LAND COURT OF QUEENSLAND
CITATION: Jensim Family Pty Ltd t/a Bank of Queensland Coorparoo
v Chief Executive, Department of Transport & Main
Roads [2012] QLC 058
PARTIES: Jensim Family Pty Ltd t/a Bank of Queensland Coorparoo
(applicant)
v.
Chief Executive, Department of Transport & Main Roads
(respondent)
FILE NO: AQL044-11
DIVISION: General Division
PROCEEDING: Compensation for compulsory acquisition of land
DELIVERED ON: 17 October 2012
DELIVERED AT: Brisbane
HEARD AT: Brisbane
PRESIDENT: CAC MacDonald
ORDER: 1. Compensation is determined in the amount of
Seven Hundred and Sixty-eight Thousand, Eight
Hundred and Eighty-seven Dollars ($768,887).
2. The respondent is ordered to pay interest to the
applicant at the rate of 5% per annum on the
amount of Four Hundred and Sixty-six Thousand
and Twenty-four Dollars ($466,024) for the period
commencing 31 July 2009 up to and including 17
November 2009.
3. The respondent is also ordered to pay interest to
the applicant on the amount of Sixty-six Thousand
and Twenty-four Dollars ($66,024) for the period
commencing 18 November 2009 up to and
including 17 October 2010, at the rate of 5.00%
per annum up to and including 31 December 2009
and thereafter at the rate of 5.5% per annum.
4. The respondent is also ordered to pay interest to
the applicant at the rate of 4.75% per annum on
the sum of Twenty Thousand and Twenty-four
Dollars ($20,024) for the period commencing 18
October 2010 up to and including the day
immediately preceding the date on which that
amount is paid to the applicant.
5. The respondent is also ordered to pay interest at
the rate of 4.75% per annum on the sum of Three
Hundred and Two Thousand, Eight Hundred and
Sixty-three Dollars ($302,863) being the other
disturbance items allowed for the periods
commencing on the dates on which the applicant
paid each of these amounts up to and including the
day immediately preceding the date on which the
respondent pays those amounts to the applicant.
CATCHWORDS: REAL PROPERTY – COMPULSORY ACQUISITION
OF LAND – LEASEHOLD LAND – CLAIM BY
LICENSEE – COMPENSATION – ASSESSMENT
Costs attributable to disturbance – business losses – loss of
profits – loss of business value – relocation expenses –
s.20(5) Acquisition of Land Act 1967
Valuation methodology – calculation of loss of profits –
calculation of growth rates – whether allowance should be
made for loss of relationship income or personal goodwill
– use of averages
Principles of valuation – relocation expenses for leased
premises – fitout costs – whether claimable on a
reimbursement basis – whether earlier Land Appeal Court
authority should be allowed in light of amendments to the
Acquisition of Land Act 1967 – interpretation and
application of s.20(5)(g) Acquisition of Land Act 1967
Disturbance items – whether quantum of costs reasonable
APPEARANCES: Mr PW Hackett for the applicant
Mr JM Horton for the respondent
SOLICITORS: Marlin Coast Law for the applicant
Clayton Utz for the respondent
[1] This decision deals with a claim for compensation under the provisions of the Acquisition
of Land Act 1967 (the Act) by Jensim Family Pty Ltd trading as Bank of Queensland
Coorparoo (the claimant) for compensation in respect of losses suffered by the claimant
2
as a result of the compulsory acquisition of a lease interest in land by the respondent
Chief Executive, Department of Transport and Main Roads.
[2] The leasehold interest in question was taken on 31 July 2009 following the issue of a
Notice of Intention to Resume on 26 March 2009. The land the subject of the lease is
situated at 264 Old Cleveland Road, Coorparoo and was described as the whole of Lot 17
on BUP 103054 contained in Certificate of Title 50091297 in the County of Stanley,
Parish of Bulimba, and having an area of 86m². The lease interest was taken by the
respondent as constructing authority for the State of Queensland for the purpose of
transport namely, busway and the facilitation of busway transport infrastructure. The
property is to be used for part of Stage 2 of the Eastern Busway Project.
[3] As at the date of resumption, the Bank of Queensland Limited was the registered lessee
of Lot 17 pursuant to registered lease No. 708296885 which commenced on 1 November
2004. The term of the lease was 3 years with two 3 year options to renew exercisable at
the lessee’s option. If both options had been exercised, the lease would have expired on
31 October 2013. The respondent was occupying the premises at Lot 17 as a licensee
pursuant to a franchise agreement with the Bank of Queensland Limited.
[4] The amount of compensation finally claimed by the claimant in the proceedings was
$783,887. The claim is made up as follows:
Loss of value of business to 31 July 2009 $265,000.00
Loss of profits to 31 July 2010 $201,024.00
Relocation expenses $268,598.00
Legal and Valuation Fees $49,265.00
[5] The amount of compensation finally contended for by the respondent was $386,863 made
up as follows:
Loss of value of business $98,299.00
Loss of profit $145,927.00
Relocation expenses $93,372.001
Legal and Valuation Fees $49,265.00
[6] Advances totalling $446,000 have been paid to the claimant as follows:
18 November 2009 $400,000.00
18 October 2010 $46,000.00
[7] At the hearing of the claim, evidence was given for the claimant by Mr LGF Wright of
Gil Wright & Associates. Mr Wright is a licensed real estate agent who has specialized
in business brokerage and business valuations since 1974. Mr Brett Davies, a director of
1 The sum of $93,372 is made up of $87,372 for fitout and $6,000 for a mailout.
3
the claimant company, also gave evidence on behalf of the claimant. Written statements
by Mr Brett Davies and Mr Stephen Davies were tendered on behalf of the claimant.
[8] Evidence was given for the respondent by Mr NC Calabro who is a chartered accountant
and Mr G Miers, a development and warehouse manager employed by Harvey Norman.
[9] The parties and their respective experts have met on various occasions and the experts
prepared a joint report, as well as their individual reports, which were tendered at the
hearing.
The claimant’s business
[10] As at the date of resumption, the claimant operated a Bank of Queensland Owner
Managed Branch (OMB) on the subject land under a franchise agreement with the Bank
of Queensland Limited (BOQL). Mr Brett Davies and his brother Mr Stephen Davies are
directors of the claimant company. The claimant commenced operating the business on 1
July 2005 having purchased it for $480,800. The claimant also undertook a shopfit of
$69,200 and paid the Bank of Queensland a franchise fee of $80,000. In addition, the
franchise agreement required the claimant to pay the Bank of Queensland, as franchisor,
a monthly franchise fee.
[11] Mr Brett Davies’ evidence was that the busway was initially announced by media
releases issued by the respondent in June 2006, the announcement stating that local
residents and business owners would be consulted. Mr Davies said that he and his
brother were, initially, very positive about the busway hub as they believed it would
further enhance the Coorparoo precinct. However with on again off again
announcements of the resumption, delays and the loss of Harvey Norman and other key
businesses from the area, the precinct became more and more run down with a
subsequent decrease in pedestrian traffic. The result was that the level of over the
counter transactions, current loans and ATM use at the branch decreased markedly. Mr
Davies believed that if the resumption had not occurred, the Coorparoo OMB would have
achieved a growth rate in excess of 11.5% year after year.
[12] Following the issue of the Notice of Intention to Resume dated 26 March 2009, Mr
Stephen Davies said that he and his brother had no choice but to move from their existing
premises to what they believe is an inferior site because of lack of adequate customer
parking. They moved into the new premises on 13 July 2009 on the understanding that
the demolition of the Coorparoo Mall premises was imminent. The claimant paid
relocation expenses of some $268,000 which, Mr Davies said, would not have been
necessary if the claimant had stayed in the old premises because the existing shopfit, as at
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the date the business was relocated, was very useable and in fact much of it was just over
a year old, having been replaced after a water inundation issue in late 2007.
[13] Mr Davies believed that he and his brother would have exercised the options in the lease
which meant they would have had every prospect of trading at the old premises until
October 2013. He believed that any landlord would have been happy to have a strong
“destination” tenant such as the BOQ Coorparoo as an anchor for other tenants in the
building.
Legal Principles
[14] As at the date of resumption, s.20 of the Act relevantly provided2 –
“20 Assessment of compensation
(1) In assessing the compensation to be paid, regard shall in every case be had
not only to the value of land taken but also –
(a) to the damage, if any, caused by any of the following—
(i) the severing of the land taken from other land of the claimant;
(ii) the exercise of any statutory powers by the constructing authority
otherwise injuriously affecting the claimant’s other land mentioned
in subparagraph (i); and
(b) to the claimant’s costs attributable to disturbance.
(2) Compensation shall be assessed according to the value of the estate or
interest of the claimant in the land taken on the date when it was taken.
…
(5) In this section –
costs attributable to disturbance, in relation to the taking of land, means all or
any of the following –
(a) legal costs and valuation or other professional fees reasonably incurred by
the claimant in relation to the preparation and filing of the claimant’s claim
for compensation;
…
(c) removal and storage costs reasonably incurred by the claimant in
relocating from the land taken;
(d) costs reasonably incurred by the claimant to connect to any services or
utilities on relocating from the land taken;
(e) other financial costs that are reasonably incurred or that might reasonably
be incurred by the claimant, relating to the use of the land taken, as a direct
and natural consequence of the taking of the land;
(f) an amount reasonably attributed to the loss of profits resulting from
interruption to the claimant’s business that is a direct and natural consequence
of the taking of the land;
(g) other economic losses and costs reasonably incurred by the claimant that
are a direct and natural consequence of the taking of the land.
2 Reprint 5B of the Acquisition of Land Act 1967 was in force as at 31 July 2009.
5
[15] The claimant did not hold the leasehold interest in the resumed land, but occupied the
premises as a licensee pursuant to clause 11 of an agency agreement with the lessee, the
BOQL.3 It appears that the claimant’s rights under the agency agreement constituted an
estate or interest in the resumed land within the meaning of s.12(5) of the Act which was
converted into a right to claim compensation under the Act by s.12(5).4
[16] The claim for compensation filed in this Court is confined to a claim for losses under
three heads – business losses flowing from the resumption, relocation expenses and
professional legal and valuation costs. The claim for business losses is made up of a
claim for loss of profits and a claim for loss in value of the business. Section 20(5)(f)
recognizes loss of profits as a cost attributable to disturbance. The claim for loss in value
of the business is compensable under s.20(5)(g). Relocation expenses are claimable
under s.20(5)(c), (d) and (g) and legal and valuation fees reasonably incurred in relation
to the preparation and filing of the claim for compensation are claimable under
s.20(5)(a).
Loss of Profits
[17] Mr Calabro assessed the claimant’s loss of profit by –
reviewing revenue prior to the resumption;
applying an appropriate growth rate to determine the notional revenue that would
have been achieved but for the interruption; and
deducting the actual revenue received.
[18] In calculating the growth rate for 2008, Mr Calabro did not rely on the total actual
income for the relevant period, but used a “nett” figure which he obtained by deducting
“relationship” income from the actual income. His reasons for deducting relationship
income are discussed further below. For 2009 and 2010 he relied on the growth rates
extracted from Reserve Bank of Australia data for provision in credit facilities made
available to the private sector by financial intermediaries. He used the RBA data for
2009 and 2010 because he did not have any information about relationship income for
those years.
[19] Mr Calabro calculated an average growth rate of 2.47% for the three year period, based
on –
2008 5.20%
3 The copy of the agency agreement tendered in evidence was executed on 31 May 2010 and 9 June 2010, that is
after the resumption. No issue was raised as to its relevance by the respondent and it is assumed that this
agreement reflects the agreement that was in place as at the date of resumption.
4 Sorrento Medical Service Pty Ltd v Chief Executive, Department of Main Roads [2007] 2 QdR 373.
6
2009 1.10%
2010 1.10%
[20] Mr Calabro’s figure for loss of profits as finally submitted to the Court was $145,927.
[21] Mr Wright determined loss of profit by –
examining trading performance before and after the date of resumption and
relocation;
adopting a growth rate of 6.633% based on the average percentage growth of the
35 established BOQ OMB’s in Queensland over 2008, 2009 and 2010.
applying that growth rate to the subject to determine the income that should have
been achieved had the resumption and the scheme not taken place;
deducting the actual income achieved over the period of the claim;
[22] Mr Wright’s recalculated figure for loss of profits was $201,024.
[23] It can be seen that the difference between the parties in calculating loss of profits came
down to two issues –
(i) whether relationship income should be excluded when calculating the notional
income;
(ii) the appropriate growth rate to be applied.
Relationship income
[24] In applying the formula, Mr Calabro used “local” business only because he considered
that “relationship” business was portable and those relationships would follow the
directors. He described relationship business as business brought in by the directors from
their personal relationships. Such customers were not necessarily in the catchment area
of the bank, Mr Calabro said, and he had been advised that many were well outside the
catchment area.
[25] Mr Brett Davies said that in his opinion relationship customers included people within
the geographical locality who had been actively sought as customers to the branch. The
term did not refer only to friends and family who live outside the geographical area.
Local customers, he said, were existing customers.
[26] Mr Wright did not agree that the business income generated from personal relationships
after acquisition of the business by the claimants should be deducted from the actual
income achieved by the claimants unless an analysis of the relationship income of the
previous owner had been identified and quantified. Mr Wright said that Mr Calabro had
not determined the level of relationship income achieved by the business under the
previous ownership of approximately seven years and the retention rates of that business
by the claimant. Consequently, Mr Calabro had not made any offset allowance for lost
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relationship income of the previous owner against relationship gains for the new owner.
Mr Wright was aware that the previous owner had relationship business from customers
well outside the traditional catchment area of the subject business and that those
customers were no longer customers of the BOQ Coorparoo.
[27] Further, Mr Wright said, market practice in valuing and selling businesses where
relationship income is considered a critical component of post and future maintainable
income is to include a retention clause in the contract of sale to provide for potential loss
of relationship income. It is not market practice to include a retention clause in a contract
of sale for a BOQ OMB.
Conclusions about relationship income
[28] In determining compensation for the compulsory acquisition of land on which a business
is located, it may be necessary to distinguish local goodwill from personal goodwill.
Local goodwill attaches to the land, personal goodwill attaches to the owner or occupier.
Where the owner or occupier leaves the land, the personal goodwill usually goes with
him or her.5 Accordingly, Mr Calabro deducted the personal goodwill or relationship
income in calculating the growth rate and loss of profits.
[29] Mr Brett Davies has a different opinion as to the nature of relationship income and local
goodwill. If however Mr Calabro’s definitions are accepted, for the purpose of
considering his calculations, what is to be ascertained in this case is whether the claimant
has suffered a loss, in respect of its relationship income (or personal goodwill), as a result
of the resumption.
[30] While it appears from Mr Calabro’s evidence that some or all of the claimant’s personal
relationship customers may have followed the claimant to its new location, the effect of
Mr Wright’s evidence, which I accept, is that it is standard practice in the business of
BOQ OMBs that relationship income is not separately identified when such a business is
bought and sold and no retention clause is included in the contract of sale. Consistently
with that, the income of the vendor was not analyzed into local and relationship income
when the claimant purchased the subject business in 2005.
[31] The relevance of this is that, if it were assumed that the claimant had sold its business on
the date of resumption to a prudent purchaser, the claimant would reasonably have
expected to recoup the full value of the goodwill of the business, including the personal
goodwill. In those circumstances, I consider that the claimant is entitled to be
compensated on the basis that the relationship income is not deducted for the purpose of
calculating the growth rate and loss of income. While at first glance that may appear to
5 D Brown, Land Acquisition, 2004, Butterworths, [3.27].
8
deliver a windfall gain to the claimant, the evidence was that when the claimant
purchased the business, the price paid did not separate out and allow for the relationship
income of the previous owner. Mr Wright’s evidence, which I accept, was that there
were a number of relationship customers attached to the previous owner of the Coorparoo
branch at the time the claimant purchased the business and that those customers were no
longer customers of the business. Any loss that the claimant might have suffered by the
vendor’s personal customers leaving the business would be counter balanced by the
claimant’s sale price being calculated on the basis of its total income when the time came
to sell the business. I do not consider therefore that any deduction should be made, in the
particular circumstances of this case, for the loss of relationship income.
Growth Rate
[32] The growth rate is relevant to two elements of the claim – the loss of profits and the loss
of value to the business.
[33] As noted above, Mr Wright adopted a rate of 6.633% based on the average percentage
growth of the 35 established Bank of Queensland OMBs for 2008, 2009 and 2010.
[34] Mr Wright’s evidence was that the growth in annual commissions for the Coorparoo
OMB was as follows –
Year ending 30 June Growth %
2004 10.04%
2005 4.68%
2006 11.44%
2007 12.95%
2008 2.74%
2009 – 4.67%
2010 – 4.61%
[35] This table shows a significant decline in growth for 2008, 2009 and 2010. Mr Wright’s
opinion was that, following the public announcement of the proposed scheme in April
2005, the subsequent delays and stoppage of the project blighted the subject business up
to the date of resumption. In particular the adverse impact of the proposed resumption
caused the major tenant in the centre, Harvey Norman, to vacate its premises on 1
February 2007. Subsequently a number of other businesses in or near the Coorparoo
Mall also vacated their premises between August 2007 and December 2008. The result
was that local business traffic reduced, as evidenced by a fall of 31% in transactions at
the subject branch and a 27% fall in ATM transactions from 2005/6 to 2008/9.
9
[36] Mr Wright was satisfied that the whole of the loss was caused by the resumption scheme
which included, but was not limited to
the reduction in local business traffic flow resulting from the move by Harvey
Norman in February 2007.
the loss of customer car parking facilities at the claimant’s new premises;
creation of an uncertain, unsatisfactory business environment in the business
catchment area by the resuming authority announcing and then retracting and
finally deferring works programmes over a period of at least 4 years.
[37] Mr Calabro did not agree with Mr Wright’s approach because, he said, all BOQ branches
do not necessarily perform at the same level due to different management regimes and
demographics etc. Accordingly, he used the actual growth figures for the Coorparoo
branch for 2008 and growth rates extracted from Reserve Bank of Australia (RBA) data
for 2009 and 2010 being the growth in credit facilities made available to the private
sector by financial intermediaries. Mr Calabro used the RBA growth rates for 2009 and
2010 because he did not have a separate item for the relationship income. He applied an
average growth of 2.47%.
[38] Mr Calabro was not entirely satisfied that the whole of the loss was due solely to the
effects of the resumption and the project because –
he was unable to comment on whether the move by Harvey Norman in 2007 was
due to the project; and
there was a business downturn as a result of the global financial crisis (GFC).
[39] Nevertheless, Mr Calabro said that his report was premised upon the resumption being
the sole cause of the loss of value of the business leaving aside the GFC. Accordingly,
he had made no deduction for the fact that the departure of Harvey Norman was not
solely caused by the resumption.
[40] Although Mr Calabro said that he had made no deduction for the fact that the departure
of Harvey Norman was not caused by the resumption, he calculated the growth factor for
the year ending August 2008 by using the actual growth figures for the subject business.
However, if the subject business was adversely affected prior to the resumption by the
announcement of the pending resumption leading to the departure of Harvey Norman,
use of the actual growth figures of the business for that year, in my opinion, does not take
into account that adverse impact. It is necessary therefore to consider the evidence as to
the reasons for Harvey Norman’s departure from the Coorparoo precinct.
Departure of Harvey Norman
10
[41] Mr G Miers, a development and warehouse manager employed by Harvey Norman, gave
evidence as to the reasons for Harvey Norman’s acquisition of the Coorparoo store and
subsequent exit from the precinct.
[42] Harvey Norman acquired the store in November 2005 as part of a package purchase of
Myer Megamart stores throughout Australia. Harvey Norman purchased the stores
because they had been trying to establish a presence in some of the areas where the
Megamart stores were located, particularly Chadstone, Mr Miers said.
[43] Although Mr Miers was not involved in Harvey Norman’s decision to leave the
Coorparoo premises, he had examined the company’s records and obtained the following
information as to the reasons for their departure:
the lease was at an end and although there was an option to extend for 5 years,
Harvey Norman had the opportunity to relinquish the store;
the site was available for purchase for residential development;
a bus lane acquisition was proposed and the effects would be investigated;
maintenance costs were being investigated;
the configuration of the store was not consistent with the traditional Harvey
Norman stores;
the store was old;
car parking was not suitable for a Harvey Norman store;
the store was not performing as a better retail outlet.
[44] Mr Mier’s evidence was somewhat at odds with information in various press reports
which were tendered on behalf of the claimant. In March 2006, the Courier Mail
reported a Mr Skippen, the chief financial officer of Harvey Norman, as saying that
Harvey Norman was in the process of refitting the Coorparoo store. In January 2007,
another spokesperson for Harvey Norman was reported in the South East Advertiser as
saying that “the cloud of uncertainty” surrounding the Coorparoo Mall’s future had forced
the decision not to renew the lease. The claimant also tendered three print media
advertisements by Harvey Norman, published in January 2007, where the “Harvey
Norman Coorparoo closing down sale” is advertised. Included in each of the
advertisements are prominent statements – “Closing down sale. With the proposed
busway changes everything has to go”.
[45] While the respondent objected to the newspaper reports being received as evidence of the
truth of the statements contained therein, it is clear from the advertisements alone that
11
whatever may have been the multiplicity of reasons for the Harvey Norman decision to
vacate the Coorparoo store, Harvey Norman informed the public that the proposed
busway changes were the cause of their decision to close down and sell all their stock. In
my opinion this reflects a climate of uncertainty caused by the proposed resumption and
the downturn in the claimant’s business can reasonably be attributed to that climate of
uncertainty. That is supported by the fact that a number of other businesses departed
from the Coorparoo precinct in the following two years.
Conclusions about growth rate
[46] In view of my conclusion that the downturn in the claimant’s business can reasonably be
attributed to the climate of uncertainty caused by the announcement of the prospective
busway, I consider that the actual income for the subject business should not be used to
calculate the growth rate prior to the resumption.
[47] Further, while there is some merit in Mr Calabro’s opinion that the BOQ OMB averages
do not reflect a detailed comparison of the location, demographics and management etc
of the subject business with those of other BOQ OMBs, it appears that the same criticism
can be levelled at Mr Calabro’s use of the RBA data. The use of averages is not entirely
satisfactory but, as no better methodology was offered, it seems to me that the BOQ
OMB averages provide a more accurate comparison with the subject business than the
RBA data which are based on a wide range of credit providers operating throughout
Australia.
[48] I am also satisfied that the BOQ OMB figures would adequately reflect the impact of any
losses suffered by those businesses, and the subject business, attributable to the GFC.
[49] Accordingly, I consider that Mr Wright’s average percentage of 6.633% should be used
as the growth rate for the purpose of determining compensation.
[50] Compensation for loss of profits is determined at $201,024.
Loss of value of the business
[51] There is no dispute between the parties that the claimant suffered various losses including
a decline in the value of its business as a result of the resumption of the subject leasehold
interest in land. The dispute is as to the extent of that loss.
[52] The parties are agreed on the appropriate formula for assessment of compensation for
loss of value of the business, being a formula set out in clause 26.1 of the BOQL
franchise agreement which applies where a takeover occurs. A takeover is defined in
clause 1.1, as a change in the control of the Bank such that the Bank has become a
subsidiary of another body corporate for the purposes of the Corporations Act …. In that
event, if the claimant elects to terminate the agreement, the bank must pay the
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compensation amount (clause 26.2(c)(i)). Compensation amount is defined as “the
amount payable … calculated in accordance with the formula set out in item 2 of
schedule 1 of this agreement; or … as agreed” (clause 101).
[53] The formula is –
Compensation Amount (CA) = R x G
R = Average annual commission, excluding GST, for the last three year operating period.
G = Growth Factor. The growth factor is the average percentage of growth in annualised
commission payments, excluding GST, for the last three year operating period. This
average annualised growth rate is then correlated to a “G Factor”, as detailed in a table
set out in the franchise agreement.
[54] Applying the formula, Mr Wright assessed the loss in value of the business at $265,000
relying on the growth rate discussed above of 6.633%. Mr Calabro assessed the loss in
value of the business at $98,299 relying on a growth rate of 2.47%, and having deducted
the relationship income from the actual income for each year.
[55] Although the formula is one which is applicable in very defined circumstances, the
parties’ experts agreed to proceed on the basis of the formula for the purpose of assessing
the loss in value of the subject business. However the respondent has contended that, in
a land acquisition context, some adjustment to the approach is necessary. Specifically,
the respondent submitted, personal and local goodwill should be distinguished and the
growth rates to be applied should be based on the actual growth figures for 2008 and the
RBA figures for 2009 and 2010.
[56] I have already dealt with those issues in my discussion of the claim for loss of profits and
have set out my reasons for rejecting both submissions. Accordingly, I do not accept Mr
Calabro’s calculations as to the loss in value of the business at $98,299.
[57] Compensation for loss in the value of the business is determined at $265,000.
Other disturbance costs
[58] The claimant has claimed an amount of $317,863 for other disturbance costs, divided into
two categories, namely relocation expenses totalling $268,598 and professional and
valuation fees totalling $49,265.
Relocation expenses
Fitout
[59] There is no dispute between the parties as to the quantum of the amounts expended by
the claimants for relocation expenses. However, the respondent contends that the sum of
$228,423 expended mainly on the fitout of the new premises ought to be reduced to
brought forward costs as calculated by Mr Calabro, namely $87,372.
13
[60] Counsel for the respondent, Mr Horton, submitted that as a matter of first principle, it is
wrong to seek compensation for the costs of relocating a business from leased premises
on a reimbursement basis because:
(a) a lease is not, of its nature, perpetual, so the lessee is always subject to the
prospect of relocating its business upon expiry of the lease and any options;
(b) relocation costs in the nature of a fitout, if sought on a reimbursement basis,
gives new for old when the whole purpose of compensation is to compensate
for loss, not to put the claimant in a better position than it was prior to the
resumption. In this case, the lessee moved to premises larger than the
resumed premises and obtained the benefit of a brand new fitout,
notwithstanding the lessee only ever had a right to remain in possession of
the premises until 2013. Moreover, the resumed premises were in a building
which was likely to have been redeveloped owing to:
(i) its age and condition; and
(ii) (in a closely related sense) the departure of Harvey Norman.
Two authorities were cited by Mr Horton, Michael v Brisbane City Council6 and Neep v
Gold Coast City Council.7
[61] In Michael’s case, the claimant was, prior to the resumption, in occupation of certain
premises under an informal arrangement which, the Land Appeal Court held, amounted
to a monthly tenancy. The Court found, on the evidence, that there was a business
relationship which had existed for nearly 6 years between the landlord and tenant and
that the monthly tenancy could at any time have been converted to a lease for a term of
years at the request of the claimant. Indeed, if the claimant had wished to sell his
business at any time, the Court said, he could have obtained a lease transferable to the
purchaser. Accordingly the claimant had, prior to the resumption, every reason to feel
secure.8
[62] The claimant had sought disturbance costs of $4,525. At first instance, the Land Court,
having held that the tenancy in place at the time of resumption was a yearly tenancy,
awarded $362 for disturbance being 8% interest for one year upon the disturbance costs
of $4,525. In setting aside the Land Court’s award of $362, the Land Appeal Court held
that because the claimant could look forward to security of tenure for a lengthy period, a
purchaser would have been prepared to pay full reasonable costs of disturbance. The
Court said, relying on the judgment of Griffiths CJ in The Minister v New South Wales
Aerated Water and Confectionery Co Ltd,9 that such costs are an element in the
6 (1970) 37 CLLR 5.
7 (1982) 8 QLCR 234.
8 (1970) 37 CLLR 5 at 9, 10.
9 (1916) 22 CLR 56 at 65.
14
determination of value to the owner and it is the value to the owner which has to be
determined.10
[63] I have been unable to locate a copy of the decision of the Land Court in Michael and the
details of the disturbance claim and the reasoning of the Land Court are not entirely clear
from the report of the Land Appeal Court decision. However, the Land Court said in the
Neep case that the costs claimed in Michael included removal expenses, electricity
disconnection and reconnection, telephone removal and reconnection, insurance on
removal, reestablishment charges – signwriting, linos, advertising, shelves, cleaning of
premises prior to occupation, engineering charges – dismantling and reinstallation of
plant and machinery and supervision charges.
[64] In Neep’s case, the Court also said that compensation had been awarded by the Land
Court in Michael’s case for disturbance based on what is known as “the acceleration of
costs factor” for relocation due to the termination of the tenancy. Compensation was
determined by calculating the loss of one year’s interest on the justifiable relocation costs
at the rate of 8% for one year (the period of tenancy as determined by the Land Court)
and not on the capital costs involved in the re-establishment of the business.11
[65] In Neep’s case, Land Court Member Mr Carter said that he found himself in the difficult
position of not agreeing with the decision of the Land Appeal Court in Michael’s case.
Mr Carter said that it was unreasonable for the claimant in Michael to have been
compensated for capital costs involved in the relocation of his business. Michael was a
month to month tenant and as such, must, as a normal commercial risk, have faced the
possibility of the tenancy coming to a close at short notice with a resultant cost of
removal of the business if it were to continue. Mr Carter referred to a decision of the
Ontario Court of Appeal in Re Frankiel Steel Construction Ltd and Metropolitan
Toronto12 (which had not been cited before either Court in Michael’s case) in support of
his opinion. Mr Carter also said that he found the approach taken by the Land Appeal
Court inappropriate in Michael’s case because the claimant was compensated, to some
extent, on a “new for old” basis of reinstatement which he considered to be repugnant to
the principles of compensation.13 Nevertheless, as a single Member of the Land Court
sitting alone, Mr Carter held that he was bound by law to follow the decision of the Land
Appeal Court in Michael’s case, being unable to sufficiently distinguish between it and
Neep.14
10 (1970) 37 CLLR 5 at 10.
11 Neep v Gold Coast City Council (1982) 8 QLCR 234 at 242.
12 1966 58 DLR 578, 580.
13 Neep v Gold Coast City Council (1982) 8 QLCR 234 at 242, 243.
14 (1982) 8 QLCR 234 at 244.
15
[66] Prior to amendments to the Acquisition of Land Act which came into effect on 23
February 2009,15 claims for disturbance were not recognized as a separate head of
compensation in the Act and disturbance losses were taken into account when assessing
value to the dispossessed owner.16 Section 20(1)(b) now provides that in assessing the
compensation to be paid, regard shall be had not only to the value of land taken but also
to the claimant’s costs attributable to disturbance. In addition, subs.(5) was added which
inserts a definition of “costs attributable to disturbance”. The effect of the addition of the
new s.20(1)(b) is that it is now clear that costs attributable to disturbance are a separate
head of compensation from compensation for the value of the land taken. Thus while the
earlier authorities indicated, where disturbance was not an express or separate head of
compensation, that disturbance was awarded as a part of the special value of the
claimant’s interest in the land, that is no longer the case, at least as regards the elements
of disturbance that are expressly identified in subs.(5).17
[67] Given that the relevant legislation has changed since the decisions in Michael and Neep,
an issue arises as to whether the principles on which those cases were based should be
reconsidered. My opinion is that, given that the principle to be applied is now formulated
in statutory form, my primary task is to apply the words of the statute.
[68] The claim for the costs of the fitout incurred by the claimant appears to come within
s.20(5)(g) of the Act which provides that costs attributable to disturbance include “other
economic losses and costs reasonably incurred by the claimant that are a direct and
natural consequence of the taking of the land”. The issue to be determined therefore is
whether the fitout costs come within that formulation.
[69] As at the date of resumption, the claimant had a justifiable expectation that the lease and
the claimant’s occupancy would continue to 31 October 2013, a period of just over 4
years from the date of resumption. Although the claimant held a licence only from the
leaseholder, it was never suggested by the respondent that for all practical purposes the
claimant did not have security of tenure for the four year period. That being the case, I
consider that the claimant incurred the fitout costs in 2009 as a direct and natural
consequence of the taking of the land. There is no certainty that those costs would have
been incurred in 2013. The lease may have been renewed, the business may have been
sold in the interim period or the business may have closed down at the end of the lease.
Therefore I consider that the claimant is entitled to the full costs of the fitout. Although
the new premises are larger than the old, and the claimant has received “new for old” as a
15 On the principles discussed by the High Court in Acquisition of Land and Other Legislation Amendment Act 2009.
16 Commonwealth v Milledge (1953) 90 CLR 157 at 164.
17 Cf Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of New South Wales (1998) 101 LGERA 30 at 40.
16
result of the fitout there was no evidence that any alternative to a new fitout or other
suitable premises were available. The quantum of the amount spent on the fitout is not in
issue and therefore the sum of $228,423 is allowed.
Radio Advertising, etc
[70] The respondent does not concede the reasonableness of the following amounts claimed as
disturbance items:
(a) $30,000 on radio advertising;
(b) $995 on repairing a wall in the former leased premises upon vacating same;
and
(c) $1,007 on cleaning the former leased premises upon vacating same.
[71] The respondent submitted that the amount of $30,000 for radio advertising was excessive
and that $6,000 only should be allowed because $6,000 was originally claimed for a
mailout to advise customers of the new address.
[72] Mr Brett Davies’ evidence was that the radio advertising did not advertise the change of
location but was directed at attracting new customers from everywhere, not just local
business, because the business had been hampered, and it was necessary to do whatever
was necessary to get the business back on track.
[73] The effect of this evidence is that the radio advertising represented a general attempt to
promote the subject business. While that was to some extent to redress the downturn
caused by the resumption, I consider that the advertising campaign was more broadly
based and the costs incurred were not solely attributable to the resumption. Doing the
best I can, I will allow $15,000 for the radio advertising.
[74] Mr Davies’ evidence was that the sum of $995 spent on wall repairs was for repairs
required by the BOQ when the claimant vacated the subject premises. That sum is
allowed.
[75] There was no evidence to suggest that the cleaning expenses of $1,007 were
unreasonable. That sum is allowed.
[76] Other items totalling $8,173 claimed as relocation expenses were not disputed by the
claimant and are allowed.
[77] The total sum allowed for relocation expenses is therefore $253,598.
Legal and valuation fees
[78] The claim of $49,265 for legal and valuation fees is not disputed by the respondent and is
allowed.
Conclusion
[79] Compensation is awarded in the sum of $768,887 made up as follows:
17
18
Loss of value of business $265,000.00
Loss of profits $201,024.00
Relocation expenses $253,598.00
Legal and Valuation Fees $49,265.00
[80] Interest is payable as set out in the Orders below, the interest rates being calculated in
accordance with the rates published on the Land Court website.
[81] I will hear the parties as to costs.
ORDERS
1. Compensation is determined in the amount of Seven Hundred and Sixty-eight
Thousand, Eight Hundred and Eighty-seven Dollars ($768,887).
2. The respondent is ordered to pay interest to the applicant at the rate of 5% per annum
on the amount of Four Hundred and Sixty-six Thousand and Twenty-four Dollars
($466,024) for the period commencing 31 July 2009 up to and including 17
November 2009.
3. The respondent is also ordered to pay interest to the applicant on the amount of Sixtysix
Thousand and Twenty-four Dollars ($66,024) for the period commencing 18
November 2009 up to and including 17 October 2010, at the rate of 5.00% per annum
up to and including 31 December 2009 and thereafter at the rate of 5.5% per annum.
4. The respondent is also ordered to pay interest to the applicant at the rate of 4.75% per
annum on the sum of Twenty Thousand and Twenty-four Dollars ($20,024) for the
period commencing 18 October 2010 up to and including the day immediately
preceding the date on which that amount is paid to the applicant.
5. The respondent is also ordered to pay interest at the rate of 4.75% per annum on the
sum of Three Hundred and Two Thousand, Eight Hundred and Sixty-three Dollars
($302,863) being the other disturbance items allowed for the periods commencing on
the dates on which the applicant paid each of these amounts up to and including the
day immediately preceding the date on which the respondent pays those amounts to
the applicant.
CAC MacDonald
PRESIDENT OF THE LAND COURT