From: Enrichment - Restitution & Unjust Enrichment Legal Issues <ENRICHMENT@LISTS.MCGILL.CA> on behalf of Lionel Smith <lionel.smith@MCGILL.CA>

Sent: Tuesday 2 December 2025 16:08

To: ENRICHMENT@LISTS.MCGILL.CA

Subject: [RDG] Interest as restitution?

Greetings to the members of the RDG,

Mitchell McInnes has drawn my attention to the recent decision of the HCA in Gray v Lavan (a firm) [2025] HCA 42. The plaintiff had paid legal fees to the defendant law firm, and there was dispute about the correctness of the fees that had been charged and paid. This was settled with the repayment of $900,000 by the defendant, but the settlement left open the possibility of a claim for interest; the plaintiff duly launched a claim for restitution of unjust enrichment, claiming interest (compound or alternatively simple) from the time of payment to the date of the refund. The settlement, however, was of an application for taxation of costs under the Legal Practice Act, and plaintiff's claim was governed by that statutory regime which provided for interest only upon the issuance of a certificate specifying the amount of taxed costs (so that no interest was payable from the time of payment by the client, if the client had paid earlier). The Court held unanimously that this left no room for any common law claim. Mitchell notes that the Supreme Court of Canada has also repeatedly refused to award interest as restitution where statutory recovery schemes constitute 'complete codes' (Gladstone v Canada (2005); Ermineskin Indian Band v Canada (2000); in Zaidan Group v London (1991), the absence of a regulatory authorization to pay interest, which could have been adopted but had not been, was said to exclude the common law claim).

The general question whether there can be interest as restitution was left aside by the HCA. My recollection is that at the high-water mark of my personal willingness to see unjust enrichment in very abstract terms (about 20 years ago), interest as restitution for unjust enrichment seemed quite reasonable to me. In a 2001 paper I suggested that Vincent v Lake Erie could be understood as a case of restitution for unjust enrichment. However, we all know where this leads: the case of the destroyed stamp (and other situations of enrichment and corresponding deprivation which do not properly give rise to claims). If claims for restitution are seen to be generated by more concrete things, like acquisitions of rights or the performance of requested services, interest as restitution begins to look very strange indeed. It supposes that during the time that Debtor owes money to Creditor, Debtor is constantly and cumulatively being enriched at Creditor's expense. According to Justinian's Institutes, an obligation is a bond of law, and Birks elaborated on this (Roman Law of Obligations, 3) by saying that it is as if there is a metaphorical legal rope around Debtor's neck, and Creditor holds the end of the rope. Are we to imagine that there is also a metaphorical wealth conduit, running the other way, constantly transferring coins from Creditor's pocket to Debtor's? It gets even worse, perhaps, if we think that Steve Smith was right that we have liabilities, not duties, to make restitution and to pay damages. Is there enrichment passing from the future plaintiff to the future defendant from moment the liability arises? After a traffic accident the victim might need immediate medical treatment, but do we really imagine that a wealth transfusion in favour of the tortfeasor also begins straight away?

In the new decision, [37] is of some interest. It begins: 'In Redland City Council v Kozik [(2024) 98 ALJR 544 at 578 [179]], the categories of restitution of unjust enrichment were described as including "unjustified payments of money or performance of services that benefit another in circumstances where the benefit was the result of mistake, undue influence, duress, or an absence or failure of consideration".' That rather concrete description, on its face, leaves little room for interest as restitution. The Court goes on: 'For centuries, an element of a claim for restitution in such cases has been that there is no justification - that is, no juristic reason - for the defendant to retain ...  the benefit.' I am conscious that Mitchell and many others will disagree with me, but in my view the history of 'juristic reason' in this field is not a success story.

With best wishes of the season to all,

Lionel

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