Restitution / Unjust Enrichment

# Restitution / Unjust Enrichment — Topic Notes
## LLB Elective | England & Wales

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## Part 1: Foundations and History

### From Quasi-Contract to Unjust Enrichment

English law recognised restitution as an autonomous cause of action only in 1991. Before that, claims were pleaded under the fictional writ of indebitatus assumpsit and labelled "quasi-contract" — a category criticised for obscuring the true principle underlying recovery.

**Judicial recognition:** In **Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548**, a solicitor (Cass) fraudulently withdrew client money from his firm's account and gambled it at the Playboy Club. The House of Lords held the firm could recover from the club in unjust enrichment. Lord Goff stated that English law does recognise a general principle of unjust enrichment, requiring: (1) enrichment of the defendant, (2) at the claimant's expense, (3) in circumstances that the law regards as unjust, subject to (4) any applicable defences. This was the first unambiguous HL recognition of unjust enrichment as an independent cause of action.

### The Academic Landscape

- **Goff & Jones approach** (now 10th edn, 2022): unjust factors — identifies specific recognised grounds (mistake, failure of basis, duress, etc.) that render enrichment recoverable.
- **Birks's pre-2003 framework**: aligned with unjust factors; structured the subject around a clean four-part test.
- **Birks post-2003 (absence of basis)**: Birks controversially moved to a civilian-influenced approach: enrichment is unjust where there is no legal basis (causa) for the defendant to retain it. This collapses the distinction between unjust factors and reversed the analytical direction. English courts have not adopted this approach.
- **Virgo / Burrows**: broadly retain the unjust-factors model with refinements.

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## Part 2: The Four-Part Test

The test established in **Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548** requires:

### (1) Enrichment of the Defendant

The defendant must have received a benefit. Benefits include money, services, and improvements to land. The "subjective devaluation" problem arises where the defendant claims the benefit was worth nothing to them. Courts address this through the concept of "incontrovertible benefit" — a benefit the defendant cannot sensibly deny (e.g., discharge of a legal liability, or money received).

### (2) At the Claimant's Expense

The enrichment must come from the claimant, either by direct transfer or indirectly. The "at the expense of" requirement excludes claims where the enrichment derives from a third party.

### (3) An Unjust Factor

A recognised unjust factor must be present — see Part 3 below. The alternative "absence of basis" approach (Birks post-2003) would instead ask whether the defendant had any legal justification for retaining the enrichment. English courts continue to require a positive unjust factor.

### (4) No Applicable Defence

Even if (1)-(3) are made out, defences including change of position, bona fide purchase, estoppel, and illegality can bar recovery. See Part 7.

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## Part 3: Unjust Factors

### Mistake of Law

For most of the 20th century, payments made under a mistake of law were irrecoverable (Bilbie v Lumley (1802)). This bar was abolished by the House of Lords in:

**Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349** ([1998] UKHL 38): Kleinwort Benson had paid money to local councils under interest rate swap agreements that were subsequently held ultra vires and void. The bank sought recovery on the ground of mistake of law. The HL (majority, Lord Goff leading) held that the mistake-of-law bar was abolished. Money paid under a mistake — whether of fact or law — is prima facie recoverable in unjust enrichment. The minority (Lord Lloyd) dissented on the grounds that where the law was settled at the time of payment and was only later changed by judicial decision, no operative mistake existed at the time of payment.

**Significance:** Abolition of the distinction between mistake of fact and mistake of law; the claimant must show an operative mistake (i.e., a false belief that induced the payment).

### Failure of Basis (formerly "Total Failure of Consideration")

**Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32**: Fibrosa, a Polish company, placed an order for machinery from an English manufacturer and paid £1,000 in advance. When Germany invaded Poland in 1939, the contract was frustrated (supervening illegality). Fibrosa sought recovery of the advance payment. The House of Lords held that where a contract is frustrated and the payee has provided no part of the contracted benefit, there is a total failure of consideration, entitling the payer to restitution of pre-payment.

**Significance:** Established the doctrine of total failure of consideration as an unjust factor. Overruled the harsh rule in Chandler v Webster [1904]. Directly prompted Parliament to enact the Law Reform (Frustrated Contracts) Act 1943, which provides a statutory regime for apportionment of benefits under frustrated contracts but does not replace the common law for partial failure situations.

**Modern terminology:** "Failure of basis" (preferred by Birks and now widely used) rather than "failure of consideration" to avoid confusion with contractual consideration.

### Duress

Economic duress and physical duress are established unjust factors. A threat that leaves no practical choice but to submit may vitiate consent and ground restitution.

### Undue Influence

Undue influence, particularly in banking and family contexts, can render a transaction voidable and found a restitutionary claim.

### Ignorance

Some academics (notably Birks) argue ignorance — where the claimant did not know value was leaving their estate — should be a stand-alone unjust factor. Not yet definitively recognised by English courts.

### Legal Compulsion

Where the claimant was legally compelled to make a payment that was in law the defendant's responsibility (e.g., paying a debt owed by the defendant), a restitutionary claim arises.

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## Part 4: Absence of Basis (Civilian-Inflected Approach)

The "absence of basis" (or Grundlosigkeit) approach, associated with Birks's final work (Unjust Enrichment, 2003), posits that enrichment is unjust whenever the defendant has no legal basis (causa) to retain it. This imports the German Leistungskondiktion model.

**Key differences from unjust-factor model:**

| Unjust-Factor Approach | Absence-of-Basis Approach |
|---|---|
| Claimant must identify a specific unjust factor (mistake, duress, etc.) | Claimant need only show absence of justifying basis |
| Positive list of recognised grounds | Open-ended; any absence of basis suffices |
| Dominant in English case law | Adopted by Birks (2003); not adopted by English courts |
| Supported by: Burrows, Goff & Jones | Supported by: Virgo (partially), some civil-law scholars |

English courts have continued to require a positive unjust factor. The debate remains academically contested and is a prime essay-question area.

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## Part 5: Ultra Vires Payments and Public Law Restitution

**Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70** (not yet briefed in the corpus): The HL established a distinct "Woolwich principle" — money paid to a public authority pursuant to an ultra vires demand is recoverable as of right, without the need to establish a conventional unjust factor such as mistake. This is justified by the coercive power differential between the state and the citizen.

**School Facility Management Ltd v Governing Body of Christ the King College [2020] EWHC 1477 (Comm)**: The College contracted with SFM for school facility management services. A question arose whether the contract was ultra vires the College (as a public body). The court addressed: (1) whether the College was entitled to a declaration that the contract was ultra vires and void; (2) what relief SFM was entitled to in respect of services rendered if the contract was void. The case illustrates the restitutionary implications when a public body contract is declared ultra vires: the service provider may be entitled to quantum meruit or other restitutionary relief for services actually rendered, even though the contract itself is void.

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## Part 6: Tracing and Following

Tracing is the process of identifying a substituted asset as representing the original value. Following tracks the same asset into new hands.

### Common Law Tracing

Common law tracing is defeated by mixing — once money enters a mixed bank account, common law tracing fails (Agip (Africa) Ltd v Jackson [1990]).

### Equitable Tracing

Equity allows tracing through mixed funds. The key rules:

- **Re Hallett's Estate (1880) 13 Ch D 696** (19th century authority, not in corpus): A trustee who mixes trust money with their own is presumed to spend their own money first, so the balance of the mixed account is treated as trust money to the extent of the original trust amount.
- **Re Oatway [1903] 2 Ch 356** (not in corpus): Where the trustee spent part of the mixed fund on a profitable investment and the rest dissipated, the beneficiary could claim the investment — the court would not allow the trustee to argue they had spent their own money first where that would prejudice the beneficiary.

### Backwards Tracing and Mixed Funds

**Foskett v McKeown [2001] 1 AC 102** ([2000] UKHL 29): Murphy, a solicitor and trustee, used money from a trust fund to pay two of five premiums on a life insurance policy, then died by suicide. The beneficiaries claimed a proportionate share of the insurance proceeds. The House of Lords held:

- The beneficiaries had proprietary rights in the insurance proceeds proportionate to the trust money used to pay premiums (two-fifths of total proceeds).
- Beneficiaries have the right to elect between personal and proprietary remedies, choosing the more advantageous.
- Tracing establishes the connection between the original trust money and the insurance proceeds; the proprietary claim follows from that connection.

**Significance:** Confirmed the proprietary nature of tracing claims; established the "proportionate share" approach for mixed funds. Lord Millett emphasised that tracing is a "neutral" evidential process — it is not itself a remedy.

**Fabrizio D'Aloia v Persons Unknown [2024] EWHC 2342 (Ch)**: A cryptocurrency fraud case in which the court considered equitable tracing principles in the context of blockchain transactions. The claimant sought to trace USDT cryptocurrency through multiple blockchain wallets to identify and recover misappropriated funds. The court applied equitable tracing principles to digital assets, confirming that the rules developed for mixed bank accounts can be adapted for cryptocurrency.

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## Part 7: Defences

### Change of Position

Recognised in **Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548**: Lord Goff confirmed that change of position is a good defence in English law. Where a defendant has in good faith changed their position after receiving an enrichment, so that it would be inequitable to require full restitution, the defence reduces or extinguishes the claim. In Lipkin Gorman itself, the Playboy Club had changed its position by paying out winnings to Cass; the award was reduced accordingly.

**Requirements:**
1. The defendant received an enrichment.
2. In good faith, the defendant changed their position after receipt (or in anticipation of receipt).
3. It would be inequitable to require full restitution given the change.

The defence is not available to a person who acted in bad faith or who was a wrongdoer.

### Illegality

**Patel v Mirza [2016] UKSC 42**: Patel paid Mirza £620,000 to bet on share prices using insider information (which would have been criminal). The inside information was never obtained; the scheme was never carried out. Patel sought recovery. The UKSC held (9-1 majority) that Patel could recover the money. Lord Toulson replaced the previous rule-based approach (Tinsley v Milligan) with a "range of factors" test: courts should assess (a) the underlying purpose of the legal rule that was transgressed and whether that purpose would be enhanced by refusing relief; (b) any other relevant public policy considerations; (c) whether refusing relief would be a disproportionate response to the illegality. On the facts, allowing recovery served no public policy objection and the parties were not in pari delicto in a meaningful sense.

**Significance:** Overruled Tinsley v Milligan [1994] on the reliance principle. Provides courts with a structured but flexible discretionary approach to illegality across contract, tort, and unjust enrichment.

### Bona Fide Purchase

A defendant who gives value in good faith and without notice of the claimant's equitable interest takes free of that interest. This is the most complete defence.

### Estoppel by Representation

Where the claimant represented that the defendant was entitled to the payment, the claimant may be estopped from seeking recovery.

### Ministerial Receipt

An agent who receives money on behalf of a principal and pays it over without notice of the claim is not personally liable.

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## Part 8: Restitutionary Remedies

### Personal Remedies

- **Money had and received**: the common law personal action for recovery of money.
- **Quantum meruit**: a reasonable sum for services rendered.
- **Quantum valebat**: a reasonable sum for goods supplied.

**School Facility Management Ltd v Christ the King College [2020] EWHC 1477 (Comm)** illustrates how quantum meruit operates where a contract with a public body is void: the service provider is entitled to reasonable remuneration for actual services rendered, even without a valid contract.

### Proprietary Remedies

- **Constructive trust**: imposes trust obligations on an enriched party who holds an asset on trust for the claimant.
- **Equitable lien**: a charge over an asset securing the claimant's personal claim.

**Foskett v McKeown [2001] 1 AC 102** established that beneficiaries who can trace trust money into an asset may elect for a proprietary remedy (share of the asset) or a personal remedy (repayment of money), choosing the more advantageous.

### Restitution for Wrongs (Disgorgement)

Distinct from the core unjust enrichment claim — here restitution is awarded for a wrong (breach of contract, breach of fiduciary duty, tort) by requiring the wrongdoer to give up profits gained. Account of profits is the primary vehicle.

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## Summary Table: Key Cases

| Case | Citation | Principle |
|---|---|---|
| Lipkin Gorman v Karpnale | [1991] 2 AC 548 | Unjust enrichment as independent cause of action; change of position defence |
| Kleinwort Benson v Lincoln CC | [1999] 2 AC 349 | Mistake of law is a valid unjust factor; bar abolished |
| Fibrosa v Fairbairn Lawson | [1943] AC 32 | Total failure of consideration; recovery of payments under frustrated contracts |
| Foskett v McKeown | [2001] 1 AC 102 | Proprietary tracing; proportionate share; election of remedies |
| Patel v Mirza | [2016] UKSC 42 | Illegality defence; range-of-factors approach |
| School Facility Management v Christ the King College | [2020] EWHC 1477 (Comm) | Ultra vires contract; quantum meruit for services rendered |
| Fabrizio D'Aloia v Persons Unknown | [2024] EWHC 2342 (Ch) | Equitable tracing applied to cryptocurrency |