Doctrine of Unjust Enrichment - Research Paper Example

THE DOCTRINE OF UNJUST ENRICHMENT Student Name Course Date Institution Introduction Detriment occurs when a person who has been made to alter his position so he now assumes liability1 Legal Detriment has been said to exist in two circumstances, that is where a party: • engages in an act that the party was not previously obligated – whether statutorily or contractually – to perform; or • refrains from exercising a legal right2 The doctrine of unjust enrichment The principle of unjust enrichment is an equitable principle that has, for many years now been a remedy in preventing a person from wrongful gain to the detriment of another. The application of such principles having been received in Australia in 1972, development has been inevitable from then onwards. The case of David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 401.,recorgnised unjust enrichment as a principle that replaced the former principle of quasi contracts. In His judgment, Dawson J stated that “There is now no longer any question that there is in this country a law of restitution based upon the concept of unjust enrichment which encompasses what was previously the common law of quasi-contract.” It is however, an interesting twist that has been established on the recent case of Australian Financial Services and Leasing Pty Limited v Hills Industries Limited [2014] HCA 14 commonly referred to as the ASF V Hills. This case raises questions on the unjust enrichment as a basis of restitution. In this case, the High Court held that “the concept of unjust enrichment is not the basis of restitutionary relief in Australian law. The principle of disenrichment, like that of unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia” this however does not mean that an individual will be allowed by law to gain wrongfully at the expense of another. This may be the reason as to why the court decided to focus more on detriment rather than unjust enrichment solely. The doctrine of detriment here was used to establish how much damage Hills and Bosh who has been the recipients of the payment by the financier would have, had it been solely an application of unjust enrichment, refunded the amount to AFSL. The court however observed that the orders to restitute the financier would be inequitable to Hills and Bosh as the company had continued to trade with the financiers’ costumer therefore incurring a risk. This was in the belief that the TCP had repaid the amount owed. In this case the measure of detriment that was to be considered is however not clear. It would not be possible to discuss the issue of unjust enrichment without referring to the works of Professor Peter Birks. He far much preferred the framework of restitution. His was a simple question of whether the defendant has been enriched.3 . Later, Birks would introduce the three questions, that is: (1) the defendant is enriched, (2) the defendant's enrichment is at the expense of the plaintiff, and (3) the defendant's enrichment is unjust or, in other words, an 'unjust factor' causes the defendant's enrichment. These three questions have been set out many times in Australian decisions. 4 Enrichment can be assessed as of fact and questioning whether retention does indeed infringe upon the claimant.5 The doctrine of unjust enrichment however, unlike many other claims of redress does not depend on the doctrine of privity of contract. This is an exception of the general rule that one can only claim where there is an existing valid contract. A claim for unjust enrichment is an equitable claim based on a legal fiction that implies a contract as a matter of law even though the parties never indicated by deed or word that an agreement existed between them.6 The doctrine of estoppel In the case of Sidhu v Van Dyke [2014] HCA 19 estoppel arose and the court also considered the detriment suffered. The end result in this case being to prevent an inequitable outcome between parties where one has benefited at the expense of another .In the of Commonwealth v Verwayen case the court held that estoppel was used to serve one fundamental purpose which is “protection against the detriment which would flow from a party’s change of position if the assumption (or expectation) that led to it were deserted” this would mean that even in cases of estoppel the major issue is detriment. In our case, that is Sidhu, the respondent remained in the cottage in the belief that she would get a portion of the property. She would get written assurances of the same which prompted her to improve the property. It is very clear that the respondent incurred a cost in maintaining and improving the property in the faith that she would later acquire the property or part of it. Equity must serve to remedy such instances where the applicant would have benefited from the developments made by the respondent. This case too fails to establish the threshold of detriment that would warrant intervention by the courts in an attempt to establish a balance and avoid inequity. Estoppel has been defined as “an equitable claim that prevents someone from denying the existence of a state of affairs in circumstances where such denial would be unconscientious.”7 The measure The doctrine of Estoppel may help us in trying to asses just how much detriment must have been suffered by a party before is made to make good his representation. The party claiming inequitable or unconscionable result would arise if the other party is not made to make good his representation must show that there was detrimental reliance. “the relying party must have acted on the assumption in such a way that he or she will suffer detriment if the representor is allowed to depart from the assumption”8 This in essence means that there must have been a loss of some kind. The loss need not be monetary but of value. The loss should have arisen from the representation from the other party. The amount involved whether little or a lot does not seem to have much bearing in whether there should be payment or not. The underlying fact is that there must be a remedy to prevent against a person enjoying wrongful gain at the expense of another party, regardless of the amount in question. This position was affirmed in the case of Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 307–8, Handley JA said: “While a single peppercorn may constitute valuable consideration which can support a simple contract it seems to me that the loss of such an item would not constitute a ‘material detriment’, ‘material disadvantage’, or a ‘significant disadvantage’ for the purposes of the law of estoppel. It may seem strange that there should be such a distinction. However in the first case the consideration has been accepted as the price of a bargain which the law strives to uphold. Promissory estoppels and estoppels by representation lack this element of mutuality, and the relevant detriment has not been accepted by the party estopped as the price for binding himself to the representation or promise” this shows that no matter how small the amount involved is, the party who suffered the loss must get some relief. The detriment must be material. Some of the claims may be too trivial for the court to grant any relief. The court must therefore be satisfied that the detriment suffered is substantial. The detriment may have been suffered already or anticipated. Every order sought before the court must be reasonable, so should the detriment claimed to have been suffered.. The party claiming must also have taken reasonable steps. In our case, Sidhu v Van Dyke, the respondent took the initiative to ask every now and then since she could see signs of noncompliance by the applicant. She was however given written assurances. The detriment may in this case be considered to have been reasonable. The detriment suffered must not necessarily be of equal measure to what the party may receive as compensation. In the case of Commonwealth v Verwayen 9the court held that: There could be circumstances in which the potential damage to an allegedly estopped party was disproportionately greater than any detriment which would be sustained by the other party to an extent that good conscience could not reasonably be seen as precluding a departure from the assumed state of affairs if adequate compensation were made or offered by the allegedly estopped party for any detriment sustained by the other party.” This further indicates that there may not be a clear measure of the detriment suffered. However, the court may use other doctrines to try and give a measure that is almost equal to the detriment suffered. In Sullivan v Sullivan [2006] NSWCA 312 at [20], Handley stated that: “The object of the exercise is to do equity and for that purpose ‘detriment’ is no narrow or technical concept. It need not consist of expenditure of money or other quantifiable financial disadvantage so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether departure from a promise would be unconscionable in all the circumstances.” Monetary detriment is so far the easiest to quantify since the court may order the reimbursement of the same amount plus some interest. The higher the detriment, the more issues the court will need to observe before it can issue orders of reimbursement. In the case of Donis v Donis, Nettle J A stated that “Here, the detriment suffered is of a kind and extent that involves life-changing decisions with irreversible consequences of a profoundly personal nature… beyond the measure of money and such that the equity raised by the promisor’s conduct can only be accounted for by substantial fulfillment of the assumption upon which the respondent’s actions were based” in such situations monetary payments to a party may not be enough. The court should therefore enforce the promise instead of insisting on monetary payments as the detriment suffered may not be quantifiable. The question of whether there was a change in position must also be addressed. If no detriment is suffered, that is if the party seeking relief did not suffer any loss as a result of the representation, then no relief can be awarded to the party who claims the same. Like in assessment of damages in the law of contract, the court in detriment, must weigh between enforcing the representation and giving an order for monetary payments. Where the detriment is so small such that an order to fulfill the representation would be unjust, then the court will only give orders for payment. The other question that needs to be answered is how much detriment needs to be established for a court to protect the innocent recipient of a mistaken payment. The courts have mostly looked at the suffering that the person from whom some amount is claimed may suffer if he or she is asked to refund the amount. Such parties have also used the doctrine of change in position to try and convince the courts that they would suffer irreparably if the amount received by them is to be reclaimed by the party paying. This was the position in our study case AFSL v Hill. In the case of Dextra Bank & Trust Co Ltd v Bank of Jamaica the court held that “… a principle of justice designed to protect the defendant from a claim to restitution in respect of a benefit received by him in circumstances in which it would be inequitable to pursue that claim, or to pursue it in full.” The only time where the detriment suffered would be considered as repayable would be as cited in the case of Grundt v Great Boulder Pty Gold Mines Ltd where the presiding judge stated that: “… the real detriment or harm from which the law seeks to give protection is that which Would flow from the change of position if the assumption were deserted that led to it.” As stated earlier, the detriment needs not to have been suffered. It may also relate to future outcomes where one loses an opportunity. In that case, the assessment of the possible future outcome may be done although there may not exist certainty as to the value of such opportunities. When it relates to the future, the same difficulties may also arise as the court may not be able to establish the exact value of an opportunity that relates to the past. This situation is recognized in the case of Sellars v Adelaide Petroleum NL: “… peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts .The extent of the defense of change of position is not to be determined according to the outcome of an exercise which can only be undertaken long after demand is made and which involves an elaborate and potentially expensive process of assessment. I agree also with the rejection in the joint reasons of the contention that it is appropriate to apply to a detriment constituted by loss of economic opportunity, the kind of valuation approach undertaken in an assessment of damages for loss of opportunities Such assessments are undertaken upon an entirely different basis from that which informs the change of position defense” the basic principle of unjust enrichment is to ensure that one party does not benefit unfairly,. This would mean that if a person had paid some amount to another party and the reason for which e or she paid the amount is not fulfilled, then, the amount should be reimbursed to the payer. However, as seen from the AFSL case, sometimes the payer may not always get the payment. This is due to the doctrine of change in position as discussed above. A question of just when to draw the limit then arises, when should the payer get his dues and when should he or she not be able to recover the amount? There is not much of cases in the jurisdiction that might explain the position but as seen in the case study, a reasonable detriment must be occasioned if the recipient of the amount was to be made to pay. This is simply because forcing such a person to pay, as observed by the esteemed judges in AUSTRALIAN FINANCIAL SERVICES AND LEASING PTY LTD (ACN 105 657 681) v HILLS INDUSTRIES LTD and Another. Dean J stated that unjust enrichment is “a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case.” 10There must be, therefore, a determination of whether it would be fair to make the defendant pay, whether the detriment is suffered or not. The underlying principle here is creating fairness to both parties. Disenrichment should be assessed at the time when the change of position occurred. 11 It should also be noted that irreversible detriment is the most sufficient measure of disenrichment. Conclusion The two cases raises serious legal issues on what would be the measure of detriment and just when the courts should make such orders as to ensure that the representor will be ordered to make good the representation or for a court to protect the innocent recipient of a mistaken payment. The gap that arises would call for legislation in an attempt to breach the gap created as a result. The courts too should try and establish a foundation upon which future cases may be decided upon. Read More