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The Unjust Enrichment Fallacy And Private Law

  • Peter Jaffey

Extract

The theory of unjust enrichment – the theory supporting the recognition of a doctrinal category of unjust enrichment – has been accepted across much of the common law world. The recognition of a doctrinal category is not just a matter of presentation. It has a role in legal reasoning that reflects the fact that it is based on a particular principle or distinct justification for a claim. The theory of unjust enrichment is misguided because there is no principle or distinct justification common to the various claims that have been gathered together to form the new category. The theory has appeared attractive, it would seem, not because a plausible version of the principle of unjust enrichment has been identified, but because it has appeared impossible to explain these various claims in any other way, in particular as claims in property or contract. This difficulty has arisen, it is suggested, largely as a result of a mistaken analysis of primary and remedial rights. The article explores these issues with respect to contract law and property law.

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1. As reflected in English law in standard textbooks such as Virgo, Graham, The Principles of the Law of Restitution, 2d ed (Oxford: Oxford University Press, 2006) and Burrows, Andrew, The Law of Restitution, 3d ed (Oxford: Oxford University Press, 2011). The most influential academic work is usually said to have been Peter Birks, An Introduction to the Law of Restitution, rev ed (Oxford: Clarendon Press, 1989). See also Saiman, Chaim, “Restitution in America: Why the US Refuses to Join the Global Restitution Party” (2008) 28 Oxford J Legal Stud 99.

2. See, for example, Weinrib, Ernest, “Correctively Unjust Enrichment” in Chambers, Robert, Mitchell, Charles & Penner, James, eds, The Philosophical Foundations of the Law of Unjust Enrichment (Oxford: Oxford University Press, 2009) 31 ; see also Birks, supra note 1, chs 1, 12.

3. The discussion broadly follows that in Jaffey, Peter, Private Law and Property Claims (Oxford: Hart, 2007).

4. See Jaffey, ibid at ch 1. This does not imply that the rules of contract law can be derived purely from the general principle of liability and that no other principles or other considerations are relevant.

5. How analogical reasoning operates and whether it is really a legitimate form of reasoning are no doubt controversial, but it seems clear at least that the courts use or purport to use it and that it is the principal means by which they develop the law. My own approach is in Jaffey, Peter, “Authority in the Common Law” (2011) 36 Austl J Legal Phil 1.

6. For example, according to Birks, the law of unjust enrichment is “the law of all events materially identical to the mistaken payment of a non-existent debt”: Birks, Peter, Unjust Enrichment, 2d ed (Oxford: Clarendon Press, 2005) at 3.

7. See Douglas v Hello! [2008] 1 AC 1.

8. Cf Dagan, Hanoch, “Legal Realism and the Taxonomy of Private Law” in Rickett, Charles & Grantham, Ross, eds, Structure and Justification in Private Law: Essays for Peter Birks (Oxford: Hart, 2008) 147.

9. Thus on the suggested approach a doctrinal category in principle corresponds to a cause of action.

10. This is the insight emphasised in modern legal positivism and is behind Sherwin’s objections to characterising doctrinal categories as justificatory categories in Emily Sherwin, “Legal Taxonomy” (2009) 15 Legal Theory 25.

11. See, for example, the reference to “top-down reasoning” and the concern that analysis from an abstract framework “creates a serious risk of producing a result discordant with accepted principle” in Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635 (HC Aust), paras 75-78.

12. See Robert Chambers, “Two Kinds of Enrichment” in Chambers et al, supra note 2 at 265.

13. Some possibilities are considered skeptically in Jaffey, supra note 3 at ch 8.

14. There have been numerous unjust enrichment sceptics, including Dietrich, J, Restitution: A New Perspective (Annandale: Federation Press, 1998); Hedley, Steve, Restitution: Its Division and Ordering (London: Sweet & Maxwell, 2001); Jackman, IM, The Varieties of Restitution (The Federation Press, 1998); Stoljar, S, The Law of Quasi-Contract, 2d ed (Sydney: The Law Book Co, 1989); Wonnell, Christopher T, “Replacing the Unitary Principle of Unjust Enrichment45 Emory LJ 153 (1996); Jaffey, supra note 3, and Jaffey, Peter, The Nature and Scope of Restitution (Oxford: Hart, 2000). There are others who accept a role for a principle of unjust enrichment but do not understand it as providing the basis for a doctrinal category: see Waddams, SM, Dimensions of Private Law (Cambridge: Cambridge University Press, 2003) at ch 1.

15. See Stevens, Robert, “Is there a Law of Unjust Enrichment?” in Degeling, S & Edelman, J, eds, Unjust Enrichment in Commercial Law (Sydney, AU: Thomson, 2008) 34.

16. See the discussion in Nadler, Jennifer MWhat Right does Unjust Enrichment Protect?” (2008) 28 Oxford J Legal Stud 245.

17. There is a “concept” of unjust enrichment, which is not a principle, according to the High Court of Australia in Bofnger v Kingsway Group Ltd (2009) 239 CLR 269, para 85. The expression “unifying legal concept” was used by Deane J in the important case of Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221.

18. Burrows, supra note 1 at 4.

19. In recent years, the concern has been with whether the established “unjust factors” approach is preferable to the “absence of basis” approach: see Burrows, supra note 1 at ch 5. To my way of thinking, this is a distraction from the fundamental issue of identifying a principle of liability. It might be argued that the category of unjust enrichment is like the doctrinal category of tort, and tort, it might reasonably be said, is not a doctrinal category based on a single principle of liability, but a collection of different types of claim based on different principles of liability. Possibly this is the implication of the “unjust factors” approach. See, for example, the discussion in SA Smith, “Unjust Enrichment: Nearer to Tort than Contract” in Chambers et al, supra note 2. This may well be the right way to understand tort law, but if so tort law as a whole is not a doctrinal category in the particular sense I have suggested above. The doctrinal categories would be the particular torts, such as negligence, defamation, etc.

20. It might be better to say that there is a group of benefit-based remedies. See the discussion in Kit Barker, “The Nature of Responsibility for Gain: Gain, Harm, and Keeping the Lid on Pandora’s Box” in Chambers et al, supra note 2 at 176.

21. Burrows, supra note 1 at 3.

22. Jaffey, supra note 3 at 17.

23. I am not suggesting that the literature does not contain valuable and useful contributions to our understanding, but that these do not arise from the elucidation or application of a principle of unjust enrichment or from the recognition of the doctrinal category or the reorganisation of material involved in this.

24. Not all claims that are said to be unjust enrichment claims can be explained in terms of property or contract, and this is sometimes said to be a point in the favour of the theory of unjust enrichment: see Smith, Lionel, “Unjust Enrichment, Property, and the Structure of Trusts” (2000) 116 Law Q Rev 412 at 419. In the end everything turns on what principle of liability is offered.

25. Of course, some approaches—in particular, the economic analysis of law—do understand the law in terms of measures to deter or more broadly to create incentives and disincentives.

26. I take it that this is the traditional view of the role of civil proceedings, reflected in the bilateral character of civil proceedings and the contrast between civil and criminal proceedings, and nowadays associated with the corrective justice approach to private law.

27. I use the expression in this particular sense: recent discussions of the idea of vindication have suggested various approaches. See, for example, David Pearce & Halson, Roger, “Damages for Breach of Contract: Compensation, Restitution and Vindication” (2008) 28 Oxford J Legal Stud 73 . On my approach, this is a matter of consistency between primary and remedial relations, given that a remedy is justified. I discussed this previously in terms of remedial “monism” and “dualism”: see Jaffey, supra note 3 at ch 2. I leave aside the controversy over why there should be a right to a remedy at all.

28. Friedmann, Daniel, “The Performance Interest in Contract Damages” (1995) 111 Law Q Rev 628 .

29. C & P Haulage v Middleton [1983] 1 WLR 1461.

30. McLauchlan, DavidReliance Damages for Breach of Contract” (2007) 3 NZL Rev 417.

31. See generally Burrows, supra note 1 at ch 15; Virgo, supra note 1 at ch 12.

32. This appears to be the standard approach in virtually all the contract and restitution textbooks.

33. One might argue that the role of unjust enrichment is to extend the protection given to contractual rights by providing additional remedies on contractual termination that contract law does not. On this view, one might say that unjust enrichment is a remedial doctrinal category, concerned with determining when a particular remedy is appropriate to provide extra protection for a primary right arising in another doctrinal category, such as contract. I understand this to be Friedmann’s approach: see Daniel Friedmann, “The Creation of Entitlements through the Law of Restitution” in Rickett & Grantham, supra note 8 at 185. But if we accept the approach adopted above, the appropriate remedies to protect a primary right are a matter of what is necessary to vindicate it, and this is an aspect of the law of contract.

34. Burrows, supra note 1 at 319.

35. This way of putting it characterises contractual performance as a transfer, which is apt in my view only for transfers of money or property: see infra at note 60.

36. Jaffey, supra note 14 at ch 2 and Jaffey, Peter, “Restitutionary Remedies in the Contractual Context” (2013) 76 Mod L Rev [forthcoming].

37. McFarlane, Ben, The Structure of Property Law (Oxford: Hart, 2008) at 132.

38. This is not meant as an exhaustive list of possible objects of property.

39. I am avoiding various other expressions used in this context, such as void, voidable, ineffective, etc.

40. It is sometimes said that the unjust factor is “ignorance”: see Swadling, William, “Ignorance and Unjust Enrichment: the Problem of Title” (2008) 28 Oxford J Legal Stud 627 . In my view, the relevant condition is better understood as lack of authority or power: see Jaffey, supra note 14 at 160-62. So far as I can see this does not affect the present issue.

41. See Nadler, supra note 16. See also Botterell, Andrew, “Property, Corrective Justice, and the Nature of the Cause of Action in Unjust Enrichment” (2007) 20 Can JL & Juris 275 . It might be argued that the law of unjust enrichment is a remedial doctrinal category concerned (inter alia) with providing additional remedies to protect the right of ownership where a remedy is justified but property law cannot provide it: see Friedmann, supra note 33. But, echoing what was said above about contract, the appropriate remedy for a claim arising from the primary right of ownership depends on what is necessary to give effect to the principle of liability by vindicating the primary right, and this is a matter of property law. If there is a distinct unjust enrichment claim, it must be based on a different principle of liability, though one that in some sense draws on the right of ownership.

42. There are other analyses based on property rather than unjust enrichment, or that distinguish transfers of property from conferring benefits by the provision of services: Stoljar, S, The Law of Quasi-Contract, 2d ed (Sydney, AU: The Law Book Company, 1989); Charlie Webb, “Property, Unjust Enrichment, and Defective Transfers” in Chambers et al, supra note 2; Watts, PeterRestitution—A Property Principle and a Services Principle” [1995] RLR 49 . See also the discussion in Barker, supra note 20 at 169.

43. Weinrib, supra note 2.

44. It might be said that a claim will arise against an indirect recipient only if the indirect recipient has received property belonging to the claimant, and not merely because there has been a transfer of value from the claimant to the indirect recipient according to a causation test. But of course this includes the case where the indirect recipient receives traceable proceeds of the original asset and as suggested below it is not clear that tracing can be justified in principle otherwise than as a way of determining surviving value.

45. See Chambers, supra note 12 at 248. There is another problem relating to the common law. One might say that if a transfer is invalid it is no transfer at all, or at least there is merely a transfer of possession or control that the law does not recognise as having any legal effect as a transfer. But in fact an invalid transfer from C to D can have legal effect in giving the recipient of the transfer D the power to dispose of the specific asset transferred in favour of third parties. At the same time C should retain the right to the value of the transfer as against third parties. Thus one might want to say that title has passed to D in one sense, relating to control of the asset, but retained by C in another sense, relating to the value of the transfer, or in other words that the adequate treatment of an invalid transfer calls for two concepts of title. Equity’s more sophisticated treatment of invalid transfers results from the fact that it did develop two concepts of title—the former is how legal title should be understood, in my view, and the latter is how beneficial or equitable title should be understood.

46. Though this is not at all the uniform view amongst supporters of the theory of unjust enrichment: see Lionel Smith, “Philosophical Foundations of Proprietary Remedies” in Chambers et al, supra note 2. For another recent attempt to provide a theoretical account of the law of tracing, see J Penner, “Value, Property, and Unjust Enrichment: Trusts of Traceable Proceeds” in Chambers et al, ibid.

47. In Foskett v KcKeown [2000] UKHL 29, the House of Lords took the view that the tracing rules are a matter of property law.

48. As explained more fully in Jaffey, supra note 3 at ch 6. See also Sherwin, ELConstructive Trusts in Bankruptcy” (1989) U Ill L Rev 297 ; Evans, SRethinking Tracing and the Law of Restitution” (1999) 115 Law Q Rev 469.

49. For the benefit of C, it is best to treat the invalid transfer as a transfer of abstract value because C is then less likely to be adversely affected by transactions relating to the specific property transferred, and treating the claim as a claim to causally-determined surviving value also protects D and third parties (including D’s creditors) because it means that the value of D’s estate available to D and third parties cannot be less than it would have been in the absence of the invalid transfer (change of position is incorporated into the tracing rules).

50. Weinrib, supra note 2. For another account of the distinction, see Nadler, supra note 16.

51. A point made by Sinel, Zoë, “Through Thick and Thin: The Place of Corrective Justice in Unjust Enrichment” (2011) 31 Oxford J Legal Stud 551 at 557. According to Weinrib, supra note 2, the claim cannot be understood as a claim in respect of the wealth as a thing, as if it were a matter of property, because this would not explain the fact that the law has different tests of validity for transfers depending on whether the claim is a matter of property or unjust enrichment, nor would it explain the requirement for acceptance of the transfer by the recipient. But the problem is surely to explain why there is a difference insofar as this is the case; and on my understanding there is not generally any requirement of acceptance.

52. At common law, tort law in the form of trespass or conversion combines these two distinct roles, sometimes leading to injustice. See Weir, T, Introduction to Tort Law, 2d ed (Oxford: Clarendon Press, 2006) at 16667 . Equity comes closer to distinguishing between the two claims by way of the equitable proprietary claim and knowing receipt, as discussed in Jaffey, supra note 3 at ch 7.

53. McFarlane, supra note 37 at 194; Harris, JW, Property and Justice (Oxford: Oxford University Press, 1996) at 24 ; Penner, J, The Idea of Property in Law (Oxford: Oxford University Press, 1997) at 139.

54. See S Smith, supra note 19.

55. It is sometimes said that a claim should be characterised by reference to the “causative event” that triggers it, and the causative event cannot be a matter of property law because “property is not an event”. The event that generates the claim is the invalid transfer, which is, or causes, an unjust enrichment. As it is also put, “property is a kind of right, while unjust enrichment is a source of rights”: Chambers, supra note 12 at 264, following Birks. But the issue is how to characterise the causative event. A causative event generates a claim by virtue of a primary relation—the legal relation subsisting before the claim arises, and by virtue of which the event has its legal effect—and it is by reference to this relation—the right of ownership—that it should be characterised.

56. Also, it would be possible in principle to have a case where other parties are free to enter the property but in doing so incur a liability to pay for the unauthorised use.

57. Of course, this brief statement skates over a number of concerns about the principle, but it seems clear that to the extent that a category of private property is justified there is a principle along these lines behind it. The law can also specify the types of benefit and the procedure for acquisition.

58. Usually described as a claim for restitutionary damages or licence fee damages. See further Jaffey, Peter, “Licence Fee Damages” [2011] Restitution Law Rev 95.

59. Thus the recent division in the old law of confidentiality, supra note 7, is justified.

60. Supra note 21.

61. International News Services v Associated Press 248 US 215 (1918); cf. Cadbury-Schweppes Pty Ltd v Pub Squash Co. Pty Ltd [1981] 1 WLR 193; Victoria Park Racing and Recreation Grounds Co v Taylor (1937) 58 CLR 479.

62. There may be a separate claim in tort on this basis.

63. See Friedmann, supra note 33, especially at 196-204. See also Gordley, J, Foundations of Private Law (Oxford: Oxford University Press, 2006) 42326.

The Unjust Enrichment Fallacy And Private Law

  • Peter Jaffey

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