No Comments

A recent Land and Environment Court claim brought in respect of Class 3 proceedings to determine the compensation payable for the compulsory acquisition of a leasehold interest has resulted in the determination that the applicant be awarded nil compensation taking when into consideration outstanding occupation fees, as well as an order for a non-party cost against the director of the applicant company.

In late 2016, Sydney Metro served a Proposed Acquisition Notice on UTSG Pty Ltd (“UTSG”) in respect of its leasehold interest in premises located in Park Street, Sydney, for the purposes of construction of the Sydney Metro – City and South West Project. Sydney Metro had already acquired the freehold interest in the Park Street property, and advised UTSG they required vacant possession of the property by April 2017 and that rent remained payable for occupation of the premises. Rent remained at the amount previously paid by UTSG, being $31,402 per month (plus GST of $3,140) to be paid to Sydney Metro.

UTSG originally submitted a claim for compensation to the NSW Valuer-General for $19,907,948, which was subsequently amended to $10,984,701. These amounts were supported by a Preliminary Economic Loss report prepared by SV Partners. Ultimately, the Valuer-General determined that the compensation payable to UTSG was $2,136,834. Accordingly, Sydney Metro offered compensation to UTSG for this amount. This was rejected by UTSG, who then commenced proceedings in the Land and Environment Court seeking a determination.

Whilst the litigation in this matter was protracted by the conduct of UTSG, who was largely self-represented, the findings of the Court can be summarised as follows:

  1. UTSG falsified accounting records, which were purported to be prepared by non-existent accounting firms and tax agents, and UTSG provided these documents to SV Partners and their expert valuer, David Mullins to assist in determining the loss suffered by UTSG as a result of the compulsory acquisition. The opinion of Mr Mullins was ultimately rejected by the Court as his findings were based on financial information that could not be verified.
  1. The claim for relocation costs was rejected as UTSG did not in fact relocate. In unrelated proceedings, the director of UTSG transferred to a Dr M Baig the medical business alleged to be held by UTSG for nil consideration. Dr Baig then commenced his practice in Pitt Street under a different trading name. At the time of the compulsory acquisition, UTSG had no relation or interest in Dr Baig’s practice. It was only in early 2019 that the ownership of Dr Baig’s practice was changed to show an interest by UTSG. It was accepted by the Court that this was a device to strengthen UTSG’s claim for compensation for “wasted relocation costs”. Accordingly, the Court held that as the relocation was not a direct and natural consequence of the acquisition, it did not meet the statutory test pursuant to s 59(1)(f) of the Just Terms Act and therefore no compensation was payable for relocation costs.
  1. Due to the lack of evidence as to UTSG’s historical financial performance, neither the past nor future loss of the company could be determined. As such, there was no evidence that as at the date of the acquisition, UTSG was capable of deriving a profit, nor did UTSG have a medical practice capable of being sold, with Mr Mullin’s admitted that as at August 2017, there was no residual value in the business. Accordingly, the Court held that even if the compulsory acquisition did not proceed, the business did not have any value as at the time of the acquisition and there was therefore no loss.

Accordingly, Pepper J found that the compensation payable to UTSG by Sydney Metro to be $137,516.76, being UTSG’s legal and valuation fees.

Further, and in addition to the above, UTSG had continued to occupy the Park Street property until August 2017, but defaulted in their rental obligations to the sum of $183,123.64. As UTSG was indebted to Sydney Metro for the rental arrears, pursuant to s34(4), Sydney Metro could therefore offset the amount of compensation payable to UTSG against the amount of rent  owing to Sydney Metro. Accordingly, the Court held the amount payable by Sydney Metro to UTSG was nil, with UTSG owing $45,606.88 to Sydney Metro.

Lastly, the Court held that the director of UTSG, despite not being a party to the proceedings, was to pay Sydney Metro’s costs of the proceedings. Under s 98(1) of the Civil Procedure Act, the Court has the ability to order that costs be payable by persons who are not a party to the proceedings but only in exceptional circumstances. Pepper J found that this was such a matter. In making this determination, Pepper J held that the director’s conduct during the proceedings, including persistent failures to comply with the court’s timetables, the fabrication of documents, the giving of false evidence both orally and by way of affidavit, constituted unreasonable and improper behaviour. It was therefore in the interest of justice that the director be personally liable for Sydney Metro’s costs.