Australia: Court awarded compensation for loss of business profits resulting from roadworks

IN BRIEF

The case of Zacsam Pty Ltd v Moreton Bay Regional Council [2016] QLC 12 concerned a claim for compensation made in the Land Court under the Acquisition of Land Act 1967 for costs attributable to disturbance to a pizza business operated in leased premises in the Castle Hill Shopping Centre in Murrumba Downs, resulting from the resumption of land for roadworks along the frontage of the shopping centre.

The issues in dispute primarily concerned the impact of the roadworks on Zacsam’s business, namely the loss of profits, the loss of capital value and rental liability, and the costs associated with the claim for compensation, the interest payable and the costs of the proceeding.

The Court assessed the compensation for loss of profits at $137,628.16, but did not find in favour of Zacsam in relation to the aspects of the claim relating to loss of capital value and rental liability.

The Court also made orders for interest to be payable to Zacsam from the date its business ceased to operate to the date of payment, and for costs incurred in the making of the claim for compensation.

COURT RESOLVED UNCERTAINTIES RELATING TO LOSS OF PROFITS IN FAVOUR OF ZACSAM AND ORDERED THAT THE COMPENSATION FOR LOSS OF PROFITS FOR ZACSAM’S BUSINESS BE ASSESSED IN THE AMOUNT OF $137,628.16

The land was resumed in November 2008. The associated roadworks began in May 2010 and were finished in July 2011. Zacsam commenced trading for its business in March 2008 and it ceased to operate in January 2012. In February 2012, the landlord took back the leased premises and purchased the business from Zacsam and ran it until the franchise agreement expired in March 2013 and the store closed.

Zacsam claimed $137,628.16 in loss of profits, calculated from the start of the roadworks to the cessation of its business in January 2012. The council accepted that the roadworks would have caused some inconvenience and disruption to the business but contended that the loss of marginal profits was only incurred during the roadworks, calculated at $67,532. The council submitted that there was no reason that the roadworks would cause further decline in business after the roadworks ceased.

In considering the economic evidence, the Court found that the financial statements of the business were not reliable after the 2009 financial year. Attention instead was directed to the sales figures during the operation period of the business, and the seasonally adjusted turnover evidence. The sales figures showed an initial spike in transactions after the commencement of the business in 2008, and then showed a decline until an improvement in the 2010 financial year, and then another decline until the end of trading in the 2012 financial year. The Court found that the business was doing better before the roadworks than after they were completed.

The Court accepted that during the roadworks, the lost profits were $67,532, but the Court could not accept the council's submission that once the roadworks ceased, the business could no longer suffer from their impact.

Zacsam submitted that the damage was caused by the roadworks interfering with access to the business, and that once people had chosen to go another way, the end of the roadworks would not necessarily result in that potential trade returning. While this was not demonstrated by conclusive evidence, the Court, with the support of the council, considered it appropriate to resolve this uncertainty in favour of Zacsam.

The Court was satisfied that the roadworks were the cause of the decline in the business from the date the roadworks commenced, up until the cessation of the business. The council assessed losses due to business interruption for this period at $121,998. For the same period, the calculations of Zacsam were $137,628.16. As the figures were close, and it was not possible for the Court to conclude from the evidence which figure was correct, the uncertainty was again resolved in the favour of Zacsam.

COURT FOUND INSUFFICIENT EVIDENCE TO SUPPORT CLAIM OF LOSS IN CAPITAL VALUE OF BUSINESS AND DECLINED TO ORDER COMPENSATION FOR LOSS IN CAPITAL VALUE OF BUSINESS

Zacsam claimed $420,000 as the loss in capital value of its business, which was the purchase amount for the business. The council contended that there had been no loss in capital value, due to the business being worthless as it had been run down in value by making losses, resulting in no goodwill value left in the business. The council submitted that the business was too highly geared and insolvent prior to the roadworks.

The valuation of the business supporting Zacsam's claim relied heavily on the business acquisition cost. Zacsam’s expert accountant did not produce evidence of comparable sales in order to show comparative value.

While Zacsam's expert accountant acknowledged that the most widely applied methods of valuing a business were the earnings-based and the assets-based approaches, the expert used neither of these methods.

As the Court was unable to be satisfied that at any relevant date, the business had a capital value of $420,000, the valuation of the business relied on by Zacsam was not accepted by the Court.

Whilst the court was unable to find in favour of Zacsam for this aspect of the claim, the Court emphasised that acceptance of the whole of the business valuation evidence relied on by the council could not be implied.

The Court was unable to be satisfied that the approach adopted for determining insolvency was correct, as it was not done in accordance with section 95A of the Corporations Act 2001. The Court did not consider that the value of the business was necessarily zero at any time. However, the Court found that the claim for $420,000 was not supportable on the evidence.

COURT COULD NOT FIND CAUSAL CONNECTION BETWEEN RENTAL LIABILITY AND DISTURBANCE DUE TO ROADWORKS AND DECLINED TO ORDER COMPENSATION FOR RENTAL LIABILITY

Zacsam claimed $66,547 for rent liability, for rent paid by Zacsam for the period between 17 March 2012 and 16 March 2013 when the landlord owned and ran the business. The council submitted that the amount should instead be nil.

The Court was not satisfied that the expense due to the rental liability had a causal connection with the disturbance due to roadworks, as there was no evidence of how the business was conducted when the landlord took over until it closed. The Court was therefore not satisfied that any amount was able to be awarded for rental liability.

During the course of the hearing, the parties reached an agreement that the sum of $9,748.20 was the sum for the costs associated with the claim for compensation, which formed part of the Court's final orders. The Court also ordered interest to be payable on the compensation amount from 22 January 2012 to the date of payment, taking into account an advance payment of compensation made by the council.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ian Wright
 
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