NZLII Home | Databases | WorldLII | Search | Feedback

Canterbury Law Review

University of Canterbury
You are here:  NZLII >> Databases >> Canterbury Law Review >> 2002 >> [2002] CanterLawRw 12

Database Search | Name Search | Recent Articles | Noteup | LawCite | Download | Help

Juentgen, David A --- "Unjustified enrichment in German and New Zealand law" [2002] CanterLawRw 12; (2002) 8 Canterbury Law Review 505


UNJUSTIFIED ENRICHMENT IN NEW ZEALAND AND GERMAN LAW

David A Juentgen[*]

I. Introduction

The law of unjustified (or unjust) enrichment is concerned with the restoration of benefits which a defendant cannot in law retain as against the plaintiff. The underlying justice of the principle is recognised in all modern legal systems and dates back to Roman law, where Pomponius said:[1]

Nam hoc natura aequum est neminem cum alterius detrimento fieri locupletiorem. (For it is by nature fair that nobody should enrich himself at the expense of another).

This paper seeks to analyse and compare how the law of unjustified (or unjust) enrichment operates in the legal systems of New Zealand and Germany. The concept's historical and doctrinal background in each jurisdiction will be considered in order to enhance understanding and practical application of this field of law.

In 1979, Mahon J said in the Supreme Court of Auckland that 'on the law as it stands... a general doctrine of unjust enrichment is not part of the law of New Zealand'.[2] Twenty years later, the New Zealand Court of Appeal felt prepared to acknowledge unjust enrichment as a 'well-established' principle.[3] In fact, the doctrine of unjustified (or unjust) enrichment is evolving rapidly from the backward child in the legal family[4] towards a separate legal subject and independent cause of action. Recent court decisions[5] and publications[6] give evidence of the increasing importance of this field of law. However, it will be suggested that the doctrine of unjustified (or unjust) enrichment in New Zealand is far from being well established and doctrinal refinement is needed in order to prevent such unfortunate trends as the German law suffered for almost half a century.

Unlike other major common law jurisdictions such as Canada[7] and England,[8] and arguably Australia[9] and South Africa,[10] New Zealand courts have not yet recognised unjustified (or unjust) enrichment as a cause of action in its own right.[11] Despite the uncertainty concerning its field and scope of application, the existence of the doctrine is now beyond dispute. Its current judicial status is that of an organising principle.[12]

The uncertainty in this field of law starts with terminology. Some authors speak of 'restitution';[13] others use the term 'unjust enrichment',[14] or 'unjustified enrichment'.[15] While the former appears to be a nomen collectivum, Grantham and Rickett suggest replacing the latter two terms by 'restorable enrichment'.[16] Actually, terminology is, of course, irrelevant to identifying and solving the underlying legal problems. Unfortunately, however, there are doctrinal connotations implicated by some of the terms mentioned above. The term 'unjust enrichment', for example, is taken to refer to a doctrine which is believed to operate on general considerations of fairness and thus is criticised for being open-ended.[17] The term and the doctrine of 'restorable enrichment', on the other hand, are supposed to be a 'more accurate description of the circumstances of recovery'.[18] Therefore, terminology appears to be prejudicial. For reasons to be given later the expression 'unjustified enrichment' will be used in this text. This is also the correct translation of the German ungerechtfertigte Bereicherung.

II. Historical Background

The history of unjustified enrichment in New Zealand is largely congruent with that in England. Resulting from historical accident, unjustified enrichment has traditionally been labelled quasi-contract. It evolved in England from a remedy known as indebitatus assumpsit, which was developed by the King's Bench from the sixteenth century onwards as a result of the competition between the Court of Common Pleas and the King's Bench.[19] The doctrine of indebitatus assumpsit operates on the premise there is an implied promise to repay money paid under mistake, duress and undue influence. Whenever such an implied contract is found, a plaintiff may claim under different heads - the so-called 'counts' of indebitatus assumpsit - namely for (i) 'money had and received', (ii) money paid, (iii) goods sold and delivered (quantum valebat) and (iv) work done and services rendered (quantum meruit). Although the English Common Law Procedure Act 1852 abolished the necessity to mention any form or cause of action in the writ, lawyers continued to base claims on fictitious 'implied contracts'.[20] Consequently, unjustified enrichment became an appendix to the law of contract. This inappropriate classification hindered the concept's development as a legal principle for almost a century.

However, the implied contract theory as an explanation of unjustified enrichment has now been rejected around the Commonwealth.[21] In the case of Westdeutsche Landesbank Girozentrale v Islington London Borough Council,[22] the House of Lords ultimately freed the English jurisdiction from the unfortunate concept of implied contracts. Now unjustified enrichment is evolving into a general principle and a separate cause of action besides contract and tort in an increasing number of common law jurisdictions. In New Zealand, however, a plaintiff is currently still required to bring his or her claim within one of the recognised categories of quasi-contract. More recently, the relationship between indebitatus assumpsit and restitutionary actions arising from cancelled contracts has been thrown into doubt by s 9 of the Contractual Remedies Act 1979.[23] Also relevant to the legal problem of unjustified enrichment are ss 94A and 94B of the Judicature Act 1908. These statutory provisions will be considered later.

In Germany, the concept of unjustified enrichment was clearly inherited from its Roman law origins. Before the Civil Code BGB came into force on 1.1.1900, the rules of Roman law, as they had been interpreted and developed in medieval and modern times were followed and referred to as the ius commune. Originally, the draftsmen of the BGB intended to codify the rules of the ius commune without any substantial changes. However, the second commission sought to aesthetically improve the draft of the first commission by substituting ageneral rule of restitution forthe various Roman law condictiones. Such a general rule of restitution had previously been unknown to German law. Therefore, the second commission amalgamated the condictio indebiti and the condictio sine causa almost inseparably in the first sentence of paragraph 812I (§ 812I1) which is the central provision of the modern German law of unjustified enrichment. Neither this rule nor the title on unjustified enrichment as a whole can be regarded as a legislative masterpiece.[24] The difficulties caused by the second commission's aesthetic changes vexed the German jurisprudence for half a century. The provision reads:

A person who has obtained something without legal basis through a performance of another, or in any other way at his expense, is obliged to surrender it.[25]

The practical application of § 812 I 1 proved to be extremely difficult. Various attempts were made to find guidelines for interpreting the requirements 'at his expense' and 'without legal basis', none of which gained general acceptance. It was not until 1934 that Walter Wilburg[26] acknowledged for the first time that an universal answer as to when an enrichment is unjustified cannot be given. The consequences which followed from this insight will be considered in more detail later. At present, it suffices to say that Wilburg thereby laid the foundation to the modern German law of unjustified enrichment.

Where a legal concept is evolving, the legal profession is faced with two main tasks. On the one hand, the concept must be made to fit into the existing legal system, that is to say, it needs to be distinguished from and put in relation to existing legal concepts, namely the law of property, contract and torts. On the other hand, the fundamental requirements of the legal concept need to be determined, namely the elements which a plaintiff is required to prove, the legal consequences, and the defences available to a defendant. In New Zealand, neither of these tasks has been satisfactorily accomplished so far, whereas in Germany at least the first two of these matters can be regarded as settled. Since the law of unjustified enrichment is largely underdeveloped in common law systems, the following text will -as far as New Zealand law is concerned - largely refer and reply to the lege ferenda as it has been set out by the leading textbooks on the subject. The German lege lata will provide an instructive example for comparison and discussion. Lord Goff of Chieveley has observed critically that:

Enlightened lawyers of all the major European jurisdictions, appreciating the strength and history of other European legal systems, see the need of studying and profiting from them, so that they can revisit their own system and look at it with fresh eyes [whereas] paradoxically, in the common law world we find the opposite development occurring.[27]

Nevertheless, on occasion common law jurists have expressed the view that 'much is to be learned from the German law' .[28] It must be added that the German law of unjustified enrichment is largely based on the Roman law. For that reason, it is suggested even more is to be learned from the Roman law itself. Hence, this paper will make frequent reference to the Digest of Justinian.

III. Unjustified Enrichment as a Part of the Legal System

As regards the task of fitting the concept of unjustified enrichment into the legal system, Zimmermann has described the dilemma as follows:

As soon as a legal system is therefore prepared to transcend the basic contract/tort dichotomy, it is faced with the following dilemma. It may... develop a motley assortment of rules and remedies, clustering around individual types of factual situations and tending to develop their own language and technicalities. As a result, the law is in danger of becoming unnecessarily complex, diffuse, and even unintelligible. Or it may attempt to devise a unitary basis of enrichment liability, but then the general formula resulting from these efforts is bound to remain on such an abstract level that it does not, in itself, lead to greater legal certainty either.[29]

While the common law, driven by the fear of indeterminate liability, has traditionally followed the former of these two courses, modern German law has attempted to follow the latter. It is, however, beyond doubt that some kind of typological fragmentation is necessary to make unjustified enrichment practicable.[30]

In German law, the concept of unjustified enrichment is an integral part of the law of obligations and stands equally besides the law of contract and the law of torts. It has now found its way into the 26th title of the eighth section of the book on obligations in the Civil Code BGB. The German jurisprudence has never regarded the claim in unjustified enrichment a final resort which is pleaded whenever equity calls for a cause of action, but all other claims fail. In fact, the claim in unjustified enrichment has rigid and unequivocal legal preconditions. Where these conditions are not satisfied, they cannot be replaced by general considerations of fairness. As contract and tort, unjustified enrichment forms part of the law of obligations. It can be said to create obligations by operation of law (gesetzliche Schuldverhältnisse) as opposed to obligations based on consent of the parties (vertragliche Schuldverhältnisse). In German law, causes of action are divided into those based on a right in personam and those based on a right in rem rather than into causes of action based on contract and those based on tort. For that reason, there has never been great difficulty in fitting the concept of unjustified enrichment into the legal system as a whole. A right in personam may result from consent (for example, an obligation to deliver a particular thing), unjustified enrichment (an obligation to surrender benefits received), or an unlawful act such as a tort (an obligation to compensate for damage done). A right in rem, however, can result from consent only (the transfer of title to a thing that has been promised to be delivered, for instance). Consequently, unjustified enrichment never creates a right in rem but gives rise to a right in personam only. Although the benefit which is subject to restitution may be of a proprietary nature (for example the right of possession, the right to enjoy the fruits and the use of an object) or may on occasion be the property right itself (ownership), the claim in unjustified enrichment for surrender of these benefit is always personal in nature.

In New Zealand, the law of unjustified enrichment is characterised by a disintegration of the principle into a diffuse and variegated casuistry of enrichment claims. It is far from having rigid and unequivocal legal preconditions and is sometimes seen as living in an opaque fog of equity and general considerations of fairness, rather than being a comprehensible legal concept within the law of obligations. In Carly v Farrelly, Mahon J said:

I must say that on the facts of this case I think I am being asked to apply a supposed rule of equity which is not only vague in its outline but which must disqualify itself from acceptance as a valid principle of jurisprudence by its total uncertainty of application and result. It cannot be sufficient to say that wide and varying notions of fairness and conscience shall be the legal determinant. No stable system of jurisprudence could permit a litigant's claim to justice to be consigned to the formless void of individual moral opinion.[31]

If unjustified enrichment is to become a general principle and cause of action in New Zealand, the jurisprudence has to penetrate the fog and reorganise this field of law by giving judges doctrinal guidelines on which they can base their judgments. In the course of reorganisation, it might be found that a range of tortious liability, such as detinue or the action for the value of the possession of another's assets,[32] can in fact be explained more convincingly in terms of unjustified enrichment, while other liability referred to under the banner of unjustified enrichment, is in truth not restitutionary in nature at all.

In New Zealand and other common law jurisdictions, the difficulty of fitting unjustified enrichment into the legal system has led to a dispute as to whether there is a field of application for unjustified enrichment where claims can be based on a proprietary interest. Swadling argues that where the legal title to the thing that is sought to be recovered remains with the plaintiff, there is no concurrency between a claim based on property and one based on unjustified enrichment, for there can be no benefit to the defendant at the plaintiff's expense unless title passes.[33] Birks suggests concurrency of liability and argues the plaintiff should be given the choice as to which of the claims he or she wants to enforce.[34] Grantham and Rickett observe correctly that Swadling's proposition is incorrect but, in cases where title has not passed, they deny the necessity of a claim in unjustified enrichment besides the claim in property.[35] They argue that 'where the plaintiff retains title, the plaintiff's recovery is and can only be a response to the interference with those rights which are part and parcel of the plaintiff's title'.[36] In their view, in these cases a restitutionary remedy can be based only on the proprietary interest, so that 'there is simply nothing to be gained - other than unnecessary duplication of causes of action - in resorting to anything beyond property'.[37] They give the following examples to illustrate their proposition:

A agrees to sell B his bicycle, and A delivers it to B. B gets title. A retains no property right. But B fails to pay A on time. B remains under a contractual obligation to pay A for the bicycle. B retains the bicycle, and B clearly gets a factual benefit from using it in her newspaper delivery business. Can A raise an obligation in B to make restitution to A for a restorable enrichment?[38]

Grantham and Rickett correctly answer the question in the negative. Subsequently, they try to apply the result reached in this case, apparently by way of an argumentum a fortiori, to a case where title does not pass:

B steals A's bicycle. A retains title, and the rights which inhere that title. B getsafactual benefit from using the bicycle in her newspaper delivery business. Can A raise an obligation in B to make restitution to him for a restorable enrichment?

In either case, they argue B is under no obligation to make restitution to A for unjustified (or 'restorable' as they call it) enrichment because in each case B is already under an existing obligation (in contract to pay A the price for the bicycle and in tort for conversion of the bicycle). In their view, these existing obligations in effect do exactly the same task as A would require of an obligation to make restitution in unjustified (or 'restorable') enrichment.

It is suggested their reasoning is misleading. In the first example, the true reason why B is under no obligation to make restitution for unjustified enrichment is because her holding of the benefits - property, possession and enjoyment of the bicycle - has a legal basis, for the contract of sale is valid. Consequently, B's enrichment is not 'unjustified'; she merely has to fulfil her contractual obligation. The law of unjustified enrichment, however, is not concerned with cases of contractual default. Where there is a valid contract between two parties, there cannot be any unjustified enrichment with regard to the subject matter of the agreement because the contract provides a legal basis for each party's retention of the benefit received from the other. Consequently, the first example is not concerned with the relationship between claims in property and claims in unjustified enrichment at all. In the second example, there is no legal basis for B's retention of the enrichment. Therefore in this case it remains to be demonstrated whether it is useful to give A a personal claim in unjustified enrichment besides the claim based on his right in rem.

Before considering the desirability of concurrent liability in these cases, it is necessary to determine whether there is concurrency at all. Concurrency depends largely on the legal consequences of a claim in unjustified enrichment. Only if the legal consequences of unjustified enrichment were congruent with those of claims in property, would there be true concurrency. Therefore, it is first necessary to consider the legal consequences of claims in property. It is important to distinguish proprietary remedies in common law and in equity. The common law does not recognise the rei vindicatio but has employed the law of torts for protecting property. The protection trespass, conversion and detinue provide is indirect, achieved through an obligation to pay damages for a wrong. However, courts have occasionally based gain-based remedies on trespass and detinue. Where a defendant has wrongfully used the plaintiff's land or wrongfully withheld possession, the plaintiff is entitled to claim an amount equivalent to the rental the defendant would have paid to occupy the land lawfully.[39] Where the defendant has wrongfully detained the plaintiff's goods, the plaintiff is entitled to claim the market rate of the hire of the goods, even where the goods were not damaged and the plaintiff would not in fact have hired them out.[40] Cases where the plaintiff does not suffer any loss but seeks surrender of gain only are known as 'waiver of tort'.[41] Nevertheless, the tort remains the actionable event and a prerequisite.[42] In equity, the defendant may obtain the remedy of specific restitution, but only if the court allows direct vindication of property rights, since equitable remedies are discretionary.[43] Equity also recognises gain-based remedies for a range of equitable wrongs such as breach of confidence or breach of fiduciary duty.[44] If the defendant has made a gain from the breach, he or she is liable to account for these profits, even if the plaintiff could not have made the gain.[45] If the legal consequences of unjustified enrichment were confined to monetary awards, it could be argued a claim in unjustified enrichment is unnecessary where trespass, conversion and detinue achieve the same result. If, however, a claim in unjustified enrichment allows a plaintiff to recover property in specie as of right, unjustified enrichment plays an important role because this has so far been possible in equity only, and equitable remedies are discretionary. This question will be considered later when the legal consequences of unjustified enrichment are discussed.

However, even assuming the legal consequences were identical it is suggested that it is useful to give plaintiffs a choice whether they want to enforce a claim in unjustified enrichment or in tort. For example, a claim in unjustified enrichment may be made where the plaintiff is precluded from bringing an action in tort because of a time bar or because the preconditions of the tort cannot be proven. Of course, this is permissible only if the rationale of reversing enrichments falls outside the purpose of the restriction on the tort action.[46]

Moreover, it is not always the case that there has been wrongful interference with the plaintiff's assets where the defendant has obtained something out of the plaintiff's estate without a legal basis for its retention. This may be the case where theft, fraud or duress, for example, has led to the transfer of wealth. In other cases, however, the lack of legal basis may have different reasons which cannot, or at least not in a doctrinal coherent way, be explained in terms of wrongful interference. For example, in cases of mistake, incapacity, illegality or nullity due to lack of legally prescribed form, the obligation to return what has been received cannot be founded on any suggestion that the defendant commits a wrong in refusing to restore it, 'since this simply begs the question why the defendant was obliged to restore it in the first place' .[47] It is therefore suggested that actions in property and in unjustified enrichment can be brought concurrently. Once this position is accepted, it is far easier to understand the scope of unjustified enrichment and its interaction with contract and tort.

IV. The Preconditions of Unjustified Enrichment as a Cause of Action

As regards the fundamental requirements of the legal concept, it is important first to determine the elements which a plaintiff is required to prove in order to successfully base a claim on unjustified enrichment. The leading common law texts on the subject suggest, with minor deviations, the following elements :[48]

(a) an enrichment of the defendant
(b) which is at the expense of the plaintiff; and
(c) which enrichment is unjust.

Each element will be considered in turn. It is convenient to start with the element of 'unjustness'.

Unjustness

The way this element has traditionally been interpreted might reflect a tendency in some common law systems to take too literally the concept of a general principle. The leading authors on the subject have engaged in determining various factors which render an enrichment unjust. Birks counts three categories of factors rendering an enrichment unjust.[49] Professor Burrows has identified not less than 11 circumstances which, in his view, define unjustness.[50] Cato distinguishes seven indicia that may point to unjustness.[51] Grantham and Rickett criticise these attempts to define unjustness because:

.. the term 'unjust' suggests a powerful normative force that is not exhausted by the recognised instances of recovery' [and] .. the inherently open-ended nature of a concept like 'unjust' means that there is little to prevent the recognition of more factors, based on the seductive appeal of unjustness.[52]

Indeed, the factors which are recognised as rendering enrichment 'unjust' describe rather than name the true reason why a defendant is under an obligation to make restitution. Replacing the term 'unjust' by 'restorable', as Grantham and Rickett suggest, is nothing but a cosmetic change in terminology. The question of why and when a plaintiff has a claim in unjustified enrichment against the defendant can be answered neither by saying because the defendant's enrichment is 'unjust' nor by saying because it is 'restorable'. These criteria simply beg the question of why the enrichment is 'unjust' or 'restorable'. Therefore, common law commentators have advanced all these factors and categories to establish a more general principle as to when an enrichment is 'unjust'. As a result, the law is in danger of becoming unnecessarily complex, diffuse, and even unintelligible, as Zimmermann has correctly pointed out.[53] Making unjustified enrichment a general principle that is both practicable and comprehensible requires a higher level of abstraction than commentators have reached by fitting the recognised restitutionary remedies into one of their proposed categories. Admittedly, Pomponius's natural justice is not a category that is practicable in a court of law. Natural justice may be the overarching moral or metaphysical dimension of the concept. However, a cause of action that is sought to be enforceable in courts needs definition and requirements which are more precise. Consequently, in order to establish unjustified enrichment as a general principle, the jurist has to consider the question of what all categories and unjust factors suggested have in common, not from a moral but from a legal point of view. The legal element that all categories and factors advanced by commentators have in common is that there has been a transfer of wealth from the plaintiff's to the defendant's estate without the defendant's retention of this benefit having a legal basis. Every transfer of wealth from one person to another's estate needs a legal basis to be retained. Where a plaintiff transfers assets to the defendant the legal basis for the retention of the benefit is usually found in a contract between plaintiff and defendant. If the defendant has obtained a benefit out of the plaintiff's estate and the defendant's retention of this benefit cannot be justified by a contract between the parties, then the retention of the benefit is usually justifiable only by operation of a rule of law allowing the retention (for example the rules of bona fide purchase or a statutory excuse of necessity in a case of need and urgency). Therefore, the most appropriate term for the subject as a whole is 'unjustified enrichment', describing a transfer of wealth that cannot be retained in law, rather than 'unjust enrichment', describing a transfer of wealth which is for one reason or another believed to be inequitable. Making unjustness a decisive criterion for a restitutionary remedy bears a potential threat to contractual liberty because lawyers might seek to make the terms of a contract subject to a test of fairness and reasonableness by asserting that a transfer of wealth, made under a contract, is unjust and restitution must be made.

If unjustified enrichment is explained in terms of a transfer of wealth from one person to another without the other's retention of the benefit having a legal basis, it becomes clear the remedies of quantum meruit and quantum valebat cannot be regarded as being based on unjustified enrichment. These remedies operate where there is a legal basis for the transfer of wealth, namely a contractual relationship. Although the contract may be incomplete because the parties have failed to specify the rate of payment or have failed to cure a formal defect, they nevertheless want the wealth to be transferred. The remedies of quantum meruit and quantum valebat complete an incomplete contract by providing a basis for retaining the benefit; they do not, however, reverse a transfer of benefits which cannot in law be retained. In these cases of incomplete contracts, the defendant's enrichment may be said to be 'unjust' in the sense of Pomponius's natural justice. However, the law of unjustified enrichment is not concerned with cases of incomplete contracts. In truth, the remedies of quantum meruit and quantum valebat are more appropriately described as contractual remedies.[54] The German Civil Code BGB includes similar provisions concerning the contract for services and the service contract. Paragraphs 612 II and 632 II read:

If the parties have failed to specify the rate of payment, and a statutory rate exists, this rate is due; if no such rate exists, an ordinary remuneration will be regarded as being agreed upon.[55]

Further, some New Zealand statutory provisions which are frequently believed to be related to the law of restitution must be excluded for the purposes of unjustified enrichment. These provisions are s 9 of the Contractual Remedies Act 1979, ss 6 and 7 of the Contractual Mistakes Act 1977, and s 94 A of the Judicature Act 1908. Section 9 of the Contractual Remedies Act 1979, and ss 6 and 7 of the Contractual Mistakes Act 1977, are not concerned with unjustified enrichment as defined in this paper because both provisions presuppose a valid contract. Unjustified enrichment is concerned with neither the preconditions nor the legal consequences of cancellation of contracts. Section 94A of the Judicature Act 1908 provides that relief is not to be denied only by virtue of the fact that a mistake was one of law. This section, however, does not provide any restitutionary remedies itself but presupposes relief could be granted if the mistake were wholly one of fact.

In Germany, Wilburg,[56] and 20 years later von Caemmerer,[57] argued the only workable and doctrinally coherent solution as to when an enrichment is unjustified lies in the separation of claims for unjustified enrichment based on transfer (Leistungskondiktion) and those claims based on enrichment that has occurred in any other way at the plaintiff's expense (Nicht-Leistungskondiktion). Wilburg and von Caemmerer's typological differentiation was so convincing that it has become the generally accepted framework of the German law of restitution, and has been applied by the Federal Supreme Court of Justice in an unchanged line of case law. The rule in § 812 BGB is now taken to have two largely independent sides: one, roughly speaking, quasi-contractual; the other quasi-tortious in nature.[58] It is broadly interpreted to read:

A person who has obtained something without legal basis (1) through a performance of another or (2) in any other way at his expense is obliged to surrender it.

This concept has solved the problems of fitting unjustified enrichment into the legal system alongside contract and tort, the question of when a benefit is obtained at the plaintiff's expense, and the problem of identifying the correct defendant. In fact, Goff and Jones in their leading text on restitution have suggested a distinction between cases 'where benefits have been voluntarily conferred' and cases 'where benefits are conferred in consequence of a wrongful act'.[59] This classification has been said to be more than vaguely reminiscent of the German concept of Leistungskondiktion and Nicht-Leistungskondiktion,[60] which shall be considered in the following.

The claim that is based on enrichment by transfer concerns the recovery of performances which have gone awry for some reason or other. To enforce this type of claim the plaintiff has to bring the transfer of wealth within the terms of the doctrine's central concept of performance. Performance in this context is every deliberate transfer by which one person enlarges the wealth of another. The underlying consideration is this: whenever someone renders performance to another person, he or she does so with a specific purpose in mind. These purposes are the following: discharging an obligation (solvendi causa), creating an obligation (obligandi causa), or making a gift (donandi causa). If the purpose of the performance, however, is not achieved through the transfer of wealth, or turns out to have been frustrated, the retention of the wealth by the defendant cannot be justified because there is no causa retinendi, no legal basis for keeping the benefit received.

The claim for unjustified enrichment 'in any other way' cannot be determined in terms of the transfer's purpose because there is no specific purpose in these cases. This claim can be divided into three categories. First, and most importantly, enrichment based on encroachment; secondly, enrichment that derives from the fulfilment of someone else's debt (Rückgriffskondiktion); and thirdly, enrichment that results from unauthorised expenditure on someone else's property (Verwendungskondiktion).[61] To illustrate the operation of the concept it is sufficient to consider the first and most important category. Since it is impossible to determine whether a transfer of wealth is unjustified in terms of the transfer's purpose, the relevant test as to when a transfer of wealth is unjustified is the question of who was entitled to the right with which there has been interference.

Examples:

(a) Student D finds student P's Canterbury Card on the floor in the law library. D uses the card to make 50 photocopies.
(b) Student D finds student P's car keys in the law library. D uses P's car for a ski-trip to Queenstown and returns the car on the following Monday.

The purpose of the right of ownership is to afford the owner the use and the fruits of his or her property. If anybody else derives a benefit from using or consuming this object, he or she has been enriched at the owner's expense and, provided there is no specific justification for him or her to retain the benefit,[62] he or she has to render restitution. Consequently, D has to transfer possession of the card/car and pay P for the value of 50 photocopies/the amount he would have paid to rent P's car for the weekend. These claims must not be confused with claims in tort for compensation for losses suffered. In the first example, P has, of course, also suffered a loss for which D in tort is obliged to compensate. In the second example, however, P might not have suffered a loss because he might not have planned to use the car at all and D's use has not resulted in deterioration of the car's value. Consequently, in German law P cannot sue D in tort for recovery of the amount D would have paid to rent P's car. Nevertheless, D was not entitled to enjoy the benefits of the car's use. Therefore, he is liable to P in unjustified enrichment.

Enrichment

Secondly, the element 'enrichment of the defendant' will be considered. In common law jurisdictions, this element is frequently seen as amounting to the question of whether the defendant has obtained a benefit.[63] The term 'benefit' is used as one means of governing the scope of unjust enrichment liability.[64] It is suggested, however, that the element 'enrichment of the defendant' is most unfortunate because it mingles two distinct questions of law. As mentioned, unjustified enrichment is concerned with the restoration of benefits which the defendant cannot in law retain as against the plaintiff.[65] Therefore, there are two distinct questions that arise: first, the question of what the thing is that the defendant has received from the plaintiff or at his or her expense, and secondly, the question of whether the defendant is (still) enriched through the transfer of this thing. While the first question concerns an element which a plaintiff needs to prove to succeed, the second question concerns a defence available to the defendant. It is therefore preferable to separate these questions. Klippert observes this distinction when he says:

Yet, while many things may constitute a benefit, whether in any given circumstances they actually do constitute a benefit, is dependent upon either the effect upon the recipient or the effect upon the circumstances of the recipient.[66]

Moreover, it is insufficient to say the defendant's enrichment is money or a particular object. In order to determine what the defendant is in law obliged to restore it is, of course, crucial first to determine precisely what the defendant has in law received. Consequently, where money or physical objects have been transferred, the defendant has acquired either property and possession, or possession only. As far as choses in action are concerned, the defendant has acquired release from an obligation. Only in cases where the defendant has received work or services is it legitimate to say the defendant has received the work or the services as such. Whether or not the defendant is enriched through the receipt is, as mentioned, a distinct question. In common law jurisdictions, there is dispute about what qualifies as abenefit that a defendant can possibly receive from the plaintiff or at his or her expense for the purposes of unjustified enrichment. While some commentators contend that benefit may include work and services,[67] Grantham and Rickett insist that benefit must be physically restorable and that the defendant must have acquired a legal right to enjoy the enrichment received.[68] Their view that the benefit received must be physically restorable amounts to the rule restitutio in integrum: restitution to the previous condition.[69] They seek to limit the scope of unjustified enrichment as a legal principle in general, and to exclude services which leave no tangible residue in particular.[70] They argue that 'in cases without marketable residuum, the plaintiff's claim is more accurately and properly described in terms of compensation'.[71] Goff and Jones, on the other hand, point out that the rule of restitutio in integrum is nowadays applied in the spirit of equity, so that a party may succeed with a claim for restitution even though precise restitution is impossible.[72] It is suggested that Grantham's and Rickett's argument is based on apetitio principii since they use their definition of 'restorable enrichment' to argue that the concept, by definition, operates only where the plaintiff seeks to regain something that 'he previously had and which passed from him to the other'.[73] Referring to a case where services have been rendered without a legal basis, they state correctly that 'the plaintiff seeks to be paid for the value of his performance'.[74] However, they fail to notice that the plaintiff's claim is not for compensation, because the plaintiff does not seek to recover damages for losses he or she has suffered due to an unlawful act on part of the defendant. Grantham and Rickett themselves observe this in a different passage of their book where they refer to money paid under mistake:

Further, the obligation cannot be founded on any suggestion that the defendant commits a wrong in refusing to restore the money, since this simply begs the question why the defendant was obliged to restore the money in the first place.[75]

In truth, the plaintiff seeks to recover the value of his or her performance by which the defendant is enriched if and because the performance has resulted in savings in expenses on part of the defendant. Since the aim is restoration of benefits which the defendant cannot in law retain as against the plaintiff, it is suggested that there is in fact no reason why services, or other benefits which cannot precisely be restored, should be excluded from the law of unjustified enrichment.

As shown above, it is also inappropriate to limit the scope of claims in unjustified enrichment to cases where the defendant has acquired a legal right to enjoy the enrichment received. The defendant can be said to be enriched without legal basis where he or she has acquired a legal benefit as well as where he or she has acquired a factual benefit. Therefore, it does not matter in principle whether the thing the defendant has received from the plaintiff or at his or her expense is property and/or possession of money or a physical object, release from an obligation, or a service.

Enrichment at the plaintiffs expense

Finally, the element 'at the plaintiff's expense' will be considered. It has been said an enrichment may be received at the plaintiff's expense either where there has been a subtraction from the plaintiff's assets and that what is claimed was transferred to the defendant, or where the defendant has made a gain which, though not resulting from a corresponding deprivation in the plaintiff's assets, could not have been made without the breach of some recognised obligation owed to the plaintiff.[76] In Canada, the element 'at the expense' is taken to mean a corresponding deprivation on the part of the plaintiff.[77] German courts, for some time, took a similar view.[78] These propositions, however, are not acceptable because the law of unjustified enrichment is not concerned with the compensation of losses. It is therefore not decisive whether there has been a subtraction from the plaintiff's assets. As far as unjustified enrichment is concerned, the decisive criterion is that the defendant has received something (or its value) to which the plaintiff is entitled.

In modern German law the element 'at the expense' is necessary only for identifying the correct defendant in cases where the benefit has not been transferred from the plaintiff to the defendant, particularly where the defendant has obtained the benefit through an unlawful act. In cases where the defendant has obtained the asset through a performance of the plaintiff, the requirement of the element 'at the plaintiff's expense' becomes redundant: the plaintiff is entitled to recover the wealth transferred from the person to whom he or she has rendered performance. This is unproblematic in two-party relationships. It is instructive, however, to consider the operation of this concept in three-party relationships.

Example:

S has sold his camera to B1, B1 sells it on to B2. B1 asks S to deliver the camera directly to B2; S delivers the camera to B2.

1200.wmf

Assume now that the contracts of sale between S and B1, and between B1 and B2 are defective; however, title to the camera has passed to B2. At first glance, one might be inclined to say that S may claim the camera from B2 (actio de in rem verso). However, the German Civil Code has excluded this claim. The doctrinal explanation is that S, by delivering the camera to B2, has performed his obligation to B1 and at the same time has effected B1's performance of his, B1's, obligation to B2. Consequently, S has no claim in 'unjustified enrichment by transfer' against B2. Moreover, S has no claim based on 'enrichment in any other manner' against B2 because B2 has not obtained the enrichment 'in any other way' at S's expense, but through a performance of B1. Where the defendant has obtained wealth through transfer from one person, the same wealth cannot be obtained 'in any other way' from another person. Consequently, S has no claim in unjustified enrichment against B2 at all. The underlying rationale for this result is threefold. First, no one shall be allowed to rely on the nullity of a relationship of performance to which he or she is not a party, or claim the nullity of such a relationship against a third party. Secondly, every partner to a contract must be able to retain his or her adverse rights and defence pleas against his or her contractual partner. Thirdly, the risk of insolvency must be allocated appropriately to ensure everyone bears the risk of insolvency of the person with whom he or she has chosen to contract; however, no one shall bear the risk of insolvency of third parties. Consequently, B1 has a claim in unjustified enrichment against B2 and S has a claim in unjustified enrichment against B1.

V. Legal Consequences

Once the elements a plaintiff is required to prove have been established, it is necessary to determine the legal consequences of a claim in unjustified enrichment. In New Zealand, equitable and common law remedies need to be distinguished. Where an enrichment has been found 'unjust', both personal and proprietary restitutionary remedies are principally available.[79] Recovery of property in specie is possible only with the help of the court, and then only in equity.[80] The proprietary remedies available are the remedial constructive trust and the equitable lien. While an institutional constructive trust presupposes a pre-existing property right, the remedial constructive trust is imposed by the court as a remedy in circumstances where, before the order of the court, no trust of any kind existed.[81] However, granting proprietary rights as a remedy in cases of unjustified enrichment is problematic. It has been observed that 'in the vast majority of cases, a proprietary remedy is sought where the defendant is insolvent and, indeed, is sought precisely because the defendant is insolvent'.[82] Watts points out the dangers implicated by an overly generous use of proprietary remedies in this field of law. He argues a court creating new property rights over the defendant's assets to give better effect to the plaintiff's personal claim may well deprive other creditors, particularly in the case of the defendant's insolvency.[83] In the case of an enrichment-debtor's insolvency, the disposition of his or her assets is subject to a collective and mandatory regime imposed by statute.[84] It is therefore suggested that granting proprietary remedies is not permissible in cases where the enrichment-debtor is insolvent and, in all other cases, should be exercised with the utmost caution. Commentators have correctly pointed out proprietary remedies cannot be granted merely because a personal remedy would be ineffective:

The factual matters which go to show the defendant has been improperly enriched at the plaintiff's expense cannot of themselves justify the imposition of a constructive trust. Establishing that the defendant has been restorably enriched justifies no more than a personal monetary remedy.[85]

Therefore, restitutionary claims are generally personal in nature and seek to impose upon the defendant an obligation to pay the plaintiff a sum of money.[86] Remedies commonly regarded as personal restitutionary remedies include quantum meruit, quantum valebat and money had and received. As shown above, quantum meruit and quantum valebat are more accurately described as contractual remedies.

However, accepting the proposition that the legal consequence of a claim in unjustified enrichment is generally a personal remedy does not necessarily mean the remedy has to be a monetary award. It is in fact disputable whether imposing on the defendant an obligation to pay the plaintiff a sum of money is always appropriate. The law of unjustified enrichment is concerned neither with the compensation for losses one party has suffered due to a wrongful act of another nor with reversing transactions in contractual relationships. It is concerned with situations where the defendant has received something out of the plaintiff's estate without the defendant's retention of this thing having a legal basis. Therefore, it can be argued that the law should generally impose upon the defendant an obligation to return that thing itself; only where this is impossible should the defendant be obliged to restore its value. First, imposing on an enrichment-debtor an obligation to return the thing received where his or her retention has no legal basis appears to be the most obvious remedy. It is therefore suggested it is not restitution in specie that needs to be justified, but allowing an enrichment-debtor to replace the value instead of giving back the thing received. This approach is a central idea of the law of unjustified enrichment as it has been developed in Roman law:

Quod indebitum per errorem soluitur, aut ipsum aut tantundem repetitur.
(When debts not due are discharged in error, recovery is either of what is actually given or its value in money.)[87]
Haec condictio ex bono et aequo introducta, quod alterius apud alterum sine causa deprehenditur, reuocare consuevit
(This condictio, grounded in the idea of what is good and fair, has become the means of reclaiming whatever, belonging to one in the absence of good cause is found in the hands of another.)[88]

The claim in unjustified enrichment (condictio) must not be confused with the claim for possession based on ownership (rei vindicatio). Although the thing the defendant has received and is obliged to return may be of a proprietary nature (for example possession and enjoyment of the object) or may on occasion be the property right itself (ownership), the claim in unjustified enrichment for surrender of these benefit is always personal in nature; it does not have its root in a right in rem. Where recovery in specie is impossible[89] or not permissible[90] the defendant has to replace the value of that which he or she received. It is important to note a claim in unjustified enrichment will not prevail over other personal claims in the case of the enrichment-debtor's insolvency.

Secondly, a monetary award as the only remedy available in law is inappropriate in cases where the enrichment-debtor's retention of the wealth received has no legal basis exactly because the enrichment-creditor lacks legal capacity to contract. In cases where minors and insane persons are involved, imposing on the enrichment-debtor an obligation to restore the value of the wealth received would undermine the rationale of the rules which render the transfer ineffective because it would achieve a result equivalent to the effectiveness of the transfer.

German law is strongly influenced, of course, by Roman law. The enrichment-debtor is primarily obliged to give back what he or she has received. Consequently, where physical objects have been transferred without legal basis the defendant may be obliged to transfer property and/ or possession; where debts have been discharged without legal basis the defendant is obliged to acknowledge his or her indebtedness. Additionally, the defendant is obliged to surrender the fruits and profits he or she has drawn from his or her unjustified receipt. Paragraph 818I reads:

The recipient must surrender fruits and profits drawn and also that which he has acquired either based on a right received or as a substitute for the destruction, damage or dispossession of an item received.[91]

Where work or services have been rendered or restitution in natura is impossible for any other reason, the defendant has to make restitution in money. Paragraph 818 II reads:

If the return of that which was received is no longer possible due to its condition, or if the recipient is on other grounds not able to return it, he has to replace its value.[92]

In German law, it is therefore somewhat inaccurate to say the aim of the law of unjustified enrichment is to restore the status quo ante between the parties in the sense of restitution to the previous condition (restitutio in integrum). Primarily, the defendant is obliged to give back what he or she has received. Moreover, the defendant has to surrender fruits and offspring and is entitled to deduct expenses he or she might have had with respect to the asset in question. For that reason, it is more accurate to say that the aim of the law of unjustified enrichment is to reach between the parties the status that would have existed in the normal course of events had the transfer of wealth never taken place. Determining this status undoubtedly involves factors such as risk allocation and fault. Restoring the status quo ante in terms of an economic settlement, and not in terms of a physical return of a particular thing or a mere compensation for its value was also the position in Roman law from which unjustified enrichment as a legal concept undoubtedly derives:

5. Ei, qui indebitum repetit, et fructus et partus restitui debet deducta impensa. 6. In frumento indebito soluto et bonitas est et, si consumpsit frumentum, pretium repetet. 7. Sic habitatione data pecuniam condicam, non quidem quanti locari potuit, sed quanti tu conducturus fuisses. 8. Si servum indebitum tibi dedi eumque manumisisti, si sciens hoc fecisti, teneberis ad pretium eius, si nesciens, non teneberis, sed propter operas eius liberti et ut hereditatem eius restituas.
(5. The plaintiff in the case of a supposed debt ought also to obtain restitution in respect of fruits and offspring, a deduction being made for expenses. 6. In a case of corn given when not due, quality must be taken into account, and where the corn is consumed, the value is recoverable. 7. Thus, if it is habitation that has been given, my condictio lies for money, not indeed for the amount it might have been hired out for, but the amount you would have paid to hire it. 8. If I have given you a slave not due, and you have manumitted him, you will not be liable, though you must make restitution in respect of his day works as a freed man and rights of succession to him.)[93]

The view taken by Roman and German law also solves the problem of concurrency in Grantham and Rickett's example of the stolen bicycle.[94] Ulpian has pointed out that:

Si pro fure damnum decisum sit, condictionem non impediri uerissimum est: decisione enim furti quidem action, non autem condictio tollitur. Furti action poenam petit legitimam, condictio rem ipsam. Ea res facit, ut neque furti action per condictionem neque condictio per furti actionem consumatur. Is itaque, cui furtum factum est, habet actionem furti et condictionem et uindicationem, habet et ad exhibendum actionem. Condictio rei furtiuae, quia rei habet persecutionem, heredem quoque furis obligat, nec tantum si uiuat seruus furtiuus, sed etiam si decesserit: sed et si apud furis heredem diem suum obiit seruus furtiuus uel non apud ipsum, post mortem tamen furis, dicendum est condictionem aduersus heredem durare. Quae in herede diximus, eadem erunt et in ceteris successoribus. (The fact that someone meets his liability as a thief does not obstruct the condictio. That is the correct view. For the settlement extinguishes the action on theft but not the condictio. Nor vice versa. Hence, the victim of theft has the action on theft, the condictio and the vindicatio. And he has the action for production too. Because the condictio for a stolen thing has the aim of recovering the asset, it also binds the thief's heir, and not only while the stolen slave is still alive but also after he has died. Moreover, it is right to say the condictio endures against the heir both in the case in which the stolen slave meets his end in the hands of the thief's heir and where he dies after the thief's death, albeit not in the hands of the heir. What we have said of heirs applies also to other successors.)[95]

He goes on to say that:

In re furtiua condictio ipsorum corporum competit: sed utrum tamdiu, quamdiu exstent, an uero et si desierint esse in rebus humanis? Et si quidem optulit fur, sine dubio nulla erit condictio: si non optulit, durat condictio aestimationis eius: corpus enim ipsum praestari non potest.
(In the context of theft, the condictio lies for the very things stolen, but does it lie only so long as they still exist or even after they have perished from the face of the earth? Without doubt, there will be no condictio if the thief tendered them. If not, the condictio survives for the value since the object itself cannot be made over. )[96]

Applying what has been said so far to Grantham and Rickett's examples,[97] the solution is as follows. In the first example, the benefits B has obtained out of A's estate are property, possession and enjoyment of a bicycle. However, these are benefits which B in law can retain as against A because there is a valid contract between A and B for the sale of the bicycle. Consequently, A has a claim against B in contract for the price, however not in unjustified enrichment for the benefits received. In the second example, the benefits B has obtained out of A's estate are possession and enjoyment of the bicycle only because A has retained title. An owner is entitled to the benefits of possession and enjoyment, unless either the owner has deliberately disposed of these benefits in favour of a third party or the operation of a rule of law deprives the owner of these benefits. In the present case, B has stolen A's bicycle to use it in her newspaper delivery business. Consequently, possession and enjoyment of the bicycle are benefits which B has received at A's expense. Moreover, B is enriched because she has saved the expense of renting a bicycle to use in her newspaper delivery business. Therefore, A has a claim in unjustified enrichment for recovery of possession and the value of the bicycle's use. In German and Roman law, he would also have the rei vindicatio to recover possession of his bicycle and a claim in tort, if the bicycle has deteriorated in value in the course of B's use.

VI. Defences Available to the Defendant

Once the plaintiff has shown the defendant has received something out of his or her estate for the retention of which there is no legal basis, it is necessary to determine the defences available to the defendant. Since the law of unjustified enrichment is not concerned with the compensation for losses but with the stripping of benefits, the defendant is generally under an obligation only insofar as he or she is actually enriched. The defendant may deny his or her obligation because:

(a) he or she has altered his or her position in reliance on the validity of the transfer, or
(b) the asset in question has been lost or destroyed without a substitute having been acquired, or
(c) he or she has not needed or not wanted the benefits transferred. Change of position

The defences mentioned in points (a) and (b) amount to the defence of change of position or loss of enrichment which is recognised in both New Zealand and German law. In New Zealand, a defence of change of position is found in s 94B of the Judicature Act 1908. This provision reads:

Relief, whether under section 94A of this Act or in equity or otherwise, in respect of any payment made under mistake, whether of law or of fact, shall be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.

However, the provision's field of application is limited. First, it applies only where money has been paid. Secondly, it does not operate where the lack of legal basis results from an event other than a mistake. Thirdly, the provision has been held to require active detrimental reliance.[98] Consequently, the defendant must show he or she has acted detrimentally after and on the faith of the receipt; detriment due to inaction is not sufficient.[99] To overcome the limited scope of s 94B the New Zealand courts have held a common law defence of change of position to be part of the law of New Zealand. In Goss v Chilcott[100] the Privy Council ignored s 94B and applied the common law defence of change of position. This position was subsequently adopted by the New Zealand Court of Appeal in National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd.[101] In this case, the court held that s 94B did not purport to be a code, and that it had been overtaken by the development of a common law defence of change of position which would operate 'parallel with s 94B and irrespective of whether that section itself applies'.[102] By this decision, the court has effectively rendered s 94B redundant.

The common law defence of change of position can be said to have its origin in the famous case of Moses v Macferlan[103] where Lord Mansfield stated the defendant may also 'defend himself by every thing which shows that the plaintiff, ex aequo et bono, is not entitled to the whole of his demand, or to any part of it'.[104] However, throughout the eighteenth and nineteenth centuries Lord Mansfield's dictum was either ignored or on occasion disapproved of.[105] It was not until 1991 that the dictum received the recognition it deserves and Lord Mansfield's view finally triumphed. In Lipkin Gorman (a firm) v Karpnale Ltd,[106] the House of Lords accepted the existence of a common law defence of change of position. In this case, Lord Goff said:

In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution.[107]

Lord Goff's speech reveals two aspects to the defence. First, the defendant may claim he or she is no longer enriched due to a change of his or her position on the faith of his or her receipt. This implies that expenditure, which the defendant would have incurred in any event, cannot be relevant to the defence. Further, the defence is not available to a defendant 'who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts[108] entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer.'[109] Moreover, the defence is a pro tanto one: the defendant's enrichment is reduced only to the extent that the defendant's total wealth is reduced. Where the defendant simply consumes the enrichment, the defence will operate to the full extent of the enrichment; however, where the defendant acquires a substitute for the enrichment, the defendant's position is changed only to the extent that the value of the substitute is less than the value of the enrichment expended.[110]

Secondly, the defendant may assert the plaintiff's claim should be denied although he or she remains enriched, because of the injustice the success of the plaintiff's claim would inflict upon him or her.[111] It has been said, however, that general hardship or poverty on the part of the defendant, which is unrelated to the receipt of the enrichment, must be rejected as a basis for the defence.[112] Nevertheless, it is likely that the New Zealand courts will apply the common law defence of change of position in the same way as they have applied s 94B of the Judicature Act 1908 and will 'look at the equities from the point of view of both sides'.[113] In National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd,[114] Thomas J rejected the opinion that the change of position defence should rest on the net enrichment, because in his view 'unjust enrichment involves more than merely stripping defendants of their enrichments. Factors such as risk allocation and fault will inevitably intrude'.[115] It is suggested this flexible approach is superior to the approach taken by German courts, particularly where the German Saldotheorie fails to operate. In Germany, since the concept of Wilburg and von Caemmerer has been adopted it has become clear the most important question in the law of unjustified enrichment is no longer whether an enrichment is unjust or its retention is unjustified, but whether or not the defendant can be said to be enriched by the transfer of wealth. Consequently, the most frequent defence against a claim in unjustified enrichment in modern German law is not a defendant's assertion that his or her retention of the wealth transferred does in fact have a legal basis, but that he or she is no longer or has never been enriched. Generally, the German position is an enrichment-debtor should never be required to dip into his or her own pocket. The relevant section of the German Civil Code BGB (§ 812 III) reads as follows:

The obligation to return [that which was received] or replace its value falls away insofar as the recipient is no longer enriched.[116]

Consequently, an enrichment-debtor merely has to prove the gain which has accrued to his or her estate through the transfer of the wealth has been lost to escape liability. An enrichment-debtor is precluded from claiming the loss of his or her enrichment only if the plaintiff's claim had been pending before court (§ 818 IV BGB), or if he or she had known that there was no legal basis for retaining the benefit (§819I BGB) at the time the enrichment was lost. German law focuses on the estate of the enrichment-debtor as a whole, and defines enrichment as the surviving net gain Saldo after comparing the difference between the current value of the debtor's estate with the value that it would have had but for the enriching fact.[117] Consequently, the enrichment-debtor may set off against the plaintiff's claim not only the loss of that which has been received (or the value for which it was exchanged), but also any pecuniary loss causally connected with the enriching fact. This position leads to an unjustifiable discrimination against the enrichment-creditor. Therefore, the German courts have developed the so-called Saldotheorie to alleviate the harshness which has occurred, particularly in cases of defective synallagmatic agreements. The operation of this theory may be illustrated by the following example: S sells his camera which has a market value of $500 to B for $700. Both S and B perform in terms of the agreement; it turns out, however, that the agreement is void.[118] Normally, S could reclaim the camera from B and B could reclaim the purchase price. If, however, the camera were lost in B's hands, if the wording of § 818 III BGB were taken literally, S would have to return the purchase price without having a corresponding claim against B. The Saldotheorie provides that S may subtract the value of his performance from the amount owed to B as a loss of his enrichment. In effect, S would be liable to pay B $200. If, however, the camera had a market value of $700 and had been sold for $500 B would not be liable to pay $200 to S; the Saldotheorie is always a shield, never a sword.

The Saldotheorie may alleviate the harshness of § 818 III BGB in some cases and, as far as it operates, may provide a useful guideline for New Zealand courts in exercising their wide discretion. However, its weaknesses are evident. First, it does not lead to appropriate results where B has not yet paid for the camera, because then B has no claim against S for the purchase price from which S could subtract the value of the camera as his loss of enrichment. Secondly, the application of the doctrine is inappropriate where the agreement is void or voidable because S has exercised duress or has defrauded B, for S does not deserve the protection the doctrine would grant him. Thirdly, the doctrine is inapplicable where the agreement is defective because persons without legal capacity to contract, namely minors and insane persons, are involved. In such cases, the application of the Saldotheorie would undermine the rationale of the provisions which render the agreement defective because it would achieve a result equivalent to the effectiveness of the contract. Therefore, anew doctrine (which has not yet, however, moved the German Federal Supreme Court of Justice) seeks to focus more specifically on that which was received, rather than on the enrichment-debtor's entire estate. Some commentators argue that the basic principle of the law of unjustified enrichment should be that that which was received must be returned and that loss of enrichment may be claimed only as an exceptional defence in circumstances where care has been taken to ensure that it is equitable to place the risk for the loss of enrichment on the creditor.[119] The dispute between the two extreme positions, the view that whenever something not due is received, it must be given back, on the one hand, and the view that one cannot be expected to give back what one no longer has, on the other, has its root in Roman law, where the central passage, D 12.6.26.12, reads as follows:

... et interdum licet aliud praestemus, inquit, aliud condicimus: ut puta fundum indebitum dedi et fructus condico: vel hominem indebitum, et hunc sine fraude modico distraxisti, nempe hoc solum refundere debes, quod ex pretio habes; vel meis sumptibus pretiosiorem hominem feci, none aestimari haec debent?
(.. he also points out that it does happen on occasion that we can bring a condictio for something different from what we handed over. For instance, I give land not owed and bring a condictio for its fruits; or I give a slave not owed, and you sell him honestly for a small sum in which case you certainly need only give back what (a) you have left from the price/ (b) you have received as price; or again, if I have made a slave more valuable by expenditure upon him, must not this too be valued?)

The two grammatically possible translations of quod ex pretio habes illustrate the two views taken. Some commentators take the passage in D 12.6.26.12 to mean 'what you have received as price'.[120] These commentators argue the enrichment-debtor's primary obligation is to return a given object in concreto. Consequently, where the enrichment-debtor has obtained specific goods he or she is under an obligation to return these goods themselves. If they have been sold, the price must be given back since the price merely took their place. If specific goods have been lost or destroyed, the enrichment-debtor is freed, for restitutio in concreto is no longer possible (impossibilium nulla est obligatio). If, however, money or other fungibles have been lost the enrichment-debtor will not be freed, for fungibles cannot perish.

Others, however, translate 'what you have left from the price',[121] so that the obligation of the enrichment-debtor is restricted to the remaining enrichment. Consequently, an enrichment-debtor is entitled to claim loss of enrichment with respect to not only specific goods, but also fungibles and money. Although the former translation might have been the original one,[122] nowadays the latter predominates in modern German law. It is suggested, however, that the common law defence of change of position and its two aspects as Lord Goff has set out in Lipkin Gorman are superior to either solution. Thomas J is correct in saying that 'unjust enrichment involves more than merely stripping defendants of their enrichments. Factors such as risk allocation and fault will inevitably intrude'.[123] Therefore, German courts should adopt a more flexible approach to when a defendant can be regarded as having changed his or her position.

Unsolicited benefits

The defendant may also claim he or she has either not wanted or not needed the wealth received. The well-known words of Pollock CB in Taylor v Laird provide an example:

Suppose I clean your property without your knowledge, have I then a claim on you for payment? How can I help it? One cleans another's shoes; what can the other do but put them on?[124]

The common law tends to solve this problem on the grounds of subjective devaluation and under the heading of the defendant's enrichment. Birks[125] and Goff and Jones[126] have identified two main tests to establish a benefit: in cases of unsolicited benefits the defendant will be regarded as enriched if the wealth transferred is either an incontrovertible benefit or has been freely accepted. The category of incontrovertible benefit is straightforward and operates mainly where money or things of similarly indisputable value have been transferred. The category of free acceptance, on the other hand, is more problematic. In Birks' words, 'a free acceptance occurs where a recipient knows that a benefit is being offered to him non-gratuitously and where he, having the opportunity to reject, elects to accept'.[127] It is suggested, however, that the category of free acceptance has nothing to do with the law of unjustified enrichment. Where an offer is accepted there is a contract, not an unjustified enrichment. If the contract is nevertheless incomplete or unenforceable for formal reasons, the appropriate remedies are quantum meruit and quantum valebat, not unjustified enrichment. The German law speaks of imposed enrichment: aufgedrängte Bereicherung. It is clear that a defendant is not obliged to make restitution whenever the plaintiff transfers unsolicited benefits. German law has developed two ways to deny a plaintiff's claim in such circumstances. First, the courts may determine the defendant's enrichment subjectively. This approach is similar to the one taken in common law; it is, however, doctrinally somewhat incoherent. The defendant will not be liable to make restitution if the wealth received does not mean any benefit to him or her from the defendant's point of view. Consequently, in Pollock's example, one has to argue that the cleaning of his shoes does not mean a benefit to the defendant. However, given the cleaning of someone else's shoes has an objective market value, this argument is convincing only if the defendant either does not care whether or not his shoes are clean or if he intended to dispose of his shoes in any event. In any other circumstances, it is difficult to deny the defendant's enrichment in a doctrinal coherent way. Therefore, a second argument has been put forward which concerns unsolicited services in particular. A plaintiff's claim will be denied if the defendant had a right to take defensive measures in order to prevent interference with his or her property. Consequently, in Pollock's example, the plaintiff's claim will be denied if the defendant had a right to restrain the plaintiff from cleaning his shoes had he known of the plaintiff's intention. The unsolicited service is regarded an unlawful interference with another's property.

VII. Conclusion

In the absence of an established principle of unjustified enrichment the common law tends to solve the problems of recovering benefits which cannot in law be retained on the grounds of either tort or contract law. Consequently, the law is faced with the difficulty of imposing tortious or contractual liability in cases where it is hard to establish it in a doctrinally coherent way. In cases of indebitatus assumpsit it can hardly be said to be an agreement. In cases where the plaintiff seeks to recover from the defendant the amount the defendant would have paid had he or she rented or hired the plaintiff's property, one can hardly see the primary obj ective of tort law — the compensation for losses — being achieved. Zimmermann has noticed that 'the opinion appears to be gaining ground these days that the recognition of generalised principles of enrichment liability does not necessarily lead to anarchy, but is in fact the only way of sorting out the present mess'.[128] Roman law and its modern German application, on the one hand, and the example of common law jurisdictions such as Canada and England, on the other, may indicate that unjustified enrichment has the potential to become more than an organising principle in New Zealand.


[*] The author is currently a trainee in the German judicial service. He graduated from the Masters in Law programme at the University of Canterbury in 2001. He wishes to thank Cynthia Hawes for her support and advice.

[1] T Mommsen, P Krüger, A Watson, The Digest of Justinian (1985), D. 12.6.14.

[2] Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124, 155.

[3] National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211, 215 (Henry J).

[4] P Birks, An Introduction to the Law of Restitution (1985) 2.

[5] Such as Williams v Tedcastle [1994] 1 NZLR 85; Goss v Chilcott [1996] 3 NZLR 385; Fortex Group Ltd (in receivership and liquidation) v MacIntosh [1998] 3 NZLR 171; National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211.

[6] Most recently, R B Grantham and C E F Rickett, Enrichment & Restitution in New Zealand (2000).

[7] See Deglman v Guaranty Trust Co of Canada and Constantineau (1954) 3 DLR 785; Carleton v Ottawa (1965) 52 DLR (2nd) 220; Storthoaks v Mobil Oil Canada Ltd (1975) 55 DLR (3rd) 1; Pettkus v Becker (1980) 117 DLR (3rd) 257.

[8] See Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 (HL). More recently, Kleinwort Benson Ltd v Lincoln City Council [1998] UKHL 38; [1999] 2 AC 349 (HL); Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221 (HL).

[9] See David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 (HCA).

[10] See Eiendomsagentskap v Cantamessa [1991] (2) SA 712 (T) (Van Zyl J); Willis Faber Enthoven Pty Ltd v Receiver of Revenue [1991] ZASCA 163; [1992] (4) SA 202 (A).

[11] Equiticorp Industries Group Ltd (in statutory management) v The Crown (Judgment No 47) [1998] 2 NZLR 481, 709-10; Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568, 576 (CA).

[12] Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568, 576 (CA).

[13] Birks, An Introduction to the Law of Restitution, above n 4, 4; L Goff and G Jones, The Law of Restitution (5th ed, 1998); A S Burrows, The Law of Restitution (1993).

[14] G B Klippert, Unjust Enrichment (1983).

[15] T W Bennett et al, Unjustified Enrichment (1992); P W L Russell, Unjustified Enrichment (1996).

[16] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6.

[17] Ibid 59.

[18] Ibid 20.

[19] For the history of indebitatus assumpsit see Goff and Jones, above n 13, 5.

[20] Goff and Jones, above n 13, 9.

[21] United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Deglman v Guaranty Trust Co of Canada and Constantineau (1954) 3 DLR 785; Mason v State of New South Wales [1959] HCA 5; (1959) 102 CLR 108; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1986-1987) 162 CLR 221; Thomas v Houston Corbett & Co [1969] NZLR 151.

[22] [1996] UKHL 12; [1996] AC 669.

[23] Compare and contrast Brown & Doherty Ltd v Whangarei County Council (1988) 2 NZBLC 103, 095 and Pendergrast v Chapman [1988] 2 NZLR 177.

[24] R Zimmermann, The Law of Obligations, Roman Foundations of the Civilian Tradition (1996) 887.

[25] My translation.

[26] W Wilburg, Die Lehre von der ungerechtfertigten Bereicherung nach oesterreichischem und deutschem Recht (1934).

[27] Lord Goff of Chieveley in the foreword to R B Grantham and C E F Rickett, Enrichment & Restitution in New Zealand (2000).

[28] P Birks, 'Property and Unjust Enrichment: Categorical Truths' [1997] New Zealand Law Review 623, 633; D P Visser, 'Rethinking Unjustified Enrichment' in T W Bennett et al, Unjustified Enrichment (1992) 203, 215.

[29] Zimmermann, above n 24, 891-2.

[30] Ibid.

[31] [1975] 1 NZLR 356, 367.

[32] For example, Brandeis Goldschmitt & Co Ltd v Western Transport Ltd [1982] 1 All ER 28; Strand Electric & Engineering Co v Brisford Entertainment Ltd [1952] 2 QB 246; Swordheath Properties Ltd v Tabet [1979] 1 All ER 240.

[33] W Swadling, 'A Claim in Restitution?' [1996] LMCLQ 63, 65.

[34] P Birks, 'Property and Unjust Enrichment: Categorical Truths', above n 28, 623-59.

[35] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 41.

[36] Ibid 34.

[37] Ibid 41. See also R B Grantham and C E F Rickett, 'Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?' [1997] New Zealand Law Review 668.

[38] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 40.

[39] Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538; Yakamia Dairy Pty Ltd v Wood [1976] WAR 57.

[40] Chesworth v Farrar [1967] 1 QB 407; Kiwi Packaging Ltd v Isaac (1997) 8 NZCLC 261, 399.

[41] United Australia Ltd v Barclays Bank Ltd [1941] AC 1.

[42] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 475.

[43] Birks, 'Property and Unjust Enrichment: Categorical Truths', above n 28, 623-50.

[44] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 474.

[45] Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (HL).

[46] P Watts, 'Unjust Enrichment the New Cause of Action' in New Zealand Law Society Seminar (1990) 12.

[47] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 6.

[48] Ibid 8.

[49] These are (a) non-voluntary transfer, (b) free acceptance, and (c) others. Birks, above n 4, 99.

[50] These are mistake, ignorance, duress, exploitation, legal compulsion, necessity, failure of consideration, incapacity, illegality, ultra vires and retention of property belonging to another. See Burrows, above n 13.

[51] These are inofficiousness, free acceptance, shared mistake or misapprehension, total failure of consideration, misconduct, discretion and countervailing considerations. C Cato, Restitution in Australia and New Zealand (1997) 14.

[52] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 16-18.

[53] Zimmermann, above n 24, 891-2.

[54] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 403.

[55] My translation.

[56] Wilburg, above n 26.

[57] E von Caemmerer, 'Grundprobleme des Bereicherungsrechts' in Gesammelte Schriften, Band I (1968) 374.

[58] Zimmermann, above n 24, 891.

[59] Goff and Jones, above n 13, 42.

[60] Zimmermann, above n 24, 895.

[61] von Caemmerer, above n 57, 378.

[62] For example, as where the owner has allowed the other party to use or consume his or her object.

[63] Cato, above n 51, 8.

[64] Klippert, above n 14, 69. 65 Ibid.

[66] Ibid 70.

[67] Ibid 8. Birks, An Introduction to the Law of Restitution, above n 4, 109; Goff and Jones,

above n 13, 240.

[68] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 58-63.

[69] Ibid 362. Understand restitutio in integrum as meaning 'counter-restitution'.

[70] Ibid 61.

[71] Ibid.

[72] Goff and Jones, above n 13, 273.

[73] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 61.

[74] Ibid.

[75] Ibid 6.

[76] Watts, above n 46, 6.

[77] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 61.

[78] Zimmerman, above n 24, 890.

[79] Goff and Jones, above n 13, 72.

[80] Ibid 82.

[81] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 412.

[82] Ibid 417.

[83] Watts, above n 46, 37.

[84] The Insolvency Act 1967 (NZ); The Companies Act 1993 (NZ).

[85] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 415.

[86] Goff and Jones, above n 13, 72.

[87] Mommsen, Krüger, Watson, above n 1, D. 12.6.7.

[88] Ibid D.12.6.66.

[89] For example, the object has been sold, lost or destroyed.

[90] For instance, the enrichment-debtor is insolvent. 91 My translation.

[92] See D P Visser, 'Responsibility to Return Lost Enrichment' in T W Bennett et al, Unjustified Enrichment (1992) 175, 186.

[93] Mommsen, Krüger, Watson, above n 1, D 12.6.65.5-8.

[94] See above part III.

[95] Mommsen, Krüger, Watson, above n 1, D. 13.1.7.

[96] Ibid D.13.1.8.

[97] See above part III.

[98] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 335.

[99] Westpac Banking Corporation v Nangeela Properties Ltd [1986] 2 NZLR 1, 5 (CA); Re Paul Finch Holdings Ltd (1989) 4 NZCLC 64, 774; Re Bee Jay Builders Ltd [1991] 3 NZLR 560.

[100] Goss v Chilcott [1996] 3 NZLR 385, 391-2.

[101] [1999] 2 NZLR 211.

[102] [1999] 2 NZLR 211, 232 (Tipping J).

[103] [1760] EngR 713; (1760) 2 Burr 1005; 97 ER 676 (KB).

[104] Ibid 679.

[105] Standish v Ross [1849] EngR 319; (1849) 3 Exch 527; Durrant v The Ecclesiastical Commissioners (1880) 6 QB 234; Bayliss v The Bishop of London [1913] 1 Ch 127; [1911-1913] All ER 273; R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670.

[106] [1991] 2 AC 548.

[107] Ibid 579.

[108] This approach is stricter than the one taken by German law. In German law, only actual knowledge precludes the defendant from relying on the defence of loss of enrichment.

[109] Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 580.

[110] Ibid 560.

[111] For example, RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230.

[112] Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 338.

[113] Thomas v Houston Corbett & Co [1969] NZLR 151, 164 (North P).

[114] [1999] 2 NZLR 211.

[115] Ibid.

[116] Visser, above n 92, 186.

[117] Ibid 187.

[118] Nevertheless, property has passed because of the principle of the abstract nature of rights in rem; in common law systems 'void' must be replaced by 'voidable'.

[119] Visser, above n 92, 187.

[120] Zimmermann, above n 24, 899; Grantham and Rickett, Enrichment & Restitution in New Zealand, above n 6, 61.

[121] Mommsen, Krüger, Watson, above n 1.

[122] Visser, above n 92, 180.

[123] National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211.

[124] (1856) 25 LJ Ex 329, 332.

[125] Birks, An Introduction to the Law of Restitution, above n 4, 114-24.

[126] Goff and Jones, above n 13, 16-32.

[127] Birks, An Introduction to the Law of Restitution, above n 4, 265.

[128] Zimmermann, above n 24, 894.


NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.nzlii.org/nz/journals/CanterLawRw/2002/12.html