© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Valuation
GENERAL​​
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- FTT looking for a justifiable range
"[494] We commenced the discussion on valuation by saying at paragraph 343 that the parties' views were polarised and we referenced the expert reports. We agree with the proposition advanced by Mr Palmer that there was no conventional way to determine the value of the Product Assets. The Judge in Violet Yorks Ltd v Property Holding Investment Trust Ltd (1968) is often quoted by surveyors as describing valuation as "art not science" and this case clearly demonstrates that.
[495] There is no precise and definitive figure that is the correct valuation. We must look for a justifiable range." ​(Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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EXPERT EVIDENCE​​
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- Art of valuation v. science of valuation
"[25] Mr Shapiro seemed to me to be of the art rather than science school of valuation: he is familiar with the rules, but uses them as a starting point rather than an end point. A good example of this was the issue of odour. The Pasture, in particular, is close to the Basingstoke Sewage and Waste Treatment Plant (the SWTP), and that has presented issues for obtaining planning permission for residential development on it. Mr Shapiro repeatedly returned to the point that he would look critically at any conclusion against planning permission because on the map the Property is a logical infill between two other parcels of development land (Redlands and East of Basingstoke, which I will address below). In reaching that conclusion he rather brushed aside, I felt, the fact that the scientific evidence goes to show that those parcels of land are not affected by the smell of the SWTP, and to the extent that they are residential development is not permitted on them. Everything turned on the map: it just "made sense"." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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Approaches to valuation​​
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- Utility of models: heavily dependent on inputs, requires transparency re assumptions
"[31] The key difference between the experts was that if Mr Shapiro saw valuation as more art than science, Ms Seal was much more focussed on the science and was cautious about relying too heavily on the art. She took a data driven approach, particularly in her use of a residual value model for the Garden. I appreciate, of course, that there is a risk of such models projecting a false air of objectivity. As with any economic model, the output turns on the inputs selected and the assumptions made. Provided there is transparency, they remain valuable. The macroeconomist John Kay made the point about models more broadly ("The Map is Not the Territory: Models, Scientists, and the State of Modern Macroeconomics" (2012) 24 Critical Review 87 at page 92):
It is easy – too easy – to criticize this approach simply on the grounds of lack of realism. All science uses unrealistic simplifying assumptions. Physicists describe motion on frictionless plains, gravity in a world without air resistance – not because anyone believes that the world is frictionless and airless, but because it is too difficult to study everything at once. A simplifying model eliminates confounding factors and focuses on a particular issue of interest. To put such models to practical use, one must be willing to bring back the excluded factors.
[32] That, in essence, is what I consider Ms Seal did. She tested the assumptions she used in her models and also tested the outputs by reference to her extensive experience." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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- All models are wrong, but some are useful
"[33] Ms Seal's evidence before me was very strong. She accepted that any hypothetical approach to determining value lacks some of the rigour of the market and I recognise that is inevitably so. However, her methodology was robust and reflected practices endorsed by the RICS. At the risk of over-quoting, the statistician George Box famously observed that all models are wrong but some are useful; Ms Seal's were useful models. She was clear and concise in giving her answers; at no stage did she venture beyond her expertise or her remit in these proceedings. I found her evidence, both in terms of her approach and the way she explained it, to be highly persuasive." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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Assessing expert evidence​​
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- Expert witness unduly affect by hindsight bias
"[27] The effect of these two factors was that I was concerned that Mr Shapiro's evidence was unduly affected by hindsight bias. He repeatedly made the point that, "Hindsight has proved me right." Strictly, that is not correct: he made no valuation at the time that was vindicated by subsequent events that were unknown when the valuation was prepared. Rather, he has viewed the question of value through a lens that includes subsequent events. In assessing whether a valuation prepared at the time was reasonable, it seems to me that such a lens would typically only be appropriate if the later events were reasonably foreseeable at the time." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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- Inconsistent approach to use of evidence
"[28] I was also concerned that Mr Shapiro was not consistent in his use of evidence. A striking example was the July 2017 Basingstoke and Deane Supplementary Planning Document (the Supplementary Document). This was referred to by Mr Shapiro in his report in support of his conclusions. He recognised that the Supplementary Document did not exist at the time of the valuation in September 2016, but considered that its contents would "most likely" have been revealed to anyone who inquired of the local authority. When aspects of this were put to him that contradicted his conclusions he noted that it came later in time than the valuation and he had no way of knowing whether its contents were available at the time or not. The only apparent driver for his change of position was the realisation that elements of the Supplementary Document were unhelpful." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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- Expert accepting limitations + staying within expertise, using robust methodology and practices endorsed by professional body
"[33] Ms Seal's evidence before me was very strong. She accepted that any hypothetical approach to determining value lacks some of the rigour of the market and I recognise that is inevitably so. However, her methodology was robust and reflected practices endorsed by the RICS. At the risk of over-quoting, the statistician George Box famously observed that all models are wrong but some are useful; Ms Seal's were useful models. She was clear and concise in giving her answers; at no stage did she venture beyond her expertise or her remit in these proceedings. I found her evidence, both in terms of her approach and the way she explained it, to be highly persuasive." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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Use of expert evidence​​
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- FTT having regard to expert's opinions, but it is underlying evidence that is more significant
""[280] He discussed the significance of experts taking different views of the market value (of the shares) and decided that:
"230….The ultimate question based on all the evidence, including that of both experts, is what the hypothetical prudent purchaser would pay in the open market.
231. Both expert reports contained certain errors and omissions. Where errors were identified I have discounted them for the purposes of this decision. Further, whilst I have had regard to the opinions expressed by Mr Weaver and Mr Houghton, it is the underlying evidence referred to in their evidence which is more significant".
We also agree with, and adopt, that approach.
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[496] At paragraph 280 above, under the heading "Valuation Principles", we chose to quote Judge Cannan in Netley because ultimately, having carefully considered in great detail all of the expert evidence from Messrs Palmer and Mitchell, we have adopted Judge Cannan's approach; it is the underlying evidence that is significant.
[497] Our conclusion, after exhaustive analysis of both expert reports including the many footnotes and cross references, is that the deficiencies or omissions in both, mean that despite the time and expense involved, they really do not assist us to any material extent." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- FTT relying on T's own expertise in niche area over the expert evidence
"[499] We have analysed all of that underlying evidence. Since we accept Mr Engineer's evidence and find that the source of his very considerable success was an understanding of the open market in which he worked, we have come to the view that the price that a hypothetical purchaser would have paid can be found in Mr Engineer's and King & King's valuations which are within a justifiable range." ​(Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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OPEN MARKET SALE​​
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Summary of principles
"[272] Both parties had relied on Hoffman LJ in IRC v Gray [1994] STC 360 ("Gray") which Mr Goldberg rightly said reflected the paragraphs in the IVS 13 upon which he particularly relied (paragraphs 29, 30(d) and (e), 31 and 32).
[273] We take from Gray the following principles:
(1) The hypothetical vendor is anonymous but reasonable and prudent; the vendor is neither over-anxious nor unduly reluctant.
(2) The buyer is slightly less anonymous but also reasonable and makes proper enquiries; the buyer is not too eager to buy.
(3) Although the sale is hypothetical, there is nothing hypothetical about the open market and the demand for the property in question at the relevant time must be considered.
(4) The valuation may be a figure within a range of prices and is a retrospective exercise in probabilities.
(5) The vendor must be supposed to have taken the course which would get the largest price without undue expenditure of time and effort.
As far as the "largest price" is concerned, we agree with Mr Goldberg that that reflects paragraphs 30.4 and 140 of IVS 104 from IVS20. We have set out those paragraphs in full at Appendix 5.
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[277] Mr Henderson relied upon paragraph 203 of Netley v HMRC [2017] UKFTT 442 (TC) ("Netley") where Judge Cannan said:-
"203. The following principles of valuation are not controversial:
(1) The sale is hypothetical. It is assumed that the relevant property is sold on the relevant day (see Duke of Buccleuch v IRC [1967] AC 506 at 543 per Lord Guest).
(2) The hypothetical vendor is anonymous and a willing vendor, in other words prepared to sell provided a fair price is obtained (see IRC v Clay [1914] 3 KB 466 at 473, 478).
(3) It is assumed that the relevant property has been exposed for sale with such marketing as would have been reasonable (Duke of Buccleuch v IRC at 525B per Lord Reid).
(4) All potential purchasers have an equal opportunity to make an offer (re Lynall [1972] AC 680 at 699B per Lord Morris).
(5) The hypothetical purchaser is a reasonably prudent purchaser who has informed himself as to all relevant facts such as the history of the business, its present position and its future prospects (see Findlay's Trustees v CIR (1938) ATC 437 at 440)."
[278] Although we are not bound by Netley, we agree with that analysis." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- Retrospective exercise in probabilities
"[276] Amongst the quotations from Gray, one quotation to which Mr Henderson took us, was included at paragraph 3. It reads:
"...The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable. The practical nature of this exercise will usually mean that although in principle no one is excluded from consideration, most of the world will usually play no part in the calculation. The inquiry will often focus on what a relatively small number of people would be likely to have paid. It may have to arrive at a figure within a range of prices which the evidence shows that various people would have been likely to pay, reflecting, for example, the fact that one person had a particular reason for paying a higher price than others, but taking into account, if appropriate, the possibility that through accident or whim he might not actually have bought. The valuation is thus a retrospective exercise in probabilities, wholly derived from the real world but rarely committed to the proposition that a sale to a particular purchaser would definitely have happened.""" (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- Different ways of exploiting asset: which would give highest price?
"[410] Obviously, a hypothetical purchaser might simply view the purchase of the Product Assets as being the purchase of an income stream and leave the PSAs in place unless something were to go wrong.
[411] However, the valuation principles that we have described mean that we must look at what would get the largest price without undue expenditure of time and effort.
[412] In our view, the hypothetical purchaser of the Product Assets might well have seen the right to terminate the PSAs as a real opportunity. Mr Engineer had chosen the structure utilising CPL but a hypothetical purchaser would have had "a clean sheet" and, presumably, would have wished to maximise profits. Given that CPL was making significant, and rising, profits having outsourced the majority of the activities required to monetise the Product Assets, we take the view that the termination of the PSAs would be a possible "best use" of the Product Assets because those profits could then be taken in house with comparative ease.
[413] The ability to terminate would give a hypothetical buyer a range of options depending on their attitude." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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The market​​
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- Matter of inquiry/fact rather than assumption
"[275] In Mr Goldberg and Mr Brodsky's Skeleton Argument they relied on paragraphs 3 to 6 of Mr Justice Lewison's judgment in HMRC v Bower [2009] STC 510 ("Bower") and that includes inter alia quotations from Gray. At paragraph 6 it stated:
"Thus, although the whole world is in theory free to bid, there must be an inquiry into who is in the market. This is an inquiry, not an assumption, and in my judgment, an inquiry is an inquiry into the facts." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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Hypothetical purchaser​​
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- Hypothetical purchaser more likely to be person with understanding of the asset/business
"[408] Mr Goldberg had argued that "One of the more likely hypothetical purchasers is somebody else in the pharmaceutical business…" and therefore might already have the expertise to successfully exploit the Product Assets in house. In their Note on the Evidence HMRC argued that that was an impermissible approach to valuation since, as Gray made clear, the hypothetical buyer is anonymous. That is true. However, we have quoted paragraph 6 from Bower and paragraph 3 from Gray (paragraphs 275 and 276 above) because those make it clear that one should be looking at who, "in the real world" would be likely to be in the open market. All the experts have agreed that the Product Assets were decidedly "niche". Indeed, as we will mention in regard to competition, Ms Brotherston had noted that there was not a competitive or active market for the Product Assets. It is a minor point but, on the balance of probability, Mr Goldberg is correct in what he said." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- Incorrectly approaching from perpective of risk-tolerant investor looking for high return
"[26] He also approached things from the perspective of a risk-tolerant investor. He asked himself what someone with an appetite for risk who was looking for a potentially high return might do. There are reasons for approaching the valuation exercise in that way, and the RICS rules on such valuations (known as the Red Book) do provide for how a property might be valued for a special purchaser. That was not the task here, however. The issue was market value, and the market would not value the Pasture as a speculative investment." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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Historic purchase price of asset​​
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- Many examples of fortuitous purchases and huge gains on sale
"[387] We were not persuaded by the argument for HMRC that because the Partnership had paid only £1.9 million for the Product Assets then their value could not be as high as their sale price of £40 million. We are aware of numerous examples, in many sectors, of fortuitous purchases and then a huge gain on sale. We also observe that, as we have noted at paragraph 66, albeit it was a sale between related parties, a number of Product Assets were sold for £2,045,000 and they were viewed as having zero or relatively modest turnover.
[388] We agree with Mr Palmer that what Mr Engineer had done was to take the Product Assets and repurpose them thereby making them more valuable and in that context, cost was a very bad indication of value." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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INFORMATION AVAILABLE​​
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- Hypothetical vendor and purchaser not equally well informed about business
""[348] Mr Palmer responded saying that:
"…the way I have approached this, given that in this situation the buyer and seller are related parties, I think the buyer and seller are equally well informed about the business in which it operates…".
[349] We do not accept that that is the correct approach and that for the following reasons.
[350] As we have said, as far as the available information was concerned, Judge Cannan in Netley observed that in re Lynall, the House of Lords had pointed out that a sale in the open market will not involve the release of any confidential information to prospective purchasers." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- Open market sale would not involve release of all confidential information
"[279] In the subsequent paragraphs Judge Cannan went on to consider what information would have been available to a prudent purchaser. He observed that in re Lynall, the House of Lords had pointed out that a sale in the open market will not involve the release of any confidential information to prospective purchasers. Mr Henderson exhorted us to read re Lynall; we did and we agree with Judge Cannan as we discuss at paragraphs 350 and 351." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- May involve release of some confidential information
"[351] Judge Cannan explained that the test was by reference to what a reasonable board of directors would disclose, and not what the particular board of directors would have disclosed. The question of what a prudent purchaser would reasonably require is essentially a value judgement, informed by the expert evidence. We are a specialist Tribunal and whilst we accept that confidential information should not be disclosed in the world of sales to privately owned companies, in our experience, some degree of confidential information is often made available by the sellers simply to ensue maximisation of the sale price. Therefore, we do accept Mr Palmer's argument that, in a hypothetical situation the hypothetical purchaser would do due diligence and there would be conversations with management. Our caveat is that we also agree with Mr Henderson that such conversations would be likely to be treated with a "healthy degree of scepticism"." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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- Management accounts and projections would be disclosed in order to optimise sale price
"[293] An obvious point is that, as HMRC have pointed out, some of the Financial Statements upon which Mr Palmer relied were not available at the Valuation Date. They would not have been available to a hypothetical purchaser. Mr Palmer argued that estimates might have been available.
[294] We do accept that a hypothetical vendor would very probably disclose their management accounts and projections in the interests of optimising the sale proceeds.
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[380] We accept that a hypothetical purchaser would have had access to a limited amount of information. The running and production costs were fixed and so a reasonable projection of profits might have been available but the detail of the allocation of the costs in CPL as 30:70 would not." (Chemidex Generics Limited v. HMRC [2024] UKFTT 1146 (TC), Judge Anne Scott)
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HINDSIGHT​​
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- Expert witness unduly affect by hindsight bias
"[27] The effect of these two factors was that I was concerned that Mr Shapiro's evidence was unduly affected by hindsight bias. He repeatedly made the point that, "Hindsight has proved me right." Strictly, that is not correct: he made no valuation at the time that was vindicated by subsequent events that were unknown when the valuation was prepared. Rather, he has viewed the question of value through a lens that includes subsequent events. In assessing whether a valuation prepared at the time was reasonable, it seems to me that such a lens would typically only be appropriate if the later events were reasonably foreseeable at the time." (Gordeno v. Irwin Mitchell LLP [2026] EWHC 136 (Ch), Deputy Judge Farnhill)
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