On 28 February 2014, the NSW Court of Appeal handed down its decision in El Boustani v The Minister administering the Environmental Planning and Assessment Act 1979  NSWCA 33. The judgment is significant because it has clarified the operation of section 61 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) and whether disturbance losses are compensable in circumstances where the market value of the acquired land is assessed on its potential to be used for a purpose other than its current use.
On 23 July 2010, the Minister administering the Environmental Planning and Assessment Act 1979 (NSW) (Minister) partially acquired land owned by Mr and Mrs El Boustani (El Boustanis) in Leppington for the purposes of the South West Rail Link Project. At the date of acquisition, the El Boustanis used the land for their family home and horticulture business (growing tomatoes and other vegetables).
In El Boustani v The Minister administering the Environmental Planning and Assessment Act 1979 (No 2)  NSWLEC 25, Justice Pepper of the NSW Land Environment Court determined that the amount of compensation payable to the El Boustanis was $1,436,059 comprising:
- $1,194,556 for the market value of the acquired land;
- $237,310 for disturbance for lost profits; and
- $4,193 for disturbance of legal and valuation fees.
Her Honour held that, although the El Boustanis might reasonably incur relocation costs in the amount of $920,000 associated with relocating their family home and business, such costs were not payable having regard to the operation of section 61 of the Just Terms Act. In respect of the lost profits, another matter the subject of the El Boustanis’ appeal, the Court made allowance for one year from the date of acquisition for the El Boustanis to find a replacement property and a further two years to allow for the production of crops (and not the four years claimed by the El Boustanis).
The El Boustanis appealed the first instance decision on the basis that the primary judge erred on questions of law, namely the rejection of the El Boustanis’ claim for relocation costs under section 61 of the Just Terms Act and the assessment of the amount of compensation for lost profits.
Ultimately, the Court of Appeal upheld the El Boustanis’ appeal and remitted the proceedings to the Land and Environment Court for re-determination. In reaching this conclusion, the Court held that the primary judge had asked herself the wrong question and failed to address the correct question in relation to the basis on which the market value of the land was assessed (i.e. the current use or another potential use) for the purposes of section 61(b) of the Just Terms Act.
Relevantly, the Court made the following observations in respect of the interpretation of:
(a) the chapeau of section 61:
- the phrase “the market value of land is assessed” refers to the particular assessment of the particular matter of market value in accordance with Division 4 of Part 3 of the Just Terms Act;
- the wider phrase “[i]f the market value is assessed” refers to the assessment of market value made by the person determining the dispossessed landowner’s claim for compensation (i.e. the Valuer-General or, if an objection is lodged, the Court);
- the precondition that the market value of the land be assessed “on the basis” that the land had potential to be used for a purpose other than that for which it is currently used;
- the basis on which the market value of the land must be assessed is that the land had potential to be used for a purpose “other than” that for which it is currently used;
- the need for the basis on which the market value is assessed to be that the land “had potential” to be used for the purpose other than that for which it is currently used;
- the Court needs to find not only that the land had the required potential to be used for that other purpose at the date of acquisition, but also that the Court’s assessment of the market value was on the basis that the land had that potential to be used for the other purpose; and
- if the land is unlikely to be developed for that other purpose for a long time and there is considerable uncertainty that it would be developed for that purpose, the precondition will not be satisfied; and
(b) paragraph (b) of section 61:
- the words “financial costs” must be of a kind falling within paragraphs (c), (d), (e) and (f) of section 59 (citing Sydney Water Corporation v Caruso  NSWCA 391; (2009) 170 LGERA 298 at );
- the words “that potential” refer back to the chapeau and to the potential of the land to be used for a purpose other than that for which it is currently used;
- the words “in realising” are given their ordinary meaning and mean “making real or giving reality to”; and
- the financial loss must be a loss that would “necessarily have been incurred” in realising that potential, and must be incurred inevitably or as a necessary result.
Having regard to these observations in relation to the operation of section 61(b) of the Just Terms Act, the Court indicated that the provision would not be engaged in circumstances where the redevelopment of the land for another purpose (i.e. urban development) would not occur for up to 10 years after the date of acquisition because the hypothetical sale does not “realise” the potential for that other purpose. In order for section 61(b) to be engaged, the Court held that the potential for the land to be used for another purpose must have temporal proximity and, therefore, the land must be “fully ripe” to be developed for that purpose in the foreseeable future.
On the question of lost profits, the Court found that the primary judge’s allowance for only one year for the El Boustanis to find a replacement property was an error of law because the primary judge had:
- made a factual finding where there was no evidence in support of that finding (Kotas v HIA Insurance Services Pty Ltd  HCA 32 at ; D’Amore v Independent Commission Against Corruption  NSWCA 187 at ); and
- engaged in a constructive failure to exercise jurisdiction (Resource Pacific Pty Ltd v Wilkinson 2013 NSWCA 33 at ; State Super SAS Trustee Corporation v Cornes  NSWCA 257 at ).
The decision provides useful guidance to resuming authorities, dispossessed landowners and valuers on the proper application of section 61 of the Just Terms Act. In particular, the case confirms that, in order for section 61 to be activated, it must be demonstrated that the potential to use the land for a purpose other than the purpose for which it is currently used is likely to be realised in the foreseeable future, and the market value of the acquired land was assessed having regard to that potential use.
As the judgment has only recently been handed down, it is noted that the period for any appeal to be filed by the parties has not yet expired.