Economic loss caused solely by the construction of a State or industry initiated infrastructure project does not presently, on its own, attract a right to compensation for that loss.
This is so even though a business may have been part of the local or regional social and economic landscape for decades, and was purchased well before any infrastructure development plans were on the horizon. In addition, the impact of the project will often destroy the value of the business or the land.
Economic certainty and standards of living can be irretrievably damaged in these circumstances.
Economic loss caused by the development of new infrastructure can occur in a variety of ways. A business may experience economic loss directly as a result of an alteration to a road that diverts passing vehicle trade away from the business. The impacts of a new or extended coal mine or wind farm may substantially diminish the value (and enjoyment) of an existing vineyard, or other tourist development situated in close proximity to it.
Similarly, the construction of a new rail line may reduce the volumes of pedestrian foot trade on which a business depends, thereby reducing profits and the long-term viability of the business.
New infrastructure may cause economic losses of a temporary nature while construction is occurring, or it may cause long-term economic losses resulting in the closure or sale of the business or land. Is this fair? Should businesses view these losses as part of doing business and a necessary risk of an expanding economy and growing population? Or should a new framework be established that enables businesses and landowners directly and specially impacted by new infrastructure or industry-based developments to be compensated by the developer of the infrastructure?
The Commonwealth Constitution gives Parliament power to make laws for the peace, order and good government of Australia with respect to the acquisition of property “on just terms” from any State or person, for any purpose in respect of which the Parliament has power to make laws (section 51[xxxi].
Most State infrastructure developments involve the acquisition of some land. In NSW, the “just terms” principle is enshrined in NSW in the Land Acquisition (Just Terms) Act 1991 NSW (Just Terms Act) which, as an object of the Act, aims to guarantee that the amount of compensation will be not less than the market value of the land when land affected by a proposal for acquisition by an authority of the State is eventually acquired.
The right to claim compensation under the Just Terms Act is triggered when a legal or equitable interest in the land is acquired. Interpreting this requirement as widely as possible, a loss of access to an adjoining public road (being a statutory right established under the Roads Act 1993 NSW) is regarded as an “interest in land” for the purpose of s4 of the Just Terms Act.
Therefore, if a compulsory acquisition of a public road results in the closing of that road, an adjoining landowner may obtain compensation for losing access to his or her land via that road, even in circumstances where that road was not the only means of access to the landowner’s land, and no land owned by the landowner was actually acquired in the process.
The extinguishment of this access by the acquisition is treated similarly to an extinguishment of an easement.
This right is regarded as private, limited to adjoining landowner, and does not extend to every member of the public that may also have enjoyed and passed along the closed road.
It follows that if a business adjoins a public road that was acquired, thereby resulting in loss of trade, that business could claim compensation under the Just Terms Act. Similarly, if the road was closed temporarily by a short term leasehold acquisition – which is required to facilitate construction – compensation may also be sought under the Act.
However, this Act does not recognise loss of value to land or other economic losses where a legal or equitable interest in the land is not taken, even though those losses may have been solely as a result of the acquisition. Additionally, it does not recognise acquisitions or losses arising from non-State initiated developments.
Provisions under section 88k of the Conveyancing Act 1919 NSW and Section 40 of the Land and Environment Court Act 1979 NSW similarly enable compensation to be paid to a landowner whose land needs to be temporarily used to allow construction to proceed or is required via an easement for example to enable drainage from another development to occur. In these cases there is a clear affectation of a landowner’s interest in the land.
However, similar to the terms of the Just Terms Act, the entitlement to compensation only arises where a landowner has had an interest in land, whether equitable or legal, taken temporarily or acquired permanently.
Looking at the examples referred to earlier, economic losses resulting from the diversion of trade due to a road alteration, for example, or the construction of a new rail line can be readily quantified by forensic accountants. Why should these businesses not be compensated in some form, where they can show that the impact will permanently cause a reduction in their revenue?
Economic loss caused by debilitating amenity impacts emanating from a new or extended coal mine or wind farm will not attract an enforceable claim for compensation on its own, unless the land is nominated in the development consent as land to be acquired. Properties that are nominated for acquisition in development consents must meet a prescribed threshold and establish that their properties are so adversely affected by noise, dust, vibration or some other impact that the enjoyment of that property is no longer possible.
From experience, many owners whose lands do not meet this high threshold are left with properties that have been devalued by the project to such an extent that they cannot be sold for anything near their initial market value. There are plenty of examples of businesses and residential properties around NSW that have been so adversely impacted by infrastructure that they have ceased trading or sold their property if still saleable on the open market, well below the price that it was initially purchased.
The power exists for laws to be made that enable compensation of these businesses by the State on “just terms”, but an alternative is available. Parliament also has the power to establish alternatives, such as industry-based funded schemes that could be accessed by landowners in special circumstances to claim compensation if they are not able to do so under existing laws, such as the Just Terms Act. Perhaps these funds could be accessed by businesses or landowners who can establish that, in the long term, their revenues will suffer by a stipulated proportion (say up to 50%) or where there is some element of hardship that has been established.
Similarly, a legitimate case exists to help landowners access a fund in circumstances, for example, where they cannot sell their property on the open market following the approval of the project within a certain percentage of the market value of the property, had the project not been approved.
There are many types of schemes that could be created to fairly compensate businesses and landowners that genuinely warrant special attention. Especially where, through no fault of their own, they need to make way for newer, and often intrusive, developments.
This material has been produced by Beatty Hughes & Associates for the purposes of providing general information and does not constitute legal advice.