Zafar Quyoom & Ors v The Borough Council of Middlesbrough

In this reference we are asked to determine the compensation payable to the claimants, Mr Zafar Quyoom, his wife, Mrs Amina Quyoom, and their company Jap Euro North East Ltd, following the compulsory acquisition of land and buildings at Commercial Street in Middlesbrough from which Mr Quyoom and the company operated a successful business dismantling end of life vehicles (“ELVs”). Although the claimants also occupied another site close to the acquired land, it is agreed that the consequence of the acquisition of their Commercial Street premises (“the Site”) was that the business could not continue.

The Site was acquired pursuant to The Council of Middlesbrough (Middlehaven) Compulsory Purchase Order 2014 which was confirmed in September 2015. A General Vesting Declaration was executed by the Council in December 2017, and it took possession of the Site on 29 March 2018, which is agreed to be the appropriate valuation date.

The parties have agreed the compensation payable for the Site itself under rule 2 of section 5 of the Land Compensation Act 1961 together with various professional fees incurred by the claimants as a result of the acquisition. It is also agreed that the claimants should be compensated under rule 6 of section 5 on the basis that the business was extinguished on the valuation date. The value of the business on that date is not agreed, nor is it agreed whether additional compensation should be paid under rule 6 because Mr Quyoom, who was the sole manager of the business, devoted time to dealing with the acquisition.

Evidence was given during the hearing by Mr Quyoom, by Mr Sam Gilmore, who is an officer of the Council, and by Mr Harry Seddon, formerly an employee of Cerberus Asset Management, and Mr Matthew Bateman, a director of Cerberus. Expert evidence on the value of the claimants’ stock was given by Mr Richard Storry MRICS and by Mr Matthew Parker MRICS, and on the value of the claimants’ business by Mr Nicholas Parton FCA and Mr Gavin Pearson FICAEW.

The claimants were represented at the hearing byPaul Stinchcombe KC and the respondent by Vincent Fraser KC. We are grateful to all who participated for their assistance.

Mr Quyoom started working in his family’s licensed taxi and private hire business when he left school in 1987 and branched out into the vehicle dismantling industry in 1992. For almost 20 years he operated as a sole trader, initially supplying parts to local taxi drivers but gradually expanding to trade in all types of vehicle over a much wider geographical area. In 2011 JAP Euro North East Ltd was incorporated and the business was conducted through it. Mrs Quyoom was the sole director of the company, although she was not active in the business which was run by Mr Quyoom alone. The only business records available to support the valuation exercise date from the formation of the company.

Between 1992 and about 2001 Mr Quyoom operated the business only from the Site. He purchased additional premises on North Street, a few hundred yards from the Site, in about 2001, and then operated a single business from the two locations until the Site was taken in 2018.

The Site was the main vehicle salvage and breakers yard for the business. It was well located in what was originally an industrial area close to the River Tees. It had previously been used as a brickworks and it had an office and a workshop, which Mr Quyoom equipped with a vehicle-lift, compressor, tyre machine and other necessary equipment. He also installed a drainage system to enable vehicles to be depolluted on site and racking on which vehicles could be stored. The Site was licensed by the Environment Agency with a storage capacity of 1,000 vehicles, 50 tonnes of residual waste and 10 tonnes of hazardous waste. Mr Quyoom himself was the licensed operator.

The North Street premises, acquired in 2001, comprised a warehouse with a concrete floor and a yard with capacity for approximately 500-600 vehicles (although Mr Quyoom said there were never as many as that on site). North Street was used solely for vehicle storage, including of higher value vehicles which were stored in the warehouse until they were moved to the Site to be dismantled.

It was generally not Mr Quyoom’s practice to dismantle vehicles as soon as he acquired them and they were kept on racks or stacked around the Site after depolluting until a customer arrived who wanted a particular part. The business also had a stock of parts which had either been taken from vehicles or acquired separately.

Mr Quyoom typically purchased ELVs from specialist auctions operated by insurance companies, which were accessible only to licensed vehicle breakers. At first he acquired vehicles which were popular with taxi firms, usually Japanese models but later European brands, but eventually he branched out into vehicles of all types. He relied on his own experience and judgment of the likely demand for parts, on the basis that the individual parts which could be stripped from a vehicle would eventually realise a greater price than he had paid for it as a whole. He told us that he would look for ELVs with low mileage and rear end damage, for which he might pay £2,000 at auction in the expectation that the engine and gearbox alone might be sold on for £4,000 or £5,000. Over a period of ten years or more the whole vehicle might eventually yield undamaged parts which could be sold for up to £15,000 depending on the model, its condition and the rarity of the components.

Before the Compulsory Purchase Order came to be made in 2014, the business had acquired a nationwide customer base and Mr Quyoom travelled regularly to auctions all over the country. He had also begun to sell online on a small scale and that side of the business became more important as the Middlehaven regeneration scheme got under way around the Site. The Council began to acquire land in about 2012 and ground works commenced in about 2015. As more sites in the area became vacant, buildings were cleared, familiar landmarks disappeared, temporary road closures were occasionally required and the walk-in trade declined.

Vandalism and theft also increased in the locality. When the Council took possession of the Site in March 2018 it was still full of vehicles. There followed a lengthy period during when the parties failed to agree how, and by whom, the Site could best be cleared but this impasse was brought to an end after eighteen months when on 30 September 2019 a fire destroyed all of the stock, equipment and racking which remained on the Site. Whether the fire was started accidentally, by thieves using cutting equipment to remove catalytic converters, as Mr Quyoom believes, or deliberately, as the fire service incident report suggested, is not a matter we have been asked to consider.

The claimants’ claim for the cessation of their business is put at £5,074,085. That figure is the aggregate of three sums.

Mr Pearson, the Council’s forensic accountancy expert, valued the claimants’ business at not more than £377,000. This figure was Mr Pearson’s assessment of the value of the business on a “market” or capitalised earnings basis, calculated by applying a multiple to the estimated maintainable earnings (or EBITDA) in 2013 (which was the best year for which adequate financial information was available and also predated any adverse effect on the business of the regeneration scheme for which the Site was taken). However, if the value of the claimants’ stock was greater than the value of the business as a whole, calculated in this way, it was suggested by Mr Pearson that a sum representing the value of the stock would be an appropriate alternative basis of compensation.

Mr Parton, the claimants’ forensic accountancy expert, did not consider that Mr Pearson’s methodology was appropriate for the required valuation, as he understood it, but he helpfully provided what he described as an indicative enterprise valuation on the same capitalised earnings basis to assist the Tribunal if we were attracted to that approach. Using the earnings of the business in 2013 as the basis of assessment, as Mr Pearson had done, Mr Parton came to a figure of £628,000 for the value of the business. If, instead, earnings over the three-year period before the cessation of the business were used, the value would be £158,000 (but it is the claimants’ case that the business was adversely affected by the scheme in those years).

The claimants also included a claim for £25,000 in respect of “management time”, referable to an estimated 500 hours spent by Mr Quyoom as a result of the taking of the Site and the cessation of the business at an hourly rate of £50.

The Council had offered £10,000 in respect of management time, but this offer was withdrawn by Mr Fraser KC in closing submissions on the grounds that no evidence had been adduced by the claimants in support of this head of compensation.

The parties agreed that the principle which should guide the Tribunal’s determination of compensation is the principle of equivalence. The claimants should be compensated for all of the loss caused to them by the cessation of the business, including personal and incidental loss, provided it was not too remote; but they must have behaved reasonably to reduce their loss and should not be compensated for loss which they could have avoided. The onus of proving their loss is on the claimants, including loss claimed in respect of management time; but if the Council suggests that loss could have been avoided if the claimants had taken reasonable steps to that end, it is for the Council to identify what those steps were and to prove that the claimants’ loss would have been reduced if they had been taken.

In determining the extent of the loss sustained as a result of a compulsory purchase it is the value of the land (or business) to the owner which should be assessed, not the value to the person acquiring it.

It is convenient to deal with two areas of disagreement on the proper approach to valuation before looking in more detail at the figures. The first concerns the basis of valuation of the claimants’ stock of ELVs. Stock value was not the primary basis of valuation advanced by either side, but it was a component of the claimants’ valuation and proposed as an alternative by the Council’s expert if it were found to exceed the value of the business as a whole. The second issue of principle is whether the first and second heads of the claim can be advanced at the same time, or whether they involve double counting.

For the claimants, Mr Stinchcombe KC submitted that the stock of ELVs should be valued by reference to the value which they would have realised if their value had been realised in the ordinary course of the business. Mr Quyoom’s business was not the sale of ELVs, it was the sale of parts which could be stripped from ELVs and sold on for re-use. What was required was an assessment of the value of the saleable parts which each vehicle contained, to which should be added the scrap value of the remaining shell once those parts had been removed. Allowances should be made against the value of the saleable parts to reflect the time it would take to dispose of them, and to take account of the overheads of the business which were the cost of sale, and the fact that a proportion of the saleable stock would never be sold. Mr Stinchcombe KC submitted that if that assessment was made the resulting figure, which he referred to as the “retail value”, would be the value of the stock to the owners.

On behalf of the Council, Mr Fraser KC suggested that the value of the claimant’s stock was equal to the cost of acquiring it at the valuation date. Other than the disaggregated parts, the stock comprised whole vehicles which had not yet been broken up, and a purchaser would pay the auction price for them. This was referred to as the “cost to the claimants”.

The difference between the retail value of the stock and the cost to the claimants was considerable. The evidence showed that stock of equivalent value could have been acquired in 2017 for about £140,000, while the retail sale of all the stock at the same date (although without any allowance for time or overheads) would have yielded about £1.2m.

Mr Stinchcombe relied on a decision of the Lands Tribunal (CR Mallett FRICS), in Chiltmead Ltd v Reading Borough Council [1981] I EGLR 183 in support of his submission. That case concerned the compensation payable to a dealer in electronic equipment whose premises were compulsorily acquired and who incurred a loss on the forced sale of its stock. The circumstances of the valuation were analogous and although the commodity in which Chiltmead traded was electronic parts rather than vehicle parts, the rival approaches to the valuation of its stock were similar to those adopted in this case. The Tribunal favoured a valuation on the retail basis with the claimant being compensated by reference to the value its stock would have achieved if its sale had not been forced but had occurred in the ordinary course of business, with the proceeds of sale then being discounted for early receipts and for the prospect that some stock might never be sold.

Chiltmead establishes no rule of law, but it supports the claimants’ preferred approach to the valuation of stock and is consistent with the underlying principle that the relevant value to be identified is the value to the owner.

We are not attracted to Mr Fraser’s suggestion that the claimants’ stock of ELVs should be valued at its cost of acquisition. The claimants already owned the vehicles at the valuation date, and it is agreed that they should be compensated on the basis that their business could not be continued. What they have lost is the opportunity to sell the disaggregated parts which the stock would have yielded over many years. The cost to someone else of acquiring an equivalent stock of vehicles, which in any event could only be done over a lengthy period, bears no relation to the value of the ELVs to the claimants, which is properly represented instead by their resale value. If compensation is to be determined by reference to the value of stock, rather than by a valuation of the business as a whole, effect can best be given to the principle of equivalence by an approach which discounts the resale value of the stock to take account of overheads, time taken to sell, and the proportion of stock which is unlikely to have been sold.

As to the second issue of approach, it is said by the Council that the presentation of the claim in three parts is unsustainable because the losses claimed under the first head are claimed again under the second head. The claimants’ forensic accountancy expert, Mr Parton, acknowledged the force of this criticism and recast the second head of loss as “losses derived from unrealised business after the vesting date”. Mr Stinchcombe KC defended that approach and explained that the stock valued under the first head was the stock which the claimants owned when the Council took possession of the Site, whereas the stock which was referred to under the second head was stock which the business would have acquired and sold (at an assumed rate of 70 new ELVs a year for 10 years) had the Site not been acquired. That was said to produce no double counting.

The suggestion that the claimants’ quantification involves “double counting” may not be the best way of explaining what is wrong with a claim which includes both the value of the stock of the business at the valuation date and the value of stock which had not yet been acquired. We agree with the Council that the claim cannot be pursued at the same time under both headings. That is because they are based on mutually inconsistent hypotheses. The first head of claim assumes that the business ceased to trade on 29 March 2018 and that the claimants are to be compensated for the unrealised value of the stock they owned on that date. The second head assumes that the business would have carried on, would have made profits for ten years and would then have been sold as a going concern. The claimants cannot make both assumptions, because they are inconsistent.

The claimants may either claim the value of the business on the date it was lost, or, as the Council’s expert Mr Pearson proposed, the value of the stock at that date as an alternative measure of the loss they have sustained. The value of the business is the sum which it would have realised in the open market if it had been sold. Such a sale would have included the stock of the business at the date of sale, and the prospect of future revenue from buying new stock and selling on the parts. The same stock would not then have been available to Mr Quyoom to disaggregate and sell separately, nor can it be assumed that Mr Quyoom would have continued to buy and sell other stock; there was nothing to prevent him from doing so, elsewhere, and he is being compensated for his inability to do so from this Site by the total cessation of his business. As Mr Parton explained, the first head of loss was intended to represent the “historic value” of the business, while the second assessed future losses. We agree with the Council that where compensation is being assessed on a total cessation basis, both heads of loss cannot be sustained.

Mr Quyoom was the only witness with first-hand experience of the business. Because of the very limited business records which were made available to the accountancy experts, and their general lack of familiarity with businesses of this nature, the experts’ assessments (especially Mr Parton’s) were based on information provided by Mr Quyoom about how the business operated. We will therefore make some observations about his evidence.

We make every allowance for the fact that when he gave his evidence Mr Quyoom was answering questions in stressful and unfamiliar circumstances, but we found him not to be a cooperative or helpful witness. Many of his answers were impulsive rather than considered and he could be evasive and sometimes combative, with his response to many questions being to ask a question of his own. His frustration at the cessation of his business and the time it had taken to resolve his entitlement to compensation was entirely understandable, but he did little to make our task any easier by the difficulty he had in giving a clear or consistent account of how his business had actually been run.

The account of the business Mr Quyoom gave in oral evidence was essentially that he would buy whatever he thought would sell at a profit and keep it for as long as he needed to extract that profit. That seemed to us likely to be a more accurate description than the relatively sophisticated business model described in his witness statement. For example, his statement described a policy of regularly purchasing new or nearly new vehicles with low mileage and then selling the parts they contained within about seven years, but the proportion of vehicles of that age in 2017 was less than 7%, while 70% were older than 10 years. The estimate he gave in oral evidence of how long it would take to sell parts was different from the information he gave Mr Parton, his forensic accountant. He told us that, as a guide, the parts of an expensive vehicle would be sold over a period of 6 or 7 years and an ordinary vehicle over 3 or 4 years. He told Mr Parton that parts would generally be sold over a 10-year period and his calculations of loss were based on that assumption.

Mr Quyoom was inclined to blame others for any inconsistencies in his evidence or to bolster his account. When shown a photograph taken on a joint inspection with the Environment Agency in July 2019, when the Site was in the control of the Council, he agreed that the vehicles were stored in unstable piles which would have created a risk to anyone trying to move them. He suggested that the yard had not been left in that condition and that he was surprised the Council had not been prosecuted. Yet when he was shown photographs taken in March 2018 and it was suggested they showed exactly the same piles of vehicles, he disputed what seemed to us to be a fair comparison.

We do not doubt Mr Quyoom’s integrity, and we did not think he was trying deliberately to mislead us but we did not have confidence in much of his evidence, and looked for corroboration from other witnesses on important points. Fortunately, as will be seen, broad confirmation on some of the more important points was available. There were many inconsistencies in the evidence which it would be difficult for us to reconcile with confidence, given the passage of time and the limited availability of contemporaneous written material. We will not attempt to do so except where we feel it is necessary.

After the CPO was confirmed and it became clear that there was no suitable site to which the business could be relocated, the parties tried to reach agreement on compensation for the cessation of the business. Mr Quyoom did not have a computerised inventory of the vehicles and saleable parts held by the business and it was agreed that the parties would appoint a specialist valuer to report on the value of the stock. Cerberus Asset Management (“Cerberus”), a firm with experience of valuing automotive stock, was instructed jointly by the parties on 13 October 2016.

An approach to valuation was agreed by the parties on 17 November 2016. Mr Quyoom would first prepare a list of the vehicles on the Site and their location. This would be checked by Cerberus, who would photograph the vehicles and compile an inventory of the saleable parts which had not yet been removed, and a separate list of disaggregated stock (i.e. components which had been removed from vehicles or acquired separately). The inventory would be checked by Mr Quyoom who would provide his estimate of the value of the components. Cerberus would then undertake a sampling exercise based on 10% of the stock which they would value by research of their own.

A senior director from Cerberus, Mr Bateman, visited the site twice. The first occasion was before the instruction was confirmed when he went to assess the job. Mr Bateman gave evidence and was cross examined. He told us that his first visit to the Site was in August 2016 and that he had asked Mr Quyoom for an inventory of his stock but was informed that none existed. He observed racking that ran the length of the site and on which vehicles were stacked. He also observed that there were no accessible aisles between the racks, and that vehicles were piled on top of one another in those spaces. These would have had to be removed to gain access to the vehicles on the racks.

Mr Bateman was not involved in the audit of stock, but he visited the Site on a second occasion in 2017 during a period of poor weather. On that visit he decided that the Site was unsafe because high winds created a risk that vehicles which were piled on top of one another might topple over. His recollection was that the general condition of the site remained as it had been at his initial visit.

The Cerberus employees who carried out the audit were Mr Mark Turner, whom Mr Bateman told us was very experienced, and Mr Seddon, who was a junior trainee at the time with no previous experience of visiting or valuing stock at a comparable site. Mr Seddon gave evidence at the request of the respondent (as did Mr Bateman) but Mr Turner was not called to give evidence by either party. The valuation itself was the work of Mr Parker, a Chartered Surveyor, who was also called by the respondent to give expert evidence (without objection by Mr Quyoom).

Mr Seddon told us that he and Mr Turner had worked on the audit for five months, usually attending the Site or the North Street warehouse five days a week. He explained that the most time-consuming element of the project had been listing the disaggregated vehicle parts, some of which were stored in a building which lacked electric lighting. He described the Site as overstocked with vehicles, the majority of which were not on racks but were piled on top of each other between the racks, separated only by a tyre or a timber pallet. He recalled that there were fewer vehicles at the North Street yard and that these had been much easier to inspect; some of those at the warehouse appeared relatively new and undamaged.

Mr Seddon was not aware of the methodology agreed between the parties, but he said that their original intention had been to inspect and photograph every vehicle. This had not been possible due to the way the vehicles were stored and Mr Quyoom’s unwillingness to allow his staff to assist by moving them. He and Mr Turner had counted the vehicles and identified 94 which they were able to photograph and inspect. They had counted another 604 which they had not been able to inspect in any detail before they were instructed to leave the Site which Mr Seddon understood to have been because of the risk of collapse during the poor weather. From the general appearance of these vehicles and the manner in which they were stored these had been assessed as being of scrap value only.

There were a number of differences of recollection between the Cerberus witnesses and Mr Quyoom concerning the inspection. We think it likely that Mr Quyoom did provide a handwritten list of vehicles arranged in the order in which they were stored in the yard, as we were shown such a list. We assume the list was prepared only after the joint instructions were agreed and that it was not available in August when Mr Bateman asked for it. The person to whom it is most likely to have been given was Mr Turner, who was not available to give evidence. We think it likely that Mr Seddon also saw the list and that it formed the basis of a typed inventory by Cerberus which records the stock in the same order as the handwritten list.

We accept the evidence of Mr Bateman and Mr Seddon that the Site was very full and that vehicles were piled between the racks, making access impossible without assistance from a forklift and driver. Both the handwritten list prepared by Mr Quyoom and the Cerberus inventory record the position of vehicles on the Site, and both show, for example, that there were 32 vehicles positioned between rack 1 and rack 2 (the inventory records 46 vehicles on rack 1 itself, suggesting that the vehicles between racks may have been stacked two deep, while those on the racks were three deep). Photographs taken in March 2018 support the recollection of Mr Bateman and Mr Seddon (although these show the condition of the Site when the respondent took possession, there is no evidence from Mr Quyoom to suggest that the general arrangement had changed in the 12 months after Cerberus were last in attendance). Aerial photographs taken in June 2017 and July 2018, although of limited quality, also appear to confirm that the Site was densely packed and did not change significantly between those dates.

We also accept the evidence of Mr Bateman and Mr Seddon that Mr Quyoom was uncooperative in relation to their audit and that in particular he was unwilling to have his own staff move vehicles around to facilitate a more thorough inspection. We can see no reason why Mr Bateman and Mr Seddon would both recall that being an issue if it was not true. It is also consistent with the report produced by Cerberus on 16 October 2017 which refers to the need for such assistance if a more detailed sampling exercise was required. The report also stated that Cerberus had been advised by “the Company” that it held no purchase records and did not keep a sales ledger or receipts which might have assisted in valuing the stock. That proposition was refuted by Mr Quyoom’s solicitor who said that records were available. Again, we can see no reason why the Cerberus team should have fabricated what they said at the time they had been told. We find it much easier to accept that Mr Quyoom may have been disinclined to cooperate with a valuation exercise undertaken before confirmation of when he was expected to leave and which we have no doubt would have been disruptive.

The Cerberus team provided their list of 96 vehicles on the Site to Mr Quyoom, who gave them his assessment of the value of the salvageable parts in each of them. These were compared by Mr Turner with the price of the same parts available from online sites, as researched by Mr Seddon, and this information was provided to Mr Parker, who then wrote the Cerberus report. That report concluded that stock of equivalent value could have been acquired in October 2017 at an aggregate cost of a little under £140,000, while the value of the stock to Mr Quyoom for retail sale at the same date was just over £1.2m. Both figures assumed individual transactions in the ordinary course of business, without any element of forced sale or any delay in realising the full value of all of the stock.

Mr Quyoom’s assessment of value was much higher than the research undertaken by Cerberus suggested was justified. Cerberus had also assumed that only 96 vehicles were of significant value and that the remaining 604 were worth on average only £393. This was not a scrap valuation but was Mr Parker’s assessment of the value of parts in the three least valuable of the 96 vehicles which had been properly inspected and it assumed that the 700 vehicles which had not been considered in detail were no more valuable, on average, than those three.

Mr Quyoom was not satisfied with the Cerberus report and refused to accept it as a basis of compensation. It has been relied on by the respondent and its author, Mr Parker, gave expert evidence.

One complication arising from the Council’s reliance on the Cerberus report is that it was compiled six months before the valuation date based on research undertaken 12 months or more before the valuation date. The claimant’s case is that on 29 March 2018 the business had 782 vehicles in stock. Mr Quyoom photographed every vehicle before the date of acquisition. Cerberus counted 700 vehicles belonging to the business. Possible explanations for this divergence are that the Cerberus count was inaccurate and incomplete, or that more vehicles were brought to the Site or stored at the North Street warehouse by March 2018 than were there a year earlier.

Evidence about the value of the stock owned by the business was given by Mr Parker and Mr Storry.

The experts were able to agree the value of the store of disaggregated parts at £168,000. They were unable to agree the number or value of the ELVs.

Mr Storry was first instructed on behalf of the claimants in March 2019, a year after the valuation date. He began to prepare his valuation in October 2019, after the vehicles which remained at the Site had been destroyed by fire. He was able to undertake a visual inspection of the stock at the North Street premises. In a report prepared in February 2020 he said “we recorded 233 vehicles” in the yard at North Street but in his itemised ‘Valuation Summary’ he noted 223. He counted 70 in the warehouse. For information about the vehicles at the Site he was reliant on photographs taken by Mr Quyoom. He valued 494 vehicles which he was instructed had been at the Site. Thus, in total, Mr Storry valued 787 vehicles. The vehicles in the warehouse and yard at North Street he valued at a little over £1.79m. The vehicles which had been destroyed in the fire at the Site he valued at more than £2.58m. Adding the disaggregated parts he valued the stock in total at £4,543,140.

Mr Parker’s valuation was based on the work he had done in 2017 along with his colleagues from Cerberus. He proceeded on the understanding that the claimants’ stock of ELVs comprised 698 vehicles, of which 94 which had been inspected in detail in 2017 and were of significant value (an average of £8,768) while the remaining 604 which had not been inspected in detail were worth on average only about £393. Adding the agreed value of the disaggregated parts produced a total value of the claimants’ stock of £1.23m.

The experts did not disagree on the value of the 94 best vehicles. Mr Parker valued these at £824,230 (an average of £8,768) whereas Mr Storry attributed a value of £26,533 to 16 vehicles which he referred to as “super special”, £8,152 to another high-quality group of 59 vehicles (“top grade”), and £5243 to a much larger group of “grade 1” vehicles. The valuers both agreed that there was little between them on the better vehicles. The differences concerned the total number of vehicles to be valued and the quality of those which were not adjudged by Cerberus to be in the best category.

We should explain that the vehicles Mr Storry described as “super special” were vehicles he deemed to be of particularly high value. These were cars which were too good to be classified simply as “grade 1”, a classification of vehicles which were almost completely intact and had a large quantity of parts. The super special cars had parts which, in his words, “might be collectable, young and more modern”.

As to the total number of vehicles present, the relevant date is 29 March 2018, not 12 months or more earlier, when Cerberus counted the vehicles for their report, nor 18 months later when Mr Storry counted those which remained at North Street. We think it unlikely that Cerberus miscounted, but by the time Mr Storry became involved there were more vehicles in all three locations (the yard and warehouse at North Street and the Site) than there had been when Cerberus were on site. We therefore think it likely that Mr Quyoom continued to buy vehicles in the year before the Site was taken, as the General Vesting Declaration was not executed by the Council until December 2017 and it was only after that that he was informed possession would be required the following March. We think it unlikely that he bought additional vehicles after 29 March 2018, because he no longer had access to the facilities required to depollute them before they were stripped for parts. Mr Quyoom said that he did not acquire much stock in the period before the vesting date, but his recollection of numbers was generally quite inconsistent, and we did not understand him to mean that no additional vehicles had been acquired. Nevertheless, we are satisfied that such vehicles as were added must have been of very low quality given that only £8,000 is shown in the final year accounts as having been spent on acquisitions. While the evidence was not probed in much detail we are therefore satisfied that 80 or more vehicles must have been added in the 12 months before the valuation date, which would explain the difference in numbers.

We reject the suggestion by Mr Fraser KC that any additional vehicles acquired by Mr Quyoom after Cerberus had stopped counting in about March 2017 should not be compensated because they were acquired contrary to his duty to mitigate his loss. The business had been operating under the threat of acquisition for several years and Mr Quyoom was actively searching for alternative premises. The appointment of Cerberus did not bring any certainty about when vesting would occur and, in the event, a date was not confirmed until nine months after they stopped work. We will therefore proceed on the basis that the stock in respect of which compensation is payable comprised 787 vehicles in all.

Mr Storry confirmed that the best vehicles were generally in the warehouse at North Street while those in the yard were also of reasonable quality. He accepted that the stock destroyed in the fire and which he had valued only from photographs comprised 57% of the total value and 62% of the total number. He had assumed that the fire damaged stock was of comparable value to the stock in the yard at North Street. That is reflected in his allocation of the 496 vehicles present on Site to the different grades he used in his valuation; only 4 of the 496 were placed in his lowest category 4 with only scrap value. That assumption is very difficult to square with Mr Quyoom’s evidence that very few vehicles were disposed of for scrap. It is also difficult to reconcile with what can be deduced about the age of the vehicles from the list of registration numbers, namely that 70% were more than 10 years old. Although we have our doubts about the accuracy of some of Mr Quyoom’s evidence, Mr Storry’s assessment does not fit easily with Mr Quyoom’s suggestion that he would buy relatively new ELVs and expect to dispose of most of the parts over a period of 6 or 7 years in the case of higher value vehicles and over 3 or 4 years in the case of ordinary vehicles.

We do not accept that Cerberus made an inadequate inspection and we accept the evidence of Mr Bateman and Mr Seddon concerning the condition of the vehicles they saw at the Site in 2017. Mr Parker was a very experienced valuer who gave his evidence dispassionately and persuasively. We are not persuaded that Mr Storry’s evidence is reliable on valuation, and we prefer Mr Parker’s assessment. It is consistent with the evidence that the stock at Commercial Street was of poorer quality than at North Street. The photographs and Mr Quyoom’s list of what was present confirm that much of it comprised very old examples of perfectly ordinary vehicles for which there is unlikely to have been much demand for disaggregated parts.

Mr Stinchcombe suggested that Mr Parker had undervalued the 600 shells which had not been closely inspected and had attributed no more than scrap value to them. We do not think that is correct or a fair criticism. Mr Parker explained that 600 vehicles were of lesser value than the least valuable of the 94 (which were worth about £3,000 each). He assumed that the largest and newest of the 600 were worth £2,000 each and worked back from that level to attribute a spot value to the remainder by reference to age and size based on the list of vehicles. The 600 were not valued on the assumption they were scrap and on average they were valued at a little under £400. In contrast, Mr Storry’s category 4 (scrap) value was only £60.

Nor did Mr Parker assume that none of the parts on the 600 vehicles would be sold, but unlike Mr Storry (who valued all of the parts on all of the vehicles) Mr Parker made a more realistic assumption that on most of the older vehicles only a small number of parts would be of any value. Given that most of the stock comprised perfectly ordinary vehicles we think that is a more realistic assumption.

To take account of the greater number of vehicles which we have found to have been present at the valuation date than were taken into account by Mr Parker, we add 12.75% to his valuation to arrive at a figure for the value of the stock (assuming retail sale on the valuation date) of £1,364,875.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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