included in the last batch supply. A formal offer to supply was made on 26 February 2010, the turbines arrived in December 2011 and were erected and commissioned by March 2012. Siemens provided a 10 year service agreement. The construction process was facilitated by the fact that the applicants were able to use the large number of naturally occurring stones in the land. These were processed and used for the access tracks.
28. The applicants formed Clochnahill Energy Limited and subsequently Clochnahill Energy LLP in about 2010 in order to operate the windfarm. Accounts were produced. The costs in developing the windfarm were in excess of £7.4m. Over £100,000 was spent on the planning process and environmental statement. Net profit for the year ending 31 March 2015 was £588,072; for 2014 it was £546,815; for 2013 it was £195,802. A loss of £153,596 was made in the earlier period. Annual turnover was in excess of £1.2m for year to March 2015.
29. The applicants were informed of the proposal to build the second gas pipeline by Mr Montgomery of Bell Ingram acting for the respondents. He had arrived at the farm on 8 October 2002. At that stage Transco plc (“Transco”) had not yet determined the route for the pipeline. On 11 March 2003 their agents provided a plan showing two possible routes. One of these, the “original” route, travelled across the farm SW/NE roughly following the line of the existing 275kV overhead line. The other route ran in a similar direction, but was located further to the north of the farm, just to the north of the existing Feeder 13 pipeline. Subsequently on 8 April 2003 Bell Ingram sent a draft form of consent including a draft deed of servitude with a plan which only showed the northern route. This line became the proposed route in the respondents’ own environmental statement of September 2003 for the purposes of the Compulsory Purchase Order (the “CPO”). This was the route which was ultimately confirmed.
30. Transco made the Transco plc (Aberdeen to Lochside) (Clochnahill No. 22.214.171.124) Compulsory Purchase Order 2003 on 9 July 2003. It relates to a strip of land of 726.9m or thereby with a width of 24.4m shown coloured pink on the map thereto. The Order provides for a heritable and irredeemable servitude right to lay down, construct, place, cathodically protect and use below ground at a depth of not less than 1.2m below the level of the surface of the ground a gas pipe of an external diameter not exceeding 1220 millimetres, together with certain other ancillary equipment. It also provides for a servitude right to inspect, maintain, repair, remove etc. In addition a right of servitude was given for a period not exceeding five years for the purposes of and incidental to the construction of the laying of works on a wider area shown coloured green. The Order was served on the applicants “Marjory Gordon, Hugh Gordon and Isobel Gordon” as owners and occupiers.
31. The applicants instructed agents to object to the CPO. This was done by Strutt & Parker LLP by letter of 8 August 2003. The letter did not mention the wind farm project. It did indicate that the applicants had been given no opportunity to discuss the effects on their land with Transco prior to the choice of route being made. It also indicated that the applicants had no objection in principle to the laying of the pipeline but sought reassurance regarding certain professional costs. The letter objected to the terms of the servitude offered by Transco, and in particular objected to a provision entitling Transco to use the pipeline for “storage” beyond that which may be ancillary to the conveyance of gas. Meetings were held between the parties on 17 February 2004 and 20 February 2004. It would appear that one of the topics of discussion was the draft deed of servitude which had a “divert or compensate” clause in respect of any future development which might be prevented by the existence of the servitude.
32. The public inquiry into the CPO took place on 24 February 2004. One of the issues was the ability of the pipeline to bear weight without special crossing points. Transco’s evidence was to the effect that if the objectors - the present applicants – had future development intentions such as installing a windfarm, and if Transco were advised, the potential development could be taken into account in the design process for the pipeline. A windfarm was not incompatible with the proposed pipeline, but until the inquiry into the compulsory purchase order, Transco was unaware of any such intentions. As recorded by the reporter in paragraph 22, the objectors’ (applicants’) position was that, amongst other things, the pipeline constrained the development prospects for the farm. The location might suit a windfarm development, and although no firm proposal for that had reached planning application stage, the construction of a windfarm would entail passage across the farm by extremely heavy plant.
33. Prior to the decision being issued, Transco plc sent a letter to the applicants dated 27 February 2004 stating:
“Should you require access across the pipeline for heavy plant such as craneage, pipeline protection would be required in the form of a bog mat or concrete slab. As detailed at the inquiry, we have arranged to install a number of protection slabs and cable ducts to accommodate windfarm construction proposals on other properties along the route, we can install a special crossing point over the pipeline within your property during construction if you can indicate a likely crossing location.”
34. The reporter recommended that the compulsory purchase order be confirmed. Amongst other things she concluded:
“29. Transco has responded to the objectors concerns about their potential damage liability arising from inadvertent fracturing of the pipe wall by passing heavy plant by giving a categoric assurance that all normal farm machinery and operations can be accommodated without causing the farm as a business unreasonable constraint or impediment.
30. Transco has also shown a willingness to discuss and to take account of the objectors’ possible future development intentions, and there would appear to be no basic incompatibility between the pipeline and a windfarm, or reason why the pipeline should prevent such development. But if the pipeline does stop a proposed development, compensation provisions are in place in the proposed Deed of Servitude.”
35. The order was duly confirmed and published, and became operative on 5 June 2004. No deed of servitude or other conveyance has been entered into. The respondents took entry on 7 June 2004 and completed the installation of Feeder 24 by April 2005.
36. The applicants decided to make a claim for “lost turbines” on account of land being sterilised over and adjacent to Feeder 24. They applied to Aberdeenshire Council on 26 July 2006 for a CAAD for “erection of wind turbines” and any other alternative uses. In the application form under “Specify the time at which such development would be appropriate” the applicants stated “date of entry onwards 7/6/04”.
37. The CAAD application was not determined for some years since the actual planning application was pending and would prove contentious on the aviation issue. As appears from the relevant officer’s report to committee of 30 June 2009, the CAAD site was taken to be an area of strip surrounding the pipeline of about 4.02ha. This strip lies immediately to the north-west of then unconstructed turbines subject to the actual planning application.
38. The Council issued a positive certificate on 4 August 2009 which stated the following:-
“In accordance with the details docqueted as relative hereto and the particulars given in the application, do hereby give notice of their confirmation that the erection of wind turbines, ancillary equipment and formation of access road; and employment use relating to tourist facilities and associate accommodation, sport, leisure and recreation are appropriate alternative development, subject to the following general requirements/conditions-
3. The submission of an environmental statement to allow a full assessment of the wind turbine proposal, the environmental statement to include the precise number, location, tip height, design and output of the proposed turbines on the site, details of access roads, cable routes and details of any other ancillary development. This information could be submitted as an amendment to the approved turbine application on the site adjacent to this application site (P/PPA/110/649).
5. The applicant entering into a planning gain agreement with the Council relevant to the nature of the proposed development. …”
39. The CAAD application did not specify any particular number or location of wind turbines. According to the officer’s report, the application was assessed against the planning framework as was in place at the time the CPO was advertised and notified to the applicants, namely July 2003.
40. The planning authority consulted widely on the CAAD application. BAA Airports stated “In principle, have no objection to wind turbines being sited on this piece of land subject to any aviation impacts being addressed”. We infer that this response was made after BAA had withdrawn its objection to the concurrent planning application. NATS En-route Limited (“NERL”) had no safeguarding objection to the proposal. Defence Estates’ initial response was that they had no concerns providing that the turbines should not exceed four in number and exceed 76m in height.
41. Defence Estates had made a similar response to both the planning application and the CAAD application, namely that the MOD did not have any concerns to the construction of four wind turbines at 76m to blade tip. Somewhat curiously, the response to the CAAD application also stated that if the application was altered in any way, Defence Estates must be consulted again as even the slightest change could unacceptably affect them. The reason this is odd is because the CAAD application (unlike the planning application) had not given any detail of turbine coordinates or numbers. Miss Gordon sought clarification of Defence Estates’ position by email to which she received the following email response on 26 January 2007:-
“Our response appears to be to both applications. Having looked at the coordinates, the slight alteration of (sic) will not make a huge amount of difference. Our no objection still stands (to both planning applications) providing they don’t exceed 45 in number and 76 metres to blade tip (sic).”
42. Quite what the MOD meant by this email is unclear, and does not appear to have been followed up at the time. There had been no proposal by the applicants to construct anything like 45 wind turbines. As we shall discuss, this appears to have been a typographical error for “4” turbines.
43. The respondents initially appealed against the positive certificate but the appeal was withdrawn on 15 October 2009.
44. We now turn to summarise the main points made by the witnesses.
45. Miss Gordon stated that when Mr Montgomery had visited the farm on 8 October 2002, her brother Hugh had told him of their plans to build a wind farm. She was of the view that on account of the pipeline the applicants had been prevented from the full potential use of their land. They would have been able to erect six wind turbines at Clochnahill and not just the four which were erected. The pipeline had delayed the project.
46. The applicants intended to develop and operate the windfarm themselves. For this reason they did not enter into any agreement with a developer such as an option agreement involving a lease of the land.
47. When National Wind Power had approached the applicants in December 2003 a rough layout of 7 turbines was produced, indicating one or more close to the summit of Carmont Hill. The 2006 environmental statement by Scotrenewables was put to her. This indicated that the initial site for turbines had been Carmont Hill, but because of landscape impact and pipeline constraints over the entire site it was thought prudent to come down the hill to the lower plateau on Clochnahill. We infer a significant factor in this decision was the existence of Feeder 24; as Miss Gordon put it there was not enough room for 5 or 6 turbines.
48. Miss Gordon obtained a letter from SSE in 2013 confirming that no capacity upgrading works were required at Temple of Fiddes GSP (grid supply point) as the distribution network and transmission system had sufficient capacity to accept connection of the windfarm at the time. They confirmed that the application to connect was classed as “pre-2005” and that no capacity upgrades were undertaken at Fiddes between 2004 and 2008. It was also confirmed that the nearby St John’s Hill windfarm was connected to Fiddes GSP at a later date than Clochnahill and this connection was also not dependent on the capacity upgrade at Fiddes GSP. The GSP was in fact subsequently upgraded in 2012 with installation of two transformers to enable further generation projects in the area.
49. Miss Gordon also obtained a letter from Natural Power Consultants Ltd on 30 March 2015. This confirmed that as at 31 December 2004 a connection with capacity of up to 16MVA (approximately 15MW) was available to Clochnahill, via the link to the Fiddes to Stonehaven 33kV overhead line without the requirement for upgrades to the distribution or transmission systems. It was indicated that Clochnahill was the only pre-2005 “embedded generation” project connected to Fiddes GSP and capacity was available but was not dependent on upgrade work. This was confirmed by the St John’s Hill windfarm grid connection offer of 18 January 2008 for 9.90MW. The author of that letter subsequently indicated that SHEPDL/SHETL as distribution network operators were required under the terms of their OFGEM licence in effect to provide a grid connection to potential generators who wished to use the network.
50. Miss Gordon indicated that the respondents had failed to provide pipeline protection to allow any load to cross the pipeline without the need to consult the respondents. Protective slabbing had been provided for the BP and Shell oil pipelines. She had concern as to the use of a fully laden 33t combine harvester and a 20t slew excavator. She had understood from a meeting that the respondents would look into the matter following their willingness to provide protection expressed to the public inquiry. A plan showing the desired crossing point had been sent to the respondents’ solicitors via her own solicitors by letter of 15 May 2014.
51. Not much agricultural land had come up for sale in the area in the last ten years making it potentially difficult to seek rollover relief for capital gains tax. The land would have to be suitable for their machinery and they would be competing with other farmers being compensated for the CPO.
52. Mr Morelli while employed by Pager Power in 2006 had assessed the proposed four turbine project for radar issues and prepared a report. Pager Power had not been actively involved in the planning appeal at which BAA had withdrawn its objection. He provided subsequent input into the compensation claim. He considered that the two further wind turbines would be below line of sight for Perwinnes and not therefore an issue for BAA or NATS.
53. He had concluded that the four turbine proposal in 2006 would have had line of sight visibility to the RAF Buchan radar. He was of the opinion that further turbines would still have been acceptable to the MOD so long as visibility was kept to a minimum; in his opinion this could be achieved by keeping the turbines below the 200m contour on Carmont Hill. He did not think that the MOD would object to any additional 76m or 80m tall wind turbines above the 200m level. He agreed with the 2014 Pager Power report submitted by the respondents in the claim which indicated that additional turbines would have been acceptable in 2004. Had he been advising a developer in 2004 he would in effect have assessed the risk to the project as “3 medium” (1 negligible – 6 severe); i.e. a good prospect of getting past an objection, with mitigation required at a cost, but without project delay. Technical solutions existed such as software to filter out of returns from static locations. The Pager Power report indicated that in 2004 aviation constraints would have been overcome for two to three additional turbines situated within the sterilisation area of the pipeline. In his opinion the MOD had become stricter in its position regarding radar impacts by windfarms in 2005.
54. In cross-examination he accepted that a 76 metre turbine on the 200 metre contour might be the same as an 80 metre turbine on a 196 metre contour for the purposes of radar, but that was not necessarily the case for the Perwinnes radar where the relevant blocking point rendered impacts to be location and height specific to the turbines.
55. Mr Boddington spoke to SgurrEnergy’s reports on the effect of the additional constraints affected by Feeder 24 upon the development prospects at Clochnahill. These showed, in the absence of Feeder 24 and its safety buffer of 100m, that it would have been possible to place two further turbines T5 and T6 to the northwest of the existing T3 and T4. In doing so he had regard to areas where the turbines would otherwise be visible to NATS radar at Perwinnes, the 200m contour for the purposes of MOD radar at RAF Buchan, the buffer zone of an 11kV powerline, a mobile telecoms link and the safety buffer for the existing Feeder 13. With the imposition of Feeder 24 and its buffer zone, the two remaining locations for T5 and T6 would be lost.
56. Mr Boddington also considered the impact of nearby forestry which had the potential to create turbulence. There was also the fact that turbines being situated in the lee of a hill, turbulence could be experienced from wind travelling over the hill. Detailed studies on these matters were produced and concluded that the impact would not be significant. Turbines have a facility known as “sector management” which in effect allows them to switch off where the wind is from a certain direction potentially causing turbulent conditions. The applicants produced an email from Siemens confirming that this technology was in existence in 2004.
57. It was pointed out that the location of T5 was adjacent to a gulley. Although he was not a civil engineer he did not consider this gave rise to stability issues since the adjacent land dropped at only 21 degrees, and the rule of thumb was that land would require to drop of the order of 45 degrees to give rise to stability issues for the turbine foundations. T5 was about 30m away from the gulley and the footprint of the foundations was 12m wide. In any event if there were a real issue it would be possible to use piles or to treat the ground.
58. SgurrEnergy considered there were no other constraints for the development of a six turbine windfarm. A study had been made of the various matters referred to in the original environmental statement, with the two “additional” turbines in mind for the purposes of the claim. Amongst other things a letter was obtained from reputable landscape architects who considered there would have been no greater landscape and visual impacts from the six turbine concept than the original four.
59. In general terms Mr Stewart’s report spoke of emphatic national policy support for sustainable energy in 2004 and the existence of challenging renewables targets set in the light of the threat of climate change. He dealt in detail with the relevant planning policies which we do not need to repeat here.
60. Mr Stewart noted that one of the “constrained” turbines would have been on the CAAD land (T6) and the other (T5) just outwith, but which still fell within the exclusion zone created by Feeder 24. In his view there was nothing to suggest that the same planning considerations would not have applied equally to a six turbine scheme covering the approved site for the four turbines, the CAAD land for T6 and the immediate land to its northwest ie the T5 location. In his view the fact the CAAD had been granted showed conclusively that there was no “in principle” objection to wind farm development at or around the site at the time of the CPO. The council had been correct to find that the granting of consent for a wind farm was in accordance with its policies.
61. In Mr Stewart’s opinion the wording of the CAAD was similar to that which might be expected in a planning permission in principle. However there was an oddity in that for the detailed condition matters referred to in condition 3, the submission of an environmental statement was required. This was odd because, in terms of relevant planning law (which was not in dispute), a planning authority could not have granted planning permission in principle for a development of a type requiring an environmental impact assessment without first being provided with an environmental statement. The assessment requires detailed consultation with relevant bodies and, in the fictitious world of a CAAD, it would not seem appropriate for the planning system to be required to engage third parties in such an exercise for a project which, in the real world, would not be implemented.
62. Regarding the planning gain agreement referred to in condition 5 of the CAAD, he explained that there was no planning gain applicable to wind farm development under the council’s 2003 policies. No planning gain agreement was required for the four turbine scheme. It would have been mentioned in the CAAD simply because the CAAD covered more than just wind farm development such as tourism facilities in respect of which planning gain agreements might have been appropriate.
63. Mr Stewart confirmed that the availability of grid connection was not normally a planning factor other than in specific circumstances which did not apply here. He was aware of the practice of developers “banking” wind farm consents and awaiting grid connection, thus waiting for the grid as it were to catch up in terms of its capacity. There was no reason why a six turbine scheme could not connect to the grid with just four commissioned turbines with the balance of the scheme being implemented once the necessary grid capacity became available.
64. Mr Stewart also indicated that the policy of the MOD in 2004 had been not to object merely because something would appear on radar screens being in line of sight of their various radar heads. He listed numerous developments in Scotland where the MOD had not objected despite windfarms appearing in line of sight to radar. In the knowledge that the MOD did not object to four turbines in 2008, despite being visible to RAF Buchan, they would not have objected to another two but instead would have managed the situation and monitored it as it developed.
65. Mr Thornton-Kemsley had been advising the applicants in respect of their claim and produced a main report and supplementary report. These are very detailed and lengthy. He negotiated the agricultural claim with the respondents’ surveyors.
66. His main report referred to studies by Ernst & Young, Price Waterhouse Coopers and Deloittes regarding wind farm transactions. These show that the value of a project rises substantially with planning consent which is the key driver of asset value.
67. Mr Thornton-Kemsley sought to value the land in terms of its lost potential at the valuation date. In doing so, amongst other things he looked at market evidence for the value of that potential. There was however no direct comparison evidence, and relevant details were difficult to obtain for the limited comparables to be found. In his view, however, the market value should be based upon a discounted cash-flow (“DCF”) calculation to reflect the individual characteristics of the site. This is a methodology often used by developers to inform the value of a site to them prior to making a bid.
68. One of his comparisons was a compensation settlement regarding Over Dalgleish Forest and Owl Forest Limited. In calculating the value of the landlord’s interest in a wind farm project, which had not received planning consent or received a grid connection offer, a calculation similar to a DCF had in fact been used. Mr Reynolds himself was acting for the acquiring authority. When challenged in cross-examination that the transaction was subject to a confidentiality agreement, Mr Thornton-Kemsley explained that he had considered the matter and took the view he was not prevented from disclosing the transaction.
69. Prior to making his DCF calculation, Mr Thornton-Kemsley provided comparisons in order to inform the value of a landowner’s interest as might be let to a developer in the form of rental payments. He also provided comparison evidence as to the value of a developer’s interest. We understood this to mean the value of a consented project as might be sold on after rentals were negotiated with the landowner.
70. As indicated by his figures he took a rental value of about £2,500 per annum per megawatt (MW) for the landowner’s interest. For the developer’s interest various comparisons justified in his view, in relation to consented schemes, a value between £200,000-£300,000 up to £800,000 per MW. Fully constructed schemes justified higher values. Mr Thornton-Kemsley also referred to various compensation settlements.
71. Mr Thornton-Kemsley then proceeded to provide a detailed DCF calculation which aggregated the value of the landowner’s interest to the value of the developer’s interest in respect of a 25 year project. For the landowner’s interest he applied a discount rate of 7% based upon market evidence. For the developer’s interest he assumed the cost of an installed turbine in 2004 to be £1,050,000. He made various assumptions regarding output, electricity export price, prices under ROCs (renewables obligation certificates) and LECS (levy exemption certificates) as would have been anticipated in 2004. He applied a discount rate of 10% based upon the market evidence. Critically his assumption as to viability of the project; ie in terms of the project being able to proceed with all necessary consents in place, was “near certainty”. Various of his assumed figures were adjusted in the light of comments from his opposite number Mr Reynolds, some of which he accepted. On this basis he valued the landlord’s interest for each turbine at £85,859.87 and developer’s interest for each turbine £1,032,666.64. Accordingly the total claim per turbine was £1,118,526.51 or £2,237,053.02 for the two lost turbines.
72. One of the issues was that the actual cost of the turbines was of the order of £1.5m each in 2010. This was largely on account of currency fluctuation and the effects of the financial crash subsequent to the valuation date of 2004. He did not think it was correct to use hindsight in the calculation, but rather a reasonable estimate as at 2004. However if one took into account the higher costs, there had also been increases in actual as opposed to anticipated income and an NPV calculation based on hindsight would in fact increase by about £53,000 per turbine. Mr Thornton-Kemsley had not allowed for taxation, but had made an allowance for capital allowances; i.e. an element of depreciation which can be set off against corporation tax.
73. Mr Thornton-Kemsley put forward a claim of £445,000 in respect of a 12 month delay to the project on account of the pipeline. This was done by calculating the reduced present value receivable at the end of 12 months in respect of each relevant interest, using standard tables and the same discount rates as in the main DCF calculation. Applying revised figures to the same methodology the total claim amounted to £397,984 for four turbines.
74. Mr Thornton-Kemsley spoke to the CAAD costs and indicated that the claimant’s had kept timesheets for the specified time involved. He applied a rate of £30 per hour which was the rate agreed for the agricultural elements of the claim.
75. The claim for compensation for servitude rights granted was made up of two components. The first component was for £14,220. This is based upon a figure generally agreed by the respondents and Scottish Landed Estates (SLE) and the National Farmers Union (NFU). The agreed methodology is a calculation which represents 80% of the agricultural value of the servitude area. The payment excludes crop loss and disturbance compensation. We understood him to view the figure accepted by the respondents of £12,231.91 as not to include a sum in respect of the wider temporary area in respect of which the respondents had previously offered an additional £0.70/m2, which would amount to an additional £4,874.10. Mr Thornton-Kemsley however reduced the claim to £14,220 to avoid double counting in respect of additional turbine access tracks in the no scheme world.
76. The second branch of the claim is for £9,500. This related to an estimate of time taken for each year in the future where the applicants would have dealings with the respondents concerning the pipeline including making an annual return and dealing with the latter’s walkovers, surveys, requests and the like. He would allow two hours per year for this. Secondly, he estimated the applicants would require in the future to deal with the respondents for any occasion in which they would require to work near the pipeline and require to notify and deal with consent issues. For this he estimated about seven hours for each occasion some form of work was required to be carried out near to the pipeline.
77. Mr Thornton-Kemsley also put forward details of loss for further development potential and severance. He estimated that the cost to a landowner for putting slab protection across the pipeline, which the respondents had failed to do, could fairly be stated in the sum of £40,000. The applicants had requested the respondents to install such protection and had been willing to do so at the time of the CPO inquiry.
78. The pipeline now has a designated safety zone imposed by the HSE. Planning proposals within a certain distance of either side of the pipe require to be notified and, in the case of a 125m “inner zone”, certain proposals would be objected to. Such proposals would include tourist facilities, sports leisure and recreation as referred to in the CAAD. Based upon the agreed SLE/NFU rate for the wider area, discounted to some extent, the loss could be valued at a further £55,000.
79. Mr Thornton-Kemsley also discussed taxation issues. Should there be a substantial award of compensation the claimants would have made both a capital gain and a disposal. In his opinion it would be difficult for the claimants to benefit from roll over relief in the form of the purchase of further farmland. A reasonable area of search for a replacement property would be of the order of ten miles from either of their two farms which would result in a half hour “commute” each way by tractor. He knows Kincardineshire well and for the period between 2003 and 2007 it would have been difficult to acquire suitable property, and the same was the case now.
80. Mr Thornton-Kemsley also gave evidence as to the extent of professional fees incurred in the making of the claim, his own hourly rate. He discussed the fact that Rydes scale had been abolished in England since 2002.
81. Pager Power provided a report in 2014. It analysed the potential impact of wind turbines situated at various points along the sterilised area surrounding the pipeline. This included an area “A1” which broadly equates to an area upon which T5 could have been located in terms of Mr Boddington’s plans, and an area A2 which approximately corresponds with the area for T6. Mr Watson considered that the MOD in June 2004 would have been likely to object initially and maintain a strong objection to a six wind turbine development of 76m turbines. He also considered that the likelihood of objection would have been greater for 81m turbines than 76m turbines, and that the likelihood of objection would be greater for six turbines than for the four turbines to the south-east of the site.
82. In his opinion all the turbines would have been visible to the Buchan radar and that the additional two turbines would each individually affect the Buchan radar more than the initial four due to their greater visibility to the radar. He also indicated that the western two turbines (ie T5 and T6) would have a greater technical effect on the Buchan radar.
83. Mr Watson indicated that in 2003/2004 the MOD had a strict policy on radar and that they would object to windfarms within 74 km of the radar, in line of sight. As a result of a great number of windfarm applications, and to some extent the issue becoming politicised, the MOD came to adopt a more tolerant approach towards the end of 2005. But as a result of flight trials being undertaken in 2004 and published in 2005, the MOD again became stricter and would raise objections to windfarm developments beyond 74km from the radar. As he put it, this led to a good deal of dismay in the wind farm industry. Subsequently the MOD’s position softened in late 2005/early 2006 which was again partly due to political pressure. His advice in 2004 would have been not to invest significantly in the development because of the MOD Buchan radar issue.
84. Mr Watson confirmed that in 2004 an objection from NATS En-route Limited and Aberdeen Airport was possible. This was on the view that in his opinion one or two of the six turbines would be in line of sight to the Perwinnes Radar, and were within the 30km safeguarding radius for Aberdeen Airport.
85. Turning to the hypothetical location of T5 it was put to him in chief that the contour of 204m was just outwith the Feeder 24 constraint area. What mattered is the technical impact of the tip altitude, and a tip altitude of an 80m turbine at 200 metres would be the same as a 76 metre turbine at 204 metres from the perspective of the MOD at RAF Buchan. The inference was that if the MOD would not object to a 80m turbine at 200m they would not object to a 76m turbine at 204m.
86. It should be noted that Mr Watson’s conclusions were at odds with the Pager Power report of December 2014 produced for the claim. Mr Watson was not the author of that report but was the second reviewer. The report concluded that it was likely that the aviation constraints would have been overcome for certain locations in the CAAD area for both the Perwinnes and Buchan radars. As we have indicated, in 2004 Pager Power would have given the additional turbines within the relevant areas an overall risk of “3 medium”, meaning that aviation issues had been identified but there were ways for the issues to be overcome. Mr Watson’s reason for disagreeing with these conclusions, as we understood it, was the fact that the MOD had applied a stricter policy in 2004 which his colleague writing the report had not mentioned.
87. The Pager Power 2014 report indicates that in 2014 they would assess a risk factor of 5 for four turbines, which we infer means it is now considerably more difficult to resolve radar issues with the relevant aviation interests.
88. Mr Michie’s report referred to relevant local plan policies in place in 2004. In his report, he had not had regard to post-2004 matters. He indicated that in the case of radar issues it would require to be demonstrated that there was no electronic interference from the development. This would have resulted in considerable uncertainty in an assessment as to the prospect of securing planning permission. In his evidence he acknowledged the CAAD but which in his view related only to the strip of land to which it referred. The main issue was the aviation issue which if unresolved would lead to the risk of a refusal of planning permission He agreed that in 2004 the land would have been considered to have potential in principle for wind farm development.
89. Mr Punton confirmed that prior to 2005 generator connection applications above 5MW would have been assessed against implications for the transmission network using rules known as Security and Quality of Supply Standards (SQSS). The assumption was that applications for grid connection below this amount would have no material impact on the transmission network and connections could be left to the distribution network company to assess and then arrange. This threshold was well known to potential developers, generators and consultants before and during 2004. For technical reasons concerning the need to maintain supply across Scotland where there was a fault on one of the main 275kV circuits, it meant that all offers for generator connection above 5MW were subject to the condition that reinforcement works in the form of the Beauly/Denny project would require to be completed prior to connection. As it transpired, this threshold changed from 5MW to 10MW in 2006 following a grid code review. However, in 2004 the anticipated completion for the Beauly/Denny reinforcement was December 2008. In fact the upgrade was not completed until late 2015.
90. In Mr Reynold’s opinion the prospects for wind farm development at June 2004 would have been very slight and any small element of hope attached to the farm would not have caused him to make any upward adjustment in value over and above agricultural value of the land.
91. In his opinion sites for renewable installations are likely to have considerably lower prospects for hope value at the earlier stages of the development cycle. He had been unable to obtain any comparable evidence of an identifiable element of hope value being applied to a property on account of a prospect of development for a wind farm where no planning permission or good connection had been secured. In June 2004 no progress had been secured beyond an aspiration.
92. The respondents had initially engaged a Mr M R Newton FRICS of Fisher German to give evidence, having produced two reports. On account of illness he was unable to give evidence. Although not researching Mr Newton’s evidence, Mr Reynolds was able to agree with Mr Newton’s conclusions which were similar to his own.
93. Mr Reynolds considered that the use of a discounted cash-flow was not an appropriate way of arriving at a valuation. In his view the project would require to be consented in terms of both planning permission and grid connection, i.e. to be “shovel ready” prior to use of this method of valuation. There was also double counting in aggregating both the landowners’ and developers’ interests in the calculation.
94. In his evidence he also referred to an RICS information paper IP 30/2012 on the valuation of renewable energy installations. He had been involved in its preparation. This indicated that, in terms of hope value, renewable sites were likely to have considerably lower value at the earlier stages of the development cycle. It urged considerable caution before drawing conclusions from a DCF appraisal, amongst other reasons because of the large number of assumptions about unknown factors such as time.
95. Mr Reynolds was unable to comment upon the Over Dalgleish Farm compensation transaction in which he had acted for the MOD. He believed both parties were subject to a confidentiality agreement which prevented him and, in his opinion Mr Thornton-Kemsley, from discussing the matter.
96. Mr Reynolds had various comments on Mr Thornton-Kemsley’s figures in the DCF. Some of these had been accepted by Mr Thornton-Kemsley. Of those comments of significance not accepted of was the fact that the actual cost of an additional turbine appeared to be approximately £1.5m and not the estimated £1,050,000 used in the assumption. If the £1.5m figure was substituted, that would have a dramatic effect upon the NPV. Without prejudice to his position that a DCF was inappropriate here, he indicated that Mr Thornton-Kemsley’s discount rate of 10% for the developer’s interest was potentially appropriate in a DCF where the project was secure; ie consents issued and prices fixed in terms of contracts having been entered into. This rate could be contrasted with a discount rate of about 5% being the anticipated return on gilts at the valuation date. Given the risks and uncertainties here, including the existence of no planning permission and no grid connection offer, ie simply an aspiration for a wind farm, if one did use a DCF calculation one would be looking at a rate of 15% or more giving a zero or negative NPV.
97. Mr Reynolds had been involved in the discussions with the applicants over the years. Having checked his file notes and those of his colleague Mr Montgomery, the first written reference to a possible windfarm was the respondents’ letter of 27 February 2004 making reference to a willingness to construct access protection for windfarm construction at other properties.
98. The applicant’s primary position was that the claim was one for injurious affection. The servitude right acquired was treated as “land” for the purposes of the 1963 Act. The applicants did not lose the ability to farm and place things on top of the strip, but were restricted in what they could do at the location. They reserved the right to base their principal case under the heading of disturbance; although this was not pressed.
99. It was submitted that the consideration of compensation should not fall under rule 2 of the 1963 Act which required an open-market valuation and only arose in respect of land (or interests in land) taken not the other land which is retained. It was submitted albeit without reference to express authority that injurious affection generally could come within rule 6. Under reference to Director of Buildings and Land v Shun Fung Ironworks it was submitted that subject to causation, remoteness and reasonable acting, a claim could be made for loss of profits in the shadow period. Counsel emphasised the words of section 61 “damage … to be sustained … by the owner” as a result of injurious affection in contrast to the “extent … to which the value of the land over which the right is to be acquired is depreciated …”.
100. Reference was made to Ripley v Great Northern Railway Co as an example of an injurious affection claim being quantified by reference to loss of profit. Reference was also made to Cowper-Essex v Acton Local Board for the proposition that where part of a proprietor’s land is taken, and the future use of the part so taken may damage the remainder of the proprietor’s land, then such damage may amount to injurious affection. Counsel referred to Horn v Sunderland Corporation for the well known principle of equivalence namely that the owner shall be paid neither less nor more than his loss. The case was also cited to support the view that amendments to the Lands Clauses Acts by the Acquisition of Land (Assessment of Compensation) Act 1919, whose rules 2 and 6 are repeated in the 1963 Act, did not affect the separate head of compensation for injurious affection which was still quantified on the basis of loss to the seller. Counsel also referred to Welford & Others v EDF Energy Networks as an example for disturbance (as opposed to injurious affection) being quantified by loss of profits. Injurious affection is loss caused to the retained land and it would be illogical to have to assume that the retained land would be sold as if by a willing seller.
101. As a matter of causation the interruption of the intention to develop a wind farm was a matter which was properly subject to compensation. It did not matter whether that interruption occurred at the outset or just before the turbines were switched on. Under reference to Arnold White Estates Limited v National Grid Electricity Transmission plc it was possible to assess loss by reference to a particular owner, albeit that was an Electricity Act case. There the owner had been prevented from realising a development value for the land.
102. It would be fictitious to value what the applicants would have obtained if they had sold the land in 2004 since, in practical terms they would never have sold the land. The issue is the value of the land to the owner, and the owners would not have contemplated selling the land but intended to develop it, which is what they did.
103. It was submitted on the evidence it was clear that but for the pipeline T5 and T6 would have been built. On the question of remoteness it was clear that by the valuation date the applicants intended to diversify and develop a wind farm on their farm. The project had already been delayed during the shadow period at the valuation date because of the looming CPO; this indicated that the windfarm project had been frustrated by the CPO. The facts of Welford could be distinguished since that case was not dealing with causation issues in the shadow period, but under reference to Shun Fung losses incurred in the shadow period could be recovered. Reference was also made to Hobbs (Quarries) Limited v Somerset County Council in which no distinction could be drawn between a company which had already started operations and one which had not done so for in both cases the loss was identical. Also in Ripley a claim was upheld for loss of profits in respect of mills yet to be built.
104. It was submitted under reference to Bwllfa & Merthyr Dare Steam Collieries Limited v Pontypridd Waterworks Co that the tribunal could have regard to facts existing at the time of the hearing. That could also apply to planning factors: Bolton Metropolitan Council v Waterworth.
105. The claim for delay was supported by Ryde International v LRT which allowed holding costs incurred during the period in which the sale of relevant properties were delayed. There had been a delay for at least a year. Had it not been for the delay, radar and grid connection would have been easier in 2003 and the delay meant that grid connection was dealt with amongst a tidal wave of other applications.
106. The applicants’ fallback position was that the claim could be analysed on a market value basis. This was the difference between the value of the farm with prospects of a four turbine scheme over a farm with prospects of a six turbine scheme. There is a difference in hope value. The CAAD is of significant importance. Planning permission in principle would have been given for commercial turbines along the lines of the CAAD, and not just at T6, so it could be assumed there is planning permission for a number of turbines. The CAAD applies at the valuation date.
107. If commercial turbines would have been permitted in principle on the CAAD ground, there would be no reason for the market to value potential turbines in positions T1 – 4 or T5 differently. The MOD had no objection to four turbines on the CAAD land up to 76m in height in terms of its response to the CAAD application. The respondents could not go behind the CAAD.
108. It was submitted that a DCF approach was valid. Not dissimilar approaches had been used by the Tribunal in other cases: Christie’s of Scotland v Scottish Ministers and Optical Express (Southern) Limited v Birmingham CC. The RICS information paper contemplated their use and Mr Thornton-Kemsley had given evidence that developers used DCFs to inform bids.
109. The Tribunal was requested only to consider whether in principle a claim in respect of a resulting capital gains tax liability was a valid head of claim. This was a claim which should be compensated for under the principle of equivalence. Reference was made to Bishoppsgate Parking No. 2 Limited at paragraphs 91 – 118. The applicants’ position was they would be unlikely to be able to roll over any gains and would thus be liable to the tax on their compensation to which they would not otherwise have been subject.
110. Turning to the evidence Counsel submitted that the applicants had embarked on their project by 8 October 2002 when Mr Montgomery had called at their farm. The applicants had acted reasonably and in good faith. The EIA work began and grid connection was made soon after the CPO was settled. Mr Reynold’s evidence was unsatisfactory in that he had initially indicated he had reported the applicants’ wind farm intentions to his clients at an early stage, but once having checked his notes overnight he contradicted this. There had been no point in progressing the project until the route of the pipeline was finalised, and this was only the case once the CPO had been confirmed. The bird survey could not have been carried out while the area was about to become a construction site.
111. On the evidence there was no doubt planning permission would have been granted for a further two turbines, and the CAAD is strong evidence in favour of that position, as are the existing four turbines. The respondents were ignoring the existence of the CAAD. Mr Stewart’s evidence should be preferred to that of Mr Michie, and the latter had not visited the site prior to the preparation of his evidence. Mr Michie had stated that it was reasonable to wait until after the CPO was confirmed prior to committing resources to the windfarm application, if there were limited time and resources.
112. It was submitted that on the evidence it would have been readily apparent in 2004 that the site was in close proximity to a sub-station which had the requisite capacity. The profusion of windfarms in Aberdeenshire demonstrated there was no strategic issue of grid capacity. At worst there would have been some delay in obtaining a grid connection. Mr Punton’s evidence was criticised in that he had no particular knowledge of the Fiddes sub-station or its capacity. The only example given by the respondents of any wind farm in the north-east having to wait until the Beauly-Denny project was completed was, according to Mr Punton, Jacksbank at 60MW which was in a different category. Mr Stewart had given many examples to the contrary. The fact that Fiddes had sufficient capacity would have been made clear to someone undertaking an investigation at the time.
113. There were no factors other than the pipeline which prevented the two turbines being built. Reference was made to Mr Boddington’s evidence. The respondents had failed to call Mr Thory who had submitted contrary written evidence. Any issues due to the proximity of trees or T6 being in the lee of a hill could be overcome by a sector management system which was available at the time.
114. Counsel submitted that the evidence of Mr Watson on radar was unsatisfactory. The evidence of Pager Power submitted for the hearing was in stark contrast to Mr Watson’s witness statement. The only live issue was the prospect of an MOD objection and Mr Morelli’s evidence that in mid-2004 there would not have been an objection was not challenged. Mr Morelli’s evidence should be preferred to Mr Watson’s on the point whether the MOD were stricter in 2004 than subsequent years, which had not appeared in his witness statement. Counsel was also critical that Mr Watson had been led without warning on the suggestion that it could have been possible to build turbines above the 200m contour if they were less than 80m high. This was a mitigation argument which had not been suggested by Mr Morelli to the applicants. It should be concluded from the evidence that in 2004 an interested party would have been advised that the MOD would have most likely accepted the turbines. There had been no MOD objection for other windfarms in the area namely Midhill, Hill of Fiddes and Meikle Carewe. With hindsight it is clear that the MOD would not have sustained an objection as demonstrated by their non-objection to the four turbine application and the MOD response to the CAAD. None of the respondents’ witnesses evidenced a case of a wind farm not going ahead due to an MOD radar objection at the relevant time.
115. The evidence demonstrated that there were no good comparables and the guidance indicated that some form of DCF should be used. Mr Thornton-Kemsley gave good reasons for not using two comparables referred to in Mr Newton’s report and had not been challenged. Mr Reynolds had not put forward any methodology of his own as being preferable. Mr Thornton-Kemsley had produced a large number of comparables to assess broadly both the landowner’s and developer’s interest. It could be seen from these that the DCF produced a sensible result. It could also be seen from Mr Thornton-Kemsley’s evidence that if after the event figures were used then these would lead to a broadly similar result. These included actual production figures, actual prices, LECS changes post-July 2015, rates and insurance costs.
116. There was in fact little between the respective surveyors as to a discount rate of 10% for a ready project. Mr Reynold’s suggested 15% discount rate was essentially a guess and not based upon market evidence. It was accepted that connection costs of £335,000 and planning/consultancy costs of £105,000 should be added in, albeit spread over six turbines. Maintenance costs were already included and management time would not normally be deducted within the DCF.
117. Mr Newton’s reports referred to in evidence should be given little weight without the appropriate RICS certified statement which had not been provided. Turning to the Over Dalgleish comparable the only inference from Mr Thornton-Kemsley’s evidence was that Mr Reynolds had used a DCF method to value a landowner’s claim for a windfarm which had neither planning permission nor grid connection and had made allowance for a significant level of hope value and had used a low discount factor. Mr Reynolds had inexplicably not realised there were two pages missing from Mr Newton’s written report regarding the delay loss claim but had nevertheless agreed with Mr Newton’s conclusions.
118. It was submitted that the claim for the delay upon the built windfarm was supported by Ryde International Ltd and Shun Fung. In principle, claims for delays caused by the CPO process were recoverable.
119. Turning to the other claims, the costs of the CAAD for the turbines and landowner’s time should be allowed. These had been recovered in Christie and Steele. Mr Thornton-Kemsley’s evidence in respect of compensation for servitude rights granted was adopted. Regarding the loss of further development potential, severance etc. the issue for the respondents had apparently been the identification of a location for the crossing point protection. Once it was pointed out that there had been identification in terms of a solicitor’s letter, other hurdles were erected, namely no statement had been given as to what the crossing point was needed for. It was suggested that the Tribunal could indicate in principle whether some allowance should be made. Claims for professional and other fees should be reserved.
120. In summary, it was the applicant’s position that in terms of causation it was clear that but for the pipeline two more turbines would have been constructed, the loss was not too remote particularly having regard to the Bwllfa principle, there was no issue of unreasonable acting, and the loss was significant. If in determining the loss the value of the land to the owner is considered, the full claim in respect of the lost turbines was recoverable. In any event an open market basis would be appropriate given the existence of the CAAD and other factors discussed.
121. If an open market valuation was appropriate, under reference to Elitestone v National Grid Gas plc being a Gas Act case, a prospective purchaser is assumed to have acted reasonably and made proper enquiries about the property. There, where the works had in fact been undertaken prior to assessment of the claim, the tribunal were prepared to look at what had actually been done in the exercise of the compulsory rights in order to assess the injury to the land (para 87).
122. The respondents’ position was that the farm did not have planning permission for any form of wind farm development as at the valuation date, and the planning, topographical, grid connection and radar constraints were such that a prospective purchaser on the open market at the relevant date would not have attributed any development value or hope value to the land of the farm and would not have offered more than agricultural value for the farm. In terms of the pleadings, the applicant’s case was one for loss of development potential resulting in a reduction in value of retained land on the farm.
123. It was submitted there was no evidence that the existence of the pipeline had restricted the windfarm development; on the evidence the applicants did not have any intention to develop a particular windfarm at the valuation date and in particular they had not formed any intention to develop a six turbine windfarm at the valuation date. There was no evidence that an informed purchaser would have attributed value to the farm based upon its development potential for a six turbine wind farm or that there would have been any difference in value for a potential of four turbines and a potential for six turbines. The averments made a claim for injurious affection.
124. With reference to section 61 of the 1845 Act as substituted by the Gas Act 1986, the first element to compensation as “the extent to which the value of the land over which the right to be acquired is depreciated” was a reference to diminution in the value of land directly affected by the rights acquired. This would be measured by reference to rule (2) of section 12 of the 1963 Act. The second element relates to severance. The third element is “damage … to be sustained by the owner by reason of injuriously affecting that other land”. This is an entitlement of the owner of land and depends upon diminution in the value of the land which belongs to the owner and is severed.
125. In all three respects the entitlement to compensation was measured by diminution in the value of the land belonging to the owner. The applicants were basing their claim upon the third element of section 61.
126. The CPO gave power to acquire rights over the strip for access and otherwise, not simply a right to install and keep the pipeline underground. Accordingly the CPO gave the power to acquire rights over the strip and therefore fell within the first element of section 61. Accordingly the value of compensation is to be measured by depreciation in value of the land. The claim is not therefore one of injurious affection but in respect of rule 2 value.
127. Turning to the remaining land, the applicants were entitled to claim injurious affection but again, on the basis of the cases, that compensation would be measured by the difference in value demonstrated by a hypothetical sale on the open market. Support for this could be found in Duke of Buccleuch v Metropolitan Board of Works and Penny’s Bay Investment Co Limited v Director of Works, Lord Hoffman at para. 34. In assessing diminution in market value at a particular date, the value could not be affected by what happens afterwards: Lord Hoffman at para. 43. Reference was also made to Elitestone v National Grid Gas plc and Lynall and Another v IRC. Under reference to McEwing and Sons v Renfrewshire CC it was not possible to claim loss of profits on the development of a building site where the profitability of the land had already been reflected in the market value of the land.
128. A claim for loss of profit might exist in an appropriate case, but is a separate head of claim and is one of disturbance. The applicants had not sought to characterise their claim as one of disturbance. A claim for loss of profits can only be justified where there is evidence that the business which has been disturbed was in existence at the relevant date because otherwise such a claim is too remote: reference was made to Welford v EDF Energy Networks plc. That case in any event concerned a different regime for statutory wayleaves where the statute expressly compensated occupiers and not just landowners. Director of Buildings and Lands v Shun Fung Ironworks was a case in which there was an ongoing business. A claim for loss of profits could not be part of a claim for the diminution in value of land as confirmed by Lord President Clyde in McEwing.
129. In addition, the business of the windfarm was taken forward by the firm of Hugh Gordon and subsequently the limited company and limited liability partnership, which are distinct legal entities from the applicants. Those persons were not the owners of the land of the farm and section 61 of the 1845 Act does not provide them with compensation.
130. Senior counsel for the respondents further submitted that the correct approach was that the applicants would be entitled by virtue of section 61 to any diminution in the open market value of the farm which can be established to have occurred as a result of the CPO and construction of the pipeline. The principal claim for compensation could be no more than any diminution in the value of the land of the farm as a result of the rights acquired. This was not the approach which had been pled by the applicants which referred to their not being willing sellers. Moreover it was double counting to claim a loss in diminution in value to the landowner as well as the developer. As the applicants themselves did not intend to develop the wind farm, they could only be compensated on the basis of their interest as landowners.
131. Turning to the CAAD, the CAAD related only to the strip providing a deemed or assumed planning permission for that area of land. The conditions to which it was subject must be taken into account. With reference to Transport for London v Spirerose Limited for land not covered by the CAAD the Tribunal could not convert a probability of planning permission into a certainty for the purposes of assessing hope value. The case of Christies of Scotland v Scottish Ministers was different since the acquiring authority had accepted that part of the area beyond the CAAD land should be treated as if it had had planning permission. That was not conceded in the present case.
132. Turning to the evidence, Counsel submitted that at the time the applicants became aware of the potential for the pipeline in April 2002 their intentions for a windfarm were only aspirational. They had progressed no further than reading trade literature and speaking to energy consultants at farming conferences. There was no plan or design for a windfarm before the valuation date. The objections to the CPO did not refer to any intention to develop a windfarm and the reference at the CPO inquiry to possible windfarm development was couched more in the context of adequate crossing points, not the potential of the pipeline to restrict any windfarm development. Counsel also pointed out that the earliest record of the applicant’s intention in March 2005 was a three turbine windfarm and, according to Miss Gordon, the decision to move from three to four turbines was not made until September/ November 2005. A file note from Mr Thornton-Kemsley of 21 September 2005 referred to a 5/6 turbine wind farm of 100 metre height and suggested that only three could be built as a result of the pipeline. The provenance of this suggestion is unclear but may have come from Mr Hugh Gordon. It was also submitted that on Miss Gordon’s evidence the decision to move the windfarm from the summit of Carmont Hill was caused both by Feeder 24 and Feeder 13, Feeder 13 already being in existence.
133. Reference was also made to the fact that at the valuation date the applicants had not applied for planning permission for an anemometer which is a fairly normal step for obtaining financing and assessing the wind resource. No steps were taken until after the valuation date to instruct ornithological surveys which take at least two seasons.
134. Moreover, said Counsel, there was no evidence that the applicants had ever intended developing a windfarm in excess of 6MW or had a need for more than four turbines. Moreover the constraints study carried out by SgurrEnergy identified that it would have been possible to site the turbine at T5 at 204m were it not for AARDVaRC advice in relation to the possibility of an objection from the MOD. On their evidence it was implicit that it would be possible to site a 76m turbine at T5 without increasing the overall height.
135. Counsel also drew attention to the fact that the evidence of Miss Gordon was that the applicants kept details of their intentions to themselves and did not pass these on initially to Mr Thornton-Kemsley for fear of raising objections to their wind farm. Accordingly it was submitted that the applicants had failed to establish as a matter of fact their principal position that they had an intention to develop a six turbine windfarm at the valuation date.
136. In any event it was submitted that the applicants had not established there were prospects that a six turbine development could be carried out so as to enhance the value of the land of the farm at the valuation date. The applicants did not have plans for the development of a six turbine windfarm at the valuation date. Reference was made to Mr Michie’s evidence to the effect that there would have been considerable uncertainty in 2004 as to the prospects of planning permission for any wind farm development being considered acceptable which would extend to how many turbines the site could accommodate, their height and location and so on. Reference was made to Mr Stewart’s evidence in cross-examination to the effect that the Meikle Carewe wind farm development was a classic case in which the planning officer recommended granting permission, the planning committee refused permission and permission was ultimately granted only on appeal. He accepted that it was probable in 2006 that the four turbine scheme with an additional two turbines would have been refused planning permission in 2004, in the first instance. These planning risks would have been known to any prospective purchaser in 2004. It was submitted that it is not open to the Tribunal to make a positive finding that planning permission for the development of a six turbine windfarm would have been granted as at the valuation date.
137. It was also submitted that the CAAD relates only to the CPO land and does not affect the likelihood or otherwise of planning permission for windfarm development on the farm as a whole. It did not demonstrate that six turbines would have been granted planning permission by the valuation date. The terms of the CAAD were curious. Those terms related to an actual grant of planning permission which appears to confuse the scheme world and the no scheme world. The reference to an environmental statement being submitted after the grant of outline planning permission would simply not happen in the real world. Reference was made to the relevant Environmental Impact Assessment Regulations by which planning permission cannot be granted unless an environmental impact assessment has been carried out. These aspects of condition 3 suggest that the CAAD may be defective and should be simply disregarded. The assessment should be carried out in its absence as was the case in Spirerose. In any event the CAAD should be treated with some caution.
138. In any event the CAAD should be treated at best as no more than the equivalent of an outline consent or planning permission in principle for an unspecified number of turbines at unspecified locations and with an unspecified maximum tip height. These details would need the submission of an environmental statement for a further full assessment and also to satisfy the report to committee stating (4.17) that “a grid reference and blade to tip height of every turbine proposed would need to be provided in order for a full assessment to be taken” as recorded from consultation with Defence Estates. The actual consideration by the planning authority of what was required by condition 3 of the CAAD was incomplete, but Mr Stewart said that such actual consideration would be impossible in practice. The applicants could have appealed the CAAD but did not.
139. Turning to radar issues, in 2004 the policy of the MOD was not to accept any application for planning permission for wind turbines within 74km of an air defence radar site. All six turbines would have been within line of site and within the safeguarding distance of the MOD radar at Buchan. Counsel founded on Mr Watson’s evidence that the MOD would have raised and maintained an objection in 2004. This was a strict policy position at the time. It was not clear from Mr Morelli’s evidence that he was properly aware of the MOD’s attitude to the enforcement of its policy in 2004 whereas Mr Watson was clear in this respect.
140. Counsel also submitted that the evidence showed that in relation to the NATS radar at Perwinnes, the radar was operated by NATS En Route Limited. The radar was used both by NATS and by Aberdeen Airport and the technical effects upon the radar while the same for both, they could have different operational considerations. It would not be unusual for NATS not to object, but for BAA to object notwithstanding they were using the same technical data. Mr Morelli had accepted that turbines T1 and T2 would have been in line of site of Perwinnes in 2004. Clochnahill was within Aberdeen Airport’s 30km safeguarding zone. BAA had found the four turbines unacceptable and had withdrawn their objection to the applicant’s application for planning permission only with the benefit of operational information obtained from Mackie wind farm which information did not exist until 2007. Mr Watson had given evidence that prospective wind farm developers would exclude development sites located within the 30km safeguarding zone and pursue other locations instead. In conclusion there was a real likelihood that there would be a radar objection to a windfarm development at Clochnahill which was more likely for six turbines than four and that the situation regarding radar objections in relation to the actual four turbine scheme was only resolved as a result of events which took place after the valuation date. If there had been a sustained radar objection in respect of an application for planning permission made either before or around the valuation date, it would have been likely to be refused under the relevant planning policies.
141. Turning to grid connection Senior Counsel submitted that there was considerable uncertainty around grid connection in 2004. This related to whether or not an offer would be made subject to the completion of transmission network (as opposed to local distribution network) re-enforcement works. Mr Punton’s evidence was founded upon which explained the prevailing “invest before connection” policy in force. According to the documents lodged it appeared that the applicants had originally intended to develop a 6MW wind farm. Miss Gordon had decreased their requested capacity to 4.99MW in order to avoid the 5MW threshold in force for 2004 applications. The fact this threshold changed over time was irrelevant as to what would have been in the mind of a prospective purchaser at the valuation date in 2004. Although the then estimated completion date for Beauly-Denny was 2008, the works were only completed in December 2015 which is an example of the ways in which expectations of developers can be delayed or frustrated by external circumstances and would be a risk taken into account at the valuation date.
142. It was submitted that a 6MW wind farm could be constructed with only three turbines. If the evidence suggesting that there was not, in fact, a local restriction in capacity there was no explanation why the grid application was in fact restricted to 5MW.
143. Counsel also referred to other constraints in the form of nearby forestry. Mr Boddington had not given evidence that technology existed in 2004 which, when the wind was in an appropriate direction, performance of the turbine could be curtailed through wind sector management software. Overall it was submitted that the applicants had not proved that the land of the farm would have been seen at the valuation date as having any material potential for windfarm development sufficient to enhance its value by an element of hope value. The Tribunal was asked to accept the evidence of Mr Reynolds in this respect.
144. Regarding valuation the Tribunal was asked to consider both the evidence of Mr Reynolds and Mr Newton. Mr Newton had written two reports which were lodged in process but which on account of unfortunate illness he was unable to speak to in person. The conclusions of Mr Newton had been adopted by Mr Reynolds.
145. It was submitted that the discounted cashflow (“DCF”) put forward by Mr Thornton-Kemsley should not be accepted. He had calculated the net present value (“NPV”) of one individual turbine and a loss was put forward by simply multiplying the result by two. It was submitted that as the case was for the reduction in the value of land of the farm as a whole there was no evidence that a prospective open market purchaser would assess the value of the land upon such a mechanistical basis and differentiate between the values simply by deducting the full NPV of two turbines. The applicants case was that the overall value of the farm was diminished because they could only develop four turbines and the proper level of any loss was the difference in value of the land as a whole subject to these limitations. Mr Thornton-Kemsley had not provided such a valuation.
146. Secondly it was submitted that the arithmetical application of the two NPV figures had not given any deduction for hope value. There would require to be a discount for the risks. Mr Thornton-Kemsley had not done so.
147. Thirdly the use of the DCF calculation had been carried out in the context of a development which was no more than an aspiration. And fourthly, even if the approach was appropriate, the valuer should not rely crudely on the output to demonstrate market value but should provide a range of alternative calculations with differing inputs. Mr Reynolds’ evidence was referred to in that even where it was appropriate to use a DCF, caution should be used and it should be recognised that the development would have considerably lower prospects at earlier stages of the development cycle. Having regard to the possibility of obtaining planning permission as at June 2004 including the impact on aviation radar and the grid connection issue, Mr Reynolds would not have made any upward adjustment to his valuation over and above agriculture value.
148. Counsel also referred to detailed criticisms of Mr Thornton-Kemsley’s DCF method, in which Mr Reynolds had been assisted by his colleague Gordon Thoms who is a Chartered Accountant. It was submitted there was double counting of landowner’s and developer’s interests. The applicants could not claim for developer’s profits in addition to landowner’s interest, because the landowners are already deemed to have disposed of the land. The two interests could not exist simultaneously. The actual turbine costs should have been used. Had this been done the net present value of each turbine would, on Mr Reynolds’ evidence, be reduced to about £30,000. The risks and uncertainty of the project had not been reflected in the valuation. The difference in cost was currency fluctuation between 2004 and the date of the purchase. A number of DCF calculations should have been provided with alternative inputs so a judgement could be made about the value of the outputs. Mr Thornton-Kemsley had not done so and this was contrary to RICS advice. A small change in the inputs can have a significant effect. Capital allowances should not have been treated as “income” since they are not income but are allowances used to reduce taxable income. No allowance had been made for corporation tax which was misleading.
149. Turning to Mr Thornton-Kemsley’s discount rates of 7% and 10% for the landowner’s and developer’s interest respectively, the respondents accepted that those rates could be justified if valuing land with full planning permission and grid connection. Here Mr Reynolds had suggested a discount of at least 15% which would produce a zero or negative MPV.
150. Mr Thornton-Kemsley’s evidence was criticised. He had accepted in cross-examination that his original Statement of Claim of £11.5m was a gross overstatement when compared to the figures now being put forward and he had not done the necessary work to produce the calculation at the time. Also he had given evidence on accounting matters. He had not carried out alternative DCF valuations or identified a worst case scenario. He had devoted over three pages of his supplementary report to the issue of storage which was not a relevant head of claim before the Tribunal. His 141 pages within two reports had researched a wide range of subject matters including law and tax on which he was not qualified to give an expert view. His evidence should be treated with caution.
151. Mr Thornton-Kemsley had not suggested how hope value should be calculated. Counsel referred to Steel v Scottish Ministers in which a deduction of 80% was made from full land value to discount for the risks applicable in that case. It was submitted that such a percentage would be unduly generous in the present case.
152. In conclusion, the principal claim failed because at the valuation date the applicants had not established that but for the CPO they would have obtained planning permission and all necessary consents and a suitable grid connection for the erection of an operational windfarm with a total of six turbines. They had not demonstrated that there would have been any hope value at that date.
153. Turning to the claim in respect of the effect on the built windfarm it was submitted that the claim for delay could only proceed as a claim for disturbance since it was not related to the value of the land. Such a claim was too remote. It could not be part of an injurious affection claim. The windfarm had been progressed by the company and the LLP which were distinct entities from the applicants. Any claim could only conceivably be as a loss in respect of the landowners’ interest rather than the developer’s interest. The figures put forward by Mr Thornton-Kemsley depended upon the DCF being accepted by the Tribunal without qualification.
154. On the facts at most there was about a six month period between the applicants’ being aware of the possibility of the pipeline in October 2002 and the route being confirmed in writing to them by 8 April 2003. That would reduce the applicants calculation for the delay by 50%. Mr Thornton-Kemsley had not run an NPV calculation for two 25 year periods, one year apart to compare the difference. This was truly an accounting matter and Mr Thornton-Kemsley had acted beyond his expertise.
155. Turning to the costs of the CAAD for the turbines and landowner’s time it was submitted that no documentary evidence had been produced in support of this element and no award was justified.
156. The claim for compensation for the servitude rights granted was based upon Mr Thornton-Kemsley’s supplementary report and his figure had failed to take account of the customary 80% discount rate and did not represent the accepted SLE/NFU rate. The respondent had agreed to a figure of £12,339.81. Turning to the additional figure of £9,500 for additional work to be carried out by the applicants on risk assessments and other continuing work associated with the pipeline it was submitted there was no reason why this additional sum should be allowed in addition to the making of the customary servitude payment. In particular it was submitted that it was unclear whether the type of additional work was not already encompassed within the accepted SLE/NFU rate.
157. Turning to the claims for loss of further development potential it was submitted there was no credible evidence that in the no scheme world the applicants would have carried out any development on land directly or indirectly affected by the CPO. The possibility of leisure developments located within the area of six turbines was not a serious consideration and there was no evidence to suggest that a solar farm could have been built between the turbines or that this was ever in contemplation or practical.
158. Counsel submitted that the claim in respect of compensation for capital gains tax was unjustified. It was circular to suggest that the Tribunal should take account of capital gains tax by awarding additional compensation because that would itself be subject to capital gains tax which if compensated in turn would be subject to further CGT. The “loss” constituted by the CGT paid could never actually be compensated in full.
159. The claim was essentially in respect of a loss of the opportunity to take advantage of rollover relief. This was unjustified. There had not been qualified taxation evidence before the Tribunal. Mr Thornton-Kemsley’s evidence he accepted was incorrect in that he had initially suggested it was too late to claim rollover relief and this was based upon an erroneous website. There is no “loss”; rather the gain is tempered as in every applicable case by a liability to pay part of the gain in tax. There was no evidence as to the lost opportunity to benefit from rollover relief. There was no evidence of investment opportunities such that the applicants might take to take advantage of rollover relief in due course. This might raise the issue of who the applicants are as landowners, as distinct from the firm of Hugh Gordon.
160. Turning to losses in respect of severance and the lack of provision of crossing and ducting points, Counsel submitted that the applicants had never given any explanation of why they needed strengthened crossing points and ducts. Until April 2014 the respondents had never been provided with written notice of where they wished crossing or ducting points. The applicants had not indicated what crossing points were needed for, rather they wanted them for “anything”. The evidence for the respondents was that the pipelines could be crossed by all forms of agricultural vehicle, including modern combines, and Mr Reynolds had experience of that. Reference was made to Christie’s of Scotland where a claim for ducting points failed.
161. It was accepted that a claim for professional fees incurred could be reserved to the point of the Tribunals’ dealing with expenses, but these fees should have been vouched at the hearing.
162. The only general comments we would make are as follows. We found Miss Gordon to have an impressive knowledge of the detail of the project. Our only qualification is that we felt her position to be somewhat pessimistic in inferring that only once the pipeline was in in situ could the applicants make progress with the project. Objectively we think it would have been possible for the applicants to carry out some advance work which was not dependent upon the route of the pipeline. That said, we accept there would have been risk in carrying out bird studies before the construction of the pipeline was completed, which in themselves had significant timescales. That was a necessary component of the environmental impact assessment and would probably determine the length of time before a planning application could be made. Other studies such as the obtaining of meteorological information by anemometer could be, and were, carried out more or less concurrently with the bird studies. Thus there was basis for a decision not to proceed with the wind farm project until the pipeline had been authorised and installed. So we make no criticism of the decision in this respect. On a separate topic we felt Miss Gordon’s position in requiring crossing points over the pipeline for any purpose to be misguided, as we shall discuss. Mr Thornton-Kemsley was subject to various criticisms, mentioned above, which we feel had some force. He had however modified the excessive claim once it had been duly investigated and by and large his evidence, having been researched in considerable detail, was transparent. We give it weight where it fell within his expertise.
163. The applicants were careful to explain that their claim was not for loss of profit as such, but for loss in value of land assessed by reference to loss of profit in the absence of comparables and in the light of industry practice. Their claim was presented as one of injurious affection with emphasis on loss to the landowner.
164. Section 61 essentially has two parts. The first part of the Gas Act version “… regard shall be had … to the extent … to which the value of the land over which the right to be acquired is depreciated by the acquisition of the right …” substitutes the original words “… regard shall be had … to the value of the land to be purchased or taken …”. This part of section 61 refers to the “taken” land or, in the case of the Gas Act version the land over which there is a compulsory servitude. The second part deals with the other land which may be severed or injuriously affected. So, on the face of it, one would not think there should be much difference in approach between a claim for “depreciation” in value under the first part of the amended section, and a case under the latter part where the injurious affection falls to be measured by diminution in value of the adjoining land. Nevertheless the section makes a distinction between the servitude land and the adjoining land which we require to bear in mind.
165. In the case of a gas pipeline, to be constructed under powers under the Gas Act, the first part of the section is dealing with “land over which” there is a compulsory servitude. While of course the pipeline is under the surface of the land, the only sensible interpretation is that the “land” whose value is being depreciated is the land subject to the servitude. That land is also burdened with compulsory rights of access over it for various purposes.
166. This is significant for two reasons. In the first place, there was no real dispute that the “lost” T6 turbine would have had a location within the strip of land subject to the servitude itself. This is fairly apparent from the SgurrEnergy drawings. Secondly, the rules under section 12 of the 1963 Act apply to the valuation of taken land and there is no reason to suppose these do not apply equally to the valuation of land directly subject to the servitude. Both versions of the first part of section 61 refer to “value.” Accordingly we think the respondents are well founded that rule 2 – ie a market value approach – applies to the assessment of depreciation in value. In terms of the history of compulsory purchase law, which we do not attempt to set out in detail here, there is a different concept between hypothetical “market value” in rule 2 and “value to the seller” which was the concept prior to 1919. As we understood their final position the applicants did not seek to categorise their main claim under the “preserved” rights under rule 6, namely “compensation for disturbance or any other matter not directly based on the value of land”.
167. The other “lost” turbine, T5 on area A1 is outwith the servitude strip. In principle, a claim for compensation would thus come under the second limb of section 61 for injurious affection to adjoining land. We did not understand this to be disputed. However, for reasons we shall come to, detailed analysis of this part of the section is not necessary.
168. Both the planning issues regarding aviation and the grid connection issue are date sensitive. The risks and perceived risks of an adverse decision by the authorities on both sets of issues changed in the years immediately after the valuation date. The wisdom of hindsight would strongly assist the applicants. So the correct approach to the use of foresight or hindsight requires to be considered.
169. In the case of the area for the T6 “lost” turbine, situated on the servitude strip itself, we have concluded that this part of the claim requires to be assessed under the first part of section 61. As we have set out above, this is the equivalent to the valuation method appropriate for taken land. Rule 2 of section 12 of the 1963 Act applies. Rule 2 refers to the assessment of “value” on hypothetical open market principles. So we accept that rule 2 applies for a market based approach. Unlike its English equivalent, the 1963 Act version of rule 2 does not clarify whether events taking place after the valuation date are to be taken into account, or not. We note however that rule 2 uses the formula “...might be expected to realise...”. In Clay v IRC, Swinfen–Eady LJ found at p475 that the word “expected” was significant in that it had connotations as to what properly qualified persons would do in terms of informing themselves with all ascertainable particulars of the property. In present context that is a reference to what would properly be anticipated in the hypothetical world. So we do not think it would be legitimate to arm the hypothetical parties with knowledge of events after the valuation date.
170. That said we think senior counsel for respondents was correct not to argue that evidence of later events was inadmissible or entirely irrelevant. What actually happened is part of the framework of the case and it would be unreal to ignore the events altogether. It seems fair to bear them in mind in assessing the reasonableness of parties’ contentions as to what assumptions would have been made by the market of the uncertainties existing at the valuation date. For example, such evidence informs us that there were developers – in this case the applicants themselves - who having researched the matter would be prepared to challenge opposition to wind farms from aviation interests by proceeding to public inquiry if necessary. We infer that the relevant market would have included similarly minded developers.
171. So we require to consider how the informed market would have viewed the potential of the relevant land, which in our view may include consideration of potential profits as might reasonably have been assessed at the valuation date. We do not think we are restrained from this approach by the pleadings, being at worst for the applicants a variation, modification or development of their position.
172. We now turn to the area of the T5 “lost” turbine on the adjoining land. This part of the claim relies upon the injurious affection provision in the second part of section 61. We were referred to various cases on whether it is appropriate to use hindsight for the quantification of the diminution in value claim. These cases cannot all be easily reconciled. Bwllfa supports the use of hindsight, although that was a case where the injurious affection was more akin to a claim for damages for sterilisation of land since no land was taken. Bolton was a land taken case, and Elitestone was a Gas Act pipeline case with similar statutory provision to the present case, and both to some extent support the use of hindsight. On the other hand Penny’s Bay is a more recent case from the Court of Final Appeal of Hong Kong on the subject of injurious affection and diminution of value, albeit under differently worded provisions. Lord Hoffman with whom the others agreed was clear that the respective values require to be assessed with knowledge at the relevant date and not based upon what happened afterwards. However, we find it is not necessary to reach a view on this matter. For reasons we discuss below, we think the claim in respect of T5 fails on the facts.
173. We accepted Mr Boddington’s evidence. He was an impressive witness. To the extent his evidence was contradicted by the Fisher German reports, the respondents led no witness in opposition. We first consider the area around the T6 location, roughly approximating with area A2 on the Fisher German reports. To the north this area is already constrained by the buffer zone of an 11kV powerline. To the south is Feeder 13 and its buffer. To the east is the site boundary. To the west and northwest there is higher ground. Mr Boddington’s study shows that the imposition of Feeder 24 sterilizes a small area of land which would have been available for T6. There is woodland approximately 250m to the northwest. This would potentially be liable to cause turbulence impacting upon the function of any turbine at T6 should the wind flow across the woods. As the Siemen’s turbine suitability study demonstrated, using data collected by the anemometer, the frequency of wind from the northwest is very low, approximately 6% of the time. It would be possible to mitigate by curtailing operation when conditions were unsuitable. This can be done automatically by a process known as sector management. From the documents it would appear that appropriate software for this mitigation technique was available in 2004. Accordingly we do not think that the forestry would have been seen as a constraint in 2004. We took from the tenor of Mr Boddington’s evidence that the detailed information available to him would only serve to confirm what would have appeared to be likely to an experienced analyst assessing the site with more general information. We also accept Mr Boddington’s evidence that the fact T6 would have been in the lee of Carmont Hill was not significant since the gradient there was insufficiently steep to cause turbulence.
174. The position is somewhat different at the location for T5, or area of A1 on the Fisher German reports. Even after the imposition of the 100m buffer area for Feeder 24, there is a small triangular area which may be unconstrained northwards. Whether or not there is a constraint depends upon the potential of the particular location to affect MOD radar to the extent that the MOD would make a sustained objection. The triangle slopes upwards and northwards from a 200m contour. With the imposition of the Feeder 24 buffer area, there still remains a potentially “unconstrained” area at 204m.
175. In AARDVaRC’s report of 15 February 2011 Mr Morelli considered as at 7 June 2004 the MOD would have objected to any additional 76m or 80m tall wind turbines above the 200m level, whereas below 200m the lower rota discs would be better shielded from the radar and would be unlikely to attract an objection. He said in terms of the report “It is therefore reasonable to treat the 200m contour level as the principal radar constraint for turbines no higher than 80m tall”.
176. This position begs the question if an 80m turbine would have been unobjectionable at 200m, why the same conclusion would not follow for a 76m turbine at 204m contour. The question was duly asked of Mr Watson. Mr Watson pointed out there would be no difference to the impact from the radar. Mr Morelli was not directly pressed on this point in terms of an MOD objection, although he did not appear to disagree to the general proposition. However if Mr Morelli is otherwise correct in his evidence about the MOD position, for the above reason we are unable to conclude that Feeder 24 did in fact sterilise the area of T5/A1, or that the fact of sterilisation would have necessarily been apparent to the informed market. That said, the applicants were not criticised for not having sought to develop at this location in the past. It will be recalled that initially they had limited their turbines to 76m in height and had had the benefit of Pager Power’s advice in the planning application. An informed decision on this point would have no doubt been a narrow one. We also note the Pager Power 2014 report suggests that the strength of an aviation objection would be likely to be considerably greater in 2014 than 2004 (a risk score of 5 for the four existing turbines). Thus one can infer the aviation issue would have became more difficult with time. However, given the evidence, objectively we cannot conclude that the T5 potential was in fact constrained by the pipeline at the valuation date.
177. It is worth noting that both T5 and T6 avoid the summit of Carmont Wood. It will be recalled that one of the reasons for discounting the initial 7 turbine scenario was to avoid landscape issues since a number of these would have been located close to the summit. However, the location of T5 and T6 both avoid landscape issues in the opinion of the landscape architects referred to by Mr Boddington.
178. There was no dispute that the CAAD applied to the valuation date of 5 June 2004, although in the officer’s report the relevant planning policies were assumed to be at July 2003. It was not suggested there was any significant difference between the two dates. As it is a positive CAAD it is binding upon us in terms of section 23(5) of the 1963 Act.
179. We have pointed out the anomaly that condition 3 of the CAAD requires an environmental statement to be provided for a full assessment of the proposal. In the real world no outline or planning permission in principle could have been obtained without an environmental statement having first been provided, as a matter of law. Another anomaly is that the CAAD mentions the approved application which was not, of course, in existence at the valuation date. However, despite these anomalies, it seems to us that we require to interpret the CAAD as we find it. We require to take the CAAD at face value: Grampian Regional Council v Secretary of State for Scotland, Lord Dunpark p217. The CAAD has not been appealed or challenged in the courts and accordingly under the 1963 Act is final.
180. We agree with Mr Stewart that the CAAD reads as if it were an outline or planning permission in principle. This is how we propose to interpret it. If that is right, the CAAD establishes the principle of a wind farm development in the hypothetical world; the planning authority could not refuse an application for approval of conditions or reserved matters on grounds relating to the principle of the development. We took Mr Stewart to suggest that it would not be lightly inferred that the conditions would be impossible to fulfil for a “detailed” planning reason.
181. We turn to how an informed purchaser would have considered the prospects of obtaining detailed planning permission for turbines at locations T5 and T6 in the light of condition 3. With the exception of the radar issue, no planning reason was put forward why T5 and T6 could not have been permitted in addition to T1 – T4 or vice versa. The applicants’ studies showed, and we accept, that there were no additional landscape, natural heritage or planning policy reasons why T5 and T6 should have been treated differently to the permitted T1 – T4, and no reason why T1 - T4 would not have been permitted at the valuation date. So the requirement for an environmental statement for T1 - T4 as well as for T5 – T6, would not have been seen as likely to produce problematic issues at any particular stage in the project. We also accept Mr Stewart’s evidence that no planning gain agreement would have been required with the Council with respect to wind farm development.
182. We now turn to the radar issue. We note that condition 3 does not appear to be a suspensive or negative condition in which a project depends upon the agreement of the relevant aviation interests to any particular proposal or solution. The condition does not operate, as it were, to provide a veto in the hands of the aviation interests.
183. We think it is appropriate to look at how the radar issue was dealt with in the CAAD process. There was no objection by BAA or NATS En-Route Ltd. The MOD did not object so long as the turbines should not exceed four in number and 76m in height.
184. Paragraph 4.17 of the report to committee of June 2009 states:
“On reconsultation relating to the CAAD proposal, Defence Estates comments a grid reference and blade to tip height of every turbine proposed would need to be provided in order for a full assessment to be taken.”
It is worth pointing out that the actual letters produced from the MOD in the CAAD process were in somewhat different terms. A letter of 13 September 2006 stated that if the “application” was altered in any way, the slightest change could unacceptably affect them, and if planning permission was granted details such as height and coordinates should be provided. Mr Morelli did not believe too much should be read into the statement, since the letter was seeking details in the “slightest change” to an application which itself had had few details. We think the follow-up email of 26 January 2007 is more significant (quoted above in CAAD chapter) because it is referring to both the CAAD land and the actual planning application land, and refers to there not being “a huge amount of difference”. This means that at least in 2006 – 2007, there would have been no objection to four turbines on the CAAD land by the MOD. We think the reference to not exceeding “45 in number” is a typing error which, as suggested by Mr Watson, is more likely to have been intended to read “4”.
185. We are inclined to prefer Mr Morelli’s opinion that an additional two turbines on the CAAD land in 2004 had a good chance of getting past an MOD objection. This was on the basis of the 2014 Pager Power report which indicated only “medium” risk meaning that aviation issues would have been identified but there were ways for the issues to be overcome without delay to the project. He indicated for example that radar software can filter out returns from turbine blades because of their known static location. He had thought that the MOD had only become stricter in its approach to objections following the publication of certain test results in 2005. On the other hand Mr Watson was of the view that the MOD was stricter in 2004. While we accept this may have been the case, and that Mr Watson may have had more experience in dealing with the MOD in 2004 than Mr Morelli, it appears that the MOD’s 2004 position was essentially “policy” based. We did not understand Mr Watson to dispute the Pager Power 2014 report that mitigation was possible – since he had effectively signed off the report as a reviewer he could hardly contradict it. In our opinion the report demonstrates that the actual operational impact upon MOD radar would have been limited in that it was capable of mitigation. We accept that the mere fact that the MOD were likely to have objected in 2004 would have deterred a section of the purchasing market. But other hypothetical purchasers and developers would, we think, have been prepared to force the issue. The evidence amply justifies that the applicants themselves forced the aviation issue with BAA by taking a planning appeal to inquiry, in which the latter belatedly withdrew their objection. In a sense the position regarding a hypothetical objection by the MOD is stronger, since with the benefit of hindsight at no stage did the MOD enter a formal objection either to the actual planning application or the CAAD process. In any event we think that once armed with suitable technical reports, a hypothetical purchaser and developer would have considered himself to have good prospects of overcoming any MOD objection with regard to a wind farm development with an additional T5 and/or T6 turbine. It seems to us that a wider “policy” objection, rather than a discrete operational impact based objection, would have been seen as vulnerable to challenge in the light of evidence demonstrating that some impact is not in fact operationally compromising and the wider policy support in favour of sustainable energy.
186. The Pager Power 2014 report indicates that locations T5 and T6 were below line of site for the Perwinnes radar, which was relevant to BAA and NATS. (We understood these locations to be described as T5 and T15 or T16 in the Pager Power visibility analysis.) Thus there was no aviation issue at these locations. Even allowing for the fact that in the hypothetical world these locations might have been seen as an addition to T1 – T4, and that BAA might have objected on the basis that one or two of those turbines would have been partly visible, we again think that the hypothetical purchaser would have been able to obtain reports challenging the BAA objection. The fact BAA were able to state that their position had changed in the light of the 2007 Mackie windfarm experience does not alter the fact that the objection had, on examination, been seen to be unfounded.
187. As a reality check we would observe that Mr Stewart’s report gave numerous examples of wind farms on and after 2004 where the MOD did not object merely because something would appear on their radars. No example was given to us of a wind farm which was refused planning permission in Aberdeenshire on account of an aviation objection at this time apart from the initial refusal by the council for Clochnahill, whose objection was to be withdrawn on appeal.
188. We have concluded above that we are not satisfied that the proposed location for T5 within area A1 was likely to have been constrained by Feeder 24 for wind farm development. Nevertheless for the purposes of a hypothetical purchaser considering a larger scheme we have concluded there was no planning reason why it should not have been similarly treated to the CAAD area or the permitted T1 – T4 area. We think the T5 area would almost certainly have obtained an outline planning permission for wind farm development in 2004. There is no reason to think its prospects for overcoming a radar objection in a detailed application would have been significantly poorer than the prospects for T6 or T1 - T4.
189. As we are applying a foresight approach we would give weight to the threshold spoken to by Mr Punton, namely that all offers for grid connection for generators above a capacity of 5MW received after April 2004 were subject to a condition that an upgrade of the grid in the form of the Beauly-Denny project would require to be first completed. At the relevant time the project had an estimated completion date of December 2008. As we discuss below we think that an informed purchaser would have assessed the project as likely to be up to a 6 turbine project whose capacity would likely exceed the threshold. We infer this would have been seen as a cause of delay for the Clochnahill project by four and a half years, and possibly longer. It follows that we cannot accept the applicants submission to the effect that the market would have known there were in fact no capacity restraints at the Fiddes sub-station and accordingly no risk of delay. This is not what developers, including the applicants themselves, were being told at the time. In fact the actual correspondence indicates a threshold of 2.5MW was being put forward at one stage, although that limit was not insisted in and, as Mr Punton indicated, there was a de facto threshold of 5MW in place.
190. That said, the hypothetical purchaser would have taken comfort from the fact that the relevant electricity distributor was under a legal obligation to make a connection in terms of section 16 of the Electricity Act 1989, and that there were only limited exceptions to this obligation. We also accept Mr Stewart’s evidence to the effect that at the time developers had a practice of banking planning consents and waiting for the grid capacity to catch up. Accordingly the need for a greater grid connection would have been seen as a potential cause of delay rather than prevention of a wind farm project. In all the circumstances at the valuation date we think it would have been reasonable for the hypothetical purchaser to have assumed a delay of about five years for grid connection.
191. We conclude that a wind farm development at Clochnahill was seen as profitable in 2004. The applicants themselves were approached by three developers at about this time. The Howe of Mearns, including the site itself, have good wind speed. There was a dependable price for electricity underpinned by statutory instrument. The land was traversed by existing power lines leading to a nearby substation. The site had ready access to stones for the construction of access tracks. There were numerous other wind farm developments in the area as appears from the applicants’ environmental statement of April 2006 and, more generally, such was the demand for connection to the grid that the Scottish distribution companies required to introduce queue management systems. These factors all point to significant demand by developers for access to wind farm land, and that Clochnahill had good potential.
192. We consider that in the present case the hypothetical purchaser would have been a developer. A developer would have been attracted by the hypothetical outline planning permission for a wind farm on the site in terms of the CAAD. The developer would have been interested in developing a turbine on the CAAD land, addition to other turbines which would have been shown to be capable of being supported at Clocknahill. In the context of rule (2) which introduces a hypothetical “willing seller and willing buyer” into the valuation exercise, it means that the actual owner of the land and adjacent land may be included as a possible bidder: Rowan Robinson, Compulsory Purchase and Compensation: paragraph 6.04 n13. The fact that the applicants themselves would not have been willing sellers in the real world would not seem to be relevant to the position in the hypothetical world.
193. It seems to us that another consequence of the hypothetical purchaser approach is that, acting prudently, the hypothetical purchaser would have armed himself with all necessary reports in preparation of a project. It was pointed that there had been various iterations and permutations of the applicants’ scheme. The initial suggestion to them was a scheme of seven turbines. Only three turbines were suggested in the documents for the grid connection application, but as these were of 2MW each it is likely they would have been significantly larger than those in fact permitted. They would accordingly have been more likely to attract objections, particularly from aviation interests and quite possibly were more likely to raise landscape issues. The grid connection application was not however dependent upon a particular layout or number of turbines, but only upon a certain MW output to be achieved. Eventually the present layout was chosen, in the light of the various studies and the Feeder restraints, in 2005. As Mr Boddington has demonstrated, the constraint is significantly greater with Feeder 24 in conjunction with Feeder 13, than with Feeder 13 alone. As stated in the 2006 environmental assessment, the wind resource is superior on the higher ground, so it would be reasonable for the hypothetical purchaser to look carefully to the rising area to the north and west of Feeder 13. The appropriate and realistic inference is that the informed purchaser would have armed himself with reports informing him that the most feasible and profitable scheme was that which was presented to us, namely the four as constructed turbines with the potential for two others namely T5 and T6. It is true that this approach implies that the studies for the project would have been more advanced at the valuation date in the hypothetical world than they were in the real world, but it seems to us that is a consequence of the hypothetical purchaser being both prudent in obtaining relevant reports and also being a developer in this case. It is also worth pointing out, as we have said elsewhere, that we have some sympathy for the applicants in that we accept that their decision to commence studies in 2004 was probably delayed by the pipeline to some extent.
194. We have therefore reached the following conclusions as to the appropriate assumptions for valuation. We consider there would have been significant market interest at the valuation date of June 2004 from a hypothetical purchaser interested in developing a wind farm including an additional turbine on the CAAD land; i.e. as part of an up to 6 turbine development also comprising other parts of the farm. The CAAD land had the benefit of a hypothetical outline planning permission or permission in principle, and there would have been no reason to treat the adjoining land as having generally poorer planning prospects than the CAAD land. The only significant planning issue affecting T6 was a likely objection from the MOD. This would have affected both T6 and adjacent turbines. However the hypothetical purchaser would have obtained an expert report indicating good prospects of overcoming such objection in respect of 1.3MW turbines of 76m in height. There would also have been a possible objection from civil aviation interests affecting the adjacent turbines, but which would not have affected T6. A similar or stronger case could have been made in respect of challenging an objection from such interests. There would have been an assumption that a grid connection would not be achieved until December 2008, with the risk of further delay balanced by the existence of a legal obligation upon the relevant distribution company to make a connection; say a period of five years’ anticipated delay.
195. The respondents submitted that we could not value a diminution in land value without a “before” and “after” valuation of the farm as a whole. It was necessary, so it was argued, to look at value in conjunction with Clocknahill Farm and not merely as a stand-alone development opportunity. However we did not understand any such rule of valuation to be founded upon by the respondents’ valuation witness Mr Reynolds. His position was that there was no additional value because the assumptions for the prospects of a windfarm were too uncertain. In the event that those assumptions were stronger than he supposed, we did not interpret his evidence to mean that one could not assess a diminution in land value by means of the lost value of an additional turbine as a discrete entity. We think there are two factors pointing to the opposite conclusion. Firstly, agricultural use and a wind farm use are essentially complimentary. It is possible to let a wind farm to a developer without much impact upon continuing agricultural use of the farm. The farm would only lose the ability to cultivate at the location of new access tracks and at the footprint of the turbines themselves. There was no suggestion such lost cultivation would be particularly significant in the case of Clochnahill. Accordingly the development opportunity could be seen as essentially additional to the existing farming operation there. Secondly, the evidence of Mr Thornton-Kemsley indicates that the language of the industry speaks in terms of a price per megawatt; i.e. a wind farm is valued on the basis of the potential output of the turbines. Wind speed and price of electricity are other dominating factors. Absent evidence to the contrary, we are prepared to value the diminution in land value by reference to the loss of potential output per megawatt. As it transpires, as we are satisfied that only the location for T6 was in fact sterilised by Feeder 24, it is only necessary to value the loss of that single location in terms of megawatt output.
196. We recognise that the market in the real world would not make a “clean offer” for a potential development site. A developer’s offer would be conditional upon the necessary consents being obtained. This explains the absence of direct comparisons for unconditional purchases of windfarm sites which did not have the requisite consents. At this point we should indicate that we have not taken into account the two comparisons put forward in Mr Newton’s reports. We accept the criticisms of these made by Mr Thornton-Kemsley. The comparables were Achalone Farm, Scrabster where planning prospects were clearly poor, and Broubster Forest, Reay, Caithness where the analysis appears to have been subjective in that the “asking price” referred to would not necessarily equate to “market value” and the details of the actual clawback condition said to indicate development value were absent and would require to be critically examined.
197. The problem that the market does not behave in a way which makes it easy to apply rule (2) for assessing hope value was recognised by Lord Collins in Transport for London v Spirose Limited. We refer to paragraphs 72 and 94. It is apparent that it would not be reasonable for us to conclude that simply because there is no direct comparison evidence of the uplift in value due to development prospects that there is no hope value. We think the correct approach in the present case is to discount for uncertainties. The Tribunal faced a similar problem in Steel v Scottish Ministers. At  we considered that where the dominant contention is that the subjects have an ascertainable value for a specific development and the problem is one of assessing the chances of such development a “top down” assessment may be appropriate; that is, assessment by considering the potential full value and determining an appropriate discount. At  we concluded that it would be wrong to take the subjects to have no value where the constraints of the legislation make it impossible to use the conditional arrangements as would be found in the real world. We propose to take a similar approach here. As we said at  the hypothetical purchaser was not to be viewed as a gambler taking a chance on a bet but was to be treated as an investor looking at the market as a whole who would reach a rational conclusion.
198. Given the absence of appropriate comparison evidence we are looking to something of a last resort methodology. We do not think there is any fundamental flaw in using the DCF approach. We accept it has to be borne in mind that it is normally used to inform a developer of the value of a consented project. Essentially in this case it calculates the income and expenditure for each of the 25 years of the project and discounts the net value to present day for each of those years. Cash flow is factored in. The method is relevant to market value because it informs the market maker of value. So we think the DCF model provides a rational framework for estimating market value. The appropriate discount rate will be the level of return that adequately compensates the investor for the risks taken. As the risk rises, the required compensation for the level of risk should also rise, reflected in a rise in the discount rate. In any case the model serves to provide a basis for “full value” for a consented project, prior to discounts for additional risks and delay. The method is capable of having these risks factored in, in order to produce a value akin to hope value for present purposes. So we are prepared to proceed, with caution, on the basis of a DCF approach. Otherwise the main criticism was that the method is assumption sensitive and that different scenarios should be tested in order to obtain an appropriate range of values for reliability.
199. In reaching this view we have not been particularly influenced by the Over Dalgliesh comparison. Given the apparent difficulties in the valuation exercise we are not surprised to learn that valuers did resort to a similar type of DCF calculation in that case. We make no ruling on the confidentiality issue. Ultimately this is a plea which lies in the mouth of the party to whom the duty of confidentiality is owed, which in the case of a comparable will generally not be one of the litigants appearing before us. Comparisons require to be disclosed well in advance of hearings (as they were in this case) and parties should be aware that if the use of a comparison is contentious for confidentiality it will likely be impossible for us to decide the matter unless parties have discussed it beforehand and without some sort of representation from the third party concerned. We would then require to balance the interests of that party with the interests of justice in the case before us.
200. In this case we have had the benefit of Mr Reynold’s criticisms to the assumptions used in the DCF calculation so it is possible to take more of a worst case scenario and thereby improve the reliability of the exercise. We note that Mr Thornton-Kemsley’s report included a detailed study on electricity prices for the purpose of his assumptions for 2004. These prices were shown to be on an upward trend. When compared with actual prices after 2004 – ie with the use of hindsight - Mr Thornton-Kemsley’s assumed figures appear conservative. We did not understand Mr Reynolds to criticise this part of the exercise. We consider his specific criticisms in turn:
201. It was argued that the two interests within the one calculation resulted in double counting, since the landowner’s interest can only be sold once. We understood the reason why Mr Thornton-Kemsley valued the two interests separately was in order to quantify the respective rates of return assumed in the figures for which there was a certain amount of market evidence. Double counting was avoided, he said, by allowing the landowner’s rent to “pass through” the developer’s interest. In fact the differential created by using the same discount rate for both interests was minimal; of the order of about £5,000 for a single turbine.
202. We think in reality the two interests merely reflect the stage in which the particular development has reached at a particular time. The landowner’s interest would generally be negotiated at an early stage, prior to consents being in place. At that stage the developer would have conditional missives and would only be bound if suitable consents were forthcoming. He would only be at risk of aborted expense in seeking those consents, although of course these could be significant. There is evidence of a market rate which the landowner would accept at that point. But consents having been obtained, the developer implements the missives and becomes entitled to the use of that part of the land subject to the wind farm. The value to the developer, who might sell the project on, would be quantified by reference to the likely returns to be achieved. One of the costs in that calculation would be the landlord’s rent paid by the developer. At that point there are two interests in the land, the landlord’s and the developer’s, but they have been negotiated at different stages in the project.
203. However we are approaching the matter from the perspective of a hypothetical developer eyeing up the site with outline planning permission or permission in principle. The hypothetical developer intends to buy the relevant site; i.e. rights over the land sufficient to create a wind farm. So we think it appropriate to adjust the calculation so that it is the developer’s interest alone being valued. As the relevant rights to land are hypothetically being bought outright at the value brought out in the valuation, we do not think it is appropriate to make any deduction for rent. The result of this is that we will also apply the same discount rate to the whole income stream.
204. We agree with Mr Reynolds that these should not be added to the “income” of the project. In reality, the capital allowances represent a tax saving to which certain investors may or may not be entitled. The calculation does not make any deduction for tax, so we do not think we can make an addition for capital allowances. Otherwise there would be an inconsistent approach.
205. We agree that certain costs which were omitted in Mr Thornton-Kemsley’s spreadsheet should be included. We heard the grid connection costs for four turbines amounted to £335,000, approximately £83,750 each. Absent evidence to the contrary, we infer this represents a reasonable estimate in 2004 of the connection cost for each turbine. We also think professional fees for the planning and development issues should be added. We heard these amounted to £105,000, say £25,000 per turbine, and have no reason to infer an estimate of these costs would have been significantly different.
206. We are satisfied that Mr Thornton-Kemsley was correct to look first at the 2004 estimated figures, rather than the actual costs and income subsequently incurred and received during the project. This is relevant to the cost of the turbines themselves. We note that he had subsequently considered actual costs and actual income as a check. However, we acknowledge that risk in currency fluctuations and other delays would need to be factored in to the overall project risks.
207. We heard from Mr Thornton-Kemsley that inasmuch as an estimate could be made now, there was a likelihood that decommissioning would be cost neutral. The planning consent could be renewed for example. The matter was not raised by Mr Reynolds and we do not propose to make specific reduction for this.
208. It was broadly accepted that the rate for gilts in 2004 would have been the order of 5%. Mr Thornton-Kemsley and Mr Reynolds were not far apart on using a discount rate of 10% for a project which was a “near certainty” or, as Mr Reynolds put it, “shovel ready”. We use 10% as a starting point. We think however that a figure of 10% does not adequately reflect the planning risks and risk of adverse price fluctuations. At this point Mr Thornton-Kemsley’s approach was, we think, to use the certainty of hindsight of the success in the planning process. As we have discussed, this is not the correct approach in a rule 2 case and was not the approach used by Mr Thornton-Kemsley on other issues. On the other hand we think the rate of 15% or more suggested by Mr Reynolds is too high. We disagree with his assumption that the prospects of planning permission in 2004 would have seemed very slight, or that a wind farm at that time would have been viewed as simply an aspiration. We do not think he gave adequate weight to the CAAD as a starting point. As we have concluded above, we think that there would only have been one significant detailed planning issue to overcome, namely the potential objection from aviation interests, but that an informed bidder would have assumed good prospects in overcoming such objection. We also think that the risk of adverse price fluctuation would have to be balanced by the possibility of favourable fluctuations, as in fact occurred overall. Taking 10% as a starting point, we conclude that the discount rate requires to be increased to take account of the planning risks and the price fluctuation risks. We would assess these risks as moderate. Our impression is that a rate of 12.5%, reflecting our view of magnitude of these risks, would seem appropriate.
209. As we have discussed, we think that there would have been an estimated delay and some uncertainty as to the extent of that delay for obtaining a grid connection. We think it reasonable that a hypothetical purchaser would assume a start build date of about five years from June 2004. We therefore discount the NPV by an appropriate factor in a separate calculation. This delay is in addition to the two year construction period subsumed in the DCF calculation itself, which we have accepted is a conservative assumption.
210. Our DCF calculation for a single turbine is set out in the Appendix to this Opinion (PDF). It is useful to set out the impact of using different discount rates. We make the following assumptions used by Mr Thornton-Kemsley:
Project life: 25 years
No end value or decommissioning costs.
Maintenance: 2% capital expenditure including contingency
Turbine installation: £1.05m
Rates £8,050pa + inflation
Insurance: single payment £40,000 + £10,000pa + inflation
Interest on positive cash flow 3%, interest on negative cash flow 8%
Output 3,500,000kWhr pa
Income: electricity export price £0.032kWh RPI adjusted; ROCs £0.0440kWh; LECs £0.023kWh.
2 year build from date of consents; construction costs assumed paid during year 2.
211. Our calculation also makes the following assumptions which we have altered:
No capital allowances
No separate landowner’s interest or rental
Planning and study fees: £25,000
Grid connection cost; £83,750
|Discount Rate||Net Present Value (1.3MW rated turbine)||NPV per rated MW|
NPV after adjusting for a 5 year lead in.
|Discount rate||PV factor (5yr)||NPV 5 year lead in to receipt of all approvals||% reduction from full value*|
*“full” value is taken as £893,121 (10% discount rate) ie project viability “certain” or “near certain.”
212. As we have indicated Mr Thornton-Kemsley provided details for consented schemes in which he estimated that these could be valued between £200,000 - £300,000 to over £800,000 per rated megawatt, noting that values tended to be higher in Scotland where it is windier. We think he accepted that the details to vouch the transactions were by their nature scanty, and in fact much of it was unvouched or apparently only came from the financial press. Of those to which we have had regard, only at Craig did Mr Thornton-Kemsley appear to have had a professional involvement in the transaction. This level of detail is insufficient for us to use the material as a primary source of valuation, and we require to exercise much caution in having regard to the comparables at all.
213. Turning to the comparables, such as they are, we have had regard to those transactions between 2004-2006, in which it can be seen that the 2005 and 2006 values per MW are somewhat lower than those for 2004. We have disregarded Glens of Foundland which was a very large project whose price included a large number of costs suggesting that the project was already well advanced. We have considered Spurness Orkney; Ardrossan; Craig Dumfrieshire, Ranson Moor Cambridgeshire; Greendykeside Lanarkshire; and Stirkoke Wick, detailed pp62-64 of Mr Thornton-Kemsley’s main report. We calculate the average price brought out per MW is £512,000. This compares with the broadly equivalent figure on the DCF, using the 10% “certainty or near certainty” or full value assumption, but before discount for five year delay, of £687,016 per MW. Since the former figure has been brought down by post 2004 comparison figures, and an apparently low English figure where the values are said to be generally less in any event, the value shown in our DCF calculation is not out of line with the given range. We go no further than saying that the DCF value is not contradicted by the comparables.
214. Mr Thornton-Kemsley also referred to numerous cases where deductions from full development value had been made in order to arrive at hope value to take account of the risks in obtaining planning permission. We do not detail these in full here save as to say that the discounts varied between 10% and 80%. We would, however, make particular reference to Steel v The Scottish Ministers where the Tribunal discounted a “not better than 50/50 chance” of planning permission by 80% from full value. Reference was also made to Transport for London v Spirerose where a discount by about one third from full development value was made to reach hope value where “prospects of obtaining planning permission at the valuation date would have been good”.
215. Our DCF calculation based upon a 10% discount rate brings out a NPV of £831,121. The 12.5% rate, being an increase to take account of the increased risks, brings out a NPV of £507,795, reflecting a reduction from “full value” (before 5 year adjustment) of some 40-45%. This is not out of line with the approach in the above hope value cases, and reinforces our view that a discount rate of 12.5% is about right.
216. We therefore conclude that the market value of the CAAD land in June 2004 was agricultural value plus £281,572, say £280,000, representing the potential for a further turbine. The depreciation in value on account of the pipeline was therefore £280,000.
217. This part of the claim relates to the actual project. As we detail below, the preliminary studies for the project in reality commenced in the Autumn of 2004. The project was completed in 2012. It is said that the respondent’s pipeline delayed the project for at least a year.
218. This part of the claim relates to land adjoining the CPO area, and accordingly would fall under the second part of section 61, i.e. injurious affection. It is essentially a claim for delay to the commencement of the wind farm coming into operation. It is quantified by a calculation of the difference in value of the present value of the wind farm and its value in 12 months’ time, the difference being said to represent the cost of the delay. That wind farm is, of course, a business, so in reality the claim is for a loss concerning the project itself. However, as no part of the wind farm was in operation at the valuation date, questions of remoteness arise.
219. We understood Counsel for the applicants to accept that the three conditions referred to by the Privy Council in Director of Buildings and Lands v Shun Fung Ironworks Limited namely causation, remoteness and reasonable acting applied equally to disturbance losses for land taken (as was the case there) as to claims for damage for injurious affection to other land.
220. In this connection the decision of the Court of Appeal in Welford v EDC Energy Networks (LPN) plc is helpful. This was a claim brought under para. 7 of schedule 4 to the Electricity Act 1989. Although those provisions relate to both occupiers and landowners, and do not generally adopt the compensation statutes, the Tribunal had approached the issue on the principles generally applicable to compulsory acquisition. The Court of Appeal was satisfied with the approach which recognised two separate heads as elements of claim for compensation – injurious affection and disturbance. In summary a claim for loss of profits was permitted where the relevant business was in existence at the valuation date, and had the benefit of planning permission, even although the business had not been commenced.
221. Thomas L J said:
“28. It is clear that profits from a business which has not been commenced anywhere will generally be regarded as too remote for the purpose of providing fair compensation for land which is to be compulsorily acquired. That is because compensation for the value of that land will ordinarily reflect the cost of that part of the investment in the commencement of the business which is represented by the cost of land. Therefore, where a person has land on which he is contemplating starting a new business, but the business is not in existence at the time the land is compulsorily acquired, then ordinarily the market value of the land will reflect the business opportunity that is contemplated; it is but part of the overall investment that will have to be made to realise the profits from the contemplated business. The profitability of that business will be subject to all the risks inherent in the start-up of a business which is not in existence. Compensation measured by the market value of the land will be treated as fair compensation, as it will enable him to buy other land as part of the investment he will need to start the business he is contemplating. A claim for loss of profits will therefore be treated as too remote.”
He also said:
“31. … In my view once the owner of the land has a business in existence, has made the investment in the land on which that business is to be carried out and commenced work in connection with the business on it, then the business has a sufficient relationship to the land for the land to have special value to the owner arising out of that business so that compensation for the loss occasioned by its disturbance can be recoverable, even though the land is not yet being used for the business. It is the coming into existence of the business and the investment in relation to the land that is sufficient, even though the land is not yet being used for the business. If the business is profitable, then loss by disturbance to the business which is to be conducted on the land will not be reflected in the value of the land. In such a case, the land has more than the development value reflected in the market value; it has a special value to the owner of the land, given the existence of the business and the investment in the land on which that business is to be conducted.”
222. In the present case the valuation date is 5 June 2004. We accept that the claimants were contemplating developing a wind farm at that time. But as the reporter recorded in her CPO report shortly prior to that date, no firm proposal had reached the planning application stage. There was no wind farm “business” in place which could be disturbed. There was no immediate prospect of the landowner sustaining damage through loss of business on account of his land being injuriously affected. No investment had been made in the land at that time for such a business. As far as we know, no sums had been borrowed which might have been described as holding costs for such a business. So on the basis of Welford, a claim for loss of business profits would be too remote. It follows, we think, that an analogous claim for a delay to the commencement of that business is also too remote.
223. We do not think Hobbs (Quarries) Limited v Somerset County Council assists the applicants. Although a claim for losses succeeded despite the relevant business not being operation, the applicants had purchased an existing quarry for the very purpose of obtaining the supply contract which was denied them by the relevant statutory notice. The loss of business was not remote in those circumstances.
224. However, the matter does not end there because the applicants argue that the project was only delayed because of the pipeline, which cannot be a good reason for holding that the claim is too remote. It would be wrong, they say, to disallow a claim where the plans to set up a business have been knocked back on account of the pipeline uncertainty during the shadow period. This point was not explored in detail, but it is necessary to consider the timeline. Between 8 October 2002 (the date of the Bell Ingram visit to the farm) and 8 April 2003 (the draft Deed of Servitude by then showing only one route for the pipeline) the applicants could not have inferred the likely route of the pipeline. The CPO was confirmed on 5 June 2004 for the April 2003 route. By the Autumn of 2004 the applicants had decided to take the project forward and had started committing resources to necessary studies. Meteorological data was purchased in October 2004. Bird surveys started in November 2004. The grid application was December 2004. The application for planning permission for the anemometer mast was January 2005. The planning application proper was made in May 2006.
225. Therefore, at worst for the applicants the shadow period (8 October 2002 until 5 June 2004) was of the order of 20 months. It is argued that the project was put back by about a year. That suggests that the decision to commit resources might have taken place, in the no pipeline world, in the Autumn of 2003 being the time when the applicants received visits from developers. By this time the respondents had firmed up the pipeline route in their own environmental assessment (September 2003) and the applicants were not objecting to the principle of the pipeline (letter 8 August 2003) or putting forward an alternative route.
226. Thus there is some force in the respondents’ position that preliminary work, particularly non location specific work such as the purchase of meteorological data and the anemometer application could have been made earlier if the applicants were determined about proceeding with the project. On the other hand as we have said we do have some sympathy for the applicants in that we think it likely they did in fact pragmatically postpone the decision to proceed with studies until after the CPO was confirmed and the pipeline was under construction. There would have been perceived risks of abortive expenditure in committing resources prior to this; in particular it would not be unreasonable to conclude that the bird studies requiring two seasons work could risk being compromised by what in effect would become a nearby building site. So we accept there was probably some delay in commencing studies, and thus delay to the project, on account of the pipeline. But as it transpired, the actual application for planning permission was made nearly two years after the date of confirmation of the CPO. In these circumstances it becomes impossible for us to conclude that a business would have been permitted, let alone would have been in existence or in operation, or that investment beyond those preliminary studies would have been made before the valuation date had it not been for the uncertainties due to the shadow of the pipeline. So we cannot accept the argument, on the facts alone, that a claim for a loss to the business which would have been too remote can, as it were, be revived because but for the delay there would have been a business in existence at the valuation date. At best there would still only have been only a business in contemplation, albiet a more informed contemplation. The business and investment would not have reached the advanced stage as it was in Welford.
227. In addition there were other delays at later times; namely the temporary cessation of market availability of the Siemen’s 1.3MW turbine and the Lehman crash affecting the availability of the IWP turbine. We accept that these delays can probably be disentangled from the pipeline delay. But for the reasons discussed above, this is academic. The delay claim is too remote. The applicants will however be entitled to statutory interest upon the correct claim for diminution in value of the land.
228. Section 25(9A) of 1963 Act expressly provides for the recovery of expenses reasonably incurred in connection with the CAAD. There are cited examples where we have allowed CAAD expenses in previous cases. In principle we accept that it was reasonable for the applicants to apply for the CAAD and to engage in that process. Thus in principle we would be prepared to allow the claim. We have not heard arguments as to whether all the specific expenses were reasonably incurred and we reserve our view on that. Equally the Tribunal has previously allowed claims for an applicant’s time. We have not considered the usual issues under this head, namely whether the time – said to be 102 hours - was reasonably incurred, whether the time involved the loss of productive time elsewhere and whether it has been adequately vouched. We reserve our views upon these matters.
229. The first part of this claim is for £14,220. We think from the evidence that the respondents have accepted the premise, namely that the compensation relates to a diminution in value of the land used in agriculture subject to the servitude and that the agreed sum is 80% of the value of the agricultural land. This we understand to be based upon a figure agreed or recommended by the respondents and the SLE and NFU. It was an agreed formula to which the Tribunal gave effect in Glenmore v Transco. It is separate to the settled agricultural claim which we understand relates to disturbance in respect of crop losses. Mr Thornton-Kemsley’s main report (paragraphs 7.6.3 and 9.4.3) referred to the SLE/NFU agreed figure as being £16.79 per linear metre for the 24.4 m servitude. The servitude extends approximately 727m.
230. The respondents accept a figure of only £12,339.81. This is a figure, they accepted, mathematically slightly more than the product of £16.79 and 727m. The reason for the difference from £14,220 is not, we think, that Mr Thornton-Kemsley has not applied 80% to an agreed agricultural value as suggested by the respondents. We think both figures correctly attempt to represent 80% of the agricultural value of the permanent servitude strip. The reason for the difference is, we think, that Mr Thornton-Kemsley has sought to convert the agreed linear rate into a derivative area rate of £8,620/ha which produces a higher figure. The reasoning and arithmetic was not explored, and we find it safer to apply the agreed linear rate. Mr Thornton-Kemsley’s report also made a case for an award of a further £4,874.10 based upon the wider temporary servitude area for a period of five years. It would appear that the respondents at some stage had offered an additional sum based upon a requirement to use the additional working area. However it seems to us that if the claim relates to a diminution in value in land because of the pipeline, ultimately we would require to be satisfied this is the case for the wider area. There has been no evidence to this effect and we find it difficult to see how temporary working rights could result in to what all intents and purposes would be a diminution in value of the land for the foreseeable future. We are also conscious that the agricultural claim for crop damage and the like has settled. We are therefore only prepared to allow this claim to the extent to which the respondent accept, namely of £12,339.81.
231. The second part of the claim is for £9,500, which consists of two components. In the first place Mr Thornton-Kemsley has indicated that about two hours each year are taken up by the applicants having dealings with the respondents arising out of the respondents’ own surveys and inspections and the like, as well as filling in an annual occupancy return. It would appear that a figure of £30 per hour has been agreed for the applicants’ time in dealing with agricultural matters (7.4.13 and 7.6.5 of Mr Thornton-Kemsley’s supplementary report). It seems to us that this part of the claim could be described as disturbance, and is not covered by the other claims relating to diminution in land value or management time. We are prepared to allow this in the sum of £60 per annum. We would apply an appropriate multiplier to obtain a capital sum now, representing what it would take as an investment in gilts in a sinking fund to pay this amount over the remaining 40 year life of the pipeline (op cit 7.4.16): YP@ 2.25% (rate for long term gilts) 40 years = 26.1935 = £1,571.61.
232. The remaining part of the claim relates to approximately seven hours for every occasion when it is necessary for the applicants to contact and deal with the respondents in respect of their own operations adjacent to the pipeline, said to be every three years over a 50 year pipeline life. Mr Thornton-Kemsley has indicated that the 80% agricultural diminution in value figure assumes that notice is not required for any agricultural activity; but in fact notice is required for certain drainage operations, the use of a slew digger and certain fencing machinery. Drainage operations were apparently required in 2012, and it was necessary to deal with the respondents thereby taking up management time.
233. While we are not unsympathetic to this branch of the claim in principle, it seems to us that the reason why the applicants would have to contact the respondents is in order to carry out activities such as drainage for agricultural purposes in the vicinity of the pipeline. There is no dispute that the land adjacent to the pipeline is adversely affected by the servitude, which tends to prevent natural drainage. However the fact that the land is in a poorer condition is already recognised by the compensation for servitude rights granted reflecting the diminution in agriculture value. It is true that the compensation only relates to the strip and not a wider area, but we have not heard evidence to persuade us that for the good of the wider area there will require to be further operations in the vicinity of the pipeline in the future. We are not satisfied that this branch of the claim has not already been compensated in the above £12,339.81.
234. The first part of this claim relates to slab protection for crossing places over the pipeline, which was not put in place by the respondents at the time of the installation. We accept Mr Reynolds’ evidence, who was clearly experienced in the matter, to the effect that the pipeline can be crossed by all forms of agricultural vehicle for agricultural purposes. Miss Gordon was unable to specify any particular purpose for which a crossing point would be required and no specific need for crossing points over and above agricultural use has been demonstrated or even identified. In these circumstances we do not think that any impact upon land value has been demonstrated which would be capable of quantification, or that the applicants are likely to be justified in carrying out the work themselves.
235. The claim for loss of further development potential relies on the terms of the CAAD which indicates the land could have had permitted use for tourist and related facilities, sport, leisure. There was also a suggestion solar use would have been possible. In summary, Mr Thornton-Kemsley’s approach was to apply a loss of 40% of agricultural value to the area of the relevant HSE safety zone. Such uses have effectively been prevented by the pipeline.
236. This branch of the claim requires to be seen in the light of the fact that the applicants have succeeded in constructing a wind farm, and that their claim for the value of lost development potential for an additional turbine has also succeeded. The analysis before us does not address the critical question whether the other suggested uses would have been possible in association with the wind farm. Otherwise there is a double counting. Moreover the quantification appears to be based upon a form of diminution in agricultural value, not really explained to us in evidence, rather than for any loss of development value. We do not think this claim has any merit.
237. We understood it to be accepted by the respondents that the applicants were entitled to recover reasonable valuation and legal fees, subject to the Tribunal’s findings in relation to the extent to which the applicants’ claim is justified and any direction as to the effect those findings should have on the level of fees allowed. We also understand that fees relating to the agricultural claim have been settled. We note that the claim was received by the Tribunal on 3 June 2009 and the expert reports put forward in the process all post-date that date. To the extent that the fees outlined by Mr Thornton-Kemsley in his statement were incurred after that date, it would appear likely that some or all of them properly fall to be considered within the rules of expenses for the Tribunal process itself. We are reserving all questions relating to expenses of the Tribunal process. If there are further professional fees incurred which are not covered by judicial expenses, but properly incurred by the applicants in respect of dealing with the pipeline and making the claim, we would reserve those parts of the claim also. We note on the face of it there is a dispute as to the appropriate rates to be charged by surveyors and we make no comment on this matter at this stage.
238. It was not disputed that compensation for the principal claim, reflecting a loss of development potential, would be likely to be treated as compensation of a capital nature under section 245 of the Taxation of Chargeable Gains Act 1992. Under section 246 the time of disposal and acquisition is the time at which compensation for the acquisition is agreed or otherwise determined. If a liability to capital gains tax is incurred, which but for the compulsory acquisition would not have been incurred, then it is argued that the principle of equivalence requires compensation to be allowed.
239. We were referred to Bishopsgate Parking (No.2) Limited v Welsh Ministers. The Upper Tribunal (Lands Chamber) indicated at paragraph 108 that the principle of equivalence could be offended if compensation was not provided for a liability to CGT which would not otherwise have been incurred. They said at paragraph 109:
“We do not accept that a claim for compensation in respect of CGT payable following compulsory purchase must inevitably fail for reasons of causation. What the acquisition does is to give rise to a chargeable gain by reason of a disposal made, or treated as having been made, at the date on which compensation is determined. The acquisition causes CGT to be payable at a particular date. If, on the evidence, in the absence of the acquisition there would not have been a disposal until a later date or if the owner would at a later date have transferred the land in a way that did not constitute disposal for CGT purposes, such loss as the owner can be shown to have sustained by reason of having to pay CGT at an earlier date rather than at a later date or not at all would in our view undoubtedly be caused by the acquisition.”
240. The Tribunal further indicated that claimants would require to show on balance of probability that they would have avoided or reduced the tax in the no scheme world (paragraph 116). They continued at paragraph 118:
“In any event to succeed in its claim under this head the claimant will have to establish that it will not be able, or could not reasonably be expected, to take advantage of rollover relief. … It might be possible to adjourn the hearing of that part of the claim based on liability to CGT … but we would need to be convinced that this was a proper course to follow.”
241. The Tribunal was persuaded that CGT may be payable which in the absence of the compulsory acquisition would have been postponed, and reserved the issue for a further hearing.
242. We are not aware of this point being determined in a previous Scottish case and we gratefully adopt the persuasive reasoning of the Upper Tribunal. The first question is whether the applicants will be liable to CGT following the award of compensation. This likelihood was not in dispute. Next, the question is whether there would have been no disposal in the no scheme world. Given the family history of ownership of the land, the fact that the applicants have managed to keep control of their land in developing it themselves, and appear to have no intention of ceding control, we accept that there would probably not have been a chargeable disposal. This position may or may not be qualified on detailed analysis. As the applicants are also executors of the late Hugh Gordon, himself a landowner, it is theoretically possible that in the no scheme world there would have been a gain in the hands of executors prior to transfer of assets to beneficiaries. The point was not addressed in evidence and we say no more about it at this stage. We also express no view at this stage on any implication from the fact that the wind farm was initially operated by a limited company and subsequently a LLP.
243. This leaves the question whether the applicants will be able to take advantage of rollover relief. We accept Miss Gordon’s and Mr Thornton-Kemsley’s evidence that suitable agricultural land is not very likely to come on the market. No reliable evidence of HMRC practice was given to us which we infer, standing the discretion of HMRC in section 152(3) of the 1992 Act, might allow more than three years to roll over a gain from the date of determination of compensation. Nevertheless, we are persuaded that the applicants have, on the face of it, a claim based upon the contingency of not being able to use the award for the purchase of new land as defined in the 1992 Act, within a period acceptable to the HMRC. Part of the contingency will be that the applicants act reasonably to mitigate their losses.
244. We feel that the applicants could have done more to vouch this chapter of the case. However, as we have said, the issue does not appear to have arisen before for determination, and we are also conscious of section 9(3) of the 1963 Act seeking to restrict the number of expert witnesses on each side. Accordingly, with some considerable hesitation, we are prepared to reserve this part of the claim, in whole, for a future hearing once the contingency we have referred to can be established. We would expect better evidence to be presented to us before reserving a similar issue in future cases.
245. We reserve all questions of interest and expenses.
|Depreciation in land value:||£280,000|
|Effect on built windfarm:||Nil|
|Cost of CAAD and landowners’ time:||Reserved|
|Compensation for Servitude Rights:||£12,339.81|
|Loss of further development potential and severance:||Nil|
|Professional and other fees:||Reserved|
|Interest and Expenses:||Reserved|
|Total not reserved:||£293,911.42|
246. For avoidance of doubt this is a decision for the purposes of section 11 of the Tribunal and Inquiries Act 1992 and the Lands Tribunal for Scotland Rules 2003. We would hope and expect parties to seek to agree the matters we have reserved prior to returning to the Tribunal.