The NSW Court of Appeal's decision in Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5 will encourage landowners to continue pressing on with their redevelopment plans in the shadow of a compulsory acquisition, despite the fact that such expenditure could generate considerable waste. 

2024  has seen a number of NSW Court of Appeal decisions handed down with significant implications for how compensation is determined for compulsory acquisitions of land. 

The first decision which this article focuses on involved an appeal brought by Sydney Metro: Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5.

In Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5, the Court of Appeal unanimously allowed Sydney Metro's appeal, and ordered the remitter of the proceedings to the Land and Environment Court. The decision has prompted calls for amendments to the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) to discourage landowners seeking to ensure that market value is not compromised from continuing with development plans for land blighted by a proposed acquisition, given that such expenditure will ultimately be (in one sense) wasted if the acquisition requires demolition of what was being constructed. 

In December 2023, our year in review article examined the Land and Environment Court decision in G&J Drivas Pty Ltd v Sydney Metro [2023] NSWLEC 20.  

The key fact in the case was that, upon learning of the upcoming compulsory acquisition, the landowners decided to slow down work, and then stop work on a 25 storey office development, some 17 months before the compulsory acquisition occurred. 

At first instance in the Land and Environment Court, the landowners argued that the decrease in the value of land caused by the abandonment of the development must be disregarded under section 56(1)(a) of the Just Terms Act, as the decisions to discontinue and stop works were caused by the proposal to carry out the public purpose. Therefore, the site warranted a higher market value at the date of acquisition, as if the abandoned development had proceeded. 

Duggan J ultimately found in favour of the landowners on this issue, by finding that the decisions to slow and then abandon the development caused a decrease in the value of the acquired land at the date of acquisition compared to what the value would have been 'but for' those decisions. Her Honour found that 'but for' those decisions, the development would have been progressed by the date of acquisition, and this would have increased the value of the site. Total compensation was awarded in the amount of some $190 million for market value and disturbance. 

The Court of Appeal's decision has implications to those deciphering the "cause" of an increase or decrease in value caused by the public purpose. 

Kirk JA's decision (which Payne JA and Griffiths AJA agreed with) carefully analyses section 56(1)(a), specifically the requirement to disregard any increase or decrease in the value of land caused by the carrying out of, or the proposal to carry out, the public purpose in question. His Honour held the s56(1)(a) involves a "causative inquiry". The decision is helpfully structured first by considering "Text and context", and then the "Purposive considerations". 

Kirk JA held that the decision of the claimants to discontinue and stop work on the project arose from the suspicion and eventual knowledge that Sydney Metro would acquire the site. In other words, the loss of value "was indirectly caused by the possibility of the acquisition and the subsequent acquisition was itself the consequence of the public purpose of the project" (emphasis added). Kirk JA reasoned at [32] that "[i]n that sense, there is a “but for” causal link between the public purpose and the relative loss in market value of the kind found by the primary judge".

However, Kirk JA then reasoned at [33] that "establishing causation in a legal context typically involves attribution of legal responsibility. It is “always purposive”", and that "[a]ssessing legal causation commonly involves considerations beyond a purely factual “but for” inquiry."

His Honour held at [39] that:

"the question needs to be directed to the effects on the value of the land of the carrying out or proposal to carry out the public purpose, not to the effects of the proposed acquisition of the particular land. That focus on what has been caused by the actual or proposed carrying out of the public purpose stands in contrast to losses attributable to disturbance, which involve costs or fees of various kinds incurred in connection with the acquisition (see s 59(1)…)".

Turning to the specific facts of this case, Kirk JA found at [40] that:

…"The public purpose here – the undertaking of the Sydney Metro West project – did not itself directly cause the relevant effect on the value of the land. Rather, it was the two decisions of the respondents. Further, those decisions were not taken in response to the public purpose itself. The respondents were acting in response to the possible acquisition of their land, regardless of the nature of the purpose for which it was being acquired. Thus the effect on the value of the land was two stages removed from Sydney Metro’s carrying out of the public purpose. It involved independent decisions of the owners, in a freely chosen (if entirely rational) response to the possibility that their land would be acquired, where that acquisition was occurring in order for Sydney Metro to continue carrying out the public purpose. It strains the reasonableness of legal attribution for the free choices of the owner, responding to the proposed acquisition as opposed to the public purpose itself, to affect the amount that the acquirer has to pay."

Under the heading "Purposive considerations", Kirk JA commented at [64]:

"In aiming to provide just recompense for the loss of land compulsorily acquired there is no good reason why an owner should receive the benefit of any increase in the value of the land caused by the public purpose which led to the acquisition. Conversely, it would be unfair to owners to ignore the fact that the value of their land had been driven down (or “blighted”) by the public purpose. This intent of just compensation involves disregarding the effects on value of the actual or proposed carrying out of the public purpose. It does not require disregarding the effects of choices made by owners in response not to the public purpose itself but to the fact that their land may or will be acquired."

He also concluded at [86] that purposively, the fact that the claimant's construction of s56(1)(a) would enable former owners in their position – being a position which is far from unique – to obtain a windfall gain, also pointed against that construction of s56(1)(a). The windfall involved getting compensation for construction costs potentially not actually expended. 

The landowner's application for special leave to the High Court was unsuccessful, which means that the Court of Appeal's decision remains undisturbed. 
The immediate practical implication of the Court of Appeal's decision in Drivas is that owners of land seeking to prudently optimise compensation may need to continue their development project even in the shadow of an acquisition, until the land is actually acquired through the legal process. This applies  even if the development, whether complete or partially constructed,) might need to be demolished following an acquisition.

Decisions like this that narrow what applicants can claim may lead applicants to explore whether the special value head of compensation might be utilised in a manner similar to that eluded to by Basten JA in Roads and Maritime Services v United Petroleum Pty Ltd [2019] NSWCA 41 at [102] and in Roads and Maritime Services v Allandale Blue Metal Pty Ltd [2016] NSWCA 7 at [36].