Australia: Landmark compulsory acquisition decision in the NSW Land and Environment Court

Introduction

On Thursday 18 July 2019, the New South Wales Land and Environment Court published its decision in the long running case involving the former Alexandria Landfill Site at St Peters. This land was acquired by Roads and Maritime Services (RMS) for the St Peters Interchange for Stage 3 of the WestConnex Project.

The case involved a claim of $583 million by companies in the Dial A Dump Group then controlled by Mr Ian Malouf. This claim is possibly the largest claim for compensation following the acquisition of land in NSW history.

Dr Nick Brunton and Anneliese Korber, partners of Norton Rose Fulbright, acted for RMS in the proceedings and also acted for RMS in a large number of other cases involving surrounding land.

Background

The WestConnex Motorway Project in Sydney is one of the largest infrastructure projects in Australia. Stage 3 involves the construction of a major surface intersection at St Peters. In early 2014, the former WestConnex Delivery Authority (WDA) (now RMS) identified a 16ha parcel of land used as landfill as the ideal site for the intersection.

The site was owned by Alexandria Landfill Pty Ltd (ALF) and leased to a party in the Dial A Dump Group, called Boiling Pty Ltd (Boiling). Neither ALF nor Boiling carried out the landfill and waste operations on the land.

The entity that did so was another company then controlled by Mr Malouf, called Dial A Dump Industries Pty Ltd (DADI). In a series of earlier cases, that company failed to establish it had an "interest in land" as required by the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act). As a result, DADI was not entitled to any compensation at all.

The acquired land had previously been used as a brick shale quarry, and later on, as the Austral-Radford brick pits. During the 1950s, part of the former brick pits began to be used as a landfill, before eventually being expanded to include a waste recycling operation. At the date of acquisition, the landfill had approximately one million cubic metres of void space while the rest of the land was used for waste recycling, storage and ancillary purposes.

However, negotiations to acquire the land were unsuccessful. Thus on 19 December 2014, WDA gazetted the acquisition of the land. On 20 July 2015, the Valuer-General (VG) determined ALF's entitlement to compensation under the Just Terms Act in the amount of $70,019,285. This included $56,900,000 for market value and $13,119,285 for disturbance. Boiling was awarded $11,000 for legal and valuation fees.

On 14 August 2015, ALF and Boiling appealed the VG's determination in Class 3 Proceedings in the Land and Environment Court. As required by the Just Terms Act, 90% of the amount determined by the VG was paid to ALF as an advance payment. Around this time, RMS assumed the functions of WDA and thus the carriage of this matter.

The Land and Environment Court Appeal

The claim by ALF of approximately $583 million included some $273 million for the market value of the land, $60 million for special value, and approximately $179 million for disturbance costs. The disturbance claim included a claim for some $173.7 million in lost profits.

RMS argued that ALF was entitled to $50,089,177.70 comprising compensation for the market value of the land and reimbursement of legal and valuation fees. This amount was $20 million less than the VG's determination.

The hearing in the Land and Environment Court ran in stages from 28 November 2017 through to 1 May 2018 and was accompanied by five interlocutory applications and judgments. The proceedings involved 24 experts across 11 different disciplines, including contamination, landfill gas, waste operations, geotechnical, traffic, as well as the usual topics of town planning, quantity surveying, and land and business valuation. Extensive evidence was also led by officers of ALF as well as from current and former staff from RMS.

The decision

A key issue was working out what was the highest and best use of the land. The Court accepted RMS' submission this was to first fill the landfill void with excavated soils over an eight year period and to then sell the land as a single parcel of 'general industrial land' at the conclusion of those operations.

The Court also accepted RMS' evidence that at the date of acquisition, there was significant asbestos and other contamination in various waste stockpiles on the land that the NSW Environment Protection Authority required to be processed and removed. This imposed an immediate liability for the hypothetical purchaser and reduced the value of the land by approximately $31 million.

To work out the market value of the land, the Court accepted that a discounted cash flow (DCF) approach was appropriate. What then was critical was determining the key inputs into the DCF model. On almost every key input the Court preferred the evidence of RMS' experts.

As a result, the Court emphatically rejected the claim by ALF for $273 million for the market value of the land. The Court agreed with RMS and held that market value was $49,662,467 under s 55(a) of the Just Terms Act.

The Court then considered the huge claim for $179 million for disturbance. The Court held that ALF could not claim any loss of profits incurred by DADI as there was no evidence that DADI was an agent of ALF. ALF could also not claim any lost profits because there was no actual use of the land by ALF. It has leased the entirety of the land to Boiling and was not in possession or control of the land.

The Court referred to recent Court of Appeal decisions in Moloney v Roads and Maritime Services,¹ Melino v Roads and Maritime Services,² and Roads and Maritime Services v United Petroleum Pty Ltd,³ as well as the Land and Environment Court decision of Monti v Roads and Maritime Services (No 4).⁴ His Honour found that these cases demonstrate a much narrower approach to awarding disturbance costs.

As a result, the Court found that ALF was only entitled to be reimbursed for its legal and valuation costs associated with the acquisition (not the litigation) of $424,910.

The Court also rejected ALF's claims for special value. This was because ALF was not in possession of the land and was not itself using it. The Court noted that another company (DADI) occupied the land and that company was not acting as an agent of ALF. Thus there was no additional financial advantage to ALF in owning the land over and above the market value of the land. Thus there was no special value at all.

The Court ultimately assessed ALF's entitlement to compensation in the total sum of $50,087,180.68.

Footnotes

¹ Moloney v Roads and Maritime Services [2018] NSWCA 252.

² Melino v Roads and Maritime Services [2018] NSWCA 251.

³ Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41.

⁴ Monti v Roads and Maritime Services (No 4)" [2019] NSWLEC 11.

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.