Oxford University Comparative Law Forum
In Defence of Unjust Factors: a study of rescission for duress, fraud and exploitation
by Mindy Chen-Wishart1
(2000) Oxford U Comparative L Forum 2 at ouclf.iuscomp.org | How to cite this article
Table of content
difference between the English and the German laws of unjust enrichment
is in the way each establishes that any enrichment is 'unjust' and so reversible.
Paragraph 812 (1) of the German civil code (the BGB) states that a person
who through an act performed by another, or in any other way, acquires
something at the expense of that other person without legal ground, is
bound to render restitution. This general enrichment action has been described
as 'probably the most outstanding feature of the German law of unjustified
enrichment.'2 More recently English law
has also recognised the general principle of restitution to reverse unjust
enrichment3 but, in contrast, it is 'engaged
in crystallising the principles into rules adapted to the different types
of case so as to meet the specific interests involved in them.'4
An influential classification proposed by Professor Birks sets out the
specific factors which can make the plaintiff's transfer of wealth to the
defendant 'unjust' in the eyes of English law.5
Thus, while the German approach appears to yield restitution whenever defendants
cannot advance a legal cause for retention, English law leaves defendants
with their enrichments unless the plaintiffs can show why they should not
Many commentators observe
that this apparent structural divergence probably yields no significant
differences at the level of actual outcomes.6
Professors Zweigert and Kötz explain why 'too much should not be made
of the apparent differences':7
'[I]t is manifest
that an approximation will take place in the theoretical treatment of these
areas of law. The unduly abstract detail of the German code will
be loosened by a typology of enrichment claims and in the Common Law general
rules will be developed to give form and structure to the unduly concrete
details of the case-law. Each system has a great deal to learn from the
Professor Zimmermann will concede
this only so far. While he acknowledges 'a significant rapprochement of
patterns of liability', he notes that 'there are still considerable differences
as to the question of how best to organize this area of the law.'8
In short, he regards the English multiple unjust factors approach as inferior
to the German single ground of absence of cause, and considers it 'hardly
conceivable that a legal system engaged with the task of rationally organizing
its law of unjustified enrichment should take its lead from English jurisprudence.'9
This essay begs to differ.
In defence of the unjust factors approach it will be argued that practical
and important details of the restitutionary response rest on the nature
and the effect of the operative unjust factor. In other words, the particular
reason why the transfer was without legal cause and the impact of that
on the value of the benefit transferred can and, to a significant extent,
does explain how the initial entitlement to restitution is worked out in
practice. We will see that even German unjust enrichment law is not entirely
indifferent to the unjust factors, that is, the reason invalidating the
contractual or non-contractual transfer. In both systems of law, reference
to the unjust factors explains the operation of certain features of the
current law and, it is further argued, lights the way to important and
desirable future developments. There is undoubtedly room for development
in the nascent English law of unjust enrichment and lessons can certainly
be learnt from German law. But it is not in replacing the unjust factors
approach by the single absence of cause approach that progress lies. On
the contrary, it is by taking the unjust factors and the rationales behind
them, even more seriously that the wisdom of certain aspects of German
unjust enrichment law is thrown into sharp relief. By the same token, it
seems that certain features of the German law can benefit from greater
sensitivity to the unjust factors. As Professors Zweigert and Kötz
exhort, '[e]ach system has a great deal to learn from the other.'
These claims will be advanced
with particular reference to a group of unjust factors coming under the
headings of duress and fraud.10 Fraud will
be taken to include constructive fraud. Constructive fraud, in turn, encompasses
the specific unjust factors of non-fraudulent misrepresentation, undue
influence, unconscionability and the constructive notice doctrine introduced
by Barclays Bank v O'Brien11 (collectively
these will be referred to as 'exploitation'). The emphasis is on how restitution
on these grounds operates on rescission of contract. Rescission is described
as 'one of the commonest remedies in the law of restitution...[and] one
of the most difficult to analyse.'12 It
operates simultaneously to set aside the contract and to effect
mutual restoration of the transfers made under it. In English law the question
whether rescission belongs in the law of unjust enrichment and should therefore
conform to its principles, remains one of the unresolved questions on the
borderline between the laws of contract and unjust enrichment.13
The question is a serious and important one and while we will sidestep
that debate, the explicitly assumption made here is that at least the restitutionary
part of rescission properly belongs within the wider body of law on giving
back.14 The present claim is that taking
the unjust factors seriously can enlighten and inform the operation and
development of unjust enrichment law in general and of the law of rescission
Part I of this essay addresses
the major criticisms of the unjust factors approach. Part II discusses
the nature of duress, fraud and exploitation. It asks why the law intervenes
when it does so in the name of these unjust factors. Part III looks at
how the nature of these unjust factors colours the availability of the
change of position defence (the enrichment surviving). In particular, the
protective policies underlying certain unjust factors can explain why disqualification
from this defence should be extended from bad faith defendants to some
innocent defendants. In Part IV it is argued that the logic of the unjust
factors point to the desirability of dissolving certain bars to rescission
in English law and of making the change of position defence available to
who must make counter-restitution. Part V considers how the unjust factors
may affect the valuation of the enrichment received by either party. Sensitivity
to the impact of particular unjust factors on the enrichment received can
overcome the problem of subjective devaluation. It also provides the best
justification for the controversial remedy of partial rescission.
I. Criticisms of the Unjust Factors Approach
criticises the unjust factors approach as untidy, uncertain in scope, uncomprehensive,
incorporating needless duplication and generally irrelevant to the restitutionary
1. Untidy, Uncertain and Uncomprehensive?
The first objection, untidiness,
is premised on the basic division in German unjust enrichment law between
enrichment by performance (the Leistungskondiktion) and enrichment
in another way (the Eingriffskondiktion) and the observation that
all the English unjust factors except ignorance involves enrichment
by performance. But this assumes no particular significance in English
law which operates no such division. It is only 'untidy' from a German
stand point. The second and third criticisms, that the identified unjust
factors are uncertain in scope and uncomprehensive since they can be added
to, can also be swiftly dealt with. Under German law, a restitutionary
award must be prefaced by a plaintiff showing that his intentional transfer
was without cause. Essentially one of the recognised factors which vitiate
the 'declaration of intention (or will)', detailed in contract law must
be made out.16 The operation of these vitiating
factors is doubtfully more certain in German law than in English law. And
as for the unjust factors being uncomprehensive, the possibility of adding
new causes of action17 is a general feature
of the common law and, many would say, part of its commendable strength
and adaptability. Moreover, the distinction between recognizing a new unjust
factor and interpreting an established one can be very fine indeed.
2. Unnecessary Duplication?
In substance, the criticism
is that where restitution follows rescission of contract English law seems
to have to inquire into the unjust factors twice, once to vitiate the contract
and again to ground the restitutionary claim. This 'unnecessary duplication'
is contrasted with the 'internal economy' of the preferred single civilian
ground. The criticism is not a crippling one. Certainly, where rescission
for duress, fraud or exploitation are concerned it makes no practical difference
which approach is applied. The scope of these vitiating factors in contract
law coincide with their manifestation as unjust factors in unjust enrichment
law.18 Even if they do not, as with the
ground of mistake, a plaintiff under either system must satisfy
the vitiating factor before any claim for restitution can be made. Since
the scope of mistake as a vitiating factor in contract is narrower than
its scope as an unjust factor in unjust enrichment, satisfaction of the
former will automatically satisfy the latter. Nothing is saved by the apparently
more economical German approach and nothing is added by the apparent duplication
of the English approach. In English law the vitiating factor simultaneously
sets aside the contract and furnishes the ground for restitution. In German
law it avoids the contract and so removes the 'cause' which would otherwise
justify the transfer and deny restitution. The German restitutionary claim
is therefore necessarily sourced in the unjust factor although this
is obscured by the single ground of absence of cause. The unjust factor
vitiating the plaintiff's declaration of intention is the first domino
which triggers the rescission of the contract which, in turn, creates the
absence of cause which, in turn, provides the ground for restitution.
3. Unjust Factors Irrelevant?
This last criticism appears
more serious. Professor Zimmermann prefers the economy of the single catch-all
'[w]hy there was
no legal ground for this specific transfer is entirely irrelevant. The
underlying contract the transfer attempted to discharge may not have come
into existence; it may have been invalid for a whole variety of reasons....
All this has to be determined according to the law of contract. The law
of restitution does not have to concern itself with these issues.'
He considers the English approach
not 'to be a scheme distinguished by its elegance.' While elegance in structuring
the law is not the exclusive or even highest aim of a legal system, the
criticism is a potent one if there are no valid reasons for retaining the
reference to particular unjust factors. If that is so, then there
can be no objection to the more elegant and economical German approach.
But, while the unjust factors may be irrelevant to the prima facie
right to restitution, the claim here is that they do affect important
details of the restitutionary response, that they should matter even more
in both systems than they currently do and that doing so can inform important
and desirable developments in unjust enrichment law. It seems an obvious,
logical and sensible starting point to say that the reasons why
the law intervenes should indicate what results it seeks to generate
and how that is achieved. Our first stop is to consider the reasons
for restitution in cases of duress, fraud and exploitation.
II. Duress, Fraud and Exploitation: A Proposed Taxonomy
When transactions are rescinded
on these grounds in English law, what is the pathology to which the law
is responding? Professor Birks'20 taxonomy
of the unjust factors in English law draws a basic distinction between
autonomous unjust enrichment (typically by subtraction from the plaintiff)
and unjust enrichment by wrong doing against the plaintiff (typically non-subtractive).
He locates duress, fraud and exploitation within autonomous unjust enrichment
and there, under the heading of 'vitiated consent'. The plaintiff's defective
consent to the transfer is said to be the touchstone of restitutionary
liability; the presence or absence of fault on the defendant's part is
immaterial, hence restitutionary liability here is said to be strict
which, in turn, justifies conceding a change of position defence to innocent
defendants. German law also regards these factors as going to the plaintiff's
defective declaration of will.21
However, this apparently
exclusive focus on the quality of the plaintiff's consent can paint a somewhat
misleading picture of the balance of the law's concerns. It is clear that
in determining whether these grounds are satisfied, the defendant's conduct
and the fairness of the outcome are also factored into the equation. Fuller
discussions of the juristic nature of these unjust factors are given elsewhere22
and a few points will suffice for present purposes.
The plaintiff's defective
consent alone is not sufficient to set aside contracts for duress, fraud
or exploitation. In the first place contract law is rarely concerned with
a plaintiff's actual subjective consent. Quite apart from problems of proof,
the law's proper concern to protect transactional security and the defendant's
reasonable expectations means that the legal test of consent is objective.
Thus, any defects in the plaintiff's actual consent in deviating from its
objective manifestation, will not, alone, justify rescission and restitution.
Second, it seems uncontroversial that unjust enrichment law should not
only be concerned about why a plaintiff should get back; but also why a
defendant should give back. In both German and English law the defendant's
interest is only defeated if additional factors supplement the plaintiff's
defective consent. With duress, fraud and exploitation, these take the
form of the defendant's unconscientious conduct or knowledge of the plaintiff's
defective consent and, or, a manifest disproportion in the values exchanged
to the disadvantage of the plaintiff in certain circumstances. These additional
factors necessarily mark the corresponding unjust factors when restitution
is also sought. The point is brought home most recently and forcefully
by the House of Lords in Barclays Bank plc v Boulter23
which held that, in a claim based on the O'Brien doctrine it is
insufficient for the plaintiff simply to plead themisrepresentation or
undue influence affecting the quality of his consent, he must also specifically
plead the defendant's notice of this.24
Lastly, where the plaintiff's
defective consent results from duress, fraud or exploitation by a third
party (rather than the defendant), relief does not automatically follow.25
Again, something else is required. Namely, that the defendant knows(actually
or constructively) that the plaintiff's consent has been wrongly induced
by the third party. Such knowledge can be seen as negating the reasonableness
of the defendant's reliance upon the plaintiff's appearance of consent
and so renders its protection unwarranted.
Instead of 'vitiated consent'
per se, a tripartite division is suggested which, it is submitted, reveals
the nature of these unjust factors more precisely and in a way which illuminates
the restitutionary response.
1. Unconscientious Procurement
This describes defendants
who deliberately and actively pressure or lie to induce the plaintiffs'
consent (hence defective) to the contract and to its performance. The law
will not assist in the enforcement or retention of benefits obtained by
such active advantage taking. Located here are cases of deceit or actual
fraud, all kinds of duress, some cases of actual undue influence26
and of active unconscionable conduct.27
2. Unconscientious Receipt
Here, the defendant take
no active advantage but she nevertheless accepts benefits from the plaintiff
in 'unconscientious circumstances' namely, with knowledge of his defective
consent (or that he belongs to a protected class) and failing to respond
reasonably, generally by recommending independent advice or disclosing
certain material features of the transaction. This is regarded in English
law as constructive fraud or as comprising passive victimisation.
It includes cases of presumed undue influence and most cases of unconscionable
However, many cases justified
on this rationale are not true members of this category. They occur where
no meaningful independent evidence exists of the plaintiff's personal
bargaining disability or of the defendant's knowledge of that disability.
Instead, these elements are largely inferred from the serious disparity
in the values exchanged (substantive unfairness), and from the plaintiff's
membership of an identifiably vulnerable group.29
This yields the third category of cases.
3. Protection of Vulnerable Groups From Improvidence
The dual features of this
category are manifest disadvantage to the plaintiff in the substance of
the transaction and the plaintiff's membership of a class identified by
the law as warranting special protection. This is the proper home of the
cases;30 some cases of presumed undue influence;31
unconscionable bargains;32 and non-fraudulent
misrepresentations.33 In the latter case,
unconscientiousness is said to attach not to the defendant's procurement
or receipt of the benefit, but to his attempt to retain or enforce
the benefit once the misrepresentation is known. In the contractual context,
the relevant harm against which plaintiffs are protected is better
described as that inherent in an inappropriate, unwanted or disproportionately
disadvantageous contract, rather than the more abstract harm of the defendant's
'abuse of superior bargaining power' which is not actionable per se and
practically undetectable without an uneven exchange. The protected classes
are identified largely by reference to circumstances which attract a high
incidence of disproportionate outcomes:34
wives of, and others in a sexual or emotional relationship with, primary
debtors (the O'Brien doctrine); those who place a very high degree
of trust in the other contract party (undue influence); those with less
personal competence who deal with substantial portions of their assets
(unconscionable bargains) and those who have been lied to, albeit non-fraudulently
These three categories are
largely reflected in the German law.35
Paragraph 123 BGB provides for rescission on the grounds of fraud or threats
and paragraph 138 BGB voids transactions against public policy and those
which are obviously disproportionate and exploitative of the disadvantaged
party's 'need, carelessness or inexperience'.36
We can now test the claim
that these unjust factors, explained along this tripartite classification,
infuse the details of the law's restitutionary response. Their most obvious
impact is in the availability of the change of position defence.
III. Unjust Factors and the Change of Position Defence (Value Surviving)
The defendant's restitutionary
liability may be measured by the enrichment initially received or
be limited to that which survives in the defendant's hands when
the claim is made. English law regards this as a question of defences
and asks whether the defendant has relevantly and innocently 'changed his
position' so as to justify a reduction of his restitutionary liability.37
German law treats this as an aspect of the quantification of the
enrichment to be returned.38 In both jurisdictions
the applicable measure is influenced by the nature of the unjust factor
initially triggering restitution.
1. Bad Faith Defendants
Both jurisdictions lay down
just one clear disqualification, bad faith defendants (those who
know of the plaintiff's restitutionary entitlement39)
are barred from discounting the enrichment spent, lost or given away and
must account for all of the enrichment received. Whether the defendant
should be regarded as in bad faith must be influenced by the operative
unjust factor. The clearest case are the defendants tainted by unconscientious
procurement. Where fraud, duress or actual undue influence involving pressure
is found, the defendant should normally have to account for any depletion
of the enrichment received. The same applies to defendants tainted by unconscientious
The reason for the
invalidity of the transfer also affects the extent of the defendant's restitutionary
liability in German law. Where duress or fraud under paragraph
123 BGB are triggered, defendants are in practice disqualified from the
value surviving measure. Defendants are treated as having knowledge of
their 'lack of a legal cause at the time of receipt' (paragraph 819 (1)
BGB) since 'innocent fraud is impossible and innocent duress very difficult
at least.'40 Moreover, paragraph 819 (2)
BGB automatically disqualifies the defendant from change of position where
the unjust factors are illegality (detailed in paragraph 134 BGB)
or immorality (detailed in paragraph 138 BGB),41
the latter largely corresponding with our category three. Notably this
also shuts out innocent defendants in this category on which more will
2. Bad Faith Minors
The impact of unjust factors
is highlighted in the case of minority. Here, the strong policy of protection
underlying minority (which can operate as an unjust factor or as a defence)
dissolves the general bar against bad faith defendants. Necessaries aside,
a defendant minor can appeal to change of position and return only what
value survives even if he has acted fraudulently.42
This prompted Professors Zweigert and Kötz to generalise that 'the
extent of liability in restitution may be affected by the purpose and power
of the rule which justifies the claim'.43
Even closer to our inquiry, they add that: 'in all legal systems liability
depends on considerations appropriate to the particular type of case, and
that these considerations...oust or temper the abstract rules of liability
preformulated in general terms.'44
In short, the unjust factors, which express these considerations, matter.
3. Good Faith Defendants: Presumed Undue Influence
The disqualification of
bad faith defendants from change of position should, in principle, leave
the good faith defendants in category three within the fold. They should
be liable only for the value surviving. However, we have noted that paragraph
819 (2) BGB automatically disqualifies defendants (whether they know of
the plaintiffs' restitutionary entitlement) from change of position where
the unjust factors are illegality or immorality and in English law the
defence seems generally invisible in undue influence and O'Brien
cases45 where the defendants cannot be
described as unconscientious, without seriously distorting and denaturing
the substantive sense of the word. The reason again lies in policies underlying
the unjust factors and can be summed up in the phrase 'anti-subversion'.
Just as the policy underlying minority would be subverted if bad faith
minors were shut out from change of position, so the policies underlying
other unjust factors may be subverted if innocent defendants were permitted
unlimited access to the defence.46 Change
of position is said to be aimed at the protection of good faith defendants'
security of receipt by shielding them from the loss which they would suffer
if called on to account for the enrichment which is no longer in their
possession to return. However, this can only be done by transferring the
loss to the plaintiffs and denying them the protection which the
category three unjust factors aim to confer.47That
protection, of vulnerable plaintiffs from improvidence, would be subverted,
perhaps fatally, if defendants can freely reduce their restitutionary liability
in this way. Thus, anti-subversion explains the general unavailability
of change of position in presumed undue influence cases. But one limited
exception is detectable in English law. In balancing the parties' equities,
it seems that in respect of, at ;east, one type of loss-generating expenditure,
the balance can tip in favour of the innocent defendant. Namely, loss which
results from the innocent defendant's expenditure in attempted performance
for the plaintiff's benefit, or in accordance with the plaintiff's purposes,
when this expenditure yields no counter-restitution from the plaintiff.
Limiting change of position to this type of loss minimises the risk of
subverting the protective policy underlying undue influence.
This describes the reduction
allowed in Cheese v Thomas.48 There,
the plaintiff contributed £43,000 towards the purchase of a house
for £83,000 in the name of the defendant, his great-nephew, but in
order to provide himself with a suitable home for the rest of his life.
Presumed undue influence was found although the court was at pains to emphasise
the good faith of the great-nephew. When the house realised significantly
less than the original purchase price in a mortgagee's sale, the loss was
divided proportionately so that the plaintiff obtained restitution of the
£43,000 less 43/83 of the loss suffered in the sale. It has been
argued that this result is best interpreted as an instance of the court
allowing change of position to an innocent defendant, albeit intuitively.49
A further refinement can now be added.
In Cheese v Thomas
change of position was not triggered simply by the defendant's good
faith. The purpose of the expenditure, which occasioned the eventual loss,
must also be factored into the equation. The Court used the language
of 'joint venture' to describe an expenditure which was, to a significant
extent, for the plaintiff's benefit. In so far as loss eventuated from
expenditure of this character, it is not inequitable for a defendant
to reduce his restitutionary liability even though the protective policy
would generally bar the defendant from doing so. Consistently, in Mahoney
v Purnell,50another case of innocent
presumed undue influence, since the defendant's loss had resulted from
expenditure in support of his own venture, quite independent of the plaintiff's
position, he was fixed to the value received.
Allcard v Skinner51also
supports this formulation. There, the non-contractual transfer from the
novice nun to the Mother Superior was vitiated by presumed undue influence.
While the claim for restitution was eventually defeated by laches and affirmation,
it was made clear that, in any event, the novice nun would only have recovered
so much of the funds transferred which 'had not been spent in accordance
with the wishes of the Plaintiff but remained in the hands of the Defendant'.52
Cotton LJ opposed making the morally blameless Mother Superior:
"liable for money
spent for the charitable purposes which the Plaintiff and Defendant were
at the time of the expenditure associated, and which the Plaintiff was
at the time willing and anxious to promote."53
Thus, in Cheese and
the great nephew, or perhaps more uncharacteristically the Mother Superior,
had dissipated the plaintiffs' money on their own purposes, say on high
risk investments or throwing extravagant parties, these would not have
come within the category of expenditure qualifying for change of position
in cases of 'innocent' undue influence.
4. Good Faith Defendants: O'Brien Cases
In general, even innocent
defendant lenders54 cannot discount their
restitutionary liability to plaintiff sureties by the extent of their loss,
that is, the un-repaid loans advanced to the principal debtors. Anti-subversion
can also account for the apparent invisibility of change of position. The
doctrine is a protective response to a very specific but common situation;
typically that of sureties who place the family home at risk to benefit
their spouses' or partners' shaky business ventures. It would then hardly
make sense to negate that intended protection by invariably allowing lenders
to shift the loss, entailed in making the loans, to the sureties via change
of position. The law does not contradict itself by giving with one hand
in circumstances which will almost invariably allow it to be taken back
with the other.
This provides another explanation
for McKenzie v Royal Bank of Canada55
where the court refused to set off the defendant's un-repaid loan to the
principal debtor against its restitutionary liability to the plaintiff
surety. Since the loan moved towards the primary debtor, the case is traditionally
explained in terms of the plaintiff receiving no benefit thus triggering
no obligation to make restitutio in integrum (in modern terms 'counter-restitution').56
Quibbles on the benefit point aside,57
this explanation nevertheless does not account for why the defendant could
not appeal to the quite independent defence of change of position. The
answer lies in the strong and specifically targeted protection underlying
the O'Brien doctrine. The disqualification of such innocent defendants
seem to bear out Lord Goff's prediction in Lipkin Gorman58
that the defence was 'likely to be available only on comparatively rare
occasions'. The Court of Appeal recently confirmed this result in Royal
Bank of Scotland v Ettridge (No 2)59,
conceding 'difficulties with [the change of position] analysis, not least
that there is no trace of it in O'Brien.' Nevertheless, it may be
that one small exception has been allowed although its recognition as such
is obscured by its particular presentation.
5. Partial Rescission
Exceptional change of position
may provide one justification for the controversial remedy of partial rescission
(with partial restitution) in O'Brien cases.60
Where the plaintiff's transfer is affected solely by the primary
debtor's misrepresentation about the extent of the risk being assumed,
then holding the plaintiff to the risk represented and accepted may be
justifiable. Thus, where the lender lends in reliance on the surety's apparent,
but tainted, consent to assume the risk of the principal debtor's non-repayment,
it is inequitable for her to deny her untainted consent to assume
a lower risk. This can be put in the language of change of position:
while a plaintiff in an O'Brien case generally need not concede
anything to the lender's change of position, where her consent is tainted
only by a misrepresentation about the extent of the risk assumed, she should
not be able to deny the defendant's change of position to the extent
that lower risk represented to her if she would have willingly agreed to
Of course, the force of
this argument disappears where undue influence colours the transaction.
Then, there may no untainted decision by the surety to assume any part
of the risk and so, no reason for departing from the general protective
policy barring change of position. An alternative and preferred rationalisation
for partial rescission is suggested later, based on the plaintiff's obligation
to make counter-restitution.61
IV. Unjust Factors and Counter-Restitution
Where both parties
have commenced performance of a contract which is subsequently rescinded,
restitution must be accompanied by counter-restitution. The plaintiff who
wants back must also give back. In principle, this means that the defendant's
restitutionary liability is reducible twice, first by reference to the
loss of the enrichment received from the plaintiff (unless disqualified),
and second by reference to the reciprocal enrichment conferred on
the plaintiff in attempted performance. The operation of the second reduction
is also influenced by the unjust factors. Two questions arise. First, how
do the unjust factors enlighten us about the proper mode of counter-restitution;
should it be confined to return in kind or extended to include return in
moneys-worth? Second, do the unjust factors throw any light on the measure
of the plaintiff's counter-restitution, specifically should change
of position be available here?
1. Counter-Restitution Impossible?
a) The mode of counter-restitution and the effect of exact counter-restitution impossible
English and German law agree
that the plaintiff must make counter-restitution of any benefit received
as a condition of obtaining restitution on rescission. But they diverge
on the permissible mode of that counter-restitution. German law adopts
a common approach to restitutionary and counter-restitutionary liability
since, on rescission, either party can bring a restitutionary claim to
retrieve the transfers which are now without cause.62
In both cases, while return in kind is regarded as the norm, where that
is impossible translation into money is expressly allowed.63
Here, English law has much to learn.
In English law the starting
point is that the mutual restoration necessary for rescission must be proprietary.
Money aside,64 what must restored are things.
Moreover, it should be the exact things. Traditionally this has
the astonishing effect that rescission can be barred where return in kind
to the plaintiff was never possible (as with services),65
or has become impossible (as where the property is completely dissipated
through use or consumption or been sold-on to a third party).66
But if the property in question still exists albeit depreciated, partly
consumed or otherwise dealt with, rescission can be granted although there
seems no facility for making a money adjustment even against fraudulent
defendants.67 Rescission is also barred
where counter restitution of substantial property,68
although curiously not services,69 to the
defendant is impossible. These are embodied in three of the traditional
bars to rescission: restitution impossible; counter-restitution impossible
and the attachment of third party rights to the subject of the restitutionary
claim. The rigidity of this position has been relaxed somewhat so that
some money adjustments have been permitted where precise return in kind
is impossible,70 particularly in the case
of bad faith defendants71 (so that on this
limited level, the unjust factors matter). Even so, such monetary substitution
is only possible where the 'substantial identity of the subject matter
of the contract remains'.72 In practice
then, these bars can continue to block restitutionary claims.
b) English position unsatisfactory
To describe this state of
affairs as unsatisfactory puts the matter mildly. The unjust factors of
duress, fraud and exploitation express strong policies in favour of restitution,
namely protecting vulnerable plaintiffs and refusing to assist unconscientious
defendants. These policies are subverted when these bars are triggered.
If the defendant has been unjustly enriched at the plaintiff's expense
then, affirmation and undue delay aside, the law should automatically allow
the plaintiff to avoid the contract and claim restitution, if necessary,
in moneys-worth. The plaintiff should not have to show additionally,
that both parties can still return substantially what they received. This
is the straightforward position in German law.
The English position can
leave admittedly unjust situations unremedied; the discredited contract
and its admittedly unsupportable terms are left on foot and the plaintiff
is sent away empty handed (aside from any possible rights in tort73).
The defendant retains the unjust enrichment and the plaintiff can be made
liable in damages for breach of this unfair contract, even if specific
performance of it can be resisted. This makes English law's ability to
reverse unjust enrichment on rescission, being confined to the return of
money and substantially subsisting property, embarrassingly feeble. It
is too easily derailed from the task of conferring the protection underlying
the unjust factors. The position is indefensible. The way out is clear.
c) Mutual restitution in money
English unjust enrichment
law must recognise, as German law does, that all forms of benefits
are returnable, if necessary by translation into money. Currently non-contractual
claims for goods and services (the quantum meruit and the quantum
valebat) can be personal claims (that is, for moneys-worth). Claims
for the return of money, even on rescission of contract, can be personal
(the exact notes and coins transferred need not be traced). It is then
unjustifiable and intolerable asymmetry to insist that non-money claims
on rescission be confined to the vehicle of proprietary claims. If English
law is prepared to make small money adjustments to supplement a
plaintiff's counter-restitution of substantially subsisting property, then
it should be prepared to make big adjustments, even to the extent of wholly
for the benefit which is unreturnable in kind. The same arguments apply
to the mode of effecting the defendant's restitutionary liability. Impossibility
of precise return in kind by either party should not bar rescission.
If mutual restitution can
be monetised, it will usually yield a net balance to the plaintiff. This
outcome not only gives teeth to the unjust factors where precise return
is impossible, it can also be described as a fitting response the consequences
of contracts induced by duress, fraud or exploitation. For plaintiffs,
these unjust factors generally yield inappropriate or disproportionately
unfavourable exchanges while defendants are left with disproportionately
favourable or otherwise undeserved advantages. In theory, the law can respond
in two ways. First, it can undo the exchange and take the parties 'back
to zero'. The precise mutual return in kind envisaged here is the traditional
mode of restitution mandated by rescission. It is the most sure-fire way
of negating inappropriate exchanges or eliminating disproportionate ones
and it has the added attraction of avoiding the need to value the mutual
The second method is simply
to eliminate the difference or disproportion between the values transferred.
Here, unjust enrichment signifies excessive enrichment and only
that part is returned. That there is no enrichment save in the difference
can be clearly seen in the award of the difference between the parties'
mutual payments in the famous swaps case Westdeutsche Landesbank Girozentrale
v Islington LBC.74 To adopt this approach
on the rescission of contract might alarm traditionalists steeped in the
idea that the law has no mandate to reform contracts but only to set them
aside. One reply is that eliminating the difference meets head on
the problem of disproportion raised by the rescission of executed contracts.
Moreover, even the adjustment of continuing contracts is not unknown in
English contract law although rarely conceded as such.75
A less controversial reply is that working out the balance and eliminating
the difference may be the only constructive response where going
'back to zero' is impossible. This is the saldo, which German law
starts with in effecting mutual restitution on rescission.
2. Mutual Restitution and Value Surviving
We have already seen that
one reason for barring a good faith defendant's change of position is to
avoid subverting the policies underlying certain unjust factors. Another
reason lies in the logic of the German saldotheorie.
The idea behind the German
is that the law's concern to protect innocent defendants' security of receipt
via change of position must be heavily qualified by the mutuality
inherent in contractual performance. The receipts of contractual performance
conditional and not absolute in nature; it is premised on the
recipient's own transfer given in exchange. This mutuality persists
through the contract's invalidity and a defendant cannot deny it by seeking
full counter-restitution while not giving full restitution. This reasoning
applies equally to the plaintiff so that, prima facie, neither party
can reduce their liability to account for the value received from
the other if full restitution of the value conferred on the other
is sought. Thus, if the plaintiff pays $10,000 for a car which is worth
only $6,000, on rescission the plaintiff must give credit for the $6,000
of value received even if the car is subsequently written off. Likewise,
the defendant must give credit for the $10,000 received even if the money
has been given to charity or lost in a fire. This would yield a net award
of $4,000 to the plaintiff.
b) Saldotheorie, unjust factors and the plaintiff's change of position
puts the risk of the loss of enrichment on the recipient while the change
of position defence puts that risk on the transferor. In German law it
is apparent that the nature of the unjust factor triggering rescission
influences the allocation of that risk. We have seen that even fraudulent
minors are not shut out of the change of position defence. But so strong
is the protective policy underlying minority that it can also displace
the saldotheorie so that bad faith minors need only return the enrichment
surviving but can claim back the full enrichment transferred even from
good faith adults who have lost some of that enrichment.
is similarly displaced where it would protect bad faith and other undeserving
defendants from the loss of their transfers in the plaintiffs' hands. In
the example given, a strict application of the saldotheorie would
require the plaintiff to fully account for the $6,000 value of the car
even if its total loss is attributable to the defendant's fraud, say in
misrepresenting the condition of the brakes. To counter this potential
unfairness it has been held that where fraud, duress or immorality (analogous
to exploitation in English law) vitiates the contract, defendants are required
to return the value received while plaintiffs need only account for the
value surviving. This is the zweikondiktionenlehre.77
But while this solution meets one type of unfairness it can create another
because of its insufficient sensitivity to how the plaintiff lost the enrichment.
One case illustrates the problem.78 The
plaintiff bought a used car relying on the defendant's fraudulent misrepresentation
that it had never been in an accident. Three weeks later, the car was wrecked
through the plaintiff's negligence. The damage was not attributable to
the car's previous accident yet, because of the fraud, the Bundesgerichtshof
allowed the plaintiff to rely on change of position while also recovering
the full price paid for the car. The injustice of this result indicates
that the availability of change of position to plaintiffs should not only
depend on the nature of the operative unjust factor but, analogous to the
defendant's change of position,79 must
also be sensitive to how the loss was occasioned.
c) Should English law recognise change of position for the plaintiff?
In cases of fraud, duress
or exploitation, English law largely disqualifies defendants from change
of position. If mutual restitution by money substitute is allowed, the
position would largely mirror the German saldotheorie. This would
be a positive development. But should English law go further and admit
the German exceptions to the saldotheorie, which essentially permit
plaintiffs to reduce their counter-restitution by reference to their change
of position? The notion may raise some eye brows but it deserves serious
First, if the aim of restitution
is to remove defendants' unjust enrichment and the aim of counter-restitution
is to remove plaintiffs' unjust enrichment80
then, as a matter of symmetry, change of position should be potentially
available to neither or to both in working out mutual restitution. Second,
the plaintiff's change of position is already implicitly recognised in
cases where counter-restitution is satisfied by the return of severely
depreciated property.81 Moreover, it seems
that plaintiffs at fault are disqualified from this change of position.
In Alati v Kruger,82 the plaintiff
rescinded his purchase of a fruit shop for fraudulent misrepresentation
as to its average takings and abandoned the shop after the hearing but
before the judgment. He obtained restitution and was permitted to return
the deteriorated business without compensation to the defendant since 'it
was not due to any fault on the [plaintiff's] part'. The High Court of
Australia noted that 'even at common law the necessity to return property
in its original condition was qualified so as to allow incidents for which
the buyer was not responsible, such as those to which the property was
liable...from its inherent nature (cf Adam v Newbigging...)'.83
But such change of position is limited. Fullager J explained that:84
'a purchaser remaining
in possession after giving notice of rescission is under a duty to take
reasonable care to preserve the property, so that what he has received
from the other party may, so far as reasonably practicable, be restored
to the other party.... If he commits a breach of this duty and deterioration
results, one of two consequences may follow.... The court may find, having
regard to the conduct of the purchaser, that it would not be equitable
to decree rescission. Or...the court may make it a condition of the
decree that the purchaser shall compensate the vendor in respect of the
deterioration of the property.' (Emphasis added)
If plaintiffs are admitted
to change of position what types of loss should count? We know that loss
of the actual receipt which is causally attributable to the unjust
factor should be allowed85 as should such
loss occasioned by external factors.86
As a matter of symmetry with good faith defendants,87
it may also be appropriate to allow plaintiffs to write off expenditure
in attempted performance for the defendant's benefit or in accordance with
the defendant's wishes. If, for example, the Mother Superior in Allcard
v Skinner had sold a donated vehicle to the plaintiff (a religious
zealot) for an exorbitant price, on rescission for presumed undue influence,
if she is permitted to write off the sums spent on the charitable purposes
subscribed to by the plaintiff; then it would seem distinctly unbalanced
not to allow the plaintiff to write off his loss from crashing the vehicle
while delivering food to the poor and needy, consistent with the Mother
On the other hand, the German
experience indicates the desirability of being responsive to how the loss
occurred. For example, it could be suggested that plaintiffs should not
be able to discount loss or depreciation caused by their own negligence
or intended use (aside from the exceptional expenditure in favour, or consistent
with the wishes, of the defendant just mentioned). This is one explanation88
for the outcome in Wiebe v Butchart's Motors Ltd89
where a contract for the sale of a car induced by the seller's misrepresentation
was rescinded on condition that the buyer pay the seller $600 for the deterioration
of the car which had been used continuously since the sale.
V. Unjust Factors and Valuation of the Enrichment Received
Enrichment may be primary
(that initially received) or secondary (that derived from
the initial enrichment, such as the fruits, profits and the user value).
The restitution of secondary enrichments raises extremely difficult issues
since it overlaps with questions of tracing proprietary rights, restitution
for wrongs and whether such derivative enrichments are 'at the plaintiff's
expense'. These knots will not be untangled here. The point sought to be
advanced can be made with reference to the primary enrichment initially
received although doubtlessly a similar exercise with secondary enrichments
1. Subjective Devaluation
If English law accepts the
possibility of mutual restitution in moneys-worth, particularly where restitution
in kind is impossible, the issue becomes purely one of valuation. The potential
difficulties in this exercise may be one reason for barring rescission
once exact restoration is impossible. But this cannot justify the retention
of the bars. Courts are constantly called to monetise things which are
difficult to monetise, like arms and legs and nervous shock in tort actions.
Valuing the benefits conferred by mutual performances is problematic, but
no more problematic.
One solution would be simply
to impose the objective value. This is largely the German approach.90
However a recipient who cannot return in kind should be entitled to say
'had it not been for the unjust factor I would not have wanted the transfer
at its objective price, or indeed, at all. It is not worth that to me.'
This problem is described by Professor Birks as that of 'subjective devaluation'.91
German law has been criticised for being insufficiently sensitive to its
claim. Indeed, the indiscriminate imposition of objective values in unjust
disturb the equilibrium which the law of contract attempts to establish
between the parties by denying the existence of a contractual obligation.
In other words, restitution would stop to remedy the unjust situations
which other areas of law have created, and end up creating unjust situations
which other areas of the law aim to prevent.'92
Unjust enrichment law should
not impose a forced sale at the objective value despite the rescission
of the contract and so undermine the logic of the unjust factors. In the
valuation exercise, it is German law's turn to learn from English law.
English courts and academics have utilised a number of tests to overcome
the plea of subjective devaluation.93 Sensitivity
to the impact of particular unjust factors can tell us which of
these different tests are appropriate in fixing the existence and
the value of the relevant benefit to their recipients.
2. Valuing the Defendant's Enrichment
Where the defendant's receipt
results from the plaintiff's attempted contractual performance, the existence
of enrichment to the defendant can be established by the 'bargained-for'
or 'reprehensible seeking out' tests. The defendant has sought the benefit
by contracting for it or otherwise unconscientiously procuring or accepting
it. Her consent is untainted and she is not the intended beneficiary of
any unjust factor so she must be taken to value its receipt. But, how
much she values that receipt cannot be determined by reference to the
value fixed in the vitiated contract, otherwise the policy underlying the
contractual invalidity would be subverted. The defendant cannot be heard
to say: 'To me, it is only worth the little I agreed to pay.' The
defendant's unconscientious procurement or receipt of that benefit (in
categories one and two), should fix her to its objective value.
On the other hand, there
may be a case for allowing innocent defendants to subjectively
devalue their receipts. In non-contractual contexts the devaluation should
stop at the 'incontrovertible benefit', that is, the realised, or readily
realisable, benefit received or the saving of necessary expenses by the
defendant. For example, in Ministry of Defence v Ashman94
the defendant lost the right to occupy the plaintiff's premises when her
husband, a member of the Royal Air Force, moved out. Although she stayed
on with her children, she could not be said to have reprehensibly sought
out, or freely accepted, the benefit as she had nowhere else to go pending
re-housing by the local authority. She was undoubtedly benefitted since
the court found that she would otherwise have had to pay for alternative
accommodation. However the value to her was fixed by reference to the cost
of the council housing for which she had applied. This was a quarter of
the cost of market rental and was fixed as the 'incontrovertible benefit'
to her for which she had to account to the plaintiff.
In the context of failed
contracts, whether void, discharged, terminated or rescinded, the prices
contained in such contracts can nevertheless provide evidence of the value
which the innocent defendant attached to the plaintiff's transfer on the
'bargained-for' test. For example, in Boyd and Forest v Glasgow and
South West Railway95 the plaintiff's
claim to rescind an executed contract to build a railway, on the ground
of the defendant's innocent misrepresentation, was denied for the ludicrous
reason that the plaintiff's services in building the railway could not
be returned. Consistent with what has been argued rescission should be
granted and restitution by way of a quantum meruit, limited by the
contract price, awarded.96
Even in contractual situations,
where the 'incontrovertible benefit' clearly exceeds the 'bargained for'
price, it may be a moot point which measure is more consistent with the
reason for restitution underlying the operative unjust factor. For example,
if an innocent Mother Superior, believing she was aiding a young convert's
discipleship, engages her to work for trifling pay around the convent,
on a finding of presumed undue influence, restitution of the 'incontrovertible
benefit' which the young convert's labours conferred may be appropriate.
The value of the crooked fence she builds or her shabby laundering services
may be much less than the notional hourly market rate of her labour but
it may also exceed the paltry contract rate.
3. Valuing the Plaintiff's Enrichment
The existence and value
of the plaintiff's enrichment is more complicated. The law should be responsive
to the impact of the operative unjust factor on the value of the defendants'
transfers to the plaintiffs since they are the unjust factors' intended
beneficiaries. First, the unjust factor could make the transfer wholly
inappropriate or unwanted by the plaintiff. For example, the plaintiff
may obtain something which she would never have wanted had she known the
truth97 or not been unfairly pressured;
or the benefit may be wholly inappropriate to her circumstances, even at
market value.98 If this is so, counter-restitution
should only be required of the 'incontrovertible benefit' conferred on
the plaintiff. Secondly, the plaintiff could have obtained something which
he clearly values, but the unjust factor indicates that he should not have
had to pay for it. For example, when a contract modification is set aside
for duress, the plaintiff need not pay the extra sum promised since he
is entitled to the defendant's performance without paying more.99
There are other examples.100 In such cases,
the plaintiff's enrichment is non-existent or not 'unjust'.
Lastly, the unjust factor
may have resulted in the plaintiff paying too much for something that he
doubtlessly values. Where there is no evidence of how much less the plaintiff
values the receipt, it may be appropriate to lower the value to the market
price. This is one explanation for the salvage cases tucked away in the
Admiralty jurisdiction where exorbitant prices charged for rescue services
are substituted by reasonable awards.101
Similar considerations may colour the adjustment of extortionate credit
contracts permitted in English law102
and the outcome in the recent decision of Maguire v Makaronis.103
Where there is some indication of what lower value the receipt held
for the plaintiff, it may well be defensible to hold him to that whether
on the 'incontrovertible benefit' or the 'bargained-for' tests, along the
lines discussed as being appropriate for innocent defendants.104
Taking into account available
evidence of the value of the receipt to the plaintiff explains two
other phenomena. First, where a contract modification is set aside for
duress, it accounts for why the plaintiff must still pay what was agreed
under the original contract for the defendant's performance. Even if that
original contract is not automatically revived to regulate the defendant's
entitlement in contract,105 it is nevertheless
evidence of the plaintiff's untainted valuation of the defendant's
performance for which counter-restitution should be made. This counter-restitution
can be seen as being effected by partial rescission of the modified contract.
Partial rescission is the second puzzle illuminated by this approach to
4. Partial Rescission Again
a) Subjective devaluation of counter-restitution
We have already seen how
this controversial remedy may be supportable as an expression of exceptional
change of position.106 But an even better
explanation of partial rescission is simply as a means of effecting
counter-restitution of the subjectively devalued enrichment to the plaintiff,
on particular facts. The reversal of unjust enrichment involved in counter-restitution
can be achieved by negating the impact of the unjust factors. If
an unjust factor has induced the plaintiff to pay too much for the benefit
received, she should be able to subjectively devalue it to that which she
would have been prepared to pay, absent the unjust factor and make counter-restitution
of that. Where the unjust factor is solely107
a misrepresentation as to the price the plaintiff is paying (or in an O'Brien
case, the risk being assumed) in return for the defendant's performance,
the represented price or risk which the plaintiff agreed to, may
evidence her actual valuation of the defendant's performance. If so, holding
the plaintiff to that representation is a defensible expression of her
counter-restitution on rescission.
b) Valuing counter-restitution where performance moves to a third party
In principle, this way of
subjectively devaluing the plaintiff's counter-restitution should hold
even if the defendant's performance moves towards a third party rather
than to the plaintiff. McKenzie v Royal Bank of Scotland108
takes the contrary position, denying the existence of any benefit
to the plaintiff in such circumstances so that no counter-restitutionary
obligation is said to arise. But is this reasoning sound? If a plaintiff
buys a car or piano lessons for her son, on rescission say for innocent
misrepresentation, it would seem offensive to allow the plaintiff to recover
all her money without giving any allowance for the value of the
car or the lessons simply because the plaintiff did not personally
receive them.109 Yet that is the logical
outcome of McKenzie. Even though the defendant's performance does
not move towards the plaintiff, she can still be said to have benefited
since she has achieved the very end she sought110
and for which she would have had to pay.
This view of benefit is
consistent with contract law's conception of valuable consideration. More
importantly in this context, it is also a corollary of the idea of subjective
devaluation. The issue is the value or benefit of the defendant's performance
the plaintiff. The fact that the plaintiff has chosen to route that
performance towards a third party does not, in itself, extinguish the benefit
to the plaintiff. This can be expressed in restitutionary language: the
plaintiff has received the incontrovertible benefit of saving expenses,
expenses which she would have had to incur to achieve her desired end.
This approach also respects the conditionality inherent in contractual
exchanges expressed by the saldotheorie. A's retention of B's performance
is premised on A's own counter-performance. Thus, A cannot deny this conditionality
by claiming restitution of his own performance while denying counter-restitution
of B's performance, simply because the latter moved to a third party, designated
by A. This is consistent with the view of the English Law Commission111
and with section 1(6) of the Law Reform (Frustrated Contracts) Act 1943
in English law which allows one party to claim, for the value of benefits
conferred, against a second party who has promised to pay for the
work benefitting a third party.
It can be objected that
itself appears to regard the plaintiff who receives no direct transfer
as being 'manifestly disadvantaged'. But closer inspection shows that the
doctrine distinguishes clearly between appearances and reality. The appearance
manifest disadvantage, because the plaintiff receives no direct transfer,
along with the appearance of a surety-primary debtor relationship which
is at risk of abuse, oils the plaintiff's restitutionary claim in support
of the underlying protective policy, by raising the defendant's constructive
notice. But, no relief is available unless an independent unjust factor
(which may require actual manifest disadvantage) actually taints the dealing
between the surety and the primary debtor. The policy of protection may
warrant easing the plaintiff's evidentiary burden against the lender, by
presuming the relevant knowledge where the plaintiff appears to receive
no direct benefit, but it should not extend to absolving the plaintiff
from giving counter-restitution where there is untainted evidence that
the plaintiff does attribute a particular value to the defendant's transfer.
c) What the cases say
Support for this position
can be found in the outcome of some cases. In the Australian High Court's
decision in Vadasz v Pinoneer Concrete (SA) Oty Ltd,112
the defendant misrepresented that the guarantee sought from the plaintiff
only covered the company's future indebtedness when it, in fact, also extended
to its past indebtedness. Only the latter part of the guarantee was rescinded.113
The same result was arrived at by the English High Court in Bank Melli
Iran v Samadi-Rad,114 an O'Brien
type case. On the reasoning that she who sought equity must also do equity,
the court required the plaintiff, as a condition of relief, to recognise
the security to the extent of the lesser amount misrepresented to her as
her maximum liability.
The real objection seems
to be to the packaging of this as 'partial rescission' with its suggestion
that the defendant is only making partial restitution. In TSB Bank plc
v Camfield115 the Court of Appeal
unanimously denied this possibility. There, a husband innocently misrepresented
to his wife that the charge over their home to support his overdraft was
limited to £15,000. The defendant was fixed with constructive notice
of this and, at first instance, the charge was partially rescinded to leave
a subsisting charge against her for £15,000 because the wife was
'quite prepared to risk' that sum.116
But the Court of Appeal set aside the charge in entirety on the reasoning
that rescission 'is an all or nothing' process' andthe right 'of the representee,
not that of the court'. Further, that if the rescission was lawful, it
was not the court's proper role to 'grant equitable relief to which terms
may be attached.'117
Rejection of partial rescission
in these terms do not necessarily contradict a position which accepts rescission
as being total and the right of the plaintiff, but requires the
plaintiff, as a condition of rescission, to make counter-restitution of
the value of the defendant's performance to her (if necessary on
terms), quite apart from any suggestion of imposing terms to do some vague
and arbitrary justice. Moreover, it should be unobjectionable for this
counter-restitution to be effected by fixing a charge on that which is
to be recovered by the plaintiff, akin to the imposition of a lien in Cooper
v Phibbs.118 The result is the same
(retaining a partial charge on the security rescinded), but the reasoning
falls squarely within the traditional view of rescission and the principles
of unjust enrichment which both require counter-restitution on restitution.
This approach has the added advantage of enabling an outcome which Nourse
LJ concedes in Camfield as one marked by 'morality, perhaps justice
in an abstract sense'.119
Partial rescission as a
means of effecting counter-restitution is suggested in Vadasz. The
High Court of Australia said that 'the justification for not setting aside
the transaction in its entirety or in doing so subject to conditions' is
'to prevent one party obtaining an unwarranted benefit at the expense of
the other.'120 In Samadi-Rad,121
the English High Court approved Wigram V-C's statement in Hanson v Keating:122
'The equity of
the obligor [plaintiff] is to have the entire transaction rescinded. The
court will do this so as to remit both parties to their original position:
it will not relieve the obligor [plaintiff] from his liability, leaving
him in possession of the fruits of the illegal [vitiated] transaction he
complains of. I know of no case which cannot be explained upon this or
analogous reasoning...the court can never lawfully impose arbitrary conditions
upon a plaintiff...but can only require him to give the defendant that
which...is the right of the defendant in respect of the subject of the
In Samadi-Rad, effecting
counter-restitution was accepted as '[t]he basis on which the court can,
without rewriting the parties' bargain, impose terms as a condition to
recognising the wife's claim to relief'.123
Of course, such partial
rescission is only warranted if the court is satisfied that the plaintiff
would have contracted on the basis represented. This was so in Vadasz.
The High Court said: 'it cannot be maintained that the appellant would
not have entered into the guarantee had it been confined' as he was led
to believe. 'Rather, the evidence is that he would have done so, if not
happily, because it was the only way to secure' the defendant's desired
performance.124 On the other hand, if
the court finds that the plaintiff would not have agreed absent the unjust
factor, then the plaintiff should only be obliged to account for any incontrovertible
benefit received,125 which may be nil.
In Commercial Bank of
Australia v Amadio,126 the plaintiffs'
son misrepresented to them that his overdraft which they were securing,
was limited to $50,000 and for six month only. The High Court of Australia
set aside the security in its entirety as an unconscionable bargain. Deane
J had considered 'setting aside the guarantee/mortgage only to the extent...in
excess of $50,000', but he concluded that the plaintiffs would not have
entered the transaction at all had they known their son's true financial
position.127 The same explanation accounts
for the total rescission in McKenzie v Royal Bank of Scotland.128
The bank had misrepresented to the plaintiff that her shares, which had
secured previous loans to her husband, were already lost and that her signing
the new guarantee 'offered the only means of salving them'.129
Absent this misrepresentation, the plaintiff would never have entered the
contract at all. Camfield bears the same interpretation. The charge
was set aside completely because 'had the true nature of the legal charge
been known to the wife she would not have entered into the charge and the
enjoyment of her home would never have been at risk'.130
These are not cases where the plaintiffs would have valued the benefits
even at the lower risks represented because in O'Brien situations,
such misrepresentations often imply further misrepresentations about the
viability and health of the business which the charge is supporting. Moreover,
the whole situation is often coloured by undue influence.
Unjust factors are irrelevant
only in so far as the absence of cause for the transfer, for any
reason, should prima facie admit the plaintiff to a restitutionary claim.
But that is just the beginning. In working out the precise details of the
restitutionary response, the nature of the unjust factors, embodying the
reasons for restitution, come to the fore. First, they explain why the
change of position defence is not available to unconscientious defendants
and why that disqualification should extend to some innocent defendants.
Second, they point to the logic of dissolving certain bars to rescission
in English law and of extending change of position to reduce the plaintiff's
counter-restitution. Third, in valuing enrichment, they signal the need
in English and German law to allow plaintiffs especially to subjectively
revalue their enrichments to reflect the impact of the unjust factors.
Lastly, effecting the plaintiff's subjectively re-valued counter-restitution,
by charging that which is returned to the plaintiff, offers a justification
for the remedy of partial rescission.
Even German law, with its
single ground of absence of cause, is not indifferent to the unjust factors.131
We have seen that the particular reason for invalidating the transfer colours
when a defendant's restitutionary liability is reducible to the enrichment
surviving (analogous to the English change of position), and when the saldotheorie
should be ousted, in favour of the zweikondiktiontheorie, to allow
for the plaintiff's change of position. The call for German law to show
greater sensitivity to the unjust factors in valuing the enrichments received
has also been discussed. Moreover, it is evident that the single ground
approach can generate restitutionary liability which is both over-inclusive
and under-inclusive, necessitating further layers of qualifications to
generate satisfactory outcomes. I conclude with two examples from the field
The general enrichment action
would logically confer a claim on one who makes an undue transfer even
if it is made deliberately and without mistake. This necessitates the first
qualification and paragraph 814 BGB bars restitution if the plaintiff knew
at the time of performance that there was no obligation to perform. This
bar essentially functions as the unjust factor of mistake in English law.
But, since this no-mistake bar operates as a general defence to
a general action, a further complication arises necessitating a
further qualification. Plaintiffs induced to make transfers under duress
usually know that they are not legally obliged to do so and a straightforward
application of paragraph 814 BGB would bar restitution here. Without an
unjust factors approach:
have been found in order to ensure that 814 BGB does not defeat restitution
in most cases of duress and imbalance of bargaining power...thus,...the
defence of knowledge only applies to performance which has been made voluntarily,
ie without pressure having been applied, and for this reason will not defeat
restitution cases of compulsion.'132
A second example suffices to
illustrate how inappropriate outcomes can result from a failure to acknowledge
the unjust factors. The general ground of absence of cause confers no restitutionary
action where 'the transaction which took place was based on a valid legal
cause but has, nevertheless, lead to an unjust shift of wealth between
two people.'133 Thus, where a debtor pays
because the creditor has threatened him with physical violence if he does
not, the creditor's retention would not be without cause and yet
retention of the proceeds of this sort of self-help is surely objectionable.
With such non-contractual acts of fulfilment then, other means have to
be found to generate an appropriate restitutionary response. Exploring
the possibilities, Dr du Plessis writes:134
'it could be argued
that fraud or duress affect the determination of the purpose of a transfer,
thereby leading to its failure to fulfill an obligation. However, this
seems like a rather strained interpretation of "failure of the purpose
of the transfer". Alternatively, one could argue that we are dealing with
a type of Eingriff or encroachment. However...as long as here has
been some form of transfer or "giving", rather than "taking", an analysis
based on encroachment seems strained. One is therefore left to conclude
that it might even be necessary for a further type of enrichment claim,
based on the idea that any due transfer obtained in an improper manner,
is retained without legal ground'.
In a survey of the German law
of unjustified enrichment, Professor Zimmermann and Dr du Plessis conclude
that 'by adopting a general enrichment action the fathers of the BGB created
a catalyst which eventually lead to a completely new, but more rational,
division of enrichment claims.' Nevertheless, they concede that 'greater
clarity' can 'be obtained of the basic policies underlying the law of unjustified
enrichment.'135 The claim here is more
emphatic. The details of the restitutionary response should be closely
tailored to the initial reasons for granting restitution. These reasons
are accessible only by a proper understanding of the unjust factors which
invalidate the particular transfer, whether legally due or not, and which
bring the case to the door of unjust enrichment law. English and German
law already show a degree of responsiveness to the unjust factors. Both
can, and should, be more responsive still.
1 My gratitude
to Professors Peter Birks, Jane Stapleton and Richard Sutton, Dr Gerhard
Dannemann and Mr Dominic O'Sullivan for generous discussions which have
clarified my thinking and saved me from errors although, doubtlessly, many
persist. I am also grateful to Professors Reinhard Zimmermann and David
Johnston for providing me with the occasion for embarking on comparative
study and to the Law Faculty at Otago University for hosting me during
a sabbatical when the text was finalised.
Zimmermann and Jacques du Plessis, 'Basic Features of the German Law of
Unjustified Enrichment',  Restitution Law Review 14ff, 14.
Financiere de la Cite v Parc (Battersea) Ltd  1 All ER, 737,
740;  2 WLR 475. The House of Lords recognises that unjust enrichment
claims comprise a four stage enquiry: i) is the defendant enriched? ii)
was this enrichment at the plaintiff's expense? iii) was the enrichment
unjust? iv) does the defendant have any defences?
Zweigert and Hein Kötz, Introduction to Comparative Law (3rd
ed., 1998), 565.
Birks, An Introduction to the Law of Restitution (1989, revised
paperback edition). See also Andrew Burrows, The Law of Restitution,
for example, Reinhard Zimmermann, 'Unjustified Enrichment: The Modern Civilian
Approach', (1995) 15 Oxford Journal of Legal Studies, 403ff, 414.
and Kötz (n.4), 565.
(1995) 15 Oxford Journal of Legal Studies 414.
These being my terms of reference for a paper presented at the Symposium
on the Comparative Law of Unjust Enrichment, Cambridge April 1999, from
which this and other papers in this collection have emerged.
 1 AC 180. This doctrine protects plaintiffs who have been wrongly
induced by someone to whom they are emotionally attached, typically the
plaintiff's husband, to guarantee his debt, and typically by putting up
the family home as security.
Burrows (n.5), 31-32.
Birks, Forward in: Andrew Skelton, Restitution and Contract (1998).
For discussion see, for example, Birks (n.13); DP Visser 'Rethinking Unjustified
Enrichment: A Perspective of the Competition between Contractual and Enrichment
Remedies',  Acta Juridica 203. The author discusses this point
more fully in a forthcoming article devoted to rescission.
Zimmermann, (1995) 15 Oxford Journal of Legal Studies 416.
See further Markesenis, Lorenz and Dannemann, The German Law of Obligations:
Vol 1 The Law of Contracts and Restitution (1997), 725-26.
See CTN Cash and Carry Ltd v Gallaher Ltd  4 All ER 714, 720
per Sir Donald Nicholls VC.
See further Markesenis, Lorenz and Dannemann (n.16), 187-191, 204-211.
Zimmermann, (1995) 15 Oxford Journal of Legal Studies 407, 415-416.
Birks (n.5), 140-355. See further elaboration in Burrows (n.5) chps 3-13.
See for example Markesenis, Lorenz and Dannemann (n.16), 205 and Zweigert
& Kötz (n.4), 423-24, 428.
See Mindy Chen-Wishart, Unconscionable Bargains (1989);
"The OBrien Principle and Substantive Unfairness", (1997) 56
Cambridge Law Journal 60ff; "Controlling The Power to Agree Damages",
in: Birks (ed), Wrongs and Remedies in the Twenty-First Century
 1 WLR 1919.
The view that these unjust factors nevertheless remains plaintiff-sided,
albeit 'inhibited' on policy grounds creates an unnecessary distortion.
See Chin and Birks 'The Nature of Undue Influence' in Beatson and Friedmann
(eds) Good Faith in Contract Law (1995), chp 3.
Although exceptionally in German law third party duress can rescind
the contract. See generally Reinhard Zimmermann, The Law of Obligations:
Roman Foundations of the Civilian Tradition (1990), 661.
example Williams v Bayley  LR 1 HL 200 and Mutual Finance
v Wetton  2 KB 389, where some active pressure is applied by
threatening to prosecute, or to expose some harmful information to, the
plaintiff's loved one.
In Hart v O'Connor  AC 1000 the Privy Council indicates that
victimisation by the defendant may be active or passive. The former requires
positive conduct by the defendant which unconscientiously induces the plaintiff's
transfer. Louth v Diprose (1992) 175 CLR 621 provides a colourful
example. See further Chen-Wishart (n.22 Unconscionable Bargains),
It would also logically account for the relief given in cases of unilateral
mistake of terms known to defendant, Smith v Hughes (1871) LR 6
QB 597; and of knowing receipt.
For example, the O'Brien doctrine treats a lender as having constructive
notice of the surety plaintiff's defective consent where it knows that
the plaintiff is in a 'sexual or emotional relationship' with the primary
debtor and where the suretyship is manifestly disadvantageous to the plaintiff.
Normally there is no actual or even constructive knowledge in any meaningful
sense and knowledge here is really deemed and fictional.
See for example, Credit Lyonnaise Bank Nederland NV v Burch 
1 All ER 144, Chen-Wishart (1997) 56 Cambridge Law Journal, 60ff.
For example Allcard v Skinner (1887) 36 Ch D 145.
For example, Nichols v Jessup  1 NZLR 226, noted Mindy Chen-Wishart
'Unconscionable Bargains'  New Zealand Law Journal, 107ff.
For example, Redgrave v Hurd (1881) 20 Ch D 1.
For fuller discussion see Chen-Wishart (n.22 Unconscionable Bargains),
108-112; also (n22 in Wrongs and
Remedies in the Twenty-First Century), 293-4.
See for example, Markesenis, Lorenz and Dannemann (n.16), 187-191, 204-211.
Paragraph 138(2) reads 'A legal transaction is also void whereby a person
exploiting the need, carelessness or inexperience of another, causes to
be promised or granted to himself or to a third party in exchange for a
performance, pecuniary advantage which exceed the value of the performance
to such an extent that, under the circumstances, the pecuniary advantages
are in obvious disproportion to the performance.' Translated in Markesenis,
Lorenz and Dannemann (n.16), 825.
Gorman (a firm) v Karpnale Ltd  2 AC 548.
scope of the defence is still uncertain and the possibility that it may
extend beyond instances of loss of enrichment, to those where supervening
events make full restitution unjust, is not ruled out.
der Bereicherung 818 (3) BGB: The obligation to provide return or compensation
for the value is excluded to the extent that the recipient is no longer
enriched.' Translated in Markesenis, Lorenz and Dannemann (n.16), 895.
See Lipkin Gorman (a firm) v Karpnale Ltd  2 AC 548 and paragraph
819 (1) BGB: If the recipient knows of the lack of a legal cause at the
time of the receipt, or if he later learns of this lack, he is obliged
to provide restitution from the time of the receipt or from the time when
he obtains this knowledge as if an action for restitution had been pending
at that time. Translated in Markesenis, Lorenz and Dannemann (n.16), 895.
I am indebted to Dr Gerhard Dannemann for clarifying this point. See also
Zweigert and Kötz (n.4), 557 'In practice...the recipient cannot escape
on the ground that his enrichment has ceased to exists if the underlying
contract was tainted by his deceit or duress'.
But it must have been the very acceptance of the performance which offended
against the law or good morals in order for change of position to be ruled
out as a defence.
See for example R Leslie Ltd v Sheill  3 KB 607 where a minor
fraudulently misrepresented his age to obtain a loan which he completely
dissipated. The Court of Appeal rejected the suggestion that the minor
should repay the amount he received but accepted that, in principle, equity
could compel restitution of any enrichment still surviving in the minor's
hands. For German law see Zweigert and Kötz (n.4), 557, 'a minor may
raise this defence even if he knew of the invalidity of the contract at
the time he received the benefit, since the court, in order to protect
him, do not hold this knowledge against him', and see 590-591, 593.
Zweigert and Kötz (n.4), 594.
Ibid., 591 (emphasis added).
In Royal Bank of Scotland v Ettridge(No
2)  4 All ER 705, the Court
of Appeal offers no reasons other than that there is no hint of change
of position in O'Brien itself.
See M Bryan 'Change of Position: Commentary' in: Mitchell McInnes (ed.),
Restitution: Developments in Unjust Enrichment (1996), 75, 79-80 arguing
that change of position should not be available for all 'innocent' defendants
in undue influence and unconscionability cases. He points out that security
of receipts is not the only operative policy where a legal or equitable
wrong has been committed; that the civil law protects many interests and
promotes many values and that the 'effectiveness of the law in furthering
these interests and values could be blunted by an overgenerous application
of the change of position'; further, that allowing change of position 'may
defeat not only the demands of restitution but also the equitable concern
with transactional imbalances of power which informs' these areas of the
See generally John Dawson, 'Erasable enrichment in German Law' (1981) 61
Uiversity Law Review 303ff, 306.
 1 WLR 129.
Mindy Chen-Wishart 'Undue Influence, Manifest Disadvantage and Loss Apportionment'
(1994) 110 Law Quarterly Review 173ff.
 3 All ER 61, the plaintiff agreed, inter alia, to cancel his 50%
of shares for an annuity of £20,000 a year for ten years payable
by the company. The company was sold shortly after for £3.3 million
but the sum was lost on another venture. May J awarded the difference in
money value between what the plaintiff transferred and he received. See
comment by Peter Birks 'Unjust Factors and Wrongs: Pecuniary Restitution
for Undue Influence'  Restitution Law Review 72ff and JD Heydon
'Equitable Compensation for Undue Influence', (1997) 113 Law Quarterly
(1887) 36 Ch D 145.
Ibid., per Bowen LJ at 186; see also Kekewich LJ at 164, Lindley LJ at
Ibid., Cotton LJ at 171.
In O'Brien cases lenders normally have no actual or even constructive
knowledge of the principal debtor's equitable wrong in any meaningful sense.
Knowledge is deemed where the lender is aware that the plaintiff has a
'sexual or emotional relationship' with the primary debtor and that the
plaintiff is securing a debt of the latter.
 AC 468.
See for example Guenter Treitel, The Law of Contract (9th
ed., 1995), 352.
The plaintiff can be said to have benefited in the sense of achieving a
desired end for which she would have had to pay, see discussion below at
 2 AC 548, 580.
 4 All ER 705.
The remedy was adopted in Vadasz v Pinoneer Concrete (SA) Oty Ltd (1995)
184 CLR 102 and Bank Melli Iran Samadi-Rad  1 FCR 465, but
was disapproved in TSB Bank v Camfield  1 WLR 430. See further
discussion below at Part V4.
See Part V4.
English law confers no such automatic entitlement on the defendant absent
an unjust factor in his favour (although failure of consideration has been
posited, see Andrew Burrows (n.5), 133-134). Rather, counter-restitution
is generally regarded as a condition of rescission and the concomitant
Para. 818 (2) BGB: 'If due to the nature of what has been obtained, return
is impossible, or if the recipient for another reason is not in the position
to return what he has obtained, he must compensate for the value.' Translated
in Markesenis, Lorenz and Dannemann (n.16), 895.
In the case of money, mutual restitution essentially becomes a personal
claim for the sum transferred rather than for the precise notes or coins.
& Forrest v Glasgow & South Western Railway, 1915 SC (HL) 20
where the plaintiff was induced to build a railway by misrepresentation
as to the strata, the plaintiff's claim for rescission and for quantum
meruit exceeding the contract price failed because, inter alia,
restitution of the plaintiff's services was impossible.
v Garden (1851) 10 CB 919
Thus in Spence v Crawford  3 All ER 271 rescission was allowed
and restitution of the shares sold by the plaintiff ordered although the
fraudulent defendant had dealt with the shares.
For example, rescission was barred in Clarke v Dickson (1858) EB&E
148 where the plaintiff bought shares in a partnership but converted it
into a limited liability company; and in Vigers v Pike (1842) 8
Cl & F 562 where the plaintiff bought a mine and sought to rescind
after it had been worked out. See also Sheffield Nickel and Silver Planting
Co Ltd v Unwin (1877) 2 QBD 218, Thorpe v Fasey 
See O'Sullivan v Management Agency & Music Ltd  QB 428
where a partly performed contract to manage a popular singer was rescinded.
The defendant had to account for their profits but credit was given to
them for their skill and labour in promoting the plaintiff and making a
significant contribution to his success. See also Atlantic Lines &
Navigation Co Inc v Hallam Ltd  1 Lloyd's Rep 188, 202.
In Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278
Lord Blackburn held that a Court of Equity can give relief by way of rescission
whenever by the exercise of its powers it can do what is practically just
by directing accounts, ordering equitable compensation and making allowances
when it cannot restore the parties precisely to their pre-contractual position.
More recently, in Scrimgeour Vickers (Asset Management) Ltd 
AC 254, 262 Lord Browne-Wilkinson suggested, obiter dicta, the possibility
of allowing substitute in species restitution in the case of a fungible
assets such as shares in a public company. He said that since 'identical
shares can be purchased on the market, the defrauded purchaser can offer
substantial restitutio in integrum which is normally sufficient'. Ewan
McKendrick identifies the potential problem of the plaintiff profiting
by acquiring the substitute shares more cheaply than it sold them ans suggests
a solution. See 'Total Failure of Consideration and Counter-Restitution:
Two issues or one?' in: Peter Birks (ed.),Laundering and Tracing
(1995) 217ff, 233-6. This unnecessary complication is avoidable if counter-restitution
can be worked out wholly in money.
Where a contract has been induced by fraud, the courts are particularly
ready to give the victim rescission, Spence v Crawford  3
All ER 271, 288-9 per Lord Wright: 'The court will be less prepared to
pull a contract to pieces where the defendant is innocent, whereas in the
case of fraud the court will exercise its jurisdiction to the full in order,
if possible, to prevent the defendant from enjoying the benefit of his
fraud at the expense of the innocent plaintiff. Restoration, however, is
essential to the idea of restitution.... The court can go a long way in
ordering restitution if the substantial identity of the subject matter
of the contract remains'.
Compensation is available for deceit and negligent misrepresentation and
under the Misrepresentation Act 1969 in English law. But contracts induced
by duress or exploitation suggest no obvious torts. In so far as there
is a tort (eg of deceit or intimidation) the plaintiff can recover all
his losses including the value of his own performance towards defendant
(in German law see para.249, 823 (2) BGB).
 AC 669.
The most obvious examples are rescission on terms in mistake cases; the
adjustment of extortionate credit bargains; doctrines which allow particular
terms of the contract to be struck out leaving the rest of the contract
on foot (restraint of trade, penalties, forfeitures and particular exclusion
and exemption of liability clauses); the awarding of damages in lieu of
rescission under s2(2) Misrepresentation Act 1969; and the controversial
possibility of partial rescission which has already been discussed
at III5 and on which more will be said at V4.
See generally Markesenis, Lorenz and Dannemann (n.16), 764-66; Zimmermann
and du Plessis,  Restitution Law Review 40-42; DP Visser, 
See Zimmermann and du Plessis,  Restitution Law Review, 42; Markesenis,
Lorenz and Dannemann (n.16), 765.
BGH 14 October 1971, BGHZ 57, 137, 141 et seq cited in Markesenis,
Lorenz and Dannemann (n.16), 765.
See discussion above at III 3 and 4.
See McKenzie v Royal Bank of Canada  AC 468. This not uncontroversial
since counter-restitution is usually said to be aimed at restoring the
defendant to his status quo ante, that is, his position before the
contract was made which is suggestive of a tortious measure.
For example, in Adam v Newbigging (1888) 13 App Cas 308, 330 the
partnership contract was rescinded although it was by then 'worse than
worthless'. The court said that to bar rescission 'would be to say that
where a losing and insolvent business is sold by means of the representation
that it is solvent and profitable, rescission could never be obtained if
the loss were increased prior to the discovery of the true state of affairs'.
See also Armstrong v Jackson  2 KB 822, where a contract for the
purchase of shares was set aside on return of the shares and account given
for the dividends received despite a substantial intervening fall in their
value, from £3 to 5 shillings.
(1955) 94 CLR 216, 225.
See n.81 and n.83 and text accompanying.
As in Alati v Kruger (1955) 94 CLR 216 where devaluation of the
fruit shop to be returned was due to the opening of a supermarket nearby.
See above Part III3.
Another is that the proper measure of counter-restitution includes not
only the primary enrichment transferred but also the secondary enrichment
derived from its user.
 4 DLR (NS) 838; see also Addison v Ottawa Auto and Taxi Co
(1916) 16 DLR 318.
Markesenis, Lorenz and Dannemann, (n.16), 760-62.
Birks (n.5), 109-114. This terminology was first used judicially by Hoffmann
LJ in Ministry of Defence v Ashman (1993) 66 P&CR 195.
Markesenis, Lorenz and Dannemann, (n.16), 761-762.
See generally BP Exploration Co (Libya) Ltd v Hunt (No2) 
1 WLR 783; Ministry of Defence v Ashman (1993) 66 P&CR 195;
& Gamble Philippine Manufacturing Corp v Peter Cremer GmbH 
3 All ER 843; and see, Lord Goff of Chieveley and Gareth Jones,
Law of Restitution (5th ed, 1998), 16-33; Birks (n.5), 114ff;
Burrows (n.5), 7-16; discussing tests such as 'incontrovertible benefit',
'bargained for', 'reprehensible seeking out' and 'free acceptance'.
(1993) 66 P&CR 195.
1915 SC (HL) 20.
Burrows (n.5),136, and see 269 in respect of the valuation of the plaintiff's
claim where failure of consideration follows discharge of the contract
For example, in Kettlewell v Refuge Assurance Co  1 KB 545
the defendant's fraudulent misrepresentation induced the plaintiff to pay
insurance premiums for four years; rescission was allowed although counter-restitution
of the benefit from the defendant (the insurer was on risk and would have
had to pay if the risk had eventuated) was impossible. No payouts were
made. If it had been otherwise, the plaintiff should have to make an allowance
of her incontrovertible benefit.
For example, in Gaertner v Fiesta Dance Studios Ltd (1972) 32 DLR
(3d) 639, the plaintiff, a young woman contracted for 551 hours of dancing
lessons owing to her gullibility and loneliness; and in Greisshammer
v Ungerer (1958) 14 DLR (2d) 599, a contract for 115 hours of dancing
lessons found to be a ridiculous bargain which the plaintiff could ill
Of course, the concern to protect the plaintiff from the pressure applied
by a defendant's threat to breach the original contract may be outweighed
by other policy considerations such as the prevention of waste. The concern
to ensure that projects are brought to fruition without undue waste even
if more must be paid has manifested itself in a higher degree of coercion
being required which is deemed not to have been met on certain cases, for
example, The Siboen and the Sibotre 
AC 104 and Pao On v Lau Yiu Long  AC 614.
This accounts for Kiriri Cotton Co v Dewani  AC 102, where
the plaintiff paid an illegal premium to obtain a tenancy. Since the illegality
seeks to protect those in need of rental accommodation, the plaintiff could
recover the premium without giving up the tenancy.
For example, see The Port Caledonia and The Anna  P 184 where
a reasonable sum of £200 was substituted for the contract price of
Sections 137-40 of the Consumer Credit Act 1974 allows English courts to
re-open extortionate credit agreements to do justice between the parties.
The German practice of partial rescission in usury cases leaving an interest
free loan seems justifiable only in the interest of deterrence.
(1997) 71 ALJR 781. There, solicitors provided bridging finance to clients
on the security of their home without disclosing their interest in the
mortgage. The High Court agreed with the lower court that the mortgage
should be set aside but required the clients to repay the money with interest,
not at the contract rate, but at the commercial rate.
See above n.94-96.
The court in Pao On v Lau Yiu Long  AC 64, regarded, as grossly
unfair to the defendants, the plaintiff's argument that they were not bound
to pay anything for the defendant's performance because i) the original
contract was put to an end by the modification and not binding, and ii)
the modification was tainted by duress and also not binding. This no doubt
contributed to the court's finding that no economic duress vitiated the
See Part III5.
In O'Brien situations this will often not be the case. Even if the
operative unjust factor is this sort of misrepresentation, there will often
be overtones of undue influence or breach of fiduciary duty owed to the
plaintiff or the misrepresentations about the extent of the risk assumed
will imply other facts, namely, about the health and viability of the business
 AC 468.
Although, in theory at least, the defendant may appeal to change of position.
But it would be otherwise if the impact of the unjust factor was to render
the defendant's transfer valueless to the plaintiff as where the defendant
is unqualified to teach piano or the car is not roadworthy.
Report No 121, Law of Contract: Pecuniary Restitution on Breach of Contract
(1983), para 2.47.
(1995) 184 CLR 102.
But note that McGuire v Makaronis (1997) 144 ALR 729, 744 distinguishes
where fraud was assumed on that basis that the 'scope of rescission may
be determined by the nature and extent of the conduct giving rise to the
equity for rescission'.
 1 FCR 465.
 1 WLR 430.
(1867) LR 2 HL 149. The contract was rescinded for mistake and a lien was
granted over the fishery returned to the plaintiff in response to the money
spent by the defendants improving the property.
(1995) 184 CLR 102, 114.
 1 FCR 465, 476.
(1844) 4 Hare 1, 6.
(1995) 184 CLR 102, 115.
The quantification problems may be extremely complex, see Dunbar Bank
plc v Nadeem  3 All ER 876, 885, 887, but the principle is clear.
(1983) 151 CLR 447.
Ibid., 481. See discussion in Vadasz v Pinoneer Concrete (SA)
Oty Ltd (1995) 184 CLR 102, 115.
 AC 468.
Ibid, 474, 476.
Bank plc v Camfield,  1 WLR 430, 439.
See generally Zweigert and Kötz (n.4), 557.
Markesenis, Lorenz and Dannemann (n.16), 763.
Jacques du Plessis, 'Fraud and Duress in the Law of Unjustified Enrichment:
A Civilian Perspective', a paper presented to the Symposium on the Comparative
Law of Unjustified Enrichment, April 1999, Cambridge.
Zimmermann and du Plessis,  Restitution Law Review 43.
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