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High Court rules that purchaser of land not entitled to compensation for land injuriously affected by planning scheme

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On 8 February 2017, the High Court ruled on the entitlement of a subsequent owner of land to compensation for the reservation of that land under a planning scheme.  The High Court – in joint decisions in Western Australian Planning Commission v Southregal Pty Ltd and Western Australian Planning Commission v Leith [2017] HCA 7 (Southregal and Leith, respectively) – decided that a subsequent owner does not have a right to compensation for such ‘injurious affection’.

 

The High Court’s decision clarifies this area of the law, which was left unresolved from the Court’s decision in Western Australian Planning Commission v Temwood Holdings Pty Ltd (2004) 221 CLR 30. In that case, two High Court judges thought that a subsequent owner did not have a right to claim compensation, two other judges held the opposite view, and the fifth judge did not address the issue.  The entitlement of a subsequent owner to compensation, therefore, had been unclear since 2004.

 

Background

 

Under the Planning and Development Act 2005 (P&D Act), section 173 allows landowners to be compensated where their land is ‘injuriously affected by the making or amendment of a planning scheme’.  ‘Injurious affection’ has several meanings under the P&D Act, but in the present circumstances meant land being reserved for a ‘public purpose’ (in these cases, regional open space).

 

Section 177(1) of the P&D Act defers the right to claim compensation until one of three events occurring after the reservation: (1) when the land is first sold following the date of reservation; (2) when the responsible authority refuses an application for development approval; or (3) when the responsible authority grants development approval on unacceptable conditions.

 

In Southregal and Leith, each of the landowners had purchased their land after the date of the reservation which caused the injurious affection.  The question for the High Court was whether these subsequent landowners had a right to claim compensation.

 

High Court decision

 

The High Court, constituted by 5 judges, found in favour of the WAPC by a 4:1 decision.

 

The Court carefully examined the language of section 177(1) of the P&D Act. The Court said that it ‘is only when one of these three events occurs that a claim may be made for compensation’, and that the subsequent occurrence of the other two events does not trigger a further claim. The Court found support for this view in section 177(2) of the P&D Act, which provides that compensation is ‘payable only once’.  The Court therefore concluded that, since the land has been ‘first sold’ to Southregal and Leith, the refusal of their development applications could not trigger a further claim.

 

The landowners had argued that a subsequent purchaser could have a claim for compensation in the event that the vendor had not previously claimed compensation.  The High Court disagreed, and stated that section 177(1) does not identify who may claim compensation – this is done by section 173(1), which identifies the owner of the land as the person entitled to claim compensation.

 

Finally, the Court dealt with section 177(2) of the P&D Act, which provides for payment of compensation (where development approval is refused or subjected to unacceptable conditions), to ‘the person who was the owner of the land at the date of application (for development approval)’.  Southregal and Leith argued that this language envisaged that subsequent landowners had an entitlement to compensation. However, the Court ruled that section 177(2) is not concerned with the identification of persons who may claim compensation, but rather identification of the person to whom payment is to be made, being the owner (rather than the applicant for development approval, who may not be the owner).

 

The Court noted that it is hard to see how subsequent landowners suffer loss, or additional loss.  Land injuriously affected by a reservation will surely sell at a reduced price – the price reflecting the effect of the reservation.  The subsequent owners therefore obtain land at a lower price, which takes into account the impacts of the reservation.  The Court noted that Southregal purchased their land for $2.6 million and now claimed compensation for $51.6 million, and Mr Leith paid $1.28 million and claimed $20 million.

 

Implications of the decision

 

The High Court decision clarifies an area of WA law that has been under a cloud of uncertainty for over 12 years. The ‘winner’ from the decision is clearly the State government (and local governments with public purposes reservations under local planning schemes), which now has a clear basis for refusing to pay compensation to subsequent owners of land injuriously affected by scheme reservations.

 

Unfortunately for many landowners, the decision confirms that they are not entitled to compensation for ‘injurious affection’ by planning schemes, unless they were the owner at the time of the relevant reservation. This will be of particular concern to landowners who have purchased the affected land at a price higher than market value on the assumption that they would be able to seek compensation for the injurious affection caused by the reservation.

 

Disclaimer: The information contained in this update is not advice and should not be relied upon as legal advice. Castledine Gregory recommends that if you have a matter in relation to which legal advice is required, you consult with your legal adviser.

 

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