Limits to Recovery
General Limits to Recovery
There are limits to recovery under principles of restitution.
Where there is a contract, restitution usually has no application. The fundamental breach of the contract may permit the innocent party to choose to set it aside. When this is done, restitutionary remedies may be available.
Restitution may be avoided by a contract to the contrary. A contract might provide, for example, that a deposit is irrecoverable in all circumstances. Provided that the contract is valid, the right of restitution is inapplicable.
Where assets are given by way of a gift, they are intrinsically irrecoverable, provided the gift has been perfected.
Some rights of recovery are equitable in nature so that they are defeated if the assets sought to be recovered, pass into the hands of a bona fide purchaser for value. This is someone who is unaware of the flaw in title arising from the earlier transaction and who gives substantial value for them.
Settlement, Waiver and Estoppel
Restitutionary rights may be settled in much the way as contractual and tortious claims and right.
A legal claim may be settled notwithstanding the underlying merits. Provided there is a bona fide settlement, it cannot be reversed by restitution irrespective of the merits.
Estoppel may apply so as to limit or negate a claim for restitution. Where there is an action or a statement, representation spoken or unspoken, upon which the addressee relies in good faith and changes his position, it may be inequitable to allow the person making the representation to enforce his strict legal rights.
Rights and claims may be waived. There may be a waiver on the part of the person who would otherwise have had a claim to restitution, where he has acquiesced in or is estopped from denying that there is a settlement.
Acquiescence with knowledge of the right to restitution may waive a right or claim where a party has changed his position in good faith on the basis of the waiver. Restitution may be denied if, and to the extent, it would be inequitable. The waiver may become irrevocable by acquiescence, in the absence of a contract.
Change of Position
If a person receives a benefit
- in circumstances where he assumes that he would be allowed to retain it,
- where he had no reason to know of the possibility of a claim for restitution and
- where he has disposed of the benefit, spent it or has been deprived of it, such as to make it inequitable that it be returned,
then a defence to recovery on restitutionary grounds, on the basis of a change of position may be available to the extent of the change. Conditions apply.
The principles of change of position may be applicable where a person is overpaid or where monies are credited to an account in error or in excess of the correct amount. He may later spend monies credited in error, not realising this to be the case. The classic example of a change of position by which the right to recover is lost or limited, is where a bank credits a customer’s account in error or for too much, who spends the money in the honest belief that it is his.
Conditions
The person must have received the benefit in question in good faith and believing he was entitled to keep it, having no reason to believe that he might be liable in restitution thereby, disposed of it or part of it, or was deprived of it in circumstances such that it would be unjust to require him to repay or refund it.
The expenditure must be such that it would not otherwise have been made. Restitution is allowed to the extent to which the expenditure would ordinarily have been incurred, e.g. in discharging debts.Where the expenditure is on other assets which can be realised, it may not be inequitable to require restitution.
The mere fact that he spent monies may not be sufficient where there are new assets purchased in substitution. He may have saved living cost he would otherwise have incurred. If however the funds were spent on something frivolous, unrealisable or lost, restitution is likely to be refused.
In a case heard by the Privy Council, the fact that the defendant had loaned the funds, onward to an uncreditworthy party, did not shield him from liability to restitution to the plaintiff. He took the risk that the monies would be thus irrecoverable.
Change of Position Issues I
The change of defence position defence may apply where money is spent in anticipation of a payment, that is subsequently received.
The acts and change in position must be in response to and be caused by the benefits received. A person who receives a loan and pay the proceed to a third party would still have been liable to repay the loan, because the payment is not made in reliance on the loan being a gift.
The change of position defence does not apply where the defendant has acted in bad faith. This will include payment of the money received knowing the flawed basis of receipt of the that benefit. Bad faith does not necessarily imply dishonesty. Consideration is given to the reasonableness of his acts.
Generally, it does matter how or in what form the change of position may have occurred. If the recipient acts to his prejudice whether by spending money, giving gifts or otherwise taking steps that are not reversible in reasonable reliance on owning the benefits, money or assets concerned, then the defence to restitution may be available. There is a view that the defence is not available to wrongdoers.
Change of Position Issues II
There must be reliance. The receipt of monies must have caused the defendant to change his position. The change of position must be caused by the receipt of the benefit.
A change of position is a defence only to the extent that there is, in fact, a change of position. If, for example, a person has spent a part of the monies credited to his account, it would operate as a defence only as to the part spent being coterminous with the detriment suffered.
In principle, it should not make any difference why the change of position has occurred. It may have occurred as a result of a voluntary act of the defendant against whom restitution is sought or due to other circumstances such as that the monies were stolen or lost.
It must be such that reversal to the original position would have a detrimental effect on the defendant. The focus is on the injustice in requiring him to repay in such circumstances. However, in some cases, theft may have occurred even without the enrichment so that the defendant is no worse off. In this instance, the defence to restitution would not be available.
Where a person has changed his position by reason of receiving the monies subject to restitution, the question of equities arises as to recovery. Monies paid in expectation of receiving a benefit which is ultimately the subject of restitution may constitute a change of position.
Limits to Change of Position
The change of position defence is not available to wrongdoers, such as a person who has committed a crime or fraud or taken a bribe. However, it is unclear how far it applies to so-called innocent wrongdoers who unwittingly convert assets. It is argued that it should not extend this far.
There is authority for the proposition that a respondent who has received funds in consequence of misrepresentation may not claim for change of position. The relative equities are likely to be weighed.
The defence does not appear to be available in a claim by an executor to recover estate monies wrongfully distributed. The recipient will not have given value.
There is also authority that the defence may not be recoverable by State authority. It is not clear whether this authority would still hold.
Change of Position and Estoppel
A change of position is a distinct defence to restitution. The change of position defence applies in circumstances which would not be sufficient to constitute equitable estoppel. The change of position defence allows for proportionate recovery or defence. It is not all or nothing.
Estoppel is a more general concept. It arises where there has been a change of position as a result of a representation express or implied that the strict legal position or restitutionary rights will not be relied on together with detrimental reliance and it being unjust or inequitable to go back on the same.
Estoppel requires that the defendant has detrimentally relied on a misrepresentation made by the claimant that he was entitled to keep the receipt. The representation might be express or implied. It might arise where the the incorrect amount of money was received.
Where a person has been overpaid, questions it and has been told specifically that there is no mistake, then estoppel may arise in some circumstances. Although on the face of it, estoppel is more difficult to assert than a change of position, it is wider in other respects. It may be available in circumstances which would not constitute the change of position defence.
A mere change of position by the recipient by itself is not enough, for the wider estoppel defence. There must be an estoppel binding on the person who has paid the money for restitution to be limited or barred. See generally the sections on estoppel.
There have been cases where estoppel has been allowed as a total defence to recovery and not just proportionate to the actual expenditure lost/incurred in circumstances which a person has relied upon an asserted position to his detriment. The cases have been criticised and it is arguable that estoppel should be limited to the extent of the detrimental reliance.
Traditionally estoppel was an all or nothing defence. Modern case law suggests a more proportionate approach relative to the unconscionability of retention. The tendency in modern cases is employ change of position defence as a variant and in place of estoppel.
Illegality; No Recovery
Where the subject matter of a contract is illegal, recovery may be denied on both contract and restitution grounds. Generally, with an illegal transaction, the loss lies where it falls.
Where payments have been made on foot of contracts which were unlawful, to the knowledge of both parties, then traditionally, the loss lay where it falls and there was no recovery. This covers not just criminal legality, but many instances of statutory illegality.
The Supreme Court in the Quinn case has introduced a more nuanced and policy orientated approach to recovery in illegality cases. It requires the court at look at the to the totality of the legislative policy to discern whether it was intended that the loss should fall where it lies. Often, this may not be the case.
Illegality; One Party Recovery
Where one person is not aware of the facts and circumstances making the transaction illegal, then the innocent party can generally obtain restitution, provided he withdraws from an illegal transaction , before performance.
Where legislation is designed to protect one weaker party over another, that latter may be able to enforce by restitutionWhen one person is significantly more at fault than the other, recovery may be allowed notwithstanding the illegality of the transaction.
Where a claim may be sustained without relying on the unlawful transaction, restitution may be allowed. Where, the unlawful element is part of the claim, restitution or enforcement will be denied. In some cases, it may be possible to rely on independent property rights to reclaim assets which have been transferred.
Certain types of contracts are prohibited or only valid if certain formalities are followed. In some cases the courts allow recovery on the basis that it is not against public policy to allow recovery to avoid injustice, even though recovery on the underlying transaction might be void.
Illegality Withdrawal
Where a person withdraws or repents, he must do so in good time before the critical point. This would be typically where the illegality, deceit or deception occurs after it is planned but before it occurs.
In essence, what is left is a total failure of consideration without a bar to recovery by way of illegality. Once the legality has been carried into effect in any substantial manner, renunciation is not possible.
Innocent or Protected Party
Where one person is substantially less to blame than others, then the more innocent party may be entitled to recover notwithstanding illegality. They are not equally at fault. This may occur, for example, where legislation is truly aimed at promoting the interest of one party, typically a party in a weaker bargaining position.
In many schemes, statutory schemes are aimed at protecting the rights of one weaker class of persons over other. In this case, the weaker person may be able to recover. While the person in the protected class may be able to recover from the other in circumstances where the other would not be able to recover from the person in the protected class.
Consumer Credit Acts make specific provision providing unenforceability of certain types of agreement. It is clear that this may not be circumvented by restitution.
In cases under the moneylender’s legislation, the predecessor of the Consumers Credit Act, it was held that the moneylender was not subrogated to the previous mortgagee who has been paid off on public policy ground.
Independent Proprietary Rights and Legality
A right of property may be established in some cases without reference to the legal contract right. It may be enforced in itself. This is subject however to the principles of unlawful trusts. If, for example, a resulting trust can be shown without reference to the illegality, it may be enforced on the basis of the proprietary right.
Where the sole ground of the claim to the proprietary interest is the illegal agreement and not the presumption of trust, the trust will be held to be unenforceable. If assets are transferred to another for an illegal purpose, equity will not enforce the resulting trust. The Supreme Court has emphasised the importance of the particular statutory provision in terms of recovery, in this context.
Technical Unenforceability
Where the issue of legality is technical and relates to a matter of form, it is a question of interpretation whether public policy precludes recovery in both restitution and contract. The presumptive position is that actions in restitution not being based on contract are presumptively unaffected by rules of contractual unenforceability.
For example, rules requiring that contracts for the sale of an interest in land or sale of goods are to be evidenced in writing, do not preclude recovery in restitution. There is a total failure of consideration where the claimant does not get what he has contracted for, because of the statute. The principle has also been held to apply to gaming contracts until monies are appropriated to losses by the recipient.
In such cases, the fact that legal action may not be available for the price because of lack of evidence of writing does not necessarily preclude action by way of quantum meruit or quantum valebat for a reasonable sum.
Several leading Irish cases have involved informal agreements to transfer of property in return for working on a farm or looking after an owner. Such cases are commonly enforceable by way of estoppel.
Where there is an oral contract, it would be unenforceable by the absence of writing. However, the absence of writing is no bar to a restitutionary recovery for work performed under the contract and not paid.