#10025 - Birks’ Absence Of Basis Applied To A Number Of Cases - Restitution of Unjust Enrichment

BIRKS’ ABSENCE OF BASIS APPLIED TO A NUMBER OF CASES

MODELS OF ENRICHMENT

1. Birks identifies three models of enrichment whereby his absence of basis can be understood by:

2. NON-PARTICIPATORY ENRICHMENTS

1. where C ignorant of D being enriched. Non-participation means there is no basis at all so rest is prima facie rewarded

3. OBLIGATORY ENRICHMENTS

1. enrichments where the C paid due to a belief in a valid obligation that turns out to be false – so payments made under a mistake as to liability, taxes exacted by a public authority ultra vires

2. In each of these cases the basis – that the money was due – was absent so prima facie rest

3. This is the most common head according to Birks

4. VOLUNTARY ENRICHMENTS

1. covers contracts, trusts or gifts where C confers a benefit on the basis of something occurring. Where that thing doesn’t occur, no basis so prima facie rest

2. So a payment on basis that contract will be made or trust will be constituted where trust fails or contract never comes into being basis is no longer present

3. Similarly, rest is prima facie warranted where a gift is invalid

4. Birks has a wide definition of gift

5. Whether an enrichment is a gift is determined with a view to risk-taking according to Birks: ‘The busker wants to be paid but takes the risk of getting nothing’

6. This definition of gifts also includes by-benefits: which are incidental benefits to another as a result of actions taken in one’s self-interest (such as heat rising from the claimant’s flat to the defendant’s)

7. Burrows – highlights how peculiar it is that Birks includes By-benefits in non-participatory enrichments (which rely on C’s ignorance)

PAYMENTS MADE UNDER A LIABILITY MISTAKE OF FACT

1. Kelly v Solari – claimant insurance company paid over money on a life insurance policy, apparently not realizing that the policy had lapsed because the deceased had failed to pay a premium

2. CL a new trial was ordered to see if the payment had been paid over by mistake

3. Birks – he said the issue of mistake had nothing to do with it. There was no legal basis for D to have received the payment. So Birks said a new trial was necessary, just to investigate whether the payment was an ex gratia payment (ie a gift) or not. So same conclusion, very different reasoning

PAYMENTS MADE UNDER VOID CONTRACTS

1. So this relates to the swaps cases (ie. Westdeutche v Islington; Guiness Mahon)

2. So in these cases the parties paid on the basis that there was a valid obligation to pay, whereas in fact the contract was void so there was no such obligation. These cases are, therefore, easy to explain on the absence of basis scheme.

3. Burrows – he says that if one changes the facts of these cases though, it exposes the complexities of the Birksian scheme. So, imagine if the bank had paid the money knowing the contract was void, so they knew the money was not due? On the CL approach the payor could not recover for mistake because it was not mistaken. However, according to Birksian scheme, this would then require an investigation into whether restitution would be denied due to viewing this amount as a gift. Though this would not be straightforward

BENEFITS CONFERRED UNDER TERMINATED/TERMINABLE OR AVOIDED/VOIDABLE CONTRACTS

1. The typical civil law approach to absence of basis says that once a contract has been terminated or avoided, there is an absence of basis triggering restitution

2. Birks – his model is different and ‘odd’ according to Burrows. He says that a terminable or avoidable contract is invalid and there is therefore an absence of basis, even though the contract has not yet been (and may never be) terminated or avoided. The power to terminate or rescind is itself a restitutionary right that responds to the absence of basis constituted by the (already present) invalidity

3. Burrows – he says that Birks only relies on this reasoning due to his desire to stick to his long-held view that the power to rescind is a response to unjust enrichment while trying...