Case No: C2002/1122
Neutral Citation Number: [2002] EWCA Civ 1431
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17th October 2002

Before :

LORD JUSTICE CARNWATH

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Between :

	RAILTRACK PLC (IN RAILWAY ADMINISTRATION)	Appellants	
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	GUINNESS LIMITED	Respondents	

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Mr Robin Purchas QC and Ms Joanna Clayton  (instructed by Rees and Freres) for the Appellants
Mr Brian Ash QC and Mr Peter Village QC (instructed by Herbert Smith) for the Respondents

Hearing dates: 19th September 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Carnwath : 
1.	This is an application for permission to appeal against a decision of the Lands Tribunal exercising its arbitration jurisdiction.  Although it is an arbitration, it is common ground, as I understand it, that it is governed by the ordinary Lands Tribunal procedure for appeals, and is not subject to the special rules in section 69 of the Arbitration Act 1996.  Nonetheless permission is required under the new regime introduced by the Courts and Legal Services Act 1990 (see Girls’ Day School Trust –v- Dadak 15.3.2001 per Robert Walker LJ).  Although such an appeal was formerly by case stated, it now takes the form of an ordinary appeal on a point of law under CPR Rule 52 (Lands Tribunal Act 1949 s 3(4), as amended by Civil Procedure (Modification of Enactment) Order 2000).  
2.	The dispute arose out of a major development at Park Royal in West London, on land owned by Guinness Ltd, the proposed Respondents to the appeal.  The development requires an access road direct to the A40, running over railway lines owned by Railtrack (as it then was) and London Underground.  Negotiations for the consideration to be paid by Guinness, for the air rights needed for the construction of the road, led in due course to an agreement to refer this issue to the Lands Tribunal under a so-called “terms of reference agreement” dated 16th May 2000.  The wide gap between the parties is apparent from the fact that, by the time the case reached the Tribunal, the claim was put at over £33m, while the evidence on behalf of Guinness supported a figure of just over £1.5m.  
3.	After a hotly contested hearing lasting over 21 days and including evidence from 25 witnesses, the Tribunal determined the value of the rights under the terms of reference agreement as £5m. Their substantive decision was issued on 11th February 2002. The last paragraph of that decision indicated that it “concludes our determination of the substantive issues in this reference”; but that it would “take effect as a decision” when the question of costs had been decided, from which point the right of appeal would come into operation.  The costs issue was finally determined on 29th April 2002, following an exchange of written representations.  In an addendum dealing with that issue, the Tribunal made clear that it had regarded the approach of the claimants as “lacking restraint and judgment”, particularly against a background that in late 1999, on the basis of the advice of their then valuers, they had offered to settle for less than £10m.  The Tribunal also regretted that agreement on so many matters had proved intractable, and that the parties found themselves in conflict at so many points.  
4.	The claim was made jointly by Railtrack and London Underground.  London Underground are not parties to this application.  They have written a letter to the Court dated 20th June 2002 designed to protect them against any possible order for costs.  It was not suggested on behalf of Guinness that the issues before me were affected in any way by the fact that only one of the former claimants would be party to the proposed appeal.
5.	The matter came before me on paper on 26th June of this year.  I granted permission on one ground, but refused on the other three grounds.  In so doing I indicated my view that grounds 2 and 3 appeared to depend “on a detailed review of the evidence before the Tribunal” and to be “largely concerned with issues of fact which are not a matter for appeal”, and that the fourth ground was academic.  I indicated that, if it was intended to renew the application, arrangements should be made for an inter-parties hearing, for the purpose of which the parties should seek to agree directions to limit the documentation required for the Court.  In taking that unusual course, I had in mind the length and complexity of the proceedings below, and the need to keep the hearing of any appeal within reasonable bounds.
6.	On this basis the matter came before me on a renewed application for permission to appeal on the grounds which I had refused with both parties represented.  Guinness not only resisted the grant of permission on grounds 2 to 4, but also invited me to withdraw the permission already granted on ground 1.  At the end of the hearing, I reserved judgment.  
7.	It is unnecessary for the purpose of this judgment to go in any detail into the very complex valuation exercise conducted by the parties and the Tribunal. Suffice to say that it was common ground that the value of the access rights should be determined by a “residual” approach: that is, assessing the fully developed value of the land with the benefit of the access rights, and deducting the construction and other costs involved in achieving that value, and then comparing it with the value of the land without those rights and other incidental elements.  The resulting figure was treated as the extra value released by the acquisition of the access rights, of which 50% was treated as the share which would have been negotiated by the claimants.  
8.	Although in carrying out the exercise both parties descended into an impressive degree of detail, the imprecision of the overall exercise is apparent from the wide gap in the figures produced by the two expert teams of valuers. The Tribunal, having conducted a similarly detailed exercise, arrived at its figure of £5m; but it then proceeded to take what it referred to as “an overall view in the light of all the factors bearing upon the hypothetical negotiations”, including the negotiations which had actually occurred, in order to satisfy itself that the figure of £5m was “one that the parties would have agreed”.  (para 288).
9.	The proposed grounds of appeal can be summarised as follows:-
(1)	The Tribunal failed to assume a sale by a “willing seller”, but instead assumed that the vendor “was a company regulated and subsidised by central Government and subject to the political pressures as were the claimants themselves”;
(2)	The Tribunal wrongly allowed an additional deduction of 20% for “profit” or “risk”;
(3)	The Tribunal wrongly failed to give credit in the valuation for a loan of £4.9m from English Partnerships;
(4)	The Tribunal was wrong to express the view that there would have been a re-appraisal of the so-called “SRB grant”, if the payment for the rights had been at the level proposed by the claimants.
10.	I can deal reasonably briefly with grounds 1 and 4.  As to the former, Mr Village, for Guinness, recognises that the Court will only set aside the grant of permission in exceptional circumstances, such as where some material factor has not been drawn to the attention of the Court.  He said that this was an exceptional case for two main reasons: first, because my attention had not been drawn to two decisions in this Court dealing with what Peter Gibson LJ described in one of them as the “principle of reality” (Hoare (VO) –v- National Trust [1998] RA 391); and, secondly, that even if the claimants were correct on this point it would not have made any difference to their ultimate award, which depended on an objective valuation by the residual method rather than on the nature of the assumed vendor.  I see the force of these points, which were fully developed in Mr Village’s skeleton, and they may indeed lead to the conclusion that the appeal will ultimately fail.  However, they do not in my view amount to exceptional circumstances such as would justify me setting aside permission already granted.  I should add that I do not feel taken by surprise by the principles enunciated in the two cases referred to. In granting permission, I also had in mind that, as suggested in paragraph 3.10 of the claimants’ skeleton, there is possibly a novel point in the application of rule (2) in circumstances where the claimant, but not the vendor, is a statutory body.  
11.	Ground 4, as Mr Purchas for the claimants accepts, is academic on the view taken by the Tribunal, since a full allowance was made for the SRB grant.  It would only become a material issue if the award were substantially increased.  If that were to happen as the result of a remittal from the Court to the Lands Tribunal, no doubt the matter could be looked at then.  As things stand, I see no basis for granting permission to appeal on a point which does not now arise.  
12.	I am satisfied also that I should refuse permission in relation to Ground 3. The Tribunal followed Mr Whitfield in taking no account of the English Partnership’s loan (para 271).  This in summary was because he assumed that it would be unacceptable to English Partnerships for their loan to be used indirectly as a means of “funding a ransom payment”, and that therefore the parties would have assumed that it would be withdrawn if a substantial payment were to be made for the rights.  The claimants’ case on this depends on reviewing the evidence as to the position of English Partnerships in the actual negotiations.  This, they suggest, shows that English Partnerships were content to maintain the loan even in the light of development appraisals showing a much greater development value than that ultimately found by the Tribunal.  Against that, the respondents have referred to correspondence and evidence, which appears to underline English Partnerships’ concerns at the possibility of a substantial payment for the air rights.  
13.	This sounds like an issue of fact, not law. The claimants seek to get over that problem by characterising the error as one of perversity, absence of evidence and a lack of reasons.   However, in my view, they have failed to establish a realistic basis for such an argument. The Tribunal’s conclusion involved an assessment of competing evidence, and they were entitled to reach the view they did.
14.	Before turning to ground 2 in more detail, I should mention one other point raised in the claimants’ skeleton argument, which was not in the event pursued.  This appears at paragraph 4.5 (a) where it is suggested that the Tribunal adopted an assumed development period for the new development of 10 years, as opposed to periods of 5 years or 7 years as used by the parties.  It was said that this was not raised during the hearing and that the claimants were afforded no opportunity to deal with it. However, this point, as Mr Purchas I think accepted, was unsustainable, because the Tribunal, as part of the exercise of completing the necessary calculations, and before the issue of their decision on the substantive issues in February 2002, made available to the parties figures which made clear that they were assuming a 10 year period (see para 286). There would have been plenty of time for the claimants, if they had been so minded, to ask to be allowed to make submissions on that point before that decision was finalised.  There was no such request.  
15.	I therefore turn to ground 2, which requires more detailed consideration.  Since this is a permission to appeal application, I do not regard it as necessary or appropriate to give more than the briefest summary of the factual context, bearing in mind that I am addressing this to parties who are fully aware of the detail.
16.	Ground 2 is directed to deductions made in respect of what the Tribunal described as “profit and risk” (para 265).  They made two deductions in this respect.  They purported to follow Mr Banks, the claimants’ expert, in making what they called “a conventional 20% deduction” on the costs and land value involved in the new development, which they described as “developer’s profit” and as representing “a return for enterprise, organisation, overheads and risk” (para 266).  They then made a further percentage deduction, in purported agreement with Mr Whitfield (the respondents’ expert), which they described as an “allowance for risk”, when “calculating the value of the access rights”; but for that they took a figure of 20% rather than 33% proposed by Mr Whitfield (para 267).  The claimants’ case, in brief summary, is that this was a misunderstanding of the respective positions of the two experts and in effect results in double counting.  
17.	My initial reaction was that this was a question of judgment for the Tribunal rather than a point of law.  As I understood it, the Tribunal were following the respondents’ expert in taking account of “the inherently volatile nature of the calculations used to arrive at a site value” (see para 249), and determining as a matter of expert judgment that this justified an additional deduction, over and above the “conventional” allowance for developer’s profit.  
18.	I confess, however, that even with the assistance given by experienced counsel for both parties, I have had some difficulty in following the detail of the calculations.  This is no criticism of the Tribunal, but results from the complexity of the exercise, the lack of a common base for the figures used by the respective parties, and the necessary use of a computer programme to generate the final figures.  Unfortunately, as the Tribunal observed, the parties, in spite of using the same basic programme, had been unable to agree many of the inputs (even the floor areas in the assumed development – para 253).  
19.	The Tribunal describe how, with the assistance of a neutral expert agreed by the parties, they were enabled to use a “Circle Systems” programme (which had been used by both parties) (para 285-286).  The results of that exercise are attached as appendix 1 to the decision. As is often the way with computer-generated schedules, they are not particularly user-friendly for the uninitiated.  One of the consequences of this is that it is not easy to separate out the individual stages of the exercise, and in particular to identify how the respective deductions for profit or risk fit in to the overall valuations.  
20.	Without wishing to go into more detail than is appropriate on a permission application, it may be helpful if I expand a little on the problem, for someone who (unlike the parties) has not had a chance to become familiar with this model. As I understand the position, the “conventional” 20% deduction was built in to the Circle Systems programme, whereas the additional 20% deduction made by the Tribunal, following Mr Whitfield’s 33%, was not.  Thus (in para 287 of the decision), which summarises the Tribunal’s “valuation of the rights”, there is a table which begins from a figure of £14.8m (using rounded figures) as the value of the land with access rights.  This, as I understand it, is equivalent to the figure for “acquisition price” as it appears in the Circle Systems appraisal, and takes account of the conventional 20% deduction.  From this is deducted the “base value” and value of land required for infrastructure, to give a total “increase in value” of £10.5m, from which is deducted the 20% “allowance for risk”.
21.	The identification of the comparable items in the other tables would not be material, if both parties had used the “conventional” 20% deduction throughout.  However it is central to the claimants’ argument that, while this was the approach of their expert (Mr Banks), the Guinness expert (Mr Whitfield) had adopted a different approach, applying deductions of 15 or 20% to building and infrastructure cost but not making any deduction from the enhanced land value.  That there was such a difference of approach was recognised by the Tribunal (see para 265), and Mr Whitfield’s reasoning has been explained further in the submissions to me.  However, in the absence of directly comparable tables reflecting the different approaches, it is very difficult for the uninitiated to get a clear picture of its effect on the respective valuations.  
22.	For example, in the table derived from Mr Banks’ evidence (decision 216) one finds one express deduction for “profit” as part of the calculation of the so-called “site purchase price” of £55.4m.  One needs some help to discern that the figure given as “profit” (£67.7m) is 20% of the sum of two figures: a figure above it in the table  (£280.2m - finance costs), and the figure immediately below in the table (£58.5m – site purchase and costs).  In the table derived from Mr Whitfield (para 227), there is a figure of £38.5m for “profit”, but it does not seem possible to identify this as a percentage directly of any other figure in the table.  (As explained in para 248, Mr Whitfield applied a figure of 15% for buildings A and C-J and 20% for building B, but the resulting figures do not seem to be identified in the table.)  There is a further “adjustment for risk” of 33% applied to the “net present value of enhancement”.  
23.	Finally in the Tribunal’s own calculations, the figures derived from Circle Systems in Appendix 1, refer to an allowance of 20% for “profit on cost”, but it is not immediately apparent how this fits into the table as a matter of calculation.  In particular the figure given for “profit” on the second page of the calculations (£64.3m) is, I think, better described as “balance”, as it is on the following page.  The fact that it is almost precisely 20% of the “total cost” figure immediately above it, is I believe, a coincidence.  The Tribunal’s deduction of a further “allowance for risk” of 20% is clearly shown in para 287 of the decision.
24.	I invited the parties during the hearing to seek to agree a simple tabular comparison of the three exercises, to enable the approaches to be compared. However, they were not able to help in the time available.  
25.	Returning to the substance of ground 2, the “error of law” relied on by the claimants is expressed variously as one of unfairness, lack of evidence, perversity or lack of reasons (see para 4.9 - 4.10). Before reaching a conclusion on the application, I should make three points as to the Court’s approach to issues of this kind. 
26.	First, it is very unusual for an appeal on law to turn on a detailed review of the calculations, of the kind discussed above. Mr Purchas referred me to the decision in the Court in Aslam –v- South Beds DC, 21st December 2000 (unreported), which concerned the compensation payable for discontinuance of a slaughterhouse business.  He pointed to the Court’s examination of the evidence relating to the somewhat esoteric elements of the calculation of the profits of a slaughterhouse business.  I do not find that a very helpful parallel for this case.  The Court was not seeking to lay down any new proposition of law, but emphasised that the appeal was on law only.  What justified the Court’s intervention was the finding that on particular points the Tribunal had either proceeded on no evidence, or had failed to take account of “the whole of the evidence” on a particular point (see eg para 26).
27.	The second point, which is related, concerns the form in which the material has been presented to the Court.  The point of law, and the material necessary to decide it, will normally be contained in the decision itself.  It is not generally necessary or relevant to supplement it with sections of “raw” evidence or transcript from the hearing. Under the old case stated procedure, where there was an allegation that there was no evidence to support the Tribunal’s conclusion, the Tribunal, in settling the case, could append the relevant evidence on which it relied (see e.g. Tersons Ltd –v- Stevenage DC [1965] 1QB 37).  Under the present procedure, the Tribunal has no control over the material presented to the Court.  Accordingly in this case the parties have identified various extracts from the evidence and the transcript as supporting their respective cases.  The danger of course is that this may lead to a proliferation of selective quotations, which cannot even in combination necessarily give the Court a fair overall view of the evidence.
28.	Thirdly, in relation to the allegation of unfairness, the complaint is that the claimants had no proper opportunity to deal with the Tribunal’s approach to the profit/risk deductions. Quite apart from the merits of the argument, in relation to the decision as issued on 11th February 2002, it is open to question whether this point is open to the claimants, having failed to raise it with the Tribunal in the period before the decision in April. Although the February decision was expressed to “conclude the determination” of the substantive issues (para 289), it would at least in theory have been open to the Tribunal to consider a contention that a party had been taken by surprise (cf Stewart –v- Engel [2001] WLR 2268, 2274, for the comparable position in the High Court).  
29.	In this case the solicitors for the claimants did in fact write to the Tribunal for clarification on 2nd April of this year.  The question was put in this way: 
“The point is whether it was the intention of the Tribunal to deduct 20% on cost, excluding the residual land value, pursuant to the first sentence in para 267 (and then a further 20% on the residual land value pursuant to the second and third sentences in that paragraph).  Alternatively did the Tribunal intend to deduct 20% on cost and the residual land value pursuant to the first sentence and then the further 20% pursuant to the second and third sentences?”
The letter added that it was appreciated that “strictly these points should be raised pursuant to section 57 (3) of the Arbitration Act 1996 and Rule 32 of the Lands Tribunal Rules 1996 following the decision coming into effect”.  The Tribunal responded on 5th April as follows:-
“In our residual valuation to find the value of the first central land we have accepted and incorporated Mr Banks’ overall deduction of 20% for profit on total cost (including acquisition price).  In our calculation of the value of the rights we have accepted Mr Whitfield’s evidence that there should be an allowance for risk and a major deduction of 20% from the increase in value for risk.  The first 20% deduction (profit) relates to the value of the land and the second deduction (risk) related to the value of the rights.”
30.	The claimants did not comment further, and did not at that stage raise a complaint that this was a point on which they had not had a chance to make representations.  The reference to section 57 (3) of the Arbitration Act 1996 is to the provision (also applied to arbitrations in the Lands Tribunal) which enables the Tribunal to “correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award”.  This does not in terms relate to correcting an unfairness of the kind alleged by the claimants.  On the other hand, had the point been specifically raised, the Tribunal could either have given an opportunity for further representations, possibly in writing, or alternatively explained why they did not think it appropriate to do so.
31.	I turn now to the decision on the application.  I have come to the conclusion that the right approach in relation to ground 2 is not to grant or refuse permission at this stage, but to adjourn the application for permission to be heard at the same time as the substantive appeal on ground 1. 
32.	I take this course for a number of reasons.  In the first place, although I remain unpersuaded that there is any error in the Tribunal’s approach, let alone one of law, I am left with a feeling of unease that I have not been able to analyse the figures to the extent that I would have liked. Secondly, since there is to be a hearing on ground 1, and much of the cost of preparation work on ground 2 has already been incurred, the additional cost involved in the course I have proposed should not be substantial, particularly in relation to the amounts potentially at stake in the appeal.  Thirdly, there may be a useful opportunity for the Court to consider, and give guidance on, the procedural points that I have discussed in the previous paragraphs.  Finally the proliferation of further documentation can be kept within bounds.  The parties have already exchanged evidence and selection of transcripts from the hearing in support of their cases.  It seems to me that these are likely to provide all the material which the Court will need.  
33.	I would only add that, if the Court is to grapple successfully with the claimants’ complaint as to possible “double counting”, an attempt should be made to put these various calculations into comparable and simplified form, so that the Court can trace and compare the different treatments of the “profit” or “risk” deductions in the three valuation exercises.  This task should preferably be undertaken, not by a computer, but by a reasonably numerate human being.  The primary responsibility for this task lies, of course, with the appellants, but the respondents should be given an opportunity to comment, and if possible agree the table. 
34.	In conclusion, I propose to maintain the grant of permission to appeal on ground 1, to refuse permission for appeal on grounds 3 and 4, and to adjourn the application of ground 2 to be heard with the appeal. I shall invite the claimants to prepare, and seek to agree with the respondents, a simplified comparative table of the relevant figures, and provide it to the Court not less than 14 days before the hearing; with that exception, there will be no further affidavit evidence, or submission of extracts of evidence or transcripts from the hearing, without leave of the Court hearing the appeal. The costs of this application will be reserved to the Court hearing the appeal.  The parties are asked to agree a form of order to give effect to this judgment.