Supreme Court pours cold water on local government utility charge

A recent decision by the Supreme Court of Queensland to invalidate a local government’s utility charge for water should serve as a warning to other local governments.

On 18 November 2017, the Supreme Court of Queensland (Court) delivered its judgment in the case of The Mount Isa Irish Association Friendly Society Ltd (Association) v Mount Isa City Council (Council) [2017] QSC 316. The judgment is currently under an appeal to the Court of Appeal.

The case involved a legal challenge by the Association to the lawfulness of a $49,187 utility charge for water, levied by Council in a 2016 rates notice.

In a decision that serves as a warning to other local governments, the Court invalidated the water utility charge, by simultaneously adopting a narrow interpretation of the Council’s charging power, and a broad interpretation of the Council’s obligation to comply with Queensland’s ‘local government principles’.

The facts of the case

At its July 2016 budget meeting, the Council determined how it would levy water utility charges for the 2016/17 financial year. In summary, the Council adopted an approach whereby:

• each parcel of land in Council’s area would be classified and allocated a certain number of ‘units’;
• each unit would entitle the land’s owner, as ratepayer, to a certain volume of water;
• for each unit allocated to a parcel of land, the land’s owner would be charged $202 for the 2016/17 year (via two 6-monthly instalments of $101); and
• if a ratepayer exceeded their allocated water entitlement, they would be charged a further amount for each additional kilolitre (or part thereof).

In August 2016, the Association was given rates notices for its land, following the above approach. Those notices purported to charge the Association $49,187 in water utility charges.

In response, the Association commenced proceedings challenging the lawfulness of the Council’s water charges.

The decision

There were two key issues in this case:

1. Whether the Council’s charges were lawful; and
2. If not, whether the charges were invalid.

Issue 1: Lawfulness of the charges

The Association argued that the Council’s charge contravened section 101(1)(a) of the Local Government Regulation 2012 (Qld) (LGR), which generally required that a water charge be levied “wholly according to the water used”.

The only exception to this was if the local government elected to adopt a different, specific type of charging methodology called a ‘2-part charge’. Both the Council and the Association agreed that this exception was not applicable here – however, as discussed below, this exception was ultimately relevant to the Court’s decision.

In response, the Council argued that its charges were lawful, because they complied with section 101(2)(b) of the LGR. Under that section, where (as here) water used was measured using a water meter, Council was expressly authorised to charge on the basis of “a fixed amount plus an amount for each unit, or part of a unit, of water that is used over a stated quantity”.

The Court accepted that the two provisions – sections 101(1)(a) and (2)(b) – were in apparent conflict. However, ultimately, the Court favoured the Association’s view, and held that the correct interpretation of the LGR was that section 101(1)(a) prevailed.

The main reason for this was the clear language of “wholly according to the water used”, which was entirely inconsistent with an ability for Council (as suggested by section 101(2)(b)) to also charge for a fixed amount. The Court reconciled this interpretation with section 101(2)(b) by noting section 101(2)(b) was not redundant, as it would still be relevant if (unlike here) a local government adopted a ‘2-part charge’ approach.

Issue 2: Validity of the charges

As a fall-back, the Council argued that even if the charges were unlawful, they were not invalid.

At first glance, this argument may seem peculiar. However, it seemingly had a strong basis, as section 101(3) of the LGR expressly states that charges “are not invalid merely because the local government does not comply with” the relevant LGR provisions.

To overcome this, the Association argued that, in addition to not complying with section 101(2)(a) of the LGR, the Council’s charges also, more fundamentally, did not comply with the Local Government Act 2009 (Qld) (LGA). In particular, the Association argued that the Council had breached the local government principles in section 4 of the LGA, which include “transparent and effective processes, and decision-making in the public interest”.

The Court accepted the Association’s argument, and held that the Council’s charges were invalid. Importantly, in reaching this conclusion, the Court stated that the local government principles were “more than merely aspirational” and that, in this case, the Council was required to consider those principles in resolving to adopt utility charges. Because the way the Council levied its charges here “did not disclose any attempt […] to consider, and act consistently with, the principles”, the Council’s charges were contrary to section 4 of the LGA and therefore invalid.

The implications

The Court’s decision in relation to both of the issues outlined above may have important implications for other local governments.

The first issue turned on the particular way that the Council had levied its charges here, and so it may not have widespread implications. However, for any other local governments that have adopted a similar approach, the decision suggests that their water utility charges may also be invalid. As such, even if not widespread, the financial implications for particular local governments may be significant.

In relation to the second issue, the Court’s decision has the potential for more widespread, and uncertain, implications. Until now, the local government principles have generally been regarded as idealistic ‘motherhood’ statements – symbolically important, but lacking any specific legal force.

By contrast, in this case, the Court found that the Council had breached the LGA by failing to comply with one of the principles. This is particularly significant given that the effect of the Court’s approach was to override the specific protection that, ordinarily, section 101(3) of the LGR would have provided to the Council.

By seemingly giving the local government principles greater legal force, this case potentially opens the door for other local government decisions to be challenged as unlawful on the basis of a breach of the local government principles. As statutory authorities, local governments are required to exercise their powers according to law. On one interpretation, this case could suggest that the local government principles are part of that law, such that any local government decision that is inconsistent with the principles is unlawful.

We expect that future cases are unlikely to adopt such a broad approach to the local government principles. As noted above, the Court’s decision is currently subject to an appeal to the Court of Appeal, which may clarify its implications. However, until the appeal, or a future case, provides guidance, it may be sensible for local governments to carefully consider the local government principles in circumstances where a decision may be seen as controversial or potentially inappropriate. For example, in preparing a report to councillors for a meeting, council officers may wish to specifically record how the local government principles have been complied with.