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OUTER HOUSE, COURT OF SESSION [2007] CSOH 53 |
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CA174/03 |
OPINION OF LORD REED in the cause DOUGLAS SHELF SEVEN LTD Pursuers; against CO-OPERATIVE WHOLESALE SOCIETY LTD Defenders; And KWIK SAVE GROUP PLC Third Party: ________________ |
Pursuers: Abercrombie, Q.C., Di Emidio; McClure Naismith
Defenders and Third Party:
9 March 2007
Introduction
[1] In
this action the pursuers seek damages from the defenders for the breach of a
keep-open clause in a lease of supermarket premises located in the Whitfield
area of
[2] This
litigation has a protracted history, which it may be helpful to explain at the
outset. The present action was raised in
the
[3] At the proof, the following witnesses were led on behalf of the pursuers:
1. Mr Barrie Clapham, managing director of the pursuers, and of their parent company, Credential Holdings Ltd ("Credential Holdings").
2. Mr Robert Wallace, a resident of Whitfield since 1970, and chairman of the Whitfield Area Forum for Tenants and of the Murrayfield Area Residents' Association.
3. Mr Iain Luke MP, the
Member of Parliament for
4. Mr James Dallas, the community development worker employed by the Whitfield Inclusion Network Group since 2002.
5. Mrs Caroline Canter, a local resident since 1983, and a voluntary worker for the Whitfield Inclusion Network Group.
6. Mrs Margaret Neil,
the manageress of Ladbrokes,
7. Mrs Bonjekiola Majola, a local resident, a pharmacist, and the manageress of Moss Chemists (one of the units in the Centre) since 2003.
8. Mr Jonathan Reid, a chartered surveyor employed by the firm of J & E Shepherd, Chartered Surveyors, in Dundee.
9. Mr Craig Watt, a chartered surveyor employed by Edinburgh City Council, and formerly employed by J & E Shepherd in Dundee.
10. Mr John Thomson, a senior management surveyor employed by Land Securities plc, the parent company of Ravenseft Properties Ltd ("Ravenseft"), since about 1977.
11. Mr Gerard McCluskey,
a chartered surveyor, and a partner in J & E Shepherd,
12. Mr Paul Letley, a
chartered surveyor, and a partner in J & E Shepherd,
13. Mr Michael De Vos, a
commercial property manager employed by J & E Shepherd,
14. Ms Joanna Fawcett, managing director of George Street Research Ltd, Edinburgh.
15. Mr Roderick MacLean, a chartered town planner, and an associate director of DTZ Pieda Consulting, Edinburgh.
16. Mr Rushid Hussein,
the postmaster at Whitfield Drive Post Office,
17. Mr Andrew Oswald, a
chartered surveyor, and a partner in Knight Frank,
18. Mr Andrew Lythgoe, a chartered surveyor, and an associate director of D B Richard Ellis Ltd, Glasgow.
19. Ms Jill Brash, a senior planning officer with Dundee City Council.
[4] The following witnesses were led on behalf of the defenders and third party:
1. Mr Mark Poulton, business director of property of Somerfield plc since 1998 (when it merged with the third party), and previously in a similar position with the third party since 1987.
2. Mr Eric Young, a chartered surveyor, and a director of Eric Young & Co, Chartered Surveyors.
3. Mr James Merry, a retired
chartered surveyor, formerly the senior partner in Graham & Sibbald,
Chartered Surveyors,
4. Mrs Morag Meneer, a chartered surveyor employed by Colliers CRE, Glasgow.
5. Mr David Allison, a chartered surveyor, and the senior partner in Allison & Lightbody, Glasgow.
6. Mr Alexander Brown, a senior town planner employed by Dundee City Council.
7. Mr Alistair Todd, a
chartered surveyor, and a partner in Graham & Sibbald,
8. Mr George Nisbet, a chartered surveyor, and a partner in D M Hall, Edinburgh.
9. Mr Brian Hermiston,
a chartered surveyor and chartered town planner, and a consultant with
Montagu Evans,
10. Mr Martin Robeson, a
chartered surveyor and Fellow of the Royal Town Planning Institute, and a
partner in Littman & Robeson,
[5] It may be helpful to say something at the outset about my assessment of the witnesses' evidence, although this is something which I shall discuss later in greater detail in relation to particular issues. In general terms, almost all the witnesses appeared to me to give their evidence honestly and to the best of their ability. One exception (so far as the latter aspect is concerned) was Mr Todd, who initially failed to attend court (despite receiving a citation), as he wished to attend a meeting with his partners instead. In consequence, the court was unable to sit. He failed to refresh his memory prior to giving evidence, and had a poor recollection of events. He also appeared to me to lack objectivity: he appeared to be endeavouring to undermine the position of the pursuers at every opportunity. It only emerged as a result of questioning during cross-examination that his firm was at the time he gave evidence acting as the defenders' managing agent in relation to the Premises. I did not consider his evidence to be reliable. Some of the other witnesses appeared to me to be more reliable than others. Mr Clapham appeared to me to give his evidence with sincerity, but did not have an entirely accurate recollection of events, and at times appeared to me to put a somewhat optimistic gloss on matters. I also have reservations about the reliability of some of the evidence given by Mr Poulton, for reasons which are explained below. Of the other lay witnesses, I found the evidence of Mrs Neil, Mrs Majola and Mr Hussein to be particularly careful, objective and well-informed. Of the chartered surveyors who were led as witnesses to fact, I found the evidence of Mr Reid, Mr Watt, Mr McCluskey, Mr Thomson, Mr Letley, Mr De Vos (who, although not qualified as a chartered surveyor, nevertheless belongs in this group) and Mrs Meneer to be straightforward and generally objective. I found the evidence of Mr Young and Mr Merry to be less persuasive, for reasons which are explained below. Of the other professional witnesses who were led as witnesses to fact, Ms Brash and Mr Brown appeared to me to be reliable. The evidence of the expert witnesses who were led to give evidence of opinion requires to be addressed in detail: I have neither accepted nor rejected the evidence of any of them in its entirety.
[6] In view of the amount of evidence led, it is not practicable in this Opinion to attempt to cover it in its entirety. I shall instead attempt to give a broad overall picture, and to focus in greater detail on those aspects which appear to me to be of particular importance. In relation to the expert evidence, in particular, although I shall focus only on the aspects which appear to me to be critical, I should not be taken to have disregarded the remainder of that evidence (which, so far as transcribed, extends over thousands of pages).
The contractual context
[7] The Centre was constructed
on land owned by Dundee Corporation and let by them to Score Property
Developments Ltd under a lease ("the Ground Lease") which was executed and
recorded in 1971. The Ground Lease
was for a period of just over 125 years, from
The tenant's interest in the Ground
Lease was acquired from Score Property Developments Ltd by Ravenseft, by an
assignation which was executed and recorded later in 1971 [67/11]. Ravenseft sub-let the various units in the
Centre. In particular, the Premises were
sub-let to
[8] In summary, therefore, the contractual position is that the pursuers are the tenant of the Centre under the Ground Lease, and are the landlord of the various units in the Centre under sub-leases. In particular, they are the landlord of the Premises under the Sub-Lease, and the defenders are their tenant. Kwik Save are the sub-tenant of the Premises, under the Sub-Under-Lease granted by the defenders.
[9] Clause (FIFTH) of the Sub-Lease provides:
"The premises are let for use only as and for the retail trade or business of a supermarket primarily for the sale of food and as ancillary thereto an off licence and for no other purpose whatever ...".
[10] Clause (TENTH) provides:
"The Tenants bind and oblige themselves:
...
(Sixteen) To keep the premises open for retail trade during the usual hours of business in the locality (subject to the Tenants having the right to fix such early closing day as may be in their best interests) the shop display windows being kept dressed in a suitable manner and in keeping with a good class shopping centre, and at all times to comply with all requirements of the Local Authority, Local Planning Authority and any other competent Authority and of any Statute order or regulation affecting or in connection with the use of the premises for the purpose of the business permitted to be carried on therein for the time being."
[11] Clause (FIFTEENTH) of the Sub-Lease provides:
"... the Landlords may make good any default of the Tenants and may recover from the Tenants in any way open to them payment of all sums due by the Tenants including the cost of making good any default and damages for loss and injury suffered by the Landlords as a result, direct or indirect, of any contravention of the obligations imposed on their Tenants under these presents or of any exercise by the Landlords of their rights hereunder."
[12] Clause 4(1) of the Sub-Under-Lease provides that the sub-tenant (i.e Kwik Save) undertakes to fulfil the obligations of a non-monetary nature undertaken by its landlord (i.e. the defenders) under the Sub-Lease. Clause 4(7) provides that the sub-tenant undertakes not to use the Premises except as a supermarket. Clause 4(9)(1) provides:
"the Sub-tenant confirms, undertakes and accepts that its obligations under the Sub-Lease and the whole burdens and conditions governing its rights of occupancy of the Premises shall be those incumbent upon the [defenders] under the [Sub-Lease], the terms of which are hereby treated brevitatis causa as repeated herein and forming part of these presents, the [defenders'] obligations under the [Sub-Lease] being obligations mutatis mutandis of the Sub-tenant under the [Sub-Under-Lease]."
The history of the Centre
[13] The Centre was constructed as part of a housing estate built by
Dundee Corporation in the late 1960s and completed in about 1971. The estate was built on land which the
Corporation owned at Whitfield, on the north-eastern edge of
[14] The small units (111 to 115, and 117 to 122)
were each of about 1020 square feet.
One of the larger units (107 - 110) was of about
4370 square feet, and was intended for use as a public house. The remaining two units
(106 and 116, the latter being the Premises) were each of about
12,000 square feet, and were intended for use as supermarkets. The units were constructed in rendered brick,
with flat roofs covered in felt. The
central area of the Centre, around which most of the units were located, was
open to the elements. Units 107 to 115
were (and are) located along the west side of the central area; the Premises were located along the north
side, facing the car park and Whitfield Drive;
units 117 to 122 were located along the east side; and unit 106 adjoined unit 107-110,
on its west side. At the north-west
corner of the Centre there was a gap between unit 115 and the Premises,
where stairs led towards multi-storey housing blocks on
[15] The history of occupation of the Centre was the subject of a great deal of evidence, and extensive submissions, at the proof. While the case was at avizandum, the parties produced an agreed position paper covering much, but not all, of this subject [95]. The following account reflects that agreement, but also my own assessment of the evidence, in so far as matters were not agreed.
[16] Unit 106 was let to a supermarket operator: it traded at one time as Presto and at
another time as Templeton. At some point
after 1980 it closed [67/51].
Around the same time another operator, William Low, which owned
Templeton, opened a supermarket at
[17] The Premises were also let, as explained above, and occupied by a variety of supermarket operators. The initial tenant and occupier, from 1970, was Johnston Stores Ltd, trading as "Challenge". They assigned their lease to the defenders with effect from December 1976 [67/18B]. The defenders traded from the Premises until 1985 [Mr Thomson], after which they sub-let the Premises to Kismet Stores [67/51], an independent supermarket operator trading as "VG" [Mr Wallace; Mr Hussein]. It sold groceries, fresh fruit and vegetables, and bakery products [Mr Hussein]. The reason why the defenders ceased to trade from the Premises was not disclosed in evidence. The remaining units in the Centre were also let. The public house at unit 107 was let to Bass Holdings Ltd on a 63 year lease expiring in 2033. Unit 111 was let to a local hairdresser on a 21 year lease expiring in 1993. Units 112, 113 and 114 were let to a local chain of chemists on 21 year leases, expiring respectively in 1993, 1991 and 1991. After a time, they traded only from units 113 and 114. Unit 112 was vacant for a time in the mid-1970's [67/33], and was then sub-let to a video rental shop [Mr Thomson; Mrs Canter]. Unit 115 was let to Ladbrokes, the bookmakers, on a 21 year lease expiring in 1991. Unit 117 was let to Johnston Stores Ltd on a 20 year lease, expiring in 1992, and was used as the wines and spirits department of the supermarket. That lease was assigned to the defenders along with the lease of the Premises, and the defenders also used the unit as their wines and spirits department [67/18]. The unit was unoccupied after the defenders sublet the Premises to Kismet Stores [Mr Hussein; Mr Thomson]. Unit 118 was let to a local trader, initially as a Chinese takeaway, and later as a launderette, on a 21 year lease expiring in 1991. Unit 119 was let to a local multiple as a fish and chip shop, on a 21 year lease expiring in 1991 [Mrs Canter; Mr Wallace]. Unit 120 was let initially to a national chain of butchers, and from 1985 was let to Martin Retail, a national chain of confectioners, tobacconists and newsagents, on a 25 year lease expiring in 2009 [67/33, 67/40]. It became a post office, and was sublet to Mr Hussein in 1988 [67/41; Mr Hussein]. Unit 121 was let to RS McColl, another national CTN chain, on a 21 year lease expiring in 1991. The lease was assigned to Mr Hussein in about 1989 [Mr Hussein]. The unit traded as a newsagents. Unit 122 was let initially as a freezer shop, and subsequently to United Biscuits, trading as Crawfords, a national chain of bakers, on a 21 year lease expiring in 1991. The petrol station site was let to Esso on a 60 year lease expiring in 2030. The advertising hoarding was let to Mills and Allen on a 5 year lease expiring in 1991. The electricity sub-station was let on a 99 year lease expiring in 2069 [6/47].
[18] Whitfield soon became an area with high unemployment, poor housing and environment, serious social problems and a bad reputation [67/400, p.3]. As a report prepared in 1993 observed,
"The large perimeter housing estate, densely populated but lacking to a greater or lesser extent in amenities, privacy and accessibility to central activities, created conditions recognised as synonymous with social deprivation almost from day one" [6/49].
The Centre had a problem with vandalism, and with graffiti in particular [Mr Thomson]. There were also problems with the clientele of the public house, but these had only a limited effect on the trading of the Centre, as they mostly occurred in the evening, when the shops were closed [Mr Thomson].
[19] The Centre nevertheless had a wide range of units trading in the mid 1980s (a public house, a hairdresser, a video rental shop, a chemist's, a bookmaker's, a supermarket, a launderette, a butcher's, a post office, a newsagent's and a baker's), and it was quite busy [Mr Thomson, Mr Wallace, Mrs Canter]. Rent reviews in respect of units 112, 113, 114, 117 and 118, as at November 1986 (in the case of unit 112) and May 1987 (in the case of each of the other units) resulted in increases, some of which were substantial [67/47, 67/48].
[20] In about 1986 the Centre was placed on the market by Webster & Co, chartered surveyors acting on behalf of Land Securities (the parent company of Ravenseft), as a result of that company's decision to focus on retail parks and large shopping malls and to dispose of all other types of property held in their portfolio [Mr Thomson]. All the units were let at that time [67/48, 67/47], although unit 117 was unoccupied. The total gross rent of the units in the Centre as at May 1987 was £65,150 per annum [67/48].
[21] In 1988 the Scottish Office published a White Paper, New Life for Urban Scotland, setting out
a new approach to urban regeneration based on partnerships between interested
public bodies, local residents and the local business community, led by the
Scottish Office. Four such partnerships
were to be formed: at Castlemilk in
"The enormity and nature of the
problems became apparent as soon as I entered
As at January 1989, the
population of Whitfield was about 6,000.
About a quarter of the housing stock was vacant. Unemployment was four times the
[22] In 1989 the rent of unit 120 (the post office) was reviewed, and increased significantly [67/47 and 67/50]. The Centre remained quite active at that time, and trading at the post office and the newsagents (units 120 and 121 respectively) was good [Mr Hussein].
[23] A report was commissioned by the Whitfield Partnership from Cousins Stephens Associates, a firm of economic development consultants [67/51, 89].
[24] At the time of the Cousins Stephens Associates study, in about 1990, all the units in the Centre were let, but three of the units were unoccupied, and the Premises were closed due to fire damage, as explained below. The report prepared by Cousins Stephens Associates was not produced in its entirety in the present case: only the executive summary was available [67/51]. It noted that the shops in Whitfield, including the Centre, had been adversely affected by the decline in the population of Whitfield, the development of the William Low supermarket at Pitkerro Road, developments in the city centre, and the general trend towards shopping in bigger stores (as Mr Thomson observed in evidence, however, the latter factor could be expected to have had somewhat less of an effect in Whitfield than in most other areas, given the relative poverty of the area and the low level of car ownership, and the consequent tendency, described by Mr Thomson, to do more shopping on foot, on a relatively frequent basis). The letting of vacant units had been difficult, and rental levels were depressed. Surveys showed that hooligans and drunks, lack of shops and poor environment deterred people from using the Centre. People using it did not like its dirty, run-down appearance, the lack of choice and the prices. Household surveys indicated that the Centre retained only 10 per cent of the convenience expenditure of households in the area studied, with a further 15 per cent being retained by five corner shops within Whitfield. The surveys also indicated that the Centre was used primarily by people living within 10 minutes' walk, and that main food shopping was done primarily at Lows. In considering these findings, it is necessary to bear in mind that the supermarket in the Centre was apparently closed due to fire damage at the time of the surveys. It is also necessary to bear in mind that, in the absence of the complete report, a critical assessment of these findings is not possible. Looking to the future, the report noted that the population of Whitfield was forecast to increase by 12 per cent, with a 60 per cent increase in the population in private housing on the east side of Whitfield. There was expected to be a substantial shift in housing tenure. Nevertheless, on the assumption that retention rates of convenience expenditure remained at about the same level as was then current, the report suggested that only 3000 to 4000 square feet of food shopping could be sustained at the Centre. It recommended that the quality of the Centre should be improved, but the amount of floorspace reduced, and that the Centre's role should expand to include more service functions (such as a hot food takeaway, video rental, a hairdresser or a launderette). It also recommended that the Council should acquire the Centre from Ravenseft [67/51].
[25] In his evidence, Mr Thomson disagreed with the suggestion in the report that only 3000 to 4000 square feet of food shopping could be sustained at the Centre. In that respect, Mr Thomson observed that Shoprite had been happy to move into the Premises (as explained below), with an area of 12,000 square feet, and he had been told by their manager that they were trading well. I note that the opinion expressed in the report was based on the premise that retention rates of convenience expenditure remained at their current level. That level appears to have been calculated at a time when the Premises were closed, and when its former customers were necessarily going elsewhere to do their food shopping. In those circumstances, it appears that the opinion expressed in the report did not reflect the situation which would then have existed if the supermarket at the Premises had been trading.
[26] In response to the Cousins Stephens Associates report, the Council decided against acquiring the Centre. The Whitfield Partnership however accepted that the Centre must be improved, given the major investments being made to improve the housing on the estate and to reduce unemployment, and indicated that public sector funds might be available to assist in its re-development [67/51]. The Partnership then employed Ironside Farrar Ltd to develop a refurbishment scheme. In view of what was described as the "resilient" nature of trading at the Centre at the time of their study, Ironside Farrar's recommendation was to refurbish the existing units and to improve security and access [67/50; 67/49]. This appears to have reflected the decision of a Steering Group, set up by residents to work with the Partnership, to reject any option involving the partial or total demolition of the Centre, and to propose a budget of £480,000 for its refurbishment [67/49; 67/400, p6].
[27] In 1990 the Premises (then occupied by Kismet Stores) were set on fire, causing extensive damage [67/51; 67/343; Mr Thomson]. The Premises were then closed for some six months [Mr Thomson, Mr Hussein]. It is a matter of agreement that they re-opened later in 1990 as a supermarket operated by A & T Stores Ltd (another sub-tenant of the defenders), trading as A & T Family Choice [Mr Wallace, Mrs Canter, Mr Hussein]. They sold groceries, fresh fruit and vegetables, pre-packed meat, and the other products usually stocked at that time by supermarkets [Mrs Canter]. During the period when the Premises were closed, business in the Centre generally declined. After A & T Stores commenced trading, business in the Centre picked up again [Mr Thomson, Mr Hussein]. A & T Stores did not however carry as much stock as Kismet Stores had done, and did not trade as successfully [Mr Thomson].
[28] In 1991 the leases of units 113, 114, 115, 118, 119, 121 and 122 expired. It is a matter of agreement that unit 113 continued to trade as a chemist's until the end of 1992, after which it was re-let as explained below. Unit 114 was re-let to the chemists on a 25 year lease, expiring in 2016, at a rent which was substantially higher than the previous rent [67/42]. Unit 115 was re-let to Ladbrokes, on similar terms, and with a similar increase in rent. Unit 118 appears to have been vacant for a time, then re-let as an adult education centre until June 1993 [67/50; 67/55]. Unit 119, which had seemingly been vacant for a time, was again let as a fish and chip shop, on a 20 year lease, expiring in 2011 (with an option to terminate in 2001), with a similar increase in rent [67/52, 67/53, 67/76]. Unit 121 was re-let as a newsagents to Mr Hussein on a 25 year lease, expiring in 2016, with a similar increase in rent. Unit 122 was unlet until it was re-let in January 1993, as explained below [67/76]. The lease of unit 107 (the public house) also underwent a rent review with effect from 1991, which resulted in a rental increase of 50 per cent from the 1984 figure.
[29] In 1992 the lease of unit 117 expired. It was then re-let as a Chinese takeaway, apparently until September 1993, at a rent which was substantially higher than the previous rent [67/49; 67/50].
[30] In September 1992 the supermarket operated at the Premises by A & T Stores closed, possibly as a consequence of persistent vandalism [Mr Wallace]. The managing agents acting on behalf of Land Securities reported to Mr Thomson on 22 September that:
"after a week-end of unrest the above premises is now vacant, and has been made as secure as the circumstances will allow, with Security Guards patrolling the area on a regular basis" [67/54].
In his evidence, Mr Thomson said that the purpose of this report was to inform him that the Premises were empty. Since a vacant property was at greater risk of vandalism and fire, there was a need to review the insurance cover. He could not recollect the nature of the "unrest" referred to. The Premises would have been "made as secure as the circumstances will allow" by making fast the doors, shutters and windows. Following the closure of the Premises, the Centre again became generally less busy [Mr Hussein].
[31] In November 1992 a report was commissioned by Scottish
Enterprise Tayside ("SET") from Graham & Sibbald, chartered surveyors in
"The physical fabric of the shopping centre has now deteriorated to the point where major intervention is required. Shop frontages are severely degraded and most remain shuttered even during opening hours. The central area is completely empty and a deep canopy throws frontages into darkness for much of the day. Car parking areas are over-large and pedestrian access routes are badly orientated, poorly lit and of low quality. Graffiti pervades the entire area and anti-social behaviour is increasingly prevalent. The configuration of the shops is recognised as contributing to the problem as it offers poor views into the area and contains too many hidden corners."
[32] The supermarket operating in the Premises had ceased trading in September 1992, as already mentioned. The public house at unit 107 had been closed for some time. Three of the small units were unoccupied at the time the instructions were prepared (seemingly, units 113, 117 and 122, although the evidence is not entirely clear). As a result, although all the units were let, less than a third of the total floorspace was currently in use. The instructions to the consultants noted:
"The loss of the supermarket is particularly damaging as it acted as an anchor for the smaller shops and the longer term viability of future occupancy within the shopping centre is now the subject of considerable concern" [67/50].
[33] Mr Thomson, who dealt with the management of the Centre on behalf of Land Securities (and its subsidiary, Ravenseft) between about 1980 and 1994, expressed in evidence his agreement with the statement quoted in the preceding paragraph. He said that Land Securities considered the supermarket to be the anchor tenant: that is to say, the tenant, or the use, which was going to bring the most customers into the development. It was the supermarket which produced the most footfall, to the benefit of the Centre and of the other tenants. It attracted customers who also used other shops in the Centre. That was the position even when the supermarket was operated by a local trader such as A & T Stores. He considered that the catchment of the Centre included a large part of Fintry as well as Whitfield. During the periods when the Premises were closed, in the 1980s and 1990s, the other tenants asked him what was happening. They were concerned that there was no supermarket trading, and anxious that the Premises should be occupied. He inferred that their trade was being affected. Mr Thomson also commented that the fact that the supermarket was closed would have increased the difficulty of letting vacant units in the Centre. Mr Thomson impressed me as a credible and reliable witness, and I accept that evidence.
[34] Graham & Sibbald reported between about February and June 1993. The author of the report was James McLellan, who at the date of the proof was a property manager with First Bus [Mr Todd]. He was not called as a witness, although the defenders and third party sought to rely on his report. Instead, Mr Todd was called, having been consulted by Mr McLellan (his colleague at that time) in relation to aspects of the report. As I have indicated, Mr Todd was an unsatisfactory witness, and I attach little weight to his evidence. Nevertheless, the report is a significant document, as it contains the most detailed consideration of the Centre prior to the present proceedings. At the same time, it is necessary to bear in mind that circumstances in 1993 were materially different from those prevailing at the present day. The Centre itself has been altered and refurbished, as explained below; the Whitfield estate has been considerably improved; and the general economic situation has changed. In relation to the last point, it appears that the report was prepared at a time when the general outlook in the property market was pessimistic [Mr Lythgoe, p.548].
[35] The report [67/49] noted that the Centre had originally
comprised eleven small shop units, two large anchor tenants (the defenders at
the Premises, and Presto at unit 106), and a public house. The Presto unit had been sold to the Council
and was used for community purposes. The
public house remained closed, due (it was said) to the loss of its licence
(which the authors understood to be due principally to the incidence of drug
abuse) and the cost to the tenant (Bass Holdings) of "protection". Later documents (mentioned below) suggest
that the public house had not in fact lost its licence, but had been closed for
commercial reasons. The Premises were
also closed. Ten of the eleven smaller
units were however trading, the only unoccupied smaller unit being
unit 113 [67/49, para
[36] One theme of the Graham & Sibbald report was the contrast between the Centre and the remainder of the estate:
"1:05 It was an early and obvious conclusion of our report that whilst the majority of the housing stock within the Whitfield area had been vastly improved, notably by the use of joint venture projects, housing co-operatives etc. the absence of any improvements to the shopping facilities provides a stark reminder of the Whitfield that was and, not the 'new' Whitfield.
[37] The effect of competition from the nearest superstores was noted:
"2:07 Note should also be made that the opening of the Wm Low Superstore at Pitkerro [Road] and, more recently, Asda [at Milton of Craigie Road] will have contributed towards the decrease in popularity of the centre. In particular the Wm Low store operates a bus service to the area which allows residents without the benefit of private transport to make their purchases under one roof."
The report warned that if the store
at
[38] It was noted that the Centre had suffered from neglect, and that Ravenseft's parent company, Land Securities Ltd, did not intend to invest in improvements:
"
[39] It was also noted that there was considerable market interest in the Centre, but that the Council had been unwilling to consent to an assignation of Ravenseft's interest:
"2:11 From informal discussions with Land Securities we understand that their interest in the Shopping Centre has been for sale for some time now at an asking price three years ago of £300/£350,000 although this has now increased (we suspect to circa £400,000). A great deal of interest has been expressed in the investment, particularly by smaller property companies, however, Dundee District Council have not agreed to any assignation of the Head Lease.
2:12 Clause 11 of the original Head Lease between Dundee District Council and Score Property Developments Ltd. requires consent of the Landlords to any assignation; the Landlords' consent will not however be 'unreasonably withheld'. In practice we are advised by Land Securities that the District Council will only permit assignation to a property/investment company of similar covenant as existing. Given that Land Securities are one of the three largest UK quoted property companies, the possibility of the assignee matching their covenant is unlikely if not virtually impossible to envisage in relation to the Whitfield development."
[40] In the absence of a change in circumstances, the long-term prospects of the Centre were regarded as bleak. In that regard, particular emphasis was placed on the low occupancy rate:
"2:13 Whilst on paper the property is producing a high rental income and is virtually fully rented by 'dint' of non-expired principal sub-leases, in real terms the low occupancy rate contributes not only to the problems of vandalism, vagrancy etc. but also to a sense of apathy in the community, acting as a deterrent to both potential new shoppers and tenants and, equally, to prospective assignees of the Head Lease.
...
[41] In making proposals for the future of the Centre, the author of the report noted that the Whitfield estate had originally been intended to have a population of 12,000. The population at the time of the report was estimated at 6,000, although the results of the most recent census were not available. In the absence of detailed demographic evidence, the author was unable to carry out a socio-economic study of supply and demand, and therefore relied on his local knowledge of the area and his previous experience of retail developments. It was recommended that a detailed study of supply and demand should be carried out before proceeding with any alteration to the existing shopping provision. The Centre was considered to be a local or neighbourhood centre, in terms of shopping centre theory (an assessment with which Mr Thomson expressed agreement in his evidence). Such centres were generally of 10,000 to 25,000 square feet in size, depending on the population. The catchment population was generally between 2,500 and 10,000. The report also stated: "The key tenant is generally a single supermarket in the smaller centre." Designs varied from strips of single shops to fully enclosed buildings: "The latter would serve a high population". The local function was often reinforced by the presence nearby, or occasionally within the centre, of local and public service facilities, such as a primary school, library and council agencies. A public house was frequently included in such a centre. Tenant turnover was often relatively high in these smaller centres.
[42] The report stated that the author had carried out site visits
to several shopping centres which were thought to be located in comparable
situations: Castlemilk, Pollok,
Easterhouse and Drumchapel, in Glasgow; and Wester Hailes, Muirhouse and
Craigmillar, in
[43] Against this background, the author of the report concluded that the most important developments affecting the Centre were:
"A. There has been a substantial decrease in population (12,000 persons to 6,000).
B. Comprehensive redevelopment of the area including change in population type.
C. The growth of supermarkets and change in
national consumer habits. In particular
the development of Wm Low at
In relation to point A, I note that there is no evidence that the population was ever 12,000: although that was the planned capacity of the estate, there is no evidence that that figure was ever reached, or indeed that there had been a "substantial decrease" in the population of the estate. I also note that the Centre was originally designed to have two supermarkets, presumably to serve the planned population of 12,000, but lost one of the supermarkets, and a third of its retail floorspace, when unit 106 became the community centre.
[44] The author noted that the Centre was experiencing rental growth, and that, although there was a high turnover of tenants, there was generally a quick take-up when the smaller units became available (as Mr Thomson confirmed in his evidence). Nevertheless, the author expressed the view that there was an over-supply of retail space at the Centre of possibly 13,000 to 14,000 square feet (out of a total at that time of 28,000 square feet). Although some of the surplus space might be used for non-retail purposes, the author warned against a straightforward refurbishment of the existing units, since there was
"such an over supply of existing floorspace in relation to demand for floorspace. Shops would therefore lie vacant, shuttered, prone to vandalism and, as is the nature of such things, the cycle of neglect and despair would be renewed."
[45] In these circumstances, the author stated:
"Given a 'clean sheet' Total demolition would be our recommendation: this is, however, thought to be an unlikely and unworkable option particularly from a financial viewpoint."
Bearing in mind the concerns and aspirations of the Steering Group, it was recommended that units 117-122 should be demolished, that the Premises should be reduced in size (seemingly by partial demolition) and occupied by a low cost food operator such as Shoprite with a complementary freezer shop such as Capital Foods, and that the former public house (units 107-110) should be split into three or four smaller units. The Centre would thus comprise eight or nine smaller units, each of 1020 square feet, with two "anchor tenant" units (as the author described them) formed out of the Premises, together occupying a maximum of 5000 square feet. The anchor tenants were envisaged as being a supermarket with a gross area of 3,000 square feet and a freezer shop with a gross area of 2,000 feet. This option would provide the optimum number of shop units, and would also improve the visibility of the shops from all directions (since they would no longer be screened on the west side by the public house, and they would be less completely screened on the east side by the library).
[46] The author of the report estimated the capital value of the Centre, in its current state, at £400,000 to £420,000. Its value, if the recommended works were to be carried out, was estimated at £550,000. The author considered that the works were unlikely to be carried out without the intervention of public bodies.
[47] By the time the report was issued, unit 113 had been let as a hairdresser's, on a five year lease from 1992 to 1997, at a rent which was substantially above the previous rental for that unit [67/76]. Unit 120 had also been sub-let by RS McColl to Mr Hussein [67/41]. Unit 122 had been let to a Mrs Griffen, as a freezer shop, at a rent which was substantially higher than the previous figure.
[48] No action was taken at the time in response to the Graham & Sibbald report, and the Centre remained in what the local Member of Parliament described in April 1993 as a "disgraceful state" [67/381]. That description is supported by photographs which were taken in April 1993 [67/343; 67/4]. They show the Centre to be covered in graffiti. It appears from the photographs that unit 112, which was apparently used for storage by the operator of the grocer's at unit 111 [Mr Thomson], kept its roller shutters down during the day. The adult education centre at unit 118, the post office at unit 120, and the newsagents at unit 121, also appear to have operated with their shutters wholly or partly down. Ladbrokes, at unit 115, also sometimes operated with their shutters down [Mr Letley]. The only units with all their shutters raised were the grocer's at unit 111, the hairdresser's at unit 113 and the chemist's at unit 114. Mr Thomson explained in evidence that units traded with their shutters down because plate glass windows had previously been broken by vandals. The Centre as a whole presented a depressed appearance. Nevertheless, with almost all the smaller units still trading, it appears that the Centre remained relatively busy, at least when compared with the present day [Mrs Canter].
[49] Mr Thomson accepted in evidence that during the early 1990s there developed in the Centre a higher rate of turnover of tenancies than previously, mainly involving local traders with a lesser quality of covenant overall than previously, and increasingly long voids. He said that the vacant units tended to encourage vandalism and attempted break-ins, and made the Centre less attractive to potential tenants.
[50] The lease of unit 111 (which had at some point been assigned to Mrs Mussrat Begum, whose family operated the unit as a licensed grocer's) expired in May 1993. The unit was then re-let to Mrs Mussrat Begum at a rent which was substantially above the previous figure [67/49, 67/67, 67/76].
[51] Shortly afterwards, the Premises were sub-let by the defenders to Shoprite, who took entry in June 1993 [67/33]. Under the Sub-Under-Lease, the rent payable by Shoprite was £20,000 per annum, which was the same as the rent payable by the defenders under the Sub-Lease following a rent review in 1984 [67/19].
[52] Shoprite had been established in about 1990 as a discount
food operator, following the example which had been set by Kwik Save in
[53] In February 1993 Kwik Save announced their intention to
expand into
[54] After taking entry to the Premises, Shoprite carried out an extensive refurbishment at considerable expense [Mr Thomson]. They fitted out the Premises as a modern supermarket on the ground floor, with staff accommodation on the upper floor. There were concessions for a local greengrocer and a local butcher [Mr Poulton, p.82], occupying 837 square feet. The sales area of the remainder of the supermarket, occupied by Shoprite, was 7388 square feet. Provision was made for a limited number of trolleys, although it is possible that they were designed not to be removed from the shop [67/27]. Shoprite began trading from the Premises in about September 1993 [Mr Thomson]. They sold fruit and vegetables, tinned foods, packet foods, frozen foods, dairy products, butcher meat, bakery items, general groceries, wines and spirits, cleaning items, and generally the sort of goods one would expect to find in a supermarket [Mr Letley, Mr Hussein]. Their manager informed Mr Thomson that they were doing very well [Mr Thomson]. Although anti-social behaviour remained a problem for the Centre, Shoprite did not have any problems with people inside the supermarket [Mr Thomson]. The Centre became busier after Shoprite opened [Mr Thomson], and looked more attractive. Business in the Centre generally improved [Mr Hussein]. Shoprite's arrival was regarded by Land Securities as beneficial to the Centre as a whole. The Centre had been very quiet when the supermarket was empty, but that there were more people around after Shoprite opened [Mr Thomson].
[55] In June 1993, following the takeover of William Low by Tesco, Kwik Save acquired the former William Low store at Pitkerro Road, and divided it internally so as to create a store for themselves with a number of smaller adjacent units, one of which they let to Iceland, a frozen food operator. This group of shops was known as the Longhaugh Neighbourhood Centre. The Kwik Save store, together with the adjacent Iceland store, extended to 33,530 square feet (approximately three times the size of the Premises), and was about half a mile from the Premises [67/168, para.9.1]. The store began trading in October 1993 [Mr Poulton, p.49]. In about October 1994 Kwik Save took advantage of an opportunity to buy in their lease, so as to become heritable proprietors of the Longhaugh Neighbourhood Centre. Their formal date of entry, as owners, was in March 1995.
[56] At the time when the Sub-Under-Lease was granted to Shoprite, the Sub-Lease was varied by a minute of variation entered into between Ravenseft and the defenders [67/20]. The minute of variation deleted from the Sub-Lease clause (SIXTH), which provided:
"The Tenants shall take possession of and use and occupy the premises for the foregoing purpose [i.e. the purpose specified in clause (FIFTH), namely 'for use only as and for the retail trade or business of a supermarket...']... and shall continue to so use and occupy the premises and trade therefrom throughout the whole period of this Sub-Lease...".
The minute of variation did not
delete clause
[57] It is relevant to note that the rent of £20,000 which Shoprite agreed to pay to the defenders was negotiated in market conditions where various operators were fighting for market share and were anxious to acquire premises. Even in that context, the agreed rent indicated no growth in the rental value of the Premises since 1984. Indeed, the Sub-Under-Lease to Shoprite was on less onerous terms than the Sub-Lease had contained in 1984, and might therefore have been expected, ceteris paribus, to attract a higher rent: its term was much shorter (20 years, compared with an unexpired term of 49 years on the Sub-Lease in 1984); clause (SIXTH) had been deleted from the Sub-Lease (and therefore did not impose any corresponding obligation under the Sub-Under-Lease, into which the obligations imposed by the Sub-Lease were incorporated); and the provisions governing assignation had also been relaxed to some extent by the minute of variation [67/168]. On the other hand, to the extent that the rent paid by Shoprite under the Sub-Under-Lease might exceed the rent paid by the defenders under the Sub-Lease, the former rent would be taken into account when the latter rent came to be reviewed, in 1998. There was no evidence as to how the rent payable by Shoprite came to be agreed.
[58] As at September 1993, it was noted that the public house at unit 107 was still not trading. The note, based on a conversation with Mr Thomson, states:
"Still not trading though the Brewer would not mind putting a Manager in. Nobody dares take the job!"
In relation to unit 111 (let to Mrs Mussrat Begum), the note states:
"Just continuing on a monthly basis. Suffering very badly with Shoprite and might go soon."
In relation to unit 112, the note states:
"Still sublet, but the tenant will be leaving in November 1993 and the unit will become vacant."
In relation to unit 113 (the hairdressers), the note states:
"Not doing well and likely to leave soon."
The lease of unit 114, previously held by a local chain of chemists, had been assigned to E Moss Ltd, a national chain of chemists [67/43]. Units 115 (Ladbrokes) and 116 (Shoprite) were trading. Unit 117 was unlet. Units 119, 120 and 121 were trading as before. The freezer store at unit 122 had recently closed following an accidental fire caused by an electrical fault, and did not re-open [67/57; Mr Thomson].
[59] The lease of unit 112 expired in November 1993, and the unit (at one time a video rental shop, and subsequently occupied by Mrs Mussrat Begum as storage ancillary to unit 111) subsequently became vacant. Unit 118 was re-let in March 2004, but with effect from June 1993, to the Secretary of State for Scotland, as a health information centre, on a seven year lease expiring in 2000 (with an option to terminate in 1997), at a rent (of £6000 per annum) which was substantially higher than the previous rent [67/49, 67/56, 67/59, 67/60, 67/67, 67/76].
[60] Knight Frank & Rutley carried out a valuation, as at
31 March each year, of all the freehold and leasehold properties owned by
Land Securities plc and its subsidiaries, including Ravenseft. The Centre was one of the properties
valued. The valuations were prepared for
balance sheet purposes. As at
[61] By April 1994 Mr Clapham of Credential Holdings had become
interested in the Centre as a potential investment. Credential Holdings is a commercial property
investment, development and management company, established by Mr Clapham
in 1982 and almost wholly owned by him.
It has become one of
[62] Particulars of the Centre were sent to Mr Clapham by the
selling agents, J Trevor & Webster, on
[63] Mr Clapham then wrote to Dunbar Bank plc with a view to establishing the maximum loan which Credential Holdings would be able to obtain against the security of their interest in the Centre [67/67]. In his letter, Mr Clapham explained what he described as the critical points. There was secure long-term rental income in the form of the sub-leases to Bass Holdings, the defenders and Ladbrokes. Bass Holdings and the defenders, in particular, could not assign their sub-leases without the consent of the landlords (who were not obliged to act reasonably in that regard). Those sub-leases would continue for more than 30 years. In addition, the rents paid by Bass Holdings and the defenders were likely to rise in 1998, when they were due to be reviewed. The current rental level of the public house should, he considered, be about £20,000 per annum (compared with a passing rent of £15,000 per annum). The current rental level of the supermarket should be about £72,000 per annum (compared with a passing rent of £20,000 per annum), on the basis that most supermarkets were paying at least £6.75 per square foot, and the Premises comprised 12,000 square feet. Mr Clapham also explained the situation, as he saw it, in relation to the improvement of the Centre:
"As we are doing with
Credential would make these improvements from its own cash flow over a period of time in conjunction with any grants that are received from Scottish Enterprise Tayside and Dundee District Council."
Mr Clapham was aware that Land
Securities had received offers for the Centre in the past, but had been unable
to obtain the Council's consent to any assignation, since none of the proposed
assignees had the quality of covenant of Land Securities (which, as previously
mentioned, was one of the largest property companies in the
[64] Mr Clapham's statement in the letter that Bass Holdings and the defenders could not assign their sub-leases without the consent of the landlords, who were not obliged to act reasonably in that regard, was not correct. The sub-tenants could not assign their sub-leases without the consent of the landlords (in particular, the defenders could not assign their interest in the Sub-Lease without the consent of Ravenseft, or subsequently the pursuers), but such consent could not be withheld unreasonably. Mr Clapham said in evidence that what he had said in the letter reflected an agreement he had reached with the Council as the landlord under the Ground Lease, which was subsequently given effect in a minute of agreement entered into between the pursuers and the Council in 1995 [67/15]. That minute of agreement is discussed below.
[65] The Council's consent to the proposed assignation by Ravenseft to Credential Holdings was sought and obtained in July 1994 [67/66]. Credential Holdings' offer was then accepted [67/70].
[66] In order to enable Dunbar Bank to hold a first ranking security
over the Ground Lease, it was decided that it should be assigned to the
pursuers, an off-the-shelf company acquired for that purpose, the pursuers'
obligations being guaranteed by Credential Holdings [67/77]. Dunbar Bank instructed Mr Allison, then
a partner in CRGP Robertson, chartered surveyors in
[67] Mr Allison inspected the Centre in August 1994. At that time the supermarket was occupied (by Shoprite), as were seven of the eleven small units. The public house was not trading, and three of the small units (units 112, 117 and 122) were unlet. Unit 113 (the former hairdresser's) was closed, but Mr Allison understood it to be let: as explained above, it had ceased trading several months earlier. In his evidence, Mr Allison said that the Centre had appeared to him to be a typical local authority area shopping centre, with quite a bit of vandalism, and a rather poor and downtrodden appearance.
[68] In his report to Dunbar Bank, submitted on
"In conclusion, from a security point of view, we have considered that whilst the centre may be situated and serving a secondary local authority housing area, the subjects do in our opinion offer an attractive investment opportunity, with approximately 74% of the current rental secured by quality covenants, with reversionary prospects. This being the case, and with the prospect of substantial Government funding being available for refurbishment of the centre, we consider the subjects to offer suitable security for loan purposes at the stated valuation."
By "reversionary prospects", Mr Allison meant the prospects of increased rents at rent reviews. In that connection, he stated:
"We would generally comment that the existing passing rents appear to be fair and in line with rents passing for similar neighbourhood shopping centres in similar locations. Whilst there is a limited prospect of rental growth in the single windowed shop units, there is considerable prospects for increasing the rental levels in respect of the public house and supermarket, both due for review in 1998."
Mr Allison estimated the current rental value of the public house at £17,500 per annum, and that of the Premises at £45,000 per annum. He added:
"The letting of the currently empty units would of course also increase the current rental income although realistically until the centre is refurbished, we do not consider the letting prospects for the empty units to be particularly high, bearing in mind the variety of uses offered by the current tenant mix."
In relation to refurbishment, Mr Allison narrated the history of improvement schemes in Whitfield, the absence of investment in the Centre, and the availability of financial assistance for its refurbishment. He continued:
"The opportunity and availability of funding for a centre refurbishment would be a considerable boost to its attractiveness both from a letting and investment value point of view."
[69] A number of sheets of calculations by Mr Allison provide further information about how he arrived at his valuation [67/80]. In relation to the period up to the 1998 rent reviews, the "hard core" rental (by which he meant the passing rent from good quality covenants) was calculated as £60,900 per annum gross. That figure comprised the rentals of the public house, Moss Chemists, Ladbrokes, the Premises, the fish and chip shop, the post office and the newsagent's. I note that two of these (the fish and chip shop at unit 119, and the newsagent's at unit 121) were tenanted by local traders, whereas the remainder were tenanted by national chains. That figure of £60,900 equated to £53,273 net of the ground rent payable by the landlord to the Council. On the basis that that net rent would be received for 4 years (up to the rent reviews), and applying a yield of 14 per cent, its capital value was £155,024. Mr Allison then assumed that, at the rent reviews, the rental of the public house would rise to £17,500 per annum (on the basis that the current rental value was £4 per square foot, the area being 4,370 square feet). He further assumed that the rental of the Premises would increase to £45,000 per annum. The total rental following the rent reviews was thus assumed to be £88,400 per annum gross, £77,266 net of ground rent. On the basis that that net rent would be received in perpetuity, after a deferral of 4 years (pending the rent reviews), and again applying a yield of 14 per cent, its capital value was £324, 835. The total capital value attributable to the "hard core" rent was thus £155,024 plus £324,835, i.e. £479,859 (which Mr Allison miscalculated as £481,859). A figure was then added in respect of the secondary and vacant shops (the former being units 111 and 113, and the latter being units 112, 117 and 122). Units 111 and 113 were taken at their passing rents, of £4,500 and £4,200 per annum respectively. Units 112, 117 and 122 were taken at £4,500, £5,000 and £5,000 per annum respectively. The total of these figures was £23,200 gross. On the basis that that rent would be received in perpetuity, disregarding the ground rent, and applying a yield of 20 per cent, its capital value was £116,000. That figure, added to £481,859, produced a total value of £597,859, which Mr Allison rounded to £600,000. Mr Allison's first version of his report to Dunbar Bank in fact stated the value at £600,000 [67/78]. When he gave evidence, Mr Allison was unable to recollect why his final valuation had been £615,000.
[70] Considerable weight was attached to this valuation in the closing
submissions in the present case on behalf of the defenders and third party, on
the basis that Mr Allison had valued the Centre in circumstances where a
supermarket was trading from the Premises.
It was suggested that the valuation was therefore of assistance in
assessing the current value of the Centre on the hypothesis that the keep-open
clause had been fulfilled. It was
however apparent from the evidence of the expert valuation witnesses that
changes in the economic situation since 1994, and in interest rates in
particular, have tended (in general) to increase the value of commercial
premises and to depress yields. None of
the expert witnesses relied to any extent on this valuation, and I am satisfied
that it is of little assistance, beyond suggesting that the current value of
the Centre, if the keep-open clause had been fulfilled, could (ceteris paribus) be expected to have
been in excess of Mr Allison's figure.
[71] The Ground Lease was assigned by Ravenseft to the pursuers for
a consideration of £481,500. The
date of entry was
[72] In his evidence, Mr Thomson said that he doubted whether Land Securities could have sold the Centre without Shoprite trading: without the largest unit trading, the Centre was not an attractive prospect. He could only assume that the pursuers would not have bought the Centre without the supermarket trading. That was also the evidence of Mr Clapham. The evidence was not challenged, and I accept it. I note that Mr Oswald was similarly of the opinion that, without a supermarket trading, the Centre would be unlikely in practice to find a buyer, although it could be valued on the assumption that there was a hypothetical purchaser.
[73] After taking entry, the pursuers instructed their managing agents to follow a "zero tolerance" policy towards anti-social behaviour in the Centre. As a consequence, graffiti was painted over as soon as it appeared [Mr Letley].
[74] By about August 1994 a confidential agreement had been concluded under which Kwik Save was to acquire the assets of Shoprite, including its entire portfolio of 117 stores. In about late August staff of Kwik Save were instructed to consider the likely trading performance of the Shoprite stores [Mr Poulton, pp.260-261]. One of the issues considered was the proximity of the Shoprite stores to existing Kwik Save stores [pp.265-268].
[75] In advance of the acquisition being made public (which occurred
on
In terms of the witness summaries lodged in advance of the proof, he was supposed to be a witness to fact, speaking to his involvement in the closure of the supermarket at the Premises, the 1998 rent review and the dispute over service charges [77]. It emerged however during the evidence of Mr Nisbet, Mr Hermiston and Mr Robeson, after Mr Young had completed his evidence, that he had attended at least one consultation with the solicitor advocate instructed on behalf of the defenders and third party, attended also by Mr Poulton, Mr Nisbet, Mr Hermiston and Mr Robeson, at which the case had been discussed. Mr Young had contributed to the discussion. One such consultation had been held during the course of the proof, before Mr Young gave evidence [Mr Robeson, p.245].
[76] Mr Young said in evidence that the team who had been
instructed by Kwik Save reported on each of the properties, and gave an
assessment in terms of the time they thought the property would take to market
and the incentives that would have to be offered. They advised, prior to
[77] In late November 1994 Kwik Save's acquisition of the
assets and liabilities of Shoprite was announced to the Stock Exchange and
became public knowledge. Shoprite then
ceased to trade. Shoprite remained in
existence as a non-trading company, and continued to be the sub-tenant of the
Premises. In reality, however, the
Premises were occupied by Kwik Save, trading under the Shoprite name and logo. As explained below, Shoprite subsequently
executed a formal assignation of their interest in the Sub-Under-Lease to Kwik
Save, the date of entry being
[78] Credential Holdings were the principal developer in
[79] The pursuers and their agents took steps to find tenants for
the vacant units in the Centre (units 112, 113, 117 and 122). In early December 1994 Mr Colin
Crichton of the pursuers' letting agents, J Trevor & Webster, had
discussions with Mr John McNab, the property manager of Capital Foods, a
chain of freezer stores, concerning units 112 and 113. It was normal for frozen food operators, such
as Capital Foods or
"He has also asked what the latest position regarding the Shoprite unit is, and indeed whether you know if Kwik Save are likely to trade from this unit themselves" [67/98].
Mr Clapham responded by writing to the pursuers' solicitors to instruct them to proceed with the drafting of missives and of a lease, confirming his willingness to agree to the points which Capital Foods had raised concerning the combination of the units, protection against competition within the Centre, and the refurbishment works [67/99]. Later in December 1994, however, Mr McNab wrote to the pursuers' solicitors:
"I have received very little
information on what is proposed at
[80] The combination of units 112 and 113, as suggested by
Capital Foods, involved fairly substantial works (in particular, because the
two units had different floor levels), and necessitated the instruction of
architects and civil engineers.
Mr Clapham was satisfied that the prospects of completing a deal
with Capital Foods were sufficiently good to justify taking those steps. On
[81] On
"The premises were being broken into every night and Police were virtually on duty throughout the night patrolling the centre one evening."
Finally, Mr Letley reported:
"I have heard from 2 independent sources a rumour that Shoprite is to cease trading this Friday [6 January], although from an inspection of the premises there is no obvious indication of this" [67/102].
In evidence, Mr Letley said that he had heard this rumour from the tenants of other units, during a routine inspection of the Centre. Mr Clapham contacted Kwik Save the same day, and was told that they had no intention of closing the Premises and that there was no truth in the rumour.
[82] On
[83] In relation to the pursuers' instruction of the architects and engineers, Mr Clapham said in evidence that he would not have instructed them if he had not been satisfied from his own conversations with Mr McNab that a deal was going to be done [Mr Clapham, pp.291, 471]. That evidence is consistent with the impression I formed of Mr Clapham as an astute businessman, and with Mr Letley's evidence (which I accept) that the instruction of the architects was unlikely to be undertaken unless the level of interest by the potential tenant was very serious.
[84] On
"CWS no longer have long term plans for these premises and are thus seeking to surrender their interest. I would be pleased if you could discuss with your client relinquishing CWS from the Head Lease" [67/46].
[85] Immediately before the Premises closed on
[86] The Centre had thus been fully let for most of its history until 1993, with only relatively short intervals between lettings. It had also been fully, or almost fully, occupied throughout the 1970s and 1980s (unit 117 being the only unit to remain unoccupied for a prolonged period, from about 1985 onwards). The Centre had not, on the other hand, been fully occupied during most of the period since 1990. The Premises had been closed for part of that time: for about 18 to 24 months, out of four years. The public house had also been closed for part (and possibly most) of that time. The number of smaller units unoccupied had varied between one and four, and the number trading had accordingly varied between seven and ten.
[87] One feature of this history is only a slight diminution in the number of units let to national traders (units 117, 121 and 122 had all at one time been let to national traders but were no longer so let; a trend offset by units 114 and 118). A second feature is the existence of relatively short periods of time (measured in months rather than years) during which units might be vacant pending a re-letting (e.g. units 113, 118 and 119). A number of the smaller units had however lain empty for substantial periods of time (units 112, 113, 117 and 122, each of which had been unlet since 1993). A third feature is the absence of any clear link between the periods of closure of the Premises and vacancies in other units: the periods during which the Premises were closed were however relatively short (the longest being about 12 months), so that the absence of such a clear link is unsurprising. A fourth feature is that, as at the date of closure of the Premises, four units were unlet (units 112, 113, 117 and 122), and the public house remained closed, notwithstanding the fact that Shoprite (or latterly Kwik Save) had been trading from the Premises for about 16 months. In that regard, both Mr Thomson and Mr Clapham said that it would take about a year for a newly-opened supermarket to build up its trade and to create increased interest in nearby units which could benefit from the resultant footfall; Mr Lythgoe considered that it usually took 6 to 18 months to produce lettings [p.739]. Mr Clapham pointed to the interest expressed by Capital Foods, Victoria Wine and Mr Ashad in late 1994 and early 1995 as being consistent with that pattern.
[88] On
"Further to Kwik Save's
acquisition of the above property, I write to inform you that we have
unfortunately had to close the premises and cease trading with effect from
This decision was forced upon us due to the excessive violence and intimidation suffered by our staff and suppliers, which reached such a level that we feared for their safety" [67/382].
[89] In evidence, Mr Poulton said that Kwik Save's regional
retail director in Scotland had expressed concern to the group retail director
about the security of the staff working at the Premises: there was serious concern that personal harm
could come to the staff, in view of the nature of the area where the store was
located [p.51]. Mr Poulton had
heard about this from the group property director. He did not know whether the concern had been
prompted by any incidents at the Premises [p.313]. According to Mr Poulton, the concern
followed the murder of a Kwik Save store manager in
[90] Mr Poulton explained that other closure decisions were based on commercial considerations: the closure at Whitfield was the only one based on the risk to staff [p.54]. The main criterion, in other cases, was whether the store made a profit on an "operating contribution" basis, i.e. after certain fixed costs, such as head office costs, distribution costs and delivery costs, had been taken into account. Provided a store was a positive generator of revenue, when assessed on that basis, it would remain open [p.94]. As far as Mr Poulton could recall, no financial assessment of the Whitfield store had been carried out prior to its closure.
[91] Mr Poulton's evidence about the reasons for the closure of
the Premises raises a number of difficulties.
In the first place, Mr Poulton accepted in cross-examination that
the
[92] In the circumstances, I have come to the conclusion that I cannot
accept Mr Poulton's evidence as to the reason for the closure, and that
the reason stated in Kwik Save's letter to the defenders was not correct. Having rejected that explanation, the
inference to be drawn from Mr Poulton's evidence is that it must have been
closed for commercial reasons: an
inference which is consistent with the terms of Eric Young & Co's letter (infra, para.110), and with
Mr Young's evidence that Kwik Save were envisaging the disposal of the
Premises from November 1994. In
that regard, one unique feature of Whitfield stands out: the store there was the only Shoprite store
acquired by Kwik Save which was trading in close proximity to an existing Kwik
Save store, namely the one at the Longhaugh Neighbourhood Centre, about half a
mile away.
[93] Reference was made, on behalf of the defenders and third party,
to a document [67/324] which bore to state the sales of the Shoprite supermarket
at the Premises, during the period when it was trading under the ownership of
Kwik Save, and to analyse those sales in comparison with those of other Kwik
Save stores in Dundee, and in comparison with the average achieved on a
national basis by Kwik Save and by other supermarket operators. The document had been prepared for the
purposes of the present litigation. The
author of the document was not a witness, and the records on which the document
was based were not produced. The
document raises numerous difficulties. Even
assuming that the figure stated as being Kwik Save's total sales from the Premises
is accurate, the average weekly sales are then calculated on the basis that
Kwik Save traded there for seven weeks:
in fact, Kwik, Save traded there for just under six weeks. The effect of that mistake is to understate
the average weekly sales. The figure for
average weekly sales per square foot at the Premises is then calculated by
dividing the average weekly sales by the gross area of the ground floor of the
Premises (10,200 square feet) rather than by the sales area used by Kwik
Save (apparently 7388 square feet [67/27]). The effect is further to understate the sales
figure. If these two distortions were to
be eliminated, the figure for average weekly sales per square foot at the
Premises would still be lower than the figure stated for the other Kwik Save
stores in
[94] Reference was also made to a document [67/327] in which an attempt was made to calculate the profitability of "Store 1155". Again, the author of the document was not a witness, and the data on which it was based were not produced. The document was put to witnesses, on behalf of the defenders and third party, on the assumption that Store 1155 was the supermarket operated by Kwik Save at the Premises. The first problem is that that supermarket is identified in the documents discussed in the preceding paragraph as Store 1150. It appears likely, however, that the discrepancy is a mistake, and that the same store is meant. The next problem is that the estimate takes as its starting point annual sales of £676,000, stated to be based on the assumption that "£14k pa over Christmas equates to £13k per average over year". The sales figure stated in the document discussed in the preceding paragraph (£96,520), assuming that it is accurate, produces an average of £16,087 per week, not £14,000 per week. The annual sales figure is therefore understated. A proportion of that annual figure (net of VAT) is then taken to be the gross margin: the proportion (19.1 per cent) is described as "rate as average of similar stores": no further information is provided. Deductions are then made in respect of "total shrinkage" and "total labour", again described as "rate as average of similar stores". Further deductions in respect of service charges, rent and rates are described as actual, and appear to be correct. A large deduction is then made in respect of "other expenses": the figure is described as "average of similar stores". An addition is then made in respect of "retail partners": it is described as "rate as average of similar stores". The resultant figure is said to be an estimate of the annual profit: a deficit of £70,865.
[95] An attempt was made during the proof to re-calculate these
figures on the assumption that the weekly sales were £16,087 rather
than £13,000 [67/327A]. Similar
calculations were carried out in respect of the Kwik Save store at
[96] It appears to me to be impossible to draw any reliable conclusions from these figures (on which most of Mr Poulton's evidence was based). It is a matter of concern that these documents produced by the third party contain a number of patent mistakes, leading one to question whether there may be other mistakes which the court is not in a position to detect, the underlying materials not having been produced, and the author not having been led as a witness. It is also a matter of concern that all the mistakes detected by the court have favoured the third party's case, by understating the sales or profitability of the supermarket operated at the Premises.
[97] The immediate effects of the closure of the Premises were described in evidence by Mr Letley, who appeared to me to be an entirely credible witness. The fact that the shutters of the Premises were lowered gave the impression that a large section of the Centre was closed (as was indeed the case). The Centre had a depressed air about it. There was a clear reduction in the number of people visiting the Centre. It was apparent when he visited that there were fewer people in the Centre, and fewer cars in the car park. I accept that evidence.
[98] Following the closure of the Premises, Mr Clapham continued to have regular meetings with Ms Molloy, at which the possibility of Kwik Save's re-commencing trading was discussed. Mr Clapham formed the impression from these discussions that there was a realistic possibility that Kwik Save might re-open their store, and that the prospects of their doing so would be improved if the Centre were to be re-furbished [Mr Clapham, pp.305, 354, 553; 67/110].
[99] Ms Molloy informed Mr Poulton of these discussions. In evidence, Mr Poulton said that the re-opening of the store at that stage was very unlikely, the decision having recently been taken to close it [p.130]. Re-opening would require the approval of the board, and such approval had never been sought. It would have required the preparation of a financial assessment, which the regional retail director would have had to authorise [Mr Poulton, pp.100-101]. Asked why the store had not been re-opened, Mr Poulton responded that "it is not attractive enough in a financial sense to re-open the store, in terms of it will at that point fail to pass the financial hurdles required for a new store opening."
[100] Later in January 1995, at the request of the pursuers, the pursuers and the Council entered into a minute of agreement [67/15] varying the terms of the Ground Lease in a manner which was apparently intended to prevent Shoprite or their successors (or, possibly, the defenders) from assigning their interest under the Sub-Under-Lease (or the Sub-Lease, as the case might be) without the pursuers' agreement [Mr Clapham, pp.111-133]. The minute of agreement purported to vary the Ground Lease so as to require that the consent of the Council would be required for any assignation of the Sub-Lease of the Premises. It further provided that the pursuers could insist that the Council refuse such consent. Mr Clapham had explained to the Council in November 1994, when proposing the variation:
"You do appreciate of course that to enable us to invest monies in Whitfield, we do need the absolute security of resource/income flow from the two 'magnet' tenants that will be provided as a result of this amendment to the existing documentation" [67/84].
It would appear that the minute of agreement cannot have had the legal consequences which were intended, since the rights and obligations of Shoprite under the Sub-Under-Lease (or of the defenders under the Sub-Lease) could not be altered by a deed to which they were not party.
[101] Returning to the subject of Capital Food's interest in
units 112 and 113, Mr Clapham explained in evidence (as previously
mentioned) that frozen food operators normally trade in close proximity to a
supermarket, offering a range which is complementary (particularly to that of a
discount supermarket operator). He was
therefore concerned that, if the Premises remained unoccupied, Capital Foods
would discontinue their interest, as he indicated in a letter dated
"I am pleased to confirm that we are progressing matters regarding the design of Capital Foods integrated shop. Obviously however this could all prove to be somewhat academic if we cannot find a magnet store Operator" [67/106; also 67/110].
By this time Lidl had indicated
that they were not interested in the Premises, as the frontage of the unit was
too narrow to accommodate their standard footprint, and a non-standard unit
would not be acceptable at that location, given the strength of the competition
in the vicinity from Kwik Save at
[102] On 27 March 1995 Mr Crichton informed Mr Clapham that he had now heard from Mr McNab of Capital Foods:
"[W]ith a significant proportion of the development unoccupied, i.e. Shoprite, the centre has fallen on the list of priorities at this stage."
Mr Crichton continued:
"As far as the Shoprite unit is concerned, the property is now being openly marketed and I will keep in touch with the agents concerned as it is obviously imperative that a new tenant can be found. If a suitable occupier is established in the former Shoprite unit, then I believe that there is a reasonably good chance of being able to secure tenants for effectively three shop units ..." [67/115].
The "three shop units" in question comprised the two units in which Capital Foods had previously shown interest, and a unit which might be of interest to Victoria Wine, whose property manager and acquisitions surveyor were to visit the Centre at the end of March.
[103] On 7 April 1995 Mr Crichton advised Mr Clapham that his firm had approached seven supermarket operators (in addition to Aldi and Lidl) in relation to the Premises: Botterills, Dhillon and Dhillon, C J Lang & Sons Ltd, Somerfield, Watson & Philip Ltd (trading as Alldays), Spar and V G Ltd. Only Watson & Philip had replied, and their reply indicated that they had no interest in the Premises [67/118]. Around the same time, Mr Crichton also advised the pursuers that the refurbishment of the Centre would assist in achieving lettings [67/117].
[104] Mr Clapham had previously written to J Trevor & Webster asking them:
"to confirm ... subject to the Shoprite Unit being 'usefully' occupied and trading, that there is sufficient demand from the Retail Sector to take up the balance of vacant space that currently exists at Whitfield."
He explained that he wished to submit
such a letter to SET [67/110]. In
evidence, Mr Clapham explained that the pursuers had applied to SET for
funding in connection with the refurbishment works, and SET had expressed
concern that, without Shoprite trading, there might not be sufficient demand to
occupy the additional units which were envisaged [Mr Clapham, p.307]. Mr Crichton responded on
"[I]n our view, if the envisaged refurbishment programme goes ahead and if the former Shoprite is occupied by a recognised supermarket retailer then there may well be enough retail demand to occupy the shop units which are currently vacant.
As you are aware, we have been in discussion on a speculative basis with Capital Foods and Victoria Wine, both of whom have indicated that they will give the matter further consideration when the above steps have been implemented, and we would certainly like to think that further interest can be generated, although one has to bear in mind the variety of covenant strengths that may be encountered" [67/119, 67/120].
Mr Crichton reiterated the
position in a letter to the pursuers, dated
"As you are aware from approaches to a limited number of retailers we have already managed to establish the tentative interest of Capital and Victoria Wine, trading as Haddows. We believe that we could take negotiations forward, but without environmental improvements to the scheme there is little or no prospect of lettings to these or any other tenants. If, however, the improvements discussed were carried out and if the former Shoprite were to re-open as a convenience store operated by a regional or national multiple, then subject to agreement on satisfactory terms and of course formal missives and lease terms, we are relatively confident that lettings could be achieved" [67/120, 67/121].
Mr Clapham's impression, from the advice he received from Mr Crichton, was that the prospects of achieving lettings would be hopeless unless the improvements to the Centre were carried out [pp.493-494].
[105] In the event, no further interest was shown in the Centre by Capital Foods, Victoria Wine or the other traders with whom Mr Crichton had been in contact.
[106] In considering the evidence relating to the interest shown by
Capital Foods and Victoria Wine (and the other traders with whom
Mr Crichton had been in contact), I bear in mind that Mr Crichton was
not led as a witness. There is no
evidence before the court as to whether or not he could have been led. Nor was any witness led from Capital Foods or
Victoria Wine. There was however
evidence, in relation to Capital Foods, that the person involved,
Mr McNab, had died by the date of the proof. Capital Foods itself had been wound up by the
date of the proof, all their units being taken over by either Farmfoods or
[107] In May and August 1995 an assignation of the tenant's interest under the Sub-Under-Lease was granted by Shoprite to Kwik Save, the date of entry being 27 November 1994 [67/38]. The assignation incorporated a guarantee by the third party of Kwik Save's obligations under the Sub-Under-Lease to the defenders. The defenders were not party to the assignation, but no point arising from that has been taken in the present proceedings. The pursuers consented to the assignation. Mr Clapham said in evidence that they had no practical alternative but to do so, Shoprite being by that stage merely a shell company.
[108] In May 1995 the Scottish Office ended its involvement in the
Whitfield Partnership, three years earlier than had originally been envisaged, apparently
as a result of the changes which had by then occurred in Whitfield [67/299]. Some 2,000 deck-access houses (i.e.
Skarne blocks) had been demolished since the beginning of 1989. 1,400 other houses had been improved,
and 600 new houses had been completed or were under construction. The new housing included private housing
developments. Housing associations had
been formed. The number of
owner-occupied houses had doubled. The
number of vacant houses was less than a quarter of the 1989 figure. The population had risen from an
estimated 6,000 in 1989 to 6,400 in 1994. Unemployment had been reduced from
48 per cent to 29 per cent, but remained above the
"The final conclusion of this evaluation is that the Whitfield Urban Partnership has been a convincing success ... [I]t has changed a run-down Council estate into a mostly attractive residential area, and significantly improved many aspects of the quality of life for the people who live there" [67/400, p.11].
[109] One consequence of the demolitions, and in particular of the
demolition of the Skarne blocks, was to leave a large area of open grassland to
the north of the Centre [67/400].
The only remaining housing in the immediate vicinity of the Centre
consisted of multi-storey blocks immediately to the rear. They were subsequently demolished from the
late 1990s onwards, the last multi-storey block being demolished in
April 2004 [67/303; Mr Luke]. A
proportion of the tenants of the buildings scheduled for demolition were
relocated to new houses built to the south of
[110] On 2 October 1995 Eric Young & Co wrote to Credential Holdings, on behalf of Kwik Save, in relation to the Premises. They stated:
"Kwik Save acquired the lease of the premises following the purchase of the Shoprite portfolio in November 1994. Kwik Save has decided that they do not wish to trade this particular property as it does not conform to [their] size or locational requirements" [67/168, Appendix 9; Mr Poulton, p.258].
A reverse premium of £20,000 was offered for an immediate surrender of Kwik Save's interest. The letter was however addressed not to Kwik Save's landlord (the defenders), but to their landlord's landlord (the pursuers), possibly under the misapprehension that Kwik Save held a lease directly from the head tenant (the pursuers), rather than a sub-lease from the defenders. The letter is significant in identifying the reason for Kwik Save's failure to trade as being purely commercial rather than based on concerns about the safety of their staff.
[111] Kwik Save's offer was declined. An increased offer of £50,000, in February 1996, again addressed by Kwik Save to the pursuers, was likewise declined [67/168, Appendix 9].
[112] The rent of unit 120 (the post-office, let to RS McColl and sub-let to Mr Hussein) was reviewed with effect from September 1994, the review clause (like that of all the other units in the Centre) being upward only. After discussions [67/219-238], the reviewed rent was agreed at £5,250 per annum, an increase of 50 per cent from the 1989 rent. One of the factors relied on by the chartered surveyors acting for Mr Hussein was the closure of the Premises. They wrote:
"[T]his shop ... is located in a pretty desperate development. The whole place is covered with graffiti and many shops are closed, including the main supermarket which would have been the anchor to the development" [67/230].
[113] The rent of unit 121 (the newsagents, let to Mr Mohammed and Mr Ahmed since October 1996) [67/357] was reviewed with effect from May 1996. The reviewed rent was agreed at £5,500 per annum, an increase of 10 per cent from the 1991 rent [67/252-258].
[114] The rent of unit 114 (the chemists) was reviewed with effect from June 1996. The reviewed rent was agreed at the current level, i.e. £5,000 [67/182-187]. In the course of the correspondence, the chartered surveyors acting for Moss Chemists observed that "it would be helpful to know which supermarket will occupy [the Premises] and when" [67/183].
[115] The rent of unit 115 (the bookmaker's, let to Ladbrokes) was also reviewed with effect from June 1996. The reviewed rent was similarly agreed at the current level, i.e. £5,000 [67/194-203]. One of the factors relied on by Ladbrokes was the closure of the Premises. They stated:
"[T]he centre is in a terminal state of decline. There are numerous vacant units including the anchor Shoprite store" [67/197].
"At the relevant date of review the anchor discount supermarket, the public house and four of the eleven units were vacant. There have been no new lettings in recent years and it is fair to say that there is no demand for units" [67/199].
[116] The rent of unit 119 (the fish and chip shop) was also reviewed with effect from June 1996. The reviewed rent was similarly agreed at the current level, i.e. £5,000 [67/264-265; 67/90].
[117] In about April 1997 J Trevor & Webster prepared a report on the Premises for Kwik Save [67/316]. Their report stated:
"Frankly, the condition of this unit internally is appalling having been effectively vandalised from top to bottom."
Photographs attached to the report bear out that statement. The report advised Kwik Save:
"[T]he best way forward is to negotiate a surrender deal with the Co-op who may be under some pressure from the landlords to re-open in view of the Keep-Open clause contained within the Head Lease.
Although one can look at leisure operators, community uses etc, I think that it is highly unlikely that there will be any form of demand until such time as improvement works are carried out to the Centre."
Kwik Save were advised by their agents that an appropriate reverse premium would be £250,000, exclusive of any liability in respect of dilapidations [Mr Poulton, pp.360-361].
[118] In August 1997 the back door of the Premises was broken. The door was secured by the police in order to prevent vandalism [67/308]. The Premises were broken into again on an occasion during September 1997 [67/309].
[119] By late 1997 the pursuers had reached agreement with the Council in relation to the refurbishment of the Centre (the Council's agreement being required under clause SEVENTH (d) of the Ground Lease). It was agreed that the Centre would be extended by constructing two additional units, units 123 and 124, at its south-east corner, thereby closing the gap between unit 122 and the library. Most of the units would be enclosed, by erecting a brick-faced screen, with glazed entrance doors, across the southern edge of the central courtyard (between units 112 and 121), and a similar screen, with entrance doors, between unit 115 and the Premises (thereby closing the gap between those units). A roof of pre-formed metal panels with perspex skylights, supported on steel columns, would be built over the enclosed part of the Centre, and the central courtyard would be resurfaced. The units would be provided with new shop fronts and CCTV would be installed. The Centre would thus be turned into something resembling a modern shopping mall, albeit the central area would be wider than in a purpose-built mall, the finishes would be of a relatively basic nature, and some of the units would remain outside the covered and enclosed area. It was intended that the enclosure of much of the Centre would improve the security of the units, minimising escape routes for shoplifters and enabling security to be provided by security guards engaged to patrol the enclosed area as a whole. The works were expected to cost £400,000, of which £200,000 was to be paid by public authorities, partly out of funds granted by the European Regional Development Fund (ERDF), and the balance by the pursuers. In addition, the Council was to spend a further £500,000 of ERDF and other funds on improvements in the immediate vicinity of the Centre, including improvements to the car parking area, which was to be extended into the area between unit 107 (the former public house) and the library, in front of the entrance doors [67/88, 67/90, 67/283-286].
[120] Mr Allison of CRGP Robertson carried out a further
valuation of the Centre on behalf of Dunbar Bank, in connection with the
pursuers' application to the bank for additional loan facilities in order to
carry out the improvements [67/87].
In his report, dated
"In physical terms, the centre still has a relatively poor appearance with the remaining occupiers carrying out minimal improvements and maintenance" [67/90].
[121] In his report [67/90], Mr Allison stated that in his opinion the current market value of the ground leasehold interest in the subjects, with the benefit of the current occupational sub-leasehold interests, would be fairly stated at £655,000. In that regard, Mr Allison noted that rent reviews in respect of the public house and the Premises were due in May 1998. He anticipated an increase in the rent of the public house to £17,500 per annum. In relation to the Premises, Mr Allison stated:
"In our original report we indicated that in our opinion the full market rental value at that time was around £45,000 per annum. It must be stated, however, that the discount food market has changed significantly downwards since that time, and excluding the effect of the proposed improvements, we would only estimate a nominal increase in the current passing rent from £20,000-£25,000 per annum at the review date."
[122] Mr Allison further stated that, on completion of the proposed improvement works, he would estimate the market value of the ground leasehold interest in the subjects at £800,000. In that regard, he considered that, in relation to the Premises,
"there is a prospect that the existing rent could be increased to the previously reported figure of £45,000 pa at the review date."
In relation to the two new units to be constructed, he estimated "a potential income ... of at least £10,000 pa". In relation to the currently vacant units, he considered that,
"the provision of new shop fronts and the other proposed works will ... significantly enhance the letting prospects."
[123] A number of sheets of calculations by Mr Allison provide further information about how he arrived at these valuations [67/91]. In relation to the "as is" valuation, Mr Allison's starting point was the current gross rent of £72,150 per annum. He then assumed that the rent of the public house would be reviewed upwards to £17,500 per annum, and that the rent of the Premises would be reviewed upwards to £25,000. The good covenant rent (taken as comprising the public house, the chemists, Ladbrokes, the Premises, the health information centre and the post office) was on that basis taken to be £63,750 per annum gross, £60,563 net of ground rent. Applying a yield of 12.5 per cent, its capital value was £484,504. A figure was then added in respect of the secondary and vacant shops. The former were taken at their passing rents (totalling £15,900 per annum), and the latter at a figure of £5,000 per annum each (totalling £20,000 per annum), producing a total of £35,900 per annum gross, £34,105 net of ground rent (which Mr Allison mistakenly calculated as £34,205). Applying a yield of 20 per cent, the capital value of £34,205 per annum was £171,025. That figure, added to £484,504, produced a total of £655,529, which Mr Allison rounded to £655,000.
[124] In relation to the value in the event that the proposed improvements were completed, Mr Allison took the good covenant rent to be £83,750 per annum gross, on the assumption that the rent of the public house would be reviewed upwards to £17,500 per annum and that of the Premises to £45,000 per annum. Mr Allison mistakenly calculated the net equivalent, after deduction of ground rent at 5 per cent, to be £69,063: the arithmetically correct figure would have been £79,563. Applying a yield of 12.5 per cent to £69,063, its capital value was calculated to be £552,504 (the arithmetically correct figure would have been £636,504). A figure was then added in respect of the secondary and vacant shops, and those yet to be constructed. The secondary shops were taken at their passing rents (totalling £15,900 per annum), and the shops which were vacant or yet to be constructed were taken at £5,000 per annum each (totalling £30,000 per annum), providing a total of £45,950 per annum gross, £43,653 net (which Mr Allison mistakenly calculated as £43,153). Applying a yield of 18.18 per cent, the capital value of £43,153 per annum was £237,341. That figure, added to £552,504, produced a total of £789,845, rounded to £800,000.
[125] I was invited, in the submissions on behalf of the defenders and third party, to attach considerable significance to this valuation, on the basis that it had been carried out when the supermarket was closed. It appears to me however to be of little assistance in assessing the current value of the Centre. None of the expert witnesses treated it as a reliable guide to the current value; and it was not carried out on the basis that the supermarket would remain closed for the foreseeable future. Given the weight sought to be attached to it, I have also to say that some of the assumptions made by Mr Allison were in my view questionable (e.g. that the rent of the Premises would rise to £45,000 per annum, and that all the vacant units, and the units yet to be constructed, would be let), and, taken together with the errors in Mr Allison's calculations, did not inspire me with confidence in the valuation.
[126] The lease of unit 118 terminated in December 1997, the
Secretary of State for
[127] The improvement works commenced in January 1998 [67/282]. Practical completion of the improvement works
was achieved on
[128] In connection with the carrying out of the improvement works, the
Ground Lease was varied by agreement between the pursuers and the Council. One consequence of the variation was to
extend the period of the Ground Lease, with effect from the date of issue of
the practical completion certificate in respect of the improvement works, until
[129] It is unclear whether the two additional units, units 123 and 124, were constructed entirely within the subjects of the Ground Lease. It appears to be difficult to establish the precise boundaries of the subjects of the Ground Lease, because of the difficulty of finding fixed points on the ground to which the measurements shown on the plan attached to the Ground Lease can be applied [Mr De Vos]. This appears to have been noticed for the first time during the course of the present proof. The Council, the pursuers and Dunbar Bank then entered into a minute of agreement, executed and registered in April 2005 [67/388], which narrated:
"The parties hereto have agreed that due to development at [the subjects let under the Ground Lease] and changes in the environs of [those subjects] since the [Ground] Lease was first entered into and also due to the partial renunciations ... which have occurred in connection with the [Ground] Lease there are now difficulties in interpreting the plan attached to the [Ground] Lease, and accordingly it is now appropriate, in order to reconfirm the demise of the [subjects] and for the purposes of clarity, that there should now be substituted a new lease plan."
The minute of agreement continued by stating the parties' agreement that:
"the whole extent of the [subjects let under the Ground Lease] is as shown ... on the plan annexed and executed as relative hereto".
The subjects shown on the plan include the entire Centre as it now exists, including units 123 and 124.
[130] As explained below, it was argued at the proof in the present
case, on behalf of the defenders and third party, that the improvement works
had reduced the value of the Centre, as they had made units there more
difficult to let. I have already noted a
body of evidence which would tend to suggest the contrary. It includes the Cousins Stephens Associates
study, reporting in 1990 that the poor environment and appearance of the Centre
were a deterrent to shoppers, and recommending that the Centre should be
improved (supra, para.24); the
acceptance by the Whitfield Partnership, in response to that report, that the
Centre must be re-developed and improved (supra,
para.26); the recommendation by Ironside Farrar Ltd that the Centre should be
refurbished, and security improved (ibid);
the statement by SET, in 1992, that the physical fabric of the Centre required
major intervention (supra, para.31);
the recommendation by Graham & Sibbald in 1993 that the Centre must be
improved, and that its physical appearance was a deterrent to shoppers (supra, para.36); their finding that
enclosed and covered centres offered a more secure shopping environment and
appeared to be more successful economically (supra, para.42); the view formed in 1994 by Mr Clapham, an
experienced and successful investor and developer of commercial properties with
experience of covering and enclosing a shopping centre, that rental values
would be increased if the Centre were enclosed (supra, paras.62-63); the opinion expressed by Mr Allison in 1994
that "until the centre is refurbished, we do not consider the letting prospects
for the empty units to be particularly high", and that the refurbishment of the
Centre "would be a considerable boost to its attractiveness both from a letting
and investment value point of view" (supra,
para.68); the impression formed by Mr Clapham, from his discussions with
Kwik Save in 1995, that there was a realistic prospect that they would re-open
the Premises if the Centre were to be re-furbished (supra, para.98); the advice given to Mr Clapham in 1995 by
Mr Crichton, of J Trevor & Webster, that the refurbishment of the
Centre would assist in achieving lettings - indeed, that "without environmental
improvements ... there is little or no prospect of lettings" (supra, para.104); the advice given to
Kwik Save in 1997 by their own agents, J Trevor & Webster, that "it is
highly unlikely that there will be any form of demand until such time as
improvement works are carried out to the Centre" (supra, para.117); the opinion of Mr Allison in 1997 that "the
provision of new shop fronts and the other proposed works will ...
significantly enhance the letting prospects":
an opinion reflected in his estimates of the rental and capital value of
the units, and of the Centre as a whole, in their existing condition, and on
the hypothesis that the proposed works were carried out (supra, para.122); the opinion of Mr Lythgoe, in a report
prepared for Dunbar Bank in 2003, that the refurbishment works had resulted in
an improvement of the Centre (infra,
para.190); and the evidence of the pursuers' expert valuation witnesses at the
present proof. Mr Oswald, in
particular, explained that the conversion of an open precinct, exposed to the
[131] This body of evidence, considered as a whole, appears to me to be
substantial and convincing. The contrary
evidence does not appear to me to be compelling. It relies essentially on two arguments. The first is that the enclosure of the Centre
rendered the shops less "visible".
Although I accept that the enclosure of the Centre had an adverse effect
on the "visibility" of individual shops, I am not convinced that that factor
has had as great an impact on value as was argued on behalf of the defenders
and third party. In the first place, I
accept the evidence of the pursuers' valuation experts (and also
Mr Hermiston) [p.514] that "visibility" is generally less important for a
local or neighbourhood centre, such as that at Whitfield, than for larger
shopping centres, for which passing trade is of greater importance. It was apparent from the evidence that it is
common for local shopping centres to be covered and enclosed, and for the
individual shops therefore not to be visible to the passer-by; and similar works appear to have been carried
out to numerous other shopping centres of a similar vintage throughout
"[I]t is anticipated that this will result in less need for regular repair and maintenance than hitherto, which was caused to a large extent by vandalism" [67/170].
The expectation that there would be less vandalism appears to have been fulfilled: with the exception of the rear of the Premises (which have effectively been abandoned by the defenders and Kwik Save), it appears from the evidence, including the photographs, that the serious problems of vandalism which existed prior to the refurbishment have been moderated to a considerable degree (infra, para.199). The only additional maintenance costs suggested by Mr Poulton were in respect of the maintenance of smoke vents in the central area, and the maintenance of the doors; and he observed that there would at some point in the future be a need to maintain parts of the new structure which were exposed to the weather, although no such maintenance had been required to date. There are also the costs of employing one or two security guards, although it has to be borne in mind that three were previously employed in the supermarket alone. In the circumstances, and having regard to the substantial body of evidence to the contrary effect, I find the argument that the refurbishment was, on balance, disadvantageous to the Centre to be unconvincing.
[132] A further point made on behalf of the defenders and third party
in their closing submissions was that the enlargement of the Centre, by the
provision of two additional units, was unnecessary and unreasonable in the
light of the vacancies existing prior to the refurbishment, and also in the
light of the advice in the Graham & Sibbald report that the amount of
retail space in the Centre was excessive.
This argument is considered below.
I note however Mr Clapham's evidence that, as well as being advised
by Mr Crichton that it was essential to carry out the improvement works in
order to attract tenants, he was also being told by Ms Molloy that there
was still a prospect that Kwik Save might re-occupy the Premises. He felt that he had to make the Centre as
secure and attractive as possible in order to encourage Kwik Save to fulfil
their obligations and in order to attract other tenants. He realised that to invest more money in the
Centre was a high risk strategy, but, as he put it, "It is something I would
really like not to have had to do, but I found myself in a very difficult
position, and I did what I thought was right" [pp.553-554]. He described himself as acting in extremis [p.598]. He also explained, in relation to the
construction of the two additional units, that while he believed that
there was a demand, the units in any event served a dual purpose in closing off
an avenue of escape, thereby improving the security of the Centre. The alternative would have been to build a
wall, which would have been unattractive [p.596].
[133] Eric Young and Co had been instructed by Kwik Save on
[134] Eric Young & Co did not receive any offer for the Premises between January 1995 and April 1997. The only expressions of interest were in the acquisition of part only of the Premises (around 5,000 square feet) [67/168]. Gooch Webster did not receive any expression of interest until January 1998, when a company named Riverdale Properties (Aberdeen) Ltd ("Riverdale") expressed interest in taking an assignation or sub-lease of the Premises, subject to receiving inter alia a rent free period and a reverse premium in excess of £150,000 [67/163, Appendix 3, p.3]. Gooch Webster responded that an assignation of Kwik Save's interest to Riverdale was unlikely to be acceptable to Kwik Save's landlord, given the relative covenant strengths of Kwik Save and Riverdale. If, instead of an assignation, Kwik Save were to grant a sub-lease to Riverdale, they would remain liable for the payment of the rent for the duration of their tenancy. In the circumstances, they could not advance a substantial payment to Riverdale without some form of security [67/163, Appendix 3, p.7]. In subsequent correspondence during March 1998, Riverdale sought to negotiate a reverse premium on the basis that the rent of the Premises following the forthcoming rent review (effective from May 1998) would be around £80,000 to £100,000 per annum [67/163, Appendix 3, p.12]. In May 1998, Riverdale's solicitors offered a sub-rent of up to £70,000 per annum in return for a one year rent free period and a "substantial" reverse premium [67/168, Appendix EMY-10]. Gooch Webster responded that they were unable to offer a substantial reverse premium to be paid as a cash sum up front, but could offer a substantial rent free period. They invited further proposals, on the basis of the passing rent of £20,000 per annum [67/168, Appendix EMY-10]. Riverdale did not respond to this invitation. Gooch Webster obtained a report on Riverdale from Dun & Bradstreet Ltd which indicated a poor credit rating. Riverdale was reported to be a dormant company with one director and share capital of £100 [67/168, Appendix EMY-11]. It was apparent from Mrs Meneer's evidence that Riverdale's interest in the Premises was regarded with a degree of wariness, particularly in view of its timing and Riverdale's apparent readiness to agree a rent far in excess of the passing rent. Gooch Webster were mindful of the danger that such an expression of interest might be a sham, possibly inspired by the pursuers in order to have evidence available for use in the rent review. Mrs Meneer explained in evidence that offers of that kind are sometimes received when a rent review is pending. Gooch Webster's caution appears to me to be understandable, and to have been vindicated by Riverdale's failure to maintain their interest once Gooch Webster made clear Kwik Save's unwillingness to provide a reverse premium which consisted of cash up front rather than a rent free period. As Mr Young observed:
"The offer has all the landmarks of being designed to generate a large reverse premium with no intention of trading the unit" [67/168].
Finally, in relation to this matter, I note that Mr Clapham wrote to Riverdale, during the course of the rent review, to enquire why they had not pursued their interest further. Riverdale's reply complained about their treatment by Gooch Webster, asserted that the suggested rent of £20,000 per annum was "not a realistic rent" and that there would be "an enormous review", and insinuated that Gooch Webster, "for reasons of their own ... were not interested in pursuing a deal" [67/163, Appendix 3, p.27]. I am satisfied, on the evidence of Mrs Meneer, that that insinuation is without substance.
[135] A further expression of interest in the Premises was received in
March 1998 from Roseacre (Ormesby) Ltd ("Roseacre"), a company based in
Great Yarmouth and involved in the leisure industry. On
[136] Mr Young said that, in more recent times, his firm had received about 20 requests for details of the Premises. No progress had however been made.
[137] While I am satisfied that the marketing of the Premises by Kwik Save's agents was genuine, I also accept that it will have been hampered by the fact that the Premises were closed, and more especially by the appalling state of disrepair into which they have been allowed to fall, as described below. In that regard, I note Mr Poulton's evidence that it was exceptional for Kwik Save to allow premises tenanted by them to fall into such a state, and his acceptance that the marketing of the Premises would be assisted if their appearance was improved [pp.399, 405, 409-410]. Mr Young also gave evidence that it was generally more difficult to find a tenant if the property had been vandalised, and that a property was easier to market if it had been fully repaired. He said that it had never been suggested that the Premises should be put back into a good state of repair as part of the marketing exercise. Mr Oswald commented that the property was in such a "disgraceful" condition that anyone who went to view it would walk away [p.463]. It seems to me to be reasonable to conclude, given that the disrepair reflects the defenders' and Kwik Save's breach of their repairing obligations (under the Sub-Lease and the Sub-Under-Lease respectively), that they are not especially concerned to dispose of the Premises. The likeliest explanation of that attitude, so far as Kwik Save is concerned, is (as was suggested by Mr Lythgoe, Mr Oswald and Mr McCluskey, amongst others) that it may be to their commercial advantage to have the Premises lying vacant, at a very modest rent (the lowest of any of the Somerfield group's 1300 stores): as discussed in the evidence, a disposal of the third party's interest would be likely to involve the payment of a substantial reverse premium (particularly having regard to dilapidations), and might conceivably result in the Premises being occupied by a competitor to their Longhaugh store. The defenders would not appear to have any need to dispose of their interest so long as the rent is being paid by Kwik Save, particularly when there might be a substantial reverse premium involved.
[138] The rent payable by the defenders in respect of the Premises was due to be reviewed with effect from May 1998 under clause (THIRD) of the Sub-Lease, which provided that the reviewed rent was to be
"the higher of (a) the annual rent payable in the immediately preceding period and (b) such rate as shall represent the fair yearly rent for the premises ... having regard to the rental values then current for similar property ... the fair yearly rent as aforesaid being agreed between the parties or determined by arbitration ..."
[139] On
4 March 1998 Eric Young & Co, on behalf of the defenders, opened
correspondence on this issue by offering to settle the rent review at a nil
uplift, and by informing the pursuers that the defenders had already applied to
the RICS for the appointment of an arbiter.
Eric Young & Co simultaneously offered the
pursuers £80,000, on behalf of the defenders, to surrender their lease and
substitute a direct lease to Kwik Save (on unspecified terms). This offer appears, not least in view of its
timing and its direct link to the rent review, to have been made for tactical
reasons in connection with the rent review (in which it was in due course
relied on, as explained below) [see e.g. Mr Poulton, pp.140-141]. Letters from the pursuers' agents to
Eric Young & Co thereafter went unanswered and unacknowledged. On
"I believe your opinion of the market rent for these subjects is grossly exaggerated and without substance. If however you genuinely believe your own rhetoric regarding occupier demand for these subjects, you will not hesitate in accepting the Society's proposal. This will leave you free to negotiate a similar surrender with Kwik Save and then put your conviction to the test" [67/168, Appendix 9].
[140] The offer was not accepted.
In the light of the valuation evidence (e.g. that of Mr Lythgoe
[pp.844-850] and Mr Oswald [pp.722-725, 799-806, 814-817], it appears that
the amount being offered fell far short of the amount by which the termination
of the Sub-Lease would have reduced the value of the pursuers' interest: they would have lost the defenders' excellent
covenant for the remaining 35 years of the Sub-Lease, and would have been
left (at best, if suitable arrangements could be entered into) with the third
party's weaker covenant for a period of only 15 years. The £120,000 which was offered also made no
allowance for the defenders' liabilities for their breaches of their keep-open
and repairing obligations: it might be
compared with the figure of £250,000 (exclusive of dilapidations)
[Mr Lythgoe, p.866, Mr Oswald, p.822, Mr Poulton, p.360-361]
which Kwik Save had been advised in 1997 would be appropriate in respect of the
surrender of their interest under the Sub-Sub-Lease (which then had
16 years still to run: supra, para.117).
[141] In his submission to Mr Merry, dated 6 August 1998 [67/162],
the pursuers' agent, Mr McCluskey of J & E Shepherd,
referred to eleven comparisons, all situated in Dundee or in the neighbouring
areas of Broughty Ferry and Monifieth.
He relied particularly on a supermarket occupied by Kwik Save at the
Campfield Square Shopping Centre, Broughty Ferry; on the supermarket owned and
occupied by Kwik Save at
"Anchor units in a Centre of this nature are very important to the vitality and success of such Centres acting as the main draw for shoppers who are then, in turn, serviced by the other shop traders.
Non-occupation by the Tenants/Sub-Tenants has created a 'cold spot' and this in turn has had a depressing effect on the remainder of the Centre ...".
In relation to these statements,
Mr McCluskey said in evidence that the layout of the Centre (with the
Premises furthest from the car park and the street) meant that the Premises
were designed to act as a draw, bringing people through the Centre to its far
end, and enabling the tenants of the smaller units to benefit from the passing
flow of pedestrians. Mr McCluskey
also commented that the visual impact of the closed shutters of the Premises,
across the end of the Centre, would affect the number of people going in. Each of these points appears to me to be
reasonable. Mr McCluskey also said
that the closure of the Premises had had an effect on security in the
Centre. There had in the past been
problems, similar to those experienced in some other shopping centres in
[142] In his counter-submission to Mr Merry on behalf of the
defenders [67/168], Mr Young explained how demand for premises from
discount food operators had diminished following Kwik Save's acquisition of the
assets of Shoprite, resulting in downward pressure on rents. He also explained how competition from mainstream
operators had increased, with the opening (in
[143] A factor on which Mr Young placed some emphasis was the low rate of occupancy of the Centre at the date of review. The argument, so far as this factor is concerned, appears to have been that the low rate of occupancy of the Centre reduced the rental value of the Premises.
[144] Mr Young argued that the Premises would not be of any interest to any tenant. They were not of any interest to the defenders:
"[I]t is abundantly clear that CWS have no interest in trading from the subject premises at any rent. In fact CWS have made repeated attempts to surrender their interests in the property as have Kwik Save" (emphasis in the original).
In support of that contention, Mr Young referred to the correspondence between March and July 1998 in which the defenders and Kwik Save had offered to surrender their interests in the Premises. The Premises were too small for the leading supermarket operators, such as Sainsbury and Safeway. They were too large for many of the convenience retailers, such as Alldays and Spar. Discount operators such as Kwik Save and Presto were not acquiring property at the review date. The only possible occupiers were independent retailers, but the property was too large for their requirements and the lease requirements were too onerous.
[145] Mr Young argued that the improvement works to the Centre had not improved the lettability of the Premises: the creation of the covered mall had reduced the already limited visibility of the Premises, and the Centre remained an unpleasant and unsafe location with "extremely limited critical mass and pulling power".
[146] In relation to the rental value of the Premises, Mr Young relied on the rent of £20,000 agreed between the defenders and Shoprite in 1993, and on the absence of serious interest in the Premises since they were first marketed in January 1995. Tenant demand was nil, and the rent should therefore remain at the current level.
[147] In his response to Mr Young's counter-submission, dated
[148] In further observations, Mr Young again drew attention to the vacancy rate in the Centre [67/169]. Mr Merry's decision is discussed below.
[149] In about October 1998 Richard Ellis, chartered
surveyors in
[150] Eight out of the 13 smaller units were unlet at the time of the valuer's inspection: units 112 (unlet since November 1993), 113 (unlet since December 1993), 117 (unlet since May 1993), 118 (unlet since December 1997), 119 (unlet for some months), 122 (unlet since 1993), 123 and 124 (both unlet since their construction earlier in 1998). The public house and the supermarket were let but unoccupied. Negotiations for lettings of units 118, 119 and 124 were under way, with rents agreed at £7,500, £7,500 and £8,500 per annum respectively.
[151] The method of valuation adopted was to calculate the present value of the future income stream which the holders of the pursuers' interest would receive from the tenants of the units, less certain costs. The starting point in the calculation under this method is the future income stream, i.e. the rents. In relation to each let unit there was a passing rent, i.e. the rent currently payable under the lease. In the case of the public house, the valuer was told, incorrectly, that the passing rent had increased to £25,000 per annum at the 1998 rent review: in fact, the passing rent remained £15,000 per annum. In the case of the Premises, the valuer was told that the rent was expected to be fixed at £70,000 to £90,000 per annum at the 1998 rent review. He assumed a revised rent for the Premises of £67,386, which he treated as a passing rent (since the revised rent would take effect from a date prior to that of his valuation). The next element, under this method of valuation, is the estimated rental value (ERV) of each unit, i.e. its current market value: this is the figure which it is to be assumed will be the rent received when the next opportunity arises for the market value to be paid, i.e. on a re-letting or on a rent review. In the case of the smaller units, the valuer based his ERVs on a Zone A rate of £10 per square foot per annum (Zone A being the first 30 feet of floor space behind the shop frontage, the other parts being valued at a proportion of the Zone A rate). That resulted, for the let units, in ERVs in the region of £7,000, compared with passing rents of between £4,500 and £5,500. The ERVs of the units currently under negotiation, on the other hand, were below the agreed rentals. The next element in the calculation is the period of time during which any given level of income will be received. In the case of the let units, the valuer's calculation assumed that the passing rent would be received in perpetuity, and that the additional amount representing the difference between the passing rent and the ERV would be received from the date of the next rent review in perpetuity. In the case of the three unlet units which were currently under negotiation, the valuer allowed a rental income void period of six months for the negotiations to be concluded and for rent to begin to be paid, i.e. he assumed that nothing would be received for six months, and that the ERV would thereafter be received in perpetuity. In the case of the remaining unlet units, the valuer allowed a two year rental void period before a tenant was found, i.e. he assumed that nothing would be received for two years, and that the ERV would thereafter be received in perpetuity.
[152] The next element in the calculation is the yield. It will be recalled that Mr Allison, in carrying out his valuations, had adopted different yields for different units, depending on the quality of the tenant's covenant: in his 1994 valuation, he had adopted a yield of 14 per cent for the good covenants, and 20 per cent for the remainder; and in his 1997 valuation he had adopted yields of 12.5 per cent and 18.18 per cent respectively. The Richard Ellis valuer on the other hand adopted an overall or "all risks" yield of 16.25 per cent. That figure represented an "equivalent yield", i.e. an average yield over the lifetime of the investment as a whole (as distinct from the "initial yield", i.e. the current net income at the date of the valuation expressed as a percentage of the cost of acquiring the investment at that date). In arriving at that equivalent yield, the valuer will have been influenced by the extent to which the income stream was derived from tenants possessing what he regarded as good quality covenants (Bass, the defenders and Ladbrokes), and by the unexpired duration of the leases to those tenants.
[153] Applying the foregoing assumptions as to passing rents, ERVs, voids and equivalent yield, the valuer calculated the capital value of each unit (plus the petrol station site). The total of those figures was £1,033,071. He then deducted the present value of the ground rent payable out of those future rents. He next deducted the costs of purchasing the Centre: stamp duty, agents' costs and legal fees. The net value, after these deductions were made, was £904,650, which he rounded to £900,000.
[154] In his evidence, Mr Lythgoe explained that that valuation replicated inaccurate information about the outcome, or anticipated outcome, of the rent reviews in respect of the public house and the Premises. He also explained that he would now adopt lower ERVs for the smaller units, in the light of his current knowledge of the Centre. I am satisfied that the valuation of £900,000 was excessive even in 1998, and offers no guidance as to the current value of the Centre.
[155] Unit 119 was let with effect from February 1999 to the Misses Minns as a café, at a rent of £7,500 per annum, subject (as is common in practice [Mr Watt]) to a rent-free period of six months while the unit was fitted out and commenced trading, with a break option exercisable as at February 2000 [67/44].
[156] Unit 118 was let with effect from March 1999 to a Ms Walker as a hairdresser's, at a rent of £7,500 per annum, subject to a rent-free period of two months while the unit was fitted out, with a break option exercisable as at March 2001. Interest had also been expressed by a Mr Mohammed in taking a lease of unit 122 as a hot food unit, but nothing came of it [67/125].
[157] Around the same time, interest was expressed in unit 123 by a Mr Brown, for possible use as a video rental shop [67/132]. A local market trader, a Mr Robertson, also expressed interest in taking a lease of unit 123 as a clothing outlet, subject to securing finance [67/140, 67/142, 67/147]. It was noted that this trader appeared to be genuinely interested [67/142], but that shop fitting costs might prove to be prohibitive [67/145]. Strong interest was expressed by a Mrs Qureshi in taking a lease of unit 124 as a hot food outlet [67/125]. Interest was also expressed by a Mr Wong in opening a Chinese takeaway in the Centre [67/133]. This would presumably have been in either unit 123 or unit 124 (i.e. one of the unoccupied units outside the enclosed part of the Centre), so that the unit could operate in the evenings (when the enclosed part of the Centre would be closed). A local doctor, Dr Raj, expressed interest in relocating his practice to unit 113, subject to obtaining funding from the local health board [67/140, 67/147; Mr Watt]. A Mr Ashraf expressed an interest in trading from the Premises as an independent supermarket retailer [67/142]. Nothing came of any of these expressions of interest, all of which were from independent operators.
[158] In January 1999 the present action was commenced. Similar proceedings were brought against Bass in relation to their tenancy of the public house.
[159] From 1995 onwards there had been occasions when the defenders had been slow in paying invoices submitted by the pursuers in respect of common charges, notably the cleaning of common parts [e.g. 67/266, 67/347]. The improvement works resulted in an increase in service charges, principally as a consequence of the employment of two security guards. From 1999 the defenders failed to pay invoices for the cleaning of common parts, the provision of security services and some other common charges for a period of about two years [e.g. 67/275, 67/366-67/369]. On two occasions, matters reached the stage of the defenders' being threatened with a petition for winding up, before invoices were met. They have refused to pay security charges since 2002 [Mr De Vos; 67/380], on the basis that they deny any liability for the costs of security under the Sub-Lease. In his evidence, Mr De Vos also said that, since the end of 1998, when works were carried out on the Premises in response to the service of a schedule of dilapidations, the defenders had again persistently failed to fulfil their repairing obligations. The Premises had been broken into and damaged internally. Every window at first floor level had been broken. External doors had been damaged by fire. The loading bay of the Premises, and the adjoining yard, were used for fly tipping. There had been a number of fires started in that area. The damage was left unrepaired and the rubbish was left uncleared, despite numerous requests to the defenders to attend to it.
[160] By May 1999 the number of security guards on duty in the Centre had been reduced from two to one, apparently in response to the defenders' failure to pay the invoices submitted by the pursuers in respect of service charges. Some concern about the adequacy of security was thereafter expressed by other tenants. There were some problems with vandalism, notably in respect of damage to the entrance doors to the Centre [67/145].
[161] In June 1999 interest was expressed by another local trader, a Mr Beattie, in taking a lease of unit 124 for use as a bakery [67/148, 67/153, 67/154]. Nothing came of this expression of interest.
[162] Interest was also expressed in June 1999 by agents acting on behalf of a national multiple retailer of clothing and other non-food items, Your More Store. They stated that Your More Store had visited the Centre and might be interested in units 122, 123 and 124, as they required a unit of about 3,000 square feet [67/152]. In August 1999 the pursuers were however informed by Mr Reid of their managing agents, J & E Shepherd, that Your More Stores had
"indicated that they would be unwilling to enter into a Lease, at this stage, unless a supermarket was to commence trading within the Mall" [67/157].
In his evidence, Mr Reid
confirmed that he had been told by Your More Stores' agents that, without a
supermarket trading, they could not consider entering into a lease. Mr Reid said that this would have been
an important letting for the Centre. In
the event, Your More Store took a unit in the Longhaugh Neighbourhood Centre in
[163] Mr Watt of J & E Shepherd, who was the person
principally involved in the marketing of units in the Centre during 1998
and 1999 (and was then succeeded in that function by Mr Reid), and
dealt with most of the expressions of interest mentioned above, was asked why,
despite marketing, only two units (118 and 119) had been let. He responded that the issue which came up
almost all the time, from every prospective tenant he dealt with, was the
supermarket unit. Questions were always
asked about why it was closed, and whether it was going to re-open. There had always been a fairly high level of
interest in units in the Centre, and he had conducted lots of viewings, but the
only lettings he had been able to conclude had been those with Ms Walker
and the Misses Minns. Everyone was
very aware of the impact on the Centre if the supermarket re-opened. The fact that the Premises - the anchor
tenant - had their roller shutters closed all the time, presenting a blank
wall, created a poor impression. People
he dealt with felt that if the supermarket were to re-open, it would have a positive
effect on the footfall, and therefore on their own trading prospects. The biggest factor putting people off was the
fact that the supermarket was shut. If
it had been open, that in his opinion would very possibly have led to more
units being let. Mr Watt
acknowledged that there were other factors which might discourage potential
tenants: in particular, there were some
problems with youths in the area. The
main point that came across, however, was the supermarket. There was a feeling that, if it were open,
the other problems would lessen as a result.
The Centre was unattractive because the supermarket was closed. If it were open, that would make a big
difference to the attractiveness of the Centre.
It would attract people into the Centre, which in turn would have an
effect on the other problems experienced there.
The fact that the Centre was not on a main arterial road was not a
problem for the type of traders who expressed an interest in locating
there. Nor were they put off by the
opening of larger supermarkets elsewhere in
[164] Mr Watt was asked, on behalf of the defenders and third party, what the effect would be if a supermarket were "sham trading", paying merely lip-service to the keep-open obligation. He responded that the effect on potential tenants would be a lot better if a supermarket were trading normally.
[165] Mr McCluskey, who was the partner in J & E Shepherd to whom Mr Watt reported, gave evidence to the same effect as Mr Watt's, although he accepted that his own involvement had been less than that of Mr Watt. Mr McCluskey considered that the supermarket's being vacant was likely to affect the lettability of the remaining units and the rents which they achieved. It was therefore in his opinion likely to have what he described as "a fair impact" on the capital value of the Centre. A prospective purchaser of the Centre would prefer to have the anchor tenant (i.e. a supermarket operator, leasing the Premises) trading, with the Centre bright and active, and would therefore be much more likely to try to acquire the Centre if the anchor tenant was trading than if it was not.
[166] Mr Letley, who had been the partner in J & E Shepherd responsible for the management of the Centre, and whom I found to be an impressive witness, gave evidence to similar effect. Once the supermarket closed, the number of people visiting the Centre was clearly less. There were fewer cars in the car park, and fewer people going in and out of the Centre. There was an air of depression about the Centre. The changes were obvious. He considered that, if the supermarket at the Premises had remained open and trading, the Centre would have had a much more lively and vibrant feel. A trading supermarket would have attracted more people into the Centre, with spin-off benefits for the traders in the other units. As matters were, the Centre felt closed down, with nothing happening and no-one there. The tenants were forever asking when the supermarket would re-open, as this might be the salvation of their business. The negative outlook of the Centre had also caused problems in relation to the collection of rent from the smaller tenants. Normally, the managing agents would enforce the lease against a tenant who defaulted on rent, and get them out. In this instance, the pursuers had not wanted their agents to push the smaller tenants over the brink, because of the difficulty of replacing them. The vacancy of the Premises had also resulted in an increase in insurance premiums for the Centre, because of the increased risk of fire and vandalism consequential upon non-occupation [67/313]. That evidence was consistent with Mr De Vos's evidence that the fires which had occurred around the loading bay of the Premises were a typical problem of vacant units in a neighbourhood of that kind. The problem did not arise when units were occupied.
[167] In September 1999 Mr Merry issued his decision as
arbiter in the rent review of the Premises.
He decided that the fair yearly rent of the Premises as at
[168] In the reasons which he gave for his decision, Mr Merry began by considering certain terms of the Sub-Lease which might have an effect upon rental value. First, the unexpired term of the Sub-Lease, as at the review date, was 35 years. Mr Merry found that that was a longer period than average, and that such a lengthy period would, ceteris paribus, have an adverse effect on rental value. The balance of the evidence in the present proceedings is consistent with that finding. Mr Merry also considered the user clause in the Sub-Lease (clause (FIFTH)) to be more than usually restrictive; and that was another factor which he considered would tend to have an adverse effect on rental value. I note that in connection with the user clause, he stated:
"It is accepted that this is a neighbourhood shopping development and the disappearance from its curtilage of an 'anchor' food tenant would be detrimental to the viability of the scheme as a whole."
He also noted that certain of the comparisons had less restrictive user clauses, "despite their similarity in terms of being 'anchor' stores for shopping centres". In his evidence, Mr Merry confirmed that the supermarket at the Premises was in his view an anchor store.
[169] Mr Merry noted that in respect of the user clause, the unexpired term of the Sub-Lease, and in relation also to the treatment of expenses in the arbitration clause (under which the expenses of arbitration were always to be met by the tenant), the Sub-Lease differed from the leases of certain of the subjects on which J &E Shepherd relied as comparisons. Mr Merry also noted that none of the comparison subjects had a keep-open clause:
"I feel sure the existence of this condition ... would materially affect the hypothetical tenant's bid. Particularly I consider this to be the case at Whitfield where such a history of unsuccessful marketing of the vacant unit since 1995 exists."
[170] Mr Merry found that none of the comparison subjects on which Mr McCluskey relied was located in an area of social deprivation comparable to Whitfield, apart possibly from the Kwik Save in Pitkerro Road, which was on the edge of Whitfield.
[171] He considered that it was also necessary to bear in mind that most of the comparison rentals dated from 1995:
"No one who was in the market at that time as an agent can deny the frantic activity of these retailers [Shoprite, Kwik Save, Netto, Aldi and Lidl] to acquire a market share and the consequential increase in rental levels that this activity created. As at the rent review date of the subjects, this activity had ceased. Shoprite, one of the main creators of the mini-boom in this sector of the market, no longer exists, and the principal supermarket retailers have, to a large extent, 'plugged' what was obviously a market gap at that time ... [T]here is no longer a healthy demand in the marketplace for units for this purpose."
[172] Mr Merry discounted five of Mr McCluskey's comparisons as being
much larger than the Premises: these
included the Kwik Save at
[173] Mr Merry also noted the rental of the Premises agreed with Shoprite in 1993, for a term of 20 years. He observed that the defenders had been represented by professional agents, who would in his view have held out for a higher rent if there had been a possibility of securing it.
[174] Mr Merry also referred to the lack of success of the marketing of the Premises, commenting that "the marketing campaign and the evidence which [Mr Young] has led has a significant bearing on the result at the end of the day".
[175] Mr Merry concluded:
"In essence, therefore, I do
consider that the cumulo effect of the length of lease term, the possible
implementation of the 'keep open' provisions of the Lease, the evidence of a
market transaction in 1993, together with the unsuccessful marketing
campaign over a considerable period of time, leads me to the conclusion that
the hypothetical tenant ... would not be prepared to bid more than the passing rental
of £20,000."
[176] It is to
be noted that Mr Merry referred a number of times in his decision to the
high number of voids in the Centre ("The development has not proved popular in
latter years and has, to a large extent, had a significant percentage of unlet
space, or at least unoccupied ... there are still a significant proportion
of voids within the Centre and this hardly shows corroboration of
Mr McCluskey's opinion [that the refurbishment works would lead to rental
growth] ... regrettably the unit still remains void ..."). He contrasted the Premises with the
comparisons on the basis that the latter were set in centres or groups of shops
where there were few if any voids:
"All the comparable evidence units are located in centres which are
well supported by other trading units, the vast majority of which were (and
remain) trading at the rent review date whereas at Whitfield a substantial
proportion of the units were, and remain, void".
Mr Merry confirmed in his evidence that he
considered the level of voids to be important.
If, however, the number of voids in the Centre was partly a consequence
of the defenders' breach of their keep-open obligation, - as, to anticipate a
matter discussed later in this Opinion, I have concluded - a question would
then arise as to whether Mr Merry's conclusion could be regarded as a
reliable guide to the rental value which the Premises would have had if the
defenders had complied with their obligations.
Similarly, it is apparent from Mr Merry's conclusions, quoted in
the preceding paragraph, that he regarded as material the lack of success of
the marketing of the Premises since 1995.
In his evidence, he confirmed that he regarded the marketing evidence as
the most important factor affecting his decision [p.32, 72]. If that lack of success may have been partly
a consequence of the defenders' breach of their keep-open obligation or of
their repairing obligation - as I have concluded - then the same question would
arise whether Mr Merry's conclusion was a reliable guide to the rental
value which the Premises would have had if the defenders had complied with
their obligations.
[177] It also
appears from Mr Merry's evidence that he regarded the defenders'
non-compliance with the keep-open clause as being of little importance, on the
basis that, even if the keep-open clause had been complied with, the state of
the Centre and of the Premises would have been the same, and the occupier of
the Premises would only have been trading to pay lip-service to its obligations
under the lease [pp.29, 74-76, 94]. He also
assumed that the number of voids in the Centre would have been the same if the
supermarket had been trading [p.90]. I
found unconvincing Mr Merry's later attempt to explain the earlier
references in his evidence to lip-service as meaning merely that he was
envisaging trading in order to comply with the terms of the lease [pp.101-102],
not least in view of his comment, in relation to Mr Poulton's evidence
that there would be no question of his company's engaging in sham trading, that
that was Mr Poulton's opinion [p.99].
Mr Merry's apparent expectation that any operator of the
supermarket would merely have been paying lip-service to the keep-open
obligation was however contradicted by the evidence of Mr Poulton, as
explained below. That evidence, which I
accept, appears to me to undermine Mr Merry's conclusion that whether the
keep-open clause had been implemented or not would have made little difference
to the situation. In cross-examination, Mr Merry
accepted that the state of the Premises would have been completely different if
the keep-open clause had been complied with [pp.96,98]. My confidence in Mr Merry's reasoning
was further weakened by the inconsistency of his evidence as to whether he reached
his decision on the basis that the Premises were unoccupied or on the basis of
an assumption that the Premises were occupied and trading [pp.81-82, 85].
[178] I also
note that Mr Merry appears, from the terms of his decision, to have been
influenced by the offers made by the defenders and Kwik Save to surrender the
Sub-Lease and the Sub-Under-Lease respectively.
In that regard, he observed that, at one of the comparison subjects "as
well", "significant reverse premiums have been offered" and declined. On the basis of the evidence in the present
case, I am satisfied that the amounts offered fell far short of a realistic
valuation, and I would not draw any adverse inference, as to the rental value
of the Premises, from the fact that they were declined.
[179] In the
circumstances, Mr Merry's decision does not appear to me to be a reliable
guide to what the rental value of the Premises would have been if the defenders
had complied with their contractual obligations.
[180] The rent
of unit 120 (the post office, let to RS McColl) was due to be
reviewed with effect from September 1999.
After discussion [67/239-251], the reviewed rent was agreed
at £6,000 per annum, an increase of 14 per cent from the
1994 rent. One of the points made
on behalf of the tenant was that, although the refurbishment of the Centre had
improved its appearance, there had been no increase in the business of the post
office. On the other hand, the tenant
now had to pay higher service charges [67/246].
[181] The
rental of the public house was also due to be reviewed with effect from
May 1998. After some discussion, and
following Mr Merry's decision, the reviewed rent was agreed
at £15,000 per annum, i.e. at a nil uplift [67/178-180].
[182] Units 111
and 112 were jointly let from December 1999 to Mrs Mussrat Begum, the
existing tenant of the grocer's at unit 111 [67/45]. Under the lease, the tenant had the option to
terminate the lease in respect of unit 112 at any time until
December 2004. Provision was made
for such an option to be exercisable within that period, in the event that any
party commenced or recommenced trading as a grocer from the Premises. The rent for the double unit was £11,500
per annum, which was to be reduced, in the event of the break option being
exercised, to £5,500 per annum (an increase from the passing rent
of £4,500, fixed in 1993) or open market value, whichever was the
greater. In the event, the rent actually
paid remained unchanged at £4,500, by informal agreement. Mr De Vos explained that the rent
of £11,500 had been agreed in the expectation that units 111
and 112 would be converted into a single, larger, shop. In the event, the tenant had not proceeded
with those plans, because of a lack of trade, and had used unit 112 only
for storage.
[183] The licence
of the public house had been renewed in January 1997, but the public house
remained closed thereafter [67/90; 67/163, para. 7.8; 67/94]. It re-opened in July 1999, following
refurbishment. It closed again a short
time afterwards, apparently because Bass decided that it was not commercially
viable to operate it. Bass then agreed
to sub-let the public house to a local company, subject to the transfer of the
licence and the consent of the pursuers [67/181]. There were however objections to the renewal
of the licence in January 2000. The
Whitfield Steering Group alleged that the public house had in the past been a
centre for drug dealing and trafficking in stolen goods; that a murder had been
committed on the premises; and that persons using the Centre, or the community centre
next door to the public house, had been harassed and intimidated by drunks,
drug dealers and dealers in stolen goods [67/330, 67/331]. The police did not object to the application,
and observed that much of the contents of the objection related to the period
prior to 1997. They also observed,
however, that since the public house had re-opened there had been a number of
calls relating to disturbances. The
licensing board decided to refuse to renew the licence, on the ground that the
use of the premises for the sale of alcoholic liquor would be likely to cause
undue public nuisance [67/329].
[184] In about
June 2000 interest was expressed by a Mr Ng in taking a lease of
unit 124 for use as a Chinese takeaway.
Interest was also expressed in the same unit, around the same time, by a
Mr Gani, who wished to operate a fish and chip shop [67/149]. In the event, the unit was let to Mr Ng
with effect from October 2000 at a rent of £6,500 per annum, [67/367],
with a rent-free period while the unit was fitted out [Mr Reid].
[185] The rent
of unit 114 (Moss Chemists) was subject to review with effect from
June 2001. After discussion, the
reviewed rent was agreed at £5,250 per annum, an increase of 5 per
cent from the rent agreed in 1996 [67/188-67/193].
[186] The rent
of unit 115 (Ladbrokes) was also subject to review with effect from
June 2001. The reviewed rent was
agreed at £5,250 per annum, an increase of 5 per cent from the rent
agreed in 1996 [67/204-67/212].
[187] The rent
of unit 121 (the newsagents) was also subject to review with effect from
June 2001. The reviewed rent was
agreed at £6,000 per annum, an increase of 9 per cent from the rent
agreed in 1996 [67/259-67/261].
[188] In
relation to these rent reviews, Mr Reid, who acted on behalf of the
pursuers, said that the £250 increase accepted by Moss Chemists and
Ladbrokes had been a token increase to conclude the matter and avoid the
expense of going to arbitration. The
difficulty he had had in putting forward a case for an increase in rent was the
lack of success of the marketing campaign to secure new tenants, and the
consequent lack of market evidence within the Centre to support an increase.
[189] In
October 2001, interest in renting a unit was expressed by a youth
organisation [67/159]. In the event,
nothing came of it.
[190] In
January 2003 Richard Ellis were instructed by Dunbar Bank to prepare
an up-to-date valuation of the Centre.
The report was prepared by Mr Lythgoe, following an
inspection. He noted that there had been
a recent improvement of the Centre, by reason of the refurbishment works. He also noted that the doors to the enclosed
section of the Centre required overhaul, that an infestation of pigeons should
be eradicated, and that intensive cleaning of the covered areas would then be
required. (I note that this problem had
also been mentioned at the meeting in September 1998 discussed below: in evidence, Mr Lythgoe said that
problems of this nature were quite common [p.512]). Mr Lythgoe also noted that only five units
were open for trade at the time of his inspection: these would appear to have been unit 111
(the grocer's), unit 114 (the chemist), unit 115 (Ladbrokes),
unit 120 (the post office) and unit 121 (the newsagent). Unit 124 (the Chinese takeaway) will also
have been occupied at that time, but had different trading hours from the other
units. It would appear that
Ms Walker may by then have vacated unit 118, where she had been
carrying on business as a hairdresser (although the evidence as to when she
vacated the unit is not clear). She
closed because she was not getting enough business [Mrs Majola; Mr De
Vos]. She had accrued large arrears of
rent [67/374-67/375, 67/377]. The
Misses Minns had ceased trading from unit 119, where they had had a
café, in 2002, although their lease was not terminated until 2004
[Mr De Vos]. They had very little
trade, and accrued large arrears of rent [67/372, 67/377]. Mr Letley said in evidence that he had
felt at the time that the continued closure of the Premises was a factor in the
café's lack of success: the absence of a
supermarket had reduced the number of people visiting the Centre, and therefore
the number of people making use of the café.
Mr De Vos said in evidence that both Ms Walker and the
Misses Minns attributed their lack of business to the absence from the
Centre of a trading anchor store. That
evidence was not challenged in cross examination.
[191] Mr Lythgoe
noted that all the units, other than those which were open at the time, were
secured by metal roller-shutters. This
precaution was presumably intended to discourage break-ins or the breaking of
shop windows. Four units were
unlet: unit 113 (unlet since
about 1995), unit 117 (unlet since 1993), unit 122 (unlet
since 1993) and unit 123 (unlet since it was constructed
in 1998). The total rental
receivable was £84,400 per annum.
[192] Mr Lythgoe
was aware, on the occasion of this valuation, that the passing rent for the
public house was £15,000 per annum, and he treated that figure as a rack
rent i.e. as an ERV. He similarly
treated the passing rent of the Premises, of £20,000 per annum, as an ERV. In the case of the smaller units, he adopted
ERVs based on a Zone A rate of £10 per square foot per annum. This rate could be compared with the rent
reviews as at June 2001, which reflected Zone A rates of £7.50
for units 114 and 115, and £8.90 for unit 121 (the tenant of the
latter not having been professionally advised, so far as appears). The rentals to Ms Walker, the
Misses Minns and Mr Ng had reflected higher Zone A rates, on a
"headline" basis (i.e. ignoring rent free periods and other concessions),
ranging from £10.81 to £11.45, but only Mr Ng had paid his rent
and remained in occupation. In the case
of the let units (including, apparently, the units let to Ms Walker and
the Misses Minns), Mr Lythgoe appears to have adopted a valuation
methodology which assumed that the passing rent would be received in
perpetuity, and that the additional amount (if any) representing the difference
between the passing rent and the ERV would be received from the date of the
next rent review in perpetuity. In the
case of the unlet units, Mr Lythgoe appears to have assumed a two year
void, followed by the receipt of the ERV in perpetuity.
[193] In the
form in which Mr Lythgoe's report was produced to the court (which was
incomplete and with the pages out of order, as was also the case with several
other productions), it is not possible to tell what yield was adopted; nor were
the calculations produced. He valued the
Centre at £700,000. That figure
reflected shorter voids than Mr Lythgoe considered to be realistic as at
the date of the proof (by which time the unlet units had been unlet for
two years longer), and was, primarily for that reason, higher than his
subsequent valuation [Mr Lythgoe, pp.517, 525].
[194] Later in
2003 the rent payable under the Sub-Under-Lease was due to be reviewed. The defenders and Kwik Save agreed that the
rent should remain unchanged. The
present proceedings were by then in dependence.
[195] In
February 2004 Tayside Police carried out an analysis of all reported crime
occurring between 1 January and 17 February 2004 within approximately
a one-quarter mile radius of the Centre.
During that period, 105 crimes had been reported within that
area. A plan showing the location of all
the reported crimes appears to show only one such crime at the Centre
itself: an offence of vandalism, when a
youth threw stones at the entrance doors and broke two glass panels. There do not appear to have been any other
reported crimes, during the period studied, either within the Centre or in its
immediate vicinity. The study also
reported that vandalism had been the most prominent type of crime within close
proximity of the Centre during 2002 and 2003. It mainly involved youths throwing stones at
cars and shop windows [67/320].
[196] In
November 2004 Mrs Mussrat Begum exercised her option to terminate the
lease of unit 112. The unit lay
vacant from
[197] It will
be recollected that, when the Premises closed on 7 January 1995, four
units (units 112, 113, 117 and 122) had been unlet since 1993, and
the public house had been closed since 1992.
There was interest at that time in the vacant units, but it was not
pursued after the Premises closed. The
position during the period since January 1995 can be summarised as
follows. The four units which were
unlet in January 1995 have remained effectively unlet (there was a lease
of unit 112 as part of a double unit with unit 111, but it was never
implemented, and the unit was in reality occupied on an informal basis, free of
rent). Unit 118 was also unlet
between December 1997 and March 1999, and has again been unlet (in
reality) since about January 2003.
Unit 119 was also unlet between about the beginning of 1998 and
February 1999, and has again been unlet (in reality) since 2002. Unit 123 has been unlet since it was
completed in 1998. Unit 124
was unlet between 1998 and 2000, but has been let since then. The overall number of unlet units was thus
(in broad terms) four between 1995 and 1997; eight in 1998, when
two leases expired and two additional units were constructed; five or six
between 1999 and 2002; and seven since 2003. Although there have been numerous expressions
of interest in the smaller units (about fifteen being mentioned in evidence),
only three (Ms Walker, the Misses Minns and Mr Ng) resulted in
lettings, and two of those lettings came to a premature end.
[198] The
defenders have repeatedly made it clear to the pursuers that they will never
trade from the Premises. They told the
pursuers that in 1998 and on several subsequent occasions, most recently a few
weeks prior to the proof [Mr Clapham, p.703]. Asked in evidence whether the third party (or
its associated companies) might ever trade from the Premises, Mr Poulton
responded that pigs might fly [I have not noticed this remark in the transcript
of his evidence, but I recollect it being said; and it was referred to in the
closing submissions]. A second schedule
of dilapidations has been served by the pursuers. As previously mentioned, Mr Poulton was
unaware of any steps taken by the defenders to force Kwik Save to comply with
their keep-open obligation under the Sub-Under-Lease. On the evidence, there appears to be no
realistic prospect that the supermarket will re-open prior to the expiry of the
Sub-Lease.
Whitfield
today
[199] Photographs taken of the Centre and its surroundings
in late 2001 [67/3], June 2004 [67/5, 67/8a] and January 2005 [67/342]
show their condition at those dates. The
general external appearance of the Centre is far better than in 1993 (when the
photographs discussed earlier were taken), with minimal graffiti. The interior of the Centre is
functional. The side of the interior
which faces the entrance is taken up by the Premises: they present a series of closed
roller-shutters. The roller shutters of the
vacant units (118 and 119) are also lowered. In the most recent photographs, the newsagent
at unit 121 appears to have been closed at the time, and its shutters also
are lowered. The overall effect, judging
from the photographs, is to give the interior of the Centre a dark and rather depressing
appearance. Among the external units,
only unit 111 is open during the day and has its shutters raised. The housing to the south of the Centre has
been modernised and has an attractive appearance. There is also new housing to the rear of the
Centre. It appears to be separated from
the Centre by extensive grassed areas or vacant ground. That aspect of the Centre is dominated by the
rear of the Premises, which is much more affected by graffiti and vandalism
than the front of the Centre. The
external windows of the Premises are broken, as described by Mr De Vos,
and the walls are covered in graffiti.
The loading bay is full of rubbish.
A wall at the top of the loading bay has been knocked down.
[200] Further
house-building is continuing in Whitfield.
Construction of a development to the rear of the Centre started in
March 2005 [Mr Wallace].
[201] Proposals
for further housing were explained by Mr Luke, who was at the time he gave
evidence the local Member of Parliament.
Mr Luke's extensive experience in local government was described
earlier [para.3]. The Finalised Local
Plan zoned the open area to the rear of the Centre, and stretching eastwards,
for residential development. A total of
700 new houses were envisaged for Whitfield. A planning application had been received for
a further development of 59 homes to the rear of the Centre. After Mr Luke had given his evidence,
the Local Plan was adopted. I was not
informed of any material departure from the provisions of the Finalised Local
Plan relating to housing.
[202] Further
information about this matter was given by Mr Dallas. Part of the area to the rear of the Centre,
shown as vacant on the maps produced at the proof, had been developed for
housing in 2004. There was pressure from
housing associations for further house-building in that area, but there was a
problem at present over road access (there being, as already mentioned, few
roads in the part of the estate which was formerly occupied by the Skarne
blocks). There were also major private
housing developments proposed to the north-east of Whitfield. Houses there would lie within the catchment
of the schools and health centre adjacent to the Centre. The Centre would be their closest shopping
facility. Mr Dallas's Group was
endeavouring to integrate the community in that area into the life of
Whitfield.
[203] Ms Brash
explained that some of the housing built in Whitfield since 1991 had been sold
outright by developers to private buyers; some had been built by housing
associations and let to tenants; and some had been let by housing associations
under "rent to buy" arrangements.
Different sectors of the housing market were represented. The houses built in recent years to the south
of the Centre were mostly rented, and housed people most of whom had lived
previously in the multi-storey flats.
The new houses to the rear of the Centre were a mix of privately owned
and rented. Altogether there had been
about 250 new houses built in the area between June 2001 and June 2004. Some of these, to the rear of the Centre,
were to re-house existing residents of Whitfield; the others were mostly on a
new estate of private housing. More
houses had been demolished since 2001 than had been built. The multi-storey flats would however have
been virtually empty for some time before they were demolished. Looking to the future, there was a masterplan
for housing developments in Whitfield.
There was a large number of sites, some of which were currently
effective, but others of which were not.
"Effective" sites were those which were free from restrictions and were
expected to be completed within the next 5 years. The masterplan envisaged at least 500 houses,
most of which were intended to replace housing dating from the 1960s and 1970s,
but some of which were additional. The
areas currently being developed included areas to the rear of the Centre. Whether the number of new houses envisaged is
"at least 500", as Ms Brash stated, or 700, as Mr Luke said, it is in
either case a substantial number.
Other retail
facilities in the Whitfield area
[204] Evidence was led on behalf of the
defenders and third party concerning other
retail facilities in Whitfield and Fintry. It can be summarised as follows.
[205] Within
Whitfield, there are a number of small shops which are not in the Centre. In the area of private housing to the north
of the Centre, where Skarne blocks were once located, there is a general store
known as Pricecracker. It has a gross
area of about 1500 square feet [Mr Wallace]. Towards the eastern edge of the Whitfield
estate there is a sub post-office and general store known as Kellyfield Post
Office, of about 1000 square feet [Mr Lythgoe, p.727]. There are two other small shops in the
southern part of Whitfield [Mrs Canter].
[206] In
Fintry (to the west of Whitfield), there is a small "Costcutter" convenience
shop of about 1000 square feet on Fintry Road, in about the centre of the
estate. There are other small shops
nearby. Further up the same street, to
the north, there is another small convenience store trading as "Countdown
Stores" and (further up the same street) a parade of three or four small shops
including another small convenience shop, possibly known as Pricecracker. On Fintry Drive, on the western side of the
estate, there is a convenience shop of about 1500 square feet trading as
"One Stop to Shop" [Mr Lythgoe, pp.299-300, 722; Mr Robeson, p.54],
beside a hairdressers and a take-away.
It is more than fifteen minutes walk away from the Centre. The other shops mentioned are about fifteen
minutes walk from the Centre [Mr Lythgoe, p.778]. There are other small shops on the western
and northern edges of the estate. Altogether
there are about 16 to 20 small shops in Fintry. They are generally successful. They have existed since at least the late
1980s [Mr Hussein]. Some of them
pre-date the development of Whitfield [Mr Todd]. They were trading during the period when the
supermarket at the Premises was open.
[207] There
are larger supermarkets and superstores further afield, some of which have
already been mentioned. Many others,
existing or planned, were discussed in the course of the evidence. Evidence relating to the use made of these
facilities was given by a number of witnesses, including Mr Wallace,
Mr Dallas and Mrs Canter, and is discussed below.
The size and
characteristics of the population of Whitfield
[208] In relation to the size and
characteristics of the population of Whitfield, reference was made to census
data published by the Government Statistical Service and produced by the
defenders and third party as an appendix to Mr Robeson's report [67/9,
Appendix 1]. The introduction to
the data explains that the statistics relate to local government electoral
wards as existing on the date of the relevant census. It also explains that ward boundaries are
re-drawn from time to time. When one
looks at the statistics for Whitfield, it is apparent that the area of the ward
in 1981 and 1991 was 111 hectares, whereas in 2001 the area of the ward
was 142 hectares. It is thus
obvious, on the face of the statistics, that the ward boundaries changed
significantly between 1991 and 2001, and that no direct comparison of the
statistics at those dates is therefore possible. The ward boundaries had in fact been re-drawn
in 1998. This point was not however
apparently noticed either by Mr Robeson (who had based part of his report
on such a comparison), or by those instructed on behalf of the defenders and
third party. The problem was compounded
by the production of a map, as part of the same appendix to Mr Robeson's
report, which was described in his report as "a plan of Whitfield Ward". It eventually emerged that the map did not in
fact show the boundaries of the ward, either as they were prior to 1998, or as
they were subsequently. It appears that Mr Robeson's
map was probably produced by computer software which was designed to show the
area within the 1998 ward boundaries where households were known to be located
as at some (unspecified) date, excluding areas which were then occupied by non-residential
developments or were unbuilt on. It therefore
excluded parts of the ward where housing had been built in recent years. Eventually, on the twenty-eighth day of
evidence, the pursuers produced maps showing the true boundaries [67/386C and
67/386D], and led Ms Brash to speak to their correctness. Ms Brash also explained the correct
position in relation to the census figures, and gave population figures for the
various maps produced by the expert witnesses (including the CACI plan and
Knight Frank plan produced by Mr Oswald, discussed below, and the
5 minute walk-in plan produced by Mr Robeson).
[209] Ms Brash
worked in the research and information section of the Council's planning
department, specialising in population and housing statistics. Her evidence in relation to housing has
already been discussed. In relation to
matters relating to population, she explained that the ward boundaries had been
the same in 1981 and 1991, and the census figures as at those dates were therefore
comparable. The Centre had however lain
outside the Whitfield ward as at those dates:
it had been in the Longhaugh ward.
The re-drawn boundaries in 1998 were completely different: the Centre, for example, was included in the
re-drawn Whitfield ward. The census data
for 2001 could not be compared with the data for the wards with the same names
as at earlier dates, partly because the boundaries were different, and partly
because of changes in the methodology used to calculate the population.
[210] As
explained earlier, the Whitfield housing estate was originally intended to
house 12,000 people. As at 1989,
the population of the area falling within the ambit of the Whitfield
Partnership (in broad terms, the Whitfield estate) [Mr Hermiston, p.21]
was estimated by the Partnership at 6000, on the basis of a study carried out
on their behalf. As at 1994, the
population was estimated at 6400 [67/400].
According to the census data, the population of the Whitfield ward was
4486 as at 1981, and 3115 as at 1991.
The Whitfield ward boundaries, as at those dates, were however markedly
different from the boundaries of the area covered by the Whitfield
Partnership: the ward excluded the
southern and western half of the Partnership area (including, as I have
mentioned, the Centre itself), but included an area of private housing beyond
the Partnership area to the east. These
census statistics do not appear to me to be useful in the present case, as the
ward boundaries prior to 1998 bear no relation to the boundaries of the housing
estate where the Centre is located. So
far as the latter area is concerned, the Partnership's estimates of population
are a more reliable guide.
[211] In 1998
the ward boundaries were re-drawn, as I have explained, so as to exclude a
large area of private housing to the east and an area of private housing to the
north-west, and also so as to include the Centre and the surrounding area of
housing. The effect was to bring the
ward boundaries more closely into alignment with the boundaries of the Partnership
area, although there remained differences:
in particular, the Partnership area included two areas of housing
(one to the east, and one to the north-west) which were excluded from the ward.
[212] According
to the 2001 census data, the population of the ward as at that date was 3605. According to Ms Brash, the 2005 figure
would be slightly higher. It is
impossible to make any exact comparison with the earlier estimates produced by
the Partnership, bearing in mind the different boundaries involved (and also
bearing in mind that the estimates cannot be expected to be wholly reliable): I reject Mr Robeson's evidence that such
a comparison could be made with "reasonable statistical accuracy" [p.17], in
the absence of information about the population of the parts of the Partnership
area falling outside the ward boundaries.
The figures tend however to suggest that the population of the estate
dropped between 1994 and 2001. Bearing
in mind the extent to which high-density housing has been demolished, to be replaced
by low-density housing, that conclusion would not be surprising.
[213] Attempts
were made by Mr Robeson in his report, and by the solicitor advocate for
the defenders and third party in cross-examination of witnesses, to compare the
census statistics in 1981, 1991 and 2001 in relation to such matters as car
ownership, employment and social class, so as to derive conclusions as to the
way in which Whitfield was evolving, and to assess the implications for the
Centre. Unsurprisingly, since the boundary
changes meant that the ward lost its more prosperous areas and gained poorer
areas, the comparison appeared to show a decline in prosperity. These attempts were however invalidated, as
Mr Robeson acknowledged in evidence, by the changes in the ward boundaries: like was not being compared with like. Attempts were also made to use the census
data for 2001 in order to compare the Whitfield ward with
[214] I am not
persuaded by the argument, advanced by Mr Robeson, that the nature of the
population of Whitfield jeopardised the viability of the Centre as a location
for a supermarket, or for retailing more generally, in so far as that argument
was based on the socio-economic characteristics of that population, as distinct
from its size. As was pointed out by
Mr MacLean, there are many examples of deprived areas in
The attitudes
and behaviour of local residents
[215] The absence of a supermarket trading in the
Premises has been a matter of concern to local residents, and their political
representatives, for several years. In
July 1998 Mr Wallace wrote to the pursuers, in his capacity as
chairman of the Murrayfield Area Residents' Association (Murrayfield being an
area within Whitfield), expressing the concerns of local residents:
"The supermarket ... is the focal point of the development. To have this unit open and in operational
status would be an important factor in the total success of the shopping
complex. It would also assist the neighbouring
smaller units. The residents of
Whitfield are extremely concerned that they definitely have a supermarket in
the area. These concerns are expressed
to me almost on a daily basis" [67/288].
[216] During
the same month, the local councillor took the matter up with the council, with
the result that the valuation officer who dealt with the Centre wrote to the
pursuers:
"I think we all recognise the pivotal and key nature the presence of a
Supermarket operator would mean for the refurbished Shopping Centre at
Whitfield. I am quite prepared to write
to CWS on behalf of the Council"
[67/289].
[217] The
matter was then discussed at a meeting in September 1998, attended by
representatives of numerous local residents' associations and community groups,
the local councillor and Member of Parliament, a representative of Moss
Chemists, representatives of the pursuers, and others [67/291]. The community representatives made it clear
that their priority was to have a supermarket to service the area. From the note of the meeting, it appears that
there had been a problem with pigeons inside the Centre, as a result of the
entrance doors not working properly.
Other issues raised included people drinking outside the shops, the dropping
of litter in the Centre, and drug addicts causing problems while waiting for
the chemist's to open in the morning.
The local Member of Parliament agreed to take up with the defenders the
non-occupation of the Premises.
[218] The
absence of any supermarket trading from the Premises was taken up again in
March 2000 by the local Member of the Scottish Parliament
[67/292-67/293]. The matter was also
raised in April 2000 by the Whitfield Partnership, which reported that the
vacant supermarket was an issue causing concern to most local residents
[67/294].
[219] Further
evidence concerning the attitudes and behaviour of local residents was given by
a number of witnesses. Mr Wallace
was 65 years old, and lived in an area of housing close to the Centre,
where most of the inhabitants were over 50 years of age. He did not own a car. He said that, during the periods in the past
when a supermarket was trading in the Centre, the Centre was very much busier
than when a supermarket was not trading there.
That evidence was not challenged in cross-examination. He and his neighbours currently used some of
the shops in the Centre, such as the grocer's and the newsagent's, for daily
purchases. He used to do his larger
shopping at the Longhaugh Neighbourhood Centre on
[220] Mr Wallace
accepted that a small number of drunks or drug addicts sometimes hung around
the Centre, but said that they did not bother people much. Most of the drug addicts using the Centre
went there to collect their methadone prescriptions from the chemist's. If they caused trouble they were banned from
using the chemist's afterwards. This
problem applied to all the supermarkets in the area: Asda, at Milton of Craigie Road, had security
staff to deal with people of that sort.
Whitfield had no worse a problem than the neighbouring areas of Fintry
and Douglas. He had heard of one
occasion when a trader had said that they could not open a shop at the Centre
because of drug addicts. No details of
this occasion were given.
[221] Evidence
was also given by Mr Luke. He had
known Whitfield and its shopping facilities well since the estate was first
built, as he did shopping for a family member who lived there. He used to walk from her house to the
Centre: other evidence established that
that would have been a walk of more than 5 minutes. He agreed with the suggestion put to him, by
the solicitor advocate for the defenders and third party, that the Centre
served an area lying within a walking distance of up to 10 minutes. He had been a member of the Whitfield
Partnership. As a Member of Parliament,
he held surgeries in the library and the community centre, adjacent to the
Centre, and went into the Centre regularly.
He remarked that it was very dark inside the Centre, because of all the
shutters being down: the shutters of the
Premises in particular. At the time
Shoprite closed, the Centre had been brighter and reasonably busy. He was certain that local people would use a
supermarket at the Premises, if it re-opened.
[222] In
relation to anti-social behaviour, Mr Luke said that Whitfield had a bad
reputation, but that the problem was widespread throughout his constituency of
Dundee East, and seemed to be worst in the neighbouring area of Douglas. It was not an issue often raised by constituents.
[223] Mr Dallas
said that Whitfield should not be considered in isolation from the adjacent
estates (to the west) of Fintry and Mill o'Mains. The three estates formed a continuous
community, isolated from the rest of
[224] Mr Dallas
said that he used the Centre every day.
It was not dangerous or frequented by large numbers of drunks or drug
addicts. There might be a problem with a
small number of people. The security
staff dealt with that. It was no worse
than in other areas of
[225] The
inadequacy of the existing shopping provision within Whitfield, and the
regeneration of the Centre, had been the priority issues for the Group since he
had joined it in 2002. The general view
within the Group, which he shared, was that a trading supermarket in the Centre
would give the Centre the kick start it needed, encouraging other local
businesses to take up units. Whitfield
needed an affordable supermarket, such as the Co-op. Mr Dallas also said that the Whitfield
ward was the sixteenth most deprived ward in
[226] Mrs Canter
had lived at a number of addresses in Whitfield, ranging from a 5 minute
walk from the Centre to a 15 minute walk.
These walking times may have reflected the fact that she had young
children: Mr Hermiston estimated
the walking times between the addresses in question and the Centre at about 6
to 10 minutes [pp.572, 575]. At
each address, she had shopped at the Centre, walking there and back. She did not have a car. Her impression was that the Centre had always
been fairly busy until Shoprite closed:
people could obtain most of their requirements there. After Shoprite closed, there seemed to her to
be a lot fewer people using the Centre, and more people hanging about. As fewer people went, shops started closing,
so there was less that could be bought there.
She shopped for groceries at Asda, travelling there by taxi because of
the inconvenient timings of the buses.
The Somerfield store at
[227] Mrs Neil,
the manageress of the bookmaker's at unit 115, had worked for Ladbrokes
for 25 years at various shops in different areas of
[228] Mrs Majola,
a particularly impressive witness, had been the full-time manageress of Moss
Chemists at unit 114 since 2003, and had previously worked in the shop
from time to time since 2001. She also
lived in Whitfield. The main business of
the shop was dispensing prescriptions.
It also sold cosmetics, toiletries and baby goods, and supplied photographic
processing services. Most of the
customers came from Whitfield, some from Fintry, and a few from further
afield. Deliveries were made to the same
areas. The majority of her customers
walked to the Centre or took a bus; some took a taxi. The shop was the worst performing of the twelve shops
operated by Moss Chemists in
[229] Asked
about drug addicts and anti-social behaviour, Mrs Majola said that the
pharmacy was required by the health board to provide a methadone prescription
service. There was a quota, set by Moss
Chemists, for the number of patients accepted.
Patients who were accepted had to sign a contract covering their
behaviour: if they broke the contract,
they would no longer be served in any branch of Moss Chemists. Some patients had to be supervised in the
pharmacy. The security situation was no
different from that at other branches. Other
branches also supplied methadone. She
had had no incidents in the shop.
In 2004 there had been a problem with people (not the methadone
patients) loitering inside the Centre.
She had reported it to the landlord and security had been
tightened. The problem had
disappeared. She had never been
threatened, or felt threatened.
[230] Mr Hussein
had been the postmaster at unit 122 since 1989, and had also been the
tenant of the newsagent's at unit 121 between about 1989
and 1992. Like Mrs Majola, he
was a careful and measured witness whom I found impressive.
[231] In
relation to the catchment of the Centre, Mr Hussein explained that his
customers' pension books and benefit payments gave details of their
addresses. His customers came from all
parts of the Whitfield estate (including the new housing built where the Skarne
blocks had formerly been), apart from the eastern edge (where the Kellyfield
Post Office was situated). They also
came from the Fintry estate, particularly on its eastern side (i.e. the side
adjacent to Whitfield). The catchment area
described by Mr Hussein appeared to be an ellipse, stretching about
3/4 mile from the Centre to the east and to the west, and about
⅓ mile from the Centre to the north and to the south. About 95 per cent of his customers came
on foot.
[232] In
relation to anti-social behaviour, Mr Hussein said that his staff had
never been threatened.
[233] In
relation to the attitude of local residents towards the Centre, and the
possible consequences of a supermarket's re-opening at the Premises, evidence
was also given concerning two pieces of research. The first was a questionnaire survey of
21 people aged over 50, carried out for the Whitfield Inclusion
Network Group during the first half of 2004 by a first year student of
community education at a local college [67/306]. No information was available as to how the
21 people were selected or where they lived, other than that they were all
over 50, and 8 of them were interviewed at sheltered housing in the
Murrayfield area of Whitfield. In the
circumstances, it is difficult to draw any significant conclusions from the
findings.
[234] The
second piece of research was carried out in November 2002, on behalf of
the pursuers, by George Street Research Ltd [67/304 and 67/305]. Members of the public were interviewed,
during working hours on weekdays, in close proximity to the Centre: Ms Fawcett, the managing director of
George Street Research Ltd, said in evidence that they were "looking to interview
people who would have visited the Centre".
Those who had never visited the Centre were excluded from further
consideration. Their number was not
recorded. The resultant group, of
241 people, was not representative of the local population in terms of
gender, age, employment status or car ownership: women, the elderly, the unemployed and those
not owning cars were over-represented. The
respondents may also not have been representative of the local population in
that they consisted solely of people who had visited the Centre. The 241 respondents were asked, if there
was a supermarket open and trading within the Centre, how often they thought
they would shop in the supermarket.
90 per cent said that they would shop there at least once a
week. At the same time, 93 per cent
said that they had visited the Centre within the last week, suggesting that
over 90 per cent of the respondents might already use the Centre at least
once a week. The survey did not contain
any more detailed comparison of the current frequency of visits to the Centre
with the anticipated frequency in the event that a supermarket was
trading. The respondents who had said
that they would use a supermarket in the Centre were then asked how likely they
would be, when shopping in the supermarket, to visit other shops or businesses
in the Centre. 47 per cent said
that they would be very likely to do so, and a further 38 per cent said
that they would be quite likely to do so.
It is difficult to draw any inference from these responses as to the
impact of a trading supermarket upon the other businesses in the Centre, since
there is no way of knowing, from the data provided, whether the anticipated
visits to such businesses would be additional to visits which currently take
place, or whether current visits would simply be combined with a visit to the
supermarket. Finally, the respondents
who had said that they would use a supermarket in the Centre were asked what
effect such a supermarket would have on the likelihood of their visiting the
Centre. 46 per cent said that they
would be much more likely to visit the Centre.
I find it difficult to take much from this response, when 93 per
cent of the larger group of respondents (i.e. including those who said they
would not use a supermarket in the Centre) were known to have visited the
Centre at least once within the last week, without there being a supermarket
there. It also seems to me to be
difficult to attach much weight to these responses, when the respondents had
been given no information about the supermarket envisaged (e.g. whether it was
operated by a national multiple or by a local independent operator; or whether
it was selling at comparable prices to the nearest Kwik Save or Asda, or at
higher prices), and when the respondents were not a representative sample of
households in the local catchment. In
these various respects I agree with Mr Robeson's criticisms of the
research [pp.68-82].
[235] The
research did however provide some information relevant to establishing the
catchment of the Centre. 77 per
cent of the respondents lived within a 10 minute walk of the Centre; 16 per
cent lived between 10 and 20 minutes walk away; and the remaining 7 per
cent lived further afield, but within a 10 to 15 minute drive or bus
journey. Information as to the
respondents' postcode details indicated that the great majority of them
(81 per cent) came from the DD4 O area, which includes virtually the whole
of the Whitfield estate (apart from two streets close to the Centre). 13 per cent came from the DD4 9 area,
which includes the whole of Fintry, and also the two streets just
mentioned. The remaining 6 per cent
came from further afield. This evidence
gave rise to a dispute as to the boundaries of the postcode districts, which
was complicated by the lodging of maps by each party [67/389, 67/392, 67/393]
which conflicted with one another. The
dispute was eventually resolved by the evidence of Ms Brash.
The effects of
a trading supermarket in the Centre
[236] Some evidence bearing on the
likely effects of a trading supermarket in the Centre has already been noted,
including that relating to the concerns expressed by the local residents'
association, the Council and others (supra,
paras.215-218), that of Mr Luke (supra,
para.221), that of Mr Dallas (supra,
para.225), and that relating to the research carried out for the Whitfield
Inclusion Network Group and the research carried out by George Street
Research Ltd (supra, paras.233-234).
[237] Mr Wallace
maintained that, if there was a supermarket trading in the Centre, local people
would not need to use Asda or Somerfield, but would do their main grocery
shopping at the Centre. He said that
what he was envisaging at the Centre was a good quality foodstore at reasonable
prices, similar to Kwik Save. If the
prices were not affordable, the supermarket would not be used as much. Local people would decide where to shop on the
basis of a comparison of prices. This
evidence was consistent with that of some other witnesses to the effect that
shopping at this level of society is highly price-sensitive, and that shoppers
will travel relatively long distances in order to shop more cheaply [e.g.
Mr Clapham, p.109]. In the light of
other evidence discussed below, however, this factor appears to be more
important in relation to bulk shopping (i.e. the "main grocery shopping" to
which Mr Wallace referred) than to what was described as convenience
shopping.
[238] Mrs Majola
said that the Centre needed to have more units open. It needed a supermarket running, from what
she had heard from staff who had been there longer than herself. If the supermarket were open, the Centre
would be a more attractive location to Moss Chemists: more customers would come to the chemist's,
after going to the supermarket. That was
what she had witnessed in other branches located next to supermarkets in
shopping centres, such as the branch located next to Somerfield at
[239] She had
heard a lot of her patients say that if there was a supermarket in the Centre
they would go to the Centre. She was
envisaging a supermarket which was bigger than a corner shop, stocking fresh
fruit and vegetables (which were not available at the grocery at unit 111
[Mr Dallas]) and other groceries, where the prices were better than in a
corner shop. A supermarket of that kind
would bring customers into the Centre, and her shop's business would do much
better. A Co-op type of supermarket
would do very well in the Centre. Even
if the prices were not as competitive as in the bigger supermarkets such as
Somerfield or Asda, people would be attracted by the convenience of a
supermarket in the Centre: customers on
foot, in particular, would not have to carry their bags as far. Mrs Majola's evidence about these
matters appeared to me to be based on experience and local knowledge, and to
make sense.
[240] According
to the evidence of Mr Hussein, there was a relationship during
the 1980s and 1990s between, on the one hand, whether there was or
was not a supermarket trading at the Premises, and, on the other hand, the
level of activity in the Centre generally, and the level of business enjoyed by
his premises, in particular. His
evidence was to the effect that business declined when Kismet Stores closed,
revived when A & T Stores opened, declined again when A & T
Stores closed, revived again when Shoprite opened, and declined again when
Shoprite closed. I accept that evidence,
and note that it is broadly consistent with evidence from other witnesses (e.g.
Mr Thomson) and from other sources [e.g. 67/50; 67/49, para
[241] Mr Hussein
did not accept that the re-opening of a supermarket would have an adverse
effect on the business of the post office:
they were not in competition with each other. Nor did he accept that a supermarket would
adversely affect the newsagent's:
although the previous supermarkets at the Premises had sold
confectionery and tobacco, like the newsagent's, the presence of a supermarket
had nevertheless been beneficial. He
accepted, on the other hand, that the operator of the grocer's at unit 111
would not be happy if a supermarket opened in the Centre. At the same time, the grocer's had been there
when a supermarket had been trading in the past, and had managed to compete,
partly by having longer opening hours.
[242] Mr Hussein
said that most of the customers he had lost had transferred their business to
the post office on
[243] Mr Hussein
acknowledged that there was a high level of car ownership in the area of
private housing in Whitfield, and that residents there were likely to drive to
a large supermarket such as Sainsbury in order to do their shopping. He considered however that some other
residents would do their weekly shopping at a supermarket in the Centre, and
not only incidental "basket shopping", provided the prices were sufficiently
attractive.
[244] I also
have to note the evidence of a number of professional witnesses, other than the
parties' expert witnesses, as to the likely use of the Premises, and of the
Centre, if a supermarket were trading from the Premises. I have already summarised the evidence
relating to this issue which was given by Mr Watt and Mr Letley (supra, paras.163 and 166).
[245] Mr Reid's
view was that the lack of footfall within the Centre made it infeasible for
traders to open within the Centre. In
his opinion, a trading supermarket would have increased the footfall within the
Centre and made it a feasible location for potential tenants. One of the key issues for a potential tenant
looking at a shopping centre was the footfall.
A trading supermarket could only help with that. This evidence was supported by Mr Reid's
experience of managing the Centre (supra,
para.162), and was consistent with that of other credible witnesses, including
Mr Watt, Mr Letley and Mr Lythgoe. I accept it. At the same time, Mr Reid accepted that
the absence of a trading supermarket might not have been the only matter which
discouraged some potential tenants.
Nevertheless, he regarded Whitfield as a typical local authority estate,
which could be expected to be attractive to some retailers.
[246] Mr McCluskey
considered that a supermarket in the Centre would be used for day-to-day
shopping: large shopping expeditions
would continue to be made to superstores.
A supermarket in the Centre would be competing in a different market
from the superstores, offering a facility for daily needs rather than the main
weekly shopping. There were however
residents of Whitfield, without a car, who would prefer to make regular trips
on foot to the Centre rather than undertake an expedition, involving the
expense of a taxi fare, to a superstore.
A realistic catchment area for the Centre would cover the Whitfield
estate and the eastern edge of Fintry.
[247] Evidence
in relation to the use of the Centre was also given by Mr De Vos, who
had been responsible for its management since about 1999, in succession to
Mr Letley. Mr De Vos was
a careful witness, and his evidence appeared to me to be credible and reliable. His impression was that the Centre was on a
downward trend. Looking at the volume of
people using it, it was not doing as well as formerly. The problem for the tenants of the smaller
units was the lack of people coming to the Centre. The tenants who had been there longest
(Mrs Mussrat Begum at unit 111, Mr Hussein, and Mr Mohammed
at unit 121) all said to him that trade had been drastically affected by
the closure of the supermarket. If the
number of people coming to the Centre could be increased, he would expect to
see an increase in the level of trade of the existing retailers, and also to
see some new businesses moving into vacant units. In his opinion, it was obvious that if a
supermarket resumed trading at the Premises, that would increase the number of
people coming into the Centre and support additional shops.
[248] Mr Brown
considered that if there was a supermarket trading from the Premises, it would
operate as a magnet store, i.e. as the "attractor" which pulls people into the
Centre and so benefits other shops there by providing spin-off sales. In view of Mr Brown's experience and
seniority as a retail planner, and my assessment that he was a credible and
reliable witness, I regard that evidence as significant.
[249] Mr Poulton
was asked to express views about Whitfield, the Centre, and the Premises, in
relation to such matters as the catchment, the potential "magnet" effect of a
supermarket, and competition in the locality.
He made it clear that he had been to the Centre on only a "very limited"
number of occasions and had not looked around the area [pp.105-106, 116]. He said that he was not qualified to express
a view about the catchment of the Centre [p.109]. His evidence was based primarily on the
documents bearing to be analyses of the trading results of the Kwik Save store
at the Premises, which I have found to be unreliable (supra, paras.93-96). In the
circumstances, I attach less weight to Mr Poulton's evidence about these
matters than to that of other witnesses who knew the area better. Mr Poulton's assessment of the Centre
however appeared to me to be realistic when he observed that it "lends itself
to ... a basket type situation based on people who are quite close at hand, and
probably lends itself more to convenience"; and that, since convenience
shopping tends to involve higher prices than other formats (such as Asda
superstores), the principal challenge facing a supermarket operator at
Whitfield would probably lie in balancing price against convenience [p.118].
[250] Mr Poulton
said that, despite marketing the Premises since 1995, Kwik Save (and later
Somerfield) had been unable to dispose of them.
There had been expressions of interest, but no firm offers
[pp.229-230]. That was also the evidence
of Mr Young, whose firm had dealt with the marketing since 2003 on behalf
of Somerfield (the date which he gave was 2002, but Mrs Meneer gave the
date as 2003, and I would expect her to be accurate). It was the longest outstanding disposal in
their portfolio of properties. He presumed
that there must be a lack of confidence that there would be sufficient business
there to support the level of investment which would be required to open and
maintain a profitable store in that location [p.563]. He was of the view that the ERV of the Premises
was below the passing rent of £20,000 per annum. As was noted earlier, however (supra, para.137), Mr Poulton also
acknowledged that the marketing of the Premises had been hampered by their
appalling state, attributable to Kwik Save's and the defenders' persistent
breach of their repairing obligations [p.497].
[251] It is
also relevant in this connection to note the evidence of Mr Poulton that,
from the perspective of potential tenants of the smaller units,
"a store [i.e. an occupier of the Premises] that looks as though it's
open and trading, whatever that store is, will be far more beneficial than
something that is closed and empty and perhaps looks uncared for" [p.294].
He also observed that, even if a supermarket did not
generate much footfall, some smaller traders would nevertheless see it as being
of potential benefit [p.292].
The
supermarket industry
[252] Evidence about the supermarket industry was
given by Mr Poulton. As I have
already indicated, in relation for example to the reasons for the closure of
the Premises, Mr Poulton's evidence did not appear to me to be wholly
reliable. His evidence as to the
workings of the supermarket industry however appeared to me to be
straightforward.
[253] Mr Poulton
said that Kwik Save and Somerfield competed with large supermarket chains, such
as Asda and Tesco, with "limited assortment discounters" such as Aldi and Lidl,
with the larger independent retailers, and with convenience retailers, such as
Spar, the defenders (in one of their "formats"), and independent
retailers. Convenience retailers did not
compete on price: the determinant was
availability and convenience, rather than price. Kwik Save had been competitive with Asda on
price until their merger with Somerfield in 1998. Since then, they had moved up-market. Like the defenders, Somerfield were moving
increasingly into convenience retailing, due to the strength of competition
from the larger supermarket chains [p.39].
Somerfield's mid-range supermarkets were between 10,000 and
15,000 square feet. The defenders
were increasingly operating from smaller stores, of about 3,000 square
feet. Discounters typically traded from
stores of between 8,000 and 15,000 square feet.
[254] The
appropriate size of store primarily reflected the demographics of the
location. In assessing potential
locations, Somerfield used population statistics and demographic data obtained
from consultancies such as CACI, discussed below [p.22], data from customer
loyalty cards, and data on propensity to spend, work patterns and travel
patterns, to form a view as to how a particular size and format of store would
trade in a particular location. They
would usually also visit the location, and might do a footfall count. That was a common approach in the
industry. The principal aim was to
obtain a forecast of turnover. They
could then decide how much could be invested in a site, in terms of rent and
other costs, and determine whether a store at that location could be expected
to trade profitably.
[255] Mr Poulton
described the different trading formats adopted by operators in different types
of location. In particular, he described
the type of supermarket operated by the defenders, Kwik Save and other
operators in neighbourhood centres, including supermarkets in peripheral housing
schemes in
[256] One
relevant point which emerged from Mr Poulton's evidence about these
matters was the dynamic nature of the food retailing industry. Shopping trends changed over time; so did
trading formats; so did the areas around stores. The stores themselves were improved and
updated. The type of location which an
operator might desire (for example, town centre or out of town; in a mall, or
in a petrol station), the size of store, the diversity of products on offer,
the pricing policy, and other aspects of the operation, were all subject to
perpetual and rapid change, as operators sought to respond to changes in social
conditions, in customer preferences, and in the regulatory framework (e.g. of
planning and competition policy).
[257] In
relation to this matter, I note that similar evidence was give by Mr Hermiston. He accepted that retailers would expect
premises to change over a long period of time; that they would expect the
market to change; and that they would expect the catchment population to come
and go.
[258] Another
point which emerged from Mr Poulton's evidence was the difference between an
operator's approach to the assessment of a potential store location, as he described
it, and the approach to the valuation of stores or shopping centres adopted by
the expert valuation witnesses, and by other valuation witnesses such as
Mr Allison and Mr Merry.
[259] Mr Poulton
was asked about sham trading: in other
words, trading so as to pay lip-service to a keep-open obligation. He said that that was not something which Kwik
Save would so. In the first place,
management systems were not sufficiently sophisticated, at least in 1995, to
enable a store to be operated in that way.
Secondly, sham trading might have adverse consequences for the brand, at
least locally; and any negative public relations towards the brand would be
guarded against [pp.198-199]. There
would be no question, if a keep-open clause were enforced, of Kwik Save trading
in a half-hearted manner: for example,
trading with most of the shelves empty, or trading for only a few hours each day. He knew, he said, what operating a
supermarket meant. I note that
Mr Robeson also gave evidence to the effect that protection of brand name
was an important matter for operators of supermarkets, citing the behaviour of
Morrison's as an example.
[260] Mr Poulton
said that Kwik Save would, on the other hand, trade to meet the needs of the
catchment. If there were low sales, and
a high wastage of perishable items, the stocks held of perishables would be
reduced, and the number of different products available might also be reduced,
so as to match sales better. The store
would operate fully, and the appearance of the shelves would not be very
different, but the range of products would be restricted to those in demand and
those with a long shelf life, and the products would not be stacked as deeply
into the shelves [pp.200-201, 567-569].
[261] In
relation to the issue of catchment, Mr Poulton said that the Competition
Commission adopted a standard catchment, for stores of between 2,800 and
14,900 square feet, of a 5 minute drive time (except in rural areas)
[p.84].
Planning
policy
[262] Evidence was given concerning the planning
history and status of the Centre, and the evolution of planning policies at
national and local levels. This evidence
appeared to me to be of limited significance.
It was clear from the evidence of the valuation witnesses that the
concepts used in planning are different from those used in valuation, and that
planning policies (except insofar as they may affect value) are of little interest
to them: as Mr Lythgoe put it, "in
valuation terms I am simply concerned with what I see ... Planning guidelines ...
[are] not a material factor in me deciding how I look at something" [pp.19-20;
also at pp.569-570].
[263] It
appears that the Centre was categorised as a district centre in the 1993 Dundee
Local Plan [67/75]. In the
1998 Dundee Local Plan, it was one of the seven district shopping
centres identified [67/390, para. 2.1].
The relevant parts of those plans were not produced in full; but it
appears from the evidence of Mr Brown that there were no defined criteria
for the designation of a district centre.
In the 2005 Local Plan, on the other hand, the Centre was not one
of the five locations categorised as a district shopping centre [67/408]. It is said in the 2005 Local Plan of the
district shopping centres that they meet "day to day shopping and related
requirements" and "help define and reinforce the identities of these
communities by providing shared facilities, local meeting places and
opportunities for social interaction" [para. 45.1]. They "provide local shopping, personal
services and leisure opportunities which are valued by these communities and
help make them convenient places to live"; they are "well geared to shopping
and other trips on foot", and "most of them are either on or close to major bus
routes"; in general, "they remain fairly healthy in terms of their range and
quality of shops and services and the overall occupancy levels of shop
premises" [para. 45.2]. The plan distinguishes
between the core areas of such centres, which "may include the shopping
centre's main food outlets, newsagents, post offices, chemists and banks" [para. 46.1],
and the remaining area, which "could include non-retail services such as banks,
other financial services, betting shops, estate agents, doctors and dentists'
surgeries" [para. 47.1].
[264] It
appears that the Centre is categorised in the 2005 Local Plan, by
implication, as a local shopping centre.
In relation to such centres, the plan states:
"
[265] The
distinction drawn in the plan between district and local shopping centres
appears to be similar to that drawn in national planning policy between
district centres and neighbourhood centres [67/391]. District centres are defined as
"Shopping centres or groups of shops, separate from the town centre,
usually containing at least one food supermarket or superstore and non-retail
services, such as banks, building societies and restaurants serving suburban
areas or smaller settlements".
Neighbourhood centres are defined as
"Small groups of shops, typically comprising a newsagent, small
supermarket/general grocery store, sub-post office and other small shops of a
local nature".
"Supermarkets" are defined as having a trading
floorspace of between about 500 and 2500 square metres, i.e. 5382 to
26,910 square feet [Mr Oswald, p.489]. The Premises have a trading floorspace of
about 7,000 square feet.
[266] As
previously explained, it appears that the Centre, as originally designed (with
two supermarkets), was intended to act as a shopping and services centre
for a community of around 12,000 people.
That may explain its categorisation as a district centre in the
1993 Local Plan. By the time of the
Graham & Sibbald report of 1993, however, the Centre was regarded as
falling within the category of "a local or neighbourhood centre", i.e. a
centre, typically of 10,000 to 25,000 square feet gross, serving a
population of 2,500 to 10,000 people, whose selling point is convenience
[67/49, para. 4.04].
[267] It was
suggested in evidence by Mr MacLean that the downgrading of the Centre to
a local shopping centre was connected with the closure of the supermarket
there. That suggestion was denied by
Mr Brown, whose evidence I accept.
Expert evidence
on matters other than valuation
1. Mr MacLean
[268] Mr MacLean was led as a
witness on behalf of the pursuers. I
have already discussed some aspects of his evidence, which was concerned with
planning and retailing issues. In
particular, I have discussed his evidence relating to the connection (or,
rather, the lack of any clear connection) between the socio-economic status of
the catchment population and the viability of a supermarket, and his evidence
relating to the planning history of the Centre.
[269] I can
deal relatively briefly with the other aspects of his evidence. It was avowedly designed as a corrective to
Mr Robeson's evidence [67/390, para.1.1], and did not appear to me to be
presented from an entirely objective standpoint. It was however professional, clear and
straightforward.
[270] Mr MacLean
had considerable experience of retail planning.
I note in particular that his experience included advising on retail
provision (including shopping centres) in a number of depressed urban areas in
Scotland, some of which (e.g. Possilpark in Glasgow) had more serious problems
than Whitfield. In his experience there
was usually a supermarket presence in such centres, such as a discount
operator, or the defenders. His
experience also included supermarkets serving relatively small communities,
such as
[271] Mr MacLean
explained that the retail market was highly "dynamic": retailers had to keep the premises and the
"offering" competitive. A retailer
entering into a long lease could foresee at the outset that the commercial
environment in which it operated might change during the term of the lease. This evidence was consistent with that of
Mr Poulton, Mr Oswald and other witnesses.
[272] Although
I have accepted Mr MacLean's argument that the success of supermarkets in
deprived areas elsewhere in Scotland demonstrates that the relative poverty of
a population is no bar to the viability of a supermarket, he merely noted that
the other areas which he mentioned had larger populations, and did not address
the implications of that distinction. He
acknowledged that the population of Whitfield had declined, but observed that
population decline had been experienced in many urban areas in
[273] Mr MacLean
was one of several witnesses who described the "retail hierarchy". It was generally accepted that local or
neighbourhood centres had a sustainable function, operating (broadly speaking)
at a level between large supermarkets of the Asda type (or town or district
centres), and corner shops. In broad
terms, local or neighbourhood centres provided more convenient (but more
restricted, and more expensive) facilities than the largest supermarkets, for a
local catchment; and they provided a significantly greater range of choice than
corner shops. That broad categorisation
was accepted by Mr Poulton and by the expert witnesses, and is reflected
in the planning policies discussed above.
Mr Robeson argued however that the catchment population of the
Centre was too small to enable it to operate as a neighbourhood centre in that
sense. That argument is considered
below.
[274] Mr MacLean
observed that the Centre was particularly convenient to the elderly, the infirm
and those without a car, who comprised a relatively high proportion of the population
of the Whitfield area, and that shopping at larger stores elsewhere involved
bus or taxi fares which many Whitfield residents could ill afford. That evidence is consistent with that of the
local people who gave evidence. He
observed that the poorer segment of the population constituted a market sector which
could be profitable and successful. He
concluded that "the re-opening of a supermarket at Whitfield would attract
shoppers and compete with the surrounding supermarkets for a share of the main
food shopping". He had no doubt, on the
basis of his experience of retailing, that the closure of the supermarket would
have affected the lettings of the smaller units in the Centre. They needed the supermarket. If the supermarket was open, the footfall
would increase. That opinion was based
on his experience of supermarket developments of all sizes in a variety of
locations.
[275] Mr MacLean
considered, on the basis of visiting the Centre and driving around the area,
that the catchment of the Centre was an ellipse, with the Centre at its heart,
comprising Whitfield and much of Fintry.
He would regard Fintry as an important part of the catchment. I note that such an ellipse would be similar
to the ellipse described by Mr Lythgoe, created by compressing a circle
with a radius of 900m, with the Centre at its heart. Mr MacLean's evidence about this matter
was also consistent, in broad terms, with that of Mr Thomson,
Mr Hussein and Mr McCluskey (supra,
paras.33, 231 and 246). On the basis
that the 2001 census figures for the Whitfield and Longhaugh wards (the
latter being essentially the Fintry area) totalled 9500, Mr MacLean said
that the catchment population could be estimated at about that figure. Mr MacLean was not cross-examined on
this evidence in any detail, but it was put to him by the solicitor advocate
for the defenders and third party that the catchment population was around
3000: a figure which Mr MacLean did
not accept. That figure is itself much
larger than the figures put forward by Mr Robeson, Mr Nisbet and
Mr Hermiston. The passage in the
Cousins Stephens Associates report, stating that the Centre was used primarily
by people living within 10 minutes' walk, was also put to
Mr MacLean. He responded that, in
view of the higher level of car ownership compared with 1990 or so (when that
report was prepared), he would expect the Centre now to be used also by people
living beyond a 10 minute walk. That
evidence is supported by the findings made by George Street Research Ltd (supra, para.235). Mr MacLean observed that there was a bus
service running through Whitfield and Fintry which stopped outside the
Centre. In his view, the catchment
population and available expenditure were large enough to support the Centre.
2. Mr Robeson
[276] Mr Robeson was led as a witness on
behalf of the defenders and third party.
He was qualified as a chartered surveyor, but had never practised as a
valuation surveyor. He was also a
chartered planner, and his experience, so far as explained in evidence, related
to the latter occupation. He had at one
time been Director of Town Planning in Sainsbury's Development Division. Since then, he had worked in private
practice, providing town planning and related advice in respect of retail
development proposals. In particular, he
regularly prepared retail impact studies and retail assessments.
[277] Mr Robeson
was instructed on behalf of the third party in relation to six areas of
evidence, one of which was "the extent to which available local expenditure can
support the existing floorspace in the Whitfield Shopping Centre" [67/9,
para.6]. In that connection,
Mr Robeson prepared a retail assessment: in other words, a calculation of
the convenience retailing floorspace required to support the convenience
expenditure available to a supermarket at the Premises, having regard to the
catchment population, the per capita available expenditure on convenience
goods, the extent to which the resultant total available convenience
expenditure would be spent locally, the average turnover per square foot
of a typical discount supermarket, the floor area of the Premises, and the
typical ratio of sales area to gross floor area. The calculation was supported by statistical
and other factual material. This
exercise created a difficulty at the proof.
Since it became apparent during the proof that the way in which the
court dealt with this matter was liable to be the subject of a ground of
appeal, it is necessary to explain it.
[278] As previously
explained, the action was raised in January 1999, but was sisted for
several years while the rectification action proceeded. After the sist was recalled, the defenders
and third party were on 26 April 2004 ordered to lodge within 6 weeks
any expert reports on which they sought to rely (the pursuers having previously
lodged a report by Mr Oswald), and the parties were on the same date
ordered to lodge lists of their witnesses within 8 weeks. The third party then lodged a report by
Mr Hermiston. The defenders
eventually lodged a report by Mr Nisbet.
Mr Nisbet and Mr Hermiston were included in the lists of
witnesses lodged by the defenders and the third party respectively. On
[279] On
21 January 2005 the solicitors acting for the third party informed the
pursuers that they intended to cite Mr Robeson as an expert witness. They said that he would speak to "the effect
of demographics, the change in shopping trends, crime statistics and census
information on the valuation" [77]. The
pursuers' solicitors responded by asking for a copy of Mr Robeson's report
by return, so that they could consider as a matter of urgency what steps they
required to take, and whether they needed to consult a similarly qualified
expert of their own. The third party's solicitors
responded that Mr Robeson had only recently been instructed, and had been
asked to provide his report by
[280] On
8 February 2005 the court allowed Mr Lythgoe to be added to the
pursuers' list of witnesses, ordered all parties to finalise and lodge by
1 pm on 16 February 2005 any expert report on which they intended to
rely, together with a joint minute from the parties' expert witnesses on the
matters agreed between them and the matters which remained outstanding, and
added a further 4 days to the diet of proof, from 12 to 15 April
2005. The court was addressed on behalf
of the pursuers in relation to their concerns about Mr Robeson, but
decided to make no order in that regard until Mr Robeson's report had been
seen and considered. A document was
subsequently lodged, recording the position reached by Mr Oswald,
Mr Lythgoe, Mr Nisbet and Mr Hermiston in their discussions. Updated reports by Mr Oswald,
Mr Lythgoe, Mr Nisbet and Mr Hermiston were exchanged.
[281] On
[282] On
18 February 2005 the action called in court By Order, in order to check
that parties were ready to proceed to proof.
A number of applications were made, including a motion on behalf of the
third party for leave to add Mr Robeson to their list of witnesses and to
lodge his report. The motion was
opposed. On behalf of the third party,
it was submitted that the third party's pleadings contained averments relating
to economic matters, and that Mr Robeson's report considered such matters
in greater detail than the valuers had done.
It was accepted that Mr Robeson's approach to these matters was of
a different nature. On behalf of the
pursuers, it was submitted that the report (which had only been received in
full that morning) should not be received, and that Mr Robeson should not
be allowed to be added as a witness.
Alternatively, the diet of proof would have to be discharged in order to
allow the pursuers an opportunity to meet this new material. It came too late, and in breach of the
court's requirements in relation to the lodging of reports, the exchanging of
lists of witnesses and the holding of meetings between expert witnesses. Early disclosure was a central element of
commercial procedure. The proof was due
to commence just over two weeks later.
Mr Robeson's report was different in nature from the reports by the
valuation surveyors, in considering economic matters, shopping trends and
population trends in detail, and carrying out a retail assessment calculation
of the kind one might expect at a planning inquiry. The pursuers would be materially prejudiced
if the report were admitted at such a late stage. The pursuers had identified a potential
academic witness who could give evidence about shopping trends, but had been
unable to contact him since receiving Mr Robeson's report, as it was the
academic mid-term. That potential
witness would not in any event be able to address the retail assessment, as it
lay outside his expertise. In response,
the solicitor advocate for the third party said that the third party wished to
avoid a discharge of the proof, and considered that there was sufficient time
for the pursuers to instruct a suitable expert of their own.
[283] I said
at the time that there had been a failure by the third party to comply with the
court's orders so far as Mr Robeson and his report were concerned. An important aspect of commercial procedure,
reflected in the court's orders, was that the parties should lay their cards on
the table at an early stage. Although
there had been a degree of slippage from the court's timetable by all parties,
the third party was now seeking to introduce a new type of evidence, which had
not been a matter of clear prior notice (the averments in the pleadings being
more general than Mr Robeson's assertion that the level of expenditure on
food and convenience goods available in the local catchment was insufficient to
support a supermarket of the scale of the Premises at average trading levels),
at a very late stage. It appeared to me
however that the pursuers should investigate whether they could instruct a
suitable witness for the proof, before the court decided whether to exclude
Mr Robeson's evidence (in whole or in part) or to discharge the
proof. The motion was therefore
continued until 25 February.
[284] On
25 February 2005 I was informed that the pursuers' agents had approached
seven potential expert witnesses since the previous hearing, including
three suggested by the third party. None
was in a position to prepare a report in time for the proof. Counsel for the pursuers renewed his
opposition to the motion on behalf of the third party. The proof should proceed: the action had been raised in 1999, and the
proof diet had been fixed in August 2004.
The pursuers would be prejudiced if Mr Robeson's evidence were to
be admitted: a new area of expertise was
being introduced. In response, the
solicitor advocate for the third party submitted that many of the matters dealt
with in Mr Robeson's report were also dealt with in the reports by
Mr Oswald and Mr Lythgoe, and in the report by George Street
Research Ltd. It was accepted that
Mr Robeson's calculations relating to available expenditure, and the
material supporting those calculations, were new, and that the methodology was
different from that of the valuation surveyors or George Street Research
Ltd. The third party did not wish the
proof diet to be discharged. If
Mr Robeson's evidence was regarded as being objectionable in part, on the
grounds of lateness, it would be helpful if the court were to lay down in
advance the parameters as to the leading of evidence.
[285] I
observed at the time that parts of Mr Robeson's report could hardly have
taken the pursuers by surprise, and dealt with matters which were also covered
by the reports prepared by Mr Oswald and Mr Lythgoe, or by George
Street Research Ltd. The retail
assessment calculations, and the supporting material, were however of
understandable concern to the pursuers.
This was new material, which came so late that it would be prejudicial
to the pursuers to allow it to be admitted.
No party suggested that the proof diet should be discharged. In the circumstances, I allowed
Mr Robeson to be added to the third party's list of witnesses, and I allowed
his report to be received, as the interlocutor records, "on the basis that
evidence will not be led in relation to matters discussed in Appendix 4 to
that report or in relation to the conclusions based upon aforesaid appendix as
mentioned in paragraphs 39-40, 43-44 and 50-51". The passages specified in the interlocutor
were those relating to the retail assessment calculation.
[286] On
8 March 2005, at the commencement of the proof, counsel for the pursuers
sought leave to add Mr MacLean to the pursuers' list of witnesses,
Mr MacLean's report having been completed the previous day and intimated
to the defenders and third party.
Counsel explained that it was intended that Mr MacLean would
address issues relating to planning, socio-economic matters and shopping
trends, in response to the sections of Mr Robeson's report which the court
had allowed to be admitted in evidence.
The motion was opposed, on the basis that those acting for the defenders
and third party had received Mr MacLean's report only the previous day,
and would require to obtain Mr Robeson's comments on it. The motion was continued. The motion was subsequently granted, without
opposition, and Mr MacLean's report was also allowed to be lodged, again
without opposition.
[287] This
matter was not referred to again for several months. On
[288] During
the evidence of Mr Hermiston, counsel for the pursuers offered to agree to
the admission of the excluded parts of the report (and other evidence,
apparently of a similar nature, which Mr Hermiston had indicated he was in
a position to give), subject to an adjournment to obtain suitable evidence on
behalf of the pursuers, and subject to the agreement of the defenders and third
party to such evidence being admitted (the pursuers having by then closed their
case) [p.598]. The solicitor advocate
for the third party did not however move to have the evidence admitted [pp.603,
716]. In that regard, the solicitor
advocate for the third party indicated that there might be a ground of appeal
available to the third party on the basis that counsel for the pursuers had
misrepresented the position at the hearing on
[289] Before
Mr Robeson gave evidence, the solicitor advocate for the defenders and
third party offered to delete from Mr Robeson's report the passages which
he would not invite Mr Robeson to speak to, on the basis that they
appeared to be dependent on the exercise contained in Appendix 4 (i.e. the
retail assessment calculations). I said
at the time that that was a matter for the solicitor advocate for the defenders
and third party (the report being lodged as a production for the defenders and
third party, and there being no objection on behalf of the pursuers). I also said that I wished to make it clear
that the witness was not prevented from expressing opinions on the basis of his
professional experience and expertise, in the same way as other witnesses had
done: for example, as to whether the
catchment was sufficient to enable a supermarket to trade at a level which
would act as a magnet or anchor, or whether such a supermarket would jeopardise
other tenancies. The only objection was
to the introduction of Appendix 4 to the report, because it was produced
late, in circumstances where its admission would either have resulted in the adjournment
of the proof diet or prejudice to the pursuers.
[290] Returning
to the evidence of Mr Robeson, it is necessary to say something about my
assessment of him as a witness. He gave
evidence over the course of three days.
He was very experienced in his field.
His evidence did not however always inspire as much confidence as might
have been expected. I have already noted
the errors he made in dealing with census information (supra, para.208), which appeared to me, if I may say so, to be readily
apparent. As a result, the relevant
section of Mr Robeson's report had to be substantially revised when he
came to give evidence. The plan which he
produced, purporting to show the Whitfield ward, was also inaccurate, as
previously explained (ibid). Other errors emerged during his evidence
[e.g. pp.77-78]. He appeared to me to be
a somewhat loquacious witness. Unless
firmly controlled by the questioner [e.g. pp.262, 272, 281-282, 377-378], he
gave lengthy answers [e.g. pp.123-129], which sometimes introduced material of
which no prior notice had been given, which had not been raised with any
previous witness, and of which even those instructing him had apparently not
been informed [p.217]. Asked why the
court should accept his view on a particular matter, he answered, "Because I am
the expert"; an answer which called to mind an observation of
Lord President Cooper, in Davie
v Magistrates of Edinburgh 1953
S.C. 34 at page 40, concerning expert evidence (in that case, the
evidence of a scientist):
"[T]he bare ipse dixit of a
scientist, however eminent, upon the issue in controversy, will normally carry
little weight, for it cannot be tested by cross-examination nor independently
appraised, and the parties have invoked the decision of a judicial tribunal and
not an oracular pronouncement by an expert."
My confidence in Mr Robeson's evidence was
further diminished by the importance he attached to an Asda store at Kirkton,
in explaining the shopping habits of Whitfield residents. The store had not been mentioned in his
report, or mentioned to the solicitor advocate who was leading him. Understandably in the circumstances, it had
not been raised by the solicitor advocate in cross-examination of any of the
pursuers' witnesses, but emerged for the first time on the fifty-first day of
the proof. The fact that the store was
not mentioned by the local people who gave evidence, when they were discussing the
shopping habits of local residents, appears to me to suggest that, despite his
expertise, Mr Robeson did not have an entirely accurate understanding of
the local situation. In a similar vein,
Mr Robeson placed great emphasis in his evidence on the competition which
a supermarket in the Centre would face from some of the smaller shops in
Fintry, although those shops had not been mentioned in his report, and the
issue had not been raised with the local residents who gave evidence, or with
Mr MacLean.
[291] In
relation to the catchment of the Centre, Mr Robeson considered that the
Whitfield ward (as defined by the 1998 boundaries) provided a realistic
catchment area on which to study the Centre:
in other words, an area within which people were more likely to use the
Centre than not to use it [p.29]. I note
that the population of that area was 3605 in 2001, according to the census
data, and would be slightly higher in 2005 (supra,
para.212). I also note that the Centre
is located on the western side of the ward, and is closer to the eastern part
of the neighbouring (and more densely populated) Longhaugh ward (i.e. Fintry)
than to parts of the Whitfield ward itself.
Mr Robeson however also considered that the core catchment of the
Centre, without a trading supermarket, was defined by a 5 minute
walk. By the expression "core catchment",
Mr Robeson meant the area defined by a boundary line where inflow was equivalent
to outflow: in other words, a line drawn
where there was an equilibrium between people inside the line who did not use
the Centre, and people outside the line who did [pp.40-41]. He considered that the catchment would be the
same even if there were a trading supermarket, bearing in mind the effect of
the Somerfield and
[292] For
reasons which are explained below, I am satisfied that the catchment is not as
restricted as Mr Robeson maintained.
I therefore reject the premise on which the remainder of his evidence, as
to the effects of a supermarket trading at the Centre, was based. I note that Mr Robeson's retail
assessment calculation, which was excluded from evidence as previously
explained, was based on the same premise. Mr Robeson accepted in his evidence that if
the catchment were more appropriately defined by a 10 minute walk (as I
have concluded), then the population would be much larger. He could not remember the resultant figure,
but said that it would be "over 5000".
[293] Much of
Mr Robeson's evidence was concerned with changes in shopping habits and
shopping facilities since the Centre was constructed, both generally and in
[294] Mr Robeson's
evidence is also difficult to reconcile with the body of evidence to the effect
that the closure of the supermarket remained a matter of considerable concern
to local residents. Mr Robeson acknowledged
that he was surprised by that evidence [pp.397-398]. He maintained that a trading supermarket
would have an adverse effect on other traders in the Centre. A similar view was expressed by some of the
other witnesses led on behalf of the defenders and third party, such as
Mr Hermiston. In the light of the
other evidence in the case, however, including the evidence of Mrs Majola
and Mr Hussein which was summarised above, I do not accept that
contention. It may be that the grocer's
would experience difficulty, although it appears to have continued to trade in
the past in competition with the supermarket;
but the evidence does not suggest that other traders would suffer: quite the contrary. Even if a particular trader found the level
of competition from a supermarket off-putting, the increase in footfall
anticipated by numerous witnesses whose evidence I accept (including lay
witnesses such as Mrs Majola, professional witnesses such as
Mr Brown, and expert witnesses such as Mr Lythgoe) could be expected
to attract other tenants to the Centre.
[295] Although
Mr Robeson did not accept that a trading supermarket would act as an
anchor, he accepted that potential tenants of the smaller units would be put
off by the fact that the Premises were vacant.
An incoming tenant would worry about the dereliction and vandalism that
were attracted to a vacant unit; he would be looking at the security and visual
quality of the area around his shop. The
empty Premises created a poor impression and encouraged anti-social behaviour. Lenders would be less willing to advance
loans in relation to a half-empty centre.
That would be a problem for a smaller entrepreneur needing to borrow to
pay for fitting-out and other start-up costs.
Investor confidence would be affected if they saw the principal unit
with its shutters down [pp.407-408, 411-413].
Mr Robeson considered the unattractive condition of the Centre, and
the vandalism problem, to be due partly, but not entirely, to the fact that the
supermarket was not trading; and he attributed the low level of demand for
tenancies in the Centre partly, but not entirely, to its physical condition
[pp.437-438]. He considered that the
Centre was never going to be fully let, because it was too large for its
current function, but its condition might have put off some tenants who would
otherwise have gone in [p.441].
The method of
valuation
[296] The various expert valuation
witnesses adopted different methods in order to estimate the capital value of
the Centre, both in its existing state ("as is") and on the hypothetical basis
that a supermarket had continued to trade from the Premises ("supermarket
trading"). In broad terms, the valuation
method which they all employed was to place a present value on the anticipated future
stream of rental income. Such a
valuation requires a calculation involving a number of elements, including the
number of units which are let and the number which are unlet; the length of the
periods during which unlet units remain unlet; and the rents at which the let
units are let. It also involves the
adoption of a yield, that is to say, the arithmetic relationship between income
and capital value. In very broad terms,
the yield is the rate of return on the investment, i.e. the income received
from the investment expressed as a percentage of the cost of the investment. It reflects the security of the anticipated
cash flow and the prospects of a growth in income [Mr Lythgoe, p.426]. The yield is adopted on the basis of evidence
about comparable subjects which have been sold (comparable, that is to say, in
respect of security of income and prospects of growth [Mr Lythgoe,
pp.427-429]), and in respect of which the yield is known. Subject to appropriate adjustments to reflect
differences between the comparison subjects, and the circumstances under which
they were sold, and the subjects being valued, the yield evidence derived from
the comparison subjects can be used as a basis for estimating the yield which
should be adopted.
[297] Valuers
refer to a variety of different yields.
The evidence about the comparison subjects related almost entirely to
the initial yield: in broad terms, the
rate of return on the date of the sale, i.e. the rent divided by the cost. As explained below, the position is somewhat
more complex than that, but that explanation conveys the general idea. In a few cases, there was also some evidence
about the reversionary yield: in broad
terms, the anticipated rate of return at some point in the future, after rental
income has changed (for example, as a result of rent reviews or
re-lettings).
[298] The
method used to calculate the yields in respect of the various comparison
subjects was not explained in detail by any witness, but can in some cases be
inferred from the figures. Mr Lythgoe
explained that, in principle, the initial yield is the net income at the date
of valuation divided by the gross investment value (i.e. the purchase
price plus the cost of purchase: typically, Stamp Duty, solicitors' fees and
agents' fees) [pp.434-444]. That was also
the explanation given by Mr Nisbet, and I accept it. In relation to the comparison subjects,
however, it does not appear that all the yields have been calculated following
that approach.
[299] It
appears that a number of different methods have been used in relation to
different subjects. In some cases, it is
not possible to determine the method used as there is an absence of information
as to rent or net annual values, or discrepancies between the figures (for
purchase prices, or for yields) given by different witnesses. There appear however to have been at least
four methods employed. The first,
and simplest, was to divide the passing rent by the purchase price. That method appears to have been used in
calculating the yields of the comparison subjects at Shawlands Arcade,
[300] If the
correct method in principle (and subject to the requisite information being
available) is to divide the net income by the gross investment value, the use
of other methods will tend to distort the result. The use of the passing rent rather than the
net income increases the numerator in the calculation, and therefore tends to
increase the yield. The use of the
purchase price, without taking account of the additional costs of purchase, reduces
the denominator in the calculation, and therefore also tends to increase the
yield.
[301] In their
valuations of the pursuers' interest in the Centre, the valuation witnesses
referred to a variety of yields, including the initial yield, the running
yield, the reversionary yield, the capitalisation yield, the average yield and
the equivalent yield. Unfortunately,
they did not use terminology consistently.
In broad terms, the comparison evidence was used in the first place to
arrive at what Mr Oswald described as the capitalisation yield, and
Mr Lythgoe sometimes described as the equivalent yield (an expression
which Mr Oswald used in a different sense and which Mr Lythgoe also
used at times in a different sense) or the average yield. The capitalisation yield (if I may call it
that) is, in broad terms, a yield applied to all rental income received over
the remaining duration of the lease, in order to place a capital value upon the
right to receive that income. For
example, if £50,000 per annum were to be received in rent from the date of
the valuation in perpetuity, and the capitalisation yield were 12.5 per
cent, the capital value would be approximately £400,000 (since 50,000 divided
by 12.5 per cent equals 400,000).
If that rental stream were to begin in 10 years time, the capital
value would of course be much less, but would still be based on a yield of
12.5 per cent, discounted to reflect the 10 year deferral.
[302] It is
also necessary to explain that, in relation to subjects such as the Centre,
comprising a number of units let to tenants of varying covenant strength, the
capitalisation yield can be calculated for the subjects as a whole - a
"blended" or "all risks" yield - or different yields can be calculated for the
different categories of tenant. Some
valuers adopted the former approach, and others adopted the latter.
[303] By using
the capitalisation yield to place a capital value on each element in the rental
stream (e.g. the anticipated rent of each unit in the Centre), and then adding
those separate values together, the valuers can arrive at a cumulative value
for the Centre. An initial yield can
then be calculated, as the net income at the date of valuation divided by the
capital value (inclusive of costs of purchase).
That initial yield can be compared with the initial yield in respect of
the comparison subjects, in order to check that the valuation has produced a
capital value which is realistic.
[304] The running
yield (referred to by Mr Lythgoe as an annual or quarterly yield) can also
be calculated. In broad terms, the running
yield represents the return on the investment at any particular point in
time: initially, it is the same as the
initial yield, but it changes over time as the rental income changes. Some valuers, such as Mr Oswald, check
the running yield over the life of the investment in order to see whether it is
sufficient to cover the cost of the borrowing which may be required to purchase
the asset being valued. If the running
yield is too low, it may be raised by increasing the capitalisation yield (and
the initial yield), in particular by decreasing the valuation.
[305] The
reversionary yield can also be calculated.
In broad terms the reversionary yield represents the return at some
point in the future, once rent reviews or re-lettings have taken place. Valuers generally consider the reversionary
yield, in order to assess whether the asset represents an attractive investment
at the price. If the reversionary yield
is too low, one way of raising it may be to decrease the valuation (thereby
also increasing the capitalisation yield and the initial yield).
[306] All
these various yields were relevant to some or all of the valuations carried out
by the expert witnesses. If the value of
property is a reflection of how much rent it generates, how fast that income is
likely to grow and the cost of the money which is borrowed to buy it, the
initial yield relates to the first of these, the reversionary yield relates to
the second, and the running yield is relevant to the third. A valuer such as Mr Oswald or
Mr Lythgoe proceeded by a process of trial and error, refining his
assumptions until he arrived at a "yield profile" in which the various yields
all appeared to him to be realistic [see e.g. Mr Lythgoe, pp.70-77, 223,
326-327, 683-686]. The starting point
was however the adoption of a capitalisation yield for each unit in the Centre,
based on the initial yields calculated for the comparison subjects but adjusted
to reflect relevant differences between the comparison subjects and the Centre
(so far as known). None of the valuers
gave a complete explanation of how he had arrived at the yields in his
calculations from the calculated yields of the comparison subjects. It was impossible to carry out the
comparisons with mathematical precision, since some of the relevant information
about the comparison subjects was not generally available. The use of judgement and experience was
therefore unavoidable, and was a common feature of the evidence of all the
valuation experts. As the same time,
each of the valuers was able to explain the respects in which, to his knowledge,
the comparison subjects resembled or differed from the Centre. It was possible for the court to assess that
evidence, and therefore to assess the reliability of the opinions expressed, as
to appropriate yields at the Centre, which were said to be derived from the
comparison subjects.
[307] Most of
the valuers regarded the initial yield produced by their valuation as the most
important of the various yields calculated in respect of the subjects being
valued. In my discussion of the
comparison subjects, I shall therefore focus on the initial yields; and in my discussion
of the valuations of the Centre, I shall focus on the capitalisation yields
derived from the comparison subjects, and on the initial yield produced by each
valuation. I have not however overlooked
the evidence concerning the various other yields.
[308] In
trying to arrive at an appropriate yield for the purpose of valuing the Centre
as at 2005, none of the valuers made use of the yields adopted in the earlier
valuations of the Centre. It was
explained that capital values had generally risen (and yields had therefore
fallen) since the early 1990s, due primarily to a fall in interest rates
[Mr Oswald, pp.271-272, 510].
[309] In
assessing the comparability of the various subjects, it is necessary to take
account of a number of factors, including the number of voids, the quality of
the tenant covenants, the length of the leases, the catchment and the location
(Mr Oswald, pp.198-199].
Comparison
subjects
1. Capital value of the Centre
[310] Reference was made by the expert
valuation witnesses to numerous comparison subjects in order to estimate the
capital value of the Centre. In most
cases, the comparisons were shopping centres which had been sold. The evidence about the comparison subjects
was very extensive, but can be summarised, so far as relating to the most
important comparisons, as follows.
1. Bargarran
Shopping Centre, Erskine
[311] This is a small neighbourhood shopping
centre extending to 20,000 square feet and functioning effectively as the
town centre for Erskine [Mr Lythgoe, p.139]. It has a similar tenant line-up to the Centre,
but has a larger and more affluent catchment.
It includes a Spar convenience store of 2,000 square feet. The centre was sold in January 2003 for £2.34m,
representing an initial yield (i.e. passing rents as at the date of
acquisition, expressed as a percentage of the price paid plus stamp duty and
other acquisition costs) of 7.87 per cent, and a reversionary yield (i.e.
the anticipated rental income at a future point in time, following rent
reviews, expressed as a percentage of the price paid plus stamp duty and other
acquisition costs) of 8.15 per cent.
It is agreed to be a better quality investment than the Centre. It does not appear to me to be a particularly
useful comparison.
2. Arran
Mall,
[312] This is an uncovered secondary mall
extending to 40,000 square feet, dating from the 1960s
or 1970s. It is in the town centre,
but not on the prime retail parade. It
is "anchored" by a large furniture store.
It is better located than the Centre.
The tenant line-up is poorer than the Centre. It was sold in January 2003 for £4.15m,
representing an initial yield of 8.70 per cent. The sale took place under special
circumstances, in that the purchaser was a joint venture between the owner of
the centre and the owner of an adjoining centre, established with a view to combining
the two centres and then placing the combined centre on the market. This again does not appear to me to be a
particularly useful comparison.
[313] Reference
was also made to the sale of the combined centre (the Kyle Centre) in
June 2004 for £37m, representing a yield of 5.60 per cent. This is a large and relatively modern
shopping centre in the centre of a prosperous town, and does not appear to me
to be comparable to the Centre at Whitfield.
3. Shawlands
Arcade, Glasgow
[314] The subjects form part of a covered shopping
centre situated on one of
4.
[315] The subjects form a stand-alone retail
warehouse of 11,270 square feet, located a short distance from Kingsway,
[316] As
mentioned earlier (supra, para.141
and 172), these subjects were founded on as a comparison by Mr McCluskey
in the context of the 1998 rent review.
At that time, Mr Merry considered that the subjects resembled the
Premises in certain respects, but were in a more visible trading location. In the closing submissions on behalf of the
defenders and the third party, it was suggested that the subjects were
"comparable" to the Premises and gave an indication of yield.
[317] It
appears to me that these subjects are comparable to the Premises in size and
character. They are situated in a
location which is better than that of the Premises, but not much better. At the time of the sale of the subjects, they
were tenanted by a company with a similar quality of covenant to the defenders.
[318] The
value of this comparison is however diminished by the fact that the purchaser
was the existing tenant of the subjects.
In these circumstances, the yield figure has to be treated with caution
[Mr Oswald, p.103]. Nevertheless,
the yield of 9.61 per cent gives an indication of what an investor might
be expected to pay for that quality of covenant in that type of location in
Dundee, although one would expect the yield in Whitfield to be higher (but not
much higher) to reflect the less desirable nature of the location. One would also expect the yield for the
Centre as a whole to be higher in order to reflect the mixed quality of the
tenant covenants, and the number of vacant units.
5. Preston
Links, South Centre, Prestonpans
[319] The subjects are a small retail parade
extending to 15,587 square feet, situated on the main street in
Prestonpans, in the vicinity of numerous other shops. They comprise a Somerfield supermarket (of
12,500 square feet) and four smaller units (two of which are rented
by national multiples). The subjects are
fully let. The tenant line-up is not dissimilar
to Whitfield. The catchment is somewhat
better, and the location also appears to be better. The subjects were sold in April 2002 for
£1.54m, representing an initial yield of 8 per cent. The passing rent was said to be £126,900 per
annum [67/3].
6. Sighthill
Shopping Centre, Glasgow
[320] This centre is located in a local authority
housing scheme with a high level of deprivation. The catchment is poorer than that at
Whitfield, and comprises the residents of three tower blocks (many of whom
are asylum seekers). The social problems
include graffiti, vandalism and public drinking, and appear to be worse than at
Whitfield. The centre consists of retail
units on the ground floor of local authority housing. It comprises a supermarket of a similar size
to the Premises, which has not traded since it was closed by Kwik Save
in 1997, and 15 smaller units, all of which are let, but six of which
were unoccupied at the time of the sale.
There is also a public house. The
tenant line-up is similar to that of the Centre. There are much larger and more modern
supermarkets in close proximity. The
supermarket in the centre did not trade successfully and had security problems
[Mr Poulton].
[321] The Centre
was sold in May 2004 for £1.2m, representing an initial yield of
11.38 per cent. This yield must
however be treated with caution.
Mr Oswald, whose firm acted for the vendor, said that the price was
slightly inflated (and the yield therefore slightly depressed) as the purchaser
was the ground landlord, Glasgow City Council, which wanted to re-develop the
area. Mr Lythgoe did not, for this
reason, regard the centre as a useful comparison. Mr Nisbet similarly considered that it
was difficult to place a great deal of reliance on this comparison, partly for
the reason just explained, and party because the price might also have
reflected the Council's liability for dilapidations in respect of a part of the
centre which it had sublet. The latter
point was not however raised with Mr Oswald at any stage (notwithstanding
the orders made by the court to ensure discussion between the expert witnesses
prior to the proof).
[322] Notwithstanding
the special circumstances of the sale, I accept the submission on behalf of the
defenders and the third party (supported in particular by the evidence of
Mr Oswald [67/2A, p.16] and Mr Hermiston [67/3, paras.5.04-5.05]) that
Sighthill is the closest comparable to the Centre for the "as is" situation
with a supermarket not trading. I also
accept their submission that the price was "slightly inflated" by reason of the
circumstances of the sale. I therefore
conclude that the yield of 11.38 per cent gives an indication of the
likely yield at the Centre in the "as is" situation, although one would expect
the Whitfield yield to be slightly higher to reflect the absence of marriage
value. Like the comparison subjects at
7. Hallhill
Road, Barlanark, Glasgow
[323] The subjects comprise a modern shopping
parade of retail units, located in a run-down area of local authority
housing. The catchment is lower-spending
than Whitfield. The location is better
than that of the Centre, in that the frontage of the parade is on a main
road. The parade was at the material
time fully let, mostly to local traders.
It was sold in April 2001 for £850,000, representing an initial
yield of 11.13 per cent. The poorer
nature of the location at Whitfield would point towards a higher yield, ceteris paribus. Adjustments would also have to be made to
reflect the different tenant mix, and the number of vacant or unlet units. This comparison appears to me to be of some
assistance and to point broadly towards the same conclusion as the comparison
subjects at
8. Campfield
Square, Broughty Ferry
[324] The subjects comprise a small neighbourhood
shopping centre in an affluent suburb of
9. Orleans
Place, Menzieshill, Dundee
[325] These subjects comprise a local neighbourhood
shopping centre of ten small retail units, dating from the same period as
the Centre, and situated in a large local authority housing scheme in
Dundee. All but one of the units were
occupied at the material time. The
tenants were predominantly local traders.
The passing rent was £90,475, and the net rent was £79,033. A supermarket and a public house were located
in close proximity to the subjects. The
subjects were sold in 2002 for £485,000, representing an initial yield of
16.29 per cent (calculated using the net rent). That yield was heavily influenced by the fact
that the ground rent from 2005 onwards was to be 50 per cent of rents
receivable (compared with 7.5 per cent at the Centre): that level of ground rent would greatly
reduce the net rent received, and have a major impact on the yield. Expressed relative to the net rent received
from 2005 onwards, the yield would be 9.33 per cent (i.e. 90475 x 0.5 ÷
485000). If acquisition costs were taken
into account (as they should be), the corresponding yields would be slightly
lower.
10. Craigshill
Shopping Centre, Livingston
[326] The comparison subjects are a large, modern
supermarket unit let to Kwik Save, adjacent to the Craigshill Shopping Centre,
which is a neighbourhood shopping centre.
It is located in one of the poorer parts of
[327] Evidence
was also given about Craigshill Shopping Centre itself. It consists of 20 small units on a
mall. The tenant profile is mixed. Four of the units are vacant. The rent at the material time was
£151,200. The centre was sold in 2005
for £1.7m, representing an initial yield of 8.44 per cent.
11. Maggieswood
Loan, Falkirk
[328] The subjects are a small neighbourhood
shopping centre, comprising a convenience store (let to the defenders), a
public house and six smaller units.
The centre is situated in a local authority housing scheme. It is well located in respect of road access
and visibility. There is a large
hospital adjacent. The tenant profile is
mixed. The rent at the material time was
£76,123 per annum. The centre is fully
occupied. It was sold in 2003 for £940,000,
representing an initial yield of 8.10 per cent.