Planning & Environment Partner Jim Griffiths acted for Muswellbrook Shire Council (Council) in landmark proceedings. On 21 November 2023, their Honours Justice Leeming, Justice Payne and Justice Mitchelmore found in favour of the Council in the NSW Court of Appeal.

The decision is an important one for NSW local councils as it confirms that the 12-month limitation period imposed by the Recovery of Imposts Act 1963 (NSW) (Imposts Act) applies to council rates and further closes off arguments that section 527 of the Local Government Act 1993 (LG Act) gives rise to a right to refund of rates.

Impact of this case for NSW local councils

This judgment confirms that any claim for a refund of overpaid rates must be made within 12 months after payment or the right to claim will be lost. It also adds weight to the argument that section 527 of the LG Act does not provide a right to any refund of rates if land is reclassified.

As the case establishes that a ratepayer has no right to a refund of rates more than 12 months after payment, 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 (Land). The Land is situated within the Council’s local government area and is contained in two separate rating assessments.

The Council re-categorised 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 in August 2018 seeking a reclassification of the Land as farmland.

Although Mangoola was unsuccessful in the Land and Environment Court, the NSW Court of Appeal overturned the Land and Environment Court decision in respect of the larger of the two rating assessments (Relevant Assessment), remitting the matter back to the Land and Environment Court to be determined in accordance with the Court of Appeal’s decision. The second assessment remained classified as mining.

Mangoola continued to pay rates on the Relevant Assessment calculated at the mining rate from the date of the original reclassification by the Council until after the Court of Appeal decision in March 2021.

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.

No order was sought or made for a refund of the overpayment of rates in the earlier Land and Environment Court or NSW Court of Appeal proceedings.

Mangoola commenced proceedings in both the Class 4 jurisdiction of the Land and Environment Court and the Supreme Court of NSW claiming that it was entitled to a refund of the overpayment of rates on several bases. The Land and Environment Court proceedings were transferred to the Supreme Court and both proceedings were heard together.

In the Supreme Court, Mangoola claimed a refund of the rates as 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. It further argued that it was entitled to an order for refund under section 674 of the LG Act due to the Council’s failure to provide it with a refund under section 527 of the LG Act.

In response, the Council argued 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. It also argued that section 527 of the LG Act does not provide a right of refund to a ratepayer following a reclassification of land. The last rates instalment in issue was paid inside the 12 months before the proceedings were commenced so was conceded by the Council as repayable.

The Imposts Act prohibits 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 were a “tax, fee charge or other impost” under the Imposts Act.

Section 527 of the LG Act 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”.

His Honour Acting Justice Basten did not accept this argument and instead accepted the Council’s position that the words “appropriate adjustment of rates” in section 527 refer to the service of a notice that is required to effect an adjustment of rates, and that the section is not concerned with the recovery of rates. In doing so, His Honour supported the dicta of Emmett AJA in Bayside Council v Karimbla Properties (No.3) (2018) 99 NSWLR 66.

NSW Court of Appeal Proceedings

Following the Supreme Court decision, Mangoola commenced proceedings in the NSW Court of Appeal.

Mangoola’s case on appeal centred on claims:

• it had a right under section 527 of the LG Act to recover the overpaid rates, and
• that alleged right was not subject to the 12-month period imposed by section 2(1) of the Imposts Act because the claim was not one to recover money but rather a claim for a credit against future rates and was not a claim for the recovery of money on restitutionary grounds.

In response, the Council argued that:

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

The Court dismissed Mangoola’s appeal and held that the primary judge had correctly found that Mangoola’s claim was barred by the operation of the Imposts Act.

Although the Court’s finding on the operation of the Imposts Act resolved the proceedings in the Council’s favour, and it was seen as not appropriate for the Court to make a ruling on whether section 527 gives rise to a right to refund, the Court approved of the primary judge’s reasoning in seeing that section 527 does not grant a ratepayer a right of refund, and of his reliance on the dicta of Emmett AJA in Bayside.

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