03 Jun 2011

Compensation in NSW for mine subsidence: do you have to wait for the hole to appear before you act?

If you own an improvement to land in NSW, you now have a greater incentive to undertake preventative or mitigatory works if there is a threat of subsidence from mining operations, following the High Court's decision on the State's scheme to compensate owners for mining subsidence (Jemena Gas Networks (NSW) Limited v Mine Subsidence Board [2011] HCA 19).

The landowner acts to protect its works from subsidence

Jemena Gas Networks owns and operates the Moomba to Sydney pipeline. Along the way it traverses land on which coal mining is conducted. Expert consultants predicted that once mining began at a particular spot on that land, there would be subsidence, so Jemena undertook preventative and mitigatory works to protect the pipeline.

It then claimed its costs from the Mine Subsidence Board, which said that Jemena couldn't make a claim unless the whole of the subsidence occurred before Jemena had incurred the expense of preventative works.

The confusing section in the Mine Subsidence Compensation Act

At the heart of the case was section 12A(1)(b) of the Mine Subsidence Compensation Act 1961 (NSW), which says

"(1) Subject to this section, claims may be made under this Act for payment from the Fund of:

(b) an amount to meet the proper and necessary expense incurred or proposed by or on behalf of the owner of improvements or household or other effects in preventing or mitigating damage to those improvements or household or other effects that, in the opinion of the Board, the owner could reasonably have anticipated would otherwise have arisen, or could reasonably anticipate would otherwise arise, from a subsidence that has taken place, other than a subsidence due to operations carried on by the owner."

A previous decision in the NSW Court of Appeal, Mine Subsidence Board v Wambo Coal Pty Ltd [2007] NSWCA 137, had said this meant that the whole of the subsidence had to occur before the expenses were incurred.

Jemena argued that the phrase "from a subsidence that has taken place" doesn't refer to a specific subsidence that has occurred, but a subsidence which may not have happened but which is anticipated to take place in the future, causing damage.

The High Court explains how this works

The problem with the section, said the High Court, is that it is not very easy to understand, which is why judges have interpreted it in different ways, and there are linguistic problems with any construction of the section. The interpretation in Wambo that the Board used would, however, have two serious practical effects for owners of improvements:

  • first, these owners, who may not have unlimited liquidity, would not be able to obtain from the Fund an amount to meet expenses to prevent or mitigate damage, leaving them much worse off under the Act than they would have been under the general law;
  • secondly, they would be inhibited from taking steps to protect their interests (including the strong pressures of the criminal law and of commercial and political considerations) by dealing with threats to the safety of the improvements, rather than waiting on a decision by the Board under s 13A.

The correct way to interpret the section is Jemena's. As the High Court pointed out, "The Act operates … to prevent or reduce damage before it is caused. Prevention may be cheaper than cure, and more efficient than cure". Owners of improvements don't have to wait for the subsidence to occur before they act.

A claim can be made for payment from the Fund of an amount to meet expense incurred by the owner of improvements in preventing or mitigating damage that, in the opinion of the Board, the owner:

  • could reasonably have anticipated would otherwise have arisen;
  • or could reasonably anticipate would otherwise arise;

from a subsidence that has taken place before that damage arose, even though at the time when the expense is incurred or proposed there has not yet been either subsidence or damage.

So what does this mean for owners of improvements?

The High Court's decision means that owners of improvements to land will be able to get compensation for the proper and necessary expenses they incur in preventing or mitigating anticipated damage from mine subsidence, instead of waiting for the subsidence to happen and then dealing with the damage. As a result they'll be able to make sensible decisions in the light of their legal duties and commercial imperatives.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.