Restitution from Government in Australia: Woolwich ... - SSRN papers

Restitution from Government in Australia: Woolwich and its Necessary Boundaries TANIA VOON†

[Traditionally, it has been extremely difficult for individuals to obtain restitution from government. The nature of payments made by citizens to the state is such that they will often fall outside the narrow categories of ‘unjustness’ which give rise to unjust enrichment in the law of restitution. However, in the 1993 decision of Woolwich Equitable Building Society v Inland Revenue Commissioners, the House of Lords held that an unlawful extraction of funds by government is unjust in the requisite sense simply because it is unlawful. There is as yet no definitive decision in Australia as to whether that principle will be adopted. Concerns have been raised regarding the constitutionality of such a move, and even greater concerns regarding its effect on the efficient working of government. However, careful examination suggests valid constitutional reasons for following Woolwich. Moreover, a number of restrictions are available to limit the operation of the principle. Some are radical and specific to public bodies, others are established defences not yet applied to government. This paper argues that Australian courts should adopt Woolwich alongside certain justified limitations, a response which will balance the need for certainty in government with the need for fair remedies for private parties.]

INTRODUCTION When government bodies make payments to private parties without authority, they are entitled to recover the amounts paid as of right. Yet prior to the decision of Woolwich Equitable Building Society v Inland Revenue Commissioners,1 when government bodies made the opposite mistake and took or withheld funds from private parties without authority, those individuals were often left without a remedy. Restitution was unavailable as it was generally impossible to make out all the elements of the action. Specifically, this was because restitution is granted to prevent unjust enrichment at the expense of the plaintiff, and an element (or ‘unjust factor’) such as mistake is required †

LLB (Hons), BSc, AMusA, Articled Clerk, Australian Government Solicitor. I would like to express my sincere thanks to Dr Michael Bryan and Andrew Mitchell for their useful comments on an earlier draft of this paper. 1 Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70, (‘Woolwich’).

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to establish the existence of the necessary injustice. In the circumstances of overpayments to government it was difficult to establish the appropriate unjust factor. The ‘Woolwich principle’ essentially allows for recovery of amounts collected without the authority of Parliament, where the very unlawfulness of the demand constitutes the unjust factor. There is no need for duress or other surrounding circumstances to be shown. The High Court of Australia has not yet given a decisive indication whether that principle will be adopted in this country.2 However, pragmatic arguments for retaining the ‘old law’3 are likely to be ultimately outweighed by the need for legality and a conceptually justifiable application of the law of restitution.4 If the High Court follows the House of Lords on this issue as expected,5 the more pressing consideration becomes the precise scope of the principle. This widening of the basis for restitution would require corresponding restrictions to limit the prima facie right to recovery and address the fear of ‘too much restitution’ from government. This paper explores the need to adopt the Woolwich principle in Australia, together with the practical and constitutional issues that this would entail. It then goes on to identify what restrictions are available to limit widespread claims for recovery against government, and which of these are consistent both with the underlying principles of Woolwich and the ideals and realities of Australian law and government.

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Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51. This generally involved an application of the private law concepts of mistake and compulsion, except where the demand fell within the colore officii line of cases. See ‘Traditional Approaches to Restitution From Government’, below. 4 On the general question of whether Woolwich should be adopted in Australia, see, eg, Belinda Wells, ‘Restitution from the Crown: Private Rights and Public Interest’ (1994) Adelaide Law Review 191; Timothy Hill, ‘Restitution from Public Authorities and the Treasury’s Position: Woolwich Equitable Building Society v IRC’ (1993) 56 Modern Law Review 856; Peter Birks, ‘ “When Money is Paid in Pursuance of a Void Authority …” — A Duty to Repay?’ (1992) Public Law 580; Keith Mason and JW Carter, Restitution Law in Australia (1995) 764–72. 5 Peter Butler, ‘Restitution of Overpaid Taxes, Windfall Gains, and Unjust Enrichment: Commissioner of State Revenue v Royal Insurance Australia Ltd’ (1995) 18 University of Queensland Law Journal 318, 324; Mason and Carter, above n 4, 769; Chippendale Printing Co Pty Ltd v Commissioner of Taxation (Commonwealth) (1996) 96 ATC 4175, 4190. 3

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A PLACE FOR THE WOOLWICH PRINCIPLE IN AUSTRALIAN LAW? Traditional Approaches to Restitution from Government Elements of the Action for Restitution In order for a plaintiff to obtain restitution, he or she must establish the following four elements: i) the defendant has been enriched; ii) the enrichment occurred at the expense of the plaintiff; iii) the enrichment was ‘unjust’; and iv) there are no applicable defences or other reasons to deny restitution.6 The third element has often posed great difficulties for plaintiffs seeking restitution from government. The need for the enrichment to be ‘unjust’ is essentially a requirement that the transaction fall under one of the accepted legal categories of injustice, or in other words, that a recognised ‘unjust factor’ is present. The three unjust factors traditionally applied to restitutionary claims against government are mistake, compulsion, and demands colore officii.7 These alternatives fail to provide an unjust factor in every claim where a payment is made pursuant to an unlawful demand. Moreover, their application to payments made to government is often artificial and confusing. Mistake The traditional rule against recovery on the basis of mistake of law rather than fact8 was abolished by the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia9 and the Supreme Court of Canada in Air Canada v

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These four elements have been termed the ‘four Basal Birks questions’: James Merralls, ‘Restitutionary Recovery of Taxes After the Royal Insurance Case’ in Mitchell McInnes (ed), Restitution: Developments in Unjust Enrichment (1996) 117, 120. 7 Under colour of office. 8 See, eg, Bilbie v Lumley (1802) 2 East 469. 9 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353, 376 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ), 394 (Brennan J), 401 (Dawson J) (‘David Securities’).

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British Columbia.10 The High Court held that where a mistake of law causes11 the payment this is sufficient to found a claim in restitution.12 Abolition of the rule denying recovery for mistake of law removed a key obstacle to restitution from government. However, the difficulty in establishing the causative element of the mistake is demonstrated by Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd.13 That case involved a claim for restitution as a result of amendments to the Stamps Act 1958 (Vic).14 The claim involved three amounts paid over different periods. One of these amounts was in respect of payments made between 1985 and 1987 when duty was payable under valid provisions.15 However, on 12 November 1987 an amendment deemed to have come into operation on 30 June 1985 removed this duty. The amount claimed cannot easily be seen as arising from mistake, since no mistake existed at the time of the payment.16 Nevertheless, Mason CJ felt compelled to adopt the unreal notion of retrospective mistake.17 Compulsion Where illegitimate pressure by the defendant causes the plaintiff to pay, this constitutes an unjust factor, often termed ‘compulsion’.18 The plaintiffs in Mason v New South Wales19 commenced business as interstate goods carriers at a time when an appeal was pending regarding the validity of fees payable under the State Transport (Co-ordination) Act 1931 (Cth) in respect of interstate journeys.20 After the provisions

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Air Canada v British Columbia (1989) 59 DLR (4th) 161, 192 (La Forest J, McIntyre, Lamer and Beetz JJ agreeing), 168 (Wilson J agreeing in obiter dicta) (‘Air Canada’); see also Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70, 177 (Lord Goff), 205 (Lord Slynn); Law Commission, Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments (1994) 190. 11 See, eg, Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677. 12 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353, 378 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ), see also 395 (Brennan J). 13 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, (‘Royal Insurance’). 14 There was also a claim in relation to overestimation of duty payable, but this amount was an overestimation independently of the legislative amendments: Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 95 (Dawson J). 15 These were payments of duty in respect of premiums on cost plus policies between 30 June 1985 and 12 November 1987. 16 Law Commission, above n 10, 42. 17 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 67. 18 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40. 19 Mason v New South Wales (1959) 102 CLR 108, (‘Mason’s case’). 20 Ibid 112.

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were held invalid,21 they brought an action to recover the fees which they had paid under protest. The majority of the Justices concluded that the plaintiffs paid the fees due to a reasonable apprehension that if they did not, their vehicles would be seized and their business would cease.22 The fact that the defendants were enforcing the provisions by seizing vehicles and the plaintiffs knew of this seizure was significant,23 since a mere threat of legal proceedings does not amount to compulsion.24 This kind of enforcement might not always occur in claims against government in relation to unlawful demands. Kitto J went further than the rest of the Court in suggesting that compulsion may be found in the terms of the statute itself if it provides for penalties beyond a ‘bare liability to be sued’.25 However, even this broader view could form the basis of restitution only where the relevant statute provided sufficient penalties to amount to practical compulsion. Colore Officii The principle of colore officii allows recovery where a public official demands payment for performance of a duty where no payment, or less than that demanded, is lawfully due.26 This principle can be analysed in terms of compulsion,27 but the preferable formulation acknowledges that the elements of private compulsion need not be established.28 Instead, compulsion is inherent in the nature of the unlawful demand.29 This view of colore officii seemed to be approved by the High Court30 in Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale.31 However, this broader version of

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Hughes and Vale Pty Ltd v State of New South Wales (1955) AC 241; (1954) 93 CLR 1. Mason v New South Wales (1959) 102 CLR 108, 116 (Dixon CJ), 124 (Fullagar J), 133 (Menzies J), 146 (Windeyer J). 23 Ibid 144–6 (Windeyer J). 24 Ibid 119 (McTiernan J), 126 (Kitto J), 135 (Menzies J), 144–5 (Windeyer J). 25 Ibid 126. 26 Mason and Carter, above n 4, 762. 27 Ibid 762–3; William Whiteley Ltd v The King (1909) 101 LT 741; Peter Birks, ‘Restitution from the Executive: A Tercentenary Footnote to the Bill of Rights’ in Paul Finn (ed), Essays on Restitution (1990) 164, 183–4. 28 Ronald Collins, ‘Restitution from Government Officials’ (1984) 29 McGill Law Journal 407, 428– 30; Graham Virgo, ‘The Law of Taxation is not and Island — Overpaid Taxes and the Law of Restitution’ (1993) 6 British Tax Review 442, 449. 29 Steele v Williams (1853) 8 Exch 625; Birks, ‘Restitution from the Executive’ above n 27, 178–9. 30 Birks, ‘Restitution from the Executive’ above n 27, 190. 31 Bell Bros Pty Ltd v Shire of Serpentine-Jarrahdale (1969) 121 CLR 137. 22

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colore officii is still restricted to demands made by public officials for performance of a duty. The Arrival of Woolwich The plaintiff in Woolwich was Woolwich Equitable Building Society, which was required to pay tax under transitional provisions of the Income Tax (Building Societies) Regulations 1986. It paid several instalments under those provisions before successfully challenging their validity. The Revenue repaid the instalments but refused to pay interest. In order to recover interest under s35A of the Supreme Court Act 1981 (UK), Woolwich had to show that the principle was repayable under the general law from the date of the payments.32 None of the traditional unjust factors applied to these facts. Far from being mistaken about the law, Woolwich maintained its convictions by challenging the provisions in proceedings for judicial review.33 There was no evidence of compulsion,34 and the demand was not colore officii because the tax did not constitute payment for performance of a duty.35 On appeal by the Inland Revenue Commissioners, the House of Lords recognised by majority36 the new unjust factor of ultra vires demand by government and granted restitution to Woolwich. Australian Decisions Since Woolwich In the case of Esso Australia Resources Ltd v Gas and Fuel Corporation of Victoria,37 Gobbo J in the Supreme Court refrained from expressing an opinion as to the status of Woolwich in Australia. He held that the principle was irrelevant to that case since the plaintiff was not paying pursuant to an unlawful demand by the defendant government body. Rather, the Victorian Government levied an impost on the defendant who demanded payment from the plaintiff in respect of that impost.38

32

Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70, 148–9. Ibid 173 (Lord Goff), 201 (Lord Slynn); Andrew Burrows, The Law of Restitution (1993) 349. 34 Ibid 201 (Lord Slynn); Burrows, ‘Law of Restitution’, above n 33, 349. 35 Virgo, above n 28, 448. 36 Lord Goff of Chieveley, Lord Browne-Wilkinson and Lord Slynn of Hadley; Lord Keith of Kinkel and Lord Jauncey of Tullichettle dissenting. 37 Esso Australia Resources Ltd v Gas and Fuel Corporation of Victoria [1993] 2 VR 99. 38 Ibid 108; Fergus Farrow, ‘Back Where it Belongs: Novel Approaches to Issues of Restitution’ (1995) 69 Law Institute Journal 794, 794. 33

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The High Court of Australia was later presented with the opportunity to affirm Woolwich in Royal Insurance.39 However, the Court declined to determine whether the principle applies under Australian law, electing to dispose of the case on other grounds. Mason CJ found a causative mistake in the circumstances, so it was irrelevant whether an unlawful demand by a public authority could alone amount to an unjust factor.40 Similarly, Brennan J41 determined that the Commissioner was liable to repay on the basis of statute and therefore did not need to decide whether to follow Woolwich.42 In State Bank of New South Wales v Commissioner of Taxation (Cth),43 the plaintiff sought recovery of interest under the general law, the core payment having been repaid subsequent to an earlier decision.44 Wilcox J stated: I see no reason why the reformulation of the law effected in Woolwich should not be adopted in Australia. It does no more than recognise the realities of the position in which taxpayers may find themselves.45

However, these comments can be regarded only as obiter dicta because Wilcox J went on to say that it was irrelevant to the decision at hand. This was because in Woolwich, interest was payable under statute and the decision provided no conclusion regarding the recovery of interest under general law.46 Nevertheless, in Chippendale Printing Co Pty Ltd v Commonwealth,47 Lehane J referred to this judgment in commenting that Woolwich was eventually likely to be followed in Australia.48 In ACI Operations Pty Ltd v Commonwealth,49 the plaintiff applied to the respondent for a commercial tariff concession in respect of customs duty collected on the importation of goods. The application was denied but after the plaintiff succeeded in an action for judicial review, the respondent refunded the amount of the concession from the time of the application. The plaintiff’s claim for interest on that amount was 39

Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51. Ibid 68 (Mason CJ). 41 Toohey and McHugh JJ agreeing. 42 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 90– 1 (Brennan J). 43 State Bank of New South Wales Ltd v Commissioner of Taxation (Cth) (1995) 62 FCR 371. 44 Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219. 45 State Bank of New South Wales Ltd v Commissioner of Taxation (Cth) (1995) 62 FCR 371, 378. 46 Ibid. 47 (1996) 96 ATC 4175 (‘Chippendale’). 48 Ibid 4190. 49 (1995) 63 FCR 21. 40

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dismissed by Wilcox J, who distinguished Woolwich on the basis that in that case, there was never any obligation on the plaintiff to make the payment. On the facts before him, the duty was lawfully payable when demanded and only subsequently was the legal obligation to pay retrospectively abrogated. Wilcox J concluded on the basis of the majority judgment in Royal Insurance50 that statutory provisions and not the law of restitution govern recovery of such payments.51 On appeal by the plaintiff in that case, the majority52 reversed the decision of Wilcox J. The Court held that ‘general law restitutionary principles assist, without entirely governing, the exercise of the statutory discretion’53 regarding provision of interest for amounts invalidly collected.54 Woolwich was taken into account in determining those general principles, although it was not necessary to conclude whether that case would have provided a general law right to recover interest since the statutory provisions already provided such an entitlement.55 Sackville J, dissenting in the result, appeared to assume that Woolwich applied to restitutionary actions in Australia and that payment pursuant to an ultra vires demand was an accepted unjust factor. He commented that ‘... it is still necessary for a plaintiff to identify a recognised category of unjust enrichment, such as payment under a mistake or pursuant to the provisions of an invalid statute’.56 Regardless of whether Wilcox J’s analysis of the judgments in Royal Insurance57 is accurate, it is submitted that if Woolwich were accepted those judgments would become redundant. This is because any discussion of retrospective abrogation was limited to the grounds of mistake, compulsion, and colore officii. Under Woolwich, there would be no need to analyse an unlawful demand in these terms. The payment would be prima facie recoverable, subject to applicable defences.

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Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51. ACI Operations Pty Ltd v Commonwealth (1995) 63 FCR 21, 27–8, 30–1. 52 Beaumont and Einfeld JJ, Sackville J dissenting. 53 ACI Operations Pty Ltd v Commonwealth (1995) 63 FCR 21 sub nom SCI Operations Pty Ltd v Commonwealth (1996) 139 ALR 595, 616. 54 See also the discussion in John Glover, ‘Restitutionary Recovery of Taxes After the Royal Insurance Case: Commentary’ in Mitchell McInnes, Restitution: Developments in Unjust Enrichment (1996) 131, 132. 55 (1996) 139 ALR 595, 622. 56 Ibid 640–641 (emphasis added). 57 Ibid. 51

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This review of the Australian cases decided since Woolwich reveals some confusion regarding its applicability in Australia, and perhaps an initial reluctance to determine the question. This hesitation is likely to give way in the near future to a clear acceptance of Woolwich in Australia,58 as the traditional unjust factors are showing themselves unworkable and inappropriate. Furthermore, the following discussion of the need for constitutional legality and the perceived practical barriers demonstrates the absence of compelling reasons against such a move. Constitutional Issues Legislative authority must be obtained for moneys to be paid out of the consolidated revenue fund. Where this authority is not obtained prior to moneys being paid out, the government is entitled to recover these moneys as of right. This means that private plaintiffs who have received the unlawful payments have traditionally been prevented from raising the defences of estoppel or change of position.59 The constitutional rule against taxation without authority should be accorded the same respect as the rule against payment out without authority.60 Taxes can only be imposed by Parliament,61 so a prima facie right to recover should be recognised where a tax or other charge is imposed without the authority of Parliament. This reasoning follows from the rule of law,62 which imposes the same law on government as private citizens.63 Obviously this notion is qualified where it conflicts with the need to govern,64 but on a theoretical level at least,65 no such conflict arises in the case of restitution of amounts which should never have been demanded in the first place. Wells points out that constitutional principles ‘often prevent the government from passing legislation to eliminate or lessen the effects of the invalidity’.66 For example, legislation purporting to extinguish potential claims arising from the striking down of

58

Butler, above n 5, 324; Mason and Carter, above n 4, 769. Mason and Carter, above n 4, 755, 838; Peter Hogg, Liability of the Crown (2nd ed, 1989) 185; Collins, above n 28, 411; Auckland Harbour Board v R [1924] AC 318; Commonwealth of Australia v Burns [1971] VR 825. 60 Hogg, above n 59, 185–6; Collins, above n 28, 411; Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70, 177. 61 Mason and Carter, above n 4, 754; Hogg, above n 59, 184–5. 62 Andrew Burrows, ‘Public Authorities, Ultra Vires and Restitution’ in Andrew Burrows (ed), Essays on the Law of Restitution (1991) 39, 84. 63 Hogg, above n 59, 1–2. 64 Ibid 3. 65 Practical difficulties will be discussed below. 59

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a statute because of constitutional invalidity67 was declared invalid by the High Court in Antill Ranger and Co Pty Ltd v Commissioner for Motor Transport.68 The Court has also struck down legislation which retrospectively imposed a one year limitation period on actions in restitution for payments made pursuant to particular unlawful demands, because this effectively purported to bar such actions.69 Wells argues that these limitations mean that a general rule denying restitution from government is required to enable the government to work its way round the invalidity. Such a rule would provide government with the immunity they have been unable to attain by legislation. The better view is that the immunity is improperly sought in the light of the constitutional requirement that taxes and other charges not be imposed without authority. As Hogg points out, ‘constitutional restrictions on … taxing power should not be able to be evaded by retaining unconstitutional taxes’.70 Hence the fact that government cannot retain invalid taxes, for example, by legislating retrospectively, weighs in favour of Woolwich rather than against it. Practical Difficulties Before Woolwich can be applied it is necessary to establish a workable rule regarding which bodies71 and which payments it covers. Beatson suggests that bodies deriving sole authority to charge from statute, the authority being thus limited,72 are caught by the principle.73 If this seemingly clear distinction is accepted, which payments made to those bodies would be subject to the prima facie right to recover? Obviously payments for consideration pursuant to commercial transactions are excluded.74 Beyond that, the question arises whether the payment must be made in response to a demand. Although Woolwich focussed on unlawful demands, the particular trigger75 for payment should not be determinative.76 It should make no difference whether the payment is made 66

Wells, above n 4, 209. Constitution Act (Cth) 1901. 68 Antill Ranger and Co Pty Ltd v Commissioner for Motor Transport (1955) 93 CLR 83; Wells, above n 4, 209. 69 Barton v Commissioner for Motor Transport (1957) 97 CLR 633; Wells, above n 4, 209–10. 70 Hogg, above n 59, 184. 71 Burrows, ‘Law of Restitution’, above n 33, 353–4. 72 See also Burrows, ‘Public Authorities’, above n 62, 83. 73 Jack Beatson, ‘Restitution of Taxes, Levies and other Imposts: Defining the Extent of the Woolwich Principle’ (1993) 109 Law Quarterly Review 401, 415–6; Mason and Carter, above n 10, 66–7. 74 Burrows, ‘Law of Restitution’, above n 33, 353. 75 Beatson, ‘Taxes, Levies and other Imposts’, above n 73, 405–6. 76 Mason and Carter, above n 10, 65. 67

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pursuant to an expectation of the relevant public body, an implied or express demand,77 or a process of self-assessment.78 Moreover, the principle should apply equally in relation to taxes invalid on constitutional grounds,79 and taxes imposed through misapplication of valid statutes.80 To deny recovery in the case of misapplication, or conversely, where the payment is made pursuant to an ultra vires statute,81 is to make an arbitrary distinction,82 particularly from the plaintiff’s point of view. Two conflicting views on a practical application of Woolwich are presented in the arguments of Wilson J and Wells. In Air Canada,83 Wilson J in dissent proposed what was essentially the Woolwich principle on the basis that it was inequitable to allow the loss to lie where it fell, on an individual taxpayer or group of taxpayers. It would be better to allow the government to reimpose the tax if necessary and so distribute the loss across the tax paying public.84 This dissenting view has gained favour among academics.85 Wells presents an alternative viewpoint, that a rule against restitution from government subject to defined exceptions is preferable in Australia.86 She suggests that the impact of Woolwich on government finances is likely to be far more significant in Australia than England, because of the greater frequency of challenges to legislation on the basis of our written Constitution.87 These seemingly irreconcilable views can be reconciled by acknowledging that Woolwich is not an all or nothing package. Just as the widening of restitutionary grounds in general have been supplemented by defences,88 so too should appropriate defences for government be recognised alongside Woolwich.89 Wilson J might support an absolute recognition of Woolwich on the basis that the burden will thus be more fairly shared. However, in the Australian States redistribution of the burden to a 77

Burrows, ‘Law of Restitution’, above n 33, 356. Beatson, ‘Taxes, Levies and other Imposts’, above n 73, 405–6, 426. 79 Hogg, above n 59, 185. 80 Burrows, ‘Law of Restitution’, above n 33, 353; Virgo, above n 28, 456. 81 Air Canada v British Columbia (1989) 59 DLR (4th) 161, 197. 82 Birks, ‘Restitution from the Executive’ above n 27, 197; Hill, above n 4, 859. 83 Air Canada v British Columbia (1989) 59 DLR (4th) 161. 84 Air Canada v British Columbia (1989) 59 DLR (4th) 161, 169 (Wilson J). 85 Mason and Carter, above n 4, 767. 86 Wells, above n 4, 209. 87 Wells, above n 4, 209. 88 Burrows, ‘Law of Restitution’, above n 33, 423; Paul Michell, ‘Restitution, ‘Passing On,’ and the Recovery of Unlawfully Demanded Taxes: Why Air Canada Doesn’t Fly’ (1995) 53 University of Toronto Faculty Law Review 130, 134. 78

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greater proportion of the public, for example through imposition of income tax, is not presently a practical option.90 The federal government may also have political or planning reasons for responding to a successful claim for restitution by reducing expenditure rather than increasing tax.91 In either case this means that one group may suffer from reduced expenditure in a particular area — a result no more desirable than one group suffering through payment pursuant to an unlawful demand. Accordingly, it is necessary to examine more closely whether a prima facie right to restitution based on ultra vires demands by government can be regulated by application of appropriate defences or other limitations. Furthermore, it appears that Wells’ valid concern regarding the security of government finances92 is best addressed by fully exploring the range of possible limitations to Woolwich in Australian law than by concluding prematurely that Woolwich should not apply at all. POSSIBLE RESTRICTIONS ON RESTITUTION FROM GOVERNMENT The Need for Restrictions As the grounds for restitution have expanded in recent years, so too have the applicable defences in line with the concept that too much restitution is unwarranted.93 The need for individuals to have faith in the finality of their payments and in the security of their transactions94 applies equally to government bodies,95 so that recognition of the Woolwich principle in Australia would torture the workings of public bodies unless accompanied by clearly defined and workable defences. Admittedly, this approach may allow a similar amount of restitution from government as the current method of squeezing government transactions into what are essentially private grounds for restitution.96 Nevertheless, there would be significant differences in terms of the type of cases which could succeed, the degree of judicial contortions that would be required to explain the decisions on a doctrinal level, and the 89

Burrows, ‘Law of Restitution’, above n 33, 359; Mason and Carter, above n 4, 775. Cheryl Saunders, ‘Fiscal Federalism — A General and Unholy Scramble’ in Gregory Craven (ed), Australian Federation: Towards the Second Century (1992) 101, 109–10. 91 Economic Planning Advisory Council, Issues in Medium-Term Budgetary Policy (1986) 15. 92 Wells, above n 4, 195. 93 Burrows, ‘Law of Restitution’, above n 33, 423. 94 Ibid. 95 Wells, above n 4, 195. 96 For example, duress (Mason v New South Wales (1959) 102 CLR 108) and mistake (Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51). 90

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constitutional justifiability of the approach taken. It is therefore necessary to examine which of the possible restitutionary defences and other limitations are appropriate and workable in the context of a claim based on the Woolwich principle.97 Disruption of Public Finances The disruption of public finances defence allows a government body to argue that restitution should be denied on the basis that repayment of the funds in dispute to the plaintiff(s) would involve excessive interference with public finances. This defence was adopted by a majority of the Supreme Court of Canada led by La Forest J in Air Canada.98 However, the strong dissent of Wilson J99 on that point was preferred by Mason CJ in the Royal Insurance case.100 He suggested that the legislature is better placed to ‘determine who is to bear the burden of making up any shortfall in public funds’101 and therefore restitution cannot be excluded on this basis alone. In SCI Operations,102 the majority103 also rejected the notion of a defence based on disruption of public finances.104 Substantive reasons exist for denying such a defence. If it were not applied automatically, this could give rise to evidential difficulties. It would also presumably create the unattractive result that more excessive demands would be excused while smaller payments would be recoverable.105 Yet the rule favoured by La Forest J of a complete defence of disruption of public finances except where this would be ‘unjust or oppressive in the circumstances’106 seems to involve a circuity of reason, since the initial question is whether an unlawful demand itself provides the necessary injustice.

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The various defences are discussed in Lord Goff of Chieveley and Gareth Jones, The Law of Restitution (4th ed, 1993) 551–3. 98 Air Canada v British Columbia (1989) 59 DLR (4th) 161, 194–7 (La Forest J, McIntyre, Lamer and Beetz JJ agreeing). 99 Ibid 169. 100 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 68. 101 Ibid. 102 (1996) 139 ALR 595. 103 Beaumont and Einfeld JJ, Sackville J dissenting in the result. 104 (1996) 139 ALR 595, 620. 105 Burrows, ‘Law of Restitution’, above n 33, 359; This is similar to the irony which results from allowing recovery for demands colore officii under a valid scheme but not for demands made under an invalid scheme — ‘the greater the invalidity the lower the chance of restitution’: Mason and Carter, above n 4, 755. 106 Air Canada v British Columbia (1989) 59 DLR (4th) 161, 197 (La Forest J, McIntyre, Lamer and Beetz JJ agreeing).

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Finally, the defence in any form would be available only to government bodies and never to private litigants. It would therefore offer an inappropriate retreat for government defendants alone. A specialised unjust factor for recovery from public bodies is clearly justified but a specialised defence for those bodies is not. This is because the rule of law demands that government be subject to the law, and the higher level of responsibility expected of government107 should be translated into relatively strict compliance with the requirement that amounts collected from private parties be duly authorised. Only where particular factual circumstances show that restitution should be denied should the government be able to escape liability. These circumstances can be adequately pinpointed using the available general law defences and there is therefore no need to rely on a specialised defence. Prospective Overruling The technique of prospective overruling in the context of restitution would mean, for example, that where a statutory provision requesting payment is found to be invalid it is declared to be so only from the date of judgment.108 Accordingly, prior to that date collections made pursuant to that provision are regarded as intra vires. This technique has been adapted in several countries, and is described as ‘sunbursting’ in the United States109 and ‘novelty stop’ in the European Court of Justice.110 Under the latter strategy, borrowed by the Irish Supreme Court,111 restitution is granted only to parties who brought proceedings before the declaration of invalidity.112 Most other jurisdictions, including Australia, have rejected this technique in view of the longstanding principle of administrative law that a law made ultra vires is void ab initio.113 This principle was recently reiterated in the widely publicised decision of Ha v New South Wales.114 In that case, the High Court held by majority that provisions imposing fees on tobacco sales under the Business Franchise Licences (Tobacco) Act 107

Burrows, ‘Law of Restitution’, above n 33, 360–1; Michell, above n 97, 142; Goff and Jones, above n 97, 156; cf Virgo, above n 28, 460–1. 108 See generally Keith Mason, ‘Prospective Overruling’ (1989) 63 ALJ 526. 109 Great Northern Railway Co v Sunburst Oil & Refining Co (1932) 287 US 358; Mason and Carter, above n 10, 135. 110 Administration des Douanes et Droits Indirects v Legros [1992] CLY 4749; Mason and Carter, above n 10, 135–6; Birks, ‘Restitution from the Executive’ above n 27, 198. 111 Murphy v Attorney-General [1982] 1 IR 241. 112 Mason and Carter, above n 4, 758; Birks, ‘Restitution from the Executive’ above n 27, 197–8. 113 South Australia v Commonwealth (1941) 65 CLR 373, 408; Precision Data Holdings Ltd v Wills (1991) 173 CLR 167, 188; Mason and Carter, above n 10, 136.

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1987 (NSW) were invalid on the basis that they imposed duties of excise in breach of s 90 of the Constitution.115 This decision naturally affected State governments’ collection of these and similar statutory fees in preceding years, although these collections had been made on the basis of earlier caselaw.116 The Court declined to overrule prior franchise cases prospectively and to leave the authority of those cases unaffected for 12 months: This Court has no power to overrule cases prospectively ... Prospective overruling is ... inconsistent with judicial power on the simple ground that the new regime that would be ushered in when the overruling took effect would alter existing rights and obligations. If an earlier case is erroneous and it is necessary to overrule it, it would be a perversion of judicial power to maintain in force that which is acknowledged not to be the law. 117

Ha v New South Wales118 confirms that even where a statute has been long regarded as valid by the courts, a decision which reverses that view will operate on all prior transactions made under the statute. If necessary, it is up to the government of the day to restrict fiscal upheaval by some means other than prospective overruling.119 Prospective overruling challenges the expectation that citizens will submit to government demands in the public interest by disadvantaging plaintiffs who do not take out legal proceedings in respect of a dubious demand.120 Moreover, not only must these citizens adopt a bold stance in the face of a government demand; they must also have access to legal advice and funds to cover the proceedings. This means that people at the lower end of the income scale are left with no recourse to justice. The inequity this creates renders it inappropriate as a limitation on Woolwich in Australia.

114

(1997) 71 ALJR 1080. Ha v New South Wales (1997) 71 ALJR 1080, 1093 (Brennan CJ, McHugh, Gummow and Kirby JJ). 116 See, eg, Philip Morris Ltd v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399; Coastace Pty Ltd v New South Wales (1989) 167 CLR 503. 117 Ha v New South Wales (1997) 71 ALJR 1080, 1093 (Brennan CJ, McHugh, Gummow and Kirby JJ). 118 (1997) 71 ALJR 1080. 119 See, for example, the discussion of the Federal Government’s response to Ha v New South Wales (1997) 71 ALJR 1080 in Amanda Gome, ‘Business waits for tax smoke to clear’ (1997) Business Review Weekly 18 August, page 28. 120 Mason and Carter, above n 4, 754; Mason and Carter, above n 10, 140; Collins, above n 28, 429– 30; Virgo, above n 28, 456; Air Canada v British Columbia (1989) 59 DLR (4th) 161, 109 (Wilson J). 115

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The Change of Position Defence A Defence Too Easily Dismissed Change of position can be broadly described as a defence which defeats the plaintiff’s claim on the basis that the defendant acted in reliance on the payment and altered their circumstances to the extent that it would be inequitable to require repayment. This defence has been frequently dismissed in relation to restitutionary claims against government.121 The major reason for ignoring this otherwise powerful defence is the suggestion that government will almost never be able to prove expenditure on the faith of a particular receipt.122 The weakness in that argument is that it accepts that a relevant change of position entails expenditure on the faith of the particular receipt. While these words were articulated by the High Court when the defence was first recognised in Australia,123 this original formulation has been not yet been adequately interpreted.124 If it can be established that the defence should be available where there has been expenditure even if not necessarily made in reliance on the particular receipt, the defence becomes more appropriate to claims against government. The Two Versions of Change of Position In 1975, the Supreme Court of Canada adopted a narrow version of the change of position defence which included a requirement that the defendant had materially changed their circumstances as a result of the receipt.125 This narrow view has gained approval in other parts of the common law world.126 However, there exists a compelling alternative view which focusses on the broader inequity of requiring repayment once a defendant’s position has significantly changed.127 When the House of Lords acknowledged the defence in Lipkin Gorman v Karpnale Ltd,128 this seemed

121

See, eg, Hill, above n 4, 864; cf Kwai-Lian Liew, ‘Recovery of Moneys Paid Under a Mistake of Law: the Australian Approach’ (1994) 6 Corporate and Business Law Journal 157, 181. 122 Wells, above n 4, 199–200; Birks, ‘Restitution from the Executive’ above n 27, 201; Butler, above n 5, 324. 123 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353, 385. 124 Michael Bryan, ‘Mistaken Payments and the Law of Unjust Enrichment: David Securities Pty Ltd v Commonwealth Bank of Australia’ (1993) 15 Sydney Law Review 461, 484. 125 Rural Municipality of Storthooks v Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1, 13. 126 Peter Birks, An Introduction to the Law of Restitution (1985) 410; New Zealand Judicature Act 1908, s94B. 127 Burrows, ‘Law of Restitution’, above n 33, 427. 128 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, (‘Lipkin Gorman’).

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the preferred version129 of Lord Goff.130 He considered that ‘the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.’131 In Lipkin Gorman,132 a solicitor stole from his clients’ trust funds to support his gambling habit. When the solicitor’s partners made a claim for restitution against the casino, the House of Lords allowed the defendant casino to rely on the defence in relation to money which it had paid to the solicitor as winnings. The winnings paid over were ‘the result of the casino changing its position by incurring the risk of losing on each occasion when a bet is placed with it by the gambler’.133 As Burrows has pointed out, if applied strictly this reasoning could only reduce the amount repayable by the casino by the value of the particular bet which gave rise to the winnings, rather than the value of the winnings themselves.134 The defence as applied in Lipkin Gorman135 values justice and practical realities over mere logic in this regard.136 Shortly after the decision in Lipkin Gorman,137 the High Court of Australia had the opportunity to assess this defence in David Securities.138 The majority139 noted that Lord Goff, while recognising the defence of change of position in Lipkin Gorman,140 had ‘declined to define its scope’.141 Importantly, this meant that Lord Goff had merely laid the outer boundaries of the defence without necessarily conveying a preference for the wider version. The restrained nature of Lord Goff’s pronouncements in this regard may explain why the High Court chose to adopt instead the description of the defence in Peter Birks’ An Introduction to the Law of Restitution.142 Thus the majority identifies the central element of the defence as the

129

Burrows, ‘Law of Restitution’, above n 33, 426. Lords Bridge and Ackner agreeing: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 558–9, 568. 131 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 580. 132 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. 133 Ibid 582. 134 Burrows, ‘Law of Restitution’, above n 33, 426; Peter Birks, ‘The English Recognition of Unjust Enrichment’ [1991] Lloyds Maritime and Commercial Law Quarterly 473, 492. 135 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. 136 Ibid 583. 137 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. 138 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. 139 Consisting of Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. 140 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. 141 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353, 385. 142 Birks, ‘Introduction’, above n 126, 410. 130

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defendant having ‘acted to his or her detriment on the faith of the receipt.’143 However, they did not go further in explaining what these words actually meant. Birks’ Change of Position Birks’ views are particularly relevant to the Australian version of the change of position defence given the High Court’s reliance on his analysis in David Securities.144 It is therefore worth noting that since publishing An Introduction to the Law of Restitution in 1985,145 Birks has modified his position. His initial description of the defence as ‘like estoppel with the requirement of a representation struck out’,146 centres specifically on the requirement of detrimental reliance.147 On that view a defendant has only changed their position where they can establish that particular expenditures were incurred because of the particular receipt in question.148 However, more recently Birks has resiled from his earlier view and acknowledged that the defence will also apply where the very money received is lost, stolen or destroyed.149 Such loss or destruction is causally related to the payment, in the sense that without the payment it could not have occurred, but the payment need not have caused the loss or destruction in any narrower sense.150 Birks sees this broadening of the defence as necessary in the interest of security of receipts.151 This modification indicates that even what was originally constructed as a narrow defence may have to be subjugated to considerations of policy and practicality. In addition, cases such as Lipkin Gorman152 demonstrate that strict application of the elements of the defence will not always be possible. If the defence of change of position is to be used in accordance with principles of common sense and ordinary justice, the choice of which description of the defence to adopt may make little practical difference. However, while a narrow test would need to accommodate 143

David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353, 385 (emphasis in original). 144 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. 145 Birks, ‘Introduction’, above n 126. 146 Ibid 410. 147 Birks, ‘Introduction’, above n 126, 414. 148 Peter Birks, Restitution — The Future (1992) 142–3; Mason and Carter, above n 10, 19. 149 Peter Birks, ‘Change of Position: The Nature of the Defence and its Relationship to Other Restitutionary Defences’ in Mitchell McInnes (ed), Restitution: Developments in Unjust Enrichment (1996) 49, 61. 150 Ibid 62. 151 Ibid. 152 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.

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different fact situations by distorting the language of the defence or by accepting overriding policy considerations, a wide test would not need to stretch logic or language since matters of policy could be expressly addressed within the bounds of the defence. On that basis at least, the wide test seems preferable to a strict abstract approach. General vs Specific Reliance In Royal Insurance,153 Mason CJ seemed to consider that the defence of change of position might be open to the government when he proposed: Assume the State has in good faith changed its position for the worse acting in reliance on the fact that the payment was made and received for duty apparently due and payable under the Act, the regime of monthly returns and payments being one of self-assessment, it could scarcely be suggested that a refusal to make a refund in such a situation could be an erroneous exercise of discretion.154

Despite this statement, a major stumbling block to making out the defence lies in establishing that the relevant body has expended the money received on a particular item or service which would not have been paid for but for the receipt.155 While it may be difficult for private entities to point to a particular purchase made as a result of a particular receipt, it will be almost impossible for government to do so according to a strict formulation of the defence.156 On the other hand, a broader view would recognise that an element of reliance on the receipt exists at least in limited circumstances when programs are tied to particular revenue streams. Government spending in those circumstances is on one level analogous to the position of the casino as raised in Lipkin Gorman.157 The Court in that case identified the winnings of the particular gambler as being paid out in reliance on the bet or bets made by that gambler.158 However, that case might be more realistically analysed by acknowledging that the casino carries on its business and agrees to pay out winnings to certain gamblers, in reliance on the collective bets of its

153

Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51. Ibid 65. 155 Wells, above n 4, 199–200; Birks, ‘Restitution from the Executive’ above n 27, 201. 156 Mason and Carter, above n 10, 17, 129–31. 157 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. 158 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 582; Burrows, ‘Law of Restitution’, above n 33, 426. 154

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patrons.159 Similarly, in some circumstances government bodies could be seen as maintaining expenditure in reliance on the collective payments of private parties. Thus these two situations provide examples of what could be termed general reliance as opposed to specific reliance.160 In practice, general reliance is likely to be more easily established by a public authority which possesses relatively modest assets.161 The defence might be made out where a public body has set up a fund for a particular purpose and the unauthorised collection is placed into that fund. Mason and Carter suggest a local government fund for the eradication of pests in a given area as one possible instance.162 In that case the local government body expends money from the fund in eradicating pests in reliance on the payments that it is to receive from private parties, such as residents in the area. If the payments are later determined to be invalidly collected, the body has changed its position by expending the money received. If it is required to repay the funds, it will suffer detriment and will have to recover the money elsewhere since the pest eradication process could not be reversed. In those circumstances the defence is significant particularly as the plaintiffs may well have received the benefit of the expenditure (through the reduction of pests in the area).163 Anticipatory Reliance One difficulty raised by this idea of general reliance is that it necessarily involves an element of anticipation. Thus in the example outlined above, the local government body may have expended amounts from the fund prior to collecting the particular receipt of the plaintiff or plaintiffs. Many commentators suggest that this kind of anticipatory reliance is not enough to establish change of position,164 primarily because cases of anticipatory reliance seek protection of expectation rather than

159

Butler, above n 5, 324. This type of reliance is analogous to that recognised by Mason J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 in the context of tort. Government bodies may have a duty to act where a plaintiff relies on them to do so. Mason J considered that this reliance need not be induced by representations made by the government body to the plaintiff. It may arise simply out of powers designed to prevent or minimise risk of personal injury, in circumstances where individuals cannot take adequate steps for their own protection. 161 Goff and Jones, above n 97, 552; the authors refer to R v Tower Hamlets London Borough Council; ex parte Chetnik Developments Limited [1988] AC 858. 162 Mason and Carter, above n 4, 779. 163 Mason and Carter, above n 4, 779. 164 Birks, ‘Introduction’, above n 126, 257. 160

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protection of receipts. The latter claim is advanced by the principle of security of receipts, while the former should succeed only when supported by contract or estoppel.165 This argument may be countered on a theoretical level,166 but in any case it seems that adequate reasons of policy exist for accepting anticipatory reliance as falling within the defence, at least in the case of restitution from government. In the above example, the extent of the expenditure on pest eradication can be seen as relying on the total of estimated receipts for that program when viewed as a whole. It is therefore artificial to distinguish anticipatory from subsequent reliance. In addition, there is a special need for government to be able to structure its finances according to reasonably anticipated receipts since the efficient working of government at all levels is in the public interest.167 Voluntary Submission Voluntary submission to an honest claim has generally been seen as a wide defence, although one which should not apply to payments made pursuant to unlawful government demands.168 One reason for this is that citizens are generally expected to submit to public demands,169 so that the defence might be difficult to combat without evidence of vigorous protesting or ignorance of the lawfulness of the demand. Requiring this kind of evidence to establish involuntariness brings us back to the difficulties with the unjust factors of mistake and compulsion in relation to government. Nevertheless, rather than excluding the defence altogether it is preferable to attempt to balance the expectation that individuals will submit to public demands with ‘the general policy that voluntary compromises should not be reopened’.170 If the payee has truly desired to close the transaction,171 for example because they believe the

165

Burrows, ‘Law of Restitution’, above n 33, 424–5. Paul Key, ‘Change of Position’ (1995) 58 Modern Law Review 505, 513; Richard Nolan, ‘Change of Position in Anticipation of Enrichment’ (1995) 3 Lloyds Maritime and Commercial Law Quarterly 313, 314–5. 167 Wells, above n 4, 195. 168 Beatson, ‘Taxes, Levies and other Imposts’, above n 73, 427; Burrows, ‘Law of Restitution’, above n 33, 357; cf Collins, above n 28, 412–3. 169 Hill, above n 4, 862. 170 Collins, above n 28, 413. 171 The phrase ‘payment with intention to close transaction’ is sometimes used in place of ‘voluntary submission’: Mason and Carter, above n 4, 776; Goff and Jones, above n 97, 551. 166

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charge to be imposed in a good cause even if invalid,172 they should not later be able to change their mind and demand repayment.173 Where there is a compulsory automatic deduction, such as under a PAYE scheme, the payment could be presumed to be involuntary subject to contrary evidence.174 In other circumstances the defence could be open to the government defendant provided that satisfactory evidence is provided of the intention to close the transaction or the voluntary submission. Accordingly, if the relevant public body has evidence of negotiation or correspondence with the plaintiff which reveals the necessary intention restitution would be properly denied. Passing On Where the plaintiff has been able to ‘pass on’ the unlawful charge in question, for example by adding it to the price paid by customers, there is an argument that any enrichment obtained by the government was not properly at the expense of the plaintiff. This defence was accepted by the majority in Air Canada,175 but rejected out of hand by Windeyer and Kitto JJ in Mason’s case.176 In the same case, Menzies J suggested that while passing on was not an accepted defence, the fact that a charge has been passed on may tend to show that the payment was voluntary.177 However, this observation is relevant only to the question of compulsion and does not arise once Woolwich is accepted. More recently, Brennan J178 has indicated that the fact of passing on may mean that the customers will have a right of recovery against the plaintiff but that it will not prevent the plaintiff recovering from the defendant.179 Mason CJ has suggested that passing on might defeat the plaintiff’s action if the charge was added as a separate item to the customer’s bill and the plaintiff cannot show that it will distribute the funds to customers if recovered.180 In SCI Operations,181 the relevant statutory 172

Collins, above n 28, 413. Mason and Carter, above n 4, 776; Collins, above n 28, 412–3. 174 Virgo, above n 28, 457. 175 Air Canada v British Columbia (1989) 59 DLR (4th) 161, 193–4 (La Forest J, McIntyre, Lamer and Beetz JJ agreeing), 170 (Wilson J dissenting); see also 123 East 54th Street Inc v United States 157 F 2d 68, 71 (Learned Hand J, dissenting). 176 Mason v New South Wales (1959) 102 CLR 108, 146 (Windeyer J), 129 (Kitto J). 177 Ibid 136. 178 Toohey and McHugh JJ concurring. 179 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 90. 180 Ibid 78. 173

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provision allowed for ‘good cause’ to be put forward to deny the statutory claim for recovery. The majority considered that the only possible disentitling circumstance would be a passing on or ‘windfall defence’.182 The majority rejection of the defence of passing on by the High Court is in line with certain economic arguments183 including the fact that adding the charge to the price may lead customers to buy the relevant product or service elsewhere,184 or purchase a substitute if available. This means that despite the actual charge being passed on, it can still be regarded as being imposed at the expense of the plaintiff who may have suffered indirectly as a result. On the other hand, it does not necessarily follow that any defence of passing on is inappropriate. The defence could be available subject to a burden on the defendant to show that the plaintiff suffered no negative effects as a result of the charge being passed on.185 Although it is unlikely that precise quantitative information regarding the indirect effects of passing on could be obtained in this context, the defendant could be required to offer information on a broader level. For example, information regarding the type of market the relevant transactions took place in and the availability of alternative products, services and sources for the customer to avoid paying the charge (ie the elasticity of demand for the relevant product or service). If the defence were available on these terms this would place a definite limit on recovery without placing too high a burden on plaintiffs with legitimate claims. Legislative Schemes for Recovery Regardless of the development of general restitutionary defences such as change of position and passing on, numerous legislative schemes already exist to define the terms for recovery of particular payments. Several Australian jurisdictions have legislation imposing a shorter limitation period on claims for recovery of tax or duty than the period applying to other claims.186 In addition, statutory codes for recovery of

181

(1996) 139 ALR 595. Ibid 620. 183 See generally Michell, above n 88, 158–61; the complex economic considerations are acknowledged by Goff and Jones, above n 97, 553. 184 Bryan, above n 124, 471. 185 The burden should in principle be on the defendant rather than the plaintiff: Goff and Jones, above n 97, 553. 186 Mason and Carter, above n 4, 776–8; see, eg, Limitation of Actions Act 1958 (Vic) s20 A. 182

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amounts collected without authority may expressly or impliedly exclude rights to recover at general law.187 For example, in the case of Chippendale,188 various sales tax assessment provisions189 for recovery of overpaid tax were regarded as excluding any general restitutionary rights to recover.190 A number of Australian jurisdictions191 also have legislation which limits actions for recovery where the charge has been passed on. For instance, the State Taxation (Amendment) Act 1992 (Vic)192 inserted a new s32A into the Stamps Act 1958 (Vic) which embodies a strategy similar to that envisaged by Mason CJ in Royal Insurance.193 It provides in general terms that refunds of duty are not to be granted where the amount claimed has been recovered from a third party, unless the applicant will reimburse those parties once the duty is refunded. These kinds of provisions should go some way towards discouraging claimants who have passed on the relevant charge. This is partly because of the administrative difficulties of attempting to distribute sums recovered, and also because of problems associated with collective actions. The plaintiff will have little incentive to bear the costs of the action in terms of time, money and effort, if he or she may ultimately receive only part or none of the proceeds while others not involved in bringing the action obtain the benefit of it. CONCLUSION The judicial calisthenics involved in applying traditional unjust factors to restitutionary claims against government suggests it is time for a bold acceptance of Woolwich in Australia. Woolwich supports the constitutional abhorrence of illegal appropriations while providing a right to citizens that corresponds with the government’s right to recover amounts which it has unlawfully paid out. While valid concerns exist regarding the practicality of a prima facie right to restitution from government, these can be addressed by careful definition of the scope of the right.

187

James Merralls, ‘Restitutionary Recovery of Taxes After the Royal Insurance Case’ in Mitchell McInnes (ed), Restitution: Developments in Unjust Enrichment (1996) 117, 130. 188 (1996) 96 ATC 4175. 189 The relevant provisions were contained in the Sales Tax Assessment Act (No 1) 1930; Sales Tax Procedure Act 1934; Sales Tax Assessment Act 1992. 190 (1996) 96 ATC 4175, 4186. 191 Including the Commonwealth, the Australian Capital Territory, New South Wales, Tasmania, and Victoria. 192 Section 35. 193 Commissioner of State Revenue (Victoria) v Royal Insurance Australia Ltd (1994) 182 CLR 51, 78.

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Appropriate limitations are essential to the parallel nature of the law of restitution, which bears widening only when corresponding restrictions are adopted. Given that change of position has been described as the most significant restitutionary defence,194 it would be curious if no real inquiry was made as to its applicability to government. This paper has attempted to show that it is possible for the defence to be fashioned in a manner appropriate to government. Change of position focusses on the defendant rather than the plaintiff, so that the plaintiff who is ignorant of the law or otherwise indisposed to taking action is not disadvantaged.195 Furthermore, if the defences of passing on and voluntary submission are carefully applied they will limit the availability of restitution in appropriate circumstances. Finally, many legislative schemes already regulate recovery of overpayments. The potential for these limitations to act together provides good reason for Australian courts to follow Woolwich without fear of fiscal chaos or uncertainty regarding the operation of public authorities. It is therefore unnecessary and unwise to turn to extreme measures such as prospective overruling196 or a broad-based specialised defence for government in responding to the Woolwich principle in Australian law.

194

Damien O’Brien, ‘Change of Position: The Past, The Present, and the Future’ (1995) 25 Queensland Law Society Journal 511, 511. 195 These plaintiffs may be disadvantaged by prospective overruling: Mason and Carter, above n 10, 140; disadvantage would also result on the old law if the plaintiff had to establish duress according to a private standard (Collins, above n 28, 421); or a mistake of fact and not law (Birks, ‘The English Recognition’, above n 134, 502). 196 Virgo, above n 28, 462; Kerrell Ma, ‘The Present Situation in Australia Regarding Recovery of Payments Made Pursuant to Ultra Vires Demands’ (1992) 4 Bond Law Review 198, 226; Mason and Carter, above n 10, 136.

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