The Law of Restitution Issues - Essay Example

? The Law of Restitution Is the Law Based on the Principle of Reversing a Defendant’s Unjust Enrichment at the Claimant’s Expense 1. Introduction The law of restitution has generated a lot of interest from researchers and academics in the globe in the recent past. It has been recognized that the restitutionary awards can be either as a result of wrong doing or due to unjust payment. According to Burrows (2011), the law of restitution is based entirely on the principle of reversing a defendant’s unjust enrichment at the expense of the claimant. This implies that the focus of restitution is on the defendant rather than the claimant. There have been scholarly debates on the threshold for a case to be considered as falling under the law of restitution. This is because previously, cases of unjust enrichment have been treated as falling under the law of quasi contract. However, according Meyers (2009), there are four elements that place a case outside the law of tort and contract. The first aspect is that a benefit is received by a party B and the benefit may be in form of money or services. The benefit is received at the expense of party A. Then it should be ascertained that there is an unjust factor that requires that the benefit be reversed. Finally, if B cannot point to any relevant defence, the case is considered to warrant restitution. Restitutionary remedies fall into two categories. Personal restitutionary remedies restore to the claimant the value of the benefit that the defendant had received. This means that the defendant is liable for the benefit itself. For instance if a defendant received one million pounds from the claimant, then under restitution, the defendant is liable to pay a sum of one million pounds back to the claimant. The restitution remedy creates a creditor –debtor relationship between the claimant and the defendant. The second category of restitutionary remedies is that of proprietary remedy. This remedy enables the claimant to assert his or her property rights over a asset that is held by the defendant. Through this remedy, a claimant has the right to recover the property held by the defendant and also have a security of interest on the said property. These remedies are said to operate in rem. The claimants interest to the property ranks above the other creditors of the defendant and hence the claimant is likely to recover the property if the defendant becomes insolvent ( Garry, 2008). Restitution is considered to be mauti-causal. The first category of restitution is the restitution for unjust enrichment. This involves reversing of gains by a defendant obtained in an unjust way. The second category on restitution is known as restitution for wrong doing. For example, when a defendant commits a tort against the claimant, the remedial assessment is done in reference to the defendant’s gain and not necessarily in reference to the claimant’s loss. The claimant has the proprietary right to a property, whether it existed previously or made to exist by operation of law ( Howard and Cameron, 2008). This paper aims to outline the legal principles that relate to the laws of restitution. It also aims to analyze existing case laws on restitution and ascertain the scope and implications of this law. The paper outlines the recent developments in application of the law of restitution and the future trends. It is necessary to appreciate the impact of laws on the citizens and the relationship between common law and related statutes is also considered in depth. Restitution is considered as a universal phenomenon and therefore it is necessary for analyzing the application and implementation of the laws of restitution across various jurisdictions. The paper also aims to show the essence of restitution law in the dispensation of justice. 2. Grounds of Restitution 2.1. Unjust Factors An action for restitution does not require any loss to be suffered by the claimant. The major focus in restitution cases is the benefit that the defendant received. Therefore, it is arguable in a court of law that the defendant received a benefit from a claimant in an unfair manner even if the claimant did not suffer any loss. In Sempra Metals Ltd v HMRC [2007] UKHL 34; the European Court Of Justice upheld a claim for restitution in favor of Sempra Metals Limited company. The background of the case was that the Income and Taxes act 1988 allowed resident corporate groups in the UK were allowed to postpone the time when they paid corporation tax while this advantage was withheld from corporate groups with resident subsidiaries in the UK and parent companies resident elsewhere. The court upheld that this disparity in treatment was unjust and ordered that the companies should be offered a legal remedy in order to be reimbursed of any financial damage they might have suffered. According to Birks (2004), the absence of basis can also be sufficient ground for restitution on the basis of unjust factors.. A case in point is where a party A is obliged to pay a sum of money to party B without sufficient basis for the payment. Party A can seek restitution measures by citing absence of basis as the ground. 2.2. Mistake This is the standard ground for cases that involve restitutions. A claimant C paid money to the defendant D because he thought he was liable. The reason for the payment may also be due to a case of mistaken identity or a causative mistake to test the person. As such, the claimant may claim restitution measures in order to reclaim the money. In the above example, the claimant C can rely on his mistake and bring an action against the defendant in order to seek remedial action. If the case involves a form of deceit, the claimant C can also bring action against the defendant on grounds of tort of deceit on top of seeking restitutionary measures due to unjust enrichment by the defendant D. In the case Benedetti v Sawiris [2009] EWHC 1806, the court upheld claims of restitution by the claimant. The fact of the case was that the claimant paid a sum of three million pounds to the defendant’s account by mistake. The defendant used the money for personal benefit since it was remitted to his account. The court ruled that the defendant had to reimburse the claimant the entire sum of money as a personal remedy despite the fact that the defendant claimed to have spent all the money. 2.3 Failure of Consideration The aspects of failure on the part the defendant from a basis for restitution. Failure can be termed as total, partial or absence of consideration. The consideration is in the contractual context which makes it binding to both parties. Consideration in the restitutionary context is majorly concerned with the performance of this contract. For example if a contract obliges the claimant to pay two thousand pounds for a laptop in advance. If the defendant fails to deliver the laptop, the consideration is deemed to have failed since the claimant did not receive what the defendant had promised to provide. In a situation where a claimant receives a benefit from the claimant that is subject to a condition and the condition is not fulfilled, restitution measures can be undertaken on grounds of failure of consideration. The justification of failure of consideration is the initiation of a contract. It should be noted that withdrawal from a contract can also amount to total failure of consideration. This is especially true when a party withdraws from a contract before fulfilling the contractual obligations outlined in the agreement of the contract. The gist of the matter is that by failing to make the required considerations, the defendant enriches himself in an unjust manner. Also, absence of consideration is on its own right a ground for restitution. If a claimant transfers a benefit to the defendant pursuant to a deal which is null and void, it is evident that the claimant may never receive the expected consideration as a matter of law. The knowledge or lack thereof of the legality of the contract is a non issue. As such, the claimant may take legal action to seek restitution for losses suffered. 2.4 Exploitation According to Virgo (2009), exploitation is a general principle on which a number of restitution grounds are based. In order to justify exploitation, the claimant has to show that a defendant has actually taken advantage of the weaker position of the claimant to derive a benefit. Essentially, exploitation involves the actual or implied use of power in an abusive way. The use of exploitation is an act of wrong doing and can also amount to abuse of fiduciary relationships of the confidence bestowed upon the defendant. A case that can be considered as exploitation is the concern of the colonial era. The countries that were colonized can site exploitation by the colonial masters as a a legal ground to seek restitution. 3. Restitutionary Awards 3.1 Restitutionary Awards For Unjust Enrichment Restitution is a tool for corrective justice. The essence of restitution awards therefore is therefore not to enrich or deprive any party but to restore a defective transfer of value between two parties. In the contest of the law of restitution, the justice dispensation is geared towards restoring equilibrium that had been disrupted. The important fact here is that the party that had been unfairly enriched is deprived of the benefit and the value of the benefit is transferred to the claimant. The restitution is not tailored to enrich the claimant but to reverse a defendant’s unfair enrichment. According to the High Court of Australia, restitution does not seek to provide compensation for loss; instead, it operates to restore to the claimant what had been wrongly transferred to the defendant. The focus of restitution law as outlined previously. The nature of awards given under restitution do not seek to cause profit to the claimant, rather they seek to restore what had been wrongly given away. There is a lot of debate on the parameters to be used when evaluating the amount of money to be paid for restitution. This is especially controversial in situations where the restitution is over service offered or expected to be offered. The amount of money to be charged for a service may differ depending on who is offering the service and the timing of the service. Therefore, the amount of money that is paid for restitution is discretionary according to the facts at hand. This can be illustrated by Greenwood v Bennet [2008] UKHL 76. In this case, Bennet entrusted his car to be repaired by Harper at a cost of eighty five pounds. Harper sold the car to a third party who spent two hundred and fifty pounds to repair it. The car was eventually recovered by Bennet but the third party to whom the car was sold demanded to paid the money he had spent on repairing the car. The question the court had to answer was which amount Harper had to refund the third party. Harper himself was willing to pay eighty five pounds which he would have initially used to repair the car. Although it is already established the restitution is focused on the defendant, there is still controversy over the amount of money the defendant would have been prepared to pay. The case Greenwood v Bennet [2008] UKHL 76, whereby the defendant was prepared to pay a much lesser amount compared to the actual amount in used. In the case, it was upheld that when damages are awarded for restitution for wrongdoing, the financial position of the claimant is irrelevant. The price which the defendant would have been willing to pay is also inconsequential in the case. The court has to consider what value is reasonable and apply the relevant characteristics that a reasonable man would use to assess the value. 3.2 Restitutionary Damages For Wrongdoing The law governing issues of wrong doing is extensive. Issues of wrongdoing can be handled under the law of torts, intellectual property and contract law to just a few. Due to the wide array of laws that can be applied in cases for wrong doing, the awards of restitutionary damages have been hidden under labels such as negotiation damages, fee damages, licence fees and Wrotham Park damages. However, in consideration of restitution laws, restitutionary damages are an award which is given for either wrong doing or unfair enrichment. According to Powell (2009), an instance of restitution for wrong doing is different from restitution for unjust enrichment. The wrongdoer derives benefit from the using the claimants goods and therefore, should not be left with the goods. As Lord Brown summarized the point, damages should be calculated according to the benefits. The award is not calculated subjectively by what the claimant would have done but rather b objective determination. The amount that is to be paid for restitution due to the wrongdoing is often debatable and the courts have to be thorough in analyzing the facts of a case. What may seem fair to the defendant might be not be fair in the eyes of the claimant. In the case of Strand Electric and Engineering Co Ltd v Brisford Entertainment Ltd [2010] UKHL 46, the defendant unlawfully detained the claimant’s merchandise in order to make them more marketable. The court held that the defendant was in the wrong by withholding the merchandise of the claimant and ordered that defendant pay restitutions at a lower rate considering the fact that the claimant might have not been able to hire the switchboard elsewhere. However, the court of appeal awarded the full market rate. The award focused on the objective benefit that a person in the defendant’s position would receive, in this case amounting to the full market rate of hiring. 4. Recommendations It is important to appreciate that the law of restitution is vital in ensuring equity and fairness in the dispensing of justice. One of the discrepancies that need to be sorted out is the fact that in the law of torts, only proprietary torts can benefit for disgorgement damages and restitutionary damages. This implies that personal torts are not included in consideration for restitution. This is in itself unjust since the constitutional secures the right of equal treatment. The Supreme Court is supposed to make a decision on this matter. The issue is indeed urgency since there is need for the lower courts to be able to handle the cases that are pending. In the case of Stoke-On-Trent City Council v W & J Wass Ltd, [2008] HCA 65, it was upheld that only proprietary torts would be considered for the disgorgement awards and restitutionary awards. It is in this light that the Court of Appeal considered itself bound by the previous decision on this matter. However, this restriction is inappropriate and anomalous. This is because the restriction is retrogressive by punishing the ‘cause of action’ instead of solving the pertinent issue of equity in dispensation of justice. The issue over the right amount that is supposed to be paid as restitution also needs to be looked at. Restitution is meant to be a form of corrective justice to correct anomalies in the giving of value to a defendant. The current practice is that the defendant is the only one who is used to determine the amount to be paid as restitution. However, in the rules of natural justice it is only fair that the claimant’s opinion is taken into consideration before coming deciding the terms of restitution. The Supreme Court should come up with regulations to clarify the nature of awards that are variably termed as “reasonable royalty”, “license fee”, “Wrotham Park damages” and “ negotiating fees” . The general consensus is that these forms of compensation should be classified as restitutionary damages. The Supreme Court should also take the opportunity to clarify the way these damages are measured. There is need for a standardized methodology to determine the measurement of damages and this will help to have an homogenous payment of the restitutionary damages. The other recommendation is that the Supreme Court should move with speed to make a ruling on the issue restitutionary damages as pertains to tort law. This is in regard to the anomalous Wass restriction which confines the awards of restitutionary damages for torts to only proprietary torts. 5. Conclusion There is a general consensus that the law of restitution is multi-causal. It cannot be confined to just the issue of unjust enrichment but it is also included in matters of wrongdoing. Further, the restitution laws can also be interpreted to encompass for other events relating to policy and constitutional matters. Therefore, it should be noted that the law of restitution has a wide area of application and should be recognized as an important branch of law. The field of restitution has experienced rapid advances and development over the past two decades. There have been landmark decisions that have clarified the way the rules should be applied. One of the significant clarification is that the law of restitution focuses on the unjust enrichment gained by the defendant. The value of restitutionary awards is measured objectively, as the value of a reasonable person in the defendants’ position. The law of restitution has had a tremendous impact on the legal landscape. It is therefore important to appreciate the contribution of this legal field and more scholarly work should be done to research on the future directions. Finally, the application of the laws of restitution should be done in a way that fulfills their intended functions- the principle of reversing a defendant’s unjust enrichment at the claimant’s expense. Bibliography Birks, P., 2004. An Introduction To The Law Of Restitution. Oxford. Oxford University Press. Birks, P. 2005. Unjust Enrichment. New York. Colombia University Press Burrows, A.S.,,Edelman, J. 2007. Cases and Materials on the Law Of Restitution. Oxford. Oxford University Press. Burrows, A.S .2002. The Law of Restitution. London. Butterworth Publishers. Charles, C.J, Mitchel, K. 2005. Landmark Cases in The Law of Restitution. London. Addison- Wesley. Gareth, H. W., William N.G.1999. Restitution Law: The Past, Present and The Future. London. Pearsons George, P., 2003. The Law of Restitution. New York. Prince-Hall. Hanokh, P., 2004. The Law and Ethics Of Restitution. London. MacMillan Publishers. Simone, D. 2003. Restitutionary Rights To Share in Damages. London. Random House Virgo, G. 2006. The Principles of The Law Of Restitution. New York. McGraw-Hill Publishers. Read More