Land resumption in Queensland – profit from loss
There are several major infrastructure projects on the cards for Queensland. High priority State projects include the Cross River Rail and the Ipswich Motorway upgrades – both on the Australian Government’s recently revised Infrastructure Priority List.1 At local government level, the Brisbane Metro and the Sunshine Coast Light Rail Project are also planned.
It is inevitable that these proposed projects will involve compulsory land resumption by the government under the Acquisition of Land Act 1967 (Qld) (“the ALA”). This raises concerns for many landholders in Queensland regarding how these projects will impact both their property and their rights to compensation.
For landholders who operate (or are seeking to operate) a commercial enterprise on the land being taken, the question of compensation for loss of profits is often a bone of contention. Questions that may arise include to what extent an affected party can recoup for loss of business opportunity or investment, or if only past actual expenditure is recoverable.
In this Property Reporter, Moulis Legal senior lawyer, Ann Jovanovic, and lawyer, Alexandra Geelan, shine a spotlight on the grey areas related to compensation for land resumption in Queensland. They also provide some practical guidance for property developers, business owners and other affected parties seeking to protect their interests or claim compensation for losses.
For buyers, developers and investors, actions taken pre-completion can be key
Compulsory land acquisitions are often beyond the control of the affected parties and can be, to some extent, an unforeseeable event. Although a party cannot always stop a public authority from taking land, though they could try to oppose it during the land resumption process, there are sometimes measures they can take to protect themselves or at least mitigate the risk of loss. For those seeking to acquire, develop or invest in a business venture or land, it is important to build protections and risk manage the commercial transaction from the outset – irrespective of whether the resumption takes place.
In any business sale or acquisition concerning land, it is imperative that targeted due diligence is conducted. This should include an inspection to identify and verify the permitted land use and future use of the property – especially in relation to whether the land (or any part of it) is earmarked for potential development by local or state government. Carrying out searches and reviews of any development applications and approvals, local and state planning schemes, and building or planning permits may also help to determine the land’s development potential and constraints.
Information obtained from the due diligence process can then assist in developing appropriate contractual protections for a prospective buyer, property investor or developer. For parties acquiring land, it is ideal to insert contractual protections such as warranties and pre-completion termination rights that mitigate risks and give the right to seek compensation or exit the transaction should a potential resumption scenario occur.
Common compensatable grounds
Where property is to be compulsorily acquired, a party would first need to establish that they are entitled to compensation under the ALA. Usually, an entitlement to compensation exists by virtue of the public authority (or “constructing authority”) officially announcing the land resumption, which then converts an interest in land to a right to claim compensation. This announcement is a basic prerequisite that is achieved by publishing a “Taking of Land Notice” (also known as a Resumption Notice) in the Government Gazette.
Calculating the level of compensation is complicated and can extend beyond just recovering the reduction in value of a claimant’s land. The ALA2 sets out various grounds of compensation with the most common being (but not limited to) the value of the land resumed and disturbance costs. These two grounds of compensation are further explored below.
Determining the value of the land
In determining the value of land that has been compulsorily acquired, the Land Court must take into account the land’s most advantageous purpose or its “highest and best use.” This means the best use that a claimant could have put their interest in the land to if the land resumption had not taken place.3 It’s important to note that this assessment looks beyond the actual use of the land at the time of the Resumption Notice. It considers the use that results in the highest economic value on the open market or that is reasonably expected to produce the greatest net return to the claimant over time.
In determining the highest and best use of the land, planning controls and other factors that may affect the land are taken into account. The value of the land can also be assessed by reference to subsequent sales of similar parcels of land after the date of resumption but any intervening changes in the market between the resumption date and the date of sale4 must be taken into account.
However, not all contracts or arrangements entered into after the land resumption process begins will be taken into account when assessing compensation. In particular, dealings entered into for the main or sole purpose of enabling another party to obtain compensation under the ALA will not be considered.5
Courts are also mindful about “double dipping” in compensation claims. For example, where the market value of land has been assessed at more than its present use value and that amount exceeds the value that could be attributed to disturbance losses, then a claimant cannot also claim compensation for disturbance costs similar to those already assessed under the “highest and best use” test. Of course, disturbance costs can still be claimed if they are reasonably incurred and do not amount to double compensation.
Disturbance costs – recouping business and economic losses
In general, disturbance costs cover a range of compensatable items, such as:
- valuation costs, legal fees and other professional fees;
- costs (including stamp duty) relating to buying other land to replace the land taken;
- business losses including loss of profits; and
- economic losses and other costs.
Interest on the compensation amount can also be included by order of the Land Court or Land Court of Appeal.6
A critical factor in determining whether compensation applies is whether the costs or losses are reasonably incurred. For financial costs, loss of profits and other economic costs, there also needs to be a connection between the loss suffered and the land resumed. This means that the claimant must be able to show that the loss is a direct result of the land resumption. That connection must not be too remote, and the loss must have been unavoidable.
Compulsory land acquisitions can lead to costly consequences for those affected – especially where it involves the loss of a business or commercial enterprise. Often, in these situations a range of business and economic losses occur. These fall under the umbrella of disturbance costs. Some of these are straightforward quantifiable costs while others verge on being speculative. It goes without saying that calculating the loss of profits depends on the factual scenario of each case and the quality of the evidence put forward.
Given how compensation is assessed, what is compensatable is not necessarily linked to improvements spent on the land or business. Compensation assessments for value of land, for instance, rely on market data and expert evidence to determine the land’s best use, not what costs a claimant has incurred.
Accurate and reliable evidence is crucial to any claim for compensation, particularly when demonstrating a direct, causal link between the loss and the land resumption. This process involves exercising reasonable judgement and considering whether any other events or causes may have interrupted that causal link or natural flow of consequences. This seems logical but how it plays out in practice is not always clear, particularly when it comes to avoidable losses.
Avoidable losses are not always clear-cut
If a loss is found to be avoidable then it is not recoverable as compensation. For example, where a claimant has failed to exercise a contractual right that allows them to mitigate the risks, avoid or minimise their losses, this may arguably be an avoidable loss.
Similarly, where a claimant has delayed exercising their rights to their detriment during the land resumption process or during the pre-acquisition stage, this too could be considered an avoidable loss. This occurred in the case of Kabale Holdings Pty Ltd V Director-General, Department of Transport BC9502084 (“the Kabale case”), where the Land Court of Queensland refused to allow a claim for interest on funds borrowed, council rates and land tax during a certain period. The Court found that these expenses were incurred as a result of the claimant’s own indecision and delay in lodging objections to a development approval issued by the local council. The development approval process was subject to conditions that put the claimant on notice of the possibility of resumption in the future. Also, in the absence of adequate evidence to the contrary, the Court considered that these losses appeared to show elements of double dipping so this part of the compensation claim was rejected in full. The Kabale case highlights the importance of acting prudently and in a timely manner to mitigate losses.
A causal link between loss and land resumption
Some grounds for compensation rely on actual losses – including profits, business and other economic losses. However, there must be a causal link between those losses and the land resumption. The quality and breadth of evidence provided to support this claim is also important when assessing the extent of the loss. A recent case serves as a good reminder that these requirements must be satisfied in a compensation claim for losses of this kind.
In Zacsam Pty Ltd v Moreton Bay Regional Council  QLC 12 (“the Zacsam case”), the claimant, Zacsam Pty Ltd (“Zacsam”) successfully claimed compensation for loss of business profits as a result of compulsory land resumption by the Moreton Bay Regional Council (“the Council”). Zacsam operated a pizza franchise in a leased premise located in the Castle Hill Shopping Centre. Land along the frontage of the shopping centre was resumed for roadworks. Zacsam claimed compensation for, amongst other things, loss of profits and costs associated with the claim for compensation and the proceedings and interest.
The Court awarded Zacsam compensation for loss of profits together with interest calculated from the date the business ceased to operate to the date of payment, and costs incurred in making the compensation claim. The Court considered the actual sales figures of the business during the relevant period and the seasonally adjusted turnover. On examination of the economic evidence, the Court found that the business was doing better before the roadworks than after they were complete. Resumption of the land had resulted in a sustained decline in business performance. On these facts, the Court was satisfied a sufficient causal link existed that supported a claim for loss of profits.
It is interesting to note that even though the interference to the business was temporary, the Court was satisfied that this was likely to have a permanent impact on customer behaviour that adversely affected Zacsam’s business. Customer access to the business was interrupted only while the roadworks were being completed yet the Court rejected arguments put forward by the Council that the business could not continue to be affected once the roadworks had been completed.
Interestingly, this case also reinforces the position at law that after a claimant has put forward their evidence of losses, the onus of proof transfers to the constructing authority to demonstrate those losses are unreasonable. In the Zacsam case, there were a number of issues that the Court could not determine conclusively. In these instances, the Court held (and the Council accepted) that uncertainties would be determined in favour of Zacsam as they had successfully proved their losses.
Quality evidence is critical
In the recent case of Stony Creek Pty Ltd (in liq) & Anor v Department of Transport and Main Roads  QLC 3 (“the Stony Creek case”), the claimant, Stony Creek Pty Ltd (in liq) (“Stony Creek”) was a property developer. They held a parcel of land that had development approval (“DA”) to subdivide into 41 lots for the purpose of developing a housing estate. The DA conditions and subsequent land resumption by the Department of Transport and Main Roads (“the Department”) resulted in the development potential of Stony Creek’s land being reduced from 41 lots to 33 lots.
Stony Creek claimed compensation under the ALA for loss of profits, loss of value of the land, disturbance costs, interest and economic loss. The total amount of compensation claimed was $1,684,032.05, some of which was settled between the parties prior to the Court hearing, but the issue of loss of profits remained in dispute.
The Court’s assessment turned on the nature of the financial evidence put forward by both parties. Stony Creek’s evidence was questionable. It included statements by its accountant who sought to rely on calculations based on a valuation report that contained estimates that did not reference the general ledger or books of account. The ‘impartial’ nature of the accountant’s evidence was also questioned as the evidence was put together based on invoices provided by Stony Creek rather than forensic accounting work of the sort that would be expected to support a claim for loss of profits. In addition, one of Stony Creek’s witnesses, who was the former sole Director of Stony Creek, provided evidence to the Court in a manner that was found to be evasive, confusing and at times contradictory.
On the other hand, the Department’s evidence included expert evidence from a forensic accountant, which took into consideration the company’s general ledger and other financial records. The forensic accountant found that Stony Creek had been trading as an insolvent company for a number of years.
The Court preferred the expert evidence of the Department’s forensic accountant over Stony Creek’s accountant, which it considered to be
…a confection based upon work done by valuers rather than work and information extracted from the actual books of account including the general ledges for the company.”7
Due to the claimant’s unreliable evidence, the Court held that Stony Creek was unprofitable to the extent that it was unable to prove that the land resumption resulted in losses sufficient to claim for loss of profits.
The scope for compensation is potentially broad provided evidence is thorough
Landholders and business owners affected by compulsory land acquisition still face uncertainty over compensation claims for loss of profits and business opportunities but recoverable losses may be broader than first thought. Provided a claimant is able to demonstrate a direct causal link between the compulsory land acquisition and their losses, and does not delay in exercising their rights or mitigating their risks, then the scope for claiming compensation can go beyond just actual costs incurred.
Recent cases demonstrate the importance of providing reliable evidence to prove the causal connection between the land resumption and the losses incurred. Relying on internal and non-independent accountants to support claims may not be sufficient in the eyes of the Court. Business owners and operators should engage independent financial experts to undertake the forensic accounting work required to generate impartial evidence to support their claim. This will ensure they put their best case forward when seeking to recoup the losses incurred from a compulsory land acquisition in Queensland.
Moulis Legal’s property team advises national-level organisations to SMEs on property development, leasing and investment issues, including those who need appropriate protection from the risks and costs associated with having proprietary interests. For more information, please contact Daniel Moulis or Ann Jovanovic on +61 7 3367 6900 or firstname.lastname@example.org and email@example.com.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
 Section 20 of ALA
 Brisbane City Council v Bertoli (2012) 33 QLCR 418
 Melwood Units Pty. Ltd. v. Commissioner of Main Roads  A.C. 426
 Section 20(2A) of ALA
 Section 28 of ALA
 Stony Creek Pty Ltd (in liq) & Anor v Department of Transport and Main Roads  QLC 3 at