Key Points:

The Tolson decision confirms that in NSW the only relevant matters for determining compensation under the Just Terms Act are those listed in section 55.

In compulsory land acquisition matters in NSW, there has been some debate as to whether the Land Acquisition (Just Terms Acquisition) Act 1991 (Just Terms Act) contains a judicial discretion to apply a "just terms override" to ensure that the acquisition is made on "just terms". The Court of Appeal's decision in Tolson v Roads and Maritime Services [2014] NSWCA 161 ends this debate, confirming that the Just Terms Act contains no such discretion. Rather, compensation on "just terms" is achieved through the application of the clear statutory language of the Just Terms Act.

This decision is of interest for acquiring authorities, as it clarifies the operation of Part 4 of the Just Terms Act, particularly in the context of "betterment" and confirms that, under the Just Terms Act, courts do not have a discretion to apply a "just terms override".

Statutory origin of the concept

Acquisition on "just terms" is paramount in the Commonwealth jurisdiction, because of the requirement in section 51 (xxxi) of the Australian Constitution that the acquisition of property be "on just terms".

While NSW's legislature is not bound by this constitutional constraint, the Just Terms Act references this concept. Section 54(1) states that a person is entitled to an amount of compensation that "will justly compensate the person for the acquisition of the land". Further, its objects include "compensation on just terms" and a "guarantee that… the amount of compensation will be not less than the market value of the land (unaffected by the proposal) at the date of the acquisition".

Unlike the Commonwealth's Lands Acquisition Act 1989, the Just Terms Act is prescriptive in the matters that can be taken into consideration in determining compensation for an acquisition. These are found in section 55. Following Tolson, it is clear that it is the combined application of these matters that results in the determination of "just compensation".

Precedent for the "just terms override"

The status of the "just terms override" has received favourable treatment in various Land and Environment Court decisions.

For example, in Everest Project Developments Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 & The Roads and Traffic Authority of New South Wales [2010] NSWLEC 88Justice Sheahan went as far as to apply section 54(1) to award an amount of compensation in circumstances where there was the nil determination for market value. In that case, he did not accept that a nil result was a just result and applied the "just terms override" to award an additional $500,000 in market value. Justice Sheahan commented that this amount was not a nominal award of compensation, it was a "just" award.

The argument in Tolson

The typical example of a land acquisition matter where the "just terms override" argument is run are "betterment" cases. This is where the market value of the residue land after the acquisition considering the public purpose is more than the market value of the parent parcel, before the land was acquired ignoring the public purpose. Tolson is such a case.

It involved the acquisition of a diagonal strip of a farm at Windsor for the construction of a raised roadway as part of the Windsor Flood Evacuation Route. Despite severing the parcel of land, Justice Sheahan in the Land and Environment Court found that the retained land was more valuable than the land prior to the acquisition. This is because the public purpose allowed for more of the land to be filled and developed. The market value of the acquired land was therefore determined at nil.

In the Court of Appeal, the applicants argued that they were entitled to compensation for the loss of their land despite this "betterment" and that the market value in section 55(a) is immune from being offset by the amount of any increase in the value of other land under section 55(f) because of the "just terms override" and "market value guarantee". The latter concept is connected to the first and, relying on the object of the Just Terms Act that refers to this guarantee, the Applicants argued that compensation should not be less than the market value of the acquired land.

The interpretation and application of Part 4 of the Just Terms Act, and in particular the exhaustive list of relevant considerations in section 55, is settled law. Applying this precedent, the Court of Appeal in Tolson held that Part 4 of the Just Terms Act had been appropriately applied by the Land and Environment Court and that:

  • equitable arguments around the fairness of receiving nil compensation are not considerations identified in section 55 and are therefore prohibited considerations;
  • the statutory language of the Just Terms Act should not be read down by reference to an implied limitation that would be inconsistent with the purpose and objects of the Act; and
  • the objects of an Act should only be used as an interpretative aid where there is uncertainty or ambiguity in the language of the substantive provisions of the legislation. The statements in the objects of the Just Terms Act cannot be used to control the clear language in section 55.

So, Tolson confirms that the judicial valuer can only have regard to the matters listed in section 55 to achieve the aims of section 54 and that "to describe section 54 as encompassing a "just terms override" is to introduce an imprecise and inaccurate concept which finds no reflection in statutory language".

The potential future application of the "just terms override"

The Court of Appeal has confirmed in Tolson that the only relevant matters for determining compensation under the Just Terms Act are those listed in section 55. On the basis of this Court of Appeal decision, it is therefore unlikely that a decision such as Everest will be repeated.

However, we understand that the applicants have sought special leave to appeal to the High Court. Should special leave be granted to hear this appeal, the full bench of the High Court will consider the interpretation of Part 4 of the Just Terms Act in the context of "betterment" and, potentially, the operation of the concepts of the "just terms override" and "market value guarantee".