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In a decision issued just before Christmas 2006, the Supreme Court overturned the Court of Appeal's judgment regarding the compensation payable by Waitakere City Council to a subdivider for constructing an arterial road as part of its subdivision. This FYI summarises the Supreme Court's decision and explores some of its implications.
Facts
The road to be constructed by the subdivider, Estate Homes, was over the path of a longstanding designation. While the Council accepted that it should compensate Estate Homes to some extent, it disagreed with Estate Homes on how compensation should be assessed and paid. Estate Homes' application for consent had sought compensation from the Council for additional road reserve and additional carriageway, being the difference between the requirements for a local road and those for an arterial road. A condition of the subdivision consent specified that Council would pay compensation for "the extra 2m width of carriageway", based on the (smaller) difference between the requirements for a collector road and an arterial road.
Statutory basis for condition (2)(o) (vi)
The majority in the Court of Appeal had held that the condition was authorised by s 322(2) of the Local Government Act 1974 (LGA 74) which entitled the Council to acquire land for the purpose of forming an arterial road. Section 322 is subject to the requirement to pay compensation in accordance with the Public Works Act 1981. The Court of Appeal had held that there was a "taking" of land by the Council, and relied on the principle of statutory interpretation that there was a presumption of compensation being payable in these circumstances. The Supreme Court disagreed that land had been "taken", as the new road required to be formed under subdivision consent conditions would vest upon deposit of the survey plan. Accordingly, it held that s 322 LGA 74 was not the basis upon which the condition had been imposed. It preferred the view of the High Court, and minority in the Court of Appeal, that the condition required Estate Homes to provide "works and services" under section 108 (2)(c) of the Resource Management Act 1991 (RMA).
Application of the Newbury tests
The Supreme Court then considered whether the condition was lawful. To be lawful, it is well established that a condition must:
- have been imposed for a planning purpose;
- fairly and reasonably relate to the permitted development; and
- not be unreasonable: see Newbury District Council v Secretary of State for the Environment [1981] AC 578.
The second test set out in Newbury has previously been interpreted by the courts to mean that a condition must relate to the act of subdivision or development, or the changed circumstances which the subdivision or development will bring about, as was held in Davison Properties Ltd v Manukau City Council (1979) 7 NZTPA 42 (PT).
The Supreme Court did not accept this approach, nor did it accept the "rational nexus" test applied in the United States. The "rational nexus" test requires a planning authority imposing a condition requiring a contribution to infrastructure to demonstrate that the development will cause a need for new public facilities. The Supreme Court instead held that a condition of consent does not require any greater connection with the development than to be logically connected to it. It held that while a council must ensure that conditions imposed are not unrelated to the subdivision, that does not require the condition to be required for the purpose of the subdivision. The Council's requirement to construct an arterial road clearly related to the subdivision for which Estate Homes sought consent.
We do not consider that this approach should necessarily be interpreted as increasing councils’ powers, and recommend that councils continue to take a cautious approach when imposing conditions of consent. In particular, while it may signal a relaxation of the second Newbury test, any condition must still comply with the third Newbury test relating to unreasonableness. It remains to be seen how the Supreme Court's comments on the Newbury test will be interpreted by the Environment Court.
The Supreme Court considered that the only question to be referred back to the Environment Court was "what compensation would make the Council’s requirement to construct an arterial road reasonable at common law". This question was referred back to the Environment Court as it involved the exercise of planning judgment. The Supreme Court took a narrow view of the task to be undertaken by the Environment Court, by stating that the reasonableness of condition (2)(o)(vi) would turn on whether, in the absence of a designation, it would have been appropriate for the road in the subdivision plan to be built to the standard of a collector road (as argued by the Council) or a local road (as argued by Estate Homes). The Court noted that the Environment Court would have jurisdiction to amend the condition if it found it to be unreasonable, however, any compensation would need to remain within the limits of what was sought in the original application. This direction made it clear that it was not open to the Environment Court to require the Council to provide full compensation to Estate Homes for the cost of forming the road.
Applications under s 116 RMA
The Supreme Court decision warned councils of the potential risk involved in cooperating with an application under s116 allowing development works to proceed, while the reasonableness of their requirements for extra infrastructure remain in issue in an appeal.
In this case the parties had agreed, and the Environment Court had ordered by consent, that the subdivision consent commence under s 116. The road at the centre of the appeal has now been built by Estate Homes, with the Environment Court now required to determine what compensation is required. Although the road has now been constructed, the Court held that this would not prevent the Environment Court requiring the Council to pay more compensation to Estate Homes if necessary to make the Council's conditions reasonable. In our view, any council should exercise caution when determining whether to cooperate with a s 116 application, and consider the potential costs involved if a court were to require the council to pay more compensation than provided for in the council's decision.
Conclusion
The Supreme Court's decision is to be welcomed for clarifying the uncertainty created by differing approaches taken in the Court of Appeal to the proper statutory basis for condition (2)(o)(vi).
It remains to be seen whether the Court's potentially far reaching comments in relation to the Newbury tests, will in practice cause the Environment Court to show greater deference to conditions of consent, and reduce the incidence of consent conditions being invalidated for non-compliance with the Newbury tests. In the meantime, we recommend that councils continue to take a cautious approach when imposing conditions of consent.
This newsletter is produced by Simpson Grierson. It is intended to provide general information in summary form. The contents do not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.
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