The state government's push for council amalgamations has suffered a major setback after the Minister for Local Government Paul Toole conceded there had been errors in the inquiry process in relation to the amalgamation of Strathfield Council with Canada Bay and Burwood councils.
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Counsel for the minister told the Land and Environment Court the government was withdrawing from the case and would pay Strathfield council's costs. The orders restrain the government from using the flawed Boundaries Commission report as the basis for implementing this merger.
Other councils - including Shellharbour, whose case is due to be heard on Friday - are appealing the government's decision to force mergers on similar grounds. It was unclear whether the government would concede on other challenges.
But the legal setback on Tuesday is not expected to affect the 42 councils that were amalgamated into 19 new entities this month.
The co-convener of Save our Strathfield, Nella Hall, said there was finally light at the end of the tunnel for residents who had opposed council amalgamations for years.
"It's a win for residents in NSW and democracy," she said.
The government issued a short statement.
"Due to a legal technicality in the [Boundaries Commission] delegate's report on the proposed merger of Strathfield, Burwood and Canada Bay councils, the delegate will consider the matter and reissue his report," Mr Toole said.
"As this matter is currently before the courts, it would not be appropriate for me to comment further," he said.
The decision means that if the government wants to proceed with this merger it may need to order fresh Boundaries Commission hearings and follow the requirements of the Local Government act more closely.
It may not prevent the merger altogether.
Greens local government spokesman David Shoebridge said: "When a government tries to do a job on local communities and cut legal corners and rush through an undemocratic process it is no wonder they trip up."
The cases involving Mosman, Hunters Hill and North Sydney councils are back before the court at 2pm.