Which case won?

The case for the service station
  • We operated this service station business for a long time before RMS’s acquisition of the land. We are a landmark for road users along that particular stretch of coast in NSW.
  • To relocate or terminate our business without compensation would be supremely unfair. We should be entitled to adequate compensation, taking into account any future loss of profits.
  • While we have not found a suitable relocation site, we intend to continue our search. We have found other opportunities; it is simply a matter of those sites becoming available.
  • What’s relevant is the impact the acquisition has on our business. If we cannot relocate, we will lose any future profits, which far exceed the assessment by the Valuer-General.
  • Any compensation paid to the landowner is irrelevant, because our claim is based on the impact on our business of relocating or being forced to close. This is a loss we will suffer as a direct result of the disturbance, unconnected to the market value of the land.
The case for Roads and Maritime Services
  • We do not deny that the service station business has a legal interest in the land and that it enjoyed a statutory tenancy at the time of the acquisition.
  • The compensation we paid to the landowner took into account the fact that the service station business’s tenancy could have been terminated at any time with merely one month’s notice. Once we had acquired the land, the service station business’s interest in the land ceased to exist.
  • The potential of the land to generate a profit in the future has already been taken into account in calculating the compensation to be paid to the landowner. Compensating the service station business separately would mean paying for this potential twice.
  • Given the weak nature of the tenancy, the court should set aside any claim by the service station business that it would have remained in occupation of the property indefinitely.
  • The costs associated with relocation are not claimable because there is currently no alternative site available. It is also unlikely that a suitable relocation site will be found.
  • The cost of planning, rezoning and building a new service station should not be included in the compensation amount, irrespective of the impact that the compulsory acquisition has had on the business. The service station’s claim should be rejected.

So, which case won?

Cast your judgment below to find out
Case A Case B

Case B won. You were right!

How people voted
case a43%
case b57%

Expert commentary on the court's decision

Digby Dunn
Digby DunnDirector
“The expectation of indefinite renewal of the tenancy based on the friendly relationship between the landlord and the tenant was excluded from the valuation of the tenant’s interest in the land, because it was purely a personal matter which had no bearing once the land had been bought by someone else.”
Upgrade to Pacific Highway between Woolgoolga and Ballina

RMS had compulsorily acquired 4928 Pacific Highway, Harwood for road works associated with a Pacific Highway upgrade, between Woolgoolga and Ballina. The land was owned by Lastep Pty Limited and Elmon Pty Limited.

United Petroleum Pty Limited occupied the land as a tenant under an informal verbal tenancy arrangement with Lastep and Elmon, operating a service station and restaurant business known as the Harwood Roadhouse.

While RMS compensated the landowners for the compulsory acquisition of the land the service station was built on, United Petroleum made its own claim for compensation for loss due to disturbance of its business.

Initial LEC decision in favour of United Petroleum overturned by Court of Appeal

United Petroleum was initially successful in the Land and Environment Court with its claim for loss attributable to disturbance to the business under section 59(1)(f) of the NSW Land Acquisition (Just Terms Compensation) Act 1991. (See United Petroleum Pty Limited v Roads and Maritime Services [2018] NSWLEC 35.)

The Land and Environment Court awarded United Petroleum $2,050,360 in compensation for the loss of business profits, a comparatively small adjustment of the rent during the acquisition period and a costs order against RMS.

However, the Court of Appeal overturned the decision previously made in the Land and Environment Court, setting aside that court’s orders and finding in favour of RMS. (See Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41.)

Was the loss of future profits a direct consequence of the acquisition?

The Court of Appeal revisited the question of whether United Petroleum was entitled to compensation from RMS under section 59(1)(f) of the Act.

The court pointed out that under the legislation, the scope of any loss attributable to disturbance, compensable under section 59(1)(f), is limited to a “direct and natural consequence of an acquisition”.

Crucially, while the closure of the service station business could be seen as a direct and natural consequence of the acquisition, the loss of a perpetual stream of profits from the business was not. Rather, it stemmed from United Petroleum’s arrangement of its business affairs and its decision to conduct its business under a tenancy at will, which could be terminated on one month’s notice.

Consequently, the Court of Appeal found that the loss of future income from a business carried on under a tenancy terminable on one month’s notice is not a loss attributable to disturbance.

Implications for tenants of weak tenure upon land

The Court of Appeal found that the term “any other financial costs” did not extend to the loss of future income or profits of a business reliant on a weak tenure upon the land.

It is important for tenants to understand that their interest in the property they are renting depends on their rental arrangements. A verbal agreement to occupy a property does not provide the same degree of protection as a formal lease if the property is acquired compulsorily.

In the case discussed here, the compensation to United Petroleum due to disturbance to the business was limited to lost or foregone future profits for a period of one month after the date of acquisition, since that was the length of the notice period the landlords had to give the service station.

The court decided that the expectation of indefinite renewal of the tenancy based on the friendly relationship between the landlord and the tenant was to be excluded from the valuation of the tenant’s interest in the land, because it was purely a personal matter which had no bearing once the land had been bought by someone else.

Despite United Petroleum’s legitimate expectation that it could occupy the site indefinitely because the landlord was a related company, so it could be confident in the long-term security of its tenancy to operate and invest in its business, the appeal court held that this expectation of renewal was a personal matter and does not form an interest in the land for compensation. The court stated:

The principal cause of United Petroleum’s loss of profits was its decision to conduct a business intended to operate in the long term under a lease which could be terminated at any time on very short notice. 

Thus, United Petroleum’s loss was not a direct and natural consequence of the acquisition.

What this judgement means for future compulsory acquisitions

This judgment appears to curtail dramatically the operation of section 59(1)(f), which was previously regarded as a “catch-all” for financial loss attributable to disturbance suffered as a consequence of compulsory acquisition.

Specifically, the outcome of this case will make it more difficult for a business to claim future loss of profits, especially where the right of tenure is inadequate given the nature of the enterprise.

A robust, long-term lease is critical to any claim for business compensation.

The Court of Appeal took the view that to award a tenant business compensation for loss of future profits purely because the landlord and tenant were separate legal entities would amount to paying the same compensation twice, because the land’s potential profitability was already included in the sum of compensation paid to the landowner.

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.

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