WKD Trained Dogs Ltd v Secretary of State for Transport

The claimant, WKD Trained Dogs Ltd, successfully carried on its business of training and selling dogs from Brookhouse Farm, near Stone in Staffordshire between March 2014 and January 2023. On 13 January 2023 the business was extinguished, and Brookhouse Farm was taken by the Secretary of State for Transport in connection with the proposed Birmingham to Crewe leg of the High Speed 2 (‘HS2’) railway project. The Tribunal is now asked to determine the compensation payable to the claimant.

The parties agree that the claimant could not have continued to trade after the acquisition. Brookhouse Farm was its only place of business, and although its sole director and shareholder, Mr Matthew Wiggins, searched diligently for alternative premises, none that were suitable and within the budget set by HS2 could be found.

The claimant is entitled to be compensated for the value of Brookhouse Farm itself, which is agreed to have been £362,000. Various other heads of loss are also agreed. The principal matters remaining in dispute are the losses sustained by the business while it was under threat of relocation or closure, and the loss of the business on its extinguishment.

The claimant maintains that had it not been for the threat of compulsory acquisition it would have achieved additional profits of £1,651,412 between April 2019 and January 2023. These have been referred to as the claimant’s “shadow losses”, sustained while it was forced to trade in the shadow of the HS2 scheme. The Secretary of State accepts that losses were incurred during that period as a result of the scheme, and that the claimant should be compensated for them but quantifies the shadow losses at £905,736, suggesting that other factors, including the Covid-19 pandemic, may have distorted the claimant’s trading performance during the relevant period.

The claimant also claims that, but for the HS2 scheme, the value of the business to it when it was extinguished on 13 January 2023, would have been £5,435,344. The Secretary of State assesses the value of the business at £1,669,218.

The significant gap between the parties’ assessments of the compensation to which the claimant is entitled for its shadow losses is attributable to disagreements over a small number of variables. These relate to the way in which the business was run, and the way it would have been run had Mr Wiggins not been obliged to devote his time and energy to the search for alternative premises.

The parties’ disagreement over the value of the business when it was extinguished turns partly on the assumed earnings it would have achieved but for the scheme, and partly on their different assessments of how the loss of those earnings to the claimant should properly be accounted for.

Factual evidence, including about the claimant’s business and the acquisition, was given by Mr Wiggins and Mr Sheperdson. Expert evidence on matters relating to the training and selling of dogs was given on behalf of the Secretary of State by Mr David Cavill. Forensic accountancy evidence was given by Ms Amanda Fyffe FCA of Baker Tilly for the claimant and by Mr Gavin Pearson FCA of Quantuma Advisory Ltd for the Secretary of State. We are grateful to them all for their evidence.

There was no disagreement over the applicable legal principles between Ms Tafur, who appeared for the claimant with Mr Chu, and Mr Westmoreland Smith KC, who appeared for the Secretary of State with Mr Rhimes. The claimant is agreed to be entitled to be compensated under rule 2 and rule 6 in section 5, Land Compensation Act 1961. The claim under rule 2 is in respect of the value of the land taken and has been agreed. The claim under rule 6 is intended to compensate the claimant for disturbance and any other matters not directly related to the value of the land.

The guiding principle in determining the amount of compensation payable is the principle of equivalence. That is, that so far as money can achieve it, the claimant is entitled to be put into the same position it would have been in if its land had not been taken and its business had not been adversely affected and then extinguished by the HS2 scheme.

The measure of the value of the land is its value to the owner. In principle, a claimant’s business losses are part of the same assessment of the value of the land to the owner and are quantified in the same way. This was explained by Lord Nicholls in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 11 at page 125 E:

“Land may, of course, have a special value to a claimant over and above the price it would fetch if sold in the open market. Fair compensation requires that he should be paid for the value of the land to him, not its value generally or its value to the acquiring authority. As already noted, this is well established. If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance. Compensation should cover this disturbance loss as well as the market value of the land itself. The authority which takes the land on resumption or compulsory acquisition does not acquire the business, but the resumption or acquisition prevents the claimant from continuing his business on the land. So the claimant loses the land and, with it, the special value it had for him as the site of his business. The expenses and any losses he incurs in moving his business to a new site will ordinarily be the measure of the special loss he sustains by being deprived of the land and disturbed in his enjoyment of it. If, exceptionally, the business cannot be moved elsewhere, so it simply has to close down, prima facie his loss will be measured by the value of the business as a going concern. In practice it is customary and convenient to assess the value of the land and the disturbance loss separately, but strictly in law these are no more than two inseparable elements of a single whole in that together they make up the value of the land to the owner: see Hughes v. Doncaster Metropolitan Borough Council [1991] 1 A.C. 382, 392, per Lord Bridge of Harwich.”

The Privy Council’s decision in the Shun Fung Ironworks appeal also provides guidance on the assessment of the value of a business to its owner where that business has been extinguished. In that case the Lands Tribunal of Hong Kong had valued the claim on the extinguishment basis, but the Court of Appeal of Hong Kong ruled that compensation should be assessed on the assumption that the business could be relocated. Both approaches required the determination of a discount rate to be applied to the anticipated future profits of the business. The claimant’s expert gave evidence at the Lands Tribunal that the discount rate should have regard to the market’s perception of the claimant’s business as an investment, but before the Privy Council the claimant wished to repudiate that approach and to argue that its loss was not to be measured by the price obtainable had it sought to sell the stream of expected profits in the open market. The Privy Council considered that it was not open to the claimant on appeal to advance a radically different case, which ought to have been explored in evidence. As a result, Lord Nicholls was able to deal with the basis of assessment quite briefly, At page 134E-H, as follows:

“Since the claimant's appeal on this point must fail for this reason, it is unnecessary for their Lordships to express their views on the claimant's contentions regarding the correct manner of valuing lost profits in this type of case. They will make only one general observation. When a tribunal is determining the amount of the loss sustained by a claimant such as the claimant company, the market perception of the risks attached to the type of business is likely to be of assistance in arriving at an appropriate discount rate. However, this must not lead the tribunal into the error of equating the amount of a claimant's loss with the price he could obtain if he sought to sell the future profit stream to an outside commercial investor. Even on the willing seller basis, a prudent landowner running his own business might be prepared to pay more to keep his land and business and the expected profits than would an outside investor to acquire them. He might be prepared to accept a lower rate of return than an outsider who has no personal links with the business. In appropriate circumstances a tribunal may properly recognise this and make a modest allowance accordingly.”

It is apparent, therefore, that in principle, compensation for the loss of the claimant’s business caused by the taking of its land should be assessed on its value to the claimant, which may be different in some respects from the value of the business on the open market.

In relation to the recovery of business losses pursuant to rule 6, we were reminded of the three conditions identified by Lord Nicholls in Shun Fung Ironworks at page 126. To be recoverable such losses must have been caused by the scheme; they must not be too remote (there is no remoteness issue in this case); and they must not be losses which a reasonable person would have avoided.

Shun Fung Ironworks, at page 137G, is also authority for the proposition (which is agreed) that losses incurred in anticipation of compulsory acquisition and because of the threat which it presented are to be regarded as losses caused by the acquisition. Lord Nicholls said that this involved “giving the concept of causal connection an extended meaning, wide enough to embrace all such losses.” Mr Westmoreland Smith KC suggested that particular care should be applied when determining whether or not causation has been demonstrated in the shadow period because causation had already been given an extended meaning. We do not agree that shadow losses require any different approach to their assessment than any other type of loss. It is for the claimant to prove the amount of its loss caused by the acquisition to the civil standard. If an acquiring authority wishes to suggest that the claimant could have reduced or avoided that loss by taking steps which a reasonable person in their position would have taken, as the Secretary of State wishes to do in this case, it is for her clearly to identify the steps which it is said ought to have been taken and then to prove both that the suggested steps would have reduced the loss and that they would have been adopted by a reasonable person.

Brookhouse Farm is next to the M6 in Staffordshire and comprises 3.4 acres of land including several small paddocks and a three-bedroom farmhouse with a single brick outbuilding. It vested in the Secretary of State on 13 January 2023 pursuant to a general vesting declaration made on 29 September 2022. 13 January 2023 is therefore the valuation date for the purpose of determining the compensation payable to the claimant.

When it was taken by the Secretary of State, acting through its agent, HS2, Brookhouse Farm had the benefit of a licence granted to Mr Wiggins under the Animal Welfare (Licensing of Activities Involving Animals) (England) Regulations 2018 which authorised its use for the sale of animals as pets and for the provision of accommodation for dogs.  The licence permitted up to 40 dogs to be kept at the premises and for most of the period we are concerned with 44 kennels were present on the land. By the valuation date this number had reduced to 35 kennels in anticipation of the compulsory purchase.

The core business carried on by the claimant was the purchase, training and sale of trained dogs as pets. Its customers were wealthy individuals, schools, organisations and families. The claimant would import young dogs aged between 10 and 24 months, usually from Hungary or neighbouring countries, but later from Ireland, and would train them intensively at Brookhouse Farm for a limited period before selling them on. The training of the dogs would be carried out by a small team, usually of between four and six trainers, each of whom would usually be allocated five dogs.

The dog training side of the business was begun by Mr Wiggins in 2010 and came to be located at Brookhouse Farm in 2012, when he took a tenancy of the property and moved to live there. The claimant was incorporated in March 2014 and purchased the freehold of the property in 2016.

The scale of the claimant’s core business was constrained by the capacity of the premises and the limitations imposed by Mr Wiggins’ licence. The business was able to diversify to some extent to include residential dog training (i.e. training dogs belonging to other owners); online training and webinars from 2019; one-to-one consultations; and the sale of food, equipment, and other products.

Mr Wiggins’ previous experience had been in selling cars. He has no formal training or qualifications in the keeping and training of dogs and set little or no store by these when he recruited staff for the business. He explained that he had developed his own methods of training which prioritise the assessment and selection of suitable dogs, not by reference to their breed, but by individual temperament testing. Mr Wiggins undertook this temperament testing himself, using opaque criteria which he was unwilling to share in any detail with the Secretary of State’s canine expert, Mr Cavill. His preference was to travel to Hungary to test and select dogs, making up to five trips a year before 2019, each of up to seven days. The last of these trips was in October 2019, but from then on Mr Wiggins would arrange for dogs to be sent by a supplier in Ireland for testing and selection at Brookhouse Farm, with those deemed unsuitable being returned to the supplier within seven days. Mr Wiggins explained that temperament testing was less reliable if it was undertaken in an unfamiliar environment for the dogs, and after they had travelled long distances. These considerations contributed to a higher failure rate in the training of dogs sourced from Ireland compared to Hungary.

Having personally selected dogs for their suitability, Mr Wiggins then handed them over to his training staff, who followed the training regime which he had prescribed. The training period might be as short as four weeks, although dogs would typically remain on the premises for seven or eight weeks in total before being collected by the customer for whom the specific animal had been sourced and trained. Mr Wiggins undertook very little of the core training himself, but attended instead to the selection of suitable animals, one-to-one consultations, and business development.

Only a handful of businesses operated in competition with the claimant’s core business (although the same is not true of the online dog training market, which is highly competitive). One feature of the claimant’s business which reflected its bespoke quality, was the claimant’s willingness to provide a guarantee of satisfaction. If a dog trained by the claimant was not to the standard which had been represented, the customer could either return the animal for remedial training, or Mr Wiggins would provide remedial training at the customers’ home, or the customer could have a full refund. As Mr Wiggins refined his temperament testing techniques the number of dogs who were returned by customers reduced.

Dogs which had passed the temperament testing stage but failed to complete their training successfully and so could not be sold as trained dogs, or which were returned by customers and their purchase price refunded, were referred to in the evidence as “failed dogs”. Dogs which successfully completed their training and were sold (and not returned) were referred to as “trained dogs”. Both trained dogs and failed dogs could be sold, but at very different prices; the claimant made a profit on trained dogs, while failed dogs were sold at a loss. A key measure of the success of the claimant’s business was the “trained dog rate” i.e. the proportion of the total number of dogs sold in a year (either trained or failed) which were sold as trained dogs. In the two years before the commencement of the shadow period in April 2019, the claimant achieved an average trained dog rate of 65%. That is within the range of 60% to 70% which Mr Cavill considered a competent professional trainer should expect to achieve. It is agreed that the trained dog rate fell during the shadow period from April 2019 to January 2023, and one of the issues we will have to determine is the extent to which that fall was a consequence of the HS2 scheme.

It is difficult for us to form a view of the success of the claimant’s business, other than by reference to its financial performance. Whether the training regime designed by Mr Wiggins differed from training methods used by his competitors is unclear. Mr Cavill did not believe a dog trained for as little as four weeks could reach the standard set by the leading dog training programmes, such as the Kennel Club’s “Good Citizen Dog” scheme, but he acknowledged that it might nevertheless make a satisfactory pet. Mr Cavill also doubted the significance of the guarantee offered by the claimant and suggested that once a dog had been with a family for a few weeks the emotional bonds formed would make it unlikely that they would wish to send the dog back, and they would instead tolerate a certain amount of poor behaviour. Mr Cavill was impressed by the claimant’s achievement in building a successful business and did not doubt that it would have continued to be successful. We accept Mr Cavill’s assessment, which supports the view that the claimant was capable of achieving results comparable to those achieved by competent professional trainers.

The claimant kept minimal business records until it was emphasised by its advisers that these would assist in proving its case for compensation. No management accounts were kept before 2018, no board meetings were held or minutes taken, and no forecasts or business development plans were written down. Mr Wiggins explained that he always had plans for the business, some of which he would write down on pieces of paper, but none of which were intended for anyone but himself.

Although Mr Wiggins is an enthusiast, who described himself in his own witness statement as obsessive, it is clear that there were aspects of the business which he left almost entirely to others. He did not appear to us to have a detailed knowledge of how some parts of the business were conducted. Whether, as he believed, he would have been able to grow the business further is a topic to which we will return.

In November 2015 the Secretary of State issued safeguarding directions for Phase 2a of the route of the HS2 railway, between Birmingham and Crewe. Brookhouse Farm was on the route and was one of the safeguarded properties. The High Speed Rail (West Midlands to Crewe) Bill was introduced into Parliament in July 2017 and obtained Royal Assent on 11 February 2021. Before Royal Assent the claimant had already begun to engage with the HS2 acquisition team.

On advice from its former agent, Hinson Parry, the claimant served a blight notice on the Secretary of State on 24 October 2018, which was accepted. As a result, Brookhouse Farm was deemed to be the subject of a notice to treat served by the Secretary of State on 24 December 2018. The notice to treat was extended by agreement in October 2021 and a general vesting declaration was eventually executed on 29 September 2022, with possession being taken on 13 January 2023.

In his written evidence Mr Wiggins said that he was advised that following the deemed service of a notice to treat the Secretary of State could give as little as three months’ notice before taking possession. This knowledge, Mr Wiggins explained, had affected his mindset and the way he managed the business. We were not told who had given this advice, or when it was given, but we assume that it came from the claimant’s agent. We were shown no written advice given by the agent. We assume that an experienced agent would also have informed Mr Wiggins that it was extremely unlikely that he would receive as little as three months’ notice. The earliest document we were shown from Hinson Parry was a letter of advice dated 12 November 2019, more than a year after the blight notice, which included the agent’s views on the value of Brookhouse Farm and the compensation claim. This stressed the importance of demonstrating to HS2 that a detailed search had been undertaken for alternative premises.

Hinson Parry’s valuation of Brookhouse Farm was provided to HS2 at the end of 2019, and a Mr King of Lambert Smith Hampton, the Secretary of State’s agents, visited the property in January 2020 to prepare his own valuation. At around this time a claim for compensation on the basis of extinguishment of the business was submitted by Hinson Parry. We have not been shown this document, but it is referred to in intermittent correspondence which followed, culminating in an online meeting on 24 September 2020 at which the potential for relocation and for extinguishment were both discussed. Although the extinguishment of the business appears to have been uppermost in the minds of the claimant and its advisers at least from the end of 2019, it was no part of the Secretary of State’s case that the claimant had acted prematurely or that it had made insufficient efforts to relocate.

The first indication of a timeline for possession to be taken was given to the claimant at the meeting on 24 September 2020, followed up in an email of 2 October 2020 from HS2. The best available estimate at that time was that possession might be required in May 2023 and it was suggested that, having regard to the 18 months which were likely to be needed to acquire a replacement property and to secure planning permission, the latest date by which a relocation site would have to be identified was October 2021. In the following years, changes of personnel at HS2 and amongst its advisers led to delays and repeated requests for the same information which caused extreme frustration for Mr Wiggins as he continued to search for replacement properties. In December 2021 it was confirmed that possession would be required in January 2023. We have no reason to think that Mr Wiggins misunderstood the proposed timing or thought that he might have to complete a move (rather than identify a suitable property) by as early as October 2021; that is not what he was told at any time and by continuing his search throughout 2021 he did not behave as if he had been. He was informed by Mr Shepherdson of HS2 in September 2021 that the October target for identifying a new property could be extended and that he should continue searching, which is what he did. No progress was made on two properties which Mr Wiggins considered suitable, but which were larger and more valuable than Brookhouse Farm, and in January 2022 a consensus was reached that it was now too late to consider relocation and that the closure of the business was inevitable.

It is not necessary to recite the parties’ exchanges during this period in detail, nor to form a view on the claimant’s complaint that the Secretary of State’s representatives were dilatory in responding to its questions, unreasonable in their expectations of what might be secured and at what price, and indifferent to the pressure experienced by Mr Wiggins personally and by the claimant’s staff in general as a result of the uncertainty over the survival of the business. The parties agree that the claimant’s business was adversely affected by the prospect of relocation or closure from April 2019, that there was uncertainty over the prospect of relocation until January 2022, and that for the remainder of 2022 the claimant was winding down its core business in anticipation of possession being taken at the start of 2023. The contemporaneous correspondence supports Mr Wiggins’ evidence that he was left in a state of uncertainty, which caused him anxiety, and it is not difficult to understand how these might easily have been exacerbated as time passed and critical dates were changed. We accept the claimant’s case that one contributor to the acknowledged deterioration in performance was damage to the morale and commitment of some of its staff and a dilution of effort and loss of focus on the part of Mr Wiggins. That proposition was not seriously challenged by the Secretary of State.

The contentious elements of the claim are the loss of profits incurred by the claimant between 1 April 2019 and 13 January 2023 (the shadow losses), and the extinguishment value of the business.

By the start of the hearing, Ms Fyffe, the claimant’s expert forensic accountancy witness, assessed the claimant’s shadow losses at £1,652,472, while for the Secretary of State Mr Pearson valued them at £804,446. These figures narrowed slightly during the hearing as concessions were made on smaller points of disagreement, with Ms Fyffe adjusting her shadow loss assessment to £1,639,764 and Mr Pearson tweaking his to £826,166. The difference between the experts is largely attributable to the different assumptions they adopted for the trained dog rate which the claimant would have achieved had it not been under threat of extinguishment.

In reaching a conclusion on the shadow losses we will also have to address some smaller issues which divided the experts. These concerned the probable course which the claimant’s online business would have taken had it not been for the threat of acquisition and extinguishment; the allocation of advertising and consultancy costs between different income streams; and whether an allowance should be made for additional income derived from residential training, which was a side of the business to which the claimant was able to deploy training resources as the core business was wound down.

The second major area of disagreement concerns the extinguishment value of the business. The experts agreed that this should be assessed by applying a multiple to the sustainable earnings of the business before allowing for interest, tax, depreciation and amortisation (EBITDA).

The rival maintainable EBITDA figures were largely a product of the experts’ previous workings on shadow losses, and they agreed the weight which should be attributed to successive years, with the greatest weight being given to performance in the financial year ending April 2022. One additional point of difference between them was whether in assessing the value of the business an allowance should be made for the notional remuneration of the sole director for his work in the business. Somewhat surprisingly given the way the argument was subsequently presented, the experts were informed by the parties’ lawyers that this was a legal question; they therefore expressed no view on it, other than to calculate the amount of the allowance which might be made if, in principle, it was appropriate to make one. By the end of the evidence Ms Fyffe considered that the maintainable EBITDA figure should be taken to be £673,684 which might be adjusted by £17,000 if an allowance was required for director’s remuneration. Mr Pearson’s EBITDA figure was £327,243, which included an allowance of £80,000 for director’s remuneration.

Ms Fyffe applied a multiple of eight to the EBITDA figure, producing an enterprise or extinguishment value of £5,389,472. Mr Pearson considered that the appropriate multiple was 5, which led to an extinguishment figure of £1,636,215.

Finally, a theme of the Secretary of State’s case which we will have to consider at different points in our assessment is the suggestion that the claimant failed properly to mitigate its loss and that some of its losses could have been avoided if the claimant had taken different business decisions in response to the situation it found itself in.

The trained dog rate fluctuated within a relatively narrow range in the only unaffected years for which figures are available, the two years to the end of March 2019, when it was 67.2% and 63.7% respectively. The average of those two figures is 65.2%. It was agreed that the rate declined during the shadow period, with rates of 44.7%, 40.9%, 45.3% and 37.2% for the financial years ending in March 2020 to March 2023, averaging 43.1%. Ms Fyffe assumed that the whole of the reduction was referable to the scheme. The Secretary of State put the claimant to proof on the issue of causation but was prepared to accept that half of the decline was attributable to the scheme, and that but for HS2 a trained dog rate of around 54% would have been achieved. The attribution of half the decline to HS2 was not based on any process of assessment but had initially been proposed by the claimant and accepted by the Secretary of State in the course of negotiations. The parties later waived privilege on those negotiations, and Mr Pearson then elected to adhere to the previous consensus while Ms Fyffe resiled from it. Based on her conversations with Mr Wiggins and on the absence of evidence persuading her of any other factor which might have caused the decline, Ms Fyffe maintained that the whole of the reduction in the trained dog rate during the shadow period was a consequence of the scheme.

Mr Wiggins attributed the reduction in the trained dog rate to the diversion of his time away from the core business towards dealing with the prospect of relocation or extinguishment, to the impact of the scheme on staff morale (including his own) and retention, and to the consequences of a change in the source from which the claimant obtained its dogs.

Mr Pearson suggested that other factors may have contributed to the fall in the trained dog rate and that the chronology did not support the claimant’s case. Possible alternative causes which he identified included the Covid-19 pandemic (a disruptive factor which had nothing to do with the scheme) and an increase in the number of dogs being trained during the shadow period without any corresponding increase in the number of trainers.

Mr Westmoreland Smith KC invited us to find that the fall in the trained dog rate was in part the result of unreasonable choices made by the claimant, in changing the source of supply of its dogs and in relation to key personnel.

We will deal first with sourcing issues and with the related allegation that by switching its source of supply the claimant failed to take reasonable steps to mitigate its loss.

The most significant adjustment made to the business by the claimant after service of the blight notice in October 2018 was in its approach to sourcing dogs. A decision was taken by Mr Wiggins to obtain dogs from Ireland from March 2019, and he made his last trip to Hungary in October 2019. The claimant had some previous experience of Irish dogs, but they had always been a secondary source of supply. By the end of 2019 all the claimant’s dogs were supplied from Ireland. It is the claimant’s case that the change contributed to the fall in the trained dog rate and that it was a consequence of the HS2 scheme.

Mr Wiggins explained that he stopped travelling to Hungary because of the need to find alternative premises; he regarded it as more important that he be available to visit suitable premises to which he might be able to relocate the business as soon as they became available. He said that suitable properties were very scarce and were snapped up immediately when they came to the market. He did not wish to be out of the country and so lose the opportunity of viewing a property and making an offer. The property search was mainly conducted online or by telephone and Mr Wiggins visited only 20 properties, only three of which were found to be potentially suitable, in more than three years of searching.

Although, at first, we found Mr Wiggins’ explanation for the change in sourcing arrangements rather difficult to understand, we accept his evidence. Suitable properties were obviously in short supply. In their advice of 12 November 2019 Hinson Parry described properties like Brookhouse Farm as “very rare” and we accept that was the case. The claimant required a small domestic property with three or four acres of land, in an easily accessible location which already had an appropriate planning permission or was remote from any neighbours who might object to an application being made. To retain existing staff such a property needed to be within a 10 mile radius of Brookhouse Farm (a distance later increased to 20 miles).

The importance of undertaking a thorough search for a relocation property was emphasised to Mr Wiggins by his agent. HS2 were said to be “very rigorous” in their approach to claims for business extinguishment and it is clear from subsequent exchanges that this observation was justified. In reality there was little prospect of a suitable property being identified and secured in time (bearing in mind the need to obtain planning permission) but it was impressed on Mr Wiggins (including by HS2) that he must do everything he could to search for one.

Irish dogs were more expensive than Hungarian dogs, but the additional cost was of secondary significance in the face of the pressure to find alternative premises. The claimant’s case is that the key difference between the sources of supply was directly related to Mr Wiggins’ reluctance to travel. He had previously visited his suppliers in Hungary and selected dogs before they were shipped to him at Brookhouse Farm; the dogs he received from Ireland had undergone no temperament testing before their arrival and the difficulty of assessing them over a short period following shipping contributed to the higher failure rate.

The reduction in the trained dog rate which coincided with the change in supplier is unlikely to have been immediately identifiable as an issue as dogs were being received from both sources during 2019. Although the annualised figures show a significant decline in 2019-20, there is nothing to suggest that the change in the trained dog rate had been noticed before the onset of the Covid-19 pandemic in March 2020.

Despite Mr Wiggins’ belief that travel between the UK and Hungary had remained possible in 2020 and 2021, and his suggestion that the restrictions introduced in both countries would simply have been an inconvenience which would not have necessitated a change of supplier, we think it more likely that the switch to receiving most of his dogs from Ireland would have been forced on the claimant by the pandemic in any event. Mr Wiggins had no personal experience of making the journey to Hungary under Covid restrictions, and although these were not in place continuously, in the UK they were prolonged and unpredictable between the end of March 2020 and July 2021, and in Hungary they continued into the autumn of 2021. An added uncertainty was that Hungarian restrictions were not readily available in English when they were published. On the other hand, except in the early stages of the pandemic, when restrictions were in place they were not absolute. We think it likely that during periods when travel was possible without the need for self-isolation on arrival Mr Wiggins would have been able to make some visits to Hungary and could have continued to receive some dogs from his preferred suppliers if he had felt free to make the necessary trips.

We are not persuaded that it was unreasonable for the claimant to change supplier in 2019, nor that it was unreasonable not to switch back to Hungarian sources once it became possible to do so. Mr Wiggins’ unwillingness to travel was a reasonable response to an extreme situation. His reluctance to delegate the viewing of properties was understandable and no other member of the claimant’s staff would have had the authority to make the rapid decision which Mr Wiggins reasonably believed might be necessary if a suitable property was identified while he was abroad. The need for Mr Wiggins to remain at home to respond promptly to opportunities which might arise to relocate the business prevented him from travelling to Ireland to carry out temperament testing there.

We are also persuaded that the change of supplier, and the change from assessing the temperament of dogs in Hungary, in an environment with which they were familiar, to assessing them after a lengthy journey and in unfamiliar surroundings, is a credible contributor to the change in the trained dog rate. The chronology is broadly consistent, and Mr Cavill had no difficulty in accepting that the Irish dogs might be cowed into uncharacteristic compliance, making it more difficult to assess their suitability for training.

In the latter part of the 2020 financial year the prospect of compulsory purchase was prominent in Mr Wiggins’ thoughts and those of his staff and he suggested that the uncertainty caused by the scheme distracted him from managing and developing his business effectively. This lack of focus caused unrest amongst his staff and in his view was the prime reason for the decline in the trained dog rate. He described the performance of his team as a ‘particular concern’. Fear of redundancy was a recurring issue in discussions with them and since he was ‘in the dark’ about the timing of the acquisition there was little he could say to offer reassurance. Consequently, the quality of dog training suffered, and staff lost the sense of long term responsibility for the dogs they trained.

Mr Wiggins’ recollection is corroborated by contemporaneous material. In communications with HS2 during 2022 Mr Wiggins noted that team members who had not yet been made redundant were ‘finding things difficult’ and ‘coming in to work on a daily basis and watching what was a thriving operation reducing to nothing”. He went on to say that he was finding it increasingly difficult to maintain morale within the team and himself. Mr Wiggins chronicled the departure of various long term members of staff and the welfare of the dogs became increasingly problematic as the loss of welfare staff meant that training staff had to undertake welfare duties as well.

The Secretary of State disputed Mr Wiggins’ evidence, pointing to the absence of evidence from any members of staff regarding declining morale or their commitment to the dogs or the business. Mr Westmoreland Smith KC invited us to consider the difficulty or otherwise of obtaining witness statements from the staff to support the claimant’s position. The Secretary of State took the view that the absence of a correlation between loss of staff morale and the declining trained dog rate undermined the claimant’s case that the scheme was the cause of the team’s diminishing spirit. In particular the sudden drop in trained dog numbers in 2019 could not be attributed to a collapse in morale, which was likely to manifest as a long, gradual erosion. The Secretary of State also argued that throughout the shadow period the core training team, in terms of number of employees, was stable if not expanding. Prior to the start of the shadow period it comprised three individuals, increasing to four in in April 2019 and five from April 2021 where the numbers remained for the next twelve months.

The Secretary of State provided three examples of suggested inconsistencies between Mr Wiggins’ claims about staff departures and Ms Fyffe’s evidence. First, Adam Tompkins (a dog trainer) left on 3 October 2021 and then Maddie Burke (a trainee dog trainer) departed on 24 November 2021. Notwithstanding these losses, the number of trainers remained constant at five from April 2021 to March 2022. Secondly, Zoe Chambers, one of the welfare team, left on 2 December 2021 but the welfare team increased from December 2021 to January 2022 from four to five. Thirdly, Mr Thomas Magee, who was responsible for running the online side of the business and providing IT support, was said by Mr Wiggins to have threatened to leave in September 2021 with his departure predicated on the risks of HS2 to the business. The Secretary of State noted that Mr Magee was a remote contractor, based abroad and that there was difficulty in attributing his threat to the scheme as a clear timeline for acquisition (in May 2023) had been spelled out twelve months earlier.

Mr Wiggins maintained that the impact of the scheme on his mindset and on staff morale was the only plausible explanation for the decline in the trained dog rate. The Secretary of State’s representatives expressed doubts about Mr Wiggins’ mindset, noting that a factor described by Mr Wiggins as the “the most important effect” was not mentioned in evidence until October 2025. They also question the degree to which Mr Wiggins’ mindset could be affected when, on his own admission, he only spent 19 hours a week on running the business (we think this figure represents time spent by Mr Wiggins atBrookhouse Farm and is not a reliable measure of his engagement in the business).

We accept that Mr Wiggins found the uncertainty about the future of his business difficult to deal with. That much is evident from his communications with HS2, particularly in the summer of 2021. However, the only evidence about the degree to which staff morale and his own wellbeing were affected comes from Mr Wiggins himself and we would have found it helpful to have had evidence from other staff members or from Mr Magee. Despite the absence of such evidence, and the lack of precision in much of Mr Wiggins’ own evidence on these points, we accept that the scheme had an adverse impact on staff morale and on Mr Wiggins’ own performance and that these are plausible explanations for the decline in the trained dog rate. We derive little assistance from a raw headcount, since experienced members of staff will have been difficult to replace, and we doubt that Mr Magee’s wavering commitment, whatever its cause, made any difference to the trained dog rate.

The Covid-19 pandemic and the lockdowns that ensued affected the operation and profitability of the claimant’s business. Given that the first lockdown did not occur until late March 2020 its effects will not have been felt in the financial year ending in that month. It cannot provide an explanation for the decline in the trained dog rate in that year.

We have already concluded that the travel restrictions and other measures imposed during 2020 and 2021 are likely to have required changes of supplier with more dogs coming from Ireland and fewer from Hungary in any event. The question for us is whether changes brought about by the pandemic would have caused a decline in the trained dog rate had the business not already been experiencing the adverse impact of the scheme on staff morale and Mr Wiggins’ own performance. We do not think that they would. We note Mr Pearson’s reluctance to place much weight on the effects of the pandemic in his own analysis (he described it as a secondary consideration) and we give weight to the favourable impression formed by Mr Cavill of the performance of the claimant’s business. We are satisfied by Mr Wiggins’ evidence that had he and his staff not been distracted by the threat of acquisition and by the search for alternative premises, they would have continued to perform at the same levels achieved by competent trainers. Mr Wiggins is clearly a resourceful and imaginative businessman who is capable of finding solutions when confronted with problems. As Mr Cavill explained, the national lockdown provided a huge boost to the market for dogs, including trained dogs. We think it likely that Mr Wiggins would have found ways of adapting his approach, including sources of supply, if travel circumstances had made it necessary to do so and if he had been free of the additional pressures created by the impending acquisition. Travel to Ireland, even under covid restrictions, was less restricted than travel to Hungary and it would have been possible for Mr Wiggins to undertake temperament testing at the premises of his Irish suppliers if he had felt free to travel. We cannot say that the pandemic made no contribution to the trained dog rate in the circumstances which existed, but in the different circumstances which would have existed without the scheme we think its effect would have been marginal and would have been overcome.

Mr Pearson noted what he suggested was an obvious, inverse relationship between the total number of dogs at the property and the trained dog rate. In other words, as the number of dogs increased, the trained dog rate declined. The following table was provided by Ms Fyffe but it is important to note that the figures relate to the number of dogs sold rather than the number of dogs on site in any financial year.

Mr Pearson acknowledged that providing a possible explanation for the relationship was beyond his expertise and the claimant noted that it was not supported by any factual or expert evidence. Mr Wiggins confirmed that regardless of the number of dogs at the property the daily training regime for each one was the same. The trainers were allocated no more than five dogs each and each dog was the subject of three 20 minute sessions. The welfare requirements were met by another team.

In her supplementary report Ms Fyffe undertook a statistical correlation analysis of the two sets of data, from which she concluded that “there is negligible reliability in using the number of dogs to predict the future trained dog rate; in short there is no meaningful correlation between the two.”

Mr Westmoreland Smith KC questioned the reliability of Ms Fyffe’s conclusion, describing it as resting on questionable foundations. Firstly, she had chosen the entirety of the shadow loss period over which to carry out her analysis and in doing so had included the 2022 and 2023 financial years. These were years where it had been accepted that there were scheme impacts as the business was being wound down. Her approach therefore contaminated the dataset from which the conclusion was drawn.

Secondly, Ms Fyffe’s analysis was based on monthly data points which was said to obscure the underlying trend. Ms Fyffe’s reliance on using data in its ‘rawest form’ magnified the fluctuations casting doubt on the conclusions to be drawn from it.

Responding to this challenge by excluding the 2022 and 2023 financial years, Ms Fyffe found that “32% of the variance in the trained dog rate can be explained by the number of dogs”. Mr Westmoreland Smith KC relied on this statement as irreconcilable with the claimant’s position that the entirety of the decline in the trained dog rate was attributable to the scheme. For her part Ms Fyffe cautioned against analysis using partial data and the claimant characterised the Secretary of State’s approach as selective and unreliable.

We observe that as the total number of dogs sold rises through the years 2018 to 2021 the trained dog rate declines. That is irrefutable. However, in 2022 the number of dogs sold drops back to a level broadly comparable to 2019, but the training rate does not recover; it remains close to the average of the four years from 2020. This suggests that there is no optimum level of dogs that produces the greatest number of trained dogs or that the business would not be capable of operating at a greater scale. There are other reasons to treat the statistics with caution, including operational changes about where dogs were housed which were not fully explored in the evidence, and the very late emergence of disputes over methodology. Mr Pearson was rightly reluctant to draw conclusions of his own from the correlation between the trained dog rate and the number of dogs being trained, and while Ms Fyffe’s analysis of that correlation excluding the years in which the scheme is acknowledged to have affected the business suggests there may be something in the point, we prefer to give little weight to what was an incomplete and confused exercise.

Ms Fyffe and Mr Pearson disagreed on the inclusion in the assessment of shadow losses of a figure to represent profits foregone by the claimant as a result of the adverse effect of the scheme on the development of its online business which commenced in 2019.

Ms Fyffe’s figure for this loss of net profit from online training covers the financial years ending in March 2021 and March 2022. Projected sales for the financial year ending in March 2021 are based on the actual sales of £20,931 for the previous year. The projected sales (but for the scheme) for the financial year ended March 2022 are based on sales achieved during the 5 months ending in August 2021 scaled up proportionately for the whole year to a total of £586,230. Ms Fyffe averages these figures to arrive at an assessed shortfall of £303,580. She also adopted a 100% rate of gross profit, assuming that there were no direct costs that related to this revenue stream. The final part of the calculation is to deduct the saved or avoided consultancy fees and overheads. Mr Pearson makes no addition to the shadow losses for this item.

Absent the scheme Mr Wiggins said he had planned to film an extensive dog training guide and create either a subscription-based app or a programme for others to follow which would have been capable of being franchised. Prior to September 2019 when the claimant’s online platform went live various forms of online training had been trialled, a process that we were told had allowed refinement and improvement of the products on offer. Mr Wiggins also believed that online sales might help with cash flow during a move to new premises that might involve closing one site and setting up afresh at a new location.

The claimant’s initial offer was a weekly webinar for potential clients who had signed up previously through advertising or social media. The webinar targeted owners who had tried and failed using other training methods. They were subsequently offered an online ‘reactivity’ training package said to be worth several thousand pounds but discounted back to £197 together with a 30-day success guarantee. In other words, if the client had not transformed their dog’s behaviour in 30 days they could apply for a refund.

Mr Wiggins described the webinar as a ‘sales funnel’ which proved to be a powerful means of generating sales of the reactivity course. However, its introduction was delayed by the uncertainty around the acquisition date of the property. In October 2020 the Secretary of State provided a deadline of October 2021 for finding a new property which was said to have been a trigger for launching the webinar. The effect was dramatically to increase online sales from approximately £10,000 in October 2020 to a peak of more than £65,000 in August 2021. By October 2021 sales had receded to £10,421. The claimant says that without the scheme the launch of the webinar and the attendant growth in online sales would have taken place six months earlier. There was a quantifiable loss arising from this later start.

In September 2021 Mr Magee gave notice that he wished to terminate his contract to manage the online side of the claimant’s business. According to Mr Wiggins, Mr Magee’s services were essential to the online business, and the threat of losing him precipitated a change of focus away from online sales to the physical side of the operation and damage limitation. The significant advertising spend which helped generate the strong online sales was therefore committed elsewhere in the business and online sales trajectory returned to the levels experienced prior to October 2020. The proposed launch in the first quarter of 2022 of three further courses based on the successful reactivity course was also aborted. A similar fate befell the nascent app and other social media activity.

The Secretary of State says that the claim for lost online sales is based on a reference period of five months, from April to August 2021 and this was a period of peak performance. Mr Cavill considered the performance “very impressive” which would be difficult to grow further from that level. The Secretary of State’s explanation for this “high-water mark” is lockdown disruption from the Covid-19 pandemic, a period when face to face training was not possible and online courses were an alternative. In support of this position the Secretary of State correlated the growth in the claimant’s online sales to listing trends on the website Pets4Homes which peaked in mid 2021 and concluded that the spike in demand was a consequence of the pandemic and not reliably indicative of future performance.

Furthermore, the Secretary of State said that future sales would be hindered by a pricing strategy which offered lifetime membership entitling customers buying an initial course to access all future courses without any further payment. Sales growth therefore relied on the generation of new clients. The projected revenue was based on an expansion of sales which the business model would be unlikely to facilitate.

Mr Westmoreland Smith KC submitted that the claimant’s case for its online training losses did not stand scrutiny. The delay in launching the webinar was attributed to uncertainty about the acquisition timetable prior to October 2020 and the prospect of a three month notice of entry, the time needed to formulate the online material and Mr Magee’s threatened departure. However, the Secretary of State had not indicated that he would issue a notice of entry and on 2 October 2020 confirmed that possession would not be taken before May 2023. That time scale provided sufficient certainty for Mr Wiggins to make the necessary investment, and he acknowledged as much in cross examination. It was also disputed that a long lead in time would be needed to build new courses as it was suggested that the courses were at least at an advanced stage of preparation. Mr Wiggins had said that courses could be ready in weeks, the Baker Tilly report of 2023 talked of courses ‘built and tested’ and a puppy course was marketed on YouTube and Facebook in early 2020.

Furthermore, Mr Pearson considered that the online courses were less profitable than they appeared at face value. The claimed profits of £375,404 represented more than 6,000 customers who would be new to the business, spending £60 each. That would be a 60% increase over the existing customer base and was unrealistic. In addition, the online training offer was not unique and would have faced competition from more sophisticated rivals with endorsement from professional organisations. There is no evidence to support the idea that an app was under development and that revenue would have been enhanced by its introduction.

It is not disputed that sales in the claimant’s online training business grew from September 2019 but the reference period, the timeframe by which the claimant measures the loss, is a remarkably short five months in the middle of 2021. This period coincided with the third national Covid-19 lockdown and the subsequent gradual easing of restrictions. Together these measures spanned the period from January to July 2021. It appears to us therefore that Mr Wiggins seized the opportunity presented by the 2021 lockdown and increased his marketing spend commensurately. We are not convinced that other online products capable of producing comparable returns had been developed earlier. If they had been we might reasonably have expected Mr Wiggins to have marketed them to take advantage of the two earlier lockdowns in Spring and late 2020 when Mr Cavill confirmed there was a huge rise in the sale of dogs and a corresponding increase in the market for online training courses.

Similarly, we are unconvinced by the suggested impact of Mr Magee’s threatened resignation in September 2021. In the event he stayed for a further eight months notwithstanding he was a contractor on a very short notice period. There does not appear to be a correlation between his desire to sever his links with the business and downturn in revenues in the latter part of 2021. The downturn is likely to have been caused by a shift in marketing expenditure following the easing of lockdown restrictions and a resumption of in person training.

The parties are unable to agree the variable advertising and consultancy costs to be applied to the revenue generated by the lost online sales. The Claimant applies a cost rate of 58.3% because these services supported the whole business, not just the online training. As an example, Mr Magee’s IT support was necessary for many of the Claimant’s revenue streams and it would therefore be wrong, Ms Fyffe considered, to apportion all of the advertising and consultancy costs to the online training as Mr Pearson does. His approach assumes that dog purchases or residential training require in-person engagement and that advertising will have limited reach. No evidence was adduced to support that proposition, and we will adopt Ms Fyffe’s approach.

The claimant has not made a claim for losses arising from residential training i.e. that part of the claimant’s business which involved training dogs belonging to other owners on-site rather than training its own dogs with a view to their sale. The Secretary of State maintains that the reduced levels of business in the core dog training business allowed the claimant to focus on growing its residential training revenue, and that that additional residential training revenue should be credited against the claim as mitigation. The growth in residential training sales was substantial; between the financial years 2021 and 2022 it increased by 200% and a comparison of the curtailed 2023 financial year and the full year of 2021 shows a 100% uplift.

The claimant says that the increase in revenue is due to price rises as well as greater volume and that the adjustment made by Mr Pearson is founded on assumptions that are unsound. Firstly, there was scope to use the boarding kennels to house failed dogs or dogs awaiting temperament testing, thereby freeing up capacity in any event. Secondly Mr Wiggins’ evidence was that it was always his intention to increase capacity and had he had an opportunity to do so he would have increased numbers beyond those stated in his licence.

Mr Pearson’s adjustment is based on 50% of the £113,286 increase in sales between the 2021 and 2022 financial years. The Secretary of State submits that residential training was a secondary source of income, reliant on having enough spare kennel and trainer capacity. Mr Wiggins attributed the increase in the 2022 and 2023 income to having such capacity as he wound down the trained dog sales stream in advance of the site closing altogether.

Similarly, the Secretary of State says that the price increases alone do not explain the uplift in income, but it is consistent with Mr Wiggins’ explanation that the extra residential training capacity came from releasing volume from the core business. Additionally, Mr Wiggins confirmed at the hearing that overspill kennels were only used for capacity issues with failed dogs or those awaiting temperament assessment.

It is beyond dispute that the trained dog rate declined substantially over the shadow period and that this contraction underlies a significant part of the shadow losses.

Having examined the factors that contribute to the shadow losses we can begin to draw together the various threads and come to a conclusion. In paragraph 35 we set out a summary of the respective expert’s computations in relation to shadow losses. It is instructive at this point to provide a slightly greater level of detail. The components of Ms Fyffe’s and Mr Pearson’s approaches are as follows:

The parties identified four factors that influenced the trained dog rate; sourcing, the effect of increasing numbers of dogs, staff morale and the Covid-19 pandemic. In the financial years ending 2018 and 2019 the trained dog rate achieved by the claimant was within the range which the Secretary of State’s expert, Mr Cavill, considered was to be expected of a competent professional trainer. It fell significantly below that range in 2019-20, which was the first year of the shadow period when it is agreed the business would have begun to be affected by the scheme. During that year the business was adversely affected by uncertainty engendered by the scheme, staff morale dipped and Mr Wiggins became distracted. In the same year the source of supply of dogs changed and the approach which Mr Wiggins had previously taken to temperament testing changed with it, in both cases because of the diversion of Mr Wiggins’ attention to the search for alternative accommodation for the business. No other reason has been identified for the initial fall in the trained dog rate and Mr Cavill believed that, but for the scheme, the claimant would have continued to run a successful business. In those circumstances we are persuaded that the whole of the decline in the trained dog rate during 2019-20 is attributable to the scheme.

We are satisfied that the change in the source of the claimant’s dogs was attributable to the scheme and that it contributed directly to the decline in performance. We accept Ms Fyffe’s view that there was no causal relationship between the number of dogs trained and the training success rate. The decline predated the Covid-19 pandemic and was not caused by it. Had Mr Wiggins not been distracted by the threat of acquisition we think he and his team would have found ways of adapting to the pandemic sufficiently to maintain their performance. We are satisfied that Mr Wiggins’ assessment is correct and that the main reasons for the downturn were the impact of the changes in sourcing and the decline in his own and his staff’s morale. We reject the Secretary of State’s suggestion that stable staff numbers are inconsistent with progressive scheme-induced demoralisation during the shadow period. The replacement of experienced staff with new recruits and the effect of the uncertainty created by the scheme on staff motivation, loyalty and performance were far more important than numbers alone. We therefore accept that substantially the whole of the downturn in the trained dog rate can be attributed to the scheme and we prefer Ms Fyffe’s calculation of the lost profit.

Turning to the online sales, we have already expressed reservations about the selection of a reference period that is based on the five months where peak sales were achieved. Ms Fyffe relies on the average of just two years of disparate trading performance but putting that aside for a moment, the key issue is whether, but for the scheme, the boom in online sales would have commenced earlier and been continued at the level established in the reference period.

We do not accept the claimant’s case on this issue. It has not been proven that the trading pattern would have been different but for the scheme or that the same income was achievable in normal trading circumstances. In our judgement Mr Wiggins spotted an opportunity presented by the Covid-19 pandemic and that combined with a sharp uptick in marketing spend resulted in the reference period sales. Those sales were not sustainable in the long term in a highly competitive market and nothing in the evidence has persuaded us that the projected increase in sales is realistic. We therefore make no award under this heading.

As for residential training, we agree with the Secretary of State that but for the compulsory acquisition most of the kennel space at the property would have been used for the core dog training and sales business in the period between April 2020 and January 2023. With the winding down of that core business an opportunity was created to utilise those resources to exploit a short term opportunity in residential training which partially mitigated the claimant’s losses. Mr Pearson’s method of quantifying this mitigation appears to be conservative and acknowledges the limitations of the available data. We therefore adopt his figure of £56,643.

Our assessment of the shadow losses is therefore as follows:

The parties are all but agreed on the losses resulting from reduced income from one-to-one consultations, and we have therefore taken the average of the two figures.

Ms Fyffe and Mr Pearson used the same approach to the losses in the financial year 2023, based on the net profit for the financial year 2022 adjusted for the shadow losses and apportioned to take account of the shortened trading period to January 2023. Our figure is based on the same method.

It is agreed that the value of the claimant’s business at the date on which it was extinguished should be arrived at by applying a multiplier to the maintainable EBITDA of the business which is a measure of a company's core operational profitability.

The starting point for both experts in calculating EBITDA was the net profit that would have been earned but for the scheme. As their assessments of shadow losses due to the scheme differed markedly it is not surprising that the resultant EBITDA figures also diverged. Ms Fyffe calculated EBITDA at £679,418, which included no allowance for director’s remuneration; if an allowance was considered to be appropriate, her revised figure was £662,140. Mr Pearson considered the director’s remuneration adjustment to be essential, and his EBITDA figure was £317,141.

In our own calculation of the shadow losses, we accepted Ms Fyffe’s assumption that the decline in the trained dog rate was wholly caused by the scheme, and we therefore adopt her adjustment to the net profit for this factor. We found that it had not been proven that the scheme caused a reduction in online income. We also concluded that as the core business declined the Claimant had pivoted into residential training and that an increase in income from that source had helped to mitigate the overall losses suffered. Ms Fyffe asserted that the residential training could have been expanded alongside the core business, but we consider it unlikely that the Claimant had the capacity to do both at scale. It follows that, to avoid double counting, the mitigation sum should be deducted from the net profit figure to arrive at an estimate of the Claimant’s net maintainable income. Consultancy fees could also have been higher in the absence of the scheme, and we therefore include Ms Fyffe’s adjustment.

Before we can calculate the EBITDA, we need to determine whether an allowance should be made for notional director’s remuneration. This is a sum which a purchaser of the business would assume would have to be incurred to enable the business to function and which they would allow for in determining what they were prepared to pay for it. The claimant’s position is that the value of the business to the owner does not include a notional income which was not drawn in reality. The claimant is an owner operated business with a single shareholder and director who determines the strategic direction of the business. In those circumstances it is said that Mr Wiggins would have no need to employ anyone else to fulfil that role.

The Secretary of State’s position is that the measure of loss to the claimant is the open market value of the business. The claimant has been deprived of the ability to derive a future profit from the business and is entitled to be compensated for that loss. Mr Wiggins’ time and skill helped to make the business profitable and if that contribution is not taken into account the extinguishment value of the business would be overstated and the claimant would be overcompensated.

The parties agree that whether a notional deduction for the remuneration of a director should be allowed is a fact-sensitive question. We were shown a number of older authorities in which compensation was awarded for the extinguishment of very small businesses without such an allowance being made. We do not regard those authorities as a guide. Although the claimant’s business is directed by Mr Wiggins alone it is not a one-man operation and has been valued by both experts as a business which could be sold as a going concern.

We prefer the Secretary of State’s approach. As the sole shareholder Mr Wiggins has largely been remunerated for his efforts by a distribution of each year’s net profit. But that is not a reason to value the business as if Mr Wiggins’ input was a free resource. It came at a cost to him, in that by devoting his energies to running the business he was unable to derive an income from some other employment, or to enjoy a life of leisure. The value of the business to the claimant ought to reflect that. If the business was offered for sale a purchaser would either have to devote their own time and effort to running it or engage someone else to take Mr Wiggins’ place. The market would undoubtedly take that into account in attributing a value to the business. To compensate the claimant for the loss of the future earnings of the business without having regard to how those earnings would be achieved would be to overcompensate it.

The experts disagreed on the quantum of the allowance required to reflect Mr Wiggins’ worth to the business or the cost to a purchaser of replacing him. Mr Pearson allowed £80,000, Ms Fyffe £17,000. Both figures assumed that Mr Wiggins was not engaged full-time in the business. We consider Ms Fyffe’s figure to be unrealistic and not properly to reflect the value of Mr Wiggins’ contribution to the business or the cost of replacing him. Mr Pearson’s assessment is based on levels of remuneration in more appropriate managerial roles across a range of small businesses. At the upper end of this range are businesses operating on a notably larger scale than the claimant. We consider a proper allowance in this case is £50,000.

The Tribunal’s calculation of the total net and lost profits is as follows:

Our calculation proceeds on the basis of actual interest and depreciation included in Ms Fyffe’s evidence. The resultant EBITDA figures before weighting adjustments are £504,547 for financial year 2021 and £525,607 for financial year 2022. Prior to the hearing the experts narrowed the initial differences between them regarding weighting. Ms Fyffe weighted the financial years 2021 to 2023 as 1, 2 and 3, in other words applying the greatest weight to the last year. Mr Peason only used 2021 and 2022 which he weighted 1 and 5 respectively. We have some reservation about the use of the financial year 2023 figures. The business only traded for 9.5 months of that year and inevitably the full year will involve an element of estimation about the missing 20%. For that reason, we concur with Mr Pearson’s approach of using the previous two years. However, that does not mean that we endorse his weighting. In our view his approach places too much reliance on the financial year 2022. A more balanced course would mirror Ms Fyffe’s method of 2 and 3. The result is an adjusted EBITDA of £517,167 from which we deduct an agreed annual market rent of £26,000 to arrive at a final figure of £491,167.

The parties disagreed on the appropriate multiplier to be applied to the maintainable profit of the business to arrive at its extinguishment value. For the claimant Ms Fyffe proposed a multiplier of 8. Mr Pearson’s figure for the Secretary of State was 5.

The Secretary of State relied on the claimant’s rudimentary record keeping, and the absence of business plans and forecasts, as factors which would influence the view which would be taken of the business by the market and which should therefore be reflected in the multiplier used to arrive at its capital value. We think this approach is misplaced for two reasons.

First, while (as Lord Nicholls recognised in Shun Fung Ironworks) it may be of assistance to have regard to the sum which the business would have commanded if it had been offered for sale in the open market and had found a buyer in January 2023, it must be assumed that such a sale would have been achieved after a proper process of marketing which would have presented the business to its best advantage. That is a necessary and inevitable consequence of assuming an open market sale (see Transport for London (formerly London Underground Ltd) v Spirerose Ltd [2009] UKHL 44, at [50].

Secondly, the Tribunal’s task is to assess the value of the business to the owner, not its value to a purchaser. The price the business might have achieved in the open market at the valuation date is a useful point of reference but, especially for a small business, it may not provide a complete answer. If a small business was conducted in a chaotic manner which had an adverse impact on its performance, then it would be appropriate to take that into account when determining the value of the business to the owner. But if a small business was conducted competently despite minimal record keeping and scant evidence of forward planning, the fact that it might be difficult to sell in the open market and require a discount to the value of more conventionally operated businesses, would not justify applying such a discount when assessing the value of the business to the owner. The owner can be assumed to understand the business sufficiently to enable it to operate in the future as it has in the past. That is not to say that the absence of conventional business records is irrelevant, since the value of the business must be proved.

So, in arriving at the appropriate multiplier to be applied to the expected earnings of the business it is not appropriate to apply a lower figure because the claimant adopted a light touch approach to formal business records.

The same is true of certain other factors which would ordinarily be taken into account by a purchaser contemplating making a bid for a small business in the open market, but which do not feature in assessing the value of the business to the owner. In the case of some small businesses, especially those which have a single proprietor who is actively involved in the management of the business, part of the goodwill of the business may be closely bound up in the personality of the proprietor, the strength of the business relationships he has formed, including relationships with staff, and the knowledge of the business and of relevant markets which he carries in his head. On a sale of a small business like that, a potential purchaser would be likely to take account of the risk that those aspects of the business would not be readily transferable if the business is taken over by someone else. Those risks would be reflected in the multiple of annual earnings which the purchaser would be likely to offer for the business.

Where the business in question is not being offered for sale in the open market but has been extinguished, and the value to be determined is the value of the business to the owner which has been lost as a result of the compulsory acquisition, risks which would be created by a change of ownership seem to us to have no relevance. The claimant is entitled to be put in the position it would have been in if it had not been dispossessed, which may be a materially more favourable position than the position of a purchaser. Stable business and staffing relationships would not have been at risk of disruption and the proprietor’s know-how would not have been lost to the business if the business had been allowed to continue undisturbed.

Neither of the expert accountants modified their valuation approach to take account of the need to ascertain the value of the business to the owner. They agreed that the appropriate way of quantifying the extinguishment value of the business was to use what they called an “Enterprise Value/EBITDA multiple approach”. Ms Fyffe appreciated from her instructions that she was being asked to assess the value of the business to the claimant, but she interpreted this as requiring her to tailor her valuation closely to the characteristics and risk profile of the claimant’s business. She confirmed in answer to the Tribunal’s questions that she had applied all the same assumptions as she would in valuing on an open market basis. In reaching his conclusion about the appropriate multiple, Mr Pearson identified a number of risk factors which he suggested had been given no, or too little, weight by Ms Fyffe, but she did not agree and explained in cross examination that she had taken all of the risk of the business into account, including its significant reliance on Mr Wiggins. Her conclusion was that the risks to the business were “minimal”.

Amongst the matters which Mr Pearson identified as relevant was the dependence of the business on Mr Wiggins. Undoubtedly reliance on a single individual is a significant risk factor for a small business. If the business is sold the former owner’s contribution will be lost and may not easily be replaced. But even if the business continues with the same personnel, its success is to some extent hostage to the good health, and continued motivation and commitment of the proprietor. It was not suggested to Mr Pearson that in determining an appropriate multiple of five he had failed to address the value of the business to the claimant, or that the weight he gave to the reliance of the business on Mr Wiggins should be discounted to leave out of consideration those aspects of the risk which would eventuate only if the business was sold. That puts us in a difficult position in assessing the evidence of the experts. We would have been assisted by a more explicit treatment of the value to the owner principle. In the absence of focused evidence from the experts, we are left only with the guidance of the Privy Council in Shun Fung that we might in an appropriate case make a “modest allowance” to reflect the additional value of the business to the owner as compared to its market value.

We were referred to the UK 200 Group Index as a widely used business valuation index. We agree with Mr Pearson’s interpretation of the index that it shows a multiplier for a business of this size in the order of 5 at the valuation date (the index was later revised downwards but this information would not have been available at the relevant time). The sample on which it was based covers businesses which are slightly larger than the claimant’s.

Mr Pearson also referred to the UK&I M&A Monitor published in February 2023 and covering the second half of 2022. It provides multipliers by sector and size. The index points to multipliers of 5.1 and 4.3 in the appropriate subsets.

Ms Fyffe identified a number of factors that she considered relevant to her preferred multiplier. The first of these was the claimant’s record of sustained growth since the commencement of trading. Mr Pearson thought this was already accounted for in the EBITDA and while there is some truth in that, in our view it is also questionable whether much reliance should be placed on previous trading. The owner has already been rewarded for past performance and would be focussed on the value of future opportunities to extract higher profits. Insight gained from past profits would not necessarily inform that perspective.

The second factor referred to by Ms Fyffe is that this is a niche business, with high demand from price insensitive clients, limited competition and high barriers to entry. Mr Pearson thought that the narrow customer base would limit growth and that barriers to entry were illusory as no qualifications were required and a competitor would simply need a set of kennels to operate from. It seems to us that rising trained dog prices point to a level of unfulfilled demand which belies the suggestion that there are few barriers to market entry. The online training marketplace was said by Mr Cavill to be crowded, and we noted a heavy reliance on advertising to drive sales. We do not accept that Mr Magee could not be readily replaced but we do agree with the Secretary of State that the growth in the online offering coincided with the Covid-19 pandemic. The likelihood of such an event occurring again in the short to medium term is an unknowable factor that an owner, would in our view, be unwilling or unable to put a value on.

The third factor relied on was the diverse income streams available to the business. Although the core business was trained dog sales Mr Wiggins had proved adept at spotting and exploiting market opportunities. Ms Fyffe suggested that the business appeared to be scalable, subject to the constraints of staffing and premises.

Ms Fyffe’s final factor was the experienced and stable team. We have some reservations about this aspect of the business. The company appeared to rely heavily on one employee, Ms Darley, and employment records show a churn in other appointments. We bear in mind the impact of the scheme on the later years of operation, but there is little to demonstrate that Mr Wiggins would have been able to recruit easily to facilitate further expansion.

Taking all of these factors into account, we are not persuaded that a substantial uplift to the multiplier derived from the indices is justified. We nevertheless recognise that a valuation based on those indices may not properly reflect the additional value of the business to the owner compared to its value to an open market purchaser. A purchaser could not be sure of acquiring the original owner’s intimate knowledge of the business, the ability to identify areas of growth and cost reduction, market insight and experience, customer relationships and staff loyalty. A purchaser would appreciate that change involves risks. A small business continuing in the same ownership would not be vulnerable to those changes, so that the value of the business to the owner may be considered to be greater than its value to the purchaser, as Lord Nicholls recognised in the passage we have quoted at paragraph [12] above. We have come to the conclusion that these factors justify a modest addition to the multiplier. Neither expert addressed this point directly, but having regard to their evidence generally we consider that a 10% increase in Mr Pearson’s multiplier of 5 would adequately reflect the additional value of the business to the owner. We therefore adopt a multiplier of 5.5.

Applying a multiplier of 5.5 to the EBITDA figure of £491,167 produces a value of the business to the claimant on its extinguishment of £2,701,419.

The final element of the claim was in respect of the suggested value of Mr Wiggins’ time spent on the compensation claim and other losses said to have been caused to the claimant while the reference continued. The principle of this claim is not disputed by the Secretary of State. The claimant claimed £84,000 said to reflect 843 hours of work on the claim at a rate of £100 an hour. The Secretary of State concedes a sum of £28,743, which is the amount paid to Mr Wiggins by the claimant since the valuation date.

Ms Tafur relied on the Tribunal’s comment in Quyoom & Ors v The Borough Council of Middlesbrough[2025] UKUT 274 (LC) at [93], but Mr Quyoom was himself a claimant and the Tribunal’s award in that case reflected its assessment of the value to him of the time he had spent in preparing the case. In contrast, Mr Wiggins has no claim of his own and is not a party to this reference. If the claimant wishes to recover a sum in compensation for his time it must prove that it has suffered a loss, as the Court of Appeal explained in Lancaster City Council v Thomas Newall Ltd [2013] EWCA Civ 802. There is no evidence that the claimant has suffered any loss as a result of the diversion of Mr Wiggins from other activities to manage the claim. This aspect of the claim is only sustainable on the basis of the Secretary of State’s concession of the sum of £28,743. We will include that agreed sum in the compensation we award, but it should not be taken as a precedent for similar claims in other cases or as a derogation from the principle laid down by the Court of Appeal in Thomas Newall.

We therefore make the following determination of the compensation payable to the claimant, including figures for those parts of the claim which were agreed between the parties:

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.