Beatty Hughes & Associates is a specialist law firm based in Sydney that specialises principally in environmental, planning and compulsory acquisition law. These submissions are based on our experience over the last 12 years in acting for dispossessed owners.

We welcome the opportunity to make these submissions on the Review in response to Themes 1, 2, 3, 4 and 6 of the Discussion Paper for the Review (Discussion Paper).

Summary

1. The “genuine attempt” required of acquiring authorities under s 10A of the Act ought to be amended to require acquiring authorities to conduct those negotiations in good faith and to genuinely consider the expert evidence submitted to it by dispossessed owners.

• Offers for market value ought to be submitted to dispossessed owners with an opening letter, along with the valuation and other expert evidence underpinning the offer.

• Advance payments of compensation ought to be made available to dispossessed owners upon receipt of an opening letter to defray their legal and experts’ costs.

• A mediation process, to be financed by acquiring authorities, ought to be made available to dispossessed owners during the s 10A period.

• Lost profits ought to be explicitly compensable in respect of businesses whose premises (and their interests in those premises) are acquired.

• The hardship acquisition provisions under the Act ought to be amended so as to:

a) give dispossessed owners access to recovery of their legal and experts’ fees, as well as advance payments in respect of the same;

b) provide clear timeframes;

c) ensure that funding is made available to a prospective acquiring authority if land is reserved for acquisition for a particular purpose, to avoid landowners engaging in negotiations with government only for the acquisition to be abandoned without an opening letter having been issued; and

d) allow for acquisition reservations and other suppressing planning controls to be lifted in circumstances where the purpose for which those controls were put in place is no longer being pursued.

A.

• Acquiring authorities, the NSW Valuer-General and the NSW Land & Environment Court ought to be required to take into account the historical and personal context in which an interest in land exists in defining that interest. In particular, regard ought to be had to the historical use and occupation of land by leaseholders, and their relationship to the freehold owner, even when the lease itself is short-term, a holdover or readily terminable in nature.

Theme 1: Genuine negotiation

The resumption of one’s home or the land on which one’s business operates is always stressful and usually unexpected. Most people do not conduct their personal or business lives anticipating a resumption of their land.

Rather than undertaking negotiations with a view to assisting affected owners to manage and move on from this loss of their land, acquiring authorities often adopt an adversarial approach in which the affected owner bears the evidentiary (and often cost) burden of convincing the authority and its panel valuer of the reasonableness of its claim.

In our experience, this difficulty is compounded by:

1. the inherent negotiating imbalance between a large, experienced, well-funded government entity and a dispossessed landowner (whether that landowner be an individual or corporation); and

2. acquiring authorities’ generally unconditional reliance on their own valuer and other experts, which leaves little room for meaningful negotiation or compromise in circumstances where reasonable, qualified expert opinions may differ as between the parties’ experts.

Although the introduction of section 10A into the Act, and with it a mandatory negotiation period prior to the issuance of a Proposed Acquisition Notice, is to be welcomed, it has not adequately addressed the two problems described above.

We note:

1. As set out in the Discussion Paper, the “genuine attempt” to acquire land by agreement required under s 10A is not defined. Acquiring authorities ought to be required to:
2. make those attempts in good faith; and
3. meaningfully and genuinely consider the expert evidence submitted by a dispossessed owner’s expert(s) – the current approach of relying solely on the acquiring authorities’ own experts, while also being unwilling to negotiate in a commercial way, means that negotiations in which the parties’ experts differ materially in their view have only limited prospects of leading to an agreement (which is one of the key objectives of the Act).

• Offers of compensation and the evidence underpinning them ought to be put to dispossessed owners upon the commencement of the s 10A period so that those negotiations have more purpose. Currently, too much of the s 10A period is consumed with discussions about the acquisition process, which could be provided to dispossessed owners by their own consultants. The current approach of acquiring authorities only providing expert reports (including valuation reports) by way of exchange (which, in our experience, is practically universally adopted) ought to be strongly discouraged. It is incompatible with the “genuine attempt” requirement in s 10A, it is obstructive to dispossessed owner’s understanding of the situation, and it unnecessarily delays the progress of negotiation.

• Advance payments of compensation ought to be made available to dispossessed owners upon the commencement of the s 10A period. This will go some way to ameliorating the negotiation imbalance highlighted above. Such an advance payment could be offset against the compensation ultimately paid for an acquisition (i.e. against the disturbance sum ultimately payable).

In respect of advance payments, we note that, in almost all cases, an affected owner will require expert legal and valuation advice to assist them in understanding their rights and in formulating, quantifying, negotiating, and prosecuting their claim. It is common for affected owners to also need to obtain the expert advice of town planners, forensic accountants and/or other experts. These costs are almost always borne by the affected owner until compensation is paid or an advance payment made – a significant burden in an already difficult situation forced upon them.

For completeness, we note that the position taken by some acquiring authorities that legal representatives and experts ought to delay receipt of their payment until a matter settles, in circumstances where that may be many months after the commencement of work, simply shifts the responsibility for those costs on to yet a different entity when, in fact, they should only be borne by the government body unilaterally causing the situation to arise. To our knowledge, the experts engaged by acquiring authorities are not subjected to the same terms.

Theme 2: Mediation

We recommend the introduction of a mechanism that would facilitate a mediation (or similar) process to the s 10A period, available on request from the landowner if, after (say) two months, negotiations have not produced an agreement between the parties. The costs of the mediator and the meditation should be borne by the acquiring authority.

Mediators ought to be suitably qualified and drawn from a pool of publicly listed and properly accredited persons. The mediator could, in preparing for a mediation, obtain (or in fact sit with) their own independent expert, if required.

This process partly mirrors the conciliation conference process provided for in s 34 of the Land and Environment Court Act 1979 – a process which regularly produces negotiated outcomes, but only many months after the acquisition process has commenced.

Theme 3: Clarify compensation provisions

The acquisition of business premises, either wholly or in part, is highly disruptive to that business. Not only does it distract the business from its primary operations, but it can also make operations and management, retention of staff and, in particular, retention of customers, difficult – especially when a relocation of the business is necessitated. Lost profits are a primary manifestation of this disruption.

Recent decisions of the NSW Land & Environment Court (LEC) and NSW Court of Appeal (CoA) have illustrated a lack of clarity in the Act as to whether and to what extent those lost profits are compensable. See, for example, comments made by Preston CJ of the LEC, sitting on the CoA, at [163] in Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41:

“Applying what I have proffered as the correct construction of s 59(f), financial losses, such as loss of profits of a business, do not necessarily fall outside the scope of “any other financial costs” in s 59(f). However, any loss of profits incurred after the business was terminated (and the actual use of the acquired land ceased) does not fall within s 59(f), as the incurring of the financial loss was not “relating to the actual use” of the land or “as a direct and natural consequence of the acquisition”. The award of compensation by the primary judge calculated as the capitalised value of a notional perpetual stream of profits from the business on the acquired land is not maintainable.”

See also in Moloney v Roads and Maritime Services [2018] NSWCA 252 at [99]-[100], which was cited in Alexandria Landfill Pty Ltd v Roads and Maritime Services; Boiling Pty Limited v Roads and Maritime Services (No 6) [2019] NSWLEC 98:

“The loss of profits claim illustrates the potentially overlapping nature of the heads of compensation in ss 55(a), (b) and (f) of the [JTC] Act and s 55(d) as reflected by s 59(f) of the [JTC] Act. The finding of the primary judge that “the right to potential profits from growing sugarcane after the date of the acquisition is encapsulated in the market value of the land” was plainly correct. The market value of the acquired land included the capacity of that land to generate a profit in the future, whether by growing sugar cane or doing anything else.

It is not a gloss on the legislation to recognise the overlapping nature of the heads of compensation in s 55. Section s 55 requires that “regard must be had” to the identified matters, without specifying how they should be understood to interrelate. When compensation has been obtained, in full, for losses occasioned by the acquisition in the claim for market value under s 55(a), (b) or (f) of the [JTC] Act, a separate claim for the same amount as disturbance under s 55(d) is not maintainable.”

The “unsettled” nature of this issue was observed by Duggan J in Olde English Tiles Australia Pty Ltd v Transport for New South Wales [2021] NSWLEC 90 at [86] (noting that her Honour’s decision was later upheld on appeal):

“As part of the arguments in this case both parties addressed me on whether a claim for loss of business profits was compensable as a disturbance claim pursuant to the provisions of s 59(1)(c) of the Just Terms Act. From that argument it is apparent that the law relating to this aspect of a disturbance claim where there has been a relocation is now unsettled. The decisions of the Court of Appeal in United and later in Alexandria Landfill Pty Ltd v Transport for NSW (2020) 243 LGERA 102 at [139] per Basten JA and [416] per Leeming JA raise question of the continuing application of El Boustani v Minister Administering the Environmental Planning and Assessment Act 1979 (2014) 199 LGERA 198 and other cases where it was accepted that such losses are compensable where there has been a relocation. Whilst it is clearly desirable that this area of the law is settled the present unsettled position is, in part, derived from the fact there has not been a case before the Court of Appeal where the issue has directly arisen for determination and commentary has been limited to dicta giving rise to further questions as to whether such dicta should be treated as binding in so far as it is “seriously considered dicta” in the Farrah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 sense.”

Notwithstanding this judicial uncertainty, it is plain in our experience that losses of this kind are a practically inevitable consequence of an acquisition of business premises.

The judicial trend of defining market value with reference to the profit-generating capacity of land, and therefore finding that market value includes what might otherwise be considered a loss of profits, is an imperfect model.

While the profitability of land as a setting for commercial activities is evident in its market value, it does not inherently capture the profitability of any one business operating from it. One business operating on and from a parcel of land may be markedly more profitable that a second business operating the same type of enterprise from the same land.

Any prudent business, in the position of a willing but not anxious vendor,[1] would not jeopardise its profitability by selling the land on and from which it operates without having sought to address any profitability issues anticipated to arise as a result of the sale. If that business is required to relocate to another site that is in a less attractive area, is further from an existing pool of experienced staff, or is further from its existing catchment of customers, then a profit loss (either permanent or temporary) is a likelihood.

The market value assessment of acquired land does not, in our submission, adequately address this impact, and certainly does not do so on a case-specific basis that would reflect the unique impacts of an acquisition on a unique business.

The approach of seeking to squeeze profit losses into market value addresses only the loss of land, not the business realities that follow: each relocating business will be met with a different set of options to the last, with some needing to move further from their original land, others needing to move to less publicly accessible or visible land, and so on. Acquiring authorities ought to ‘look forward’ to these additional issues in their efforts to adequately compensate displaced businesses.

Legislative clarity is required on this issue. To “ensure compensation on just terms for the owners of land”,[2] this ought to be resolved by the provision in the Act for compensation claims in relation to profit losses of dispossessed owners whose land hosts a business enterprise.

Theme 4: Hardship

The hardship provisions in the Act are intended to assist people whose land has been set aside for future acquisition and who need to sell that land (often their homes) for pressing personal, domestic or social reasons or to avoid the loss of their income. These people are, by definition, vulnerable, under financial and time pressure and ill equipped to navigate the compulsory acquisition process.

Additionally, given the often-lengthy time delay between the downzoning/reservation of their land for future acquisition, the determination of the highest and best use (absent the public purpose), and hence valuation of their land, is often technically complex, requiring (at least) both a town planner and valuer. For these reasons, guaranteed reimbursement of their incurred legal, valuation and expert (e.g. town planning) fees is essential.

More importantly, however, these landowners should be provided with access to funds upfront to assist them through this process. In our experience, landowners who qualify for hardship acquisition simply do not have the funds or access to the resources needed to navigate their situation.

Clear time frames for the acquisition process are critical, as is a requirement that any offer from the public authority be accompanied with a valuation report and any other technical information (e.g. town planning) relied on by the authority in quantifying the offer. The Inquiry’s suggested time frames for responding to a hardship application (28 days) and making an offer (60 days) are supported.

Consideration also needs to be given to the mechanisms to ensure that the public authority has the funding to progress the acquisition when the hardship provisions are activated.

As identified in the Discussion Paper, where land is reserved for future acquisition, this affects the landowner, the saleability of the land and its development prospects. In some instances, public authorities may decide either expressly or by implication that land is no longer required for the public purpose. In such cases, the public authority should be required to lift the designation as soon as practicable. Currently, the requirement under s 27 to inform the landowner and seek to remove the reservation (i) is not subject to a statutory timeframe; and (ii) only applies where the hardship provisions have been initiated.

Section 27 should be subject to statutory timeframes and a provision should also be made to entitle landowners (who do not meet the hardship provisions) to request that a reservation be lifted and to require the public authority to respond to that request within a reasonable time (say, 60 days).

Theme 6: Legislative amendments to clarify requirements

In United Petroleum, at [21], the CoA was clear in the way it which it defined the interest in land acquired in that case with reference solely to the strict, black letter interest in question – i.e. a lease terminable at will:

“…Thus, in The Minister v The New South Wales Aerated Water and Confectionery Company Limited … the High Court rejected the proposition that a lessee could recover more than the value ascertainable by reference to the existing lease based on a hope or expectation of the lease being extended or renewed. An expectation of renewal based on the relationship between the parties involved a personal matter which was to be excluded from the valuation of the interest. As explained by Isaacs J, ‘[t]he exclusion must be because, being personal, it necessarily is not inherent in or bound up with the interest taken so as to run with it in the hands of a purchaser’.”

This approach is consistent with the LEC’s and CoA’s approach in the Olde English Tiles litigation. In that instance, the land acquired included the business premises of the claimant, which was a business owned and conducted by the freehold owners of the acquired land. While the business had operated on and from that site for many years, the Court held that, at the date of acquisition, the claimant did not hold an interest in that land (though it had contended that it had an “oral lease” in place).

At [49] of her Honour’s first instance judgment Duggan J also cited The Minister v NSW Aerated Water and Confectionery Co Ltd (1916) 22 CLR 56:

“The unity of purpose between the Applicant and Mr and Mrs Gaudioso did not offend the principle expressed in The Minister v The New South Wales Aerated Water and Confectionary Company Limited (1916) 22 CLR 56 (Aerated Water). The decision in Aerated Water related to a determination of market value where the landlord and the tenant had some arrangements that indicated that the landlord may take a favourable position of the particular tenant in granting an option to renew the lease. In this case, it is not the issue of market value but rather what is being determined is the nature of the Applicant’s interest. The position in this case is the status quo, being the arrangement between Mr and Mrs Gaudioso and the Applicant to allow the company to remain in exclusive occupation. Applying Aerated Water to the circumstances of this case would have the consequence that it must be assumed that the status quo will not change, there is no decision affected by a personal relationship that is being undertaken such that it would offend the principle in Aerated Water.”

This approach is, while well established, in our experience, one detached from the reality of (in particular, family-run) businesses. It is common for one ‘limb’ of a business (e.g. its directors or controlling minds) to own land, and for another ‘limb’ (e.g. the actual corporate entity) to operate the commercial activity from that land. It is rarely necessary in those circumstances for a formal, long-term lease to be established between the parties – no such landowner is going to request that it provide vacant possession to itself. Such a lease only becomes relevant if a branch of government decides to compulsorily acquire that land – a scenario in anticipation of which no landowner or business can reasonably be expected to organise their affairs.

Such businesses are therefore punished as a result of the acquisition of their premises; the freehold owner will receive the market value of the land but no relocation costs because they do not operate the business themselves (and therefore do not have an ‘actual use’ of the land in their own right, under the Act), and the occupying business gets no market value and no relocation costs (despite those costs often being substantial, as was the case for the claimant in Olde English Tiles) for want of a formal interest in land. In that scenario, it cannot, in our view, reasonably be said that the dispossessed parties have been adequately compensated. Those parties must then find a way to purchase replacement land and reinstate their business on that land, despite having only received a market value payment for the freehold interest of the acquired land.

This has affected a number of our small corporate clients, and the resultant disadvantage to displaced businesses is so common as to warrant addressing in legislative reform. Such reform ought to facilitate consideration of the historical circumstances and relationships of the relevant parties in conceptualising the interests in land that are acquired or extinguished.

While this would challenge at least part of the separation of personal and proprietary interests drawn in Aerated Water, and to an extent qualifies the concepts of the Spencer buyer and seller in certain cases, it better reflects the reality of many businesses operating in NSW. It would also better serve the objects of the Act in adequately compensating parties directly and existentially affected by acquisitions of land.

We are happy to make further, detailed submissions on this issue, including as to suitable language and qualifications, having regard to how it could affect existing judicial precedent, if desirable.

Conclusion

We would welcome the opportunity to make further, oral submissions and discuss these issues further with the Review Committee.

This material has been produced by Beatty Hughes & Associates for the purposes of providing general information and does not constitute legal advice.