The measure of recovery

Mistaken improvements are interesting because they give rise to some of the most revealing real-life restitution claims in respect of non-money benefits. Such claims expose the underlying structure of restitution in a way that money claims usually do not, because they implicate important questions that are usually elided by a claim in respect of a money payment: what ought to be accounted a benefit, and how should it be measured? The observation that the mistaken improver sometimes recovers in circumstances where the benefit to the defendant, on any measure, is doubtful at best, leads to the even more fundamental question of what ‘restitution’ is really about after all.

The inherent attraction of the resulting problems may be judged by the fact that even in English law – where, according to the best authorities, actual instances of restitutionary recovery in favour of a mistaken improver are virtually non-existent – there is nevertheless a highly developed theoretical account of what the shape and the justification of the remedy ought to be, if only it did exist. The American law of mistaken improvement, by comparison with the English, offers less theory and more practice. Not only is mistaken improvement a relatively common phenomenon with us – it is customary to attribute the incidence of the problem to the chaotic land titles of an earlier day, as well as to the difficulties of surveying the wide open spaces – but the improver's claim is far more likely to succeed.

This contribution addresses the question how the defence of change of position can apply when a mutual contract is unwound. The following hypothetical case, illustrated in Figure 9.1, should make the problem clear. A and B have agreed to swap A's cow for B's horse. Both have fully performed their respective obligations. A has transferred his cow to B and B has transferred his horse to A. Then the horse ceases to exist. Neither A nor B were at fault. The horse was lost due to some supervening event. They now find out that there is some reason why the contract could be unwound: A was mistaken when he entered into the contract, fraudulently induced or forced by B to enter into the contract, the horse was defective, B did not have title to the horse, A was a minor, or the contract was simply void. In all these cases A may have a right to claim back the cow from B and B may claim back the horse from A. But how does it affect A's claim for the cow that B has already given the horse to A and that A is not able to give it back? How does it affect B's claim that the horse has ceased to exist? Is the defence of change of position the proper legal tool to help to solve these questions? The defence could come into play at two different points of analysis.

Introduction

In German law, American law and, more recently, English law, it is a defence to an action for unjust enrichment that the defendant is no longer enriched. Nevertheless, many German scholars want to limit this defence. My former teacher, John Dawson, thought it leads to senseless results in Germany, which American courts avoid only by refusing to apply it. In the United States, he said, ‘we would not as in Germany, conceive of enrichment as a variable that can be recovered only as long as it lasts’.

I do not like to quarrel with Dawson. I spent my early professional life believing he was infallible. This once, however, he may have been mistaken. At any rate, I do not think this defence leads to senseless results as long as it is confined to its original scope, using it to resolve the problems it was originally meant to resolve.

The original scope of the doctrine

These problems become clear if the origin of the doctrine is examined. The drafters of the German Civil Code took the doctrine from the nineteenth-century pandectists, Windscheid and Savigny. Savigny seems to have taken it from members of the seventeenth- and eighteenth-century natural law school such as Grotius and Pufendorf. They took it from a group centred in Spain in the sixteenth century and known to historians as the ‘late scholastics’. The late scholastics had been discussing the implications of Aristotle's concept of commutative justice as it had been interpreted by Thomas Aquinas.

Introduction

This chapter considers the suggestion made by the English Court of Appeal in Attorney-General v. Blake that a restitutionary measure of damages for breach of contract might exceptionally be justified, in cases where the normal compensatory measure of damages is deficient or unsatisfactory. In the words of Lord Woolf MR, delivering the judgment of the Court:

It will be suggested that a restitutionary measure of damages for breach of contract cannot be justified solely on this basis and that it would be more transparent, accurate and appropriate to tackle deficiencies in the compensatory measure directly.

Background

Until Blake, English law was tolerably clear. The role of restitution in cases of contractual default was limited to autonomous ‘subtraction’ claims, such as the paradigm case of the recovery of money on the ground of total failure of consideration, following discharge of a contract for repudiatory breach.

Introduction

The English law of unjust enrichment has always insisted that a claimant asking for restitution must show that there is a good reason why restitution should be available to him. It has differed from its more ancient Continental counterparts in that the ground for restitution was not an abstraction like ‘lack of juridical reason for the enrichment’, but a pragmatic, positive requirement or ‘unjust factor’, as Peter Birks has called it.

One question that lies at the heart of the recent swaps litigation is whether there can be restitution in English law for the mere reason that money was paid pursuant to a contract which has subsequently turned out to be void. If this question is answered in the affirmative, it will mean that the English law of unjust enrichment has come close to adopting the civil-law condictio indebiti – the claim to restitution on the basis that money was paid which was not due. In this chapter, it is argued that that would be the beginning of the end of the system of ‘unjust factors’. The English law of unjust enrichment would move considerably closer to civilian legal systems.

Before the question can be faced, it is necessary to look very briefly at the two different approaches. The leading textbook in comparative law, Konrad Zweigert and Hein Kötz's An Introduction to Comparative Law, identifies ‘the entrenched position of the institution of unjustified enrichment’ as one of the distinctive features of German law.

Preliminary questions

‘Unjustified enrichment’. The expression is mysterious. So are the other terms in use for the same subject, ‘unjust enrichment’ and ‘restitution’. What is an enrichment and when is it unjustified? To state that something amounts to unjustified enrichment is merely a conclusion, that because the enrichment is unjustified it should be returned, restored or made over to the person properly entitled to it. That conclusion is in need of supporting normative argument. But what sort of argument?

Some time ago the Roman jurist Pomponius wrote the now-famous words nam hoc natura aequum est neminem cum alterius detrimento et iniuria fieri locupletiorem, ‘by the law of nature it is right that nobody should be unjustly enriched at another's expense’. Pomponius's maxim encapsulates the key elements of enrichment liability: enrichment, which is unjust, and which is at the expense of the claimant. But it exemplifies a problem that faces modern legal systems, too: formulating the principles of a law of unjustified enrichment in a way which is clear and yet not excessively broad.

There is no doubt that Pomponius's formulation is, as a matter of classical Roman law, much too broad. There were many cases in which unjustified enrichment was simply allowed to rest where it arose. A clear instance is the claim of a possessor in good faith who improved land from which he was later ejected by the true owner.

Introduction

If someone were asked, as I was, to write a paper dealing with ‘proprietary issues’ in the law of unjust enrichment, he or she would most naturally think of proprietary consequences: that is, the extent to which unjust enrichments can be reversed by proprietary as opposed to obligationary responses. This of, course, would be an interesting study, although it might lack a certain promise as a comparative work, due to the well-known refusal of civilian systems to have any truck with such odd and uncontrollable devices as the constructive trust. Instead I have chosen to consider the interaction between the law of property and the law of unjustified enrichment from the other end: that is, the extent to which the existence of a proprietary claim affects the availability of a claim in unjustified enrichment. Or, at least, I chose so to begin; for the study grew, as such things will, and in the end it has become a wider look at how and why the availability of unjustified enrichment is conditioned by the existence of other kinds of claims. The focus is on the common law, German law and the law of Quebec.

It can be described, then, as a comparative study of devices for controlling the scope of liability in unjust enrichment; but it must be emphasised that it is a study of only some such devices.

This collection of essays has its origin in a conference which we organised at Christ's College, Cambridge in April 1999. The aims of the conference are explained in our introductory chapter. Here it is enough to say that, while unjustified enrichment has clearly been one of the most intellectually vital areas of private law over the last decades, there seemed to us to be scope for comparative exploration of the area in a manner more comprehensive than it had until then received. With this in mind we invited a small group of speakers to Cambridge, where at the time we were both teaching. Our invitations to contributors were perhaps unusually prescriptive, and in particular allowed them no choice of topic. The main reason for this was that for each topic we wished to have two papers, each taking a different perspective. So we are extremely grateful to the contributors both for their enthusiastic participation in the conference and for preparing the papers published here. We would like also to acknowledge the helpful guidance of Peter Birks during the planning phase of the conference. In addition we warmly thank the chairmen who presided over the various sessions of the conference: Lord Goff of Chieveley, Lord Hope of Craighead, Professor Gareth Jones, Lord Rodger of Earlsferry, Professor Peter Schlechtriem and Lord Steyn.

The manuscripts for this book were submitted by the end of 1999; they therefore reflect the law at that date.

Introduction

An ‘improvement’ presupposes an asset which is improved. The obvious example is improvement to land or buildings by the construction of new works (an addition to a house, say, or a new building on land) or by repair, renovation or upgrading. Such work may be carried out by someone other than the owner of land in a variety of contexts: by a building contractor in implement of a contract with the owner of the land (a contract that may turn out to be void or unenforceable by the contractor for one reason or another); by the fiancé of the owner in anticipation of their marriage (which may not take place); by someone with a right of occupation of the land such as a tenant or life-renter; by someone who, though not the true owner of the land, believes that he is the owner. These are only some of the possible cases – and they are all capable of giving rise to questions for enrichment law.

This article examines how Scots law deals with some of the issues which arise when someone is enriched by improvements. The subject merits exploration in its own right. Recent important developments in Scottish enrichment law justify a reappraisal of the older texts.

The egg-washing machine

The celebrated case of Olwell v. Nye & Nissen has become one of the legends of the law of restitution. Olwell sold his interest in an egg-packing corporation to Nye & Nissen. By the terms of the sale, he was to retain full ownership in an egg-washing machine formerly used by that corporation. Olwell stored the machine in a space adjacent to the premises occupied by Nye & Nissen. Nye & Nissen, without Olwell's knowledge or consent, took the egg-washer out of storage and used it for the next three years in the regular course of its business. Olwell was not materially damaged, since the egg-washing machine was not injured by Nye & Nissen's operation during that period, and Olwell never claimed any title to it. Hence, Olwell sued Nye & Nissen in quasi-contract, waiving his conversion suit. He sought to recover the profits that inured to Nye & Nissen as a result of its wrongful use of the machine.

The Supreme Court of Washington held that, though no material harm had been done, Nye & Nissen was none the less liable for the benefit it had captured. More precisely, given the scarcity of labour immediately after the outbreak of World War II, the Court held that the captured benefit itself was the amount Nye & Nissen saved in labour costs by using Olwell's machine.

In a recent paper, Professor Ernest Weinrib severely criticised the Olwell Court. In Weinrib's view the Court committed two interrelated conceptual errors.