For what purpose? Court of Appeal clarifies valuation approach for compulsory acquisitions

The recent New South Wales Court of Appeal judgment of Goldmate Property Luddenham No 1 Pty Ltd v Transport for New South Wales [2024] NSWCA 292 will have significant implications for government authorities seeking to acquire land for public purposes.

The Court of Appeal overturned a previous decision of the Land and Environment Court (LEC) to provide clarity on the impact of the public purpose of a government authority in acquiring land on the land's market value.

The Court confined the public purpose to be disregarded under section 56(1)(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act), in the assessment of market value of acquired land, to that which is within the relevant acquiring authority’s powers of acquisition contained in the empowering legislation.

TfNSW acquires Goldmate's land

This case concerned the compulsory acquisition by Transport for NSW (TfNSW) of part of a piece of land owned by Goldmate, in Luddenham, Western Sydney.

TfNSW stated that the land was acquired "for the purposes of the Roads Act 1993", and specifically, for the construction of the M12 Motorway Project.

When it was acquired, the acquired land had been rezoned as "Enterprise". Previously, however, it had been zoned as the (far less valuable) "Rural Landscape".

Public purpose in valuation

The proper characterisation of the acquiring authority's public purpose is an important factor in assessing compensation.

This is because, when the market value of a property is being assessed, one of the matters which must not be included in the assessment is any change in the land's value caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. This is set out in section 56(1)(a) of the Just Terms Act.

The opposite applies to any other adjoining land that the person owns, such as residue land. There, the compensation assessment must include the impact of the public purpose on the value of the other land. This can result in diminution in value of the other land, called "injurious affection", or increase in value, referred to as "betterment".

Land and Environment Court proceedings

The central issues in the first instance proceedings in the LEC were:

1. the proper characterisation of the public purpose for which the Acquired Land was acquired; and
2. the application of that characterisation of the public purpose under sections 55(f) and 56(1)(a) of the Just Terms Act.

Goldmate argued that the only purpose for which the Acquired Land was acquired was the construction, operation and maintenance of the M12 Project. Per section 56(1)(a), the impact of the M12 Project on the Acquired Land's value would then need to be disregarded, but had regard to when valuing its residual land, which Goldmate claimed resulted in some injurious affection.

TfNSW, on the other hand, contended that the new zoning was a direct consequence of the State government’s response to the announcement by the Commonwealth of the Western Sydney Airport project for which infrastructure, which included the M12 Project as part of the Western Sydney Infrastructure Program, was being delivered which made those rezonings possible. Consequently, the rezonings should be disregarded in the valuation of the Acquired Land (so that it would be valued on its prior rural zoning), but had regard to when valuing Goldmate's residue land. This resulted in the residue land enjoying an increase in value by reason of its rezoning to Enterprise, which increase offset the value of the Acquired Land.

At first instance, the LEC agreed with TfNSW.

Grounds of appeal

Goldmate appealed the LEC decision on two grounds:

1. the primary judge erred in her application of s 56(1)(a) of the Just Terms Act to the facts in finding that the public purpose for which the land was acquired was not the purpose of the Roads Act, which was the source of TfNSW’s power to acquire the land; and
2. the primary judge erred by asking the wrong legal question when assessing the injurious affection to the residue land.

The second ground was only relevant if Goldmate did not succeed on the first ground. TfNSW contended that both grounds involved challenges to findings of fact, and not errors of law amenable to appeal to the Court of Appeal.

The Court allowed the appeal on ground 1 and dismissed the appeal on ground 2. This article will focus on the Court’s approach to ground 1.

Interpretation of section 56(1)(a) of the Just Terms Act

The Court interpreted the High Court's decision in Walker Corporation Pty Limited v Sydney Harbour Foreshore Authority [2008] HCA. 5 to mean that the "proposal" and "public purpose" referred to in section 56(1)(a) referred to those of the relevant acquiring authority. In this case, this was TfNSW. It did not refer to those of another entity, like a local council. This was consistent with the submissions made by Goldmate.

The Court held that the proper construction of section 56(1)(a), when read in light of Walker Corporation in particular, requires the following steps to be taken in when assessing market value under section 56(1)(a) of the Just Terms Act:

• identifying the acquiring authority;
• identifying, by reference to the empowering legislation, the public purpose(s) for which the acquiring authority has the power to acquire land;
• identifying the acquiring authority’s public purpose in acquiring the land, which must fall within the purpose(s) identified in (b) above; and
• determining the question, which is one of fact, of whether there has been any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose(s) for which the land was acquired, identified in (c) above.

Applying the four-step test to the acquisition

The appeal turned on steps (b) and (c) above.

Regarding step (b), the Court held that TfNSW’s power to acquire the land derived from section 177 of the Roads Act 1993 (NSW). Under this Act, the only purpose which was identified as supporting the acquisition was section 71, namely, "to carry out road work".

As TfNSW was unable to point to any source of power to acquire land for a broader purpose in the Roads Act, its purpose in acquiring the Acquired Land was deemed to be the carrying out of road work for the M12 Project. That is the purpose identified under step (c) above.

The case was distinguished from the factual circumstances in Walker Corporation. In that case, the Sydney Harbour Foreshore Authority had the power to act for wider purposes, such as the "economic development and use of the foreshore area". Here, however, TfNSW’s purpose, provided by the Roads Act, was confined to the narrow remit of carrying out of road work.

Therefore, the finding by the LEC that the Acquired Land was acquired for the broader purposes of serving the State government’s plans for the Aerotropolis was legally incorrect. The inquiry into the wider background of the acquisition was irrelevant.

Additional reasons of Chief Judge Preston

Chief Judge of the LEC, Judge Preston, agreed with the leading judgment of Justice Adamson but went on to add some additional reasons of his own:

• the "public purpose" expressed in section 56(1)(a) cannot include the purpose of a government authority other than the relevant acquiring authority but rather includes only the purpose for which that particular acquiring authority is authorised to compulsorily acquire land;
• the primary judge’s findings which bundled together or rolled up the composite public purposes of the NSW Government were an error of law;
• the definition of the public purpose for which the land was acquired under section 56(1)(a) directs attention only to the immediate purpose of the acquiring authority in acquiring the land and not to an overarching, “coordinated goal or purpose” of the NSW Government;
• there are several indicators in the text and context of section 56(1)(a) that support the conclusions at (a), (b) and (c) above; and
• TfNSW did not identify a purpose of the Roads Act that would support the interpretation that facilitating the Western Sydney Airport and its economic opportunities was a purpose of the Roads Act, and therefore one for which TfNSW was authorised to acquire land.