by Mindy Chen-Wishart¹

(2000) Oxford U Comparative L Forum 2 at ouclf.law.ox.ac.uk | How to cite this article

Introduction

A fundamental difference between the English and the German laws of unjust enrichment is in the way each establishes that any enrichment is ‘unjust’ and so reversible. Paragraph 812 (1) of the German civil code (the BGB) states that a person who through an act performed by another, or in any other way, acquires something at the expense of that other person without legal ground, is bound to render restitution. This general enrichment action has been described as ‘probably the most outstanding feature of the German law of unjustified enrichment.’² More recently English law has also recognised the general principle of restitution to reverse unjust enrichment³ but, in contrast, it is ‘engaged in crystallising the principles into rules adapted to the different types of case so as to meet the specific interests involved in them.’⁴ An influential classification proposed by Professor Birks sets out the specific factors which can make the plaintiff’s transfer of wealth to the defendant ‘unjust’ in the eyes of English law.⁵ Thus, while the German approach appears to yield restitution whenever defendants cannot advance a legal cause for retention, English law leaves defendants with their enrichments unless the plaintiffs can show why they should not keep them.
Many commentators observe that this apparent structural divergence probably yields no significant differences at the level of actual outcomes.⁶ Professors Zweigert and Kötz explain why ‘too much should not be made of the apparent differences’:⁷

‘[I]t is manifest that an approximation will take place in the theoretical treatment of these areas of law. The unduly abstract detail of the German code will be loosened by a typology of enrichment claims and in the Common Law general rules will be developed to give form and structure to the unduly concrete details of the case-law. Each system has a great deal to learn from the other.’

Professor Zimmermann will concede this only so far. While he acknowledges ‘a significant rapprochement of patterns of liability’, he notes that ‘there are still considerable differences as to the question of how best to organize this area of the law.’⁸ In short, he regards the English multiple unjust factors approach as inferior to the German single ground of absence of cause, and considers it ‘hardly conceivable that a legal system engaged with the task of rationally organizing its law of unjustified enrichment should take its lead from English jurisprudence.’⁹
This essay begs to differ. In defence of the unjust factors approach it will be argued that practical and important details of the restitutionary response rest on the nature and the effect of the operative unjust factor. In other words, the particular reason why the transfer was without legal cause and the impact of that on the value of the benefit transferred can and, to a significant extent, does explain how the initial entitlement to restitution is worked out in practice. We will see that even German unjust enrichment law is not entirely indifferent to the unjust factors, that is, the reason invalidating the contractual or non-contractual transfer. In both systems of law, reference to the unjust factors explains the operation of certain features of the current law and, it is further argued, lights the way to important and desirable future developments. There is undoubtedly room for development in the nascent English law of unjust enrichment and lessons can certainly be learnt from German law. But it is not in replacing the unjust factors approach by the single absence of cause approach that progress lies. On the contrary, it is by taking the unjust factors and the rationales behind them, even more seriously that the wisdom of certain aspects of German unjust enrichment law is thrown into sharp relief. By the same token, it seems that certain features of the German law can benefit from greater sensitivity to the unjust factors. As Professors Zweigert and Kötz exhort, ‘[e]ach system has a great deal to learn from the other.’
These claims will be advanced with particular reference to a group of unjust factors coming under the headings of duress and fraud.¹⁰ Fraud will be taken to include constructive fraud. Constructive fraud, in turn, encompasses the specific unjust factors of non-fraudulent misrepresentation, undue influence, unconscionability and the constructive notice doctrine introduced by Barclays Bank v O’Brien¹¹ (collectively these will be referred to as ‘exploitation’). The emphasis is on how restitution on these grounds operates on rescission of contract. Rescission is described as ‘one of the commonest remedies in the law of restitution…[and] one of the most difficult to analyse.’¹² It operates simultaneously to set aside the contract and to effect mutual restoration of the transfers made under it. In English law the question whether rescission belongs in the law of unjust enrichment and should therefore conform to its principles, remains one of the unresolved questions on the borderline between the laws of contract and unjust enrichment.¹³ The question is a serious and important one and while we will sidestep that debate, the explicitly assumption made here is that at least the restitutionary part of rescission properly belongs within the wider body of law on giving back.¹⁴ The present claim is that taking the unjust factors seriously can enlighten and inform the operation and development of unjust enrichment law in general and of the law of rescission in particular.
Part I of this essay addresses the major criticisms of the unjust factors approach. Part II discusses the nature of duress, fraud and exploitation. It asks why the law intervenes when it does so in the name of these unjust factors. Part III looks at how the nature of these unjust factors colours the availability of the change of position defence (the enrichment surviving). In particular, the protective policies underlying certain unjust factors can explain why disqualification from this defence should be extended from bad faith defendants to some innocent defendants. In Part IV it is argued that the logic of the unjust factors point to the desirability of dissolving certain bars to rescission in English law and of making the change of position defence available to plaintiffs who must make counter-restitution. Part V considers how the unjust factors may affect the valuation of the enrichment received by either party. Sensitivity to the impact of particular unjust factors on the enrichment received can overcome the problem of subjective devaluation. It also provides the best justification for the controversial remedy of partial rescission.

I. Criticisms of the Unjust Factors Approach

Professor Zimmermann¹⁵ criticises the unjust factors approach as untidy, uncertain in scope, uncomprehensive, incorporating needless duplication and generally irrelevant to the restitutionary response.

1. Untidy, Uncertain and Uncomprehensive?

The first objection, untidiness, is premised on the basic division in German unjust enrichment law between enrichment by performance (the Leistungskondiktion) and enrichment in another way (the Eingriffskondiktion) and the observation that all the English unjust factors except ignorance involves enrichment by performance. But this assumes no particular significance in English law which operates no such division. It is only ‘untidy’ from a German stand point. The second and third criticisms, that the identified unjust factors are uncertain in scope and uncomprehensive since they can be added to, can also be swiftly dealt with. Under German law, a restitutionary award must be prefaced by a plaintiff showing that his intentional transfer was without cause. Essentially one of the recognised factors which vitiate the ‘declaration of intention (or will)’, detailed in contract law must be made out.¹⁶ The operation of these vitiating factors is doubtfully more certain in German law than in English law. And as for the unjust factors being uncomprehensive, the possibility of adding new causes of action¹⁷ is a general feature of the common law and, many would say, part of its commendable strength and adaptability. Moreover, the distinction between recognizing a new unjust factor and interpreting an established one can be very fine indeed.

2. Unnecessary Duplication?

In substance, the criticism is that where restitution follows rescission of contract English law seems to have to inquire into the unjust factors twice, once to vitiate the contract and again to ground the restitutionary claim. This ‘unnecessary duplication’ is contrasted with the ‘internal economy’ of the preferred single civilian ground. The criticism is not a crippling one. Certainly, where rescission for duress, fraud or exploitation are concerned it makes no practical difference which approach is applied. The scope of these vitiating factors in contract law coincide with their manifestation as unjust factors in unjust enrichment law.¹⁸ Even if they do not, as with the ground of mistake, a plaintiff under either system must satisfy the vitiating factor before any claim for restitution can be made. Since the scope of mistake as a vitiating factor in contract is narrower than its scope as an unjust factor in unjust enrichment, satisfaction of the former will automatically satisfy the latter. Nothing is saved by the apparently more economical German approach and nothing is added by the apparent duplication of the English approach. In English law the vitiating factor simultaneously sets aside the contract and furnishes the ground for restitution. In German law it avoids the contract and so removes the ’cause’ which would otherwise justify the transfer and deny restitution. The German restitutionary claim is therefore necessarily sourced in the unjust factor although this is obscured by the single ground of absence of cause. The unjust factor vitiating the plaintiff’s declaration of intention is the first domino which triggers the rescission of the contract which, in turn, creates the absence of cause which, in turn, provides the ground for restitution.

3. Unjust Factors Irrelevant?

This last criticism appears more serious. Professor Zimmermann prefers the economy of the single catch-all ground because:¹⁹

‘[w]hy there was no legal ground for this specific transfer is entirely irrelevant. The underlying contract the transfer attempted to discharge may not have come into existence; it may have been invalid for a whole variety of reasons…. All this has to be determined according to the law of contract. The law of restitution does not have to concern itself with these issues.’

He considers the English approach not ‘to be a scheme distinguished by its elegance.’ While elegance in structuring the law is not the exclusive or even highest aim of a legal system, the criticism is a potent one if there are no valid reasons for retaining the reference to particular unjust factors. If that is so, then there can be no objection to the more elegant and economical German approach. But, while the unjust factors may be irrelevant to the prima facie right to restitution, the claim here is that they do affect important details of the restitutionary response, that they should matter even more in both systems than they currently do and that doing so can inform important and desirable developments in unjust enrichment law. It seems an obvious, logical and sensible starting point to say that the reasons why the law intervenes should indicate what results it seeks to generate and how that is achieved. Our first stop is to consider the reasons for restitution in cases of duress, fraud and exploitation.

II. Duress, Fraud and Exploitation: A Proposed Taxonomy

When transactions are rescinded on these grounds in English law, what is the pathology to which the law is responding? Professor Birks’²⁰ taxonomy of the unjust factors in English law draws a basic distinction between autonomous unjust enrichment (typically by subtraction from the plaintiff) and unjust enrichment by wrong doing against the plaintiff (typically non-subtractive). He locates duress, fraud and exploitation within autonomous unjust enrichment and there, under the heading of ‘vitiated consent’. The plaintiff’s defective consent to the transfer is said to be the touchstone of restitutionary liability; the presence or absence of fault on the defendant’s part is immaterial, hence restitutionary liability here is said to be strict which, in turn, justifies conceding a change of position defence to innocent defendants. German law also regards these factors as going to the plaintiff’s defective declaration of will.²¹
However, this apparently exclusive focus on the quality of the plaintiff’s consent can paint a somewhat misleading picture of the balance of the law’s concerns. It is clear that in determining whether these grounds are satisfied, the defendant’s conduct and the fairness of the outcome are also factored into the equation. Fuller discussions of the juristic nature of these unjust factors are given elsewhere²² and a few points will suffice for present purposes.
The plaintiff’s defective consent alone is not sufficient to set aside contracts for duress, fraud or exploitation. In the first place contract law is rarely concerned with a plaintiff’s actual subjective consent. Quite apart from problems of proof, the law’s proper concern to protect transactional security and the defendant’s reasonable expectations means that the legal test of consent is objective. Thus, any defects in the plaintiff’s actual consent in deviating from its objective manifestation, will not, alone, justify rescission and restitution. Second, it seems uncontroversial that unjust enrichment law should not only be concerned about why a plaintiff should get back; but also why a defendant should give back. In both German and English law the defendant’s interest is only defeated if additional factors supplement the plaintiff’s defective consent. With duress, fraud and exploitation, these take the form of the defendant’s unconscientious conduct or knowledge of the plaintiff’s defective consent and, or, a manifest disproportion in the values exchanged to the disadvantage of the plaintiff in certain circumstances. These additional factors necessarily mark the corresponding unjust factors when restitution is also sought. The point is brought home most recently and forcefully by the House of Lords in Barclays Bank plc v Boulter²³ which held that, in a claim based on the O’Brien doctrine it is insufficient for the plaintiff simply to plead themisrepresentation or undue influence affecting the quality of his consent, he must also specifically plead the defendant’s notice of this.²⁴
Lastly, where the plaintiff’s defective consent results from duress, fraud or exploitation by a third party (rather than the defendant), relief does not automatically follow.²⁵ Again, something else is required. Namely, that the defendant knows(actually or constructively) that the plaintiff’s consent has been wrongly induced by the third party. Such knowledge can be seen as negating the reasonableness of the defendant’s reliance upon the plaintiff’s appearance of consent and so renders its protection unwarranted.
Instead of ‘vitiated consent’ per se, a tripartite division is suggested which, it is submitted, reveals the nature of these unjust factors more precisely and in a way which illuminates the restitutionary response.

1. Unconscientious Procurement

This describes defendants who deliberately and actively pressure or lie to induce the plaintiffs’ consent (hence defective) to the contract and to its performance. The law will not assist in the enforcement or retention of benefits obtained by such active advantage taking. Located here are cases of deceit or actual fraud, all kinds of duress, some cases of actual undue influence²⁶ and of active unconscionable conduct.²⁷

2. Unconscientious Receipt

Here, the defendant take no active advantage but she nevertheless accepts benefits from the plaintiff in ‘unconscientious circumstances’ namely, with knowledge of his defective consent (or that he belongs to a protected class) and failing to respond reasonably, generally by recommending independent advice or disclosing certain material features of the transaction. This is regarded in English law as constructive fraud or as comprising passive victimisation. It includes cases of presumed undue influence and most cases of unconscionable bargains.²⁸
However, many cases justified on this rationale are not true members of this category. They occur where no meaningful independent evidence exists of the plaintiff’s personal bargaining disability or of the defendant’s knowledge of that disability. Instead, these elements are largely inferred from the serious disparity in the values exchanged (substantive unfairness), and from the plaintiff’s membership of an identifiably vulnerable group.²⁹ This yields the third category of cases.

3. Protection of Vulnerable Groups From Improvidence

The dual features of this category are manifest disadvantage to the plaintiff in the substance of the transaction and the plaintiff’s membership of a class identified by the law as warranting special protection. This is the proper home of the O’Brien cases;³⁰ some cases of presumed undue influence;³¹ unconscionable bargains;³² and non-fraudulent misrepresentations.³³ In the latter case, unconscientiousness is said to attach not to the defendant’s procurement or receipt of the benefit, but to his attempt to retain or enforce the benefit once the misrepresentation is known. In the contractual context, the relevant harm against which plaintiffs are protected is better described as that inherent in an inappropriate, unwanted or disproportionately disadvantageous contract, rather than the more abstract harm of the defendant’s ‘abuse of superior bargaining power’ which is not actionable per se and practically undetectable without an uneven exchange. The protected classes are identified largely by reference to circumstances which attract a high incidence of disproportionate outcomes:³⁴ wives of, and others in a sexual or emotional relationship with, primary debtors (the O’Brien doctrine); those who place a very high degree of trust in the other contract party (undue influence); those with less personal competence who deal with substantial portions of their assets (unconscionable bargains) and those who have been lied to, albeit non-fraudulently (misrepresentation).
These three categories are largely reflected in the German law.³⁵ Paragraph 123 BGB provides for rescission on the grounds of fraud or threats and paragraph 138 BGB voids transactions against public policy and those which are obviously disproportionate and exploitative of the disadvantaged party’s ‘need, carelessness or inexperience’.³⁶
We can now test the claim that these unjust factors, explained along this tripartite classification, infuse the details of the law’s restitutionary response. Their most obvious impact is in the availability of the change of position defence.

III. Unjust Factors and the Change of Position Defence (Value Surviving)

The defendant’s restitutionary liability may be measured by the enrichment initially received or be limited to that which survives in the defendant’s hands when the claim is made. English law regards this as a question of defences and asks whether the defendant has relevantly and innocently ‘changed his position’ so as to justify a reduction of his restitutionary liability.³⁷ German law treats this as an aspect of the quantification of the enrichment to be returned.³⁸ In both jurisdictions the applicable measure is influenced by the nature of the unjust factor initially triggering restitution.

1. Bad Faith Defendants

Both jurisdictions lay down just one clear disqualification, bad faith defendants (those who know of the plaintiff’s restitutionary entitlement³⁹) are barred from discounting the enrichment spent, lost or given away and must account for all of the enrichment received. Whether the defendant should be regarded as in bad faith must be influenced by the operative unjust factor. The clearest case are the defendants tainted by unconscientious procurement. Where fraud, duress or actual undue influence involving pressure is found, the defendant should normally have to account for any depletion of the enrichment received. The same applies to defendants tainted by unconscientious receipt.
The reason for the invalidity of the transfer also affects the extent of the defendant’s restitutionary liability in German law. Where duress or fraud under paragraph 123 BGB are triggered, defendants are in practice disqualified from the value surviving measure. Defendants are treated as having knowledge of their ‘lack of a legal cause at the time of receipt’ (paragraph 819 (1) BGB) since ‘innocent fraud is impossible and innocent duress very difficult at least.’⁴⁰ Moreover, paragraph 819 (2) BGB automatically disqualifies the defendant from change of position where the unjust factors are illegality (detailed in paragraph 134 BGB) or immorality (detailed in paragraph 138 BGB),⁴¹ the latter largely corresponding with our category three. Notably this also shuts out innocent defendants in this category on which more will be said.

2. Bad Faith Minors

The impact of unjust factors is highlighted in the case of minority. Here, the strong policy of protection underlying minority (which can operate as an unjust factor or as a defence) dissolves the general bar against bad faith defendants. Necessaries aside, a defendant minor can appeal to change of position and return only what value survives even if he has acted fraudulently.⁴² This prompted Professors Zweigert and Kötz to generalise that ‘the extent of liability in restitution may be affected by the purpose and power of the rule which justifies the claim’.⁴³ Even closer to our inquiry, they add that: ‘in all legal systems liability depends on considerations appropriate to the particular type of case, and that these considerations…oust or temper the abstract rules of liability preformulated in general terms.’⁴⁴ In short, the unjust factors, which express these considerations, matter.

3. Good Faith Defendants: Presumed Undue Influence

The disqualification of bad faith defendants from change of position should, in principle, leave the good faith defendants in category three within the fold. They should be liable only for the value surviving. However, we have noted that paragraph 819 (2) BGB automatically disqualifies defendants (whether they know of the plaintiffs’ restitutionary entitlement) from change of position where the unjust factors are illegality or immorality and in English law the defence seems generally invisible in undue influence and O’Brien cases⁴⁵ where the defendants cannot be described as unconscientious, without seriously distorting and denaturing the substantive sense of the word. The reason again lies in policies underlying the unjust factors and can be summed up in the phrase ‘anti-subversion’. Just as the policy underlying minority would be subverted if bad faith minors were shut out from change of position, so the policies underlying other unjust factors may be subverted if innocent defendants were permitted unlimited access to the defence.⁴⁶ Change of position is said to be aimed at the protection of good faith defendants’ security of receipt by shielding them from the loss which they would suffer if called on to account for the enrichment which is no longer in their possession to return. However, this can only be done by transferring the loss to the plaintiffs and denying them the protection which the category three unjust factors aim to confer.⁴⁷That protection, of vulnerable plaintiffs from improvidence, would be subverted, perhaps fatally, if defendants can freely reduce their restitutionary liability in this way. Thus, anti-subversion explains the general unavailability of change of position in presumed undue influence cases. But one limited exception is detectable in English law. In balancing the parties’ equities, it seems that in respect of, at ;east, one type of loss-generating expenditure, the balance can tip in favour of the innocent defendant. Namely, loss which results from the innocent defendant’s expenditure in attempted performance for the plaintiff’s benefit, or in accordance with the plaintiff’s purposes, when this expenditure yields no counter-restitution from the plaintiff. Limiting change of position to this type of loss minimises the risk of subverting the protective policy underlying undue influence.
This describes the reduction allowed in Cheese v Thomas.⁴⁸ There, the plaintiff contributed £43,000 towards the purchase of a house for £83,000 in the name of the defendant, his great-nephew, but in order to provide himself with a suitable home for the rest of his life. Presumed undue influence was found although the court was at pains to emphasise the good faith of the great-nephew. When the house realised significantly less than the original purchase price in a mortgagee’s sale, the loss was divided proportionately so that the plaintiff obtained restitution of the £43,000 less 43/83 of the loss suffered in the sale. It has been argued that this result is best interpreted as an instance of the court allowing change of position to an innocent defendant, albeit intuitively.⁴⁹ A further refinement can now be added.
In Cheese v Thomas change of position was not triggered simply by the defendant’s good faith. The purpose of the expenditure, which occasioned the eventual loss, must also be factored into the equation. The Court used the language of ‘joint venture’ to describe an expenditure which was, to a significant extent, for the plaintiff’s benefit. In so far as loss eventuated from expenditure of this character, it is not inequitable for a defendant to reduce his restitutionary liability even though the protective policy would generally bar the defendant from doing so. Consistently, in Mahoney v Purnell,⁵⁰another case of innocent presumed undue influence, since the defendant’s loss had resulted from expenditure in support of his own venture, quite independent of the plaintiff’s position, he was fixed to the value received.
Allcard v Skinner⁵¹also supports this formulation. There, the non-contractual transfer from the novice nun to the Mother Superior was vitiated by presumed undue influence. While the claim for restitution was eventually defeated by laches and affirmation, it was made clear that, in any event, the novice nun would only have recovered so much of the funds transferred which ‘had not been spent in accordance with the wishes of the Plaintiff but remained in the hands of the Defendant’.⁵² Cotton LJ opposed making the morally blameless Mother Superior:

“liable for money spent for the charitable purposes which the Plaintiff and Defendant were at the time of the expenditure associated, and which the Plaintiff was at the time willing and anxious to promote.”⁵³

Thus, in Cheese and Allcard, if the great nephew, or perhaps more uncharacteristically the Mother Superior, had dissipated the plaintiffs’ money on their own purposes, say on high risk investments or throwing extravagant parties, these would not have come within the category of expenditure qualifying for change of position in cases of ‘innocent’ undue influence.

4. Good Faith Defendants: O’Brien Cases

In general, even innocent defendant lenders⁵⁴ cannot discount their restitutionary liability to plaintiff sureties by the extent of their loss, that is, the un-repaid loans advanced to the principal debtors. Anti-subversion can also account for the apparent invisibility of change of position. The O’Brien doctrine is a protective response to a very specific but common situation; typically that of sureties who place the family home at risk to benefit their spouses’ or partners’ shaky business ventures. It would then hardly make sense to negate that intended protection by invariably allowing lenders to shift the loss, entailed in making the loans, to the sureties via change of position. The law does not contradict itself by giving with one hand in circumstances which will almost invariably allow it to be taken back with the other.
This provides another explanation for McKenzie v Royal Bank of Canada⁵⁵ where the court refused to set off the defendant’s un-repaid loan to the principal debtor against its restitutionary liability to the plaintiff surety. Since the loan moved towards the primary debtor, the case is traditionally explained in terms of the plaintiff receiving no benefit thus triggering no obligation to make restitutio in integrum (in modern terms ‘counter-restitution’).⁵⁶ Quibbles on the benefit point aside,⁵⁷ this explanation nevertheless does not account for why the defendant could not appeal to the quite independent defence of change of position. The answer lies in the strong and specifically targeted protection underlying the O’Brien doctrine. The disqualification of such innocent defendants seem to bear out Lord Goff’s prediction in Lipkin Gorman⁵⁸ that the defence was ‘likely to be available only on comparatively rare occasions’. The Court of Appeal recently confirmed this result in Royal Bank of Scotland v Ettridge (No 2)⁵⁹, conceding ‘difficulties with [the change of position] analysis, not least that there is no trace of it in O’Brien.’ Nevertheless, it may be that one small exception has been allowed although its recognition as such is obscured by its particular presentation.

5. Partial Rescission

Exceptional change of position may provide one justification for the controversial remedy of partial rescission (with partial restitution) in O’Brien cases.⁶⁰ Where the plaintiff’s transfer is affected solely by the primary debtor’s misrepresentation about the extent of the risk being assumed, then holding the plaintiff to the risk represented and accepted may be justifiable. Thus, where the lender lends in reliance on the surety’s apparent, but tainted, consent to assume the risk of the principal debtor’s non-repayment, it is inequitable for her to deny her untainted consent to assume a lower risk. This can be put in the language of change of position: while a plaintiff in an O’Brien case generally need not concede anything to the lender’s change of position, where her consent is tainted only by a misrepresentation about the extent of the risk assumed, she should not be able to deny the defendant’s change of position to the extent of that lower risk represented to her if she would have willingly agreed to it.
Of course, the force of this argument disappears where undue influence colours the transaction. Then, there may no untainted decision by the surety to assume any part of the risk and so, no reason for departing from the general protective policy barring change of position. An alternative and preferred rationalisation for partial rescission is suggested later, based on the plaintiff’s obligation to make counter-restitution.⁶¹

IV. Unjust Factors and Counter-Restitution

Where both parties have commenced performance of a contract which is subsequently rescinded, restitution must be accompanied by counter-restitution. The plaintiff who wants back must also give back. In principle, this means that the defendant’s restitutionary liability is reducible twice, first by reference to the loss of the enrichment received from the plaintiff (unless disqualified), and second by reference to the reciprocal enrichment conferred on the plaintiff in attempted performance. The operation of the second reduction is also influenced by the unjust factors. Two questions arise. First, how do the unjust factors enlighten us about the proper mode of counter-restitution; should it be confined to return in kind or extended to include return in moneys-worth? Second, do the unjust factors throw any light on the measure of the plaintiff‘s counter-restitution, specifically should change of position be available here?

1. Counter-Restitution Impossible?

a) The mode of counter-restitution and the effect of exact counter-restitution impossible

English and German law agree that the plaintiff must make counter-restitution of any benefit received as a condition of obtaining restitution on rescission. But they diverge on the permissible mode of that counter-restitution. German law adopts a common approach to restitutionary and counter-restitutionary liability since, on rescission, either party can bring a restitutionary claim to retrieve the transfers which are now without cause.⁶² In both cases, while return in kind is regarded as the norm, where that is impossible translation into money is expressly allowed.⁶³ Here, English law has much to learn.
In English law the starting point is that the mutual restoration necessary for rescission must be proprietary. Money aside,⁶⁴ what must restored are things. Moreover, it should be the exact things. Traditionally this has the astonishing effect that rescission can be barred where return in kind to the plaintiff was never possible (as with services),⁶⁵ or has become impossible (as where the property is completely dissipated through use or consumption or been sold-on to a third party).⁶⁶ But if the property in question still exists albeit depreciated, partly consumed or otherwise dealt with, rescission can be granted although there seems no facility for making a money adjustment even against fraudulent defendants.⁶⁷ Rescission is also barred where counter restitution of substantial property,⁶⁸ although curiously not services,⁶⁹ to the defendant is impossible. These are embodied in three of the traditional bars to rescission: restitution impossible; counter-restitution impossible and the attachment of third party rights to the subject of the restitutionary claim. The rigidity of this position has been relaxed somewhat so that some money adjustments have been permitted where precise return in kind is impossible,⁷⁰ particularly in the case of bad faith defendants⁷¹ (so that on this limited level, the unjust factors matter). Even so, such monetary substitution is only possible where the ‘substantial identity of the subject matter of the contract remains’.⁷² In practice then, these bars can continue to block restitutionary claims.

b) English position unsatisfactory

To describe this state of affairs as unsatisfactory puts the matter mildly. The unjust factors of duress, fraud and exploitation express strong policies in favour of restitution, namely protecting vulnerable plaintiffs and refusing to assist unconscientious defendants. These policies are subverted when these bars are triggered. If the defendant has been unjustly enriched at the plaintiff’s expense then, affirmation and undue delay aside, the law should automatically allow the plaintiff to avoid the contract and claim restitution, if necessary, in moneys-worth. The plaintiff should not have to show additionally, that both parties can still return substantially what they received. This is the straightforward position in German law.
The English position can leave admittedly unjust situations unremedied; the discredited contract and its admittedly unsupportable terms are left on foot and the plaintiff is sent away empty handed (aside from any possible rights in tort⁷³). The defendant retains the unjust enrichment and the plaintiff can be made liable in damages for breach of this unfair contract, even if specific performance of it can be resisted. This makes English law’s ability to reverse unjust enrichment on rescission, being confined to the return of money and substantially subsisting property, embarrassingly feeble. It is too easily derailed from the task of conferring the protection underlying the unjust factors. The position is indefensible. The way out is clear.

c) Mutual restitution in money

English unjust enrichment law must recognise, as German law does, that all forms of benefits are returnable, if necessary by translation into money. Currently non-contractual claims for goods and services (the quantum meruit and the quantum valebat) can be personal claims (that is, for moneys-worth). Claims for the return of money, even on rescission of contract, can be personal (the exact notes and coins transferred need not be traced). It is then unjustifiable and intolerable asymmetry to insist that non-money claims on rescission be confined to the vehicle of proprietary claims. If English law is prepared to make small money adjustments to supplement a plaintiff’s counter-restitution of substantially subsisting property, then it should be prepared to make big adjustments, even to the extent of wholly substituting for the benefit which is unreturnable in kind. The same arguments apply to the mode of effecting the defendant’s restitutionary liability. Impossibility of precise return in kind by either party should not bar rescission.
If mutual restitution can be monetised, it will usually yield a net balance to the plaintiff. This outcome not only gives teeth to the unjust factors where precise return is impossible, it can also be described as a fitting response the consequences of contracts induced by duress, fraud or exploitation. For plaintiffs, these unjust factors generally yield inappropriate or disproportionately unfavourable exchanges while defendants are left with disproportionately favourable or otherwise undeserved advantages. In theory, the law can respond in two ways. First, it can undo the exchange and take the parties ‘back to zero’. The precise mutual return in kind envisaged here is the traditional mode of restitution mandated by rescission. It is the most sure-fire way of negating inappropriate exchanges or eliminating disproportionate ones and it has the added attraction of avoiding the need to value the mutual performances.
The second method is simply to eliminate the difference or disproportion between the values transferred. Here, unjust enrichment signifies excessive enrichment and only that part is returned. That there is no enrichment save in the difference can be clearly seen in the award of the difference between the parties’ mutual payments in the famous swaps case Westdeutsche Landesbank Girozentrale v Islington LBC.⁷⁴ To adopt this approach on the rescission of contract might alarm traditionalists steeped in the idea that the law has no mandate to reform contracts but only to set them aside. One reply is that eliminating the difference meets head on the problem of disproportion raised by the rescission of executed contracts. Moreover, even the adjustment of continuing contracts is not unknown in English contract law although rarely conceded as such.⁷⁵ A less controversial reply is that working out the balance and eliminating the difference may be the only constructive response where going ‘back to zero’ is impossible. This is the saldo, which German law starts with in effecting mutual restitution on rescission.

2. Mutual Restitution and Value Surviving

We have already seen that one reason for barring a good faith defendant’s change of position is to avoid subverting the policies underlying certain unjust factors. Another reason lies in the logic of the German saldotheorie.

a) Saldotheorie

The idea behind the German saldotheorie⁷⁶ is that the law’s concern to protect innocent defendants’ security of receipt via change of position must be heavily qualified by the mutuality inherent in contractual performance. The receipts of contractual performance is conditional and not absolute in nature; it is premised on the recipient’s own transfer given in exchange. This mutuality persists through the contract’s invalidity and a defendant cannot deny it by seeking full counter-restitution while not giving full restitution. This reasoning applies equally to the plaintiff so that, prima facie, neither party can reduce their liability to account for the value received from the other if full restitution of the value conferred on the other is sought. Thus, if the plaintiff pays $10,000 for a car which is worth only $6,000, on rescission the plaintiff must give credit for the $6,000 of value received even if the car is subsequently written off. Likewise, the defendant must give credit for the $10,000 received even if the money has been given to charity or lost in a fire. This would yield a net award of $4,000 to the plaintiff.

b) Saldotheorie, unjust factors and the plaintiff’s change of position

The saldotheorie puts the risk of the loss of enrichment on the recipient while the change of position defence puts that risk on the transferor. In German law it is apparent that the nature of the unjust factor triggering rescission influences the allocation of that risk. We have seen that even fraudulent minors are not shut out of the change of position defence. But so strong is the protective policy underlying minority that it can also displace the saldotheorie so that bad faith minors need only return the enrichment surviving but can claim back the full enrichment transferred even from good faith adults who have lost some of that enrichment.
The saldotheorie is similarly displaced where it would protect bad faith and other undeserving defendants from the loss of their transfers in the plaintiffs’ hands. In the example given, a strict application of the saldotheorie would require the plaintiff to fully account for the $6,000 value of the car even if its total loss is attributable to the defendant’s fraud, say in misrepresenting the condition of the brakes. To counter this potential unfairness it has been held that where fraud, duress or immorality (analogous to exploitation in English law) vitiates the contract, defendants are required to return the value received while plaintiffs need only account for the value surviving. This is the zweikondiktionenlehre.⁷⁷ But while this solution meets one type of unfairness it can create another because of its insufficient sensitivity to how the plaintiff lost the enrichment. One case illustrates the problem.⁷⁸ The plaintiff bought a used car relying on the defendant’s fraudulent misrepresentation that it had never been in an accident. Three weeks later, the car was wrecked through the plaintiff’s negligence. The damage was not attributable to the car’s previous accident yet, because of the fraud, the Bundesgerichtshof allowed the plaintiff to rely on change of position while also recovering the full price paid for the car. The injustice of this result indicates that the availability of change of position to plaintiffs should not only depend on the nature of the operative unjust factor but, analogous to the defendant’s change of position,⁷⁹ must also be sensitive to how the loss was occasioned.

c) Should English law recognise change of position for the plaintiff?

In cases of fraud, duress or exploitation, English law largely disqualifies defendants from change of position. If mutual restitution by money substitute is allowed, the position would largely mirror the German saldotheorie. This would be a positive development. But should English law go further and admit the German exceptions to the saldotheorie, which essentially permit plaintiffs to reduce their counter-restitution by reference to their change of position? The notion may raise some eye brows but it deserves serious consideration.
First, if the aim of restitution is to remove defendants’ unjust enrichment and the aim of counter-restitution is to remove plaintiffs’ unjust enrichment⁸⁰ then, as a matter of symmetry, change of position should be potentially available to neither or to both in working out mutual restitution. Second, the plaintiff’s change of position is already implicitly recognised in cases where counter-restitution is satisfied by the return of severely depreciated property.⁸¹ Moreover, it seems that plaintiffs at fault are disqualified from this change of position. In Alati v Kruger,⁸² the plaintiff rescinded his purchase of a fruit shop for fraudulent misrepresentation as to its average takings and abandoned the shop after the hearing but before the judgment. He obtained restitution and was permitted to return the deteriorated business without compensation to the defendant since ‘it was not due to any fault on the [plaintiff’s] part’. The High Court of Australia noted that ‘even at common law the necessity to return property in its original condition was qualified so as to allow incidents for which the buyer was not responsible, such as those to which the property was liable…from its inherent nature (cf Adam v Newbigging…)’.⁸³ But such change of position is limited. Fullager J explained that:⁸⁴

‘a purchaser remaining in possession after giving notice of rescission is under a duty to take reasonable care to preserve the property, so that what he has received from the other party may, so far as reasonably practicable, be restored to the other party…. If he commits a breach of this duty and deterioration results, one of two consequences may follow…. The court may find, having regard to the conduct of the purchaser, that it would not be equitable to decree rescission. Or…the court may make it a condition of the decree that the purchaser shall compensate the vendor in respect of the deterioration of the property.’ (Emphasis added)

If plaintiffs are admitted to change of position what types of loss should count? We know that loss of the actual receipt which is causally attributable to the unjust factor should be allowed⁸⁵ as should such loss occasioned by external factors.⁸⁶ As a matter of symmetry with good faith defendants,⁸⁷ it may also be appropriate to allow plaintiffs to write off expenditure in attempted performance for the defendant’s benefit or in accordance with the defendant’s wishes. If, for example, the Mother Superior in Allcard v Skinner had sold a donated vehicle to the plaintiff (a religious zealot) for an exorbitant price, on rescission for presumed undue influence, if she is permitted to write off the sums spent on the charitable purposes subscribed to by the plaintiff; then it would seem distinctly unbalanced not to allow the plaintiff to write off his loss from crashing the vehicle while delivering food to the poor and needy, consistent with the Mother Superior’s instructions.
On the other hand, the German experience indicates the desirability of being responsive to how the loss occurred. For example, it could be suggested that plaintiffs should not be able to discount loss or depreciation caused by their own negligence or intended use (aside from the exceptional expenditure in favour, or consistent with the wishes, of the defendant just mentioned). This is one explanation⁸⁸ for the outcome in Wiebe v Butchart’s Motors Ltd⁸⁹ where a contract for the sale of a car induced by the seller’s misrepresentation was rescinded on condition that the buyer pay the seller $600 for the deterioration of the car which had been used continuously since the sale.

V. Unjust Factors and Valuation of the Enrichment Received

Enrichment may be primary (that initially received) or secondary (that derived from the initial enrichment, such as the fruits, profits and the user value). The restitution of secondary enrichments raises extremely difficult issues since it overlaps with questions of tracing proprietary rights, restitution for wrongs and whether such derivative enrichments are ‘at the plaintiff’s expense’. These knots will not be untangled here. The point sought to be advanced can be made with reference to the primary enrichment initially received although doubtlessly a similar exercise with secondary enrichments is possible.

1. Subjective Devaluation

If English law accepts the possibility of mutual restitution in moneys-worth, particularly where restitution in kind is impossible, the issue becomes purely one of valuation. The potential difficulties in this exercise may be one reason for barring rescission once exact restoration is impossible. But this cannot justify the retention of the bars. Courts are constantly called to monetise things which are difficult to monetise, like arms and legs and nervous shock in tort actions. Valuing the benefits conferred by mutual performances is problematic, but no more problematic.
One solution would be simply to impose the objective value. This is largely the German approach.⁹⁰ However a recipient who cannot return in kind should be entitled to say ‘had it not been for the unjust factor I would not have wanted the transfer at its objective price, or indeed, at all. It is not worth that to me.’ This problem is described by Professor Birks as that of ‘subjective devaluation’.⁹¹ German law has been criticised for being insufficiently sensitive to its claim. Indeed, the indiscriminate imposition of objective values in unjust enrichment claims:

‘could seriously disturb the equilibrium which the law of contract attempts to establish between the parties by denying the existence of a contractual obligation. In other words, restitution would stop to remedy the unjust situations which other areas of law have created, and end up creating unjust situations which other areas of the law aim to prevent.’⁹²

Unjust enrichment law should not impose a forced sale at the objective value despite the rescission of the contract and so undermine the logic of the unjust factors. In the valuation exercise, it is German law’s turn to learn from English law. English courts and academics have utilised a number of tests to overcome the plea of subjective devaluation.⁹³ Sensitivity to the impact of particular unjust factors can tell us which of these different tests are appropriate in fixing the existence and the value of the relevant benefit to their recipients.

2. Valuing the Defendant’s Enrichment

Where the defendant’s receipt results from the plaintiff’s attempted contractual performance, the existence of enrichment to the defendant can be established by the ‘bargained-for’ or ‘reprehensible seeking out’ tests. The defendant has sought the benefit by contracting for it or otherwise unconscientiously procuring or accepting it. Her consent is untainted and she is not the intended beneficiary of any unjust factor so she must be taken to value its receipt. But, how much she values that receipt cannot be determined by reference to the value fixed in the vitiated contract, otherwise the policy underlying the contractual invalidity would be subverted. The defendant cannot be heard to say: ‘To me, it is only worth the little I agreed to pay.’ The defendant’s unconscientious procurement or receipt of that benefit (in categories one and two), should fix her to its objective value.
On the other hand, there may be a case for allowing innocent defendants to subjectively devalue their receipts. In non-contractual contexts the devaluation should stop at the ‘incontrovertible benefit’, that is, the realised, or readily realisable, benefit received or the saving of necessary expenses by the defendant. For example, in Ministry of Defence v Ashman⁹⁴ the defendant lost the right to occupy the plaintiff’s premises when her husband, a member of the Royal Air Force, moved out. Although she stayed on with her children, she could not be said to have reprehensibly sought out, or freely accepted, the benefit as she had nowhere else to go pending re-housing by the local authority. She was undoubtedly benefitted since the court found that she would otherwise have had to pay for alternative accommodation. However the value to her was fixed by reference to the cost of the council housing for which she had applied. This was a quarter of the cost of market rental and was fixed as the ‘incontrovertible benefit’ to her for which she had to account to the plaintiff.
In the context of failed contracts, whether void, discharged, terminated or rescinded, the prices contained in such contracts can nevertheless provide evidence of the value which the innocent defendant attached to the plaintiff’s transfer on the ‘bargained-for’ test. For example, in Boyd and Forest v Glasgow and South West Railway⁹⁵ the plaintiff’s claim to rescind an executed contract to build a railway, on the ground of the defendant’s innocent misrepresentation, was denied for the ludicrous reason that the plaintiff’s services in building the railway could not be returned. Consistent with what has been argued rescission should be granted and restitution by way of a quantum meruit, limited by the contract price, awarded.⁹⁶
Even in contractual situations, where the ‘incontrovertible benefit’ clearly exceeds the ‘bargained for’ price, it may be a moot point which measure is more consistent with the reason for restitution underlying the operative unjust factor. For example, if an innocent Mother Superior, believing she was aiding a young convert’s discipleship, engages her to work for trifling pay around the convent, on a finding of presumed undue influence, restitution of the ‘incontrovertible benefit’ which the young convert’s labours conferred may be appropriate. The value of the crooked fence she builds or her shabby laundering services may be much less than the notional hourly market rate of her labour but it may also exceed the paltry contract rate.

3. Valuing the Plaintiff’s Enrichment

The existence and value of the plaintiff’s enrichment is more complicated. The law should be responsive to the impact of the operative unjust factor on the value of the defendants’ transfers to the plaintiffs since they are the unjust factors’ intended beneficiaries. First, the unjust factor could make the transfer wholly inappropriate or unwanted by the plaintiff. For example, the plaintiff may obtain something which she would never have wanted had she known the truth⁹⁷ or not been unfairly pressured; or the benefit may be wholly inappropriate to her circumstances, even at market value.⁹⁸ If this is so, counter-restitution should only be required of the ‘incontrovertible benefit’ conferred on the plaintiff. Secondly, the plaintiff could have obtained something which he clearly values, but the unjust factor indicates that he should not have had to pay for it. For example, when a contract modification is set aside for duress, the plaintiff need not pay the extra sum promised since he is entitled to the defendant’s performance without paying more.⁹⁹ There are other examples.¹⁰⁰ In such cases, the plaintiff’s enrichment is non-existent or not ‘unjust’.
Lastly, the unjust factor may have resulted in the plaintiff paying too much for something that he doubtlessly values. Where there is no evidence of how much less the plaintiff values the receipt, it may be appropriate to lower the value to the market price. This is one explanation for the salvage cases tucked away in the Admiralty jurisdiction where exorbitant prices charged for rescue services are substituted by reasonable awards.¹⁰¹ Similar considerations may colour the adjustment of extortionate credit contracts permitted in English law¹⁰² and the outcome in the recent decision of Maguire v Makaronis.¹⁰³ Where there is some indication of what lower value the receipt held for the plaintiff, it may well be defensible to hold him to that whether on the ‘incontrovertible benefit’ or the ‘bargained-for’ tests, along the lines discussed as being appropriate for innocent defendants.¹⁰⁴
Taking into account available evidence of the value of the receipt to the plaintiff explains two other phenomena. First, where a contract modification is set aside for duress, it accounts for why the plaintiff must still pay what was agreed under the original contract for the defendant’s performance. Even if that original contract is not automatically revived to regulate the defendant’s entitlement in contract,¹⁰⁵ it is nevertheless evidence of the plaintiff’s untainted valuation of the defendant’s performance for which counter-restitution should be made. This counter-restitution can be seen as being effected by partial rescission of the modified contract. Partial rescission is the second puzzle illuminated by this approach to valuation.

4. Partial Rescission Again

a) Subjective devaluation of counter-restitution

We have already seen how this controversial remedy may be supportable as an expression of exceptional change of position.¹⁰⁶ But an even better explanation of partial rescission is simply as a means of effecting counter-restitution of the subjectively devalued enrichment to the plaintiff, on particular facts. The reversal of unjust enrichment involved in counter-restitution can be achieved by negating the impact of the unjust factors. If an unjust factor has induced the plaintiff to pay too much for the benefit received, she should be able to subjectively devalue it to that which she would have been prepared to pay, absent the unjust factor and make counter-restitution of that. Where the unjust factor is solely¹⁰⁷ a misrepresentation as to the price the plaintiff is paying (or in an O’Brien case, the risk being assumed) in return for the defendant’s performance, the represented price or risk which the plaintiff agreed to, may evidence her actual valuation of the defendant’s performance. If so, holding the plaintiff to that representation is a defensible expression of her counter-restitution on rescission.

b) Valuing counter-restitution where performance moves to a third party

In principle, this way of subjectively devaluing the plaintiff’s counter-restitution should hold even if the defendant’s performance moves towards a third party rather than to the plaintiff. McKenzie v Royal Bank of Scotland¹⁰⁸ takes the contrary position, denying the existence of any benefit to the plaintiff in such circumstances so that no counter-restitutionary obligation is said to arise. But is this reasoning sound? If a plaintiff buys a car or piano lessons for her son, on rescission say for innocent misrepresentation, it would seem offensive to allow the plaintiff to recover all her money without giving any allowance for the value of the car or the lessons simply because the plaintiff did not personally receive them.¹⁰⁹ Yet that is the logical outcome of McKenzie. Even though the defendant’s performance does not move towards the plaintiff, she can still be said to have benefited since she has achieved the very end she sought¹¹⁰ and for which she would have had to pay.
This view of benefit is consistent with contract law’s conception of valuable consideration. More importantly in this context, it is also a corollary of the idea of subjective devaluation. The issue is the value or benefit of the defendant’s performance to the plaintiff. The fact that the plaintiff has chosen to route that performance towards a third party does not, in itself, extinguish the benefit to the plaintiff. This can be expressed in restitutionary language: the plaintiff has received the incontrovertible benefit of saving expenses, expenses which she would have had to incur to achieve her desired end. This approach also respects the conditionality inherent in contractual exchanges expressed by the saldotheorie. A’s retention of B’s performance is premised on A’s own counter-performance. Thus, A cannot deny this conditionality by claiming restitution of his own performance while denying counter-restitution of B’s performance, simply because the latter moved to a third party, designated by A. This is consistent with the view of the English Law Commission¹¹¹ and with section 1(6) of the Law Reform (Frustrated Contracts) Act 1943 in English law which allows one party to claim, for the value of benefits conferred, against a second party who has promised to pay for the work benefitting a third party.
It can be objected that O’Brien itself appears to regard the plaintiff who receives no direct transfer as being ‘manifestly disadvantaged’. But closer inspection shows that the doctrine distinguishes clearly between appearances and reality. The appearance of manifest disadvantage, because the plaintiff receives no direct transfer, along with the appearance of a surety-primary debtor relationship which is at risk of abuse, oils the plaintiff’s restitutionary claim in support of the underlying protective policy, by raising the defendant’s constructive notice. But, no relief is available unless an independent unjust factor (which may require actual manifest disadvantage) actually taints the dealing between the surety and the primary debtor. The policy of protection may warrant easing the plaintiff’s evidentiary burden against the lender, by presuming the relevant knowledge where the plaintiff appears to receive no direct benefit, but it should not extend to absolving the plaintiff from giving counter-restitution where there is untainted evidence that the plaintiff does attribute a particular value to the defendant’s transfer.

c) What the cases say

Support for this position can be found in the outcome of some cases. In the Australian High Court’s decision in Vadasz v Pinoneer Concrete (SA) Oty Ltd,¹¹² the defendant misrepresented that the guarantee sought from the plaintiff only covered the company’s future indebtedness when it, in fact, also extended to its past indebtedness. Only the latter part of the guarantee was rescinded.¹¹³ The same result was arrived at by the English High Court in Bank Melli Iran v Samadi-Rad,¹¹⁴ an O’Brien type case. On the reasoning that she who sought equity must also do equity, the court required the plaintiff, as a condition of relief, to recognise the security to the extent of the lesser amount misrepresented to her as her maximum liability.
The real objection seems to be to the packaging of this as ‘partial rescission’ with its suggestion that the defendant is only making partial restitution. In TSB Bank plc v Camfield¹¹⁵ the Court of Appeal unanimously denied this possibility. There, a husband innocently misrepresented to his wife that the charge over their home to support his overdraft was limited to £15,000. The defendant was fixed with constructive notice of this and, at first instance, the charge was partially rescinded to leave a subsisting charge against her for £15,000 because the wife was ‘quite prepared to risk’ that sum.¹¹⁶ But the Court of Appeal set aside the charge in entirety on the reasoning that rescission ‘is an all or nothing’ process’ andthe right ‘of the representee, not that of the court’. Further, that if the rescission was lawful, it was not the court’s proper role to ‘grant equitable relief to which terms may be attached.’¹¹⁷
Rejection of partial rescission in these terms do not necessarily contradict a position which accepts rescission as being total and the right of the plaintiff, but requires the plaintiff, as a condition of rescission, to make counter-restitution of the value of the defendant’s performance to her (if necessary on terms), quite apart from any suggestion of imposing terms to do some vague and arbitrary justice. Moreover, it should be unobjectionable for this counter-restitution to be effected by fixing a charge on that which is to be recovered by the plaintiff, akin to the imposition of a lien in Cooper v Phibbs.¹¹⁸ The result is the same (retaining a partial charge on the security rescinded), but the reasoning falls squarely within the traditional view of rescission and the principles of unjust enrichment which both require counter-restitution on restitution. This approach has the added advantage of enabling an outcome which Nourse LJ concedes in Camfield as one marked by ‘morality, perhaps justice in an abstract sense’.¹¹⁹
Partial rescission as a means of effecting counter-restitution is suggested in Vadasz. The High Court of Australia said that ‘the justification for not setting aside the transaction in its entirety or in doing so subject to conditions’ is ‘to prevent one party obtaining an unwarranted benefit at the expense of the other.’¹²⁰ In Samadi-Rad,¹²¹ the English High Court approved Wigram V-C’s statement in Hanson v Keating:¹²²

‘The equity of the obligor [plaintiff] is to have the entire transaction rescinded. The court will do this so as to remit both parties to their original position: it will not relieve the obligor [plaintiff] from his liability, leaving him in possession of the fruits of the illegal [vitiated] transaction he complains of. I know of no case which cannot be explained upon this or analogous reasoning…the court can never lawfully impose arbitrary conditions upon a plaintiff…but can only require him to give the defendant that which…is the right of the defendant in respect of the subject of the suit.’

In Samadi-Rad, effecting counter-restitution was accepted as ‘[t]he basis on which the court can, without rewriting the parties’ bargain, impose terms as a condition to recognising the wife’s claim to relief’.¹²³
Of course, such partial rescission is only warranted if the court is satisfied that the plaintiff would have contracted on the basis represented. This was so in Vadasz. The High Court said: ‘it cannot be maintained that the appellant would not have entered into the guarantee had it been confined’ as he was led to believe. ‘Rather, the evidence is that he would have done so, if not happily, because it was the only way to secure’ the defendant’s desired performance.¹²⁴ On the other hand, if the court finds that the plaintiff would not have agreed absent the unjust factor, then the plaintiff should only be obliged to account for any incontrovertible benefit received,¹²⁵ which may be nil.
In Commercial Bank of Australia v Amadio,¹²⁶ the plaintiffs’ son misrepresented to them that his overdraft which they were securing, was limited to $50,000 and for six month only. The High Court of Australia set aside the security in its entirety as an unconscionable bargain. Deane J had considered ‘setting aside the guarantee/mortgage only to the extent…in excess of $50,000’, but he concluded that the plaintiffs would not have entered the transaction at all had they known their son’s true financial position.¹²⁷ The same explanation accounts for the total rescission in McKenzie v Royal Bank of Scotland.¹²⁸ The bank had misrepresented to the plaintiff that her shares, which had secured previous loans to her husband, were already lost and that her signing the new guarantee ‘offered the only means of salving them’.¹²⁹ Absent this misrepresentation, the plaintiff would never have entered the contract at all. Camfield bears the same interpretation. The charge was set aside completely because ‘had the true nature of the legal charge been known to the wife she would not have entered into the charge and the enjoyment of her home would never have been at risk’.¹³⁰ These are not cases where the plaintiffs would have valued the benefits even at the lower risks represented because in O’Brien situations, such misrepresentations often imply further misrepresentations about the viability and health of the business which the charge is supporting. Moreover, the whole situation is often coloured by undue influence.

VI Conclusion

Unjust factors are irrelevant only in so far as the absence of cause for the transfer, for any reason, should prima facie admit the plaintiff to a restitutionary claim. But that is just the beginning. In working out the precise details of the restitutionary response, the nature of the unjust factors, embodying the reasons for restitution, come to the fore. First, they explain why the change of position defence is not available to unconscientious defendants and why that disqualification should extend to some innocent defendants. Second, they point to the logic of dissolving certain bars to rescission in English law and of extending change of position to reduce the plaintiff’s counter-restitution. Third, in valuing enrichment, they signal the need in English and German law to allow plaintiffs especially to subjectively revalue their enrichments to reflect the impact of the unjust factors. Lastly, effecting the plaintiff’s subjectively re-valued counter-restitution, by charging that which is returned to the plaintiff, offers a justification for the remedy of partial rescission.
Even German law, with its single ground of absence of cause, is not indifferent to the unjust factors.¹³¹ We have seen that the particular reason for invalidating the transfer colours when a defendant’s restitutionary liability is reducible to the enrichment surviving (analogous to the English change of position), and when the saldotheorie should be ousted, in favour of the zweikondiktiontheorie, to allow for the plaintiff’s change of position. The call for German law to show greater sensitivity to the unjust factors in valuing the enrichments received has also been discussed. Moreover, it is evident that the single ground approach can generate restitutionary liability which is both over-inclusive and under-inclusive, necessitating further layers of qualifications to generate satisfactory outcomes. I conclude with two examples from the field of duress.
The general enrichment action would logically confer a claim on one who makes an undue transfer even if it is made deliberately and without mistake. This necessitates the first qualification and paragraph 814 BGB bars restitution if the plaintiff knew at the time of performance that there was no obligation to perform. This bar essentially functions as the unjust factor of mistake in English law. But, since this no-mistake bar operates as a general defence to a general action, a further complication arises necessitating a further qualification. Plaintiffs induced to make transfers under duress usually know that they are not legally obliged to do so and a straightforward application of paragraph 814 BGB would bar restitution here. Without an unjust factors approach:

‘other mechanisms have been found in order to ensure that 814 BGB does not defeat restitution in most cases of duress and imbalance of bargaining power…thus,…the defence of knowledge only applies to performance which has been made voluntarily, ie without pressure having been applied, and for this reason will not defeat restitution cases of compulsion.’¹³²

A second example suffices to illustrate how inappropriate outcomes can result from a failure to acknowledge the unjust factors. The general ground of absence of cause confers no restitutionary action where ‘the transaction which took place was based on a valid legal cause but has, nevertheless, lead to an unjust shift of wealth between two people.’¹³³ Thus, where a debtor pays because the creditor has threatened him with physical violence if he does not, the creditor’s retention would not be without cause and yet retention of the proceeds of this sort of self-help is surely objectionable. With such non-contractual acts of fulfilment then, other means have to be found to generate an appropriate restitutionary response. Exploring the possibilities, Dr du Plessis writes:¹³⁴

‘it could be argued that fraud or duress affect the determination of the purpose of a transfer, thereby leading to its failure to fulfill an obligation. However, this seems like a rather strained interpretation of “failure of the purpose of the transfer”. Alternatively, one could argue that we are dealing with a type of Eingriff or encroachment. However…as long as here has been some form of transfer or “giving”, rather than “taking”, an analysis based on encroachment seems strained. One is therefore left to conclude that it might even be necessary for a further type of enrichment claim, based on the idea that any due transfer obtained in an improper manner, is retained without legal ground’.

In a survey of the German law of unjustified enrichment, Professor Zimmermann and Dr du Plessis conclude that ‘by adopting a general enrichment action the fathers of the BGB created a catalyst which eventually lead to a completely new, but more rational, division of enrichment claims.’ Nevertheless, they concede that ‘greater clarity’ can ‘be obtained of the basic policies underlying the law of unjustified enrichment.’¹³⁵ The claim here is more emphatic. The details of the restitutionary response should be closely tailored to the initial reasons for granting restitution. These reasons are accessible only by a proper understanding of the unjust factors which invalidate the particular transfer, whether legally due or not, and which bring the case to the door of unjust enrichment law. English and German law already show a degree of responsiveness to the unjust factors. Both can, and should, be more responsive still.

Footnotes

1 My gratitude to Professors Peter Birks, Jane Stapleton and Richard Sutton, Dr Gerhard Dannemann and Mr Dominic O’Sullivan for generous discussions which have clarified my thinking and saved me from errors although, doubtlessly, many persist. I am also grateful to Professors Reinhard Zimmermann and David Johnston for providing me with the occasion for embarking on comparative study and to the Law Faculty at Otago University for hosting me during a sabbatical when the text was finalised.

2 Reinhard Zimmermann and Jacques du Plessis, ‘Basic Features of the German Law of Unjustified Enrichment’, [1994] Restitution Law Review 14ff, 14.

3 Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 1 All ER, 737, 740; [1998] 2 WLR 475. The House of Lords recognises that unjust enrichment claims comprise a four stage enquiry: i) is the defendant enriched? ii) was this enrichment at the plaintiff’s expense? iii) was the enrichment unjust? iv) does the defendant have any defences?

4 Konrad Zweigert and Hein Kötz, Introduction to Comparative Law (3^rd ed., 1998), 565.

5 Peter Birks, An Introduction to the Law of Restitution (1989, revised paperback edition). See also Andrew Burrows, The Law of Restitution, (1993).

6 See for example, Reinhard Zimmermann, ‘Unjustified Enrichment: The Modern Civilian Approach’, (1995) 15 Oxford Journal of Legal Studies, 403ff, 414.

7 Zweigert and Kötz (n.4), 565.

8 Zimmermann, (1995) 15 Oxford Journal of Legal Studies 414.

9 Ibid., 416.

10 These being my terms of reference for a paper presented at the Symposium on the Comparative Law of Unjust Enrichment, Cambridge April 1999, from which this and other papers in this collection have emerged.

11 [1994] 1 AC 180. This doctrine protects plaintiffs who have been wrongly induced by someone to whom they are emotionally attached, typically the plaintiff’s husband, to guarantee his debt, and typically by putting up the family home as security.

12 Burrows (n.5), 31-32.

13 See Peter Birks, Forward in: Andrew Skelton, Restitution and Contract (1998).

14 For discussion see, for example, Birks (n.13); DP Visser ‘Rethinking Unjustified Enrichment: A Perspective of the Competition between Contractual and Enrichment Remedies’, [1992] Acta Juridica 203. The author discusses this point more fully in a forthcoming article devoted to rescission.

15 Zimmermann, (1995) 15 Oxford Journal of Legal Studies 416.

16 See further Markesenis, Lorenz and Dannemann, The German Law of Obligations: Vol 1 The Law of Contracts and Restitution (1997), 725-26.

17 See CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, 720 per Sir Donald Nicholls VC.

18 See further Markesenis, Lorenz and Dannemann (n.16), 187-191, 204-211.

19 Zimmermann, (1995) 15 Oxford Journal of Legal Studies 407, 415-416.

20 Birks (n.5), 140-355. See further elaboration in Burrows (n.5) chps 3-13.

21 See for example Markesenis, Lorenz and Dannemann (n.16), 205 and Zweigert & Kötz (n.4), 423-24, 428.

22 See Mindy Chen-Wishart, Unconscionable Bargains (1989); “The OBrien Principle and Substantive Unfairness”, (1997) 56 Cambridge Law Journal 60ff; “Controlling The Power to Agree Damages”, in: Birks (ed), Wrongs and Remedies in the Twenty-First Century (1996), 271ff.

23 [1999] 1 WLR 1919.

24 The view that these unjust factors nevertheless remains plaintiff-sided, albeit ‘inhibited’ on policy grounds creates an unnecessary distortion. See Chin and Birks ‘The Nature of Undue Influence’ in Beatson and Friedmann (eds) Good Faith in Contract Law (1995), chp 3.

25 Although exceptionally in German law third party duress can rescind the contract. See generally Reinhard Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (1990), 661.

26 For example Williams v Bayley [1866] LR 1 HL 200 and Mutual Finance v Wetton [1937] 2 KB 389, where some active pressure is applied by threatening to prosecute, or to expose some harmful information to, the plaintiff’s loved one.

27 In Hart v O’Connor [1985] AC 1000 the Privy Council indicates that victimisation by the defendant may be active or passive. The former requires positive conduct by the defendant which unconscientiously induces the plaintiff’s transfer. Louth v Diprose (1992) 175 CLR 621 provides a colourful example. See further Chen-Wishart (n.22 Unconscionable Bargains), 71-79.

28 It would also logically account for the relief given in cases of unilateral mistake of terms known to defendant, Smith v Hughes (1871) LR 6 QB 597; and of knowing receipt.

29 For example, the O’Brien doctrine treats a lender as having constructive notice of the surety plaintiff’s defective consent where it knows that the plaintiff is in a ‘sexual or emotional relationship’ with the primary debtor and where the suretyship is manifestly disadvantageous to the plaintiff. Normally there is no actual or even constructive knowledge in any meaningful sense and knowledge here is really deemed and fictional.

30 See for example, Credit Lyonnaise Bank Nederland NV v Burch [1997] 1 All ER 144, Chen-Wishart (1997) 56 Cambridge Law Journal, 60ff.

31 For example Allcard v Skinner (1887) 36 Ch D 145.

32 For example, Nichols v Jessup [1986] 1 NZLR 226, noted Mindy Chen-Wishart ‘Unconscionable Bargains’ [1987] New Zealand Law Journal, 107ff.

33 For example, Redgrave v Hurd (1881) 20 Ch D 1.

34 For fuller discussion see Chen-Wishart (n.22 Unconscionable Bargains), 108-112; also (n22 in Wrongs and Remedies in the Twenty-First Century), 293-4.

35 See for example, Markesenis, Lorenz and Dannemann (n.16), 187-191, 204-211.

36 Paragraph 138(2) reads ‘A legal transaction is also void whereby a person exploiting the need, carelessness or inexperience of another, causes to be promised or granted to himself or to a third party in exchange for a performance, pecuniary advantage which exceed the value of the performance to such an extent that, under the circumstances, the pecuniary advantages are in obvious disproportion to the performance.’ Translated in Markesenis, Lorenz and Dannemann (n.16), 825.

37 Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548. The scope of the defence is still uncertain and the possibility that it may extend beyond instances of loss of enrichment, to those where supervening events make full restitution unjust, is not ruled out.

38 Wegfall der Bereicherung 818 (3) BGB: The obligation to provide return or compensation for the value is excluded to the extent that the recipient is no longer enriched.’ Translated in Markesenis, Lorenz and Dannemann (n.16), 895.

39 See Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 and paragraph 819 (1) BGB: If the recipient knows of the lack of a legal cause at the time of the receipt, or if he later learns of this lack, he is obliged to provide restitution from the time of the receipt or from the time when he obtains this knowledge as if an action for restitution had been pending at that time. Translated in Markesenis, Lorenz and Dannemann (n.16), 895.

40 I am indebted to Dr Gerhard Dannemann for clarifying this point. See also Zweigert and Kötz (n.4), 557 ‘In practice…the recipient cannot escape on the ground that his enrichment has ceased to exists if the underlying contract was tainted by his deceit or duress‘.

41 But it must have been the very acceptance of the performance which offended against the law or good morals in order for change of position to be ruled out as a defence.

42 See for example R Leslie Ltd v Sheill [1914] 3 KB 607 where a minor fraudulently misrepresented his age to obtain a loan which he completely dissipated. The Court of Appeal rejected the suggestion that the minor should repay the amount he received but accepted that, in principle, equity could compel restitution of any enrichment still surviving in the minor’s hands. For German law see Zweigert and Kötz (n.4), 557, ‘a minor may raise this defence even if he knew of the invalidity of the contract at the time he received the benefit, since the court, in order to protect him, do not hold this knowledge against him’, and see 590-591, 593.

43 Zweigert and Kötz (n.4), 594.

44 Ibid., 591 (emphasis added).

45 In Royal Bank of Scotland v Ettridge(No 2) [1998] 4 All ER 705, the Court of Appeal offers no reasons other than that there is no hint of change of position in O’Brien itself.

46 See M Bryan ‘Change of Position: Commentary’ in: Mitchell McInnes (ed.), Restitution: Developments in Unjust Enrichment (1996), 75, 79-80 arguing that change of position should not be available for all ‘innocent’ defendants in undue influence and unconscionability cases. He points out that security of receipts is not the only operative policy where a legal or equitable wrong has been committed; that the civil law protects many interests and promotes many values and that the ‘effectiveness of the law in furthering these interests and values could be blunted by an overgenerous application of the change of position’; further, that allowing change of position ‘may defeat not only the demands of restitution but also the equitable concern with transactional imbalances of power which informs’ these areas of the law.

47 See generally John Dawson, ‘Erasable enrichment in German Law’ (1981) 61 Boston Uiversity Law Review 303ff, 306.

48 [1994] 1 WLR 129.

49 Mindy Chen-Wishart ‘Undue Influence, Manifest Disadvantage and Loss Apportionment’ (1994) 110 Law Quarterly Review 173ff.

50 [1996] 3 All ER 61, the plaintiff agreed, inter alia, to cancel his 50% of shares for an annuity of £20,000 a year for ten years payable by the company. The company was sold shortly after for £3.3 million but the sum was lost on another venture. May J awarded the difference in money value between what the plaintiff transferred and he received. See comment by Peter Birks ‘Unjust Factors and Wrongs: Pecuniary Restitution for Undue Influence’ [1997] Restitution Law Review 72ff and JD Heydon ‘Equitable Compensation for Undue Influence’, (1997) 113 Law Quarterly Review 8ff

51 (1887) 36 Ch D 145.

52 Ibid., per Bowen LJ at 186; see also Kekewich LJ at 164, Lindley LJ at 180.

53 Ibid., Cotton LJ at 171.

54 In O’Brien cases lenders normally have no actual or even constructive knowledge of the principal debtor’s equitable wrong in any meaningful sense. Knowledge is deemed where the lender is aware that the plaintiff has a ‘sexual or emotional relationship’ with the primary debtor and that the plaintiff is securing a debt of the latter.

55 [1934] AC 468.

56 See for example Guenter Treitel, The Law of Contract (9^th ed., 1995), 352.

57 The plaintiff can be said to have benefited in the sense of achieving a desired end for which she would have had to pay, see discussion below at Part V4.

58 [1991] 2 AC 548, 580.

59 [1998] 4 All ER 705.

60 The remedy was adopted in Vadasz v Pinoneer Concrete (SA) Oty Ltd (1995) 184 CLR 102 and Bank Melli Iran Samadi-Rad [1995] 1 FCR 465, but was disapproved in TSB Bank v Camfield [1995] 1 WLR 430. See further discussion below at Part V4.

61 See Part V4.

62 English law confers no such automatic entitlement on the defendant absent an unjust factor in his favour (although failure of consideration has been posited, see Andrew Burrows (n.5), 133-134). Rather, counter-restitution is generally regarded as a condition of rescission and the concomitant restitution.

63 Para. 818 (2) BGB: ‘If due to the nature of what has been obtained, return is impossible, or if the recipient for another reason is not in the position to return what he has obtained, he must compensate for the value.’ Translated in Markesenis, Lorenz and Dannemann (n.16), 895.

64 In the case of money, mutual restitution essentially becomes a personal claim for the sum transferred rather than for the precise notes or coins.

65 Boyd & Forrest v Glasgow & South Western Railway, 1915 SC (HL) 20 where the plaintiff was induced to build a railway by misrepresentation as to the strata, the plaintiff’s claim for rescission and for quantum meruit exceeding the contract price failed because, inter alia, restitution of the plaintiff’s services was impossible.

66 White v Garden (1851) 10 CB 919

67 Thus in Spence v Crawford [1939] 3 All ER 271 rescission was allowed and restitution of the shares sold by the plaintiff ordered although the fraudulent defendant had dealt with the shares.

68 Ibid. For example, rescission was barred in Clarke v Dickson (1858) EB&E 148 where the plaintiff bought shares in a partnership but converted it into a limited liability company; and in Vigers v Pike (1842) 8 Cl & F 562 where the plaintiff bought a mine and sought to rescind after it had been worked out. See also Sheffield Nickel and Silver Planting Co Ltd v Unwin (1877) 2 QBD 218, Thorpe v Fasey [1949] Ch 649.

69 See O’Sullivan v Management Agency & Music Ltd [1985] QB 428 where a partly performed contract to manage a popular singer was rescinded. The defendant had to account for their profits but credit was given to them for their skill and labour in promoting the plaintiff and making a significant contribution to his success. See also Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188, 202.

70 In Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278 Lord Blackburn held that a Court of Equity can give relief by way of rescission whenever by the exercise of its powers it can do what is practically just by directing accounts, ordering equitable compensation and making allowances when it cannot restore the parties precisely to their pre-contractual position. More recently, in Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 262 Lord Browne-Wilkinson suggested, obiter dicta, the possibility of allowing substitute in species restitution in the case of a fungible assets such as shares in a public company. He said that since ‘identical shares can be purchased on the market, the defrauded purchaser can offer substantial restitutio in integrum which is normally sufficient’. Ewan McKendrick identifies the potential problem of the plaintiff profiting by acquiring the substitute shares more cheaply than it sold them ans suggests a solution. See ‘Total Failure of Consideration and Counter-Restitution: Two issues or one?’ in: Peter Birks (ed.),Laundering and Tracing (1995) 217ff, 233-6. This unnecessary complication is avoidable if counter-restitution can be worked out wholly in money.

71 Where a contract has been induced by fraud, the courts are particularly ready to give the victim rescission, Spence v Crawford [1939] 3 All ER 271, 288-9 per Lord Wright: ‘The court will be less prepared to pull a contract to pieces where the defendant is innocent, whereas in the case of fraud the court will exercise its jurisdiction to the full in order, if possible, to prevent the defendant from enjoying the benefit of his fraud at the expense of the innocent plaintiff. Restoration, however, is essential to the idea of restitution…. The court can go a long way in ordering restitution if the substantial identity of the subject matter of the contract remains’.

72 Ibid.

73 Compensation is available for deceit and negligent misrepresentation and under the Misrepresentation Act 1969 in English law. But contracts induced by duress or exploitation suggest no obvious torts. In so far as there is a tort (eg of deceit or intimidation) the plaintiff can recover all his losses including the value of his own performance towards defendant (in German law see para.249, 823 (2) BGB).

74 [1996] AC 669.

75 The most obvious examples are rescission on terms in mistake cases; the adjustment of extortionate credit bargains; doctrines which allow particular terms of the contract to be struck out leaving the rest of the contract on foot (restraint of trade, penalties, forfeitures and particular exclusion and exemption of liability clauses); the awarding of damages in lieu of rescission under s2(2) Misrepresentation Act 1969; and the controversial possibility of partial rescission which has already been discussed at III5 and on which more will be said at V4.

76 See generally Markesenis, Lorenz and Dannemann (n.16), 764-66; Zimmermann and du Plessis, [1994] Restitution Law Review 40-42; DP Visser, [1992] Acta Juridica 203.

77 See Zimmermann and du Plessis, [1994] Restitution Law Review, 42; Markesenis, Lorenz and Dannemann (n.16), 765.

78 BGH 14 October 1971, BGHZ 57, 137, 141 et seq cited in Markesenis, Lorenz and Dannemann (n.16), 765.

79 See discussion above at III 3 and 4.

80 See McKenzie v Royal Bank of Canada [1934] AC 468. This not uncontroversial since counter-restitution is usually said to be aimed at restoring the defendant to his status quo ante, that is, his position before the contract was made which is suggestive of a tortious measure.

81 For example, in Adam v Newbigging (1888) 13 App Cas 308, 330 the partnership contract was rescinded although it was by then ‘worse than worthless’. The court said that to bar rescission ‘would be to say that where a losing and insolvent business is sold by means of the representation that it is solvent and profitable, rescission could never be obtained if the loss were increased prior to the discovery of the true state of affairs’. See also Armstrong v Jackson [1917] 2 KB 822, where a contract for the purchase of shares was set aside on return of the shares and account given for the dividends received despite a substantial intervening fall in their value, from £3 to 5 shillings.

82 (1955) 94 CLR 216, 225.

83 Ibid., 225.

84 Ibid., 228.

85 See n.81 and n.83 and text accompanying.

86 As in Alati v Kruger (1955) 94 CLR 216 where devaluation of the fruit shop to be returned was due to the opening of a supermarket nearby.

87 See above Part III3.

88 Another is that the proper measure of counter-restitution includes not only the primary enrichment transferred but also the secondary enrichment derived from its user.

89 [1949] 4 DLR (NS) 838; see also Addison v Ottawa Auto and Taxi Co (1916) 16 DLR 318.

90 Markesenis, Lorenz and Dannemann, (n.16), 760-62.

91 Birks (n.5), 109-114. This terminology was first used judicially by Hoffmann LJ in Ministry of Defence v Ashman (1993) 66 P&CR 195.

92 Markesenis, Lorenz and Dannemann, (n.16), 761-762.

93 See generally BP Exploration Co (Libya) Ltd v Hunt (No2) [1979] 1 WLR 783; Ministry of Defence v Ashman (1993) 66 P&CR 195; Procter & Gamble Philippine Manufacturing Corp v Peter Cremer GmbH [1988] 3 All ER 843; and see, Lord Goff of Chieveley and Gareth Jones, The Law of Restitution (5^th ed, 1998), 16-33; Birks (n.5), 114ff; Burrows (n.5), 7-16; discussing tests such as ‘incontrovertible benefit’, ‘bargained for’, ‘reprehensible seeking out’ and ‘free acceptance’.

94 (1993) 66 P&CR 195.

95 1915 SC (HL) 20.

96 Burrows (n.5),136, and see 269 in respect of the valuation of the plaintiff’s claim where failure of consideration follows discharge of the contract for breach.

97 For example, in Kettlewell v Refuge Assurance Co [1908] 1 KB 545 the defendant’s fraudulent misrepresentation induced the plaintiff to pay insurance premiums for four years; rescission was allowed although counter-restitution of the benefit from the defendant (the insurer was on risk and would have had to pay if the risk had eventuated) was impossible. No payouts were made. If it had been otherwise, the plaintiff should have to make an allowance of her incontrovertible benefit.

98 For example, in Gaertner v Fiesta Dance Studios Ltd (1972) 32 DLR (3d) 639, the plaintiff, a young woman contracted for 551 hours of dancing lessons owing to her gullibility and loneliness; and in Greisshammer v Ungerer (1958) 14 DLR (2d) 599, a contract for 115 hours of dancing lessons found to be a ridiculous bargain which the plaintiff could ill afford.

99 Of course, the concern to protect the plaintiff from the pressure applied by a defendant’s threat to breach the original contract may be outweighed by other policy considerations such as the prevention of waste. The concern to ensure that projects are brought to fruition without undue waste even if more must be paid has manifested itself in a higher degree of coercion being required which is deemed not to have been met on certain cases, for example, The Siboen and the Sibotre [1976] AC 104 and Pao On v Lau Yiu Long [1980] AC 614.

100 This accounts for Kiriri Cotton Co v Dewani [1960] AC 102, where the plaintiff paid an illegal premium to obtain a tenancy. Since the illegality seeks to protect those in need of rental accommodation, the plaintiff could recover the premium without giving up the tenancy.

101 For example, see The Port Caledonia and The Anna [1903] P 184 where a reasonable sum of £200 was substituted for the contract price of £1,000.

102 Sections 137-40 of the Consumer Credit Act 1974 allows English courts to re-open extortionate credit agreements to do justice between the parties. The German practice of partial rescission in usury cases leaving an interest free loan seems justifiable only in the interest of deterrence.

103 (1997) 71 ALJR 781. There, solicitors provided bridging finance to clients on the security of their home without disclosing their interest in the mortgage. The High Court agreed with the lower court that the mortgage should be set aside but required the clients to repay the money with interest, not at the contract rate, but at the commercial rate.

104 See above n.94-96.

105 The court in Pao On v Lau Yiu Long [1980] AC 64, regarded, as grossly unfair to the defendants, the plaintiff’s argument that they were not bound to pay anything for the defendant’s performance because i) the original contract was put to an end by the modification and not binding, and ii) the modification was tainted by duress and also not binding. This no doubt contributed to the court’s finding that no economic duress vitiated the modification

106 See Part III5.

107 In O’Brien situations this will often not be the case. Even if the operative unjust factor is this sort of misrepresentation, there will often be overtones of undue influence or breach of fiduciary duty owed to the plaintiff or the misrepresentations about the extent of the risk assumed will imply other facts, namely, about the health and viability of the business being supported.

108 [1934] AC 468.

109 Although, in theory at least, the defendant may appeal to change of position.

110 But it would be otherwise if the impact of the unjust factor was to render the defendant’s transfer valueless to the plaintiff as where the defendant is unqualified to teach piano or the car is not roadworthy.

111 Report No 121, Law of Contract: Pecuniary Restitution on Breach of Contract (1983), para 2.47.

112 (1995) 184 CLR 102.

113 But note that McGuire v Makaronis (1997) 144 ALR 729, 744 distinguishes Vadasz where fraud was assumed on that basis that the ‘scope of rescission may be determined by the nature and extent of the conduct giving rise to the equity for rescission’.

114 [1995] 1 FCR 465.

115 [1995] 1 WLR 430.

116 Ibid., 433.

117 Ibid., 439.

118 (1867) LR 2 HL 149. The contract was rescinded for mistake and a lien was granted over the fishery returned to the plaintiff in response to the money spent by the defendants improving the property.

119 Ibid., 437.

120 (1995) 184 CLR 102, 114.

121 [1995] 1 FCR 465, 476.

122 (1844) 4 Hare 1, 6.

123 Ibid., 477.

124 (1995) 184 CLR 102, 115.

125 The quantification problems may be extremely complex, see Dunbar Bank plc v Nadeem [1998] 3 All ER 876, 885, 887, but the principle is clear.

126 (1983) 151 CLR 447.

127 Ibid., 481. See discussion in Vadasz v Pinoneer Concrete (SA) Oty Ltd (1995) 184 CLR 102, 115.

128 [1934] AC 468.

129 Ibid, 474, 476.

130 TSB Bank plc v Camfield, [1995] 1 WLR 430, 439.

131 See generally Zweigert and Kötz (n.4), 557.

132 Markesenis, Lorenz and Dannemann (n.16), 763.

133 Ibid., 719.

134 Jacques du Plessis, ‘Fraud and Duress in the Law of Unjustified Enrichment: A Civilian Perspective’, a paper presented to the Symposium on the Comparative Law of Unjustified Enrichment, April 1999, Cambridge.

135 Zimmermann and du Plessis, [1994] Restitution Law Review 43.

© 2000 M. Chen-Wishart. This HTML edition © 2000 University of Oxford.
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