UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2010] UKUT 30 (LC)

LT Case Number: ACQ/14/2007

                                                                                                                                                     

                            TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

COMPENSATION – compulsory purchase – travel agency and foreign exchange business – abortive move followed by double relocation – temporary loss of profits – directors’ and staff time – admissibility of late evidence – interim decision                                                                                                                                

                                 IN THE MATTER OF A NOTICE OF REFERENCE

                                                                             

BETWEEN                                   T.E.B. TRAVEL LIMITED                                  Claimant

                                                                           and

                                          THE SECRETARY OF STATE FOR THE                    Acquiring

                                     ENVIRONMENT, TRANSPORT AND THE REGIONS   Authority

Re: 1-2 St Pancras Station Forecourt

Euston Road

London NW1 2QN

                                                         Before: A J Trott FRICS

                                Sitting at the Principal Registry of the Family Division,

                                           First Avenue House, 42-49 High Holborn,

                                                             London WC1V 6NP

                                                      On 22 to 24 September 2009

Richard Harwood, instructed by Hammonds LLP, for the claimant

John Male QC, instructed by Cripps Harries Hall LLP, for the acquiring authority

The following cases are referred to in this decision:

D B Thomas and Son Limited v Greater London Council [1982] 1 EGLR 197

Pearl Wallpaper Holdings Limited v Cherwell District Council [1977] 2 EGLR 166

                                                           INTERIM DECISION

Introduction

1. This is a reference to determine the compensation payable to the claimant, TEB Travel Limited, following the compulsory acquisition of 1-2 St Pancras Station Forecourt, Euston Road, London NW1 2QN (the reference land).  The acquiring authority is the Secretary of State for the Environment, Transport and the Regions. 

2. The claimant ran a travel agency and foreign exchange business from the reference land.  It held the premises under a 15 year lease commencing on 30 September 1985.  The claimant was holding over under the lease when the acquiring authority took possession on 5 March 2001 (the valuation date).  The scheme underlying the acquisition was the Channel Tunnel Rail Link (CTRL) and the premises were acquired to facilitate the construction of the western ticket hall at St Pancras Station. 

3. It was agreed that compensation would be assessed on the basis that the claimant would relocate its business.  The original plan was for the claimant to move temporarily into 23-27 Pancras Road.  It took a six months lease of these premises from 17 February 2000 and fitted them out ready for occupation.  But due to delays to CTRL the claimant was able to remain at the reference land until the valuation date.  The claimant did not move to 23-27 Pancras Road but instead moved by agreement to 27 Euston Road, again on a temporary basis, pending a permanent move to the adjoining premises at 25 Euston Road.  No.25 was not expected to be available until March 2002 but in the event the claimant was unable to occupy it until 13 March 2006 due to delays to the landlord’s redevelopment of the whole property of which No.25 formed part.    

4. The parties have agreed the majority of items of the compensation claim, including the disturbance costs of the abortive move to 23-27 Pancras Road, the temporary relocation to 27 Euston Road and the further move to 25 Euston Road.  They have also agreed compensation in respect of excess rent at 27 Euston Road (the claimant being unable to make beneficial use of the whole of the accommodation that it leased) and professional fees.  There are two items still in dispute; loss of profits of the business and compensation for directors’ and staff time incurred in connection with the moves. 

5. Mr Richard Harwood appeared for the claimant and called Mr David Stern FICA, MCIA, a partner in Vantis, as an expert accountancy witness and Mr David Feeley and Mr Nicholas Antoniou, both directors of the claimant company, as witnesses of fact. 

6. Mr John Male QC appeared for the acquiring authority and called Mr David Epstein FICA, AIT, Director of Forensic Accounting at Haslers, as an expert accountancy witness. 

Facts

7. The reference land is located at the junction of Euston Road and Pancras Road immediately south of St Pancras Station.  It comprised a ground floor shop, offices and storage accommodation and shared WC facilities with the neighbouring newsagent.  The entrance was onto Pancras Road but there was a display frontage to Euston Road.  The agreed area of the property was 850 sq ft including the kitchen (991 sq ft including the shared accommodation). 

8. 27 Euston Road is located on the opposite (southern) side of Euston Road to the reference land and is almost directly opposite Pancras Road.  The claimant used it as temporary accommodation from March 2001 until March 2006.  It comprised a ground floor and basement shop.  The claimant did not use the basement (1,300 sq ft) or the rear part of the ground floor (310 sq ft).  The ground floor area that it occupied amounted to 1,093 sq ft.  25 Euston Road (which adjoins No.27 to the east) is a shop unit on ground (390 sq ft) and first floor (311 sq ft) levels. 

9. The claimant’s business was divided into two parts, travel agency and foreign currency exchange/money transfer.  Both parts of the business comprised corporate and retail customers.  It is agreed that the corporate travel agency business was unaffected by the acquisition (it being mainly conducted remotely via telephone, fax, internet or e-mail).  The retail (private) aspect of the business involved customers visiting the premises to make bookings or to change or transfer money.  The claimant experienced an unusual level of Romanian currency transfer between 1998 and 2007 which declined after Romania joined the European Union.  The claimant accepts that there was no decline in the Romanian business following the acquisition of the reference land and that it was unaffected by the scheme.  The claim for loss of profits is therefore limited to the retail travel agency part of the business and to the foreign exchange business excluding the Romanian transactions.  There is no claim for permanent loss of profits, the claimant arguing for temporary loss of profits between 2002 and 2008 inclusive.   

10. By the time of the hearing the parties had agreed various heads of claim in the sum of £309,935.  The outstanding difference between the experts was in respect of the claim for temporary loss of profits which Mr Stern estimated to be £516,115 and Mr Epstein £7,630.  The difference in respect of the other outstanding item, directors’ and staff time, was much smaller; Mr Stern estimated it to be £8,328 and Mr Epstein £2,161. 

Late evidence

11. At the start of the hearing Mr Male applied for a supplementary report prepared by Mr Epstein on 21 September 2009 to be admitted in evidence.  The claimant objected to this application. 

12. Mr Male explained that Mr Epstein had written the supplemental report following receipt of the claimant’s accounts for the year ended 31 March 2009 on 17 September 2009.  Until Mr Epstein received those accounts he could not be certain of the effect of the opening of the new St Pancras International Terminal on the claimant’s business.  He had anticipated a positive effect in his expert report and in his rebuttal report he had said that the opening of the new terminal might lead to an unprecedented increase in the claimant’s (foreign exchange) profits arising from the increased footfall that it would generate.  This increase in turnover was apparent in the accounts for the year ending 31 March 2008 (four and a half months after the international terminal had opened).  The 2009 accounts had confirmed his view and he estimated that, subject to more detailed analysis, the benefits gained by the claimant in 2008 and 2009 were likely to continue in future years and would outweigh any foreign exchange losses suffered by the claimant as a result of the scheme. 

13. Mr Harwood argued that the acquiring authority should have raised the issue of enhanced business profits due to the scheme much earlier.  It had not been included in its reply and Mr Epstein had only referred to it in a very vague way in his report and rebuttal.  Mr Stern had not addressed the issue because there was no substance to the acquiring authority’s argument and in practical terms it was not a point before the Tribunal.  Mr Epstein could, and should, have raised the matter when analysing the 2008 accounts.  The claimant had not had the opportunity of considering the issue. 

14. I determined that Mr Epstein’s supplemental report should be admitted since the issue of enhanced profits due to the scheme had been raised in his earlier evidence (albeit vaguely) and could not reasonably be established by reference to the 2008 accounts alone.  I accepted that it was reasonable for Mr Epstein to see the claimant’s audited accounts for 2009 and that these had not been available until 5 days before the start of the hearing.  Neither party wished to adjourn the hearing.  Instead the preferred approach was for the Tribunal to hear all the evidence apart from that relating to the issue of enhanced foreign exchange profits due to the scheme and to reach a determination on as many issues as possible, eg on the loss of travel agency business and the claim for directors’ and staff time.  An interim decision would be given about the loss of foreign exchange profits and the parties would then be afforded the opportunity, should they so wish, of adducing further evidence regarding Mr Epstein’s supplemental report. 

Issues

15. There are three outstanding issues:

(i) The temporary loss of retail travel agency profits.

(ii) The temporary loss of foreign exchange profits.

(iii) Directors’ and staff time.

Issue 1:  Temporary loss of retail travel agency profits

Evidence

16. Mr Stern said that between April 1997 and March 2001 the claimant’s retail travel agency sales were stable, but from April 2001 to March 2008 there was a significant decrease in the number of monthly bookings.  In the year after the move to 27 Euston Road the number of retail bookings declined by 17.7% and their value by 30%. Corporate bookings, which the parties agreed were unaffected by the scheme, rose from April 2001 to March 2008.  Mr Feeley and Mr Antoniou described the differences between the reference land and 27 and 25 Euston Road in terms of footfall and trading potential.  Mr Stern said that it was reasonable to conclude that the move across Euston Road, to a different location with a lower level of passing trade and no history of a travel agency operating there, would have contributed to the decline in retail bookings which occurred after the valuation date.

17. Mr Stern recognised that the reduction in retail bookings could have been due to trends in the travel industry generally, but he could not find any data that related exclusively to sales by high street travel agents.  The results of the Office for National Statistics (ONS) Annual Business Inquiry were not helpful because they included data about online and corporate sales.  Instead Mr Stern used data provided by the Association of British Travel Agents (ABTA) about the decline in the number of members between 2001 and 2008; a “member” for this purpose being a head office.  (Each head office effectively represented a separate travel agency business with multiples such as Thomas Cook and independents such as TEB Travel both qualifying as one member.)  The ABTA data showed that the number of head offices had declined by 32.5% over the period.  Mr Stern considered it reasonable to assume that there was an approximate correlation between the number of travel agency businesses and the performance of individual travel agents and therefore assumed that, in the absence of the scheme, the claimant’s retail travel agency turnover would also have declined by 32.5% between 2001 and 2008.  This decline was due to external factors such as a decline in package holiday bookings, an increase in online transactions and a temporary fall in trade following 9/11.

18. Mr Stern then estimated the commission that the claimant would have earned in the no scheme world between 2002 and 2008.  He did this by taking 9.6% of the weighted average of the gross retail travel agency turnover for the years 1998 to 2001.  The figure of 9.6% was the average rate of commission for the years 2003 to 2008 and Mr Feeley confirmed that it was an appropriate figure to use for the earlier years.  The result was an expected annual commission of £80,763.  He then adjusted this figure each year by the relevant annual percentage reduction derived from the ABTA data.  The total shortfall in (adjusted) expected commission between 2002 and 2008 was £90,967.  It was then necessary to deduct from this figure any incremental expenses that the claimant would have incurred in generating this additional income.  From an analysis of the accounts for 2002 to 2008 Mr Stern estimated that variable administrative expenses represented 10% of sales.  He also assumed that it would have been necessary for the claimant to employ an extra member of staff to cover the increased level of travel agency (and foreign exchange) business.  The cost of the extra member of staff was assumed to be £17,000.  Allowing for these additional costs Mr Stern estimated the loss of travel agency profit to be £66,418.       

19. Mr Epstein did not object to Mr Stern’s calculation of the estimated commission in the no scheme world or to his estimates of the incidental expenses.  But he had doubts about the use of ABTA data as a proxy for the performance of high street travel agents.  However, he understood why Mr Stern had used it in the absence of specific travel agency turnover statistics.   Given that the ABTA data showed a downward trend that had been confirmed by his partners with knowledge of the sector, he was reluctantly prepared to accept it.

20. There was no evidence to support the claimant’s assertion that fewer pedestrians used the southern side of Euston Road compared to the northern side.  25 and 27 Euston Road were directly opposite the reference land and clearly visible from it.  The layout of No.25 emphasised the foreign exchange part of the claimant’s business and the travel agency had now been located on the first floor.  The claimant had also argued that it had lost profits because its existing retail travel agency customers were unaware that TEB Travel had moved.  But it appeared that there was a claim for the costs of a mailshot to existing customers which would have minimised any loss due to lack of customer awareness.  The claim included losses attributable to the second move from 27 to 25 Euston Road.  This move, being to the adjoining property, could not have given rise to losses attributable to a less prominent position or due to existing customers being unaware of the relocation.  There was no additional loss caused by the second move.

21. Mr Epstein said that the highest level of loss would be suffered in the first year after displacement.  After that existing customers would become aware of the new address, a new customer base would be built up and the loss of profits would decline until normal levels of trade were resumed.  Mr Stern calculated the claimant’s loss in the first year after relocation as £7,630, following adjustment for variable costs and extra staff.  Whilst Mr Epstein did not agree with Mr Stern’s methodology regarding the use of the ABTA data he said that the loss claimed for the first year amounted to approximately two months of retail travel agency turnover which he did not consider to be unreasonable.  He accepted this figure as representing the claimant’s loss.

22. In the second year after relocation, the year ending 31 March 2003, Mr Stern’s analysis showed that the actual commission received exceeded the adjusted expected commission.  So by 2004 the loss due to the move was over.  Any further losses after that time must have been due to another cause.  There were many other possible causes for the reduction in the claimant’s profits apart from the enforced relocation of its business. Mr Stern identified three of these (see paragraph 17 above) and Mr Epstein suggested six more: the abortive attempt to blow up a flight from Paris to Miami in October 2001, the 2001 foot and mouth crisis, the Bali bombing in October 2002, the SARS and bird flu outbreaks in 2002 and 2006 respectively and the Madrid bombing in March 2004.  He said that these incidents had a highly detrimental effect on the retail travel industry in general without necessarily affecting the number of ABTA registered travel agents.

Conclusions

23. Any loss of retail travel agency profit could be due to one or more of three factors: a lower number of bookings; a lower average gross value of each booking; and/or a reduced rate of commission on the gross value of each booking.

24. The claimant said that the number of bookings had declined because fewer pedestrians walked along the south side of Euston Road compared with the north side.  But the claimant, upon whom the burden of proof rests, did not produce objective evidence of such pedestrian flows, relying instead upon the subjective impressions of Mr Feeley and Mr Antoniou.  I place some weight on such evidence given the long trading experience of both men in this location.  From this evidence and from my inspection of the reference land and its surroundings I am persuaded that 1-2 St Pancras Forecourt was a highly prominent and distinctive building that was ideally suited to the claimant’s business.  It occupied a very visible corner site that, given its location next to King’s Cross and St Pancras Stations and a nearby entrance to the underground system, undoubtedly enjoyed a significant passing pedestrian flow.  Neither 25 nor 27 Euston Road are such distinctive or visible buildings and are separated at ground level from the stations by a very busy dual carriageway (although as part of the scheme the acquiring authority provided a subway across Euston Road with a street exit opening outside 25 Euston Road.  This subway was opened in August 2004).

25. The claimant intended the move to 27 Euston Road to be temporary and consequently it did not fit it out to the same standard as 25 Euston Road to which it moved permanently in March 2006.  The parties’ surveyors (who were not called to give evidence) issued a joint statement in which the total fit out cost of No.27 was agreed at £45.58 per sq ft and that of No.25 was agreed at £163.71 per sq ft.  This difference in costs was due to savings being made, such as a banner being used instead of a properly fitted shop sign at No.27, and the result may have discouraged existing or new private travel agency customers from entering the shop.  The permanent move to 25 Euston Road involved the location of the travel agency business on the first floor which I also consider would have discouraged passing trade.

26. Mr Male suggested that had the claimant spent more on fitting out No.27 it would have maximised its trade and would therefore, on balance, have mitigated its losses.  I do not accept that argument because, on the evidence, the claimant did not expect to remain at No.27 for five years and acted reasonably in trying to mitigate its losses by not fitting out No.27 expensively when it knew it would have to relocate again.

27. The objective evidence of loss is found in Mr Stern’s analysis of the claimant’s accounts from 1998 to 2008.  That analysis depends upon the use of a proxy (ABTA membership) for how the business would have performed in the no scheme world at a time of considerable structural change in the travel industry as a whole.  The claimant, rightly in my opinion, acknowledges the limitations of this approach, Mr Stern describing the analysis of the data as leading to an “arbitrary percentage reduction” in trade and Mr Harwood saying that the comparison figure was “a very inexact proxy for the effect of the market on turnover”.

28. Although Mr Epstein had reservations about Mr Stern’s use of the ABTA data he said that he understood why he had used it and accepted that it had produced a reasonable estimate of the loss of profits for the year ended 31 March 2002.  I think that the claimant did all it reasonably could to give a fair and balanced interpretation of its retail travel agency trade and I accept Mr Stern’s approach to the calculation of the loss of profits.

29.  Mr Epstein argues that, using this approach, the level of actual retail travel agency profit in the year ending 31 March 2003 was higher than the estimated amount.  Once the level of actual trade had recovered to the expected amount in the no scheme world any further losses could not be due to the acquisition and must be due to other factors.  I do not accept this argument for two reasons.  Firstly, it fails to take account of the reasons why the actual profit in 2003 exceeded expectations.  The profits are a function of three variables; the number of bookings, the value of each booking and the profit margin (commission) achieved on each booking.  In my opinion, only the number of bookings might have been affected by the scheme.  There is no reason to suppose, and none was suggested, that the amount of each booking would be different according to which side of Euston Road the claimant was trading from.  The rate of commission on actual sales changed over the years 2003 to 2008 (the only period for which data was provided), but it kept within a narrow range (9.2% to 9.9%).  In three of those six years the rate of commission exceeded the assumed pre-scheme rate of 9.6% and there is no evidence to suggest that the rate was adversely affected by the scheme.

30. From the evidence (Mr Stern’s appendix 8) it is possible to see how both the number of bookings and their average gross value have varied over the years.  In 2003, the year in which Mr Epstein said that the claimant’s profits had recovered to what would have been expected in the no scheme world, the number of bookings went down by 1.2% while the average gross value of each booking went up by 15%.  The rate of commission was constant between 2002 and 2003 at 9.6%.  So the underlying reason for the improvement in profits in that year is attributable to a factor (average gross value) that was not shown to have been affected by the scheme.

31.   In my opinion the number of bookings is a reasonable proxy for the passing retail trade in terms of customer numbers and I consider it to be an appropriate indicator of the effect of the scheme upon the claimant’s retail travel agency business.  The weighted average annual number of bookings for the four years ending on 31 March 2001 was 2015.  I have applied Mr Stern’s ABTA adjustments to this figure to give the predicted number of bookings for each subsequent year, which can then be compared against the actual number of bookings.  Such a comparison shows a shortfall every year from 2002 to 2008, including 2003 (minus 9.0%).  By this measure the recovery identified by Mr Epstein in 2003 by reference to the shortfall in the expected commission does not appear to exist.

32. My second reason for rejecting Mr Epstein’s approach is that it places a precise reliance upon an imprecise proxy.  In my opinion it is necessary to consider all of the evidence in the context of the limitations of the methodology used to analyse the losses.  Such a rounded view of the evidence supports the conclusion that the scheme had a continued adverse effect upon the passing trade of the retail travel agency business beyond 2003.

33. At the hearing I raised the question whether the losses that had been identified for the years after 2001 should be discounted to the valuation date since interest would be payable on them from that time and it would not be consistent with the principle of equivalence to pay interest from 2001 for losses incurred in, say 2008.  However in calculating the claimant’s loss Mr Stern used the weighted average turnover as at 2001 and did not increase this for inflation for subsequent years.  I therefore think that his approach, based as it is upon values as at the valuation date, is consistent with the principle of equivalence and I accept his figure of compensation for the loss of retail travel agency profits of £66,417.

Issue 2: Temporary loss of foreign exchange profits

Evidence

34. In his expert report Mr Stern said (upon the advice of Mr Feeley and Mr Antoniou) that the loss of foreign exchange profits was due to (i) 25 and 27 Euston Road being in a less prominent position than the reference land, resulting in a significantly lower level of passing trade; (ii) a number of existing customers being unaware that TEB had moved and as a result taking their business elsewhere; and (iii) foreign customers who used to make large deposits for overseas transfer no longer doing so because of the poor and temporary appearance of the alternative premises.  Mr Epstein in his expert report focussed upon the first of these causes, the loss of passing trade. It was not until Mr Epstein’s report had been exchanged that the claimant addressed in depth two other possible causes for the loss of profits, changes in the amount and margin of each transaction.

35. The starting point for Mr Stern’s analysis was the foreign exchange turnover shown in the claimant’s profit and loss accounts for 1998-2008.  These figures included a significant contribution from Romanian clientele.  The parties agreed that this trade was unaffected by the claimant’s physical location or by the scheme and that the turnover which it generated should be excluded.  Such business comprised two parts; a commission on currency transactions (taken at an average of 2.71%) and transaction fees (taken at an average of £24.55 per transaction).  The total adjusted turnover, excluding the Romanian transactions, was between £250,000 and £275,000 in the financial years 1998 and 1999 rising to £340,727 in 2000 before falling to £318,263 in 2001.  After the move to 27 Euston Road the turnover fell to £254,395 in 2002.  Thereafter it fluctuated in the range £222,000 to £258,000 before increasing in 2008 to £303,272. 

36. The next step was to calculate the expected foreign exchange turnover for each of the years 2002 to 2008.  Mr Stern did this by taking the weighted average turnover for 1998 to 2001 (£308,124) and increasing it annually in line with the Retail Prices Index to reflect price and earnings increases both in the UK and overseas.  The actual foreign exchange turnover was then subtracted from the expected turnover. This gave a total shortfall from 2002 to 2008 of £615,019.  This figure was then adjusted for variable administrative expenses and an extra staff member as per the retail travel agency turnover (see paragraph 18 above).  Mr Stern estimated the adjusted total loss of foreign exchange profits to be £449,698.

37. Mr Stern said that it appeared that the scheme was the significant contributory factor in the loss of profits but he considered whether any external factors may also have had an effect.  The demand for foreign currency would be directly affected by the number of individuals visiting the UK from overseas as well as the number of overseas trips undertaken by UK residents.  Mr Stern gave statistics of these movements taken from the ONS which showed that visits to the UK by overseas residents decreased annual from 1998 to 2001 (by a total of 11%) before rising annually thereafter (by a total of 43% by 2007).  Visits abroad by UK residents rose every year from 1998 (by a total of 38% by 2007).  From these statistics he concluded that the increase in visits both to and from the UK would have led to an increased demand for foreign currency transactions. 

38. Both Mr Feeley and Mr Antoniou said that the introduction of the Euro had resulted in most of the high street banks withdrawing from the currency market because the number of actively traded currencies had been substantially reduced.  This had benefitted the claimant since it was able to increase its market share.  On the other hand Mr Stern felt that the introduction of the Euro might have led to customers changing less currency into multiple denominations.  Online currency transactions would also have reduced passing trade although Mr Antoniou said that the internet had made no significant difference to the claimant’s business since customers did not trust money so ordered to be sent safely through the post.

39.  Mr Antoniou said that customers had been discouraged from visiting the new premises at 27 Euston Road by its shabby appearance.  Regular customers, who had previously deposited large sums of money when the claimant occupied the reference land, now became reluctant to do so.  Both existing and potential customers lost trust and confidence in the claimant as a reputable business because of the temporary nature of the fit out at No.27.

40. Mr Stern assumed that any potential adverse market factors would be more than offset by the growth in visitors to and from the UK.  He therefore concluded that the reduction in the claimant’s foreign exchange turnover after the valuation date was due to the scheme.    

41. In considering the acquiring authority’s evidence Mr Stern said that Mr Epstein had not examined the possibility that the reduction in the claimant’s foreign exchange profits might have been due to lower profit margins being earned as a result of the relocation.  Mr Antoniou said that “because of the loss of passing trade customers we also took steps to mitigate our loss by improving our exchange rates.” 

42. Mr Stern analysed all foreign exchange transactions excluding the Romanian trade and transactions with banks (which he said were in part reflective of the claimant’s need to buy and sell currency with their customers).  This showed that there was a steady decline in the number of transactions from March 2001 until an upward trend began in the year ending March 2005. The number of transactions recovered to valuation date levels by the year ending March 2007.  Mr Stern also analysed the number and value of foreign exchange transactions, excluding only the Romanian transactions.  This showed that there was a decline in the average profit per transaction in the year after the valuation date followed by a recovery by March 2005 but thereafter a further decline each year over the next four years. 

43. Mr Stern said that taken individually these (and other) analyses did not explain the significant drop in the claimant’s foreign exchange profits after it vacated the reference land.  He was unaware of any extraordinary market factors that would have affected the foreign exchange side of the business over this period.  He said that there was no reason to expect the claimant’s foreign exchange business to have performed any differently in the no scheme world to the weighted average profits, adjusted by the RPI, of the four years prior to the valuation date. 

44. Mr Epstein did not object to Mr Stern’s figures being taken as the agreed adjusted foreign exchange turnover for the years 1998 to 2008.  Nor did he object to Mr Stern’s adopted average commission rate on Romanian transactions of 2.71% (although he considered that Mr Stern’s method of calculation was incorrect) or his use of the RPI to adjust expected turnover. 

45. Mr Epstein directed his evidence to the claimant’s argument that the loss of profit resulted from a significantly lower level of passing trade at 25 and 27 Euston Road compared with the reference land.  He said that Mr Stern’s conclusion that foreign exchange turnover, excluding the Romanian transactions, had declined following the claimants move did not take account of the number of transactions occurring in each period or variations in the value per transaction.  Mr Epstein said that any loss should be measured by reference to the reduction in the number of customers, if any, rather than to the amount that those customers spent as a whole. 

46. To do this it was necessary to exclude transactions by corporate clients, banks and financial institutions and to focus on those customers who walked through the door. It was this trade that might have been temporarily affected by the relocation.  The majority of such “walk in” customers were allocated in the management data under the code reference “S” for sundry.  Mr Epstein’s analysis (having adjusted for the effect of small transactions where customers needed to convert old currencies into Euros following the introduction of the Euro as legal tender from 1 January 2002) showed little change in the numbers of transactions following the move to 27 Euston Road (in fact there was a slight increase in customer numbers in the first year).  He concluded that the reduction in the profits earned from foreign exchange was due to the amount per spend and not a lower number of customers entering the claimant’s premises. 

47. Mr Epstein criticised Mr Stern’s analysis for only excluding bank, rather than all corporate, transactions.  He considered his own analysis, which excluded financial institutions and other non-passing trade customers, to be more accurate.  This showed an increase in the number of transactions from passing trade customers after the valuation date and Mr Epstein concluded that relocation appeared to have benefitted the claimant’s business. 

48. Apart from the number of transactions there were two other components affecting the profitability of the foreign exchange business; the value of each transaction and the margin that it generated.  Mr Epstein did not see how these other two variables could be affected by the location of the claimant but he considered them anyway in the context of Mr Stern’s analysis and argument.  He began by restating Mr Stern’s calculation of the average value per transaction by separating the results for buying and selling transactions.  He said that there was a small reduction (less than half of 1%) in the average value of buy transactions between 2001 and 2002 but an increase (7.5%) in the average value of sell transactions over the same period.  He concluded that the reduction in foreign exchange profit was likely to have arisen from less profit being earned on the differential between the amount the claimant paid for currency from banks and the amount they then sold it on for to their customers. 

49. Foreign currency exchange fluctuations would explain the decline in the claimant’s profitability.  The strength of the US Dollar against Sterling in the period April 1999 to January 2003 supported this view as did an analysis of the fee income (ie turnover less commission) earned on foreign exchange transactions, excluding the Romanian business.  This showed that such adjusted fee income increased in the three years following the relocation.  The introduction of the Euro in January 2002 would have reduced the number of foreign exchange transactions as would the significant growth in the use of credit cards and ATMs abroad.  Mr Epstein said that “there may be a correlation but no causation” between the relocation and a decline in the claimant’s foreign exchange profit margins and he concluded that the claimant had suffered no foreign exchanges losses that were attributable to the scheme. 

Conclusions 

50. A loss of foreign exchange profits might be due to less passing trade, a reduction in the volume (size) of each transaction and/or a lower profit margin on each transaction.  The burden of proof lies with the claimant to show, on the balance of probability, that any such loss was caused by the scheme. 

51. I have reservations about Mr Stern’s evidence on the loss of foreign exchange profits.  Of particular concern is his failure to adjust the total foreign exchange turnover for corporate, as well as Romanian, transactions.  During cross-examination Mr Feeley accepted that the claimant’s corporate foreign exchange business would be unaffected by any changes in passing trade and he said that to take out such corporate business would be the “fairest way”.  Mr Male suggested that this failure to deduct corporate foreign exchange turnover left “a huge hole in the claimant’s case on its evidence.”  I agree that the evidence is undermined by this omission. 

52. Mr Stern did provide some evidence about the corporate foreign exchange business in his rebuttal report.  He showed two tables; one gave the total number of transactions and their value excluding bank and Romanian transactions, the other gave the same information but only excluding the Romanian transactions.  The difference between the two tables must therefore be the number and value of bank transactions.  For the period 1999 to 2008 I calculate from these tables that bank transactions represented 11% of total foreign exchange transactions (net of Romanian transactions) but 52% of the total value of such transactions.  The bank transactions therefore have a disproportionate effect in terms of their value but no information is provided about their profitability. 

53. The only quantitative evidence of the changes in the foreign exchange profit margins over time is given by Mr Stern in his rebuttal report.  This shows the average profit per transaction based upon the turnover (profit) excluding just the Romanian business.  That turnover includes the profit on the bank business.  As was seen above the bank business has a disproportionate effect in terms of the value of each transaction and the effect of excluding such business on the average profit per transaction, whilst unknown from the evidence provided, is likely to be significant.  In other words Mr Stern’s evidence of average profit per transaction does not show that the margin on the passing trade part of the foreign exchange business has declined; the dominance of the bank business in the data makes it impossible to draw any conclusion about the change in such margins.  (He does provide data about the average value per sundry (“S” code) transaction but not about the profitability per transaction.) 

54. This conclusion is strengthened by two further factors.  Firstly, Mr Stern does not exclude corporate business (apart from banks) from his analysis.  He provides no information about how many transactions, by number and value, are corporate and therefore his analysis of the average profit per transaction includes both bank and other corporate business.  That analysis does not help in estimating the trend in the average profit per transaction of passing trade.  Secondly, there is sufficient data in Mr Stern’s appendix 12(i) to calculate the average profit (turnover) per transaction of the Romanian trade over the years 1998 to 2008.  This is higher than the figures shown for the transactions excluding such trade and shows a continuous increase apart from two years, 1999 and 2007, when there was a minor reduction.  This trade was not affected by the scheme but the analysis illustrates the potential for variance in the average value per transaction of the different types of the claimant’s foreign exchange business.  

55. Mr Antoniou, in his second witness statement, said that “because of the loss of passing customers, we also took steps to mitigate our loss by improving our exchange rates”.  In other words the claimant reduced its margins (and offered special deals with customers such as Canon) in order to become more competitive and maintain the passing trade.  That seems to me to be a logical business decision and a sensible explanation of why foreign exchange margins would have declined following relocation.  But the evidence of reduced margins has not been isolated to passing trade and reflects both banks and other corporate business that, as the claimant accepts, should be excluded.  Nor is there any information about changes in profits per transaction in the industry as a whole over this period or about the net effect of the increasing numbers of people entering and leaving the UK compared with the events which may have deterred travel such as those identified by the parties.  Mr Stern concluded that the potential adverse factors affecting demand would be “more than offset” by the rise in visits to and from the UK but, as Mr Male submitted, there was no analysis of the point and the claimant’s case rested upon Mr Stern’s judgment rather than the type of rigorous analysis that he brought to bear on the retail travel agency part of the claimant’s business.  Nor was there an analysis of the paper profit or loss on any currency held by the claimant due to fluctuations in the currency exchange rate.  Mr Stern relied upon his assertion that such movements would cancel out in the long run but I agree with the acquiring authority that this was not necessarily the case. 

56. In my opinion the claimant has not proved that it has suffered foreign exchanges losses due to a reduction in profit margins on passing trade, whether caused by the scheme or at all. 

57. That leaves two further ways in which the scheme may have affected foreign exchange profits; firstly, by reducing the volume (amount) of each transaction, and, secondly, by reducing the number of passing trade transactions.  The only evidence about volume was given by Mr Antoniou who said that before the valuation date foreign customers (identified at the hearing as mainly Spanish and Portuguese) would often deposit large sums, in the region of £20,000, to be transferred to a foreign bank account.  The claimant’s premises at 1-2 St Pancras Station Forecourt were prominent and well known and customers had trust in the claimant while it was there.  The situation changed when the claimant moved to 27 Euston Road because it was a new location in a building with a poor appearance.  Mr Antoniou said that it damaged the image of the business and the claimant lost trade as a result.  He said that the claimant made a profit of £4,000 per week from such transactions, rising to a peak in 1998 to 1999 of between £6,000 to £7,000 per week.  It then declined in 2000 and 2001 for unknown reasons, although Mr Antoniou denied that it was due to the introduction of money laundering regulations in November 2001.  He said that such regulations applied to bureaux de change before then. 

58. I am not satisfied that the scheme caused the loss of the large currency transfer business described by Mr Antoniou.  There was no analysis of these transactions in Mr Stern’s evidence and it was clear at the hearing that Mr Antoniou, whilst trying to assist the Tribunal, was not certain about the figures being put to him.  For instance Mr Male suggested in cross-examination that, according to Mr Antoniou, the claimant, at the peak, was making a profit of between £250,000 and £300,000 per annum from such business.  Mr Antoniou responded “Yes, as a guess.  But I don’t want to guess.”  The consequence of this analysis would be that all of the claimant’s profits, excluding the Romanian trade, would have been attributable to such large currency transfers.  I do not accept that this was the case and I place little weight on Mr Antoniou’s evidence insofar as it sought to quantify this aspect of the claimant’s losses.  Whilst the Money Laundering Regulations 1993 applied to a “relevant financial business”, bureaux de change were only added to this definition under the Money Laundering Regulations 2001 which came into effect on 12 November 2001.  While it is possible that these regulations affected the claimant’s trade the acquiring authority produced no expert evidence or analysis that demonstrated that this was so and Mr Harwood pointed out that the claimant was already under a duty to disclose suspicions of money laundering under earlier legislation. 

59. Mr Epstein focussed upon changes in the level of passing trade by reference to the number of customers.  He did so by identifying and excluding, as best he could, the corporate clients, banks and other financial institutions with whom the claimant conducted business as well as the Romanian customers.  Mr Epstein said that “nearly all” of the passing trade was identified by the claimant by the allocation of a sundry (“S”) code.  His analysis showed that the number of “footfall” customers increased between 2001 and 2002 (and again in 2003) and he therefore concluded that any loss of profits could not be attributable to a reduced number of transactions caused by the scheme. 

60. The claimant criticised Mr Epstein’s use of S code entries as a measure of the total passing trade, saying that this code was not restricted to footfall customers.  During the hearing the claimant referred in particular to customers from Canon (to whom a special deal had been offered) being included within the S code and pointed out that the transactions through Western Union should be included as passing trade. 

61. Mr Epstein made prompt adjustments to his analysis to reflect these corrections as best he could.  The result (appendix 5A) gives total annual figures which I think are a reasonable, if not wholly accurate, estimation of passing trade.  (The claimant, whose primary case rested upon a reduced number of transactions, presented no clear evidence about such trade.  Mr Stern’s analysis conflated footfall transactions and corporate transactions.)  There were only minor differences between the experts’ calculations of the number of S code transactions, excluding the Romanian business.  Mr Epstein then added other footfall trade that he was able to identify from the claimant’s base data, including Western Union transactions. 

62. The results of Mr Epstein’s calculations show that in 2002, the year after relocation, the number of passing transactions increased.  They declined in 2003 before increasing every year for the next five years to 2008.  At the same time the number of corporate transactions (banks and others) fell every year from 2001 until 2008.  The latter transactions were, by agreement, not affected by the move.  (All analyses exclude the Romanian trade.)  Under these circumstances I do not accept that the evidence shows a decline in passing trade caused by the scheme.

63. During examination in chief Mr Stern was asked to comment on what the lost trade in retail travel agency in 2002, agreed by Mr Epstein at £11,712 (before adjustment), meant in terms of lost customers.  Mr Stern estimated that 244 customers had been lost and said that he struggled to understand how a loss of bookings in retail travel agency could not be reflected in a corresponding loss in foreign exchange trade.  Mr Epstein did not accept this conclusion and said that the data for the foreign exchange business showed an increase in passing trade. I do not accept that the claimant has established a correlation between the passing trade in the two sides of its business.  The pre scheme evidence of passing trade for the two sides of the business shows that in 2000 retail travel agency transactions went up by 13.4% compared with 5.0% for “footfall” foreign exchange transactions.  The equivalent figures for 2001 were minus 5.0% and minus 17.7% respectively.  That does not suggest a close relationship between the two.   

64. In my opinion the claimant has not proved on the balance of probabilities that the loss of foreign exchange turnover was caused by the scheme, whether in terms of margin, amount or the number of transactions.  I therefore make no award under this head of claim. 

Issue 3: Directors’ and staff time

Evidence

65. Mr Stern argued that overtime payments for staff, including the employer’s national insurance contribution, amounting to £2,161 should be paid in full.  Other staff time, amounting to £2,214, was not compensatable unless it too constituted specific overtime payment. 

66. Directors’ time was claimed for three directors on the basis of £40 per hour rising to £44 per hour in 2006.  In total 596 hours at a cost of £24,668 were spent on the abortive move to 23-27 Pancras Road and the moves to 27 and then 25 Euston Road.  Mr Stern said that any directors’ time spent during normal working hours would effectively be reflected in the loss of profits claimed but that any times spent outside such hours should be claimable.  The claimant considered that approximately 25% of the time spent took place outside normal working hours and therefore directors’ time was claimed in the sum of £6,167 (25% of £24,668).  The total claim under this head was therefore £8,328.

67. Mr Stern confirmed that he had not seen any written record of the amount of time spent by the directors on dealing with the compulsory purchase.  Nor was there any evidence that he had seen that the claimant company had actually paid (or contracted to pay) £6,167 to the directors to reimburse them for time spent outside normal office hours.  

68. Mr Feeley explained that initially he kept a note in his office diary about the time spent on dealing with the compulsory acquisition of the reference land but over time it slipped and there were now no written records.  He had spent many hours looking for alternative properties and talking to agents and he said that the number of hours claimed was much less (about 10 to 20 times) than the time that he had actually spent.  He confirmed that some of the time spent was out of normal office hours. 

69. Mr Harwood submitted that the directors of the claimant company had to spend a lot of time dealing with the compulsory purchase in order to keep the business going.  There had been no criticism of the hours they had spent or of the rates charged.  There had been no payment to the directors by the claimant company for overtime but they owned TEB Travel Limited and it would have been wholly artificial to invoice themselves for the extra time spent.  It was appropriate to reflect the out of hours work in the award of compensation and he relied upon a decision of the Tribunal in D B Thomas and Son Limited v Greater London Council [1982] 1 EGLR 197 to support this approach.

70. Mr Epstein accepted the claim for specific staff overtime payments amounting to £2,161.  However, he said that the balance of the claim under this head was for directors’ and staff time that had been calculated on the basis of non-evidenced hours at an unexplained rate.  He thought that unless specific overtime payments could be substantiated the cost of directors’ and staff time would be included as part of the loss of profits claim. 

71. He said that he had not considered the reasonableness of either the time spent or the hourly rate claimed but agreed that dealing with the compulsory purchase would have taken a good deal of the directors’ time.  He had considered the claim as whole and he could not see that the claimant had suffered losses; apart from the specific overtime payment it had not paid out anything.  He had no knowledge of how Mr Stern had derived a figure of 25% as being the amount of time spent outside normal working hours.  Any time spent on matters not related to the business would be reflected in a reduction in profits.  Mr Epstein accepted that because he had only allowed a loss of profits in 2003 (in respect of the retail travel agency business) he had not reflected any loss of profits due to the directors’ time spent on the second move, to 25 Euston Road, in 2006. 

72. Mr Male submitted that this was not a directors’ claim but that of a limited company.  It had suffered no loss because there was no evidence that TEB Travel Limited had reimbursed the sums claimed nor contracted a legal liability to do so.  There was nothing to show that the time spent by the directors out of hours had impacted upon the profitability of the company.  With regard to the claim in relation to 2006 losses Mr Male said that if there was a successful claim for loss of profits that included a loss in 2006 then the claim for directors’ time would be reflected in that loss.  If that claim failed then the claim for directors’ time in 2006 would succeed.  On the facts, however, this head of claim should fail in the absence of evidence about the claimant’s payment, or contractual liability to pay, for the directors time. 

73. Mr Male said that Thomas raised no matters of principle and that the decision on the point came back to the evidence.  There was no evidence to support the losses claimed in excess of the £2,161 agreed by Mr Epstein. 

Conclusions

74. The claim relates to directors’ time spent outside normal working hours.  There is no real dispute about the number of hours or the hourly rate, both of which I consider to be reasonable in the light of the all the evidence.  Mr Epstein said that he had no knowledge of how Mr Stern had determined that 25% of those hours were outside of working hours and no quantitative evidence was presented on the point.  But I consider it to be a reasonable estimate in the light of Mr Feeley’s evidence and I accept it. 

75. The outstanding issue is whether the sum of £6,167 can be claimed separately from any loss of profits or whether the time spent by directors out of office hours will be reflected in that loss.  In Thomas the Tribunal, Mr W H Rees FRICS, favoured the former approach.  That case considered a claim for directors’ time in connection with the removal of the claimant company to a new factory.  The claimant was a family run company whose managing director, Mr J B Thomas, claimed for an estimated 125 hours at £10 per hour.  Counsel for the acquiring authority said that the matter should be approached by considering the loss in profits (relying on Pearl Wallpaper Holdings Limited v Cherwell District Council [1977] 2 EGLR 166).  Mr Rees said at 202L:

“Certainly an approach using loss of profits is possible, rather than pricing a number of hours, but the former tends to be notional rather than actual and I have no doubt that it was necessary for Mr J B Thomas to spend a great amount of time on planning the move in order to cut down the loss of profit on removal… Much of the time spent was late at night and early in the morning, some at weekends.  On the evidence I do not see that either the number of hours estimated nor the price per hour claimed is grossly unreasonable in all the circumstances ….”

(Pearl Wallpaper does not appear to assist the acquiring authority in this reference.  It allowed, with reductions, separately itemised claims by a director of the claimant company for time spent in seeking alternative premises and for two directors for time spent in preparing the claim.)

76. I think that such an approach is appropriate in this case.  I have no doubt that it was necessary for the directors to spend considerable time in planning not just one but three moves (one of which, to 23-27 Pancras Road, was abortive) and that this helped to mitigate the claimant’s losses.  I accept Mr Harwood’s argument that it would have been wholly artificial for the directors, who own the claimant company, to invoice themselves for the extra time they spent in dealing with the compulsory purchase.  I therefore award the sum of £8,328 for directors’ and staff time.

Determination

77. On the basis of the evidence before me I determine the compensation under the three outstanding heads of claim as follows:

(i)     Temporary loss of retail travel agency profits:                       £66,417

(ii)    Temporary loss of foreign exchange profits:                           £nil

(iii)   Directors’ and staff time:                                                         £8,328

The award in respect of the disputed heads of claim is therefore £74,745.  The compensation in respect of the agreed items is £309,935 and the total compensation payable is therefore determined at £384,680.

78. This decision shall not take effect until

(i)     the parties have had the opportunity of considering whether they wish to present further evidence about the 2009 foreign exchange profits and the enhancement of those profits due to the scheme, as described in paragraphs 11 to 14 above; and

(ii)    the question of costs is decided.

79. The parties have 28 days from the date of this interim decision to confirm their intentions with respect to the presentation of further evidence.  If either party wishes to proceed then further directions shall be issued.  If neither party wishes to proceed then directions shall be issued with respect to the submissions on costs. 

Dated 9 February 2010

A J Trott FRICS