[2025] UKUT 274 (LC)

It is agreed that the claimants’ losses are to be determined on the basis that the business could not continue after the acquisition of the Site and had to close. One measure of their loss is the value of the business on the date of cessation. Different approaches to valuing businesses are possible, and our task is to adopt a method which fairly and fully compensates the claimants. But a valuation method is only useful if the data required to employ it is available.

In their helpful joint statement the accountancy experts explained that no financial information regarding the business was available for any time earlier than the incorporation of the company, whose opening accounts cover the 13 month period ending on 31 March 2013. No management accounts had been provided to them and no forecasts or budgets had been prepared by the business while it traded. The primary sources of information available to the experts were the financial statements for the years ended 31 March 2013 to 2018. Those statements showed that the highest revenue had been generated in 2013 (£382,00) and the highest operating profit shown was £104,000 in 2016.

The absence of forecasts and budgets meant the experts could not form a view of what expected sales and purchases might have been in the absence of the CPO; such information would have been essential to the preparation of a discounted cash flow valuation. They agreed that a capitalised income approach would conceptually be the most appropriate method of valuing the business, but the financial statements had not been audited and the costs of sales appeared to be incorrectly calculated. Mr Pearson considered the statements to be unreliable for a number of additional reasons which he explained, and neither expert was comfortable using them as the basis of their opinion. Their shared concern about the quality of the information caused Mr Parton to lean more heavily on the stock valuations prepared by Mr Parker and Mr Storry, while Mr Pearson rested his heavily caveated valuation on the financial statements as these were the closest he had to a record of the financial performance of the company.

There was some measure of consensus. Mr Pearson’s valuation of the business by reference to the capitalised earnings in 2013 was not challenged by Mr Stinchcombe KC in cross examination and produced a figure of £377,000. But, having crunched the numbers in various alternative ways, Mr Pearson concluded that the value of the company was less than the value of its stock and that the value of the stock might therefore be the most appropriate basis on which to award compensation. A stock-based valuation was also the first of the three heads of Mr Parton’s assessment.

Mr Parton relied on the premise that the extinguishment value of the business was represented by the retail value of the stock and he utilised Mr Storry’s valuation of the stock as the starting point for his valuation. That figure was £4,543,140 as at 29 March 2018 from which Mr Parton deducted overheads of 15.28% to reflect the pre-tax profits. Although he was advised by Mr Quyoom that it was extremely rare for stock to be sold as scrap Mr Parton allowed for 10% of all stock to be disposed of in that way (i.e. on the assumption that the disaggregated parts would never find a buyer). Making these two deductions produced a figure of £3.478m.

If the Tribunal preferred the evidence of Mr Parker about the value of the stock, Mr Parton calculated his first head of loss at a figure of £1.018m.

Mr Parton is an experienced forensic accountant who had thought carefully about the evidence he was to give and who was in a good position to provide assistance to the Tribunal. He was hampered by two factors which were not of his making.

The first was that he was instructed to provide an assessment of “the historic value of the Claimant’s business and any losses suffered by the Claimant thereafter”. He explained in his oral evidence that he did not interpret this instruction as an invitation to provide an open market valuation of the business on the valuation date. His valuation was not an open market valuation, and he said it would have been different if that is what he had been asked to produce. Having arrived at a valuation up to the valuation date, Mr Parton considered that his instruction to assess losses suffered after that date required a separate exercise, which assumed the continuation of the business for a further ten years until Mr Quyoom might retire. He took account of significant variations in the value of stock (11% per annum, as reported by Mr Storry) between 2020 and 2023, up to five years after the valuation date. This period included the Covid pandemic and the Russian invasion of Ukraine, neither of which would have been foreseen in March 2018. That additional head of loss could form no part of an open market valuation of the business, but it represented £1.4m of the total £5m claim.

A second general weakness in Mr Parton’s assessment was his reliance on information supplied to him by Mr Quyoom. For example, the ratio of retail value disposals to scrap value disposals was important in the first stage of his appraisal so the reliability of his calculations depended on the reliability of Mr Quyoom’s evidence. Fortunately, Mr Parker provided independent confirmation that the assumptions made by Mr Parton were reasonable and that 10% of the stock would not be sold as parts and would be disposed of as scrap.

Mr Parton made a deduction for overheads of 15.28% which he applied to Mr Storry’s valuation of the stock. Mr Parton’s initial analysis was based on the financial years 2015 to 2018 as those were the only years where he had sufficiently detailed information to undertake the calculation. He explained that the list of expenses would include items such as rent, utilities, printing, postage, advertising and professional fees. Some of these costs would be fixed and others variable as the fortunes of the business fluctuate. This was evident in the (unadjusted) figures for 2015 and 2017 which were £64,390 and £87,596 respectively. The difference of £23,206 represented 31% of the average and led Mr Parton to look for an explanation for such a high variance.

He found anomalous amounts for depreciation, VAT surcharges and legal and professional charges. Having removed all three amounts for the relevant years the maximum range was reduced to £7,018 or 11% of the average, which he regarded as likely to be more reflective of overheads in any given year. A further comparison of the adjusted overheads against the revenue for the years 2013 to 2018 showed a trend of the overheads becoming a significantly greater proportion of revenue as time progressed. This was caused by a relatively stable level of overheads and a declining level of revenue. Mr Parton took the view that the 2013 financial year was likely to best reflect a scenario where the compulsory purchase had not taken place. His adjusted overhead for this year was £63,096 and when expressed as a percentage of the revenue of £412,867 equated to a figure of 15.28%.

Mr Pearson was critical of this approach and disputed that depreciation needed to be removed from the analysis and highlighted the use of assumed figures for 2013 and 2014 based on a comparison of unadjusted and adjusted figures for the years 2015 to 2018. He did quantify, as part of his illustrative valuation on a DCF basis, his adjusted overhead (but not inflation adjusted) for the 2013 financial year at £68,357 and arrived at an average of £60,000 for the six years used by Mr Parton. Mr Pearson’s 2013 figure represents 16.55% of the revenue for that year. There are obvious limitations to both approaches, but it appears to us that the answer lies in this relatively narrow range and we therefore adopt 16%.

To assess the value of the stock to the claimants two further elements need to be quantified: the time taken to sell the stock, and the proportion of stock which is likely to have remained unsold at the end of the disposal period.

Mr Parton’s approach to the proportion of stock that would sell other than as scrap was based on his understanding that Mr Quyoom rarely disposed of stock as scrap. Mr Parton took the view that it was likely that some stock would deteriorate due to exposure to the elements and adopted what he described as a ‘conservative approach’ and assumed 10% of stock would be disposed of in this way. Mr Pearson considered that an assumption that 90% of all stock would sell at full value was unsupported and optimistic. The remaining 10% would be sold at a 90% discount. Significantly Mr Pearson concluded that Mr Parton’s methodology assumed that all stock would be sold immediately when in reality it would have taken years to dispose of it. Using Mr Storry’s valuation of £4.5m and the sales for 2013 of £413,000, he commented that it would have taken 11 years to sell the stock.

Mr Parton’s approach also assumed that the benefit of realising the profit from the existing stock on the valuation date would be nullified by not being able to capitalise on greater profits from parts sold later and at higher prices. According to Mr Pearson this implied an acknowledgement on the part of Mr Parton that future stock inflation would be offset by discounting the stock back to the valuation date and the commercial reality that but for the compulsory acquisition the stock would have taken years to sell.

We have already commented that Mr Parker considered that 10% of stock would never sell and we accept his evidence. The use of hindsight to take account of stock price inflation due to events after the valuation date is in our view inappropriate and we remain unconvinced, notwithstanding Mr Storry’s sampling exercise, that second-hand parts for ordinary vehicles would have risen significantly in the years that followed the compulsory acquisition. Equally, there is no evidence that it would have been necessary to discount the stock to dispose of it. Regarding the timeframe for disposal, it seems reasonable to us to assume that a 10 year period would be sufficient to sell the stock. That was the period adopted by Mr Parker and once again we accept his evidence.

Mr Quyoom estimated the proportions of stock that he sold in each year as follows:

Mr Parton helpfully provided a series of illustrative cash flow calculations after the hearing based on various percentages of stock sold as scrap and adopting Mr Quyoom’s percentages over a ten year timeframe. The calculations were based on Mr Storry’s stock valuation and a discount rate of 10%. This latter multiplier enabled future income to be expressed in terms of value at the valuation date. The experts found it difficult to reconcile their respective positions regarding discount rates.

Mr Parton started with the BDO Private Company Price Index Report (the PCPI multiple was 9.7 as at Q4 2023) and adjusted this multiple to reflect possible differences between the businesses included in the PCPI dataset and the claimant’s business. On that basis he reduced the multiple to 8 which as a percentage equates to a pre-tax discount rate of 12.5%. Post tax this equates to circa 10% which he rounded to 10%.

He then sense-checked the 10% discount factor by calculating a CapM (‘Capital Asset Pricing Model’), allowing for a risk-free rate of 2-4%, an equity risk premium of 5-7% and a 1% size premium risk. Mr Parton considered that cashflow of the business is likely to have been steady but for the CPO and eschewed a size premium as unnecessary. He then allowed for a systematic risk of 1 (assuming risks are in line with the general market because demand for second-hand vehicle parts will continue at least in the medium term). This provided a range of 7% to 12%. On that basis, he considered a 10% discount factor to be reasonable.

A further sense-check was undertaken by looking at small business borrowing rates in 2018. The average interest rates for small business loans were around 5% to 7% for secured loans, while unsecured loans typically had higher rates, often ranging from 7% to 12%.

Mr Pearson favoured a post-tax discount rate of 15% based on a published study of the weighted average cost of capital in the auto parts industry of approximately 10%, to which Mr Pearson applied a 5% premium to account for the size and risk profile of the claimants’ business compared to the listed companies on which the research was based. We prefer Mr Parton’s approach to this aspect of the valuation and provide our detailed calculation below.

We can at this point begin to draw the various strands of our valuation together. We prefer Mr Parker’s valuation of the stock. He valued the best 94 vehicles at £824,230 and the remaining 604 at £237,300. We have found that in the period that elapsed between Mr Parker’s valuation and the date of the acquisition an additional 99 vehicles had been added to the inventory, representing a 12.75% increase. We have no information about the composition of the additional vehicles, and we therefore adjust Mr Parker’s valuation by 12.75% to £1,196,875.

Adding the agreed value of £168,000 for the disaggregated parts that had already been removed from the vehicles results in a total before any deductions of £1,364,875.

We adopt the allowance of 10% for unsold stock used by Mr Parton and confirmed by Mr Parker and value that unsold stock by applying a 90% discount as used by Mr Parton. We have determined the deduction for overheads as 16%. Adjusting the gross stock value of £1,364,875 by those factors and assuming stock would have been sold each year at the rate suggested by Mr Quyoom produces a value to the claimants of the stock held by the business on the valuation date of £657,500. The full calculation is provided in the appendix to this decision.

We adopt this figure as a fair assessment of the value of the business to the claimants. It is lower than Mr Parton’s assessment of the first head of loss (£1.018m), but that assessment utilised Mr Storry’s valuation of the stock which we do not regard as reliable. It is higher than Mr Pearson’s unchallenged £377,000 valuation of the business by reference to the capitalised earnings in 2013 (the most favourable basis available, untainted by the regeneration scheme). Mr Pearson regarded the value of the stock as an appropriate measure of the value of the business if it exceeded a valuation based on historic earnings.

The claim contains two additional components, for goodwill and for management time. Mr Parton originally valued the first of these heads of loss at £350,000 on the basis that goodwill was attributable to the business by virtue of Mr Quyoom’s reputation, expertise and ability to source vehicles. He later revised this head of loss to £240,000 and attributed it to unrealised business after the vesting date derived from intangible assets. Mr Pearson interpreted this as the loss to be derived from the future sale of ‘super special’ vehicles.

We have already concluded that notional profits which might have been derived from stock that had not yet been purchased at the valuation date cannot form part of a claim based on the value of a business which is assumed to have totally ceased trading and this head of claim must therefore be excluded.

As far as management time is concerned, Mr Quyoom has no records of the time he incurred in dealing with the claim. He explained that he had supplied a note of that time to his original solicitor, who subsequently died, but that this record had not been amongst the papers transferred to his current solicitors. Mr Stinchcombe KC submitted in closing simply that the claim for £25,000 was entirely reasonable and represented 500 hours over a period of 5 years. This was equivalent to 2 hours a week. In support of a rate of £50, Mr Stinchcombe drew the Tribunal’s attention to Khurana v Transport for London [2011] UKUT 466 (LC), at [105]-[107], where that figure had been accepted as not unreasonable.

Mr Quyoom said that dealing with the claim took him away from managing his business and that was not challenged in cross examination by Mr Fraser KC, but he pointed out that there was no evidence to show that the business had suffered any loss as a result of the time which had been spent. The Court of Appeal had made it clear in Lancaster City Council v Thomas Newell Ltd [2013] EWCA Civ 802 that loss said to have been sustained by a company due to the diversion of its staff or directors to dealing with a claim for compensation was in principle recoverable as compensation for disturbance but must be proved. It is not proved simply by showing that the director or staff member spent the time claimed. It must be shown that the company suffered a loss as a result.

We accept Mr Fraser’s submission that no loss on the part of the company has been substantiated. But Mr Quyoom himself is a claimant and the claim for management time is in respect of time which he spent in connection with the negotiation of the claim, including the preparation of the list of vehicles (which did not otherwise exist) and the provision of his own estimate of value. Each of these activities was part of the procedure agreed between the parties for the determination of the value of the business and there is no shortage of evidence that Mr Quyoom personally undertook these tasks.

In the Thomas Newall case the Court of Appeal was careful to distinguish between the position of a corporate claimant and an individual. Rimer LJ was more sympathetic to the position of the sole proprietor of a business, and after reviewing the authorities said this, at [26]:

“I can well see that if an individual faced with a compulsory acquisition reasonably devotes his own time to dealing with it, he ought in principle to be compensated for his time. He can fairly say that the expenditure of such time represents a loss to him.”

We have no doubt that Mr Quyoom devoted considerable time to trying to find an alternative site for his business and latterly related to its extinguishment. He was put to considerable work to catalogue the stock of the business and spent time valuing parts for the Cerberus valuation exercise (which occupied two members of Ceberus’s staff full time for five months). Doing the best we can with the limited evidence we allow 300 hours. As far as the rate is concerned, £50 per hour appears reasonable bearing in mind that the work he did was of a specialist nature and depended on his own knowledge of the business, its requirement for alternative premises, and the value of its stock. We are therefore satisfied on the evidence that £15,000 is a proper measure of the loss to Mr Quyoom incurred as a result of the acquisition.

The final part of the claim is for business assets. These were originally included in Mr Parton’s second head of claim and since we have excluded that element they fall to be included as a separate item. Mr Storry provided a list of equipment which comprised three forklift trucks, four vehicles and two sets of Pro-Dek vehicle racking, one single sided, the other double. Mr Storry’s valuation of this equipment having taken age, condition and depreciation into account was £155,650. Mr Parker did not provide a valuation. Mr Quyoom sold some of the vehicles and a forklift for £23,200. We therefore deduct this figure from Mr Storry’s valuation resulting in a sum of £132,450.

We have made no allowance for the scrap value of the vehicles disposed of from the Site after the fire. They were in the Council’s custody and we do not know how the proceeds of sale were accounted for. It was not suggested in evidence that their continued presence on the Site at the date of the fire was the consequence of any failure of mitigation by Mr Quyoom.

The claimants are additionally entitled to interest at the statutory rate on the sums awarded calculated from the valuation date. We invite the parties to agree the appropriate figure.

We therefore make the following determination of the compensation payable to the claimants, to which interest should be added: