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On 12 May 2010, the UK Supreme Court delivered judgment in R (Sainsbury’s Supermarkets Ltd) v Wolverhampton City Council & Anor [2010] UKSC 20, ruling that it was unlawful for Wolverhampton City Council to take into account the cross-subsidising financial benefits from developing one site (the Royal Hospital site) when deciding whether or not to make a compulsory purchase order over another site (the Raglan Street Site).

This case draws back on the widely framed powers available to planning authorities to make CPOs, as cross-subsidy of this sort is a common regeneration scenario.   It raises for perhaps the first time the controversial issue of the extent to which a local authority can take into account off-site benefits when resolving to progress a CPO.

The appeal related to the Council’s use of powers under section 226 of the Town and Country Planning Act 1990 which permits compulsory acquisition where an authority considers that the acquisition will facilitate development which will contribute to the well-being of the overall area.

Sainsbury’s owned 86% of the Raglan Street site and Tesco owned the remainder.  Both wanted to build supermarkets there, but required the Council to make a CPO on the other’s land.  The Council chose Tesco because it promised to regenerate the separate Royal Hospital site.  It was an established objective of the Council to regenerate this site.

Sainsbury’s challenged that decision.

Both the High Court and Court of Appeal ruled in favour of Tesco and the Council.  However, in a close decision which was 4:3 in favour of Sainsbury’s, the Supreme Court overturned those rulings, holding that it was unlawful for the Council to take the Royal Hospital site into consideration.

Giving the lead judgment, Lord Collins confirmed that the principles derived from cases concerning what can be lawfully taken into account when determining planning applications apply equally to compulsory purchase cases.  It was therefore legitimate for a local authority to take into account the “off-site” benefits of a proposed development provided that such benefits are related to or connected with the development itself.  However, a stricter approach than normal is appropriate because of the serious invasion of proprietary rights involved in compulsory acquisition.

In the circumstances, the only connection was that the Council was being tempted to facilitate one development because it wanted another.  To put it another way, Tesco was being tempted to undertake a commercially unattractive development to secure the opportunity to pursue the commercially attractive development which it really wanted.  In those circumstances, the claimed financial connection between the two sites was not a relevant consideration.

This judgment is likely to have far-reaching consequences.  It is now clear that the exercise of CPO powers is not the same as the exercise of development control powers.  A close connection must be shown to exist between any “off-site” benefits and the development for which the compulsory acquisition is sought.