Provans Timber Pty Ltd v Secretary to the Dept of Economic Development, Jobs, Transport and Resources

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

VALUATION, COMPENSATION & PLANNING LIST

S CI 2016 4339

PROVAN’S TIMBER PTY LTD (ACN 004 654 746)	Applicant
v
SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES	Respondent

and:

S CI 2017 3392

SECRETARY TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT, JOBS, TRANSPORT AND RESOURCES

Applicant

PROVAN’S TIMBER AND HARDWARE PTY LTD (ACN 005 257 705)

and

PROVAN’S TIMBER (JOINERY) PTY LTD
(ACN 004 419 667)

First Respondent

Second Respondent

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JUDGE:	EMERTON J
WHERE HELD:	Melbourne
DATE OF HEARING:	20—24 and 31August 2018
DATE OF JUDGMENT:	14 June 2019
CASE MAY BE CITED AS:	Provans Timber Pty Ltd v Secretary to the Dept of Economic Development, Jobs, Transport and Resources
MEDIUM NEUTRAL CITATION:	[2019] VSC 390

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LAND ACQUISITION AND COMPENSATION – Land compulsorily acquired for East West Link Project – Land used for hardware business – Owner of land and tenant related companies – Compensation to landowner claimed on higher use than current use – Highest and best use – Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2017] VSCA 114; ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447– Construction of initial offer of compensation – Whether a single indivisible offer or three separate offers – Whether Authority bound by offer of relocation costs – Whether offer of relocation costs contained information that was incorrect – Whether relocation costs ‘the natural, direct and reasonable consequence’ of compulsory acquisition – Meaning of ‘natural, direct and reasonable’ – Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280; Melbourne City Link Authority v Teford Pty Ltd (2001) 113 LGERA 102; Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41 – Whether award of compensation for relocation costs precluded by s 41(2) of the Land Acquisition and Compensation Act 1986 – Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of New South Wales (1998) 101 LGERA 30 – Whether award of compensation for relocation costs inconsistent with assessment of market value based on vacant possession – Whether claimants to be treated ‘as one’ – Land Acquisition and Compensation Act 1986 (Vic), ss 30, 31, 31(8), 40, 41(1)(d), 41(2), 53; Valuation of Land Act 1960 (Vic), s 5A(3).

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APPEARANCES:	Counsel	Solicitors
For Provans Timber Pty Ltd, Provans Timber and Hardware Pty Ltd and Provans Timber (Joinery) Pty Ltd	Mr J. Delany QC with Ms C. van Proctor	Aitken Partners Pty Ltd
For the Secretary to the Department of Economic Development, Jobs, Transport and Resources	Mr S. Morris QC with Mr S. Goubran	Russell Kennedy

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Legal framework................................................................................................................................. 6

Background....................................................................................................................................... 13

The EWL Project.......................................................................................................................... 13
Negotiations................................................................................................................................. 15
The Initial Offer and response.................................................................................................. 32
The Revised Offer....................................................................................................................... 36

Issues generally................................................................................................................................ 40

Construing the Initial Offer....................................................................................................... 43
Text and statutory context................................................................................................ 43
Relevance of intention...................................................................................................... 47

Incorrect information?................................................................................................................ 52

Was Hardware entitled to relocation costs?................................................................................. 59

Causation...................................................................................................................................... 60
Inconsistency................................................................................................................................ 70
Section 41(2)........................................................................................................................ 70
Inconsistency and the valuation evidence..................................................................... 78

Lifting the corporate veil........................................................................................................... 85
Did Hardware incur relocation costs of $2.871 million?....................................................... 89

Market value of the Land............................................................................................................... 92

Conclusion......................................................................................................................................... 92

HER HONOUR:

Introduction

These two proceedings arise from the compulsory acquisition by the Linking Melbourne Authority (‘LMA’) of land owned by Provans Timber Pty Ltd (‘Timber’) at 62—64 and 88—92 Alexandra Parade, Clifton Hill (‘Land’).

By notice of acquisition published in the Government Gazette on 16 October 2014 (‘Notice of Acquisition’), LMA compulsorily acquired all interests in the Land. The Land was acquired for the purposes of the East West Link, a controversial road project that was subsequently abandoned.

The compulsory acquisition of the Land took place under the Land Acquisition and Compensation Act 1986 (‘LAC Act’), which provides for compensation to be paid to persons who have an interest in the acquired land that is divested or diminished by the compulsory acquisition. Compensation is assessed by reference to a number of factors, including the market value of the acquired land and losses attributable to disturbance, which may include the costs of relocation to other land or premises.

At the time of its acquisition, the Land was occupied by Provans Timber and Hardware Pty Ltd (‘Hardware’), which operated a longstanding and well known hardware business from the Land (‘the business’). A second company, Provans Timber (Joinery) Pty Ltd (‘Joinery’), was also said to be carrying on some kind of business on the Land, principally related to the provision of staff to Hardware.[1]
[1]The materials variously use the spelling ‘Provan’s’ and ‘Provans’. Nothing turns on the difference and for convenience, I adopt the latter spelling.

At all relevant times, Timber, Hardware and Joinery were companies in the Provans Group, the umbrella for the businesses of the Rosenberg family. The Rosenberg family had operated the hardware business from the Land for several decades. The sole shareholder of Timber was Barry Rosenberg and its directors were Barry Rosenberg and his wife, Sara Rosenberg; the shareholders of Hardware were Barry Rosenberg and Sara Rosenberg and its sole director was Barry Rosenberg; the shareholders of Joinery were Barry Rosenberg and Sara Rosenberg and Barry Rosenberg was again the sole director. I shall refer to Timber, Hardware and Joinery collectively as ‘the claimants’, ‘the Provans Group’ or simply as ‘Provans’ depending on the context. This reflects the various ways in which the claimants referred to themselves or were referred to in the evidence.

As will be seen, the Authority was unclear from time to time about whether it was dealing with ‘Provans’ as a single entity or with its several components, although it was at all relevant times aware that Timber, Hardware and Joinery claimed to have separate interests in the Land.

The Minister is the successor in law to LMA. For convenience, I shall refer to both LMA and the Minister as ‘the Authority’ unless the context demands otherwise.

The Authority is the respondent in proceeding S CI 2016 4339 and the applicant in proceeding S CI 2017 3392.

Proceeding S CI 2016 4339 (‘principal proceeding’) is a claim by Timber to be paid the balance of compensation for the market value of the Land that it alleges remains unpaid by the Authority. The only parties to the principal proceeding are Timber and the Authority.

The second proceeding, S CI 2017 3392 (‘subsidiary proceeding’), was commenced by the Authority against Hardware and Joinery as respondents in order that they be included in the dispute as to whether compensation remains unpaid for the acquisition of the Land. Hardware and Joinery claim to have been paid—and to be entitled to retain—compensation for relocation costs that the Authority contends was paid to Timber for the Provans Group (as a whole) on the basis that the payment of compensation for relocation costs was contingent upon acceptance of compensation for the market value of the Land based on its existing use, not its highest and best use.

The market value of the Land at the date of the acquisition assessed on the basis of its highest and best use was agreed at $12.2 million on 17 February 2016 by the four valuers engaged by the parties at that time. The market value of the Land continues to be agreed at $12.2 million.[2]
[2]Including by an additional valuer engaged by the Authority on 28 May 2018, Mr Mark Willison.

The Authority has paid compensation for the compulsory acquisition of the Land in a number of tranches:

(a) on 19 December 2014, following an offer made on 24 October 2014, the Authority made an advance of $8,693,310; and

(b) on 10 May 2016, following a further offer made on 6 April 2016, the Authority made a further advance of $3,784,000.

The Authority contends that neither Hardware nor Joinery is entitled to any compensation under the LAC Act because Timber, as the registered proprietor of the Land, has been compensated for the market value of the Land based on its highest and best use, which is different from the actual use of the Land on the acquisition date. The Authority, having made advances totalling the amount agreed as market value of the Land based on its highest and best use, says that no further amounts are payable to Timber for the market value of the Land. The claimants say that the Authority is bound by an offer of $2.871 million made to Hardware and Joinery for relocation expenses in 2014 and that the amount of $2.871 million therefore remains outstanding for the market value of the Land. They say that Timber is entitled to compensation for the market value of the Land based on its highest and best use and that Hardware is entitled to compensation for relocation expenses.

The dispute in both proceedings arises from an offer of compensation made by the Authority on 24 October 2014 (‘Initial Offer’), which was in a single document addressed to the directors of each of Timber, Hardware and Joinery. The Initial Offer was expressed to be for the market value of the Land in the sum of $5.675 million and for relocation costs of $2.871 million. It also included amounts for solatium and expenses that are not presently relevant. The ‘market value’ of $5.675 million was assessed on the basis of the existing use of the Land[3] and did not reflect the highest and best use of the Land, which was for residential redevelopment. As will be seen, in this case the existing use did not reflect the market value of the Land for the purposes of the LAC Act.
[3]Also referred to as being assessed on an ‘in use’ or ‘going concern’ basis.

Although contained in a single document and addressed to the directors of each of the claimants, the Initial Offer contained the following table providing a breakdown of what was offered:

COMPONENT AMOUNT APPLIES TO

Market Value $ 5,675,000 Provan’s Timber

Solatium $ 100,000 Provan’s Timber

Relocation Expenses $ 2,871,000 Provan’s Timber and Hardware & Provan’s Timber (Joinery)

Legal Expenses $ 25,000 Provan’s Timber & Provan’s Timber and Hardware & Provan’s Timber (Joinery)

Submission Expenses $ 20,000 Provan’s Timber & Provan’s Timber and Hardware

Valuation Fees $ 15,000 Provan’s Timber & Provan’s Timber and Hardware

TOTAL $ 8,706,000

Less fees paid (excl gst) -$ 12,690

BALANCE PAYABLE $ 8,693,310

(‘Table’).

The claimants responded to the Initial Offer on 17 December 2015 by accepting the offer for relocation expenses but by refusing the offer for the market value of the Land. Hardware and Joinery claim to have accepted the offer for relocation expenses, while Timber claims to have rejected the offer for the market value of the Land.

The Authority contends that the Initial Offer was made to the Provans Group as a single entity and that the elements or components of the Initial Offer were not capable of separate acceptance or rejection by individual entities in the Provans Group.

On 6 April 2016, the Authority made a revised offer (‘Revised Offer’) that was expressed in the alternative: an offer of $12.2 million for the market value of the Land (based on its highest and best use) and nothing for relocation costs; or an offer of $5.675 million for the market value of the Land (its existing use value) and relocation costs of $2.871 million.

On 21 June 2016, Timber purported to accept the Authority’s offer of $12.2 million for the market value of the Land. The Authority paid to Timber the amount of $12.2 million less the amount advanced pursuant to the Initial Offer for relocation expenses. Timber says that the Authority is and was obliged from the time of its acceptance of the Revised Offer to pay Timber the whole of the $12.2 million. It claims the difference of $2.871 million.[4]
[4]Evidently, $9.329 million is not the total amount advanced by the Authority, but the amount that Timber says was advanced to it.

Timber therefore submits that in the principal proceeding the Court should order the Authority to pay Timber the sum of $2.871 million plus interest at the penalty interest rate from 16 October 2014 (the Acquisition Date) until 21 June 2016 (excluding periods where Timber sought extensions of time in which to respond) and from 21 June 2016 until payment at the penalty interest rate plus 5%.

Hardware contends that it is entitled to retain the $2.871 million for relocation costs (Joinery makes no claim for that amount) and both Hardware and Joinery submit that the subsidiary proceeding should be dismissed with no orders other than an order for costs in their favour.

The Authority contends that it has paid Timber the agreed market value of the Land at the acquisition date and that it has nothing further to pay. It contends that Hardware and Joinery are not entitled to any compensation as they had no compensable interest in the Land. Moreover, the Provans Group has no entitlement to compensation for relocation costs as market value compensation has been paid for the Land based on its highest and best use, which was not the existing use of the Land at the acquisition date, and the business would have had to relocate in order to achieve this value.

For the reasons that follow, in the principal proceeding, the Authority will be ordered to pay Timber the sum of $2.871 million plus interest, and the subsidiary proceeding will be dismissed.

Legal framework

There are two relevant Acts: the LAC Act and the Valuation of Land Act 1960 (‘Valuation of Land Act’). The first relevantly sets out the processes and procedures to be followed in a compulsory acquisition and the measure of compensation to be paid to persons whose interest in the acquired land is divested or diminished; the second contains requirements applicable to the valuation of land for statutory purposes.

The LAC Act provides for land that is to be compulsorily acquired by an Authority to be reserved by or under a planning instrument for a public purpose[5] and for a notice of intention to acquire to be served on each person who has an interest in the land.[6] An Authority may acquire an interest in land by causing a notice declaring that interest to be acquired to be published in the Government Gazette.[7] The effect of the notice of acquisition is to vest the interest described in the notice in the Authority.[8]
[5]Land Acquisition and Compensation Act 1986 s 5(1) (‘LAC Act’).
[6]Ibid s 6.
[7]Ibid s 19.
[8]Ibid s 24(1)(a).

Section 30 of the LAC Act confers a right to compensation on a person who immediately before the publication of a notice of acquisition had an interest in the land that is divested or diminished by the acquisition.

Section 31 then provides:

31 Initial offer of compensation
(1)After the notice of acquisition has been published in the Government Gazette the Authority must make an offer in writing to each claimant of whose entitlement to compensation it is aware.

(2) An offer under this section must be made—
(a)within fourteen days after the date of acquisition; or

(b) within such further period as—
(i)may be agreed upon in writing between the Authority and the claimant; or
(ii)the Minister administering the special Act may certify.

(3)The offer must set out the amount that the Authority, on the information available to it, has assessed as a fair and reasonable estimate of the amount of compensation payable to the claimant under this Act on the assumption that the claimant held the interest in respect of which the offer is made.

(4) An offer under this section must be accompanied by—
(a)a copy of the certificate of valuation to which the Authority has had regard in making its offer; and
(b)a statement explaining the difference between its offer and the valuation referred to in paragraph (a) if these differ; and
(c)a statement in the prescribed form setting out the principal rights and obligations of persons whose interests in land have been acquired under this Act.

(5)In making its offer the Authority must have regard to a valuation of the land carried out by the Valuer-General or a person who holds the qualifications or experience specified under section 13DA(2) of the Valuation of Land Act 1960.
(6)A valuation under subsection (5) may be made in respect of the specific interest acquired or in respect of the freehold interest in the land whichever appears to the Authority to be appropriate in the circumstances.
(7)If an offer of compensation is made under this section in respect of an acquired interest and immediately prior to the date of acquisition—
(a)the interest was affected by another interest in the land; or
(b)rates, taxes or other charges were charged upon the land in which the interest subsists—

the Authority may reduce the amount of its offer by an amount equal to the amount that it considers is necessary to provide for that other interest or to pay those rates, taxes or other charges.
(8)To the extent that an amount of compensation offered under this section, or any part thereof, is not disputed, the amount offered is binding upon the Authority unless the Authority can demonstrate that the information contained in the offer and relied upon by the Authority in making the offer was incorrect.

Section 33 then requires a response by a claimant. This involves the service on the Authority of either a ‘notice of acceptance’ or a ‘notice of claim’.

Section 35 sets out the form of a notice of claim as follows:

35 Form of notice of claim
(1)A notice of claim served on the Authority under section 33(1)(b) must—
(a) be in the prescribed form; and
(b)state the amount of compensation to which the claimant claims to be entitled under this Act; and
(c)if the claimant accepts the amount of compensation offered in respect of the acquisition by the Authority but claims to be entitled to a further amount of compensation in respect of that acquisition under this Act, state—
(i)that the claimant accepts the amount of compensation offered; and
(ii)the amount of further compensation to which the claimant claims to be entitled; and

(d)state the interest which the claimant had in the acquired land immediately before the date of acquisition and, in the case of an interest which did not come into existence until on or after the date of acquisition, the details of that interest; and
(e)give details of the claimant's entitlement to that interest; and
(f)if the claimant disputes the valuation to which the Authority had regard in making its offer, be accompanied by—
(i)a copy of the certificate of valuation of a person who holds the qualifications or experience specified under section 13DA(2) of the Valuation of Land Act 1960 upon which the claim is based; and
(ii)a statement setting out the method and basis of that valuation.

(2)A notice of claim may specify any further matter which the claimant regards as being subject to negotiation.

Section 36 provides for the Authority to reply to the claim as follows:

36 Authority’s reply to claim
(1)Subject to section 106(1), the Authority must, before the expiration of three months after the date of service upon it of a notice of a claim under section 33, serve upon the claimant a statement in writing replying to the notice of claim.

(2) The Authority may in that statement—
(a) admit the claim as to whole or to part; or
(b)offer to vary the amount of the compensation previously proposed in relation to the claimant's interest; or

(c) reject the claim and repeat its offer under section 31.
(3)If the claimant has provided the Authority with a certificate of valuation and the information required in section 35(f), the Authority, if it has not already done so, must forward to the claimant with its statement of reply a statement setting out the method and basis of its valuation.
(4)The Authority is liable to satisfy the claim to the extent that it admits the claim.
(5)If the Authority fails to reply to the notice of claim within the time prescribed in subsection (1), it is to be taken to have rejected the claim and repeated its offer and the claim becomes a disputed claim for the purposes of this Act.
(6)Subject to section 106(1), if the Authority offers to increase or vary the compensation previously offered, the claimant must within two months after the date of service of this revised offer—
(a) accept the offer; or
(b) reject the offer.
(7)A revised offer under subsection (6) may leave specified matters to be determined by negotiation.
(8)If the claimant accepts a revised offer under subsection (6), the claimant may accept this in part leaving specified matters to be determined by negotiation.
(9)To the extent that the claimant rejects the revised offer of the Authority, or the Authority rejects the claim by the claimant, the claim becomes a disputed claim for the purposes of this Act.

Part 4 of the LAC Act deals with the measure of compensation payable upon a compulsory acquisition. Section 41 sets out the general principles on which compensation is to be based, relevantly, as follows:

41 General principles on which compensation is to be based
(1)Except as otherwise provided in this Part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors—
(a) the market value of the interest on the date of acquisition;
(b)any special value to the claimant on the date of acquisition;

(c) any loss attributable to severance;
(d) any loss attributable to disturbance;
(e)the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
(f)any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

(2)If the market value of an interest in land is assessed on the basis that the land had potential to be used for a purpose other than the purpose for which it was used on the date of acquisition, compensation must not be allowed for—
(a)…
(b)any loss attributable to disturbance that would necessarily have been incurred in realising that potential.

…
(6)If the claimant’s interest in the acquired land was liable to expire or to be determined, the assessment of compensation payable under this Part in respect of that interest must take account of any reasonable prospect of renewal or continuation of the interest.

‘Loss attributable to disturbance’ is defined, relevantly, as any pecuniary loss suffered by the claimant as the natural, direct and reasonable consequence of the fact that an interest of the claimant in the land has been divested or diminished, being a pecuniary loss for which provision is not otherwise made by the LAC Act.[9]
[9]LAC Act s 40 (definition of ‘loss attributable to disturbance’).

‘Market value’, in relation to any interest in land on a particular date, means the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser.[10]
[10]Ibid s 40 (definition of ‘market value’).

The definition of market value reflects the test elaborated by Isaacs J in Spencer v The Commonwealth:[11]

To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.

[11](1907) 5 CLR 418, 441.

The Valuation of Land Act also has something to say about determining the value of land based on its highest and best use. Section 5A(3) requires a person (including a tribunal or a court) who is required to value land to take into account, where relevant:

(a)the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

In compulsory acquisition cases, the Court must thus consider the hypothetical highest and best use of the land in the circumstances at the date of acquisition but also the potential future use of that land insofar as the evidence demonstrates that that potential affects the market value of the land.[12]
[12]Secretary to the Department of Economic Development, Jobs, Transport and Resources v Manor Lakes (Werribee) Pty Ltd [2017] VSCA 114 [35] (‘Manor Lakes’).

In ISPT Pty Ltd v Melbourne City Council,[13] the Court of Appeal endorsed the following statement in respect of highest and best use:[14]

Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value.

[13](2008) 20 VR 447.

[14]Ibid 459 [41] quoting ISPT Pty Ltd v Melbourne City Council [2007] VCAT 652 [62].

Ordinarily, the first step in the valuation of land will be to ascertain the highest and best use both presently open and potentially open in the foreseeable future.[15] Land may have a potential which fundamentally informs its value even if the potential use is not currently lawful under planning controls or is currently impractical. In the event that the potential requires the implementation under a planning scheme of regulatory change or the construction of public services such as a main sewer, urban water supply or road link, it will be necessary for the valuer to take into account the risks and contingencies affecting the realisation of the potential which gives the land its market value.[16]
[15]Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410, 415.
[16]Manor Lakes [2017] VSCA 114 [40].

At the date of acquisition, the Land was in a Residential 1 Zone. Two amendments to the Yarra Planning Scheme had been prepared by the responsible authority, one of which—Amendment C179—placed the Land in a Residential Growth Zone. The schedule to the proposed Residential Growth Zone nominated a mandatory maximum building height limit of 13.5 metres on the basis that the proposed zone was intended to accommodate more housing than the General Residential Zone and to provide for apartment scale development of up to four storeys. The development plans used by the valuers retained by Provans contemplated the construction of 112 apartments on the larger of the two sites comprising the Land, and 29 apartments on the smaller site. It is common ground that the Land had to be valued on the basis that it was capable in the short term of this form of relatively intensive residential development. As a result, its highest and best use value was significantly higher than its existing use value.

Background
The EWL Project

The East West Link Project (‘EWL Project’) was first proposed in early 2012. It involved the extension of the Eastern Freeway along Alexandra Parade to join the Tullamarine Freeway in Flemington. From May 2012, the Authority began geotechnical drilling along Alexandra Parade in anticipation of the construction of the link. In August 2012, Ms Piera Murone of Pitcher Partners (‘PP’) provided the Authority with indicative valuations of the relevant businesses on Alexandra Parade based on the destruction of those businesses. Hardware’s business was one of the five businesses that were the subject of Ms Murone’s report.

On 15 July 2013, the Authority formally advised the Provans Group that the Land would likely be required for the construction of the EWL Project and, on 16 July 2013, the ‘Reference Design’ for the EWL Project was released showing the properties likely to be required for compulsory acquisition, including the Land.

On 19 December 2013, the EWL Project was declared for the purposes of the Major Transport Projects Facilitation Act 2009.

In his statement tendered in evidence, Mr McQuilton, Manager Property Projects at the LMA, explained the Authority’s approach to the compulsory acquisition of land for the purposes of the EWL Project in general terms as follows:

On or about October 2013, LMA concluded that the time to secure physical possession of the land required for the EWL project was ambitious. We anticipated a 12 month period from service of ‘notices of intention to acquire’ to possession. This timeframe was particularly challenging for businesses on Alexandra Parade as they would need to relocate within a relatively short timeframe if they were to continue to trade.
LMA sought to minimise the disruption to businesses. We were particularly concerned to avoid situations where businesses could not relocate in time before physical possession of the land was required. LMA also sought to minimise business loss claims in the nature of loss of profits and/or cessation of business claims, where businesses were forced to close temporarily or permanently because of insufficient time to locate and move to alternative premises. Affected business interests sometimes complained, as in this case, that they could not afford to finance relocation of their operations from their own funds. Therefore, to address these issues LMA sought to engage with affected business interests on a voluntary basis prior to the formal process of acquisition under the Act. We did that in this case. Ms Glynn had extensive discussions with representatives of the Claimants.

According to Mr McQuilton, the Authority took steps to identify the nature of affected businesses and retain consultants to assess their viability and the cost of relocating them to suitable alternative premises. This often gave rise to extensive discussions to prepare for the process of relocation, as occurred in this case. Affected businesses were given the option to commence early investigations into possible compensation entitlements to enable them to better plan for the possible relocation of the business and the Authority agreed to pay the professional expenses incurred by businesses and landowners if they wished to participate in that process. The Authority gathered the necessary information to enable it to be in a position upon acquisition to make an offer of compensation to the relevant businesses in order to provide them with the ability to seek an advance of compensation and access the funding required to relocate. To this end, it was necessary for the Authority to engage business relocation advisers to advise on the costs of relocation, accountants to advise on potential claims for loss of profits and business viability and the Valuer General Victoria (‘VGV’) to provide assessments of the market value of interests in the land to be compulsorily acquired.

In this case, between mid-2013 and August 2014, Mr Rosenberg, Mr Gregory Heverin, the General Manager of the Provans Group, and its financial controller, Mr Robert Proctor, met and communicated regularly with representatives of and consultants retained by the Authority, notably, Ms Nicole Glynn, the Authority’s land acquisition consultant, Ms Piera Murone, the Authority’s accounting advisor and business valuation specialist, and Mr Gab Aghion of Business Relocation Management (‘BRM’), the Authority’s relocation consultant. As is apparent from the description of events set out below, discussions centred on the relocation of the business to new premises, specifically, to buildings owned by the Rosenberg family at the corner of Alexandra Parade and Hoddle Street, Clifton Hill (‘replacement premises’). The business in fact relocated to the replacement premises in September 2015.

Negotiations

On 15 July 2013, the Authority advised Mr Rosenberg in writing that the Land had been identified as likely to be required for the EWL Project. The letter included a map of the EWL Project corridor to illustrate the likely need for the Land. It advised, however, that the design had not yet been finalised and that it might be amended following consultation over the ensuing months. The Authority stated that while its letter was not a formal notice of acquisition, it would be in a position to advise if a formal property acquisition was to occur by early to mid-2014.

The following day, Ms Glynn had two telephone discussions with Mr Heverin. Mr Heverin informed Ms Glynn that the business conducted upon the Land had operated for 110 years and that ‘Provans’ owned three additional properties on the corner of Hoddle Street and Alexandra Parade – the proposed replacement premises. Ms Glynn has deposed that, based on her discussions with Mr Heverin at this time, she believed Timber to be the owner/occupier of the Land.

Ms Glynn’s file note of the first discussion records that Mr Heverin advised her that it would be impossible for Provans to find land of a sufficient size to relocate to in the inner city, but that the proposed replacement premises might provide a solution. In the second telephone conversation, Ms Glynn advised Mr Heverin that the (then) current reference design for the EWL Project did not require the acquisition of any land east of the shot tower and that the proposed replacement premises were not on the likely acquisition list.

On 15 August 2013, Aitken Partners (‘AP’) on behalf of the Provans Group, responded to the Authority’s letter of 15 July 2013 to advise that Timber was the registered proprietor of the Land and that Hardware conducted a retail hardware and timber business from the Land. AP’s letter stated that Timber and Hardware were considering their position in light of the likely acquisition of the Land ‘and business’ including, most significantly, the possible relocation of the business. AP advised that any relocation of the business would involve many months of detailed planning and implementation. AP’s letter continued:

We are instructed that our clients are aware of three adjoining properties situated at 168-174 and 176 Alexander [sic] Parade and 477 Hoddle Street, Clifton Hill, which may be suitable for possible relocation of its hardware business. To date our clients have made no enquiries as to any planning, engineering and like issues that may arise in relation to this building and whether it would be available and suitable as premises to relocate its business. However a threshold issue is whether any of the three properties are to be acquired or otherwise affected by the East West Link Project or the construction of that project. This would include whether access to any of the three properties will be impeded during the course of the construction works … In view of the timeframes that our client is now likely to be faced with in respect of any possible relocation of its business, we request your urgent advice as to whether any of the three properties are to be acquired by reason of or otherwise affected by the construction of the East West Link.

On 23 August 2013, a meeting was convened between representatives of the Authority and Mr Rosenberg and Provans’ systems manager, Mr Paul Calleya. The purpose of the meeting was to discuss the content of the Authority’s letter of 15 July 2013 and explain the reference design and the planning and acquisition processes, as well as to gain a better understanding of the business and its needs in respect of its relocation.

Ms Glynn’s notes of the meeting on 23 August 2013 are in evidence and their content is not disputed by Mr Rosenberg. They record that Mr Rosenberg was anxious to commence the formal acquisition process, but it was explained to him that the Authority was unable to do so before the planning process was complete. Mr Rosenberg was advised that, following completion of the planning process, the Authority would commence the formal acquisition process for all properties required by the final design. The service of a ‘notice of intention to acquire’ under the LAC Act was expected to occur in around mid-2014. The Authority would engage an accountant, a relocation consultant and a valuer in order to make an offer of compensation. The Authority would obtain a business valuation and a relocation assessment and, on the basis that the cost to relocate did not exceed the value of the business, an offer to relocate would be made. The relocation assessment would be based on an estimated cost to relocate to ‘reasonably suitable’ premises or, if the replacement property had already been secured, the assessment would be based on the cost to relocate to that property. The Authority’s valuer would assess the unaffected market value of the Land, disregarding the impact of the EWL Project. This valuation would be based on the business as a going concern, where additional compensation would be paid for relocation and loss of profits et cetera, or, alternatively, on the basis of the highest and best use of the Land, in which case compensation for relocation costs would not be payable.

This was the first indication that the Authority, at least, regarded the question of compensation as raising alternative ways of valuing the Land, depending on whether relocation costs were paid. However, the focus remained on keeping the business alive by assisting the business to relocate.

The meeting notes record that Mr Rosenberg was anxious to commence the process as it would be difficult to find sufficient land to which to relocate. He wanted to commence his search and planning straight away and wanted to know how much the Authority would be offering him. If the offer did not completely cover the costs of relocation, he would consider closing the business, as he did not want to go down the path of relocation by committing himself to a property without knowing what compensation would be paid.

Prior to the close of the meeting, Mr Rosenberg said that there was a lease between Timber and Hardware and that Hardware paid rent to Timber, although he was sure it was well below market rent. Ms Glynn requested a copy of the lease.

Approximately one month later, on 20 September 2013, there was a further meeting between representatives of the Authority and Provans. Mr Rosenberg and Mr Heverin raised concerns over the impact of the EWL Project design and construction works on the replacement premises, and Mr Rosenberg said he would like to commence the acquisition process immediately. Ms Glynn said that the ‘government’ would consider ‘requests to purchase’ on grounds of financial and personal hardship, and that the Authority would be prepared to seek approval to commence early negotiations to purchase the Land. This would allow the Authority to commence its own investigations and to meet Provans’ costs.

There was a further meeting on 25 October 2013 between Ms Glynn, Mr Rosenberg, Mr Heverin and Provans’ architect, Mr Mark Dixon. The meeting was at the site of the potential replacement premises on the corner of Hoddle Street and Alexandra Parade. Issues concerning access to those premises were discussed.

On 28 October 2013, Mr Heverin wrote to Mr Ken Mathers, Chief Executive Officer of LMA, informing him that Provans was investigating the feasibility of relocating the business to the corner of Alexandra Parade and Hoddle Street, and setting out a number of concerns. Mr Heverin sought the opportunity to discuss the issues in more detail. One of the issues was ‘general consideration of existing “Provan’s” business and relocation due to the Linking Melbourne Project’.

On 6 November 2013, there was a further meeting between Ms Glynn and Messrs Rosenberg and Heverin. Ms Glynn advised that the Authority would commence its investigations and make an offer, but that this process would take a reasonable period of time. Ms Glynn did not expect to settle the matter before the commencement of the formal acquisition process in July/August 2014, although she hoped an offer would be made before this time so that Provans would have a ‘ballpark figure’ of what the Authority was prepared to offer. This would provide a level of comfort or a minimum level of compensation.

In this meeting, Ms Glynn referred to company searches that she had undertaken, stating that she needed to know exactly who occupied the Land and the terms of any occupation. Mr Rosenberg said there was a lease in place prepared by his solicitors. Ms Glynn again asked Mr Rosenberg for a copy of the lease.

On 11 November 2013, the Authority replied to Mr Heverin’s letter of 28 October to seek agreement to conduct early investigations into the possible relocation of the business. The Authority’s letter stated:

Acknowledging the size of Provans Timber and Hardware and the challenges that Provans will face in securing a suitable replacement property and relocating its business successfully, LMA is able to engage in business relocation investigations with Provans now, rather than waiting until July/August 2014 which would be normal practice.

However, the Authority was told that Provans wanted to wait until the question of the suitability of the proposed replacement premises had been resolved.

On 29 April 2014, Ms Glynn and her colleague, Mr Wilmott, met with Messrs Rosenberg and Heverin, and with Provans’ lawyers, Andrew Blogg and Sebastian Greenway of AP. Ms Glynn advised that the Land would be required 12 months after the service of notices of intention to acquire, most likely by July/August 2015. As a result, the Authority wanted to commence early investigations with affected businesses in order to be in a position to make offers as soon as possible after the service of the notices of intention to acquire. This would involve the Authority engaging a valuer to assess the market value of the Land, an accountant to assess the value of the business and to estimate loss of profits, and a relocation consultant to assess the cost of relocating to another property. This information would be used to consider the basis on which to assess compensation and formulate an offer.

In this context, Ms Glynn told Messrs Rosenberg, Heverin, Blogg and Greenway that if the highest and best use of the Land was found to be for an alternative use, an assessment of market value on that basis would be compared to an assessment of market value on an ‘in use’ basis plus an allowance for relocation expenses or business value. If the highest and best use valuation was higher, an offer would be made on that basis. That would, however, exclude any allowance for relocation costs or business value. If the combination of an ‘in use’ market value plus an allowance for relocation expenses (or business value) was the higher sum, the offer would be made on that basis.

Ms Glynn has deposed that none of the Provans attendees expressed any objection to or disagreement with this proposal.

It was therefore agreed that the Authority would conduct early investigations regarding the possible relocation of the business. Ms Glynn again asked for details of all parties with an interest in the Land and an explanation of the relationship between the parties, and for copies of any leases that might exist for the Land.

On 5 May 2014, the Authority wrote to AP confirming Provans’ agreement to the commencement of early investigations and setting out the steps that the Authority would undertake with respect to the assessment of compensation. Documentation was requested. The Authority’s letter stated:

Having received your client’s approval to commence early investigations in our meeting on 29 April 2014, LMA will now:
1.Instruct the Valuer-General Victoria to obtain a certified and check valuation of the unaffected market value of your client’s property. If there is a lease pertaining to the property, then a leasehold valuation will also be requested. It would be appreciated if you would provide copies of any leases for the property;
2.Engage an accountant to assess the value of the business operating from the property, and loss of profits (if any) which may be incurred during the relocation and re-establishment of the business. To assist this assessment can you please provide:
a.Documents that establish any other interests in the subject property that LMA may be required to acquire;
b.An outline as to the relationship between the entities, particularly freehold and leasehold interests, should they differ; and
c.Financial documents (tax returns and profit and loss statements) for the past three financial years, for the occupant(s) of the property.

3.Engage a relocation consultant to assess the cost to relocate to your client’s potential replacement property. To assist in this assessment, any additional design/site layout work which has been completed by your client would be appreciated together with any quotations already received for proposed works, such as racking.

It is plain that at this stage, the relocation of the business was being treated as a priority by both the Authority and Provans. Messrs Rosenberg and Heverin met with the Authority’s consultants, Mr Aghion of BRM and Ms Murone of PP, to discuss relocation costs. Provans was, in effect, making a demand for compensation for the costs of relocating the business.

On 3 June 2014, the Authority again sought a copy of any lease documentation for the Land. In response, on 11 June 2014, AP wrote to the Authority advising that there was no formal lease documentation. However, AP advised that Hardware paid rent of $32,400 per annum to Timber. In addition, Hardware was responsible for the payment of all outgoings associated with the Land, including council rates and land tax, which totalled $87,018 in the (then) current financial year.

On 30 June 2014, the Minister for Planning approved the EWL Project pursuant to s 77 of the Major Transport Projects Facilitation Act 2009. On 30 July 2014, the Minister designated the land required for the EWL Project.

According to Mr Heverin, on 24 July 2014, Ms Glynn advised him that she had to have a ‘lump sum offer’ on the table by the end of August.

On 6 August 2014, the Authority served a Notice of Intention to Acquire addressed to Timber, Hardware, Joinery, Westpac Banking Corporation (as mortgagee) and ‘all other parties holding an interest in [the Land]’. The Notice of Intention to Acquire was sent under separate covering letters to the directors of Timber, the director of Hardware, and the director of Joinery.

On 11 August 2014, Mr Heverin spoke to Ms Glynn about the proposed replacement premises, informing her that the family dispute about them had resolved but that there remained differences to be dealt with regarding administrator’s fees. Mr Heverin emphasised that the timing of the compensation payment was important as it would assist in meeting some of the relocation expenses.

On 13 August 2014, Ms Glynn prepared a document for internal use headed ‘Offer Summary’ (‘first Offer Summary’) containing a sum to be offered for the impact of the acquisition of the business. The proposed offer was expressed to be subject to revision to include the value of the Land following receipt of a site contamination assessment and market valuation. In other words, the first Offer Summary proposed that an offer of compensation be made for relocation costs but not, at that stage, for the loss of the Land. The proposed offer was directed to making funds available to Provans to relocate, and thereby to preserve, the business.

By way of background, the first Offer Summary recorded a significant number of matters relating to Provans’ business operations, the relocation of the business and the redevelopment of the proposed replacement premises, including the following:

•Provans, a hardware and timber business (operating under the Home Timber and Hardware brand) has operated in Alexandra Parade for 113 years and been in the Rosenberg family since 1966. The business has 28 full time employees + casual support staff, in addition Mr Rosenberg (Director) and Greg Heverin (General Manager who is employed as a consultant) and is open for business 6 days a week.
…
•Concerned at the size of the business and the difficulty it would have relocating to a replacement site within 12 months of project approval, LMA obtained the agreement of Provans to commence early investigations...
…
•Provans have secured three adjoining commercial buildings (through a related entity) at 168–174 and 176–182 Alexandra Parade and 477 Hoddle Street, Clifton Hill. Following receipt of the City of Yarra’s intention to grant a planning permit, Provans agreed to LMA engaging its consultants to commence assessments.
…
•Significant works are required at the replacement property to accommodate Provans.
•In May 2015 LMA engaged the services of Pitchers and BRM to assess the value of the business, estimate the cost to destruct the business and the cost to relocate to the replacement property.
…
•Provans have incurred numerous consultancy costs to date in obtaining a planning permit for the replacement property and preparing its submission and presentation to the Assessment Committee in an effort to reduce the impact of the EWL on its replacement property.
•On 14 July 2014, Aitken Partners submitted quotations totalling $241,780 seeking approval to engage the consultants required to assess and determine the works required to the replacement property to accommodate the Provans business…
•LMA has provided feedback in relation to the reasonableness of the fees … to provide a level of comfort in progressing matters. Provans have advised that they do not have a surplus of funds to pay relocation expenses and will be using a draft account to meet interim fees. Provans are anxious to receive an offer of compensation as soon as possible.
…
•On 29 July 2014 Pitchers assessed the value of the business at $4M–$4.4M, with the estimated cost to destruct at $5.3M–$5.7M.
…
•On 7 August 2014, BRM finalised its relocation estimate assessing the total cost to relocate to 168–174 and 176–182 Alexandra Parade and 477 Hoddle Street, Clifton Hill at $2.9M–$3.2M.

Under the heading, ‘Offer Discussion’ the first Offer Summary stated:

Our expert reports received to date currently support an assessment of compensation on the basis of business relocation.
Ultimately, LMA will base its initial offer on the higher of the following two options:
Option 1
Highest and best use for land (short-term development) – no additional compensation for the business (plus RTP’s)
Option 2
Existing Use valuation + relocation expenses at $2,871,279 (excluding GST)
In the interim, to provide Provans with a level of comfort and the ability to claim an advance of compensation to pay expenses as they are incurred, LMA would like to make an offer based on BRM’s [the Authority’s business relocation consultant] estimated relocation costs.

It can be seen that Ms Glynn was concerned to respond to Provans’ expressed intention and to support the relocation of the business. Approval was therefore sought to make an interim offer for the amount of the estimated relocation costs (along with some legal expenses), subject to certain conditions, including that should the market value of the Land based on its highest and best use exceed the combined value of the existing use value and relocation expenses, then the offer for the impact to business would be removed from any subsequent offer.

The first Offer Summary contains a handwritten annotation: ‘Not Approved. DMcQ wants to obtain legal advice as to which offer is to be made and how to treat entities’.

Mr McQuilton gave evidence that he understood that the purpose of the proposed offer was to facilitate the relocation of the business, as Provans could not finance the relocation from its own funds. He was unsure whether an offer should be made on the basis that all the Provans entities be treated as owner/occupier of the Land and asked Ms Glynn to get legal advice as to how the offer should be made.

Mr McQuilton gave evidence that he and Ms Glynn resolved to meet with representatives of Provans with a view to agreeing an approach to compensation. They would identify to whom an offer should be made and how to treat the relationship between the claimants, and identify the basis for the offer. Practically, he and Ms Glynn were seeking to have the claimants elect whether the claim would be based on the highest and best use of the Land or based on an ‘in use’ valuation. In the former case, the claimants would not be entitled to compensation for any disturbance loss.

On 15 August 2014, AP provided the information requested in the Notice of Intention to Acquire, stating that AP was not aware of any person having an interest in the Land apart from the directors of Timber, Hardware and Joinery.

By email dated 26 August 2014, Ms Glynn sought a meeting to discuss ‘the way forward’ in relation to anticipated offers and claims for compensation. The email confirmed Ms Glynn’s understanding that there were several interests in the Land, including Timber as proprietor, Hardware as an occupier and Joinery as an occupier. Ms Glynn’s email continued:

As discussed, I wish to arrange a meeting with legal advisers and representatives of both Linking Melbourne Authority (LMA) and your clients in order to discuss issues associated with the manner in which compensation should be assessed in relation to the interests of each of those named above.
LMA recognises that [Hardware] (and no doubt [Joinery]) is currently taken [sic] steps to relocate its business to new premises.
LMA’s representatives wish to discuss the manner in which valuations should be undertaken both in relation to the freehold interest and also the interests of the occupiers, particularly in circumstances where the occupiers pay rent of approximately $30,000 per annum for the present premises.

A meeting duly took place on 17 September 2014 between Mr McQuilton and Ms Glynn of the Authority, the Victorian Government Land Monitor, Mr David Brahe and Ms Celene Ramanathan of the Authority’s solicitors Russell Kennedy (‘RK’), Mr Andrew Blogg of AP and Messrs Rosenberg and Heverin.

Ms Ramanathan of RK made a detailed file note of the 17 September meeting. The RK file note records that Mr Blogg (AP) confirmed the structure and roles of the Provans companies as follows:

(1)Timber owns the land. The sole shareholder of Timber is Barry Rosenberg and the directors are Barry Rosenberg and Sara Rosenberg;
(2)Hardware leases the land and pays rent of $32,000 per annum, although there is no formal lease. The shareholders of Hardware are Barry Rosenberg and Sara Rosenberg and the sole director is Barry Rosenberg; and
(3)Joinery hires Hardware’s employees. The shareholders of Joinery are Barry Rosenberg and Sara Rosenberg and the sole director is Barry Rosenberg.

The RK file note further records that Mr Brahe (RK) identified for those present three ways to value the Land:

(1)based on its highest and best use, which would involve the Authority denying any claim for compensation for clearing the land or for relocating the business, as the highest and best use was different from the (then) current use;
(2)based on its existing use, with the Authority to pay relocation costs; and
(3)on the basis that all three claimants were treated as one and the property was treated as owner-occupied, in which case compensation would ‘presumably’ result in an assessment based on the existing use and relocation costs.

Mr Brahe told the meeting that the Authority had received confirmation that the highest and best use of the Land was for residential development, being a medium rise building of three to four levels. This would require the existing building to be demolished and remove any requirement for the Authority to pay relocation costs. The RK file note records, ‘[Andrew Blogg] disagreed and formed the view that a claim could be made for the highest and best use with a deduction for the costs to demolish the improvements but also a claim for relocation costs. [Mr Brahe] indicated that this will result in an overpayment of compensation’.

The RK file note records that there was then a lengthy discussion about steps being taken to establish what the relocation costs would be. Mr Heverin confirmed that the plan was to relocate the business unless there was good reason not to.

On 24 September 2014, RK wrote to AP setting out the Authority’s understanding of what occurred at the meeting on 17 September, including who had an interest in the Land and what those interests were. RK’s letter confirmed that the Authority did not expect to receive a claim from Timber for the value of the Land based on its highest and best use and a claim from Hardware for relocation costs or in relation to the benefit of profit rent. RK’s letter continued:

As was discussed at the meeting, it is our view that if the market value of the property were to be assessed at its highest and best use (that is for residential development) it would be necessary for the land to be cleared to enable the property to be developed for its highest and best use thus removing (for the purposes of assessing compensation payable by LMA) the concept of the costs of relocation of the business enterprises conducted upon the property.

…

At the present time, it seems to us that an appropriate approach to this matter would be as follows ―
•[Timber] be paid for the market value of the land acquired, that value to be assessed on the basis of a continuing use of the property for its current use.
•It be agreed that [Hardware] make no claim for the value of its interest in the property.
•[Hardware] be paid compensation based upon the reasonable cost of relocation of that business to reasonably comparable premises. The relocation costs to be assessed having regard to that required to place the company in a similar operation condition to that which it now enjoys. This proposal is however, subject to the costs of relocation not being far greater than the value of the business conducted by [Hardware] as a going concern.

• An allowance for costs (of advisors) in relation to relocation.
• An allowance for expenses associated with the acquisition.

On 10 October 2014, AP responded to RK’s letter of 24 September 2014, seeking to reserve the Provans’ rights in relation to the manner in which compensation would be assessed. AP’s letter warned, however, that if the ‘in use’ value of the Land was arrived at on the basis of the current rather than the market rent, Hardware would reserve its right to make a claim in relation to profit rent. The letter confirmed that Hardware was seeking to relocate the business to the replacement premises and stressed, ‘our clients are understandably concerned about the time constraints relating to the relocating and establishing of its business at [the replacement premises].’ AP’s letter requested that an offer be made as close to, if not in conjunction with, the Notice of Acquisition.

AP’s letter confirmed that the manner in which compensation was assessed by the Authority was entirely a matter for it, but added:

Nevertheless in this instance there may be some utility in providing a breakdown as to how compensation offered to our clients is calculated by LMA’.

This letter from AP sent a clear message that the business was to be relocated and that funds were required for that purpose. Insofar as an ‘in use’ land value was to be used to assess compensation, that value had to reflect market rent, not the actual (peppercorn) rent paid by Hardware to Timber.

Notably, Provans declined to express a view on the proposal to pay compensation for the Land based on its existing use value and relocation costs.

On 15 October 2014, RK provided legal advice to the Authority about the form of offer that should be made. RK had been provided with four options by Ms Glynn, reflecting discussions as to whether the Land should be valued on a highest and best use basis, or on an existing use basis, which would also involve compensation for relocation costs. RK (David Brahe) advised that, ‘at the present time, having regard to the various options Nicole [Glynn] has drafted, option 2 is the one to address. This option contemplates assessing compensation on the basis that Provan’s will in fact relocate. If it transpires that Provan’s decide at some time in the near future that it is not economically in its interests to relocate its business, the issue of the amount of compensation to be offered can be reconsidered.’ The letter continued:

It is my view, therefore, that, having regard to the advice that LMA has received from its advisors, the offer of compensation should, at this stage, be in the sum of $8,706,279 made up as follows—

There followed a table with items for market value based on existing use, solatium, relocation expenses and professional expenses, with a dollar amount next to each item. RK’s letter concluded:

In making its first offer of compensation, I confirm our discussions to the effect that the offer should make it clear as to its components and the appropriate member of the Provan’s group to which a particular item of compensation applies.

On 16 October 2014, a Notice of Acquisition of the Land was published in the Government Gazette identifying the interests acquired to include Timber’s estate in fee simple and the interests of Hardware and Joinery respectively as occupiers. The Notice of Acquisition was sent to the claimants under a single covering letter addressed to the director or directors of each of them dated 22 October 2014.

On the same day, Ms Glynn prepared a further ‘Offer Summary’ for internal use and approval (‘second Offer Summary’). It recorded that, due to the related nature of the Provans companies and RK’s advice dated 15 October 2014, Ms Glynn proposed that one offer be made to Timber, Hardware and Joinery for their combined interests in the Land. As recommended by RK, the Authority would clearly outline the components of the offer and who they related to.

The background in the second Offer Summary contained the same detail as in the first Offer Summary, with an addition concerning BRM’s estimate of relocation costs:

This sum increases to a range of $4.4M - $4.9M if including landlord works and fitout works considered necessary by the tenant, but not ‘like for like’ by BRM.

The second Offer Summary dealt with compensation for both the impact of the compulsory acquisition on the business and the value of the Land. It contained details derived from the consultants’ reports of the business value, the cost of business destruction and, importantly, the business relocation assessment carried out by BRM. It also contained a table setting out the valuations of the Land provided by VGV and a check valuer. Each assessed the value of the Land at both its highest and best use and as a going concern (that is, based on existing use). The VGV assessment based on the highest and best use of the Land was $11,375,000, while the existing use value was $5,675,000.

The second Offer Summary contained a further table setting out four options for the assessment of compensation: compensation assessed on the basis of the highest and best use of the Land (Option 1); compensation assessed on the basis of the existing use of the Land plus relocation costs (Option 2); compensation assessed on the basis of existing use plus more generous relocation costs (Option 2B); and compensation assessed on the basis of the existing use plus compensation for the destruction of the business (Option 3). In relation to the options, the second Offer Summary stated:

Whilst the highest and best use (short term development) valuation assessment for the site is greater than the combined assessments for existing use valuation + relocation expenses, our legal adviser (David Brahe of Russell Kennedy) is of the view that at the present time, having considered all the options within the spreadsheet, LMA should base its offer of compensation, in the first instance on Option 2 - existing use value and relocation...

There followed yet another table with items and dollar amounts which were substantially the same as in the Table in the Initial Offer, and the Provans entity to which the items related.

The second Offer Summary therefore recommended an offer of a combined total amount of $8,706,000 for all interests, subject to certain conditions. The sum to be offered included an allowance to relocate the business to a replacement property. A claim for loss of profits would be considered upon receipt.

This time, the recommendation was approved by Mr McQuilton.

On 17 October 2014, VGV sent an email to Ms Glynn querying the request for a valuation of the Land based on its existing use. On 20 October 2014, RK wrote to VGV explaining why a certificate of valuation based on the existing use of the Land was required. As part of the background, RK stated that Provans had indicated an intention to relocate the business to the replacement premises, noting in parentheses that a firm decision to that effect had not yet been made. Compensation would be determined on the basis of either the relocation of the business to the alternative premises or, if Provans did not relocate, on the basis of the destruction of the business. RK’s letter continued:

Upon an assumption that Provan’s intend to confirm that its intention to relocate its business, it would be inappropriate to pay Provan’s compensation based upon both the highest and best use value of the subject land and, in addition, the costs of relocation of the business to alternative premises.
At the present time, for the purposes of its offer, LMA is assuming that Provan’s will confirm its intention to relocate its business to the alternative premises. On this basis, I think that the appropriate assessment of compensation is based on the following—
·the ‘in use’ value of the subject lands (that is its use on a continuing basis as a timber yard and like business).
·the cost of relocating the business to alternative premises (which would include consequential losses).

If, on the other hand, at some later date, Provan’s take the view that the business cannot profitably be relocated, it would then be necessary to consider making an offer of compensation based upon the highest and best use of the subject land.

This reflects RK’s understanding that:

(a) Provans wished to relocate the business; and

(b) the Authority would be liable to pay compensation for the destruction of the business if the business was not relocated.

Implicit in this understanding is that one of the Provans entities had an interest in the Land of a kind giving rise to an obligation in the Authority to pay compensation for either relocation costs or losses arising from business destruction. It also reflects a misunderstanding that the offer that was proposed to be made could simply be withdrawn if the business did not in fact relocate.

On 22 October 2014, RK provided further legal advice to the Authority regarding the options for the payment of compensation to the claimants identified by Ms Glynn. RK’s advice recorded that Ms Glynn was concerned that an offer based on the highest and best use of the Land should be made because it was over $2,000,000 more than the proposed offer based on an ‘in use’ valuation plus relocation costs. RK confirmed its advice that the latter option should be adopted. This was because it was ‘inevitable’ that losses associated with a relocation would be greater than the estimates provided and that, in particular, loss of profits during the move and construction works at the replacement premises might well be greater than estimated. RK’s advice continued:

I think that a sensible outcome is to adopt the following procedure, namely –
·make the statutory offer in accordance with the provisions of s 31 of the [LAC Act] based upon Option 2 as I have previously recommended. However, this offer would be one unlikely to be accepted.
…
·make a ‘without prejudice’ offer through the solicitors acting on behalf of all Provan [sic] interests based on Nicole’s Option 1 [highest and best use Land value]. This offer (subject to the interest of any mortgagee) would be for all Provan [sic] interests in the subject land and would be subject to execution by all the Provan [sic] entities of a Deed of Release and Indemnity. This ‘without prejudice’ offer should be expressed to be open for acceptance for a period of 30 days from the date of the offer (or such other reasonable period as LMA may decide upon).

The ‘without prejudice’ offer may be useful to LMA in the future should the matters become disputed within the meaning of the Act.

The RK advice attached a draft letter containing a ‘without prejudice’ offer. It was never used.

On 24 October 2014, Ms Glynn prepared and forwarded a memo to Mr Ken Mathers, the Chief Executive Officer of LMA, to inform him of the offer of compensation to be made in the amount of $8,706,000 based on the existing use valuation provided by VGV of $5.675 million and a relocation estimate prepared by BRM of $2.871 million, as well as allowances for solatium and professional expenses. The memo stated:

It should be noted that the offer is a conservative first offer, and the total compensation payable in this matter is expected to well exceed this sum.

The memo was marked as ‘noted’ and signed by Mr Mathers on that day.

The Initial Offer and response

On 24 October 2014, the Authority made the Initial Offer of compensation to all of the claimants pursuant to s 31 of the LAC Act.

The Initial Offer was expressed as a single offer addressed to the directors of each of the claimants. It is the source of much of the controversy in these proceedings. For that reason, it is necessary to recite in full some of its more important parts:

Offer of Compensation
Linking Melbourne Authority (LMA) has obtained independent advice as to the value of all three companies’ interests in the property and, based on this advice, LMA offers a total sum of $8,706,000 (less monies paid) as compensation for the compulsory acquisition of the companies’ interests in the property.
This offer is made pursuant to section 31 of the [LAC Act] and is the amount of compensation LMA has assessed as being the amount payable to the companies, based on information currently available to LMA.
The offer is comprised of several components and attributed to a specific interest as follows:

The Initial Offer contained the Table that has been reproduced in paragraph 15 above. The Table identifies types and amounts of compensation as ‘applying’ to one or more of Timber, Hardware and Joinery.

The Initial Offer was expressed to be made subject to a number of conditions including, relevantly, the following:

1.The sum offered is for the compulsory acquisition of the companies’ interests in the whole of the property and for all loss or damage which may be sustained as a natural and direct consequence of the acquisition, including any impact to businesses, and is made in full and final settlement of all claims that the companies may have.
2.The sum offered includes an allowance to relocate [Hardware] and [Joinery] from the property to the replacement property at 168-174 and 176-182 Alexandra Parade and 477 Hoddle Street, Clifton Hill.
…
8.If the offer is accepted, the companies will be required to release and indemnify LMA from any further claims arising from the acquisition. In the event that LMA is required to pay compensation for any further interest in the property, LMA may require reimbursement of the compensation paid. The companies will be required to sign a Release and Indemnity agreement at settlement to this effect.

The Initial Offer was signed by Mr Greg Holland, Director of Property Services. It was accompanied by three certificates of valuation issued by VGV, each recording Timber as the sole proprietor of the Land and describing the interests in the Land being assessed as ‘[a]ll interest in the land’. The first valuation certificate records that the valuation was based upon the ‘in use’ value of the Land as a timber yard and like business and assesses compensation at $5.675 million. The second certificate refers to the lessee/occupier as Hardware and assesses compensation as ‘nil’. Likewise, the third certificate, which refers to the lessee/occupier as Joinery, assesses the amount of compensation as ‘nil’.

The Initial Offer also attached a ‘Form 10’, being a pro forma statement that the recipient could accept the offer in full, accept the offer in part or reject the offer.[17] Also attached was a partially completed Response to Offer (Form 11) that referred to the person accepting the offer as Timber, Hardware and Joinery and recorded that the offer was for $8.706 million. Form 11 provides, among other things, for notice to be given of acceptance of the offer in part and for a claim to be made for further compensation.
[17]As required by the LAC Act to accompany the ‘initial offer of compensation’.

On 30 October 2014, AP requested an advance of the sum offered. The Authority wrote to AP setting out the terms of the advance, to which there was no response. On 19 December 2014, the Authority advanced the sum of $8,693,310 by means of two cheques payable to Timber, one for $6,343,310 and one for $2,350,000.[18] The funds were deposited in accounts in the name of Timber.
[18]Hardware had facilities with Westpac of $2.35 million secured over the Land. When the freehold was compulsorily acquired, Westpac required $2.35 million to be placed on term deposit as security.

According to Provans, the funds advanced pursuant to the Initial Offer were allocated and accounted for as to the sum of $2.871 million as a non-interest bearing loan from Hardware to Timber repayable by Timber to Hardware.

The advance of $8,693,310 was made before there had been any formal response to the Initial Offer from the claimants.

There was a significant delay in the claimants’ response to the Initial Offer. In the interim, the EWL Project was abandoned, following a change of government.

In March 2015, the Authority wrote to AP giving the occupier claimants the opportunity to remain in occupation and to have the Land re-conveyed to Timber. On 1 September, AP informed the Authority that ‘Provans’ did not wish to take up the option to have the Land returned.

In September 2015, the hardware business was physically relocated to the replacement premises on the corner of Hoddle Street and Alexandra Parade and commenced trading. The replacement premises were by then owned by another company controlled by Mr and Mrs Rosenberg, Lysteron Pty Ltd. Mr Rosenberg gave evidence that Hardware incurred costs of over $5 million in relocating the business to the replacement premises. At the time of the relocation, Lysteron did not have the funds to undertake any refurbishment of the premises and, because of the urgency of the need to relocate the business, it was decided that ‘Provans’ would fund the relocation and cover the refurbishment costs. In return, Hardware entered into a lease with Lysteron commencing on 1 August 2015 for an initial ten year period, with two five year options. This time, Hardware would pay market rent.

On 17 December 2015, following a number of requests for extensions of time (which were agreed to by the Authority) and more than a year after the Initial Offer was made, the claimants jointly delivered to the Authority a Form 11 ‘Response to Offer’, along with a certificate of valuation for the Land based on its highest and best use for the amount of $12.7 million. In the interests of clarity, I shall refer to the claimants’ Response to Offer as the ‘Response to the Initial Offer’.

Like the Initial Offer itself, the Response to the Initial Offer was a single document for all claimants. However, it set out in point form responses ‘to the several components in the [Initial Offer] by the persons to whom each such offer was made’. Timber purported to respond in relation to market value and solatium; Hardware and Joinery purported to respond in relation to relocation expenses; Timber, Hardware and Joinery purported to respond in relation to legal and other expenses, submission expenses and valuation fees. In addition, Timber made a claim for a number of matters in relation to the replacement property (stamp duty, registration fees, legal and conveyancing expenses, agent’s fees and so forth) and Timber, Hardware and Joinery made a claim for interest pursuant to the LAC Act.

The important parts of the Response to the Initial Offer were as follows:

[Timber] claims the sum of $12,700,000 for market value in response to item 1 of the offer of compensation plus costs associated with a replacement property in response to item 7 of the offer of compensation.
[Hardware] and [Joinery] accept item 3 of the offer of compensation for the Relocation Expenses in the sum of $2,871,000 offered by the Authority.
Each of [Timber], [Hardware] and [Joinery] accept the offer made for submission expenses of $20,000 and claim legal valuation and other professional expenses and interest pursuant to the [LAC Act].

In his evidence, Mr Dudakov explained that he and Mr Moore had undertaken a valuation of the Land assessed on its highest and best use for residential development and then considered whether a potential purchaser at that value would include Timber or Hardware on the basis that Hardware’s occupation could provide a reasonable return on the Land at that value.

The Authority was critical of the process undertaken by the Provans valuers, in particular as to the change of opinion about the highest and best use of the Land, moving from residential development premised on vacant possession to residential development with continuing occupation by the business. The Authority submits that this change of opinion occurred in unsatisfactory circumstances after AP had relayed its advice to the effect that the claimants could not make a claim for relocation costs if they sought compensation for market value based on residential development. The Authority submits that Mr Moore’s email on 25 November 2015 to AP strongly recommending pursuing the full costs associated with the move was incompatible with the expert witness Code of Conduct, and his reference to the ‘incontrovertible fact’ that there was no other opportunity to lease or buy a fitted-out hardware store nearby and that this option would have been used if available was well beyond his area of expertise as a valuer.

I agree that the approach taken by the Provans valuers was unorthodox and that some of Mr Moore’s opinions about the prospects of relocating the business were not based on his expertise. Furthermore, Mr Dudakov supported the ‘enterprise value’ approach by referring to valuation guidelines which were inapplicable to the task of determining market value under the LAC Act.

More importantly, however, there are a number of conceptual problems with the approach advanced by the Provans valuers that stem from its hybrid nature.

For the purposes of assessing market value, the approach is not confined, as it must be under the LAC Act, to Timber’s interest in the Land, but combines interests. Mr Moore conceded in cross-examination that it was not a market valuation of Timber’s interest in the Land. He confirmed that the only market valuation of Timber’s interest in the Land was the one he carried out in August 2015, when he valued the Land at $12.7 million.

The claimants have not suffered any loss associated with the ‘enterprise value’ of the business. Hardware did not claim any loss for the market value of its interest in the Land and, as a matter of fact, the business was not divested or diminished by the compulsory acquisition of the Land and no claim has been made for loss of profits. At no stage in the process of offer and response required in Part 3 of the LAC Act did the claimants claim an entitlement to compensation for the enterprise value of the business.

Ferrier Hodgson’s valuation of the business, upon which the ‘enterprise’ valuation rests, was based on Hardware having relatively long term security of tenure, which is not the basis upon which the Provans valuers assessed market value of the Land. The market value of Timber’s interest based on an assessment of the highest and best use of the Land for residential development assumes vacant possession or at least possession within a short timeframe.

Finally, the premise upon which ‘enterprise value’ is based, namely, Hardware’s ability to pay rental of $671,000 per annum, is utterly divorced from commercial reality. The yield of $671,000 per annum is almost double the market rent for premises suitable for a hardware business. In the hypothetical sale of Timber’s interest, there would be no continuation of a hardware store on the Land. The market rent that could be charged for premises suitable for a hardware business would produce a capital value that was substantially less than the value of the Land as a residential development site.

I am not persuaded that expert opinion concerning the ‘enterprise value’ of the Land is of any assistance in this case. It is artificial and confusing. It is also unnecessary, as the LAC Act deals with the kind of inconsistency referred to by the Authority on its own terms. It gives each person with an interest in the land that is divested or diminished by the compulsory acquisition a statutory right to compensation. It provides for separate offers to be made to each person of whose interest the Authority is aware and for the individual assessment of compensation in respect of each claimant in accordance with Part 4 of the LAC Act. Loss attributable to disturbance is a separate and distinct head of compensation under s 41(1) of the LAC Act, being compensation for loss sustained by the individual claimant for which provision is not otherwise made. It is therefore possible and permissible for compensation to be paid to different interest holders in circumstances where their entitlements do not perfectly align.

In the usual course, the existence of a leasehold interest of any substance will be reflected in the market value of the land. The entitlements of the owner claimant and the tenant claimant will be broadly aligned in that the existence of the lease will affect the land value. In this case, for the reasons given, it is unnecessary for Hardware to establish a leasehold interest of any durability in order to qualify for relocation costs and it is unlikely that its ‘ephemeral’ leasehold interest would affect the market value of the Land. Because of the arrangements in the LAC Act, Hardware’s entitlement to relocation costs is not limited by reason of any inconsistency with the basis upon which the market value of the Land is assessed.

Lifting the corporate veil

The Authority submits that if s 41(2) of the Act is construed so as to apply only to individual claimants, the claimants should nonetheless be treated as one claimant because they are members of a ‘corporate group’ such that their interests in the Land are not divisible or separable.

The corporate structure of the Provans Group is set out in the business valuation report of Ferrier Hodgson. The Authority relies on it and Mr Heverin’s evidence for the following propositions:

(a) Mr Rosenberg was the controlling mind of all of the claimants;

(b) the claimants’ intentions reflected Mr Rosenberg’s intentions; and

(c) Mr Rosenberg conducted the business of the claimants for the benefit of himself and his family.

The Authority also relies on Ms Glynn’s observations that from her interactions with the representatives of the claimants, Mr Rosenberg controlled the claimants and directed their affairs for the benefit of the Rosenberg family. Mr Heverin agreed that this was the case and with the observation of Mr McQuilton that through the control of Mr Rosenberg there appeared to be a commonality of interest between the various companies in the Provans Group, their purpose being the operation of the business from the Land and subsequently from the Lysteron site. Furthermore, so the Authority says, the claimants’ valuation evidence constituted a concession in relation to this issue. The valuation evidence conflated all three entities as a single entity, highlighting the intertwined nature of the claimants’ business.

In DHN Food Distributors Ltd v Tower Hamlet’s London Borough Council,[59] the House of Lords combined the interests of a parent and its subsidiary in the context of the assessment of compensation following a compulsory acquisition. The business was owned by DHN and the land upon which the business was operated was owned by a wholly owned subsidiary, Bronze. The Council acquired land owned by Bronze on which DHN operated its cash and carry warehouse. The Council submitted that while Bronze was entitled to compensation for loss of market value, DHN was not entitled to disturbance loss because it did not have any interest in the land, either legal or equitable. DHN was a licensee only. Section 20 of the Compulsory Purchase Act 1965 (UK) provided that if a person had no greater interest than a tenant from year to year in the land, then that person was only entitled to compensation for that lesser interest. Lord Denning MR observed: [60]

Seeing that a licensee can be turned out on short notice, the compensation payable to DHN would be negligible.

[59][1976] 1 WLR 852.

[60]Ibid 858.

Lord Denning further observed that where a parent company owns all the shares of the subsidiaries, it can control their every movement. The subsidiaries are bound ‘hand and foot’ to the parent company and must do what the parent company says. He continued: [61]

So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one and the parent company, DHN, should be treated as that one.

[61]Ibid 860.

Lord Justice Goff upheld the appeal on the basis that DHN had an equitable interest in the land under a resulting trust. For his Lordship, the case was one which required the realities of the situation to be looked at to pierce the corporate veil.[62] The remaining member of the House of Lords, Lord Justice Shaw, held that DHN and Bronze had an identity and community of interest.

[62]Ibid 861.

The claimants submit that there is no basis for lifting the corporate veil and treating the occupiers as the same entity as Timber. Their interests were separate and divisible, as the Authority knew. The LAC Act does not provide for or permit such an approach and it is not supported by Australian authority. The claimants refer to the following remarks of Sheehan J and Parker AC in Tolson v Roads and Traffic Authority of New South Wales:[63]
[63][2012] NSWLEC 170 [197]-[200] (citations and emphasis omitted) .

DHN was not followed in Buckinghamshire County Council v The Secretary of State for the Environment, Transport and the Region, nor in Woolfson v Strathclyde Regional Council. …
In Pioneer Concrete Services Ltd v Yelnah Pty Ltd (Pioneer), Young J noted that DHN had been followed in some English cases, but thought that a significant factor influencing its application was whether the company ‘was a wholly owned subsidiary receiving no fees, making no profits or losses and merely a conduit pipe for transactions within the group’. His Honour thought DHN should be confined to its own facts and stated:
… it is only if the court can see that there is in fact or in law a partnership between companies in a group or alternatively where there is a mere sham or façade that one lifts the veil. The principle does not apply in the instant case where it would appear that there was a good commercial purpose for having separate companies in the group performing different functions even though the ultimate controllers would very naturally lapse into speaking of the whole group as ‘us’.

In Mario Piraino Pty Ltd v Roads Corporation (No 2), Gobbo J considered that DHN was an illustration of a case where a parent can mount a claim for compensation for its own loss, even though the business to which the loss was related was conducted on land owned by the subsidiary. His Honour observed that DHN had not been specifically applied in Australia, had been distinguished in Pioneer, and, although acknowledging that the precise relationship of the companies was not the subject of evidence in that case, declined to follow it. …
The respondent also referred the court to Halloran and Sealark Pty Ltd v Shoalhaven City Council, and to James Hardie v Putt, both of which decisions refused to follow DHN. In both cases the court was not satisfied that the facts justified a lifting of the corporate veil, with the latter emphasising that it is only appropriate to take such a course of action when the circumstances indicate the company is a sham or façade. …
I yield to the weight of authority, and decline to apply DHN in the present circumstances…

The claimants submit that no different conclusion should be reached in this case. There is no suggestion that the existence of the separate entities in the Provans Group was a façade or a sham. Each entity had a separate role within the group and its own distinct interest in the Land. There was no suggestion that there was any inappropriate intermingling of funds and, with the exception of the issue as to the appropriate accounting for the $2.871 million received from the Authority as between Timber and Hardware, the evidence, including the evidence of the Authority’s expert accountant, was that the separate financial reports for each entity were beyond reproach. The ultimate beneficial ownership of the entities is not identical and there is no basis or capacity to treat their interests in the property as one.

I accept this submission. I do so for the same reason that I rejected the Authority’s submissions above as to why Hardware was not entitled to compensation for relocation costs. The applicable statutory scheme deals with individual interests in land and provides compensation for the divestment or diminishment of individual interests. Properly construed, the LAC Act provides for each person with an interest in land that is divested or diminished by the compulsory acquisition of the land to have their interest separately treated. Section 30 gives to each person who had an interest in land that was divested or diminished by the compulsory acquisition a claim for compensation. Section 31 is directed to individual claimants and individual interests and contemplates that separate offers be made to each claimant. Section 41(1) refers to compensation payable to ‘a claimant’ in respect of ‘an interest in land’ and specifies the matters to which regard must be had in assessing compensation. In substance, it requires and provides that compensation is to be assessed on a claimant by claimant basis.

The LAC Act contains no legislative cap on compensation which might otherwise require an aggregated assessment of compensation, payable to different interest holders who hold interests in the same land. Each claimant is entitled to full compensation for their interest. Each interest is to be assessed in accordance with Part 4 of the Act. There is nothing in the text of the LAC Act that provides for or suggests that multiple interest holders in a parcel of land have a single claim or that their claims are to be treated as one.

Furthermore, s 5A(3) of the Valuation of Land Act requires the interest in land of an individual claimant to be valued in accordance with the highest and best use of that interest. It is no part of valuing the freehold interest to inquire as to the combined value of the freehold and the leasehold interests other than where there is a marriage value argument.

Accordingly, it was not permissible under the LAC Act, let alone required, to lift the corporate veil and treat the claimants as one.

Did Hardware incur relocation costs of $2.871 million?

The Authority submits that the Court has no probative evidence as to any actual loss suffered by Hardware relating to relocation costs. Mr Heverin gave evidence that Hardware incurred more than $5 million in expenses in relation to the relocation. However, the claimants only claim $2.871 million and did not lead any specific evidence to assist the Court to determine whether that amount was an appropriate figure. Moreover, the $5 million figure included a range of items pertaining to improvements to the replacement premises such as replacing the roof, installing a lift for a mezzanine floor, construction of the mezzanine floor and so on.

The Authority submits that the asserted relocation costs were in fact incurred for the benefit of Lysteron. In circumstances where Hardware pays market rent for a long term lease from Lysteron, the substantial costs of refurbishing the replacement premises were incurred for the benefit of Lysteron as landlord and not for Hardware as tenant. Mr Rosenberg accepted in cross-examination that Hardware is paying market rent for its occupation of the Lysteron site and that the refurbishment costs paid by Hardware were for the benefit of Lysteron as well as Hardware. In this context, the Authority points to the fact that Mr Heverin directed Mr Dixon the architect to render his first invoice on Lysteron in 2012. The claimants do not proffer any explanation as to why it was appropriate for Lysteron to pay that invoice but not for subsequent costs associated with the refurbishment of the Lysteron site. The Authority asks the Court to infer that as all of the companies are controlled by Mr Rosenberg, he elected to have the costs paid by Hardware because it suited his purposes.

The claimants say that though the relocation costs were in fact more than $4 million, Hardware took the position that if it were offered $2.871 million it would accept that amount and it does not propose to reopen the quantum of relocation costs. It cost $5.4 million to relocate the business to the replacement premises, which was primarily spent refurbishing and making the premises suitable for relocation. Of these costs, $4 million was accounted for as Hardware’s expenses and the balance attributed to landlord’s improvements by Lysteron. An independent quantity surveyor was asked to assess how much of the renovations were tenant’s fixtures and fittings and how much were the landlord’s. That formed the basis for the approximately $4 million in the accounts of Hardware as the portion that was properly the costs paid by Hardware.

The position adopted by the Authority at trial that the claimants must prove the quantum of the relocation costs is novel and, arguably, disingenuous, having regard to the long course of the dealings between the Authority and the claimants in relation to the relocation of the business. That course of conduct included the following:

(a) In 2013, the Authority advised the claimants that it would retain an accountant, a relocation consultant and a valuer in order to make an initial offer of compensation. It advised the claimants that its relocation assessment would be based on an estimated cost to relocate to reasonably suitable premises or, if a replacement property was already secured, the costs of relocation;

(b) on about 30 May 2014, the Authority retained a business relocation manager (Mr Aghion of BRM) to provide a costs estimate of any building and fit out works that BRM deemed necessary to accommodate the business and physically relocate the business to the new site. The Authority advised BRM that the Land was owned by Timber and ‘owner occupied or leased to a related company’;

(c) BRM provided its assessment of fit out and relocation costs to the Authority. It advised that ‘substantial works [were] required to set up the facility for Provan’s requirements’. It advised that the business was likely to incur total relocation costs in the order of $4,414,941 (excluding GST) and recommended that the Authority approve payment of fit out and relocation costs within the range of $2,871,279 to $3,158,407 (excluding GST);

(d) the Authority was advised by its solicitors that it was ‘inevitable that the losses associated with the relocation are likely to be greater than the estimates provided’;

(e) the Authority was informed that there were a number of issues regarding the feasibility of relocating the business to the proposed replacement premises and that the relocation required specific design plans and raised specific access issues. The Authority was advised and noted that relocation would be complex and labour intensive, and therefore costly;

(f) Provans gave the Authority a list of relocation tasks and its own consultant provided a list of recommended relocation managers for the Authority to ‘review/vet’. No objection was made by the Authority to the proposed tasks or appointment of a relocation manager to manage the relocation of the business;

(g) the Authority was advised that the architect used by Provans, Mr Mark Dixon, would be engaged to prepare site and layout plans for the relocated business and was aware of the need to alter buildings and undertake works. No objection was taken by the Authority;

(h) tender submissions were sought for the relocation of the business. Kane Construction provided a tender submission for ‘relocation of the Premises for Provans Home Timber and Hardware’ in the amount of $3,903,069, which Hardware accepted;

(i) the occupiers (Hardware and Joinery) relocated the business to the replacement premises and entered into a long term lease with Lysteron; and

(j) Hardware actually incurred relocation costs of more than $5 million.

It is plain that the Authority followed—and implicitly endorsed—the process undertaken by Hardware for relocating the business. Moreover, the figure of $2.871 million for relocation costs was taken from the bottom end of the range identified by the Authority’s own relocation consultant, Mr Aghion. The Authority made an offer for that amount.

I am satisfied to the requisite standard that Hardware incurred relocation costs of (at least) $2.871 million as a result of having to relocate the business from the Land.

Market value of the Land

The market value of the Land as at the acquisition date based on its highest and best use for residential development was agreed by the valuers as $12.2 million.

I accept this valuation.

Timber is entitled to compensation for the market value of the Land in the amount of $12.2 million.

Conclusion

Hardware accepted an offer made pursuant to s 31 of the LAC Act for its relocation costs. That offer was binding. Hardware was, in any event, entitled to be compensated for relocation costs resulting from the divestment of its interest in the Land, irrespective of how the offer was made to Timber for the market value of the Land.

Hardware has received compensation for its relocation costs. It seeks nothing further.

Timber is entitled to be compensated for the market value of the Land assessed on its highest and best use. That value is $12.2 million.

The Authority has made advances to Timber, but $2.871 million remains outstanding.

In the principal proceeding, the Authority will be ordered to pay Timber the sum of $2.871 million plus interest to be determined.

The subsidiary proceeding will be dismissed.

COMPONENT	AMOUNT		APPLIES TO
Market Value	$	5,675,000	Provan’s Timber
Solatium	$	100,000	Provan’s Timber
Relocation Expenses	$	2,871,000	Provan’s Timber and Hardware & Provan’s Timber (Joinery)
Legal Expenses	$	25,000	Provan’s Timber & Provan’s Timber and Hardware & Provan’s Timber (Joinery)
Submission Expenses	$	20,000	Provan’s Timber & Provan’s Timber and Hardware
Valuation Fees	$	15,000	Provan’s Timber & Provan’s Timber and Hardware
TOTAL	$	8,706,000
Less fees paid (excl gst)	-$	12,690
BALANCE PAYABLE	$	8,693,310

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14 June 2019