Lancaster City Council v Thomas Newall Ltd

Disturbance compensation for compulsory acquisition must be proved by evidence connecting the acquisition with actual loss and satisfying causation, remoteness and mitigation principles. A company cannot recover for directors’ time merely by showing that time was spent. It must show how the diversion affected the company and caused loss; salary or paid overtime may provide a proxy where the evidence justifies an inference. A specialist tribunal cannot rely on expertise to fill an evidential gap, and an award without proof of loss is an error of law. A normal vacancy allowance used in valuing land cannot automatically be deducted again from lost rent. Any allowance must be fact-specific. A tribunal must give reasons, and a causal inference requires evidence showing probability, not merely possibility. Counterfactual rent increases must reflect steps the claimant would actually have taken absent the acquisition.

Lancaster City Council appealed against a decision of the Upper Tribunal (Lands Chamber), cited as [2011] UKUT 437 (LC), concerning compensation payable to Thomas Newall Ltd after the compulsory acquisition of its freehold interest in St George’s Works.

The Upper Tribunal awarded compensation for management time and loss of rent. The Council challenged the evidential basis for the management-time award, the finding that one tenant had left because of the proposed acquisition, the treatment of a 15% vacancy allowance, and the date from which rents could notionally have been increased. The central issues were whether the evidence established company loss, whether the Tribunal had given adequate reasons, and whether its counterfactual rent calculations were legally and factually supportable.

Rimer LJ delivered the leading judgment. Underhill and Mummery LJJ agreed. The appeal was allowed in part.

1. Management time. Disturbance compensation under rule (6) in section 5 of the Land Compensation Act 1961 requires proof of a causal, non-remote loss which reasonable mitigation could not have avoided. A company claiming for directors’ time must prove how the diversion of that time affected the company and caused loss. Evidence that a director was paid a salary, or was paid for additional hours, may provide a proxy where the diversion caused significant business disruption. The principles in [1995] 2 AC 111 and [2007] EWCA Civ 3 were applied. The cases concerning individual claimants, including (1969) 20 P & CR 344 and [2010] UKUT 99 (LC), did not establish a company’s loss. TNL had supplied no relevant evidence of remuneration, company expenditure, disruption or consequential loss. The Tribunal’s award was therefore an error of law. The award was set aside and the claim was refused under section 14(2) of the Tribunals, Courts and Enforcement Act 2007; there was nothing to remit.
2. AM Support Services. A tribunal must give reasons for its decision. The evidence and correspondence showed that the tenant’s departure might have been caused by the proposed acquisition, but did not establish that this was probable. The Tribunal’s unexplained finding was unsupported. The £680 award was set aside and the claim was refused without remission.
3. 15% vacancy deduction. Section 9 of the Land Compensation Act 1961 required the freehold valuation to disregard depreciation attributable to the prospect of acquisition. That valuation exercise was distinct from calculating rent lost because particular tenants left due to the acquisition. The same 15% deduction could not automatically be applied again. Any allowance for the possibility that a tenant would have left in the no-acquisition world was fact-specific. The Council’s appeal on this issue was dismissed.
4. Date for rent increases. The correct inquiry was what steps TNL would have taken without the acquisition and what loss resulted from its inability to take them. The Tribunal instead relied on notional termination notices which the evidence did not show TNL would have served. Its calculation was inadequately explained and irrational. The award under section (b) of Appendix 2 was set aside and the issue was to be agreed or remitted for rehearing.

1. Court of Appeal (Civil Division) — In [2013] EWCA Civ 802, the Council’s appeal was allowed on management time, the AM Support Services claim and the date for rent increases; it was dismissed on the 15% vacancy deduction. The rent-increase issue was to be agreed or remitted.
2. Upper Tribunal (Lands Chamber) — In the decision cited as [2011] UKUT 437 (LC), the Tribunal awarded compensation for the acquired interest and disturbance losses, including management time and loss of rent.