Rates and charges: High Court of Australia orders council to pay back invalid charges

In its recent decision in Redland City Council v Kozik [2024] HCA 7, the High Court of Australia ordered a Queensland council to pay back to certain ratepayers amounts which those ratepayers had paid in satisfaction of purported ‘special charges’ (similar to a separate rate in this State) which were invalidly levied by the council.

Importantly, the council accepted at all stages in the litigation that the special charges were invalid, due to procedural defects. The litigation instead related to whether the council could keep the money anyway, despite the invalidity of the special charges.

The High Court’s conclusion that the money must be paid back might sound unsurprising. The majority judgment also commenced in particularly emphatic fashion, as follows:

'A local council demands, and is mistakenly paid, money by ratepayers. The local council failed to comply with the statutory requirements to demand or to receive the money. Can the local council keep the money on the basis that it has performed a service, despite the service being one that it was required to perform in any event, and despite the service being one which was not requested by the ratepayers, was not freely accepted by the ratepayers, and may even have been of no financial advantage to the ratepayers? The answer is “no”.'

However, it is noteworthy that the High Court only reached this conclusion by a 3:2 majority. That is, a minority of two out of five judges ruled that the council can in fact keep the money. The conclusion also depended largely on a number of unique factors in this case.

Facts

Between July 2011 and July 2017, the Redland City Council in Queensland purportedly levied ‘special charges’ upon ratepayers with respect to land adjacent to water frontage. The charges were intended to fund improvements and other works with respect to those waterways.

The council later became aware that each of its resolutions to levy the special charges were invalid.

The council refunded the unspent portion of the special charges, but refused to refund the spent portions. In the council’s view, that money had been spent on services which were to the benefit of those who paid, and so should not be refunded.

Some of the residents formed an action group to recover the spent funds. The action group argued that they were entitled to recover the spent funds, on two different bases.

The first basis related to unique Queensland legislation. The High Court unanimously dismissed that basis, and we do not examine it here in this article.

The second basis relied upon general common law and equitable principles of ‘restitution’ which apply in all Australian jurisdictions. The parties’ respective arguments can be summarised as follows:

The ratepayers’ argument

In short, the ratepayers argued that because they only paid the money under a mistaken belief that they were legally required to pay the money, and because the council was unjustly enriched as a result, they were entitled to recover that money.

The council’s argument

The council accepted that the ratepayers were not required to pay the purported special charges. However, the council denied that it was ‘unjustly enriched’. This was essentially on the basis that the council spent the funds on services for the benefit of those who paid the special charges, and so had provided ‘good consideration’.

The High Court’s decision

The majority determined that the council was indeed unjustly enriched. Important factors in reaching this conclusion included that:

• the relevant works were performed on the basis of statutory obligations to do so, not on the basis of the payment of special charges;
• the respondents did not request or freely accept the works, and possibly obtained no financial or other benefit (or any benefit was impossible to objectively quantify for each individual premises); and
• an outcome by the which council could keep the funds paid to it by some ratepayers, but could not then pursue those who did not pay, would be inequitable.

On this basis, the Court ordered that the council pay back the spent funds.

It is important to note that the mere fact that the special charges were invalid was not enough to entitle the ratepayers to recover the money spent. The ratepayers needed to demonstrate more.

What this means for councils

This case demonstrates that the law of restitution is much more nuanced that might be appreciated. Whether or not a council can keep money paid by mistake is not always a simple question to answer. Factors including the type and purpose of the relevant rate or charge, whether the rate or charge was invalid (as opposed to cases where a valid rate or charge is assessed wrongly in a particular case), and the conduct of the parties can all have bearing on what the answer might be in any particular case.

Further, the case demonstrates that the onus is on the party who has mistakenly paid the money to bring legal proceedings for restitution. Accordingly, considerations such as whether a person has brought their action within the relevant statutory time limit will also be relevant in some cases.

However, perhaps most fundamentally, this case serves as a powerful reminder of the importance of ensuring that rates and charges are declared properly in the first place. It is also a timely reminder, given that councils will presently be considering their rates and charges for the 2024/25 financial year.

It is particularly important for councils which may be introducing new rates or charges or otherwise changing the basis of rating to take extreme care to ensure all necessary procedural steps are followed and that resolutions are formulated validly.

Norman Waterhouse Lawyers are experts in assisting South Australian councils to comply with all legislative and common law obligations, including those relating to the declaration and imposition of rates and charges.

Further, where there are errors in the declaration or imposition of rates, either generally or with respect to any specific property, we have extensive experience in advising on the best course of action based on the specific circumstances.

For more specific information on the case described in this article, or regarding rates and charges generally, please contact Felice D’Agostino on +61 8 8210 1202 or FDAgostino@normans.com.au, Dale Mazzachi on +61 8 8210 1221 or DMazzachi@normans.com.au or Chris Alexandrides on +61 8 8210 1299 or CAlexandrides@normans.com.au at Norman Waterhouse Lawyers.