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(ii) Is a Proprietary Restitutionary Claim Founded on the Unjust Enrichment Principle?

It has often been assumed that, where the claimant seeks to recover property in which he or she has a proprietary interest, the recovery of that property or its proceeds can be justified only by reference to the principle that the defendant has been unjustly enriched at the expense of the claimant. But this is only true to the extent that ‘unjust enrichment’ is used in a trivial, descriptive sense to indicate that the defendant has property which it is just for him or her to return to the claimant.[1] ‘Unjust enrichment’ in its substantive sense is completely irrelevant in this context, because the action to vindicate property rights forms part of the law of property and has nothing to do with the principle of reversing the defendant’s unjust enrichment.[2] Once it has been shown that the defendant has received or has retained property in which the claimant has a proprietary interest, nothing else needs to be proved to establish the claimant’s cause of action. If the defendant has the claimant’s property he or she should return it, or its value, to the claimant, without the claimant first having to establish that the defendant has been unjustly enriched at his or her expense.

This analysis of proprietary restitutionary claims was adopted by the House of Lords in Foskett v McKeown.[3] It remains, however, a controversial analysis and has been criticized by a number of commentators,[4] especially as regards claims to property which is substituted for the original property received, such as where the defendant receives money and uses it to buy a car. For these commentators enrichment is readily established because the receipt of an asset will typically be characterized as an enrichment which cannot be devalued by the defendant.[5] Further, if the claimant had a proprietary interest in the property which can be identified in the substitute, this shows that the property was received at the claimant’s expense. But the stumbling block with this analysis relates to the identification of the ground of restitution. The commentators who seek to explain proprietary claims with reference to unjust enrichment are forced to identify artificial grounds of restitution to explain the decided cases. But such artifice is completely unnecessary. The reported cases do not use such reasoning and they have no need to do so, simply because it is sufficient to establish that the defendant has received property in which the claimant has a proprietary interest.

Even before the decision of the House of Lords in Foskett v McKeown a number of cases were consistent with the theory that proprietary restitutionary claims are not founded on unjust enrichment. For example, in Macmillan v Bishopsgate Investment Trust plc (No 3),57 the claimant wished to recover shares from the defendants which had been transferred to them by a third party in breach of trust. The defendants pleaded the defence that they were bona fide purchasers for value.58 The issue before the court concerned the choice of law rule for this type of action. It was agreed that the claim should be characterized as restitutionary, and the argument then related to whether it was based on an obligation or property right. The Court of Appeal unanimously held that it was a matter of property and so proprietary choice of law rules were applicable. The importance of this case is that the court implicitly recognized that a cause of action could be restitutionary even though the action was not founded upon the reversal of an unjust enrichment. For example, Auld LJ emphasized that the issue in the case was essentially a proprietary one and stated that ‘it is difficult to see what unjust enrichment the [defendants] have had’.59 Further, the result, but not the analysis, of the leading case of Lipkin Gorman (a firm) v Karpnale Ltd60 is consistent with the proprietary restitutionary claim theory. Although the House of Lords, following the lead of Lord Goff, agreed that all restitutionary claims are founded on the unjust enrichment principle, this was not in fact an unjust enrichment case, save in the broadest and least useful descriptive sense of the defendant having received a benefit which should be returned as a matter of justice. Rather, Lipkin Gorman was primarily concerned with the vindication of the claimant’s proprietary rights. This explains why none of the judges expressly identified all of the elements which are required to establish that the defendant has been unjustly enriched, most notably the ground for restitution, an omission which has been a serious cause of concern for some commentators.61 This is not a problem if the basis for awarding restitutionary remedies was the vindication of property rights rather than the reversal of unjust enrichment, because where the claimant wishes to vindicate property rights it is only necessary to identify the property right and not a ground of restitution.

Lipkin Gorman concerned a partner of the claimant firm of solicitors who had stolen money from the firm over a period of time and used this money to gamble at the defendant casino. The claimant brought a restitutionary claim to recover the value of the money received by the defendant. The claimant’s action succeeded. Both Lords Templeman and Goff emphasized the claimant’s continuing proprietary interest in the money from the moment it was stolen by the partner until it, or its substitute, was received by the defendant.62 Consequently, a continuing proprietary interest was clearly recognized and appears to have proved vital to the success of the claim.63 If this analysis is correct we are left with a nice irony. Whilst the decision of the House of Lords in Lipkin Gorman is of [6] [7] [8] [9] [10] [11] [12]

prime importance as the leading case where the unjust enrichment principle was first formally recognized as constituting part of English law, that case should not be regarded as authority for the application of the unjust enrichment principle on the facts.

That this is the proper conclusion was confirmed by the decision of the House of Lords in Foskett v McKeown,[3] where the majority recognized a fundamental distinction between the law of unjust enrichment and the law of property, and held that a claim to recover substitute property in which the claimant asserted a proprietary interest depended on the vindication of property rights and not unjust enrichment. Foskett v McKeown concerned a claim brought by the beneficiaries of a trust to recover part of the proceeds of a life insurance policy. One of the trustees had misappropriated money from the trust fund to pay the fourth and fifth annual premiums for a life assurance policy, with the earlier premiums being paid from his own money.[14] After the fifth premium of ?10,220 had been paid, the trustee committed suicide and his children were entitled to receive a payment of just over ?1 million under the policy. The beneficiaries of the trust claimed a proportionate share of this sum, amounting to ?400,000, on the basis that trust money had been used to pay two of the premiums which contributed to the receipt of the death benefit by the children. The Court of Appeal[15] had confined the beneficiaries to a lien on the proceeds of the policy to secure payment of the amount which had been misappropriated from the trust, amounting to ?20,440. The House of Lords held by a bare majority that the beneficiaries’ claim for a proportionate share of the ?1 million should succeed. The importance of the decision for present purposes is the recognition that the restitutionary claim of the beneficiaries fell within the law of property and was concerned with the vindication of property rights rather than with whether the defendant was unjustly enriched at the expense of the claimant.[16]

Almost as important was the clear rejection by most of the judges of a normative approach to proprietary restitutionary claims, by virtue of which the identification and vindication of proprietary rights would depend on the discretion of the court. This rejection was forcefully expressed by Lord Millett:[17] ‘Property rights are determined by fixed rules and settled principles. They are not discretionary. They do not depend upon ideas of what is ‘‘fair, just and reasonable”. Such concepts, which in reality mask decisions of legal policy, have no place in the law of property.’[18]

Lord Browne-Wilkinson also recognized that proprietary claims do not depend on any discretion vested in the court; it was ‘a case of hard-nosed property rights’.[19] The approach of the court could not have been clearer: where the claimant is seeking a proprietary restitutionary remedy the claim is founded on the claimant’s rights in the property held by the defendant rather than the defendant’s unjust enrichment.

  • [1] Ibid, 115 (Lord Hoffmann).
  • [2] See Chapter 21. See also RB Grantham and CEF Rickett, ‘Property and Unjust Enrichment: CategoricalTruths or Unnecessary Complexity?’ [1997] 2 NZ Law Rev 668. See also Test Claimants in the FII GroupLitigation v Commissioners for HMRC [2014] EWHC 4302 (Ch), [348] (Henderson J).
  • [3] [2001] AC 102.
  • [4] See especially Birks, Unjust Enrichment (2nd edn), 34-6; AS Burrows, ‘Proprietary Restitution: Unmasking Unjust Enrichment’ (2001) 117 LQR 412; C Mitchell, P Mitchell, and S Watterson (eds), Goff and Jones:The Law of Unjust Enrichment (8th edn, London: Sweet and Maxwell, 2011), ch 7.
  • [5] See further p 81, below.
  • [6] [1996] 1 WLR 387. See GJ Virgo, ‘Reconstructing the Law of Restitution’ (1996) 10 TLI 20 and WJSwadling ‘A Claim in Restitution?’ [1996] LM CLQ 63 for further discussion of this case.
  • [7] See Chapter 23.
  • [8] Macmillan v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, 409.
  • [9] [1991] 2 AC 548.
  • [10] See PBH Birks, ‘The English Recognition of Unjust Enrichment’ [1991] LMCLQ 473, E McKendrick,‘Restitution, Misdirected Funds and Change of Position’ (1992) 55 MLR 377 and Burrows, The Law ofRestitution (3rd edn), 414.
  • [11] Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 560 (Lord Templeman), 572 (Lord Goff).
  • [12] See further Chapter 3.
  • [13] [2001] AC 102.
  • [14] Although it was unclear whether the third premium was paid from the trustee’s own money or from thetrust fund.
  • [15] Foskett v McKeown [1998] Ch 265.
  • [16] Foskett v McKeown [2001] AC 102, 109 (Lord Browne-Wilkinson), 115 (Lord Hoffmann), 118 (LordHope), and 129 (Lord Millett). Lord Steyn concluded that the children were not unjustly enriched because thepayment of the premiums did not constitute an enrichment: ibid, 112.
  • [17] Ibid, 127.
  • [18] Cf Lord Hope who said, ibid, 120, that, since there was no principle or authority to assist with the divisionof the mixed substitution in this case, it should be divided in such proportions as were equitable, having regardto the terms of the life insurance policy and the equities affecting each party.
  • [19] Ibid, 109.
 
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