Oxford University Comparative Law Forum
At the Expense of the Claimant: Direct and Indirect Enrichment in English Law
by Peter Birks
(2000) Oxford U Comparative L Forum 1 at ouclf.iuscomp.org | How to cite this article
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time ago a study by Jack Dawson compared the German and American positions
on the requirement of 'directness' in the law of unjust enrichment.1
It is not at all easy to come up with a satisfactory short statement of
that requirement, but, broadly speaking, its effect is to restrict liability
to the first or immediate enrichee and to forbid leapfrogging that proper
defendant in order to sue remoter recipients who, on one argument or another,
might also be said to have been enriched at the claimant's expense. Dawson's
study concluded that German law had chosen to insist rather strictly on
directness, while American law, although agreeing with German law in a
number of important and recurrent situations, had never committed itself
to the same dogma. Proceeding in a characteristically pragmatic manner,
it had allowed a variety of claims which could not have satisfied any requirement
that the enrichment must have come directly from the claimant.
This subject has preoccupied
German jurists but has been very little visited by English lawyers. Neil
Whitty's recent study of the Scots law, heavily influenced by German and
other civilian writing, has served to draw English attention to the deficiency.2
More recently still, Sonja Meier, who has made a speciality of comparison
between the German and English law of unjust enrichment,3
has written an important and helpful article in the Cambridge Law Journal,
which once again reminds us of the need to take this subject much more
This is not a subject in
which it is easy to draw comparisons with civilian systems. Their law of
unjust enrichment turns of the absence of legal ground for the enrichment
(sine causa / ohne rechtlichen Grund) and hence on the science
of nullity which has to underpin that approach. The science of nullity
is heavily in evidence in the discussion of indirect enrichment. We by
contrast look for down-to-earth reasons for restitution which are intelligible
on the Clapham omnibus. This hum-drum search for unjust factors can claim
the merit of having coped unobtrusively and interstitially with the problems
in which civilian jurists have found themselves inextricably entangled.
An unkind observer might say that we have simply failed to notice the difficulties.
Our leading textbook, reflecting the pragmatism which is shared with American
law, devotes only three pages exclusively to this matter, under the heading
of the sub-principle that the enrichment must be obtained at the claimant's
expense.5 Two other influential books
both accept that, subject to exceptions, English law is committed to the
requirement of directness, though neither finds it necessary to spin a
conceptual web to catch every case.6 As
it happens both invoke the word 'privity'.7
This is an unwanted echo of the old implied contract theory of unjust enrichment,
which both authors quite rightly regard as once and for all repudiated.
Though the word can barely be given meaning outside contract, both agree
that in some sense the English law of unjust enrichment is and ought to
be hemmed in by a notion of privity.8
There is no doubt that the common law needs to tidy up its thinking on
this subject, though it cannot do it in the structurally alien language
of sufficient and insufficient cause.
This paper takes the view
that the exceptions are arguably stronger than the rule. If that is right,
the Burrows-Virgo position is not wrong, but its emphasis is misleading.
Furthermore, the supposed rule, especially when dressed up in its borrowed
contractual clothing, proves difficult to tie in to any convincing rationale.
Rule and exceptions must swap places. English law is not in principle averse
to leapfrogging, though there is a recurrent situation, as Dawson's study
recognized, in which it is outlawed. It is relatively easy to explain the
rationale behind that prohibition. Almost more important than working out
what the rule is, and how many exceptions it might admit, is the need for
a stable technique for handling the relevant fact situations. The method
proposed and used in this paper involves the rigid separation of two inquiries.
The first inquiry is directed
to discovering what the English law of unjust enrichment might understand
by the requirement of 'privity' or 'directness' to which it is supposed
to subscribe. Who counts as a direct recipient or, in the contractual language,
who satisfies the requirement of privity? This inquiry will identify the
immediate enrichee. No leapfrogging question can arise till that job is
done. The second inquiry then asks when, if ever, English law allows a
claimant to leapfrog the immediate enrichee in order to sue someone who
received from or through him - a remoter recipient at his expense.
Professor Burrows rightly
says that the requirement of directness cannot be treated as a logical
implication of the requirement that the defendant must have been enriched
at the expense of the claimant.9 The claimant
and defendant in an action in unjust enrichment must necessarily be linked
by that phrase. It is by bringing himself within that phrase that the claimant
connects himself to the enrichment in question and identifies himself as
having a prima facie title to sue.10
Hence the phrase must be satisfied in every case. Directness is superadded.
The defendant may have been immediately enriched at the claimant's
expense, or he may have been remotely enriched at his expense, where
'remotely' means 'after and through the immediate enrichee'.
It follows that this entire
discussion turns on scope of 'at the expense of'. The first inquiry is
directed to identifying the party immediately enriched at the expense of
the claimant and the second inquiry is directed to the question whether
it is possible to sue a party remotely enriched at his expense. It requires
to be emphasized that the ground for restitution - the unjust factor -
is not in question. The questions whether the defendant was enriched and,
if so, whether he was enriched at the expense of the plaintiff are essential
but preliminary. Before and liability can be imposed it must be shown that
the enrichment was unjust. Even then the defendant may not be liable: he
may be able to establish some defence. This paper is concerned only with
immediate and remote enrichment at the plaintiff's expense. Nevertheless,
it needs to also to be said that the ground for recovery of remote enrichment
is unlike any other, in being parasitic on the ground for recovery from
the immediate enrichee.11
The organizing role of 'at
the expense of' might be said to have been dissolved in German law. Superficially,
it has been. The reason is to be found in the tantalizing wording of paragraph
812 BGB: 'Wer durch die Leistung eines anderen oder in sonstiger Weise
auf dessen Kosten etwas ohne rechtlichen Grund erlangt, is ihm zur Herausgabe
verpflichtet. (Anyone who receives a thing without legal ground through
a performance made by another or in some other way at that other's expense
incurs an obligation to that other to make restitution).' This wording
has led to a very strong differentiation between the Leistungskondiktion
claim in unjust enrichment where the enrichment is conferred on the defendant
by a performance by the claimant) and the Nichtleistungskondiktionen
in unjust enrichment where the enrichment arises at the expense of the
claimant in some way other than through a performance by the claimant).
Although the words 'at the expense of another (auf Kosten <eines
anderen>)' do expressly appear in relation to the latter and by implication
carry back to the former, the learning on the meaning of this phrase has
tended to be mediated through discussion of the nature of a Leistung
of other modes of enrichment. Thus where there is a Leistung
connection between claimant and defendant is automatically established,
and the phrase 'at the expense of' has no further role.12
It is a difficult question,
and one of great importance to the common law, whether rationality ultimately
requires this distinction between enrichment by performance and enrichment
in other modes. Suffice it to say here that, without any equivalent text
on which to hang it, English law has not so far found it necessary to draw
any such line. If and so long as it is not insisted upon, the discussion
of the essential link between the claimant and the defendant must focus
immediately on 'at the expense of'. It is certainly true, however, that
in that discussion a line similar but not identical to that between performance
and other modes may increasingly assert itself in English law, namely the
line between ordinary and interceptive subtractions.
I. Eliminating the 'Wrong' Sense of 'at the expense of'
An unjust enrichment is
an enrichment at the expense of another which has to be given up to that
other for a reason, that reason being neither a contract nor a wrong. Obligations
to give up a gain received can arise from a contract13
or from a wrong.14 Such obligations are
indeed restitutionary and belong in the law of restitution, but they do
not arise from unjust enrichment.15 This
is a study of unjust enrichment. It is not concerned with any other grounds
for restitution. One particular sense of 'at the expense of' blurs this
distinction. A preliminary task is therefore to ensure that it is not used.
If C pays D, the money is
received by D at C's expense in the sense that it comes from C. This is
simple illustration of the subtractive sense of the phrase or the 'from'
sense. A mistaken payment from C to D is sometimes described as 'a subtractive
enrichment' merely to emphasize that it falls within the 'from' sense of
the crucial phrase. However, 'at the expense of' can be used to mean that
the enrichment has been obtained by a wrong to the person wronged. C is
beaten up by D. D was paid £5000 by X to do it. Here D is enriched
at C's expense in the sense that he has obtained the money by doing a wrong
to C. This is the 'wrong' sense of 'at the expense of'. It is the 'wrong'
sense in that P relies on a wrong to connect him to D's enrichment. And
it is the wrong sense in that it cannot be admitted to the law of unjust
enrichment. Where a plaintiff identifies himself as the victim of a wrong
by invoking the phrase 'at the expense of' in this 'wrong' sense, he is
relying on the wrong and, albeit in the language of unjust enrichment,
asking the court to decide that the wrong is one which yields an entitlement
to a gain-based award. The law of unjust enrichment cannot answer that
question. A claimant who does rely on that sense, whether because the facts
allow him no other or because he chooses to analyse the facts in such a
way as to make that sense available to him, defines himself out the law
of unjust enrichment. His is talking about a wrongful enrichment and his
claim is made in the law of wrongs.
Where the facts amount to
a wrong, the law of unjust enrichment will have nothing to say unless the
wrongful enrichment is susceptible of alternative analysis as an unjust
enrichment. That is, the claimant may be able to dispense with the wrong
and present the facts as an unjust enrichment without placing any reliance
on them in their character as a wrong. Whether this can be done often or
rather rarely depends in large measure on the breadth of the interpretation
which the courts will give the subtractive sense of 'at the expense of'.
The subtractive sense is amenable to broader or narrower interpretation.
A very broad at interpretation will bring a large number of cases restitution
for wrongs within the range of alternative analysis as cases of unjust
Some scholars do not believe
that the common law ever gives gain-based awards for wrongs.16
That is, they think that restitution for wrongs is an illusion. Every case
which looks like restitution for a wrong as such is really a re-analysis
of the facts as an unjust enrichment. On this view it is never qua wrong
that the story yields restitution but only qua unjust enrichment.
There is no need to go so far. The law of wrongs is not confined to compensating
loss. Every jurisdiction which awards exemplary damages proves as much.17
For example, Edwards v Lee's Administrator,18
is perfectly satisfactorily analysed as an example of restitution - that
is, gain-based recovery - for trespass. The finder of a scenic cave made
a fortune through tourism. A third of the cave lay under his neighbour's
land. Deep down under the surface, doing no harm, every party of tourists
trespassed. The victim of the wrong, who had no access to the cave from
his land, was awarded one third of the profits.
The great case of Moses
v Macferlan itself is only explicable as a case of restitution for
the wrong of breach of contract.19 Every
other explanation leads to the conclusion that the court ignored and contradicted
a judgment which had not been quashed. Macferlan had promised Moses not
to sue him to enforce the endorser's liability on certain promissory notes.
Macferlan did sue. Moses paid up. Lord Mansfield did not doubt that Moses
could have brought an action for breach of contract (general assumpsit).
The only question was whether he could bring the restitutionary action
for money had and received instead. It was held that he could.20
Although it is impossible
and unnecessary to deny the existence of restitutionary awards for wrongs
it is none the less true that if a broad interpretation of 'at the expense
of' is adopted a great many of the cases which seem to exemplify restitution
of wrongful enrichment -- restitution for wrongs as such -- become susceptible
of alternative analysis as cases of unjust enrichment. Moreover, as we
shall see, the law does increasingly appear to be adopting a broad interpretation.
Having eliminated the wrong
sense of 'at the expense of', we are left with the 'subtractive' or 'from'
sense. A claimant in unjust enrichment must identify himself as the person
from whom the defendant was enriched. The case law on the interpretation
of this sense of the phrase provides the answer to the first of our two
II. The First Inquiry: Identifying the Immediate Enrichee
The central model is very
simple. It consists of a performance made by one person to another. For
example, C pays D by mistake. In practice nearly every case is like that.
However, to find the limits we have move out from that simple model, to
see what is minimally required. English law certainly agrees with German
law that there is no actual requirement of a performance. Those who take
and find are subjected to the same liability as those who are mistakenly
paid. If I drop my money in the street, the finder who pockets it has always
been exposed to the same action for money had and received as a mistaken
payee.21 Here there is a shift of wealth
from P to D in which P plays no active role. If there is a difference from
the German approach, it is, as we have already noticed, that no fuss whatever
is made, as it is German law, about the line between performance (Leistung)
and acquisition in other ways. It is possible to formulate a tentative
proposition which identifies the immediate enrichee and covers both Leistung
and Nichtleistung: the immediate enrichee is the first recipient
from the claimant. This notion of a first recipient seems at first sight
clear enough, but there are some complications.
(1) Corresponding Loss
Shorn of complications,
the question is whether there must be a plus and minus relationship, a
minus to the would-be claimant corresponding with the plus which is the
enrichment of the defendant. In ninety-nine out of a hundred cases there
will have been a correspondence of that kind. In Canada it is now constantly
said that a claim in unjust enrichment requires a corresponding impoverishment
on the part of the plaintiff. That seems to commit the law to the view
taken in some civilian jurisdictions that the arithmetic sense of subtraction
must be satisfied. There must be a minus to the plaintiff.22
German law takes the other view. German authors remind their readers that
this is enrichment law, not impoverishment law.23
Recent cases in Australia
in England have opted for the German position. The context of these holdings
to the effect that an impoverishment of the claimant is not required has
been the rejection of any defence of passing on. Defendants have tried
to resist claims by showing that a plaintiff in unjust enrichment who did
indeed suffer a loss corresponding to their enrichment, has since made
good that loss by passing the burden on to others. An ultra vires tax is
imposed on sellers of certain goods. Sellers then raise their prices. Can
they still recover? Statute apart, the answer in Australia was negative.24
Claims in unjust enrichment are not about recouping loss. So long as the
plaintiff can be identified, it is not necessary for him to prove impoverishment.
This was followed in England.
A bank engaged in an interest swap. It turned out that the swap was void.
The bank therefore had a prima facie right to restitution of the money
it had paid out. But it had hedged. It had made a back to back swap with
another counter-party, reversing out the risk. Overall it had lost nothing.
However, the Court of Appeal held that the defendant had no defence: it
could not rely on the claimant bank's hedge. The action was not about the
claimant's impoverishment but the defendant's unjust enrichment.25
The Court of Appeal has thus accepted that the reason there is no defence
of passing on is that corresponding loss is, as the German jurists hold,
beside the point.
These utterances are somewhat
weakened by their context. The defence of passing on could have been rejected
on a number of grounds. Nevertheless, they are strengthened by support
from a quite different quarter. Suppose that I use your bicycle while you
are on holiday. By the time you come back, I have returned it. Let it be
that there is be no perceptible wear and tear attributable to me. It is
clear that I must pay the value of my user. Yet you have suffered no loss.
I have taken three weeks' riding 'from' you, but I have inflicted no corresponding
impoverishment on you.26
There is another substantial
piece of evidence against the requirement of a corresponding impoverishment.
You have my money. You invest it and roll the investment over ten times.
You produce a five-fold increase. We will recur to this below. At this
point we need only note that it is hard to turn a blind eye to the fact
that if, as is the case, I can claim the yield of your successful investment,
my recovery will give me five times the amount of the value which I lost
at the beginning of the story.27 In short,
I recover without showing any corresponding loss.
(2) Externalities of Performance not Conclusive
This second complication
arises in some cases in which the claimant wishes to say that he conferred
the benefit in question on the defendant and where the physical externalities
might seem to support that contention. The externalities are not conclusive.
In particular, they are not conclusive where the would-be claimant in unjust
enrichment, C, confers the benefit on D under a contract made with X for
its conferment. This is a not uncommon configuration. A contractor building
on the land of D will, for example, often sub-contract aspects of the work.
The externalities will then suggest that a sub-contractor's carpentry is
a benefit conferred by the carpenter on the owner of the site and that
the owner might therefore be said to be enriched at the carpenter's expense.
However, at least in the common case in which the subcontracting carpenter
does indeed have a good contract with the head contractor, the owner is
only a remote recipient of that benefit; the immediate recipient is the
head contractor. It is for him that the carpenter has worked. In such circumstances
an action in unjust enrichment, if any there be, will lie to the head contractor,
for it is at that party's expense that the recipient owner has been directly,
or immediately, enriched. The carpenter could only reach the owner as a
remote recipient. And, as we shall see, on these facts he will not be allowed
to leapfrog the head contractor.28
Two situations need to be
considered. There is first the common case in which person in the position
of the sub-contractor, the would be claimant C, does indeed have a valid
contract with the person in the situation of the head contractor. Secondly
there is the rarer case in which that contract is merely putative: in eye
of the law there is no contract between C and X.
(a) D benefits from performance of a valid contract between C and X
Suppose a garage, C, does
work on a car which has been damaged in a crash. The car's owner, D, is
the ultimate beneficiary of the work. However, in almost all cases the
garage will be doing the work under a contract with an insurance company.
It has been held that if after the work is done and the customer has taken
the car back into his possession, the insurance company becomes insolvent,
the unpaid garage has no claim against the owner. The work is done for
the insurance company. The garage has to take the risk of the insolvency
of the insurance company with which it validly contracted. It cannot say
to the customer that the customer was directly enriched at its expense.
And it cannot leapfrog the insurance company.29
In Lloyds Bank Plc v
Independent Insurance Co Ltd30 the
bank paid its customer's creditor a large sum with its customer's authority
but by reason of a grave mistake as to the funds available to the customer.
The case reaffirms that a bank, C, cannot recover from the payee, D, in
those circumstances, despite its indubitably causative mistake. The dominant
reason given by the Court of Appeal is that on these facts the bank gets
what it paid for. It gets good consideration in the form of the discharge
of a debt owed to D by the bank's customer, X.
That cannot be the right
reason. On the one hand it is very doubtful that the receipt of good consideration
is really a bar to such a claim and, on the other, it is inconceivable
that the result would have been any different if the payee had been a donee.
A father, for instance, will often enough ask his bank to send money to
his son. Suppose that he sets up a standing order for £500 per month.
If the bank inadvertently allows the father's account to slide into overdraft,
it cannot look to the son for repayment, even though the son be a mere
donee. The true reason is that in these circumstances the payment is not
the bank's payment. It is the customer's payment, and the immediate enrichee
is the customer. Where the customer has insufficient funds, the authority
to pay is simultaneously a request to lend. In most cases it might indeed
be said that the payee gives good consideration to the customer, in the
form of the discharge of the customer's debt. But that is superfluous.
A bank which pays to the order of a customer is paying the customer who
is paying the payee.31 If the customer
is out of funds the payment is a loan to the customer. The payment is not
received immediately at the expense of the bank.32
The payee is at most a remote recipient at its expense.
These cases show that if
C makes a valid contract with X, and C's performance of that contract enures
to the benefit of D, C cannot say that D has been immediately enriched
at his expense. It is X who has been enriched at C's expense, while D has
received his benefit from X. Later we will have to revisit this configuration
of facts. We will see below that there is a doctrine which allows leapfrogging:
where a first recipient is unjustly enriched at another's expense and a
second recipient is then enriched because of the first enrichment, it is
possible, under certain restrictions, to leapfrog the first recipient and
attack the second recipient instead. When we have introduced that doctrine
we will need to say exactly why it does not apply to this kind of case.
These defendants can be attacked neither as first recipients nor, through
the first recipient, as remote recipients.33
(b) D benefits from a putative contact between C and X
The law as considered so
far turns on the validity of the transaction between C and X: D appears
to be enriched immediately from C but is actually enriched from X. In English
law the picture changes dramatically in the case in which C thinks he has
a contract with X but in truth has none. If C is a bank which mistakenly
pays a stopped cheque, the payee D receives directly at the bank's expense.
The mistake then provides the unjust factor, and C can therefore recover
from D. That is Barclays Bank Ltd v WJ Simms & Son Ltd.34
In such a case the bank intends to pay on the credit of its customer, just
as in the case discussed above, but the putative contract with the customer
cannot turn the payment into the customer's payment. Again, in the very
common but more complex O'Brien situation,35
in which C, being in a domestic or confidential relationship with X, gives
security to D for X's business indebtedness, there is either no contract
all between C and X or the contract to provide security will be voidable
for undue influence or misrepresentation. For that reason, if for no other,
it cannot be said that the security is obtained by D from X. Hence here
D's security is taken directly at P's expense.
In German law, and indeed
in American law,36 different results
are reached. The German law agrees with the English law on the common case
discussed above,37 but it treats the
putative case in exactly the same way: it would deny Barclays any claim
in unjust enrichment against Simms. The position which it takes derives
from its commitment to assessing the matter from the standpoint of a reasonable
person in the shoes of D, the defendant recipient of the enrichment. If
it would appear to such a person that the Leistung (performance)
was in substance made by X, C can have no claim in unjust enrichment.38
In one case hot water tanks and kitchen equipment were supplied to a building
site by a supplier, C, which believed its contract was with the site-owner,
when in fact the order had been placed by the head contractor, X. That
equipment was then installed in the new building. The supplier had no claim
no claim in unjust enrichment against the site-owner, D. A reasonable person
in D's position would have regarded the performance - the supply of equipment
- as procured by X through a contract with C. The result would have been
different if it could have been shown that D knew that C had no such contract
and a person with that knowledge would have known that the Leistung
was C's own.39
Again, in a case substantially
identical to Barclays Bank Ltd v WJ Simms & Son Ltd,40
the claimant bank, C, had neglected a stop put on a standing order in respect
of rent due from its customer, X, to the defendants, D.41X
was a brewery in dispute with D, the landlords of one of its taverns. It
had indicated to the landlords that it would stop its payments of rent
and it had told its bank not to pay. The bank went on paying for many months.
The tenant brewery failed to notice. The bank had no right to restitution
from the landlords. Even taking the notice issued by the tenants into account,
a reasonable person in the position of the landlords would have thought
that the performance was that of the tenants. It therefore had to be treated
as their performance, not the bank's.
It is extremely difficult
for an English lawyer, no doubt because of a series of different presuppositions,
to come to terms with the notion that in this context the honest and reasonable
belief of the recipient should be decisive. In a simple two-party case
such as Kelly v Solari,42 where
a widow had to make restitution when it turned out that her husband had
after all not been insured, the innocence of the recipient is irrelevant
until the receipt has generated some change of position. It then becomes
relevant, since recipients in bad faith are disqualified from pleading
that defence. However, if we were to apply the German or American approach
to Barclays Bank Ltd v WJ Simms & Son Ltd we would have to deny
the bank's claim unless the builders knew that it had no mandate to pay.
It is not clear how or why, in this context, liability might be confined
to the knowing recipient. American law, but not German, appears to dress
the matter up in terms of a defence and the limits placed upon it. There
is said to be a defence of 'discharge for value',43
but that 'defence' does no more than restate the proposition that a claimant
in this Barclays situation cannot recover from the defendant payee.
In short the defence still needs to be explained. It is not an example
of, or even a cousin of, bona fide purchase from a third party. There is
no acquisition from a third party in such a case. The only possible third
party, X, has either never dealt with or has cancelled its dealing with
the would be claimant, C.
(3) Interceptive Subtraction
The idea of interception
appears to have a role, at least in Canada, in determining the response
to wrongful enrichment. It is important not to be distracted by that.44
Our question is whether in the law of unjust enrichment it is possible
to say that value has been obtained from another when the asset in question
had never been reduced into that other's ownership or possession. The answer
is yes, but it is complicated by the fact that the law often ensures that
the property passes before the interception actually happens. The subtraction
then ceases to be interceptive.
Suppose that, intending
a loan to C, I throw down a bundle of notes from an upper window, expecting
C to catch them. D physically intercepts them, jumping up before C can
get them. The property at law will not have passed to C, since C never
took possession. But equity raises a perfectionary beneficial interest
in C at the moment at which I have done all that lies in me to do to transfer
the legal title.45 The physical interception
comes a second or two later, C already has a proprietary interest in the
notes, and the subtraction from him is not interceptive. Again, suppose
that I give D £100 to give to C. We might say that that money is
now on its way to C. However, if D absconds with it, the question whether
D is enriched at my expense or, interceptively, from C admits of no natural
answer. The law therefore adopts an inevitably artificial criterion. The
claim stays with me until you have attorned to C, which means until you
have informed him that you are holding for him. Thereafter, the claim against
you goes round to him. But your attornment passes the property in the £100
to C, with the result that when you pocket the money the subtraction is
no longer interceptive. You are taking what is already his.
The problem is not always
short-circuited in this way. In Shamia v Joory 46
there was no identified fund, so that no property could pass. The defendant
owed money to a third party, was told to pay the claimant, and attorned.
The plaintiff, though not owner, was able to claim the sum. It is sometimes
said that the case was wrongly decided for the very reason that no property
could pass. But it is defensible as an instance of interceptive subtraction.
The attornment, though it could not pass the property in any specific thing,
nevertheless served as an indication that the sum in question had been
finally destined to go to the plaintiff. Accordingly, in withholding it
the defendant had enriched himself by subtraction from the plaintiff.
There are quite a few cases
of this kind, where money destined to C is intercepted by D. One large
group has become obsolete. If D usurped an office which ought to have been
occupied by P and received money due to the office-holder, C could bring
money had and received against D.47 Similarly,
and not obsolete, a self-appointed executor or administrator who receives
what was due to the estate is liable to make restitution to the incoming
rightful personal representative.48 Similarly,
if D receives rent which was due to C, he will have to account to C.49
Of the same kind but rather more difficult are the cases, which are discussed
by Dr Chambers, of land intended to be conveyed to C being mistakenly conveyed
to D. In such a case P has been allowed to claim against D.50
Dr Smith has argued that
it is a condition for the recognition of an interceptive subtraction that
the plaintiff must have lost his right to sue the person who paid the interceptor.51
Accordingly, if an executor pays the wrong people, those who ought to have
been paid cannot be said to have suffered an interceptive subtraction,
because they are no less entitled to be paid by the executors after the
misdirection than they were before. In Ministry of Health v Simpson52
the executors of Caleb Diplock had paid to charities sums which ought to
have gone to the next of kin. The next of kin recovered directly from the
charities. Dr Smith's view is that this could not be justified in terms
of interceptive subtraction, unless by understanding the Court to have
complied with the requirement that the next of kin's continuing claim against
the executors be discharged by insisting on prior exhaustion of all possible
remedies against them. Dr Smith's argument is powerful. However, it might
be said to overlook the regularity with which the law allows an election
between inconsistent rights.
It was inexcusable to leave
the Diplock executors bearing the loss. Even now when restitution
for mistake of law has finally become possible, it would be pointlessly
wasteful to insist on two actions rather than one. The next of kin's action
against the mistakenly paid charities should have been allowed, without
a requirement of exhaustion of remedies against the executors, on the basis
of interceptive subtraction: the charities had taken money which was destined
to the next of kin. That analysis is factually attractive, even if it is
inconsistent with the view that the plaintiffs had an undiminished right
against the executors. It makes good sense to give the next of kin an election.
We will discuss yet another explanation immediately below.
With the possible exception
of the Diplock saga, all the cases of interceptive subtraction which
we have discussed are cases in which there is no doubt that the plaintiff
has suffered a loss by virtue of the interception. The only question is
whether it is possible for the plaintiff to connect that loss with the
defendant's gain without relying on the 'wrong' sense of 'at the expense
of'. In other words, can we say that the gain which caused the loss came
'from' the plaintiff rather than 'by doing the plaintiff wrong'? We have
already noticed that the courts seem to be inclining to the German view
that a loss is not necessary. If we take that seriously, the scope of interceptive
subtraction enlarges quite considerably, and we can also explain something
that was formerly inexplicable. The next task is therefore to contemplate
interceptive subtraction freed from a requirement of loss.
It seems to be perfectly
clear that if D invests C's money and doubles it, C is entitled to the
doubled proceeds. This is the case we encountered above.53
D invests £10k and gets £20k. That £20k was not C's before
D received it, but C can trace from the £10k to the £20k, and
C can claim the £20k. There is no need to spend time here on the
exact nature of the entitlement, in rem or in personam or
both. C has suffered no 'corresponding loss'. The outcome does not depend
on the commission of a wrong. There is no doubt about any of these propositions.
They underlie the operation of the presumption which produces the trust
which operates when one party buys an asset with resources provided by
another. And they have recently been seen in action in a case which was
decided entirely at law, namely FC Jones (Trustee in Bankruptcy) v Jones.54
Only very contrived arguments
can conclude that C's suffered a loss of $20k. The loss was $10k, plus
the value of money over time. Further, there is no avoiding the necessity
of accepting that the £20k earned from C's £10k cannot be said
to be obtained from C unless we accept the notion of an interceptive
subtraction. That money came to D when D sold out the investment. It was
never in C's ownership or possession. The only way to explain these results
is (a) to accept that loss is not necessary, and (b) to say that C's ownership
of the £10k carries with it the wealth-creating opportunities inherent
in that £10k, so that when the potential is realized all that is
actually earned through the £10k is regarded as having been destined
to C all along. The earning opportunity is C's. Anyone who takes the opportunity
intercepts what is already attributed in law to C.
This step requires us to
revisit the Kentucky Cave case.55
That case is a paradigm of restitution in the law of wrongs: restitution
for the wrong as such. it could easily be re-analysed in unjust enrichment
if what was at issue were the value of the user itself. Far below the ground
the taking of that user caused no loss, but it was nonetheless taken from
Mr Lee in the simple sense: it was user of land that was his.56
The question now is whether an unjust enrichment analysis can reach even
the money paid by the tourists. The answer must be that it can. If investment
of the whole value of another's asset - selling it - can later give that
other the traceable substitute, exactly the same must apply to the investment
of the user of another's asset - hiring it out. Mr Edwards exploited the
user of Mr Lee's land and turned it into money. If the right of ownership
attributes the earning opportunities of an asset to its owner, the same
must be true of the earning opportunities inherent in the user of the land.
Hence, it must be true that Mr Lee could have secured his award without
relying on the facts in their character as a trespass but analysing them
instead as an unjust enrichment at his expense in the subtractive sense.
The law attributes the earning opportunities inherent in a thing to that
thing's owner, and their realization by a non-owner is an interception
of money destined for the owner. There is no need for the connection between
such a claimant and such an enrichment to be established by reliance on
The logic seems irresistible:
if without relying on wrongdoing one can have the proceeds of the sale
and the assets thereby obtained, one must be similarly entitled to the
gains made by hiring it out. Whether the law has really come so far is
open to debate. It has travelled blind and may not care for the destination.
It may turn back. Strong renewed insistence on 'corresponding impoverishment'
would immediately narrow the law of unjust enrichment. However, the Jones
case will be an obstacle to any turning back. It seems to show that the
English law is committed to the broad notion of 'at the expense of' which
includes the relatively weak form of interceptive subtraction which has
just been outlined.
German law gives rather
uncertain guidance in this matter. Some preliminary propositions are secure.
First, since German law gives no gain-based awards for wrongs as such,57
the species of restitution seen in the Kentucky Cave case has to
be explained within the law of unjust enrichment or not at all. It is not
a question of alternative analyses, one in the law of wrongs and one in
the law of unjust enrichment. Secondly, among the Nichtleistungskondiktionen
(claims arising other than from a performance by the claimant) the Eingriffskondiktion
claim arising from an encroachment on or intrusion into the rights of another)
would be appropriate in principle for this case.58
The idea that some rights to, and some do not, attribute wealth to the
holder of the right is familiar German jurists under the label "Zuweisungstheorie"
or "Zuweisungsgehalt eines Rechts" - the doctrine of allocation,
or the allocation-potential of a right.59
It is used to discriminate between gainful encroachments upon rights which
do, and which do not, give rise to a claim in unjust enrichment. On the
other hand, it seems that majority opinion among German jurists does not
take the attribution doctrine to the point of attributing to the owner
the earning opportunities inherent in the thing owned. In the Kentucky
Cave case the German law of unjust enrichment would apparently give
only reasonable rental, not the profits actually made, a view which seems
to belong to a strictly subtractive interpretation.60
It is no doubt only an outsider's
want of understanding that suggests that this is not a logical sticking-point
in a system which insists that enrichment law is not impoverishment law.
And it is all the more illogical in the light the acceptance of the principle
that the defendant must surrender that which he obtains in substitution
for the plaintiff's thing: Para 816 (1) I says, 'If a person who is not
entitled makes a disposition of a thing, and that disposition binds the
person entitled, he comes under a duty to make restitution that person
of that which he received by virtue of the disposition.' That does not
go to the lengths of the Jones case but it does make it difficult
to account for reluctance to do the same in the case which we are compendiously
calling 'hire', where a person not entitled makes an irredeemable disposition
of time and user. Logical or not, the German position may possibly offer
some comfort to those reluctant to admit that facts of the Kentucky
Cave kind do admit of dual analysis, not only as a wrongful enrichment,
but also as an unjust enrichment at the expense of the plaintiff and, in
particular, that the profits received from the tourists can be analysed
as interceptively subtracted from the plaintiff landowner.
The immediate enrichee is
in general easily identified as the person who was the first recipient
from the claimant. That first recipient may have received by virtue of
a performance by the claimant or without any performance as where he was
a finder or taker. The word 'from' generally does, but need not, connote
a corresponding loss to the claimant. The subtraction need not be arithmetic.
There are two cases in which the reasonable observer might be deceived.
First, where the would-be claimant confers the benefit on D under a contract
with a third party, that benefit is received by D immediately at the expense
of the third party, so that, if D can be attacked at all, it must be as
one who received through the immediate enrichee. Secondly, a benefit which
D receives directionally from a third party may nevertheless be immediately
received at the expense of C if D can be said to have intercepted it on
its way to C. In particular the law takes the view that earning opportunities
inherent in assets are attributed to the owner of the asset, so that earnings
from the asset are interceptively subtracted from its owner.
This first inquiry into
'at the expense of' has allowed us to identify the necessary connection
between the plaintiff and the defendant and, more particularly, to say
who counts as the immediate enrichee. If there were a strict requirement
of 'directness' or 'privity', we would have identified the only possible
defendant in an action to recover unjust enrichment.
III. The Second Inquiry: Leapfrogging the Immediate Enrichee
It will often happen that
the first recipient passes the enrichment on to a second recipient. He
may do this specifically, by handing over the very res received,
or he may do it abstractly, by handing over some other res in reliance
on his receipt. The second inquiry is directed to discovering whether a
claimant can leapfrog the first recipient and sue the second recipient,
and so on down the chain of remoter recipients thereafter? It is a very
important question, because the first recipient may be immune from suit
or not worth suing, and the remote recipient may have the longer purse.
The draftsmen of the BGB
were alive to the dangers of allowing leapfrogging claims. They feared
that third parties would be drawn into liabilities engendered by transactions
with which they had nothing to do. Precisely because they saw it as an
instrument to that end, they expressly rejected the actio de in rem
verso (the claim arising from wealth turned to the advantage of the
defendant) which had been developed by civilian scholars from very slight
Roman beginnings. The early years of the BGB then reinforced the requirement
To some extent the responsibility
for these fears may lie with the French Cour de Cassation in its notorious
in 1892.62 The claimant there supplied
manure to a tenant farmer. Before the next crop was harvested the tenant
fell into financial problems and lost his lease. The claimant, not having
been paid by the tenant to whom he had sold the manure, successfully leapfrogged
the tenant and recovered from the landlord, the advantage having accrued
to him. This application of the actio de in rem verso was crucial
in supplementing the exiguous provisions of the French code civil in
relation to unjust enrichment. However, it is not the first or last leading
case to be roundly condemned on the facts. It exemplifies one kind of leapfrogging
which cannot be allowed.63 Provided such
specific restrictions are maintained, the dangers of allowing leapfrogging
claims are rather less than has often been supposed.
We must start by putting
agency on one side. Agency causes many very difficult problems in the law
of unjust enrichment, but agents can for the purpose of this particular
discussion be identified with their principals. If P makes a mistaken payment
to D's agent, and then sues D for restitution, that is not a case of leapfrogging.
Agency aside, there are
two arguments which make a prima facie case for reaching a second or more
remote recipient. One is based on property and the other on causation.
The proprietary argument says to the remote recipient, "You received my
property!' And the causation argument says, "You would not have received
your enrichment from X but for X's having been enriched from me!" Neither
stands any chance of success against a second or more remote recipient
who is in a position to plead the defence of bona fide purchase for value
without notice or who took through such a person. A defendant who cannot
use that defence may be able to fall back on change of position. This is
not the place to investigate the range of those defences, but it is important
to notice that, because of them, these leapfrogging arguments do not threaten
any general disruption. If and so far as these arguments can succeed, they
will generally prevail only against remote recipients who are either not
innocent or are mere donees who have not changed their position. Thus only
a rather narrow band of remote recipients is vulnerable.
(2) The Proprietary Argument
There is no doubt that a
proprietary connection does support leapfrogging of a kind. In Lipkin
Gorman v Karpnale Ltd65 a
partner in a firm of solicitors who was addicted to gambling fed his addiction
from the firm's client account. He gambled the money away at the defendant's
casino. There was no point in suing the gambler. He was penniless and in
prison. The firm leaped over him and succeeded in recovering from the casino.
Although, as we shall see, the facts were more complex, the model from
which the House of Lords worked was this. If X steals C's money or finds
it and then gives it gratuitously to D, D becomes indebted to C in the
sum that he receives. D has received C's money, albeit from a third party.
In the Lipkin Gorman
the casino was treated as a donee, because the gambling contracts of a
licensed casino are all void, though not illegal. The payments made by
the gambler were received innocently, but not for value. Had the gambler
been addicted to champagne and caviar at the Ritz, the Ritz would have
been perfectly safe, having given value bona fide within valid contracts.
As an innocent donee, the casino, a second recipient, was allowed to plead
change of position. Its liability was thereby somewhat reduced.
(a) What interests suffice?
Ownership clearly suffices
to make the connection between plaintiff and defendant. However, it is
clear that lesser interests are also sufficient. There is no doubt that
a power to rescind and revest suffices, for such a power can indubitably
be exercised against third parties who are not bona fide purchasers. If
C transfers a res to X under undue influence or misrepresentation,
and X makes a gift of it to D, C can exercise the power in respect of the
in D's hands.66 There are some indications
that even an unexercised power will suffice. In El Ajou v Dollar Land
Holdings Plc67the plaintiff was the
victim of fraud with a power to rescind. It is tolerably clear that Millett
J regarded that power as sufficient in itself to make the proprietary connection,
even though it had not been exercised against any specific property. In
the Lipkin Gorman case itself, which was ultimately contested only
at law, close analysis shows that the general property in the money was
in the gambler, not in the firm, and that the most that could be said was
that the plaintiff firm held a power to revest in itself the money which
went to the Casino. And the power was never exercised.68
If these indications are correct, weak or inchoate interests can satisfy
the requirement of a proprietary connection.
It is an inference from
v Barclays Bank69 that the House
of Lords thinks that the power held by a person who has parted with an
asset voidably is not a proprietary right of any kind: 'In such a case
the defrauded owner retains no proprietary interest in the chattel, and
it is therefore not for the purchaser to establish a defence which would
defeat it.'70 Lord Hoffmann, with whom
the whole House agreed, appeared to imply that the fact that the power
is good against third party holders of the res is not because it
is a right
in rem good against any recipient other than a bona fide
purchaser for value but for some other reason, as for instance because
of misbehaviour proved against the third party, although a volunteer cannot
be brought within that notion simply because he gave no value. However,
this is highly contentious and was not necessary for the decision. Clearly,
if Lord Hoffmann's view were accepted, it would not be possible to place
this power among proprietary interests which create a sufficient connection
between a plaintiff in unjust enrichment and a remote recipient.
Equally problematic is Ministry
of Health v Simpson.71 We have already
seen that the next of kin successfully brought a restitutionary action
against charities who ought never to have received any Diplock money. The
charities had received from a third hand. We explained this case as an
interceptive subtraction: the money was destined as a matter of law to
go to the next of kin, the charities, through no fault of their own, came
between the executors and the next of kin. We noted, without accepting,
Dr Smith's objection that the executors remained as liable to pay the next
of kin after the event as before it. Another explanation is based on the
proprietary connection between the next of kin and the charities: the charities
received money in which the next of kin held a proprietary interest.
Against this Dr Smith has
pointed out that, unlike the beneficiaries under a trust, legatees have
no proprietary interest in the estate but only a personal entitlement against
the executors to have the estate administered according to the terms of
the will.72 However, it is not clear
that the courts took that point. One indicator that they did not is that
they upheld not only the personal claims of the next of kin but also their
proprietary claims. It is not obvious that the next of kin could have rights
the assets received by the legatees if they were not thought to have some
proprietary right in the estate itself. It remains to be seen whether this
puzzle can be solved. It may be that rightful legatees do after all have
an inchoate but sufficient property in the estate itself, in that they
can protect the integrity of the estate and control misdirections of the
assets by injunction.
(b) Is this genuine leapfrogging?
Supposing that there is
a sufficient proprietary connection, is the leapfrogging apparent or real?
Even those who believe strongly in a requirement of privity or directness
are content to accept that the long reach of the proprietary argument.73
Underlying this consensus is the fact that, like agency, this is not a
genuine example of leapfrogging. A remote recipient of another's money
is as direct a recipient from that other as the first recipient. Thus,
if I find your wallet it makes no difference whether I am the first recipient
or the second or the twenty-second. Suppose a pickpocket took it and, in
alarm, threw it down, and then I found it. My position in that case would
be the same as in the case in which your wallet fell from your pocket into
the road without your noticing its loss. The mechanism does not matter:
a receipt of your money is a receipt directly from you. Similarly, if I
use your bicycle for a month, it does not matter whether you were or were
not in possession immediately before me. My user is taken from you, because
the bicycle is yours. The model from which their Lordships worked in Lipkin
Gorman cannot be used to support the proposition that true leapfrogging
is permissible. The property argument looks as though it supports leapfrogging
the first direct recipient but it actually only establishes what might
be called sequential directness.
These conclusions can be
confirmed from German law, where benefits acquired by the use or consumption
of property belonging to another provide the central case for the Eingriffskondiktion,
the claim in respect of enrichment obtained by encroachment on the
rights of another. This claim is likewise indifferent to the number of
hands between claimant and defendant. In one case cattle were stolen from
their owner. They were later sold to the defendant. No exception to nemo
dat operated. The cattle remained the property of the claimant until
the buyer slaughtered and processed them, at which point, by specificatio,
he became the owner of the resulting manufactured products. The owner was
allowed to leapfrog the thief and recover their value from the innocent
buyer. For the reasons just given, this was a factual leapfrog but in the
eye of the law the buyer was immediately enriched from the owner, by his
upon the latter's property rights.74
Again, on facts essentially identical to those of Lipkin Gorman v Karpnale
Ltd, the Federal Court held that a casino which had bona fide received
money which had been misappropriated from the claimants was bound to make
restitution to the claimants. In that case the facts were such that the
casino did acquire title to the claimants' money but, because it could
not be regarded as having given value for the money and therefore had to
be regarded as having received gratuitous, it was bound to make restitution.75
(3) The Causation Argument
The causation argument,
if it works, does support genuine leapfrogging. There is genuine leapfrogging
when the plaintiff can make out his case in unjust enrichment against a
first recipient but wants to leap over that first recipient to attack a
second or subsequent recipient. The causal argument cuts in at that point:
but for the unjust enrichment of the first recipient, the second would
not have received. Professor Tettenborn puts this case:
"C inadvertently overpays
his creditor A by £1000; A, pleasantly surprised on reading his next
bank statement but entirely unsuspicious..., proceeds to give £1000
from his other account to his son B. ... A can almost certainly plead change
of position as a defence. Hence the potential significance of a direct
claim by C against B; can C say(in effect): 'I have paid money by mistake;
but for this B would not have been enriched; therefore B has been unjustifiably
enriched at my expense and ought to refund'?"76
His answer is no. In German
law it is certainly yes, at least in this very case, which is provided
for in second sentence of paragraph 816(1) BGB. It would be somewhat shocking
if the answer were not yes in English law too and, with great respect to
Professor Tettenborn, I think it is yes.
The validity of the proposition
that a second or subsequent recipient can be reached on the basis of the
causal argument rests partly on the real state of things in Lipkin Gorman
v Karpnale Ltd, which differed from the model on which their Lordships
relied. We have noticed that the House of Lords tried to bring the facts
within the model of a proprietary connection between the firm and the casino.
A proprietary connection satisfies and does not infringe the requirement
of directness. However, the real situation in that case was quite different.
(a) The true situation in Lipkin Gorman v Karpnale Ltd
The money which the gambling
solicitor gave to the casino was his own, not the firm's. He was an authorized
signatory to draw on the client account and it was expressly decided that
the money which he drew out became his. The property had passed to him.
The firm was indeed contemplated as having a power to revest it, and such
a power may, as we have seen, suffice to create a proprietary connection.
However, unless the title in the gambler was from the beginning voidable,
which was not said but may have been assumed, it is difficult to explain
how they acquired that power
Traceability does not in
itself confer rights.77 Suppose I give
you a gold coin which you sell for £500, with which you buy a painting.
Through these substitutions I can trace the value of the gold coin into
the painting. But if, at the moment you received the gold coin, I had no
proprietary interest in it whatever, the successful tracing exercise will
give me no rights in the painting. Let it be that I gave you the coin for
your birthday. I can trace to satisfy my curiosity, but successful tracing
will give me no rights. It would be utterly absurd to assert that the mere
fact of substitution could create property rights in the substitute greater
than and unrelated to property rights in the original. So here, to explain
the firm's power to revest the money which traceably went into the coffers
of the casino, we have to know that it had a proprietary interest in the
money at the moment at which the gambler received it. And that is not said.
It may therefore be that
this case will ultimately be seen as explicable only on the basis that
it is possible to reach a secondary recipient on a purely causal basis:
the casino would not have received the money but for the enrichment by
subtraction from the firm of the primary recipient, the gambling solicitor.
(b) Supporting case law
A reinterpretation of one
major case would not suffice if the causal argument were not rooted in
other decisions too. It has a good root, though somewhat overgrown with
weeds. There is a group of cases, lucidly explained by Dr Charles Mitchell,
in which mistaken payments have been recovered from subsequent recipients
on proof that the enrichment did come through to them. Where these cases
are difficult, it is usually not because the doctrine is itself suspect
but because of doubts as to whether the second recipient has indeed been
enriched. The particular problem is generally the question whether money
employed by the first recipient to discharge the obligations of the second
recipient has indeed effected a legal discharge, for without that discharge
it cannot be said that the money has been, in the Latin phrase, in rem
versum, turned to his advantage. A more general difficulty has been
the want of understanding of the law of unjust enrichment. As Dr Mitchell
shows, some cases have taken wrong turnings, for want of any map.
In Bannatyne v D&C
MacIver the London agents of the defendant firm borrowed money for
them without authority. The plaintiff lenders mistakenly believed that
they did have authority. The Court of Appeal upheld the claim against the
firm to the extent that the money had been turned to their advantage. Romer
"Where money is borrowed
on behalf of a principal by an agent, the lender believing that the agent
has authority, though it turns out that his act has not been authorised,
or ratified, or adopted by the principal, then, although the principal,
cannot be sued at law, yet in equity, to the extent to which the money
borrowed has in fact been applied in paying legal debts and obligations
of the principal, the lender is entitled to stand in the same position
as if the money had originallly been borrowed by the principal."79
This is the same doctrine
as underlies B Liggett (Liverpool) Ltd v Barclays Bank Ltd,80
a decision of Wright J which was interpreted by the Court of Appeal in
Cleadon Trust Ltd.81 In that case
a bank had laid out money believing that it had the authority of a company
which was its customer, when in fact it had only the authority of one director
of the company. It was allowed to debit the company's account. The explanation
of the case, in the reinterpreted version later offered by the majority
of the Court of Appeal, was that the money must be regarded as a mistaken
advance to that one director applied by him to the discharge of the company's
debts, which were indeed discharged because, though the director had no
authority to draw on the company's account, yet he did have authority to
discharge the company's debts.82
Butler v Rice,83
though in some respects confusing, is factually more straightforward. Butler,
who had been misled by Mr Rice, mistakenly thought that Mr Rice owned a
a house subject to a charge and made a loan to him thinking he was lending
to discharge a that charge. Mr Rice had no such interest and in fact used
the money to discharge a mortgage on property belonging to his wife. Mrs
Rice, who had not known of her husband's doings, regarded herself as entitled
to a windfall, leaving Butler to his remedy against her husband. But Warrington
J held that Butler was entitled to be subrogated to the claim and security
which had been paid off. In other words Mrs Rice, as second recipient,
had to surrender the enrichment which she would not have received but for
the unjust enrichment of the first recipient.
In Agip (Africa) Ltd
v Jackson84 the plaintiff company's
account with a bank in Tunisia was debited with large sums on the basis
of forged payment warrants. The defendants were accountants who were ultimately
made liable for the wrong of assisting the fraud. Another claim against
the remote recipients as recipients rather than wrongdoers ultimately fell
foul of a defence, but it was held in principle to lie. It is difficult
to see why Agip was allowed to maintain this restitutionary claim.85
The bank would appear to have lost its own money. However, if we treat
the bank as having enriched itself without Agip's consent by insisting
on debiting Agip's account, the rest follows: because of that enrichment
of the first recipient, Agip was able to go after those who, but for that
receipt, would not themselves have been enriched. Just possibly Ministry
of Health v Simpson (Re Diplock in the courts below)86
might also be explained in this way.
Bearing in mind the operation
of defences, one should not jump to the conclusion that the causal argument
needs to be heavily restricted. However, the largely illusory requirement
of 'privity' inevitably encourages a suspicious or at best restrictive
attitude to it. Professor Tettenborn's example from which this discussion
began turned on a situation in which the claimant's rights against the
first recipient had been extinguished as a matter of law, for to the extent
that the immediate enrichee had in turn enriched the remoter payee he himself
had an indubitable defence of change of position. Identical in this respect
is the case covered in the German code.87
A requirement of extinction of the immediate enrichee's liability would
be extreme. A milder requirement would be that remedies against the first
recipient must have been exhausted. In Agip (Africa) Ltd v Jackson it
appears that Agip had tried and failed to get its bank to reinstate its
It is impossible at the
moment to say whether some such restrictive precondition will be insisted
upon. A different and very severe precondition would be traceability. This
can be ruled out, except in an evidential role. Successful tracing can
certainly sometimes support the difficult factual finding that the remoter
recipient would not have received but for the earlier receipt by the first
recipient. The fact that the gambler traceably gave the casino the money
which he obtained from the firm can be seen as helping to show that there
was no other way that he could have indulged his habit.89
However, traceability cannot be a necessary precondition of leapfrogging
on the basis of the causation argument. Professor Tettenborn's example
is carefully constructed to exclude it. The father's gift to his son came
from a separate account; the money that went to the son was definitely
not traceably the money which the father mistakenly received.
(d) Where leapfrogging is not allowed, and why
It is necessary at the end
to revisit the cases which we looked at earlier where C validly contracts
with X to confer a benefit on D.90 For
example, C, a bank, contracts with its customer to lend the customer money
and to send that money to D; or C, a garage, agrees with an insurance company
to repair a D's car at the insurance company's expense. We saw that in
those cases C cannot leapfrog its contractual counter-party in order to
bring a claim in unjust enrichment against D. The valid contract between
C and X makes the crucial difference.
It will be observed that
in these cases C has a cause of action against the contractual counterparty
X not only on contract but also in unjust enrichment. The reason why C
wants to leapfrog X is precisely that he has suffered a repudiatory breach
and a failure of consideration. It might at first be supposed that C must
therefore be within the doctrine which allows him to show that the remote
D would not have received but for the unjust enrichment of the immediate
enrichee. The doctrine says that one who has a cause of action in unjust
enrichment against first recipient is, subject to unsettled restrictions
as to exhaustion of remedies against that first recipient, entitled to
proceed in unjust enrichment against such subsequent recipients as (a)
would not have received but for the enrichment and (b) are not protected
by the defences of bona fide purchasers or change of position.
However, there is no question
of allowing C to leapfrog his contractual counterparty. C, having dealt
validly with X, has to take the risk of X's bad behaviour or insolvency.
Our earlier point was that C cannot say that D is a direct or first recipient
because in these cases it is not at C's immediate expense that D receives.
C is the means chosen by X, and D receives immediately at the expense of
X. At this point we are concerned with the different question whether D
can nonetheless be attacked as a subsequent recipient. He cannot. D is,
remotely, enriched at C's expense, but he cannot on these facts be reached
The policy reason still
stands in the background: C must accept the risks of dealing with his chosen
contractual counter-party. The insolvency regime would be subverted if
C could find ways of leapfrogging an insolvent X. However, it might also
be argued that C is anyhow not strictly within the causal doctrine which
reaches remote recipients. That argument requires that the second or subsequent
recipient would not have been enriched but for the unjust enrichment of
the first recipient. In these cases that causal requirement might be said
not to be satisfied. For here D, as second or remoter recipient, would
have received anyway. The contract between C and X envisaged a benefit
conferred on D. It is only by reason of a later breakdown in the relationship
between C and X that D appears ex post in the guise of a subsequent
recipient of an unjust enrichment. If this is right, there is no second
avenue of attack. D is not a first recipient, and he is not a second recipient
either. That is, he is not a person who would not have been enriched but
for the unjust enrichment of the first recipient.
Professor Watts says that
the best explanation of the denial of the leapfrogging claim against D
in these cases is that, vis-à-vis D, C can point to no unjust factor.
In performing the contract with X he voluntarily - neither mistakenly nor
conditionally - confers the benefit on D.91
Although that is true, it misses the point of the causation argument. The
causation argument does not require the claimant to establish an unjust
factor in relation to the remote recipient. It merely asserts that, subject
to bona fide purchase and change of position, an unjust enrichment in the
immediate recipient is an unjust enrichment in one who received through
the immediate recipient and because of his receipt. That being the ground
rule allowing recovery from the remote recipient, one needs a different
kind of reason to explain why a claimant sometimes cannot rely on it. He
cannot rely on it to leapfrog an initially valid contract. Why?
If we put aside the technical
causal deficiency just noticed, Professor Burrows comes nearer to the mark
when he says that the law of unjust enrichment must not be allowed to undermine
contracts.92 That has to be filled out
by repetition of the points on which German writers always insist, namely
that nobody should be allowed to evade either defences arising in relation
to a contract or the consequences of the insolvency of the chosen contractual
counter-party.93 It is for these reasons
that there can be no leapfrogging over contractual counter-parties. The
remote recipient in such cases is enriched, and he is enriched at the expense
of the claimant, but he is beyond reach.
This has been an exploration
of the range of the law of unjust enrichment, as controlled by the phrase
'at the expense of the plaintiff'. In English law this means pushing out
on almost unknown seas. In summary, what we have said about 'at the expense
of the plaintiff' is essentially this. In the law of unjust enrichment
it cannot be used in the sense of 'by doing a wrong to'. It has to be used
in the subtractive sense -- the 'from' sense. 'From' might be understood
narrowly or broadly. It looks as though our law is moving to a broad interpretation.
That means not insisting on a minus to the plaintiff and, broader still,
accepting the possibility of interceptive subtraction freed from that restrictive
requirement. Interceptive subtraction shorn of a requirement of loss and
based on a logical extension of the attribution-theory used in German law
gives the law of unjust enrichment a range which the common law has not
fully explored but to which it appears to have committed.
Finally, it is not true
to say that the defendant's enrichment must be directly from the plaintiff,
whether interceptively or otherwise. In different and more unsuitable language,
it is not true that there is a strict requirement of privity between the
parties. On the contrary, it is possible to reach over an immediate enrichee
to others who would not have received if the immediate enrichee had not
been unjustly enriched at the expense of the claimant. It cannot yet be
said whether the courts will encourage leapfrogging claims, nor can it
be foreseen what restrictions which they will place on them if they do.
But the foundations are in place, and the anxieties which inhibit the development
are less substantial than has at times been thought.
The remoter recipients who
are vulnerable are, however, rather few. They will not be bona fide purchasers
or claimants through bona fide purchasers, and they will not have disenriched
themselves because of their receipt. Furthermore, one kind of leapfrogging
which will never be allowed is the attempt jump over a party to a valid
contract with a view to attacking someone who received a benefit from the
performance of that contract. The valid contract makes all the difference.
One who makes a contract with another has to take the risk of that other's
insolvency. Otherwise the statutory insolvency regime would be seriously
eroded, and its impact would become open to the charge of needless arbitrariness.
Dawson, 'Indirect Enrichment' in E von Cämmerer, S. Mentschikoff,
K Zweigert (eds) Ius Privatum Gentium: Festschrift für Max Rheinstein
zum 70 Geburtstag, Band II (Nationales und Vergleichendes Recht)
(JCB Mohr, Paul Siebeck, Tübingen 1969) 789-818.
Whitty, 'Indirect Enrichment in Scots Law'  Juridical Review 200
(Part I) and 239 (Part II).
Meier, Irrtum und Zweckverfehlung [Mistake and Failure of Purpose]
( (JCB Mohr, Paul Siebeck, Tübingen 1999) reviewed by Thomas Krebs
 Restitution L Rev 271-282; cf her 'Restitution after Void Contracts'
in P Birks and F Rose (eds) Lessons of the Swaps Litigation (LLP
Mansfield, London, 2000) 168-213.
Meier, 'Mistaken Payments in Three-Party Situations: A German View of English
Law'  CLJ 567-603.
Jones (ed) Lord Goff of Chieveley and GH Jones, The Law of Restitution
5th edition (Sweet and Maxwell, London, 1998) 37-40.
Burrows, The Law of Restitution (Butterworths, London, 1993) 45-54;
G Virgo, The Principles of the Law of Restitution (OUP, Oxford,
clumsy way of expressing a requirement of directness ... rejected almost
everywhere' Dawson (n 1 above) 801.
Tettenborn has attempted a more principled explanation of this restriction:
A Tettenborn, 'Lawful Receipt - a Justifying Factor'  Restitution
L Rev 1.
(n 6 above) 47.
Byfield  1 All ER 249, 256.
Briefly touched on at the end, in text to n 90 below.
The useful discussion in in BS Markesinis, W Lorenz, G Dannemann, The
German Law of Obligations vol 1, The Law of Contracts and Restitution (OUP,
Oxford, 1997) 722-724 appears to assume, as was previously thought, that
in English law 'at the expense of' required a 'corresponding loss'. This
now appears to be incorrect. See text to n 24 below.
Products Ltd v Customs and Excise Commissioners  Ch 409; Nurdin
& Peacock Plc v DB Ramsden & Co Ltd  1 WLR 1249,
000. Contractual restitution displaces the law of unjust enrichment:
Ocean Shipping Co Ltd v Creditcorp Ltd  1 WLR 161 (HL).
Australia Ltd v Barclays Bank Ltd  AC 1 (HL).
P Birks, 'Misnomer' in WR Cornish et al (eds) Restitution, Past, Present
and Future (Oxford, Hart, 1998) 1. Virgo (n 6 above) is the first textbook
not to assume that unjust enrichment and restitution are one and the same.
J Beatson, 'The Nature of Waiver of Tort' in The Use and Abuse of Unjust
Enrichment (OUP Oxford 1991) 206-243; D Friedmann, 'Restitution for
Wrongs' in WR Cornish et al, edd, Restitution, Past, Present, and Future
Oxford 1998) 87-126.
This was the foundation of the school of thought which successfully restricted
punitive damages in English law: Rookes v Barnard  AC 1129
(HL); Cassell & Co v Broome  AC 1027. Note, however, the
non-doctrinaire position of Lord Wilberforce in the latter case, which
has now prevailed in Law Commission, Aggravated, Exemplary, and Restitutionary
Damages Law Com No 247 (Stationery Office 1997) 98-138.
96 Sw 2d 1028 (1936).
(1760) 2 Burr 1005.
It is only by bringing to bear the analysis used in relation to waiver
of tort in United Australia Ltd v Barclays Bank Ltd  AC 1
(HL) that it becomes apparent that Moses v Macferlan was indeed
an action for breach of contract brought to recover the contract breakers
gains. Prior to that decision of the House of Lords the line between restitution
of unjust enrichment and restitution for wrongs was never clearly drawn.
v Sigil (1826) 2 C.& P. 176, 172 ER 81; Neate v Harding
(1851) 6 Ex. 349, 155 ER 577; Moffatt v Kazana  2 Q.B. 152.
This position is defended in Mitchell McInnes, "The Canadian Principle
of Unjust Enrichment: Comparative Insights into the Law of Restitution"
(1999) 37 Alberta L Rev 1, 22; also "At the Plaintiff's Expense: Quantifying
Restitutionary Relief"  CLJ 471.
H-G Koppensteiner and EA Kramer, Ungerechtfertigte Bereicherung, 2nd
edition (1988) 84, 85, citing a famous dictum of Esser: 'Our business is
with enrichment law, not impoverishment law (Wir haben es mit Bereicherungs-
und nicht mit Entreicherungsrecht zu tun.' Cf '[H]ier kommt es nur auf
die Bereicherung des Schuldners an; ob der Glaübiger entreichert ist,
is von keinerlei Bedeutung. ... Es wäre also ein schwerer Fehler,
einen Bereicherungsanspruch mit der Begründung zu verneinen, der Glaübiger
habe keinen Nachteil erlitten (In this area of law only the enrichment
of the person liable is relevant. Whether the enrichment-creditor has been
impoverished is of no significance. ... It would therefore be a serious
mistake to withhold a claim founded on unjust enrichment on the ground
that the enrichment-creditor had suffered no detriment). HJ Wieling, Bereicherungsrecht
Berlin 1993) 1-2.
of State Revenue v Royal Insurance Australia Ltd (1994) 182 CLR 51
(HCA), where Mason ACJ adopted the
view of Windeyer J in Mason v NSW (1959) 102 CLR 108, 146.
Benson v Birmingham City Council  4 All E R 733 (CA).
v Trott (1776) 1 Cowp 371; 98 ER 1136. Lord Mansfield's example used
horses, not bicycles.
Jones (Trustee in Bankruptcy) v Jones  Ch. 159 (CA), discussed
in text to nn 53-54 below.
Text to nn 29 and 90 below.
and Davis v Galbraith  1 WLR 997 (CA); Gray's Truck Centre
Ltd v Olaf L Johnson Ltd (CA 25 January 1990); Kirklands Garage
(Kinross) Ltd v Clark 1967 SLT (Sh Ct) 60; Express Coach Finishers
v Caulfield 1968 SLT (Sh Ct) 11. Cf Whitty (n 2 above) 211-217. Though
superficially similar, Pan Ocean Shipping Ltd v Creditcorp Ltd (The
Trident Beauty)  1 WLR 161 (HL) is not of this kind. Pan Ocean
were obliged to pay the owners of the Trident Beauty freight in advance
under a charter which included its own regime for restitution in the event
of the freight not being earned. They had contracted out of the law of
unjust enrichment. The right to receive the advance freight was assigned
to Creditcorp. Pan Ocean paid the assignees, and the freight was never
earned. The claim based on failure of consideration failed because of the
contracting out, not because it was not received at Pan Ocean's expense.
There was no unjust factor, no more than there would have been if the right
has not been assigned. Cf G J Tolhurst, 'Assignment, Equities, The Trident
Beauty and Restitution'  CLJ 546, 561, 564. Professor Burrows
prefers an explanation closer to that given above, namely that Pan Ocean
could not be allowed to succeed without undermining the contract of assignment
between the shipowners and Creditcorp, but that argument depends on the
prior determination of the exact nature of the right assigned: AS Burrows,
'Restitution from Assignees'  Restitution L Rev 52, 55-56. Cf text
to nn 91-92 below.
 2 WLR 986 (CA).
Cf Coutts & Co v Stock  Lloyd's Rep Bank 14, 17 (Lightman
This explanation also applies to the leading case of Aiken v Short
(1856) 1 H & N 210, 156 ER 1180, the facts of which were materially
identical. The "good consideration" explanation derives from the necessity
of upholding the result in that case despite the liberalization of the
test for restitution-yielding mistake: Barclays Bank Ltd v WJ Simms
& Son Ltd  QB 677.
Text to n 76 below.
 QB 677.
Bank plc v. O'Brien  1 AC 180; CIBC Mortgages plc v. Pitt
 1 AC 200.
American law is substantially the same as the German law as described below
in relation to the brewery case: American Law Institute Restatement
of Restitution (St Paul 1937) 14(1); Bank Worms v Bankamerica International
NY 2d 362, 570 NE 2d 189 (1991); cf Shield Benefit Administrators v
University of Michigan 225 Mich App 467, 571 NW 2d 556 (1997). Very
useful discussion, critical of the English position, in A Kull, 'Rationalising
Restitution' 83 Calif L Rev 1191, 1228-1232. It is important to notice
that C (the bank) is entitled to be subrogated to the claims of D against
X: cf Kull at 1229.
BGHZ 27, 317 (1958) discussed by Dawson (n 1 above) 805: hirer contracts
for repair of locomotive but does not pay; owner recovers the locomotive
after repair. No claim by repairer against owner. Cf n 29 above, and n
Meier (n 4 above) 579-580 astutely identified the Court of Appeal's decision
in RE Jones Ltd v Waring & Gillow Ltd  2 KB 612 as an
English application of this approach, rejected in the House of Lords 
AC 670. With the HL decision, she compares Thomas v Houston Corbett
& Co 1969] NZLR 151 (NZCA).
BGHZ 40, 272 (1963) English translation Markesinis et al (n 13 above) 789;
cf BGHZ 36, 30 (1961), Dawson (n1 above) 806.
 QB 677.
BGHZ 89, 376 (1984), Markesinis et al (n 13 above) 794. In this case the
court refuses to deal with the case in which the bank's authority was,
not terminated, but absent ab initio. As to that case the German
law remains unclear, although Zimmermann and du Plessis say that 'most
writers' would now allow the bank in that situation to recover from its
immediate payee - the same result as in Barclays Bank Ltd v WJ Simms
& Son (n 35 above): R Zimmermann and J du Plessis, 'Basic Features
of the German Law of Unjustified Enrichment'  Restitution L Rev 14,
34. Meier (n 4 above) 572-573 clearly takes the view that the case where
there never was a valid order is to be treated as different from that in
which a valid order is given and subsequently revoked, as by stopping a
(1841) 9 M&W 54.
American Law Institute Restatement of Restitution (St Paul 1937)
Minerals Ltd v Corona Resources Ltd  2 S.C.R. 574, 61 D.L.R.
(4th) 14 shows that one who abuses confidential information
to acquire an asset may be turned into a trustee if the court finds, as
a matter of fact, that it was his intervention that prevented the benefit
going through to the plaintiff.
Rose  Ch 78 (CA). The word "perfectionary" indicates that the
goal at which the right aims is the perfection of the intent of the transferor.
See the diagram at the end of the second lecture.
 1 QB 448.
v Stukely (1677) 2 Mod. 260, 86 ER 1060; Howard v Wood
2 Lev 245, 83 ER 530. Although these provide a root for waiver of tort,
they do not need to be analysed as instances of wrongful enrichment.
v Allen (1703) 1 Salk 27; 91 ER 26; Yardley v Arnold (1842)
C & M 434; 174 ER 577.
Custodian for Charities v Mackey (No 2)  1 WLR 1308, where Nourse
J acknowledged the principle but found it not to apply on the particular
v Hillas (1858) 2 De G & J 110; Craddock Bothers v Hunt 
2 Ch D 136 (CA); R Chambers, Resulting Trusts (OUP Oxford 1997)
127. Cf Dawson (n 1 above) 801, citing inter alia a case in which
a reward was paid to the wrong person and the person to whom it should
have gone sued, to achieve what D calls 'a short-circuit of liabilities
that are ultimately interconnected': Claxton v Kay 101 Ark 350,
142 SW 517 (1912).
LD Smith, "Three-Party Restitution: A Critique of Birks's Theory of Interceptive
Subtraction' (1991) 11 OJLS 481.
 AC 251 (HL).
Test to n 27 above.
 Ch. 159 (CA).
Text to n 19 above.
Cf Olwell v Nye & Nissen Co 26 Wash 2d 282. 173 P 2d 652 (1946)
where this difference was centrally in issue and the court preferred profits
to rental. The defendant had wrongfully used the plaintiff's egg-washing
There is an exception in intellectual property: Markesinis et all (n 13
above) 742 (Dannemann).
Markesinis et al (n 13 above) 743-749 (Dannemann); Zimmermann and du Plessis
(n 41) above 26-29.
Werner Lorenz, J von Staudingers Kommentar zum BGB Book 2: Paragraphs
812-822 (Sellier-De Gruyter Berlin 1999) 99-100. Professor Lorenz there
admits that the courts have had to proceed pragmatically. It is not easy
to say in advance what will be attributed by which right.
Dannemann in Markesinis et al (n 13 above) 747 points out that German law
would nonetheless award the profits on a not-wrong analysis, treating the
matter, not as an unjust enrichment, but as an abnormal or aggravated form
of negotiorum gestio under para 687 (2) BGB, which contemplates
the case of a person who manages another's business as his own, in full
knowledge that it is not his own. Cf Whitty (n 2 above) 274-281.
Dawson (n 1 above) 790-796; Zimmermann and du Plessis (n 41 above) 31.
Req 15 June 1892, DP 1892.I.596. This case and subsequent attempts to restrict
it are discussed in K Zweigert and H Kötz, An Introduction to Comparative
Law 3rd ed (OUP, Oxford, 1998) 545-548.
Text to n 29 above and n 91 below.
Building Society v Hamlyn, Taylor, Neck  4 All ER 202, 207 (Millett
LJ). Cf H Dörner, 'Change of Position and Wegfall der Bereicherung'
WJ Swadling, ed, The Limits of Restitutionary Claims, A Comparative
Analysis (British Institute of International and Comparative Law, London)
 2 AC 548 (HL).
v Green (1757) Wilm 58, 65; Bainbrigge v Browne (1881) 18 Ch
D 188, 197 (CA). Compare the right to rectify and reclaim:
v JB Developments (Godalming) Ltd  Ch 183. Whitty (n 2 above)
252-253 creates a special exceptional category 'Defender's Indirect Enrichment
Procured at Pursuer's Expense by Fraud or Comparable Act of Third Party'
and has real difficulty in explaining it. A system which can extend the
property argument as in the text above does not encounter that difficulty.
 3 All ER 717 (Millett J) rev'd on one point as to attribution of
knowledge  2 All ER 685 (CA).
The firm never identified a fund in the hands of the casino, being content
to stop at the moment of the receipt. Contrast Banque Belge pour l'Étranger
v Hambrouck  1 KB 321 (CA) where a fund was identified in the
hands of the remote donee, and no attempt was made to claim the full sum
she had received.
 4 All ER 513 (HL)
 4 All ER 513, 519 (Lord Hoffmann).
 AC 251 (HL).
So held in Commissioner for Stamp Duties v Livingston  AC
694 (PC), discussed in LD Smith, "Three-Party Restitution: A Critique of
Birks's Theory of Interceptive Subtraction" (1991) 11 OJLS 481.
Burrows (n 6 above) 48-49; A Tettenborn (n 8 above)  RLR 1, 5; G
Virgo, (n 6 above) 108, where, true to the structure produced by his analysis,
says this is vindication of property, not unjust enrichment, and therefore
not a true exception to the privity rule which applies in the law of unjust
BGHZ 55, 176 (1971), English translation in Markesinis et al (n 13 above)
786. It is noteworthy that in holding the buyer liable in unjust enrichment
for their value, the Federal Court declined to take into account his outlay
in acquiring the cattle, which the court said was recoverable by the buyer
only from the thief. Cf Dawson (n 1 above) 815: 'This is not usually thought
to infringe the requirement of directness.'
BGH 37, 363, 366. Here the contract between the dishonest gambler and the
casino was illegal and void because the law debarred local residents from
gambling in the casino. Contrast the otherwise identical BGHZ 47, 393,
where the gambling contract was valid and the claim against the casino
was defeated. For a full discussion of these cases, see Carsten Zülch,
'Bona Fide Purchase, Property and Restitution: Lipkin Gorman v Karpnale
German Law' in Swadling (n 64 above) 106-140.
Tettenborn (n 8 above) 1.
LD Smith, The Law of Tracing (OUP, Oxford, 1997)10-14, 299-300.
Charles Mitchell, The Law of Subrogation (OUP Oxford 1994) chapter
9, especially 124-129, 133-135. Cf Whitty (n 2 above) 215, 251-252.
 1 KB 103 (CA) 109. In Reid v Rigby & Co 2 QB 40
recovery was allowed at law, the facts being materially identical.
 1 KB 48.
 Ch 286 (CA), discussed by Mitchell (n 78 above) 127-128, 162-165.
 Ch 286, 318 (Scott LJ) 326 (Clauson LJ).
 2 Ch 277.
 Ch 265, aff'd  Ch 547 (CA).
E McKendrick, 'Tracing Misdirected Funds" (1991) LMCLQ 378-390 observes
that no adequate explanation was given, the courts having accepted, somewhat
mysteriously, that, the bank being Agip's agent, Agip could avail itself
 Ch 465 (CA),  AC 251 (HL).
Text from n 76 above.
Text to n 84 above.
The invocation of tracing in Baroness Wenlock v River Dee Co (1887)
19 QBD 155 should be explained in the same way.
Text to nn 29-30above.
P Watts, 'Does a subcontractor have restitutionary rights against the employer?'
 LMCLQ 398, 401.
A S Burrows, 'Restitution from Assignees'  Restitution L Rev 52,
Meier (n 4 above) 571. The last paragraph of her article appears to suggest
that leapfrogging in this situation might after all be possible, as though
Re Diplock  Ch 465 provided a springboard. Whatever else it might
support, that case cannot dent the absolute bar against leapfrogging contractual
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