Hua and Anor v Hurstville City Council

Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259 Brown Bros (Marine) Holdings Pty Ltd v NSW Land and Housing Corporation (1991) 72 LGRA 50 Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109 Commissioner of Highways v George Eblen Pty Ltd (1975) 10 SASR 384 Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215 Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia (1947) 74 CLR 358 Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 Fitzpatrick Investments Pty Limited v Blacktown City Council (No 2) (2000) 108 LGERA 417 Homecare Services (NSW) v Albury City Council (2004) 136 LGERA 117 CASES CITED: Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151 Housing Commission of New South Wales v Falconer & Others (1981) 50 LGRA 334 Keogh v Housing Commission of Victoria (No 2) (1969) 18 LGRA 295 Kozaris v Roads Corporation [1991] 1 VR 237 McBaron v Roads and Traffic Authority of New South Wales (1995) 87 LGERA 238 McDonald v Roads and Traffic Authority of NSW (2009) 169 LGERA 352 Minister of State for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459 Mir Bros Unit Constructions Pty Limited v Roads & Traffic Authority of New South Wales [2006] NSWCA 314 Peter Croke Holdings Pty Limited v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 Richardson v Roads and Traffic Authority of New South Wales (1996) 90 LGERA 294 Roads & Traffic Authority of New South Wales v Peak [2007] NSWCA 66

Alan Hyam, The Law Affecting Valuation of Land in Australia, 4th edition (2009), Federation Press TEXTS CITED: Douglas Brown, Land Acquisition, 6th ed (2009) LexisNexis Macquarie Dictionary Online (2010), Macmillan Publishers Australia

DATES OF HEARING: 22 April 2010 23 April 2010

APPLICANTS Dr S Berveling SOLICITOR Di Lizio & Associates LEGAL REPRESENTATIVES: RESPONDENT Mr J Maston SOLICITOR Marsdens Law Group

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT 1 Her Honour: The Council compulsorily acquired land on which the Applicants conducted a bakery business at Lot 8 DP 318300 324 Forest Road Hurstville (the premises) pursuant to Pt 2 of the Land Acquisition (Just Terms Compensation) Act 1991 (the JT Act). The First Applicants (Thuan Tong Hua and Thuan Tri Hua) entered into a lease for these premises in 2002. The Second Applicant (Hong Ha Mascot Bakery Pty Limited) (the company) operates the bakery business at the premises. One of the First Applicants is a director of the company. The Notice of Acquisition of land published in the Government gazette pursuant to s 19 of the JT Act on 5 September 2008 is attached to the Applicants' Class 3 application. The date of acquisition is 5 September 2008 as provided by s 20(1) of the JT Act. The Applicants have appealed the quantum of compensation for disturbance to this Court under s 66 of the JT Act. 2 I thank Acting Commissioner Parker for his assistance. Interest in land 3 An owner of an interest in land which is compulsorily acquired is entitled to compensation (s 37 JT Act). Section 4 of the JT Act specifies definitions of terms used in the JT Act. "Owner" is defined as "any person who has an interest in the land". "Interest in land" means: (a) a legal or equitable estate or interest in the land, or (b) an easement, right, charge, power or privilege over, or in connection with, the land. "Land" is defined as: land includes any interest in land 4 The Amended Points of Claim which joined the company as a party after proceedings had been commenced assert: … 2A The First Applicants are the registered lessees of the acquired land and are an owner (as defined) of the acquired land.

2C The first-named First Applicant is the director of the Second Applicant.

The Second Applicant uses the acquired land for the purpose of a bakery shop business ("the business")

3B The Second Applicant has an interest in the acquired land and is an owner (as defined) of the acquired land. 5 There is no document in evidence recording the financial arrangements between the First Applicants and the company. The First Applicants submit that the company pays all the rent for the premises and that there is a licence arrangement with the company to occupy the premises and conduct the business, as demonstrated in the affidavit of Mr Hua (to which I refer later at par 10). The Respondent does not raise as an issue whether the company had a relevant interest in land and the parties have agreed that any compensation ordered should be payable to the company. I accept that the company has a bare licence to occupy the premises and has an interest in the land resulting from payment of the First Applicants' rent liabilities for the premises. 6 A licence coupled with an interest is sufficient to satisfy "an interest in land" for the purpose of compensation claims as stated by Meagher JA (Mason P and Powell JA agreeing) in Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151 at 155. On this basis the company is an owner of an interest in land as defined in s 4(1) of the JT Act and can therefore claim compensation for the loss of interest pursuant to s 37 of the JT Act. Compensation is assessed in accordance with Pt 3 of the JT Act. 7 The entitlement to compensation is set out in s 54(1) of the JT Act as follows: (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land

8 Compensation is assessed as at the date of acquisition as held in many cases, see for example Housing Commission of New South Wales v Falconer & Others (1981) 50 LGRA 334 at 349 referred to in Alan Hyam, The Law Affecting Valuation of Land in Australia, 4th edition (2009), Federation Press p 306. 9 The Applicants' claim is for disturbance arising from the loss attributable to the acquisition of the land, as provided in s 55(d) of the JT Act. Section 59 states: 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), …

(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. Evidence 10 An affidavit of Thuan Tong Hua, First Applicant and a director of the company, affirmed 22 March 2010, states that he has been operating a bakery and takeaway sandwich shop trading as the Hong Ha Mascot Bakery Pty Limited from 324 Forest Road Hurstville since 22 July 2002. He states the shop fit-out cost in excess of $300,000 and took around 10 weeks for the bakery to be operational. All financial, banking and contractual obligations for the bakery premises are in the name of the company. The company pays the rent, water, gas, electricity, telecommunications, insurance, waste management and other rates and charges for the premises. The company has responsibility for the payment of employee wages. Mr Hua works full time in the bakery and is assisted by various family members. He started the business from scratch and states his intention is to increase the business by opening other shops in the Hurstville area, and continue working until his retirement age. He states that he has made some preliminary searches for other premises and intends to relocate the business and trade under the same name. Mr Hua states that the business has grown steadily, continues to grow, and has a loyal client base. He also states that he has financial responsibility for the care and wellbeing of his own and his sister's family, three members of which have serious or severe medical conditions. Multiple exhibits to Mr Hua's affidavit were also tendered collectively as exhibit B in the proceedings.

11 Mr Hua also gave oral evidence with the assistance of a Vietnamese-English interpreter in attendance. He stated that his most recent lease was a three year lease and the company paid the monthly rental on the premises. He was not aware of the search for alternative premises conducted by Bruce Phillips, licensed real estate agent and certified practising valuer. Mr Hua stated that the company has not made any superannuation contributions for any employees. He was not aware of the payment of any outgoings other than electricity charges related to the bakery. 12 A copy of a lease for the premises was tendered (exhibit 2). It identifies the First Applicants as the lessees, and was for the term of 22 July 2005 to 21 July 2008. It identifies a lettable area of approximately 180 square metres. Item 12 in the schedule annexed to the lease specifies rental of $72,800 per annum to be paid by monthly instalments of $6,066.67 (not including GST), and item 15 provides for rent review at each anniversary of the lease commencement date with annual rental increases to be determined in accordance with the Consumer Price Index (CPI). Item 13 is a clause limiting lessee outgoings to metered services such as telephone, electricity and water usage (with water usage divided equally in 50 per cent shares between the lessor and the lessee). 13 The most recent three year lease was entered on 22 July 2005. The option to renew the lease for a further three year term was exercised by the First Applicants before the lease expired on 22 July 2008 (see par 1.2 of expert report annexed to affidavit of Andrew Firth dated 8 April 2010). 14 An affidavit of Bruce Phillips, licensed real estate agent and certified practising valuer, affirmed 19 April 2010, annexes a report dated 4 March 2010 of his assessment of availability of alternative premises for relocation of the Hong Ha Mascot Bakery. The report referred to a search of the business districts of Hurstville and Kogarah. It included a summary of eight recent commercial lettings ranging from 86 square metres (rental $35,000 per annum gross plus GST) to 220 square metres (rental $150,000 per annum gross plus GST). It also included a summary of five available lettings ranging from 60 square metres (approximate rental $42,000 per annum gross plus GST) to 120 square metres (rental $66,000 per annum gross plus GST). The report includes Mr Phillips' opinion that there is sufficient evidence to support the conclusion that the lessee could relocate into alternative, suitable premises within a radius of five kilometres of the acquired premises. Valuation Evidence 15 Mr Coleman, an actuary, prepared a valuation report (exhibit 1) dated 29 July 2009 on behalf of the Respondent. Mr Coleman inspected the premises of the Hong Ha Mascot Bakery on 17 July 2009, and observed the general business operations. He was provided with a copy of the lease for the premises as well as financial reports of the business for the purpose of his report. The executive summary to the report states that Mr Coleman considered the bases of assessment of relocation/reinstatement of the business or alternatively extinguishment of the business. Appended to the report is a profit and loss statement for 2005 - 2009, a pro-forma income statement (for the purpose of calculating goodwill) and a balance sheet for 2005 - 2009. 16 Also appended to Mr Coleman's report is a copy of a quantity surveyor's report (supplied by the Applicants and prepared by Archi-QS Pty Ltd dated 13 October 2008) estimating the cost of a new fitout in an alternative location. The Archi-QS report details in its instruction summary: Our firm has undertaken a detailed Study of the Estimated Cost (refer to Appendix A) of a new fit-out in an Alternate Location, based on the same inclusions found in the current premise No. 324 Forest Road, Hurstville. It states that senior quantity surveyors conducted a thorough inspection on 11 September 2008 where all fixtures, fittings and finishes were documented. Appendix A of the report provides a detailed breakdown of the estimated budget for the fit out works. The report states that the cost for establishing a similar development in alternative premises, making provision for similar fit out, fixtures, finishes and services totalled $355,189. Included in the estimate for equipment is a V42 gas fired rack oven including burner and 500 kg auto rack lift ($60,423), and a commercial cooker ($10,000). Other major expense items include a three-phase 20A electrical service ($25,000), a 1000 L grease trap ($16,500), commercial ceramic floor tiling ($13,650), ceramic wall tiling ($11,690) and internal plasterboard finishes ($15,057). The report does not include loose furniture and loose equipment, office equipment, storage costs or relocation (cartage) costs. 17 In his valuation report Mr Coleman calculates that, inter alia, loss due to disturbance for the purposes of s55(d) of the JT Act would be payable as follows (GST included in the relevant figures): a) $195,262 on the basis of extinguishment of the business comprising $4,000 for stock, $140,000 for plant and equipment, $17,500 for business goodwill, $13,962 for redundancy payments, $11,000 for legal costs and $8,800 for valuation costs; or b) $417,089 on the basis of relocation, assuming reinstatement of the business, comprising: (i) $359,039 being $355,189 fit out costs, $1,100 legal costs and $2,750 removalists; plus (ii) $38,250 being $1,000 loss of stock, $5,500 miscellaneous costs, $17,500 loss of goodwill and $14,250 loss of profit; plus (iii) $11,000 for legal costs and $8,800 for valuation costs.

18 Mr Coleman noted that the baker's oven, cool rooms and food preparation area each have significant built in facilities such as ducting and piping, and it would be impractical to effect the removal of these items of plant and equipment from the existing premises. The fitout costs used in Mr Coleman's report rely on the costs estimated in the Archi-QS report for new plant and equipment as items necessary for reinstatement of the bakery business. Mr Coleman recommended compensation be assessed on the basis of extinguishment of the business. 19 Mr Firth, a forensic and chartered accountant, affirmed an affidavit dated 8 April 2010 and annexed his expert report (dated 12 March 2010) prepared on behalf of the Applicants. He states that he was instructed to provide an opinion as to: (a) whether the business is a profitable concern at the date of acquisition. (b) the ongoing profitability of the business. (c) the level of profitability of the business compared to other similar businesses. He attended the premises on 11 March 2010 and inspected the business. He states that the shop most closely resembles a takeaway shop for the purposes of comparing the business to other similar businesses. He reviewed Australian Bureau of Statistics reports on "Cafes, Restaurants and Catering Services", "Retail & Wholesale Industries", "Tourism Indicators", "Australian Industry", as well as financial statements for 2006 - 2009 and company tax returns for 2006 - 2008 financial years. This allowed a comparison of the bakery business with reported industry figures. Mr Firth also reviewed the Archi-QS quantity survey report. Copies of published food reviews for the business are appended to the report. 20 Mr Firth's report concludes that he disagrees with Mr Coleman's statement that the cost of reinstating the business is not justifiable given the expected future financial performance. Mr Firth states that the business: a. was a profitable concern at the date of acquisition; b. was likely to either sustain or improve its profitability after the date of acquisition; and c. had outperformed similar businesses on the basis of average net operating profit as a percentage of sales as detailed in various reports by the Australian Bureau of Statistics. 21 Mr Coleman and Mr Firth prepared a joint valuation report (exhibit C) dated 24 March 2010 setting out matters of agreement and disagreement. Mr Coleman and Mr Firth agreed that valuation on the basis of extinguishment of the business is appropriately calculated at $195,262. They also agreed that valuation on the basis of relocation of the business was appropriately calculated at $417,089 (including legal and valuation fees under s 59(a) and (b) of the JT Act). Mr Coleman and Mr Firth did not agree as to which basis of valuation should be adopted, with Mr Firth adopting the relocation basis and Mr Coleman the extinguishment basis.

22 Mr Coleman opined that the extinguishment basis was appropriate as this reflected the value of the existing business as a going concern with compensation on the relocation basis resulting in the Applicants profiting from the resumption process through either: a. the benefit of a "new for old" shop fit out including the provision of a new baker's oven with a longer operational life and lower operating costs than that in the resumed property; or b. application of part only of the compensation payment to the purchase of a similar business due to investment of the compensation payment in new plant and fit out being unlikely to generate a sufficient rate of return. I surmise Mr Coleman is referring to the Applicant gaining a windfall if compensation is too generous.

23 Mr Firth opined that the relocation basis was appropriate as this reflected the cost of establishing a functionally equivalent baker's shop in an equivalent location. Compensation calculated on an extinguishment basis resulted in the Applicants being disadvantaged by the resumption process through: a. being unable to find a similar business to buy in an equivalent location and with similar equipment; and b. having insufficient compensation to then fit out a new shop. Concurrent evidence 24 Mr Coleman and Mr Firth both gave oral evidence that they relied upon accounting and tax return data provided by the Applicants in undertaking their assessments. This data indicated that the sales for the business were $273,491 and the earnings after depreciation but before tax were $7,615 in the financial year to June 2008. Reflecting a depreciation charge of $10,126, the earnings before tax and depreciation were $17,741 in the financial year to June 2008. 25 Mr Coleman gave evidence that the revenue of the business was lower in the year to June 2009 than in the year to June 2008. Mr Firth gave evidence that the fall in revenue for the year to June 2009 was not material, being in the order of only 1.5 per cent. Both Mr Coleman and Mr Firth considered the sales for the business to be below the industry standard. Neither expert had undertaken any independent confirmation of the reliability, accuracy or completeness of the sales data provided by the Applicants. 26 Mr Coleman gave evidence that the wages paid by the business were lower in the year to June 2009 than in the year to June 2008, with wages appearing low relative to the level of labour employed in the business and the minimum award wage. Mr Coleman further noted that employee superannuation contributions did not appear to have been paid by the business and that the rent paid was below that permitted under the rent review provisions of the lease. 27 Mr Firth gave evidence that the information provided by the Applicants did not permit a view to be formed as to whether employee superannuation contributions had or had not been paid. Mr Firth concurred that the rent paid was below that permitted under the rent review provisions of the lease.

28 Both Mr Coleman and Mr Firth gave evidence that they considered the business to be just viable in the financial year to June 2008, immediately before the date of acquisition on 5 September 2008. Following analysis of the accounting and tax return data, Mr Coleman estimated maintainable earnings at the date of acquisition, before tax and depreciation, of $31,500. Mr Coleman noted that this was higher than the business had historically achieved. He did not consider that the profitability of the business was likely to improve in the foreseeable future. 29 Mr Firth noted an upward trend in profitability for the business and opined that this may be extrapolated into increased profitability in the future. In cross-examination, Mr Firth acknowledged that his opinion was not based on a detailed analysis of the composition and trend of underlying revenue and expense data for the business. 30 Mr Coleman gave evidence that, if the business was moved to alternative premises and a new baker's oven acquired by the business, the potential depreciation charges on the new baker's oven would be likely to exceed his estimate of maintainable earnings at the date of acquisition, before tax and depreciation, of $31,500. This resulted in an accounting loss for the business which Mr Coleman concluded indicated that the business was not viable in such alternative premises. Mr Firth, however, gave evidence that such depreciation was an accounting charge rather than a cash charge, with the business continuing to generate a cash profit while incurring an accounting loss which Mr Firth concluded indicated that the business was viable in such alternative premises. Issues 31 The parties' respective experts have agreed the amount of compensation that is payable applying the extinguishment basis or the relocation basis. The Court accepts their opinion of the amount but must determine which of these bases is appropriate. A further issue is whether compensation for disturbance is claimable under s 59(c) and/or (f) of the JT Act. 32 The parties agreed that, on the assumption that s 59(c) and/or (f) applies (which is disputed by the Respondent) to the Applicants' claim for relocation, five questions had to be considered, based on Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 128-131 (Lord Nicholls of Birkenhead delivering judgment for the Privy Council) and identified in Douglas Brown, Land Acquisition, 6th ed (2009) LexisNexis at p 162. These are: (i) can the business be relocated? (ii) does the claimant intend to move? (iii) would a reasonable person in the position of the claimant in the prevailing circumstances relocate? (iv) is it feasible and practicable to relocate within a reasonable time of vacating the resumed land? (v) will the cost of relocation be less than the cost of extinguishment?

Applicants' submissions 33 The appropriate basis for compensation is the relocation/reinstatement of the business. This can be claimed under s 59(c), as it is essentially a claim for relocation, or under s 59(f), as a cost arising as a direct and natural consequence of the actual use of the land. The basis for allowing compensation for relocation is identified in Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215 by Wells J at 210-224 and in Shun Fung at 126-127. The amount of compensation payable under s 54 of the JT Act is the amount which justly compensates a person given his or her particular circumstances. 34 There are five questions which require consideration based on Shun Fung (par 34). These should be considered as follows: (i) in relation to whether the business can be relocated, Mr Phillip's evidence supports a finding that it can be relocated to other commercial premises in the same local area. (ii) the Applicants intend to move, as detailed in the affidavit of Mr Hua. The Applicants are not arm's length commercial investors but a family run business supporting family members with disabilities. (iii) a reasonable person in the position of the Applicants would relocate as the business is viable. (iv) it is feasible and practical to relocate the business. (v) while the cost of relocation is markedly more than the cost of extinguishment that is not determinative of the basis on which compensation is payable as compensation must justly compensate the particular circumstances of a person or company. Council's submissions 35 There is no basis under the JT Act to pay disturbance costs for an interest of a lessee on the basis that the business is to be reinstated elsewhere. If maintainable, such a claim can only be under s 59(f) not s 59(c). Relocation costs of a business may be payable as held in Peter Croke Holdings Pty Limited v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 but that is not the basis of the Applicants' claim for compensation, which is based on reinstatement of the business elsewhere. The extinguishment basis of compensation identified by Mr Coleman is appropriate as that provides compensation for the fair market value of the business, as if it were sold as a going concern. 36 Assuming that reinstatement costs can be awarded under s 59(f), the evidence does not support a finding that to do so was practicable or feasible at the date of acquisition. Considering the five questions raised in Shun Fung, in relation to (i) and (ii) Mr Phillips did not provide any evidence of searching for going-concern bakeries. None of the premises recently let or available to let referred to in his report are comparable in terms of size (180 sq m) and the amount of rent paid by the Applicants. They are generally small shops (72 sq m - 120 sq m) and/or pay much more rent. The Court could not be satisfied that a prompt "simple and inexpensive transfer to an immediately available and obviously appropriate alternative site" is possible or likely, per Wells J in Shipp Bros at 220.

37 In relation to (iii) the existing business on the date of acquisition was at best marginally viable, however this situation would be diminished if CPI rental increases, compulsory superannuation contributions, and State award wage payment for all employees was appropriately considered. These factors, if included in the estimation of viability, suggest negative profitability. The Court should find that no reasonable person in the position of the Applicants in the prevailing circumstances would relocate. 38 In relation to (v), the cost of reinstatement is almost double the extinguishment basis suggesting the latter is more appropriate as fair and reasonable compensation.

39 Section 59(f) requires compensation for financial costs to be based on an assessment which is reasonable at the date of acquisition and that might be reasonably incurred in the future as assessed at the same date. The quantum of compensation pays regard to the actual "use of the land" and is quantified directly by reference to the actual business conducted on the date of acquisition. The costs must be a direct and natural consequence of the acquisition and they will not be if they are assessed on a basis which is not reasonable according to the tests set out by Brown in Land Acquisition. Finding 40 Under s 54(1) of the JT Act the amount of compensation to which a person is entitled is that which will justly compensate that person for the acquisition of the interest in land, to be calculated in accordance with Pt 3 of the JT Act. Compensation under Pt 3 s 55(d) includes disturbance. The components of disturbance which are compensable are identified in s 59. There is no reference to loss of a business or costs of the relocation or reinstatement of a business in s 59(c) or (f). The parties accept that these sections can encompass compensation for disturbance of a business under s 59 but disagree on the basis this can be awarded under the section. 41 While compensation for compulsory acquisition is provided by, and limited to, the provisions in the JT Act, statements of broad principle which have been applied over many decades in such a statutory context are useful to consider. The Applicants have relied on Dixon J in Commissioner of Succession Duties (SA) v Executor Trustee & Agency Company of South Australia Ltd (1947) 74 CLR 358 at 373 where he distinguishes between revenue cases and compensation cases and states that in the latter doubts should be resolved in favour of a more liberal estimate. The emphasis in such cases is the need to justly compensate a claimant for any claimable loss arising from an acquisition of property. Where practicable any discretion to ensure just compensation should be exercised in favour of the claimant, per Talbot J in McBaron v Roads and Traffic Authority of New South Wales (1995) 87 LGERA 238 at 244-245. Relocation v reinstatement 42 The Applicants' claim for compensation did not distinguish between relocation and reinstatement of the bakery business. The claim for disturbance loss is made under s 59(c) and/or (f). The Respondent argued the claim was for reinstatement of the business. It disputed that the reinstatement costs of a business are available under s 59(c) or (f). If they are available it is under s 59(f). No case where this Court has awarded reinstatement costs of a business as compensation for disturbance in similar circumstances to the Applicants under s 59 of the JT Act was found by the parties.

43 There is a semantic distinction to be drawn between relocation costs and the costs of reinstating a business in that the terms, while related, are not identical. The Macquarie Dictionary Online (2010), Macmillan Publishers Australia, definition of relocate is "to move (a firm, factory, etc) to a different place", and the definition of reinstate is "to put back or establish again, as in a former position or state". That distinction was not considered early in the proceedings and was not raised with the two experts Mr Coleman and Mr Firth during oral evidence. Their evidence refers to both relocation and reinstatement as if these are the same. Hyam refers to the reinstatement principle of compensation following the compulsory acquisition of land as a principle developed by judicial decisions (see p 394), but acknowledges that it has not been definitively analysed and that there have been differences in view as to what precisely it covers (at p 395 citing Gobbo J in Kozaris v Roads Corporation [1991] 1 VR 237 at 240).

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".

At [52] he stated further that: The words "direct and natural" in s 59(f) is the language of causation designed to limit compensation by reference to causal considerations: March v Stramare (1991) 171 CLR 506 at 509 - 510 per Mason ACJ. In Palmer Bruyn & Parker Pty Ltd v Parsons (2001) 185 ALR 280 at [79] Gleeson CJ said that "It may be, as was said in a New Zealand case, that 'consequences that are direct and natural are generally foreseeable'". In Lasermax Engineering Pty Ltd v QBE Insurance (Aust) Ltd [2005] NSWCA 66 the NSW Court of Appeal held that the expression "directly caused" in an insurance policy was to be equated with "proximate cause". It was also held that the primary judge fell into error in relying upon the dictionary definition of "directly" at the expense of looking at words in context. It was said that the Court applies common sense standards in determining what is proximate cause, and that causation is to be understood as the man in the street, not a scientist or a metaphysician, would understand it. Biscoe J was considering a claim under s 59(f) for loss of rental income after knowledge of the impending acquisition became public (pre-acquisition rental loses) at [53]. His Honour applied Shun Fung and allowed the claim as he considered it came within the meaning of s 59(f), relying also on Peter Croke Holdings where Bignold J allowed pre-acquisition costs under s 59(f) and applied principles identified in Shun Fung in doing so. 56 Beazley and Tobias JJA (in the majority) in Roads & Traffic Authority of New South Wales v Peak [2007] NSWCA 66 at [100] determined that costs cannot be claimed interchangeably between s 59(c) and s 59(f). They made the distinction that s 59(c) relates to relocation costs (at [100]), and s 59(f) refers to costs "relating to the actual use" of the acquired land (at [56] citing Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259; Mir Bros Unit Constructions Pty Limited v Roads & Traffic Authority of New South Wales [2006] NSWCA 314). It must be noted that in Blacktown Council v Fitzpatrick Investments Brownie AJA (Stein JA and Ipp AJA agreeing) supported the broad construction of s 59(f) preferred by Lloyd J in Fitzpatrick (No 2). 57 These cases all suggest that a wide range of costs can satisfy the terms of s 59(f) and are therefore recoverable. None of these cases were considering relocation costs, including reinstatement costs. Section 59(c) and/or (f)? 58 It is useful to consider McDonald v Roads & Traffic Authority of NSW (2009) 169 LGERA 352, a claim for disturbance loss resulting from the applicant having to relocate her home and shed from the acquired land to the residue land in which both s 59(c) and (f) were considered. At [107]-[109] Biscoe J referred to the wide meaning of s 59(c) as recognised by Dixon J in Minister of State for Army v Parbury Henty & Co Pty Ltd (1945) 70 CLR 459 at 507 that disturbance costs include costs that a claimant: reasonably incurs in removing his furniture and goods including tenants' 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 those removed and, where reasonably necessary, newly acquired fittings. The residual value which would remain to him must of course be taken into account. Biscoe J also considered that Peter Croke Holdings and Homecare Services confirmed a wide meaning should be applied to relocation costs under s 59(c). He also considered the broad wording of s 59(f) referring to Fitzpatrick No 2 and Peak , inter alia. His Honour concluded the disturbance costs in McDonald came within s 59(c) or (f) at [119]. 59 On reviewing the cases above, relocation costs in s 59(c) can include the replacement of essential equipment in new premises which can be described as reinstatement as I have already stated in par 45. To the extent relocation under s 59(c) does not cover all aspects of such a claim, s 59(f) is potentially available as the cost does relate to the actual use of the land and is incurred as a direct and natural consequence of the acquisition. The preferable view is that the costs of re-establishing the business elsewhere, whether described as relocation or reinstatement is claimable under s 59(c). Double dipping? 60 I do not agree with the Council's submission that there was potential for double dipping made in reliance on findings of Talbot J in Richardson v Roads and Traffic Authority of NSW (1996) 90 LGERA 294. At [303] his Honour held there was potential for double dipping if capital improvements to the new property were paid as part of the costs of relocation when compensation was allowed for existing improvements on the acquired property. This decision and approach was also referred to by Bignold J in Peter Croke Holdings at 64 and Biscoe J in McDonald v RTA at [151]. In all those cases the claimants for disturbance loss also received market value for the land acquired. The circumstances giving rise to these findings do not apply to the current Applicants who did not claim and are not entitled to market value as compensation. There is no basis to argue there is potential for double dipping if relocation costs which include the purchase of new equipment are awarded to the Applicants as disturbance loss. Consideration of valuation evidence 61 The valuers both agreed that the business was just viable as at the date of acquisition. They disagreed that a reasonable person would seek to move the business elsewhere given that circumstance, a matter I consider below in par 67 and par 70. 62 Both relied on the data provided by the Applicants and did not inquire or seek to verify this separately. There was some uncertainty in the data provided by the Applicants in relation to the operation of the bakery business. The data appeared to understate business expenses as the rent paid for the premises was approximately $8,517 pa below that required under the lease for the shop, the wages expense did not appear to reconcile with the number of staff working in the shop and superannuation charges, approximating $5,300, were not paid according to Mr Hua's oral evidence. I note for completeness however that the wage advice slips annexed to Mr Hua's affidavit indicate superannuation deductions.

63 While the expenses of the business may be understated and fail to make provision for additional rent in the event of a rate rise, the sales of the business may also be understated and I consider that, on the basis of the expert evidence of Mr Firth, the business was profitable at the date of acquisition. While depreciation of new equipment at new premises would mean the business was operating at a loss on an accounting basis as stated by Mr Coleman, it would be viable on a cash flow basis for the ongoing operation as a bakery as Mr Firth stated. Taking into account depreciation of the oven and other equipment, the business is just viable at the date of acquisition and likely to remain so on a cash basis, if not an accounting basis, if moved to alternative premises. Shun Fung applied 64 As identified in par 32 above, Shun Fung suggests that five questions should be asked in order to determine whether reinstatement/relocation is feasible. 65 Concerning the first question, I consider that the business can be relocated to alternative premises as identified in the evidence of Mr Phillips. While there has been criticism of his evidence by the Council in that he did not find a comparable property to that acquired in size and for a similar rental he nevertheless concluded in his report that there are other properties potentially available in the local area which the bakery could relocate to. As identified in Mr Hua's affidavit, he did not wish to incur liability for new premises when he did not know what his budget would be, as that is determined by the outcome of this matter. Cases have held that it is not necessary that a claimant must have already relocated to new premises in order to successfully claim relocation expenses, see for example Biscoe J in McDonald v RTA at [113]-[118].

66 Concerning the second question, I consider that the Applicants display an intention to move as demonstrated through the sworn evidence of Mr Hua in his affidavit. Given the personal circumstances he outlines, I consider that it is important to the Applicants that the bakery is re-established elsewhere.

67 Concerning the third question, the bakery is a family business in which the provision of employment to the First Applicants' extended family is of greater importance than the achievement of a return on capital invested, unlike the approach of an arm's length commercial investor taken by Mr Coleman. Accordingly, I consider the position of the First Applicants in the prevailing circumstances to be that of seeking to maintain family employment such that a reasonable person in a similar position would wish to relocate the business. 68 The fourth question is whether it is feasible and practical to relocate within a reasonable time. The report annexed to the affidavit of Mr Phillips (dated 19 April 2010) identified a range of alternative properties that may be considered by the Applicants for occupation. I accept that none were necessarily a perfect substitute. Allowing for the likely time required to identify, negotiate terms and document a lease of an alternative property and the time taken for fitout given the extent of replacement by new items to give effect to the relocation, I consider that it is feasible and practicable to relocate the business within a reasonable time of vacating the acquired property.

69 Concerning the fifth question, in light of the agreement of the experts on the two alternative bases the cost of reinstatement/relocation is substantially more than the extinguishment basis. That fact is not determinative that the lesser sum should be the amount of compensation, as submitted by the Applicants relying on Shun Fung, but is a factor to weigh up. Conclusion 70 Mr Coleman's view is that relocation is not appropriate because the business is not viable from a third party investor perspective and the extinguishment basis for compensation is appropriate. Mr Firth's view is that the business is just viable and will continue to be so on a cash basis and relocation/reinstatement is appropriate. As referred to above, someone in the position of these Applicants acting reasonably would relocate/reinstate the bakery in order to maintain employment for family members. Wells J in Shipp Bros at 222 (set out above at point 9 in par 46) and the Privy Council in Shun Fung at 127 (set out above in par 49) recognised the necessity for latitude in the case of a family business where relocation costs substantially exceed the extinguishment costs. In this case, the nature of the business requires large items of capital equipment which cannot be economically moved, resulting in relatively high reinstatement costs in order for the business to be relocated. That the reinstatement costs for this particular business are high does not result in a windfall to the Applicants. 71 Weighing up these various matters and considering what is just compensation for these Applicants, I consider compensation for disturbance loss should be awarded on the basis of relocation, to include reinstatement of the Applicants' bakery business, under s 59(c). I therefore consider that the agreed sum of $417,089 for the relocation of the business, inclusive of legal costs and valuation fees, is the appropriate amount of compensation payable to the Applicants and will award this to the Second Applicant as requested by the Applicants. The parties agreed legal costs of $5,500 and valuation fees of $8,800 should be payable under s 59(a) and (b). 72 In relation to the costs of these proceedings, the usual approach in proceedings of this type where an applicant is successful is that the respondent pays the applicant's legal costs. As I have not heard any submissions on costs I will not make a final order at this stage but will reserve the question of costs.

Orders 73 The Court orders that: 1. The appeal is allowed. 2. Compensation is to be paid to the Second Applicant for the acquisition of Lessees' interest over Lot 8 DP 318300 known as 324 Forest Road Hurstville in the amount of: (i) legal fees of $5,500 pursuant to s 59(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (the JT Act); (ii) valuation fees of $8,800 pursuant to s 59(b) of the JT Act; (iii) relocation costs of $402,789 pursuant to s 59(c) of the JT Act 3. Costs reserved.

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