What's the purpose?
In the recent High Court case of R&R Fazzolari Pty Ltd –v- Parramatta City Council, the purpose for which a council sought to acquire land by compulsory acquisition under the Local Government Act 1993 (NSW) (LG Act) and its right to do so were considered extensively.
Background
Parramatta City Council (Council) adopted a Master Plan to develop a site that was to become Civic Place (Development). The Development was, amongst other things, to contain Council’s chambers, the town hall, library and community meeting rooms. The Development was too expensive for Council to undertake alone; it therefore entered into a development agreement with Grocon to establish a “public private partnership”.
The development agreement provided that:
Council was to acquire properties owned by R & R Fazzolari Pty Ltd and Mac Pty Ltd (Fazzolari and Mac Properties) which would form part of the Development;
Council and Grocon were to do anything that the other reasonably required to ensure the Fazzolari and Mac Properties became part of the Development;
most of the Development, including the Fazzolari and Mac Properties, was to be transferred to Grocon initially by a declaration of trust and then progressively by transfer of legal title to Grocon and in return Council was to receive upfront participation payments, a revenue share, Council facilities, public domain and a housing cash contribution from Grocon.
The Challenge
Council sought to acquire the Fazzolari and Mac Properties by compulsory acquisition under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) indicating the reason for the acquisition was for a public purpose namely the Development. At the same time Council also sought to compulsory acquire Darcy Street and Church Street to form part of the Development. Those streets were at the time owned by Council but were held solely as public road.
Fazzolari and Mac challenged the proposed compulsory acquisition of the Fazzolari and Mac Properties on the basis that:
Council intended to acquire the Fazzolari and Mac Properties for resale i.e. for the purpose of benefitting Grocon rather than for the purpose of exercising Council’s function, and as such could only do so with the consent of the owners;
the Fazzolari and Mac Properties did not adjoin nor were they in the vicinity of land (Darcy Street and Church Street) to be acquired at the same time other than for the purpose of re-sale.
For what purpose can Council acquire land?
The LG Act provides that councils may acquire land for the purpose of exercising their functions. The LG Act restricts councils from acquiring land by compulsory process without the approval of the owner if it is being acquired for re-sale except where the land forms part of, adjoins or lies in the vicinity of other land acquired at the same time for a purpose other than the purpose of re-sale.
Land and Environment Court and Court of Appeal Decision
The Land and Environment Court initially found that:
Council proposed to acquire the Fazzolari and Mac Properties for re-sale, the purpose of the acquisition being to transfer the Fazzolari and Mac Properties to Grocon for money and other benefits;
the Fazzolari and Mac Properties did not adjoin or lie in the vicinity of other land acquired at the same time for a purpose other than re-sale;
reference in the LG Act to “other land” referred to land not already owned by Council, in this instance Council already owned the other land (Darcy Street and Church Street) for the purpose of public road and in any event the purpose of it compulsory acquiring Darcy Street and Church Street was for re-sale, not for the exercise of Council’s functions.
The Court of Appeal overturned the Land and Environment Court’s decision on the ground that:
High Court Decision
The High Court upheld the original decision of the Land and Environment Court indicating:
Council proposed to acquire the Fazzolari and Mac Properties for re-sale. It was not necessary to consider the sole or dominant purpose of the acquisition; rather the proposed acquisition was only for the purpose of re-sale. The proposition that the purpose of the acquisition was to develop Civic Place or to implement the Master Plan merely obscured the fact that a precise form of development had been agreed, that is Council was to acquire the Fazzolari and Mac Properties by compulsory purchase and then dispose of them for money or money’s worth;
Darcy Street and Church Street were not acquired at the same time as Council proposed to acquire the Fazzolari and Mac Properties.
What does the decision mean for you?
If a council seeks to compulsory acquire land, ensure it is for the purpose of exercising council’s functions and not merely for re-sale
If the purpose of the acquisition is for re-sale establish if council is acquiring other land adjoining, or lying in the vicinity contemporaneously for a purpose other than re-sale.
Possible challenge to a compulsory acquisition of land by a council on the ground that the land is not being acquired for the purpose of council exercising its functions.
When developing land in a joint venture or under a public private partnership arrangement with a council, part of which is first to be acquired by compulsory acquisition:
ensure that the purpose of the acquisition is for council to exercise its function;
if the second element above is not able to be satisfied then consideration should be given to alternative structuring of the public private partnership in a manner that does not involve the sale of land to the private partner.
If you would like any further information on this article, please contact Archie Smith on + 61 2 9225 2604 or email smitha@kempstrang.com.au.
Please note that this information is general only. It is not legal advice. It should not be relied on as a substitute for legal or other professional advice.
