Case note: Huntlee Pty Ltd and Minister for Planning and Infrastructure v Sweetwater Action Group Inc [2011] NSWCA 378 - Construction & Planning

On 8 December 2011, the Court of Appeal handed down judgment in Huntlee Pty Ltd and Minister for Planning and Infrastructure v Sweetwater Action Group Inc [2011] NSWCA 378 overturning the decision of the Biscoe J in the Land and Environment Court declaring the rezoning of the Huntlee New Town Site invalid.

The decision has important implications for parties to voluntary planning agreements.

SUMMARY

Registration of a voluntary planning agreement (VPA) may be a suitable means of enforcement under the Environmental Planning & Assessment Act, 1979 (EPA Act).
Each planning authority must assess the developer's obligations in a VPA and consider whether a means of enforcement offered by the developer is likely to eliminate or reduce to a commercially acceptable level the risk that each VPA obligation will not be performed. This assessment should take account of the:
- commercial context in which the VPA will operate;
- developer's capacity to comply with its obligations; and
- likely availability and effectiveness of the specified means of enforcement.
Under the State Environmental Planning Policy No 55 – Remediation of Land (SEPP 55), the Director-General, in the process of preparation of a draft State Environmental Planning Policy (SEPP) and not the Minister who recommends the making of a SEPP, has to be satisfied about the extent of any contamination of the land the subject of rezoning.

BACKGROUND

The proceedings concerned the rezoning of the Huntlee New Town Site comprising 1,702 hectares located in the Lower Hunter region south of Branxton (Site). Huntlee Pty Ltd (Huntlee) sought the rezoning of the Site for a large-scale residential and mixed use development over a period of 20-25 years (Project). Ultimately, the Project will provide up to 7,500 dwellings accommodating about 20,000 residents, 200 hectares of employment lands and conservation lands.

On 8 July 2010, Huntlee requested that the Minister for Planning and Infrastructure (Minister) consider rezoning the Site by way of its inclusion as a State Significant Site (SSS) under Schedule 3 of the State Environmental Planning Policy (Major Development) 2005 (MD SEPP). The Minister agreed to consider the Site as a potential SSS and initiated an investigation into the proposal.

In connection with the rezoning proposal, Huntlee offered to enter into a VPA with the Minister and the Minister for Environment to make the following contributions towards environmental conservation offsets:

transfer of 5,612 hectares of land for environmental conservation comprising 607 hectares of land within the Site, 17 hectares for "Persoonia Park" and 4,988 hectares of land throughout the Lower Hunter region (Conservation Offset Lands Contribution);
monetary contributions in the amount of $1.1 million comprising $100,000 towards the conservation of Persoonia pauciflora and $1 million towards the management of the conservation offset lands (Monetary Contribution).

On or about 2 December 2010, the Minister executed the VPA and recommended to the Governor the making of State Environmental Planning Policy (Major Development) 2005 Amendment (Huntlee New Town Site) 2010 (MD SEPP Amendment) which effected the rezoning of the Site. The Governor then made the MD SEPP Amendment.

Sweetwater Action Group Inc (Sweetwater) challenged the Minister's recommendation to the Governor on the following grounds:

failure to comply with clause SEPP 55;
taking into account an irrelevant consideration, namely, the VPA that did not provide for enforcement by a "suitable means" as required by section 93F(3)(g) of the EPA Act; and
reasonable apprehension of bias.

At first instance, Biscoe J held that the MD SEPP Amendment was invalid on the basis of Grounds 1 and 2. Sweetwater was unsuccessful on Ground 3.

DECISION AT FIRST INSTANCE

In respect of Ground 1, the primary judge found that the decision to recommend the MD SEPP Amendment was invalid because the Minister failed to comply with the conditions in clause 6 of SEPP 55. Clause 6 of SEPP 55 specifies mandatory requirements to which a "planning authority" must have regard to in determining whether to rezone land.

In reaching this conclusion, Biscoe J held that the Minister was the relevant "planning authority" on the basis that he was responsible for preparing the MD SEPP Amendment. While a contamination investigation report was considered by the Director-General, the findings of that report were not adequately summarised in a briefing note to the Minister for the Minister to formed the requisite state of satisfaction. For these reasons, the Land and Environment Court found the Minister had failed to comply with SEPP 55.

In relation to Ground 2, Sweetwater did not allege that the provisions of the VPA relating to the transfer of the Conservation Offset Lands Contribution did not comply with section 93F(3)(g) of the EPA Act. Instead, Sweetwater argued that the VPA did not provide for "the enforcement of the agreement by suitable means, such as the provision of a bond or guarantee", as required by the EPA Act, in respect of the Monetary Contribution only.

The Land and Environment Court held that the reference to "suitable means, such as a bond or guarantee" required "an additional, independent and enforceable assurance" that the developer's obligations under the VPA would be fulfilled. Although the Court conceded that the examples "bond or guarantee" are not exhaustive, the suitable means must be ejusdem generis, ie. security of the same general kind as a bond or guarantee. On this basis, the Court found that the registration of the VPA on title was an insufficient means of enforcing the Monetary Contribution against Huntlee or a subsequent landowner in the event of default.

On the basis that the VPA failed to comply with section 93F(3)(g), the primary judge held that the VPA should not have been considered by the Minister in deciding to recommend the MD SEPP Amendment to the Governor. The Court held that the effect of the Minister having regard to an irrelevant consideration was to invalidate the MD SEPP Amendment.

This decision was appealed to the Court of Appeal by Huntlee and the Minister in separate proceedings. Orders were made by the Court allowing both appeals to be heard concurrently.

DECISION OF THE COURT OF APPEAL

SEPP 55

The Court of Appeal unanimously upheld the appeals and set aside the first instance decision (Sackville AJA delivering the leading judgment with Beazley JA and Tobias AJA agreeing).

In respect of compliance with SEPP 55, the Court held that the primary judge was in error in concluding that the MD SEPP Amendment was invalid by reason of non-compliance with clause 6 of SEPP 55. The Court indicated, without deciding, a preferred view that the Minister's power to recommend the making of a SEPP is an exercise of the executive power, rather than a statutory power conferred by the EPA Act.

Irrespective of the source of the Minister's power, there is nothing in the EPA Act suggesting that the making of a "valid" Ministerial recommendation is a necessary precondition to the Governor exercising the power conferred by section 37(1) to make a SEPP. Rather the power of the Governor to make a SEPP is only conditional upon advice of the Executive Council, and the requirement that the SEPP be for the purpose of environmental planning by the State. Therefore, regardless of the status of the decision of the Minister to recommend the MD SEPP Amendment, the Governor, on advice of the Executive Council, validly exercised the power conferred by section 37(1).

In any event, the Court found that the mandatory requirements set out in clause 6 of SEPP 55 operate only to constrain a planning authority in the preparation of an environmental planning instrument and not a Ministerial recommendation to make a SEPP. By the time the Minister recommended the MD SEPP Amendment to the Governor, the process of preparation of the SEPP had concluded and the making of the SEPP had commenced. For these reasons, the Ministerial recommendation to the Governor to make the MD SEPP Amendment fell outside the scope of clause 6 of SEPP 55.

HUNTLEE'S VPA

In relation to the VPA , the Court held that the document provided for enforcement by "suitable means" and rejected the application of the ejusdem generis principle adopted by Biscoe J. Instead, the Court said the ordinary meaning of "suitability" is to be assessed "by reference to whether the means of enforcement is likely to eliminate or reduce to a commercially acceptable level the risk that the obligation created by the planning agreement will not be performed and that the planning authority or the community will not received the intended benefits". This assessment of the suitability of a means of enforcement offered by a developer requires consideration of the:

capacity of the developer to comply with the relevant obligations;
commercial context in which the VPA will operate; and
likely availability and effectiveness of the specified means of enforcement.

In this instance, the relevant obligation on Huntlee was its ability to pay the Monetary Contribution in a series of instalments. The risk associated with this obligation was mitigated by registration of the VPA on title and, prior to registration, the creation of an equitable interest in the land sufficient to support the Minister's lodgement of a caveat on the title of the Site. The Minister only had to withdraw the caveat once the VPA had been registered.

Based on the particular wording of the Huntlee VPA, following its registration, the obligation to pay the Monetary Contribution ran with the land until the obligation was discharged. While Huntlee may transfer the land to another developer, the safeguard in the particular provisions of the Huntlee VPA required that before any transfer takes place, the Minister must be satisfied that the proposed purchaser has the financial capacity to pay the Monetary Contribution and the purchaser must enter into a deed of novation with the Minister.

Although registration of the VPA does not necessarily eliminate entirely the risk that Huntlee might default in making the Monetary Contribution, the obvious purpose of the registration mechanism was to bind successors in title as contemplated by section 93H(3) of the EPA Act. This mechanism ensures that the owner of the Site for the time being is liable to pay the Monetary Contribution as and when the instalments are due. For this reason, the VPA was said to provide for suitable means of enforcement.

Interestingly, the Court of Appeal did not comment about the time at which security must be provided under a VPA.

That the value of Huntlee's land clearly exceeded the Monetary Contribution payable under the VPA was a factor to be considered in assessing suitability of enforcement mechanisms.

IMPLICATIONS

Registration of a VPA is now clearly available as a potential means of securing enforcement.
Planning authorities will likely undertake a risk assessment in respect of developer's capacity to perform each individual obligation in a VPA. This will include establishing the developer's capacity to perform including by reference to the value of the relevant property and the borrowings the developer has in place.
Security for performance of VPA's need not be provided solely by bank guarantee, as has become the practice.
Developers will need to be prepared to outline to planning authorities the commercial context in which their VPA obligations are to be performed, as this must be considered by planning authorities in assessing the suitability of enforcement mechanisms offered by developers.
A developer is not automatically released from its obligations under a registered VPA when the relevant land is sold. The planning authority must expressly agree to such a release.
SEPP 55 cannot be ignored in the process of preparing a draft environmental planning instrument. Developers taking short cuts with environmental site assessment at rezoning stage do so at their peril as this decision clarifies the obligation of local councils (for LEP's) and the Department of Planning and Infrastructure (for SEPP's) to comply with clause 6 of SEPP 55. Having said that, a SEPP made by the Governor in accordance with section 37(1) of the EPA Act will not be held invalid if there is a failure to comply with clause 6 of SEPP 55.

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.


Most awarded firm and Australian deal of the year Australasian Legal Business Awards	Employer of Choice for Women Equal Opportunity for Women in the Workplace (EOWA)