Matcam Pty Limited V Kogarah Municipal Council [1999] NSWLEC 181

Land and Environment Court (NSW)|1999-07-30|Before: Bignold J, Mr P

The Applicant is a family company owned by and providing accommodation to Dr Kenneth Howison, an ear nose and throat surgeon; he had practiced from the subject premises since 1973 and, but for the resumption, intended to continue to practice there until retirement. The subject premises were fitted out to accommodate his specialty practice. As a result of the resumption, Dr Howison relocated his practice in new commercial premises at the St George Private Medical Centre 1 South Street, Kogarah purchasing Suites 11 and 12 of Level 3 (which suites have a combined area of 149 square meters compared with the area of the resumed premises of 300 square metres). The new suite of rooms was purchased on the 9th July 1997 and at purchase were without plant, equipment or fit-out. It was necessary for the Applicant to incur in that regard to bring the premises up to a standard commensurate with the needs of his practice. (a) $4,391 as to legal costs incurred on the acquisition of alternative premises; (b) removalists' expenses $1,700; (c) cost of fit-out of new surgery $297887 and joinery work of $8360; (d) cost of reprinting stationery $2426.45 (e) cost of relocating telephones $3634.45 (f) cost of removal of computer $270 (g) removal and set up of microscope $185 (h) purchase of sound proof room $10000

There was also a claim of $50000 for estimated business loss. (This claim was reduced at the hearing to $28000.)

At the commencement of the hearing, Senior Counsel for the Applicant gave notice of the Applicant's intention to seek declarations that the compulsory acquisition of its premises was void and of no effect.

Since only brief notice of this proposed Motion had been given to the Council, an adjournment for two hours was granted.

Upon resumption of the hearing, the Applicant informed the Court that it no longer intended to challenge the validity of the compulsory acquisition and that it wished the Court to determine its objection to the amount of compensation offered.

At the same time, the Court was informed that the parties had reached agreement upon a large number of items claimed as "disturbance loss", as reflected in a document that became Exhibit 1. The agreed claims were as follows: (1) Stamp duty on purchase for alternate premises $33519 (2) Legal expenses on purchase of alternate premises $4391 (3) Estimated removal expenses $1700 (4) Cost reprinting stationery $2426 (5) Cost of relocating telephones $3634 (6) Cost of removal of computers $270 (7) Interest on borrowed moneys to purchase alternate premises $36286 to 30 June 1999. (8) Removal of microscope and insulations $185 (9) Australia Post redirection and sending out of change of address $1029

The Court was informed that there remained in dispute four items of claimed disturbance loss, namely: (1) Cost to fit out new surgery $297887 (2) Purchase of soundproof room for Audio Metric Testing (second-hand) $10000 (3) Estimated loss of business in establishing the dispossessed owner's Practice in alternate smaller premises $50000 (4) Joinery $8360

In the course of the Applicant's opening address, Counsel for the Council informed the Court that the parties might reach agreement upon the "market value" of the compulsorily acquired land. The valuation evidence that had been tendered, suggested a value ranging between: (i.) $700000 (Valuer General) (ii.) $750000 (Mr Wood) (iii.) $875000 plus 10% (Mr Egan).

Upon the commencement of the second day of the hearing, the Court was informed that the parties had agreed that the market value of the compulsorily acquired land was $880000 and that the Applicant was not pressing its disturbance claim for "joinery" expenses of $8360 and that the Applicant had reduced its disturbance claim for loss of business to $28000.

Senior Counsel for the Applicant announced an open offer to settle the case for $1150000 plus statutory interest and costs.

The Council rejected the open offer but agreed to all of the Applicant's disturbance claims except for the claim of $297887 for fitting out the new premises acquired by the Applicant so that the medical practice might be continued following the compulsory acquisition.

Accordingly, the only matter requiring adjudication is whether the Applicant is entitled to compensation in respect of the fitting out of the new premises.

The claim to this claim of compensation was founded entirely upon the provisions of the Just Terms Act: s 59(c) and (f).

B. EVIDENCE SUPPORTING THE DISPUTED DISTURBANCE CLAIM

The principal evidence in support of the claim was given by Dr Kenneth Howison, an Ear, Nose and Throat Surgeon, who controls the Applicant which is a family company.

He acquired the compulsorily acquired land (which comprised a two storey brick dwelling) in 1973 and continuously used it as his medical surgery until he vacated the premises following the date of compulsory acquisition.

His specialist practice involves the conduct of an extensive allergy testing service and detailed hearing testing.

In addition to practising from his own premises since 1973, he has practised at the nearby St George Public Hospital since July 1972. When it became clear to him in March 1997 that the Council was intent on acquiring his property, Dr Howison, though reluctant to relocate his practice, decided that he would have no alternative but to purchase rooms in the in the St George Private Medical Complex. His Company, the Applicant, entered into a contract to purchase adjoining suites (comprising two lots in the Strata Plan) in July 1997 for a price of $844800.

That price reflects the new premises as fitted out.

The fitout was undertaken by the developer on the Medical Centre Complex. Dr Howison was shown various standards of fitout of other suites in the Medical Centre, all of which are occupied by medical specialists. He chose the "standard type" fitout which was subject to some specific alterations appropriate to the needs of his specialised practice.

The costs of the fitout totalling $297887 are detailed in a facsimile transmission to Dr Howison dated 1 June 1998 from Page Kirkland and Partnerships Pty Ltd, Quantity Surveyors (part of Exhibit 2) which states:

Approx fitout costs for suites 11 and 12 level 3 of the St George Private Medical Centre.

Suite 11 $156303 Suite 12 $141,584 Total $297,887

The facsimile transmission includes details of those costs (Apparently those same details were included in a depreciation schedule (for taxation purposes) Dr Howison received from the vendor at or after settlement of the purchase).

Dr Horison's written statement (Exhibit 6) further elaborates the nature of these fitout costs when he states in par 9:

None of the items recited in the fit out, totalling $297887 were in addition to fit out or services I had in the old premises at 13 Belgrave Street. There was merely a replication in the sense that all the fittings were necessary to make the suites of rooms habitable and useable in the way in which I had used the rooms in the old premises. The style and character of my practice remains the same.

The arrangement with the developer was that I would purchase for an all-up price the shell of the Strata units, and then included in the purchase price were these fit out expenses totalling $297887.

In the course of his oral testimony, Dr Howison expressed the opinion that the fitout of his two suites would not be suitable to other medical specialists, including other ear nose and throat specialists because it was tailored to his own very specialised practice. I accept Dr Howison's opinion, but it cannot be regarded as valuation evidence on the question of residual value of the fitout.

I should note that Dr Howison has the intention of continuing to practice until his planned retirement in 2010 (by which time the fitout costs will have been fully accounted for by way of depreciation allowances under income taxation law).

Mr Egan, who gave valuation evidence for the Applicant did not advance this aspect of the Applicant's claim to compensation, other than to merely adopt the fitout figure provided to Dr Howison by the Quantity Surveyors, and to assert its recoverability as an item of disturbance, incurred in the course of Dr Howison's relocation of his practice to the St George Private Medical Complex in consequence of the compulsory acquisition of the Applicant's premises at No 13 Belgrave Street.

On the other hand, considerable valuation evidence was adduced by the Council from Mr Wood and Mr Glitsos (the latter being an officer of the State Valuation Office) which seriously questioned the recoverability of this claimed item of disturbance.

As I understood their evidence, both Mr Wood and Mr Glitsos regarded the fitout, considered globally, as not being a recoverable claim of disturbance at all, because it formed part of the real estate acquired by the Applicant in order that Dr Howison, following the compulsory acquisition, might continue his long established medical practice in the locality and within the environs of St George Hospital.

This was the principal thrust of their evidence, although each was prepared to concede the possible recoverability, of some minor items of the fitout cost.

A further matter emphasised by them was that the fitout of the newly acquired premises gave the Applicant the distinct advantage of having a new fitout compared with the fitout at the compulsorily acquired premises, which though functional, was somewhat dated. Both valuers expressed the opinion that if any of the fitout costs were held to be recoverable as an item of disturbance, those costs should be discounted by 50 per cent in recognition of the "new for old" principle.

The Council argued that none of the fitout costs were recoverable items of disturbance loss because they formed part of the real estate which was purchased by the Applicant for $844800 as fitted out medical suites in consequence of Dr Howison's decision to relocate his practice in alternative premises in consequence of the compulsory acquisition of the Applicant's property.

A further significant basis for the Council's argument against allowing any recovery was that the Applicant had already received full compensation in respect of the agreed market value of $880000 in respect of the compulsorily acquired land and to uphold the disputed disturbance claim would be to over-compensate the Applicant. Particular reliance was placed upon the decision of Talbot J in Richardson v Roads and Traffic Authority of NSW (1996) 90LGERA 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 Council advanced some subsidiary arguments in the event of the Court not accepting its primary submissions that none of the disputed disturbance claims should be upheld, namely - (i.) The costs of the fitout had not been satisfactorily established. (ii.) If any of the disputed claim were upheld, it should be limited to those few items that Mr Wood or Mr Glitsos conceded as " possibly recoverable ". (iii.) If the Court were to allow any of the items within the concessions of Mr Wood, or Mr Glitsos, the amounts should be discounted by 50 per cent to recognise the superiority of the fitout of the newly acquired premises over the fitout in the compulsorily acquired premises formerly occupied by Dr Howison in his practice.

The Applicant's competing argument was that the claim should be granted because the need for the expenditure on the fitout was a direct consequence of Dr Howison's decision to relocate his practice in alternative premises in consequence of the compulsory acquisition of the Applicant's premises and that Dr Howison's decision was a reasonable decision to take in all of the circumstances and mitigated whatever greater loss may have been incurred as disturbance loss if the compulsory acquisition had had the effect of extinguishing Dr Howison's medical practice and business.

Particular reliance was placed upon the decision of the High Court in Minister of State for the Army v Parbury Henty & Co Pty Ltd (1945) 70CLR 459.

D. IS THE COST OF FITTING OUT THE NEW PREMISES RECOVERABLE AS DISTURBANCE LOSS?

As earlier mentioned, the Applicant's claim is founded entirely upon the following provisions of the Just Terms Act s 59(c) and (f):

"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 the acquisition.

These provisions are not to be construed in isolation, but are to be understood in the light of the Just Terms Act s 54 and s 55 which respectively stipulate (i) the entitlement to just compensation and (ii) the relevant matters to be considered in determining the amount of compensation.

Those sections are in the following terms:
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.
In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition; (b) any special value of the land to the person on the date of its acquisition; (c) any loss attributable to severance; (d) any loss attributable to disturbance; (e) solatium; (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.

In answering the present question, it is important to appreciate the context of the claim as part of an overall disturbance loss claim. That context includes: (i.) an agreed market value of $880000 of the compulsorily acquired land reflecting its existing use as an established medical practice; and (ii.) an agreed amount of recoverable disturbance losses in respect of such items as loss of business ($28000); purchase of soundproof room ($10000) removal and relocation costs ($7100); stamp duty and legal expenses on purchase of alternative property ($38000); reprinting stationery ($2400) interest on borrowed moneys to purchase alternative premises ($31000).

Understood in that context, I am of the opinion that the disputed disturbance claim is not recoverable for the following reasons: (i.) The Applicant is to receive full compensation in the sum of $880000 reflecting the market value of the compulsorily acquired land in its existing use as an established medical practice. That compensation includes compensation for the fitout as medical suites of the compulsorily acquired land. (ii.) To award further compensation for the cost of fitting out the newly acquired premises would involve an element of double recovery of compensation. Richardson at 303 cf. Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of NSW (1998) 101 LGERA 30 at 64 to 66. (iii.) In purchasing the alternative premises, the Applicant paid $844800 for those premises fitted out as medical suites. This transaction invokes the presumption that in paying that purchase price for those premises, the Applicant obtained value for money: Service Welding Ltd v Tyne and Wear County Council (1979) 38 P&CR 352. (iv.) Although that presumption is rebuttable, the evidence led by the Applicant has not rebutted it. (v.) Even assuming that compensation for the compulsory acquisition had been claimed by the Applicant on the reinstatement basis (which generally reflects the maximum amount of compensation recoverable for a compulsory acquisition) the cost of acquiring the fitted out new premises ($844800) was less than the agreed market value of the compulsorily acquired land $880000.

In elaboration of the foregoing reasons, I would refer to the following passage at 357 of the judgment of Bridge LJ in Service Welding where his Lordhip states:

Where the premises compulsorily acquired are occupied by the landowner for business purposes, the potential disturbance compensation is, of course, represented by the possible extinction of the business and a large sum that in that event would be payable to a business occupier for the loss of his goodwill. It is clear, however, that where, as here, a business occupier is in a position to find alternative accommodation in which to carry on his business and prevent its extinction, he is under a duty to mitigate his disturbance compensation by removing his business to the alternative accommodation. What the authorities (to which I need not refer in detail) very clearly establish, however, is that when an occupier, whether residential or business, does, in consequence of disturbance, rehouse himself in alternative accommodation, prima facie he is not entitled to recover, by way of compensation for disturbance or otherwise, any part of the purchase price that he pays for the alternative accommodation to which he removes, whether that accommodation is better or worse than, or equivalent to, the property from which he is being evicted. The reason for that is that there is a presumption in law - albeit a rebuttable presumption - that the purchase price paid for the new premises is something for which the claimant has received value for money.

In the same case, Templeman LJ, in rejecting the disturbance loss claim for bank interest charges payable in respect of the acquisition of the replacement factory premises, said that such changes " were not the costs of being disturbed from the old factory and getting into the new factory; they were the costs of acquiring the new factory ". In my opinion, that is an apt analysis of the cost of the fitout of the replacement premises claimed by the Applicant in the present case.

For the foregoing reasons, I would hold that the claimed fitout costs of the alternative premises acquired by the Applicant are not recoverable as "losses attributable to disturbance" within the meaning of the Just Terms Act s 59(c) or (f).

I also find that the amount of compensation agreed by the parties in the course of the hearing in respect of market value and disturbance loss, justly compensates the Applicant for the compulsory acquisition of its former premises within the meaning of the Just Terms Act s 54.

I reserve the question of costs and order the return of the exhibits.

The parties are directed to bring in short minutes within 21 days to give effect to (i) the agreements reached between the parties in the course of the hearing; and (ii) the determinations made in this judgment.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Land and Environment Court of New South Wales CITATION: Matcam Pty Limited V Kogarah Municipal Council [1999] NSWLEC 181

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