Amounts levied to be refunded by local government: High Court of Australia has rejected a "good consideration" defence by a local government against the repayment of invalid special levies

In brief

The case of Redland City Council v Kozik [2024] HCA 7 concerned an appeal and a cross-appeal to the High Court of Australia (High Court) against the decision of the Queensland Court of Appeal (Court of Appeal) in the case of Redland City Council v Kozik & Ors [2022] QCA 158 with respect to an appeal of the Supreme Court of Queensland (Supreme Court) decision in the case of Kozik & Ors v Redland City Council [2021] QSC 233. The High Court majority granted special leave for both the appeal and cross-appeal, but dismissed the appeal and the cross-appeal with costs.

Background

The Redland City Council (Council), by invalid resolutions during 2011 to 2016 (Resolutions), issued special levy rate notices to certain owners of waterfront properties in their local government area (Rateable Land) to fund various waterway works (Works) they were required to undertake under the Local Government Act 2009 (Qld) (Local Government Act) and the Coastal Protection Management Act 1995 (Qld) (Acts).

The owners of the Rateable Land paid the special levy rate notices (Levied Charges). The Council, once aware of the invalidity of the Resolutions, refunded the owners the percentage of the Levied Charges which were remaining at the completion of the Works, but refused to refund the spent Levied Charges. Certain owners of the Rateable Land brought an action to recover the spent Levied Charges paid under the Resolutions (Respondents). The Respondents sought repayment of the spent Levied Charges both in debt and as money had and received.

The Supreme Court found in favour of the Respondents with respect to their debt action, but rejected their action for money had and received. The Supreme Court ordered that the Council repay the spent special charges to the Respondents. The Council appealed to the Court of Appeal, and the Respondents cross-appealed the rejection of their claim for money had and received.

A summary of the Supreme Court Judgment is available in our February 2022 article.

The Court of Appeal allowed the Respondents' cross-appeal and allowed the Council's appeal in part. A majority of the Court of Appeal held that Council was not liable to the Respondents in debt, but found that the Council was liable for restitution at common law. Special leave was then sought from the High Court for the Council to appeal and the Respondents to cross-appeal the Court of Appeal's decision.

A summary of the Court of Appeal Judgment is available in our September 2022 article.

Issues

There was no dispute that the Council had invalidly levied the Levied Charges due to non-compliance with regulations made under the Local Government Act (Regulations). The two issues for determination by the High Court were as follows:

1. Whether the Regulations made pursuant to the Acts entitled the Respondents to recover the Levied Charges raised under the invalid Resolutions (at [83]).

2. Whether Council had a defence (see [6] and [151]).

High Court agrees with the Court of Appeal that the Respondents do not have entitlement to restitution by way of debt

The High Court considered the construction of the Regulations when determining the entitlement of the Respondents to restitution in debt. The High Court rejected the Respondents' contention that the provisions in the Regulations relating to the return of special levies preserved the validity of the rate notices and provided the Respondents with a statutory entitlement to recover the special charges (see [162] to [163]). The reason for this finding was that the provisions of the Regulations requiring the return of special levies were for the purpose of addressing errors in valid special levy notices (see [170] to [176]). However, the special levy notices were invalid as a result of their non-compliance with the Regulations and Acts (at [177]).

The High Court agreed with the Court of Appeal, and concluded that the Respondents do not have a claim to recover the Levied Charges by way of debt, and proceeded on the basis of a prima facie claim at common law.

High Court majority found the Council does not have defence of "good consideration"

After determining that the Respondents did have a prima facie entitlement to restitution, the issue was then whether it was open to the Council to deny recovery on the ground that the Respondents received "good consideration" from the Council (at [150]).

The High Court considered its decision in the case of David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 (David Securities Decision) where it was recognised that a mistake of law afforded a prima facie claim for restitution, and rejected the defence of "good consideration" (at [192]). The David Securities Decision established the defence of good consideration as one by which a significant factor of the restitution claimed is reduced to the extent that the respondent seeking the restitution also received a benefit from the payment.

The High Court majority rejected the "good consideration" defence by the Council for the following three reasons: 

1. No failure of the basis for the relevant works
   
   The Council's performance of the Works was not done objectively on the basis that they would be funded by the Levied Charges as the Council was obliged under statute to perform the Works (at [206]).

2. No benefit to the Respondents or group members
   
   Whilst it was accepted that the Respondents may have received a benefit from the Works, the benefit was not established in the sense required to satisfy the defence (at [208]). The Council submitted that the benefit received was the net accretion to the wealth of the Respondents by an asserted increase in the value of their land by one to two percent (at [209]). No evidence that was "objectively quantifying" was presented to support this measure, and the High Court rejected this "colloquial, and incorrect" meaning attributed to "benefit" by the Council (at [209]). Further, in the instances where the Respondents had no intention to sell their land or use it to obtain a loan, the Respondents could not enjoy this benefit (at [210]).

3. Defence would stultify the operation of the Regulations
   
   The Respondents submitted that the purpose of the Regulations are to ensure that care is taken by the Council before incurring substantial costs that will be borne by a section of the community. The High Court agreed with this submission and accepted that the duty of compliance with the Regulations is firmly placed on the "…shoulders of the Council for the protection of those members of the community within its area of government" (at [212]). Allowing the defence of good consideration in this case would have the possibility of undermining the Regulations.

The High Court then clarified that the "good consideration" defence does not apply to excess payments made for a service under an agreement or other obligation. The claim for restitution, in these instances, will be limited to the excess of the agreed price, as this is the only amount the receiver was not entitled to receive (at [236]).

High Court majority refuses to recognise the defence of "recipient not unjustly enriched" 

Unjust enrichment was defined in the case of Spence v Crawford [1939] 3 All ER 271 at 289 as occurring where the claimant for restitution "both got back what [they] had parted with and kept what [they] had received in return". The restitution of unjust enrichment was later considered in the David Securities Decision, which quoted at [72] the case of Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 as "…a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff…".

The High Court minority recognised this defence in the sense that the Council was not unjustly enriched as they had acted in good faith, the Respondents benefitted from the Works, and paid to the Council no more than the Council would have been entitled to levy (at [132]). For these reasons the High Court minority concluded that the Appeal should be allowed (at [133]).

However, the High Court majority rejected this defence. This defence stems from the Restatement (Third) of Restitution and Unjust Enrichment (Restatement) which is included in elements of the "good consideration" defence, which the High Court majority had already rejected. For the following reasons the High Court majority did not find this defence as being applicable (see [216] to [221]):

"(1)  Australian law does not recognise 'unjust enrichment' as a premise capable of direct application…

(2) The general recognition of the [recipient not unjustly enriched] defence would lead to results inconsistent with Australian law…

(3) Australian law rejects the basis of the [recipient not unjustly enriched] defence, being a direct appeal to 'equity'"

The High Court majority elaborated that it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable (at [226]). The High Court majority also noted the discretionary or equitable approach to this defence in the case of Atlantic Coast Line Railroad Co v Florida (1935) 295 US 301, wherein a railroad carrier collected increased freight charges pursuant to an invalid order, but was not required to pay restitution (at [227]). Although that case and the present case both concerned charges raised through an invalid mechanism, the High Court majority distinguished that case on the basis that the recipients of the railroad service had requested and received the service, whereas in the present case the Respondents did not request the Works (at [228]).

No defence of fiscal chaos or change of position

The High Court majority recognised a further defence from the Restatement, being a defence where restitution would disrupt the orderly fiscal administration, which was described as a "broader application" of the Australian law defence of "change of position" (at [241]). The change of position defence applies where the recipient, in good faith and reliance upon the payment received, suffered an "adverse" or "irreversible" change of position. The High Court majority noted that the Council had "disavowed" a change of position defence, in that they did not plead this (at [244]).

Conclusion

The High Court majority dismissed the appeal with costs and unanimously allowed the cross-appeal, and dismissed it with costs.