Publicly Speaking

05 Aug 2008

Section 40 of the Public Works Act and Auckland International Airport

The case of McElroy and Others as Trustees of the Craigie Trust v Auckland International Airport Ltd, Justice Williams, is the latest episode in the long running saga that is the Courts' attempts to interpret section 40 of the Public Works Act 1981 (PWA).

Section 40 sets out the obligation to offer land back to the former owner if it was held for a public work, but is no longer required for that or other public works purposes. Almost since its inception, there has been a stream of Court decisions which have sought to clarify the extent of that obligation. Despite this, there remain critical areas of uncertainty, providing a constant headache to those trying to apply it. While the outcome of this case is unsurprising, it illustrates that even an infrastructural facility of such importance to New Zealand as Auckland International Airport could be at risk under the legislation. This case highlighted the fundamental question of whether a modern day airport, in its broad sense, is in fact a public work.

The Land

At issue was an area of some 36 hectares which had been acquired under the Public Works Act 1928 from the Craigie Trust. The Crown had acquired the land over a period, the land being taken by Gazette notice of 1975 and subsequently declared local purpose (aerodrome) reserve under the Reserves Act. During that period, the airport was operated by the Auckland Regional Authority. However, following enabling legislation which provided for the corporatisation of airports, Auckland International Airport Ltd was incorporated as a public company in 1988, with the landholdings, including the land acquired from the Craigie Trust, transferred to it by a Vesting Order of March 1988.

The Craigie Trust land lies between the existing operational area, including the passenger terminals and current main runway, and the area presently being developed for the second runway. Parts of the land have been developed, including area for freight forwarders, a service station, rental car facilities, flight catering kitchens, a bank building, a supermarket, and food outlets. The land is traversed by the main access road George Bolt Memorial Drive, the aviation fuel pipeline and other utilities. The remainder of the land is still undeveloped, although earmarked for future development in the Airport Master Plan, with parts of the land ultimately shifting from commercial uses to development more directly associated with airside activity as the need arises.  In his evidence the former Chief Executive Officer, Don Huse, described the land as "heartland airport".

The Court considered:

1. Does section 40 apply to the airport company?
2. If section 40 does apply, does the airport company still hold the Craigie Trust land for any public work, or is the land no longer required for that public work?
3. If the Craigie Trust land is not held for a public work, is the airport company nevertheless not required to offer the land back on the grounds that:
   • it would be impracticable, unreasonable or unfair to require it to offer the land back to the Trust; or
   • there has been a "significant change in the character of the land for the purposes of or in connection with public work for which it was held".

Does Section 40 apply?

On the first question, the Court answered "yes". Section 4(6) of the Auckland Airport Act 1987 deems the airport company to be an "airport company" under the Airport Authorities Act 1966, and that Act in turn defines an "airport company" as a company "for the time being authorised … to exercise the functions of a local authority". Therefore, Auckland International Airport is deemed to be a "public work" for the purposes of section 40.

Further, the terms of the Vesting Order freed the airport company and its land from the restrictions under the Land Act 1948 and the Reserves Act 1977. The transfer of the airport land in the airport company did not itself trigger the offer back provisions of section 40, but thereafter section 40 would apply "as if the company were the Crown", so that the airport company inherited the Crown's obligations under section 40. Therefore, the airport land, including the Craigie Trust land, remains subject to section 40 and the airport company is "bound to honour its provisions unless exempted therefrom by what follows".

Is the Land still held for a Public Work?

Here, the Judge grappled with the question of whether the land had been and is still being used for its original purpose as an "aerodrome" as defined in the PWA. This speaks of a "defined area …used either wholly or partly…for the landing…of aircraft". The term "airport" as used in the Airport Authorities Act has a wider definition. He considered evidence as to the evolution of the modern airport from what had in earlier days been termed "aerodromes", and noted that the common terminology since the 1960s has been "airport":

The evidence clearly showed that … the interpretation of the word "aerodrome" and what was expected at such a facility changed significantly over time. By 1981 most persons asked to define "aerodrome" would have described the facilities then found at airports such as Auckland International. By 1987 their views may have changed so as to accommodate any increased facilities then expected to be available at airports. If required to define "aerodrome" now, such a person is likely again to refer to the present facilities at airports, particularly Auckland International. An ambulatory interpretation of the word "aerodrome" can therefore properly be held to encompass the facilities commonly found at airports - Auckland International in particular - and changing over time to what was and is now available.

The Craigie Trust land was closest to airport access and therefore the best available location for support and service functions, rather than airside operational functions. The 2005 Master Plan showed that the intention for this land the other land east of George Bolt Memorial Drive is for it to remain as ancillary commercial support and services, but with a multi-lane highway and possible rail access, and that commercial land uses will gradually be displaced by expanded facilities associated with the terminals.

The Judge also found that land can continue to be "required" for a public work even if it is not actually being used for such. In that light he noted that the Craigie Trust and other land has consistently been required for that purpose, and the developments which have taken place in and on the Craigie Trust land to date, and forecast, are shown all to have been "wholly or partly … used in connection with the aerodrome or its administration." This includes banking facilities for travellers and staff at Auckland airport, rental car and campervan parking, the supermarket servicing airport users and inbound tourists, food outlets, and "even Butterfly Creek, though primarily recreational, offers convention facilities, now an important facility at airports". 

The Court concluded that the Craigie Trust land was and is held for the public work of a modern day "aerodrome" or a modern day "airport". Alternatively, if it was no longer required for the public work of an "aerodrome", it is required for another public work, namely an "airport". 

The lengthy consideration of evidence on this question illustrates the interpretational problems which arise under the Act.

Do the Exceptions to Offer Back Obligation Apply?

While the Judge did not need to decide the third question, he did so in case the conclusions on the first two questions came up for reconsideration. In particular, he looked at whether, if the land had been shown no longer to be required for a public work of an "aerodrome" or "airport", he would have held that it would be impracticable, unreasonable, or unfair to require it to be offered back to the Craigie Trust.

The Judge found that, while there would have been practical difficulties in directing the whole of the Craigie Trust land to be offered back, that would not have led him to conclude that it would have been "impractical" if the offer back had been partial, as later proposed by the plaintiffs.

However, he would have reached the opposite conclusion as to whether it would be "unreasonable or unfair", which in this context "are to be regarded as effectively synonymous and to be assessed in the round". This was:

…principally because Auckland International Airport is, as the evidence made plain, an infrastructural asset of critical importance to the New Zealand economy. The site was chosen and the facilities developed on international expert advice that Auckland International should be developed as New Zealand's gateway to and from the world and to and from the country's largest conurbation. For the developed country further from its nearest neighbour than any other on the globe that was pivotal to New Zealand's development.

Its ability to develop and meet the ever-changing demands of increased international and national passenger and freight traffic depends on its ability to plan and install facilities with maximum flexibility in relation to its land use. Therefore, although direct aviation use of much of the land was not forecast for a number of years to come, the ability of the airport company to continue to develop "the singular infrastructural asset" would be severely hampered if it had to deal with the Craigie Trust's ownership of a large portion of land in the centre of the airport.

Put simply, the importance to New Zealand, the Auckland region and all those who use Auckland International in any capacity is such that the conclusion would have been the airport company's continuing ability to use all the land it currently owns, including the Craigie Trust land, in the way which best conduces to the interests the Airport's users, was sufficient to outweigh what would have been held to be the Craigie Trust's rights and was such as to make it "unreasonable or unfair" to direct the claimed land to be offered back to the plaintiffs.

The Judge also referred to the length of time which had elapsed since the land had been acquired "at full value" in 1974 before any action had been taken to try and recover the land, at 1982 - 1984 value. Further, he noted that, if the plaintiffs had succeeded, the Airport company may have felt it essential to repurchase the land at present value, a value significantly enhanced by the airport and the airport company's capital expenditure. That might have yielded the Trust a windfall and was another factor affecting unreasonableness or unfairness.

Interpretation Difficulties

What may seem remarkable is that so significant an infrastructural asset should be vulnerable in this way. Section 40 continues to provide considerable difficulties of interpretation, especially for land acquired before the PWA came into force. The opportunity to have land offered back at its price of a quarter of a century ago, with its present value greatly enhanced by the presence of the very facility for which it was acquired, must seem an attractive proposition. The imprecise wording of the section makes it extremely difficult to determine in practice, firstly, whether land meets the threshold test of being "held" for a public work, secondly whether it is still “required” for a public work, and thirdly whether any exception applies. This creates a fertile ground for litigation.

Authors

Duncan Laing

Partner - Public Sector

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Phillip Merfield

Partner - Property & Infrastructure

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Michael Wood

Partner - Property & Infrastructure

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Donna Hurley

Senior Associate - Public Sector

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