The recent decision of the Victorian Court of Appeal in Winky Pop Pty Ltd v Mobil Refining Australia Pty Ltd  VSCA 187 (Winky v Mobil) has provided much needed guidance on the availability and assessment of damages for loss of opportunity in cases dealing with the contamination of land. Land owners should be diligent when seeking loss of opportunity damages to ensure that they plead viable alternative calculations of damage as a fall back.
Winky Pop Pty Ltd (Winky Pop) was the owner of four parcels of land in North Williamstown (Land) located near the Mobil Refining Australia Pty Ltd (Mobil) Altona Petroleum Refinery (Refinery). The Land was zoned Industrial 3 under the Hobsons Bay Planning Scheme and was subject to pre-existing contamination.
At all relevant times the Refinery was serviced by a pipeline, owned and operated by Mobil and some kilometres in length, that carried petroleum hydrocarbons from the Refinery.
In December of 2006, the pipeline perforated and leaked over 486,000 litres of petroleum hydrocarbons, creating a plume in the groundwater underneath the nearby land, including the Land. The contamination was so extensive that a complete remediation of the contamination would most likely never be possible.
Winky Pop brought a claim against Mobil, claiming approximately $170 million in damages for negligence for the loss of a valuable opportunity to develop the Land for residential purposes. Winky Pop lead evidence that at the time the leak occurred, it was seeking to have the land rezoned, subdivided and then redeveloped for the purposes of a residential estate. Had the land not been contaminated, Winky Pop argued that the residential estate would have reaped a significant profit.
At first instance, Justice Digby found that on the evidence before the Court it was most unlikely that Winky Pop would ever be able to achieve the residential zoning of the land, or obtain the necessary development permits in the ascertainable future. Furthermore, Justice Digby concluded that even if that opportunity had existed, the leak did not deprive Winky Pop of that opportunity as it was likely that if Mobil had remediated the land to the extent practicable it would be possible to obtain a Statement of Environmental Audit which would enable residential development.
Winky Pop appealed the decision, arguing that Justice Digby had erred in deciding that there was no genuine prospect of rezoning the Land, and had erred in deciding that damages for diminution of the land were a more appropriate remedy in the circumstances.
The Court of Appeal ultimately affirmed the decision of Justice Digby, finding that it was open on the evidence for his Honour to conclude that prior to the leak there was no material prospect of Winky Pop obtaining a rezoning of the Land which would permit any residential development. In particular, the Court of Appeal emphasised that under the Hobsons Bay Planning Scheme, a number of material impediments would have to be resolved before there could have been a real prospect of rezoning the Land. These included:
- The pre-existing and currently not remediated contamination of the land;
- The continuing interface of the Land with the surrounding industrial land;
- A broad range of access and traffic issues; and
- The need for there to be an appropriate buffer between the Land and the Refinery if the Land was to ever have a residential use.
Of particular note, the Court of Appeal did not accept that evidence of other industrial land in the area being rezoned lead to the conclusion that a rezoning of the Land would have been successful, especially considering the material impediments discussed above.
The Court of Appeal also affirmed Justice Digby’s conclusion that even if the opportunity did exist, the leak was not sufficient to deprive Winky Pop of that opportunity.
On the question of damages
The Court of Appeal confirmed that in the case of damage to land, the overriding goal in assessing damages is to place a plaintiff in the position it would have been had the tortious damage not occurred. In the ordinary case, this would result in damages being awarded on the basis of diminution in the value of the land, or the cost of remediation. The Court of Appeal emphasised that consequential losses may also be available in certain circumstances.
In regards to Winky Pop’s claim for damages for loss of opportunity, the Court of Appeal emphasised that the overriding concern was whether awarding those damages would risk overcompensating Winky Pop when considering the relevant probabilities and possibilities. In addressing any claim to damages for loss of opportunity, it should always be considered whether the compensation on a diminution in value basis would provide a more reliable assessment of damages.
The Court of Appeal upheld Justice Digby’s decision that diminution in value damages (which Winky Pop chose not to pursue) was more appropriate in this case.
When seeking compensation for damage to land, land owners should:
- Consider carefully whether they have enough evidence to meet the high threshold for obtaining loss of opportunity damages, that is, whether they can prove that an opportunity existed, that there is no reasonable prospect of that opportunity occurring, and that they would not be overcompensated by loss of opportunity damages; and
- Make alternative claims for damage, such as diminution in value, in addition to loss of opportunity damages to ensure that if they are unsuccessful in their loss of opportunity claim they have alternative claims for damages to fall back on.
This article was written by David Vorchheimer, Partner Mathew Reiman, Trainee Solicitor.