Posted on May 8, 2024 by Stuart Simington and Fayette Vermeer 3

Can a developer get a refund of development contributions that were imposed unlawfully?

Under s 7.3(1) of the Environmental Planning and Assessment Act 1979 (‘EPA Act‘), monetary contributions paid under a s 7.11 condition in accordance with the conditions of a development consent or with a planning agreement must be held and applied towards the purpose for which the payment was required.

This is supported by s 409(3)(b) of the Local Government Act 1993, which provides that money that is subject to the provisions of any other Act (being provisions that state that the money may be used only for a specific purpose) may be used only for that purpose.

The Courts have held that there is no power under the EPA Act for Councils to be required to refund development contributions duly imposed by a condition of development consent and paid by a developer in carrying out that consent (see Frevcourt Pty Ltd v Wingecarribee Shire Council (2005) 139 LGERA 140).

This raises the question as to whether a contributor could ever obtain a refund of contributions if the condition under which the payment was required is declared to have been imposed unlawfully or invalidly?

Unlawfully levied funds

In the recent case of Redland City Council v John Michael Kozik & Ors [2024] HCA 7 (‘Kozik‘), a Queensland local council had unlawfully levied special charges on landholders for the purpose of carrying out works to adjacent waterways. When the council became aware that the charges were imposed unlawfully, it refunded the portion of the special charges that had not already been spent but retained the amount that it had already spent on the works.

The High Court considered whether:

1. the landholders were entitled to restitution of moneys that they mistakenly paid to the council as special charges under the unlawful charges; and,
2. whether the council had a defence to the landholder’s claim for restitution.

Restitution

The High Court held that the respondent landowners had a valid common law claim for restitution on the basis that they had paid the special charges to council by mistake of law and without an obligation to do so.

Defence of Good Consideration

To resist the landowners’ claim for restitution, the council argued that the relevant works had enhanced the respondents’ enjoyment and value of their land, and therefore that each respondent had benefitted from the council’s provision of the works funded by the special charges. The landowners’ would be unjustly enriched if they received a refund of the funds already spent by the council.

The majority of the High Court rejected this ‘good consideration’ defence for the following three reasons:

1. the council was obliged by law to perform the relevant works, regardless of the works being funded by the special charge;
2. the landowners did not benefit from the relevant works as they had not requested, freely accepted, or had the opportunity to reject the works performed by the council, and the landholders may also not have obtained any financial advantage in terms of an increaese in the value of their land;
3. to recognise the defence of good consideration would stultify the operation and undermine the purpose of the laws and regulations governing the special charges unlawfully imposed.

Defence of Change of Position

The Court recorded in the judgment that the council failed to plead and disavowed any defence based on ‘change of position’. Accordingly, the court did not consider whether the council’s good faith expenditure of the funds was a change of position that should defeat the landowners’ claim for restitution.

Implications of Kozik 

Where a condition of a development consent requiring a s7.11 contribution is unlawfully or invalidly imposed (for example, if it was imposed otherwise than in accordance with a contributions plan), a contributor might argue for a refund on grounds similar to those in Kozik.  This claim may still have limited prospects of success in our view for the reasons below.

Restitution

Firtsly, in NSW, the Recovery of Imposts Act 1963 prevents the recovery on restitutionary grounds of any s7.11 contribution by a person more than 12 months after the contribution was paid. Therefore, the window in which to commence any restitution proceedings is very short.

Defence of Change of Position

The defence of change of position to a restitutionary claim requires the defendant to establish a good faith adverse and irreversible change of position; for example, a council which, in good faith and in reliance on a payment received (such as a s7.11 contribution), incurs expenditure that would not have been incurred in the ordinary course of things. An example would be expenditure of the contribution on the works for which the funds were received albeit that the s7.11 condition was imposed unlawfully.

As the High Court’s decision did not consider whether the council’s good faith expenditure of the charges could constitute a ‘change of position’ defence, Kozik does not appear to have significant implications in this regard.  It is unclear how the majority would have dealt with that defence had it been raised.

You can read the High Court’s decision in Kozik here. The issues are complex and any particular facts scenario requires detailed consideration. If you have any questions, please leave a comment below or contact Stuart Simington on 8235 9704 or Fayette Vermeer on 02 8235 9730.