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Feature Articles

Cite as: (2007) 81(12) LIJ, p. 70

Despite prominent detractors, unjust enrichment law can be useful for both practitioners and litigants.

By Katy Barnett

Despite prominent detractors, unjust enrichment law can be useful for both practitioners and litigants.
By Katy Barnett

Restitution law can seem arcane, a province fit only for theorists and academics. However, during the recent application for leave to appeal to the High Court in Lumbers v W Cook Builders (in liq), Kirby J commented: “Whole conferences are devoted to this area of the law and in some countries it is a growth industry and in this country it might be interred stillborn, but can it be denied that it is an important question?”.[1]

Basic concept

Until recently there was no “restitution law” in Australia. Academics distilled an overarching principle from different common law and equitable actions (including, most prominently, the common law action for money had and received).[2] There is still disagreement as to how unjust enrichment law operates and whether it is a separate cause of action.

The High Court has arguably recognised unjust enrichment as a cause of action.[3] However, a subsequent decision by a different Bench has doubted the need for an “all-embracing theory” of unjust enrichment law, instead proposing that restitutionary remedies have a “gap-filling and auxiliary role”.[4] Given the attitude of the current High Court on this issue, it would be advisable to draft pleadings carefully. Pleadings which allege simply that “the defendant was unjustly enriched at the plaintiff’s expense” are likely to be struck out.[5]

Mason and Carter provide some excellent guidelines for practitioners.[6]

Four issues must be addressed if a claim in unjust enrichment is to be made out:

  • 1. the enrichment must be unjust;
  • 2. the defendant must be enriched;
  • 3. the enrichment must be at the expense of the plaintiff; and
  • 4. defences must be considered.[7]

Unjust factor

For restitution to occur it is necessary to identify an “unjust factor”, as recently reaffirmed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[8]

Unjust factors include:

(a) Mistake (mistake of fact and mistake of law) For example, you think it’s my birthday and pay me $1 million because I am so excellent. But you are wrong (as to the date of my birthday only, of course) ...

Or you think that the Katy Benefit Act requires you to pay me $1 million and you do so, but it has just been declared void by the High Court.

(b) Compulsion/duress (threat to person, threat to property and perhaps economic duress) For instance, I threaten to kill you unless you pay me $1 million. Or I threaten to keep your motorcycle unless you pay me in full for the substandard repairs I have made to it. You are a motorcycle stunt artist, so you need the bike returned pronto.

(c) Failure of consideration (failure of the purpose of the payment) For example, you pay me $1 million to draw an excellent cartoon. Unfortunately, my hands seize up and I can’t complete the cartoon. But I keep the $1 million. I need it for the trained monkeys who feed me grapes.

(d) “Free acceptance” (where a defendant accepts services, refuses to pay for them and the contract does not cover services) For instance, over three years you renovate my house for me. We never make a contract. When you finish, I don’t pay you for your work.

Enrichment

There are three types of enrichment: money, services and goods. Receipt of money is clearly enrichment. Enrichment by receipt of goods does not often arise as usually the contract is rescinded.

Enrichment by receipt of services is problematic. A recipient of a service can allege that they never wanted the service (known as “subjective devaluation”).

At the expense of another

Ordinarily, enrichment must be at the expense of the plaintiff. Where the defendant’s gain is the plaintiff’s loss (subtractive restitution), this will be established. However, where a defendant makes a profit by committing a wrong to the plaintiff, it has been argued that this should be a part of the law of unjust enrichment, even though the plaintiff has not suffered a loss. This is controversial, and most theorists argue that it should not be part of unjust enrichment law. However, for completeness this article will assume that it is.

Restitution

There are two ways in which enrichment may be returned to a plaintiff: personal remedies and proprietary remedies.

There are different personal remedies for each type of enrichment. It is important to keep this in mind when drafting pleadings.

  • For money: Action for money had and received.
  • For services: Quantum meruit.
  • For goods: Quantum valebat.
  • Restitutionary damages? (for use value of the asset – only if restitution for wrongs exists).
  • Account of profits? (for profit gained by the defendant – only if restitution for wrongs exists).

Second, there are proprietary remedies: the constructive trust, the resulting trust and the equitable lien.

Defences

These are intended to protect security of transactions.

Voluntary submission to an honest claim: This is a controversial defence which may arise if the plaintiff pays the defendant and does not inquire or protest.[9] It does not matter if the plaintiff suspected there was something wrong. Arguably this defence is not well thought-out as the very advantage of unjust enrichment is that a plaintiff can pay and recover later.

Change of position: If the defendant has spent all or part of the money, is in good faith, has relied on the receipt of the money and has suffered detriment, then this is a defence (total or partial, depending on the extent of the change of position). Estoppel has probably been supervened by this defence.

Ministerial receipt: If an agent receives money on behalf of a principal this may be a defence. The agent must establish:

  • good faith on the part of the defendant;
  • lack of notice as to mistake;
  • the agent must have paid over money to the principal (in a banking situation, the bank must have credited the customer’s account with money).

This is particularly important to keep in mind when a bank receives money on behalf of a customer. In Australia & New Zealand Banking Group Limited v Westpac Banking Corporation[10] ANZ was asked to transfer $14,000 to a customer’s Westpac account, but accidentally transferred $114,000. The customer went into liquidation. ANZ tried to recover the $100,000 from Westpac, but Westpac established the defence of ministerial receipt.

Practical benefits

Unjust enrichment allows plaintiffs to pay money said to be owed, and recover that money if it transpires that the plaintiff should not have paid the defendant. A restitutionary analysis can provide a client with an easy answer in many situations, such as those listed below. It is particularly useful because it is strict liability, and does not require any fault on the part of the defendant (although an unjust factor must be identified).

Where a bank has made a mistake in transferring money

See the case of Australia & New Zealand Banking Group Limited v Westpac Banking Corporation under the heading “Defences” above.[11]

Where the law suddenly changes and payments of money have been made pursuant to that law

A mistake of law has been found to give rise to restitution.[12] Difficulties arise when a superior court overrules a previous line of authority (is it a mistake, or merely a misprediction as to what a higher court will hold?)

From 1973 to 1999 UK taxation law provided that companies with a parent in the jurisdiction could elect to pay dividends free of advanced corporation tax. In March 2001 the European Court of Justice decided in Metallgesellschaft Ltd v Inland Revenue Commissioners[13] that this law contravened the EC treaty. The plaintiff then sought restitution of the use value of the money, arguing that it was entitled to compound interest on the basis of restitutionary principles. The House of Lords decided that the plaintiff was entitled to compound interest: Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners.[14]

This precise situation would be unlikely to arise in Australia because of Hungerfords v Walker.[15]

Where a defendant is threatening not to return property unless paid

The plaintiff left its helicopter with the defendant for repair. The plaintiff was unhappy with the quality of the repairs. The defendant refused to return the helicopter unless the plaintiff paid $4300 in full settlement of all claims (less than the contract price, but with no deductions for shoddy work). The helicopter was essential for the plaintiff’s work. The plaintiff paid the money, but successfully sued for restitution (duress to property). It received restitution of the whole $4300. If the defendant wanted recompense for the value of work done, it would have to sue in contract: Hawker Pacific v Helicopter Charter.[16]

Where a contract is void or unenforceable

A builder made an oral contract to build a house. However, legislation rendered oral construction contracts unenforceable. The builder could not sue in contract, but successfully sued the homeowner for value of services provided: Pavey & Matthews Pty Ltd v Paul.[17]

Leave to appeal to the High Court has been granted in W Cook Builders (in liq) v Lumbers,[18] a case involving similar issues. It will be interesting to see what conclusion is reached.

Where a contract is a “losing bargain”

This is controversial. Deane J in Pavey & Matthews[19] stated in obiter that the amount due under the contract should limit recovery in restitution.

The plaintiff entered into construction contracts with the defendant. The plaintiff could not meet its deadlines. The defendant purported to cancel the contract. The contract price for the work done was $208,950, but the court awarded the plaintiff a quantum meruit for $285,000, representing the market value of work done: Renard Constructions (ME) Pty Ltd v Minister for Public Works.[20]

Where a contract fails because of unforeseen factors

Before restitution can be sought for failure of consideration, the contract must be terminated; otherwise any remedies will lie in contract.

Pursuant to a contract, tobacco retailers paid excise tax to tobacco wholesalers for payment to the NSW government. The ultimate source of the money was consumers, who had paid the tax as part of the purchase price of the cigarettes. Before the money was paid to the government, the High Court declared the excise law to be invalid.[21] The purpose of the payment pursuant to the contract had failed. A majority of the High Court found that the wholesalers were obliged to make restitution of the money received to the retailers: Roxborough v Rothmans of Pall Mall Australia Limited.[22]

Where the defendant has made a profit from the commission of a wrong

In 1961, George Blake, a former member of British Intelligence, was convicted of spying for the Soviet Union and imprisoned. He escaped from jail in 1966 and fled to Moscow. In 1989, he wrote an autobiography about his defection and received a substantial advance from the publisher of the book. A majority of the House of Lords found that the Crown was entitled to an account of profits for Blake’s breach of his employment contract: Attorney General v Blake.[23]

Note that this decision has not been accepted by Australian courts, and the current High Court is unlikely to follow it. However, it is to be hoped that attitudes shift. Also note that where a defendant has committed a criminal act, it may be more prudent to bring an application under proceeds of crime legislation.[24]

Where the defendant is insolvent

A restitutionary proprietary remedy is useful where a defendant is insolvent as it gives the plaintiff priority over non-secured creditors. A trustee in bankruptcy may not sell assets that are held on trust.[25]

The plaintiff agreed to buy a house from a builder. The contract provided that the plaintiff would pay the builder in four instalments. The final instalment was payable on completion of the house, and until it was paid the property belonged to the builder. Two instalments had been paid when the builder went into liquidation. The plaintiff agreed to pay the builder for the value of work done which was not covered by the instalments. The builder’s creditors had legal title to the property, but the plaintiff had an equitable lien over the property to the extent of the payments he had made to the builder: Hewitt v Court.[26]

Conclusion

It is hoped this summary has convinced readers that it would be a pity if unjust enrichment law was “interred stillborn” in Australia. Despite its controversial status, it is very useful for practitioners and litigants. It allows a plaintiff to pay money, and then recover it later when it transpires that the plaintiff should not have had to pay, subject to the change of position defence.


KATY BARNETT is a lecturer in property law at the University of Melbourne. She is undertaking a PhD on restitution for wrongs. She thanks Professor Michael Bryan for his encouragement and comments on an earlier draft of this article, and the anonymous article reviewers for their comments.


[1] [2007] HCATrans 420 (8 August 2007).

[2] See especially Robert Goff and Gareth Jones, The Law of Restitution, 1966, Sweet & Maxwell, now in its 6th edition: Gareth Jones (ed), Goff & Jones: The Law of Restitution (6th edn), 2002, Sweet & Maxwell.

[3] Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221, at 256–257 per Deane J; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, at 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ.

[4] Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, at 545 per Gummow J.

[5] Keith Mason and JW Carter, Restitution Law of Australia, 1995, Butterworths, p970.

[6] Note 5 above, pp968–981.

[7] Peter Birks, An Introduction to the Law of Restitution (rev. edn), 1989, Oxford University Press, p21.

[8] [2007] HCA 22 at [150].

[9] David Securities Pty Ltd v Commonwealth Bank of Australia, note 3 above.

[10] (1988) 164 CLR 662.

[11] See also Chase Manhattan Bank NA v Israel British Bank (London) Ltd [1981] Ch 105 (constructive trust over mistaken payment).

[12] David Securities Pty Ltd v Commonwealth Bank of Australia, note 3 above, adopting Kleinwort Benson v Lincoln City Council [1998] 3 WLR 1095.

[13] (Joined Cases C-397 and C-410/98) [2001] Ch 620.

[14] [2007] UKHL 24.

[15] (1989) 171 CLR 125.

[16] (1991) 22 NSWLR 298.

[17] (1987) 162 CLR 221.

[18] [2007] SASC 20.

[19] Note 3 above, at 256 per Deane J.

[20] (1992) 26 NSWLR 234. See also Boomer v Muir 24 P (2d) 570 (1933) and Kane Constructions v Sopov [2005] VSC 237.

[21] Ha v New South Wales (1997) 189 CLR 465.

[22] Note 4 above.

[23] [2000] 1 AC 268.

[24] For example, Confiscation Act 1997 (Vic); Proceeds of Crime Act 1987 (Cth); Proceeds of Crime Act 2002 (Cth).

[25] Bankruptcy Act 1966 (Cth), s116(2)(a).

[26] (1983) 149 CLR 639.

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