With the end of the financial year approaching, Queensland's local governments are in the process of finalising their 2016/2017 budgets.
Part of this process, required to be completed by 1 August, will include setting the rates to be levied against land in the coming financial year. This raises some key issues for landowners, who should be aware of their options for challenging unlawful rates.
Two of the key issues facing landowners will be the levying of differential and special rates.
Differential rates result in some land uses being subject to higher rates than others, and special rates are levied on land in relation to services, facilities or activities that have a "special association" with the land.
In some cases, the additional cost to landowners arising from differential and special rates can be significant. This is why it is important that landowners understand their options for challenging differential and special rates imposed by the local government.
However, because these types of rates are litigated relatively often, the case law is often changing and the legal issues can be complex.
DIFFERENTIAL AND SPECIAL RATES: WHAT ARE THE LEGAL ISSUES?
In recent years, a key legal issue regarding differential rates has been differential rates that target particular types of land uses differently, or disproportionately, to other uses.
This has been a particular concern for the resources sector, as it is not uncommon for rural and regional local governments to levy much higher differential rates on land used for resources activities.
In the Xstrata1 case, decided in 2010, a differential rate imposed on land used for coal mining was invalidated, because the local government's revenue statement indicated that its decision to impose the rate was based on the perceived financial capacity of coal mining companies to pay a higher amount. This was held to be unlawful because the rate targeted a characteristic of the landowner (their financial capacity), rather than the land.
Subsequently, in Paton,2 this principle was applied to invalidate a higher rate levied on residential land that was not occupied by the owner of that land. Again, this was invalidated because the higher rate targeted a characteristic of the landowner (i.e. financial capacity).
These cases appeared to provide landowners with a stronger legal basis for challenging differential rates, and suggested that there needed to be some objective rationale for levying a higher rate on a particular land use.
However, the 2015 decision of Ostwald Accommodation3 complicated the legal position. In that case, the Supreme Court of Queensland (the Court) took the view that levying of differential rates is primarily a matter of politics, rather than law. The Court upheld a differential rate which imposed a higher rate on land used for workers' accommodation (in practice, primarily for persons working in the resources sector) compared to other accommodation uses. The Court considered that the rate was lawful because it targeted a land use, rather than any characteristic of the landowner. This was so even though its practical effect was to discriminate against a particular type of business that, viewed objectively, was very similar to other businesses not subject to the same rate.
As a result of the decision in Ostwald Accommodation, it may be more difficult to successfully challenge a differential rate. While the principle from Xstrata remains valid, it may now be narrower than previously appeared to be the case.
In contrast to the approach taken in Ostwald Accommodation regarding differential rates, the Court has tended to more rigorously control the levying of special rates.
As noted above, special rates can only be levied on land for services, facilities or activities that have a "special association" with the land that is subject to the rate.
In some cases, this requirement has been interpreted narrowly. For example, in Australand,4 landowners constructed a canal to improve drainage on their land, which resulted in a road being severed. The Council constructed a bridge, and a connection from the canal to nearby tidal water, and sought to impose a special rate on the land. However, the Court invalidated this special rate, because it also benefited other land and, therefore, there was no special association.
Further, in order to levy a special rate, a local government is required to have an "overall plan" for the service, facility or activity, prepared in accordance with requirements set out in the Local Government Regulation 2012 (Qld) (LG Reg). This procedural step has been enforced fairly strictly, such that technical deficiencies in the overall plan have enabled landowners to have special rates invalidated.
HOW CAN UNLAWFUL RATES BE CHALLENGED?
There are two main legal avenues for challenging differential and special rates:
- Objecting to Local Government
The LG Reg provides landowners with a right to object to the differential rating category of their land within 30 days of receiving a rates notice (unless the local government grants an extension). However, this right is limited, as the objection can only be on the basis that the land belongs to a different category. This type of objection cannot challenge the lawfulness of the rate itself.
If a landowner makes an objection, the local government is required to decide whether or not to allow the objection within 60 days. The landowner can then appeal an adverse decision to the Land Court.
At all stages in this process, the best outcome that a landowner can achieve is to change their rating category from one category to another. Neither the local government nor the Land Court can overturn the validity of the rate.
- Judicial Review Proceedings
The second option is to directly challenge the lawfulness of the rate in judicial review proceedings in the Supreme Court of Queensland (the Court), as occurred in the cases discussed above.
For landowners, the benefit of this process is that it can be used to invalidate an entire differential rating category or special rate, as opposed to the more limited relief available under the LG Reg.
However, judicial review proceedings are concerned with the legality of decision, not the merits. The mere fact that a differential rate is arguably excessive or unfair compared to a rate imposed on similar land uses does not mean it is unlawful. The approach taken in the Ostwald Accommodation decision suggests that the Court could consider that any such issues are a matter of political accountability between the local government and its ratepayers, rather than a matter for the Court's intervention.
Accordingly, while a successful judicial review challenge to a rate can enable a landowner to avoid significant expense, landowners should take legal advice before commencing any such proceedings, given the potentially complex legal issues involved.
The Court's relatively strict approach to special rates means that it is possible for landowners to achieve a successful outcome. However, any challenge will require careful consideration of the LG Reg's requirements.
For differential rates, any challenge based on the reasoning in Xstrata and Paton will need to take account of the more pro-local government approach taken in Ostwald Accommodation.
While this means that success may be more difficult, it is not impossible. Although the Ostwald Accommodation decision will be persuasive in subsequent proceedings in the Supreme Court, it is not binding, unlike the Court of Appeal's decision in Xstrata. In the right circumstances, there remains some potential for a successful challenge based on the principle in Xstrata.
In summary, landowners in Queensland should pay close attention to the differential and special rates levied against land by local governments in their 2016/2017 annual budgets. They should also understand what their options are for challenging these rates if need be.
1 Xstrata Coal Qld Pty Ltd v Council of Shire of Bowen  QCA 170.
2 Paton v Mackay Regional Council  QSC 75. Note that Paton has since been overcome by statutory amendments – see here.
3 Ostwald Accommodation Pty Ltd v Western Downs Regional Council  QSC 210.
4 Australand Land and Housing No 5 (Hope Island) Pty Ltd v Gold Coast City Council  1 Qd R 1.
5 See, eg, E Cocco & Sons Investments Pty Ltd v Gold Coast City Council  QSC 10.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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