An analysis of the Supreme Court of Queensland ’s decision in Kozik & Ors v Redland City Council [2021] QSC 233, noting the decision has been appealed to the Queensland Court of Appeal. The Court of Appeal has reserved its decision.
PRELIMINARY
Where a public authority takes tax paid by a citizen pursuant to an unlawful demand, should the citizen be entitled to repayment of that tax? To answer that question, one must dive into the often-murky waters that lie between the invalid acts of government and the granting of monetary remedies to aggrieved individuals.
The rationale behind the affirmative argument is plain to see. It has been said that there exists ‘manifest injustice’ in allowing moneys unlawfully exacted from a person by a public authority to be retained.[1] It seems ‘strange’ to penalise the innocent taxpayer whose natural instinct is to trust the public authority, who pays tax at the compulsion of the authority’s coercive powers, and whose only fault is that it paid what the authority improperly said was due.[2] Why should the taxpayer bear the burden of the government’s mistake? And why should the government have the benefit of further funding as the fruit of its unlawful action?
On the other hand, it has been claimed (perhaps less convincingly) that to recognise a broad right of recovery for unlawful exactions of tax would be to ‘throw the finances of the country into utter confusion’ and would create ‘fiscal chaos’.[3]
In this country, funds paid in error to public entities have been described as ‘surprisingly difficult to recover’.[4] Courts in Australia and in other jurisdictions have encountered real difficulties in reconciling errors by public authorities with the restitutionary claims of private citizens. To address these concerns, parliaments in many jurisdictions have enacted regimes for the recovery of unlawfully exacted tax.
This kind of statutory regime was the subject of the recent Supreme Court of Queensland decision of Bradley J in Kozik & Ors v Redland City Council[5] (‘Kozik’). The purpose of this article is to analyse the decision in Kozik and its implications. Ultimately, it will be shown that the decision emphasises the importance of the legislature’s role in ensuring that citizens have a right of restitution in circumstances where public authorities make unlawful demands for tax.
KOZIK
The decision in Kozik concerned a representative action brought by the plaintiffs against Redland City Council (‘Council’) to recover payments of special charges.
Statutory framework
Council is a local government in the sense contemplated by the Local Government Act 2009 (Qld) (‘LG Act’) and, as a creature of statute, derives its powers from legislation. The LG Act vests powers in local governments to impose rates and charges on land.[6] While local governments are obliged to levy general rates,[7] they are conferred with a discretion to levy a special rate or charge.[8] The power to levy a special charge is to be exercised by a resolution of councillors.[9]
Whilst a resolution of a local government engages the statutory authorisation to exercise a taxation power, the giving of a rate notice to an owner of land engages the statutory mechanism to make the tax due and payable. If the owner of rateable land owes a local government for overdue rates and charges, the overdue rates and charges are deemed to be a charge on the land.[10]
Importantly, regulations contain what Bradley J referred to as ‘validating regulations’.[11] Where a rate notice includes special rates or charges that are levied on land to which the special rates or charges do not apply, the validating regulations operate to save the rate notice from invalidity, but concurrently oblige the local government to return those special rates or charges.
The effect of the validating regulations is to preserve a local government’s right to collect special charges levied by rates notices in circumstances where the resolutions to levy the special charges are themselves invalid.[12] Affected persons lose what might otherwise be a right to set aside the notice or to ask the court to declare it to be of no effect. But in place of that right, by the same validating regulations, an obligation is imposed on the local government to return the funds paid for the special charges that did not apply to their land.[13]
Factual background
Between June 2011 and July 2016, Council passed resolutions to levy special charges on land adjacent to particular water reserves, including land owned by the plaintiffs (‘the Resolutions’). These special charges were levied to fund capital and operational expenditure on services relating to the reserves.
Council issued rate notices to the owners of the relevant land, including the plaintiffs. The rate notices included the special charges contemplated by the Resolutions. The plaintiffs paid the amount noted on each of the rate notices they received, including the amount of the special charges.
However, it was later discovered that the Resolutions had been passed without compliance with statutory preconditions to the exercise of the authority to resolve to levy a special rate or charge.[14] Upon discovering its error, Council refunded a proportion of the special charges. When the plaintiffs sought to recover the balance of the special charges not refunded by Council, Council asserted that it was not obliged to return the ‘spent’ portion of the special charges on grounds that this amount was spent on services for the benefit of all the those who paid the special charges, including the plaintiffs.
Bradley J did not accept these arguments by Council. His Honour held that Council was liable to each of the landowners under a cause of action in debt for the balance of the special charges paid. Bradley J’s judgment hinged largely upon the operation of the validating regulations. His Honour found that each of the Resolutions were invalid and were therefore ‘incapable of ever having produced legal effects.’[15] Consequently, for the purposes of the validating regulations, the rates and charges specified in the Resolutions did not apply to the relevant land.
In default of returning the balance of the amounts paid for special charges by the group members ‘as soon as practicable’, the effect of the validating regulations (particularly the obligation to return the special rates or charges) was that Council was liable to each of those landowners under a cause of action in debt. As explained by Bradley J, the validating regulations saved the rate notices, but did not ‘validate or give effect to a purported resolution to levy the special rate or charge that is invalid and of no effect’.[16] The requirement in the validating regulations that that payment for the special charges be returned was unqualified.[17]
Additionally, Bradley J held that Council could not avoid or diminish its statutory obligation to return the amount of the special charges to each person who paid them, by a defence that the payers will be unjustly enriched by the return.[18]
DISCUSSION
In the author’s view, the judgment in Kozik is best characterised as an exercise in statutory construction. The outcome (i.e. liability of Council to the plaintiffs under a cause of action in debt) was a product of the taxation regime established under the LG Act framework. It was not a product of any general principle that, where a public authority takes tax paid by a citizen pursuant to an unlawful demand, the citizen is entitled to repayment of that tax.
The obligation to return the payments for the special charges to the landowners who paid them is an essential element of the regulatory scheme and could not be ‘cut down’ by resort to restitutionary principles.[19] It is therefore unsurprising that Bradley J did not consider it necessary to consider whether any unjust enrichment cause of action arose on the part of the plaintiffs. In this sense, the decision demonstrates that common law restitutionary considerations cannot purport to override a statutory regime for recovery that is intended to be exhaustive.[20] In the circumstances, the legislation at issue in Kozik was sufficient to provide a monetary remedy to persons affected by the unlawful exactions of special charges by Council.
But how important are statutory regimes for the recovery of unlawfully exacted tax? Would a right to be reimbursed have arisen in Kozik even in the absence of the validating regulations? As will be shown, in the absence of legislation of this kind, plaintiffs in Australia are confronted with some obstacles in recovering tax paid pursuant to unlawful demands.
English courts have recognised that a claim for unjust enrichment can be grounded solely upon the unlawful act of a public authority. In Woolwich Equitable Building Society v Inland Revenue Commissioners[21] (‘Woolwich’), the House of Lords held that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authorities was recoverable as of right.[22] There is no need to show a right to restitution on any other ground.
Curiously, no such principle has gained authoritative recognition in this country. Whilst the approach of the House of Lords in Woolwich has ‘been mentioned without criticism, and even approval, in a number of Australian cases’,[23] the High Court is yet to rule on its applicability.[24]
Consequently, in the absence of statutes providing a right of reimbursement like those the subject of Kozik, aggrieved taxpayers must rely on orthodox restitutionary principles to recover tax the subject of unlawful demands and, in particular, must satisfy the standard elements of unjust enrichment. [25] To succeed in a claim for unjust enrichment, a plaintiff must establish, amongst other things, that the enrichment of the defendant occurred by virtue of one or more recognised classes of ‘qualifying or vitiating’ factors (i.e. mistake, duress, illegality or failure of consideration) by reason of which the enrichment of the defendant is treated by the law as unjust.[26]
It is conceivable that, had the validating regulations not applied to the special charges the subject of Kozik, the plaintiffs in Kozik could have asserted that the payment of the special charges was made under a mistaken belief of validly and, in that sense, gave rise to an obligation on the part of the public authority to make restitution. Additionally, plaintiffs could have sought to establish that they paid the special charges under duress, that is – a reasonable apprehension that Council would exercise extra-curial means of harming the plaintiff’s interests.
However, the success of these arguments in such a hypothetical claim would be dependent on evidence of the plaintiffs’ intention for making the payments and not on the legality of Council’s actions. Arguably, these avenues to establish a right to restitution are more arduous from the perspective of a plaintiff. Ultimately, in this sense, the decision Kozik emphasises the importance of the legislature’s role in ensuring that citizens have a right of restitution in circumstances where public authorities make unlawful demands for tax.
[1] Test Claimants in the FII Group Litigation v Revenue and Customs Comrs (formerly Inland Revenue Comrs) [2012] 2 AC 337 at 372 per Lord Walker citing ‘Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments’ (1994) (Law Com No 227).
[2] see Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 at 172 per Lord Goff.
[3] to use of the wording of Isaacs J in Sargood Bros v Commonwealth (1910) 11 CLR 258 at 303.
[4] Greg Weeks, ‘The Public Law of Restitution’ (2014) 38(1) Melbourne University Law Review 198 at 200 citing Steven Elliott, Birke Häcker and Charles Mitchell, ‘Introduction’ in Steven Elliott, Birke Häcker and Charles Mitchell (eds), Restitution of Overpaid Tax (Hart Publishing, 2013) 3, 3.
[5] Kozik & Ors v Redland City Council [2021] QSC 233.
[6] see Local Government Act 2009 (Qld) Chapter 4, Part 1.
[7] Local Government Act 2009 (Qld) s 94(1)(a).
[8] Local Government Act 2009 (Qld) s 94(1)(b)(i).
[9] Local Government Act 2009 (Qld) s 94(2).
[10] Local Government Act 2009 (Qld) s 95.
[11] Local Government (Finance, Plans and Reporting) Regulation 2010 (Qld) s 32 (repealed); Local Government Regulation 2012 (Qld) s 98.
[12] Kozik & Ors v Redland City Council [2021] QSC 233 at [111].
[13] Kozik & Ors v Redland City Council [2021] QSC 233 at [88].
[14] In particular, council had omitted to adopt an ‘overall plan’ before, or at the same time as, council resolved to levy the special charges of the Local Government Regulation 2012 (Qld) (after 14 December 2012), and the repealed Local Government (Finance, Plans and Reporting) Regulation 2010 (Qld) (before 14 December 2012).
[15] Kozik & Ors v Redland City Council [2021] QSC 233 at [39].
[16] Kozik & Ors v Redland City Council [2021] QSC 233 at [41].
[17] other than requiring repayment ‘as soon as practicable’.
[18] Kozik & Ors v Redland City Council [2021] QSC 233 at [99].
[19] Kozik & Ors v Redland City Council [2021] QSC 233 at [90] citing Commonwealth v SCI Operations Pty Limited (1998) 192 CLR 285, 306 per Gaudron J.
[20] See Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 at 317 per McHugh and Gummow JJ.
[21] Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70.
[22] Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 at 172 per Lord Goff.
[23] Prygodicz v Commonwealth (No 2) [2021] FCA 634 at [147] per Murphy J referring to State Bank of New South Wales Limited v Commissioner of Taxation for the Commonwealth of Australia (1995) 62 FCR 371 at 378 per Wilcox J; Chippendale v Commissioner of Taxation (1996) 62 FCR 347 at 366 per Lehane J.
[24] Commentators have explained this to be a product of the ‘somewhat conservative’ nature of Australian courts: Greg Weeks, ‘The Public Law of Restitution’ (2014) 38(1) Melbourne University Law Review 198 at 203.
[25] The approach to determining claims of unjust enrichment in a claim for money had and received was summarised by French CJ, Crennan and Kiefel JJ in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 516.
[26] Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 516 per French CJ, Crennan and Kiefel JJ.
