New court decision casts doubt on VPAs

12 July 2011

In a new decision, the NSW Land and Environment Court has declared a recent rezoning of the Huntlee New Town proposal invalid. The land was rezoned, following the public exhibition of a proposed state significant site listing and rezoning in October and November last year. This continues the site’s vexed history – the development had received a Part 3A approval in early 2009, only for it to be struck down in the Land and Environment Court in late 2009.


The Huntlee New Town proposal was for a mixed use urban area located adjacent to Branxton and North Rothbury in the Lower Hunter Valley. The $1.8 billion proposal was to ultimately provide approximately 7,500 homes, employment land providing 3,000 jobs and supporting infrastructure.
The legal challenge was mounted by the Sweetwater Action Group, with legal representation provided through the Environmental Defenders’ Office.


The rezoning was struck down on two grounds. As it turns out, either of these points alone would have been enough to set aside the rezoning.


Firstly, the Department of Planning and Infrastructure failed to provide the former Minister, Tony Kelly, with the state significant site study that dealt with contaminated land matters. This meant that the Minister inevitably failed to fulfill his responsibility to have regard to matters he was obliged to consider under the State Environmental Planning Policy 55 – Remediation of Land.


Secondly, the voluntary planning agreement that was finalised in late 2010 was held to be invalid. This then poisoned the subsequent rezoning, which was found to be invalid too.


The voluntary planning agreement was invalid because of a requirement under the legislation that every agreement must contain a provision for “the enforcement of the agreement by suitable means, such as a bond or guarantee”.


In the case of Huntlee, there was a series of staged payments to be made by the developer some time after the rezoning was to be granted. The only relevant enforcement mechanism was the right of the parties to sue on the contract, and registration of the agreement on the title to bind subsequent land owners. The Court held that the point of the “suitable means” of enforcement requirement was to ensure that the developer’s obligations are met, particularly in the event of insolvency. The normal rights to sue and/or bind successors in title were apparently not the “suitable means” required by the legislation. The Court said that the law requires bonds, guarantees and other assurances of the same kind.


If this view of the law survives any appeal (and it is far from certain that any appeal will be made) other voluntary planning agreements and approvals may come under challenge for the same reason. Companies that are relying on voluntary planning agreements may wish to review them in the light of this decision and obtain legal advice.


Going forward, the government is now unlikely to agree to new voluntary planning agreements providing for cash payments subsequent to a rezoning or approval, without bonds, guarantees or other assurances of the same kind.


In our view the Court decision, and the legislative provision it is based on, undermines the effectiveness of voluntary planning agreements. The ability for cash payments to be tied to (and entirely contingent upon) key milestones is reduced. It denies government the opportunity to accept some risk, in return for a greater share of the upside in the event that key benchmarks are achieved. We will be seeking changes to the legislation on this point.


The NSW Department of Planning and Infrastructure have issued a statement which says: “The Department will review the judgment in its entirety and consider all relevant implications and options before providing advice to the Minister. It should be remembered that the appeal brought before the court was based on a procedural technicality. Neither the merits of the rezoning proposal nor the Department’s assessment of those merits have been brought into question or ruled against.”


It is surprising and disappointing that two attempts the Department has made at approving this project have not been sufficient to result in an approval capable of withstanding legal challenge. Either there is something very wrong with the law, or the processes used by the Department of Planning and Infrastructure (or both).


A media report is available here.  The project details may be accessed from here.  The Court’s decision is here.