In March, the Full Court of the Federal Court of Australia dismissed the appeal brought by Mr Spencer against the decision of the Federal Court in Spencer v Commonwealth of Australia [2008] FCA 1256 (First Instance Proceedings). In Spencer v Commonwealth of Australia (2009) 254 ALR 234, Black CJ, Jacobsen and Jagot JJ agreed with Justice Emmett’s decision in the First Instance Proceedings that certain Commonwealth legislation was not invalid for violation of the Constitution, despite Mr Spencer alleging that this Commonwealth legislation effectively assisted the State of New South Wales in acquiring certain rights from property holders without requiring compensation on “just terms”. Rather, the Full Court followed Justice Emmett’s reasoning that the Commonwealth laws promoting natural resource management were not laws having the effect of the acquisition of property.

The First Instance proceedings

In the First Instance Proceedings Mr Spencer, the owner of the property known as “Saarahnlee”, sought orders that the Natural Resources Management (Financial Assistance) Act 1992 (Cth) and the Natural Heritage Trust of Australia Act 1997 (Cth) (the Commonwealth Legislation) authorised the acquisition of his property and did not provide for payment of “just terms”. The relief claimed by Mr Spencer included a declaration that the Commonwealth Legislation was invalid to the extent that it unlawfully authorised the acquisition of his property on unjust terms (and thus breached section 51(xxxi) of the Constitution), and an order that the Commonwealth return the private property acquired.

Mr Spencer conducted a farming enterprise and had certain rights and interests in Saarahnlee (which included land clearing rights, carbon sequestration rights and carbon abatement rights). He argued that certain of his property rights had been acquired as his actions were restricted by reason of the Native Vegetation Conservation Act 1997 (NSW) and the Native Vegetation Act 2003 (NSW) (the State Statutes). Upon that restriction taking effect, Mr Spencer submitted that carbon rights were appropriated by the Commonwealth. Mr Spencer submitted that the Commonwealth passed the Commonwealth Legislation for the purpose of giving effect to certain schemes between the Commonwealth and NSW to meet Australia’s obligations under the Kyoto Protocol, and so NSW assigned these carbon rights to the Commonwealth. Mr Spencer received no compensation for the taking of these carbon rights by the State Statues and submitted that his land was no longer commercially viable and that he was prevented from trading carbon property rights on any market, with the Commonwealth now having the benefit of such rights. Importantly, Mr Spencer did not challenge the validity of either of the State Statutes.

For Mr Spencer to succeed in the appeal, he needed to show that Justice Emmett had erred at law in his findings in the First Instance Proceedings. In the First Instance Proceedings, Justice Emmett considered that there were two questions:

  1. whether there had been an acquisition of property, and
  2. whether either piece of the Commonwealth Legislation is a law with respect to the acquisition of property.

As to the first question, Justice Emmett stated that neither of the State Statutes imposed an absolute restriction or prohibition. Rather, they prohibited native vegetation clearance without the necessary environment and planning consent or authorisation. Justice Emmett considered whether the withholding of this consent or authorisation could entail an acquisition and concluded that there was an arguable case that there had been an acquisition of Mr Spencer’s land by NSW.

Despite this, Justice Emmett found that a State, unlike the Commonwealth, can lawfully acquire land or other property on any terms authorised by its Parliament whether on just or unjust terms. His Honour held that the Commonwealth Legislation did not have the effect of the acquisition of Mr Spencer’s property and that the Commonwealth Legislation did not impose restrictions on the clearing of native vegetation. Justice Emmett held that there was a distinction between a grant provided by the Commonwealth to a State which was conditional on the State acquiring property on unjust terms, and a grant provided to a State merely on the understanding that it may be used to acquire property, either on just or unjust terms.

Conclusion

The Full Court of the Federal Court of Australia upheld the findings and reasoning of Justice Emmet in the First Instance Proceedings, namely, that even if there had been an acquisition of property by reason of the refusal to grant development consent for clearing of native vegetation of Saarahnlee, that acquisition was a consequence of the State Statutes. The validity of the State Statutes was not challenged by Mr Spencer and the Court found that there was no direct connection between the Commonwealth Legislation and the detriment claimed by Mr Spencer.

The Commonwealth Legislation was found to authorise nothing more than the making of financial grants to the States. Therefore, the Court found no reasonable basis on which Mr Spencer’s claim could succeed and his appeal was dismissed. To put this into the parlance of “The Castle”, it can be seen that to successfully argue that a property is being acquired on other than “just terms”, there must be more than an indirect “vibe” that section 51(xxxi) of the Constitution is being breached, but rather a direct Commonwealth violation of that section.