PETER CROKE HOLDINGS PTY LIMITED v. ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES [1998] NSWLEC 177 (10 August 1998)
Land and Environment Court of New South Wales
Record of hearing
A. INTRODUCTION
These class 3 proceedings involve an objection by each Applicant pursuant to s66 of the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act) to the amount of compensation offered to them in respect of their separate claims to compensation in respect of the compulsory acquisition under that Act by the Respondent of land situate at the corner of Pacific Highway and Sawtell Road, Boambee and known as lots 15 and 29 Deposited Plan 861055 (the acquired land) by Acquisition Notice published in Government Gazette No. 146 of 13 December 1996 (the acquisition date).
According to the Acquisition Notice, the stated purpose of the acquisition was “the purposes of the Roads Act 1993″.
In their respective claims to compensation, the First Applicant claimed as the registered proprietor of an estate in fee simple in the acquired land as recorded in computer folio 100/617140, the Second Applicant claimed as `the lessee and occupier” of that land, the Third Applicant claimed as Mortgagee of the acquired land and the Fourth Applicants claimed as tenants-at-will of a caretaker’s residence situate on the acquired land.
At the commencement of the hearing, the Court was informed that the Third Applicant (the Mortgagee) would not participate in the proceedings and that the Fourth Applicants’ claim had been settled by consent orders made by the Court on 8 October 1997 awarding compensation in the sum of $15,000 (including an amount of $3,000 in respect of “market value”).
Accordingly, the disputed compensation that remains to be determined in the proceedings is confined to the claims made by the First and Second Applicants, claiming interest in the acquired land as the owner and the lessee thereof respectively.
According to their amended Points of Claim, the First Applicant claims compensation in the sum of $1,188,511.00 made up as follows:
(i) Market Value
(in terms of s55(a) of the Just Terms Act)
$1,105,000.00
(ii) Loss attributable to disturbance (in terms of s55(d) of the Just Terms Act
$ 83,511.00
and the Second Applicant claims compensation in the sum of $552,573.00 made up as follows:
(i) Relocation of 4 display homes
$ 17,573.00
(ii)Extinguishment of business
$ 535,000.00
These claims which were maintained at the commencement of the trial (Exhibit 7) were resisted by the Respondent which contended for an amount of $504,072 compensation in respect of both Applicant’s claims (which total $1,741,184).
By consent, the evidence relevant to the First Applicant’s claim was presented first and thereafter the evidence relevant to the Second Applicant’s claim was presented. It was at the point of presenting the evidence in support of the Second Applicant’s case that the Court was informed that the First Applicant had reached agreement to purchase a site situate on the Pacific Highway frontage some 4 km closer to Coffs Harbour City Centre than the acquired land. That site comprises an existing McDonald’s Family Restaurant (the McDonald’s site). This development in the proceedings was said to create a profound change in the Second Applicant’s claim to compensation which had originally been based upon the proposition that the compulsory acquisition had totally extinguished the business conducted by the Second Applicant, because the First Applicant had been unable to find suitable alternative accommodation in Coffs Harbour upon which the business conducted by the Second Applicant could be relocated. Now that there were realistic prospects of the First Applicant acquiring the McDonald’s site, the Second Applicant wished to relocate its business to that site and in consequence, its claim for compensation for disturbance loss would be based upon relocation costs and expenses in lieu of the previous claimed basis of extinguishment of the business. When the hearing of the proceedings resumed in March this year, the Second Applicant claimed compensation for relocation costs of $224,914 and for loss of profits of $279,180 ie. totalling $504,094 in lieu of the amount of $535,000 earlier claimed on the basis of extinguishment of its business.
A considerable difficulty which is encountered in the case concerns (i) the identification and (ii) separate quantification of the respective claims made by the First and Second Applicants, (which in turn depends upon a proper understanding of their respective interests in the acquired land) and the interactive legal relationship between those separate claims and interests.
This difficulty is manifested by the fact that the Respondent did not make separate valuations of the interests claimed by the two Applicants, either in the statutory notice given pursuant to s42 of the Just Terms Act or in the valuation report of Mr Early, Area Manager of the State Valuation Office, Coffs Harbour (Exhibit B).
The explanation for this state of affairs is explained in Mr Early’s report (p.10) which states:
“The determination represents the combined interests of Peter Croke Holdings Pty Ltd, Peter Croke Mobile Homes Pty Ltd and also the State Bank of NSW Limited on the basis the Bank as mortgagee will join in the claim for compensation”
it having earlier been noted that: “Documentation has not been sighted regarding the relationship between the registered proprietor and occupier” (p.6).
If this was the nebulous position at the commencement of the trial, the Respondent’s ultimate submission at the end of the trial (after it had directly raised the issue during the Applicants’ cases) was that the Second Applicant had no relevant interest in the acquired land, and therefore was not entitled to any compensation under the Just Terms Act in respect of any “loss attributable to disturbance” (vide s59 of the Act) on account of the effect of the compulsory acquisition of the land upon which the Second Respondent conducted its business of displaying and selling mobile homes. Moreover, the Respondent’s submission went much further than submitting that the Second Applicant could not claim compensation in respect of loss to the business it had conducted for more than 20 years on the acquired land, but included the submission that no compensation could be claimed for that business loss by either Applicant – not by the Second Applicant because it did not have a relevant interest in the acquired land, and not by the First Applicant because it did not conduct the business.
Because of the profound implications of these submissions, it is necessary at once to determine the following fundamental questions:-
(i) Is Second Applicant entitled to claim compensation in respect of the losses to its business?
(ii) If the Second Applicant is not so entitled, is the First Applicant entitled to compensation in respect of those business losses?
B. IS THE SECOND APPLICANT ENTITLED TO CLAIM COMPENSATION IN RESPECT OF ITS BUSINESS LOSSES?
In considering this question, I am not here concerned with the assessment of the claimed business losses. (Even Mr Early’s original valuation included an amount of $20,000 for disruption of business.) Nor am I at present concerned to distinguish between such losses based upon extinguishment of the business and such losses incurred in relocating that business.
The undisputed evidence of Mr Peter Croke, who is a Director and the major shareholder in the companies constituting the First and Second Applicants, (the First Applicant holds the majority of shares in the Second Applicant) is that the Second Applicant (which was incorporated in 1971) has always operated the business conducted on the acquired land, which business operations commenced in 1976, following acquisition in 1975 of the land by the First Applicant (which was incorporated in 1975) and the obtaining of development consent from the Coffs Harbour Council on 26 October 1976 for the establishment of a caravan sales and service centre. About 10 years ago, the business changed from caravan display and sales to include mobile home display and sales and in more recent years the latter aspect of the business has been predominant.
The occupation of the acquired land by the Second Applicant for the continuous period of 20 years prior to the compulsory acquisition was not the subject of any written lease agreement. That occupation involved exclusive possession by the Second Applicant (which was not impaired by the occupation of the caretaker’s cottage erected on the land, by the Fourth Applicants who were employed in that role by the Second Applicant).
In his evidence, Mr Croke said that he had been told that the lease was a “tenancy-at-will” but that in any event, the Second Applicant’s occupation was secure whilever it conducted the business which was in the financial interests of both companies. Rent was paid annually but only by way of a book entry between the two companies undertaken at the end of each financial year by the companies’ Accountant, Mr Colin Winter, who advised the companies as to the amount of rent. The rental paid in the five succeeding years immediately prior to the acquisition date was $79,200.
Mr Croke said that according to the advice of Mr Owen Allsopp, the Valuer retained by the Applicants in the present proceedings, this amount of rent was far above market rent (estimated at $35,000 per annum) and it was for this reason that the compensation claim that was made by the Second Applicant did not include any amount referable to the value of the leasehold interest extinguished by the compulsory acquisition.
In my judgment, and having regard to Mr Croke’s evidence concerning the relationship between the two companies, which was unchallenged and which I accept, it is clear that that the Second Applicant’s occupation of the acquired land for the continuous period 20 years prior to the acquisition date constituted an “interest” in the acquired land within the meaning of the Just Terms Act being a legal or equitable leasehold estate or interest.
In so concluding, I do not think it is necessary to determine the precise form of the tenancy, it being sufficient to say that it was probably a periodic tenancy from year to year (either at common law or in equity) or at the very least a statutory tenancy at will in terms of s127(1) of the Conveyancing Act 1919. Either type of tenancy qualifies as a legal or equitable estate in the acquired land.
Accordingly, the Second Applicant had an “interest” in the acquired land at the acquisition date of which it was divested by virtue of the compulsory acquisition, and in respect of which, it was entitled to compensation: s37 of the Just Terms Act.
Having established that the Second Applicant was relevantly divested of an interest in the acquired land by virtue of the compulsory acquisition, the next question is whether that interest provides a sufficient legal foundation for the Second Applicant’s claim to business loss caused by the compulsory acquisition.
In this respect, the Second Applicant (like any other person entitled to compensation under Part 3 of the Just Terms Act) is entitled to “such amount as, having regard to all relevant matters…, would justly compensate the person for the acquisition of the land”: s54 of the Just Terms Act. Section 55, which prescribes the “only” matters relevant to the determination of compensation includes the following:
“(d) any loss attributable to disturbance.”
that expression being defined in s59 as follows:
“59. In this Act:
`loss attributable to disturbance’ of land means any of the following:
(a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land;
(b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land;
(c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs);
(d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired);
(e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage);
(f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.”
The Second Applicant’s claim to disturbance loss is founded on paragraphs (c) and (f) of s59.
Prior to the enactment of the Just Terms Act it had been long established by decisions in Australia and in England, based upon then prevailing similar compulsory land acquisition statutes, that compensation awarded may include compensation for business disturbance or loss that had been caused by the compulsory acquisition.
More modern statements of the principle generally are traced back to the judgment of Scott LJ in the English Court of Appeal in Horn v. Sunderland Corporation (1941) 2 KB 26. One of the principles that his Lordship described from the decided cases (which date back to the 19th century) was stated as follows at 49:
“In the case of a sale by private treaty or auction the seller cannot put in his pocket more than the net market value. He can recover no loss to which he is put by his decision to part with his land, but on a compulsory sale the principle of compensation will include the price of the land, not only its market value, but also personal loss imposed on the owner by the forced sale, whether it be the cost of preparing the land for the best market then available, or incidental loss in connection with the business he has been carrying on, or the cost of reinstatement, because otherwise he will not be fully compensated.”
Horn’s case was followed and applied by the High Court of Australia in The Commonwealth v. Reeve [1949] HCA 22; (1949) 78 CLR 410 where it was held that compensation claimed by a lessee for loss of the local goodwill in the business that had been conducted on the resumed property was recoverable as part of the value of the claimant’s leasehold interest in that property.
In that case, Dixon J at 424/425 cited the judgment of Scott LJ in Horn in support of his Honour’s reference to the decision of the House of Lords in Inland Revenue Commissioners v. Glasgow and South Western Railway Co. (1887) 12 App. Cas. 315 as making clear “that where the goodwill was localised in the land taken the consequent destruction of the goodwill must be taken into account in assessing the value or purchase price of the interest acquired”.
In The Commonwealth v. Milledge [1953] HCA 6; (1953) 90 CLR 157 in the joint judgment of Dixon CJ and Kitto J “disturbance” is discussed in the following passage at 164:
“There remains the item of the plaintiff’s claim described as business disturbance. Though it was considered convenient in this case, as it often is, to deal with this topic as a separate matter, it must always be remembered that disturbance is not a separate subject of compensation. Its relevance to the assessment of the amount which will compensate the former owner for the loss of his land lies in the fact that the compensation must include not only the amount which any prudent purchaser would find it worth his while to give for the land, but also any additional amount which a prudent purchaser in the position of the owner, that is to say with a business such as the owner’s already established on the land, would find it worth his while to pay sooner than fail to obtain the land.”
This passage was cited by Hope JA in his judgment in Housing Commission of NSW v. Falconer (1981) 1 NSWLR 547 at 556/557 where his Honour also refers to the later High Court decision in Crisp & Gunn Co-Operative Ltd v. Hobart Corporation [1963] HCA 55; (1963) 110 CLR 538 (shortly to be mentioned) .
In Falconer Glass JA includes the following proposition from his consideration of the decided cases:
“The compensation recoverable could also extend to consequential losses suffered over and above the market value of the land such as costs of removal, loss of profits, etc. Actual losses caused by the forced acquisition are described as claims for disturbance. The principle of compensation includes such losses in the compensation assessed together with the market value of the land because otherwise the owner will not be fully compensated: Horn v Sunderland Corporation [1941] 2KB 26, at p 49; Birmingham Corporation v West Midland Baptist (Trust) Association (Inc) [1970] AC 874, at p 893. Subsequent events were necessarily relevant to such claims.”
In the same case, Mahoney JA in the following passage at 573 concluded that the concept of “value of the owner” justified awards of compensation for “disturbance”:
“It is upon the basis of the ‘value to the owner’ principle that amounts variously described for `disturbance’ and the like have been awarded. Thus the court has taken into account, as part of the special value of land to the owner or occupier, the costs which he would incur in moving to other equivalent premises, the loss of trade or production involved during the period of the move, and the cost of setting up in the new premises: Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410, at pp 418, 420, 435; Emerald Quarry Industries Pty Ltd v Commissioner of Highways [1979] HCA 14; (1979) 24 ALR 37, at p49, per Mason J; see also Universal Sands & Minerals Pty Ltd v Commonwealth [1980] FCA 69; (1980) 30 ALR 637; although care must be taken that compensation for such special value is not duplicated, eg, by taking the market value of the land for a special purpose, then adding, as part of the special value to the owner, an amount to represent that special value to him: see Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157, at p 164; Horn v Sunderland Corporation [1941] 2 KB 26. It has frequently been said that the special value of the land to the owner may be tested by asking what a prudent person in the position of the owner would pay rather than fail to obtain or secure the land for himself: Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157, at p164; Dangerfield v Town of St Peters [1972] HCA 15; (1972) 129 CLR 586, at p 590.”
In this Court, Hemmings J in Brown Bros. (Marine) Holdings Pty Ltd v. NSW Land and Housing Corporation (1991) 72 LGRA 50 recognised the legitimacy for including in awards of compensation based upon the concept of “value to the owner” amounts reflecting “consequential losses” and “disturbance” when he said at 55:
“However, in my opinion if the resumed land had a market value which could be determined in the normal way, and it is evident that it also had a measurable special value to the owner over and above such value, compensation should be assessed by the selling approach and paid as one sum which includes both: cf Gosford Shire Council v Green (1980) 48 LGRA 201 and Falconer.
Special value is an element of the concept of ‘value to the owner’, and is the additional sum above market value which the owner would have given for the land sooner than fail to obtain it at the time of the hypothetical sale. If the dispossessed owner is also the occupier, as part of the value of the land to such owner compensation ordinarily takes into account any reasonable expense which was incurred or likely to be incurred as a consequence of the obligation to quit the resumed land. That sum can extend to consequential losses and items which are also often described as disturbance and include, inter alia, costs incidental to removal to other premises, rebuilding and loss of profits: Falconer.”
In Birmingham Corporation v West Midland Baptist (Trust) Association (1970) AC 874 Lord Reid said at 893:
“It has always been recognised that the value of the land means its value to the owner and does not mean its value to the promoters or its value in the open market. If the owner is in occupation the value of the land to him may far exceed its value in the open market. If he wishes to continue his activities he will not only have to obtain other premises but he will have to pay costs of removal and if he is carrying on business the move may cause loss of profits and other loss. He will not be fully compensated unless all this is taken into account.”
In the same case Lord Donovan said at 911:
“Under the Act of 1845 compensation for the compulsory taking of land included reimbursement of the loss caused to the owner by his expulsion. That loss was not assessed by doing some imaginary calculation as at the date of the notice to treat. It was an actual loss sustained later when the owner had to go; an, even though it might in part be a loss of future profits, it would be assessed on the basis of data existing at the time of assessment. The payment for this “disturbance”, as it is called, has been held to be all part of the value of the land taken, and accordingly liable to ad valorem stamp duty as on a conveyance of land: Inland Revenue Commissioners v Glasgow Corporation and South Western Railway Co. (1887) 12 AC 315.”
Finally, I would refer to two recent English decisions (the first, the decision of the House of Lords in Hughes v. Doncaster Metropolitan Borough Council (1991) 1All ER 295 and the second, the decision of the Privy Council in Director of Buildings and Lands v. Shun Fung Ironworks (1995) 1All ER 846) where it is affirmed as well settled law, that compensation for disturbance loss is but an element in the assessment of the value of the land taken to the claimant.
In Shun Fung the relevant Hong Kong Ordinance provided for the determination of compensation “on the basis of the loss or damage suffered by the claimant due to the resumption of the land” and went on to expressly provide for compensation on the basis of, inter alia;
(i) the value of the land resumed; and
(ii) the amount of loss or damage to a business conducted by the claimant on the land resumed…. due to the removal of the business from the land as a result of the resumption”. (851)
Lord Nicholls in giving the majority opinion of the Privy Council held that despite the express reference in the Hong Kong Ordinance to “business loss or damage” the relevant principles to be applied were the same as those that had been developed judicially in England in the interpretation of the English Land Clauses Consolidation Act 1845.
Lord Nicholls at p.852 held that the purpose of both the English and Hong Kong statutory provisions was to provide “fair compensation” to a claimant whose land had been compulsorily taken, or what his Lordship described as “the principle of equivalence”.
His Lordship next proceeds (at 852) to discuss the concepts of “value to the owner” or “special value” in a manner which in my respectful opinion provides a precise and illuminating exposition of those concepts, which is relevant for present purposes. The passage merits full citation:
“Land may, of course, have a special value to a claimant over and above the price it would fetch if sold in the open market. Fair compensation requires that he should be paid for the value of the land to him, not its value generally or its value to the acquiring authority. As already noted, this is well established. If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance. Compensation should cover this disturbance loss as well as the market value of the land itself. The authority which takes the land on resumption or compulsory acquisition does not acquire the business, but the resumption or acquisition prevents the claimant from continuing his business on the land. So the claimant loses the land and, with it, the special value it had for him as the site of his business. The expenses and any losses he incurs in moving his business to a new site will ordinarily be the measure of the special loss he sustains by being deprived of the land and disturbed in his enjoyment of it. If, exceptionally, the business cannot be moved elsewhere, so it simply has to close down, prima facie his loss will be measured by the value of the business as a going concern. In practice it is customary and convenient to assess the value of the land and the disturbance loss separately, but strictly in law these are no more than two inseparable elements of a single whole in that together they make up the value of the land to the owner: see Hughes v Doncaster Metropolitan BC [1991] 1 All ER 295 at 301, [1991] 1 ACT 382 at 392 per Lord Bridge of Harwich.”
There is a twofold purpose of my survey of the pre Just Terms Act decided cases which have expounded the jural basis for awarding compensation for business disturbances and losses in consequence of the compulsory acquisition of land. Firstly, it demonstrates that compensation has always been claimable for “disturbance” losses (which concept has been applied liberally and may comprehend loss caused by the extinguishment of the business or the costs of relocating that business and loss of business profits) consequent upon the compulsory acquisition of land, as an element of the value to that claimant of the land. Secondly, it provides the existing legal background to the enactment and operation of the Just Terms Act and provides an obvious comparison between the two sources of law.
That comparison indicates a significant difference in principle, between the pre- Just Terms Act law concerning compensation for disturbance losses and the provisions contained in the Act (notably s55(d) and s59) for compensation for “loss attributable to disturbance”, namely that “disturbance loss” as defined by. s 59 of the Act now qualifies as a separate element or basis of compensation independent of the value of the land. (In so concluding, I would expressly reserve the question whether compensation for “special value” (as defined by s57 of the Just Terms Act) may also comprehend elements of disturbance or consequential losses not included within the ambit of s59 since that question does not arise in the present proceedings.)
The divergence from the previous law created by the express provision for “disturbance loss” contained in the Victorian Land Acquisition and Compensation Act 1986 (s41(1)(d)) in terms almost identical to the provisions contained in s55(d) of the Just Terms Act, was noted to be of “some importance” by Gobbo J in King v. Minister for Planning and Housing (1991) 76LGRA 288 at 316 where his Honour held that a claim for compensation for ‘special value’ and a claim for compensation for ‘loss attributable to disturbance’ in no sense can be regarded as inter-related for the purposes of assessment of compensation under the Victorian Act”. I would respectfully adopt this view and apply it to the counterpart provisions of the Just Terms Act.
It is not necessary, in the present case, to delve deeply into the implications of the difference in respect of compensation for disturbance or consequential losses between the Just Terms Act and the pre-existing law, other than to observe that the limited basis upon which compensation was awarded to the lessee in Pengly v. Commissioner for Railways (1951) 69WN(NSW) 25 would not be applicable under the Just Terms Act. In that case, Sugerman J held at 26 that “(T)he value of goodwill only enters into such a matter (ie. the value of the claimant’s interest in the land, namely as a lessee with 6 months of the unexpired term remaining at the date of resumption) as a factor for consideration in determining the value to the expropriated owner of the interest”. In so concluding, Sugerman J distinguished the High Court’s decision in Reeve on the ground that the lessee claimant’s interest in that case was held to be “a right to occupy for an indefinite duration” by virtue of the operation of the Regulations under the National Security Act 1939.
In the present case, I have held that the Second Applicant’s “interest” in the acquired land was that of lessee (either at law or in equity) of a periodic tenancy from year to year or at the least of a statutory tenancy-at-will created by s127(1) of the Conveyancing Act 1919, but with an assured occupancy for an indefinite period whilever the First Applicant owned the land, and whilever both Applicants desired the business conducted by the Second Applicant on the acquired land to be continued. However, as I have earlier noted, the Second Applicant makes no claim to compensation, apart from business disturbance and loss, in consequence of the statutory divesting or extinguishment (pursuant to s37 of the Just Terms Act) of that interest on account of the fact that it was paying (and had for some years been paying) an annual rental almost twice as much as the prevailing market rental.
Accordingly, in determining the Second Applicant’s claim to compensation conformably to s55 of the Just Terms Act, the only relevant consideration is that prescribed by paragraph (d) “any loss attributable to disturbance”. (Again, having regard to the Second Applicant’s exclusive reliance upon s55(d) and s59, I do not need to consider any possible application of “special value” referred to in s55(b) as explained by s57 of the Just Terms Act).
As stated earlier, the Second Applicant’s claim to compensation for business disturbance or loss is founded upon paragraphs (c) and (f) of s59 of the Just Terms Act. In my opinion, it is clear that these elements or bases for compensation are legally separate from, and independent of those bases for compensation prescribed by s55(a) and (b) namely those that are referable to the “value” of the land compulsorily acquired. It follows that in the circumstances of the present case, where the claimant for “disturbance loss” is the person conducting the business on the acquired land as a lessee or tenant, the entitlement to just compensation conferred upon it by virtue of ss37 and 54 of the Just Terms Act, in respect of “loss attributable to disturbance” is not dependent upon that claimant also establishing any separate or additional entitlement to compensation in respect of the “value” (market or special) of his leasehold interest. (I should note that nothing to the contrary of this conclusion was advanced by the Respondent in the proceedings).
However, what I have just said concerning the Second Applicant’s entitlement to compensation for “disturbance loss” is subject to the effect of s61 of the Just Terms Act which provides as follows:
61. If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of:
(a) any financial advantage that would necessarily have been forgone in realising that potential; and
(b) any financial loss that would necessarily have been incurred in realising that potential.
It is apparent that s61 is intended to deny certain entitlements to compensation that would otherwise be claimable. Obviously, such entitlements must be sourced in s55 and the most obvious source is “any loss attributable to disturbance” contained in paragraph (d) as expounded in s59.
So understood, it is instructive to note that the judge made law which enabled compensation to be claimed and recovered for disturbance and other consequential loss, itself imposed a significant qualification on entitlement to such compensation, namely that disturbance loss was only recoverable in circumstances where the combined amount of that loss and the value of the land taken assessed on the basis of its existing use exceeded the value of that land assessed on the basis of a potential use higher and more valuable than that existing use.
Again, the decision in Horn v. Sunderland Corporation is generally cited for the statement of the relevant principle and as providing an apt illustration of the principle. Sir Wilfrid Greene MR in the following passage at 35 both expounds and illustrates the principle by reference to the facts in Horn:
“In the present case, the respondent was occupying for farming purposes land which had a value far higher than that of agricultural land. In other words, he was putting the land to a use which, economically speaking, was not its best use, a thing which he was, of course, perfectly entitled to do. The result of the compulsory purchase will be to give him a sum equal to the true economic value of the land as building land, and he thus will realize from the land a sum which never could have been realized on the basis of agricultural user. Now he is claiming that the land from which he is being expropriated is for the purpose of valuation to be treated as building land and for the purpose of disturbance as agricultural land, and he says that the sum properly payable to him for the loss of his land is (a) its value as building land plus (b) a sum for disturbance of his farming business. It appears to me that, subject to a qualification which I will mention later, these claims are inconsistent with one another. He can only realize the building value in the market if he is willing to abandon his farming business to obtain the higher price. If he claims compensation for disturbance of his farming business, he is saying that he is not willing to abandon his farming business, that is, that he ought to be treated as a man who, but for the compulsory purchase, would have continued to farm the land, and, therefore, could not have realized the building value.”
Scott LJ concisely states the principle at 50 as follows:
“Where, by reason of the notice to treat, an owner is enabled to effect an immediate realization of prospective building value and thereby obtains a money compensation which exceeds both the value of the land as measured by its existing user and the whole of the owner’s loss by disturbance, to give him any part of the loss by disturbance on the top of the realizable building value is, in my opinion, contrary to the statutes.”
The passage I have quoted from the judgment of Sir Wilfrid Greene was cited in the joint judgment of Dixon CJ and Kitto J in Milledge at 164 after their Honours had stated the principle in their own words as follows:
“Disturbance, in other words, is relevant only to the assessment of the difference between, on the one hand, the value of the land to a hypothetical purchaser for the kind of use to which the owner was putting it at the date of resumption and, on the other hand, the value of the land to the actual owner himself for the precise use to which he was putting it at that date. It follows that if in the First instance the land is valued on the basis of its suitability for some more profitable form of use, there can be no justification for making an addition to the value so ascertained because of disturbance. There would be an obvious inconsistency in doing so, as the Privy Council pointed out in Standard Fuel Co. v. Toronto Terminals Railway Co. (1935) 3 D.L.R. 657.”
Finally, I would refer to the decision of the High Court of Australia in Crisp & Gunn Co-Operative Ltd v. Hobart Corporation [1963] HCA 55; (1963) 110 CLR 538 where the Court rejected the claimant’s submission that the decisions in Horn and in Milledge were not in point because in the instant case, the relevant Tasmanian statute expressly provided that in determining the amount of compensation, regard should be had, not only to the value of the land, but also to “disturbance and any other matter not directly based on the value of the land”. The Court, in rejecting the claimant’s argument said (at 547/548):
“Further we are of the opinion that the requirement of the statute that regard should be had in assessing compensation to a number of factors including ‘disturbance and any other matter not directly based on the value of the land’ does not justify the award of any amount for disturbance in addition to the market value of the land where, as here, that value exceeds the ‘present use’ value by an amount in excess of any loss resulting from disturbance.”
In my opinion, s61 of the Just Terms Act was intended to operate, and does in fact operate, to similar effect as did the judge made qualification on the entitlement to compensation for disturbance and other consequential losses in consequence of the compulsory acquisition of land.
When s61 refers to the assessment of market value “on the basis that the land had potential to be used for a purpose other than that for which it is currently used” “it is adopting the judge made law concerning the concept of “market value” classically expounded by the High Court of Australia in Spencer v. The Commonwealth (1907) 5CLR 418 and more particularly, that aspect of the concept that is described in the following words from the judgment of Isaacs J at 440 and 441 “…and the all important fact…is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted…We must further suppose both (hypothetical seller & buyer) to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value either advantageously or prejudicially,……”
In Horn Scott LJ at 48 stated the well established principle that the estimation of the “market value” of land “must take into account future and potential value, including what is known as “special adaptability”.
Thus s61 merely recognises the fact (as recognised in Horn and in Milledge) that the assessment of “market value” in accordance with s56(1) may proceed on one of two bases, namely (i) its present or current use; or (ii) a higher (and more valuable) use for which the land possesses the potential and for which it is advantageously adaptable.
Usually of course, the estimation of “market value” will adopt basis (ii) because it yields the higher value. However, where that basis for assessing “market value” is adopted, section 61 precludes the recovery of additional compensation in respect of (a) financial advantage that would necessarily have been foregone in realising the potential (for the higher use) and (b) financial loss that would necessarily have been incurred in realising that potential.
The question now arises as to how s61 is to be applied in the present case, where the Court is required to determine two separate claims for compensation – one by the First Applicant as the owner of the acquired land at the date of acquisition and the other by the Second Applicant, as the lessee or tenant of the acquired land at that date.
In my judgment, if the First Applicant’s claim to compensation which is founded on the entitlement to the “market value” of the land (s55(a)) were to lead to an assessment of compensation on the basis of a higher and more valuable use of the acquired land than on the basis of its existing use (being the use made by the Second Applicant, as lessee or tenant, in the conduct of its business) and that assessment on the basis of the higher use was predicated upon the termination of the Second Applicant’s tenancy of the land and the cessation of conducting its business thereon, the Second Applicant would not be entitled to compensation in respect of “loss attributable to disturbance” because (i) the financial advantage of continuing in occupation and in the conduct of the business would necessarily have been foregone in realising that (higher) potential and (ii) the financial loss to the Second Applicant of ceasing to conduct the business, or of having to relocate the business, would necessarily have been incurred in realising that (higher) potential.
In so concluding, I do not think that the plain intended effect of s61 would be defeated or displaced by virtue of the fact that in assessing the market value based upon a higher potential use, the financial advantage that is necessarily foregone or the financial loss that is necessarily incurred, is borne by the Second Applicant, rather than by the First Applicant whose claim to compensation is based upon the “market value” of the acquired land.
This conclusion does not deny that each claimant, having an interest in the acquired land, is entitled to have his or her claim for compensation separately determined. Rather, it gives proper recognition to the apparent effect of s61 of the Just Terms Act namely to deny recovery of compensation for disturbance loss where a claim to such compensation is inconsistent with another claim to compensation based upon the market value of the land, where that value is assessed on the basis of a potential higher use of the land than the existing use and where the realisation of that potential necessarily terminates (or postulates the termination of) that existing use. In my opinion, s61 so operates, whether the inconsistent claims are made by a single “interest” holder (as in Horn) or, as in the present case, by different interest holders, one being the owner and the other being the lessee.
The effect, which I have ascribed to s61, may of course have a significant impact on the relationship inter se, between the different interest holders and between their entitlement to compensation in respect of those interests, but this result would not produce any injustice between the claimants in the present proceedings. Rather, it is a function of their respective interests and the obviously close relationship between them. In this respect, it must not be forgotten that the different interests in this case are (i) a present leasehold estate in possession and (ii) an estate in fee simple, in reversion.
Different considerations may apply if, for example, the First Applicant’s “fee simple” interest were to be valued on the basis of a potential higher use as a reversionary interest. That case may not attract s61 because that value would not be based upon the termination of the present leasehold estate or the present existing use and hence there would be no financial advantage or financial loss either to be foregone or to be incurred by the lessee in realising that higher potential to produce that higher value. However, this matter need not be pursued because there was no attempt in the present case to value the First Applicant’s fee simple estate as a reversionary interest.
Finally, I should observe that although s61 clearly gains its inspiration from established judge made law limiting the entitlement to compensation for disturbance loss, it is not a precise enactment of that judge made law and must be interpreted according to its own terms. It is not necessary in these proceedings to explore the extent to which s61 may produce a different result from that produced by the judge made law in any given case.
In view of my conclusion that the Second Applicant is entitled to claim compensation in respect of its alleged business loss, it is not strictly necessary to consider the question whether, in any event (or in the alternative) the First Applicant would be entitled to claim compensation for that loss. However, for completeness I should say that in my opinion, the First Applicant would not be so entitled simply because it was not the person conducting the business on the acquired land at the date of acquisition and accordingly it has not suffered disturbance of the business.
Having regard to my earlier findings that the business was relevantly conducted by the Second Applicant, which was for that purpose in occupation of the acquired land, as a lessee or tenant, I am of the opinion that compensation for business losses claimed pursuant to s59(c) and (f) of the Just Terms Act, is exclusively claimable by the Second Applicant. This conclusion is supported by the decision of the House of Lords (in the Scottish appeal) in Woolfson v. Strathclyde Regional Council (1978) 38 P&CR 521.
In that case, land that was compulsorily acquired comprised a number of shop premises occupied by a company C Ltd, for the purpose of conducting its business thereon, as a tenant, although not regulated by any lease or other formal arrangement. Woolfson, as the owner of a substantial number of the shop premises, made a claim for compensation, including a claim for the value of the shop premises and a claim for disturbance of the business conducted in those premises.
The Lands Tribunal, on a preliminary question, held that Woolfson, as owner of the premises, had no entitlement to claim compensation for business disturbance. This decision was affirmed by the Court of Session.
On appeal, the House of Lords rejected by the Appellant’s argument that the occupier and the owners of the shop premises should be regarded as a single entity embodied in Woolfson and that the Court should pierce the corporate veil to recognise the realities of the situation. It held that there was no justification on the facts for treating the company structure as a “mere facade” (525).
However, it is the further line of argument unsuccessfully advanced on behalf of the Appellant before the House of Lords that is relevant for present purposes. The first strand in the argument was based upon the established proposition that compensation for disturbance was not a special category but simply constituted one aspect of the value of the land to the person whose interest in it was compulsorily acquired.
Lord Keith, in giving the leading speech at 527 did not consider the proposition so advanced to be in any doubt but stated:
“It must, however, be kept in mind that any right to compensation for disturbance presupposes that the owner of the relevant interest has in fact suffered disturbance.”
This gave rise to a variant submission by the Appellant and its rejection by Lord Keith in the following passages at 527:
“Then it was submitted that the land had special value for Woolfson, the owner of it, in respect that by reason of his control of the right of occupation he was in a position to put into and maintain in occupation a company for all practical purposes completely owned by him, and had done so. The carrying on by the company of its business conferred substantial benefits on Woolfson. If the company were put out of the land through compulsory purchase he would have to incur expense in connection with the obtaining of other premises for it to occupy, and would suffer loss. Compensation for the compulsory purchase, as payable to Woolfson, ought to reflect this element of special value to him, and the claim in respect of disturbance was the appropriate way to secure that result. The circumstance that Solfred owned a substantial part of the shop premises was for purposes of this argument dismissed as irrelevant, on the basis that the part of the premises owned by Woolfson was essential to the carrying on of Campbell’s business, so that without it the business would have to be carried on, if at all, at some completely different place.
This line of argument was unsupported by authority and in my opinion it also lacks any foundation of principle. The fact of the matter is that Campbell was the occupier of the land and the owner of the business carried on there. Any direct loss consequent on disturbance would fall upon Campbell, not Woolfson. In so far as Woolfson would suffer any loss, that loss would be suffered by virtue of his position as principal shareholder in Campbell, not by virtue of his position as owner of the land. His interest in the loss is at best an indirect one, no different in kind from that of his wife, whose interest as a shareholder, though a minor one, cannot be completely ignored, or that of creditors of Campbell. The argument is in my opinion, unsound, and must be rejected.”
I would respectfully adopt this line of reasoning and apply it to the facts of the present case. So applied, it is inevitable that it is the Second Applicant, and not the First Applicant, who is entitled to claim compensation for business disturbance in consequence of the compulsory acquisition.
It is now appropriate to determine each of the Applicant’s claims to compensation. It is convenient to deal with each claim separately, recognising however that both the interests of the First and Second Applicants and their respective claims are closely related and that their separate entitlements to compensation must comply with the principle embodied in s61 of the Just Terms Act.
C. THE FIRST APPLICANT’S CLAIM TO COMPENSATION
This claim is principally founded on s55(a) of the Just Terms Act ie. the “market value” of the acquired land.
It will be convenient to consider this claim under the following headings:
(i) the acquired land;
(ii) the existing use of the acquired land;
(iii) the highest and best use of the acquired land;
(iv) the competing valuation evidence.
(i) The Acquired Land
(a) Description
The description of the land, according to the Acquisition Notice is lots 15 and 29 DP 861055 (A copy of that Deposited Plan is annexed hereto and marked “A”). It is to be noted from the endorsements on that plan, that it was registered on 13 August 1996 and that it was a plan prepared by or on behalf of the Respondent for the purpose of showing “land to be acquired for the purposes of the Roads Act 1993”. Lots 15 and 29 were noted as being, in aggregation, the same land as contained in lot 100 Deposited Plan 617140, containing an area of 1.941 ha with a frontage to the Pacific Highway of some 149m and a frontage to Sawtell Road of some 179m. (That Plan was registered on 22 September 1981 and was a plan prepared by or on behalf of the Coffs Harbour Council for the purpose of the Council acquiring lot 101 containing an area of some 8100m2 of land being a strip some 30m wide fronting Boambee Creek. That land was compulsorily acquired by the Council in 1981.)
It appears that when DP861055 was prepared, the Respondent did not intend to acquire lot 15 comprising 1.02 ha but was only proposing to acquire lot 29, comprising some 9200m2, being those parts of the First Applicant’s land that fronted either the Pacific Highway and Sawtell Road.
However in the event both lots 15 and 27 were compulsorily acquired. (In August 1995 the First Applicant was notified by the Respondent that it wished to acquire part of its land, presumably that shown as lot 29. However in January 1996 the Respondent notified the First Applicant that it wished to purchase the whole of its land.)
Physically, the land is flat with a slight fall to the south-east towards the public reserve bordering Boambee Creek. The rear section is treed, but the site is generally cleared of trees except for stands of pine trees along the land’s boundaries to the Highway and Sawtell Road.
(b) Location
The location of the subject land is situate some 6 km south of Coffs Harbour City Centre, some 2 km west from Toorima Shopping Centre (the nearest such centre) some 1.5 km from the nearest public high school, some 3 km from Sawtell Beach (the nearest ocean beach) and some 4.5 km from the University.
(c) The Applicant’s Use
As earlier noted, the First Applicant in 1975 acquired the land, or more precisely, a larger area, being lot 1 in DP512760, which was subsequently reduced to the area of the acquired land (1.94 ha) when the Coffs Harbour Council compulsorily acquired some 8100m2 represented by a continuous strip 30m wide, fronting Boambee Creek.
On 27 October 1976, the Coffs Harbour Council granted the Second Applicant development consent to change the existing use of lot 1 DP512760 to “the establishment of a caravan sales and service centre” subject to a number of conditions, including the following:
1. No caravans being displayed within 18 m from the boundary of the proposal to the Pacific Highway and within 38m of the centre – line of Sawtell Road.
2. The access from Sawtell Road being a minimum distance of 150m from the intersection of the Pacific Highway and complying with the requirements of the Department of Main Roads.
By the same determination, the Council refused development consent to the establishment of a caravan park situate of that part of the land situate behind the Highway frontage section to be developed by the caravan sales and service centre on the ground that “insufficient area is available on the site to combine both a caravan sales business and a caravan park”.
The Second Applicant appealed against the Council’s determination to the Local Government Appeals Tribunal which, by its decision dated 21 September 1978, varied the Council’s determination by varying condition 1 so that the prohibition on displaying caravans within 18 m of the road boundaries also applied to Sawtell Road (in addition to the Pacific Highway) and by imposing an additional condition in the following terms:
“6. There shall be no vehicular or pedestrian access available to the property from Pacific Highway.”
In 1976, the Second Applicant entered into occupation of the land, as the tenant of the First Applicant, to conduct the approved business of caravan sales and service centre. That business was thereafter carried on by the Second Applicant continuously until the acquisition date, the business being expanded a decade or so ago, to include the display and sale of mobile or relocatable homes with that aspect of the business becoming dominant (if not exclusive) in the most recent years of the Second Applicant’s occupation of the land.
The existing use extended over the whole of the land although the display units were principally located in the highway frontage sector of the land which also contained the built improvements comprising:
(i) an old small fibro dwelling-house occupied by the Fourth Applicants who were employed by the business as caretakers; and
(ii) a sales office workshop.
These improvements, together with business signage and fencing were extremely basic and modest in nature and in value (Mr Allsopp valuing them at $85,000 and Mr Early valuing them at $83,050).
The existing use of the land could fairly be described as involving: (i) an under-utilisation of the whole of the land inasmuch as the rear sector was not generally used in the business; and (ii) an under-capitalisation of the land except for the value of the trading stock (the displayed mobile homes being worth between $50,000 and $70,000 each). Generally speaking, on average, there were five to seven mobile homes located on the land and occasionally, the number might rise to eight or nine.
(d) Zoning and Town Planning Controls
The land is zoned Residential 2(a) under Coffs Harbour Local Environmental Plan 1988 (the LEP) except for a 20 m wide strip extending along the Highway boundary which is zoned 7(b) Environmental Protection (Secondary). The LEP states the aim of the Residential 2(a) zone as:
“To identify land suitable for residential, tourist and other urban living area purposes.”
and the aim of the Environmental Protection 7(b) zone as:
“(a) to identify land which it is desirable to preserve as a buffer;
(b) to maintain and enhance the ecological or scenic quality of that land.”
In addition to the controls imposed by the LEP, the land is affected by the provisions of the Coffs Harbour Development Control Plan No. 1 (the DCP) which subdivides the land into three separate sub-zones, namely:
(i) D2 (d2) Tourist/Residential
(ii) D7 (b) Environmental Protection (Secondary) and
(iii) D7 Environmental Protection (Special Purposes – Landscaping).
An extract of the relevant plan forming part of the DCP and showing the land is annexed hereto and marked B, it being noted that the approximate area of each of the sub-zones (as they comprise the land) is as follows:
D7 (b
2,900m2
D2 (d2)
12,500m2
D7
4,000m2
Total Area
19,400m2
The DCP states the objectives for the D2(d2) sub-zone as:
“(a) To enable development of land within zone for low density residential accommodation and/or tourist facilities.
(b)To enable development for other purposes which can be demonstrated by the applicant to be compatible with the type of development described in object (a).”
The DCP prescribes the following development standards for the D2(d2) sub-zone:-
Residential flats – 200m2 minimum area per dwelling and 88m2 minimum landscaped are per dwelling.
Motels – 120m2 minimum area per dwelling and 32m2 minimum landscaped area per dwelling.
(ii) The Existing Use of the Acquired Land
The existing use can be deduced from what I have earlier stated concerning the Applicants’ historical use of the acquired land over a continuous period of 20 years since development consent was granted by the Coffs Harbour Council in October 1976 for the establishment of a caravan sales and service centre. I also take account (as do the Respondent’s expert witnesses) of the Council’s written advice to the Second Applicant on 24 June 1986 to the effect that the 1976 consent would now “be classed as a motor showroom and that the Council has no objection to the continued use of the premises for the sale and display of vehicles”.
It has not been suggested that that use is not either (i) an “existing use” within the meaning of the Environmental Planning and Assessment Act 1979 or (ii) a use protected by s109 of that Act or (iii) a use with the benefit of s109B of that Act. Nor has it been suggested that the use being made of the land by the Second Applicant at the acquisition date was “for a purpose contrary to law” within the meaning of s56(1)(c) of the Just Terms Act.
Accordingly, the Second Applicant’s use of the acquired land at the acquisition date may be taken to be a lawful use in terms of both the Environmental Planning and Assessment Act and the Just Terms Act.
(iii) The Highest and Best Use
This was a point of fundamental divergence of opinion between both the valuer witnesses (Mr Allsopp and Mr Early) and the town planner witnesses (Mr Smyth and Mr Palmer).
Mr Allsopp and Mr Smyth were of the opinion that the highest and best use of the land was for a subdivided use – the Highway frontage sector of some 7200m2 being used for the existing use (or some similar use) with the middle sector (some 8,200m2) being used for residential units or motel units combined with the rear land (4,000m2) to be used for landscaping and ancillary purposes related to that residential or motel development. A copy of the plan showing the suggested allocation of the land for the different types of development prepared by Mr Smyth is annexed hereto and marked “C”.
On the other hand, both Mr Early and Mr Palmer were of the opinion that the highest and best use of the land was for its existing use or some similar commercial use.
The expert opinions on this issue were well formulated and argued by each of the expert witnesses (each of whom is highly experienced) and the issue is very finely balanced between those competing opinions.
However, two factors lead me to favour the opinion of Mr Smyth and Mr Allsopp that in addition to its existing use the land had potential for residential use. Firstly, their opinion was firmly supported by the testimony Mr Denis Smith, the Director of Planning of the Coffs Harbour Council. Secondly, there is the conventional approach in compensation cases reflected in the judgment of Dixon J in Commissioner of Succession Duties v Executor Trustee and Agency Co. of S.A. Ltd [1947] HCA 10; (1947) 74 CLR 358 at 374 to resolve doubts in favour of a more liberal estimate. This second factor is not to be applied in a mechanical or slavish fashion. Nor is it to be resorted to by the Court as a substitute for the undertaking of its duty to adjudicate on disputed issues of fact (including of course, conflicting expert opinion). However, I think there is genuine scope for its application in the present case, on this issue of what is the highest and best use of the land.
Moreover, it is to be recalled that in making its adjudication on this issue, the Court is putting itself in the shoes of the hypothetical prudent purchaser whose thoughts reflect “business life” and considerations: see Turner v Minister for Public Instruction [1956] HCA 7; (1956) 95 CLR 245 at 267 per Dixon CJ. Such a person, acquainted with the conflicting expert opinions that have been presented in the evidence in these proceedings, would in my opinion, make his final estimate of the price that he would be prepared to pay for the land cautiously and prudently. He would take full account of all of the arguments ably advanced in support of the opinion held by Mr Early and Mr Palmer. Weighing the competing expert opinions in the balance, I think he would lean towards the opinion that the land is sufficiently large in size and differential in desirable physical attributes (eg. (i) highway frontage to continue the existing use to maximise the extensive exposure to large traffic volumes and (ii) proximity to public reserve and Boambee Creek frontage and the large landscape area at the rear of the land) to accommodate two separate uses as suggested by Mr Allsopp and Mr Smyth. In making that decision, he would know that the existing use has under-utilised the whole of the land and particularly the mid and rear sections which in truth are surplus to that use.
However, the hypothetical purchaser would not, in my judgment, be so sanguine as to merely adopt the suggested spatial allocation as shown on Mr Smyth’s plan which does little more than adopt the DCP subzones of the land. In particular, he would recognise that a sizeable area of the land along the Sawtell Road frontage would need to be set aside for an internal road system to service the existing use conducted in the highway frontage sector and also the residential development. He would not accept the arbitrary demarcation between the existing use and the potential residential development, but would reconsider that issue and most probably extend the area available for the continuation of the existing use to make allowance for a physical buffer between the two discrete uses so as to render their co-existence the more harmonious.
Ultimately, I would find that the hypothetical prudent purchaser would consider the land to be adaptable for the two discrete uses in two sectors each approximately 1 ha in size, and that a more appropriate spatial allocation would be to allow for some 5,000m2 for residential development combined with the 4,000m2 landscaped area at the rear, in addition to allowing for the continuance of the existing use in the highway sector.
So allocated, he would fix his price so far as concerns the residential potential on the basis of a development yielding some 25 residential units and so far as concerns the existing use on the basis of an area of 6,500m2 (excluding the area of 2,900m2 within the landscape highway buffer zone and the area of some 1,000m2 for the internal access road from Sawtell Road, which conformably to the 1976 development consent, is required to be set back 150m from the intersection of Sawtell Road and the Highway). He would determine the price he would be prepared to pay for the land based upon the core considerations of some 6,500m2 being available for the existing use and 5,000m2 being available for the residential use (yielding 25 units) and regard as but incidental (and of little economic value) to those discrete uses the Environmental Protection Zones of 2,900m2 along the highway frontage and of 4,000m2 at the rear of the land. In other words his price would be fundamentally based upon that part of the land within D2 (d2) Zone under the DCP.
(iv) The Competing Valuation Evidence
My findings on the highest and best use of the land means that the Court does not have valuation evidence that is precisely conformable to those findings. However, this does not mean that the Court cannot utilise the valuation evidence that has been tendered, in its task of determining the market value of the acquired land.
Thus, the Court has the competing values reflecting a value per m2 for the commercial or “existing use” component of the land . Mr Allsopp assigns $75 per m2 for 7,200m2 of the land demarcated by Mr Smyth’s plan as being available for the existing use or some similar commercial use. (That area includes the area of 2,900m2 within zone No. 7(b)). Mr Early’s competing value for the larger area of 1.5ha (the whole of the site except for the rear land of 4,000m2 contained within the D7 sub-zone under the DCP) is $20 per m2.
Having considered the competing valuation evidence, I have concluded that Mr Allsopp’s value of $75 per m2 is a gross over-estimate and must be rejected.
It is based upon a sale (Martil to Thallion) of a parcel of land containing an area 8,346m2 situate at the corner of the Pacific Highway and Halls Road, some 5km north of the acquired land and only 1km from Coffs Harbour City Centre in a highly developed section on the immediate outskirts of the City, especially featuring several motor dealers trading from modern and well appointed premises.
The similarity of the sale land with the acquired land is the same zoning under the LEP and the DCP and in generic terms, a similar use ie. display and sale of motor vehicles.
However, the dissimilarity in terms of location and immediate environs is, in my opinion, so marked (the Thallion sale being said to be located in a “Parramatta Road” type setting of motor dealers whereas the acquired land is situate in a remote location exhibiting a typical rural type setting) as to render the sale property so superior as to defy meaningful comparison or more especially, meaningful utilisation, in estimating the value of the acquired land, of the evidence of value provided by the sale.
In truth, and in fairness to both valuer witnesses, there was no aptly comparable sale and the task of estimating the value of the commercial (existing use) component of the acquired land on the basis of the evidence of sales, was extremely difficult, and ultimately dependent on value judgment.
By the same token, Mr Early’s principal sale (Dunlop to Wade) was of a parcel of land comprising 6,070m2 situate immediately opposite the acquired land on the western side of the highway was barely comparable to the acquired land. This sale was analysed as showing a value of $12 per m2. However, although possessing the same zoning under the LEP as the acquired land, the sale land was included in a lower use residential sub-zone under the DCP and lacked potential for any commercial type development such as is involved in the existing use of the acquired land or has been permitted by the Council on D2(d2) zoned land. This, in my opinion, is a significant dissimilarity between the sale land and the acquired land rendering the evidence of value shown by the sale land of little direct relevance to the assessment of market value of the acquired land, although not to such an extent of incompatibility that I would regard the Thallion sale (Mr Allsopp’s principal sale).
Overall, I am far more persuaded by Mr Early’s approach to valuing the existing use component of the land, including his analysis and use of the limited sales evidence that is available to assist in the task of estimating the value of the land. The sales evidence is generally of lands fronting the Pacific Highway (although such lands are not uniformly zoned and therefore do not have the same development potential) and shows a very broad spectrum of value ranging from $80 per m2 for the Thallion sale to $4.50 per m2 for the land (later established by the “Butterfly House” development tea rooms etc.) situate a further 3km south of the acquired land.
Faced with what is virtually an imponderable task of estimating value upon the sole and dubious basis of evidence of the highway sales lands, I think Mr Early’s estimate is very much closer to the mark than is Mr Allsopp’s estimate. However, I think that Mr Early’s estimate could justifiably be a little more liberal in recognition of the particular value to the existing use of the very extensive highway frontage (some 150m) and the very extensive exposure of the existing use to passing traffic on the Highway and on Sawtell Road. In other words, the acquired land situate at the intersection of the major Highway and the major local road in a very exposed position was particularly advantageously adapted to the existing use.
On this account, which I think is not entirely or adequately reflected in Mr Early’s valuation (adopting a rate of $20 per m2 for the 2D(2d) and for the D7(b) section), I would think an overall rate of $25 per m2 could fairly be adopted of the value of the 2D(2d) zoned land and for the highway frontage strip within zone D7(b) (which though not legally capable of supporting commercial development, is available for development for ancillary purposes and for landscaping and of course, for securing the outstanding highway frontage exposure). By applying the overall rate of $25 per m2 for this section means that in effect, a higher value of $30 per m2 has been assigned to the D2(d2) section of the acquired land devoted to the existing use, because the value of the D7(b) land (some 2,900m2) obviously would be regarded as no more than 50 percent the value of the D2(2d) land.
Accordingly, for all the foregoing reasons, I would assess the market value that part of the acquired land available to the continuation of the existing use in the amount of $235,000 (ie. 9,400m2 @ $25 per m2)
To this amount, there must be added the value of the improvements, which though modest in nature nonetheless add value to the land because they are improvements which enable the land to be used for its existing use, and accordingly form part of the market value of the land.
As I have earlier mentioned, there is virtually no difference in the value assigned to the improvements by Mr Allsopp and by Mr Early ($85,000 compared with $83,050). I shall adopt Mr Allsopp’s value (which includes an amount for existing signage).
Accordingly, I assess the market value of the existing use component of the land and on the basis of that use, in the sum of $320,000 (being value of land $235,000 plus value of improvements $85,000).
This brings me to the valuation evidence concerning the balance of land, which I have earlier held is to be valued on the basis of a higher potential use, namely as the site for a residential flat development yielding some 25 residential units located on the remaining area of the land (some 5,000m2) zoned D2(d2) under the DCP.
In holding that the hypothetical prudent purchaser would base his price for this section of the land on a residential development yield of 25 units, I have made allowance for contingencies, uncertainties and risks which he would, acting prudently, take into account. I have earlier referred to the obvious uncertainty and risk of the co-existence of two discrete and not intrinsically compatible uses (one commercial and the other residential) on a parcel of land which, although to be subdivided to provide for those separate uses, nonetheless physically is contained by three significant features, the Pacific Highway, Sawtell Road, and Boambee Creek (including the public reserve alongside its banks). It is this obvious physical unity in the land (which remains despite the necessary subdivision of the land to accommodate the two uses) which would lead the hypothetical purchaser to adopt a very conservative judgment on residential yield so that appropriate physical buffers can be created between the two developments and the internal road system servicing the existing use alongside Sawtell Road but traversing the section of the land available for residential development. Another important function of the buffers would be to shield the residential development from major traffic noises on the Highway and Sawtell Road.
I do not think that the hypothetical prudent purchaser (who may well include the First Applicant, desirous of holding the land to maintain the existing use) would think there was any real risk in readily obtaining the requisite subdivision approval from the Council to provide for the accommodation of the two developments. Nor, because of the very conservative assessment of residential potential, do I think that the hypothetical purchaser would discount his price on account of the proposed separate uses of the land.
Another risk that the hypothetical prudent purchaser would perceive in exploiting the mid and rear sections of the land for the higher residential use, is the absence of such development (particularly on a large scale level) within the immediate environs of the land and the general downturn in demand in recent years for residential accommodation in the Boambee, Toorima, Sawtell & Coffs Harbour areas, a point candidly conceded by Mr Allsopp in his valuation report (Exhibit 8 at pp. 22 and 23). Obviously these matters would weigh very heavily in the mind of the hypothetical prudent purchaser in determining the price that he would be prepared to pay for this section of the land. The larger the development the greater the risk, would be the obvious perception of the hypothetical purchaser.
Mr Allsopp’s estimate of the value of the residential potential of this section of the land reflected a rate of $15,000 per residential unit on a lot yield of 41 units. This estimate of value was changed by Mr Allsopp in the course of his evidence where he proffered an alternative scenario for the realisation of the residential potential of the land of a lesser residential unit yield (say 31 units) but at a higher per unit rate (up to $23,000).
This variation in his approach was a reflection of his opinion that the downturn in market demand for residential units was more pronounced in the case of more basic type flat development of which there appeared to be an ample supply in the Coffs Harbour, Sawtell, Toomina areas at modest price levels, and could possibly be averted by a more prestigious development of a lesser density.
These changing opinions would not inspire any degree of optimism in the mind of the hypothetical prudent purchaser when determining the price he would be prepared to pay for the residential potential of this section of the land. Rather, the availability of these opinions would naturally lead to a conservative and cautious estimate of the value of that potential and the consequent price the hypothetical prudent purchaser would be prepared to pay for that section of the land.
Moreover, Mr Early’s opinion that the residential potential of the land would be less valuable than a value reflecting the existing use would also need to be taken into account. In his oral testimony, Mr Early said that he had undertaken a valuation exercise based upon a potential residential development use. That exercise was not adduced in evidence, but Mr Early’s report in reply (Exhibit C) referred to two associated sales in Sunbird Crescent Boambee (a developed residential area situate 1.5km east of the acquired land) which had later been developed for conventional residential subdivision development rather than as residential flat development (which was permissible under the LEP and DCP but at a density almost twice as low as the density permitted in the D2(d2) sub-zone). His combined analysis of those related sales showed a rate $7.50 per m2. Doubtless, it was the evidence provided by these sales which confirmed Mr Early’s opinion that a higher value would be yielded by the existing use basis upon which he had valued the entire area of the acquired land (reflecting a rate of $20 per m2 for all of the land except for the 4,000m2 situate at the rear and contained within the D7 sub-zone under the DCP for which he had adopted a rate of $12.50 per m2).
Mr Allsopp’s original estimate of the value of the residential component reflected a rate of $15,000 per residential unit en globo based upon an anticipated lot yield of 41 units and assuming that some 8,200m2 of land was available for that development. He derived his estimated value of $15,000 per residential unit (en globo) from two sales of unit sites situate in the main city area of Coffs Harbour. One of the sale properties was situate in Gundagai Street and the other sale property was situate in High Street. The locations in town of the sale properties are quite dissimilar to the more remote and isolated location of the acquired land. Nonetheless, the sales reveal purchase prices of (i) $350,000 for 4,445m2 (High Street sale) and (ii) $455,000 for 7,106m2 (Gundagai Street) where the residential flat yields were of 22 units and 33 units respectively. Mr Allsopp’s analysis of these sales shows some $16,000 per unit (en globo) for the High Street property and $15,000 per unit (en globo) for the Gundagai Street property.
Accordingly, despite the locational differences, the sales provide some evidence from which the hypothetical prudent purchaser of the residential component of the acquired land could gain some assistance in determining his price for what I have held to be his cautious and conservative estimate of residential unit yield, namely some 25 units, which is very much below the permissible density provided by the DCP if there were to be included in the relevant calculation, the 1,000m2 that I have allowed for the internal service road and the 4,000m2 of D7 land situate at the rear. (The First Applicant’s experts were of the opinion that these areas should be included in the calculation of the relevant area for determining site density under the DCP and their opinion was firmly supported by the testimony of Mr Denis Smith, the Director of Planning of the Coffs Harbour Council.)
Mr Allsopp’s estimate of the value of the residential potential based upon a reduced density of 31 units (producing a more prestigious development) of some $23,000 per unit was supported by the evidence of a sale of a property in Boronia Street Sawtell which was subsequently developed by 8 residential units. His analysis of that sale showed $22,250 per unit (en globo).
Once again, the locational differences between the sale property and the acquired land are so marked that it is difficult to make meaningful comparison between the properties. Another important difference is the much smaller scale of the residential developments (8 units in the sale compared with 31 units in the hypothetical sale of the acquired land) with the consequent significant differences in the capital sums required to acquire and thereafter to develop the sites with the attendant differences in risk between the two ventures.
Having regard to the available sales evidence and to the necessary considerations of comparison and evaluation of the advantages and disadvantages on the sale properties and the acquired property I would consider that the hypothetical prudent purchaser would be prepared to pay no more than $425,000 for the residential component of the acquired land (by which I mean the aggregated area of the mid section zoned D2(d2) under the DCP and the rear section zoned D7 under the DCP). Such a price would reflect a rate of $15,000 per residential unit (en globo) based upon the very conservative unit yield of 25 units. This produces a price of $375,000 to which I would think the hypothetical prudent purchaser would add $50,000 for the 4,000m2 rear area zoned D7 under the DCP. (Obviously, the D7 zoned land is far less valuable than the D2 (d2) zoned land, a matter properly recognised by both valuers in their respective valuations.)
Because I have attributed to the hypothetical prudent purchaser a very cautious and conservative approach to the residential potential, I do not think it appropriate to reduce the resultant market value of the residential potential by the amounts in the order of some $200,000 being the estimates of (i) necessary roadworks upgrading to Sawtell Road (some $100,000) and (ii) extension of reticulated sewerage infrastructure to the acquired land (some $100,000). The need for such expenditure was anticipated by the expert witnesses as a consequence of any development consent significantly intensifying the existing use of the acquired land, by commercial and/or residential developments. However, adopting Mr Palmer’s view, which I think reflects the conventional developer’s approach, these costs are more aptly regarded as “development consents” rather than as “acquisition costs”.
Accordingly, for all the foregoing reasons, I would assess the market value of the acquired land in the sum of $745,000 made up as follows:
(i.) the value of the existing use component $320,000
(ii.) the value of the residential potential component $425,000
Although my assessment of the market value of the acquired land (both in respect of the existing use component and the residential potential component) has unavoidably involved a considerable degree of detailed calculations, ultimately and essentially I have arrived at my conclusions by asking myself what price would the hypothetical prudent purchaser fairly offer to purchase the property, having regard to his opinions concerning its most advantageous potentialities. (including the continuation of the existing use being made of it) and in so concluding, I am mindful of what Dixon J said in The Moreton Club v. The Commonwealth (1948) [1948] HCA 21; 77 CLR 253 at 259 that “a merely mechanical adherence to calculations is impossible in the present case, unwise as it is in all cases”.
Finally, I should note in relation to s61 of the Just Terms Act, that my assessment of market value has proceeded on the basis that different parts of the acquired land were best adapted to different uses, namely (i) the continuance of the existing use in what can accurately be described as the western half of the land ie. the Highway frontage sector and (ii) the higher potential use for residential development of the eastern sector of the land.
This approach has two consequences: (i) the market value component referable to the existing use hypothesises the continuance of the Second Applicant’s business conducted on that section of the acquired land as an existing use; and (ii) the market value component referable to the higher residential potential is realisable without requiring the cessation of the existing use. The combination of these two consequences means that s61 of the Just Terms Act does not operate in the present case to deny the recovery of the compensation claimed by the Second Applicant for business disturbance losses.
Having determined that the market value of the acquired land is in the sum of $745,000 it remains for me to say that the First Applicant is entitled to compensation in this amount (less the $3,000 awarded to the Fourth Applicants in respect of the market value of their tenancy at will interest) together with the items of disturbance that are allowed for in paragraphs (a) (b) (c) and (d) in s59 of the Just Terms Act. Since the amounts of compensation in respect of these matters are governed by the amount of compensation awarded in respect of the market value of the First Applicant’s interest in the acquired land, I will leave it to the parties to calculate the recoverable amounts for loss attributable to disturbance payable to the First Applicant.
Accordingly the first Applicant is entitled to compensation in the sum of $742,000 (in respect of market value) plus the amounts of disturbance allowed by s59 referable to that amount.
D. THE SECOND APPLICANT’S CLAIM TO COMPENSATION
As earlier noted the Second Applicant’s claim is founded on paragraphs (c) and (f) of s59 which provides as follows:
“loss attributable to disturbance” of land means any of the following:
… …
(c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs);
… …
(f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of that acquisition.”
At the commencement of the hearing of these proceedings the Second Applicant’s claim was based upon the extinguishment of the business conducted by the Second Applicant on the acquired land, as a tenant of the First Applicant, for the continuous period of 20 years prior to the acquisition date on the basis that neither the First Applicant not it could find an alternative site to which it could relocate that business.
As noted earlier the First Applicant was informed in January 1996 by the Respondent that it desired to acquire the whole of its land (it having earlier indicated in 1994 and 1995 that it desired to acquire only the highway frontage and Sawtell road frontage sections of the acquired land). Notice of the proposed compulsory acquisition was given to the First Applicant on 2 September 1996 and the compulsory acquisition was effected on 13 December 1996.
The Second Applicant remained in possession of the acquired land, with the consent of the Respondent, until 27 March 1997 when it vacated the site after an auction was held on the site on 25 March 1997 to dispose of goods and chattels of the business.
Upon learning in January 1996 of the Respondent’s intention to acquire the whole of the acquired land Mr Croke commenced searching for alternative sites fronting the Highway in Coffs Harbour. He engaged local real estate agents in this task. However no alternative site suitable to Mr Croke was to be found. Despite the impending compulsory acquisition Mr Croke endeavoured to keep the Coffs Harbour business alive. In addition to seeking out a suitable alternative site in Coffs Harbour he continued to regularly air television advertisements on local channels in the Coffs Harbour and Ballina areas. These advertisements continued after the Second Applicant had vacated the acquired land in March 1997 when the Coffs Harbour telephone contact number would automatically be directed to he Second Applicant’s Ballina premises. Those premises are also used in the conduct of the Second Applicant’s business of the display and sale of mobile homes.
According to Mr Croke’s testimony (which was not challenged or rebutted) the Manager of the Coffs Harbour business resigned in September 1996 due to the uncertainty of the business in Coffs Harbour, and began her own business in opposition to the Second Applicant’s business in Coffs Harbour. A former manager, since retired, returned to work part time for the Second Applicant.
According to Mr Croke the business continued to fall away in the latter part of 1996 and early 1997.
Again according to Mr Croke (and this testimony was not challenged or rebutted) the Second Applicant “is one of the most successful companies selling mobile homes in Australia” and has traded in Coffs Harbour since 1976 commanding an established dominant market share.
Although in its Amended Points of Defence the Respondent denied that the business had been extinguished, it nonetheless called evidence from a local accountant, Mr Ian Hogbin in rebuttal of the amount claimed by the Second Applicant for extinguishment of the business in consequence of the compulsory acquisition.
In his original report (Exhibit D) Mr Hogbin assessed the value of the business, as if it had been extinguished by the compulsory acquisition, by adopting the same valuation methodology that had been adopted by Mr John Robertson, Valuer, (who gave evidence on behalf of the Second Applicant) in his original valuation report (Exhibit 10).
That methodology was “the capitalisation of “super profit” or likely maintainable future net profit” (p19, Exhibit 10).
Mr Robertson’s valuation of the Second Applicant’s business conducted at Coffs Harbour on the basis of its extinguishment by the compulsory acquisition was $527,000 or $492,000 (if the business was considered in combination with the Second Applicant’s similar business at Ballina) or $335,000 (if the business was considered as an entity in itself without any relationship with the Ballina business.).
Mr Hogbin’s valuation of the Coffs Harbour business conducted by the Second Applicant (without any relationship with the Ballina buisness) was $71,200.
It will be readily appreciated that these valuations are considerably disparate, given the fact that they both adopt the same valuation methodology. The explanation for this disparity is found in the correspondingly different estimates of the likely maintainable future net profits – Mr Robertson adopting $98,000 annually and Mr Hogbin adopting $19,577 annually (reflecting his adjusted analysis of the Second Applicant’s Trading Accounts for Financial Years 1994, 1995 and 1996). By comparison to Mr Hogbin’s adjusted net profit Mr Robertson’s adjustments to the same 3 years Trading Accounts showed an average net profit of some $70,000.
The principal component in these adjusted Trading Accounts is Mr Hogbin’s allowance of an amount of $41,577 in respect of his calculation of interest payable on the value of the trading stock (comprising the mobile homes displayed by the Second Applicant on its business premises). Mr Robertson asserted that Mr Hogbin’s allowance for interest on financing the acquisition of the trading stock involved an error of principle. This matter of principle remained in contention throughout the case.
However the overall evidence satisfies me that Mr Hogbin’s other adjustments to the Trading Accounts in respect of (i) wages and (ii) interest earned on deposits paid by purchasers of the mobile homes were not justified and if these adjustments are set aside Mr Hogbin’s valuation of the business is some $130,000.
If Mr Hogbin’s allowance of $41,577 for annual cost of interest on trading stock is set aside, his valuation would be some $281,000. I say this because I have not been persuaded that Mr Hogbin is necessarily correct in making that adjustment in arriving at his opinion of the net maintainable profit of the Second Applicant’s business. This is because the trading stock forms the principal tangible asset of the Second Applicant’s business and the valuation required in the present case is a valuation of the whole business as a going concern: see Eastaway v The Commonwealth [1951] HCA 80; (1951) 84 CLR 328 at 340.
However I do not find it necessary to express a final view on this matter because I do not think the Second Applicant’s claim should be determined on the basis of the extinguishment of its business in view of the vital change in the case that occurred during the course of the hearing when it became apparent that the First Applicant had very good prospects of purchasing the McDonalds’ site and thereby enable the Second Applicant’s business to be relocated on that new site.
It was at this point that valuation evidence was adduced on behalf of the Second Applicant in support of its claim to compensation for relocation of the business to the McDonalds’ site and loss of profits, such claim being founded upon paragraphs (c) and (f) of s59 of the Just Terms Act.
In this respect Mr Robertson prepared a number of reports (Exhibits 33, 35 and 36) outlining these claims. Again Mr Hogbin on behalf of the Respondent responded to the claim to loss of profits estimated in Mr Robertson’s later reports. (Mr Hogbin’s second report became Exhibit K.) Mr Hogbin did not respond to the claim for relocation costs. Instead Mr Early responded to this claim.
I shall consider the claim in its two discrete aspects – (i) loss of profits and (ii) relocation costs.
However before doing so I shall state my reasons for concluding that the Second Applicant’s disturbance claim should be determined on the basis of the relocation of the Second Applicant’s business from the acquired land to the McDonald’s site, noting that pursuant to the leave granted to the Second Applicant to re-open its case for the purpose of adducing evidence of the purchaser of the McDonalds’ site, evidence was tendered on 26 May 1998 that the First Applicant had on 18 May 1998 exchanged contracts to purchase the McDonald’s site comprising an area of 4,190m2 for the price of $710,000.
Although the reason for my conclusion ultimately is founded upon the effect of express provisions of s59 of the Just Terms Act, again it is instructive to consider the position under the judge made law concerning “disturbance” compensation. Once again I would respectfully accept the expositions of principle stated by Lord Nicholls in giving the majority opinion of the Privy Council in Shun Fung.
In the passage I have earlier cited Lord Nicholls speaking of business “disturbance” had stated (at 852) that “the expenses and any losses he incurs in moving his business to a new site will ordinarily be the measure of the special loss he sustains by being deprived of the land and disturbed in his enjoyment of it”.
His Lordship then acknowledges that the “general principle of fair and adequate compensation bristles with problems” but that “as useful guidelines” there are three conditions which must be satisfied:
(i) there must be a causal connection between the resumption and the loss in question;
(ii) to qualify for compensation the loss must not be too remote; and
(iii) losses or expenditure incurred unreasonably cannot sensibly be said to be caused by, or by the consequence of, or be due to the resumption.
It was against the foregoing background that Lord Nicholls said at 853:
“It is against this background that their Lordships are unable to accept the Crown’s submission that a claimant can never be entitled to compensation on a relocation basis if this would exceed the amount of compensation payable on an extinguishment basis. In the ordinary way, the expenses and losses incurred when a business is moved to a new site will be less than the value of the entire business as a going concern. Compensation payable on a relocation basis will normally be less than compensation payable on an extinguishment basis. But this will not always be so, and a rigid limitation as contended by the Crown could lead to injustice. Such a limitation finds no support in the statutory provisions, and it would be inconsistent with the purpose for which these provisions exist.”
Having so stated the principle (and illustrating it in the immediately following passages) Lord Nicholls at 854/855 states the three principal questions which arise on relocation claims:
(i) Can the business be relocated, or has it effectively been extinguished?
(ii) Does the claimant intend to relocate?
(iii) Would a reasonable businessman relocate the business?
In my judgment the evidence in the present case admits of an affirmative answer to each of these three questions.
In the present case the evidence concerning (i) costs of relocation of the business and (ii) value of the business as a going concern is not nearly so pronounced as to even raise a questionable doubt as to the reasonableness of the Second Applicant’s desire to relocate its business. Indeed an acceptance of Mr Robertson’s evidence (on both bases ie. extinguishment and relocation) would indicate that the relocation costs (including loss of business profits) is for an amount less than his valuation of the business as a going concern (ie. on the basis of extinguishment of the business).
Similarly an acceptance of Mr Hogbin’s evidence on both bases (but correcting his extinguishment valuation in the manner earlier found) when combined with an acceptance of Mr Early’s valuation of the relocation costs, does not demonstrate a material difference in the two end results.
Thus on the facts of the present case, even on the basis of the pre-Just Terms Act law concerning disturbance, it would be consonant with principle to determine compensation on the basis of relocation costs and loss of business profits, rather than on the basis of the extinguishment of the business.
This conclusion is reinforced by the operation of section 59(c) and (f) of the Just Terms Act, interpreting those provisions according to their own language, but, where appropriate informed by the previous judge made law concerning “disturbance” compensation. An obvious insight provided by the judge made law is provided to the proper interpretation of phrases like “financial costs reasonably incurred” in both paragraphs (c) and (f) and the additional phrase “as a direct and natural consequence of the acquisition” relevant to paragraph (f).
Here again Lord Nicholls’ judgment in Shun Fung is particularly illuminating. Thus in reference to the common limitation in paragraphs (c) and (f) that “financial costs be reasonably incurred” his Lordship at 853 states the following propositions:
“The adverse consequences to a claimant whose land is taken may extend outwards and onwards a very long way, but fairness does not require that the acquiring authority shall be responsible ad infinitum. There is no need to distinguish between adverse consequences which trigger a claim for compensation and those which do not. A similar problem exists with claims for damages in other fields. The law describes losses which are irrecoverable for this reason as too remote. in Harvey v Crawley Development Corp (1957) 1 All ER 504 at 506, [1957] 1 QB 485 at 493 Denning LJ gave the example of the acquisition of a house which is owner-occupied. The owner could recover the cost of buying another house as his home, but not the cost of buying a replacement house as an investment. The latter would become too remote.
The familiar and perennial difficulty lies in attempting to formulate clear practical guidance on the criteria by which remoteness is to be judged in the infinitely different sets of circumstances which arise. The overriding principle of fairness is comprehensive , but it suffers from the drawback of being imprecise, even vague, in practical terms. The tools used by lawyers are concepts of chains of causation and intervening events and the like. `Reasonably foreseeable’, `not unlikely’, `probable’, `natural’ are among the descriptions which are or have been used in particular contexts. Even the much maligned epithet `direct’ may still have its uses as a limiting factor in some situations.”
In reference to the phrase ” as a direct and natural consequence of the acquisition” his Lordship states the following propositions:
“The law expects those persons who claim recompense to behave reasonably. If a reasonable person in the position of the claimant would have taken steps to eliminate or reduce the loss, and the claimant failed to do so, he cannot fairly expect to be compensated for the loss or the unreasonable part of it. Likewise if a reasonable person in the position of the claimant would not have incurred, or would not incur, the expenditure being claimed, fairness does not require that the authority should be responsible for such expenditure. Expressed in other words, losses or expenditure incurred unreasonably cannot sensibly be said to be caused by, or be the consequence of, or due to the resumption.”
Moreover his Lordship later in his judgment extends the causal connection between the resumption and the business loss to include certain losses that are incurred in anticipation of resumption. His Lordship enunciates the principle at 863 in the following manner:
“So where can the boundary be drawn sensibly? If the line contended by the Crown is rejected, as it must be for the reasons already spelled out, there is no sensible stopping place short of recognising that losses incurred in anticipation of resumption and because of the threat which resumption presented are to be regarded as losses caused by the resumption as much as losses arising after resumption. This involves giving the concept of causal connection an extended meaning, wide enough to embrace all such losses. To qualify for compensation a loss suffered post-resumption must satisfy the three conditions of being causally connected, not too remote, and not a loss which a reasonable person would have avoided. A loss sustained post-scheme and pre-resumption will not fail for lack of causal connection by reason only that the loss arose before resumption, provided it arose in anticipation of resumption and because of the threat which resumption presented. In the terms of the resumption Ordinance, a pre-resumption loss which satisfies these criteria is as much `due to’ the resumption of the land as a post-resumption loss.”
I would respectfully adopt all of the foregoing statements of principle from Lord Nicholls’ judgment in Shun Fung and apply them in aid of construing s59(c) and (f) of the Just Terms Act.
(i) Loss of Profits
Mr Robertson estimates loss of business profits in 3 successive periods:
(i) Loss associated with the run down of the business from July 1996 to its closure in April 1997 $102,830
(ii) Loss of profit for year 1997 to 1998 $121,000
(iii) Loss of profit for year 1998 to 1999 $46,600
Total Loss $270,430
Somewhat curiously (in view of the Respondent’s defence to the Second Applicant’s original disturbance claim denying any relevant extinguishment of the business) Mr Hogbin expressed the opinion in his second report (Exhibit K p6) that the business had been extinguished by the compulsory acquisition and that accordingly any claim based upon loss of profits “was inappropriate”.
It was this opinion that doubtless led Mr Hogbin to adhere to his original valuation of the business as having been extinguished. However despite that ultimate opinion Mr Hogbin’s later report did contain his estimate of loss of profits which he estimated in the sum of $116,177. This estimate was based upon his extinguishment valuation which estimated an annual net maintainable profit of $19,577. If this estimate is adjusted to remove the two items of expenses which I have held not to justify his adjustments of the Trading Accounts his base figure of $19,577 would be increased to $34,923. If Mr Hogbin’s estimates of loss of profits were related to that base figure his estimate of loss of profit for the relevant 3 year period would be in the order of $152,000.
However Mr Hogbin expressed a number of opinions which indicated very clearly that he had not undertaken the task of estimating profit losses with any conviction and otherwise than for the purpose of providing a competing estimate to that provided by Mr Robertson. For example he rejected Mr Robertson’s use of the 1996-1997 trading figures for the Second Applicant’s Ballina business and Mr Roberton’s estimating that but for the proposed compulsory acquisition Coffs Harbour might be expected to trade at a level of 40% of the Ballina trade.
As I say, Mr Hogbin having rejected Mr Roberton’s premises, returns to his original valuation for the extinguishment of the business and uses that as a basis for estimating losses in profit for the same 3 successive periods advanced by Mr Robertson and upon the same assumptions of (i) actual loss for year 1996 to 1997, (ii) assumed loss of total profit for year 1997 to 1998 (during which period the process of relocation of the business is being undertaken) and (iii) assumed 35% loss of profit for the year 1998 to 1999 when the relocated business would have resumed trading.
Ultimately I have concluded that Mr Hogbin’s opinions must be rejected. Essentially his approach has been to criticise the work undertaken by Mr Robertson in a rather spoiling and niggardly fashion. His criticism of the manner in which Mr Winter (Mr Croke’s Accountant for 40 years) presented the Applicants’ company records and trading accounts was unduly critical and he adhered stubbornly to opinions even in the face of the plainest indications that he may be wrong in his initial impressions. I intend Mr Hogbin no discourtesy in saying that I found his evidence unpersuasive though unyielding.
Having considered the case very carefully I do not think there is any valid reason why I should not accept Mr Robertson’s estimates of loss of business profits caused by the disturbance and dislocation to the Second Applicant’s business by the compulsory acquisition (including the announcement at the beginning of 1996 by the Respondent that it required the whole of the acquired land). Mr Robertson had comprehensively analysed the business and fully exposed his valuation methodology and details.
However the Respondent submits that I should not award the Second Applicant compensation for such business losses because, so it submits, the Second Respondent did not act reasonably in seeking to mitigate its losses. In my opinion this submission cannot be sustained on the evidence or upon my findings thereon. In this respect I do not think it can be said that Mr Croke (on behalf of the Second Applicant) acted otherwise than reasonably once he became aware that, contrary to earlier intimations, the Respondent wished to acquire the whole of the land occupied by the Second Applicant in conducting its Coffs Harbour business. He immediately set about seeking to find an alternative site on the Highway at Coffs Harbour upon which he could relocate the Second Applicant’s business, but without success until in November 1997 in the course of the first stage of the hearing of the proceedings the prospect of obtaining the McDonalds’ site became a real prospect.
He continued to advertise the business on local television and he installed a new manager when his existing manager left the Second Applicant in September 1996 to set up in competition. The business, though suffering a dramatic downturn in trade, continued in existence on the acquired land until the end of March 1997 when the Respondent required vacant possession. At that stage the prospects of relocating the business appeared forlorn, but that situation was to dramatically change within 7 months.
In all the circumstances I am of the opinion that the business losses suffered by the Second Applicant, as estimated by Mr Robertson in the sum of $270,430, whose opinion I accept, are recoverable as “financial costs reasonably incurred” within the meaning of paragraphs (c) and (f) of section 59 of the Just Terms Act.
In so concluding it is to be noted that Mr Robertson’s estimate of loss of profits for the 1996 to 1997 year includes a period of some 6 months prior to he acquisition date. In his testimony he acknowledged the difficulty with this component of the claim posed by the decision of Talbot J in N. Stephenson Pty Ltd v Roads and Traffic Authority (1994) 83 LGERA 248 where his Honour rejected the claimant’s very large claim ($1.4 million) to pre-acquisition losses. Since his Honour’s decision the Privy Council judgment in Shun Fung has established the principle that pre-resumption losses may be recoverable. I would respectfully adopt the principle enunciated in Lord Nicholls judgment that I have earlier cited which readily applies to the facts of this case.
(ii) Relocation Costs
Mr Robertson’s report (Exhibit 36) itemises the following costs in relocating and re-establishing the Second Applicant’s business on the McDonald’s site:
“A. Cost to relocate display homes back to Coffs Harbour. $ 17,573
Cost Applicable to Actual Removal
B. Costs to obtain development consent estimated by RDM: (refer quote) $ 12,100
C. Cost of site preparation:
Estimated site cost including drainage,
kerb and guttering, removal of pergolas
etc by RDM:
(refer RDM estimate) $ 73,255
D. Cost of new signage:
(Refer quotes) $ 15,465
E. Office fitout:
(Refer quote) $ 3,777
F. Cost of additional advertising to
promote location including television
and print media and yellow pages:
(Refer quote & RDM memo dated 30.1.98) $ 10,500
G. Cost of security lighting and
security system
(Refer quote) $ 24,510
H. Security fencing: (refer quote) $ 36,543
I. Costs associated with reprinting
business stationery, brochures etc:
(refer quotes) $ 4,845
J. Management time involved with
re-establishing contacts with various
mobile home parks and referral agents: $ 2,000
K. Electricity connection $ 2,000
L. Cost associated with loss at auction:
(refer Note Re: Auction below) $ 22,346
Total Relocation Costs $224,914
Mr Early in his later valuation report (Exhibit L) in response to Mr Robertson’s estimate of relocation costs, estimates that an amount of $60,000 should be paid as compensation. I so concluding he excludes a large number of the items claimed on account of his view that they represent “improvements” and do not qualify as “relocation costs”. He founds his opinion on the decision of Talbot J in Richardson v Roads and Traffic Authority (1996) 90 LGERA 294 at 303 where his Honour disallowed a claim for disturbance in respect of “the cost of installing irrigation and water supply, constructing earth works, building wind shelters, electricity connection and soil tests in connection with” the property acquired by the claimant in replacement of the compulsorily acquired property. His Honour held that the claims “were not relocation expenses at all. They are costs associated with the bringing of another property into a condition which approximates the condition of the property resumed. It would be a classic case of “double dipping” to allow compensation for existing improvements on the acquired property and then to allow further compensation as the cost of reinstating the equivalent features and improvements on another property.”
The items so excluded by Mr Early’s estimate are items (C), (E) and (G).
Counsel for the Respondent submitted that these and other challenged items were not recoverable on a number of bases: (i) the decision in Richardson’s case; (ii) they were capital improvements; (iii) they provided substantially superior provision than had existed at the Second Applicant’s business premises conducted on the acquired land; and (iv) they involved an element of double recovery of compensation.
It is of course necessary to scrutinise each of the items claimed to ensure that only fair and adequate compensation is awarded.
The matters raised by the Respondent’s submissions I think come down to 2 propositions:
(i) there must not be a double recovery of compensation (This is how I would understand the decision in Richardson); and
(ii) there must be some deduction from the compensation to reflect enhancement or residual value to the Second Applicant in the items claimed.
Dealing first with the second proposition there is to be found in the decided cases reflecting the judge made law concerning “disturbance” compensation, suggestions that some deduction must be made to reflect residual value or enhancement to the claimant. For example in Minister for Army v Parbury Henty & Co (1945) 70 CLR Dixon J said at 507:
It is not denied that the compensation payable to an occupier dispossessed under statutory powers of premises he holds as a tenant at a full rental includes costs he reasonably incurs in removing his furniture and goods including tenant’s fixtures and the expenses in setting up in new premises for the purposes of carrying on his business. Nor is it denied that the expenses may include the net cost of installing fixtures, both these removed and, where reasonably necessary, newly acquired fittings. The residual value which would remain to him must of course be taken into account.”
In the same case Williams J at 514 said that the claimants were entitled “not only for the value of the proprietary interests so acquired, but also for what can be compendiously called expenses of removal into premises at least as commodious and congenial taking a broad view of the matter, as those of which they were dispossessed”.
Moreover in the context of compensation on the basis of the “reinstatement” principle Barber J in Keogh v Housing Commission of Victoria (No.2) (1969) 19 LGRA 295 adopted the principles enunciated in the judgment of Davidson J in Grace Bros Pty Ltd v Minister of State for the Army (1944) SR (NSW) 206 which included the following:
“It was said by Mathew J in that case that the owner’s contention may have been met by showing that the increased rent of the new premises would be worth more to him than the extra amount be had to pay for them; but no doubt the meaning was that in such circumstances if he really acquired a bargain which was worth more on the market or if the new site enabled him to win higher profits or if it was more commodious or beneficial those advantages would require to be used in account against him.”
Finally in Commission of Highways v Shipp Bros Pty Ltd (1978) 43 LGRA 355 Wells J deduced a number of propositions from the decided cases relevant to the question whether or not compensation should be assessed in that case upon the basis of the reasonable costs in relocating the business, including the following:
“Again, the law could not allow the claimant to be compensated for the cost of land, buildings, and immovable plant, that would be plainly superior in value and construction, when something more modest, and reasonably comparable to what was taken, could be found or built: the Eblen case (1975) 34 LGRA 207. Even if the claimant has no alternative to obtaining new fixed assets that are more expensive and commodious than those he has lost, the Court may well make some allowance against the claimant in recognition of that enhancement: Keogh’s case (1969) 18 LGRA 295 at 299.”
However it is necessary to note, particularly in relation to the principle stated by Wells J, that in the present case the Second Applicant’s claim is not fully based upon the reinstatement principle as it involves no element of the cost of acquiring the McDonald’s site by the First Applicant for a price considerably higher than the value I have adopted for that part of the acquired land notionally available for the continuance of the existing use. Moreover there is no basis in the little expert evidence given concerning the comparison between the acquired land and the McDonald’s site upon which I could reasonably conclude that the McDonald’s site will provide the Second Applicant with superior or more commodious business premises or that the Second Applicant’s business is likely to be enhanced from the relocated site.
Rather the claim is based upon the costs of relocation of the disturbed business and the only relevant limitation is that imposed by s59(c) of the Just Terms Act namely that the financial costs mist be reasonably incurred cf: Kozaris v Roads Corporation (1990) 75 LGRA 346 at 352 where Gobbo J held that the question in hand was to be resolved by resort to the provisions of the Victorian Lands Compensation Act rather than by exploring the precise limits of the doctrine of reinstatement. His Honour had in the immediately preceding passage discussed the much vexed question of whether compensation can be awarded on the basis of new for old expressing the following view:
“But as has been said in the disturbance cases, the owner of a business who is compelled to relocate into more expensive premises that bring him no extra profit, gains no benefit from the enforced relocation and should not have to bring into credit as a deduction – or as a form of enhancement unknown to the law – the amount of the theoretical addition in value represented by the extra amount he has had to spend over the value of his previous premises.”
I would respectfully adopt his Honour’s views and apply them in the application of the express provisions contained in s59(c) of the Just Terms Act.
So applied I would allow disputed Item B (costs of obtaining development consent); Item C (cost of rendering McDonalds’ site fit for the Second Applicants’ business use); Item F (cost of additional promotional advertising) and Item I (costs of reprinting business stationery).
This brings me finally to consider the judge made law denying double recovery of compensation.
Again a ready accommodation of this principle (apart from the operation of s61 of the Just Terms Act) can be reflected in the Court’s decision whether the financial costs were reasonably incurred in the relocation of the Second Applicant’s business.
I do not think that Item A (cost of relocating mobile homes back to relocated premises); Item E (office fitout); or Item L (costs associated with loss at auction) are recoverable expenses because they are essentially premised upon the extinguishment of the Second Applicant’s business and not its relocation. It is true that for a period of time it appeared that the Second Applicant’s business could not be conveniently relocated but ultimately it has been, and the Second Applicant’s disturbance claim is based upon relocation.
Nor do I think Item D (cost of new signage); Item G (security lighting); Item H (security fencing) are recoverable either because compensation is to be awarded to the First Applicant in respect of the improvements existing in the acquired land (including limited fencing and signage). The considerable estimated costs of security fencing and lighting in large measure arise because there will be no resident/caretaker of the relocated premises, as there was on the acquired lands.
Accordingly I would hold that Items B, C, F, I, J and K are recoverable pursuant to s59(c) but that the other items claimed are not. Mr Robertson’s estimate of the value of the items that I have allowed, and which I adopt, is $122,273.
For all the foregoing reasons, in my opinion, the Second Applicant is entitled to compensation in respect of the sum of $392,703 being:
(i) loss of business profits $270,430
(ii) relocation expenses $122,273.
In so concluding I must reject the Respondent’s submission that to allow compensation for both loss of profits and relocation expenses would involve excessive compensation. Clearly both elements of disturbance loss are recoverable. It may be that payment of the relocation costs is to be made as and when the costs are incurred, but that is a matter for the Respondent to determine.
E. CONCLUSIONS AND ORDERS
For all the foregoing reasons I make the following orders:
1. Determine that the First Applicant is entitled to compensation in the sum of $742,000, plus an additional amount for disturbance in accordance with s59(a), (b) and (d) of the Just Terms Act referable to that sum.
2. Determine that the Second Applicant is entitled to compensation in the sum of $392,703.
3. Grant liberty to the First Applicant to restore on 3 days notice for the purpose of determining the amount of additional compensation referred to in Order 1.
4. Reserve the question of costs.
5. Exhibits be returned.
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I HEREBY CERTIFY THAT THIS AND THE PRECEDING 83 PAGES ARE A TRUE AND ACCURATE COPY OF THE REASONS FOR JUDGMENT HEREIN OF HIS HONOUR MR JUSTICE N R BIGNOLD.
Associate