Compulsory Acquisition: Case Review
What is Compulsory Acquisition?
Under Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (the Act) an authority of the State is authorised to acquire land from another party by a compulsory process, pursuant to section 37 of the Act. An owner of an interest in land which is compulsorily acquired in this manner is entitled to be paid compensation by the authority of the State that acquired the land.
Typically in common law, the circumstances of compensation payable to an owner of an interest in land that is compulsorily acquired under the Act is rather narrow. The NSW Court of Appeal in Sydney Metro v G&J Drivas Pty Ltd NSWCA 5 has further narrowed these circumstances, whereby the Court was required to consider whether a developer was entitled to compensation for what would have occurred had the developer not slowed then ceased development.
Facts
G&J Drivas Pty Ltd and Telado Pty Ltd (Respondents) were the owners of a large and valuable block of land (the land) in the Parramatta CBD. The Respondents had sought consent to increase the height of a tower on the land fronting Church Street, increasing the size of the land by approximately 7000 square meters. In November 2016, Sydney Metro, a state corporation, announced plans for the Sydney Metro West Train Line. From early 2018, Mr Coombes, a Director of the second Respondent, began to suspect the land will be compulsorily acquired for the train line project after receiving a notification for geotechnical investigation work at a site adjacent to the land. At this point the Respondents discontinued detailed drawings for the development (Discontinue Decision), and a few weeks later decided to cease all work on the development following a formal notification of the intended acquisition (Stop Work Decision) (together the Decisions). As at the date of acquisition, no physical works had been undertaken at the site.
In the initial proceedings, the Respondents disputed that the amount of compensation payable under the Act should take into account the value of the land had the development not slowed and then stopped. The primary judge ruled in favour of the Respondents, finding the market value of the land to be $179 million, and awarding $10.8 million in loss attributable to disturbance, under section 59 of the Act. These valuations then became the subject of an appeal by Sydney Metro in 2024.
Appeal
On appeal, there were two main issues considered:
whether an owner, can claim the costs of purchasing a replacement investment property within the scope of section 59 of the Act; and
whether the change in value at the acquisition date was caused by the public purpose and is required to be disregarded, pursuant to sections 55 and 56 of the Act.
As to the first issue, pursuant to section 59(1)(d) of the Act stamp duty costs reasonably incurred can be recoverable in instances of relocation. The Court of Appeal determined that the Respondents were not entitled to claim compensation for stamp duty and property replacement costs, pursuant to section 59(1)(d) and 59(1)(f) of the Act as it was not in dispute, the Respondents had not relocated.
As to the second issue, the Court adopted the earlier decision of Walker Corp Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259; (2008) HCA 5, which suggested that the correct interpretation of section 56(1)(a) of the Act involves a causation inquiry as to the effects on the market value of the land by the carrying out or the proposal to carry out a public purpose for which the land was acquired, rather than the effects of the proposed acquisition of the land itself. Applying this interpretation to the Decisions of the Respondents, it was the Discontinue Decision and the Stop Work Decision in response to the proposed acquisition which led to a devaluation of the land, rather than the proposed acquisition of the land for the Sydney Metro West Train Line, rejecting the Respondent’s arguments.
The Court noted that should the arguments of the Respondents be accepted, that could lead to situations where future claimants could potentially claim compensation as if their plans had gone ahead, without having incurred any costs of planning and construction.
Key Takeaways
The decision in Sydney Metro v G&J Drivas Pty Ltd NSWCA 5 provides clarity on the legislative intent of the “statutory disregard” in section 56(1)(a), in that it aims to provide compensation for an owner from land taken from them by a State authority for a public purpose, as if the land had been sold at the date of acquisition by a willing but not anxious seller to a willing but not anxious buyer.
This decision illuminates the circumstances of which changes to the market value of land must be disregarded under section 56 of the Act. Notably, it is the effect on the market value that carrying out the public purpose for which land is compulsorily acquired which is to be disregarded, rather than the effect of the acquisition itself.
For investors and developers this means that the market value of a property compulsorily acquired by an authority of the State will take into account decisions made by the owners in response to the acquisition, for instance discontinuing planning or construction work on a block of land like in the above case.
Additionally, investors and developers should note that a claimant who has found it necessary to relocate their business or residence may have a claim to compensation for relocation costs, such as stamp duty. A claimant who simply wishes to buy a replacement business asset or residence however, is likely to be prevented from claiming compensation for financial costs as a consequence of compulsory acquisition by a State authority.
To gain a more comprehensive understanding of compulsory acquisition, please contact our people.
Ron Zucker 0410 590 111
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