In Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5, the NSW Court of Appeal clarified the necessary causal link between the public purpose and increases or decreases in market value to be disregarded in a valuation under NSW compulsory acquisition legislation.
The High Court has refused special leave to appeal in G & J Drivas Pty Ltd v Sydney Metro [2024] HCASL 162, confirming the position taken by the Court of Appeal.
Snapshot
- When determining the market value of land pursuant to section 56 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Act), various matters must be disregarded (including any increase or decrease in the value of the land caused by the carrying out, or the proposal to carry out, the public purpose for which the land was acquired) (Statutory Disregard).
- In February 2024 the NSW Court of Appeal allowed an appeal in Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5, and clarified that:
- for the purposes of applying the Statutory Disregard, the causal question needs to be directed to the effects of the public purpose on the value of the acquired land, rather than the effects of the proposed acquisition (which are more appropriately addressed in an assessment of losses attributable to disturbance); and
- an increase or decrease in value caused only by choices made by a former landowner due to the possibility of land being acquired (e.g. a decision to cease construction or progressing a planning approval), are not regarded as having been caused by the actual or proposed carrying out of the public purpose.
- Subsequently, the respondents sought leave to appeal to the High Court.
- On 6 June 2024, the respondents were refused special leave (thus confirming the Court of Appeal’s decision).
- This decision will be of particular interest to acquiring authorities and persons whose land is or may be subject to compulsory acquisition.
Background
The respondents owned a large and valuable block of land in the Parramatta CBD (Land). In December 2018 they obtained development consent to erect a 25-storey tower on the Land and began undertaking steps to commence construction of the tower (e.g. preparing detailed design drawings).
In February and March 2019, the respondents began to suspect that Sydney Metro was going to compulsorily acquire the Land, based upon reports of geotechnical investigations being undertaken nearby. The respondents reduced expenditure on their development to mitigate against the risk of compulsory acquisition (Discontinue Decision).
On 21 October 2019, Sydney Metro informed the respondents that the Land would be acquired for the Sydney Metro West project. The respondents determined to cease all activity on the development (Stop Work Decision) (the Discontinue Decision and Stop Work Decision being, together, the Decisions).
The Land was compulsorily acquired on 19 March 2021, around a year and a half after the Decisions.
Market value must be determined disregarding the public purpose
Under the Act, a landowner is entitled to compensation that will justly compensate them for the acquisition of the land (s 54(1)).
In determining the amount of compensation to which a person is entitled, it is necessary to have regard to certain matters, including the market value of the land on the date of its acquisition (s 55(a)).
For the purposes of the Act, market value of land means the amount that would have been paid for the land if it had been sold at the time of acquisition by a willing but not anxious seller to a willing but not anxious buyer, disregarding any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired (s 56(1)(a)).
First instance decision
At first instance, Duggan J made a finding of fact that, but for the Decisions, the respondents would have increased the value of the Land by taking certain steps before the date of acquisition, being:
- completing design competition and obtained development consent for a further increase in gross floor area;
- calling for tenders for the demolition and construction of the development and enter into a construction contract with the successful tender;
- continuing to market with a view to obtaining tenant precommitments and as at the acquisition date, obtaining some tenant precommitment;
- demolishing the existing building; and
- obtaining the necessary Aboriginal Heritage Impact Permit and obtaining approval for and completing all necessary heritage investigations.
(Hypothetical Improvements)
Her Honour assessed the market value of the Land on the basis that the Hypothetical Improvements had been undertaken. Her reasoning was that but for the compulsory acquisition, the respondents would not have taken the Decisions, and therefore any impact on the value of the Land caused by the Decisions (i.e. the loss in value compared to a scenario where the Hypothetical Improvements were undertaken) was to be disregarded under s 56(1)(a).
Application of the Statutory Disregard clarified
In the Court of Appeal judgment, Kirk JA, with Payne JA and Griffiths AJA agreeing, rejected the but for test adopted at first instance, and instead decided the matter upon the following principles in applying the Statutory Disregard:
- the causal question needs to be directed to the effects on the value of the land of the authority carrying out or proposing to carry out the public purpose, not on the effects of the proposed acquisition (which are more appropriately addressed in an assessment of losses attributable to disturbance); and
- an increase or decrease in value caused only by choices made by an owner prior to the date of acquisition in relation to the land, being choices made because of the possibility or certainty of the land being acquired, are not regarded as having been caused by the actual or proposed carrying out of the public purpose.
The Court allowed the appeal, on the basis that the claimed loss in market value was not caused by the actual or proposed carrying out of the public purpose of the Sydney Metro West project. Rather, the respondents had taken the Decisions solely on the basis that a compulsory acquisition would probably occur. The nature of the purpose for which the Land was being acquired was not relevant to the Decisions being taken.
In reaching this conclusion, the Court placed particular emphasis on the purpose of the Act being to ensure compensation on just terms. If the Land were valued disregarding the impact of the Decisions, the respondents would have obtained a windfall by receiving market value compensation for the Hypothetical Improvements, without having to outlay the costs required to undertake them. Obtaining compensation for costs not actually expended would not be just compensation.
An interesting consequence of this decision, which was acknowledged by the Court at [62], was that it may be in the interests of some people to continue undertaking development work on their land even if they suspect or know the land will be compulsorily acquired, in order to eventually claim the market value of any such development at the date of acquisition.
Special Leave Refused
The respondents sought special leave to appeal to the High Court.
On 6 June 2024, the High Court refused special leave with costs, on the basis that there was insufficient reason to doubt the correctness of the outcome of the Court of Appeal’s decision to warrant a grant of special leave to appeal.
In refusing special leave, the approach to determining the statutory disregard in the Court of Appeal decision has been confirmed.
Key Takeaways
This decision clarifies that the Statutory Disregard is to be applied to changes in value caused by the actual or proposed carrying out of the public purpose (i.e. the project or works for which the land is being acquired), not changes in value caused solely by a compulsory acquisition or decisions taken in anticipation thereof.
If you would like to understand what this case means for you, please do not hesitate to get in touch.
Written by Peter Briggs, Brigitte Rheinberger and Rainer Gaunt.
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