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Crown Solicitor's Office

​​​​Compulsory acquisition—can an increase in value of remaining land affect compensation?

Tolson v Roads and Maritime Services [2014] NSWCA 161 (read decision on NSW Caselaw)

Mark Everingham, CSO Senior Solicitor

Supreme Court of New South Wales—Court of Appeal

The appellants owned two lots with an area of some 24.4 hectares. Of that, approximately 2.4 hectares (or 10% of the total area) was acquired for a raised roadway, the Hawkesbury Valley Way. The roadway cut across the appellants' land diagonally, leaving the bulk of the land to the south-west unaffected, but cutting off direct access to the north-eastern corner of the land. Despite the detriment caused by the loss of part of the land and the lack of ready access to another part, the Court at first instance accepted the evidence of the respondent's valuer that the overall value of the appellants' retained land after the acquisition exceeded the value of the whole (or "parent parcel"), assessed without regard to the public purpose. That was because the carrying out of the public purpose had resulted in a change in the use to which parts of the land could be put (by allowing a larger area to be filled and the level thus raised above the surrounding flood plain) and the appellants were able to obtain consent to increase the industrial use of their land beyond the boundaries of the industrial zoning maintained by the local council.

The appellants claimed compensation under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ("the LAA"). The respondent, Roads and Maritime Services ("RMS"), offered payment of approximately $30,000 on account of "disturbance" caused by putting into effect the purpose of the acquisition, namely the construction of the roadway. Dissatisfied with the offer, the appellants commenced proceedings in the Land and Environment Court, seeking compensation in the order of $3.2 million. They were unsuccessful in obtaining any amount in excess of the amounts for disturbance, which were assessed at some $36,000.

Despite its initial offer, the RMS cross-appealed on the basis that no amount should have been allowed, even for disturbance.

The relevant issues for the appeal were related to whether the trial judge erred in determining the amount of compensation, either by offsetting the improved value of the remaining land against the market value of the acquired land or (on cross-appeal) by failing to offset the cost of disturbance against the improved value of the land.

Section 54 of the LAA provides an entitlement to an amount of compensation that will, having regard to all relevant matters, justly compensate a person whose land has been acquired. Those matters are listed exhaustively in s. 55 and relevantly include: "the market value of the land at the time of acquisition", "any special value of the land to the person on the date of its acquisition", "any loss attributable to disturbance" and "any increase or decrease in the value" of the remaining land.

The Court (per Beazley P, Basten JA, and Preston CJ of LEC), dismissed the appeal and cross-appeal.

The primary object of the LAA 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": s. 3(1)(a). The LAA, Pt 3, Div. 4, makes provision for the determination of the amount of compensation payable for the compulsory acquisition of land. Section 37 (in Pt 3, Div. 1) provides that:

 "[a]n owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation in accordance with this Part by the authority of the State which acquired the land".

Part 3, Divs 2 and 3 deal with procedural matters. Part 3, Div. 4 (ss. 54-65) is headed "Determination of amount of compensation". Section 54(1) provides that:

 "[t]he amount of compensation to which a person is entitled under this Part is such amount as, having regard to all relevant matters under this Part, will justly compensate the person for the acquisition of the land."

The manner in which regard is to be had to the relevant matters in s. 55 is also influenced by the requirement in s. 54 of the LAA that the amount of compensation be such as will "justly compensate" the person for the acquisition. To have regard to the relevant matters in s. 55 concerning the value of land (paragraphs (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. The gain of the increased value of the other land is able to be set off against the market value or special value of the acquired land and any loss attributable to severance to derive the net change in value of all land of the person so as to determine the amount of compensation to which the person is entitled. Such a manner of having regard to these matters concerning the value of land does result in an amount of compensation that would justly compensate the person.

The appellant's argument that the matter in paragraph (a) of the market value of the land falls into a special category that is immune from being offset by the amount of any increase in the value of other land in paragraph (f) is not supported in the language of s. 54 or s. 55 of the LAA. Sections 54 and 55 require that regard is to be had to all of the relevant matters in s. 55. The matter in s. 55 (a) is not specified as being immune from having set off against it any increase in the value of other land of the person under paragraph (f).

The particular question in issue on the cross-appeal was whether losses attributable to disturbance should be offset against the increase in value of other land in the same way as s. 55 (f) may be offset against the market value of the acquired land where there has been an increase in the value of other land referred to in that paragraph. The terms of ss. 54 and 55, their interrelationship and the interrelationship between the various paragraphs of s. 55 are critical to this issue.

The Court accepted that the meaning of the term "compensation" in the LAA is, prima facie, "compensation ... for loss": Nelungaloo Pty Ltd v Commonwealth [1947] HCA 58; 75 CLR 495 [at 571].

The question for the court in any particular case is, therefore, to determine the amount that will justly compensate a land owner for the compulsory acquisition of their land by having regard to the matters specified in s. 55 and only those matters. The answer to that question will depend upon the interrelationship of the various factors in s. 55 and the determination of the just compensation to be paid having regard to those matters.

Basten JA observed that disturbance costs are separate and distinct from the value of the acquired or the retained land and that "[i]t is consistent with the legislative purpose ... that they be allowed or disallowed in accordance with the specific statutory entitlements, without regard to the value of any land involved", which follows from the interaction of ss. 54 and 55, having regard to their proper construction. Section 54 requires that the outcome of the compensation process as prescribed is the payment of "just compensation".

Section 55 (d) recognises the likelihood that a person whose land is subject to compulsory acquisition will need, or at least should be entitled, to obtain appropriate advice or to incur other actual costs as a result of the acquisition. The Court of Appeal explained that the matters included in s. 55 (d) as specified or defined in s. 59, are of a different nature from the valuation outcome to which s. 55 (a) and s. 55 (c) and (f) if applicable, are directed.

In this case, the disturbance costs that had been allowed were relatively modest. Nonetheless, they involved actual outgoings which the Court determined were reasonably incurred. Expenses identified in s. 55 (d) are of a different nature from changes in the value of the land itself, and if they are reasonably incurred they will be recoverable as just compensation.