Compensation for advanced activities: first compensation determination under MERCPA

Resources companies in Queensland have looked with interest for further judicial determination of compensation under the land access regime for mining exploration tenements and petroleum tenements in Queensland. The recent Land Court determination in Deimel v Phelps & Anor [2019] QLC 4 (Deimel) is the first such determination relating to mining exploration since 2012 and provides some additional instruction on how the compensation provisions will be applied.

For all the exploration activities carried out under mining tenements and all the oil and gas activities carried out under petroleum authorities in Queensland, determinations of compensation for these activities by the Land Court have been rare. The guidance that such cases can provide has been craved by the industry. The decision in Deimel is the first case determining compensation for advanced activities under the Mineral and Energy Resources (Common Provisions) Act 2014 (MERCPA) and only the third determination of compensation by the Land Court for what are now considered advanced activities after Peabody West Burton Pty Ltd v Mason [2012] QLC 23 (Peabody) and QGC Pty Limited & Ors v Eugenehans Peter Vogt & Anor [2017] QLC 20 (QGC).

While the decision in Deimel doesn’t involve as many issues or arguments that arose in Peabody, and while Deimel differs from QGC as it was a contested decision under different but similar legislation, from the industry’s perspective, any guidance is good guidance, and the Deimel decision provides some further useful instruction about compensation.

Indeed, just as with Peabody and QGC, Deimel can tell us as much by what it doesn’t say, as by what it does.

Determination of compensation

Deimel was the holder of an exploration permit for minerals (EPM) and proposed to dig a number of costeans within the area of the EPM. Each costean would impact a maximum area of 20m2. The number of costeans that would be established was uncertain for a number of reasons.

In the Land Court proceedings, the landowner had engaged a valuer to provide evidence about the amount of compensation payable for the advanced activities. The valuer assumed that 40 costeans would be established.

The landowner claimed compensation for:

• the impacts of the costeans
• the landowner’s time, and
• the landowner’s professional fees.

Impacts of the costeans

There was no specific discussion by the Land Court of diminution in the value of the land or diminution in the use that may be made of the land as a result of the costeans. The Land Court assessed the amount of compensation in line with the landowner’s valuer’s methodology of a productivity loss in line with the current agistment rate of $0.25 per dry sheep per week with a rehabilitation timeframe of three years. This methodology appears to correlate to an amount for deprivation of the possession of the surface of the land for the duration of the advanced activities. It would therefore seem that in this instance, compensation was determined on the basis that the activities would cause no diminution in the value of the land or diminution of the future use that could be made of the land.

Compensation for the costeans was assessed as a productivity loss of $58 for all the costeans and for the impacts on roadways relating to the costeaning activities at a productivity loss of 25% (being the amount calculated by the landowner’s valuer).

As the number of costeans was uncertain, the Land Court ordered that $58 be paid to the landowner upon the digging of the first costean. The compensation is to be paid within one month of the first costean being cut.

The Court also ordered that Deimel provide seven days’ notice in advance of the creation of each costean or, if advance notice cannot be given, notice was to be given no more than seven days after each costean was cut.

Landowner time

The landowner claimed compensation for two inspections per costean, one during each activity and a follow up inspection after each activity to check rehabilitation. The landowner’s valuer allowed for one hour per costean (i.e. a sum total of one hour for the two inspections per costean) at a rate of $100 per hour.

The Court noted that this assessment did not allow for travel time from the homestead to the location of the costeans, but also noted the landowner’s status as an absent landowner and that the landowner may not actually make two inspections per costean. The Court took an overall approach and agreed with the valuer’s assessment of compensation payable of $100 for the owner’s time per costean (including the first costean).

The compensation of $100 is to be paid within one month of each costean being cut.

Professional fees

The landowner claimed for its professional fees.

The Land Court found that in this case the professional fees incurred by the landowner were not incurred in the lead up to the mediation conference and, therefore, found that those amounts were not recoverable as a head of compensation under MERCPA. The Court noted that such amounts were potentially recoverable as costs in the Land Court proceedings, although no argument about those costs was raised at the hearing.

No amount was ordered as compensation for the landowner’s professional costs.

What does and doesn’t the Deimel decision mean?

Care should be taken by industry about Deimel as while the advanced activities for mining exploration in this case did not result in compensation for diminution in value or future use of land, it does not mean that such amounts will never be payable for exploration activities.

Arguments exist that amounts should be payable for diminution in the value of the land or diminution in the use that may be made of the land as a result of advanced activities as occurred in the oil and gas industry in the QGC decision. (Two notes of caution must be applied to the QGC decision—firstly that that decision was determined under a similar compensation regime that existed at the relevant time under the Petroleum and Gas (Production and Safety) Act 2004 (Qld) rather than under MERCPA and secondly that the compensation amount was not contested by the landowners so the position adopted by the gas companies was largely accepted.) Future cases in which the nature and intensity of advanced activities is greater than in Deimel, may be able to establish that such impacts arise and that an amount of compensation is payable for those impacts.

The decision in Deimel also illustrates that compensation may be payable at particular times or milestones during the conduct of the activities rather than as a single up-front payment.

The Land Court is showing an increasing willingness to allow compensation for a landowner’s time for inspections relating to the management of activities (as distinct from time spent in negotiations). The Court did offer a note of caution that the extent and frequency of any inspections must be reasonable and that small scale activities may not warrant frequent inspections.

In relation to professional fees, the fact that the landowner’s professional fees were not recoverable in this instance may prompt landowners to get professional advice before Land Court proceedings, to ensure they are recoverable under MERCPA rather than only recoverable through costs awards by the Court. It remains the case that such costs must be reasonable in order to be recovered as a head of compensation. The issue of what is reasonable remains a matter that is yet to be subject to judicial consideration.