Assessing market value in compulsory acquisition: NSW Court of Appeal further clarifies the statutory disregard

Brendan Bateman, Mark Brady and Alison Packham
19 Aug 2024
4 minutes

When assessing compensation for the market value of land compulsorily acquired in NSW, a key question is often whether certain changes in value as at the acquisition date are caused by the public purpose, and consequently must be disregarded (section 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991).

The NSW Court of Appeal had to consider earlier this year in Sydney Metro v G&J Drivas Pty Ltd [2024] NSWCA 5 whether this statutory disregard extended to disregarding actions taken by a landowner in response to a proposed acquisition which resulted in a decrease (or non-increase) in value of the acquired land. In that case, it was the decision of the land owner to pause and then stop a redevelopment. The Court of Appeal in Drivas found that any actions in response to an acquisition are not to be ignored as it is only the effects of the public purpose on value that are to be ignored. This has resulted in some applicants seeking to recast their actions as being a response to the public purpose, and not the acquisition, to come within the statutory disregard. The Court of Appeal has now to consider this approach in oOh!media Fly Pty Ltd v Transport for NSW [2024] NSWCA 200 where it usefully clarified the nature and scope of the statutory disregard:

  • “the land must be valued at the relevant date in its existing condition with all its potentialities as potentialities”;
  • “it is the land as it is on the date of acquisition which is valued in such cases, not the land as it would have been if development had been undertaken which was not pursued because of the proposed compulsory acquisition”; and
  • a “free choice by the claimant in effect breaks the chain of causation for the purposes of section 56(1)(a)”.

Valuing oOh!media’s non-digitised advertising signs

On 18 September 2020, Transport for NSW (TfNSW) acquired oOh!media’s leasehold interest over land adjacent to Qantas Drive, Mascot. oOh!media had commenced planning in 2015 to digitise some of the signs but discontinued those plans in 2016 when it became aware of the potential impact of the Sydney Gateway project on its lease. oOh!media then went to the Land and Environment Court to claim compensation of up to $52m.

Although oOh!media’s claim involved many aspects, its primary claim was that, but for the proposed acquisition, it would have proceeded to digitise six of its 18 signs. Applying the statutory disregard in section 56(1)(a), it contended that its lease should be valued on the assumption that those six signs had in fact been digitised at the date of acquisition. Its decision to cease work on its digitisation project should be ignored.

Justice Moore in the Land and Environment Court rejected the substance of oOh!media’s statutory disregard claim, and awarded compensation in the amount of approximately $2.7 million where the market value of the lease was assessed using a DCF to calculate the present value of the income that could be generated from the existing 18 billboards for the remaining term of the lease and option period. This amount was less than the Valuer-General’s determination of $3.8m.

oOh!media appealed on the basis that Justice Moore had incorrectly applied the statutory disregard test in section 56(1)(a) in rejecting oOh!media’s claim based on the notional digitisation of signs (grounds 2 and 2A), and also that he had failed to exercise his jurisdiction as a judicial value (ground 3).

Applying the statutory disregard and clarifying Drivas

oOh!media attempted to characterise its decision not to pursue the development consent to digitise signs as being caused by the public purpose and not the proposed acquisition, and thus fell outside the statutory disregard and Drivas.

The Court disagreed. First, it said that “the land must be valued at the relevant date in its existing condition with all its potentialities as potentialities”. The potential for obtaining development consent, or for land to be rezoned, are among the matters that a market purchaser would take into account. Critically, “it is the land as it is on the date of acquisition which is to be valued in such cases, not the land as it would have been if development had been undertaken which was not pursued because of the proposed compulsory acquisition” [emphasis added].

Turning to Drivas, the Court found oOh!media’s claim was relevantly indistinguishable from Drivas, with the only material factual difference being that oOh!media was less advanced in its development than the applicants in Drivas. The Drivas decision indicates the possibility that in some cases, compensation might be assessed on the basis that a rezoning or development consent would have been obtained by the date of acquisition, thus reducing the uncertainty as to the development potential of the land and increasing its potential market value.

Drivas should not, however, be understood as suggesting that if the claimant establishes a certainty of development consent or rezoning but for the public purpose, then the claimant has a right to compensation for undertaking works on the land that had not been done as though they had been done.

oOh!media’s argument that its decision not to pursue digitisation was caused by the public purpose –not the acquisition – elevated form over substance. It is the fact of possible acquisition which is of concern to the claimant, not the actual or proposed carrying out of the public purpose itself. Seeking to express or characterise that choice as a response to the public purpose and not the acquisition ignores the practical reality. A free choice made by the claimant breaks the chain of causation for the purposes of section 56(1)(a).

The LEC as judicial valuer

oOh!media contended that there had been a constructive failure by Justice Moore to exercise jurisdiction as judicial valuer as permitted by sections 38 and 39 of the Land and Environment Court Act 1979. As judicial valuer, Justice Moore was not obliged to accept or reject the evidence of one or the other of the parties’ experts but reach his own conclusions.

Justice Moore had found that if he was wrong on the application of Drivas (his judgment had been given prior to the Court of Appeal’s decision in that case), only two signs would have been digitised by the acquisition date. oOh!media sought to rely on this contingent finding to contend that market value compensation should be assessed based on the potential for two signs to be approved, but had not pleaded nor adduced any evidence to support an alternative scenario based on the potential for any of the signs to be digitised after the date of acquisition. Justice Moore treated this as an application to re-open, refused to make further findings to run this alternative scenario, and dismissed the application.

The Court of Appeal found that it was neither surprising nor unreasonable that Justice Moore treated this as an application to re-open, and there was no error of law in declining to allow that to occur.

Valuing land and the statutory disregard after Drivas and oOh!media

Not long after Drivas, we observed some applicants seeking to rely on Drivas by contending that decisions taken not to progress with a proposed development that could increase value were in response, to the public purpose rather than the acquisition, and therefore should be disregarded under section 56(1)(a).

In obiter commentary, the Court of Appeal appears to have softened the hard distinction that it drew in Drivas between actions taken in response to the acquisition as distinct from the public purpose, describing it as “elevating form over substance” and recognising the practical reality that a landowner will almost always respond to the prospect of their land being acquired, not the public purpose.

It will therefore be challenging for future claimants to assert that conscious decisions taken by them which affect the value of land being acquired should be ignored as part of the statutory disregard. This returns the focus of the market valuation exercise to the more orthodox approach of valuing the potentiality of the land, objectively assessed by the hypothetical purchaser at the date of acquisition.

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