Introduction

‘Consideration’ is a feature both of the English law of contract and of the law of restitution. We are told that in the law of contract it is the quid pro quo in an agreement that makes it binding as a contract. Within the law of restitution its meaning is different: Graham Virgo says that ‘failure of consideration is not a ground of restitution in its own right but rather a general principle which underlies the existence of a number of particular grounds of restitution’. He then proceeds to discuss three possible grounds of recovery: total failure of consideration, partial failure of consideration and no consideration. In this restitutionary context ‘consideration’ is understood generally as ‘the condition which formed the basis for the plaintiff transferring a benefit to the defendant’.

The separation between the contractual and restitutionary meanings of ‘consideration’ has not always been so clearly made. Although the background is rather complex, there is evidence to suggest that the influence of the civil law was an important factor in leading to this separation of meanings in English law when it was finally unequivocally reached. In a series of decisions known collectively as the ‘Coronation’ cases, English law provided a result which came, in time, to be regarded as unsatisfactory by leading English lawyers. The result that was reached in the ‘Coronation’ cases proceeded on the assumption that there was no distinction between the contractual and restitutionary meanings of ‘consideration’.

Introduction

Fraud and duress are the two classical improper means of influencing human conduct. When they are used to induce a person to confer a benefit on another, it is only natural to respond that the benefit, or a substitute, should be restored. The purpose of this contribution is to examine how the law of unjustified enrichment in certain civil-law systems deals with this duty to provide restitution. Particular attention will be paid to the position in German, Dutch and South African law, although comparisons will at times be made with the position in the common law. The reason for the choice of these systems is that they represent quite distinct lines of development within the civilian tradition. Both German and Dutch law show how codification impacted on the development of the civil law. In the case of German law, the recognition of a single codified general enrichment action has given rise to a complete realignment of enrichment remedies. The relevant Dutch law is also codified, but in certain respects its approach is quite different – most notably its separation of the payment that is not due from the general enrichment action and its adherence to a causal system of the transfer of ownership. It can, therefore, act as an interesting foil for German law. Finally, there is South African law, which is remarkable in that it has retained significant aspects of the relevant civil law in uncodified form.

Introduction

When English unjust enrichment lawyers talk of ‘illegality’, they generally do so in the context of the unravelling of partly performed illegal contracts. Two parties enter into an illegal contract. What generally happens is that one pays for a service to be performed but fails to receive the agreed exchange. Can that party recover the value he has transferred to the non-performing recipient? The law in this area is complex and difficult to state with any accuracy.

There are a number of reasons why the judges do not find it easy to come to an agreed answer to this problem. The consequence of a finding of illegality in English law is that the contract is null and void. No action may be brought for compensation for non-performance, nor will an order for specific performance be available. With such a harsh attitude taken to contractual performance, the pressure falls entirely on the law of unjust enrichment to sort out the mess. And the difficulties are only exacerbated by the fact that English law adopts an extremely wide view as to what amounts to an illegal contract. Not only does it include contracts to commit crimes, as, for example, a contract to kill or to injure another person, but also contracts of which performance, though not illegal in any criminal sense, will not be enforced for various reasons of public policy.

Introduction

A fundamental difference between the English and the German laws of unjust enrichment is the way in which each establishes that enrichment is ‘unjust’ and so reversible. §812(1) of the German Civil Code (the BGB) states that a person who, through an act performed by another, or in any other way, acquires something at the expense of that other person without legal ground is bound to render restitution. This general enrichment action has been described as ‘probably the most outstanding feature of the German law of unjustified enrichment’. More recently English law has also recognised the general principle of restitution to reverse unjust enrichment but, in contrast, it is ‘engaged in crystallising the principles into rules adapted to the different types of case so as to meet the specific interests involved in them’. An influential classification proposed by Peter Birks sets out the specific factors that can make the plaintiff's transfer of wealth to the defendant ‘unjust’ in the eyes of English law. Thus, while the German approach appears to yield restitution whenever defendants cannot advance a legal cause for retention, English law leaves defendants with their enrichments unless the plaintiffs can show why they should not keep them.

Many commentators observe that this apparent structural divergence probably yields no significant differences at the level of actual outcomes. Konrad Zweigert and Hein Kötz explain why ‘too much should not be made of the apparent differences’:

Introduction

The approach to ‘indirect’ or ‘three-party’ enrichment situations differs greatly from country to country. There is no clear fault-line between civilian and common-law systems, but generally speaking it seems to have emerged more patently as a problem in civilian systems. At the one end of the spectrum is Germany, where Peter Schlechtriem has called them the ‘nightmare of the law of enrichment’, while Reinhard Zimmermann and Jacques du Plessis noted that they constitute ‘an almost impenetrable jungle of dispute and uncertainty’. At the other end is England, where Peter Birks's remark that it is hard even ‘to discover the English equivalent to the “triangular relationship” and “indirect enrichment”’, illustrates how utterly differently legal systems are able to view the same fact situations. Between these extremities there are a number of legal systems where the problems associated with these situations are recognised, but where the solutions are far too simplistic or, at best, not fully developed. Among these we may count, aptly, the mixed jurisdictions of South Africa and Scotland (but perhaps also France and the various jurisdictions of the United States). Why these situations should cause so much dogmatic distress in one system, while seeming to be of such little import in another, is not immediately obvious, but there are certain clues.

First, the general understanding of three-party situations has suffered, depending on which legal system one is concerned with, from either underanalysis or overanalysis.

Introduction

In much of enrichment law, the question of ‘proprietary restitution’ can hardly arise. If P renders medical services to D, without a contract, P's claim will be a simple personal claim. Moreover, the civil-law tradition generally rejects ‘proprietary restitution’ in any circumstances. So is there really any value in discussing the matter from a comparative standpoint? I think that there is. Possibly a lawyer from a mixed system is well placed for the task. On the other hand, it may be that the task is impossible, especially since the English law in this area is complex, controversial and changing, and, of course, has that difficult dimension: equity.

‘Proprietary’

‘Proprietary’ is a term not generally used in Scots law. In Scots law rights are (following the ius commune) divided into real and personal. ‘Real’ and ‘proprietary’ do not coincide: the latter is broader than the former. Equitable rights in rem are proprietary in English law, but such rights are not real rights from the civilian standpoint.

A difficulty lies in the fact that in the common-law tradition a specifically enforceable claim to a thing is itself normally proprietary so that the claimant already has an equitable right in rem. That equity regards as done that which ought to have been may be a tired maxim but is still good law (or equity). If P has a right against D for the specific performance of an obligation to convey an identifiable thing, P will be considered the equitable owner.

The problem

A parent picks up the unpaid bills of her student child at the end of the university term. A football club pays off the gambling and other debts incurred by one of its star players. In my absence from home at an enrichment conference, my neighbour in my Edinburgh tenement flat pays my share of the bill for work carried out in the tenement garden, the underlying contract with the gardener providing that each resident is to be liable only for a pro-rata share. At least two potential enrichment questions arise. If the creditors take no further action against the student or the footballer or me, we three debtors will benefit by the savings made through not having to pay our debts. The creditors will be enriched, however, if, despite the interventions of the parent, the club and the good neighbour, they also continue to seek and recover payment from, respectively, the student or the footballer or me. In both situations, the gain is made at the expense of the payer. Can the respective payers recover either their own expenses or the debtors' enrichments?

Terminology

In the rest of this account the following terminology will be used: the person who pays another's debt will be called the payer (P); the recipient of the payment will be termed the creditor (C); and the person whose debt is paid by P will be known as the debtor (D).

One might be forgiven for thinking that this statement was made by a lawyer writing about the law of restitution. Indeed, references can be found in modern writings on the law of restitution to the ‘sense of excitement that comes from working as a pioneer’. But in fact the statement was written towards the end of the nineteenth century by Sir William Anson (as he was later to become) in a letter to Lord Justice Thesiger, his former pupil-master, on the publication of the first edition of his path-breaking book on the law of contract. Today, the word ‘explorer’ would not readily jump into one's mind if asked to describe a contract lawyer. The contours of the subject are now well defined. The modern contract lawyer is no longer thought of as an architect; rather, he or she resembles a plumber trying to repair the many leaks in the system and the leaks seem to increase as the system becomes ever more antiquated.

Yet in many ways Pollock and Anson were explorers. From the forms of action and the mass of detailed case law, they sought to deduce principles that were of general application.

The doctrine of failure of consideration is of vital importance to the modern law of restitution in common-law jurisdictions, but it is a doctrine about which there remains a great deal of uncertainty. By concentrating on the main principles and themes underlying this doctrine and by comparing it with equivalent civil-law concepts, it is possible to identify the ambit of the doctrine and resolve some of the uncertainties. The doctrine also provides a useful case study by reference to which the differences of approach in the application and understanding of the law of restitution in common-law and civil-law jurisdictions can be assessed. There are eleven issues concerning the doctrine of failure of consideration that deserve particular attention.

The meaning of consideration

The main reason why the doctrine of failure of consideration has caused a great deal of confusion derives from the fact that the notion of ‘consideration’ has two different meanings. First, there is the contractual sense whereby ‘consideration’ refers to the parties' promises in the contract. The mutual promises are the quid pro quo by virtue of which the contract becomes contractually binding. Alternatively, there is the restitutionary sense of ‘consideration’, which is not concerned with the existence of the promises under the contract as such but is more concerned with the performance of those promises.

Even as regards this restitutionary sense of ‘consideration’ there are different interpretations depending on the context in which the promise is made.

As a defence, illegality implies that the plaintiff's own illegal or immoral conduct can defeat a claim in unjust enrichment which would otherwise lie. Whether or not illegality can also serve as a ground for restitution is a different question, which is treated elsewhere in this book. The present article will concentrate on situations where both parties are responsible for the illegality, as one-sided illegality will frequently not render a contract void, with the result that no action will lie in the first place because the enrichment was supported by a causa (in civil-law terminology) or by consideration (in the language of the common law).

There is, interestingly, no divide between common law and civil law as regards the illegality defence. This has largely to do with the fact that this defence can be traced back to Roman law in all legal systems under consideration.

Illegality and other unjust enrichment defences

It could be argued that, next to change of position, illegality is the only other defence which is specific to unjust enrichment claims and which does not depend on how grounds of restitution are structured. In many other cases, one system's ground of restitution, put in the negative, is the other's defence against such a claim. Three examples should suffice:

1. If one party intentionally enriches another party, mistake will be a ground of restitution in the common law. Most civilian systems will grant restitution if the enrichment is not supported by a legal cause. But lack of mistake concerning such a causa will then operate as a defence, as, for example, in §814 of the German Civil Code (Bürgerliches Gesetzbuch, BGB).

2. […]

One of the major differences between the English and Continental law of unjust enrichment seems to be the justification for the claim in restitution. Whereas German law founds the claim on the lack of a legal ground (Rechtsgrund), English claims in restitution are said to rest on a specific ‘unjust factor’, such as mistake, compulsion or failure of consideration. This chapter concentrates on the role of unjust factors and legal grounds in a specific area of unjust enrichment, namely where the claimant willingly conferred a benefit – in particular, money – on the defendant. It does not deal with cases of encroachment, payment of another's debt, improvement of another's property or restitution for wrongs.

Restitution for mistake and the condictio indebiti

Liability mistake and condictio indebiti

The Roman unjustified enrichment claim that attracts the greatest interest today is the condictio indebiti. It required that the claimant conferred a benefit on the defendant in order to discharge a liability that, however, did not exist. The action did not lie when the claimant knew that the liability did not exist. Whether there was also a requirement that the claimant had to be mistaken is disputed. It may be that in classical law a mistake by the claimant was presumed if he performed in terms of a non-existent liability, and that the defendant had to rebut this presumption by showing that the claimant knew that the liability did not exist.