Unjust Enrichment

Overview

There are  two broad categories of restitution.  In one type of case, the defendant’s claim is based solely on the defendant being unjustly enriched.  In other types of case, the claim is is based on unfair enrichment due to a wrong analaogous to a breach of contract or tort.

There are different conflicts of law rules depending on the type of interest concerned.  Where the restitution is closely related to a contract or civil wrong it is governed by the law applicable to that relationship.

Where the above cannot determine the position and the parties have habitual residence in the same country, that country’s law applies. Failing that, the law of the country where the unjust enrichment took place applies.

Where it is clear that the non-contractual obligation arising out of unjust enrichment is more closely connected with another country, the law of that other country shall apply.

Connected to Obligation

The common law rules on the choice of law  for restitution are inconsistent.  There is a tendency to follow the principle that the obligation to restore the benefit of enrichment at another person’s expense should be governed by the law of the obligation.

Many unjust enrichment claims arise from a failed contract.Where the restitution arises out of pre-contract dealings the law that applies to the contract is applicable to restitution in connection with it.  The most commonly held view is that if the unjust enrichment arises from a contract the proper law applicable to the contract should apply.

Non-Contract

Where a contract is not involved, some cases support the view that the law of the place of enrichment applies.  Other cases take the view that the law of country with which the circumstances are most closely connected, should prevail.

Where the above law cannot be applied the law of the country where the damage occurs applies or where the parties have habitual residence in the same country at the time the event occurs that country or where it is clear that the non-contractual obligation arose out of dealings prior to conclusion of a contract is more closely connected with another country, the law of that other country.

Trusts & IP

Questions relating to the administration of trusts are governed by the law applicable to the trust. In the case of restitution for wrongs, it is arguable that the law governing the wrong is the appropriate law.

In the case of intellectual property, it is the law of the country where the protection is claimed.  In the case of unitary EU intellectual property rights, the relevant law is the law of the place where the act of infringement was committed.  This cannot be restricted by agreement.

EU Regulation

Part 3 of the Rome II Regulation deals with unjust enrichment and certain rights arising from failed contracts. The laws governing contractual relationships also govern non-contractual obligations arising out of unjust enrichment.

Unjust enrichment may arise out of a non-contractual obligation.  It may create an obligation to repay sums and amounts wrongly received (e.g. overpayment. If the obligation arises out of torts (civil wrongs) or equity, another part of the Regulation applies.

In some cases, it may be difficult to distinguish contract claims from unjust enrichment claims.  In most events, this will not matter as the conflict of law rules will be similar.

The Rome Convention (contractual obligations) provides the consequences of the nullity of a contract are determined under it.  Some states, including the United Kingdom, have entered a reservation with respect to this provision.  English Law regards nullity as a restitutionary issue.

Proprietary & Trusts

Many unjust enrichment claims are claims to retrieve property owned.  In this event, proprietary rules apply.  If it is proprietary in nature then it falls outside the Regulation and the traditional rules apply This would apply for example where goods are delivered with retention of title but are not paid for,.

Where an non-contractual obligation arises from an infringement of intellectual property rights, the specific intellectual property mentioned in an earlier section apply.

Boundary issues arise between equitable principles and restitution.  What might be characterised as constructive trust in one setting may  be characterised as unjust enrichment/restitutionary in another.  Some resulting trusts may be characterised as restitutionary in one context and proprietary in another.

An example may be where a  fiduciary makes an unauthorised profit.  Their duty to disgorge the profit made is an equitable obligation and there is proprietary constructive trust over the benefit received..

Wrongdoing

Restitution for wrongdoing may have a tortious or equitable basis.  A person who breaches a contract and sells goods to a third party for profit may be liable to have that profit recouped by the original purchaser under restitutionary principles.

Equally where a person wrongfully sells goods belonging to another, that other may claim may the goods by way of the civil wrong of conversion.

It appears that each of the above would be characterised as restitutionary under the Rome II Regulation.  This reflects Continental principles, which have a different concept of restitution.

Prior Relationship

Article 10 sets out the applicable law rules for unjust enrichment.  The first rule deals with a situation where there is a prior relationship between the parties.  The second applies if the first cannot determine the position.

The third is a further fallback dealing with where the applicable law cannot be determined on either of the foregoing basis.  There is a proviso that where the claim is manifestly more closely connected with a jurisdiction, then this may overrule each of the above.

Where there is an existing relationship between the parties and a non-contractual obligation based on unjust enrichment (such as repayment of amounts wrongly received) arises out of that contract and/or civil wrong closely connected with contract, it is governed by the law which the parties adopt for their contract when they start relationship.

The most common relationship is a contractual relationship. In some cases, it may be based or also based on a civil wrong.  The obligation may be based on unjust enrichment arising out of a civil wrong.  The relationship may be fiduciary.  In each case, the relationship between the parties must be closely connected with the unjust enrichment.

If Above Inapplicable

Where the law cannot be ascertained on the above basis, and the parties had their habitual residence in the same state when the event giving rise to unjust enrichment occurred, the law of that state will apply. Habitual residence in this contract is similar to that in the respect of contracts. See the separate section.

Where the law cannot be ascertained on the above basis, there is a further proviso. Where there is no relationship between the parties, and they are not habitually resident in the same state, then the governing law is that of the state in which the unjust enrichment occurred.

Questions may arise as to whether unjust enrichment occurs where the benefit accrues or where the loss is suffered by the person who is deprived.  Questions may arise where goods or assets are moved or where something done within one state has an effect on another state.

There is an ultimate fall back rule which apples where the non-contractual obligation arising out of unjust enrichment is manifestly more connected with one state, other one of than those above. In that case, the law of that other closely connected state would apply.

Services without Request

Article 11 applies where a person provides services without authority and is entitled to payment so as to prevent unjust enrichment.  This may occur where a third party renders services to enable another to avoid a loss to assets or personal injury.  The principle applies to salvage.

Article 11 applies where there is a non-contractual obligation arising out of an act performed without authority in connection with the affairs of another.  The rules are broadly the same as those above.  i.e. existing relationship, habitual residence, place of unjust enrichment subject to an exception in favour of a state of manifestly closer connection.

Pre-Contract  Dealing

Article 12 applies to non-contractual obligations arising out of dealings prior to the conclusion of a contract.  The provision is applicable irrespective of whether a contract is made.

It covers culpa in contrahendo, which is a concept known to Continental legal systems. It broadly requires fair dealing in pre-contract negotiations.  The equivalent under common law may manifest itself in an estoppel and some other ways.

The law is that which applies is that which would have been applicable, if there had been a contracts.  The proviso in this case is different to other cases.  The fallback rule is the law of the state in which the damage occurs irrespective of the state in which the event giving rise to the damage occurred and irrespective of the state in which the indirect consequences of that occurred.

Where the parties have their habitual residence in the same state at the time when the event giving rise to the damage occurs, the law of that state shall apply.  Where it is clear from the circumstances of the case that the non-contractual obligation arising out of the contract dealings is more closely connected with one state other than that indicated above, the law of that state shall apply.

Insurer

The Regulation provides special rules for a number of particular issues.  A claim by the victim of a road traffic accident against the wrongdoer’s insurance company is specifically covered.

The person who has suffered such damage may bring his claim directly against the insurer or person liable to provide compensation if the law is applicable to the non-commercial contractual obligation or if the non-contractual obligation or law applicable to the insurance contract so provides.

Unilateral Non-Contractual

A unilateral act intended to have legal effect in relation to a non-contractual obligation shall be formally valid if it satisfies the formal requirements of the law governing the non-contractual obligations in question or the law of the state in which the act is to be performed.