21 December 2007
Key Points:
NSW councils must look at other ways of devising agreements with contractors that are not dependant on acquisition of land by compulsory process where land is earmarked for re-sale.
A landmark decision in the Land and Environment Court has tested the limits of councils' power to compulsorily acquire land under the Local Government Act 1993 and their functions under the Act (R & R Fazzolari Pty Ltd v Parramatta City Council [2007] NSWLEC 623; Clayton Utz acted for the successful landowner).
Parramatta City Council's rejuvenation plan for Civic Place
Civic Place in Parramatta contains the Parramatta City Council’s administrative offices and chambers, the historic town hall, library and community meeting rooms. The Council planned to reposition Parramatta as the capital of western Sydney, and devised a development framework for Civic Place envisaging a billion dollar hub of business, tourism, entertainment, culture and heritage.
Unfortunately it owned only part of the site, so it resolved to acquire the parts it didn't own, including parcels owned by Fazzolari and Mac's, as well as part of two adjoining streets, notwithstanding the fact that it already owned both of them.
Underlying the Civic Place rejuvenation was a complex development agreement between Council and Grocon (Civic Place) Pty Ltd and Grocon Constructors Pty Limited, which provided for highly sophisticated payment arrangements between Grocon and the Council, and the transfer of various properties (including Fazzolari's and Mac's). Initially these properties were to be held on trust by the Council for the benefit of Grocon, but the legal interest in the properties would later be transferred to Grocon. The Council characterised its relationship with Grocon as a public-private partnership ("PPP") entered into pursuant to Part 6, Chapter 12 of the Local Government Act.
Justice Biscoe agreed that the Development Agreement, in part, may be viewed as a PPP. The entire project had been reviewed by the relevant Project Review Committee constituted under the LGA. The Committee had been satisfied that relevant PPP guidelines had been complied with.
Fazzolari challenged the compulsory acquisition of its property on four bases:
What is a "function" of a council?
Under section 186(1) of the Act, a council may acquire land for the purpose of exercising any of its functions. Fazzolari argued that the compulsory acquisition of its land was not for the purpose of exercising a council function, but was instead for the purpose of providing the land to a third party, Grocon. Conversely, the Council argued that it was merely giving effect to the Development Agreement and thereby achieving the objects of the Master Plan.
The key issue therefore was what may properly be regarded as a valid function of a council.
Justice Biscoe noted that discerning valid council functions is unproblematic, and can be found by reference to the Act. If the Civic Place development had been designed so that council buildings such as a library or council chambers were to be constructed on Fazzolari's land, , Fazzolari would have great difficulty in maintaining its claims. Did the immediate transfer of the compulsorily acquired land to Grocon displace any otherwise valid long-term aims of Parramatta City Council?
In answering this question, Justice Biscoe held that section 186(1) is concerned with the "purpose" of the acquisition, and not at the ultimate motive behind such an acquisition. Here, he said, the real purpose of the compulsory acquisition was to hand Fazzolari's land over to Grocon in order to relieve itself of substantial debt in implementing its redevelopment plan, and to also receive a substantial payment in the process. This would not be a valid execution of any valid council function.
Acquiring land next to other acquired land?
A council may acquire land which forms part of, or adjoins or lies in the vicinity of, other land proposed to be acquired (section 186(2)(b)). Council said it was acquiring parcels in Darcy and Church Streets, and Fazzolari's land was in the vicinity of those parcels. It therefore could compulsorily acquire Fazzolari's land.
Justice Biscoe rejected this argument on two grounds. First, to properly invoke this section, a council must establish that it is acquiring land from a third party - and it already owned the lots in Darcy and Church Streets.
More fundamentally, he said that section 186(2) is not an independent source of power enabling a council to compulsorily acquire land. Instead, it is incidental to the main power in section 186(1) - that is, it can only be invoked if there is a valid acquisition under section 186(1) - and there wasn't in this case.
Justice Biscoe nevertheless left open the possibility that section 186(2) may be interpreted as an independent source of acquisition power, provided more than mere physical proximity is established. This interpretation could lead to a situation where land could be acquired for re-sale under this section provided that the acquisition was also for the purpose of a council function.
Was the acquisition for the purpose of re-sale?
Fazzolari challenged the Council's acquisition of the properties on the basis that the purpose of acquisition was for re-sale to Grocon, as proscribed by section 188(1) of the Act. As this was proposed without Fazzolari's consent, Fazzolari argued that the acquisition was prohibited. The Council said that the purpose of acquisition was not purely for re-sale, but for the long-term objects envisaged by its redevelopment plan.
Justice Biscoe held that the purpose of the proposed acquisitions was to transfer Fazzolari's land to Grocon for consideration, long-term goals being irrelevant. Furthermore, it was held to be immaterial in defining"re-sale" that Grocon's consideration was a mixture of money and other forms of consideration, such as an undertaking to construct.
Did Council need Fazzolari's consent?
Section 188(2)(a) of the LGA stipulates that a landowner's consent is not required if a council acquires the land for resale, if their land adjoins or lies in the vicinity of, other land simultaneously acquired under Part 1 for a purpose other than re-sale.
The Council submitted that all it needed to show under this section was that there was a purpose independent of re-sale, whether or not that purpose was in conjunction with the purpose of re-sale. Here, it said, the acquisition of land in the same vicinity was to meet the objects of its redevelopment plan.
Justice Biscoe rejected the Council's submission as "other land" referred to land not already owned by the Council. In any case, he said, it is sufficient for the purpose to be substantially for re-sale in order to invalidate any proposed acquisition, notwithstanding that there may be other independent purposes.
What does this mean for councils and landowners?
Justice Biscoe's decision serves as a warning to councils intending to undertake substantial redevelopment works, but who do not have the financial resources to properly fund the project themselves. The decision is however currently being appealed.
As this case highlights,
