ACI OPERATIONS PTY LTD v PORT STEPHENS COUNCIL SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, MEAGHER and SHELLER JJA 26 November 1998, 17 December 1998 [1998] NSWCA 5 Local Government — amendment of local environment plan — rezoning of land — whether improper purpose — procedural fairness — Port Stephens Local Environment Plan (Amendment No 84) Local Government — amendment of local environment plan — rezoning of land — whether improper purpose — whether council seeking to avoid inclusion of acquisition clause — procedural fairness — insufficient evidence to establish a reasonable expectation — Port Stephens Local Environment Plan (Amendment No 84) ACI Operations Pty Ltd, the appellant, owns land on the Tiligerry Peninsula at Port Stephens which contains a valuable deposit of mineral sand. Under the Port Stephens Local Environment Plan 1987, mining was permissible subject to various consents and concurrences. In 1992 a survey identified koala habitat on the Peninsula. The Port Stephens Council, the first respondent, subsequently considered altering the zoning of the land to one which placed greater restrictions on development generally, and in particular did not permit mining in any form. Throughout 1994 extensive consultation and public debate took place regarding the rezoning proposal. In November 1994, there was a meeting of councillors at which the possibility of compensation claims arising out of the proposed rezoning was discussed. After the completion of various procedural steps involving the Director of Planning, the second respondent and the Minister for Planning, the third respondent, the Port Stephens Local Environmental Plan (Amendment No 84) ("the 1995 LEP") was gazetted on 1 September 1995, prohibiting mining on the appellant's land. Proceedings challenging the validity of the 1995 LEP on various grounds were dismissed in the Land and Environment Court. The challenge to the 1995 LEP continued in the Court of Appeal on three grounds. First, that the 1995 LEP contained a range of uses which were included for an improper purpose, namely to avoid the inclusion of an acquisition clause. Secondly, that the second and third respondents failed to afford procedural fairness to the appellant in the making of the 1995 LEP and finally, that the decision by the first respondent to proceed with the 1995 LEP was not made to further the object of the Act, but for other purposes. During the hearing of the appeal, it was held that it was not open to the appellant to challenge the 1995 LEP on the grounds of Wednesbury unreasonableness. HELD, dismissing the appeal, (1) The council was entitled to form the view that the protection of koala habitat merited rezoning. It was not established that the rezoning was motivated by a fiscal purpose. There was no error of law in eschewing other possible zones, even if this was done for financial reasons. (2) Whatever the extent of the current doctrine of reasonable expectation as the basis of a duty of fair dealing, it cannot be used to confer a right to any substantive outcome. Further, only a reasonably based expectation will engender the procedural right which the law protects. Save the Showground for Sydney Inc v Minister for Urban Affairs and Planning (1997) 95 LGERA 33 2 UNREPORTED JUDGMENTS (3) There was insufficient evidence to establish the existence of a reasonable expectation either, that the third respondent would notify the appellant before any action was taken on the proposal, or that the appellant would be given an opportunity to make representations about the proposal to defer the rezoning as far as it affected the appellant's land. Mason P The appellant owns land at Port Stephens which contains a valuable deposit of mineral sand. Prior to the gazettal of the Port Stephens Local Environmental Plan (Amendment 84) on 1 September 1995 ("the 1995 LEP") mining was permissible subject to various consents and concurrences. The 1995 LEP made this a prohibited development. Proceedings challenging the validity of the 1995 LEP on various grounds were dismissed in the Land and Environment Court. That challenge continues in this Court, but on a more limited range of issues. FACTS The appellant owns lots 21-24 in DP 579700 at Tanilba Bay ("the land"). The land is located on what is known as the "Southern Dune" of the Tilligerry Peninsula. It contains significant deposits of high quality silica sand. Prior to the 1995 LEP the relevant planning instrument was the Port Stephens Local Environmental Plan 1987 ('the 1987 LEP"). Under that Plan the land is zoned "1(a) (Rural "A" Zone)" ("Rural 1(a)"). That Zone permits, without development consent, the uses of "agriculture; dwelling-houses, (other than a dwelling-house prohibited by cl20); forestry". There are prohibited uses, but these did not include mining. Development for other purposes was permissible only with development consent. C137 of the 1987 LEP applied to specified land containing silica deposits, including the land. Its stated object was to ensure that the extraction of any silica from deposits in any such land was not jeopardised (cl37(2)). The clause stipulated that development for the purposes of mineral sand mining, silica extraction, a mine or any extractive industry was permissible, but only with the consent of the council, after consultation with the Director General of the Department of Minerals and Energy, and with the concurrence of the Director of Planning. Various procedures to be followed and factors to be taken into account were spelled out. In May 1992 there was a survey ("the Port Stephens Koala Survey") which identified remain in koala habitat in the area. In early 1994 the Port Stephens Council ("the Council") began considering altering the zoning of the Southern Dune from Rural 1(a) to Environmental Protection (Wildlife Refuge), Zone No 7(k), and the removal of the land from the provisions of cl37 in the 1987 LEP. The stated objectives of Zone 7(k) are the preservation of sites identified as providing a valuable habitat for wildlife and the protection of these sites so that they remain stable and in ecological balance. C19(3) of the 1987 LEP requires the Council not to grant development consent unless it is of the opinion that the carrying out of the development is consistent with the objectives of the zone within which the development is proposed to be carried out. No development is permissible in Zone 7(k) without development consent. The only development permissible with development consent is "agriculture; dwelling-houses; forestry; recreation areas; utility installations (other than gas holders or generating works)". All other uses are prohibited. The appellant was represented by consulting town planners Outline Planning Pty Ltd ("the appellant's planner'). In January 1994 the Council informed the appellant's planner that the land had been identified as prime koala habitat in the URJ ACI OPERATIONS PTY LTD v PORT STEPHENS COUNCIL (Mason P) 3 Council's Koala Management Plan (see below). Throughout 1994 the appellant's planner maintained the position that the plan to rezone the Southern Dune was based on inadequate data as to the location and needs of the koala population (AB 37-41, 448-56). On 25 January 1994 the Council resolved to consult with relevant public authorities and other interested parties in relation to the proposal to prepare a draft local environmental plan so as to achieve various objectives including the rezoning of the Southern Dune as Environmental Protection 7(k). Throughout 1994 there were extensive consultation and public debate relating to the rezoning proposal. As might be expected, the responses to the Council's proposal ranged from those of the appellant that sought to have the land subject to cl37 extended to additional areas, to those of the Hunter Koala Preservation Society that strongly supported the rezoning proposal because it would stop mining. During the negotiations which ensued, it was disclosed that the appellant had been intending "the staged extraction of approx 190,000 tons of silica sands from a dune running through the centre of' the land (AB30). Later information disclosed that 23% of the total area in the land was intended for this use. Government agencies intervened in the debate. The National Parks Wildlife Service ("NPWS") supported the rezoning proposal, indicating that for some of the area in question an even more stringent zoning might be appropriate. On the other hand, the appellant enlisted the support of the Department of Mineral Resources that wrote to the Council on 30 August 1994 emphasising the mineral value of the land and expressing strong opposition to the proposed rezoning. On 13 September 1994 the Council resolved to place on exhibition the Port Stephens Koala Management Plan. The document was published on 27 September 1994. The Plan is a lengthy document prepared as a joint initiative of the Council, NPWS and the Hunter Koala Preservation Society. It has all the hallmarks of being, as it claims, "the product of extensive work and community consultation " (p(iii)). The Plan documents the results of the Port Stephens Koala Survey. Chapter 5 (Habitat Evaluation) includes a discussion of sand mining on the Tilligerry Peninsula, recommending that: Sand mining in the southern corridor should be Prohibited from prime habitat areas and Council should amend its planning instrument by deleting reference to the clause which protects the sand resources in prime koala habitat areas, which should be rezoned to an Environmental Protection zone. Chapter 6 (Habitat Conservation) discusses various options available to conserve koala habitat. A 7(k) zone was one of them and it was that proposal which was ultimately recommended (p60), together with a recommendation deleting the application of c137. On 13 September 1994 the Council also resolved to prepare a draft Local Environmental Plan rezoning a substantial part of the Tilligerry Peninsula (including the land) as Environmental Protection 7(k). The draft plan was placed on public exhibition. There were 81 submissions received, with the majority (73) supporting the proposal and 8 objecting. On 16 September 1994 the appellant filed an appeal in the Land and Environment Court against the Council's deemed refusal of its development application which had sought approval to extract sand from the land. We were informed that the appeal has been stood over generally pending the outcome of these proceedings. 4 UNREPORTED JUDGMENTS On 29 November 1994 there was a meeting of councillors at which the possibility of compensation claims arising out of the proposed rezoning was discussed. It will be necessary to return to this meeting in more detail, because one of the appellant's remaining challenges to the 1995 LEP is that the 7(k) zone was adopted for an improper purpose of avoiding the inclusion of an acquisition clause. On 13 December 1994 the Council refused the appellant's development application "for the reason that there is likely to be a significant effect on the environment of the endangered species, the koala [s90(1)(c2)]". On 6 January 1995 State Environmental Planning Policy No 44 - Koala Habitat Protection (SEPP 44) was gazetted. As amended, it commenced on 13 February 1995. The appellant sought to rely upon the issuance of this instrument, which prescribes a detailed regime (applicable to many local government areas, including Port Stephens) for the protection of koala habitat through development control procedures, plans of management and other environmental planning measures. The appellant submits that the stringent protections offered under SEPP 44 meant that the need to rezone the Tilligerry Peninsula was no longer quite so pressing. Ultimately these submissions rise no higher than providing support for the merits of the 1995 LEP. On 31 January 1995 the Council resolved to request the Minister for Planning to make the instrument which became the 1995 LEP. The draft LEP was forwarded to the Department of Planning together with details of the submissions received in relation to it, including the submissions received from government agencies. This occurred on 3 February 1995. The controversy between the proponents and the opponents of the proposed rezoning moved to the Department of Planning. Further submissions were made in an endeavour to secure, block or defer the making of the proposed LEP. There was nothing unusual or improper in this. The statutory formalities were complied with. (Submissions to the contrary which were rejected by Bannon J are no longer pressed on appeal.) On 24 August 1995 the Minister, who is the third respondent, made the 1995 LEP and it was gazetted on | September 1995. Challenge in the Land and Environment Court The appellant instituted class 4 proceedings in the Land and Environment Court on 19 September 1995. The validity of the 1995 LEP was challenged on various grounds, both as to its substantive validity and as to the procedures adopted either by the Council, the Director of Planning or the Minister. These challenges did not include a submission that the LEP was unreasonable in the Wednesbury sense. The challenge was dismissed on 10 October 1996. Issues in the appeal The Notice of Appeal confined itself to two grounds: 1. His Honour erred in not finding that the Port Stephens Local Environmental Plan (Amendment No 84) contains a range of uses which were included for an improper purpose, namely to avoid the inclusion of an acquisition clause. 2. His Honour erred in not finding that the second and third respondents failed to afford procedural fairness to the Appellant in the making of the Port Stephens Local Environmental Plan (Amendment No 84). At the commencement of the hearing of the appeal, senior counsel for the appellant sought leave to add a third ground: URJ ACI OPERATIONS PTY LTD v PORT STEPHENS COUNCIL (Mason P) 5 3. His Honour erred in not finding that the decision by the first respondent to proceed with the Port Stephens Local Environmental Plan (Amendment No 84) was not made to further the object of the Act, but for other purposes. Leave to amend was not opposed by the respondents and it was accordingly granted. However, as the argument progressed it became apparent that there were different views between counsel as to the range of matters encompassed by the third ground of appeal. When the possibility of the hearing having to be adjourned emerged, the range of issues proposed to be opened up by the third ground of appeal were examined, and the Court ruled that it was not open for the 1995 LEP to be challenged on the grounds of Wednesbury unreasonableness. Some of the appellant's submissions were, on analysis, no more than objections to the merits of the rezoning. As such they lie outside the realm of judicial review. I would include the submissions (a) that some activities (such as forestry and agriculture) which are permissible with consent under the 1995 LEP so long as they are consistent with the zone objectives are capable of being as harmful to koala habitat as sand mining; (b) that the Koala Survey was flawed; (c) that the 1995 LEP sterilises a valuable mineral resource; (d) that SEPP 44 removed the need for the rezoning; and (e) that the appellant's compromise suggestions should have been adopted rather than the more stringent 1995 LEP. It was submitted that the material before the Council provided no rational explanation for reaching the view that forestry (permissible with consent) could be compatible with the protection of koala habitat whereas mining (prohibited) would not. This too must be rejected. Not only is it an objection to the merits of the proposal, but it is contrary to the evidence (see AB 187-8, 193-4, 201, 407, 430; Koala Management Plan p39-p40). It is therefore convenient to address the first and third grounds of appeal together. Improper purpose At a late stage in the consideration of the proposal by the Council, Councillors sought information about whether the Council could be subject to compensation claims if it proceeded with the proposed 7(k) zoning. A memorandum dated 1 December 1994 was produced by an officer who was the Manager, Sustainable Development. His advice was: POSSIBLE COMPENSATION CLAIMS Where Council rezones land as Open Space 6(a) it is obliged pursuant to cl28 of Local Environmental Plan 1987 to acquire this land if the owner gives notice to Council that they require Council to purchase the land. There are no corresponding compulsory acquisition clauses in Council's Planning Instrument in respect of the Environmental Protection 7(k) Zone. If the Courts were of the opinion that the 7(k) zoning was a defacto "Open Space Zone" and that none of the permissible uses within the 7(k) zone could reasonably be undertaken other than a public use, then there may be an argument that should the land be compulsory acquired by Council. [sic] The onus would be on the aggrieved party to demonstrate that none of the permissible uses in the zone constitute a reasonable use of the land. Under the 7(k) zoning "Agriculture, Dwelling-houses, Forestry, Recreation Areas and Utility Installations" are all 6 UNREPORTED JUDGMENTS permissible with Council's consent. There is no intention to prohibit these land uses, provided adequate consideration is given to the habitat value of the subject land. On the basis of the above it is not considered that any claim for compensation or any action to make Council compulsory acquire this land would be successful. However, if Council wishes to have its Solicitors look more closely at this matter, I can arrange for legal advice to be obtained. This document which was presumably taken into account, is relied upon by the appellant as evidence that the Council procured the rezoning in the 1995 LEP for a range of uses which included the improper purpose of "avoiding the inclusion of an acquisition clause". This submission appears to go beyond what was fought at trial. As pleaded in para3 of the Points of Claim, the allegation was that the permissible uses in the 1995 LEP, to the extent that they allow non-public purposes, were "not intended as bona fide uses of the land to which the LEP applies, at least so far as the first respondent is concerned". By way of particulars it was contended that the inclusion of non-public purposes in the permissible use of the LEP was a sham. Having regard to this pleading and to the well-known connotation of "sham" (cf Re State Public Services Federation; Ex parte Attorney General (WA) (1993) 178 CLR 249 at 290), the learned trial judge was correct to treat this as an allegation of bad faith on the Council's part. Such an allegation was properly rejected (AB 881), and it is not repeated on appeal. Rather, an alternative submission was addressed to the effect that there was an objectively improper purpose, being that of avoiding the risk of exposure to compensation that would be payable had some alternative zoning been chosen. C128 of the 1987 LEP, which applies in certain situations to land in Zones 5(a), 5(c), 5(d), 6(a) and 7(fl), confers on the owner of land within those zones the option of requiring the appropriate public authority identified in cl28(f)-cl28(j) to acquire the land. The Council is the authority nominated in relation to land in zones 5(a) (Special Uses lettered "Carparking"), 5(d) and 6(a). S27(1) of the Environmental Planning and Assessment Act 1979 ("the Act") requires that provision for acquisition must be made in an environmental planning instrument that reserves land for use exclusively for a purpose referred to in s26(c) of the Act. S26(c) refers to uses: for the purposes of open space, a public place or public reserve within the meaning of the Local Government Act 1993, a national park or other land reserved or dedicated under the National Parks and Wildlife Act 1974, a public cemetery, a public hospital, a public railway, a public school or any other purpose that is prescribed as a public purpose for the purposes of this section. This challenge to the validity of the 1995 LEP must be rejected. It is not suggested that the advice given to the Councillors about compensation was wrong in any respect. The Council was entitled to form the view that the protection of koala habitat merited consideration of the 7(k) zoning. Bannon J rejected the submission that the zoning chosen was an improper or disproportionate way of responding to the perceived need to protect koala habitat, and that submission has not been pressed on appeal. The Council was not obliged to choose some other zoning such as 6(a) (Public Recreation Zone) or 7(fl) (Environmental Protection [Coastal Lands] Zone). Or, to put it more accurately, there was no error of law in eschewing such zones, even if this were done for financial reasons. Efficient stewardship is part of a council's charter (cf Local URJ ACI OPERATIONS PTY LTD v PORT STEPHENS COUNCIL (Mason P) 7 Government Act 1993, s8). In any event, it was not established that the rezoning was motivated by a fiscal purpose: the 7(k) zoning was in the ring long before someone raised the possibility of compensation claims. There is nothing in the newly added third ground of appeal which takes the matter any further. It is therefore unnecessary to consider whether it addresses a matter fairly raised at trial, or whether it is not embarrassing in its vague attempt to reverse the onus of establishing invalidity. Denial of procedural fairness by Director of Planning and Minister It was not in dispute that the Director of Planning and the Minister administering the Act were subject to common law duties to act fairly in their handling of the rezoning application. It does not follow that they owed any general duty to consult with the appellant merely because the appellant sought such opportunity. What the appellant complained about was the disappointment of a reasonable expectation either that the appellant would be given an opportunity to make representations about a proposal to defer the rezoning so far as it affected the appellant's land or that the appellant would at least be notified if deferral was not to be adopted (Points of Claim, para8). Whatever the extent of the current doctrine of reasonable expectation as the basis of a duty of fair dealing, it cannot be used to confer a right to any substantive outcome (Save the Showground for Sydney Inc v Minister for Urban Affairs and Planning (1997) 95 LGERA 33 at 37, 46-7). The appellant did not suggest otherwise. And only a reasonably based expectation will engender the procedural right which the law protects (ibid). I have already indicated that it was on 3 February 1995 that the rezoning proposal moved from the Council to the Director of Planning and the Minister. Thereafter proponents and opponents of the scheme lobbied at that level, as was their entitlement. The General Manager of the appellant wrote to the then Minister for Planning, the Hon Robert Webster, on 22 February 1995 spelling out the appellant's concerns and opposing the proposed 7(k) zoning. The letter invited the Minister to mediate in the matter and concluded on the following note: In view of the urgency of the matter, we request a meeting with you in two weeks time, commencing 6 March 1995. We look forward to your confirmation of a mutually agreeable meeting date. The Minister was informed in a briefing note that it would be several weeks before his department could provide a report pursuant to s69 of the Act. It was indicated that in those circumstances little benefit was seen in the Minister meeting with ACI personnel. It may be that the Minister was also somewhat involved in preparing for a general election on 25 March 1995 in which there was a change of government. On 21 March 1995 the Minister wrote to Mr Morton indicating, relevantly: Ihave asked the Department to investigate all the matters you have raised and specifically to consult further with the Department of Mineral Resources so that the technical implications of the Council's proposal can be reported fully to me. Since the Department of Planning will be unable to provide me with this necessary information in the next few weeks I am unable to meet with you at this time. However, I am pleased to be made aware of your concerns, and if the matter is brought to my attention at a future time I will consider your submission before I make any decision. 8 UNREPORTED JUDGMENTS This letter is said to have given rise to a reasonable expectation that the Minister would notify the appellant before any action was taken on the proposal. Were this the fact, then the particular Minister's successor in office may have been bound, at least unless and until he notified withdrawal from the proffered arrangement. But, with all due respect to the appellant's submission, there was simply nothing in the Minister's polite though dismissive letter of 21 March 1995 that was capable of creating any such expectation, let alone a reasonable one. When the Minister in the new government determined to make the 1995 LEP he took into account the submissions in the appellant's letter of 22 February 1995, which was all that had ever been offered by the previous Minister in his letter of 21 March 1995. The alternative way in which the appellant submits that there was a denial of a duty of procedural fairness stems from a meeting that took place on 14 June 1995 at the office of the Department of Urban Affairs and Planning, Newcastle. The meeting was chaired by Mr Stephens from the Department of Urban Affairs and Planning. It was attended by officers from that Department, the Department of Land and Water Conservation, NPWS, the Council, the appellant and representatives of the Hunter Koala Preservation Society. Possibilities for resolving the conflict were examined. However, the protagonists outside the Department of Urban Affairs and Planning maintained their respective positions and no consensus emerged. At one stage during the meeting Mr Stephens suggested deferring that part of the LEP which contained the land in question pursuant to s68(5) of the Act. The deferral proposed was until the outcome of the appellant's then pending appeal to the Land and Environment Court against the deemed refusal (by then an actual refusal) of its development application. The suggestion attracted support from the appellant's representative but, not surprisingly, received a cool reception from the representatives of the Council and the Hunter Koala Preservation Society. (Although there were no submissions on the point, I incline to the view that s68(5) would have required the Council to withdraw and resubmit its proposal. Be that as it may, the suggestion was capable of defeating the course upon which the Council had embarked and which it wished to maintain.) In early July 1995 Mr Stephens, who was the Environmental Planning Officer for the Hunter and Central Coast Regions, prepared a draft Minute intended for submission to his superior within the Department. That document recommended the exclusion of the appellant's land from the rezoning. (The Minister would have had power to amend the proposal in this way: see s70.) At about the same time Mr Stephens informed an officer of the Council that he was recommending deferral in respect of the appellant's land on the basis that further assessment would occur through the preparation of a Fauna Impact Statement ("FIS") and the prosecution of the pending Land and Environment Court appeal (AB 832). It did not take the Council long to make known its displeasure with this suggestion. It commenced to lobby the Minister directly, urging him to carry through the Council's original proposal unamended (see letter dated 24 July 1995). The Australian Koala Foundation joined in (AB 844). At the trial, the appellant read an affidavit of Alex Echt who was one of its managers responsible for the silica sand extraction at the land. He had been present at the meeting of 14 June 1995 and he had been subsequently told by Mr Stephens that he (Mr Stephens) had recommended deferral. According to Mr Echt's version of the conversation with Mr Stephens this was deferral "until the URJ ACI OPERATIONS PTY LTD v PORT STEPHENS COUNCIL (Sheller JA) 9 sand has been taken out of the area " (AB 75). It is highly improbable that Mr Stephens would have said this. His contemporaneous records indicate a much more limited idea of deferral, until the fate of the impending appeal to the Land and Environment Court was determined. Mr Stephens' version of this conversation, in his affidavit that was also read, was that he confirmed to Mr Echt that deferral was an option being considered in the Department's processing. According to Mr Stephens, Mr Echt offered to "speed up the processing of the application by making direct approaches to the Director and the Minister" to which Mr Stephens responded "that would not be necessary because I expect the processing to occur quickly given the high level of community pressure being experienced to that end in the form of direct representations from the Hunter Koala Preservation Society, the Council and others to the Minister and the Department". There was a conflict in the evidence between Mr Echt and Mr Stephens as to whether (as Mr Echt indicated) Mr Stephens also suggested that an approach to the Director or the Minister "could work against ACI'. The learned trial judge did not resolve this conflict. Taking the appellant's evidence at it highest there was nothing which could have engendered a reasonable expectation that the appellant would be consulted further. Its hopes of obtaining a deferral may well have been raised by what passed between Mr Stephens and Mr Echt. But both men knew that the decision rested with persons much higher in the departmental and political levels than Mr Stephens. The statutory procedure required a report to be furnished to the Minister by the Director of Planning (s69). Mr Stephens prepared a Minute to his superior with the Department recommending the exclusion of the land, but this was not endorsed by the Director. A subsequent s69 report was prepared while Mr Stephens was on leave. It recommended the making of the 1995 LEP. Mr Echt swore that he relied upon what, according to his version, he had been told by Mr Stephens. But if he did, then such reliance was entirely his own affair. It would not have been reasonable to have done so even if Mr Stephens had said what was attributed to him by Mr Echt, something that is very improbable. The trial judge was correct to conclude that nothing gave rise to a legitimate expectation on the part of the appellant that the Minister would act on Mr Stephen's suggestion, or that it would be referred to the Minister. The appeal should be dismissed with costs. Meagher JA I agree with Mason P. Sheller JA I agree with Mason P. Appeal dismissed with costs. Counsel for the appellant: R Gyles QC, R Darke Solicitors for the appellant: Blake Dawson Waldron Counsel for the first respondent: W Davison SC, P Fury Solicitors for the first respondent: Sparke Helmore Counsel for the second and third respondents: N Hutley SC, A Galasso Solicitors for the second and third respondents: Dept of Urban Affairs & Planning