MAJOR DEVELOPMENTS IN THE LAW OF RESTITUTION

• Author: PETER BIRKS
• Published date: 01 December 1994
• Date: 01 December 1994

Restitution must have some claim to be the fastest moving subject in the common law world. There are, moreover, developments on a number of different fronts, and the terrain looks very different in all of them even though the specifically restitutionary interest is always the same: on the given facts can the plaintiff recover an enrichment received by the defendant at his expense? This makes it difficult to say which of many recent contributions have been the most important.

There is of course one change which matters more than all the others, because it affects the very way in which problems are perceived and analysed. This foundational change is the now accelerating acceptance of the language of restitution and unjust enrichment as preferable to the inscrutable vocabulary of the past. The word ‘restitution’ is now regularly used in court; and the notion has won wide acceptance that the question whether a defendant should make restitution will best find its answer through an inquiry which asks whether the defendant has been enriched; whether, if so, it happened at the expense of the plaintiff; whether there is a good reason warranted by the cases (an ‘unjust factor’) why that enrichment should be reversed; and, finally, whether there is nonetheless some ground why the prima facie entitlement to restitution should be in whole or part denied.

This transformation of the language is due in large measure to the influence of one great book, Goff and Jones on Restitution, first published in 1966 and now in its fourth edition (1993). The subject which that book has secured lies across the frontier between law and equity at a point at which they have both traditionally concealed their problems in impenetrable vocabulary — implied contract, quasi-contract, money had and received to the plaintiff’s use, money paid to the defendant’s use, implied trusts, subrogation, tracing. There is no conflict between restitution and equity any more than there is a conflict between restitution and common law. No differently from the law of contract, the law concerning the restitution of unjust enrichment draws from both the old jurisdictional streams.

Many specific questions now appear in a new light, and they are reaching the courts with remarkable rapidity. In this paper I have decided to concentrate on just three. The first concerns the remedies available where bribes are taken, which is a topic within the larger question of remedies, particularly gain-based remedies, for wrongs. The second has to do with void contracts or other void transactions and, in particular, with the definition of the precise ground for restitution of benefits transferred under such non-transactions. The third is doubly difficult, because it involves a troublesome sub-question within a subject the perfect understanding of which has eluded many great scholars, namely undue influence. I shall deal only tangentially with the larger subject, concentrating instead on the

sub-question: when will a party dealing with a person who appears to be adult and compos mentis be affected by the fact that person has fallen under the undue influence of another? Usually the party which wants to know the answer is a bank which has taken security from one spouse who acted under the influence of the other spouse and now wants to set aside the security.

1. BRIBERY

There is a question which belongs to both the law of restitution and the law of civil wrongs. Is it possible for the victim of a wrong to claim a gain made by the wrongdoer instead of, or as well as, his own loss. The answer has long been obscured by opaque language,1 but there are undoubtedly circumstances in which the victim may go for the wrongdoer’s gain, even if it is difficult to say precisely in what circumstances the gain-based claim will succeed.2 There is another question which troubles the law of restitution. Under what circumstances will the claims which the law of restitution recognizes be given effect in rem or, in other words, what facts will generate a restitutionary proprietary interest.3 When these two questions are put together, they produce a third: When, if ever, can the victim of a wrong assert, not merely a personal claim to the defendant’s gains, but a proprietary claim to the assets in which those gains have been invested? Misappropriation, whether at law4 or in equity,5 provides one clear example of a species of wrong which does have this consequence.

Is bribery another such wrong?6 The answer has traditionally been given by the notorious case of Lister v. Stubbs.7Lister has long been the focus of dispute. It only decided an issue of interlocutory relief, but the interlocutory question required a view to be taken of precisely the substantive matter which is now under consideration: if an agent received a bribe and used it to make a successful investment, did the victim-principal acquire a proprietary interest in the assets thus acquired?

Stubbs was a buyer for Lister & Co., his employer. He took secret commissions from the sellers with whom he placed contracts. With the commissions he bought a house. Lister made various claims against him and sought interlocutory relief in the form of an order restraining Stubbs from dealing with the house. A very strong Court of Appeal (Cotton, Lindley and Bowen, L.JJ.) held that the availability of the interlocutory relief depended on the plaintiffs’ having a proprietary interest in the house. And they did not have one. Ownership and obligation were not to be confused.8 A bribed agent thus owed the victim-principal the amount of the bribe, but the principal did not own that which the defendant received. The principal’s claim was personal, not proprietary.

This has divided the commentators. Lister v. Stubbs, although followed in subsequent cases,9 has encountered powerful enemies10 and found rather few friends.11 The dispute came to a head a decade ago in a criminal context, when the Attorney-General asked the English Court of Appeal to rule on the question whether a manager trusted by his employer to sell only the employer’s product could be said to have stolen the money which he received by selling on his own account a similar product made by a

competitor. If the manager of a tied pub sold beer other than that made by the owner, did he steal the proceeds which he pocketed? The answer was no: he was personally accountable to his employer for the money which he received in breach of duty but nothing that he received vested in his employer rather than in himself.12

However, that decision has not prevented the dispute from erupting again in a civil context. A huge bribery scandal was disclosed in relation to the leading Indonesian oil company, Pertamina. That led to litigation in the High Court of Singapore. A masterly judgment by Lai Kew Chai, J., in Sumitomo Bank Ltd. v. Kartika Ratna Thahir13 reflected on the arguments for and against the position taken in Lister v. Stubbs and decided, not being bound, that the English Court of Appeal should not be followed. At the same time a paper written by Sir Peter Millett took a similar view.14 At one of the seminars held in All Souls College, Oxford, by the Society of Public Teachers of Law, Sir Peter concluded that Lister v. Stubbs was indefensible in terms of authority, principle or policy.

Attorney-General for Hong Kong v. Reid 15 seemed to have been invented to put the question to the test. At the time of the S.P.T.L. seminar it was already on its way to the Privy Council from New Zealand. However, when the date for the hearing in London was announced, it was immediately obvious that the book of the S.P.T.L. seminar papers would come out too late. The editor of the Restitution Law Review came to the rescue. He agreed to rush out Sir Peter’s paper.16

The facts of Reid conformed exactly to the pattern of Lister v. Stubbs itself. The scale was larger. A corrupt Crown prosecutor in Hong Kong had taken huge bribes to pervert the course of justice. He later bought land in New Zealand. The New Zealand courts found that the bribe money was traceable to the land but held that the recipient of a bribe was only personally accountable. They deferred to the authority of Lister v. Stubbs. In New Zealand therefore the Attorney-General failed to maintain caveats in the land register against dealings with the land in which the bribes were invested.

As did the High Court of Singapore in the Pertamina case, the Privy Council has taken the opposite view. The desire to hit corruption hard is easily perceived as providing the energy which powers the advice written by Lord Templeman. The technical ground for holding that the government of Hong Kong was entitled to a proprietary claim appears to be that earlier courts have failed to understand and apply the maxim that equity regards as done that which ought to be done. The recipient of a bribe ought at the moment of its receipt to hand it over to his principal. The maxim therefore makes the bribe the principal’s even before delivery to the principal.17

In fact that technical point is less watertight than it may appear. The Lister court would probably say that you have to ask more carefully exactly what ought to be done, and, if all that ought to be done is to render an account, no appeal to Walsh v. Lonsdale18 could confer a property in any specific thing received. Furthermore, it is far from clear that it is wise to saddle equity with a constitutional inability to recognize claims which are only personal. That is what Lister said that it could do and what it did on these facts. The trouble with dealing only in property rights is overkill. Every case puts in issue the priorities which might be claimed in a hypothetical insolvency, and the prospect of an undeserved priority can then deter a court from doing what it might willingly do if property rights could be kept out of the way.

The Reid judgment is stronger on the policy against corruption than on...