Viva Energy Australia Pty Limited v Transport for New South Wales

Land and Environment Court (NSW)|2021-03-02|Before: Duggan J

Nature of proceedings

On 21 June 2019 (the Date of Acquisition), the Applicant, Viva Energy Australia Pty Ltd (Viva) held a leasehold interest in the land known as 131-133 Cobra Street, Dubbo (the Site).
By Acquisition Notice published in the Government Gazette on the Date of Acquisition, the Respondent compulsorily acquired part of the Site comprising an area of 15.3m2 (the Acquired Land).
Viva was offered compensation for the acquisition of its interest in the Acquired Land. Viva has commenced these Class 3 proceedings objecting the amount of compensation offered pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act). The amount of compensation offered was $44,154 for disturbance pursuant to s 55(d) of the Just Terms Act.
Viva's leasehold interest commenced on 8 August 2016, pursuant to registered dealing AK930767V with Ver Custodian Pty Ltd (VER) (formerly Shell Company of Australia Pty Ltd) dated 4 August 2016 (the Viva Lease).

Facts

Prior to acquisition, the Site comprised of Lot 12 in DP 229245 and Lot 21 in DP 228851 and had a total land area of 1,518.8m2. The Acquired Land formed part of Lot 12. The residue of Lot 12 became Lot 6 in DP 1213064 which together with Lot 21 comprises the Retained Land.

Alliance arrangements

In addition to the Viva Lease, Viva had entered into a suite of agreements with Eureka. The suite of agreements made provision for Viva and Eureka to form an alliance under which they came together to sell fuel and groceries in an integrated offering in respect of a large number of sites across the country. The suite of agreements set out the terms, benefits and obligations relating to such alliance and comprise the: 1. Alliance Agreement; 2. Alliance Commission Agency Deed (the Agency Agreement); 3. Alliance Project Agreements Framework and Amendment's Deed (the Framework Deed); and 4. Alliance Projects Agreements Amendment and Restatement Deed (the Restatement Deed); which will be collectively referred to as the Alliance Arrangements.
Pursuant to the Alliance Arrangements Viva supplied fuel to Eureka. Eureka acted as Viva's agent in the sale of the fuel.
The Alliance Arrangements were relied upon by Viva as an indication of the nature and type of arrangements that would be put in place by a hypothetical purchaser of the Viva Lease if sold at the Date of Acquisition, or alternatively, it relies upon such arrangements as an indication of the right, power or privilege over or in connection with the Site, that Viva has with the occupier of the Site, Eureka, to provide the integrated offering of a fuel station and convenience store.

Public Purpose

The Site is located on the south-eastern corner of the intersection of Cobra and Fitzroy Streets, Dubbo (the Intersection). The Intersection is 1.7km south-east of Dubbo City Centre. Cobra Street forms part of the Mitchell Highway and heading west it forms part of the route to Broken Hill. Fitzroy Street is a local arterial road connecting north and south Dubbo.
At the Date of Acquisition, the Intersection contained a roundabout. The configuration of the Intersection enabled relatively free access to and from the Site in all directions of travel. Specifically, vehicles could access the Site via four driveways, two on the Cobra Street frontage and two on Fitzroy Street: 1. The Cobra Street driveways permitted left turns in and out. Right turns were not possible due to the existing median on Cobra Street; 2. The north driveway on Fitzroy Street was also limited to left in/out by the existing median; and 3. The south driveway on Fitzroy Street allowed all movements.
The parties agreed the land was acquired for the purposes of the Roads Act 1993 for the construction, operation and maintenance of the Fitzroy and Cobra Street (Mitchell Highway) Intersection upgrade (the Public Purpose). The Public Purpose Works consist of both Intersection upgrade works and works that alter the pre-acquisition access to the Retained Land which facilitate the Intersection upgrade.
This reconfiguration of the Intersection is illustrated in Figure 1. Figure1: Land Acquisition Compensation Assessment: Lessee Interest Viva Energy Australia P/L, Mark Hopcraft, Opteon Property Group Pty Ltd dated 30 April 2019, folio 210.
The Intersection upgrade works comprised: 1. The signalisation of the Intersection with traffic lights; 2. The reconfiguration of traffic lanes within the road reserve; and 3. The provision of extended medians separating the flow of traffic.
The works that alter the configuration of the pre-acquisition access to the Retained Land include: 1. The removal of the western driveway on Cobra Street; 2. The widening of the eastern driveway on Cobra Street; and 3. The removal of both driveways on Fitzroy Street and replacement by a single widened driveway located between the two previously existing driveways. Exiting manoeuvres from this driveway would be restricted to left-turn only.
It was agreed that vehicles would no longer be able to: 1. Exit the Site by turning left onto Cobra Street via the western driveway; 2. Exit the Site by turning right onto Fitzroy Street via the southern driveway; and 3. Enter the Site by turning right from Fitzroy Street via the southern driveway.
The parties also agreed that the carrying out of the Public Purpose had caused and/or will cause: 1. A 35% reduction in the number of vehicles accessing the Site; 2. A 30% reduction in the volume of fuel sold at the Site; and 3. A reduction in the amount of revenue earned by Viva from fuel sales.

Highest and best use

It was agreed that for the purpose of the determination of compensation pursuant to the Just Terms Act, the current use of the land for the purpose of a fuel station and convenience store was the highest and best use of the land both prior to the acquisition and after such acquisition (the Service Station Use).

Basis of claim for compensation

Viva contends that it has a relevant interest in the Site in that, pursuant to the definition of interest in s 4 of the Just Terms Act, it has: 1. A legal interest in the Site by virtue of the Viva Lease; and/or 2. A right, power or privilege over, or in connection with the Site, by virtue of the commercial arrangement it has with Eureka to provide an integrated offering of convenience goods and fuel where the convenience goods are in the business realm of Eureka and the fuel is in the business realm of Viva.
As the owner of a relevant interest in the Site it is entitled to be paid compensation in accordance with the entitlement provided for in s 37 of the Just Terms Act.
In this case, Viva claims that the amount of such compensation includes an amount for the diminution in the value of its interest determined in accordance with the provisions of s 55(f) of the Just Terms Act which arises in circumstances of: (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.
It is asserted by Viva that s 55(f) is triggered in these circumstances as Viva retains an interest in the Retained Land, which relevantly adjoins the Acquired Land and as a consequence of the carrying out of the Public Purpose Works, the volume of traffic likely to access the Site is diminished with a consequential reduction in business income from the sale of fuel from the Site. Viva contends that the reduction in volume of fuel sale results in a reduction in value of its interest in the Site.
The parties have agreed that the before and after methodology for the determination of the s 55(f) claim is the appropriate valuation method.
The joint valuation evidence in the proceedings identified three scenarios in which Viva asserted diminution in the Viva interest could be quantified, these three scenarios were: 1. Where the Alliance Agreements do not "run with the land". A hypothetical s 56 purchaser of that interest would not be benefitted from or burdened by those agreements (Scenario 1); 2. Where the Alliance Agreements are assumed to "run with the land". A hypothetical s 56 purchaser of that interest would be benefitted and burdened by those agreements (Scenario 2); and 3. Where the Site is removed as an Alliance Site and the Alliance Agreements (including the Agency Agreement) no longer operate and the hypothetical purchaser enters into a new agreement and deed between Eureka and the hypothetical purchaser for the purchaser to supply fuel to the Site and for Eureka to sell fuel as the purchaser's agent. The agreements must be assumed to be on essentially the same terms as are enjoyed by Viva under the terms of the Alliance Agreements: (Scenario 3).
The common position of the land valuers, which was adopted by Viva, was that if a valuation of the diminution of value pursuant to s 55(f) on the assumptions in either Scenario 1 and/or Scenario 2 was undertaken the quantification of the diminution in value of the interest would be nil irrespective of the valuation methodology applied.
Therefore, Viva accepted that it would only be entitled to be compensated if the assumptions relating to Scenario 3 were established. If Viva did not establish the underlying assumptions as required by Scenario 3 then the appeal should be determined on the basis that there is no compensable loss pursuant to s 55(a) or (f) and there was only the claim relating to disturbance that remained (the quantum of which was agreed between the parties to be the sum of $45,309.85).

What is the nature and scope of Viva's interest?

The parties agreed that there was a fundamental threshold issue that required determination in order for Viva to succeed in relation to its claim under Scenario 3, namely, whether the claim for compensation based upon Scenario 3, seeks compensation for something which arises from a diminution in Viva's interest in the land or does such diminution relate to personal contractual arrangements unrelated to the interest in the Site.
For the reasons outlined below, the underlying assumptions required to sustain the claim under Scenario 3 have not been made out and as a consequence it is not necessary that the disputes relating to how the quantum of such a claim should be calculated need not be determined.

Viva Lease

The Lease commenced on 6 August 2016 with a 12 year term subject to 7 options to renew of 10 years each. Viva accepted that, having regard to the length of the Viva Lease term, it was appropriate to determine the claim on the assumption that any value of the Viva Lease would be occasioned only during the term of the Eureka Lease, which, it was agreed, should be taken to cease on 2 February 2029.
The nature of the Lease granted was set out in cl 2.1 in the following terms: 2 Grant of Lease 2.1 Grant of Lease The Landlord grants to the Tenant and the Tenant takes from the Landlord a lease of the Premises for the Term, on the terms set out in this Lease. 2.2 Concurrent Lease (a) The Landlord and the Tenant acknowledge and agree that: (i) this Lease is subject to and concurrent with the Existing leases, except in respect of the Excluded Obligation; (ii) the Landlord remains subject to and liable for the performance of the Excluded Obligation; (iii) the Tenant takes this Lease subject to the rights of Eureka under the Existing Lease to Eureka; and (iv) for the avoidance of doubt, nothing in this Lease affects any rights of quiet enjoyment granted under the terms of the Existing Lease to Eureka. (b) The Landlord and the Tenant acknowledge and agree that, by virtue of the concurrent nature of this lease and the terms of the Assumption Deed, during the Existing Term and during the term of any other Existing Lease which continues after the expiry of the Site Lease or Site Licence (as the case may be): (i) all rights and powers exercisable by or accruing to the Existing Landlord may be exercised by or accrue to the Tenant, including: (A) the right to receive rent and other monies payable to the Existing Landlord; and (B) the rights of an Existing Landlord to access the Premises; (ii) all obligations of an Existing Landlord (excluding the Excluded Obligation) must be performed by the Tenant; and (iii) to the extent that this Lease purports to: (A) permit or require the Landlord or the Tenant to take any action which, if such action were taken, would breach the obligations of the Existing Landlord under an Existing Lease; or (B) impose obligations on the Tenant which would restrict the Tenant from fully and effectively complying with the obligations of the Existing Landlord under an Existing Lease (excluding the Excluded Obligation), such rights and obligations shall not apply and the Tenant is not entitled to exercise such rights and is not obliged to comply with such obligations. (c) The Landlord acknowledges and agrees that during the term of each Existing Lease, the relevant Existing Tenant may fulfil some of the Tenant's obligations under this Lease. Despite this provision, the Tenant remains liable to the Landlord for all of its obligations under this Lease. (d) The Landlord acknowledges and agrees that if an Existing Tenant makes a payment under an Existing Lease to the Landlord, or performs another obligation under the Existing Lease in favour of the Landlord, rather than the Tenant, the Landlord must immediately: (i) pay the relevant payment to the Tenant; and/or (ii) otherwise transfer the benefit of the relevant obligation to the Tenant.
Rent was to be paid and the amount reviewed in accordance with the provisions of cls 3 and 4.
The permitted use of the Site (which was provided for in cl 6 read together with the defined term and the description at Schedule 2 item 11) was: Service station, convenience store and any other uses permitted by Law.
Viva was responsible for the repair and maintenance of the Site: cl 7.
It was a landlord's covenant that Viva had a right to quiet enjoyment of the Site subject to the requirements of cl 12 that provided: 12.1 Quiet enjoyment (a) While the Tenant pays the Rent and other money payable under this Lease, the Tenant is, subject to clause 12.1(b), entitled to peaceably possess and enjoy the Premises without any interruption or disturbance from the Landlord or any other person or persons lawfully claiming by, from or under the Landlord. (b) The parties acknowledge and agree that clause 12.1(a) is subject to and does not affect any rights of quiet enjoyment granted under the terms of the Existing Leases.
Viva was also entitled to assign, sublet and/or mortgage the Lease subject to the Landlord's prior consent: cl 13.
The relationship of the parties to the Lease provided at cl 27.12: 27.12 Relationship of parties The Landlord and Tenant expressly provide that: (a) the only relationship between the Landlord and Tenant is that of landlord and tenant; and (b) nothing in this Lease is intended to constitute a fiduciary relationship or an agency, partnership or trust; and (c) no party has authority to bind any other party.
Whilst both the terms "Alliance Agreement" and "Alliance Arrangement" were defined terms in the Viva Lease, Viva accepted that those terms were not used in any relevant sense in the Viva Lease to justify a submission that the terms of those agreements formed part of the Viva Lease in any relevantly material way.

Eureka Lease

Pursuant to cl 2.2 of the Viva Lease, Viva could act as the landlord in the Eureka Lease. Viva relied upon the definition of Business in the Eureka Lease which provided as follows: Business means: (a) for the purpose of Clause 29.9 and the definition of EBIT, the business of acting as Viva Energy's agent in the sale of Viva Energy Motor Fuels and Viva Energy LPG, and operating the Convenience Store Business at Alliance Sites, on the terms of the Project Agreements; and (b) otherwise, the business of acting as Viva Energy's agent in the sale of Viva Energy Motor Fuels and Viva Energy LPG, and operating associated convenience stores, and any other associated business permitted by law, but excludes any business activities conducted by a [Eureka] entity from a Competing Site.

Alliance Arrangements

Whilst the totality of the Alliance Arrangements were tendered, Viva identified the following provisions as those relevant to the determination of the proceedings: 1. The Alliance Agreements were between Viva and Eureka; 2. The Alliance Agreements identified certain nominated lands as Alliance Sites. The subject Site was an identified Alliance Site; 3. [REDACTED]; 4. [REDACTED]; 5. [REDACTED]; 6. Clause 4 of the Agency Agreement obliges Viva to supply fuel products and precludes Eureka from selling fuel products other than Viva products from the Alliance Site; 7. [REDACTED]; 8. [REDACTED].

Expert evidence

Evidence included a statement of agreed facts which related to the agreement as to the reduction in traffic volumes and fuel sales as a consequence, which agreed facts were used as the foundation for the expert valuation evidence.
Evidence was adduced from land valuers, Mr Lockwood for Viva and Mr Lunney for the Respondent. Mr Lunney and Mr Lockwood prepared a Joint Expert Report where, by agreement, they identified three available scenarios for the valuation of the claimed diminution in value as a consequence of the carrying out of the Public Purpose. Those three scenarios are outlined at [25] above.
Evidence was adduced from business valuers, Mr Lockwood for Viva and Dr Ferrier for the Respondent. Those experts agreed that Scenario 3 was the relevant valuation scenario to be considered by them as business valuers. They both agreed that on the assumptions inherent in Scenario 3 Viva's interest would give rise to quantifiable loss but they disagreed as to: 1. Whether the assumptions underlying Scenario 3 were appropriate - noting that it was beyond their expertise to determine this factor; 2. On the assumption that the underlying factors relating to Scenario 3 were established: 1. Whether the discounted cashflow method adopted by Mr Lockwood would be the basis on which the hypothetical market would value Viva's interest in the land; 2. Whether the hypothetical market would adopt a profit rent basis for the determination of the value of Viva's interest; and 3. What was the appropriate capitalisation rate to be applied in the calculation of compensation.

Viva's submissions

Viva submitted that it was necessary to start at first principles and determine what the subject matter of the hypothetical transaction comprised by reference to the test set out in Spencer v The Commonwealth (1907) 5 CLR 418 at 441 per Isaacs J where the relevant test was formulated as: To arrive at the value of the land at that date, we have, as I conceive, to suppose it is sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value …
Such a hypothetical transaction, it was submitted, is divorced from the real world but must include the real world consequences of such a hypothetical transaction. The operation of this proposition was identified in Valuer-General (NSW) v In Adam Pty Ltd (2012) 211 LGERA 75 at [25]: A court confronted with such a fiction has to determine its consequences. The relevant principles were considered by Lord Asquith in East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109 at 132-133. This was a valuation case where the statute provided that in certain events the compensation for a compulsory acquisition of war damaged property should be assessed as "if the whole of the damage had been made good". Lord Asquith said: If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. … The statute says you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
The hypothetical market includes persons that are participating, like Viva, in the provision of an integrated offering where one party provides the fuel and the other provides the convenience goods and operates the Service Station Use. As this integration is a feature of the participants in the hypothetical market the necessary incidental contractual arrangements that provide for the integration are a characteristic of the hypothetical market in which the hypothetical sale takes place. Therefore, the terms of these agreements that reflect the integrated businesses will inform the value of the interest in the land being sold in the hypothetical sale. In this case, it should be assumed that, rather than the hypothetical purchaser taking the interest subject to a personalised contract such as the Alliance Agreement, that some similar species of contract would be entered into between the hypothetical purchaser and Eureka for the sale of fuel on behalf of the concurrent leaseholder.
Viva's approach is consistent with there being no principle that contracts entered into by the dispossessed owner must be ignored in assessing compensation: not only are the Viva Lease and the Eureka Lease themselves a species of contract but contracts are often, in reality, taken into account: see for example: Collex Pty Ltd v Roads and Traffic Authority of NSW [2005] NSWLEC 601.
This approach is also endorsed by the provisions of the Just Terms Act that requires that the provision of compensation is to be "just" and justice cannot be afforded if a person would ordinarily be entitled to compensation but because a person has arranged their affairs in a certain contractual manner that they are deprived of compensation. In this case, Viva has an interest in the land by virtue of the Viva Lease and merely because the arrangement for the sale of fuel (which is an essential incident of the highest and best use) and it is merely the terms of that arrangement that are contained in the Agency Agreement rather than in the Viva Lease it is deprived of its otherwise entitlement to compensation.
In order to assume the transaction required by the Just Terms Act it cannot be assumed that Eureka and Viva will remain in their contractual relationship upon the hypothetical sale of the Viva Lease. It is an inevitable consequence of the hypothetical transfer of the Viva Lease that the Site is no longer part of the Alliance (being not owned or leased by Viva). Viva provided a schedule of provisions of the Alliance Arrangement that it contended produced such a consequence, being: 1. The Viva Lease is alienated by Viva to the hypothetical purchaser: cl 13 of the Viva Lease; 2. [REDACTED]; 3. [REDACTED].
On the operation of those terms there is no barrier to the incoming hypothetical purchaser from striking an appropriately comparable relationship with Eureka.
Viva's approach also reflects the interconnected nature of the Viva interest in the Site and the wider arrangement for fuel sales. This interconnectedness demonstrates that the contractual relationship is incidental to the Viva Lease and/or represents the rights, powers and privileges that Viva has to directly affect the use of the Site by Eureka such that the contractual relationship is an incident of Viva's interest in the Site. To demonstrate this interconnectedness Viva relies, principally, upon the following: 1. [REDACTED]; 2. Clause 2.2 of the Viva Lease shows the interconnectedness of the Viva Lease with the Eureka Lease.
The hypothetical assumptions that Spencer requires includes the inevitable consequences or accompanying incidents of the transaction also being hypothesised. Here that includes that the incoming purchaser benefits (as Viva does now) from Eureka selling its fuel. This assumption does not require the hypothetical transaction to be a conditional transaction, that is, a contract that is conditional upon Eureka and/or VER affecting a change to the Alliance Agreements or some other contractual provisions, but rather is the fulfillment of the natural incident of the transaction taking place in the hypothetical market for an integrated Service Station Use, which is agreed to be the highest and best use of the Site.
The existence of VER, the freehold owner, is no impediment to a hypothetical transaction. VER is not a party to the Alliance Agreements but in any event the consequence of the hypothetical sale is that the Site is no longer subject to the Alliance: see [49] above. For the hypothetical sale of the Viva interest to have occurred, VER must be assumed to have consented to the transfer of the Viva Lease to the extent required: see Viva Lease cl 13. The consent of VER is simply an incident that would have inevitably accompanied the hypothetical sale. While formally VER is the lessor under the Eureka Lease, the grant of the concurrent Viva Lease has the result that Viva, not VER, is a quasi lessor to Eureka (and thus, the hypothetical purchaser from Viva would also become the lessor to Eureka): Viva Lease cl 2.2. Part of the bundle of rights of the lessor under the Eureka Lease is the benefit of the fuel sales agency relationship.
In the alternative, the arrangement for the sale of Viva's fuel is a right, power or privilege over or in connection with the Site. That is, it is not that the Alliance Agreement is a right, power or privilege as described, but rather, there are certain features of the Alliance Arrangement, namely the fuel sales arrangement, which are not wholly within the lease terms of either the Viva Lease or the Eureka Lease but those Leases are not the full expression of the arrangements in connection with the land. These wider arrangements are for sites in relation to which the agent for the sale of fuel must be connected to the Site in that the arrangements require that agent to be the Lessee of the land upon which the fuel is to be supplied and sold.
If what is set out above is considered to involve the Alliance Agreements in a way that Spencer assumptions do not authorise, those benefits are also a compensable "interest in land", as a right, power or privilege in connection with land. In order to be compensable these need not be proprietary in character. They must, however, be more than merely personal and beyond that enjoyed by the general public. The critical nexus is the "connection" of the interest with the land. Those conditions are satisfied here. As the principal under the fuel agency relationship, Viva has both the right to undertake and the ability to control or direct the activity of selling its fuel from the Land.

Respondent's submissions

Comparison of the Viva Lease and the Eureka Lease reveals a different relationship between each and the Alliance Agreements. In the Viva Lease, reference to the Alliance Agreements is limited to ensuring transfer and call options are exercised in the manner contemplated by those contracts (see cls 21 and 19 and Schedules 1 and 10). The Viva Lease does not adopt terms defined in the Alliance Agreements, nor do the Alliance Agreements affect matters such as the start and end dates.
The Viva Lease is the extent of Viva's interest in land for the purposes of the Act. Its contractual right to profit from fuel sales via Eureka is not its compensable interest in land (Moss Capital Pty Ltd v Queanbeyan-Palerang Regional Council (No 2) (2017) 236 LGERA 223 at [44] per Robson J). That is a business opportunity that flows from the Alliance Agreements. The purchaser of the Viva Lease receives the right to receive rent from Eureka, and the right to occupy the Site once the Eureka Lease ends, nothing more. All arrangements related to the sale of Viva fuel by Eureka spring from the Alliance Arrangements not the Viva Lease.
Scenario 3 is based on an assumption that the hypothetical purchaser would be entitled to a contractual arrangement in the same terms as the Alliance Arrangement. That necessarily includes an assumption that the hypothetical purchaser would be acquiring not only the Viva Lease but Viva's rights vis-à-vis Eureka under the Viva Lease and Alliance Agreements: "Viva's interest plus the agreements that economic relationships that run with those" (Tcpt, 25 February 2021, p 56(40-41)). This assumption is invalid, and it demonstrates that Scenario 3 is a sale of something more than Viva's interest in land. It also goes beyond Viva's confirmation in opening that it relies only on the Viva Lease "for the purposes of determining the interest in land" (Tcpt, 25 February 2021, p5(34-37)).
The Alliance Agreements exist and are not to be ignored (Collex Pty Ltd v Roads and Traffic Authority of NSW [2005] NSWLEC 601 at [14]). But there is a difference between the notion of the hypothetical purchaser's knowledge on the one hand and, on the other, an assumed state of affairs in connection with sale that would involve a wholesale and speculative realignment of existing large-scale commercial contracts covering operations all over Australia and other interests in land (such as the Eureka Lease and its definition of "Business").
A hypothetical prudent purchaser would have regard to the course of dealings which had occurred between Viva, VER and Eureka to understand those parties' subsisting contractual obligations and as an indication as to what might be expected in the future. But this does not mean that the hypothetical purchaser of Viva's leasehold interest will simply "walk in" to the business operated by Viva in connection with the Site. The hypothetical purchaser's cognisance of those arrangements would be that the Site is burdened by the Eureka Lease which provides that Eureka enjoys quiet enjoyment and not engage in any other business than, inter alia, selling the fuel products of Viva. The hypothetical purchase would be unlikely to include any reduction in rent from VER (Tcpt, 25 February 2021, p54(46) - p55(12)).

Nature and scope of the legal interest in the Site

As is in the case in all claims for compensation, it is necessary to identify the nature and scope of the interest to which the claim for compensation relates. It is then necessary to identify the factors that the hypothetical market will take into account in determining the value to be ascribed to that defined interest.
In the circumstances of this case, that nature and scope of the Viva interest is represented by the Viva Lease. Viva's primary position is that in the hypothetical sale of the Viva Lease it must inevitably have flowed from or accompanied that sale that the hypothetical purchaser would enter into an arrangement similar to that as existed between Eureka and Viva for the continuation of the sale of the hypothetical purchaser's fuel by way of an agency arrangement with Eureka. In support of that proposition it relies upon the decision in Roads and Traffic Authority (NSW) v Collex Pty Ltd 165 LGERA 419, where, it was submitted that the principle is to be derived that not all contracts are to be ignored for the purposes of determining market value pursuant to the provisions of the Just Terms Act. Whilst it is true that not all contracts relating to a parcel of land are to be ignored in the determination of market value, the question to be considered in each particular case is the relationship between those contractual terms and the interest that is being sold in the hypothetical transaction.
In most cases, such as was the case in Collex, it is appropriate to have regard to the terms of a contract where the existence of such contract would be relevant to inform the hypothetical purchaser of all of the conditions relating to the land and in that context consider whether the existence of the contract would affect the determination of market value of the land. In Collex, for example, it was a condition of the contract which provided for the grant of a profit à prendre that upon sale of the land during the currency of the contract the purchaser would enter into a similar agreement. The particular circumstances of that case were that upon the sale, by operation of the terms of the deed, it would be a necessary incident of the sale that the incoming purchaser would be bound by the terms of the deed.
In this case Viva was unable to point to any provision of the Viva Lease or the Alliance Arrangements that would, per force of the sale of the Viva Lease, entitle the hypothetical purchaser to compel Eureka to enter into a similar form of fuel sale arrangement. On that basis, some other foundation must be found in order for Viva to succeed on the argument that the provision of a fuel sale arrangement would inevitably flow from the sale of the Viva Lease.
In order to identify the inevitable corollary of a fuel sale arrangement being entered into by the hypothetical purchaser Viva looks to the Alliance Arrangements to identify that: 1. the sale of the Viva Lease operates to release Eureka from the Alliance Arrangements; and 2. the interconnected arrangements between the contractual relationship evidenced by the Alliance Arrangements is an incident of the Viva Lease such that any incoming purchaser would, by acquisition of the Viva Lease, pay a price for the expectation that it will be able to enter into a similar arrangement with Eureka.
In this case it is necessary to have regard to what the Viva Lease to be acquired by the hypothetical purchaser entails. As was identified by Croft J in Eureka Operations Proprietary Limited v Viva Energy Australia Ltd [2015] VSC 648 at [46] - [47]: 46. Thus, the effect of the concurrent lease may be summarised for present purposes as follows: (a) A concurrent lease operates as an assignment of the reversion during the time the two terms run concurrently. (b) It may be defined as a lease of the reversion immediately expectant on an existing lease. (c) A concurrent lease interposes the concurrent lessee between the existing lessor and lessee, the concurrent lessee becoming the landlord of the existing lease, and there arises an immediate relationship of privity between the concurrent lessee and the existing lessee. (d) the concurrent lessee, as landlord of the original lessee, is entitled to rents arising from the existing lease and can enforce all covenants in the original lease capable of running with the tenancy. (e) the concurrent lessee is entitled to determine the existing lease so far as its terms permit and, significantly for present purposes, on termination of the existing lease the concurrent lessee is entitled to possession. 47. Finally, in considering the nature of the concurrent lease, attention needs to be focused on its nature as an assignment of the reversion and not a transaction with respect to the pre-existing lease…
The terms of the Viva Lease limit the rights of Viva to exclusive possession and the quiet enjoyment of the Site to ones that are subject to Eureka's interests of exclusive occupation and quiet enjoyment conferred to it by the Eureka Lease. In that regard, Eureka has the right to occupy, carry on the business of the Service Station Use as that use is described in the definition of "the Business", and as such it has the right to use (but has no interest in) the fuel supply infrastructure on the Site. These rights are held by Eureka to the exclusion of Viva.
The Viva Lease, whilst it grants rights to use the Site for a Service Station Use, it cannot, by the terms of the Viva Lease, exercise such entitlements whilst the Site is the subject of the Eureka Lease. The rights that accrue to Viva under the Viva Lease during the term of the Eureka Lease are limited, in essence, to those expressed in cl 2.2 of the Viva Lease such that it has the discretion to exercise all rights and powers exercisable by or accruing to VER and it must perform all of the obligations of VER (excluding the Excluded Obligations) under the Eureka Lease. Such provision does not create any new or other obligation or entitlement over and above that which is conferred upon VER in the Eureka Lease. Considering the terms of the Eureka Lease, apart from the definition of "the Business", there is no power or right that accrues to VER or by operation of cl 2.2 to Viva, that relates to the sale of fuel products.
The consequence of the sale of the Viva Lease, therefore, is that the hypothetical purchaser will acquire those powers and obligations. The sale of the Viva Lease does not effect a change to the terms of the Eureka Lease. Therefore, to the extent that it relates to the sale of fuel, the only advantage the hypothetical purchaser of the Viva Lease acquires is the right to ensure that Eureka undertakes the use permitted by the Eureka Lease. In this case, such use is to act as Viva's agent in the sale of Viva's fuels. There is no extant provision in the Viva Lease, or any requirement in the Eureka Lease, that upon sale of the Viva Lease that the authorised use of the land is required to be changed. That is, the requirement to sell Viva's fuel as agent persists notwithstanding the sale of the Viva Lease.
The requirement in the Eureka Lease for Eureka to carry on the Business as Viva's agent in the sale of fuels from the Site is a term that confines the manner in which Eureka can operate the Service Station Use from the Site pursuant to the Lease. The question arises, in this context, as to whether that limitation confers upon the landlord (VER or Viva) the right to direct the use of the Site in the sale of those fuel products such that the sale of fuel (and the value of such fuel sales) is an incident of the holding of the Viva Lease. The requirement to act as agent, whilst a limitation on the manner in which the Site may be used by Eureka, does not express the terms of the agency arrangement. All of the necessary mechanical provisions relating to fuel supply and sale together with the consequential payment to Viva is contained in the Agency Agreement. The Agency Agreement operates separately and independently of the Eureka Lease and there is no requirement in that Agency Agreement that Viva holds the Viva Lease. There is no incidental arrangement within the relevant Leases or the Agency Agreement that provides a necessary link or association to the Viva Lease. That is, the Agency Agreement subsists solely due to its terms, it is a commercial arrangement between the nominated parties independent and not reliant in any way on the Viva Lease. Whilst Eureka has to occupy the Site and use the fuel equipment to facilitate the sale of fuel, the provision of that fuel by Viva and the payment of money to it by Eureka upon the sale of fuel is not dependent, incidental or in any way controlled or influenced by the terms of the Viva Lease. This is an arrangement not comprised in the nature and scope of Viva's legal interest in the land as identified in the Viva Lease.
In addition, Viva was unable to identify in its submissions, any relevant provision of the Alliance Agreements that would have the consequence that the sale of the Viva Lease would have the inevitable corollary of the cessation of the fuel Agency Agreement.
[REDACTED].
Further, in order to release Eureka from its obligations under the Eureka Lease to sell Viva fuel as its agent, Eureka and VER (or potentially Viva depending on the nature and scope of its entitlement to act as landlord in this regard) are to amend the Eureka Lease to redefine that the permitted use for the Site to which the Eureka Lease relates.
Thereafter, in order for the hypothetical purchaser to be put in the same position as Viva as it relates to the sale of fuel on the Site the incoming purchaser would then need to negotiate with Eureka to enter into a new arrangement for either the supply of fuel and an agency arrangement for Eureka to sell such fuel from the Site.
Whilst, in a business context, such arrangements may be the anticipated outcome of any sale of the Viva Lease, they are not a necessary incident of such sale. The necessity for such arrangements to be put in place, which arrangements require the cooperation of a third party, namely Eureka, that would not be a party to the sale of the Viva Lease, indicates that the fuel arrangements are personal as between Eureka and Viva. Also, importantly, for the purposes of the determination of market value, it would be unlikely that a hypothetical purchaser would pay a purchase price for the Viva Lease on the basis that those arrangements were, in effect, already in place (or such a high degree of confidence that they would be put in place) such that the income Viva obtains through the agency arrangement would be considered to be a determiner of the market value of the acquisition of the interests under the Viva Lease.
Accordingly, the particular arrangements between Viva and Eureka do not demonstrate an interconnectedness such that it could be said that the agency arrangement for fuel sales is an inevitable corollary of the sale of the Viva Lease such that it would be a state of affairs that would have inevitably flowed from or accompanied the sale of the Viva Lease. Nor, would be such that the hypothetical purchaser of the Viva Lease would consider that by purchasing the Viva Lease it is acquiring a bundle of rights in relation to fuel sales.
The transaction in this hypothetical scenario is the assignment of the concurrent lease which comprises the Viva Lease. The primary contractual arrangement to which the Viva Lease is concurrent will remain in force. That is, what Viva is hypothetically selling is an entitlement to act as landlord in the Eureka Lease, which means, in effect, to collect the rent and to carry out the landlord's obligations. The Agency Agreement as provided for in the Eureka Lease will subsist notwithstanding the assignment of the Viva Lease and what the incoming tenant under the Viva Lease would obtain is the right to act as landlord in a lease where Eureka is carrying on a business defined by the Eureka Lease as an agency arrangement for Viva fuel sales.
Whilst it is necessary to assume that VER has consented to the assignment - as that is what the terms of the Viva Lease and the hypothetical sale envisage - there is no warrant in the Just Terms Act, and in the particular s 55, that requires the judicial valuer to assume that there will be a change to the Eureka Lease as that Lease is not part of the hypothetical transaction.
In this case Viva has and retains the property in the fuel. As Eureka is holding and selling that fuel as agent for Viva, Viva has the capacity through the terms of the Agency Agreement to dictate and control the supply and sale of the fuel. This control relates solely to the fuel and not the land upon which the Business is conducted.

Right, power or privilege

Viva has submitted that, if the sale of the Viva Lease does not have as a necessary incident that an agency agreement will be entered into by the hypothetical purchaser and Eureka, it has an interest in the Site as a right, power or privilege over or in connection with the Site. Whilst it is beyond argument, in the circumstances of this case, that Viva has an interest in the land by virtue of the Viva Lease, it does not necessarily follow that any ancillary right it has under the Alliance Arrangement is a right, power or privilege over or in connection with the Site. That matter must be determined having regard to the Alliance Arrangements.
The question of what comprises a right, power or privilege over in connection with the land was considered in the Court of Appeal per Beazley P in Dial A Dump Industries Pty Ltd v Roads and Maritime Services (2017) 221 LGERA 73. After considering a number of authorities her Honour observed at [156]: Accepting that, on the basis of the New South Wales authorities, and "interest in land" within the meaning of para (b) is not is confined as was found in Hornsby Council v Roads and Traffic Authority, including on the view of Mason P, the remaining two requirements in the legislation which are fundamental to the determination whether Dial A Dump had and "interest in land" than the meaning of para (b). The first requirement is that the power or privilege must be "over or in connection with the land". The second requirement is that there must be an "owner" of the power or privilege such as to be entitled to the compensation: see s 37.
The President then went on to observe at [157] that a power over or in connection with the land involved an ability to control or direct the use of the land and that a permission to use the land at [158] may be evidenced by permission to use the land but it would be dependent upon the terms of the particular permission. In conclusion her Honour observed at [159]: I am also of the opinion that for there to be a power or privilege within the meaning of para (b), that the power or privilege must be capable of alienation. Otherwise, the concept of ownership as part of the statutory scheme, especially in section 37, would be superfluous in so far as a power or privilege over or in connection with the land was concerned. Dial A Dump had nothing that it could sell or transfer. Its rights were, as I have stated, no greater than its obligation to conduct the two businesses on behalf of all ALF and Boiling so long as those entities permitted it to do so.
Considering the terms of the Agency Agreement, which is the contractual arrangement that Viva relies upon as evidencing its right, power or privilege over or in connection with the land, there is no provision in the Agency Agreement that provides for the sale or transfer of the rights conferred by it such that Viva was the owner of the rights and that the rights were alienable.
Further, the nature of the contractual relationship is personal rather than being over or in connection with the land. The Agency Agreement relates to the provision and supply of fuel to a large number of nominated sites across the country. To that extent the Agency Agreement persists, and the land is either one of the sites upon which fuel is supplied or not dependent upon its characterisation as an Alliance Site pursuant to the terms of the Alliance Agreement. The Agency Agreement controls the supply and sale of fuel from the Alliance Site. Viva's power and control relates to the provision and sale of fuel not the conduct or relationship with the Site. That is, Viva has a proprietary interest in the fuel which it retains upon delivery to Eureka for sale to the public, but that proprietary right is limited to the fuel and the rights, powers and privileges relate to the provision and sale of that fuel, not the Site.
Further, the Agency Agreement does not confer upon Viva a permission to occupy the Site. As observed above in connection with the Viva Lease any permission to occupy the Site under that Lease is limited by the rights of Eureka to occupy the Site and operate the fuel supply equipment. Therefore, on any reasonable basis, it could not be said that Viva has a permission to occupy the Site either pursuant to the Agency Agreement or the Viva Lease.
The fact that the business it supplies is being carried out on the land which has as its highest and best use the Service Station Use does not convert the control of fuel sales from a personal contractual relationship to one that comprises an exercise of a right, power or privilege over or in connection with the land. Eureka has the right to conduct the Business through the Eureka Lease from VER, Viva does not have the right to dictate how that Business is undertaken on that land. It may decide to decline to supply fuel and that may have a consequence on the range of goods sold in the Eureka business, but it has no effect on the use and occupation of the land by that business.
For all of those reasons, Viva has not established that by virtue of the Agency Agreement it has a right, power or privilege over or in connection with the land. Whilst the income generated by virtue of the Agency Agreement is because of something that occurs on the land, that is insufficient, of itself, to evidence an interest in land: see Moss Capital Pty Ltd v Queanbeyan-Palerang Regional Council (No 2) (2017) 236 LGERA 223.
For the reasons outlined above, the underlying assumptions that are required to be established in order for Scenario 3 to represent a compensable loss have not been made out. On that basis, it is determined that Viva has no entitlement pursuant to s 54 of the Just Terms Act for compensation determined pursuant to s 55(a) and s 55(f) of the Just Terms Act.

Disturbance claim

During the course of the hearing the parties agreed the quantum of Viva's disturbance claim in the amount of $45,309.85 as legal fees pursuant to s 59(1)(a) and valuation fees pursuant to s 59(1)(b) of the Just Terms Act. It is appropriate that a determination of compensation for disturbance in such amount should be made.

Conclusions and orders

Compensation under Part 3 Division 4 of the Land Acquisition (Just Terms Compensation) Act 1991, for the compulsory acquisition of the Applicant's interest in the land that comprised 15.3m2 of part of Lot 12 in DP 229245 at 131-133 Cobra Street, Dubbo is determined in the sum of $45,309.85.
The exhibits are returned.
I direct the parties to address me at 9am on 16 July 2021 as to whether any part or parts of these reasons should remain restricted from publication having regard to the confidentiality orders made on 25 and 26 February 2021.
I direct the parties to make any application in respect to costs at the mention of the matter at 9am on 16 July 2021.

Orders - 16 July 2021

The Court orders that: 1. The following paragraphs of the judgment are restricted from publication in accordance with the confidentiality orders made on 25 and 26 February 2021: 1. Paragraph [40] each of subparagraphs (3), (4), (5), (7) and (8) in their entirety; 2. Paragraph [49] each of subparagraphs (2) and (3) in their entirety; 3. Paragraph [51] subparagraph (1) in its entirety; and 4. Paragraph [72] in its entirety. 1. The Respondent is to pay the Applicant's costs as agreed or assessed.

Amendments 16 July 2021 - 16 July 2021 - Published as Restricted - Lifted. Final orders entered - [94]. Following paragraphs redacted - 40, (4), (5), (7) and (8); 49 and (3); 51; and [72]. 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. Decision last updated: 16 July 2021

(2017) 236 LGERA 223

At a glance

Court

Decision date

Before

Source

Judgment (19 paragraphs)

Parties

Cases Cited (6)