Williamstown Bay & River Cruises Pty Ltd v Secretary Department of Infrastructure (Land Valuation) [2010] VCAT 415

1. The amount of compensation payable by the Respondent to the Applicant arising from the compulsory acquisition of part of the land at Tenancy 2, Shed 9 South Wharf Ferry Terminal, South Wharf Road, Southbank is assessed at $1,079,423, made up as follows:

1. Extinction of Business $ 871,400
2. Trading loss 19 April 2007

1. Interest is payable on any unpaid amounts in Order 1 in accordance with sections 53(1) and 56 of the Land Acquisition and Compensation Act 1986, such interest to be agreed between the parties or, failing agreement, to be determined by the Tribunal.
2. Costs reserved.
3. Any application for costs or a determination of interest is to be made in writing (including supporting submissions) and filed with the Tribunal and served on the other party within 60 days of the date of this Order.

Mr Paul Chiappi, Barrister instructed by Alan Sheppet & Associates, Lawyers.

Mr Chiappi called the following witnesses to give expert evidence:

• Mr Mark Davy, sole director, company secretary & shareholder of Williamstown Bay & River Cruises Pty Ltd
• Mr Brian Dudakov, Valuer, Urbis Valuations Pty ltd
• Mr Mark Lipson, Accountant, Southertons
• Mr Alan Sheppet, solicitor, Alan Sheppet & Associates

Mr Michael Pearce SC with Mr Matthew Townsend, Barristers instructed by Corrs Chambers Westgarth, Solicitors.

Messrs Pearce SC and Townsend called the following expert witness to give evidence:

• Mr Richard Bowman, Valuer, Ernst & Young Transaction Advisory Services Ltd

The Tribunal called Mr Matt Gaffney, Valuer, Ernst & Young Transaction Services Ltd to provide assistance in lieu of Mr Gaffney being called by Messrs Pearce SC and Townsend

1. The Claimant, Williamstown Bay & River Cruises Pty Ltd ('WBRC') seeks compensation from the Acquiring Authority, The Secretary to the Department of Infrastructure ('Authority') for losses arising from the compulsory acquisition of its sublease interest comprising Part Shed 9 at South Wharf and the consequent loss of its mooring rights on the Yarra River.
2. WBRC's sublease interest in Shed 9, within Crown Allotment 77R, in the Parish of Melbourne South, was acquired for the reason that:

The Premises are required for a public purpose including to facilitate the construction and development of the Melbourne Convention Centre Development Project.

1. A Notice of Intention to Acquire was served on WBRC on 19 October 2006 and the Notice of Acquisition was published on 19 April 2007, this being the relevant date for valuation purposes.
2. WBRC operated ferry boat, charter and water taxi/shuttle services along the Yarra River, and to Docklands, Williamstown and St Kilda, although the service to the latter destination had ceased prior to the acquisition.
3. The ferry service was started in 1984 with one boat by the sole director and shareholder of WBRC, Mr Robert Mark Davy ('Davy').
4. In 1990 the then new company, WBRC took over the operation and at that time it operated from moorings at the Spencer Street end of South Wharf. The operations grew to employ up to 12 boats and 150 mostly part-time staff. With the maturing of Docklands and other development, WBRC expected to introduce new services and achieve substantial future business growth.
5. WBRC moved to the South Wharf premises in 1998 after entering into the sub-lease, which is the subject of the acquisition, over an area of approximately 208 square metres in Shed 9. The premises provided accommodation for offices, reception, passenger waiting and crew areas, equipment storage and workshop facilities. Also, six car spaces were included in the lease.
6. With options the sublease extended to 31 July 2017. The Head Lessee, Schwartz Hart Pty Ltd, had leased South Wharf and Sheds 7, 8 and 9 subject to the obligations to demolish and reconstruct the wharf and progressively refurbish the sheds, starting with Shed 9.
7. WBRC also entered into a sub-licence with Schwartz Hart for two moorings, one high (approximately 80 metres long) and one low level (approximately 34 metres) for an initial term of three years and optional further terms of four, seven and seven years. The Claimant could moor up to ten boats at South Wharf. When the licence was to be renewed for a further term from 1 August 2003, the Head Licensor, Parks Victoria, advised Schwartz Hart that it had discovered it had exceeded its statutory powers when entering into the original agreement and could only enter into a new lease for a term, whether fixed or including options, that did not exceed ten years. No new agreement had been finalised at the date of acquisition and whether the WBRC had lost its mooring rights irrespective of the acquisition is an important point of difference between the parties and is discussed in detail when considering the legal principles.
8. The central issue in the proceedings is whether WBRC could reasonably relocate to other moorings on the Yarra River and procure premises to replace those in Shed 9, which together would adequately replace the facilities lost and allow the business to continue as before. WBRC and its advisers have formed the view that no adequate facilities were available to replace those lost as a result of the acquisition and the business has been extinguished. The Authority contends, and instructed its valuers that alternative premises could have been procured.
9. WBRC has continued to operate on a substantially reduced scale (four boats) and incurred mounting losses. After investigating the options for replacement facilities, WBRC leased a single mooring and an 18.5 square metre office area at Federation Square but contends that this has major deficiencies and that no appropriate and viable moorings and service premises are available on the Yarra River or within Docklands. Accordingly, the WBRC claim is based on total extinguishment of the business.
10. Reflecting the different positions, WBRC claims $3,620,973 of which the dominant portions are value of business at $2,810,000 and subsequent trading losses incurred, when attempting to continue and mitigate its loss, of $471,390, whereas the Authority's offer is $60,000, including business disturbance of $34,687.
11. Considerable uncertainty and dispute arose because WBRC's operations, management and finances were intermingled with those of Davy, its sole director and shareholder, as well as Davy's family trust. The family trust owned eight of the boats and Davy owned the other four in a personal capacity and all were made available to WBRC under a verbal arrangement which was initially described as a lease and later as an informal arrangement. Davy also acted as guarantor under leases, the family trust made distributions to WBRC and rentals paid or stated as being paid in the accounts were not varied to reflect the value of boats being retired or added to the fleet. The rentals appear to have had no proper commercial basis.

1. WBRC subleased the whole of tenancy 2 at South Wharf Ferry Terminal, being part of Shed 9 with an area of approximately 208 square metres, together with six adjacent car spaces from the head lessee, Schwartz Hart Pty Ltd under a sublease dated 7 April 1997. Both the initial term and the first optional further term, which together extended to 31 July 2003, had expired. WBRC had taken up the first of another two optional further terms, each of seven years, commencing on 1 August 2003. Although the new deed had not been signed it was common ground between WBRC and the Authority that the new seven year sublease was in effect.
2. The rent was to be reviewed annually in accordance with the CPI index and to the current annual open market rental value on 1 March 2000, and then at 3.5 year intervals thereafter. Hence, a review to the then current market rental was due on 1 March 2007 or just over six weeks prior to the date of acquisition, 19 April 2007.
3. Clause 10(c) of the sublease provided that:

Subject to clause 9(c) this sub-lease will terminate immediately if the Head Lease is terminated for any reason without liability or claim on the Lessee and without compensation payable to the Sub-Lessee.

1. It is not necessary to note or consider the provisions of Clause 9(c).
2. The land leased to Schwartz Hart, being part of Crown Allotment 77R, Parish of Melbourne South and including the WBRC premises, was designated as Crown land reserved as a site for public purposes (wharf and associated tourist facilities).
3. Clause 3.7 of the head lease provided that:
   • (a) In the event of the demised premises or any part thereof ... ... ... is required for any public purpose (other than mining), it shall be lawful ... ... ... to resume possession thereof ... ... ...
   • (b) However the Lessee shall be entitled to receive ... ... ... compensation for the value of the interest ... ... ...
4. In response to a Tribunal order (24 September 2008) that either party notify the Tribunal and the other party of any preliminary or threshold legal issue upon which that party intended to rely at the hearing, the Authority gave notice that the resumption provisions of clause 3.7 of the lease together with clause 10(c) of the sublease had the effect that as a consequence of the Notice of Resumption served on South Wharf on 17 July 2006, both the lease and sub-lease were terminated on that date and WBRC remained in possession of the land only as a tenant of sufferance.
5. Mr Chiappi submitted on behalf of WBRC that it was accepted that clause 3.7 of the head lease allowed resumption and while this and other provisions of the head lease were elements within the terms of the tenancy, that a valuer would assess in determining market value of the subtenant's interest, where the resumption is a step in the process of the compulsory acquisition of land under the Act, its effect is to be disregarded. Further, he submitted that by 4.1 of the deed of 23 February 2007, between the Authority and WBRC, the Authority agreed that 'the Interest constitutes an interest (as that expression is defined in s.3 of the Act) for the purposes of the Act'. It was noted that the 'Interest' is defined as the interest of the subtenant in the premises.
6. In the event, Mr Pearce did not pursue the issue on behalf of the Authority and when the matter was raised by Mr Chiappi, it was confirmed that the issue was put to one side to the extent that its relevance should be reflected in the valuer's discount rate.
7. We are of the opinion that it did not follow that the resumption of the South Wharf interest in the head lease, in itself, automatically terminated the sublease. On resumption, the Authority 'stepped into the shoes' of the head lessee and could terminate the sublessee's interest only in the event of default or breach of covenant. But the issue was put aside and WBRC's interest and right to compensation were accepted by the Authority.

1. WBRC entered into a sub-licence agreement with Schwartz Hart Pty Ltd on the same date as the sublease over two boat moorings at South Wharf and described as:

One boat mooring on the high level wharf known as mooring number 6 (approximately 80 metres) and one mooring on the low level wharf known as mooring number 2 (approximately 34 metres).

1. The plan attached to the licence showed the licensed areas as shaded and annotated 'Mark Davy'. The sub-licence commenced on the same date as the sublease, 15 December 1997, and the initial and first optional further terms ran until 31 July 2003. The sub-licence provided for two further terms, each of seven years.
2. Clause 22 provided that in the event that the head licence is terminated for any reason the sub-licence will terminate immediately without compensation or right of action.
3. When the head and sub-licences were to be renewed on 1 August 2003 a confused situation arose and it is a major point of dispute between the parties as to whether the licences had expired and the mooring rights lost prior to resumption. The Authority submitted that there was no subsisting sub-licence because the head licence had not been renewed.
4. Schwartz Hart, by this time known as South Wharf Pty Ltd, exercised its option for a further term of seven years but on 10 February 2004, Parks Victoria, formerly Melbourne Parks and Waterways, wrote to South Wharf advising that while the licence referred to two future terms of seven years each, under section 135A of the Water Industry Act 1994, the maximum period for which Parks Victoria could grant a licence is ten years. As a consequence South Wharf was offered a new ten year licence or, if it preferred, a seven year licence. South Wharf accepted a seven year licence which was the basis of the original agreement, and asserted its rights to the balance of what was intended to be a total 21 year term.
5. On 13 April 2004 Parks Victoria sent a 'final draft' of a new seven year licence under a draft of a covering letter that would accompany the final agreement stating:

I acknowledge that the current licence does not exactly follow the original licence due to a legal issue that prevents Parks Victoria exactly fulfilling the original intent of the licence. Parks Victoria will take into consideration all the circumstances surrounding the history of this agreement when the future of the facility is considered at the end of the new seven-year licence.

1. The apparent intention was to base future negotiations on the original agreement. Later correspondence between South Wharf and Parks Victoria and submitted by WBRC indicates that:
   1. it was agreed to increase the head licence fee from $2,000 to $10,000 per annum;
   2. the new licence executed by Parks Victoria and forwarded to South Wharf on 31 December 2004 was for a term of seven years with no option but in a form and containing terms that South Wharf considered were different from the original licence;
   3. South Wharf would not sign the documents because it had not agreed to the new form of licence, as required, and also due to the new development proposals for the area south of the Yarra River controlled by Melbourne Exhibition and Convention Centre;
   4. Parks Victoria claimed that South Wharf was in breach and threatened to exercise its rights under the licence;
   5. following strong representations from South Wharf, Parks Victoria advised on 14 February 2005 that it would seek advice and respond but no response was received;
   6. South Wharf continued in occupation and paid the annual fee.
2. The Authority submitted that the head licence was not renewed and therefore the sub-licence, which was dependent upon it, had also expired and that at best both the head licensee and sub-licensee were holding over as monthly tenants. On the basis of the Holding Over provisions of Clause 5 of the head licence, which provide that if the licensee continues to use the moorings after the expiry date, or the date the licence ends it does so on a monthly basis and in any event, not exceeding three months, the Authority submitted the head licence expired on 31 October 2003.
3. We are unable to reach a similar conclusion on this or the contention that the head licensee was at best holding over on a monthly basis. No witness from Parks Victoria was called to support the Authority's interpretation of events. Parks Victoria executed a head licence at the end of 2004 and sent it to South Wharf for execution. In a Parks Victoria letter of 10 February 2005 to South Wharf, Michael Wyatt, Senior Commercial Operations Officer, stated:

"In these circumstances, I propose to advise my manager that I believe South Wharf Pty Ltd is in breach of Clause 4.2 of the Licence which requires that 'MPW and all other parties, if necessary, will at the cost and charge (inclusive of stamp duty) of the Licensee execute a new licence for the further period ......'

If the signed documents are not received by close of business on Friday 18 February 2005, I will recommend that Parks Victoria should exercise its rights under clauses 32, 34 and 35 of the licence".

"32 If the Licensee breaches the Licence, MPW must give the Licensee a notice (this may be a demand for fees) requiring the Licensee to remedy the breach within fourteen days.

What MPW may do if the Licensee Breaches the Licence

1. If the Licensee breaches the Licence and does not remedy it as required, MPW may do any one or more of the following:

34.3 recover from the Licensee or the Guarantor any loss MPW suffers due to the Licensee's breach; or

1. Under Clause 35 the licence may be terminated if the licensee stops payment of its debts, is insolvent, under administration or control being wound up or in distress - none of which appear to have been the case.
2. Only part of Clause 4.2 was quoted by Mr Wyatt and the remaining portions are relevant. The Clause provides:

4.2 The Licensee may renew the Licence at least three calendar months before to the end of each term by written notice to MPW. If, in the meantime, the Licensee has punctually paid the Fee and duly performed and observed the Licence, then MPW and all other parties, if necessary, will at the cost and charge (inclusive of stamp duty) of the Licensee execute a new Licence for the further period, or periods (as the case may be) at a fee to be agreed upon and, failing agreement at a fair and reasonable fee to be determined as a market fee review as set out in clause 45, but the fee will not be less than the Fee at the expiration of the previous term reviewed as a CPI Fee variation, as set out in clause 44. The Fee under the new Licence will be payable and will be subject to review in the same manner as is provided by this Licence. The new Licence will otherwise be on the same terms as this Licence (minus the option period then renewed.

1. The Parks Victoria letter identifies the only breach as being that of South Wharf's failure to sign the document. There was no mention of any failure to agree the fee and the language strongly suggests that the licence was continuing. No actions to exclude boats from the moorings or terminate the licence were taken and South Wharf continued in occupation.
2. It is reasonable to conclude that in early 2005 South Wharf was in occupation under the head licence and was not holding over.
3. But, while there appeared to be no issue with the fee or term in 2005, a more recent internal email, submitted by the Authority, indicates some uncertainty. The email from Jeanene Simmons, Senior Commercial Business Officer Parks Victoria to Mr Graeme Holdsworth on 28 March 2007 states -

I am writing to advise that Parks Victoria has recently been contacted by Alan Sheppet who is acting on behalf of Williamstown Bay and River Cruises Pty Ltd.

I have been asked to clarify the nature of Parks Victoria's dealings with Roger Hart of South Wharf Pty Ltd with respect to the licence agreement over the mooring area at South Wharf. As you are aware Parks Victoria made a renewal offer to Roger in 2004. The Deed of Renewal was drafted and executed by Parks Victoria but due to a number of issues associated with the proposed rental, further term and the format of the document, it was never executed by Roger nor returned to Parks Victoria.

Roger claimed with some justification that he was entitled to 2 further terms of 7 years each and not just the single 7 year term set out in the Deed of Renewal. This was one reason why the Deed was not executed and returned by him.

1. While this email appears inconsistent with 10 February 2005 letter from Wyatt to South Wharf and also the response of 14 February 2005 from South Wharf to Wyatt, there is still no suggestion that the offer of the new licence had, at any stage, been withdrawn. Also, Mr Bowman's report appears to confirm this when he states -

"In summary it is the opinion of Parks Victoria that the Licence Agreement with South Wharf Pty Ltd has not been formally renewed and that Parks Victoria will now not be considering a renewal given the sheds have been resumed. Confirmation of this advice can be gained by contacting Jeanene Simmons on 9881 6705".

1. As to the sub licence, for a time there was a dispute as to whether WBRC had validly exercised its option for a new sub licence and, if so, the term of it in view of the fact that Parks Victoria had discovered that it could not grant a head licence for greater than a 10 year term.
2. A Without Prejudice letter dated 3 June 2004 from South Wharf to WBRC, explaining the issues with the term of the licence and attaching related correspondence from Parks Victoria, posed the question to WBRC -

"If you were offered a new licence under their suggested conditions, ie. a 7 year licence with a possibility, but no guarantee of a further 7 years would you accept it?"

1. WBRC's Without Prejudice response dated 28 June 2004 states:

"As you know we say we exercised our lease and licence options validly a long time ago. You dispute the exercise of the licence option."

1. Eventually, South Wharf submitted documents to WBRC on 14 July 2006 for a new seven year sub licence from 1 August 2003 and this was executed by both parties, notwithstanding that the Head Licence had not been executed.
2. The document is undated.
3. It would seem that the swift action anticipated the acquisition process, commencing with a notice of resumption served on South Wharf on 17 July 2006.
4. We accept Mr Chiappi's submission that the licences were still in place at the date of resumption, albeit that the head licence had not been executed and there was a risk that this would not occur.

1. WBRC claimed compensation under s.41 of the Land Acquisition and Compensation Act 1986 (the Act), the particular heads of claim being:

s.41 (1) (a) the market value of its interest in the land.

(b) special value to it of its interest in the land.

(f) legal valuation and other professional expenses.

Solatium was also claimed under s.44.

1. Market value and special value were claimed together as a single amount of $145,000. The Act defines market value as -

Market value in relation to any interest in land on a particular date means the amount of money that would have been paid for that interest if it had been sold on that date by a willing, but not anxious seller to a willing, but not anxious purchaser.

1. The claimant's interest in the land is a leasehold one. Its market value is the capitalised amount of any profit rental, this being the difference between the annual market rental value of the land and the annual rental payable under the lease, over the remainder of the lease term.
2. The Valuers, Mr Dudakov for WBRC and Mr Bowman for the Authority assessed the market rental at the same rate of $250 per m² pa. There was a slight difference in the totals because whereas Mr Dudakov adopted the area of 208m² as stated in the lease, Mr Bowman adopted an area of 204.2m² taken from a survey plan. We consider that Mr Dudakov was correct in adopting the area stated in the lease.
3. The rent, under the sub-lease was to be reviewed to current annual market rental value at 3.5 year intervals and so a review came due on 1 February 2007 or about 2.5 months prior to the acquisition. The Valuers agreed that there was no profit rental at the date of acquisition and so the market value of WBRC's interest in the land was nil. Notwithstanding, on the basis of a discounted cash flow prepared by Mr Bowman the Authority offered $14,211.
4. Special Value is defined in the Act as -

Special value, in relation to an interest in land, means the value of any pecuniary advantage, in addition to market value, to a claimant which is incidental to his ownership or occupation of that land.

1. Mr Dudakov formed the view that the sub-lessee's business relied on the unique location of the premises and their special attributes would command a premium rent, being the additional amount a prudent lessee would pay over and above market value in order to procure or avoid losing the property. The premium rent was assessed at $104,000 and after deducting the market rent of $52,000 and licence fee of $27,793 a special advantage of $24,207 per annum was derived. This was capitalised at 12% for an assumed remainder of 10 years to give a capital amount for special value of $145,000.
2. The Authority made no allowance for special value.
3. Mr Chiappi, for WBRC, submitted that Mr Dudakov's assessment was preferred, but in the alternative the claim was an element of disturbance. Mr Pearce, for the Authority, submitted that even if Mr Dudakov's instructions and assumptions as to the particular attributes and suitability of the site were correct, that did not establish special value to the Claimant where another purchaser could readily avail itself of the site's special characteristics. We were referred to authorities for this proposition:

In McDonald's Australia Limited v Transport Infrastructure Development Corporation [2006] NSWLEC 796 Justice Pain held:

TIDC argued that a claim for special value is only maintainable where there is some special advantage that no other purchaser of the land could avail itself of relying on Arkaba Holdings Ltd v Commissioner of Highways (1968-1970) 19 LGRA 398 and Boland v Yates Property Corporation Pty Ltd & Anor (1999) I67 ALR 575 at [80]-[81]. In Arkaba Holdings, Bray CJ stated at 404 that special value is:

.... the value to the owner which must be paid, even if that value exceeds the market value ... But this special value must in my view arise from some attribute of the land, some use made or to be made of it or advantage derived or to be derived from it, which is peculiar to the claimant and would not exist in the case of the abstract hypothetical purchaser.

In Boland v Yates, Callinan J, in obiter, stated at [292] that:

The specia1 value of land is its value to the owner over and above its market value. It arises in circumstances in which there is a conjunction of some special factor relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it.... There will in practice be few cases in which a property does have a special value for a particular owner. Obviously, neither sentiment nor a long attachment to it will suffice. The special quality must be a quality that has an economic significance to the owner...

1. We adopt the Authority's position and find that there is no special value in this case, because the probable hypothetical purchaser of the WBRC interest in the land would be another ferry operator and the site's attributes would be reflected in the market value of the business.
2. The negligible or nil market value and special value having no application, any substantive loss arising from the acquisition falls under the heading of disturbance.
3. Section 40 of the Land Compensation and Acquisition Act 1986 provides:

loss attributable to disturbance means any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of:

(a) ...............

(b) The fact that an interest of the claimant in that land has been divested or diminished, being a pecuniary loss for which provision is not otherwise made in this part.

1. WBRC claims disturbance by way of total extinguishment of the business. The valuation of the business and the impact of the acquisition on it are considered in the sections that follow.

1. The Notice of Intention to Acquire the WBRC interest states that the land is reserved for a public purpose under the Melbourne Planning Scheme, and:

The Secretary to the Department of Infrastructure thinks that the land is suitable for development for public purposes to facilitate the construction and development of the Melbourne Convention Centre Development Project, which is a nominated project for the purposes of the Project Development and Construction Management Act 1994.

1. The Authority placed particular emphasis on the word facilitate and its instructions to its valuer, Mr Bowman were:

The impact of the Melbourne MCCD in the immediate vicinity of South Wharf be reflected in our assessment. Further, Section 43(1) (a) of the Act is not relevant because the state of purpose of the compulsory acquisition (as referred to in the Notice of Intention to Acquire) was to "facilitate" the construction and development of the Convention Centre and was not to actually construct the Centre on the site currently occupied by the sheds.

1. In drawing the distinction between the purpose of the acquisition being to facilitate the development and not the development itself, in which circumstances s.43 (1) (a) becomes irrelevant and the construction, development and existence of the Convention Centre are to be taken into account, the Authority was then able to submit that the Centre negatively impacted on the WBRC business in two major ways. First, the large car parking area that had been available adjacent to the South Wharf for ferry patrons was lost and second, the combined effect of the Convention Centre and reservation of South Wharf for public purposes heightened the risk of future acquisition. The result was a reduced value of the WBRC business due to reduced income because of the lack of parking and a higher discount rate required by a hypothetical purchaser to reflect the increased risk of resumption.
2. Section 43(1) (a) of the Act reflects the Pointe Gourde principle which requires a valuer to disregard any increase or decrease in market value "arising from the carrying out, or the proposal to carry out, the purpose for which the interest was acquired".
3. WBRC's valuers, Mr Dudakov and Mr Lipson, who valued the business, had no instructions on these matters. Both assumed that car parking would continue to be available and made no allowance for increased risk of acquisition.
4. WBRC did not accept the distinction made by the Authority between the purpose to facilitate as against carry out the development and submitted that the distinction was immaterial, because significant benefits would flow from the Convention Centre to a cruise operator on its doorstep - through exposure, traffic and demand. It was submitted that if a prospect of an increase in resumption is to be taken into account as a disbenefit, the benefits must also be brought into account. The logic of this is obvious. The distinction made by the Authority in regard to the purpose of acquisition and relevance of s.43 (1) (a) of the Act, are in turn only relevant if there are practical valuation consequences.
5. The practical consequences and specific risk factors are discussed when considering the value of the business.

1. Mr Davy, as director and operator of the passenger ferry service operated by WBRC, gave evidence about the characteristics of the premises in Shed 9 and the adjacent moorings at South Wharf and their importance for the management marketing and viability of the business.
2. Mr Davy outlined how he had been lured to what was called the South Wharf Ferry Terminal by the offer of public open space and amenities, high and low landings and on-site office and storage areas which would provide WBRC with a landing point to load and unload passengers, stores and carry out maintenance and servicing. He stated that he regarded the premises as ideal. The specific features were said to include a reception and waiting area with seats for clients and ferry passengers, radio control room, three meeting rooms/offices, workstation area, kitchen, toilet and shower facilities, crews' mess and photocopy room, storage areas and workshop, six car parking spaces were provided and buses had access to drop-off passengers.
3. The premises were used for business administration, marketing and bookings, maintenance and provisioning of boats with safety equipment, catering equipment, alcohol and food for charter operations. The safety equipment was checked out and in again with the skipper for each cruise.
4. The nature of the business required that the ferries be constantly reconfigured to suit particular functions, meaning that tables, chairs decorations band equipment, dance floors and other plant, equipment and stores had to be moved back and forth between boats and storage areas in the premises. Up to 10 boats were moored at South Wharf.
5. Mr Davy gave evidence that a critical feature of the South Wharf premises was that it was located between the low clearance Charles Grimes Bridge downstream and the ultra low clearance Spencer Street Bridge upstream, and the height of the river and tide gauges placed on the river frontage of the control office could be seen from the control room. This was said to be critical in the operation of the business. Some of the boats were low and some high and with the assistance of a chart showing the clearances for each vessel the operator could communicate instructions and advice to the skippers in order to prevent boats becoming jammed under the bridges as the tide level changed, sometimes quite rapidly and unpredictably in the event of a storm.
6. During cross-examination of Mr Davy, Mr Pearce submitted that in fact the ability to see the bridges was not a critical feature. There were Port of Melbourne Authority webcams on the Bolte Bridge, which monitored the river and in any case judgement as to whether a boat would clear a bridge was in the hands of the skipper.
7. Mr Davy rejected these contentions, countering that the webcam was more general, did not provide sufficient detail and skippers heavily relied on advice from the control room.

1. WBRC's claim based on its proposition that no replacement site was available with the consequence that the acquisition caused the extinguishment of the business, was rejected by the Authority which instructed its valuers to assume that -

"WBRC can relocate their business to suitable alternative premises".

1. Reflecting this, its valuer, Mr Bowman allowed for 6 months disruption to the business. Mr Davy outlined in his consolidated witness statement and under cross-examination how he tried to find alternative premises and moorings particularly in the period August 2006 to April 2007, prior to acquisition and vacating the site. His steps included: he met or called people in Parks Victoria, Docklands Authority, Port of Melbourne Authority, tug boat operators and investigated established mooring facilities at Yarra's Edge, New Quay, Docklands and along the river. Moorings were restricted because they were next to residential developments or were small and only available short term, a nearby office and storage facilities were generally not available. In November 2006, WBRC leased a 24m berth at Federation Wharf and a vault on the edge of Federation Square measuring only 18.2m² for ticket sales and storage. The mooring was generally limited to one boat at a time.
2. Mr Pearce put to Mr Davy that the Federation Wharf and the vault suited WBRC and other sites such as World Trace Centre and Yarra's Edge provided opportunities. Mr Davy responded confidently and appeared credible, giving uncontested reasons why adequate new facilities could not be found.
3. We note that the Authority put forward no firm details for a potential replacement site. Further, although the Deed of 23 February 2007 entered into by the Authority and WBRC under which the Authority agreed that:

8.1 The State will use its reasonable endeavours to assist the subtenant in identifying alternative and comparable premises to the premises into which the subtenant may relocate its business"

Mr Davy stated no assistance was given and this was not contested by the Authority.

1. We find that no alternative and comparable premises were available.
2. Although the acquisition related only to the premises in Shed 9 and not the moorings over which the Authority submitted that the head licence had expired and so the sub-licence had lost its rights, we find that the question of alternative moorings must also be considered.
3. Earlier, we found that Parks Victoria had not withdrawn its offer of a new head licence to South Wharf. The prospect and then reality of the resumption appear to have intervened to the extent that negotiations to resolve the differences over at least the form of the licence were not concluded. South Wharf did not execute the licence already executed by Parks Victoria nor did Parks Victoria take any of the actions mooted in 2005.
4. South Wharf and WBRC had concluded a signed agreement for a new sub-licence prior to resumption, notwithstanding the head licence was not executed.
5. In the circumstances the hypothetical purchaser of the WBRC business would have recognised that there was a risk that the head licence would not be consummated and the mooring rights lost but would also probably conclude that the risk appeared relatively low. This is a factor to be reflected in the discount rate when valuing the business.
6. We find that the Authority erred in instructing its valuers to assume that suitable alternative premises were available and neither South Wharf nor WRBC had mooring rights.

1. We found when discussing the legal principles that -

1. The market value of the WBRC interest in the land was negligible or nil, but adopt the Authority's figure of $14,211. 2. Special value does not apply.

1. Any WBRC loss is attributable to disturbance.
2. WBRC claims disturbance losses arising under three heads:

1. Trading losses incurred while continuing to operate and re-establish in an attempt to mitigate the loss, in the period 1 April 2007 to 31 October 2009.
2. The costs of the director's time spent on dealing with the acquisition.
3. The Authority submitted WBRC had not established any entitlement to disturbance. In accordance with s.40 of the Act a claimant must establish that any pecuniary loss suffered is a natural direct and reasonable consequence of the acquisition. The Authority contended WBRC needed to establish three conditions:
   1. The existing business was extinguished;
   2. The extinguishment was caused by the acquisition;
   3. WBRC suffered loss as a consequence.

The business was not extinguished because it was still operating and that it was open for WBRC to claim for impairment but it had not done so.

The claim is founded on unreliable evidence because Mr Davy was an unreliable witness who had not properly informed and so misled the valuers about the business - in particular, he failed to tell them that the Yarra Shuttle which contributed $300,000 p.a. to the revenue, ceased to operate in 2008 for reasons unrelated to the acquisition, and about other boats were decommissioned prior to and after the acquisition.

Also, WBRC's business records were created for the compensation hearing, and had obvious errors.

A loss of income and profit occurred due to the ending of the Parks Victoria contract for the Yarra Shuttle plus the impact of the global financial crisis and not as a direct consequence of the acquisition.

1. Mr Chiappi responded that the natural direct and reasonable consequence was a causal and not temporal link referring for support to Batt J in Halwood Corporation Ltd v Roads Corporation[1] and Gobbo J in King v Minister for Planning [2], noting that WBRC would have been better off had it ceased operations, rather than incur increasing losses over 2½ years.
2. He submitted Mr Davy had briefed the valuer well before the Yarra Shuttle contract ended and did not mislead the valuers.
3. With mounting business losses from a substantially reduced operation and after making all reasonable efforts to re-establish but no comparable facilities becoming available, we find that a prudent manager would close the operations after an appropriate period, probably not exceeding two years.
4. We conclude that with mounting losses and in the absence of suitable alternative premises and moorings it is reasonable and appropriate to assess the loss arising from disturbance on the basis of total extinguishment.

1. There were claims and counter claims about the strength, future prospects and viability of the business.
2. Financial statements for the years 2000/2001 to 2008/2009 were tendered and a summary schedule submitted by the Authority showed that WBRC made a loss in all but 2000/01 and 2005/06, the latter being the year with peaks in both gross receipts ($1,824,656) and net profit ($140,892). The intervening years showed fairly static revenues in the range of $1.5 to $1.66 million. In the years of the acquisition 2005/07 gross receipts fell to $1,454,000 and a net loss of $9,000 (both rounded).
3. WBRC submitted that the cause of the revenue and profit declines in 2006/07 were due to the Convention Centre building works and vacating South Wharf in April 2007. The further declines to gross receipts of $1,204,000 in 2007/08 and $795,000 in 2008/09 were claimed to be the consequence of the acquisition and inability to find replacement premises resulting in downsizing from 12 to 4 boats and 150 to 35 staff.
4. It was submitted the flat revenue and poor profitability in the four years up to and including 2004/05 were due to growing the business, including subsidised and special rates aimed to build the Docklands and corporate segments of the business, by sacrificing profit to build market share.
5. The accounts were complicated by the intermingling of the affairs of WBRC and Mr Davy as its sole director and also his family trust. Trust distributions were made to WBRC, none of the boats were owned by WBRC and there were interrelated property dealings.
6. There were obvious anomalies and errors in the accounts, referred to by the Authority -
   • A static annual rental of $174,000 was included as an expense in the WBRC accounts throughout the years 2001/02 to 2008/09 even though the Yarra Shuttle costing $495,000 was added in 2005 and other boats withdrawn.
   • No wage was included for Mr Davy.
   • Depreciation was wrongly claimed.
   • Hire purchase interest charges on the Yarra Shuttle and payable by WBRC were substantially understated.
7. Mr Pearce submitted that the accounts were so unreliable and Mr Davy misled valuers to such an extent that the DCF valuations should be ignored.
8. Mr Davy, under cross-examination showed little understanding of the accounts. As Mr Pearce noted when commenting on his reliability - he (Mr Davy) does not take care in which capacity he acts and "leaves that to the lawyers and accountants". Yet in conflict with this, Mr Davy stated at paragraph 130 of his consolidated witness statement, when referred to reports prepared by WBRC's business valuer, Mark Lipson.

"I have read the reports of Mark Lipson. To the extent that these reports refer to factual matters concerning the claimant's business, I confirm these matters are true and correct.

1. We formed the view that the first statement and not the latter is to be accepted. As set out in his witness statement, Mr Davy's interest in boats started in his childhood and his life has revolved around building, renovating, reconfiguring and operating boats. As noted by Mr Lipson in cross-examination, he appeared to be a competent boat operator, not shrewd financially, and gave an honest account of the ferry operations, but was not competent to say all the factual matters in Lipson's report were correct.
2. As submitted by the Authority, the accounts may have been at least finalised for the purpose of the claim but this does not mean that they have been deliberately engineered to assist WBRC. Had there been any deliberate attempt to maximise compensation then, as alluded to by Mr Pearce the claim and depreciation of the boats might have been handled differently. For example, formal lease agreements for the boats might have been put in place, obligating WBRC to pay rents until the end of the land lease in 2017. Then any loss by WBRC would have been magnified and the loss of value in the retired boats and now falling on Mr Davy and his family trust would have been substantially reduced. No forensic experts were called by the Authority and apart from the obvious anomalies; there was no evidence that the accounts were fundamentally unreliable.

1. Mr Davy gave evidence that from around the time the decision was taken to move to South Wharf in 1996 up to 2000 the business and fleet of boats grew strongly and he purchased seven boats, varying between a traditional ferry style boat carrying 145 passengers to a 20 passenger taxi. About $2 million was invested by Mr Davy and the family trust and as the boats were renovated and refitted they were made available to WBRC. There were no formal arrangements or written agreements as to rent or other obligations.
2. There were two big boats with upper decks used for charter operations and excursions downstream and in the bay and seven low boats which could operate upstream to Crown Casino, Southgate and Federation Square, linking these with South Wharf and Victoria Harbour, at Docklands.
3. In December 2004, WBRC won a tender with Parks Victoria to provide a ferry shuttle service between Federation Wharf and New Quay, operating seven days a week in peak periods. The initial contract was for three years at a GST exclusive fee of $1,487,640, plus the cost of an additional crew member at $29,520, a total of $1,517,160. There were two, one year extension periods.
4. A new 60 passenger boat, the Yarra Shuttle was commissioned as a requirement of the contract at a cost of about $495,000. WBRC collected fees on behalf of Parks Victoria, but these fell well short of the annual contract costs. Towards the end of the contract in April 2007 there was doubt about its extension.
5. Parks Victoria wrote to WBRC on 4 April 2007 advising that it was not prepared to single-handedly subsidise the service to the extent of $250,000 to $300,000 per annum and was canvassing other stakeholders to contribute stating that there had been an encouraging response.
6. The contract was renewed for one year in September, commencing retrospectively on 16 April 2007. It was for a reduced service operating during peak season on Saturdays, Sundays and Public Holidays, at a total fee of $302,000.
7. The Yarra Shuttle, at its peak, contributed to over 30% of WBRC's total revenue and so was an important part of the business.
8. At the date of the acquisition, the uncertainty about its contribution would have been an important consideration for any hypothetical purchaser of the business.
9. WBRC submitted that with the large corporate developments in train at Docklands, such as ANZ and the big increase in the work force, residents and visitors, it planned to expand the business into new areas, including lunch and afternoon tea cruises, dinner cruises and Dockland Cruises all of which were expected to show strong future growth. The forecast cash flows from these new ventures were factored into the valuation of the business.

1. WBRC obtained valuations of the business from Mr Mark Lipson, a qualified business valuer and forensic accountant of Sothertons, Chartered Accountants.
2. The Authority instructed and obtained valuations from Mr Richard Bowman, Certified Practising Valuer and member of the Ernst & Young Real Estate Advisory Services Group and Mr Matt Gaffney, Director and Representative of Ernst & Young Transaction Advisory Services and also partner in the Valuation and Business Modelling Group. Mr Gaffney was instructed by the Valuer General on the Authority's behalf.
3. Accepting the view that the business was poised for substantial growth from the consolidation and maturation of the Docklands and Southbank areas, as well as increases in tourism and business patronage both Mr Lipson and Mr Gaffney were of the view the discounted cash flow (DCF) methodology was the most appropriate.
4. Although Mr Gaffney was instructed by the Authority, it did not rely on his valuation and therefore did not call him as a witness on its behalf on the grounds that both Mr Gaffney and Mr Lipson had been misled by Mr Davy, with the result that the business revenue projections were greatly inflated and the valuations flawed.
5. The Authority relied on Mr Bowman's assessment which allowed a 50% reduction in profits for a 6 month disruption period, being the assumed time taken for relocation.
6. Mr Bowman gave evidence that he adopted a 2006 turnover figure of $1.85m, as verbally advised by Mr Lipson and applying what he considered to be a reasonable EBIT to turnover ratio in the order of 7.5% to 12.5%, calculated the EBIT for the financial year 2006 at within the range of $138,750 and $231,259.
7. Based on the 50% profit reduction over 6 months, disturbance was estimated at between $34,687 and $57,812. Conceivably, Mr Bowman could have applied a market based multiplier to his EBIT figures to derive a range of value for the business but he did not do so.
8. Mr Bowman's qualifications and assessment were strongly challenged under cross-examination by Mr Chiappi for WBRC.
9. Mr Bowman admitted that he was not professionally qualified to undertake business valuations and did not normally carry them out, his qualifications and experience being in property valuation. He gave evidence that he adopted the EBIT to turnover ratio based on his industry knowledge and after consultations with his colleagues, including Mr Gaffney. He conceded that he had read Mr Lipson's report and valuation in part only and could not address any of the business and accounting matters outlined in it.
10. Mr Chiappi asked the Tribunal to rule that Mr Bowman was not qualified to value the business, but cross-examined him on other matters and assumptions in his report.
11. Mr Bowman was referred to his summary of discussions with Jeanene Simmons of Parks Victoria concerning the licence to the effect that Parks Victoria would not be considering renewal given the sheds have been resumed. He confirmed that while he was instructed to ignore the licence his discussions with Parks Victoria did not extend to what would be the position if there were no acquisition.
12. When questioned on the locational benefits of South Wharf, Bowman agreed it had the attributes outlined by Mr Chiappi and that the highest and best use was as a passenger terminal but stated that he had no experience in the operations of this type of business. Mr Bowman confirmed that he was instructed that alternative premises were available but not given any details about where or when - for either the premises or moorings. When asked where they might be available, Mr Bowman responded that he was not in the field of finding premises but they can become available at any time.
13. We formed the opinion that Mr Chiappi's submission that Mr Bowman was not qualified to undertake a valuation of the business loss should be accepted. We find that Mr Bowman's assessments relating to disturbance and relocation costs are of no assistance.
14. WBRC's business valuer, Mr Lipson first undertook a valuation in November 2007 in which the value was assessed as at 30 June 2006, the end of the last complete financial year prior to the acquisition.
15. Mr Lipson gave evidence that his review of the business identified critical factors, including that Docklands reached critical mass in 2005 and further increases of 25,000 workers and 30,000 residents were forecast; WBRC had invested heavily in providing unprofitable shuttle services to Docklands; the substantial development prospects with the planned introduction of three new cruises, which together indicated that the historical EBIT performance up until 2006 did not accurately reflect current and future business conditions. For that reason he adopted the DCF model in which the free cash flow (FCF) from the business was discounted to give a capital value.
16. In evidence, Mr Lipson said that in preparing the cash flows he relied on the financial statements and transaction returns for both WBRC and the Mark Davy Trust, as well as valuations of the fleet, the compensation valuation report prepared by Urbis and discussions with Mr Davy on both the historical figures and likely future developments. The accounts were unaudited and he conceded he could not vouch for their accuracy. Mr Lipson informed us that the three new revenue streams planned by WBRC were critical to the future of the business and had an important bearing on his report because the DCF approach to valuation is based on future earnings and his cash flows reflected the forward plans. He formed the view that these new services, which were planned to commence in 2008 would start strongly and show annual growth of 15% until 2013 then at 3%, in contrast to the existing services which he considered to be mature and would grow in line with an assumed inflation rate of 3%.
17. The revenue for the three new services was assumed to commence at $890,000 in 2008 growing to $4,378,000 (rounded) in 2017. The impact on the business as a whole was that revenue would grow from $1.9 million in 2007 to $7.5 million in 2017.
18. The Authority strongly challenged the growth assumptions and also took issue with the inclusion of the Yarra Shuttle income. This was in the cash flow at $300,000 in 2007 and continued to grow through the 10 year period, even though the Parks Victoria contract was in danger of not being renewed at the date of acquisition and the service ceased in April 2008.
19. Mr Pearce submitted that Mr Davy misled the valuers by not disclosing that the Yarra Shuttle service under the Parks Victoria contract had ceased, and that as a result the projected revenue stream, which was forecast to grow from $300,000 to over $973,000 was unrealistic and should not have been included. The Authority further submitted that the proper analysis of the WBRC business suggests that after years of losses it had only turned a profit in 2005/06, upon the strength of the revenue from the Yarra Shuttle contract.
20. Under cross-examination Mr Lipson acknowledged that the contract represented 30% of the WBRC revenue in 2006, he had assumed it was ongoing and should have been told of its termination, which was a material change. However, Mr Lipson said that the projected growth was not related only to the Yarra Shuttle contract, but included growth in other similar services.
21. Mr Pearce strongly challenged Mr Lipson on the growth assumptions, submitting they were extremely aggressive given the history of low growth and profitability and pointing out that high profit and revenue increases were wholly dependent on the provision of the three new services. But Mr Lipson defended his projections and contended that they were reasonable and that he was confident about the future prospects of WBRC.
22. Mr Pearce submitted that having regard to the trading results of the business, no sensible valuer could safely assume the projected increases and would at least adopt a high discount rate to allow for the risk that the increases would be achieved - as Mr Gaffney did. He invited the Tribunal to "draw its own conclusions from the fact that neither WBRC nor any of its competitors has seen fit to implement the business plan Mr Lipson has averted to either in whole or in part".
23. On the basis of the projected cash flows a discount rate of 24.5% and allowance for a terminal value at the end of 2017, Mr Lipson's November 2007 valuation was $3.7 million, of which $920,000 was goodwill. But, this was not the valuation required for the purpose of assessing the claimant's loss because it was what became referred to as a consolidated valuation in that it included the fair market value of the boats owned by the Davy family trust, assessed at approximately $2.78 million. As a result of a compulsory conference and discussions with the Authority's Valuer Mr Gaffney, Mr Lipson was made aware of this and other anomalies or incorrect assumptions, including:
    • no allowance for Mr Davy's salary, later agreed by them at $94,000 (gross);
    • depreciation allowances were erroneously included, but none of the boats was owned by WBRC;
    • no boat rental was included;
    • the incorrect premises rent was taken from the Urbis report.
24. Mr Lipson then valued the business on a stand alone basis at $2.88 million, after adjusting for most of these factors and increasing the discount rate by 4% to 28.5%, acting on instructions to allow for risks associated with possible termination of the sublease, loss of car parking and loss of mooring rights.
25. Mr Lipson's report of 5 November 2009 did not specify how the figure of $2.88 million was allocated between goodwill and net tangible assets, now that the value of the boats had been removed, but when giving evidence he stated that the whole of the figure constituted goodwill.
26. The revised assessment included a property rental figure of $78,000 and boat rental of $110,000 both of which were incorrect. In a further revision dated 13 November 2009, Mr Lipson adopted the Urbis premium rent for the premises of $104,000 and maintained the boat rental at $110,000 which resulted in a reduced valuation of $2.81 million. In an alternative calculation based on Mr Gaffney's assumptions and a resulting discount rate of 41.9% Mr Lipson derived a value of $1.406 million.
27. Mr Pearce pressed Mr Lipson on his revised assessments, in particular the increase of goodwill from $920,000 to over $2.8 million and posed the obvious question - after removing net tangible assets, ie. boats worth almost $2.8 million from the original estimated value of $3.7 million, how could he firstly end up with a revised valuation of $2.88 million and then claim that all of this represented goodwill? No satisfactory answer was given.
28. Also Mr Lipson had benchmarked his initial goodwill assessment of $920,000 in the first report noting this was equivalent to 33% of the net tangible operating assets (NTA) of WBRC and the payback period was less than one and a half years, this being "well within commercial parameters". Yet in the revised figure goodwill was 100% of NTA and the payback period was over four years. Mr Lipson maintained that this was reasonable for a service company
29. Whereas Mr Lipson had split his $3.7 million assessed value into NTA and goodwill, he did not do so in later revised assessments and gave no satisfactory explanations as to how or why in two valuations of the same business as at the same date goodwill could increase from $920,000 to $2,88 million when the only major change was the removal of assets which were not owned by WBRC and had been incorrectly included.
30. Mr Pearce submitted that Mr Lipson's evidence should be disregarded for two principal reasons:
    1. It was based on erroneous financial data; and
    2. Mr Lipson was an unsatisfactory witness who sought only to advance his client's case and not to assist the Tribunal.
31. We dealt with a) earlier. On the second point, we are of the opinion that Mr Lipson was an unsatisfactory witness to the extent that he attempted to maintain a high valuation figure in the interests of WRBC and failed to properly maintain his professional objectivity and impartiality. He failed to allow for a commercially based rent for the boats as an appropriate expense and adopted a low discount rate, which did not adequately reflect the risks that the optimistic forecasts of revenues from the new businesses would not be realised. However, while there were obvious deficiencies in Mr Lipson's evidence we do not accept Mr Pearce's submission that his evidence as a whole should be disregarded.
32. The Authority's Valuer, Mr Gaffney adopted Mr Lipson's cash flow projections, with the exception of depreciation on plant and the rents on the premises and boats.
33. A signed joint statement of experts dated 12 November 2009 specifies that:

The Experts' Valuations are based on the adoption of the same following data:

1. Direct Costs - virtually the same figures have been adopted by both the Claimant and the Respondent (annual difference related to salaries and related oncosts is less than $5,000). Note: The Claimant now allows for a salary for Mark Davy.
2. Trading Profit - virtually the same figures have been adopted by both the Claimant and the Respondent (annual difference is less than $5,000).
3. Expenses - other than
   • depreciation - plant, and
   • Rent - plant
4. Although the Authority did not rely on Mr Gaffney's Valuation on the grounds that he had been misled and the cash flow projections were so aggressive that they lacked any credibility, it agreed to call him to explain his rationale and provide assistance to the Tribunal.
5. The experts adopted different rental for the boats - Mr Lipson $110,000 and Mr Gaffney $179, 000, but as referred to by Mr Pearce on a number of occasions the more realistic commercial rent would have been something above $200,000. This is based on a realistic return on the total value of the boats employed in the business of $3.5million, but no definitive rental assessment was submitted by either party. In the circumstances we adopt Mr Gaffney's figure of $179,000 which was derived from taking the annual rent of $174,000 identified in the accounts and adjusting it for inflation.
6. Mr Gaffney stated in evidence that he was aware that the projected revenues showed high growth and that he was valuing the idea of the three new business areas which WBRC had to generate from a zero base, and he applied professional scepticism in the form of a higher discount to reflect the risk that the revenue growth might not be achieved. But he adopted Mr Lipson's data on the basis that it represented the best information available.
7. Mr Gaffney assessed the value of the WBRC stand alone business as ranging between $470,000 and $560,000 on the basis of a discount rate range of 65% to 70% and assuming car parking and mooring rights would no longer be available and there was an increased risk of acquisition due to the construction of the Convention Centre - these assumptions being in accordance with his instructions. An alternative assessment assuming car park and mooring rights were available, but the risk of resumption of the head lease interest remained, estimated the value within a range of $660,000 to $780,000 on the basis of a reduced discount rate range of 55% to 60%.
8. As we have already found the Authority erred in instructing its valuers to assume there were no mooring rights and it was not established that there would be no car parking.
9. Also, the risk that WBRC would lose its premises with no compensation if the head lease were acquired was not established.
10. The substantial differences between Mr Lipson and Mr Gaffney's assessments of value are largely due to the differences between the discount rates they adopted and assumptions as to depreciation and rent. Also Mr Gaffney did not include a terminal value.
11. The joint statement sets out the different elements in the derivation of the discount rates as -

1. In the context of the projected revenues from the three new businesses Mr Gaffney's assessment of the risk of 30% is preferred to that of Mr Lipson, who by adopting a Beta of 3 effectively implies an allowance of 12% (based on a market risk premium of 6%).
2. As stated previously we consider the instructions to the valuers was flawed in that an offer of a new licence had not been withdrawn. As referred to in Mr Gaffney's evidence, whilst the car parking arrangements might be interrupted in the short term whilst construction of the Convention Centre occurred, it was reasonable to assume that parking would continue to be generally available in the area. We have accepted the position adopted by the Claimant's valuer that no allowance be made for the risk of loss of car parking rights.
3. With respect to the moorings, we do not accept the 10% risk allowance adopted by Mr Gaffney, as this reflected his instructions and not the situation as it existed. On the other hand, the terms of the licence agreements had not been finalised and the zero risk adopted by Mr Lipson also failed to reflect the situation. In the circumstances we consider it reasonable to adopt a risk rate of 5%.
4. Both Mr Lipson and Mr Dudakov made no allowance for resumption, whereas the Authority's valuers were instructed to assume there was a significantly increased risk that the Head Lease would be resumed and the Sub-lease terminated as a result of the development of the Convention Centre. Reflecting this situation the Claimant's valuer provided zero risk and Mr Gaffney 20%. In the alternative, Mr Lipson was asked to assume there was a risk and take this into account. He allowed 5%.
5. We adopt Mr Lipson's figure of 5% as we assume there is some risk but a lower level than reflected in Mr Gaffney's assumption which was a constant in both his assessments.
6. Mr Gaffney has adopted 10% for the debt to total value and Mr Lipson 22%. Given the low level of tangible assets in the business we consider the amount of 10% to be more realistic.
7. In summary the adopted valuation criteria are -

1. In applying the formula set out in Mr Gaffney's Appendix D of his Valuation and Report November 2009 on the adopted valuation criteria we calculate the discount rate at 47.25%.
2. Mr Lipson included a terminal value derived by applying an EBIT multiple of 4 to the forecast EBIT for 2017, whereas Mr Gaffney did not, being mindful of his assumptions about the sub-lease risks and view that due to a number of other sub-leases expiring around 2017 the prospects of a lease extension were remote.
3. Mr Gaffney gave evidence that terminal value is often included in business valuations and that at the applicable discount factor the value added to the business would be a tiny fraction of the calculated gross terminal value.
4. No compelling rationale was given for excluding terminal value and we find that it should be included. However we consider that Mr Lipson's multiple of 4 does not adequately reflect risk and consistent with the derived discount rate of 47.25% adopt a multiple of 2.
5. On the basis of the established valuation criteria and adopting the net cash flow from Mr Gaffney's report of 4 November 2009 we find that the market value of the WBRC business as at the relevant date was $871,400.

1. WBRC claimed trading losses for a period 1 April 2007 to 30 June 2009 totalling $363,199.
2. We have already found that the prudent business manager would have shut down the business within two years of the acquisition. We consider that the period of the claim is excessive.
3. Mr Pearce submitted that the Global Financial Crises (GFC) was a significant contributor to the fall in WBRC revenue in 2009, most notably in the third quarter. This was refuted by Mr Chiappi and Mr Lipson, and no evidence was adduced in an attempt to measure any GFC impact. In any event any impact appeared to fall outside the two year period we have allowed.
4. On the basis of the submitted WBRC accounts the claimed trading loss incurred in the period from 1 April 2007 to 30 June 2009 is the aggregate of the trading losses for the last three financial years, the respective amounts being -$9,021, -$56,831 and - $297,347.
5. While it was submitted that these losses arose from the acquisition, a review of the Profit and Loss statements indicates that the claim is substantially inflated as a result of high and inappropriate charges for boat rent, legal and accountancy fees, interest and advertising/promotion. The boat rent of $174,000 is charged in all three years even though most of the boats had become redundant in the 2006/07 year. After adjusting for this alone, it is evident that there was no trading loss up until the end of June 2008.
6. In the 2008/09 year, insurance, interest, legal fees and printing all increased significantly over previous years while marketing costs declined only marginally even though the business had scaled back to only a fraction of its pre acquisition size.
7. Having regard to the factors just outlined and limiting the loss to the two year period immediately following resumption we find that the reasonable estimate of the trading loss to 18 April 2009 is $42,350.
8. The claim for trading losses of $108,000 for the period 1 July 2009 to 31 October 2009 is disallowed.

1. The Authority submits the Claimant's overall expenses of $132,333 consisting of valuation expenses of $41,446; legal costs and expenses of $78,903 and moving expenses of $11,984 are excessive. Although it acknowledges the moving expenses.
2. Section 41(1) (f) of the Act provides:

Any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

1. The Authority considered the level of work carried out was out of proportion to the legitimate value of the claim therefore some costs should be excluded. In this respect it was submitted some of the legal or valuation costs were not necessarily incurred as a result of the acquisition and these expenses should be excluded, namely:
   • (a) Mr Lipson's fees;
   • (b) Navatair's valuation fees of $2,675 to value the boats;
   • (c) Half the costs of counsel, Mr Chiappi (say $2,654);
   • (d) The cost of educating a solicitor (say $4,400);
   • (e) Attendances by Mr Sheppet on the company accountant Mr Pardasani (say $2,200);
   • (f) Attendances by Mr Sheppet on Mr Hart and Parks Victoria (say $2,200).
2. We adopt the view expressed by Strong J in 41st Olive Branch Pty Ltd v Melbourne City Link Authority[3] that 'if the cost is incurred to enable the claimant to lodge a claim following acquisition, it is necessarily incurred'.
3. We agree with the Authority that the valuation of the boats by Navatair should not be included as the boats are not owned by the Claimant and do not form part of the compensation. The amount claimed is therefore reduced by $2,675.
4. We accept that although Mr Sheppet may not be an expert in compensation claims his costs, as well as those of Mr Chiappi, are considered to be reasonably incurred to enable the claimant to lodge a claim.
5. Similarly we recognise that Mr Lipson's fees have been incurred as a result of the acquisition and whilst we may not have relied upon Mr Lipson's figures this is not a reason to deny a claim for his fees.

1. WBRC seeks an amount of $47,750 being the cost to WBRC of its director's attendances in relation to the acquisition. This claim is based on 382 hours at $125 per hour.
2. Mr Davy is the sole director, he was not paid by the Company so it could be considered that there was no direct pecuniary loss to WBRC by virtue of the time spent by Mr Davy in looking for replacement premises[4]. The evidence suggested that the time he spent was not only on behalf of WBRC but also in his personal capacity, as well as on behalf of the Trust and included looking for suitable premises as well as endeavours to sell the boats.
3. It was common ground between Mr Lipson and Mr Gaffney that a reasonable salary to be imputed for Mr Davy would be $94,000 per annum but this would constitute only part of the loss to WBRC. There would also be a consequent loss of revenue for WBRC due to the absence of Mr Davy on the matters relating to the acquisition.
4. We adopt the figure of $125 per hour but consider that a realistic time spent on the business related aspects, as against the time spent by Mr Davy in protecting his personal and family trust investments, would be reasonably reflected in allowing four to five weeks, say 22.5 days at 7.5 hours per day being an amount of $21,094.

1. The Claimant seeks solatium of 10% which is considered excessive by the Authority submitting 2% was more appropriate. Solatium is sought to compensate the Claimant for what is described as intangible and non-pecuniary disadvantages resulting from the acquisition.
2. We acknowledge Mr Davy has been consumed for a period of time over the acquisition resulting in increased stress in attempts to find a new location and to continue the business in its form before the acquisition. WBRC has already been compensated for the time spent by its sole director, Mr Davy.
3. Mr Chiappi submitted although Mr Davy only had a sub lease the conduct of his business from Shed 9 was critical to the business. We consider Mr Chiappi meant not Mr Davy in this submission but WBRC which is the Claimant. We acknowledge the Claimant had occupied the land for 9 years and the Company has been inconvenienced by being required to move and then attempt to conduct the business from several premises rather than a centralised location. It was expected the Claimant would have continued to occupy the premises for at least another 10 years until 2017 but for the acquisition.
4. The Authority submitted not only is the interest acquired a commercial interest and cannot be compared to the acquisition of a Claimant's dwelling; any proven financial impacts of the acquisition have been claimed under disturbance loss and as a sub lessee the Claimant has a lesser interest than a freehold interest.
5. We acknowledge the position put by the Authority but consider that WBRC should be entitled to an amount of $711 being 5% of market value for solatium.

1. We find that the resumption in the South Wharf interest in the Head Lease in itself did not automatically terminate the Sub Lease. In relation to the Licence the only breach identified by Parks Vic was South Wharf's failure to sign the renewed licence agreement. There was no suggestion that an offer of a new licence had been withdrawn and the licence was in place at the date of resumption, albeit the Head Licence had not been executed. The language used in the correspondence suggest the licence was continuing and no action was taken to exclude boats from the moorings or terminate the licence. South Wharf continued in occupation.
2. We accept the Authority's offer of $14,211 in relation to market value. Although the valuers agreed there was no profit rental at the date of acquisition and so the market value of WBRC's interest in the land was negligible or nil, notwithstanding this, on the basis of a discounted cash flow prepared by Mr Bowman, the Authority offered $14,211.
3. There was no special value because the probable hypothetical purchaser of the WBRC interest in the land would be another ferry operator and the site's attributes would be reflected in the market value of the business.
4. No alternative and comparable premises were available. The Authority in our view erred in instructing its valuers to assume that suitable alternative premises were available and neither South Wharf nor WBRC had mooring rights.
5. With mounting business losses from a substantially reduced operation and after making all reasonable efforts to re-establish no comparable facilities became available, we find a prudent manager would close the operations after an appropriate period not exceeding 2 years. We consider it is therefore reasonable and appropriate to assess the loss arising from disturbance on the basis of total extinguishment.
6. Whilst we accept that the accounts may have been finalised for the purposes of the claim this does not mean that they have been deliberately engineered to assist WBRC.
7. We have concluded that the Yarra Shuttle at its peak contributed to over 30% of WBRC's total revenue, so it was an important part of the business. The projected growth not only related to the Yarra Shuttle contract but included growth in other similar services. The risk in the continuance of the Yarra Shuttle and other services is reflected in the high discount rate.
8. We did not disregard as a whole Mr Lipson's evidence, although we found Mr Lipson was an unsatisfactory witness to the extent that he attempted to maintain a high valuation figure in the interests of WBRC and failed to properly maintain his professional objectivity and impartiality. Mr Lipson's revised figure of $2.88m as the value of the stand alone business constituted wholly goodwill, in contrast to his earlier assessment of $920,000 for goodwill when combined with the Davy family trust.
9. We conclude that the value of the business as at extinction to be $871,400. In the context of the projected revenues from three new businesses we preferred Mr Gaffney's assessment of the risk of 30%, with no allowance made for the risk of loss of car parking rights. A risk rate of 5% has been adopted for the moorings as well as for resumption risk with a discount rate of 47.25%. We find that terminal value should be included on the basis of the established valuation criteria and adopting the net cash flow from Mr Gaffney's report of 4 November 2009.
10. We have determined to give the Claimant all but $2,675 for legal and valuation expenses claimed, this being the amount of the valuation fees by Navatair in relation to the boats, not owned by the Claimant. Whilst the Authority sought to attack the fees, we have concluded they have all been incurred by reason of the acquisition.
11. The claim for time spent by Mr Davy has been reduced following our acceptance of the evidence that he was acting not only in relation to the Claimant's interests but also personally and on behalf of the family trust. Likewise the amount for solatium has also been reduced.
12. The Authority has already paid an amount to the Claimant. Our findings and order lead to a higher award of compensation, so a further payment will be required to WBRC. Interest is payable on any unpaid amounts in accordance with sections 53(1) and 56 of the Land Acquisition and Compensation Act 1986. We do not include interest in our orders or determine the amount. This amount can be assessed at the time of payment. If there is any disagreement, our orders allow interest to be determined by the Tribunal.

[1] (1995) 89 LGERA 280 at 297

[2] [1993] VicRp 11; [1993] 1 VR 159

[3] [2001] VCAT 422

[4] City Link v Teford [1999] VSC 106