The Principle of Unjust Enrichment

The Principle of Unjust Enrichment

Introduction

This paper discusses the notion of unjust enrichment in equity and common law. Unjust enrichment is the legal rule that under certain circumstances, a court, on application from a claimant, will permit the reversal of a transfer of money or property and may also potentially enable the recovery of money or property. The principle of unjust enrichment has been developed by case law.

The Principle of Unjust Enrichment

In English law, unjust enrichment falls within the law of restitution. However, this has been proven to be problematic, as the courts have recognised. In 1988, for example, in Lipkin Gorman v Karpnale Ltd, the House of Lords held unanimously that unjust enrichment may form the basis of an action with regard to monies that have been received. [1]The later decision of Woolwich Equitable Building Society v Inland Revenue Commissioners in 1993 was significant.[2] Here, the payment of tax was subsequently held not to have actually been required, as the basis on which it was assessed was considered to have been invalid; the taxation authority did repay the claimant the mistakenly paid tax, but disputed the extent of the interest for which it was considered liable. The key issue therefore concerned the extent to which the actor who has been mistakenly deprived of their property must bear costs. The case of the applicant was actually dismissed on grounds of ultra vires; nevertheless, it significantly contributed to the development of the principle.[3]

The principle of unjust enrichment varies in the way it functions at common law, and inequity. In common law, where an actor has been unjustly enriched as the result of a mistake, the mistake itself is actually considered to contribute to the unjustness of such enrichment. This was the approach taken by the court in the 1999 case of Kleinwort Benson Ltd v Lincoln City Council. In equity, however, unjust enrichment only tends to be concerned with voluntary transactions. The difference between the approaches of equity and common law is illustrated by the fact that in common law, where the claimant seeks to pursued the case, it is only necessary that the mistake is considered to have been the cause of the payment and therefore of the unjust enrichment. This was held in the test devised in the 1979 case of Barclays Bank v Simms[4] Barclays Bank Ltd v W J Simms Son and Cooke (Southern) Ltd and subsequently developed in Kleinwort Benson Ltd v Lincoln City Council.[5] In contrast, however, the test in equity was devised in Pitt v Holt in 2010 Lord Walker, asserted that the mistake must have been so “serious” that if not corrected, it will cause “injustice” or “unfairness or unconscionableness.[6]

It is notable that the principle of unjust enrichment is an autonomous cause of action.[7] Indeed, it has been recognised as such in numerous decisions since the significant case of Lipkin Gorman v Karpnale Ltd.[8] However, the actual scope of such an action, was, as legal commentators noted in 2018, “yet to be fully settled.”[9] The principle of unjust enrichment has featured in numerous cases. The 2013 case of Benedetti v Sawiris concerned the method which should be used to determine the merit of a claim, in a quantum meruit claim. The court held that the principle relates primarily to a situation in which one person has gained unjustly at the expense of another, and that as such the recipient will then be under the obligation to make restitution.[10]

The principle has since been applicable to a variety of situations which have been judged in the courts. In the 1999 case of Banque Financiere de la Cite v Parc Battersea Ltd, for example, a hugely complicated financial transaction involved a local authority which was the ultimate beneficiary of the funds concerned. The local authority had for various reasons been incapable of properly dealing with the complexity of the financial transaction, and ultimately it was unable to refuse to make the repayment ordered. [11] A key question that has been raised in relation to the principle concerns whether the unjust nature of the enrichment is the case on the grounds that the consent of the claimant to the defendant’s enrichment was “impaired, qualified or absent.”[12] This vital question was considered in Lowick Rose LLP v Swynson, in which the Supreme Court considered that the Court of Appeal had been mistaken in its judgement that a lender was entitled to recover damages from an advisor that had been negligent with regard to loans that the borrower had repaid. It was held that as the refinancing transaction concerned had not been defective, no unju