Water corporations are often required to compulsorily acquire easements to construct and upgrade infrastructure within their respective regions.

The case of Heislers v Melbourne Water Corporation [2014] VCAT 632 provides guidance on the calculation of compensation payable for the market value of the easement in accordance with the Land Acquisition and Compensation Act 1986 (“LAC Act”). 

This case involved a claim for compensation arising out of Melbourne Water Corporation’s (“MWC”) compulsory acquisition of an easement (1.542ha) running parallel with the rear boundary of the claimants’ property for the Victorian Desalination Project.  The works involved trenching and reinstating soil as well as the re-erection of fences and revegetation.  A two metre wide underground water pipe and associated power cable/fibre optic cable were constructed in the easement.  MWC also constructed two above ground air valves (each 2.1 metres in diameter by 1.2 metres high and fenced), an above ground scour valve, fenced and associated rock chutes, electrolysis control infrastructure and two ground level junction pits.

The easement incorporated the rights set out in a memorandum of common provisions (“MCP”) which, amongst other things, granted MWC the right to construct water supply infrastructure on, in or under the easement area. The claimants contended that the assessment of the market value of the interest acquired must be undertaken on the basis that MWC will fully utilise its rights under the MCP, including the assumed construction of a future above ground pipeline on the easement. 

MWC contended that the LAC Act does not permit an assumption to be made that there “will” be an above ground pipeline for which there is no factual basis.  In this regard, it was submitted by MWC that all valuers accepted that the hypothetical purchaser at the relevant date would have known that the water pipeline was to be constructed underground.  Consequently, MWC argued that the correct approach is not to assume the worst but to adopt a practical view of the matter and conduct inquiries which would lead to an intelligent assessment of the risk of future intrusion.

The tribunal found in favour of MWC’s contention on point and ruled that the claimants’ valuation was improbably based on an “excessively speculative/negative view” of the approach taken by the hypothetical purchaser requiring them to go against “common sense” and “practical market experience” and exercise an unreasonable degree of “catastrophising”.  The tribunal found that adopting a valuation approach that placed significant weight on an assumed future above ground pipeline was:

inconsistent with the correct application of the “market value” (as defined in the Act) of the subject land in the ‘after’ scenario’ and also contrary to the generally accepted valuation principles”.

The tribunal was therefore:

satisfied that this compensation process should (in a more conventional manner) simply focus on the valuation impacts of the largely below-ground infrastructure installed on the subject land….

The Heislers case suggests that it would be unreasonable for a claimant to argue that an assessment of the market value of the acquired easement should be carried out on the basis that the entire pipeline will be constructed above ground.  This is especially the case in circumstances where the authority has advised the claimant that the pipeline will be constructed underground.  Further, the claimant is required to undertake reasonable inquiries which may conclude that the pipeline is to be constructed below ground with the possibility of some above ground infrastructure, such above ground infrastructure often taking the form of air or scour valves and the like.