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Unjust Enrichment$

Peter Birks

Print publication date: 2005

Print ISBN-13: 9780199276981

Published to Oxford Scholarship Online: March 2012

DOI: 10.1093/acprof:oso/9780199276981.001.0001

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Absence of Basis

Absence of Basis

(p.129) 6 Absence of Basis
Unjust Enrichment

Peter Birks

Oxford University Press

Abstract and Keywords

Every enrichment comes about either with or without the participation of the claimant. Non-participatory transfers are those over which the claimant has no control, as where a pickpocket takes money from his pocket. Such an enrichment at the claimant's expense almost invariably has no explanatory basis. Participatory enrichments are perceived as either obligatory or voluntary. If the purpose is discharge of an obligation and there is indeed a valid obligation which is discharged, the enrichment has an explanatory basis and cannot be viewed as unjust enrichment. If there turns out to be no valid obligation discharged, the enrichment is inexplicable. It has no explanatory basis. Voluntary enrichments are those which are transferred not with obligation but in order to achieve some outcome. If that purpose is achieved, the basis has not failed. If it is not achieved, the enrichment has no explanatory basis. There are three categories of voluntary enrichments: contracts, trusts, and gifts. Non-participatory enrichments can be at law, in equity, or by-benefits.

Keywords:   participatory enrichments, voluntary enrichments, contracts, trusts, gifts, obligation, non-participatory enrichments, by-benefits, unjust enrichment, at law

The two chapters of this part are concerned with the meaning of ‘unjust’. The previous chapter discussed the transition from lists of unjust factors to absence of basis and from the language of ‘consideration’ to the language of ‘basis’, that being preferred to ‘reason’ or ‘ground’. This chapter turns to the operation of what in England has to be regarded as a new approach. In most situations the ‘no basis’ test works with a surgical simplicity which the lists of unjust factors could not emulate.

Every enrichment comes about either with or without the participation of the claimant. Non-participatory transfers are those over which the claimant has no control, as where a pickpocket takes money from his pocket. Such an enrichment at the claimant's expense almost invariably has no explanatory basis.

Participatory enrichments are perceived as either obligatory or voluntary. If the purpose is discharge of an obligation and there is indeed a valid obligation which is discharged, the enrichment has an explanatory basis and cannot be unjust. If there turns out to be no valid obligation discharged, the enrichment is inexplicable. It has no explanatory basis. Voluntary enrichments are those which are transferred without obligation but in order to achieve some outcome. If that purpose is achieved, the basis has not failed. If it is not achieved, the enrichment has no explanatory basis.

The previous paragraph can be restated in the form of three questions which will resolve nearly all cases. (1) Was the enrichment perceived to be obligatory? If it was, its basis will have failed if there was in fact no obligation. (2) If it was not obligatory but voluntary, what end was it intended to achieve or depend upon and, in particular, was it intended to bring about or depend upon a contract, trust, gift or other outcome? If that outcome did not come about, the basis of the enrichment will have failed. (3) If the enrichment was acquired without the participation of the claimant or his agents, was there any legal authority for its acquisition by the defendant? The premiss of the third question is that in general enrichments of that kind necessarily have no basis.

(p.130) In relation to both 1) and 2) it is tempting to enter an immediate caveat, namely that the claimant must not have knowingly taken the risk that the desired outcome would not be achieved. But that caveat is actually supererogatory, for one who takes such a risk desires one outcome but intends two. A busker desires to be paid for his music but intends a gift to those who choose not to pay. It follows without more that, in relation to the latter, there is no failure of basis.

A. Obligatory Enrichments

The vast majority of cases fall under this head. The enrichment is transferred in discharge of an obligation owed to the recipient. It turns out that there was no obligation. The money was not due. The absence or invalidity of the obligation means that from the outset the basis of the enrichment failed. It can happen that the basis is good at the moment of receipt but fails afterwards, as where a contract under which a payment is made subsequently becomes terminable or void.1 It is convenient to separate initial and subsequent failure.

The right to recover something which turns out not to have been due goes all the way back to the first life of Roman law, where the claim was referred to as the ‘condictio indebiti’. Since the Latin term crops up recurrently, it is as well to know from the outset what it signifies and why. The condictio was the Roman action of debt. ‘Condicere’ meant ‘to give notice’. The action took its name from the fact that the claimant originally had to make a solemn declaration giving notice to the defendant to take a judge in a month's time.

The legal category of debt is always multi-causal. That is, a debt arises from di erent events, sometimes from contract, sometimes from other events. The word ‘indebitum’, which becomes ‘indebiti’ in the genitive just as ‘John’ becomes ‘John's’, names one of the causative events in the non-contractual sector of the spectrum.‘Indebitum’ is ‘something not owed’. Thus the condictio indebiti is the action of debt ‘in respect of a non-debt’ or ‘in respect of something not due’.

The English word ‘indebted’ has no negative connotation and therefore means more or less the opposite. ‘Indebtedness’ is the condition of owing, whereas an ‘indebitum’ is something not owed. Historically omnipresent (p.131) in this context in England was the action which, from its principal words, was called ‘indebitatus assumpsit (having become indebted he promised)’. It is not unlikely that squeamishness about juxtaposing ‘indebitum’ and ‘indebitatus’ was at least part of the reason why English law did not make a more thoroughgoing reception of the Roman categories at and after the time when Lord Mansfield borrowed from the civilian learning on the condictio to explain the scope of the sub-species of indebitatus assumpsit called the action for money had and received. These mysteries are revisited later.2

It was said only a few years ago, and by no less an authority than Lord Go, that English law knew nothing of the condictio indebiti.3 At the time of that dictum the unjust factors still held sway. It can no longer be true, for the condictio indebiti embraces every claim in which the supposed basis of the enrichment was the discharge of an obligation and there was in fact no obligation to discharge. All the swaps cases were of that kind.

1. Initial Failure of Basis

An enrichment received as due when it was not due cannot be retained unless the payer knew it was not due or willingly took the risk that it might not be. The old list of intent-based unjust factors is often completely irrelevant. They need only be invoked, indeed can only be invoked, where one of them is the very reason why the supposed obligation is invalid. In the background qualified intent is, however, omnipresent, but only in the way described in the previous chapter, namely that one who pays on a particular basis only intends the recipient to be enriched if that basis holds good.4

The discussion which follows deals first with cases in which the supposed obligation is invalid for a reason other than deficient intent on the part of the claimant. It then comes back to cases where deficiency of intent is the reason for the invalidity.

(a) Invalidity Independent of Intent

We have already seen that the swaps cases all involved payments which were thought to be due but were not. The supposed obligation was a contractual obligation which was void because the contract was of a kind which fell outside the powers of local authorities. The cause of the (p.132) invalidity was incapacity. Mistake and other impairments of intent were irrelevant, save in relation to the subsidiary question whether the claimant had willingly taken the risk that there might be no valid contract. Similarly, in an illegal contract, as for instance to sell osprey eggs, to evade exchange control regulations, or to defraud an insurance company, the reason that there is no obligation is the illegality itself. If value passes, it passes without any basis. The cause of action in unjust enrichment is in principle made out, although it may be defeated under the fifth question in the five-point analysis which asks whether the enrichee has any defence.

This book began with the example in which a shop gives you change for a £50 note when you paid with a £20 note. Chatting to your friend, you did not notice that you received £30 too much. The shop-assistant intended to discharge an obligation. Every time a customer tenders more than the price, there is a genuinely implied contract that the shop will return the excess. This is a good example of a restitutionary obligation arising from contract. The shop intended to discharge that contractual obligation. The failure of the putative basis of your receipt of the £30 excess depends solely on finding facts which are unrelated to the shop's intent, namely that you paid with a £20 note and received change for a £50 note. As to the excess, there was no basis for it, for the shop was under no obligation to pay that sum. Theoretically you might show that the basis was not discharge but gift, because the shop knew or knowingly took the risk that it did not owe, but there would have to be some very peculiar additional facts if you were to run that argument.

In Kelly v Solari 5 the insurer's supposed obligation could be negatived simply by showing that the policy had lapsed, but there the court did think that Mrs Solari was entitled to put to a jury the question whether the intended basis might not have been gift rather than discharge. If the intended basis of the payment was discharge, the fact that the policy had lapsed was in itself su cient to entitle it to restitution. In Craven-Ellis v Canons Ltd 6 a company's managing director had, unknown to him, worked under a contract which was void because it had been made by persons not qualified to be directors. His work was done under the impression of an obligation. There was no obligation. The absence of basis turns on the disqualification of the directors. The mistake of the claimant has nothing to do with it. Its only role is to indicate that he did not know that there was no obligation and did not take the risk that there (p.133) might not be. In construing the basis of an enrichment, one can never take one's eyes o that secondary possibility, however remote.

With hindsight it is now possible to see that before the change brought about by the advent of ‘absence of basis’ in the swaps cases, the common law often wasted energy in a superfluous struggle to identify an unjust factor which would demonstrate that the claimant's consent to the enrichment was deficient. Duress, which is illegitimate pressure, is one such impairment. The Australian case of Mason v New South Wales 7 has become a leading illustration of restitution for illegitimate pressure, but if the facts recurred now it is unlikely that duress would even be mentioned.

Duties levied by New South Wales on the border with Victoria had been held unconstitutional. This was the successful attempt to recover what had been paid. The High Court of Australia was able to find that the intent to pay had been systematically impaired by duress. It was not a case in which the o cials had confined themselves to threatening legal proceedings, which is never illegitimate to do. The void statute under which they had been operating purported to entitle them to impound the lorries of those who did not pay. In perfect good faith but without lawful authority, they had backed their demands with duress of goods. The right result was reached, but, in the light of the swaps cases, the diversion through duress was completely unnecessary. The money was paid to discharge an obligation, and there was no obligation. The enrichment of the government of New South Wales had no basis. There were no facts to suggest that the basis might have been a generous or grudging gift.

In England, in Woolwich Equitable Building Society v IRC,8 a similar scenario was played out on facts which did not admit of reliance on duress or any other impairment of intent, so that the outcome had to be made to turn on an unjust factor from the other family, namely ‘policy motivations’.

Regulations had been enacted to deal with tax payable by building societies. The Woolwich all along maintained that the regulations were ultra vires. It evidently judged that public conflict between a financial institution and the revenue would be more seemly after payment. It therefore paid up some £57m and then successfully challenged the validity of the regulations in the courts. The Inland Revenue returned the £57m but took the view that the payment was made ex gratia and that its grace did not extend to interest. In a second action the Woolwich successfully established that, on the contrary, it had been entitled to repayment as of right. It was therefore able to recover another £7m in interest.

(p.134) It proved an uphill struggle to show that the Inland Revenue had been under an obligation to return the money. One reason was that the Woolwich had not made any mistake of fact and, unlike the claimant in Mason v New South Wales,9 had not been subjected to any illegitimate pressure outside the ordinary working of the due process of law. Even if the mistake of law bar to restitution had not still been in place, it could not be said that the Woolwich had made any mistake. Its position had been from start to finish that the regulations were void. In the end the constitutionally important victory was won in the supplementary group of unjust factors, in which the reason for restitution was always a policy dictating restitution. So here the unjust factor was that it was essential that the servants of the state stay within their powers and, within that, especially important that the principle of no taxation without Parliament be upheld.

There is no denying the significance of the Woolwich case. However, if it had been decided after the impact of the swaps litigation had been fully appreciated, neither the diversion through principles of public law nor the di culties subsequently experienced in defining the precise limits of the principle which was applied10 would have been necessary. The Woolwich had paid to discharge a debt. There were no facts to suggest that it intended a gift or had knowingly taken a risk that the money was not due. All the evidence was that it had constantly contended that it was not liable to pay. And the courts upheld that view. After the swaps cases we can see that there was all along nothing special about this case. It was simply a payment made to discharge a non-existent debt. It is not possible to decide the swaps cases on the ground of ‘absence of basis’ and at the same time to decline the short cut to the Woolwich conclusion. Dr Meier justly shows that here our unjust factors have tied us in knots. She points out that Lord Go himself came very close to admitting that none was needed.11

(p.135) At the time when these cases were decided the rule was, and had been for some 200 years, that there could be no restitution for mistake of law. Under the regime of the unjust factors that meant simply that mistake of law was not an unjust factor. It is important to notice that, so long as the rule was maintained, it hid the attractions of the ‘no basis’ approach. If, for instance, the claimants in Mason v New South Wales had tried to run a ‘no basis’ argument, they could have showed that there was no obligation to discharge, but they could not have shown that they did not know that there was none. So long as they were deemed to know the law, they could not show that they did not know that the Act imposing the duties was unconstitutional. The artificial inference would have been drawn that the intended basis of their payments had been gift and had not failed.

This problem has been swept away. When in Kleinwort Benson Ltd v Lincoln CC 12 the House of Lords persuaded itself that, by way of an analysis alternative to ‘no basis’, the swaps cases could be regarded as turning on mistake, it also decided that mistakes of law should be treated in the same way as mistakes of fact. Outside the criminal law there is no more deeming that everyone knows the law. Mistake of law thus becomes one way—and the Woolwich facts show that it is only one way—of excluding the unlikely suggestion that what appears to be a payment to discharge an obligation was in reality intended, grudgingly or not, to be a gift.

(b) Invalidity Dependent on Deficient Intent

In the cases above the invalidity of the supposed obligation had nothing to do with mistake or pressure or any other impairment of intent. Sometimes, however, as the pyramid graphically represents, such a deficiency of intent is the very reason why the obligation is invalid.

Although many protections have been introduced in recent times, especially for consumers, in general bargaining is still a dangerous business. When you make a contract you hope to do well, but you take the risk of disappointment. However, even before the spate of consumer protection, the playing-field was not without rules. There were, and are, risks which as a matter of law nobody takes. If the obligation arises from a contract obtained by misrepresentation,13 or illegitimate pressure,14 or (p.136) undue influence,15 it will be voidable, and the value which passes will be recoverable. More rarely, a contract will be voidable because one party's autonomy was reduced by some severe personal handicap, such as education and up-bringing inadequate to cope with transaction,16 post-divorce stress,17 or an immigrant's inability to understand the language or culture.18 Sometimes the transaction is itself disabling. When business borrowing seeks financial support from the domestic sphere, as where a home is mortgaged by one spouse to support the other's commercial activity, the contract is often set aside on the ground of undue influence,19 but the invalidity could equally well, or better, be explained on the ground of transactional inequality. That phrase indicates that the nature of the transaction is in itself calculated to disable an adult's standard capacity for self-management.20

These special cases apart, either the contract places the risk of a given disappointment on your counter-party, or it must be borne by you. If the watercolour which you bought for £100,000 turns out after all not to be by Turner, the seller will be liable to pay you damages if you managed to get a term to that e ect included in the contract. If not, you have to live with the disappointment of having paid ten times too much. In general there is no hope in a bargaining situation of appealing to the law of unjust enrichment. It is no use your saying that you want your money back because you would never have bought the picture but for your mistaken belief. The law of unjust enrichment has nothing to say, and never has, except in the vanishingly few cases in which a foundational mistake renders the contract void. Mutual restitution will then return the parties to square one.

Bell v Lever Brothers Ltd 21 illustrates how rarely a disappointing contract will be invalidated by spontaneous, as opposed to induced, mistake. Lever Brothers sought restitution of golden handshakes which they had paid to get rid of two executives at the time of a takeover. It emerged later that the executives could have been peremptorily sacked for misconduct. (p.137) Lever would never have paid if it had known. But the causative mistake was not enough. The company's claim for restitution was rejected. Lever's mistake had not invalidated the contract, with the consequence that the obligation under which it paid had been valid.

On these facts there was no foundational mistake. Whatever words are used to capture the nature of such a mistake, they must be construed against that background. The mistaken belief must go to the foundation of the contract in the sense that its truth was the necessary basis of all the obligations which the parties undertook. It must be a mistake which manifestly lay outside all the risks taken by the parties. If parties are buying and selling a horse which, unknown to them, has just been struck dead, the falsification of their belief that it was alive renders the contract void. That the horse was alive was an assumption outside the risks of the bargain. But in the context of the takeover in Bell v Lever Brothers Ltd the parties could perfectly intelligibly bargain for the executives' quiet and immediate departure whether or not there might be a ground for dismissing them. When the dust settled after the takeover Lever Brothers had the leisure to ascertain the true facts. It was then, so to say, that they discovered that they had bought a watercolour by Turner that was not one. They had paid to discharge a valid contractual obligation. There was no question of restitution. The basis of the defendants' enrichment had not failed.

This fierce outcome has recently been underlined. An attempt was made to soften it, and for half a century it was precariously maintained that there were two degrees of foundational mistake, the greater rendering the contract void at law, the lesser making it voidable in equity. That was the position taken by the Court of Appeal in Solle v Butcher 22 in relation to the lease of a flat made on the incorrect assumption that the parties were free to fix their own rent. In fact the pre-war rent applied, and once the lease was running no application could be made to reset it. The lease was held to be voidable in equity, and mutual restitution followed. However, the logical impossibility of there being two degrees of foundational mistake was exposed in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace.23

There the Great Peace was chartered for a minimum of five days on the assumption that it was near enough to e ect an immediate rescue from a tanker in danger of sinking. In fact it was a full day away, and another ship met up with the stricken vessel within hours. The five-days' hire still had (p.138) to be paid. First Toulson J and then the Court of Appeal exposed the fallacy of Solle v Butcher: either the mistake was foundational and outside all the risks of the contract, or it was not. The common law had occupied all the available ground.

In Bell v Lever Brothers and Solle v Butcher the injustice of the enrichment depended on establishing the invalidity of a contractual obligation. In the one, the basis never failed; in the other it was said, but incorrectly, that it had. Deutsche Morgan Grenfell Group plc v IRC 24 will also have to be condemned. Although it came after the swaps cases, it followed the old method of looking for unjust factors. It came to an indefensible result.

The facts were intricate. The Income and Corporation Taxes Act 1988 section 247 provided for an exemption from payment of advance corporation tax. It worked as follows. Companies within a group could give notice of a ‘group income election’ which then became e ective to exempt the members of the group after a lapse of three months, unless an inspector of taxes rejected it within that time. A rejection by an inspector was subject to appeal. Having the exemption, companies within the group could pay dividends without having to pay advance corporation tax. They had to pay mainstream corporation tax later. However, the Act confined such group elections to companies resident in the United Kingdom. The European Court of Justice held that that restriction was unlawful.25 The claimants constituted one group which would have made such an election but for the supposedly valid restriction. The e ect was that they had paid millions of pounds earlier than necessary. With some reluctance Park J concluded that they were entitled to restitution of the value of that money over time, measured in interest. The government later announced that further recoveries of the same kind would have to be barred by statute.

The learned judge reached his conclusion in the old way, by recourse to unjust factors. The claimants were either mistaken in law26 or entitled to the benefit of the policy against ultra vires taxation.27 Even following that approach and despite the totally di erent context, the outcome is at odds with the principle underlying Bell v Lever Brothers, namely that (p.139) one cannot, even via unjust factors, have restitution of an enrichment transferred under a valid obligation. On the ‘no basis’ approach that merely becomes doubly clear. A payment made to discharge a valid obligation cannot be said to lack a su cient legal basis. In Deutsche Morgan Grenfell the claimants succeeded even though the tax which they recovered had been due. It had been paid under a valid obligation. Every company was bound to pay advance corporation tax unless it did the things necessary to earn an exemption. The claimants had not done those things. They had abstained from doing them in the belief, later falsified, that they were not entitled to.

Since 1980 the central proposition in relation to mistake has been that restitution will follow provided that the mistake caused the enrichment. One works outwards to the qualifications and exceptions. The central test was deduced from a very large body of cases by Robert Go J in Barclays Bank Ltd v WJ Simms & Son Ltd.28 The e ect of starting from that disarmingly simple proposition was to create an immediate need for the peripheral ‘exceptions’. These were in reality major concessions to the ‘no basis’ approach. If one treats Bell v Lever Brothers as central ‘no basis’ requires no exceptions at all. In the case of the watercolour which was not by Turner you undoubtedly made a causative mistake. You would not have paid £100,000 for it if you had not thought that it was by him. But you obtain no right to restitution. Common as such a case is, it has had to be presented as an exception from the normal rule.29 The exception had to be justified. It protected the common interest in the bargaining process. It needs no such treatment. The contract is valid. The payment was made under a good contractual obligation, to discharge that obligation. The only enrichment which has to be given up is the enrichment with no legal basis.

As we shall see immediately below, this unnecessary clash between the supposed ground-rule and an exception recurs with judgments. There can be no recovery under a mistaken judgment unless and until the judgment has been set aside. That too had to be seen as a departure from the attractively simple ground-rule promising restitution for causative mistakes. And once again the departure from the basic rule could be explained. There must be an end to litigation. There must be no untended back door through which to reopen closed disputes.

The ‘no basis’ approach means that these exceptions have become the rule. Payment under an obligation is irrecoverable unless the supposed (p.140) obligation was or later became invalid. So long as a contract or judgment or other obligation remained in place and was discharged as intended the enrichment cannot be unjust.

2. Subsequent Failure of Basis

In the cases discussed so far the obligation which the claimant supposed to exist was already invalid at the time when the enrichment was received. In other cases it is valid at that time but invalidated afterwards. For example, if a payment is made under a judgment which is later quashed, it cannot be said not to have been due when the payment was made. It was undoubtedly due once the judgment had been made. Its basis was the judgment itself. Even in the pre-swaps time there could be no restitution so long as the judgment stood.30 However, when the judgment is quashed a right to restitution arises.31 The reason is the subsequent failure of the basis of the obligation.

Of the same kind is the common case in which a performance is made under a valid contract which is subsequently automatically terminated by frustration or becomes terminable for breach by one or other side. This kind of case now requires closer analysis. Here the swaps cases have unsettled what was once a totally reliable beacon, but, once one has reconciled onself to meddling with a scriptural text, the repair is relatively straightforward.

The modern law is largely founded on the great Fibrosa case.32 It will be recalled that shortly before the outbreak of the Second World War, a Polish company ordered some textile machinery from manufacturers in England and made a part-payment in advance. With the Nazi invasion of Poland, the contract was frustrated. The Polish company had received nothing for its money. The House of Lords held that, suing through its surviving o cers in London, it had a right to restitution. The consideration on which it had made its payment had failed. There is no doubt that ‘failure of consideration’ here meant both failure of contractual reciprocation, the supply of the machines, and failure of basis. That is to say, their Lordships took the two to be the same: the supply of the machines was the basis of the payment. This now has to be adjusted.

With hindsight from the swaps litigation, this case appears in one important respect to have taken the wrong track. The principal obstacle (p.141) which the Polish claimants had to surmount was Chandler v Webster.33 The Court of Appeal there took the law to be that, where the claimant had su ered a failure of contractual reciprocation, the fact that there had initially been su cient consideration to bind the contract made it impossible ever after to speak of a failure of basis unless the contract were rescinded ab initio. Fibrosa did not confront that directly. It evaded it by saying that the relevant basis was not the contract but the performance of the contractual reciprocation.34 Sensible as that seems to be, it leaves unanswered the objection that the restitutionary right would then have arisen despite the validity of the contractual obligation under which the payment was made.

We can see now that Fibrosa should have confronted Chandler v Webster head on by accepting that the contractual obligation under the sale was the only relevant basis of the Polish payment. The error in Chandler v Webster was the assertion that the contractual obligation could only be su ciently invalidated if it were void or voidable ab initio. The House of Lords should have said that it was su cient that the contractual obligation was prematurely terminated. This revision is inescapable after the swaps cases, on pain of our being forced to the undesirable conclusion that Chandler v Webster was all along right. We have to say that the failure of contractual reciprocation in circumstances of frustration brought about a failure of basis, in the form of supervening invalidity of the contract and, further, that the invalidity of the contract which was the basis of the payment was su cient even though it was a termination and not a rescission ab initio.

The unjust enrichment recognized in the Fibrosa case was itself heavily restricted by the old view that it was confined to the case in which the claimant had received nothing at all. This was almost immediately overtaken by legislation. The Law Reform (Frustrated Contracts) Act 1943 eliminated the requirement that the claimant must have received nothing at all of the expected contractual reciprocation and made it clear that, freed from that restriction, the Fibrosa claim was available in the event of frustration both to the party who had paid money and the party who had conferred a valuable benefit other than money. We have seen that the restriction to total failure of reciprocation has now been abandoned across the board.35

Where the premature termination of the contractual obligation supervenes because of breach rather than frustration, a party in breach (p.142) has the same cause of action as the victim, albeit subject to liability in damages for any loss which he has caused to the other.36 However, one important di erence is that, since only the victim of the breach has the option to terminate, the party in breach cannot found on the mere terminability of the contract. From his perspective the obligation under which he paid is not terminable. For him, it is not invalidated until it is terminated.37

Here too, as in the case of frustration, the failure of reciprocation can no longer be regarded as the immediate ground for restitution but only the sub-reason, at the base of the pyramid, why the master unjust factor operates. If you agree to build me a garage and I pay £10,000 in advance, and you then default, your failure to build the garage invalidates the obligation under which I paid you. I have a power to terminate it and a right to recover my money. That is how the pyramid works: the failure of reciprocation invalidates the obligation and the invalidity of the obligation constitutes the absence of explanatory basis which renders the enrichment unjust. Provided the obligation is invalidated, there is no longer a requirement that I must have received nothing at all.

B. Voluntary Enrichments

With the exception of those that are non-participatory, to which we will return, enrichments which are not perceived to be obligatory are made with a purpose in mind. Nearly all can be comprehended within the three heads, according as the purpose is contract, trust, or gift. These are not perfectly distinct. A trust, for example, is often the vehicle for a gift. The question is always whether the purpose for which the transfer was made was achieved. In deciding what that purpose was, great care has to be taken to see whether the claimant knowingly took the risk that his primary purpose might not be achieved, for if he did his purposes, taking those desired with those intended but not desired, will not have failed.38 In the absence of mistake or some other impairment of intent, risk-taking is commonly negatived by revealing the purpose of the transfer and thus creating an opportunity for the other side to reject, but there is no need to communicate the purpose to a recipient to whom it is or appears to be manifest.

(p.143) 1. Contract

‘On the basis of contract’ is too sweeping to be useful. Nearly every enrichment conferred on the basis of contract is made for the purpose of discharging a contractual obligation and is, as such, obligatory under the previous heading, not voluntary, under this heading. Those enrichments that fall under the present heading are made voluntarily, which means without any sense of obligation, either on the basis that a contract will come into existence or actually to make a contract.

(a) On the Basis that a Contract Will Come About

Often the basis of the enriching transfer is that a contract must later come into existence. In Chillingworth v Esche 39 the claimant, intending to buy property, had paid a pre-contractual deposit ‘subject to contract’. When no contract eventuated, the money was held to be recoverable. The court did not use the language of failure of consideration or failure of basis, but the ground should now be so understood. The corruption of the word ‘consideration’ left no convenient name for the reason for restitution and forced the court to cobble together an ad hoc explanation. Construction of the phrase ‘subject to contract’ showed, at least in that context,40 that there would be no basis for retaining the money unless a binding contract came into existence.

In William Lacey (Hounslow) Ltd v Davis 41 a builder was told that he had been successful in the tendering process and would be awarded the development contract. He then did a great deal of preparatory work for the developer, much more than builders customarily risk in pursuit of contracts. In the end the developer changed his mind. He decided not to do the development and sold on instead. The builder was allowed value of his work. This is not an uncommon scenario. Surprisingly, it quite often happens that even a very large project will proceed towards completion before any contract has been signed. In such cases the work is all done on the basis that a contract will come into existence.42

(p.144) One eye has always to be kept on risk-taking. It is one thing to want a contract to come into existence and another to act solely on the basis that it will. Every builder and architect risks sprats to catch mackerel. It was an essential feature of William Lacey (Hounslow) Ltd v Davis that in the circumstances it was entirely reasonable for the builder to understand that the developer knew that the work which the builder was doing for him had gone far beyond that kind of speculation and was being done on the basis that a contract would be made later.

In Rowe v Vale of White Horse DC 43 the local authority had provided sewerage services to council houses which it had sold to private buyers. For 13 years it made no demand for payment. It seems that at first the authority, by an administrative oversight, continued to service the properties as though nothing had changed. In the years within the limitation period it had recovered from that error and intended to charge, but it abstained from issuing invoices because of a suspicion that the provision of sewerage services might be ultra vires. When that doubt was resolved in its favour, it demanded six years' payments. Lightman J accepted that Mr Rowe had been enriched at the Council's expense but found that, although it was common knowledge that such services had to be paid for, the extraordinary history made it reasonable for Mr Rowe to believe, and that he did believe, that the service was free. This went to unjust, not to any defence. The enrichment was not unjust.

This is best explained in terms of risk. In the special circumstances there was no shared basis between the parties. The District Council for a reason of its own had not disclosed its intention to charge. It had hoped that if it continued to provide the service the recipients would later agree to pay for it. It had taken the risk that its request for payment would be repudiated. The result would have been di erent if it could have shown that it could reasonably claim to believe that the householder knew all along that the services would have to be paid for.

(b) On the Basis that the Transfer Will Conclude a Contract

The transfer may itself be intended as the o er or acceptance of a contract. If you ask me to lend you £50, and I do so, my payment is made voluntarily but with the purpose of imposing a contractual obligation upon you to repay. Depending on the precise facts I may be accepting your o er or making an o er for you to accept. Similarly in unilateral (p.145) contracts, a performance may be voluntarily done to accept an o er.44 Slightly di erent is a payment made to satisfy a condition of entitlement, as where the payment of a premium is the condition of an insurer's liability.

In R E Jones Ltd v Waring & Gillow Ltd 45 both parties were deceived by a rogue called Bodenham. The claimants paid thinking that they were putting down a deposit on a number of Roma cars, and the defendants thought they were receiving payment of the rogue's debt. In Dextra Bank & Trust Co Ltd v Bank of Jamaica 46 the claimant thought it was lending US$3m and the defendant thought it was buying them. Again both had been comprehensively deceived by fraudsters. In the former case the House of Lords held that the claimants could recover; in the latter the Privy Council held that the Bank of Jamaica had changed its position and had a cast-iron defence47 but, still following the pre-swaps path, it also held that the claimant bank had no cause of action. In the earlier case the House of Lords accepted that Jones had been mistaken; in the later the Privy Council found that Dextra had merely mispredicted that the Bank of Jamaica would contract with it. Its instructions were that the cheque was only to be handed over if the Bank of Jamaica agreed the strict terms of a promissory note which it had drafted. The fraudsters took care to ensure that that instruction and the promissory note were suppressed.

Whether or not there is a fine factual distinction between these two cases justifying the conclusion that in the one there was a mistake and in the other only a misprediction for which no relief could be given, both now need to be reconsidered according to the ‘no basis’ approach to the injustice of an enrichment. The claimants both paid on the basis of a contract to be concluded by acceptance of the payment. Deceived, they never managed to communicate that purpose to the recipients, but they could not be described as risk-takers. In each case the parties were irredeemably at cross-purposes. The claimants should have recovered, either because their intended basis was never fulfilled and they were not risk-takers or, which is not quite the same, because where parties are at cross-purposes there is no basis ab initio at all for the retention of benefits.48 The latter species of failure of basis ab initio was famously (p.146) illustrated in Raffles v Wichelhaus.49 There, however, no more was decided than that, when cotton arrived ex Peerless from Bombay, the buyer did not have to pay if, there being two ships of that one name sailing from Bombay and nothing to indicate which one was meant, the buyer had been thinking of the October one and the seller of the December one.

The ‘no basis’ approach suggests that, on one or other of these analyses, the Dextra case was wrongly decided so far as its claim was excluded under question three (unjust). There was no basis for the Dextra payment. In view of the Bank of Jamaica's defence, no damage was done. If the third question had been put entirely independently of the fifth question (defences), the probable error would immediately have been revealed. The factual premiss would then have been that the Bank of Jamaica's assets were still swollen by the $3m. It would have been di cult to conclude that Dextra had no cause of action.

2. Trust

A transfer upon trust is commonly voluntary in the sense that it is not made to fulfil any obligation. It is a transfer made to bring about a trust, and that purpose can fail for many reasons.

The most common cause of failure arises from the requirement that a trust, unless charitable, must have human beneficiaries ascertainable with su cient certainty. Thus the Vandervell litigation50 arose from the mode in which millionaire Tony Vandervell arranged a benefaction to the Royal College of Surgeons. He intended to do it in a tax-e cient way by giving the College shares and then declaring a dividend on those shares. Having shed their dividend on the College, the shares were to be recovered by his family's trust company. To that end he gave the trust company an option to acquire the shares at a fixed price. He named no beneficiaries. The Inland Revenue successfully maintained that the company was intended to hold the option and afterwards the shares on trust and that the trust had failed ab initio for want of beneficiaries. The consequence was that the benefactor had not escaped his liability for surtax. A restitutionary resulting trust had arisen, carrying the beneficial interest back to himself. More recently, in Air Jamaica Ltd v Charlton 51 the ultimate trust of the airline's pension fund, intended to be triggered by the discontinuation of the fund, was found to be void for perpetuity. (p.147) Again, unless saving legislation intervened, a resulting trust arose for contributors.

Sometimes the trust is initially valid but later fails. Thus, in Re Abbott Fund Trusts 52 a fund was created to look after two disabled ladies. There was no out-and-out gift for them. Nor was their interest restricted to a life estate. The fund was to be used, as to capital and income, to look after them, but nothing at all was said as to what was to happen to any surplus after their death. When they died and it turned out that there was indeed a surplus, the trust failed and a restitutionary resulting trust carried the surplus back to the donors. The line between initial and subsequent failure is very thin. In Re Gillingham Bus Disaster Fund 53 money was given by subscription to the mayors of the Medway Towns, first to relieve the victims of the disaster and thereafter for other ‘worthy causes’. The gift for ‘worthy causes’ was immediately void as being a non-charitable purpose trust, but that nullity lay dormant until it turned out that there was a surplus.

In all these cases the basis of the trustee's receipt is that he shall hold on trust, and that basis fails. It used to be confidently asserted that the settlor must be presumed to have intended the benefit to return to him in the event of failure of the express trust. The resulting trust which brought about that e ect (where ‘resulting’ means ‘jumping back’, from the Latin ‘resulto’) was to be regarded as a trust arising from that genuinely implied intent, assisted by an evidential presumption.

Although saved from extinction, obiter, by Lord Browne-Wilkinson,54 this presumption is unreal. It is a fiction of the same order as the implied contract which was used to explain restitution of mistaken payments. As Harman J said in Re Gillingham Bus Disaster Fund,55 the true fact is that the transferor never gave a thought to the possible failure of the dispositions which he intended to make. Time and again a true presumption of intent to create a trust would therefore be rebutted by evidence that there was no such intent.

(p.148) The unforced explanation of these restitutionary trusts arising where an express trust fails lies in unjust enrichment. Unless, against the balance of probabilities, it can be shown that the settlor intended the fund to default to the benefit of the trustee or intended to abandon it, the basis of the transfer can be seen to have failed and, to reverse the trustee's unjust enrichment, the resulting trust arises and e ects restitution. There is no need for a presumption because the balance of probabilities is that the settlor did not entertain these unusual intentions. At the most the presumption eliminates an advocate's exploitation of barely existent doubts as to where the natural onus might lie. The English for what has happened is failure of consideration, but the corruption of ‘consideration’ has forced us to prefer ‘basis’.

3. Gift

A gift, being by definition gratuitous, always lacks consideration in the sense of quid pro quo, but a birthday present is not an enrichment without a basis. Gift is a recognized explanation of enrichment. It is a basis which can fail either initially or subsequently. The reason why a gift fails ab initio is often impairment of intent.

(a) Initial Invalidation from Impaired Intent

A valid gift requires animus donandi, the intention to make a gift. If the gift is invalidated for want of the necessary intent, the basis of the transfer fails. Impaired intent renders the transfer voidable.56 A common impairment is undue influence. In the leading case of Allcard v Skinner 57 a young Anglican nun had given all her worldly possessions to her order under the influence of the defendant, the Mother Superior. When she later left the order, she wanted her property back. She failed because she had let too much time pass. Had she acted less dilatorily she would have been able to recover the gift, save so far as it had been spent on good works. Within the relationship with the Mother Superior her autonomy had been heavily reduced. She had not been emancipated from that influence by independent advice.

Very recently in Hammond v Osborn 58 a middle-aged neighbour who for years cared devotedly for an elderly retired schoolmaster in very poor health received from him some time before he died a spontaneous gift of (p.149) nearly all his wealth. She had not induced it, but he had become dependent on her and lacked access to the outside world. The Court of Appeal held the gift must be returned to the estate for his next of kin. In that relationship he too had lost his autonomy. He had not been given independent advice as to the consequences of his gift for his liability to tax or for his medical needs.

In Australia, in Louth v Diprose,59 a solicitor, lovesick almost to the point of mental illness, likewise gave away nearly all that he had before he recovered his autonomy. In that case the High Court rested his right to restitution on her having played upon his weakness. It happened that he could show that she had concocted stories which exaggerated her need for help. The result should have been the same without that element of exploitation. The cases on undue influence o er no warrant for that requirement. It is not clear why the case was not fought on that ground. The perception of undue influence as a fault-based wrong constantly lurks just below the surface, but it has recently been twice repudiated by the Court of Appeal, first in Hammond v Osborn and then, with emphasis, in Pesticcio v Huet.60

Bargains are rarely invalidated for mistake because the ground rule is that each party to a bargain bears all those risks of disappointment which the contract does not place upon the other. Gifts are not bargains, and, although gift-givers do run some risks, as for instance of ingratitude, the giving of a gift is not in anything like the same degree a risk-taking enterprise. Consequently gifts are relatively easily invalidated on the ground of causative mistake, as where the donor made a gift to her daughter forgetting that she had done it once already61 or where a voluntary settlement was made under a misapprehension of its tax consequences.62 It remains to explore what is meant in this context by the proposition that the gift must have caused the enrichment. If an uncle gives £1,000 each to all his nephews and nieces and then finds that one of them is gay, the fact that he is a notorious homophobe will not in itself show that he made a mistake which caused that gift. At the very least the uncle would have to (p.150) show that his belief as to sexual orientation was actively in his mind when the gift was made.

(b) Subsequent Invalidation from Unpurged Qualified Intent

Gifts can also fail after the donee receives them. In Hussey v Palmer 63 a mother-in-law recovered money which she had given to her son-in-law to enable him to extend his house so that she could live there with her daughter and him. The house was extended and she moved in. Relations became strained. In the end she had to find accommodation elsewhere. It was money given and received on the basis of a family arrangement, that she would live out her days in the son-in-law's house. From the outset it had been qualified and not absolute.

Muschinski v Dodds 64 is similar. A woman recovered money which she had invested in a home for her and her male partner. The home was co-owned, so that her input accrued in part to him. The relationship broke down. The High Court's view of the facts was that from the beginning the gift to the co-owner had been tied to the success of the personal and business relationship between the two of them. Before he took anything out of the house he had to repay her. The earlier Irish case of P v P 65 is the same. Money paid in contemplation of marriage was recoverable when no marriage ensued. By statute engagement gifts between the parties to the engagement are presumed to be absolute in the absence of evidence to the contrary.66

(c) The Presumption Against animus donandi (Gift-Giving Intent)

In the examples above, where gifts have failed from the outset or subsequently, the claimant has adduced positive evidence of impairment or conditionality in order to show that the gift was or became invalid. It is not easy to see how this onus of proof on the claimant can be satisfactorily related to the second presumption of resulting trust. The first such presumption, which was said to arise when an express trust failed, is, as we have seen, a fiction designed to explain consequences now better explained by unjust enrichment, and the presumption against gift to the intended trustee runs in harness with the natural onus.

The second presumption arises where the externalities indicate a gift to the defendant. The externalities of gift are gratuitous benefit, by a (p.151) direct transfer or by the provision of the resources for the acquisition. In the case of direct gratuitous transfers of land, but not provision of resources for the purchase of land, there is a doubt whether the presumption still arises.67 The presumption reflects a reluctance on the part of the court of Chancery to accept that outside relationships of advancement—roughly those where in earlier centuries a court would not be surprised to find gifts given—a gratuitous benefit can have been intended as a gift. The externalities of gift were thus made to generate a presumption of resulting trust. Stripped of fiction, the presumption again presumes that the apparent donor had no animus donandi, no intent to make a gift or, as Professor Chambers has put it, no beneficial intent.68 As the law stands it would seem therefore that, outside the relationships of advancement, the onus should always be on the apparent donee to show that a gift was intended.

If the nun in Allcard v Skinner was not entitled to that shift of the normal onus of proof, it would seem that the presumption against animus donandi can be rebutted by proof of defective intent, the very proof of which once again destroys the gift. It would make better sense to say that the presumption presumes the absence of animus donandi and to treat evidence of defective intent as corroborative. Certainly the outcome under the fourth question (rights) ought to be the same in all cases whether the beneficial intent is negatived by evidence or by presumption.

The shift of onus is often overlooked, and in some cases it is renounced. In Hodgson v Marks, which was a case of gratuitous transfer of land, the Court of Appeal itself preferred to decide the matter on the evidence without the help of the presumption rather than resolve the doubt mentioned above.69 A woman transferred her house to her lodger to secure him against her nephew who held him in suspicion and wanted him out. The lodger promptly sold the house with her still in it. She established a resulting trust by relying directly upon the evidence that she positively intended that, beyond the paper title, he should take no benefit. In some cases where the presumption is relied upon an actual intent of that kind can anyhow be seen. In Tinsley v Milligan 70 a woman contributed a share of the price to the purchase of a house by her lover, the plan between the two being to allow the contributor to appear qualified for social security housing benefit. In such a case the intention of the (p.152) transferor or contributor is clearly an a rmative intention that, beyond the paper title, the transferee should take no benefit from the transfer. That does amount to an intention to create a trust, although where, as in these two cases, the subject matter is land the requirement of writing in the Law of Property Act section 53(1) prevents its taking e ect as an express trust.

Mr Swadling maintains that this presumption, arising from the externalities of gift, always mimics these cases. That is, the presumption presumes the trust intent apparent on these facts. He goes one step further. He says that the presumed trust is to be treated as express trust.71 It is di cult to follow him in this view. It does admittedly have the advantage that it makes sense of the non-application of the presumption in cases of gifts made by mistake or under undue influence, for evidence of defectively intended gift is indeed incompatible with an a rmative intent to create a trust. But a presumption of intent to create a trust would be randomly rebutted depending only on whether evidence could be found to show that in truth the transferor had never given any thought to the matter.72 The simple presumption against animus donandi is, by contrast, merely corroborated by such evidence.

The mess in which the law finds itself in this area arises directly from the failure to recognize the law of unjust enrichment and from the consequent necessity of explaining reactions to failure of basis by the invocation of fictitious manifestations of intent. Fictitious contracts have at length been abandoned. Fictitious declarations of trust have proved more obstinately persistent. The persistence is doubly complicated by their being divided between two types of trust, constructive trusts and resulting trusts. The last chapter of this book tries to sort out that division, not to preserve it for use but to understand it well enough to eliminate it.73

4. Other Purposes

We have been considering transfers the purpose of which has been contract, trust, or gift. The threefold division is useful for exposition and illustration, but the reader will certainly have realized that it has little or no technical significance, for the principle is always the same, namely that if the goal of the enrichment is not achieved the recipient must make (p.153) restitution: the basis of the enrichment will have failed. The same is true even in the group which was dealt with first, where the enrichment was believed to be obligatory and there was no obligation to discharge. The legal insignificance of the division needs to be underlined as we come to the residual fourth category, to avert the danger of a sterile anxiety as to whether any given example really is a failure of a nominate purpose or belongs here under ‘other purposes’. It is often open to argument.

In Kerrison v Glyn, Mills, Currie & Co 74 the appellant claimant was bound by contract to reimburse American bankers who in their turn were to cover certain liabilities of a Mexican silver mine. He deposited a sum to the respondent bank in anticipation of that liability, which in the event never materialized because the American bankers became bankrupt before laying out any money for the Mexican mine. The House of Lords held that he could recover, explaining the outcome on the ground of mistake, overlooking the fact that, even under the old regime of specific unjust factors, a mistake as to the future, a misprediction, would not have been a ground for liability.

The result could not be reached through mistake, but payment made on the basis of a liability to be met in the future is a perfectly good payment on a basis which may or may not hold good. The Roman equivalent here was not the condictio indebiti but the condictio causa data causa non secuta (debt for things given on a basis, that basis not having followed).75 This corruption of ‘consideration’ again meant that English lawyers had no words to describe a payment made on the basis of, say, an obligation later to come into being. ‘To discharge a future liability’ is not a purpose which fits in any of the three previous categories, unless one would wish to construe it as an o er to be accepted by a promise so to apply it. One who prefers that construction will place it with ‘contracts to be concluded’, 1(b) above.

In Re Cleadon Trust Ltd,76 a director paid o liabilities of his company without authority, merely assuming that the company would later agree to repay him. In the event it did not repay him. Without his own necessarily disqualified vote, the board was inquorate and could not pass the necessary resolution. He was understood merely to have taken the risk that it (p.154) might not reimburse him. However, there is nothing wrong with construing a payment for a voluntary reciprocation as a payment made on a basis which may or may not hold good.

A non-contractual reciprocation does not fit into any of the three previous categories. However, very fine variations of fact can a ect the classification. The old case of Holmes v Hall illustrates.77 Some papers of the claimant's testator were in the hands of the defendant. The claimant ‘to get the writings, gave him so much money, whereupon he promised to give up the writings, but afterwards refused.’78 Taken literally this yields the improbable interpretation that the payment was for a non-contractual reciprocation. More plausibly, it might have been a payment intended as an o er to conclude a contract, in which case it would again fall back in 1(b) above. A third possibility is that there was first a contract—money for papers—and then an obligatory payment under that contract, subsequently terminated for repudiatory breach. That case would fall under the condictio indebiti, the payment being originally due but the obligation being subsequently terminated.79 In a case such as Re Cleadon Trust Ltd the facts which would negative risk-taking would very likely also move the construction of the story towards the second or even the third of these possibilities.

This discussion makes it necessary to emphasize once more that these categories are expository. So far as we can see from the report, in Holmes v Hall Holt CJ quite rightly allowed the claimant's action for money had and received without feeling the need to resolve the factual ambiguities. On each of the three possibilities, the basis of the enrichment failed.

C. Non-Participatory Enrichments

One person can be enriched at another's expense absolutely without that other's collaboration. The clearest case is where the enrichee acts without the other's knowledge. When a pickpocket takes my wallet I am totally ignorant of the haemorrhage of my wealth. A service can also be taken secretly, as with a stowaway or free-riding freight. Ignorance, in the sense of not being aware of what is happening, is not the only case. The enrichment may accrue to the enrichee with my knowledge but in circumstances in which I am powerless to prevent it. A burglar may tie up his victims, who then see but cannot prevent the taking of their jewellery. (p.155) Or it may be just a matter of distance: I am too far away to stop the enrichee breaking my car window and snatching my camera. There is a more complex sub-set of these cases of powerlessness, which we might call by-benefits (by analogy with by-products). If I irrigate my allotment, yours lower down the hill will also benefit, and if I arrange to graze my sheep on your field you will need no fertilizer. These by-benefits need to be considered separately.

1. At Law

In general, an absolutely involuntary enrichment will have no explanatory basis at all. There is not even any putative basis. Questions 1 (enrichment) and 2 (at the expense of the claimaint) can give rise to awkward problems, as we have seen,80 but question 3 (unjust) is relatively straightforward. However, the curse of dualism has again created problems in that on the Chancery side there has been an inadvertent disapplication of the law of unjust enrichment, which, even though it is no more than one of the legacies of the failure to recognize the independence of the law of unjust enrichment, is proving di cult to overcome.

At law the picture is clear enough. In Holiday v Sigil 81 the claimant had lost a £500 note. The defendant who found it owed the claimant that sum as money had and received to his use. That is the simplest model. The leading case is now Lipkin Gorman v Karpnale Ltd.82 A solicitor addicted to gambling took hundreds of thousands of pounds from his firm's client account. He gambled it away in the casino at the Playboy Club in Park Lane. The House of Lords held that the casino, which was taken to have had no reason at all to believe that it was dealing with a thief, was under an obligation arising from unjust enrichment to repay the amount received, less its own consequential payments out made on the few occasions when the gambler won. Although, as we have seen, the facts were actually more complex because of the gambler's being an authorized signatory on the client account,83 the model from which their Lordships worked was that in which X steals C's money and gives it to D.

The restitutionary liability is of exactly the same structure as that which arises from the mistaken payment of a debt not due. No fault need be shown, and no wrong proved. In the Lipkin case the tort of conversion was explicitly ruled out.84 The strict liability can, however, be defeated by (p.156) defences. In particular, it is absolutely defeated where a recipient from a third party gives value in good faith for the money under a valid contract.85 If the gambler had been addicted to expensive food, the restaurants which he patronized would not have been liable at all. Gambling contracts, even of licensed casinos, are void. In the Lipkin Gorman case, the e ect was to push the casino back to the defence of change of position. It could not say that it was a bona fide purchaser for value. Its liability was instead reduced by the amounts it had been caused to pay out when, occasionally, the gambler won.

2. In Equity

One consequence of the long failure to recognize the law of unjust enrichment is a misguided intuitive resistance to the strict liability, subject to defences, which it requires.86 This error arising from unfamiliarity is the only possible explanation of the fact that, as against a recipient out of possession, those who have only equitable title behind a trust have been confined to a fault-based claim. The Lipkin Gorman claim has been withheld.

In Re Montagu's Settlement Trusts 87 trustees, in breach of trust, had released some trust assets to the tenant for life, the 10th Duke of Manchester. The Duke was thus a donee. He had not given value. The assets in question were valuable chattels, such as paintings and furniture. The trustees had a power to release them but only after taking certain steps, which they had not taken. The action was brought against the estate of the 10th Duke by his successor, the 11th Duke, who was a beneficiary under the trust. It had not been shown that the 10th Duke's estate still included any of the trust assets or their traceable proceeds, so that the only question was whether he had been under a personal obligation to repay the value he had received. Megarry V-C took the view that, even against a donee, the claimant had to establish that the old Duke had been at fault.

The required degree of fault has proved elusive. Megarry V-C thought only dishonesty would do. More recently, in Bank of Credit and Commerce International (Overseas) Ltd v Akindele,88 the Court of Appeal unhelpfully confined itself to saying that the defendant must have behaved unconscionably, which covers all possibilities. Defences aside, Chief (p.157) Akindele appears to have escaped liability for the receipt of BCCI money as a result of a factual inquiry resembling an inquiry into constructive notice: he neither knew of nor ought reasonably to have discovered the improprieties going on inside that bank.89

In the absence of a cogent explanation to the contrary, to insist on fault is to disapply the law of unjust enrichment in favour of the law of wrongs. The equitable wrong is ‘knowing receipt’. Professor LD Smith has attempted to defend the disapplication of the law of unjust enrichment.90 However, his arguments are chiefly historical, and history cannot justify the muddle it has made. His valiant e ort is further disabled by inconsistency within the Chancery cases themselves. The Lipkin Gorman claim has not been disapplied where money is misdirected from the estate of a deceased person.

In Ministry of Health v Simpson,91 the House of Lords confirmed that Caleb Diplock's next of kin had strict personal and proprietary claims against all the beneficaries to whom his residual estate had been misdirected, the executors having failed to spot the nullity of the bequest. On occasion, moreover, this has crept beyond the law of succession. A claim of the same strict Lipkin Gorman kind has been recognized as in principle available to a beneficiary against a donee from a dishonest fiduciary,92 and to a company against persons overpaid by its liquidator.93

A powerful recent dictum of Lord Millett now gives notice that the anomalous disapplication of the law of unjust enrichment from misdirections under inter vivos trusts will be put right.94 Lord Nicholls, writing extra-judicially,95 has indicated that this should not be done by insisting that the wrong of ‘knowing receipt’ be stripped of ‘knowing’ and transferred to the law of unjust enrichment but rather by recognizing a liability in unjust enrichment alongside the wrong. That will be the better course. (p.158) The present muddle has been brought about by trying to make one cause of action do the work of two.

Ignorance and powerlessness do not automatically connote absence of basis. In a rare case there will be a su cient legal explanation for the taking of the claimant's wealth. An obvious case is execution of judgment. Prerogative requisition, outside the War Damage Act 1965, probably does not entitle the Crown to take without paying.96

3. By-Benefits

If I live in a flat, and you live above me, in winter my central heating will cut your fuel bills. Heat rises. Investment in insulation may minimize the escape of the warmth for which I am paying, but it is true in a sense that I am powerless to prevent this benefit accruing to you. You are enriched in that you are saving heating expenditure which you would inevitably incur if I turned my heating o, and the enrichment is coming from me. Similarly, if you have a flat which overlooks the Oval you will be able to watch test matches without paying.

In cases of this kind one person is enriched at another's expense and that other is powerless to prevent it. But this is not an unjust enrichment. There is no right to restitution.97 The best explanation seems to be that the basis of the enrichment is gift. Matters must be judged at the commencement of the principal activity. If the principal activity is freely intended, in the way that I intend to heat my flat, the incidents of that activity are also intended, however little they may be wanted. A terrorist who plants a bomb in a shopping centre may not want to kill the shoppers but obliquely intends their death. In the same way I may indeed be powerless to prevent your enrichment, but I obliquely intend the inevitable by-benefit to accrue gratuitously to you, my upstairs neighbour. The rising heat is thus a gift, although possibly not warmly wished.

It is quite different when, judged at the time of the principal activity, the actor is not acting of his own free will. If, for example, two people are liable for the same debt and one is called upon to pay, the other's obligation is discharged. If, as between the party paying and himself, that other was primarily liable, as where the principal debtor paid and the party paying was his surety, he is enriched at the payer's expense as to the whole amount which he was bound to pay. If both were liable in the same degree, then he was enriched to the extent of the share that he was bound (p.159) to pay. These enrichments are by-benefits arising from the payment to the creditor. In the former case the payer is entitled to reimbursement, in the latter to contribution.

In the case of the upstairs neighbour, the would-be claimant cannot show that the enrichment was unjust because in choosing to heat his own flat he intends gratuitously to heat the neighbour's flat. In the case of the discharged debt, the initial act which was the debtor's discharge of his debt was not freely chosen but obligatory. In such a case the by-benefit to the defendant, who was also liable, was indeed one which was also not intended. In the first case, the cause of enrichment is a grudging gift, in the second it has no basis at all. The discharged debtor can o er no explanation at all as to why he should retain his enrichment. It is an enrichment without any explanatory basis. This is one area in which ‘no basis’ does come close to lay usage, for the truth is that the reason why we think the defendant should reimburse or contribute is that there was no reason at all why he should reap the by-benefit.

It is a difficult question whether one who pays under a liability which is voluntarily incurred can make the same argument. In Owen v Tate 98 the claimant, by o ering his own personal guarantee instead, induced a bank to release security given by his friend for the defendant's debt. The bank called on him to pay. He was denied reimbursement. Scarman LJ stated that ‘if without antecedent request a person assumes an obligation … for the benefit of another, the law will, as a general rule, refuse him a right of indemnity.’99 That is a tenable position, but as a matter of authority it appears to be wrong. It overlooked the Mercantile Law Amendment Act 1856, section 5, which allows all sureties to be subrogated to the creditor's claim. That Act apart, it is out of step with Edmunds v Wallingford,100 where the opposite view was taken when one person's goods were lawfully taken to pay another's debts.101

All that has been said of discharge applies equally to imperfect discharge, as described above.102 Thus an insurance company which pays a loss is entitled to go against the imperfectly discharged tortfeasor who caused it. But the imperfection of the discharge means that that claim must be made by subrogation to the still unextinguished right of the insured against the tortfeasor. When one of its oil tankers spilled oil on (p.160) coastal crofts, Esso paid the loss under an agreement then in force between all such companies.103 The spillage had been caused by negligent construction of the engines of a tugboat. Esso tried to sue the negligent manufacturers and failed. Its only claim, if it had any claim at all, was to be subrogated to the unextinguished rights of the crofters. The argument from Edmunds v Wallingford which suggests that Owen v Tate was wrongly decided, applies equally to this case of imperfect discharge.

D. Conclusion

The previous chapter sought to show that English law has to abjure the two families of unjust factors—deficient intent and policy imperatives—and re-orient its law of unjust enrichment to ‘no basis’. Accepting the risk of over-simplification, this one has outlined the way in which ‘no basis’ works. The question is always the same. What, if any, was the ‘consider-ation’ for the enrichment? But we could not use the corrupted word ‘consideration’. Instead, preferring ‘basis’ from the choice between ‘reason, ground, or basis’, what, if any, was the basis of the enrichment? The unjust enrichment is the enrichment which has no basis.

The chapter divided enrichments between participatory and non-participatory, and, within the former, between obligatory and voluntary, and, within voluntary, between contract, trust, gift, and other bases. The division serves a useful expository purpose. It allows us to review a full range of possibilities. But it does not alter the fact that there is no more than one question. ‘No basis’ has a surgical simplicity. The unjust factors will seem increasingly cumbersome. They have also proved unreliable, capable of producing wrong results. A sub-theme throughout has been that the basis of an enrichment cannot be identified without an eye kept constantly on risk-taking. The busker wants to be paid but takes the risk of getting nothing. The basis of his o ering is not reciprocal payment but gift.


(1) Subsequent nullity is rare, but see Goss v Chilcott [1996] AC 788 (PC): subsequent alteration of a deed by the obligee renders the deed void under the rule in Pigot's case (1614) 11 Co Rep 26b, 77 ER 1177.

(2) Below, 285–90.

(3) Woolwich Equitable BS v IRC [1993] 1 AC 70 (HL) 172. Compare Lightman J in Rowe v Vale of White Horse DC [2003] 1 Lloyd's Rep 418, 422.

(4) Above, 104.

(5) (1841) 9 M & W 54, 59, 152 ER 24, 27

(6) [1936] 2 KB 403 (CA)

(7) (1959) 102 CLR 108 (HCA)

(8) [1993] 1 AC 70 (HL)

(9) Note 7 above.

(10) In Waikato Regional Airport v A-G of New Zealand [2003] UKPC 50 [80] the Privy Council, applying Woolwich, found it necessary to hold that ultra vires charges for the New Zealand biosecurity system were not a tax nor a charge for a service. Drawing that kind of distinction is exacerbated by the fact that non-tax cases such as South of Scotland Electricity Board v British Oxygen Company [1959] 1 WLR 589 (HL) played a part in the Woolwich argument, even though an overcharge for electricity is certainly not a tax or levy.

(11) S Meier, ‘Unjust Factors and Legal Grounds’ in D Johnston and R Zimmermann (eds), Unjustified Enrichment: Key Issues in Comparative Perspective (CUP Cambridge 2002) 37, 61–5

(12) [1999] 2 AC 349 (HL), applied in Nurdin & Peacock plc v DB Ramsden & Co Ltd [1999] 1 All ER 941.

(13) Redgrave v Hurd (1880) 20 Ch D 1 (CA)

(14) Barton v Armstrong [1976] AC 104 (PC); Universe Tankships v ITWF, The Universe Sentinel [1983] AC 366 (HL); B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419.

(15) Oʼsullivan v Management Agency and Music Ltd [1985] QB 428 (CA); Goldsworthy v Brickell [1987] 1 Ch 378.

(16) Fry v Lane (1889) 40 Ch D 312

(17) Creswell v Potter [1978] 1 WLR 255

(18) Commercial Bank of Australia v Amadio (1983) 151 CLR 447 (HCA)

(19) Barclays Bank plc v OʼBrien [1994] 1 AC 180 (HL); CIBC Mortgages plc v Pitt [1994] 1 AC 200 (HL); Credit Lyonnais v Burch [1997] 1 All ER 144 (CA); Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44, [2001] 3 WLR 1021.

(20) Hermann v Charlesworth [1905] 2 KB 123 (CA)

(21) [1932] AC 161 (HL)

(22) [1950] 1 KB 671 (CA)

(23) [2002] EWCA Civ 1407, [2003] QB 679

(24) [2003] 4 All ER 645 (Ch D)

(25) Metallgesellschaft Ltd v IRC and Hoechst AG v IRC C-397/98 and C-410/98 [2001] All ER (EC) 496, [2001] Ch 620 (ECJ)

(26) Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349 (HL)

(27) Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 (HL)

(28) [1980] QB 677

(29) [1980] QB 677, 695

(30) Barder v Caluori [1988] AC 20 (HL)

(31) Commonwealth v McCormack (1984) 155 CLR 273 (HCA); B McFarlane ‘The Recovery of Money Paid under Judgments Later Reversed’ [2001] Restitution L Rev 1.

(32) Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour [1943] AC 32 (HL)

(33) [1904] 1 KB 493 (CA)

(34) [1943] AC 32, esp 52 (Lord Atkin), 65 (Lord Wright).

(35) Above, 120–1.

(36) Dies v British and International Mining and Finance Corp [1939] 1 KB 724; RoverInternational Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912 (CA).

(37) Above, 125–6.

(38) Above, 103–4.

(39) [1924] 1 Ch 97

(40) That the exercise of construction must be context-specific is shown by Attorney-General of Hong Kong v Humphries Estate (1987) AC 114 (PC) where value transferred at the pre-contractual phase was held to have been transferred entirely at the transferor's risk. See also Regalian Properties plc v London Docklands Development Corporation [1995] 1 WLR 212.

(41) [1957] 1 WLR 932; cf Countrywide Communications Ltd v ICL Pathway Ltd (QBD 21 October 1999, 1996 C No 2446).

(42) Peter Lind & Co v Mersey Docks and Harbour Board [1972] 2 Lloyd's Rep 234; British Steel Corporation v Cleveland Bridge & Engineering Ltd [1984] 1 All ER 504.

(43) [2003] 1 Lloyd's Rep 418

(44) Sir Guenter Treitel, The Law of Contract (11th edition Sweet & Maxwell London 2003) 37–8, 847

(45) [1926] AC 670 (HL)

(46) [2002] 1 All ER (Comm) 193 (PC)

(47) Discussed below, 211–2, 214.

(48) Burgess v Rawnsley [1975] Ch 429 (CA)

(49) (1864) 2 H & C 906, 159 ER 375

(50) Vandervell v IRC [1967] 2 AC 291 (HL); Re Vandervell's Trusts (No2) [1974] Ch 269 (CA), reversing [1973] 3 WLR 744.

(51) [1999] 1 WLR 1399 (PC)

(52) [1900] 2 Ch 326

(53) [1959] Ch 62 (CA) affʼg [1958] Ch 300

(54) Westdeutsche Landesbank Girozentrale v Islington BC [1996] AC 669 (HL) 689 (Lord Goff), 703, 707–8 (Lord Browne-Wilkinson), drawing support from WJ Swadling ‘A New Role for Resulting Trusts’ (1996) 16 Leg St 110. However, Swadling himself does not apply his intent-based interpretation to the supposed presumption generated by a trust which fails. It is only in the other case—apparent gifts, discussed immediately below—that he thinks that there is a genuine implication that the asset be held on trust.

(55) [1958] Ch 300, 310

(56) On degrees of invalidity, above, 125–7.

(57) (1887) 36 Ch D 145 (CA)

(58) [2002] EWCA Civ 885, The Times 18 July 2002; compare Pesticcio v Huet (also known as Niersmans v Pesticcio) [2004] EWCA Civ 372, (2004) 154 NLJ 643.

(59) (1992) 175 CLR 621 (HCA)

(60) [2004] EWCA Civ 372 [1]–[2], [20]. See also P Birks, ‘Undue Influence as Wrongful Exploitation’ (2003) 120 LQR 34.

(61) Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476; cf Ogilvie v Littleboy (1897) 13 TLR 399, 15 TLR 294.

(62) Re Butlin's Settlement Trusts [1976] Ch 251; Gibbon v Mitchell [1990] 1 WLR 1304; cf Barclays Bank Ltd v WJ Simms & Son Ltd [1980] QB 677 (QBD) 697 examples (1) and (2).

(63) [1972] 1 WLR 1286 (CA)

(64) (1985) 160 CLR 583 (HCA)

(65) [1916] 2 IR 400; cf Re Ames' Settlement [1946] Ch 217.

(66) A gift such as an engagement ring is now presumed to be absolute until the contrary is a rmatively proved by the claimant: Law Reform (Miscellaneous Provisions) Act 1970 s 3.

(67) Hodgson v Marks [1971] Ch 892 (CA)

(68) R Chambers, Resulting Trusts (OUP Oxford 1997) 32–3, 38

(69) Note 67 above.

(70) [1994] 1 AC 340 (HL)

(71) W Swadling, ‘A Hard Look at Hodgson v Marks’ in P Birks and F Rose, Restitution and Equity vol 1 (Mansfield Press LLP London 2000) 75, returning to the defence of Swadling, ‘A New Role for Resulting Trusts’ (1996) 16 LS 110, reprinted in Restitution and Equity vol 1, 285.

(72) Chambers (n 68 above) 21

(73) Below, 301–7.

(74) (1911) 81 LJKB 465 (HL)

(75) For Lord Mansfield's adoption of this Roman model, Sir William Evans, Essays on the Action for Money Had and Received, on the Law of Insurances, and on the Law of Bills of Exchange and Promissory Notes (Liverpool 1802), 25–34 (repr [1998] Restitution L Rev 1, 9–10).

(76) [1939] Ch 286 (CA)

(77) (1704) Holt KB 36, 90 ER 917

(78) Ibid.

(79) For these kinds of invalidity, see above, 125–7.

(80) Above, 63–9, 86–7, 93–8.

(81) (1826) 2C & P 176, 172 ER 81; cf Moffatt v Kazana [1969] 2 QB 152 (QB).

(82) (1991) 2AC 548 (HL), followed in Trustee of Jones v Jones [1997] Ch 159 (CA).

(83) Above, 95–6.

(84) [1991] 2 AC 548 (HL) 574, 578 (Lord Goff)

(85) The casino's defences are discussed below, 210–12, 240–5.

(86) Above, 5–9.

(87) [1987] Ch 264

(88) [2000] 4 All ER 221 (CA)

(89) [2000] 4 All ER 221 (CA) 237–8.

(90) LD Smith, ‘Unjust Enrichment, Property and the Structure of Trusts’ (2000) 116 LQR 412

(91) [1951] AC 251 (HL) upholding Re Diplock [1948] Ch 465 (CA).

(92) GL Baker Ltd v Medway Building & Supplies Ltd [1958] 2 All ER 532 (Danckwerts J), [1958] 3 All ER 540 (CA)

(93) Butler v Broadhead [1975] Ch 97 (Ch)

(94) Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 WLR 802 [105]. So also Birks in earlier work: P Birks, ‘Misdirected Funds: Restitution from the Recipient’ [1989] LMCLQ 296.

(95) Lord Nicholls of Birkenhead, ‘Knowing Receipt: The Need for a New Landmark’ in WR Cornish, R Nolan, J Oʼsullivan, and G Virgo (eds), Restitution, Past, Present and Future: Essays in Honour of Gareth Jones (Hart Oxford 1998) 231

(96) Nissan v Attorney-General [1968] 1 QB 286 (CA) 349–51 (Winn LJ)

(97) Edinburgh Tramway Co v Courtenay 1909 SC 99

(98) [1976] 1 QB 402 (CA)

(99) [1976] 1 QB 402 (CA) 411–12.

(100) (1885) 14 QBD 811 (CA) 816, disapproving England v Marsden (1866) LR 1 CP 529.

(101) Compare C Mitchell, The Law of Contribution and Reimbursement (OUP Oxford 2003) [6.37]–[6.40]

(102) Above, 61. Also below, 296–9.

(103) The Esso Bernicia [1989] AC 643 (HL)