Australia: Reviewing coal seam gas compensation due to a material change in circumstances

The Land Court of Queensland recently delivered its decision in the matter of Nothdurft & Anor v QGC Pty Limited & Ors [2017] QLC 41.1

The case is significant because it is the first time the Court has reviewed the compensation agreed under a Conduct and Compensation Agreement (CCA) for coal seam gas activities due to an alleged "material change in circumstances". The Court has a statutory power of review in such a case under what is now s.101 of the Mineral and Energy (Common Provisions) Act 2014 (Qld).

In Nothdurft, the Court held that there had been a "material change in circumstances" since the date of the relevant CCA but only to a limited extent in comparison to what the landholders had alleged overall. The Court awarded the landholders an amount of $60,500 by way of additional compensation for the material change, which was only a small portion of the their total claim.

The Court's decision is important for the coal seam gas industry and landholders alike because it provides answers to a number of important questions. When is a change a "material change"? Will a material change automatically lead to an amendment of the agreed compensation? To what extent can the Court review the agreed compensation if a material change has occurred? We consider the Court's answers to these questions.

BACKGROUND

Mr and Mrs Nothdurft own Bellara, a property spanning almost 350 hectares south of Chinchilla (Property). They live on the Property and use it for cropping and grazing activities. It is also the base for a manure processing and spreading business operated by them, which services properties in the Chinchilla area.

The Property falls within the area of two petroleum leases held by QGC Pty Limited (QGC) and others. In 2005, the Nothdurfts entered into a CCA with QGC pursuant to which the parties agreed upon the amount of compensation payable by QGC for certain coal seam gas activities to be carried out on the Property. This agreement was superseded by a later CCA dated April 2006.

Since the date of the CCAs, QGC has constructed seven coal seam gas wells on the Property. It has also constructed underground gas and water gathering lines which connect to the wells. QGC's activities have been subject to the terms of the CCAs, the two petroleum leases mentioned above and an Environmental Authority issued under the Environmental Protection Act 1994 (Qld).

The Property is within an area of coal seam gas development undertaken by QGC as part of the "QCLNG Project". The area includes numerous coal seam gas wells and associated infrastructure, as well as compression and processing facilities and a water treatment plant. The gas that is received at the compression and processing facilities is transported several hundred kilometres via an underground network of pipes to Curtis Island, Gladstone, where it is processed into liquefied natural gas and shipped to export markets.

THE NOTHDURFTS' APPLICATION FOR REVIEW

The Nothdurfts commenced proceedings against QGC and the other petroleum lease holders on 17 March 2016 seeking additional compensation under s.537C of the Petroleum and Gas (Production and Safety) Act 2004 (Qld). That section (since repealed, but adopted in substantially the same form in s.101 of the Mineral and Energy Resources (Common Provisions) Act) conferred jurisdiction upon the Land Court to review and amend the compensation agreed under a CCA where there had been a "material change in circumstances".

WHEN IS A CHANGE A "MATERIAL CHANGE"?

To trigger the Court's review function, the Court in Nothdurft held that the change must be material to the agreement about compensation. This requires "a focus on effect rather than activity". Thus, a change which does not result in any change to the compensatable effects suffered by the landholder will not be reviewable under the Act. On the other hand, a change which does alter the compensatable effects may be.

Not every change in compensatable effect will be reviewable. The change must be "material" to the agreement about compensation, which means that it must be of significance or importance and not merely trivial or inconsequential. If reliance is placed on change in amenity (as was the case in Nothdurft), the impacts must be more than minimal.

IF THERE HAS BEEN A MATERIAL CHANGE, TO WHAT EXTENT CAN THE COURT REVIEW THE AGREED COMPENSATION?

The Nothdurfts argued that there was no method of review mandated by the Act and that the Court should assess compensation "afresh" on the changed circumstances. This involved ascertaining the "global" compensation payable to the Nothdurfts as though no CCA had ever been concluded. If the compensation assessed on this basis exceeded the original agreed compensation, then QGC had to pay the difference.

The Court was quick to reject this submission. It confirmed that the relevant section of the legislation imposed an express limitation on the Court's function. The Court "may review the original compensation only to the extent it is affected by the change." The section is not a gateway to consider the appropriateness of the original agreement.

Thus, the scope of a Court's review on an application under the Act is limited to the compensable effects suffered by the landholder due to the material change in circumstances. The Court's task is to identify the material change and to determine whether the compensatable effects caused by the change warrant additional compensation.

WAS THERE A "MATERIAL CHANGE IN CIRCUMSTANCES" IN NOTHDURFT AND, IF SO, DID THE COURT AMEND THE AGREED COMPENSATION?

The Nothdurfts alleged that there had been numerous matters which, either alone or together, had given rise to a material change in circumstances. These matters included:

  • non-compliance with noise limits;
  • cessation of supply of untreated CSG water;
  • emission of fugitive gasses;
  • incorrect well locations;
  • contamination of rainwater tanks; and
  • perceived health risks in living in or around a gas field.

As discussed below, a number of these allegations were contrary to the evidence and were therefore not upheld by the Court.

The Court also rejected the central premise underlying the Nothdurfts' claim that the alleged changes had rendered their residence uninhabitable and their Property unusable for business purposes and that, as a result, they should be compensated for the costs of relocating their residence and business to alternative locations in Chinchilla.

Noise levels

The Nothdurfts' main complaint was that the noise levels generated by QGC's activities on and in the vicinity of the Property were frequently and substantially in excess of the noise limits prescribed in the Environmental Authority, the night-time and low frequency noise limits in particular. The Nothdurfts contended that the noise levels had rendered their residence uninhabitable and that the Property was no longer capable of being used for business purposes.

The Court rejected these submissions.

The Court noted that QGC had taken the issue of noise seriously and had taken numerous steps to reduce noise impacts at night, including modifications to its infrastructure. The Court accepted that QGC was now complying with noise limits in nearly all respects. It also accepted the expert evidence given by an independent acoustic engineer engaged by QGC that the Nothdurft residence remained habitable.

However, QGC accepted that there had been exceedances of the noise limits in the past and the Court found that the Nothdurfts had experienced noise exceedances on an irregular but ongoing basis since 2015. The Court concluded that this was an increase in amenity impacts which amounted to a material change in circumstances.

As the amenity impacts were in the past, and not current and enduring, the Court accepted QGC's submission that the Court should approach the issue like a claim for damages for nuisance and award a reasonable amount to fairly compensate the Nothdurfts in light of the character, duration and frequency of the noise exceedances.

QGC proposed an award of $55,000, reflecting the cost of noise attenuation modifications to the home, which the Court accepted. Flowing from the finding that there had been a material change of circumstances in relation to noise, the Court also awarded the landholders an additional 10% ($5,500) for the consequential impacts of having to devote time to raising and responding to noise issues which were found to be in excess of authorised limits.

Access to untreated CSG water

It was common ground that Mr and Mrs Nothdurft had the right under the 2006 CCA to request the supply of untreated CSG water from storage ponds or pipelines that QGC had constructed on the Property, but that no such supply had occurred since 2010 due to regulatory changes which had come into effect in that year.

The water supplied under the CCA could only be used for stock purposes and it was Mr and Mrs Nothdurft's responsibility to ensure that the water could be used for this purpose.

The Court considered that an unlimited supply of untreated CSG water which was or could be made suitable for stock purposes was something that would have had significance or importance to a landholder's decision about compensation, particularly for a dry land property such as Bellara.

Although it was clear that access to water had changed since the date of the CCA dated April 2006, that change could not be considered in isolation to other events that occurred.

Since December 2011, Mr and Mrs Nothdurft had enjoyed access to an annual allocation of 100ML of treated CSG water under a take-or-pay agreement with SunWater. Mr and Mrs Nothdurft draw the water directly from a pipeline operated by SunWater as part of the Chinchilla Beneficial Use Scheme which traverses Bellara. The Chinchilla Beneficial Use Scheme involves CSG water extracted from the wells on Bellara and other properties being treated at QGC's Kenya Water Treatment Plant which is then piped by SunWater to the Chinchilla Weir for town supply and irrigation. Mr and Mrs Nothdurft use the water for irrigation and garden and stock use.

The Court accepted that the cessation of supply of CSG water under the 2006 CCA was a material change in circumstances. However, when assessed in context, the change was a beneficial one for the Nothdurfts. The Nothdurfts now have treated, better quality water via the Chinchilla Beneficial Use Scheme which would not exist but for QGC's activities. The water has allowed them to irrigate paddocks for cropping and to grow feed and there was evidence that secure access to water had a beneficial impact on the value of rural properties.

In light of these matters, the Court declined to amend the compensation on account of this material change.

Emission of fugitive gases

Mr Nothdurft gave evidence that high point vents and other gas field installations in the vicinity of the Nothdurft residence were emitting fugitive gasses, which posed a risk to personal safety.

Mr Nothdurft's evidence was contrary to the expert evidence on this point, which included ambient air quality monitoring undertaken by the Department of Natural Resources and Mines and by an environmental consulting firm engaged by Mr and Mrs Nothdurft for the purposes of the Land Court proceedings.

Given the expert evidence, which was unchallenged, the Court concluded that no material change in circumstances had been established in respect of alleged gas emissions.

Incorrect location of wells

Mr and Mrs Nothdurft alleged that three of the seven wells on Bellara had been constructed in different locations to those that were originally agreed during a site inspection / pegging party in 2005.

The Court was not satisfied that the wells had been constructed in different locations. Even if they had, there was no evidence that any change in well location had given rise to any change in the compensatable effect of QGC's activities.

Contamination of rainwater tanks

This allegation concerned QGC's use of Noel Robinson Road, which runs adjacent to and in close proximity to Bellara. The Nothdurfts alleged that QGC's use of the road had caused excessive dust which had deposited onto their roofs and into their rainwater tanks. The Nothdurfts further alleged that QGC had used coal seam gas water for dust suppression purposes, which meant that the dust contained harmful metals.

The evidence was that dust disturbance was no longer an issue – it was only a concern to the Nothdurfts up until approximately 2012 at which time QGC's construction phase came to an end.

In cross-examination, Mr Nothdurft conceded that he did not know the source of the water that QGC used for dust suppression and the only evidence as to QGC's practices in relation to dust suppression was post-2012 (i.e. after the period of most concern to the Nothdurfts).

Given these matters, and also given that the Nothdurfts did not lead any evidence from a person who had sampled or tested the water in the tanks, the Court concluded that the Nothdurfts' allegations were not supported by the evidence and that no material change in circumstances had been established.

Health risks

The Nothdurfts initially alleged that their family had suffered ill-health as a result of excessive noise and fugitive gas emissions (i.e. actual health impacts). During the course of the proceedings, they changed their position to say that there was a widespread perception of increased health risks associated with living in a gas field and that this perception affected the market value of the Property (i.e. perceived health risks).

The Court concluded that the evidence did not provide any basis for it to make the serious finding that any member of the Nothdurft family had suffered health impacts attributable to QGC's activities.

As to perceived health risks, the Court accepted that perceptions could affect market value and could be relevant in determining compensation. However, it is necessary to demonstrate that the perception has given rise to some actual change in circumstances as a matter of fact. A mere perception, without foundation in fact, will not constitute a material change in circumstances.

FINAL COMMENTS

The Nothdurft case has provided useful guidance for the coal seam gas industry and landholders as to the relevant principles that will apply in a "material change in circumstances" case. A full copy of the Court's judgement is available here.

Given the need to focus upon the effect rather than the activity, a key enquiry will be whether there has been any change in compensatable effects not addressed by the original compensation. If there has been, and the change is significant or important, then grounds will exist for a review.

The Court's review will be limited to identifying the compensatable effect attributable to any "material change" and determining whether additional compensation is justified in respect of that change. Identifying a change will not provide a basis for a wholesale review of the compensation originally agreed between the parties.

Footnotes

1 Corrs acted for QGC and the other petroleum tenement holders in the proceeding.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions