A Court of Appeal ruling released just before Christmas in relation to land held under the Public Works Act (PWA) by Auckland International Airport Ltd (AIAL) provides new certainty to other public landowners.
The Court has upheld a shift in the interpretation of section 40 of the PWA by the High Court in 2008 which is more favourable to the holders of land held for public works than were earlier decisions.
This Brief Counsel comments on the significant features of the Court of Appeal’s decision.
The case concerns land acquired in the 1970s for what were then “aerodrome” purposes. Most of the land is being leased to third parties for various commercial activities. The former owners (trustees of the Craigie Trust) claimed that it was therefore not “required” for an “airport” and should be offered back to them in accordance with s 40 PWA.
The High Court (McElroy v Auckland International Airport Ltd, August 2008) rejected the claim on the basis that the land was still required for a public work. But – importantly for other public landholders – it went on to state that, even had the land been found surplus to AIAL requirements, it would still be “unreasonable or unfair” to require an offer back because it was “an infrastructural asset of critical importance to the New Zealand economy” and because of the significant unearned financial benefit that would accrue to the former owners.
Chapman Tripp’s commentary on the earlier High Court case is available here.
As expected, the former owners appealed. The Court of Appeal has now endorsed the High Court’s interpretation of s 40. The effect will be to reduce the risks of a forced offer-back procedure, significantly enhancing the ability of public landholders to plan and undertake large-scale, long-term capital works.
While the particular case concerns airports, many of the principles will have application to other public works where land is often held for years, or even decades, while options are evaluated and further planning carried out before the project can actually be implemented. Examples could include roads, expansions of hospital, military or prison facilities, and bus stations.
Court of Appeal decision
The Court of Appeal endorsed the key points of the High Court decision, confirming that:
the land is still required for “the Auckland International Airport”, which of necessity includes a range of ancillary services for tourists and other airport users
the fact that airport land has been leased to third parties for non-airport activities in the short-term does not mean that it is not still required for airport activities in the longer term, and
the importance of the land to AIAL and AIAL’s need to plan for long-term expansion and development makes it “unreasonable or unfair” for the land be offered back to the former owner, even if no longer required for airport purposes. The Court of Appeal would have given an exemption from offer-back in any event on the basis of the substantial change in the character of the land since acquisition.
What is an airport?
The former owners argued that certain commercial activities were not airport uses and that the land leased out for those activities must therefore be surplus. The High Court had examined in detail what constituted an airport and found that it included a range of ancillary services. Although the Court of Appeal thought that focusing on the difference between an “aerodrome” and an “airport” was “misplaced and unhelpful”, it agreed that an “ambulatory approach” to interpretation was required, and that what was once an aerodrome was now an airport. Therefore the proper public work was “Auckland International Airport”.
The Court of Appeal confirmed the High Court’s finding that an airport is not just runways and terminals but encompasses a wider range of “connected and associated operational, administrative and commercial activities”. While this finding is especially helpful for airports given their statutory mandate to operate commercially, it also relates to other public works which may legitimately include core and non-core activities.
The Court of Appeal concluded that “the use to which AIAL has put and is putting the relevant land is within the scope of the public work for which the land is held, and for which it is still required”. The Court of Appeal’s reference to “the scope of the public work” and the ambulatory approach to interpretation is appropriate and helpful, because many public works are described in very general terms when the land is acquired and adopting a narrow interpretation many years in the future can be problematic.
Assessing the land as a whole or piecemeal
The Court of Appeal rejected an argument by the former owners that the question of whether land was required for a public work could be assessed on a piecemeal basis, finding that:
The evidence does not demonstrate that there are, on a realistically discrete basis, segments of land within that whole which are no longer held for that airport purpose. We accept that some segments may be being used for other purposes in the meantime and some areas have not been developed. However, that is the very nature of a modern international airport precinct. To hold that those segments ought to be cleaved off from the whole and offered back would be quite unworkable.
The contention that the appellants’ land could be carved out so that one was left with a patchwork of land held by the respondent interspersed with, and splintered by, land belonging to private owners, is unrealistic ... Such an outcome would wholly frustrate the flexibility that is necessary for planning, coordination, development and responding to changing demands for a modern international airport.
This makes good sense, particularly in relation to large areas of land which may have been acquired over time from several owners and accumulated for future development or expansion, as is often the case with roading projects. The global approach is entirely appropriate, if the Court is focused on avoiding undue prejudice to the public work.
Can land be leased and still “required” for a public work?
In considering this issue, the Court of Appeal was influenced by the time periods involved and whether the commercial use prevented future airport use of the land. It concluded:
Since AIAL’s incorporation, there has been an increase in commercial activity on land which has otherwise not been utilised. All of this has been done on the basis of short-term development. AIAL has always been able to ensure that, in the medium to long-term, any direct aviation functions would not be compromised by other activity.
These comments reflect AIAL’s statutory leasing powers, which anticipate short-term commercial leases pending longer-term core airport activities and provide for termination of such leases when required. Many other owners of land held for a public work have similar powers and can take encouragement from the Court’s reasoning, which suggests that early termination rights and careful assessment of lease terms are relevant to whether land can be leased and still be required for a public work in the future.
Would it be unreasonable or unfair for any surplus land to be offered back?
The Appeal Court also considered the hypothetical issue of whether the land should have been offered back were it no longer needed for a public work.
The Court confirmed the High Court’s comments that a successful commercial airport required the “ability to plan, install facilities and react to evolving aviation and users’ requirements unconstrained by lack of land or the need to take the interests of other landowners within its present boundary into account” and required “maximum flexibility to accommodate future changes”.
It agreed that offering back land which might have become surplus under s 40 would deny AIAL that ability, interfere with AIAL’s statutory functions and would be unreasonable and unfair. Differing from the High Court, the Court of Appeal would also have exempted the land from offer-back given the significant change in the character and value of the land since acquisition.
The former owners had sought to lessen the prejudice to AIAL of the land being offered back by proposing that it be leased to AIAL on commercial terms. The Court of Appeal considered this scenario but rejected it as impractical.
The Court of Appeal also criticised the former owners for not bringing their claim promptly, noting that they had not raised any objection over more than 30 years despite knowing that the land was being used for commercial activities and despite being engaged in PWA processes with AIAL’s predecessors during that time.
These criticisms may guide the treatment of other claims made under similar circumstances. Many s 40 claims are made long after the land has been said to have become surplus. The backdated valuation date for any offer-back makes such claims especially attractive, particularly to third parties who secure an assignment of the former owners’ rights and then pursue those rights for their own benefit.
It remains to be seen whether the former owners will seek leave to appeal to the Supreme Court but, in the meantime, the Court of Appeal decision represents a sensible and appropriate shift in the interpretation of s 40 PWA. This shift will be of particular assistance to the owners of land held for a public work which will be developed over a long timeframe and will give them the certainty and flexibility they need to fulfil their statutory responsibilities.
In the past there have been concerns that s 40 was being interpreted very narrowly, often resulting in land being offered back to the former owners on a technicality when it was still needed for a public work. This decision, very sensibly in our view, indicates that real consideration will now be given to the nature of the public work, the effect on the public work of the land being offered back, and the overall circumstances. The evolving nature of public works (which are often narrowly described when the land was first acquired) will be considered, as will the prejudice to the public work if the land is offered back.