compensation principles

david hornby

Most resumption procedures do not allow the owner of an interest in the land a hearing prior to resumption. In some states the owner cannot make representations or challenge the basis of views put to the minister in favour of the resumption. However, there may be a common law right of action according to the rules of natural justice or the writ of mandamus (writ from a court to the minister commanding a specified thing to be done), if the minister has not acted properly during this period. This comes under the branch of law known as administrative law.


None of the states' statutes require the authority to take "hardship" and "inconvenience" of the owner into account except in the NSW Land Acquisition Act (just terms) Act 7997 (ss23, 24)).


The Canadian Law Reform Commission's Report on expropriation recommended the creation of an independent land acquisition agency to carry out all acquisitions on behalf of the government. Arguments in favour of this approach are:

In most states the Valuer General is independent therefore, lends credence to his/her assessment of compensation payable. However, in South Australia, the Valuer General is not an independent department resulting in a non independent image.


In a number of states, the acquiring authority can firstly, make an offer to the owner of the affected land. For example, the Land Acquisition Act (SA)1969:

S19 (1) The authority must append to a copy of a notice of acquisition served upon a claimant an offer in writing that;

(a) must state the total amount of compensation that the authority proposes to pay in respect of the value of the subject land; and

(b) may state amounts of compensation for any other matters in respect of which compensation is payable.

(2) To the extent that an amount of compensation for any separable component of that amount, is not disputed, a statement under subsection (1) of this section shall be binding upon the authority."

An offer is also required under s42 of the Land Acquisition Act (NSW) 1991.


In a number of states (for example, in Western Australia under s49 of the Public Works Act) the minister or local authority has discretion to make an advance payment of compensation to a claimant an amount the minister thinks fit. This concept is essential for a just system so as to alleviate possible hardship. Therefore, the Queensland system of an advance payment obligation of 100% and Victoria's of 90%, are better systems in this regard.


There is a trend towards more informal and less costly methods for the settlement of disputes. It has been suggested that arbitration be used more often before going to court for example, the Nevill Report (WA), 1987, recommended settlement:


Adequate and fair compensation requires the payment of special value to the owner. This includes any added value of the land to the dispossessed owner not covered by the market value of the land ( Pastoral Finance Association v Minister (the "PFA" case) (1914) AC 1083; Kennedy Street P L v Minister (1962) 8 LGRA 221). Special Value to the Owner can be defined as follows:

The value, at the date of acquisition, of any financial advantage additional to market value, to the person incidental to his ownership or occupation of the land" (Australian Law Reform Committee, 1980, para 239).

Special value to the owner is derived from market value and is the amount paid to a dispossessed owner who has had all or part of his land compulsorily taken by the government, local authority or government agency for a public purpose. It is the market value of the land plus any extra "personal" value relating to its ownership. Special Value to the Owner therefore, is "just compensation".


The theory of just compensation is that the dispossessed owner is no worse off after the compulsory taking of his/her land or part of his/her land, than before the compulsory taking. Lord Moulton expressed the concept in the PFA case as follows:

Probably the most practical form in which the matter can be put is that they were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it.

Old legislation generally, required the assessment of the "value" of the land taken. The various heads that make up Special Value to the Owner were implied and developed by the courts over time. However, modern legislation lists the heads of compensation, for example; s55 of the Land Acquisition Act (NSW) 1991. The "value of land" test was abandoned in the UK in 1919 after investigation of the resumption process in the Scott Report. It has also been abandoned in Canada, South Australia, NSW and the Northern Territory.


Compensation excludes any "sentimental" or subjective value as this cannot be measured in terms of money - Grace Bros v Commonwealth (1946) 72 CLR 269. This compensation principle may have to be modified in light of the Mabo decision and the need to pay adequate compensation for the compulsory taking of Native Title.


The least amount payable to the dispossessed owner is the market value of the land taken. If only a small part is taken for example, a corner splay, the amount payable may be a nominal amount for "blot on title". This is compensation for an "impaired title" rather than the physical effect on the land use. That is, a potential purchaser will pay less for a property affected by the resumption process than he/she would pay for an otherwise identical title, without any "blots".


The Australian Law Reform Commission (ALRC) (Report #14, 1980), the Morris Report (Stuart Morris, 1983) and the Nevill Report (WA, 1987) all recommended the adoption of a statutory list of criteria governing the assessment of compensation. The following is a typical list or heads of compensation.


The Morris Report recommended that the list of heads be exclusive whereas the ALRC favoured the inclusion of an overriding statement of principle (as found in the South Australian Land Acquisition Act 1969) that the compensation be "just". However, except for native title, the heads are settled law and therefore, a list of heads should be sufficient for the amount of compensation payable to be just.

The incorporation of an unrestricted solatium would be sufficient to overcome losses for subjective factors.


The Nevill Report did not favour including an overriding requirement of "just":

Such a statement would defeat the object of an exclusive list and could create similar problems to the "value of the land" test by opening the door to judicial interpretations which extend beyond the criteria determined by the legislature" (27).