Fee for service or contract?

In a decision handed down on Monday of this week, the Court of Appeal has found that councils must comply with the public notice requirements for the setting of fees for service in the Local Government Act even when the fees are paid pursuant to a contract and have been arrived at following commercial negotiation between the council and the other party to the contract.

Background

The Local Government Act 1993 contains elaborate provisions regulating the financial management and accountability of local councils. Chapter 13, “How are councils made accountable for their actions”, requires the preparation of a delivery program and draft operational plan (including a statement of the council’s revenue policy for the year) and imposes an obligation on councils to exhibit and receive and consider submissions before a final operational plan is adopted.

A council’s revenue comes from a number of sources. One of those sources is the charging of fees for services.

The Local Government Act differentiates between fees for business activities and fees for non-business activities.

The fees for services provided in relation to any of a council’s business activities must be charged in accordance with a pricing methodology adopted by the council in its operational plan prepared under Part 2 of Chapter 13 or in accordance with a resolution passed at an open meeting of the Council: section 610B.

The fees for any non-business activity must be set by the council after considering the factors set out in section 610D. These include:

  • The cost to the council of providing the service;
  • The price suggested for the service by any relevant industry body or in any schedule of charges published by the Department;
  • The importance of the service to the community; and
  • Any factors set out in the Regulations.

The transparency of the fee setting process is ensured by the requirements of section 610F. That section requires that a council must not determine the amount of a fee until it has given public notice of the fee in accordance with that section and until it has considered any submissions duly made to it during the period of public notice. The section also requires that public notice of the amount of a proposed fee must be given in the draft operational plan for the year in which the fee is to be made.

The Court of Appeal

In a decision handed down on Monday 11 May 2015, the New South Wales Court of Appeal has held that the restrictions imposed on a council in charging a fee for a non-business related service apply to the grant of a licence for the use of council land, even where the fee has been arrived at by negotiation between the council and the licensee.

Facts

In Adrenaline Pty Ltd v Bathurst Regional Council [2015] NSWCA 123 the council had entered into a five year agreement with Adrenaline under which Adrenaline agreed to pay the council an annual fee in the order of $250,000 for the use of the Mt Panorama motor racing circuit for 5 days each December. When negotiations for the renewal of the agreement collapsed, Adrenaline brought proceedings seeking to recover the fees it had paid over the five year term, arguing that it had paid the amounts in the mistaken belief that the Council had been authorised to enter into the agreement.

The council accepted that if the requirement to give public notice of a proposed fee for service in section 610F of the Act applied to the fees set by the agreement, public notice of the fees had not been given. The council argued, however, that it had a general power to enter into a contract in connection with the exercise of its functions and that this general power was not constrained by the public notice requirements contained in the Local Government Act.

The Decision

The Court of Appeal rejected the council’s argument.

Leeming JA (with whom MacFarlan and Ward JJA agreed) held that the council was still required to comply with the public notice requirements of the Local Government Act in setting the fee payable under the agreement even though the fee had been the subject of commercial negotiations between the council and Adrenaline. He cited a number of reasons for coming to this conclusion:

  1. The structure of the Local Government Act as a whole, the importance placed on public exhibition and consultation and the similar treatment of rates and charges, on the one hand, and fees for services on the other, tended against the council’s argument.
  2. It is a basic principle of statutory construction that, where a statute confers a power subject to qualifications and conditions, general provisions in the statute are read as being subject to those qualifications and conditions. In this case this meant that the council could not avoid the obligation imposed by section 610F to give public notice of a fee for a service by relying on its general power to enter into contracts.
  3. The council’s power to enter into contracts, conferred by section 24 of the Local Government Act, is expressed to be “subject to this Act”. This made it clear that the power was subject to the obligation to give public notice of the fee to be charged for any service to be provided by the council pursuant to the contract.
  4. The fact that the fee was negotiated did not take it outside the ambit of the statutory scheme which regulated the charging of fees for services.
  5. A licence to use real property is the provision of a service and any fee payable for the grant of the licence (and associated services) can only be imposed after complying with the public notice requirement contained in section 610F.

The Court therefore found that the council had entered into the contract in breach of its obligations in relation to the charging of a fee for a service contained in section 610F of the Act.

Fortunately for the Council, however, the Court stopped short of ordering it to refund the licence fees it had been paid under the contract. This was for two reasons.

One was that the Court held that the fees were an “impost” for the purposes of the Recovery of Imposts Act 1963 so that the fees could only be recovered in an action brought within a period of 12 months from the date of payment. In this case the proceedings had been commenced after that period had already expired.

The second was that the Court found that Adrenaline had in fact received good consideration for the fees it had paid and, in fact, had received precisely what it had bargained for: the use of the racetrack for a 5 day period for each of the five years of the contract’s duration. The Court held that this precluded Adrenaline from recovering the amounts it had paid, even though they had been imposed contrary to the provisions of the Local Government Act.

The take home message

The Court’s decision means that councils will need to review contracts they have entered into that involve the provision of a service (including licences for the use of council land) to ensure that the fees payable have been imposed in accordance with the public notice requirement of the Local Government Act. In this regard it does not matter that the fees may have been arrived at by negotiation with the other party – public notice of the fee is still required.

By Alan Bradbury, Legal Director, Environment and Planning.