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Focus: Mitigation expenses claimable before subsidence in NSW

16 June 2011

In brief: The High Court has recently ruled that owners may claim compensation from the Mine Subsidence Compensation Fund for expenses incurred in preventing or mitigating subsidence-caused damage to improvements, even if subsidence had not yet actually occurred. The decision overturns the previous law, which required owners to wait for subsidence to occur in order to qualify for compensation. Partner Paul Lalich (view CV) and Law Graduate Tom Tian report.

• Background
• The Mine Subsidence Compensation Act
• Encouraging owners to mitigate loss
• Implications

Background

The Mine Subsidence Compensation Act 1961 (NSW) establishes a state scheme that allows owners of improvements on land affected by subsidence to claim expenses from the fund. The fund receives compulsory contributions from colliery proprietors, placing the cost of repairing subsidence-caused damage on the coal mining industry.

Jemena Gas Networks owns and operates a gas pipeline which runs from Moomba to Sydney and the pipeline crosses an area of land on which coal mining is conducted. Jemena was advised by expert consultants that mitigation works would be needed once the mining reached a certain point in the land. Jemena carried out these works and claimed its costs from the fund, but the claim was rejected because the whole of the subsidence did not occur before the preventative works were undertaken.

The dispute was heard before the Land and Environment Court, which ruled in favour of the board. The Court of Appeal upheld this decision, relying on Mine Subsidence Board v Wambo Coal Pty Ltd.¹ Jemena then appealed to the High Court.²

The Mine Subsidence Compensation Act

The High Court decision turned on the interpretation of section 12A(1)(b) of the Act:

(1) Subject to this section, claims may be made under this Act for payment from the Fund of: ... (b) an amount to meet the proper and necessary expense incurred or proposed by or on behalf of the owner of improvements or household or other effects in preventing or mitigating damage to those improvements or household or other effects that, in the opinion of the Board, the owner could reasonably have anticipated would otherwise have arisen, or could reasonably anticipate would otherwise arise, from a subsidence that has taken place, other than a subsidence due to operations carried on by the owner.

The majority joint judgment of Chief Justice French and Justices Gummow, Hayne, Heydon, Crennan and Kiefel held that s12A of the Act, which gives owners the right to claim from the fund, is directly related to s14, which removes the common law right of owners to sue colliery proprietors for subsidence-related damage that is not caused by the proprietor's negligence. The scheme setup by the Act was a kind of insurance for colliery proprietors against litigation.

Under the scheme, owners lose common law rights such as obtaining injunctions preventing mining or equitable compensation, which may be granted before subsidence occurs. Owners are then compensated for the loss of common law rights by claiming on the fund.

The majority confirmed that common law rights should only be extinguished without compensation if there is a clear and unambiguous legislative intent. Since the legislation introduced a form of compensation and there were several valid constructions of s12A(1)(b) available, the majority decided compensation could also be claimed for expenses that pre-empt subsidence.

Encouraging owners to mitigate loss

The High Court also expressed the view that a function of the Act is to minimise damage, and that preventative or mitigation works are often cheaper than rectification works post-subsidence. The consequence of a narrow interpretation of s12A(1)(b) would be that owners might wait for subsidence to occur before repairing damage, an irrational result.

Further, the majority raised the issue that owners may be subject to statutory obligations to maintain their property in good working order. Failure to act early to prevent damage could lead to a breach of these statutory responsibilities and potentially criminal sanctions. Jemena, for instance, operated a gas pipeline and had responsibilities under the Pipelines Act 1967 (NSW).

Implications

Owners may now conduct preventative or mitigation works before subsidence occurs and claim from the fund. More generally, the High Court has encouraged a purposive interpretation of the Act that confirms the right to compensation where common law rights have been abrogated.

Footnotes

1. [2007] NSWCA 137.
2. Jemena Gas Networks (NSW) Limited v Mine Subsidence Board [2011] HCA 19.

For further information, please contact:

• Paul LalichPartner, Sydney
  Ph: +61 2 9230 4026
  Paul.Lalich@allens.com.au
• Jim ParkerPartner, Sydney
  Ph: +61 2 9230 4362
  Jim.Parker@allens.com.au