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The Land Court of Queensland has provided some clarity as to the compensation payable to landowners under the new Land Access Code when mining explorers commence advanced activities on their land.

In the case of Peabody West Burton Ltd & Ors v Mason & Ors [2012] QLC 0023, Peabody was a prospective coal explorer and wanted to drill four coal exploration holes and construct six kilometres of access tracks on Mason’s property. Peabody and the landowners had commenced negotiations under a Conduct and Compensation Agreement (CCA) but were unable to agree on the amount of compensation payable, so they applied to the Court to make a decision.

Diminution in the value of the land

The Mineral Resources Act 1989 (Qld) (MRA) requires companies undertaking advanced activities, such as that proposed by Peabody, to compensate landowners for any “compensatable effects” that the activities may cause. The heart of the dispute involved determining the extent of one of these heads of compensation — diminution in the value of the land. The landowners argued that coal exploration brings a high level of risk and uncertainty about future coal development which may act as a deterrent for prospective purchasers. However, the court found that there was no evidence before it that the market value of property was being discounted for impairment reasons as a consequence of mining exploration activities and that the claim for diminution in the value of the land was not sufficiently made out. For compensation to be awarded for this effect, the court commented that it requires evidence of actual damage that the explorer does to the property in carrying out the exploration activities. Identifying the nature and effect (temporary or permanent) associated with the proposed and previous authorised mining activities will need to be ascertained to support claims for diminution in value of the land.

Diminution of the use of the land

The Court used a methodology proposed by an expert valuer to determine the compensation payable for land rendered “unavailable for use” by the landowner during the period of time exploration activities were to be conducted. The method assesses the impact of the affected area and multiplies that by the loss of revenue/earning capacity and the duration of the disturbance.

When determining the extent of land affected by the mining activity, the court adopted a cautious approach and in this case doubled the mining companies’ assessment of the area of land around an activity that may be affected.

Prior agreements

For other heads of compensation; deprivation of possession of the surface land and landowners time, the parties had reached agreement on the compensation payments and the Land Court made awards in those agreed amounts.

Quantum of compensation

The final figure of compensation awarded by the court was significantly less than that sought by the landowners. However, the court stressed that the amount of compensation awarded is to be determined on a case by case basis after looking at a range of factors including: (1) the character of the land which activities are to be carried out; (2) the nature of the activity; and (3) the duration and extent of proposed activities.

Practical effects for negotiations

Currently there are significant variations between compensatory packages offered to landowners by mining companies and coal seam gas (CSG) companies and while some landowners are faring quite well, others are not. Landowners that experience high demand for access to their land have been able to decline preliminary land access offers and hold out for more substantial compensatory packages.

The court’s focus on the diminution of value of the land and the requirement for comprehensive evidence of diminution provides useful guidance for negotiation preparation by landowners in their future compensation negotiations.

Conclusion

While currently, CCA’s are often negotiated on the basis of uncertainty of the extent of future mining/petroleum activities and the detriment that may be caused to the land, what is more relevant is evidence of the diminution in the value of the land caused from actually carrying out the activities.

Regulatory developments

The LNP Government is currently considering the findings of the Land Access Review Panel’s Report which we reported on in our recent alert, Land Access Panel Report on 26 June 2012, and any legislative changes may alter these insights. If you wish to register for these insights, please update your contact details by emailing Holding Redlich.

Key contacts

Brisbane

Trent Taylor, Partner
T: +61 7 3135 0668
E: trent.taylor@holdingredlich.com

Kirsty Rourke, Senior Associate
T +61 7 3135 0648
Ekirsty.rourke@holdingredlich.com

Disclaimer

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.

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