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English law of restitution

desirable and also identify any potential disadvantages that might result from them.


The law of restitution is rooted in the concept of restoring gains, which would result in unjust enrichment of the defendant. Accordingly, the central objective of restitution is to remove from a defendant the accruing of increased wealth or benefit, which the law prescribes that the defendant is not being entitled to . Furthermore, the basis of returning the “unjustified”�? benefit is rooted in the principle that “it would be wrong to allow him to retain it for nothing “�?.

However, the law of restitution is often obfuscated through the court’s fusion of contract and equity based remedies justified under the head of restitution and generally, the courts have been unwilling to recognise restitution as a separate principle of recovery due to alternative common law methods of recovery such a quantum valebat and quantum meruit, the doctrine of waiver in tort and equitable claims . As such, Tettenborn argues that “faced with this situation it is not surprising that the judges chose to remain within the existing categories of recovery rather than postulate any new theory of liability.

The focus of this paper is to critically evaluate the law of restitution and consider possible reform. To this end, I shall firstly consider the essential principles of restitution and it is submitted that the inherent problem with restitution based claims is the doctrinal difficulty of quantifying the concept of “unjust enrichment”�?. As such, the underlying objective of restitution has often been confused with equitable trust law principles, compounding legal certainty in this area as evidenced by the swaps litigation in decisions such as

Westdeutsche Landesbank Girozentrale v Islington LBC

Accordingly, in evaluating the law of restitution and possible reform, I shall contextually consider the swaps litigation and submit the proposition that possible reform in restitution should consider categorisation of according to the nature of the dispute and consider the common intention of the parties in considering the concept of unjust enrichment.

Restitution Principles: Overview & Critical Commentary

As highlighted above, the underlying basis for restitution under English law is to protect a claimant against the unjust enrichment of a defendant. However, in practice the inherently ambiguous nature of what constitutes “unjust”�? in order to merit recovery has led the judiciary to obfuscate the distinction between restitution, equity and contractual principles for recovery . This in turn has fuelled academic debate as to the appropriate role and applicability of restitution in practice.

On the one hand, it is submitted that there is an inherent doctrinal problem with applying restitutionary principles in practice as the courts have often lent towards the creation of the somewhat artificial “quasi-contract”�? paradigm which is criticised for being “inherently vacuous, reflecting little more than a convenient pigeon hole for ideas that did not fit neatly anywhere else”�? . The problem with the quasi-contract justification is that defendants in restitution claims were being required to make payment on grounds of wrongdoing without any supporting doctrinal justification for payment to the claimant in coherent legal principles . As such, the unconscionability parallels with equitable tracing and trust law have been incorporated to justify restitution based claims without reference to legal principles.

However, this has led to some questionable decisions in practice such decisions by the House of Lords in Sinclair v Brougham where the term quasi contract was utilised to assert that a deposit holder who had borrowed money ultra vires could not be sued for money received and used “for no better reason than that it could not have been made liable in contract”�? . Conversely, this rationale was rejected in Westdeutsche Landebank Girozentrale v Islington BC.

Nevertheless, the judiciary does acknowledge a legal principle of restitutionary claims based on unjust enrichment and decisions in Lipkin Gorman v Karpnale Limited and Woolwich Building Society v Inland Revenue Commissioners (No.2) confirm that restitution based claims for unjust enrichment are a distinct category of law.

Additionally, the arguable advantage of the law of restitution is that it can be utilised as a basis for created new heads of recovery where pre-existing principles cannot accommodate a wrongdoing. For example, in More James (Limited) v University of Ottawa the law of restitution was utilised to enable claims for overpaid taxes and it was asserted that “the categories of restitution are never closed”�?.

However, whilst such an approach enables restitution to remain a flexible arm of the law for recovery; it is precisely this potential advantage of restitution that has been confused with pre-existing principles of contract and equity to result in controversial decisions. On the one hand, the inherent advantage of a free standing ground for recovery is the ability to accommodate novel situations where entrenched legal principles of tort, equity and contract cannot cover. Conversely, the problem is the applicability of the claim and nature of “wrongdoing”�? doctrine in practice as evidenced by the Swaps litigation discussed in Section 3 below.

In general terms, the doctrine of restitution is a three stage process requiring the following:

“1) the defendant obtained an enrichment;

2) there is an unjust factor indicating that enrichment is unjustified and ought to be reversed; and

3) the gain was made at the claimant’s expense or some reason that the claimant has title to sue for its return”�?.

However, not any enrichment will be applicable and prime examples are receipt of property. Nevertheless, this has caused problems in practice as restitution is rooted in unjust enrichment of tangible property and struggles with intangible assets.

Moreover, the most consistent problem with defining the boundaries of restitution is in addressing what constitutes “unjustified”�? and Johnstone and Zimmerman pose the essential problematic question thus:

“What is an enrichment and when is it unjustified? To state that something amounts to unjustified enrichment is merely a conclusion, that because the enrichment is unjustified it should be returned, restored or made over to the person properly entitled to it. The conclusion is in need of a normative argument”�?.

It is submitted that this observation lies at the heart of the central problems with applying restitutionary remedies in practice and thereby supports the argument for applying categorised legal principles. In practice categories of restitution have already developed with differences in approach such as the approach to property claims and claims for services provided at the encouragement of the defendant. However, without formal categorisation, the judiciary have effectively had to implement an ad hoc approach, undermining legal certainty and blurring the distinction between contract and equity.

For example, claims for “unjust enrichment”�? on grounds of unpaid services being provided have been criticised for confusing the quantum meruit basis for claim, compounded by the intrinsic controversy as to whether such services constitute measurable “benefits”�? for a restitution based claim. To this end, Tettenborn refers to the arguments of Beatson that “even if services are freely accepted, they cannot in the absence of some tangible financial benefit to the defendant be regarded as enriching him at all”�?.

To enable a claimant to claim in restitution in such services cases is overwhelmingly rooted in the desire to address unconscionability without measuring what the actual benefit is, which is the doctrinal crux of recovery in restitution. As such, Tettenborn highlights the point that “the question whether the defendant has been benefited is logically prior to the issue whether he ought to be liable in restitution”�? . This is the crux of the issue in restitution and highlights that notwithstanding the meritorious objectives of restitution in theory, the inherent problem of defining benefit has lent itself to the necessity of a case by case determination and categorisation of remedies under the umbrella of restitution.

However, this has compounded the need for legal certainty and fuelled arguments for reform of the law of restitution, particularly as a result of the swaps litigation and concomitant impact on recovery of money in financial transactions, which is a legal minefield. Indeed, McDermott et al argue that the swaps litigation has effectively “resulted in more litigation and has reshaped and especially restitution law. The editors consider that the swaps saga can be said to have brought the law of restitution onto maturity because it has swept aside the two centuries’ old mistake of law rule, and given a boost to the development of parallel development restitutionary defences”�?.

Accordingly, I shall now consider the swaps litigation.

Swaps litigation

The swaps litigation arguably brought the issue as to the appropriate role of restitution as a form of recovery outside the parameters of equity. Hudson comments that the “local authority swaps cases have spawned an enormous commentary on both the public law aspects and on the issues concerning equity, restitution, property which they also raised”�?.

If we consider the leading case of Westdeustche Landesbank Girozentrale v Islington LBC this fundamentally raised issues as to whether a person’s subjective knowledge and conscience should be the appropriate basis for addressing personal and proprietary claims in financial transactions and whether reliance of a defendant’s knowledge in justifying a restitution based recovery claim thereby “restricts the potential intervention of equity to such a narrow range of cases that the mutual intentions of parties to commercial contracts will frequently not be enforced by either the rules of common law or equity “�?.

Moreover the swaps litigation was further criticised for failing to consider the credit enhancement and risk allocation provisions of the pre-existing contracts and standard form agreements of commercial parties to swaps contracts and as such “produced inequitable results between those parties, circumscribed the efficacy of English law in the context of financial agreements, and introduces further risk to financial markets by rendering otiose the terms of those standard form agreements”�? .

Moreover, the swaps litigation exposed the weakness of the judicial implementation of restitution and has highlighted the issue as to whether the law of restitution is suitable for resolution of disputes involving intangible assets common to complex financial arrangements such as derivatives in cross-border markets. This is further evidenced by Hudson’s assertion that “property”�? typically at issue in financial market contracts will not comply with the received notion of money as a chattel”�? .

Furthermore, if we consider the factual circumstances of the swaps litigation, it included the joint appeals of Westdeutsche Landesbank Girozentrale v Islington and Kleinwort Benson v Sandwell Borough Council . The transactions involved Westdeutsche and Islington entering into an arrangement to address the local authority’s needs involving an intermediary Moegan Grenfell. Hudson further observes that allocation of risk is a central feature in swaps litigation and that the courts failed to address the pre-existing allocation of risk in the contractual documentation.

Furthermore, the concluded agreement was to pay net sums and Hobhouse J highlighted how the agreement:

“provided for the fixed rate payer to pay to the floating rate payer on the commencement date, 18 June 1987, an additional sum of £2.5m. Under the scheme of the contracts this was expressed to be the first of the fixed rate payments and it was calculated against a discount in the later fixed rate payments. If there had been no discount, the appropriate fixed rate of interest for the ten year period would have been 9.43% pa £2.5m represented the advancement of periodic semi-annual payments of 1.93% pa on £25m over ten years “�?.

Furthermore, in distinguishing between a loan agreement and a swap agreement Hobhouse J held that “the contracts did not purport to be and were not expressed as contracts of loan but simply as interest rate swap contracts. This feature was vital to the reason of Islington for entering into the swap contract “�?.

House of Lords, Lord Goff commented that “I incline myself to the opinion that a personal claim in restitution would not indirectly enforce the ultra vires contract, for such an action would be unaffected by any of the contractual terms of the borrowing, and moreover would be subject”¦.to any restitutionary defences”¦ the lender should not be without a remedy”�?.

Therefore the overall purpose of the transactions in the swaps litigation cases was for the local authority to obtain a preferential interest rate swap to manage existing debt.

However, whilst the decision in the litigation has fuelled the debate as to recovery in restitution, Hudson argues that “the Islington litigation is therefore something of a chimera for derivatives lawyers. It relates to a one-off transaction which is used only rarely in the modern marketplace “�?.

As such, it is argued that the restitutionary approach was inherently incorrect on grounds that the actual transaction in the case was most likely to constitute an illegal loan practice as opposed to a swap agreement.

Moreover, this obfuscation of equity and restitution principles has fuelled the debate as to whether restitution is an appropriate model in addressing contemporary commercial transactions particularly with complex cross-border markets and intangible assets. However, similarly, traditional equitable trust law principles have struggled and “indeed, in the Target Holdings case, held that “traditional trust”�? rules sit uneasily with complex cross border markets and financial situations “�?.

Conversely, a result of this is proliferation of supporters of the use of restitution “much to the chagrin of traditionalist equity lawyers”�? . Indeed, this crystallised in the Islington decision highlighting the disagreement between “the grandfather of restitution, Lord Goff and the new broom of Lord Browne-Wilkinson “�?.

Often in previous House of Lords decisions, both have taken diverse approaches to the use of equity and trusts implied by law and Professor Birks highlights that in practice “there being little difference between the speeches of Lords Goff and Browne-Wilkinson in the interpretation of the equitable and restitutionary techniques available in Islington “�?.However, Hudson argues that “the opposed speeches in Islington should be seen as the battleground for three generations of lawyers to consider the position of equitable proprietary remedies”�? .

On the one hand, Lord Browne Wilkinson argues that equity is the central applicable principle and conversely, proponents of restitution attempt to apply the principles of the mistaken payment formula as the appropriate principle in such cases. However, Hudson highlights the conundrum thus:

“While the House of Lords has accepted the existence of a law of unjust enrichment in the wake of Lipkin Gorman v Karpnale and Woolwich Building Society v IRC, it is not clear what form that new development will take. At one level, it may remain a marginal doctrine which represents a modern statement of long-established doctrines such as money had and received which are clearly restitutionary in intent. Alternatively, many commentators have seen it as displacing existing principles of equity of the law of property and many doctrines formed as part of contract and tort”�?.

Therefore it is submitted that the swaps litigation supports the proposition that equitable trust principles may be more appropriate to address unconscionable conduct cases in both tangible and intangible proprietary claims. Alternatively, if the conservative restitution paradigm is applied, it is difficult to see particularly in the swaps litigation the doctrinal justification for restitution and where the unjustified benefit lies. As such this results in the “adoption of an implied understanding of a swap as being a single, executory contract rather than an amalgam of separate payment obligations has led the courts to treat all swaps as capable of simple recission and restitution by payment of money and simple interest”�? ; thereby reshaping the doctrinal basis for restitutionary remedies.

However, on the other hand the difficulty in the House of Lords applying constructive trust principles was the lack of knowledge and inability to apply the unconscionability argument; which made it easier to apply the unjust enrichment argument. Moreover, in Morris v Rayner Enterprises Inc , Lord Hoffman “sought to uphold commercial practices where it does not offend against public policy. Rather “the law is fashioned to suit the practicalities of life and legal concepts like “proprietary interest”�? and “charge”�? are no more labels given to clusters of related and self-consistent rules of law”�?.

However, this led to the undermining of commercial practice and contractual allocation of risk in such contracts and highlighted the conflict between equity and restitution in addressing unconscionable conduct. Moreover, Hudson highlights the point that:

“There are a number of recent cases dealing with equitable institutions and remedies which have concentrated on risk as a litmus test for the availability of the equitable response sought. For example, the test for dishonest assistance expressly incorporates reckless risk-taking as being among its definition of dishonest. Similarly allocation of risks in current portfolio theory has played a part in understanding the duties of trustees in respect of investment of trust funds and therefore raises the question as to role of risk in deciding allocation of proprietary and personal rights in equity and restitution”�? .

This is evidenced by equitable tracing cases such as the decision in Royal Brunei Airlines v Tan , where the Privy Council allowed a tracing claim regardless of dishonesty. Accordingly, one option would be to address such claims would be to seek recovery through the equitable doctrine of tracing, which would circumvent the need to address conservative restitution principles.

For example, a prime example of the scope of equitable tracing as a remedy is illustrated in the famous Privy Council decision in the case of AG for Hong Kong v Reid. In this case, the solicitor general for Hong Kong had received bribes for passing information to organised crime in Hong Kong. Under Hong Kong law, the proceeds of the bribes were held on trust for Hong Kong.

However the issue of contention was whether the solicitor general’s investment of the proceeds in land could be claimed (the land’s value had substantially increase). The Privy Council asserted that the profit attributable to the increase in value of the land was directly linked to the proceeds of the bribe and therefore the claimant had a right to the property also. Accordingly, the potential advantage of making a claim under equitable tracing is that firstly, tracing is a proprietary remedy and not a personal claim therefore factors such as bankruptcy or the possibility of any other creditors is irrelevant.

Nevertheless as asserted by the House of Lords in the decision of Westdeutsche Landesbank Girozentrale v Islington London Borough Council ; it is now “clear beyond doubt that tracing in equity requires an initial fiduciary relationship”�?.

Accordingly, in addition to the complex methods of tracing mixed funds in equity, the doctrine of equitable tracing is inherently limited by the requirement of establishing a fiduciary relationship between the applicant and the perpetrator .

Moreover, two grounds usually utilised by the courts to impose a constructive trust in equitable tracing; namely knowing receipt and knowing assistance . However, the traditional trust concepts of knowing receipt and knowing assistance have been problematic in practice, particularly where financial institutions are involved, with extensions of these grounds being applied to ensure an equitable outcome.

This was altered by the Tan decision, which would appear to be more realistic in light of subsequent judicial assertions that where someone interferes with a trust and deprives the beneficiary of some or all of their property, the constructive trust will be imposed for equitable tracing automatically. This is further bolstered by the view that breach of fiduciary duty automatically creates a trust in respect of funds appropriated directly as a result of the breach, without a need to prove the traditional complex requirements of trust law, particularly the requirement that there be certainty of subject matter before the imposition of a valid trust .

Nevertheless, whilst circumventing the doctrinal problems of quantifying “unjust enrichment”�? and the intangible asset issue in applying restitution, the equitable tracing doctrine is limited to the fiduciary relationship paradigm. Alternatively, as a central criticism of the swaps litigation has been the failure to allocate risk, this raises the argument as to whether restitution should be reformed to consider allocation of risk and the common intention of the parties.


This above analysis highlights that whilst rooted in meritorious concepts, the central problem with restitution has been the dichotomy between its doctrinal justification and judicial extension of restitution based claims overwhelmingly motivated by moral issues with parallels to equity.

Moreover, this has led to the obfuscation of restitution as a remedy with pre-existing contractual, common law and equitable principles particularly as regards quantum meruit based claims and constructive trust.

Accordingly, it is submitted that consideration should be given to categorisation of restitution based on the nature of the transaction. Additionally consideration should be given to implementing the concept of allocation of risk and common intention of the parties into restitution based claims. Notwithstanding these suggested improvements to the law of restitution, it is submitted that the crux of the problem is the consistent failure to adequately address what constitutes “unjust enrichment”�?.

Indeed, Hudson highlights the point that money is difficult as a concept in English law particularly in financial markets and derivatives cases.

For example, the fundamental weakness of applying restitution in complex contemporary financial transactions is the concept of “money”�? as being tangible in restitution. Therefore, until restitution addresses the fundamental element for recovery, the problems will remain in practice. Indeed, Hudson’s central contention is that “impossible for parties to retain a proprietary interest in property transferred under a commercial contract which is found to be void ab initio, as a result of the core rules of equity in the speech of Lord Browne Wilkinson in Islington”�?.

In any event, it is submitted that even if the law of restitution was reformed to modernise the concept of unjust enrichment and include tangible assets, there remains as a result of the swaps litigation a cogent risk of confusion between restitution and trust law principles. As such, it is submitted that recovery of sums on grounds of “unjust enrichment”�? may be better left to claims for common intention trust, equitable tracing, undue influence and severance to maintain legal certainty particularly in complex financial transactions.


J. Beatson (1991). The use and abuse of unjust enrichment: essays on the law of restitution. Oxford University Press.

S. Birks, “Restitution and Resulting Trusts”�? in S. Goldstein (ed). Equity and Contemporary Legal Problems (1992).

A. Burrows, E. McKendrick & J. Edelman (2006). Cases and materials on the law of restitution. Oxford University Press.

Dennis J Block & Barton (2006). The Business Judgment Rule: Fiduciary Duties of Corporate Directors (2002) Aspen Law & Business.

A. Hudson (1998). Equity, Restitution, Property after Westdeutsche Landesbank v Islington. Available at accessed 11 September 2009

D. Johnston & R. Zimmerman (2002). Unjustified Enrichment: key issues in comparative perspective. Cambridge University Press.

D. Keenan (2007). Smith & Keenan’s English law: text and cases. Pearson.

T. Krebs (2001). Restitution at the crossroads: a comparative study. Routledge.

P. McDermott, C. Rotherham, P. Gilliker, G. Tolhurst & J. Bird (2002). The Law of Restitution. Butterworths.

Graham Moffat (2005). Trust Law: Cases and Materials. 4th Edition Cambridge University Press

Lionel Smith (1999) The Law of Tracing. Oxford University Press.

A.M. Tettenborn (2002). The Law of Restitution in England and Ireland. Routledge

Todd and Wilsons (2007). Textbook on Trusts 8th Edition. Oxford University Press

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