Restitution Against Public Authorities II: Insights from English Law

Aanjneya Tandon |

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I.               Introduction

It would be a fair assessment to say that unjust enrichment is a relatively nascent field of private law in Indian jurisprudence. That is not, however, to take away from the salience and complexity of the questions that it has raised. This is especially true in regard to restitution claims against public authorities. An analysis of this area was done on this blog earlier this year in an article focussing on the status of ‘passing on’ defence in Indian law. Briefly, analysing Mafatlal Industries v Union of India, the leading authority on restitution from public bodies, the author goes on to call the Court’s decision in the case an ‘exercise in judicial acrobatics.’ This is because while the case could have been resolved by simply relying on Art.265 of the Constitution, which deems that no taxes can be levied without parliamentary authority, the Court nevertheless chose to enter restitutionary analysis under s.72, Indian Contract Act 1872. The sole objective behind this judicial manoeuvring appears to have been ensuring that traditional unjust enrichment defences like ‘passing on’ and ‘change of position’ continue to be available in such cases.

This essay concurs with the author in questioning both the rationale and desirability of this judgment. The aim here is to take the dialogue further in this area by bringing in insights from an English perspective, which again expectedly raises more questions than it answers. At their core, these questions nudge judges and jurists to consider what would be the appropriate balance between public and private values in these cases. Broadly, the essay shall be divided into three parts. First, the relevance and usefulness of comparison with English law shall be established. Second, building on the same, suggestions for future legal development in this area shall be made, albeit cautiously, with the acknowledgment of the differences in the legal contexts. Finally, some new questions will be highlighted which the legal academia and judiciary must tackle moving forward.

II.             Judicial Dialogue in England: Why Should we Care?

It is a well-acknowledged fact that the sophistication of common law derives at least in part from the richness of dialogue between jurisdictions. This observation becomes particularly apt for legal areas dominated by case law. Not only does unjust enrichment perfectly fit this bill, but even more so because its historical roots can be traced back to actions for money had and received in English law (also see here). This should suffice to establish the usefulness of any comparative insights drawn from across the channel. However, there are additional salient reasons for undertaking such analysis in the present case which are also worth noting at the outset.

The judgments in R v IRC ex p Woolwich Equitable Building Society and Auckland Harbour Board v R (English cases dealing with restitution claims by and from public bodies) were unequivocal in holding that they were dealing with private law cases governed by the private law of unjust enrichment. Indeed, in Deutsche Morgan Grenfell Group plc v IRC, the apex court was clear that there was no requirement that Woolwich-like cases ought to be litigated as such. In other words, the parties could choose between that and other unjust factors like mistake of law. The rationale advanced by their lordships relied upon the ‘constitutional principle of equality’ which makes ‘the Crown’ subject to the ‘same common law obligations as ordinary citizens’ (see Kleinwort Benson Ltd v Birmingham City Council).

As those familiar with the Indian law on the subject will be quick to glean, the state of affairs in India after Mafatlal is in many ways comparable to the one just described. In English terms, Art.265 is the public-law oriented Woolwich-factor and s.72 is the private law-based mistake of law-unjust factor. Both jurisdictions appear to have favoured a private-law framework for resolving disputes which essentially lie at the intersection of private and public law. This is in sharp contrast to the public-law approach preferred by the courts in Canada and Northern Ireland (see Kingstreet Investments Ltd v New Brunswick and Murphy v Attorney General). This striking similarity in judicial decision is more than a mere coincidence, and detailed historical legal analysis can be conducted to trace the developments which have led to them. However, it is respectfully submitted that neither is there enough space in this article to consider this at length and nor is this the most fascinating aspect of the similarity. Far more interestingly, the likeness of the situation presents legal theorists with a unique opportunity to observe the dialogue and developments in England in order to extract useful insights for Indian law.

III.           Key Insights at a Glance

While both the Indian and the English courts have preferred what appears to be a broadly private-law framework, they felt obliged to consider public law at some length in their respective judgments. Thus, while Lord Goff discussed the Bill of Rights 1689 and Lord Browne-Wilkinson considered rule of law in Woolwich, the Indian justices had to artificially manoeuvre around Art.265 via ‘vague references’ to the principle of economic justice enshrined in Art.38. The primary insight to be drawn from this is that despite the lack of acknowledgment, it is evident that restitution cases involving public bodies sit rather uneasily within a purely private law framework. The alternatives to this would be either adopting a public law framework like in Canada or devising a novel hybrid model of dealing with such cases. It is submitted that the first of these approaches is both unlikely in India and England, as well as arguably undesirable. This is because it would be peculiarly anti-Diceyan, which would go against the spirit of law in both the jurisdictions that form our focus; a contextually modified version of Dicey’s principle of rule of law can be gleaned from Art.14 and Art.21 of the Indian Constitution. Indeed, Sir David Foxton has aptly observed that Dicey took pride in the fact that English law knew no ‘droit adminsitratiff’ (system of administrative law) as he was worried about the State and its agents enjoying undue privilege, especially where they were essentially acting in a private capacity. While modern jurists in India and England might not go as far as Dicey, they appear to be firmly committed to holding the State to the ordinary standards of common law when acting in a non-governmental capacity, and rightly so. However, this begs the following pertinent question - can public bodies ever be said to be acting in an entirely non-governmental capacity, especially while exercising a function as central to governance as tax collection?

It is submitted that the question must be answered in the negative, thus necessitating reliance on the other alternative mentioned: a hybrid of the Indian and English positions. As a keen critic would observe, comparison with English law was not strictly necessary to reach this conclusion. However, it does become necessary at this point when we begin discussing what such a hybrid approach might look like. There are two broad ways in which such an approach can be theorised. First, it is possible to conceptualise such cases in a manner where the unjust factor is dealt with as a matter of public law while other elements (like enrichment and at the claimant’s expense) are dealt with in the regular private law fashion (see Goff & Jones and Rebecca Williams[1]). This seems to be a straightforward and attractive option prima facie, not least because the Indian courts would find it relatively simple to assimilate it in their approach. Indeed, in Mafatlal itself, as has been previously observed, the need to work around Art.265 was felt not because it was an unsatisfactory means of establishing unjustness but instead because it did not appear to avail the courts of the defences of ‘passing on’ and ‘change of position.’

Here, however, is exactly where the problem with this approach lies. That is, this approach continues to allow the courts the use of defences which the English experience has shown are undesirable in cases of this kind. While Raghav has previously expressed discontent on this blog about the availability of such defences and the judicial ‘acrobatics’ which the courts have adopted to avail them, English dialogue on this subject tells us precisely why they are so problematic. In The Test Claimants in the FII Group Litigation v HMRC, Henderson J has made a highly relevant observation which the Indian legal landscape stands to greatly benefit from.[2] He notes in his judgment that allowing defences like ‘change of position’ in Woolwich-like cases would ‘stultify’ the ‘high principles of public policy’ which led to the recognition of the cause of action in the first instance.

The ‘high principles of public policy’ which Henderson J is referring to here is a concept that is equally, if not more, applicable to the Indian context as well. It is respectfully submitted that the reasoning in Mafatlal is rendered unprincipled by allowing the use of private law defences in a case where public principles ought to have trumped private values. Indeed, denying restitution of overpaid taxes, irrespective of the reason, would be tantamount to allowing illegal taxation. If there is one lesson to be gleaned from the English example, then it is the acknowledgment that not adopting a purely public law framework for tackling these kinds of cases does not necessitate sacrificing constitutional values at the altar of private justice. Core governmental functions, such as taxation, ought to continue to be primarily governed by constitutional principles- it is the private law of unjust enrichment which must mould itself to address such scenarios. This, then, brings us to the second way of theorising a hybrid approach and the final part of this essay.

IV.           Lingering Questions and Challenges for the Future

Before we begin discussing the other way of conceptualising a hybrid approach, it would be useful to briefly address one final variation of the previous conceptualisation which has sometimes been advanced by scholars such as Rebecca Williams. While they acknowledge that certain defences should not be available if the unjust factor is public law-based, they still contend that the analysis for elements such as enrichment and claimant’s expense can remain entirely private law-focused. It is submitted, however, that such an approach again becomes unfeasible considering English precedent. For instance, the public nature of bodies appears to be relevant to the finding of whether there has been an enrichment in the first place in counterfactual cases such as Vodafone Ltd v Office of Communications. In this case, the Court was quick to reject Ofcom’s counterfactual argument that it would have become entitled to the money via the enactment of ‘compliant and replacement legislation.’ Central to the reasoning was the Court’s reticence in allowing such development as it would become more generally applicable to public bodies. This fundamentally rules out the utility of the first conceptualisation, leading to the second option.

This alternative way of conceptualising a hybrid approach essentially sees cases at the intersection as an instantiation of a broader balancing exercise between public and private values which is triggered when public bodies are involved in the dispute. This exercise would be context specific and would require the courts to weigh the private law values at stake (such as autonomy, agency etc.) against public law values (such as rule of law). At a very broad level, the major benefits of this approach would be both flexibility and the principled nature of ensuing outcomes. So, for instance, while it might dictate prioritising public and constitutional values when core governmental functions like taxation are in dispute (as in Mafatlal itself), at the same time, it can also allow private values (and the defences they bring with them) to trump public principles in cases where the public body is predominantly acting as a private agent (this would most often be seen when a government body has contracted in a private capacity for the supply of certain goods and the unjust enrichment claim is based on failure of basis). However, this ultimately brings us to an array of questions which would need to be answered, assuming that this approach was found to be the optimal solution to the continuing conundrum of unjust enrichment cases involving public authorities.

First, in light of our previous discussion, how do we draw the line between public and private functions upon which the suggested balancing exercise depends? Prima facie, this question appears to be a non-starter as any law student has a basic understanding of the differences between public and private. It is submitted, however, that such a conclusion would be premature. The public-private divide is a perennial debate, and many academics have devoted entire careers to addressing the concerns that it raises.[3] To list a few—how do we categorize companies and corporations to whom key governmental functions like infrastructure development have been outsourced? How do we treat public bodies when they are contracting as private agents but simultaneously hold a monopoly over that industry due to their very public nature? How do we treat companies that while not performing necessarily public functions, affect a large proportion of the population due to their scale and size?

At their core, these questions boil down to the search for appropriate criteria for drawing the public/private divide (a post on this blog has previously attempted to address this question). While it is my instinct that a mixed functional-institutional criteria will ultimately need to be adopted if we go down this path, further research and legal engagement are required before any concrete solutions can be advanced. As indicated at the outset of this essay, while there are useful insights to be gained from English dialogue on the subject, more questions are raised by engaging with it than are answered. That being said, in the spirit of positive legal growth and academic curiosity, questions are always a welcome sign, signalling that the answers lie not too far ahead.

[1] R Williams, Unjust Enrichment and Public Law (Hart Publishing, 2010).

[2] The Test Claimants in the FII Group Litigation v HMRC [2015] EWHC 2883 (Ch), [314-215].

[3] See Carol Harlow, ‘Public and Private Law: A Redundant Divide’ in Varuhas and Stark (eds) The Frontiers of Public Law (Hart 2020); Peter Cane, ‘Accountability and the Public/Private Distinction’ in Nicholas Bamforth and Peter Leylands (eds), Public Law in a Multi-layered Constitution (Oxford: Hart Publishing, 2003) etc.