Shared Knowledge

Case Note – Compensation under MERCP Act

Landholders, resource companies and lawyers have been waiting with interest for further decisions about compensation for advanced exploration activities under the petroleum and mining legislation in Queensland. The recent Land Court decision Deimel v Phelps & Anor [2019] QLC 4 (Deimel) offers some guidance about how the Land Court will apply compensation provisions of the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) (MERCP Act). Despite the plethora of mining and gas activity throughout Queensland over the last several years, Deimel is the first time the Court has decided on compensation for advanced activities under the MERCP Act.

The case involved the determination of two matters involving the same parties. Mr Wolfgang Deimel (the Explorer) sought the grant of Mining Lease Application (MLA) 100140 and was also the holder of an Exploration Permit for Minerals (EPM) 25185 on a property owned by Mark and Christine Phelps (the Landowners), which was used to agist sheep. The issues in dispute related to the Explorer’s compensation liability for the grant of the MLA under the Mineral Resources Act 1989 and the Explorer’s compensation liability to carry out advanced activities (being ground disturbance) under the EPM pursuant to the compensation provisions in the MERCP Act.

The Explorer wanted to begin exploring for minerals under the EPM, which would include ground disturbance for which the Explorer would be liable to pay compensation. The parties had failed to reach an agreement about compensation, either for the grant of the mining lease or for the advanced activities under the exploration permit, despite attending a mediation conference.

This article focuses on the Court’s determination of compensation for advanced activities under the MERCP Act.

Compensation claim for advanced activities under EPM25185

The Explorer proposed to dig a number of costeans (small exploration pits) within the area of the EPM, with each costean impacting a maximum 20 m² of land. The Landowners claimed $1,015 per annum compensation under the MERCP Act for:

  • the impacts to the land caused by the costeans resulting in lost productivity; and
  • the Landowner’s time for monitoring the costeans and rehabilitation of the land.

The Landowners also claimed their professional fees.

The Explorer argued that a total of $78 per annum compensation was payable for land disturbance impacting on sheep productivity.

Valuation of impacts from costeans

The Landowners had engaged a valuer to provide evidence about the amount of compensation payable for the advanced activities being costeans (i.e. – the process of discovering metallic lodes).  The valuer assessed the productivity loss to be $58, using an agistment rate of $0.25 per dry sheep per week, with a rehabilitation timeframe of three years. This could be considered compensation for the deprivation of possession of the surface of the land for the duration of the advanced activities.

The valuer did not claim an amount for diminution in value of the land. The consideration of “compensatable effects” under the MERCP Act of the advanced activities in this case was therefore limited.

Though there was disagreement between the parties about the rehabilitation timeframes, given the very minor amount claimed by the Landowners for productivity loss, the Court did not quibble with the valuer’s assessment of it.

The valuer had assumed that 40 costeans would be needed, however the Court found there was considerable uncertainty as to the number of costeans planned or required for the exploration. The Court accepted the total compensation amount for the costeans was $58 for all the costeans as well as compensation required for the access tracks that would be needed for the exploration activities at a production loss value of 25% (as calculated by the Landowners’ valuer). The compensation was to be paid upfront at the time the first costean was dug, to account for the uncertainty of the number of costeans required. The Explorer was also ordered to notify the Landowners seven days prior to digging a costean (or within seven of digging if prior notice was not possible).

Landowners’ time

The Landowners claimed compensation for two inspections per costean, one during the activity and one following the completion to check rehabilitation. The Landowners’ valuer assumed half an hour was required for each inspection, giving a total of one hour per costean valued at $100 per hour (which the Court ultimately accepted but doubted was sufficient time to allow for travel from the homestead). As the Landowners did not reside on the property and it was not certain that each costean would be inspected twice, the Court accepted the valuer’s assessment $100 per costean as an in globo amount in the value of lost landowner time. This compensation was to be paid within one (1) month of each costean being cut.

Professional costs

The Landowners also claimed the costs of the valuer as professional fees.   The Court found that, as these costs were not incurred in the lead up to the mediation conference, they were not recoverable as a “compensatable effect” under the MERCP Act and could not be claimed as part of the compensation. This is because the valuer’s costs were not part of the negotiation of an agreement but rather incurred as part of the court process. Costs of the negotiation are recoverable provided they are reasonably and necessarily incurred.  The Court did note that legal and other professional costs incurred after a compensation matter is before the Land Court may still be recoverable but only if the party incurring such costs is successful in a costs application brought under section 34 of the Land Court Act 2000. This is something landholders should keep in mind during land access negotiations.

What does this case mean for landholders?

To date, there has been very limited judicial consideration of “compensatable effects” under the MERCP Act.  This case confirms that compensation for owners time is claimable under the MERCP Act for a landowner to monitor mining activities and rehabilitation. In this case, the Court found that a rate of $100 per hour was reasonable in the circumstances.   Landowners should keep in mind that the Court is less likely to accept compensation for owners time spent negotiating with resource companies unless there is clear evidence of an economic cost.

The case also confirms that professional costs for a court proceeding are not compensable, but may be recoverable by the successful party.   However, this case does have limitations as it does not consider a diminution in land value or future use of land for advanced activities and therefore, should be applied with caution. This does not mean the courts will not allow this in a future case of advanced exploration activities, as each matter is heard on its own merits.