1 The application for a declaration under section 185AA of the Local Government Act 1989 is dismissed.

2 The application for review under section 185 of the Local Government Act 1989 is dismissed.

(given orally at the hearing and subsequently revised)

1 The proceedings before the tribunal concern a special rate made by the Manningham City Council in respect of the construction of Hillhouse Road, Templestowe. One application, made pursuant to section 185AA of the Local Government Act 1989, seeks a declaration that the special charge is invalid. The other application, pursuant to section 185 of the Act, seeks a review of the decision of the council imposing the special rate.

2 It is convenient to first deal with the application under section 185AA. This application is to be determined by the President, as it involves a legal question. The application for review under section 185 is to be determined by both the President and Mr McNamara.

3 Hillhouse Road is a road which projects from Porter Street in a southerly direction. At its southern extremity it projects in an easterly direction and serves about a dozen or so allotments in that portion. There is another street off the middle portion of Hillhouse Road, being Woodlands Edge, which also projects in an easterly direction.

4 The centre portion of Hillhouse Road and Woodlands Edge have been constructed to modern standards. This occurred as part of the subdivision of that part of the land. Likewise the southern portion of Hillhouse Road, that is the portion which projects east, is fully constructed. This occurred probably around 1990 or thereabouts and was paid for, or undertaken, by the subdivider.

5 The balance of Hillhouse Road is only sealed with a temporary seal. This consists of a portion between the centre section and the southern section and also a portion between Porter Street and the centre part of the relevant land. More accurately these areas are designated as the area between Porter Street and No 5 Hillhouse Road and the portion between No 12 and No 16 Hillhouse Road.

6 The council informed the tribunal that it had no record of any previous recovery of costs from landowners in relation to the two relevant sections of Hillhouse Road.

7 The rate is based upon an assessment of the cost of the works. The total amount is estimated at $254,039.33. The council will pay $96,896.97, which represents 38.1% of the total cost. The balance, which is $157,142.36, is to be recovered from owners.

8 Part of the cost of the works relates to the reconstruction of a permanently constructed section of the road adjacent to Porter Street. The estimate of costs for these works is $4,810, but the council proposes to meet the total cost of this portion of the works.

9 Another part of the works relates to the connection of house drains. Twelve house drains will need to be connected, or, more accurately, reconnected to the street drainage system. The total of this work is $3,600.

10 Another item in the estimate is for contingencies, which is estimated at 10% of cost. However we find that the apportionment of this amount has been done on a pro rata basis. In other words, 10% has been added to the cost apportioned to landowners and 10% has been added to the cost otherwise apportioned to the council.

11 Another item is in relation to project management and professional fees. The total amount is $30,968.33, which again has been apportioned on a 37.1% to 66.9% basis. We were told by Mr Carey, who appeared on behalf of the council, that the council had meant to apportion this on a 50%/50% basis and that the council did not oppose any order that would bring that about.

12 A final item in the estimate, and this is a controversial item, relates to VCAT legal fees. The estimation of such fees is $20,000; and the apportionment of those fees is $10,000 for landowners and $10,000 for the council. In other words the amount sought to be recovered from landowners includes the sum of $10,000 in respect of legal fees to be incurred by the council in relation to proceedings before this tribunal.

SECTION 185AA APPLICATION

13 Section 185AA of the Act provides that a person may apply to the tribunal for a declaration concerning the validity of a decision to impose a special rate. This power is only exercisable by a presidential member of the tribunal. It has been accepted that this power only enables the tribunal to make a declaration as to legal rights in the same way that the Supreme Court could. It is not a power that enables the tribunal to review a special rate scheme on the merits.

14 One common means of challenging the validity of an administrative decision is by alleging that the decision is unreasonable. But such a challenge is only available pursuant to section 185AA if the decision is so unreasonable that no rational council could have reached the decision. Sometimes this is described by lawyers as Wednesbury unreasonableness.[1] During argument in this proceeding I have used a cricket analogy and described this as not merely bowling off the stumps but bowling a wide.

15 The first basis alleged by the applicants in support of their application for a declaration is that the inclusion of VCAT fees in the expenses for which the special rate is to be raised is beyond power.

16 The starting point for considering this submission must be section 163(1) of the Act. This provides:

A Council may declare a special rate ... only for the purposes of -

(b) repaying (with interest) any advance made to or debt incurred or loan raised by the Council -

in relation to the performance of a function or the exercise of a power of the Council, if the Council considers that the performance of the function or the exercise of the power is or will be of special benefit to the persons required to pay the special rate or special charge.

17 One of the functions of a council relates the construction of roads and the provision of drainage. In my opinion the question therefore turns on whether a VCAT legal expense could be described as an expense in relation to the performance of a road or drainage function; and also whether a council acting reasonably could consider that the incurring of such an expense is or will be of special benefit to the persons required to pay the special rates. Before answering those questions it is worth observing that section 163(6)(d)(ii) provides that a council may use the money from a special rate for any expenses "related to" a declaration or levying of the rate. In my opinion that provision helps explain what is meant by the expression "any expenses" in section 163(1)(a). In other words a council may declare a special rate for the purposes of defraying an expense related to the declaration of the rate.

18 Another power which I should mention is section 165, which provides:

If a Council receives more money than it requires from the special rate or special charge, it must make a refund which is proportionate to the contributions received by the Council to the current owners of the relevant land. [My emphasis.]

19 In the circumstances I hold that legal expenses incurred in defending a special rate before VCAT, whether in proceedings under section 185 or 185AA, are expenses that relate to the declaration of the rate. Further they are expenses that are in relation to the performance of the road and/or drainage function of a council. In both section 163(1) and 163(6)(d) words are used, namely "in relation to" and "related to", which require no more than some relevant connection between the expense and either the performance of the function or the declaration of the rate. Because landowners have a right to challenge a rate at VCAT, and because a council normally must appear before VCAT and meet such a challenge, there is clearly a connection between the expense of a council doing so and the performance of the function or the declaration of the rate.

20 I mentioned in argument that one can posit a case where there are a hundred landowners, 99 of whom are very strongly in support of a special rate. In such a case expenses incurred by a council in defending the rate against the challenge from the maverick landowner would not only be an expense in relation to the performance of the road or drain making function (and in relation to the declaration of the special rate), but also would be an exercise of the power for the special benefit of the persons required to pay the special rate. Hence, in that example, the council would be effectively acting in the interest of the 99 persons to ensure that the special rate went ahead.

21 What of the present case? In my opinion a council may declare a special rate that is designed to recover money to defray an expense which is reasonably probable. Council's power is not confined to defraying expenses which are certain. It is common enough for estimates of expenditure to include allowances for expenditure that may possibly arise. An example is if ground conditions are less favourable than anticipated. The power does not extend to raising a rate to defray expenses that are merely speculative or hypothetical, but does extend to covering expenses which are realistically possible. In mathematical terms, if the probability of an expense arising was, say, less than 1% it would be unlikely that it would be lawful for the council to include that in its special rate, although it would be able to include the insurance costs in relation to that expense arising. On the other hand if the probability of an expense was, say, 20% or 30% I see no reason why the council could not include that expense in the rate. Sometimes an allowance might need to be made when calculating the amount in question for the probability of the expense actually happening. But I am not to be taken as saying this will always be necessary.

22 I am fortified in this analysis by section 165 of the Act, which requires a council to make a refund if it receives more money than it requires from special rate. The existence of section 185 enables a council to include expenses in the rate which it thinks might be incurred (but will not certainly be incurred) in the knowledge that at the end of the day if more money than is necessary is recovered the excess will be refunded.

23 I was referred to some recent changes to the Local Government Act which might have a bearing on this. These changes occurred on 20 August 2004 whereas the rate was declared in July 2004.

24 In a challenge to the validity of the rate under section 185AA it is the validity of the rate when declared which is relevant Hence the law applicable from 20 August 2004 is not relevant.

25 The change in the law effected on 20 August 2004 essentially requires a council to determine the benefit ratio that will apply in relation to the rate. The benefit ratio is the estimated proportion of the total benefits of the scheme that will accrue as special benefits to the persons who are liable to pay. The Minister for Local Government has made guidelines in relation to this and these are to be found in the Victoria Government Gazette of 23 September 2004. These guidelines are directed at the benefit ratio of all the persons to be made liable, viz a viz total benefits. The guidelines are not designed to assist in allocating liability between owners.

26 One of the matters raised in the Minister's guidelines involves how one should go about calculating the total cost of a scheme. It is said in clause 11(d) of the guidelines that, in relation to calculating the total cost of the scheme:

Costs included in total cost may relate to known activities but not to activities that are purely speculative or hypothetical in nature. (For example, provision for incidental costs related to the proposed works might be included but not costs related to possible legal proceedings that may or may not occur.)

In my opinion, this guideline, even if it was relevant (which it is not), would not result in a different conclusion. Naturally the words in brackets were relied on, but those words fail to take into account the question of probability. Probability is at the heart of decision making.

27 Suppose that in the engineering estimates for the scheme there was an allowance for extra foundations in the event that soil was to be found to be unstable. That may or may not be a proper expense to include in the scheme. If the probability of the ground being unstable was less than 1%, one would doubt whether that would be an appropriate thing to include in the scheme. Possibly in that instance it might be appropriate to include an amount to insure against it, but to include the full cost of extra foundations when the probability of requiring them was less than 1% would seem to be getting close to including a cost that was purely speculative or hypothetical. When it comes to legal costs exactly the same analysis needs to be undertaken. Legal costs are not conceptually different to costs related to extra foundations in the event that the ground is unstable. In some cases the incurring of legal costs related to the special rate may be highly probable. In other cases they may be speculative or hypothetical. Thus sometimes such an expense may be recovered by the rate; on other occasions it may not be appropriate to include the expense.

28 I find that in the context of this case, bearing in mind the number of objections and the force with which those objections were put, that at the time the council declared the scheme, the probability of having to incur legal costs at VCAT defending the scheme were sufficiently high to make it a legitimate matter to include in the scheme. At that time such a cost was not purely speculative or hypothetical, rather it was indeed probable in the sense of more likely than not. That being the case I find that the applicant's case based on the inclusion of VCAT fees is not made out.

29 The second basis for a declaration is based upon the inclusion of certain expenses in the scheme contrary to council's policy and guidelines. These include the inclusion of expenses relating to the reconstruction of Hillhouse Road near to Porter Street which are in the sum of $4,810 and the inclusion of an expense in relation to house drain connections in the sum of $3,600.

30 The argument is predicated on a document called "Council Policy for Contributory Projects Special Rates and Charges", which appears to have been prepared before 1998 because it still refers to the tribunal as the AAT. Possibly that might be addressed. The policy provides:

This Policy sets out the procedures and guidelines for the creation and implementation of all contributory projects in providing works and services authorised under the Local Government Act 1989 and as a guide for the fair and reasonable distribution of costs for those obtaining a special benefit.

Appendix B provides specific guidelines and details for determining benefit and apportionment of cost in respect of projects which Council is most likely to encounter or initiate.

In turn, Appendix B contains different types of projects and the criteria or manner of apportionment in relation to each.

31 Even if the council departed from its policy or guidelines that would not mean that there was an error of law which would justify the making of a declaration. The policy itself relevantly describes its role as "guidelines". This type of document is not intended to lay down a prescriptive set of rules, disobedience of which will render the process invalid. Rather it is intended to give an indication as to how the power will generally be exercised, whilst retaining the right to exercise the power in some different way. It follows that if the power has been exercised in a manner that is inconsistent with the guidelines or the policy, that does not matter in determining the lawfulness of the council's conduct.

32 Having said that I am certainly not satisfied that the inclusion of the $4,810 has in any way been contrary to the policy or caused any detriment to the landowners. The whole of this sum is allocated to be paid by the council. Moreover in apportioning contingencies between the council and the landowners, this is based upon the apportionment of other costs. Hence this portion of the works in no way disadvantages any landowner.

33 Insofar as house drains are concerned it may be true that these provide a benefit to particular landowners above other landowners. But, on the basis of the evidence before us, I would conclude that this cost is really a cost in reconnecting house drains that is made necessary by the changed alignments of the council drains as a result of the works. As such it is quite appropriate that it be included in the scheme and be paid for by the scheme generally.

34 The third basis of the application for a declaration was that the apportionment of costs among the landowners was so unfair that no reasonable council could have made it. To succeed on this ground in relation to a declaration under section 185AA is a substantial task. The Act requires that a council declare a special rate on the basis of any criteria it specifies. Thus the council has a broad discretion in apportioning the cost between landowners in a way which is reasonable.

35 The apportionment of cost was explained this way. The council generally considered it reasonable to apportion the cost on the basis of area, comprising 20% of the total owner contribution, and benefit units, comprising 80% of the total owner contribution. This was adjusted in relation to corner properties and properties with only rearage to the construction works. The general effect of using this method is that landowners who do not abut a section of the road to be made will pay generally $1,916, whereas landowners with abuttal to the portion of Hillhouse Road to be made will pay generally in the order of $3,000 to $6,000.

36 In my opinion it cannot be said that the method of apportionment is irrational or based upon whim or caprice or is beyond the pale or is an act of madness or any other of the types of conduct that are sometimes used in the context of Wednesbury unreasonableness. It remains in the other proceeding to decide whether or not the review on the merits in relation to this same ground should succeed.

37 One final matter that was raised relates to the apportionment of professional and like costs. The council has allocated these between landowners and the council on the basis of the ratio 66.9% to 37.1%. Its own policy would suggest that the allocation should be on a 50%/50% basis. I do not regard a failure to follow the policy as making the rate unlawful. The policy as I have said is not binding. It is merely a guideline. To allocate the costs on a 66.9% to 37.1% basis is totally consistent with the allocation of contingencies and would be entirely reasonable. It is another matter as to whether, having regard to the council's attitude, there might be some variation to now make the allocation of project management and professional fees in accordance with the council policy.

38 For all these reasons I reject the application for a declaration under section 185AA.

39 Section 185 allows a person to apply to the tribunal for review of a decision and the tribunal may vary the special rate in relation to its application to the applicant or it may set aside the special rate. It can only do the latter if it is satisfied that one of the grounds in sub-section (2)(b)(i), (iii) or (iv) is established.

40 Counsel for the applicant relied on section 185(2)(b)(i), which deals with whether or not the works and projects or the period of maintenance for the purpose of which the special rate was imposed will not provide a special benefit to that person, but it was acknowledged that although the council may have listed benefits that were contested there was, on any view, some special benefit to the landowners who were required to pay the special rate.

41 The argument based on section 185(2)(b)(iv) was that some of the expenses for which the special rate was being levied were unnecessary or unreasonable. The expenses in question really were the same ones the subject of the section 185AA case, namely the VCAT fees, the works near Porter Street, the house drains and the project and professional fees. We do not regard these expenses as unnecessary or unreasonable. Insofar as the works near Porter Street are concerned, they are being paid for by the council and in any event are clearly necessary. Insofar as the house drains are concerned, those expenses, whilst part of the scheme, are rendered necessary by the scheme because of changes in alignments. Insofar as the VCAT costs are concerned, we are satisfied that there was sufficient probability of such fees being required to be incurred that rendered it reasonable for the council to include them in the scheme. Insofar as the apportionment of project and professional fees are concerned, the initial apportionment, that is an apportionment in proportion to other expenses, is not unreasonable. In any event we doubt whether some of these expenses, particularly the VCAT fees, could be described as falling within the expression "the works and projects proposed for the construction of a road" used in section 185(2)(b)(iv).

42 I now turn to what was the applicant's key argument, namely that based on section 185(2)(b)(ii). This provides a ground where:

the basis of distribution of the rate or charge amongst those persons who are liable to pay it is unreasonable.

It needs to be stressed that in reviewing a special rate in relation to this ground the relevant test is not whether the council has achieved the optimum or the fairest possible outcome. As the tribunal said in Jacobsen v Shire of Flinders (1994) 12 AATR 207, the tribunal must be satisfied:

that the basis of the distribution is unreasonable and not simply that there are different ways of apportioning costs which may also be reasonable. The tribunal must not substitute its decision for that of the council unless the council's decision is clearly wrong.

43 If we were approaching the matter afresh, we would be inclined to have apportioned a lesser proportion of the total cost to non-abutting landowners that what the council has apportioned. The council has allocated 80% of the cost apportioned to landowners to those deriving benefit and 20% to those abutting that part of the road to be made. The effect of that is generally to create a ratio of about 2:1 or maybe 2-1/2:1, with the abutting owners paying little over double that of the non-abutting owners. We think if we were assessing the matter afresh we would have preferred an allocation that had that ratio at about 3:1 or 4:1 rather than 2 to 2-1/2:1. We say that because the abutting owners are obtaining two benefits from the works whereas the non-abutting owners are obtaining one benefit. Both types of owners will obtain the benefit of having a better road to access their properties and, for that matter, a footpath; but the abutting owners will have a second advantage, namely a direct improvement to their property by reason of a constructed road with kerb and channelling immediately abutting their property.

44 Another factor which influences our view relates to payments by predecessors in title. It is likely, although the evidence on this is hazy, that the predecessors of title of the non-abutting owners have contributed more to the construction of roads and drains that have the predecessors in title of the owners of abutting allotments. Certainly the evidence is that the subdivider of the land now occupied by the non-abutting landowners would have constructed those roads and drains which are fully constructed. It is likely, and we would infer, that the owners and predecessors in title of the abutting owners have not made such a contribution.

45 Taking those factors together, we would think that if we were approaching the matter afresh that a better apportionment would be to generally increase the amount paid by abutting owners and decrease the amount paid by non-abutting owners.

46 We want to make it clear that there has been nothing put before us to the effect that the amount paid by the council is too low. If anything, a case could be made that the council is paying too much.

47 But having said all that, we must go back to what is the relevant test. Councils are elected. In that sense they stand in a morally superior position to the tribunal. It may be true that we bring greater expertise to the legal and engineering aspects of this particular issue, but that does not mean that we should regard the decision of the elected council other than with respect. Approaching the matter that way we are not satisfied that the method of apportionment used by the council is unreasonable. It is important to emphasise that when it comes to the apportionment of cost in relation to road construction or drainage works, there will be more than one method which is reasonable. Sensible people can devise different methods, all of which will be reasonable, with a slightly different emphasis in each method. We think that the council's method is within the parameters of "reasonableness"; and we are not just using the word in the Wednesbury sense but in the natural sense of that word. The council has considered the different benefit that will be obtained by abutting and non-abutting landowners and its method has also sought to bring into play the different contributions that may have been made in the past by those landowners or their predecessors in title. True, as we have explained, we would have done it differently. But that is not sufficient. We are not prepared to find that the distribution of the rate amongst those persons liable to pay is unreasonable.

48 I should finally make a comment about two matters of evidence. It was said that the non-abutting owners had effectively paid for a temporary seal over that part of Hillhouse Road now to be constructed. Assuming this is correct, we find that it has no bearing on the question. A temporary seal is designed to address the time until full construction is necessary. It is not designed to address the cost of full construction itself. The other suggestion was that the developer "would have been required to pay a sum into some infrastructure fund". We regard that evidence as too vague and too uncertain to be reliable. It is possible that a subdivider in this situation may have been required to pay a development contribution but, based on our experience in local government and planning, it is unlikely that if there was such a contribution it would have been specifically tied to the making of the unmade portions of Hillhouse Road. Rather we think that if such a requirement had been imposed, it would have been imposed more directly by either a requirement to construct or a requirement to provide the council with specific funds specifically earmarked for such works.

[1] This derives from the decision of the English Court of Appeal in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223.