Client Update

Currently, the High Court decision in R & R Fazzolari v Parramatta City Council [2009] HCA 12 (“Fazzolari decision”) has significant implications for councils and developers seeking to carry out urban renewal and community infrastructure projects by way of a public private partnership (“PPP”). Such projects often involve a mix of private and public land.

The Fazzolari decision gives a narrow interpretation to the provisions of the Local Government Act 1993 (NSW) (“LGA”), which enable a Council to compulsorily acquire land and then re-sell it. In effect, the decision prevents a council from acquiring private land and then transferring it to a developer. As a result, to enable a PPP project to proceed, the commercial arrangements between parties will need to be carefully structured to ensure that a council can lawfully acquire that land and include it in the project.

The restrictions imposed by this decision may be overcome if the Lands Acquisition (Just Terms Compensation) Amendment Bill 2009 (NSW), which has recently been introduced into Parliament, is passed (although the Coalition and Greens have indicated that they will oppose it).

Background

In 2006, Parramatta City Council entered into a PPP agreement with Grocon (Civic Place) Pty Ltd and Grocon Constructions Pty Ltd for the development of 32,000 ha of land, bounded by Darcy, Smith, Church and Macquarie Streets, in central Parramatta. The development was to be known as Civic Place and was an urban renewal project to implement the Civic Place Master Plan, which had been adopted by Council in 2003.

The Council sought to acquire land in Darcy and Church Streets, which was owned respectively by R & R Fazzolari Pty Ltd (“Fazzolari”) and Mac’s Pty Ltd (“Mac’s”). These owners challenged the acquisition on the basis that it was beyond the Council’s power because it was for the purpose of re-sale, which was prevented under the LGA.

The matter was first heard in the Land and Environment Court, where Biscoe J held that the proposed acquisitions were unlawful because they were for the purpose of re-sale. On appeal, the Court of Appeal set aside Biscoe J’s decision, holding that the land was not acquired for the purpose of re-sale because under the Development Agreement the initiating and abiding purpose of acquisition was for a public purpose – being the development of Civic Place.

High Court Decision

In overturning the NSW Court of Appeal decision, the High Court looked at the purpose for which the particular parcel of land was acquired and found on the facts of the case that the council had no power to acquire land for the purpose of re-sale, even though the land formed part of a development which could legitimately be described as a development for a public purpose. The High Court found that it was not necessary to answer the question as to whether or not the sole or dominant purpose of acquisition was re-sale (although the minority judgment of French J held that it would need to be a substantial purpose). Whether or not there was a general public purpose was also not relevant. On the facts, pursuant to the development agreement, which existed at the time the notices of acquisition were issued, once the land was acquired, the Council was obliged to declare itself trustee of the land in return for Grocon's provision of money and works. As such the purpose of acquisition was for re-sale and beyond power.

The Council sought to argue that the purpose was lawful by relying upon s188 (2) of the LGA. This section enables a council to acquire land for re-sale without the consent of the owner if such land adjoins or lies in the vicinity of other land which the council acquires at the same time under Part 1 of Ch 8 of the LGA for a purpose other than the purpose of re-sale. However, the High Court held that s188 (2) did not apply because the “other land” which the Council was acquiring was public road, already vested in it and therefore being acquired under another piece of legislation, the Land Acquisition (Just Terms Compensation Act) (NSW) (“Land Acquisition Act”) and not under Part 1 of Ch 8 of the LGA.

The High Court restored the injunctive relief granted in the Land and Environment Court.

The decision highlights the legal presumption that the legislature does not intend to interfere with property rights unless a contrary intention is demonstrated in the legislation and that the Courts are likely to give a narrow interpretation to such provisions. In entering into agreements which require a third party’s land, care needs to be taken to ensure that the acquisition process can lawfully be carried out.

In order to overcome the consequences of the High Court’s interpretation of s188(2) of the LGA, the NSW government has introduced the Lands Acquisition (Just Terms Compensation) Amendment Bill 2009 (NSW) into Parliament. This bill clarifies that when acquiring land by compulsory process, the acquiring body is acting pursuant to the provisions of its enabling legislation which empower it to compulsorily acquire land and not the Land Acquisition Act. A council is therefore constrained by the provisions of the LGA. In effect, if a council is acquiring 2 parcels of land and one of those parcels is public land, such as a road, which is not to be re-sold, then the acquisition of the “other land” will be an acquisition of land under Part 1 of Chapter 8 of the LGA and the exemption to re-sale will apply. If passed, the bill will have a retrospective effect.