NSW Court of Appeal clarifies meaning of “interest in land” under Just Terms Act

The NSW Court of Appeal has confirmed that a personal interest that cannot be legally enforced is not a compensable “interest in land” under NSW compulsory acquisition legislation. This case is important for acquiring authorities, businesses and landowners, as it clarifies when compensation is payable when land occupied by a person other than the landowner is compulsorily acquired.

Snapshot

• A business that occupied land pursuant to an undocumented arrangement claimed compensation under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) after Transport for NSW (Transport) compulsorily acquired the land.
• In a unanimous decision, the Court of Appeal held that the business did not have a compensable interest in land, as it only had a bare licence.
• The decision clarified that only legally enforceable interests are compensable under the Just Terms Act, and a person who does not have an interest with a market value is also not entitled to compensation for disturbance.

Background

Under section 37 of the Just Terms Act, an owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation.

Section 4(1) of the Just Terms Act defines “interest in land” as meaning:

(a)   a legal or equitable estate or interest in the land, or
(b)   an easement, right, charge, power or privilege over, or in connection with, the land.

In Hornsby Council v Roads and Traffic Authority (NSW) (1997) 41 NSWLR 151 (Hornsby), Meagher JA held that paragraph (b) must be limited to “proprietary or quasi-proprietary rights less than a fully-fledged estate”.

Subsequently, the Court of Appeal considered this issue at least four times. Most recently, in Dial A Dump Industries Pty Ltd v Roads and Maritime Services [2017] NSWCA 73 (DADI), Beazley P thought that paragraph (b) is not as confined as Meagher J found Hornsby, but a power or privilege within paragraph (b) must still be “capable of alienation”.

Facts

Olde English Tiles Australia Pty Ltd (OETA) operated its business from land owned by OETA’s sole directors and shareholders.

In 2018, TfNSW compulsorily acquired the land. OETA claimed compensation on the basis that it had a lease, and the Valuer-General made a determination of compensation on that basis.

OETA was dissatisfied with the Valuer-General’s determination and appealed to the NSW Land and Environment Court (NSWLEC).

Decision below

In the NSWLEC, OETA abandoned its reliance on the alleged lease. Instead, it asserted that it had a “right, power or privilege” under paragraph (b) of the definition of “interest in land”. Transport argued that OETA had no interest in land and therefore no entitlement to compensation.

On 27 August 2021, Duggan J dismissed OETA’s appeal. Her Honour accepted that OETA had no interest in land because:

• OETA only had a bare licence and did not have a right, power or privilege over or in connection with the acquire land, having regard to the following facts:
  • The only evidence as to OETA’s alleged interest in land was that of a conversation between the landowners to the effect that OETA would have the right to use the land as long as it wanted.
  • OETA did not pay any rent, and there was no evidence as to the terms of OETA’s asserted right, power or privilege.
  • The landowners had entered into heads of agreement for the development of the land without reference to OETA.
• If DADI had a right, power or privilege over or in connection with the acquired land, OETA’s bare licence was not capable of alienation by way of sale or transfer. Therefore, nothing had been divested, extinguished or diminished as referred to in section 37 of the Just Terms Act.

On appeal

OETA appealed on the grounds that Duggan J had erred in finding that OETA’s right was a personal, bare licence that did not amount to a compensable interest, and in finding that OETA’s interest was inalienable such that nothing had been divested, extinguished or diminished. To the extent that Duggan J’s judgment relied on DADI, OETA challenged the correctness of that decision.

In a unanimous decision, the Court of Appeal dismissed OETA’s appeal. Importantly, the Court held:

• Words like “privilege” cannot be extracted from the statutory context and given their ordinary English usage. In the definition of “interest”, any right, power or privilege must be “over or in connection with land”. This refers to something to be found in a legally enforceable instrument or other enforceable arrangement. It does not include interests that depend on the personal relationship between the occupier and the landowner.
• The purpose of the Just Terms Act is to provide compensation where a government authority compulsorily acquires land for public purposes. This does not encompass providing compensation for a permissive occupancy terminable at will. Where a business has no interest with a market value under s 55(a), it does not have a freestanding right to recover compensation for disturbance under s 59, such as the costs of relocation or stamp duty.
• The fact that Parliament had made substantial amendments to the Just Terms Act since Hornsby, DADI and other decisions of the Court of Appeal without seeking to vary the effect of those decisions militates against the Court departing from its previous decisions.

Takeaways

This case is important for public authorities, businesses and landowners. Although there are still unsettled questions about the meaning of paragraph (b) of the definition of “interest in land” (for example, the Court did not decide whether an interest must be alienable), it has provided much clarity, specifically by confirming that:

• for an interest to be a compensable under the Just Terms Act, it must be legally enforceable and not merely dependent upon the personal relationship between the occupier and the landowner; and
• a business that does not have an interest with a market value does not have a freestanding right to be compensated for disturbance under s 59 of the Just Terms Act.

Herbert Smith Freehills represented the successful acquiring authority in the Land and Environment Court and the Court of Appeal.

If you would like to understand what this case means for you, please do not hesitate to get in touch.

By Peter Briggs, Partner, Sophie Volk, Solicitor and Zhongwei Wang, Solicitor

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