The Sirius decision has set out the framework for the decision-maker's analysis of undue financial hardship in decision on heritage listing.

Beauty is in the eye of the beholder ‒ a proverb that might have been invented for Brutalist architecture. It does, however, have its defenders, and their battle to protect an example of it has also given us some better insight into the State's heritage laws, in particular how the Minister can determine a heritage listing might cause the owner undue financial hardship, or decline to list a building (Millers Point Community Assoc. Incorporated v Property NSW [2017] NSWLEC 92).

The sell-off of the Sirius building and the recommendation for heritage listing

Since 2014, the NSW Government has adopted a policy of selling public housing stock in iconic locations such as Millers Point and the Rocks in Sydney; the proceeds of those sales are to be invested in new public housing.

One public housing building in a prominent location in the Rocks identified for sale was the "Sirius" building. Constructed in the 1980s in a Brutalist architecture style, the building enjoys expansive views across Sydney Harbour, including the Sydney Opera House. The building is owned by Property NSW and leased to New South Wales Land and Housing Corporation (LAHC).

In response to the Government's announcement of the proposed sale, the National Trust of Australia (NSW) nominated Sirius for listing on the State's Heritage Register to the NSW Heritage Council. The Council, established under the Heritage Act 1977 (NSW), advises the Minister for Heritage on matters of State heritage significance, including recommendations for listing.

Both Property NSW and LAHC strongly objected to any listing, because it would adversely affect the value of the property, and therefore how much the Government would receive from the proposed sale. Property NSW said the fall in value could be as great as $70 million.

In December 2015, the Council was satisfied that Sirius was of sufficient aesthetic and rarity value to warrant its listing, and made that recommendation to the Minister.

The Minister decides not to list the Sirius building

The Minister is not bound by the Council's recommendation, and in July 2016 decided not to list the building. It was this decision that was challenged by a resident action group, Millers Point Community Association Inc. (MPCA), under the open standing provisions of the Act which permit any person to bring proceedings to restrain or remedy a breach of the Act.

To understand why it mounted the challenge, you need a bit of background on the Heritage Act.

Under section 32, the Minister can direct the Council to list an item on the Register, but only if the Council has recommended that the item be listed and the Minister has considered various matters, including whether the listing would cause "undue financial hardship to the owner". Section 34 sets out the Minister's obligations when the Council makes a recommendation for a listing. One of these is that the Minister must decide whether or not to direct the listing, and then inform the Council of the decision.

In this instance, the Minister was exercising the power under section 34 of the Act which simply required him to decide whether to list the building or not, and advise the Council of the decision. However, the Minister's published decision expressly stated that having "considered the matters set out in section 32(1)", he had determined not to accept the Council's recommendation. Two of the reasons then given were:

the building "may" meet the threshold of State heritage significance, but there were conflicting views as to whether as an example of Brutalist architecture it had such merit as to be of State heritage significance; and

"whatever the heritage significance" of the building, even at its highest, this is outweighed by the "undue financial hardship" its listing would cause its owner by diminishing what would otherwise be its sale value. This could potentially represent foregone funds for additional social housing.

MPCA challenged the Minister's decision essentially on two bases:

firstly, the Minister had erred in his interpretation of "financial hardship"; and

secondly, that to properly consider whether there was "undue" financial hardship, the Minister necessarily had to first determine the heritage significance of the building, which he had evidently failed to do on the terms of the decision.

Acting Judge Molesworth in the NSW Land & Environment Court agreed with MPCA. In particular, he found that, although the Minister was not obliged to consider the factors in section 32(1) in making his decision, having done so, he was bound to do so according to law.

Financial loss ≠ financial hardship

Acting Judge Molesworth held that, while a financial loss (such as a diminution in value of land) may result in "financial hardship", mere evidence of a loss does establish it without something more. The decision-maker must consider the owner's (in this case the State of NSW's) particular financial circumstances.

The Minister had therefore erred when he accepted that the price differential on the prospective sale of the building was "axiomatically" financial hardship.

Is the financial hardship “undue”?

Acting Judge Molesworth held that the word "undue" requires a qualitative assessment. This is done by reference to the effect the listing would have, and the heritage value of the item considered for listing.

The decision-maker must consider the effect that the restrictions under the Act would have on the owner's ability to deal with the item (including restrictions on development), as well as any benefits that might accrue (for example availability of special funding). The Minister had not undertaken this analysis.

Critically, in order to determine whether the listing would result in "undue" financial hardship, the Court found that the Minister must first have reached a preliminary determination of the State heritage significance of the Sirius building. It was clear on the terms of the decision that the Minister had made no such determination.

What does the Minister have to consider under section 34?

So far, the Court had been considering what is needed to make a decision under section 32. What if the Minister had not referred to factors in section 32 in making his decision?

MPCA had argued that that in order for the Minister to make a decision under section 34, he had to consider the matters listed in section 32(1). This point has never been considered by the Court.

Acting Judge Molesworth disagreed with MPCA, noting that if the Minister had not embarked upon the pathway of embracing section 32(1), he could have simply followed the alternative pathway under section 34 which "is to be expected when a decision not to direct listing was within consideration".

All section 34 required was for the Minister to consider the matters raised with the Heritage Council in the submissions it received, and consider the matters which the Council had itself considered in its report recommending the listing.

Key take-outs for heritage listing

The Sirius decision has made it clear that the Minister can decline to direct a building be listed on the State Heritage Register via section 34 without considering the matters in section 32.

Whether this makes much of a difference in practice, however, remains to be seen. If the matters raised with the Council by submissions, or by the Council itself, must be considered in making a decision under section 34, it's quite possible that the Minister must still consider pretty much the same issues. Nonetheless, the clarification is welcome.

What has more practical impact is the Court's guidance on undue financial hardship. Its decision has set out the framework for the decision-maker's analysis of undue financial hardship, which will mean future decisions will have more rigour.

The Sirius case also emphasises the importance for administrative decision-makers to exercise care in the manner in which a decision is made and to ensure that the statutory basis for the decision is sound. While the judgment is a setback, it remains open for the Minister to remake the decision according to law, with the benefit of the Court's guidance that it is unnecessary for the Minister to consider whether the listing would cause financial hardship, let alone undue financial hardship.