When an interest in land is compulsorily acquired, a claimant can be entitled to solatium pursuant to s.44 of the Land Acquisition and Compensation Act 1986. Solatium is compensation for the intangible and non-pecuniary disadvantages resulting from the acquisition.

Since a Supreme Court decision in 2010, acquiring authorities have calculated solatium on the market value of the land acquired, excluding severance.  However, two recent decisions handed down by the Victorian Civil and Administrative Tribunal in April and June of this year have the potential to change the way solatium is calculated in the future.

The Love Decision

Since Justice Vickery’s Supreme Court decision in Thomas James Love v Roads Corporation [2010] VSC 537 (the “Love Decision”) on 26 November 2010, acquiring authorities and claimants (albeit to a lesser degree) have calculated solatium pursuant to s.44 of the Land Acquisition and Compensation Act 1986 (the “LAC Act”) by adopting the two-step process which involves assessing the appropriate compensation figure and then applying the statutory 10% cap.  The cap is applied to the market value of the land acquired, excluding severance (the reduction in value to the remaining land as a result of the acquisition).  

Justice Vickery’s decision significantly reduced the solatium payable to a claimant in circumstances where a majority of the market value compensation was included in the severance component.  However, in April and June 2015, the Victorian Civil and Administrative Tribunal (the “Tribunal”) handed down 2 separate judgments contrary to the Love Decision.  

New Tribunal decisions

On 29 April 2015, Philip Martin (Presiding Member) and Justine Jacono (Member) handed down their decision in CRG Nominees Pty Ltd v Department of Economic Development, Jobs, Transport and Resources (“EcoDev”) [2015] VCAT 564 (“CRG”).  Subsequently, on 10 June 2015 Senior Member Michael Wright QC and Member Justine Jacono followed the CRG approach to calculating solatium in the case of the Secretary to the Department of Economic Development, Jobs, Transport and Resources v Amanda Susan Driver [2015] VCAT 813 (“Driver”).  Both the CRG and the Driver cases involved the partial acquisition of land by EcoDev to facilitate construction of the Regional Rail Link Project.  

The CRG decision

In the CRG decision, EcoDev submitted that the Tribunal should adopt what was described as a “narrow approach” to applying the 10% cap.  Such an approach relies on the definitions of “market value” and “land” when interpreting the words “the market value of the land” in s.44(1) so as to confine the award of solatium to the land actually acquired.  EcoDev relied on the Love Decision and the Tribunal’s previous decision in Heislers v Melbourne Water Corporation [2014] VCAT 632 where the Tribunal stated, at [138], that “…the statutory reference ‘a 10% cap’ must be applied to the land actually acquired, as opposed to the whole Heislers property.”  To see our previous Government Alert regarding this case, click here

CRG favoured the “broad approach” and argued that where a partial acquisition is concerned, guidance for the definition of “market value” can be found in s.41(3) of the LAC Act which states that “…the market value of the acquired interest is the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition.” For the purposes of solatium, it was submitted that the words in ss.41(3) and 44(1) mean the difference between the market value of the entire relevant landholding on a “before” and “after” basis. Therefore, if the “before” and “after” assessment results in a loss of market value, the 10% cap applies to the full loss, rather than only the market value component of the loss.

On this basis, CRG claimed solatium of $251,000, whereas EcoDev had not made an offer in respect of solatium on the basis that the claimant was developing its land and therefore had no intention of retaining the land in any event.

The Tribunal determined that the Supreme Court authorities (referred to in the case) reflected both the narrow and broad approaches as to how to apply the 10% cap in calculating solatium. As there are two lines of authority, the Tribunal consequently had discretion as to which approach to follow.

The Tribunal adopted the broad approach and found that where a partial acquisition was concerned, it was inconsistent with s.41(3) of the LAC Act to import a concept of market value as meaning only the land taken. The Tribunal also noted that its interpretation provided a consistent outcome for the application of solatium in partial and whole acquisitions. The Tribunal did not believe one could consider the market value on a “before” and “after” basis in terms of assessing compensation and then disregard the wording of s.41(3) of the LAC Act when calculating solatium and interpreting the “market value of the land” in s.44. As a result, the Tribunal ordered that CRG was entitled to receive $40,000 in solatium.

The Driver decision

In the Driver case, not surprisingly, EcoDev maintained its arguments submitted in CRG and Driver argued that the broad approach should be adopted in determining solatium. The Tribunal directed readers to the debate outlined in CRG in this regard.

EcoDev offered Driver $30,000 for solatium. By the end of the hearing, Driver’s claim for solatium ranged from $100,000 to $350,000. The Tribunal reinforced the Love Decision in respect of the two-stage process and considered that $100,000 was the appropriate solatium payment for Driver. The Tribunal also followed the CRG decision by adopting the broad view that the 10% cap applies to both the market value and severance components of the assessment of compensation. As the figure of $100,000 did not breach the 10% cap, EcoDev was ordered to pay this amount. At paragraph 96 of the judgment, the Tribunal held:

“It is artificial and antithical [sic] to the scheme of the legislation to attempt to apportion that difference between the market value of the land actually acquired and diminution in the value of the balance of the land due to severance. What has to be valued is the whole of the land before the acquisition and the whole of the land remaining after acquisition. The difference is the market value for the purpose of the [LAC] Act, including s. 44.”

Conclusion

The CRG decision is presently being appealed and until the Supreme Court hears the appeal, the law relating to solatium is unsettled and uncertain. However, the CRG and Driver decisions highlight the real risk that the Tribunal or the Supreme Court may in the future find contrary to Vickery J in the Love Decision and adopt the broad approach to calculating solatium. This may mean that solatium is calculated on the whole assessment of compensation for the market value including the value of the land acquired and severance. This interpretation has the potential to significantly increase the compensation payable by an authority under the LAC Act.