Australia: Queensland Supreme Court dismisses challenge to differential rates

A recent decision by the Supreme Court of Queensland (the Court) has dismissed a challenge to a differential rate imposed by the Lockyer Valley Regional Council (the Council) and, in so doing, has reaffirmed the broad power of local governments to levy differential general rates.

Differential rating is used by local governments to levy different rates on different categories of land. For example, commercial or industrial land is often subject to higher differential rates than residential land, generally because such land has a greater demand for local government services, and also because commercial or industrial landowners are typically perceived as having increased capacity to pay.

In recent years, there has been conflicting case law in Queensland regarding the validity of some differential rates levied by local governments.

While some cases adopted a relatively strict approach, resulting in some differential rates being invalidated, more recent cases have tended to adopt a more flexible approach, allowing greater latitude to local governments.

On 15 June 2017, the Supreme Court delivered judgment in the case of Ugarin Pty Ltd v Lockyer Valley Regional Council [2017] QSC 122 (Ugarin).

In welcome news for Queensland's local governments, which are in the process of preparing their 2017/2018 budgets in advance of the 1 August 2017 deadline, the Ugarin decision reaffirms the Court's recent tendency towards a more flexible approach.

THE FACTS OF THE CASE

In its 2015/2016 budget, the Council adopted various differential rating categories. The Ugarin case concerned a challenge to two aspects of these categories:

  1. The main ground of challenge in Ugarin arose from the fact that, throughout the Council's budget resolution, land was categorised (in part) based on whether it fell within certain numerical 'land use codes'.
  2. These codes did not form part of the Council's budget resolution and, were instead used in the State's land valuation system, and also in a public land database maintained by the Council. Accordingly, while the meaning of the codes was publicly available information, it was not explained on the face of the Council's budget documents.

    The legality of the Council's use of these codes in its budget documents was challenged on the basis that because a budget must be made by Council resolution, it was unlawful for the budget to adopt codes that were not part of the resolution.

  3. The second ground of challenge arose from varying approaches between a number of the rating categories.

In particular, while some categories applied depending on the value of land, others depended on whether land was used for a particular purpose, and others depended on whether land was 'capable of' being used for a particular purpose (whether or not it was actually used for that purpose).

This was challenged as unlawful, on the basis that it alleged to be inconsistent and unreasonable.

THE DECISION

The Court dismissed both grounds of the challenge, and upheld the Council's differential rates.

Ground 1
The Court accepted that the Council's budget documents could have been clearer as to the meaning of the codes.

However, the Court emphasised the use of the codes in Council's public land database. The Court considered that, because of this, the Council's councillors would have been aware of the meaning of the codes at the time that they passed the budget resolution and, similarly, that any owner or purchaser of land would not have been 'disadvantaged in endeavouring to work out' which code applied to a particular parcel of land.

Accordingly, the Court declined to invalidate the differential rate on the basis of the alleged technical deficiency regarding land use codes.

Ground 2
The Court readily dismissed the second ground of challenge, holding that there was 'no sustainable basis for the attack'.

In this regard, the Court noted, with reference to an earlier decision on this issue, that it will generally be difficult to invalidate a local government's decision to levy a differential rate on "unreasonableness" grounds. [1] In that earlier case, the Court considered rating decisions to be an essentially political matter, in which the Court should be reluctant to intervene.

The fact that this ground was so readily dismissed is important. This is because a number of other, earlier decisions had appeared to suggest that it may be unlawful to levy a differential rate based on the perceived income-generating capacity of land. [2]

In contrast, in Ugarin, the Court expressed no concern whatsoever regarding the levying of a differential rate based on whether land was 'capable' of being used for a particular purpose.

WHAT ARE THE IMPLICATIONS OF THE DECISION?

The Ugarin case does not change the legal position. However, it provides some reassurance to local governments that the Court is more willing to adopt a flexible and pragmatic approach in considering challenges to differential rates, and to not intervene in relation to matters of political discretion.

While it is still very important that local governments take care to ensure that budget documents comply with statutory requirements, the outcome in the Ugarin case assists in reducing the risks of potential legal challenge.

Footnote

[1] Ostwald Accommodation Pty Ltd v Western Downs Regional Council [2015] QSC 20.

[2] Namely, Xstrata Coal Qld Pty Ltd v Council of Shire of Bowen [2010] QCA 170 and Paton v Mackay Regional Council [2014] QSC 75.

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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