HP-2020-000016 - [2025] EWHC 1451 (Ch)

Before considering the specific quantum models of Mr Colley and Mr Parker, it is necessary to address a preliminary dispute that arose as to the basis on which that modelling was conducted.

It was common ground between the economic and valuation experts that 1 January 2018 should be taken to be the date on which Cabo exited the market. That was also consistent with Cabo’s position on the evidence, namely that by early 2018 it was clear that the brand had failed, and that no major retailer was going to stock it. The parties disagreed, however, as to how the date of demise should be reflected in the modelling of Cabo’s losses.

Cabo’s position was that notwithstanding the amendment of its pleaded case to include a claim for loss of value to the business (as described at §43 above), its claim for loss comprised a single head of loss in the form of lost profits. This was not always easy to understand, as Mr Colley’s explanation of what he was doing shifted somewhat over time.

Mr Colley’s ostensible approach was to model Cabo’s lost profits for two time periods: (i) the first five years up to June 2022, which was his assumed product life of Worldeez; and (ii) a “perpetuity value” for the business, expressed as a capital sum, to reflect the profits that Cabo would have earned thereafter, whether on Worldeez or other products. Mr Colley initially described the perpetuity valuation element of his modelling as reflecting the ongoing ability of the business to generate cashflow, or (looked at a different way) the value which the business would have generated had it been purchased in July 2022. He said that this valuation was based on standard valuation techniques. In subsequent evidence, however (and in particular his oral evidence at the trial), Mr Colley said that although for convenience his modelling applied different approaches to different time periods, his overall approach was to model lost profits and he was not conducting a “business valuation” as such for any period of time.

MGA took a different approach. MGA said that the proper approach was for the court to award damages for lost profits up to the assumed date of demise, i.e. 1 January 2018, and then to assess the hypothetical capital value of the business at that date, the latter of which would reflect the risks and uncertainties of future trading. On that basis, and having been given permission to call a separate valuation expert as a result of the amendment to Cabo’s pleaded case, MGA’s evidence on quantum was divided across its two economic experts as follows:

MGA’s closing submissions addressed extensively the issue of whether the correct approach should be a valuation approach after the assumed date of demise. In that regard MGA relied in particular on the judgments of the Court of Appeal in UYB v British Railways Board [2000] EWCA Civ 265, Crehan v Inntrepreneur [2004] EWCA Civ 637, and Salford City Council v Torkington [2004] EWCA Civ 1646. On the basis of those authorities, MGA submitted that there was a “consistent approach” taken by the courts in cases such as the present, that the court will not award damages for lost profits in the period after a business has been lost, but should instead take a capital value of the hypothetical business at that point, based on the value which the business would have fetched in the open market.

Cabo’s closing submissions maintained the position that it was not appropriate to postulate a “valuation” of its business at the date of demise, on the grounds that Cabo did not intend to sell its business then. Ultimately, however, Ms Kreisberger said in her oral closing submissions that she considered the difference between the parties on this point to be one of labelling rather than a dispute of substance.

The authorities relied upon by MGA (and several others) were discussed extensively in the March 2022 judgment of Joanna Smith J, addressing the same submission made by MGA at that hearing. I do not need to repeat that discussion. It is sufficient to say that the judge concluded that the authorities did not establish the rule for which MGA contended. Rather, she considered that every case must be carefully considered by reference to its own specific facts, and having regard to the factual and expert evidence, so as to ensure full compensation to the claimant: see in particular §29 and §§62–63 of the judgment.

MGA’s submission at the trial therefore repeated an argument which had already been advanced and had failed before Joanna Smith J. Even leaving aside the question of whether it was open to MGA to reopen the point, I agree with the conclusions of Joanna Smith J. The authorities cited by MGA reflect particular approaches adopted in those cases, and do not fetter the court in the assessment of any other case. It is not, in my judgment, appropriate or even possible to be prescriptive about the way in which the court will assess a claim for losses arising from the failure of a business. As Joanna Smith J said, each case will turn on its own facts, and the court will need to consider those facts carefully together with any expert evidence relied on by the parties.

In the present case, the experts ultimately agreed on the quantification framework set out in the DTM, described at §§58–60 above, which incorporated aspects of both profitability and valuation modelling techniques. When asked in closing submissions what difference it made whether the analysis using the series of steps defined in the DTM was described as a purely lost profits assessment (Cabo’s position) or as a valuation exercise after the date of demise (MGA’s position), Ms MacLeod’s answer was that the assessment of loss by reference to the period after the date of demise had to be carried out through a “valuation lens”, and by using “valuation principles”. She said that this was required because a valuation approach was the only legitimate basis for exercising judgment on the points of detail under the DTM for the period after the date of demise.

I do not accept that submission. If (contrary to my conclusions above) it had been established that Cabo would have been profitable in the counterfactual scenario, it would then have been necessary to make an assessment of Cabo’s loss in a manner which took account of the inevitably speculative and uncertain nature of the exercise. As Toulson J put it in Fyffes Group v Templeman, that exercise may involve an assessment of “all shades of risks and probabilities”. It may be that in some cases the question of whether a profitability or valuation approach is taken will make a difference to that assessment. In the present case, however, the overall framework of the DTM does not change according to whether the analysis is described as a profitability assessment or a valuation assessment after the date of demise – whatever label is used, the DTM requires the court to consider the appropriate counterfactual scenarios used for the inputs of the model, and to consider whether to apply further discounts to the figures produced by those scenarios to take account of the uncertainty that Cabo would in fact have achieved the success predicted by those scenarios.

The court’s exercise of judgment on those points will turn on the factual and expert evidence, and there was significant disagreement between the parties as to the inputs to the DTM. Those disagreements ultimately turned, however, on each party’s assessment of the evidence before the court, rather than on the question of whether a “valuation approach” was being taken to that evidence.