Class Action against Local Government

In a class action proceeding against a local government for a claim in debt, the plaintiff made an application to strike out parts of the local government’s defence and counter claim that sought to rely on the principles of ‘change of position’, a defence associated with restitution. The application by the plaintiff was dismissed and the decision could have a significant impact in relation to equity and restitution law in Australia as it applies to public authorities.

Background: Redland City Council (RCC) levied special charges to residents of canal estates for the cost of repair and maintenance of the canals. On review of these charges, RCC determined that some charges for some years may not have been levied in accordance with the requirements of the Local Government Act and Local Government Regulations relevant at that time, and determined to refund the unspent money it had collected for those years. RCC determined it did not have to refund the spent monies on the basis that it would provide ‘unjust enrichment’ to those property owners who benefitted from the work undertaken by RCC with the money collected.

A resident of one of the canal estates has launched a civil proceeding under the class action provision of the Civil Proceedings Act 2011 to claim the money as owed to him and other affected owners (‘the class’) as a debt. RCC has filed its defence and counter claim that Council relies on the defence of ‘change of position’, which effectively means that as it spent the money collected in good faith before it knew the money was collected invalidly, its position has changed and the requirement to refund the spent money would unjustly enrich the residents of the estates given they have received the benefit of the works. The money that has been spent was in relation to the ongoing repair and maintenance to the canals such as dredging, cleaning, and revetment wall repair.

The Local Government Regulation (as amended) contains a provision that any rate notice containing special charges that were levied on land to which the special rates or charges ‘do not apply’ are not invalid but that the local government must ‘as soon as practicable return the special rates to the person who paid them’. The plaintiff alleges that this requires the local government to return the spent money and that it precludes the local government from relying on any defence at common law such as change of position. The plaintiff relies on the UK decision of Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 to state that there is a prima facie obligation on RCC to refund all the monies collected in circumstances where they were collected unlawfully.

RCC maintains that this prima facie obligation does not exist in Australia, and even if the principle in Woolwich were to apply, the facts of this case are sufficiently distinguished as to render the principle irrelevant for the purposes of the claim.

While there has been recognition at an academic level that Woolwich will likely be eventually recognised in Australian law, RCC contends that there is sufficient judicial and academic commentary to assert that the current factual circumstances will not apply. It is an unknown however whether the Courts will allow the defence of change of position if the Woolwich principle were to be adopted in Australia.

Key take away

The dismissal of the application allows RCC to argue in a hearing of the claim the defence of ‘change of position’ as relates to equity and restitution law. At least on an interlocutory basis, the Court does not agree with the plaintiff that the defendant is prohibited by legislation from applying this defence. Whether the defence will ultimately be successful is still yet to be determined. However, the Court was reluctant to allow an application at such an early stage in the process. The Court observed that in circumstances where it appears that there is a real question to be determined, summary determination is not appropriate.