Posted on November 27, 2023 by Liam Mulligan and Thuy Pham

Limitation Period on Recovery of Overpaid Rates

The New South Wales Court of Appeal has recently clarified the scope of a ratepayer’s ability to recover overpaid rates and, in particular, the breadth of the restriction on such recovery imposed by the Recovery of Imposts Act 1963 (RoI Act).

The ratepayer was a coal mining entity, which owned land within the Muswellbrook Shire Council’s local government area which had initially been categorised as farmland for rating purposes, but was subsequently re-categorised by the Council as mining. The ratepayer challenged the re-categorisation in the Land and Environment Court (LEC), but in the meantime (from September 2017 until May 2021), continued to pay rates on the re-categorised basis under protest. More than $3m was paid on this basis, with the last payment being made on 27 May 2021.

The ratepayer’s challenge to the re-categorisation was ultimately successful and, in September 2021, orders were made to categorise the ratepayer’s land as farmland with a retrospective effect from July 2016.

Precisely 1 year from the last payment, on 27 May 2022, the ratepayer commenced two sets of proceedings, being:

  1. proceedings in the Supreme Court seeking repayment of the overpaid rates as ‘moneys had or received’; and
  2. Class 4 proceedings in the LEC seeking either a refund or a credit, pursuant to s 527 of the Local Government Act 1993 (NSW), in respect to the overpaid rates.

Section 527 of the Local Government Act relevantly provides that a council must make “an appropriate adjustment of rates paid or payable by a rateable person following a change of category of land”.

The two claims were heard together and, at first instance, the LEC found that (with the exception of the final payment) the ratepayer’s claims were barred by s 2(1) of the RoI Act. That section imposes a 12-month limitation on any claim to recover any amount paid by way of tax or purported tax ‘on restitutionary grounds‘. Our article on the decision of the primary judge is here.

On appeal, the ratepayer pursued only its claim for a refund or credit and maintained that the obligation to make “an appropriate adjustment” gave rise to an enforceable obligation to make a refund, or, at least, give a credit against the liability for rates in the future. The ratepayer also denied that a claim for such a refund or credit was a claim to ‘recover money’ on ‘restitutionary grounds’. Accordingly, it claimed, such an action was not barred by the RoI Act.

The Court of Appeal held that the ratepayer’s action under s 527 was a proceeding to recover taxes ‘on restitutionary grounds‘ within the meaning of s 2(1) of the RoI Act. As such, the claim was time-barred by the 12-month limitation.

Leeming JA (who delivered the Court’s reasons) arrived at that conclusion on the basis that:

  • payment of rates was a “tax or purported tax” within the meaning of the RoI Act;
  • proceedings seeking a “credit” were properly characterized as proceedings to “recover” tax where “recovery” is not limited to claims seeking a payment of money;
  • the RoI Act is to be given a broad construction consistent with its text and evident purpose, and should be construed as applying to both claims under statute and at common law;
  • the purpose of the phrase ‘recoverable on restitutionary grounds‘ was to distinguish between different bases of recovery. A claim on ‘restitutionary grounds‘ is a claim for rates which have been overpaid. However, the RoI Act would not exclude a claim for compensation – for instance a claim by reason of the council’s breach of some tortious or contractual duty or arising from misleading and deceptive conduct. Nor would it prevent allegations that the council engaged in misleading and deceptive conduct, thus entitling the plaintiff to damages under the Australian Consumer Law based on the rates actually paid; and
  • in any event, even if the claim had been brought within time, s 527 does not (on its own) give rise to a statutory right to a refund or credit for overpaid rates.

The full text of the judgment – Mangoola Coal Operations Pty Ltd v Muswellbrook Shire Council [2023] NSWCA 275 can be found here.

If you have any question regarding this article, please leave a comment below or contact Liam Mulligan on 02 8235 9715.