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06 Aug 2020

Resource authority holders not liable for pre-existing conditions

By Mark Geritz, Tosin Aro, Georgia Davis and Jessica Howe

The Court found a resource authority holder not responsible for loss that is caused by the revelation of an ecological condition impacting land, where the existence of that condition on the land is not a result of the resource company's activities.

It is not uncommon in land access negotiations for landowners to argue that the resource authority holder should compensate the landowner with respect to any discovery of an environmental feature on the land by the resource authority holder in circumstances where the landowner considers that the discovery (or the publicising of the discovery) would diminish the value of the land. Likewise, valuers engaged by landowners commonly argue for significant discounts to the value of the "balance" lands (ie. the land not directly impacted by the resource activities), including because of perceptions that are not necessarily reflected in comparable sales.

However, consistent with the position we routinely encourage clients to adopt in the face of such arguments, the Land Court has held that a resource authority holder cannot be responsible for loss that is caused by the revelation of an ecological condition impacting land, where the existence of that condition on the land is not a result of the resource company's activities (Conway v Australia Pacific LNG CSG Transmissions Pty Ltd [2020] QLC 26). The Court also found that vague hearsay evidence from real estate agents that is not reflected in comparable sales should not be included in any calculation with respect to any discount that should be applied to the value of the "balance" lands.

The property history of Tecoma and environmental management

Denis Conway, Jill Conway and Olivia Martin (the Landowners) bought the property known as “Tecoma” in 2012. At the time, the Landowners knew that ooline (a type of tree) existed on the property.

There were existing restrictions on the ability to clear vegetation on Tecoma, but the Landowners determined that some of the paddocks could be converted to growing leucaena.

Parts of Tecoma were designated as Category B – remnant vegetation under the Vegetation Management Act 1999 (Qld). Additionally, there were matters of national environmental significance under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) located at, and within a 10 km radius of, the location of the ooline. Accordingly, the Tecoma property was subject to State and Federal vegetation management legislation, and the Landowners would have needed to consider both levels of legislation before engaging in any clearing on the property.

In addition, the Nature Conservation (Wildlife Management) Regulation 2006 regulates Flora Survey Trigger Maps for Clearing Protected Plants in Queensland (FSTM). A FSTM will show where plants that are endangered, vulnerable or near threatened wildlife are present or are likely to be present (high-risk areas) and any buffer zone around a high-risk area in which clearing is not permitted. At the time the Landowners purchased Tecoma, the FSTM showed no protected plants on the property.

Competing interests – resource authority holders and landowners

Australia Pacific LNG CSG Transmissions Pty Ltd and Australia Pacific LNG Pty Ltd (collectively, APLNG) held a number of petroleum authorities, granted under the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (PAG Act), over the whole of Tecoma. In accordance with these authorities, APLNG constructed the Eurombah Pipeline over part of Tecoma. To facilitate the construction of the pipeline, APLNG and the Landowners entered into an Option for Easement and Conduct and Compensation Agreement (the OECCA).

The Landowners and APLNG therefore have interests that co-exist over Tecoma that permit certain agricultural and resource activities. Specifically, the Land Court noted that the activities of both parties on the property are regulated and "… exist within a network of legislation aimed at protecting the environment".

In the course of exercising its rights under its resource authorities, APLNG provided the Landowners with an entry notice to conduct a series of site surveys. One of these was a flora survey conducted by environmental scientists engaged by APLNG on 14 and 15 July 2017. During this survey, the scientists suspected they located an ooline tree, but they did not take a specimen.

On 12 August 2017, in response to a complaint by one of the Landowners, APLNG commissioned a weed survey at the property. During this survey, the scientists took a sample of the suspected ooline and sent it to the Queensland Herbarium.

Scientists at the Queensland Herbarium who are qualified to identify plants on receipt of a specimen, confirmed that the sample received from APLNG’s environmental scientists was ooline.

Version 5 of the FSTM, which was the version in place when the sample was taken in August 2017, showed no protected plants on Tecoma. However, Version 6 of the FSTM, which was issued on 1 June 2018, identified everything within a 2 km radius of the ooline at Tecoma as high-risk vegetation. Version 7.1, which was issued even later on 26 June 2019, defined the area of high-risk vegetation more narrowly and with greater specificity.

The Landowners argued that by providing the ooline sample to the Queensland Herbarium, APLNG's scientists had caused the existence of the ooline on Tecoma to become public knowledge, which resulted in the market value of the Tecoma property being reduced. This, they argued, was because any potential purchasers may be deterred by the then known existence of the protected vegetation, as it may impact potential development on the land.

Causation and landowner compensation – was APLNG liable to pay for a reduction in Tecoma's value?

The Landowners argued that section 81 of the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) (MERCPA) had been triggered (either by APLNG's breach of the OECCA or generally under the terms of section 81). The Landowners also argued that APLNG had breached the OECCA by acting outside the scope of the permitted access. (The Landowners also sought to advance a claim in trespass, but the Court indicated that it did not need to make a finding with respect to that issue given its findings on the causation issue).

Section 81 made APLNG liable to compensate the Landowners for each “compensatable effect” suffered by the Landowners because of APLNG. Compensatable effects are defined to mean particular effects that are caused by a resource authority holder (or its agent) carrying out authorised activities on the authorised area, including (relevantly):

  • diminution of the land’s value;
  • diminution of the use made, or that may be made, of the land or any improvement on it; and
  • any cost, damage or loss arising from the carrying out of activities under the resource authority on the land.

It is not unusual for an ecological survey, as a preliminary activity, to be included within the ambit of activities a resource authority holder is authorised to conduct in accordance with its authority.

To determine whether loss in the value of Tecoma was a compensatable effect for which APLNG was liable, the Land Court considered whether or not a causal link could be established between APLNG's activities and the loss alleged to have been suffered by the Landowners as a result of those activities. The Landowners argued that the event that caused them loss was APLNG’s agents taking the ooline sample and sending it to the Queensland Herbarium, as it was this step that resulted in the creation of Version 6 of the FSTM, which in turn caused the diminution in value of Tecoma.

APLNG accepted that, if the usual common law "but for" test of causation was applied literally, the provision of the sample to the Queensland Herbarium could be seen to be connected to the creation of Version 6 of the FSTM. However, APLNG referred the Court to High Court authority for the proposition that causation as referred to in a statute can only be determined by reference to the applicable statutory context, and in a manner that best achieves the purpose of the relevant statute.

The Land Court identified the applicable statutory purpose as being to facilitate and regulate the carrying out of responsible petroleum activities and the development of a safe, efficient and viable petroleum and fuel gas industry in a way that, relevantly, manages the State’s petroleum resources in a way that has regard to the need for ecologically sustainable development. Given this purpose, the Land Court held that:

"the purpose of the access regime would [not] be served by construing s 81 of [MERCPA] in a way that discourages preservation of the environment."

In these circumstances, the Court found that the statute could not be interpreted so as to make a resource authority holder responsible for loss that is caused by the revelation of an ecological condition impacting land, where the existence of that condition on the land is not a result of the resource company's activities.

Further, in light of the number of people and steps involved in creating Versions 6 and 7.1 of the FSTM (over and above the provision of one ooline sample to the Queensland Herbarium), the Court found that the connection between the taking of the sample and the Landowners’ alleged loss was too remote to satisfy the test of causation in section 81 of MERCPA. The situation would have been different if the scientists’ actions in taking the sample had (for example) caused the destruction of grazing habitat through erosion or the introduction of a weed.

Observations on the quantum of landowner compensation – the role played by valuers

While the Court’s conclusion on causation was clear, the Conway decision is also notable for observations made by the Court in relation to the assessment of the quantum of the compensation that APLNG would have been liable to pay to the Landowners if APLNG’s actions had caused them to suffer loss. The Court considered competing evidence adduced by the valuers respectively retained by the Landowners and APLNG.

While both valuers agreed that the value of the area directly impacted by the ooline had diminished by $6,600 (being 50% of the value of that area), the Landowners’ valuer assessed “additional diminution” in the value of Tecoma (ie. the value of the "balance" lands) at $400,000 plus GST. APLNG’s valuer disagreed that there had been any additional diminution, however, allowing for the additional expense incurred by the Landowners in experts’ fees, assessed a total loss of approximately $20,000 plus GST.

The disparity in valuations was explained by the Landowners’ valuer applying a 2.5% discount to the balance of Tecoma to account for the effects of the publication of Version 7.1. He justified this discount by reference to: “assumptions” made by selling agents to whom he had spoken that there would be market resistance to a property with a FSTM; media coverage critical of the FSTM system; his own experience as a rural landowner and producer; and the “risk” that the FSTM on Tecoma would revert from Version 7.1 to the much more restrictive Version 6.

In agreeing with the $20,000 plus GST quantum assessed by APLNG’s valuer, the Court pointedly declined to accept “vague hearsay evidence from real estate agents” as the basis for justifying the asserted discount; particularly where that hearsay evidence was contradicted by the available (and more cogent) comparable sales evidence. The Court found that the comparable sales evidence also contradicted the media “noise” around the FSTM system and the valuer’s non-expert evidence given as a landowner and producer.

Finally, the Court disagreed that there was any real risk of a reversion to Version 6.1 (after noting that the Landowners’ valuer had calculated the discount that would have applied if Version 6 were still in place at $720,000).

Land access negotiations – moving forward

The Conway decision represents authoritative (and welcome) support from the Land Court for the proposition that a resource authority holder is not responsible for loss said to have been incurred by a landowner as a result of the discovery (and publicising) of a feature or condition that existed on the land prior to the resource activities taking place, where the existence (as opposed to the discovery) of the feature or condition is not the result of the resource authority holder’s activities.

The decision also provides important judicial direction with respect to the assessment of any diminution in the value of "balance" lands attributable to a resource authority holder’s authorised activities. In particular, the assessment should be based on objective and justifiable evidence – such as the evidence of comparable sales – and not on hearsay, rumours or conjecture. Assessments based on such unsupportable grounds are liable to mislead landowners about the quantum of compensation to which they might be entitled, and perhaps cause them to: overspend on legal and other fees in chasing a windfall that is unlikely to materialise; and then seek to recover the "overspend" from resource authority holders. 

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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.