Winky Pop v Mobil: Lost opportunities for land developers - Construction & Planning

A recent decision by the Victorian Supreme Court of Appeal in Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd [2016] VSCA 187 has clarified the availability of loss of opportunity damages in land contamination cases.

An overview of the case

In 2006, a petroleum hydrocarbon spill at the Williamstown Mobil refinery site contaminated nearby land owned by Winky Pop via groundwater.

Winky Pop sued Mobil, claiming damages for negligence in the order of $170 million for the loss of opportunity to develop their industrially zoned land for residential purposes. Winky Pop argued that at the time of the leak it was seeking to have the site rezoned, subdivided and redeveloped into a housing estate, which would have yielded significant profits had it not been thwarted by Mobil's contamination.

After an unsuccessful Supreme Court trial, Winky Pop appealed, arguing that the trial judge incorrectly found there was no genuine prospect of rezoning the land, and also erred in concluding that diminution of value damages was the most appropriate type of damages in the circumstances.

Winky Pop's appeal was unsuccessful. The Court of Appeal were also not convinced that, prior to the leak, a genuine opportunity for rezoning existed. It believed that the planning policy framework presented too many obstacles to rezoning, including:

the contamination of the land prior to the leak;
access and traffic issues; and
the fact that the Environment Protection Authority would have needed to vary the buffer requirements surrounding the land (an unlikely prospect).

The Court of Appeal also noted that although other industrial land in the area had been rezoned, it did not follow that Winky Pop's application would have been successful given the site specific considerations.

Of note was the Court of Appeal's discussion of the appropriate measure of damages in cases involving damage to land. It held that, generally, diminution in the value of the land, or cost of remediation, is the preferred measure. Although loss of opportunity damages can be awarded in some circumstances, the risk of overcompensation and unreliability can and should be addressed.

The implications of the case

This case demonstrates that in order to claim damages for lost opportunity, not only must a party convince the court that they had genuine prospects which have been frustrated by the other party, but also do so in the context of a judiciary which seems generally reluctant to award loss of opportunity damages due to risk of overcompensation and unreliability.

Key takeaways

The Victorian Supreme Court of Appeal's decision in a demonstrates that, unless a party has very strong prospects, it should think twice before pursuing loss of opportunity damages. And, if it does decide to, it should carefully structure claims for alternative damages (such as diminution of value) to fall back on if its original claim is unsuccessful. Since Winky Pop failed to argue alternative damages, it was left with the original $104,273.93 for costs it incurred in investigating the leak.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.