Aslam v South Bedfordshire District Council

Where compensation is assessed by discounted cash flow and payment is delayed, interest should restore the time-value advantage built into the valuation but lost through delay. The appropriate rate is generally the real rate of return included in the discount rate, with an allowance for inflation. A statutory rate applicable to later compulsory-acquisition or discontinuance cases should not be applied by analogy to an earlier case where it has no direct application and the valuation used commercial rates. Interest may instead be awarded under the applicable procedural power. It should run from the date at which compensation was assessed, rather than automatically from the statutory date. For later orders, statutory limits on interest must be reflected in the discount rate used by valuers.

Aslam v South Bedfordshire District Council concerned compensation payable after a discontinuance order ended the appellant’s slaughterhouse business. The Lands Tribunal awarded £417,904 and did not award interest. In earlier judgments, the Court of Appeal indicated that the appeal would be allowed in relation to valuation adjustments and interest, leaving the applicable rate and commencement date for further submissions.

The Council relied on section 32 of the Land Compensation Act 1961 and the prescribed rate under the 1995 Regulations. The order had been made in 1988 under section 51 of the Town and Country Planning Act 1971, confirmed in 1989, and compensation was payable under section 170 of that Act. The central issues were whether the statutory rate applied by analogy and whether interest should run from the statutory effective date or the date used for the discounted cash flow valuation.

Disposition

The appeal was allowed in the respects previously identified. The income attributed to sheep skins was increased from £3.75 to £5 per sheep, income from other parts from £1 to £1.50, and £14,365 for accrued interest on a business development loan was disallowed. Simple interest was awarded at the commercial court rate from 24 June 1989.

1. Statutory rate. Section 32 of the Land Compensation Act 1961 had no direct application. Section 80 of the Planning and Compensation Act 1991 was the provision that extended the section 32 rate to certain non-compulsory cases, including compensation under section 115 of the Town and Country Planning Act 1990 for damage caused by a discontinuance order under section 102. That statutory extension did not apply to an order made before 25 September 1991. The present order was made under section 51 of the 1971 Act, so compensation was payable under section 170 of that Act.
2. Power and measure of interest. Section 19A of the Arbitration Act 1950 and Rule 32 of the Lands Tribunal Rules 1996 empowered the court to award simple interest at a suitable rate. The Member’s failure to exercise that power did not prevent the Court of Appeal from doing so. The discounted cash flow valuation had allowed for the advantage of receiving money earlier. Because payment was delayed, that advantage was lost. Interest should in principle reflect the real return element of the discount rate together with an allowance for inflation.
3. Application. The prescribed land-acquisition rate was not a true analogy. The valuation appeared to have used commercial rates, rather than an artificially low statutory rate, so the commercial court rate was appropriate. Interest ran from 24 June 1989, the date at which compensation was assessed, rather than 7 August 1989, the statutory effective date. The appellant’s consequential losses did not justify a rate exceeding the commercial rate.
4. Future valuations. For orders made on or after 25 September 1991, valuers must take the statutory limit on interest into account when fixing the discount rate. A lower prescribed interest rate should result in a lower discount rate and therefore a higher compensation figure.

Lady Justice Hale agreed. The costs of the hearing were added to the previous award of costs.

• Court of Appeal (Civil Division): The appeal was allowed in relation to the valuation adjustments and interest. The court directed interest at the commercial court rate from 24 June 1989: [2001] EWCA Civ 515.
• Lands Tribunal: The Tribunal awarded £417,904 compensation and had not awarded interest.