In a recent decision by the High Court of Australia, Redland City Council v. Kozik [2024] HCA 7, the Court discussed the applicability of Restatement of the Law Third, Restitution and Unjust Enrichment §§ 19 and 62 to Australian common law in the context of defenses against claims for restitution arising from payments made under a mistake of law.
In that case, the city council fulfilled its statutory functions as a local government authority to perform repair and maintenance work on local waterways by levying special charges on the owners of land adjoining the waterways, who paid under the belief that they were obliged to do so under law. The council later realized that it failed to satisfy statutory requirements that it identify an “overall plan” stating the estimated cost and time of carrying out the work prior to levying the special charges, and, as a result, the special charges levied on the adjoining landowners were illegal. After the council refunded to landowners the unspent portion of the total amount invalidly collected, representatives of certain adjoining landowners who paid the special charges sued, asserting, among other things, a common-law claim for restitution to recover the unrefunded portion of amount of the special charges they had paid.
The Supreme Court of Queensland answered the parties’ common questions for determination in the proceeding, the effect of which was that the landowners failed in their claim for restitution at common law. The Court of Appeal of the Supreme Court of Queensland substituted different answers, the effect of which was that landowners succeeded in their claim for common-law restitution.
In the majority opinion, the Court dismissed the landowners’ cross-appeal, holding that they were not entitled to a refund of monies equal to the amount expended by the city council to fund the maintenance work. The Court explained that, while the landowners demonstrated a “prima facie entitlement” to restitution of the monies they mistakenly paid as special charges, that entitlement was “defeated by demonstration that the retention of so much of those moneys as remain unrefunded” did not result in the city council being “unjustly enriched” when viewed in the totality of the circumstances.
The Court looked to the Restatement of the Law Third, Restitution and Unjust Enrichment § 62 in support of its holding and characterized that Section as a form of defense against claims for restitution. It observed that the Restatement’s examination of the totality of the circumstances reflected the principles of equity and restitution under Australian law. Describing the § 62 defense as the defense of “Recipient Not Unjustly Enriched,” the Court explained that the defense applied to “a case in which a payment by the claimant . . . creates unjust enrichment of the recipient and a prima facie right to recovery in restitution,” but “the larger transactional circumstances disclose otherwise.” Under the circumstances of this case, the Court reasoned, the city council’s retention of the landowners’ monies could not be characterized as unjust, because the council was obliged by statutes to undertake the maintenance work, the work resulted in special benefit to landowners’ property, the council did not exceed its statutory authority despite the procedural error, and the council acted in good faith at all relevant times.
The Court further acknowledged that an Illustration in § 19 was analogous to this case, in which municipal taxes that were improperly assessed but already spent on ordinary municipal services benefiting taxpayers did not result in the municipality’s unjust enrichment. Lastly, the Court noted that § 33 contemplated the defense set forth by § 62 in the context of municipal corporations.
The dissent argued that the majority erred in recognizing a defense of “Recipient Not Unjustly Enriched” because § 62 conflicted with Australian law. According to the dissent, the concept of unjust enrichment in Australian law was limited to performing a “taxonomical function referring to categories of cases in which the law allows recovery by one person of a benefit retained by another” and could not itself be a premise that was capable of direct application. The Restatement also denied recovery of restitution in circumstances in which such recovery would be permitted under Australian law, such as in the context of restitution following full performance under a void agreement. Further, argued the dissent, § 62 appealed to principles of natural justice and equity, whereas Australian law accepted that natural justice and equity “do not themselves form the basis for direct application.” The dissent characterized § 62 as “judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate,” which was not consistent with Australian law.
Lastly, the dissent cautioned against the majority’s recognition of another possible defense set forth in § 19, which provided that restitution could be inappropriate if it would “disrupt orderly fiscal administration.” The dissent observed that the § 19 defense was a broader form of the defense of “change of position” under Australian law and, even if recognized under Australian law, the city council failed to plead that defense. The dissent further observed that “it would be a very large step” for this Court to recognize the § 19 defense, as that defense in the United States “was said to take ‘on a significant federal constitutional dimension,’” and applying it to Australian law would impinge upon “notions of constitutional equality between private parties and government.”