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(ii) Proprietary Restitutionary Remedies

The proprietary restitutionary remedies,13 sometimes known as remedies in rem, enable the claimant to assert property rights over property which is held by the defendant. There are two types of proprietary restitutionary remedy: first, remedies by virtue of which the claimant can recover the property which is held by the defendant; secondly, remedies which recognize that the claimant has a security interest in property which is held by the defendant. Proprietary restitutionary remedies can only be awarded if the claimant continues to have a proprietary interest in property which is held by the defendant at the time the claimant commences the restitutionary claim. Proprietary remedies are not concerned with returning the value of what the defendant has received to the claimant, but they are concerned simply with the assertion of proprietary rights against particular property. It follows that, if the defendant dissipated the property which he or she had received before the claimant brought his or her claim, the claimant will often be forced to rely on personal remedies. Proprietary restitutionary remedies may, however, still be awarded even though the specific property has been dissipated, so long as the defendant retains a product of the property or a substitute for it.14

Proprietary restitutionary remedies have three main advantages over personal restitutionary remedies.

  • (1) Where the defendant has become bankrupt or insolvent a personal remedy may be useless. This is because the effect of a personal remedy is to create a debt owed by the defendant to the claimant. Until the debt has been paid the claimant is a creditor of the defendant, but he or she will not have any security interest in the defendant’s property. Consequently, the claimant’s claim for payment will not be distinguished from those claims of the other general creditors of the defendant as regards the distribution of the defendant’s assets. This will not be a hardship if the defendant has sufficient assets to pay off all the creditors. But, if the defendant has insufficient assets to pay off all the creditors, the claimant may not receive the full amount which is due, and may not receive anything at all. This is because, when assets are distributed upon the debtor’s insolvency or bankruptcy, they are distributed according to a list of priorities. Unsecured creditors will not receive anything until the claims of creditors with proprietary rights and preferential creditors have been satisfied and the expenses of the insolvency proceedings paid. Consequently, if the claimant can show that he or she has a proprietary interest in some of the assets in the defendant’s possession, the claimant will rank above the general unsecured creditors in the distribution of the defendant’s assets and, subject to the nature of the proprietary interest, the claimant’s claim is more likely to be satisfied.[1] In particular, in those cases where it is clear that the defendant never received title to the relevant property, that property should not form part of the general pool of assets which are available for distribution amongst the defendant’s general creditors. For, where the defendant has never enjoyed beneficial ownership of the property in question, there is no reason why his or her creditors should benefit from the defendant’s receipt of the property in which the claimant had retained a proprietary interest.
  • (2) A second advantage of some proprietary remedies arises where the property which has been obtained by the defendant has increased in value. In such circumstances, the claimant would clearly prefer to assert his or her rights against the property itself and so gain the benefit of the increased value. Where, however, the property has fallen in value, the claimant will wish to claim a personal restitutionary remedy which would be assessed by reference to the value of the property at the time it was received by the defendant.
  • (3) A third advantage of proprietary remedies is that they relate to the property received rather than the person who receives them. Consequently, a proprietary remedy is available even where the relevant property has been transferred to a third party who may have no reason to think that the party who transferred the property had no legal or equitable title to the property.[2]

  • [1] The extent of the priority which the claimant will gain over other creditors will depend upon the type ofproprietary remedy which is awarded. See p 632, below.
  • [2] Save where the recipient provided value for this receipt. See Chapter 23.
 
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