Hunter's Hill Council v Minister for Local Government; Lane Cove Council v Minister for Local Government; Mosman Municipal Council v Minister for Local Government; North Sydney Council v Minister for Local...

[2017] NSWCA 188

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Hunter’s Hill Council v Minister for Local Government; Lane Cove Council v Minister for Local Government; Mosman Municipal Counil v Minister for Local Government; North Sydney Council v Minister for Local Government; Strathfield Municipal Council v Minister for Local Government [2017] NSWCA 188

Hearing dates:

3-6 April 2017

Decision date:

31 July 2017

Before:

Basten JA at [1];
Macfarlan JA at [395];
Sackville AJA at [442]

Decision:

A.   In the appeal brought by Hunter’s Hill Council:

 

(1)   Grant the appellant leave to file and rely upon the amended notice of appeal in fact filed on 19 April 2017.

 

(2)   Allow the appeal and set aside the orders made in the Land and Environment Court on 20 September 2016 in matter No 158774 of 2016.

 

(3)   In place of those orders,

 

(a) declare that the proposal made by the Minister for Local Government under s 218E(1) of the Local Government Act 1993 for the amalgamation of Hunter’s Hill, Lane Cove and Ryde local government areas is invalid because it did not propose the creation of a new area being a single area of contiguous land, in accordance with s 204(3) of the Act;
(b)   set aside the report of the delegate furnished to the Boundaries Commission in March 2016;
(c)   set aside the comments of the Boundaries Commission sent to the Minister on 29 April 2016;
(d)   order that the Minister pay the Council’s costs of the hearing before the Land and Environment Court.

 

(4)   Order that the respondent Minister pay the appellant’s costs in this Court.

  

B.   In the appeal brought by Lane Cove Council:

 

(1)   Grant the appellant leave to file and rely upon the amended notice of appeal in fact filed on 19 April 2017.

 

(2)   Allow the appeal and set aside the orders made in the Land and Environment Court on 20 September 2016 in matter No 161918 of 2016.

 

(3)   In place of those orders,

 

(a) declare that the proposal made by the Minister for Local Government under s 218E(1) of the Local Government Act 1993 for the amalgamation of Hunter’s Hill, Lane Cove and Ryde local government areas is invalid because it did not propose the creation of a new area being a single area of contiguous land, in accordance with s 204(3) of the Act;
(b)   set aside the report of the delegate furnished to the Boundaries Commission in March 2016;
(c)   set aside the comments of the Boundaries Commission sent to the Minister on 29 April 2016;
(d)   order that the Minister pay the Council’s costs of the hearing before the Land and Environment Court.

 

(4)   Order that the respondent Minister pay the appellant’s costs in this Court.

 

C.   In each of the appeals brought by Mosman Municipal Council and North Sydney Council:

 

(1)   Grant the appellant leave to file and rely upon the amended notice of appeal in fact filed in the Registry.

 

(2)   Dismiss the appeal.

 

(3)   Order the appellant to pay the respondents’ costs of the appeal.

  

D.   In the appeal brought by Strathfield Municipal Council:

 

(1)   Grant the appellant leave to file and rely upon the amended notice of appeal in fact filed on 19 April 2017.

 

(2)   Allow the appeal with respect to the judgment given in the Land and Environment Court on 20 September 2016 in matter No 158221 of 2016.

 

(3)   Make the following orders:

 

(a) declare that the examination and report conducted by the delegate of the Chief Executive of the Office of Local Government with respect to the proposal made by the Minister for Local Government under s 218E(1) of the Local Government Act 1993 for the merger of Strathfield, Burwood and City of Canada Bay local government areas is invalid because the delegate failed to consider the financial advantages and disadvantages of the proposal in accordance with s 263(3)(a) of the Act;
(b)   set aside the report of the delegate furnished to the Boundaries Commission in late September or early October 2016;
(c)   set aside the comments of the Boundaries Commission sent to the Minister in October 2016;
(d)   direct that any further examination of the proposal be undertaken by a person other than the respondent delegate;
(e)   order that the Minister pay the Council’s costs of the hearing before the Land and Environment Court.

 (4)   Order that the respondent Minister pay the appellant’s costs in this Court.

Catchwords:

ADMINISTRATIVE LAW – examination of proposal to amalgamate local government areas – mandatory considerations defined by statute – procedural fairness – non-disclosure of documents – whether undisclosed underlying report part of adverse material – whether undisclosed report significant – public interest immunity claimed – confidentiality claimed

 

ADMINISTRATIVE LAW – examination of proposal to amalgamate local government areas – mandatory considerations defined by statute – constructive failure to exercise function – whether undisclosed underlying report precluded proper examination of mandatory consideration

 

LOCAL GOVERNMENT – proposal to amalgamate local government areas – validity of proposal –delegate to examine and report on proposal – failure of Minister to provide access to documents detailing financial advantages of amalgamations – reasonable notice of inquiry – conduct of inquiry – consideration of financial advantages and disadvantages of proposed amalgamation

 

JUDGMENTS AND ORDERS – finding of invalidity of examination and report under Local Government Act, s 218F – remittal to same delegate – whether appropriate for Court to order that further examination and report not be undertaken by same delegate

WORDS AND PHRASES – “contiguous” – whether local government areas separated by river “a single area of contiguous land” – Local Government Act s 204(3) – effect of bridge spanning river

Legislation Cited:

Administrative Arrangements (Administrative Changes – Public Service Agencies) Order 2017
Community Land Development Act 1989 (NSW), s 3
Constitution (Cth), s 96
Constitution Act 1902 (NSW), ss 50B, 51
Environmental Planning and Assessment Act 1979 (NSW), s 66
Government Information (Public Access) Act 2009 (NSW), ss 4, 58
Liquor Act 2007 (NSW), s 136C
Local Government Act 1906 (NSW), ss 3, 14, 15
Local Government Act 1919 (NSW), ss 15, 18
Local Government Act 1993 (NSW), ss 46, 47, 114, 115, 116, 204, 205, 212, 213, 214-218, 218A, 218D, 218E, 218F, 220, 262, 263, 264, 265, 287, 388, 448, 702, 713, 745; Ch 9, Pt 1, Divs 1, 2, 2A, 2B; Ch 17, Pt 2; Dictionary
Local Land Services Act 2013 (NSW), Dictionary
Local Land Services Amendment Act 2016 (NSW), Sch 1
Migration Act 1958 (Cth), s 418
Mining Act 1992 (NSW), s 85
Mining Act 1978 (WA), s 75
Municipalities Act of 1858 (NSW), s 4
Municipalities Act 1897 (NSW), ss 17, 27
Order for Allocation of the Administration of Acts (13 April 2017), Minister for Local Government
Ports and Maritime Administration Act 1995 (NSW), ss 37, 43E
Strata Schemes Development Act 2015 (NSW), s 5
Strata Schemes (Leasehold Development) Act 1986 (NSW), s 4

Cases Cited:

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10
Aisbett v City of Camberwell (1933) 50 CLR 154; [1933] HCA 36
Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88; [2005] HCA 72
Attorney-General (Vic) v City of Geelong [1989] VR 641
Botany Bay City Council v Minister for Local Government [2016] NSWCA 74
Botany Bay City Council v State of New South Wales [2016] NSWCA 243
Bushell v Secretary of State for the Environment [1981] AC 75
Carroll v Mijovich (1991) 25 NSWLR 441
Castle v Director-General, State Emergency Service [2008] NSWCA 231
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389; [1996] HCA 36
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280
Commissioner for the Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576
Director-General, Department of Trade and Investment, Regional Infrastructure and Services v Lewis (2012) 301 ALR 420; [2012] NSWCA 436
Gartener v Kidman (1962) 108 CLR 12; [1962] HCA 27
Hot Holdings Pty Ltd v Creasy (1996) 185 CLR 149; [1996] HCA 44
Johnson v Johnson (2000) 201 CLR 488; [2000] HCA 48
Kioa v West (1985) 159 CLR 550 at 629 (Brennan J); [1985] HCA 81
Kirk v Industrial Court of New South Wales (2010) 239 CLR 531; [2010] HCA 1
Ku-ring-gai Council v Garry West as delegate of the Acting Director-General, Office of Local Government [2017] NSWCA 54
Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60; [1925] HCA 18
Litevale Pty Ltd v Lismore City Council (1997) 96 LGERA 91
Mahon v Air New Zealand Ltd [1984] AC 808
Minister for Immigration and Border Protection v SZSSJ [2016] HCA 29; 90 ALJR 901
Minister for Immigration and Border Protection v WZARH (2015) 256 CLR 326; [2015] HCA 40
Minister for Immigration and Citizenship v Kumar (2009) 238 CLR 448; [2009] HCA 10
Minister for Local Government v South Sydney City Council (2002) 55 NSWLR 381; [2002] NSWCA 288
MZAFS v Minister for Immigration and Border Protection (2016) 237 FCR 347; [2016] FCA 75
New South Wales v Commonwealth of Australia [2006] 229 CLR 1; [2006] HCA 52
NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509; [1956] HCA 80
Plaintiff M64/2015 v Minister for Immigration and Border Protection (2015) 258 CLR 173; [2015] HCA 50
R v Brown [1996] 1 AC 543
Re Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 206 CLR 57; [2001] HCA 22
Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6
Re Refugee Review Tribunal; ex parte Aala (2000) 204 CLR 82; [2000] HCA 57
Ryan v Edna May Junction Gold Mining Company (1916) 21 CLR 487; [1916] HCA 37
Scurr v Brisbane City Council (1973) 133 CLR 242; [1973] HCA 39
Sinclair v Maryborough Mining Warden (1975) 132 CLR 473; [1975] HCA 17
Stead v State Government Insurance Commission (1986) 161 CLR 141; [1986] HCA 54
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63
TAL Life Limited v Shuetrim; MetLife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68
The Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208; [1904] HCA 50
The Queen v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13; [1980] HCA 13
Woollahra Municipal Council v Minister for Local Government [2016] NSWCA 380; 219 LGERA 180
Woollahra Municipal Council v Minister for Local Government [2016] NSWLEC 86; 218 LGERA 65

Texts Cited:

A Twomey and G Withers, Federalist Paper 1, Australia’s Federal Future: A Report for the Council for the Australian Federation, (April 2007) pp 6-7

 

Anne Twomey, “Local Government Funding and Constitutional Recognition”, Constitutional Reform Unit, University of Sydney, Report No 3 (January 2013)

 

Cheryl Saunders, “Constitutional Recognition of Local Government in Australia”, in N Steytler (ed), The Place and Role of Local Government in Federal Systems (Konrad-Adenauer-Stiftung, 2005) 47

 

D Halberstam, “Federalism: Theory, Policy, Law” in M Rosenfeld and A Sajó (eds), The Oxford Handbook of Comparative Constitutional Law (Oxford UP, 2014) Ch 7

 

K Gray and S F Gray, Elements of Land Law (5th ed, Oxford U P, 2009), [1.2.87])

 

M Aronson, M Groves, G Weeks, Judicial Review of Administrative Action and Government Liability (Thomson Reuters, 6th ed, 2017)

 

NSW Legislative Assembly, Hansard, 27 November 1992, p 10412

 

NSW Parliamentary Debates (Third Series, Vol 235) Legislative Assembly, p 723

  Treaty on European Union, Art 5(3)

Category:

Principal judgment

Parties:

Matter 2016/287916:

 

Hunter’s Hill Council (Appellant)
Minister for Local Government (First Respondent)
Dr Robert Lang (Delegate of the Chief Executive of the Office of Local Government) (Second Respondent)
Chief Executive of the Office of Local Government (Third Respondent)
Local Government Boundaries Commission (Fourth Respondent)
Lane Cove Council (Fifth Respondent)
City of Ryde Council (Sixth Respondent)

 

Matter 2016/304484:

 

Lane Cove Council (Appellant)
Minister for Local Government (First Respondent)
Dr Robert Lang (Delegate of the Chief Executive of the Office of Local Government) (Second Respondent)
Chief Executive of the Office of Local Government (Third Respondent)
Local Government Boundaries Commission (Fourth Respondent)
Hunter’s Hill Council (Fifth Respondent)
City of Ryde Council (Sixth Respondent)

 

Matter 2016/289039:

 

Mosman Municipal Council (Appellant)
Minister for Local Government (First Respondent)
Chief Executive of the Office of Local Government (Second Respondent)
Michael Bullen (Department of Premier and Cabinet) (Third Respondent)
Ian Reynolds (Department of Premier and Cabinet) (Fourth Respondent)
North Sydney Council (Fifth Respondent)
Willoughby City Council (Sixth Respondent)
Local Government Boundaries Commission (Seventh Respondent)

     

Matter 2016/305665:

 

North Sydney Council (Appellant)
Minister for Local Government (First Respondent)
Ian Reynolds (Department of Premier and Cabinet) (Second Respondent)
Chief Executive of the Office of Local Government (Third Respondent)
Local Government Boundaries Commission (Fourth Respondent)
Willoughby City Council (Fifth Respondent)
Mosman Municipal Council (Sixth Respondent)

 

Matter 2016/289328:

  Strathfield Municipal Council (Appellant)
Minister for Local Government (First Respondent)
Richard Colley (Delegate of the Chief Executive of the Office of Local Government) (Second Respondent)
Chief Executive of the Office of Local Government (Third Respondent)
Local Government Boundaries Commission (Fourth Respondent)
Burwood Council (Fifth Respondent)
City of Canada Bay Council (Sixth Respondent)

Representation:

Counsel:

 

Mr T F Robertson SC/Mr J E Lazarus/ Mr D W Robertson/Ms J Walker (Hunter’s Hill, Lane Cove and Strathfield Councils)
Mr T F Robertson SC/Mr D W Robertson/Ms J Walker (Mosman Council)
Mr A Galasso SC/Mr J E Lazarus/Mr D W Robertson (North Sydney Council)
Mr N C Hutley SC/Mr J J Hutton/Mr T E O’Brien/ Mr D Birch (First Respondent in all matters)
Submitting appearances for remaining respondents in all matters

 

Solicitors:

  HWL Ebsworth Lawyers (Hunter’s Hill, Lane Cove and Strathfield Councils)
Pikes & Verekers Lawyers (Mosman Council)
Matthews Folbigg Lawyers (North Sydney Council)
Crown Solicitor’s Office (First to Fourth Respondents in all matters; Seventh Respondent in 2016/289039)
Hall & Wilcox Lawyers (City of Ryde Council)
Wilshire Webb (Willoughby Council)
Maddox Lawyers (City of Canada Bay Council)
Houston Dearn O’Connor (Burwood Council)

File Number(s):

2016/287916; 2016/289039; 2016/304484/ 2016/305665; 2016/289328

 Decision under appeal 

Court or tribunal:

Land and Environment Court

Jurisdiction:

Class 4

Citation:

[2016] NSWLEC 124

Date of Decision:

20 September 2016

Before:

Moore J

File Number(s):

158774 of 2016; 161918 of 2016; 155301 of 2016; 158919 of 2016; 258221 of 2016

headnote

[This headnote is not to be read as part of the judgment]

On 6 January 2016 the New South Wales Minister for Local Government advised the Acting Chief Executive of the Office of Local Government of 35 proposals to amalgamate various local government areas. Relevantly, two of those proposals were for the amalgamation of: (1) Hunter’s Hill, Lane Cove and City of Ryde; and (2) Burwood, City of Canada Bay and Strathfield. The proposals also included two other amalgamations, namely Manly, Mosman Municipal and part of Warringah; and North Sydney and Willoughby. Following further consideration, on 25 February 2016 Mosman was removed from the former proposal and included in the latter, which constitutes the third relevant proposal: (3) North Sydney, Mosman and Willoughby.

Pursuant to the Local Government Act 1993 (NSW) s 745, the Acting Chief Executive appointed delegates to examine and report on the proposals. The delegates assigned to the three relevant proposals recommended that each proceed. The delegates placed reliance on documents produced by KPMG, referred to in the amalgamation proposals, which asserted financial advantages as a result of the amalgamations. Neither the delegates nor the Councils were given access to various KPMG documents. Some Councils obtained their own independent expert evaluations of the claimed financial benefits.

The delegates’ reports were reviewed by the Boundaries Commission, which sent comments to the Minister. A number of the Councils commenced proceedings in the Land and Environment Court challenging the validity of the delegates’ process of examination and report. With respect to each relevant proposal, the challenging Councils were: (1) Hunter’s Hill and Lane Cove; (2) Strathfield; and (3) Mosman and North Sydney. Pending completion of the litigation the Minister has not taken the final step of recommending to the Governor that the proposals be implemented.

Each of the five proceedings was determined by a judgment of Moore J on 20 September 2016. The proceedings brought by Hunter’s Hill and Lane Cove were dismissed. Those brought by Mosman, North Sydney and Strathfield were upheld in part, and declarations made that the reports of the delegates were invalid. Subsequently, these proposals were returned to the delegates for further consideration in light of the Court’s decision. Revised reports were prepared by the delegates and provided to the Boundaries Commission for comment. The partly successful Councils sought in this Court to agitate their other challenges.

This Court addressed the appeals relating to each proposal together, but separately from the other proposals.

Hunter’s Hill, Lane Cove and City of Ryde Proposal

The dispositive questions on appeal were:

(1)   As the Hunter’s Hill and Lane Cove local government areas are separated by the Lane Cove River, which is not included in either area, does the Minister have power to recommend the amalgamation of these areas, given that the Local Government Act, s 204(3) provides that an area must be “a single area of contiguous land”?

(2) Further, does s 205(3), which deems that in certain circumstances land on the boundary of an area is within that area, operate to incorporate the land under Fig Tree Bridge within the Hunter’s Hill and Lane Cove local government areas?

The Court (Basten JA; Macfarlan JA and Sackville AJA agreeing) allowed the appeal and held:

In relation to questions (1) and (2):

1. The juxtaposition of ss 204 and 205 suggests that they are to be read together: [66]-[67]. Section 205 does not purport to vary the boundaries of an area as defined by the relevant proclamation. The amalgamation proposal should be construed as referring to the areas as identified in the respective proclamations and not as including areas deemed to be within the respective areas: [71].

2. The concept in s 205(3) of land with a structure erected on it would adequately describe the land on which stood the pylons supporting the bridge, but not the land over which the bridge passes. Even if a point of contact between the areas were established, there was no shared boundary sufficient to create “a single area of contiguous land”: [72]-[73].

3. The legislature has consistently used “contiguous” in the strict sense of land adjoining or abutting other land: [97]. Section 204(3) requires a single area without elements of division or separation between its parts: [106]. Accordingly, the proposed new local government area did not constitute “a single area of contiguous land” within the terms of s 204(3): [123], [396], [476]-[477].

Mosman, North Sydney and Willoughby Proposal

The main questions on the appeals were:

(1)   Was the delegation of the function of examination and report invalid because it was a single function which could not be bifurcated by delegation of separate proposals to different delegates?

(2)   Did the delegate fail to consider mandatory factors by the proposal to associated proposals?

(3)   Did the delegate decline to treat public submissions made in relation to the first proposal as submissions in relation to the new proposal, with the result that members of the public were denied procedural fairness?

(4)   Did the delegate fail to give reasonable public notice of the inquiry into the proposed amalgamation as required by the Local Government Act s 263(2B)? In particular, did the notice given fail to distinguish between amalgamation of whole areas and alteration of boundaries so as to render it misleading or inadequate?

(5)   Did the delegate deny procedural fairness to the Councils in the conduct of the inquiry by refusing to answer questions, ask questions or make comments about substantive matters at the public meetings?

(6) Were the Councils denied procedural fairness in relation to the process of examination and report under s 218F, in circumstances where they were denied access to, and an opportunity to make submissions on, the full content of the analysis and modelling by KPMG referred to in the proposal documents?

(7) In the absence of the KPMG documents providing the justification for the financial benefits referred to in the proposal, did the delegate constructively fail to fulfil his statutory function by failing to have proper regard to the mandatory factor prescribed by s 263(3)(a), namely the financial advantages and disadvantages of the proposed amalgamation?

(8)   Should the Court direct that any further examination of the Minister’s proposal not be carried out by the delegate who was involved in the original examination and report and in preparing the revised report?

The majority (Macfarlan JA and Sackville AJA; Basten JA dissenting) dismissed the appeal and held:

In relation to questions (1)-(5) (Basten JA; Macfarlan JA and Sackville AJA agreeing):

1. The function involved examination and report on a proposal. There was no express or implied limitation in the Minister’s letter to the Chief Executive requiring delegation of the function in respect of each proposal to one delegate: [147], [396], [497].

2. Section 263(3) imposes a separate function with respect to each proposal. There was no error on the part of the delegate in failing to make a comparative assessment of two separate proposals: [149], [396], [497].

3. It cannot be said that because two separate proposals were put forward in close succession individuals were deprived of the opportunity to make submissions with respect to the second proposal. There was no breach of procedural fairness: [152], [396], [497].

4. The reference to both the alteration of boundaries and the amalgamation of local government areas, when only the latter was proposed, did not cause the notice to be misleading in a material respect. The reference to boundary alteration did not undermine or cast doubt on the terms of the notices, which were otherwise correct: [166], [396], [497].

Ryan v Edna May Junction Gold Mining Co NL (1916) 21 CLR 487; [1916] HCA 37; Attorney-General (Vic) v City of Geelong [1989] VR 641, distinguished; Litevale Pty Ltd v Lismore City Council (1997) 96 LGERA 91, followed.

5.   The purpose of the inquiry which is required under the Local Government Act is to “seek the views of electors” in “public meetings”. There is no reason to impose some greater level of interaction or discussion involving the engagement of the delegate when holding an inquiry under s 263. There was no failure of process in the manner in which the public meetings were conducted: [175], [396], [497].

In relation to question (6):

6.1 (by Basten JA) The principle of fairness is concerned with process, not outcome. The reasoning of the decision-maker may be relevant as an indication of the issues in play, but not for the purpose of determining whether a different process would have affected the result. Where the decision-maker has available information which is adverse to that party’s interests, a fair process must include an opportunity to address the adverse material: [194]. In seeking to resolve the tension between confidentiality and procedural fairness, one course is to assume that the material was “significant”, in the sense that, if available to the Councils, it might have been deployed in a way which might have changed the delegate’s views as to the strength of the Government’s claims as to financial benefits: [204].

Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82; [2000] HCA 57; Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88; [2005] HCA 72; SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63; Re Minister for Immigration and Multicultural Affairs; Ex parte Miah (2001) 206 CLR 57; [2001] HCA 22; Kioa v West (1985) 159 CLR 550; [1985] HCA 81 applied; Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6, distinguished; Minister for Immigration and Border Protection v WZARH (2015) 256 CLR 326; [2015] HCA 40, applied; Minister for Immigration and Border Protection v SZSSJ [2016] HCA 29; 90 ALJR 901, discussed.

6.2 It was clear that, in relation to what was a key factor in the analysis, the delegate accepted the financial forecasts provided in the merger proposal document, which reflected the KPMG figures: [240]. He expressly adopted the KPMG figures, and made no reference to the underlying material which had not been disclosed: [241].

6.3 (by Basten JA, dissenting) It was not necessary for the Councils to establish that the undisclosed documents contained information that “was so damaging and so unforeseeable” that they should not have been “left in the dark” about it: [267].

Woollahra Municipal Council v Minister for Local Government [2016] NSWLEC 86; (2016) 218 LGERA 65; Minister for Local Government v South Sydney City Council (2002) 55 NSWLR 381; [2002] NSWCA 288, distinguished; Woollahra Municipal Council v Minister for Local Government [2016] NSWCA 380; 219 LGERA 180, not applied; Bushell v Secretary of State for the Environment [1981] AC 75, applied.

6.4 It should be inferred that the materials KPMG provided to the Government in carrying out its contractual obligations would permit an assessment of the validity of the assumptions, the data and the methods of calculating financial costs and benefits. Had that material been disclosed, it might have allowed the Councils to present a different case which might have led the delegate to reject or qualify his acceptance of the financial advantages of the proposal: [291]-[292]. That opportunity was denied, with the result that the Councils were not accorded procedural fairness: [295].

6.5 (by Macfarlan JA) The Councils were denied not procedural fairness because they were unable to access further material explanatory of the KPMG analysis for the reasons given in considering the Hunter’s Hill appeal: [407].

6.6 (by Sackville AJA) The obligation to afford procedural fairness to the Councils extended to giving the Councils a fair opportunity to comment on and attempt to rebut, or challenge the reliability or cogency of, the financial projections and assessment included in the merger proposal document: [578], [580].

Ku-ring-gai Council v Garry West as delegate of the Acting Director-General, Office of Local Government [2017] NSWCA 54, applied.

6.7 Professor Dollery’s report criticising KPMG’s analysis demonstrated that the Councils not only had the opportunity to make informed submissions about the assumptions underlying the Minister’s financial projections and the financial projections themselves but took full advantage of that opportunity: [593]-[594].

6.8 The fact that the Councils did not have access to the withheld documents did not prevent them presenting their views in a way that effectively engaged with the projections. The Councils’ complaints rested on a misapprehension as to the contents and import of the withheld documents. Accordingly, the Councils were not denied procedural fairness by the Minister or the delegate: [607].

In relation to question (7):

7.1 (by Basten JA, dissenting) The Councils’ challenge to the ability of the delegate to examine the financial matters without the underlying documents was clearly outlined in their submissions to the delegate. This challenge was not acknowledged and addressed, but sidestepped. The fact that the delegate accepted the Government’s figures as “reasonable” demonstrated reliance upon them. The delegate failed to examine the asserted financial advantages, being unable to do so in the absence of the key underlying documents. He therefore failed to carry out the requisite examination in accordance with s 263(3)(a): [331]-[332].

7.2 (by Basten JA) The fact that the Boundaries Commission considered that the mandatory factor in s 263(3)(e1) was not adequately addressed by the delegate should be understood as a reflection on the merit of the delegate’s approach, rather than a conclusion that the consideration was legally inadequate. It is apparent that the delegate considered the matter. His conclusion may have been contestable, but it was not irrational or manifestly unreasonable: [335].

7.3 (by Macfarlan JA) Portions of the delegate’s report demonstrate that he undertook a proper examination of the financial aspects of the proposal. For the reasons given in the Hunter’s Hill appeal, the report was not vitiated by the absence of any examination by him of material beyond the publicly available documents, which he indicated that he considered: [405]-[406].

7.4 (by Sackville AJA) The delegate’s report did not accept uncritically the Minister’s claims made in the merger proposal document as to the financial projections and advantages of the proposal. The delegate clearly made a serious attempt to grapple with the assumptions underlying the Minister’s claims about the financial advantages of the proposed merger: [614], [620].

7.5 The evidence shows that the delegate did not in fact require access to the withheld KPMG documents in order to fulfil his statutory functions. Access to those documents would not have materially assisted the delegate in performing his statutory functions: [624]-[625].

In relation to question (8):

8. (by Basten JA) In the circumstances of this case, the Court should direct that any reconsideration of the proposal be undertaken by a person other than the respondent delegate: [358].

Strathfield, Burwood and City of Canada Bay Proposal

The main questions on appeal were:

(1) In the absence of the entire contents of the KPMG documents referred to in the proposal, did the delegate constructively fail to fulfil his statutory function of examination and report by failing to have proper regard to the mandatory factor prescribed by s 263(3)(a), namely the financial advantages and disadvantages of the proposed amalgamation?

(2) Were the Councils denied procedural fairness in relation to the process of examination and report under s 218F, in circumstances where they were denied access to, and an opportunity to make submissions on, the full content of the analysis and modelling by KPMG referred to in the proposal document?

(3)   Should the Court direct that any further examination of the Minister’s proposal not be carried out by the delegate who was involved in the original examination and report and in preparing the revised report?

The Court (Basten JA, Macfarlan JA and Sackville AJA) allowed the appeal and held:

In relation to question (1):

1.1 (by Basten JA) In order for the delegate to undertake an examination of the financial advantages and disadvantages set out in the merger proposal document, it was necessary for the delegate to engage with the Council’s submissions asserting that this exercise could not be undertaken without access to the undisclosed KPMG documents. That failure to engage involved a constructive failure to carry out the function of examination and report: [385].

1.2 (by Macfarlan JA) It is apparent that the delegate simply adopted uncritically what was said about the KPMG analysis in the proposal document and did not conduct any proper, genuine or realistic “examination” as s 263 required him to do: [416]. It was incumbent upon the delegate to go behind KPMG’s conclusions to examine their foundation if, as occurred here, in effect the only financial information on which the delegate chose to rely was the description of the KPMG analysis contained in the proposal document. In such circumstances, if the delegate was unable to go behind KPMG’s conclusions, or chose not to, he needed to have recourse to financial material additional to the KPMG analysis to enable him to form his view about the financial aspects of the proposed amalgamation. As he took neither course, his report did not constitute a proper “examination” of the proposal: [418].

Ku-ring-gai Council v Garry West [2017] NSWCA 54, applied; Woollahra Municipal Council v Minister for Local Government [2016] NSWCA 380; (2016) 219 LGERA 180, distinguished.

1.3 (by Sackville AJA) The Strathfield Delegate’s Report indicates that the delegate did not exercise an independent judgment in assessing the financial advantages and disadvantages of the proposal. The delegate therefore failed to perform the function required of him by s 263(3)(a): [631].

In relation to question (2):

2.1 (by Macfarlan JA) It is appropriate to infer that there was documentary material which was not in the possession of Strathfield Council and which was likely to have enabled it to better understand, and therefore challenge, KPMG’s reasoning and conclusions. It does not matter that Strathfield Council did not prove that the outcome of the delegate’s inquiry would have been different if it had had access to this material. To establish its claim of procedural unfairness, it was sufficient for the Council to demonstrate that it lost a realistic opportunity to obtain a different result: [432]. It does not matter that the unfairness did not become apparent until the delegate’s report was published: [438].

Minister for Immigration and Border Protection v WZARH (2015) 256 CLR 326; [2015] HCA 40, applied.

2.2 The procedure was fair if the examination involved, as it should have, the delegate forming his own views about the financial advantages or disadvantages of the proposed amalgamation. The delegate’s undertaking of a different process rendered it unfair: [439].

Applicant VEAL v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88; [2005] HCA 72, distinguished.

2.3 To hold that procedural fairness required that the Councils in the other matters be given access to the material even where a delegate proposed (without breach of his or her statutory duty to examine) to proceed without reference to, and indeed knowledge of, the material would go close to converting the examination process into a “full-blown adversarial trial”: [435].

Minister for Local Government v South Sydney City Council (2002) 55 NSWLR 381; [2002] NSWCA 288, discussed; Kioa v West (1985) 159 CLR 550; [1985] HCA 81; Applicant VEAL v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88; [2005] HCA 72, applied.

2.4 (by Sackville AJA) The Council was not denied procedural fairness, for substantially the same reasons as in the North Sydney appeal: [629].

In relation to question (3):

3. (Basten JA; Macfarlan JA and Sackville AJA agreeing) Given the prior history of referral back to the same delegate after an incomplete examination, there may be a reasonable apprehension of prejudgment. An order should be made directing that another officer or agency undertake the function of examining and reporting on the proposal: [393].

Judgment

1. BASTEN JA:

A.   Background
(1)	Background to the proposals and the proceedings			3
(2)	The statutory scheme			18
(3)	The nature of the Councils			35
(4)	The proposed amendments			40
B.   Hunter’s Hill, Lane Cove, City of Ryde Proposal
(1)	The proposal			52
(2)	Grounds of appeal and proposed relief			56
(3)	Ground 6 – contiguity of land
(a)	The trial judge’s approach – the deeming provision		60
(b)	Notice of contention – meaning of “contiguous”
(i)	The submissions	75
(ii)	Earlier local government legislation	84
(iii)	Local Government Act 1993	87
(iv)	Other State legislation	96
(v)	Strict meaning of “contiguous” adopted	105
(4)	Ground 5 – the obligation to consider particular matters			107
(a)	Constructive failure to exercise function – principles		110
(b)	Constructive failure to exercise function – application		117
(5)	Conclusions			123
C.   Mosman, North Sydney and Willoughby Proposal				127
(1)	Background			128
(2)	Grounds of appeal			141
(3)	The change in proposals			145
(4)	Challenge to notices of public meetings			153
(5)	Conduct of public inquiries			171
(6)	Procedural unfairness			177
(a)	Applicable principles		178
(b)	The undisclosed documents – general		206
(c)	Procedural history – undisclosed documents
(i)	Minister’s proposal	212
(ii)	Correspondence with Minister and Chief Executive	215
(iii)	Communications with delegate	221
(d)	Professor Dollery’s reports		232
(e)	Reasoning of delegate		238
(f)	Reasoning of primary judge		245
(g)	Appellant’s case on appeal		268
(h)	Minister’s response on appeal		278
(j)	Conclusions – procedural fairness		288
(7)	Constructive failure to exercise function			297
(a)	Approach of primary judge		302
(b)	Submissions on appeal		304
(i)	Councils’ submissions	305
(ii)	Minister’s submissions	310
(c)	Consideration of constructive failure grounds		317
(d)	North Sydney – ground 8		334
(8)	Relief
(a)	Dispositive orders		337
(b)	Costs		344
(c)	Direction – further examination		349
(d)	Orders		359
D.    Strathfield, Burwood and City of Canada Bay Proposal
(1)	Factual background			360
(2)	Merger proposal document			363
(3)	Submissions to delegate			364
(4)	Delegate’s report			373
(5)	Boundaries Commission review and comments			374
(6)	Pleadings in Land and Environment Court			375
(7)	Reasoning of primary judge			378
(8)	Grounds of appeal			382
(9)	Determination of appeal			384
(10)	Relief			389

2. There are before the Court five appeals from judgments in the Land and Environment Court challenging reports and recommendations for the implementation of proposals made by the Minister for Local Government for amalgamations of specified local government areas.

A.   Background

(1)   Background to the proposals and the proceedings

3. On 6 January 2016 the Minister, the Hon Paul Toole MP, advised his Departmental Head, the Acting Chief Executive, Office of Local Government, of 35 proposals to amalgamate local government areas across the State. Of these, two are relevant for present purposes, namely: (1) Hunter’s Hill, Lane Cove and City of Ryde Councils, and (2) Burwood, City of Canada Bay and Strathfield Municipal Councils.

4. The January proposals also included two other amalgamations, namely Manly, Mosman Municipal and Warringah (part) Councils, and North Sydney and Willoughby City Councils. As a result of further consideration, on 25 February 2016 Mosman was extracted from the northern beaches proposal and included with the North Sydney and Willoughby proposal. That constitutes the other proposal relevant for present purposes, namely (3) North Sydney, Mosman and Willoughby City Councils.

5. The Acting Chief Executive appointed delegates to examine the proposals, pursuant to s 745 of the Local Government Act 1993 (NSW). With respect to each of the three proposals, the delegate recommended that it proceed. Those reports were reviewed by the Boundaries Commission which sent comments to the Minister. The next step was for the Minister to recommend to the Governor that the proposals be implemented.

3. With respect to these three proposals, the final steps have not been taken. That is because some of the councils involved commenced proceedings in the Land and Environment Court challenging the validity of the process of examination and report by the delegates. Not all of the councils involved in each proposal commenced proceedings. With respect to the first proposal, the challengers were Hunter’s Hill and Lane Cove, but not the City of Ryde. With respect to the second proposal, the challenger was Strathfield Municipal Council, but not Burwood or City of Canada Bay. With respect to the third proposal, the challengers were Mosman and North Sydney, but not Willoughby City Council. Each council affected by a particular proposal which was not an appellant was joined as a respondent; each filed a submitting appearance.

4. Thus, five councils initiated separate proceedings in the Land and Environment Court. Those proceedings were determined by a judgment of Moore J delivered on 20 September 2016. [1] The proceedings brought by Hunter’s Hill and Lane Cove Councils were dismissed. The challenges brought by Mosman, North Sydney and Strathfield were upheld in part and in each case a declaration was made that the report furnished by the delegate was not a valid report. Although declarations were made in general terms, the findings in the Land and Environment Court involved the dismissal of what were described as “the general complaints concerning the proposed amalgamation process”, [2] but the upholding of complaints with respect to specific matters which were not considered by the delegate. The processes of examination and report were not repeated, except with respect to the identified errors. Those councils, although partly successful, seek to maintain their claims with respect to other challenges which would have produced, in their submissions, more comprehensive reconsideration. They also sought to raise an issue as to the actual reconsideration by the same delegate, which they submitted was inadequate.

   1. Hunter’s Hill Council v Minister for Local Government [2016] NSWLEC 124 (“Hunter’s Hill (LEC)”)

   2.    Hunter’s Hill (LEC) at [514], [519].

5. The hearing of the five appeals took place over four days from 3‑6 April 2017. Following oral argument, and with leave of the Court, each of the Councils filed an amended notice of appeal and an exchange of written submissions followed. The Councils’ submissions in reply were filed on 27 April 2017.

6. These appeals were not the only challenges brought to the proposals for amalgamation of councils first announced in January 2016. Relevantly for present purposes, three other cases had come before this Court, the first on two occasions:

1. Botany Bay City Council v Minister for Local Government and Botany Bay City Council v State of New South Wales;[3]

2. Woollahra Municipal Council v Minister for Local Government; [4] and

3. Ku-ring-gai Council v Garry West as delegate of the Acting Director-General, Office of Local Government.[5]

   3. [2016] NSWCA 74 (“Botany Bay No 1”) and [2016] NSWCA 243 (Sackville AJA; Bathurst CJ and Ward JA agreeing) (“Botany Bay No 3”). (The No 2 judgment was limited to costs.)

   4. [2016] NSWCA 380 (“Woollahra Council (CA)”)

   5. [2017] NSWCA 54 (“Ku-ring-gai Council”).

10. In the first two matters, the challenges brought by the respective councils were unsuccessful and the appeals were dismissed. In the third matter, the appeal was upheld. One particular ground had no relevance to the present matters, namely that the proposal had involved the amalgamation of one local government area with part of another, not fulfilling the requirement for amalgamation of two or more local government areas. However, there were other grounds on which Ku-ring-gai Council was also successful. That decision, handed down two weeks before the present appeals were heard, led to amendments being proposed to the notices of appeal and a round of post-hearing written submissions.

11. Some of the appeals raised grounds specific to their particular circumstances; an example arises with respect to the proposed Hunter’s Hill, Lane Cove and Ryde amalgamation. The issue was whether Lane Cove and Hunter’s Hill were “contiguous” as required by the relevant statutory provision for the creation of local government areas.

12. Other grounds were described as “common” in a number of the appeals. These included grounds with respect to the reasonableness of the public notice given prior to examination of the proposals, whether the Councils were denied procedural fairness by the failure of the government to provide what became known as the “KPMG documents” and whether there had been a constructive failure on the part of the delegates in purporting to carry out examinations without access to the KPMG documents. (Those documents were understood to explain and justify the assumptions underlying the government’s assessment of the financial benefits of the proposals, and demonstrate how they were calculated.) These grounds did not, however, raise entirely common issues, except to the extent that the factual background was the same in each case.

13. When an analogous ground was considered in Ku-ring-gai Council, the Minister accepted that the undisclosed KPMG documents were relevant to the assessment of the financial benefits of the proposal. The concession was made on the basis that two footnotes in the merger proposal document with respect to Ku-ring-gai and Hornsby local government areas expressly referred to documentation which had not been disclosed, although that fact was not immediately apparent from the name of the documents identified in the footnotes. (The identity of the documents could perhaps have been inferred, though with less confidence, from the affidavit filed by the Minister in support of her claim for public interest immunity.) In Ku-ring-gai Council, the Minister contended that the documents were covered by a form of public interest immunity which justified the non-disclosure. She also contended that the delegate’s function of examination and report could be fulfilled without reference to that material.

14. In the present cases, the Minister adopted a somewhat different approach. She invited the Court, on the basis of the materials that were now available, to infer that the undisclosed KPMG documents were immaterial and, for that reason, the exercise of the statutory function by the delegate was not affected by the non-disclosure. She did not, however, tender the undisclosed KPMG documents. Nor, indeed, is it clear that this Court would have accepted the documents if tendered, in circumstances where the other parties had had no advance access to them and it was at least plausible that the significance of the documents would require expert evaluation. It will, nevertheless, be necessary for the Court to address the Minister’s submissions as to what may or may not be inferred as to the contents of the undisclosed KPMG documents.

15. Further, the Minister sought to distinguish the conclusion reached by the majority in Ku-ring-gai Council by reference to the reasoning of the delegates in each report. Each delegate dealt in a different way with the financial benefits assessed by KPMG, as presented in the merger proposal documents. In principle, such a basis for distinguishing the earlier case is undoubtedly available and it will be necessary to examine the delegate’s process of reasoning in each report in this respect.

16. Finally, it is necessary to have regard to the manner in which the issue was raised before each delegate. For example, if a particular council did not take issue with the figures put forward in the merger proposal document, it may not be able to complain about the exercise of a function by reliance upon the unchallenged material. This issue requires consideration of the steps taken by the councils to obtain access to the undisclosed KPMG documents and the submissions made to the respective delegates.

17. It is convenient to address the appeals in relation to a single proposal together, but separately from the other proposals. Thus, as the Hunter’s Hill and Lane Cove proceedings involved the same report concerning a single proposed amalgamation it is convenient to deal with these appeals together. Although Mosman and North Sydney Councils had separate representation, their appeals may be heard together as they too involved a single proposal. The appeal brought by Strathfield Municipal Council will be addressed separately, although it raised similar grounds.

(2)   The statutory scheme

18. The administration of the Local Government Act is allocated to the Minister for Local Government. [6] The responsible executive agency is the Office of Local Government, which is within the Department of Planning and Environment. [7] The head of the Office is identified as the Chief Executive of the Office, but is also referred to in the Act as the Departmental Chief Executive. The Office is also referred to in the Act as the Department of Local Government, and just the Department. (The terminology no doubt reflects the difficulty in keeping legislation in harmony with the ever-changing nomenclature for arms of the executive government.)

    6. Constitution Act 1902 (NSW), s 50B and Order for Allocation of the Administration of Acts (13 April 2017), Minister for Local Government.

    7.    Administrative Arrangements (Administrative Changes – Public Service Agencies) Order 2017.

19. The powers sought to be exercised in the present case followed a scheme for the amalgamation of local government areas set out in Ch 9, Pt 1, Div 2A and Div 2B of the Local Government Act. The amalgamation of areas is addressed in s 218A, which provides:

218A   Amalgamation of areas

(1)   The Governor may, by proclamation, amalgamate two or more areas into one or more new areas.

(2)   On the date specified in the proclamation as the date on which the areas are to be amalgamated:

(a)   the areas are dissolved, and

(b)   the new area or new areas are constituted, and

(c)   subject to section 218C, the councillors of the former areas cease to hold office.

(3) Divisions 1 and 2 apply to a new area constituted by a proclamation under this section in the same way as they apply to an area constituted by a proclamation under section 204.

(4) Section 212 (2) does not apply to the dissolution of a former area by a proclamation under this section.

20. The reference in s 218A(3) picks up Divs 1 and 2 of Pt 1, including the following provisions from Div 1:

204   Constitution of areas

(1)   The Governor may, by proclamation, constitute any part of New South Wales as an area.

(2)   The area is to have the boundaries determined by the Governor by proclamation.

(3)   An area must be a single area of contiguous land.

205   Land taken to be included in an area

(1)   The land and water between high-water mark and low-water mark on the foreshores of an area is taken to be in the area.

(2)   The land and water enclosed by:

(a)   a straight line drawn between the low-water marks of consecutive headlands to any body of water on the foreshores of an area, and

(b)   those foreshores,

is taken to be in the area.

(3)   Land on the boundary of an area is taken to be in the area if:

(a)   it is reclaimed from tidal waters, or

(b)   it is on the foreshores of the area and beyond low-water mark,

and it is privately owned or has a structure erected on it.

(4)   This section is subject to any proclamation made under this Division.

…

212    Dissolution of areas

(1)   The Governor may, by proclamation, dissolve the whole or part of an area.

(2) The Minister may not recommend the making of a proclamation to dissolve the whole or part of an area until after a public inquiry has been held and the Minister has considered the report made as a consequence of the inquiry.

21. The provisions of Div 2 (ss 214-218), dealing with the constitution of an area, are reflected in the separate provisions in Div 2A and Div 2B, which involve, in effect, the constitution of a new area, but specifically by way of an amalgamation of existing areas. Division 2B is headed “What must be done before areas can be amalgamated or their boundaries altered?” and provides:

218D Exercise of functions under secs 218A and 218B

A function under section 218A or 218B may be exercised only after a proposal for the exercise of the function is dealt with under this Division.

218E   Who may initiate a proposal?

(1)   A proposal may be made by the Minister or it may be made to the Minister by a council affected by the proposal or by an appropriate minimum number of electors.

(2)   An appropriate minimum number of electors is:

(a)   if a proposal applies to the whole of one or more areas, 250 of the enrolled electors for each area or 10 per cent of them, whichever is the greater, or

(b)   if a proposal applies to part only of an area, 250 of the enrolled electors for that part or 10 per cent of them, whichever is the lesser.

218F   Referral of proposal for examination and report

(1)   On making or receiving a proposal, the Minister must refer it for examination and report to the Boundaries Commission or to the Departmental Chief Executive.

(2) Sections 263, 264 and 265 apply to the examination of a proposal by the Departmental Chief Executive in the same way as they apply to the examination of a proposal by the Boundaries Commission.

(3) For the purpose of examining a joint proposal of 2 or more councils for the amalgamation of two or more areas under section 218A, the Boundaries Commission or Departmental Chief Executive, as the case requires, must seek the views of electors of each of those areas:

(a)   by means of:

(i)   advertised public meetings, and

(ii)   invitations for public submissions, and

(iii)   postal surveys or opinion polls, in which reply-paid questionnaires are distributed to all electors, or

(b)   by means of formal polls.

(4)   The period over which the views of electors are to be sought as referred to in subsection (3) must be a period of at least 40 days.

(5)   Part 3 of Chapter 4 applies to a formal poll taken by the Boundaries Commission or Departmental Chief Executive in the same way as it applies to a council poll referred to in that Part.

(6)   If a proposal that is not supported by one or more of the councils affected by it, or that is an amalgamation proposal, has been referred to the Departmental Chief Executive under subsection (1):

(a)   the Departmental Chief Executive must furnish the Departmental Chief Executive’s report to the Boundaries Commission for review and comment, and

(b)   the Boundaries Commission must review the report and send its comments to the Minister.

(7) The Minister may recommend to the Governor that the proposal be implemented:

(a)   with such modifications as arise out of:

(i)   the Boundaries Commission’s report, or

(ii)   the Departmental Chief Executive’s report (and, if applicable, the Boundaries Commission’s comments on that report), and

(b)   with such other modifications as the Minister determines,

but may not do so if of the opinion that the modifications constitute a new proposal.

(8) The Minister may decline to recommend to the Governor that the proposal be implemented.

22. Of the three ways in which a proposal may be initiated under s 218E(1), it is only necessary to have regard to the first, that is a proposal made by the Minister. That is what happened in the present case.

23. It was necessary for the Minister to refer the proposal “for examination and report” under s 218F(1). Given that a report made by the Minister would almost certainly be the product of work done within his or her own Department, it may have been arguable that the provision was intended to read disjunctively, so that a proposal made by the Minister must be referred to the Boundaries Commission and a proposal received by the Minister may be referred to the Chief Executive of the Minister’s Department. [8] No submission to that effect was made; accordingly the case must be considered on the basis that the Minister validly referred each of the proposals he had made to the Departmental Chief Executive.

    8. The Boundaries Commission is constituted under s 262 of the Local Government Act and includes at least one officer from within the Department.

24. No doubt the incongruity of the head of the Department, purporting to examine and report upon the proposals which emanated from the Department, or, alternatively, to delegate that function to another officer within the Department, led to the scheme which was devised and applied in the present case. That involved appointing “delegates”, apparently from outside the Department and in some cases at least outside the public service, who were not the Boundaries Commission, to examine and report on the proposals. There was no submission that that course was inconsistent with the scheme of the Local Government Act.

25. Each of the proposals under consideration in the present case was “not supported by one or more of the councils affected by it” and was “an amalgamation proposal”; accordingly, the Chief Executive was required to furnish his or her report (as prepared by the delegates) to the Boundaries Commission “for review and comment”. That function of the Boundaries Commission, it has been held, is a more constrained function than that of examination and report. [9]

    9.    Botany Bay No 3 at [93]-[97].

26. As appears from the terms of s 218F(2), the process to be adopted by a delegate of the Chief Executive must be found in ss 263-265. The section of primary importance for present purposes is s 263, which provides:

263   Functions of the Boundaries Commission

(1)   The Boundaries Commission is required to examine and report on any matter with respect to the boundaries of areas and the areas of operation of county councils which may be referred to it by the Minister.

(2)   For the purpose of exercising its functions, the Boundaries Commission:

(a)   may hold an inquiry if the Minister so approves, and

(b)   must hold an inquiry if the Minister so directs,

but may not hold an inquiry otherwise than as referred to in paragraph (a) or (b).

(2A) Despite subsection (2), the Boundaries Commission must hold an inquiry for the purpose of exercising its functions in relation to a proposal for the amalgamation of two or more areas that has been referred to it in accordance with section 218F.

(2B)   Reasonable public notice must be given of the holding of an inquiry under this section.

(3)   When considering any matter referred to it that relates to the boundaries of areas or the areas of operations of county councils, the Boundaries Commission is required to have regard to the following factors:

(a)   the financial advantages or disadvantages (including the economies or diseconomies of scale) of any relevant proposal to the residents and ratepayers of the areas concerned,

(b)   the community of interest and geographic cohesion in the existing areas and in any proposed new area,

(c)   the existing historical and traditional values in the existing areas and the impact of change on them,

(d)   the attitude of the residents and ratepayers of the areas concerned,

(e)   the requirements of the area concerned in relation to elected representation for residents and ratepayers at the local level, the desirable and appropriate relationship between elected representatives and ratepayers and residents and such other matters as it considers relevant in relation to the past and future patterns of elected representation for that area,

(e1)   the impact of any relevant proposal on the ability of the councils of the areas concerned to provide adequate, equitable and appropriate services and facilities,

(e2)   the impact of any relevant proposal on the employment of the staff by the councils of the areas concerned,

(e3)   the impact of any relevant proposal on rural communities in the areas concerned,

(e4)   in the case of a proposal for the amalgamation of two or more areas, the desirability (or otherwise) of dividing the resulting area or areas into wards,

(e5)   in the case of a proposal for the amalgamation of two or more areas, the need to ensure that the opinions of each of the diverse communities of the resulting area or areas are effectively represented,

(f)   such other factors as it considers relevant to the provision of efficient and effective local government in the existing and proposed new areas.

(4)   The Boundaries Commission is not entitled to examine or report on any matter relating to the area of operations of a county council constituted or proposed to be constituted for the supply of electricity.

(5)   The Boundaries Commission must allow members of the public to attend any inquiry held by the Commission under this section.

…

(7)   The Supreme Court may not make an order in the nature of prohibition in respect of, or an order for removing to the Court or quashing, any decision or proceeding made or conducted by the Boundaries Commission in connection with the exercise of its functions.

27. Although not all the factors set out in s 263(3) are relevant in the present cases, it is important to understand their context. They reflect a European Union principle, known as “the principle of subsidiarity” which is now incorporated in the Treaty on European Union, Art 5(3). The Oxford English Dictionary describes subsidiarity as a principle that “a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level.” [10] The benefits associated with the principle have been recorded and analysed since the time of de Tocqueville, as part of the development of theories of federalism. [11] Both the benefits and disadvantages commonly associated with devolution of power to the local level are to be found in the factors identified in s 263(3).

    10.    See also A Twomey and G Withers, Federalist Paper 1, Australia’s Federal Future: A Report for the Council for the Australian Federation, (April 2007) pp 6-7

    11.    D Halberstam, “Federalism: Theory, Policy, Law” in M Rosenfeld and A Sajó (eds), The Oxford Handbook of Comparative Constitutional Law (Oxford UP, 2014) Ch 7, p 576 at p 585 ff.

28. This issue was expressly raised in a preliminary submission by Mosman Council to the delegate: [12]

“The reasons for Council’s opposition to forced amalgamation include:

…

The Subsidiarity Principle, which is a fundamental premise of democratic government, referenced in Article 5 of the Treaty of the European Union. This principle provides that public decisions should be made as closely as possible to the citizens affected by the decisions by the smallest and least centralised competent authority. When a local council can demonstrate that it is already competent to deliver the types of services and level of access and engagement that best suits the needs of its local community (as Mosman has), a change in size is inevitably counterproductive.”

12.    Submission under covering letter from Mayor, Councillor Peter Abelson, dated 8 April 2016, p 1.

29. It follows that factors set out in s 263(3), which include existing historical and traditional values (par (c)), the attitude of residents and ratepayers (par (d)) and the effective representation of diverse communities (par (e5)), may weigh against amalgamations, whereas financial advantages may weigh in favour. That would suggest that any proper consideration of the factors set out in s 263(3) must include a weighing of countervailing considerations. That is because the matter for examination and report is the proposed amalgamation, and not merely the several factors set out in the paragraphs of s 263(3).

30. In one report it was said that “[t]he Delegate has applied equal weighting to all factors.” [13] Whether that proposition was justified or not, it implied that a weighing exercise had been undertaken. (The delegate concluded that of all the relevant factors, six supported the proposal and five were neutral.) It is not clear that all delegates in fact undertook this balancing exercise, but no issue was taken in that regard in the Land and Environment Court or in this Court.

    13.    Examination of the proposal to merge Burwood Council, City of Canada Bay Council and Strathfield Municipal Council (March 2016), p 8.

31. Section 264 deals with the question of entitlement to representation “[i]n proceedings before the Boundaries Commission” and was assumed to be relevant to a public inquiry held by a delegate pursuant to s 263(2A). Section 265 provides for “an opinion survey or poll” of residents and ratepayers to determine their attitudes, for the purposes of s 263(3)(d).

32. It is also convenient to note that despite the apparently broad language of s 263(1), that which must be the subject of examination and report in the present circumstances was the “proposal” made by the Minister and referred by the Minister to the Departmental Chief Executive. As held in Botany Bay No 1, a delegate could not be required to examine and report on an alternative proposal put forward by a council. That decision has some relevance in the present case, because the original proposal in relation to Manly Council was to amalgamate it with councils other than North Sydney. That proposal did not go ahead. However, on one view, the making of the proposal was relevant to aspects of the procedure before the delegate.

33. Some of the present submissions proposed a reading of Botany Bay No 1 which expanded its reasoning beyond that which was necessary for its conclusion. Thus, the complaint made by each of the councils that neither they nor the delegates had been able to obtain undisclosed KPMG documents, which were said to contain analysis relevant to costs and benefits outlined in the proposals, was met with the response that they could have prepared their own financial analysis. If that analysis had been undertaken and demonstrated, not that no amalgamation should take place, but that the proposed amalgamation was not as beneficial as an alternative proposal, the delegate would arguably have been required to take that into account in examining the referred proposal, because it would have been relevant to the mandatory factor identified in s 263(3)(a).

34. Section 263(7) constitutes a form of privative clause, which presumably applies with respect to the exercise of functions by the Chief Executive and his or her delegate. Despite the preclusion of “an order in the nature of prohibition” (which can only be made on the basis of jurisdictional error) the Minister did not submit that any such constraint operated and, indeed, such a constraint would be inconsistent with the decision in Kirk v Industrial Court of New South Wales. [14] In any event, such provisions have not conventionally been given such a construction. The Minister did not submit that the relief sought in the present case, on the grounds articulated by the Councils, would not be available if the grounds were made good.

    14. (2010) 239 CLR 531; [2010] HCA 1.

(3)   The nature of the Councils

35. It is convenient to refer to the nature of the Councils which are the appellants in each proceeding. Each claims an entitlement to be accorded procedural fairness, not in relation to the formulation of the Minister’s proposals, but in relation to the conduct of the examination to be conducted by the delegate of the Chief Executive. Each also asserts that the examination process failed in particular respects relating to the public notices given, and the conduct, of the inquiries undertaken by the delegate.

36. Section 51 of the Constitution Act 1902 (NSW) states in part:

51   Local government

(1)   There shall continue to be a system of local government for the State under which duly elected or duly appointed local government bodies are constituted with responsibilities for acting for the better government of those parts of the State that are from time to time subject to that system of local government.

(2)   The manner in which local government bodies are constituted and the nature and extent of their powers, authorities, duties and functions shall be as determined by or in accordance with laws of the Legislature.

37. Nevertheless, local government bodies live in a constitutional twilight zone; they are statutory bodies created under State law, but with a democratically elected membership. [15] They are funded to provide services through the levy of rates and by the collection of other fees and charges. They obtain grants from the State government and from the Commonwealth via the State, pursuant to s 96 of the Constitution, and directly. [16] Although created by the State under State legislation (now the Local Government Act[17] ), the councils are autonomous public bodies with legal and financial interests of their own. So far as statute permits, they are entitled to procedural fairness in resisting infringement by executive government of identifiable legal and financial interests. As Professor Cheryl Saunders has noted: [18]

“The provisions in state constitutions dealing with local government are drafted cautiously, and local government achieves relatively little effective protection as a result. A particular case of difficulty evident in all state constitutions is the tension between the legitimacy of elected local government on the one hand, and the responsibility of the states for local government on the other.

The logic of the former is that local government is responsible to its electors, who can respond to maladministration or worse at regular elections by voting local representatives from office. The latter, however, assumes that the state is responsible for significant deficiencies in the operation of local government, as for any other aspect of the governance of the state, and may (and should) intervene to ensure effective performance.”

15. The Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208 at 230-231 (Griffiths CJ), 240 (O’Connor J); [1904] HCA 50.

16.    Anne Twomey, “Local Government Funding and Constitutional Recognition”, Constitutional Reform Unit, University of Sydney, Report No 3 (January 2013) at pp 39-46.

17. See particularly ss 220, 388, inserted by the Local Government Amendment (Legal Status) Act 2008 (NSW), following the judgment of the High Court in the New South Wales v Commonwealth of Australia [2006] 229 CLR 1 (“Work Choices Case”); [2006] HCA 52.

18.    Cheryl Saunders, “Constitutional Recognition of Local Government in Australia”, in N Steytler (ed), The Place and Role of Local Government in Federal Systems (Konrad-Adenauer-Stiftung, 2005) 47 at pp 54-55.

38. Although they have a democratically elected membership, councils are not to be treated as proxies for the electorate within their local government areas. This is significant with respect to their claims that the public notification of the inquiries held by delegates miscarried, or was inadequate to satisfy the statutory requirements. This consideration could operate in two different ways. First, it might be doubted if a council, which knew exactly what was to happen, had standing to challenge the adequacy of public notification. On the other hand, it might be said that a council had no obligation to correct misleading public statements or ensure that residents and ratepayers had adequate notice of changes which could affect their legal obligations and interests.

39. No challenge was made to the standing of the Councils to raise such issues. Nor did the State suggest that the Councils had an obligation themselves to ensure that proper public notice was given, although it did submit that the role the Councils in fact played in notifying residents and ratepayers of how they could be involved in the inquiries should not be ignored.

(4)   The proposed amendments

40. As noted above, each Council sought to file an amended notice of appeal after the hearing of the appeal. Further written submissions were filed in relation to the motion to amend and in relation to the new grounds. It is convenient to deal with the proposed amendments before turning to the specific appeals.

41. The issues can be addressed by reference to the amendments sought in the Hunter’s Hill appeal. First there was a new proposed ground, 5A, which should be read in the context provided by ground 5:

“5 The primary judge erred in finding that the appellant was not denied procedural fairness in relation to the process of examination and report under s 218F, in circumstances where it was denied access to, and an opportunity to make submissions (to either the Delegate or the Minister) on ‘the independent analysis and modelling by KPMG’ referred to in the proposal documents ….

5A   The primary judge erred in failing to find that in the absence of the full and detailed independent analysis and modelling by KPMG referred to in the proposal documents, including the long form version of the Local Government Reform: Merger Impacts and Analysis Report and the Business Case, the delegate constructively failed to fulfil the statutory function of examining the Minister’s proposal.”

42. The proposed amendments also included, in addition to formal orders allowing the appeal, setting aside the orders made by the primary judge and with respect to costs, substantive orders as follows:

“3   Set aside the examination and report of the Delegate, Dr Robert Lang (the Delegate), in relation to the proposed amalgamation of the Hunter’s Hill, Lane Cove and Ryde local government areas (the Proposal), the report being sent to the Minister on 18 March 2016.

4   Set aside the review of the Boundaries Commission and the comments on the Delegate’s report sent to the Minister on 29 April 2016.

5   An order that any future examination and report on the Proposal shall not be carried out by the Delegate personally, but by the Chief Executive himself, or some other delegate.”

43. The Minister did not oppose the addition of ground 5A, subject to one qualification. The qualification related to what was said to be an uncertainty as to whether the submissions in support of the ground involved the proposition that the government had “a contractual right to be provided with the KPMG Excel model and to make it available to third parties (such as the Councils or members of the public).” The Minister did not suggest that such an allegation was a central element of the new ground, but merely that if it were, the Minister should have had an opportunity to demonstrate that the factual premise was wrong. The Minister submitted that if that issue were sought to be raised, the amendment should be refused in accordance with the principles stated in Suttor v Gundowda Pty Ltd. [19]

    19. (1950) 81 CLR 418; [1950] HCA 35.

44. The Minister also submitted that, if the ground did not involve the proposition that the government had access to the KPMG Excel model, then the ground involved an absurdity. However, that proposition was not put as a basis for refusing the amendment.

45. Given that the appropriateness of the amendment involves an issue going to the substance of the ground, the question of leave will be addressed in considering the terms on which the ground is pursued.

46. With respect to the orders sought, the variations involved a departure from the declaratory relief sought in the initial notice of appeal, in favour of quashing orders. In the proceedings commenced in the Land and Environment Court, and in the unamended version of the notice of appeal, the Council sought orders restraining the Minister from recommending implementation of the proposal until certain preconditions had been satisfied.

47. The summons also sought declarations identifying the alleged errors in the process of examination and report. The summons did not seek relief in relation to the decision of the Boundaries Commission, a point raised in the course of argument in this Court and the subject of an additional order in the amended notice of appeal. No issue was taken by the Minister with respect to the form of the orders proposed in the amended document.

48. Relief will be addressed, as required, in the context of the separate appeals. However, it is convenient to consider as a preliminary issue the availability in principle of quashing orders. The availability of declaratory relief is less constrained than quashing orders, the latter being orders in the nature of certiorari. [20] In Hot Holdings Pty Ltd v Creasy [21] the majority stated:

    20. Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10.

    21. (1996) 185 CLR 149 at 159 (Brennan CJ, Gaudron and Gummow JJ); [1996] HCA 44.

“In Ainsworth the Court reiterated the function of certiorari. In the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ [22] it was said:

22.    Ainsworth at 580.

‘The function of certiorari is to quash the legal effect or the legal consequences of the decision or order under review.’

Brennan J spoke to similar effect as follows: [23]

‘Quashing annihilates the legal effect of an act or decision that has been reached in breach of a condition of its validity but, if an act or decision has no legal effect, there is nothing to quash.’

Thus, for certiorari to issue, it must be possible to identify a decision which has a discernible or apparent legal effect upon rights. It is that legal effect which may be removed for quashing.”

23.    Ainsworth at 595.

49. Hot Holdings involved the issue of a mining tenement by the Minister following a hearing by a warden in open court and a recommendation by the warden as to the grant or refusal of the mining lease. [24] The Minister was not required to follow the recommendation. The question before the High Court was whether certiorari lay to challenge a decision by the warden to conduct a ballot for the purpose of determining to whom priority should be given in respect of competing applications. [25] The Court held: [26]

“There is no issue taken with the proposition that the granting or refusal of a mining tenement by the Minister under the Act affects legal rights in the relevant sense. Rather, the issue is whether a decision prior to that final exercise of discretion can be said sufficiently to affect legal rights. Thus, in the words of Stephen J [in The Queen v Collins; ACTU-Solo Enterprises Pty Ltd [27] ], one must ask whether there is a decision which constitutes some condition precedent to the exercise of power which will affect legal rights. Alternatively, in the words of the majority in Ainsworth, the preliminary report or recommendation must operate in this situation ‘as a precondition or as a bar to a course of action’ or ‘as a step in a process capable of altering rights, interests or liabilities’. [28] ”

24. Mining Act 1978 (WA), s 75.

25.    Hot Holdings at 158.

26.    Hot Holdings at 162.

27. (1976) 50 ALJR 471 at 473.

28.    Ainsworth at 580.

50. The majority accepted that the warden’s recommendation and report, which was required by the statute to be provided to the Minister, was something the Minister was bound to take into account in exercising the statutory discretion to grant or refuse the application. Accordingly it was held that “the warden’s decision has a discernible legal effect upon the Minister’s exercise of discretion” and was subject to certiorari. [29] Working backwards, the Court accepted that this involved a right to challenge the holding of the ballot, which in turn depended upon the warden’s satisfaction as to a matter of fact, namely that certain applications were lodged “at the same time”. The Court further held that the meaning of the statutory words “at the same time” was a question of law. [30]

    29.    Hot Holdings at 174-175.

    30.    Hot Holdings at 168.

51. By parity of reasoning, in the present case, if the appellants are correct in submitting that a delegate erred in law in some material respect, which either appears “on the face of the record” or constitutes jurisdictional error, they are entitled to have the delegate’s report set aside. There will, in that circumstance, be a further question as to the terms of the order and whether, as the appellants submitted, the function of “examination and report” is a single function, not appropriately dissected into separate parts. The alternative view is that only the report can properly be set aside, even though the vitiating error occurred in the course of conducting the examination.

• to make submissions as to the financial advantages or disadvantages that, in the Council’s view, would result if the North Sydney Merger Document were to be implemented;

• to make submissions as to whether the disadvantages outweighed the advantages and the significance of that assessment for any recommendations the delegate should make;

• to respond to adverse information that is “credible, relevant and significant to the decision to be made”; and

• to make submissions to the delegate as to how he or she should discharge the statutory responsibilities.

578. In my view, the obligation of the North Sydney delegate to afford procedural fairness to the Councils in this case extended to giving the Councils a fair opportunity to comment on and, if appropriate, to attempt to rebut the financial projections and assessment included in the North Sydney Merger Document. Mr Hutley’s submissions on this question were perhaps a little equivocal. He submitted that the Minister’s justification for the North Sydney Merger Document, including the financial projections, had no “legal primacy”. This conclusion, so he argued, followed from this Court’s decision in Woollahra (CA) that in the case of a proposed merger, the only “proposal” that must be referred for examination and report under s 218F(1) of the LG Act is the proposal to amalgamate two or more LGAs. [270] The “proposal” therefore does not include any financial projections or assessments advanced by the Minister as justification for the proposed merger.

     270. See at [447] above.

579. Mr Hutley made this submission principally in support of a contention that a delegate of the Chief Executive, in order to discharge his or her statutory function, was not required to pay particular attention to the Minister’s financial projections. I understood the submission also to be advanced to support an argument that a delegate was not obliged to offer affected councils the opportunity to comment on or rebut the Minister’s financial projections or claimed financial advantages for a particular proposed merger.

580. If this was intended to be the argument I do not think it is correct. It is true that the LG Act does not oblige the Minister to publish a merger proposal document incorporating financial projections or an analysis of the financial advantages and disadvantages of the proposed merger. Nonetheless publication of material of this kind in the merger proposal document is consistent with the legislative scheme. Moreover, it is a course that a Minister or Government might be expected to adopt when making public a proposal of such significance, not only to the affected councils but to local residents and ratepayers. Accordingly, if the Minister does put forward financial projections or claims that the merger proposal will generate financial advantages, procedural fairness requires an affected council to be afforded a fair opportunity to comment on the projections and claims and to challenge their reliability or cogency.

581. It is, however, one thing for procedural fairness to require a delegate to afford affected councils a reasonable opportunity to comment on and challenge the Minister’s financial projections and claimed benefits for a merger proposal. It is quite another for procedural fairness to require the delegate (or the Minister) to make available to the councils all preliminary analyses or working papers prepared as part of the process of preparing financial projections or arguments in support of a proposed merger.

582. In Woollahra (CA) the Court accepted that the Boundaries Commission, in the exercise of its function to examine and report on a proposal to alter the boundaries of LGAs, was bound to give directly affected councils a reasonable opportunity to address the issues s 263(3) required the Commission to take into account. The Court also said that the obligation went no further. In many cases, a council (or any other party with a particular interest in a proposal) will be able to adequately address the issues identified in s 263(3) of the LG Act without access to preliminary assessments or working papers underlying financial projections or claims made by or on behalf of the Minister.

583. There may be particular circumstances in which procedural fairness requires an affected council to be given access to documents prepared within the relevant Department or Ministerial office. For example, the Chief Executive responsible for examining and reporting on a merger proposal may have in his or her possession a key Departmental document which, if made available, would expose a significant flaw in the Minister’s assessment of the financial benefits of a merger proposal when compared with the councils’ current performance. A document of this kind is likely to incorporate adverse information that is “credible, relevant and significant to the decision to be made”. Procedural fairness would require the document to be made available to a council requesting it or, perhaps, even without a specific request.

584. There may also be circumstances in which procedural fairness requires that a council be given access to documents even though they are not in the possession of the Chief Executive or delegate conducting the examination of a merger proposal. For example, the merger proposal document may make it clear that the Minister’s assessment of the financial advantages of the proposed merger has been informed by a confidential report critical of an affected council’s probity or efficiency. The adverse report may not necessarily be in the possession of the Chief Executive or delegate. In these circumstances, procedural fairness might require the Chief Executive or the delegate to obtain the adverse report and make it available to the council for comment. If this cannot be done, the Chief Executive or delegate might have to determine that it is not possible to complete the independent examination of the financial advantages and disadvantages of the merger proposal required by the statute.

The present case

Opportunity to make a case

585. The North Sydney Merger Document represented the culmination of a long process in which a variety of entities participated. The process included publication of a number of significant documents including the ILGRP Report (October 2013), the IPART Report (October 2015), the Short Form Impacts Analysis (18 December 2015) and the KPMG Modelling Assumptions Document (19 January 2016).

586. At each stage of the process one or other of the entities assessed the financial advantages and disadvantages of merger proposals then under consideration. The approach in each case was to apply assumptions to information derived from publicly available data sources of the kind identified by KPMG in its June 2015 proposal to OLG[271] and in its Model Design Paper (July 2015). [272] KPMG explained in the Model Design Paper the limitations of the process due to the constraints of time and resources. KPMG noted that each council’s published LTFP provided the basis for examining the financial impact of each merger option because “collating data from individual councils is beyond the scope and timeframes of this Engagement”.

     271. See at [508] above.

     272. See at [516] above.

587. KPMG repeatedly emphasised that only a very short time frame was available to complete the tasks it contracted to undertake on behalf of OLG. For example, its proposal of 27 August 2015 to prepare a “robust business case” referred to the need to work within stringent time constraints. [273] The letter of 17 September 2015 confirming KPMG’s engagement to provide a public report on the proposed reforms stated that a final report would be prepared within two weeks. [274]

     273. See at [525] above.

     274. See at [528] above.

588. The process in which KPMG played a key role, insofar as it concerned financial matters, involved estimating the savings and costs that would flow from the proposed mergers. This was done by applying assumptions for a range of variables to data compiled from publicly available sources. The process operated at two levels. Much of the work, for example, for the purposes of preparing the Business Case Document, was designed to provide estimates or projections on a State-wide or regional basis. Some of the work was directed to the 35 individual merger proposals that ultimately emerged from the process, although the proposed clusters changed from time to time. But at each level the process involved the application of assumptions to publicly available data.

589. As is common with the presentation of projections as to future financial performance, the results of the work performed by KPMG (and others involved in the process) gave the appearance of precision. Thus, the North Sydney Merger Document, for example, claimed that “the removal of duplicate back office and administrative functions and reducing senior management roles” would produce savings of $87 million over 20 years. In reality the apparently precise or reasonably precise projections, whether presented on a State-wide basis or in relation to particular merger proposals, depended on which assumptions were applied to the data. Different assumptions applied to matters such as the efficiency savings likely to be achieved on expenditure for materials and contracts would inevitably produce very different outcomes. Moreover, the longer the period for which projections were to be made, the greater the differences that would result if the assumptions were changed.

590. It is clear that Professor Dollery was very much alive to the significance of assumptions to the financial projections adopted by the Minister. It is also clear that Professor Dollery was very familiar with the reform process as it had evolved over time and the approach taken by KPMG.

591. In his detailed report prepared for North Sydney, Professor Dollery criticised what he said was the absence of empirical evidence to support many of the assumptions applied by KPMG and adopted by the Minister. More significantly for present purposes, he identified a “host of specific problems” with the assumptions used by KPMG as the basis for its financial projections. He was able to do this because the assumptions were outlined in the publicly released KPMG Modelling Assumptions Document.

592. For example in Dollery Report 2, Professor Dollery criticised the “critical claim” made by KPMG that overall staffing efficiencies would be 7.4 per cent for metropolitan council mergers. He pointed out that the experience of council mergers in Queensland suggested that amalgamated councils actually had a higher annualised rate of growth in nominal terms than the non-amalgamated cohort. Similarly, Professor Dollery also questioned the costs attributed by KPMG to redundancies on the basis of the Queensland experience. His detailed analysis of projected savings from councillor expenditure[275] concluded that KPMG’s projection was ‘deeply flawed”. As can be seen from Professor Dollery’s close examination of the issue,[276] he was able to challenge KPMG’s analysis by referring to precise data, such as the quantum of fees payable to councillors and the maximum number of councillors permitted under the legislation.

     275. See at [548] above.

     276. See at [552] above.

593. The contents of Dollery Report 2 demonstrate quite clearly in my view that North Sydney not only had the opportunity to make informed submissions about the assumptions underlying the Minister’s financial projections and the financial projections themselves but took full advantage of that opportunity. Professor Dollery criticised many of the assumptions underlying the Minister’s projections and drew attention to empirical evidence suggesting that KPMG and the Minister had overestimated the financial advantages of the North Sydney Merger Document. Professor Dollery had access to all the published sources of information to which KPMG applied its assumptions and had the expertise to analyse the material. If North Sydney or Mosman had unpublished financial information specific to them that strengthened their respective cases, Professor Dollery doubtless could have sought that information and incorporated the material into his reports.

594. Professor Dollery’s claim in his affidavit that the publicly available information from KPMG was insufficient to enable him to “fully assess the validity of [the North Sydney Merger Document]” does not carry the matter further. Professor Dollery did not explain in his affidavit what he meant by this expression. In any event, procedural fairness does not necessarily require an interested party to “fully assess the validity of” a particular proposal. Procedural fairness required, in the context of the present case, that an affected Council be given a fair opportunity to make submissions on the Minister’s financial projections and claimed financial advantages for the North Sydney Merger Document and to answer adverse information that was credible, relevant and significant to the decision.

595. Furthermore, Professor Dollery’s complaint that he was unable to fully assess the North Sydney Merger Proposal did not rest solely on his inability to access KPMG’s unpublished documents or analyses. He said that his inability to fully assess the proposal was also due to “errors and inconsistencies” in KPMG’s published documents and the absence of empirical evidence to support KPMG’s analysis. It is difficult to see how Professor Dollery would have been in any better position to expose these alleged defects if he had access to any of the Withheld Documents.

The Withheld Documents

596. Professor Dollery recorded in his affidavit his expectation that the “missing information” he needed would be found in the “withheld” material. He did not explain the basis for his expectation. In my opinion, the evidence does not support the Councils’ claim that the Withheld Documents would have materially enhanced their ability to make informed submissions on the reliability of the Minister’s financial projections.

597. As I have noted, North Sydney and Mosman placed considerable emphasis on the Model Design Paper, which was in evidence but was not made available to them prior to completion of the North Sydney Delegate’s Report. The Model Design Paper was prepared six months before the KPMG Modelling Assumptions Document was released. At the time the Model Design Paper was completed the clusters for proposed mergers had not been finalised.

598. The Model Design Paper set out a proposed methodology for aggregating data, formulating assumptions and applying the assumptions in order to estimate “merger impacts”. The stated object was to create a suitable format for “reporting and visualisation”. In substance, the Model Design Paper created a broad framework within which the impact of proposed mergers could be addressed. The framework provided for the formulation of more precise assumptions to assess the financial consequences of mergers.

599. It is true, as the Councils’ submissions pointed out, that there were differences between the assumptions recorded in the Model Design Document and those adopted by the KPMG Modelling Assumptions Document (although it is fair to say that the two sets of assumptions are broadly consistent). But the differences simply reflect the fact that KPMG modified and refined some of its financial assumptions over the six month period it worked on the project. Access to the Model Design Document would have done little if anything to enhance the capacity of Professor Dollery or the Councils to make informed submissions on the financial projections and claims in the North Sydney Merger Document.

600. The Councils also complained of their inability to gain access to the Business Case Document and the Long Form Document. As I have noted, PII was asserted over each of these documents and neither was tendered in the proceedings. Unlike Ku-ring-gai, however, the Court’s attention in this appeal was drawn to evidence indicating the nature of each of these documents. The evidence suggests that access to these two Withheld Documents would not have materially assisted the Councils to make more informed submissions to the delegate concerning the financial projections and claimed financial advantages set out in the North Sydney Merger Document.

601. The Business Case Document was prepared by KPMG pursuant to its proposal to the OLG of 27 August 2015. [277] KPMG’s proposal made it clear that the purpose of the exercise was to prepare a document establishing the case for change, taking into account the extensive work already completed by the ILGRP. The Business Case Document was to be framed at a general level, dealing with such matters as the financial sustainability of the Local Government sector. KPMG was to derive all key economic, financial and regulatory impacts of the proposed reforms from the Options Analysis it had previously undertaken. This appears to have been a reference to KPMG’s Options Analysis Document, which had been provided to OLG on 12 August 2015. [278] The Options Analysis Document provided only a very brief overview of the financial impacts of the two relevant mergers contemplated at the time, namely, Hunter’s Hill, Lane Cove and Ryde and North Sydney, Mosman and Willoughby.

     277. See at [524] above.

     278. See at [520] above.

602. The Business Case Document was completed on 14 October 2015. While its precise contents are not known, the evidence makes its character tolerably clear. It was general in nature and directed to making a case for the Government’s strategy of amalgamating LGAs in New South Wales. On the evidence, access to the Business Case Document would not have materially advanced the understanding of the Councils or their advisers as to the financial assumptions formulated and applied by KPMG or the data relevant to the North Sydney Merger Proposal to which the assumptions were applied.

603. As has been seen, the Long Form Document was a longer version of the Short Form Impacts Analysis published on 18 December 2015. Both were prepared by KPMG (so it can be inferred) in accordance with the template set out in KPMG’s letter of 17 September 2015. [279] Consistent with that template, the Short Form Impacts Analysis addressed the benefits of the proposed mergers at a general level, rather than by reference to particular merger proposals.

     279. See at [528]-[529] above.

604. Mr Miller’s affidavit stated that the Long Form Document was longer than and substantially different from the Short Form Impacts Analysis, although parts of the former were included in the latter. The likelihood, however, is that the Long Form Document also followed the template set out in KPMG’s letter of 17 September 2015 and did not address the financial advantages and disadvantages of particular proposed mergers.

605. This inference is supported by the fact that it was not until 26 November 2015 that OLG provided KPMG with an “updated list of merger proposals” (which even then proved not to be final). The conclusion is also supported by DPC’s letter of 22 March 2016, sent in response to North Sydney’s application under the GIPA Act. [280] The letter stated that the modelling assumptions set out in the published KPMG Modelling Assumptions Document were fed into KPMG’s proprietary model to produce modelling outputs for each of the mergers. The letter also stated that KPMG did not prepare a different analysis and modelling report for each merger in addition to the 35 Merger Proposal Reports.

     280. See at [561] above.

606. Clearly, KPMG would have had to use a computer program, such as Microsoft Excel in order to produce projections for each of the 35 Merger Proposals. But equally clearly, that process involved applying the published assumptions to publicly available data relevant to each of the proposed mergers. As the DPC’s letter said, the use of computer programs did not involve KPMG undertaking any further analysis and modelling for each of the proposed mergers.

607. North Sydney and Mosman were afforded procedural fairness in that they were given the opportunity to make informed submissions on the financial projections and claimed financial advantages set out in the North Sydney Merger Document. The fact that they did not have access to the Withheld Documents did not prevent them from presenting their views and doing so in a way that effectively engaged with the projections and claim in the North Sydney Merger Document. In essence, the Councils’ complaints rested on a misapprehension as to the contents and import of the Withheld Documents. Accordingly, North Sydney and Mosman have not made out their claim to have been denied procedural fairness by the Minister or the delegate.

596. In my view there is no inconsistency between this conclusion and the reasoning of Basten and Macfarlan JJA in Ku-ring-gai. The argument in that case proceeded on an assumption as to the nature of the Withheld Documents, the correctness of which has not been borne out by the evidence in this case. While many of the relevant documents in fact were in evidence in Ku-ring-gai, the Court was not taken to them in the way that has now occurred.

597. This conclusion provides a factual answer to the appellants’ submission that procedural fairness required the Minister or the delegates to take active steps to obtain the Withheld Documents and make them available to the appellants. Even assuming that procedural fairness might oblige a decision-maker (or recommending entity) to take such steps, the appellants have not established that they needed access to the Withheld Documents in order to have a fair and reasonable opportunity to put their cases to the delegates. Specifically North Sydney and Mosman have not shown that they needed access to the Withheld Documents to have a fair and reasonable opportunity to put their case to the delegate responsible for the North Sydney Delegate’s Report.

The position of the Chief Executive

610. The conclusions I have reached on the requirements of procedural fairness do not depend on the circumstances that the delegate conducted the examination of the North Sydney Merger Proposal, rather than the Chief Executive personally. I accept that the principles of procedural fairness apply equally to the examination of a merger proposal required by s 218F(1) of the LG Act, whether the examination is conducted by the Chief Executive or a delegate.

611. There were obvious practical reasons in the present case why the Chief Executive could not personally examine the 35 merger proposals published by the Minister. Quite apart from the number of examinations that had to be undertaken, the Chief Executive presumably had been closely involved in the process leading up to publication of the merger proposal documents.

612. If, however, the Chief Executive had personally conducted the examination of the North Sydney Merger Proposal, for the reasons I have given, procedural fairness would not have required the Withheld Documents to be made available to the Councils. Of course it is possible that the Chief Executive (unlike the delegate) would have known the contents of the Withheld Documents (for example, because the Chief Executive decided to claim PII over them). In these circumstances, procedural fairness perhaps might have required the Chief Executive to explain to the Councils why the Withheld Documents were not material to the examination. But since the Withheld Documents did not contain credible material adverse to the Councils’ contentions, the Chief Executive would not have been obliged to release the Withheld Documents.

Challenge to the Delegate’s report

613. The challenge by North Sydney and Mosman to the validity of the North Sydney Delegate’s Report rested on the delegate’s alleged failure, in the absence of the withheld KPMG Documents, to fulfil the statutory function of examining the North Sydney Merger Proposal. In particular, the Councils contended that the delegate did not have regard to the financial advantages and disadvantages of the North Sydney Merger Proposal as required by s 263(3)(a) of the LG Act and thus constructively failed to exercise his statutory functions.

614. The North Sydney Delegate’s Report did not accept uncritically the Minister’s claims made in the North Sydney Merger Document as to the financial projections and advantages of the Merger Proposal. Mr Robertson acknowledged in oral argument that the North Sydney delegate had undertaken a “degree of analysis”. This acknowledgement in my opinion understates the extent to which the delegate examined the financial advantages and disadvantages of the North Sydney Merger Document, including the criticisms advanced by Professor Dollery. Mr Robertson’s comment did recognise that the delegate clearly made a serious attempt to grapple with the assumptions underlying the Minister’s claims about the financial advantages of the proposed merger.

615. The delegate referred to the submissions made by each of the affected Councils. Under the heading “Financial Analysis” he stated that he had considered a report prepared by the New South Wales Treasury Corporation (TCorp) on the sustainability of individual councils. In this report, TCorp assessed each Council’s Financial Sustainability Rating (FSR) over a three year period. The delegate quoted the FSR assessment made by TCorp for Mosman (weak), North Sydney (moderate) and Willoughby (moderate).

616. The delegate also referred to IPART’s assessment of the three Councils the subject of the North Sydney Merger Proposal. IPART had determined that none of the three was fit to remain as a stand alone entity. Operating individually, each Council had “limited scale and capacity to effectively deliver on behalf of residents and meet future community needs.”

617. The delegate then considered the financial forecasts in the North Sydney Merger Document. His assessment was as follows:

“Some submissions, including that from North Sydney Council, were critical of the modelling undertaken by KPMG. The North Sydney submission included a critique of the modelling and its results by Professor Brian Dollery. In examining the approach used to model the potential benefits, the Delegate considered Professor Dollery’s views and the KPMG Technical paper published on the Council Boundary Review website. This included KPMG assumptions used for the modelling.

Based on the analysis at Attachment D, the Delegate found that the KPMG modelling approach was based on reasonable assumptions in the circumstances and represented a potentially lower bound estimate of the net present value of benefits to be derived from the proposal.” (Footnotes omitted.)

618. The North Sydney delegate concluded as follows on the financial issues:

“Having had regard to the financial advantages and disadvantages (including the economies and diseconomies of scale) of the merger proposal to the residents and ratepayers of the Mosman Municipal, North Sydney and Willoughby City LGAs, the Delegate found that the financial advantages outweigh disadvantages; and that mechanisms exist to help manage transitional issues, such as differential rates. As such, there is no impediment to the merger proposal proceeding, with respect to this factor.”

619. Appendix D (as it is headed) to the North Sydney Delegate’s Report contained a detailed four page analysis of Professor Dollery’s criticisms of the KPMG modelling. The analysis addressed ten separate issues and explained why the delegate considered that, despite the criticisms, the claimed financial benefits of the merger had a reasonable basis. For example, the delegate addressed the question of “Staffing Costs” as follows:

“Professor Dollery noted that KPMG assumed gradual staff reductions, while Queensland experience suggested that staff numbers grew in the three years following a merger. Given the different legislative framework in NSW for staff protections, it is considered inappropriate to apply the Queensland experience to modelling impacts for NSW Councils.

Changing staff numbers may arise from many factors, other than Council mergers; for example, the need to service growth in the relevant community. Professor Dollery also noted that the rate of savings for General Manager and Director levels were not set out. KPMG’s modelling, based on a three-year average of Council data, is considered reasonable.

Professor Dollery claimed that KPMG did not provide evidence to support the claimed staffing efficiencies, and that the estimate is different to that used for a specific case study conducted by KPMG in 2015. KPMG’s estimates were based on several specific projects carried out for Councils, and are in the lower range of results from those case studies.

It is reasonable that the result from a specific case study would differ from a modelled result, given the understanding gained from a forensic examination of actual staffing arrangements. The efficiency level assumed by KPMG is less that that observed in the relevant case study. As such, KPMG’s modelling may yield a conservative estimate of the potential benefits.” (Footnotes omitted.)

620. The North Sydney Delegate’s Report, when read as a whole, makes it clear that the delegate did not accept the Minister’s claims and financial projections uncritically. He carefully considered whether the claims and projections were soundly based. The delegate did so by paying close attention to the criticisms made by Professor Dollery and explaining why the assumptions underlying the Minister’s claims and financial projections were nonetheless reasonable. The delegate then directed attention to the specific question posed by s 263(3)(a) of the LG Act and concluded that the financial advantages of the North Sydney Merger Document outweighed the disadvantages.

621. North Sydney and Mosman submitted to the delegate that he was not in a position to examine the financial advantages and disadvantages of the North Sydney Merger Document without having access to the Withheld Documents. In this Court, the Councils criticised the delegate for not expressly addressing the submissions in the North Sydney Delegate’s Report.

622. This criticism has to be considered in the light of the well-established principle, recently reaffirmed by the High Court that “[t]he reasons for [an administrative] decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error”. [281] It is implicit in the delegate’s approach that he considered that he could address the financial advantages and disadvantages of the North Sydney Merger Proposal notwithstanding that he had not seen the Withheld Documents. The delegate simply could not have dealt with that question as he did unless he had formed the view that the available material enabled him to understate the required task.

     281. Plaintiff M64/2015 v Minister for Immigration and Border Protection (2015) 258 CLR 173; [2015] HCA 50 at [59] (French CJ, Bell, Keane and Gordon JJ), citing Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287.

623. It is also necessary to bear in mind that the delegate was not presiding over a trial between adversaries. The delegate was examining and reporting on a merger proposal that raised many issues for consideration. Numerous individuals and bodies, including the Councils, responded to the invitation to make submissions or attend the public meetings. The delegate had to take these contributions into account. The legislation obliged the delegate to hold a public inquiry,[282] but it otherwise provided little guidance as to the procedures the delegate (or the Chief Executive in the absence of a delegation) was to follow. In these circumstances, the absence of an express reference to a particular submission does not establish that the delegate failed to discharge his statutory function.

     282. LG Act, s 263(2A).

624. To the extent that it matters, the evidence shows that the delegate did not in fact require access to the withheld KPMG Documents in order to fulfil his statutory functions. Access to those Documents would not have materially assisted the delegate in performing his statutory functions.

625. For these reasons I do not accept the submission by North Sydney and Mosman that the delegate failed to discharge the statutory function of examining the North Sydney Merger Proposal having regard to its financial advantages and disadvantages.

Conclusion on the North Sydney appeal

626. The appeals by North Sydney and Mosman should be dismissed. I agree with the orders proposed by Macfarlan JA in respect of those appeals.

Strathfield Merger Proposal

627. Basten JA has set out the material facts relating to Strathfield’s challenge to the Delegate’s Report dealing with the Strathfield Merger Proposal. As his Honour observes, the issues raised by Strathfield mirror those raised in the other appeals. [283] Accordingly, the issues can be dealt with very briefly.

     283. See Basten JA’s judgment at [360] above.

Procedural fairness

628. Strathfield’s submission to the delegate was less elaborate than the submissions made, for example, by North Sydney which relied heavily on Dollery Report 2. Even so, Strathfield had precisely the same opportunity to make submissions on the financial projections and claims in the Strathfield Merger Document as North Sydney and Mosman had in relation to the North Sydney Merger Document. Indeed Strathfield’s submission to the delegate referred both to the Morrison Low Report and Dollery Report 2 and adopted some of the arguments in those reports.

629. For substantially the same reasons I have given in rejecting the procedural fairness argument in the North Sydney Appeal, I reject Strathfield’s procedural fairness argument in the Strathfield Appeal.

The Strathfield Delegate’s Report

630. The Strathfield Delegate’s Report differed from the Hunter’s Hill Delegate’s Report and the North Sydney Delegate’s Report. Under the heading “Financial factors”, the Strathfield Delegate’s Report did no more than summarise the financial advantages asserted by the Minister in the Strathfield Merger Document. The Strathfield Delegate’s Report did not engage with Strathfield’s submission or with the material referred to in that submission. Nor is there anything to indicate that the delegate made any attempt to assess whether the Minister’s financial projections and claims were reasonable.

631. In short, the Strathfield Delegate’s Report indicates that the delegate did not exercise an independent judgment in assessing the financial advantages and disadvantages of the Strathfield Merger Proposal. The delegate therefore failed to perform the function required of him by s 263(3)(a) of the LG Act.

632. Ground 5A of the Strathfield Further Amended Notice of Appeal contends that the primary Judge erred in failing to find that in the absence of the Withheld Documents the delegate constructively failed to fulfil the statutory functions of examining the Strathfield Merger Proposal. Although Ground 5A focuses attention on the delegate’s failure to obtain the Withheld Documents, I think Ground 5A is broad enough to cover the delegate’s failure to exercise an independent judgment in the manner I have identified.

633. For these reasons I would allow Strathfield’s appeal. I agree with the orders proposed by Basten JA in respect of this appeal.

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Endnotes

Decision last updated: 31 July 2017