(ii) The Substantive Sense of Unjust Enrichment

Alternatively, and much more acceptably, unjust enrichment has been relied on as a substantive principle which can be used to determine when restitutionary remedies should be available. To establish this substantive sense of unjust enrichment it is now recognized that four separate questions need to be considered:^[1]

• (a) the defendant must have been benefited or received an enrichment;^[2]
• (b) the enrichment must have been received at the claimant’s expense;^[3]
• (c) the enrichment must have been received in circumstances of injustice, meaning that the claim falls within one of the recognized grounds of restitution;^[4]
• (d) the defendant is not able to rely on a defence which defeats or reduces liability.^[5]

If the first three requirements are satisfied, and the defendant does not have a defence which removes liability, a restitutionary remedy will be awarded to enable the claimant to recover the value of any enrichment which had been received by the defendant. The only remedies which are available for actions founded on the reversal of unjust enrichment are restitutionary and, even then, only personal restitutionary remedies are available.

These four questions are increasingly treated as a formula which needs to be applied to determine whether the defendant is liable to make restitution by virtue of unjust enrichment. But caution has sometimes been expressed about the nature of this formula. For example, in Investment Trust Companies v HMRC,³⁶ Henderson J characterized this conceptual structure as involving ‘broad headings for ease of exposition’ which ‘should not be approached as if they had statutory force’. But this is an unfortunate approach to the essential elements of the unjust enrichment claim, since it may lead back to a more normative approach to the identification of unjust enrichment, with consequent uncertainty and unpredictability. It is far better to assert that a claim in unjust enrichment can only be established if each of the first three questions are answered affirmatively. Then attention can focus on whether the defendant has a complete or partial defence to the claim.

Although the four questions which constitute the unjust enrichment formula can now be considered to be orthodox, they should not be considered to be comprehensive in identifying what needs to be proved to establish an unjust enrichment claim. Increasingly, in both the academic literature but also in decisions of the courts, a fifth question is examined, although it is rarely acknowledged that it needs to be considered separately. This fifth question is whether there is a valid legal basis for the defendant to have received the enrichment. If there is such a legal basis, which is sometimes called a ‘juridical base’, then a claim in unjust enrichment should fail, since awarding restitution in such circumstances would undermine the legal legitimacy of the defendant’s receipt. So, for example, if the claimant has transferred a benefit to the defendant in fulfilment of a valid contractual obligation, the defendant’s receipt is valid and the defendant’s gain is legitimate. Similarly, if the defendant has received an enrichment which discharges a valid statutory obligation or it has been transferred as a valid gift. The significance of recognizing this fifth part of the unjust enrichment formula is considered further in Chapter 7. This fifth question has previously been hidden away in the identification of a relevant ground of restitution. But then it can be missed. It is vital that is drawn out explicitly with reference to a separate question in the unjust enrichment formula.

It follows that a claim in unjust enrichment should only be established where it can be shown that (i) the defendant was enriched; (ii) at the claimant’s expense; (iii) a recognized ground of restitution is engaged; (iv) there was no valid legal basis for the defendant’s receipt; and (v) there is no defence to the claim. Where liability in unjust enrichment is established, the remedy which is awarded is limited to a personal remedy assessed with reference to the value of the enrichment received by the defendant. A claim for unjust enrichment is not a claim for compensation for loss.^[6] Despite this, sometimes the restitutionary remedy to reverse unjust enrichment has been described inappropriately as ‘compensation’^[7] or ‘damages’.^[8] To the extent that this suggests a focus on the loss suffered by the claimant, such language should be avoided.^[9]

• [1] Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221, 227 (Lord Steyn), 234 (LordHoffmann); Haugesund Kommune v Defra ACS Bank [2011] EWCA Civ 33, [2011] 3 All ER 655, [69] (Rix LJ);Investment Trust Companies v HMRC [2012] EWHC 458 (Ch), [38] (Henderson J); Benedetti v Sawiris [2013]UKSC 50, [2014] AC 938, [10] (Lord Clarke). The determination of the appropriate remedy is sometimesconsidered to be a fifth question which needs to be examined. See Lloyds Bank plc v Independent Insurance CoLtd [2000] QB 110, 123 (Waller LJ), referring to P Millett, ‘Restitution and Constructive Trusts’ in W Cornish,R Nolan, J O’Sullivan, and G Virgo (eds), Restitution: Past, Present and Future (Oxford: Hart Publishing,1998), 208. Birks, Unjust Enrichment (2nd edn), 39, identified a fifth question concerning whether the claimantacquired a personal or a proprietary right. The preferable view, though, is that only personal rights are acquiredas a result of unjust enrichment, so this is a redundant question. In Banque Financiere de la Cite v Parc(Battersea) Ltd [1999] 1 AC 221,234 Lord Hoffmann stated that a further question was whether there were anyreasons of policy for denying a remedy. This is preferably dealt with through the elements of the claim and thedefences which are available to it.
• [2] See Chapter 4. 33 See Chapter 5.
• [3] 34 See Part II. These are sometimes called ‘unjust factors’. See Banque Financiere de la Cite v Parc (Battersea)Ltd [1999] 1 AC 221, 227 (Lord Steyn); Kleinwort Benson v Lincoln CC [1999] 2 AC 349, 363 (Lord Browne-
• [4] Wilkinson), 386 (Lord Goff), 395 (Lord Lloyd), 409 (Lord Hope); Test Claimants in the FII Group Litigation vHMRC [2012] UKSC 19, [2012] 2 AC 337, [81] (Lord Walker). ‘Grounds of restitution’ is the preferredexpression in this book, simply for reasons of elegance.
• [5] See Part V. 36 [2012] EWHC 458 (Ch), [39].
• [6] Boake Allen Ltd v HMRC [2006] EWCA Civ 25, [2006] STC 606, [175] (Mummery LJ).
• [7] MacDonald Dickens and Macklin v Costello [2011] EWCA Civ 930, [2012] QB 244, [31] (Etherton LJ).
• [8] Harrison v Madjeski and Coys of Kensington [2014] EWCA Civ 361, [3] (Etherton C).
• [9] Although see further p 116, below. 41 See Part III. 42 See Chapter 17.