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Property, Subsidiarity, and Unjust Enrichment(6) |
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2. Implications of the Model.Let us first apply this concept to the phenomenon, discussed earlier, of the exclusion of unjustified enrichment claims by statutory implication. A statute makes a contract unenforceable; can the plaintiff claim in unjust enrichment for benefits transferred? We have to ask whether the policy which made the contract illegal or unenforceable excludes the enrichment claim. In other words, do the provisions which nullify the contract cast a shadow over the law of unjustified enrichment as well? Have they occupied the field? Here the relationship between the statute and the enrichment claim is clear, because these dispositions are of different legal orders. In other areas the matter may be less clear.
(a) Unjust Enrichment and Contract Law.We can start by looking at the relationship between contract and unjustified enrichment. The comparative study above suggested that all legal systems make unjustified enrichment strongly subsidiary to the law of contract: the existence of a contractual regime can exclude an enrichment claim, even where there is no contractual claim. On the present analysis, this means that unjustified enrichment is viewed as in some sense corrective of contract. Or, perhaps more precisely, unjustified enrichment is corrective of something with which contract tends to deal; so that if contract does deal with it, there is no room for correction. Can this case be made? There are many ways of understanding what contract is about. Maybe it is about keeping promises, maybe it is about wealth maximization, maybe it is about reasonable reliance. But on any view, it seems, contract is about the transfer of benefits, in the sense that what people do, or promise to do, under contracts is thought by the other party to the contract to be of some benefit. Unjustified enrichment, at least over much of its range, is about the reversal of non-consensual transfers of benefits.100 If contract law deals with the consensual transfer of benefits, it makes sense that unjustified enrichment, dealing with defective or non-consensual transfers, should stand in a corrective and subsidiary role to contract.101
Clearly, then, between the parties to the contract, the contract casts a long shadow. It occupies the field relating to the transfer of benefits within the contractual framework. The length of the shadow which is cast is a matter of interpreting the contract to decide whether or not it dealt with the benefit in issue, even if only in a negative way. In Hoffman v. Sportsman Yachts Inc.,102 the plaintiff was buying a boat from the defendant for $174,345. There was a term which provided for the price to rise, and on delivery the defendant relied on this and demanded $202,500. The plaintiff paid but then sued to recover the difference of $28,155, arguing that the term was not enforceable. For reasons which are immaterial here, the judge agreed that the contract had to be read without this term. So amended, the contract had nothing to say about the extra $28,155. One of the things which the contract was very much about was the price of the boat, but without the disputed term, the $28,155 was not referable to the price, even though it was paid as part of the price. It was therefore recoverable. If that result seems obvious, recall Rillford Investments Ltd. v. Gravure International Capital Corp.,103 which was discussed earlier. The plaintiff conferred a benefit long after the contract between the parties had ended, but the court held that the contract "contemplated the possibility that the plaintiff would receive no compensation if the defendant was enriched by virtue of the sale of his business beyond the time of the expiry of the agreement." This is clearly an example of negative implication.
So sometimes a claim in unjustified enrichment may be denied even where there is no continuing contractual tie between the parties. The consensual distribution of risks and benefits can continue to govern, excluding unjustified enrichment, even when the contract has ceased to operate. Conversely, there might be cases where a claim would be allowed even though the matter was governed by a contract. If the plaintiff owed the defendant £50 for work done, and the plaintiff paid when the defendant threatened him with personal violence, it might well be that the money would be recoverable. The matter is governed by a contract, but the consensual distribution of risks and benefits did not contemplate personal violence, and so the unjustified enrichment claim is not excluded.
It begins to appear that unjustified enrichment is not actually subsidiary to contract law as such. Rather it is excluded by an operative distribution of risks and benefits. When we say that there can be no claim in unjustified enrichment so long as there is a subsisting contract, we are making a slightly inaccurate generalisation by aiming at a false target. A subsisting contract usually corresponds to an operative distribution of risks and benefits, but the examples above show that it does not always do so. What implications does this understanding have for the situations discussed above, where the contract is not between plaintiff and defendant but between one (or both) of them and some other party? Can the bargain cast a shadow on third parties? The case of the plaintiff's contract with a third party seems to be within the principles being discussed here. The plaintiff is party to a regime governing the conferral and receipt of benefits, and that regime remains in force. An enrichment claim against a third party would contradict that regime if the contract is understood in this way: in providing for some counterperformance for what the plaintiff had done, the contract negatively implies that there is to be no other right of payment. The common law, which does not appear to have committed itself yet, may therefore be on the right track in moving, as it seems to be, toward a rule excluding enrichment claims in this situation.104 The common law has a strong commitment to privity of contract, and it might be thought to contradict that to say that the contract between the plaintiff and the third party has this effect on the legal position between the plaintiff and the defendant, who is not a party to the contract. In fact, the privity argument cuts both ways: nobody should have to pay for benefits conferred under a contract to which he was not a party.105 But in the end privity as such seems to be irrelevant, since it is about controlling contractual liability.
This question has been examined most carefully by German jurists, and it is clear that in that system, contracts cast shadows over third parties. The doctrinal reason is that where the plaintiff has rendered a performance (Leistung), no enrichment claim can be brought except against the person who received the performance. Thus, where the plaintiff enriched the defendant pursuant to the plaintiff's contract with a third party, the plaintiff has no enrichment claim. Moreover, in German law this effect applies even if the plaintiff's contract is void. His actions still count as a performance and have the same effect. The applicable policies have been elucidated by German jurists, in particular Canaris. He formulated three principles governing the availability of third party enrichment claims in a contractual context.106 These are said to apply where two parties have tried to contract, successfully or not. One principle is that the parties should bear the risk of insolvency of their chosen counterparty. Moreover, the parties should be able to rely upon, and to be bound by, the defences they have against one another. These are the reasons why plaintiffs are not allowed to make claims against third parties. Such claims would be a way of avoiding the effects of the insolvency of their chosen counterparty, or of avoiding his defences. While this learning is very instructive, it is inconsistent with the view which appears to be emerging in the common law, to the effect that void contracts can have no influence on the law of unjust enrichment.107 The difference between the two systems can be understood in this way. German law gives effect to the parties' transaction as creating and distributing certain risks in relation to the transfer of a benefit, even if the transaction fails to create a contract; and these effects are sufficient to exclude the corrective law of unjust enrichment. The common law takes the voidness of the contract to exclude any legal effects whatsoever.
The German approach might well be considered more sophisticated in this regard. We have already seen that even within the common law, it is inaccurate to say that unjust enrichment claims are excluded by contract. That statement is, in extreme cases, both too wide and too narrow. The point can be further tested by recalling the example of the building project. The owner contracts with the general contractor, and the general contractor contracts with the subcontractor. Can the subcontractor sue the owner in unjustified enrichment? Surely not, if both contracts are valid; and the same result must follow if both were valid, but are now terminated by complete performance on both sides. By imagining that one or both of the contracts is void we can test what really bars the action. German law will tell us that the subcontractor can never sue the owner in unjustified enrichment even if both contracts are void; and the theoretical underpinnings for that position seem formidable.
The position in Quebec makes an interesting contrast. Under the Civil Code of Lower Canada, following French law, it would appear that the plaintiff who had a contract with a third party could not prima facie sue the defendant in unjustified enrichment. This result was superseded, however, in the case in which it mattered most: when the third party was insolvent. This was the situation in the root case of the whole body of jurisprudence.108 It was sometimes explained doctrinally by saying that the action de in rem verso was not subsidiary to another claim if there was a factual obstacle to that other claim.109 To the extent that the insolvency policies discussed above are accepted, however, this result seems difficult to justify. The wording of art. 1494 of the Civil Code of Quebec appears apt to alter this result for the future; it provides that "Enrichment or impoverishment is justified where it results from the performance of an obligation."110
The analysis based on a consensual distribution of risks can also be used to deal with another point. In Kleinwort Benson Ltd. v. Lincoln City Council,111 the House of Lords allowed a claim based upon mistake of law, even though the swap transaction under which the payments had been made was fully executed. One of the arguments by which the defendants tried to resist payment was based upon the logic of mistake. It was said that in such a case, the force of the mistake was spent.112 The argument in those terms was rejected, as it had been in earlier litigation where the claim was based on failure of consideration.113 In other words, the "executed transaction" defence does not seem to work when it is tied into the logic of unjust factors. A mistake is a mistake, and a failure of consideration remains one, even where the transaction is fully executed. But if we recognise that unjust enrichment is excluded by the existence of an operative distribution of risks and rewards, that could be used to build an independent principle which excluded claims in such cases. The distribution of risks was fully realised, leaving no room for unjust enrichment. This of course would also depend on following the German lead in recognising that such an effect can occur even where the contract embodying the distribution is void.
This argument is not intended to imply that the case itself was wrongly decided, but the result may turn on the fact that the defendant was a public body which lacked capacity to enter into the transaction. Allowing restitution can be seen as necessary to give full legal effect to that lack of capacity, which is imposed as a protection for the defendant's constitutuents.114 This permits a final point to be made. The argument in this section has been that subsidiarity in the context of contracts turns on the idea that a relevant consensual distribution of risks and rewards ousts unjustified enrichment, to the extent that the latter is based on non-consensual transfers of benefits. The discussion of Kleinwort Benson Ltd. v. Lincoln City Council emphasises that in some cases, liability in unjustified enrichment is not based on the defective consent of the plaintiff to the transfer of wealth in question.115 If the argument herein is correct, then in exactly those cases we should expect to find that the existence of any consensual distribution of risks and rewards cannot exclude liability in unjustified enrichment.
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