Restitution Remedies
Remedies in Restitution
Unjust enrichment is not a single area of law. Contract law and tort may afford remedies against unjust enrichment. Recourse against unjust enrichment may be afforded through the law of property, where assets are reclaimed. Damages by way of compensation for breach of contract or tort may also include elements of restitution.
Remedies in restitution may be, by way of quantum meruit, money had and received, money repaid by reason of a total failure of consideration or an account of profits. In modern practice, they are elements of a claim for unjust enrichment.
There may also be proprietary restitutionary remedies such as rescission, equitable liens, tracing and constructive trusts. Subrogation is by way of operation of law in certain cases. It may give a proprietary remedy where a person is subrogated to security.
Development of Personal Remedies
Historically, there existed legal forms of action where goods were sold or services were provided without an agreed price. Quantum Meruit applied when services were provided without an agreed price. Quantum Valebat applied where goods were sold without an agreed price.
Quantum meruit or quantum valebat also applied when a person supplies services or goods without a contract or under a contract which is wholly void or completely avoided.
Another long-standing form of claim was based on money had and received by the defendant. It developed to cover situations for money where monies were held by another, having been received by mistake or wrongly held.
Formerly an implied contract or quasi-contract was the basis on which recovery might be had. The historical theory of implied contract no longer applies. It still exerts an influence.
The modern approach recognises a single claim or cause of action described as unjust enrichment. Restitution is the remedy. The expressions “monies had and received”, “quantum merit” and “quantum valebat” survive in the modern law of restitution.
Requested Benefits
Where a person requests a benefit, he implicitly agrees to pay a reasonable price. If, for any reason there is no contract, the person must pay the reasonable value of the benefit requested and received.
Unjust enrichment by way of Quantum Meruit applies when services are provided without an agreed price. Quantum Valebat applies where goods are sold without an agreed price.
There is a personal claim against the recipient of the benefit based on unjust enrichment. It accrues to the person who has provided the goods or the service.
Monies Had and Received
Monies received which belong to another can be recovered by that other, as monies had and received. It is a personal claim against the recipient, based on unjust enrichment.
An action for monies had and received may arise where the claimant’s money is held by the defendant. It may arise where a third party has paid money to the defendant for the purpose of being passed to the claimant. It may arise where the defendant has usurped the position of, or received the payment on account of the claimant by mistake, under compulsion or where there has been a total failure of consideration.
Where there is no contract, money paid by mistake is readily recovered. Money paid by mistake is presumptively recoverable as money had and received. The same principle applies to monies paid by mistake to a third party at another’s request.
Payment by mistake may no longer be recoverable against a bona fide recipient and a recipient who has changed his position to his detriment in reliance on the receipt.
The order for money had and received (sometimes described as to the use of the claimant) is not a property or trust remedy. It is a personal order that the respondent is accountable to the claimant in respect of monies held or received by him.
Benefits Received
Benefits received by way of unjust enrichment may be in any form. The most obvious example is where money, property or assets are received. However, there may be enrichment where expenses are foregone; services are received and in some cases, where there is improvement or enhancement to the value of an asset.
In a sense, a service does not enrich in the same way as the payment of money or the receipt of an asset. However, modern restitution law accepts that the provision of services may constitute enrichment. If something of value is requested and freely accepted, it is generally regarded as a benefit and an enrichment. There are views to the contrary.
Measure & Loss
The measure of enrichment will be straightforward, where money or property is transferred. In the latter case, it will generally be the value of the transferred asset. In the case of service, it may be the value of the service or the cost saved.
In some cases, the measure of enrichment is not the amount of the gain. There may be a limitation on the amount to be repaid, due to subjective devaluation or a change of position.
The gain must be unjust. The claimant need not necessarily show that he has lost in financial terms. In fact, he may have recouped what is lost elsewhere or have suffered no net loss. There may be, nonetheless, be unjust enrichment that ought to be reversed.
The fact that more than one party has suffered the same loss on account of the defendant’s actions does not preclude a claim for unjust enrichment for the whole amount. In more than one claimant has the same claim, then each may have to account for the other, if both take action. If one only takes action, then he is entitled to recover the benefit received.
Personal and Proprietary Remedies
In principle, proprietary and personal remedies may be sought in a single action. The courts may grant a remedy by way of a personal order to repay and/or an order to return property.
Accordingly, if monies are paid to another in error and that other diverts them into assets, a simultaneous claim may be made by way of personal remedy for monies had and received and a proprietary remedy against the assets concerned by way of tracing.
There are certain common law liens including that of the maritime general average claimant and maritime salvor. They may afford liens over property on well established historical basis. They are proprietary in nature and are dealt with in other parts.
Proprietary Remedies
A property or proprietary claim is made where the respondent holds an asset to which the claimant has an interest or entitlement, whether legal or beneficial. Where a trustee receives assets on behalf of the trust that he diverts to himself, it remains the trust property and may be recovered.
In some relatively limited classes of cases, a constructive trust may be imposed by the court as a remedy in order to do justice. Under the law of trusts, this creates or recognises proprietary rights. Effectively, the respondent is deemed to hold certain assets as a trustee. The retrospective imposition of a trust is significant in that the relevant assets are deemed to belong to the claimant, which is of particular importance in insolvency.
Assets transferred to another in anticipation of a transaction are recoverable. Assets transferred under a contract which has failed for total lack of consideration, is void, or is avoided, belong to the transferor and are recoverable as such. There are some limits on recovery, the subject of another section.
Advantages of Proprietary Remedies
The consequence of a successful property claim is that the entitlement to the property is unconditional. Rises and falls in value are for the account of the claimant and not the defendant. A claim against the defendant personally may be defeated by a change of circumstances.
In contrast, property rights are absolute. They may be lost where property passes under a voidable contract to a bona fide purchaser for value. It becomes too late to avoid the contract.
Proprietary rights usually hold good against third-party. Critically, they can usually be asserted in insolvency, giving the claimant a security right over the asset concerned, to the exclusion of ordinary creditors.
Unravelling Property Transfer
In some cases, property may be retaken without legal action. In contrast, a personal claim for restitution will require a judicial declaration in order to establish the right and its extent.
Where assets pass or appear to pass under a failed (void) contract, the title automatically reverts to the transferor without a court order. If the price has been part paid, the transferor may be obliged to give so-called counter restitution, refunding money paid.
Some proprietary remedies may be exercised by notice and retaking without a judicial order. Where a contract is rescinded due to fraud, the position may be unwound by notice to the counterparty. Rescission may re-vest title to property (such as chattels) in the transferor, subject to an obligation to make counter restitution for money received.
Invalidated Contract
Proprietary claims may be available where assets are transferred in the context of a failed contract. Rescission of a contract is its avoidance or cancellation contract on some lawful grounds.
In the case of assets not transferable by delivery alone and in the case of rescission on the basis of “voidable” grounds such as mistake, misrepresentation, short or fraud, the assets do not re-vest or transfer as a matter of law automatically. However, the counterparty holds them as a nominee.
The right may be exercised out of court in some cases. A court order may be required if there is a dispute. In the case of a mere equity, a court order may be necessary. A court order is required for rectification and set aside on the grounds of undue influence.
Where a contract is voidable, such as by mistake or misrepresentation, title to the asset is not automatically revested in the transferor. However, the holder holds them as nominee or trustee for the owner, if the option to treat the transaction as avoided is exercised.
Proprietary Estoppel
There is generally no proprietary claim where a person had been unjustly enriched by way of receipt of money. Where the receipt involves trust money, there may be a right of tracing. However, there is no general right for courts to determine that a proportion or a specific part of a person’s assets are held on trust for the claimant, simply because he has been unjustly enriched at the claimant’s expense. Proprietary claims are available in a relatively narrow category of cases.
In cases of so-called proprietary estoppel, a person is given a proprietary right where he incurs expenditure or suffers loss or otherwise acts to his detriment on the basis of representations made by the owner of a property as to the benefit he holds or will receive. Accordingly, if a person builds property on land in the expectation that it will be transferred, the owner may be estopped from denying title and may be obliged to hold an interest in the property on trust for him.
This may occur where persons have been induced to work with limited or no remuneration on the basis that the property will be left to them after death. In cases where this expectation is not fulfilled, the courts may be prepared to apply the principle of estoppel.
Tracing and Constructive Trusts I
In some cases where monies are paid by mistake, the recipient holds them on trust for the intended transferee. However, once money is paid, it is generally not held on trust, except where the principle of tracing applies. The principle of tracing has been kept within relatively narrow bounds.
Gains made by trustees or other persons in a fiduciary position in breach of trust or duty are subject to the principle of constructive trust. The gain is regarded as the fruit of the underlying trust and the beneficiaries or principals have an entitlement to reclaim the proceeds as trust / their assets.
The principle extends wider than the misuse of trust assets. Gains made by a reason of breach of trust, even if not derived from the trust assets, may be the subject of a constructive trust and thereby reclaimable.
The trustee and fiduciary are bound to account for profits derived from the trust or fiduciary position, which properly belong to the beneficiaries/principals and they are regarded as holding the same on trust. Tracing does not extend to all fiduciary relationships and it does not apply in all cases where there is a duty to account.
Tracing and Constructive Trusts II
The principles regarding benefits and gains made in breach of trust apply to trustees and other fiduciaries. Benefits received by a fiduciary or trustee may be subject to a constructive trust in favour of the claimant.
Where payments are made ultra vires, there is a right of restitution against the payee as a general principle. There has been some support for the proposition that a proprietary remedy may be available on the basis that the asset transfer is invalid.
It is established that monies paid to corporate body ultra vires are not recoverable by way of proprietary remedy on the putative inverse principle that the company is incapable of acquiring the assets.
Constructive Trust Issues
The extent of constructive trustee remedies against a wrongdoer / the recipient is limited to where there is a prior trust or fiduciary relationship. Unlike the positions in other jurisdictions and despite occasional indications of a more expansive approach, there is no general remedy by way of a constructive trust to recoup or recover assets from recipients, who have wrongly received them. Where the assets can be traced, a proprietary remedy may be available.
The scope of the remedy of constructive trust and tracing may develop over time, beyond its bounds in existing case law. There is significant case law in other common law jurisdictions which contemplates a wider concept of constructive trust remedy.
Monies paid by mistake are held by way of constructive trust in some cases, such as where monies are paid into an account twice or are paid to the wrong person in error. There are different strands in the case law, some of which hold to the contrary.
Where a person pays money towards the improvement of land under a mistake as to ownership rights in it, or on an expectation that will obtain ownership rights in it, they may have a lien for the value of improvements.