Land and Environment Court New South Wales Medium Neutral Citation: United Petroleum Pty Limited v Roads and Maritime Services [2018] NSWLEC 35 Hearing dates: 25, 26, 29 and 30 May, 1 and 2 June 2017 Date of orders: 23 March 2018 Decision date: 23 March 2018 Jurisdiction: Class 3 Before: Robson J Decision: See findings at [327]-[330], directions at [331] Catchwords: COMPULSORY ACQUISITION – valuation of leasehold interest – disturbance – where compensation already paid for land value – whether separate compensation can be paid – whether weak tenancy is a relevant consideration for valuation of disturbance – circumstances in which legal costs and valuation fees are recoverable as disturbance – circumstances in which rent can be claimed as disturbance – methodology for assessing quantum of disturbance – capitalisation of loss of profits – calculation of discount rate – circumstances in which relocation is reasonable – whether lost profits costs reasonably incurred Legislation Cited: Conveyancing Act 1919 (NSW) s 127 Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ss 34, 42, 44, 54, 55, 56, 59, 66 Land and Environment Court Act 1979 (NSW) s 37 Cases Cited: Attard v Transport for NSW [2014] NSWLEC 44; (2014) 205 LGERA 396 Brock v Roads and Maritime Services [2012] NSWCA 404; (2012) 191 LGERA 267 Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109; (2007) 210 LGERA 1 Constantine v Blacktown City Council (No 2) [2016] NSWLEC 81 Director of Buildings & Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 El Boustani v Minister administering the Environmental Planning and Assessment Act 1979 [2014] NSWCA 33; (2014) 199 LGERA 198 Elmon Pty Ltd and Lastep Pty Ltd v Roads and Maritime Services [2016] NSWLEC 168 George D Angus Pty Limited v Health Administration Corporation [2013] NSWLEC 212; (2013) 205 LGERA 357 Hoy v Coffs Harbour City Council [2016] NSWCA 257; (2016) 281 LGERA 411 Konduru T/as Warringah Road Family Medical Centre v Roads and Maritime Services; Konduru v Roads and Maritime Services; Konduru v Roads and Maritime Services [2017] NSWLEC 36; (2017) 224 LGERA 262 Macarbell Pty Limited v RTA, Nasser v RTA [2006] NSWLEC 651; (2006) 149 LGERA 217 Marshall v Director-General, Department of Transport (2001) 205 CLR 603; [2001] HCA 37 Roads and Traffic Authority of NSW v McDonald [2010] NSWCA 236; (2010) 175 LGERA 276 Roads and Traffic Authority of New South Wales v Peak [2007] NSWCA 66 SNS Pty Ltd v Roads and Maritime Services [2018] NSWLEC 7 Stephen Anthony Horton and Kay Elizabeth Horton v Wyong Shire Council (No.2) [2005] NSWLEC 45 Taylor v Roads and Maritime Services [2016] NSWLEC 138 The Minister v NSW Aerated Water & Confectionery Co Ltd (1916) 22 CLR 56; [1916] HCA 48 Tolson v Roads and Maritime Services [2014] NSWCA 161; (2014) 201 LGERA 367 Texts Cited: Australian Accountancy Standard AASB 13 Category: Principal judgment Parties: United Petroleum Pty Limited (Applicant) Roads and Maritime Services (Respondent) Representation: Counsel: I J Hemmings SC with J McKelvey (Applicant) M J Astill (Respondent) Solicitors: Thomson Geer (Applicant) Corrs Chambers Westgarth (Respondent) File Number(s): 2016/00160710 Judgment Introduction 1. On 28 August 2015, Roads and Maritime Services ('RMS') compulsorily acquired the land and improvements comprising Lots 1 and 2 in Deposited Plan 517094 and Lot 1 in Deposited Plan 527320 known as 4928 Pacific Highway, Harwood ('Land') for road works associated with the Pacific Highway Upgrade, Woolgoolga to Ballina Project. The Land was owned by Lastep Pty Limited ('Lastep') and Elmon Pty Limited ('Elmon'). 2. The applicant, United Petroleum Pty Limited ('United'), occupied the Land as tenant pursuant to an informal oral lease from Lastep and Elmon, upon which it operated a service station and restaurant business known as the Harwood Roadhouse. United objects to the amount of compensation offered by RMS for the acquisition of its interest in the Land, being the sum of $139,319, and brings these proceedings pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ('Just Terms Act'). 3. In addition to relatively minor claims for legal costs, valuation fees, and rent paid to RMS for a period after the acquisition, United claims compensation for loss attributable to disturbance based upon either the anticipated costs of relocation of the service station (and United's associated short term loss of profits) or, if the service station cannot be relocated, for the permanent loss of profits suffered by United from its inability to conduct its business on the Land. 4. RMS primarily contends that no compensation is payable because compensation for both the Land and the operation of the Harwood Roadhouse was accounted for in the determination of compensation already paid to Lastep and Elmon. RMS further contends that because there is nowhere to relocate United's business, the costs of relocation are not likely to be incurred. RMS also contends that the costs claimable under the Just Terms Act are limited to costs that might reasonably be incurred relating to United's actual use of the Land, which RMS characterises as being simply the occupation of a service station, and, as such, United's relocation claims in relation to planning, rezoning, and building a new service station are outside the scope of the Just Terms Act. In any case, RMS submits that any costs that United would incur in relocating would relate to relatively minor matters such as "rebadging" and the like. 5. In the hearing of these proceedings, I have been assisted by Acting Commissioner Parker under s 37(1) of the Land and Environment Court Act 1979 (NSW) ('LEC Act'). Background The Land 1. The Land has an area of 8,436m2. At 28 August 2015 ('acquisition date'), the improvements on the Land comprised a service station (including underground petroleum storage tanks, an LPG storage tank and associated lines), a café/shop, a toilet block, a dwelling house, a shed, and a bitumen hardstand area. RMS was given vacant possession on 7 April 2016 ('date of vacant possession'). Between the acquisition date and 7 April 2016, United continued to occupy the Land and paid rent to RMS in the sum of $129,340. Various interests in the Land United 1. United is a privately owned company incorporated in 1999. United is the trustee for the United Petroleum Unit Trust which has two primary beneficiaries being related entities of its two founding directors, Avi Silver and Eddie Hirsch. It operates a "high turnover fuel retailing business" through a large retail network of service stations (referred to for convenience as 'United Group'). At the acquisition date, the Harwood Roadhouse was one of over 300 United service stations across Australia. These service stations have an annual turnover of over a billion dollars. Over a number of years, United has adopted a business practice whereby it operates its fuel retailing operations on premises, primarily service stations and convenience store sites, which it leases from various land holding companies (including Lastep and Elmon) which are owned individually by Messrs Silver and Hirsch. 2. In accordance with this business practice, United occupied the Harwood Roadhouse between 7 December 2001 and the acquisition date. Its tenancy was pursuant to an oral lease entered into with Lastep and Elmon. At the acquisition date, United was paying Lastep and Elmon monthly rental in the sum of $6,333.33. 3. From 1 April 2002, United operated the Harwood Roadhouse, including the café/shop, through commission agents, Terrence Cork and Giannina Cork. This arrangement was governed by a Commission Agency Agreement between United and Mr and Mrs Cork for the specific purpose of operating the service station, convenience store, and food outlet on the Land. Mr and Mrs Cork also used the dwelling house on the Land as a private residence. The Commission Agency Agreement could be terminated by United at any time by giving 48 hours' notice to Mr and Mrs Cork. The operation of the café/shop did not represent a material revenue stream for United as the primary source of income from the site was fuel sales which were approximately $5.3 million in the 2015 financial year. Lastep and Elmon 1. Prior to acquisition, the Land was owned by Lastep and Elmon which, as above, are special purpose entities incorporated in 1999 to hold land and assets. Lastep and Elmon have no employees and were used by United to acquire the Land and the service station. On 7 December 2001, Lastep and Elmon purchased part of the Land, being Lots 1 and 2 in Deposited Plan 517094 and the Harwood Roadhouse business, later renamed the United Harwood Roadhouse. The remainder of the Land, being Lot 1 in Deposited Plan 527320, was purchased by Lastep and Elmon on 16 January 2003. 2. Relevant to the position of RMS in these proceedings, following the acquisition of the Land on 28 August 2015, the interests of Lastep and Elmon in the Land were valued by the Valuer-General for compensation purposes in the sum of $3,114,540, comprising market value in the sum of $2,950,000 and disturbance in the sum of $164,540, and, in accordance with s 42 of the Just Terms Act, an offer of compensation in that amount was made to Lastep and Elmon by RMS. 3. Although Lastep and Elmon initially refused the offer and commenced Class 3 proceedings in this Court challenging the quantum of compensation, prior to any substantive hearing, Lastep and Elmon, pursuant to s 44(1) of the Just Terms Act, accepted the statutory offer that had been made by RMS. Accordingly, despite some opposition on the part of RMS, in Elmon Pty Ltd and Lastep Pty Ltd v Roads and Maritime Services [2016] NSWLEC 168, Moore J formally entered orders including: Compensation is determined in the sum of $3,114,540 as assessed by the Valuer-General pursuant to s 55 of the Land Acquisition (Just Terms Compensation) Act 1991… Overview of competing claims 1. On 19 November 2015, the Valuer-General determined compensation payable to United based solely on disturbance pursuant to s 55(d) of the Just Terms Act in the sum of $139,319. This comprised $129,119 for the extinguishment of United's business, and legal and valuation fees in the sum of $10,200. 2. United claims compensation for loss attributable to disturbance comprising legal costs pursuant to s 59(1)(a); valuation fees pursuant to s 59(1)(b); and financial costs incurred in connection with relocation pursuant to s 59(1)(c); and, in the alternative to relocation costs pursuant to s 59(1)(c), financial costs relating to the actual use of the Land pursuant to 59(1)(f); as well as repayment of rental paid by United to RMS for occupation of the Land from the acquisition date to the date of vacant possession pursuant to s 59(1)(f). There is also a dispute in relation to the ownership of various assets and whether United is entitled to recover any compensation in that regard. 3. The claims with respect to each of s 59(1)(a) and s 59(1)(b) are relatively straightforward and relate to compensation for legal and valuation fees incurred in connection with the acquisition. The claim in relation to s 59(1)(c) and, alternatively, s 59(1)(f), raises matters of nicety as this claim is based on either the anticipated costs associated with the relocation of the Harwood Roadhouse, including short term loss of profits, or alternatively the permanent loss of profits that United says it would have derived but for the acquisition. 4. As noted above, RMS primarily relies upon the fact that the compensation received by Lastep and Elmon for the acquisition was determined (initially by the Valuer-General and then "determined", albeit without substantive hearing, in this Court) on the basis that the lease pursuant to which United occupied the site and conducted its business operations could have been terminated at any time (being a statutory tenancy at will). Therefore, RMS submits that the market value component of the compensation paid to Lastep and Elmon comprised the value of both the Land and business thereon as a going concern. RMS contends that the determination of the compensation paid to Lastep and Elmon was consistent with authority that lost future profits from the business being carried out on acquired land are recoverable (and have been recovered) by the owners of the land. 5. In relation to United's claim for relocation costs (and associated loss of profits) RMS maintains that as no appropriate site is available or has been found, relocation simply cannot be claimed and further, that the costs United would incur in relation to any relocation would be minor. 6. United maintains that the compensation paid to Lastep and Elmon, and the manner of any determination thereof, is irrelevant to its claim for compensation in these proceedings, which is made by a different entity and is based solely upon disturbance and not market value. 7. The parties' competing positions detailing the amounts derived from the expert evidence are summarised in the table below. In the table, "Relocation Scenario 1" refers to the situation, considered by the expert witnesses, where United would lease a site and build a new service station from which to operate its business; whilst "Relocation Scenario 2" refers to the situation in which United would lease an existing service station requiring only fit-out and rebranding. Both scenarios would involve the physical relocation of the business. United contends that each would likely require it to obtain development consent. In its submissions, United relied primarily upon Relocation Scenario 2. Head of compensation United's position RMS's position Legal costs $13,206.50 (A) Nil s 59(1)(a) Valuation fees $14,861.21 (B) Nil s 59(1)(b) Relocation costs Relocation Scenario 1 Relocation Scenario 2 Nil s 59(1)(c) $3,127,033 (C) $1,969,504 (D) Other financial costs Alternative relocation claims if not awarded under s 59(1)(c): Nil s 59(1)(f) Scenario 1 - $3,127,033 (E) or, in the alternative, $170,306 Scenario 2 - $1,969,504 (F) Short term loss of profits until relocated: Scenario 1 - $1,252,640 (G) Nil Scenario 2 - $1,227,720 (H) Permanent loss of profits if not relocated: $2,923,529 (I) Nil or, in the alternative, $165,000 Rental: $129,340 (J) Nil TOTAL Relocation Scenario 1 - $4,537,080.71 Nil (A + B + C or E + G + J) Relocation Scenario 2 - $3,354,631.71 Nil (A + B + D or F + H + J) Permanent Lost Profits - $3,080,936.71 Nil (A + B + I + J) or, in the alternative, either $165,000 or $170,306 1. Briefly stated, apart from the claims for legal costs and valuation fees, United contends, assuming the Court accepts that relocation is possible, that the Court would accept United would be likely to incur costs of $3,127,033 in planning, development and construction costs to achieve relocation in Scenario 1 and, in the alternative, it would be likely to incur costs of $1,969,504 planning, development and fit-out costs to achieve relocation in Scenario 2. United contends that the physical relocation costs involved in either scenario are financial costs that would be "reasonably incurred in connection with the relocation…" in accordance with s 59(1)(c) and, in the alternative, "reasonably incurred (or that might be reasonably incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition" such that it is entitled to those costs under s 59(1)(f) of the Just Terms Act. 2. In relation to each relocation claim, a claim under s 59(1)(f) is also made for the loss of profits which United contends it will not receive unless, or until, the service station is relocated. United contends that such a loss of profit is calculated by determining the expected profit United would have received from the Harwood Roadhouse and adjusting the quantum to take into account the time value of money and the risks of achieving the expected profit. 3. If the Court finds that the service station business cannot be relocated, United contends that the profit contribution made by the Harwood Roadhouse business will be lost to it forever and claims, in the alternative to Relocation Scenarios 1 and 2 (and the claim for interim loss of profits), permanent loss of profits in the sum of $2,923,529. 4. Finally, as a discrete claim pursuant to s 59(1)(f), United claims the rent it paid to RMS between the acquisition date and the date of vacant possession, being the sum of $129,340 ('rental claim'). 5. The competing contentions require, first, the determination of whether United is entitled to compensation as claimed, and if so, whether each claim fits within the statutory heads in s 59(1); and, second, the correct manner of calculating any such loss. I will make a determination with respect to these matters, then direct the parties to file agreed schedules with the Court reflecting my findings. I will then make final orders determining United's claim for compensation. 6. In determining United's claims, one of the issues requiring determination is the correct approach to be applied when an insecure tenant claims, among other things, lost profit from the same business that RMS contends was taken into account in the determination of the compensation paid to the Land owners. In doing so, RMS submits the insecure tenant relies upon the relationship (being the insecure tenancy) that was required to be put aside when determining the owners' compensation so as to show that the tenant (United) would have been allowed to remain in occupation indefinitely notwithstanding the insecurity of the tenure. 7. Prior to considering the evidence and the position of the parties in more detail, it is relevant to note that RMS does not deny that United had a relevant interest in the Land within the meaning of the Just Terms Act, in that as at the acquisition date it enjoyed at least a statutory tenancy at will pursuant to s 127 of the Conveyancing Act 1919 (NSW). The statutory scheme 1. The amount of compensation to which a claimant who has an interest in land that has been divested, extinguished or diminished by an acquisition is entitled is determined pursuant to Div 4, Pt 3 of the Just Terms Act. The matters that are to be taken into account in determining compensation are exhaustively set out in s 55, which provides: 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition, (b) any special value of the land to the person on the date of its acquisition, (c) any loss attributable to severance, (d) any loss attributable to disturbance, (e) the disadvantage resulting from relocation, (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. 1. Also relevant are ss 54, 56 and 59 of the Just Terms Act, which provide: 54 Entitlement to just compensation (1) The amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land. (2) If the compensation that is payable under this Part to a person from whom native title rights and interests in relation to land have been acquired does not amount to compensation on just terms within the meaning of the Commonwealth Native Title Act, the person concerned is entitled to such additional compensation as is necessary to ensure that the compensation is paid on that basis. 56 Market value (1) In this Act: market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. (2) When assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest in the land must not (except with the approval of the Minister responsible for the authority of the State) exceed the market value of the land at the date of acquisition. (3) If: (a) the land is used for a particular purpose and there is no general market for land used for that purpose, and (b) the owner genuinely proposes to continue after the acquisition to use other land for that purpose, the market value of the land is taken, for the purpose of paying compensation, to be the reasonable cost to the owner of equivalent reinstatement in some other location. That cost is to be reduced by any costs for which compensation is payable for loss attributable to disturbance and by any likely improvement in the owner's financial position because of the relocation. 59 Loss attributable to disturbance (1) In this Act: loss attributable to disturbance of land means any of the following: (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees of a qualified valuer reasonably incurred by those persons in connection with the compulsory acquisition of the land (but not fees calculated by reference to the value, as assessed by the valuer, of the land), (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs), (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition. (2) Subject to the regulations, a reference in this section to a qualified valuer is a reference to a person who: (a) has membership of the Australian Valuers Institute (other than associate or student membership), or (b) has membership of the Australian Property Institute (other than student or provisional membership), acquired in connection with his or her occupation as a valuer, or (c) has membership of the Royal Institution of Chartered Surveyors as a chartered valuer, or (d) is of a class prescribed by the regulations. Evidence 1. Given that United bases its claim upon the costs of relocation and loss of profits (either short term or permanent), it marshalled extensive evidence comprising testimony from a number of employees in relation to its business practices, detailed background documentary material, and expert evidence in the disciplines of town planning, quantity surveying and forensic accounting/business valuation. RMS also marshalled expert evidence in relation to these three disciplines as well as background documentary material relating to its dealings with Lastep and Elmon. United's lay evidence 1. United called evidence from Shmuel Carmeli, United's National Acquisitions Manager; Poh Lee, United's Head of Cards; David Szymczak, United's Chief Operating Officer; Ajith Parakrama Abeynaike, United's Group Financial Controller; Tarun Khanna, United's Fixed Asset Controller; Sarah-Jane Spry, United's Legal Assistant; and Samantha Agnes Yeung, solicitor. The evidence was largely uncontested, apart from RMS's concerns regarding the ownership of assets at Harwood Roadhouse. In addition to the background facts set out above, it may be summarised as follows: 1. United's fuel retailing business, which commenced in 1993, involved it leasing service stations and convenience store sites from companies owned equally by United's two founding directors, Avi Silver and Eddie Hirsch. Lastep and Elmon are two of approximately 298 similar "land holding" companies owned by Messrs Silver and Hirsch which have acquired petrol station sites across Australia for the specific purpose of leasing them to United's fuel retailing business. 2. United's usual practice, and that adopted in relation to the Harwood Roadhouse, was that two corporate entities owned by Messrs Silver and Hirsch respectively would purchase the real property and that United would purchase the business thereon including all plant and equipment. The arrangement was that if equipment had been purchased by the entities as part of the property purchase, it would be transferred to United. This practice applied across the whole of United's operations such that United remained responsible for structural repairs and maintenance of tanks, lines and equipment. Relevantly, at least according to United, the plant and equipment at the Harwood site, including the tanks and lines, were owned by United which was responsible for the maintenance and upkeep of the service station, tanks, lines, and shop fit-out. 3. United occupied the Land as tenant pursuant to an oral lease from the registered proprietors, Lastep and Elmon. As at the acquisition date, United was paying Lastep and Elmon rental in the sum of $76,000 per year for the Harwood site. This amount was below the market rate. After acquisition, United continued to operate its business on the site up until the date of vacant possession and paid rent to RMS pursuant to s 34 of the Just Terms Act at a daily rate of $580 ($213,000 per year). This equated to a total amount of $129,340. 4. At the acquisition date, United's national service station network comprised 362 United branded and operated retail sites. Of these, 30 were located within 200km of the Land, including 8 within 100km and 16 within 150km. United's fuel retailing business is focused on sub-metropolitan and regional markets with regional sites located on major highways near townships. 1. Mr Carmeli deposed that he is a qualified valuer and specialises in valuation of petrol stations. In addition to some of the background facts above, Mr Carmeli gave evidence as follows: 1. He is responsible for sourcing new fuel retailing opportunities across Australia and developing the sites. In his experience, there are three kinds of property acquisition undertaken by United: first, the acquisition of an existing service station which can be rebranded; second, the acquisition of a greenfield site where a service station is permitted with development consent; and third, the acquisition of a greenfield site where a service station is not permitted. In relation to relocating the Harwood site, Mr Carmeli deposed that an existing service station site would be the preferred option, being the most efficient both with respect to time and cost. 2. United's service stations are focused on sub-metropolitan and regional markets. 3. The site at Harwood benefits from frontage to the Pacific Highway and services a number of surrounding towns. United has service stations located at 50km south-west of the site at South Grafton, and 80km north of the site at Lismore. In order to "fill the gap" caused by the acquisition, United would need to relocate the Harwood site to a new site within the Harwood site's locality. An "alternative comparable site" to the Harwood site ideally would be located with direct access to the Pacific Highway, be supported by a cluster of townships, be a site not likely to be acquired or bypassed in the future, have a road frontage of 75 to 100 metres, have an area of 6,000 to 10,000 square metres, and be located in a zone where service stations are permitted with development consent (or benefit from existing use rights). 4. The matters he would consider in identifying and acquiring a potential new site include various studies and web-based tools which provide demographic, government and industry data viewed through a mapping platform, as well as searching the available property market for appropriate listings. He would thereafter conduct a title search and approach the land owner. 5. United's sourcing of a new fuel retailing opportunity would include the following steps: searching, considering design, procuring a costs estimate, considering feasibility, making an offer and conducting negotiations, making formal agreements for lease or sale, preparing the design and development application and completing an environmental assessment of the site. 6. In relation to attempts to relocate the Harwood Roadhouse business, United had identified a number of sites (including, in December 2014, a site at Mororo in New South Wales; and, in January 2016, a site at Halfway Creek and at Tyndale) which were not "pursued" for various reasons including purchase price, proximity to competing businesses, distance from townships where United had service stations and the likelihood of the site being bypassed in the near future. One of the reasons for the Mororo site not being pursued was that United did not want to commit to acquiring or leasing until compensation for the Harwood Roadhouse acquisition had been determined. 7. At the date of hearing, notwithstanding that a new site had not been identified to replace the Harwood site, it was United's intention to continue its search. Mr Carmeli opined that there "are opportunities between Coffs Harbour and Tweed Heads". According to Mr Carmeli, it is simply a matter of those sites becoming available and being commercially appropriate for the business model of United. 8. Around the acquisition date, United salvaged some items for potential use at an alternative property once a suitable replacement property was identified and secured. Some items were left behind because of United's view that they either could not be used elsewhere or could not be removed in the timeframe available. Mr Carmeli produced an "asset register" of items left on the site and an "asset register" of items removed. 9. At the acquisition date, leases between United and the land holding companies owned by Messrs Silver and Hirsch were in the process of being formalised in preparation for United to be listed on the Australian Securities Exchange and, but for the acquisition of the Land by RMS, the oral lease between Lastep and Elmon and United would have been formalised. The formalised leases which have been entered into by United and related landlord entities after 2015 have been for a term of between 15 and 20 years, with options to renew for five year periods, giving a total lease term of between 35 and 45 years. 10. Mr Carmeli deposed that all items listed on the asset registers for the Harwood site were owned by United and that the practice of United is for United to purchase the land and equipment at a particular site, whilst two land holding companies purchase the land itself. In the case of the Harwood site, Mr Carmeli acknowledged that both the Land and assets were originally owned by Lastep and Elmon, but stated that the assets were subsequently transferred to United, as per the asset registers. Town planning evidence 1. Town planning evidence was given by David Haskew for United and Anthony Rowan for RMS. Each of the town planners prepared an individual report responding to different instructions relating to United's relocation claims and thereafter met and prepared a joint planning report. The town planning evidence may be summarised as follows: 1. Mr Haskew was instructed to consider the planning and development process, and likely costs and timing thereof, which would need to be undertaken by United in relocating the Harwood service station to another unidentified site in four factual scenarios, being: first, the occupation and rebranding of an existing service station with the use of existing underground fuel tanks; second, the occupation of an existing service station requiring replacement of underground fuel tanks; third, the construction of a new service station on a site where the current zoning permits such development; and fourth, the construction of a new service station on a site where the current zoning would need to be changed. His report contained his estimates of the costs and timing for the preparation, lodgement, and consideration of a development application in relation to each scenario. Given the varying work that would be entailed in each scenario, his costs estimates ranged from approximately $49,000 for the first scenario up to approximately $168,000 for the fourth scenario. He estimated that the total time frame to prepare a development application and procure approval for a new service station or a "refit" of an existing one would be 7 to 12 months. For the rebranding scenario, which United ultimately submitted was "reasonable", adopting a "weighted average" approach, he estimated the likely cost would be $64,014. 2. Mr Rowan was instructed to provide an opinion in relation to four tasks: first, to opine as to the highest and best town planning use of the Land; second, to identify any planning matters he considered relevant; third, to identify any land within a 20km radius of the Land on which the use of a service station or highway service centre is permissible; and fourth, to consider various matters raised in an earlier planning report prepared on behalf of United. He opined that there is no land suitable within a 20km radius of the Land. 3. The joint report and the oral evidence primarily considered the various relocation scenarios prepared by Mr Haskew. The principal area of disagreement was that Mr Rowan considered Mr Haskew's approach flawed in two respects: first, the scenarios considered were general and did not relate to any specific location proximate or comparable to the Land and, second, the scenarios assumed a need to upgrade, improve and redevelop in order to enable relocation of the current uses without specifying any particular scope of work or operation. Thus, Mr Rowan did not consider the scenarios to be useful in determining the likely cost and timing of potential development applications as they were too broad. Quantity surveying evidence 1. Quantity surveying and cost assessment evidence in relation to any possible relocation was given by Jonathan Marriott for United and David Lawson for RMS. Each of the quantity surveyors prepared an individual report and thereafter prepared a joint report. 2. Mr Marriott undertook three costs assessments, being: 1. the present day as new cost of the assets he was instructed were installed and owned by United at the Harwood site at the acquisition date ('subject property asset cost'), which he initially based upon the original fit-out works undertaken by United to upgrade the Harwood Roadhouse into a functioning service centre some years earlier, assessed at $474,293.31, and later, based on an updated "asset register", at $292,983.79 (plus 20% contingency); 2. the present day cost estimate for constructing a comparable service station on a greenfield site (excluding associated development application fees) ('relocation alternative'), which he assessed at $3,072,628 (excluding GST); and 3. the present day cost estimate for "rebranding" a comparable existing service station to a United service station (which Mr Marriott was instructed involved a scope of works with 12 specific works, including replacement of some items such as tanks, bowsers, fuel lines, pumps, hardstand and cool room) ('rebranding alternative'), which he assessed at $2,163,395 (excluding GST). 1. In response, Mr Lawson, with considerable reservations as to the lack of information and the inability to inspect the site, addressed Mr Marriott's three assessments as follows: 1. whilst noting that "it is impossible to determine the extent or value of assets", Mr Lawson assessed the "subject property asset cost" by considering the asset register which was provided to, and assessed at a value of $474,293.31 by, Mr Marriott, including adjustments; 2. Mr Lawson assessed a scenario similar to the relocation alternative at $3,550,000 (excluding GST); and 3. Mr Lawson assessed a scenario similar to the rebranding alternative at $2,080,000 (excluding GST). 1. In their joint report, the quantity surveyors estimated the capital costs for works required to address the relocation options detailed in the town planning joint report (excluding costs associated with design and submitting a development application and associated costs) and made adjustments to their assessments to be on a "like for like" basis and concluded as follows: Alternative Mr Marriott Mr Lawson relocation alternative $3,053,953 $3,545,335 rebranding alternative $1,955,490 $2,105,637 1. The joint report did not deal with the assessment of the value of existing assets which had been considered by Mr Marriott in his individual report. 2. As noted above, at hearing Mr Marriott adjusted his earlier estimate to take into account an updated asset register that took into account certain items that had been removed. At the request of the Court, and to address a concern of RMS that not all the twelve specific items of works Mr Marriott had been instructed to include in his assessment were necessary to be undertaken in the rebranding scenario, the quantity surveyors jointly prepared a cost breakdown of each of the 12 specific works that comprised Mr Marriott's rebranding scenario. 3. The jointly prepared table below details the total cost of these works at approximately $1.383 million. 4. The breakdown provided as follows: Rebranding $ Total 1. Re-cladding an existing canopy to "United" colours PLUS new United Corporate signage 143,194 2. Removal of existing fuel delivery infrastructure 136,469 3. Supply and install fuel delivery system including tanks, bowsers, fuel lines and pumps 764,260 4. Survey and clean existing stormwater system 30,326 5. Shop front corporate branding 27,112 6. New hardstand area and new line marking to forecourt area 71,267 7. Replacement of existing floor covering throughout 28,871 8. General refresh of finishes 59,743 9. General refresh of landscaping 7,582 10. Adjustments to existing power, lighting and fire services to suit new fitout and layout 41,699 11. Integration of new cool room 75,816 12. Installation of the United Petroleum direct fitout items (as per the revised asset register tabled) 351,581 1. Included in the list of works (at item 12) is the amount of $351,581, being Mr Marriott's "subject property asset cost" (noted at [34(1)] above) which was described as the "installation of the United Petroleum direct fit-out items…" 2. In final submissions, considered in further detail below, RMS maintained its position that if the Court accepted the "rebranding alternative" as a basis to determine compensation, the Court would find that only two of the items (being item 1, "Re-cladding an existing canopy to 'United' colours plus new United Corporate signage", and item 5, "Shop front corporate branding"), totalling $170,306, would reasonably be required to be undertaken. Forensic accounting/business valuation evidence 1. Forensic accounting/business valuation evidence was given by Adam Giliberti for United and Rodney Ferrier for RMS. Each of the accountants prepared an individual report and thereafter prepared a joint report. 2. Mr Giliberti in his primary report assessed United's claim for disturbance from the viewpoint of the United Group as a whole on four bases, three including hypothetical relocation to various sites. In relation to the relocation options, Mr Giliberti adopted "midpoint" positions of both the town planners (in relation to timing for the re-establishment of the business) and the quantity surveyors (in relation to preliminary and construction costs) to assess the claim for disturbance. 3. In the rebranding option, being the relocation to an existing service station to be rebranded ('rebranding option'), which was the preferred option in United's final submissions, Mr Giliberti assessed the costs at $3,896,635 (comprising $2,263,715 relocation construction costs, and $1,528,393 comprising loss of profits for 46.5 months, plus $104,527 interest on loss of profits). In the first relocation option, being relocation to a greenfield site with zoning permission for a service station ('first relocation option'), Mr Giliberti assessed the costs at $5,057,188 (comprising $3,394,127 construction costs, and $1,556,605 comprising loss of profits for 48 months, plus $106,457 interest on loss of profits). In the second relocation option, being relocation to a greenfield site where zoning permission for a service station would need to be obtained ('second relocation option'), Mr Giliberti assessed the financial costs at $5,790,582 (comprising $3,467,320 pre-construction and construction costs, and $2,174,544 comprising loss of profits for 74 months, plus $148,718 interest on loss of profits). 4. Apart from the rebranding and relocation options, Mr Giliberti also assessed loss of profits assuming the total and permanent extinguishment of the business activities conducted by United at the Harwood site ('extinguishment option'). This calculation comprised United's loss of profits in perpetuity, adopting a capitalised maintainable earnings methodology and adding, in accordance with his instructions, the value of assets said to have been installed at the site as detailed in Mr Marriott's quantity surveying report (referred to above as "subject property asset cost") at $4,153,185. 5. Mr Giliberti's methodology in assessing the extinguishment option included his judgment with respect to the two variables used. First, he opined that the annual loss of profits should be assessed at $584,000. Second, he assessed the appropriate capitalisation rate at 5.9, being 1 divided by the risk adjusted discount rate, which he assessed at 16.96%. 6. Dr Ferrier in his primary report assessed United's claim for disturbance under four scenarios which can be separated into two distinct categories, being rebranding and extinguishment scenarios. He presented an alternative under each scenario. 7. In Dr Ferrier's report, the rebranding scenarios assumed that the business could be relocated to a comparable developed service station within the general area. He then calculated compensation as comprising the costs of making good and rebranding the leased service station to which the business is to be relocated, plus the present value of any future loss of profits during and subsequent to the relocation, at either $300,258 if the relocation takes a period of 15 months, or $774,121 if it takes a period of 69 months. 8. In Dr Ferrier's report, the extinguishment scenarios assumed that the business could not be relocated. In that circumstance, Dr Ferrier assessed the compensation for the extinguishment of the business activities conducted by United at the Harwood site in two ways. First, he determined the price that a purchaser would reasonably have paid to United for that business, being the "fair market value" of the goodwill of the Harwood service station, reduced by an amount recovered from the disposal of assets to a purchaser of the business, which he assessed at $130,000 for the subject property alone. Second, he determined the loss as the reduction in the value of United's goodwill, based upon a permanent reduction in the profits (and goodwill), which he assessed at $936,000 for the United Group as a whole. 9. The $936,000 figure was calculated by adopting the average earnings before interest and tax, using figures from the three years ending 2015 at the Harwood property, and then adjusting the figure for fair market rent for the Land and what Dr Ferrier termed "profits not lost". Dr Ferrier then used this average annual earnings figure to capitalise United's lost profits, using a discount rate which added a further 15% for weak tenure. 10. Relevantly, in his first extinguishment scenario, Dr Ferrier considered the likely effect on "fair market value" of the fact that the business occupied the property on a month to month basis. He opined that a prospective purchaser of the business would consider that there was a significant risk that the business value could be taken by the landowners terminating United's occupation with one month's notice. Despite expressing doubt that a purchaser for United's interest could be found in such circumstances, Dr Ferrier assumed for the purposes of the report that a hypothetical purchaser could be found but that any such purchaser would allow for the "weak tenancy" by way of an adjustment to the capitalisation rate. 11. Thus, reflecting an assumption of one month's tenure, Dr Ferrier assessed the market value of the goodwill of the Harwood service station at $130,000 (i.e. the "price" referred to above), as follows: 1. assessing maintainable earnings at $253,000; 2. finding a capitalisation rate, having regard to the risk, of 83%. It should be noted that what Dr Ferrier referred to as the capitalisation rate, Mr Giliberti in his report referred to as the "risk adjusted discount rate". What Mr Giliberti referred to as the capitalisation rate, Dr Ferrier called an "earnings multiple". Notwithstanding these differences, the methodology adopted was the same. The capitalisation rate gave an earnings multiple of 1.2 (as against Mr Giliberti's figure of 5.9), which equated to a figure of $304,819. Dr Ferrier rounded this to $305,000; 3. subtracting an allowance for immediate capital expenditure required by the purchaser due to what Dr Ferrier understood was the relatively poor condition of the subject property of $100,000, giving $205,000; and 4. subtracting the written down value of plant and equipment and other tangible assets of $75,914 (as per Mr Carmeli's evidence), giving a final figure of $128,086. Dr Ferrier explained that the value of a business' goodwill is calculated by deducting the value of the plant, equipment, and other tangible assets from the total value of the business. Dr Ferrier rounded the final figure to $130,000. 1. In relation to his second extinguishment scenario, that the reduction in the value of the goodwill of the United Petroleum Unit Trust was valued at $936,000, Dr Ferrier opined that it would be financially unreasonable for a business to incur total rebranding costs (including loss of profits) which exceeded the fair value of the goodwill protected by that relocation. It followed that, in Dr Ferrier's view, it would be unreasonable for the United Group to incur more than $936,000 in total relocation expenses. 2. In the joint report, the experts considered the possible scenarios and approaches which could be reasonably adopted by the Court for the purposes of assessing United's claim for disturbance and the quantification of loss which would arise from specific scenarios (using the different approaches). Importantly, they agreed that if disturbance under s 59(1)(f) of the Just Terms Act is considered by the Court to reflect a "loss of profits" which has been extinguished from the perspective of the United Group, the correct approach to quantify disturbance is: first, to determine the expected profits which would have been derived had the acquisition not occurred (but will not be derived because of the acquisition); and second, to convert that loss of profits to a present value using a risk-adjusted discount rate which takes into account both the "time value of money" and the risk which would have attached to that loss of profits. 3. There were differences in relation to the calculation of the time value of money. Mr Giliberti opined that if the loss of profits is expressed as a present value at a point in time in the past, that figure should be adjusted for the "time value of money" which is interest accruing from the date which the loss is expressed to the date that compensation is paid. Dr Ferrier did not consider whether interest should be added to any assessment of loss. 4. The experts agreed that if compensation was to be determined by the Court on a relocation basis, the Court may adopt a time frame for relocation that reflects one of the proffered scenarios for the purposes of assessing United's claim for the lost profits component. This would be assessed at 100% loss of profits for the number of months of no trading (which would depend on which relocation scenario was adopted), plus 25% loss of profits for 12 months following the commencement of trading at the assumed relocated site. 5. The experts also agreed that if disturbance under s 59(1)(f) is held by the Court to consist of the extinguishment of the Harwood Roadhouse as a standalone business, the correct approach to quantify disturbance is to determine the "fair market value" of the goodwill which has been extinguished. 6. Mr Giliberti and Dr Ferrier further agreed that, in relation to the extinguishment claim, if the Court determined that United did not have secure tenure for greater than one month, then a period of one month of 100% loss of profits would apply. 7. The experts failed to agree on the correct approach in relation to determining "goodwill" and "expected profits". In relation to goodwill, Dr Ferrier favoured an assessment of the "fair market value" of goodwill of the Harwood Roadhouse operation on its own for the purposes of assessing disturbance on a business extinguishment basis whereas Mr Giliberti considered that goodwill is an unidentifiable, intangible asset which cannot be separated from United's business operations considered as a whole. Therefore, in Mr Giliberti's view, Dr Ferrier's determination of a value for goodwill on a "walk-in / walk-out" basis was not an appropriate approach. He gave four reasons: first, the Harwood Roadhouse was not operated by United as a standalone business – it was part of a network of over 300 retail fuel sites operated by United; second, United had no intention to sell the business; third, the value of the business had a greater value to United "in use" than a hypothetical sale as a standalone rural petrol station (because of the ability to realise "cost synergies" achieved from the scale of United's activities which may not be available to a hypothetical purchaser); and fourth, if every site operated by United was valued on a "walk-in / walk-out" basis, using Dr Ferrier's approach, it is likely that the sum of the individual parts of the business would most likely be less than the value of the whole of the business. 8. Thus, Mr Giliberti considered that, if the Court found that disturbance should be determined on an "extinguishment" basis, the correct approach would be to determine the "business value" and "goodwill value" in the United Petroleum Unit Trust, that is the whole of United's business before the acquisition, and then determine any change in the business value in the whole of the business as a direct and natural consequence of the acquisition. Mr Giliberti said this would be a large and complex exercise. As such, Mr Giliberti's position is that, on the basis that the Court determines relocation is not appropriate, disturbance should be calculated by reference to loss of profits in perpetuity. 9. Dr Ferrier did not agree with Mr Giliberti. He opined that the Harwood Roadhouse could be readily sold as a standalone business and, as a matter of commercial reality, if United decided to sell the Harwood Roadhouse and all the Land on which it operated, it could do so and, as a matter of fact, it is only the Harwood Roadhouse business which is being lost by United. Further, Dr Ferrier was of the view that it is unnecessary to know the value of goodwill attributable to all of United's other operations in order to assess the decline in United's goodwill brought about by the extinguishment of the Harwood Roadhouse business. 10. Mr Giliberti noted that if the Court considers extinguishment to be the relevant scenario, United would also claim the value of the tangible assets used at the site to generate profits. In response, Dr Ferrier says that compensation should not include the value of the tangible assets as those tangible assets which had value were in fact retained by United and therefore United has not lost those assets. Further, he says that the assets which were not retained were considered to have no value, therefore cannot result in any additional loss to United in addition to the value of extinguished goodwill. Dr Ferrier has reviewed the assets which were retained by United and adopted a net book value ($29,314) as a reasonable proxy for their net realisable value. 11. With respect to expected profits, Mr Giliberti and Dr Ferrier agreed that before acquisition the average annual contribution profit generated by the Harwood Roadhouse for the United Group was $584,000, and that this should be the "starting point" for the calculation of compensation. Although they agreed that $87,000 should be deducted to reflect costs incurred by the United Group in relation to, but not allocated to, the Harwood Roadhouse accounts, they differed on other adjustments to be made to the average contribution profit generated by the subject property for the United Group. 12. Dr Ferrier suggested the following adjustments be made: 1. an adjustment to reflect the market rent on the basis that the lease would have been formalised and that United would have been paying a fair market rent for the property which is agreed at $213,334 per annum ('market rent adjustment'); and 2. an adjustment to reflect gross profit which would have been derived from sales at the Harwood Roadhouse which, according to Dr Ferrier, can reasonably be expected not to have been lost by the United Group because those customers would make purchases from other United service stations ('profit not lost'). Dr Ferrier considered a reasonable assessment of that gross profit not lost would be $68,000 per annum. 1. Mr Giliberti agreed with Dr Ferrier that actual rent paid should be replaced with a market rent for the site if conducting a valuation of the fair market value of a business and its goodwill. Mr Giliberti agreed with the quantum of the market rent adjustment made by Dr Ferrier being a reduction in the reported profit by $137,334. In relation to customers who may attend other United service stations (the nearest located approximately 50km away from Harwood), Mr Giliberti opined that as there are competitor petrol stations located in the Harwood area, the quantum of the adjustment totalling $68,000 (the profit not lost) made by Dr Ferrier was without basis. 2. The experts' opinions as to the annual and monthly profits lost is set out in the table below: United Group Harwood Roadhouse Giliberti Ferrier Ferrier $ $ $ Annual contribution 584,000 584,000 497,600 Unallocated costs -87,000 -87,000 Less depreciation -31,200 Add actual rent 76,000 Less market rent -213,334 -213,334 Less: Profit recovered at other locations -68,000 Annual profit 497,000 291,666 253,066 Rounded to 497,000 292,000 253,000 Monthly 41,417 24,333 1. Concerning the appropriate discount rate, Mr Giliberti and Dr Ferrier agreed that an after tax discount rate of 17% was a reasonable starting point for the United Group, with Dr Ferrier then making an adjustment for tax to derive a discount rate of 24% and, importantly, a further adjustment of 15% for weak tenure. Mr Giliberti did not agree that it was appropriate to make an allowance for weak tenure, as Dr Ferrier had only considered a hypothetical purchaser's state of mind. In his view, a hypothetical vendor would take steps to ensure security of tenure before sale, and thereby alleviate Dr Ferrier's concern. 2. The experts reached the following conclusions with respect to the applicable discount rates: United Group Harwood Roadhouse Giliberti Ferrier Ferrier After tax discount rate 17% 17% 23% Tax adjustment 7% 10% Pre-tax discount rate 24% 33% Weak tenure risk premium 15% 50% Pre-tax discount with weak tenure 39% 83% 1. In the opinion of Dr Ferrier, the Harwood Roadhouse discount rate is the relevant discount rate in the circumstance that the Court determines compensation should properly be measured against the value of the goodwill of the Harwood Roadhouse business as extinguished by the compulsory acquisition. 2. For the reasons outlined above at [60], Mr Giliberti considered valuing the Harwood business as a standalone enterprise to be an inappropriate approach. 3. In his individual report, Dr Ferrier expanded upon the reasons why the weak tenure is less significant for the United Group as a whole. United, being "larger and more diverse" would be subject to less risk than the individual business. Dr Ferrier also took into account the fact that, prior to the compulsory acquisition, United had commenced a process of formalising leases in writing and that therefore some leases would have been secured by August 2015. Taking those factors into account, Dr Ferrier concluded that the weak tenure risk premium should be reduced from 50% for the standalone Harwood business to 15% for United as a whole. 4. Accordingly, as Mr Giliberti and Dr Ferrier differed on profit and discount rate, a wide divergence in their assessments of compensation arose based on loss of profits (excluding relocation costs). 5. Their figures as assessed depending on whether the relevant assessment period is determined to be 1, 46.5, 48 or 74 months, or perpetuity, are as follows: Loss (excluding interest) As at 7/4/16 As at 28/8/15 Monthly loss $ Discount rate (vacant (compulsory possession) $ acquisition) $ 46.5 months loss (an existing service station site rebranded) Giliberti (post-tax) 41,417 17% 1,227,720 1,213,348 Giliberti (pre-tax) 41,417 24% 1,126,270 1,108,246 Ferrier (post-tax) 24,333 17% 721,301 712,857 Ferrier (pre-tax) 24,333 24% 661,698 651,108 48 months loss (a greenfield site with zoning permission) Giliberti (post-tax) 41,417 17% 1,252,640 1,237,977 Giliberti (pre-tax) 41,417 24% 1,146,942 1,128,586 Ferrier (post-tax) 24,333 17% 735,942 727,327 Ferrier (pre-tax) 24,333 24% 673,843 663,059 74 months loss (a greenfield site requiring rezoning) Giliberti (post-tax) 41,417 17% 1,798,279 1,777,228 Giliberti (pre-tax) 41,417 24% 1,572,703 1.547,534 Ferrier (post-tax) 24,333 17% 1,056,511 1,044,143 Ferrier (pre-tax) 24,333 24% 923,982 909,195 Loss in perpetuity (assuming no relocation is possible) Giliberti (post-tax) 41,417 17% 2,923,529 2,538,284 Giliberti (pre-tax) 41,417 24% 2,070,833 1,706,340 Ferrier (post-tax) 24,333 17% 1,617,647 1,404,483 Ferrier (pre-tax) 24,333 24% 1,116,667 920,119 1 month loss (assuming the Court finds United did not have an interest in land beyond 1 month) Giliberti (post-tax) 41,417 n/a 41,417 41,417 Ferrier (post-tax) 24,333 n/a 24,333 24,333 1. In the circumstance that United's loss was to be calculated on the basis of the extinguishment or partial extinguishment of goodwill (that is, the value of United's interest in the Harwood Roadhouse if it were sold), in their joint report, Mr Giliberti and Dr Ferrier reached the following conclusions: Basis Mr Giliberti Dr Ferrier Harwood Roadhouse goodwill assuming tenure $2,115,682 $637,000 Harwood Roadhouse goodwill assuming weak tenure $nil $165,000 United Petroleum Trust goodwill assuming tenure $2,115,682 $1,116,667 United Petroleum Trust goodwill assuming weak tenure $N/A $648,708 1. The difference between the goodwill assessed from the perspective of the Harwood Roadhouse and United Petroleum Trust in the evidence of Dr Ferrier is a consequence of his opinion that the extinguished business is capable of being assessed as a standalone enterprise. 2. The further differences in the figures stem from the fact that Dr Ferrier considered that the income generated from the Land should be set against the market rent for the property rather than the actual quantum of rent being paid by United to Lastep and Elmon at the acquisition date; that the gross profit should be adjusted having regard to his position concerning the "profit not lost"; and the tangible assets included in Mr Marriott's schedule should not be included in the value of goodwill in the determination of a quantum for extinguishment (the assets are included in Mr Giliberti's figures). 3. The experts also differed in their approach to tax. Dr Ferrier adopted a pre-tax discount rate and a pre-tax profit. The pre-tax discount rate was calculated by grossing up the cost of equity by the company tax rate of 30%. This approach was adopted because the cost of equity was derived within the context of the Capital Asset Pricing Model, which is informed by observations of rates of return in the market for listed company shares which are subject to the 30% tax rate. 4. Mr Giliberti calculated the present day value of the future cash flows having regard to the discount rate by reference to three tax scenarios, being: 1. a post-tax, risk-adjusted discount rate (calculated by reference to the cost of equity) applied to the post-tax annuity amounts with a gross-up factor assuming the compensation award is taxable at a 30% tax rate; 2. a post-tax, risk-adjusted discount rate applied to the pre-tax annuity amounts with no gross-up factor assuming the compensation award is taxable at a 30% tax rate; and 3. a pre-tax, risk-adjusted discount rate applied to the pre-tax annuity amounts. This is the approach used by Dr Ferrier. Mr Giliberti noted that this methodology assumes that the sum of compensation is not taxable by the applicant notwithstanding it will be taxable in the hands of the beneficiaries. Further, Mr Giliberti said this approach assumes that the cost of equity can simply be grossed-up at a 30% tax rate despite the fact that different entities will have different effective tax rates. That being the case, in Mr Giliberti's view, share price or asset data cannot be converted to pre-tax amounts by simply applying a gross-up factor of 30%. 1. Having calculated the annuity in the three ways outlined above, Mr Giliberti observed that scenarios (1) and (2) gave the same result and only Dr Ferrier's approach, scenario (3), gave a lower sum. Mr Giliberti opined that Dr Ferrier's approach discounts a claim for loss more heavily on the basis that United, as trustee of the United Petroleum Trust, does not pay tax. In Mr Giliberti's opinion, this mistakenly ignores that the beneficiaries of the trust are likely to pay tax on the profits distributed and therefore disagrees with Dr Ferrier's approach. 2. Dr Ferrier argued that his approach is consistent with the approach maintained in the Australian Accountancy Standard AASB 13 "Fair Value Measurement" ('the accountancy standard'), which relevantly provides that "assumptions about cash flows and discount rates should be internally consistent… after-tax discount flows should be discounted using an after-tax discount rate. Pre-tax cash flows should be discounted at a rate consistent with those cash flows". 3. Further, Dr Ferrier opined that adopting a pre-tax discount rate and pre-tax profit does not assume the tax status or tax rate of the United Petroleum Trust, but that applying a post-tax discount rate to pre-tax profits, as Mr Giliberti does, assumes not only that United's income is subject to tax at 30% (as a consequence of using the post-tax discount rate) but that compensation would also be subject to tax at 30% (as a consequence of applying the post-tax discount rate to the pre-tax income). Dr Ferrier submitted that to the extent that any tax will be payable on compensation determined (which is unknowable), it will be paid by the beneficiaries rather than the applicant. 4. Dr Ferrier acknowledged that tax scenarios (1) and (2) considered by Mr Giliberti produce the same result. However, Dr Ferrier opined that neither approach is reasonable in the circumstances. In his view, such an approach would only be appropriate in circumstances in which United: 1. would have been liable for income tax on the profits had they been derived; 2. would have paid income tax on the profits in the same year they were derived; 3. was liable for income tax on the compensation it had received; 4. was liable for income tax on the compensation in the year it was received; and 5. was liable for income tax on the compensation and profits at the corporate tax rate of 30%. 1. Dr Ferrier opined that none of those situations describe the position of United, and that therefore the proper approach is to apply a pre-tax discount to the pre-tax loss of profits as assessed. 2. In Dr Ferrier's opinion, if the Court considers that the compensation should be assessed on the basis of the value of either: the value of the goodwill attached to the Harwood Roadhouse considered separately from the rest of the United business; or the value of the goodwill lost by United as a consequence of the compulsory acquisition, it would be appropriate to use a pre-tax discount rate which assumes weak tenure. This is because, in relation to the Harwood Roadhouse, a hypothetical buyer would consider the insecure tenancy to be highly significant, and because, in relation to United as a whole, some of the United service stations had secure tenure. 3. It should be reiterated that Mr Giliberti considered that all of these calculations were inappropriate for the reasons given above at [60]. Additionally, Mr Giliberti said that he did not understand the premises upon which Dr Ferrier reached a figure for United Petroleum Trust's goodwill assuming weak tenure as Dr Ferrier had not performed a fair market valuation of the value of goodwill in United as a whole. Consideration 1. In view of the number of legal issues which have arisen in this case, and despite there being some overlap, I propose to deal with the claims for legal fees under s 59(1)(a), valuation fees under s 59(1)(b) and the rental claim under s 59(1)(f), before going on to deal with the other disturbance claims arising from the compulsory acquisition. I summarise the submissions of the parties under each point before my consideration. Claim pursuant to s 59(1)(a) – legal costs reasonably incurred United's position 1. United claims it is entitled to be reimbursed legal costs pursuant to s 59(1)(a) in the sum of $13,206.50. It provides evidence comprising two tax invoices of its solicitors dated 31 January 2016 and 29 February 2016, and a memorandum of fees of counsel dated 23 March 2016. According to United's written outline of opening submissions and the Points of Claim, the claimed amount represents "part" of the solicitors' invoices ($11,719) and one-half of counsel's memorandum of fees ($1,487.50) without any further particularisation. It submits that the costs claimed relate to advice taken by United in respect of the determination by the Valuer-General but prior to commencing proceedings. 2. In response to RMS's position that these legal costs (and the valuation fees claimed pursuant to s 59(1)(b) considered below) are costs of the proceedings rather than "legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of land" as required by s 59(1)(a), United makes three responses. First, the words "in connection with" have wide scope. Second, a claim for disturbance is an "equitable claim" the validity of which depends on the particular circumstances of each case, albeit the claim requires a causal connection to the acquisition that is not too remote. Third, United says RMS's position presumes that the only fees that fall within s 59(1)(a) and (b) are those incurred up to the date of the valuer's determination, which raises a temporal limit that neither s 59(1)(a) nor (1)(b) provides. 3. United further submits that such a temporal limit would deny landowners the ability to claim compensation for such matters as any ongoing negotiations regarding property adjustments or the payment of the advance payment pursuant to s 48 of the Just Terms Act. 4. Finally, United submits that it is common practice for the Valuer-General to allow a sum for future costs for a review of the Valuer-General's determination and that this, in fact, occurred in this matter. The valuer's report, in providing the "Determination of Compensation" in the sum of $139,319, included amounts for both "Legal Costs (not incurred but allowed post-determination)" and "Valuation Fees (not incurred but allowed post determination)". RMS's position 1. RMS submits that the items representing work which are particularised in the invoices and memorandum of fees relate to costs of the proceedings and not costs in connection with acquisition. RMS says that s 59(1)(a) and (b) relate to circumstances where, for example, an acquisition involves a dispossessed owner in a number of early steps, including such matters as the receipt of initial correspondence from a resuming authority and a proposed acquisition notice, where an owner is invited to make a claim for compensation and such claim would then be provided to the Valuer-General. RMS submits that these are matters which relate to "interaction back and forwards between the Valuer-General in relation to a claim" and properly fall within s 59(1)(a) and (b). 2. However, RMS submits that, relevant to the present position, once a determination is made and legal (and possibly valuation) advice is then obtained in relation to a challenge to the determination (including preparation for challenging the determination), those are matters that are clearly costs of the proceedings. They are no longer costs in connection with compulsory acquisition because they are costs in relation to challenging the quantum that has been offered. 3. Whilst RMS accepts that the words "in connection with" are words of wide import, there "must be a line" and in this matter the Court should draw the line at a time before United obtained legal advice about appealing the quantum. Such costs, the RMS submits, relate to prospective proceedings to challenge the compensation offered. Consideration 1. It is clear that the claim for costs relates to work that was undertaken mostly prior to the institution of proceedings on 22 February 2016. I accept United's submission that there is no discrete temporal limit in the legislation and that the words "in connection with" are of wide scope as considered by Biscoe J in Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109; (2007) 210 LGERA 1 ('Caruana') at [44]. 2. I note that the construction of s 59(1)(a) was considered in Hoy v Coffs Harbour City Council [2016] NSWCA 257; (2016) 281 LGERA 411 where the Court of Appeal considered whether the provision extended to legal costs incurred in establishing that a particular site was amenable to a compulsory acquisition claim. Bathurst CJ, with whom Simpson and Payne JJA agreed, said, at [59]-[60]: The power to award legal costs, contained in s 59(1)(a), relates to costs incurred by a person entitled to compensation in connection with the compulsory acquisition of the land. A person is only entitled to compensation once the authority becomes bound to acquire the land, that is, in the case of a hardship application, once the preconditions in s 24(2) are established to the satisfaction of the relevant authority referred to in s 24(1). Legal costs incurred in establishing hardship are incurred prior to an entitlement to compensation arising and thus do not fall within s 59(1)(a). Further, although, as the applicant pointed out, the words "in connection with" are of wide import (see for example, Claremont Petroleum NL v Cummings (1992) 110 ALR 239 at 279-280), it does not seem to me that in the present context, costs incurred in establishing an entitlement to have the land compulsorily acquired fall within the definition. Section 59(1)(a), in my opinion, is directed to compensating persons for legal costs incurred in respect of an acquisition, whether resulting from the application of the hardship provisions or the action of the acquiring authority. It does not confer an entitlement to compensation for costs which arise prior to that time. 1. Whilst I acknowledge that this analysis is not directly applicable to the present case where legal costs are claimed which arose after the entitlement to compensation, Bathurst CJ's comments nevertheless emphasise that the crucial matter in the construction of s 59(1)(a) is the sufficiency of connection between the legal costs incurred and the "acquisition". 2. In addition, I note the comment of Pain J in SNS Pty Ltd v Roads and Maritime Services [2018] NSWLEC 7 ('SNS') at [338]: [There] is a clear statutory intent in s 59(1)(a) and (b) to limit fees payable to lawyers and registered valuers to advise a dispossessed owner in relation to an acquisition. This intent was made even clearer by the insertion of s 59(2) in 2016 to limit claimable valuation fees to those payable only to valuers with certain qualifications. 1. I accept her Honour's analysis of the provision and, consistently with that statutory intent, consider that the ordinary language of the section should not be stretched to encompass legal costs that do not naturally relate to the process of the acquisition itself. 2. I therefore accept that there must be a causal connection between the costs claimed and the acquisition, that the connection must not be too remote and just as such costs may include pre-acquisition costs (although not, as seen above, costs that arise prior to an entitlement for compensation), there is no reason that they should not encompass costs incurred prior to the commencement of proceedings (Caruana at [44]). 3. Despite this, absent any other evidence, the tax invoices of United's solicitors dated 31 January 2016 and 22 February 2016, which itemise work from 3 December 2015 to 26 February 2016, have a number of entries detailing attendances in relation to matters that I find relate specifically to the institution and conduct of proceedings including matters relating to the choice of, and engagement of, various experts, peer review of expert reports and preparation of brief to counsel. Further, the memorandum of fees of counsel dated 23 March 2016 specifically itemises work including "reviewing brief … conference … settling the Claim and Application". 4. My view is that, having received an offer for compensation, a dispossessed owner is entitled to seek legal or valuation advice to assist in determining whether or not an appeal should be commenced, particularly where, as is the case here, questions of nicety arise in relation to the present claims and there is no suggestion that the costs and fees were not reasonably incurred. Whilst I accept United's submission that it would be "hard to see" how such advice could be regarded as anything other than obtaining advice and assistance "in connection with" the compulsory acquisition of the Land, the limited evidence leads me to the view that the preponderance of the solicitors' and counsel's itemised work in this instance related to the institution of proceedings and associated preparation. 5. There is, of course, a point in time when costs change from being within s 59(1)(a) and (b) to being a cost of the proceedings and there would be situations where such costs and fees were not "reasonably" incurred in the sense considered by Tobias JA in Roads and Traffic Authority of NSW v McDonald [2010] NSWCA 236; (2010) 175 LGERA 276 ('McDonald') at [143]. However, there is no bright line. Whilst each matter will depend upon the particular circumstances, on the present evidence I find that the subject legal costs, although the claim is simply said to be "part" of the solicitors' invoices and "50%" of counsel's fees, without further articulation, relate primarily to the commencement and conduct of proceedings and, as such, do not fall within s 59(1)(a). Claim pursuant to s 59(1)(b) – valuation fees reasonably incurred United's position 1. United claims valuation fees in the sum of $14,861.21. It provides evidence of a tax invoice received from Value Advisor Associates, with an attached time sheet itemising work undertaken between 18 January 2016 and 19 February 2016 by various people including Mr Giliberti who gave expert evidence in these proceedings and referring, among other things, to a meeting with counsel on 22 February 2016. United submits that the costs relate to advice it took in respect of the determination by the Valuer-General but prior to commencing proceedings. United repeats its submissions made in relation to legal costs summarised at [89] above. In particular, it repeats that the words "in connection with" have wide scope, that a claim for disturbance is an equitable claim, the validity of which depends upon the particular circumstances of each case, and that the claim for valuation fees pursuant to s 59(1)(b) is not confined to the period before the Valuer-General's determination. RMS's position 1. RMS makes similar submissions as those made in relation to legal costs and says that the fees of Value Advisor Associates relate to work done for these proceedings and so forms part of the costs of proceedings which are not compensable under s 59(1)(b). Consideration 1. In addition to Pain J's comment in SNS quoted above, Moore J made the following comment in relation to s 59(1)(b) in Constantine v Blacktown City Council (No 2) [2016] NSWLEC 81 at [148]: The provision [s 59(1)(b)] makes it clear that claims under this heading are for the costs of utilising the services of a valuer as part of the acquisition process (including, it is to be noted, the negotiation process prior to formalisation of the acquisition). Indeed, to ensure that claims made pursuant to this subsection are precisely confined, those who can be regarded as "valuers" for the purposes of s 59(b) are set out in s 59(2), with only those persons satisfying one of the bases there listed being able to provide a foundation for a claim for reimbursement for the engagement of a qualified valuer. 1. I again accept there is a legislative intent to minimise costs payable under s 59(1)(b). 2. The work itemised in the tax invoice of Value Advisor Associates specifically refers to work undertaken involving Mr Giliberti and others on a number of occasions and includes work on the preparation of draft reports, attendance upon counsel in chambers and with solicitors on 15 February 2016. These matters should be seen in light of the fact that the proposed acquisition notice was issued by RMS on 30 October 2014, the Land was compulsorily acquired on 28 August 2015 and that the determination of compensation was completed by the Valuer-General on 19 November 2015. The time sheet attached to the tax invoice of 22 February 2016 relates to work predominantly in February 2016 in circumstances where proceedings were commenced on 22 February 2016. 3. Absent any other evidence detailing the nature of advice given or work done, I find that the work undertaken relates primarily to the present proceedings such that I am not satisfied that the valuers were providing advice in relation to the acquisition except where that advice related to the institution and conduct of proceedings. I find that these costs are not compensable in accordance with s 59(1)(b). Rental Claim United's position 1. United submits with respect to the rental claim that the approach taken by the courts in the assessment of compensation pursuant to Part 3 of the Just Terms Act has been to include repayment of rent paid to an acquiring authority after compulsory acquisition in accordance with the approach adopted by the Court of Appeal in McDonald at [122]-[142] per Tobias JA and adopted by this Court on a number of occasions (Attard v Transport for NSW [2014] NSWLEC 44; (2014) 205 LGERA 396 ('Attard'); Taylor v Roads and Maritime Services [2016] NSWLEC 138 ('Taylor'); and Konduru T/as Warringah Road Family Medical Centre v Roads and Maritime Services; Konduru v Roads and Maritime Services; Konduru v Roads and Maritime Services [2017] NSWLEC 36; (2017) 224 LGERA 262 ('Konduru')). United submits that this Court would not be satisfied that the approach taken in those cases is "plainly wrong" (Michael Realty Pty Ltd v Carr [1975] 2 NSWLR 812). 2. If, contrary to the above, the Court was satisfied that existing authority could be distinguished, United submits the consequence of the acquisition would be that the repayment of rent in addition to that which United was previously paying would be compensable. The difference in the daily rate was $372 ($580 minus $208) for a period of 223 days resulting in an amount of $82,956. RMS's position 1. RMS submits that as United continued to pay rent as tenant after the acquisition, it was in the same position as it was beforehand. That is, it was a tenant paying rent to Lastep and Elmon before the acquisition and after the acquisition it continued as a tenant paying rent to RMS and as such, the payment of rent could not be said to be a "direct and natural consequence" of the acquisition given that United would have had to pay rent with or without the acquisition and accordingly, United is not entitled to recover rent paid to RMS pursuant to s 59(1)(f). 2. RMS further submits that the authorities relied upon by United, apart from Konduru, all concern factual situations where an owner of the fee simple remained in occupation and paid rent or a licence fee where no such rent or fee was paid prior to the acquisition. To the extent that Konduru concerned a different factual scenario, RMS submits that the Court appears not to have had the benefit of argument that Attard, McDonald, and Taylor are distinguishable on the basis that in each of those cases a dispossessed owner made a claim for rent paid as a tenant subsequent to acquisition when it had paid no rent previously. In Konduru, the dispossessed owner was in fact a tenant before the acquisition and was awarded rent paid subsequent to acquisition in circumstances where there appeared to be no argument or submission before the Court that this was a distinguishing feature. Consideration 1. Section 34 of the Just Terms Act, which is considered in each of the cases to which I was referred, provides: 34 Former owner's right to occupy land until compensation paid etc (1) A person who was in lawful occupation of land immediately before it was compulsorily acquired under this Act and to whom compensation is payable under this Act is entitled to remain in occupation until: (a) the compensation is duly paid to the person, or (b) the authority of the State makes (in accordance with any other provision of this Act) an advance payment of not less than 90 per cent of the amount of compensation offered by the authority, or (c) the authority of the State makes (in accordance with any other provision of this Act) a payment into the trust account kept under Part 3 of not less than 90 per cent of the amount of compensation offered by the authority, whichever first occurs. (2) Any such person is entitled to remain in occupation of any building that is the person's principal place of residence, or the person's place of business, for 3 months after it is compulsorily acquired, even though the person has ceased to be entitled to remain in occupation under subsection (1). However, if the Minister responsible for the authority of the State is satisfied that the authority requires immediate vacant possession of land, the authority is entitled to immediate vacant possession even though the 3-month period has not expired. (3) The terms on which a person remains in occupation of land that has been compulsorily acquired under this Act are, in the absence of agreement, such reasonable terms as are determined by the authority of the State (including terms as to the rental to be paid and the restrictions on the use of the land). The Residential Tenancies Act 2010 does not apply to that continued occupation. (3A) Despite subsection (3), rent is not payable during the relevant 3-month period by a former owner who remains in occupation of any part of a building that is the person's principal place of residence. A former owner does not include a person who only held a leasehold interest in the acquired land. (4) Any such unpaid rent or other money due to the authority of the State may be set off against the compensation payable under this Act. 1. In McDonald, the respondent had moved off land compulsorily acquired from her by the RTA, but intended to build a house on part of it after the works were completed. As part of her claim for disturbance, the respondent sought $62,571.60, being the amount she spent on alternative rental accommodation for the 36 month period she spent waiting to build her property on the remainder of the land. 2. At first instance, the primary judge had held that the post-acquisition rent was not compensable for three reasons: first, it did not fall into either s 59(1)(c) or s 59(1)(f); second, s 34(3) indicated an intention that post-acquisition rent was not recoverable; and third, the claim was inconsistent with the decision of Talbot J in Stephen Anthony Horton and Kay Elizabeth Horton v Wyong Shire Council (No.2) [2005] NSWLEC 45 ('Horton'). The appellant challenged the correctness of each of these grounds. 3. Tobias JA, with whom Giles and Macfarlan JJA agreed, had some misgivings about whether a claim for rent was recoverable under s 59(1)(c), but found, at [114], that it was clearly covered by s 59(1)(f), being "a cost incurred as a direct and natural consequence of the acquisition". With respect to s 34, Tobias JA stated at [116]-[117]: Section 34(3) falls within Pt 2 of the Land Acquisition (Just Terms Compensation) Act which is headed "Acquisition of land by compulsory process". In contrast, s 59 falls within Pt 3, which is headed "Compensation for acquisition of land". Further, s 34(3) empowers the relevant authority of the State to charge a rental where the dispossessed owner remains in occupation of the land that has been compulsorily acquired under the Act. It neither deals nor purports to deal with the assessment of compensation, which is confined to Pt 3 of the Land Acquisition (Just Terms Compensation) Act.Quite clearly, rental paid pursuant to s 34(3) would not be recoverable under s 59(c) as that provision proceeds on the basis that the dispossessed owner remains in occupation of the acquired land with the consequence that that person has yet to relocate. It is no doubt for that reason that in the present case the respondent only sought to claim rent paid or payable by her subsequent to her vacating the residence upon the acquired land. I would therefore reject the second ground apparently relied upon by the primary judge in rejecting the rental claim. 1. With respect to the decision in Horton, Tobias JA found at [127] that Talbot J had fallen into legal error by asking whether it was reasonable that rent be recovered as a separate head of compensation, rather than asking whether the rent had been reasonably incurred. In Tobias JA's judgment, the inquiry as to whether something was "reasonably incurred" is the basis for determining what is compensable under both s 59(1)(c) and s 59(1)(f). His Honour observed at [128]: There was no suggestion in the present case that it was not a direct and natural consequence of the acquisition that the respondent needed to vacate her existing residence and to rent alternative premises until such time as she could relocate her residence onto the residue land. It was not suggested that she had unnecessarily delayed in doing so which would, if it had been the case, have justified a finding that the rental incurred by her was not, at least in part, reasonable in terms of the period during which it was incurred. 1. In Attard, applicants who had their homes compulsorily acquired but continued to live in them whilst paying rent to the respondent, claimed the rent as disturbance under either s 59(1)(c) or s 59(1)(f). Biscoe J noted at [128] that Tobias JA's decision in McDonald had not differentiated between rent paid to a third party and rent paid to the acquiring authority: In both situations it is compensable under s 59(f) because it answers the description: "financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition". Were it otherwise, there would be an anomaly that the legislature is unlikely to have intended: namely, a dispossessed owner who moved temporarily and paid rent to a third party would be compensated, but if he stayed on at the acquired property temporarily and paid rent to the acquiring authority he would not be compensated. 1. Accordingly, His Honour at [129] allowed the rental claims. 2. In Taylor, an applicant was again required to pay rent to the acquiring authority which was sought to be recovered. The claim was dealt with by Pain J at [78]: As submitted by the Applicant, s 34 is not engaged at the stage of the compensation process I am considering under Pt 3 Div 4. Section 34 in Pt 2 Div 4 concerns an earlier point in time in the acquisition process when a landowner is deciding if he or she will accept the compensation offered. Section 34(4) is a machinery provision directed to that circumstance. It is not a provision which prevents the Applicant claiming that amount as compensation. Further the reasoning in Attard at [124] - [129] does not disclose any error and in the interest of judicial comity I apply that reasoning also. I consider the Applicant's claim for rent is permissible under s 59(1)(f). 1. In Konduru, as RMS submitted, the claim was slightly different. The applicant was a medical practitioner whose practice was acquired by RMS. She was liable to pay rent to RMS after the acquisition. However, she had a rental interest previously. At [183]-[184], Moore J considered the previous decisions: As a consequence, I turned to the passage from Attard v Transport for NSW (2014) 205 LGERA 396; [2014] NSWLEC 44 cited by her Honour. In it, in turn, Biscoe J derives his conclusion in support of reimbursement from passages in the judgment of Tobias JA in McDonald at [114] and [117]. Biscoe J's analysis sits comfortably with the Court of Appeal decision in McDonald. As Pain J observed "… the reasoning in Attard at [124]-[129] does not disclose any error and in the interest of judicial comity I apply that reasoning also". I consider that I should take the same approach. 1. However, His Honour was not without discomfort at the result, commenting at [185]: Whilst this has the apparent effect of rendering ineffectual the terms of s 34(3) and (4) of the Acquisition Act in circumstances where a reimbursement claim is made pursuant to s 59(1)(f), if this be a problem, its resolution does not lie in the hands of this Court. 1. It appears from this analysis that RMS was correct to submit that Moore J did not have the benefit of argument that the circumstance in Konduru could be distinguished on the basis that the applicant only ever had a rental interest. This may have ameliorated his Honour's concern at [185] insofar that it would give s 34(3) and (4) some work to do where rent is paid to an acquiring authority by a leaseholder before a claim for disturbance is made under s 59(1)(c) or (f). 2. In any event, in response to United's submission, it is something of an oversimplification to characterise the situation in Konduru as one in which the applicant had only a rental interest. Dr Konduru and her husband in fact owned the property as joint tenants. At [41] of his judgment, Moore J records that Dr Konduru paid $62,000 annual rent to herself and her husband in order to operate her medical practice. The change of lessor may therefore have been felt more acutely by Dr Konduru than one might expect of a lessee in ordinary circumstances. I do not find this to be determinative of the matter, but it goes some way towards explaining why the distinction to which RMS points was not argued before his Honour in that case. 3. The test which I am bound to follow under s 59(1)(c) and (f) is to ask whether a cost has been "reasonably incurred" "as a direct and natural consequence of the acquisition" (McDonald at [126] per Tobias JA). As per the above decisions, I do not consider that s 34 affects the assessment of this inquiry where the cost incurred relates to rent, at least in the circumstances applicable here. 4. Because United was already paying rent for the property prior to the acquisition, it cannot be the case that the entirety of its rent is a cost reasonably incurred as a consequence of the acquisition. The portion of its rent which it was already paying to Lastep and Elmon cannot be recoverable under s 55(f) based on the language of s 59(1)(f). Further, nothing in McDonald demands that approach to be taken. However, the difference between the rent payable prior to acquisition and that payable afterwards can be recovered per the test enunciated by Tobias JA. 5. There is no suggestion that in incurring the increased rent United acted unreasonably. The increase was a direct and natural consequence of the acquisition. Therefore, I find that United is entitled to the difference in the daily rate for a period of 223 days. As per the alternative submissions of United, that rent is calculable as $372 per day, meaning that United is entitled to a total amount under the rental claim head of $82,956. The broader disturbance claim 1. I now deal with the broader claims for disturbance arising from the compulsory acquisition, which includes the loss of profits of United assessed either on the basis of relocation or extinguishment. Broadly speaking, the questions which I must determine can be summarised as follows: 1. Does the payment made to Lastep and Elmon preclude United from making a separate claim for disturbance? 2. If no, can United make a claim for lost profits, or put another way, are lost profits costs reasonably incurred as a consequence of the acquisition? 3. If yes, should those costs be assessed on the basis of relocation or extinguishment? 4. For the reasons that follow, I propose to answer question (3) "extinguishment". That being the case, question (4) will be: should extinguishment be assessed on the basis of a loss of profits or a sale of goodwill basis? 5. I propose to answer question (4) "loss of profits." Therefore, question (5) will be: what variables should be applied in the calculation of United's loss of profits arising from the compulsory acquisition? Should the weak tenure be taken into account? 6. Are the assets compensable? If so, is this on the basis of their contribution to the lost profits or as a discrete claim? Are the asset registers provided by Mr Carmeli an appropriate basis upon which to determine the assets which should be included? 1. I deal now with the submissions of the parties relevant to the determination of these questions. United's submissions 1. United emphasises George D Angus Pty Limited v Health Administration Corporation [2013] NSWLEC 212; (2013) 205 LGERA 357 ('George D Angus') and the similarity in facts with the present matter and reminds the Court that RMS accepts that United had an interest in the Land. United submits that once that concession is made, there need be no correlation between the nature of the interest and the claim under s 59(1)(f) and, as such, the issue raised by RMS regarding the nature of the tenancy is not relevant such that the Court need not concern itself with the extent of the interest. To this end, United made reference to George D Angus, both the decision at first instance of Preston CJ of LEC, and the judgment of the Court of Appeal in Health Administration Corporation v George D Angus Pty Ltd (2014) 88 NSWLR 752; [2014] NSWCA 352 ('HAC'). In particular, United relies on the comments of Tobias JA at [27] and [64]-[73]. 2. United submits that the Court of Appeal, in emphatic language, held that terms and limitations on a particular interest (once found) which were relevant to the assessment of market value were not relevant to the assessment of any loss attributable to disturbance (see George D Angus at [71]). United submits that, to the extent that concern was expressed about the findings of the Court of Appeal in HAC in Allandale (per Basten JA at [28]-[46]), that commentary is obiter and not persuasive. In the circumstances, United submits HAC is binding and is not distinguishable. 3. In particular, United submits that, for the market value exercise, it may be necessary to consider how the market would react to the mere intention of parties to renew a lease (in light of the comments in The Minister v NSW Aerated Water & Confectionery Co Ltd (1916) 22 CLR 56; [1916] HCA 48 ('Aerated Water')) but for the disturbance claim, the task is one of simply fitting within the statutory requirements of s 59(1)(c) or s 59(1)(f). United submits that, in any event, to introduce an additional limitation in s 59(1)(f) by way of reference to Aerated Water, if that is the position sought to be raised by RMS, would be inconsistent with clear High Court authority in Marshall v Director-General, Department of Transport (2001) 205 CLR 603; [2001] HCA 37 ('Marshall'). In particular, United points to Gaudron J's comment in that case at 623 [38]: Although the rule that legislative provisions are to be construed according to their natural and ordinary meaning is a rule of general application, it is particularly important that it be given its full effect when, to do otherwise, would limit or impair individual rights, particularly property rights. The right to compensation for injurious affection following upon the resumption of land is an important right of that kind and statutory provisions conferring such a right should be construed with all the generality that their words permit. Certainly, such provisions should not be construed on the basis that the right to compensation is subject to limitations or qualifications which are not found in the terms of the statute. Compensation paid to Lastep and Elmon 1. United submits that the compensation paid to Lastep and Elmon is irrelevant on the basis that first, even if United was the owner of the freehold it would nevertheless be entitled to make both a claim pursuant to s 55(a) for market value and a claim for disturbance pursuant to s 55(d) by reference to s 59(1)(c) and (f). This position is made clear by the Court of Appeal in McDonald; Tolson v Roads and Maritime Services [2014] NSWCA 161; (2014) 201 LGERA 367 ('Tolson') and Brock v Roads and Maritime Services [2012] NSWCA 404; (2012) 191 LGERA 267. 2. United further submits that the "freehold claim" was made by corporate entities different to United. On the basis that the Lastep and Elmon's claim could not be offset against the disturbance claim even if they were the only applicant (referring to Tolson), United submitted it is difficult to see how the offset could apply as between different corporate entities. Further, the freehold owners' claim was one for market value which can be determined in a number of ways. Even if it were determined by reference to operations on the Land, United submits that it is nevertheless a market value claim wherein the methodology for the assessment of compensation referred to the operations. United submits that the use of one methodology over another can have no effect upon the determination of a s 55(d) disturbance claim, let alone one made by a different entity. 3. United reminds the Court that the Just Terms Act has specifically moved away from the value to owner approach adopted in earlier decisions and the approach of the Just Terms Act is that loss attributable to disturbance is a separate basis of compensation independent of market value of land (see George D Angus at [59]-[62] per Preston J). Relocation not yet occurred 1. United emphasises that relocation including the rebranding scenario is a reasonable basis for the determination of compensation and submits that the fact that United has not relocated is not relevant. As per Preston J in George D Angus at [69], the entitlement pursuant to s 59(1)(c) is for financial costs "reasonably incurred" and not financial costs which "had been reasonably incurred". United notes the evidence that United has been looking for alternate premises although there is no obligation upon a person to do anything prior to acquisition occurring and compensation being paid and, further, it is not unreasonable for the holder of a leasehold interest not to acquire alternative freehold premises nor is it unreasonable to defer taking steps to purchase alternate premises until compensation is determined (see George D Angus at [163]-[166]; Macarbell Pty Limited v RTA, Nasser v RTA [2006] NSWLEC 651; (2006) 149 LGERA 217 at [33]). 2. To the extent any difficulty is occasioned by this approach, United submits that it arises from the statutory context of the Just Terms Act, and not from the conduct of United. Costs of relocation – "reasonably incurred" 1. United reiterates that its primary claim is for costs associated with relocation (including rebranding) which includes the losses that United suffers in the period between the date of vacant possession until it is able to recommence operations. United submits that it is reasonable for it to incur costs in connection with its relocation because the language "in connection with" in s 59(1)(c) import a wide scope (as per Roads and Traffic Authority of New South Wales v Peak [2007] NSWCA 66 ('Peak')). In United's submission, it is at least reasonable for it to incur costs in relocating so it can continue to operate its profitable business at alternate premises. As such, United is entitled to costs associated with rebranding and bringing finishes up to an appropriate United standard – these must be considered to be "reasonably incurred costs". 2. United further submits that to ask when the relocation will occur is irrelevant. As an example, United submits that if there was an alternative service station presently available into which United could simply walk in there could be no suggestion the costs of removalists and incidental set up costs were "in connection with the relocation". The difficulty is that, on the evidence, this is unlikely. 3. United submits the Court will find that it is reasonable for it to incur the costs. This leads to the question as to when a relocation will occur which United says is also mostly irrelevant. This is because there is no temporal limitation in s 55(d) or s 59(1)(c) or (f). Despite this, United submits that the assumptions in the relocation scenarios are that it will be within two to three years, depending upon the scenario ultimately adopted. There are four relevant periods of time: first, the period up to the hearing; second, the period from the hearing until finding alternate premises; third, the period from finding alternate premises to obtaining various approvals; and four, the period from obtaining various approvals to carrying out the works, moving in and operating the property. 4. United submits that it is a matter for the Court on the evidence to determine the appropriate time and that the estimates provided in United's evidence are conservative. Even if, contrary to their primary submission that no temporal limit applies, United submits the Court would find the estimates are temporally proximate (with reference to El Boustani v Minister administering the Environmental Planning and Assessment Act 1979 [2014] NSWCA 33; (2014) 199 LGERA 198 at [114]-[115]). 5. The planning experts and quantity surveyors, in dealing with relocation, break the time estimation into two categories: with regard to the first, dealing with development approval, United submits that the Court would accept the evidence of Mr Haskew in relation to time and cost regarding approvals. His evidence would be preferred to that of Mr Rowan who does not address the nature and extent of approvals required and Mr Haskew's use of a weighted probability approach to determine the likelihood of various reports being required. Consequently, his identification of the costs involved would be accepted. 6. United submits that the costs of the works, as determined by the quantity surveyors, are mostly agreed, notwithstanding the limitations that arise regarding inexact scope of works which they considered. United submits that to the extent the Court is required to estimate the future costs of relocation to a site which is presently unknown, this approach is entirely appropriate because first, it uses the current site as a surrogate, and, second, it errs on the side of conservatism (for example, matters which otherwise may require consideration such as contamination have not been included). 7. United, whilst accepting there is a "continuum" from moving into a service station without need for significant works or approvals compared to a scenario where no service station can be found and it is necessary to rezone land and erect a service station, submits that a reasonable approach by the Court would be to accept that it is reasonable for United to claim compensation for the relocation costs associated with rebranding an existing service station even though one has not yet been located. In those circumstances, United submits that, adopting Mr Haskew's evidence, the planning costs likely to be incurred in rebranding an existing service station would amount to $64,014. Further, to the extent that the quantity surveys have generally agreed on the rebranding costs at $2,105,637 (according to Mr Lawson) and $1,955,490 (according to Mr Marriott), United adopts, in its submission conservatively, the amount estimated by Mr Marriott and submits that the Court in the circumstances would find the costs of relocation are $2,019,504. Lost profits 1. United submits that the claim for lost profits in connection with relocation is made pursuant to s 59(1)(c) and, in the alternative, s 59(1)(f) (noting that if the Court accepts RMS's submission that United is not entitled to relocation, United claims permanent loss of profits pursuant to s 59(1)(f)). 2. United submits that the fact that a site has not been found, or that it will cost more to relocate than for the business to be extinguished, as raised by RMS, is irrelevant. The claim for lost profits falls properly within s 59(1)(f). 3. United submits that a financial cost can amount to a financial loss and this was specifically considered in George D Angus (at [82]) which United submits stands for the proposition that the natural and ordinary meaning of "financial costs" permits a construction that allows compensation for financial losses which that person suffers as a consequence of the acquisition. United submits that this approach was accepted in Allandale (at [31] per Basten JA). United submits that the Court will determine that relocation is appropriate and, in those circumstances, both forensic accountants agree that in determining lost profits in connection with relocation, it is appropriate to adopt a discounted cash flow ('DCF') methodology. There was agreement between the experts regarding the "ramp up" period when there is a relocation by applying a 25% diminution in profits for the first 12 months after relocation, but there was disagreement in relation to inputs for time, adjustments to profit, including profit not lost, market rent, repairs and maintenance and tax. To the extent of any disagreement, United submits that Dr Ferrier's evidence would be preferred. 4. In relation to the adjustment for time, United submits that although the Land was compulsorily acquired on 28 August 2015, United continued operating on the site until 7 April 2016 and, as a result, the measurement of lost profits runs, at a minimum, from 7 April 2016, the date of vacant possession. Further, as United had not found alternate premises (repeating United's submissions above that there is no obligation to attempt to source alternate premises prior to the Court's determination as to whether and how much compensation would be awarded) United submits that the time inputs into the DCF methodology should commence on 7 April 2016. 5. Further, given the evidence of Mr Carmeli that the retail petroleum market is both highly competitive and also dynamic, and that existing service stations may come on the market, and noting that there was no contradictory evidence led by RMS to identify an appropriate time period that might be taken to find alternate premises, the Court will be satisfied with Mr Carmeli's evidence and would allow a further 12 months from the date of orders made by the Court. The Court would then determine a further time allowed for the preparation of reports and for approvals to be obtained, which United submits that would be within the range of 7½ and 12 months, according to the evidence of Dr Haskew. United submits his evidence was unchallenged in this regard. Thus, United submits that the Court will allow 12 months to locate a suitable site, 9 months for obtaining approvals, and a further 6 months to carry out the works. United submits that the Court, if it accepts its position, would allow a period from the date of vacant possession up until the making of orders plus 27 months. 6. In relation to adjustments made to profit, United submits that it was agreed between the forensic accounting experts that, taking into account certain agreed expenses, the contribution to United's profits from the Harwood site was $584,000 per annum and it was further agreed that there should be an allowance for costs in the agreed amount of $87,000. There remained disagreement in relation to profit not lost, market rent, repairs and maintenance, and tax. Again, United submits, each of these should be resolved in its favour. 7. In relation to profit not lost, United submits that Dr Ferrier's position that there should be a further allowance in the sum of $68,000 per annum for profit not lost would not be accepted. In United's submission, his evidence is unsatisfactory because there is no evidence to justify his assumption that United would potentially retain 20% of the custom otherwise lost and Dr Ferrier was unable to articulate his reasoning. Further, there was no research to justify his conclusion and his evidence relies upon loyalty cards to determine the value of sales and there was no proper investigation in relation to such matters as the conduct of customers who had loyalty cards nor any consideration of the accounting information. Rather, United submits that the Court would accept the evidence of Mr Giliberti, based upon the investigation he undertook, that the contribution by the loyalty card custom was "immaterial". Therefore, United submits that the Court would not make any adjustment for "profit not lost". 8. In relation to repairs and maintenance, United submits that the $100,000 one-off deduction adopted by Dr Ferrier as an "extraordinary" payment for immediately required "cosmetic repairs and maintenance" should not be made on the basis that in their joint report, Dr Ferrier and Mr Giliberti had already allowed for costs and depreciation in repairs and maintenance and that this forms part of the agreed $87,000 deduction. 9. In relation to Dr Ferrier's further adjustment for tax, United submits that it potentially amounts to many thousands of dollars, and should not be accepted. United submits Dr Ferrier, in attempting to reflect the tax liability of United in his compensation assessment, mistakenly relied upon the fact that the United Petroleum Unit Trust does not pay income tax, and sought to rely upon an Australian Accounting Standard which is not relevant. United submits that the 17% capitalisation rate agreed between the experts is an after-tax capitalisation rate. 10. United submits that Dr Ferrier accepts that by accounting for tax he was not seeking to protect the revenue nor was he suggesting there is a specific tax on the payment of compensation but rather he was attempting to reflect the tax liability of United in his compensation assessment. United submits that if it distributes the profits to the beneficiaries, United pays no tax however the beneficiaries receive the profit and pay tax, at their tax rate. If Dr Ferrier's approach is applied and he adjusts for the 30% corporate tax rate, and United does not retain profits, it has significantly less to distribute to the beneficiaries who, again, pay tax at their tax rate on any amount distributed. Therefore, United submits that the approach impermissibly reduces compensation because it is an incorrect application of Australian tax laws in circumstances where Dr Ferrier and Mr Giliberti have agreed at a 17% discount rate – being a post-tax discount rate. 11. Summarising its position, United submits that, in the calculation of lost profits in connection with relocation, the Court should find a term of 27 months, a capitalisation rate of 17%, no additional allowance for tax, earnings of $487,000 with no allowance for profit not lost, market rent or any extraordinary cost (such as repairs and maintenance) and a diminution in profits for 12 months after relocation (agreed at 25%). No relocation – lost profit 1. United submits that it is not making an "extinguishment" claim and there is a stark difference between the approach that the forensic accountants take to assess compensation if the Court determines, against United's primary position, not to allow relocation. Mr Giliberti quantifies the permanent loss of the contribution to the profits of United from the Harwood site and Dr Ferrier carries out a "market value" exercise to determine what a hypothetical purchaser would pay for the Harwood business. 2. United submits that, on the basis that the Court rejects relocation, the claim is made pursuant to s 59(1)(f) and, as noted above, the "financial costs" in s 59(1)(f) includes financial loss as per George D Angus at [82]. As such, it is the financial loss suffered by United that is to be assessed. 3. United submits that the Court would accept the approach that, but for the acquisition, the Harwood operation would continue to contribute $497,000 profit to United and what is lost is the present value of that lost future income stream. As such, the agreed capitalisation rate of 17% takes into account all appropriate risk and determines that loss. Conversely, Dr Ferrier's approach is to apply concepts from s 55(a) market value in that he assumes the sale of the business to an approved fully informed arm's length purchaser. United submits this is not a measure of United's loss which it submits is the present value of the lost income which the experts have agreed would have been earned but for the acquisition. 4. United further submits that it has not lost the whole of its business. Rather, it has lost one service station and proper compensation would reflect the contribution that the Harwood business was making to United. As such, considering Dr Ferrier's analysis, because it values the business as a standalone business and not with regard to the profits it would have made to the United Group as a whole, has the effect that someone buying the Harwood business will pay less because it is assumed the purchaser cannot take advantage of the sharing of management costs and the like that United enjoys. 5. The effect of Dr Ferrier's approach is to add 6% to the agreed 17% capitalisation rate in order to account for the difference between a standalone service station and one that is part of a larger group, combined with his hypothetical sale to a prudent purchaser. Thus, United submits that there is no support for an approach that would take an agreed market value and add 6%. The Court would therefore be satisfied that no adjustment should be made to the agreed 17% capitalisation rate. 6. In relation to other disputed adjustments, United repeats its submissions and says there should be no adjustment made to the capitalisation rate to take account of tax in accordance with submissions summarised above. Again, Dr Ferrier's adjustment for the one-off/extraordinary costs for cosmetic/aesthetic works should not be made. To the extent that aesthetic/cosmetic appearance affects earnings, United submits it has already been taken into account and further, repairs, maintenance and depreciation have also been taken into account. 7. In relation to an adjustment for market rent, United submits that prior to acquisition it was paying $76,000 per annum which was below market rent and from the date of acquisition until the date of vacant possession, United was paying $213,000 per annum which both parties accept is market rent. United submits that upon relocation, and where lost profits are suffered, the $76,000 would continue to be paid unless or until a new lease was entered. 8. United further submits that it is appropriate to account for the fact that the lease arrangement between the parties would have reverted to a market rent. United therefore submits that taking into account the evidence that many leases in New South Wales were entered into (formally) between 1 August 2016 and 1 November 2016, a conservative assumption is that the arrangements would have been formalised within 12 months of the acquisition. Combined with the fact that between the acquisition date and the date of vacant possession, market rent was being paid when it would not otherwise have been paid, no adjustment to the profit is necessary for this period on the basis that the Court accepts United's submission in relation to the repayment of rent. Thus, there is a period of four months (being April to August 2016) for which adjustment should be made, that is rent should be assumed to be at $76,000 from August 2015 up until August 2016 and then $213,000 per year from that date. United submits that the Court should make a finding in this regard and direct that the parties "work up" the figures. 9. I note by way of clarification that although United submits that the period between April and August 2016 is the period for which an adjustment should be made, the figure of $497,000 was calculated on the basis of the actual rent paid by United to Lastep and Elmon. Therefore, it is this four month period which should not be adjusted. 10. In relation to the final adjustments, United suggests that Dr Ferrier's adjustment of 50% for "weak tenure" should not be made as it is contrary to authority (GDA at [130]) and even if some adjustment were to be made, Dr Ferrier's 50% was not based on any objective evidence. 11. For the same reason, United further submits that the Court would not accept RMS's position that if no relocation were allowed, because United's tenure is terminable on one month's notice, any loss of profits calculated upon the basis that there is no relocation is limited to one month because any such tenancy could be terminated on one month's notice. 12. Summarising its position, United says that, if the Court was not satisfied that United could relocate, and considered it appropriate to assess compensation on the basis of no relocation, the lost profits would be calculated based upon the following findings of the Court: first, that earnings would be $497,000 per annum without any further adjustment for tax; second, earnings would be capitalised at 17% and the Court would make no further finding that there be any adjustment for profit not lost; and third, there should be adjustment for the four months (April to August 2016) when the rent should be assumed to be $76,000. 13. In response to RMS's final submissions, Mr Hemmings, senior counsel for United, rejected the position put by Mr Astill, counsel for RMS, that the Court would not be satisfied that the assets included in the register belonged to United. Mr Hemmings posited that the asset registers of Lastep and Elmon do not show the relevant assets, and that the audited accounts of United include them. He said that the submission that the Court required a minute or resolution showing the transfer was incorrect. 14. To this end, Mr Hemmings also made reference to what the Court of Appeal said in Dial A Dump at [71] as support for the proposition that if there are two alternative understandings of a circumstance, and one would suggest an illegal action and the other would not, the Court, in the absence of evidence to the contrary, should prefer the understanding that there has been no illegal activity. 15. Mr Hemmings also rejected the submission that an adverse inference could be drawn from the fact that the costs incurred at other service stations were not in evidence. He observed that to tender that evidence would have invited the objection that those prices were subjective prices, not impartial third party prices. 16. In relation to the submissions of RMS relying on Director of Buildings & Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 ('Shun Fung') to advance the proposition that relocation is unreasonable in the circumstances, Mr Hemmings reiterated that United is entitled to continue to look for premises, and submitted that it did not want to commit to acquiring or leasing a site until the amount of compensation they would receive was settled. 17. Mr Hemmings noted that there is no Court of Appeal authority applying the disturbance principle from Shun Fung, and there are only two decisions applying the reasoning in this Court. 18. Further, Mr Hemmings noted that Shun Fung is a decision made by the Privy Council in the context of a different statutory regime, in circumstances where the Court of Appeal, in HAC and elsewhere, has expressly reiterated that the Just Terms Act marks a departure from the previous position in relation to compensation. Mr Hemmings also said that the gloss on the Shun Fung questions in RMS's submission do not come from the text of Shun Fung itself. RMS's submissions Relocation 1. RMS's primary position remains that no compensation is payable to United for disturbance as the lost earnings from the Harwood Roadhouse were taken into account when determining the compensation payable to Lastep and Elmon. 2. RMS submits that relocation is not claimable at all, primarily because there is no site available. That aside, RMS submits that the Court must determine precisely what needs to be relocated and submits that, on examination of the nature and extent of United's occupation of the Land, the Court would accept that United was a lessee operator (through agents) of a retail fuel business for the purposes of which it occupied and used real estate, fixtures and fittings owned by others, particularly Lastep and Elmon. 3. RMS also submits that Lastep and Elmon have in fact been compensated for the acquisition of the business. Further, given that the assets comprising the business were purchased and owned by Lastep and Elmon, whatever costs those entities might incur in relocation and/or reestablishment of a service station elsewhere are not costs that would be incurred by United. As United did not incur costs associated with the purchase, construction or development of the improvements on the Land, it is not entitled to compensation for costs for purchasing, constructing or developing a new service station. RMS therefore takes issue with the relocation scenarios proffered primarily on behalf of United. 4. If, in the alternative, the Court does decide to assess the relocation of the service station, RMS submits that the analysis should be directed towards: what "business" was actually being undertaken by United on the Land; what it will do on an alternate location; and to what likely premises United might relocate. Mr Astill emphasised the importance of correctly identifying the interest which is to be relocated. United, he submitted, is not in the business of purchasing sites for use as a service station. Rather, it is a lessee. 5. In relation to the likely costs of any relocation, RMS submits that given the evidence of United's business practice, the only likely option is that an existing service station, likely one owned by a large operator in the market, would simply be rebranded. It says that this follows from Mr Carmeli's evidence as to United's "preferred site". Therefore the most likely of any relocation scenario is that United would take over an existing service station and "rebrand" it. RMS notes that despite the various location scenarios raised and considered in the evidence marshalled by United, United pressed in final submissions only the rebranding scenario. 6. In the event that the Court accepts relocation, and the rebranding approach, RMS submits that the rebranding would not require the extent of works originally canvassed in Mr Marriott's report (based upon his instructions and later individually costed by the quantity surveyors who have jointly prepared a breakdown of those twelve items). In RMS's submission, these works are in excess of that which would reasonably be required insofar as they go beyond rebranding. Only two items of work, being the "re-cladding an existing canopy" and "shop front corporate branding" (items 1 and 5 of the list reproduced at [40] above) would be reasonably expected to be required. These two items are costed by the quantity surveyors at approximately $170,000. 7. RMS further submits that there is no evidence showing a likely need for new tanks, bowsers, lines and pumps, and fuel delivery infrastructure to be required in a replacement site nor works relating to the stormwater system, floor coverings and refreshment of finishes and landscaping. 8. RMS also submits that it is clear from photographs in evidence that the Harwood Roadhouse was a "relatively aged facility". Assets 1. The other aspect of the claim relating to relocation was the claim for the assets referred to as "subject property asset cost" in the evidence of Mr Marriott referred to at [34(1)] above. The claim in Mr Marriott's evidence was ultimately in the sum of $351,581 (being the sum of $292,983.79 (plus 20% contingency) which was the value of items in the updated "asset register". RMS submits that United is not entitled to the value of those assets because it has not proved that it owned those items which was an issue discretely raised by RMS. 2. Even when given leave to call evidence in relation to ownership, RMS submits that the evidence United raised would not satisfy the Court that those items were owned by United in circumstances where the evidence was that the practice adopted generally, and in this particular circumstance, was that Lastep and Elmon (or other separate but related entities) initially acquired the assets. RMS submits that the highest the evidence goes as to the ownership of assets now claimed, is that there are various accounting entries in "journals" and that this evidence relates to "accounting exercises". In the circumstances, according to RMS, the Court would not accept that there has been a transfer to United of the items which were otherwise sought to be the subject of compensation. 3. RMS says that contrary to the claim based upon the various asset lists/registers, the Court would accept the evidence of Dr Ferrier. Dr Ferrier, having reviewed United's financial reports, assets registers, list of assets "removed" from the Land, and the list of assets "left" on the Land, opined that there were certain assets earlier purchased by Lastep and Elmon at an initial cost of $376,033. Of that amount, approximately $205,000 in assets were purchased before the end of May 2002 which, according to Dr Ferrier, apparently related to the making good and rebranding of the pre-existing service station at Harwood. Further, when RMS obtained vacant possession of the Land, some assets were left on the site and those assets had an original value of $147,452, and a written down value of $9,645. 4. Dr Ferrier opined that those assets were left on the Land because they could not be removed within the time frame required or because they had no value for use elsewhere, and the fact that no depreciation was reflected in the financial statements relating to the business on the Land suggests either that those assets had been fully depreciated or that United did not own any depreciable assets which were located on the Land. 5. Further, and to the same effect, as United's evidence indicated that the assets on the Land had a net book value of $75,913.40 as at 31 January 2016, the absence of any depreciation expense in the statements suggests that United did not own any depreciable assets which were located at the property on 31 January 2016. 6. In the circumstances, RMS submits that United is not entitled to the cost of, nor the cost of reinstalling, replacement assets at any new premises for assets it does not own. 7. Finally, in relation to the assets, RMS submits that United would only be entitled to the value of assets which are reasonably referrable to deriving income and, in the circumstances, it is unclear how items in the asset registers such as "cool room" and "freezer", which items appear to relate to the operation of the restaurant and the like, could reasonably be claimable by United when these items appear to relate to the business undertaken by Mr and Mrs Cork, the commission agents. Relocation at all? 1. RMS submits that, although United asserts an intention to relocate, that is not sufficient because the Court could not be satisfied that relocation is practically possible or that such relocation would be reasonable in the circumstances. RMS refers to the threefold test established by the Privy Council in Shun Fung, which was formulated in its submission as follows: 1. The applicant must genuinely intend to relocate; 2. Relocation must be practically possible; and 3. Relocation must be reasonable in the circumstances. 1. RMS submits that, on the evidence, there is no reasonable prospect of any relocation of United's business that was conducted on the Land. This goes to the second limb of Shun Fung as it appeared in RMS's submissions. On that basis, the Court would not be satisfied on the balance of probabilities that relocation was practically possible. In this regard, RMS submits, the Court would reject any submission made by United that it is awaiting the outcome of these proceedings to "know its budget". According to RMS, this argument lacks credibility in circumstances where United runs, according to its own claim, a multi-billion dollar turnover business, that Lastep and Elmon have already been compensated for the market value of the Land and any business thereon and, in any event, any claim relates only to occupation costs. 2. Further, in the absence of any meaningful proposal to relocate, the Court simply cannot consider whether any such relocation would be reasonable. 3. RMS says that the reasonableness of relocation cannot be considered in the absence of the identification of even a possible candidate site. Further, it would be economically and financially unreasonable for any business to incur total relocation costs (including lost profits) which are such that they exceed, or bear no relation to, the fair value of the business that would be preserved by that relocation. An acquiring authority, such as RMS, should not be expected to reimburse costs that a reasonable business person would not incur. 4. Finally, RMS repeats that if the Court found that relocation was reasonable, the type of expense that would be allowed would be similar to the $170,000 that RMS submits reasonably relates to the type of work that would be required. RMS contrasts this to the earlier claim made by United for an amount of around $3 million. The Court could not be satisfied that relocation is practically possible because no available site has been identified. Claim for foregone future profits 1. RMS accepts that to the extent that the loss of profits claim relates to a relocation period, if the Court finds that relocation is appropriate, it should pay compensation for foregone future profits. 2. However, in the circumstance that costs are assessed on the basis of lost profits in perpetuity, RMS submits that there are significant differences between the experts as to certain inputs and adjustments. While RMS accepts that those foregone future profits can be given a present value, it maintains its primary position that at the date of acquisition there was one business on the Land and it was generating a single cash flow and stream of profit and that profit can be valued and given a single valuation. 3. While RMS accepts that it should pay the value of those profits, it submits that it should pay the value of those lost profits once and not twice. The essential question, in RMS's submission, (United called it the "nub" of the case) is to whom those lost profits be paid in circumstances where the business is operated by an entity with limited tenure and is susceptible to having its interest terminated on one month's notice. Mr Astill equates United's position with that of QPN in Allandale, relying on the comments of Basten JA in that case at [21] and [24]. 4. RMS submits that an anomaly arises in this case, namely that where two interests are acquired at the same time, the Just Terms Act could not intend that one party's interests be valued on a factual basis that requires disregard to be had to the interests of the relationship, yet simultaneously value the other party's interests on a different factual premise. RMS distinguishes George D Angus on the facts because, in that case, the business was disrupted and had to move. It incurred loss for a period of time and the way in which those costs and losses were assessed included its lost income and profit as well as relocation expenses – things that could be counted. 5. In RMS's submission, the fact that George D Angus dealt with "an ascertainable loss of an ascertainable sum" is at the core of the decision. It submits that the current case is more analogous to Allandale. Further, RMS submits that George D Angus is not, nor could it be, contrary to the position enunciated by the High Court in Aerated Water at 63-4 per Griffith CJ: The present lessee of land may be a highly desirable tenant whose occupancy of the premises adds to the general reputation of the locality, so that it is extremely unlikely that he will be called upon to vacate the premises at the expiration of his lease. Or the lessor may be a person of amiable character, who has an extreme dislike to disturbing a tenant. Both these considerations relate to personal matters, depending in the one case on the personality of the tenant and in the other on the personality of the landlord. Neither of them is a matter "depending upon the nature and circumstances" of the land itself. Neither of them, therefore, can be taken into consideration in estimating the value of the term. 1. RMS submits that the situation in George D Angus of valuing lost profits for a defined period is of a different nature to the valuation exercise which is undertaken to value a stream of profits. That exercise is a valuation exercise, it cannot be simply labelled disturbance and then be snuck "Trojan horse-like" into s 59(1)(f) under the guise that it is a disturbance claim. 2. RMS repeats its earlier submissions in relation to relocation and submits that as there will be no relocation, there can be no calculation of foregone profits for any period. 3. To the extent that the claim is made for lost profits both in the relocation period and indefinitely in the "no relocation" scenario, RMS submits that there is no entitlement to compensation for foregone profits pursuant to s 59(1)(f) because United cannot satisfy the Court that the claimed lost profits is first, "a financial cost"; second, that it is "reasonably incurred"; and third, that it relates to "the actual use of the land". 4. Further, RMS's primary position is that there should be no entitlement to compensation pursuant to s 59(1)(f). It submits that the overriding operative provision of the Just Terms Act is s 54 which requires one amount of compensation so as to "justly compensate" a person for the acquisition and in doing so only the matters in s 55 are to be considered. 5. Despite this, referring to the Court of Appeal in Tolson at [100], RMS submits that the matters set out in s 55 do not each operate separately to the exclusion of the others (Tolson at [108]-[111]). RMS submits that the matters under s 55(d) are not to be assessed without regard to the matters in other subparagraphs and as such, United's position ignores these principles to calculate foregone profit as a "purely mathematical exercise" and having no regard to any of the other provisions of s 55. 6. In response to the hypothetical scenario put by United that a single party would be able to recover both market value and disturbance with respect to the same land, RMS submits that Tolson is not authority for that approach. It is an incorrect reading of the case, in RMS's submission, to understand that one could seek capitalised lost profit as part of a claim for market value and then make a discrete extra claim for the same loss as disturbance. 7. In relation to "financial costs", RMS submits that future profits can only ever be estimated from projected future income and projected future costs having never been realised, future profits cannot be "lost". At best, they are expected profits that will not be realised. In the present circumstances, a dispossessed landowner could be compensated for lost profits of a business being carried on by a monthly tenant under s 55(a) as part of the owner's market value as was the case in Allandale at [37]- [39] where the Court of Appeal confirmed as much. However, here United appears to rely upon George D Angus to support the proposition that unrealised future profits indefinitely into the future is a cost within the meaning of the provision. RMS submits that this is an incorrect approach because George D Angus concerned and applies only to lost profit (as a cost incurred) where a business is relocated and thus there is an ascertainable loss of an ascertainable sum. Thus, the lost profit can be seen to be actually incurred due to the disruption to the business and any hiatus in trading. 8. Further, RMS submits that the subjective intention of the parties to a lease is an irrelevant consideration (see Allandale at [30], Aerated Water). 9. Finally in relation to "financial costs", RMS submits that lost profits can never be a cost within the meaning of the provision: Allandale at [37]. 10. On the basis that the Court does not accept RMS's primary position in relation to the construction of "other financial costs", RMS submits that the amounts claimed by United are, in any event, not "reasonably incurred" or might not be "reasonably incurred" based upon United's weak tenancy (terminable on one month's notice) such that it could not claim losses on the basis that United could have remained on the Land indefinitely and, despite this, it would not be reasonable for United to be awarded compensation for years of lost profits given the weak tenure. In any event, such an approach would not justly compensate United within the meaning of s 54(1), but rather "unjustly overcompensate" them. 11. RMS submits that in the circumstances, it would be "patently unreasonable" for Lastep and Elmon to be compensated for the value of the business on the basis that they could have achieved possession at any time on one month's notice whilst United is also compensated for the recovery of future lost profits indefinitely on the basis that these are costs reasonably incurred consequent upon the acquisition. RMS thus submits that the amounts claimed even if they are costs, had not been reasonably incurred, and would not reasonably be incurred. 12. In relation to "the actual use of the land", RMS submits that the claim for future profits must relate to the actual use of the land and the actual use in this case is occupation pursuant to a monthly tenancy and losses flowing from the use must be considered in this light. Quantum 1. If the Court does not accept the above submissions, and is satisfied that United's claim meets the requirements under s 59(1)(f), the Court will consider the evidence of Mr Giliberti and Dr Ferrier. Where there are differences between the experts in the two inputs in issue to the annual profit calculation being, market rent and "profits not lost", RMS submits Dr Ferrier's evidence should be preferred. 2. In relation to the "profit not lost" claim, RMS submits that Dr Ferrier should be accepted. Although Dr Ferrier acknowledged that it was not a precise calculation but rather represented his "doing the best he can" in the circumstances, he made an adjustment. To do otherwise, RMS submits, would be to suggest that every litre of fuel previously sold at Harwood is now sold at a non-United service station, which is unrealistic. Although Dr Ferrier's analysis is necessarily imperfect, RMS submits that it is the best available. 3. To the extent that United suggests that, but for the acquisition, the oral lease between Lastep and Elmon and United would have been formalised, RMS submits that this is not supported by the evidence and, as a matter of fact, United had no tenure beyond the verbal monthly tenancy. In RMS's submission, the correct test is to assess the interest the applicant actually had, not what would they would have had but for the acquisition. Therefore, to the extent that there is a difference between the tables prepared by the experts summarised at [69] and [75] above, which divide the analysis between "assuming tenure" and "weak tenure", RMS submits that the latter is only applicable. 4. RMS submits that as to market rent, if United is to have the interest valued on the (according to RMS incorrect) assumption that it had a long term lease, this must be assessed at market rent. RMS submits that Mr Giliberti conceded this in cross-examination. Notwithstanding that RMS submitted that United's policy of formalising leases was irrelevant, it was agreed between the parties in closing submissions that, if the Court was minded to find against RMS that a rental claim can be made out, the rent would have been paid at market value one year after the date of acquisition. This affects the amount of profit generated from the Harwood Roadhouse after that date. 5. In relation to the capitalisation rate used by the experts (whether be it pre-tax/post-tax) RMS submits that the Court would not be concerned with tax liability (or non-liability) as the claimed cash flow lost is assessed as pre-tax and so too should the post-acquisition model. In any event, Dr Ferrier's approach is to be preferred. 6. In light of the foregoing, RMS submits that it would be unjust to compensate United for a loss which has already been recovered by Lastep and Elmon. It also emphasises that it is inconsistent for United to rely upon its relationship with Lastep and Elmon to claim that its tenancy would have continued indefinitely notwithstanding its insecure basis, whilst simultaneously asking the Court to disregard the commercial realities of their relationship in the course of determining a sum which it considers to be "just" compensation for disturbance. Consideration 1. Whether United is entitled to make a separate claim 1. The first matter which must be decided is whether United is entitled to make a claim for disturbance in the circumstances of the compensation that has been paid to Lastep and Elmon. In this regard, United draws my attention to the fact that RMS has admitted that United has a discrete interest in the Land. Notwithstanding that concession, RMS invites me to take a view about the nature of United's interest such that I would find that none of the disturbance related costs which United seeks to make out are in fact separate costs for which United is entitled to compensation. 2. Relevant to these submissions is the line of authority which establishes that disturbance is a separate head of compensation to market value. In Tolson, Basten JA, with whom Beazley P agreed, stated at [83]-[84]: [T]he conclusion sought by the appellants, that an increase in the value of retained land should not be offset against loss attributable to disturbance, follows from two propositions. First, s 55 requires that "regard must be had" to the identified matters, without specifying how they should be understood to interrelate. Secondly, regard may not be had to other matters (the list being exhaustive). In relation to the present issue, the interrelationship between the different paragraphs can be considered without reference to extraneous factors. Losses attributable to disturbance and solatium fall into a different category from changes in the value of land. Thus, solatium is concerned with "non-financial disadvantage", arising from the necessity of relocating one's home: s 60. Disturbance covers legal costs, valuation fees, financial costs of relocation and other financial costs relating to the actual use of the land: s 59. Such costs are entirely separate from the value of the acquired land or the retained land. It is consistent with the legislative purpose of providing compensation for such amounts that they be allowed or disallowed in accordance with the specific statutory entitlements, without regard to the value of any land involved. In written submissions, the appellants stated that to set off an increase in value in retained land against disturbance costs would be contrary to "a long line of authority in the Land and Environment Court and this Court." The only authority referred to was the judgment of this Court in Roads and Traffic Authority of NSW v McDonald [2010] NSWCA 236; 79 NSWLR 155 at [88] (Tobias JA). It is true that the passage relied on distinguishes between the element referred to in pars (a), (c) and (f) from loss attributable to disturbance under (d), on the basis that the former, but not the latter, will be covered by a "before and after" valuation. It was not authority for the proposition that disturbance was not to be set off against an increase in the value of any other land assessed under par (f). On the other hand, the respondent did not suggest there was any authority in this Court with respect to s 55 of the Land Acquisition Act, which required that its submission be upheld. 1. The approach in Tolson was upheld by Preston J in George D Angus at [99], by the Court of Appeal in HAC at [47], and again by the Court of Appeal in Allandale at [45]. The position cannot therefore be doubted. Given that it was not disputed that United has a separate interest in relation to the Land, I find that it is entitled to make a claim for compensation to be assessed having regard only to losses attributable to disturbance under s 55(d) of the Just Terms Act. This is an entirely separate claim from the payment to Lastep and Elmon, which was for the value of the land. 2. Notwithstanding the above, I note that RMS's enduring concern was that the separate determination of compensation to Lastep and Elmon, that is, the valuing of Lastep and Elmon's "interest in land", was in the sum of $3,114,540. This figure was based upon a valuation report prepared by Gregory Jones, of Robertson & Robertson Consulting Valuers. This report, which was before the Court, adopted a methodology for determining market value of Lastep and Elmon's "interest in land", as registered proprietors, which took into account what was described as the "leasehold interest of United". This is clear as the report states that compensation was determined by way of capitalising the: …maintainable net operating profit of the going concern operated from the site. The going concern comprises the operations of the Agent and United in terms of a typically operated service station and roadhouse. 1. This produced "a market value of going concern" in the sum $3,050,000 from which a sum of $100,000 was deducted, being "the written down value of the plant and equipment owned by United". To this was added $164,540 for disturbance pursuant to s 55(d) of the Just Terms Act. 2. The assessment report specifically acknowledged that Mr Jones, the valuer, had been informed that United was the lessee of the property and that Lastep and Elmon, and United were "associated entities". Importantly, it stated "the interest held by United does not form part of this assessment". 3. Whether Mr Jones was required to, or did, take the Aerated Water principle into consideration is not a matter for consideration in the matter before me. However, I note that, generally speaking, Aerated Water has work to do in calculating market value: Allandale at [43]. 4. In the above circumstances, whilst I understand the concern of RMS, there is nothing in the material that is persuasive, and certainly not determinative, that United is not entitled to maintain their claim in these proceedings for loss attributable to disturbance even though it appears clear that the valuation of Lastep and Elmon's interest in the Land, as proprietors, was determined taking into account "the operations of the Agent and United". The fact that Lastep and Elmon's interest in the land was calculated on the above basis does not disentitle United to bring this claim although I have some discomfort about the result. 5. In the circumstances, United is entitled to recover compensation for disturbance for the disruption of its profitable going concern on the Land. Whether compensation was paid to Lastep and Elmon on the basis that they were alter egos of United is not a matter which I can take into account and therefore not a question about which it is necessary to express a view. 6. However, I emphasise that the relevance of Lastep and Elmon does not end there. It was not argued by RMS that Lastep and Elmon are mere "alter egos" of United and that they consequently speak with one voice, but Lastep and Elmon's commercial relationship with United is such that I continue to consider the role of Lastep and Elmon in determining the quantum of compensation to be paid to United. 7. For example, United's relationship with Lastep and Elmon arises in the context of asset ownership, and I am asked to make a finding as to the ownership of certain assets. These claims involve both assets which remained on the site, and assets removed by United. As a corollary of this, RMS submits that because United is not in the business of buying property and holding assets, but rather is in the nature of a lessee, the cost of any fit-out of a new service station could reasonably be expected to be incurred by Lastep and Elmon. 8. The relationship between United and Lastep and Elmon is also relevant to the calculation of any loss of profits in the sense that I am asked to consider whether the interest of United is merely that of a tenant pursuant to a "weak" lease, having regard to the fact that it is terminable upon one month's notice. Of course, the commercial relationship between the parties is such that there is no reason not to suppose, but for the acquisition, that the lease would have continued indefinitely. I shall consider whether it is appropriate for me to take that into account below. 2. Whether lost profits constitute costs reasonably incurred 1. For the reasons that follow, I find that lost profits can, and in the circumstances do, constitute costs reasonably incurred. In George D Angus, in the context of facts not dissimilar to the present case, Preston J held at [100]-[101]: The natural and ordinary meanings of the words "financial costs" and "reasonably incurred" in s 59(f) permit a construction that allows compensation for not only financial expenses which the person entitled to compensation by their actions incurs, but also financial losses which the person suffers as a consequence of the acquisition. If a narrower meaning were to be selected, there would be a limitation on or impairment of the entitlement to compensation for the acquisition of land. The entitlement to compensation is an important right and hence s 59(f) should be construed with all the generality its words permit: Marshall v Director-General, Department of Transport at [38], [67] and Roads and Traffic Authority of NSW v Heawood at [20], [21]. The context of s 59 of the Act does not demand a narrow construction of financial costs so as to only include expenses and not also apply to losses. Even if the particular costs and fees referred to in paragraphs (a)-(e) of s 59 were to be construed as being restricted to expenses (which is not clear), that does not mean that "any other financial costs" in s 59(f) must be so restricted. Paragraph (f) is intended to catch financial costs not caught by the other paragraphs in s 59. There is nothing in the language of paragraph (f), or of the other paragraphs of s 59, which demands such a narrow construction. 1. On appeal, in HAC, Tobias AJA, with whom Emmett and Leeming JJA agreed, upheld Preston J's finding on this point. At [63], Tobias AJA stated: It follows from the foregoing that I would reject the appellant's submissions on the first issue including its contention that Peter Croke and the decisions which have followed it were wrongly decided. Given that the pre-Just Terms Act authorities relied upon by the appellant permitted the recovery of disturbance losses such as loss of trade or production during the period of relocation, it would be odd in the extreme if such losses could no longer be recovered because no expenditure was involved. In my view the primary judge was correct in finding that the respondent was entitled to recover compensation for the lost or foregone net income it sustained as a direct and natural consequence of the acquisition of its interest in the Yabtree Street land. 1. RMS submitted that I have regard to the fact that in Allandale, Basten JA, with whom Ward JA agreed, and with whom Sackville AJA agreed on the outcome, stated at [37]: There is a second difficulty in seeking to shoehorn the recovery of lost profits into s 59(f). The ordinary meaning of the term "loss" would undoubtedly include costs, but costs would generally be considered a subset of loss, rather than as having the same meaning. The reasons for taking a contrary view appear to have been threefold. The first was textual, apparently based on the use in s 61(b) of the phrase "any financial loss that would necessarily have been incurred in realising" the potential use of the land other than its current use. However, the relevance of s 61(b) is obscure; it is concerned with the assessment of "the market value of land", not with any other head of compensation. There is no reason to read "other financial costs reasonably incurred", in s 59(f) as meaning "other losses suffered"; indeed there is every reason not to. Apart from the matters noted, the word "other" becomes inapt (citations omitted). 1. Whilst considered commentary made by the Court of Appeal must be given careful consideration by this Court, in circumstances where costs pursuant to s 59(f) were not directly in issue in Allandale, on a careful reading of his judgment, I consider Basten JA's comments are obiter. Conversely, the Court of Appeal's decision in HAC is binding on this Court. 2. Therefore, I do not accept RMS's submissions on this point summarised above. Profits foregone are capable of being assessed as "financial costs" which are "reasonably incurred" pursuant to s 59(f). 3. I do not understand RMS to have disputed that the lost profits are not "reasonably incurred" as opposed to not constituting "financial costs". However for the avoidance of doubt, and remembering that, as the Court of Appeal held in McDonald, it is the incurring of the costs to which the criterion of reasonableness applies, I find that the lost profits of United are costs reasonably incurred as a natural consequence of the acquisition. The acquisition extinguished the Harwood Roadhouse business, and the loss of profits thereby occasioned could not have been avoided. 3. The basis upon which disturbance is to be assessed 1. That being the case, it is necessary to determine whether United's compensation for disturbance should be calculated on a relocation or no relocation basis. As summarised above, United submits that there is no requirement for it to have found a particular site, and that it is part of the statutory construct that disturbance of this kind is assessed prospectively. Conversely, RMS submits, placing significant reliance upon Shun Fung, that the fact that no site has been identified, among other matters, shows that there is no reasonable prospect of relocation and that the Court is unable, in the circumstances, to assess whether relocation is possible. 2. The facts of Shun Fung can be briefly stated. The respondent had a steel making business in Hong Kong. The business was in significant debt and incurring losses, but there were projections to the effect that once the business reached full production capacity, its profits would significantly increase and its debts would be repaid. However, once it became widely known that the respondent's site was to be compulsorily acquired, this had a detrimental effect in that customers became reluctant to enter into long term contracts. 3. The respondent made a claim for compensation that covered its costs of moving the business to a new site in China. The relocation claim was for a significantly greater quantum than its claim for extinguishment would have been. In this regard, the Privy Council held that there was no general principle that relocation costs need be lower than extinguishment costs. However, the Privy Council found, at 854-5, that the relocation had to be reasonable, having regard to three criteria: Three principle questions arise on relocation claims. (1) Can the business be relocated, or has it effectively been extinguished? Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exist. If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis. (2) Does the claimant intend to relocate? The claimant must have reached a firm decision to relocate his business and he must be reasonably assured that he will be able to do so. (3) Would a reasonable businessman relocate the business? 1. In its submissions canvassed above, United challenges the relevance of Shun Fung on the bases that it was from a different jurisdiction, and that the Court of Appeal has repeatedly emphasised that the Just Terms Act represents a break from the principles of compulsory acquisition as they were previously understood. 2. I do not consider that the tests in Shun Fung are binding on this Court, essentially for the reasons that United provides, but to the extent they provide some guidance as to whether relocation is an appropriate method for assessing a disturbance claim, I consider that they are of some assistance. I do not put it any higher than that. 3. In any event, whether by reference to Shung Fung or otherwise, I find that it is not appropriate for the Court to assess disturbance on the basis of relocation where it cannot be shown that there is a reasonable prospect of relocation in the circumstances. 4. In that regard, I note that United has been searching for an appropriate site for more than two years. Mr Carmeli's evidence was that some sites have been considered and that in December 2014 he identified a site at Mororo, in the Clarence Valley, but did not pursue it because a service station was not a permissible use in the zone. A second site, 50 Kungala Road, Halfway Creek ('Halfway Creek site'), was similarly not pursued. 5. Mr Carmeli gave several reasons why the Halfway Creek site was not pursued: the purchase price and asking rent were not commercially viable; there was a modern service centre only 3km to the south-east; and the premises were only 30km from the town of Grafton where United already operates two service stations. Mr Carmeli added that a further reason why United did not pursue the site was that it did not wish to commit to acquiring a site until the amount of compensation it might receive in these proceedings was determined. 6. Despite the evidence of its attempts to locate a suitable site, United submits that it is under no obligation to find alternate premises until its compensation is determined. In this regard, it refers to George D Angus where Preston J stated at [163] and [166]: [163] …A person who has an interest in land that might be divested, extinguished or diminished by a proposed acquisition has no legal obligation to purchase alternative land prior to the acquisition occurring and compensation being paid. Only on publication of an acquisition notice does the land vest in the acquiring authority and the person become entitled to compensation. Until that time, the person does not act unreasonably by not taking action to minimise the amount of compensation to which that person would be entitled to be paid by the acquiring authority, let alone minimising the amount of compensation to which another person with an interest in the land that has been extinguished would be entitled to be paid by the acquiring authority. Hence, Benantra was not obliged, before the Yabtree Street land was acquired, to look for or purchase alternative land to be leased to GDA to conduct its medical practice… [166] For completeness, I also find that GDA did not act unreasonably in not itself purchasing alternative premises from which it could conduct its medical practice. GDA had only a leasehold interest in the Yabtree Street land that would be extinguished if HAC were to acquire that land. The compensation to which GDA would become entitled would arise from the extinguishment of GDA's interest in the land. GDA was under no legal obligation to incur financial costs to acquire a greater estate or interest in alternative land than would be extinguished by the acquisition. GDA was also under no obligation to take action to purchase alternative land before HAC issued a proposed acquisition notice and acquired the land. Finally, it is not unreasonable for a person who has an interest in land that might be extinguished by a proposed acquisition to defer taking steps to purchase alternative premises until compensation is agreed or determined: see Macarbell Pty Ltd v Roads and Traffic Authority (NSW) [2006] NSWLEC 651; (2006) 149 LGERA 217 at [33]. 1. As a matter of principle, United is undoubtedly entitled to wait until it receives compensation before relocating its operations. However, that does not address the question of whether relocation is a realistic prospect in the circumstances. 2. As RMS submits, United is a business with a multi-billion dollar turnover. As a matter of commercial reality, I do not consider that it is reasonable for the Court to infer that the delay in United finding a replacement property is primarily a result of it waiting to find out what its budget might be as a consequence of these proceedings. 3. As noted above, Mr Carmeli deposed that the indeterminacy of the damages resulting from these proceedings was one of the reasons United did not proceed with the Halfway Creek site. I do not suggest that this is not the case, but consider that the other three reasons Mr Carmeli gave carried far more weight in United's decision not to proceed. I similarly accord little weight to this factor in assessing the fact that an alternative site has not been found. 4. In the circumstances, it is clear that the reason United has not relocated its Harwood Roadhouse operations is that it cannot relocate them. That is not to say that it will not find a suitable location, however given the experience, resources and expertise available to United, the fact that it has not and the fact that there is an alternative basis upon which to determine disturbance are matters that I find persuasive. While it is theoretically possible that a suitable site might become available, such a proposition is wholly speculative. I am therefore not satisfied that a relocation scenario, even one based as United submits, on a twenty-seven month period, is appropriate, reasonable, or practically possible. There is no basis upon which I could be satisfied that United will be able to relocate its operations in that, or any other, specified time period. Further, the fact that there were a number of relocation scenarios (and sub-scenarios), each with different assumptions and consequences, leads me to find that consideration of compensation based upon relocation is fraught with commercial and practical unreality. 5. Furthermore, the Court of Appeal held in McDonald that the requirement that disturbance costs under s 59 be "reasonably incurred" means that the incurring of the costs must be reasonable, not the costs themselves. On that understanding, it cannot be said that costs are reasonably incurred when there is only a remote chance that they will be incurred as is the case with the relocation options presented here. Indeed, the fact that United was unable to identify with clarity which relocation option was the most likely further strengthens my view that relocation costs in this case would not be "reasonably incurred". 6. I am not satisfied that any of the relocation options represent a suitable and appropriate basis upon which to determine compensation. 7. Having made this finding, it remains for me to consider the appropriate quantum of damages calculated on the basis of extinguishment. I point out that I do not use the word "extinguishment" in its strict sense because United's commercial operations will continue at its other sites, but rather as a convenient term for the inability to relocate United's revenue stream from the Harwood Roadhouse. 4. Is extinguishment to be assessed on the basis of loss of profits or a sale of goodwill? 1. Having decided that the case should be dealt with as one of extinguishment, I must now decide the basis for calculating United's costs "reasonably incurred" under s 59(1)(f). 2. I consider that the actual loss suffered by United is a loss of a stream of profits. I do not therefore find that it is appropriate to calculate disturbance on the basis of a "sale of goodwill" with respect to the Harwood Roadhouse. Such an approach has an air of unreality. 3. Further, Mr Giliberti gave four reasons why a sale of goodwill approach was inappropriate. Briefly, those reasons were: the Harwood Roadhouse was not operated by United as a standalone business; United had no intention of selling the business; the value of the business had a greater value to United "in use" than a hypothetical sale as a standalone rural petrol station; and if every site operated by United was valued on a "walk-in/walk-out" basis, the sum of the individual parts of the business would most likely be less than the value of the whole of the business. I accept and adopt that reasoning. 4. Further, I consider that it is appropriate for me to take into account the fact that the petroleum market has many large players and relatively few independent retailers, or "mum and dad" bowser owners as they were described during oral argument. To deal with the Harwood Roadhouse as a standalone entity would be to ignore that commercial reality. 5. It was agreed by Mr Giliberti and Dr Ferrier that in this case the lost profits should be calculated by adopting a capitalised maintainable earnings methodology ('CME'). 6. That methodology requires two variables: first, a calculation of the average annual contribution profit of the Harwood Roadhouse which was agreed to be $497,000 with possible adjustments for market rent and profit not lost; and second, the discount rate which takes account of risk. 7. There was disagreement between the valuation experts, Mr Giliberti and Dr Ferrier, as to adjustments which should be made to the variables for the CME calculation in the circumstances. Therefore, I must determine whether and how "weak tenancy" and tax will affect the discount rate. Separately, I must determine whether the market rent adjustment and profit not lost should be factored into the profits, findings which will affect the first variable. 8. Any compensation for assets will be a lump sum separate from the CME calculation. 5. What variables should be used in the calculation of United's lost profits? Is it appropriate to take the weak tenancy into account? Weak tenancy 1. I deal first with the question of weak tenancy. As noted above, United submits that the quantum paid to Lastep and Elmon is irrelevant on the basis that the claims for market value and disturbance are discrete. RMS submits that neither Tolson nor George D Angus supports a proposition so broad and that, having factored profits into the assessment of the market value in determining the compensation for Lastep and Elmon, RMS is now effectively being asked to recompense the same loss of profits again. Alternatively, RMS submits lost profits are not costs "reasonably incurred" on the basis that United had only a weak tenancy terminable on one month's notice. 2. This raises the most significant difference between the parties: whether the weak nature of the tenancy is a factor to which regard should be had in making an assessment as to loss of profits. United submits that because it is a discrete claim, and because the accepted approach is to factor in future profits as a cost reasonably incurred (George D Angus), the nature of the tenancy is not a matter to which regard can be had. Further, to add an additional limb by reference to the High Court's decision in Aerated Water would, in United's submission, be contrary to more recent High Court authority in Marshall. 3. The RMS submits that neither George D Angus nor HAC is authority for the proposition for which United relies upon them, and further that HAC is not, nor could it be, contrary to the High Court's decision in Aerated Water. 4. United submits that the authorities it cites in relation to this question make the matter "unarguable." It is therefore worth considering them in some detail. 5. In George D Angus, the applicant was a company called George D Angus Pty Ltd ('GDA'). The sole director and shareholder of that company was Dr George Angus, a gynaecologist and obstetrician. GDA leased the land upon which Dr Angus conducted his practice from a company called Benantra Pty Ltd ('Benantra'), on an informal, oral basis. The sole director and shareholder of Benantra was Mrs Wendy Angus, Dr Angus' wife. The land upon which the practice was based was compulsorily acquired. 6. As a result of the acquisition, Dr Angus was forced to relocate. In view of the fact that his new practice was further from the hospital, he ceased providing services as an obstetrician, because he considered that the distance between the hospital and his practice presented a risk to his patients. 7. GDA claimed damages for disturbance under s 55(d) of the Just Terms Act for: the financial cost of the relocation; and the loss of profit compared to what GDA was making at its original site. 8. The passages in which Preston J found that a loss of profit can constitute "costs" for the purposes of s 59(1)(f) are already extracted above at [230]. 9. In relation to the applicant's tenancy, Preston J found at [124]-[125]: I find that GDA had at least a statutory tenancy at will in terms of s 127(1) of the Conveyancing Act. I accept Mrs Angus' evidence as to the effect of the offer and acceptance, and the terms of the tenancy of the Yabtree Street land. Dr and Mrs Angus set up and operated two service companies, one to own the land (Benantra) and the other to run the medical practice from the land (GDA). Of course, the precise words spoken 15 years ago to implement this arrangement might not be exactly as Mrs Angus now recalls, but I accept words to that effect were highly likely words to have been exchanged between Dr and Mrs Angus. This is corroborated by the conduct of Benantra and GDA up until the acquisition of the Yabtree Street land. Benantra purchased and held the land and GDA exclusively occupied the land and paid Benantra rent in return. I accept that the term of the lease was indefinite - for so long as GDA wished to practice from the premises. I find, therefore, that there was an express tenancy agreement between the landowner Benantra and the tenant GDA whereby GDA was given exclusive possession of the Yabtree Street land to conduct its medical practice, subject to GDA paying rent (in the sum later agreed between the parties to the tenancy agreement) to Benantra for an indefinite period, being for as long as GDA wished to conduct its practice on the land. 1. It is worth noting that the legal interest that GDA was found to have is relevantly identical to the interest which it is agreed United has in this case. His Honour went on to say at [127]: Under the statutory tenancy, GDA had a right to exclusive possession of the Yabtree Street land as against all others, including its landlord Benantra. Such a right, flowing from contract with the landlord, is the essence of tenancy. It creates an interest in land: Chelsea Investments Pty Ltd v FederalCommissioner of Taxation (1966) 115 CLR 1 at 7; Mooliang Pty Ltd v Shoalhaven City Council at [37]. Notwithstanding the fact that the tenancy at will could be terminated by either Benantra or GDA at any time, there was in this case a unity of interest between the landowner and the tenant (and their respective directors and shareholders) that made such a termination highly unlikely: Mooliang Pty Ltd v Shoalhaven City Council at [39], [46], [47]. I find that GDA's tenancy amounted to an interest in the Yabtree Street land within paragraph (a) of the definition of interest in land (emphasis added). 1. The decision of Preston J was appealed. Before the Court of Appeal it was argued that the decision of Preston J was inconsistent with the principle articulated by the High Court in Aerated Water that it is inappropriate to take into account the subjective factors particular to the lessor and lessee when valuing a tenancy. In the Court of Appeal, Tobias JA, with whom Emmett and Leeming JJA agreed, held at [68]-[69]: In my view the decision in Aerated Water does not assist the appellant. That was a case where the relevant lease was to expire at the end of a fixed term. Any grant of a new lease was dependent upon the personal relationship between the parties continuing. In the present case the tenancy at will found by the primary judge would continue indefinitely unless and until Benantra, as lessor, took the decision to give one month's notice in writing and there was no reason to assume that it would give such a notice so long as Dr Angus wished to practise from the Yabtree Street land. On the other hand in Aerated Water there was no reason to assume or contemplate that the lessor would grant the lessee whose interest was compulsorily acquired, a new lease on the expiry of the term of the existing lease. In any event, the issue in Aerated Water was the market value of the interest compulsorily acquired. In the present case the Court is concerned with post-acquisition disturbance losses. The issues are quite different. The appellant's argument proceeds on the assumption that the terms and limitations of the respondent's interest in the Yabtree Street land govern, as a matter of law, the question of whether the respondent reasonably incurred a loss of income and/or profits as a direct and natural consequence of the acquisition. Herein lies the fallacy of its contention. Those terms and limitations were relevant to the assessment of the market value of the interest acquired but not to the assessment of any loss attributable to post-acquisition disturbance (emphases added). 1. In answer to the argument that a weak tenancy affects the valuation of goodwill, it should be noted that Tobias JA went on to say at [70]: In the present case, as the respondent's tenancy was terminable on one month's written notice, it had no market value. But the fact that it was compulsorily acquired thereby converted the relevant interest into an entitlement to claim compensation in accordance with, relevantly, Div 4 of Pt 3 of the Just Terms Act: see s 37. That acquisition gave rise to loss attributable to disturbance where that loss related to the actual use of the land and was reasonably incurred as a direct and natural consequence of the acquisition. That consequence was triggered by the compulsory extinguishment of an interest in the land as defined: the nature of that interest mattered not for the purpose of s 59(f). Its work was done when it was acquired and its only relevance was its influence on its market value as at the date of acquisition (emphasis added). 1. It is important to identify with clarity the task to which the Court must apply itself. As has been repeatedly emphasised, a claim for disturbance is entirely separate from a claim for the value of the land. Aerated Water is relevant for the latter, but HAC is binding authority on this Court that strength of tenure is not to be taken into account when assessing the former. 2. In particular, the italicised portions of the above extracts emphasise the factual similarities between HAC and the present case. I find that these similarities make it impossible for RMS to distinguish HAC on the facts. 3. RMS sought to distinguish HAC by claiming that George D Angus and HAC dealt with an "ascertainable loss" of an "ascertainable sum". In George D Angus, Preston J found at [192]: GDA is entitled to the financial losses it incurred during the period it practised at the Peter Street land, under s 59(f). The financial loss GDA incurred, in the period from when GDA vacated the Yabtree Street land to when GDA vacated the Peter Street land (assumed to be 30 June 2013), was the difference between what GDA would have earned by practising at the Yabtree Street land and what GDA actually earned at the Peter Street land. 1. In HAC, Tobias JA commented at [62]: Finally, contrary to the submission of the appellant, the primary judge's construction of s 59(f) does not involve compensating an owner for business losses or foregone profits by capitalising them. That is not how the primary judge assessed the respondent's losses under this head and it would have been inappropriate for him to have assessed them otherwise than in the manner he adopted by estimating income and subtracting estimated expenditure for the relevant period. 1. I do not understand Tobias JA to be stating that capitalising profits is never an appropriate course for calculating disturbance, but merely that it would have been inappropriate in HAC as the losses were confined to a strict period. This was because Dr Angus subsequently moved his practice to Newcastle, which was too far removed from the acquisition to be costs reasonably incurred as one of its natural consequences. 2. I note that in The Commonwealth v Reeve (1949) 78 CLR 410 ('Reeve'), Dixon J commented at 428: You cannot simply take the profits of the business and capitalize them at a rate of interest and directly add them to whatever is thought to be the value of the land or interest therein to one who purchases it for some other purpose. That is shown by Pastoral Finance Association Ltd v The Minister. 1. However, Dixon J in Reeve was dealing with, as the High Court was in Aerated Water, the determination of the value of land. As the Court of Appeal has repeatedly stressed, disturbance under the Just Terms Act is a separate process. 2. In HAC, Tobias JA at [30] summarised the submission of the appellant on this point thus: There is nothing in the text of the Just Terms Act or in the language of s 59 which would suggest that any radical departure was intended from the pre-Just Terms Act position so as to compensate a dispossessed owner for any loss of profits by capitalising business losses (although no such capitalisation was proposed in the present case) and adding them to the market value of the acquired land. 1. This submission in HAC did not need to be dealt with by the Court of Appeal as the stream of profits was not capitalised, but the submission incorrectly posits that the capitalised stream of profit would be added to the market value of the land. Again, that fails to take into account the discreteness of disturbance from a claim for market value. 2. Contrary to RMS's submissions, I do not accept that the fact that the present case does not deal with an "ascertainable sum" or an "ascertainable period" gives rise to any doctrinal difference which would distinguish HAC. 3. It should also be noted that the reasoning in HAC was the subject of some commentary on the part of Basten JA in Allandale. With respect to whether Aerated Water applied to the situation of post-acquisition disturbance losses, his Honour said at [30]-[31]: The first point of distinction, namely that between a periodic tenancy which had not expired and one that had, has no bearing on the principle relating to the value of the interest in land. The second, ("no reason to assume" future conduct) does not reflect the reasoning in Aerated Water set out at [25]-[26] above. The third ground of distinction, namely that Aerated Water was concerned with "the market value of the interest as opposed to post-acquisition disturbance losses" was not applicable to a claim under s 55(f) (rather than s 55(d)), but is also unpersuasive. First, it assumed the conclusion that such losses can only be dealt with as "post-acquisition disturbance" and, secondly, it assumed that the legislative changes created by the identification of separate heads of loss have not merely significantly expanded the bases of recovery (potentially permitting two parties to recover the same loss) but have also rendered the subjective intentions of the parties relevant. It is accepted that a claim can be made for loss of profits by a business where it has an interest in the acquired land, even if that interest has no compensable value. What is puzzling is why, under the Just Terms Act, the business is valued as if it had a secure tenancy, whereas its legal interest was entirely insecure. That requires reference to a curious approach adopted with respect to the operation of s 55 and its defining provisions. 1. His Honour went on to say at [40]-[42]: The primary judge relied upon George D Angus as support for the view that although the interest held by QPN, as a tenant at will, "had no relevant market value", it was, nevertheless, entitled to make a claim for compensation "limited to losses attributable to disturbance." [32] However, if the tenancy was, as a matter of law, terminable on one month's notice, it could not become a lease for an indefinite period because of the intentions of the parties, without departure from Aerated Water. If it was not a right of exclusive possession for an indefinite period, but only for one month, it is difficult to understand how it could justify a substantial sum for disturbance. George D Angus became relevant in these proceedings only indirectly. As RMS explained, it had relied upon George D Angus before the primary judge as the first step in its double dipping claim. In its submission, a disturbance claim could only arise from "actual use" of the land which, in accordance with George D Angus, was a claim properly made by QPN as a tenant in exclusive possession, reflecting the subjective intentions of the parties. If it had such a continuing interest, that interest was exclusive of ABM and should have precluded the latter's claim. It is difficult to see how the result in the present case can stand with the reasoning in George D Angus. It is difficult to avoid the conclusion that it is anomalous to assess compensation to the owner on the basis that the tenancy may be terminated immediately, for the purpose of the hypothetical sale, but to assess compensation to the tenant on the basis that the current use of the land will continue indefinitely. 1. These comments are not without some force. However, I do not consider that they are capable of displacing the decision of this Court in George D Angus and the decision of the Court of Appeal in HAC, particularly when regard is had to the striking factual similarities with the present matter. This is especially so given that in Allandale, Sackville AJA reached the same conclusion as Basten JA (with whom Ward JA agreed) in relation to the determination of Allandale's compensation claim via a different line of reasoning, commenting at [101]-[103]: In reaching this conclusion, I do not think it is necessary to form a view as to the correctness of the decision of this Court in [HAC]. That case involved a claim by a tenant for a large amount of compensation as disturbance under ss 55(d) and 59(f) of the Just Terms Act. The tenant succeeded notwithstanding that his lease was terminable on a month's notice. The Court in [HAC] distinguished Aerated Water on a number of grounds. One distinction was that Aerated Water was concerned with assessing the market value of acquired land while [HAC] involved a claim for "costs reasonably incurred … relating to the actual use of the land, as a direct and natural consequence of the acquisition". In my view, [HAC] concerned issues different from those presented by a compensation claim under s 55(f) of the Just Terms Act such as the claim made by ABM. I do not think that there is any inconsistency between the reasoning in [HAC] and the conclusion I have reached in the present case (citations omitted). 1. In view of the above, I find that the correct approach, indeed the approach which I am bound to take, is that articulated by this Court in George D Angus and upheld by the Court of Appeal in HAC. 2. It was submitted by RMS that because disturbance can only be claimed for the "actual use of land" and the actual use of the Land was as an insecure tenancy, United should be precluded from recovering damages calculated in perpetuity for that reason. The problem with that submission is that it defines "actual use" of the Land too narrowly. 3. In assessing disturbance, the clear effect of the authority binding on this Court is that the "actual use" of land is not confined to a narrow analysis of legal instruments. In accordance with Preston J's analysis in George D Angus, the Court, in assessing a disturbance claim, must decide whether the party has a relevant interest in the land, but where it is a leasehold interest, the strength of the tenancy is irrelevant. 4. Therefore, it is not appropriate to take into account the fact that United had only a weak tenancy in the calculation for loss of profits. As such, I do not factor in a discount for weak tenancy as part of the maintainable capitalised earnings calculation. 5. I should add that if it had it been necessary to address the question, I do not think that United's case is assisted by the High Court's decision in Marshall. Whilst I accept that statutes should be read purposively, I do not understand Marshall to be advocating a departure from the ordinary principles of statutory construction which dictate that the Court must have regard, in the first instance, to the clear meaning of the text. That principle does not bear upon the applicability or otherwise of Aerated Water. Profit not lost 1. As noted above, Dr Ferrier makes an adjustment to the average annual contribution profit generated at the Harwood Roadhouse based upon what he called "profit not lost", in effect being the assumption that upon cessation of the United Roadhouse business, not all sales would have been lost to United because some customers would make purchases at other United service stations. 2. Dr Ferrier relied particularly upon commercial customers who hold a "commercial fuel card" (or loyalty card) and who travel the Pacific Highway between Grafton and Lismore. He considered evidence from United's material that approximately 110 separate account holders used loyalty cards at Harwood Roadhouse and that a certain number of accounts had either been closed or became inactive since the closure of the Harwood Roadhouse. Whilst unable to provide precise details of the background material he relied upon, he noted that 64% of cards that were "active" at Harwood Roadhouse remain active at other United sites. He assumed that 80% of the Harwood Roadhouse sales were made to local business. 3. From the remaining 20% of sales, Dr Ferrier said that some brand loyalty to United could be expected and that consequently not all of the profit from those sales would be lost. He used United's loyalty card program as a "proxy" for brand loyalty, and concluded that 64% of the non-local sales (that is, 64% of 20%) of United's customer base could reasonably be expected to be maintained. Therefore, he concluded that the average annual contribution profit generated by Harwood Roadhouse should be adjusted down in the sum of $68,000. Mr Giliberti did not agree with this figure as there were competing, that is, non-United, petrol stations located in the Harwood area. 4. United submitted that Dr Ferrier's evidence was unsatisfactory particularly his consideration that United would retain 20% of its customers at other United service stations post acquisition. United further submitted that Dr Ferrier produced no credible basis or reasoning to justify this adjustment. 5. RMS submitted that it is unrealistic to suggest that every litre of fuel previously sold at Harwood is now sold at a non-United service station and Dr Ferrier was able to make his assumption from the evidence available. 6. I accept that the precise material relied upon by Dr Ferrier is a little unclear. However, I note that his conclusion was not, as United submitted, that 20% of the customers would be retained, but rather 12.8%. In addition to the material Dr Ferrier considered, including the loyalty card material, I note that there is evidence before the Court (called on behalf of United through Mr Carmeli and Ms Spry) that United operated a network of service stations, many strategically located along major roadways, a number of which are not significantly distant from Harwood, including 30 service stations within 200kms from Harwood, and 8 service stations within 100kms. Given the evidence, I accept that not all customers would be lost. 7. Doing the best I can, I consider given the nature and extent of the relatively local network, I consider it appropriate to adopt 50% of Dr Ferrier's suggested adjustment, being an adjustment of 6.4%. This means, in effect, that 64 in 1000 customers would continue to use United service stations, and reflects a sum of $34,000. The annual contribution profit should be adjusted accordingly. Tax adjustment 1. With respect to tax, the differences between Mr Giliberti and Dr Ferrier canvassed can be ultimately expressed as whether a 17% discount rate or a 24% discount rate should be applied to the projected annual earnings, that is, the $497,000 figure. 2. The 17% discount rate was calculated having regard to publicly listed companies. As Mr Astill observed in oral submissions, publicly listed companies report on a post-tax rather than pre-tax basis. In Appendix B to the joint report, Mr Giliberti explained that Dr Ferrier's 24% rate was reached by dividing the 17% post-tax discount rate by 1/30%. Mr Giliberti opined that this method of calculating the pre-tax discount rate was conceptually flawed because the cost of equity reflects a return on equity based on different effective tax rates for different companies. 3. Dr Ferrier's position is that $497,000 represents the income stream pre-tax, so that a pre-tax discount rate should be applied. He noted that this approach is consistent with the accountancy standard (see [81] above). 4. In cross-examining Dr Ferrier, Mr Hemmings posited that because the United Petroleum Trust is not a tax-paying entity, its post-tax revenue would remain at $497,000 and so this figure was equally amenable to the 17% discount rate. Despite putting this proposition to Dr Ferrier several times, Dr Ferrier did not demur from his view that the pre-tax earnings should be calculated by reference to the pre-tax discount rate. 5. In final submissions, Mr Hemmings expressed what he called Dr Ferrier's error by way of the following example: 1. United receives $497,000 in profits. It distributes all of those profits to its beneficiaries who pay tax at their respective tax rates. United itself pays no tax. 2. United receives $497,000 in profits. Dr Ferrier adjusts for the 30% corporate tax rate. United now has $347,900 to distribute to its beneficiaries, who again pay tax at their respective tax rates. 1. United submits that Dr Ferrier agreed that in order to ensure compliance with the accountancy standard, an adjustment can be made to either the capitalisation rate or to the earnings. Dr Ferrier chose to adopt an approach which is to increase the capitalisation rate, while he could have chosen to use the post-tax earnings, which would be $497,000 because United does not pay tax. Dr Ferrier posited in his individual expert report that United does not pay tax. In United's submission, the correct understanding is therefore that the post-tax capitalisation rate of 17% should be applied to the post-tax earnings of $497,000. 2. RMS submits in response that the Court ought not to be concerned with tax liability in assessing compensation. The loss lies where it falls. The cash flow, it submits, is assessed as pre-tax and so too should be the discount rate. Mr Astill submitted that an adjustment in earnings was never put to Dr Ferrier, because that would have required the pre-tax earnings of the publicly listed companies upon which the 17% discount rate was based to be calculated and presented to him. 3. I find that the difficulty in the situation is accurately described by Mr Astill as how to reconcile the 17% discount rate which was determined having regard to post-tax reporting, to the pre-tax earnings of United. 4. Assuming that the accountancy standard is to be applied, either a pre-tax discount must be applied to pre-tax earnings or a post-tax discount must be applied to post-tax earnings. 5. I consider that, in the present case, this is capable of being resolved in a number of ways. First, the post-tax rate can be converted to a pre-tax rate. This is what Dr Ferrier has done. However, this approach is contentious in the sense pointed to by Mr Giliberti, in that it assumes a tax rate of 30% when, in fact, the effective tax rates of the companies used to determine the rate varies. Further, it is inappropriate to assume a tax rate of 30% when it is not disputed that United did not pay that rate of tax as a matter of fact. 6. Secondly, the 17% discount rate could have been adjusted by reference to the pre-tax earnings of the listed companies assessed. This was the suggestion made by Mr Astill. The evidence was that this would have been a particularly labour-intensive process and the fact is that it was not done. What difference it would have made to the 17% rate is purely speculative. 7. Lastly, the post-tax discount rate could be assessed having regard to United's post-tax profit. It is agreed by all the experts that United did not pay tax, but rather paid its beneficiaries who then paid tax at their respective tax rates. It follows, then, that the post-tax profit was $497,000 and that this figure is amenable to adjustment by reference to the 17% discount rate. 8. I note that Dr Ferrier in cross-examination found this to be an inappropriate approach. With respect to him, I do not find that he articulated any compelling reason why this is so. Indeed, it is the only approach which can be taken where none of the amounts used to reach the result are in dispute. 9. Therefore I find that the 17% post-tax discount rate should be applied to United's post-tax earnings, which are $497,000. Market rent adjustment 1. RMS initially contended that evidence as to whether the lease would have been formalised was irrelevant. In the course of cross-examining Mr Carmeli, Mr Astill put it to him that it could not be said that but for the acquisition United would have had a formalised lease at the Harwood Roadhouse site in the circumstance that no formalised leases for any United operations had been finalised by August 2015. Mr Carmeli maintained that it was possible, but agreed that no formalised leases existed between United and its various landholding entities at the acquisition date. 2. In those circumstances, I find that it would be unreasonable for the Court to infer that market rent should be deducted from United's earnings at the acquisition date as the available evidence shows that such an eventuality would have been highly unlikely. 3. For the purposes of capitalising earnings, Dr Ferrier adopted market rent from the date of vacant possession. 4. This approach sits somewhat uncomfortably with RMS's primary submission on the applicability of Aerated Water because it takes into account the subjective intentions of the parties to enter a formalised lease for the purpose of capitalising their earnings. However, as I have outlined above, I consider that the Court is bound by HAC with the consequence that the subjective intentions of the parties can be relevant to a disturbance claim. Given that finding, it is appropriate that United's earnings be adjusted to account for the date after which it would have been paying market rent. 5. In his closing submissions, Mr Hemmings said that United had made the "conservative assumption" that the lease would have been finalised within 12 months of the acquisition date. He submitted that the period from the acquisition date can therefore be split into three periods: the period covered by the 'rental claim', where United occupied the property after the acquisition date paying market rent to RMS; the period from the date of vacant possession to 15 August 2016, where United would not have been paying market rent; and lastly the period from 15 August 2016 onwards, when the lease would have been formalised and United would have been paying market rent to Lastep and Elmon. 6. In his closing submissions, Mr Astill (at Tcpt, 2 June 2017, p 247(45) onwards) said: To the extent that market rent would be an adjustment, it would have to be based on the assumption that a formal lease would be in place. My friend, I think, suggests that would be about a year after the date of acquisition. I think I can't disagree with that. But for the acquisition, the evidence seems to be that a year later or thereabouts a formal lease would have been entered into, and the evidence of Mr Carmeli was, or confirmed I think, that when that happened the lease would go to market. 1. Inevitably there is some degree of prognostication involved in determining when the formalisation of the lease would have occurred given that the compulsory acquisition meant that it never proceeded. I therefore consider that it is appropriate that I give effect to this agreement between the parties and determine the loss of profits on the basis that the lease would have been formalised on 15 August 2016. The capitalisation methodology must therefore take into account that United would have been paying market rent for the Harwood Roadhouse from that date. 6. Are the assets compensable? 1. I now consider the question of whether United, as opposed to Lastep and Elmon, owned any of the assets on the site, and, if so, whether the asset registers are an appropriate source upon which to rely in recompensing any loss of assets. 2. I note in this regard that the contribution of the assets in the extinguishment scenario is different from that considered in the relocation scenarios. The contribution of the assets to the profitability of United's Harwood Roadhouse operations is factored into the assessment of United's capitalised maintainable earnings. 3. The question that remains therefore is whether there were any assets left on the site for which United should recover compensation as disturbance. For the following reasons, I find that there were no such assets on the site. 4. It was the evidence of Mr Carmeli that some assets were taken from the site, others were left because it was considered that they had no value elsewhere, and some were left because there was insufficient time to move them before the date of vacant possession. 5. I accept the opinion of Dr Ferrier that any assets which were removed from the site cannot be recovered by United because they have not been lost. 6. Further, assets which were not considered to have any use elsewhere cannot be recovered in the circumstances that the Harwood Roadhouse business will not be relocated. The extent to which it would have been necessary to replicate the set-up of that site elsewhere in the context of a relocation scenario is not a question to which the Court need turn its attention in the circumstances. The contribution of the assets to the profit generated in the site is recovered, as I have said, in the capitalisation of those profits. 7. The third class of assets to which Mr Carmeli referred, that is, assets which were left on the site because there was no time to remove them, is not a class for which I consider the Court should award compensation. There were several months between the acquisition date and the date of vacant possession. To the extent that it was not practical to remove assets in that period, I think it is reasonable to conclude on the balance of probabilities that these assets were unable to be removed such that they should be considered fixtures to the Land rather than fittings, or else were abandoned. 8. In the circumstances, it is therefore unnecessary for me to consider the question of the ownership of the assets. However, the asset registers would not necessarily have persuaded me that United was the owner of the assets having regard to the fact that reference was made to their use as an accounting exercise. 9. It is not necessary for me to consider Mr Hemmings' submission that the Court would prefer an understanding that assumes a state of affairs in which there has been no illegality. I accept that proposition as a general statement of principle, but do not find it necessary to express a view as to its applicability here. Conclusion 1. For the foregoing reasons, I make the following findings and direct the parties to calculate the quantum accordingly. I find that the amount of compensation to which United is entitled should be determined having regard to the financial costs reasonably incurred as a natural consequence of the acquisition pursuant to s 59(f). The lost profits from the date of vacant possession should be calculated by way of a CME calculation. The variables for the CME calculation will be: 1. An annual post-tax earnings figure of $463,000 ($497,000 minus $34,000 profits not lost), to be adjusted after 15 August 2016 to allow for market rent which would have been paid after that date; and 2. A post-tax discount rate of 17%. 1. Upon receipt of the parties' calculations, the Court will make final orders. 2. United is additionally entitled to the sum of $82,956 for the rental claim pursuant to s 59(f). 3. In the circumstances, I consider it appropriate that the usual order be made as to costs. Directions 1. The parties are directed to: 1. Calculate a quantum of compensation for the extinguishment of maintainable earnings from the Harwood Roadhouse in accordance with my findings and prepare short minutes of order which include the agreed calculations, including any interest. 2. Include in the short minutes of order the sum of $82,956 for rent paid to the respondent during the period from the date of acquisition to the date of vacant possession. 3. Include in the short minutes of order an order that the respondent pay the applicant's costs as agreed or assessed. 4. Provide the agreed short minutes of order to my Associate by 4pm Wednesday 4 April 2018. 5. The matter is listed for further mention at 9:30am Monday 9 April 2018. 6. If directions (1)-(3) are complied with, the mention will be vacated and final orders made in chambers in accordance with the agreed short minutes of order. ********** 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: 28 March 2018