The Concepts of Unjust and Unjustified Enrichment

“As regards the evaluation of the enrichment, the use of money is in itself a non-money benefit which has to pass the tests applied to other non-money benefits.”

Introduction

Unlike the benefits that consist of goods or services, the enrichment inquiry generally remains satisfied and undisputed where the claimant pays a sum of money under a mistake to the defendant as money is always regarded as enriching. Therefore, the basic issue remains the crucial difference between benefits (goods or services) and money, as the former may be subjectively devalued. In this answer, the tests applied to the benefits conferred will be examined considering the fact that the evaluation of enrichment inquiry regards the use of money as a non-money benefit in itself that has to undergo the same tests applied to other non-monetary benefits.

‘Unjust’ and ‘Unjustified’ Enrichment

The concept of unjust enrichment was coined into English law in Lipkin Gorman v Karpnale Ltd. [1] The rationale behind the law of restitution lies in reversing the defendant’s unjust enrichment or unjust benefit that originated at the claimant’s expenses, while retaining the benefit acts in representing wrongfulness of one’s behavior. [2] Restitution in its response recognizes and treats the cause of action based on unjust enrichment (i.e. defendant’s enrichment at the claimant’s expense such as payments made by mistake, payments for consideration that fails) and wrongs (i.e. defendant’s wrong against the claimant such as breach of contract, tort or fiduciary duty) as different parts of the law of restitution. [3]

The law of ‘Unjustified’ and ‘Unjust’ enrichment shows an inclination towards the dual-pillar approach of strict (i.e. condictio) and lenient (i.e. versio-claim) legal principle respectively that was followed under the Roman law, which influenced modern civilian jurisdictions including English law. [4]

Monetary Enrichment

Where the benefit conferred consists of use of money the enrichment enquiry is uncontroversial and straightforward as it is the most obvious example of enrichment. If a person receives £1000 he cannot deny that the value of benefit is £1000. The problems in enrichment cases generally become apparent from the benefits other than the receipt of money.

In BP Exploration Co (Lybia) Ltd v. Hunt (no 2), [5] a farm-in agreement for the development of an oil concession, by means of frustration became unenforceable. Robert Goff J, points out the contrast between awards of restitution where benefit conferred by the plaintiff does and does not consists of a payment of money. Unlike the benefits that take the form of a money payment, the restitution of the benefits such as goods and services is more complex. For instance, where the benefit consists of a payment of money, the loss suffered by the plaintiff is generally equivalent to the defendant’s gain, which can be easily restored. On the other hand, the goods and services cannot be restored specially when they have not been requested by the defendant or have been consumed or transferred.

Moreover, the value of the resulting benefit to the recipient sometimes makes it difficult to equate it with the plaintiff’s loss (since different people value things differently). However, restitution is granted where the defendant has been incontrovertibly benefited.

In Sempra Metals Ltd v HM Commissioners of Inland Revenue, [6] the aspects of an award of compound interest as a restitutionary remedy was developed and clarified, in respect of advanced corporation tax paid under the mistake of law. According to Lord Hope, in measuring the value of benefit i.e. measuring the defendant’s gain in order to achieve restitution the steps involved is one of subtraction and not compensation.

On the other hand, in Westdeutsche Landesbank Girozentrale v Islington London BC, [7] the claim involved restitution for the payment of money under a void interest rate swap transaction. The court in deciding the personal claim held that it lacked jurisdiction in equity to grant compound interest.

Non-Monetary Enrichment

Where the benefit conferred does not consists of money, the material worth of the defendant’s benefit remains the basis in evaluating an award of restitution as the defendant’s enrichment in such cases would rarely be equal to the plaintiff’s expense. To be precise, in assessing restitution awards and to measure the enrichment, it is the defendant’s gain that is ascertained rather than the claimant’s loss by the means of objective and subjective evaluation.

In Benedetti v Sawiris, [8] the court recognized the fact that the agreement between the parties ceased to exist. As a result, remuneration awarded to the claimant for the services rendered was valued in an objective manner that is to say on a market value basis. Besides Etherton LJ in his proposition pointed out the relevance and presence of conditions in restitutionary cases which increases or decreases the objective value of the benefit to the defendant or a person in similar position.

The Objective Test of Enrichment

Under the objective test of enrichment a benefit is valued in an objective manner i.e. obtaining the benefit’s value in the market at large regardless of the value the benefit has to the defendant. This objective value established remains the value of the benefit to the defendant unless the defendant argues and expresses to rely on subjective devaluation. [9]

Examples: –

In Exall v Partridge, [10] the plaintiff in order to redeem his carriage and to relieve himself from the sufferings, paid the rent to the landlord for which the defendants were bound by their covenants. Therefore, the plaintiff’s action against the defendants succeeded for money paid as it was considered to be a compulsory payment. Moreover, in the present case, under the circumstances of the fiction of implied contract, there was an existence of a promise by the defendants to repay the plaintiff.

In Craven-Ellis v Canons Ltd, [11] the company accepted the services rendered by the plaintiff. It was found that if the plaintiff did not perform the services, the company certainly would have hired some agent to perform those services. Hence, the plaintiff, on the basis of quantum meruit, succeeded in claiming the remuneration from the company for the work done regardless of the fact that he failed to obtain his qualification share within two months.

The Subjective Test of Enrichment

Under the subjective test of enrichment, defendant is authorized to show his personal characteristics to discover whether the benefit conferred is less than the ordinary market value regardless of the fact that the benefit has a market value i.e. defendant had been objectively benefited. Hence, under the subjective test of enrichment the actual value the benefit has to the defendant is identified and valued. [12]

Under subjective devaluation, it is irrelevant in the case of particular individual that other people choose to have the benefit or create a demand for it. [13] As a matter of fact, the rationale of subjective devaluation lies in establishing whether the defendant desired or wished for the benefit. [14]

Examples: –

In Boulton v Jones, [15] even though the defendant was objectively benefited, the plaintiff’s claim to recover the price of the pipe failed because of the lack of contract between the parties. Even the restitutionary remedies could not be invoked; as the defendant did not value the pipe i.e. he subjectively devalued the benefit. Since the claimant’s predecessor in title owed money to the defendant, enrichment could not be established.

In Exall v Partridge, the fiction of implied contract compelled the defendants to repay in spite of the defendants assertion on subjective devaluation.

Exceptions to the Subjective Devaluation

In order to overpower the defendant’s argument to rely on subjective devaluation, the claimant has the following specified ways, which acts as its exceptions.

1. Contracts

In Taylor v Motability Finance Ltd, [16] Cooke J in rejecting the claimant’s argument that he was entitled to a bonus of £375,000, in settling an insurance claim, pointed out the historical evolution of remedies in restitution stating that it is available when there is no effective or absence of contract between the parties. Hence, where a party performs a contract or where the things that are done amounts to a breach of contract, the remedies in restitution have no effect, as there are remedies available in the terms of contract. In other words, in cases like the present, restitution cannot be granted, where contractual remedies or damages could be obtained at law to compensate the claimant for any loss suffered. Moreover, in the present case, Cooke J was of the opinion that restitution in excess of contractual entitlement should not be granted.

As a consequence of this judicial decision, it can be inferred that restitution comes into play in situations where the contractual entitlements are silent.

As a further matter, law recognizes certain categories of enrichment cases, where there is no liability in contract or tort but there has been an unjust enrichment of a party, as the law of restitution provides remedies in particular situations where unjust enrichment is established. For instance, an award by way of quantum meruit acts as a remedy when services are provided in the absence of an effective agreement or contract to ascertain the value of the services rendered. [17]

2. Incontrovertible Benefit

When the benefit is realized in money or found to be clear and obvious to the defendant it is considered as incontrovertibly beneficial. [18] The principle works as an element in establishing enrichment of the defendant. P. Birks and Goff & Jones advance two different views in this context. According to Birks narrow view only those benefits that can be realized in money are considered as incontrovertibly beneficial, [19] whereas Goff and Jones considers some of the circumstances of an individual as they also includes improvements to land or chattels as incontrovertibly beneficial without taking into account the defendant’s intention in selling them. [20]

Money

No one would ever regard money as a non-beneficial commodity. It is a known fact that money is a universal medium of exchange and its receipt always regards a person as enriched. Hence, the enrichment enquiry is uncontroversial.

Restitution of a thing received

If the action of receiving a thing other than money leaves no doubt or unambiguously establishes enrichment of a person, the person is incontrovertibly benefited.

According to McDonald v Coys of Kensington, [21] if it is established that the goods are incontrovertibly beneficial and the defendant instead of returning it, decides to retain readily returnable goods (which according to Mance LJ also is a distinct category of enrichment) then he must pay the reasonably measured value of damages of another’s chattel as there is no doubt in establishing enrichment.

Necessary expenditure

The defendant is regarded as incontrovertibly benefited in cases where he receives a benefit of a nature that prevents him from spending on some factually and lawfully necessary expenditure. Exall v Partridge could be seen as an example where the plaintiff’s act prevented the defendants to incur lawfully necessary expenditure, which they would have become subjected to anyways.

In Rowe v Vale of White Horse DC, [22] the issue involved a question of private law i.e. determining the authority’s demand for the payment in arrears of sewerage services rendered under the principles of law of restitution, as no contractual relationship existed. The claim was examined as preventing the necessary expenditure for which the other users may face the consequences of higher charges. But, the Council’s cause of action against Rowe failed because of the absence of an essential element i.e. free acceptance acting as an unjust factor. Hence, claim in restitution could not be granted.

Monetary realization of the benefit

Keeping in mind the autonomy of the defendant, the fact that the benefit could be realized in money infers that the defendant has been enriched.

In Greenwood v Bennett, [23] there was a mistakenly rendered benefit in kind, in improving the car by Harper in good faith without the knowledge of the defect in title. Court in deciding the interpleaded proceeding prevented the unjust enrichment at his expense and allowed him to regain the value of the repairs done. In the present case, the belief that he had title to the car acted as an unjust factor.

3. Free Acceptance

If the defendant is found acting contrary to his obligation of rejecting a benefit, where he knew that the claimant had no intention to confer the benefit gratuitously or where he had the ability to reject the benefit, it is regarded that he has freely accepted the benefit. [24] The doctrine has evolved and has developed from a simple to a more complex form since its introduction to the law of restitution by Goff and Jones.

In Leigh v Dickinson, [25] the defendant failed in his claim to secure the money spent by him in repairing the plaintiff’s house regardless of the fact that the plaintiff was objectively benefited. The circumstances of the case indicated that the recipient was given no choice i.e. whether to adopt or decline the benefit. Hence, on the basis of subjective devaluation she could not be held liable. In deciding the case, Brett MR, pointed out the intrinsic nature of the concept of free acceptance. Prominence should be given to the person’s choice to adopt or decline a benefit, and then if he chooses to adopt the benefit restitution must be granted to the other party. On the other hand, if he chooses to decline a benefit, the money spent by the other party must not be repaid.

In Chief Constable of the Greater Manchester Police v Wigan Athletic AFC Ltd, [26] the issue was related to the policing service at a football stadium. The defendant was rendered with some extra policing services, which according to him was unnecessary and he made it clear that contractually he was not entitled to pay for the extra services provided. Morritt LJ, being in the majority held that an award of restitution could not be granted on the basis of unjust enrichment, as there was no unjust factor. Moreover, he accepted the test of free acceptance as a valid test in establishing enrichment. However, the claim was rejected on the facts of the case, where the defendant had no opportunity to reject the extra policing services. The circumstances of the case indicated that the defendant was given no choice, as he had no opportunity to reject. Hence, in the present case, it could not be regarded that he had freely accepted the benefit.

Conclusion

From the above-mentioned facts and cases (e.g. Benedetti, Craven-Ellis, Rowe) it is concluded that where the issue involves a non-money benefit the court apply the tests in establishing enrichment.

On the other hand, in cases like Sempra, Exall, Westdeutsche etc the issues involved were directly or indirectly related to enrichment in terms of use of money but as a matter of fact it is inferred that they had to pass the tests, which are generally applied to non-money benefit in establishing enrichment.

Lord Nicholls in Sempra Metals case pointed out that to attain a legitimate result and complete restitution compound interest should be granted. And as seen under the subjective test of enrichment the actual value the benefit has to the defendant is identified and valued. As a result, while calculating the actual value of the defendant’s gain in cases like Sempra the tests are applied in spite of the enrichment’s nature i.e. regardless of it being monetary or non-monetary enrichment.