The Court of Appeal’s recent judgment in Casata Limited v Minister for Land Information provides some clarity for Government, Local Authorities and landowners regarding the acquisition of land for public works. This decision addresses compensation claims related to the “shadow period” - the time between the announcement of a public work and the completion of land acquisition.

In this article, we discuss the Court’s findings and the implications for future cases.

Shadow Period

The "shadow period" refers to the interval between when a government or agency publicly announces a major infrastructure project, such as a highway, railway, or utility line, and the completion of land acquisition necessary for that project. During this time, details about the project may still be evolving, but affected landowners, developers, and investors are aware of the potential impact. As a result, land values in the area can fluctuate significantly, sometimes declining for properties that will be directly affected. Some property owners may delay selling or developing their land, awaiting further information on compensation or project details. Buyers may also be hesitant, anticipating potential disruptions or restrictions.

Courts in New Zealand and overseas have long accepted the basic proposition that the announcement of a project that will be advanced by means of compulsory acquisition may well cast a shadow affecting a landowner’s ability to deal with the land likely to be acquired - reducing land values as a result.

Partly in recognition of this effect, a longstanding rule of valuing land compulsorily acquired for a public work is that the prospect of the public work must be ignored for the purposes of determining compensation. This can work to the benefit of the owner who avoids receiving less compensation if land values are depressed because of the impending works.

There are, of course, also numerous examples of public works that significantly increase the value of surrounding land - either in the short or long term (for example the construction of a new railway station or a new road that opens up land for development). The ‘shadow’ refers to the inhibiting consequence of the land being earmarked for acquisition which limits the owner’s ability to maximise its potential, not the detrimental or positive impacts of the construction of the work for which land is acquired. However, as this case recognises, both consequences are to be disregarded in determining compensation.

Courts in other jurisdictions have allowed additional compensation for losses incurred during this shadow period (for example, a factory owner whose customers become unwilling to enter into forward contracts in anticipation of the factory being closed for a public work at some indefinite date in future).

This decision of the Court of Appeal confirms that such losses are not compensable under the Public Works Act (Act) in New Zealand.

Facts

Casata Limited claimed that the announcement of the Petone-Link Road project inhibited its ability to sell or redevelop two properties in Petone, resulting in financial loss. Casata sought $4.2 million in additional compensation for this shadow period under the Act.

Casata claimed its loss was attributable to the inhibiting effect of the proposed acquisition in the shadow period during which Casata said that it was prevented from maximising its returns from the capital invested in the properties. In simple terms, it said that if the works hadn’t been announced, it would have been able to develop the land (increasing its value), or sold it and invested the profits elsewhere.

Casata’s Claim

The claim was brought under two heads:

1. Section 60(1)(c), which sets out the “basic entitlement” to compensation where any land suffers damage from the exercise of a statutory power.
2. Section 66(1), which provides for compensation for “any disturbance to [the owner’s] land” taken or acquired under the Act.

The Outcome

The Court rejected Casata’s claims under both heads and held that losses during the ‘shadow period’ of the type sought by Casata were not a compensable under the Act.

The claim under section 60(1)(c) failed for several reasons.

1. First, the statutory entitlement to compensation in that sub-section requires the identification of a relevant statutory power, the exercise of which has given rise to damage. The Court found that the announcement of the project could not be said to arise from the exercise of a specific statutory power. In doing so, the Court adopted a narrow interpretation of section 60(1)(c). Announcing the construction of a roading project is clearly an act done in the exercise of the acquiring authority’s broad statutory functions - so the decision suggests the requisite statutory power must be a specific statutory power, rather simply something done with statutory authority or in pursuance of statutory obligations.
2. Second, the effects of the shadow period were not “damage to land”, but rather damage to the owner or the owner’s business. Such loss is not compensable under section 60(1)(c). The meaning of “any damage” in the phrase “any land… suffers any damage” is physical damage or something that affects the land itself. Casata’s land has not been damaged physically, so the effect of the project’s announcement must be an economic one.  The Court ruled that only physical damage is compensable under section 60(1)(c).
3. Third, as noted above, section 62(1)(c) provides that the assessment of compensation must not be affected where the value of the land taken for any public work has been affected by the prospect of the work. In other words, in valuing compensation, any increase or decrease in the value of the land caused by the public work is to be ignored. So, the adverse effects on land value caused by the announcement of a project must be set to one side for the purposes of valuing the land to be acquired. This meant that if what was lost after the announcement of the project was simply the opportunity to develop the land, or sell it and reinvest, those opportunities would necessarily be reflected in the value of the land, preserved by the effect of section 62(1)(c).

Casata’s alternative claim, advanced based on section 66, also failed. It said that the alleged claim essentially goes to value. The Court declined to extend the reach of section 66 beyond previously accepted limits (ie claims for reasonable costs incurred in moving from the land or for improvements not readily removeable from the land).

“Land” means physical land

A significant aspect of the case is the Court’s reiteration of the meaning of “land” in the Act.

Casata sought to rely on earlier case law which interpreted the definition of “land” in the Act (“any interest or estate in land”) as including “notional aspects of the land other than the physical land itself” - that is, the ‘bundle of rights’ associated with ownership of land.^[1] 

The Court noted that earlier case law applying this broader interpretation of ‘land’ were decided in the context of section 63 of the Act. Section 63 provides for compensation to landowners when their land is substantially affected by the construction of a public work, even if no part of their land is actually taken for the project.

The Court of Appeal regarded the rationale of that section as not applying where land is taken and the effects on value of the prospect of the public work are required to be set to one side (as is the case where land is taken).

In coming to this conclusion, the Court of Appeal clarifies that only physical damage to land can be compensable under section 60(1)(c) of the Public Works Act. Although there are other specific provisions that provide for compensation to be paid for business losses, relocation costs, etc., outside those provisions a landowner whose land is acquired is not entitled to additional business losses due to the shadow cast by the acquisition.

Get in touch

If you would like to discuss this decision and what it might mean for you, please get in touch with one of our experts.

Special thanks to Abe Trask-Coombs for his assistance in writing this article.