Compulsory purchase – Compensation – Disturbance – Whether total extinguishment or hypothetical relocation – Determination of hypothetical relocation costs
The claimant owned premises that it occupied for
the purposes of a wholesale cash-and-carry business for food, alcohol and
cigarettes. Following the confirmation in August 1992 of a compulsory purchase
order relating to roadworks, the acquiring authority took possession of the
premises in March 1996; the business was then closed down. Although the parties
agreed a number of the heads of claim, the principal issue between them was
whether compensation should be assessed on the basis of total extinguishment of
the business, as the claimant contended, or on the basis of a hypothetical
relocation, as the acquiring authority argued. On a total extinguishment basis
the claimant sought £6,573,404 and the acquiring authority put forward
£1,687,819; on a notional relocation basis the claimant sought £4,835,126 or
£6,834,860, depending on the suitability of the site, and the acquiring authority
put forward £1,675,308.
reasonable businessman would have done so; there had been an opportunity to
relocate in relation to two alternative sites. The claimant, in failing to relocate,
did not take steps to mitigate the additional losses that would be caused by
extinguishment. Compensation was therefore assessed on the basis of
hypothetical relocation. The total compensation on this basis, which included
the value of the land taken of £902,000, was £1,979,778.
The following cases are referred to in this
report.
Clibbett (W) Ltd
v Avon County Council [1976] 1 EGLR 171; [1976] EGD 385; (1975) 237 EG
271; [1976] 16 RVR 131, LT
Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111; [1995] 2 WLR 404;
[1995] 1 All ER 846; [1995] 1 EGLR 19; [1995] 19 EG 147; [1995] RVR 124, PC
Harvey v Crawley
Development Corporation [1957] 1 QB 485; [1957] 2 WLR 332; [1957] 1 All ER
504; (1957) 55 LGR 104; 8 P&CR 141, CA
Lindon Print Ltd
v West Midlands County Council [1987] 2 EGLR 200; (1986) 283 EG 70;
[1986] 27 RVR 28
Prasad v Wolverhampton
Borough Council [1983] Ch 333; [1983] 2 WLR 946; [1983] 2 All ER 140;
(1983) 82 LGR 265; 47 P&CR 252; [1983] 1 EGLR 10; [1983] EGD 627; 265 EG
1073, CA
Service Welding Ltd v Tyne & Wear County Council (1979) 38 P&CR 352; 77
LGR 646; [1979] 1 EGLR 36; [1979] EGD 664; 250 EG 1291; [1979] JPL 612, CA
Sireling & Broder Ltd v Tower Hamlets London Borough Council [1976] 1 EGLR 193;
(1976) 237 EG 967
Tamplins Brewery Ltd v Brighton County Borough Council (1971) 22 P&CR 746;
216 EG 531, LT
Tragett v Surrey
Heath Borough Council [1976] 1 EGLR 175; (1975) 237 EG 423, LT
Robin Campbell (instructed by Halliwell Landau, of
Manchester) appeared for the claimant; John Barrett (instructed by the
solicitor to Salford City Council) represented the acquiring authority.
Giving his decision, MR PAUL R FRANCIS FSVA
said:
Introduction
This is a reference to determine the compensation
payable for the compulsory acquisition of the claimant’s freehold
cash-and-carry warehouse premises in Salford, Greater Manchester.
Mr Robin Campbell, of counsel, appeared for the
claimant, and called:
Mr Michael Lamba, a director of Lamba Trading Co
Ltd. Mr Lamba gave background and chronological evidence relating to the
business.
Mr Brendan O’Herlihy FRICS, director of
development, Chesterton International Property Consultants, Manchester. Mr
O’Herlihy gave evidence relating to the claimant’s search for alternative
premises.
Mr Jonathan Lewis Hindley BSc FRICS, property
consultant and former director of Chesterton International Property
Consultants, Manchester. Mr Hindley gave evidence relating to the valuation of
the subject premises and comparables.
Mrs Sara Anne Fowler BA ACCA, an associate of
Ernst & Young, chartered accountants, Manchester. Mrs Fowler gave evidence
relating to the value of the business.
Mr John Barrett, of counsel, appeared for the acquiring
authority and called:
Mr Antony Barrie Woolf FCCA, a partner in KPMG,
chartered accountants of Manchester. Mr Woolf gave supporting evidence relating
to the value of the business.
Mr James Pullan, former crime prevention officer
with Manchester City Police. Mr Pullan gave evidence relating to security
aspects.
Mr Anthony Thomas Docherty ACII, chairman and
managing director of AT Docherty General Underwriting Agency Ltd, of Widnes,
Cheshire. Mr Docherty gave evidence relating to buildings and contents
insurance aspects.
Mr Robert Marshall Shaw FRICS, managing partner,
Knight Frank, chartered surveyors, Manchester. Mr Shaw gave evidence on
availability of alternative premises and sites.
Mr Paul Gannon BSc FRICS, managing partner, Cotton
Thompson Cole, chartered surveyors, Manchester. Mr Gannon gave evidence
relating to the value of the subject premises, comparables and the value of the
business.
Facts
The parties helpfully produced a statement of
agreed facts, a summary of the facts in dispute and a useful agreed chronology
of action taken by the claimant over the period between 1987 and March 1996.
From these statements, and the evidence, I find the following facts:
The claimant is Lamba Trading Co Ltd of PO Box
177, Salford, Greater Manchester M5 2RS.
The acquiring authority are Salford City Council,
of Salford Civic Centre, Chorley Road, Swinton, Salford M27 5DA (the council).
The claim relates to land and premises at the
junction of Trafford Road and Taylorson Street South, Salford, Greater Manchester
(the subject premises). They were located close to the Trafford Swing Bridge
over the Manchester Ship Canal, and were strategically positioned with good
access from a wide geographical area around Manchester.
The business conducted from the subject premises
traded as Lamba’s cash-and-carry, and its principal activities were wholesale
food, alcohol and cigarette distribution. There was no retail sales element to
the business.
The subject premises had a floor area of 29,750 sq
ft (2,764m2), including the first-floor offices, but excluding the two-storey
offices on the northern bay, which were sublet to Banner Catering Ltd.
Externally, there was a small car park and yard adjacent to the southern
elevation and accessed via Taylorson Street South. The total site area amounted
to 0.98 acres (0.4ha). There were two advertising hoardings attached to the
premises.
The subject premises, which had originally been
constructed in about 1955 as a three-bay engineering works, were of steel frame
with part brick and part asbestos cladding under asbestos roofs incorporating
patent glazing panels, and were acquired by the claimant in two phases. The
first two bays were bought in 1977 (with trading therefrom commencing in 1979),
and the third bay was bought in 1982. The southern two bays had eaves heights
of 9.15m (30ft), and had a combination of pallet-racking for bulk stock and
supermarket-style racking for wines, spirits and tobacco sales, with basic
office accommodation at first floor adjacent to the southern wall. The northern
bay, which was partly used for holding bulk stock and partly for sales, had an
eaves height of approximately 6.1m (20ft).
Trafford Park Development Corporation (the
development corporation) was established in 1987 to regenerate its urban
development area, and the subject premises were located within its area.
On 14 October 1987 the claimant received a letter
from Dunlop Heywood, consultant surveyors of Manchester, confirming, following
a telephone conversation, a meeting to be held (on 20 October) to discuss the
possibility of them being retained by the claimant in respect of the impending
compulsory purchase of their land.
22 October 1987: The council’s planning and
development committee passed a resolution to approve a road improvement scheme
to widen Trafford Road in the vicinity of the subject premises and elsewhere,
and, subject to approval by the finance subcommittee, to authorise the city
technical services officer to negotiate the acquisition of the necessary land.
These matters, and the principle to the making of an order for the compulsory
acquisition of those land interests that could not be acquired by agreement,
were duly ratified by the council. This, and other schemes in the area, were
intended to improve road links into the Salford Quays area. It is the
compulsory purchase order relating to this scheme that is the subject of this
claim.
30 November 1987: The claimant was notified by the
parliamentary agents for the Greater Manchester Passenger Transport Executive
(GMPTE) that powers were being sought to construct a new light rapid transport
system whose route would include part of the subject premises. This was to be
an extension to the existing Metrolink system, linking central Manchester with
Salford Quays.
In 1987 the claimant commenced a search for
suitable alternative premises or sites to which the business could be
relocated, and appointed Chesterton to act as its retained agent in this
regard. The claimant also contacted the council and sought assistance in
identifying potential opportunities.
22 February 1989: Chesterton corresponded with the
council regarding the claimant’s interest in purchasing a site at Albion
Way/Liverpool Street, Salford, and requested an option to purchase. The council
also wrote to the claimant on that day, seeking access to the subject premises
for a land survey in connection with the proposed scheme.
March 1989: Discussions commenced with the
vendor’s agents relating to a vacant site of approximately two acres at Ordsall
Lane, Salford, Greater Manchester (the Ordsall Lane site). This was to be
offered to the market for sale by tender.
31 March 1989: The council advised Chesterton that
the Albion Way site would not be available, as they were considering a joint
disposal with the adjoining landowner to facilitate a comprehensive
redevelopment scheme. They also advised Chesterton that they would let it know
if any other suitable sites became available.
1 April 1989: The claimant advised the council of
its interest in the Ordsall Lane site, and sought their support in respect of
planning for a cash-and-carry warehouse as and when the site was acquired.
19 May 1989: The claimant tendered for the Ordsall
Lane site in the sum of £475,000.
2 June 1989: The claimant’s offer for the Ordsall
Lane site was accepted, and completion took place in July 1989.
14 August 1989: The claimant had discussions with
the council relating to its desire to obtain planning permission, and was
advised that it was unlikely that the council would approve any planning
application for the land, even for short-term use, due to the area’s likely
designation for tourism-related uses. As a result, the claimant started to
investigate other sites for a single storey cash-and-carry warehouse of up to
50,000 sq ft.
20 September 1989: The claimant attended a meeting
with the council’s planning department, and was advised that a further study
was being initiated for the area within which the Ordsall Lane site was
located. The site was likely to be designated within an area of proposed
parkland. The claimant was also advised that the development corporation had
been the under-bidder at the tender, and that it might be interested in
acquiring the land.
13 October 1989: The council wrote to Chesterton
advising that due to the fact that the area in which the Ordsall Lane site was
located was being considered for leisure and business related uses in a
parkland setting, it was premature to consider a change of use of the land,
temporarily or otherwise.
1 December 1989: Chesterton wrote to the council
expressing frustration in respect of negotiations over sites at Trinity Way and
Albion Way/Liverpool Road, which had been investigated as possible options by
the claimant. The claimant was also investigating other sites during December,
but rejected those at Ashburton Road East, Unit 7 Springfield Trading Estate,
land on Trafford Park Road, Westpoint Enterprise Park and Colgate Lane, as
unsuitable.
The claimant had also considered a site at
Greengate North in Salford (the Greengate site), which belonged to the council.
Negotiations in respect of this site took place over a long period, and on 7
February 1990 Chesterton sought a price from the council. On 21 February
Chesterton wrote to the claimant advising that the council were still not in
favour of a cash-and-carry operation at the Ordsall Lane site, but were
encouraging development instead on the Greengate site.
February 1990: The claimant investigated a site at
Chester Road, White City.
2 March 1990: The council wrote to Chesterton
seeking details of the claimant’s proposals for the Greengate site, suggesting
that while it might really be more suitable for uses other than a
cash-and-carry, subject to the claimant’s proposals being acceptable, there
might be an opportunity for it to purchase it on a one-to-one basis. The
council had originally intended to offer the site for sale by tender.
16 March 1990: Chesterton provided the information
the council were seeking.
24 May 1990: Chesterton raised queries with the
council whether an L-shaped area of surplus land, which they were proposing to
sell to Renault, would be available to the claimant.
5 June 1990: The council informed Chesterton that
the additional land would not be available, and enclosed a plan showing the
position of the proposed boundary.
31 July 1990: The council wrote to Chesterton (in
response to a letter from Chesterton dated 20 June 1990 – not included with
tribunal papers). The council said they would prefer to see the disposal of the
site based upon a rent rather than a capital sum, and that there might be an
opportunity to agree a land-swap with the Ordsall Lane site.
4 September 1990: Chesterton advised the council
that preliminary sketches for the proposed development at Greengate had been
commissioned, but asked that the council’s likely requirements for substantial
on-site car parking be reconsidered, as such was not necessary for
cash-and-carry use.
14 September 1990: Chesterton sought an urgent
meeting with the council to discuss the proposals for the Greengate site, now
that the preliminary sketches were available.
12 October 1990: The council wrote to the NISA
Group (the trade group of which the claimant was a member) setting out the then
current position, advising that negotiations for the Greengate site were at an
advanced stage, and accepting that, due to the nature of the claimant’s
business, there would be a necessity for a period of dual trading on the
relocation.
15 October 1990: The council wrote to Chesterton
advising that the development drawings had been passed to the appropriate
departments for comment, and confirming again that the additional land that the
claimant required was unlikely to be available, as it was required by the
developer of the adjoining site.
11 December 1990: The council wrote to Chesterton
with revised drawings for the claimant’s consideration.
3 January 1991: Chesterton advised the council
that their revisions were not acceptable, as it was imperative that the
customer access and check-out counters should be at the front of the building.
It requested that the council reconsider.
26 February 1991: The council advised Chesterton
that, despite a lack of immediate success, they were still bidding for funds to
undertake the road improvement scheme, that they were now prepared to accept
the claimant’s requirements for separate loading and car parking areas (subject
to some amendments) on the Greengate site, and that the use of the Ordsall Lane
site for a cash-and-carry would be strongly opposed.
June 1991: A planning application was submitted on
behalf of the claimant for a cash-and-carry warehouse on the Greengate site.
August 1991: The council applied for planning
permission for the road improvement scheme, and served notice on the claimant.
6 August 1991: The claimant was advised by the
council’s city technical services department that it was hoped to make a start
on the road improvement in December 1992.
7 August 1991: The council wrote to Chesterton
with draft heads of terms for the proposed sale of a long leasehold interest in
the Greengate site.
November 1991: The claimant was informed that a
decision on the planning application for the Greengate site had been deferred
for a site visit.
15 November 1991: The claimant’s architect wrote
to the council expressing dissatisfaction at the way matters were proceeding,
and advising them that the claimant was seeking the advice of its legal and
financial advisors regarding the possible option of closure of the business.
21 November 1991: The claimant attended a meeting
with the council to progress matters regarding the potential development of the
Ordsall Lane site, the minutes of which record that due to the deferral of the
planning application on the Greengate site, the claimant was considering extinguishment.
20 December 1991: The council made their CPO and
side-roads order, affecting the subject premises.
14 January 1992: The council wrote to the
claimant’s architect with suggested amendments to the sketch plans relating to
the proposed development of the Ordsall Lane site.
22 January 1992: The claimant’s architect
responded to the council, saying that the requirement for 130 car parking
spaces was far in excess of that required for the cash-and-carry warehouse, and
unless this could be reduced, thus allowing a 50,000 sq ft unit to be built on
the site, the claimant would not be able to consider relocation there.
17 January 1992: Full planning permission was
obtained by the council for the CPO scheme.
28 February 1992: At a meeting between the council,
the claimant and its architect, it was agreed that an application for the
construction of a 50,000 sq ft cash-and-carry warehouse, with 74 plus 10 car
parking spaces, on the Ordsall Lane site was likely to be supported.
8 March 1992: A planning application was submitted
on behalf of the claimant for a cash-and-carry warehouse of 50,000 sq ft on the
Ordsall Lane site.
12 March 1992: The council served notice of the
City of Salford (Trafford Road Improvement [The Quays to Trafford Road Swing
Bridge]) Compulsory Purchase Order 1992 on the claimant.
25 April 1992: The council advised Chesterton that
they were confident that funding for the CPOs would be forthcoming in the
1993/94 financial year, and that works should commence on the site upon which
the subject premises were located in October 1993. They also sought details of
the claimant’s compensation claim.
19 June 1992: Planning permission was granted for
a cash-and-carry warehouse on the Ordsall Lane site.
Following the amendment of drafting errors discovered
in the original order, the council made a further order on 6 August 1992, and
served it on the claimant on 13 August. The order was entitled the City of
Salford (Trafford Road Improvement [The Quays to Trafford Road Swing Bridge])
Compulsory Purchase Order 1992. The order followed the public inquiry that had
commenced on 4 May 1992, and at which the claimant had not appeared.
3 September 1992: Chesterton advised the council
that it was putting together details of a claim, which, it said, was hoped to
be on a relocation basis. It also advised that, even on this basis, the figures
were extremely high.
October 1992: The claimant investigated a site at
Waters Edge Business Park.
6 October 1992: The council wrote to Chesterton
seeking an indication of fees incurred to date, and estimates of costs of
proceeding to tender on the Ordsall Lane site development, to which stage they
wanted the claimant to proceed.
19 October 1992: Chesterton advised the council
that costs to date amounted to £258,323.97, a substantial proportion of which
related to interest and holding costs on the Ordsall Lane site. Costs, it said,
had also been incurred investigating other sites, with the council’s
encouragement.
2 November 1992: The council sought further detail
on some of the points of claim, and this information was provided by Chesterton
on 6 November.
18 January 1993: Chesterton wrote to the council
stating that it understood that funding for the council’s scheme had again been
unsuccessful, and that as the claimant could not develop the Ordsall Lane site
without the commitment from Salford to purchase the premises, it might have no
alternative but to sell the site due to excessive interest charges, to recoup
some money. The letter also warned that the claimant might not be able to
relocate, even when the council found the money.
10 March, 23 April and 21 May 1993: Chesterton
sought responses to its 18 January letter.
31 August 1993: The CPO was confirmed by the
Secretary of State for Transport.
8 December 1993: The claimant received a request
for information relating to land ownership from a company acting for GMPTE.
23 December 1993: The claimant was advised that
GMPTE was applying for compulsory purchase powers in connection with the
Metrolink extension scheme.
20 January 1994: Chesterton objected to the GMPTE
scheme on behalf of the claimant.
March 1994: The claimant renewed its search for
alternative sites or premises, and investigated the LEP premises on Trafford
Wharf Road, and other premises known as the Albion.
7 April 1994: The claimant’s solicitor advised the
council of its involvement, and sought information.
27 April 1994: The council wrote to Chesterton
confirming that agreement had been reached in principle regarding the provision
of funding for the acquisition of properties, in advance of the receipt of
funding from the Department of Transport. They also confirmed that they were
prepared to consider eligible items of claim/expenditure, but expressed
concerns about the "dual trading" aspects of the proposed relocation
and suggested some alternative thoughts.
4 May 1994: Chesterton wrote to the council
seeking confirmation that further items of expenditure on professional fees in
respect of its investigations of various options could be claimed.
12 May 1994: The council responded to the
claimant’s solicitor’s letter with the information requested in their letter of
7 April.
9 June 1994: The council responded to Chesterton’s
letter of 4 May confirming that they were prepared to consider any eligible
terms of claims/expenditure in respect of the relocation.
17 June 1994: Chesterton wrote to the council with
detailed observations relating to the difficulties the claimant would be facing
with regard to the mechanics of the proposed relocation. It also pointed out
that after discussions with the police and its insurance brokers, the claimant
was having second thoughts about the wisdom of moving to the Ordsall Lane site.
June 1994: The claimant made an offer on the LEP
premises. This was subsequently rejected.
June-December 1994: Further correspondence between
the council and the claimant’s solicitor.
13 July 1994: The council wrote to Chesterton
confirming that following the successful conclusion of discussions between the
city council and GMPTE, they were now effectively in funds, and could proceed
with the acquisition of the claimant’s property.
14 July 1994: The council served notice to treat
on the claimant.
1 September 1994: Chesterton advised the
development corporation of the claimant’s renewed search.
5 September 1994: The development corporation
provided a printout of all available properties.
5 October 1994: The claimant investigated the
Kratos premises in Trafford Park.
28 October 1994: The claimant’s insurance brokers
wrote to advise that they strongly recommended that in regard to future
development, from an insurance viewpoint, it should look to redevelop
elsewhere. Relocating away from the Ordsall Lane site would make the risk, they
said, more attractive to insurers.
30 November 1994: The claimant commenced
discussions with the development corporation regarding a site it owned at
Cornbrook.
6 December 1994: The claimant and Chesterton had a
meeting with the development corporation regarding Cornbrook.
12 December 1994: The claimant’s solicitor submitted
the form of claim for compensation in response to the notice to treat.
20 December 1994: The council acknowledged receipt
of the claim forms.
6 March 1995: The development corporation
confirmed that it was unable to progress matters on the Cornbrook site.
28 March 1995: The council wrote to Chesterton,
following a meeting with their surveyor and Mr O’Herlihy, expressing
disappointment that there were no suitable sites/premises for the claimant’s
relocation, and requesting the claim for compensation for the bricks and mortar
for the whole of the subject premises, including the part that was let.
28 April 1995: Chesterton wrote to the council
requesting an early meeting to discuss issues and possible solutions. It also
said that, with the date on which the council would require possession drawing
ever closer, the claimant was now precluded from relocating to a site on a
design and build basis, and even relocation to existing premises, assuming a
suitable unit could be found, would be extremely tight. Chesterton also pointed
out that the claimant had no wish to extinguish its business, but the options
for relocation were being swiftly reduced. It mentioned the LEP premises on
Trafford Wharf Road, and said that while the building met the main criteria of its
client, being close to its existing property, prominently located and easily
accessible, it was much larger than the claimant required and thus expensive.
It would require extensive alterations to convert it from a transport warehouse
to a cash-and-carry warehouse. Chesterton said that if the opportunity to
acquire the LEP building was lost, all chance of relocating the business would
also be lost.
1 May 1995: Chesterton wrote to the council saying
that in order for the claimant to commit itself to the purchase of the LEP
building, it would need additional financial assistance over and above the
normal heads of claim applicable to a CPO, particularly as it was some 30% too
large. In respect of the Ordsall Lane site, Chesterton reminded the council
that it had been acquired in 1989 for £475,000, interest was continuing to be
paid thereon, and that in the interim period the area had deteriorated, and
neither the police or the claimant’s insurers would support a move there.
Interest on the acquisition of this site was, therefore, being sought.
10 May 1995: The claimant submitted an offer of
£1,925,000 for the LEP building.
12 May 1995: The council served notice of entry on
the claimant, relating to the part of the subject premises occupied by Banner
Catering Ltd, this having an effective date of 29 May 1995.
24 May 1995: Chesterton wrote to the council
stating that if the Ordsall Lane element of the claim were not allowable for
compensation, the claimant would not be able to pursue the purchase of the LEP
building without considerable financial assistance. It also said that the LEP
building was currently the only suitable one available, although it was still
too large and needed a lot of work.
26 May 1995: The council wrote to Chesterton and
acknowledged that the deadline for removal was now approaching rapidly, and
that it was anticipated that removal to an existing building was the only
option remaining. While the council would be unlikely to accept the capital
expenditure required on the LEP building (estimated at some £600,000) as a
valid head of claim, as it would add value, in principle they would be prepared
to underwrite the rent of part for a limited period, if that would assist. The
situation regarding the claim for the holding costs of the Ordsall Lane site
was, they said, proving difficult to resolve, and advice from other local
authorities was being sought. In the meantime, the council were prepared to
make advance payments of compensation (up to 90%) as and when necessary, and in
that regard sought details of the claim relating to the subject premises.
19 June 1995: The council wrote to Chesterton
advising that they were taking counsel’s advice on the matter of the Ordsall
Lane site, and expressing concern that the costs for relocation were continuing
to increase. In that regard, they requested details of Chesterton’s valuation
on the basis of extinguishment, so that it could be established that relocation
would still cost less.
July 1995: Planning permission on the Ordsall lane
site was renewed (dated 25 May 1995).
August 1995: On behalf of the claimant, Chesterton
wrote to LEP Group plc at its headquarters in Surrey, to establish its
intentions, as nothing had been heard in respect of the claimant’s offer for
the premises.
October 1995: The claimant made inquiries of LEP’s
bankers, from which it became apparent that the company’s shares had been
suspended, and that it was not therefore in a position to negotiate the sale of
individual assets.
October 1995: Chesterton advertised in the
Manchester Evening News in an attempt to flush out suitable alternative
premises.
3 October 1995: The council wrote to Chesterton
advising that notice of entry was about to be served for the rest of the
claimant’s premises, as possession was required on 22 January 1996.
11 October 1995: Chesterton requested the council
to consider an extension of time to 31 March 1996, as Christmas was the
claimant’s busiest trading period.
13 October 1995: The council served notice of
entry on the claimant and its solicitor.
3 November 1995: At a meeting with the council, it
was agreed that an approximately two-week extension to the proposed date of
entry could be granted.
6 November 1995: Chesterton wrote to the council
following the meeting on 3 November, and requested that they reconsider the
date upon which possession of the subject premises would be required.
Chesterton advised that it was the claimant’s view that an extension of time
to, say, 26 February would enable it to mitigate its losses by allowing it to
carry a larger stock over the busy Christmas period, and also dispose of the
remaining stock in the slack trading period thereafter. Chesterton said that
time was running out for the claimant to find another building, and
extinguishment was looking the more likely alternative. It also set out a
number of observations relating to the various heads of claim.
22 November 1995: The council wrote to Chesterton
confirming that the claimant could remain in the subject premises until Friday
1 March 1996.
8 January 1996: Redundancy notices were served
upon the claimant’s staff.
9 February 1996: The council wrote to Chesterton
in respect of various heads of claim, and stated that "the City Council
has always been aware of the magnitude of your client’s business and the
company will be compensated in line with the existing compensation code. This
naturally assumes that the Council will fund any acquisition as necessary,
irrespective of the cost. In this respect I am quite happy to make advance
payments as necessary, subject to an appropriate form of receipt/undertaking
being signed by your clients".
8 March 1996: The council took possession of the
subject premises, and the claimant’s business was closed down.
12 April 1996: An advance payment under section 52
of the Land Compensation Act 1973 was made to the claimant in the sum of
£2,196,040.
10 October 1996: The claimant’s surveyor submitted
a fully quantified claim, on the basis of total extinguishment.
27 January 1997: A further discretionary payment
was made to the claimant in the sum of £8,514.86 as a contribution to legal
fees and costs.
5 May 1998: Date of reference to the Lands
Tribunal.
The following heads of claim had been agreed
between the parties (although some amendments were made during the course of
the hearing):
|
Value of claimant’s premises occupied by |
£80,000 |
|
Value of claimant’s |
£32,000 |
|
Loss on forced sale of |
£50,750 |
|
Notice of closure to |
£1,071 |
|
Director’s time spent on |
£57,600 |
In addition, on the final day, the following was
agreed:
|
Legal, accountancy and with the |
£31,008 |
Issues
The principal issue between the parties is whether
compensation should be assessed on the basis of total extinguishment of the
claimant’s business, or on the basis of a hypothetical relocation.
The claimant alleged that the unavailability of
suitable sites or premises for relocation in the period 1987 to 1995, and the
actions of the council, due, in the early stages, to their being unable secure
the funds to proceed with the acquisition, and in the latter stages to the
dilatory way in which matters were handled, meant it had no alternative but to
extinguish the business at the date of acquisition. Thus, compensation had been
calculated on this basis, and by the end of the six-day hearing, after a number
of adjustments and alterations had been made to the claim, it was assessed as
to the value of the land taken, and disturbance, under 16 heads, in the sum of
£6,573,405.
The council alleged that the claimant had ample
opportunity to move its business to a suitable alternative location, and indeed
had acquired a site for redevelopment in 1989, upon which planning permission
for a 50,000 sq ft cash-and-carry warehouse was granted in 1992. Therefore,
compensation should be assessed on the basis of a hypothetical relocation,
since this would have resulted in a smaller loss, and accordingly should be
treated as a ceiling to the loss actually suffered. The council’s calculation
(following some amendments during the hearing) had been based upon the value of
the land taken, and items of disturbance under 12 heads in the total sum of
£1,687,819.
Although the parties were diametrically opposed as
to the basis upon which compensation should be calculated, the valuation and
accountancy experts gave evidence relating to each head of claim. Both at the
commencement of, and during, the hearing, a number of amendments and
corrections were made to the amounts claimed and offered, and I consider it
helpful to set out here, in tabular form, the figures applicable on each basis,
to each of the parties, in final submissions.
Extinguishment basis
|
|
Head of Claim |
|
Claimant |
Acquiring Authority |
|
1a |
Property: Warehouse |
|
805,000 |
714,000 |
|
1b |
Property: |
(A) |
80,000 |
80,000 |
|
1c |
Property: |
(A) |
32,000 |
32,000 |
|
2a |
Value of business |
|
2,679,000 |
294,000 |
|
2b |
Loss of opportunity due |
|
1,520,000 |
NIL |
|
2c |
Loss of profits during run down of business |
|
168,915 |
95,000 |
|
2d |
Loss on forced sale of |
|
355,500 |
263,800 |
|
2e |
Loss on forced sale of |
(A) |
50,750 |
50,750 |
|
2f |
Non-recoverable debtors |
|
57,074 |
18,000 |
|
2g |
Staff redundancy costs |
|
65,367 |
26,616 |
|
2h |
Directors’ loss of |
|
289,000 |
NIL |
|
2i |
Notice of closure to |
(A) |
1,071 |
1,071 |
|
2j |
Costs incurred seeking |
(A) |
13,706 |
13,706 |
|
2k |
Costs incurred regarding |
|
22,047 |
1,000 |
|
2l |
Interest on abortive |
|
20,767 |
9,268 |
|
2m |
Interest on Ordsall Lane |
|
324,600 |
NIL |
|
2n |
Loss in value of Ordsall |
|
Inc in 2a |
NIL |
|
2o |
Directors’ time |
(A) |
57,600 |
57,600 |
|
2p |
Professional fees |
(A) |
31,008 |
31,008 |
|
Total |
|
|
£6,573,405 |
£1,687,819 |
|
(A) |
|
|
|
|
Notional relocation
(In this scenario the claimant’s accountancy
expert had assessed figures on the basis of more and less suitable sites.)
|
Head of Claim |
Claimant (more suitable) |
Claimant (less suitable) |
Acquiring Authority |
|
|
1a |
Property: Warehouse |
805,000 |
805,000 |
714,000 |
|
1b |
Property: Banner Catering |
80,000 |
80,000 |
80,000 |
|
1c |
Property: Advertising |
32,000 |
32,000 |
32,000 |
|
2b |
Loss of opportunity to |
1,520,000 |
1,520,000 |
NIL |
|
2f |
Non-recoverable debtors |
NIL |
28,500 |
NIL |
|
2j |
Costs of looking at |
13,706 |
13,706 |
Inc in |
|
2k |
Costs incurred in |
22,047 |
22,047 |
Inc in |
|
2l |
Interest on abortive costs |
20,767 |
20,767 |
Inc in 2z |
|
2m |
Interest on Ordsall Lane price |
324,600 |
324,600 |
inc in |
|
2n |
Loss in value of Ordsall site |
225,000 |
225,000 |
NIL |
|
2p |
Professional fees (A) |
31,008 |
31,008 |
31,008 |
|
2q |
Racking out (A) |
40,000 |
40,000 |
40,000 |
|
2r |
Removal of stock & fixtures/fittings (A) |
45,000 |
45,000 |
45,000 |
|
2s |
Loss on fixtures & |
20,000 |
20,000 |
20,000 |
|
|
Loss on stock |
200,000 |
200,000 |
100,000 |
|
2t |
Special adaptation |
200,000 |
200,000 |
102,500 |
|
2u |
Reinstallation costs |
Inc in |
Inc in |
45,000 |
|
2v |
Notification of & promotion |
200,000 |
200,000 |
6,500 |
|
2w |
Double overheads – Premises |
40,000 |
40,000 |
40,000 |
|
|
Staff |
37,500 |
37,000 |
6,000 |
|
|
Equipment |
15,000 |
15,000 |
1,500 |
|
2x |
Management time (A) |
72,000 |
72,000 |
72,000 |
|
2y |
Temporary loss of profits |
517,000 |
1,240,000 |
160,000 |
|
2z |
Costs of alternative |
|
|
|
|
|
– Fees |
Inc |
Inc |
35,000 |
|
|
– Notional interest |
|
|
124,800 |
|
2aa |
Interest costs from profits & requirement |
170,000 |
290,234 |
20,000 |
|
2bb |
Replacement stock computer |
55,498 |
55,498 |
Inc in 2u |
|
2cc |
Permanent impairment of |
NIL |
1,128,000 |
NIL |
|
2dd |
Increased overheads not adding value |
149,000 |
149,000 |
NIL |
|
Total |
£4,835,126 |
£6,834,860 |
£1,675,308 |
|
As the statement of agreed facts confirmed, a
number of the heads of claim were agreed before the hearing, and, on the final
day, the parties also agreed the figure for compensation under the heading of
professional fees (2p above – both bases). I was helpfully advised by the
parties, in separate submissions following the hearing, that this agreement
related to professional fees incurred by the claimant in respect of the
preparation and submission of the claim, and was separate from, and exclusive
of, any other fees referred to under any of the other claim headings.
The first question for me to determine from the
evidence is upon which of the two bases compensation falls due. Did the
claimant have no alternative, under all the circumstances, but to extinguish
its business? Were these the actions of a reasonable businessman?
Alternatively, did it have the opportunity to relocate to suitable alternative
premises and not take it? Did the claimant take reasonable steps to mitigate
the additional losses caused by extinguishment?
I consider this issue first. Following the
decision on this aspect, I deal with the evidence and arguments under the heads
of claim, as appropriate to the decided basis.
Claimant’s case
In opening,
Mr Campbell stated how surprised the claimant was at the fact the council were
now offering compensation on a hypothetical relocation basis, rather than, as
had been accepted in the council’s letter to Chesterton of 21 March 1996, on
the basis of total extinguishment. It was only on 28 May 1997, after taking
advice from counsel and Mr Gannon, that the council confirmed their opinion
that the correct method of assessing compensation was on a relocation basis.
He pointed out that the original claim, formally
submitted to the council on 10 October 1996, was, at just short of £9m,
substantially more than the sum presently being sought. He asked me to consider
a number of authorities and directed me to the salient sections relating to the
basis of his client’s claim. I refer to these at the appropriate points in the
decision.
Mr Michael Lamba was a director of Lamba Trading
Co Ltd (LTC), and had founded the cash-and-carry business with the help of his
father, Mr GC Lamba, in 9,000 sq ft of premises in Salford, in 1974. The
business had expanded rapidly, and in 1977 they acquired the freehold of two of
the three bays of a former engineering works on Trafford Road, which formed the
subject premises, and which they converted for their use, commencing trading
therefrom in 1979. The third bay was acquired to facilitate further expansion
in 1982, although due to the fact that their particular business only required
a limited amount of office/administration space, the two-storey office section
at the front of the originally acquired part was let to Banner Catering
Supplies Ltd in 1981.
Mr Lamba went into considerable detail in his
written evidence regarding the way in which the business had grown, from small
beginnings, into a company that was acknowledged, in an unsolicited letter
received from KPMG, to be among the top 500 cash-and-carry businesses within
the country, and with a turnover of around £16m pa.
He said that as the business continued to grow, by
1986 they had decided that the size of the current premises would restrict
future growth, and thus commenced a search for suitable alternative
accommodation to which they could relocate. They were seeking either a site
suitable for the construction of an approximately 50,000 sq ft purpose-built
cash-and-carry warehouse, or alternatively a building of similar size, suitable
for the purpose.
Although the first formal approach regarding the
likelihood of compulsory acquisition had been a letter from the parliamentary
agent on 18 November 1987, they were aware "through the grapevine" a
couple of months beforehand, and indeed had received an approach from Dunlop
Heywood, consultant surveyors, in October of that year, seeking instructions to
act on the claimant’s behalf. However, Mr Lamba confirmed that the search had
commenced before the company had any knowledge that the subject premises would
be compulsorily acquired.
As to his own role within the company, and in
respect of the search for alternative premises, Mr Lamba said that it was his
job to oversee the running of the business. It was his brother David, who had
not become actively involved in the business until 1979, and even then not in a
management capacity, who, with their father, had dealt with matters relating to
the proposed relocation. David was a director of Lamba Trading Co Ltd, but his
interests predominantly lay with other aspects of the family business,
including looking after their property investments, into which moneys from the
trading company’s pension scheme, for which he was also responsible, were
channelled. Michael and David Lamba were partners in the investment company,
and also in another company (Lamba Properties), which was set up in 1985.
Although not referred to in written evidence or
any of the experts’ reports, Mr Lamba admitted in cross-examination that Lamba
Properties had acquired the Weaste Bus Depot (WBD) on Eccles New Road for
£400,000 in 1988. This purchase followed the grant of planning permission for a
cash-and-carry warehouse, the application for which had stated that the staff
from Lamba’s existing cash-and-carry operation would be transferred there. WBD
was an approximately 80,000 sq ft former bus and tram depot, fronting what was
then a busy main road (now bypassed to an extent by the M602 motorway link from
the M62 into Salford), and having loading access to the side and rear off
connecting streets. It was a condition of the planning permission that the
front and side access points would be stopped up, with all ingress and egress
being to the rear, behind which was an area of land, currently used for
parking, which was also acquired. However, the planning permission had
stipulated that customer parking should be within the building itself.
Mr Lamba was questioned as to why this acquisition
had not been referred to by either him or his agent, especially as Chesterton,
which had acted in the purchase, was also appearing before the tribunal, and
why it had not been brought to the council’s attention in respect of the
impending CPO. He responded that he did not consider it relevant as the
premises were acquired by Lamba Properties rather than LTC. This was despite
the fact that the planning application had specifically referred to the
relocation of the existing business. He said that, although their initial
thoughts were that the building might be suitable premises to which to transfer
the business, they had concluded, immediately the permission was obtained, that
they were not suitable due to their being too large, and difficult to split.
Also, they were concerned about access problems (needing to segregate customer
and delivery access points), the eaves heights, and, he said, they considered
they were less prominently located than the subject premises. They had
therefore proceeded to acquire the building as an investment, and immediately
instructed agents to find a tenant. A go-karting company had initially
expressed interest, but the premises were eventually let in 1989 to Falcon
Storage Ltd (which is still in occupation), as a storage and distribution
warehouse.
Mr Lamba said that the WBD premises were acquired
from Michael and David’s partnership when Lamba Properties incorporated, but he
could not remember exactly when that was. He said that he had received advice
on family tax planning from his solicitor Halliwell Landau in January 1992,
following which it was agreed that he would transfer his 50% share in Lamba
Properties Ltd (immediately following incorporation) into a trust for the
benefit of David’s two sons. Conversely, in the next tax year, David Lamba
should transfer his interest in LTC to Michael or his family. This latter
transfer did not actually occur until much later (July 1994). Mr Lamba
confirmed that his brother David died in February 1995, and his father died in
December 1996.
As regards the criteria for a suitable alternative
site or premises, Mr Lamba said that due to the nature of the business, and the
profile and location of the majority of its customers (mainly local corner
shops and small traders in the Asian community around Salford and Trafford),
there were three key parameters. They would have to be close to the subject
premises, in a prominent location and easily accessible. In late 1987 the
claimant instructed Chesterton to seek out suitable sites and premises, and a
number of those identified were investigated. The only suitable option found at
the time was the site at Ordsall Lane, Trafford, a bare site of just over two
acres, which was on the market for sale by tender.
Mr Lamba said that in the then certain knowledge
that at some time soon they would have to relocate due to the impending CPOs,
they decided to proceed to try and buy the site. The market for commercial
properties and sites in the late eighties was, he said, very strong, and
properties were being sold or let almost as soon as, and sometimes even before,
they were openly offered. For this reason, and in an effort to protect the
company’s future with the CPO hanging around their necks, they did not
investigate the planning situation, other than to write to a Mr Starkie at the
council on 1 April 1989 (to which no response was received). In that letter the
claimant advised the council of its intentions, and sought their support in
respect of obtaining planning permission for a cash-and-carry warehouse. The
offer of £475,000 for the freehold was accepted, and the Ordsall Lane site was
purchased in July 1989.
Plans were drawn up for a new 50,000 sq ft unit,
and Mr Lamba said that they were surprised when the council indicated that any
application for a cash-and-carry warehouse would be strongly resisted, due to
the fact that the site had been earmarked for possible leisure-related
development in a park-like setting. He said that the council also indicated
that they would resist any applications for short-term use of the site, pending
resolution of longer-term planning issues, or even the erection of advertising
hoardings about which they had been approached.
As a result, he said, they recommenced a search
for other sites and buildings, and investigated a site at Albion Way and
another (the Greengate North site), both of which were in the ownership of the
council. The latter was of interest, and negotiations took place over a long
period, with planning permission being applied for, and terms for the
acquisition of a long leasehold interest being put forward by the council. Mr
Lamba said that despite the amount of time, effort and expense incurred by the
claimant in progressing matters, both alternative sites were eventually sold to
other parties.
This meant that they reverted to progressing the
Ordsall Lane site, and eventually, in June 1992, planning permission for a
50,000 sq ft cash-and-carry warehouse was granted. However, he said, they could
not proceed to develop it due to the fact that the council had not yet received
a commitment on the funding they were seeking for the CPOs.
It was put to Mr Lamba that, by then, the claimant
had two properties with planning permission for cash-and-carry warehousing (WBD
as an existing building, and Ordsall Lane, which could have been ready for
occupation in about 15 months). He said that WBD was nothing to do with their
intended relocation, and had been let commercially since 1989, so in any event
it was not available. On Ordsall Lane, he reiterated that they could not
proceed due to the fact that the council were not then in a position to proceed
with the CPOs.
Mr Lamba said that during 1993 and the early part
of 1994 the claimant was becoming increasingly uneasy over the suitability of
the Ordsall Lane site, with reports of a serious increase in crime rates in the
area, and the close proximity of the Ordsall council estate with its bad
reputation for burglaries, muggings, car fire and theft. His brother had sought
advice from the police regarding security arrangements, and had become
frightened about the extent of security measures that would need to be
incorporated in any new development. Mr Lamba’s interpretation of the police
advice was that they would not support a cash-and-carry development in that
area, as he had advised the council in a letter dated 19 November 1995. He
disagreed with the evidence given by Mr Pullan, the crime prevention officer,
who had met David to discuss the security requirements of the proposed new
building, which indicated that Mr Pullan had told David his own security ideas
were excellent, and would be sufficient. However, he agreed with Mr Pullan’s
statement to the effect that David was enthusiastic about the proposed
development.
In cross-examination, Mr Lamba said that while he
accepted that physically the area of regeneration had improved over recent
years, socially it had not, and there was still a serious crime problem. In
respect of the suggestion that the fact Royal Bank of Scotland had constructed
a high-security cash-handling centre right next door to the Ordsall Lane site
was a remarkable statement of confidence in the area, Mr Lamba said that it could
not be compared with a cash-and-carry operation, and, in any event, RBS had
spent £6m on security alone.
The claimant had also received a letter from its
insurance brokers suggesting that unless it found an alternative, less
crime-ridden site, the availability of suitable insurance cover at commercially
acceptable rates would be difficult to achieve. Indeed, he said, they had
already been experiencing rising insurance premiums, due to loss of stock from
theft in their existing premises. They had eventually abandoned insurance cover
for stock, and had appointed a security guard during business hours. Mr Lamba
said that he first intimated his concerns to the council at a meeting at the
Civic Centre in March 1994, and this was reiterated to them in June of that
year. It was put to Mr Lamba that between the subject premises and the Ordsall
Lane site, there could not be much difference in security terms as they were
not very far apart, but he responded that Ordsall Lane was very much closer to
the council estate.
Mr Lamba said that, having serious concerns about
the suitability of the Ordsall Lane site, they started again to look elsewhere,
and identified the LEP building on Trafford Wharf Road as being potentially
suitable, even though it was approximately 30% too large. He said that, apart
from the fact that it was too large, it met their criteria in that it was in a
prominent position, close to the existing premises, and had good access and
loading facilities. Bearing in mind that it should be possible to let the
excess space, the building being readily divisible, it became their preferred
option, and an initial offer was made, but was rejected as insufficient. Again,
they had undertaken a considerable amount of work in planning a move to this
location, including asking the council if they would underwrite a part of the
cost. It was very expensive, and more than they could afford, considering they
did not require all the space. They had received an indication from their
architect that the building needed about £616,000 expenditure, excluding
fitting-out costs, to get it to the condition required. The council had
eventually, he said, offered to underwrite the rent on the surplus part for a
short period of time.
In May 1995 a revised offer of £1,925,000 was
made, and even though they had received indications that their offer for the
premises was acceptable, Mr Lamba said that they became increasingly frustrated
at the lack of formal progress regarding the purchase, and had heard that LEP
was in difficulties. They eventually contacted LEP’s bankers to be advised that
the bank was unable to influence the disposal of individual assets.
By the time it became evident that the LEP
building could not be purchased, it was October 1995, just the time when the
council initially notified the claimant that possession of the subject premises
would be required by 22 January 1996. There was, he said, by this time, no
chance of them finding an alternative location from which to trade, despite the
fact they continued looking right up until the last minute, including placing
an advertisement in the Manchester Evening News.
Mr Lamba said that they had been frustrated over a
long period of time by the council’s inability to take matters forward in the
early stages, due to their having no commitment on funding, and in the later
stages, approaching the time when the premises were actually acquired, by their
lack of response to their agent’s questions.
In response to questions suggesting that, far from
extinguishing their business, they were continuing to trade on much the same
basis, Mr Lamba said that the business currently being undertaken by Lamba
Trading Co, on a part-time basis from a Portakabin in the old Weaste Bus Depot,
bears no similarities to the original cash-and-carry operation. He said that he
is now what is colloquially known as a "job merchant", dealing with
frustrated/bankrupt stock, buying it up and selling it on where he can. He
accepted that it is an extremely profitable business, but the supply of stock
is very sporadic and irregular. Examples of the type of business they were now
doing were selling on cancelled orders and damaged stock. In respect of a
contract for the sale of beers from a brewery, which it was suggested was no
different from the deal with Carlsberg for alcohol sold through the
cash-and-carry, Mr Lamba said this was a one-off, where a consignment of
in-date stock was bought. He said that this was no longer being done, although
I noted on the inspection of WBD that there was a large amount of in-date beer
and lager palletted up in the area adjacent to Lamba’s Portakabin.
It was put to Mr Lamba that one of the reasons he
refused to sign the undertaking from the council, to the effect that the
business was extinguished, was because the company had built up a name and
reputation in the marketplace that they wished to capitalise upon, that they
wanted to effect a seamless continuation of the business, and indeed, as was
suggested by LTC’s recent accounts (reference to the directors’ report that
stated that the company continued to trade from alternative premises), had in
fact done so. It was also suggested that the skills they had developed in
running the previous business had been brought forward and utilised in the
existing business. Mr Lamba denied that this was the case, and reiterated that
their current operations were substantially different from the cash-and-carry
business, with a completely different client base and business profile. The
fact that the same company was trading was, Mr Lamba said, because Lamba
Trading Co was a family trading name that they wanted to retain. As to the
accounts, he said the statement referred to in the directors’ report was
incorrect, and that its inclusion had been an oversight.
In cross-examination, it was suggested to Mr Lamba
that the reason they went for extinguishment of the cash-and-carry business was
because they saw a declining share of the market, due to increased competition
from the likes of Booker and Costco, lack of buying power as a result, the
demise of the corner shop, which was one of their mainstays, and the fact they
did not offer a delivery service. This Mr Lamba denied, saying that, due to
their being a smaller, efficient, family-run business, they were able to
respond much more quickly to opportunities than the likes of Booker, and gave
examples of huge purchases being made immediately prior to chancellors’
budgets. He explained how the likes of Costco and Aldi were different types of
business, which also cater for the general public, whereas Lamba’s was entirely
wholesale. He said that the corner shop market was not declining, as indicated
by his customer list [which was not produced in evidence] and their steadily
increasing turnover, year on year, even during the recession of the early
nineties, and the lack of a delivery service was not a deterrent to customers.
Mr Lamba stressed the relationship with the NISA Group, and his position
therein, and the substantial turnover and growth of the business, in stating
that they did not want to extinguish the business. It was solely the lack of
suitable alternative sites or buildings that had forced them into this
situation.
Mr Brendan O’Herlihy was appointed in late 1987 to
find a suitable site or premises into which the claimant could expand. He was
not entirely clear as to the exact date he had first been instructed, and
conceded that his first involvement may have been before the prospective CPOs
were known about. He set out his client’s requirements, and said that main road
prominence, accessibility to the existing customer base and sufficient size to
allow for future expansion were the key criteria. The claimant also required a
freehold. He said that, in order to fully research the market and availability,
it sought premises up to 100,000 sq ft. As far as sites were concerned, the
claimant wanted to acquire from a landowner, rather than a developer, to avoid
having to pay developers’ profit.
Mr O’Herlihy’s first trawl revealed three
possibilities, all sites. First, five acres at the Albion, which was owned by
Salford City Council and British Rail Property Board. This was investigated,
but eventually the site was split and became unworkable. Second, 3.6 acres at
the Greengate site, also owned by Salford City Council, which was considered
suitable and continued to be investigated, including the submission of a
planning application for a cash-and-carry warehouse. Due to the fact the
council sold the front part of the site to Renault, leaving the rear part,
which was not prominent, for the cash-and-carry, it was decided not to pursue
this further despite terms for a long leasehold interest having being quoted by
the council.
The third site, initially identified, was the
Ordsall Lane site, which the claimant subsequently acquired without planning
permission. Mr O’Herlihy said that as this site was less prominent than his
client really wanted, and was smaller than the ideal specification, he
continued to investigate the other two, and kept searching for other
alternatives. Following the eventual grant of planning permission on the
Ordsall Lane site in mid-1992, Mr O’Herlihy said he had no further involvement
until 1994, when he was instructed to recommence a search because of the
claimant’s concerns over the suitability of the Ordsall Lane site.
He then found the LEP building, which he said met
all his client’s criteria, although it was too large, and confirmed the
evidence to the effect that, despite an eventual offer that was said to be
acceptable, the purchase could not proceed.
Mr O’Herlihy said that throughout the period of
his latter investigation, the Ordsall Lane site was on the market for sale or
to let, but no acceptable offers were forthcoming.
In cross-examination, Mr O’Herlihy said that the
reason he had not mentioned the WBD in his evidence, even though he had
acquired it for Lamba, was that it had been bought as an investment
opportunity. He was unable to offer any comment on the reasons for the planning
application for a cash-and-carry warehouse. He said it was put on the market
immediately after it was acquired, and, after a certain amount of interest from
other parties, was eventually let, one month after the Ordsall Lane site had
been acquired, to Falcon Storage. As to its suitability for the relocation of
Lamba’s cash-and-carry, Mr O’Herlihy said that despite the fact that
Chesterton’s own letting particulars stated the building had a prominent main
road frontage, and was suitable for warehouse/industrial use, it was less
prominent than the subject premises, and much of the main road traffic had been
taken away by the new motorway link. Dependant on the type of business, he also
conceded that WBD was equally, or possibly more, accessible. He said that,
while he could only speak for the claimant in respect of its general criteria,
and it was not for him to be specific as to why a premises would be considered
more or less suitable, he thought WBD was too far away from the subject
premises. Counsel for the council pointed out that the Greengate site, which
had been considered to meet the criteria, was even further away.
As to why the letting details for WBD had included
reference to the cash-and-carry planning permission, he said that this had been
included for completeness of information.
In response to a question as to whether he thought
the Ordsall Lane site was prominent, Mr O’Herlihy said that he did not think
so, as it fronts a secondary road. He could not second-guess why his client
bought it, as, in his view, it did not meet all the criteria. The fact that
companies like More O’Ferrall and Maiden had approached the claimant to put up
advertising hoardings did not, in his opinion, necessarily indicate that the
site was particularly prominent.
While principally giving evidence relating to
compensation aspects, Mr Jonathan Hindley, who had been retained by the
claimant in 1992 to deal specifically with such, commented that, in general
terms, there was a shortage of suitable property throughout the claimant’s
search period, and strong demand for any that became available. As far as
timescale was concerned, he thought that the absolute minimum period from
acquiring a site, allowing for obtaining planning permission and design and
build aspects, to being ready for occupation, would be 15 months, and for
existing premises, assuming they were suitable, three months. He criticised the
council for the fact that it had taken them so long, from the initial
notification in November 1987 that CPO powers were being sought, to be in a
position where they had sufficient commitment for funding to be able to proceed
(mid-1994). Mr Hindley said that his clients had been unable to find suitable
premises within the timescale. He referred to the fact that the council had
encouraged the claimant to continue planning for the move, despite not being in
a position to proceed to acquire the subject premises. It was his contention
that if the claimant had had a much reduced window in which to seek and acquire
premises (from mid-1994 to a suitable length of time prior to the date of
acquisition to get a site or premises ready), an already impossible task would
have become all the more so.
Mr Hindley agreed in cross-examination that he had
never suggested that the Ordsall Lane site was unsuitable. It was also put to
him that any criticism he may have against the council over delays was countered
by the length of time it took Chesterton to formulate a claim, despite repeated
requests for it.
In submissions, Mr Campbell accepted that the
reference to proposed new premises at Ordsall Lane being uninsurable, or
insurable on prohibitive terms, were misquoted, but that the letter from Bridge
insurance brokers to the claimant dated 28 October 1994 had recommended that it
look to redevelop elsewhere to make the risk more attractive to a wider range
of insurers.
He said that the business had plainly ceased and
had been extinguished by the time the premises were acquired on 8 March 1996,
and dismissed the council’s suggestions that the original business had to all
intents and purposes continued.
As to whether or not the claimant could
realistically have relocated, Mr Campbell said that nobody could know the
cash-and-carry business as well as the person who was actually carrying on the
business. The council’s experts and witnesses were, he said, conspicuously
lacking in knowledge of cash-and-carry requirements (under all claimed heads of
claimed compensation, not just the relocation aspect). The suitability or
otherwise of alternative premises would be, he said, best judged by the
claimant, and it was not for others to second-guess this. He said that the claimant
would have undoubtedly found somewhere for expansion in the no-scheme world,
but could have taken his time. He mentioned that the claimant had had its hands
tied for six years (between 1988 and 1994) when it could not sell its premises
and asked the question: did the acquiring authority’s ineffectiveness or
inability to progress matters due to funding not being forthcoming, and
subsequent postponement of meetings, frustrate the claimant’s desire to
relocate?
With reference to the Weaste Bus Depot premises,
Mr Campbell said that these were acquired six years before the notice to treat,
and within a very short time had been deemed unsuitable, and were let.
Respondents’ case
Mr James Pullan, a former crime prevention officer
with Manchester City Police, had met Mr David Lamba to discuss security
proposals for the claimant’s proposed new premises at Ordsall Lane, having
advised the company previously in connection with its existing premises. They
visited the site and Mr Lamba talked through his proposals, which, Mr Pullan
thought, were superb. Apart from a couple of additional recommendations that Mr
Pullan made, he thought they would be sufficient for the company’s
requirements, and suggested that they meet again when formal plans had been
drawn up. He said that Mr David Lamba was extremely enthusiastic about the
site.
He said that a few months later someone from
Lamba’s cash-and-carry phoned him to say that David had died, that the company
was considering closing down for good, and referring to crime problems in the
Ordsall area. That caller then tried, he said, to lead him into saying that the
company should not relocate to the Ordsall Lane site, but he said it was not
his policy to do so. Indeed, he indicated that if the security proposals
previously discussed were implemented, there would be no need to have any crime
problem. It was his professional view that, from a crime-risk viewpoint, there
was no difference between the site of the old premises and the proposed new
ones. The two sites were only about half a mile apart, and were on the same
police beat.
Mr Pullan said that the statement in the
claimant’s letter to Salford City Council’s property development and review
manager dated 19 November 1995, in which it was alleged that the crime
prevention officer had said there would be a serious security problem at the
proposed new premises, and strongly recommended they relocate elsewhere, was
completely untrue.
In cross-examination, Mr Pullan accepted that he
had no written notes or documentation, and had prepared his statement from
memory. However, he could remember events clearly as he had liked David Lamba,
and had dealt with him and his company on earlier occasions. As to the crime
reputation of the Ordsall area, he had to concede that there were problems,
including ram-raids (notably on Burger King and Kwik-Fit premises), robberies,
car theft and muggings, but said that this area was no worse than many others,
not just in Manchester, but in other towns and cities around the country.
He said that any premises can have crime designed
out, when they are built from new.
Mr Anthony Docherty gave evidence regarding
insurance aspects in respect of the recommendation contained in the letter from
Bridge insurance brokers to the claimant dated 28 October 1994, asserting that,
from an insurance viewpoint, they should look to develop elsewhere.
While accepting that there were increased crime
problems in inner-city areas, Ordsall was no different from other locations
such as Hulme, Moss Side and Stretford. This results in increased risk, which
insurers take into account when assessing cover availability and premium rates.
The element of special or non-standard risk, such as non-standard construction,
poor physical and electronic security, geographical location, type of trade and
previous claims experience, is built into the premium, but the whole concept of
insurance is acceptance of risk, and cover will be available, so long as the
level of abnormal risks is not unacceptably high. The big household name
insurers, he said, would be the most likely to refuse cover on non-standard
risks, but the insurance market is such that there are a large number of
insurers and Lloyd’s syndicates who provide cover for virtually all types of
business.
Mr Docherty said that while he had no personal
knowledge of the claimant’s business, insurers exercise great caution in
underwriting cash-and-carry warehouses generally, especially if they sell
specific target goods such as wines, spirits and tobacco products. There are
increased risks of robberies and hold-ups, but so long as adequate risk
management is effected, and sufficient electronic and physical deterrent
measures are adopted, then cover can be obtained on acceptable terms.
In his opinion, the opportunity to move to brand
new premises in Ordsall Lane would have resulted in an improved insurance
position for the claimant, although there would, of course, have needed to be a
significant capital outlay on security measures at the construction stage. This
was partly because the new premises would have been much larger than the
original ones, and partly the insurers’ undoubted requirements for a belt and
braces approach in a new build situation. Mr Docherty estimated that the likely
cost of building in sufficient security measures, excluding sprinklers, would
have been about £50,000 in 1994. The adoption of effective theft, hold-up and
ram-raid measures could, he thought, have reduced premium levels by up to 50%,
and with the installation of a sprinkler system, rates for fire and malicious damage
could have been reduced by as much as 75%.
In cross-examination, Mr Campbell said that there
was not much of an issue here, as the claimant was not contending that cover
would have been unavailable. As to the question of availability of cover in the
Ordsall Lane area, reference was made to the quotation given, and accepted in
1994, for fire cover on the Grosvenor Paper Mill, which was a very much higher
risk in that aspect than a cash-and-carry warehouse. Mr Docherty thought that,
as far as insurers were concerned, there would be no difference in rates in
geographical terms as the sites were so close together.
In response to a question over stock valued in
excess of £1m, Mr Docherty said that this made no difference in terms of
security. Building security was the key point. He said that he was surprised
the claimant had placed reliance solely on manned security during working hours
only, rather than insurance for stock at their then existing premises, as the
greatest risk was when the business was closed.
Mr Robert Shaw had been commissioned in 1996 to
prepare a report setting out his opinion of the availability of suitable sites
or premises into which the claimant might have been able to relocate during the
period 1 January 1994 to 1 March 1996. He had been given search criteria for
buildings of 30,000 to 75,000 sq ft with planning consent, or the prospect
thereof for B8 use, or sites of 1.25 to 5 acres with similar planning
prospects, in the Greater Manchester conurbation, with preference for Salford, Old
Trafford and Trafford Park.
He had found 15 buildings and 12 sites that he
considered broadly met the claimant’s criteria, but as to Lamba’s specific
requirements, he said he had not clarified this with Chesterton and had not
taken into account the claimant’s requirement for a freehold. He said that he
had carried out a general search and had made a number of assumptions as to the
claimant’s requirements, including that the customer base was broadly spread –
as indeed had been shown in evidence from the letters received by the claimant
relating to the closure of the business. He had not, he said in
cross-examination, taken account of the need for relatively easy access from
the claimant’s family home in Alderley Edge, but said that all the sites and buildings
were accessible without undue difficulty. However, most of the sites he had
identified were within relatively close proximity to the subject premises, as
he had assumed that the claimant would focus on that area for staff reasons, as
well as the fact the core customers were from that area.
Mr Shaw had concluded in his statement that a wide
range of sites and buildings were available over the search period. He said in
cross-examination that the exercise had obviously been done retrospectively,
and was indeed carried out by one of his assistants during 1997, principally by
obtaining copies of the lists of available properties, published at the
relevant times, from the local authorities. While unable to be specific in
respect of how long it would take to convert a building to cash-and-carry use
(it would depend on how much adaptation was required), he thought that in
respect of a site, a minimum of 12 months would be needed to get planning
permission, deal with design and build, and have it ready for occupation.
He agreed that he had not taken into account the
claimant’s requirement for a highly prominent building, but while accepting
that some on his list were in backwater locations, many did meet the criteria.
As to the Ordsall Lane site, Mr Shaw said that he was surprised the claimant
did not move there, as it was so close to the existing premises and was in an
area that, despite the accepted crime problems generally, was improving through
the urban regeneration programme. He thought the site was certainly large
enough to accommodate a building of at least 40,000 sq ft, and considered it
ideal for the claimant’s requirements.
Mr Hindley said, in his rebuttal evidence on Mr
Shaw’s report, that he had visited all of the sites and buildings suggested
therein as suitable, with Mr Lamba, who had concluded that none of them was. It
was suggested that Mr Shaw had been inadequately briefed by the respondents,
and did not demonstrate a working knowledge of the requirements of a
cash-and-carry business that operated some 364 days per year.
In respect of the properties on Mr Shaw’s list, I
shall deal with these, along with the others mentioned in evidence, in the
decision.
Mr Paul Gannon has 20 years’ experience dealing
with CPO matters, and an intimate working knowledge of the commercial property
market in Salford, Trafford and the surrounding areas. He had not had the
opportunity to go inside the subject premises prior to their demolition, and
the photographs appended to his report had been provided to him by the respondents.
He accepted that the claim submitted by the claimant had not referred, as
intimated in his report, to extinguishment, and it had been silent on this
point.
He said that the claimant could, and should, have
relocated to the Ordsall Lane site, as it had been specifically purchased for
that purpose, it had achieved, in plenty of time, planning consent for a new
cash-and-carry warehouse, which also allowed for the planned expansion, and its
concerns over security and insurance were ill-founded. He said that the
claimant had not mitigated its losses, and that compensation should be limited
to notional relocation, and not total extinguishment.
In cross-examination he accepted that he was not
intimating that the cash-and-carry business was being continued, but that Lamba
Trading Co was still extant, and it had recently come to the respondents’
notice that business of a similar type was being conducted. As to the WBD, he
said he did not accept that the property was purchased as an investment. Why,
he asked, get planning permission for a cash-and-carry warehouse, before you
are committed to the purchase? If it had subsequently fallen through, he said,
that would be a gift for the competition.
In submissions, Mr Barrett said that the fact the
council were assessing compensation, during 1996, on the basis of total
extinguishment was based upon a false premise. The letter from the council to
Chesterton dated 21 March 1996 showed that they had taken on board the
information that the claimant’s insurance broker stated it would be virtually
impossible to obtain cover, and the NISA Today’s wholesale organisation and the
crime prevention officer had both recommended the company should not relocate
to the Ordsall Lane site. At that time, therefore, the council were accepting
that Ordsall Lane was not suitable, but, Mr Barrett submitted, the evidence had
demonstrated that the basis upon which the council were invited to proceed was
wrong.
In reality, two properties had been selected, one
of which – the Weaste Bus Depot – had been bought in the very early stages,
following the company’s decision, taken as far back as 1986, that it was
outgrowing its existing unit, and was looking to expand. Mr Barrett said it was
quite astounding that this acquisition, effected after the claimant was made
aware of the council’s proposals, and after planning permission for an 85,000
sq ft cash-and-carry was obtained, had not been brought to the attention of the
tribunal. It was a fact that the claimant was contemplating a replacement facility
prior to the acquisition of it by the Lamba family. He said it was
inconceivable that the family would have proceeded with a planning application
in circumstances where they did not have control of the site, effectively
securing permission that could be utilised by a competitor.
Mr Barrett said that the reasons given for
rejection of WBD by Mr Lamba and Mr O’Herlihy cannot be supported. They are as
close to, if not closer than, the subject premises as the Greengate site, which
had been considered suitable, and were more prominent than the LEP building,
which had also been deemed adequate. They fronted a busy arterial road, and
were in close proximity to the M602 junction. The statement by the claimant
that rear access (which was a prerequisite of the planning permission on WBD)
was unacceptable conflicted, Mr Barrett said, with the fact that the plans for
the proposed Ordsall Lane building incorporated rear access. The argument that
eaves height at WBD was an important factor in the claimant’s decision that it
was not suitable can, he said, carry no credibility. The premises were nearly
three times as large in terms of floor area, and had high eaves.
Mr Barrett drew the inference that WBD was
suitable for the claimant’s requirements, and that in acquiring, subsequently,
the Ordsall Lane site, it had concluded that that was its preferred choice.
This site did, he said, meet the claimant’s stated criteria in that it was
prominently located, close to the existing premises, and easily accessible. The
fact that advertising companies had been in contact with the claimant proved
the prominence. He said that the suitability of Ordsall Lane was amply
demonstrated by the fact that, following the grant of planning permission for a
50,000 sq ft warehouse in 1992 (40% larger than the existing premises), Mr
O’Herlihy had no further involvement in respect of site search until 1994. It
was only in 1994, when the council were in a position to move forward in
respect of the CPO, that Chesterton raised the issue that its client was having
second thoughts about relocating to the Ordsall Lane site.
The reasons why the claimant had fallen out of
love with the site were unsustainable, Mr Barrett said, and the evidence given
to the tribunal had amply reflected this. He referred to the evidence given by
Mr Pullan and the fact that an attempt had allegedly been made to elicit a
statement to the effect that the claimant should not move to the site. Mr
Docherty had also demonstrated that suitable insurance cover would have been
available at competitive rates, and indeed had indicated that if sufficient
security measures were built into the new premises, premium rates would be
likely to fall. Mr Shaw had given useful evidence relating to the realities of
developing in the area.
Mr Barrett said that the inescapable conclusion
from the evidence was that the Ordsall Lane site was capable of being developed
for the cash-and-carry warehouse business, and that development would have
given rise to benefits in terms of improved design and security measures, as
well as the opportunity to expand. From 1994, he said, when there was an
availability of funds, the claimants had ample time to develop the site. For
the above reasons, he asked me to conclude that the compensation should be
based upon the premise of a notional relocation, rather than a total
extinguishment, of the business.
Furthermore, Mr Barrett submitted that there was,
in the council’s view, the undisputed position that the company had continued
to trade. The fact that Mr Lamba had refused to sign an undertaking to the
effect that the business had been extinguished, that the company’s own
accountants had included a directors’ statement in later years’ accounts that
the company had continued to trade from alternative premises, that the directors
had not been made redundant, and that the company continued to make pension
payments, all indicated that the company was continuing to trade, albeit with a
change of focus in its activities. He referred to one part of the new business
(the trade in sales of beers and lagers) that bore very close resemblance to
the trade formerly being carried out.
Finally, on the subject of extinguishment versus
relocation, he submitted that it was not surprising that the opportunity
afforded to the company by the impending compulsory acquisition of its
premises, was seized upon by the directors as an opportunity to focus their
activities in the direction of those parts of the business that were likely to
generate the greatest profit margin. The real catalyst for change was not, he
said, the compulsory acquisition, but the prevailing economic circumstances in
which cash-and-carry businesses were trading. Those circumstances, which had
been set out in the accountancy evidence given by Mrs Fowler, were that the
traditional client base was shrinking, the company did not offer delivery, it
was facing increased competition and there was a continuing threat to the
business from the growth and diversification of supermarket chains.
Decision
There is no doubt in my mind that the claimant had
decided that it would be necessary to find alternative premises, or a site upon
which to build, in 1986, due to the fact it was outgrowing its existing
premises. The lack of opportunity to further develop the subject site meant
that, if it were going to expand to meet its business growth expectations, it
would have to look elsewhere. It appears that the family started looking around
initially, but when the subject of the impending CPOs came up (and at that time
they were not to know how long the overall process would take), they appointed
property consultants to conduct a search within their stated criteria.
The Weaste Bus Depot came up quite soon, and a
planning application was made for the relocation of the business from the
existing premises. When planning permission was granted, the freehold was
acquired, not by Lamba Trading Co Ltd, but by Michael and David Lamba’s family
property company. There was no mention anywhere in the witness statements or
expert evidence of this property, although Mr Lamba submitted in
cross-examination that it was acquired as an investment opportunity and was
nothing to do with the proposed relocation. However, in evidence it was stated
that the planning application submitted prior to the purchase was for a
cash-and-carry warehouse, and that the staff from the existing premises would
be relocated there. Counsel for the respondents pointed out that the family
property company was hardly likely to want to let the building, on gaining the
planning permission, to a direct competitor of the family business.
I inspected the WBD premises (along with others)
on the final day of the hearing, in the company of Mr Hindley and Mr Gannon.
They are approximately 1.25 miles by road from the subject premises, and while
undoubtedly being on the periphery of the Salford and Trafford conurbations (as
were most of the comparables submitted in evidence), they are relatively
prominent, do front a main road and have good access. I accept that the A57
Manchester to Eccles road is unlikely now to take the volume of traffic that it
once did, since the M602 motorway link was opened, and at the time of my
inspection it was partially closed due to the construction of the new city
centre to Salford Metrolink tracks along it. However, prior to the advent of
the motorway, Eccles New Road would have been congested for large parts of the
day, possibly making access for customers and deliveries more difficult than
would now be the case. The existence of the Metrolink along this road, when it
is completed, will also serve to increase the overall prominence of the
building, and visibility thereof to travellers.
As to the other criteria, and particularly eaves
heights, bearing in mind this was formerly a bus depot and tram shed, they are
higher than in most buildings of the type, as are the doors giving access.
While at 86,000 sq ft the premises were probably much too large even for the
claimant’s most ambitious expansion plans, they appear to be relatively easily
divisible and have large unrestricted areas and raised loading bays, ideal for
the storage of palletted goods and the installation of high racking. It was
confirmed by Mr Hindley that the area of open land to the rear of the premises,
which is currently used for the parking of staff vehicles, and visitors to
Falcon Storage, is included within the ownership of the premises, although in
evidence it was stated that customer parking would have to be within the
building. Mindful of Mr Lamba’s comments that, due to the nature of their
business, large amounts of customer parking were not required (mentioned in the
context of the planning application on Ordsall Lane), I would have thought
there was more than adequate opportunity to accord with the planning
requirement on WBD and still have room for loading and deliveries to be
segregated from the public access.
The premises are certainly within a highly
built-up area of mixed residential and commercial property, and are on the edge
of the area that, in recent years, has seen substantial urban regeneration.
I now come to the Ordsall Lane site. This is
approximately three-quarters of a mile from the subject premises, mid-way along
Ordsall Lane, which had the subject premises at its southern end and Salford
centre to the north. It has a main and, in my view, prominent frontage to
Ordsall Lane, which, while not being a main arterial route, is still a busy
link road skirting the Ordsall estate. There is also a long side frontage on to
Everard Street, which is the main access road into the adjacent industrial
estate, and to the north is a frontage on to Woden Street. The site backs on to
the confluence of the Manchester Ship Canal and the River Irwell, beyond which,
at raised level, is the existing Manchester to Altrincham Metrolink. Ease of
access is therefore, in my opinion, not in question, and as far as prominence
is concerned, there would be ample opportunity to erect hoardings at the rear
of the site (subject to planning) to attract the attention of rail travellers
to the location. Of all the comparables submitted, there was only one nearer to
the acquired premises than the Ordsall Lane site, that being the LEP premises
on Trafford Wharf Road.
As to the proximity to the Ordsall estate and the
claimant’s concerns in that regard, while I accept that the site is closer to
it than the subject premises, the estate does spread in a south-westwards
direction towards the original premises, and there is, therefore, not much in
it. Determined thieves from the estate would not, I suggest, be deterred from
travelling the extra three-quarters of a mile to the subject premises. I fully
accept the statements of Mr Pullan to the effect that, in crime terms, there is
likely to be little if any difference between the location of the two sites,
and am also persuaded by the evidence of Mr Docherty, particularly his comments
relating to the opportunities to "design out crime" in a new build
project, and the fact that premiums may even be reduced. The submissions by the
claimant in respect of the crime and insurance aspects, fears about the
reputation of the nearby estate, and, somewhat late in the day, expressed
concerns about the safety of staff, I find unconvincing.
In respect of the suitability of the Ordsall Lane
site, I prefer the respondents’ evidence, and while noting the submissions by
counsel for the claimant that the best judge of what is suitable and what is
not must be the operator of the business, I am not persuaded that neither WBD
nor Ordsall Lane was suitable for relocation and expansion of the business. I
think it unlikely that Royal Bank of Scotland would risk investing substantial
sums in a cash-handling facility next door if the location was unsuitable for
reasons of security.
The council are not, however, beyond criticism,
and I have some sympathy with the claimant’s stated frustrations over the
planning problems at the Ordsall Lane site. While they should undoubtedly have
researched the planning side more fully than they did before committing
themselves to the purchase, I do accept that there would not have been time to
get anything more than an informal view from the planners, especially where
they were in a competitive tender situation and they risked losing the site if
they delayed. However, it took three years for planning permission to be
obtained (from purchase, not from when the application was submitted), and this
must have been extremely frustrating. It will also have resulted in the need,
as stated in evidence, for the claimant to keep looking, and it will have
incurred some additional costs as a result.
Once planning permission was obtained, they were
again frustrated because they could not, they say, fund the development until a
commitment was received from the council. This was not forthcoming until 1994,
but I note that there was no activity in the property search arena until Mr
O’Herlihy was reinstructed in early 1994. Therefore, it is reasonable to assume
that, as planning for the claimant’s required new building was in place, they
were just waiting for the opportunity to get going.
It appears to me that, notwithstanding whether or
not the WBD premises may have been suitable (and I think they were), or whether
or not they were available (and I think they were, initially), the Ordsall Lane
site was an ideal opportunity for the claimant company to relocate and achieve
its stated aims in a reasonably prominent position, with good access, close to
the existing premises and right in the middle of the area where its core
customers were located. I am inclined to agree with the respondents’
submissions that the claimant may have had second thoughts about the business
efficacy of undertaking the expansion first mooted, in the light of increasing
competition, the demise of the corner shop etc, and saw an opportunity to
diversify into other less cash intensive but more profitable areas, at the same
time as picking up a significant payment for the extinguishment of the
business. Having said that, I have no doubt that the claimant ran a highly
successful business, and accept Mr Lamba’s evidence about how they were able to
respond more quickly and effectively than the big multiples, the value of the
tie-up with the NISA Today’s Group etc, and I am certain that they would have
continued to trade successfully in the particular market they covered. Mr
O’Herlihy said in evidence that had the council been in a position to commit
funds in, or close to, 1992, when the planning permission was obtained, the
claimant would have gone ahead, and I tend to agree that it probably would.
In answer, therefore, to the questions I asked at
the beginning of this decision, I find that the claimant did have an
alternative to extinguishing the business. It had not one, but quite possibly
two alternatives to which to relocate, without even having to take into
consideration the others (LEP, Greengate, the Albion and those put forward in
Mr Shaw’s evidence). It could have committed to WBD before the decision was
made to let it as an investment, and I think it was initially the intention to
do so. There was adequate time from when the council said it could proceed with
the commitment to funding (April 1994), to have the proposed Ordsall Lane
premises built and ready to occupy by the time the subject premises were
acquired. Thus the claimant did, in my opinion, have the opportunity to
relocate and did not take it, and did not take reasonable steps to mitigate the
additional losses that would be caused by extinguishment.
Were these the actions of a reasonable
businessman? For the reasons given above, I think not. In this respect, I have
considered the decision in Director of Buildings and Lands v Shun
Fung Ironworks Ltd [1995] 2 AC 111* where it was held at p112:
a claimant was entitled to fair and adequate
compensation for loss or damage suffered due to resumption [acquisition] of his
land, including loss or damage to his business; but that, although the
compensation related to the value of the land to the claimant, in respect of
any particular loss it was necessary to show a causal connection between the
resumption and that loss, that it was not too remote and that it was one which
a reasonable person in the position of the claimant would have incurred; that
provided those conditions were satisfied a claimant might recover compensation
on a relocation basis for the cost of moving the claimant’s business to another
site even though that would exceed the amount payable on an extinguishment
basis in respect of the value of the business at the date of resumption; that
in order for a claim to be assessed on a relocation basis the claimant had to
establish that the business was capable of being relocated, that he intended to
relocate, and that a reasonable businessman would do so; and that, since there
was no ground entitling the Court of Appeal to reverse the tribunal’s
conclusion based on its findings of fact, the claimant’s business had been
effectually extinguished at the date of resumption and since, despite the
claimant’s genuine intention to relocate its business, a reasonable businessman
would not take that course, compensation had properly been determined by the
tribunal on an extinguishment basis.
*Editor’s note: Also reported at [1995] 1 EGLR
19; [1995] 19 EG 147
In this reference, the business was capable of
being relocated, the claimant has shown in evidence that it did intend to
relocate, and I find that a reasonable businessman would have done so. I do not
accept the claimant’s assertions that the business had to be extinguished due
to the inability to find suitable alternative sites or premises, for the
reasons given above, and therefore I conclude that compensation should be
assessed upon a hypothetical relocation basis.
Even if the claimant had decided that it wanted
like for like premises, rather than embarking upon an ambitious expansion
scheme, there was, in my opinion, the opportunity to do so. This was apparent
from the evidence put forward by Mr Shaw, and while I am not sure that he was
adequately briefed about the claimant’s criteria, and certainly only did a very
cursory exercise, there were one or two that could have been suitable. While
quite probably not ideal, in that it was not particularly prominent, Mr Shaw’s
suggested alternative at Metroplex Business Park, The Broadway, Salford,
appeared upon my inspection to offer potential. The three-acre freehold
brownfield site at Oldfield Road, Salford (close to both the subject premises
and the Ordsall Lane site), appeared to meet the criteria certainly as far as
prominence, location and size were concerned; however, I was advised that there
may have been some question over its availability. The sites that were
available at The Chrysalis, The Broadway, Salford, which were located in a
prominent position fronting this primary spine road and backing on to the Ship
Canal, also, in my view, offered potential, as did the location of the site at
the junction of Springfield Lane and the Inner Relief Route, said to be
available for hotel or commercial use at the relevant time. While noting the
written responses to each of the properties on Mr Shaw’s list put in by Mr
Hindley during the hearing, I conclude that, although none of the premises or
sites may have been a perfect alternative, there were opportunities.
As to whether or not the business has continued,
post date of entry, I prefer the claimant’s evidence on this aspect. I cannot,
from the evidence, reach a conclusion as to why Mr Lamba would not sign the
extinguishment undertaking, but he did want to continue the "family
firm" of Lamba Trading Co, and, as the respondents suggested, capitalise
upon the reputation that had been built up in their cash-and-carry business.
However, I think the business they are currently conducting is sufficiently
different from the former activities for there to be no doubt that the original
business has been extinguished. In respect of this part of the decision, I am
assisted again by the Shun Fung decision in the House of Lords, where
Lord Nicholls of Birkenhead said in answer to the question, at p128, "was
the business extinguished?":
A business has several attributes. These include
the goods or services it supplies, its management and staff, its suppliers, its
customers, its location, its reputation, its name. When a business closes down
at one site and reopens elsewhere, there is usually no difficulty in knowing
whether, in practical terms, it is the same business or not. Take a simple
example. A restaurant in Soho is forced to close when its premises are taken
over. On the following day the same management opens a new restaurant of the
same style nearby, under the same name and employing the same staff. That would
be a case of the same business operating from a new location. That would be so
even if there were an interval of a few days or weeks before the restaurant
opened at the new site. The matter would stand differently if, four or five
years after the Soho restaurant was shut, the same management opened a new
restaurant outside London. That could not be regarded as the same business. It
would rather be a case of one business having closed down and, some years
later, the same management having set itself up in the same line of business
again. In between these two extremes would be examples which would not be so
clear cut. In each case it is a question of fact and degree whether the new
business has retained sufficient attributes of the old business for the new
business sensibly to be regarded as the old business at a new site or, which
comes to the same, as a continuation of the old business at a new site.
Even though the claimant may be undertaking some
limited activities that are similar to those carried out under the old regime
(for instance the beer and lager sales), I am satisfied that there are not
sufficient attributes of the new business to warrant the suggestion that
Lamba’s cash-and-carry operations have continued.
I now move to the matter of compensation, and deal
with each head of claim, and the evidence and submissions relating thereto, on
the basis of a hypothetical relocation.1. Value of subject premises at date
of entry – 8 March 1996
Mr Hindley had valued the freehold of the subject
premises, which he considered to be located in a highly prominent position, at
£808,000, based on a floor area of 29,800 sq ft excluding the areas occupied by
Banner Catering. Following an agreed revision of the floor area to 29,750 sq
ft, he revised his figure to £805,000. This was calculated as follows:
|
Cash-and-carry |
29,750 |
|
Rental |
£3.25 |
|
say |
£96,600 |
|
YP @ 12% |
8.333 |
|
|
£805,000 |
Mr Hindley said he was of the view that a rental
value of £3.25 per sq ft much more accurately reflected what the market would
pay at the time than the £2.00 to £2.25 used by Mr Gannon in his comparables.
He said he had used a return of 12% because the property was prominently
located almost adjacent to the swing bridge, was of a type that at the time was
in relatively strong demand, there being a shortage of similar properties, and
there would be a premium for the cash-and-carry planning permission.
He had relied upon the following comparables:
The former Parcel Force depot at Tenax Road,
Trafford Park. Mr Hindley said this was an Atcost
portal-framed building purpose-built as a distribution depot, more modern than,
but visually similar to, the subject premises. It was located in an inferior,
non-prominent position at the centre of the Trafford Park industrial estate on
a site of three acres. The unit totalled 41,684 sq ft, and was sold in 1995 for
£960,000. Mr Hindley analysed this at £3.10 per sq ft to give a rental value of
£129,220 and capitalised it at 13.5%, giving a years’ purchase of 7.41. Mr
Gannon stated, in his rebuttal evidence, that the building actually occupied a
site of 4.96 acres, and the vendors had confirmed that it was sold to the
present occupiers in October 1995 at £1.02m.
Units A & B, Mancentral Trading Estate,
East Ordsall Lane, Salford. These were again
purpose-built warehouse/distribution units on a small, poorly located and non-prominent
development about the same distance from the Ordsall Lane site as the subject
premises, but in the opposite direction. The specification, he said, was poor,
there was limited parking and the eaves height was restricted. Two units had
been knocked into one, making a total of 24,722 sq ft. The premises were let on
standard full repairing and insuring terms, and the rent review in June 1994,
settled at £75,000 pa, broke back to £3.03 per sq ft.
The former LEP Building, Trafford Wharf Road,
Trafford Park. As had been set out in the schedule
of agreed facts and chronology of events, these premises were of interest to
the claimant, and had been on the market at an asking price of £2.5m for 90,000
sq ft of buildings on 5.6 acres. The building was, Mr Hindley said, in poor
condition, and the claimant’s appointed engineers had estimated that they
needed around £616,000 spending on them (excluding fitting out for a
cash-and-carry). They were also less prominently situated than the subject
premises, and were much too large at about three times the size. It was
understood that, were it not for the vendor’s difficulties, referred to earlier
in evidence, the claimant’s offer of £1.925m would have been acceptable. Mr
Hindley had analysed the offer price on a basis of £3 per sq ft at 14 years’
purchase (to take account of the condition and size). Mr Gannon said that the
building had been subsequently let at a figure that equated to £2.44 per sq ft,
but Mr Hindley countered by saying that many of these were only short-term
"easy come, easy go" lettings to a number of different parties, with
no security of tenure, arranged by LEP while it was in financial difficulties,
and did not, therefore, represent the true open market value.
Units 2, 3 and 4 Severnside Trading Estate,
Textilose Road, Trafford Park. Although submitted
as a comparable in his written evidence, Mr Hindley accepted at the hearing
that this was not a good comparable, and was of little assistance.It was put to
Mr Hindley in cross-examination that if the history of the subject premises, as
set out in Mr Lamba’s evidence regarding insurance and security problems, was
correct, then this must be reflected in the rental value and the yield.
Furthermore, there would surely not be a premium for cash-and-carry use. Mr
Hindley disagreed, and said that security would only be one of a number of
criteria to be considered by potential purchasers. He said that one of his
comparables, the units at Mancentral Trading Estate, also had security
problems, but the rental value, agreed on review, was still much higher, in a
poorer and less prominent location, than the figures Mr Gannon was suggesting
for the subject premises.
Mr Gannon had valued the freehold at £714,000 on
the basis of the agreed floor area of 29,750 sq ft. He said that the premises
were well located with a prominent main road frontage, and had good access to
the motorway system. A cash-and-carry warehouse would carry a slight premium,
which would be reflected in rental values and years’ purchase, but he did not
consider that premium as great as contended by Mr Hindley. The premises were
not purpose-built as a warehouse, having been constructed as an engineering
works, with yard area and parking provision being much below modern
requirements. He said the floor space was partially obstructed by supporting
steelwork and redundant gantries, and office provision was nominal.
His valuation had been calculated thus:
|
Premises |
29,750 sq ft |
|
Rental value |
£3 per sq ft |
|
|
£89,250 |
|
YP @ 12.5% |
8 |
|
|
£714,000 |
Mr Gannon had two comparables, both warehouses in
Trafford Park, the acquisition of which he had been involved in for the
Trafford Park development corporation in 1993.
Unit 3, Springfield Trading Estate, Trafford
Park. This was an old single-storey warehouse with
18ft headroom extending to 25,785 sq ft with a 1,805 sq ft canopy and yard area
of 0.96 acres. On the basis of £2 per sq ft for the warehouse, £1 per sq ft for
the canopy at a YP of 7.5, together with £100,000 for the yard, this gave a
capital figure of £500,000.
Charter House, Westinghouse Road, Third Avenue,
Trafford Park. Another old single-storey warehouse of 16,000 sq ft, with 20ft
headroom, offices, yard and forecourt parking. This had devalued to £2.20 per
sq ft, at a YP of 7.5, to give an acquisition price of £260,000.
Both of these, he said, were in his actual
experience, rather than hearsay evidence, which in cross-examination he
suggested had tripped up Mr Hindley with his comparables. They were of similar
age to the subject property but were inferior in terms of location and
headroom. In arriving at his estimate of rental value and YP for the subject
premises, he said he used his judgment to adapt the comparables to be
appropriate, including an allowance for what he described as a slight improvement
in the market between 1993 and 1996.
In respect of Mr Hindley’s comparable, the former
Parcel Force premises, he said that in the knowledge of the actual figures, it
would achieve a devaluation of the subject premises at £722,000.
Decision
This is one area of the claim where it was
acknowledged that there was not much between the parties. As to Mr Hindley’s
valuation, and the comparables upon which it was based, Mr Gannon suggested
that the LEP building was not an open market transaction, but was his analysis
based upon the offer price. This was not, therefore, a true comparable. While
this is a fair point, Mr Hindley submitted in oral evidence, and his statement
was not contested, that the building was eventually sold in August 1996 at
£2.15m.
The LEP building is, in my opinion, a good
comparable, and bearing in mind it was some three times as large as the subject
premises, and the subject premises were located in a far better position in
terms of prominence, it would be reasonable to assume a higher rental value per
sq ft for the latter. Thus, the £3 suggested by Mr Hindley (which I accept in
the light of the fact that the building was sold later at a figure higher than
the offer price), would indicate to me that £3.25 per sq ft is not unreasonably
high for the subject premises. This is also supported, in my opinion, by the
rent review figure on the Mancentral Trading Estate premises (at £3.03 per sq
ft), which, on inspection, I found to be of a type that would have been a
distinct possibility as an alternative for the claimant, if it had been
available, but much less prominent and in a rather run-down area. In his
rebuttal evidence, Mr Gannon appeared to concede that this is not a bad
comparable.
The Parcel Force building also gave a rental value
in the region of £3 per sq ft, and, while being a good, modern, purpose-built
unit, was much less prominently located.
The comparables cited by Mr Gannon were, he said,
indicative of open market settlements because the owners had both been advised
by chartered surveyors. While on reasonably busy roads, they were both in the
heart of the Trafford Park industrial estate and might not be considered to be
ideal, either in terms of location or accommodation, for cash-and-carry
premises. I suspect that, for the types of buildings, in the locations they
were, the rental values quoted were probably not far out, but not really
comparable with the value of the subject premises.
I therefore conclude that a rental value of £3.25
per sq ft, at the valuation date, for the subject premises, is appropriate. As
to the YP, I think whether 12 or 12.5% is taken is marginal, and either figure
could be argued equally convincingly to be appropriate. For the purposes of
this decision, therefore, I have adopted a mid-range figure of 12.25%. My
valuation, therefore, is as follows:
|
Premises |
29,750 sq ft |
|
Rental |
£3.25 per sq ft |
|
say |
£96,750 |
|
YP @ 12.25% |
8.163 |
|
Valuation |
£789,870 |
|
|
say £790,000 |
1b – Agreed
1c – Agreed
2b – Loss of opportunity to expand
This is one of the most significant heads of
claim. The claimant has submitted a figure of £1.52m and the respondents are
offering nil.
Mrs Sara Fowler has been a member of the Institute
of Chartered Accountants in England and Wales since 1984, and since 1991 has
been the associate in charge of Ernst & Young’s forensic accounting group.
Her first involvement had been in May 1995, when she had been advised by Mr
Hindley that he had a client who needed urgent advice. Mr Hindley had said that
compensation and disturbance would be likely to be similar for both
extinguishment and relocation, but that extinguishment was likely to be the
ceiling. In September of that year, Mr Hindley had advised Mrs Fowler that
Lamba was hoping to buy a building, but did not know if it could afford it –
that would depend upon compensation. On 26 October 1995 Mrs Fowler provided the
claimant with a letter and a paper setting out the claimable items on both
bases. In cross-examination, she agreed that while an extinguishment basis might
not have been the benchmark, rather a ceiling or maximum claim, it would be
advantageous to have a figure for extinguishment to give greater scope for
negotiating a successful relocation claim.
In her proof of evidence, Mrs Fowler suggested
that, in fact, due partly to the need for a period of dual trading to allow
continuation of the business during the move from one location to another, and
the nature of the cash-and-carry business, a relocation claim could exceed that
for extinguishment.
As to the loss of opportunity element, it was her
contention that a claim for loss of opportunity to expand due to the
implementation of the CPO could be substantiated, even on the basis of a
notional or hypothetical relocation. The basis for this contention was that the
claimant would have been likely, in the absence of a CPO, to have relocated to
larger premises, particularly as the company’s growth had been restricted in
the period to March 1995 due to the inability to expand on its existing site.
Indeed, she said, although the claimant had ceased to trade at the date of
entry, due to no suitable site or building being available, had it not been for
the CPO it might well have gone for the LEP building, which came back on the
market after the date of extinguishment and was subsequently sold.
She did say that calculating loss of opportunity
was subjective, and in arriving at her figure of £1.52m, the net loss of future
additional profits, she had reviewed the price to earnings (P/E) ratio of
analogous quoted companies (as she had also done in calculating the loss of
value of the business in the claim for extinguishment). In this instance, she
said, a discount, in the absence of an opportunity to expand, alongside all the
other factors she had applied, should be 50%. Had there been an opportunity to
expand, there would be a lower discount level of, say, 30%. This would give a
multiple of 15 compared with 11, an increase of four times. The value of the
loss of opportunity was valued thus:
|
Increase in multiple |
4 times |
|
Future earnings |
£380,000 |
|
Therefore, loss of |
£1,520,000 |
Mrs Fowler said that during the period 1987 to
August 1993, while operating as best it could under the threat of compulsory
purchase, the claimant was frustrated in its opportunity to expand due to the
unavailability of funding. Indeed, she said, Mr Woolf, for the respondents, had
said in his report that there were no larger sites available for the claimant
to move to, it did not attempt to expand its existing premises (by installing a
mezzanine), it did not move to Ordsall Lane, the market could not support an
expanded business, and the claimant did not prepare a business plan. In
response, she said that if no sites were available, how could the claimant
reasonably be expected to plan for expansion? Also, if it could not fund
expansion, how could it have moved to Ordsall Lane? In cross-examination, she
said that in a no-scheme world, it would have funded the move, even though it
would have meant a significant financial outlay, because it was a
cash-generative business that had access to finance, and Mr Woolf had produced
no evidence to support his contentions. Why, she said, if the market could not
support an expanded business, had Lamba received an unsolicited approach from
Roy Hall’s cash-and-carry, had Nurdin & Peacock subsequently acquired Roy
Hall’s cash-and-carry in Manchester, and had Booker acquired Nurdin &
Peacock?
It was put to Mrs Fowler that, if no alternative
sites were available, there could not have been an opportunity to expand in any
event. She said it was all down to the timescale – the narrow window of
opportunity between April 1994 and the date of entry was insufficient time to
move, and too late following the years during which the claimant’s attempts
were frustrated.
Mr Gannon said he did not think that the arguments
for expansion put forward by the claimant and its accountants were practicable
or economically feasible. He also considered that expansion upon its existing
premises would have been physically impossible. However, if a mezzanine had
indeed been possible, then the claimant had failed to mitigate its alleged
losses by not undertaking the work. The costs of that work, had it been done,
would have been a valid head of claim.
He said that the claimant said it had been unable
to find an alternative site or building despite seven years of searching, and
had made a strong case concerning the difficulties that would have been
encountered even if it had had the opportunity to relocate. These difficulties
would have been equally if not more so had it sought to expand, and those costs
would, he said, have been a major factor in dissuading the claimant from moving
for expansion purposes. He said that the claimant had failed to prove this head
of claim, and just as, under the extinguishment heading, he thought there was
no entitlement, neither was there one under the relocation head.
In cross-examination, it was suggested that Mr
Gannon had been appointed by the council to "minimise the claim", and
may have been asked to justify compensation on the relocation rather than an
extinguishment basis. He said this was most certainly not the case, and he had
reached his own conclusions that relocation must be the basis. Indeed, the
council had indicated to him that they would accept whatever advice he gave
them – that was why, as a specialist in this field, he had been appointed.
Mr Antony Woolf is a fellow of the Institute of
Chartered Accountants in England and Wales, qualifying in 1972, and a partner
in KPMG specialising in forensic accounting matters. He had been appointed by
the council to advise upon certain matters relating to the claim for
compensation. In response to a question from the tribunal, relating to the fact
that the figures being promulgated by Mr Gannon differed under a number of
heads of claim from those of Mr Woolf, I was advised that Mr Gannon’s were the
figures that should be taken. Mr Woolf’s comments were to be taken as
supportive, and were intended to be helpful in crystallising thoughts on the
areas of difference between the parties.
Mr Woolf pointed out that the claim, at £1.52m was
almost half that which had been included in the original claim. He said that he
did not think the claimant could realistically have expanded in the market in
which it operated. In any event, he was not sure of the claimant’s real
intentions, as it had not prepared a business plan or projections in 1986 or
1987 when it was alleged that it first considered this, and would certainly
have needed this if it were to go to the bank for funding. The claimant said,
in response to this point, that the relationship with its bank was such that
formal business plans would not have been necessary.
Mr Woolf said that a fundamental argument against
the validity of a claim for loss of opportunity to expand into larger premises
was that Lamba itself claims that total extinguishment of the business was the
only option, precisely because it was unable to find suitable premises into
which it could move. Thus, in his view, it was the claimant’s own failure to
find alternative premises that was the key argument against the assertion that
it could have expanded if it had moved into larger premises. It failed to take
the opportunity either to relocate to the Ordsall Lane site or to expand within
its existing premises by the introduction of a mezzanine floor, and, Mr Woolf
said, this suggested to him that the claimant had reached the same conclusion –
that expansion was not viable on commercial grounds.
He went on to outline the market considerations
that, in his view, would have prevented the claimant from either funding the
proposed expansion or generating sufficient additional profits to warrant it.
The declining marketplace, growing competition for the company’s existing
customers, competition from its cash-and-carry competitors and reported lack of
growth in the cash-and-carry marketplace generally were all factors that would
have deterred the company from taking such steps. He also felt that the
significant one-off cost of moving would have been a major deterrent. The
directors would have had to be very sure that relocation was worthwhile, and in
arguing for compensation based upon total extinguishment, they had highlighted
the great practical difficulties involved in moving.
He also set out why he thought Mrs Fowler’s
proposed P/E ratio was unrealistic.
Decision
I have already established, in the decision
relating to the basis of claim, that I consider that the claimant had at least
one opportunity to relocate, and quite possibly two. If one looks, first, at
the Weaste Bus Depot, this was acquired by the Lamba family in 1989 with the
benefit of planning permission for a cash-and-carry. It was, in my opinion, as
I have already stated, suitable for relocation, and could have been physically
divided to allow the cash-and-carry enterprise to occupy however much it
wanted. It could have been acquired from the family by the trading company, or
LTC could have paid a commercial rent to the family property company, whichever
was the more tax-efficient. Come what may, I have no doubt that a move here
could have been achieved, and, in those early stages of the CPO process, I have
not been able to identify any factor, had the company really wanted to expand
or relocate, to prevent them having done so.
Next, Ordsall Lane. Despite the planning delays
and the fact that funding for this rather more adventurous option could not be
guaranteed by the council before April 1994, if the claimant had really wanted
to take that step, there was still plenty of time for it to do so. I have
already indicated that I do not find the claimant’s arguments relating to the
unsuitability of the location convincing.
Thus, in reality, there has been no lost
opportunity, because those opportunities were there and could have been taken.
In any event, I accept the contentions of Mr Gannon and Mr Woolf that, whether
or not the claimant had an opportunity to expand the business, in economic and
trading terms it would probably not have done so.
On either basis, there can, in my view, be no
valid claim here, and I therefore assess the compensation under this head at
nil.
2f – Non-recoverable
debtors.
The claimant assesses this item of disturbance at
£28,500 (assuming it had to relocate to a less suitable site – nil if moving to
a more suitable one), and the respondents assess it at nil.
The claim for non-recoverable debts had originally
been circa £144,000, subsequently reduced to £57,014 on the extinguishment
basis, and reduced again by Mrs Fowler to £28,500 (on the basis of 50% of the
amount claimed on extinguishment). She said there was no reason to suppose that
if a hypothetical relocation took place, the associated dislocation of the
customer base would not have given rise to a similar scale of loss to that
which was being claimed on the basis of extinguishment. However, the claimant
would have still been able to use the North West security association of
cash-and-carry wholesalers to assist in the recovery of debts, and therefore it
was reasonable to suggest that the loss, on moving to a less suitable site,
might be 50%.
A breakdown of the circa £57,000 worth of debts
still being claimed (on the extinguishment basis) was provided by the
claimant’s solicitor in a letter to the council dated 4 February 1999, and was
submitted in evidence. Mrs Fowler did not know what action had been taken to
reduce these debts, the vast majority of which were due from two customers.
Mr Woolf said that he thought part of the still
outstanding debts may relate to those that, in earlier years of trading, had
been related to credit extended beyond a reasonable level. The claimant had
written off large sums of debt in its accounts, and he was not sure that it had
taken reasonable steps to recover them. He said that, in his view, there was no
evidence that the non-recoverable debts should form part of the claim.
Mr Gannon said he also did not know what actions
had been taken to recover the debts. He mentioned that bad debts would occur
whatever the trading situation, and felt that possibly more could have been
done to recover the outstanding amounts.
Decision
I fail to see the relevance of the distinction,
made by the claimant’s accounting expert, between more and less suitable sites,
for this purpose. If the claimant had relocated, it would have been to a site
or building within the catchment area of its former premises, the client base
would have remained the same (or expanded), and the business would have continued
much as before. There is therefore no reason why the bad debt situation would
be any worse than if it had remained where it was. I assess this part of the
claim at nil.
2j – Cost of seeking
alternative sites
Mr Hindley set out the fees that the claimant had
incurred in seeking alternative sites, which mainly excluded those relating to
Ordsall Lane, although one of the Chesterton invoices had included an element
for advice on Ordsall Lane up until 1992. These amounted to £13,706.
Mr Gannon had agreed this figure in respect of the
extinguishment claim, but said that it was included in his fees calculations as
a composite under claim heading 2z, as were those items claimed under 2k, l and
m, and commended the 2z total as fair allowance under the various heads. There
was some question over the production of receipted invoices for the items
claimed.
Mrs Fowler and Mr Woolf both accepted that it was
reasonable for the claimant to have incurred some abortive costs in
investigating sites generally. However, Mr Woolf was of the view that if Lamba
had been wanting to expand, it would have incurred such costs in any event.
Decision
The claim was itemised by Mr Hindley and
principally included fees and costs associated with the investigation of the
LEP building, the Greengate site, the site at Albion Way and Chesterton’s
general property search fees (within which there was an element relating to
Ordsall Lane).
This is an acceptable head of claim, as it is to
be expected that a claimant will suffer some abortive costs in seeking out and
investigating alternative premises before the right ones are acquired. Even
though the Ordsall Lane premises were acquired in 1989, bearing in mind the
planning delays and the subsequent delays relating to the availability of funding
for the development of the site (and here I think I am being generous to the
claimant, as being a cash-generative business with a low level of debt, it
could probably have funded the development prior to the availability of funding
from the council, bearing in mind its stated intentions to expand), I believe
abortive costs up to 1994 should be paid. That expenses reasonably incurred
before notice to treat can be recovered is established by Prasad v Wolverhampton
Borough Council (1983) 265 EG 1073* and Director of Buildings v Shun
Fung Ironworks. The principle established by those decisions does, in my
view, have application here, and I accept the contention that, in respect of
the CPO, there was a shadow over the claimant’s business from late 1987.
*Editor’s note: Also reported at [1983] 1 EGLR 10
The costs claimed appear to me to be mainly
reasonable, but I would question those relating to the LEP building, as they
would not have been incurred until after the claimant’s decision not to move to
Ordsall Lane. However, the amounts are small, and have not been contested by Mr
Gannon. I therefore assess the amount payable, under this head, at £13,706.
2k – Costs incurred
in connection with Ordsall Lane.
Mr Hindley had also itemised the costs under this
head, which amounted to £22,047. They included such matters as Chesterton’s
acquisition fee, stamp duty and legal costs, architects, planning and building
regulation fees between August 1989 and May 1995.
Mrs Fowler said that even on a hypothetical basis,
the claimant could not have chosen to move (to Ordsall Lane) until 1992 at the
earliest, when planning permission was obtained, but possibly later still due
to the delays in confirmation of available funding. Thus, the claimed costs
were, she said, compensatable.
Mr Campbell said that while the claimant accepted
that there was a long period between when it acquired the site and when it
decided not to proceed with the proposed relocation, this was due to the state
of the market in 1989 and the need to move quickly to acquire the site followed
by the well documented delays relating to planning permission and thence
commitment to funding. There was, therefore, a long "shadow" period
during which items of disturbance could be claimed.
In respect of the extinguishment claim, Mr Gannon
had allowed only an arbitrary sum of £1,000 as an acceptance that the claimant
may have suffered some abortive fees on investigating the site. However, he
said, as it had been submitted in evidence by the claimant that the site was
unsuitable, it could be argued that the purchase was imprudent, and that the
other claimed costs were therefore not the responsibility of the council. In
respect of the claim under the relocation premise, the figures had again been
included as an arbitrary composite under 2z.
Mr Woolf said that, as with 2j, abortive costs
were allowable in principle, but as the council contend that the costs
associated with Ordsall Lane were not abortive, in that no external factors
prevented it moving there, and it was the claimant’s decision not to move, then
the council should not be liable for costs associated with Ordsall Lane. He
said that he could not understand why the claimant was seeking compensation for
fees paid to the architects in 1995, if it had decided not to proceed with the
relocation in 1994.
Decision
As I have found that the Ordsall Lane site was
indeed a suitable alternative to which the claimant could have relocated, but
chose not to, it is necessary to consider the claimant’s objective duty to
mitigate its losses. This impacts also on the claims set out under 2l and 2m,
and, to an extent, 2n below.
As I have said in connection with 2j above, there
is no problem, in principle, with claims relating to the period prior to the
notice to treat, and this principle should include allowable Ordsall Lane costs
actually incurred. However, the claimant made the decision not to relocate in
April 1994, as it happens coincidentally with the time when the council said
they were now in a position to deal with the compensation claim. It was agreed
between the parties that in normal circumstances it could be expected to take
about 15 months from acquisition of a suitable bare site, through obtaining
planning permission, design aspects and construction to completion and
readiness for occupation. There would then need to be up to three months for
the transfer of the business from its existing site to the new one. By April
1994 planning permission already existed, and plans for the new building had
been prepared. I think it reasonable, therefore, to allow a period of just over
a year in total from the April 1994 date to arrive at a point at which, if the
claimant had continued with its relocation plans, it could have been fully operational
from the new premises – say mid-1995.
This is a key factor in assessing the losses that
actually occurred as a result of the CPO. Any losses actually suffered on the
total extinguishment of the business will be limited to no more than the amount
that would have applied if the claimant had properly mitigated its losses, and
relocated to the alternative site. Mr Campbell had said that it was for the
council to prove that the claimant had not mitigated its losses by relocating
to a suitable alternative site, and referred to Lindon Print Ltd v West
Midlands County Council [1987] 2 EGLR 200*. In that case, it had been held
that the council had failed to discharge the onus of proof and that losses were
to be assessed on the basis of total extinguishment. Although similar in many
ways, the crucial difference in that case was that the tribunal found it was
not reasonable to expect the claimant to find accommodation to which it could
relocate in the eight weeks that existed between confirmation of the CPO and when
possession of its existing premises had to be given up. There was no obligation
to mitigate prior to the confirmation of the CPO, and it did not matter that
the claimant had several years notice of the impending CPO. In the subject
case, the CPO was confirmed in August 1992, the council advised the claimant’s
agent in April 1994 that they had agreed the provision of funding in principle
and were in a position to discuss valid heads of claim, and notice to treat was
served on the claimant in July 1994. As I have said above, I consider that the
claimant had adequate time to proceed with the Ordsall Lane development.
I find the items claimed by Mr Hindley to be
allowable, and therefore assess the compensation under this head at £22,047.
*Editor’s note: Also reported at (1986) 283 EG 70
2l – Interest on
abortive costs
Mr Hindley had calculated interest on moneys
expended on investigation of alternative sites, including Ordsall Lane, from
July 1989 to March 1996 in the sum of £20,767. No detailed calculations as to
how this figure had been arrived at were included within his expert report, or
given in evidence, although he said that, as with the figures under claim heads
2j and 2k, full details had previously been provided to the council.
While again, under the notional relocation
scenario, Mr Gannon had included a figure for this head of claim within 2z,
under the extinguishment claim he had assessed the abortive fees at £14,706
(under 2j and 2k), and had calculated a figure of £9,265 for interest based
upon a mean starting date of the beginning of 1991 at a rate of 12%.
Decision
I have allowed the claimant’s figures on 2j and 2k
as claimed, and, particularly as I consider Mr Gannon’s calculation to be
somewhat arbitrary, see no reason to disagree with Mr Hindley’s figure. I
therefore assess the compensation under this head at £20,767.
2m – Interest on the
Ordsall Lane purchase price
Mr Hindley said that the sum of £324,000, as
calculated by Mrs Fowler, was the appropriate amount to be paid for the
interest on the cost of acquiring and holding the site over the period July
1989 to the date of entry in March 1996. Mrs Fowler admitted that the
calculation does not show exactly how much of that amount relates to loss of
interest, as, due to the way the site had been purchased, it includes loss of
opportunity to invest.
In cross-examination it was put to Mr Hindley
that, as the Ordsall Lane site was larger than that occupied by the subject
premises (2.4 acres against one acre), and it was proposed to construct a
larger building (50,000 sq ft as against circa 30,000 sq ft), there would
therefore be an element of betterment. Mr Hindley agreed. Mr Barrett suggested
that as it was not a like-for-like site, and as the claim under this head,
together with that relating to the loss of value on the site (2n) was for the
full amount, it should not be for the council to pay compensation for any
element of betterment.
Bearing in mind that the claim was for interest
throughout the period up to the date of entry, Mr Barrett said that if it was
the claimant’s contention that the site had been deemed unsuitable by 1994, why
had it not disposed of it then? Mr Hindley said that it had been on the market
but no interest was received, and the claimant would have suffered a
significant loss as it could only have sold it for a knock-down price. It was
suggested to Mr Hindley that, if the claimant had been suffering heavy and
ongoing interest charges, it would have been best for it to have cut its
losses. He disagreed, and said that the claimant was holding on to the site
waiting for the market to improve.
In connection with the interest claim, and that
for loss of value on the site (dealt with in 2n below), Mr Barrett asked why
all costs were being claimed. If they were paid on this basis, it would be
inequitable for the council, as the claimant would still have the land and
would benefit from any increase in value. It would thus be obtaining value for
money. As to the fact that the costs were being claimed for the full period
from 1989 to 1996, Mr Hindley accepted that, in hindsight, the claimant may
have been too hasty in acquiring Ordsall Lane, and that decision subsequently
proved to be imprudent. However, he said the site had been acquired in
anticipation of the CPO, the crime problems in the Ordsall Lane area were not
as serious in 1989, and it would have been reasonable for the claimant to have
anticipated that planning permission for a cash-and-carry warehouse would have
been forthcoming. Mr Gannon, he said, had suggested that it was unrealistic to
acquire the site and hold it for in excess of six years. Mr Hindley said that
this contention was self-defeating on a notional relocation basis. There was no
other site, and had Ordsall Lane not been purchased when it was, that site
would not have remained available.
Mr Gannon said that interest in connection with
the price paid for the Ordsall Lane site was dealt with under the subheading
"notional interest" in claim head 2z. He agreed that there would be a
cost for bridging finance in respect of the purchase price and fees, but he
considered it unrealistic for a claimant to purchase a relocation property and
hold it for six years. He therefore assessed the claim on the basis of a
notional, but problematical, relocation, with a notional price of £750,000
including fees and a holding period of two years. Compound interest for two
years at 8% amounted to £124,800.
Mr Woolf noted that the claim under this head had
reduced since the one originally submitted by Chesterton in 1996, from £536,108
to £324,600. The original claim had been for the period July 1989 to June 1996,
but the latest one is for the period up to March 1996. Although the exact basis
of the latest claim had not been provided by the claimant’s expert, Mr Woolf
noted that interest was calculated on a compound, rather than simple, interest
basis. The claimant was thus claiming interest on interest. Mr Woolf had been
through the company accounts for the period in question, and had concluded that
the purchase was not funded solely out of loans, but from various sources,
principally overdraft and funds generated from profits and an increase in trade
creditors. It was not therefore appropriate to claim interest on the full
amount of the purchase price, but to calculate it on the basis of the
difference there would have been to the average overdraft, year on year, if the
£475,000 had not been spent. He had concluded that the interest cost for the
period July 1989 to March 1996 would have been similar to that suggested by Mrs
Fowler, at around £345,000. However, he questioned the validity of claiming
interest to the date of entry under the circumstances, and said that if the
interest was taken to June 1992, when planning permission was granted, the
figure would be about £190,000.
Decision
There are two points for me to consider under this
head of claim. First, the question of betterment. There cannot be a straight
comparison between the site area covered by the original building and the area
of the Ordsall Lane site. Although the new site was larger than required to
take a like-for-like building, the extra area is not directly proportionate,
due to the difference in current planning requirements regarding site coverage
to parking ratios etc. Mr Gannon suggested in evidence that an appropriate
allowance, if the claim was accepted, should be 60%, this being the ratio of
the size of the existing building against that for which planning permission
had been obtained (30,000 sq ft v 50,000 sq ft). He said that this
apportionment should apply to fees as well as interest, and while I accept that
this is probably the fairest and simplest split as far as the calculation of
compensatable interest costs is concerned, in respect of professional fees it
is not so clear cut, and I have not, therefore, adopted that approach under the
claim heads decided above. Therefore, in the light of this first issue, under
this head of claim only, I shall reduce the amount of compensation that may be
payable under the second issue by 40%.
The second point to consider is the value for
money principle. Where new premises are acquired to relocate a business, the
cost of adapting those premises for the particular requirements of the
claimants business may be claimed, provided the adaptations represent the
facilities originally in the expropriated premises. However, improvements on
the old facilities are not allowable, and a deduction from the compensation
claimed may be made to cover said improvements. This principle was established
in Tamplins Brewery Ltd v Brighton County Borough Council (1971)
22 P&CR 746, where a bottling plant, originally on land compulsorily
acquired, was relocated to a site made available by the acquiring authority.
The claimant company took the opportunity to install a more modern plant that,
due to its increased efficiency, was deemed to be more profitable than the old.
The compensation recovered was the cost of replacement less the annual savings
in running costs multiplied by 10 years’ purchase. It follows that the same
principle might apply where a larger site than required is purchased for
relocation, with a view to expansion of the business.
However, in Service Welding Ltd v Tyne
and Wear County Council (1979) 250 EG 1291*, a Court of Appeal decision dealing
specifically with a claim for interest and bank charges on the costs of
acquisition of a site upon which to build a replacement factory (and for
interest and charges on the stage payments relating to the construction of the
building), it was held that the interest charges incurred by the claimants in
the circumstances in which they had incurred them had been part of the costs
necessarily incurred in producing as an end product, a factory premises ready
for occupation and were, therefore, properly to be regarded as part of the
purchase price paid by the claimants for the factory that they had built for
themselves, and, accordingly, the presumption that they had received value for
money applied. None of the interest and charges were therefore compensatable.
*Editor’s note: Also reported at [1979] 1 EGLR 36
In this reference the situation is different, in
that the site was acquired well in advance of the time it was required
(ignoring, as I must, the expansion arguments), and therefore it can be said
that any interest charges incurred during the holding period before building
works could reasonably have been expected to commence (in this case, say,
mid-1994) did not constitute value for money, and can therefore justly be
claimed.
The council have accepted that an element of cost
would have been incurred in funding the acquisition of the land, and had
suggested an allowance of £124,000 against the head of notional interest. I
think Mr Woolf has amply demonstrated that the claimant has suffered losses in
respect of the funding costs of acquiring and holding the site, and within the
parameters outlined above, some of those costs can be claimed.
I consider it appropriate to award interest on the
purchase price only (stamp duty and other costs of acquisition having been
dealt with elsewhere) for the five-year period between July 1989 and the middle
of 1994, at a rate of 10% (simple interest), which gives a figure of £237,500.
2n – Loss in value
of Ordsall Lane site
Mr Hindley said that between the date when the
Ordsall Lane site was acquired by the claimant and the date of entry (July 1989
to March 1996), the value had fallen by £225,000 from the £475,000 paid to
£250,000. The latter figure he had calculated on the basis of the price paid by
Royal Bank of Scotland for the site on the opposite side of Woden Street, upon
which it had built its cash-handling centre, which was based on £100,000 per
acre. In the claim for total extinguishment, this fall in value had been
included within Mrs Fowler’s calculations for the loss in value of the business
(at £230,450).
Mr Gannon said that he believed any fall in value
due to the state of the market should not, and could not, be laid at the door
of the council. He said that any fall in value was not due to the CPO, that it
was not a natural or reasonable consequence thereof and was too remote, as set
out in the case of Harvey v Crawley Development Corporation
[1957] 1 QB 485.
Mr Woolf said that while he was not an expert on valuation
matters, he had been advised by the council that there was no legal precedent
for a claim for reduction in value of property in these circumstances. He also
wondered whether, if the land had actually increased in value, the claimant
would have offered to deduct the amount of the increase from its claim.
Decision
As with the council, I have been unable to find
any authority that would justify a claim for loss of value. On the contrary,
the following passage from the judgment of Bridge LJ in Service Welding
suggests that compensation would not be payable:
when an occupier, whether residential or
business, does, in consequence of disturbance, rehouse himself in alternative
accommodation, prima facie he is not entitled to recover, by way of
compensation for disturbance or otherwise, any part of the purchase price which
he pays for the alternative accommodation to which he removes, whether that
accommodation is better or worse than, or equivalent to, the property from
which he is being evicted. The reason for that is that there is a presumption
in law, albeit a rebuttable presumption, that the purchase price paid for the
new premises is something for which the claimant has received value for money.
If he has made a good bargain and acquired premises which have a value in
excess of what he has paid for them, that is not something for which the
acquiring authority is entitled to any credit. If the claimant has made a bad
bargain and has paid a great deal more for the new premises to which he is
moving than they are really worth, that is not something for which the
acquiring authority can properly be charged.
The position is clear. This is not an item of
disturbance that can properly be claimed. The site was not sold, and no loss
has occurred. It is still held by the claimant, and, when it is sold, could
just as easily achieve a profit. It would be inequitable, therefore, for the
acquiring authority to pay compensation on the basis of this element of the
claim. I therefore assess the compensation against this head at nil.
2p – Professional
fees
The figure under this head of claim is agreed at
£31,008.
2q – Racking out
The parties have agreed this figure in the sum of
£40,000.
2r – Removal of
stock and fixtures and fittings.
The parties have agreed this head of claim in the
sum of £45,000.
2s (a) – Loss on
fixtures and fittings
The parties have agreed this item in the sum of
£20,000.
2s(b) – Loss on
stock
The claimant submitted a figure of £200,000 as
appropriate to cover the forced sale of stock on a notional relocation basis.
Mr Hindley said this sum was a difficult figure to determine, but it would
certainly not be as high as that applicable to total extinguishment (£355,500
claimed under that head). As the staff in a relocation situation would be
concentrating, he said, on setting up the new operation, less effort would be
made to dispose of stock that could not easily, or practicably, be relocated,
for instance opened pallets and boxes. He said that the claimant was of the
view, from past experience, that this could amount to £200,000.
Mr Gannon had queried the basis under which the
loss on forced sale of stock on the extinguishment basis had been calculated,
and had been of the opinion that the claim had been overstated by £91,200 as a
result, giving a true figure, in his opinion, of £263,800. On the relocation
basis, he accepted that there would be some wastage of stock and assessed this,
on an arbitrary basis, at, say, 5% of stock, giving £100,000.
Decision
Both of the above figures (on relocation) are
arrived at on a purely arbitrary basis, whereas the higher figure submitted by
the claimant on extinguishment was more scientifically calculated. Mr Campbell
referred me to the case of Sireling & Broder Ltd v Tower Hamlets
London Borough (1976) 237 EG 967*, which, he said, supported the basis of
its claim. However, I do not need to consider this in respect of the claim
under notional relocation. I prefer the respondents’ approach, and think it
unlikely that an efficiently run business, which this undoubtedly was, would
allow stock wastage of more than 5%, especially as, under the claimant’s
proposed method of removal and relocation, there would have been ample time
during the relocation period to clear up most of the opened pallets and boxes
and integrate the contents into the stocks in the new building. I therefore
assess the compensation under this head at £100,000.
*Editor’s note: Also reported at [1976] 1 EGLR
193
2t – Special
adaptation
2u – Reinstallation
costs
There was a similar divergence of opinion under
the claim for special adaptation. Mr Hindley submitted that, particularly as a
result of the advice on security requirements given by Mr Docherty, it would be
necessary for the claimant to construct within the new building an extra secure
store area, to accommodate the vulnerable stocks, of between 7,500 and 10,000
sq ft. That alone could cost between £100,000 and £150,000. This additional
over-cost should be added, he said, to the cost of items set out by Mr Gannon,
and the claimant’s claim was therefore in the sum of £200,000, which included
those items that Mr Gannon had assessed separately under claim head 2u.
Mr Gannon said that, due to the nature of the
subject premises and the type of business that the claimant operated, any
premises that had been acquired would need some special adaptation over and
above what it would normally expect to be provided. These would include
facilities that were available at the existing premises necessary for the
continued operation of the business, including installation of the small cold
stores, public toilets, additional fluorescent lighting and heating. He said
that Mr Hindley had overestimated the amount of adaptation required, but did
agree in evidence to increase the council’s offer to take account of the likely
cost of constructing a secure store of the same size as existing, by £2,500 to
£102,500. To this figure should be added the £45,000 that he had assessed
separately relating to reinstallation costs, but which Mr Hindley had included
within his calculations for special adaptation. Mr Gannon had included within
this an allowance for the additional expenses that would be incurred in respect
of the security and alarm systems, as highlighted in the statement from Mr
Docherty, but had only allowed a nominal amount for reinstallation of computers
and tills, which Mr Hindley had claimed as a separate item under 2bb. The total
of the respondents’ figures under the above two heads was therefore £147,500
Decision
While I have some sympathy with the claimant’s
need for an increased area of secure storage, I am, of course, unable to
consider anything that would constitute an improvement or enhancement to the
premises from which the claimant was being dispossessed. I therefore find for
the respondent on this issue, and assess the compensation at £147,500 under
these two heads of claim.
2v – Notification to
customers and promotion
Mr Hindley handed up an estimate that had been
obtained in 1992 from IMA, a marketing and advertising agency, containing
recommendations for a number of initiatives that they considered necessary to
retain the existing customer base, and business turnover on relocation to the
Ordsall Lane site. This was in the budget sum of £200,000 and included a
presentation to suppliers and corporate brochure, three mail shots, local
radio, poster and press advertising, retailer incentives (including giveaways),
internal and external signage, reprinting of stationery and documentation, a
family fun day/launch event and a marquee for a suppliers’ trade show. Mr
Hindley said that while the costs may appear high, they were not when the
magnitude of the operation and the business with which they were dealing, were
considered.
Mr Gannon had estimated the costs under this head
to be £3,500 for advertising, £500 for stationery and £2,500 for signage. In
cross-examination he accepted that this may have been somewhat of an
underestimate, but, he said, the claimant’s figure of £200,000 was ridiculously
high and could not be supported.
Decision
I agree with Mr Gannon. The compensation payable
under this head, as with all the others, is the loss that the claimant would
have suffered had the notional relocation taken place. The estimate obtained by
the claimant included a considerable amount of advertising and promotional
activity, which I cannot accept as relating only to notification of customers,
stationery and signage. The marketing agency’s proposals were extremely
ambitious, and could, I think, be more accurately described as business
development and promotion.
Mr Gannon said that his figures were based upon
his experience of moving companies from one location to another, but I do think
he was unrealistically low, particularly in respect of stationery and
advertising. In my opinion, a figure in the region of £20,000 would more
accurately reflect the losses that would have been incurred under this head of
claim. I therefore assess compensation under this head at £20,000.
2w – Double overheads.
The parties had agreed the claim, as far as
premises costs were concerned, at £40,000. This was based upon a requirement
that, due to the nature of the business and the fact that a seamless transition
from one location to the other was required (preventing possible loss of
customers to competitors), the two buildings would need to be operational for a
period of two to three months.
However, neither the projected additional staff
costs nor the hire of additional equipment were agreed.
Mr Hindley said that it would be necessary to
employ additional staff to supervise the fitting out of the alternative
premises and the removal, relocating and restacking of stock. The latter would
be specialised work, which would require knowledge of the multiple lines
carried by the company. He estimated two months’ staff wages and national
insurance costs as a double overhead based on an annual cost of £225,000, to
give a sum of £37,500. As to the costs of the hire of additional fork-lift
trucks and skilled operatives, he had allowed for two of each for a period of
three months at a cost of £15,000. Thus, his total estimate of costs, after
discussion with the claimant, under these two heads, was £52,500.
Mr Gannon said that while it was accepted there
would need to be an element of double overhead for additional staff and extra
equipment, a full staff complement would not be needed at the new premises for
two to three months. He suggested that an allocation of five lower-paid members
of staff, for restocking and shelf-filling for about six weeks, at £200 per
week each, would suffice. The hire of two fork-lift trucks over a six-week
period would, he said, amount to about £1,500. This therefore gave a total of
£7,500.
Decision
As with 2v above, there is a large difference of
opinion between the parties. Mr Hindley has, in my view, substantially
overestimated the staff requirement at the new premises prior to the closure of
the existing warehouse and Mr Gannon’s approach is more realistic. However, I
accept that logistically the relocation would have been a major exercise, and
close supervision and control would have been needed, especially at the new
premises. Mr Lamba mentioned in his statement about the high cost of suitable
staff, and the training that would be required. Therefore, it is reasonable to
conclude that at least one additional person, of more senior grade, would have
been required at the new premises for most of the restocking period. Mr Lamba
had also said that dual trading would be required for at least three months,
but I do not accept that this would have been necessary, and a period of days,
rather than weeks or months, seems to me to be much more realistic. If the need
to run two operations for anything longer than the minimum possible handover
period was necessary, surely this would lead to confusion as far as customers
were concerned (what do they find, where). I conclude that an appropriate
figure for the additional staff costs would be £10,000.
I accept Mr Hindley’s comments regarding the need
for additional equipment and skilled operatives (Mr Gannon does not appear to
have allowed for the drivers). I think that the figure of £15,000 suggested by
Mr Hindley is an appropriate amount.
The total compensation therefore, under 2w,
including the agreed figure, is £65,000.
2 – Management time
The parties have agreed this head of claim in the
sum of £72,000.
2y – Temporary loss
of profits
Mrs Fowler had dealt with temporary loss of
profits on the basis of a relocation both to a more suitable and to a less
suitable site in her rebuttal statement. She said that she did not accept Mr
Gannon’s simplistic approach, which estimated eight weeks’ loss of gross profit
(based on the gross profit figures shown in the company’s 1995 accounts at
£1,033,000) and suggested that this demonstrated his lack of knowledge of the
cash-and-carry business. This was, after all, a business with a £17m turnover,
and would have particular complexities over relocation.
Mrs Fowler said that the length of period over
which gross profits would be lost or impaired would depend on the relative
suitability of the site to which they relocated. In the case of a more suitable
site, she thought an impairment of 50% of one year’s gross profit (£516,500)
would be suffered in the first year, and that by the end of the first full
year’s trading profits would have re-established themselves to the former
level. If the claimant had been forced to move to a less suitable site, due to
the loss of customers and turnover, the profit impairment would have been
greater, and she assessed this at an average of 60% pa over two years, giving a
total of £1,239,600. Profits would never be completely re-established, she
said, under this second scenario, but her assumptions in that regard were dealt
with under a separate head of claim (2cc below). The types of property that
might be considered to be less suitable were those a considerable distance from
the subject premises, or in areas with a poor reputation, or with lower floor
area or restricted eaves heights, or without prominent road frontage or poor
access to main roads, or which had restrictions on trading hours.
Mr Gannon said that due to the method of removal
and re-establishment of the business, it was reasonable to assume that while
there would be no permanent impairment of profits, some temporary disruption
was likely. It was common practice, he said, in assessing this head of
disturbance in compensation claims, for the parties to agree an estimate of
potential loss based upon the last full year’s trading accounts, as actual
losses would not realistically be established until much later. In two cases he
had recently dealt with (for warehouse relocations), the loss of profit figures
had been agreed at three weeks and four weeks respectively. However, he
conceded that in the instant case, due to the nature of the business, and
disruption to customers who visited on a daily basis, seven days a week, a
higher loss of profits could be anticipated. He had taken eight weeks, to give
a figure of £160,000.
Decision
I found, earlier on in this decision, that the
claimant could have moved to the Ordsall Lane site. I do not consider that that
site would have in any way been less suitable, and so Mrs Fowler’s higher
figure does not come into the equation. However, as to temporary loss of
profits, as with the decisions in 2s(b), t, u, v and w above, the evidence and
conclusions are somewhat arbitrary, and I am thus in some difficulty.
Neither Mrs Fowler nor Mr Gannon profess to be
experts in the vagaries of relocating a cash-and-carry business, and, in a
notional or hypothetical situation, the evidence cannot reflect actualities.
None of the experts adduced evidence to support actual costs incurred in this
type of situation, and while Mr Lamba referred to the company’s move in 1979,
he said that was a much smaller-scale operation, and did not go into the
logistics of the move.
Mr Campbell suggested that in areas such as this,
where the evidence does not greatly assist me in reaching a conclusion, I
should consider past tribunal decisions and adopt a "robust
approach". He was referring there to the case of W Clibbett Ltd v Avon
County Council [1976] 1 EGLR 171*, which, in part, was dealing with the
assessment of goodwill. The president, Douglas Frank QC, had said:
It is common ground that the amount of
compensation should equal the monetary loss to the claimants and that I am not
concerned with market value, that is to say what amount the goodwill if offered
in the market would have realised; indeed that would have been an impossible
exercise.
*Editor’s note: Also reported at (1975) 237 EG
271
Having gone on to discuss particular factors of
the case, he continued:
I was asked to look at certain previous decisions
of the tribunal, but, as I have said and emphasised before, decisions are
relevant only to arguments on law or procedure. The assessment of compensation
must be decided on, and only on the evidence. Useful though the respective
valuers’ calculations are in assisting me to reach a decision in this matter, I
do not propose to determine each item in dispute. How can I, for example, say
what is the appropriate years’ purchase when on the evidence I can choose any
number between 1.5 and 10 without any evidence which I should choose other than
the ipse dixit of each of the valuers? I propose, therefore, to adopt a robust
approach similar to that used by the courts in assessing general damages and to
award a sum which, in my judgment, in all the circumstances is reasonable. It
seems to me that my function is comparable to that of the courts in assessing
damages for loss of future earnings.
Mr Campbell also referred to the case of Tragett
v Surrey Heath Borough Council (1975) 237 EG 423† also dealing with the
assessment of goodwill, where Victor Wellings QC, in adopting a robust
approach, had said at p425:
Mr Jeremy Sullivan of counsel, on behalf of the
acquiring authority, expressly acknowledged that the tribunal had power if it
thought it right so to do, as it were, to pluck a figure out of the air: see
the decision of the learned President in… Clibbett…
†Editor’s note: Also reported at [1976] 1 EGLR
175
While I do not intend to pluck a figure out of the
air, I think I adopt a robust approach in awarding the compensation under this
head upon the assumption that the claimant would have, in all likelihood,
however efficient, well managed and well run the business, lost in the first
year the equivalent of three months’ gross profit. I therefore assess
compensation under this head of claim at £208,250.
2z – Cost of
acquiring alternative premises. Fees and notional interest
The acquiring authority’s figures under this head
(amounting to £159,800) have been dealt with in the decisions on 2j, k, l and m
above.
2aa – Interest costs
from impaired profits and requirement for additional working capital
Mrs Fowler and Mr Gannon agreed that some extra
working capital would be required as a consequence of the relocation, to fund
its re-establishment expenses during the relocation period. Although there was
some dispute over exactly what the extra capital would be required for (as the
parties could not agree on the length of time dual trading would be needed, and
thus some additional stock), they had agreed on a requirement for £1m and a
borrowing rate of 8%. However, Mrs Fowler estimated it would be required for
nine months, at a cost of £60,000, whereas Mr Gannon thought three months (the
maximum double-overheads period) would be sufficient. That resulted in a
£20,000 cost. Mrs Fowler had also assumed, as part of this claim head, interest
on profit impairment on both more suitable and less suitable sites, and
interest on increased overheads not adding value (dealt with in 2dd below). Mr
Gannon dismissed these as too remote.
Decision
I prefer Mr Gannon’s calculation regarding the
additional cost of re-establishment, and agree with him that the other items
claimed are inappropriate and too remote. I assess compensation under this
claim head at £20,000.
2bb – Replacement
stock computer and tills
Mr Lamba had said it would be necessary to
dual-trade for a period of approximately three months on relocation, and Mr
Hindley, in correspondence with the council in 1994, had set out the reasons
why their suggestion that the majority of stock, to which the customers did not
have access, be moved prior to the opening of the new premises, and that there
should be a short closedown period to move the remainder of the stock, would
not work. As dual trading would have been necessary, he said, not only would
there be a need for duplicate stocks, but also a stock control computer system,
software and replacement tills. A quotation had been received in 1992 for a new
"Riva Wholesaler" computer system and peripherals in the sum of
£55,498, and this was therefore their claim under this head.
Mr Gannon said there was some dispute over the
period, if any, that dual trading would be required, and, in any event, the
quotation received, and upon which the claimant was basing its claim, was for a
much more sophisticated system than that which existed. He said that many of
the claimant’s records were operated manually, including debtor control, and
questioned why a new system, and software, were being claimed for when the
existing system could have been moved. Replacement of the system was not,
therefore, he said, a valid head of claim.
Decision
The claim for a complete new computer system, on
the basis of the estimate received, cannot be entertained, as it was a far more
sophisticated system than that which it would replace. It would not therefore
be like-for-like, and would not be putting the claimant in the same position as
if it had not been dispossessed. However, although Mr Gannon said he had
allowed a nominal sum for the movement of the computer system in his assessment
of reinstallation costs (2u above), I am not sure he has adequately reflected
the logistical problems that would have been encountered during the removal
exercise, whether or not an actual period of dual trading was needed.
There would have been a need for, at a minimum,
one computer at the new premises, while the relocation was being managed, for
stock control purposes, but I am not able, on the evidence, to assess exactly
what was required. I therefore propose to take a robust approach, and determine
£15,000 as an appropriate sum under this head.
2cc – Permanent
impairment of profits
Mrs Fowler had calculated that, if it were
necessary for the claimant to move to a less suitable site, a claim for £1.128m
would be valid.
Decision
As I have already said, I consider the Ordsall
Lane site was an appropriate location, and there would thus be no permanent
impairment of profits. Having dealt with the claim on the basis of a move to an
equally or more suitable site in the decisions set out above, I find this head
of claim is not valid. I therefore determine under this head the sum of nil.
2d – Increased
overheads not adding value
Mrs Fowler had allowed for an annual maintenance
cost of 10% of the assessed additional cost of security at the new building,
which on the basis of Mr Docherty’s evidence was £200,000. This would be the
same annual cost if, alternatively, the capital cost were depreciated by 10%
pa. She capitalised the figure of £20,000 at the same YP as had been used in
her assessment of the value of the business (in the total extinguishment
claim), 7.46. This gave a figure of £149,000.
Mr Gannon said this was not a justifiable head of
claim. He said any additional security costs (notwithstanding any element of
betterment) would be offset by the reduced overall maintenance costs applicable
to a new building, and the fact, as indicated in the evidence, that insurance
premiums would be substantially reduced. He therefore assessed this head of
claim at nil.
Decision
I agree entirely with Mr Gannon, and therefore
under this final head of claim determine the sum of nil.
Summary
I have dealt with the heads of claim above, item
by item, on the basis of a hypothetical relocation. My findings can be
summarised as follows:
|
1a |
Property – |
Warehouse |
£790,000 |
|
1b |
|
Banner Catering (A) |
£80,000 |
|
|
|
Advertising Hoarding (A) |
£32,000 |
|
2b |
Loss of opportunity |
|
NIL |
|
2f |
Non-recoverable |
|
NIL |
|
2j |
Costs of looking at |
|
£13,706 |
|
2k |
Costs incurred re: |
|
£22,047 |
|
2l |
Interest on abortive |
|
£20,767 |
|
2m |
Interest on Ordsall |
|
£237,500 |
|
2n |
Loss of value on Ordsall |
|
NIL |
|
2p |
Professional fees (A) |
|
£31,008 |
|
2q |
Costs of racking out (A) |
|
£40,000 |
|
2r |
Removal of |
|
£45,000 |
|
2s(a) |
Loss on fixtures and |
|
£20,000 |
|
2s(b) |
Loss on stock |
|
£100,000 |
|
2t |
Special adaptation } |
|
|
|
2u |
Reinstallation costs } |
|
£147,500 |
|
2v |
Notification of |
|
£20,000 |
|
2w(a) |
Double overheads – |
Premises (A) |
£40,000 |
|
2w(b) |
|
Staff |
£10,000 |
|
2w(c) |
|
Equipment |
£15,000 |
|
2x |
Management time (A) |
|
£72,000 |
|
2y |
Temporary loss of |
|
£208,250 |
|
2z |
Costs of alternative |
Fees } |
|
|
|
|
Notional interest } |
Inc above |
|
2aa |
Interest from |
|
£20,000 |
|
2bb |
Replacement stock |
|
£15,000 |
|
2cc |
Permanent impairment of |
|
NIL |
|
2dd |
Increased overheads not |
|
NIL |
|
Total |
|
|
1,979,778 |
I therefore determine that the acquiring authority
should pay compensation to the claimant in the sum of £1,979,778.
This decision determines the substantive issues
raised between the parties and my award is final. Costs are reserved. The
parties are invited to make representations as to the costs of the reference
and a letter accompanies this decision as to the procedure for submissions in
writing. I will, in due course, incorporate an order as to costs in an addendum
to this decision. Rights of appeal under section 3(4) of the Lands Tribunal Act
1949 and Ord 61 r 1(1) of the Civil Procedure Rules will not accrue until the
decision has thus been completed, ie from the date of the addendum.
Addendum
I have received written submissions as to costs.
The council have submitted that it would have been
obvious to the claimant, on a comparison between the various figures claimed
and offered, that the reference was misguided, and thus claims the whole of
their costs of this reference together with other costs incurred from the date
of the claimant’s original claim on 10 October 1996. In the alternative, the
council submit that they made an offer of £2,196,040 by letter on 22 January
1999, which was more than my award, and therefore claim the whole of their
costs from that date.
The claimant’s solicitor has submitted that its
client’s actions were not misguided, and that, as my award was for more than
the amount offered by the council at the hearing, the council should pay the
claimant’s costs of this reference. The offer of 22 January 1999 referred to by
the council was not, it says, a sealed offer within the meaning of r 44 of the
Lands Tribunal Rules 1996.
Rule 44 sets out a procedure that may be followed
in relation to an unconditional offer of compensation or of readiness to accept
a particular sum. It does not prescribe a procedure that must be followed,
either for the purposes of the operation of section 4 of the Land Compensation
Act 1961 or for any other purposes. The offer contained in the council’s letter
of 22 January 1999 was, in my judgment, an unconditional offer that brings the
provisions of section 4(1) into operation. It was headed "without
prejudice save as to costs", which means, in my view, the costs of the
reference. Pre-reference costs formed part of the claim and the sum offered was
therefore intended to embrace these as well as other elements of the claim. The
fact that the costs of the reference were, as it appears, not included in the
offer does not mean that it was not an unconditional offer of a sum as
compensation.
The amount of my award does not exceed the sum
offered and I can see no special reason why the claimant should not bear its
own costs and pay those of the acquiring authority after the date of the offer.
In any event, even if I am wrong in saying that
the offer fell within section 4(1), I am satisfied, as a matter of discretion,
in the light of its terms and the fact that the claim very greatly exceeded the
amount of my award, that the claimant should pay the acquiring authority’s
costs after the date of the offer.
I order that the claimant pay the council’s costs
of this reference from 22 January 1999, such costs, if not agreed, to be
subject to a detailed assessment on the standard basis by the registrar of the
Lands Tribunal in accordance with r 44.4 and r 44.7 of the Civil Procedure
Rules. The procedure laid down in r 52 of the Lands Tribunal Rules 1996 will
apply to such detailed assessment.
