United Kingdom Upper Tribunal (Lands Chamber)
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Cite as: [2015] UKUT 208 (LC)
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UPPER TRIBUNAL (LANDS CHAMBER)
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UT Neutral citation number: [2015] UKUT 208 (LC)
UTLC Case Number: ACQ/89/2013
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
COMPENSATION – compulsory purchase – Compulsory Purchase Act 1965 section 20 - food distributor in cold store facility – business extinguished – business tenancy and statutory compensation for determination of leasehold interest– veracity of accounts and other evidence – extinguishment of value of business determined at nil – agreed compensation for other items – compensation determined at £102,533.40
IN THE MATTER OF A NOTICE OF REFERENCE
BETWEEN BLUEFOOT FOODS LIMITED Claimant
and
GREATER LONDON AUTHORITY Acquiring
Authority
Re: 2 High Meads,
Temple Mill Lane,
Stratford
London E15 2EW
Before: P D McCrea FRICS
Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL
on
20 – 23 April 2015
Julian Rosen, with permission of the Tribunal, for the claimant
Alexander Booth instructed by Wragge Lawrence Graham & Co LLP, for the acquiring authority
The following cases are referred to in this decision:
Halpern and Ors v Greater London Authority [2014] UKUT 116 (LC)
Stokes v Cambridge Corpn (1961) 13 P&CR 77
Bishopsgate Space Management Ltd and Teamworks Karting Ltd v London Underground Ltd [2004] 2 EGLR 175
Director of Buildings and Lands v Shun Fung Ironworks [1995] 2 AC 111
Lancaster City Council v Thomas Newall Ltd [2013] EWCA Civ 802
DECISION
Introduction
1. This is a reference by Bluefoot Foods Limited (“the claimant” or “Bluefoot”) to determine the compensation payable upon the extinguishment of its business as a result of the compulsory purchase of its leasehold interest in part of 2 High Meads, Temple Mill Lane, Stratford, London E15 2EW (“the reference property”) by the London Development Agency (now the Greater London Authority) (“the acquiring authority”). The reference property was compulsorily acquired under the London Development Agency (Lower Lea Valley, Olympic and Legacy) Compulsory Purchase Order 2005 (“the CPO”).
2. The CPO was made on 16 November 2005 and confirmed by the Secretary of State on 18 December 2006. The acquiring authority served notice to treat and notice of entry on the claimant on 31 May 2007, and took possession of the reference land on 2 July 2007 – the valuation date for the purposes of this reference.
3. The claimant was represented by its Director, Mr Julian Rosen. In addition to giving evidence himself he called Mr David Rabinowitz BA ACA MAE who gave forensic accountancy evidence. In making the reference and in the early stages of negotiations, the claimant was represented by solicitors, Bowling and Co. In addition, Mr Andrew Highwood MRICS of Savills acted for the claimant in agreeing a statement of agreed facts. Neither Bowling and Co nor Mr Highwood attended the hearing, and no evidence was submitted from Mr Highwood.
4. The acquiring authority was represented by Mr Alexander Booth of counsel who called Mr Colin Cottage BSc (Hons) MRICS IRRV to give valuation evidence and Mr Gordon Stevenson ACA to give forensic accountancy evidence.
5. I subsequently received sequential written closing submissions from the parties.
Facts
6. From a statement of agreed facts and the evidence I find the following facts.
7. The claimant company was incorporated on 23 November 2001 and began trading on 2 January 2002. Until February 2006, it was known as Caribbean Foods London Limited, which for convenience I still refer to as the claimant. I should mention at this point that there was reference in the evidence to a company called Bluefoot Foods London Limited, but no such company existed.
8. Caribbean Foods London Limited traded in Jamaican-style food products. In later years, the trade expanded to include fresh, prepared and frozen fruit, vegetables, halal and non-halal meat and chicken, seafood, desserts and ambient dry goods.
9. The reference property formed part of a large cold store facility known as the Temple Mills Cold Stores (“the cold stores”) located at High Meads in Temple Mill Lane, one mile northwest of Stratford Town Centre and three miles northeast of the city of London. The cold stores comprised two principal buildings on an irregularly shaped site providing cold storage accommodation divided into chambers, as well as other ancillary buildings including offices, canteens and plant rooms. The total gross internal area was something in the order of 26,000 sqm. The reference property comprised approximately 173 sqm of cold storage accommodation forming part of what was known as chamber 2. It had a height of 5.5m and was served by shared dock level loading facilities and a communal weighbridge. The claimant also occupied two rooms of office accommodation on licence, in conjunction with JH Rosen & Co, a company connected to Mr Rosen. No claim is made in respect of the office accommodation.
10. Until 2002, the cold stores were owned and operated by a company called Frigoscandia Limited (“Frigoscandia”). In early 2002 Frigoscandia carried out a sale and leaseback with The Secretary of State for Transport, Local Government and the Regions. The Secretary of State purchased the freehold interest in connection with the Stratford City development (a 10 million sq ft mixed used scheme). The lease back to Frigoscandia was for a term of seven years from 1 January 2002, thus expiring on 31 December 2008. The lease was contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954 (“the 1954 Act”). The tenant could break the lease at any time upon six months’ notice.
11. Frigoscandia both operated a cold storage facility and sublet parts to third parties. In early August 2003 it agreed to sublet part of chamber 2 to the claimant, which had until then used the public cold stores within the complex. The proposed sublease was to be for a term expiring on 30 September 2008, contracted out of the security of tenure provisions of the 1954 Act, with a three month mutual break clause exercisable after 1 September 2004. The rent (inclusive of electricity) was to be £230 per week, rising to £450 per week and then to £575 per week (the evidence was not clear as to when in 2004 these increases were to take effect) and then with annual increases at RPI plus 0.5%.
12. The initial rent was therefore in the order of £11,960 per annum, rising to £29,899 per annum before RPI increases. I mention this in order to put into context the rents of other properties about which the claimant subsequently made enquiries and offers.
13. At some point shortly after August 2003, the claimant took up occupation of part of chamber 2, but without signing a lease.
14. By December 2003, Frigoscandia Ltd had changed its name to Celsius First Limited (“Celsius First”). Solicitors for Celsius First sent to the claimant a draft lease and also a draft court order to contract the tenancy out of the 1954 Act. Neither of these documents were signed on behalf of the claimant, and owing to the claimant’s continuing occupation, without the tenancy being contracted out, it is agreed between the parties that the claimant occupied the reference land on a periodic tenancy, benefitting from security of tenure as a business tenancy under the 1954 Act.
15. Planning consent was granted for the Stratford City development in February 2005, putting into doubt the long term future of the cold stores.
16. On 2 March 2006 Celsius First went into administration, but remained in occupation of the cold stores. In February 2007 the acquiring authority agreed with its administrators that the company would continue to operate the cold stores up until July 2007. Unlike Bluefoot, the majority of other sub-lessees had no security of tenure, and had no right to remain after December 2008.
17. Also in March 2006, on behalf of the claimant, Mr Rosen began the search for alternative premises across a wide area of north London, Essex and Kent. He entered into negotiations on two properties, both of which were larger and at significantly higher rents than that at the reference property. The first was at Hornsey – a unit of around 2,600 sqm at a rent in the order of £340,000 p.a. The second was at East Hall Farm, Rainham, where the rent involved was £215,000 p.a. In addition, Mr Rosen was attempting to take a lease of a unit at St Mark’s Estate in Newham, (“St Marks”) which was owned by the London Borough of Newham (“Newham”), but was encountering difficulty.
18. On 31 May 2007 the acquiring authority issued its notice to treat and notice of entry to the reference land.
19. In June 2007, following Mr Rosen alerting the acquiring authority to the fact that he could not gain access to St Marks, the acquiring authority contacted Newham to arrange this. Mr Rosen completed an application form for St Marks, including forwarding referees details and accounts. On 19 June Newham declined to grant a lease to the claimant of St Marks, having concerns about the claimant’s covenant status. The acquiring authority offered to take a head lease of St Mark’s and underlet to the claimant, but Mr Rosen considered that to be too little too late, and took the decision to extinguish the business on 22 June. The claimant company is still registered at Companies House, but does not trade. Mr Rosen said that it would be closed upon this claim being determined.
20. At various times between 2004 and 2008, the claimant had filed accounts at Companies House for the years ending November 2002 to 2006 (“the original accounts”). On 7 January 2015 a replacement set of accounts (“the revised accounts”) for the years ending November 2003-2006 were filed at Companies House.
21. During the latter part of June 2007, Mr Rosen was in negotiation with Mr Cottage on various aspects of the claim and discussing the acquiring authority making an advance payment. Mr Cottage asked for details of the staff employed by the claimant. In an email to Mr Cottage of 21 June, Mr Rosen said:
“These are the staff details:
Julian Rosen £100 per week employed since 23rd November 2001
David Howell £400 per week employed since 22nd September 2003
Teresa Thomas £1,733.33 per month employed since 15th December, 2003
Ronald Snow £250 per week employed since 24th October, 2005
Besides this I have two self-employed persons who I will have to give similar severance terms to the others. On top of that they are all due varying levels of holiday pay. On top of that I will be topping up their severance pay at my cost. Everyone has been working hard towards better days which will now not materialise…
…Are you now happy to process the payment on account?”
22. Mr Cottage responded the same evening, asking for the ages of the staff as “this affects the payments to which they are entitled”. Mr Rosen then provided his and the other staff’s dates of birth. A discretionary advance payment of £30,000 was made by the acquiring authority on 26 June 2007.
23. Negotiations in respect of the claim continue until late 2008 but there was then no further contact between the parties until the reference made to the Lands Chamber in July 2013. On 18 March 2015, a further advance payment of £46,500 was made by the acquiring authority, of which £26,500 in professional fees was paid direct to Bowling and Co and Savills.
The Claim
24. It is convenient at this point to outline the evidence on behalf of the claimant in general terms.
Mr Rosen
25. Mr Rosen said that the claimant company was incorporated to carry on the trade of CFL (London) Ltd (“CFL”) – the manufacturer and distributor of a Jamaican style food product. He had invested in CFL, but owing to a history of poor financial management and the changing nature of its trade, the claimant company was formed. CFL had a nomination from Compass Services plc (“Compass”) who were one of the leading national food distributors, which it passed to the claimant.
26. Mr Rosen said that the claimant’s food service offer was unique in its diverse range, and that the range of halal products was particularly attractive to London schools and colleges. The non-halal products were offered at price points much lower than those of the larger national suppliers. The claimant was very popular with its customers.
27. Rapid expansion was not without problems and early losses were sustained as a result of which the claimant company was funded by Mr Rosen’s personal earnings and borrowings. Cash flow was difficult and there were issues with the claimant’s factoring company. However, he said, the company survived and turnover increased substantially year on year. In its penultimate year, the claimant had finally gone into profitability and was poised to consolidate its position. In the final 10 months of trading, the claimant increased turnover by 22% despite the fact that Mr Rosen spent a considerable amount of time trying to secure new premises.
28. In March 2007, the claimant exhibited two new ranges at the International Food Exhibition (“the IFE”) which Mr Rosen said were very well received. This was a prestigious event, held at ExCel London, and was billed as “The world’s most innovative food and drink event”. There were also many opportunities for increased third party distribution. He said that in a “no scheme” world Celsius would have avoided administration or the cold stores would have been sold and continued in operation meaning that the claimant would have been able to expand as required.
29. Mr Rosen suggested that the original accounts were incorrect and that losses sustained in the early years were higher than those reported. He explained that the claimant had incurred late filing penalties and abbreviated accounts were prepared based on incomplete records - the bank account, debtors and creditors were stated and the difference simply taken as a net loss. When accurate accounts were prepared, a balancing adjustment to the profit and loss account was made in the accounts filed for the year ending 30 November 2006.
30. Mr Rosen said that the value of the claimant company included the Compass nomination. He said that it was nearly impossible for a new company to obtain a Compass listing. If a company had purchased Bluefoot, it would have been able to “piggy back” its existing offer to an extensive nationwide list of public and private organisations. The claimant had not fully exploited its Compass nomination and was starting to gain access to other catering groups. Plans to obtain higher accreditations were put on hold pending the relocation and with these accreditations the claimant would have been able to significantly expand its delivery base.
31. In a phrase which was to be subject to significant scrutiny throughout the hearing, Mr Rosen said that the claimant had “tremendous prospects”. One of the ranges that the claimant had exhibited at the IFE was for borekas (small crispy dough parcels which can have a variety of fillings) from a firm called Borekitas Limited with which, Mr Rosen said, the claimant already had a sole import contract and planned to expand the existing local client base to a nationwide operation.
32. The other range exhibited at the exhibition was for frozen organic fruit and vegetables in catering packs, for which there was significant interest from the education and healthcare sectors. In the claimant’s statement of case, Mr Rosen said that the claimant was “set for a trial run that was leading to a sole import contract” from a European company called Demeter-Felderzeugnisse GmbH (“Demeter”). In oral evidence he accepted that the expectation of a sole import contract was “probably a little bit beyond” the actual position.
33. He said that third-party storage and distribution was growing and had the relocation to Rainham not fallen through, the claimant would have been able to pick up the public cold storage business from Celsius and would have offered third-party delivery services to the Celsius customers. The claimant also had plans for a nationwide delivery service to the public of “no-frills” catering packs of quality foods which was to be launched online as E-Quality Foods.
34. Mr Rosen said that whilst the claimant continued have cash-flow issues due to collection problems with its factoring company, the situation was improving with increased profitability. The claimant was fully supported by its suppliers, none of which had discontinued trading with it. The timing of the CPO was extremely unfortunate, as the claimant had only recently gone into profitability and needed time to consolidate its earnings into a solid capital base. It needed to change factoring company and would also have raised further finance under the government’s loan guarantee scheme. He said that the company was not for sale and the considerable amount of time and capital invested in the business, and previously invested in CFL, needed to be repaid with a substantial profit. He had taken a token salary which was a major opportunity cost compared with his professional earnings potential.
35. Under cross-examination by Mr Booth, Mr Rosen accepted that the documentation that was said to support some of the elements making up the “tremendous opportunities” for Bluefoot had either not been submitted in evidence, or if present in the evidence was not especially clear.
36. For instance, in respect of the sale of borekas, Mr Rosen had submitted a copy of a licence agreement dated 25 March 2007 between a Mr Yosef Darei and Borekitas Ltd, the effect of which was to licence Borekitas Ltd to use the Borekitas name as the sole importer of Borekitas products into the UK. Mr Darei signed the agreement, which was also signed by Mr Rosen as a “Director, for and on behalf of Borekitas Ltd”. Mr Rosen accepted that he had never been a director of Borekitas Ltd. He said that he was going to take over the company, and had signed the forms for Companies House, but that these had not been submitted. He also accepted that the profit sharing agreement was not in evidence, neither was any documentation in support of the proposal for Bluefoot to take over the company, although he maintained that they did exist and that Bluefoot was the company that imported borekas into the UK.
37. In respect of the importation of frozen organic vegetables, Mr Rosen suggested that elements of an email upon which he relied, and which had been translated from German, had (literally) been lost in translation. He also accepted that there were no documents in the evidence to suggest that there was going to be an exclusive arrangement. In fact, in an email from a Mr Campuzano of Demeter to Mr Rosen dated 14 March 2007, Mr Campuzano indicated that Demeter did not enter into exclusivity agreements.
38. In respect of the Compass nomination, Mr Rosen accepted that there was no contract with Compass, nor any evidence from Compass in support of his interpretation of Bluefoot’s status with Compass.
39. In respect of wages and redundancy payments, Mr Booth took Mr Rosen to his email to Mr Cottage of 21 June 2007 and suggested to Mr Rosen that, on the basis of the weekly or monthly wages paid to Mr Howell, Ms Thomas and Mr Snow, the annual salary of those three employees, including national insurance, was likely to be in the order of £60,000, rather than the figures in the profit and loss accounts which were in the order of £24,000 to £27,000 per year for the years ending November 2004, 2005 and 2006. Mr Rosen said that he could not recall the details.
40. Having considered this overnight, on the second day of his evidence Mr Rosen said that the wage figures in the profit and loss accounts were correct, but that he decided to give these three employees a pay rise in the last few months of trading, in order that they would receive a larger redundancy payment. In addition, he said that he paid Mr Cowie, who was self-employed, £2,400, when no statutory payment was owing to him. In answer to a question from me, he did not see anything wrong in asking the acquiring authority for compensation on this basis.
41. At a later stage of cross-examination, Mr Rosen said that he had just remembered that Ms Thomas’s wages, as shown in the profit and loss accounts, formed only part of her salary – he had made an accounting adjustment since she also carried out work for J H Rosen and Co. He confirmed however, that the monthly wage which he had provided to Mr Cottage of 21 June 2007 was her total wage. When Mr Booth put it to Mr Rosen that he had claimed a redundancy amount from the acquiring authority based partly upon a wage for work other than for the claimant company, Mr Rosen did not accept this but said that it was purely an internal accounting apportionment.
42. Mr Rosen said that he couldn’t remember the exact wages that Ms Thomas, Mr Howell and Mr Snow received, and so was unable to give a breakdown of the figures outlined in the wages column of the profit and loss accounts. He thought that Mr Snow received something in the order of £4,500 per annum including employer’s national insurance.
43. When asked by Mr Booth why there was no entry for insurance in the “claim P&L’s” (the profit and loss figures prepared in support of the amended accounts), Mr Rosen said that the claimant company operated without any employers’ liability or public liability insurance. It did have vehicle insurance. In August 2013, Mr Highwood forwarded to Mr Cottage a set of accounts prepared by Mr Rosen, which were marked “For the Director and HMRC only – Not part of Statutory Accounts”. This version of the accounts did have entries for insurance for the years ending 30 November 2003 and 2004. When taxed by Mr Booth as to the discrepancy, Mr Rosen said that this set of accounts had been “cut and pasted” from a set of accounts prepared for one of his clients, and were erroneous.
“Rule 2” claim – evidence and submissions
44. In the week before the hearing I gave permission for the claimant to add a head of claim for the compulsory acquisition of its leasehold interest in the reference land (termed a “Rule 2” claim by Mr Rosen but actually a claim under s20 of the Compulsory Purchase Act 1965).
45. Mr Rosen submitted that in a “no scheme” world, the claimant’s interest would have had a compensatable value. Several scenarios were possible. First, the administrators could have assigned the head lease to a new owner who could have either relocated the business or negotiated an extension of the lease, of up to five years. He referred to the decision of the Tribunal (HH David Mole QC and Mr P Francis FRICS in Halpern and Ors v Greater London Authority [2014] UKUT 116 (LC) in which it was held on the facts that construction of the Stratford City development would likely have commenced in 2012/13. Secondly, the collection of sub-tenants could have formed a consortium management company to carry out a similar operation. Third, the administrators could have run the site for as long as possible and would have agreed a minimum term to allow them a reasonable time to relocate.
46. Mr Rosen went on to argue that, irrespective of Celsius’s fate, Bluefoot would have negotiated a renewal of its lease. The Secretary of State would not have been able to successfully object to a renewal of the tenancy under grounds (c), (f) or (g) of s.30 of the 1954 Act. He thought it was quite possible that Bluefoot could have negotiated an amount beyond the amount prescribed under s.37 of the 1954 Act, although accepted that this would not have extended to a Stokes v Cambridge[1] ransom. Any notice under s.25 of the 1954 Act would have allowed Bluefoot at least six months and possibly up to 18 months’ occupation.
47. Mr Rosen indicated that, since he did not have experience and was not qualified to provide expert testimony on this issue, I should consider and make a decision on the “rule 2 value of the land acquired”.
48. There was, however, some indirect evidence from the claimant’s side in the form of the valuers’ statement of agreed facts in which Mr Highwood, for Bluefoot, agreed with Mr Cottage that the amount of basic loss payment would be nil. Mr Booth submitted that whilst Mr Highwood had not submitted any evidence, the only inference that could sensibly be drawn from this was that was that Mr Highwood did not consider that this head of claim had any value.
49. Mr Cottage is a Chartered Surveyor and a partner in the firm Glenny LLP. His opinion was that the administrators would in all probability have wound up Celsius First and closed the cold stores at some time between early 2007 and mid-2008. Since the company was in administration, and all of the other sub-tenant’s interests were to expire prior to December 2008, there was no reasonable prospect of Celsius First renewing its lease or continuing in occupation. He also noted that, as a periodic tenant albeit with a 1954 Act business tenancy, the claimant’s interest could have been terminated on six months’ notice. He thought that the claimant’s ability to continue in occupation was extremely uncertain and any purchaser of the claimant’s interest would have had no assurance that his or her occupation could continue beyond December 2008 at the latest.
50. Mr Cottage said that, had the court upheld the landlord’s objection to a new tenancy, any compensation under the 1954 Act would be equal to one times the notional rateable value of the reference property (as the claimant had been in occupation for less than 14 years). This would be calculated by the District Valuer since the cold stores were assessed as a single hereditament, but Mr Cottage suggested that the rateable value would have been between £8,650 and £10,380.
51. Mr Booth submitted that, as a matter of law, I must assume that the claimant’s tenancy would have been terminated at the earliest possible opportunity, relying on Bishopsgate Space Management Ltd and Teamworks Karting Ltd v London Underground Ltd [2004] 2 EGLR 175, by the service of a “hostile” notice under s25 of the 1954 Act on the valuation date, terminating the tenancy on 2 January 2008, and pursuing an accelerated determination from the court as to whether the claimant was entitled to the grant of a new lease pursuant to s29(2) of the 1954 Act.
52. Mr Booth said that either the claimant would have lost possession on 2 January 2008, or if it, or any hypothetical purchaser of its interest, contested the notice the position would have been at best uncertain. The landlord could have successfully objected to the new lease under section 30(1)(c) of the 1954 Act: “for any reason connected with the tenant’s use or management of the holding”. The court would have had regard to the significant expense of keeping the cold stores open; that the claimant occupied less than 1% of the total cold stores, and less than 13% of chamber 2; and that historically the landlord had not borne the cost of services. Had the court ordered the grant of a new tenancy, this would have been on terms which the claimant was financially incapable of meeting.
53. In the absence of legal representation for the claimant, I asked Mr Booth to consider whether I could actually assume that the Secretary of State, as the freeholder of the cold stores, would still have been intent on gaining vacant possession for another scheme (Stratford city) rather than that which framed the purpose of the CPO. Section 47(1) of the Land Compensation Act 1973 (“the 1973 Act”) provides (with my emphasis):
“Where in pursuance of any enactment providing for the acquisition or taking of possession of land compulsorily an acquiring authority—
(a) acquire the interest of the landlord in any land subject to a tenancy to which Part II of the Landlord and Tenant Act 1954 (security of tenure for business tenants) applies; or
(b) acquire the interest of the tenant in, or take possession of, any such land,
the right of the tenant to apply under the said Part II for the grant of a new tenancy shall be taken into account in assessing the compensation payable by the acquiring authority (whether to the landlord or the tenant) in connection with the acquisition of the interest or the taking of possession of the land; and in assessing that compensation it shall be assumed that neither the acquiring authority nor any other authority possessing compulsory purchase powers have acquired or propose to acquire any interest in the land.”
54. Mr Booth submitted that, for practical purposes, it is necessary to imply the words “pursuant to the scheme” at the end of that section. To do otherwise would lead to nonsensical consequences. If s47(1) was understood to include every instance of ownership by a body possessing compulsory purchase powers then no land in public ownership could ever properly be the subject of assessment pursuant to the provision, whatever the circumstances in which the public body acquired its interest. I accept that.
“Rule 2” claim – conclusions
55. I do not consider that any of Mr Rosen’s three scenarios, for which there was no supporting evidence, are realistic or likely and to an extent they are irrelevant, since the claimant only held a periodic tenancy at the date of valuation. As to whether the Secretary of State would have sought to terminate the claimant’s business tenancy at the earliest possible opportunity, I accept Mr Booth’s submission that I am to assume that this is the case as a matter of law (although that assumption does not in my judgement extend to ignoring the claimant’s right to the protection under the 1954 Act). Even on this accelerated scenario, in my view it is likely that Bluefoot would have had a short period of grace after the six month notice expired, if only until a court hearing. Without descending into complete speculation, in my view that period would not have been long, perhaps four to six months, and it is unlikely that the claimant would have been successful in an application for a new lease. I am therefore satisfied that at the valuation date the claimant’s position was indeed precarious.
56. Whilst the Lands Chamber is an expert tribunal, that expertise does not extend to assessing the amount of a claim in the absence of any evidence on the issue from a claimant. There was no evidence in support of the claim for the value of the leasehold interest. Indeed, an inference could be drawn that Mr Highwood considered the value to be nil, but he did not give any evidence to that effect. Whilst it is not for me to speculate in the absence of any evidence as to what that value might have been, even on the acquiring authority’s case as a matter of law the claimant is entitled to compensation that would have been paid under s39(2) of the 1954 Act:
“If the amount of the compensation which would have been payable under section 37 of this Act if the tenancy had come to an end in circumstances giving rise to compensation under that section and the date at which the acquiring authority obtained possession had been the termination of the current tenancy exceeds the amount of the compensation payable under … section 20 of the Compulsory Purchase Act 1965 in the case of a tenancy to which this Part of this Act applies, that compensation shall be increased by the amount of the excess.”
57. I therefore consider that the claimant is entitled to compensation to the extent that the compensation payable under s20 of the 1965 Act is increased by 39(2) of the 1954 Act. Mr Cottage’s figures assumed a rate of £50 - £60 per sqm, based upon the entire hereditament which was much larger, having a rateable value at £29 per sqm. I consider his £60 per sqm to be more appropriate given the sizes involved, and am therefore satisfied that the claimant is entitled to £10,380 under this head of claim.
58. Having made that determination, notwithstanding the valuers’ statement of agreed facts, the claimant is entitled as a matter of law to a basic loss payment of 7.5% of the “rule 2” value, and I therefore award a further amount of £778.50 to the claimant.
“Rule 6” Claim
59. The following heads of claim have been agreed between the parties as payable to the claimant:
Insurance/tax on van: £1,671.85
Factoring costs: £2,000.00
Vodaphone costs: £594.83
Post redirection: £191.60
Staff costs: £14,274.99
“Truck and trailer” costs (part): £2,600.01
Storage at Transcold: £2,986.92
Storage of office equip: £1,000.00
Pre-reference legal fees: £8,054.70
Pre-reference surveyor’s fees: £18,000.00
Total: £51,374.90
60. The remaining disputing elements of the claim were somewhat fluid up until the first day of the hearing, but ended up being presented on the following basis:
Extinguishment: £936,733.00[2]
Stock: £40,000.00
“Truck and trailer” costs (part): £1,573.75
IFE costs: £7,709.00
Director’s time: £50,250.00
Director’s bankruptcy: £9,875.00
Director’s redundancy: £908.67
Tax losses: £20,000.00
Total: £1,067,049.42
Extinguishment
61. Over the course of this reference, Mr Rosen has submitted various valuations, each increasing from the last, starting with the original amount of £732,247 outlined in the claimant’s statement of case. At the hearing, two figures were advanced: £847,857 on a “market value” basis, and £936,733 on a “valuation to owner” basis, both of which had been calculated by Mr Rosen. Each of these was significantly in excess of the valuations provided by the claimant’s expert witness, Mr Rabinowitz, whose valuations ranged from £287,000 to £510,000. For the acquiring authority, Mr Stevenson’s parameters ranged from nil to £98,400, although the latter figure was on a heavily caveated basis.
62. In order to put Mr Rosen’s valuation contention into context, it is useful to first outline the evidence of the claimant’s expert.
Mr Rabinowitz
63. Mr Rabinowitz is a Chartered Accountant, and a founding partner of Forensic Accountancy Services. He was instructed in October 2014 to produce a forensic accountant’s expert report on behalf of the claimant. However it was not until February that he started to draft his report, as the parties were in negotiations. His report dated 19 March 2015 was, he said, prepared at relatively short notice.
64. Mr Rabinowitz’s report was framed on a restricted basis. He had been instructed to value the extinguished trade at the valuation date and had been specifically instructed to assume that the revised accounts were materially accurate and that they represented a true and fair view of the results of Bluefoot and its balance sheet at the given period ends. He had relied upon the information provided by Mr Rosen. Mr Rabinowitz advised Mr Rosen that the veracity of the accounts was going to be an issue in the claim, but noted that Mr Rosen had offered to have the accounts audited – which the acquiring authority declined to fund.
65. Mr Rosen said that the company’s sales and gross profit had increased significantly over the years, and that over the final seven month period to the valuation date annualised sales were £676,000; annualised gross profit was £293,000; and annualised net profit was £118,000. As regards the balance sheet, the company had limited capital and net liabilities. Its assets predominantly comprised stock and debtors. There were significant creditors, principally trade creditors, amounts owed to a factoring company and PAYE. Mr Rosen was also owed significant amounts, although these had reduced by the valuation date. The company’s ability to trade remained reliant upon him.
66. Mr Rabinowitz said that whilst the company had significant losses in its early years, it first became profitable in the year ending November 2006, and remained profitable over the subsequent seven months up to the valuation date.
67. Mr Rabinowitz considered that the filing of the original accounts would have had little impact on his valuation of the company’s trade as at the valuation date. This was for three reasons. First, it was always Mr Rosen’s intention to prepare correct accounts and he assumed that this would in all eventuality have been done by the time of sale. Secondly, any purchaser of the trade would have carried out due diligence as to the accuracy of those elements of the accounts in which it was interested. Thirdly, the value of the trade predominantly arose from its sales, customer base, and the profits the company made in the final 19 months. Mr Rabinowitz assumed that the full breakdown of sales was available for verification, and that the profit and loss accounts for the final 19 months had been correctly prepared and filed.
68. Since Mr Rabinowitz was instructed to value only Bluefoot’s trade, he adopted a maintainable earnings method of valuation. This method was based on past profits and expectation for the future. Maintainable earnings were calculated after the exclusion of adjustment for extraordinary items, and after adjustments to the net profit for that element of director’s remuneration that was in excess of or below the commercial cost of their management. Mr Rabinowitz calculated that the company’s profit for the year to November 2006 was £77,000, and that for the seven months ending 2 July 2007 was £69,000.
69. Having no reason to doubt that any purchaser would not expect the company’s profitability to have continued at the rate achieved over the final seven months, Mr Rabinowitz flexed the seven-month figures to project what may reasonably have been achieved over the full 12 month basis. He assumed a very modest notional uplift in sales of 5% to take into account the detrimental effect the CPO was like to have had on the company’s sales and, to an extent, to reflect the fact that the company sales had increased at significant levels in each previous year. He also removed the overhead entry for the IFE (as it was a one off for which the company received no benefit); he increased the rent and rates figure to £35,800 (as the £17,900 in the accounts was for six months); he added back Director’s remuneration (as he was adjusting for it separately); and finally he reduced the factoring charges from £11,200 for the 7 month period to £10,000 for 12 months (since Bluefoot was starting to make profit and could have re-financed at a later point in time at less cost, and secondly that any potential purchaser is more likely to have refinanced at a much lesser cost than the pro-rata figure of £19,200). Having made these adjustments, Mr Rabinowitz calculated that the company’s maintainable earnings, before any adjustment to reflect Mr Rosen’s remuneration, was £159,000 before tax.
70. In terms of Mr Rosen’s remuneration, Mr Rabinowitz derived an amount from the Annual Survey of Hours and Earnings 2007 produced by the Office for National Statistics from which he adopted a notional value for the commercial services to the company by Mr Rosen of £40,000 per annum to include employer’s National Insurance contributions. On this basis, and allowing for corporation tax at 20%, Mr Rabinowitz arrived at net maintainable earnings of £128,000 before “director’s adjustment” and £96,000 after “director’s adjustment”.
71. In assessing a multiple, Mr Rabinowitz said that there was no hard and fast rule, and could find no comparable companies transactions. He attached an extract from the private company price index produced by BDO (“the PCPI”) from February 2009 which suggested an earnings multiple of around 12.9 for the third quarter of 2007. However in Mr Rabinowitz’s experience, private company multiples lie in the region of 3-7. Having not assumed any growth from the 2007 levels, and allowing for the initiative available to the company at the valuation date, he considered that an appropriate multiple was between 3 and 4. On this basis, he considered said that the value of Bluefoot’s trade at the valuation date in a no scheme world lay in the following range:
|
|
With director’s adjustment |
|
Before director’s adjustment |
|
|
£000’s |
|
£000’s |
|
Net maintainable profits |
96 |
|
128 |
|
Multiple |
3-4 |
|
3-4 |
|
Value |
287-382 |
|
383-510 |
72. Mr Rabinowitz commented that in each case he had provided for full corporation tax that would have been paid on Bluefoot’s profits but given that the company had tax losses of around £100,000 which could have been sold with the trade, these losses may well have added a further £20,000 or so to the company’s value.
73. Mr Rabinowitz’s valuations were therefore in a range between £383,000 and £510,000 on a value to owner basis, and between £287,000 and £382,000 on a “market value” basis.
74. During cross examination, Mr Rabinowitz made several concessions. He accepted that a more realistic level of director’s wage, on an annual basis and allowing for London weighting, was in the order of £53,500; he accepted that his choice of multiple had ignored the precariousness of the claimant’s occupation at the cold stores; that there had been no allowance for the fact that the accounts had been restated at Companies House; and finally that if the amounts for wages in the accounts changed significantly, this could have a significant effect on his valuations. In terms of the “initiatives” that Bluefoot planned to carry out, he accepted that his chosen multiple reflected these, but not to any material degree.
75. In addition, he accepted in cross examination that if he were advising a potential purchaser, he would be unable to endorse the accuracy of the amended accounts on the material available, and that there would be causes for concern.
Mr Rosen
76. I now outline Mr Rosen’s evidence in respect of the extinguishment claim. Mr Rosen is a business advisor, not a qualified accountant, and did not profess to have expertise in valuing companies. When his evidence strayed into giving an opinion, I treated this as submissions from a lay representative for the claimant and witness of fact, rather than an expert witness.
77. Unusually, Mr Rosen considered his own appointed expert’s figures to be too low. He also provided “valuations” on a market value and value to owner basis. These were founded upon Mr Rabinowitz’s method, but had slightly differing adjustments and which, compared to Mr Rabinowitz’s £159,431 net maintainable profit, was £171,107 as an annualised EBITDA[3] on a market value basis, or £155,345 on a valuation to owner basis, having added back director’s remuneration and the IFE costs.
78. Mr Rosen’s multiple of 6.03 was derived by applying a discount of 55% to the earnings multiple quoted for Quarter 3, 2008 PCPI, which for the third quarter of 2007 indicated a typical earnings multiple of 13.04. Mr Rosen’s choice of 6.03 had regard, he said to the “tremendous prospects” of Bluefoot. It bore no regard to the precariousness or otherwise of Bluefoot’s occupation – he did not consider that had any bearing on the valuation. Applying a multiple of 6.03 on each basis, Mr Rosen’s “valuation to owner” was therefore £936,733. His “market value” basis, allowing for director’s remuneration at £35,000, was £847,857.
Mr Stevenson
79. Mr Stevenson is a Chartered Accountant, a director in the firm Alix Partners, and gave expert evidence for the acquiring authority. He said that in valuing a business, the financial performance of the company in the years leading up to the valuation date was a primary consideration. The exercise should consider Bluefoot’s accounts for the five and a half years that the company had been trading. Historical performance was relevant because it helped to form a view of the prospects of the business. Many valuations were not based solely on the most recent period’s performance, but on the years leading up to that point to allow a view to be taken as to whether a company was, for example, consistently growing or consistently profitable. In the case of Bluefoot, there was a lack of clarity over the company’s performance. For example, two sets of accounts had been filed at Companies House, the profit and loss figures presented as part of the claim did not match the original accounts, and no underlying accounting records had been submitted in support of the amended accounts. Mr Stevenson said that this lack of certainty would normally result in a lower value being attributed to a business. The fact that Bluefoot had had to restate its accounts, and that Mr Rosen had admitted that the company’s record-keeping was poor, would both impact on the valuation.
80. Mr Stevenson had carried out two sets of valuations – based on the original accounts and the revised accounts. As a precursor, he compared the results in the years from 2002 to 2006 in the two.
81. He said that the key difference between the two sets of accounts was the trend that could be seen from 2002 to 2006. As a small company, Bluefoot was not required to file profit and loss accounts at Companies House. Since it was not in a position to pay dividends, however, the profit and loss reserve amounts in the filed balance sheets could be used to calculate annual profit and loss. Mr Stevenson said that these showed the following pattern:
|
Year ending Nov: |
2002 |
2003 |
2004 |
2005 |
2006 |
|
P&L |
£2,175 |
(£85,650) |
(£37,057) |
(£4,064) |
(£39,195) |
82. Mr Stevenson said that there were losses from the four-year period from year end 2003 to year end 2006 and that the losses incurred in year-end 2006 were greater than those incurred in the previous year suggesting that the company’s performance was in decline.
83. However he noted that the claim profit and loss figures showed an increasing and consistent improvement from full year 2003 onwards as follows:
|
Year ending Nov: |
2002 |
2003 |
2004 |
2005 |
2006 |
|
P&L |
(£63,775) |
(£86,682) |
(£69,501) |
(£20,414) |
£76,581 |
84. A comparison between the two tables shows that the revised figures provided worse results for the years 2002 to 2005 but an improved picture for the three years ending November 2006. The effect of this was to change the result from a loss to a profit one year earlier, making the business appear as though it was on a consistent upward trajectory. These different trends would, in Mr Stevenson’s opinion, have a significant impact on the valuation of Bluefoot. A company which had shown a consistent year-on-year improvement in performance would be more attractive to a purchaser, and more valuable to an owner, than one in which the trend was either erratic or in decline.
85. Mr Stevenson commented that since it appeared that Mr Rosen had not prepared claim P&L figures until around September 2008, at the valuation date the only figures which existed were those shown in the original accounts. Mr Stevenson suggested that the amended accounts were only filed at Companies House as a result of his requests for further information in correspondence between the parties. The filing of the amended accounts with Companies House had the effect of aligning Bluefoot’s official financial statements with the figures presented in the claim. In Mr Stevenson’s experience, when financial statements were restated or refiled with Companies House, this was usually because of a particular error or omission and the required changes were of a limited number and specific nature. The level of adjustment which appeared to have been necessary in Bluefoot’s case was unusual. Rejecting Mr Rosen’s contention that the differences between the two sets of accounts was minor, he identified eight lines in the accounts that required alteration.
86. On the basis of the original accounts, Mr Stevenson considered that Bluefoot had no value, either to a purchaser or to the owner. The company was technically insolvent, short of working capital, loss making up to November 2006, and lacking in proper accounting records. The apparent turnaround in performance for the first seven months of the 2007 accounting period would not be enough, in terms of valuation, to overcome the consistent losses incurred up to that point.
87. In valuing Bluefoot on the basis of the amended accounts, Mr Stevenson made certain assumptions. The first was that it should be recognised that the original accounts had actually been filed. The standard of record-keeping and reliability of financial information was relevant in the valuation of the business. His second assumption was that the profit and loss figures which supported the amended accounts could be taken at face value, although he commented that in doing this there was a risk that the value might be significantly overstated.
88. Mr Stevenson considered that any hypothetical purchaser would be concerned at Bluefoot’s need to file restated accounts, the extent of the changes required to arrive at the amended accounts, and that no profit and loss accounts appear to be available in relation to the original accounts despite the fact that they were filed at Companies House. In his view, a purchaser would view Bluefoot’s prospects, and an acquisition of Bluefoot, as significantly more risky than normal. He thought that this would have less of an impact on a value to owner than it would to any hypothetical purchaser, since despite accounting records being unreliable if the business was genuinely on an upward trajectory the owner would have known this. However this would not completely negate the impact of poor record-keeping when considering a valuation to owner.
89. In considering the value to a hypothetical purchaser, even on the amended accounts, Mr Stevenson considered that Bluefoot had no value. He considered that the positive aspects of the amended accounts, for instance that the business was on a upward trajectory and made its first profit in the full year of 2006, and that it was less reliant on its main customer, Compass, were outweighed by the concerns that a hypothetical purchaser would have over the company’s financial records, the uncertainty as to whether the company could have traded from the appeal property beyond December 2008 and the other negative aspects including cash flow problems, balance sheet and lack of customer contracts.
90. The only scenario in which Mr Stevenson considered that Bluefoot had any value at all was the value to its owner on the basis of the amended accounts. Like Mr Rabinowitz and Mr Rosen, Mr Stevenson’s valuation took the form of applying a multiple to a maintainable earnings figure.
91. Mr Stevenson’s maintainable earnings figure on this basis, like Mr Rabinowitz’s, assumed a pro-rata extension of the final seven months of trading to arrive at a notional final year’s figures had the company traded up until 2 November 2007, whilst commenting that this was a fairly simplistic method that was likely to result in an over-valuation. Mr Stevenson’s calculations departed from those of Mr Rabinowitz in three respects:
a. Mr Stevenson did not assume a 5% growth in sales in the “no scheme” world
b. Since the IFE was a bi-annual exhibition, he split the cost over two years
c. He estimated Mr Rosen’s wage to be £55,000
92. On this basis, Mr Stevenson calculated a notional adjusted net profit for the year ending November 2007 to be £73,671, or say £59,000 after small company corporation tax of 20%. He adopted this as his notional maintainable earnings figure.
93. As regards a multiple, Mr Stevenson said that he had had regard to the positive factors of the company’s position at the valuation date: that sales were growing each year; that it was becoming less reliant on its main customer, Compass; it had begun to generate profit and had put its history of losses behind it.
94. He had also borne in mind the negative aspects: that at the valuation date there were cash flow problems, the company was technically insolvent; at the valuation date, ignoring the £30,000 advance payment by the acquiring authority, it was overdrawn by just over £12,000 which would leave the company no option but to cease trading if a triggering event occurred, such as a customer’s late payment. It also faced the risk of being forced to relocate within 18 months at most, which would incur cost. It was a fact that Bluefoot failed to relocate, not least owing to its poor covenant.
95. He concluded that there was a significant amount of uncertainty surrounding Bluefoot’s future. Logically, unless there was the ability to create super-profits (which Bluefoot did not have), faced with a timescale of 18 months of future trading, a valuer cannot adopt a multiple of more than around 1.5. Mr Stevenson therefore adopted a multiple range of 1 – 1.5. He applied this to his adjusted maintainable profit after tax to arrive at a value range of £59,000 to £88,500, or after a value for tax losses was added, £67,100 to £98,400.
96. He stressed, however, that he had significant concerns regarding the accuracy and completeness of the profit and loss figures upon which his valuation was based – which assumed that they were to be taken at face value - and that Bluefoot could have stayed at the appeal property for up to 18 months. In the event that it was likely that Bluefoot would have been unable to stay at the appeal property for any longer than six months, then he did not consider any value should be ascribed, and would attribute nil value to the company.
Extinguishment - conclusions
97. In a claim for compensation following compulsory acquisition, it is for the claimant to show that they have suffered a loss, and that the amount claimed is reasonable. Whilst it is entitled to compensation, it is for the claimant to provide evidence in support of the claim.
98. In any appeal before the Tribunal, the evidence submitted is accorded weight. That weight depends upon various factors, which can include the credibility of the party submitting the evidence, their expertise, whether there is other evidence in support of the contentions made, or whether there are significant questions over the veracity of that evidence.
99. In this case, I have not placed any weight on Mr Rosen’s valuations. They were from a director and sole shareholder of the claimant company who had no professional obligation to provide an unbiased opinion to the Tribunal. Mr Rosen could not be expected to be objective and his valuations were significantly in excess of the figures contended for by the claimant’s own expert.
100. That leads me on to Mr Rabinowitz’s expert report. I would immediately say that I did not find his evidence to be evasive or untruthful in anyway and that he did his best to assist in the resolution of this dispute. However, by his own admission and indeed specific confirmation within his report, his valuation assumed the revised accounts to be entirely accurate, and that all of the information supplied by Mr Rosen was correct. This was despite his concession in cross examination that there would be causes for concern for a potential purchaser, and that he would not be able to endorse the accuracy of the accounts on the material available to him.
101. I am not satisfied that the profit and loss figures upon which the amended accounts and therefore Mr Rabinowitz’s valuation are based, are reliable, as I have significant concerns about the veracity of the evidence put forward by Mr Rosen. In my judgement he has consistently exhibited an entirely relaxed attitude to the accuracy of the information that he provided to a variety of bodies. He signed as a Director of a company of which he was not a Director. The original accounts, submitted to Companies House, were “approximate” or “rough”. The profit and loss figures supplied to Mr Cottage were, on closer examination, erroneous and had been in part cut and pasted from some client accounts. I found his oral evidence in respect of wages to be evasive and inconsistent.
102. Mr Rosen’s credibility as a witness was also undermined by his acceptance that, in effect, he was seeking to pull the wool over Mr Cottage’s eyes in terms of the redundancy payments. On any reasonable reading, Mr Cottage was attempting to ascertain the normal wages for the claimant’s employees. Instead he was provided with inflated figures purely to maximise the amount of redundancy which Mr Rosen was asking the acquiring authority to pay. In fact, this was exacerbated as one of the salaries was partly in respect of work which was not being carried out for the claimant company.
103. Mr Rabinowitz’s valuation was susceptible to a number of legitimate challenges mounted by Mr Booth, armed with Mr Stevenson’s comments. Mr Rabinowitz accepted that he had understated Mr Rosen’s notional wage, and that in the event that the company’s wage bill was in the order that Mr Booth suggested, his valuation would be significantly affected. It was also based, albeit to a lesser extent, on the anticipated exploitation of the various initiatives before Bluefoot. I am sceptical that having “tremendous prospects” was on any fair reading a realistic view of the claimant’s position. None of the initiatives upon which these prospects were based stood up to scrutiny.
104. Mr Rabinowitz’s valuation ignored the precarious nature of Bluefoot’s position, and assumes that a potential purchaser would have no concerns that it was based on restated accounts. Given that it was based on information which I am not persuaded can be relied upon as being accurate, I have placed no weight on Mr Rabinowitz’s evidence.
105. I consider Mr Stevenson’s evidence to be more reliable. He was the only witness to have reflected the fact that the original accounts were submitted to Companies House, and that in the “no scheme” world a potential purchaser of Bluefoot - whether the company or simply its trade - would have concerns about the reliability of the revised information provided.
106. I do not consider it appropriate or indeed necessary to have any regard to Mr Stevenson’s valuation on the basis of the original accounts, as both parties consider these to be incorrect. Mr Stevenson’s valuation on the basis of the revised accounts was heavily caveated. First, it assumes that the revised profit and loss figures were correct – and as indicated above I am not satisfied that that is an assumption that can reliably be made. Secondly, Mr Stevenson was careful to say that his valuation was based on assumptions about which he was highly sceptical. Having heard the remainder of the evidence, I think he was right to be sceptical, and do not consider that those assumptions can safely be relied upon. Mr Stevenson indicated that in such circumstances his valuation of Bluefoot at the valuation date was nil. In my judgement, that assessment is correct, and I make no award of compensation for the extinguishment of the business.
107. I can deal with the remaining elements of the claim relatively shortly.
Stock
108. The parties agree that the appropriate value of the stock held by the claimant at the valuation date was £40,000. Mr Rosen submitted that this figure should be payable as compensation over and above any compensation for the extinguishment of Bluefoot’s business, on the basis that a business is normally sold on the basis of the valuation of goodwill “plus stock at valuation”.
109. Mr Stevenson said that the stock held by the company at the valuation date was an asset to be used in the generation of future revenue. If no stock were owned this would have a negative effect on the valuation. The value of the stock had already been allowed for in the valuation.
110. However, in the circumstances where the extinguishment has been valued as nil, it must be right in my view to award the agreed value of the stock to the claimant, and I therefore award £40,000 under this head of claim.
“Truck and Trailer” costs (part)
111. The original claim for “truck and trailer” costs amounted to £5,907.50. Following the amount of £1,733.74 being withdrawn, and £2,600.01 being agreed by the acquiring authority, the sum of £1,573.75 remains.
112. The claimant leased commercial vehicles from a company called Collease Truck and Trailer Rentals Ltd (“Collease”). One of the vehicles was involved in an accident. Mr Rosen said that after he returned the vehicle to them, Collease carried out repair works, at a cost of £1,573.75 without further reference to him, and issued an invoice to Bluefoot in that amount (plus VAT although that is not claimed). Mr Rosen said that the vehicle was insured, but the repairs were carried out before Mr Rosen could arrange for the vehicle to be inspected by the company’s insurers. Mr Rosen said that as a direct result of the CPO, the vehicle could not be repaired under his insurance.
113. Mr Cottage said that the cost of repairs were not related to CPO, even in the vaguest sense. There was no causative link between the Order and the alleged loss. Additionally, the claimant failed to mitigate its loss by competently arranging for the vehicle to be repaired under its insurance policy.
114. Mr Booth submitted that the claimant had failed to make out its case for causation, referring to Director of Buildings and Lands v Shun Fung Ironworks [1995] 2 AC 111 in support of this.
115. As identified in Shun Fung, in order to be compensatable, a claim for disturbance should not be too remote and should be a reasonable and natural consequence of the dispossession of the claimant; there must be causal connection between the dispossession and the loss; and there is a duty on the claimant to act reasonably, and to mitigate its loss. I am not persuaded that the claim for the cost of vehicle repairs flows as a natural consequence of the dispossession, nor that there is any causal connection between them. In my view this element is not claimable, and I make no award of compensation to the claimant under this head of claim.
IFE Costs
116. The claimant claims £7,709 as compensation for the cost of attending the International Food Exhibition in March 2007. Mr Rosen submitted that as a result of the CPO, the claimant was unable to derive any benefit from the cost of the event by exploiting the commercial opportunities it presented.
117. Mr Cottage said that this element had already been included in the accounting function, and had been reflected in the extinguishment valuation. The growth in business, which had been valued, or as Mr Rosen had it the “tremendous prospects”, included an element for the IFE costs. In any event, it had been added back in to the valuation before a maintainable profit.
118. Mr Booth pointed out that the claimant’s statement of case, suggested an earnings multiple “taking into account all of the above factors”, and that the factors referred to included, at several points, reference to Mr Rosen’s attendance at the IFE.
119. I accept that the IFE costs have already been accounted for in the extinguishment valuations provided by both Mr Rosen and Mr Rabinowitz. Mr Stevenson’s approach, which I have adopted above, was to split the cost of the IFE exhibition over two years and add it back into the adjusted profit. In fact, this was on the basis that the cost of the exhibition was £11,004, and Mr Stevenson added back £5,502. On the basis that the actual cost of the IFE exhibition was £7,709, this has overstated the valuation, to the claimant’s benefit, by just over £1,300. I do not consider it necessary to make any deduction for this, but I make no further award of compensation to the claimant under this head of claim, as to do so would amount to double counting.
Director’s time
120. The claimant claims £50,250 as compensation for director’s time. This element of claim was, at the time Mr Rosen was seeking to add himself as a joint claimant, said to be time incurred by him as the second claimant. However in the context of a limited company claimant, I have assumed this to be management time.
121. Mr Rosen said that the claim was on the basis of 402 hours up to 2 July 2007 at £125.00 per hour. In a response to a request for information by Mr Cottage, dated 12 September 2013, Mr Rosen said that
“I do not have any documentary evidence as such to support the claim for time. I have some notes and from memory have assessed time to a revised total of 605 hours.”
122. Of those 605 hours, 402 were up to 2 July 2007. This, the 12 September 2013 document said, comprised
“Specific properties: 108 hours
General searching: 170 hours
Pack-up, relocation
and storage: 44 hours
Borekas deliveries
and sales: 50 hours
Administration of
CPO up to 2/7/7: 30 hours
123. Mr Rosen accepted in cross examination that he was not paid an increase in salary by the claimant for the time he devoted to the CPO.
124. Mr Booth submitted that there was no contemporaneous record of time spent, simply an assertion made eight years after the event. More importantly, even had the time actually been incurred, there was no evidence of loss caused to the company. No claim had been made that in the absence of spending time on issues related to the CPO, Mr Rosen would have had more time to devote to various business initiatives. No “lost clients” had been identified, there was simply a general assertion of loss. Relying on Lancaster City Council v Thomas Newall Ltd [2013] EWCA Civ 802, Mr Booth submitted that the absence of any evidence to support the claim was significant.
125. Mr Booth went on to submit that, a large part of the claim under this head was in respect of the search for alternative accommodation, which the claimant and Mr Rosen would have had to have confronted in any event given the demise of Celsius and the precarious nature of the claimant’s occupation. Additionally, the time spent had already been reflected in Mr Rabinowitz’s 5% increase in sales.
126. In my view, Mr Booth correctly identified that the claim does not satisfy the requirements set down in Thomas Newall, in which Rimer LJ said this:
31. TNL's problem is that there was, however, no evidence before the tribunal on which it could find that TNL had suffered the claimed, or any, loss. That was because, for the reasons explained, there was no evidence entitling the tribunal to link the time devoted by the Loxam directors on acquisition matters to consequential loss suffered by TNL. It is not enough merely to prove that a director of a company has devoted time to dealing with such matters. It is necessary also to prove how his devotion of such time impacted upon the company and caused it loss.”
127. Having rejected Mr Rabinowitz’s valuation, I find that Mr Booth’s last objection falls away. His subsidiary point regarding the inevitability of the requirement for Mr Rosen to spend time searching for alternative premises in the no scheme world, has some merit. However both of these points are secondary to the main obstacle to the claim, which is that, following Thomas Newall, I have little option but to reject the claim for lack of evidence of any loss having been sustained by the claimant as a result of the time devoted by Mr Rosen to dealing with the consequences of the CPO. I therefore make no award to the claimant under this head.
Director’s Bankruptcy and Director’s Redundancy
128. I can deal with these two heads of claim together and fairly briefly. The claimant claims £9,875 for the costs of Mr Rosen’s bankruptcy, and £908.67 for his redundancy.
129. No evidence was submitted in support of the claims, and there was no evidence that the claimant company suffered any loss in connection with them. I make no awards of compensation to the claimant under these heads.
Tax losses
130. There was no dispute between the parties that tax losses from previous trading years have a value. The claimant claims £20,000. However for the reasons outlined above, I have already reflected the value of these tax losses in adopting Mr Stevenson’s valuation which allowed for them. I make no further award of compensation to the claimant under this head of claim.
Conclusions
131. I therefore determine that, in addition to the agreed compensation outlined in paragraph 34 above, totalling £51,374.90, I award £40,000 to the claimant for stock; £10,380 in respect of the “rule 2” claim, and £778.50 as a basic loss payment. Accordingly the total compensation payable to the claimant is £102,533.40. In addition the claimant is entitled to statutory interest.
132. Mr Rosen submitted both before and during the hearing that Bluefoot had not been treated fairly by the acquiring authority. I do not consider that allegation to have any foundation. In my view, once his plight became known to it, the authority made considerable efforts to assist in the relocation of Bluefoot, but to no avail. At the hearing, counsel for the acquiring authority provided assistance throughout, including patiently accommodating an unusual degree of procedural flexibility to ensure that Mr Rosen was not, as a lay litigant, disadvantaged.
133. This decision is final on all matters other than the costs of the reference. The parties may now make submissions on such costs and a letter giving directions for the exchange of submissions accompanies this decision.
Dated: 25 September 2015
 |
P D McCrea FRICS