The development of unjust enrichment
in the Channel Islands
Paul Buckle
In response to
criticisms made by the Guernsey Court of Appeal in the Investec v Glenalla, litigation, this article charts the
progress of the law of unjust enrichment in Jersey and Guernsey, and attempts
to identify its underlying principle. In Guernsey, the position since Investec is unclear, but Jersey has grounded cases
of unjust enrichment very much in équité, and applied what it sees as a vibrant doctrine increasingly widely.
Whilst that is to be welcomed, limits
must still be observed to preserve commercial certainty and avoid unjust
enrichment becoming no more than a discretion of the court.
A. Overview of paper
1 In
Jersey, in Flynn v Reid,
Sir William Bailhache, then Deputy Bailiff, upheld Mrs Flynn’s claim to a
share in a house owned jointly with her unmarried partner, on grounds of unjust
enrichment. He also thought the result in Maçon
v Quérée,
a proprietary estoppel case, could have been achieved on similar grounds,
describing the doctrine of unjust enrichment as a “vibrant one
. . . [whose] principles can be applied across a wider basis than
merely a cohabitation case”.
That view has eventuated, as recent Jersey cases have deployed the doctrine in
circumstances ranging from fraud to contribution between joint tortfeasors.
That said, detailed consideration of the doctrine’s juridical basis is
limited, and in Guernsey, in Investec
Trust (Guernsey) Ltd v Glenalla
Properties Ltd, the
Court of Appeal expected—
“147 . . . In any future cause
where a claim is advanced in this jurisdiction based on principles of
restitution, unjustified enrichment, quasi-contract or quantum meruit,
this court expects that the parties will address the Royal Court fully on the
ambit of the remedy available to litigants in this jurisdiction by reference to
the local jurisprudence, customary law and such judicial or academic writings
from other jurisdictions as appear not inconsistent with the law of Guernsey.
See, for example, the discussions in Benedetti v. Sawiris
. . . and the symposium on unjustified enrichment, unjust
factors and failure of purpose reasons (18 Edinburgh Law Review, at
414–451).
148 We note that in Jersey the Royal
Court has been equally cautious in dealing with applications based on unjust
enrichment: see In re Esteem Settlement . . . (2002 JLR 53, at
paras. 156–157, per Birt, Deputy Bailiff) and Flynn v. Reid
. . . (2012 (1) JLR 370, at paras. 93–108, per William
Bailhache, Deputy Bailiff).”
2 The
appeal court’s expectations were not met in the Privy Council, as the
parties agreed English law would govern the unjust enrichment claim.
In response, this paper reviews the development of unjust enrichment in the
Islands in terms of its underlying basis and its unifying principle. That both
are established is essential for the doctrine’s principled development.
And that the doctrine develops is essential for the law to grant remedies where
one is clearly needed, but where ordinary rules of property, contract or tort
will not apply. Say I inadvertently pay my electricity bill twice. In that
situation, most of us, I think, would expect I can recover the second mistaken
payment; the electricity company has surely benefited at my expense without
reason. And yet my terms with the electricity company say nothing to that
effect, and only the first payment was legally owed, so no contract applies to
the second. Nor in the circumstances, will I have retained any proprietary
interest in the second payment, nor has the electricity company obtained it by committing
a wrong against me. I therefore must look to unjust enrichment for recovery,
and not by seeking compensation but by having the value of the electricity
company’s benefit restored to me.
3 The
UK Supreme Court recently said unjust enrichment is about reversing normatively
defective transfers of property, and operates as “a tool of corrective
justice”. Hence, “When a transfer of value
between two parties is normatively defective, restitution functions to correct
that transfer by restoring parties to their pre-transfer positions”.[8] But
when (and why) the transfer should be reversed, must be evaluated on principle
and with due regard for policy, as otherwise unjust enrichment risks subverting
the law (or sanctity) of contract[9] or
the certainty of payments. And absent clear rules, it risks becoming “a
discretionary power [of the court] to order payment whenever it seems in the
circumstances of the particular case just and equitable to do so”,[10]
giving “judges carte blanche to adjudicate disputes in accordance with
their own conception of justice”,[11] creating palm tree justice
of the worst kind.[12]
4 The
clear rules underlying when and why to reverse a defective transfer differ
significantly between common law and civilian jurisdictions. The Guernsey Court
of Appeal in Investec wanted
comparative analysis. Jersey and Guernsey are mixed jurisdictions, that is, “legal systems in which the
Romano-Germanic tradition has become suffused to some degree by Anglo-American
law”.
That means some of their laws have a common law and others a civil law
derivation.[14]
Some mixed jurisdictions follow the civil law approach to unjust enrichment. In
Scotland, the cases of Morgan Guaranty
Trust Co of New York v Lothian Regional Council,
Shilliday v Smith
and Dollar Land (Cumbernauld) Ltd v CIN
Properties Ltd
identify with the civilian tradition of unjustified enrichment, or enrichment
without cause. And in South Africa, attempts to shrink Wouter de Vos’s
general principle of enrichment sine
causa
were halted by the Supreme Court of Appeal in 2001 in McCarthy Retail Ltd v Shortdistance Carriers CC,
and the trend since, inspired by the works of Visser
and Du Plessis,
has been towards a German model.
Others such as India, favour a broader approach grounded in equity and
unconscionability.
By contrast, few have adopted the common law approach. And some jurisdictions
(mixed or otherwise) such as Canada, have moved from a common law to civilian
based system, sometimes with serious consequences.
5 In
Jersey, early indications, notably in Esteem,
were that the English model would be followed. However, in Flynn v Reid, Bailhache, Deputy Bailiff, called Pothier’s Traité des Obligations (9th edn,
Tome 1, Chapter 1), the “jurisprudential basis for claims in unjust
enrichment”,
adding that—
“The relevant principle is that a person who,
without any cause, obtains a benefit at the expense of another is bound to
restore it. As with the principles underlying the French claim of abus de droit, neither principle is
found in the Code Civil or in any other law. The approach is seemingly based
upon the natural law and on general principles of équité of the kind described above. That is entirely
consistent with the practice of the Royal Court over many years in allowing, as
examples of unjust enrichment, claims for money paid by mistake of fact, or
claims for damages on a quantum meruit.”
6 Some
evidence suggests the common law too was based on natural justice. In Moses v Macfarlane,
Lord Mansfield said the recipient of money was bound to repay it ex aequo et bono where it was contrary
to the ties of natural justice and equity for him to retain it.
But his approach was not followed, and eventually, in Lipkin Gorman v Karpnale,
the Lords recognised a right to restitution under English law if the defendant
was unjustly enriched at the claimant’s expense and had no defence. That
remains the position today.
7 Their
references to Benedetti v Sawiris (a
UK Supreme Court decision) and the symposium in Scotland (discussing a
civilian, or mixed approach) suggest the Court of Appeal in Investec wanted comparative argument on
whether Guernsey should adopt the common law or civilian system, or perhaps
elements of both. And their references to “restitution, unjustified enrichment, quasi-contract or quantum meruit”
suggest they wanted clarification of the remedies available, and the
relationship between unjust enrichment and other areas of the law. This paper
aims to provide insight on these difficult issues.
B. Common law and civilian law approaches
8 Initially,
the Romans thought obligations derived from contract or wrongs, but in about
160 AD, Gaius recognised that legal duties, such as to repay money paid by
mistake, could arise absent a contract or a wrong.
Those duties were later
grouped under quasi-delict and quasi-contract, the latter comprising
various remedies ex quasi contractu concerning debt actions
where there was no contract. The two most important were the actio negotiorum gestorum contraria,
available where a claimant consciously involved himself in another
person’s affairs solely for that person’s benefit, and the generic condictio.
Amongst its forms was the condictio
indebiti (or action in respect of something not owed) appropriate where,
for instance, someone paid money or transferred something, being mistaken that
a debt was due or the transfer was required. Alternatively, there was the condictio sine causa, a remedy to
reverse an enrichment where other forms of the condictio could not do so.
9 In
the second century AD, Pomponius recognized that these remedies derived from natural
justice. The principle was that iure
naturae aequum est neminem cum alterius detrimento et iniuria fieri
locupletiorem, meaning “by natural law it is equitable that no one
should be enriched by the loss or injury of another person”.
Later civil lawyers, like Grotius,
used this principle as the basis for a general enrichment action, and it still
underlies many modern codifications, such as the German,
as well as forming part of French law, without appearing in the Code Civile itself.
Interestingly, however, equity and unconscionability also ground the Australian
model.
And as we have heard, Flynn v Reid
places fairness at the heart of Jersey law.
10 In
England, Henry of Bracton’s treatise, De
Legibus et Consuetudinibus Angliae, in the early 13th century, adopted the
Romans’ fourfold classification. However, in the 16th century, the
extension of the historic contract writ, assumpsit, to encompass the remedies
of quantum meruit, quantum valebat and indebitatus assumpsit, led to a new doctrine of quasi-contract.
That was because in each case the sum earned, deserved, or promised, derived
from a non-existent agreement supplied by the court,[39] which—
“look[ed] at the true facts and ascertain[ed] from
them whether or not a promise to pay should be implied, irrespective of the
actual views or intentions of the parties at the time the work was done or the
services rendered.”[40]
11 In Moses v Macferlan, Lord Mansfield explained these cases as instances of an obligation
arising from the ties of natural justice, “as it were upon a contract (‘quasi ex contractu’ as
the Roman law expresses it)”.
But his analysis was later criticized as too general,
and defendants lost certainty amidst vague notions of justice and equity, as the
shortcomings of the doctrine soon became apparent. Similar complaints are made
today that the Australian model founded on equity and unconscionability is too
open-ended. Quasi-contract
achieved its judicial high water mark in England in the House of Lords in Sinclair v Brougham.
But by the 1940s, its anachronistic nature was widely criticised,[45] and
in Westdeutsche v Islington LBC, the House
of Lords abandoned it for good.
12 Having
rejected quasi-contract and following the US Restatement of the Law of
Restitution,[47]
published in 1937 by the American Law Institute, common law jurisdictions now prefer
a unifying principle of reversing unjust enrichment. Since Lipkin Gorman v Karpnale,
the position under English law has been that to succeed in a claim for unjust
enrichment, A must show B has been enriched at A’s expense,
unjustly, and where B has no defence.[50] A number of recognised,[51] but
not closed[52]
reasons (or “unjust factors”) explain when B’s enrichment is
unjust. The most important are, generically, mistake (of fact or law),
compulsion, necessity and failure of consideration, and the most controversial
is ignorance (or, as it is now variously called, lack of intention to benefit,
want of authority, lack of consent,
and/or powerlessness). Liability is strict, but subject to defences, the most
important being that B has changed his position in good faith in reliance on
receipt of the enrichment.[54] By
contrast, as we have heard, jurisdictions such as Scotland,[55] and civil law
jurisdictions, base their older-established model on the condictio indebiti,[56] or
enrichment sine causa (without legal
justification).[57]
13 The
difference between the two approaches is apparent in the paradigm example of a
mistaken payment. Common law regards the mistake as a factor vitiating the payer’s
intention to benefit the payee (which, subject to defences, makes it unjust for
the payee to retain the payment). Civil law says there was no legal basis for
the payment, as it was neither voluntarily given nor due under any valid legal
obligation, so that the payee may not retain it. So, whilst common law asks whether
the claimant genuinely intended to benefit the defendant, civil law asks
whether the payment is legally justified, and whether the defendant is legally
allowed to retain it.
14 The
merits of each approach fell into sharp focus, following Birks’
admission,[58]
shortly before his death, that he had been wrong all along,[59] and that not only should
English law adopt the civilian method, but that it had already committed to do
so on the basis of dicta in cases
involving the recovery by local authorities of payments made under invalid
swaps transactions.[60] Drawing
on his core case of Kelly v Solari where the recipient of a death benefit
paid under a lapsed insurance policy “was not entitled to [the benefit],
nor intended to have it”,[62]
Birks contrasted the common and civil law approaches. Under the former, “unjustness”
was determined by impairment of intent; the insurer’s mistake about the
policy’s validity meant it did not intend Mrs Solari to receive the
benefit. Under the civil, the policy’s invalidity meant there was no
benefit to which Mrs Solari was legally entitled, or rather, no debt of
insurance which the insurer was obliged to discharge.[63] Kelly v Solari was therefore as explicable on civilian grounds that
no debt was due, as it was on common law grounds that the insurer was mistaken
about the policy’s validity.
15 The
House of Lords in Hazell v Hammersmith
& Fulham BC first confirmed that swaps contracts
entered into by local authorities were invalid, being ultra vires the authorities’ powers. In a later similar case,
Guinness Mahon & Co Ltd v Kensington
& Chelsea Royal LBC,
the contracts’ invalidity or “absence of consideration” was
decisive. That equated, in Birks’ view, to absence of basis, which was
the only rational explanation. The same had occurred at first instance[66] in Westdeutsche Landesbank Girozentrale v
Islington LBC, and in the House of Lords,[67] where “failure of
consideration” meant only that the authorities had paid money to
discharge a non-existent obligation.[68] For Birks, absence of basis
was not a new unjust factor but an alternative to those factors, so it was
impossible to explain the swaps cases on any other ground. As a result, he
proposed a new model, not strictly civilian but closer to civil than common
law, under which a prima facie
entitlement to restitution arose if a payment was made without basis,
that is, without legal justification.
16 Some
thought Birks’ change of approach placed English law “at something
of a crossroads”,[70] the
choice being whether to retain the common law or adopt the civilian approach,
or the Birksian version of it. In the event, English law has retained the
common law, with the commentators unconvinced by Birks’ new model.And
the view remains that Birks was wrong that English law had committed to civil
law, as his interpretation of the swaps cases ignored an alternative analysis
based on mistake of fact,[72] and
because the authority[73] was
cautious, if not lukewarm, to reappraising English law in the civilian way.[74]
17 Against
this background, I now consider the Jersey cases.
C. Quasi-contract in Jersey
18 Jersey has long recognised customary rights ex quasi contractu.
However, these rights differ significantly from those rejected in England.
Their nature can be derived from cases involving disputes between adjoining
owners of land,
where they were said by Sir
Philip Bailhache, Bailiff, in Gale v Rockhampton, to be best analysed—
“as obligations, arising in quasi-contract, to be a
good neighbour and not to use one’s land in such a manner as to injure
that of the adjoining owner—obligations arising from the law of voisinage.”
19 Although
resembling nuisance, the basis for voisinage
was quasi-contract within the customs of Orléans and Paris,
and the term was known also to Normandy.
The issue in Gale was the correct
prescription period, which, at first instance and on appeal,[80] was
ten (not three) years, because voisinage
was an action in quasi-contract, not nuisance or breach of fiduciary duty.
Importantly, however, unlike an action in unjust enrichment, a breach of duty
arising from voisinage generates a
claim for compensation for loss, not restoration of gain,
creating one immediate distinction between the English and civilian
understanding of quasi-contract.
20 Further
differences emerge from Pothier, who used the term quasi-contract to describe
the “act of a person permitted by the law which obliges him in favour of
another, without any agreement intervening between them”.
In Gale, in the Court of Appeal,
McNeill, JA quoted Evans’ footnote to his translation of Pothier, which
said—
“We have no term in the English law strictly
corresponding with that of quasi-contract in the civil law; many of the cases
falling within the definition of that term, may be ranked under the
denomination of implied contracts, but that denomination is applicable rather
to the evidence than to the nature or quality of the obligation, as in judgment
of law an actual promise is deemed to have taken place, and the consequences
are the same as if such promise had been declared by the most expressed and
positive language”,[84]
and concluded
that Pothier sought “to identify . . . that the nature
of the relationship is one which produces actual obligations just as if there
had been a contract”.[85]
21 On
occasions,
Jersey has been encouraged to discard quasi-contract, and relocate the decided
cases within tort or fiduciary duty. But it has not done so,
and the doctrine remains part of Jersey law. It therefore becomes important to
identify when a claim lies in quasi-contract, and how it differs from a claim
for unjust enrichment, which is similar. It is suggested that distinction has
not yet been clearly articulated. In Neal
v Kelleher, counsel for the defendant argued quasi-contract claims were
restitutionary,
which was surely wrong given the inclusion of voisinage within them. In Neal,
the point went undecided, but quite rightly, decided authority suggests the two
are distinct and co-exist. For instance, in CMC
Holdings Ltd v Forster, Master Thompson recognised quasi-contract and
unjust enrichment had many similarities, and overlapped, being both “based
on the same juridical foundation of équité”.
And in Classic Herd Ltd v Jersey Milk
Marketing Bd,
William Bailhache, then Deputy Bailiff, said claims in quasi-contract—
“like claims in unjust enrichment, are permitted
because équité allows the Court to remedy what would otherwise
be injustice arising out of the lack of contractual obligation.”
22 That
helps a little, but does not explain where lie the boundaries between the two.
Under Roman law, as well as the condictio
indebitati and condictio sine causa
(closest to cases of unjustified enrichment), obligations ex quasi
contractu arose in a variety of cases sharing little in common, such as the
unauthorised management of another’s affairs (negotiorum gestio),
guardianship (tutela), co-ownership (communio) and instructions within a will
(legatum per damnationem).
Under Jersey law too, quasi-contracts are not confined to neighbours’
disputes over land. Instead, for example, and in line with the Roman model,
prior to statutory intervention they governed the relationship between a
curator and its ward,
and created an obligation on an absentee to reimburse someone who had incurred
costs in doing something necessary for the absentee,
the latter a clear example of negotium
gestio.
It seems also that cases of quantum
meruit are dealt with as quasi-contracts.
And recently, in O’ Keefe v Caner,
in the English High Court, after reviewing extensive evidence of Jersey law,
H.H. Judge Keyser QC concluded that a director’s duty of care and skill
under Article 74(1) (b) of the Companies (Jersey) Law, 1991 was most naturally
quasi-contractual in origin. However,
in Fogarty v St Martin’s Cottage Ltd,
the Jersey Court of Appeal questioned the value in calling the customary law
remedy of relief (part of voisinage) quasi-contract,
especially as under French law it included concepts Jersey would describe as
torts.
23 To
summarise, English law rejected the procedural fiction of treating cases of
unjust enrichment as quasi-contractual, whereas Jersey retains a substantive
law of quasi-contract. That law is separate from unjust enrichment (although
likewise arises from equité) and applies where the parties’
relationship is non-contractual
but requires a legal basis for the imposition of an actionable duty. That basis
is a finding of an implied agreement deriving from the parties’ circumstances,
be it they are neighbours or whatever. But the question in Fogarty remains; does the designation quasi-contract serve any
purpose? Or to put it another way, what do the quasi-contract cases share in
common?
24 This
is essentially an exercise in taxonomy. If an obligation logically already
falls within an established branch of the law, including customary law, it
seems unnecessary to further characterise it as quasi-contract. Co-ownership is
part of property law, and the rights and obligations of co-owners can be
determined without need for recourse to the Roman actio communi dividundo, to decide on their shares.
Similarly, the duties of a tuteur can
be traced to the customary law bon père
de famille,
or common law fiduciary principles, without additional enquiry whether the
parties enjoy a quasi-contractual relationship. Voisinage itself adequately explains the relationship between
neighbours without need for an implied contract. In cases of that kind, it is
suggested the reference to quasi-contract adds little. Similarly, the cases are
not obviously instances of unjust or unjustified enrichment. More interesting
are cases involving payments by mistake, and instances of quantum meruit and negotiorum
gestio, all of which Roman law placed within the condictio indebitati, or condictio sine causa, as there, the analogy with unjust
enrichment is much closer. How the Jersey cases have addressed these issues,
and unjust enrichment generally, is considered in the following sections.
D. Early cases in Jersey
25 The
early Jersey cases show little consistency, and offer no coherent doctrinal
explanation for the Jersey law of unjust enrichment, placing reliance instead
on disparate and at times controversial authorities.
26 In
La Motte Garages Ltd v Morgan,
the defendant bought a car from the claimant company for £4,995, offering
her car worth £2,000 in part exchange. The defendant had acquired her car
on hire purchase, and a company employee said the company would discharge the
£2,270 outstanding to the HP company. When making out the invoice,
however, he mistakenly omitted to include the £2,270. The defendant paid
only the £2,995 balance, and when she refused to pay the additional
£2270, the company issued proceedings claiming their salesman had
intended the company only to discharge the HP obligation on receipt of funds to
do so. There was no intention voluntarily to discharge the debt. The defendant
argued, unsuccessfully, that the salesman’s offer meant the company had
to pay outright, and that was the contract she accepted. The court found the
salesman’s mistake annulled his agreement,[103] so that (applying a
Canadian source, Klippert[104])
the claimant was entitled to reimbursement from the defendant, who should have
understood the salesman’s offer amounted to an equitable assignment of
the HP obligation to the company, giving the company the right to
reimbursement.[105]
27 Morgan’s importance is less to do with mistake, than with compulsion, a
recognised unjust factor under English law. True, given Morgan’s error,
the company could by the rules of contract (not unjust enrichment) have denied it
had voluntarily promised to pay the HP debt. But then, having established the
company involuntarily discharged the HP debt, to have allowed the company no
right of reimbursement from the defendant, would have been unjustly to enrich
her at their expense. The proof is in the authority cited in the extract relied
upon from Klippert, which was Exall v
Partridge,[106] an
old example of an action paid to the defendant’s use,[107] where a landlord owed rent
by the defendant lawfully seized the claimant’s carriage from the
defendant’s premises, and would only return it on payment of the rent by
the claimant. Having paid the rent and recovered the carriage, the claimant was
treated as having involuntarily discharged the defendant’s liability,
which entitled it to restitution on grounds of legal compulsion. One might
argue Morgan is an example of negotiorum gestio; the claimant
necessarily intervened in the defendant’s affairs, and was entitled to
reimbursement of the sums paid. However, the analogy is not sound. For there to
be an actio negotiorum gestorum contraria,
the gestor must not have acted solely for his own benefit,
28 Next,
in Louis v Le Liard
the claimant obtained quantum meruit
for the construction of a shed on the defendant’s land.[109] He
relied on the English case of Way v
Latilla,[110]
where the claimant received remuneration, again by quantum meruit, for
services involving the identification of mining opportunities in Ghana, provided
to the defendant in anticipation of receiving a substantial interest in the
defendant’s gold mining business. Although there was no agreement on the
amount of the claimant’s interest, the House of Lords found evidence to
imply a distinct contract for services, under which the claimant would receive
remuneration amounting to a proportion of the value of any opportunities
secured by the defendant’s business.
But Way v Latilla is a controversial
decision, which has long divided the commentators. Burrows sees it as an
example of restitution arising from total failure of consideration.[112] By
contrast, Birks, in his first book, thought it was based on the controversial
unjust factor of free acceptance,[113] where
the defendant declines to reject services it knows the claimant is providing
non-gratuitously. More recently, in Benedetti
v Sawiris, in the Court of Appeal, Arden LJ saw it as an example of
restitution,
whilst Etherton LJ called it “a classic case of a contractual term to pay
reasonable remuneration”,
and hence part of contract law.
29 In Selby v Romeril, the claimant tenant obtained compensation[118]
for the value of improvements it made to the defendant’s property, after
their contract was avoided ab initio
for want of objet and cause. As a general principle, where as
in Selby, a contract is void ab initio, the common law of England
entitles both parties to restitution of any benefits conferred, on the ground
(unjust factor) of “total failure of consideration”.[119]
Whilst on the civilian basis, restitution of the benefits would be justified
because the contract’s invalidity meant they were not conferred pursuant
to any enforceable legal obligation. But, surprisingly, the basis for recovery in
Selby was neither unjust nor
unjustified enrichment, but
rather Nicholas, writing on the French law of contract, whose conclusion was
that where a contract was null, each
party to the contract had to make restitution of what it had received.[120]
The result on the facts was that—
“the right to restitution is not unqualified but in
the circumstances of this case, we consider it is just that the defendant
should return to the plaintiff the benefit which he has received by way of
improvement to the property.”[121]
30 In
Planning and Environment Committee v Lesquende
the claimant successfully sought summary judgment on a claim for the return of
monies paid to the defendant under an ultra
vires compulsory purchase order. The claimant argued that as the order was
invalid, the defendant would be unjustly enriched at its expense, if it
retained the payment. The defendant questioned the availability of a right in
unjust enrichment under Jersey law and on the facts. Giving judgment, Le
Marquand, Greffier Substitute said—
“The plaintiff based its claim in this case upon
the equitable jurisdiction of the Royal Court under the category of case which
in England would be called ‘unjust enrichment’. In England, the law in this area has
become very complicated but the general principle is defined in the following quotation
Goff & Jones, The Law of Restitution,
4th ed., at 39 (1993), which reads as follows:
‘It is not in every
case where a defendant has gained a benefit at the plaintiff’s expense
that restitution will be granted. It is only when a court concludes it would be
unjust for him to retain the benefit that he must make a restitution to the
plaintiff.’”[123]
31 The
claimant had argued that since the order was quashed, the defendant was “holding
the said sum without any right as the basis upon which it was paid has ceased
to exist”.[124] Le
Marquand agreed, saying—
“any court of equity would be bound to come to the
conclusion that it is unjust for the defendant to be able to retain the sum and
that the defendant must make restitution to the plaintiff. In my view, the
point of law is very clear in this case and sufficiently clear for me to grant
summary judgment for the capital sum being sought.”[125]
32 This
is muddled. On one view, the claimant’s focus on a lack of lawful basis
for the defendant to retain the payment, indicated a civilian approach.
However, the judge decided the case on English law grounds, but without (as was
recognised in Flynn v Reid)
identifying an unjust factor,
and relying instead on general notions of injustice. That approach was surely wrong,
because as we have heard, English law requires that claims in unjust enrichment
be pleaded so as to bring them “within or close to some established
category or factual recovery situation”.[128] And when Lesquende was decided, it was settled
that general injustice would not do.[129] Ultimately of course,
injustice was to become the basis for unjust enrichment in Jersey; but at the
time of Lesquende, that was still
some way off.
E. Esteem,
ignorance, and knowing receipt
33 A
more serious attempt to locate Jersey law within an established context came in
Esteem.
However, it is hard to agree with the Court of Appeal’s suggestion in Investec, that in dealing with the claim
in unjust enrichment, the Jersey court displayed caution. Instead, it dealt with
surprising confidence (albeit obiter)
with what was then one of the most difficult and controversial aspects of the
law of restitution, namely, whether the victims of fraud have a personal claim
in unjust enrichment against innocent recipients of their property, and if so,
why. The point is this. If you steal my property, and give it to your friend
who is unaware of your crime, can I seek personal restitution from you or your
friend if, for instance, I have no proprietary claim?
A line of old cases suggests I can. In Holiday
v Sigil
the claimant lost a £500 note which the defendant found and paid into his
bank account. The claimant successfully sought indebitatus assumpsit for money had and received. The same applies
if you pass my property to your friend. Hence, if B accepts monies stolen from
C by A,[133] or
receives the sale proceeds of C’s shares which A, one of C’s
partners, has sold via a fraudulent
power of attorney,[134] B
is similarly liable.
34 When
Esteem was heard, the ground for
recovery in these cases was debated. Burrows thought it was unjust enrichment,
with ignorance the unjust factor,
whilst Swadling argued the cases were delictual
and within the law of wrongs. Virgo[137] on the other hand, saw
them as personal claims for money had and received based on the
defendant’s receipt of property in which the claimant retained a
proprietary interest, and where the claimant did not intend the defendant to
take title (so that title did not pass). Hence, they amounted to a vindication
of the claimant’s property interest by a personal rather than a
proprietary remedy. The balance of the English
authority (then and now)
favours Virgo’s approach, and Birks’ view that—
“Restitution for mistake does not involve the proof
of any wrong; and total ignorance is a fortiori from the most fundamental
mistake. Hence a system which believes in restitution for mistake cannot but
believe in restitution for ignorance, quite independently of any wrong
committed”[140]
—has not
been accepted.
35 Cases
like Holiday v Sigil deal with
personal remedies available to legal owners of misapplied property. For
equitable owners, the position is different. Unless they can show the defendant
is at fault, they have no personal remedy, whether based upon ignorance or
otherwise. In Esteem, had its
proprietary claim failed, the claimant wanted as an alternative, to pursue in personam, the indirect recipient of
its funds, which was the trustee of a trust established by the Sheikh out of
the proceeds of his fraud. It therefore claimed a right in restitution against
the trustee. The difficulty was that it was a beneficiary of the constructive
trust imposed on the Sheikh following his fraud, so (if English law applied)
could not rely on cases like Holiday v
Sigil. Instead, to succeed it had to show the trustee was at fault (had
knowledge of the breach of trust), in which case it would be liable for knowing
receipt. The rules of equity were clear. Absent fault, the trustee could not be
personally liable, as the exception in Ministry
of Health v Simpson[141]
did not apply.
36 Even
before Esteem, Lord Nicholls, writing
extra-judicially,[142]
and academics like Birks[143] had
encouraged removing the disparity between strict liability at law, and the
requirement for fault in equity. Lord Nicholls argued for two forms of
equitable liability, one based upon the defendant’s fault so that no
change of position defence would be available, and the other, the equitable
counterpart to the common law action for money had and received, subject to
defences of bona fide change of position or purchase for value. In support,
equity already imposed strict liability on the innocent recipients of wrongly distributed
assets within a deceased’s estate,
so why not also trust assets? And where an innocent party used the proceeds of
misapplied trust monies to discharge a secured debt, the beneficiaries could
enforce the secured creditor’s rights by subrogation to recover the
monies’ value on grounds of unjust enrichment,
so why not where there was no debt? Influenced by Birks, Michael Birt, then
Deputy Bailiff, decided that Jersey was neither bound by decisions requiring
fault, nor obliged to await the likely recognition by the English courts (post-Lipkin Gorman) of a personal remedy
against innocent recipients of misapplied trust property, holding—
“. . . under the law of Jersey, where
property in respect of which a person (a beneficiary) has an equitable
proprietary interest (because the property has been taken from the beneficiary
by a person who is in a fiduciary position towards that beneficiary) is
received by an innocent volunteer, the beneficiary has a personal claim in
restitution against the recipient even where the recipient has not been guilty
of any ‘fault’ in receiving the property. In other words, the state
of mind required for a ‘knowing receipt’ claim under English law is
not required in Jersey. It is a strict restitutionary liability. However, the
claim is based upon unjust enrichment and, accordingly, the beneficiary can
only succeed to the extent that the recipient remains unjustly enriched. A
defence of change of position is therefore available. We emphasize that the
liability is a personal one; the recipient is not a constructive trustee for
the beneficiary.”
37 This
conclusion, albeit obiter and
suitably caveated, ignored the views of those, in England and elsewhere, who
disagreed with Birks. In Republic of Brazil v Durant,
Page, Commr applauded it, saying—
“Jersey law can and should, we suggest, not
hesitate to take advantage of the fact that it is not burdened with the same
historical limitations, adopting those features of English law that have proved
their worth but not those that have proved intractably problematic, and
continuing to develop its own law of recovery and restitution of misapplied
property and related liabilities in ways that accord, wherever possible, with
good sense and notions of justice: as, for example, in the court’s
ground-breaking recognition in Esteem
. . . of a personal claim in restitution against a
fault-free but unjustly enriched recipient and its formulation of a
victim’s proprietary right of recovery where fraud has occurred
. . .”
but the
contrary view must be that justice and good sense are precisely what the Lords
had warned against in Foskett v Mckeown.
F. Flynn v
Reid
38 In
the ten years or so after Esteem no
decided cases in Jersey dealt with unjust enrichment. So, during that period,
it was a reasonable inference that the Jersey law of unjust enrichment was most
likely based on the English model. Flynn
v Reid changed all that.
39 Mrs
Flynn and Mr Reid were co-habitees, who shared a relationship from 1995 until 2005,
when they separated. Neither wanted to marry. In 2001, they bought a property
for £199,000 with a deposit for £54,000 from Mr Reid and a secured
joint bank loan for the balance. The property was taken in Mr Reid’s name
as Mrs Flynn did not have housing rights in Jersey enabling her to hold
property in her own name. Mr Reid remained in the property after the
separation, and met the loan repayments until the property was sold in 2011 for
£420,000. In August 2010, Mrs Flynn sought orders under the Matrimonial
Causes (Jersey) Law, 1949, to the effect that she was entitled to 50% of the
equity in the property, or such other sum as was just, or, alternatively,
damages. Her claims were for proprietary estoppel, but also breach of contract,
constructive trust and unjust enrichment. Whilst acknowledging the
court’s wide jurisdiction under the 1949 Law, Sir William Bailhache, then
Deputy Bailiff recognised the difficulties in reaching a fair result for
non-married couples. The case was therefore significant, and although the court
was invited to make new law, it could only look at (and perhaps extend) the
existing grounds for a claim. To introduce a new quasi-matrimonial causes
regime for unmarried couples was a matter for the legislature, after full
consultation. The
court said that whilst not so pleaded, the claim’s thrust was that the
parties acted, and should be treated as if married. The intention was that Mrs
Flynn’s non-financial contribution, for instance to childcare, should be
recognised, and that her contribution to the loan meant there was an equity in
ensuring she had her fair share of the property. In the event, only the unjust
enrichment claim succeeded. Mrs Flynn’s advocate suggested her claim was
one in restitution, “an equitable remedy which needed to be widely
interpreted”.
But very surprisingly, neither party produced Jersey or English authority, and
the matter was decided principally by reference to a Scottish case, MacKenzie v Nutter, with the court being left to do much of
the work.
40 The
court found three references to unjust enrichment in the Jersey law reports
general index. The first was to the cases concerning quantum meruit, suggesting that remedy was part of Jersey law.
Then came Lesquende, where whilst
noting the complexity of the English law of unjust enrichment, the Greffier
seemed to have decided the case purely on a view of what was just.
Lastly, Esteem showed the Jersey court
would recognise unjust enrichment in principle, but only in terms no wider than
were necessary for the particular case.
Unjust enrichment was a “vibrant doctrine” and the court would be
failing the community if it did not at least consider its application in the
current context.
41 The
court next considered the jurisprudential basis for claims in unjust
enrichment. It started with Pothier, who identified, in addition to contracts, quasi-contract,
delicts and quasi-delicts, another category of obligations derived from Pomponius’s
Roman law maxim Neminem aequum est cum
alterius damno locupletari, and which produisent
une action que l’on appelle
condictio ex lege. It then referred to Domat’s Loix Civiles, which contained—
“rules of equity which take the place of a Law—all
men are impressed with the requirement that they should not do wrong to others;
that they should render to another that which belongs to him; that they must be
sincere in their engagements, faithful in executing their promises and
complying with other similar rules of justice and equity”,
and finally to Boudier, to conclude—
“The relevant principle [was] that a person,
without any cause, obtains a benefit at the expense of another is bound to
restore it. As with the principles underlying the French claim of abus de droit
. . . The approach is seemingly based on the natural law and on
general principles of equite . . . That is entirely consistent with
the practice of the Royal Court over many years in allowing, as examples of
unjust enrichment, claims for money paid by mistake of fact, or claims for
damages on a quantum meruit.”
42 Attention
now moved to Scottish law, where, as Lord Hope of Craighead observed in Stack v Dowden,
two cases had applied the law of unjust enrichment in response to the social
problems faced by cohabiting couples, which were the same as in England.
Scottish law did not distinguish between legal and beneficial ownership, so
unless there was a trust, where title to a property was taken in a sole name,
the presumption was of sole, and where in joint names, of joint equal
ownership. However, in MacKenzie v Nutter
and Satchewell v Macintosh,
dealing respectively with sale of co- and solely owned properties, the
claimant’s contribution to the purchase and improvement costs was
recognised to allow (Mackenzie)
recovery of the defendant’s share in the sale proceeds, and (Satchewell) a return of the sums
contributed, because in either case, the defendant would otherwise have been “unjustly
enriched because the condition on which the enrichment was given
. . . did not materialise”.
43 In
Mackenzie, the parties were in a
relationship which ended in 2001. A year or so earlier, they made an offer to
purchase a property in which they would live as a couple. Both agreed to place
their own properties on the market, but only the respondent did so. His
property soon sold, but the proceeds were insufficient to meet the purchase
price. The parties therefore took a loan secured by a mortgage to pay the
balance, which would be discharged when the appellant sold her house, and they
agreed to purchase the new property in joint names. In the event, the appellant
never moved in, and the respondent paid all bills and taxers, met the mortgage
payments and covered all maintenance costs. Nor did she ever place her own
property on the market, and instead continued to live in it. When on sale of
the new property, the Sheriff refused her application for her share of the sale
proceeds, she appealed. Finding against her, Principal Sheriff Lockhart said
the case was one of condictio causa data
causa non secuta or “a claim for something given on a basis which has
failed”.
44 The
Principal Sheriff provided some detail on the condictio. In Grieve v
Morrison, he noted
Lord Morrison said—
“The nature of the condictio is set out in the
speeches reported in the leading case of Cantiere San Rocco v Clyde
Shipbuilding and Engineering Company. It rests generally on the liability to
make restitution of a thing which has been transferred on a consideration which
has failed. A well recognised example of the application of the doctrine is a
gift made, for example to a bridegroom, in consideration of marriage. If the
marriage does not take place, the gift must be returned . . . in the
present case the defender made no gift of heritable property to the pursuer.”
45 And
later,
he said this—
“Unjust enrichment and remedies therefore should be
determined on broad equitable principles. I was referred to Dollar Land Limited
v CIN Properties Limited in the House of Lords Report 1998 SLT (HL) 90 at 98E
to F where Lord Hope of Craighead, referring to his decision in Morgan Guaranty
Trust Co of New York v Lothian Regional Council 1995 SC 151
said:
‘I sought to make
my position clear when I said in the Morgan Guaranty case at p 155E that
the important point was that these actions were all means to the same end,
which is to redress an unjustified enrichment upon the broad equitable
principle nemo debet locupletari aliena jactura.’
Here what was challenged by way of enrichment was the
taking of title by the appellant. It had arisen in contemplation of a certain
state of affairs, namely payment by the appellant of the mortgage of £29,000
from the sale proceeds of her house. That did not materialise. I was referred
to the Court of Session report of Dollar Land Limited v CIN Properties Limited
1996 SC 331 where Lord Cullen said at pp 348–349:
‘A person may be
said to be unjustly enriched at another’s expense when he has obtained a
benefit from the other’s actings or expenditure, without there being a
legal ground which would justify him in retaining that benefit. The
significance of one person being unjustly enriched at the expense of another is
that in general terms it constitutes an event which triggers a right in that
other person to have the enrichment reversed.’
I was also referred to the case of Shilliday v Smith
supra where Lord Caplan said at page 734:
‘The governing
equitable principle is that a party ought not to be permitted to remain
enriched in respect of a benefit in property or money which he has no legal
rights to retain against the party from whom it derived. There are many
situations where the law has confirmed that unjust enrichment can arise and
there has been a tendency to categorise them. However, this process should not
deflect from the underlying equitable foundation of claims based on such
categories. What makes it fair and reasonable that recompense, restitution or
repetition should be made to the party who originated the enriching benefit is
that it would be unjust that a party should be enriched at the expense of
another when in the circumstances no such enrichment was intended . . .
The simple equitable formulation of the rules arising from unjust enrichment
would perhaps be “is it right that the person should be entitled to
retain a valuable benefit in circumstances when the person who conferred it had
no intention that he should keep it.”’”
46 Drawing
these dicta together, the Principal
Sheriff said—
“The trio of recent cases (Morgan Guaranty, Dollar
Land and Shilliday) made it clear that Scots law would provide a remedy on the
general ground of unjust enrichment and was more concerned with the reversal of
the enrichment than with the imposition of a rigorous and inflexible taxonomy
of remedies.”
In unjust
enrichment cases, the approach was to ask (1) had the defendant been enriched
at the expense of the claimant, and how, (2) if so, was the enrichment unjust,
(3) what remedy was available in the particular circumstances, and (4) was that
remedy equitable?
In Flynn v Reid, the Deputy Bailiff
found that approach—
“not inconsistent with such slender authority as
can be ascertained in Jersey law from the cases and is consistent with
principle. It also provides a modern statement of an approach currently adopted
by French courts to questions of enrichissement sans cause. The
starting point is the legal interest. The court then looks at whether there has
been enrichment which benefits the legal owner or owners or perhaps some of
them at the expense of the claimant in a way that is unjustifiable. We also
think that approaching the problem in this way will enable the court to
consider enrichment problems holistically, rather than in separate compartments.”
47 In
McKenzie v Nutter, the appellant
failed to overturn the decision at first instance because (1) she was enriched
by receiving a half share in the property when it was taken in joint names, (2)
unjustly, because she never intended to sell her property, so that (3) the
remedy was for the respondent to receive the entire proceeds of sale, which was
(4) equitable given the appellant had contributed nothing and acted in bad
faith. Mr Reid too was enriched by receiving the entire proceeds of sale,
notwithstanding the parties’ estimated joint earnings led to the grant of
the bank loan, and Mrs Flynn had contributed financially by loan repayments and
voluntarily by providing domestic services and looking after their children.
Following Canadian authority,
the voluntary services were contributions no less than financial ones. Mr Reid
benefitted from them because he could work longer and remain in the property
for longer after Mrs Flynn left, than if she had not made them. His enrichment
was unjust because the parties regarded themselves as a couple, and because Mrs
Flynn had made a substantial contribution, in money and in kind, which it would
be unfair to ignore. The appropriate time of enrichment was the date of sale, ie April 2011, Reid having been enriched
progressively because all the time the value went up, the bank loan went down.
48 Flynn v Reid is a striking decision.
Clearly, the Deputy Bailiff derived little guidance on the juridical basis for
cases of unjust enrichment from what he called Jersey’s “slender”
previous authorities. And in fairness, he received no assistance from the
parties’ advocates either. But surely some explanation was needed as to why
the civil law enrichissement sans cause
was preferred to the common law approach in Esteem.
Although Esteem refrained from
setting limits on when an unjust enrichment claim would lie, it did say how the
claim would play out. Unsurprisingly, équité
played no part in that, because the claim in Esteem was one under the common law. What is also interesting is
that the relevant extract from Pothier cited in Flynn v Reid was (with emphasis added) “Il y a des obligations qui ont pour seule et unique cause immediate la
loi. Par example, ce n’est
en vertu d’aucun contrat ni quasi- contrat que les enfants
. . . c’est le loi
naturelle seule qui produit en eux cette obligation”. The highlighted text suggests that under
Jersey law, cases of unjust enrichment now sit outside of the fourfold
classification of obligations owed to Gaius, something we shall was later
confirmed in CMC Holdings Ltd v Forster.
Those obligations created an action called condictio
ex lege. Significantly, Gale v
Rockhampton was not mentioned in Flynn
v Reid and nor was quasi-contract.
(G) More recent Jersey cases
49 Recent
Jersey authorities have applied the test in Flynn
v Reid in a variety of circumstances. In Campbell v Campbell,
two brothers disputed their shares in a jewellery business. Le Cocq, Deputy
Bailiff, followed Flynn
but found the defendant had not been enriched at the claimant’s expense
as it had been agreed he would hold the benefit of some disputed loans as
constructive trustee for them both.
In Campbell, the test was expressed
to be as set out in para 107 of Flynn as
follows—
“So there we have a reference from Lord Hope to two
Scottish cases where the law of unjust enrichment has been applied. In Mckenzie
v. Nutter . . . Sheriff Principal Lockhart, having
summarized the relevant law, described his approach as follows (2007 S.L.T.
(Sh. Ct.) 17, at para. 33):
‘On the basis of
the law which I have set out it is clear that the court may allow an equitable
remedy in circumstances where one party has been unjustly enriched at the
expense of another party. I propose to deal with this matter under four
headings:
a. Has the appellant been
enriched at the expense of the respondent and what is the nature of that
enrichment?
b. If so, was that
enrichment unjust?
c. If so, what remedy, in
the particular circumstances of this case, is open to the respondent?
d. Is that remedy
equitable?’”
50 The
same test was applied in A v B
(Matrimonial)
to strike out a “hopeless” claim that a third party had been
enriched by the increase in value of a property, due to time and money spent on
works and improvements to the property. In Al
Tamimi v Al Charmaa,
where a divorced spouse held shares in two Jersey companies as nominee for her
former husband, Sir William Bailhache, Bailiff, distinguished Flynn on the facts. In Holmes v Lingard,
Master Thompson refused to strike out a claim for payment for services by which
the claimant improved the defendant’s property, as following Benedetti v Sawiris, absent a contract, the claimant was prima facie entitled to the objectively
assessed value of the services,
albeit not to the increase in the property’s purchase price.
The decision was upheld on appeal.
That Benedetti anticipated alternative
claims in quantum meruit and in
contract, was also recognised in Doran v
Dataquill Ltd.
51 These
cases show the widening circumstances in which unjust enrichment claims might
arise, but still contain little analysis of the doctrine’s limits.
H. CMC v
Forster, contribution and subrogation
52 Of
much more interest is CMC Holdings Ltd v
Forster, where two Kenyan companies who had
monies wrongly diverted by certain of their directors, issued against one such
director, Forster, for breach of duty, and two Jersey corporate service
providers for dishonest assistance. In January 2017, Master Thompson allowed
the service providers to join as third parties (to seek contribution and/or
indemnity from) Forster and two other directors, K and N, on grounds including
that if dishonest assistance was established, it would be unjust if the
providers bore the whole loss, given their liability depended on the directors
having acted in breach of duty. The parties’ arguments, and the
Master’s findings, repay close analysis.
53 The
service providers relied upon a Canadian authority, Peterson Pontiac Buick GMC Ltd v Campbell and Isfeld,
and Goff & Jones,
arguing a claimant was entitled to contribution in equity and/or under the
court’s inherent jurisdiction, if (1) it and the defendant both were
liable to a third party, (2) which could not recover fully from both, but (3)
could elect to recover in full from either of them, and (4) the defendant
should bear some or all of the burden to pay. It did not matter if the claimant
and the defendant were liable to the third party under different causes of
action. The third parties argued the inherent jurisdiction could not generate
new substantive rights and remedies on the basis of what was considered fair
and just in the circumstances, and that care was needed to avoid the law of
unjust enrichment “degenerating into an exercise of ‘idiosyncratic discretion’”.
54 The
Master saw Esteem as a first step in
Jersey recognising a claim in unjust enrichment “but clearly leaving
it for another day as to the extent of the doctrine”;
and the result in Flynn v Reid was “entirely
understandable because without use of the doctrine of unjust enrichment, the
plaintiff would have been left without a remedy”.
That said, the facts in CMC v Forster
were very different and Jersey’s contribution legislation was not as
extensive as the UK Civil Liability (Contribution) Act 1978. However, in Barnes v EastEnders Cash & Carry plc
the following words from Goff & Jones were approved—
“It has been alleged that unjust enrichment is a
vague principle of justice of no practical value. However, the search for
principle should not be confused with the definition of concepts. Unjust
enrichment is not a high-level notion lacking in substantive content, ‘an
indefinable idea in the same way that justice is an indefinable idea’.
Rather, as Deane J held in the High Court of Australia, unjust enrichment is a—
‘. . . unifying
legal concept, which explains why the law recognises, in a variety of distinct
categories of case, an obligation on the part of the defendant to make fair and
just restitution for a benefit derived at the expense of a plaintiff and which
assists in the determination, by the ordinary processes of legal reasoning, of
the question whether the law should, in justice, recognise such an obligation
in a new or developing category of case.’
Whatever may be the underlying moral justifications for
the award of restitution in these cases the ‘unjust’ element in ‘unjust
enrichment’ is simply a ‘generalisation of all the factors which
the law recognises as calling for restitution’. In other words, unjust
enrichment is not an abstract moral principle to which the courts refer when
deciding cases; it is an organising concept that groups decided cases on the
basis that they share a set of common features, namely that in all of them the
defendant has been enriched by the receipt of a benefit gained at the claimant’s
expense in circumstances that the law deems to be unjust. The reasons why the
courts have held a defendant’s enrichment to be unjust vary from one set
of cases to another, and for this reason the law of unjust enrichment more
closely resembles the law of torts (recognising a variety of reasons why a
defendant must compensate a claimant for harm) than it does the law of contract
‘embodying a single principle that expectations engendered by binding
promises must be fulfilled’). In this respect, English law does not have
a unified theory of restitution.”
55 The
Master approved a concession that Goff & Jones
showed how, even before the 1978 Act, the English court had power in equity to
apportion responsibility for loss, and noted that in Dubai Aluminium Co Ltd v Salaam,
dishonest assisters received an indemnity under the 1978 Act from principal
wrongdoers who had not returned the full spoils of their fraud. And finally,
he saw an analogy with Niru Battery
Manufacturing Co v Milestone Trading Ltd (No. 2),
where D1 and D2 were jointly and severally liable to X, D1 in negligence and D2
in unjust enrichment. When D1 paid X in full, D1 was entitled by subrogation to
enforce X’s rights against D2, as otherwise D2 was unjustly enriched.
Subsequently, the Master dismissed applications by N
to strike out, and K
to strike out or seek summary judgment on the third party proceedings.
56 The
two grounds relied on by K, relevant for present purposes, were (1) that a
dishonest assister could not look to equity to recover a contribution, and (2)
only statute and not unjust enrichment, which imported general notions of
fairness, could allocate responsibility between wrongdoers. Rejecting both
arguments, the Master referred to Pothier, who had recognized—
“five different bases or whether one party might be
under some form of legal obligation to compensate another. As part 1, chapter 1 of [Pothier, 1821 edn] states,
‘Les causes des obligations sont
les contrats, les quasi-contrats, les delits, les quasi-delits; quelquefois la
loi ou l’equite seule’.”
[Emphasis supplied.]
57 Pothier
permitted a debtor, who had paid out a sum to discharge a debt owed by a number
of debtors, to step into the creditor’s shoes by way of subrogation and
recover from them a part of the sum paid out.
He also permitted joint tortfeasors to recover a contribution form the other.
The rationale for both was not statute, but équité,
which also underlay enrichissement sans
cause. Pothier and Niru Battery (No.
2) were consistent so that the doctrine of unjust enrichment could be used
as the basis for ordering an allocation of responsibility between joint
wrongdoers.
Both of the Master’s decisions were unsuccessfully appealed.
58 The
express recognition of the five sources of obligation is arguably the most
important statement in the development of the Jersey law of unjust enrichment,
as it expressly distinguishes enrichissement
sans cause from quasi-contract, and confirms that Jersey law is grounded
very firmly within French équité.
(I) The Guernsey authorities
59 In
Guernsey, the position is less developed than in Jersey. Indeed, Investec aside, only two cases of which
the author is aware have directly addressed questions of unjust enrichment.
On analysis, neither is without difficulty, and offers little to explain the
doctrinal basis for the Guernsey law of unjust enrichment.
60 In
the first, Norman Piette Ltd v Hochtief
Construction (UK) Ltd,
HCL was appointed by the Guernsey States to develop Guernsey airport. NPL
supplied goods to X, HCL’s sub-contractor, for which X did not pay in
full, so NPL sought reparation. Some of the goods could not be returned because
they already formed part of the airport building, and HCL refused to return the
rest. NPL argued HCL had been unjustly enriched to the extent of the
outstanding balance, because it had received payment for the goods as part of
the contract price paid to it by the States. The hearing concerned a request
for specific discovery, so there was no full decision on the merits.
Nonetheless, Hancox, LB thought it important, before deciding the discovery
application, to identify “the legal bases for the alleged causes of
action”.
Referring first to Chitty on Contracts
(28th edn, 1999, Chapter 30), and then to Lord Wright’s dictum in Fibrosa quoted above and the cases of Refuge Assurance Co v Kettlewell
(an illegality case) and Craven-Ellis v
Canons Ltd
(concerning the mistaken provision of services under a void contract), he
decided that (1) there was no need for a contract (or prior contract) between
claimant and defendant to ground an action in restitution,
because (echoing Moses v MacFerlan) the action depended “on
the principle that one party is obliged, ex
aequo et bono, to make restitution”, and (2) there was an arguable
case for unjust enrichment. But that was as far as it went.
61 As
well as lacking in doctrinal analysis, the conclusion is doubtful on other
grounds. The first is that it surely offends the rule against “leapfrogging”,
which is that—
“Suppose that D receives a benefit from, or because
of, the performance of a contract between C and X, and that C, the party making
the performance, has a valid contractual right to be paid for that performance
by X. D is the immediate enrichee of X, and the remote enrichee of C. In this
case C cannot leapfrog X, who procured the performance, and claim against D. One
may never attack one’s contractual counter-party’s immediate
enrichee because this would subvert the insolvency regime by allowing C to
wriggle round the risk of X’s insolvency inherent in the party’s
contract”.
62 If
we apply this to the facts, D (HCL) received a benefit from the performance of
the contract between NPL (C) and X, because it received the goods due to their
provision by NPL to X. Hence HCL was the remote enrichee of NPL, but NPL could
not pursue HCL for the enrichment, because that would have allowed NPL to avoid
the risk of X’s insolvency inherent in its contract with NPL. So NPL
should have sued X, which it chose not to do.
63 Alternatively,
there must be doubt whether HCL as NPL’s remote enrichee, was enriched at
NPL’s expense, when receiving the payment from the Guernsey States.
That doubt ought to have been apparent in 2005, but is now a fortiori since the UK Supreme Court confirmed in Commissioners for HM Revenue & Customs v
Investment Trust Companies that absent agency, piercing the veil or sham, a
claim for unjust enrichment is only available where the defendant receives a
benefit directly from the claimant.
64 The
second case, Carton-Kelly v Butterfield
Bank (Guernsey) Ltd,
seems known only
from Chapter 4 of International Asset
Tracing in Insolvency,
where para 4.191 says—
“In [Carton-Kelly] . . . a claim for
money had and received was successfully established by the liquidators/trustees
in bankruptcy over monies deposited in the wrongdoer’s bank account held
at a bank. The monies had been initially deposited by third party investors in
a Ponzi scheme operated by the now insolvent UK-based partnership and
individuals and had been paid to an associated BVI company rather than to the
UK entities. The Royal Court held that, as the wrongdoer had been unjustly
enriched as a result of the payments to it, the monies should be repaid in full
to the insolvent estate (and crucially, not to the third party investors who
had made the payments in the first place) for the benefit of the respective
insolvent estates and, ultimately, their creditors.”
65 It
is hard to make sense of this. However, connected Guernsey proceedings,
reveal the case was part of the attempts to recover the proceeds of the “Vavasseur
fraud”, a US Ponzi scheme masterminded by one Terry Dowdell, which raised
US$70m from investors “through the sale of fictitious securities
introducing a programme purportedly operated by the Bahamian company Vavasseur”.
Carton-Kelly and Callaghan were appointed liquidators to Dobb White & Co (a
UK accountancy practice), and trustees in bankruptcy to Gangar and White, both
partners in DWC. Between March 2001 and April 2002, Gangar and White
administered Vavasseur under Dowdell’s control. After November 2001,
investors’ monies were paid to offshore accounts, including some in
Guernsey. In 2003, Vavasseur was placed in receivership in the US, and ordered
to pay US$121,235m plus interest to investors.
Vavasseur had two accounts with Butterfield, and its US receiver, Mr Terry Jr
of DurretteBradshaw plc, was recognised by the Guernsey court,
which later turned its attention to the competing claims to the funds in the
accounts. The same text as describes the case, also reveals that
Vavasseur’s corporate veil was pierced. This explains the later
proceedings in which, presumably, having set Vavasseur aside as a façade
for its owners CK and C, as the insolvency practitioners appointed to G and W,
claimed directly for money had and received on the basis that G and W had been
unjustly enriched by the investors’ payments. Now, one can readily
appreciate how, if Vavasseur was set aside, its enrichment became that of its
wrongdoer owners, but beyond that the matter is not easily comprehensible. In
particular, how exactly the Guernsey court was able to find that the estates of
G and W had a receipt-based personal claim in unjust enrichment to the monies
at the bank, which trumped that of the duped investors, is very unclear.
66 Finally,
we come to Investec itself, where the
liquidators of a BVI company sought restitution in respect of a debt they had
discharged, owed by the former trustees of the trust which owned its shares.
Under English law, which is what the parties relied upon, the discharge of
another person’s debt falls, like contribution, under the head of legal
compulsion.
Alternatively, and more rarely, it may fall under necessity, if discharge was
necessary in the circumstances.
Under either head, a key consideration is that the debt must have been
discharged involuntarily; the law will not protect the officious intervener. At
first instance, Chadwick, LB understood the case to rest on observations in Falcke v Scottish Imperial Insurance
and found the trustees liable to pay,
on the basis that if, at B’s request or with B’s consent, A pays a
debt owed by B to C, A is entitled to recover from B the amount paid.
The Court of Appeal
reversed that decision because it found the trustees had neither requested nor
consented that the company discharge the loan. Rather, its discharge formed
part of a complex refinancing which obliged the company and not the trustees to
discharge it.
67 The
liquidators’ reliance on Falcke
was puzzling, as Falcke was not a
debt case. Instead, the claimant paid the defendant’s insurance premium
to protect its own interest in the insured premises, but failed to obtain
restitution on grounds of necessitous preservation of the defendant’s
property because he was a found to be a volunteer. Surely then, there were
closer and better authorities. But the trustees’ arguments on appeal in Investec went further, to the essence of
English law. The Lieutenant Bailiff had failed to apply the four-stage test in Banque Financiere, and identified no
unjust factor.
And because the company drew down the sums to pay the trustees’ debt, it
assumed an equivalent liability to the lender, thereby reducing its value to
the trust, so the trustees were not enriched.
Finally, the trustees had a defence of change of position as they had divested
themselves of assets and entered into transaction which could not be reversed,
and, relying on Taylor v Motabilty
Finance Ltd,
to allow the claim in unjust enrichment would have undermined the contracts to
which the company and the trustees both were parties.
Troubled by the lack of detailed analysis, McNeill JA expressed the
court’s decision on what he called “this complex area” in
terms no wider than absolutely necessary.
As a result, the decision was based upon two important assumptions. First, that
Norman Piette indicated the Guernsey
courts may entertain a claim in unjustified
enrichment where the parties had no pre-existing relationship; secondly, that
the four-stage test in Banque Financiere
was an acceptable approach to such a claim. Falcke
came within that four-stage test, and was still good authority under English
law. However, it also showed that work done or money expended to preserve or
benefit the property of another did not of itself justify restitution, as there
was no presumption against donation. Hence the crucial issue with regard to
what McNeill JA called the “equitable restitutionary remedy”, was
whether the trustees had requested or agreed to the repayment, which he found
they had not.
68 In
so deciding, the court made reference to the judgment of Bastarache J in Kingstreet Investments Ltd v New Brunswick
(Finance) which we encountered early on this paper,
saying—
“Lord Reed, at paragraph 97, referred to the
judgment of the Supreme Court of Canada, given by Bastarache J in Kingstreet Investments Limited v New
Brunswick (Finance) [2007] 1 SCR 3 where, at paragraph 32, the learned
judge said:
‘Restitution is a
tool of corrective justice. When a transfer or value between two parties is
normatively defective, restitution functions to correct that transfer by
restoring parties to their pre-transfer positions. In Peel (Regional
Municipality) v Canada [1992] 3 SCR 762,
McLachlin J (as she then was) neatly encapsulated this normative framework: “the
concept of ‘injustice’ in the context of the law of restitution
harkens back to the Aristotelian notion of correcting a balance or equilibrium
that had been disrupted” (p 804).’”
and stressing
(with emphasis added)—
“The law of restitution, as indicated in the
passage from Kingstreet Investments
Limited, referred to in paragraph 163 above, operates to provide an
immediate correction. There is no
indication that it can be operated to create a new set of rights and
obligations such as a long term loan. Nor was any correction required. The
fact that matters proceeded by way of discharge of the old liability and
putting in place of a new arrangement with the new debtor did not disturb the
fact that Oscatello, a new or dormant company, with no other assets or
interests, was being placed into a corporate structure where part of its
obligations would be accepting the liabilities and obligations of debtor to
Kaupthing, in place of its ultimate beneficial owner the TDT”.
69 Investec leaves Guernsey law in an
unsatisfactory state. With obvious reluctance, the Court of Appeal delivered a
heavily caveated judgement, placing Guernsey within the common law tradition.
At the same time, they hoped future cases would challenge that conclusion. So
far as I am aware, no Guernsey case since Investec
has done that.
J. Conclusions
70 The
references in Investec to corrective
justice, and to Bastarache J in Kingstreet
Investments take us back full circle to Aristotle. And the Court of
Appeal’s reservations about lack of comparative analysis, show how uneasy
it was about setting any sort of precedent. But it has of course done so, and
based the Guernsey law of unjust enrichment on the English model. Arguably
then, Guernsey now stands at the same crossroads some thought English law faced
following Birks’ suggestion it commit to a civilian model.
Things are different in Jersey, as over time, and notwithstanding suggestions
to the contrary in Esteem, Jersey has
settled on a model founded on natural justice and équité.
71 How
Guernsey makes its choice will depend on many things, such as policy, custom
and precedent, but it might also have an eye for the experience in Canada,
where, following Garland v Consumers’ Gas Co,
the courts changed their unjust enrichment model from a common law approach
(requiring a positive reason for recovery)
to a civil one (whereby relief is available absent reason to deny it).
The resulting experience has not been altogether successful, and it is worth
considering why.
72 Garland attempted to clean up a juristic
mess created when, contrary to earlier decisions, the Supreme Court in Rathwell v Rathwell modified the unjust
factor test by requiring, to avoid palm tree justice, “absence of any
juristic reason for the enrichment” as a third decidedly civilian limb.
Rathwell was followed in Pettkus v Becker, where unjust
enrichment required—
“[a]n enrichment, a corresponding deprivation and
absence of juristic reason for the enrichment . . . The common law
has never been willing to compensate a plaintiff on the sole basis that his
actions have benefited another . . . It must, in addition, be evident
that the retention of the benefit would be ‘unjust’ in the
circumstances.”
73 This
ostensibly hybrid approach confounded commentators and courts alike, so to
resolve the confusion, the Supreme Court in Garland
restated the test as follows—
“First, the plaintiff must show that no juristic
reason from an established category exists to deny recovery. By closing the
list of categories that the plaintiff must canvass in order to show an absence
of juristic reason . . . [the] objection that it require[s] proof of
a negative is answered. The established categories that can constitute juristic
reasons include a contract . . . a disposition of law . . .
a donative intent . . . and other valid common law, equitable or
statutory obligations . . . If there is no juristic reason from an
established category, then the plaintiff has made out a prima facie
case . . . The prima facie case is rebuttable, however,
where the defendant can show there is another reason to deny recovery. [T]here
is a de facto burden of proof placed on the defendant to show the
reason why the enrichment should be retained. This stage of the analysis thus
provides for a category of residual defence . . . As part of the
defendant’s attempt to rebut, courts should have regard to two factors:
the reasonable expectations of the parties, and public policy considerations.
It may be that when these factors are considered, the court will find that a
new category of juristic reason is established.”
74 This
restatement has been widely criticised because, as Smith has pointed out, the
list of juristic reasons is not closed, but instead, wide open, with the
defendant even able to add reasons of its own.
When one adds to the mix, that courts should look to the parties’
expectations and policy considerations as well, the risk is that structured
analysis becomes impossible. Smith goes on to show how decided cases since Garland have not applied the Garland test consistently, but then arrives
at a startling conclusion, which is that in future, jurisdictions might not
adopt either the civilian or the common law approach; they can just as easily
adopt elements of both. And rather than apply in each case, a uniform
over-arching principle based on either unjust factors or absence of legal
justification, the correct approach is to apply a test depending on the
particular circumstances. This would be a radical approach, which might lead to
multiple causes of action within the unjust enrichment rubric. But Smith argues
it is an approach already taken by Goff & Jones, who now include “justifying
grounds” as a separate part of their text, and as grounds for justifying
enrichments. It is also an approach which might be seen as consistent with that
in Jersey, and which would enable cases like Esteem to survive the trend towards équité. In other words, whilst cohabitee and
contribution cases can be dealt with by reference to Pothier and natural
justice, trust beneficiaries have a remedy against fault free recipients of
misapplied trust property, grounded on common law and policy considerations. And
that becomes a cause of action in itself, not an example of a wider common law
principle to which it is an exception.
75 That
approach would also be consistent with the desire, which surfaces from time to
time, to see the law of unjust enrichment as a means of providing a remedy
where one would not otherwise lie. The decision in Esteem, for example, was clearly influenced by a policy
consideration that, as an offshore finance centre, Jersey should, wherever
possible, afford those who place business there a range of appropriate remedies
in the face of fraud. And there are doubtless other similar situations where
uncertainty in English law, or a Jersey statutory lacuna,
would encourage a similar result. But principle must still be observed. In Lipkin Gorman v Karpnale, Lord Goff made
it clear that “The recovery of money in restitution is not, as a general
rule, a matter of discretion for the court”
and in Uren v First National Home Finance
Ltd, Mann J said the authorities had not established “that a claimant
could get away with pleading facts which he says leads to an enrichment which
he says is unjust”.
And nor should the law of unjust enrichment become a point of last resort if no
others will assist, or a convenient dumping ground for causes of action which
cannot be located elsewhere.
76 The
cases described in this article show how unjust enrichment is being widely
applied by the Channel Islands’ courts in a variety of contexts, which is
to be welcomed. But they also show how on occasions, and especially in
Guernsey, the courts have failed to engage in the level of comparative analysis
that the Court of Appeal expected in Investec.
The result is that no Guernsey cases have yet explained the juridical basis for
the Guernsey law, and the assumption is that English law will apply. By
contrast, in Jersey, the move in Esteem
away from quasi-contract towards unjust factors, has been largely rejected
since Flynn v Reid in favour of a
more civilian approach, but with the focus on natural justice. That is very
clear now since the recognition of the fifth source of obligations in CMC Holdings Ltd v Forster. Even in
Jersey, however, there remain questions to be answered. Where, for instance, is
the precise dividing line drawn between genuine cases of quasi-contract and
cases of unjust enrichment: or should quasi-contract be abandoned altogether,
even in cases of voisinage, which are
said to fall within it, because it is outmoded and adds nothing, even as a
generic term? And given Jersey’s customary law background, what role if
any, do concepts such as the negotiorum
gestio have to play, potentially extending the more restrictive common law
approach to necessitous intervention? Is the quantum meruit in Jersey (and Guernsey) law a cause of action in
its own right, or simply a remedy similar to the remedy abolished in England in
1852? And finally, how is Jersey to achieve certainty in its law, having in
effect adopted the ex aequo et bono
approach of Lord Mansfield in Moses v
Macferlan which was so widely criticised in its time for its vagueness? To
put it another way; can équité
ever be sufficiently certain to establish when, to use Bastarache J’s
words, a transfer is “normatively defective”, or does the vibrancy
of the law risk upsetting commercial certainty?
77 These
all are matters for future consideration, which anticipate much stimulating
legal debate.
Paul Buckle is an English solicitor currently
engaged as an in-house lawyer at Guernsey Electricity Ltd.