[2023] UKUT 217 (LC)

The parties agree that the claimant has been prevented from making the same profitable use of its investment in the site as would have been possible if the reference land had not been acquired and there had been no doubt over the extent and terms of its rights of access. They also agreed that compensation should be paid equivalent to the lost return on its investment while development was delayed (which they referred to as the “cost of money”).

Initially it was suggested that a simple rate of interest, pleaded by the claimant in its statement of case as 3%, should be applied to the aggregate of the purchase price (£1,232,500) and the stamp duty and other transaction costs incurred by the claimant when it acquired the site (£71,158). In his written evidence Mr Cook departed from this pleaded case and suggested that interest should be applied to the total expenditure on a compound basis at a rate of 5% from the date of acquisition in June 2017 until the date of the decision in 2023 (which he took as six years). Interest calculated in that way totalled £455,000.

Mr Kershaw agreed that an allowance for the cost of money was appropriate but suggested that a rate of 3% should be applied to the purchase price only, and for a period terminating when the claimant was informed that a deed of easement was available in the form negotiated between National Highways and the Tatton Estate (30 June 2022).

In closing the claimant’s case, Mr Pereira KC abandoned that part of the cost of money claim which related to the claimant’s acquisition costs. He explained that those costs would not have been recoverable by the claimant’s vendor, DT, and were the direct result of the sale of the retained land after the reference land had been taken. Although the claimant was entitled to take the benefit of DT’s right to compensation, as a matter of principle it could not assert any greater claim than DT itself could have done. For that reason, Mr Pereira explained, it was accepted that the claim to recover the cost of money on the acquisition costs could not be sustained. (The claim relating to the cost of the purchase price is not affected by that concession, since the cost of money claim is a measure of the sterilisation of the land for the purpose of development, which would have been experienced by DT if it had retained the land rather than selling it to the claimant.)

That left only two issues concerning the cost of money claim. The rate to be applied to the purchase price, and the period.

Mr Cook had based his rate of 5% on a blended figure which reflected the recent higher interest rates, savings rates historically and how the claimant maximises the use of its money at far higher rates of return in its business activities. He considered that the 2021 accounts for Castlefield Estates Ltd (the claimant’s parent company) showed that a return of 46% had been achieved (although not by the special purpose vehicle set up to undertake the development of the Cheshire Lounge). Mr Cook suggested his rate was conservative and fair. Mr Kershaw explained that the 3% rate of he had used was based on bank interest rate returns. Both had used compound rates of interest.

Mr Kershaw also relied on a report commissioned by National Highways from Quantuma, a business and financial consultancy. It explained that the accounts showed that the high margins referred to by Mr Cook were based on the rental income received from investment properties owned by Castlefield Estates, less the cost of holding them. Rental income was recorded as being 7.7% of the value of the properties, which are themselves occupied by other group companies. In 2021, a year impacted by the Covid-19 pandemic, Castlefield Holdings Ltd (the parent company of the group) experienced a negative return of -1.8%. Expressing the rate of return as the operating profit divided by the fixed assets produced figures of 3.9% and 3.5% for 2019 and 2020 respectively.

Funds on deposit in 2019 and 2020 would not have earned the 3% used by Mr Kershaw, but it seems to us that a company developing and running restaurants would not have expected a return only 2 or 3% above base rates as adequate compensation, given the level of risk involved in its activities. Mr Hunter estimated that the completed restaurant would produce an annual operating profit of £1.0m against total costs in excess of £5.0m. The ratio of those two figures appears to us to present a more realistic measure of the return the claimant could reasonably have expected to achieve on its investment if it had not been delayed in developing the site. In the circumstances we will adopt 5% as the rate to be applied to the purchase price of £1,232,500.

The other disputed part of the cost of money claim was whether the period for which compensation should be paid should end on 30 June 2022 when the claimant was offered the draft deed of easement agreed between National Highways and the Tatton Estate or should continue to a later date. We take that later date to be the date on which the final hearing of the reference commenced, 16 May 2023, since it was only then that Mr Booth KC offered an undertaking to the Tribunal that, if the Tatton Estate was not willing voluntarily to grant easements to the claimant in terms which were now agreed between National Highways and the claimant, National Highways would make use of its compulsory powers to acquire the new access and would itself grant enter into the necessary deed in the agreed form. Subject to finalising the terms of that undertaking, it was agreed between the parties, that it gave the claimant all the certainty about access and other easements it would have had if the reference land had never been taken.

The undertaking offered on behalf of National Highways by Mr Booth KC did not resolve the disagreement over the period for which the cost of money claim should run because National Highways continued to maintain that the term agreed between it and the Tatton Estate in June 2022 were reasonable and should have been accepted by the claimant.

The claimant began negotiating with the Tatton Estate shortly after it acquired the land in June 2017, but as early as 31 August 2017 Mr Cook wrote to Mr El Rayes, informing him negotiations had broken down over the Estate’s demands, which were said to include a requirement that the claimant transfer the freehold of the Cheshire Lounge to the Estate (presumably in return for a leasehold interest). The suggestion that National Highways should step in and secure the required rights for the claimant was rebuffed by Mr El Rayes on the basis that the claimant could simply rely on the terms of the Order. That position has not been defended by National Highways in this reference and it has instead been accepted that the claimant could not reasonably have been expected to proceed with its development until it had the certainty of a deed of easement.

Such negotiations as there then were between the claimant and the Tatton Estate, before or after the commencement of the reference in September 2021, did not result in progress.

In July 2022 National Highways presented the Claimant with the draft deed which it had negotiated with Tatton and which Tatton was said to be prepared to enter into with the claimant. The claimant was dissatisfied with its terms, but it was informed by National Highways solicitors that this was the most that it could expect.

The claimant raised a number of issues over the form of the deed offered to it. Some were rather technical conveyancing points (a title guarantee which the claimant did not feel able to provide, and a query over the consent of the Estate’s mortgagee) which we are sure would have been capable of being resolved without difficulty. Two other points were of more substance. The first concerned the claimant’s right to carry out work to maintain the access, rather than paying for it to be maintained by the Estate and contributing regularly to a fund for that purpose. The second concerned rights of access to adjoining land in connection with services.

Mrs Ramsbottom explained why the claimant was not content to allow the Estate to undertake repairs to the new access and pass a proportion of the cost on to it. Fundamentally, as a result of its experience in negotiating with the Estate over access, the claimant did not trust the Estate not to exploit the proposed terms to its own advantage, and anticipated disputes over the timing, cost and quality of works. The negotiating tactics adopted by the Estate described in Mr Cook’s letter to Mr El Rayes of 31 August 2017 were substantially confirmed by Mrs Ramsbottom and on that basis her fears do not seem to us to have been groundless. The burden of proving that the claimant’s acted unreasonably in refusing what was offered to it in June 2022 falls on National Highways, and we are not prepared to say that the claimant’s strong preference to control expenditure on the maintenance of its sole access to the site was unreasonable.

National Highway’s position regarding ancillary rights to lay or connect to services was that it is only responsible for granting a “bare right of access”. It has always accepted that the principle of equivalence requires that the claimant must have the same rights of access to lay services as had been enjoyed by the owner of the Cheshire Lounge before the acquisition of the reference land. The claimant had always asserted that, as the owners of land adjoining the public highway, the owner of the reference land would have been entitled to connect to services running within the verges of the highway itself. National Highways’ position, reiterated in a letter sent as recently as 4 May 2023, had always been that the Cheshire Lounge had never enjoyed a “specific right” to lay service media over any adjoining land. It proposed that the claimant should therefore negotiate with the Tatton Estate for such service rights as were required to facilitate the development of the site. The Estate indicated that it was prepared to offer all necessary rights, but at a price. The claimant considered that as a result of National Highways stance it was being held to ransom by the Estate.

In a letter written only a week before the start of the hearing, on 9 May 2023, National Highways confirmed for the first time that it would permit the claimant to cross its land (including the reference land, which is no longer adopted highway) to reach the A556, thereby placing it in the same position as was enjoyed by its predecessor before the reference land was taken. No such right had previously been offered.

It was said by Mr Booth KC that no rights had ever been requested by the claimant over the reference land, and that until shortly before the hearing all of the focus had been on the extent of the rights which the claimant wished to secure over the Estate’s land. We find that an unattractive position for National Highways to adopt, in view of the “take it or leave it” label which it attached to the terms it had agreed when they were presented to the claimant in June 2022. It knew that the claimant was concerned about service rights and its proposal was that it should pay the Estate to grant them; it could have offered its own land as an alternative but did not do so.

The claimant did not adopt a passive attitude to the terms it was offered. It sought changes to the June draft, and negotiated further with the Estate, which responded by adding further changes of its own (vindicating the claimant’s view that National Highways was in a much better position to negotiate terms than they were). By April 2023 the claimant concluded that agreement would not be reached and on 27 April 2023 it sent a draft deed to National Highways and to the Estate containing the minimum terms it was prepared to accept. Those terms included the right to lay services.

In view of the fact that National Highways has now undertaken, in effect, that it will compel the acceptance by the Estate of what we understand to be substantially the terms proposed by the claimant on 27 April, we do not see how it can be said to have been unreasonable for the claimant to have refused the terms negotiated by National Highways ten months earlier. It has significantly improved its position and reduced its dependence on further uncertain negotiations with the Estate.

In summary, National Highways has not persuaded us that the claimant failed to mitigate its loss when it rejected the June 2022 deed. There is therefore no basis on which that event can be treated as bringing an end to the claimant’s entitlement to compensation for its inability to proceed with the development of the site. The period over which the cost of money claim should be calculated is therefore from 2 June 2017 to 16 May 2023.

An advance payment of £54,360 was made to DT at an early stage but it is not appropriate to take that into account when calculating the compensation payable under the cost of money claim. It was agreed that the claimant could not make profitable use of its investment while its rights were uncertain, and it was not suggested that the receipt of a relatively modest sum on account made any difference. The cost of money claim is a claim for compensation, not a claim for interest, and there is no more reason to treat the advance payment as extinguishing part of that head of compensation than there is to regard it as reducing the amount payable in respect of pre-reference costs or the cost of work to the carriageway. On that basis the parties agreed that the cost of money claim was worth £415,626.

The total value of the rule 6 claim therefore comprises the following: