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(C) SHOULD THE DEFENCE OF PASSING ON BE RECOGNIZED?

The state of English law is such that, save where specific provision has been made by statute or by EU law, the defence of passing on does not exist as a defence to restitutionary claims. But should such a defence be recognized? Although the defence is consistent with the correspondence principle, whereby the defendant’s gain must correspond with the claimant’s loss in order to establish unjust enrichment at the claimant’s expense,20 the reality is that invariably it will be impossible to prove that the claimant has actually passed on the loss to a third party.21 For example, if the claimant has paid money to the defendant and seeks to recoup this loss from his or her customers by increasing prices, it does not follow that the claimant will necessarily be able to recoup the loss. This was recognized by Advocate General Mancini in the San Giorgio case: ‘[The] passing on of charges is not generally relevant because of the innumerable variables which affect price formation in a free market and because of the consequent impossibility of definitively relating any part of the price exclusively to a certain cost.’22 Consequently, even though the claimant may have increased the price of goods to recoup the enrichment which was transferred to the defendant, this may in turn have had an impact on sales volume resulting in an overall loss. It follows that the claimant would not have passed on the loss to his or her customers.

Further, from a theoretical perspective, the recognition of the correspondence principle as being founded on the principle of corrective justice, does not require the passing-on defence to be recognized. As Grantham and Rickett have noted,23 the defence is inconsistent with the normative basis for recognizing restitutionary liability: ‘the fundamentally correlative structure of corrective justice is such that matters external to the relationship of claimant and defendant cannot bear on the issue of the normative equality of the parties and whether that equality has been disrupted’. In other words, the fact that, following the defendant’s receipt of the enrichment, the claimant’s position has changed through the passing on ofthe loss, is not relevant to the question of the imposition of liability as between the claimant and the defendant. A claim in unjust enrichment focuses on whether the claimant suffered an initial loss which corresponds with the defendant’s gain at the time when the unjust enrichment claim crystalized.24 The fact that the claimant’s loss is subsequently reduced or dissipated does not affect whether the defendant’s gain can be considered to have been obtained at the claimant’s expense, because reduction or removal of the loss suffered by the claimant after the defendant has been enriched is not causatively linked to the defendant’s enrichment.

There may, however, be circumstances where policy demands that events following the transfer of the enrichment to the defendant should be taken into account, which is why the passing-on defence is recognized in certain circumstances where the claim relates to the overpayment of tax to a public authority. In particular, the passing-on defence is the only defence recognized by EU law as regards claims for the recovery of overpaid tax paid in breach of EU law.25 This is considered to be a justifiable defence because restitution should not be awarded where the claimant has not borne the burden of the unlawful tax. This also justifies the recognition of the defence by statute in claims for restitution of overpaid VAT. This argument might also be used to justify the recognition of the defence in any case where the claim for restitution is grounded on the Woolwich principle.26

 
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