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What You Will Get in COMPENSATION

13th December 1946
Page 33
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Page 33, 13th December 1946 — What You Will Get in COMPENSATION
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Which of the following most accurately describes the problem?

ISUPPOSE one's second reaction, after a feeling of infuriation at 'he whole idea of compulsory .expropriation, is, "Well, what do I stand to get out of it?" The compensation provisions of the Transport Bill are very detailed, and only a bare outline of the main points can be covered in the space of this article.

To start with, it must be assumed that the Commission has served a valid notice of acquisition under Part III of the Bill, specifying the date of transfer. Compensation is payable, under Clause 48, on four main counts.

(I) Cost of Vehicles.—The basis is the cost, at the date of transfer, of replacing each vehicle with a new one of similar type, but subject to two adjustments; first, a deduction for depreciation at 20 per cent. per annum on the reducing values, starting with the replacement cost; and, second, an increase or deduction for maintenance, being the difference between the second-hand value of the particular vehicle and the secondhand value of a normal vehicle of the same age and type.

Less than Market Value

For example, suppose that a vehicle, three years old, has a second-, hand value of £420, and that a new replacement costs £500. If a normal second-hand vehicle of the same age and type costs £400, the following figures will apply:—

Basic compensation ... 500

Less 3 years' depreciation:

1st year 100 2nd year 80 3rd year ... 64-244 On these figures the compensation would be £276 for a vehicle worth £420 on the market. So long as the second-hand value of a normal vehicle exceeds the value of the "replacement less depreciation," the operator will loss; and only if the first be less than the second will he gain. .■2) Value of Other Property.—For all other property passing to the Commission (i.e., owned by the operator and held for the purposes of the undertaking), compensation is to equal the estimated open market price as if the Bill had not passed. Land and buildings, for example, should pass on current values—not the 1939 value plus 60 per cent., as is usual with other compulsory acquisitions. This provision relates only to property, and not to contracts. This measure of compensation has been used in many other cases, and does not appear to call for further comment.

(3) Compensation for Total or Partial Cessation of Business.— Under this head the Commission is to pay "such sum, if any, as may be just, calculated by reference to the average net annual profit as defined in the Seventh Schedule and being not less than twice or more than five times the said average net annual profit."

The first point is the average net annual profit, which is explained (?) in the seven paragraphs of the Seventh Schedule.

Take the last three complete financial years of the undertaking (the last one ending in the 12 months before the date of transfer), and find out the profit or loss in each, after allowing " just " deductions for wear and tear and replacements. Then adjust the amount of profit or loss "justly," having regard to the extent and nature of the property held in each year, as compared with the nature and extent of the property being transferred to the Commission.

Add up the remaining profits and the losses, subtract losses from profits, and divide by three. Now take one year's interest on the property falling under Headings (1 (Cost of Vehicles) and (2) (Value of Other Property) above at a rate to be determined by the Treasury. The average net annual profit is the amount, if any, by which this one year's interest is exceeded by the result of the previous calculations. (No, this is not Puzzle Corner!) Exercise in Arithmetic It is difficult to make a realistic example to fit this problem, but let us try. Suppose that in the financial years 1945-46-47 gross profits were £200, £500, and £1,000 respectively. Wear and tear accounted for, say, £100 a year (ignoring the " just " for a moment) and replacements £150 in 1945 and 1946, and £500 in 1947.

This gives a loss in 1945 of £50, a profit in 1946 of £250, and a profit in 1947 of £400. If the property being transferred be the same as that held in all three years, add the profits (£650), take away the loss ow and divide the result (£600) by three (£200). If the value of property transferred be, say, £5,000, interest at, for example, 2f per cent. would yield £125, so the average net annual value would be £75.

If the rate of interest fixed by the Treasury were 5 per cent., the average net annual value would be nil (£200 minus £250). As the Treasury may regard road transport as a somewhat hazardous occupation, 4 per cent. or 5 per cent. might well be fixed; there is no guide laid down. How about the adjustment for the value of property transferred? Sup-. posing the operator's profits are earned by two vehicles, which he keeps in someone else's garage, so that they represent virtually the whole of the property to be transferred, and supposing one of them crashes just before the date of transfer: is the average net annual value to be halved?

Or, to take the example above, if the operator has acquired a new vehicle at the beginning of 1947, are the profits in 1945 and 1946 to be adjusted upwards? The wording is so vague that no certain answer can be given, but it appears to be " yes " to both questions. It turns on what is meant by "just."

The Three "Just" Men

Not unnaturally, there is no definition of " just " in the Bill. It has a meaning only by reference to Clause 112, whereby all questions in which the Commission is a party as to whether any or what sum is payable by way of compensation, have to be referred to the Transport Arbitration Tribunal. This Tribunal is a completely independent body appointed by the Lord Chancellor and the Lord President of the Court of Session Evidently it is for the members of the Tribunal to decide what is " just " in, at any rate, three quite different contexts, with little to guide them and a wide variation of result.

This brings us back to themain heading again. We now know (or do we?) the average net annual profit. We have just seen what is meant by " just." We are left with the "two to five times" by which we are to multiply.

Payment by Hypothesis

In deciding which multiplier to use, regard is to be had to the likelihood or otherwise that profits on the net annual value basis might have been maintained if it were not for the Act. It is a novelty, as far as I am aware, for the amount of compensation to be determined by a future 'hypothetical state of affairs.

The Tribunal—as it is on that body's shoulders that decision ultimately falls under the Bill as now drafted—must determine whether a boom or a slump looms ahead, whether an improvement in supplies of petrol and vehicles might be expected—indeed, all the thousands of possibilities that make up the future.

If the criterion were the potential earning power of the undertaking as it was at the date of transfer, vague as that would be, it would have some relation to an existing provable fact. Unless something more precise is laid down, settlement of laims can only await the building up of a code of case law as a result of all the early claims being fought on principle. Very nice for the lawyers, but not " justice."

(4) Compensation for Severance.— To come under this head, an operator must satisfy all of four conditions. (1) His activities must consist partly of the business transferred and partly of other activities. (2) He must continue those other activities after the date of transfer. (3) The proportion which overheads bear to his whole expenses after the date of transfer must be greater than before that date, by reason of the transfer. (4) He must also be unable reasonably to avoid that increase.

The measure of compensation is the amount fairly representing the increase over five years from the date of transfer.

An obvious example is the case where e haulier, who loses his vehicles, is left with a retail garage on his hands. The cost of running the garage remains the same, although part of it can no longer be recovered in haulage charges. The proportion of that cost to his now reduced expenses is greater, and should be compensated.

The rehiaining heads in Clause 48 are really points on settling outstanding assets and liabilities, rather than true compensation.

It remains to call attention to Clause 111. Mention has already been made of Clause 112, under which disputes have to be settled by the Transport Arbitration Tribunal. But even if no dispute arises, and claims are agreed, where the amount of compensation exceeds £20,000, the settlement must be confirmed by the Tribunal The Tribunal is not to confirm the settlement unless satisfied (a) that the parties believe, after full investigation, that the settlement represents the strict application of the Act; or (b) that it represents a reasonable estimate, and investigation would cause undue delay or expense; oi (c) that it represents a reasonable compromise of a disputed claim.

It may be added, in conclusion, that compensation will be paid in stock in the British Transport Commission., except that in cases under £2,000 the claimant may require cash instead.


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