Rational decisions can lower compensation: NSW Court of Appeal upholds impact of owner choices in compulsory acquisitions

In the recent decision of oOh!media Fly Pty Ltd v Transport for NSW [2024] NSWCA 200, the NSW Court of Appeal has confirmed that actions taken in the shadow of an acquisition are not necessarily to be disregarded when assessing the market value of an interest in land under the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act).

This follows the earlier decision of Sydney Metro v G & J Drivas Pty Ltd [2024] NSWCA 5 (Drivas CA) where the decisions of landowners to slow and then stop development work when notified of an impending acquisition were held not to have been caused by the proposal to carry out the public purpose and were therefore not to be disregarded when assessing the market value of the acquired land under the Just Terms Act.

Facts

oOh!media Fly Pty Ltd (oOh!media) held a lease (the Lease) over a strip of land adjacent to Qantas Drive near Sydney Airport (the Land). The Lease had been granted in 2000 for a term of 10 years and was subject to three 10-year options (potentially allowing to it to run until 2040). The Lease permitted the Land to be used for 18 advertising billboards.

On 18 September 2020, Transport for NSW (TfNSW) compulsorily acquired oOh!media's leasehold interest for the purpose of the Roads Act 1993 in connection with the construction, operation and maintenance of the Sydney Gateway Project.

In 2015, oOh!media had commenced the process of converting the billboards from static to digital advertising, which if completed would result in the billboards being more profitable. In May 2016, a representative of oOh!media met with a representative of Sydney Airport who said that the plan to digitise the billboards would be "deeply impacted" by the WestConnex Project (which Sydney Gateway is related to). Consequently, the oOh!media representative emailed the consultants preparing the development application for digitisation of the billboards and told them to "halt all work…related to the airport signage project" as oOh!media was "currently looking into the WestConnex activity to see how we can manage our project in alignment with it".

oOh!media argued that it had altered its digitisation strategy because of its knowledge of the impending project and, but for the public purpose, it would have digitised six of the signs by the date of acquisition. TfNSW argued that it would not have digitised any of the signs.

The Valuer General determined compensation for oOh!media in the sum of approximately $3.8 million.

The Land and Environment Court

oOh!media objected to the Valuer General's determination in the Land and Environment Court (LEC), ultimately seeking approximately $52.2 million in its preferred scenario or $32.6 million in its alternative scenario.

Justice Moore of the LEC concluded that as a matter of law oOh!media had no right to claim compensation for "hypothetical signs" as the interest in land must be valued on the acquisition date in its existing condition with all its potentialities as potentialities. On this basis, Moore J awarded oOh!media compensation in the amount of some $2.7 million by assessing the market value of the Lease using a discounted cash flow (DCF) approach assuming that the billboards remained static and not digital advertising. oOh!media appealed to the NSW Court of Appeal.

The Court of Appeal

Grounds 2 and 2A of the appeal were, in short, that the primary judge had "applied the statutory disregard test in s 56(1)(a) incorrectly in rejecting the appellant’s claim for compensation on the basis of notionally digitised signs".

The reference to the "statutory disregard" is a common term used in the context of determining market value, which comes from section 56(1)(a) of the Just Terms Act. That relevantly provides that, in determining market value of acquired land (which includes a lease), one must disregard "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 for which the land was acquired".

Ooh Media's case in the LEC was summarised by the Court of Appeal at [46] as follows:

But for it having learned in May 2016 that TfNSW’s Sydney Gateway project would likely lead to acquisition of the signs and its Lease, it would have proceeded to digitise six of its 18 signs on Land. That would have increased the market value of its Lease. The putative decrease (or, more accurately, non-increase) in value caused by it not having done so should be disregarded pursuant to s 56(1)(a) because it was caused by TfNSW’s proposal to carry out the public purpose of the Sydney Gateway project.

The case had been argued before, but decided after, the LEC's earlier decision in G&J Drivas Pty Ltd v Sydney Metro [2023] NSWLEC 20 (Drivas). After Ooh Media filed its notice of appeal, the decision in Drivas CA was handed down.

In Drivas, an owner of land who suspected that its land would be compulsorily acquired as part of the Sydney Metro project, made the decision to slow down and ultimately stop their development. The LEC had allowed compensation on the basis that the development had been completed, finding that the reason it had not proceeded to that stage was the landowners becoming aware of the public purpose. The Court of Appeal overturned that decision, finding that the landowners' decisions to slow down and abandon the development were "independent decisions of the owners, in a freely chosen (if entirely rational) response to the possibility that their land would be acquired".

The Court of Appeal found that oOh!media's case was "relatively indistinguishable" from the circumstances in Drivas. Put simply, the Court of Appeal affirmed its decision in Drivas CA saying that "market value is not required to be assessed as though such development steps had been taken", and that the Court "is not require[d] … to disregard changes in value of the kind at issue for which the claimant is responsible, even where the claimant is acting in rational response to the proposed acquisition of the authority".

The oOh!media decision confirms the Court of Appeal's view that there is a difference between the acquisition and the public purpose. A free choice by a claimant in response to an actual or proposed acquisition, will break the chain of causation for the purpose of section 56(1)(a) of the Just Terms Act. The fact that the market value of land is depressed by that choice is not required to be disregarded when assessing compensation.

This is another example of a landowner making, by the Court's assessment, a "rational decision" in choosing to discontinue development works after becoming aware of an impending compulsory acquisition and receiving less compensation as a result. The practical effect is that it is arguably beneficial for a landowner to continue to complete a development to realise a higher market value even when it has become aware of an impending acquisition.