Posted on September 19, 2013 by Lindsay Taylor

Council Contracts Limiting Statutory Powers – Court Upholds Council Dishonouring Rates Agreement

The recent decision of Rein J in the Equity Division of the Supreme Court of NSW in Wentworth Shire Council v Bemax Resources Limited and Ors [2013] NSWSC 1047 is a timely reminder that well-established legal rules govern the validity of contracts entered into by councils with third parties that purport to limit the exercise of the council’s statutory powers.

The proceedings concerned rate notices issued by the Council to the holders of two mining leases. The defendant companies refused to pay the full amount shown on the rate notices claiming that an agreement entered into on their behalf with the Council in 2005 limited the amount of rates that were payable annually by them.

The agreement provided that the ‘land rates‘ payable to the Council for a 20 year period were to be ‘$100,000.00 per annum commencing 1st January 2006 and adjusted annually in accordance with the Local Government Act.

Initially, in April 2006, the Council issued a notice to the defendant companies containing an invoice for ‘an ex gratia rate charge‘ for $100,000.00, but in September of the same year it issued a ‘Supplemental Rate Notice‘ for $360,190.00 and continued to issue rate notices in subsequent years in similar amounts.

The defendant companies argued that the agreement limited rates to $100,000.00 per annum or, alternatively, the Council was estopped by its conduct from contending otherwise.

However, the Council argued that, despite the agreement, it had no legal power to limit rates in the manner provided for in the agreement as this would constitute an impermissible fetter on its duty to assess rates each year in accordance with the Local Government Act 1993 (‘Act‘).

Chapter 15 of the Act contains various provisions relevant to the agreement dealt with in this case. Most importantly:

  • s494 requires ordinary rates to be made and levied annually,
  • s534 provides that each rate is made for the year in which the rate is made or the next year,
  • ss497-499 provide for the structure and determination of the amount of a rate,
  • s564 allows a council to accept payment of rates in accordance with an agreement made with a ratepayer.

The Court rejected an argument by the defendant companies that s564 provided the statutory basis of the agreement entered into with the Council. The Court held that s564 clearly related to the payment of rates already made and levied and did not authorise an agreement as to what the amount of the rates should be.

The Court held that the fixing of a rate for a 20 year period at $100,000.00 under the agreement was not done in accordance with the Act and was outside of the Council’s statutory powers.

In reaching its decision, the Court considered the relevant case law on unlawful ‘fetters on discretion‘ of statutory bodies, including the decision of the High Court in Ansett Transport Industries (Operations) Pty Limited v The Commonwealth (1977) 139 CLR 54 where Mason J stated at p74-5:

[T]he public interest requires that neither the government nor a public authority can by a contract disable itself or its officer from performing a statutory duty or from exercising a discretionary power conferred by or under a statute by binding itself or its officer in the future.’

The doctrine that an agreement…may constitute an anticipatory fetter on the exercise of a statutory discretion is closely connected with the question whether the agreement is authorised by statute, or is prohibited by, or incompatible with it.

In relation to the case in question, Rein J said at par. 70:

…whilst the council’s wish to provide certainty to a prospective commercial resident might be understandable, if the agreement relates to a matter covered by legislation, the agreement must be authorised by, or at least not be inconsistent with, that legislation.

His Honour concluded that the agreement limiting rates to $100,000.00 per annum was ‘not authorised by the LGA and is incompatible with it‘ and hence ‘was a provision beyond the power of the Council to make.’