Restitution in the Context of Public Bodies
Public bodies are subject to the general law. They are accordingly subject in the same may as a private person, to the possibility of restitution on ordinary grounds.
Public bodies are usually formed by statute or as companies under a statute. They are usually established with certain objects and powers relevant to their public function, The so-called ultra vires rule applies to many of them with particular force. They may act and in particular, they may not use funds for purposes outside their power.
Public bodies must act in accordance with law. They breach this obligation where their actions are outside the scope of the relevant statute. They may breach the terms and extent of their statutory powers by acting unreasonably or in bad faith.
In some cases, the very powers under which they act may be found to be inconsistent with the governing statute. The governing statute itself may be found to be inconsistent with the Constitution.
Where the public body is found to have acted unlawfully, this may affect not only the transaction or act in issue in the particular case, but it may confirm or imply that numerous similar transactions or acts are or were also unlawful.
Questions arise as to the whether such other transactions and acts, undertaken pursuant to the apparent legal authority, should be or may be unwound.
In a number of high profile cases in the United Kingdom in the late 1980s, and 1990s it was held that local authorities did not have the power to enter certain complex financial instruments. This raised issues for the financial institutions’ ability to recover sums lent to the authorities
Recovery from Authority
If an act or transaction is found to be unlawful and outside authority, then presumptively monies paid thereunder by a citizen, or assets transferred may be recovered. However public policy issues may arise, where it is found that the actions of governmental bodies are outside the powers.
Where public bodies purport to make a charge or impose a levy for their services, not being general taxation, where they do not have such power, the charge or levy may be recoverable by the payer. Statutory bodies which provide utilities and make charges outside the scope of their powers may be required to make restitution of sums wrongfully received by an industry regulator.
For restitution purposes, there must be some unjust factor in order to invoke restitution. Where the overpayment is technical, bona fide due to mistake, the right to restitution may not arise. In most cases, the matter of overpayment is regulated by Tax law.
An overpayment of tax is required to be repaid by Revenue, at least within the relevant time limits for making a claim. Where the State unlawfully, but in good faith, demanded taxes by legal means it was obliged to make restitution, even outside of the statutory scheme for claiming repayments . This is justified by the constitutional positon by which taxation requires the specific authority of law.
It is less likely that the principle applies to a misinterpretation of statute as opposed to the application of an invalid statute. In the latter such cases, a right of repayment arises on the above principles.
Defences and Limits to Recovery I
Where payments are made by the State without statutory authority, it is recoverable as money had and received. The general defences would apply.
Where a practice or transaction which has continued for many years is found to be outside the body’s powers at law, it may be impractical, costly and highly disruptive to unwind all transactions which have taken place on foot of its presumed validity. In such cases, the courts may limit the extent to which past transactions must be unwound.
A practical difficulty with a recovery against public bodies is that proceedings are by way of judicial review. The time limits for judicial review are significantly shorter (usually two to three months) than in the case of private actions.
Many claims are private in nature. Where the act derives from a private contract, it is not a public matter and general contracting restitution and statute of limitation provisions apply.
Defences and Limits to Recovery II
The courts have sought to protect public authorities. Arguably a “change of position” defence is open to State authorities where significant taxation would be otherwise retrospectively foregone by allowing full restitution.
In Murphy v Attorney General, where the provisions of the income tax code were found to contravene the Constitution, the relief was limited to persons who had the initiated the case prior to the High Court decision and those who had specifically challenged liability.
A local government entity may be able to show a change of position, given its limited charging power, where it has incurred expenditure on the expectation of the level of its budget will be such.
In some cases, the claimant would be unjustly enriched, if recovery was allowed. In the case of unlawful ultra vires transaction, the fact that the entity has recovered its loss elsewhere has been held to be relevant.