mccarthy tétrault llp / mccarthy.ca / 1 the common law: restitution march 27, 2012 ryan rabinovitch

McCarthy Tétrault LLP / mccarthy.ca /

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The Common Law: Restitution

March 27, 2012

Ryan Rabinovitch


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I. What is “Restitution”?

1. A Somewhat Ambiguous Term:a. Sometimes used to refer to a “giving back”;

• E.g. A gives B $100. A seeks “restitution” of the $100 from B. A wants B to “give back” his $100.

b. Sometimes used to refer to a “giving up”;• E.g. A person makes $100 by selling copies of a book in

which another person has a copyright without the copyright-holder’s permission. The copyright-holder seeks “restitution” of the $100. If the “copycat” is ordered to pay the copyright-holder $100, he is not giving the copyright-holder “back” $100 (he received the $100 from his customers, not the copyright-holder). He is giving “up” the $100.

• Just semantics? No. A plaintiff would rather have restitution in the “giving up” sense than the “giving back” sense.

• He doesn’t want recovery to be limited to what came from his own pocket. He wants all of the defendant’s profits.


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I. What is “Restitution”?2. Cause of Action vs. Remedy:

• Restitution is sometimes referred to as though it were a cause of action, but it isn’t.

• Restitution is a remedy. • In that sense, it is analogous to “compensation”.• When someone seeks compensation, this begs the

question, compensation for what cause of action? Negligence (i.e. a tort/delict)? Breach of contract?

• Similarly, when someone seeks or obtains restitution, this begs the question, restitution for what?

• Restitution is typically thought of as a remedy for “unjust enrichment”.


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I. What is “Restitution”?2. Cause of Action vs. Remedy:

• Can restitution be a remedy for any causes of action other than unjust enrichment?

• If we mean restitution in the “giving up” sense, yes:a. Certain torts and tort-like causes of action (e.g. breaches of

fiduciary duty, breach of intellectual property rights). b. Breach of contract: Attorney General v. Blake (UKHL, 2001):

British Crown sues an ex-spy (MI6 double-agent George Blake) to recover royalties received from his publisher in connection with the publication of his autobiography. Blake’s employment contract provided that he would not publish any information concerning his work as a spy either during or after employment.

• As a remedy for unjust enrichment, restitution is only available in the “giving back” sense. The plaintiff cannot recover all of the profits earned by the defendant; just what came out of the plaintiff’s own pocket.


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II. What is “Unjust Enrichment”?1. Unjust Enrichment (generally):

• Three basic ingredients (both Common law and Civil law):

a. An “enrichment” of the defendant;b. The plaintiff suffers a “corresponding deprivation”;c. The enrichment/corresponding deprivation are “unjust”:

• If the plaintiff makes out these three elements, he/she gets “restitution”.


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II. What is “Unjust Enrichment”?1. Unjust Enrichment (generally):

• The classic example of unjust enrichment - Mistaken payment - Kelly v. Solari, (UK Ex. Ct., 1841):

• Mr. Solari purchases an insurance policy. The terms of the insurance policy provide (1) that the insurance company will give £1,000 to the beneficiary of Mr. Solari’s choosing upon his death, and (2) that the policy will lapse automatically if Mr. Solari fails to make any premium payment. Mr. Solari designates his wife, Mrs. Solari, as his beneficiary under the policy.

• Mr. Solari dies in October 1840 after having failed to make a payment.

• Following Mr. Solari’s death, Mrs. Solari receives a cheque in the amount of £1,000 from the insurance company, whose employees did not (for reasons unknown) realize that Mr. Solari’s policy had lapsed. The insurance company sues Mrs. Solari to recover the £1,000.


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II. What is “Unjust Enrichment”?2. UE Liability is “Strict Liability” (i.e. No Fault):

• One of the most striking features of UE liability is that it is strict liability.

• Fault is irrelevant to UE in two ways:a. It is not necessary for the plaintiff to make out a fault/negligence on the

part of the defendant in order to succeed.b. The plaintiff’s claim cannot be defeated on the basis that it is the

plaintiff’s own fault that the enrichment/corresponding deprivation occurred.

• How to explain this odd feature of UE?• Making restitution is so easy in an UE case. • We are not making the defendant worse off. We are just putting him back

in the position he would be in if the transaction had never occurred (i.e. we are just asking him to give back what he should never have received).

• Tort (civil liability) and breach of contract are different in this regard. The defendant has to “dig into his own pocket” in order to pay the amount for which he is liable.


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3. Unjust Enrichment in Quebec Civil Law:• Scattered around the CCQ:

a. Specific rules which are instantiations of UE (i.e. rules which order a defendant to make restitution where there has been an enrichment, corresponding deprivation and injustice):• Arts. 955ff CCQ – Land-owner’s obligation to pay for improvements

made to the land by a possessor in good faith.• Arts. 1483ff CCQ – “Gestion d’affaires”.• Art. 1606 CCQ - “A contract which is resolved is deemed never to

have existed; each party is, in such a case, bound to restore to the other the prestations he has already received.”

b. “Réception de l’indu”:• Art. 1491 CCQ - “A person who receives a payment made in error, or

merely to avoid injury to the person making it while protesting that he owes nothing, is obliged to restore it.”

c. “Unjustified enrichment” (residual category):• Art. 1493 CCQ - “A person who is enriched at the expense of

another shall, to the extent of his enrichment, indemnify the other for his correlative impoverishment, if there is no justification for the enrichment or the impoverishment.”

II. What is “Unjust Enrichment”?


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4. Unjust Enrichment in the Common Law:• Scattered across the common law (various “pigeon-

holes”):• “Money had and received”;• Quantum meruit;• Quantum valebat;• Constructive/resulting trusts;• Maritime salvage.

• Not really recognized as being embodiments of a single principle until Warren Seavey and Austin Scott published their Restatement of the Law of Restitution, Quasi-Contracts and Constructive Trusts in 1937.

• Subject matter essentially died in the US after that.


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4. Unjust Enrichment in the Common Law:• Torch taken up in the UK by Robert Goff and Gareth

Jones (The Law of Restitution, 1966) and Peter Birks (An Introduction to the Law of Restitution, 1985).

• Eventually recognized in Commonwealth case-law:a. Pettkus v. Becker (1980, SCC) (Canada); and

b. Lipkin Gorman v. Karpnale Ltd. (1991, UKHL) (UK).


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5. Traditional “Unjust Factor” Model of UE:a. Enrichment;

b. Corresponding Deprivation;

c. Transaction is “unjust” due to the presence of an “unjust factor”.

• The classic example of an “unjust factor” is mistake (e.g. Kelly v. Solari). The enrichment received by Mrs. Solari was unjust because the insurance company paid her by mistake.

• Three types of “unjust factor”:i. Plaintiff-sided unjust factors;

ii. Defendant-sided unjust factors; and

iii. “Policy-based” unjust factors.


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5. Traditional “Unjust Factor” Model of UE:a. “Plaintiff-sided” unjust factors:

• “I didn’t mean you to have it”;

• Defects of consent/voluntariness;

• E.g. Mistake and duress (type of situation covered by “reception de l’indu”/art. 1391 CCQ).

• Other types of involuntariness as well:• E.g. Undue Influence - Louth v. Diprose (High Court of

Australia, 1992): Mr. Diprose falls desperately in love with Ms. Louth, who convinces him to buy her a house. Once Mr. Diprose “comes to his senses”, he sues Louth (successfully) in unjust enrichment.


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II. What is “Unjust Enrichment”?5. Traditional “Unjust Factor” Model of UE:

b. “Defendant-sided” unjust factors:• There was only one defendant-sided unjust factor – “free

acceptance”;• Pettkus v. Becker (1980, SCC):

• Plaintiff and defendant were in a common law relationship for nearly twenty years. The plaintiff supported the defendant for 5 of these years, and worked on his farm for 14 of them. When the couple separated, the plaintiff sued the defendant in unjust enrichment.

• Dickson J.: The defendant “freely accepted” the benefits conferred by the plaintiff. He allowed the plaintiff to confer them knowing that she did not intend them to constitute a gift.

• Note, this is not fault. The Court is not saying that the defendant did anything wrong in receiving the benefit, but rather, that having chosen to accept it in circumstances where the defendant knew that the plaintiff expected to be compensated gives rise to the obligation to make restitution.


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II. What is “Unjust Enrichment”?5. Traditional “Unjust Factor” Model of UE:

c. “Policy-based” unjust factors:• There are several “policy-based” unjust factors;• One example is the policy of “encouraging rescue”;• In certain circumstances, the common law deems an

enrichment/corresponding deprivation to be unjust (and thus, grants restitution) to provide plaintiffs with an incentive to come to the rescue of their neighbours.

• E.g. Matheson v. Smiley (1932, Man. CA): Defendant shot himself in the head and was taken to hospital, where the plaintiff doctor treated him (unsuccessfully). The plaintiff sued the defendant’s estate for the value of his services.

• Civil law equivalent: “Gestion d’affaires” (art. 1482 CCQ).


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II. What is “Unjust Enrichment”?6. New “Absence of Juristic Reason” Model of UE:

a. 1980s case-law:• In the 1980s, the Supreme Court of Canada began to

change its approach to the third element of the UE cause of action.

• The Court no longer required the plaintiff to point to the presence of an unjust factor in order to show that the enrichment/deprivation were unjust.

• Instead, it said that the plaintiff must demonstrate the absence of a “juristic reason” for the enrichment/deprivation.

• Examples given by the Court of juristic reasons include a contractual obligation to confer the enrichment, a statutory obligation to confer the enrichment or a “donative intention” (i.e. intention to confer a gift).


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a. 1980s case-law:• Both the “absence of juristic reason” test and the list of

“juristic reasons” appear to have been heavily influenced by Quebec civil law.• “Article 1493 CCQ: A person who is enriched at the expense of

another shall, to the extent of his enrichment, indemnify the other for his correlative impoverishment, if there is no justification for the enrichment or the impoverishment.”

• “Article 1494 CCQ: Enrichment or impoverishment is justified where it results from the performance of an obligation, from the failure of the person impoverished to exercise a right of which he may avail himself or could have availed himself against the person enriched, or from an act performed by the person impoverished for his personal and exclusive interest or at his own risk and peril, or with a constant liberal intention.”


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b. 1990s-present:• Confusion has ensued ever since the change. Courts have

never been sure whether to follow the old “unjust factor” approach or the new “absence of juristic” reason approach.

• The Common law is “precedent-based”. The Courts are reluctant to ignore hundreds of years of case-law and apply a model they are not familiar with.

• Garland v. Consumer’s Gas Co. (SCC, 2004): SCC was asked to clarify once and for all which approach was the correct one. The Court confirmed that the Common law had switched over to the “absence of juristic reason” approach.

• Unfortunately, Courts since that time (including the SCC) have still continued to go back and forth between the two models.

• Interestingly, a similar debate is occurring in the UK:• Deutsche Morgan Grenfell Group Plc v. IRC (UKHL, 2006);• Scottish Law Lords (civilians) have influenced the Common law

jurisprudence.


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7. “Enrichment”: • Ordinarily, restitution takes the form of a monetary

award.• The Common law does not like to force people to pay

for goods or services they don’t want/haven’t freely decided to purchase.

• E.g. - I give you a gift, thinking its your birthday, but in fact your birthday was six months ago. I then sue you for the value of the gift in UE. If I win, the law has effectively made you buy the gift.

• For this reason, the general rule is that a defendant is allowed to argue that he is not enriched in a UE case because he did not want and does not value the thing conferred by the plaintiff.

• Referred to as “subjective devaluation”.


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7. “Enrichment”: • This rule is subject to certain exceptions, however.• A defendant cannot “subjectively devalue” an

enrichment where it is simply not plausible for him to claim that he does not value that enrichment:

a. Money;

b. Requested benefits.


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II. What is “Unjust Enrichment”?8. “Corresponding” Deprivation:

• “Equal in value” concept - The plaintiff can only recover the amount of his impoverishment to the extent that it is “matched” by an equivalent enrichment in the hands of the defendant (i.e. the plaintiff can’t recover the amount of his impoverishment to the extent that it exceeds the defendant’s enrichment).

• “Direct link” – The defendant must have received the enrichment directly from the plaintiff.

• E.g. R. v. M. Geller Inc. (SCC, 1963): Plaintiff agreed to pay a third party to “dress” (treat) sheepskins for it. “Dressers” were liable for a special tax on all the skins that they dressed. The parties’ contract provided that the plaintiff agreed to cover the cost of the tax (i.e. to give the third party the money necessary to pay the tax). The plaintiff paid the amount of the tax to the third party, who gave it to the government. It turned out that the tax was not applicable to sheepskins. The plaintiff tried (unsuccessfully) to sue the government to recover the amount that the government had received as a result of the plaintiff’s mistake.


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II. What is “Unjust Enrichment”?9. Defence of Change of Position:

• UE has its own special defence - “change of position”:• The defendant in an UE case may be relieved from

liability to the extent that he can show that he no longer has the enrichment conferred by the plaintiff (he has “changed his position”).

• Same is true in Quebec civil law (art. 1495(1) CCQ: “An indemnity is due only if the enrichment continues to exist on the day of the demand”).

• The logic of change of position is tied to the reasoning underlying the strict liability nature of UE.

• We said earlier that it is not relevant to a UE claim that the defendant has not committed any fault.


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9. Defence of Change of Position: • The reason this is justified, we said, was that making

restitution is so easy: we are not asking the defendant to “reach into his pocket”. We are not making him worse off.

• But if the strict liability nature of unjust enrichment actions is justified because restitution does not leave the defendant worse off, surely it follows that it is not justified where restitution would leave the defendant worse off.


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III. Conclusion1. Restitution:

a. “Giving up”/“giving back”;

b. Remedy, not a cause of action;

c. When it’s a remedy for unjust enrichment, limited to giving back sense.

2. Unjust Enrichment:

a. Strict liability;

b. Three elements of the cause of action:i. Enrichment – subjective (subject to certain exceptions);

ii. Corresponding deprivation - equal in value concept/direct link;

iii. Unjust;

c. State of civil war concerning the third element (unjust factors v. absence of juristic reason);

d. Special defense of change of position.

mccarthy tétrault llp / mccarthy.ca / 1 the common law: restitution march 27, 2012 ryan rabinovitch

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