Scout Association Trust Corp & Ors v Secretary of State for the Environment

Compulsory-purchase compensation must reflect the claimant’s actual loss and must not create a windfall. Where input VAT has been reclaimed, any possibility of later repayment should be assessed as an ordinary contingency when determining the reasonable cost of equivalent reinstatement. The claimant must show a real risk of repayment, which should then be evaluated and quantified. The Gourley principle and the “clear beyond peradventure” approach in Wood Mitchell concern possible double taxation and do not govern this distinct question. A formal tax assurance, or an indemnity removing the risk, may justify excluding reclaimed VAT.

The Secretary of State compulsorily acquired land at Buckmore Park for highway works. Under rule 5 of section 5 of the Land Compensation Act 1961, compensation was to be assessed by reference to the reasonable cost of equivalent reinstatement. Buckmore Park Services paid VAT on construction costs and reclaimed it. The Commissioners later issued and withdrew an assessment and gave assurances under the Sheldon doctrine that they would not recover the reclaimed VAT.

Judge Rich in the Lands Tribunal excluded the VAT from the reinstatement cost. The claimants appealed, arguing that the possibility of later recovery required the VAT to be included and that the extra-statutory assurance could not safely be relied upon. The central issue was whether the “clear beyond peradventure” approach in Wood Mitchell [1980] 1 WLR 254 applied, or whether the possibility of recovery should be assessed as an ordinary compensation contingency.

1. Disposition. The appeal was dismissed unanimously. The input VAT reclaimed by Services was properly excluded from the compensation.
2. Evidence on appeal. Evidence not before the Lands Tribunal should not be received without an order under rule 52.11(2)(b) of the Civil Procedure Rules 1998. The court should be slow to permit an appellant to improve its case with evidence that could have been obtained below. Since the respondent did not object, the further correspondence could be admitted together with responsive evidence, but the matter need not be remitted if only one reasonable conclusion was available.
3. Principle of equivalence. Compulsory-purchase compensation, including disturbance and reinstatement costs, must neither exceed nor fall short of the owner’s actual loss. That principle was stated in Horn v Sunderland Corporation [1941] 2 KB 26 and reaffirmed in modern terms in Director of Buildings v Shun Fung Ltd [1995] 2 AC 111. Including reclaimed VAT merely because repayment was theoretically possible could produce a windfall.
4. Applicable test. The Gourley principle [1956] AC 185, as applied in West Suffolk County Council v W Rought Ltd [1957] AC 403 and considered in Wood Mitchell, concerned the avoidance of double taxation. The “clear beyond peradventure” approach in Wood Mitchell did not govern the present issue. The Lands Tribunal instead had to take a reasonable view of the likelihood of repayment as it would of any other contingency. Services had to establish a real risk; if established, the risk had to be assessed and quantified. The Court of Appeal could interfere only for an error of law.
5. Application. The Commissioners’ formal and consistently maintained assurance meant that there was no real risk of recovery of the VAT relating to the sports hall. The later correspondence disclosed, at most, a small and uncertain possibility of Capital Goods Scheme adjustments for other buildings, affected by the three-year capping provision and the company’s insolvency. In any event, the acquiring authority’s indemnity removed the risk of a subsequent liability. Excluding the VAT therefore complied with the principle of equivalence, and remittal was unnecessary.

1. Court of Appeal (Civil Division) — In [2005] EWCA Civ 980, the court dismissed the appeal and held that reclaimed VAT was properly excluded from the compensation.
2. Lands Tribunal — Judge Rich’s decision of 10 September 2004 held that the cost of equivalent reinstatement did not include VAT reclaimed by Services because the Commissioners had agreed not to recover it.