Publications / Resources
By Sarah McBratney (Senior Associate)
The compensation liability of explorers to landholders for the diminution of value of land as a result of advanced exploration activities was clarified by the Land Court of Queensland yesterday (31 May 2012). Peabody West Burton Pty Ltd & Ors v Mason & Ors  QLC 0023 is the first compensation determination under the new land access provisions for exploration under the Mineral Resources Act 1989 (Qld) (MRA).
McCullough Robertson represented Peabody West Burton Pty Ltd (Peabody) in its application to have the Land Court determine Peabody’s compensation liability to the landholders under a conduct and compensation agreement (CCA) for its proposed exploration program on Lenton Downs property.
The primary issue was Peabody’s compensation liability for the proposed exploration program on the property. This involved the drilling of four drill pads and the utilisation of 3km of main access tracks and 3km of minor tracks, with a total disturbance area of approximately 3.4ha over a maximum period of 12 days. Accordingly, Peabody submitted that the proposed exploration activities would have a very minor direct impact on the 15,000ha property.
The parties undertook the negotiation process under the MRA and both obtained valuations to determine the appropriate compensation payable.
The landholders claimed compensation of $53,232, with $50,000 being for ‘diminution in value of the land’. Comparatively, the opinion of the valuer engaged by Peabody was for a compensation liability of $2,683, with no amount payable for diminution in value of the land. Peabody’s valuer nevertheless proposed a total of $5,000 compensation.
As the parties were unable to reach agreement, Peabody referred the matter to the Land Court for a determination of its compensation liability to the Masons.
Diminution in value of the land
The Land Court disagreed with the opinion of the landholders’ valuer that there was diminution in value of the land because a prudent purchaser may perceive a future risk of coal mining. That valuer had observed that there were many existing and developing coal mines (including the applicants) in the vicinity and this created a perceived risk that the land would be subject to a mining lease application in the future. In his opinion, this risk would result in a fall in the current market value of the land.
In Member Smith’s view, the risk identified by the landholders’ valuer was beyond the scope of an explorer’s general liability to compensate landholders under the MRA. Member Smith determined that nil compensation for diminution of value was payable.
The Land Court held that there was a clear distinction between the provisions relating to the payment of compensation for the grant of a mining lease and compensation payable for advanced exploration activities under the MRA.
For exploration activities, the landholder must be compensated for the actual damage that the explorer does to the landholder’s property in carrying out the exploration activities. The causative effect of any diminution in value of the land must be positively demonstrated to arise as a result of the exploration activities. In the case of a mining lease, diminution in value of the land is compensatable merely as a consequence of the grant of the lease.
However, the Land Court did not go as far as to say that there would be no circumstances where diminution in value of land would be compensatable as a result of advanced activities. Member Smith noted that if actual damage was caused to an aquifer (for example), this might cause an actual diminution of the value of the land, compared to land which had access to an aquifer.
As a practical observation, in the example contemplated by Member Smith, the parties would have already agreed to a CCA to allow the advanced activities to commence (and the damage to the aquifer would occur subsequently). Given Member Smith’s emphasis that the diminution in value must arise as a ‘direct result of the advanced activities’ and that the time for assessing a mining company’s compensation liability under a CCA is prior to entry into that agreement, there are few circumstances where compensation for diminution in value of land could be claimed under a CCA, prior to the activities occurring.
Industry experience has been that most landholders would prefer to negotiate compensation upfront as part of a CCA rather than negotiating a deferral agreement where compensation is agreed following completion of activities.
Other compensatable effects
Both parties agreed on compensation of $380 for deprivation of possession of the surface of land, as provided by the landholders’ valuation. This was accepted by the Court. Member Smith doubled the quantum of the valuation of $395 for loss suffered for diminution of use that may be made of the land. He took into account the unpredictability of the levels of dust due to the prevailing weather conditions and the impact on the reduced productive capacity of the land.
Member Smith awarded total compensation of $3,220 as follows:
- Diminution of value: $Nil
- Deprivation of possession of the surface of land: $380
- Diminution of use of the land: $790
- Other costs (landholders’ time and valuation fees): $2,050
- Mr Jinks’ costs of attending Land Court mediation and hearing: $Nil
Significance for industry
This decision should give the industry greater certainty in reaching agreement with landholders and hopefully should help ease delays being experienced by mining companies in negotiations for CCAs.
Given the new LNP Government has been considering the findings of the Land Access Review Panel’s Report which was handed up to the Department of Resources and Mines in February 2012, it will be interesting to see the impact of the Peabody decision on those deliberations.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.