BACKGROUND

The First Appellants (the Tolsons) owned land at Mulgrave, south of Windsor, which was used by the Second Appellant (Elf Farm Supplies) to run a business of preparing compost for mushroom farms (collectively, the Appellants). Roads and Maritime Services, the respondent and resuming authority, acquired a strip of the First Appellants’ land to be used for the construction of a raised roadway.

By way of a statutory offer of compensation, RMS offered the Appellants the amount of $30,000 for disturbance only, on the basis that the Appellants obtained a “betterment” to their residue land, which completely offset the market value of the acquired land.

The Appellants rejected RMS’ offer and commenced proceedings in the Land and Environment Court, seeking compensation in the amount of $3.2 million. Further, the Appellants were unsuccessful in obtaining any amount in excess of their disturbance costs, which were assessed at $36,000.

The Appellants then appealed to the NSW Court of Appeal. RMS cross-appealed, contending that no amount of compensation should have been awarded to the appellants, including for disturbance, because of the betterment applicable to the Appellants’ residue land.

The Appellants raised a number of issues in their grounds of appeal, including in relation to the adequacy of the trial judge’s reasons and the effect of unregistered leases over the acquired land. However, this article will focus solely on the Court’s findings in relation to:

  1. whether “betterment” can offset market value in the award of compensation;
  2. whether “betterment” can offset disturbance in the award of compensation; and
  3. whether there is a “just compensation override” pursuant to section 54(1) of the Land Acquisition (Just Terms Compensation) Act 1991 (JTC Act).

CAN BETTERMENT OFFSET MARKET VALUE?

The Appellants sought to rely upon the primary object of the JTC Act to support their case that, as a minimum, compensation should be awarded for the market value of the land acquired by RMS. The primary object of the JTC Act is:

“to guarantee that, when land affected by a proposal for acquisition by an authority of the State is eventually acquired, the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of acquisition”.

[emphasis added]

The Appellants also sought to rely upon the following statements made in the case of Leichhardt Council v Roads & Traffic Authority of NSW [2006] NSWCA 353 (Leichhardt Case):

"Significantly for present purposes s 3(1)(a) states that one of the objects of the Act is to 'guarantee' that 'compensation will not be less than ... market value'. The Court should be slow to interpret the definition of market value in s 56(1) as permitting regard to be had to a matter which necessarily means that the owner will not receive market value."

as well as AMP Capital Investors Ltd v Transport Development Corporation [2008] NSWCA 325:

“Where land is compulsorily acquired, it seems to me just that the acquiring authority pay at least the market value of that land (unaffected by the proposal), even if the person from whom the land is acquired owns adjoining land which is increased in value by the proposal, and even if this increase is greater than the market value of the acquired land.”

However, the Court of Appeal quickly dispensed with the Appellants’ argument by reference to its previous decision in Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314, stating that: 

  • the “before and after” method was a legally valid valuation methodology under the JTC Act; and
  • betterment of residue land could completely offset the market value of the acquired land (although the decision in the Mir Case concerned only the partial offset of the market value of the land by betterment).

It should be noted that Preston CJ of the Land and Environment Court (LEC), who sat on the Court of Appeal in this matter, elaborated on the rationale for this finding and stated (in obiter dicta) [at 118]:

“To have regard to the relevant matters in s 55 concerning the value of land (paras (a), (b), (c) and (f)), which are all of a like nature, by aggregating their quantified monetary amounts (either individually or in a combined way) in determining the amount of compensation to which the person is entitled, would be to "justly compensate" the person.”

CAN BETTERMENT OFFSET DISTURBANCE?

The Court of Appeal’s decision concerning the offsetting of market value was, essentially, a confirmation of previous principle. However, RMS, in its cross-claim, sought to assert a new point of law: namely, that betterment of residue land could offset compensation for disturbance.

In response, the Appellants claimed that it was not logical to set off expenses already incurred against a notional (unrealised) increase in the value of other land.

The Court held that an increase in the value of retained land should not be offset against a loss attributable to disturbance because of the way in which the paragraphs of section 55 of the JTC Act interrelate. It held that:

  • losses attributable to disturbance and solatium fall into a separate category from changes to the value of land;
  • such costs are entirely separate from the value of the acquired land or retained land; and
  • it was consistent with the legislative purpose of providing compensation for such amounts (disturbance and solatium) that they be allowed or disallowed in accordance with specific statutory entitlements, without regard to the value of any land involved.

Preston CJ of the LEC elaborated further by reference to “just compensation”, stating (in obiter dicta) [at 117]:

“... to have regard to the relevant matters in s 55 that do not concern the value of land, namely loss attributable to disturbance (para (d)) and solatium (para (e)), by aggregating their quantified monetary amounts with the quantified monetary amounts of the relevant matters in s 55 that do concern the value of land (paras (a), (b), (c) and (f)), in determining the amount of compensation to which the person is entitled, would not be to "justly compensate" the person. It would not be just for the person who suffers loss attributable to disturbance or solatium not to be compensated for that loss or disadvantage. The non-financial disadvantage of having to relocate the person's principal place of residence from the acquired land and the financial costs of purchasing and relocating to other land are not, in justice, offset by any increase in the value of any residue land or adjoining land. The loss and the gain are different in nature and cannot be compared and offset one against the other.”

[emphasis added]

IS THERE A JUST COMPENSATION OVERRIDE?

Although the concept of a “just compensation override” was not explicitly relied upon by either of the parties, the Court of Appeal noted that “the term appears to be gaining some credence in State jurisdiction” and that it was “desirable to note its uncertain provenance”.

The Court of Appeal explored the origin of this term, noting that it first originated in the Commonwealth Law Reform Commission Report, Lands Acquisition and Compensation – Report No 14 (AGPS, Canberra, 1980) and was first referenced in court proceedings by Spigelman CJ in the Leichhardt Case. However, the Court of Appeal distanced itself from any endorsement of the phrase as having legislative force, noting that:

“... to use it as a constraint on the amount of compensation is a far cry from the concept underlying the Law Reform Commission report.”

Ultimately, the Court of Appeal determined that the existence of any “just compensation override” had not yet been settled, but that the present proceedings did not present the correct opportunity to deal with the issue.

CONCLUSION

The judgment in these proceedings provides clarity to the way in which the heads of compensation under section 55 of the JTC Act interact. It confirmed the existing principle that “betterment” can offset market value and established a new principle that betterment cannot offset compensation payable for disturbance or solatium.

However, the determination of whether these heads of compensation are subject to a legislative “just compensation override” will have to wait for a future opportunity.