In a recent appeal from the Victorian Civil and Administrative Tribunal, the Supreme Court has confirmed the legislative intention of the before-and-after valuation method required in assessing compensation for partial land acquisitions. This provides important clarification for valuers.

The Court also departed from previous authority¹ to settle a long-standing question about the proper method for calculating solatium under s44 of the Land Acquisition and Compensation Act 1960 (LAC Act).

Background

In Secretary to the Department of Economic Development, Jobs, Transport and Resources v CRG Nominees Pty Ltd², Justice Emerton considered the Tribunal’s award of compensation for the Secretary’s acquisition of a small sliver of 2710m2 of CRG‘s land at Hobbs Road, Wyndham Vale, which facilitated the Regional Rail Link 2 Project (Project).

The balance of CRG's 85-hectare site was residential development land within the Urban Growth Zone. A central issue at the Tribunal hearing was the fact that the Project involved a future 80-hectare train-stabling yard directly opposite CRG’s land. The future stabling yards were to be used to shunt and store metropolitan trains – a significant change in the use of this adjoining land from residential to a 24-hour a day industrial operation. The development of the stabling yards was not to occur for at least 20 years.

Prior to the acquisition date, the Secretary had commissioned a conceptual plan showing operations within the stabling yards occurring further north of the CRG land. This plan was not publicly available at the date of acquisition, but was produced and relied on by the Secretary at the Tribunal hearing. The Secretary argued the plan represented, as at the date of hearing, the most probable outcome for the development of the stabling yards and should therefore be taken into account in assessing compensation using the before and after method.

The Tribunal disregarded the plan in assessing compensation and awarded CRG $1,945,000 for loss of market value and $40,000 for solatium (plus an award for expenses). The Tribunal’s market value award had regard to the uncertain future development and operation of the stabling yards. This supported a more detrimental assumption about their potential impact upon the balance of CRG’s land. The Tribunal said:

… in the ‘before’ scenario, the subject property has a residential neighbour on the western side of Hobbs Road, whereas in the ‘after’ scenario, the neighbour is an industrial neighbour. Whilst there may well be mitigation measures that are and will be provided, it’s still an industrial neighbour.

[T]he Authority provided no credible evidence excluding the possibility of the southern section of the stabling yards area being actively used for train movement and storage.

The before and after issue: what facts or probable facts can be taken into account?

The Secretary appealed the Tribunal’s decision on several grounds, including that VCAT failed to consider facts or ‘probable facts’ that, while they were not known at the acquisition date in 2012, were known by the date of the Tribunal’s decision in 2015. Those facts related in particular to the Secretary’s conceptual plan. The Secretary argued that, having regard to this plan, the impact (especially acoustic impact) on the future residential use of the CRG land would be less than otherwise assumed and, ultimately, less compensation should be payable. The Secretary also argued the Tribunal’s assessment was in substance – if not in form – an award for injurious affection because it had regard to the impact of the Project on CRG’s land³.

Under an argument that would upset established valuation practice if accepted, the Secretary insisted that the before and after valuation method required separate assessments of market value, severance and injurious affection. The Secretary said, while market value could have regard only to what was known or foreseeable at the acquisition date, post-acquisition facts and information should be taken into account when assessing losses attributable to severance and injurious affection (thereby resulting in separate assessments). On this basis, the Secretary argued the conceptual plan should have been taken into account in assessing compensation.

In rejecting that approach, the Court held:

• the before and after method of assessing loss of market value required by s41(3) incorporates losses arising from severance⁴
• in using the before and after method, there is no requirement to extract from an assessment of market value separate sums for land value and severance
• the interstate decisions relied on by the Secretary could not be relied upon in Victoria because of critical differences in the relevant land acquisition legislation
• CRG did not make any separate claim for loss arising from injurious affection that would have required VCAT to consider information that became known after the acquisition date.

The Court held there was no error of law in VCAT’s decision of the impact of the future stabling yards or its treatment of the conceptual plan as information that emerged after the acquisition date. The Court held the conceptual plan:

… was a draft plan of unknown and unproven status. It was not a document about which any witness gave evidence. There was no evidence at all as to the authorship, origins or purpose of the plan, or that it was ever adopted by anyone or even proposed to be adopted by anyone, whether prior to or after the relevant date. There was no evidence as to what design, planning or other assumptions guided or informed the preparation of the … plan or even as to when or how the Authority or the legal representatives of the Secretary came to have [it].

Further:

Given the dearth of information and the uncertainty surrounding the genesis and status of the… plan, it was unsurprising that the Tribunal gave it little, if any, weight.

Solatium

The Secretary argued VCAT had incorrectly applied the cap on a solatium award under s44(1) of the LAC Act. Solatium is a payment made to compensate an acquired owner for intangible and non-pecuniary disadvantages resulting from the acquisition.

S44(1) of the LAC Act provides that solatium award may comprise an amount 'not exceeding 10 per cent of the market value of the land'.

The Secretary argued the 10 per cent cap was referrable to the market value of the acquired land. In contrast, CRG successfully argued solatium encompassed an amount up to 10 per cent of the total compensation awarded under s41(3), being the difference between the before and after values of CRG's entire landholding.

The Court noted the divergence of authority on this point. The Court's decision in Love, as well as that of VCAT in Heislers v Melbourne Water Corporation⁵, support the view that the words 'market value of the land' in s 44(1) mean 'market value of the land acquired’ (narrow approach). Conversely, several other decisions have assessed solatium in circumstances of partial acquisition with reference to the difference between the market value of the entire relevant landholding on a ‘before and after’ basis (broad approach)⁶.

The Secretary argued VCAT was bound to follow the Supreme Court’s decision in Love. Further, the Secretary argued market value was defined in s40 to mean the 'market value of the acquired land' and so should be applied to s44 in that way.

CRG argued Love was not a strong authority, that VCAT was not required to follow it, and it was entitled to look to other authorities adopting the broad approach.

In favouring the broad approach, Justice Emerton held:

• VCAT was not bound by the Love decision because the Court in Love was asked to consider alternative courses that were different from those before VCAT
• the Supreme Court had previously applied the broad approach
• the broad approach was consistent with the Court's interpretation of s41(3) of the LAC Act requiring a before and after assessment of the market value of the whole of the land in cases of partial acquisition. The s40 definition of 'market value' is not, on its own, determinative of 'market value' of the land taken in partial acquisition.

What does this mean for valuers?

In valuing land in cases of partial acquisition, valuers should note:

• the 'before and after' method of assessing market value under s41(3) of the LAC Act already incorporates losses due to severance and injurious affection, so separate assessments of those losses are not required or permitted in a s41(3) assessment
• it is therefore open to a claimant to claim loss of market value that subsumes severance impacts, or to separately claim losses of market value and severance – but the same before and after method applies
• injurious affection permits, and requires, relevant facts that arise after the date of acquisition to be taken into account in assessing compensation
• s44 of the LAC Act caps solatium at 10 per cent of the amount assessed under s41(3), not the market value of the acquired parcel.

The Secretary has appealed the Court’s decision. A further update will be issued in due course.

[1] Love v Roads Corporation [2010] VSC 537 (Love).

[2] [2015] VSC 301.

[3] Injurious affection is the impact on severed or adjoining land ‘by reason of the implementation of the purpose for which the land was acquired’.

[4] Consistent with the decision in Roads Corporation v Murdesk Investments Pty Ltd (2008) 18 VR 451.

[5] (2014) VCAT 632.

[6] Kozaris v Roads Corporation [1991] 1 VR 237; Coastal Estates v Bass Shire Council [1993] VR 566; Moore v Roads Corporation [2008] VCAT 838; RK Morgan Holdings Pty Ltd v MMBW (1992) 77 LGRA 102; Roads Corporation v Love [2010] VSC 32.