Bishopsgate Parking (No 2) Ltd & Anor v Welsh Ministers [2012] UKUT 22 (LC)

IN THE MATTER OF A NOTICE OF REFERENCE

UT Neutral citation number: [2012] UKUT 22 (LC)

Between

Bishopsgate Parking (No 2) Ltd & Anor

Welsh Ministers

Michael Humphries QC and James Pereira instructed by S J Berwin LLP for the Claimants

Timothy Corner QC and Paul Stinchcombe QC instructed by Geldards LLP, solicitors of Cardiff for the Acquiring Authority

Lady Fox’s Executors v Commissioners of Inland Revenue [1994] 2 EGLR 185

[1]This is a reference to determine the compensation payable in respect of the compulsory purchase by the Welsh Ministers (the acquiring authority) of long leasehold interests in three multi-storey car parks in the centre of Cardiff held by Bishopsgate Parking (No 2) Ltd (BPL2). The three car parks are the David Street car park; the Tredegar Street car park; and the Oxford Arcade and Cardiff ShopMobility car parks. Together they comprise the reference land. Each car park was held on an occupational underlease by National Car Parks Ltd (NCP). BPL2 is the wholly owned subsidiary of the second claimant, Powerfocal Ltd (PFL).

[2]BPL2 claims compensation as follows:(a) Under rule (2) of section 5 of the Land Compensation Act 1961: (i) For the value of its interests in the reference land.

(b) Under rule (6) of section 5: (i) For additional losses by reference to the sale of the car parks as separate properties as opposed to their sale as part of a larger portfolio; (ii) For additional losses by reference to the inability to dispose of the reference land through a corporate vehicle; (iii) For its liability for corporation tax on chargeable gains (CGT).

[3]PFL claims compensation as follows: (a) Under rule (6): (i) For the costs of servicing the loan by reference to the financing facilities by which the portfolio was purchased. (ii) For financing costs associated with the pre-payment of such financing facilities and hedging break costs, and (iii) Fee debenture liability. Plus: (i) Professional fees in connection with the above. (ii) Statutory interest.

[4]On 28 February 2011 the Tribunal ordered a split hearing of the reference. This is the Tribunal’s decision following the first hearing, which was limited to certain of the heads of claim and two preliminary issues of law, as follows: For final Determination(a) The value of the reference land,

(b) The loss (if any) through the sale of the reference land as separate properties, as opposed to their sale as part of a larger portfolio.

(d) Statutory interest on the above. Preliminary Issues of Law

(e) Whether BPL2 is entitled to claim for consequential loss under rule (6) in respect of any capital gains tax (CGT).

(f) Whether PFL is entitled to claim for consequential loss under rule (6), limited to questions of (i) lifting the corporate veil; and/or (ii) resulting trust.

[5]During the course of the hearing agreement was reached that the compensation payable in respect of pre-reference professional fees was £443,195.68. The claimants’ case was that the compensation payable to BPL2 was, under rule (2), £56,380,000 and, under rule (6), £4,120,000. The latter figure comprised £2,120,000 in respect of the sale of the reference land as separate properties as opposed to a portfolio, and £2,000,000 in respect of the claimants’ inability to dispose of the reference land through a corporate vehicle and the resultant increase in stamp duty. The acquiring authority contended for a rule (2) valuation of £43,550,000, with no supplement by reference to alleged stamp duty savings or sale as part of a portfolio.

[6]Mr Michael Humphries QC and Mr James Pereira of counsel appeared for the claimants. They called three witnesses of fact: Mr John Gillington (background to the compulsory purchase of the reference land); Ms Louise Jones (claimants’ corporate structure, history and funding of the acquisition of the portfolio including the reference land, and the occupational leases) and Ms Lenka Parnell (claimants’ investment strategy, management of PFL and its subsidiaries and the claimants’ policy on disposals). They also called the following expert witnesses: Mr Charles Silcock MA, ACA (NCP’s covenant strength), Mr Paul Wolfenden FRICS (valuation) and Mr Stephen Coleclough, Chartered Tax Adviser, Solicitor (without practising certificate), FInsT, TEP, FlnstCPD, FRSA(CGT and stamp duty).

[7]Counsel for the acquiring authority, Mr Timothy Corner QC and Mr Paul Stinchcombe QC called four expert witnesses, namely Mr Gary Howes BSc, MRICS (valuation), Mr James Douglas, chartered accountant (NCP’s covenant strength), Mr Philip Nicklin FCA, Chartered Tax Adviser (CGT and stamp duty) and Mr Michael Quinlan LLB (Adel), LLM (Adel), Barrister (non practising) (stamp duty). Facts

[8]From an agreed statement of facts and the evidence we find the following facts. The CPO

[9]On 3 March 2005 the Welsh Development Agency (“WDA”) resolved to make a CPO to be known as the Welsh Development Agency (St David’s Phase 2, Cardiff) Compulsory Purchase Order 2005. On 1 December 2005 the WDA made the Welsh Development Agency (St David’s Phase 2 Cardiff) Compulsory Purchase Order 2005 under section 21A of and Schedule 4 to the Welsh Development Agency Act 1975 (as amended) (WDA Order). The purpose of the WDA Order and the scheme underlying the WDA Order was a mixed use development, including new shopping and leisure facilities, residential accommodation, car parking and related uses, construction of a new library, public realm and transportation facilities. The mixed use development was to be undertaken by the St David’s Limited Partnership (SDP), a joint venture between Land Securities Plc and Capital Shopping Centres Plc.

[10]By letter dated 21 December 2005 Gerald Eve acting for BPL2 objected to the WDA Order. Following a period of negotiations, in early May 2006 BPL2, SDP and Cardiff City Council agreed heads of terms which provided for a new lease to be granted to BPL2 of the proposed rooftop car park which formed part of the scheme underlying the WDA Order. As a result of these heads of terms, SJ Berwin LLP acting for BPL2 wrote to the Planning Inspectorate on 12 May 2006 and withdrew BPL2’s objection to the WDA Order. The heads of terms included an obligation for all parties to use reasonable endeavours to finalise an agreement for a reinvestment by BPL2 in the scheme on that basis. The terms of the transaction were to be in full and final settlement of any claim BPL2 may, could or would have in relation to the CPO and/or SDP’s scheme.

[11]In pursuance of Article 2 of the Welsh Development Agency (Transfer of Functions to the National Assembly for Wales & Abolition) Order 2005, on 1 April 2006 the functions of the WDA were transferred to the National Assembly for Wales (the Assembly). By Article 3 of the Order any CPO made by the WDA would be deemed to be a CPO made in draft by the Assembly. On 30 November 2006 the Assembly was deemed to have made in draft the National Assembly for Wales (St David’s Phase 2 Cardiff) Compulsory Purchase Order 2006 (the CPO) under section 21A of, and Schedule 4 to, the Welsh Development Agency Act 1975. On the same date the CPO was also duly made by the Minister to whom power had been delegated under section 62 of the Government of Wales Act 1998. The CPO authorised the compulsory purchase of land including the reference land.

[12]In order to implement the scheme underlying the CPO it was envisaged that a number of buildings would have to be demolished, including the three car parks which constitute the reference land. The David Street car park was not required for the extension of the shopping centre and after its acquisition will be redeveloped separately at a later date. On 19 February 2007 the Assembly made a General Vesting Declaration (GVD) under section 4 of the Compulsory Purchase (Vesting Declarations) Act 1981, the effect of which was to vest the reference land in the Assembly 28 days after service of the notice of the GVD. The vesting date, and therefore the valuation date is 21 March 2007.

[13]On 21 February 2007 BPL2 (and Royal Bank of Scotland Plc as provider of the debt finance for the acquisition of BPL2’s car park portfolio) entered into two licence agreements giving SDP consent for its contractors, workmen and agents to enter and remain upon the Oxford Street car park and the Tredegar Street car park with or without plant, machinery and materials for the purposes of carrying out the Preliminary Works and the Main Works. The purpose of these licences was to allow SDP early access to the two car parks (in advance of the GVD). The licences also reaffirmed the intention of the parties to continue negotiations based on the heads of terms agreed in May 2006, but those negotiations were not satisfactorily concluded. Extent of the reference land

[14]The extent of the reference land is as follows: (a) Plot 104: All interests in property known as Oxford Arcade Multi-Storey car park, Bridge Street, Cardiff, except interests owned by Cardiff City Council. (b)Plot 105: All interests in property known as Cardiff ShopMobility, Oxford Arcade Car Park, Bridge Street, Cardiff, except interests owned by Cardiff City Council. (c) Plot 124: All interests in property known as Tredegar Street Car Park, Tredegar Street, Cardiff, except interests owned by Cardiff City Council. (d)Plot 125: 50 sq m or thereabouts; all interests in land to the south of Tredegar Street Car Park, fronting Tredegar Street, except interests owned by Cardiff City Council. (e) Plot 138: All interests in property known as David Street Multi-Storey Car Park, David Street, Cardiff, except interests owned by Cardiff City Council. Description of the reference land – The David Street Car Park

[15]The David Street car park comprised a 493 space multi-storey car park constructed in 1979 and situated at the southern end of the main retail area of Cardiff. It was located immediately to the north west of Cardiff International Arena and was bounded by David Street, Bridge Street and Mary Anne Street. It was of reinforced concrete frame construction on five levels with concrete panel elevations. Access was via David Street. The Oxford Arcade and Cardiff ShopMobility Car Park

[16]The Oxford Arcade and Cardiff ShopMobility car park comprised a 458 space multi-storey car park constructed in 1979 and located between Oxford Arcade and Bridge Street. It was of concrete frame construction on five floors, with ShopMobility occupying a small office, together with 15 spaces on the ground floor. Vehicular access was from Bridge Street and pedestrian access was from Oxford Arcade. The Tredegar Street Car Park

[17]The Tredegar Street car park comprised a 943 space multi-storey car park constructed in 1983. It was located at the southern end of the main retail area to the south east of Bridge Street and south west of Mary Anne Street. It was constructed of a concrete frame on six floors with brick and concrete cladding. It had vehicular access off Tredegar Street, a service road to the rear of Jury’s Hotel off Mary Anne Street and pedestrian access from Bridge Street. Tenure including details of the leases Structure of title

[18]At the valuation date all three car parks comprising the reference land were held freehold by the County Council of the City and County of Cardiff (the Landlord). Each of the car parks was held by BPL2 under a lease (originally an underlease until the abolition of South Glamorgan County Council) and an underlease to the occupier, NCP. With the exception of the level of rent, all the leases to NCP were drafted on identical terms.

[19]The leases were acquired by BPL2 on assignment from NCP in 2003 as part of a sale and leaseback transaction involving a portfolio of car parks. BPL2 held each of the properties on a lease dated 12 January 1989 (as amended by deeds of variation dated 21 December 2001). The leases were each drafted on the same basis, for a term of 142 years from 12 January 1989 until 24 December 2131. The three leases had, at the valuation date, an unexpired term of around 124 years. After the 40 th year of the grant of each lease the lessee was able to determine the lease if it was able to establish to the reasonable satisfaction of the landlord and the superior landlord that, by reason of changed events, conditions or circumstances beyond the control of the lessee, the necessity and demand for the provision of facilities for the parking of motor vehicles at the property had materially diminished. The lessee then had the option to purchase a new 125 year lease for redevelopment and relaxation of the user provision for a consideration of £100, plus an additional premium for the lease which would be calculated by the equation “open market value minus ((35% of OMV x the unexpired term)/ 142.”

[20]NCP held an underlease of each of the car parks. Each of these underleases was dated 24 January 2003. The underleases were for a term of 34 years and 11 months from 29 June 2002 with just over 30 years unexpired at the valuation date. All the underleases were drafted on identical terms with the exception of rent and other financial outgoings. On lease expiry there was an option for a further lease for a term of 20 years, on the same term as the current lease. Leasehold interests held by BPL2

[21]The leasehold interests held by BPL2 are the subject of this reference. The leases were granted on the following relevant terms: At the date of commencement each of the leases was subject to a ground rent of £5 per annum without review. The leases gave the landlord the ability to control the car park charges that could be levied by NCP. This was altered by a Deed of Variation dated 21 December 2001, whereby the landlord relinquished control over the car parking charges in return for a variation to the ground rent arrangements. The initial ground rent of £5 per annum was deleted and, in its place, NCP agreed to pay a rent equal to 40% of the gross revenue from the car parks less an index-linked “threshold”. As part of the sale and leaseback transaction NCP, as underlessee, retained the obligation to pay the rent of the lessee, BPL2, to the superior landlord. As a result, BPL2 had a rental obligation to the superior landlord if NCP defaulted. The tenant (BPL2) had a full repairing liability for both the interior and exterior of the property. The tenant (BPL2) was only permitted to assign the whole of the demised premises either to a subsidiary company or to a bona fide vehicle park operator that did not already have a presence in Cardiff. NCP’s underlease – the sale and leaseback transaction

[22]BPL2 acquired the car parks on a sale and leaseback arrangement from NCP as part of a larger transaction and on the following relevant terms. The underleases were each for a term of 34 years and 11 months, expiring in 2037. At the date of commencement of each of the underleases NCP agreed to pay a base rent for each car park, which was subsequently amended by a Deed of Variation dated 3 September 2003. The base rents effective from commencement of the underlease were as follows: David Street £413,293 per annum 493 spaces £838.32 per space Oxford Arcade £580,000 per annum 458 spaces £1,266.38 per space Tredegar Street £1,205,274 per annum 943 spaces £1,278.13 per space Each of the base rents was subject to an annual review on 29 June based on a fixed uplift of 3.0% per annum. As at the date of valuation the rents were as follows: David Street £465,166 per annum 493 spaces £943.54 per space Oxford Arcade £652,795 per annum 458 spaces £1,425.32 per space Tredegar Street £1,356,546 per annum 943 spaces £1,438.54 per space The tenant (NCP) had a full repairing liability for both the interior and exterior of the property and was also obliged to pay into a maintenance fund each year. The repairing obligations of NCP extended to as far as it may be commercially prudent to facilitate economic operation of a car park, to keep and (so far as necessary as aforesaid) to put the premises in good and substantial repair and in a clean and tidy condition. The maintenance fund was established at a stated figure in the NCP underlease, as set out below, and increased in line with the RPI each year. The maintenance fund was to be spent on a maintenance programme each year in addition to any other repairs that were necessary: David Street £28,234.46 per annum 493 spaces £57.27 per space Oxford Arcade £42,585.94 per annum 458 spaces £92.98 per space Tredegar Street £81,617.43 per annum 943 spaces £88.55 per space The tenant (NCP) was not permitted to assign the property in whole or in part, but was permitted to underlet the whole or a permitted part of the property subject to certain conditions. Each of the underleases was outside of the security of tenure provisions of Part II of the Landlord and Tenant Act 1954. The tenant (NCP) had an option to take a new lease for a further term of 20 years at expiry of each of the existing underleases. The claimants’ corporate structure

[23]PFL has a parent company called Linchfield Limited incorporated in Gilbraltar. PFL owns a series of limited liability subsidiary companies, including BPL2. BPL2 is a property holding company and owned the leasehold interests in the reference land and a number of other leasehold interests across the NCP car parks portfolio. We deal with the facts relating to the corporate structure and its history (below) in more detail later. The structural history of the NCP business from 2002 to 2007

[24]May 2002 to November 2003: A series of restructuring steps was undertaken, including a number of refinancings and the separation of certain property assets from the operations of NCP as part of a complex sale and leaseback transaction involving RBS (i.e. Op Co/Prop Co reorganisations) ultimately:(a) The Op Co business of NCP was transferred to a series of holding companies ultimately controlled by Cinven, a private equity house.

(b) One of the portfolios of property assets was transferred to BPL2, and on the same day the shares in BPL2’s parent company, PFL, were sold to Linchfield Limited. The shares in Linchfield Limited were owned by a group of private investors including Delek Real Estate Limited.

[25]1 September 2005: Parking International Holdings Limited (subsequently renamed PHL (2003) Limited), which indirectly owned NCP (the operating company, including on-street and off-street operations) was sold to an entity ultimately owned by and controlled by funds managed by 3(i).

[26]12 March 2007: NCP’s on-street parking operations were sold to another entity controlled by funds managed by 3(i).

[27]19 March 2007: NCP’s remaining operations, mostly off-street parking were sold to Macquarie European Infrastructure Fund II (“MEIF II”). Issues

[28]In addition to the two preliminary issues, the issues in this part of the reference are:(i) The yield at which the net rental income receivable by BPL2 from NCP should be capitalised. (It is agreed that the investment method is the valuation approach to be adopted.)

(ii) Whether BPL2 have suffered loss by selling the car parks as separate properties and, if so, the extent of the loss.

(iii) Whether BPL2 have suffered loss by being unable to sell the car parks through a corporate vehicle and, if so, the extent of the loss. We will deal with these issues in turn, and after them the two preliminary issues. Before we do so, it is appropriate that we record the essence of the claimants’ case as they have explained it. The essence of the claimants’ case

[29]The claimants said that the effects of the compulsory acquisition were very serious for them for a number of reasons. Firstly they had lost three of their largest car parks, worth, they said, over £56m. Secondly those car parks had been forcibly removed from a much larger portfolio of car parks which had, for them, a clear portfolio premium. Thirdly, they had lost the on-going income from the three car parks. Fourthly, because of the financial arrangements by which PFL had raised its debt financing to acquire the portfolio, it would have to pre-pay the bank loans secured on the reference land. Fifthly PFL believed that it would suffer bank breakage costs and other penalties. Sixthly, in order not to trigger the pre-payment of the loans secured on the reference land and the breakage costs and other penalties, the claimants had not asked for a 90% advance payment of compensation based on the acquiring authority’s valuation. Seventhly, in consequence of not being able to pre-pay the loans PFL was still paying interest on the loans secured on the reference land that it ceased to own in 2007. Eighthly, by being forced to “dispose” of the reference land pursuant to the compulsory acquisition, BPL2 expected to suffer a large CGT liability which will crystallise on the award of compensation.

[30]The claimants had hoped to avoid all these consequential losses by negotiating a re-investment deal to take an interest in the replacement car parks to be constructed by SDP within the new St David’s Centre 2, but the negotiations broke down despite BPL2 having signed Heads of Terms under which it withdrew its objection to the CPO and allowed SDP onto the land early.

(i) : Yield - evidence

[31]Mr Wolfenden capitalised the net rental income from NCP at a single rate yield of 4.15%. He deducted purchaser’s costs totalling 5.75% from the resultant figure and arrived at a value of £56,380,000.

[32]Mr Wolfenden said that the three car parks were let to NCP, which would have been perceived at the valuation date as having a strong covenant. He emphasised that MEIF II had just purchased NCP’s off street, airport and railway car parking businesses for £790m. MEIF II was managed by a member of the Macquarie Bank Group, a leading global investor and manager of infrastructure businesses. MEIF II was Macquarie’s second diversified pan-European infrastructure fund. Its mandate was to invest in a portfolio of infrastructure assets located across the expanding European Union. It aimed to raise commitments of £3-4bn and to assemble a diversified portfolio of 8 to 15 assets. MEIF II followed the success of the Macquarie European Infrastructure Fund, established in April 2004. At its final closing in June 2005, MEIF had commitments of £1.5bn from leading institutional investors. It had investments in a variety of infrastructure sectors including transport, ports, ferries and utilities.

[33]Members of the Macquarie Bank Group managed more than £28 billion in equity invested in infrastructure and essential service assets around the world through a range of listed and unlisted vehicles. Infrastructure investments managed by Macquarie included assets in the energy, water, telecommunications and transportation sectors in the UK, Germany, Portugal, Italy, France, Sweden, Denmark, the Netherlands, Belgium, Canada, US, Australia, Korea, Japan and South Africa. Given their global expertise and financial banking, the market would not have been concerned about NCP’s ability to meet its lease liabilities.

[34]Mr Wolfenden said that NCP was contractually committed to the lease obligations. Of those, the most important from the purchaser’s viewpoint would be an unexpired term of 30 years and a fixed rental income subject to annual indexation. The underleases were drawn on institutionally acceptable terms, in that all head lease obligations and any other payments due were to be met by the underlessees. Moreover, NCP was not only liable to pay the contracted rent to BPL2 but also to pay throughout the occupational lease term all head rent payments direct to the freeholder.

[35]Whoever owned BPL2’s head leasehold interests would regard the rents receivable from NCP as being a net income. The lease structure would provide certainty of income for the next 30 years. This would be attractive to traditional real estate investors, pension funds and institutions that would be able to balance, for example, certainty of income against obligations to policy holders.

[36]In addition to the attractiveness of the tenant and the lease an investor would also be attracted to the dynamics of city centre car parking. Opportunities for new city centre car parks were growing increasingly limited. Car use continued to grow each year and, with increasing pressure of demand and an inelastic supply of car parking within town centres, there was expected to be significant growth in the car park market. Further increasing pressure to discourage car use within urban areas had led to planning permission for new car parks rarely being given. Against that background investors would have seen car parks as a long term stable investment. Further, whereas other forms of real estate investment such as offices would suffer over time from obsolescence, there were unlikely to be changes to the configuration of car parks although different operators might have different business models.

[37]At the valuation date the UK property market had been in a boom period with high levels of capital growth and yield compression. This had been in part fed by the availability of cheap debt at unprecedented levels. Banks were eager to lend in order to package the debt into securitisation vehicles which could then be sold on. The high levels of competition between banks meant that the margins on lending rates were reducing and investors and property developers were able to finance deals at extraordinarily low costs, so driving yield compression for prime UK property. These conditions were not limited to UK investors. Cross-border activity accounted for a growing share of the investment market, with increasing levels of investment coming from outside Europe. At the valuation date banks had not yet fully realised the consequences of their fervent lending which finally culminated in the bankruptcy of Lehmann Brothers in the autumn of 2007. Mr Wolfenden considered that in this increasingly competitive market there would have been many investors keen to purchase the reference land, partly due to the cheap level of available debt, and also because of the very attractive nature of the occupational leases.

[38]Mr Wolfenden said that, whilst there was a dearth of comparable transactions in terms of properties let and operated as car parks, he was aware of other transactions which were similar in terms of quality and lot size and therefore provided a guide as to the yield that would have been achieved. Although those sales were not of car park investments they provided a useful guide in terms of values derived from long term leases and/or with fixed uplifts/indexation provisions. He added that the location of the comparables did not affect the yield. An investor would make a judgment based upon the length and security of the income stream. Mr Wolfenden produced details of eight investment sales between January 2006 and March 2007. Of these five were secured on retail or supermarket properties let to Tesco, HSBC and Waitrose and indicating net initial yields between 4.20% and 4.84% net. Two were secured on hotels, let to Travelodge (4.85%) and Accor UK (5.44%). Finally, a portfolio of five care homes let to Ashbourne was sold at an initial yield of 5.30%.

[39]Mr Wolfenden thought that the fact that all three car parks were available at the same time added to the attractiveness of the investment for two reasons. Firstly, three car parks in close proximity to each other in a city centre would have had a strong market position in that part of the city and would be subject to reduced competition from other operators. Whilst competition was primarily an issue for the operator, the relative lack of competition for the tenant would be reflected in the strength of its covenant. Consequently a purchaser able to acquire all three car parks would be prepared to accept a slightly lower yield (pay a slightly higher price) than would be achieved on the sale of any one of them on its own.

[40]Secondly, in 2007 most of the major banks, in providing debt finance on real estate, packaged loans up into groups which were then securitised into the bond market. There was enormous pressure, especially on the international banks, to convert traditional loans into a securitised debt within tight time constraints to avoid utilising bank capital. For securitisation to succeed, loans had to realistically be above a threshold of £50 million. Bigger loans secured by the bank made securitisation quicker and easier and banks would often provide slightly more competitive terms if the loans were bigger. Mr Wolfenden believed that these improved terms would be passed on to a purchaser, who would be able to offer a slightly keener yield and hence a slightly higher price.

[41]With those considerations in mind Mr Wolfenden turned to consider the comparable evidence for the yield. In his view the most comparable transaction was the Tesco/British Land sale and leaseback which happened just prior to the valuation date. It involved the sale of 21 High Street supermarkets for £650 million. Even by the standards of 2007 this was a very large lot size for a single transaction. The leases were for a term of 20 years with fixed uplifts of 3.50% per annum and an initial rent of £29 million. His analysis of the transaction, assuming full stamp duty was paid, was approximately 4.20%. In his opinion the price paid would have reflected a discount due to the very limited number of purchasers capable of bidding on a transaction of this size. Tesco was a strong covenant and the annual fixed uplifts were 0.50% higher than the uplifts at the reference land properties, but the reference land leases had longer unexpired terms. He considered that this longer term would be particularly attractive to an institutional investor. He was therefore of the opinion that the reference land properties would attract a slightly keener yield than the 4.20% achieved on the Tesco/British Land transaction. He therefore adopted an initial yield of 4.15%, which he believed would have been considered appropriate by investors for three well let car parks with long unexpired terms and with the prospect of rental growth through indexation.

[42]Mr Wolfenden said that this opinion was supported by the view of other valuation houses at the time such as Knight Frank, Jones Lang LaSalle and Cushman and Wakefield, who all stated in their research data as at March 2007 that prime yields were 4.25%. That yield related to prime Central London offices, assuming a good tenant covenant strength for a 15 years lease term, although the leases would not have provided annual rental uplifts of 3.00% as in the case of the reference land properties.

[43]In assessing the capitalisation yield to apply to the net income receivable by the first claimant at the valuation date (£2,474,507 per annum) Mr Howes had regard to the following factors: the merits of leasehold investments compared with freehold; the provisions of the underleases; the implications of the compound increases in rent payable by NCP and of NCP’s repairing obligations; the relative investment attractions of car parks and supermarkets; the covenant strength of NCP; the evidence of a transaction involving a multi-storey car park at Sheffield.

[44]Mr Howes said that it was market practice to value a lease differently from a freehold to reflect the fact that it was a wasting asset and that it was subject to covenants and restrictions imposed by the landlord which would not apply to a freehold. NCP could only assign the underleases to a subsidiary company or another vehicle park operator not represented in Cardiff; it had no right to renew or rebuild the reference land as part of its repairing obligations, which were likely to become an increasing burden as the leases progressed; it was obliged to pay the ground rent direct to the freeholder which further increased its financial burden. NCP’s significant financial outgoings would be viewed cautiously by a potential purchaser in view of the falling turnover being received from the car parks at the valuation date and the deteriorating covenant strength of NCP. In Mr Howe’s opinion all these factors would increase the yield and reduce the value of the reference land.

[45]Moreover, because of the long unexpired term of NCP’s lease, and the provision for increased rent at 3% per annum compound, it was likely that the tenant would be paying rents significantly in excess of market levels during the course of the leases. The rapidly increasing level of rent would affect NCP’s ability to pay over the remaining term of the lease, as the rent formed an increasingly higher proportion of its total expenditure on the property. Although the impact of annual rental growth could be offset by a corresponding increase in turnover, that was unlikely to occur in such a specialised property sector, where many external influences could impact on turnover. This was particularly pertinent to the reference land, where the turnover for the two years prior to the valuation date had been in decline. BPL2’s income stream would therefore rely heavily on the covenant strength of NCP.

[46]Mr Howes said that the car parks comprising the reference land were between 24 and 28 years old at the date of valuation. The average lifespan of a multi-storey car park of reinforced concrete frame construction was approximately 60 years. In view of the unexpired lease term of 124 years and the inability of the tenant to renew or rebuild the car parks, the ongoing repair and maintenance costs would increase significantly during the remaining lease term. This would have a detrimental impact on the viability of the car park and the tenant’s ability to pay rent.

[47]In Mr Howes’s opinion the nature and investment profile of the multi-storey car park market was at odds with the supermarket comparables upon which Mr Wolfenden’s valuation was based. Multi-storey car parks were specialised assets, with operators of lower financial strength than supermarkets. Supermarkets were a robust trading entity, with the majority of operators, and particularly Tesco, offering substantial covenant strength and significant purchasing power. It was inappropriate to use a yield derived from supermarket sales when more comparable evidence was available from the multi-storey car park market. The use of the latter made it unnecessary to make subjective adjustments to a yield drawn from supermarket comparisons. Multi-storey car parks were a specialised sector of the property market. They provided only a single form of income, offered inflexible accommodation and might also be prone to outside risks, such as Government intervention to cut the use of travel by car.

[48]The car parks comprising the reference land were in historic locations that were being influenced by changing patterns of town centre use and diminishing opportunities of maintaining trade in an otherwise deteriorating retail centre. This was shown in the turnover figures for the three subject properties which showed a reduction in turnover for the years 2004 to 2005 and 2005 to 2006. The deteriorating performance of the car parks would be viewed critically by potential purchasers of the relevant leasehold interests.

[49]There was a range of market evidence of multi-storey car park investment sales which showed the yield profile for such a form of investment. Yields were significantly higher than for supermarket investments.

[50]In his initial report, Mr Howes produced details of fifteen individual car park sales between April 2003 and November 2010 at net initial yields varying between 4.84% and 7.00%. These details covered all the car parking investment transactions of which he was aware. Mr Howes acknowledged that eight of them post-dated the valuation date and that two offered different investment characteristics, because they did not comprise multi-storey car parks. (One was a single level car park and the other was at basement level). If the two non-multi-storey car parks were excluded, the yield range narrowed to 5.30% to 7%, or a weighted average yield of 5.73%.

[51]In Mr Howes’s opinion the structure of the Tesco supermarkets transactions used as comparable evidence by Mr Wolfenden did not provide a reliable indication of market values. In order to provide a broader view of the market for Tesco supermarkets he analysed the investment transactions of individual supermarkets let to Tesco which were concluded within the same period of time as the multi-storey car park transactions to which he (Mr Howes) had referred. This showed that initial yields achieved on the sale of supermarkets let to Tesco (all of which had compound growth rent review provisions) ranged from 4.05% to 5.24%, or a weighted average yield of 4.91%. This reflected an average yield premium of 82 basis points for Tesco supermarkets in comparison to multi-storey car park investments, suggesting that Tesco supermarkets were more highly valued assets than car parks, and that the two asset classes did not constitute directly comparable investments.

[52]In his expert report Mr Howes expressed the view that the most directly comparable property to the reference land was the St Paul’s Place multi-storey car park in Sheffield, which he said was agreed to be sold at a price which reflected an initial yield of 5.46% (analysed on a dual rate basis with a sinking fund of 2.5%), with contracts exchanged in November 2007 on the basis of a forward sale. Mr Howes said that St Paul’s Place provided 520 parking spaces. The car park was pre-let to Q Park Limited for a term of 35 years at an initial rent of £785,000 per annum (equating to £1,510 per space), subject to a 2.5% (not compounded) increase in year five of the term and five yearly reviews thereafter at 2.5% per annum (compounded) or RPI, whichever is higher. The car park comprised part of the Heart of the City mixed-use development, which also incorporated a 22,250 sq ft casino pre-let to Stanley Leisure for a 35 year term (subject to a 25 year break) at £303,700 per annum, and a vacant retail unit and management office with two year vendor rental guarantees of £148,550 per annum and £8,550 per annum respectively.

[53]Mr Howes thoughts that St Paul’s Place car park was highly comparable to the reference land in several ways. It comprised a city centre, multi-storey facility of a comparable size to the subject properties, albeit within an improving location. The occupational lease to Q Park (35 years) was comparable to the lease to NCP (30 years), with both operators being of a substantial size and offering similar covenant strengths. Furthermore, this transaction was exchanged in November 2007, about eight months after the valuation date when market conditions were highly comparable, although the peak of the market had passed.

[54]Mr Howes thought that St Paul’s Place provided a better investment than the reference land. Although the rent payable was subject to five yearly rather than annual reviews, the review provisions provided for the rent to increase by the higher of 2.5% compounded or RPI, thereby providing better prospects of growth. Furthermore St Paul’s Place was under construction at the time of sale and its modernity would ensure that it had a much longer economic life than the car parks on the reference land (which were 24 to 28 years old) with lower maintenance and repair costs. Additionally, within the repair obligations of the headlease the tenant was permitted to rebuild the property during the lease term in contrast to the position in the NCP leases. St Paul’s Place also comprised an integral part of a high profile city centre regeneration scheme that would see large scale office, residential, retail and leisure development. It was adjacent to the prime retail area of Sheffield city centre and to the Sevenstone Retail Regeneration Scheme proposed by Hammerson in conjunction with Sheffield Council, where the main development agreement had been signed by the parties in December 2006 and where work had started on site in 2007 with the construction of the new fire station. The improvements to the central area would ensure excellent trading prospects for the car park, with the underlying operational income likely to increase over time.

[55]Like the reference land, St Paul’s Place was leasehold. However, Mr Howes felt it offered a more attractive investment, with a lease term of 250 years remaining, subject to a peppercorn ground rent for the duration of the lease and an ability to rebuild during the term. Thus, in Mr Howes’s view St Paul’s Place car park was highly comparable to the reference land, but could be considered more attractive given its much longer lease, new build nature and more attractive rent review provisions in the car park underlease. He therefore considered that the 5.46% yield reflected by this sale was the best comparable evidence available for valuing the reference land.

[56]Mr Howes made an adjustment for the time difference between the Sheffield transaction in November 2007 and the valuation date, when the UK commercial property market was close to its peak. He noted that the IPD All Property Initial Yield Index stood at 4.58% in March 2007 and 4.96% in November 2007, showing an upward movement of 0.38% over the period. If this movement were directly applied to the St Paul’s Place transaction it would produce an initial yield of 5.08% (dual rate) at the valuation date. Mr Howes increased this to 5.25% (dual rate) for the reference land to reflect the superior location of St Paul’s Place, the fact that its lease was twice the length of the BPL2’s lease and was only subject to a peppercorn ground rent, and that NCP was an inferior covenant. After deducting purchaser’s costs at 5.7625% he arrived at a value of £43,550.000.

[57]In his oral evidence in chief Mr Howes said that, although he had correctly stated in his report that contracts for the sale of St Paul’s Place were exchanged in November 2007, the sale was based on an offer which had been made in July 2007. Moreover, there had been an earlier offer at the same price in the early part of 2007. In his view this made the transaction directly comparable to the subject property in terms of date. Since the IPD index did not move between March and July 2007 he suggested that he had been over cautious in adjusting the yield paid for St Paul’s Place. He did not, however, seek to reduce his valuation to reflect the new information he had obtained.

(i) : Yield – post valuation date comparables

[58]Of the fifteen transactions referred to as comparables by Mr Howes eight post-dated the valuation date, including the one that he primarily relied on, St Paul’s Place car park, Sheffield. Mr Humphries submitted that post valuation date comparables were inadmissible. He placed reliance on section 5A of the Land Compensation Act 1961, which was inserted by section 103 of the Planning and Compensation Act 2004. It provides:

“(1) If the value of land is to be assessed in accordance with rule (2) in section 5, the valuation must be made as at the relevant valuation date. (2) No adjustment is to be made to the valuation in respect of anything which happens after the valuation date.”

Under subsection (4)(a) the valuation date in the present case is the vesting date.

[59]Mr Humphries submitted that since, under rule (2), the value of the land was the amount which if sold in the open market by a willing seller might be expected to realise and since this value must be assessed at the valuation date, evidence of events after the valuation date must be inadmissible. The Tribunal was not concerned, he said, to find an abstract “true” value of the land at the valuation date. Its task under rule (2) was to determine how the willing seller and the hypothetical purchaser in the market at the valuation date would have valued the reference land. Since the willing seller and the hypothetical purchaser would have had no knowledge of events after the valuation date upon which to inform their judgement of value, reliance upon such events by the Tribunal would be impermissible. To do otherwise would put the Tribunal in a position that the hypothetical parties to the sale would not themselves have been in and would result in the Tribunal stepping outside the ambit of rule (2).

[60]We do not accept this contention. The relevance, and admissibility, of evidence on comparable transactions that post-date the date of valuation was accepted by the Judicial Committee of the Privy Council in Melwood Units Pty Ltd v Commissioners of Main Roads

[1979] AC 426

. The case is best known for the application of the Pointe Gourde principle, it being held that compensation was to be assessed without reference to any diminution in the value of the land caused by the scheme of which the resumption formed an integral part. It concerned the compensation payable for the compulsory resumption of land in September 1965 for the construction of a road. The resumed land formed part of a total of 37 acres which the claimant had assembled for development. Following the resumption, in June 1966, the land that was left to the north of the land acquired, some 25 acres, was sold, but the Queensland Land Appeal Court had held that the price agreed was not a reliable guide to the value of the resumed land in September 1965. The Privy Council disagreed. In the judgment, delivered by Lord Russell of Killowen, this was said (at 433G):

“David Jones Ltd. in June 1966 bought the 25 acres of north land for an average price of approximately $40,000 per acre. This purchase appears to their Lordships to be a highly relevant piece of evidence for the evaluation of compensation in this case when it is considered in the context of the assumed findings of fact already mentioned.”

And later (at 436E) “Now it is plain that in assessing values for the purpose of compensation for resumption on compulsory acquisition a tribunal is not required to close its mind to transactions subsequent to the date of resumption: they may well be relevant or of assistance to a greater or lesser degree, and in the instant case the figure paid by David Jones Ltd. was the only figure available at the date of assessment of the value of adjacent land to a person wishing to develop the land for its ‘highest and best use’.”

[61]For its part the Lands Tribunal did not exclude post valuation date comparables. Recent decisions to which Mr Corner drew attention in this respect include Nelson v Burnley Borough Council [2006] RVR 196, Castle House Investments Ltd v Bradford Metropolitan Borough Council [2007] RVR 277 and Spirerose Ltd v Transport for London [2008] RVR 12 .

[62]The clear acceptance in Melwood of the potential relevance of post valuation date transactions has not in our judgment been rendered of no application in claims for compensation under the 1961 Act by the recent insertion of section 5A. Subsection (2) does not say that anything that happens after the valuation date “shall not be taken into account” (cf rule (3) in section 5). This is what it could, and no doubt would, have said if the intention had been to achieve the effect for which Mr Humphries contends. What it says is that no adjustment is to be made to the valuation in respect of anything which happens after the valuation date. “Adjustment” we take to imply an increase or decrease in value. What is excluded, therefore, is any increase or decrease in the value that the land would have had if a post valuation date event had occurred before the valuation date. If the value of the land, or an element of that value, can only be established by reference to the knowledge that the market would have had at the valuation date, post valuation date events are necessarily excluded. Thus hope value, a value based on the hope of a future event occurring, cannot be established by reference to post valuation events showing whether such hope was, or became more likely, to be fulfilled (see eg Swansea City and County Council v Griffiths , sub nom v Griffiths v Swansea City and County Council , [2004] RVR 111 ). To take such events into account could cause the valuer to increase or decrease the hope value that the land in fact had on the valuation date.

[63]By contrast, in our judgment, evidence of a post valuation event may be relied on to establish an objective fact as at the valuation date. Thus a comparable may provide evidence of what the hypothetical vendor and purchaser would in fact have agreed. That an actual vendor and an actual purchaser have agreed a price on a property that is comparable with the reference property is undoubtedly capable of constituting evidence of what would have been agreed in the hypothetical transaction for the reference property itself. It is this evidential function that was accepted in Melwood . To put it in the most obvious way, the open market sale of a precisely comparable property on the day after the valuation date would clearly be good evidence of the price that would have been agreed the day before for the subject property since the factors affecting the minds of the parties to the actual transaction would have been the same as those which would have affected the minds of the parties to the hypothetical sale on the previous day. Of course the degree to which a comparable transaction will assist in determining the price of the reference property will depend on how similar the factors that are material to the valuation were at, respectively, the date of the transaction and the date of valuation and on whether adjustments can satisfactorily be made for such differences as there were. But this applies both to pre valuation date comparables and to post valuation date comparables.

(i) : Yield – conclusions

[64]Mr Wolfenden’s valuation was founded on the assumption that the long leasehold interests in the three multi-storey car parks on the reference land, leased to NCP, could be valued by direct reference to a freehold portfolio of 21 supermarkets leased to Tesco. We considered that suggestion to be surprising. Accordingly, at the conclusion of Mr Wolfenden’s evidence on day 3 of the hearing we asked him about the valuation of the claimants’ NCP portfolio which he had prepared as at 31 December 2007, some nine months after the valuation date. Our purpose was to ascertain whether, on that occasion, he had valued the three Cardiff car parks by reference to supermarket comparables.

[65]In reply to the question whether the December 2007 valuation had been based on comparables, Mr Wolfenden said:

“Yes. We sit, in our London office, the floor below the investment team and certainly in fast-moving markets the investment team sit with the valuers on normally a fortnightly basis to go through what is being traded, yields being applied, so that we get evidence from the investment guys in terms of actual transactions taking place. The other check and balance which we have is we introduced some years ago a valuation review procedure where all valuations over a certain level have to go before a full valuation committee, and below that level it is what is called a peer review. Given the quantum and size of the valuation, it went before a full valuation committee, which comprises of at least one valuation director who is not involved in the project and one senior investment director, and they look at the basis of valuation, the methodology adopted, the assumptions that have been made. They are not there to do the valuation. They are there to check the reasonableness and the competency of the valuation. That valuation cannot be issued without that due process and they have to sign due process and confirm that they are happy with it.”

[66]Shortly thereafter Mr Rose asked Mr Wolfenden if he would produce any notes relating to comparables which he had used in valuing the NCP portfolio in general, and in particular any notes explaining how he had arrived at the appropriate yield for the reference land. Mr Wolfenden agreed to provide this information. On day 6 Mr Humphries told us that Mr Wolfenden had not been able to find any notes of what he had done.

[67]We found it hard to accept that Mr Wolfenden’s firm, DTZ, would not have retained full details of the calculations which had resulted in a portfolio valuation in the region of £1 billion. We therefore caused a letter to be written to the claimants’ solicitors, asking that such notes as showed how the valuation as at December 2007 had been arrived at be produced, and that Mr Wolfenden be recalled at the commencement of the hearing on day 7 in order to clarify his evidence immediately before closing submissions.

[68]At the resumed hearing Mr Wolfenden produced what he said were the contents of his December 2007 file. This consisted of a file note which summarised what the market would have known about NCP and a schedule summarising the development potential within the portfolio. There was no reference to comparable transactions or explanation as to how the valuation figures were calculated. Moreover it was clear that the file note could not have been available when the valuation figures were prepared since it contained information concerning Macquarie as at 30 September 2009. When re-called to produce this document, Mr Wolfenden said:

“Contrary to my recollection when giving evidence, an inspection of my file showed that a valuation committee was not held on the 31 December 2007 valuation of the NCP portfolio.”

[69]Subsequently, in reply to a question from Mr Rose, Mr Wolfenden said:

“When I say there are no comparables, there was, in the final quarter of 2007, £6,000,000,000 worth of transactions reported. That evidence is in my report. There was £44 billion of reported transactions in 2007, 14 per cent was in the final quarter, which gives slightly over 6 billion. There were transactions. Now, maybe I’m old-fashioned but to me a comparable is broadly the same asset with the same lease structure, with the same tenant profile, trading in a very similar way. That did not exist. What you had was 6 billion of transactions in the final quarter. You had very little directly – what I would call real comparable evidence and you had to extrapolate.”

[70]In our judgment the evidence given by Mr Wolfenden on day 7 was, in certain important respects, directly contrary to the answers he had given us on day 3. On the first occasion he said that the December 2007 valuation had been checked by his firm’s valuation committee and on the second occasion he said that it had not. On the first occasion he said that his December 2007 valuation had been based on comparables. On the second occasion he suggested that there had been no comparable evidence.

[71]Mr Wolfenden sought to explain these discrepancies by pointing out that he had not expected to be questioned in detail about valuations which he had carried out subsequent to the valuation date. A valuer is not to be criticised if, in response to a question he has not anticipated, he says that he does not remember. It is perfectly reasonable for the valuer to ask for time to consult the relevant file. What is not acceptable, in our view, is for an expert witness to give misleading evidence on a subject which the Tribunal clearly considers to be important, without any qualification. The fact that Mr Wolfenden chose to give such evidence leads us to conclude that any opinions he expressed must be treated with considerable care. In any event, the definition he gave of a comparable on day 7 – broadly the same asset, with the same lease structure, with the same tenant profile, trading in a very similar way – was a powerful endorsement of Mr Howes’s opinion that supermarket investments are unsuitable as the primary source of comparable evidence when valuing car park investments.

[72]We therefore turn to the car park comparables referred to by Mr Howes. We agree with him that the most helpful information is provided by the St Paul’s Place car park in Sheffield, because it illustrates what was happening close to the peak of the market. In our view the most compelling evidence is provided by the agreement which was reached subject to contract in early 2007 for the forward sale of that investment at a price which showed a net initial yield of 5.46% dual rate. That agreement does not provide conclusive evidence of value at that date, because the offer was subsequently withdrawn by the prospective purchaser, due to “problems with debt and developments”. Nevertheless, as Mr Howes pointed out, there were sale particulars in the market to indicate that the investment was available, and the vendor was prepared to accept an offer which reflected an initial dual rate yield of 5.46%. That offer might have been in excess of the then market value because it was subsequently withdrawn, but it is in our view unlikely that the value at the time was higher than the agreed price. In other words, the price agreed for St Paul’s Place in early 2007 suggests that the market’s appreciation of the appropriate yield for that investment at that time was not less than 5.46% dual rate.

[73]Some four months after the valuation date, in July 2007, a further offer was made for the St Paul’s Place car park. That offer was accepted and heads of terms were agreed in September, with contracts being exchanged in November 2007. The agreed price - £21,550,000 – was identical to that which had been offered earlier in the year but subsequently withdrawn. Although the evidence shows that there was a decline in the investment market between September and November 2007 we see no reason, given the sequence of events, to conclude that the value of St Paul’s Place in July/September 2007 was other than the one that the parties had agreed. As not infrequently happens, the parties saw no need to renegotiate the agreement despite the market decline after heads of terms had been agreed. Since there was no significant movement in the market between March and September 2007 there is a clear consistency between what was agreed in the early part of the year and later.

[74]Mr Wolfenden put forward various reasons for distinguishing St Paul’s Place from the reference land, but we did not find them convincing. It is true that only 63% of the total rental income at St Paul’s Place was receivable from the car park operator, and the vendor’s rental guarantee in respect of the retail space would be time-limited. Mr Wolfenden accepted in cross examination, however, that in the buoyant market conditions that existed at the valuation date an investor would have offered the car park yield across the entire property, and would have been confident that a tenant could be found for the vacant retail space. (The information given by Mr Howes in his expert report, to the effect that the vendor offered two year rental guarantees on the vacant retail unit and the management office was subsequently agreed to be incorrect. The retail guarantee was for eighteen months and the vendor would guarantee the management office rent of £8,550 per annum until the management company was appointed. Neither error, in our judgment, is of material valuation significance).

[75]We should add that practical completion of the St Paul’s Place development occurred in December 2008, at which time the purchasers tried to pull out of the transaction. The sale was finally completed in April 2009 under the threat of litigation. The price was reduced to £21,080,000 and a further reduction was agreed in lieu of certain rental guarantees and top ups which had previously been promised by the vendor. In our view these changes are not relevant to a consideration of the value of the reference land two years earlier.

[76]Mr Howes also referred to a number of other multi-storey car park investments, although he accepted that none was directly relevant to the valuation of the reference land given that one, Homestead Road, Ricksmansworth, was sold 23 months before the valuation date and the others were sold two years or more after that date. Bearing in mind the extent of market changes in the intervening periods we obtain no material assistance from these transactions.

[77]Mr Wolfenden also emphasised the fact that the indexation provisions in the underlease of the St Paul’s Place car park were less attractive than in the case of the reference land car park and that the offer on St Paul’s Place related to a pre-sale which, he suggested, would justify an increase in the initial yield of between 0.25% and 0.50% compared with a completed investment. In our view any difference in yield attributable to the respective indexation provisions would be marginal, and certainly counter-balanced by the terms of the St Paul’s Place headlease, which was at a much lower ground rent (a peppercorn) and, at 250 years, had double the unexpired term of the reference land leases. We accept Mr Wolfenden’s evidence that a higher yield would be required for a pre-sale than for a completed investment, although in the strong market conditions at the valuation date we think the adjustment would be below the range of 0.25/0.50% he suggested. Such adjustment would, in our view, be offset by the fact that the future cost of repairing the ageing car parks on the reference land would be significantly greater than in the case of the newly built car park at St Paul’s Place, with a corresponding reduction in the operator’s profitability and ability to pay the rent in Cardiff. We therefore conclude that the price agreed for St Paul’s Place at 5.46% suggests that Mr Howes’s valuation of the reference land, based on a yield below that accepted for St Paul’s Place (and therefore producing a higher value), is not too low. In the course of his oral evidence Mr Wolfenden asserted that Cardiff was a more attractive location for car parks than Sheffield. We attach no weight to that point, given that Mr Wolfenden had stated in terms in his report that, for investments of this nature, location was irrelevant to value.

[78]As we have said, Mr Wolfenden relied principally upon the sale of the Tesco supermarkets portfolio at a yield of 4.20%. Mr Howes produced an analysis of supermarkets and car park comparables which, he suggested, showed that the appropriate initial yield for multi-storey car park investments was 82 basis points higher than for Tesco supermarkets. Mr Wolfenden disagreed, and argued that there was insufficient information available as to the respective lease lengths, lease terms and indexation provisions to draw any meaningful conclusions. We agree that Mr Howes’s exercise has certain deficiencies. It was Mr Wolfenden, however who sought to rely on supermarket comparables to value car parks, and he has produced no evidence which persuades us that the difference in yields suggested by Mr Howes is too great.

[79]We conclude from the available evidence that the initial yield required for a multi-storey car park investment such as the reference land was significantly higher than for a portfolio of supermarkets, leased to Tesco who, it is agreed, would have been seen as a better risk in terms of credit rating and overall financial standing than NCP at the valuation date. We consider that a further yield increase would be required to reflect the fact that the leasehold interests in the reference land would have been less attractive than the freehold interests in the Tesco stores.

[80]We bear in mind that the price paid for the Tesco portfolio, £650m, might have incorporated a small reduction for size compared with the level of value applicable to the reference land. Nevertheless, we do not consider that the differences between the yield of 5.25% dual rate suggested by Mr Howes and the single rate yield of 4.20% paid for the Tesco portfolio is excessive, bearing in mind the differences between the two investments to which we have referred. Nor, as we have said, does Mr Howes’s valuation appear to be too low when compared with the St Paul’s Place evidence which, if anything, suggests that a yield in excess of the 5.25% he has adopted might have been appropriate. We therefore accept Mr Howes’s valuation and find that the value of BPL2’s leasehold interests in the reference land was £43,550,000.

[81]We have not overlooked the fact that this figure is significantly below the values which were attributed to the reference land by two well-known firms of surveyors as at late 2006/early 2007. GVA Grimley valued the NCP portfolio as at 31 December 2006 for accounts purposes. Their valuation reflected an initial yield of 4.50%. However, their report stated that the total value of £919,000,000 related to the entire portfolio. Although a notional apportionment of this value to the individual assets had been undertaken, GVA made it clear that those apportionments did not necessarily represent the market values of the individual interests.

[82]A further valuation of the reference land was undertaken by Knight Frank as at 19 February 2007. That valuation was prepared and submitted as a draft paper in September 2008 in order to assist SDP in their discussions with BPL2 about a property reinvestment opportunity within the completed St David’s shopping centre scheme. The market value prepared by Knight Frank was based on an initial yield of 5.02%. It is clear that, in arriving at this valuation, Knight Frank did not have any car park comparables; their conclusion as to yield was reached by reference to office investment sales only. Issue (ii): Portfolio premium

[83]Mr Wolfenden prepared a second valuation of the reference land on the assumption that the three car parks were sold as part of a larger NCP portfolio. For this purpose he assumed that the NCP portfolio totalled 127 properties owned by Bishopsgate Parking Limited, BPL2 and Hillstep Properties Limited, all being wholly owned subsidiaries of PFL.

[84]Mr Wolfenden’s total valuation on this basis was £58,500,000, that is a portfolio premium of £2,120,000 compared with his base valuation of £56,380,000. He arrived at the higher value by adopting an initial yield of 4.00%. He said that this had been based on the 4.20% paid for the Tesco portfolio shortly before the valuation date, and reflected his opinion that that price incorporated a discount for the very large lot size. Mr Wolfenden accepted that the total NCP portfolio was of a similar lot size. However, in contrast to the Tesco stores which were the highest and best use of the properties in question, the NCP portfolio included significant latent development value which the purchaser of the portfolio could extract over the term of the occupational leases. He therefore deducted 15 basis points from the yield of 4.15% which he had applied to the three car parks comprising the reference land to reflect the benefits of a larger portfolio.

[85]Mr Howes disagreed with the suggestion that a Tesco supermarket did not have the same level of latent development value as a town centre car park. He said that his firm had acted for Tesco to obtain planning consents on existing supermarket sites and that these had released development potential and enhanced the value of the assets. Mr Howes also disagreed with Mr Wolfenden’s view of the development potential of multi-storey car parks. Whilst planning policy restricted the supply of new car parking spaces, local authorities were also unwilling to lose existing parking facilities unless they were replaced. This was because of the harmful effect that insufficient car parking could have on town centres, particularly in the face of competition from out-of-centre retail facilities. This factor would restrict the development potential of a town-centre multi-storey car park. Mr Howes added that Mr Wolfenden’s approach also failed to give proper consideration to the leasehold nature of BPL2’s interests in the reference land and the long occupational leases held by NCP. Not only would BPL2 require the consent of the superior landlord to redevelop, which was unlikely to be forthcoming, but the unexpired terms of BPL2’s leases at the end of the existing occupational underleases would, at less than 100 years, be considered by institutional investors to be too short to facilitate redevelopment.

[86]We prefer Mr Howes’s evidence on this issue. We are not persuaded that an investor would have accepted a significantly lower yield for the reference land if it had been offered as part of a much larger portfolio. Assuming in BPL2’s favour that a purchaser did take the view that the larger portfolio offered the possibility of additional value being realised, any small reduction in yield with might be accepted to mark such advantage would in our judgment be offset by a compensating increase in the yield to reflect the limited number of potential purchasers for an investment of approximately £1 billion. We therefore conclude that the claim for the loss of a portfolio premium has not been established. Issue (iii): Reduced purchaser costs

[87]Mr Wolfenden prepared a third valuation of the reference land properties. He again assumed that they were sold as part of a portfolio of 127 properties, but he also assumed that purchaser’s costs reflecting corporate stamp duty at 0.50% would be payable instead of 4.00% in the case of the sale of the individual properties. His valuation on this basis was £60,500,000, that is an increase of £2,000,000 resulting from the saving in stamp duty. It was BPL2’s case that the winning bidder for the portfolio would have allowed the vendor the full benefit of this saving.

[88]On the assumption that the reference land was sold as part of a corporate transaction, we are not persuaded that the vendor would receive the entire amount of the resultant stamp duty saving. We accept Mr Nicklin’s evidence that neither the whole of any tax saving nor even the greater proportion of it would be reflected in an increased sale price for the vendor. We find that the maximum increase in value which might result from a corporate sale would be £1,000,000, that is to say, one half of the tax saving.

[89]In order to establish its entitlement to compensation at that level the onus is on BPL2 to demonstrate that, on the balance of probabilities, any disposal would have given rise to corporate stamp duty only. It is clear that if there had been a corporate disposal of BPL2 it would crystallise capital gains tax (CGT) of £39m for PFL on the sale of the shares, and require stamp duty to be paid on the entire value of the company, as well as leaving £87m CGT latent in the land. Sale of the entire PFL group by Linchfield would save CGT on the sale of shares, but the CGT on all the land in the PFL group would still be latent, and stamp duty at 0.50% would be payable on the value of the whole group. The questions of whether, in the no-scheme world, a sale would have been by way of a corporate disposal rather than by sale of the land itself and when such a disposal would have been made are thus ones that arise in relation to CGT also, and we consider them below.

[90]Similarly the suggestion that the reference land, or each of the car parks of which it consists, could have been transferred to a special purchase vehicle and then sold after 6 years raises the question of what would have happened in the no-scheme world, the onus being on the claimants to show on the balance of probability that this is what would have occurred. Another suggestion was that BPL2 could have been sold to a real estate investment trust (REIT), so that only corporate stamp duty would be paid, albeit on the whole company. And a yet further suggestion was an elaborate arrangement of corporate structures which might be utilised for the sale of the reference land. These, as advanced by Mr Coleclough, were termed ‘Herringbone’ and ‘Son of Herringbone’. All these possibilities – which require addressing on the basis of what would have happened in the no-scheme world – fall to be considered in the context of the claimants’ contentions on CGT. It is to this that we now turn. Whether compensation can be claimed for the taxation of capital gains

[91]Under the Taxation of Chargeable Gains Act 1992 capital gains tax is payable in respect of chargeable gains. BPL2 is a UK incorporated and tax resident company. Whilst, as a company, not liable to CGT it is liable to pay corporation tax on profits, and (under section 8 of the Act) a company’s total profits include chargeable gains. For convenience the parties referred to this liability as being to CGT. Under Part II of the Act a chargeable gain arises on the disposal of an asset and in essence consists of the disposal consideration minus allowable expenditure (here the costs of acquiring and improving the land and costs of disposal) minus an indexation allowance (an allowance for inflation since the date of each acquisition or improvement). The disposal consideration in the present case would be that element of the compensation, after apportionment under section 52(4), that relates to the value of the reference land. The time at which the disposal is treated as being made is the time at which the compensation is agreed or otherwise determined (section 246).

[92]The resulting chargeable gain may, potentially, be reduced by tax losses, for example tax losses within the disposing company that have been generated in the same or previous tax period; or, where the disposing company is part of a tax group, it may be able to claim tax losses arising in the same period from other companies in the same group or transfer all or part of the chargeable gain to another company within the Group (section 171A). BPL2 is a member of a tax group consisting of PFL and all of its subsidiaries, and it could, therefore, utilise certain tax losses in other group companies, subject to their consent.

[93]Section 247 makes provision for rollover relief. Such relief is available if some or all of the disposal proceeds (in this case the compensation in respect of the value of the reference land) are reinvested by the same company, or another company within its CGT group, in a replacement property (being land other than a dwelling-house) within a 4 year period starting 12 months before and ending 3 years after the date of disposal. If the whole of the proceeds are so invested, the whole of the chargeable gain that would have arisen from the disposal is deferred until the disposal of the replacement property. If only some of the proceeds are reinvested, only a proportion of the chargeable gain is deferred.

[94]The claim of the first claimant included a claim in respect of the CGT liability arising from the compensation for the compulsory purchase. The statement of case quantified this as at 31 October 2010 at £15,042,498 including interest. It is common ground, however, that the quantum of CGT liability cannot be assessed until the Tribunal has determined compensation for the value of the land since it will fall to be calculated by reference to this. The statement of case said that in the absence of a redevelopment opportunity in St David’s Phase 2 it was unlikely that BPL2 would be in a position to acquire another property so as to become entitled to rollover relief under the Act. That was due to the lack of funds available to it after the obligation to prepay part of the loan under each of the Powerfocal Facility Agreements and the Hillstep Facility Agreements. As a property investment company, in the absence of the CPO it would have continued to hold its interest in the reference land in the very long term and benefit from the income derived from the occupational leases. Even if it had chosen to dispose of its interests in the three car parks it would have done so as a corporate sale and would not have chosen to sell the properties as individual assets. Thus in the absence of the CPO, it was said, BPL2 would not have crystallised any CGT liability in the foreseeable future.

[95]In their reply the acquiring authority, relying on a decision of the Lands Tribunal (P H Clarke FRICS) in Harris v Welsh Development Agency

[1999] 3 EGLR 207

, said that a person whose land is acquired compulsorily cannot recover CGT as part of the compensation. Furthermore they did not accept that BPL2 would not have crystallised any CGT liability within the foreseeable future.

[96]On 28 February 2011, on the basis of submissions made at a pre-trial review, the Tribunal ordered that the following issue should be determined as a preliminary issue:

“Whether the First Claimant is entitled to claim for consequential loss under section 5 rule (6) of the Land Compensation Act 1961 in respect of any capital gains tax (that is, corporation tax on chargeable gains) liability arising from the compulsory acquisition of the reference land.”

[97]Mr Humphries and Mr Corner disagreed about the extent of the preliminary issue. Mr Humphries said that it was confined to the question whether, whatever the facts might eventually be shown to be, the claimant could claim for loss consisting of the CGT payable as the result of the compulsory acquisition or whether, as the acquiring authority asserted, any such claim was excluded as a matter of law. Factual matters, he said, were not relevant to the issue so defined, and he therefore did not cross-examine on matters of fact. Those would arise for consideration if the preliminary issue was determined in the claimants’ favour. Mr Corner said that the issue should be treated as going wider than this. The Tribunal ought to determine on the evidence before it whether the claimant could succeed in its claim in respect of CGT.

[98]Evidence called by Mr Humphries, principally that of Mr Coleclough, sought to identify particular ways in which the claimants could have avoided the payment of CGT. We have referred to these above in connection with their contentions on the avoidance of stamp duty, and we refer to them further below. We will deal with the question whether compensation could ever as a matter of law be payable in respect of liability to CGT (and express our conclusion that it could be) and then go on to consider whether on the material currently before us any of the methods suggested by the claimants for the avoidance of CGT and stamp duty are to be ruled out. Those that we are not satisfied should be ruled out at this stage will then fall to be considered further following the next substantive hearing, which will need to concern itself not only with what the claimants could have done but also with what, if anything, they would have done to avoid these taxes.

[99]In his report dated 9 June 2011 on behalf of the acquiring authority Mr Nicklin referred to the decision in Harris and expressed the view that, if BPL2 were to be compensated for CGT it would transgress the principle of equivalence, since CGT was an inevitable tax; that there was no causal connection between the compulsory acquisition and the CGT liability; and that the loss claimed was too remote. In relation to the claimants’ assertion that they could have avoided CGT through a corporate sale, he said that, even if some saving of tax could be made on a disposal through a corporate vehicle, the purchaser would have demanded a share of any such saving, so that the whole of the saving would not have accrued to BPL2; that it was in any event unlikely that a sale of the three car parks could have been structured so as to save CGT because of the anti-avoidance provisions in the legislation; and that many purchasers would not wish to buy the car parks through a corporate sale, which made it all the less likely that such a disposal would have taken place.

[100]In his report of 22 July 2011 Mr Coleclough sought to rebut Mr Nicklin’s assertions. He said that CGT was not an inevitable tax. The claimant, as a matter of corporate strategy, intended to hold its property assets and had no intention of selling. Whilst it could be argued that BPL2 would be bound to sell at some future time, that time would be so far away that the tax then payable would not be the same as the tax payable as the result of the compulsory acquisition. The base cost for calculation of CGT would increase, and the liability over a long period would erode and might disappear; the net present value of any such liability would be much lower than any current tax charge; and a sale before the end of the leases to NCP (in the year 2037) would be highly unlikely, so that at best the comparison was one between tax on a possible gain after 2037 with a very real CGT bill in 2011. Furthermore, if the claimant was ever minded to dispose of its portfolio of properties, there were tax efficient ways in which this could be done, in particular if BPL2 had sold as a corporate vehicle or to a Real Estate Investment Trust (REIT). Mr Coleclough disagreed with Mr Nicklin’s assertion that it would not be possible to make a corporate sale without crystallising latent CGT liability due to anti-avoidance legislation. Such legislation could not have been applied to a sale of the whole portfolio through a corporate sale of BPL2.

[101]A document later supplied by Mr Coleclough to Mr Nicklin sought to explain how liability to CGT could be avoided through a corporate transfer. It outlined a scheme of transfer to avoid a “degrouping charge”, which applies where a company leaves the group of which it forms part holding a chargeable asset within 6 years of an intra-group transfer to it of that asset. In such circumstances a gain will be assessed on the departing company as though at the time of the original transfer the asset had been sold and repurchased by the departing company.

[102]Ms Parnell said that she was aware of the availability of rollover relief. Indeed the Powerfocal Group had hoped to use a potential reinvestment opportunity in St David’s phase 2 in order to roll over the chargeable gains that would be crystallised by the compulsory acquisition, but it had been unable to secure this reinvestment. It was looking for other reinvestment opportunities but had not so far been able to identify or secure an appropriate reinvestment. In any event Ms Parnell said that she envisaged that the vast majority of the compensation would have to be applied to pre-pay the bank loan and to pay the anticipated swap breakage costs that would be triggered by the disposal of the reference properties. The Group would not have sufficient funds for reinvestment without a further injection of capital or borrowing. Even if it managed to get a 65% loan, the amount required by way of equity injection was not possible. Financing in the current market was very different to what it had been previously, and the sort of assets wanted for reinvestment were not really available.

[103]We consider first the acquiring authority’s assertion that compensation could never as a matter of law be payable in respect of a liability to CGT. This was based, as we have said, on the Lands Tribunal decision in Harris v Welsh Development Agency . That case concerned a commercial property owned by the claimant, who occupied part of it for his business as an optician. He said in evidence that, in the absence of the acquisition, he would have retained the property as an investment, even after his retirement. He claimed compensation for the CGT for which the acquisition made him liable. The Member held that compensation was not payable, for a number of reasons. The first, and fundamental, reason was based on the wording of rule (6). Under rule (2) the value of land is to be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise. Rule (6) provides:

“The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.”

The Member concluded (

[1999] 3 EGLR 207

at paragraph 199 that a CGT liability only arose because there had been an increase in the value of the property since purchase which was greater than inflation and the costs of improvements and incidental expenses; and it was therefore a matter directly based on the value of land and not within rule (6).

[104]In approaching the matter as he did the Member treated the words “not directly based on the value of the land” as imposing by their own terms a limitation on the scope of the compensation for which rule (6) makes provision. Since the decision in Harris the Court of Appeal has made clear that the purpose of these words of exclusion was to avoid any potential overlap with the market value principle, for which rule (2) makes provision (see Ryde International Plc v London Regional Transport [2004] RVR 60 per Carnwath LJ at paragraph 25). They are not, therefore, to be taken as themselves imposing a limitation more restrictive than that for disturbance compensation generally. Contrary to the decision in Harris , therefore, compensation for a loss claimed under rule (6) in respect of CGT is not to be ruled out, in our judgment, unless the claim fails to satisfy the criteria identified by Lord Nicholls of Birkenhead in Director of Buildings and Lands v Shun Fung Ironworks Ltd

[1995] 2 AC 111

(at 124). Those criteria are that there must be a causal connection between the acquisition and the loss; that the loss must not be too remote; and that the claimant must not have failed to act reasonably in seeking to avoid or to mitigate the loss.

[105]It is to be noted that in Alfred Golightly and Sons Ltd v Durham County Council [1981] RVR 229 the Tribunal (V G Wellings QC and W H Hall FRICS) had determined the price of a former colliery with workable spoil heaps (which was to be assessed as if the sale had been a compulsory acquisition) at an amount that included the development land tax that the claimant would have to pay as a consequence of the acquisition but after adjustments for other savings (including CGT). The Member in Harris said that he did not find this decision conclusive. It is sufficient for us to say that it is clearly consistent with the view that we take about CGT and rule (6).

[106]The Member in Harris gave other reasons for holding that CGT could not be claimed. He said that it would be contrary to the principle of equivalence to do so because the claimant would be relieved of his existing contingent liability to pay the tax. Compensation could not, therefore, be payable in respect of the totality of the tax payable; and since it was impossible to determine when the contingent liability might have been incurred in the absence of the acquisition, any loss assessed by reference to the difference would be too remote. In addition the Member held that there was insufficient causal connection between the acquisition and the loss since the liability to CGT arose out of an existing state of affairs. He also referred to rollover relief, saying that, had it been necessary to do so, he would have found, on such evidence as there was, that the claimant had not failed to act reasonably to mitigate his loss by not acquiring another freehold property and claiming rollover relief.

[107]Mr Corner submitted that the Tribunal in Harris had been right to hold that the CGT claim failed on the basis of the principle of equivalence. CGT was ultimately, he said, an inevitable tax. It would only be, he said, if BPL2’s compensation reflected its pre-tax loss, being the value of the property out of which it could fund its inherent tax liability that it would be left in the same position as if it had sold the reference land and suffered the tax as a natural consequence of owning and then realising its property investment.

[108]We do not accept the contention that compensation that reflected to any extent the claimant’s liability to CGT would offend the principle of equivalence. Indeed it seems clear that the principle could be offended if such compensation were not provided. If, for instance, the evidence in Harris had been to the effect that, in the absence of the compulsory purchase, the claimant would have retained the land for three years and would then have sold it to purchase an annuity for his retirement, he would clearly have lost money through having to pay CGT at the time when compensation was assessed rather than three years later. He would have lost the benefit of the indexation allowance for the three years and he would have lost the use for that period of the tax paid. If the compensation did not include an amount that reflected this loss he would not have been put in the same position as he would have been in if his land had not been acquired.

[109]Mr Corner submitted also that the Tribunal in Harris had been right to decide as it did by reference to causation. Whatever the claimants’ intentions about retaining the reference land in the absence of the CPO the fact was, he said, that the latent CGT liability already existed in the reference land as a natural consequence of the increase in its value over time and the previous history of the property, and this was required to be disclosed in BPL2’s financial statements. The CPO therefore served only to trigger the latent liability which was already extant within the company. It did not cause the liability to arise. We do not accept that a claim for compensation in respect of CGT payable following compulsory purchase must inevitably fail for reasons of causation. What the acquisition does is to give rise to a chargeable gain by reason of a disposal made, or treated as having been made, at the date on which compensation is determined. The acquisition causes CGT to be payable at a particular date. If, on the evidence, in the absence of the acquisition there would not have been a disposal until a later date or if the owner would at a later date have transferred the land in a way that did not constitute a disposal for CGT purposes, such loss as the owner can be shown to have sustained by reason of the having to pay CGT at an earlier date rather than at a later date or not at all would in our view undoubtedly be caused by the acquisition.

[110]Remoteness was a further reason for the Tribunal’s rejection of the CGT claim in Harris . Mr Corner submitted that a loss is too remote if it incapable of accurate assessment. In relation to the BPL2 claim he said that it cannot be known when BPL2 would ultimately have sold the reference land; what the value of the property would be; what tax rates would be applicable; what indexation allowance might be available; what changes in tax legislation might have taken place by that future date; or what discount factor should be applied to reflect the time value of money in the intervening period. Any loss that the claimant might have suffered by having to pay CGT now was thus, said Mr Corner, unquantifiable.

[111]We do not accept that the uncertainties to which Mr Corner refers individually or in combination necessarily render any claim for compensation in respect of CGT too remote. Uncertainty is an unavoidable incident of any claim for a loss founded on future prospects, for example a claim for loss of profits or many personal injury claims. Future tax rates, possible changes in legislation, inflation, changes in interest rates, any of which might affect the extent of the loss to be compensated, are all unknown. But that is no reason for ruling out compensation for the loss. Assumptions necessarily have to be made, often, in the absence of any better indication, that present factors will continue. Nor does it seem to us that uncertainty about when the claimant might in the absence of the acquisition have sold the land rule out a claim. If the evidence shows, for instance, that he would have been likely to have retained the land for at least three years, the fact that he did not intend to sell the land after three years but intended instead to retain it for some indefinite period would not lead to his being deprived of compensation that reflected the loss suffered through incurring VAT at least three years earlier than he otherwise would have done.

[112]A matter that is undoubtedly material to any claim for compensation in respect of CGT is rollover relief. The Tribunal in Harris saw this as an absolute bar to such compensation, and this was Mr Corner’s contention also. The argument is that Parliament has provided in rollover relief assistance for those who are liable to pay CGT on compulsory purchase of land; that there would have been no point whatsoever in Parliament legislating to provide a relief for CGT upon a CPO, such that it might be deferred, if compensation were recoverable for CGT in any event; and that it follows that it is plain that Parliament did not intend CGT itself to be recoverable.

[113]We do not accept this argument, for two reasons. The first is that it is not the case that there would have been no point in making provision for rollover relief if a claimant was able to claim compensation for CGT in any event. As this case shows, it is a matter of dispute whether compensation would have been available in the absence of rollover relief, and any assessment of such compensation would be likely to be problematic and a potential source of controversy between the parties. Rollover relief provides a simple means of doing justice where the claimant is in a position to reinvest the proceeds of compensation within the period allowed. Secondly it is impossible, in our judgment, to treat the entitlement to compensation that arises under the 1961 Act as being, by implication, removed in certain circumstances by section 247 of the 1992 Act. That is not an approach to statutory construction that appears to us to be possible. There is, as we have said, no inconsistency between the availability of rollover relief and the potential availability of compensation. Morever, if the intention had been to exclude such compensation, section 247 could have provided for this.

[114]Rollover relief is nevertheless of obvious significance when consideration is being given to the reasonableness of the claimant’s conduct. A claimant has a duty to mitigate his loss, and if, unreasonably, he fails to take advantage of rollover relief he will disentitle himself to compensation for such loss as he could have avoided.

[115]The claimants’ case was that CGT on land was not, as the acquiring authority contended, an inevitable tax. BPL2 could have avoided the payment of CGT by one of the following strategies:(a) It could, as part of the PFL group, simply have held on to the property for the very long term or in any event until the rising allowable base cost for the reference land removed any CGT liability.

(b) The entire share capital of PFL group or BPL2 itself could have been sold without any sale of the individual properties and without triggering any capital gain. If sold to a REIT the latent CGT liability would be removed, subject to a 2% entry charge.

(c) The three reference land properties could be transferred to a group company, held for 6 years and then sold to a purchaser, such as a REIT.

(d) The properties could be transferred into a group company as part of what Mr Coleclough called a “Herringbone” structure and then sold to a purchaser, such as a REIT, within 6 years.

[116]In relation to (a) the potential for the claimants to hold on to the property for the very long term is clearly there, and the material question is for how long it should be concluded, as a matter of probability, the claimants would have continued to hold the property. This is a question of fact for the next hearing. Since the question of fact is what the claimants would have done in the no-scheme world, the other three strategies, which envisage an early disposal, are clearly inconsistent with it. It is not sufficient for the claimants to establish that CGT or stamp duty could have been avoided or reduced. They need to show what on the balance of probability they would have done in the no-scheme world. We do not think that, in the absence of evidence showing what the claimants would in fact have done, we can express a conclusion, as Mr Corner invites us to do, ruling any of them out, but we can make three further observations in relation to them for the parties to have in mind. Firstly sale to a REIT would depend on there being a REIT who wanted to buy. There were only ten REITs in existence at the valuation date, and the claimants would need to show that one of these, or another REIT that might be expected to come into existence in the future, would have wished to acquire a corporate vehicle owning the reference land. Secondly there would in our view be a substantial risk that strategies (c) and (d) would fail to achieve the saving in tax that they were designed to achieve, if they were followed, as the claimants’ case suggests that they would have been, with no commercial purpose other than the avoidance of tax. How great that risk would be, and how it would affect the claim for compensation, are matters that will need to be explored further at the next hearing if the claimants can establish on the facts that one strategy or the other would have been followed in the no-scheme world. Thirdly, no strategy other than a transfer to a REIT would achieve the elimination of a CGT liability, so that it would appear that any claim would necessarily have to be based on postponement and not elimination.

[117]The third observation is that, while it may be possible for the claimant to satisfy the Tribunal on the evidence that, in the absence of the compulsory purchase, it would not have disposed of the land until some particular later date and to establish a claim for compensation for the loss incurred through the chargeable event being that much earlier, we think that it would not in practice be able to establish a claim based on the assertion that it would never have incurred CGT at all, other than by a transfer to a REIT. The claim would necessarily have to be based on postponement rather than elimination of the tax liability.

[118]In any event to succeed in its claim under this head the claimant will have to establish that it will not be able, or could not reasonably be expected, to take advantage of rollover relief. The period during which the proceeds may be reinvested for the purpose of claiming rollover relief is the 4 year period starting 12 months before and ending 3 years after the date on which compensation for the value of the land is determined. Within the next three years the difficulties of obtaining finance and the availability of assets for reinvestment – the factors that Ms Parnell says prevent the claimant taking advantage of rollover relief – may change substantially, and the claimant will inevitably, it seems to us, have to prove that it would not be able to reinvest. It might be possible to adjourn the hearing of that part of the claim based on liability to CGT (as may be done, for instance, to assist in establishing a loss of profits claim), but we would need to be convinced that this was a proper course to follow. Piercing the corporate veil and constructive and resulting trusts

[119]The second preliminary issue that we have to consider is whether PFL is entitled to claim for consequential loss under rule (6) notwithstanding that it had no legal interest in the land acquired. There are two sets of losses claimed. The first, said to be in excess of £16,219,071 and still increasing, comprises interest payments on the loans which financed the acquisition of the NCP portfolio, the payments being made out of the income received from the car parks on the reference land. The second set of losses claimed consists of finance costs and fee debenture liabilities which cannot yet be quantified. The claim is advanced on the basis that the relationship between PFL and BPL2 was such as to make it appropriate to pierce the corporate veil or alternatively that the arrangements made for the acquisition of the reference land by BPL2 were such that BPL2 held the land on either a resulting trust or a constructive trust for the benefit of PFL.

[120]The contention that PFL were on one or more of these bases entitled to compensation was based on the Court of Appeal decision in DHN Food Distributors Ltd v Tower Hamlets LBC

[1976] 1 WLR 852

. In that case the claimants were three limited companies who together formed a group. Their business was a wholesale grocery business. It was owned by the parent company, DHN Food Distributors Ltd (DHN), and it was this company that occupied the land. The other two claimants, Bronze Investments Ltd (Bronze) and DHN Food Transport Ltd (Transport), were subsidiaries of DHN. The land was owned by Bronze. In 1963 DHN had agreed with a bank that the bank would provide £115,000 to purchase properties from which DHN could carry on its existing business. The freehold was to be conveyed to Bronze, then a wholly owned subsidiary of the bank, and Bronze contracted to sell the properties to DHN within a year of completion for £120,000. DHN negotiated a mortgage advance with a finance company. Under a further agreement the share capital of Bronze, rather than the land itself, was transferred to DHN. The claim of DHN, who were licensees only, was for compensation for disturbance consisting of the total extinguishment of the business. The Lands Tribunal (Douglas Frank QC, President) held that the only compensation to which DHN, as licensees, were entitled was that under section 20(1) of the Compulsory Purchase Act 1965, the value of the unexpired interest of a yearly tenant. The Court of Appeal (Lord Denning MR, Goff and Shaw LJJ) allowed DHN’s appeal. All three judges held that the corporate veil could be pierced so as to achieve this result, and Goff and Shaw LJJ held in addition that DHN was the owner of the land under a resulting trust.

[121]Mr Corner’s contention was that we should not follow DHN in relation to piercing the corporate veil. This was because(a) though said to be based on the decision in Harold Holdsworth & Co (Wakefield) Ltd v Caddies

[1955] 1 WLR 352

, HL Sc, it in fact derived very limited support from that decision;

(b) it was inconsistent with the approach of the earlier decision of the Court of Appeal in Tunstall v Steigman

[1962] 2 QB 593

;

(d) subsequent cases, both in the UK and elsewhere, had consistently doubted or rejected Lord Denning’s approach. The short answer to these submissions is that DHN has not been overruled and, as far as this Tribunal is concerned, it is binding authority for what it decides. It is not for us to say that the Court of Appeal was wrong to derive support from Harold Holdsworth or that its decision was inconsistent with Tunstall v Steigman , a case that the report records as having been cited in argument in DHN . Nor, obviously, is it deprived of authority by a Latin maxim. It is the case that in Woolfson v Strathclyde Regional Council

(1979) 32 P & CR 521

Lord Keith of Kinkel, with whom the other Law Lords agreed, said that he had “some doubts” whether the Court of Appeal had “properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere façade concealing true facts.” But Lord Keith went on to say that DHN was “clearly distinguishable on its facts from the present case. There the company that owned the land was a wholly owned subsidiary of the company that carried on the business. The latter was in complete control of the situation as respects anything which might affect its business…”

[122]In two cases the Court of Appeal has recognised DHN as falling into a class of case in which it may be appropriate to pierce the corporate veil even when the basic justification for doing so, that it is a mere façade concealing true facts, does not apply. In Adams v Cape Industries Ltd

[1990] 1 Ch 433

, a case in which the Court of Appeal undertook a review of the law relating to group companies as single economic entities and the law on piercing the corporate veil, Slade LJ, giving the judgment of the court, said this (at 536D-E):

“It is not surprising that in many cases such as Holdsworth [1955] 1 WLR 352, Scottish Co-operative [1959] AC 324, Revlon [1980] FSR 85 and Commercial Solvents [1974] ECR 223, the wording of a particular statute or contract has been held to justify the treatment of parent and subsidiary as one unit, at least for some purposes. The relevant parts of the judgments in the DHN case[1976] 1 WLR 852 must, we think, likewise be regarded as decisions on the relevant statutory provisions for compensation, even though these parts were somewhat broadly expressed, and the correctness of the decision was doubted by the House of Lords in Woolfson v Strathclyde Regional Council 1978 SLT 159 …”

And in an earlier case, Ord v Belhaven Pubs Ltd

[1988] BCC 607

, on a claim made in contract and tort, Hobhouse LJ, with whom Brooke LJ and Sir John Balcombe agreed, referring to Woolfson and DHN , said that they “were both compensation cases which involved questions of valuation of interest which raised much broader criteria than those which are concerned with establishing legal liability of one corporate entity or another for alleged torts or breaches of contract.”

[123]Thus there is no doubt that DHN is authority for what it decides on piercing the corporate veil and that this Tribunal is bound by it. What then is it that DHN decides? The headnote in

[1976] 1 WLR 852

says this in relation to the corporate veil point:

“ Held , allowing the appeals (1) that where the question at issue was the entitlement of the owner of a business to be compensated for its extinguishment and on the facts the trading company was in a position to control the subsidiary companies in every respect, the court could pierce the corporate veil which regarded limited companies as separate legal entities and treat the group as a single economic entity for the purpose of awarding compensation for disturbance. Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352, HL Sc applied.”

[124]That part of the headnote should not be read as a complete encapsulation of the ratio of the case in relation to piercing the corporate veil. It is clear from the judgments that the conclusion of the court in this respect was founded on the key facts that DHN was in lawful occupation of the land acquired and carried on there the trading business of the company. In our judgment these facts constitute part of the ratio. DHN thus constitutes authority that, where one company in a group owns the land acquired and another company is in lawful occupation of the land for the purposes of the business of the group, the corporate veil may be pierced so as to give the second company an entitlement to compensation for disturbance. There is nothing in the decision that would suggest that a group company that is not in occupation of the land may be entitled to compensation under rule (6).

[125]It should be noted that by the time of the decisions of the Lands Tribunal and the Court of Appeal in DHN sections 37 and 38 of the Land Compensation Act 1973 had been enacted. Section 37 provides for the payment of disturbance compensation where a person is displaced from land in consequence of the acquisition of the land by an authority possessing compulsory purchase powers but has no interest in land for the acquisition of which he is otherwise entitled to compensation. Under section 38(1)(b) the amount of any disturbance payment, if the claimant was carrying on business on the land, will include the loss sustained by reason of disturbance of the business through his having to quit the land. Section 38(2) provides that in estimating any loss for the purposes of subsection (1)(b) regard shall be had to the period for which the land occupied by the claimant may reasonably have been expected to be available for the purpose of his business and to the availability of other land suitable for that purpose. DHN were unable to take advantage of these provisions because possession had been taken in 1971. The result achieved by the Court of Appeal decision had already become a statutory entitlement for those who were dispossessed after 23 May 1973, when sections 37 and 38 came into effect. As a consequence it is now unlikely that a licensee carrying on business on the land acquired will need to place reliance on the decision: see eg Roberts v Ashford Borough Council [2005] RVR 388. The anomaly is that a short leaseholder is not similarly able to have disturbance compensation assessed having regard to the period for which the land occupied by him may reasonably have been expected to be available for the purpose of his business: see Bishopsgate Space Management Ltd v London Underground Ltd [2004] RVR 89 , applying Minister of Transport v Pettitt

(1968) 20 P & CR 344

[126]Since PFL, not being in occupation of the land acquired, are not able to rely on the doctrine of piercing the corporate veil, the other ways in which its claim is put – on the basis of a resulting trust or alternatively a constructive trust – need to be considered. For this purpose it is necessary to understand the essence of the process by which BPL2 came to be the proprietor of the land acquired and also the relationship between BPL2 and PFL. The transfer to BPL2 of NCP’s property assets was achieved by a series of transactions effected through a number of corporate entities (no fewer than 17 different companies were identified in the evidence, and there were others besides). The arrangements, which were devised in order to maximise tax benefits, were exceedingly complex. The transactions included the transfer of companies, the transfer of shares in companies and the transfer of assets between companies, as well as financial arrangements made between them. These were described in the evidence of Louise Jones, a solicitor with Nabarro LLP, who dealt with the real estate aspects of the acquisition. It is unnecessary for present purposes to set out in full the complicated stages by which the transfer was achieved. Certain features, however, need to be noted.

[127]The acquisition vehicle, a company called Linchfield Ltd, a company registered in Gibraltar, bought through a share sale and purchase agreement (the SPA) into a complex corporate structure, devised by the Royal Bank of Scotland in order to separate the property assets of NCP from its operating assets and realise the value of them through separate sales. Linchfield’s acquisition was carefully structured for tax reasons. Price Waterhouse Coopers had identified a contingent liability to corporation tax of approximately £100m in the event of the NCP property portfolio or part of it being disposed of by way of a property sale. The contingent liability arose from the historic acquisition costs on the original purchases of the various properties in the portfolio by particular companies in the NCP group. Linchfield’s acquisition was structured to avoid this contingent liability.

[128]The RBS companies included Primemodern Ltd, Bishopsgate Parking Ltd (BPL) and PFL. BPL was a wholly owned subsidiary of PFL, and PFL was a wholly owned subsidiary of Primemodern. There was another RBS company called Parking International Limited (PIL), of which BPL2 was a wholly owned subsidiary.

[129]Shortly before the SPA, under which Linchfield agreed to acquire a controlling interest in PFL, most of the NCP property assets were transferred to PIL and PFL subscribed for and was issued B shares in PIL. These B shares entitled PFL on liquidation of PIL to receive a sum equal to its property assets or alternatively those assets themselves. Then, immediately before the SPA, the entire issued share capital of BPL2 was transferred from PIL to PFL. Under the SPA, therefore, Linchfield became the parent company of PFL, BPL and BPL2.

[130]Simultaneously with completion of the SPA, PIL was placed into a members’ voluntary liquidation pursuant to section 110 of the Insolvency Act 1986; and under the terms of a transfer agreement made between PIL and PFL and others shortly before the SPA, on the liquidation of PIL its property assets were transferred, with the consent of PFL, to BPL2. Under the agreement PFL accepted shares in BPL2 in satisfaction of the rights attached to PFL’s B shares in PIL.

[131]The debt finance for Linchfield’s acquisition was provided by RBS, the loans being made to PFL to enable it to refinance loans previously made by RBS as part of the restructuring steps we have just described and to enable it to subscribe for the shares in PIL. The principal security for the loans was provided by the asset companies of the group, including in particular BPL2. Each of these companies granted RBS as security trustee a debenture of all its assets and undertaking present and future, which included the portfolio properties and certain swap contracts.

[132]What is said by Mr Humphries is that under these arrangements PFL acquired an equitable interest in the property assets (including the subject properties) that were transferred to BPL2. The first basis upon which it is put is that of a resulting trust. As we have noted, in DHN Goff and Shaw LJJ held that DHN had a beneficial interest in the land owned by Bronze, although Lord Denning said that he was not prepared to decide the case on this basis. We agree with Mr Corner, however, that no resulting trust arises on the facts of the present case.

[133]The trust on which the claimants rely is the type of resulting trust that arises from the gratuitous transfer of property: where one party(a) (A) gratuitously transfers property (or pays for a purchase of property) which is to be vested in another party (B), there being in such circumstances a presumption that A did not intend to make a gift to B, so that the property is held on resulting trust for (A) (see Westdeutsche Landesbank Girozentrale v Islington LBC

[1996] AC 669

at 708-9 per Lord Browne-Wilkinson. The claimants say that BPL2’s acquisition of the property was financed by PFL and that in consequence of this BPL2 held the land on trust for PFL. Under the section 110 agreement, however, to which PFL and BPL2 were parties, both the legal and beneficial titles were transferred to BPL2. This was stated in recital

(b) (B) to the agreement and provided for in clauses 3.1 and 14.2. BPL2 provided good consideration for the transfer in the form of the allotment of its shares. There is thus no scope for implying a trust in favour of PFL, because it has expressly agreed that the beneficial interest should lie with BPL2. The presumption on which a resulting trust would have to depend is therefore conclusively rebutted. It may be also, as Mr Corner submits, that on a true analysis of the transactions it was BPL2 rather than PFL that provided the funds for the transfer (in the form of an allotment of shares as permitted by section 110), but we see no need to determine the point on this basis. It is sufficient that there is express provision negativing the implication of a trust.

[134]For the same reason the alternative suggestion of a constructive trust must fail. The contention is that by virtue of the arrangements a Pallant v Morgan equity arose. The essence of the equity in Pallant v Morgan

[1953] Ch 43

is a pre-acquisition arrangement or understanding between two parties that one party should acquire the property for the benefit of them both, so that as a result a benefit accrues to the acquiring party or a detriment is suffered by the other party such that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself in a way inconsistent with the understanding or arrangement: see Banner Homes Group Plc v Duff Developments Ltd

[2000] Ch 372

, in particular the judgment of Chadwick LJ at 397-399.

[135]Mr Humphries drew attention to the words of Patten LJ (with whose judgment the Chancellor and Thomas LJ agreed) in Clarke v Corless

[2010] EWCA Civ 338

at paragraph 40:

“The key to the imposition of a constructive trust is that it would be unconscionable for the purchasing party to retain ownership of the land for his own benefit having regard to the prior agreement reached and to the claimant’s reliance upon it.”

[136]We do not see how the test of unconscionability could be said to be satisfied on the facts of the present case. As we have said, the transfer agreement, to which both PFL and BPL2 were parties, expressly provided that BPL2 should have both the legal and the beneficial interest in the land – that it should be able to retain ownership of the land for its own benefit. The essence of a Pallant v Morgan equity is the unconscionable retention of the land by one party for himself. It forms no part of the claimants’ case, however, that BPL2 should not have been able to derive the benefits of ownership when it owned the subject land. Essentially the case is that BPL2 should not have been able to dispose of the land in circumstances which would cause loss to PFL as the company that had provided the money for the purchase of the land. Although the circumstances in which a constructive trust may arise cannot be prescribed exhaustively (see Yeoman’s Row Management Ltd v Cobbe [2008] UK HL 55 per Lord Scott of Foscote at paragraph 30), this seems so far removed from the concept of the Pallant v Morgan equity that we cannot think that it would be proper to hold that a constructive trust had arisen.

[137]For these reasons we do not consider that PFL has a claim for compensation in reliance either on the basis of piercing the corporate veil or under a resulting or constructive trust. Conclusions

[138]On the matters before us we conclude as follows:(a) The value of BPL2’s leasehold interest in the reference land was £43,550,000. It is entitled to this amount as compensation, plus such part of the agreed pre-reference professional fees as are attributable to its claim.

(b) Compensation may be payable in respect of a liability to CGT which would in the absence of the compulsory acquisition have been postponed.

(c) Whether or not BPL2 have a claim in respect of CGT and stamp duty depends on its establishing when and how disposal of the properties would have been effected in the no-scheme world and, in the case of CGT, in establishing that advantage could not be taken of rollover relief.

(d) PFL has no entitlement to compensation.

[139]The parties are now invited to make submissions on costs, and a letter relating to this accompanies this decision, which will become final when the question of costs has been determined. Dated 29 March 2012 George Bartlett QC, President N J Rose FRICS Addendum

[140]We have received written submissions from the parties on costs. The claimants apply for the following orders:(a) The acquiring authority to pay BPL2’s costs of the heads of claim that were finally determined (para. 4(a) to (d) of the decision).

(b) The acquiring authority to pay BPL2’s costs of the first preliminary issue of law.

(c) No order as to costs of the second preliminary issue of law. In the alternative PFL’s liability should be limited to the resulting and constructive trust issue, with no order as to costs in respect of the corporate veil issue.

[141]The claimants say that, on a claim for compensation for the compulsory acquisition of land, the Tribunal will normally make an order for costs in favour of a claimant who receives an award of compensation unless there are special reasons for not doing so (Lands Chamber Practice Direction (29 November 2010) para 12.3(1)). The four matters for final determination by the Tribunal were all reasonably pursued by BPL2 to establish the amount of disputed compensation to which it was entitled. There are no special reasons why the normal rule should not apply in this case. Moreover, BPL2 was not given any details of the acquiring authority’s rule (2) valuation until the authority’s expert report was provided. BPL2 therefore had no fair opportunity to resolve the valuation issues outside of the Tribunal. This provides a further reason why BPL2 should be awarded its costs at this stage.

[142]Unlike the matters for final determination, the claimants say the preliminary issues of law arose in respect of the entitlement to claim compensation rather than the amount of compensation. Accordingly, these are governed by the approach applicable under the Civil Procedure Rules. The general rule is that the successful party ought to receive its costs, but the Tribunal will have regard to all the circumstances, including the conduct of the parties, and the degree to which a party has been successful on part of its case, even if it has not been wholly successful.

[143]It is said that on the first preliminary issue BPL2 was successful on the principle of the recoverability of liability to CGT as part of its compensation claim. The acquiring authority’s arguments against the principle of recovery of liability to CGT were all rejected. BPL2 was also successful on the principle of recovering losses through its inability to make corporate stamp duty savings, an issue which the Tribunal linked to the arguments on CGT. The first preliminary issue was therefore determined in BPL2’s favour.

[144]On the second preliminary issue it is said that the Tribunal held that PFL had no entitlement to claim compensation for disturbance. The Tribunal rejected the corporate veil ground. However, the Tribunal’s decision was not based on the grounds advanced by the acquiring authority, which were to the effect that DHN was wrongly decided and the veil could only be lifted in the case of a sham or façade. Instead, the Tribunal accepted PFL’s submissions that DHN was binding authority, but decided that its ratio did not support PFL’s claim because PFL was not in occupation of the reference land.

[145]The claimants note that the Tribunal also rejected the resulting and constructive trust ground advanced by PF, but they say that this was a secondary and relatively minor part of the arguments on this preliminary issue and no evidence was advanced in relation to it. Thus, although PFL was not wholly successful on the second preliminary issue, it was successful on part of its case and to that extent the acquiring authority was not.

[146]The acquiring authority submit that the clear inference of Rule 10(3) of The Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 is that, whilst costs are in the discretion of the Tribunal, they should not be dealt with until the final outcome of the proceedings, when the final amount of compensation which is payable has been determined, so that costs can then properly be considered in the light of that determination and in accordance with both the Land Compensation Act 1961 and the Tribunal Practice Directions.

[147]In the present case the Tribunal’s decision dated 29 March 2012 has not finally disposed of all the issues in the proceedings, in that the issue of compensation for CGT and the potential loss through stamp duty are, unless the application is withdrawn in those regards, to be considered for final determination at a second hearing. Accordingly, it is said the Tribunal should make an order that no costs be payable pending final determination of those issues or withdrawal of those aspects of the claim.

[148]In the Acquiring Authority’s further submission such an order would be sufficient for the purposes of Rule 55 to trigger the commencement of time for the making of an appeal in respect of the issues thus far determined by the Tribunal in these proceedings, being those issues as to compensation which were for final determination at the first hearing, and the preliminary questions of law.

[149]In the Acquiring Authority’s alternative submission, and if the Tribunal does decide that the issue of costs should be determined now, the acquiring authority has won all issues except that relating to CGT. Although the Tribunal decided in the claimant’s favour on that issue, this was only in respect of the preliminary issue on this head of claim, and in any event was subject to the Tribunal raising the serious evidential obstacles facing the claimants at any second hearing in respect of that issue.

[150]The acquiring authority’s alternative submission is therefore that, since it has substantially won, either it should be awarded its costs, or a partial award of costs should be made in its favour in respect of those matters upon which it has won.

[151]We accept the acquiring authority’s principal submission. It is in our view not appropriate to determine the issue of costs until the total amount of compensation payable in respect of all heads of claim has been decided. Our order therefore is that costs are reserved. Dated 8 May 2012 George Bartlett QC, President N J Rose FRICS

Bishopsgate Parking (No 2) Ltd & Anor v Welsh Ministers [2012] UKUT 22 (LC)

(i) : Yield - evidence

(i) : Yield – post valuation date comparables

(i) : Yield – conclusions

Cited in 7 later judgments