The Court of Appeal of the Victorian Supreme Court recently dismissed an appeal by a claimant for planning compensation, Brompton Lodge Pty Ltd (Brompton Lodge) against an earlier decision of His Honour Justice Garde to refuse a claim for planning compensation under sections 98(1)(a) and 106 the Planning and Environment Act 1987 (Vic) (PE Act).[1]
The Brompton Lodge decisions raise important considerations for landowners and developers, particularly when negotiating contracts for the sale of land or development agreements involving the allocation of entitlements to planning compensation from a vendor to a purchaser.
We expect the Brompton Lodge decisions will cause Acquiring Authorities to –
- routinely use their document inspection powers[2] under the Land Acquisition and Compensation Act 1986 (LAC Act) to seek copies of the relevant agreements and seek to understand any compensation allocation provisions; and
- attempt to refuse to award planning compensation to the claimant where planning compensation has been allocated under the contractual provisions, on the basis that the claimant has effectively sold their right to planning compensation to the purchaser (and thereby not suffered any compensable financial loss).
The Brompton Lodge decisions also demonstrate that where planning compensation has been allocated to a purchaser, then regardless of how that allocation has been made, Acquiring Authorities and the Courts will seek to interrogate all the circumstances surrounding the sale, including by reviewing the actual contracts and related agreements, the actual sale price of the land and the circumstances in which a contract was negotiated.
Background – the Brompton Lodge decisions
Brompton Lodge, Peter and Sandra Carpenter (together, the Claimants) owned approximately 103 hectares of land at Cranbourne South (Brompton Land), which they purchased between 1966 and 1984.
On 14 January 2016, a strip of the Brompton Land was reserved for the future upgrade and widening of the Western Port Highway under a Public Acquisition Overlay (PAO) in the City of Casey Planning Scheme.
In January 2018, the Claimants sold the Brompton Land to 1050 Western Port Highway Pty Ltd (Purchaser). The Purchaser was a company closely associated with a development company, Urban Development Investments Australia Pty Ltd (UDIA).
In 2013, the Claimants had entered into a Development Agreement with UDIA for the development of the Brompton Land, after its re-zoning to bring the Brompton Land within the Urban Growth Boundary in 2012.
On 8 January 2018, the Claimants entered into contract for the sale of the Brompton Land to the Purchaser for $55 million (Sale Contract). The Sale Contract also released the Claimants and UDIA from their previous obligations under the Development Agreement and assigned all the proceeds of any compensation claim for the reservation to the Purchaser.
The Claimants claimed planning compensation under ss. 98(1)(a) and 106 of the PE Act for a loss on sale, in an amount of approximately $25 million. This claim was rejected by the Acquiring Authority, Head, Transport for Victoria. The Claimants instituted proceedings for a determination of the disputed claim in the Supreme Court.
Link between reservation and financial loss on sale
Part 5 of the PE Act provides rights for some owners and occupiers of land to claim an ‘interim’ form of compensation (known as “planning compensation”), prior to the actual compulsory acquisition of land for a public purpose.
While there are various statutory heads under which planning compensation can be claimed, under section 98(1)(a), it is claimable where an owner or occupier has suffered financial loss as the natural, direct and reasonable consequence of land being reserved for a public purpose (i.e., under a PAO).
Further, section 106 of the PE Act provides that compensation is payable under section98 after the sale of land, if it can be shown that land has sold at a lower price than would reasonably have been expected if the land had not been affected by its inclusion, or proposed inclusion, in a PAO.
The claim by Brompton Lodge was made under section 98(1)(a) and 106 of the PE Act. Accordingly, the Claimants were required to demonstrate that –
- their financial loss was suffered as the natural, direct and reasonable consequence of the land being reserved for a public purpose; and
- they sold the land at a lower price than they might reasonably have expected to get if the land had not been reserved.
Garde J’s rejection of the claim
Justice Garde, at first instance, acknowledged that the land was sold substantially below market value, but rejected the claim on the basis that the necessary causal link between the reservation and the financial loss had been broken.
In Garde J’s decision, His Honour closely analysed all of the commercial circumstances of the sale, including the terms of the Sale Contract, and found that these were all intervening circumstances which “broke the chain” of causation between the reservation and any financial loss suffered by the Claimants. His Honour found that –
- the sale price in truth represented the value for the transfer of the Brompton Land and the assignment to the Purchaser of 100 % of the proceeds of the compensation claim and the extinguishment of the parties’ rights under the Development Agreement;
- there was no evidence or submissions from the Claimants that the land sale price would have been any higher had the land not been subject to a reservation in the PAO.
The Court of Appeal’s decision
The Claimants appealed to the Court of Appeal, which upheld Justice Garde’s decision and confirmed that -
- the right to compensation under s 98(1)(a) is governed by whether an actual financial loss was suffered at the date of the refusal of the planning permit application, as a natural, direct and reasonable consequence of the reservation (at [96]);
- the financial loss suffered must have “a very close and limited connection” to the event giving rise to compensation, which requires consideration of the proper cause of the actual loss (at [98]);
- the measure of loss must be referenced by all the circumstances of the actual sale of the land, including any agreements relevant to the sale, the surrounding commercial negotiations and the actual sale price of the land, rather than hypothetical valuations (at [99] and [101]).
After applying the above principles, the Court of Appeal ultimately upheld Justice Garde’s earlier finding that the Claimants had suffered no loss because they had on the facts of that case, effectively sold their right to planning compensation to the Purchaser. Therefore, there was no ‘loss on sale’ to the Claimants, for the purposes of section 106(1) of the PE Act.
Key implications from the Brompton Lodge decisions
Often, the vendor will be the only party entitled to make a claim for planning compensation.[3] As the compulsory acquisition of the reserved land may be some years away, the parties to a land sale transaction may see commercial value in triggering a planning compensation claim in the vendor’s name and the vendor assigning part or all of the proceeds of that planning compensation to the purchaser.
However, following the Brompton Lodge decisions, vendors and purchasers engaged in those kinds of negotiations should be mindful that Acquiring Authorities will seek to use their document inspection powers[4] to investigate whether such an arrangement has in truth resulted in the vendor effectively selling its right to planning compensation to the purchaser, such that no loss has been suffered and there is no entitlement to planning compensation for either party.
While the purchaser in such a situation would ordinarily be entitled to compensation when the reserved land is compulsorily acquired for the relevant public purpose under the LAC Act, this will often be some years away.
Therefore, where planning compensation is allocated under a contract of sale or development agreement, it is important for the parties to be aware that the Brompton Lodge decisions may affect the validity and utility of these kinds of compensation allocation provisions.
Please contact us should you wish to discuss the implications for the Brompton Lodge decisions for planning compensation claims under the Planning and Environment Act 1987.
[1] Brompton Lodge Pty Ltd (in administration) & Ors v Head, Transport for Victoria & Anor [2020] VSC 797 (Garde J) and Brompton Lodge Pty Ltd v Head, Transport For Victoria [2021] VSCA 302 (Court of Appeal).
[2] LAC Act, section 103.
[3] By virtue of being the owner of the reserved land at the time the reservation is imposed. See PE Act, ss. 98(1)(a) and s 99 and Halwood Corporation Ltd v Roads Corporation [1998] 2 VR 439.
[4] Under s 106 of the LAC Act.
