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Land Court provides further guidance on the assessment of compensation under the

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    The Land Court has recently handed down two decisions which provide useful guidance on the assessment of compensation under the Mineral Resources Act 1989 (Qld) (MRA) relating to the grant of mining leases.
    In Kelly v Chelsea on the Park Pty Ltd [2020] QLC 36, the Land Court overturned the longstanding, arbitrary approach to compensation under the string of Struber cases, instead assessing compensation with reference to the specific heads of claim under the MRA. 
    In Hail Creek Coal Holding Pty Limited & Ors v Michelmore [2021] QLC 19, the Land Court adopted the valuation methodology proposed by the mining lease applicant, being the "direct comparison method" which considers the subject property and its actual or proposed use against sales of like properties.

     Struber approach to determining compensation overturned 

    In its 18 December 2020 decision in Kelly v Chelsea on the Park Pty Ltd [2020] QLC 36, the Land Court overturned the well-established approach to the determination of mining compensation propounded by the Struber precedents since 2009, stating that this approach imposed "an arbitrary rate totally divorced from the landowner's actual losses". 

    In the earliest of the string of Struber cases dealing with this issue – Fitzgerald v Struber [2009] QLC 76 – the Land Court accepted the "going rate" for compensation on the land in question as $10 per hectare per annum for the mining area and reduced this amount to $5 per hectare per annum for the access area.  This rate was then applied in the subsequent Struber cases and became the go-to method for determining the quantum of mining compensation.

    However, in Kelly, the Land Court took a different approach by determining compensation by reference to the specific heads of claim under section 281(3)(a) of MRA, namely, assessing the landowner's actual deprivation or possession of the surface of the land and all loss or expense that arises as a consequence of the renewal of the mining lease sought by the applicant.  

    Notably, when assessing "loss or expense", the Land Court confirmed that a landholder's legal fees for negotiation of a compensation agreement are not compensable as they do not arise "as a consequence" of the renewal of the mining lease and therefore do not fall within the ambit of section 281(3)(a)(iv) of the MRA. 

    The "direct comparison method" adopted in Michelmore

    Hail Creek Coal Holding Pty Limited & Ors v Michelmore [2021] QLC 19 concerned the compensation payable by Hail Creek Coal Holdings Pty Ltd and other mining companies (Miners) to a landholder.  This is the second decision in the ongoing dispute between the companies and the landholder in relation to this mining lease application.  

    The parties had been unable to reach an agreement on the compensation payable and their valuers had arrived at markedly different figures:

    • the Miner's valuer reached a sum of $530,530;
    • the landholder's valuer reached a sum of $7,000,000.

    Member Stilgoe OAM of the Land Court was concise in summarising her task of assessing compensation by asking: "what is the value to be given to the surface of the land?".  Answering that question entailed making a decision in relation to competing valuation methodologies, and factoring in so-called "questions of risk" which might affect the value of the land.

    The Court quoted a 1983 decision of the Land Appeal Court that "the best test of value is to be found in sales of comparable properties, preferably unimproved or lightly improved, in the open market as close as possible to the date of valuation."  This approach is referred to as the direct comparison method, and was the approach taken by the valuer engaged by the Miners.

    The relatively unique nature of the property and land use meant there was a dearth of readily-comparable sales.  Nevertheless, the Miners' valuer had considered, insofar as was possible, comparable sales of land with existing accommodation, and sales of land bought with the intention of constructing mine accommodation.  His assessment, which was ultimately accepted by the Court, involved:

    • a finding that the comparable sales reflected a premium of between 100% and 250% over and above the value for the alternative uses for the land; 
    • adopting the highest premium of 250%; 
    • applying that premium to the land's value as grazing land (which the parties had agreed would be valued at just under $190,000); and
    • applying an additional 10% uplift for the compulsory nature of the acquisition as required by the MRA,

    for a total compensation amount of $530,530.

    For more information about this decision, see our 31 May 2021 Energy & Resources Alert "Extortionate" - Queensland Land Court rejects over the odds compensation claim for Hail Creek mining lease.

    Authors: Libby McKillop, Senior Associate; Connor Davies, Lawyer and Leanne Mahly, Lawyer.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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