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06 Apr 2009

Are there limits to NSW councils' ability to compulsorily acquire land?

The High Court has confirmed that NSW councils cannot compulsorily acquire land under the Local Government Act 1993 (NSW) (LG Act) when that land is earmarked for re-sale. In this case the consequence of the High Court's decision has significant implications for the Public-Private Partnership (PPP) (R & R Fazzolari Pty Limited v Parramatta City Council [2009] HCA 12).

At the heart of the case was a plan by the Parramatta City Council to redevelop the square outside its council chambers. It entered into a complex development agreement with private parties, which provided for highly sophisticated payment arrangements between the private party 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 the private party, but the legal interest in the properties would later be transferred to the private party.

To do all this the Council sought to compulsorily acquire Fazzolari's and Mac's land. It also sought to compulsorily acquire two public roads it already owned adjacent to Fazzolari's and Mac's land.

Section 188 of the LG Act imposed a statutory constraint on the Council's capacity to compulsorily acquire land if the land is acquired for the purpose of "re-sale". The constraint can only be lifted with either:

  • the landowner's approval; or
  • if the land adjoins other land acquired at the same time for a purpose other than re-sale.

The High Court had to determine the purpose of the compulsory acquisition of the land in question.

It found for the appellant landowners and against the Council (Clayton Utz acted for the appellants in the lower courts).

The purpose of re-sale

The acquisition of the land was one step in the implementation of a much larger scheme. Was the purpose of the acquisition therefore the implementation of the scheme?

No, said the High Court. This is too general a description of the acquisition. It pointed out that "very particular terms governing both acquisition and disposition of the appellants' land had been stipulated in the development agreement." The Council had to acquire the appellants' land and pay money for it; it then had to dispose of it to the private party, again for the money and money's worth provided by the private party under the development agreement. In short, the acquisition is a sale, and that sale was only proposed because the Council had agreed to transfer the land to the private party. That's a re-sale.

Does the Council's acquisition of its own roads save it?

Under the LG Act, the Council can still acquire land compulsorily, even for the purpose of re-sale, if it forms part of, or adjoins or lies in the vicinity of, other land to be acquired at the same time for a purpose other than the purpose of re-sale. Next to the appellants' land were two public roads, parts of which were to form part of the scheme and parts of which would be used by Council for other purposes. Even though the Council already owned the public roads, it needed to acquire them in order to convert them from public roads (which the Council could not develop) into ordinary land (which the Council then could develop). To free the roads of their statutory restrictions under the Roads Act 1993 (NSW), the Council compulsorily acquired its own land.

This legal quirk did not turn out to be the Council's lifeline. This was because the exception applies to land "acquired under this Part [of the LG Act]". The appellants' land was acquired using this Part of the LG Act, but the Council's land was not - the Council uses another LG Act, section 7B of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), to acquire its own land. The upshot is that if the appellants' land formed part of , or was next to, or in the vicinity of, privately-held land that was also compulsorily acquired, the Council would have won. Because the second parcel of land was owned by the Council, it failed.

Implications for councils and PPPs

The decision is quite specific to a NSW council's powers of compulsory acquisition under the LG Act and, in that context, it is necessary to examine whether under section 188 the compulsory acquisition is for the "purpose of re-sale" and whether the exception in relation to adjoining land applies.

The effect of the High Court's decision is to impact directly on the PPP agreement in this case. As for the power of any other NSW State authority to compulsorily acquire land for the purpose of a PPP, it will be necessary to examine the relevant statutory charter for that agency to determine the legal basis for the acquisition. The statutory constraint in section 188 of the LG Act is not, however, a common statutory constraint. For example, a number of NSW Government agencies have statutory powers to acquire and develop land and in the exercise of their statutory powers, they may acquire land for the purpose of "a future sale, lease or disposal."

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.