[2025] UKUT 00138 (LC)

As explained above, the Tribunal has to decide the profit or losses the claimant would have made absent the compulsory purchase in the imaginary “no scheme world”, and the profit or losses made already and to be made in the future in the real world. We can then determine whether the claimant’s sleepers business has suffered a loss of profits as a result of the compulsory purchase, and if so the amount of compensation payable, or, as the Secretary of State says, has made a gain which must be set against other sums payable to it.

We have heard evidence so far from the claimant’s witnesses of fact, and from expert witnesses called by both parties in relation to the manufacture and supply of sleepers. That evidence enables us to make findings about the market in sleepers, the claimant’s share of that market, and the prices it has charged, will charge and – in the no scheme world – would have charged, and also about the likely duration of the claimant’s business, in both the real and no scheme worlds. But we cannot reach a final determination because we have not yet heard evidence about the claimant’s costs, which will generate sums for profit and loss, of which the future elements have to be discounted to give an overall figure at the valuation date. That missing evidence will be supplied by the forensic accountants from whom we have yet to hear, and their evidence and calculations must follow from the findings we make about the evidence we have heard. It is for the sleepers experts and not for the accountants to give evidence about price, about the volume of sleepers required in the market, and about the claimant’s market share.

Important features of those two worlds are known. In the real world, the claimant is supplying sleepers from Rochester under a contract made in 2020, for a supply of sleepers for four years with a possible four one-year extensions, and with no MGV. The price of sleepers in the past and under the present contract is known; the volumes required by NR ‘to track’ (i.e. not sent to stockpile) to date, from 2017/18 onwards, are the subject of some dispute, and the size of the future market in sleepers and the claimant’s share of that market are hotly contested. We also have to make findings about the duration of the claimant’s business, at Rochester and elsewhere, in the real world.

In the no scheme world it is agreed that NR’s requirement for sleepers is the same as in the real world, past and future. It is agreed that in the no scheme world the 2012 contract would have been extended as it was in the real world (paragraph 30 above), that there would have been a P3 ITT in 2019, and that the claimant would have been awarded the P3 contract to supply sleepers from WWH. We have to determine the likely duration of the claimant’s business at WWH, and make findings about pricing and about market share to date and in the future in the no scheme world.

We address the issues between the parties under the following heads.

First, the volume of sleepers required by NR in the real world and the no scheme world to date and in the future; it is agreed that the two worlds are identical in this respect, although in the real world there is some distortion because of the effect of the purchases made by NR for its stockpile, which as we have said is agreed would not have been made in the no scheme world. By “to date” we mean the period from 2017to the end of March 2025 because the parties agree that the requirement before that period makes no difference to the claimant’s claim since sales figures and prices before then are known and are the same in both worlds. We address the volume issue under two separate heads, one relating to the position to date and one to the future. As to the requirement to date, we have to consider whether figures supplied by NR are accurate and whether Mr Jarvis’s recollection should be preferred for the years where he disagrees with NR’s figures. The authority’s position is that NR’s figures are accurate, and that those figures enable us to see what the claimant supplied to the stockpile and therefore would not, according to the authority, have sold in the no scheme world until later when they were required. As to the future, the parties are a long way apart. The claimant asserts that while the current demand for sleepers is at an all-time low it will pick up again and reach a high level in the next ten to 15 years; the authority says that demand will rise, but by far less.

Second, we make findings about the likely duration of the claimant’s business, in the real world and the no scheme world.

Once those two issues are determined we do not need to make any further findings about the real world; the number of sleepers sold by the claimant to date and the prices it charged, are known, future pricing under the current contract is known, and it is agreed that the claimant’s share of the market for as long as it is operating from the Rochester site will be 30%. Those findings and agreements are the basis on which the accountants will give their evidence about costs and about the calculation of profits and losses past and future.

Then we have to turn to the no scheme world. We look first at the period from 2017 to early summer 2020, between the expiry of the 2012 contract and the start of the P3 contract at WWH. We have heard only very limited evidence about what would have happened in the no scheme world during this time of just over two years. Price, sales volumes and market share (the latter informed by our findings about NR’s requirement to date) are closely linked during this period, and we address them together.

Then we turn to the major disagreement, about which extensive evidence has been heard, about the likely terms of the WWH P3 contract; we look separately at prices, at whether there would have been an MGV, and at the market share that would be achieved in the no scheme world.

In our summary of the issues above, and our substantive discussion below, we have discussed the market as if NR were the only customer. Since NR accounted for at least 90%, perhaps 95%, of the claimant’s business that was the approach adopted by the parties and we are content to adopt that approach.

On all the issues the evidence given by the parties’ experts on sleepers has been of central importance. The claimant called Mr Paul Jarvis, who worked in the railway industry for 38 years from 1984 until his retirement in 2022. He was a Chartered Member of the Institute of Logistics and Transport and obtained an MBA from Sheffield Business School in 1997. From 2009 to 2022 he was NR’s Business Manager with responsibility for the supply of sleepers for the railway network. He explained that he would devise a strategy for supply and advise the Contracts and Procurements department on what was needed, then that department would carry out a procurement process; once the contract was in place he and his team would take over contract management. The endeavour to establish a factory at the LDC at Bescot was his strategy.

So for 13 years Mr Jarvis knew how many sleepers NR needed, and he ensured that it had them. That was his responsibility in the real world, and it would have been his responsibility in the no scheme world. However, he did not manage all aspects of the process; he determined demand, but the Contracts and Procurement team arranged ITTs and agreed the terms of NR’s contracts with its suppliers.

Mr Heubeck joined British Rail in 1979; from 1998 to 2004 he led the implementation of new distribution arrangements, and from 2004 to 2009 led the national track materials procurement team, managing the supply of rail, sleepers and ballast. In 2009 he joined Trackwork Limited and formed the joint venture with Leonhard Moll of Munich, which became TWM; from 2011 to 2015 he was general manager of TWM and from 2015 to 2023 he worked as a freelance consultant assisting clients with tenders for materials supply contracts, including Tarmac Major Projects for the supply of slab track to HS2.

Both experts were impressive in terms of their knowledge and experience in the railway industry, and we are confident that both gave the Tribunal their honest opinions. Both on occasions were over-optimistic in favour of the party who instructed them. It is not possible to say that on the whole we preferred the evidence of one or the other and we have had to consider their views issue by issue, along with the rest of the evidence.