44 Of significance in this matter is the baker's oven, various shop fittings and the electrical and plumbing infrastructure necessary for the operation of a bakery which cannot be economically removed from the acquired property and relocated to an alternative property. Such items will require replacement by new items in alternative premises to effect relocation and/or reinstatement of the business. The report by Archi-QS attributed $355,189 to the cost of fitting out an alternative property with entirely new items of which the replacement of the baker's oven, various shop fittings and the electrical and plumbing infrastructure comprise a substantial proportion.
45 Under s 20 of the JT Act, the effect of the acquisition notice is that all interests, rights and contracts, inter alia, in connection with the land are discharged. The Respondent's counsel suggested that the effect of the section would be that all fixtures became the property of the acquiring entity. The section does not explicitly state that, but to the extent that it is uneconomic to remove a fixture then it presumably remains as part of the acquired property. There was no specific evidence that the baker's oven is a fixture which is uneconomic to remove but that was the assumption of the report of the quantity surveyor (Archi-QS Pty Ltd) provided by the Applicants, as identified in the oral evidence of Mr Coleman. He prepared his evidence on the basis of that assumption as did Mr Firth. In these circumstances the physical relocation of the Applicants' bakery business requires its reinstatement elsewhere with the installation of essential new equipment.
46 As a matter of general principle compensation for disturbance on the basis of relocation and/or reinstatement of a business has been held to be available in several jurisdictions. The Applicants rely on Wells J in Shipp Bros, a claim for compensation under the Land Acquisition Act 1969 (SA) s 25. The claim was made for the notional re-establishment of a tow-truck operator, crash repairer and service station. There were improvements on the acquired land related to these activities. There was no reference in s 25 of the SA Act to compensation being payable on the basis of reinstatement. His Honour concluded at 220-222 that compensation on the basis of relocation of a business rather than on an extinguishment basis was compensable as disturbance, subject to certain limitations:
7. … Causation is, as always, the ultimate test - on the one hand, for example, the circumstances may be such that it would be wholly unreasonable for the claimant to do other than promptly to lay out moneys in order to effect a simple and inexpensive transfer to an immediately available and obviously appropriate alternative site. On the other hand, a proposal to relocate (or each such proposal, if more than one be under examination) may lie uncomfortably close to the limits of acceptability, and may present itself (or themselves) as by no means the only course (or courses) reasonably open to the claimant. In such circumstances, proof of causation may lie nicely in balance, and the Court may find it difficult to choose between holding the business to have been, in truth, destroyed, and assessing compensation upon the basis of costs of re-establishment that are closely scrutinised and sometimes discounted. In this branch of, as elsewhere in, the law, questions of causation may give rise to many doubts and misgivings.
9. The profitability - the net maintainable profits - of the business affected by the acquisition must always be weighed but need not be decisive. Causation remains the test. For the purposes of cases such as the one before me, the court is not assessing the standing of the subject business in the market as a possible investment; it is determining whether the claimant is acting reasonably in seeking to transplant his business. A potential investor is likely to decline to invest in a small family business (carried on as a proprietary company) where its net maintainable profit does not exceed that of a well-established and diversified public company. But those who control and manage the former may view what is their own quite differently. Their business may represent more than just a means of getting a living - it may represent, too, their chosen way of life. … The dividing line, in practice, between deriving financial rewards from a family company by drawing salary and wages, and deriving them from distributed net profits is often imperfectly drawn. Accordingly, a court may allow itself some latitude in approving the re-establishment of a family company's business, even though, as a matter of cold commercial judgment, an accountant would not recommend a client to invest in the same business.
47 Reinstatement costs of a business have not always been awarded as disturbance, depending on the nature of what has been claimed and the statutory scheme. Reinstatement costs were awarded but not as disturbance costs in Brown Bros (Marine) Holdings Pty Ltd v NSW Land and Housing Corporation (1991) 72 LGRA 50. At 55 Hemmings J considered a claim for compensation for the acquisition of land under the Public Works Act. A commercial ship chandler business sought reinstatement costs when relocating and re-establishing the business to alternative sites. The "perceived costs of reinstatement" and the actual reinstatement costs were characterised as special value (at 54) and compensation was allowed taking in general market value plus special value in one en globo lump sum (at 58-59). Such an approach is not relevant given the different terms of the JT Act I must consider but I have included the case as an example of where there was early consideration in this Court of the principle of reinstatement in a compulsory acquisition case.
48 In another influential case in Victoria, Gobbo J in considering s 11 of the Lands Compensation Act (1958) Vic in Kozaris at 240-241 also found that the cost of reinstatement of premises had sometimes been considered as disturbance loss, citing as an example Commissioner of Highways v George Eblen Pty Ltd (1975) 10 SASR 384 at 387.
49 In Shun Fung (1995) at 126-127 the Privy Council recognised that compensation for relocation can be a basis for compensation and that this can include reinstatement in terms of setting up a new business as follows:
No rigid limitations
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. A businessman may spend large sums of money in setting up a new business. Before the business has time to prove itself, his premises are acquired compulsorily. Having no profit record, the business may be worth little. The compensation payable on an extinguishment basis would be paltry. But a reasonable businessman, spending his own money, might consider it worthwhile incurring expenditure in fitting out new premises nearby and continuing his business there. Fairness requires that in such a case the claimant should be entitled, in respect of the disturbance of his business, to his reasonable costs incurred in the removal of his business and in setting it up again at the new property. Otherwise he would not be properly compensated for his loss; he would not be placed in a financially equivalent position.
It would be different if no reasonable businessman, forced to quit, would incur the cost of moving the business and setting it up in the new property. In the latter case a claimant would not be entitled to compensation calculated on a relocation basis. He would not be entitled to reimbursement of expenses unreasonably incurred.
The conclusion to be drawn, in a case where the cost of moving the business to another site would exceed the present value of the business, is that this is not of itself an absolute bar to the assessment of compensation on the relocation basis. It all depends on how a reasonable businessman, using his own money, would behave in the circumstances. In such a case, however, the tribunal or court will need to scrutinise the relocation claim with care, to see whether a reasonable businessman having adequate funds of his own might incur the expenditure. This is particularly so when, as in the case of Shun Fung, compensation assessed on a relocation basis would greatly exceed the amount of compensation payable on an extinguishment basis. The greater the disparity, the more closely the claim should be examined because the less likely would it be that a reasonable businessman would behave in this way. Compensation is not intended to provide a means whereby a dispossessed owner can finance a business venture which, were he using his own money, he would not countenance. However, when considering these matters the tribunal or court might allow itself a moderate degree of latitude in approving as reasonable the relocation of a family business, for the reasons set out by Wells J in Comr of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215 at 222.
50 To the limited extent this issue has been considered in relation to the JT Act, the Council submitted that the circumstances in Peter Croke Holdings (1998) were most similar to this case. In Peter Croke Holdings one of the applicants was a lessee of premises. Bignold J held at [41] that disturbance for business losses was claimable separate from the need to establish entitlement to compensation based on market value. The claim for disturbance was made on the basis of loss of profits and relocation costs. At [65] Bignold J referred to Keogh v Housing Commission of Victoria (No 2) (1969) 18 LGRA 295 and Shipp Bros per Wells J where these cases recognised that compensation could be payable for reinstatement with qualification where there is possible enhancement. Bignold J also noted at [65]-[66] that the disturbance claim was not fully based on the reinstatement principle as it did not include the acquired land available for the continuance of the existing use. The claim was for the cost of relocation of the disturbed business and the only limitation was that the cost must be reasonably incurred under s 59(c). The relocation expenses claimed were the cost of relocating display homes to new premises including the costs of a development application, site preparation, new signage, office fitout, security fencing, new business stationery. The applicant was awarded most of these costs.
51 The Respondent's counsel submitted that only claims for relocation of these kinds of costs are claimable under s 59(c) but Peter Croke Holdings is simply determining the losses the claimant in that matter was seeking. I do not consider it limits the types of losses which can be claimed under s 59(c) as relocation costs where the costs are incurred on that basis. Peter Croke Holdings otherwise suggests such costs are payable in a claim for relocation.
52 Bignold J allowed as a disturbance loss under s 59(c) the fit out costs for establishing a business at new premises in Homecare Services (NSW) v Albury City Council (2004) 136 LGERA 117. The nature of the costs is not specified in the judgment in any detail, but the amount of compensation recoverable pursuant to s 59(c) was held to include "all of the relocation costs incurred by the [c]laimant in re-establishing its business premises" (at [18]).
53 Can the claim be maintained under s 59(f)? Lloyd J at [20] in Fitzpatrick Investments Pty Limited v Blacktown City Council (No 2) (2000) 108 LGERA 417 referred to s 59(f) as a catch-all provision and opined that the words "any other financial costs" should not be read down. He cautioned however that:
[t]he costs must be reasonably incurred and must relate to the actual use of the land as a direct and natural consequence of the acquisition.
54 He awarded loss for disturbance including the stamp duty costs of buying replacement property under s 59(f) as this related to the actual use of the acquired property as an investment.
55 In Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109, Biscoe J supported the "catch-all" definition of s 59(f) in Fitzpatrick (No 2). He also noted at [43] that:
[t]here is a notable shift in language between paragraphs (a) to (e) of the s 59 definition … and paragraph (f). Paragraphs (a) to (e) concern reasonable costs of specified types incurred (or, under (d) and (e) that might reasonably be incurred) " in connection with " the compulsory acquisition of land, relocation, the purchase of land before relocation, or the discharge of a mortgage or execution of a new mortgage resulting from relocation. In contrast, s 59(f) is concerned with 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".