BRIAN JOHN FARADAY v CARMARTHENSHIRE COUNTY COUNCIL ACQ/84/1997

UPPER TRIBUNAL
LANDS CHAMBER
ACQ/84/1997Case No ACQ/84/1997
Between
BRIAN JOHN FARADAYApplicantCARMARTHENSHIRE COUNTY COUNCILRespondent
Before
N J Rose FRICSProperty: 10 Island Place, Llanelli, CarmarthenshireCatchwords: COMPENSATION - Compulsory Purchase - estate agent’s office and general offices above - valuation of freehold - whether direct to freehold value or by capitalising rental value - whether disturbance compensation based on assumed relocation of business or lengthy profit losses followed by total extinguishment of business – whether claimant took reasonable steps to mitigate loss – whether adjustments should be made to accounts of business conducted in freehold premises to reflect property’s rental value when assessing loss of profits incurred prior to acquisition and loss on extinguishment of goo
[1]This is a reference to determine the compensation payable by Carmarthenshire county council (“Carmarthenshire”) as successors to Llanelli borough council (“the acquiring authority”) to Mr Brian John Faraday for the freehold interest in a commercial building known as 10 Island Place, Llanelli, Carmarthenshire (“the subject property”). Mr Faraday’s property was compulsorily acquired under the Llanelli Borough (Llanelli Town Centre Re- Development) Compulsory Purchase Order 1993 (“the CPO”), made on 25 January 1993 and confirmed by the Secretary of State for Wales on 18 August 1994. A general vesting declaration was made on 26 October 1994 and the freehold interest was vested in the acquiring authority on 26 November 1994, which is the agreed valuation date. The subject property was demolished by the acquiring authority in June 1995.[2]Mr Faraday claimed that the value of the freehold interest was £198,000; the acquiring authority’s figure was £87,500. The parties were even further apart in their estimates of compensation for disturbance and other losses. Mr Faraday claimed a total of £723,428, exclusive of certain interest payments, while the acquiring authority contended for £106,793.[3]Mr Timothy Jones, solicitor, of T G Jones and Associates of Swansea appeared for Mr Faraday, whom he called as a witness of fact. He also called two expert witnesses, Mr S D H Rees, BSc, FRICS, a partner in Gerald Eve, chartered surveyors, based at their Cardiff office and Mr A D W Jones, BSc, ACA, FCCA, who practises in Swansea as Willis Jones, chartered accountants. (I shall in future refer to him simply as Mr Jones). Counsel for Carmarthenshire, Mr Mark Spackman, also called two expert witnesses. They were Mr R W Cobb, FRICS, a director and vice chairman of G L Hearn, chartered surveyors of London and Mr P W Jenkins, a member of the institute of chartered accountants and a partner in the business assurance practice of PricewaterhouseCoopers, chartered accountants, based in Swansea. Facts[4]The surveyor experts prepared two statements of agreed facts. Unfortunately, the accountancy experts did not even prepare one. From the surveyors’ statements, and from the evidence, I find the following facts. The subject premises were located on the south side of Island Place, in a mixed use neighbourhood on the eastern periphery of Llanelli town centre. The immediate area on both sides of Island Place was in residential use. A short distance to the north-west, commercial property straddled both sides of Island Place and extended to the junction with Upper Park Street. There was a public house at the eastern end of Island Place, opposite the Elim Pentecostal church (“Elim”).[5]The building comprised a part three storey and part two storey end of terrace property of traditional brick construction, with rendered elevations beneath a slate covered roof. There was a single WC and wash hand basin at first floor level and no central heating system. 3 The front ground floor elevation was a solid structural wall with two display windows of limited size and an entrance doorway. The property was used for the purposes of an estate agency on the ground floor with office accommodation on the first and second floors. There was an area at the rear with space for car parking.[6]The floor areas were as follows: Floor m2 Ground 77.90 First 65.30 Second 47.40 Total 190.60[7]It is agreed that the property is to be valued on the basis that it was in reasonable condition and with permitted use as an estate agent’s office on the ground floor and general offices above.[8]Mr Faraday’s background was as a property investor and developer. He purchased the subject property in 1973. On 4 March 1975 he applied for planning permission to change the use from the previous office and store to snack bar and games room over. Permission was refused on the grounds that the area was zoned for residential use on the town development plan. Subsequently Mr Faraday was approached by the Royal Naval Club of Llanelli. They wished to occupy the building as a licensed private club, but planning consent for that use was refused on 13 April 1977 because “The establishment of such a club at this location might prejudice future proposals by the local authority to redevelop the area … for parking or any other use.”[9]Subsequently Mr Faraday decided to open an estate agency operating from the subject property, initially with the assistance of a relative who was apparently a lecturer in surveying. On 29 February 1980 the Gateway building society granted him a building society agency. In July of the same year Gateway applied to the acquiring authority for planning permission to erect an illuminated sign on the property, advertising both Mr Faraday’s firm and their own business. They were informed that consent was unlikely to be given as “no planning consent has been obtained for use of the premises as an estate agency/building society office. The area is not zoned for office use.”[10]On 9 September 1980 Mr Faraday submitted an application for permission for change of use to estate agent’s office. On 11 November 1980 the appropriate committee of the acquiring authority resolved to approve the application, subject to a time restriction of ten years only. This decision was never issued in writing and a month later, on 10 December 1980, consent was granted to use the ground floor only as an estate agent’s office for a period of five years. In the following month the display of the advertising sign was approved and Mr Faraday started trading from the property shortly afterwards as “Park Estates”. 4[11]From the early 1980s, the acquiring authority began to acquire buildings in the area surrounding the subject property. They completed the purchase of the two immediately adjoining buildings, 10a and 11 Island Place, in February 1982 and November 1982 respectively. Over the next eight months they purchased the following properties in Island Place: 41 (January 1983); 20 (February 1983); 36 (February 1983); 13 (April 1983); 39 (May 1983); 47 (May 1983); 14 (June 1983); 44 (July 1983); 38 (July 1983). These buildings were subsequently boarded up and eventually demolished.[12]Mr Faraday first became aware that his property might be required by the acquiring authority in July 1982, when an article appeared in the Llanelli Star newspaper, stating that the authority wanted to build a new £1.5m bus station in the town centre. The precise location of this development was not identified although, in August 1982, the acquiring authority informed the district valuer that it had resolved to purchase 41 Island Place, due to its inclusion in the town centre redevelopment plan. Mr Faraday was instructed to negotiate on behalf of the owner of 41 and he reached agreement with the district valuer on the price payable for that house fairly quickly.[13]In January 1983 Mr Faraday acquired a lease of 67/69 Stepney Street, Llanelli (“67/69”), so that he would have alternative premises to which his business could be relocated. 67/69 was situated opposite the town hall. It was in poor condition, reflected in the rent of only £1,800 per annum. The lease was for 5 years from 24 January 1983. Although Mr Faraday had never previously owned leasehold premises, the low rent meant that he hoped to be able to afford to relocate temporarily to 67/69, until the subject property was purchased by the acquiring authority and to use the compensation moneys in due course to buy another freehold building. It was necessary to carry out substantial works to 67/69 before it could be occupied. These were effected at various times over the next six years, as and when Mr Faraday had the necessary funds or time available, or when negotiations for the sale of the subject property to the acquiring authority appeared to be making progress.[14]In April 1983 Mr Faraday let three offices in the upper part of the subject property to a newspaper, the Llanelli Classified. On 13 June 1983 his then solicitors, Davies and Jenkins of Llanelli, wrote to the chief executive of the acquiring authority, Mr Alun Bowen Thomas. They said:
“We act on behalf of the owner of the property at 9/10 Island Place, Llanelli from which they presently run the business of Park Estates. The owner understands that the Llanelli Borough Council are actively interested in purchasing properties in Island Place for the purpose of the development thereof as a bus station - or part of the plan directly relating thereto. We understand in fact, that recently, the Llanelli Borough Council has rejected plans for developing the property in Park Street which might interfere with the overall strategy. In the circumstances, therefore, in order that our client may make his long term plans, we would appreciate an indication from your authority as to whether or not 5 you are interested in purchasing the freehold of the said premises with vacant possession and, if so, at what point in time this would materialise. The negotiation as to the price, it is appreciated, would have to be referred to the district valuer. We will welcome any indication that you can give for clearly in any event, as a result of the publicity already given to the property, it must now be considered blighted.”
[15]The borough solicitor replied to this letter on 15 June 1983 as follows:
“I write to acknowledge receipt of your letter of 13 June 1983 and would inform you that the borough council have been for the past few months acquiring properties which have been offered to them by residents living in Island Place. Essentially, the rate at which the properties are acquired is governed by the finance available and probably one or two further acquisitions in this financial year would have eroded the sum which the council set aside in the estimates for such acquisitions. From the above you will gather that there is no immediate urgency to acquire any particular property in Island Place or its environs. However I am passing a copy of your letter on to the planning department and borough estates surveyor and I am asking them for their comments generally as to whether they consider negotiations may commence in this financial year perhaps with a view to completion taking place at some future date.”
[16]On 6 July 1983 Davies and Jenkins wrote again to Mr Bowen Thomas in the following terms:
“We have been instructed by our client Mr Faraday to write to you direct in relation to the above property. We enclose a copy of the last letter received from the borough solicitor’s department which is self explanatory. Our client was in the process last week of renting the first floor of his premises at a weekly rent of £45. This was upon the basis that there were no immediate plans by the local authority to purchase. The proposed purchaser, it is understood, made enquiries of the Llanelli borough council and was told that they were in the process of buying 9/10 Island Place and that there was no purpose at all in him taking up his tenancy. Our client made enquiry of the borough council in order to ascertain the veracity of this and was told that the proposed tenant had been informed that within 12 months or thereabouts the property would be purchased. As a result the tenant did not take up the tenancy, thus losing to our client indefinitely a rental of £45 per week. It is a pity that this situation has arisen, but in any event it could easily be rectified if your authority were prepared to negotiate for the purchase and let our client know the precise position. If, of course, there is no purchase now it means that the property is (a) blighted and (b) our client has suffered loss as a result of the information given. 6 We would welcome your observations upon the situation.”
[17]A copy of that letter was sent by the chief executive to the borough architect, accompanied by a memorandum dated 11 July 1983, which said:
“I suggest that if funds are available, we negotiate for its acquisition.”
[18]The following notes were written on the chief executive’s copy of that memorandum:
“Neil. Let me have schedule of our total commitment in Island Place to date. G.P. We have spent £150K so far! However, start negotiations on 9/10 bearing in mind we may not be able to complete until next financial year.”
[19]In September 1983 the district valuer wrote to Mr Faraday, saying that the acquiring authority had asked him to negotiate the acquisition of the subject property. Llanelli Classified were informed of the proposed sale and they terminated the lease of their offices with effect from November 1983.[20]In July 1984, and in the absence of any progress at all with the district valuer, Mr Faraday agreed terms with Dyfed county council (“Dyfed”) for the letting of the first and second floor offices and three parking spaces at the subject property, with access to the upper part through the ground floor estate agency. The rent payable was £4,000 per annum exclusive, with the landlord responsible for repairs and insurance. In addition, expenditure to be carried out by Mr Faraday at a cost of up to £2,000 would be rentalised over the first two years of the lease. The tenancy was for two years certain and either party could serve six months notice of termination at any time thereafter.[21]On 23 July 1984 the district valuer finally inspected the subject property. He prepared a file note, which included the following observations:
“A considerable amount of money has been spent on the property and the whole is in a good condition. The ground floor is occupied by Park Estates (o/o) and the first and second floors well decorated, with fitted carpets laid in a state for immediate occupation. Dyfed County Council has taken a short term lease of the first and second floors until new social services are built.”
[22]The acquiring authority’s borough architect wrote to the Dyfed county valuer on 29 November 1984. He said:
“I refer to your discussions with Mr G E Pilcher, borough estates officer, earlier today, with particular reference to the premises owned and occupied by Park Estates which, I understand, your authority is interested in acquiring the lease thereof. As you are aware, my authority has already acquired a number of properties in this area 7 and is actively engaged in the acquisition of the remaining properties for the purpose of redevelopment. At present the acquisitions are ‘pepperpotted’ within the site, but as soon as further acquisitions are completed it is the intention to proceed with the demolition of certain sections. I trust this information will be of some assistance to you in your deliberations.”
[23]On 4 December 1984 the Dyfed county valuer wrote to Mr Faraday. He said that he was not able to recommend his social services department to proceed with the proposed letting, in view of the acquiring authority’s redevelopment plans for the area. The upper part therefore remained unoccupied.[24]Towards the end of 1986 the Dyfed social services department asked the county valuer to resume negotiations for a lease of the upper part of the subject property, as it had been unable to find any suitable alternative premises. Mr Bowen Thomas heard about this and, on 18 December 1986, wrote as follows to his counterpart at Dyfed:
“I am advised that the county council has now turned its attention to the property known as Park Estates in Island Place, Llanelli, and which premises are used on the ground floor as an estate agency. The former planning consent with respect to this building has lapsed as it was issued for a limited period, and the limitation on time was deliberate on the part of the borough council as it is anxious to acquire all the properties in Island Place. In actual fact, we have acquired the majority of interests and demolished a number of the properties. It is suggested that the county council is likely to deem its consent with respect to the first floor of the premises for the purposes of housing the social services staff. I must emphasise that this is based on a rumour circulating in the town, and I have no authoritative source for such a conclusion. In the event of the county council acting in this way it will, of course, severely affect the value of the property, and thus require a greater investment on the part of the borough council when it can conclude negotiations with the owner. I am certain that the county council would not wish to embarrass this, or indeed, any other council in such a manner. I write, therefore, to enquire whether there is any foundation to the rumour, and if there is, I feel certain that you will appreciate the point of view of the borough council, and convey it to the appropriate committee of your authority.”
[25]Following receipt of that letter Dyfed again decided not to proceed with a lease of the subject property. They subsequently acquired a lease of 168 m2 of offices on the first and second floors of 13-15 Cowell Street, Llanelli. The lease was for 5 years from 24 February 1988 at a rent of £3,800 per annum exclusive, with six months rent free, Dyfed carrying out works of partitioning and adaptation at a cost of £18,000. Dyfed were still in occupation of those premises at the valuation date.[26]On 30 May 1986 Mr Faraday applied for consent to use the first and second floors of the subject property as offices and to remove the condition limiting the office use of the ground floor to five years. This was refused on 17 July 1986 for the following reason: 8 “Continued and expanded office usage of the property would be adversely prejudicial to the council’s established programme of acquisition of the properties in Island Place, as a pre-requisite to the redevelopment of the area.”[27]A similar application was made on 3 October 1986 and refused on 16 December 1986 because “Permanent office usage of the property would be adversely prejudicial to the council’s established programme of acquisition, demolition and redevelopment of Island Place.”[28]Mr Faraday appealed to the Welsh Office against this decision and the appeal was allowed on 7 December 1987. In the course of his decision the inspector said:
“Clearly it is the council’s aim to acquire by agreement the properties in this area in order to undertake redevelopment and improvement. But they have no firm or statutory plan proposals for the area. In an interim proposal formulated in 1985 they envisaged that Upper Park Street and the northern side of Island Place would be made available for short-term shopping use with the remaining properties providing a logical extension to the adjacent car park. I note that some monies have been allocated in order to pursue these interim proposals. However, in the long-term, the report to the policy review committee envisages that comprehensive redevelopment is unlikely to be achieved for many years unless private investment and development can be secured. There is no indication that such investment is available. The council, as you point out, have the power to achieve their aims under other legislation. These powers can be used whatever the use the property is put to. Given the already protracted negotiations with the District Valuer it may well be that these powers will have to be used whether or not this appeal is allowed. It seems to me that the continued use of the property for office purposes would not unduly prejudice the council’s plans for the area. It would, in my view, be wrong to withhold consent for the commercial use of the building pending private investment being found at some indeterminate future date. Nor is there any valid reason to limit the consent to 3 years as suggested by the Council in a condition they would wish to see imposed if consent is granted. I can find no sound or compelling reasons to preclude continued office use of the appeal premises. I have taken into account all other matters referred to, but I do not find they outweigh the considerations which led me to my conclusion. For the above reasons, and in exercising powers transferred to me, I hereby allow this appeal and grant planning permission for the retention of use as offices of 10 Island Place, Llanelli, in accordance with the terms of the application …. dated 10 September 1986 and the plans submitted therewith.”
[29]The lease of 67/69 was renewed after its expiry in January 1988. The furniture, fixtures and fittings were transferred from the subject property to 67/69 in 1989 and, early in 1990, Mr Faraday transferred his estate agency business there. By that time the business had been run down and he had very few properties on his books. He agreed about five sales whilst at 9 67/69, but none proceeded to completion and, by July 1991, he had an overdraft of £22,000. His bank manager instructed him not to sign any more cheques and he was therefore forced to cease trading. The fixtures and fittings were returned to the subject property.[30]From 1984 onwards intermittent negotiations took place between the district valuer and Mr Faraday’s agents, but they were all unsuccessful.[31]The acquiring authority made the CPO on 25 January 1993. It authorised the council to acquire the subject property and other land “for the purpose of securing the development, re-development and improvement of the land which is described in the Schedule hereto …” Issues[32]The issues between the parties are as follows:(1) Whether the value of the freehold interest in the subject property should be assessed by capitalising its rental value (and, if so, what rent and yield should be used) or straight to capital value (and, if so, at what rent per m2).(2) Whether, in the absence of the scheme underlying the acquisition, which it is agreed started in the early 1980s, Mr Faraday’s business was viable and, if it was, what if any compensation he should receive for loss of profits after March 1983.(3) Whether Mr Faraday took reasonable steps to mitigate his loss.(4) The correct approach to be adapted in calculating interest on Mr Faraday’s losses between the dates they were incurred and the valuation date.(5) Whether Mr Faraday is entitled to compensation for loss of goodwill and, if so, how much.(6) What rent Mr Faraday would have received from Dyfed for the upper part of the subject property up to the valuation date, it being agreed that the failure to obtain such rent was caused by the scheme.(7) Whether the claimed loss of £19,500 on the forced sale of fixtures and fittings is justified.(8) The extent of the costs incurred in respect of 67/69 for which Mr Faraday is entitled to be compensated. Freehold value 10[33]Mr Faraday’s valuation expert, Mr Rees, produced two written reports. The first, dated May 2002, concluded that the market rental value of the subject property at the relevant date was £15,900 per annum, of which £10,900 related to the ground floor and the remainder to the upper part. Mr Rees commented on the yield to be used when capitalising this rental value as follows:
“In capitalising the rental value the yield adopted should reflect the nature and location of the property and the possibility that the upper floors could have been let to a tenant with a strong covenant namely the county council. Due to the limited evidence of yields I set out below a range of values for the freehold interest in the subject property at the vesting date, assuming a rental value of £15,900 per annum: Yield £ £ 8.7% 182,758 say 183,000 10.7% 148,598 say 148,000 12.7% 125,196 say 125,000.”
[34]In his supplementary report dated 14 February 2003, Mr Rees adhered to his original view of rental value, but reduced the yield to 8%. The reasoning behind this change of opinion was described in these terms:
“In my initial report I referred to there being no evidence of yields available at the relevant date in respect of properties acquired by the acquiring authority. I have had sight of a handwritten note which I understand to have been prepared by Mr G P Harris, the then Assistant Director (Estates) for the acquiring authority, in which valuations are set out for various properties in Market Street. A copy of this document is attached to this report… The valuations for 1-3, 7 and 9 Market Street reflect yields of between 8 and 8.25 per cent. The properties in Market Street comprised part of a portfolio which is listed on the second page of the note. Mr Harris was the individual within the authority with the responsibility for acquiring properties in the town centre for development. At the foot of the second page Mr Harris refers to having capitalised rateable value, which reflected notional rental value as at 1 April 1988, but that if brought into line with current values the open market value of this holding would appear to be between £1,150,000 and £1,250,000. My interpretation of this note is that Mr Harris’s opinion of open market value reflects the increase in rental values between 1988 and the date of his valuation rather than the improvement in any level of yield. It is unclear as to what date these valuations or calculations have been prepared however it must have been prior to 7 February 1992 when Mr Harris sent a memorandum to the borough solicitor, confirming that agreement had been reached for the purchase of the portfolio at a total figure in excess of that shown in the manuscript notes. 11 I consider this to be the best evidence of the acquiring authority’s own view of the appropriate level of yield to be adopted in the valuation of properties which were being acquired in the town centre. During the process of discovery the claimant had the opportunity of reviewing the council’s files in respect of 1-3 Market Street and the John M Portfolio. I understand that these files contained documents entitled Llanelli Town Council, Holdings in Phase 1 of Town Centre Development, copies of which are enclosed … The papers are not signed or dated. Having reviewed the papers it appears to be a valuation of the council’s interests on an existing use basis and also reflecting a refurbishment of the market. Although the papers are not dated it is interesting to note that in valuing the properties in Market Precinct, Market Arcade and Central Precinct, the valuer has adopted a yield of 8% which is the same yield as adopted by Mr Harris in his exercise relating to Market Street and the district valuer’s exercise in 1986 … This is further evidence of the acquiring authority’s own view of the appropriate level of yields to be adopted in valuing premises in the town centre. Having reviewed the various comparables I am still of the opinion that the rental value of the property as at the vesting date was £15,900 per annum. I have considered the level of yield adopted by Mr Harris in valuing the John M portfolio and I believe a reasonable yield to adopt in valuing the subject property is 8% which results in a value of £198,750 but say, £198,000.”
[35]Mr Cobb’s approach to the valuation was to go straight to capital value. He relied on the evidence of three freehold transactions and computed his figure of £87,500 in the following way: m2 % main space £/m2 £ Ground Floor Offices 77.90 100 500 38,950 First Floor Offices 65.30 100 500 32,650 Second Floor Offices 47.40 66 330 15,642 Total 190.60 87,242 Say 87,500[36]Mr Cobb also produced the following calculation, based on a capitalisation of rental value, not as a primary valuation but merely as a check: m2 % main space £/m2 pa £ Ground Floor Offices 77.90 100 55.00 4,285 First Floor Offices 65.30 100 55.00 3,592 Second Floor Offices 47.40 66 36.50 1,730 Total 190.60 9,607 Years purchase in perpetuity @ 11.00% 9.10 87,423 12 Say 87,500[37]I start by considering Mr Rees’s rental and yield approach and, firstly, his estimates of rental value. There is little between the two experts on the value of the upper floors; indeed, Mr Cobb’s figure is slightly higher, at £5,322 compared to Mr Rees’s £5,000. Mr Rees’s ground floor rental value of £10,900, however, is two and half times as much as Mr Cobb’s £4,285.[38]Unlike Mr Cobb, who valued on the basis of overall floor area, Mr Rees valued the ground floor on a zoning basis, that is 62.25m2 in terms of zone A (ITZA) at £175 per m2. Although he referred to the rents paid for a number of properties which he considered to be comparable, he stated in his first report that the rental evidence to which he had had regard was that relating to 18 Cowell Street and 5 Cowell Precinct. In that report Mr Rees summarised his understanding of the facts of those two transactions as follows:
“18 Cowell Street - I understand that the ground floor offices were let by the acquiring authority to the Army Recruitment Office with a rent of £11,200 per annum agreed with effect from 25 December 1989. Based upon an area of 65.12 m2 the rent equates to £172.00 per m2 [overall]. 5 Cowell Precinct - Enclosed … is a copy of an advertisement by Llanelli Borough Council inviting tenders for a new lease for a term of up to 25 years. The closing date for the tender was 25 September 1995 and tenders were invited at a rate in excess of £13,000 per annum. Based upon the information provided in the advertisement I calculate the area in terms of Zone A to be 60.47 m2. A rent of £13,000 per annum equates to £215 per m2. I acknowledge that Cowell Precinct is in a better location for retail premises than Island Place and that the tender deadline is after the vesting date for the subject property however the advertisement illustrates the acquiring authority’s view of the value of retail premises in Llanelli in 1995.”
[39]Mr Rees and Mr Cobb subsequently agreed different details for these two transactions. There was a slight difference on 18 Cowell Street; adjusted in terms of a standard full repairing and insuring lease with five yearly rent reviews, the agreed rent was equivalent to £173.83 per m2 overall or £228.64 per m2 ITZA. The difference in the case of 5 Cowell Precinct was much greater. Although offers had been sought of rents in excess of £13,000, the property was in fact let on a five year lease from November 1995, at an initial rent of £8,000 per annum, rising in annual steps of £1,000 to £12,000 in the fifth year. There was a tenant’s break clause at the end of the first year, which was subsequently extended and exercised by the tenant after two years. The initial rent of £8,000 was equivalent to £119.85 per m2 ITZA. The average agreed rent over five years was £10,000, or £149.81 ITZA.[40]Rather surprisingly, Mr Rees did not consider it necessary to amend his valuation of the ground floor of the subject property, despite the fact that the rent actually agreed for one of his two main comparables proved to be very significantly lower than he had originally 13 assumed. In any event, I do not consider that it is appropriate to value the subject property by reference to either 18 Cowell Street or 5 Cowell Precinct, which both had full display frontages and were in a central retail location, whereas the subject property had a solid structural front wall with limited display facilities and was located in a non-retail position on the fringe of the town centre.[41]Mr Cobb valued the ground floor at the same overall rate as he had applied to the first floor offices. I accept that approach in preference to Mr Rees’s zoning method. As I have said, Mr Cobb’s rental valuation of the two upper floors was in excess of Mr Rees’s figure and I accept it. I also accept Mr Cobb’s view that the second floor offices were worth two- thirds the value of those on the first floor. Accordingly, I find that the rental value of the subject property was, as suggested by Mr Cobb, £9,607 per annum.[42]I now turn to the yield. Mr Rees found this to be the most difficult aspect of the valuation. That is why he initially submitted a range of values, based on yields that varied by four percentage points, and did not express a preference for any particular rate. He subsequently gained in confidence, however, and settled on a rate of 8%, which fell outside the range which he had originally considered to be appropriate.[43]This change of opinion was based on the disclosure by the acquiring authority of hand written valuations which had been prepared by its officers. Mr Rees’s references to the yields used in these valuations were selective (perhaps unknowingly), since the notes also mentioned yields significantly higher than 8% and 8.25%. All the properties concerned were either in the town centre itself or closer to the town centre than the subject property. To the extent that one can draw any conclusions from undated valuation notes, I consider they suggest that the 11% yield adopted by Mr Cobb in his check calculation is more reliable than Mr Rees’s 8%.[44]In his second report, Mr Rees referred to a number of other transactions which he considered to be relevant. At the hearing, however, he abandoned any reliance on any of them except for the compensation paid for the acquisition of Elim. In this connection Mr Rees referred to a report dated 30 September 1999 from Mr Dickenson of DTZ Debenham Thorpe, who were representing the acquiring authority in the compensation negotiations, to Mr P A Edwards of the acquiring authority. Mr Dickenson reported that compensation had been provisionally agreed at £182,470, of which £180,000 related to the land. His letter included the following paragraph: “The compensation has been agreed on the basis of the purchase costs of a suitable alternative premises, albeit one that is somewhat larger than the previous. The alternative is equivalent reinstatement under rule 5 where the actual costs are calculated to be at least 5% to 10% more than the amount agreed. The background to this is set out in more detail in my letter of 10 September”. [The italics are mine].[45]Mr Rees relied on the italicised sentence, which he suggested indicated that compensation was not agreed on an equivalent reinstatement basis and must therefore have 14 been based on market value. The background letter explained the reasoning behind the settlement at £180,000 as follows: “I refer to our recent conversation relating to the above when I reported back on the current state of play. Briefly, Rowland Jones and Partners have put a proposal to us for a without prejudice settlement based upon their calculation of the potential equivalent reinstatement claim in the sum of £232,000, inclusive of VAT. (The Church can also apparently reclaim the tax). The total cost to the council would of course be more than this and will include the cost of the site being transferred to them for the reinstatement, together with further rent on the alternative premises during the construction and any disturbance costs. Instead of this, they propose to purchase an alternative premises in the sum of £180,000 and will be willing to accept this amount in full and final settlement of their claim, subject to the addition of legal and surveyor’s fees on this transfer. I have spoken to you in terms of our assessment of the likely reinstatement costs. From the brief specification and simple drawings provided, we estimate the reinstatement cost to be in the sum of £132,000, including VAT, making reasonable provision for professional fees and dealing with the external areas. Although this figure is not necessarily correct and is subject to market testing by the tender process, it nevertheless offers a considerable margin of error over the £180,000 claimed. However, we must also consider the additional benefits to the council of the land that would not now be required to be released to relocate the church. You have indicated that the allocation of the present site has been undertaken through losing planning allocation for residential purposes elsewhere. Your best possible estimate of the value of this residential land appears to be of the order of £35-£40,000 and if this is taken into account then the cost to the council is more like £170,000 based upon our estimate of reinstatement costs. In addition, there will of course be the further interest/rent payment during the construction period and before they can move in, together with normal disturbance costs. In these circumstances, it appears that the true cost to the council could exceed £180,000 by a substantial margin. In the circumstances, I will be prepared to recommend acceptance of the offer, subject to bottoming out what the legal and surveyor’s fees will be. This will enable the matter to be brought to a conclusion very rapidly and offers a potential cost saving to the council. I am endeavouring to find out what the professional fees will be and will let you know as soon as this information is available. In the meantime, I will be pleased if you can consider the principle of this transaction and let me have your response at the earliest possible moment in order that the deal can be enabled if it is to go ahead. I understand that there is some time constraint in respect of the alternative property and an early response will be needed ...” 15[46]In my judgment, it is impossible in the light of this correspondence to conclude that the agreed compensation reflected Elim’s market value. There would have been no point in Mr Dickenson comparing the agreed figure of £180,000 favourably with the cost of constructing a new church on an alternative site, if he had considered that the correct valuation approach was by reference to market value. I therefore find that the compensation agreed for Elim does not qualify for consideration as a comparable for the valuation exercise which I am required to determine. Even if it did, the market value of a church would be of no evidential value when assessing the value of an estate agency with offices above.[47]I now turn to Mr Cobb’s valuation. This was arrived at by considering the evidence of four transactions in Llanelli to arrive at freehold values to be applied directly to the areas of the subject property. One of the four was discounted by Mr Cobb, since it was nearly four times the size of the subject property. The three remaining transactions may be summarised briefly as follows: 33 Thomas Street. Vacant freehold office building, approximately quarter of a mile north of the town centre. A Victorian two-storey building of rendered stone and slate construction, with basic facilities but no central heating. Previously used as off licence with residential above. No on-site parking, but pay and display car park nearby. Freehold sold October 1992 for £47,500 to Barnardo’s with planning consent for office use. Total area 125.20m2. Analysis: Ground and first floor offices £489.63 per m2. First floor store taken at three quarters office rate and ground floor store at £12.23 per m2. 2 John Street Freehold office building in town centre. A Victorian two-storey building of rendered stone and slate construction. No parking. Freehold sold December 1993, subject to two monthly tenancies, for £67,500. Total area 95.11m2. Analysis: Ground and first floor offices £709.75 per m2. 4 Queen Victoria Road A vacant, detached two-storey converted office building of traditional construction with forecourt car parking, approximately 0.25 mile west of town centre. Freehold sold April 1995 for £75,000. Total area 193.4 m2. Analysis: Ground and first floor offices £387.75 per m2.[48]Mr Cobb considered that the price paid for 2 John Street should be adjusted downwards to reflect its superior location and that of 33 Thomas Street should be increased because it lacked on-site car parking. He felt that the sale of 4 Queen Victoria Road was also relevant and, having regard to all the evidence, he adopted a rate of £500 per m2 for the ground and first floors of the subject property.[49]Mr Rees criticised all three of Mr Cobb’s preferred comparables. He pointed out that Barnardo’s had spent a considerable sum converting 33 Thomas Street for use as an administrative centre, providing short term care services for mentally handicapped children. He accepted, however, that the refurbishment works were carried out to meet the specific 16 requirements of the purchasers, not to increase the value of the property. On the sale of 2 John Street, Mr Rees argued that the price paid was unreliable, because the property had not been offered for sale generally on the market by the vendor, the acquiring authority. He agreed that the purchasers were a firm of estate agents who owned the adjoining buildings 4, 6 and 8. He said: “I am not saying the price paid was right or wrong. There are question marks about it”.[50]As for 4 Queen Victoria Road, Mr Rees explained that the purchaser was the Royal Naval Association (RNA) as part of an overall agreement with the acquiring authority to relocate them from their existing premises in Murray Street. They were paid £225,000 for 59 Murray Street and spent £75,000 on purchasing 4 Queen Victoria Road and the balance on converting the building to satisfy their own requirements. The figure of £75,000 was based on the price of £70,000 that the acquiring authority had recently paid for the property when it was subject to a tenancy to the WRVS, whom the acquiring authority then relocated.[51]Mr Cobb accepted that the evidence of 4 Queen Victoria Road was a less reliable comparable than the remaining transactions upon which he had based his valuation. None of his comparable transactions provide ideal evidence of the value of the subject property. Nevertheless, in my view they are the most reliable evidence of that value that is available and Mr Cobb has used them properly in arriving at a freehold value of £500 per m2 for the ground and first floors and £330 for the second floor. I accept that basis and Mr Cobb’s valuation of £87,500.[52]I would make the following additional comments on the freehold valuation. Firstly, Mr Timothy Jones submitted that the property should be valued, not with vacant possession, but on the basis that it was occupied by Mr Faraday. He said “There are no direct office premises of a freehold nature with an owner occupier which are available as open market comparables.” In fact, both Mr Rees and Mr Cobb valued the subject property on the assumption that it was vacant, and both relied, at least in part, on rents or prices paid for vacant premises. I am sure that they were right to do so. The loss suffered by a claimant is reflected in the compensation payable for disturbance; the compensation payable for his property is based on the price it would achieve if it were sold in the market.[53]Secondly, at the start of the hearing, Mr Timothy Jones applied for Mr Cobb’s valuation evidence to be excluded from consideration, because he had not inspected the interior of the subject property, which had been demolished before he was first instructed. In support of that application, Mr Jones relied on Cotter v The Metropolitan Railway Company (1864) 10 LT 777. 17[54]I refused the application. It is clear that the decision of Kindersley VC to disregard certain valuation evidence in Cotter was based on the facts of that case. The Vice- Chancellor expressly “wished it to be understood that if, under the (relevant legislation) where a surveyor had made his valuation he had done so in such a manner as to enable him to do it fairly, the court would not disturb that valuation, but in the present case it was not so and therefore the court ought to interfere.” I am satisfied that, in the case with which I am concerned, Mr Cobb has taken care to ensure that his valuation evidence was presented fairly, despite the fact that he had been unable to carry out a proper inspection. Indeed, Mr Timothy Jones rightly accepted that he gave evidence “in a reasonable and reasoned fashion”.[55]Thirdly, in his supplementary report dated 14 February 2003, Mr Rees expressed the view that the market value of the freehold interest in the subject property in late 1983/early 1984 was £102,000. In answer to a question from me he said that he accepted the principle that the correct date of valuation was the vesting date. He had only prepared the valuation at an earlier date “in case, on reading case law, it is felt appropriate to value on an alternative basis”. As I have said, it is agreed that the valuation date is 26 November 1994. That agreement, in my view, was properly reached and I therefore need say no more about Mr Rees’s alternative valuation.[56]Finally, Mr Rees referred to the fact that, at the valuation date, planning permission existed for a rear extension to the subject property. Mr Cobb did not consider that this permission had any effect on value and pointed out that, if built, it would be constructed over the existing car parking area, which was reflected in his value of the property. In the absence of any evidence as to the completed value of or cost of constructing the extension, I am unable to find that it had a material valuation effect. Loss of profits[57]All items of disturbance compensation claimed relate to pre-acquisition losses. It is agreed that such losses are recoverable as a matter of law. Mr Faraday’s first trading accounts in respect of his estate agency business at the subject property covered the period 27 May 1981 to 31 March 1982. They showed total commission earned of £6,457.38 and a net loss of £5,520.68. In the following 12 months Mr Faraday earned commissions totalling £37,357.25 and made a net profit of £5,649.49. In the year ended 31 March 1984 commission of £21,637.17 was earned, resulting in a net loss of £2,272.33.[58]Mr Faraday suggested that the decline in income after March 1983 was due to the acquiring authority’s activities in purchasing properties in the vicinity of the subject property, as part of its proposals to redevelop the area. He said that the general public was first alerted 18 to the position in July 1982, when the plan for a new bus station in the town centre was publicised. By the middle of 1983, nine houses in Island Place had been purchased by the acquiring authority and it was common knowledge that properties in the street were intended for redevelopment. The public’s awareness that the subject property was in the heart of a redevelopment area resulted in many potential clients deciding to instruct other estate agents to market their properties. This in turn led to a serious decline in commission income. It prompted Mr Faraday to instruct his solicitors to write to the acquiring authority on 13 June 1983, indicating that his property had been blighted (para 14 above).[59]In order to estimate the turnover which would have been achieved if the subject property had not been so blighted, Mr Jones relied on the turnover figures of three other estate agents in Llanelli. He produced letters from Messrs Forresters, Thornes and John A W Protheroe, setting out the percentage increase or decrease on their 1983 figures that had been experienced in each year between 1984 and 1993. Using these figures, he calculated the average percentage change for each year. He applied those averages to Mr Faraday’s 1983 turnover figure, to produce the expected turnover for each year in the period from 1 April 1983 onwards.[60]In calculating the profits which would have been earned in the no scheme world, Mr Jones made the following assumptions in relation to the costs of the business:(a) Wages were based on the figures in the accounts to 1985. From 1 April 1985 he assumed that the costs would increase annually at 3%. He also considered that the employment of further staff would be necessary from 1 April 1986 at the same rate as was paid to the existing staff.(b) Rates would increase at 7% per annum from 1 April 1990 onwards.(c) Insurance costs would increase at 5% per annum from 1 April 1989 onwards.(d) Heat and light costs would increase at 5% per annum from 1 April 1987 onwards.(e) Accounting costs would increase by £50 per annum from 1987 onwards.(f) A second photocopier would be leased from 1 April 1987.(g) The variable costs, apart from wages, would move in line with the increase or decrease in turnover.[61]Since no turnover figures for 1994 were provided by the three local estate agents, Mr Jones assumed that the turnover for the period 1 April 1993 to 26 November 1994 would be at the same rate as the projected figure for the year ended 31 March 1993.[62]This exercise produced the expected net profits from the year ending 31 March 1984 until 26 November 1994. From these figures Mr Jones deducted the adjusted actual profit figures of the business to give the following loss of profits: 19 Year ended 31 March £ 1984 13,799 1985 17,621 1986 26,120 1987 37,318 1988 56,709 1989 54,519 1990 41,894 1991 43,699 1992 39,849 1993 32,160 1994 31,965 1 Apr 1994 to 26 Nov 1994 20,900 Total loss 416,553[63]In preparing these calculations, Mr Jones excluded from Mr Faraday’s annual profit and loss accounts those elements which he understood did not relate to the estate agency business conducted at the subject property.[64]Mr Jenkins made a number of detailed criticisms of Mr Jones’s approach. He strongly disagreed with the projection of income after March 1983. In order to achieve Mr Jones’s suggested turnover figures, Mr Jenkins said that Mr Faraday would have had to sustain growth over a long period, with each year’s growth improving on a higher base level. This sustainability over time made the achievement of the suggested growth rates difficult for what was in essence a start up business. Mr Jenkins said that Mr Faraday’s business was extremely small. In view of the high failure level of new businesses, it must be regarded as being more at risk of failure than other estate agents in the town.[65]Mr Jenkins commented on the three estate agents whose turnover figures were relied on by Mr Jones as follows:
“The comparative information is in respect of three estate agents operating in Llanelli. At the present time there are at least nine estate agents operating in the Llanelli area, excluding other firms based in surrounding towns, that will also do business in the town. Accordingly, how the three have been selected as a sample cannot be established. The extent to which they are typical or untypical of other agents or of the estate agency population as a whole cannot be determined from the information supplied. The information provided on the other agents is limited to providing a summary in percentage terms of the change of activity they experienced in the period 1983 to 1994. Accordingly, no information has been provided on their specific qualifications, longevity of operations, their size, their total income, cost base or profitability. In these circumstances it cannot be concluded whether or not these businesses were similar in size and structure to the claimant and therefore comparable operations. 20 The description of income on which the limited information in respect of three other estate agents is provided differs. For example, Thornes describe the information as being on ‘… the activity in the property market as reflected by our fee income’, whereas John A W Protheroe define it as arising from ‘gross proceeds of income’. These may, therefore, represent analyses of different categories of income. Each of the three businesses, in their letterheads, described their business in different manners. All are chartered surveyors, two but not three describe themselves as auctioneers and one as a rating consultant. Accordingly, the extent to which these businesses derive the income described in their analysis from the same sources as the estate agency operated by the claimant cannot be determined from the limited information provided. The rate of growth of each of the businesses highlights substantial variations. For example, by 1993 Forresters showed a growth of only 35% during the decade compared with 105% for Thornes. The existence of such wide variations in growth indicates that the financial performance of these businesses varied considerably and simple averaging may not therefore provide a meaningful guide as to how the sector and included business therein performed in the period. In addition, I do not agree with the logic used in projecting the future financial performance of the claimant’s business. Essentially these businesses deal in the sale primarily of houses in the Llanelli area. The size of the market for these businesses is finite. As the claimant’s business competed with these businesses if he had operated successfully during the period, the business obtained would have been at the expense of other similar businesses. This in itself would have reduced the average level of activity for all such businesses. Finally, as is confirmed in Mr Jones’s report … the estate agency business of the claimant had only been operating for two years prior to the period for which Mr Jones begins to make adjustments to the results. To argue therefore that a new business, such as this would within this limited period have achieved the same rate of growth as businesses which had presumably been established for longer periods and which therefore had built up more of a reputation and following is speculative. As we have no base levels of activity, i.e. absolute amounts of turnover for the other businesses we cannot determine the extent to which these businesses are of similar size to the claimant and therefore the extent to which growth between the businesses is comparable.”
[66]Mr Jenkins said that Mr Faraday’s balance sheet as at 31 March 1983 demonstrated that multiple borrowings had been consolidated into one longer term loan. The balance sheet indicated a highly geared business with a considerable level of debt to service. The limited financial strength of the business had been diminished over a two year period as a result of drawings exceeding the small surplus generated in that time. As a result, the balance sheet at 31 March 1983 was highly geared and weak. The business suffered from a diminishing capital base. Its borrowings needed a significant increase in profitability if they were to be serviced. The balance sheet was not indicative of a strong business, able to weather any period of trading difficulty. 21[67]Mr Jones did not accept that Mr Faraday’s balance sheet was weak at the end of 1983. He pointed out that it included three freehold properties at cost. For example, the subject property was valued at £7,041, which was substantially below its then market value. The fact that Mr Faraday’s bank was prepared to increase his overdraft at that time indicated that it was satisfied that surplus assets were available. If it had been necessary, Mr Faraday could have sold one of his properties to reduce his indebtedness, as he had done in 1983.[68]Mr Jenkins criticised the adjustments that Mr Jones had made to separate Mr Faraday’s estate agency results from his other activities in the year to 31 March 1983. In summary, the effect of Mr Jones’s adjustment was to allocate £18,382 of costs to an income of only £480 as being the non-estate agency business. Mr Jenkins said that, if the non-estate agency business as operated by Mr Faraday had been incurring the level of losses indicated by Mr Jones’s analysis, he would have been well advised to cease those activities. Accordingly, the costs eliminated by Mr Jones were unrealistic and out of proportion to any non-estate agency business that existed.[69]In cross-examination, Mr Jones accepted that some of his cost adjustments were not justified. Nevertheless, he felt that the following costs were not related to the estate agency business and should be excluded from the calculation of notional profit - loan interest, one- off repairs, motor expenses, travelling and insurance premiums.[70]As I have said, Mr Jones prepared his loss of profits calculation on the assumption that the decline in turnover after March 1983 was caused by the blight resulting from the acquiring authority’s purchase of adjoining properties. Mr Jenkins did not deal with that suggestion in his written reports. While giving evidence in chief, he was asked whether the acquisition of buildings in the vicinity could have accounted for the reduction in turnover experienced by Mr Faraday’s business. He replied:
“I can’t speculate. Turnover fell by about 40% in the year to March 1984. At least one of the other three estate agents experienced a downturn. There were other factors at work.”
Asked to specify the percentage changes in turnover of the other three agents, Mr Jenkins said that one fell by 10%, one increased by 21% and the third increased by 30%.[71]Mr Faraday considered that the decline in turnover after March 1983 was attributable to the effects of the scheme underlying the acquisition. Mr Jenkins was reluctant to express a view on the matter, but suggested that other factors may have contributed to the decline in turnover. Nevertheless, he accepted in cross-examination that a newspaper article in May 1983, indicating that planning permission had been refused for a new surgery close to the subject property because of the proposed new bus station, may well have adversely affected local people’s attitudes towards existing businesses in the area. The only justification Mr Jenkins could put forward for suggesting that other factors may have contributed to the decline in turnover was to place reliance on the decline in takings in 1984 of Forresters, that is one of the very comparables that he had previously rejected as being unreliable. 22[72]On the evidence, I am satisfied that the decline in turnover that Mr Faraday experienced in the year to March 1984 and thereafter was caused by the effects of the scheme. I am also satisfied that Mr Faraday’s business was not under-capitalised in March 1983. None of the substantial bank loans mentioned in the accounts related to the estate agency business. If necessary, those loans could have been repaid by selling other freehold properties. I find that Mr Faraday’s estate agency business, in the absence of the scheme, would have continued to trade satisfactorily until the valuation date. In arriving at that conclusion I have borne in mind that, at least in the early years, Mr Faraday’s cash flow is likely to have been strengthened by the receipt of rental income from the upper part of the subject property, a matter to which I return later in this decision.[73]I appreciate that Mr Faraday’s business had only recently been established when the area first became blighted and that it is possible that it would have performed less well than the firms already established in the area. On the other hand Mr Jones said, and I accept, that it is often during the early years of a business that percentage growth tends to be greatest. Mr Jenkins observed that the turnover of the other agents in the town might have been rather less if the total business had had to be shared with an additional competitor. Whilst that is probably right, Mr Faraday had in fact managed to take part of the available pool of business away from the other established agents in the period up to March 1983 and, in the absence of the scheme, I find that he might reasonably have been expected to continue to do so.[74]I now consider the rate at which Mr Faraday’s turnover would have increased in the no scheme world. Mr Jones assumed that it would have risen by 14 per cent in the year to March 1994, based on the average results of three other estate agents. As Mr Jenkins pointed out, such an approach is not wholly reliable, particularly in view of the lack of detailed information as to the activities, cost base and profitability of the other firms. Mr Jenkins, however, made no effort to obtain such information. Moreover, whilst he properly pointed out the wide variations between the performances of the three firms, he did not approach any of their competitors in an attempt to see whether their results were truly representative.[75]In what is inevitably an imprecise exercise, I have come to the conclusion that the average performance of the three estate agencies is the best available evidence of the likely changes in Mr Faraday’s annual income in the no scheme world. I therefore find that the commission income which he would have earned in the no scheme world is that suggested by Mr Jones, as follows: Year to 31 March Projected turnover (£) 1983 37,357 23 1984 42,587 1985 52,300 1986 55,320 1987 65,812 1988 79,165 1989 75,350 1990 60,089 1991 67,719 1992 63,268 1993 54,048 1994 54,048 To 26 Nov 94 35,339[76]It is also necessary to assess the costs that would have been incurred in achieving these levels of income. In the year to March 1983 Mr Faraday’s total costs were £32,187.76. By the close of his evidence Mr Jones considered that only the following items which helped to make up that total should be adjusted or excluded from the calculation of notional profit, because they were not necessary for the continuation of the estate agency business: £ Motor and travelling expenses 3,757.62 Repairs and renewals 8,597.67 Insurance 440.37 Loan account interest and bank charges 6,461.40 Total 19,257.06[77]In the light of the evidence, my conclusions on the proper treatment of these items are as follows. I am not persuaded that the motor and travelling expenses related to any non- estate agency activities; they should therefore be deducted in full when arriving at Mr Faraday’s notional profit. Most of the repairs and renewals related to the refurbishment of the first and second floors of the subject property, which were not used for Mr Faraday’s business and most of the insurance premiums related either to other buildings or the upper part of the subject property. They should therefore not be deducted. It is, however, necessary to allow for ongoing repairs and insurance to the estate agent’s office. Mr Cobb assessed the expenditure on repairing and insuring the upper part of the subject property at 15% of its rental value. I propose to apply the same approach to the ground floor of the building, whose rental value I have found to be £4,285 per annum. Thus, £643 should be deducted for repairs and insurance. As previously mentioned, the figure for loan account interest in the accounts did not relate to the subject property. Neither that interest nor the related bank charges, which together total £6,461, should therefore be deducted. Mr Faraday had, however, mortgaged the subject property to the Gateway building society in 1982 for £19,500 and the mortgage interest should be deducted. Mr Jones’s projected accounts indicated mortgage interest of £1,601 in 1983 and I accept that figure. Thus, the adjusted net profit earned by the estate agency in the year to March 1983 was £18,424, as follows: £ Commission earned 37,357 24 Less total expenses per accounts 32,187 5,170 Add back Repairs and insurance: 8597 + 440 - 643 8,394 Interest and Bank charges : 6461 - 1601 4,860 18,424[78]In answer to a question from me, Mr Jenkins expressed the view that the estimated rental value of the premises occupied for the purposes of the business (that is, the ground floor offices) should be deducted from the trading income, in order to calculate the “true” profit situation. I do not agree. Mr Faraday has claimed for loss of rent from the first and second floors of the subject property. I deal with that matter later in this decision. He has not, however, made a claim for loss of rent from the ground floor. Consequently, if that rental value were deducted from the profits, Mr Faraday would be uncompensated for earnings that the ground floor of his property would have made after March 1983.[79]Mr Jones prepared detailed estimates of each of the outgoings which he considered would have been incurred by Mr Faraday if he had continued to operate his business in the no scheme world. In cross-examination he accepted that these estimates were nothing more than intelligent guesses. In the absence of any other reliable evidence on the matter, I propose to use, as the starting point for estimating the profits which would have been earned, the relationship between adjusted net profit and total commission income in the year to March 1983, namely £18,424 divided by £37,357, or 49.3%. In my view, this percentage needs to be adjusted downwards substantially to reflect the fact that the total expenditure on wages in 1983 was only £1,741.75, representing the cost of part-time staff. I do not think it is possible that Mr Faraday’s business could have operated on a long term basis, achieving the levels of turnover projected, without a significant increase in the level of staffing represented by this figure. Mr Jenkins suggested, and I accept, that in the early days the proprietor of a small business often takes pains to minimise outgoings, but eventually is forced to increase expenditure substantially, leading to a stepped rather than a gradual rise in the cost base. For the purposes of the current exercise, however, I propose to adopt a broad brush approach and reflect the need to incur much higher wage costs, as well as a certain level of bank charges and overdraft interest, by reducing the profit margin from 49.3% to 30% in each of the years between 1984 and 1994.[80]The resultant anticipated profit figures are calculated in Appendix 1. In order to assess the loss of profits suffered by Mr Faraday on a consistent basis, I have adjusted the actual expenditure on repairs and insurance, loan interest and bank charges which appear in the trading results between 1984 and 1988 (no accounts were available for 1989) in the same way as the 1983 accounts (see paragraph 77 above).[81]My assessment of the profits which Mr Faraday would have earned in the no scheme world is based on his financial results for 1982/83. In fact, as the number of selling instructions declined as a result of the scheme, Mr Faraday would have needed to devote progressively less time to dealing with them. No evidence was given as to the amount of 25 time that Mr Faraday devoted to his estate agency business in its most successful year and how he could profitably have used the time that was freed up during the years 1983 to 1994. I do not consider, however, that it would be right to award compensation on the assumption that Mr Faraday spent the time on his business that he would have needed to spend to earn the no-scheme world profits, when in fact he did not do so. In the absence of any evidence on the point, I propose again to adopt a broad brush approach and reflect the value of Mr Faraday’s “freed up time” by reducing the loss of profits figures by 25 per cent until March 1991, some four months before he ceased trading entirely, and by 50 per cent thereafter. This results in a total figure for loss of profits of £137,019. Mr Faraday’s duty to mitigate losses[82]As I have indicated, the acquiring authority accept that, in principle, compensation is payable for losses incurred prior to the making of the CPO. In Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 Lord Nicholls, discussing the principle of loss of profits in the “shadow period” prior to the date of resumption (that is, compulsory acquisition), said “To qualify for compensation a loss suffered 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. In the terms of the Resumption Ordinance, a pre-resumption loss which satisfies these criteria is as much ‘due to’ the resumption of the land as a post-resumption loss. 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. This is not the occasion to examine whether a comparable approach is applicable also in other legal contexts, such as claims for damages for wrongful expulsion from land. 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.” 26[83]Thus, the fact that 11½ years elapsed between the initial decline in profitability of Mr Faraday’s business and the eventual compulsory acquisition of the subject property does not mean that he is not entitled to full compensation for loss of profits in that period, provided that loss was causally connected to the acquisition, was not too remote and would not have been avoided by a reasonable person. I have found that Mr Faraday’s loss of profits was caused by the scheme and I do not consider that that loss is too remote. Mr Jenkins suggested that Mr Faraday had failed to act prudently. He said that, having heard in September 1983 that the district valuer had been instructed to negotiate the purchase of his property, Mr Faraday should have obtained independent valuation advice and then concluded negotiations with the acquiring authority as quickly as possible. Location was fundamental to the success of an estate agency business and, if the existing location was deteriorating rapidly, he should have relocated to 67/69 without delay in order to avoid the risk of losing his business.[84]In fact, Mr Faraday started taking steps to relocate his business even before he received the district valuer’s letter in September 1983. Shortly after the two buildings immediately adjoining his had been purchased by the acquiring authority, Mr Faraday entered into a lease of 67/69 for a term of 5 years from 24 January 1983. 67/69 was in poor condition and offered limited security of tenure but, at a rent of only £1,800 per annum, it was the best property he could afford at the time.[85]Mr Jenkins’s criticism, therefore, relates in effect to Mr Faraday’s delay in carrying out the works needed to make 67/69 suitable for use as an estate agency and then moving his business there. In considering whether that delay was justified, it is in my view pertinent to consider the manner in which the acquiring authority approached the negotiations to purchase the subject property.[86]Mr Spackman suggested, not entirely without justification, that Mr Faraday’s failure to set out his case with any precision in a chronological statement had hampered the acquiring authority in the preparation of its case. It has, however, long been clear that Mr Faraday feels aggrieved at what he considers to be the inappropriate manner in which the acquiring authority dealt with the negotiations for his property. In his witness statement dated 29 May 2001 he said:
“It appears that they [the acquiring authority] deliberately dissuaded Dyfed but also as the papers show entered negotiations to try and purchase the premises which was all part of a deliberate plan to get the premises as cheaply as possible notwithstanding its true value.”
[87]It was plain, therefore, that part of Mr Faraday’s case was that the acquiring authority had not acted in good faith in the negotiations and, in the course of cross-examination, Mr Jenkins accepted that it was incumbent upon the acquiring authority to negotiate in good faith. Nevertheless, no evidence was adduced by the acquiring authority concerning the history of its activities throughout the claim period. My conclusions on the matter must therefore inevitably be based on the documents which appear in the trial bundles. These indicate the following: 27(i) Although the district valuer had been instructed to negotiate the purchase of the property by September 1983, following an approach from Mr Faraday, the necessary funds may not then have been available to the acquiring authority (see para 15 above) and the district valuer did not inspect the building until nine months later.(ii) On 2 February 1988 the borough solicitor of the acquiring authority asked the borough estates officer to “contact the district valuer as soon as possible with instructions for him to re- open negotiations with Mr Faraday.” On 12 July 1988, however, the borough estates officer informed the borough solicitor that “Following the borough council’s decision in this matter it was necessary to await the outcome of the capital expenditure estimates for 1988/89 before proceeding. Unfortunately, no specific allocation was included for this possible acquisition and I could not therefore proceed.”(iii) The acquiring authority used its powers as local planning authority to depress the value of the subject property in 1980, by insisting on limiting estate agency use to five years. (See para 24 above).(iv) On 15 February 1988 Alan T Jenkins & Co wrote to the borough solicitor. Their letter concluded “In the meantime please let us have your observations as to the liability of your authority to our client for the loss of revenue as aforesaid being the proposed sub-letting of the premises to Dyfed county council social services department at a rental of £4,000 per annum and possession could have been taken of the property in 1983.” In a memorandum dated 1 March 1988 to the borough solicitor, the borough estates officer commented as follows:
“With regard to the final paragraph of Alan T Jenkins’s letter dated 15 February 1988 I feel it should be pointed out at this stage the council’s attitude to the claim for the loss of rental as this is likely to be a major stumbling block in concluding negotiations. The claim appears to rest upon the planning refusal and subsequent appeal whereby their clients were unable to sub-let part of the premises until the planning situation was resolved. The council should take the view that it acted properly in dealing with the initial planning application and the fact that the Welsh Office inspector determined that the appeal should be upheld does not in itself indicate any abuse or wrongful use of the authority’s planning powers. I will of course advise the district valuer of this claim but he will be instructed to disregard any financial consequences this could have on the consideration.”
In fact, the letting to Dyfed did not fail to proceed because of the planning refusal and subsequent appeal, but because the acquiring authority actively discouraged 28 Dyfed from taking a lease. I would also observe that the district valuer is an independent official, who should have been allowed to form his own judgment on the validity of the claim and not instructed how to proceed by the acquiring authority. In the event, as I indicate later in this decision, Mr Cobb accepted before me that the loss of rental income from Dyfed was a valid item of claim, although Carmarthenshire continued to deny that that was so until very late in the proceedings. (v) On 17 August 1984, following his visit to the subject property in the previous month, the district valuer prepared a manuscript valuation of the freehold interest in the sum of £32,500. On 20 December 1985 the district valuer wrote to Mr Faraday’s then agents, saying that he was prepared to recommend that the acquiring authority purchase the property for £25,000. There was no apparent justification for the discrepancy between the two figures. (vi) On 29 July 1991 the assistant director (estates) of the acquiring authority sent a memorandum to the borough solicitor under the heading ‘10 Island Place’. It included the following paragraph:
“I am continuing to receive the threat of blight notices being served in respect of various properties and it would therefore (be) helpful to have a definitive reply as to whether the council is able to deny these notices as the financial consequences for the council may be considerable if we are required to purchase all properties affected by the scheme.”
At the foot of that memorandum, the following manuscript comment appeared about a meeting held on 11 September 1991:
“Note: Deny blight, but offer to purchase by agreement (Cheaper for us - DAP).”
[88]In the light of these documents, I regret that I have come to the conclusion that the acquiring authority did not approach the negotiations to purchase the subject property in good faith.[89]With that conclusion in mind, I turn to consider whether Mr Faraday’s slow progress in making 67/69 fit for use as an estate agency was reasonable. The relevant considerations seem to me to be these. The initiative in the sale negotiations was taken by Mr Faraday, not the acquiring authority, whose policy was to wait until it was offered properties in Island Place by their owners (see para 15) and who did not seek powers of compulsory acquisition until 1993. Until December 1987, when Mr Faraday’s planning appeal was allowed by the Welsh Office, the acquiring authority’s position was that the price to be paid for the subject property should not be based on full office value. In the year 1988/89 the acquiring authority was not in a financial position to purchase the subject property, even if agreement could have been reached on its value. Mr Faraday transferred his business to 67/69 early in 1990, by which time it had suffered too much damage to be able to survive. 29[90]The onus is on the acquiring authority to show that the delay in moving between 1983 and 1990 was unreasonable (see Roper v Johnson (1873) LR & CP 167; Garnac Grain Co v Faure & Fairclough [1968] AC 1140) With hindsight, Mr Faraday’s losses may well have been reduced had he done as Mr Jenkins suggested and negotiated a quick sale in 1984 at the best price then obtainable (always assuming that the acquiring authority would have been in a position to complete the purchase). In my judgment, however, the acquiring authority has failed to show that Mr Faraday’s decision to hold out until the planning inspector’s decision, in the hope of receiving full office value for his property, was unreasonable. Nor has it demonstrated that Mr Faraday could and should have received full office value in the period that elapsed between the inspector’s decision in December 1987 and his move to 67/69 in early 1990. I am therefore unable to find that, in acting in the way he did, Mr Faraday behaved unreasonably. In that connection, the fact that Mr Faraday had agreed to lease 67/69 shortly after he learned about the acquiring authority’s plans is a strong indication that he wanted to preserve his business if he could. Accordingly, Mr Faraday is entitled to be compensated for all the losses he suffered as a result of the acquisition of his property. Loss of goodwill[91]Mr Jones prepared a valuation of the goodwill of Mr Faraday’s business at the relevant date assuming that, in the no scheme world, he could have continued to trade for as long as he wished. His valuation was as follows: £ Net profit 31,965 Add loss of rental income 7,750 39,715 Multiplier 3.5 Loss of goodwill 139,003[92]In answer to a question from me, Mr Jones agreed that the net profit should be adjusted to reflect a notional charge for the rental value of the ground floor offices occupied by the estate agency. In doing so, he said, account should be taken of any charges already included in the profit figure in respect of mortgage interest and repairs.[93]Mr Jenkins did not accept Mr Jones’s calculation of the goodwill value for a number of reasons. Firstly, as previously mentioned, he did not think that the projected profit figures were appropriate. Secondly, the inclusion of rental income from the upper part assumed, unjustifiably in his view, that the property could have attracted rent at that level throughout the period and, furthermore, that the business would have continued as a going concern throughout the period. In any event, the principle of including goodwill as part of the claim in addition to a claim for loss of profits was, in his opinion, unrealistic. It would only be appropriate if the income stream would have been enjoyed for the time covered by the loss of profits claim, and the business could then have been disposed of for value. 30[94]In the light of the low levels of profitability experienced by the business, the assumption of a rapid growth in profitability, resulting in a sale based on a multiple of those projected profits, was unrealistic. Furthermore, in calculating the goodwill of an unincorporated business where profitability was stated before proprietorial drawings, a sensible buyer would make allowance for the cost of management of the business not charged to profits but reflected in drawings. This would significantly reduce the level of profits to which any multiplier would be applied. In Mr Jenkins’s view, the profitability of the business would have been significantly diminished, if not eliminated, by the need to pay appropriate remuneration to those operating it.[95]In the absence of any other information Mr Jenkins was prepared to accept that, with a turnover in the region of £73,500, the estate agency would be sold as a going concern at 3.5 times net profit. In fact, however, he considered that the profitability was relatively small and diminishing from 1983 onwards. This would make it extremely unlikely that any arms length buyer would have found the income stream sufficiently attractive to be prepared to pay a multiple of profits to secure the business.[96]In arriving at his valuation of the goodwill, Mr Jones included the rental value of the upper part. That rental value, however, forms part of the value of the freehold interest, for which I have already determined the compensation payable. In my judgment its inclusion as part of the goodwill constitutes double counting and is unjustified.[97]In approaching this element of the claim, Mr Jones assumed that the net profit earned by the estate agency business in the last full financial year before the valuation date would have been £31,965. Mr Jenkins, on the other hand, considered that there would have been little or no profit at that time.[98]In the course of closing submissions Mr Spackman conceded, rightly in my view, that there should be no deduction from notional profit to reflect the “wages” of the proprietor of a business operated by a sole trader (see Perezic v Bristol Corporation (1955) 5 P & CR 237 and Zarraga v Newcastle Upon Tyne Corporation (1968) 19 P & CR 609). As will be seen from Appendix 1, I have found that the net profit in the no scheme world in the last financial year before the valuation date would have been £16,214. I agree with Mr Jones that this figure should be adjusted downwards by the difference between the rental value of the ground floor of the subject property and the mortgage interest payable on that section of the building which has already been included in calculating the projected profit. This is because, with effect from the valuation date, Mr Faraday will receive the capitalised rental value of the ground floor. That value should accordingly be reflected in the profitability when calculating loss of goodwill in order to avoid double counting. The mortgage interest payable in the year to March 1994 was £2,732. I propose to apportion this to the ground floor pro rata to the overall floor area of the building. Thus the mortgage interest paid for the ground floor was £1,116. I have found that the rental value of the ground floor was £4,285. In arriving at the projected profit, I have incorporated a reasonable annual allowance for repairs and so, contrary to Mr Jones’s suggestion, no further repairs adjustment is required. Accordingly, the adjusted net profit to March 1994 was £13,045, calculated as follows: 31 £ Projected profit to 31 March 1994 16,214 Deduct Rental value minus mortgage interest: (£4,285 - 1,116) 3,169 £13,045[99]Mr Faraday’s business would therefore have been much less profitable than the one Mr Jones had in mind when he adopted a multiplier of 3.5. I reflect that difference by reducing the multiplier to 2.5. Thus, the compensation payable for loss of goodwill is £32,612, say £32,500. Loss of rental income and interest thereon[100]Mr Jones claimed for the loss of rent which he says Mr Faraday would have received from 29 September 1984 until the valuation date. He also claimed for the interest that Mr Faraday would have avoided paying if he had received that rental income. During the relevant period Mr Faraday was being charged interest at between 3.5% and 4% above base rate on his borrowings. Mr Jones therefore prepared his calculations assuming an interest rate of 3.5% over base, which he considered to be prudent. He assumed that interest would have been debited on each quarter day and that Mr Faraday would then have been charged interest on the outstanding loan plus debited interest. Mr Jones also assumed that repair costs, amounting to 10% of rent, would have been incurred on each quarter day.[101]In calculating the loss of rent Mr Jones assumed that the rent receivable from the upper part would have increased as follows: £ 1984 to 24.03.86 3,600 25.03.86 to 24.03.88 4,600 (£4,000 + 15%) 25.03.88 to 24.03.90 5,520 (£4,600 + 20%) 25.03.90 to 24.03.92 6,350 (£5,520 + 15%) 25.03.92 to 24.03.94 7,000 (£6,350 + 10%) 25.03.94 to 26.11.94 7,750 (£7,000 + 10% approx)[102]On this basis, Mr Jones assessed the total loss of rental income at £58,158 and the related interest at £54,653; a total of £112,811.[103]Mr Cobb considered that the pre-acquisition loss of rent was a valid claim item. To assess the loss he made a deduction of 15% from the agreed rent of £4,000, to reflect the landlord’s liability for repairs and insurance. He said that agreement of lease terms with Dyfed was nearing completion in November 1984. Allowing time for the necessary building works and documentation, he thought that 25 March 1985 was a possible lease 32 commencement date. He accepted that the rental value of the offices could have increased between that date and the valuation date. It was also possible, however, that the tenant would have vacated, in which case Mr Faraday would have borne the liabilities associated with empty premises. Assuming that a net rent of £3,400 per annum was received throughout the relevant period, the rental loss would have totalled £32,844. Since, however, there was no certainty of income, Mr Jones adopted a robust approach and suggested compensation based on two-thirds of that figure, or say £22,000.[104]Mr Cobb also accepted that Mr Faraday should receive interest in respect of the lost rent. For this purpose he adopted 12.5% per annum as an average figure and arrived at compensation for interest amounting to £21,000.[105]Mr Jones has calculated the amount of lost rent based on arbitrary percentage rental increases, arrived at without reference to an expert valuer. As a result, he assumed that rent of £7,750 per annum would have been received at the valuation date, whereas Mr Cobb valued the upper part at that time at £5,322 and Mr Rees’s figure was only £5,000. I do not, therefore, obtain any assistance from Mr Jones’s calculation. Mr Cobb’s approach recognises the fact that it is far from certain that Dyfed would have remained in occupation of the subject property for nearly 10 years. Under the terms originally agreed they would have had the right to serve six months notice of termination at any time after the first two years. Moreover, in February 1988 they took a lease of first and second floor offices at 13/15 Cowell Street which, at 168m2, were approximately 50% larger than the upper part of the subject property. Against that background, it seems to me that Mr Cobb’s robust approach fairly assesses this element of Mr Faraday’s loss. Although Mr Rees adopted a more complex approach to the assessment of interest on the lost rent, he agreed that Mr Cobb’s method was a reasonable alternative. I accept Mr Cobb’s approach and therefore find the total compensation payable for the loss of rent and interest thereon to be £43,000. Loss on forced sale of fixtures and fittings[106]Mr Rees said that, when he inspected the subject property in early 1995, the ground floor contained fixtures and fittings, carpets, furniture and telephones suitable for use in an estate agency. Mr Faraday removed these items and sought to mitigate his loss by selling them. Mr Rees continued “In the absence of any formal valuation, the claimant has previously referred to the value of the fixtures and fittings being £15,000 and he has submitted a claim for £14,500 on the basis that he sold the fixtures and fittings for £500.”[107]No evidence was submitted to justify the valuation of £15,000 or the sale proceeds of £500. Mr Faraday has failed to prove this item of claim and I disallow it. Losses on 67/69 Stepney Street 33[108]Mr Jones explained that Mr Faraday incurred additional costs in making 67/69 into a suitable alternative property for his estate agency business. He claimed the following sums: £ Repairs 17,007 Fixtures and fittings 507 Rent and insurance 17,895 Rates 5,152 £40,561 Mr Cobb accepted that Mr Faraday had acted reasonably in acquiring 67/69. He assessed the expenditure on double overheads (rent, insurance and rates) at a total of £22,025. This is within 5% of Mr Jones’s claim for £23,047 (£17,895 plus £5,152). I accept Mr Cobb’s figure.[109]Mr Cobb also agreed that, under the principle of equivalence, it was necessary to allow interest on pre-acquisition losses between the date they were incurred and the date of valuation. He calculated interest on double overheads by the same method he had used in relation to the loss of rent. As I have indicated, Mr Jones considered that approach to be reasonable. I therefore accept Mr Cobb’s figure of interest on double overheads of £23,810.[110]Mr Cobb estimated the cost of removing, adapting and refitting fixtures and fittings at £1,250. This is more than the actual cost of £507 that Mr Jones obtained from the accounts. I accept Mr Jones’s figure.[111]It is agreed that 67/69 was in disrepair when the lease was granted to Mr Faraday and there was photographic evidence to demonstrate that it was subsequently improved. No documentation, however, was produced to justify the claimed expenditure on repairs to the building, or to show that it was not recouped when the lease was eventually assigned at a premium. This item of claim has not been substantiated and therefore fails.[112]Mr Cobb estimated that the following additional costs would have been incurred as a result of the move to 67/69: £ Removal costs 750 Management time 5,000 Advertising and notification of change of address 1,000 Stationery, stamps, telephone, etc 500 Accountant 500 7,750 In the absence of any other evidence on those items I accept Mr Cobb’s figures. 34[113]In the course of his closing submissions Mr Timothy Jones asked for compensation to be awarded in respect of three further heads of claim. Firstly, an amount to reflect the fact that disturbance compensation which has accrued over a number of years is treated by the Inland Revenue as received in the year of payment and therefore taxed at a higher rate than would have been the case in practice. Secondly, pre-reference costs incurred in connection with Mr Faraday’s litigation against the acquiring authority, commenced before the CPO was made. Thirdly, costs incurred by Mr Faraday, over and above the management time reflected in Mr Cobb’s figure of £5,000. In the absence of the acquiring authority’s agreement in principle to these heads of claim, and of any evidence to substantiate the amounts payable, I disallow them.[114]Mr Timothy Jones also asked me to determine how much of the total compensation moneys should be paid to each of three financial institutions to whom Mr Faraday owed money advanced against the security of the subject property. Without agreement between the parties I have no power to make such a determination. The information provided, however, suggests that the amounts in issue are fairly modest and it is to be hoped that the matter can be speedily resolved by agreement.[115]Finally, Mr Timothy Jones submitted that compensation should be awarded for non- pecuniary or special damages for the alleged misfeasance of the acquiring authority. Again, I have no power to make such an order, but in any event I have awarded compensation that fully reflects Mr Faraday’s loss.[116]I therefore determine that the amount of compensation payable by Carmarthenshire to Mr Faraday is £354,111, as follows: £ Freehold value of subject property 87,500 Loss of profits 137,019 Loss of goodwill 32,500 Loss of rent plus interest 43,000 Double overheads plus interest 45,835 Adaptation of fixtures and fittings 507 Other costs of removal to 67/69 7,750 £354,111[117]This figure does not include interest on the loss of profits, adaptation of fixtures and fittings and the other costs of removal. As previously indicated, Mr Cobb agreed that interest is payable on pre-acquisition losses between the date of loss and the date of valuation. Mr Jenkins asked me to assess the amount of interest payable and offered to assist with the calculation once all the heads of claim had been determined. The acquiring authority did not object to that approach.[118]The parties are therefore invited to agree the amount of interest payable on the loss of profits, adaptation of fixture and fittings and other costs of removal. Details of the agreed amount should be lodged with the registrar of the Lands Tribunal within 21 days of receipt of 35 this incomplete decision and will be included in the final decision on the reference. In the absence of such agreement, written submissions outlining the respective cases of the parties are to be lodged with the registrar and exchanged between the parties within a further seven days.[119]For the avoidance of doubt, interest at the statutory rate will be payable on the total compensation moneys from the vesting date until final payment. In his closing submissions Mr Timothy Jones urged that interest at a higher level than the statutory rate should be awarded in view of what he termed the acquiring authority’s wrongful interference with Mr Faraday’s affairs. I do not have power to make such an award. Dated: 24 July 2003 N J Rose ADDENDUM ON INTEREST[120]I have received written submissions on the amount of interest payable on the loss of profits, adaptation of fixtures and fittings and other costs of removal. The claimant suggests that the appropriate amount is £184,850 and the acquiring authority’s figure is £133,271.[121]The claimant’s approach is to apply to each of the relevant items an interest rate equal to base rate plus 3.5%, compounded over the period from the date of the loss until the valuation date. That is the lowest rate which was actually payable by the claimant to Barclays Bank Plc.[122]The acquiring authority submits that a fair approach is to take a flat rate of 12.5% and apply it over the period of the losses to the loss at the end of each of the claimant’s trading years. That was the general approach accepted by the Tribunal in relation to interest upon lost rent and other losses. The authority says that there is no evidence that the rate paid to Barclays Bank was a competitive rate. Moreover, and perhaps more importantly, in the no scheme world the estate agency business would have made a profit and the claimant would have had the benefit of the stream of rental income from the subject property for at least part of the period in question. In those circumstances the claimant may not have been required to pay interest at all. In that eventuality he would be entitled to the interest which he would have earned on deposit on those monies, which would have been considerably less than he would have had to pay against borrowings. 36[123]I accept the acquiring authority’s interest rate calculation. The rate of interest which the claimant paid to Barclays Bank reflected his financial position at the time, which had been significantly weakened as a result of the scheme. If there had been no scheme his business would have been much more successful and he may well have been able to negotiate a lower rate. It is also likely that, on occasions, he would have been in credit, in which case the rate of interest he could have obtained would have been very much lower than the rate he paid on his borrowings.[124]The acquiring authority’s calculation is fairly rough and ready. For example, it assumes a cut-off date of 30 September instead of 26 November 1994 and it does not include the lost profits figure of £5,300 in respect of the period to 26 November 1994. Nevertheless, I agree with the acquiring authority that, considered overall, the approach it has adopted is very fair to the claimant. The total compensation payable to the claimant is therefore £487,382.[125]A letter on costs accompanies this decision, which will take effect when, but not until, the question of costs is decided. Dated: 22 September 2003 (Signed) N J Rose ADDENDUM ON COSTS[126]I have received written submissions on costs.[127]The claimant submits that he should receive all his costs, including pre-reference costs and the value of his time and effort expended on the case since the vesting date. He points out that the compensation awarded is substantially in excess of the acquiring authority’s sealed offer. He is therefore entitled to his costs in the absence of a special reason to the contrary and there is no such reason.[128]The nature of the claimant’s case has been clear since he instituted High Court proceedings against the acquiring authority in 1992. Moreover, the acquiring authority’s conduct has not been satisfactory. It did not call any witnesses of fact, because it knew that it had acted in bad faith; it failed until a very late stage to accept that the subject property had been blighted by the underlying scheme or that the loss of rent was a valid item of claim; it resiled from certain admissions of liability contained in Mr Cobb’s report; it failed to accept 37 any liability for loss of profits or goodwill; it failed to agree or negotiate anything; it failed to provide a full break-down of the original valuation prepared on its behalf by Mr Hughes when requested to do so in July 1996; it never prepared a formal statutory valuation of the subject property, or items of disturbance.[129]The acquiring authority suggests that there should be no order as to costs. Alternatively, if the Tribunal is minded to award the claimant his costs, the award should be reduced substantially to reflect the claimant’s conduct of the reference.[130]The acquiring authority says that the special reasons for departing from the general rule on costs are as follows. The acquiring authority’s approach was found to be justified and fair to the claimant on all issues except the claims for loss of profits and goodwill and the interest payable on loss of profits, adaptation of fixtures and fittings and other costs of removal. The nature of the claim for loss of profits and goodwill was obscured by the lack of a coherent and understandable chronology of events, setting out the precise way in which the claimant put his case; by the lack of a coherent skeleton argument or clear replies to the request for further and better particulars of the points of claim; and by the fact that the claimant’s statement on those issues was almost silent. The claim for loss of profits and goodwill was greatly exaggerated. The claim for the freehold value was also greatly exaggerated and unsupported by reliable expert evidence. The claims for refurbishment of the alternative premises and loss on forced sale of fixtures and fittings were not supported by any relevant evidence. Paragraphs 113 to 115 of the decision referred to claims for sums which it should have been obvious that the Tribunal had no power to award. Time and costs were wasted on a misconceived application to exclude Mr Cobb’s evidence and an argument over interest, where the acquiring authority’s approach was found to be fair. The claimant’s conduct throughout the procedural parts of the reference was one of persistent delay in complying with the Tribunal’s orders, particularly in relation to expert evidence. Finally, there was never any willingness apparent on the part of the claimant to settle by negotiation.[131]I accept the claimant’s submission that, since the amount of compensation awarded exceeds the acquiring authority’s sealed offer, the claimant should be awarded his costs unless for special reasons the Tribunal thinks it proper not to do so. (For an analysis of the legal position, see the Tribunal’s recent decision in Colneway Ltd v Environment Agency, ACQ/70/2002, unreported).[132]In my judgment, the fact that the acquiring authority succeeded in full in respect of certain items of claim does not constitute a special reason for depriving the claimant of any of his costs; the purpose of the reference was to determine the total compensation and, considered overall, the acquiring authority’s sealed offer was less than half of the amount eventually awarded. Nor do the facts that the acquiring authority delayed in accepting that the subject property had been blighted by the scheme, and failed to accept liability for loss of profits, amount to matters that are sufficiently unreasonable to justify a departure from the general rule.[133]The claimant also complains that the acquiring authority failed to provide him at an early stage with full details of its assessment of the compensation payable. In my judgment 38 the differences between the parties were so great that even if, at a very early date, the acquiring authority had provided the claimant with all the details of its valuation that were eventually produced at the hearing, it is unlikely that agreement would have been reached on any of the issues which were eventually required to be determined. I therefore consider that this matter is immaterial to the determination of the costs of the reference.[134]The claimant seeks his pre-reference costs and the value of his time and effort since the vesting date. These items were claimed in the course of the reference itself. I disallowed them in paragraph 113 of my substantive decision and there is no reason why they should be allowed as part of the costs of the reference.[135]In my opinion, my finding that the acquiring authority did not approach the original negotiations to acquire the subject property in good faith, and its failure to call any factual witnesses, are not relevant to the costs of the reference, since they both relate to events that took place before the matter was referred to the Tribunal.[136]The acquiring authority suggests that the amount of costs should reflect the fact that the claimant has exaggerated the amount of the claim. It is clear from Purfleet Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2002] RVR 368, however, that mere exaggeration does not constitute a sufficient ground for departing from the general rule that the claimant is entitled to his costs.[137]Finally, it is suggested by each party that the other failed to conduct serious negotiations. On the information available, I am unable to determine who was responsible for such failure.[138]I do consider, however that certain aspects of the claimant’s conduct of this reference were sufficiently unreasonable as to amount to special reasons for departing from the general rule on costs. Firstly, in my judgment the claimant’s detailed case concerning the various losses he suffered as a result of the scheme was not fully comprehensible until he gave oral evidence. The inadequacy of the written material submitted on behalf of the claimant in advance of the hearing is illustrated by the fact that it was necessary for him to be examined in chief for six and a half hours before his evidence was sufficiently clear to be submitted to cross-examination.[139]Secondly, the expert reports of Mr Rees referred to various comparable transactions which were investigated in detail by Mr Cobb before Mr Rees indicated that he was no longer relying upon them. Moreover, Mr Rees persisted in relying on the evidence relating to Elim which, as a comparable, was hopeless, as was the claimant’s attempt to exclude Mr Cobb’s evidence in its entirety.[140]In my opinion, the award of costs in the claimant’s favour should be reduced to reflect the aspects of the claimant’s conduct referred to in paragraphs 138 and 139 above. Accordingly, the claimant shall recover from the acquiring authority two-thirds of his costs of 39 the reference. Such costs are to be agreed or, in default of agreement, assessed on the standard basis by the registrar of the Lands Tribunal in accordance with the Civil Procedure Rules. I also order that there be detailed assessment of the claimant’s legal aid costs pursuant to regulation 107 of the Civil Legal Aid (General) Regulations 1989. Dated: 11 November 2003 N J Rose FRICS 40 Appendix 1 MR B J FARADAY – 10 ISLAND PLACE, LLANELLI LANDS TRIBUNAL’S CALCULATION OF LOSS OF PROFITS 1984 - 1994 Year to 31 March 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 to 26/11/94 Total Projected turnover 42,587 52,300 55,320 65,812 79,165 75,350 60,089 67,719 63,268 54,048 54,048 35,339 Profit in no scheme world @ 30% 12,776 15,690 16,596 19,743 23,749 22,605 18,026 20,315 18,980 16,214 16,214 10,601 Less adjusted actual profit (862) 4,981 6,945 2,786 (5,705) N/A N/A 0 0 0 0 0 13,638 10,709 9,651 16,957 29,454 22,605 18,026 20,315 18,980 16,214 16,214 10,601 Less for “freed up time” (25% to 1991; 50% thereafter) 3,410 2,677 2,413 4,239 7,364 5,651 4,507 5,079 9,490 8,107 8,107 5,301 Loss of profit 10,228 8,032 7,238 12,718 22,090 16,954 13,519 15,236 9,490 8,107 8,107 5,300 £137,019 41 Appendix 2 MR B J FARADAY – 10 ISLAND PLACE, LLANELLI LANDS TRIBUNAL’S ADJUSTMENT OF ACTUAL TRADING RESULTS Year to 31 March 1984 1985 1986 1987 1988 Turnover 21,637 25,433 18,895 15,895 6,234 Less costs per accounts 32,188 26,884 20,129 20,538 17,855 Net loss (10,551) (1,451) (1,234) (4,643) (11,621) Add back Repairs and insurance 1,690 1,209 1,451 3,371 142 Interest and bank charges 7,999 5,223 6,728 4,058 5,774 Adjusted profit (862) 4,981 6,945 2,786 (5,705) Calculation of adjustments(a) Repairs and insurance(b) Interest and bank charges 1984: 1936 + 397 - 643 = 1,690 7743 + 1816 - 1560 = 7,999 1985: 1162 + 690 - 643 = 1,209 5760 + 1233 - 1770 = 5,223 1986: 1543 + 551 - 643 = 1,451 6893 + 1434 - 1599 = 6,728 1987: 3368 + 646 - 643 = 3,371 2456 + 3285 - 1683 = 4,058 1988: 83 + 702 - 643 = 142 0 + 8381 - 2607 = 5,774 42