The Impact of Equity and Restitution in Commerce

Peter Devonshire, Rohan Havelock, Peter Devonshire, Rohan Havelock

• Publisher: Hart Publishing
• Year: 2018
• ISBN:
  9781509915668
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto immobiliare e anti-trust

Commercial relationships give rise to diverse forms of legal obligation in private law, including contract, tort, agency, company law and partnership. More controversially, equity and the law of restitution have a less defined and somewhat ambulatory role in regulating the affairs of commercial parties. Nevertheless, their impact is manifest in the commercial arena through the distinct types of liability they engender and the remedies that are imposed. This collection draws together the views of leading international scholars and judges to explore the nature and extent of this impact from two perspectives. Five chapters primarily address this impact at a macro-level, focusing on the roles of equity and the law of restitution in terms of legal taxonomy, doctrine and policy. In contrast, five further chapters primarily address this impact at a micro-level, focusing on selected liabilities and remedies within equity and the law of restitution. This bifocal approach enables a holistic appreciation of some important ways in which equity and the law of restitution affect or may affect commerce, with a view to fostering further debate over the fundamental issues at stake.

1

Introduction: The Macro Level

PETER DEVONSHIRE AND ROHAN HAVELOCK

I.Overview

It is trite that equity and the law of restitution have made a profound and lasting contribution to the development of the common law. In order to examine and assess their impact in commerce, it is logical to begin with their basic function in the scheme of private law. Any definition of this is necessarily general given that their development has been organic and, in the case of equity, has spanned many centuries. For present purposes, it may be observed that equity and the law of restitution share a basic and distinct function which is: (1) corrective of problems affecting certain relationships, transactions, and other events involving legal actors; and (2) largely but not exclusively, supplementary in the sense of addressing gaps in other areas of private law or enforcing particular normative constructs, such as the trust.

This function may be regarded as indispensable to the achievement of justice by the common law legal system having regard to its origins and development within evolving political, economic and social contexts. However, its effects have caused enduring difficulties in settling, and even simply defining, the precise relationships which equity and restitution have with the areas of private law they intersect, especially the law of contract and the law of property. Bearing on this high-level question are the disparate values and standards informing the application of the rules and principles of equity and the law of restitution.

If coherence and stability within commercial law are prized to ensure the effective operation of commerce, then these foundational questions must be carefully worked through. Chapters three to seven of this collection attempt to confront such macro level questions, raising issues of taxonomy, doctrine and policy. The positions taken on these questions will shape, and arguably should determine, the nature and extent of rights, obligations and remedies when equity and the law of restitution are invoked in particular cases. At this stage, the financial and practical outcomes are in view and it is possible to identify concrete consequences for commercial parties. Chapters eight to twelve of this collection are concerned with such micro level issues.

II.An Analytical Framework and the Scope of Proprietary Relief

A.The Boundaries of Contract, Equity and Unjust Enrichment

Chapter three, written by Sarah Worthington, aptly sets the stage for the entire collection. In a masterly and extensive analysis, Worthington examines some of the most prominent tensions and difficulties at the intersections of three core areas of private law: contract; property (in which she locates equity); and unjust enrichment. The familiar example of a mistaken payment is used to demonstrate that unjust enrichment and property law (via a trust¹) might assist with the same problem yet deliver different responses with different justifications. As a means of reducing such boundary conflicts and making the core areas of private law work together coherently, Worthington carefully articulates four crucial points to assist analysis.

First, Worthington emphasises that property questions must necessarily be answered before liability questions. Thus, the location of legal title to assets and the location of any derivative interests (including trust interests) in those assets must be settled first, not least because legal entitlement and factual enjoyment may be in different people. Worthington further argues that when it comes to trust interests, the line between location and liability need not be fraught. By reference to the difficulties posed by Re Rose² and Macmillan Inc v Bishopsgate Investment Trust plc,³ she demonstrates that identifying who is entitled to the economic benefit of assets is still a property location question which depends fundamentally on the intention and consent of the transferor. Absent such intention or content, the entitlement of the transferor persists despite the transfer of legal title. Although beyond the scope of the chapter, the fundamental question of the normative basis of this entitlement still demands to be settled.⁴

Second, turning to liability questions, Worthington observes that contract and tort law are concerned with individuals, with remedies designed to reinstate or restore the parties’ positions. In contrast, unjust enrichment and trust law are concerned with assets, with remedies designed to deliver what was expected from the assets assuming their proper handling and management.⁵ This observation is powerful in its simplicity and clarity, although it needs to be construed in a purely functional sense, to avoid the objection that there can be some crossover in the concerns of these areas. Contractual and tortious rights of individuals are often dependent on, or at least closely intertwined with, property interests. Certain causes of action and remedies may, to differing extents, serve to protect those property interests indirectly through personal liability.⁶

It might be questioned whether trust law can be explained entirely in terms of asset handling and management. Where a trustee profits from a trust asset, or even from using information or an opportunity belonging in equity to the beneficiaries, it seems strained to say that disgorgement of the profit delivers what was expected from any asset in the stewardship of the trustee, assuming its proper handling and management. Rather, it delivers the particular conduct expected from the trustee: loyalty in discharging his or her trusteeship, including abstention from making unauthorised profit.

In relation to unjust enrichment, it might be objected that the orthodox remedy (personal restitution) has a less sophisticated design than that ascribed to it: it corrects an unintended transfer of an asset by requiring the transferee to make restitution of its value to the transferor. What is expected from the asset, in the form of a particular use or otherwise, does not bear on such correction.

Third, both trust law and unjust enrichment law are concerned not simply with assets, but with entitlement to the economic benefit of assets. This terminology is intended to distinguish this entitlement from other benefits, including possession, which might be derived from assets. Worthington argues that this core entitlement means that, despite existing authority, remedies for unjust enrichment should be proprietary if the property in question is identifiable, with liability limited by the change of position defence. The result is to align the common law and equitable responses to unjust enrichment.⁷ This is a strongly fusionist view which assumes: (1) that equitable proprietary claims should be subsumed within unjust enrichment, despite strong authority to the contrary;⁸ and (2) that the appropriate response to common law and equitable claims alike is a trust interest. These assumptions do not command universal assent.

In her analysis, Worthington revisits the vexed debate as to the availability of proprietary restitution,⁹ famously rejected in Westdeutsche Landesbank Girozentrale v Islington LBC in the context of void contracts.¹⁰ In the basic case of a voluntary transfer of property from A to B, Worthington is critical of the positive presumption adopted by Lord Browne-Wilkinson (ie that A intended B to hold the property on resulting trust for A). She opines that, framed this way, the presumption of a resulting trust will usually be ruled out¹¹ because it can be rebutted by evidence of any other type of transfer in which B was not intended to hold the property on trust for A. She elaborates that Lord Browne-Wilkinson’s formulation is unrealistic, since in most transactions, not a thought is given to such a presumption. Instead, Worthington favours a return to the long-standing presumption that ‘A did not intend to make a gift to B’ as delivering simple analyses of common factual scenarios. Worthington’s shift in emphasis may well represent a more realistic approach to property transfers. A resulting trust is sometimes described as an implied trust because it gives effect to a presumed intention that in the absence of evidence to the contrary, property must be restored to the transferor. It is uncommon for property to be transferred to another without contemplation of an ultimate transferee or beneficiary.¹² That said, Lord Browne-Wilkinson’s formula depicts a limited class of cases, for example, where the transferee cannot rebut the presumption of resulting trust or the clean hands doctrine impedes him from doing so.

Finally, Worthington turns to address when individuals are entitled to the economic benefits of assets.¹³ In cases where legal title has passed, Worthington concludes that restitution for unjust enrichment should only be available to claimants who remain entitled to the economic benefit of an asset where either: (1) the claimant’s consent to transfer was vitiated, meaning capacity was lacking or consent was subjectively flawed for reasons caused by the defendant; or (2) the claimant’s consent to transfer was objectively conditional, and the condition has failed totally. In relation to the latter category, Worthington proposes that one means to distinguish between ‘misconceived transfers’ and mere ‘losing commercial deals’, is to allow recovery only where the transfer is objectively intended as an ‘engagement in some commercial risk, not as the gift that it now turns out to be’.¹⁴ Taking an example used by Worthington, this would occur if a gas board customer in error paid the same bill twice. The latter payment, would in Worthington’s terms, be an unintended gift.

Two observations may be made here. First, Worthington excludes causative mistake altogether as a ground of unjust enrichment,¹⁵ instead explaining it under the second category.¹⁶ Even if the reasons for this are convincing (being concerns as to the causation requirement being problematic; as to mistake being inappropriately expansive and undermining security of receipt; and as to analytical difficulties in ‘mistake of law’ cases), the pioneers of autonomous unjust enrichment would baulk at its removal. Mistake is regarded as the paradigm case of unjust enrichment,¹⁷ and an independent unjust factor.¹⁸ It is questionable whether cases of mistake can be satisfactorily subsumed within a wide conception of failure of condition, which generally requires communication of the condition to the transferee,¹⁹ which is not present in the case of un-induced mistaken transfer. There is also the fact that the existence of a mistake is determined at the time of transfer, whereas the existence of a failure of consideration is determined afterwards.²⁰

Second, the proposed means to determine whether there can be recovery in the second category may not be sufficiently discriminating, and as a result, over-inclusive. In the commercial context, the vast majority of transfers will involve transfers by way of engagement in some risk in return for some benefit, and not by way of ‘unintended gift’. This suggests that it is not so much the characterisation of the transfer that is important, but the (total) failure of the benefit to materialise. This subsequent failure means the condition of the transfer has not been satisfied, justifying restitution.

B.Proprietary Claims and Remedies

In chapter four, Peter Jaffey focuses on the appropriate relief at common law and in equity in response to certain defective transfers: those by mistake or without authority. Like Worthington, he argues that this relief should be proprietary where possible. What is unique about Jaffey’s argument is the type of claim which he advocates. This is not a claim to any specific asset, but to surviving value in the form of an abstract part of the defendant’s estate. This is initially equal to the value of the transfer to the defendant, but it may fa...