Compulsory Purchase Costs: Indemnity Costs Awarded

A recent Upper Tribunal decision has provided important guidance on Compulsory Purchase Order costs (CPO Costs), after a local authority was ordered to pay costs on the indemnity basis following a dispute over compensation for compulsorily acquired land.

In Samra & Anor v Sandwell Metropolitan Borough Council, the landowners ultimately secured compensation of £547,000, considerably more than the £250,000 offered by the council. The claimants had previously offered to settle for £425,000 plus £100,000 towards their costs.

The subsequent award of costs is particularly noteworthy. The Upper Tribunal concluded that indemnity costs were appropriate without needing to determine whether the council’s conduct of the litigation had been unreasonable.

With £293,284 in costs now subject to detailed assessment and the council ordered to make a £150,000 payment on account, the decision highlights the potentially significant legal costs involved in disputes arising from compulsory acquisition.

What happened in Samra v Sandwell Council?

The dispute concerned land compulsorily acquired in 2014 by Sandwell Metropolitan Borough Council. The landowners pursued a claim for compensation following the acquisition. During the proceedings, they offered to accept £425,000 in compensation together with £100,000 in costs.

The acquiring authority countered with an offer of £250,000 plus £21,242 towards costs. The compensation eventually awarded by the Upper Tribunal was £547,000, meaning the landowners comfortably exceeded both the council’s offer and their own proposed settlement figure.

Attention then turned to the costs of the proceedings. The claimants sought indemnity costs totalling £293,284. The council argued that indemnity costs should be exceptional and also disputed allegations that its approach had been unreasonably obstructive.

However, the tribunal concluded that it did not need to determine the conduct issue before deciding the appropriate basis of assessment.

Why are compulsory purchase costs different?

Compulsory purchase orders allow certain public bodies to acquire land without the owner’s agreement where the necessary statutory requirements are satisfied. A local authority, for example, may use compulsory purchase powers as part of a regeneration, infrastructure or development project.

The compulsory purchase process contains various safeguards. Depending on the circumstances, objections can result in a public inquiry, and an order may require confirmation by the Secretary of State or another confirming authority.

Once the relevant powers become exercisable, the process for taking possession can include service of a notice of entry, although other mechanisms for completing a compulsory acquisition may also be available. Because an owner is not voluntarily choosing to sell, compensation is governed by a body of legislation and case law commonly referred to as the compensation code.

Its purpose is broadly to ensure that a person whose property is compulsorily acquired receives appropriate compensation for the consequences of that acquisition.

The principle of equivalence and legal costs

An important issue in Samra was the principle of equivalence. The claimants relied on the reasoning in National Roads Authority v Bodden, a Cayman Islands case considered by the Court of Appeal. The principle is that a landowner affected by compulsory acquisition should, so far as money can achieve it, be placed in an equivalent financial position to that which they would have occupied had their land not been compulsorily acquired.

That principle is particularly relevant where a landowner has had to incur significant professional costs simply to establish the appropriate level of compensation.

The tribunal noted that the acquiring authority had not identified a sufficient reason to depart from the rationale applied in Bodden.

This led to the significant conclusion that indemnity costs could be appropriate without first establishing unreasonable litigation conduct by the council.

Does an indemnity costs order mean all costs will be recovered?

No. This is an important distinction, particularly given the £293,284 claimed in this case.

An award of costs on the indemnity basis gives the receiving party a more favourable position than assessment on the standard basis.

On the standard basis, costs must be reasonable and proportionate, with doubts generally resolved in favour of the paying party. On the indemnity basis, proportionality does not operate in the same way and doubts as to reasonableness are generally resolved in favour of the receiving party.

However, that does not mean every item within a bill is automatically recoverable. Costs that were unreasonably incurred or are unreasonable in amount may still be reduced or disallowed.

The £293,284 claimed by the landowners will therefore be subject to detailed assessment.

Council ordered to pay £150,000 on account

Although the final amount remains to be assessed, the tribunal ordered the council to make an advance payment of £150,000 towards the costs within 28 days.

Strictly speaking, this is a payment on account of costs rather than an advance payment of compensation, but both concepts demonstrate how significant interim payments can be during compulsory purchase proceedings.

Under the wider statutory regime, a claimant may also be entitled to seek an advance payment of compensation before the final amount of compensation is determined. Ultimately, when compensation is paid, the amount available to the landowner may involve several different heads of claim depending upon the circumstances.

Alongside the value of the land itself, the compensation code can provide for matters such as disturbance and, where the statutory requirements are met, loss payments.

This is one reason obtaining appropriate professional advice at an early stage of the compulsory purchase process can be important.

What does Samra mean for acquiring authorities?

The decision should also be considered carefully by any acquiring authority seeking to acquire land through statutory powers. The difference between the competing figures in Samra was substantial.

The council offered £250,000 compensation. The landowners offered to settle at £425,000. The tribunal ultimately awarded £547,000.

The case therefore demonstrates the potential consequences of failing to reach a reasonable settlement in a compulsory purchase compensation dispute.

This is not simply about the final compensation figure. Where litigation is required to establish adequate compensation, the resulting legal and professional costs can themselves become significant.

Settlement strategy should therefore take account of potential costs exposure as well as the value of the underlying claim for compensation.

Our commentary

What makes Samra v Sandwell Council particularly interesting from a costs perspective is the route by which the tribunal reached the indemnity basis.

In many civil cases, applications for indemnity costs focus heavily on the losing party’s conduct. The receiving party may argue that the opponent behaved unreasonably, pursued hopeless allegations, rejected reasonable settlement proposals or otherwise conducted the litigation in a way that takes the case “out of the norm”.

Samra is different, however. Although there was an argument about whether the council had been unreasonably obstructive, the tribunal did not need to resolve that issue to determine the appropriate basis of costs.

Instead, the nature of compulsory acquisition and the principle of equivalence were central.

For practitioners, the distinction is significant. A landowner who has had property taken through compulsory purchase powers and then has to litigate to establish adequate compensation is in a very different position from an ordinary party voluntarily entering commercial litigation.

However, the indemnity basis does not end the costs dispute. With almost £300,000 claimed, the detailed assessment process will determine what is actually recoverable.

How ARC Costs can help with compulsory purchase costs

Compulsory purchase compensation proceedings can generate substantial legal costs, particularly where valuation evidence, expert evidence, negotiations and tribunal proceedings extend over a significant period.

ARC Costs can assist solicitors and parties with the costs aspects of complex and high-value disputes, including the preparation of Bills of Costs, Points of Dispute and Replies, costs negotiations, payments on account and representation through the detailed assessment process.

We act for both paying and receiving parties and regularly deal with disputes involving indemnity costs and substantial legal bills.

The decision in Samra v Sandwell Metropolitan Borough Council is an important reminder that obtaining an order for costs is not necessarily the end of the matter. Where hundreds of thousands of pounds are claimed, the subsequent assessment can be a significant dispute in its own right.

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