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(C) THE NATURE OF THE CLAIM

When the claimant wishes to vindicate his or her proprietary rights, he or she simply needs to establish that, when the defendant received the property in question, the claimant had an interest in it, either legal or equitable. The claimant may have such a proprietary interest either because the nature of the transfer to the defendant means that title to the property did not pass to the defendant or because the circumstances existing at the time of the transfer is such that a proprietary interest is created by operation of law.

(i) Distinguishing Between Vindication of Property Rights and Reversal of Unjust Enrichment

The most important feature of the action to vindicate property rights is that it forms part of the law of property and has nothing to do with the principle of reversing the defendant’s unjust enrichment.[1] Consequently, it is not necessary to show that the defendant has been unjustly enriched at the claimant’s expense. Once the claimant has shown that the defendant has property, whether it be chattels, land, intellectual property rights or, most importantly, money, in which the claimant had a proprietary interest at the time of receipt, 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.

A key example of the significance of this analysis is the decision of the House of Lords in Lipkin Gorman (a firm) v Karpnale,[2] where Cass, one of the partners of the claimant firm of solicitors, stole money from the claimant’s client account and gambled with it at the defendant’s casino. The claimant brought a restitutionary claim for money had and received against the defendant. Although the House of Lords acknowledged that the claim succeeded by virtue of the defendant’s unjust enrichment,[3] the elements of the unjust enrichment formula were not considered. The reason why the House of Lords considered that the casino should make restitution was because the money which had been stolen from the client account belonged to the claimant firm of solicitors. So Lord Templeman recognized that[4] ‘in a claim for money had and received by a thief, the plaintiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched’.

The claim should properly be analysed as being based on the vindication of the firm’s property rights in the money and was effectively analysed in this way by both Lords Templeman and Goff. Lord Templeman’s analysis was rather unsophisticated. He asserted that the claim depended on the defendant’s retention of the money, whereas Lord Goff emphasized that the claim was a personal claim which turned on whether the club had received money in which the firm had a continuing proprietary interest at the time of receipt. But Lord Goff acknowledged that the claimant needed to establish a basis on which it was entitled to the money and it could do so by showing that the money was its legal property. Particular reliance was placed on the decision of Lord Mansfield in Clarke v Shee and Johnson,21 where the claimant recovered money which had been stolen by his servant, who had used it to buy lottery tickets. The claimant successfully sued the defendants, who ran the lottery. Crucially, Lord Mansfield specifically recognized that the claimant sued ‘for his identified property’.22 The significance of this to Lord Goff was that the claim was ‘founded simply on the fact that, as Lord Mansfield said, the third party cannot in conscience retain the money—or, as we say nowadays, for the third party to retain the money would result in his unjust enrichment at the expense of the owner of the

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money’.

Now it is true that Lord Goff used the unjust enrichment principle to justify restitution in that case, but he did not need to do so, because the claim turned on the vindication of a property right. That is why in Lipkin Gorman itself, rather than searching for a ground of restitution, Lord Goff focused on showing that the defendant had received money which belonged to the firm. But establishing the claimant’s proprietary right to the money received by the defendant was not straightforward. Lord Goff recognized that the firm did not have any proprietary rights in the money which had been taken from the client bank account because Cass as partner had authority to draw money from the account. However, he concluded that, since the bank owed the money to the claimant, the claimant owned a chose in action at law which it could identify in the cash drawn from the bank account by the solicitor and into the money which had been received by the defendant.

But this does not satisfactorily deal with the fact that the money drawn by Cass belonged to him because he had authority to draw on the account. Whilst his act of drawing the money constituted theft, because he had interfered with another’s property rights dishonestly, this did not render the withdrawal unauthorized. Lord Goff’s analysis is unconvincing and he seemed almost too ready to reach the desired result of allowing restitution but without providing convincing reasons, especially as to how it was possible to identify a continuing proprietary interest in money which clearly belonged to the thief.[5]

There was a further difficulty in establishing a proprietary claim, since the money drawn from the client account might have been mixed with Cass’s own money when he gambled at the club, so that it would have lost its identity. This is because tracing at Law is defeated by mixing in a fund.[6] But counsel for the defendant had conceded that title to the money would not have been lost had it been mixed. This is a very odd concession. Had it not been made it is likely that the claim for restitution would have failed or, perhaps more likely, the House of Lords would have taken the opportunity to rule that it was possible to trace at Law even through a mixture.[7]

There was, in fact, an alternative proprietary claim available to the firm, but this had not been pursued. Although the effect of Cass having authority to draw money meant that legal title to the money passed to him, his reason for doing so was such that he would have been acting in breach of fiduciary duty,[8] so the money would have been held on constructive trust for the claimant, which would have been able to trace it in Equity to the defendant, since equitable tracing is not defeated by mixing.[9] But counsel for the firm did not make such a claim, presumably because the personal claim would have been for what is now known as unconscionable receipt,[10] which would have required proof of fault on the part of the defendant at the time of receipt and would have been difficult to establish on the facts.[11]

There was, consequently, no need to establish a claim founded on the reversal of the defendant’s unjust enrichment, since the claim was founded on the vindication of the claimant’s property rights and had nothing to do with unjust enrichment.[12] It is for this reason that no ground of restitution was identified by the House of Lords, even though a number of commentators have sought to identify one from the facts of the case.[13] In the light of this conclusion that Lipkin Gorman has nothing to do with unjust enrichment and everything to do with vindication of proprietary rights, it is ironic that the case has become the leading case on the recognition of unjust enrichment in English law.

That vindication of proprietary rights is distinct from the unjust enrichment principle was recognized by the House of Lords in Foskett v McKeown,[14] which is the seminal case of proprietary restitutionary claims. In Foskett the claimants claimed an equitable proprietary interest in the death benefit paid under a life insurance policy, which had been taken out by the claimants’ trustee on his own life. The trustee had stolen over ?20,000 from the trust, which he used to pay two of the five annual premiums for the policy. The trustee committed suicide and his children received a lump sum payment of ?1 million. The claimants recovered ?400,000 of this, on the basis that they had contributed two-fifths of the premiums. The real significance of this case is that it was held that the claim did not depend on establishing unjust enrichment. As Lord Millett said:[15]

The transmission of a claimant’s property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment. There is no ‘unjust factor’ to justify restitution (unless ‘want of title’ be one, which makes the point). The claimant succeeds if at all by virtue of his own title, not to reverse unjust enrichment.

In other words, it was not necessary to show that the defendant had received money at the claimant’s expense and that the case fell within one of the recognized grounds of restitution. It was sufficient that the defendant had received property in which the claimant had an equitable proprietary interest, even though this interest related to different money from that which had been stolen from the claimant. The approach of the House of Lords was rigorously principled. As Lord Browne-Wilkinson said:[16]

The crucial factor in this case is to appreciate that the [claimants] are claiming a proprietary interest in the policy moneys and that such proprietary interest is not dependent on any discretion vested in the court. Nor is the purchaser’s claim based on unjust enrichment. It is based on the assertion by the purchasers of their equitable proprietary interest in identified property.

A number of commentators have rejected this analysis of proprietary restitutionary claims, most notably Birks.[17] He did accept that, where the claimant wishes to recover an asset which belonged to him or her from the start, the claim falls within the law of property and has nothing to do with unjust enrichment. Where, however, the claimant wishes to recover an asset which is different from that which initially belonged to the claimant, it is necessary to show that the claimant has a right to such substitute property and, Birks asserted, the claimant could only establish that by means of the unjust enrichment principle and not simply by the assertion of property rights. Crucial to Birks’s argument is the need to distinguish clearly between events and responses and to identify an event before the appropriate response can be considered. The law, he asserted, recognizes four events, namely consent, wrongs, unjust enrichment, and other events. He argued that the vindication of property rights is not an event and concluded that restitution could not be a response to it. Rather, unjust enrichment is an event to which restitution is the only response, so, to obtain a right to the substitute property, the claimant must show that the defendant had been unjustly enriched at the claimant’s expense. At the heart of the debate about the legitimacy of the vindication of property rights principle is a basic question: how can a claimant bring a proprietary claim against substitute property when the claimant has never had an interest in that property originally? Is it sufficient to conclude that the substitute property represents the original property by virtue of principles of property law, as the House of Lords concluded in Foskett v McKeown, or must the unjust enrichment principle be used?

There is a further question: why does this matter? In practice, the method of analysis is often irrelevant because the same result will be achieved. But there may be substantive consequences depending on the analysis adopted, especially as regards the application of the defence of change of position, which might only be relevant if the unjust enrichment analysis was adopted.[18] Further, what needs to be proved to establish the claim will vary depending on the analysis which is adopted. Finally, the debate about the validity of the vindication of property rights principle reveals a great deal about the nature of the law of restitution, property law, and the appropriate method for classifying claims, particularly the relevance of distinguishing between events and responses.

Despite the rigorous arguments of those who prefer to use the unjust enrichment analysis to explain how rights can be asserted in substitute property, that principle is in fact irrelevant and misleading. The approach of the House of Lords in Foskett v McKeown was correct for the following reasons:

  • (1) Much of the recent debate about the legitimacy of the principle of vindication of property rights has got stuck on the question of language. Birks was obviously right to state that ‘vindication of property rights’ is not an ‘event’.[19] It is a principle which is simply not framed in those terms. But the principle could be rebranded into an event if it is necessary to do so. For example, the event could be that the defendant has interfered with the claimant’s property rights in some way. There are then a number of responses to that event, including compensation, but the most important involves the award of gain-based remedies, either personal or proprietary.[20]
  • (2) There is no case which explicitly recognizes that property rights can derive from the defendant’s unjust enrichment.[21] Birks[22] [23] considered that Foskett v McKeown was such a case, even though the majority judgments clearly contradict this, and that there are other cases which are consistent with this approach, including Sinclair v Brougham,42 but this has been overruled,[24] [25] and Chase Manhattan Bank v Israel-British Bank,44 but this case has been reinterpreted by the House of Lords.[26] Further, neither of these cases explicitly recognizes that property rights can derive from unjust enrichment. There is simply no empirical evidence to support the assertion that property rights can derive from the defendant’s unjust enrichment.
  • (3) Birks[27] and others[28] have wished to draw a distinction between so-called ‘pure property rights’, which are subsisting and usually arise by the consent of the parties through a contract or declaration of trust, and restitutionary property rights, which arise by operation of law in substitute property. The effect of this distinction is that, if the claimant wishes to recover the property in which he or she has a subsisting proprietary interest, then restitution is a matter for the law of property, whereas, if the claimant wishes to recover substitute property, this will depend on the claimant establishing that the defendant has been unjustly enriched. But no convincing reason is given as to why we should divide up proprietary rights in this way. Such a division is highly artificial because, regardless of the reason for the existence of the right, all these rights are proprietary and may trigger restitutionary remedies.[29] Whether or not the claimant has a proprietary right is a matter for the law of property and it is only once such rights have been recognized that the question of restitutionary relief becomes relevant. If we create artificial distinctions between pure proprietary rights and restitutionary proprietary rights the danger is that we ignore the fundamental policy of the law which is to protect property rights, regardless of how the right arose.
  • (4) If the unjust enrichment principle is to be used to enable claims to be made against substitute property, the elements[30] [31] of that principle would need to be established in the usual way. The enrichment element will be relatively easy to satisfy, since property is a benefit which generally cannot be subjectively devalued, save where the defendant has given full value for receipt of the property. 0 But the establishment of the other two elements causes real problems, which can be avoided if the vindication of property rights principle is used instead.

First, where the claimant wishes to recover substitute property from the defendant it will necessarily follow that the enrichment received by the defendant cannot have been received directly at the claimant’s expense, since substitute property can only have been received indirectly from the claimant. Although it has been recognized that the ‘at the expense’ requirement can be satisfied by indirect receipt,[32] this is exceptional and only where there is a close causal connection between the transfer from the claimant and the defendant’s receipt, such that the defendant can be considered to have received the enrichment from the claimant as a matter of economic reality.[33] Whilst this test might be considered to be satisfied where the defendant has received substitute property, or has received property transferred via a third party,[34] this will not necessarily be the case and, anyway, adds a further level of complexity in determining what economic reality means in this context.

Secondly, although some commentators have suggested that the applicable grounds of restitution are the same as those which were discussed in Part II,[35] if the established grounds of restitution for unjust enrichment are to be used to show that the receipt of the enrichment was unjust, this causes problems both of interpretation and as regards the reach of proprietary claims. For example, if the claimant transferred property by mistake, should the usual test of a causative mistake be adopted? If it is, proprietary relief will tend to give the claimant excessive protection, because the consequences of such relief include giving the claimant priority over the defendant’s other creditors and enabling the claimant to claim increases in the value of property. Why should a claimant who made a simple spontaneous mistake be allowed such proprietary protection? If a more restrictive test of mistake is to be adopted, a reason would need to be identified to distinguish between different types of mistake to determine which ones will trigger proprietary relief, and it is surely far better to do this explicitly within the established principles of the law of property. But, in many cases where a claimant wishes to recover substitute property, the established grounds of restitution will not be applicable. Where, for example, property has been misappropriated, it will not have been transferred as the result of a mistake, duress or exploitation because the claimant will be unaware of the misappropriation. So what ground of restitution would be applicable? Birks has suggested that absence of consent should be the ground,[36] Burrows talks about powerlessness or ignorance,[37] and Goff and Jones refer to lack of consent and want of authority,[38] but no case has recognized such grounds of restitution in the proprietary context. This absence of recognition of grounds of restitution relevant to restitutionary proprietary claims is not surprising, because it is not necessary to rely on the unjust enrichment principle at all.[39] It is sufficient that the defendant has received property in which the claimant has a proprietary interest at the time of its receipt, where the claimant seeks a personal restitutionary remedy, or continues to have a proprietary interest in it, where the claimant seeks a proprietary restitutionary remedy.

  • [1] Foskett v McKeown [2001] 1 AC 102, 109 (Lord Browne-Wilkinson), 115 (Lord Hoffmann), 118 (LordHope), and 129 (Lord Millett).
  • [2] [1991] 2 AC 548. 2 See p 48, above.
  • [3] 20 Lipkin Gorman (a firm) v Karpnale [1991] 2 AC 548, 559-60. 21 (1774) 1 Cowp 197, 98 ER 1041.
  • [4] 22 Ibid, 200-1; 1043 . 23 Lipkin Gorman (a firm) v Karpnale [1991] 2 AC 548, 572.
  • [5] That a thief can be guilty of a crime whilst still obtaining property rights has been explicitly recognized bythe House of Lords: R v Hinks [2001] AC 241.
  • [6] Trustee of the Property ofFC Jones v Jones [1997] Ch 159, 168 (Millett LJ). See further p 615, below.
  • [7] See p 629, below.
  • [8] As Lord Goff acknowledged: [1991] 2 AC 548, 572. See p 488, above.
  • [9] See further p 618, below. 29 See p 645, below.
  • [10] 30 Note also LD Smith, ‘Simplifying Claims to Traceable Proceeds’ (2009) 125 LQR 338, who argues that
  • [11] Common Law actions for money had and received in respect of the proceeds of an unauthorized dispositioncould be analysed as a Common Law claim for money held on trust. This might mean that the solicitor held themoney on trust for the firm, which would explain how the firm could trace to the property received by the club,but it would still depend on the solicitor’s withdrawal of the money being unauthorized.
  • [12] See also Macmillan Inc v Bishopsgate Investment Trust pic (No 3) [1996] 1 WLR 387. See GJ Virgo,‘Reconstructing the Law of Restitution’ (1996) 10 TLI 36.
  • [13] See PBH Birks, ‘The English Recognition of Unjust Enrichment’ [1991] LMCLQ 473, 483 and EMcKendrick, ‘Restitution, Misdirected Funds and Change of Position’ (1992) 55 MLR 377.
  • [14] [2001] 1 AC 102. See further p 568, below.
  • [15] Foskett v McKeown [2001] 1 AC 102, 127. 35 Ibid, 108.
  • [16] 36 PBH Birks, Unjust Enrichment (2nd edn, Oxford: Oxford University Press, 2005), 36. See also PBH Birks,
  • [17] ‘Property, Unjust Enrichment and Tracing’ [2001] CLP 231; AS Burrows, The Law of Restitution (3rd edn, Oxford:Oxford University Press, 2011), ch 16; LD Smith, The Law of Tracing (Oxford: Clarendon Press, 1997), 300.
  • [18] See p 696, below.
  • [19] Birks, ‘Property, Unjust Enrichment and Tracing’, 239; Birks, Unjust Enrichment (2nd edn), 35.
  • [20] See RB Grantham and CEF Rickett, ‘Trust Money as an Unjust Enrichment: A Misconception’ [1998]LMCLQ 514, 519.
  • [21] The decision of the House of Lords in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC221 perhaps comes closest to recognizing this, since the remedy of subrogation was justified on the ground thatit reversed the defendant’s unjust enrichment arising from mistake, although the remedy is properly characterized as personal rather than proprietary. See p 636, below. Further, this decision was delivered before that ofthe same court in Foskett v McKeown [2001] 1 AC 102.
  • [22] Birks, Unjust Enrichment (2nd edn), 34-6. 42 [1914] AC 398.
  • [23] 43 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. 44 [1981] Ch 105.
  • [24] 45 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. See p 598, below.
  • [25] 46 See especially Birks, Unjust Enrichment (2nd edn), ch 8.
  • [26] 47 See D Fox, ‘Legal Title as a Ground of Restitutionary Liability’ [2000] RLR 465; AS Burrows, ‘Propri
  • [27] etary Restitution: Unmasking Unjust Enrichment’ (2001) 117 LQR 412, 417; R Chambers, ‘Two Kinds of
  • [28] Enrichment’ in R Chambers, C Mitchell, and J Penner (eds), Philosophical Foundations of the Law of UnjustEnrichment (Oxford: Oxford University Press, 2009), ch 9.
  • [29] See RB Grantham, ‘Doctrinal Bases for the Recognition of Proprietary Rights’ (1996) 16 OJLS 561, 574.
  • [30] See p 9, above. 50 See Foskett v McKeown [2001] 1 AC 102, 129 (Lord Millett).
  • [31] 51 See p 107, above.
  • [32] 52 InvestmentTrustCompaniesvCommissionerofHerMajesty’sRevenueandCustoms [2015] EWCACiv82.
  • [33] 53 As in Relfo Ltd v Varsani [2014] EWCA Civ 360, [2015] 1 BCLC 14. See p 625, below.
  • [34] 54 To the extent that he recognized different grounds of restitution within the super-ground of absence of
  • [35] basis, this was the approach of Birks: Unjust Enrichment (2nd edn).
  • [36] Birks, ‘Property, Unjust Enrichment and Tracing’, 246.
  • [37] Burrows, ‘Proprietary Restitution’, 418. See also ibid, 423.
  • [38] C Mitchell, P Mitchell, and S Watterson (eds), Goff and Jones: The Law of Unjust Enrichment (8thedn, London: Sweet and Maxwell, 2011), ch 8. Cf Handayo v Tjong Very Sumito [2013] SGA 44, [111] (VKRajah JA).
  • [39] Foskett v McKeown [2001] 1 AC 102, 127 (Lord Millett). 59 See p 420, above.
 
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