Restitution to the Executive and the recovery of unauthorised State payments – II – State payments must be authorised

Auckland Waterfront 1905, via flickr

Auckland Harbour Ferry Terminal in 1905
In an earlier post, I raised the question of whether the State could recover overpayments made to farmers under EU schemes. To begin to answer that question, I established the principle associated with Auckland Harbour Board v R [1924] AC 318; [1923] UKPC 92, [1923] NZPC 3 (18 December 1923) [Auckland] and Attorney General v Great Southern and Western Railway Company of Ireland [1925] AC 754 (HL) [GSWR]. In particular, I argued that the Auckland/GSWR principle has two limbs. First, State payments must be authorised (this is the authorisation limb of the principle). Second, unauthorised State payments can be recovered if they can be identified (this is the restitution limb of the principle).

Both Auckland and GSWR quote both limbs of the principle, and each neatly illustrates one limb on its facts. On the one hand, GSWR illustrates the authorisation limb, finding that the liability of the Government of the Irish Free State under a series of contracts entered into by the British Government with Irish railway companies in 1917 and 1918 was authorised by the the Irish Free State (Agreement) Act, 1922 (compare Commonwealth v Colonial Ammunition Co Ltd (1924) 34 CLR 198, [1924] HCA 5 (21 March 1924); New South Wales v Bardolph (1934) 52 CLR 455, [1934] HCA 74 (30 November 1934); and see now Williams v Commonwealth of Australia (No 1) (2012) 248 CLR 156, [2012] HCA 23 (20 June 2012); see, generally, Enid Campbell “Commonwealth Contracts” (1970) 44 Australian Law Journal 14; Enid Campbell “Federal Contract Law” (1970) 44 Australian Law Journal 580; Sue Arrowsmith “Government Contracts and Public Law” (1990) 10 Legal Studies 231; Nick Seddon “The Interaction of Contract and Executive Power” (2003) 31 Federal Law Review 541; Cheryl Saunders and Kevin K F Yam “Government Regulation by Contract: Implications for the Rule of Law” (2004) 15 Public Law Review 51; Cheryl Saunders “Intergovernmental Agreements and the Executive Power” (2005) 16 Public Law Review 294).

On the other hand, Auckland illustrates the restitution limb, finding that the Crown’s payment of £7,500 to the Harbour Board was unauthorised, and permitting it to be recovered. In this post and the next one, I want to examine the authorisation limb of the principle. The restitution limb of the principle is a claim to restitution of unjust enrichment, because the recipient of the unauthorised payment has been unjustly enriched at the expense of the State; and I will examine it in the fourth and fifth posts in this series.

Four preliminary points require to be made. First, the authorisation limb of the Auckland/GSWR is a key aspect of the rule of law. The modern understanding of parliamentary control and authorisation of executive expenditure of public funds originates in 17th century England, and in particular in the Bill of Rights (which is usually dated 1689), which provides

That levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner then the same is or shall be granted is Illegall.

This requires both that taxation must be authorised by Parliament, and that only Parliament can authorise the appropriation and expenditure of the revenue thereby raised. The appropriation process was rationalised by the establishment of the Consolidated Fund by sections 47 and 48 of the Customs and Excise Act, 1787, and oversight of this process was reinforced by the Exchequer and Audit Departments Act, 1866, which inter alia established the office of the Comptroller and Auditor General (see, generally, Enid Campbell “Parliamentary Appropriations” (1971) 4 Adelaide Law Review 145; Cheryl Saunders “The Development of the Commonwealth Spending Power” (1978) 11 Melbourne University Law Review 369; John Waugh “Evading Control of Parliamentary Spending: Some Early Case Studies” (1998) 9 Public Law Review 28; John Jeffrey-Cook “William Pitt and his Taxes” (2010) 4 British Tax Review 376 (pdf)). As Viscount Haldane put it in Auckland, in words repeated verbatim by Viscount Cave in GSWR, “no money can be taken out of the consolidated fund into which the revenues of the State have been paid, excepting under a distinct authorisation from Parliament itself” ([1924] AC 318, 327; [1925] AC 754, 773).

Both Viscount Haldane in Auckland and Viscount Cave in GSWR then went on to say that, if a payment is not so authorised, it can be recovered. This illustrates the second preliminary point – as with both Auckland and GSWR, the cases often quote both limbs of the principle. The cases in this post and the next one illustrate the question of authorisation, usually finding that there is; the cases in my fourth post find that there is no authorisation, and then consider restitution accordingly. Third, given the broad reach of the modern legislative state, including annual Finance and Appropriation Acts, there will almost inevitably be some legislative authorisation of impugned payments. Fourth, whilst the Auckland/GSWR principle is a matter of common law, it also raises constitutional issues. In particular, the authorisation limb of the principle has constitutional status in Australia, where the cases have similarities with Collins v Minister for Finance [2013] IEHC 530 (26 November 2013). I will consider the common law authorities on the first limb of the Auckland/GSWR principle in this post; and I will consider the constitutional issues in the next one.

An excellent example of the authorisation limb of the Auckland/GSWR principle is provided by the speech of Lord Bridge for a unanimous House of Lords in Steele, Ford and Newton v CPS (otherwise Holden v CPS (No 2)) [1994] 1 AC 22. He held that Courts had no express or implied statutory authority to order payment of parties’ costs in civil cases out of central funds, and cited Haldane in Auckland [1924] AC 318, 326 as authority for

… the special constitutional convention which jealously safeguards the exclusive control exercised by Parliament over both the levying and the expenditure of the public revenue. It is trite law that nothing less than clear, express and unambiguous language is effective to levy a tax. Scarcely less stringent is the requirement of clear statutory authority for public expenditure.

([1994] 1 AC 22, 33; see also Re the Law Society of Northern Ireland [2004] NIQB 48 (09 September 2004) [55] (Girvan J); C v Sevenoaks Youth Court [2010] 1 All ER 735, [2009] EWHC 3088 (Admin) (03 November 2009) [19]-[27] (Openshaw J; Sullivan LJ concurring) [cp R v RJH 2000 ABCA 111 (CanLII) (12 April 2000); S v S 2004 BCPC 354 (CanLII) (27 September 2004)]; R (on the Application of Henderson) v Secretary of State for Justice [2015] EWHC 130 (Admin) (27 January 2015) [35]-[39] (Burnett LJ; Goss J concurring)).

A similar point is made by Lord Scott in Re McFarland [2004] 1 WLR 1289, [2004] UKHL 17 (29 April 2004). The Home Secretary operated a scheme of ex gratia payments of compensation to persons who had spent time in custody before their convictions had been quashed, and Lord Bingham for a unanimous House of Lords held that the Home Secretary had acted lawfully in declining to make such a payment here. Lord Scott, ([40], concurring) considered that Auckland required that such ex gratia payments must be authorised:

In making ex gratia payments the Home Secretary is disbursing public money. But he is not doing so pursuant to any statutory duty or statutory power. There is no statute to be construed. He is exercising a Crown prerogative. He is accountable for what he does with public money to Parliament and, in particular, to the House of Commons. The making of ex gratia payments is lawful if, but not unless, there is Parliamentary authority for the disbursements (see Auckland Harbour Board v The King [1924] AC 318 per Viscount Haldane at pp 326/7). Your Lordships have, not surprisingly, not been addressed on this aspect of the ex gratia scheme but presumably the ex gratia payments in wrongful conviction cases are authorised by some provision in the annual Appropriation Act.

So, on the footing that the requisite Parliamentary authority exists, the ex gratia payments are lawfully made under the prerogative power of the Crown. …

([2004] UKHL 1 [40]; on McFarlane, see also R (Rassi) v Secretary of State for the Home Department [2007] EWHC 243 (Admin) (22 February 2007) [27]-[28]; rvsd [2008] QB 836, [2008] EWCA Civ 72 (14 February 2008) [117]; R (Niazi) v Secretary of State for the Home Department [2007] EWHC 1495 (Admin) (26 June 2007) [15]; Re Dinnell [2015] ScotCS CSIH_7 (20 January 2015) [29]; on ex gratia payments, see also R v Secretary of State for the Home Department, ex p Fire Brigades Union [1995] 2 AC 513, [1995] UKHL 3 (05 April 1995)).

In R (on the application of Hooper) v Secretary of State for Work and Pensions both Moses J at first instance and Lord Phillips MR for the Court of Appeal reaffirmed the fundamental principle that any expenditure of public funds must be authorised (see [2002] EWHC 191 (Admin) (14 February 2002) [100], [170] (Moses J, citing Lord Bridge in Steele, Ford and Newton); [2003] 1 WLR 2623, [2003] 3 All ER 673, [2003] EWCA Civ 813 (18 June 2003) [129], [131] (Lord Phillips MR, Mantell and Rix LJJ (in a joint judgment delivered by Lord Phillips MR) citing Auckland and Steele, Ford and Newton). The applicant widowers had received lower benefit payments than widows. Both Moses J and the Court of Appeal held that this amounted to discrimination contrary to Article 14 of the European Convention on Human Rights and was thus in breach of section 6(1) of the Human Rights Act, 1998. The Court of Appeal further held that, if making extra-statutory payments to the widowers to match those payable to widows would have prevented breaches of Article 14 ECHR, then the respondent Secretary of State would have had the power to make the payments, and the failure to do so was also discrimination contrary to Article 14 ECHR, and was thus in breach of s6(1) HRA. Moses J at first instance had rejected that argument on the grounds that it would infringe the authorisation limb of the Auckland/GSWR principle by requiring “the court to usurp the role of Parliament in a manner recognised as impermissible by Lord Bridge” in Steele, Ford and Newton ([2002] EWHC 191 (Admin) (14 February 2002) [170]). The Court of Appeal reversed Moses J on this point:

Acts of Parliament should be read, in so far as possible, as not precluding common law or prerogative powers of the Crown to take any action that may be necessary to prevent infringement of Convention rights. In so far as the HRA placed upon the Secretary of State an obligation to make extra statutory payments, no constitutional impropriety or illegality could be involved in his putting in place a scheme to give effect to that obligation and, if necessary, seeking from Parliament appropriation of funds to implement the scheme. ([2003] EWCA Civ 813 (18 June 2003) [136] (Lord Phillips MR)).

On appeal, the House of Lords ([2005] 1 WLR 1681, [2006] 1 All ER 487, [2005] UKHL 29 (5 May 2005)) over-ruled the Court of Appeal, without needing to advert to the Auckland issue, on the grounds that the discrimination had been objectively justified, and therefore involved no infringement that called for a remedy.

Some of the English cases mentioned in this post applying Steele and McFarlane reach conclusions that cast doubt on Lord Phillips MR’s holding above, but Willcock J in Conseil scolaire francophone de la Colombie-Britannique v British Columbia (Education) 2011 BCSC 1219 (CanLII) (9 September 2011) [26] also concluded that court orders requiring the expenditure of public funds to remedy Charter breaches “are not generally regarded as subverting parliamentary control of the public purse but, are seen instead as a means of effecting the intentions expressed in the Charter and, as an exercise of the courts’ fundamental role in ensuring that government is not immune from Charter challenges”. However, this will now have to be read in the light of the careful line walked by the Supreme Court of Canada R v Criminal Lawyers’ Association of Ontario [2013] 3 SCR 3, 2013 SCC 43 (CanLII) (1 August 2013) in approving the authorisation limb of the Auckland/GSWR principle as a matter of Canadian law. The first case in that Court on the principle is Walkerville Brewery v The King [1939] SCR 52, 1938 CanLII 27 (SCC) (23 June 1938). Davis J referred to both Auckland and GSWR, and held that the payment of moneys out of the Consolidated Revenue Fund of Canada would require a statute, and concluded that the Crown was not liable under the terms of a settlement to refund tax payed by the plaintiff. In Cape Breton (Regional Municipality) v Nova Scotia (Attorney General) 2008 NSSC 111 (CanLII) (23 April 2008), the plaintiff municipality sought a declaration that the Province had breached section 36 of the Constitution Act, 1982 by not ensuring that the municipality’s residents, relative to other Nova Scotians, have reasonably comparable levels of public service in exchange for reasonably comparable levels of taxation. At first instance, Murphy J held that such a general challenge to government action did not give rise to a justiciable issue or to a reasonable cause of action. In particular, he cited Auckland for the principle that government expenditures require legislative authorisation (2008 NSSC 111 [47]-[49]). The appeal was dismissed by the Nova Scotia Court of Appeal (2009 NSCA 44 (CanLII) (8 May 2009)) on the grounds that the municipality’s claim was premised on a purported constitutional obligation which did not exist, but no reference was made to Auckland.

The recent decision of the Supreme Court in R v Criminal Lawyers’ Association of Ontario [2013] 3 SCR 3, 2013 SCC 43 (CanLII) (1 August 2013) is a strong reaffirmation of the authorisation limb of the Auckland/GSWR principle. A practice had emerged of trial judges appointing amici curiae to represent the interests of unrepresented indigent defendants in criminal tirals, and ordering the Attorney General to pay their fees at rates higher than the legislated legal aid rates for defence counsel. One of the grounds on which this practice had been challenged in various Courts of Appeal was that it infringed the authorisation limb of the Auckland/GSWR principle (see, eg, Canada (Attorney General) v Yukon (Territorial Court) (otherwise R v Savard) 1996 CanLII 3294 (YK CA) (10 April 1996) [10], [19], [104]; British Columbia (Minister of Forests) v Adam Lake Band 2001 BCCA 647 (CanLII) (5 November 2001) [35]; R v Cai 2002 ABCA 299 (CanLII) (12 December 2002) [93]; R v Ho 2003 BCCA 663 (CanLII) (2 December 2003) [54]-[55]; Lang v British Columbia (Superintendent of Motor Vehicles) 2005 BCCA 244 (CanLII) (25 April 2005) [41]-[43] (see also HMTQ v McGrath 2009 BCSC 180 (CanLII)); R v Russel 2011 ONCA 303 (CanLII) [47]-[52] (19 April 2011), which was the decision under appeal in the SCC – compare and contrast the Sevenoaks and Henderson cases above). Karakatsanis J (for the majority) took a narrow view of the role of amici, and held that the Courts’ jurisdiction to appoint them does not extend to setting rates of compensation for them and ordering the Provinces to pay them, effectively calling a halt to the practice which had developed in the courts below.

Although the Court divided on this issue, it was unanimous in its approval of the authorisation limb of the Auckland/GSWR principle, that “no money can be taken out of the Consolidated Fund into which the revenues of the State have been paid, excepting under a distinct authorisation from Parliament itself” (Auckland Harbour Board v R [1924] AC 318, 326). The Court concluded that there was no constitutional impediment to vesting in trial judges the authority to fix the fees of amici curiae, and that the Attorney General had the authority to disburse public funds to pay amici curiae pursuant to the Financial Administration Act, R.S.O. 1990, c. F.12, so there would have been no violation of the authorisation limb of the Auckland/GSWR principle (see Karakatsanis J (McLachlin CJ, Rothstein, Moldaver, and Wagner JJ, concurring) [57]-[61]; Fish J (LeBel, Abella and Cromwell JJ, concurring) [126]-[130]).

In the context of overpayments to Irish farmers, the authorisation limb of the Auckland/GSWR principle – as illustrated by Steel, Ford and Newton, McFarland, and Criminal Lawyers’ Association of Ontario – requires that the payments to the farmers be authorised. If they are not, then EU requires them to be recovered from the farmers in national courts in accordance with national law and procedure (see, eg, Law Commission of England and Wales Report on Restitution. Mistakes of Law and Ultra Vires Public Authority Receipts and Payments (Law Com No 227; 1994) (pdf) [17.5] 183). This would mean that, if the overpayments were unauthorised, then the question of a restitution claim under the second limb of the Auckland/GSWR principle would arise. That question will be discussed in the fourth post in this series of six posts on that principle. This is the second post in the series. In my first post, I established the the Auckland/GSWR principle. In this post, I discussed the common law authorities on the first – authorisation – limb of the principle; and, in my next post, I will discuss the constitutional authorities on that limb. The second – restitution – limb of the Auckland/GSWR principle is that unauthorised State payments can be recovered if they can be identified; and I will discuss it in my fourth post in this series. This restitution limb raises the question of whether unauthorised State payments must be recovered, and, if so, whether this precludes the operation of ordinary restitution defences; I will discuss these issues in my fifth post in this series. Similar overpayments to Gardaí (Irish police officers) give rise to similar issues considered in an additional footnote post. Finally, overpayments to Irish farmers and Gardaí are not the only contexts in which these restitution issues have recently been in the news; an interesting example has recently arisen in South Africa; and I will discuss it in my sixth and final post in this series. And, in an addendum, I will consider whether Irish law might draw other conclusions from the Australian constitutional experience.