When it comes to compensation for resources activities, a deal struck between a resources company and an owner isn’t always set in stone. Compensation can be reviewed if there is a material change in circumstance and may either increase or decrease.
Resources companies must understand the types of changes that can trigger a compensation review. Only then can the full costs of a project change be properly assessed.
Resource tenure holders and land owners and occupiers are free to negotiate their own compensation deal. If they can’t agree, they can refer the determination of compensation to the Land Court.
But the compensation story doesn’t always end there. Either party can apply to the Land Court for a review of compensation where there is a material change in circumstances after the original compensation was resolved.
A resources company may seek to reduce the amount of compensation paid if its operations are scaled back or expansions cancelled due to economic conditions.
On the flipside, owners or occupiers can seek more compensation if the nature or scale of the resources activities on their land escalates.
The key is that the change must be “material”. This does not mean the change has to be “substantial” as cases have decided that a change is material if it is “pertinent” to what compensation should be awarded.
For a material change to arise two elements are needed. Firstly, there needs to be a change event that is material or pertinent, for example an extension or reduction in the term of the tenure or a change in the nature of the operations. Secondly, the change event must alter the impact of the activities on the land.
If these elements are established, the Land Court then considers whether they are of such significance to justify an amendment to the original compensation.
Based on the above, it would not be a material change of circumstance if one party discovered that the impact from the agreed activities was greater or less than expected provided that the activities themselves have not changed.
Cases reviewing compensation in relation to resource tenures have found that:
- where an application for renewal of a mining lease was made but subsequently withdrawn, the extension of the original mining lease until the renewal application was withdrawn amounted to a material change allowing compensation to be increased;
- where a mining lease was surrendered early, this constituted a material change because the time that the owners were impacted was substantially shorter allowing compensation to be reduced;
- a landowner failing to make a submission for compensation in the first instance does not constitute a material change of circumstance and the landowner was not entitled to a review of compensation on that basis;
- merely listing potential impacts of mining on the owner’s land does not constitute a material change of circumstance (especially where there was nothing to suggest that those impacts where not properly considered in the determination of compensation by the Land Court in the first instance) and the landowner was not entitled to a review of compensation on that basis; and
- a change arising from the amalgamation of three environmental authorities for three separate mining leases into one environmental authority applying to all three mining leases which reduced the maximum area of disturbance at any one time from 10 hectares on each mining lease to 10 hectares for the project did constitute a material change in circumstance but did not warrant a reduction in the amount of compensation because the impact on any one mining lease could still be 10 hectares of disturbance. (The Land Court noted this was an unusual result arising because of the particular wording of the legislation and a disconnect between the provisions of the Mineral Resources Act 1989 (Qld) and the Environmental Protection Act 1994 (Qld).)
The Mineral Resources Act 1989 (Qld) also gives an example of a material change where a different method changes the impact of mining operations under the lease.
Resources companies need to be alive to changes to their operations or circumstances which give rise to compensation potentially being reviewed – whether by them or the land owners or occupiers.
When proposing changes to their operations, resource project proponents should consider whether the compensation review rights are likely to be triggered so that the full impacts of the proposed changes can be properly assessed.