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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Leeside International Inc & Anor, R (on the application of) v London Borough of Tower Hamlets [2009] EWHC 325 (Admin) (02 March 2009) URL: https://www.bailii.org/ew/cases/EWHC/Admin/2009/325.html Cite as: [2009] EWHC 325 (Admin) |
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ADMINISTRATIVE COURT
Strand, London, WC2A 2LL As at Cardiff Crown Court |
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B e f o r e :
____________________
The Queen (on the application of (1) Leeside International Inc and (2) Mr MJ Hunt) |
1st Claimant 2nd Claimant |
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- and - |
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London Borough of Tower Hamlets |
Defendant |
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- and - |
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South Quay Properties Limited |
Interested Party |
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Mr T Straker QC, Mr C Buttler (instructed by Miss I Freeman of LB Tower Hamlets) for the Defendant
Mr D Elvin QC and Mr R Taylor (instructed by Ashurst LLP) for the Interested Party
Hearing date: 12 February 2009
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Crown Copyright ©
PITCHFORD J :
The Parties
The Proceedings
The Planning History
Compulsory Purchase Order
"(1) A local authority to whom this section applies shall, on being authorised to do so by the Secretary of State, have power to acquire compulsorily any land in their area –
(a) if the authority think that the acquisition will facilitate the carrying out of development, re-development or improvement on or in relation to the land;
(b) which is required for a purpose which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated.
(1A) But a local authority must not exercise the power under paragraph (a) of subsection (1) unless they think that the development, re-development or improvement is likely to contribute to the achievement of any one or more of the following objects –
(a) the promotion or improvement of the economic well-being of their area;
(b) the promotion or improvement of the social well-being of their area;
(c) the promotion or improvement of the environment well-being of their area."
Grounds of Claim
(1) The defendant based its decision upon a material error of fact, namely that the claimants were "refusing to negotiate the surrender of their leases for market value";
(2) The defendant neglected to take account of a material consideration, namely that there was no certainty whether and when the scheme would be implemented;
(3) The defendant neglected to take account of a material consideration, namely that the principal benefit the defendant sought to secure under section 226(1) (the provision of a training centre within the development) would not or might not attach to the land.
Grounds of Resistance
Ground 1: Refusing to Negotiate
"3.1 The Canary Wharf business district has been growing very quickly over the past few years. Already there are well over 100,000 jobs located on the estate; this is expected to increase by at least 50% in the next ten years…It is now an important retail centre, and increasingly new occupiers on the estate are not just banks and financial services but major legal firms.., media companies, multi-national business corporation such as KPMG and public agencies such as the Olympic Delivery Authority.
3.2 Overall, the Canary Wharf business district has become essential in creating prosperity in East London and the Thames Gateway. Increasing numbers of Tower Hamlet's residents are working in the Business District; employment of local people has improved…
3.3 The Canary Wharf business district and its scope for expansion is similarly critical to the future economic position of London as a whole…
3.4 There are nonetheless some barriers to Canary Wharf's continuing success. The first is accessibility…
3.5 Another barrier…is the supply of well qualified, local labour. A business district on the scale of Canary Wharf needs an ongoing supply of labour to meet all its needs, from top traders, lawyers, highly specialised technical support staff, through the skilled administrators and retail assistants to security staff, cleaners and caterers….Finding ways of addressing the skills shortage is of critical interest to the Council, but also of importance to Canary Wharf if the business district is to fulfil its potential.
3.6 The final barrier is the supply of developable land. Canary Wharf Group has a number of extant planning permissions, but needs to upgrade them to meet the requirements of modern occupiers. The number of sites that it has entirely within its own ownership, however, is now limited. The business district needs room to grow. Canary Wharf Group must work in partnership with the borough and with other landowners to achieve that growth. It is in a joint venture with British Waterways Board to bring forward Wood Wharf. It is working with the Council to produce the masterplan for Aspen Way that might – subject to its acceptability to the Council and other landowners – provide an opportunity for further joint ventures to the north.
3.7 Heron Quays West is a site of 0.65 ha located on the middle dock, just to the west of Heron Quays DLR station. It is currently occupied by low rise commercial buildings known as the Red Sheds. One of these is currently occupied by the Canary Wharf Recruitment and Training Centre, which…is on a short term peppercorn rent from Canary Wharf Group. Canary Wharf Group has a longstanding LDDC consent for a large floor place office building on the site, but has just secured a resolution to grant detailed planning consent…for a greatly enhanced development to a much better…design and specification, plus a replacement, purpose built training and enterprise centre incorporating a training restaurant (the "Scheme").
3.8 However, the site is not currently in the full ownership and control of Canary Wharf Group. Part of the site is occupied under two long commercial leases by third parties who are refusing to negotiate the surrender of their leases for market value to Canary Wharf. This is frustrating the delivery of the Scheme, including the new training and enterprise centre…
3.9 If negotiations for the acquisition of third party interests cannot be concluded within a reasonable timescale, then the only way that the Scheme can proceed is if compulsory purchase (CPO) is used to assemble the site. Private companies such as Canary Wharf Group do not have compulsory purchase powers, and therefore they have sought the assistance of the Council, who do have such powers.
3.10 While Canary Wharf Group is seeking the Council's assistance, the full costs of any CPO and compulsory purchase compensation, including all staff costs and the costs of technical expertise, would have to be met by Canary Wharf Group, and this would have to be secured through a binding contract." [emphasis added]
At paragraph 6 the officers' report gave examples of circumstances in which a CPO may be used and informed Cabinet that they proposed a CPO in the present case "to unlock situations where a scheme is being blocked by an owner (or owners) unwilling to dispose of property either at all or only at a price considerably in excess of market value, a ransom situation".
Negotiation for Sale of Site
"TM explained that CBRE were advising Canary Wharf on the opportunities for Heron Quays generally and that they were now interested to see whether he wished to sell his interest prior to making a decision on the way forward…
MG confirmed he had seen a model of Canary Wharf's proposals and he could see that "his land formed the road". He was thus not interested in selling for the "basic value of the property" but was a willing seller at the right price which showed a gain to reflect its importance to the overall development…
TM said that CW were reviewing their plans and that whatever he had seen was historic and that CW were looking at an option which excluded Number 8 for example…
MG…stated again that he saw this as his ransom site, that he had bought it for this reason only as he had done at Euston Station where he owned an interest which was the key to the development…"
"You cajoled me into putting forward a counter offer which I resisted. It was resisted as we are still undertaking our investigations. The presentation you made has significantly assisted us and I am with Michael in the United States next week and I would like to reach a consensus before returning to you.
To meet your desire for an urgent response, I asked you for the following information/clarification:
1. You stated your client had had preliminary discussions with Tower Hamlets about the promotion of a compulsory purchase order for either or both units 7 and 8…" [emphasis added]
"…We should clarify that compulsory purchase is only an option open to Canary Wharf. This is important as it may not be the preferred route. Canary Wharf would clearly prefer not to pursue a compulsory purchase route for obvious timing reasons if we can negotiate with the owners. The current scheme has been designed so that numbers 7 and/or 8 are not required at all and that may be the ultimate outcome. Should, however, it be decided that the buildings are required and a CPO is pursued, you should understand that the price payable will be assessed under statute and that this is likely to be less than our client's offer…"
"…since you asked me to correspond directly with you I would kindly ask you to confirm that my understanding of your position is correct in that you do not wish to consider a premium over the market values of your units and that you are viewing the units as a ransom strip for which you would seek £50m. I want this clarified so I can present it to the Board in order to see if the Board will authorise a counter proposal."
"…I am writing to you at your request to confirm our position as regards [7 and 8 Heron Quays].
This is as follows:
1. You approached myself and Mr Hunt with a request to purchase the properties.
2. You explained to us your development proposals for Heron Quays.
3. You repeated on a number of occasions that you were fully able to proceed with the development and the proposals as outlined to us without recourse to our properties, but preferred to buy them because it was easier and more cost effective to achieve your development objectives by including those properties in the scheme.
4. You made it clear that if we did not agree a price you would merely develop the properties on the north side of the quay and divert the road towards the south side.
5. You indicated that you were prepared to offer a price based on a 50% premium to an unspecified valuation of those properties.
6. We believe but I am not sure that the figure represented by this formula was in the region of £4m-£5m per property.
7. You stated that you intended to apply for planning permission following your Board Meeting in December and we had a short window of opportunity to accept your proposal and if we didn't you would proceed regardless.
8. We rejected that proposal as of being of no interest to us.
9. We indicated that the level at which we would be prepared to treat was £25m per property, ie a total of £50m.
10. You said at that level you were happy to proceed without including our properties in the scheme and that we should remain "good neighbours", a sentiment which I endorsed.
11. You indicated that you would come back with your best offer but rather curiously added that I could then make my counter offer.
This represents my understanding of the position. I trust this will enable you to go back your Board."
Review of Decision
"My clients discovered by chance on Wednesday this week that a decision had been made by the London Borough of Tower Hamlets to authorise the making of a compulsory purchase order…
In the event that your Council proceeds on the basis of the Cabinet decision last week I am instructed by my clients to issue proceedings seeking Judicial Review.
I would draw your attention to paragraph 3.8 of the Officers' Report…[paragraph 13 above]
There have been no negotiations between the Canary Wharf Group and my clients in relation to the present scheme PA/07/3088 as was considered by the Strategic Developments Committee of your Council on 13 March this year. The last time our clients were approached by Canary Wharf Group both numbers 7 and 8 were outside the proposed scheme…
Had your Members been advised of the true position as regards negotiations between Canary Wharf Group and my clients it is clear that there would be no basis for them to authorise Compulsory Purchase. I would draw your attention to paragraph 24 of Circular 6/04 which states that Compulsory Purchase should be a "last resort" and paragraph 17 where it states that CPO should only be made where there is a "compelling case"…"
"Before embarking on compulsory purchase and throughout the preparation and procedural stages, acquiring authorities should seek to acquire land by negotiation wherever practicable. The compulsory purchase of land is intended as a last resort in the event that attempts to acquire by agreement fail. Acquiring authorities should nevertheless consider at what point the land they are seeking to acquire will be needed and, as a contingency measure, should plan a compulsory purchase timetable at the same time as conducting negotiations. Given the amount of time which needs to be allowed to complete the compulsory purchase process, it may often be sensible for the acquiring authority to initiate the formal procedures in parallel with such negotiations. This will also help to make the seriousness of the authority's intentions clear from the outset, which in turn might encourage those whose land is affected to enter more readily into meaningful negotiations."
The Competing Arguments
"…I cannot accept that there is any real ground in the present case for assuming that the opportunity which they will have as objectors to the compulsory purchase order puts the applicants at any disadvantage, or means that the real issues will not be considered. On the contrary, I am satisfied that they can and will be, and that the present is plainly a case in which the existing statutory mechanism is an appropriate alternative to which recourse should be had...I find no real evidence that the applicants' position, so far as raising finance is concerned has been prejudiced, or the blighting argument established."
Ground 2: Lack of Certainty in Timing of Development
"The section 106 includes £3,178,000 towards social and physical infrastructure. As with the Riverside South development there are a wide range of mitigation projects the Council considers as necessary arising from the Heron Quays West development. However, given the uncertainties over the timing of the development and in particular the fact that the development may not be completed for a number of years, it is not possible to define these projects in detail at this stage. To this end the Council is seeking 'an additional contribution for social and physical infrastructure' of £3.178m which equates to the equivalent per sq. m. 'additional contribution' that has been agreed for Riverside South. In line with similar developments elsewhere within the Canary Wharf estate the projects/improvements would be defined under specific headings within the section 106 agreement, these being:
- Sustainable transport initiatives…
- Heritage and culture…
- Environmental improvements within and around the site; and
- Provision of affordable flexible business space; to assist small/start-up businesses within the Borough."
"…in the event that the Date of Practical Completion…is not likely to occur prior to the Back Stop Date the Landlord shall provide the Tenant with the Alternative Premises…prior to the back Stop Date…"
The "Alternative Premises" are defined in clause 8 of the agreement. They were to be provided within the Business District within reasonable walking distance of the transport facilities serving that district.
The Competing Arguments
"The timing of the availability of funding is also likely to be a relevant factor. It would only be in exceptional (and fully justified) circumstances that it might be reasonable to acquire land where there was little prospect of implementing the scheme for a number of years. Even more importantly, the confirming Minister would expect to be reassured that it was anticipated that adequate funding would be available to enable the authority to complete the compulsory acquisition within the statutory period following confirmation of the order. He may also look for evidence that sufficient resources could be made available immediately to cope with any acquisition resulting from a blight notice."
"The Cabinet Committee was not provided with information of CWG's financial position, but would have been well aware of the scale of CWG's operations and its record in delivering development at Canary Wharf. The scale of the Canary Wharf estate is obvious to Councillors, because it is on the doorstep of the Council's offices and it is well known that CWG is the driving force behind the Canary Wharf estate…I note from the witness statement of Mr Iacobescu, CEO of CWG that in June 2007 CWG held audited net assets of more than £3 billion."
"6. …This is in line with CWG's continuing policy to anticipate demand rather than respond to short term changes in the development cycle. CWG have historically advanced the preliminary stages of developments on the Estate irrespective of the short term market conditions, such as the development of the Estate which occurred in the early 1990s when we developed three buildings (FC2, FC3 and FC6) comprising over 1.3 million square feet in advance of identifying any significant occupiers. As a result of the development, Canary Wharf was in a position to respond to future demand and these buildings were substantially or fully let in or around 1995.
7. …even in the current market conditions Canary Wharf is still experiencing demand for large office space, evidenced not only by JP Morgan's acquisition of 1.9 million square feet of office space at the Riverside South development, but also by the recent subletting of over 350,000 square feet of office space formerly occupied by Lehman Brothers."
Ground 3: Accrual of Public Benefit
"4.1 In addition to the general improvements the Scheme will secure to the economic, social and environmental well-being of the borough (see sections 5-7 below and Appendix C), the Council will realise substantial direct benefits through the agreement to use its CPO powers to facilitate the delivery of the Scheme.
4.2 The provision of a permanent training and enterprise centre in Canary Wharf will be a huge benefit to the economy of the borough…Canary Wharf will benefit from the redevelopment of the site and the employment skills training to fill jobs.
4.3 The key benefit that the Council is directly seeking is the provision of a training and enterprise centre, to include a specialist training restaurant, constructed and fitted out to the Council's own specification set out in Appendix B1 and B2, at a peppercorn rental for 35 years (with a right to renew for a further term) plus a substantial contribution via a ring fenced endowment of £5 million towards the overall costs of running that centre…
4.4 …
4.5 The benefits accruing to the Council as a result of resolving to use compulsory purchase powers to facilitate the Scheme are over and above those that would occur if the Scheme were to proceed without the exercise of such powers. The redevelopment of Heron Quays West will necessarily involve the demolition of the Red Sheds and therefore the current recruitment and training facility temporarily located in the Red Sheds will be lost. There is no existing obligation on Canary Wharf Group to re-house the training facility as the buildings are occupied on a short term lease. The Council could seek some financial contribution towards a replacement through the planning obligations on the redevelopment of the site – contributions to skills and training initiatives is a standard benefit. However, under s.106 obligations all contributions must be relevant in scale and kind and the size of a contribution to skills and training would have to be assessed alongside the other contributions required (in the case of a commercial building) for transport, public realm, public art, health etc. The scale of the contribution would relate only to that building, not to the wider Business District and would be significantly less than what is offered under the agreement for lease referred to in paragraph 4.6 below. Moreover, s.106 contributions are "triggered" at specific points in the development process. If development does not proceed (perhaps due to the frustration being caused to land assembly) then s.106 contributions are not paid.
4.6 An agreement for lease between the Council and Canary Wharf Group has been negotiated and is the agreed form. The agreement for lease secures the provision of a state of the art new training and enterprise centre of 15,000 square feet within 7.5 years, including a new training restaurant and a £5 million ring fenced endowment, giving an annual contribution (at present day rates) of approximately £250,000 per annum as a direct contribution to the costs of running the centre. The enhanced offer is in addition to the s.106 contributions that will be negotiated as part of the planning process.
4.7 Canary Wharf Group's obligations under the agreement for lease are subject to three conditions precedent, the first of which is the Council resolving to authorise the making of a compulsory purchase order under section 226(1)(a) of the 1990 Act. The resolutions sought by this report will satisfy this condition. The remaining two conditions precedent are the grant of planning permission free from legal challenge and the acquisition by Canary Wharf Group of all necessary land (whether or not by compulsory means) with vacant possession."
The Competing Arguments
"(i) the enhancement of the existing Canary Wharf Estate;
(ii) the economic regeneration of the area through substantial job creation;
(iii) the provision of commercial, retail and community uses;
(iv) the provision of additional public realm space and increased pedestrian permeability;
(v) the enhancement of the dock environment."
Appendix C proceeded to describe the detail of the factors identified.
Conclusions
Ground 1
Ground 2
Ground 3
Alternative Remedy