Vass and Lambert v Coordinator-General
[2013] QLC 64
•15 November 2013
LAND COURT OF QUEENSLAND
| CITATION: | Vass and Lambert v Coordinator-General [2013] QLC 64 |
| PARTIES: | James Vass and Tammy Renee Lambert |
| v. | |
| Coordinator-General | |
| FILE NO: | AQL031-11 |
| DIVISION: | Land Court of Queensland - General Division |
| PROCEEDING: | Application for determination of compensation under the Acquisition of Land Act 1967. |
| DELIVERED ON: | 15 November 2013 |
| DELIVERED AT: | Brisbane |
| MEMBER: | His Honour WL Cochrane |
| ORDER: | The respondent is to pay to the applicants a total of $92,276.00 (Ninety-Two Thousand Two Hundred and Seventy-Six Dollars) by way of compensation together with interest to be determined having regard to the amount of advances paid, if any. |
| CATCHWORDS: | Acquisition of Land – Resumption – Relevant Date for Determination of Interest – Valuation of Business – Extinguishment vs Relocation Cost – Hairdressing Salon - Acquisition of Land Act 1967 The Commissioner of Succession Duties (South Australia) v The Executor Trustee and Agency Company of South Australia Limited and Others (1947) 74 CLR 358 Boland and Yates Property Corporation Pty Ltd (1999) 74 ALJR 209 at (225) Commissioner of Highways v Shipp Brothers Pty Ltd (1978) 195 SASR 215; 43 LGERA 355 (at 221; 363). |
| APPEARANCES: | Mr PW Hackett of Counsel, instructed by H. Drakos & Co for the applicants. |
Background
This is the decision in relation to compensation payable in respect of premises which form part of the ground floor of a building erected on land described as Lot 24 on RP 11639. The land is located at 491 Stanley Street in South Brisbane.
The whole of the property of which the subject premises formed part was resumed by Taking of Land Notice 24 of 2008 which was published in the Queensland Government Gazette on 31 October 2008.
Pursuant to s 20(2) of the Acquisition of Land Act 1967:
"(2) Compensation shall be assessed according to the value of the estate or interest of the claimant in the land taken on the date when it was taken."
I interpret that as meaning that in the case of a business which is existing and operating as at the date of resumption it is the value of the business on that date not at some time in the future which will determine the compensation payable.
The subject property was resumed, along with a number of other adjoining properties, for the Queensland Children's Hospital Project on land adjacent to the existing Mater Hospital.
By way of background the applicants, Vass and Lambert, carried on a business trading as Allure Salon in the subject premises which, as indicated above, form part of the ground floor of the existing building on the subject site.
Allure Salon was essentially a hairdressing salon but as will become apparent in other parts of this decision there were also, from time to time, other elements of the business conducted in the subject premises, in particular a beauty salon and a retail element.
The parties to this application jointly engaged a Mr Chris Kamitsis, a certified practicing valuer to determine the market commercial rental rate for the subject premises.
That report was jointly obtained and each party agreed to be bound by the rental figures contended for by Mr Kamitsis.[1]
[1] Exhibit 23.
I shall return later in this decision to the report of Mr Kamitsis.
In order to describe the location of the subject property however I can do little better than repeat the concise and accurate summary provided by Mr Kamitsis in his report[2].
[2] Exhibit 23, p. 5/18.
Mr Kamitsis describes the location in the following terms:
"3.1 491 Stanley Street, South Brisbane (the subject property) is located within a well established inner city area being approximately 1.75 kilometres to the south of the Brisbane GPO.
3.2 It is approximately three properties removed to the south of the intersection of Stanley Street and Vulture Street, being on the south western side of Stanley Street.
3.3 It is conveniently located to local amenities including Southbank Parklands, the Mater Private and Public Hospitals and local schools (including St. Laurences College, Somerville House and Brisbane State High).
3.4 Local transport facilities are within easy walking distance and include the Mater Hill Busway and Southbank Train Station.
3.5 The immediate surrounding development including the adjoining properties comprised of similar older style commercial buildings having a mix of retail/commercial tenancies, some of which were of poor quality with limited street appeal. An adjoining property to the east was vacant and derelict for a long period (for reasons other than the hospital project).
3.6 Since the development of the nearby Grey Street retail precinct adjoining Southbank, there has been a shift in the tenant profile within the ground floor tenancies along Stanley Street from retail to commercial. This is particularly true for the renovated commercial character buildings closer to the hospital around 'Clarence Corner' (near the intersection of Annerley Road) from which some of the leasing evidence is derived.
3.7 Stanley Street (at the subject property) is a bitumen sealed road divided by a concrete median strip. Vehicular access to the property was only available via an easement driveway from Graham Street to the rear."
It seems to be accepted by the parties that the salon had a floor area of 195 m².[3]&[4]
[3] Report of Kamitsis Exhibit 23 p. 6/18 para 4.6-9.
[4]Mr Brett the valuer for the respondent in a related matter appears to have proceeded on the basis that the floor area was 153.7 m² although nothing ultimately appears to turn upon the apparent discrepancy.
The salon did not occupy the whole of the ground floor of the relevant building. It appears however that it did occupy the majority of the floor with a balance area of 3 potential consulting rooms and a small office being given over to other uses. The whole of the ground floor appears to enjoy the benefit of a common entrance from Stanley Street.
In his report with respect to the relevant rental Mr Kamitsis identifies the premises as having included:
"The main salon area, a colour mixing room, kitchen, various consultation rooms, male and female toilets, a shower and a laundry."[5]
The business also enjoyed the benefit of on-site parking.
[5] Exhibit 23 p. 7/18 para 4.11.
The Issues
The determination I am required to make generates several questions which must be answered, namely:-
1.Who operated the business Allure Salon and from what date?
2.At what time, if at all, did public knowledge of the proposed resumption become so widespread that it affected the patronage of the business?
3.What was the effect on the business?
4.How should the question of compensation be approached i.e. on a need to relocate basis or on an extinguishment of the business basis?
5.What was the business worth?
6.What is the appropriate compensation which should be awarded having regard to the liberal estimate principle?
In the applicants amended Points of Claim[6] the claim asserted that the applicants should be compensated for the acquisition of the Land to the value of no less than $352437.16, being comprised of:
(a)$29,000 – total destruction of the applicants' Beauty Salon Business;
(b)$216,800 – cost of fit-out of new premises;
(c)$91,000 – loss of profits arising from the acquisition of the Land; and
(d)$15,637.16 – business valuation and other fees to date of filing this application.
[6] Exhibit 34 p. 5 para 15.
In its submissions[7] the respondent contends that the appropriate award of compensation would be a sum consistent with the views expressed by Mr Calabro that, as at the date of resumption, applying the lease payments actually made by the applicants rather than the commercial lease rate, the business is worth between $50,000.00 and $80,000.00.
[7] Exhibit 47 p. 15 para 37.
Witnesses
The applicant called evidence from Mr James Vass one of the applicants and from Mr Lindsay Frank Gilbert Wright (referred to as Gil Wright) a licensed real estate agent specialising in business brokerage and business valuation[8].
[8] T 2-49 L 48.
The respondent called evidence from Norbert Charles Calabro a qualified accountant and, like Mr Wright, well-known before this Court for providing valuation evidence as to the value of businesses.
Each of the expert witnesses, Mr Calabro and Mr Wright, had participated in a joint meeting to identify areas of agreement and disagreement and produced a joint report setting out those areas of agreement and disagreement and the reasons for them[9].
[9]Exhibit 24 - Joint Statement of Experts, Exhibit 25 – Assessment of Compensation by Mr Gil Wright and Exhibit 26 – An Independent Forensic Report by Mr Calabro.
A number of other documents relating to business activities including tax and financial statements, ledger entries and summaries of monthly activities were tendered before the Court and I shall refer to those as necessary.
Mr Vass had sworn two affidavits each of which became Exhibits before the Court.[10]
[10]Exhibit 21 – Affidavit of Vass, sworn 14 June 2011 and Exhibit 22 – Affidavit of Vass sworn 27 October 2011.
Documentary Evidence
A number of documents tendered before the Court establish the background business history of activities on the subject site. As counsel for the applicants points out in his written submissions the relevant history was admitted and was as set out in his paragraph 7 namely: -
"7. The relevant history is admitted (Ex 34, para's 1 and 2 and Ex 36, para's 1 and 5) and as follows:[11]
[11] Exhibit 48.
Period Name Proprietor(s) (m2) Configuration March 1994 to 30 September 2005 Stanely's Hair Salon Tammy Renee Lambert ["Lambert"] 50 3 chairs & 2 basins 1 October 2005 to 31 December 2006 Beauty Edge Tammy Renee Pty Ltd atf the TRP Discretionary Trust ["TRP"] & Christian Winston Elliott atf The Elliott Trust 190 15 chairs, 4 basins & 5 beauty rooms 1 January 2007
30 June 2007Beauty Edge TRP 190 15 chairs, 4 basins & 5 beauty rooms 1 July 2007 to 30 June 2009
(15 February 2009= relocation)
Allure Salon
Allure Salon on Manning
Lambert & James Vass 190
90
- 15 chairs, 4 basins & 5 beauty rooms
- 8 chairs & 3 basins
The key feature of the background history is, in my opinion, that on 16 April 2007 there was an agreement between Tammy Renee Lambert for the TRP Discretionary Trust and James Vass for Beneficial Project and Land Pty Ltd whereby an agreed business partnership was to commence trading on 1 July 2007 and the TRP Discretionary Trust would assign the leasehold interest under the tenancy agreement to Vass and Lambert.[12]
[12] Exhibit 6 – Letter of Agreement.
The Evidence of Mr Vass
Mr Vass's evidence-in-chief consisted of his two affidavits, Exhibits 21 and 22, and some short evidence-in-chief adduced by Mr Hackett of counsel who appeared for the applicants.
The thrust of the evidence-in-chief was to identify a figure for the cost of a fit-out which had occurred in the 2005/2006 financial year.
Mr Vass was taken to Exhibit 27 which is identified as financial statements for the year ended 30 June 2006 prepared by Carrall & Co Accountants of Cannon Hill.
It should be noted that each page in that bundle of financial records contains a footnote which says:
"These financial statements are unaudited. They must be read in conjunction with the attached Accountants Compilation Report and Notes which form part of these financial statements.
And on the last page it becomes apparent that that set of financial statements was prepared in November 2011.
The figures in those statements identify a shop fit-out cost of $150,326.24 and plant and equipment costs of $27,673.75[13].
[13] Exhibit 27, p. 270.
Those figures total $177,999.99.
In the course of adducing that evidence there was some debate as to which figures should be added up but eventually Mr Hackett contended for a figure of $179,435.62.
He also contended that the depreciation sums of $3,758.00 and $4,151.00 respectively should be added back on, but upon reflection, I think that is incorrect.
The accounts show both shop fit-out and plant and equipment under the heading Property Plant and Equipment in the non-current assets section of the balance sheet. The non-current assets are calculated by taking depreciation from the cost of each of the items for shop fit-out and plant and equipment and, as I read the accounts, the figures of $150,326.24 and $27,673.75 are the original costs from which accumulated depreciation is deducted. Accordingly, there is no justification for adding those depreciation figures back on to the primary figure. I have satisfied myself that the total referred to above of $177,999.99 seems to be the cost of those assets.
Under cross-examination Mr Vass was taken in detail to the background history of the ownership of Beauty Edge and then the Allure Salon on Manning Street.
Mr Vass's evidence was far from satisfactory in relation to those matters. He did not seem to appreciate the difference between a partnership between corporate entities, trustee entities and individual persons. Part of the problem seems to emanate from the affidavit that had been prepared for Mr Vass.
For example, under cross-examination he was asked about Exhibit JV-8 to his affidavit of June 2011.[14]
[14] Exhibit 21.
Exhibit JV-8 is entitled Business Partnership Agreement Between Tammy Renee Lambert for the TRP Discretionary Trust and James Vass for Beneficial Project and Land Pty Ltd.
That document JV-8 might be contrasted with Exhibit JV-3 to the same affidavit which is said to be a commercial tenancy agreement between Christian Winston Elliott Trustee and Tammy Renee Pty Ltd Trustee as the landlords and The Elliott Trust and The TRP Discretionary Trust trading as Beauty Edge as the tenant.
That commercial tenancy agreement it would seem came to an end as a consequence of a Letter of Agreement signed on 14 December 2006.[15]
[15] Exhibit JV-4 to the affidavit of Vass of June 2011.
In his affidavit Mr Vass says as follows:[16]
"In 2006 I was in the process of joining the Federal Police. I had completed the first stage of the application to gain entry. I provided the financial assistance to Lambert to enable her to acquire Elliott's interest in the business, Beauty Edge. As a result of Elliott paying nil for goodwill, it was agreed that adjustments would be made for stock and that Lambert would assume the outstanding liabilities. Exhibited hereto and marked 'JV-4' is a copy of Letter of Agreement to terminate the business partnership prepared by myself referred to in this my affidavit”.
[16] Exhibit 21, para 18.
Reference to Exhibit JV-4 reveals that the relevant terms were as follows:
"This letter serves as an agreement by both parties to terminate there Business partnership Trading as Beauty Edge on the following terms,
1: The business partnership will cease trading on the 31st of December 2006.
2: The Elliott Trust will cease to be held liable for the Tenancy Agreement dated the 30th September 2005 and reassigns its rights of the Tenancy Agreement to the TRP Discretionary Trust.
3: The TRP Discretionary Trust will continue to operate the business at the same premises independently.
4: The Winston Trust and the TRP Discretionary Trust will each be liable for half the outstanding accounts, bills, wages & superannuation up until the 31st December 2006.
5: The outstanding loans to both partners to Beauty Edge will be adjusted accordingly.
6: The TRP Discretionary Trust will retain the stock on hand as of the 1st January 2007 & pay half of its value to the Elliott Trust."
The document is a classic example of what happens when non-legally trained persons purport to create documents intended to have legal affect. Paragraph 4 refers to the Winston Trust without any indication in the document itself as to what role the Winston Trust (if indeed it exists) plays in these business arrangements. Similarly, there is provision for a witness presumably to both signatures but that is not entirely clear.
The probable consequence of the document JV-4 is that after December 2006 the whole of the business "Beauty Edge" had devolved to the ownership and control of the TRP Discretionary Trust of which Tammy Renee Pty Ltd was the trustee.
Subsequently, as seems to be evidenced by Exhibit JV-8 to the affidavit of Mr Vass,[17] a fresh Business Partnership Agreement was entered into between Tammy Renee Pty Ltd for the TRP Discretionary Trust and James Vass for Beneficial Project and Land Pty Ltd.
[17] Exhibit 21, Exhibit JV-8.
There was no evidence in any of the documentation placed before the Court as to the existence or fate of Tammy Renee Pty Ltd and certainly there was no evidence as to any basis upon which it ceased to be the trustee of the TRP Discretionary Trust and how it came to be replaced by Tammy Renee Lambert personally.
The document itself, as with Exhibit JV-4, is very nearly impossible to construe. For example, paragraph 2 of Exhibit JV-8 provides as follows:
"The TRP Discretionary Trust assigns James Vass and Tammy Lambert on the Tenancy Agreement dated the 30th September 2005 at 489 Stanley Street South Brisbane Q 4101, James Vass and Tammy Lambert will be held liable for half the costs each of all liabilities of the Tenancy Agreement."
Mr Vass was cross-examined by Mr Morzone of Counsel about document JV-8. The cross-examination appears in the transcript[18]:
[18] T 1-43 L 24 - 1- 44 L 24.
"Okay. Can I ask you to look at this particular - we'll start with this document, JV-8. The heading says it's a partnership between Miss Lambert, as - I should say for the TRP Discretionary Trust and James Lambert for beneficial project and‑‑‑‑‑
HIS HONOUR: James Vass.
MR MORZONE: James Vass, I beg your pardon, for Beneficial Project & Land Pty Ltd. Now, if we go down to the bottom of the page, you sign it then and the company name's Beneficial Project and Land Pty Ltd. Is the agreement that’s being entered into here, an agreement entered into by you personally or on behalf of the company?‑‑ I would say both.
Who was the person intended to be a partner in the partnership?‑‑ Myself and Tammy. The reason why - behind, if you're asking why this was written at that time, it's just that I was purchasing a building which is the new premises and it was a simple agreement that we put together in order to protect my interest in the event that the outlays of the money of purchasing the - the building for the new business.
Okay. And‑‑‑‑‑?‑‑ It was‑‑‑‑‑
Okay?‑‑ Sorry.
I heard what you said. The first line of that agreement says the business partnership will commence trading on the 1st of July 2007 at 489 Stanley Street, South Brisbane, correct?‑‑ Correct.
489 Stanley Street, South Brisbane is the subject premises that we're talking about here today?‑‑ Correct.
And it was to commence from the 1st of July 2007?‑‑ Correct.
Not the 1st of January 2007 as you've sworn in your affidavit, is it?‑‑ No, 1st of January 2007 we start off as partnerships. This agreement, right, where we were going to be paid through our companies, right, and it was the purpose that our accountant had advised at the time that the - the one that’s done on the 1st of July 2007, which was the new financial year, is when we were going to submit tax invoices through our companies in order for us to get our remuneration.
I'm not sure I understand that, Mr Vass. Did this partnership that this agreement is the subject of, start on the 1st of July 2007?‑‑ On this piece of paper, yes. But our partnership agreement started on the 1st of January 2007 and since this agreement it's changed several times. We - we're in a partnership as in a de facto relationship, we didn’t rely on documentations as to all the change that we went through along the way but this particular one‑‑‑‑‑
HIS HONOUR: Sorry, when you say "we didn’t rely on documentation" do I - and I've got to understand this - do you mean to say there were, what you understood to be changes in the partnership relationship which have never been documented?‑‑ Yes, your Honour. Correct."
From the material before the Court it appears to me that it was the TRP Discretionary Trust of which Ms Lambert was the trustee which operated the business from 31 December 2006 until 1 July 2007.
In coming to that view I rely upon what I believe to be a proper interpretation of Exhibits JV-4 and JV-8 to the June affidavit of Mr Vass.
JV-8 seems to establish that the business itself was conducted by Tammy Renee Lambert as a Trustee for a Discretionary Trust and by James Vass the principal and/or representative of Beneficial Project and Land Pty Ltd.
That seems to be at odds with the evidence given by Mr Vass[19] where he said in answer to a question from Mr Morzone:
"We were sole traders, if that makes any sense. Like, Tammy and I independently as sole traders for Allure Salon on Manning."
[19] T 1-52 L 10.
Having regard to the evidence before the Court that simply cannot be correct.
I am prepared to accept, having regard to what is contained in Exhibit 30, an extract from the Business Names Queensland Website, that the Trust and Corporate Entity were the alter-egos of Ms Lambert and Mr Vass respectively.
It seems fairly clear that they had a tenuous grip on an understanding of the distinction between Corporate, Trust and Individual Entities.
The consequence of the findings set out above are that, as at the date on which the Notice of Intention to Resume issued on 20 June 2008 and the publication of the Government Gazette on 31 October 2008 notifying the taking of the land (as well as the amending Gazettal on 13 February 2009) the parties operating the business, one way or another, were Vass and Lambert. That business may have operated only since January 2007 at the earliest but was formalised in July 2007.
I have reviewed all of the evidence both documentary and in the transcript before me and can find nothing which provides any explanation as to how the various assets of the manifold entities which seemed to have operated the business between a date prior to September 2005 and the date of resumption of the land on 31 October 2008 were dealt with. That is to say there is no evidence at all which explains the transfer of beneficial ownership of any assets constituted by shop fittings or fit-out items.
Similarly with respect to the relatively expensive fit-out which occurred in 2005 and in respect of which there was some substantial cross-examination by Mr Morzone it remains unexplained as to what happened to it.
It occurs to me that the fit-out probably included fixtures which may ultimately have become the property of the landlord and although a related entity, it is not one of the parties before me arguing for compensation for the loss of business earnings.
All of the evidence given by Mr Vass satisfies me that on the relevant site there were a number of businesses which traded as Beauty Edge. At one point (in 2005) the operators of that hairdressing business expended a substantial amount of money in refurbishing the premises.
Mr Vass was not in a material way one of the operators of the business until some time in 2007.
Much was sought to be made of the increased revenue which followed the 2005 refurbishment which had the effect of increasing the capacity of the business from three hairdressing chairs and two basins to 15 chairs, four basins and five beauty rooms.[20]
[20] Exhibit 21, Affidavit of Vass paragraph 12.
It appears from Mr Vass's affidavit[21] that he may have been involved in providing such informative advice in relation to the layout. That advice also appears to have been premised upon some commercial considerations including the prospect that the Business Plan then committed to by Lambert and Vass failed.
[21] Exhibit 21, paragraph 13.
Mr Vass in the course of his evidence really sought to extoll the virtues of the 2005 refurbishment.
Exhibit JV-1 to Mr Vass's affidavit contains all of the Business Activity Statements lodged on either a monthly or a quarterly basis by the businesses from as far back as 2002.[22]
[22] Exhibit 22, JV-1.
I have taken the opportunity to extract from those Business Activity Statements the various figures certified to as being the relevant sales, non-capital purchases and salaries for each of the relevant periods.
Those figures are as set out below:
Month/Time/Period $ Total sum of Purchases and Salaries July to Sept 2003 Sales
Purchases
Salaries29,205.00
14,074.00
6,056.00$20,130.00
Oct to Dec 2003 Sales
Purchases
Salaries31,805.00
11,530.00
8,533.00$20,063.00
Jan to March 2004 Sales
Purchases
Salaries26,868.00
8,912.00
7,043.00$15,955.00
Apr to June 2004 Sales
Purchases
Salaries23,066.00
9,261.00
6,665.00$15,926.00
July to Sept 2004 Sales
Purchases
Salaries38,740.00
12,513.00
6,277.00$18,790.00
Oct to Dec 2004 Sales
Purchases
Salaries28,033.00
9,759.00
4,525.00$14,284.00
Jan to March 2005 Sales
Purchases
Salaries27,380.00
10,040.00
8,244.00$18,284.00
Apr to June 2005 Sales
Purchases
Salaries22,914.00
9,849.00
9,629.00$19,478.00
July to Sept 2005 Sales
Purchases
Salaries29,165.00
8,890.00
13,940.00$22,920.00
Oct to Dec 2005 Sales
Purchases
Salaries70,240.00
48,755.00
46,044.00$94,799.00
Jan to March 2006 Sales
Purchases
Salaries69,569.00
33,921.00
46,222.00$80,143.00
Apr to June 2006 Sales
Purchases
Salaries77,015.00
32,081.00
40,431.00$72,512.00
July to Sept 2006 Sales
Purchases
Salaries74,869.00
26,220.00
48,033.00$74,253.00
Oct to Dec 2006 Sales
Purchases
Salaries64,670.00
33,170.00
45,098.00$78,268.00
Jan to March 2007 Sales
Purchases
Salaries45,902.00
21,997.00
12,225.00$34,222.00
Apr to June 2007 Sales
Purchases
Salaries50,442.00
32,002.00
14,945.00$46,947.00
Month July 2007 Sales
Purchases
Salaries15,570.00
13,743.00
2,372.00$16,115.00
Month Aug 2007 Sales
Purchases
Salaries15,187.00
33,954.00
2,916.00$36,870.00
Month Sept 2007 Sales
Purchases
Salaries15,485.00
9,425.00
2,570.00$11,995.00
Month Oct 2007 Sales
Purchases
Salaries16,164.00
28,772.00
3,080.00$31,852.00
Month Nov 2007 Sales
Purchases
Salaries15,633.00
26,469.00
2,634.00$29,103.00
Month Dec 2007 Sales
Purchases
Salaries19,389.00
17,094.00
3,510.00$20,604.00
Jan to March 2008 Sales
Purchases
Salaries36,435.00
40,392.00
8,628.00$49,020.00
Jan to March 2008 Sales
Purchases
Salaries43,170.00
41,903.00
7,540.00$49,443.00
July to Sept 2008 Sales
Purchases
Salaries53,280.00
49,585.00
4,379.00$53,964.00
Oct to Dec 2008 Sales
Purchases
Salaries50,416.00
39,083.00
6,389.00$45,472.00
Jan to March 2009 Sales
Purchases
Salaries37,945.00
37,477.00
7,450.00$44,927.00
Apr to June 2009 Sales
Purchases
Salaries50,706.00
73,007.00
6,837.00$79,844.00
Exhibit JV-8 establishes that the landlords were Christian Winston Elliott as Trustee and Tammy Renee Pty Ltd as Trustee.
There is, as the parties are aware, a separate action afoot before this Court relating to compensation for the real property which was resumed. (See AQL 64-10 between Tammy Renee Proprietary Limited as Trustee and Christian Winston Elliott as Trustee v The Coordinator General).
The evidence of Mr Vass is somewhat unsatisfactory and it appears from my reading of the affidavit material that Mr Vass may have deposed to matters of which he could not have had direct personal knowledge but in respect of which no objection was taken.
For example in his affidavit sworn on 27 October 2011,[23] Mr Vass speaks of the costs of the fit-out of the hairdressing salon which he had referred to in his earlier affidavit of June 2011[24].
[23] Exhibit 22.
[24] Exhibit 21 para 14, 15, 16.
In paragraph 14 of the earlier affidavit he had clearly stated that:
"Fit-out costs were to be borne by the entity then trading as the Beauty Edge partnership which consisted of Mr Elliott and Ms Lambert."
Mr Vass at paragraph 4[25] said that he "had stayed in the real estate industry from 1987 to approximately 2006, having in 2005 sold a business which he established himself in 1992 and then continuing on as an independent real estate agent for a period of a year.
[25] Exhibit 21 para 4.
He was during 2005 providing some advice to Ms Lambert about her hairdressing salon.
In 2005/2006 Mr Vass was not one of the partners or operators of the hairdressing business. He seems, however, to have been acting in some sort of advisory capacity to Ms Lambert with whom he entered into a de-facto relationship in approximately 2006.[26]
[26] Exhibit 21 para 5.
It is therefore surprising that Mr Vass should depose in his October affidavit[27] that:
"Results of the fit-outs speak for themselves. With our Business Activity Statements ("BAS") revealing that for the quarter ending 31 December 2004 the gross income was $25,485.00 and the comparative period for 2005, the gross income climbed to $63,855.00."
[27] Exhibit 22 para 4.
And then later:
"With the new fit-out and its new configuration, the existing clientele were providing positive feedback and there was a notable increase in new bookings. The business was attracting increasingly new clients."[28]
[28] Exhibit 22 paras 4 and 5.
Mr Vass refers to positive feedback and increases in bookings events which occurred, it would seem, prior to his involvement. Up until June 2006 Mr Elliott was the partner with Ms Lambert in the conduct of the business.[29]
[29] Exhibit 21 para 17.
Exhibited to Mr Vass's affidavit of October 2011[30] are a series of what are identified as Total Summary Reports. In his oral evidence under cross-examination Mr Vass said that those reports were a product of software on a computer and had been generated in 2011.[31] He identified that software program as being called "Hairware".[32]
[30] Exhibit 22 Exhibit JV-2.
[31] T 1 – 64 L 53.
[32] T 1 – 65 L 2.
Those Summary Reports identify not only the revenue of the business but the number of operators in the business.
The first page of Exhibit JV-2 appears to be an Annual Summary printed on 27 October 2011 for the Financial Year 1 July 2008 to 30 June 2009 which showed a total revenue of $172,352.36. That appears to be generated in respect of a period in which there were six "operators", including Mr Vass working in the salon.
For the period 1 July 2007 to 30 June 2008 the total revenue was $159,596.14 at a time when there were six operators, including Mr Vass.
For the period 1 July 2006 to 30 June 2007 the total revenue was $234,455.98 at a time when there were 15 operators, including Mr Vass.
For the period 1 July 2005 to 30 June 2006 the total revenue was $232,891.20 at a time when there were 11 operators, excluding Mr Vass.
Under cross-examination with respect to those figures I found Mr Vass's responses too relatively straight forward and relevant questions entirely unsatisfactory in so far as they did not assist me to understand who or on whose behalf the business Beauty Edge was being conducted.
For example[33] the following appears:
[33] T 1 – 67 – 68
"Okay. Again, not much on-the-floor hairdressing work, but do you say you were managing it at that time as well?‑‑ Absolutely. I'm meeting and greeting people and that's the introduction for the part of the sales. And these sales were never evident before.
Okay. And - okay. Did you draw a salary as well, or were you being paid as - for managing?‑‑ Yes, I was.
Was it a - a salary as an employee, or as a partner?‑‑ No. Both myself and Tammy were putting in tax invoices for those companies that you were referring to earlier, and our companies were paid and our companies then, in turn, paid us our - our wages, under the PAYE system.
HIS HONOUR: Sorry. Just let me understand that. Beneficial Project and Land Propriety Limited‑‑‑‑‑?‑‑ Correct.
‑‑‑‑‑was putting in invoices?‑‑ Correct.
And TRP Discretionary Trust was putting in invoices?‑‑ No, the - it was the other company name that she was trading under.MR MORZONE: Tammy Renée Pty Ltd?‑‑ That's correct.
As trustee for the trust?‑‑ I assume so, yeah. Your Honour, it was just the advice we had from our - our account at the time, on how we should run things.
HIS HONOUR: Well do these invoices exist somewhere?‑‑ Yes, they do, your Honour. It's recorded on the - it would be recorded on our tax returns.
Whereabouts to I see them? Can you help me, Mr - do you know where they are in your affidavit, Mr Vass?‑‑ No, I don't, your Honour.
MR MORZONE: Well, by tax returns, do you refer to the financial statements for Beauty Edge or for Allure on Manning? Or are you referring to something else?‑‑ I'm referring to Allure on Manning.
Mmm-hmm?‑‑ For that 12 month period. For Allure on Manning, both myself, our companies, and Tammy's company lodged tax invoices.
HIS HONOUR: What do you mean by tax invoices? Bills sent to‑‑‑‑‑?‑‑ To - to‑‑‑‑‑
‑‑‑‑‑Allure?‑‑ Correct.
MR MORZONE: Okay?‑‑ Our - excuse me, your Honour. Our companies were paid a consultancy fee, and then our companies, in turn, paid our salary.
HIS HONOUR: I thought you told me this morning that you never lodged any business activity statements?‑‑ Sorry, your Honour, I‑‑‑‑‑
Well I asked you specifically about Beneficial Project and Land Propriety Limited lodging activity statements, BAS statements. I thought you told me they didn't. My apologies, your Honour. I would have misunderstood the question. It definitely did, yes."
Beauty Edge the hairdressing salon did not trade after 30 December 2007[34].
[34] T 1 – 78 L 46.
One issue which will require determination in this matter relates to when it became so broadly known in the community that the hairdressing salon was likely to either close or shift with the consequential deterioration in the level of business.
It is said for the applicants that as early as September 2006 when public announcements were made by the Premier and Minister for Health as to the appointment of a Clinical Chief Executive Officer for the Queensland Children's Hospital development that the public would have been aware and responsive to information about those matters.
Any decline consequential upon that announcement is not reflected in the figures relied upon by the business valuer Mr Wright who prepared Exhibit 25 which, having examined a number of management reports, produces figures which show in the period of July to December 2005 the salon had 1,298 existing clients and 367 new clients.
For the period January to June 2006 the apparent figures were 1,999 existing clients and 359 new clients. For the period July to December 2006 there were 2,087 existing clients and 252 new clients while from January to June 2007 there were 1,099 existing clients and 190 new clients according to the management reports.
Those figures simply do not bear out the assertion by Mr Vass that:
"The announcement that was made by Peter Beattie, the then Premier, and the Health Minister Stephen Robinson, that the new Children's Hospital was to be built on the adjoining Mater Mothers caused an immediate concern for the staff and business clients within the surrounding areas. Staff became concerned about their job security; this applied to both the hairdressing component and the beauty therapist. They asked about the job security and what was their future. As more media releases occurred, and as a result of the action of parties representing the resuming authority, there was an uncertain and negative commercial environment for a majority of the businesses in the area."
It is also noteworthy that there was no evidence adduced to support those contentions by Mr Vass and nor was he called upon to identify the source of the expressions of the opinions held by him. I do not accept that the downturn, if any, was of the magnitude contended for by Mr Vass.
Close reference to the announcement by the Minister for Health on September 30 2006[35] shows that that announcement does not reference any resumption of land and identifies only the building of a new Children's Hospital of up to 400 beds "adjacent to Mater Mothers and Mater Adults Hospitals". Even that is referrable to a key commitment made prior to the election and does not in any precise way identify the relevant site.
[35] Exhibit 39.
It is then said by the applicants that the activities of representatives of various parties acting for the Children's Hospitals Project in some way contributed to a decline in business. As with the Press Release of September 2006 I reject that proposition. At the very highest the events referred to and relied upon by the applicants are contained within the first affidavit of Mr Vass[36]. There is absolutely no evidence of that information being conveyed to staff and/or clients and, if any or all of the conversations alluded to by Mr Vass were overheard by either staff or clients, I do not accept that they would be sufficient to deter custom.
[36] Exhibit 21 paras 23 to 35.
Mr Vass and Ms Lambert may have good grounds for dissatisfaction with the negotiating approach apparently adopted by agents on behalf of Queensland Health who seem to have adopted a ham-fisted and somewhat intrusive approach but those are not matters which sound in compensation.
At the time of the much vaunted refurbishment of 2005 Mr Vass was somewhat on the sidelines and was not at that time one of the co-owners nor the operator of the business. He was, at highest, providing some personal advice to Ms Lambert.
It was not until 14 September 2008 that the applicants were able to point to a publicly issued document identifying a site "next to the Mater".[37]
[37] Exhibit 40 p. 1.
There was some evidence adduced through Mr Vass that boarding up nearby properties may have made the area around the salon unattractive to customers but when questioned about this in cross-examination Mr Vass was unable to say with any precision when that boarding up of nearby properties occurred or, even whether the boarding up was done at the behest of the resuming authority or by other property owners.[38]
[38] T 1 – 104.
Ultimately the Court is left in a position where there was unsubstantiated evidence given by a witness whose performance under cross-examination was far from impressive.
Mr Calabro in his report took an entirely different approach.[39]
[39] Exhibit 26 p. 5.
Mr Calabro observed that his enquiries suggest that access to the business was not impaired and consequently, in his opinion, any loss which may have been suffered was not as a direct result of the resumption or of knowledge that the resumption was imminent.
Mr Calabro points to other economic factors prevalent at the time which led to a lack of confidence in consumer spending and I accept that proposition.
Mr Calabro summarised his approach to the issue of loss of profit in the following terms:
"The loss of profit claimed by Vass and Lambert is for the period 1 October 2006 to 30 June 2009. Part of this period is before the date of resumption (being 31 October 2008). It is alleged by the Claimants that announcements made by the resuming authority prior to resumption date caused the loss.
In my opinion the loss is not compensable because, whilst a loss may be compensable if it was incurred in anticipation of or because of the threat of resumption, it must be:
· Causally connected;
· Not too remote; and
· Not a loss which a reasonable person could have avoided.
I fail to see how the threat of a resumption without access impairment could have affected a hairdressing salon. In my opinion a hairdressing business is a destination business and therefore the threat of resumption should not have affected patronage.
As I said before the period for which the loss is claimed was affected by other economic events such as the GFC and its aftermath which affected confidence which led to a cut in consumer spending and hairdressing services are discretionary consumer spending."[40]
[40] Exhibit 26 p. 5 para 2.5.
Mr Vass was also cross-examined about the cost of the fit-out in the new premises.
That matter was addressed by him in his affidavit of June 2011[41].
[41] Exhibit 21 paras 49-53 and Exhibit JV-15, 16 and 17.
The applicant's had found premises located at Manning Street in South Brisbane and the co-ordinating work for fitting out of those premises was managed by Mr Vass who deposed to having had a great deal of experience renovating properties and co-ordinating and supervising various tradesmen.
Exhibited to his affidavit was what was said to be a breakdown of costs incurred in relocating the hair salon to the Manning Street premises.
He deposes to that cost as having been $216,800.
By way of support for that contention, Mr Vass's affidavit exhibited[42] a list of tax invoices for items purchased in association with the fit-out.
[42] Exhibit 21, JV-15.
Those invoices total $70,367.26. When pressed to justify the balance of something in excess of $130,000 the best Mr Vass could do was point to two quotations which appeared in documents provided by his solicitors.[43] Those were two quotes from a company identified as Kitchens 2 Pty Ltd for two figures one being $239,970 and the other being $146,424.
[43] Exhibit 19 pp. 203 – 205.
Mr Morzone of Counsel for the respondent pressed Mr Vass about the alleged work done by Kitchens 2 Pty Ltd.
As with much of Mr Vass's other evidence his evidence was evasive, unhelpful and of little assistance to the Court. I should record that I find it incomprehensible that an applicant seeking to substantiate a figure in excess of $200,000 would not anticipate the need to provide some documentary evidence demonstrating that such sums of money had in fact been paid. No such evidence was received on behalf of or from Mr Vass or Ms Lambert. The totality of the evasiveness by Mr Vass is illustrated if one has regard to the transcript.[44]
[44] T 2 - 10 2 – 13.
Mr Vass was offered an opportunity by Mr Morzone to obtain the relevant documents but none were forthcoming[45].
[45] T 2 - 12 L 22.
I specifically raised with counsel for the applicants the issue of documentation which might otherwise be available to support the assertions by Mr Vass as to the amount spent on the fit-out so that the applicant had an opportunity to address those difficulties but no attempt was made to adduce further evidence.[46]
[46] T 2 – 21 L 8.
Accordingly, I am left in a situation in which the only evidence acceptable to me of the cost of the fit-out consequent upon relocation to the new premises in Manning Street in South Brisbane is that material which constitutes Exhibit JV-15 to the affidavit of Mr Vass which total $70,367.26.[47]
[47] Exhibit 21, para 51 and Exhibit JV-15.
The Evidence of the Valuation Experts – Calabro and Wright
The respective positions of the two experts Mr Calabro and Mr Wright who are engaged by the parties is best understood by reference to the Joint Report[48] produced consequent on a meeting between them on 14 June 2011.
[48] Exhibit 24.
At the time of their meeting Mr Calabro had prepared a report but Mr Wright had not.
In the Joint Report[49] Mr Calabro's position is set out as follows:
[49] Ibid p. 2.
"a) In Calabro's view compensation, as a general rule, is limited to the value of the business which in this instance is considerably less than the amount claimed for relocation costs.
b) Calabro has assessed the value of the business in the range of $50,000 to $80,000.
c) Calabro has considered whether the Applicant has suffered any loss of profit and has concluded that the Applicant has not suffered any loss of profit.
d) Wright has not prepared a valuation so Calabro is unable to comment on Wright's approach except for his comments within this Joint Statement."
Mr Wright's position was also set out in the Joint Report in the following terms[50]:
[50] Exhibit 24, pp. 3 - 4.
Wright's view is that compensation is not limited to the market value of the business:-
a) Wright considers, that it is often the case, that the expenses and losses incurred when a business is moved to a new site will be less than the value of a well established entire business as a going concern, provided that
1. the business catchment area has not been damaged and
2.the business can be successfully relocated in the business catchment area
b) Compensation payable on a relocation basis will normally be less than the compensation payable on an extinguishment basis.
c) But this will not always be so and a rigid limitation as contended by Calabro could lead to injustice.
d) Such limitations have no support in statutory provisions and it would be inconsistent with the purpose for which the provisions of compensation, due to resumption, exist.
e) A business person may expend large sums of money in setting up or refurbishing a business and before the business has time to prove itself, the business premises are acquired compulsorily.
f) Having limited trading records, the business cannot be safely valued.
g) The compensation payable on an extinguishment basis, adopting limited early trading performance, without recognition of potential and uninterrupted trading trends, would be falsely low.
h) But a reasonable business person, spending his own money, might consider it worthwhile incurring expenditure in fitting out new premises nearby and continuing his business there.
i) Fairness requires that in such a case the claimant should be entitled, in respect of the disturbance of his business, to his reasonable costs incurred in the removal of his business and in setting it up again at the new property.
j) Otherwise he would not be properly compensated for his loss; he would not be placed in a financially equivalent position.
k) The claimants outlaid $189,909 between 1st July 2005 and 30th September 2005 on a refurbishment and expansion of the subject hairdressing and beauty salon which resulted in immediate growth is gross income.
l) Wright is of the opinion that the claimants are entitled to compensation as follows:-
Total relocation costs to smaller premises $216,000.00 Total destruction of Beauty Salon Department of Business $29,500.00 Pre-resumption and Post Resumption Loss of Profits $91,500.00 Sub Total $337,000.00 Plus Professional and Valuation Fees To Be Advised [51]"
[51] Exhibit 24 pp 3 – 4.
In his report Mr Calabro, as is often the case with experienced expert witnesses, intersperses his opinion as a forensic accountant with observations about relevant legal principles.
His report makes clear that he has, in coming to an opinion, attempted to contemplate all of the various approaches which might be adopted in seeking to place a value on a business.
In particular he identifies reference to the income approach, the market approach, and/or the asset based approach.
He provides a descriptor of each of those approaches which it is unnecessary to recite here.
In summary he describes his approach as follows:[52]
[52] Exhibit 26 pp. 10 and 11.
"The hairdressing business which is the subject of this valuation is operating in a mature market and a mature industry. I have therefore considered all appropriate valuation methods. As it was an operating business I considered in particular the income approaches.
Whilst the fair market would normally be appropriate I have not adopted it because the Business does not generate sufficient profits if allowance was made for a commercial salary. Similarly the asset approach is not appropriate because the commercial income would not be sufficient to generate a reasonable return.
However, in view of the operations and small level of income I have adopted a 'buy yourself a quote' approach as any other approach would not yield any commercial value.
Accordingly, resolving all doubts in favour of the Claimants, I have valued the operations of the business on a 'buy yourself a job' basis."
Earlier in his report[53] Mr Calabro describes that approach in the following terms:
"In respect of small businesses it is often appropriate to adopt the 'buy yourself a job' method. This method is based on income approach but is used where a business yields no profit after making allowance for a commercial salary for the owner/operator. Hence in estimating income no allowance is made for the owner/operator."
[53] Exhibit 26, p. 9.
In coming to his view Mr Calabro had regard to all of the business records made available to the Court. He also had regard to the rental assessment prepared by Mr Kamitsis dated 13 October 2011 referred to earlier. The business records included financial statements and the BAS returns.
Mr Calabro's analysis of the operating results are set out in Annexure to his report in the following terms:[54]
[54] Exhibit 26, Schedule 1.
Actual Operating Results 2006 2007 2008 31/12/08 Sales 196,782 214,558 160,941 94,271 Cost of Sales 39,256 28,835 28,053 16,625 Gross Profit 157,526 185,723 132,888 77,646 Gross Profit % 80.05% 86.56% 82.57% 82.36% Less Expenses: Rent 45,000 39,000 18,000 8,991 Wages 132,218 117,091 33,259 10,768 Other 49,787 57,647 33,396 15,283 227,005 213,738 84,655 35,042 Net Profit/(loss) (69,479) (28,015) 48,233 42,604
Having regard to the figures set out above in Mr Calabro's analysis and the figures extracted by me from the BAS statements set out earlier in this decision it is clear that during the relevant periods which reflected involvement by Mr Vass with Ms Lambert only in 2008 did the business begin to generate a profit.
Mr Calabro's conclusions having adopted the "buy yourself a job" approach as set out in paragraph 2.3 of his report which states as follows:
"In attributing a value to the Business I have effectively adopted a 'buy yourself a job' approach which is an income basis of valuation which does not make an allowance for a salary for the owner operators. On this basis I value the Business at $50K to $80K, as per Scenario 1, based on rent payable as per the lease. In Scenario 2, I value the Business at $35K to $55K, based on the market commercial rent as valued by Chris Kamitsis in his report dated 13 October 2011."[55]
[55] Exhibit 26, para 124.
The figures calculated by Mr Kamitsis can be contrasted with the accounting figures referred to by Mr Calabro in paragraph 129 above.
It is clear that the operation of the business was premised upon enjoying a generous concession in rental on the basis that the business was owned and operated by the same individuals as actually owned the premises so that they had granted themselves, effectively, a rent reduction.
Mr Kamitsis's conclusion of an annual rental at $74,250.00 entirely supports the contention by Mr Calabro that the business ought be regarded as a "buy yourself a job" type of business.
If for example in the operating results for 2008 the rental figure of $18,000.00 was adjusted to reflect the commercial rate of $74,250.00 calculated by Mr Kamitsis even in that year which was notionally a year which achieved a profit the true result would have been a continuing loss.
I incline to the view that regard should be had to the opinions expressed by Mr Kamitsis in his report because the sole purpose of that report, as agreed between the parties, was to identify the commercial rental rate for the relevant purposes at the appropriate time.
Because the conclusion was not contentious it is appropriate to focus on Mr Kamitsis's conclusions.
Mr Kamitsis's conclusions were as follows:[56]
[56] Exhibit 26 pp. 11 and 12.
"9.6 Having regard to the leasing evidence investigated and the area of the subject premises, I consider a fair market rent as at 1 October 2008 to be as follows:
i. $350 per square metre per annum gross; and
ii. $100 per car park per calendar month.
9.7 The annual rent, excluding GST is therefore determined as follows:
Premises:195m² x $350/m² = $68,250
Car parks:5 x $100/month x 12 = $6,000
TOTAL ANNUAL RETURN = $74,250
9.8 Therefore the total market rental inclusive of car parks has been assessed at $74,250 (Seventy Four Thousand, Two Hundred and Fifty Dollars) per annum gross (no outgoings payable by the lessee) excluding GST"
Mr Wright in his Report considered essentially the identical financial records as those considered by Mr Calabro.
One key area of difference between the approach adopted by Mr Calabro and that adopted by Mr Wright is that Mr Wright remains convinced that it was appropriate given the trading record of the business under consideration to relocate to Manning Street in South Brisbane. Mr Calabro sees no justification or benefit in contemplating relocation of the business.
Mr Wright's approach seems to me to focus too heavily upon the figures for gross revenue or total sales (after allowance for GST) and as a corollary in my opinion, does not give sufficient consideration to the level of costs incurred by the business. As the analysis of the BAS statement reveals, for a significant number of quarters, the outlays on non-capital purposes and salaries exceeded the gross revenue of the business.
Mr Wright also fails to recognise that there were changes in ownership which may have affected the operation of the business.
In his report, for example, Mr Wright says:[57]
"That the claimant's outlaid $189,909 between 1st July 2005 and 30th September 2005 on a refurbishment and expansion of the subject hairdressing and beauty salon which resulted in immediate growth in gross income."
[57] Exhibit 25, p. 18 para 1(k).
That is not a correct representation of the factual background. The expenditure on refurbishment was carried out by Ms Lambert and Mr Elliott although it must be acknowledged that Mr Vass apparently had some input into the design and layout.
In my view it is appropriate to regard the performance of the business prior to the involvement of Mr Vass as influential in but not determinative of the results which were achieved after his involvement and his ultimate participation in ownership.
Mr Wright attaches significant weight to preliminary announcements about the Children's Hospital development as damaging the business.
As observed above, the initial announcements did not identify a particular site referring instead to the Mater Hospital Campus and the attendance on only a few occasions of representatives of either the Mater Hospital, Queensland Health or other stakeholders was not, in my opinion, sufficient to alarm existing customers to the extent they ceased patronising the business.
Mr Wright's views as to the impact on the business can, in my opinion, only be regarded as speculative.
To the extent that announcements at or about the time of resumption and an awareness on the part of customers about the resumption caused decline in business that then becomes relevant to the issue of whether the business should relocate or simply be regarded as being extinguished by the resumption.
Mr Wright speaks in terms of Ms Lambert having built up a personal client base for well over 12 years and speaks also of her confidence of attracting that client base to a new convenient location.[58]
[58] Exhibit 25, p. 24.
In making that contention Mr Wright relies upon the growth in the number of clients and the then decline late in 2007 as well as the gross sales which had been achieved.
The focus by Mr Wright on gross sales to the exclusion of operating costs and outlays is, in my opinion, a defect in the logic of his report. Consideration of the gross revenue together with non-capital purchases and salaries reveals, in my opinion, a quite different picture.
The apparently high level of outlays (sales and purchases) was not explained. For some BAS reporting periods outlays exceeded revenue.
Mr Wright also wishes to place substantial weight on the notion that the compensation ought be viewed as being for the loss or destruction of two separate businesses namely a hairdressing salon and a beauty salon. There is no evidence which satisfies me that that is an appropriate way to view the business.
All of the evidence including that given by Mr Vass was that the business operated as a hairdressing and beauty salon as a unit not as two separate businesses.
Mr Wright's report is in some ways contradictory.
For example he speaks in terms of the role played by Tammy Renee Lambert as having built up a personal client base for well over 12 years[59] and then in the same report observes that:
"Having limited trading history, the business cannot be safely valued for compensation purposes."[60]
[59] Exhibit 25, p. 24.
[60] Exhibit 25, p. 28.
He goes on to say:
"The compensation payable on an extinguishment basis, adopting limited early trading performance, without recognition of potential and uninterrupted trading trends, would be falsely low."[61]
[61] Exhibit 25, p. 28.
At the end of the day the Court was left with very scant detail as to actual tax return figures that may have been lodged by either Mr Vass or Ms Lambert. The Court was provided with a set of financial statements for Beauty Edge for the year ended 30 June 2006 which really cast very little light on the financial viability of the business. It shows a Partners Profit Distribution Summary for Year Ended 30 June 2006 reflecting a loss of $32,415.43[62] to each of Ms Lambert and Mr Elliott. No tax figures for the operation of Mr Vass and Ms Lambert were provided to the Court. Such figures as were provided were contained within Management Reports for the period July 2005 to June 2009.[63]
[62] Exhibit 20.
[63] Exhibit 22 para 7, Exhibit JV-2.
Exhibit JV-2 provided a number of Sales Summary Reports all of which were printed on 27 October 2011.
No satisfactory explanation was provided to the Court for the failure by the applicants to obtain copies of taxation returns which, in my view, would have revealed the true position of the company and its prospects for growth in the future.
On balance I prefer and propose to adopt the approach contended for by Mr Calabro.
In my view the applicants are entitled to compensation for the extinguishments of the business and further I am of the view that such compensation should be based upon the concessional rental rate which they had granted themselves.
This Court on a number of occasions has referred to the decisions of higher courts which express the view that where there is a doubt about the amount of compensation which ought be awarded to a dispossessed landowner the Court should resolve any doubts it has in favour of a more liberal estimate of compensation.
The case most frequently referred to is The Commissioner of Succession Duties (South Australia) v The Executor Trustee and Agency Company of South Australia Limited and Others[64]
[64] (1947) 74 CLR 358.
In that case Dixon J observed:
"There is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a Court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservation estimate."[65]
[65] Op cit p. 373-374.
Those observations were specifically approved by Callinan J in Boland and Yates.[66]
[66] Boland vYates Property Corporation Pty Ltd (1999) 74 ALJR 209 at (225).
It should also be noted that Mr Wright justified his view as to the value of the business in part upon what he regarded as comparable Hairdressing and Beauty Salons For Sale in South-East Queensland[67].
[67] Exhibit 25 p. 36 and 37.
In particular Mr Wright chooses to rely upon a property on sale in Bardon for a price of $225,000.00 plus docket value. That business was generating gross sales of $430,000.00, was paying rent of $65,000.00 a year had stock on hand at $20,000.00 and was generating proprietor's earnings before interest and tax of $100,000.00 per year.
Notwithstanding that the proprietors earnings before interest and tax in the Allure Salon was a loss of $13,000.00 for the period 1 October 2005 to 30 September 2006 Mr Wright applies the Bardon figures to generate a maintainable proprietors earnings before interest and tax of $70,450.00.[68]
[68] Exhibit 25 p. 35.
Mr Wright's analysis of the Bardon business offered for sale shows that it had a hairdresser and a beauty salon with two beauty rooms and there was no indication as to the number of staff. His report points out that prior to the date of resumption both of the beauticians employed by the applicants had resigned, one in or about January 2007 and the other in September 2007 more than a year prior to the gazettal of the resumption.[69]
[69] Exhibit 25 p. 25.
It is axiomatic that Mr Wright had to rely upon the figures provided by the applicants and as I have indicated in respect of the evidence of Mr Vass the figures available provide a less than clear picture of the true nature of the business.
Mr Wright has presumably had to rely upon those figures for his calculation of the proprietors earnings before interest and tax. In my view that is a fundamental flaw to the whole of the process embarked upon by Mr Wright.
Mr Wright's approach is somewhat clarified at one point where he told the Court that, while being cross-examined by Mr Morzone as to how he went about valuing the business,
"If you take the real figures for Tammy, she was generating in excess of $100 – odd thousand dollars a year, on her own. She only needed three other staff beside her with that capacity and she could do four hundred thousand a year."
It was then put to him that "she did not have three other staff with the same earning capacity as she had" to which proposition Mr Wright replied:
"Well no, she didn't, because the business was interrupted and destroyed."[70]
[70] T 3-58 L 40-60.
Mr Morzone then asked Mr Wright:
"But do you want to value the business on potential rather than reality, do you?
To which Mr Wright responded:
"I'm valuing the business on the basis of where it should have been had the resumption not wrecked it."[71]
[71] T 3-58 L 40-60.
Mr Morzone enquired as to the time at which Mr Wright contended the business should be valued and he responded:
"At probably a couple of years down the track, maybe three, but I would have expected it to get to that level probably in three or four years time."[72]
[72] T 3-58 L 40-60.
It is clear that Mr Wright's approach to the valuation exercises includes, among other things, reliance upon the notion that as far back as 2007 the business was being destroyed by common knowledge of the pending resumption of the premises.
As I have pointed out earlier in this decision I do not accept that.
It is also clear that Mr Wright is not valuing the business in accordance with the requirements of s 20(2) of the Acquisition of Land Act. He is valuing it at the level he believes it may have reached some three or so years after the date of resumption.
I do not accept that this is a valid approach to the calculation of the appropriate level of compensation.
I am bound to observe that the Bardon hairdressing property relied upon by Mr Wright is in a suburban setting whereas the subject business was located in what is essentially a Central Business District location.
Acceptance of Mr Calabro's approach regarding the extinguishment of the business as the appropriate base for calculating compensation is consistent with the concession made by Mr Wright in his report where he acknowledges that at least the beauty department element of the business had been extinguished by the resumption. He contends that that occurred on 30 September 2006 for reasons which I am unable to understand given that the resumption was not gazetted until October 2008.[73]
[73] Exhibit 25 p. 2.
The attempt by Mr Wright to "transplant" all of the operating features of the Bardon salon which he relies upon onto the potentially achievable figures for the Allure salon seems to ignore the important feature of hairdressing businesses emphasised by Mr Wright in his report.
Mr Wright wrote:
"The hairdressing and beauty industry works hard at developing the well published fact that a special relationship exists between women and their hairdresser. Client retention is considered the key component of a successful hairdressing business."[74]
[74] Exhibit 25 p 3.
The Court was told nothing about the particular features of the Bardon salon and indeed Mr Wright, to a minor extent, sought to distinguish it from the Allure salon when he said:
"This business is established. It has been there for quite a while, it presents beautifully, it is a similar setup to this one in its presentation. It’s a comparable salon. The - I think it's not as good, because the business catchment area at Bardon doesn't have, for instance, the hospital, it doesn't have the colleges, it doesn't have Somerville House, it doesn't have the depth and the size of the business catchment area that Allure Beauty Edge did. Mmm. So it's not quite as good, actually, as the salon and our salon could have reached the numbers, had it not been disturbed."[75]
[75] T 3-73 L 50 to 3-74 L 3.
Later in response to a question from me where I inquired:
"How significant is the personality and ability of the operator, him or herself?"
To which Mr Wright responded:
"It's a case of whether there'll be a introduction or - or training period and where the - the proprietor is a long established proprietor, the purchaser will look for anything up to three months' training induction, introduction."[76]
[76] T 3-75 L 8.
And then in response to a question from me:
"But all of the evidence you've given so far seems to suggest that a significant part of whatever success this hairdressing salon has had is attributable, very substantially, to Ms Lambert?"
He responded:
"The manager, yes, … As an owner manager?."
Having carefully considered the evidence of both Mr Calabro and Mr Wright I have come to the view that I prefer and intend to apply the approach adopted by Mr Calabro, that is to say, to treat compensation as necessarily having to be determined on the basis that the business was extinguished by the resumption process.
In coming to that view I also find that it was not a reasonable business response to relocate the business at the costs contended for by the applicants namely a figure something in excess of $200,000.
In coming to that view I accept the matters raised by the respondent in its written submissions.
The reference by the respondent to the Dicta of Wells J in Commissioner of Highways v Shipp Brothers Pty Ltd is entirely apposite.[77]
[77]Commissioner of Highways v Shipp Brothers Pty Ltd (1978) 195 SASR 215; 43 LGERA 355 (at 221; 363).
In the Shipp Brothers decision Wells J said:
"…if the costs of available relocation plainly and substantially would exceed the value of the business as a going concern (after making due allowance for retained moveable assets) it would not be the reasonable and natural consequence of expropriation to incur such costs, and hence compensation could not justifiably be assessed by reference to them…."
And then later:
"Obviously, expenses of a proposed location that would clearly and substantially exceed the value of the business as a whole (less movables) cannot fairly be described as reasonably consequent upon an acquisition. An excess of that kind and degree, however, remains but a circumstance to be considered with others as material by reference to which a Court must resolve a question: Is it or is it not reasonable to re-establish?"[78]
[78] Ibid p. 374
In answer to the questions I postulated in paragraph 16 at the beginning of this decision and for the reasons set out above I answer the questions as follows:
1.The business Allure Salon was operated by James Vass and Tammy Renee Lambert as Trustees as and from 1 July 2007.
2.I find that public knowledge of the proposed resumption did not become so widespread that it affected the patronage of the business.
3.The effect on the business of public knowledge of the proposed resumption was relatively minor and any downturn in the revenue and patronage of the building can easily be attributed to other factors.
4.The question of compensation should be approached on the basis that the resumption had the consequence of extinguishing the business.
5.The business was worth between $50,000.00 and $80,000.00.
6.The appropriate compensation which should be awarded having regard to the liberal estimate principle is $80,000.00 exclusive of any items for disturbance.
The compensation for the loss of the business consequent upon the resumption is to be supplemented by an allowance for disturbance items together with interest on which topic I shall hear from counsel for the parties.
Disturbance Items
At the conclusion of submissions I raised with counsel for each of the parties the question of agreement as to the disturbance items.
I believe it is safe to say that there was agreement as to the principal amounts save that there was disagreement as to the amount of and the allowance which should be made for GST.
Counsel for the respondent propounded the view that as the applicants were registered for GST they were able to recover that amount but the respondent was not so entitled and for that reason any allowance which was made should be made for a GST exclusive figure.
Mr Hackett for the applicants was not inclined to agree with that proposition and informed the Court:
"Whether their not obliged to pay their GST that's a matter for my learned friend to make submissions to your Honour."[79]
[79] T 4-101 L 46.
My response to that proposition was to express the view that counsel for the respondent had made submissions to me which I was generally inclined to accept, upon which intimation counsel for the applicant informed the Court that:
"I don’t want to be heard on the matter, your Honour, …"
Shortly thereafter Mr Hackett of counsel for the applicant did raise a valid matter and that is that while I may come to the view that the applicants were only entitled to recover their outlays less GST they had in fact paid the GST component and that, although a relatively small amount of money, may have an impact upon the amount of interest to which they were otherwise entitled.
Notwithstanding the submissions of Mr Hackett I propose to award disturbance items on a GST exclusive basis so that the disturbance items total $12,276.00 (as extracted from Exhibit JV-17 to the affidavit of Mr Vass)[80] comprising:
Invoice from Wright & Associates 6 June 2011 $7,500.00
Invoice from Hopgood Ganim Lawyers dated 28 January 2009 $4,212.33
Invoice from Hopgood Ganim Lawyers dated 27 February 2009 $563.67Total $12,276.00[80] Exhibit 21 Exhibit JV-17.
I will hear the parties with respect to the quantum of interest recognising that while the disturbance items amount, as per my decision to $12,276.00 the amount actually paid by the applicants inclusive of GST was a total of $13,503.60.
Accordingly, the decision of the Court is that compensation is payable to the applicants in respect of the losses incurred by them consequent upon the resumption of the subject land in a sum of $80,000.00 calculated upon the basis of the valuation of the business at the time it was effectively extinguished by the resumption, (I make no allowance for loss of profits up to the date of resumption) together with the sum of $12,276.00 for disturbance to generate a total of $92,276.00.
I am not aware as to what amount, if any, has been paid by way of advance to the applicants.
Accordingly, even if I were inclined to do so, I am not in a position to calculate the appropriate amount of interest.
The outcome of this decision is that I award the applicants a total of $92,276.00 (Ninety-Two Thousand Two Hundred and Seventy-Six Dollars) by way of compensation together with interest to be determined having regard to the amount of advances paid, if any.
HIS HONOUR, WL COCHRANE
MEMBER OF THE LAND COURT