Unjust factors, Juristic reasons and contracts in Anglo-Canadian law

Re-examining Contract and Unjust Enrichment: Anglo-Canadian Perspectives

Volumn , Issue , 2007, Pages 23-50

  McInnes, Mitchell ^a  

^a UNIVERSITY OF ALBERTA   (Canada)

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EID: 41349094419     PISSN: None     EISSN: None     Source Type: Book    
DOI: 10.1163/ej.9789004155633.i-342     Document Type: Chapter

References (108)

1. Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] AC 32 (HL) 61.
2. (2004) 237 DLR (4th) 385 (SCC).
3. Penarth Dock Co. v. Pounds [1963] 1 Lloyds Rep 359 (QB); Ministry of Defence v.
4. Ashman (1993) 2 EGLR 102 (CA).
5. Boardman v. Phipps [1967] 2 AC 46 (HL).
6. Attorney General v. Blake [2001] 1 AC 268 (HL). Cf. Bank of America Canada v.
7. Mutual Trust Co. (2002) 211 DLR (4th) 385 (SCC) 393.
8. Edwards v. Lee's Administrator, 96 SW 2d 1028 (Ky CA 1936).
9. M. McInnes, 'The Measure of Restitution' (2002) 52 UTLJ 163; M. McInnes, 'Misnomer: A Classic' [2004] RLR 79.
10. While it commonly is said that the defendant's enrichment must be acquired 'at the claimant's expense', that phrase is also ambiguous. In a case of 'unjust enrichment by
11. wrongdoing', the defendant may be said to have acquired a bene_ t 'at the claimant's expense', in a normative sense, even if the defendant materially obtained his enrichment from a third party as a result of breaching an obligation that he owed to the claimant.
12. The cause of action in unjust enrichment, in contrast, presumes that the defendant received a bene_ t 'at the claimant's expense', in an economic or material sense, as a result of a transfer of wealth between the parties. A limited exception to that rule occurs in the context of interceptive subtraction: M. McInnes, 'Interceptive Subtraction, Unjust Enrichment and Wrongs - A Reply to Professor Birks' (2003) 62 CLJ 697.
13. Banque Financiere de la Cité v. Parc (Battersea) Ltd. [1999] 1 AC 221 (HL) 227.
14. Lord Steyn further contemplated the issue of (iv) defences, and many commentators additionally ask (v) whether restitution should be awarded personally or proprietarily.
15. The form of strict liability that characterizes the action in unjust enrichment must be distinguished from the form of strict liability that characterizes causes of action pertaining to, say, breach of contract or the rule in Rylands v. Fletcher. Liability is strict in the second type of case not because the defendant is innocent of any breach, but rather because his breach need not be either deliberate or careless.
16. Restitution is also the exclusive remedy for unjust enrichment because it is the only measure of relief that makes sense of all three elements of that claim. It would be incoherent to insist upon proof of a corresponding gain and a loss (i.e., a transfer) during the substantive inquiry, but to then quantify relief exclusively by reference to either the defendant's enrichment or the claimant's expense during the remedial stage of analysis.
17. Restitution, in contrast, perfectly re_ ects the constituent elements of proof. Wealth unjusti_ ably was transferred (without fault) from the claimant to the defendant - he ought to give it back to her.
18. I.e., by being required to provide compensation for a loss that was not accompanied by a correlative gain for the defendant.
19. I.e., by receiving a pro_ t that the defendant materially acquired from someone other than the claimant. There is, however, a debate within the law of unjust enrichment as to whether the court must be satis_ ed not only that the claimant was the material source of the defendant's gain, but also that the claimant ultimately suffered a loss corresponding in value to the defendant's enrichment. While Canadian law measures restitution by reference to the highest amount common to the defendant's ultimate gain and the plaintiff's ultimate loss, Australian courts have rejected the need for a corresponding deprivation, and English courts generally have followed suit. In those jurisdictions, it is enough that the defendant's enrichment initially came from the claimant: Air Canada v. British Columbia (1989) 59 DLR (4th) 161 (SCC); 194; cf Kingstreet Investments Ltd. v. New Brunswick (Dept. of Finance) [2007] 1 SCC; Kleinwort Benson v. South Tyneside MBC [1994] 4 All ER 972 (QB); Kleinwort Benson v. Birmingham CC [1996] 4 All ER 733 (CA); Roxborough v. Rothmans of Pall Mall (2001) 208 CLR 516 (HCA); M. McInnes, 'Passing On in the Law of Restitution: A Reconsideration' (1997) 19 Syd LR 179; M. McInnes, 'At the Plaintiff's Expense': Quantifying Restitutionary Relief' (1998) 57 CLJ 472.
20. P. Birks and C. Mitchell, 'Unjust Enrichment' in P. Birks (ed.), English Private Law Volume II (OUP, Oxford 2000).
21. The same principle applies, as a matter of integrity, to both parties. Just as the claimant is not held to a transfer that resulted from a defective intention, the defendant is entitled to plead the defence of change of position, and thereby reduce liability, to the extent that he incurred an exceptional expenditure in the good faith belief that he was entitled to retain his receipt.
22. 'No Consideration: Restitution After Void Contracts' (1993) 23 UWAL Rev. 195.
23. (OUP, Oxford 2003); 2d ed. (OUP, Oxford 2005) (published posthumously). Birks had cautiously tipped his hand, in 'Comparative Unjust Enrichment' in P. Birks and A. Pretto (eds.), Themes in Comparative Law (OUP, Oxford 2002) 137.
24. [1999] 2 AC 349 (HL).
25. M. McInnes, 'Book Review' [2004] LMCLQ 405; cf. R. Stevens, 'Absence of Basis Accepted; Unjust Factors Rejected' in 'Review Article: The New Birksian Approach to Unjust Enrichment' [2004] RLR 260, 270.
26. Deutsche Morgan Grenfell Group plc. v. I.R.C. [2006] UKHL 49.
27. Moses v. Macferlan (1760) 2 Burr 1005, 97 ER 676.
28. Lipkin Gorman v. Karpnale Ltd. [1991] 2 AC 548 (HL).
29. P. Birks, 'Equity in the Modern Law: An Exercise in Taxonomy' (1996) 26 UWAL Rev. 1; P. Birks, 'Equity, Conscience, and Unjust Enrichment' (1999) 23 MULR 1.
30. P. Birks, 'Equity, Conscience, and Unjust Enrichment' (1999) 23 MULR 1.
31. P. Birks, 'Property and Unjust Enrichment: Categorical Truths' [1997] NZ L. Rev. 623; R. B. Grantham and C. E. F. Rickett, 'Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?' [1997] NZ L. Rev. 668.
32. Unattractive, but not entirely far-fetched, as evidenced by the common law's traditional approach to frustrated contracts: Cutter v. Powell (1795) 6 TR 320, 101 ER 573 (QB), Chandler v. Webster [1904] 1 KB 493 (CA).
33. Of course, in the interest of clarity, contractual parties may expressly exclude claims in unjust enrichment, much the same as they may limit or eliminate the possibility of tortious liability.
34. A. Burrows, 'Restitution from Assignees (The Trident Beauty)' [1994] RLR 52, 54.
35. Brown & Davis Ltd. v. Galbraith [1972] 1 WLR 997 (QB); cf. Torts (Interference with Goods) Act 1977 s. 6(4).
36. Hampton v. Glamorgan C. C. [1917] AC 13 (HL).
37. The hypothetical was devised by Professor Tettenborn in 'Lawful Receipt - A Justifying Factor' [1997] RLR 1. Tettenborn himself argued against liability on the ground that the son lawfully received his enrichment from his parent.
38. The case would be much easier if the initial recipient had made a gift of the same money that she received (or its traceable proceeds). In that situation, the claimant could rely upon a proprietary connection, and not merely a causal connection, against the son: P. Birks, Unjust Enrichment (2nd edn. OUP, Oxford 2005) 80-81.
39. J. Beatson, 'Restitution and Contract: Non-Cumul?' (2000) 1 Theoretical Inquiries in Law 83, 94; J. Beatson, 'The Temptation of Elegance: Concurrence of Restitutionary and Contractual Claims' in G. Jones and W. Swadling (eds.), The Search for Principle: Essays in Honour of Lord Goff (OUP, Oxford 1999) 152. See also P. Birks, 'Failure of Consideration and Its Place on the Map' (2002) 2 OUCLJ 1, 5.
40. J. Beatson, 'The Temptation of Elegance: Concurrence of Restitutionary and Contractual Claims' in G. Jones and W. Swadling (eds.), The Search for Principle: Essays in Honour of Lord Goff (OUP, Oxford 1999) 152. See also P. Birks, 'Failure of Consideration and Its Place on the Map' (2002) 2 OUCLJ 1, 5.
41. [1987] AC 539 (HL).
42. 'Non-Cumul' (n. 31) 96; 'The Temptation of Elegance' (n. 31) 154. Cf. G. Mead, 'Restitution Within Contract?' (1991) 11 LS 172.
43. Orphanos v. Queen Mary College illustrates the point: [1985] AC 761 (HL). The student, a citizen of Cyprus, was accepted into the mechanical engineering program at Queen Mary College. Because he had been resident in England since 1978 for educational purposes, he claimed that he quali_ ed for the home student rate of €480 per year.
44. The college insisted, however, that he pay the overseas student rate of €3600. After further discussion, the student capitulated and signed a contract to pay the higher amount. A short time later, the House of Lords decided (in other proceedings) that a person in the student's position should indeed be considered ordinarily resident in England.
45. Nevertheless, the House also sided with the college in rejecting the student's subsequent claim for a refund.
46. Applying Beatson's test of unallocated risks, Birks questioned that decision: 'Failure of Consideration' (n. 31) 5. And indeed, it is possible, at least on the threshold issue of liability, that restitution should have been available despite the fact that the parties' contract survived the discovery of their mutual mistake. Tuition was determined solely on the basis of residence. Consequently, if the error had been revealed earlier, the contract undoubtedly would have appeared in precisely the same terms, with the exception of a lower price.
47. That analysis may not, however, fully re_ ect the fact that the student's residency status was in doubt at the time of the contract. Orphanos arguably agreed to the college's terms in order to both (i) acquire the right to attend classes, and (ii) resolve an honest dispute. If so, then he did assume the risk of error on the residency issue. That is the nature of a settlement agreement.
48. 36 J. Beatson and G. Virgo, 'Contract, Unjust Enrichment and Unconscionability' (2002) 118 LQR 352, 356.
49. Roxborough (n. 13) 527-528.
50. It is arguable, however, that the prima facie right to restitution ultimately should have been defeated by the fact that the claimant did not suffer the requisite expense after shifting the economic burden of the invalid tax onto its customers. The defence of passing on was, unfortunately, rejected by the majority in Roxborough: M. McInnes, 'Enrichments, Expenses and Restitutionary Defences' (2002) 118 LQR 209.
51. [1954] 3 DLR 785 (SCC).
52. Pride of place within the common law world belongs to the United States of America, where the Restatement of the Law of Restitution: Quasi-Contract and Constructive Trusts adopted the principle nearly two decades earlier: (American Law Institute 1937).
53. R. v. Beaver Lamb & Shearling Co. Ltd. (1960) 23 DLR (2d) 513 (SCC); Carleton (County) v. City of Ottawa (1965) 52 DLR (2d) 220 (SCC); Eadie v. Township of Brantford (1967) 63 DLR (2d) 561 (SCC); Breckenridge Speedway Ltd. v. R. (1969) 9 DLR (3d) 142 (SCC); Storthoaks (Rural Municipality) v. Mobil Oil Canada Ltd. (1975) 55 DLR (3d) 1 (SCC).
54. Stoltze v. Fuller [1939] 1 DLR 1 (SCC); Knutson v. Bourkes Syndicate [1941] 3 DLR 593 (SCC); Peter Kiewit Sons' v. Eakins Construction Ltd. (1960) 22 DLR (2d) 465 (SCC); George (Porky) Jacobs Enterprises Ltd. v. City of Regina (1964) 44 DLR (2d) 179 (SCC).
55. Deglman (n. 39).
56. (1980) 117 DLR (3d) 257 (SCC).
57. Pettkus v. Becker (n. 44) 274 (emphasis added).
58. Pettkus v. Becker (n. 44) 274. After stating the basic test, Dickson J. also went on to say that '[t]he common law has never been willing to compensate a plaintiff on the sole basis that his actions have bene_ ted another. . . . It must, in addition, be evident that the retention of the bene_ t would be "unjust" in the circumstances'. That language is, of course, more consistent with the traditional common law approach.
59. Two years before Pettkus v. Becker, Dickson J. suggested the need for 'an enrichment, a corresponding deprivation, and the absence of any juristic reason - such as a contract or disposition of law': Rathwell v. Rathwell (1978) 83 DLR (3d) 289 (SCC) 306. And two years before Rathwell v. Rathwell, Dickson J. sat on an appeal from Quebec dealing with the civilian claim for 'unjusti_ ed enrichment' known as the action de in rem verso (now codi_ ed as Civil Code of Quebec, SQ 1991, c. 64, at 1493).
60. Beetz J.'s unanimous judgment held that relief was premised upon, inter alia, 'the absence of justi_ cation' for the enrichment that the defendant received from the plaintiff: Cie Immobilière Viger Ltée. v. Lauréat Giguère Inc. [1977] 2 SCR 67 (SCC) 77. The words may simply have stuck in Dickson J.'s mind when he wrote Pettkus v. Becker.
61. Air Canada v. British Columbia (n. 13) (relief denied on other grounds).
62. Re Eurig (1998) 165 DLR (4th) 1 (SCC).
63. Palachik v. Kiss (1983) 146 DLR (3d) 385 (SCC).
64. Sorochan v. Sorochan (1986) 29 DLR (4th) 1 (SCC); Peter v. Beblow (1993) 101 DLR (4th) 621 (SCC) (Cory J.).
65. Citadel General Assurance Co. v. Lloyds Bank Canada (1997) 152 DLR (4th) 411 (SCC); Gold v. Rosenberg (1997) 152 DLR (4th) 385 (SCC) (relief denied on facts).
66. Nepean (Township) Hydro Electric Commission v. Ontario Hydro (1982) 132 DLR (3d) 193 (SCC); Canadian Paci_ c Airlines Ltd. v. British Columbia (1989) 59 DLR (4th) 218 (SCC).
67. Atlas Cabinets & Furniture Ltd. v. National Trust Co. (1990) 68 DLR (4th) 161 (BC CA) 172-173; Toronto-Dominion Bank v. Carotenuto (1997) 154 DLR (4th) 627 (BC CA) 636-637; Campbell v. Campbell (1999) 173 DLR (4th) 270 (Ont CA) 278-279.
68. Re: Goods and Services Tax (1992) 94 DLR (4th) 51 (SCC) 71; Peter v. Beblow (n. 51) (McLachlin J.); Garland v. Consumers' Gas Co. (2001) 208 DLR (4th) 494 (Ont CA) 520, 535-541; Nova Scotia (Attorney General) v. Walsh (2002) 221 DLR (4th) 1 (SCC) 42; cf. Peel (Regional Municipality) v. Canada (1992) 98 DLR (4th) 140 (SCC).
69. (2004) 237 DLR (4th) 385 (SCC).
70. RSC 1985, c. C-46, s. 347.
71. Garland v. Consumers' Gas Co. (No. 1) (1998) 165 DLR (4th) 385 (SCC).
72. That approach would, however, squarely raise the question with which this paper is concerned: should restitution be available within the context of an otherwise subsisting contract? That question is discussed in great detail below.
73. Browning v. Morris (1778) 2 Cowp 790, 98 ER 1364. Cf. Kiriri Cotton Co. Ltd. v.
74. Dewani [1960] AC 192 (PC) (relief available on basis of mistake of law if plaintiff was not in pari delicto with defendant with respect to illegal transaction).
75. For instance, regardless of any mistake, a tenant may be able to recover 'key money' that had been illegally paid to a landlord in order to secure a lease: Gray v. Southouse [1949] 2 All ER 1019 (KB). See also Schellenberg v. Ely Canada Ltd. [1962] OJ No. 195 (HCJ); Jeffrey v. Fitzroy Collingwood Rental Housing Association [1999] VSC 33 [44].
76. The trial judge dismissed the claim on the basis that it constituted an impermissible collateral attack on the OEB orders: (2000) 185 DLR (4th) 536 (Ont SC). The Ontario Court of Appeal unanimously rejected that reason, but by a majority upheld the result: (2001) 57 OR (3d) 127 (Ont CA). McMurtry C. J. O. (MacPherson J. A. concurring) held, inter alia, that it would be 'contrary to the equities' to order restitution because the defendant had acted pursuant to OEB orders (which had not been directly attacked) and because the burden of liability would ultimately fall upon the defendant's customer base as a whole. Borins J. A. dissented. After reviewing, but not attempting to resolve, the debate as between unjust factors and juristic reasons, he applied the latter and held that the decision in Garland No. 1 (n. 58) had deprived the OEB order of effect and consequently could not provide a juristic reason for the enrichment.
77. Although Iacobucci J. found that the plaintiff prima facie was entitled to restitution, he ultimately held, under the second branch of the juristic reason analysis, that the defendant was entitled to retain a substantial portion of its enrichment. As a matter of public policy, Iacobucci J. accepted that a party should not be entitled to pro_ t from wrongdoing. As a matter of reasonable expectations, however, he held that (i) the defendant honestly believed that it was entitled to collect the LLP before the plaintiff began his action in 1994 - hence the irrecoverability of payments made prior to that date, and (ii) a reasonable person who pays late must expect to incur a penalty that, inter alia, complies with the provisions of the Criminal Code - hence the irrecoverability of payments representing interest at a rate of 60% or less. Garland accordingly establishes the remarkable proposition that restitution may be denied as long as a criminal honestly believed in the legality of his enrichment.
78. Garland v. Consumers' Gas Co. (n. 56) 401.
79. Garland v. Consumers' Gas Co. (n. 56) 401.
80. M. McInnes, 'Juristic Reasons and Unjust Factors in the Supreme Court of Canada' (2004) 120 LQR 554; M. McInnes, 'Restitution, Juristic Reasons and Palm Tree Justice' (2004) 41 CBLJ 103; M. McInnes, 'Making Sense of Juristic Reasons: Unjust Enrichment After Garland v. Consumers' Gas Co.' (2004) 42 Alta L. Rev. 399.
81. Air Canada v. Ontario (Liquor Control Board) (1997) 148 DLR (4th) 193 (SCC); cf. Citadel General Assurance Co. (n. 52) (fault required for unjust enrichment resulting from knowing receipt of trust property).
82. Canson Enterprises Ltd. v. Broughton & Co. (1991) 85 DLR (4th) 129 (SCC) 149.
83. Peter v. Beblow (n. 51).
84. Webb & Knapp (Can) Ltd. v. Edmonton (City) (1963) 3 DLR (3d) 123 (Alta CA).
85. Deglman (n. 39) (SCC).
86. Clarke v. Moir (1987) 82 NSR (2d) 183 (SC TD).
87. Kemp v. Williams (1978) 87 DLR (3d) 544 (Sask CA).
88. Dahl v. Royal Bank of Canada (2005) 46 BCLR (4th) 342 (SC); Re Galaxy Sports (2005) 14 ETR (3d) 126 (BC SC); Skookum Ventures Ltd. v. Long Hoh Enterprises Canada Ltd. (2005) 3 BLR (4th) 191 (BC SC).
89. (2004) 245 DLR (4th) 211 (SCC).
90. Garland v. Consumers' Gas Co. (n. 56) (emphasis added).
91. In con_ ning the plaintiff to the recovery of money representing interest in excess of 60% per annum, Iacobucci J. was following Transport North America Express Inc.
92. v. New Solutions Financial Corp.: (2004) 235 DLR (4th) 385 (SCC). In that case, the court addressed the civil consequences of a loan agreement that violated s. 347 of the Criminal Code. Broadly speaking, there were three options. (i) In an extreme case, the entire agreement might be declared void, thereby preventing the recovery of interest or principal. The facts of Transport North America did not support such an approach. (ii) Blue pencil severance could strike out the offensive contractual term, thereby restricting the lender to the recovery of the principal, as well as interest due under separate and non-offensive interest provisions. (Because he was concerned to protect the integrity of the criminal law and to deter wrongdoers, Fish J. advocated that approach in a strong dissent.) (iii) Notional severance could allow the court to re-write the terms of the parties' agreement, so as to reduce the interest rate to 60% per annum, thereby allowing for the recovery of principal and interest. Arbour J., writing for the majority, favoured that approach in order to 'vest the greatest amount of remedial discretion in judges': 402.
93. She was, in other words, far more concerned in effecting 'justice' than in respecting the parties' allocation of bene_ ts and burdens.
94. Garland v. Consumers' Gas Co. (n. 56) 398. It was on that basis that McMurtry C. J. O., in the Ontario Court of Appeal, erroneously concluded that the defendant had not been enriched: Garland (Ont CA) (n. 55) 518.
95. A Criminal Code provision will do little to deter wrongdoers who know that, even if they are prosecuted, they will be able to retain money received as interest up to a maximum of 60% per annum.
96. (2000) 193 DLR (4th) 385 (SCC), aff'g (1998) 165 DLR (4th) 577 (BC CA), rev'g [1996] BCJ No. 2523 (BC SC).
97. (2002) 217 DLR (4th) 248 (BC SC).
98. (2003) 223 DLR (4th) 617 (BC CA).
99. RB Grantham, 'Absence of Juristic Reason in the Supreme Court of Canada' [2005] RLR 102.
100. (n. 75) 226, quoting Burrow v. Scammell (1881) 19 Ch. D 175, 182.
101. Air Canada v. British Columbia (n. 13) 167; Peter v. Beblow (n. 51) 642- 643; British Columbia v. Canadian Forest Products Ltd. (2004) 240 DLR (4th) 1 (SCC) 6 (_ exible 'equitable analysis [is] omnipresent in the restitution law context'); Garland v. Consumers' Gas Co. (n. 56) 401 (restitution 'is an equitable remedy that necessarily involves discretion and questions of fairness'); cf. Communities Economic Development Fund v. Canadian Pickles Corp. (1991) 85 DLR (4th) 88 (SCC) 107 ('an action for moneys had and received does not lie in equity').
102. Citadel General Assurance Co. (n. 52).
103. 'Juristic Reasons and Palm Tree Justice' (n. 66) 103, 122ff.
104. Cadbury Schweppes Inc. v. FBI Foods Ltd. (1999) 167 DLR (4th) 577 (SCC); A Burrows, 'We Do This in Law But That In Equity' (2002) 22 OJLS 1.
105. Holt v. Markham [1923] 1 KB 504 (CA) 531. See also Baylis v. Bishop of London [1913] 1 Ch. 127 (CA) 140 ('Whatever may have been the case 146 years ago, we are not now free in the twentieth century to administer that vague jurisprudence which is sometimes styled "justice as between man and man" ').
106. P. Birks, An Introduction to the Law of Restitution (OUP, Oxford 1985) 19.
107. RDS v. The Queen (1997) 151 DLR (4th) 193 (SCC).
108. That is the point that Southin J. A. made, ultimately unsuccessfully, while rejecting PNIs claim in the Court of Appeal: (n. 83) 627; cf. (2004) 245 DLR (4th) 211 (SCC) 226.