Late last year, the Victorian Supreme Court in the matter of Winky Pop & Anor v Mobil & Anor [2015] VSC 348 was asked to consider the principles of assessment of damages to land, where land owned by a third party was contaminated from a leaking oil pipeline. The plaintiff, Winky Pop, sought opportunity loss damages in the vicinity of $170 million from the defendant, Mobil, for negligently contaminating its land. Mobil, which did not deny causing the contamination but was undertaking remediation, was only required to pay just over $100,000 for the costs of investigation.

Although the plaintiff was unsuccessful, this judgment provides an important reminder of the significant potential exposure faced by all industrial and resources proponents who might unintentionally contaminate land.

Background

Winky Pop develops residential and commercial properties, and owned a plot of vacant land which it had been seeking to have rezoned from industrial to residential. Rezoning applications had been denied by the local council on a number of occasions, both before and after Winky Pop acquired the relevant land, for a number of reasons, including existing contamination of the land.

Winky Pop’s land was further contaminated by a plume of petroleum hydrocarbons in the groundwater that had leaked from a pipeline owned and operated by Mobil in December 2006. Mobil accepted responsibility for the leak, and was in the process of remediating the contamination in accordance with requirements of the Environment Protection Authority (EPA).

Winky Pop made a claim against Mobil in damages for negligence, including a claim in the order of approximately $170 million for the loss of the opportunity to develop the land residentially.

Parties’ submissions as to the appropriate measure of damages

Justice Digby was required to determine the appropriate measure of damage for injury to land.

Winky Pop submitted that loss of opportunity damages were appropriate, to the order of $170 million.

Mobil contended that the appropriate measure of damages ought to be the diminution in value of Winky Pops’ land caused by the leak, as well as the costs reasonably incurred in investigating the leak. Mobil estimated diminution in value to be $1 million and investigation costs were approximately $100,000.

Diminution in value generally the appropriate measure

His Honour considered a number of authorities and concluded that the appropriate measure of damages for injury to land is the diminution in value of the land or the costs of reinstatement.

It is noteworthy that Justice Digby also held that damages may be awarded for consequential losses, including lost opportunities, however generally not as a substitute for diminution or reinstatement damages. In this regard, he held that opportunity losses may be awarded as a substitute in certain circumstances, including if the plaintiff establishes that it has a special value in the land, that remediation is not possible, and that there are no replacement properties available on the market for the plaintiff to purchase.

Importantly, Winky Pop was unable to establish these exceptions and his Honour held that, in the circumstances of this case, the appropriate measure of damages was diminution in value. He also held that an award of reinstatement damages was not appropriate, as Mobil was in the process of remediating Winky Pop’s land in accordance with the requirements of the EPA and Winky Pop’s claimed reinstatement costs were out of all proportion to the diminution in value.

Key reasons was diminution in value was more appropriate

Damages based on diminution in value were held to be more appropriate, fair and reasonable to compensate Winky Pop for the injury suffered because:

  1. It was uncertain how and when the land may be developed (before and after the leak);
  2. Remediation of the land already being conducted by Mobil was likely to restore that land to its highest and best use;
  3. Winky Pop failed to establish that the land would not be developed in some manner in the future;
  4. Damages for diminution in value are likely to be more reliably and accurately ascertained;
  5. The upper bound of reinstatement costs (in excess of $200 million) was such as to probably render it uncommercial to develop the land; and
  6. Diminution of value damages are determined by the market at the relevant time.

Justice Digby found that, prior to the leak, it was most unlikely that the land would be rezoned to residential, and that Winky Pop had not established that, but for the Mobil leak, it would have had the opportunity to develop the land for residential purposes. His Honour also found that the Mobil leak would not prevent Winky Pop from developing the land residentially (albeit subject to conditions).

The result

It was held that Winky Pop’s claimed opportunity was highly likely to be unrealisable. However, Justice Digby went on to hold that if he was wrong in relation to opportunity damages, he would have awarded damages of approximately $66 million.

As to diminution in value, because Winky Pop had failed to submit any evidence in support of an entitlement to damages based on diminution of value of the land, his Honour did not consider that it was appropriate to decide what the amount of any such damages might be. The relief was therefore limited to the costs of investigating the leak ($104,273.93), plus interest.

The implications

This decision may give some comfort to industrial and resources proponents that, in the event of land contamination, courts will avoid overcompensating a plaintiff and damages will generally be assessed on a diminution of value basis. However, it also highlights the significant direct costs involved in remediation, as well as the risk that, in certain cases, a landholder might be able to establish loss of opportunity or other consequential damages.