Menu
Home
Log in / Register
 
Home arrow Law arrow The principles of the law of restitution
Source

(v) Assignment of Right to Restitution

In Equuscorp Pty Ltd v Haxton[1] the High Court of Australia held that the right to restitution is assignable where the assignee has a genuine commercial interest in the dispute. Where the right to restitution is properly assigned, the assignee will have a claim for restitution against the defendant even though the defendant will not have been enriched directly at the expense of the assignee.[2] But this is not a true exception to the direct enrichment principle, since the defendant will have been enriched directly at the expense of the assignor, and the effect of the assignment is simply to enable the assignee to stand in the assignor’s shoes such that the defendant can be considered to have been enriched directly at the assignee’s expense.

(vi) Interceptive Subtraction

In some cases the defendant may be indirectly enriched where a third party purports to transfer a benefit to the claimant which is intercepted by the defendant before the claimant receives it.[3] This will be treated as a benefit obtained at the claimant’s expense if, had the defendant not intervened, the benefit would have been received by the claimant. Consequently, the claimant should be able to bring a restitutionary claim against the defendant in respect of the benefit which has been intercepted if the claimant can establish that one of the recognized grounds of restitution is applicable.4 This principle of interceptive subtraction is founded on there being a sufficient causative link between the claimant’s loss and the defendant’s gain since, but for the defendant’s interception, the claimant would have received the benefit.

The advantage of recognizing the principle of interceptive subtraction is that it avoids multiplying proceedings, as recognized by Nourse J in Official Custodian for Charities v Mackey (No 2),41 who said that the rationale for restitution in these cases is to avoid circuity of actions, in order to ensure that the person who is ultimately entitled to receive the money can recover it directly. So, rather than the claimant suing the third party for what was due to the claimant, and the third party then suing the defendant to recover the enrichment, the claimant is allowed to sue the defendant directly.

(1) Establishing Interceptive Subtraction

Two conditions must be satisfied before the claimant can establish that the defendant has been indirectly enriched at the claimant’s expense by means of the principle of interceptive subtraction.

(a) Inevitability of Receipt

It must first be shown that the benefit received by the defendant would inevitably have come to the claimant had the defendant not intervened, for otherwise it is not possible to conclude that the defendant’s enrichment had effectively been subtracted from the claimant so that the claimant suffered a consequential loss. This notion of inevitability of receipt may be interpreted in two separate ways.

  • (1) Where the third party was under a legal obligation to transfer the benefit to the claimant and this benefit was intercepted by the defendant, the defendant will have been enriched at the claimant’s expense simply because, had the defendant not intervened, it would have been inevitable that the claimant would have received the benefit. The third party’s obligation to transfer the benefit to the claimant may have arisen by operation of law or by agreement between the parties.
  • (2) Where the third party was not obliged to transfer the benefit to the claimant but it can be established that, had the defendant not intervened, the benefit would definitely have been received by the claimant, it might also be possible to conclude that the defendant has been enriched at the claimant’s expense. This factual test of inevitability was recognized by Birks,[4] [5] [6] although he acknowledged that the claimant bears a heavy onus in establishing the inevitability of receipt in such circumstances.

In fact, the proper interpretation of the notion of inevitable receipt is limited to that of legal inevitability, as was recognized by Nourse J in Official Custodian for Charities v Mackey (No 2):43

[A] defendant, intervening without right between the claimant and a third party, renders

himself accountable to the claimant for the sum which he receives from the third party. It seems to me that it is of the essence of all [such] cases... that there is a contract or some other current obligation between the third party and the claimant on which the defendant intervenes . . .

The application of this test of legal inevitability is particularly well illustrated by the Mackey case itself. The claimant landlord had forfeited a lease and then sought to recover rent which had mistakenly been paid by sub-tenants to receivers on behalf of the tenant’s mortgagee. Since the sub-tenants were liable to pay the claimant mesne profits whilst they occupied the premises after the lease had been forfeited, the claimant sued the receivers in an action for money had and received to recover the money which had been paid to them by the sub-tenants. The claimant’s action failed on the ground that it could not be assumed that the mesne profits which the sub-tenants were liable to pay to the claimant were precisely equivalent to the rent which the sub-tenants had paid to the receivers. Although Nourse J did not refer specifically to the principle of subtractive interception, his analysis is consistent with that principle. For the claimant’s restitutionary claim to succeed it had to be shown that the money paid by the sub-tenants to the receivers would inevitably have been paid to the claimant had the receivers not intervened. It was not possible to show this, simply because the sub-tenants were not liable to pay rent to the claimant but were only liable to pay mesne profits and, crucially, the sub-tenants were not liable to pay this sum until the claimant had sued for it and judgment had been entered against them.

(b) The Defendant Must Not Have Earned the Benefit

The claimant will not be able to rely on the interceptive subtraction principle if the defendant who received the benefit from the third party had earned it, since in such a case the defendant cannot be considered to have deprived the claimant of the benefit but will instead have received it in his or her own right. This is illustrated by Boyter v Dodsworth.[7] The claimant had been appointed to the office of Sexton of Salisbury Cathedral for life. He did not receive any regular fees for this office, but it was usual for him to be paid by visitors for whom he gave a tour of the Cathedral. The defendant usurped the claimant’s office and was paid by visitors for guided tours. The claimant then brought an action for money had and received to recover these fees. This claim failed on the ground that the money paid to the defendant had taken the form of gratuities for the services that he had provided and which the visitors were not obliged to pay to him. The money paid to the defendant had therefore been paid as a result of the work which he had done and it could not be shown that the claimant would necessarily have received this money if he had shown visitors round the Cathedral.

(2) Application of the Principle

The principle of interceptive subtraction has been applied in a number of different contexts. In each one the ground of restitution may be a matter of some controversy, although typically restitution can be justified on the ground of ignorance.4

Where the claimant is entitled to receive fees from a third party by virtue ofthe claimant’s office and the defendant has collected this money by usurping that office, the claimant has an action for money and received to recover what had been paid to the defendant, even though this money was received directly from the third party rather than the claimant. Such an action will succeed, so long as it can be shown that the fees were certain and were annexed to the discharge of duties relating to the office.[8] Clearly, where it is certain that the money received by the defendant would have been received by the claimant had the defendant not intervened, these cases illustrate the principle of interceptive subtraction. That these cases relate to the award of restitutionary remedies is supported by King v Alston,[9] where it was recognized that the claimant could recover the money which had actually been paid to the defendant usurper but had no claim against the defendant in respect of any greater sum which the claimant might have earned had the defendant not intervened. In other words, the claimant’s claim is confined to the amount which the defendant had gained rather than what the claimant had lost.

The principle of interceptive subtraction can be identified in other contexts as well. So, for example, in Jacob v Allen[10] the defendant had acted as administrator of the deceased’s estate until the deceased’s will was found. Whilst acting as administrator the defendant had received money from the estate. The claimant executor of the estate then sued the defendant in an action for money had and received and successfully recovered this money. Similarly, where a defendant acts as an executor de son tort he or she is liable to the rightful representatives of the deceased for what the defendant had received from the estate.[11] In both situations, money which was properly due to the claimant was received by the defendant who was then liable to pay it to the claimant.

  • [1] 38 See TFL Management Ltd v Lloyds Bank plc [2013] EWCA 1415, [2014] 1 WLR 2006, p 114, below.
  • [2] 39 See PBH Birks, Unjust Enrichment (2nd edn, Oxford: Oxford University Press, 2005), 75-8. This
  • [3] principle is examined rigorously and critically by LD Smith, ‘Three-Party Restitution: A Critique of Birks’sTheory of Interceptive Subtraction’ (1991) 11 OJLS 481. See also M McInnes, ‘Interceptive Subtraction, UnjustEnrichment and Wrongs—A Reply to Professor Birks’ (2003) CLJ 697.
  • [4] Ignorance or failure of basis would typically be most appropriate. See Chapters 8 and 13 respectively.
  • [5] [1985] 1 WLR 1308, 13 1 5 . 3 Birks, Unjust Enrichment (2nd edn), 76.
  • [6] 43 [1985] 1 WLR 1308, 1314.
  • [7] (1796) 6 TR 682, 101 ER 770. 45 See Chapter 8.
  • [8] Boyter v Dodsworth (1796) 6 TR 682, 683, 101 ER 770, 771 (Lord Kenyon CJ). See also Arris v Stukley(1677) 2 Mod 260,86 ER 1060; Howard v Wood (1679) 2 Lev 245; 83 ER 540; and Jacob v Allen (1703) 1 Salkeld27, 91 ER 26.
  • [9] (1848) 12 QB 971, 116 ER 1134. 48 (1703) 1 Salkeld 27, 91 ER26.
  • [10] 49 Yardley v Arnold (1842) Car and M 434, 174 ER 577.
  • [11] 50 Birks, Unjust Enrichment (2nd edn), 158.
 
Source
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Mathematics
Political science
Philosophy
Psychology
Religion
Sociology
Travel