Port Stephens Council is under challenge over a Nelson Bay development

A PORT Stephens Council drainage saga more than four decades in the making could leave Newcastle ratepayers millions of dollars out of pocket if a council merger goes ahead, Newcastle Council has been warned.

A NSW Supreme Court case launched by developer David Vitnell, and joined by more than 100 home owners from the Lagoons Estate at Nelson Bay, is a ticking time bomb and a risk Newcastle City Council is unlikely to be aware of, Port Stephens MP Kate Washington said.

Angry: Nelson Bay Lagoons Estate residents (from left) Bill Park, George Pagacs, Gloria Grayson, Randall Grayson and Roy Johnson are taking Port Stephens Council to court over a decades-old drainage saga. Picture: Jonathan Carroll.

Angry: Nelson Bay Lagoons Estate residents (from left) Bill Park, George Pagacs, Gloria Grayson, Randall Grayson and Roy Johnson are taking Port Stephens Council to court over a decades-old drainage saga. Picture: Jonathan Carroll.

Port Stephens councillor Geoff Dingle is more blunt.

“In an amalgamation between Newcastle City Council and Port Stephens Council, all Port Stephens might have to bring to the table is a massive legal bill,” Cr Dingle said.

Mr Vitnell and Lagoons Estate residents are seeking a court declaration that Port Stephens Council has not complied with a 2006 NSW Court of Appeal decision ordering the council to complete drainage works.

The 2006 decision came after decades of complaints from two owners of the Lagoons Estate, after the council approved a neighbouring housing development in the 1970s and carried out road drainage works which included water discharges directly onto the Lagoons Estate.

In the 1990s the council carried out further roadworks that increased the amount of discharge to the Lagoons Estate, and failed to carry out mitigation works despite written commitments to do the work.

In 2002 new owner Brien Cornwell, of Melaleuca Estate Pty Ltd, took legal action to force the council to stop the stormwater discharges, and spent $7.5 million on an internal drainage system as part of a council approval for the first two stages of the Lagoons Estate housing development. Port Stephens Council spent about $1.3 million to reduce water entering the Lagoons Estate.

Mr Cornwell’s companies went into liquidation and Lagoons Estate was bought by Mr Vitnell, who launched Land and Environment Court action against the council in 2015 over drainage for stage three of Lagoons Estate. The court found the neighbouring housing estate continued to contribute water to the Lagoons Estate despite drainage work.

In November Mr Vitnell and Lagoons Estate residents launched their Supreme Court bid to have the council complete works ordered by the Court of Appeal in 2006.

Cr Dingle estimated the council had spent $9 million in drainage works and court costs over the years, and faced a possible $5 million bill for drainage works if ordered to comply with the 2006 decision, as well as legal costs and possible damages.

The council had failed to appropriately report the matter to the public, he said.

Ms Washington said the potential risks “have always been there, and should have been stated”.

“This is a case that has been very poorly managed.”

Port Stephens Council sought leave to appeal to the High Court of Australia in June 2006 after a NSW judge found it had not acted “in good faith” over the Lagoons Estate drainage saga. It lost.

After the council argued it had the right to “carry off water, mud and filth” from public roads, “collect and concentrate” it and put it on a private property, the High Court refused the council a full appeal hearing.

Its prospects for success were low, the court ruled, and ordered the council – and ultimately Port Stephens ratepayers – to pay the developer’s hefty legal costs.

In March 2006 the NSW Court of Appeal judge who found that the council had not acted in good faith, Justice Roger Giles, blasted it for showing “a signal disregard of the rights of the owner of the land”, and later the developer Brien Cornwell of Melaleuca Estate.

“The negligence in the present case is in my view stark,” Justice Giles said of the council, after evidence the council directed a discharge pipe from its road drainage works on to the Lagoons Estate land, said it would do work to reduce flooding but didn’t, and in response to complaints told the owner to “be realistic and cope with the development”.    

Justice Giles granted an injunction stopping the council from discharging road drainage water on to the Lagoons Estate and gave it 18 months to establish a drainage system for the Seabreeze Estate that did not put stormwater directly onto the Lagoons Estate.

Current Lagoons Estate owner David Vitnell is arguing in court that the council has not complied with the 2006 order by doing the work.

More than 100 residents of Lagoons Estate asked Local Government Minister Paul Toole in February to intervene before more court action over drainage and Port Stephens Council.

Residents’ group president Randall Grayson told Mr Toole the council had rejected repeated requests to view film and photographic evidence of the damage caused to the estate by stormwater running off the neighbouring property and road.

Residents have also accused the council of preferring action in court to negotiation, despite rulings the council had not acted in good faith on the drainage issue.

Mr Grayson bought into the estate six years ago, when homes were selling for up to $700,000. He was unaware of the drainage issues until rain events that left the estate scoured, with polluted stormwater pouring into the protected lagoon that gave the estate its name.

“I’ve written to every councillor on this, so they can’t say they weren’t warned,” he said.

Port Stephens mayor Bruce Mackenzie and general manager Wayne Wallis did not respond to phone and email questions.