[2025] UKUT 00138 (LC)

It will be recalled that Cemex’s lease of area B was contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954 and accordingly at the end of the lease in March 2025, Cemex did not have a statutory right of renewal (paragraph 16 above). Area B was used primarily for the storage of sleepers, but Cemex had also erected some buildings on it, including a testing laboratory. It was common ground that the capacity of the site at WWH to produce sleepers (and therefore the profits that could be generated) would, in part, be affected by the number of sleepers that could be stored at the site. It will be recalled that this was because sleepers could not be stored at LDCs and NR therefore required its suppliers to have storage capacity to cope with times of high demand (paragraph 19 above). It was a term of the claimant’s 2012 contract that it keep a minimum 20,000 sleepers in stock.

The Secretary of State submitted that since the lease of Area B was contracted out of the 1954 Act, the law dictates that compensation must be assessed on the twin assumptions that (1) the tenancy would have determined on the earliest date of termination that could have resulted under a landlord’s notice given on the date of entry (24 March 2025) and (2) that no account can be taken of any possibility of renewal that would in fact have existed in the absence of the acquisition: Bishopsgate Space Management Ltd v London Underground Ltd [2004] 2 EGLR 175 (a decision of the Tribunal). Any assessment of the profitability of the business absent the acquisition must therefore take account of the fact that, after 24 March 2025, it would have had to operate from a site not including Area B.

In its statement of case the claimant argued that owing to the contractual relationships between Network Rail, GB Railfreight Ltd (which was Cemex’s direct landlord of Area B), and Cemex, it should be assumed for the purpose of assessing compensation that the sub-lease would have been renewed. Subsequently, in their skeleton argument, counsel for Cemex submitted that there was no reason to assume that Cemex would be required to give up possession when the lease expired, and that we should assume that it would be able to continue occupation of Area B beyond 2025 ‘whether pursuant to a renewed lease or by licence’ (our emphasis). In their closing argument, that narrowed, with Cemex’s final position being that it would have remained in occupation of Area B on licence, and that could be assumed to be the case without any inconsistency with the decision in Bishopsgate.

The Secretary of State’s position also developed as the hearing proceeded, originally pleading that owing to the assumed loss of Area B, Cemex’s ability to store sleepers, and thus its overall production capacity, would have been reduced such that its market share of Network Rail’s annual requirement (which Mr Heubeck put at an average of 490,000 per annum in CP9) would fall from 40% to 35%. In his evidence in chief, Mr Heubeck explained that he had changed his mind and now accepted that Cemex would be able to accommodate sufficient sleepers to maintain a 40% share, on the Secretary of State’s projected demand figures. In cross-examination he went further and conceded that it might be able to accommodate 60% of 490,000 (294,000) sleepers, but there might be difficulties at peak demand

Cemex maintains that if it lost Area B it could have relocated the stored sleepers to the remaining part of the yard. Mr Neil gave evidence about the storage capacity at WWH; it will be recalled (paragraph 10 above) that he was from 2000 the claimant’s Operations Manager at WWH and later its Business Manager for Rail. He explained that in around 2002, Cemex increased its sleeper storage capacity by increasing stack height by 66% (from 12/14 layers per stack to 20/22 layers - in each case for G44/EG47 sleepers), and laying a hard surface on area B and, later, in area C. This increased the storage capacity of the site to around 135,000 sleepers - a notional figure based on Cemex being asked to store three months’ production, assuming no sleepers left the site. In fact, he said, they had never been asked to store more than 120,000 at any time. In oral evidence, he suggested that Cemex could probably have stored more than that figure.

Mr Ormondroyd pointed out various mathematical discrepancies, and tested the evidence on access, width between stacks of sleepers, and so on, but Mr Neil was unshakeable in his belief that even were area B to be lost, he could still have accommodated around 94,000 sleepers by moving some buildings and operations if necessary; it would be tight, and would have to be managed, but there was sufficient space to store the stock.

While Mr Heubeck was familiar with WWH, having visited it half a dozen times between 2004 and 2009, he accepted that he did not have Mr Neil’s detailed knowledge of the site. Mr Heubeck’s calculation of available storage was based upon looking at a 2012 aerial photograph with the aid of a magnifying glass in good quality light; he calculated a storage capacity of areas A and C (i.e. without area B) of between 55 and 60,000 sleepers, assuming that the stacks on the photograph were at their full height. We do not accept that Mr Heubeck’s evidence of the storage capacity at WWH, based on the examination of a photograph from some years ago with a magnifying glass, can have any claim to accuracy.

Mr Neil’s job was to store sleepers on the site, he knew it far better than Mr Heubeck did, and it would have been his responsibility to manage the available space had area B been lost. We have no difficulty in accepting his evidence that without Area B the site at WWH could have stored up to 94,000 sleepers (rejecting Mr Heubeck’s 55,000 to 60,000). Mr Heubeck’s evidence was that with 55 to 60,000 sleepers able to be stored the claimant could have coped with a demand of 294,000 per annum albeit with some difficulty at peak times. We can safely find that with a 94,000 storage capacity the claimant would have no difficulty supplying considerably more than that. Mr Heubeck also agreed that the Trackwork Moll site might provide a useful indicator of storage capacity; the Doncaster site had a production capacity of 400,000 sleepers a year, and an effective stockyard capacity of 70,000 sleepers. Using the same ratios, a yard with a capacity to store 94,000 sleepers should be consistent with a production capacity of 540,000 sleepers, well above any quantity that might be required of it on our findings as to NR’s annual requirement. We therefore do not need to say any more about Bishopsgate.

Therefore our finding about market share, at paragraph 206 above, is unaffected by the Area B problem.