Cases and Materials on the Law of Restitution - Assignment Example

 Write a critical case commentary on Haugesund Kommune, Narvik Kommune v Depfa ACS Bank [2010] EWCA Civ 579. Focus on the restitutionary issues, and ignore the issues to do with conflicts of laws. The traditional way of delineating the law of restitution is that it is the branch of law that is footed on the cannons of reversing a defendant’s unjust enrichment at the expenses of the complainant. The law relates to fiduciary liability to vouch for recession of an executed contract can be made on the basis of duress or misrepresentation or undue influence, subrogation and tracing. However, the law of restitution under English law is footed in the notion of reinstating benefit, which would otherwise end in unjust enrichment by the defendant. Hence, the core aim of the restitution is to confiscate from a defendant the accrued enhanced benefit or wealth, which the law states that the defendant is not eligible to enjoy it. Moreover, the basis of returning the “unjustified” advantage is footed on the notion that “it would be incorrect to permit him to keep it for nothing. (Stamatoudi 2011:15). In normal parlance, English did not cognise a law of restitution footed on the cannons of reversing unjust enrichment. It is to be noted, the passing comment made by the great judges like Lord Wright in Fibrosa and Lord Mansfield in Moses v Macferlan was mostly uncared for the restitution till 1966.(Gilliker 2007:101). Goff and Jones in 1966 published “the Law of Restitution” which assaulted the customary English approach and tried to show that, looking across both equity and common law, there is a coherent English law of restitution, which is footed on the cannon of putting back unjust enrichment. The above authors viewed the law of restitution as belonging alongside tort and contract as a third branch of the law of obligations. Slowly, Goff and Jones’s findings gained momentum in legal practitioners, academia and judges, thereby ending in acknowledgment by House of Lords the law of restitution in Lipkin Gorman v Karpnale Ltd in 1991, which can be considered as Donoghue v Stevenson1 of the law of Restitution. In Woolwich Equitable Building Society v IRC, the cannon of unjust enrichment was relied by the Lordships to deliver a sweeping decision that in case of payment demanded by a public authority ultra vires, a claimant is entitled as of right to restitution against the same. Thereafter, unambiguous reference to unjust enrichment as the source of the restitutionary claims made by judges at all categories in various cases in UK. (Burrows, McKendrick & Edelman 2007:1). English courts have generally been reluctant to acknowledge restitution as a separate norm of recovery due to availability of substitute legal remedies under common law like recovery such as quantum meruit and quantum valebat and the doctrine of waiver that is available in equitable and tort claims. Nonetheless, the law of restitution is often confused through the English courts’ synthesis of equity and contract founded reliefs vindicated under the head of restitution. It is to be noted that the inherent issues with the restitution footed claims is the doctrinal complexity of measuring the notion of unjust enrichment. In the case Westdeutsche Landesbank Girozentrale v Islington LBC, the underlying aim of restitution has frequently been puzzled with equitable trust law notions, thereby increasing the perplexity in this domain of law as corroborated by the main issue in the above case being swap litigation. (Burrows et al 2007:40). The English courts have given for the claims under restitution a synthetic “quasi –contract” hypothesis, which is damned for being “intrinsically hollow, mirroring a vague concept. The core issue in applying the quasi contract rationale is that in restitution claims, the defendants were being demanded to make payment on the footage of wrongdoing without any backing doctrinal rationale for making such damage payment to the claimant under logical legal standards. Thus, for restitution oriented claims, there is an application of unconscionability equivalents with the trust law and equitable tracing have been applied without proper inference given to legal standards. (Wilson 2007:57). However , English judiciary has recognised the restitutionary claims as a legal principle footed upon unjust enrichment and verdicts in Woolwich Building Society v Inland Revenue Commissioners and Gorman v Karpnale Limited ,which have corroborated that restitution footed claims for unjust enrichment are an unique division of law in UK. For proving unjust enrichment claims, the following three elements are essential; Enrichment should have been obtained by the defendant. There should be some pointer about the unjust element that such enrichment is unwarranted and need to be invalidated. The benefit was attained to the account of claimant or there should exist some proof that the claimant has every right to sue for its refund. (Tettenborn 2002:4). Unjust Enrichment and Swaps Transactions Outside the periphery of equity, the role of restitution as a guise of recovery is being employed in the swaps’ litigations. It is alleged that swap contracts do not take into cognisance of risk allocation norms that is available in the standard form of agreements and in the pre-existing contracts. Further, the swaps’ litigation revealed the Achilles' heel of the judicial execution of restitution and has emphasised the substance as to whether the law of restitution can be applied for finding solution to the issues associating intangible assets from simple to intricate financial structures like derivatives particularly in cross-border markets. It is to be noted that allocation of risk is the core characteristic in swaps’ cases and that the failure of the courts to find the solution for the pre-existing sharing of risk in such contractual documentation. In Kleinwort Benson v Lincoln, the House of Lords got rid of the rule restraining the recovery of payments effected under a mistake of law. The case was pertaining to interest rate swaps entered into in huge numbers by local municipal authorities in the 1980s. However, the House of Lords in 1992 in Hazell v Hammersmith and Fulham BC held that interest rate swaps contracts ultra vires the authority of the local authorities.(Watt 2007:124). Loosing parties all over UK then tried to seek relief under restitution for the sums paid they had paid due to nullified contracts. There are two swaps contracts namely closed swaps, which mean performance was already completed and open swaps where some performance yet remained to be undertaken. In Westdeutsche Landebank Girozentrale v Islington LBC, the swap contract was open one whereas in Kleinwort Benson case, it was closed one. (Gilliker2007:73). Haugesund Kommune, Narvik Kommune v Depfa ACS Bank2 The above case mainly deals with how swap transactions can be enforced and how there exists a claim for restitution. This case deals with the fact in case if the swaps’ transactions were viewed to be not enforceable, whether municipalities were, nonetheless, accountable for reimbursing the bank which lent them on the footage of restitution. In this case, the Norwegian municipalities, Narvik Kommune and Haugesund Kommune, enjoyed revenue streams from power generating units located in their province. Due to this, these municipalities enjoyed strong credit ratings. However, these Norwegian municipalities have been restricted under the Norwegian Local Government Act 1992 to borrow funds except for some allowed budgetary objectives. (Silver 2009). These municipalities were approached by the Terra Fonds As (Terra), a financial intermediary, who suggested that these municipalities could enhance their revenue stream by resorting to low cost borrowing due to their high credit rating and then investing those borrowed funds at a good rate of return. To overcome the borrowing restrictions, Terra suggested to engage in the swap contract instead of a customary loan contract. On the basis of recommendation by Terra, the Depfa ACS Bank advanced finance through swap transactions and the income stream that is being generated through power generating interests were offered as collateral for such swap transactions. The above municipalities later made investments in a stream of assets including collateralised debt Obligations (CDOs) and in other credit instruments out of funds borrowed from Depfa. Unfortunately, these instruments turned to be devastatingly loss-making. These Norwegian municipalities then started legal proceedings before the UK court trying for a declaration that they were not accountable to pay back the sums borrowed to Depfa. As the swaps were not enforceable against the Municipalities, Depfa made counter claims in restitution. (Silver 2009). The following main questions were posed in the above case viz. whether the swap transactions can be regarded as loans , Are these municipalities had the necessary power to enter into such transactions , and as the swap transaction cannot be enforced , whether an action under restitution will survive or not . In this case, the court observed that on the basis of expert opinion, the swaps can be regarded as loans both under English and Norwegian laws. The court found that since the municipalities did not have authority to enter into such swap transactions and hence, they were not accountable by their terms. However, Depfa made a counter claim against these municipalities on the basis of the three “unjust elements “cited by the English court in Westdeutsche Landesbank v Islington London BC.3 It was argued by the municipalities that Depfa were under the view that these transactions were valid on the basis of the advice given by the law firm “Wikborg Rein & Co”, it intentionally engaged upon itself the risk that might not be proper. The municipalities further argued that this conscious risk assuming should prevent to avail relief under restitution in the scenario where the Depfa turned out to be erroneous. On the other hand, the municipalities further put forth that it was not equitable to make them to restitution, on the footage that they had altered their standing in good faith on the basis of the payments received from Depfa. The change in the position was the investment by the municipalities in risky financial instruments that too with the knowledge of Depfa. (Silver 2009). However, Judge Tomlinson J turned down the arguments forwarded by the municipalities and held that they should make restitution to Depfa. In this regard, he made a reference to the fundamental principle underlying an assertion for restitution was the equitable cannons of unjust enrichment as held in Deutsche Morgan Grenfell v IRC.4 Tomlinson referred the quotes of Lord Hoffmann in the above case that the mere fact that a party had some distrusts about a transaction should be regarded as an irrefutable on the question as to whether that assumed that risk on a mistake. Tomlinson viewed that Depfa did not assume consciously any risk as regards to the legitimacy of the swap transactions thereby trusting on the unprofessional view from the well-known and highly respected Norwegian law firm. Tomlinson also turned down argument forwarded by the municipalities that they had transformed their position , stating that the municipalities were already aware form the beginning that they were committed to repay the loans despite the profitability or not. (Silver 2009). It is to be observed that in Bundesgerichtshof case, it was held that if the contract was void for lack of capacity, then it should lead to restitution. However, in this case, there is no elaborate discussion about underlying causes for restitution. These can be recognised by investigating into the causes why the contract was declared to be void. This case helps to arrive at the policy preferring restitution, particularly in the swaps’ cases. Haugesund case stresses that the public authority is needed to stay within the ambit of law in all of it dealings. The best manner to remove the lure to involve in speculative transactions, which have no relation to its main activity, is to deprive the authority of its winnings if the speculations remain to pay off. Thus, the justification would seem to appear to be analogues to that of the justification in English case law namely Boardman v Phipps. (Krebs 2001:185). To sum up, the verdict in the Haugesund Kommune v Depfa ACS Bank offers a thoughtful insight about the modern evaluation of the issues of authority and the accessibility of remedies under restitution in the background where a transaction is unenforceable or void. Whilst the cannons of the unjust enrichment have been always under severe criticism, it stayed as a comparatively imprecise notion. Further, this case emphasises the suppleness of the remedy of restitution as it mirrors the earlier swap cases from the 1990s onwards which played a major part in determining the present state of the law on these matters. This case also corroborates the readiness of the English courts to give more weight to the substance instead of the guise of the transaction and to see beyond the specific structure or label selected by the parties. (Silver 2009). List of References Burrows, AS, McKendrick, E & Edelman, J. (2007) Cases and Materials on the Law of Restitution. Oxford: Oxford University Press Gilliker, P. (2007) Re-Examining Contract and Unjust Enrichment. London: Martinus Nijhoff Publishers Krebs, T. (2001). Restitution at the Cross Roads: A Comparative Study. London: Routledge Taylor & Francis Group Silver, D. (2009) The enforceability of swap transactions and claims for restitution [online] available from http://www.sjberwin.com/Contents/Publications/pdf/186/35071381_4cea_40b3_9e31_564b3f22c6c7.pdf [accessed 23 April 2012] Stamatoudi, IA. (2011) Cultural Property Law and Restitution. London: Edward Elgard Publishing Tettenborn AM. (2002) The Law of Restitution in England and Ireland. London: Routledge Taylor &Francis Group Watt,G. (2007). Todd & Watt’s Cases and Materials on Equity and Trusts . Oxford: Oxford University Press Wilson, S. (2007). Todd & Wilson’s Textbook on Trusts. Oxford: Oxford University Press Read More