Avoiding unjust enrichment’s perils

“… an Aristotelian conception of justice”

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New Zealand courts have long looked askance at claims of unjust enrichment, doubting such claims constituted causes of action in their own right (Real Cool Holdings Ltd v Northpower Ltd [2012] NZHC 1604 at [38]), and conscious of “the perils that might be thought inherent” in their reliance on perceptions of what was ‘just’ between the parties (Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [140]).

Equitable remedies – typically, of constructive trusts, restitution, or subrogation – may be sought to reverse unjust enrichment. Unjust enrichment’s elements are accepted as (a) the defendant’s enrichment, (b) at the plaintiff’s expense, and (c) which enrichment is unjust. Beyond that, controversy reigns – in particular, what is meant by ‘enrichment’ (objectively or subjectively?), by ‘expense’ (directly or indirectly?), and by ‘unjust’ (unintended or unconscionable?).  University of Auckland Professor Peter Watts QC decries reliance on unjust enrichment as “the potion that induces well-meaning sloppiness of thought” (to borrow Scrutton LJ’s 1920s criticism of unjust enrichment’s foundation in Moses v Macferlan (1760) 2 Bur 1005, 97 ER 676 (KB)), but notes NZ’s senior courts annually produce “about a dozen” such decisions, and surmises considerably more arise in other disputes fora.

Similar concerns animate last month’s UK Supreme Court judgment, Commissioners of HMRC v The Investment Trust Companies [2017] UKSC 29, in which end customers sought unsuccessfully to recover VAT they were mistakenly charged, paid on to the Revenue by their suppliers. Given unjust enrichment’s “vague and generalised language”, the Court accepted “a responsibility to establish more precise criteria”. Lord Reed emphasised “unjust enrichment ranks next to contract and tort as part of the law of obligations”; seen as a modern novelty was to disregard “centuries’ worth of relevant authorities…. The courts should not be reinventing the wheel”. Precedent matters.

While unjust enrichment’s elements provided a structured approach for analysis, with less risk of uncertainty and unpredictability, those elements were not legal tests. Instead, courts are to have regard for the law of unjust enrichment’s purpose:

… to correct normatively defective transfers of value, usually by restoring the parties to their pre-transfer positions. It reflects an Aristotelian conception of justice as the restoration of a balance or equilibrium which has been disrupted. That is why restitution is usually the appropriate remedy.

More precisely articulated, the legal test is the defendant has received a benefit from the plaintiff, which provision is to the plaintiff’s loss. Receipt of benefit alone is insufficient. And echoing Tipping J’s concern in Altimarloch, the qualifying ‘loss’ is not to be confused with damages law (or necessarily to reflect commercial or economic realities). The purpose of restitution is not to extract compensation for providing benefits or incurring loss, but to reverse the defective transfer. Hence, ‘unjust’ “does not create a judicial licence to meet the perceived requirements of fairness on a case-by-case basis”.

[This article was first published in The Capital Letter (40/15, 2 May 2017)]

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