In Issue

  • Whether diminution in value or loss of opportunity damages is the appropriate remedy in tort claims arising from damage to land.

The Background

In April 1998, the applicant Winky Pop Pty Ltd (Winky Pop) purchased for a combined price of $730,000.00 four parcels of vacant unimproved industrial-zoned land in North Williamstown, Victoria (land). Due to prior use, hydrocarbons and metals were present in the land soils to levels exceeding criteria for human health. In or around December 2006 a pipeline owned by the defendant Mobil Refining Australia Pty Ltd (Mobil) ruptured causing leakage of 486,000 litres of petroleum hydrocarbon which plumed in the ground water beneath the land and nearby areas (incident).

Prior to and after the incident Winky Pop applied unsuccessfully to the municipal council to have the land re-zoned for residential development. There were three similarly unsuccessful applications made prior to Winky Pop’s ownership. Winky Pop sued Mobil in negligence claiming approximately $170 million in damages for loss of opportunity to develop the land for residential use.

The Decision at Trial

The court found that Winky Pop’s loss of opportunity claim failed as it had not established that prior to the incident it had an opportunity to have the land re-zoned as residential and to obtain a planning permit for that purpose.

The court decided that the proper basis on which to assess damages was diminution of land value rather than the loss of a valuable opportunity to obtain rezoning and develop the land for residential use, notwithstanding that Winky Pop did not pursue at trial an entitlement to damages for diminution of land value. The court held that Winky pop was entitled to recover $104, 273.93 plus interest for its costs of investigating the incident.

The Decision on Appeal

Winky Pop’s application for leave to appeal was granted, but its appeal was dismissed. The trial judge was entitled to find that prior to the incident Winky Pop did not have a commercial opportunity to residentially develop the land. This was because there was no prospect at that time that council and other approvals required to re-zone the land for such development would be obtained due to planning scheme-related impediments.

The Court of Appeal also found that the land would be remediated over time to the extent practicable by Mobil’s post-incident clean-up works such that Winky Pop would continue to have the opportunity to pursue rezoning and development of the land as it had prior to the incident. Accordingly, the Court of Appeal affirmed the decision at trial that diminution in land value, and not loss of opportunity to residentially develop the land, was the appropriate measure of damages.

Implications For You

In cases where loss of opportunity damages are claimed, these are likely to be defended successfully if the plaintiff cannot properly identify the substance of its opportunity and, on the balance of probabilities, that it had the opportunity at the time of the defendant’s breach.

Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2016] VSCA 72