Challenges to the validity of local council levies

Background

Redland City Council levied special charges on the respondents and others to fund capital and operational expenditure for works performed on waterways adjacent to the respondents’ land. The Council was statutorily required to carry out the works.¹ The Council passed resolutions to levy special charges in accordance with s 94(2) of the Regulation 2012.² The special charges were then levied by issuing rate notices.³

After the work was carried out, the Council:

• had unspent or surplus money from the special charges raised; and
• realised that the resolutions to levy the special charges were invalid. There were no allegations that the Council deliberately made invalid resolutions. The resolutions were invalid because they did not comply with the requirement under s 94(2) of Regulation 2012 to identify an “overall plan” which stated the estimated cost of carrying out, and the estimated time for carrying out, the overall plan.⁴

The Council refunded the unspent portion, however, it refused to refund the spent special charges on the basis that the respondents and others had received a benefit from the works.

The respondents (in this proceeding) brought Supreme Court of Queensland proceedings against the Council for recovery of the unrefunded portion. The respondents’ claims were:

• first, the respondents claimed the unrefunded portion as a statutory debt due by way of refund under the regulations relating to “special rates or charges incorrectly levied”; and
• second, the respondents claimed the unrefunded portion as a common law claim for restitution, being moneys paid under a mistake of law.

The primary judge found that the respondents had succeeded in their claim for statutory debt but failed in their restitution claim.

On appeal and cross-appeal, the Queensland Court of Appeal found differently: the respondents failed in their statutory debt claim but succeeded in their restitution claim.

The respondents sought leave of the High Court to cross-appeal the statutory debt finding and the Council sought leave to appeal the restitution finding.

Could the ratepayers get the special charges back under statute as a debt?

The High Court answered no, unanimously dismissing the respondents’ cross-appeal.

The return provision for special charges is found in s 98 of Regulation 2012.

98 Returning special rates or charges incorrectly levied

(1) This section applies if a rate notice includes special rates or charges that were levied on land to which the special rates or charges do not apply or should not have been levied.

(2) The rate notice is not invalid, but the local government must, as soon as practicable, return the special rates or charges to the person who paid the special rates or charges.

(emphasis added)

The return provisions do not apply where there is no valid resolution to levy the special charge. In other words, the return provisions do not operate if the resolution itself is not validly made. This is because the language in s 98 is predicated on the existence of “special rates or charges” capable of being levied on land but were levied on land to which they do not apply.⁵

Could the ratepayers get the special charges back under a claim for restitution?

By majority, the High Court dismissed the Council’s appeal and found that the respondents were entitled to a restitution claim for the unspent special charges.

The respondents were held to have a prima facie claim for “restitution of unjust enrichment”.⁶ Within “unjust enrichment” are the concepts of a “benefit”, here being the Council’s receipt of money,⁷ and “injustice”, being the respondents’ payments made by mistake of law and without an obligation to do so because of the invalid resolutions.⁸

The key question, however, was whether the Council could successfully raise the common law defence of good consideration. The Council raised this defence, arguing that the ‘consideration’ or basis for its receipt of the respondents’ payment was to confer a corresponding benefit upon the respondents, and that it did confer a benefit.⁹ Against this background, the Act provides that a Council may levy special rates and charges “for services, facilities and activities that have a special association with particular land because”, among other things, the land or its occupier “specially benefits from the service, facility or activity”.¹⁰

The High Court’s majority held there were three independent reasons as to why the Council’s defence of good consideration failed:¹¹

1. Council was required to perform the works under statute: The Council was obliged by statute to perform the relevant works, which was independent of the levying or receipt of special charges.¹² The respondents did not obtain a “benefit” in the sense recognised by common law.¹³
2. No “benefit” as within the law of unjust enrichment: Generally, it is not a benefit to receive a service that was not requested, and not freely accepted with an opportunity for the respondents to reject the service. Additionally, the relevant works were performed on public land.¹⁴ Although the Council tried to argue that the respondents and other group members’ land increased in value from the works, the evidence was that it was not possible to objectively quantify this “enhancement” for any individual respondent or group member.¹⁵ Further, it could not be a benefit in circumstances where the respondents had no intention to sell their respective land or to use it in order to obtain a loan.¹⁶
3. The Act would be “stultified”: “The purpose of these cost and time safeguards in [an overall] plan is to ensure that care is taken by a local council before incurring substantial costs that will ultimately be borne by a section of the community.”¹⁷ The defence of good consideration needs to be excluded so as to not undermine the purpose of the regulations.¹⁸

Conclusion and takeaways

A Council must decide, by resolution at its budget meeting for a financial year, what rates and charges are to be levied for that financial year.¹⁹ If it decides it will levy special rates or charges, then the High Court’s decision illustrates the importance of ensuring that any resolutions to levy special rates are validly made.