Taxonomy of the law of unjustified enrichment

Over the past three decades, the law on unjustified enrichment in Scotland has awoken from what seemed to be a dormant state, and the picture of the law today is almost unrecognisable to that in the 1980s. In two early articles, Peter Birks brought unjustified enrichment to academic consideration, which discussion snowballed into becoming the subject of judicial contention and ultimately judicial reform. From the trilogy of cases of Morgan Guaranty Tust Company of New York v Lothian Regional Council [1] , Shilliday v Smith [2] , and Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd [3] , there is now an established general principle of unjustified enrichment. This common law revolution did not however, completely overhaul the problems in the law and has not been to the satisfaction of everyone. Should the established general principle be developed to add in a general action for the redress? What is the best way to develop the internal sub divisions of the law? Should the law of unjustified enrichment as a whole be subject to a formal codification? This author contends that, despite what was a necessary reform of the law of unjustified enrichment, this reform is not complete and further development of the common law instead of implementation of a civil code is a more desirable route to follow.

The situation before significant discussion on unjustified enrichment was re-ignited was one of confusion and disparity. Unjustified enrichment in Scots law falls under the head of involuntary obligations, with obligations in unjustified enrichment being obediential; they arise by operation of law regardless of the will of the parties. Stair, an early and much revered institutional writer, adopted a natural law approach to the subject, by ordering obediential obligations according to what the content of the obligation was to give [4] . The Roman scheme on the other hand classified according to the source of the obligation in relation to contract.

Under Stair’s classification of obediential obligations, relevant to us are the obligations of restitution and recompense: restitution being the obligation to restore a “certum", or benefit capable of exact return; and recompense the making good of an incertum, or benefit the value of which is not exact and is measured by the extent of the defender’s enrichment. Recompense was not confined in the narrow sense to enrichment by Stair, unlike in the modern day classification, and encompassed gift and negotiorum gestio.

Bankton’s analysis followed in broadly the same vein as Stair, as did Erskine’s. Erskine did however, develop the notion of recompense to the point where it no longer included within it the obligations of gift and negotiorum gestio [5] . Bell gave the condictio and the Romanist approach more significance in restitution than ever before [6] ,and later gave formal recognition to the action of repetition for the first time [7] , to accommodate the growing reliance upon the condictiones in Scots law. This signalled a growth in the condictiones in Scotland, with the Roman ex contractu approach proving to be resilient in the face of the early content based classifications of Stair. The modern day approach of separating the causes of action under unjustified enrichment through repetition, restitution and recompense (the “three Rs") began to take shape.

Robin Evan-Jones and Philip Hellwege contended that this was the problem with unjustified enrichment [8] : instead of a unitary division in the law, based upon whether the obligation was to restore a certum or make good an incertum, it was split between three distinct bodies of action. The problem here being that the actions for redress of an unjustified enrichment were separated, obscuring the unity of causes of action. The approach that came to be the established one misrepresented the historical development of Scots law, and in fact seemed to work from back to front by looking in the first instance to the remedies available. There was no formal recognition of a common anti-enrichment principle. Additionally the actions had to fit into the imported condictiones, and they rather awkwardly co-existed alongside each other as the condictiones were only deemed to fit into the remedies of repetition and restitution. This resulted in a benefit-based approach that was too restrictive when applied to recompense: the whole category seemed to just be turned illogically into an area which swept up what the other two didn’t cover. The effect was that each cause of action had its own particular characteristics, and when one area was litigated on, the others were not clearly developed in the same way, at the same time. The system simply did not work.

This benefit-based theory, whereby distinctions are made in relation to the type of benefit received by the enriched party, is confirmed in Gloag and Henderson’s ‘The Law of Scotland’:

‘…as a general rule Scots law treats cases involving recovery of money under the heading of repetition, and those involving recovery of moveable property under the heading of restitution, while cases in which the defender has benefited unjustifiably from expenditure or actings of the pursuer or from the use of his property, are dealt with under the heading of recompense.’ [9] 

When the subject was eventually reconsidered with real importance, Peter Birks attacked the above practice [10] . He criticised the ‘three Rs’, saying that they created an awkward classification in the way that they obscured the fact that each was actually just founded simply on retention of a benefit by B, obtained from A, which was unjustified. He said that the worst consequence of division by benefit received is the impression given that the causes of action differ depending on the form in which an enrichment is received and that the only cure for this was in unifying the subject.

He presented a formulation for reform of the law whereby enrichment was split up according to subtraction by B from A, and wrongdoing by B to A. Within his taxonomy, he proposed the English ‘unjust factors’ approach, which dictated that the pursuer was under a duty to demonstrate why the retention of the benefit by the defender was unjustified. This lends itself to an ‘unjustified if’ policy, which gives no definitive criterion to prove that the nature of the enrichment is unjustified, but puts forward a list of potential ‘factors’ which will render an enrichment unjustified.

Birks had limited success in winning over other Scottish academics, who have tended to prefer a more systematized approach. However his contribution cannot go unnoticed, especially because of the fervent discussion of the best mode for reform that he generated with his papers.

After Birks, several academics tried their hand at proposing a suitable taxonomy to fit the law of Scotland. In a bid to unify the law on unjustified enrichment, Hector MacQueen and William Sellar argued for a general enrichment action to be incorporated around the action of recompense [11] . They said that history recognised the residual, general nature of recompense in the way that it caught all unjustified enrichments which could not fit into the two other actions, and that this could lead to the repetition and restitution being integrated into recompense.

Evans-Jones and Hellwege countered this by denying that Stair had ever considered the general nature of an action in recompense distinct from restitution, and that if he had, he would have explicitly regarded unjustified enrichment as a distinctive body of law [12] . Additionally this idea is in fact inherently doubtful because you cannot merge it with the condictio sine causa. The decision in Shilliday v Smith effectively nullifies this argument in the way that it is inconsistent with the theory itself. [13] MacQueen ultimately turned his back on this approach, instead preferring the Germanic based taxonomy of enrichment by transfer, imposition and interference (see below).

The Scottish Law Commission brought forward proposals for a quantum based approach [14] . This theory focused on the measure of what is to be restored; what is the value of your claim? In relation to the tripartite division of actions, it was stipulated that repetition would give back money plus interest; restitution would restore property and any fruits or accretions attained while in possession; and recompense would give a sum representing the extent of the defender’s enrichment.

This seemed from the outset to be a rather illogical theory however. There was no historical distinction that existed from institutional schemes between claims for money and for property to begin with, and so no foundation to base the approach upon. Additionally it failed to classify the law according to unitary causes of action, which in turn obscured the existence of a single principle measure of recovery to govern all claims of unjustified enrichment.

Evans-Jones and Hellwege argued that the best way to reform the law was for a reversion to the content based approach to the obligations first implemented by the institutional writers [15] . Whilst not attempting to give all the answers, they emphasise the point that in relation to the principles offered from the traditional Roman source based approach, and the content based natural approach, the two simply do not work in unison. ‘It is better to choose one or the other, but not central features of both’ [16] .

By the time that judicial developments of the law could be made, there were several different theories being championed by their respective authors as to how the law on unjustified enrichment should be changed, giving the courts valuable, if not somewhat contradictory material in which to ground any changes they saw fit to make. The first of three ground breaking cases which were to take unjustified enrichment in Scotland out of its state of hibernation was Morgan Guaranty Tust Company of New York v Lothian Regional Council [17] .

The case itself was an Inner House decision brought in 1995 and concerned a “swaps agreement" [18] involving a local authority. Following English case law [19] that determined that such agreements were ultra vires and unlawful, the contract fell down and both parties ceased to make anymore payments. The contract was void by the ultra vires of the defender, and the pursuer claimed for redress in respect of mistaken payments as it had not known the illegality of the contract, not appreciating that the defender was under no contractual obligation after receiving their payment. They brought an action of repetition, by reference to condictio indebiti (restoration of money or things given in respect of a non-existent obligation). The defender countered the claim, saying that as the error was of law and not of fact, the pursuer’s claim was barred.

Following on from the decision made in Glasgow Corporation v Lord Advocate [20] , the pursuer’s initial plea (seen above), was thrown out. The Inner House, led by Lord President Hope overruled the Outer House decision. It was held that repetition under the condictio indebiti was the right remedy in this case; the rule that payments made under an error of law were not recoverable had no foundation, and no distinction should be made between an error of fact and an error of law in an action of repetition under the condictio indebiti. The onus of proving that the payment was made in error and was not intended as a donation rested on the pursuer, but once this was established, it was for the defender to raise issues to suggest the sought remedy should be refused on the basis of equity [21] .

Perhaps most significantly in his judgement, Lord Hope realised the existence of a single general principle presiding in the law when he observed;

‘these actions are all means to the same end, which is to redress an unjustified enrichment upon the broad equitable principle nemo debet locupletari aliena jactura . Thus the action of repetition, to take this as an example, may be based upon the condictio causa data causa non secuta , the condictio sine causa or the condictio indebiti , depending upon which of these grounds of action fits the circumstances which give rise to the claim.’ [22] 

So the courts took forward the law on unjustified enrichment and successfully developed a single general principle with which the law was to be based. However, the steps taken did not escape criticism. Evans-Jones and Hellwege were dissatisfied with the lack of clarity achieved through Lord Hope’s judgement. As noted above, their article in 1998 pressed forward their desire for developments in the law to proceed in a uniform manner, whilst conferring equal weight to their worry that developments would be inhibited if the law continued to express the remedies in terms of repetition, restitution and recompense [23] . They were particularly unhappy with the claim which was attached by the court to the facts of the case – condictio indebiti and repetition, instead of recompense. They argue that Lord Hope’s application of a benefit-based classification when the enrichment is in implementation of a supposed obligation under a contract, while using recompense regardless of the nature of the received benefit when there is no contract, or supposed contract , only serves to confuse the taxonomy of the law even more [24] .

Shilliday v Smith [25] , the most important case in unjustified enrichment to date, came soon after Morgan Guaranty. The case involved a couple, engaged to marry, whose relationship subsequently ended, the marriage being cancelled. The couple had cohabited in a cottage owned by the defender. The pursuer raised action of repetition for money she paid to the defender to improve the cottage, and recompense for the enrichment he had received for her payment of workman’s bills for refurbishment. The defender counter claimed that she had paid for the improvements for her own benefits so her claim should be barred. The Inner House threw out the defender’s claim, holding that the pursuer had acted in contemplation of the pending marriage which did not take place. The claims were of the nature of condictio causa data causa non secuta (recovery of a transfer of property, where the purpose for the transfer had failed).

Lord President Rodger reformulated the classification of the ‘three Rs’ and definitively transposed them from substantive law to the law of remedies;

‘…repetition, restitution, reduction and recompense are simply examples of remedies which the courts grant to reverse an unjust enrichment, depending on the way in which the particular enrichment has arisen…Often, of course, the situation will be complex and the pursuer will require a corresponding sophisticated set of remedies to reverse the enrichment’ [26] .

The condictiones were also shifted, and are taken to be seen as descriptions of situations in which an enrichment of any kind would be seen as unjustified [27] , without necessarily confining the categorisation of unjustified enrichments. The scope of their utility was extended past its traditional boundaries to include recompense for expenditure. Additionally he reaffirmed the ruling in Morgan Guaranty that a general anti-enrichment principle was to be seen as underlying all enrichment claims. The later case of Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd [28] , decided in the higher court of the House of Lords, confirmed the decisions made by Lord Rodger in Shilliday.

As a result of the Shilliday decision, and the subsequent approval it received in Dollar Land, the law witnessed a significant change in unjustified enrichment. The courts had revived the subject to the extent that consensus was reached in many previously contentious areas of the law. First of all, the law can now be seen as unified by the general principle that no one should be unjustifiably enriched at the expense of another. Second, to succeed in this principle, the pursuer is required to demonstrate in his action: enrichment in hands of defender, which has been obtained at his expense, and the retention of which is not justified. Additionally the ‘three Rs’ are not separate actions for redress, but are remedies to effect such redress and the Roman condictiones are examples of factual circumstances which can demonstrate that enrichment is unjustified. Enrichment may take many forms; it may be a positive gain to the defender’s patrimony, or the saving from a loss that would otherwise have diminished his patrimony. The requirement that enrichment is at the pursuer’s expense has attached to it the necessity to show a loss to the pursuer and a direct connection between the enrichment and the loss – indirect enrichments are rarely, if ever, permitted redress. The enrichment is unjustified where it lacks legal ground for retention; the pursuer must prove this ground.

However, despite the obvious steps forward that Shilliday initiated, the case and its achievements have been subject to varying degrees of criticism from academics. William Sellar, component author to ‘Unjust Enrichment in Scots Law’ [29] argued that the whole case should be disregarded, with the traditional classification remaining, and recompense operating as a general enrichment action. [30] Niall Whitty on the other hand disagreed with Sellar. He affirmed the positive act to change the law in the judgement by Lord Rodger , showing that Sellar’s argument for recompense to be a general action had effectively been shot down, and was now redundant in the law:

‘The abolition of the role of these concepts as categories of substantive law, together with their restriction to the law of remedies, was a deliberate and self-conscious act of judicial legislation’. [31] 

So in his reformulation of the ‘three Rs’, did Lord Rodger give sufficient treatment to the subject? Martin Hogg discusses this in his article chronicling the development of the law over the past few decades. [32] One potential problem with the reformulation is that the definition is still too dependant on benefit based analysis of the ‘three Rs’ that has been lingering in our law, so how do we get past this? An alternative offered by different academics is to scrap repetition and incorporate it into restitution. This makes sense from both a historical and practical perspective. Neither Stair, Bankton, nor Erskine ever recognised repetition as separate from restitution, and it seems rather pedantic that just because of the special status accorded to money, it should be treated in a different category to restitution due to the fact that almost invariably the pursuer will not be returned the exact notes he gave over in the first place. Additionally, having such nomenclature for these things seems unnecessary when you look at the fact that the pursuer in each is essentially claiming the same thing, with the same intended outcome – the return of a certum.

More radically there is the option of avoiding the terminology of the ‘three Rs’ altogether, and instead just frame the sought remedy in more transparent terms, whereby the pursuer would simply be claiming for repayment of the value of the enrichment. This, although potentially simplifying the system, is probably a step too far, and the generally conservative jurists would be unlikely to change their established terminology for a purpose which doesn’t necessarily change the outcome of each respective decision.

Alongside the different criticisms of Shilliday v Smith, there are a number of people who contend the way in which the case should be interpreted, and despite consensus being reached on certain areas of the law, there is still a lot of work to be done to complete the enrichment revolution. So far no consensus has been reached over whether the general enrichment principle should give rise to a general action, or if different actions should be developed to provide redress in different circumstances. Is Lord Rodger advocating a taxonomy based on unjust factors or a taxonomy based on sine causa (lack of a legal ground)? Also, should the law be codified or should the law continue development in the common law?

In relation to the question of developing a general action to supplement the unifying principle that has been established it is helpful to look to other classes of obligations and view how they operate. Contract operates with two types of action, those being to enforce the terms of the contract on one hand, and to claim damages in respect of a breach of contract on the other. Delict, although open to debate, seems to operate a single claim to make good the harm that the defender has caused, as does negotiorum gestio in its action of protecting the interest of the gestor.

Should unjustified enrichment follow suit? Again academics are split on this. Eric Clive is a strong proponent of establishing a single action [33] , as seen in his proposed codification rules. Factors which support this view are found when it is considered that in essence, all enrichment claims protect a single interest of an unjustified enrichment at the expense of the pursuer, which naturally leans towards taking a single action approach. Additionally it is the least complicated approach to take, and would help to cut out the disjointed old system.

However, in favour of a multi action approach, we can already see that other civilian systems have successfully adopted it, meaning less risk compared to delving into the unknown with a single action approach. Additionally, formally adopting this approach would stay true to the tradition in Scots law.

On the multi action side, Niall Whitty, borrowing substantially from German law [34] , shows support for the modern civilian method that separates claims in four respects; by transfer; by the defender’s encroachment or interference; by the pursuer’s unauthorised improvements of the defender’s property in the bona fide belief that it is his; and by the pursuer’s discharge of the defender’s debt. [35] This view is shared by R. Evans-Jones, who suggests that each of the condictiones should be considered as giving rise to a different type of claim. Lord Rodger in Shillday is probably of this view as well, and it seems he does not support the implementation of a general action either.

The situation overall seems to be edging towards a formal recognition of multi action claims. Simply because other areas of obligations have established general actions does not mean unjustified enrichment has to follow. The tried and tested system is the multi action approach and it would more readily fit into our law.

In relation to how the law itself should be sub divided, it is important to consider the different approaches that Scots law can formally adopt. The first option is to adopt an approach which holds that an enrichment is unjustified if one of a number of criteria are met, by providing negative criteria to strike down an enrichment. Another option is to hold that an enrichment is unjustified unless one of a number of criteria are met, by providing negative criteria to strike down an enrichment. The final approach is a mixture of the first two.

Analysing the ‘unjustified if’ approach further, we see that it follows along lines of the English law of unjust factors. There is no overall criterion needed to establish that the nature of the enrichment is unjustified, but there is a conceived list of specific factors which render an enrichment unjustified ,which is open ended and capable of being added to by case law [36] .

The benefit is that it is flexible, with new unjust factors capable of being added in when needed. The drawback on the other hand is that the whole concept of adding new factors suggests the existing classification is never complete, and never will be complete, which in turn means a system which is disorganised from its outset. Scots law is unlikely to adopt this: a tightly regulated system included within the general principle which unifies the law is more desirable.

In the complete opposite direction then, is the ‘unjustified unless’ approach the best way to proceed? Here retention of an enrichment is considered unjustified unless one of a limited number of legal grounds supports such retention. Here the onus is on defender to demonstrate that he has a justification for retaining an enrichment made at the pursuer’s expense. Every retained enrichment in the hands of another needs to be positively justified [37] . Eric Clive took an ‘unjustified unless’ approach in his set of draft statutory rules [38] . A positive justification of why the enriched party was retaining his enrichment is required. These justifications were in two groups; legal causes on one side (contract etc) and public policy reasons on the other (e.g. voluntary transfer by A to B in knowledge that it was not due, and in acceptance of the risk that B might not reciprocate anything).

Championing the ‘unless’ approach, Clive highlights many valid points. First of all he says the approach avoids the risk of confining the general principle more than is necessary. In effect he argues that it would eliminate the danger of a reversion back to the system we once had, where different types of enrichment were incorporated into others in an arbitrary manner, just to give them a place in the law. Additionally he says there is less chance of having to adapt a new definition to the subject when new grounds to establish an unjustified enrichment are found. Finally, he says this approach makes for easier drafting, something obviously pertinent to a man who proposed a codification of the law.

The problem with this approach however is that there is an almost immediate presumption of guilt upon the defender, which is not only inequitable, but would potentially lead to many settled transactions being challenged by the pursuer for the sake of it. It would represent a massive change for Scots law if this approach was followed through.

The mixed approach, which is the one we probably currently employ, is based on whether the enrichment is ‘sine causa’ (without legal ground), which appears to follow the ‘unjustified unless’ approach, but in practice the onus is on the pursuer to prove the enrichment is unjustified by pointing to a specific feature that makes it so.

Recent support for this sine causa comes from German law, although there is evidence of Scotland following the approach as early as the institutional writers [39] . Enrichments will be deemed unjustified where there is a lack of a legal ground for their retention. The Germanic approach to find what lack of legal ground is, as seen above, is divided into a four fold approach between enrichment by transfer and ‘other means’, which includes within it imposed enrichment, performance of the defender’s obligation, and interference with the defender’s rights.

There have been different interpretations from academics over the approach to taxonomy that Lord Rodger takes in Shilliday when he says;

‘The pursuer…points to a particular factor which makes the defender’s enrichment unjust. Where such a relevant factor exists, that factor, rather than the mere fact of expenditure by the pursuer and benefit to the defender, constitutes the ground of action.’

What does he mean by this? Is he advocating an unjust factors approach to the sub division of unjustified enrichment? W J Stewart took this to be in line with Peter Birks’ unjust factors taxonomy [40] , as seen above. P Hellwege on the other hand argues that the case as a whole shows the opposite, and that unjust factors are redundant in Scots law [41] .

Professor Daniel Visser has argued for a middle ground to be forged between the civilian and common law approaches to taxonomies of the law [42] . He believes that Lord President Rodger’s judgement in Shilliday supports his view in the way that the decision was reached by first of all proceeding on the basic principle about reversing enrichment which is sine cause, or without legal ground, but also takes note of the situation in which the enrichment arose to determine if it was in fact sine causa.

“…although it emphasizes the primary importance of the event which makes the enrichment unjustified, it does not accord an absolute quality to this aspect and this emphasizes that a complex categorization, which incorporates the event, its effect, and the law’s response thereto, is to be preferred." [43] 

It does seem more sensible for the policy decisions that dictate whether or not an enrichment is unjustified to become the main focus of the decision, as opposed to relying on reasons why a particular enrichment may be claimed or adopting a ‘without legal ground’ formula without any more in depth analysis or elaboration. However, some academics prefer the idea of having one strong principle instead of the other. Would this middle ground lead to unnecessary confusion in dealing with enrichment law? Might it take us back to the situation we have just escaped whereby the natural content based approach of the institutional writers and the Roman source based theory rather haphazardly co-existed together? Perhaps not, but the likely hood of this approach to a classification of the law is lagging behind the generally more favoured modern civilian approach [44] .

So what is the best route to go down in terms of? Martin Hogg tends to agree with Visser as to the comments made by Lord Rodger in Shilliday, as do other academics like Whitty and MacQueen. Is this the best route to take though? It is a civilian approach, and Scots law in this area is almost completely civilian, being largely untouched by the common law until very recently. Additionally it poses less risk than other approaches as it has proved resilient in Germany and other civilian systems.

In concluding the extent of the courts measures of reform in the Scots law of unjustified enrichment, it is fair to say that genuine progress has been made. We now have a unifying principle upon which the law is based, and the days of having a benefit based system organised from back to front in terms of what was received are behind us. However the common law revolution is not over. We have not formally adopted either a single general action in which to form claims, nor have we established a multi action approach, although the latter seems to be more generally favoured, and is submitted by this author to be followed. Additionally the internal sub division and taxonomy of unjustified enrichment remains relatively unclear, although the consensus seems to be in favour of a ‘mixed unjustified if/unless’ approach. It is submitted by this author that this would be the most pertinent approach to take.

Finally there is debate over the way in which this revolution should continue. Does the implementation of a codified law on unjustified enrichment, as Eric Clive continues to push forward, represent the best way forward? While this approach does have its benefits, and may become a subject of more significance in later years, it is unlikely to be adopted soon. Although the judiciary has so far had little impact on unjustified enrichment in Scotland, when it has stepped in, like in Morgan Guaranty and Shilliday, it has effected positive changes into the law. Turning our back on the courts in favour of a codification would suggest there is no faith in its ability to develop the law in the correct manner, a very unfair proposal. The job is now to develop the law in the ways outlined above, and then once again take a step back and objectively judge the merits and defects in the law and decide in which ways to move forward once again.