38"Mushroom compost" or "substrate" is the organic mixture of straw and other ingredients in which, when inoculated, the mushroom spawn acts as the growing medium in mushroom farming.
39Historically, mushroom growers made their own substrate, but the industry now sees advantages in the two operations being separated. The traditional composting phase is phase 1, to which has been added the pasteurising phase (phase 2), and the introduction of spawn to the mix (phase 3). Elf FS "has pioneered complete substrate processing and preparation on one site", so that much of the substrate is delivered from plant to farm in "finished" state, ready for mushroom growing. Mushrooms can be grown in fifteen days using phase 3 substrate.
40Mr Tolson has been a leader in the mushroom industry for many years, and was involved heavily in the development of the Australian Mushroom Growers Association, an organisation which consists of mushroom compost manufacturers and mushroom growers. The association aims to increase the consumption of mushrooms in the Australian community. Mr Tolson believes the industry has a great deal of room to expand, and takes an active role in the promotion of mushrooms as a food item. Demand was increasing at the rate of 10% pa until 1995 and has been increasing 7% pa since. The present consumption of mushrooms is about one mushroom per person per day, and the current volume of mushroom sales in Australia is 62,000 tonnes per annum, an increase from 50,000 in 2000. Mushrooms have to be grown in or near high population areas, because they are picked by hand and require many pickers. (Exhibit A16, par 25).
41Growth in the market for mushrooms involves growth in the opportunities for growing the business of making mushroom compost. However, the process of making compost is generally thought to be a highly undesirable industry due to the odour it generates. (The evidence demonstrates a good performance by the Tolson interests in the area of odour mitigation).
42Prior to the Mulgrave purchase in 1979, the Tolsons had conducted both a mushroom farm and a mushroom compost plant in Wallace Road Vineyard, from apparently 1967 (Exhibit R1, tab 43, fol 335), until Council decided to rezone that land for housing. Development consent ('DC') was granted 14 October 1980 to the Tolsons, trading as "Elf Mushrooms" (T20.6.11, p77), for mushroom compost to be manufactured on the Mulgrave site. Landfilling was required for those early stages of development (to 16m AHD).
43Since they began manufacturing compost on the Mulgrave land (in about 1981), the Tolsons have provided executive direction to the enterprise. Their Mulgrave plant is the only one in the Sydney metropolitan area and the nearest other substantial mushroom composting factory is at Singleton.
44A series of DCs for additions to the Mulgrave plant (see schedules in Exhibit A9, fols 7-8, 60-63, and 83) has seen Elf FS become the largest manufacturer, and the only bulk supplier, of mushroom substrate/compost in NSW, and the second largest in Australia. Elf FS presently supplies approximately 65% of the mushroom compost used by commercial mushroom growers in NSW. It employs 17 people, including Mr & Mrs Tolson themselves (Exhibit R1, tab 26). Mr Tolson estimates the business's expenditure on infrastructure to date at $25.5 M, and it has been the intention to progressively discontinue supplying phase 1 substrate, and then to offer only finished substrate (see Exhibit R1 tab 43, fol 335).
45By 2004 the Tolsons (Exhibit A16, par 14) were "using our licence and approvals to their limit of 1,000 tonnes of phase 1 (or equivalent 600 tonnes of phase 3) compost per week". Subject to the EPA licence, production at Mulgrave is controlled by two major consents (Exhibit A9, fols 63ff): consent 8/80 allowed for the traditional method "within an open shed building", and consent 218/90 allowed for the more modern method, i.e. production "within 21 tunnels in a climate controlled environment".
46During the 1990s the Council tolerated the failure of the enterprise to take full advantage of the 21 tunnels approved. As at 29 February 2000 only two had been constructed, and were in use. Council considered issuing orders to the Tolsons to "complete the development" (Exhibit A9, fol 66). There had also been complaints about odour, and Council requested the EPA, in August 1999 and March 2000 (Exhibit A11), to enforce the relevant conditions of consent. (There is mention in the materials of some enforcement proceedings, which were apparently resolved in 2004). By 2000, it had been determined that possible relocation of the plant to Blaxlands Ridge was not a feasible option.
47In July 2006, it was clear to the Tolsons that they would need more space adjacent to the existing filled area so that they could expand their operation. The new road was under construction at the time and they felt they could use the space available between the existing edge of the filled area and the new road, if supplemented by the area between the existing filled area and the northern boundary, to get enough space to meet anticipated need. An application was made for 5.5ha of landfilling on the subject lands, to 16m AHD, to augment previously filled areas. (Exhibit A9, fols 106-112: see also Exhibit R1, in which tab 44 contains the SEE, and tab 42, and Exhibit R8, tabs 1 and 2, which include plans). That filling was fully assessed by Council (Exhibit A9, fols 113-134, and the document added to Exhibit A9 after folio 146), approved on 22 November 2006 ('2006 consent' - Exhibit A9, fols 135-146), and then occurred. The RTA did not provide fill, and it would appear that the Tolsons were paid to receive it from elsewhere (T20.6.11, p79). In assessing the 2006 consent the Council stated the following (Exhibit A9 folio 118):
"The land situated adjacent the subject land is zoned for a mixture of land uses including Rural Living Mixed Agriculture, Industrial 4(b) and Special Uses 5(b) Railway. Surrounding land uses include agricultural activities, industrial development, sewerage treatment works and railway.
Given that the development situated on the subject land is classified as an identified land use and the nature of the proposed works it is considered that the proposed works are generally consistent with the stated objectives of the Rural Living zone."
48In 2007 the Tolsons applied for a "bagging and blocking" shed. This also was approved. "Blocks" are wrapped packages of substrate, and making them gives the Tolsons the ability to sell to other States, as well as to export overseas. In 2008 extra phase 2 and 3 tunnels were completed and most of the phase 1 substrate was then directed through the phase 2 and 3 processes, which allowed Tolsons to supply customers with phase 3 substrate. In 2009 a tractor shed was added to the application, and this was also approved.
49Mr Tolson pioneered the use of a "bio-scrubber" (T 20.6.11, p75). Licensed emissions from the Elf FS plant are discharged through a 40m chimney, but ground-level "fugitive" emissions are still possible. Despite locating the plant on the old dairy site, on high ground 200m off Mulgrave road, the main odour risk remains the residential areas some 500m to the west, on the other side of South Creek (T20.6.11, p78-9, and Exhibit A9, fol 82).
50From 1998 onwards, Tolson has been engaged in developing technologies to reduce the adverse impacts of compost making, earning an international reputation. Having been unsuccessful in relocating its operation, the group undertook a major upgrade of the Mulgrave works to world's best practice in 2003. He now employs expert staff from overseas, including from Belgium and Holland (T20.6.11, p79).
51Mr Tolson believes that it would now be virtually impossible to obtain planning permission to set up a new mushroom compost plant elsewhere in Sydney, or close to Sydney. He has made a number of unsuccessful attempts over the years to obtain approval for other mushroom composting industries. He says (at par 22 of his affidavit of 11 November 2010):
"The current site of the plant is especially suitable for the conduct of our particular operation as it is in closer proximity to the nearby industrial area and surrounded by the flood plan, thus providing a permanent buffer between the plant and any present or future housing development. Its situation facilitates compliance with odour level requirements for licensing purposes".
52In Exhibit A16 (at par 26) he listed the following 9 factors as being "of crucial importance" in respect of the present site, making it unique and not able to be duplicated anywhere else in NSW:
"1.We have a unique site. It is located in the floodplain and as such cannot have any houses built closer than at present.
2.We are have (sic) the legal right to use the land for industrial purposes, without conditions, which gives us the benefit of extended working hours ie 24/7.
3.There is a large power supply (the Mulgrave network is currently being upgraded) sufficient to allow us to expand the activities on site.
4.Natural gas is available and being used
5.The land is sewered.
6.A town water supply is available, which is critical in supporting our hygiene requirements
7.We have access to South Creek and a large water licence - large enough for our current expansion tonnages and well beyond
8.We have a bore which contains enough salt to give us the redox potential needed
9.Our largest customers are within a 20km radius which equates to enormous and ongoing transport savings"
53Some preparation for the future development of the Mulgrave site has, in the Tolsons' submission, been overtaken by construction of the WFER.
54Mr & Mrs Tolson have three sons, Robert, Kevin and David. All have grown up in the mushroom industry, and have acquired and conducted mushroom farming businesses (see ASIC searches at Exhibit R1, tabs 30-32). While Mr Tolson deposes that he does not have a direct financial interest in the individual businesses run by his sons, he admits to a great interest in ensuring the success of those businesses.
55Elf FS is the only compost supplier to the sons' businesses. It supplies all of the mushroom compost they use in the production of their mushrooms. They use up to 75% of the plant's current production capacity. Each farm is located within reasonable proximity to the compost plant, and transport costs are reasonable.
56Robert's operation at Glossodia uses approximately 76 tonnes of "phase 3 compost" per week and has planning approval to expand his operation to the extent that would require the use of 152 or perhaps 228 tonnes per week. Kevin's operation at Londonderry uses 114 tonnes of phase 3 compost per week and he also has planning approval to increase the size of his plant such that it would require 228 tonnes per week. David owns and operates "Elf Mushrooms" at Vineyard currently using 152 tonnes of phase 3 at full capacity. David's proposal for Northern Road Londonderry is the second component of the Part 3A application. If approved, his new mushroom farm at Londonderry will replace that at Vineyard (Exhibit A16, par 20). It will be constructed as a staged development over eight years, and will eventually require 600 tonnes of phase 3 compost per week.
57Future increases in demand for Tolson/Elf mushrooms should be capable of being met at least in part by growth in production of these businesses, and their proximity to Mulgrave will assist in keeping the costs low. However, Mr Tolson opines that, owing to the RTA acquisition, his compost operation will not have the capacity to serve the requirements of David's planned operation at Londonderry beyond 2018.
58The Tolsons are encouraging future customer enquires, but they are unable to supply sufficient product until they obtain approval for expansion. Their current approvals and licences restrict compost production at Mulgrave to 1000 tonnes per week while current potential capacity is 1600. Expansion will require additional storage shed space for straw, the principal raw material. The consequences of failing to expand "would almost certainly expose us to competition from other states and New Zealand" (Exhibit A16, par 25).
59With the road now in place, Mr Tolson suggests that he may have room at Mulgrave for some more phase 2 and 3 facilities, but additional phase 1 facilities will be "out of the question". He says (Exhibit A16, par 21) that "the road has effectively reduced the area of our property available for development by a substantial proportion - up to one third, if we regard the land severed from the main section as wholly potentially developable".
60The various Tolson enterprises operate in concert, and together employ up to 500 people in the Hawkesbury district (Exhibit A16, par 25). However, the family group's corporate structure is not entirely clear to the court.
61All of the mushrooms produced by all three sons' businesses are marketed by White Prince Mushrooms Pty Ltd ('White Prince'), a company of which Mr Tolson and the three sons are four of the five directors (ASIC search at Exhibit R1, tab 29).
62Some of the shares in White Prince are held by a company called R N and N R Tolsons Management Pty Ltd ('Management'), first registered on 14 June 1972. The Tolsons are directors and the only shareholders (Exhibit R1, tab 28). At one point Management was advanced as a possible third applicant in these proceedings, but that proposal did not proceed. Management was referred to in relevant correspondence as the head lessee of the lands (see Exhibit R8, tab 3).
63There is said to be a family-owned trucking operation run from the Mulgrave site, but it is not the subject of specific evidence.
64Mr & Mrs Tolson leased all their Mulgrave land to R N Tolson Holdings Pty Ltd ('Holdings' - see ASIC docs in Exhibit R1, tab 27), a company of which they are the sole directors and shareholders, for a term of five years from 1 July 2008 to 30 June 2013, with three, five year options to extend (Exhibit R1, tab 24). The rent is $12,500 per month plus GST ($150,000 pa). Holdings sub-leased to Elf FS for four years 11 months 28 days from 1 July 2008 to 26 June 2013 (Exhibit R1, tab 4, fol 10, and tab 25). The sublease also has three, five year options to extend. The rent under the sub-lease is specified at $900,000 pa by monthly instalments of $75,000 plus GST. Neither of the leases has a clause providing for the review of rent. Both the lease and sublease were signed on behalf of both landlord and tenant, by Mr Tolson as director and Mrs Tolson as secretary. Neither is registered. (Exhibit R1, tabs 24-25).
65The financial report package for Holdings for the year ended 30 June 2009 notes that Holdings was "formerly Elf Farm Supplies Pty Ltd ABN 92 000 999 324". The company return describes the main business activity as mushroom growing (see Exhibit R8, tab 7, but c.f. tabs 9 and 10).
66Both Mr Ayling SC (for the applicants) and Mr Maston (for the respondent) raised, in their opening addresses (on 2 May 2011), the possible complication of the valuation exercise by the lease arrangements.
67There was an early debate between Acting Commissioner Parker and Mr Ayling SC about setting aside the leases for valuation purposes (see T4.5.11, pp4-8), and Parker AC later returned to the leases with Mr Maston (at T4.5.11, pp11-14). The lease/sub-lease arrangement, and its importance to questions of compensation in this case, are central issues before the court, and I will return to them. (See [152]ff below).