Railtrack Plc v Guinness Ltd.

An open-market valuation assumes a hypothetical willing seller and willing buyer. The statutory hypothesis removes the seller’s disinclination to sell and the buyer’s urgent need to purchase. It does not require the valuer to disregard the nature of the property or the type of owner that would hold it in reality.

On an appeal from the Lands Tribunal limited to a point of law, the court may intervene where material double-counting, reliance on no evidence, failure to consider the evidence, procedural unfairness or a material factual misunderstanding reveals an error of law. A developer’s ordinary profit allowance does not necessarily preclude a separate allowance for the particular risk borne by a purchaser making an immediate payment against uncertain future development value.

Railtrack and London Underground granted Guinness rights needed to construct a road and station serving a major development at Park Royal. A terms of reference agreement required the Lands Tribunal to determine the open-market value of the rights on specified compulsory-purchase assumptions. The Tribunal valued them at £5 million and made no order as to costs.

Railtrack appealed on two grounds. It contended that the Tribunal had attributed impermissible characteristics and political pressures to the hypothetical willing seller. It also alleged that the Tribunal had double-counted development profit and risk by making two deductions of 20 per cent. Permission had already been granted on the first ground; permission on the second was considered with the substantive appeal.

1. Appeal dismissed unanimously. Carnwath LJ delivered the judgment, with which Sir Denis Henry and Aldous LJ agreed. Permission to appeal on the profit and risk ground was granted, but both substantive grounds were dismissed.
2. The open-market hypothesis under section 5(2) of the Land Compensation Act 1961 necessarily implied both a willing seller and a willing buyer. Each was a hypothetical abstraction, but the valuation remained tied to reality. Since the property consisted of access rights over a railway, the Tribunal was entitled to regard the hypothetical seller as a railway infrastructure undertaking. It was also entitled to find that the actual negotiations were representative and that the £9.7 million offer was genuine evidence of what Railtrack and London Underground had been prepared to accept.
3. The hypothesis required the Tribunal to disregard Railtrack’s disinclination to sell and Guinness’s urgent need to buy. Both parties were assumed to deal at the best price reasonably obtainable. Political pressure directed merely at overcoming reluctance to sell added nothing because willingness was already assumed. The evidence showed that Railtrack had nevertheless negotiated on a commercial basis.
4. An appeal on a point of law from the Lands Tribunal was broad enough to correct material double-counting or a decision affected by an incorrect factual basis. Errors of law could include reliance on no evidence, failure to consider the whole evidence, procedural unfairness, material misunderstanding and a failure of reasoning indicating that the issue had never properly been considered.
5. The Tribunal’s clarification letter was properly considered. It responded to Railtrack’s own request before the decision became effective. A tribunal may clarify or reconsider its reasoning before finality where there has been a plain mistake, a material omission or another sufficient reason.
6. The two deductions addressed different matters. The first was the ordinary developer’s profit incorporated in the computer appraisal and calculated on total outlay, including land and access rights. The second reflected the separate risk borne by Guinness in making an immediate payment for the rights against the possibility of future development profit. The additional allowance was supported by the evidence and adequately reasoned. Its percentage was a matter of valuation judgment.

1. Court of Appeal (Civil Division): By [2003] EWCA Civ 188, granted permission on the second ground but unanimously dismissed the appeal on both grounds. Railtrack was ordered to pay Guinness’s costs.
2. Lands Tribunal: Exercising its arbitration jurisdiction, valued the access rights at £5 million. Its substantive reasons were issued on 11 February 2002 and its costs addendum on 29 April 2002. It made no order as to the costs before it.