Property Possession Restitution

“The law of restitution means the return of property to the owner or person entitled to possession. If one person has been unjustifiably received either property or money from another, he has an obligation to restore it to the rightful owner in order that he should not be unjustly enriched, or retain an unjustified advantage”, Elizabeth Martin and Jonathan Law defined in the Oxford Dictionary of Law.

Indeed, the core function of restitution is to detach from the defendant the right of a gain, rather than to give compensation to the claimant for the loss suffered. In the concept of this area of law, usually the restitutionary action will be that of strict-liability, meaning that the defendant will have the right to claim for restitution to the claimant, without being forced to show “fault” on the defendant’s position. Here is when “fault” comes into play. Some commentators argue that fault is a necessary requirement and should be part of the law of restitution, and some others don’t. On the one hand are those academics that support the idea of a fault-based liability defence and on the other hand those who support the strict-liability defence, insisting to leave the law in the way it is today. So, opinions vary regarding the role, if any of the fault in the law of restitution. In this essay, I will examine whether “fault” plays a role in the law of restitution, and if not satisfactorily what role should it play. This will take place through an analysis of some of the defences and their relevance to fault in relation to what each academic believes about “fault”. Thus, what role, if any does fault play in the law of restitution, and what role should it play?

Historical Analysis

To start with, I will make a brief historical analysis, regarding the two liabilities. It is a fact that since 1991 when the ‘implied contract’ theory had been rejected by the House of Lords, the law of restitution is now an independent area of law, and not part of the law of contract. The restitutionary claim therefore, as the historical distinction states, will be either a claim at common law, being a strict-liability principle and not subject to defences, or a claim in equity, being a fault-based liability principle, or otherwise known as based upon dishonesty. In Read V J Lyons & Co Ltd,there was a judicial preference for the fault-based liability, as Lord MacMillan held that strict liability is only primitive. On the other hand, in Lipkin Gorman, the common law position prevailed, favouring the strict-liability, where the judge had been stated “The liability of the defendant is in principle strict. That is to say, liability does not depend upon whether the defendant was dishonest, in receiving the property of the claimant or whether he was in some other way, at fault.” Hence, opinions vary even outside the case-law, as there are some academics, leaders of the law of restitution, such as Professor Birks, Lord Goff, Graham Virgo, Andrew Burrows, Hedley and Andrew Tettenborn, who some of them prefer the liability as exists, strict, and some others favour the fault based liability as a part of the defences, for example the defence of change of position. Thus, at this point, I must say that fault in the law of restitution is having a kind of a role of a defence, because as it will be seen later on, fault relates and forms part of defences.

In general, “fault”, as Professor Birks stated, comes into play when the claimant is not requesting for restitution of a gain but rather the claimant’s action will transmit loss to the defendant. Also, according to Brewer Street Investments Ltd V Barclays Woolen Co Ltd,fault can be seen claiming in restitution for “benefits conferred on another in the course of negotiations after which the parties failed to reach an agreement”. Thus, whether someone will be able to obtain a restitutionary remedy for something lost, or for something that did not occurred in the end, this can only happen demonstrating fault. In my point of view, this must be the case, because you can’t just blame worth someone for anything unless you are able to show a kind of “fault” of either the defendant or the claimant, demonstrating that there’s no doubt about his guiltiness and that he will not be wrongly charged.

Various commentators such as Birks, Virgo and Burrows have identified circumstances where the fault of either party will be considered as relevant. There are four of them. Firstly, when the claimant wants a restitutionary claim on the event of wrong, the fault of the defendant will be considered as an important one, considering that the defendant has committed a wrong for sure and there’s no need for it to be proved. Secondly, there are defences which do apply to restitutionary claims but they will only have a positive outcome and succeed if the claimant was acting in the principle of good faith. Thirdly, and in my point of thinking it is the most important one, the fault of both, the defendant and the claimant, must be taken into account when it will be established that any ground of restitution exists. Finally, it is undeniable that in a restitutionary claim in equity, the fault-based principle is stable. And actually, this principle of fault-based liability has been given a judicial preference, as in the case of Cowan de Groot properties Ltd V Eagle Trust plc where here the theme of “fault” as has been discussed, has arisen in the context of good faith. Indeed, I believe, that good faith in its general context plays a major role here, in fault, because when fault comes up incidentally and of course not intentionally, then fault can be used in its general position as a defence so that the defendant to be excluded from any charges. If however, the defendant acted on bad faith, then fault can not be relevant in the situation here, because he/she intended to act in a way as such, and thus “fault” will not prevail establishing its role of “defence”, something which will held the defendant liable.

Thereby, knowing that opinions vary, in this point I will express my own view about the role of fault in the law of restitution. Fault remains a controversial concept until today. Despite the attempts of the Court, to consider it as a distinct concept, most of the academics who have dealt with it, have stated the opinion that fault can not work and can not be used as a concept on its own, but rather, it forms part of the defences. I absolutely agree with this, because it is not that easy to establish it on its own, whether the fault lies on the claimant or on the defendant. This will create a lot of uncertainty on every case, because even if someone establishes fault, it would not be that easy to see if the fault had been committed either on good faith or on bad faith and besides fault differentiates from case to case. In the case of establishing fault, but however this happened on bad faith, it will be really unfair. That’s why I believe that the concept of “fault” should not be considered as a distinct part in the branch of the common law, as it can not work in terms of fairness on its own, but rather should remain and be part of the various defences. Supporting this notion, the case of Kelly V Solari can be applied here, as Parke B, expressed the view that instead of fault, the concept of good faith is a sufficient requirement on the part of the recipient. Moreover, he agreed with Professor Birks, rejecting the option of accepting the relative fault as a criterion on this part of the law. Citing the New Zealand authority of Thomas V Houston Corbett & Co Birks also showed how uncertain will be the change of position defence for example using the concept of fault. Thus, this being the case, I state once again that I will agree with them, considering fault as part of the defences, rather than adopting it as a concept on its own.

Thereby, considering that fault is part of the defences, it can be considered as having a role of defence and this will be explained further. Fault is relevant in four defences, the change of position defence, which is the major defence regarding its relevance to fault, then it is the ignorance defence, the defence of illegality and finally the defence of undue influence.

Concept of “fault”

At a first glance, I will start with the change of position defence and its relevance with the concept of “fault”. Supporting my point of thinking, I will discuss this in relation to the academics who have the same point of view as me, however on the other hand I will state the contrary belief by others commentators. In Lipkin Gorman, Lord Goff said “ At present I do not wish to state the principle any less broadly that this: that the defence of change of position, is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full”. Thus, being first introduced in 1991, the case also allowed the courts to introduce topics such as the relevance of fault due to Lord Goff who said that “nothing should be said at that stage to inhibit the development of the defence of change of position, on a case by case basis, in the normal way”. Also, the judges held that if there is any possibility taking into account the fault, then this must happen as to the position of both parties, that of defendant and that of the claimant, otherwise this will be unjust. I certainly agree with this proposition that everything should be made taking into account the concept of fairness, otherwise fault should be irrelevant. In a case as such, it should only form part of the change of position defence.

At the same point, in Dextra Bank & Trust Co Ltd V Bank of Jamaica, “comparative fault” appeared as a controversial matter, however at last they did not give any guidance at all and they also avoided it. In Dextra, it was first stated that if the defendant dominates under the change of position defence, a balance should be put on place, between the “fault” of both of the parties. They answered this, basing their arguments in other common law jurisdictions, for example in the United States of America, where the Restatement of Restitution, provides that the change of circumstances might be some kind of defence or a partial defence, “if the conduct of the recipient was not tortious and he was no more a fault for his receipt.” Then they moved to the jurisdiction in New Zealand, where they cited the case of Court of Appeal of New Zeland in Thomas V Huston Corbett & Co.Here the court held that they looked from the both sides and to matters other than “fault or neglect in the strict sense” and that the claim on the respondents should be limited. Therefore, it can be seen that the concept of fault it is not usually accepted.

Professor Peter Birks wrote on 1999 “Fault can creep into the law of unjust enrichment on the plaintiff’s side or on the defendants. A plaintiff who would otherwise be entitled to a restitutionary claim may be denied restitution because he has been at fault”. Professor Birks, is of the opinion that the liability should remain as it is, strict, rejecting in a way as such the fault-based liability, however if accepting it, it must be a part of the change of position defence. A classical illustration of strict liability is the case mentioned also above, Kelly V Solaribut also Re Diplock (a case where funds were misdirected from the person estate of a deceased), where they confirmed once again that liability in unjust enrichment, it is usually not based on fault but rather it is a strict one. In 1989 at the Law Quarterly Review, Peter Birks had stated in the conclusion, that fault-based liability might be the future however this is not the thesis which reflects his opinion today. He strongly believes that the legal justice system has only place for the strict liability, or if accepting the change of position defence, fault should be just part of it. The change of position, as he believes, removes all or some of the enrichment received. Nobody can deny the right of strict liability in unjust enrichment when someone has received enrichment or disenrichment, so even if the defendant is still in the position of the enrichee, the concept of fault is irrelevant. In the light of that, I will tend to agree. It is logical that when someone still holds the enrichment, enjoying it and using it, can not rely on the defence of fault, but rather the concept of fault becomes totally irrelevant. The thing is that restitution negates the transfer which took place between the parties. Thus, because of that I believe that there is no need for fault to be proven, but rather the liability should remain as exists, strict.

On the other hand, when someone reads Birks will realise that despite the fact of accepting the system as it is, argues that after the change of position defence will take place, liability is always fault-based, and fault-based liability will on some occasions be relevant, nonetheless, as it states “while it is superficially attractive and robust, turns out on closer analysis to be coarse and insensitive”. Therefore, what comes to say is that, after a change of position defence, in both liabilities, in a fault-based and in a strict-based liability, the defendant’s liability will turn on fault. The only difference between them as he states is that, in the strict-liability the defendant will be held liable after change of position, which will turn on fault, whereas in a fault-based liability, the defendant can be liable as well and before change of position, if the analogous degree of fault it is proven. Despite that, it should be mentioned that the second one, the fault-based liability system, carries a kind of moral elements, and a more philosophical norm, because innocence as has been explained at the time of the receipt, is not crucial. Therefore, once again, adopting the view of a philosophical based system would be wrong because, the legal justice system should be based on facts and stable thesis, and not what moral positions suggest or demand to do so.

Change of position, undeniably is an acceptable defence, however the only balk is the concept of fault which forms part of it. Fault is a requirement that can be seen very often, however it can not be considered as a necessary one. This is because, duties broken, will show if fault is required and in what degree, but at the same time there are duties which are broken without fault and thereby, this will be considered as a matter of strict liability. In this sense it was applied in Barclays Bank Ltd V W J Simms Son and Cooke (Southern) Ltd by Lord Robert Goff. Thereupon, I will tend to agree with Professor Birks, supporting the strict-liability system, though justifying the requirement of fault here, rather than on a totally fault-based system. Firstly, one of the roles of fault is to fix the boundaries of defences. This means that, when a defendant has committed a fault, he will be disqualified from his right to rely on any of the defences in unjust enrichment. To specify, this involves the change of position defence, where it will not be available to someone who has acted and changed his position in bad faith. Someone must act in good faith, and must not change his position because of knowledge of some facts for his own profit. Moving further, the second role of fault is to protect the countervailing interest. In this situation, it is the proposition that although the strict liability model prevails, there are some situations in unjust enrichment where in order for the plaintiff to bring an action in the law of restitution must prove fault. This can take place, even when the defendant has not changed his position. So, fault is a controversial concept, due to the fact that it can be applied in the existing liability system, and thus there is no need for a fault based system, but rather to remain as it is. A case that this can also be seen is the Re Montagu’s Settlement Trusts, where Megarry J, at first glance held that the recipient’s personal liability was fault-based and his proprietary liability was strict. But, nowadays the position that Megarry J took is one of strict-liability model in the law of unjust enrichment. Between the lines, Professor Birks concludes that, the law of unjust enrichment has nothing to do with the law of wrongs, and indeed there are two totally different systems. Therefore, having the same point of thinking as he does, I will tend to disagree to an independent fault-based system, but rather considering fault as part of the defence of change of position or either if needed to a strict-based liability.

Moving further, another one who discussed the concept of fault in the law of unjust enrichment is Lord Goff and Jones. Lord Goff was the first one who argued in the case of Lipkin Gorman, that there must be a defence of change of position. He does support and favours the strict-liability principle, however in a different manner than that in Kelly V Solariand in Re Diplock.The strict-liability principle here, in the eyes of Lord Goff, involves defences, and basically the most important one in the law of unjust enrichment, the defence of change of position. I should state here a suggestion of Lord Nicholls of Birkenhead about the knowing receipt, which it was mentioned in the case of Bank of Credit and Commerce International (Overseas) Ltd V Akindele. He said that “equity should follow the law by the imposition of a restitutionary liability applicable, regardless of fault, but subject to a defence of change of position.” As for Lord Goff, his point of thinking is that the existing liability should not be abandoned, favouring in this way the concept of fault, but to be modify, in the development of defences and more specifically on the change of position defence, a claim being based on breach of confidence, an innocent though. Thus, what he says, something that I will also tend to agree on, it is that fault can have a place in the law of unjust enrichment. However, it should not be regarded as a distinct concept, but per contra should be qualified on the various defences, giving space to the strict-liability principle therefore to remain as it is.

On the same lines, Graham Virgo stated his thesis. According to Virgo, change of position will be one of the defences of the law of unjust enrichment. Nonetheless, whether the defence will be applicable for restitution on wrongs, this depends on whether the fault was committed in bad or in good faith. This reflects my own point of realising the concept of fault. When someone acts on bad faith and just cares for his/her own good and how to make a profit, fault should be regarded as irrelevant. The case of Niru Battery Manufacturing Co Ltd V Milestone Trading Ltd, defined bad faith “as a failing to act in a commercially acceptable way and sharp practice which falls short of dishonesty”. At the same time, when someone has acted in good faith, nonetheless a fault has been occurred then this concept should come into play, securing in this way any interest and any enrichment on the part of the defendant, though. Nevertheless, Virgo demands that when fault is absent, this is a much more significant factor, establishing the defence of change of position. So, according to Virgo, fault is not that relevant, and there’s no need for it all. In his mind, change of position can exist without proving fault at all, thus conclusively once again this position it is compatible with my thesis, that there is no need for fault at all, but if any (in good faith) this can happen through defences, through the change of position.

The law of unjust enrichment

On more academic, who supports the idea of adopting the concept of fault in the law of unjust enrichment, is Andrew Tettenborn. Basically, Tettenborn disagrees with Lord Goff’s denial to apply the defence of change of position including fault to the law of wrongs. He thinks that this is just unnecessary and undesirable. Also, he based his opinion on an innocent wrongdoer in general, saying that “It’s hard to see why he should not have the benefit of the defence if the plaintiff chooses to waive the tort and sue for money had and received.” Once again, the fault based principle, can be part of the law of unjust enrichment not as a distinct point of law though, but fault must be in being with the defence of change of position.

Coming to this point therefore, it can be seen that fault is a controversial subject matter in the law of unjust enrichment. It is a concept that can not be applied from its own as a defence, but rather should exist and develop through the various defences. If that is the case, fault of both parties is relevant (comparative fault), both that of the defendant’s and that of the claimant’s. Further, fault of either party must be contrary to bad faith, meaning that fault will only be acceptable if someone has acted in good faith, presupposing in a way as such justice and fairness. In Dextra case, it was held that “the change of position defence will not be open to a person who has changed his position in bad faith, such as where he has paid away the money received with knowledge of the facts entitling the claimant to relief, and that it will not be available to a wrongdoer. However, the courts are reluctant to introduce the concept of relative fault.” Thereupon, fault-based principle can be recognised in the law of unjust enrichment, through the development in the various defences. Until now, the change of position is the first defence who accepts this concept to be part of it. However, what happens in other defences? Is it possible for the concept of fault to become a necessary requirement in the defence of illegality or in the defence of undue influence?

First of all, I will consider the defence of illegality in the law of unjust enrichment. The requirement of fault is incorporated in the defence. This has been justified in the position that due to the fact that a claimant might be able to bring a claim on the defence of illegality as a ground in the law of restitution, this forms the general rule that “it is also possible for a defendant to bring a claim in illegality of a transaction as a defence to a restitutionary claim.” This is a general rule, and usually it is indicated with two maxims. The first one is the “ex turpi causa non oritur action”, which means that “no court will lend its aid to a man who founds his action upon an immoral or an illegal act”. This is compatible with my point of view, that in general fault can be accepted as a part of a defence, only when fault is found to be occurred in good faith. The fault must satisfy the elements of morality and being a legal act. Only then it can be said that fault is a part of the defence. The second maxim, is the “in pari delicto potior est conditio defendentis”, which mean that “where both parties are equally at fault the position of the defendant is the stronger”. Here, the comparative fault it is also demanded. Only on this occasion, that if it is proved that both of the parties are equally at fault is going to be fair, nonetheless, the fault of the defendant will sometimes prevail.