In brief
Many of the infrastructure projects undertaken in New South Wales (NSW) have continued to give rise to legal issues surrounding compulsory acquisitions. This article considers a few select cases from the Land and Environment Court of New South Wales (NSWLEC) in 2023, which illustrate novel and emerging issues in the Class 3 jurisdiction: G&J Drivas Pty Ltd v Sydney Metro [2023] NSWLEC 20 (G&J Drivas); Perry Properties Pty Ltd v Georges River Council [2023] NSWLEC 51 (Perry Properties); Sydney Metro v Expandamesh Pty Ltd [2023] NSWCA 200 (Sydney Metro); David Fox v Planning Ministerial Corporation [2023] NSWLEC 109 (David Fox); and Keller and Keller v Blacktown City Council [2023] NSWLEC 133 (Keller and Keller).
We conclude with a set of observations about the year ahead.
G&J Drivas Pty Ltd v Sydney Metro [2023] NSWLEC 20 provides guidance on how the Court applies the statutory disregard for the decrease in value caused by the public purpose
Duggan J's judgment in G&J Drivas helpfully demonstrates how the NSWLEC addresses compensation for land where the land would have had a higher value if the public purpose had not been proposed, due to abandonment of a development as a result of the public purpose.
The background to that case was that G&J Drivas Pty Ltd and Telado Pty Ltd (Applicants) were the owners of a substantial property in the Parramatta CBD (Site), which was acquired for the Sydney Metro West Project (public purpose).
At the time of acquisition, the Site was improved by a two-storey mixed retail and office complex. A development consent however had been granted for a 25-storey tower by the City of Parramatta Council in December 2018. Whilst the Applicants did not commence any physical works to erect any building under that consent, they did take non-physical steps to progress the development, including:
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preparing detailed drawings;
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entering into contracts for the marketing and leasing of the tower; and
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engaging Crone Partners for architectural services under a consultancy agreement.
However, the Applicants had to delay and ultimately abandon their development due to the public purpose. That is, 'but for' the proposal to carry out the public purpose, the Applicants would have progressed the development of the tower, such that the value of the land would have been higher at the date of acquisition.
The Class 3 NSWLEC proceedings dealt with section 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act). Section 56(1) provides the statutory mechanism for determining the market value of land, and the statutory disregard of the impact on value caused by the public purpose:
"the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid) —
(a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired"
It was not in dispute that the Applicants would not have abandoned works 'but for' the proposal to carry out the public purpose, nor that the proposal caused a decrease in the value of the land at the date of acquisition.
The Applicants contended that the decrease in the value of land caused by the abandonment must be disregarded under section 56(1)(a), as the decisions to discontinue and stop works were caused by the proposal to carry out the public purpose. Therefore, the Site warranted a higher market value at the date of acquisition.
By contrast, Sydney Metro argued that section 56(1)(a) did not allow the impact of non-physical decisions on market value to be considered, and that the statutory disregard under that section only allowed the consideration of a decrease in land caused by physical work undertaken as of the date of acquisition.
Duggan J ultimately found in favour of the Applicants on this issue, holding that the provisions of the Just Terms Act did not preclude a claim for a decrease in market value where that decrease was a consequence of actions not undertaken by the Applicants due to the proposal to carry out the public purpose, and where those actions would have increased the value of the acquired land as at the date of acquisition. At paragraph [92], her Honour explicitly stated that such a claim "may include actions not taken [by the Applicants] that are not (or would not have been) physically manifested on the Acquired Land".
Whilst each resumption matter involves its unique facts, this provides some assurance to dispossessed owners of land that they do not have to vigorously pursue and carry on works to reach a higher market value of land when faced with a compulsory acquisition, assuming that decision arises because of the proposal to carry out the public purpose.
Pritchard J’s decision in Perry Properties further clarifies the requirements under section 10A of the Just Terms Act relating to the minimum negotiation period for acquisition by agreement, before the compulsory acquisition process begins. Unlike other section 10A cases, the case was heard in the NSWLEC due to it being a Council acquisition.
Section 10A mandates a 6-month period of negotiation by the acquiring authority before the compulsory acquisition process begins, and requires the acquiring authority to make a genuine attempt to acquire land by agreement during that time. Section 10A(2) states:
"(2) The authority of the State is to make a genuine attempt to acquire the land by agreement for at least 6 months before giving a proposed acquisition notice."
In Perry Properties, the land which Council sought to acquire was subject to a lease. Immediately before Council issued Proposed Acquisition Notices (PANs) to the owner and lessee, the owner entered into a call option deed with four grantees, whom together lodged a caveat on title. Despite also issuing PANs to the grantees, Council did not negotiate with them, and only negotiated with the owner and lessee.
The grantees then argued that the PANs issued to them were unlawful because Council did not abide by the 6-month negotiation period, and that the negotiation period was a jurisdictional precondition to issuing the PANs.
Pritchard J held that the reference to "land" in section 10A(2) of the Just Terms Act does not refer to "every owner of every interest in land". Instead, the person with whom agreement must be attempted to be reached before a PAN can be given is "the person, corporate or individual, who is in a position to sell the land, that is, the owner of the land." (emphasis added)
Finally, the Court held that the statutory bar under section 10A(7) of the Just Terms Act precluded anything in that section from giving rise to, or being taken to account in, any civil cause of action.
The case provides some comfort to acquiring authorities faced with numerous potential interests in land. The requirement to genuinely attempt reaching an agreement applies to the person in a position to sell the land, rather than to the myriad of other interests that may exist.
There has been a large number of substratum acquisitions resulting from the Sydney Metro Project. However, only a few substratum acquisitions have resulted in compensation being awarded, since compensation is limited to the three exceptions set out under clause 2(1) of Schedule 6B of the Transport Administration Act 1988 (NSW). That clause provides as follows:
"under the Land Acquisition (Just Terms Compensation) Act 1991 for the purpose of underground rail facilities, compensation is not payable under that Act unless —
(a) the surface of the overlying soil is disturbed, or
(b) the support of that surface is destroyed or injuriously affected by the construction of those facilities, or
(c) any mines or underground working in or adjacent to the land are thereby rendered unworkable or are injuriously affected." (emphasis added)
The NSW Court of Appeal’s decision in Sydney Metro v Expandamesh Pty Ltd [2023] NSWCA 200 narrowed the scope of the exception in clause 2(1)(a), such that any disturbance in the overlying soil needs to be "in a way which has practical significance or is not trivial." Our detailed article on that decision is available here.
There are a number of matters that have been filed in the NSWLEC but are stayed at present pending construction work commencing beneath the parent parcel. Once that occurs, the extent of surface disturbance will need to be quantified and then evaluated in accordance with the Court of Appeal's decision. The decision indicates there is no uniform disturbance metric that will open the gateway to compensation. Rather, the level of surface disturbance that might open the gateway depends on the land use of the parent parcel.
NSW Land and Environment Court shows preference for narrower characterisations of public purpose
Two recent cases handed down in October and November 2023 have deepened the jurisprudence on how the 'public purpose' should be characterised. As indicated previously in this article, the construal of the public purpose is important when working out compensation since it needs to be disregarded. Both the negative and positive impacts must be ignored when quantifying compensation. Given the significant implications the construal of compensation can have on quantum, there appears to have been more careful scrutiny of the public purpose in the last year.
David Fox v Planning Ministerial Corporation [2023] NSWLEC 109
The case of David Fox concerned the Planning Ministerial Corporation's (Ministerial Corporation) compulsory acquisition of 1 Henry Lawson Avenue, McMahons Point (Site). The Site was the last remaining privately-owned property located in Blues Point Reserve, a waterfront reserve in Sydney's lower north shore overlooking Luna Park, the Harbour Bridge and CBD skyline.
In the proceedings, the parties held competing positions as to what should be regarded as the 'public purpose' of the acquisition.
The Applicant argued that the Site was acquired so that it could be included into the surrounding public parkland to create a greater regional park on the foreshore of McMahons Point, which the NSW Government had been pursuing for almost 75 years since 1948. Therefore, disregarding the 'public purpose' of the adjoining public reserve, the Site would have been zoned as either R3 Medium Density Residential or R4 High Density Residential, justifying a higher market valuation.
Moore J ultimately found in favour of the Ministerial Corporation, who contended for a narrower characterisation of the 'public purpose', which would result in the land being valued on the basis of a B1 Neighbourhood Centre or IN4 Working Waterfront zoning under the North Sydney Local Environmental Plan 2013 (NSLEP). His Honour found that the public purpose was not to create a regional park, but to include the Site in the existing reserves and complete the project by bringing the vicinity into public ownership. The resultant market value for the Site was lower based on this narrower characterisation.
In reaching this conclusion, Moore J emphasised that whilst 'public purpose' is defined under section 4(1) of the Just Terms Act, what might constitute that 'public purpose' must be derived from:
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the statutory power enabling the acquisition, and
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the terms of the documentation effecting the acquisition.
Regarding the first limb, the Ministerial Corporation's statutory power to acquire land derived from clause 31 of Schedule 2 of the Environmental Planning and Assessment Act 1979 (NSW), which referred to the NSLEP and to the purpose of the Minister considering that the land should be made available in the public interest. Both these considerations supported the narrower purpose of incorporating the Site into the reserve. Regarding the second limb, the Court found that it is necessary to consider the terms to the acquisition documentation when determining 'public purpose'. Moore J held that the precise words "public recreation and inclusion [of the Site] to Blues Point Reserve" (emphasis added) in the PAN was an express and unequivocal expression of an intention that the acquisition was for the narrower public purpose, so much so that it was fatal to the Applicant's submissions. The word "inclusion" necessarily assumed that the Blues Point Reserve already existed, so it could not possibly be 'created', but only 'completed'.
The case also serves as a reminder for of the amount and complexity of expert evidence that sometimes is adduced in Class 3 proceedings. At paragraphs [52]-[53], Moore J cautioned that the detail of expert evidence went "well beyond" what would reasonably be expected to be sought by a hypothetical prudent purchaser of the land, which resulted in an almost 11-day hearing and 200-page judgment.
Keller and Keller v Blacktown City Council [2023] NSWLEC 133
The case of Keller and Keller v Blacktown City Council [2023] NSWLEC 133 indicates how a narrower characterisation can increase an Applicant's entitlement compensation.
In Keller and Keller, the Valuer-General initially determined $558,300 in compensation for the acquired land. The Applicants then brought Class 3 proceedings seeking total compensation of $950,000, on the basis that "but for the acquisition for the public purpose, the land would have been zoned for residential development." The acquisition was for drainage infrastructure.
At paragraph [43], Robson J held that the:
"correct approach to the statutory disregard required by s 56(1)(a) of the Just Terms Act is, having identified the zoning of the Acquired Land at the date of acquisition, to determine whether the imposition of that zoning was part of the carrying out of the public purpose (or the proposal thereto) for which the Acquired Land was acquired, and, if so, notionally setting aside that zoning and the potential of the Acquired Land." (emphasis added)
The Applicants argued for a narrower characterisation of public purpose, which was limited to the provision of trunk drainage by Council in the location of the acquired land.
The Respondent Council argued for a broader characterisation where the public purpose included a trunk stormwater drainage system to accommodate increased stormwater discharge from new urban development, such that the urban residential zoning of the surrounding land since 2010 was also a part of the public purpose, and therefore had to be disregarded for valuation purposes.
The Council argued that there was "no prospect" the Minister would have rezoned the relevant land absent a precinct-wide scheme to deal with run-off and existing flood issues, and on that basis, the residential zoning should be disregarded, and the land should be valued on the basis of a lower value environmental zoning.
The Court however accepted the Applicants’ narrower characterisation of the public purpose because:
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It was consistent with town planning evidence which concluded that the Acquired Land and the surrounding area would be rezoned from rural to more urban zonings, 'but for' the provision of a trunk drainage system at the location;
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the town planners agreed that the trunk drainage system could be located at a different location or delivered through a different means;
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If the 'public purpose' of the trunk drainage system was set aside, it would have been necessary to find another means of dealing with the increased stormwater infrastructure;
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Finally, even if the specific R2 zoning of the immediate surrounding was disregarded, there was compelling evidence that there would be movement towards residential zoning of the Acquired Land.
Ultimately, the Applicants were awarded $700,000 for market value.
Potential changes following the NSW Supreme Court allowing damages for small business affected by the Sydney Light Rail construction in Hunt Leather Pty Ltd v Transport for NSW [2023] NSWSC 840
On 19 July 2023, the NSW Supreme Court (NSWSC) upheld a claim for private nuisance for unreasonable interference to small businesses along the Sydney Light Rail (SLR) from Circular Quay to Kingsford/Randwick, brought by two lead plaintiffs: a luxury leather goods store, and a restaurant.
At paragraph [940], the NSWSC found that private nuisance was made out on four reasons:
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Transport for NSW (TfNSW) would have foreseen the risk of prolonging construction activities outside businesses along the SLR route;
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This risk was so high that the other party to the public-private partnership arrangement was not prepared to accept it, other than to a limited extent;
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Even though TfNSW assured business owners along the SLR route that the work would be performed in stages, it contracted on terms that provided no real deterrence for any departure from the staging plan;
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TfNSW took the risk in respect of the requirements of the utility providers.
The Hunt Leather decision has broader implications for individuals and businesses affected by large infrastructure projects. It highlights private nuisance as a potential alternate means of compensation for those who are unable to claim under the Just Terms Act if they do not have an interest in the acquired land, so long as there is 'substantial and unreasonable interference' with a business. Our detailed article on this decision is available here.
What will 2024 bring for compulsory acquisitions?
The NSW Government's Property Acquisition Data website helpfully allows people to track the numbers of resumptions occurring across the different acquiring authorities. After a reduction in 2020, presumably due to the start of the pandemic, numbers have continued to sit just below 500 per annum for the 12 acquiring authorities recorded (including all local councils as a single entity).
In November 2023, the Albanese Government conducted an independent strategic review and found that the Commonwealth's Infrastructure Investment Program was undeliverable. Consequently, funding towards many projects that previously had Commonwealth commitment has changed, and in some cases, cancelled. Whether this leads to the abandonment of acquisitions (enlivening other statutory rights under Part 4 of the Just Terms Act) remains to be seen.
Infrastructure NSW also recently updated the NSW Major Infrastructure Pipeline and the 2023 – 2024 State Infrastructure Plan. It appears that Infrastructure NSW will focus on projects delivering on schools, hospitals, and public transport. It is likely that the latter will nevertheless see a steady level of compulsory acquisitions occurring.
From the range of matters we have seen throughout the past year, 2024 will bring challenges for both acquiring authorities in navigating these changes to funding arrangements, and for affected landowners dealing with the shadow of an acquisition amongst project uncertainty. Issues with the administration of the Just Term Act continue to remain, as observed in the 2021 inquiry for the Acquisition of land in relation to major transport projects, though we are yet to see the recommendations being actioned or implemented. With the appointment of a new Valuer-General, but only for a period of 12 months from 1 June 2023, we expect a continuation of the existing policies located here, although we understand that there will be an increase in the number of valuations conducted by the Valuer-General's office itself as opposed to contract valuers, which may impact on statutory timeframes depending on the number of acquisitions occurring.
Finally, we anticipate new legal commentary arising from the large numbers of rural acquisitions occurring for the new linear infrastructure and renewable energy zones involved in the transition to renewables, as well as for the inland rail project run by the Australian Rail Track Corporation. We expect decisions like Kater v Electricity Transmission Authority (NSW) [1996] NSWLEC 19 and Arrow v Electricity Commission of NSW (1994) 87 LGERA 363 to be revisited and built upon as the impacts from these acquisitions are felt by sophisticated agricultural operations with complex farm ownership arrangements. Given the electricity infrastructure in some cases is almost double the size of existing transmission line infrastructure, the extent to which a blanket rate per sqm and set formulas for injurious affection can be adopted will no doubt be tested in some of the many partial acquisitions required to build the new infrastructure.