The Castle-style arguments

Recent cases on the Just Terms Act

The iconic Australian satire The Castle follows an Australian family who successfully challenged a compulsory acquisition of their land. One of the arguments comically portrayed in the film was that the acquisition was against the ‘vibe’ of the law.

Two cases recently handed down by the Land and Environment Court and the Court of Appeal have seen similarly themed arguments raised and rejected.

In Rafailidis v Roads and Maritime Services (NSW) (No 2) [2014] NSWLEC 9 (Rafailidis), the applicant argued, among other things, that the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) was unconstitutional, that the acquisition involved ‘slavery’ and conflicted with the Bible’s Ten Commandments.

More significantly to those involved in compulsory acquisition, in Tolson v Roads and Maritime Services [2014] NSWCA 161 (Tolson), the Court of Appeal considered the ‘statutory guarantee’ concept and the ‘just compensation override’ in the context of offsetting market value and betterment.

The constitutional validity of the Just Terms Act: RAFAILIDIS

Koula and Efrem Rafailidis were self-represented litigants disputing Roads and Maritime Services’ (RMS’) compulsory acquisition of a 30 metre strip of their land on Camden Valley Way for the upgrading and widening of that road under the Roads Act 1993 (NSW). Mr and Mrs Rafailidis commenced proceedings objecting to RMS’ offer of compensation of $126,000.

Despite commencing the appeal in Class 3 of the Court’s jurisdiction, the applicants’ arguments were not really about whether RMS had adequately compensated them for the acquisition. The case was about whether the Just Terms Act itself was a valid enactment of the NSW Parliament. Mrs Rafailidis, who appeared on behalf of her husband and herself, refused to engage with the Court in articulating what they considered to be an adequate compensation sum, as their submission was that the compulsory acquisition itself was unlawful.

The applicant’s submissions

Mrs Rafailidis made a series of ‘The Castle-style’ arguments.

flightpath

Mrs Rafailidis first argued that the State was able to make laws for the ‘peace, welfare and good government’ of the State under section 5 of the Constitution Act 1902 (NSW) (Constitution Act), and the Just Terms Act was not such a law. Mrs Rafailidis then referred to section 51(xxxi) of the Commonwealth Constitution, which states:

The Parliament shall…have power to make laws for the peace, order and good government of the Commonwealth 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. 

(Emphasis added)

Mrs Rafailidis argued that section 51 did not authorise the compulsory acquisition of property. She argued that this section only allowed the acquisition of property to occur on just terms which inherently excluded any compulsory element to the acquisition, and which required a contract or agreement between the parties.

Mrs Rafailidis argued that the acquisition by RMS in this case was not on just terms, as there was no agreement between RMS and Mr and Mrs Rafailidis as to the acquisition, and ‘just terms’. On this basis, Mrs Rafailidis argued that the acquisition was against the will of Mr and Mrs Rafailidis and ‘implied slavery’. If the Just Terms Act authorised the acquisition of property against the will of the owner, it was unconstitutional and in contravention of section 51(xxxi) of the Constitution. In any event, Mrs Rafailidis also argued that no ‘man-made law’ could authorise taking property without the consent of owners as this would amount to stealing, which was against the Ten Commandments.

The Court’s view

The Court made four key points:

  1. The Court was not authorised to strike down the Just Terms Act based on the opinion that the legislation did not promote or secure the peace, order or good government of the State under section 5 of the Constitution Act. This was a matter for Parliament and not the unelected Court.
  2. Section 51(xxxi) related to the Commonwealth and not the State Parliament, and accordingly it did not ‘control the capacity of the New South Wales Parliament to pass laws for the compulsory acquisition of property’ by a State entity, or the means by which compensation for the acquisition was to be determined.
  3. Even if section 51(xxxi) applied to State legislation, the requirement to acquire property on ‘just terms’ did not prescribe the means by which the property is to be acquired. Further, similar Commonwealth legislation (Land Acquisition Act 1989) gave the Commonwealth power to compulsorily acquire land and this legislation had never been successfully challenged.
  4. While the Commonwealth was required to provide just terms for acquisition of land, the same requirement was not required for the State, which had the power to acquire land without compensation as there was no specific precondition of just terms imposed on the State by the Constitution (Durham Holdings Pty Ltd v The State of New South Wales [2001] HCA 7 at [56]).

The Court held that the Just Terms Act was a valid law. Accordingly, the compensation for Mr and Mrs Rafailidis for their land had to be determined according to its terms and not according to any other bases derived from the Constitution which applied to the Commonwealth and not the State.

As Mrs Rafailidis did not engage on the issue of the determination of compensation, but merely nominated $550,000 as an acceptable compensation sum, the Court determined (by reference to valuer determinations) compensation to be $153,820 inclusive of legal costs, valuation fees, market valuation and the decrease in value of the residue land.

Calculation of just compensation and the future of the ‘Just Compensation Override’: TOLSON

Compulsory acquisition lawyers have expressed mixed views on the Tolson decision. Some believe that the decision ends the dispute over the existence of a ‘just terms override’ (or a ‘just compensation override), while others argue that it has not yet been settled.

The ‘just terms override’ is a more sophisticated ‘vibe’ like argument raised in The Castle.  The override involves an argument that to receive no compensation ‘seems unjust’ and accordingly the application of the heads of compensation in determining compensation must be overridden in these situations (see AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325 at [63] per Hodgson JA).

There is a particular tendency for the concept to be argued in cases involving ‘betterment’ where, due to the public purpose of the acquisition, the market value of the residual land after the acquisition is worth more than the market value of the land before acquisition. In these circumstances, it is often the case that the acquisition will involve significantly less compensation, and the dispossessed landowner raises the concept in order to obtain further compensation. A just terms override has been justified on ‘the vibe’-like arguments that to receive no compensation ‘seems unjust’ and accordingly the true operation of Just Terms Act must be overridden in these situations (see AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325 at [63] per Hodgson JA).

While leaving the issue for final determination in a matter in which it squarely arises, the Tolson decision indicates that section 54 of the Just Terms Act does not encompass a just compensation override, and that this concept does not have a part to play in determining compensation under the Just Terms Act.

Background facts

Robert and Norah Tolson were the owners of land at Mulgrave, which was used by Elf Farm Supplies Pty Ltd for its business of providing and preparing compost for mushroom farms. In 2009, RMS compulsorily acquired a strip of the Tolsons’ land to construct a raised roadway for the Windsor Flood Evacuation Route. The Tolsons claimed compensation under the Just Terms Act and were offered $30,000 for disturbance under section 55(d).

RMS did not offer any market value compensation for the acquired land. The land retained by the Tolsons had increased in value because of the acquisition, such that the increase in the value of the retained land was greater than any market value of the acquired land. This increase in value was generated because the construction of the road on the acquired land changed the use to which the retained land could be put, allowing a larger area of the land to be filled than previously possible, and raising the level above the flood plain so that the land could be used for industrial purposes.

The Tolsons appealed the compensation offer to the Land and Environment Court, arguing that despite the ‘betterment’ of the retained land, they were still entitled to compensation for the market value of the loss of the acquired land.  The Land and Environment Court determined compensation at $36,000, applying the same disturbance test as RMS and declining to exercise any just terms override discretion. The Tolsons appealed to the Court of Appeal.

Compensation under the Just Terms Act

An acquisition by the Commonwealth must be on ‘just terms’ due to section 51(xxxi) of the Constitution.  An acquisition of land in NSW does not have this constitutional limitation.

Compensation for acquisition in NSW is determined according to the terms set out in Part 3 of the Just Terms Act, in particular sections 54 and 55. Section 54(1) provides that the compensation amount should ‘justly compensate the person for the acquisition of the land’, and just compensation is to be determined by ‘having regard to all relevant matters under this Part’ rather than to the constitutional concept of ‘just terms’ applicable to Commonwealth jurisdictions.

Section 55 of Part 3 prescribes the matters which the Court is to take into account in determining just compensation. These include (among other matters):

  • the market value of the land at the date of its acquisition (section 55(a))
  • any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired (section 55(f)).

The question before the Court was whether compensation was payable where the acquisition results in an increase in the value of the retained land that exceeds the value of the acquired land. That is, should section 55(f) be used to offset any market value determination under section 55(a), even if this results in landowners receiving no compensation for their land?

Betterment offset, statutory guarantee and ‘just compensation override’

The Tolsons argued that the increase in value of the retained land under section 55(f) (i.e. ‘betterment’) should not act as an offset for the compensation for the market value of the acquired land under section 55(a), resulting in compensation less than the true market value of the land.[1]

RMS cross-appealed, arguing that betterment can not only offset the market value of the acquired land but can also offset loss attributable to disturbance under sections 55(d) and 59 of the Just Terms Act.[2]

In considering the Tolsons’ argument, the Court considered the proper construction of the Just Terms Act.[3]  Referring to section 54(1), the Court held that just compensation is to be calculated in accordance with, and only in accordance with, Part 3 Division 4 of the Just Terms Act.[4] The Court rejected the concept of a statutory guarantee that compensation be not less than the market value of the acquired land (see Hodgson JA in AMP Capital Investors Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325), and affirmed the ‘before and after’ approach to valuation (see Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314).

The Court noted that the primary judge, having concluded that the Tolsons were not entitled to compensation under section 55, asked whether an amount should nevertheless be awarded pursuant to the ‘just compensation override’ in section 54 of the Just Terms Act, and declined to award such an amount.[5] Due to the increasing prevalence of the concept, the Court addressed the ‘just compensation override’ even though the appellants did not rely on it.[6]  In doing so, the Court noted the differences between the NSW and Commonwealth land acquisition legislation, in particular:

  • section 54(1) of the Just Terms Act, which refers to relevant matters ‘under this Part’
  • section 55 of the Just Terms Act, which requires that regard be had ‘to the following matters only (as assessed in accordance with this Division)’ (emphasis added).[7]

The Court concluded that section 54(1) does not create an independent right to ‘just compensation’ outside of the exhaustive list of relevant factors in section 55.  The Court also held that the objects of the Just Terms Act, one of which is ‘to guarantee that, when land… is …acquired, the amount of compensation will not be less than the market value of the land (unaffected by the proposal) at the date of acquisition’, does not control the clear language of section 54 or 55.[8]

The Court confirmed that matters in section 55 can be taken into account ‘in a combined way’ and that section 55 does not provide a ‘mathematical formula’ (see Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of New South Wales [2006] NSWCA 314 at [57]).[9] Therefore, the market value could be offset by an increase in the value of the retained land when considered against section 55(f).[10]

However, the Court held that betterment could not offset compensation under the head of disturbance, as disturbance costs are of a different nature to the value of the acquired or the residual land.[11]

Conclusion: Overriding the just terms override?

The Court dismissed the appeal and upheld the LEC’s determination of $36,000.00 as compensation for disturbance.

Following Tolson, judicial comity should dictate a distancing from any use of the “just terms override” concept in future decisions. It should also mean there is scope for acquiring authorities to push back on valuations that include the concept. Having said the above, although we now know the inclination of the Court if the concept is raised, it would be premature to sound the death knell of the concept just yet.  This is because the Applicant’s in the case have filed special leave to the High Court, and further, since it did not form part of the Applicant’s claim and the Court’s comments were in obiter.

The Tolson case highlights the primacy of the heads of compensation under the Just Terms Act in assessing compensation and has clearly settled the debate on a statutory guarantee in cases of betterment. Where betterment is found to exist, the Court held there is no statutory guarantee that an owner will receive the market value of the acquired land. Overall, the Tolson decision provides “grist for the mill” where acquiring authorities receive claims for compensation based on the “fuzzy” application of “just terms” compensation rather than just terms compensation arrived at by the due and proper consideration of the heads of compensation.

[1] [30].
[2] [79].
[3] [25].
[4] [35]–[37].
[5] [86].
[6] [86].
[7] [88].
[8] [120]–[121].
[9] [108]–[110].
[10] [117]–[118].
[11] [83], [114]–[115].

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