Planning & Environment Partner Jim Griffiths acted for Muswellbrook Shire Council in these landmark NSW proceedings. On 27 March 2023, His Honour Justice Basten found in favour of the Council in the Supreme Court of NSW.

Although ostensibly a case seeking orders for repayment of overpaid council rates, the judgment establishes a number of important principles for NSW local councils.

Impact of this case for NSW local councils

This judgment establishes that section 527 of the Local Government Act 1993 (NSW) (LGA) does not provide a refund right for overpaid rates if rateable land is recategorised. It also confirms that the 12-month limitation period provided by the Recovery of Imposts Act 1963 (NSW) (Imposts Act) applies to council rates – thus any claim for refund of overpaid rates must be made within 12 months after payment or the right to claim will be lost.

We recommend that all councils bring the implications of this case to the attention of their rating staff.

Background to the case

During the rating years 2016/17 and 2017/18 (relevant years), Mangoola Coal Operations (Mangoola) was and continues to be the owner and operator of a large area of land surrounding an open-cut coal mine in the Hunter Valley, NSW (land). The Land is situated within the Council’s local government area and is contained in two separate rating assessments.

The Council recategorised the land from ‘farmland' to ‘mining’ for rating purposes for the relevant years. This reclassification meant that Mangoola was required to pay a higher mining rate than the farmland rate paid in previous years.

Following an unsuccessful application to have the Council reclassify the land as farmland, Mangoola commenced proceedings in the Land and Environment Court of NSW (L&E Court) in August 2018 seeking a reclassification of the land as farmland.

Although Mangoola was unsuccessful in the L&E Court , the NSW Court of Appeal overturned the L&E Court decision in respect of the larger of the two rating assessments (Relevant Assessment), remitting the matter back to the L&E Court to be determined in accordance with the Court of Appeal’s decision.

Mangoola continued to pay rates on the Relevant Assessment calculated at the mining rate until after the Court of Appeal decision in March 2021. No order was sought or made for a refund of the overpayment of rates in the earlier proceedings.

The result was that the land within the Relevant Assessment was found to have been incorrectly classified as mining from 1 July 2016 with Mangoola having overpaid rates by the difference between the applicable farmland rate and the mining rate until May 2021. The overpayment was agreed to be over $3 million.

Mangoola commenced these proceedings in both the Class 4 jurisdiction of the L&E Court and the Supreme Court of NSW claiming that it was entitled to a refund of the overpayment of rates on a number of bases. Both proceedings were transferred to the Supreme Court and heard together.

The contentions made by Mangoola included that:

• it had paid the rates as a result of a mistake of law that the land within the Relevant Assessment was properly categorised as mining rather than farmland, and
• it was entitled to relief under section 674 of the LGA due to the Council’s failure to provide it with a refund under section 527 of the LGA.

In response, the Council argued, among other things, that:

• the operation of the Imposts Act prohibited the repayment of nearly all the amount claimed, other than the last instalment, as those amounts were paid more than 12 months before the proceedings for recovery were commenced, and
• section 527 of the LGA does not provide a right of refund to a ratepayer following a reclassification of land.

The effect of the Imposts Act is to prohibit a person from recovering any payment falling within the Act’s definition of a “tax, fee charge or other impost" more than 12 months after its date of payment.

Prior to this case there had been no definitive judicial statement on whether council rates are a tax within the Imposts Act.

Section 527 of the LGA reads: “A council must make an appropriate adjustment of rates paid or payable by a rateable person following a change in category of land.”

Mangoola claimed that it was entitled to a refund of the overpaid rates as use of the term “adjustment” in section 527 meant “refund”.

The Court did not accept this argument and instead accepted the Council’s position that the reference to “appropriate adjustment of rates” in section 527 is to the service of a notice that is required to affect an adjustment of rates, and that the section is not concerned with the recovery of rates.

Further information / assistance regarding the issues raised in this article is available from the authors, Jim Griffiths, Partner or your usual contact at Moray & Agnew.