Biggart Baillie Solicitors

Compulsory Purchase - Further Complications

Tuesday, October 05, 2010

by Murray Shaw

The capacity of supermarkets to go to war with each other over sites appears to be unlimited.  Both in Scotland and in England there has been significant litigation where either one supermarket chain or another has been seeking to develop a site in preference to a site proposed by a rival or alternatively seeking to stop a rival with a view to protecting an existing outlet [Click here to view the Supermarket Wars Article]. 

The most recent manifestation of this in the English courts reached the Supreme Court (which has replaced the House of Lords), involved Sainsbury and concerned use of compulsory purchase powers.  The commercial issues were referred to in the Opinion of Lord Phillips in the following terms:- “Each purchased its land in the hope of being able to use it for the purpose of the development.  Each shares the intention that its land should be used for the development.  In resisting the compulsory purchase of its land each is motivated by commercial rivalry, not by any objection to the land being used for the proposed development”.

The use of compulsory purchase powers by a planning authority for the benefit of a commercial operator has been an area of some controversy before the courts recently.  In 2006 a Scottish case involving Standard Commercial Property Securities Limited and Glasgow City Council was decided by the House of Lords.  That case in essence concerned a “fight” over a commercial development in Glasgow between rival developers, though the specific issue in question was whether or not the disposal of the property which was to be compulsorily acquired was at the best price that could reasonably be obtained as required by the Town & Country Planning (Scotland) Act 1997.  That case was referred to in the Sainsbury supermarket case though it would appear that not all the Supreme Court judges had a common interpretation of what the outcome of that case was. 

More recently there was further controversy in relation to the already controversial Trump development in Aberdeenshire where it appeared that a request might be made for the Council to exercise compulsory purchase powers to acquire land to facilitate the development to be carried out by the Trump Organisation.  At least some of the land was owned by private householders who resided there.  There was a debate in the Council Chambers on a motion seeking to make clear that the Council would not use its compulsory purchase powers in that scenario.  The motion was not carried largely on the basis that the majority of Councillors thought the position academic as there was no specific proposal before them to consider. 

The issue before the Supreme Court essentially boiled down to a fight between Sainsbury and Tesco.  Sainsbury owned 86% of a site while Tesco owned most of the remainder.  Both companies wished to develop the site and accepted that it should be developed for supermarket purposes.  No development could take place however unless the interest of one or other supermarket was bought out.  That could only be done if the local authority used its compulsory purchase powers.  Tesco owned another site about 850 metres away which contained a number of listed buildings many of which were in poor condition.  The local authority had for a number of years been keen to secure regeneration of the site.  Tesco did not think it was viable financially to develop the other site on its own but offered to link its scheme for the supermarket site with development of that other site on the basis that this would amount to a subsidy equal to the loss it might sustain in carrying out the development of the other site on its own.  The local authority in light of that offer agreed to use the compulsory purchase powers to acquire Sainsbury’s interest in the supermarket site.  Sainsbury sought to challenge that on the basis that the local authority was taking into account an illegitimate concern. 

Sainsbury’s action was unsuccessful both at first instance and before the Court of Appeal.  In the Supreme Court however they were successful albeit on a 4-3 majority.  To complicate matters all 7 Supreme Court justices issued opinions not all of which are obviously consistent (even amongst those on the same side).  It is interesting that Baroness Hale in a recent interview (quoted in The Times) questioned whether it was appropriate for there to be separate opinions from each Supreme Court justice.  Other courts (notably the Supreme Court in America) do not customarily proceed in this manner. 

There was a degree of consistency amongst the Supreme Court judges about the principles.  The clear majority considered:-

1. That the principles which applied to the determination of planning applications could apply (by analogy) to compulsory acquisition for development purposes;
2. However the compulsory acquisition was only possible if it was within powers given by statute to local authorities.  A number of the Supreme Court justices considered that given the nature of the compulsory purchase process a strict application of the relevant principles was required with the consequence that before off site benefits could be taken into account they had to be clearly related to the proposal for which the compulsory purchase powers would be used.

Where the diversions primarily occurred was in relation to the application of these principles to the particular facts of this case.  Four of the judges held that the financial connection did not constitute a relevant connection to be taken into account and that was the position irrespective of the fact that the two supermarkets were in competition.  Three of the Supreme Court justices came to a different conclusion. 

The only Scottish Supreme Court justice involved in the case was Lord Hope.  His perspective was that both the Tesco and Sainsbury scheme could justify the use of compulsory purchase powers by the Council.  He was therefore of the view that when there was an equality of position and there was no issue of the use of the powers being illegal, it was legitimate to go on to look at other considerations.  He made reference to the terms of the Standard Commercial Property Case and the fact that it held that a Council in deciding to sell land compulsorily acquired could take into account considerations such as those offered by Tesco. The land in this case was not being acquired by the Council to be utilised by the Council but acquired for onward sale.  As he saw it, the decision about exercising the powers and then disposing of the land were an integral part of a common process and in that analysis achieving wider benefits might therefore be a legitimate consideration.  In his view the approach taken by the majority could well make it impossible for certain urban renewal projects ever to be carried through.  Urban renewal projects are an area where compulsory purchase powers are often critical to the site assembly process.  He shared the view of Lord Phillips that it would be unfortunate “if a rigid application of the compulsory purchase principles to proposals of that kind were to rob the community of such benefit”.  He accordingly dissented from the majority view. 

Baroness Hale was part of the majority and reached a different conclusion relying at least in part on the Standard Commercial Property Case.  While she accepted use of compulsory purchase powers might well operate in tandem with the decision as to whom the land would be sold, it was not relevant in her view to rely upon the criteria in the sale part of the process to justify the first part of the process namely the decision to use compulsory purchase powers.  She suggested to do so was putting cart before horse.  In her view (and that of the majority) the decision to use compulsory purchase powers had to be justified specifically on the basis of the statutory provision and taking into account extraneous considerations such as the offer made by Tesco was not appropriate.

Presumably the Council will now have to rethink what they do in this case.  It is not immediately clear how they can reach a decision given that the position between the two developments is relatively finely balanced and the benefits required to justify the use of compulsory purchase powers strictly in accordance with the relevant provisions will apparently flow from either supermarket being constructed.

More generally however this case is likely to make local authorities even more cautious about using compulsory purchase powers for the benefit of commercial developers.  As Lord Hope apparently feared it may have an adverse impact upon urban renewal.  Typically before local authorities agree to use such powers they want an agreement indemnifying them from the consequences.  The outcome of this case may make such indemnities rather more costly in practice.