Cemex UK Operations Limited v Secretary of State for Transport

In compulsory-purchase compensation claims for loss of profits, the claimant must establish the profits or losses in the real world and in the hypothetical “no scheme world”. Where the evidence shows that total production costs vary with output, the court should model costs by reference to volume rather than assume a constant profit margin per unit. Volume surcharges may support the profitability of the business as a whole and need not merely recover fixed costs. A party bears the burden of proving its loss; where its methodology is unsupported or worthless, the court may adopt an opposing figure which is formally accepted, without endorsing the methodology underlying that figure.

This was the final decision on a notice of reference concerning compensation for the compulsory acquisition of land at Washwood Heath, Birmingham. The Tribunal had issued an interim decision, Cemex UK Operations Limited v Secretary of State for Transport [2025] UKUT 138 (LC), determining various issues concerning the claimant’s business and the hypothetical worlds required for valuation.

The remaining dispute concerned the claimant’s past and future profits or losses in the real world and the “no scheme world”. The principal disagreement was whether costs should be treated as varying with production volume or whether the claimant would maintain a constant profit margin through volume surcharges. Further disputes concerned volumes, prices, sleeper mix and specialist sleepers.

1. Costs and surcharges. The Tribunal preferred the claimant’s methodology. The management accounts showed no reliable trend of unit costs rising as volumes fell, and supported the conclusion that costs were very largely managed down with volume. Margin per sleeper was not constant and tended to rise as volumes fell. The compensating authority’s constant-margin methodology was inconsistent with the financial evidence and produced unreliable results. Costs were therefore to be calculated by reference to the claimant’s variable-cost approach. Any fixed costs were too negligible to establish a meaningful cost floor (paras [61]–[90]).
2. The Tribunal rejected the suggestion that volume surcharges existed only to preserve a constant margin per sleeper by recovering fixed costs. The evidence indicated that the surcharges were intended to support the profitability of the business as a whole. A surcharge could therefore generate additional profit rather than merely offset additional cost (paras [64]–[80], [81]–[90]).
3. Real-world position. For the pre-acquisition period, where the accountants’ difference could not be resolved on the evidence, the Tribunal assessed the claimant’s profit at £13,700,000. It assessed the closure-period profit at £54,000. For the current and future Rochester period, the claimant failed to prove a lower figure because its evidence did not establish future production costs. The Tribunal consequently adopted the compensating authority’s accepted figure of £1,979,000, without endorsing its methodology (paras [91]–[108]).
4. No-scheme world. The Tribunal accepted the use of FY16 as the appropriate cost base because FY17 was affected by the shadow of the scheme. It accepted the claimant’s evidence on costs, sleeper mix, TfL volumes and prices, other customers and specialist sleepers. The claimant bore the burden of proving its loss, but the evidence supported its approach on these issues (paras [109]–[135]).
5. The claimant’s loss was determined by comparing £45,666,000 profit in the no-scheme world with £15,733,000 profit in the scheme world. Compensation was determined at £29,933,000. Costs were to be dealt with by subsequent submissions if not agreed (paras [136]–[140]).

The decision was the final determination of a notice of reference in the Upper Tribunal (Lands Chamber). It followed the Tribunal’s interim decision, Cemex UK Operations Limited v Secretary of State for Transport [2025] UKUT 138 (LC). The Tribunal determined compensation at £29,933,000. A right of appeal to the Court of Appeal on a point of law existed with permission.