#10026 - At C’s Expense Essay - Restitution of Unjust Enrichment

AT C’s EXPENSE ESSAY

OPENING

1. First limb of a claim in unjust enrichment (per Lord Steyn in Battersea) is that D was enriched

2. Second limb is that this has to be at C’s expense. What’s meant by this

WHAT DOES IT MEAN

1. With Resitution for Wrongs, where the cause of action is a wrong, at the expense of C simply means the wrong was committed against C

3. With restitution of unjust enrichment, at the expense of C simply means by subtraction from C. Meaning:

1. Goff and Jones – C must have suffered a loss that was sufficiently closely linked with D’s gain for the law to hold that there was a transfer of value between the parties

2. Goff and Jones – whilst in 2 party cases involving personal claims to recover the value of money paid or services rendered it’s often quite straightforward. But there is no theoretical basis of the requirement generally, which leads to 2 main questions:

WHAT’S THE JUSTIFICATION?

1. Goff and Jones: ‘This rule reflects the principle that the law of unjust enrichment is not concerned with the disgorgement of gains made by defendants, nor with the compensation of losses sustained by claimants, but with the reversal of transfers of value between claimants and defendants.’

TWO QUESTIONS

1. At the core of the academic debate concerning this issue are the questions:

1. CORRESPONDENCE QUESTION: does one need a correspondence or equivalence between C’s loss and D’s gain?

2. THIRD PART QUESTION: can C have rest where benefit conferred by 3^rd Party?

CORRESPONDENCE QUESTION

C CAN RECOVER MORE THAN HIS LOSS

1. McInnes – he says there has to be an exact correspondence between C’s loss and D’s gain HOWEVER

2. Burrows – he says that C can recover more than his loss through rest for unjust enrichment AS SHOWN BY:

3. BP Exploration v Hunt – Goff J ‘Where the benefit does not consist of money, the defendant’s enrichment will rarely be equal to the plaintiff’s expense’ HOWEVER

4. ME: this can not be taken as express approval for the view that C’s loss doesn’t need to be equivalent to D’s gain. It could be more a realistic observation that where assessing non-pecuniary losses, inevitably there will be times where the loss and gain don’t sync up due to the inadequacy of the assessment mechanism BACK TO BURROWS’ BETTER ARGUMENTS:

5. Burrows

• quantum meruit (reasonable value for services) – doesn’t matter whether C is a professional car-repairer who would not otherwise have been gainfully employed

• quantum valebat (reasonable value for goods) – available when D borrows C’s bike and returns undamaged even though C was on holiday so did not necessarily have a ‘loss’. As shown in Hambly v Trott – this is based on the value of the defendant’s saved expense, irrespective of the loss to C

• C can trace to a higher value of asset

6. Kleinwort Benson v Birmingham CC – CA rejected ‘passing on’ defence ie. so even if C has avoided the loss (ie. made good the loss) or passed it on, they can still claim for UE of the transfer of value to D

7. Littlewood Retail v HMRC – Voss J: ‘unjust enrichment is concerned with gain and not loss. When gain is greater than loss, you can still recover all of the gain’

Sempra Metals

1. FACTS: C paid money to the government as a result of a mistake concerning the operation of advance corporation tax. It transpired that the policy was contrary to the EC Treaty, meaning the government had unlawfully retained C’s money for 8 months. C sought restitution for the value of the use of the money as the government had essentially received a massive interest free loan

2. DECISION: Restitution was awarded, but at the rate it would have cost the government to borrow such sums. This was lower than what a commercial party can borrow at. SO:

3. HL thought it irrelevant to consider C’s position (ie. C’s loss) and what use C might have made of the money. It was judged solely by the gain accorded to D (the government) ULTIMATELY

4. Highlights no need for correspondence.

AT EXPENSE OF MEANS TRANSFER OF VALUE

1. Edelman and Bant – they suggest at the expense of means it ‘must come directly from the plaintiff’s assets or labour’ HOWEVER

2. Burrows

• this isn’t helpful for consideration of 3^rd party question. So a better version is it means ‘a transfer of value from the claimant’

• so it’s not necessary that transfer of value constitutes a loss to C – just need D’s gain to be transfer from C

• this explains why one can see UE as morally underpinned by corrective justice. UE is not about correcting a wrongful accretion to D’s status quo, it rests on there being a disruption to both C and D’s position that requires correction

3. Goff and Jones – it doesn’t even require active steps from C in transferring the benefit, as it includes situations where D took his property without his knowledge (Holiday v Sigil) or he surrendered a legal right against D (Gibb v Maidstone)

THIRD PARTY QUESTION

GENERAL RULE

1. Investment Trust Companies v HMRC (2012) – Henderson J ‘it is preferable to think in terms of a general requirement of direct enrichment, to which there are limited exceptions

2. Uren v First National – C is not entitled to restitution where the benefit was conferred on D by a 3^rd party otherwise than by himself. Only direct providers are entitled to restitution AND

3. Re Byfield

4. It doesn’t apply to restitution for wrongs

5. Goff and Jones – they accept that the prevailing view supports this direct provider rule, despite opposing it themselves

WHO IS THE DIRECT PROVIDER IN A CONTRACT WHICH BENEFITS A 3^RD PARTY?

1. Where contract between A and B under which A confers benefit to C – A is not the direct provider according to case law:

1. The Trident Beauty – Pan Ocean (A) had time-chartered a ship from Trident (B). B had assigned its right to hire to Creditcorp (C). A had paid an advance payment of hire to C for a period when the ship was off-hire. After A had terminated the contract for B’s repudiatory breach in failing to pay for repair of the ship and, as B was not worth suing, A sought restitution of the advance payment of hire from C. The claim failed.

2. Burrows provides 2 explanations for this decision:

1. Birks – although benefit came from A to C factually, due to B having contract with A the benefit really came from B OR

2. Justified because of policy of not allowing UE undermining contract between A + B

3. Both explanations hinge on policy of not allowing UE undermine contract between A and B, although this explanation has never been expressed in leading cases which have struggled to rationalize their approach

IS DIRECT PROVIDERS RULE JUSTIFIED?

1. PREVENTS DOUBLE LIABILITY

1. so D can’t be sued by C and X BUT

2. Burrows – this could be solved by a rule barring double liability and it may already be covered by change of position

2. THEORETICALLY IMPOSSIBLE FOR D’S GAIN TO BE FROM X AND

1. If D’s gain is 100, it can’t be said that C and X have each suffered subtractions of 100, as then the overall loss would be 200. This would contradict:

2. Lionel Smith – ‘subtraction is a “zero sum game.” The sum of losses and gains must be zero.’ BUT

3. Burrows – why can’t it just be said that X and C have suffered ‘the same subtraction’ which counteracts Smith’s ‘only one claimant’ thesis

3. CAUSAL CONNECTION BETWEEN C AND D TOO INDIRECT WHERE X IS AN INTERMEDIARY

1. Burrows – this is just an assertion, not a rational argument

4. PREVENTS TOO MUCH REST

1. widening scope of restitution renders receipts of benefit less secure BUT

2. Burrows – change of position restricts it enough with direct providers though

3. Goff and Jones – say rest is also restricted by:

4. Costello v MacDonald – claims in UE are disallowed where they would contradict or undermine the terms of contracts

5. PREVENTS C ESCAPING RISKS

1. Goff and Jones – if C can leapfrog past his immediate counterparty X, it may enable him illegitimately to escape the risk that he ran of his counter-party’s default and insolvency

EXCEPTIONS TO DIRECT PROVIDERS RULE

1. Title and Tracing

1. What Birks calls ‘proprietary connection’

2. So where C’s property is transferred to D by X. Where C can show ‘transactional links’ to the benefit received by D

3. Lipkin Gorman v Karpnale (solicitor and club case) – C’s property can even be substituted for other property. Through tracing C can establish that the property received by D came, by transactional links, from C’s property.

2. Agency

1. Stevenson v Mortimer – Lord Mansfield: ‘Where a man pays money by his agent, which ought not to have been paid, either the agent, or principal, may bring an action to recover it back’ SIMILARLY

2. Burrow

• one view of this decision is that when enrichment is conferred to D by agent it essentially comes from principal and thus principal is direct provider HOWEVER

• this explanation doesn’t explain why an agent also has the right to restitution against D, so Burrows says better explanation is to just to accept that agency is an exception to the direct providers rule BUT

3. Goff and Jones

• suggest that this exception idea is not very satisfying, especially as Costello v Macdonald shows that the courts are very reluctant to allow the agent to have UE against D

3. Subrogation

1. ‘Subrogation to subsistent rights’ can involve an exception to direct providers rule. AS DEMONSTRATED IN

2. Butler v Rice BUT

3. Dealt with later

4. Interceptive Subtraction

1. Birks

• where it is legally or factually certain that, had D not intercepted the enrichment from X, C would have received that enrichment.

• ANALOGY: X drops money from a window to C down below but it is intercepted by D. D – the interceptor – is enriched at C’s expense

• Birks says that this is accepted as an exception as demonstrated by following situations:

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