Land acquisition in NSW - Court decisions on public purpose and Just Terms compensation explained

Recent decisions of the NSW Land and Environment Court highlight the evolving legal landscape of compulsory land acquisition in New South Wales.

Two cases in particular reinforce the importance of factual specificity when acquiring land, and the Court’s continued commitment to the integrity of negotiation processes.

UPG 72 Pty Ltd v Blacktown City Council [2025] NSWLEC 29

In this case, the Land and Environment Court considered the scope and specificity of the “public purpose” for which land was acquired under the Local Government Act 1993 (LG Act). The case arose from Blacktown City Council’s compulsory acquisition of a property in December 2021 for the stated purposes of constructing drainage infrastructure and creating a habitat for the endangered green and golden bell frog.

At the time of acquisition, the land was zoned SP2 (drainage). The Valuer General assessed compensation at $2,494,984.44, comprising $2,460,000 for market value and the remainder for disturbance under the Just Terms Act.

Under section 55 of the Just Terms Act, compensation is assessed on the basis of market value, disregarding any change in value attributable to the public purpose.

The Applicant argued that the land’s underlying zoning should be R2 Low Density Residential, as it lay within a proposed residential development. An R2 zoning would significantly increase the land’s market value.

This article highlights the Court’s interpretation of “public purpose”.

What was the specific purpose for which the land was being acquired?

The Council contended that the acquisition formed part of a broader public purpose; namely, a precinctwide trunk drainage infrastructure for the planned residential development.

The Applicant argued that the public purpose was narrower and more specific than claimed by Council. Its position was that the purpose was, in fact, the construction of a localised drainage channel and creation of a habitat for the green and golden bell frog.

In making judgement, the Court referred to Section 186(1) of the Local Government Act, which states that when acquiring land, a council must determine the public purpose on the factual context of the acquisition [emphasis ours].

On that basis, the Court determined that the Council’s assertion that the acquisition was part of a broader infrastructure or urban release strategy was not supported by the evidence.

How did the environmental context of the land impact the value?

The Court found that the acquisition was functionally distinct from the broader infrastructure requirements, and that it was targeted, as it arose from specific biodiversity obligations and localised drainage needs.

Furthermore, the land’s zoning and environmental constraints, along with its proximity to an environmentally sensitive creek, limited its development potential and supported its designation for conservation and drainage purposes rather than residential development.

The Court therefore assessed that the land’s highest and best use aligned with Council’s E2 Environmental Conservation zoning. In so doing, the Court also rejected the Applicant’s proposed R2 Low Density Residential valuation.

The net result was that the environmental context of the Land had significant implications for the valuation. This led to the Applicant arguing that had the initial SP2 zoning been disregarded (as required under the Just Terms Act), the land would have been rezoned R2 in line with the residential development.

The Court saw otherwise. By identifying a narrow public purpose, it was able to disregard broader planning assumptions and focus on the specific ecological and infrastructure functions driving the acquisition.

Although a small, flood-free portion of the site was deemed to be zoned R2, the Court’s finding ultimately led to a lower market valuation than either the Applicant and the Valuer General had proposed.

Significance of this decision

Above all, this case confirms that the stated public purpose in a land acquisition must be based on the specific factual context of the acquisition, not in broad or generalised planning objectives.

The Eddie Arnott Corporation Pty Ltd v Sydney Metro (No 4) [2025] NSWLEC 103

This case concerns a dispute over compensation following the compulsory acquisition by Sydney Metro of commercial premises in Hunter Arcade.

The case raised significant issues regarding the admissibility of evidence and the scope of the Court’s jurisdiction in Class 3 proceedings. The matter was further complicated by the involvement of Dr Imad Arnaout, the sole Director of the Applicant, who was also joined as a second respondent due to his claimed leasehold interest in the acquired property.

In making its determination the Court explored the following issues:

Admissibility section 10A negotiations

A central issue was whether communications conducted under section 10A of the Just Terms Act could be admitted into evidence. The Applicant and its Director submitted several affidavits and expert reports which referenced without prejudice communications made during the negotiation period under section 10A.

Section 10A requires acquiring authorities to make a genuine attempt to acquire land by agreement for at least six months before issuing a proposed acquisition notice. However, section 10A(7) of the same Act is designed to protect the integrity of the pre-acquisition negotiations between landowners and acquiring authorities.

The Court confirmed that because the proceedings constituted a civil cause of action, any evidence relating to section 10A negotiations was inadmissible. This aligns with Desane Properties Pty Ltd v State of New South Wales [2018] NSWSC 553, where the Court held that section 10A negotiations cannot be used to challenge the validity of an acquisition.

Admissibility of without prejudice discussions

The affidavits tendered by the Applicant and its Director also made reference to without prejudice communications made during the section 34 conciliation process under section 34 of the Land and Environment Court Act 1979.

However, under r 35.9 of the Uniform Civil Procedure Rules 2005 and section 61(3)(e) of the Civil Procedure Act 2005, that affidavit was also inadmissible as it contained references to without prejudice communications and negotiations under section 10A of the Just Terms Act.

Jurisdictional limits in Class 3 proceedings and collateral challenge

The Applicant and Dr Arnaout also attempted to raise issues regarding the validity of Sydney Metro’s acquisition process. However, the Court’s role under section 66 of the Just Terms Act is limited to determining compensation, not reviewing the legality of the acquisition itself.

This finding emphasised the Court’s role as a judicial valuer, not a forum for administrative review, reinforcing the procedural boundaries of compensation disputes under the Just Terms Act.

Significance

The Court confirmed that compensation proceedings under the Just Terms Act cannot be used to challenge the validity of an acquisition, and strictly excluded evidence relating to protected negotiations and conciliation discussions.

Authors: Dennis Loether & Peter Papapostolou

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This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.