The High Court's decision in WAPC v Temwood

04 January 2005

Free ceding of reserved land as the price of subdivision approval

On 9 December 2004, the High Court overturned a decision of the Full Court of the Supreme Court of Western Australia, and in doing so, endorsed the Western Australian Planning Commission's (WAPC) practice of imposing conditions on subdivision approvals requiring landowners to cede reserved land free of cost.

The decision means that owners of reserved land in such circumstances no longer have a guaranteed right to compensation.

Reservation and compensation generally

The WAPC is empowered to 'reserve' land by making or amending regional planning schemes.¹ If privately owned land is reserved, the ownership does not change, but restrictions are placed on the use and development of that land. There is a general understanding that reserved land will eventually be compulsorily acquired for a public purpose, but there is no legislative requirement to this effect.

Section 11 of the Town Planning and Development Act 1928 (WA) (TPD Act),in combination with section 36 of the Metropolitan Region Town Planning Scheme Act 1959 (WA)² (MRS Act) confers a right on owners of reserved land to seek compensation for any reduction in value caused by restrictions on use and development, or 'injurious affection'. This right to claim compensation is triggered by:

• the first sale of the land, following the reservation, at a value reduced due to the reservation, or
• the refusal (or approval subject to unacceptable conditions) of a development application in respect of the land.

The facts in WAPC v Temwood

In 2000, the WAPC approved three stages of a subdivision of land, which adjoined a 200 metre strip of coastal foreshore land, all of which was owned by Temwood Holdings Pty Ltd (Temwood). The foreshore land was reserved by the Metropolitan Region Scheme in 1963 under sections 30 and 32 of the MRS Act.

A condition was imposed on all three subdivision approvals requiring that the reserved land be vested in the Crown, and 'ceded free of cost and without any payment of compensation by the Crown'. Earlier subdivision approval for part of the larger parcel of the land had included a similar condition, but this had not been enforced prior to its expiry.

The condition expressly denied any compensation for the effective acquisition of the reserved land, and denied the opportunity for one of the above triggers to arise, effectively defeating any future right to compensation.

Temwood's appeals

Temwood appealed the WAPC's decision to impose the condition to the Town Planning Appeal Tribunal. The Tribunal dismissed the appeal Temwood Holdings Pty Ltd v Western Australian Planning Commission [2001] WATPAT 4, 21 March 2001, per LA Stein, C Porter and EA McKinnon. on the basis that the condition served a clear planning purpose, was reasonably related to the entire subdivision and was not unreasonable. The Tribunal recognised:

'... the necessity that the Commission be able to impose a condition, in appropriate cases, that the land be ceded free of cost upon subdivision, This necessity arises because of the legitimate community concerns that a developer contribute to infrastructure costs to the extent permissible; a concept accepted by the High Court in Lloyd v Robinson (1962) 107 CLR 142 on the basis that the condition is the price for the privilege of subdivision.'⁴

McLure J dismissed Temwood's appeal to the Supreme Court.⁵ It attempted reliance on the principle in Clissold v Perry Clissold v Perry⁶ that statutes are not to be construed as interfering with vested interests unless the intention is manifest. Her Honour held that the principle did not apply because at the time the condition was imposed, Temwood's right to claim compensation was not a 'vested interest'. McLure J's analysis characterised Temwood's right to compensation as being 'contingent' or 'inchoate' as it had not been triggered by either of the two circumstances in section 36 of the MRS Act.

The Full Court decision

Temwood appealed McLure J's decision to the Full Court of the Supreme Court, which upheld the appeal, holding that the Tribunal erred in endorsing the condition.⁷

The leading judgment of Olsson AUJ, with whom the rest of the court agreed, focused on the general question of whether the right to compensation can be extinguished by the imposition of a condition of planning approval. He rejected McLure J's analysis of the concept of 'vested interest', finding that the High Court in Clissold v Perry used the term to mean 'certain definite rights', rather than adopting, apparently from the law of trusts, a definition based on when the interest crystallises.

Olsson AUJ found it 'impossible to accept that, having conferred such a specific statutory right, the legislature had in mind that, per medium of the general power of imposing conditions of approval conferred by s20(1)(a) of the TPD Act, the respondent could, in its discretion, attach a condition to an approval to subdivide which directly negated that right by extinguishing it'.⁸

Olsson AUJ also assessed the condition against the well accepted Newbury⁹ test, which requires that in order to be valid, a condition on planning approval must:

• have a planning purpose
• fairly and reasonably relate to the proposal, and
• not be so unreasonable that no reasonable decision maker could have imposed it.

In applying the test, Olsson JAU observed that the Tribunal had correctly characterised the condition as being related to a planning purpose, in that it sought to preserve reserved land for a public purpose. However, the condition requiring ceding was not necessary to achieve this purpose, as the reservation itself protected the land from inconsistent development or use. His Honour also found that the condition was not sufficiently related to the proposal in question, as there was no evidence in the Tribunal's reasoning that the condition was directed at the orderly development or preservation of the amenity of the locality. He concluded that the condition did no more than 'attempt to abrogate the existing right to seek compensation'¹⁰ , and could not be regarded as a bona fide exercise of the power to impose conditions on subdivision approval for a legitimate planning purpose.

The High Court decision

The High Court overturned the decision of the Full Court by a majority of three to two.¹¹

The reasoning of the majority

The majority adopted the reasoning of McClure J in the Supreme Court, holding that Temwood did not have an existing right to compensation which could be defeated by a condition. This meant that the principle in Clissold v Perry did not apply as Temwood had no right, contingent or otherwise, to compensation until a section 26 MRS Act trigger arose, and therefore, there was no right which the condition could have been said to defeat.¹²

The majority rested its decision on the principle established in Lloyd v Robinson Lloyd v Robinson¹³, that the power to impose conditions in the TPD Act should not be read down by principles of statutory construction concerning the confiscation of land. In that case, the High Court considered that the TPD Act, at its commencement, took away the proprietary right to subdivide land without approval. If a landowner sought then to subdivide it must comply with conditions imposed by the WAPC. By this reasoning, the ceding of an area of land can be the price paid to subdivide another area, and in that sense, the ceding is not confiscation. The only limit on the power of the WAPC to set the 'price' of subdivision approval through the imposition of conditions, as recognised by the High Court, was that the discretion must be exercised in good faith and not with a view of achieving ends or objects extraneous to the purpose for which the discretion exists.¹⁴

The majority adopted this reasoning¹⁵, applying the Newbury test to determine whether the discretion to impose the condition had been properly exercised.¹⁶

The Newbury test

In assessing whether a condition has a proper planning purpose, McHugh J indicated that a WAPC imposed condition for the purpose of avoiding a future liability to pay compensation would have been improper.¹⁷ However, his Honour held that the purpose of the WAPC was irrelevant, as the roles of the respective appellate courts was limited to assessing whether the Tribunal had committed an error of law in assessing the merit of the condition.¹⁸ Accordingly, in deciding that no error of law had been committed, it was sufficient that the Tribunal had included sufficient environmental and historical evidence in its reasons to justify the imposition of the condition.¹⁹

With respect to the requirement that the condition must reasonably and fairly relate to the development, it was sufficient that the reserved land was part of a larger parcel of land, which at one stage included that land subject to the present subdivisions, and that it was imposed for reasons of environmental protection and foreshore management in respect of that larger parcel.²⁰

The satisfaction of the first two limbs of the Newbury test was deemed to satisfy the third, relating to reasonableness, without further analysis.²¹

The dissenting judgments

Callinan J delivered a strong dissenting judgment, characterising the question raised by the appeal as whether the ceding of the land at all could properly be required, rather than focusing on whether the condition was invalid for defeating a right to compensation.²²

His Honour disagreed with the majority's reliance on Lloyd v Robinson²³, stating that the TPD Act was directed at regulating, rather than removing, the right to subdivide, and that the power to regulate was required to be exercised 'reasonably, fairly, and in no way arbitrarily'.²⁴ He concluded from the relevant authorities that the power to impose conditions on subdivision was bound by the 'scope and object of the instrument' conferring the power²⁵, and the 'purpose for which the function of the authority is being exercised'²⁶. Callinan J concluded that the condition could not properly be imposed because it could not be within the scope of either of the MRS Act or TDP Act to 'get the Foreshore Reserve for nothing'²⁷, nor was it the purpose of the WAPC (or the Tribunal in its place) to 'get land for nothing'²⁸.

Although Callinan J's decision rendered it unnecessary to consider whether there was an existing right to compensation, he concluded that Temwood did have such a right, notwithstanding that it was not the owner at the time of reservation. He observed that any reduction in price of the reserved land was unlikely to represent the full loss caused by the reservation, as any subsequent purchaser would knowingly acquire a right to claim compensation at a later stage by virtue of the second section 36 trigger.²⁹

Heydon J's dissent rejected much of the reasoning of the majority as irrelevant, deciding that condition was invalid for the sole reason that it was imposed for an extraneous purpose.³⁰ He adopted the reasoning of Olsson AUJ in the Full Court, that:

'At the very least, the Tribunal reasons evidenced, by clear inference, the existence of a major ulterior or extraneous purpose—namely to avoid a compensation liability to the appellant, conferred on the latter by statute. The reasoning in Newbury ³¹ and Thompson³² inexorably leads to the conclusion that, in the circumstances, the imposition of the impugned condition cannot be regarded as the bona fide exercise by the respondent of its powers for a legitimate planning purpose.'³³

Heydon J recognised that there could be a situation where a condition required land be ceded to the Crown without compensation for a proper planning purpose, although he found that the purpose in this case was evidently extraneous.³⁴

Ramifications of WAPC v Temwood

It is now clear that the WAPC can validly impose a condition on subdivision approval requiring that reserved land be ceded to the Crown, effectively defeating any future opportunity to obtain compensation for the reservation of that land. While the strength of the dissenting judgments of Heydon and Callinan JJ demonstrates a possibility that the issue is not settled, the preservation of compensation rights will now necessarily be an important consideration for purchasers, and the proponents of any subdivision, of reserved land and land in its proximity.

This power is constrained by the requirement that there be proper planning justification for the ceding of that land, and that such ceding be reasonably related to the subdivision in question. However, WAPC v Temwood demonstrates that this constraint will be very easily overcome by evidence of any benefit arising from public ownership of the land.

McHugh J acknowledged that the original decision of the WAPC was probably 'improper'³⁵, having been entirely based on the avoidance of a compensation liability, and that any proper justification for the condition was only elucidated by the Tribunal. There may therefore be some scope for a such a condition to be challenged directly by judicial review, rather than a merits based appeal to the Tribunal. However, the scope for success of such an appeal would be limited by the court's reluctance to grant prerogative relief to an applicant who has not exhausted all avenues for merit-based review, as well as the likelihood that the WAPC will heed the advice of the High Court in attempting to impose ceding conditions, namely by offering reasons based on proper planning grounds rather than purely fiscal considerations.

Managing reserved land in light of WAPC v Temwood

As a result of this decision, there is a serious risk that the potential right to claim compensation for the regional reservation of land will not survive the subdivision approval of proximate land. Compensation claims should therefore be explored prior to the lodgment of a subdivision application.

As outlined above, there are two circumstances in which a land owner has a right to claim compensation for injurious affection for a regional reservation, where:

• the land is first sold at a reduced value following the reservation, or
• an application to develop the land is refused or granted subject to unacceptable conditions.

Devising a strategy to subdivide land while maintaining the right to claim compensation is complicated by the fact that the law prevents the use of contrived actions to trigger compensation rights. The Full Court of the Supreme Court of Western Australia has held that where an application is made, the refusal of which is a trigger for compensation, it must be bona fide in the sense that the owner has a genuine intent to implement the development approval if it is approved.³⁶

The difficulty was recognised by the Tribunal in the decision at first instance, in observing that the combination of the requirement of bona fides with the ability to impose a ceding condition on subdivision has 'significant and unfortunate consequences':

'If an owner primarily intends to subdivide land, an application to develop will be invariably contrived. If the owner makes contemporaneous applications to develop and subdivide, it is then a matter of luck if the development is refused before the condition is imposed.'³⁷

The right to compensation for such a reservation may therefore never be realised. Accordingly, the risk that the right to claim compensation may be lost upon later subdivision is now an important consideration in assessing the value, and structuring the terms of sale, of reserved land.

The right to obtain compensation for the sale of land is available only to the owner of the land at the time the land was reserved, and not to subsequent purchasers.³⁸ For much of the land reserved by the MRS, this is likely to mean that compensation is not attainable on this basis, as the MRS was introduced in the 1960s, unless the land has been in the same ownership since that time, or if the reservation was introduced by way of scheme amendment.

It will, however, be an important consideration in respect of the Peel Region Scheme, introduced in 2003, and the pending draft of the Greater Bunbury Region Scheme. If a loss is sustained when land is first sold following the introduction of these schemes, compensation can be claimed by the vendor in respect of this loss within six months of the sale.

FOOTNOTES

1. The Metropolitan Region Scheme and Peel Region Scheme each reserve a significant amount of privately owned land, including valuable coastal and river foreshore. Similar reservations are proposed by the draft Greater Bunbury Region Scheme, expected to be introduced during 2005.
2. In respect of land in the Perth metropolitan area. Compensation claims for injurious affection by non-metropolitan region schemes are dealt with by section 33 of the Western Australian Planning Commission Act 1985.
3. Temwood Holdings Pty Ltd v Western Australian Planning Commission [2001] WATPAT 4, 21 March 2001, per LA Stein, C Porter and EA McKinnon
4. [2001] WATPAT 4 at [26]
5. Temwood Holdings Pty Ltd v Western Australian Planning Commission (2001) LGERA 152
6. Clissold v Perry (1904) 1 CLR 363 at 373
7. Temwood Holdings Pty Ltd v Western Australian Planning Commission (2002) 25 WAR 484 (Wallwork and Scott JJ, Olsson AUJ)
8. (2002) 25 WAR 484 at 493
9. Newbury District Council v Secretary of State for the Environment [1981] AC 578
10. (2002) 25 WAR 484 at 500
11. Western Australian Planning Commission v Temwood Holdings Pty Ltd [2004] HCA 63, 9 December 2004, per McHugh, Gummow and Hayne JJ, Callinan and Heydon JJ in dissent
12. [2004] HCA 63 at [109]
13. Lloyd v Robinson (1962) 107 CLR 142
14. (1962) 107 CLR 142 at 154
15. [2004] HCA 63 at [45] and [116]–[117]
16. [2004] HCA 63 at [15]
17. At [2004] HCA 63 at [65], McHugh J indicated that he believed the WAPC 'probably did' impose the condition for an improper purpose.
18. [2004] HCA 63 at [65]
19. [2004] HCA 63 at [68] and [69]
20. [2004] HCA 63 at [73]
21. [2004] HCA 63 at [74]
22. [2004] HCA 63 at [122]
23. (1962) 107 CLR 142
24. [2004] HCA 63 at [147]
25. Swan Hill Corporation v Bradbury (1937) 56 CLR 726, as cited in [2004] HCA 63 at [148]
26. Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 as cited in [2004] HCA 63 at [156]
27. [2004] HCA 63 at [148]
28. [2004] HCA 63 at [156]
29. [2004] HCA 63 at [169]
30. [2004] HCA 63 at [186]
31. [1981] AC 578
32. Thompson v Council of the Municipality of Randwick (1950) 81 CLR 87
33. (2002) 25 WAR 484 at 500, adopted in [2004] HCA 63 at [186]
34. [2004] HCA 63 at [186]
35. [2004] HCA 63 at [65]
36. Bond Corporation Pty Ltd v The Western Australian Planning Commission [2000] WASCA 257, (2000) 110 LGERA 179
37. [2001] WATPAT 4 at [24]
38. Metropolitan Region Town Planning Scheme Act 1959, section 36(3a)(a)

This article was written by Vanessa Jakovich, Solicitor.