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Unlawful fetter: contractual pitfalls for statutory decision-makers

Regulatory bodies and other statutory decision-makers must ensure, when entering into contracts, they do not impose an unlawful fetter on their statutory discretions.

If a contractual term comprises an unlawful fetter on the exercise of a statutory duty or discretion, that term (and potentially the contract as a whole) will be void and unenforceable.

This article explains the general principles regarding unlawful fetters, and gives examples from two recent cases dealing with commercial contracts and terms of settlement in contentious matters.

The general rule regarding contracts

Broadly speaking, a statutory body that has a discretionary power or duty conferred on it by statute may not fetter its exercise of that power, or performance of that duty, by any contractual promise or commitment as to how it will act at some future time.

The principles regarding unlawful fettering were expressed by Justice Mason of the High Court in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54, as follows:

There is a general principle of law that a public authority cannot preclude itself from exercising important discretionary powers or performing public duties by incompatible contractual or other undertakings…

[T]he public interest requires that neither the government nor a public authority can by contract disable, itself or its officer from performing a statutory duty or from exercising a discretionary power conferred by or under a statute by binding itself or its officer not to perform the duty or to exercise the discretion in a particular way in the future.

That statement has been regularly repeated and applied. If a term in a contract does unlawfully fetter the exercise of a statutory discretion or performance of a statutory duty, that term will be void and unenforceable. If the term in question cannot be severed, the entire contract will be set aside.

An unlawful fetter may potentially arise in a number of contexts – hypothetically for example,  if a regulator made a future promise:

  • to exercise, or refrain from exercising, any discretionary powers – for example, a power to commence a formal investigation or enforcement proceeding, to issue an infringement notice, to suspend or cancel a licence, etc
  • to adopt a procedure or criteria for exercising a power that was different from the procedure or criteria required by the legislation – for example, a promise to issue a licence if certain contractual conditions were met (regardless of any other relevant factors that may arise in future).

The cases below provide examples in the context of a commercial agreement and an agreement regarding the settlement of a contentious matter. As the latter decision shows, the risk for a public authority in making an agreement which would unlawfully fetter its statutory discretions is the entire agreement may be unenforceable – regardless of who is seeking to enforce it.

Commercial contracts

The doctrine of unlawful fettering was considered by the New South Wales Court of Appeal in Peregrine Minerals Sands Pty Ltd v Wentworth Shire Council [2014] NSWCA 429.

That decision concerned an agreement between Wentworth Shire Council and a mining company, pursuant to which the Council agreed to acquire lands for a road connecting a mining operation to the highway, and the company agreed to design, construct and maintain the road. The agreement included a term that the land rates payable to Council by the mining company over the course of a 20-year period would be ‘$100,000 per annum… and adjusted annually in accordance with the Local Government Act.’ It was ambiguous what the latter reference to an annual adjustment was intended to refer to. Subsequently, the Council issued a rates notice for $360,190 – the mining company refused to pay, and argued that its rates liability was limited to $100,000, subject to certain adjustments.

The question of whether a contract imposes an unlawful fetter will turn on the legislation in question.  In this case, the  Local Government Act 1993 (NSW) required Council to assess rates annually and, further, it only adopt any assessment after setting out the proposal in a draft management plan subject to public scrutiny.

Where the contract would have predetermined the land rates payable for the next 20 years, it purported to prevent the Council from carrying out its duty under the Local Government Act, and the relevant term was held to be invalid.

The Court did not go on to say whether the entire contract would be invalid, or just the term in question, as the issue was not raised by the parties.

Terms of settlement

In Council of the City of Sydney v Wilson Parking Australia Pty Ltd & Anor [2015] NSWLEC 42, the New South Wales Land and Environment Court considered the doctrine of unlawful fettering relating to an agreement to resolve a dispute between Sydney City Council and Wilson Parking Australia.

Wilson Parking had operated a car park for a number of years without obtaining the consents required from Council under the applicable planning instruments. It had unsuccessfully applied to Council for consent on two different occasions. In each case, Wilson Parking appealed the Council’s decision to the Land and Environment Court.

While the second of these appeals was on foot:

  • Wilson Parking gave the Council an undertaking that it would cease to operate the car park within 28 days of the final determination of the appeals, if they were unsuccessful
  • Council undertook it would not initiate a separate proceeding under the Environmental Planning and Assessment Act 1979 (NSW) (EPAA) to restrain Wilson Parking from operating the car park.

Wilson Parking’s appeals were dismissed, but it continued to operate the car park. Council alleged the undertakings described above formed a binding agreement and applied for an injunction requiring Wilson Parking to cease operating the car park, in compliance with the agreement. Wilson Parking argued the agreement alleged by Council was invalid and could not be enforced, because it would have imposed an unlawful fetter on Council’s statutory powers.

On that point, Acting Justice Beech-Jones agreed with Wilson Parking, and held that Council’s undertaking not to bring any proceedings to enforce the EPAA was an unlawful fetter on its statutory discretion. As the Council’s undertaking could not be severed from the rest of the agreement, the agreement was invalid, and could not be enforced by either party.

It is important to note, the consequence of this decision was not to say that the Council was required to bring proceedings against Wilson Parking under the EPAA. Rather, it was required to have discretion to do so, and could not fetter the future exercise of that discretion.

It is also significant, in this case, it was the public authority who was seeking to enforce the agreement – however, because its own obligations under the agreement comprised an unlawful fetter, the contract as a whole was void and unenforceable.

Conclusion

As the cases show, it is important regulators and statutory authorities have regard to their statutory powers and duties when entering into a contract, whether it be in a commercial context or a contentious one.

If a contractual obligation assumed by a public authority would unlawfully fetter the exercise of a statutory discretion, there is a risk the entire contract will be unenforceable – regardless of who is seeking to enforce it.

Authors
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham | Special Counsel
Tel +61 3 9258 3648
matthew.peckham@maddocks.com.au
Liam Grigg 5cm 300ppi BW JPEG 2015 Liam Grigg | Lawyer
Tel +61 3 9258 3839
liam.grigg@maddocks.com.au

Regulatory bodies and other statutory decision-makers must ensure, when entering into contracts, they do not impose an unlawful fetter on their statutory discretions.

If a contractual term comprises an unlawful fetter on the exercise of a statutory duty or discretion, that term (and potentially the contract as a whole) will be void and unenforceable.

This article explains the general principles regarding unlawful fetters, and gives examples from two recent cases dealing with commercial contracts and terms of settlement in contentious matters.

The general rule regarding contracts

Broadly speaking, a statutory body that has a discretionary power or duty conferred on it by statute may not fetter its exercise of that power, or performance of that duty, by any contractual promise or commitment as to how it will act at some future time.

The principles regarding unlawful fettering were expressed by Justice Mason of the High Court in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54, as follows:

There is a general principle of law that a public authority cannot preclude itself from exercising important discretionary powers or performing public duties by incompatible contractual or other undertakings…

[T]he public interest requires that neither the government nor a public authority can by contract disable, itself or its officer from performing a statutory duty or from exercising a discretionary power conferred by or under a statute by binding itself or its officer not to perform the duty or to exercise the discretion in a particular way in the future.

That statement has been regularly repeated and applied. If a term in a contract does unlawfully fetter the exercise of a statutory discretion or performance of a statutory duty, that term will be void and unenforceable. If the term in question cannot be severed, the entire contract will be set aside.

An unlawful fetter may potentially arise in a number of contexts – hypothetically for example,  if a regulator made a future promise:

  • to exercise, or refrain from exercising, any discretionary powers – for example, a power to commence a formal investigation or enforcement proceeding, to issue an infringement notice, to suspend or cancel a licence, etc
  • to adopt a procedure or criteria for exercising a power that was different from the procedure or criteria required by the legislation – for example, a promise to issue a licence if certain contractual conditions were met (regardless of any other relevant factors that may arise in future).

The cases below provide examples in the context of a commercial agreement and an agreement regarding the settlement of a contentious matter. As the latter decision shows, the risk for a public authority in making an agreement which would unlawfully fetter its statutory discretions is the entire agreement may be unenforceable – regardless of who is seeking to enforce it.

Commercial contracts

The doctrine of unlawful fettering was considered by the New South Wales Court of Appeal in Peregrine Minerals Sands Pty Ltd v Wentworth Shire Council [2014] NSWCA 429.

That decision concerned an agreement between Wentworth Shire Council and a mining company, pursuant to which the Council agreed to acquire lands for a road connecting a mining operation to the highway, and the company agreed to design, construct and maintain the road. The agreement included a term that the land rates payable to Council by the mining company over the course of a 20-year period would be ‘$100,000 per annum… and adjusted annually in accordance with the Local Government Act.’ It was ambiguous what the latter reference to an annual adjustment was intended to refer to. Subsequently, the Council issued a rates notice for $360,190 – the mining company refused to pay, and argued that its rates liability was limited to $100,000, subject to certain adjustments.

The question of whether a contract imposes an unlawful fetter will turn on the legislation in question.  In this case, the  Local Government Act 1993 (NSW) required Council to assess rates annually and, further, it only adopt any assessment after setting out the proposal in a draft management plan subject to public scrutiny.

Where the contract would have predetermined the land rates payable for the next 20 years, it purported to prevent the Council from carrying out its duty under the Local Government Act, and the relevant term was held to be invalid.

The Court did not go on to say whether the entire contract would be invalid, or just the term in question, as the issue was not raised by the parties.

Terms of settlement

In Council of the City of Sydney v Wilson Parking Australia Pty Ltd & Anor [2015] NSWLEC 42, the New South Wales Land and Environment Court considered the doctrine of unlawful fettering relating to an agreement to resolve a dispute between Sydney City Council and Wilson Parking Australia.

Wilson Parking had operated a car park for a number of years without obtaining the consents required from Council under the applicable planning instruments. It had unsuccessfully applied to Council for consent on two different occasions. In each case, Wilson Parking appealed the Council’s decision to the Land and Environment Court.

While the second of these appeals was on foot:

  • Wilson Parking gave the Council an undertaking that it would cease to operate the car park within 28 days of the final determination of the appeals, if they were unsuccessful
  • Council undertook it would not initiate a separate proceeding under the Environmental Planning and Assessment Act 1979 (NSW) (EPAA) to restrain Wilson Parking from operating the car park.

Wilson Parking’s appeals were dismissed, but it continued to operate the car park. Council alleged the undertakings described above formed a binding agreement and applied for an injunction requiring Wilson Parking to cease operating the car park, in compliance with the agreement. Wilson Parking argued the agreement alleged by Council was invalid and could not be enforced, because it would have imposed an unlawful fetter on Council’s statutory powers.

On that point, Acting Justice Beech-Jones agreed with Wilson Parking, and held that Council’s undertaking not to bring any proceedings to enforce the EPAA was an unlawful fetter on its statutory discretion. As the Council’s undertaking could not be severed from the rest of the agreement, the agreement was invalid, and could not be enforced by either party.

It is important to note, the consequence of this decision was not to say that the Council was required to bring proceedings against Wilson Parking under the EPAA. Rather, it was required to have discretion to do so, and could not fetter the future exercise of that discretion.

It is also significant, in this case, it was the public authority who was seeking to enforce the agreement – however, because its own obligations under the agreement comprised an unlawful fetter, the contract as a whole was void and unenforceable.

Conclusion

As the cases show, it is important regulators and statutory authorities have regard to their statutory powers and duties when entering into a contract, whether it be in a commercial context or a contentious one.

If a contractual obligation assumed by a public authority would unlawfully fetter the exercise of a statutory discretion, there is a risk the entire contract will be unenforceable – regardless of who is seeking to enforce it.

Authors
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham | Special Counsel
Tel +61 3 9258 3648
matthew.peckham@maddocks.com.au
Liam Grigg 5cm 300ppi BW JPEG 2015 Liam Grigg | Lawyer
Tel +61 3 9258 3839
liam.grigg@maddocks.com.au