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Conduct and Compensation Agreements Print E-mail

conduct_intro.jpgThe following paper by Errol Morzone was presented at the Legalwise Seminar, Securing Access to Land: Rights and Obligations, on  20 November 2012.

Background

Conduct and Compensation Agreements (CCAs) are a modern day feature of resource legislation. The legislature seeks to encourage relevant resource authority holders and landholders to voluntarily enter into agreements about access, the conduct of authorised activities on land and compensation liability rather than compulsorily impose such matters upon the landholder. Compulsory powers and traditional compensation dispute resolution processes are positively discouraged in the absence of parties using all reasonable endeavours to voluntarily enter into a CCA.

The usual legislative formula is to provide:

(a) that the resource authority holder is not to access or enter private land to carry out authorised activities unless an appropriate CCA has been entered into;

(b) for the relevant resource authority holder to be liable to compensate each owner or occupier of private land in the area of the authority for any compensatable effects the eligible claimant suffers that is caused by relevant authorised activities; and

(c) that parties to use all reasonable endeavours to negotiate an appropriate CCA.

In Queensland, similar if not equivalent provisions relating to CCAs exist in each of the main pieces of resource legislation, including the Mineral Resources Act 1989 (“MRA”), Petroleum and Gas (Production and Safety) Act 2004 (PAG Act), Petroleum Act 1923, Greenhouse Gas Storage Act 2009 and the Geothermal Energy Act 2010. The purpose of this paper is to examine a number of aspects relating to CCAs including:

(a) legislative requirements for CCAs under those Acts;

(b) issues faced by parties, particularly landholders, in negotiating CCAs; and

(c) the general measure of “compensation liability”.

Legislative Requirements

Sections 10 and 13 of Schedule 1 of the MRA, the provisions dealing with CCAs for exploration permits and mineral development licences, for example, provide as follows:

“10 Conduct and compensation agreement requirement for particular advanced activities

(1) A person must not enter private land in an exploration tenement’s area to carry out an advanced activity for the tenement (the relevant activity) unless each eligible claimant for the land is a party to an appropriate conduct and compensation agreement. Maximum penalty—500 penalty units.

(2) The requirement under subsection (1) is the conduct and compensation agreement requirement.

(3) In this section—

appropriate conduct and compensation agreement , for an eligible claimant, means a conduct and compensation agreement about the holder’s compensation liability to the eligible claimant of at least to the extent the liability relates to the relevant activity and its effects.”

and

“13 General liability to compensate eligible claimants

(1) The holder of each exploration tenement is liable to compensate each owner or occupier of private land or public land in the tenement’s area (an eligible claimant) for any relevant authorised activities.

(2) An exploration tenement holder’s liability under subsection (1) to an eligible claimant is the holder’s compensation liability to the claimant.

(3) This section is subject to section 11.

(4) In this section—

compensatable effect means all or any of the following—

(a) all or any of the following relating to the eligible claimant’s land—

(i) deprivation of possession of its surface;

(ii) diminution of its value;

(iii) diminution of the use made or that may be made of the land or any improvement on it; (iv) severance of any part of the land from other parts of the land or from other land that the eligible claimant owns;

(v) any cost, damage or loss arising from the carrying out of activities under the exploration tenement on the land;

(b) accounting, legal or valuation costs the claimant necessarily and reasonably incurs to negotiate or prepare a conduct and compensation agreement, other than the costs of a person facilitating an ADR;

Examples of negotiation

an ADR or conference

(c) consequential damages the eligible claimant incurs because of a matter mentioned in paragraph (a) or (b).

relevant authorised activities means authorised activities for the exploration tenement carried out by the holder or a person authorised by the holder.”

Virtually identical access and general compensation liability provisions for advanced activities are contained in ss 500, 532 of the PAG Act; ss78Q, 79Q Petroleum Act 1923; ss283, 320 of the Greenhouse Gas Storage Act 2009 and ss216, 247 of the Geothermal Energy Act 2010.

Under each Act, the legislation provides that an eligible and a relevant authority holder may enter a CCA about how and when the authority holder may enter the land and how authorised activities under the relevant authority to the extent that they relate to the eligible claimant must be carried out and the holder’s compensation liability to the claimant or any future compensation liability that the holder may have to the claimant under the relevant authority (see s 14 Sch 1 MRA; s 533 PAG Act; s79R Petroleum Act 1923; s321 Greenhouse Gas Storage Act 2009; s248 Geothermal Energy Act 2010).

The requisite requirements or contents of a CCA are that:

(a) a CCA cannot be inconsistent with the Act, a condition of the relevant authority or a mandatory provision of the land access code and is unenforceable to the extent of that inconsistency;

(b) a CCA must provide for the matters mentioned in the earlier provisions, in particular:

(i) how and when the authority holder may enter the land;

(ii) how authorised activities must be carried out;

(iii) the holder’s compensation liability for any future liability to the claimant;

(c) must be in writing and signed by or on behalf both the authority holder and the eligible claimant;

(d) state whether the CCA is for all or part of the liability;

(e) if it is for only part of the liability state the details of each activity or affect of the activity to which the agreement relates and the period for which the agreement has effect; and

(f) provide for how and when the compensation liability will be met.

(see ss 14, 15 Sch 1 MRA; ss 533, 534 PAG Act; ss79R, 79S Petroleum Act 1923; ss322, 323 Greenhouse Gas Storage Act 2009; ss248, 249 Geothermal Energy Act 2010)

A CCA may relate to all or part of the liability or future liability (s 14 Sch 1 MRA; s 14(3) MRA; Sch 1 MRA; s 533(3) PAG Act; s79R(3) Petroleum Act 1923; s321(3) Greenhouse Gas Storage Act 2009; s248(3) Geothermal Energy Act 2010).

In addition, a CCA may provide for other matters including:

(a) monetary or non-monetary compensation. For example, a CCA may provide for the construction of works such a road or a fence;

(b) a process by which it may be amended or enforced. For example, it may provide for compensation to be reviewed on the happening of a material change in circumstances;

(c) may provide for compensation that is or may be payable under the Environmental Protection Act 1994.

(see s 14 Sch 1 MRA; s 533(2) PAG Act; s79S(2) Petroleum Act 1923; s322(2) Greenhouse Gas Storage Act 2009; s249(2) Geothermal Energy Act 2010)

Negotiation Process Issues

Each Act imposes a positive obligation upon both the resource authority holder and landholder to use all reasonable endeavours to negotiate a CCA.

Starting the Negotiation Process

Strangely, the negotiation process can only be initiated by the relevant authority holder and not by the landholder. No doubt the expectation of the legislature is that, as a authority holder cannot access or enter private land to carry out advanced relevant activities unless it has complied with the negotiation process, the incentive rests only upon the authority holder to commence the negotiation process. Until an authority holder enters upon the land, there is no need for a landholder to commence the negotiation process.

However, it is conceivable that in two instances a landholder may wish to instigate negotiations: the first is in the case of preliminary activities or activities other than advanced activities for which access can be gained by a resource authority holder without first negotiating a CCA; the second is in the case of compensatable effects suffered by the landholder caused by authorised activities on neighbouring lands in the same tenement or tenure. In each those cases, a landholder may wish to instigate the negotiation process in order to obtain proper compensation. How would the landholder do so? It is probably only with the aid of the additional jurisdiction of the Court.

Duty to Provide Information

Clearly, in order for a landholder to be able to fairly and properly participate in the negotiation process, the landholder needs to be properly informed and provided with full details of the relevant authorised activities proposed to be carried out on his land and from which he may suffer compensatable effects.

Some resource authority holders have been lax in recognising the clear implicit obligation which exists to provide landholders with full details of proposed relevant activities. It is insufficient for such details to be described generally. As a matter of natural justice and statutory obligation, a landholder is entitled to insist upon the provision of adequate or sufficient information or disclosure in relation to the activities proposed to be carried out in order to complete the negotiation process. Indeed, until provision of such sufficient information or disclosure was provided, the authority holder can be considered to have failed to use all reasonable endeavours to negotiate a CCA and, therefore, lawfully complete the negotiation process.

It is likely that an authority holder would be restrained from proceeding further with the process limiting its ability to enter upon land unless and until it provided the landholder with full and proper information concerning the relevant activities for which the legislature intends there be a CCA. Alternatively, pre-trial disclosure is likely to be ordered. Under all normal modern day Court rules, disclosure of all directly relevant documents in the possession or power of the resource authority holder is a usual requirement.

Most resource companies do recognise the need for landholders to be properly and fully informed of the relevant activity, not only as a matter of natural justice and ensuring the use of all reasonable endeavours to negotiate but also in terms of the requirements of the Act that the CCA detail each activity or the effect of the activity to which the agreement relates. Some, however, are yet to recognise the necessity of this basic obligation to provide full and proper information to landholders.

Prescription of Activities

It is important and in the interest of both parties that each activity and the effects of each activity be clearly prescribed in a CCA. It is important for a number of reasons:

(a) to ensure the resource authority holder has clear authority to enter the land and undertake the relevant activities;

(b) to ensure that questions of whether a material change in circumstances has occurred, such as to entitle a landholder to a review of compensation, can be easily determined;

(c) to ensure that the landholder receives full compensation;

(d) to ensure that the extent of the discharge of the resource authority holder’s compensation liability can be clearly and accurately identified in a CCA.

Finality and Completion of Negotiation Process

The clear intent from the relevant provisions is that, once the negotiation process commences, the process proceed through the negotiation period with both parties using all reasonable endeavours to negotiate a CCA or Deferral Agreement. Provisions use language such as “On the giving of the negotiation notice, the ... holder and the eligible claimant (the parties) must use all reasonable endeavours to negotiate a CCA or Deferral Agreement” (see eg s 17 Sch 1 MRA; s 536 PAG Act; s79U Petroleum Act 1923; s324 Greenhouse Gas Storage Act 2009; s251 Geothermal Energy Act 2010).

At the end of the minimum negotiation period the legislature, each party has the election to ask the relevant officer to call a conference or to call upon the other party to agree to an alternative dispute resolution to continue the negotiation. Upon such an election notice being given, the parties again “must use all reasonable endeavours” to finish the negotiations (see s 23 Sch 1 MRA; s 537AB PAG Act; s79VAB Petroleum Act 1923; s325AB Greenhouse Gas Storage Act 2009; s255 Geothermal Energy Act 2010). Following the expiration of such a conference or ADR, an eligible claimant or the holder may then apply to the Land Court for review of the compensation.

The parties having embarked upon the negotiation process, and landholders, particularly, having expended time and costs doing so, the legislature intends that the process proceed to determination either by agreement in a CCA or referral to the Court for review.

It does not intend that either the resource holder or the landholder unilaterally ‘opt out’ of the statutory process intended for the entering into a CCA or determination of compensation upon that process having been embarked upon. This seems to have been an erroneous view taken by some parties.

ADR Attendance and Costs

Two issues, primarily for landholders, concerns, first, the inability to enforce attendance of a party to an ADR as the other party has to agree to it and if a conference is called, the other party has to agree with authorised officer’s decision to approve attendance of legal representatives.

Secondly, it is remarkable and quite unfair that, if a landholder calls upon a resource authority holder to agree to an alternative dispute resolution process, that the landholder must bear the costs of the person who will facilitate the ADR and not have those costs recoverable, even in the event of a successful negotiation. Such costs plainly would not be incurred but for the compulsory process imposed upon the landholder and the failure of the negotiation process to that point.

There seems no rational reason for an ADR process not to be compulsory if elected nor for the costs of the person facilitating ADR not to form part of the landholder’s disturbance costs.

Misleading and Deceptive or Unconscionable Conduct

Clearly, obligations under the Competition and Consumer Act and Fair Trading Act relating to misleading and deceptive conduct and/or unconscionable conduct apply to CCA negotiations.

It behoves resource authorities to ensure that land access agents and others who represent them in negotiations, particularly those conducted directly with landholders, be vigilant to ensure that their representations or promises as to the nature and extent of activities that will occur on land, the extent to which activities may or may not affect the land are not misleading or deceptive and that they conduct themselves conscionably. There is clear risk that, in the hurry to sign up landholders, matters may be misrepresented or understated or dealings unconscionably occur. The courts will protect weak and disadvantaged persons, particularly persons who have been misled or whose bargaining power is unconscionably taken advantage.

It is only a matter of time before a CCA is set aside on this basis.

Legal Representation

Whilst legal representation is not a strict necessity, resource authority holders ought to be aware of the whole body of law developed in the 1980’s surrounding the then practice of banks having persons, who were not legally represented or had not received independent legal advice, execute security documents. The absence of independent legal advice was an important factor taken into account by Courts in determining whether the bargaining power of persons was unconscionably taken advantage of. It has resulted in the almost universal practice now adopted of acknowledging the opportunity of independent legal advice being signed by mortgagors.

It ultimately benefits both resource authority holders and landholders that CCAs are properly entered into and properly drafted with the input, where appropriate, of independent legal representatives so as to ensure not only fair dealings but that the bounds of relevant activities and extent of compensation liability discharged are clearly prescribed, understood and agreed upon. Resource authority holders, as much as landholders, do not want fights later about such matters.

Two Tier Negotiations

An area of serious concern relates to the two tier negotiation tactics adopted by some resource authority holders. By “two tier”, I mean the adoption of a strategy whereby resource authority holders conduct negotiations in respect of the same matters on two fronts: formally through legal advisers but, at the same time (often in direct contradiction to the request of the landholder through his or her legal advisor), by direct approach or contact by land assess agents and/or other person with landholders.

These tactics are clearly unconscionable and, most likely, unlawful, particularly if a request has been made for all dealings to occur only through the landholder’s legal advisor. As a practice, it should desist. The clear purpose is to seek to avoid the landholder having the benefit of independent legal advice and/or to influence or coerce the landholder into an agreement.

Measure of Compensation

The compensation liability of each resource authority holder is to compensate each owner or occupier of private land for any “compensatable effect” the eligible claimant suffers caused by the relevant authorised activities.

“Compensatable effects” are defined (see s13 Sch 1 MRA; s532(4) PAG Act; s79Q Petroleum Act 1923; s320(4) Greenhouse Gas Storage Act 2009; s247(4) Geothermal Energy Act 2010) as follows:

compensatable effect means all or any of the following—

(a) all or any of the following relating to the eligible claimant’s land—

(i) deprivation of possession of its surface;

(ii) diminution of its value;

(iii) diminution of the use made or that may be made of

the land or any improvement on it;

(iv) severance of any part of the land from other parts of the land or from other land that the eligible claimant owns;

(v) any cost, damage or loss arising from the carrying out of activities under [the relevant authority] on the land;

(b) accounting, legal or valuation costs the claimant necessarily and reasonably incurs to negotiate or prepare a conduct and compensation agreement, other than the costs of a person facilitating an ADR;

Examples of negotiation

an ADR or conference

(c) consequential damages the eligible claimant incurs because of a matter mentioned in paragraph (a) or (b).”

Matters of General Principle

The clear purpose of the above provisions is to provide compensation. And compensation is the critical concept with regard to understanding those provisions.

The concept of compensation in the above legislation has not been given a character which is different from that which applies in other area areas of law. “It is to place in the hands of the owner expropriated the full money equivalent of the thing of which he has been deprived. Compensation, prima facie, means recompense for loss and when an owner is to receive compensation for being deprived of real or personal property his pecuniary loss must be ascertained by determining the value to him of the property taken from him” (see Nelungaloo Pty Ltd v The Commonwealth (1948) 75 CLR 495 at 571; applied in Wills v Minerva (supra) at 316).

The provisions are concerned with the loss occasioned to the landholder and the individual aspects of those provisions need to be considered within that paradigm.

The provisions closely align with other compensation provisions upon which there have been Land Court or Resource Tribunal decisions. Whilst the duty of the Court, when construing legislation, is to give effect to the purpose of that individual piece of legislation by giving the words of that legislation their natural and ordinary meaning, assistance may be derived from matters of valuation principle determined under other legislation, including the Acquisition of Land Act 1967 (ALA). As Mr Scott stated in Michael J Wills v. Minerva Coal Pty Ltd (1998) 19 QLCR 297 as regards s 281 of the MRA:

“In matters of compensation arising under s 281 MRA, it is to that provision that a Court must first turn, however, as is the practice of Courts in all jurisdictions: in searching for principle or the conceptual treatment of an issue, assistance may be sought from other relevant areas of law including in the present case that involving the question of compensation flowing from the compulsory acquisition of land to the extent that there is no inconsistency with s 281 MRA. There are broad similarities between the compulsory acquisition of an interest in land and the imposition of a mining lease over land. It follows that even without detailed analysis of s 281 MRA one could anticipate benefit from consideration of the law of compensation for compulsory acquisition. There is a natural and understandable similarity.”

This is particularly apt in those projects declared an Infrastructure Facility of Significance under the State Development and Public Works Organisation Act 1971. In those cases, the powers of compulsory acquisition by the Coordinator General may ultimately be called in aid, in which case, compensation will be assessed under the provisions of the ALA.

With the above in mind, turning to the specific words within the definition of “compensatable effects”, the following general principles may usefully be distilled as applying :

(a) The definition neither prescribes nor suggests a method of assessment or valuation. The selection of an appropriate method will be a matter for the relevant expert. It is also well established, as Callinan J observed in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209 at 267, that there is no legal principle that purports to, or could close for all times, the categories or methods of valuation which might be acceptable in a particular case. A method can only be “closed” if the Act, properly construed, led to that result.

(b) The “value” of the land and improvements with which the definition is concerned is the value to the owner ascertained in accordance with the authority of Spencer v. The Commonwealth (1907) 5 CLR 418 especially at 441. In Stubberfield v The Valuer-General [1991] 1 Qd R 278, Carter J described market value as follows at 283:

"In Spencer v The Commonwealth [1907] 5 C.L.R. 418 the High Court propounded the proper test for the assessment of land value. It is the price which a willing purchaser would at the date in question have had to pay to a vendor not unwilling, but not anxious to sell. It seems to me that that test finds statutory expression in the Valuation of Land Act. In defining "unimproved value" for the purposes of the Act, it recites that that value is the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require. In simple terms it is synonymous with the market value of the land."

(c) The land is to be treated according to its highest and best use. This requires the valuer to determine the diminution in value of land on the basis of a price that would be paid for it assuming the most advantageous purpose for which the land is adapted and which is legally possible and economically feasible. Where land to be valued enjoys in whole or in part a characteristic or advantage, even if not reflected in its present use, the Court must find the notional market price which includes full allowance for that potentiality (See eg Turner v Minister for Public Instruction (1956) 95 CLR 245; Raja’s case [1939] AC 302 at 313; McKenna v Burnie Municipality (1970) 22 LGRA 402 at 409; Yates Property Group Pty Ltd v Darling harbor Authority (1971) 73 LGRA 47. However, obviously it is essential that a mere potential not be treated as a reality.

(d) The measure of compensation should place the landholder in the same financial position as he enjoyed before the activities.

(e) The value of land is the value to the landholder which is deemed to be the amount which the landholder himself would pay for the land rather than use it;

(f) “Diminution of its value” should be understood to refer to the diminution in value of the whole of the land as a consequence of the relevant activities. To confine the diminution to the area of relevant authorised activities would mean that (iii) would be similarly confined - a result not intended by the legislature (Wills v Minerva (supra) at 319).

(g) The acquiring authority itself may be considered a purchaser of acquired land which may add to its value.

(h) Where part only of a landholder’s land is acquired the landholder is entitled not only to the value of the land taken but also to compensation for all consequential losses including severance and injurious affection.

(i) The language in the phrase "diminution of the value", invites the use of the "before and after" method of valuation if practicable, or at least a method of valuation which recognises that compensation to be assessed is the measure of the difference between the value of the landholder's land before the activities and the value after the activities.

(j) Injurious affection is the type of damage done to the retained land which flows from the exercise of any statutory powers by the resource authority holder injuriously affecting the retained land. This type of damage is related to the uses of, or activities on the land and the consequent depreciation in value of the retained land (see, for example, Suntown Pty Ltd v Gold Coast City Council (1979) 6 QLCR 196; Marshall v Department of Transport (Qld) (201) 205 CLR 603).

(k) “Diminution of the use made or that may be made of the land or any improvement on it” comprises what is usually called "injurious affection" arising from the impact of activities. It refers to the diminution in use either present or potential of the land or any improvements and thus repeats part of the language in item subparagraph (ii). The provision is not directed towards the area activities, but to the balance land and improvements (Wills v Minerva (supra) at 319).

(l) Such language is quite different to that considered in Sullivan v Oil Co of Aust Ltd & Anor [2003] QCA 570 where the Court of Appeal held that the then language in the Petroleum Act 1923 did not evince an explicit or implicit intention to include injurious affection. Whilst some resource authority holders cling valiantly to that decision, the language of the current legislative provisions, including the PAG Act and amendments made to the Petroleum Act 1923, now permits for a much broader construction. The MRA provisions have long been held to allow for injurious affection; including since Sullivan (see eg Watts v QCoal Pty Ltd & Ors [2007] QLRT 23). An express purpose in the Explanatory Notes for the new PAG Act, when it was introduced, was to bring gas in line with MRA provisions.

(m) Following upon the decision in Marshall, it is not only the activities or constructions on the acquired land for which injurious affection is claimable but any injurious affection resulting from the exercise of the constructing authority’s activities in pursuance of the relevant scheme.

(n) Damage for the purposes of injurious affection is not confined to physical damage to the remaining land but any other injurious consequence resulting from the activities which depreciates the value of or increases the cost of using the other land. If the exercise of the power limits the activities on or the use of the land, interferes with the amenity or character of the land, deters purchasers from buying the land, the claimant is entitled to compensation (see Marshall supra at 625-626).

(o) The dispossessed owner, in appropriate circumstances, is entitled to an additional payment on the ground that he has been disturbed. As identified by Mr Scott in Wills v Minerva Coal Pty Ltd (supra) there are two general types of disturbance. The first of these is connected with the use of the land by the owner and the leading authority on this is The Commonwealth v. Milledge (1953) 90 CLR 157, the application of which has been consistent throughout Australian jurisdictions. The second type of disturbance relates to such expenses as legal, valuation and any other expert fees associated with the preparation of a claim for compensation. Such expenses are payable up to the date of lodgement of the claim in the Court.

(p) An owner cannot receive an amount for compensation for disturbance which is inconsistent with the basis adopted for the assessment of the value of land acquired. In other words, if the loss of any value of the land is made on the basis of a potential future use for which the present use must be abandoned, disturbance expenses cannot be based on the basis of the present lesser use.

(q) Any increase or decrease in the value of the land due entirely to the scheme for which compensation is payable is to be disregarded (referred to as the Pointe Gourde principle after the seminal decision in Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565).

(r) It is the duty of any dispossessed owner to take all reasonable measures to mitigate his loss.

The application and relevance of the above principles (and the methods used by a valuer in forming his assessment of compensation) will depend upon the nature of the case in particular circumstances and apply to a greater or lesser degree to various instances. However, they are a useful touchstone in any assessment.

Application in Practice

Generally speaking, the measure of compensation recoverable is dependent upon a number of factors, the most significant of which are: whether the land or any improvements taken from the owner are taken permanently or such that the owner is unable to use the land; or, if the owner retains the right to use the land, to what extent is that right interfered with.

Often the resource authority holder’s rights taken over an area are only temporary or partial and occur by way of an easement. In such cases, the value of any right to use the land will be dependent upon the infrastructure constructed and the terms and conditions of the easement agreement. The normal approach is:

(a) to allow 100% diminution in value of the land and improvements where infrastructure or surface rights are granted within an easement area (eg a compressor station or an access track along a pipeline);

(b) to allow a percentage diminution in the value of land improvements within an easement area where rights are only temporary or partial by nature or duration (eg buried pipelines or temporary work areas).

In addition to any percentage diminution in value of the land, a disturbance allowance also may be made for production losses during the construction period and rehabilitation period. In the case of grazing properties, this is usually measured on the basis of the carrying capacity of the land multiplied by the growth in kilograms per day and the dollar value of live weight per kilogram over the construction period. So, for example, in the case of a construction area directly impacting upon 3 hectares of land with a carrying capacity of 1AE per hectare the equation would be: 3AE x 1kg per day x $2.20 per kg x 180 days construction period.

A buffer area (in addition to that construction area directly impacted upon by works) also may be allowed, depending upon the effects of activities to areas external to the construction area. For example, in the case of works comprising high levels of noise or activity, particularly of an irregular nature, a buffer area of up to 500 metres may be supported by the evidence. Of course, the impacts of such activities within such buffer area will be of a graduating nature - from 100% closest to the works to 0% impact at the far edge. An average 50% may therefore be adopted so as to take account of this graduation. Accordingly, in a buffer area of, say, 10 hectares, again with 1AE per hectare, the equation may be thus: 10AE x 1kg x $2.20 per kg x 180 days construction period x 50%.

Following the construction phase there also may be period of rehabilitation whereby pasture grasses will need to rehabilitate. In certain instances, the most appropriate means for allowing this rehabilitation to occur may be to destock or not use the relevant lands. In other cases, graduating production losses over the period of rehabilitation may be calculated, for example, graduating from the time when production is totally lost to a time when full production is regained. In the case of grazing lands, it is not unusual for such rehabilitation periods to be up to three years with production losses calculated on the basis of 100% for the first year, around 60% for the second and 20% for the third year.

As regards injurious affection, in the case of grazing lands, the following matters, inter alia, may give rise to injurious affection:

(a) the loss of ability to operate the property as a vertically integrated breeding, growing and fattening property;

(b) the loss of flexibility to a operation;

(c) reduction in breeding capacity;

(d) loss of all weather or improved access;

(e) loss of water reticulation resources;

(f) a need to re-establish stock water;

(g) loss of cattle yard;

(h) need to refigure fencing;

(i) impacts caused by noise, particularly from blasting, loading trucks, vehicle movements, unloading trucks, etc;

(j) a reduction in pasture grown;

(k) increased management time or expenses;

(l) over capitalisation of the property having regard to the loss of grazing areas.

Each case will depend on its own circumstances. Any injurious affection to the value of the balance lands caused by impacts of the above kind is recoverable. Usually this again is measured by percentage diminution in value of the balance lands.

An aspect often of some controversy is owner’s management time. The suggestion sometimes made by some resource companies that management time is not payable is ignorant. Owner’s management time has been long recognised as compensable either as disturbance or, alternatively, as a consequence of severance. The more legitimate issue relates to the quantum of the extra management time required and its value.

Date of Assessment/Valuation

The date of assessment of compensation liability for resource authority activities is different to that which occurs under the ALA in which case there is a specific date of resumption. In the case of a resource authority compensation liability, the assessment or determination of compensation is as at the date of negotiating the CCA or at trial but recognising that the activities may not occur for some time into the future.

In those cases, where there is a postponement of payment until after the issue of a construction notice or activities commence, there is an obvious need alos to recognise and ensure present day calculations of compensation are appropriately indexed for the delay in payment.

Liberal Estimate Principle

The High Court has on several occasions emphasised that in compensation cases a principle that requires doubts to be resolved in favour of a more liberal estimate in favour of a claimant. In Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd (1947) 74 CLR 358 Dixon J stated at 373-374:

“[T]here is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a property measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court’s attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate.”

The above statement of Dixon J was later affirmed by the High Court in Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547 at 565 and more recently in Boland v Yates Property Corporation Pty Ltd (1999) 74 ALJR 209 at 279-280. In Marshall v Director General Department of Transport (2001) 205 CLR 603 McHugh J simply stated (at 627) that “Such legislation should be construed with the presumption the legislature intended the claimant to be liberally compensated …”

In McBarnon v Traffic Authority New South Wales (1995) 87 LGERA 238 Talbot J stated at 244-5:

“… it is appropriate to seek to do justice by adopting a generous approach in favour of the resumee to ensure that just compensation is paid so far as the Act allows. Therefore, any discretion should be exercised in favour of the claimant where practicable in order to achieve a just result.”

Conclusion

There may be benefits in removing the determination of compensation liability from formal modes of adjudication such as those adopted by the Courts. However, in the absence of formalised procedures as to due process and fairness, the disadvantage is that landholders may potentially be mistreated in their dealings.

It is the responsibility of all who are involved to ensure that CCA negotiations occur fairly and through well informed and fair processes so as to provide legitimacy to outcomes. In the absence of that occurring, inevitably, one way or another, determinations of compensation liability will not be finalised and further issues will arise with the real risk of litigation occurring in any event.

EJ Morzone

 


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