Posted by: yarbel | 12th Apr, 2016

Defences in Unjust Enrichment, Book Review — Yotam Kaplan

Post by Yotam Kaplan, Private Law Fellow, Harvard Law School

Defences in Unjust Enrichment, edited by Andrew Dyson, James Goudkamp and Frederick Wilmot-Smith, is the recently published second volume in an ongoing series, Hart Studies in Private Law: Essays on Defences. The first volume covered defenses in tort law, and the remaining two volumes will treat defenses in contract law and equity. The current volume offers essays by some of the world’s leading scholars, and a memorable note by Lord Reed of the Supreme Court of the United Kingdom. This is a welcome addition to unjust enrichment scholarship, as the study of defenses (and the change of position defense in particular) has been central to the development of this area of law in recent years. 

The essays share some common themes, but mostly stand on their own. In his essay, Lionel Smith revisits the question of unity in unjust enrichment, observing it through the back-end perspective of defenses. Smith highlights the fact that many defenses only apply to some types of claims in unjust enrichment, which suggests the varied claims are based in different causes of action, that is, in different types of normative justifications. If indeed unjust enrichment cannot be constructed as a single cause of action, Smith sees the way forward in conceptualizing multiple causes of action within unjust enrichment. In another essay, Andrew Kull discusses defenses between different victims of a common fraud. For instance, in a Ponzi scheme scenario, earlier victims of the scheme sometimes make significant profits – profits that originate with the contributions of the later victims (all this unbeknownst to any of the victims). In such circumstances, the earlier victims can be said to have been unjustly enriched at the expense of the later victims; Kull discusses the possible defenses the earlier victims may raise in response to this type of argument. Birke Häcker tackles the issue of defenses for minors in unjust enrichment. Among other claims, Häcker makes the argument that minors should (and often do) enjoy an expansive version of the change of position defense. For instance, an under-age defendant who received a mistaken payment and spent some of it should not be made liable for the full sum, even if said minor may have been aware of the mistake. This point deserves the attention of US jurists, after a Georgia teen was recently put on 10 year probation and ordered to make full restitution for spending the better part of $30,000 deposited in his bank account.

These, and the other contribution in the volume, offer timely and rigorous analysis of some of the core problems currently debated by unjust enrichment scholar. As a full report on each of the essays would defeat the purpose of a short review, in the following paragraphs I shall focus on the distinction between denials and defenses, proposed by the Editors as an overarching theme, and adopted in a number of the essays. Put simply, the defendant can either deny the existence of some elements of the plaintiff’s claim, or, the defendant can add some new elements, that would constitute a defense, without denying any of the ingredients argued by the plaintiff. This is a substantive rather than procedural distinction, meaning it does not pertain to the allocation of burdens of proof between the parties. Instead, it turns on substantive arguments regarding the definition of the cause of action: a defense is analytically independent of the plaintiff’s claim, whereas a denial goes to the elements of the plaintiff’s cause of action. Studying the difference between denials and defenses thus promises to contribute towards a better understanding of the elements comprising a claim in unjust enrichment. This is surely a useful exercise in the present context, as the components of the action are not universally clear. This distinction features, to varying degrees of prominence, in contributions by Dennis Klimchuk, Charles Mitchell, Graham Virgo and Helen Scott.

To focus on one example, Scott offers an important contribution in this framework, analyzing the defendant’s claim for “enrichment owed.” The paradigmatic case is of a plaintiff who owes a sum of money to the defendant, and though not intending to, transfers the owed sum to the defendant. In such cases the defendant will typically be allowed to retain the benefit (despite the plaintiff’s mistake) and Scott sets out to find if this is the result of a successful defense, or a denial. Scott points out that scholarly orthodoxy (i.e. Goff & Jones) seems to assume this is a defense: the plaintiff was indeed unjustly enriched, but the claim is overridden by an external element – the existence of the prior debt. Yet, this view seems less convincing in light of the language found in judicial opinions (and arguably the logic of the claim). Scott references the work of Andrew Burrows in support of this point, and cites Lord Hope in Kleinwort Benson Ltd v. Lincoln CC, who writes: “the payee cannot be said to have been unjustly enriched if he was entitled to receive the sum paid to him.” This language indicates that we are faced with a denial here, as the basic elements of the plaintiff’s claim are negated: the ‘enrichment’ was owed to the defendant, so she is not unjustly enriched.

Scott suggests, however, that this view leads to further complications, as it seems to challenge the prevailing framework for analyzing claims of unjust enrichment in terms of “unjust factors.” Presumably, in this case, the mistake is the “unjust factor” that renders the enrichment unjust, and it is unclear how exactly the fact the enrichment was owed operates to override it. This would suggest some form of commensurability between the mistake and the fact the enrichment was owed, and Scott does not find this type of commensurability to be sufficiently defined in the literature. Scott therefore suggests that before we can accept enrichment owed as a denial, we must, at the very least, better define the interplay between it and other elements making enrichment “unjust.” This is an intriguing point, and perhaps the strongest challenge currently to the “unjust factors” orthodoxy. A stronger emphasis on the element of enrichment owed as part of the cause of action can push the common law of unjust enrichment closer to property law principles of good faith purchase, or towards the civilian approach of “absence of basis”. In this way, the questions discussed by Scott and the other contributors, following the framework suggested by the editors, go to the very core of unjust enrichment theory, and pose some fundamental conceptual questions.

Still, from a pragmatic perspective the distinction between denials and defenses may appear overly metaphysical, especially when disconnected from the practical (and observable) issue of the burden of proof. This brings us finally to Lord Reed’s cautionary tale, which seals this volume. Lord Reed shares his thoughts on the relevance of doctrinal scholarship for judges, and provides a very relevant warning: “[I]t seems to me that scholarship which insists on lucid rationality and consistency may at times be less realistic than scholarship which accepts that life sometimes requires the adoption of conflicting ideas, held simultaneously in tension with each other” (p. 313). Lord Reed offers eloquent skepticism concerning excessive scholarly aspirations for logical consistency, and the text is definitely worth a read on its own. At the risk of falling for a cliché, I cannot help but comment on the affinity of Lord Reed’s remarks to Oliver Wendell Holmes’ famous warning from the bench. Although Lord Reed‘s critique is general in nature, it can be taken also as a challenge to the denial-defense distinction offered in this volume as an organizing theme. The distinction turns on conceptual arguments, defining specific elements as internal or external to the cause of action, and the inquiry tends to be highly abstract. This form of analysis might be considered objectionable on Lord Reed‘s view.

Thus, the various contributions in this volume provide the reader with state-of-the-art academic analysis of the law of unjust enrichment, together with the most relevant critique of this type of intellectual project. Together, they make for a thought-provoking collection for any reader interested in the fundamental problems of private law theory.

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