ACQ/109/2002

	LANDS TRIBUNAL ACT 1949

COMPENSATION – compulsory acquisition – disturbance – leasehold shop– effect of scheme – loss of profits – date at which loss of future profits to be assessed – method of valuation – compensation of £570,920 awarded

IN THE MATTER OF A NOTICE OF REFERENCE

BETWEEN	OPTICAL EXPRESS (SOUTHERN) LIMITED	Claimants

	and

	BIRMINGHAM CITY COUNCIL	Acquiring
		Authority

	Re:	14 Martineau Way
	Birmingham

	Before: P H Clarke FRICS

	Sitting at Procession House, London EC4
	on 22-26 November 2004 with closing submissions in writing
	received between 13 and 30 December 2004

Charles George QC and Richard Glover  instructed by Mills and Reeve, solicitors, for the claimants
Guy Roots QC and Alexander Booth instructed by Nabarro Nathanson, solicitors, for the acquiring authority

The following cases are referred to in this decision:-

Director of Buildings and Lands v Shun Fung Ironworks Limited [1995] 2 AC 111
Waters v Welsh Development Agency [2004 1 WLR 1304
Pointe Gourde Quarrying and Transport Co Limited v Sub-Intendent of Crown Lands [1947] AC 565 
Melwood Units Pty Limited v Commissioner of Main Roads [1979] AC 426
Afzal v Rochdale Metropolitan Borough Council [1980] RVR 165
Horn v Sunderland Corporation [1941] 2 KB 26
Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Co [1903] AC 426
Reed Employment Limited v London Transport Executive [1978] RVR 53
W Rought Limited v West Suffolk County Council [1955] 2 QB 338
Festiniog Railway Co v Central Electricity Generating Board [1971] RVR 582
Birmingham Corporation v West Midland Baptist (Trust) Association (Inc) [1970]AC 874
London County Council v Tobin  (1959) 10 P & CR 79
Handley Limited v London Borough of Greenwich (1970) 21 P & CR 644
Livingstone v Rawyards Coal Co (1880) 5 App Cas 25
Hughes v Doncaster Metropolitan Borough Council [1991] 1 AC 382

The following cases were also cited in argument:-

Halil v Lambeth London Borough Council [2001] RVR 181
Remnant v London County Council (1952) 3 P & CR 18
Zarraga v Newcastle-upon Tyne Corporation (1968) 19 P & CR 609
W Clibbett Limited v Avon County Council [1976] RVR 131
Aslam v South Bedfordshire District Council [2000] RVR 121 (LT); [2001] RVR 65 (CA); [2002] RVR 16 (CA)
Reynolds v Manchester City Council [1981] 1 EGLR 167
Geest plc v Lansiquot [2002] 1 WLR 3111
Ryde International plc v London Regional Transport [2004] RVR 60

	DECISION
1.	This is a reference to determine the compensation payable for the compulsory acquisition of a leasehold shop in the centre of Birmingham.
2.	Charles George QC and Richard Glover appeared for the claimants and called:  (i) David Charles Moulsdale, Chairman and Chief Executive of DCM (Optical Holdings) Limited and subsidiary companies, including Optical Express (Southern) Limited; (ii) John Webber BSc MRICS, a director and shareholder of Colliers Conrad Ritblat Erdman, chartered surveyors of Birmingham; and (iii) Sara Fowler BA FCA MAE, a partner in Ernst and Young’s Forensic Services Group in Birmingham.
3.	Guy Roots QC and Alexander Booth appeared for the acquiring authority, Birmingham City Council (the Council), and called: (i) Simon Armstrong MRICS, a Development Manager of Land Securities Plc in their London office; (ii) Anthony M Chase FRICS, a partner in the London Office of Gerald Eve, chartered surveyors; and (iii) Jonathan Guy Anthony Phillips MA chartered accountant, partner Forensic Services in the London office of PriceWaterhouseCoopers.
4.	On 18 January 2005 I carried out an unaccompanied inspection of Martineau Place and the retail area in the centre of Birmingham, including Corporation Street, Bull Street, High Street, New Street, Martineau Phase 2, Cannon Street, Caxton Gate and the New Bull Ring.  
FACTS
5.	From a statement of agreed facts and the evidence I find the following facts.
6.	The claimants, Optical Express (Southern) Limited (Optical Express), are a trading subsidiary of the group holding company, DCM (Optical Holdings) Limited.  It is an optical retail business selling ophthalmic products to the general public.  In January 1997 the Group purchased the share capital of Specialeyes Plc (with a change of name to Optical Express (Southern) Limited), and thereby acquired the leasehold interest in 14 Martineau Way, Birmingham (the subject property) and a nationwide chain of 65 optical retail outlets, formerly trading as Specialeyes.  The Group as a whole currently trades from 144 Optical Express locations and 20 Eye Clinic locations throughout the United Kingdom.  Optical Express are one of the five largest optical retailers in terms of branches and turnover.  These five retailers are Specsavers, Boots, Vision Express, Dolland & Atchison and Optical Express, and commanded 43.6% of the market share in the year 2000.
7.	14 Martineau Way formed part of a 1960s shop and office development in the centre of Birmingham, on a site bounded by Corporation Street, Union Street, Bull Street and the rear of shops fronting High Street.  It included a two storey retail podium of 130,000 sq ft (12,082 sq m) and a 12 storey office block of 80,000 sq ft (7,435 sq m) (Commercial Union House).  The layout provided shopping frontages to Corporation Street and Bull Street with an open central square, Martineau Square, linked to Corporation Street by a pedestrian arcade (South Eastern Arcade), to Bull Street by steps and to Union Street by an open pedestrian way, Martineau Way.  The subject property was in Martineau Way.  I will refer to this 1960s development in the form that existed before redevelopment as Martineau Square.  For the similar shop and office scheme after redevelopment I will use the current name of Martineau Place.  As a development scheme it is called Martineau Phase 1 or Martineau Place and is part of the Martineau Galleries Scheme, which comprises phases 1 (Martineau Place) and 2 (which is a site bounded by Bull Street, Corporation Street, Priory Queensway and Dale End).  Opposite Martineau Square in Corporation Street was a Rackhams Department Store (now House of Fraser) and on the northern edge, where Corporation Street crosses Bull Street, were subways and subterranean shops known as Bull Street hump (now demolished).  
8.	The subject property was a two storey shop with a frontage to Martineau Way and a return frontage to Martineau Square.  It was held by the claimants on an underlease dated 26 March 1993, originally granted by Ravenseft Properties Limited to Specialeyes Plc, for a term of 20 years from 25 December 1992 on full repairing and insuring terms at an initial rent of £44,750 per annum with rent reviews on 25 December 1997, 2002 and 2007.
9.	On 20 July 1998 outline planning permission was granted for a development described as a “multi-storey city centre development comprising retail, leisure, cinema, health, hotel, car parking and associated facilities and highway works” on land bounded by Corporation Street, Priory Queensway, Chapel Street, Moor Street, Queensway, Carrs Lane and Union Street, which is referred as the Martineau Galleries development or Martineau Phase 1 (which included the subject property) and Martineau Phase 2.  Approval of reserved matters was given on 28 January and 22 April 1999 for Martineau Phase 1.  
10.	In March 2000 Balfour Beatty were appointed main contractors for Martineau Phase 1.  Enabling works commenced on 14 February 2000 and were completed on 15 April 2000.  The main contract works started on 10 April 2000 and practical completion was certified on 7 December 2001.  Shop units were handed over prior to practical completion: Sainsbury’s in November 2000, the Corporation Street units in July 2001 and the majority of the new central square units in September 2001.  The remaining shops opened throughout 2002.  Demolition of the Bull Street hump by the City Council’s contractor took place between 17 January and 18 October 2000.
11.	The Martineau Place scheme (Phase 1) comprised redevelopment and the refurbishment and extension of the existing buildings.  The former layout has remained largely unchanged with the retail podium and office block, central square (now partly roofed) and pedestrian access largely as before to Corporation Street, Bull Street (with steps) and Union Street.  The retail floor area is now about 183,000 sq ft (17,000 sq m), an increase of 64,500 sq ft (6,000 sq m).  
12.	In February 1999 Hammerson Plc, Henderson Investors and Land Securities Plc agreed heads of terms for the creation of a joint venture partnership called the Birmingham Alliance to bring forward proposals to provide some 2.5 million sq ft (232,342 sq m) of retail accommodation under a phased and structured programme in Birmingham city centre.  The Council were instrumental in bringing together these partners.  The agreement was finalised in July 1999.  It was agreed that the development programme would be undertaken in three separate phases, with Martineau Phase 1 (Martineau Place) undertaken first, as part of the larger Martineau Galleries scheme, followed by the Bull Ring and the remainder of the Martineau Galleries development (Phase 2).  Three limited partnerships, each comprising the three partners with a one-third share each, were created to undertake the three developments.  Land Securities were appointed as development managers of Martineau Place by Martineau Limited Partnership.  Land Securities had acquired the long leasehold interest in Martineau Place in 1970.  The Council were, and are, the freeholders and granted a new long leasehold interest to Martineau Limited Partnership to facilitate redevelopment following final possession of all the existing units in April 2000.  Compensation for the compulsory acquisitions undertaken by the Council is funded by the three partners.  
13.	Planning permissions for the development of the Bull Ring were granted between 1997 and 1999.  Demolition commenced in 2000 and the new centre opened for trading in September 2003.  It provides a total retail floor area of about 1.2 million sq ft (111,500 sq m) and has replaced a secondary shopping area with two new shopping streets on three levels anchored by two department stores.  
14.	The existing planning permission for Martineau Galleries (Phases 1 and 2) expires in July 2005.  Discussions have commenced with the Council and other stakeholders for the preparation of a revised master plan for a retail, offices, leisure, residential and culture development with car parking.  Traffic and transport issues are under consideration.  A revised outline planning application should be submitted in 2005.  
15.	On 19 January 1999 the Council made The City of Birmingham (Martineau Sq etc, City Centre) Planning Compulsory Purchase Order 1999.  Following an inquiry held on 13-15 July 1999 the order was confirmed on 2 December 1999.  The order included 14 Martineau Way; the claimants did not lodge an objection.  Following a general vesting declaration dated 8 March 2000 the Council took possession of the subject property on 7 April 2000 and took possession of other shops between 24 December 1999 and 7 April 2000.  The Council referred the determination of compensation in respect of the subject property to this Tribunal on 26 September 2002.  On 27 August 2003 I gave an interlocutory decision concerning the admissibility of evidence and the service of a revised particularised claim.  
ISSUES
16.	The parties have agreed that the value of the leasehold interest in the subject property was £10,000 and that the claimants’ financial loss consequent of dispossession should be calculated on the total extinguishment basis.
17.	There are three issues for determination.  First, the scheme underlying the acquisition of the subject property.  Second, the claimants’ loss of profits prior to possession (including the effect of the scheme on the calculation of this loss).  The claimants seek £66,246; the Council’s figure is £16,600.  Third, the claimants’ loss of future profits from the date of possession on 7 April 2000.  The claimants seek £1,650,985 (calculated as £507,209 for loss from the date of possession to September 2003 and £1,193,776 as future loss with a deduction of £50,000 for the net value of assets and the leasehold interest); the Council’s calculation of this loss is £372,300.  
SCHEME
18.	I look first at the extent of the scheme underlying the acquisition; the effect of the scheme will be dealt with under pre-possession loss.  
Evidence
19.	Mr Webber defined “the Scheme to mean the area including and around Martineau Square where the Birmingham Alliance intends to redevelop the shopping centre to provide modern retail units for Birmingham City Centre.”  In cross examination he said the scheme comprised Martineau Square, Martineau Galleries (Phase 2) and the Bull Ring.  All development within the scheme is to be disregarded when assessing compensation.  Although the Martineau Galleries development has not yet commenced, works to Queensway and other infrastructure works have been carried out.
20.	Mr Armstrong said that for many years Birmingham fail to draw effectively from its catchment area due to poor shopping facilities in the city centre.  Three development partners, including Land Securities, came together in 1999 to create the Birmingham Alliance, to provide retail and leisure accommodation under a phased programme of redevelopment.  When Birmingham City Council gave approval to Martineau Phase 1 and Phase 2 it agreed that the consent could be implemented in two phases.  
21.	Mr Armstrong referred to the location of Martineau Square, the objectives of refurbishment and extension and the architect’s brief and response.  Following confirmation of the CPO the Council granted a long lease to Martineau Limited Partnership and contractors were appointed.  Enabling works took place between February and April 2000 and the main contract commenced on 10 April.  Demolition of the Bull Street hump took place between January and October 2000.  Before these dates there were no building works within Martineau Square, although works for the conversion of the adjoining Littlewoods’ block (a separate development) were undertaken.  The refurbishment of Martineau Place has achieved the objectives of the Birmingham Alliance and arrested the decline of the northern end of Corporation Street.  Birmingham city centre underwent successful regeneration in the 1990s, initially centred on Brindley Place and the International Convention Centre.  These were a catalyst for further major redevelopment, including the Bull Ring.  These have adjusted pedestrian flows.  Major building and highway works have also affected retailers.  Many retailers have claimed that their turnover was affected.  Planning permissions for the Bull Ring were granted between 1997 and 1999.  Demolition of the existing buildings commenced in 2000.  The centre opened in September 2003.  The size of this new centre has brought a shift in trading patterns, with the focus moving away from Corporation Street towards the southern and eastern ends of High Street and New Street respectively.
22.	Mr Chase said that the scheme for which the subject property was acquired is the redevelopment of Martineau Place.  
Submissions
23.	Mr George QC, for the claimants, said that the effect on value of the scheme has to be disregarded (Director of Buildings and Lands v Shun Fung Ironworks Limited [1995] 2 AC 111 at 136 A-B).  The correct approach to the identification of the scheme was addressed in Waters v Welsh Development Agency [2004 1 WLR 1304, especially by Lord Nicholls (paras 55-63).
24.	The written evidence on the scheme is sparse.  Mr Webber described it in general terms and confirmed that it included all the lands under the control of the Birmingham Alliance, ie Martineau Phases 1 and 2 and the Bull Ring.  The written evidence on behalf of the Council does not include a description of the scheme.  It is clear from the inspector’s report of the CPO enquiry that, although the order was confined to Martineau Phase 1, it was part of a wider project which included Martineau Phase 2 and the Bull Ring (see paras 24 and 48).  Mr Armstrong’s evidence is that the Martineau Square development was part of a larger scheme.  Mr George said that the evidence all points one way and there was no cross examination to the contrary.  
25.	Mr Roots QC, for the Council, said that under section 6 and case 1 of Schedule 1 to the Land Compensation Act 1961 the scheme underlying the acquisition is the Martineau Square development (Martineau Phase 1).  Under Waters the correct approach to the identification of the scheme is to start with the statutory rule.  Any increase or decrease in the value of the land taken (including disturbance) must be left out of account in so far as it results from the carrying, out or prospect of, development on any other land authorised by the CPO.  It is a matter of evidence whether the scheme reduced pedestrian flow or led to short term lettings.  If this can be proved, then section 6 of the 1961 Act applies to eliminate any diminution in the value of the claimants’ business to the extent that it was caused by the development, or prospect of development, of other land included in the CPO.
26.	The rule in Pointe Gourde Quarrying and Transport Co Limited v Sub-Intendent of Crown Lands [1947] AC 565 is broader than section 6 and exists alongside the statutory rule.  In Waters Lord Nicholls set out pointers as to the identification of the scheme under the Pointe Gourde rule (para 63).  However, even before consideration is given to his six pointers, it is clear that the facts do not support a conclusion that the scheme includes the three developments of the Birmingham Alliance.  They are physically separate; Martineau Phase 1 was a free standing scheme; Martineau Galleries or Phase 2 has not yet been progressed; Martineau Phase 1 was the subject of its own CPO; the fact that planning policy encouraged retail development in the city centre does not mean that the projects were promoted together or linked by the local planning authority.  For the purposes of the Pointe Gourde rule the scheme is the redevelopment of the land in the CPO plus Bull Street hump and associated works.  A scheme which comprises the three Alliance development would fly in the face of five out of the six pointers of Lord Nicholls in Waters.  
Decision
27.	I consider here the identity of the scheme underlying the acquisition; I deal with the effect of the scheme under pre-possession loss.  The claimants say that the scheme comprises all the land under the control of the Birmingham Alliance, that is to say Martineau Phases 1 and 2 and the Bull Ring.  It is a wide scheme.  The Council say that the scheme comprises only the land in the CPO (Martineau Phase 1 and works to the Bull Street hump).  It is a narrow scheme.  
28.	Section 6 and case 1 of the First Schedule to the Land Compensation Act 1961 contain the statutory provisions governing the extent of the scheme in this reference.  The Pointe Gourde principle also applies, a common law principle which requires that “compensation for the compulsory acquisition of land cannot include an increase” [or decrease] “in value which is entirely due to the scheme underlying the acquisition” (Pointe Gourde at 572; Melwood Units Pty Limited v Commissioner of Main Roads [1979] AC 426). 
29.	It is common ground that the statutory provisions and the Pointe Gourde principle apply to the assessment of disturbance under rule (6) of section 5 of the 1961 Act in the same way that they apply to the valuation of land under rule (2).  The recent decision of the House of Lords in Waters confirms that Pointe Gourde continues to apply as a principle of law which goes beyond the statutory provisions (paras 54 and 138).  
30.	Section 6 and case 1 of the First Schedule to the 1961 Act requires that no account shall be taken of any increase or diminution in the value of the interest acquired that is attributable to the carrying out or prospect of development of the other land within the CPO, for the purposes of which the interest was acquired, as would not have been likely to be carried out if the acquiring authority had not acquired and did not propose to acquire any of that land.  
31.	The CPO under which the claimants’ leasehold interest in 14 Martineau Way was acquired was made under section 226(1)(a) of the Town and Country Planning Act 1990 and authorised the Council “to purchase compulsorily for the purpose of the carrying out of the development, redevelopment and improvement thereof by the extension, refurbishment and redevelopment of existing retail and office premises and adjoining highway land” described in the Schedule and shown on the Site Map.  This Map shows Martineau Square or Martineau Phase 1 and the highway land known as the Bull Street hump.  It does not include Martineau Phase 2 nor the Bull Ring.
32.	The inspector’s report on the order makes some reference to wider development.  It states that the Martineau Square scheme is the initial phase of the Martineau Galleries project for which outline planning permission has been given, although Martineau Square “is intended to be a free-standing element of this project” (paras 13 and 14).  In his conclusions he refers to shopping policies in the Unitary Development Plan, the new Bull Ring development and the phased programme of redevelopment by the Birmingham Alliance, where the “Martineau Square Scheme represents a significant first step in this programme” and is “part of a measured overall programme” (paras 124 and 126).  It is however “worthwhile in its own right” (para 134).
33.	In the decision letter confirming the order dated 2 December 1999 reference is also made to more extensive redevelopment in Birmingham city centre (para 10 e):-
“The Secretary of State has considered the relationship of the Martineau Square development to the Martineau Galleries and Bull Ring developments.  He believes that the phased approach adopted by the Birmingham Alliance provides a sensible way forward for the retail function in the city as a whole, and he sees Martineau Square as a significant first step in this programme.  He also agrees with the Inspector (paragraph 134) that the Martineau Square scheme is worthwhile in its own right.”
34.	In my view, the references to other related development by the Birmingham Alliance are made to put the redevelopment of Martineau Square in its overall planning context and do not detract from the clear effect of section 6 and case 1 of the First Schedule to the 1961 Act, which is to limit the scheme to the land within the CPO, namely the redevelopment of Martineau Square and works to the Bull Street hump.  These provisions indicate that the scheme does not extend to Martineau Phase 2 and the Bull Ring. 
35.	I believe the same conclusion can be reached under the Pointe Gourde principle.  In Waters guidance is given as to the application of the principle, the general view being that it has come to be applied too widely and should be restricted in its application (see paras 56, 63, 146 and 148).  
36.	Lord Nicholls considered the development of the scheme principle and said (para 43):-
“Notoriously the practical difficulty with the Pointe Gourde principle lies in identifying the area of the ‘scheme’ in question.  This difficulty does not arise when the enhanced value arises from the authority’s proposed user of the subject land.  Then, by definition, what is in issue is the proposed use of the subject land.  But when regard is had to the authority’s use or proposed use of other land the application of the principle is not self-defining.  A major development project of a general character, covering a wide geographical area, may proceed in several phases, each phase taking years to implement, and the detailed content and geographical extent of each phase being subject to change and finalised only as the phase nears the time when the work will be carried out.  It that one scheme or several?”
37.	He then proceeded to the identification of the scheme (para 58):-
“I turn, then, to the question of how the extent of the scheme should be identified in today’s conditions.  A scheme essentially consists of a project to carry out certain works for a particular purpose or purposes.  If the compulsory acquisition of the subject land is an integral part of such a scheme, the Pointe Gourde principle will apply accordingly.  Both elements of a project, the proposed works and the purpose for which they are being carried out, are material when deciding which works should be regarded as a single scheme and applying the Pointe Gourde principle to the subject land.”
Lord Nicholls emphasised that a scheme comprises works for a particular purpose or purposes and that both elements (works and purposes) are material to the definition of a scheme and the application of the Pointe Gourde principle.  
38.	The determination of a scheme is not solely a question of fact but requires the exercise of judgment (Lord Nicholls referred to it as a “judgmental exercise”, para 61).  He said (para 59):-
“The extent of the scheme is often said to be a question of fact.  Certainly, identifying the background events leading up to a compulsory purchase order may give rise to purely factual issues of a conventional character.  But selecting from these background facts those of a key importance for determining the ambit of the scheme is not a process of fact-finding as ordinarily understood.”
39.	The purpose of the Pointe Gourde principle must be borne in mind when deciding the extent of a scheme (para 61):-
“What, then, is the purpose of this principle?  Its purpose, in separating ‘value to the owner’ from ‘value to the purchaser’, is to forward Parliament’s objective of providing dispossessed owners with a fair financial equivalent for their land.  They are to receive fair compensation but no more than fair compensation.  This is the overriding guiding principle when deciding the extent of a scheme.”
40.	Pointers to the application of the general principle are (para 63):-
“(1)	The Pointe Gourde principle should not be pressed too far.  The principle is soundly based but it should be applied in a manner which achieves a fair and reasonable result.  Otherwise the principle would thwart, rather than advance, the intention of Parliament.   (2)	A result is not fair and reasonable where it requires a valuation exercise which is unreal or virtually impossible.  (3)  A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties which are not being acquired.  (4)  When applied as a supplement to the section 6 code, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code.  Thus in the class 1 type of case the area of the scheme should be interpreted narrowly, for instance, so as to embrace the property acquired under the compulsory purchaser order and the property which probably would have been so acquired had it not been bought by agreement.  ….   (5)  Normally the scope of the intended works and their purpose will appear from the formal resolutions or documents of the acquiring authority but this formulation should not be regarded as conclusive.  (6)  When in doubt a scheme should be identified in narrower rather than broad terms.”
This guidance was agreed by Lord Woolf, Lord Steyn and Lord Brown.  
41.	In the light of this guidance there are, in my judgment, six reasons for limiting the scheme to the redevelopment of Martineau Square (Martineau Phase 1).  First, Martineau Square (Phase 1) is separated from Martineau Phase 2 by Bull Street and there is considerably greater physical separation from the Bull Ring, which is some way to the south.  Second, the development periods for Martineau Square and the Bull Ring differ: Martineau Square between February 2000 and December 2001, the Bull Ring from 2000 to September 2003.  No development has taken place on Martineau Phase 2.  Third, separate compulsory purchase orders were used to acquire the land for the Martineau Square and the Bull Ring; no order has been made for Martineau Phase 2.  Fourth, the outline planning permission for Martineau Square and Martineau Phase 2 was granted in July 1998; separate planning permissions for the Bull Ring were granted in 1997 and 1999.  Although a single permission was granted for the two phases of the Martineau Galleries development, development under Phase 2 has not yet been implemented, the permission expires in July 2005 and a revised outline planning application is to be submitted.  Fifth, although the three developments under consideration have been, or are to be, carried out under the umbrella of the Birmingham Alliance, a separate limited partnership is used for each development.  The Council as freeholders of the Martineau Square land have granted a long lease to Martineau Limited Partnership.  An overall policy to link three developments does not make them one scheme.  Sixth, but perhaps most importantly, four of the pointers suggested by Lord Nicholls in Waters (para 63) indicate that the scheme should be limited to the redevelopment of Martineau Square and the Bull Street hump.  Pointers (1) and (2) state that the valuation exercise should not be unreal or virtually impossible.  In this reference the exclusion of any effect on the claimants’ trading from the redevelopment or prospect of redevelopment of Martineau Square is not an unreal or impossible exercise.  The exclusion of the three developments under consideration, particularly the Bull Ring, and speculation as to what would have been the effect in a considerably different no scheme world, would introduce unreality and impossibility and press the Pointe Gourde principle too far.  Pointer (4) is particularly relevant: the Pointe Gourde principle should be applied by analogy with the statutory code.  “Thus in a class 1 type of case the area of the scheme should be interpreted narrowly, for instance, so as to embrace the property acquired under the compulsory purchase order …”.  I considered this point above.  Pointer (6) is general: “when in doubt a scheme should be identified in narrower rather than broad terms.”
42.	For these reasons I find that the scheme underlying the acquisition of the subject property is the redevelopment and refurbishment of Martineau Square (Martineau Phase 1) and the works to the Bull Street hump.  It does not include the Bull Ring nor Martineau Phase 2.   
PRE-POSSESSION LOSS
43.	The claimants seek compensation of £66,246 for loss of profits prior to dispossession due to the effect of the scheme and the shadow of compulsory purchase.  The Council’s figure is £16,600.
Evidence
44.	Mr Moulsdale said that DCM (Optical Holdings) Limited has grown through new store openings and the acquisition of independent practitioners, regional and national optical retailers.  New openings represented initial growth, successful but a slow process.  Over the past nine years the Group acquired nine under-performing businesses.  Specialeyes plc were acquired in January 1997 and added 65 optical stores.  It was an important strategic move for Optical Express.  
45.	In the five years before 2003 the optical industry saw rapid growth and consolidation.  The number of independents declined.  The five largest optical retailers have continued to increase their market share at the expense of the smaller independent and regional groups.  The increase in market share of the largest optical retailers is due to their wide range of products and frequent promotions.  Footfall and retail traffic are moving to high street and shopping centre locations with a negative impact on independents and regional groups. 
46.	Mr Moulsdale said that Optical Express offer a wide range of products at competitive prices.  The market is driven by location and offers.  Today the majority of optical groups locate within key shopping locations in towns and cities to maximise the catchment area.  Costs are high.  The optical industry enjoys one of the highest gross retail margins but, due to high fixed costs, it is important to generate a high volume of sales to achieve profitability.  Customer footfall is therefore important and is driven in a number of ways, eg advertising, offers and customer retention.  This latter is particularly important; about 35% of sales are generated through repeat business.  Customer retention is the key to growth.  Customer feedback has shown that 49% of customers returned to Optical Express on the basis of location.  14 Martineau Way was a convenient location in the city centre.  
47.	The former Specialeyes shop at the subject property was re-branded to Optical Express in May 1997.  It demonstrated like for like sales growth of around 5% per annum between 1997 and 1999 with a gross margin of about 78%.  The branch contribution was consistently in excess of £100,000 per annum after deduction of fixed costs.  The current gross profit margin of Optical Express is 82.2%.  Mr Moulsdale said that he expected the contribution from the subject property, in the absence of compulsory purchase, to have been significantly greater than those levels.  There was security of tenure under a lease with 12 years unexpired.  
48.	Mr Moulsdale was first advised of potential redevelopment in July 1998.  Prior to March 2000 a large number of units at Martineau Square closed and the centre was rundown and depressed.  Footfall declined and the business suffered.  The monthly trading figures before closure show this decline.  The area was being prepared for demolition and was not an attractive environment.  The centre began to decline in January 1999, when notice of the CPO was given and decline was progressive until March 2000.  This is seen by the fall in turnover.  The shop had performed well until the financial year 2000.  During this last trading year the performance dipped significantly due to reduced footfall.  The monthly trading figures for January to March 2000 first alerted Optical Express to the decline.  Action was taken to deal with the position but Mr Moulsdale could not recollect what it was and records cannot now be found.  Only one other store experienced that sort of decline (at Burton-on-Trent) but this was due to staff problems.  There were other stores in the Group which performed badly but there were good reasons for this, eg at Rochdale, Brighton and in the Arndale Centre, Manchester.  The subject property had none of the problems experienced by these other stores.  In the absence of the CPO it was expected to perform in line with expectations.  If performance had dipped for any other reason rapid action would have been taken to correct the problem.  It was not consciously run down prior to acquisition.  
49.	The subject property before redevelopment was typical of a number of Optical Express locations, eg Romford, Stockport and York.  These are similar locations having regard to customer profile and range of products sold, although Mr Moulsdale said in cross examination that York may not be a good comparable due to some threat of compulsory acquisition and at Romford there were managerial problems.  Mr Moulsdale agreed with Mr Webber’s chronology of the decline of the Martineau Square centre.  
50.	Mr Webber said that the economic impact of compulsory purchase begins earlier than confirmation of the CPO.  It is felt from the date of the making of the order.  Mr Webber referred to the chronology in this case and said that from 19 January 1999 when the CPO was made it would have been plain to the tenants in the Martineau Square centre that they would need to make alternative arrangements.  The shadow of compulsory purchase can be seen by comparing successive Goad Plans from February 1997 to November 2000.  The first showed only one empty unit in Martineau Way and then the Plans showed progressive vacancies and changes of tenancy leading to the last Plan which shows the whole centre vacant and under alteration.  This evidence of change (vacancies and occupation on short lettings) can only be explained by reference to the CPO.  This is confirmed by his own recollection of frequent visits from his nearby office.  Land Securities refrained from investing in the centre, no doubt having regard to the redevelopment proposals.  Empty units diverted footfall away  from the centre.  The decline in trading experienced by the claimants in 1999-2000 is typical of the impact of the making of a CPO.  
Ms Fowler said that prior to the CPO the subject property had experienced growth in turnover and stable profit margins.  She was informed that results for the year ended March 2000 were adversely affected by the closure of the nearby shops and reduced footfall.  Accordingly, a sales figure for this year has been substituted representing growth of 5% over the 1999.  The contribution for the subject property for the year ended 31 March 2000 becomes £127,000 (a margin of 24%), excluding property overheads and other charges totalling £86,000.  
51.	Ms Fowler considered the actual trading figures for the subject property for the financial years 1998, 1999 and 2000.  For the last year the contribution was £65,000 (a margin of only 17%).  The figures suggest that property and other charges were not affected by the closure.  
52.	By reference to a graph of moving annual totals of contribution after staff costs it can be seen that there was a steady decline in the months prior to possession.  The growth in net turnover in the year to March 2000 at the subject property was minus 25.3% compared to growth at five comparable stores of between minus 2% and plus 14%.  On this evidence a growth rate of 5% would have been achieved at the subject property but for the disruption caused by impending possession.  There were no other factors other than building works relating to possession to explain the decline in sales.  The decline in contribution after staff costs for the period prior to possession was due to a decrease in turnover which was offset by cost savings (particularly a reduction in staff numbers).  Therefore, the position was that turnover and staff costs were affected prior to possession, but property and other costs were not affected.  The appropriate measure to calculate the loss prior to closure is by reference to the contribution of the store after staff costs.  On this basis the estimated contribution after staff costs for the year to 31 March 2000 becomes £212,890 compared to the actual figure of £146,644, producing a loss prior to possession of £66,246.  Ms Fowler’s calculations are set out in Appendix 1 to this decision.  
53.	Ms Fowler said that the analysis of Mr Phillips of the underlying turnover growth at Optical Express is overly simplistic because it does not account for the effect of store openings and closures, other than the removal of the Co-op acquisition.  Ms Fowler produced figures of average turnover per store, taking into account openings and closures and removing the subject property, for the years ended March 2000 and 2001.  These figures show that average growth in turnover was plus 10.4% in 1999, nil in 2000, plus 3.3% in 2001 and plus 3.1% in 2002.  On a store by store basis only one of Optical Express’s 58 stores saw a greater decline in turnover growth than the subject property over the same twelve months period.  That was Burton-on-Trent where there were management problems.  
54.	Mr Armstrong said that Martineau Square in the late 1990s was a dismal 1960s shopping precinct that detracted from the shopping function of the prime retail area.  It was outdated and unattractive; it did not provide a desirable setting for modern retailers.  External finishes were basic; the square was open and a magnet for litter and pest infestation.  The perimeter shops were in secondary locations.  The building was an inappropriately scaled podium fronting one of the most important civic streets.  Access to Martineau Square from Corporation Street was along South Eastern Arcade, an uninviting narrow passage with one kiosk and return frontages.  Access from Union Street was along Martineau Way.  The Bull Street hump was a product of 1960s highway planning to provide subways under Corporation Street and was unattractive and in disrepair.  
55.	Mr Armstrong produced a schedule of leases and possession dates in Martineau Square and Martineau Way.  He said this showed that units around Martineau Square were largely occupied until April 2000 when redevelopment commenced.  Some units were let to temporary occupiers in 1999 in an attempt to preserve activity before redevelopment.  Although some of the lettings arose as a result of surrender negotiations in preparation for redevelopment, many arose out of factors unrelated to the scheme, eg JJB Sports and Dixons moved to larger premises.  Some leases were recovered from administrators or receivers.  These facts highlight the declining nature of Martineau Square.  Although there were some vacancies in 1998-1999 they were not all attributable to the threat of compulsory purchase and redevelopment.  Mr Moulsdale has identified Specsavers, Boots, Vision Express and Dolland and Aitchison as major competitors.  These opticians are all now represented in the city centre.  
56.	Mr Phillips said that the trading performance of Optical Express before March 2002 showed significant fluctuations due to acquisitions in the year to March 2002.  Removing these acquisitions indicates that turnover increased by 7% from 1998 to 1999 and then fell by 5% and 0.7% for the years ended March 2000 and 2001, before rising by 3% in 2002.  Turnover at the subject property increased by 4.5% from 1998 to 1999 and then fell by 25.3% in the year to March 2000.  The moving annual turnover figures for the two years to March 2000 show that annual turnover grew steadily between May and October 1998, then remained static until March 1999 with a gradual decline to the date of possession.
57.	Mr Phillips said it is unlikely that building works would have had a significant impact on trading at the subject property.  It is possible that there was some decline in trading due to the confirmation of the CPO in December 1999.  Mr Phillips compared the turnover in the eight months to November 1999 with the same period in 1997 and 1998.  This showed figures of £341,000 (1997), £361,000 (1998) and £278,000 (1999), a significantly lower turnover in 1999 than the previous two years.  To assess the impact of the CPO Mr Phillips extrapolated the moving annual turnover from December 1999 to March 2000 based on turnover trends seen prior to this period.  From these figures there appears to have been some downturn in turnover over and above the decline seen prior to December 1999.  This downturn was during the three months from December 1999 to March 2000.  Allowing for declining turnover before December 1999, the subject property would have achieved a turnover of £410,000 in the year to 31 March 2000 in the absence of possession.  Taking the gross profit at 79% (agreed) and deducting staff costs at the agreed figure of 39.2% of turnover, produces a projected contribution for the year to 31 March 2000 of £163,180.  The actual contribution was £146,644, giving a loss prior to possession of £16,600 (rounded).  Mr Phillips’ calculations are set out in Appendix 2 to this decision.  
58.	Mr Phillips said that Ms Fowler’s loss of turnover and contribution implies that turnover would have increased by 74% and the contribution by 123% in the four months to March 2000 compared to the equivalent period in 1998 and 1999.  There is no evidence to support these projected figures.  Furthermore, the decline in turnover and contribution before December 1999 would suggest a continuing fall in contribution rather than an increase.  
59.	Mr Phillips said that turnover at the subject property had been declining since March 1999.  Sales for the eight months to 30 November 1999 were 23% lower than in the same period in the previous year.  The performance of the selected comparable Optical Express stores shows significant fluctuations.  It may be more appropriate to look at the aggregate growth rate for the five comparable stores: plus 3.1% (2000-2001), plus 3.2% (2001-2002) and minus 1.6% (2001-2002).  The growth rate for Optical Express was plus 7% in 1999 and minus 5% in 2000.  Markets statistics of optical retail sales in Mintel show a 3.9% growth between 1998 and 1999 and 0.3% between 1999 and 2000. 
Submissions
60.	Mr George said that pre-possession loss is recoverable even if it was incurred before confirmation of the CPO, provided it was causally related to the acquisition (see Shun Fung at 126).  The effect of the scheme on turnover must be disregarded.  There are two aspects: temporal and physical.  The temporal effect is relevant to pre-acquisition loss and the turnover and contribution that would have been achieved in the year to March 2000 but for the scheme.  But a conclusion on this matter does not turn on whether or not the scheme includes Martineau Galleries or the Bull Ring.  Martineau Square was the first phase and the Council have not argued to the contrary.  As to the physical extent of the scheme, it is not claimed that the difference between the two candidate no scheme worlds would have made any difference to the ultimate valuation.  It is the claimants’ case that there are three main propositions in the no scheme world.  First, the claimants would have had a tenure which was virtually a freehold of a shop in part of the core shopping area of Birmingham city centre.  Second, there would have been a real incentive on the landlords of Martineau Square to maintain and refurbish it and keep it vital.  Third, the subject property would have remained within the core shopping area with a healthy footfall and passing trade.  In the event all these propositions are made out, whether the scheme includes or excludes the Bull Ring and Martineau Galleries.  Mr George said that the starting point is to estimate the notional turnover and contribution for 2000, there being no dispute that turnover was lower in that year than it would have been in the no scheme world (regardless of the extent of the scheme).  
61.	Mr George said that Mr Phillips had underestimated the notional turnover for 1999-2000 by misunderstanding the surrounding circumstances and the extent to which the CPO and the scheme transformed trading conditions at the Martineau centre.  Owing to vacancies, short lettings and lack of investment, Martineau Square was severely blighted in 1999-2000.  Take away the CPO and growth in turnover would have continued in line with the average growth of comparable stores.  The claim based on Ms Fowler’s figures should be allowed.  
62.	Mr Roots said that, having identified the scheme, it is necessary to consider what might have happened in its absence.  It is not in dispute that Martineau Square was visually poor.  The evidence does not support the claimants’ contention that, in the absence of the CPO, Land Securities would have carried out limited refurbishment.  Any tenants who remained while those works were in progress would have found trading affected.  The evidence shows that, for a substantial period, the centre of Birmingham was the subject of considerable construction activity and may not have been attractive to shoppers.  
63.	It is agreed that pre-possession loss is recoverable in principle.  The claimants are entitled to compensation for a reduction in turnover and branch contribution in the last year of trading.  The onus of proof is on the claimants as to amount.  To acknowledge some possible effect due to works (the claimants’ original contention), Mr Phillips has made some adjustment to the actual level of trading.  The claimants now contend that the decline in trading commenced in April 1999 but Mr Phillips saw a much earlier decline.  Whatever date is found to be the start of the decline it must considered whether that date can be linked to events which might have caused it and whether such events are attributable to the CPO.  There is no coincidence between the date when the claimants allege that a substantial decline in trading commenced and any identifiable event, certainly no event connected with the CPO.  Without supporting evidence the claimants’ contentions do not carry weight.  The decline in turnover can be explained by causes other than the CPO, eg the decline in this location and the general decline in the regional shopping centre.  Ms Fowler has overstated the effect of the CPO; Mr Phillips’ estimate of loss is more reliable.  
Decision
64.	The right to compensation for loss prior to possession by an acquiring authority was explained by Lord Nicholls in Shun Fung (at 137H-138E):-
“To qualify for compensation a loss suffered post-resumption must satisfy the three conditions of being causally connected, not too remote, and not a loss which a reasonable person would have avoided.  A loss sustained post-scheme and pre-resumption will not fail for lack of causal connection by reason only that the loss arose before resumption, provided it arose in anticipation of resumption and because of the threat which resumption presented. ……
This conclusion should give no cause for surprise.  A narrow justification for giving causal connection an extended meaning in this context can be found in the reasoning underlying the Pointe Gourde principle, applied to losses attributable to the scheme but which arise before resumption.  But the rationale is more broad-based….Suffice to say, everyone seeks to plan ahead, and the law would be defective if it did not recognise this.  In the law causation is a tool, but no more than a tool, used by lawyers when attributing legal responsibility for a happening to a particular source.  In everyday terms, loss caused by the threat of an act which later eventuates would normally be regarded as loss caused by the act just as much as loss incurred after the act has happened.  
If the line is drawn in this way the result is fair and sensible.  Had there been no scheme, the losses in question would not have arisen.  The result is coherent because it accords with the established Pointe Gourde principle.  It also means that compensation is not dependent on whether the acquiring authority acts speedily or tardily in carrying through the process culminating in resumption.  Losses arising after the inception of the scheme will attract compensation, however short or long the shadow period, provided they satisfy the criteria mentioned above.”
65.	It is not in dispute that Optical Express are entitled to compensation for a decline in turnover at 14 Martineau Square and a consequent decline in branch contribution (or net profit) in the year before possession was taken on 7 April 2000.  In dispute are the causes of the loss and the amount of the loss.  The actual branch turnover in the year to 31 March 2000 was £379,647, a fall of 25.5% from the previous year, giving a contribution of £146,644 (after deduction of staff costs).  The claimants contend that, in the absence of the scheme, the turnover would have been £534,900 (an increase of 5% over the previous year) giving a contribution of £212,890 and a loss over the year of £66,246.  They say that the decline in turnover was due to reduced footfall in consequence of building works, the vacation of nearby shops and short lettings to inferior traders, all manifestations of the scheme.  The Council say that the decline in turnover was not caused by the scheme, save for the accelerated decline in turnover during the last three months (January to March 2000).  Disregarding the effect of the scheme the annual turnover would have been £410,000, given a contribution of £163,180 and a loss of £16,600.  The parties have agreed that gross profit and staff costs were 79% and 39.2% respectively of turnover and have agreed the actual turnover and contribution figures, leaving in dispute the estimated turnover disregarding the scheme.  
66.	The starting point for my decision is the branch turnover for the three financial years before possession, April to March 1998, 1999 and 2000.  In the year to March 1998 turnover was £486,646.  In the following year it rose to £509,429, an increase of 4.7%.  A comparison of the monthly turnover figures for the two years shows that in seven months turnover was higher in the year to March 1999 than in the previous year.  There was no pattern of declining turnover over the year.  In the last three months turnover rose 8.8% in January 1999, fell by 1.4% in February and then rose by 10.5% in March, all related to the figures for January to March 1998.
67.	It was a different story in the following year, to March 2000, the last year of trading.  Turnover for that year (£379,647) was 25.5% lower than the previous year.  In every month turnover was down compared with the same month in the previous year.  Between April and December 1999 the decline in monthly turnover was between 4.4% and 33.5%, with most figures within the bracket of 18.1% to 23.7%.  During this period the average fall in turnover was 21.7%, or excluding the three high and low figures, 20.7%.  For the last three months of the year the monthly fall in turnover over the previous year was 33.3%, 33.7% and 34.5%, an average of 33.8% compared to the lower figures of 21.7% or 20.7% for the previous nine months.  Clearly, the decline in monthly turnover over the previous year accelerated during the last three months of trading.  A fall in turnover has been established for the whole of the financial year to March 2000.  The claimants say that the whole of this fall is due to the scheme; the Council say that only the accelerated decline in the last three months is directly attributable to the scheme.  Loss of turnover prior to possession is compensatable if there was a causal link between the scheme and the loss: as expressed by Lord Nicholls: “had there been no scheme, the losses in question would not have arisen” (at 138D).  It is necessary therefore to look at events under the scheme for the relevant period to see whether such a link can be established.  It is not the claimants’ contention that any anticipatory action by them led to loss; it is their case that potential customers were kept away by activities and events under the scheme.  
68.	The relevant chronology is not in dispute.  Outline planning permission for the redevelopment and refurbishment of Martineau Phases 1 and 2 was granted in July 1998.  The CPO was made on 19 January 1999 with a public inquiry in July of that year and confirmation on 2 December 1999.  I do not think that these events discouraged potential customers (even if known to them).  Mr Moulsdale said that the centre began to decline at around the time of the service of the CPO in January 1999.  However, I am not persuaded that the making of the CPO caused the decline of Martineau Square.  In my judgment, the making of the order was a consequence of the poor layout, design and appearance of the centre and the need for refurbishment, that is to say a consequence of the decline, not the cause of it.  In his report the inspector said (para 124):-
“Much of the existing building and walkway complex is rather drab, and parts are ill-proportioned in visual terms.  By providing refurbished pedestrian areas, improved access, restaurant uses in Martineau Square, and new building facades to benefit the street scene, the scheme would generally upgrade and enliven the shopping environment.  The removal of the Bull Street hump is well justified and adequately detailed.  It would extend and enhance views along Corporation Street and improved the pedestrian linkage between the main shopping area and uses further to the north along the street.”
In short, I believe that the Martineau Square centre declined independently of the scheme due to inherent disadvantages of location, layout and design.  14 Martineau Square was situated in a poor trading position away from the main shopping frontages, hidden away in the centre of an unattractive 1960s development.  
69.	I look next at works executed under the scheme.  These were originally put forward by the claimants as one of the causes (or perhaps the cause) of the decline in turnover.  Works for the demolition of Bull Street hump started on 17 January 2000 and enabling works in Corporation Street for the redevelopment of Martineau Phase 1 commenced on 14 February 2000.  Main contract works did not start until 10 April 2000, after the date of possession.  I can accept that the works in January and February were part of the scheme, and that their effect on turnover is to be disregarded, but this is relevant only to the last three months of trading, January to March 2000, the period when there was an accelerated decline in turnover.  
70.	Finally, I consider vacancies and changes of tenancy, particularly lettings to traders said to be inferior to previous occupiers.  This reason emerged as the main cause put forward by the claimants for reduced footfall and lower turnover as a consequence of the scheme.  A history of leases (document 2) shows that most tenants continued to occupy their shops until the last three months before the commencement of development and vacated their units  between December 1999 and April 2000.  In October 1999 the Goad Plan showed two vacant units, 76 and 78 Corporation Street, near the corner of Bull Street, unlikely to have affected trading at the subject property.  It is, in my view, unlikely that vacant shops had any effect on the claimants’ trade until the last three months of trading, January to March 2000.  Mr Webber placed reliance on changes of tenancy with poor quality traders moving into the centre in place of established retail names.  He particularly referred to Dixons and JJB Sports, firms which moved away in December 1998 and June 1999 respectively, to be replaced with T Works and Greetham Antique Centre, said to be inferior traders.  I accept the evidence of Mr Armstrong that Dixons and JJB Sports relocated into larger and more suitable premises.  These moves were not in consequence of the scheme.  I also accept his evidence that some other changes of tenancy were due to the tenants going into administration or receivership, eg. Sketchley at 10/12 Martineau Way and H L Bazaar at 21 Martineau Square, and that this is a reflection of the poor and declining position of the Martineau Square centre and not a consequence of the scheme.  The overall position is that the centre remained almost fully occupied until January to April 2000, when most of the shops became vacant.  This was the period when the claimants suffered their greater accelerated loss of turnover.  In my judgment, this evidence shows that the scheme affected trading between January and March 2000 (but not earlier), and supports an award of compensation for loss of contribution due to declining trade during this period, in excess of the decline seen in the first nine months of the financial year.  It does not indicate that the scheme affected turnover before January 2000.  
71.	I was referred to other trading figures which I have found to be either unhelpful or some  slight confirmation of the trading pattern at the subject property.  I was referred to five other Optical Express shops, said to be comparable to 14 Martineau Square, at Romford, Stockport, High Wycombe, Harrow and Sutton.  These showed a growth in turnover between the year ended March 1999 and the year ended March 2000 of 0.2%, 2.1%, 1.9%, 7.9% and 14%, with an average of 5.1%.  I find this evidence of little assistance for two reasons: lack of information to show that these shops were indeed comparable to the subject property and lack of any pattern in the growth of sales between 1999 and 2000.  I was referred by Ms Fowler to the turnover of Optical Express as a group, adjusted for openings and closures and by the exclusion of the subject property.  Turnover increased by 10.4% between 1998 and 1999 but there was nil growth in the year to March 2000.  Although this evidence contradicts the substantial fall in turnover in the year to March 2000 at the subject property, it does not support Ms Fowler’s estimated 5% growth in that year in the absence of the scheme.  Furthermore, I find these figures to be too general to be of assistance.  A similar comment applies to the Mintel figures for the optical retail trade as a whole, which show 1% growth in turnover in both 1999 and 2000.
72.	My conclusion on the evidence is that I am not persuaded that the decline in turnover at the subject property between April and December 1999 was caused by the scheme.  No compensation is payable for this decline in turnover and the consequent decline in branch contribution.  I find that part of the loss of turnover between January and March 2000 was caused by the scheme and is therefore compensatable as loss of branch contribution.  My conclusion is the same as that reached by Mr Phillips.
73.	As to the amount of this loss he calculated the projected turnover (in the absence of the scheme) by using figures of actual moving annual turnover compared to projected moving annual turnover.  For the first nine months of the financial year to March 2000 the monthly figures (actual and projected) are the same.  From January to March 2000 they differ, representing the effect of the scheme, so that the projected figures are higher than the actual figures, resulting in a projected turnover of £410,000 compared to actual turnover of £379,647.  I accept Mr Phillips’s calculation of turnover of £410,000 and agree with his comment that “this may be higher than would have been achieved by the Birmingham store but for possession.”  I carried out a less sophisticated calculation as a check, by reference to the average decline in turnover before January 2000 (monthly and for the nine months) and arrived at estimated turnover figures in the region of £396,000 and £394,000 in the absence of the scheme and the accelerated decline in turnover between January and March 2000, lower than Mr Phillips’s figure, which I think is generous to the claimants.  
74.	Accordingly, I find that the turnover of the subject property excluding the effect of the scheme would have been £410,000 for the year to 31 March 2000.  Applying the agreed 79% of turnover produces a gross profit of £323,900 and the deduction of staff costs of 39.2% of turnover (agreed) produces an estimated branch contribution of £163,180 (before deduction of property overheads and other charges).  The deduction of the actual branch contribution of £146,644 (on the same basis) gives a pre-possession loss of £16,600 (rounded).  This calculation is set out in Appendix 3 to this decision.
POST-POSSESSION LOSS
75.	The claimants seek compensation for loss of future profits from the date of possession of £1,650,985, comprising loss from possession in April 2000 to September 2003 (£507,209) and future loss at that date (£1,193,776) with the deduction of £50,000 for assets and the lease.  Ms Fowler had prepared a calculation of post-possession loss as at 7 April 2000 of £1,018,000 in her first report, which became her alternative calculation.  The Council’s figure is £372,300, representing future loss calculated as at the date of possession.  
Evidence
76.	Mr Moulsdale said that on closure of the subject property the remaining staff were offered alternative employment and records were transferred to Wolverhampton.  This was too far for existing customers who were lost to local competitors.  In the absence of dispossession Optical Express would have continued to trade and turnover would have increased in line with that of the claimants’ comparable stores at Romford, Stockport and York.  Ms Fowler’s use of a multiple to calculate future loss within the range of 11.2 and 12.6 understates the likely loss.  
77.	The first expert report of Ms Fowler was prepared in June 2003.  It dealt with loss of goodwill for the extinguishment of the claimants’ business on 7 April 2000.  Ms Fowler said that she was subsequently advised that the loss should not be assessed as at this date but should use the most recent information that is available.  She therefore recalculated the future loss in further reports which supersede her first report.  This remains in her evidence as an alternative calculation if I find that her later approach is wrong.  
78.	In her first report Ms Fowler valued the claimants’ post-possession loss or loss of goodwill on an open market value basis at between £956,000 and £1,080,000, with a mid-point of £1,018,000.  She said that the value to Optical Express was not substantially greater than market value.  Ms Fowler calculated the loss of goodwill by applying a multiplier to the adjusted contribution for the subject property for the year ended 31 March 2000.  The actual contribution for the last year of trading was affected by the closure of nearby shops and she therefore substituted for the actual turnover a figure 5% higher than the 1999 turnover (£509,000) to produce a revised turnover of £535,000.  The calculation of gross profit at 79% and the deduction of staff costs (£210,000), property overheads (£75,000) and other charges (£11,000) produced a revised contribution of £127,000.  
79.	The market valuation of a business has regard to the consistency and quality of earning and the value of assets found by comparison with companies for which the market price is known or where there have been sales of similar businesses.  There is limited information regarding private companies; more information is available for quoted companies.  The most appropriate method of valuation is an earnings based valuation which takes into account future potential.  The principle methods are discounted cash flow (DCF) and capitalised earnings.  The multiplier in the latter has regard to listed companies and business sales.  
80.	Ms Fowler said that she has been unable to identify any comparable UK quoted companies with the characteristics of the claimants, but has had regard to the price/earnings (P/E) ratios of the largest quoted opticians: De Rigo (Dolland Aitchison) 33.9, Grandvision (Vision Express) 20.3 and Boots 12.8.  Grandvision, a listed company, was acquired by a private investor in September 2003 at a P/E ratio of 20.5.  Information included in the acquisition documents referred to P/E ratios for comparable companies of between 9.2 and 10.2 and for comparable transactions of 14.3.  The Financial Times Actual Share Index for general retailers in April 2000 was 16.2.  There were two business sales, in December 1998 and February 2000, with multiples of 11 and 9 applied to earnings before interest and tax.  
81.	Ms Fowler used as her starting point the P/E multiple for general retail of 16.2, a weighted average.  Optical Express is a buyer and seller of goods manufactured by third parties with an “add on” service to customers.  These activities therefore are similar to those of a general retailer.  Adjustments should be made for the unlisted status of Optical Express, its smaller size and for lower diversity.  A discount of between 35% and 40% would be appropriate.  Adjustment must also be made for premium value, that is to say the additional amount a purchaser would pay for the entire business carried on at 14 Martineau Way.  Factors influencing the premium include: the synergistic benefits of the purchaser, his market strategy, intangible assets, control and location.  The important factor is control.  In the February 2000 issue of Acquisitions Monthly the average bid premia for 1999 were 43% and 50%.  A premium for control of between 15% and 20% should be used in this case.  
82.	Applying discounts of 35% and 40% and adding on a premium of between 15% and 20% to the P/E multiple for the general retail sector of 16.2 gives an adjusted multiple of between 11.2 and 12.6.  Applied to the revised contribution of £127,000 (less tax) produces a value for the business of between £996,000 and £1,120,000.  Deduction of the maximum value attributable to the assets of £40,000 produces a goodwill value in April 2000 of between £956,000 and £1,080,000.  Ms Fowler’s alternative assessment is set out in Appendix 1 to this decision.  This methodology is analogous to that used by the Lands Tribunal, namely the capitalisation of historic profits (adjusted for rent, interest on capital, etc) by using a figure of years purchase.  In the claimants’ case a deduction for rent was made when calculating profit and no deduction is required for interest.  In past Lands Tribunal cases the multiplier is usually less than 5 but this would not produce a commercial valuation of the business.  
83.	Following instructions to recalculate the loss of goodwill using the most recent information available, Ms Fowler calculated this loss in two parts in a report dated September 2003: loss from April 2000 to 2 September 2003 (£507,209) (referred to as past loss) and loss from that date (£1,193,776) (referred to as future loss) with the deduction of £50,000 for assets and the leasehold interest, to give a loss from the date of possession of £1,650,985.  This is referred to as her revised method and became her primary calculation of post-possession loss.  This recalculation of loss is more accurate because it takes into account the position after the date of possession, namely turnover figures for other Optical Express stores and Mintel figures. 
84.	For the loss from possession until 2 September 2003, assuming that the claimants would have continued to trade from the subject property, Ms Fowler took as her starting point her estimated turnover to March 2000 (excluding the effect of the scheme) of £534,900 and increased it by 5% for 2001 and by 7.4% for 2002 with a reduction of 6.9% for 2003, consistent with the performance of the Romford store, and then took a pro-rata figure for the five months trading from 31 March to 2 September 2003.  Ms Fowler referred to turnover figures for comparable stores, for Optical Express as a group and by reference to Mintel figures to support her projections of turnover growth.  The comparable Optical Express stores showed turnover growth of 3.9%, 3.1% and 3.2% in 2000 to 2002 with a reduction of 1.6% in 2003.  The Optical Express Group showed figures of plus 10.4% in 1999, nil growth in 2000, plus 3.3% in 2001, plus 3.1% in 2002, with a reduction of 4% in 2003.  Mintel figures show plus 3.9% in 1999 plus 0.3% in 2000, plus 2.5% in 2001, plus 5.1% in 2002 and plus 2.6% in 2003.  Applying agreed gross profit margins (79.7% to 81.8%) and deducting agreed staff costs of 39.4% and agreed property overheads and other charges, produced contributions to 31 March in each year of £138,492 (2001), £161,337 (2002) and £146,386 (2003) and for the five months from March to September 2003, £60,994, giving a total loss of contribution from April 2000 to September 2003 of £507,209.  Ms Fowler’s calculations are set out in Appendix 1 to this decision.  The Optical Express stores chosen for comparison purposes are Romford, Stockport, Sutton, High Wycombe and Harrow.  Ms Fowler checked her total figure by reference to Mintel which shows a loss of £528,000, and by reference to the simple average of the comparable stores which shows a loss of £507,000.  
85.	For loss from 2 September 2003 (referred to by the claimants as future loss) Ms Fowler took the estimated contribution for the year to 31 March 2003 (£146,386) deducted tax at 30% and applied multiples of between 10.9 and 12.4 to produce a capitalised future loss of between £1,116,923 and £1,270,628, the mid-point and claim figure being £1,193,776.  Ms Fowler’s calculations are set out in Appendix 1 to this decision.  Ms Fowler said in cross examination that this calculation represents the price obtainable for the goodwill of the business at the subject property as at 31 March 2003 on an open market sale.  A check calculation on a DCF basis produces a business value of £1,109,500.  
86.	Ms Fowler has not discounted the loss back to April 2000 because her assessment has been made as at 2 September 2003.  Her approach does not require post-vesting date losses to be discounted back to the possession date nor does interest fall to be calculated on the future loss.  Interest is only assessed on past losses.  Calculation of the present value of loss arising in the period from vesting to payment together with interest thereon would result in compensation which is less than the claimants’ actual loss.  If post-possession losses are discounted to the possession date each element of claim should be treated separately: future loss should be discounted only for the time value of money and should be the same as the interest rate; loss between possession and 2 September 2003 (as proxy for the hearing date) does not require a discount for risk because uncertainty has been removed by valuing at the later date: adjustments should be made to the multiplicand and discounted only for the time value of money; past loss does not require a discount.  If an equity discount rate is applied (ie a rate higher than the time value of money) it should be no higher than the cost of debt for Optical Express, a current rate of 6.25%.  
87.	Mr Chase said that claims for extinguishment of goodwill on compulsory purchase are usually settled by applying a multiplier of between 1.5 and 4 to the average adjusted net profits.  Although claims for disturbance are based on the circumstances of each case, some guidance can be obtained from other settlements.  He gave details of settlements relating to premises in Solihull, Corporation Street and Bull Street, all except the Solihull property within the same scheme.  These settlements showed that loss of goodwill claims were agreed at multipliers of between 2.5 and 4.8 applied to the average net profit.  He considered that compensation for loss of goodwill at the subject property should be based on 2.5 YP applied to the last three years net profit.  Mr Chase said that Mr Phillips’s goodwill calculation can be analysed in several ways to produce multipliers within the range of the above settlements.
88.	Mr Phillips has adopted an earnings multiple approach to the valuation of goodwill.  This involves the application of a multiple based on market data to the maintainable earnings before tax, interest, depreciation and amortisation (EBITDA) at the vesting date, with the deduction of £50,000 for the value of assets and the lease.  His figure is £372,300 being the mid-point in his range of goodwill, £333,200 to £411,400.  As a cross-check he made calculations on three other bases: the turnover multiple basis, by making adjustments to Ms Fowler’s figures and by reference to recent compulsory purchase settlements.  Mr Phillips said that the claim for post-possession loss is between 934% and 1,022% of the profits before tax for the year to March 2000 for Optical Express, an indication that this loss has been overstated.  
89.	Mr Phillips calculated the market value of the business at the subject property at the vesting date and deducted the value of assets and the lease to arrive at the loss of goodwill.  The loss to Optical Express did not exceed market value.  Market value to an investor is the present value of expected future cash flow and can be found by three methods: by reference to net assets, by DCF and by a multiple of earnings.  
90.	The earnings multiple method involves the application of a multiple to estimated “maintainable earnings”.  The multiple is derived from share statistics in quoted comparable companies and from an analysis of transactions.  Adjustments must be made for differences between investment in the subject property and investment in another company.  Maintainable earnings are the sustainable earnings which the company would achieve in the future in the normal course of business, assessed by reference to forecasts and historical results and adjusted for abnormal items.  This is the principal method of valuation for the subject property.  
91.	The multiple should be an EBITDA multiple to allow for improved comparability as compared with earnings before interest and tax (EBIT) and simple post-tax earnings (PAT) which may be affected by factors unrelated to the value of the company.  Interest and refurbishment costs may be accounted for centrally by the claimants, making it difficult to estimate those costs.  
92.	As to maintainable earnings, Mr Phillips said that there was a trend of falling turnover (unrelated to the scheme) and it may have fallen further.  He adopted a projected turnover of £410,000.  Using the agreed gross profit margin of 79%, agreed staff costs of 39.2% of turnover, property overheads of £75,000 (agreed) and other charges of £10,000 (agreed), less depreciation, gives a maintainable EBITDA to 31 March 2000 of £78,200.  Mr Phillips’s calculations are set out in Appendix 2 to this decision. 
93.	As to the earnings multiple, Mr Phillips looked first for comparable quoted companies.  None could be found in the United Kingdom.  General retail was the nearest group but, with the possible exception of Boots, none were closely comparable to Optical Express.  Mr Phillips then widened his search to Western Europe.  Five companies were found, four with  EBITDA multiples based on information at the vesting date: Essilor International SA (9.9), Fielmann AG (7.1), Grandvision SA (10.6) and Indo International SA (12.1).  The average is 9.9 which Mr Phillips adopted as his base multiple.  
94.	Two adjustments to the base multiple may be made.  The first is for the bid premium (if any), ie the premium payable to obtain control of the business.  Mr Phillips concluded that a potential purchaser would have been unlikely to pay a bid premium for control of the business at the subject property.  The second adjustment is a discount to reflect the unlisted status of Optical Express and the consequent lack of marketability of shares.  Mr Phillips considered a discount of 40% to 50% for this factor.  Applying this discount range to the base multiple gives an adjusted figure of between 4.9 and 5.9.  Applying these multiples to the maintainable EBITDA of £78,200 and then deducting the agreed value of assets and the lease gives a loss of goodwill within the range £333,200 to £411,400, with a mid-point of £372,300. 
95.	Mr Phillips referred to three market transactions to support his base multiple: the acquisition of Iles Optical Limited by ADCO Group Limited (4.7), the acquisition of General Optica Internacional SA by De Rigo (13.3) and a management buyout of Salmoiraghi and Vigano (8.1).  These multiples incorporate a bid premium.  They show that his base EBITDA multiple of 9.9 is at the upper end of the range.  
96.	Mr Phillips considered the compensation settlements referred to by Mr Chase and concluded that their implied multiples support a goodwill figure for the subject property between £192,400 and £325,400.  Mr Phillips considered as another check assessment by reference to a sales multiples.  It is not unusual for retailers to be valued by reference to their turnover.  For his comparable companies Mr Phillips calculated sales multiples of 1.82 for Essilor, 0.54 for Fieldman, 1.33 for Grandvision, 0.65 for Indo Internacional and 0.99 for Marcolin.  The average is 1.07 which represents the base sales multiple.  Applying the above discount range gives an adjusted multiple of between 0.54 and 0.64 and goodwill valuations (excluding assets and lease) within the range of £171,400 to £212,400, lower than valuations using the EBITDA approach.  
Submissions
97.	Mr George said that the basis of valuation for business loss is value to the owner: the loss of the ability to derive a future profit from the premises acquired (Afzal v Rochdale Metropolitan Borough Council [1980] RVR 165 at 168).  Value to the owner may be higher than the market value of goodwill.  The governing principle is equivalence, the claimant is to be put in the same position as if he had not been dispossessed (Horn v Sunderland Corporation [1941] 2 KB 26 at 42; Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Co [1903] AC 426 at 432).  The measure of the claimants’ loss is a matter of evidence (Reed Employment Limited v London Transport Executive [1978] RVR 53 at 64).  
98.	In the absence of compulsory acquisition the claimants would have continued to trade at the subject property.  The lease had nearly 13 years unexpired and would have been renewed.  The position was equivalent to a freehold.  
99.	The loss calculated by Mr Phillips does not represent loss to the claimants but the price which a purchaser would have paid for the business on the valuation date.  On Bwllfa principles, the assessment of business loss is to be made at the date of the hearing.  Where a number of years have elapsed since dispossession, it is wrong in principle to apply a multiplier to a particular multiplicand: to do so may under-value the claimants’ loss.  It is correct to follow the approach used in contract and tort, namely to distinguish between loss that has occurred by the date of trial (past loss) and future loss, the former being more readily calculated than the latter (W Rought Limited v West Suffolk County Council [1955] 2 QB 338 at 348).  This is the practice in personal injury cases.  In Ms Fowler’s primary assessment of loss September 2003 stands as proxy for the trial date.  The proposition is that, standing at that date, the loss which the claimants have suffered since dispossession comprises loss of contribution from April 2000 to September 2003 (past loss) and the value the business would have had in September 2003 (as proxy for loss after that date, or future loss).  The claimants’ approach to past loss is well-precedented (see Festiniog Railway Co v Central Electricity Generating Board [1971] RVR 582 at 586-7 and Reed Employment at 53, 57 and 62-3).  It is common ground that evidence of trading at other Optical Express stores is admissible and relevant (Bwllfa at 431 and Reed at 60).  For future loss both parties use the earnings multiple approach.
100.	It is common ground that the value of the land taken and disturbance make up the value of the land to the claimant and form the subject-matter of compensation.  It is agreed that it would not be right to value one element at one date and consequential losses at a different date (Shun Fung at 125H and Birmingham Corporation v West Midland Baptist (Trust)Association (Inc) [1970] AC 874 at 897).  These principles do not rule out a valid method of assessing loss at dispossession nor do they override the principle of equivalence, which was central to the decision in West Midland Baptist Trust.
101.	When this principle is applied to business loss, that loss is inflicted by the dispossession and it would not be sensible to assess it as though the dispossession occurred at a date other than the actual date of dispossession.  But this does not mean that events occurring after dispossession are to be ignored.  In West Midland Baptist Trust Lord Reid expressly referred to loss following from the dispossession and losses as they occurred at dispossession or thereafter (at 896, 897 and 899).  Although in this current reference the parties are agreed that business loss was inflicted at dispossession, it is clear from Lord Reid’s observations that losses following dispossession are compensatable.  The correct position is that the loss caused by dispossession is to be assessed by taking the date of dispossession as the date on which that dispossession occurred but the Tribunal is not inhibited in its choice of the best method of valuation.  At dispossession the claimants were deprived of their ability to trade and earn profits, also their ability to sell the business.  If a valuation is made at the date of dispossession, which ignores subsequent events, then an assessment can only be made of the selling price of the business.  The value of a continuing trade is different from the value of goodwill at dispossession. 
102.	Although there is agreement that all information available at the time of assessment should be used, the Council now seek to qualify that proposition.  They say that it should only be applied in rare cases where the later information increases certainty about the subject matter of the claim.  It is not clear whether this is put forward as a proposition of law or of practice.  The exercise in this reference is similar to that carried out in Bwllfa and to the assessment of goodwill in London County Council v Tobin (1959) 10 P & CR 79.  The concept of valuation at a valuation date is not the same as the price which an asset would have fetched in the market at that date.  In Tobin the loss was inflicted on the date of dispossession but subsequent evidence disclosed the goodwill retained at the new premises and assisted in the assessment of loss on dispossession.  Similarly, in this reference, subsequent evidence helps to assess the profits which would have been earned up to September 2003.  There is no justification for restricting post-possession evidence.  The weight to be given to this evidence is not the same as the question whether the Bwllfa principle should be applied.  In Bwllfa it is not correct to say that compensation is to be assessed at the date of the arbitration, not the date of the notice (see West Midland Baptist Trust at 895).  
103.	As to the date when the principle of equivalence should be applied, Mr George referred to Shun Fung (at 125) and said that a claimant should get full and fair compensation for “losses fairly attributable to the taking of his land”, that is to say for loss of the ability to derive a future profit due to dispossession.  Ms Fowler has identified losses between April 2000 and September 2003 and then the loss of an asset at that date.  There is no principle of law requiring losses to be expressed as one composite figure.  Individual figures at different dates are more precise and just.  Mr Phillips assumes the sale of goodwill at the date of dispossession but that is not the correct measure of the claimants’ loss; it is the loss of profits over time which ultimately identifies the measure of loss at dispossession.  Thus, the principle of equivalence requires the valuer to use the best method available to identify the loss at dispossession.  Ms Fowler’s revised method is the best available. 
104.	Mr George said that the decision of the Tribunal will break new ground because the valuation of post-possession loss on either basis will reflect a way of valuing businesses which, although familiar to accountants, has not been the subject of a decision by the Lands Tribunal.  The new basis will increase the level of awards.  Mr George reviewed the evidence regarding P/E and EBITDA multiples and concluded that a P/E multiple is the more reliable starting point.  It must be adjusted to reflect the private company status of Optical Express and for a bid premium.
105.	It has not been suggested that Ms Fowler’s revised method is precluded as a matter of law.  There can be no objection to the separation of post-possession losses in accordance with Bwllfa and Tobin principles.  There is no reason to close one’s eyes to the performance of other Optical Express branches and to the Mintel figures.  Post-possession evidence does not automatically increase the loss but it reduces uncertainty.  It is the duty of the Tribunal to avail itself of all information to hand at the time of the award (see Bwllfa at 431).  Ms Fowler’s revised approach reduces uncertainty and is the only way to distinguish between the 2000 value of the business to a purchaser and the true measure of compensation, value to the owner (see Handley Limited v London Borough of Greenwich (1970) 21 P & CR 644 at 650-1; Reed Employment at 64).  This is a distinction which Mr Phillips does not make.
106.	Mr Roots said that the scheme of compulsory purchase legislation is that the value of the land is assessed at a particular date.  Since 28 October 2004 the valuation date for the purposes of a valuation under rule (2) of section 5 of the Land Compensation Act 1961 is fixed by statute (section 5A of the 1961 Act inserted by section 103 of the Planning and Compulsory Purchase Act 2004).  In West Midland Baptist Trust it was stated that compensation under rules (2) and (6) should be assessed at the same date (at 897): disturbance is an element in the value of the land.  This is reinforced by the payment of interest from the date of possession, with no distinction between land value and disturbance.  The award of interest is not a matter for the Lands Tribunal.  The rate of interest fixed by Parliament must be regarded as adequate recompense for delay in payment.  
107.	The principle of equivalence requires that the claimant shall receive the monetary equivalent of his loss.  In theory all methods of assessing loss on the extinguishment of a business should produced the same result, so long as the loss is defined in the same way.  That loss is the loss of the ability to derive a future profit from the land, assessed at the same date as rule (2) compensation. 
108.	Mr Roots said that Ms Fowler’s revised approach stems from legal advice based on Bwllfa.  The scope of this decision is important.  It was a claim for compensation under the Waterworks Clauses Act 1847, not to be assessed as if there had been a purchase.  Compensation was to be assessed at the date of the arbitration.  The Bwllfa decision is limited.  It has no application to the assessment of market value under rule (2).  It is more difficult to decide the extent of its application to compensation representing value to the owner; this is assessed at the same valuation date.  It is not said that Bwllfa can never apply to disturbance loss but the principle should be applied only in those rare cases where the later information genuinely increases certainty about the subject matter of the claim (Bwllfa at 431).  In this reference none of the later information can be regarded as “an established fact”; it is not therefore appropriate to rely upon it.  
109.	The calculation of future loss by the “traditional” method (the application of a multiple to maintainable earnings) is based upon the actual evidence at the valuation date.  In contrast, Ms Fowler’s revised method relies on later information which does not introduce greater certainty into the quantification of the claimants’ loss.  It is information in an entirely different category from that in Bwllfa.  The nature and quality of information which has become available due to delay has brought no greater certainty and has introduced additional areas of uncertainty, leading to the conclusion that Ms Fowler’s revised approach should not be preferred over Mr Phillips’s earnings multiple method.  
110.	Ms Fowler and Mr Phillips have both used an earnings multiple approach.  It was initially Ms Fowler’s preferred approach, subsequently used in a modified form in her second report.  It has a long pedigree, often used in the Lands Tribunal.  It has the merit of only two steps: the first dependent upon actual information and the second supportable by other evidence.  Ms Fowler said in her first report that her earnings multiple calculation did not require adjustment to produce value to the owner.  Mr Moulsdale did not inform her that it was too low.  If Ms Fowler’s figures were thought to be correct by Optical Express, it is remarkable that their claim was not pursued more vigorously in the early stages where nearly three years passed between dispossession and Ms Fowler’s first report, the first written articulation of the claim.  
111.	It is relevant to have regard to the settlements referred to by Mr Chase as a check on Mr Phillips’s assessment of loss.  
112.	Although the taking into account of later information when assessing future loss is not novel (see Festiniog and Reed) it is unusual.  What appears to be a first in the context of disturbance in this reference is the contention that losses should not be expressed as at the valuation date.  This is incorrect as a matter of law.  The approach is inherently complex and it is difficult to ensure that loss is not over-estimated.  Ms Fowler’s revised claim is an increase on her original figures.  In effect, three additional years have been introduced and the future loss assessed by a method which arrives at the market value of the business three years after the valuation date.  A claim may change, up or down, according to the interval between dispossession and the hearing.  It appears to be said that Ms Fowler’s revised approach better assesses value to the owner but there is no indication that Mr Moulsdale thought Ms Fowler’s original figures too low.  In Shun Fung Lord Nicholls commented upon discounted cash flow methodology and his view that a “modest” allowance might be made for this factor.  It cannot be said that Ms Fowler’s increase from her first assessment is “modest”.
Decision
113.	I look first at the relevant law.  I do not believe it to be in dispute but it requires restatement as the framework for the calculation of loss following dispossession.
114.	The law of compensation rests on the fundamental principle of equivalence.  In Shun Fung Lord Nicholls referred to the provisions governing the assessment of compensation and said (at 125C):-
“The purpose of these provisions, ….., is to provide fair compensation for a claimant whose land has been compulsorily taken from him.  This is sometimes described as the principle of equivalence.  …. a claimant is entitled to be compensated fairly and fully for his loss.  Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation: a person is entitled to compensation for losses fairly attributable to the taking of his land, but not to any greater amount.  It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.”
There is a similar underlying principle in the law of damages, restitutio in integrum (Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39; McGregor on Damages (17th edition) paras 1-021 – 1-023).  I mention this similarity having regard to the submissions of Mr George (which I deal with below) that the assessment of business loss should follow the assessment of damages in contract and tort, particularly for personal injury.  In both compensation and damages the sums awarded should, so far as it is possible with a monetary award, place the claimant in the same position as he would have been in if the acquisition or wrong had not occurred.  For reasons of expediency and public policy, however, limits are placed on the extent of the compensatable loss.  In disturbance these limits are to be found in the three conditions – causation, remoteness and mitigation – referred to by Lord Nicholls in Shun Fung (at 137H) and set out in para 64 of this decision.
115.	I asked counsel for their submissions as to the date at which the principle of equivalence should be applied.  Mr George said that equivalence requires the valuer to use the best method available to identify the claimants’ loss on the date of dispossession.  The revised method adopted by Ms Fowler, although involving calculation of loss at different dates, ultimately identifies the measure of loss at dispossession and is, in principle, the best method available.  Mr Roots said that the claimants’ loss should be assessed at the same date as rule (2) compensation, 7 April 2000.  Both counsel have identified the time of dispossession (7 April 2000) as the date on which the principle of equivalence should be applied.  I agree.  The claimants are to be fully and fairly compensated for their loss at that date.  This may involve a calculation of future loss (loss of the ability to derive a future profit from the subject property) but the measure of loss is that sustained on 7 April 2000.  I return to this point when I consider the assessment of loss and the need to relate (or discount) it back to the date of dispossession.  
116.	There are two heads of compensation: the market value of the claimants’ leasehold interest, assessed under rule (2) of section 5 of the Land Compensation Act 1961, and disturbance under rule (6).  Under section 10(1) of the Compulsory Purchase (Vesting Declarations) Act 1981 the acquiring authority are liable “to pay the like compensation” as they would have been required to pay if they had taken possession of the land under section 11(1) of the Compulsory Purchase Act 1965.  The two heads of compensation together make up the value of the land to the owner.  In Shun Fung Lord Nicholls said (at 125E):-
“Land may, of course, have a special value to a claimant over and above the price it would fetch if sold in the open market.  Fair compensation requires that he should be paid for the value of the land to him, not its value generally or its value to the acquiring authority.  As already noted, this is well established.  If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance.  Compensation should cover this disturbance loss as well as the market value of the land itself.  The authority which takes the land on … compulsory acquisition does not acquire the business, but the … acquisition prevents the claimant from continuing his business on the land.  So the claimant loses  the land and, with it, the special value it had for him as the site of his business.  …..  If, exceptionally, the business cannot be moved elsewhere, so it simply has to close down, prima facie his loss will be measured by the value of the business as a going concern.  In practice it is customary and convenient to assess the value of the land and the disturbance loss separately, but strictly in law these are no more than two inseparable elements of a single whole in that together they make up the value of the land to the owner: see Hughes v Doncaster Metropolitan Borough Council [1991] 1 AC 382, 392, per Lord Bridge of Harwich.”
117.	It is agreed that Optical Express are to receive compensation on the basis of total extinguishment; that this compensation, in so far as it relates to disturbance, is to be assessed on the basis of value to the claimants; and, in respect of post-possession loss, is to represent “the ability to derive a future profit out of the premises from which [they] have been dispossessed” (Afzal at 168).  There is much common ground between the accounting experts as to the relationship between their figures of capitalised future loss and value to the claimants.  Ms Fowler said in her first report that the value to Optical Express was not substantially greater than her calculation of loss of goodwill and in cross examination she said that the capitalised future loss as at September 2003 in her second report also represented the open market value of the business.  Mr Phillips said that the value to the claimants of future loss did not exceed the open market value of the business at April 2000.  Thus, the distinction between the value to Optical Express and the market value of future profits is to be found solely in Ms Fowler’s assessment of lost profits between April 2000 and September 2003.  
118.	The date of valuation does not appear to have been agreed, it is not referred to in the statement of agreed facts.  This may be an oversight or it may be a deliberate omission having regard to the way in which the claimants presented their revised claim for future loss.  It is agreed that the subject property vested in the Council on 7 April 2000 and that possession was taken on that date.  As to the date of valuation, the effect of section 5A of the 1961 Act, inserted recently by section 103 of the Planning and Compulsory Purchase Act 2004, is to fix the relevant valuation date for rule (2) as the vesting date, i.e. 7 April 2000 (section 5A(1) and (4)(a)).  Section 5A is, however, silent as to the date for the assessment of disturbance.  In my judgment it should be assessed at the same date as the rule (2) value.  Where the whole of a landholding is taken there is only one subject for compensation, the value of the land to the owner (see section 7 of the Compulsory Purchase Act 1965 and Shun Fung at 125E cited above).  Value to the owner includes disturbance.  In West Midland Baptist Trust Lord Reid said (at 897A):-
“… it has been said again and again from an early date that there is only one subject for compensation – the value of the land to the owner.  And it could not be right to value one element of the value to the owner, the market value of the land, as at one date, and to value the other elements, consequential losses, as at a different date.”
119.	I find that the valuation date for the assessment of post-possession loss is 7 April 2000.  Mr Roots puts that date forward and I believe that Mr George agrees, although he has linked it to the issue concerning post-possession losses and whether there is a need to relate (or discount) them back to the date of possession.  Mr George says that it is correct to assess the loss caused by dispossession by taking the actual date of possession as the date on which it occurred, but that the West Midland Baptist Trust decision does not inhibit the way in which the extent of that loss is calculated (see 896H and 899B).  I deal with this issue later.  
120.	It is not in dispute that facts occurring after the valuation date are in general admissible.  This is often referred to as the Bwllfa principle.  In the case which gives its name to this principle, owners of coal near a waterworks gave notice under the Waterworks Clauses Act 1847 that they intended to work the coal.  The undertakers served a counter-notice requiring the owners not to work the coal, stating their willingness to pay compensation under the Act.  In an arbitration to assess that compensation evidence was given that the price of coal rose after the date of the counter-notice.  The House of Lords held that this evidence was admissible.  The arbitration was not concerned with the value of the coal at the date of the counter-notice (as on a purchase) but with what the coal owners would have made out of it if not prohibited from working the coal.  In London County Council v Tobin the Lands Tribunal assessed loss of goodwill in consequence of relocation following compulsory purchase by comparing the capital value of the business at the old premises with the value at the new premises.  This approach was upheld by the Court of Appeal.  It was the duty of the Tribunal to establish the value of the business in the new premises at the time immediately after the move.  The hearing took place two years after the move and the Tribunal were bound (under Bwllfa) to have regard to what had actually happened during the interval.  
121.	It is common practice for this Tribunal to take into account post-valuation date facts (see eg Festiniog Railway Company and Reed Employment).  Mr Roots, however, submitted that, although it is not argued that Bwllfa can never apply to the assessment of disturbance, the principle should only be applied in rare cases where the later information genuinely increases certainty about the subject matter of the claim (see Lord Macnaghten’s reference to matters which have become “an established fact” at 431).  In this current reference it is not appropriate to rely on later information.  I am not sure whether Mr Roots is putting forward a proposition of law or referring to the weight of evidence.  If the former it is not necessary for me to decide this interesting point.  Later in this decision I find that the post-possession date evidence put forward by Mr Moulsdale and Ms Fowler is of so little assistance that I give it no weight.  It will be seen to be one of the reasons for rejecting Ms Fowler’s revised calculation of post-possession loss.  
122.	Finally, under law and principles, I refer to statutory interest.  In this reference the effect of section 10(1) of the Compulsory Purchase (Vesting Declarations) Act 1981 and section 11(1) of the Compulsory Purchase Act 1965 is that the Council are required to pay interest on the compensation awarded from the date of possession (7 April 2000) to the date of payment at rates prescribed by regulations made under section 32 of the 1961 Act.  The purpose of statutory interest is to reimburse a claimant for the later payment of compensation for loss suffered at an earlier date.  In my judgment the provisions regarding interest should be taken into account when applying the underlying principle of equivalence.  I agree with Mr Roots that this Tribunal has no jurisdiction in respect of statutory interest.  These provisions form part of the framework for the calculation of compensation but cannot be varied by the Tribunal.  It is important to bear in mind this lack of jurisdiction because the claimants in their Reamended Claim and in the evidence of Ms Fowler seek to explain their failure to discount the claim for post-possession loss back to the date of dispossession by claiming interest only from dates after April 2000, and in particular in respect of future loss, from 2 September 2003.  The Law Commission have recommended that the Tribunal should have a discretion to award interest on different items of disturbance loss from dates other than possession having regard to the time when the loss occurred (Towards a Compulsory Purchase Code: (1) Compensation.  Final Report, para 10.28 rule 21(2)).  At the present time, however, the Tribunal has no such jurisdiction.  The Tribunal’s lack of jurisdiction as to statutory interest does not, of course, extend to the determination of interest as part of the calculation of compensation, eg for the discounting of losses to the dispossession date or in a DCF calculation.  
123.	In summary and in the light of the above framework of law, I am required to determine the financial loss suffered by the claimants at the date of possession (7 April 2000), representing loss of their ability to derive a future profit out of 14 Martineau Way.  This monetary compensation must represent the loss to the claimants, a sum, to reimburse them fully and fairly for their loss, no more and no less.  The underlying principle of equivalence is applied at the date of possession: what have the claimants lost at that date?  In calculating future loss facts and events occurring after the date of dispossession may generally be taken into account and it is a question of the weight (if any) to be given to them as indicators of loss at dispossession.  Part of the legal framework is the provision of statutory interest on the compensation awarded.  This is outside the jurisdiction of the Lands Tribunal.  Interest is payable at the prescribed rates from the date of possession to the date of payment.  The purpose of this statutory interest is to reimburse a claimant for the later payment of compensation for loss suffered at an earlier valuation date.  Statutory interest should be taken into account when applying the principle of equivalence.
124.	I turn now to matters of fact and the assessment of future loss.  The accounting experts have agreed that the most appropriate method for assessing loss after dispossession is the earnings multiple approach.  Estimated future results are to be evaluated on the basis that the development for which the CPO was required had not taken place (i.e. disregarding the scheme).  Assessments of loss using alternative methods of calculation can be considered as a cross-check to the earnings multiple approach.  
125.	Ms Fowler has two assessments of post-possession loss.  Her primary calculation is in her second report and has been referred to as her revised approach.  It comprises loss of estimated annual branch contribution for the years to 31 March 2001, 2002 and 2003 and for March to September 2003, totalling £507,209, plus the value of future loss from September 2003, calculated by capitalising the estimated post-tax contribution for the year to 31 March 2003 by multiples of 10.9 or 12.4, to produce a mid-point figure of £1,193,776.  The total claim is £1,650,985 (including the deduction of £50,000 for assets and the leasehold interest).  The important points to note in Ms Fowler’s revised approach are the calculation of loss as at September 2003, as proxy for the later hearing date (where loss before that date is termed “past loss”) and the lack of any discount to relate the figures back to the dispossession date of 7 April 2000.  Ms Fowler’s initial assessment of future loss (in her first report), subsequently relegated to a fall-back figure, comprises capitalisation of the estimated post-tax contribution for the year to 31 March 2000 by multiples of 11.2 or 12.6 to produce a mid-point figure of £1,018,000 (with the deduction of £40,000 for assets).  Ms Fowler’s calculations are set out in Appendix 1 to this decision.  
126.	Mr Phillips’s assessment of post-possession loss comprises the capitalisation of the estimated maintainable branch contribution for the year to 31 March 2000 without the deduction of interest, tax, depreciation and amortisation (EBITDA) by a multiple of 4.9 or 5.9 to produce a mid-point figure of £372,300, after the deduction of £50,000 for assets and the lease.  The calculations of Mr Phillips are set out in Appendix 2 to this decision.  Alternative assessments including a DCF basis and by reference to what was referred to as the traditional Lands Tribunal approach (including settlements) were referred to by both witnesses as cross-checks.  
127.	Having regard to the framework of law and the evidence outlined above, the question I must answer is which of these three methods of calculating post-possession loss satisfies the law and has the greatest support from the evidence?  At the outset I reject Ms Fowler’s revised method which, in my judgment, has three flaws.  First, it requires assumptions to be made as to turnover and branch contributions after dispossession but the evidence is  not adequate to allow these assumptions to be made with any accuracy.  Second, Ms Fowler’s revised method, with its absence of a discount to relate the figures to the date of dispossession, assesses the claimants’ loss as at September 2003 (as proxy for the hearing date) and not as at dispossession.  In my view, this is wrong in law and breaches the principle of equivalence.  Third, Ms Fowler’s revised approach, compared to her initial method and the calculations of Mr Phillips, requires the making of more assumptions and the exercise of greater judgment and therefore gives more opportunity for misjudgment and error.  
128.	I now consider these flaws in more detail.  I start with the adequacy of evidence to support assumptions of post-possession growth in turnover and contribution.  This involves consideration of post-possession date evidence.  
129.	Ms Fowler’s revised assessment of post-possession loss relies greatly on projections of turnover and contribution after April 2000, which she says are supported by post-possession date evidence, admissible under the Bwllfa principle.  I look now at the adequacy and weight to be given to this evidence.  It relates to trading figures for other branches of Optical Express, trading results for the Optical Express Group and Mintel figures.
130.	I look first at trading at other Optical Express Stores which are said to be comparable to the subject property.  Mr Moulsdale identified Stockport, York and Romford as comparable branches because they were similar in size, location and competition and were situated in similar 1960s or 1970s pedestrian parades.  York was subsequently removed from the list on the grounds that trading was affected in the year to March 2000 by local management decisions.  Ms Fowler subsequently added Sutton, High Wycombe and Harrow but I have no evidence to show that these stores were in fact comparable to 14 Martineau Way.  In my view, comparability ought to be demonstrated by showing at least similar turnover patterns in the comparable stores and the subject property during the period when they were all trading.  The turnover growth rates for the comparable stores were as follows:-
	Year to 31 March	
	2001	2002	2003	
	Store	%	%	%	
Stockport	-3.9	2.4	-3.9	
Sutton	-2.9	2.5	6.5	
Romford	0.8	7.4	-6.6	
High Wycombe	10.4	5.8	-0.1	
Harrow	20.6	-1.7	2.0	
Aggregate growth (all 5 stores)	3.1	3.2	-1.6	

131.	I do not find these figures helpful.  Apart from the fact that there is no evidence to show that the other Optical Express stores were comparable to the subject property, for all years they indicate a wide range of turnover growth rates: for 2001 between minus 2.9% and plus 20.6%, for 2002 from minus 1.7% to plus 7.4% and 2003 from minus 3.9% to plus 6.5%.  It is impossible to find any pattern in these figures.  I cannot find any direct support for Ms Fowler’s growth rates of plus 5% for 2001, plus 7.4% for 2002 and minus 6.9% for 2003 for the subject property, other than the Romford figures for 2002 and 2003.  I was not told Ms Fowler’s reasons for treating Romford as particularly comparable to 14 Martineau Way, and I was told by Mr Moulsdale that this store was affected by criminal activity in the year to March 2003.  
132.	I look now at growth of turnover for the Optical Express Group.  Ms Fowler and Mr Phillips prepared figures on slightly different bases.  Ms Fowler calculated the average turnover per store taking into account store openings and closures and removing the subject property.  Mr Phillips used the turnover of Optical Express as a whole.  Ms Fowler criticised this approach on the grounds that the effect of store openings and closures had not been taken into account other than the Co-op acquisition in the year to March 2002.  Their respective figures are as follows:- 
	Year to 31 March	
	1999	2000	2001	2002	2003	
	%	%	%	%	%	
Ms Fowler	10.4	Nil	3.3	3.1	-4.0	
Mr Phillips	7.0	-5.0	-0.7	3.0	4.7	

133.	I prefer Ms Fowler’s approach to the Optical Express Group figures but I do not find them helpful in estimating future turnover at the subject property.  There is no evidence that the turnover growth for an average Optical Express store was similar to that at the subject property and there is some evidence to the contrary.  For the year ended March 1999 the respective figures are 1.4% (average store) and 4.7% (subject property) and for 2000 nil (average store) and minus 19.5% (subject property, adjusted upwards for the effect of the scheme).  Furthermore, these average figures do not support Ms Fowler’s estimate of turnover growth at the subject property as the following figures show: for 2000 average growth nil, Ms Fowler 5%; for 2001 average growth 3.3%, Ms Fowler 5%; for 2002 average growth 3.1%, Ms Fowler 7.4%; and 2003 average growth minus 4%, Ms Fowler minus 6.9%.  
134.	Finally, I look at Mintel figures.  These are more general than those for the Optical Express Group, relating to the whole of the optical goods and eyecare products market.  The Mintel growth figures in the reports of Ms Fowler and Mr Phillips are: 3.9% (1999), 0.3% (2000), 2.5% (2001), 5.1% (2002) and 2.6% (2003).  In my view, these figures can be no more than background information: they are too general to be used to forecast the growth of turnover at 14 Martineau Way in the absence of the compulsory acquisition.  
135.	I have considered individually the three categories of post-possession date evidence relating to turnover growth.  It may be helpful to consider them together to see whether any pattern emerges and to compare them with Ms Fowler’s estimates:-
	2001	2002	2003	
	%	%	%	
Optical Express comparable stores:-				
	individual stores	-2.9  to	-1.7  to	-6.6  to	
	20.6	7.4	6.5	
	aggregate	3.1	3.2	-1.6	
Optical Express Group:-				
	average per store	3.3	3.1	-4.0	
	all stores	-0.7	3.0	4.7	
Mintel	2.5	5.1	2.6	
				
Ms Fowler’s estimates	5.0	7.4	-6.9	

136.	I draw three conclusions from this evidence.  First, as a category it is too general for the accurate forecasting of turnover growth for one unit.  The best information ought to be that relating to comparable stores but I have no evidence to support the claimants’ case that those selected were truly comparable to the subject property.  Even if they were comparable their figures vary greatly from branch to branch.  For example, the turnover rates for Stockport and High Wycombe vary: 2001, minus 3.9% and 10.4%; 2002, 2.4% and 5.8%; 2003, minus 3.9% and minus 0.1%.  Ms Fowler has based her forecasts mainly on Romford but I do not know why this branch is said to be more comparable than the others (presumably because it is roughly in the middle of the range); it seems strange to choose this branch when I was told that the 2003 figure was low due to criminal activity at the store, and yet despite this evidence Ms Fowler has chosen a greater reduction in turnover for the subject property (minus 6.9%) than at Romford (minus 6.6%) where this latter figure would presumably have shown a smaller decline or even growth if trading had been normal.  In short, to establish turnover at the subject property by a sideways projection from other branches with widely varying turnover growth rates and from general Group and even wider Mintel market information is not, in my judgment, a dependable exercise (see the similar observation of this Tribunal in Reed at 62).  
137.	Second, the limited evidence that I have for trading at the subject property in the years before possession, shows that it was not typical of the Optical Express Group.  For the year ended March 1999 the subject property showed a growth in turnover of 4.7% compared to the average Optical Express store (10.4%) and the Group (7.0%).  The figures for 2000 are minus 19.5% for the subject property (adjusted upwards for the effect of the scheme) compared to nil growth for an average Optical Express store and minus 5% for the Group.  These figures and the lack of trading history before the year to March 1998 present added difficulties in projecting future turnover.  
138.	Third, even if the post-possession date evidence should carry some weight it does not support Ms Fowler’s estimates.  In my judgment, her figures for 2001 and 2002 (5.0% and 7.4% growth in turnover) are too high and her fall in turnover for 2003 is too great.  
139.	My overall conclusion on the adequacy of post-possession date evidence is that it is not dependable enough to allow an accurate estimate to be made of post-possession turnover growth on the assumption that trading had continued at the subject property.  The projection of future growth is an essential part of Ms Fowler’s method and the inability to do so accurately due to lack of supporting information should, in my view, have persuaded her to reject this method.  This is my first reason for rejecting Ms Fowler’s revised assessment of post-possession loss.  
140.	My second reason is that this method is essentially an assessment of loss as at September 2003, due to the absence of any discounting back to the date of possession.  It is not an assessment of loss as at 7 April 2000, the correct date of valuation.  
141.	In her first report Ms Fowler gave her opinion of the market value of the claimants’ business as at April 2000 and said that the value to Optical Express was not substantially greater than market value.  In her second report, prepared after the claimants had been given leave to lodge a full particularised claim, Ms Fowler stated that she had “been advised that the loss should not be assessed at the vesting date ..… but should use the most recent information that is available”.  (I believe the claimants were advised by different counsel at that time, not by Mr George).  Thus, Ms Fowler’s revised calculation of loss rests on two principles: first, that it is permissible to make an assessment of loss at a date other than the vesting date (which eventually became 2 September 2003 as proxy for the date of hearing); second, that it is permissible to use the most recent information that is available.  I accept the second principle, this is the Bwllfa principle discussed above.  It allows the admission of post-valuation date facts, the essential question being the weight (if any) to be given to those facts.  However, I do not accept the first principle.  The admission of post-valuation date evidence does not alter the valuation date.  I believe that these two principles operate separately: Bwllfa is solely concerned with the admissibility of evidence and does not change the valuation date, which is fixed under different and quite separate provisions.  
142.	It has been the practice of this Tribunal to assess disturbance at the date of valuation, looking ahead where necessary and taking into account post-valuation date evidence to assist in the calculation of loss.  For example, in Festiniog Railway Company the Central Electricity Generating Board acquired a section of the claimants’ railway and first took entry in 1956.  Part of the disturbance claimed related to loss of profits from 1962 (the date when the whole line would have been ready for opening but for the dispossession) to 1970 and then from 1971 to 1976.  The hearing was in October 1971.  The claim from 1962 to 1970 was therefore a claim for profits up to the date of the hearing and the 1971 to 1976 claim was for future loss.  The claimants argued that all the evidence available up to the date of hearing should be taken into account but that only the profits from 1971 to 1976 should be discounted and for the period before the hearing (1962 to 1970) actual losses should be taken.  The Board reserved their position as to whether post-possession date events could be taken into consideration and said that compensation was to be assessed at the date of dispossession and loss of profits discounted back to that date.  The member (H P Hobbs FRICS) took into consideration evidence as to accounts and works up to the date of hearing (on the authority of Bwllfa) and said (at 588):-
“In my view the loss of profits must be discounted to the time when the board took possession of the land, …., for it is at this date that the compensation has to be assessed, and it is from this date that the board will have to pay interest under section 11(1) of the Compulsory Purchase Act.”
143.	In Reed the claimants’ short tenancy of premises used as an employment agency was compulsorily acquired.  Disturbance compensation on the basis of total extinguishment was claimed, comprising loss of profits pre-entry and post-entry, the latter calculated by forecasting future profits for each of the years from possession to the expiration of the tenancy, discounted back to the valuation date.  The Tribunal (V G Wellings QC and R C Walmsley FRICS) said (at 60):-
“Returning now to the main claim, this relates to the value to the claimants of the loss of their ability to derive a future profit out of the premises from which they had been dispossessed.”
The Tribunal then referred to Rought at 348 (which I consider further below) and Bwllfa at 431 and said:-
“We deem it proper, therefore, whilst putting ourselves at the date of valuation in 1972 and looking forward, to assess the future in the light of all the facts that have become known by the date of the hearing.  Those known facts include, of course, the performance figures for the claimants’ other branches.”
The Tribunal accepted the claimants’ valuer’s approach as “one that is already familiar to the Lands Tribunal” and observed that a calculation of loss by applying a multiplier “to capitalise an ascertained (and assumed level) annual net profit … is, of course, no more than a telescoped form of addition” (at 61).  This latter method of calculating future loss is the one preferred by Mr Phillips and used by Ms Fowler in her first report.  
144.	Mr George argued that, on Bwllfa principles, the date for the assessment of business loss is the date of the hearing.  The proper approach, he said, follows that adopted in contract and tort where a distinction is made between loss up to the hearing (past loss) and future loss (see Rought at 348).  In West Midland Baptist Trust there are references to losses following dispossession (at 896, 987 and 899).  A valuation at the date of dispossession is not the same as the price which an asset would have fetched in the market at that date.  The assessment of losses at different dates does not stop them representing losses which are fairly attributable to the taking of the land.  The correct exercise is to look at the profits which the claimants would have made; these would have been made over a period of time.  Ms Fowler’s revised method is the best available to identify the claimants’ loss at dispossession.  If, as a matter of law, it is thought necessary to discount back to April 2000 that is not a reason for rejecting it.  Having regard to the question of interest and reserving his position, Mr George said that the claimants do not seek to persuade the Tribunal that it need not discount the sums identified as past and future loss.  
145.	Although on first consideration there appears to be a major difference of approach between the parties as to the calculation of post-possession loss, and perhaps even a fundamental issue as to the date of valuation, a closer study of Mr George’s submissions reveals much common ground.  The date of valuation appears to be agreed (7 April 2000) implicitly even if not expressly stated.  Mr George agrees that the principle of equivalence should be applied at that date.  Evidence of post-possession facts is admissible.  They may be used, subject to weight, to assess the loss at the valuation date.  I do not think that Mr George is arguing that the valuation date is the hearing date (or an earlier proxy) but that losses can be more fairly found by looking at the position at that date.  The fact remains, however, that the assessment of loss must relate to the position as at 7 April 2000.  The principle of equivalence requires the ascertainment of the claimants’ loss at that date, having regard to current prices at that time and to the payment of statutory interest from that date.  Ms Fowler has calculated the loss as at 2 September 2003 (in terms of 2001-2003 but mainly 2003 prices) and by not discounting back to April 2000 has, in effect, substituted 2 September 2003 as the valuation date.  Her error (or perhaps more accurately those who were advising her) is that by using post-valuation date evidence she has assumed that the assessment of loss can be made at a later date without discounting back to the earlier date of possession.  In my judgment that is not correct: the admission of post-valuation date evidence is to enable a more accurate assessment to be made of the loss at the date of possession, not to move the valuation date forward in time.  
146.	The essential question is what is the best method of assessing the claimants’ loss at the time of possession – by the capitalisation of the branch contribution at that date or by looking to a later date, by forecasting contributions after possession and capitalising a future contribution.  The latter method would not be wrong if the resultant future loss is discounted back to the date of valuation (dispossession).  It follows therefore that Ms Fowler’s incorrect method could be remedied by discounting her figures.  Mr George invited me to make this adjustment.  I decline to do so.  The appropriate discount rate was materially in issue and this would therefore add another imponderable to Ms Fowler’s revised method, a point I consider below under my third reason for rejecting her revised figures.
147.	Ms Fowler’s revised method is not wrong in law provided a discount is included to relate the future loss back to the valuation date.  A similar method for calculating loss of profits after entry was used in Festiniog Railway, but the post-entry profits were discounted back to that date (at 588).  
148.	Mr George also referred to parts of the decisions in Bwllfa, Rought and West Midland Baptist Trust to support his submissions and I should look further at these authorities.  In Bwllfa Lord Macnaghten, in a well-known and much quoted passage, said (at 431):-
“If the question goes to arbitration, the arbitrator’s duty is to determine the amount of compensation payable.  In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him.  Why should he listen to conjecture on a matter which has become an accomplished fact?  Why should he guess when he can calculate?  With the light before him, why should he shut his eyes and grope in the dark?  The mine owner prevented from working his minerals is to be fully compensated – the Act says so.  That means that so far as money can compensate him he is to be placed in the position in which he would have been if he had been free to go on working.”
I do not think that the effect of this passage is to change the date of assessment for disturbance from the date of possession to the date of the hearing.  The compensatable loss under the Waterworks Clauses Act 1847 was loss of the right to work the coal, compensation being assessed under a provision putting an obligation on the undertakers to make “full compensation” for all damage sustained.  This was not a purchase of the coal nor was it analogous to a purchase (see 428 and 431).  The decision in Bwllfa was concerned with the admissibility of evidence where there was no fixed valuation date (as there is in compulsory purchase) and was concerned with the assessment of loss per se not the assessment of loss consequent on the purchase of an interest in land.  
149.	In Rought Mr George referred to part of the judgment of Lord Evershed MR (at 348):-
“What the payer has to pay by way of compensation is, as stated by Scott LJ in the passage I have already twice read, a sum so as to put, so far as money can do it, the owner in the same position as if his land had not been taken from him; and this, I observe, is exactly the same measure as the measure of damages applied to the case of a man liable to pay compensation for breach of contract or, for that matter (where there is no question of punitive damages), in tort.”
This passage, said Mr George, gives support to his submission that the proper approach in disturbance is to follow that used in contract and tort of distinguishing between loss that has already occurred at the hearing date and future loss.  As I have stated the law of compensation and the law of damages have the same underlying principle, equivalence in compensation and restitutio in integrum in damages.  I do not think that Lord Evershed’s judgment goes further than confirmation of this position.  I do not think that it deals with the correct date for assessing loss.  The issue in Rought was whether a deduction for income tax should have been made when assessing compensation for loss of profits during an interruption of trading following relocation.  Although the measure of disturbance compensation and damages is essentially the same, there is a distinction that compensation for disturbance is consequent on the purchase of land (part of value to the owner) and is assessed as at a fixed valuation date.  
150.	Finally, Mr George referred to two passages from the speech of Lord Reid in West Midland Baptist Trust.  Lord Reid referred to the old rule that the value of land taken was to be assessed at notice to treat and said (at 896G):-
“It has certainly been regarded as applying to that element which consists of the market value of the land taken.  But there is little or no indication that it was regarded as applicable to the other elements in an owner’s claim.  These might include costs of removal, loss of profit or other consequential loss and there appears to be no suggestion in the authorities that these elements in the value of the land to the owner must be valued as at the date of the notice to treat.  The actual costs or losses following on actual dispossession have been taken, and that appears to be the accepted practice today with regard to claims under rule 6.”
Later he said (at 899B):-
“The only other difficulty is to find the right date for the assessment of compensation.  No stage can be singled out as the date of expropriation in every case.  Sometimes possession is taken before compensation is assessed.  Then it would seem logical to fix the market value of the land as at that date and to take actual consequential losses as they occurred then or thereafter, provided that the dispossessed owner had acted reasonably.”
151.	I do not think that these passages indicate that losses consequent on compulsory acquisition are to be assessed as at a date other than the date of dispossession.  In my judgment, what Lord Reid is saying is that costs or losses caused by dispossession, and which occur after dispossession, may be recovered as disturbance compensation.  I agree.  It frequently happens in practice that a claimant will incur expenses or suffer losses after he has been dispossessed, particularly where he is able to relocate his business elsewhere (eg as in Tobin).  Those costs or losses are compensatable provided they are causally connected to the acquisition, not too remote and reasonably incurred (Shun Fung at 137-8).  But because they arise after the date of possession does not mean that the date of valuation for disturbance is altered.  Strictly speaking those items of future expenditure or loss should be discounted back to the possession date.  In practice, in my experience, discounting is ignored where the expenditure or loss occurs a short time after possession and/or the amounts involved are small.  This is particularly the case with actual expenditure rather than estimated loss.  It would be pedantic (and time consuming) to discount every small item of claim for a few months back to the date of dispossession.  Nevertheless, strictly it is correct to do so and the practice of accepting the actual figure of expenditure or the actual assessment of loss as the measure of compensatable loss should not alter the assessment date for a loss, such as the ability to obtain future profits, where the amounts are large and there is a lengthy interval between dispossession and estimated loss.  To give a claimant his estimated loss of profit assessed at a future date (rather than at the possession date) could give him more than his actual loss (where profitability is assumed to rise) or less than his true loss (where the converse position is assumed).  Furthermore, the addition of interest from the date of possession could increase the total payment to a figure above his actual loss.  (The Law Commission’s recommendation of different dates for interest referred to in para 122 above would avoid this problem).  Either situation would breach the principle of equivalence, which is to be considered at the date of possession.  The true question is what has the claimant lost at that date?  Furthermore, the assessment of loss at the hearing date would mean that the estimate of loss would change according to the date fixed for the hearing, which cannot be correct. 
152.	My third reason for rejecting Ms Fowler’s revised approach is that it has more variables than the other methods, with consequent greater risk of error in the assessment of loss.  These variables (disregarding those now agreed) are: the level of branch turnover for the year to 31 March 2000; the estimated growth in turnover for the years to March 2001, 2002 and 2003; the turnover for the half year from March to September 2003; the multiple to capitalise the branch contribution in the year to March 2003; and, if Ms Fowler’s revised method is to be applied correctly, the discount rate to relate the losses back to the date of dispossession.  All these variables require the exercise of judgment.  The turnover figures post-possession are all, to some extent, dependent on the accuracy of each of the previous years’ figures, thus giving the risk of cumulative error.  Conversely, Ms Fowler’s initial assessment of loss and Mr Phillips’s calculations have only two variables, estimated branch turnover in the year to 31 March 2000 and the multiple.  In my view, although judgment is still required in the ascertainment of these variables, there is less possibility of error.  This reason for rejecting Ms Fowler’s revised method is less important than the first two reasons but reinforces rejection on those more important grounds.
153.	In summary, therefore, I reject Ms Fowler’s revised method of calculating post-possession loss on the grounds of lack of sufficiently reliable post-possession date evidence; lack of discounting to relate the figures back to the valuation date, resulting in the assessment of loss at the wrong date; and by reason of the greater number of variables, with consequent greater risk of error.  I prefer Ms Fowler’s initial approach to the assessment of future loss and Mr Phillips’s only approach, namely the capitalisation of the estimated branch contribution for the year to 31 March 2000 (adjusted for the effect of the scheme) by either a P/E multiple applied to the contribution less tax (Ms Fowler’s approach) or by an EBITDA multiple applied to the contribution before the deduction of interest, tax, depreciation and amortisation (Mr Phillips’s approach), with the deduction of the value of assets and the agreed value of the lease.  Ms Fowler and Mr Phillips each referred to the resultant capital figure as the value of goodwill but I prefer to call it capitalised future profits or as it was expressed by the Tribunal in Reed (at 58):-
“The claimants were not to be compensated for the loss of some whole business, but for the element of disturbance caused to an otherwise continuing business.  In any event what is actually lost on the acquisition of any business was not future profits (which do not exist) but the opportunity of carrying on the business at that location for such length of time as the occupant might reasonably contemplate.”
154.	I look first at the branch contribution for the last full year of trading, to 31 March 2000.  Earlier in this decision, under pre-possession loss, I found that the turnover at the subject property for this year would have been £410,000 disregarding the effect of the scheme in the last three months of that year.  The parties have agreed that the gross profit margin was 79%, staff costs were 39.2% of turnover, property overheads and other charges (including depreciation of £1,000) were £86,000.  Applying these agreed figures to the branch turnover produces a contribution of £77,180 say £77,200 (including a deduction for depreciation).  The deduction of 30% tax reduces it to £54,040 for use with Ms Fowler’s P/E multiple, or £78,180 say £78,200 (before the deduction of tax and depreciation) for use with Mr Phillips’s EBITDA multiple.  These calculations are set out in Appendix 3 to this decision.  
155.	As to the multiple to find the capital value of the ability to derive future profits from the subject property, Ms Fowler’s figure is between 11.2 and 12.6 and Mr Phillips’s figure is between 4.9 and 5.9.  They have helpfully reached a measure of agreement on other matters.  Although Ms Fowler considers that a price earnings (P/E) multiple is the most appropriate for assessing loss of future profits, she agrees that EBITDA is a valid basis.  Likewise, Mr Phillips, although considering his EBITDA multiple to be the most appropriate, agrees that P/E is a valid basis.  It is agreed that the following are to be taken into account:-
(i)	earnings multiples for listed companies in the same or similar industry sectors;
(ii)	earnings multiples implied in transactions in the same or similar sectors; 
(iii)	the extent to which a purchaser might have been prepared to pay a control premium for the acquisition of the business as a whole;
(iv)	the discount which is commonly applied to multiples for companies whose shares are publicly traded to arrive at an appropriate private company multiple.  
It is agreed that the Financial Times SAI P/E multiple for the general retail sector at 29 April 2000 was 16.2.  The calculation of EBITDA multiples as at 7 April 2000 is agreed showing a range from 7.1 to 19.0.  
156.	The accounting experts having agreed that, although each has a preference for a particular multiple, the other basis is also valid, it seems to me that the test for choosing the multiple – P/E or EBITDA – should be the adequacy and reliability of the supporting evidence.
157.	Ms Fowler has chosen the P/E multiple.  Her starting point is the agreed FTSAI P/E multiple for general retail in April 2000 of 16.2.  She reduced it by between 35% and 40% for the claimants’ unlisted status, smaller size and lower diversity and added between 15% and 20% of the reduced figure for control.  Her adjusted multiple is between 11.2 and 12.6.  This range can be compared to adjusted multiples for comparable transactions including De Rigo SpA in December 1998 and General Optica in February 2000 producing EBIT multiples of 11 and 9.  Ms Fowler’s range of 11.2 to 12.6 is equivalent to EBIT multiples of 7.8 and 8.8.  Ms Fowler said that a P/E multiple is applied to profits after the deduction of interest, tax, depreciation and amortisation but the subject property is not affected by interest, and amortisation and therefore only tax at 30% has been deducted.
158.	Mr Phillips has used an EBITDA multiple.  In the absence of comparable quoted UK companies he considered four companies in Western Europe with EBITDA multiples of between 7.1 and 12.1, with an average of 9.9 which he adopted as his base multiple.  This figure is at the upper end of the range by reference to three market transactions in October 1999 and February 2000 which show multiples of 4.7, 13.3 and 18.1 (all incorporating a bid premium).  Mr Phillips made no adjustment for a bid premium for the subject property but included a discount of 40% to 50% for the unlisted status of Optical Express, to give an adjusted EBITDA multiple of between 4.9 and 5.9.  
159.	In the light of this evidence there are four questions.  First, which type of earnings multiple is to be used, P/E or EBITA?  Second, what is the base figure (subject to adjustments) for the selected multiple?  Third, what adjustment is to be made for the private company status of Optical Express;?  Fourth, what adjustment (if any) is to be made as a bid premium for control?
160.	As to the type of multiple, P/E or EBITDA, it is agreed that either is valid for assessing the value of future profits.  The multiple chosen will determine whether the contribution to be capitalised is to be reduced for interest, tax, depreciation and amortisation (P/E) or whether it is to be applied to the gross contribution (EBITDA).  I prefer the EBITDA multiple for two reasons.  First, it has a wider comparable base (four Western European quoted companies with similar optical trades, two US quoted companies and three market transactions) compared to Ms Fowler’s P/E multiple which is more narrowly based on the April 2000 general retail multiple of 16.2 and two market transactions.  Ms Fowler used the general retail multiple as her starting point.  I agree with Mr Phillips that this multiple, which is for the sector as a whole and includes retailers wholly dissimilar from Optical Express, is too wide to be of any great assistance.  Second, I agree with Mr Phillips that it is likely that a P/E ratio will not allow an accurate like for like comparison because distortions will arise between indebted and debt free businesses and as a result of different tax structures.  The better approach is to compare total returns, thus eliminating the effects of funding and taxation.  My calculation of the compensation for loss of future profits will therefore be based on an EBITDA multiple to be applied to the contribution of £78,200.  
161.	Mr Phillips started with a base multiple of 9.9, an average figure derived from four quoted Western European companies.  Subsequently the EBITDA multiples for two companies listed in the United States were agreed, Luxottica SpA and De Rigo SpA, which, on my calculation, increase the average figure to 11.8.  Mr Phillips did not include these companies in his calculations for the following reasons.  In April 2000 they were only listed in the United States (although they were later listed on Western European stock exchanges).  Shares are valued differently on different exchanges due to a number of factors, eg. different investor behaviour, the extent of transparency required by the listing exchange.  Each of these companies has special factors pointing to exclusion: only 21% of Luxottica shares and 23% of De Rigo shares were listed, the remainder being held by the Del Vecchio and De Rigo families respectively.  In February 2000 De Rigo acquired General Optica, the leading Spanish optical retailers, and this may have impacted on the share price in the short term.  Although I accept Mr Phillips’s factual evidence on this point I do not think that it leads to the exclusion of Luxottica and De Rigo from further consideration.  It points, I think, to placing these two companies in a separate category, the special considerations being a question of weight rather than exclusion.  Mr Phillips also referred to transactions in October 1999 and February 2000 which I find helpful.  I now look more closely at this evidence.  
162.	I start with the four Western European companies.  The EBITDA multiples are agreed: Essilor International SA (9.9), Grand Vision SA (10.6), Indo Internacional SA (12.1) and Fielmann AG (7.1).  The average is 9.9.  Ms Fowler said that Essilor and Indo are primarily manufacturers.  If these two companies are removed from this group the range is from 7.1 to 10.6 with average of 8.8.  The two companies quoted in the United States are Luxottica (19.0) and De Rigo (12.3).  The average is 15.65.  There are three market transactions.  In October 1999 ADCO Group Limited acquired Iles Optical Limited, manufacturers of protective eyewear, at an EBITDA multiple of 4.7.  This was a United Kingdom acquisition.  In February 2000 De Rigo acquired General Optica, optometrists, at a multiple of 13.3 (Spain).  And also in February 2000 the existing management acquired Salmoiraghi and Vigano, opticians and retailers of eyeware, at a multiple of 8.1 (Italy).  Mr Phillips said that these multiples will incorporate a bid premium.  
163.	In the light of this somewhat variable evidence it is a matter of judgment as to where to pitch the base multiple for the business at the subject property.  I think that Mr Phillips has put it too low at 9.9, probably due to his exclusion of the two US companies which have high multiples of 19.0 and 12.3.  I fix the base multiple at 11.0.  
164.	I now consider what discount should be made for the private company status of the claimants.  The discounts used by the accountancy experts is similar: Ms Fowler 35% to 40%, Mr Phillips 40% to 50%.  They agree that this discount reflects the private or unlisted status of Optical Express and the non-marketability of shares.  Again it is a matter of judgment as to the amount of the discount, there being no evidence of fact.  I adopt 40% which is the common figure in the opinions of the two experts.  This adjustment reduces the base multiple to 6.6.  
165.	There is a material difference between the parties as to a premium for control.  It is agreed that most of the evidence relating to multiples concerns small tranches of shares and that a “bid premium” may be made to gain control over the whole business.  Ms Fowler and Mr Phillips differ as to whether such a premium should be added.  Ms Fowler said that it should and put the bid premium at 15% to 20%.  Mr Phillips disagreed saying that such a premium is difficult to assess without knowing the potential purchasers; they would not be able to use the Optical Express name or brand after purchase and the location of the subject property was unattractive.  He made no addition for control.  I prefer Ms Fowler’s opinion.  Some uplift to the reduced multiple should, I think, be made for control and I adopt her lower figure of 15%.  This increases the multiple to 7.59 say 7.6.  
166.	I have found that the adjusted branch contribution for the year to 31 March 2000 is £78,200, before deductions for depreciation and tax.  I have found that the EBITDA multiple to be applied to this figure is 7.6 producing a capital sum of £594,320.  It is agreed that the value of net assets (£40,000) and the leasehold interest (£10,000) should be deducted.  This produces a net figure of £544,320 (see Appendix 3 to this decision).  Ms Fowler and Mr Phillips both said that the value to Optical Express is not greater than the figure on this basis. 
167.	I note that my figure of £594,320 can be analysed on Ms Fowler’s P/E basis to show a multiple of 11.0, slightly less than her multiple range of 11.2 to 12.6 (mid-point 11.9).  Furthermore, if the general retail multiple of 16.2, adopted by Ms Fowler as her base multiple, is reduced by 40% and increased by 15% (as above) it is reduced to 11.1.  Whichever method is used, P/E or EBITDA, the final figures are similar and consistent.
168.	Ms Fowler and Mr Phillips have agreed that it is appropriate to consider assessments of loss by alternative methods as a cross-check to the earnings multiple approach.  Four alternatives were referred to: discounted cash flow (DCF), the traditional method often used in the Lands Tribunal and reflected in the settlements referred to by Mr Chase, a net asset approach and a sales multiple approach.  It is not suggested that any of these methods should take the place of the earnings multiple approach used by both parties.  
169.	Ms Fowler prepared a DCF calculation which shows a post-possession loss of £1,001,000 as at 31 March 2003 (amended to reflect future refurbishment).  The projected store contribution for the year ended 31 March 2003 has been increased by growth of between 2.2% and 5% to the expiration of the lease in 2012 and then capitalised in perpetuity from that date.  The discount rate is 12%.  Ms Fowler commented that DCF is only reliable if accurate profit and cash flow forecasts are available for at least three to five years.  That is not the position here and this method cannot therefore be used as a primary method.  
170.	I gain no assistance from Ms Fowler’s DCF calculation.  It reflects the wrong valuation date, showing the loss as at 31 March 2003 and not as at 7 April 2000.  If the estimated loss of approximately £1million is discounted back to April 2000 at 12% it is reduced to £712,712, a figure not greatly above my calculation of loss of £594,000 using an EBITDA earnings multiple.  No Profit or cash flow forecasts have not been made and Ms Fowler’s growth figures are little more than guesswork.  There was much disagreement between the parties regarding discount rates.  There is no certainty that the claimants could have occupied 14 Martineau Way beyond the end of their lease and on to perpetuity.  
171.	I turn now to settlements calculated on what was called the traditional approach to the valuation of goodwill or future profits.  This involves the calculation of historic profit (usually the average of the last three years trading); the deduction of rental value or profit rent, interest on capital and perhaps proprietors’ remuneration; and the capitalisation of the net figure by a figure of years purchase (YP) usually in the range of two to five.  These settlements are included in the evidence of Mr Chase.  Mr Phillips used them, particularly the YP figures, as a check on his calculation of future loss.  Ms Fowler said that the low multiples used may not have regard to the specific circumstances of a particular case and are not an appropriate cross-check on the earnings multiple method.  
172.	I do not find these settlements of assistance.  Even more than land value, where the measure of loss is market value, they relate to the particular circumstances of each case, where the measure of loss is value to the owner, reflecting the special circumstances of each claimant.  Every case is settled on its own merits.  The particular difficulty with this approach is the YP figure.  There is a lack of market evidence and the figure of YP is usually fixed by reference to settlements and decisions of the Tribunal, which become self-perpetuating within a particular range without any guidance or check from the market.  
173.	Ms Fowler and Mr Phillips have agreed that the net asset approach to the valuation of the business at 14 Martineau Way is not appropriate in the absence of significant tangible assets at this branch.  
174.	The sales multiple approach was referred to by Mr Phillips without comment from Ms Fowler.  He said that it is not unusual for companies in the retail sector to be valued by reference to their turnover.  He calculated the sales multiples for five companies which showed a range of between 0.54 and 1.82 with an average of 1.07, which he adopted as his base multiple.  Adjusting downwards by a 40% to 50% discount for private company status gave sales multiples of 0.64 and 0.54, which he applied to projected sales of £410,000 to give figures between £221,400 and £262,400 compared to his EBITDA figures of £333,200 and £411,400.  I do not find this alternative method helpful.  It is too broad brush.  It cannot be said to provide a cross-check because it produces figures well below the EBITDA multiple figures.  
175.	My overall conclusion is that the alternative methods are of no assistance as a cross-check to the earnings multiple approach.  
AWARD
176.	The parties have agreed the value of the claimants’ leasehold interest in the subject property at £10,000 and I have assessed the pre-possession loss at £16,600 and the post-possession loss at £544,320.  The total compensation is £570,920. 
177.	Accordingly, I determine that the compensation payable to the claimants for the compulsory acquisition of their leasehold interest in 14 Martineau Way, Birmingham is £570,920 (five hundred and seventy thousand, nine hundred and twenty pounds).  
178.	This decision determines the substantive issues in this reference.  It will take effect as a decision for the purposes of an appeal when the outstanding issue of costs has been determined.  The parties are invited to make submissions as to the costs of this reference and a letter accompanying this decision sets out the procedure for representations in writing. 
						DATED: 11 April 2005

						(signed) P H Clarke

ADDENDUM
179.	I have received written submissions on costs.  The claimants sought compensation of £1,727,231; the Council’s figure was £398,900; my award was £570,920.  On 3 March and 18 October 2004 the Council made sealed offers of £450,000 and £550,000 respectively.
180.	The claimants seek their costs (other than those awarded under an interlocutory order dated 13 August 2003) on the grounds that they have been successful, obtaining an award in excess of the sealed offers made by the Council.  The Council’s representations on costs should be rejected as an attempt to circumvent the dicta of the Court of Appeal in Purfleet Farms Limited v Secretary of State for Transport, Local Government and the Regions [2002] RVR 368.  The context for the assessment of costs is the principle of equivalence and the principle that the expenses of determining disputed compensation are part of the reasonable and necessary expense attributable to the compulsory taking of the land.  Although there is a disparity between the claim and the award, the claim cannot be said to be exaggerated, as explained in Purfleet Farms (at para 36).  There are no special reasons for departing from the general rule that a successful claimant should recover his costs.  There are no similarities between this reference and the situation in Hood Investment Company Limited v Marlow Urban District Council (1963) 15 P & CR 229, where the Tribunal was outraged by a wholly fictitious claim.  
181.	The Council acknowledge that the Tribunal will normally award costs to a claimant who recovers compensation, but say that there are special reasons to justify a different order in this reference.  There is no clear winner.  The award is significantly closer to the Council’s valuation and the highest sealed offer than to the claim.  The amount claimed for post-possession loss was exaggerated and based on unsupported and unsuccessful arguments.  The claimants’ case regarding the scheme and pre-possession loss was rejected.  The proceedings were prolonged and complicated by the claimants’ unnecessary and unhelpful evidence, which lacked credibility and was rejected.  The Tribunal should therefore depart from the normal rule and find that there are special reasons for not awarding costs to the claimants (see Purfleet Farms at paras 29 and 43).  The Tribunal may see fit to order the claimants to pay the Council’s costs (see Hood Investment Company Limited).  
182.	On 13 August 2003 I held a pre-trial review to deal with applications by the claimants to delete privileged material from Mr Chase’s report and for leave to put in a particularised claim with other consequential directions.  Both applications were successful.  I ordered the Council to pay the claimants’ costs of the pre-trial review in so far as they related to the application to delete the privilege material.  And, in giving leave for the claimants to lodge a full particularised claim, I directed that this was on terms that the claimants shall, in any event, pay the wasted and additional costs of the Council in consequence of this direction and the claimants’ failure to comply with the Tribunal’s order dated 8 April 2003.  I made no order for costs in respect of the remainder of the pre-trial review.  I now deal with the remaining costs.  
183.	Section 3(5) of the Lands Tribunal Act 1949 gives the Tribunal power to order payment of one party’s costs by another party and to tax (now assess) or settle the amount of costs.  Under the Lands Tribunal Rules 1996, subject to section 4 of the Land Compensation Act 1961, costs are in the discretion of the Tribunal (rule 52(1) (as amended)).  Section 4(1) of the 1961 Act provides, so far as relevant, that, where the acquiring authority have made an unconditional offer of compensation in writing and the sum awarded by the Tribunal does not exceed that offer, the Tribunal “shall, unless for special reasons it thinks it proper not to do so, order the claimant to bear his own costs and to pay the costs of the acquiring authority so far as they were incurred after the offer was made.”
184.	The recent decision of the Court of Appeal in Purfleet Farms contains guidance as to the exercise of the Tribunal’s discretion on costs.  In that case the claimants sought compensation of £12.26m for land suitable for warehouse development; the Secretary of State as acquiring authority put forward a figure of £3.75m and made an unconditional offer of £5m.  The Tribunal awarded compensation of £6.66m, higher than the offer, but ordered the Secretary of State to pay only three-quarters of the claimants’ costs on the grounds that their valuation was significantly higher than could be supported by reliable evidence, particularly the evidence of comparables south of the river which were wholly dissimilar to the reference land and unreliable in other respects.  The claimants’ appeal against this order was dismissed.  
185.	Potter LJ said (para 29):-
“… it is my view that the proper approach of the tribunal for the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some ‘special reason’ to the contrary …. so far as the nature and substance of the case advanced by the claimant is concerned, special reasons should be regarded as established only where the tribunal considers that an item of costs incurred, or an issue raised, was such that it could not, on any sensible basis, be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation.  This would apply not only to a claim advanced without any statutory basis but to other examples of manifestly unreasonable conduct that may give rise to unnecessary expense in the course of the proceedings.  It means, in my view, that, following the hearing of a compensation reference in the Lands tribunal in which the claimant has been successful, a special reason for departing from the usual order for costs should be found to exist only in circumstances where the Tribunal can readily identify a situation in which the claimant’s conduct of, or in relation to, the proceedings has led to an obvious and substantial escalation in the costs over and above those costs that it was reasonable for the claimant to incur in vindication of his right to compensation.”
186.	Exaggeration of a claim may be a special reason for departing from the usual order for costs.  But:-
“… exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded.  The matters to which the tribunal should have regard are: (a) the reasons for that disparity; and (b) their effect upon the conduct of the claim.  As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs.  As to (b), if, in any event, the effect upon the proceedings in terms of the time spent and the costs incurred in disposing of the issue or argument concerned is relatively insignificant, then, again, an adverse order is unlikely to be appropriate.” (para 36).
It is a matter of emphasis.  As Lord Morison said in Emslie and Simpson Limited v Aberdeen City District Council (No.2) [1955] RVR 159 at 163:-
“In most cases however it is perfectly reasonable that, having been put to the expense of establishing a right which has been disputed, the claimant should put forward his claim on the maximum basis which he can reasonably support and should be entitled to the expenses of doing so if he is successful in the general assertion of his right.”
It will rarely be appropriate to make an adverse costs order against a claimant if the amount of the exaggerated claim is based upon expert evidence (paras 37 and 38).  
187.	Chadwick LJ, in agreeing with Potter LJ, summarised the position as follows (para 43):-
“It follows that the fact that the claimant has not been awarded as much as he was seeking by way of compensation – or that the award is nearer (even much nearer) to the amount that the acquiring authority had offered than to the amount sought – cannot, of itself, be a reason for depriving the claimant of his costs of the reference.  But that does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance.  The tribunal may be satisfied, in the particular case before it, that the fact that the claimant has exaggerated his claim has led to costs that were not reasonable for the claimant to incur in pursuit of the compensation to which he was entitled, or that it has been the pursuit of issues that it was not reasonable for the claimant to pursue that has led to the exaggeration of the claim.  Where the tribunal makes an award of compensation that is well below the amount claimed, it is appropriate for it to consider, in the context of an award of costs, both whether the fact that the claim was exaggerated has led the claimant to incur costs that (given a more realistic evaluation of his claim) he would not have incurred, and whether the explanation for the difference between the award and the amount claimed is that issues were pursued upon which the claimant had no real chance of success.”
188.	In the light of this guidance and having regard to the considerable discrepancy between the claim and my award, it seems to me that I must answer three questions in deciding whether the claimants should be deprived of any part of their costs. 
189.	First, did the claimants exaggerate their claim above the maximum figure that could reasonably be supported?  I have found against the claimants on all issues.  As to the scheme, I suspect that the claimants’ formulation of the scheme had to be altered at a late stage to be consistent with their revised claim; it had poor evidential support.  The claim for pre-possession loss was not supported by reliable evidence as to the effect of the scheme.  However, I do not consider the claimants’ case on these two issues to have been wholly unreasonable.  Their case, although wrong, was legitimate and cannot be said to be so far wrong as to merit an adverse award of costs.  I take a different view, however, of the revised claim for post-possession loss.  In my judgment, this claim could not be said to be reasonably supported.  
190.	This leads to my second question:  what were the reasons for the disparity between the claim for post-possession loss and my award?  The claimants put this loss initially at £1,018,000 in Ms Fowler’s first report and then increased it significantly to £1,650,985 in September 2003.  The Council’s figure was £372,300; I awarded £544,320.  There are three reasons for the discrepancy between my award and the revised claim:  the date of valuation, the estimated contribution in the last year of trading and the multiple.  Although in my view Ms Fowler maximised the estimated contribution in the last year of trading (disregarding the effect of the scheme) and I preferred the EBITDA multiple to Ms Fowler’s P/E multiple, I do not think that these are reason for reducing the costs which the claimants should otherwise receive.  
191.	But I take a different view of the way in which the revised claim was formulated leading to a later valuation date, that is to say by assessing the estimated loss to September 2003 and then adding the capitalised annual loss at that date, thus effectively changing the valuation date from the date of possession, 7 April 2000, to 2 September 2003 (as proxy for the hearing date).  Ms Fowler’s initial report, in my view, contained the correct approach to loss of future profits.  She then changed her calculation of future loss on advice that “the loss should not be assessed at the vesting date … but should use the most recent information available.”  I do not know whether Ms Fowler misunderstood the advice she received (as shown by her failure to discount her figures back to April 2000) or whether she was specifically instructed to adopt a later valuation date.  Whatever the reason, having regard to the certainty in the law as to the date of valuation, Ms Fowler’s revised approach to post-possession loss was bound to fail and, in my view, should not have been pursued at the hearing.  It was, in my judgment, an exaggeration of the claim which went beyond the maximum basis which could reasonably be supported (to use the words of Lord Morison in Emslie (at 163)).  In short, it was an attempt by the claimants to obtain compensation greatly in excess of their actual loss and in breach of the principle of equivalence.  Furthermore, I do not think that the revised and exaggerated claim can be said to be wholly the product of expert evidence, putting it outside an adverse costs order, as explained in Purfleet Farms (para 37).  I regard Ms Fowler’s true expert opinion as to post-possession loss as set out in her first report.  In her second report she responded to the legal advice given to the claimants and which formed the basis of their revised claim.  
192.	This leads to my last question: did the exaggeration of the claim for post-possession loss lead to additional time and costs in dealing with it which were more than relatively insignificant?  Although the hearing was relatively short (4½ days) with closing submissions in writing, I am satisfied that the introduction of the revised claim for post-possession loss led to increased and unnecessary time and costs, both at the hearing and in the preparation and greater length and complexity of the evidence and closing submissions.
193.	For the reasons set out above I am satisfied that I should depart from the normal rule that the claimants should receive their costs in full.  Although not expressly stated, it is implicit in the Council’s submissions that I should not award any costs to the claimants.  I cannot agree.  The unreasonable exaggeration of the claim for post-possession loss warrants, in my view, a reduction in recoverable costs, but not, the loss by the claimants of all their costs.  The claimants’ entitlement to costs should be reduced to three-quarters.  
194.	The Council, however, have gone further and said that I may see fit to order the claimants to pay the Council’s costs under the principle in Hood.  It follows from my decision to reduce the claimants’ recoverable costs to three quarters, that I cannot accept this submission.  In Hood the Tribunal awarded compensation for the compulsory purchase of a strip of land at the acquiring authority’s figure, found on a claim for expenses that these had never been incurred, took a strongly unfavourable view of the claim and ordered the claimants to pay the authority’s costs.  The claimants appealed on the grounds that, because the authority had not made an unconditional offer, the Tribunal had wrongly exercised its discretion on costs.  This was rejected by the Court of Appeal.  The Tribunal had a discretion, where it found a claimant’s conduct to be outrageous and his claim fictitious, not only to deprived him of his costs but to order payment of the acquiring authority’s costs, notwithstanding the absence of a sealed offer.  The facts in Hood are not the same, or even similar, to those in this current reference.  The claim for post-possession loss was not fictitious, although greatly exaggerated.  I cannot categorise the conduct of Optical Express as outrageous.  There are, in my judgment, no grounds for requiring the claimants to pay any part of the Council’s costs, even if I had deprived the claimants of all or a much greater proportion of their costs.  
195.	Accordingly, for the reasons given above, I order the Council to pay three-quarters of the claimants’ costs of the reference (other than those costs awarded or referred to in the interlocutory order dated 13 August 2003), such costs, if not agreed, to be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal.
DATED: 13 May 2005

(Signed) P H Clarke 

APPENDIX 1

Calculations of Sara Fowler on behalf of the claimants

Pre-possession loss				
				£	
Turnover (actual) year to 31 March 1999		509,429	
Add: 5% growth				  25,471	
Turnover (estimated) year to 31 March 2000		534,900	
Gross profit, 79%				422,571	
Less: staff costs, 39.2% of turnover		209,681	
Contribution after staff costs (2000)		212,890	
Less		
Actual contribution after staff costs (2000)		146,644	
			Loss prior to possession		  66,246	
Post-possession loss (revised method and now primary calculation) 		
(i)	April 2000 to September 2003		
	      Year          to             31 March                          Mar – Sept	
	       2001	       2002	      2003	        2003	
	£	£	£	£	
Projected turnover		561,645		603,207		561,645		234,019	
Gross profit		447,631		487,994		459,426		191,427	
		(79.7%)		(80.9%)		(81.8%)		(81.8%)	
Less					
Staff costs, 39.4%		221,288		237,664		221,288		92,203	
Property overheads		76,687		77,684		80,092		33,372	
Other charges		  11,164		  11,309		  11,660		  4,858	
Contribution		138,492		161,337		146,386		60,994	
	Total £507,209	
(ii)  From September 2003					
				£	£	
Estimated contribution, year to 31 March 2003		146,386		146,386	
Less: tax, 30%				     43,916		     43,916	
				102,470		102,470	
Multiple				         10.9		         12.4	
Future loss				1,116,923		1,270,628	
		Claim (mid-point) £1,193,776	
Business loss					
			£	£	
Pre-possession loss					66,246	
Past loss April 2000 to September 2003			507,209	
Future loss at September 2003			1,193,776	
					1,767,231	
	Less		
Net assets				40,000		
Leasehold interest				10,000		     50,000	
		Net business loss		1,717,231	

Post-possession loss (initial and now alternative calculation)		
	£	   £	
Turnover (actual) year to 31 March 1999			509,000	
Add: 5% growth			  26,000	
Turnover (estimated) year to 31 March 2000			535,000	
Gross profit, 79%			423,000	
Less			
Staff costs, 39.2% of turnover		210,000		
Property overheads		75,000		
Other charges		  11,000		296,000	
Maintainable contribution			127,000	
			
	£	   £	
Maintainable contribution		127,000		127,000	
Less: tax 30%		  38,100		  38,100	
		88,900		88,900	
Multiple		     11.2		     12.6	
		996,000		1,120,000	
Less: net assets		  40,000		     40,000	
		956,000		1,080,000	
			
						Mid-point £1,018,000		

APPENDIX 2

Calculations of Jonathan Phillips on behalf of the acquiring authority

Pre-possession loss			
		   £	
Turnover (estimated) year to 31 March 2000			410,000	
Gross profit, 79%			323,900	
Less: staff costs, 39.2% of turnover			160,720	
Contribution after staff costs (2000)			163,180	
Less			
Actual contribution after staff costs (2000)			146,644	
				Loss prior to possession			  16,536	
		say		£  16,600	
Post-possession loss			
	  £	  £	
Estimated turnover, year to 31 March 2000			410,000	
Gross profit, 79%			323,900	
		Less			
Staff costs, 39.2% of turnover		160,720		
Property overheads		75,000		
Other charges (excluding depreciation)		  10,000		245,720	
			  78,180	
Maintainable EB1TDA		say		£  78,200	
			
	  £	   £	
Maintainable EB1TDA		78,200		78,200	
Multiple		       4.9		       5.9	
		383,200		461,400	
Less			
Net assets (40,000) & leasehold interest (£10,000)		  50,000		  50,000	
		333,200		411,400	
Value of goodwill (mid-point)	£372,300	

APPENDIX 3

Calculations of Lands Tribunal

Pre-possession loss			
		   £	
Estimated turnover, year to 31 March 2000			410,000	
Gross profit, 79%			323,900	
Less: staff costs, 39.2% of turnover			160,720	
Contribution after staff costs (2000)			163,180	
Less			
Actual contribution after staff costs			146,644	
			  16,536	
		say		£  16,600	
Post-possession loss			
	£	  £	
Estimated turnover, year to 31 March 2000			410,000	
Gross profit, 79%			323,900	
Less			
Staff costs, 39.2% of turnover		160,720		
Property overheads and other charges (including 				
depreciation £1,000)		  86,000		246,720	
			  77,180	
Contribution (including deduction of depreciation)		say		£  77,200	
Contribution (excluding deduction of depreciation)		say		£  78,200	
		EBITDA multiple				       7.6	
				594,320	
Less: net assets and leasehold interest			  50,000	
				Loss of future profits				544,320