Assessing value in compensation for land acquisition cases

The Victorian Supreme Court recently handed down a decision which has the potential to change the way compensation claims under the Planning and Environment Act 1987 (Vic) (PE Act) are assessed. Barilla v Roads Corporation [2017] VSC 249 (Barilla) is an important decision made at a time when compulsory acquisitions to support Victoria’s ambitious infrastructure agenda are on the rise, and the way that value is assessed, is increasingly important.

Factual scenario

Mr and Mrs Barilla owned land in Mickelham which they intended to develop into a propagating plant nursery and tourist attraction, as well as a home. They sought compensation when more than a third of their land was reserved in order to upgrade the Hume Highway and facilitate the construction of the Outer Metropolitan Ring Road. The Barillas sold their land and claimed compensation under section 98 of the PE Act for the loss that they incurred on the sale due to the devaluation of the property after the land was reserved for a public purpose. In addition, they sought to claim the costs of the sale, the costs of tax advice they had obtained and interest (in the form of lost opportunity to invest) as adjuncts to their claim for compensation.

The claim for the loss on sale was settled between the parties, but the court was asked to consider whether the additional components of compensation sought were compensable under the PE Act.

Decision

The Court, taking a narrower approach to the interpretation of the relevant parts of the PE Act than the courts had taken in earlier decisions, held that:

• claims for financial loss under section 98 of the PE Act, which confers the right to compensation when a piece of land is reserved for a public purpose, will be limited to costs that are the natural, direct or reasonable consequence of the reservation, which ordinarily does not include the cost of tax advice or the value of the lost opportunity to invest the proceeds of sale
• further, the amount compensable under section 98 will be capped by section 104 of the PE Act at the difference the value of the land on the date the liability to pay compensation first arose (the affected value) and the value that the land would have had if it had not been reserved or required for a future public purpose (the unaffected value); items representing ‘special value’ would be excluded
• costs compensable under section 101 of the PE Act, which sets out the types of expenses that can be claimed as part of the compensation claim, will be limited to those incurred after the right to claim compensation under section 98 of the PE Act has already arisen. Accordingly, costs incurred in obtaining legal and professional advice on how the claim should be run or in obtaining a permit refusal (i.e. permit application fees, appearance fees etc.) are not compensable
• a claimant’s motive for selling land is relevant to determining whether financial loss is incurred as the natural, direct and reasonable consequence of a reservation of land for the purposes of section 98(1)(a). This means that, in circumstances where financial loss is incurred as a consequence of a decision to sell land for a reason unrelated to the reservation of the land (for example, to realise a capital gain on the land), such financial loss may fail to meet the statutory test under section 98 of the PE Act.

In past cases, particularly Mario Piraino Pty Ltd v Roads Corporation (No 1) [1991] 2 VR 534, courts had interpreted the words ‘value of the land’ in section 104 to mean ‘value to the owner’, a unifying principle which not only incorporated market value and special value (such as a characteristic of the land that is particularly relevant to the claimant), but was also capable of including other consequential losses. This meant that when assessing the amount of compensation payable, it was open to the claimant to include the ‘special value’ of the land and other consequential losses over and above the difference in market value as a result of the reservation of the land.

Similarly, courts have previously allowed a claim for costs under section 101 to include all prerequisite steps necessary to a claim for compensation, including expenses incurred in taking steps to ‘trigger’ a right to claim compensation (such as preparing a permit application to be refused, or taking steps to procure a loss on sale).

Conversely, the court in Barilla approached the assessment of the compensation claim on the assumption that the words ‘value of the land’ in section 104 should no longer be interpreted to include ‘value to the owner’ or ‘special value’, but simply the market value. This means that most claims for financial loss would be capped at the difference between the affected market value of the land and the unaffected market value of the land to an arm’s length buyer, disregarding any special value in the hands of the claimant.

Lessons

The key lesson from this case is that the concept of value can be approached in a narrow way by courts to limit the claimable amount to the difference in market value. Claims that seek special consideration of the future intentions of the owners, or the peculiar nature of the land to the claimant, may not be successful.

Land owners affected by reservations of land for a public purpose should seek advice about the potential impact of this decision on their compensation claims.

If you would like more information about this we would be more than happy to assist.