Supreme Court of Victoria rejects claim for compensation under a development agreement

In brief 

In AM HT Development No. 4 Pty Ltd v Secretary to the Department of Transport [2023] VSC 3, the Supreme Court held that the development agreement in question did not necessarily constitute a compensable interest in land for the purposes of compulsory land acquisition. 

Relevantly, the Court stated that "whether the applicants had an equitable state or interest in the Divested Land depends entirely on the terms of the Development Agreement". Further, any such agreement must have reached a point where the developer can obtain an order for specific performance before the Court is likely to consider that they have a compensable interest.

Therefore, in this case, the Court found that the rights granted under the development agreement were essentially contractual and, accordingly, a legal or equitable interest would not arise until specific performance is available under that contract. 

Background

This case considered a claim for compensation under section 145 of the Major Transport Projects Facilitation Act 2009 (Vic) (MTPF Act) for the compulsory acquisition of land in relation to the West Gate Tunnel Project (Divested Land). 

The compensation claim was brought by three related developers (AsheMorgan) and concerned compensation for alleged legal or equitable interests in parts of the Divested Land. The Divested Land was subject to a development agreement (Agreement) between a number of developers, including AsheMorgan, and Development Victoria. 

The Agreement contemplated that the Divested Land would be subdivided and sold in stages to various developers and included terms to this effect. However, the sale of land was subject to a number of conditions precedent including a condition stating the "developer acknowledges that it has no right, entitlement or interest in relation to the Land until all conditions in clause 4.2 [i.e. the conditions precedent] are satisfied or waived".

On 30 April 2019, the Governor in Council divested the relevant land pursuant to an order under section 134(1) of the MTPF Act (Order). Under the MTPF Act, on publication of the Order the Divested Land is taken to be unalienated land of the Crown and is freed and discharged from all trusts, limitations, reservations, restrictions, encumbrances, estates and interests. At the time of divestment, Development Victoria was the registered proprietor of the Divested Land. Relevantly, no land was sold before the time of divestment as, among other things, the conditions precedent had not been satisfied or waived. 

Therefore, the Court was required to determine whether the Agreement gave rise to a relevant "interest" in the Divested Land within the meaning and for the purposes of section 145 of the MTPF Act. 

Decision

The Court held that, pursuant to section 145 of the MTPF Act, the relevant "interest" required for a claim of compensation is a "legal or equitable estate or interest in the land to which the Order applies". The Court construed section 145 narrowly and concluded that Parliament deliberately limited the class of persons who may seek compensation to only those who hold a "legal or equitable estate or interest" in public land. 

Accordingly, the Court held that AsheMorgan did not possess a relevant interest in the Divested Land for the following reasons:

• it rejected AsheMorgan’s argument that the MTPF Act should be read in the context of the right to compensation granted under section 30 of the Land Acquisition and Compensation Act 1984 (Vic) (LAC Act). Instead, the Court found that the relevant parts of the MTPF Act "is a separate and distinct process from the compulsory acquisition of land under the LAC Act" and "the LAC Act is only applied in Div 4 to the determination of compensation payable under s 145 of the MTPF Act, and not more generally";

• it acknowledged that it is settled law that a purchaser's interest in land under a sale of land contract is "commensurate with the availability of specific performance". Therefore, as AsheMorgan could not obtain an order for specific performance at the time the land was divested (because the relevant conditions precedent were not satisfied), it did not have a relevant interest; and

• in any case, the Agreement was not, in terms, a contract for the sale of land and therefore there was no contractual obligation for Development Victoria to enter into sale of land contracts at the time of divestment. Rather, the Court considered it to be an agreement to sell land "pursuant to contracts for the sale of land that may be entered into in the future". 

Conclusion

This decision makes clear that a claim for compensation under a development agreement will turn on the particular facts of the case and the terms of that agreement. Nonetheless, given the broad application of the MTPF and LAC Acts to Victoria’s Big Build projects, including the Suburban Rail Loop, Major Road Projects and the Metro Tunnel Project, this case is a useful reminder to purchasers and developers to be wary of making assumptions about their rights to compensation under incomplete contracts.