#3671 - Grounds Of Restitution - Aspects Of Obligations

UNJUST ENRICHMENT (II): Unjust Factors

1. Absence or Presence of Basis?

   1. Absence of Basis

      1. Birks’s Absence of Basis Scheme

         1. General

            • Birks – it is sufficient for the claimant to establish that there was no explanatory basis for the receipt of an enrichment (e.g. if there was a contract/statute, that is used instead). Therefore all potentially void contracts potentially give restitution, but defences restrict these

• Baloch –German approach of only treating some void contracts as yielding restitution is more direct, but Birks’s approach fits in with common law better

  • Burrows –because you have to look at, e.g. contract law, to see whether a basis exists or not, the pyramid might be thought to push unjust enrichment into other areas of law

  1. Judicial Support

• Westdeutsche Landesbank Girozentrale v Islington (1996) (HL) –obiter –voidness of the swap contract triggered unjust enrichment and meant there was an absence of consideration

• Kleinwort Benson v Lincoln (1999) (HL) –Lord Hope –it is unjust for a person to retain a benefit which he has received at the expense of another, without any legal ground to justify its retention, which that other person did not intend him to receive

  1. Normative Judicial Support

• Deutsche Morgan Grenfell Group v IRC (2006) (HL) –Lord Walker –The recognition of “no basis” as a single unifying principle would preserve … the purity of the principle on which unjust enrichment is founded, without in any way removing (as this case illustrates) the need for careful analysis of the content of particular “unjust factor” such as mistake. But this was not the right case in which to do it, and there should be a period of reappraisal

  Lord Hoffmann - absence of a basis for payment is a ground which generalises and subsumes all separate categories of situation where a payment of money not due was recoverable

  1. Participatory and Non Participatory Enrichments

2. The Pyramid

   • At the base of the pyramid are unjust factors, and at the top is absence of basis. The unjust factors will cause an absence of basis because the transfer will have always occurred on either a failed basis or without consent

1. Advantages of the Pyramid

   1. External Controlling Factor

• Baloch –pyramid gives unjust factors a controlling mechanism in the form of absence of basis. Without this, unjust factors characterise the transaction as an intent-based unjust factor, which is inappropriate (e.g. interest rate swap cases were to do with void contracts rather than non-voluntariness of the transfer)

  1. Sufficient Attention to Validity of Agreement

     • CTN Cash & Carry v Gallaher (1994) –claimant ordered cigarettes from defendant who delivered to the wrong warehouse. Before defendant could redeliver, they were stolen. Defendant then redelivered to the correct warehouse. Claimant was billed for both deliveries and paid because defendant threatened to withdraw credit facilities. Claimant then claimed restitution, arguing payment was vitiated by duress. Held there was no obligation under the contract to pay for the cigarettes (as defendant thought) but no restitution anyway. For the purposes of duress, it didn’t matter whether the obligation was valid or invalid

• Baloch –CTN treated the duress analysis as the same whether the obligation was valid or not. They therefore failed to incorporate the validity of the agreement into their analysis. The Birks analysis would have avoided this problem

  • Roxborough v Rothmans (2001) (HCA)–tax paid when it was subsequently declared unconstitutional. Court didn’t say why they were granting restitution but it was granted

• Baloch –under Birks approach, court would have looked at a reason why there was an absence of basis (e.g. because of mistake or failure of consideration), but as such didn’t direct their minds to this question

  1. A Happy Medium Between “Unjust Factors” and “Civilian” Approaches

     • Deutsche Morgan Grenfell v IRC (2006) (HL) –tax erroneously paid too early. Claimant sued for use value of the money

• Baloch –a purely objective approach would not allow restitution for value of the money but unjust factor approach didn’t properly consider the basis for restitution

  1. By-Benefits

• Baloch –by-benefits are not properly catered for under Birks they are treated as gifts. Instead, they should be treated as cases of ignorance or mistakes

  1. Disadvantages of the Pyramid

     1. The State of the Authorities

        • Kleinwort Benson v Lincoln (1999) (HL) –Lord Hope – positive grounds of restitution must be established (specifically contrasted common law and civilian approaches)

        • Marine Trade v Pioneer Freight (2009) (HC) –Flaux J –positive grounds must be established

        • Woolwich v IRC (1993) (HL) –English law might have, but has not, developed so as to grant restitution simply because the benefit rendered was not due

     2. Different Results

        • Burrows – results are different in mistaken payment cases because you have to work out whether there was a valid basis, not whether claimant was mistaken. With void contracts, Birks would not say automatically there is restitution because there is an absence of basis because if claimant knew it was void he would be making a gift

        • CTN Cash and Carry v Gallaher (1994) –the pyramid would have given restitution because there was an absence of basis; fact that there was no duress was irrelevant. Here, restitution was not given because there was no duress.

        • Kerrison v Glyn, Mills, Currie (1911) –claimant recovered money paid in anticipation of a liability that never arose. Birks – this is okay because claimant’s purpose had failed

• Virgo –in Kerrison, Birks hasn’t considered that claimant might be taken to assume the risk of the purpose having failed. Such a wide interpretation he takes could cause many gifts to become recoverable in unjust enrichment. Absence of basis undermines commercial certainty

• Virgo –Birks’s view that failure of consideration doesn’t have to be total is not consistent with the authorities either

  1. Analytical Complexity

• Virgo –the pyramid only looks at unjust enrichment. You still need to consider the grounds of restitution because these will establish that there is no basis for the transfer, as well as the bar of risk-taking which is built in to the absence of basis approach. Birks would say resulting trusts arise on failure of an express trust due to unjust enrichment, but this could cause excessive proprietary restitution to be given

  • Burrows –odd to think there is an absence of basis with voidable contracts

  1. Too Much Restitution

• Virgo – absence of basis increases the amount of restitution awarded. Birks deals with this by saying defences cut it down but his analysis of them is quite vague. Restitution should be exceptional as otherwise commercial certainty would be undermined

  1. Uncertainty as to Basis

• Virgo – there are many questions about what the valid bases are –e.g. what constitutes a gift in Birks’s analysis? The better view is that absence of basis is not irrelevant, but it does operate as a bar alongside where claimant bore the risk of losing out

  • Burrows – Birks uses a problematically wide notion of gift, especially with risk-takers, for whom it is difficult to see why they would be making a gift. It doesn’t help to submerge bases like this and pretend you are still answering the question of absence of basis

  1. Presence of Basis

     1. Presence of Basis

        1. General

           • Where the defendant is legally entitled to the enrichment under a valid legal obligation, there is not normally any restitution despite there being an unjust factor

           • Kleinwort Benson v Lincoln (HL) – Lord Hope – no unjust enrichment where payee was entitled to the money

        2. Justification

           • Burrows – prima facie injustice established by the unjust factor is outweighed by the fact that defendant is legally entitled to an enrichment

        3. Exceptions?

           • Burrows – there are exceptions where there is no policy inconsistency in granting restitution even though defendant is legally entitled to it because the prima facie injustice is not outweighed by defendant’s legal entitlement to the enrichment, e.g. restitution for: past obligations in a frustrated contract, obligations in an unenforceable contract, money paid under an unenforceable contract

           • Roxborough v Rothmans (2001) (HCA) –retailer entitled to restitution of part of a price that represented an unconstitutional tax, even though there was a valid contract in place. Callinan J – restitution is available as long as performance is impossible

• Virgo –in Roxborough, it wasn’t certain that burden was put on the defendant. The case can’t be justified, and neither can Burrows’s view because it is not consistent with presence of basis because there was a subsisting contract that was valid

  1. Virgo’s Potential Bases