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Conflicting Views on Law of Restitution

Info: 3871 words (15 pages) Essay
Published: 20th Aug 2019

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Jurisdiction / Tag(s): UK Law

As per the ‘Lectric Law Library’s Lexicon, Restitution is defined as “An equitable remedy that restores a person to the position they would have been in if not for the improper action of another. Reimbursements are ordered by courts as part of a criminal sentence or civil or administrative penalty. Restitution is a standard remedy for breach of contract and for the return of specific property and money paid.” Restitution is not a well established principle in itself and not used beyond the contractual and tortuous obligation.

The law of restitution is based on the principle of “unjust enrichment” which states that “no person should benefit from someone else’s loss”

Restitution is available as a remedy in common law as well as civil law however its applicability in various cases is a highly debated topic. In civil law, the principle of restitution is incorporated in the law of torts as well as the law of contracts and is often awarded as a remedy to a tortuous claim or for a breach of contract. In common Law, the principle of restitution is completely left to the judges’ interpretation and application. They can either use it as “direct enforcement order “ or “ remedial order”.

This article deals with the conflicting views put forth by both the civil as well as common law. In order to explain the conflict, it is necessary to first understand the principle underlying law of restitution, that is, the principle of unjust enrichment. Subsequently, we will move on to explain whether restitution is a right or a remedy.



What happens when a person lawfully does something for another person, or delivers anything to him, not intending to do it gratuitously; when money is paid by mistake or under coercion; when services or payments are made under an ineffective contract; or when a person’s property is wrongfully used without causing any actual damage to him? Traditional categories of contract and tort and their remedies would deal adequately with such situations but some advisers believe that the law of restitution is more satisfactory.

Restitution, as defined by the legal lexicon, ‘is the act of restoring a person or an object to its former position or state’. [1] In its etymological sense it means restoring to a party on the modification, variation or reversal of a decree what has been lost to him in execution of a decree or in direct consequence of the decree. [2]

Restitution is available as a remedy in common law as well as civil law however its applicability in various cases is a highly debated topic. In order to explain the conflict, it is necessary to understand the principle underlying law of restitution, that is, the principle of unjust enrichment. Subsequently, we will move on to explain whether restitution is a right or a remedy.

The Principle of Unjust Enrichment

Restitution, as we know, is considered as an interesting alternative to traditional remedies in contract and tort and the underlying principle from which the law of restitution evolved is known as the principle of ‘unjust enrichment’. Although, the development of the doctrine of unjust enrichment dates back to Roman law, the English and American courts did not apply this principle until the late 1930s.

Unjust enrichment is enrichment that lacks adequate legal basis. The principle of unjust enrichment, as expressed by the American Law Institute’s Restatement on Restitution, holds that “a person who has been unjustly enriched at the expense of another is required to make restitution to the other”. The reporters of the Restatement described unjust enrichment as a hypothesis underlying the law of restitution, analogous to the principles underlying tort law (a right against unjust harm) and contract law (a right against breach of promise). Though not given priority as a general law principle in the judicial decision making process, this doctrine has been given importance as a measure of the ‘doctrine of equity’, which is defined to be a correction, or a qualification of the law, generally made in that part where it is deficient [3] . Restitution reverses unjust enrichment to the defendant and restores benefit to the plaintiff. Jurists and scholars have often explained that upon circumstances of the case, the defendant is bound to restore the benefit in compliance with the principles of natural justice and equity. However, there are diverging views on the importance of applicability of the principle of unjust enrichment as a standard of decision for restitution matters. Some believe that it serves only as a postulate for decision making, while the others insist that the principle imparts a special equitable character to the law of restitution.

Civil and Common Law

The status of the law of restitution has always been in conflict in common law and civil law. Common law system has been relatively slow in recognizing unjust enrichment as an independent source of obligation ranking alongside contract and tort. Courts of Australia and Canada have accepted the principle of unjust enrichment while England has not yet accepted. According to Lord Diplock, “there is no general doctrine of unjust enrichment recognised in English law. What it does is to provide specific remedies in particular cases of what might be classed as unjust enrichment in a legal system i.e. based upon the civil law”. However, in Lipkin Gorman v. Karpnale [4] , the House of Lords unanimously established that the basis of an action for money had and received is the principle of unjust enrichment, and that an award of restitution is subject to a defence of change of position. In this case, Norman Garry Cass, a partner in Lipkin Gorman firm used the firm’s money for gambling and lost £154,695 to the Playboy Club owned by Karpnale Ltd. The firm sued the club for the stolen money. The House of Lords said that £150,960 should be repayed as restitution and £3,735 as damages to the firm. Lord Templeman said, the money could be recovered

“if they can show that in the circumstances the club was unjustly enriched at the expense of the solicitors… The club received stolen money by way of gift from the thief; the club, being a volunteer, has been unjustly enriched at the expense of the solicitors from whom the money had been stolen and the club must reimburse the solicitors.”

Essentially, for a claim to be made under the unjust enrichment principle, there are four questions which are relevant—first, has the defendant been benefitted/enriched; secondly, was the enrichment at the plaintiff’s expense; thirdly, was the enrichment unjust; and finally, are any defenses available. The UK Court of Appeal recently elaborated on the these questions in the case of Gibb v. Maidstone & Tunbridge Wells NHS Trust [5] , where the appellant, former Chief Executive of NHS Trust had entered into a negotiated settlement with the Trust following the outbreak of a virus. He agreed to resign from his post for a compensation payment of £250,000 but was subsequently paid only £75,000 hence he initiated proceedings to recover the balance amount of £175,000. The High Court dismissed the appeal, however in this case the issue arose as to whether the foregoing of a claim can be considered to be a ‘benefit’. Lord Justice Laws stated the principle thus:

“If everything else is equal I can see no principled distinction between a benefit consisting in money paid and a benefit consisting in a claim foregone. For the purpose of this branch of the law the material benefit may take many forms…”

The relatively modern principle of Restitution is of the nature of quasi contract. Whether or not a claimant can seek restitution for a wrong depends to a large extent on the particular wrong in question. For example, in English law, restitution for breach of fiduciary duty is widely available but restitution for breach of contract is fairly exceptional. The wrong could be of any one of the following types—a statutory tort, a common law tort, an equitable wrong, a breach of contract or criminal offences.

In India, principles of restitution would be dealt with under the Contract Act. Section 70 requires that where a person lawfully does anything for another person, or delivers anything to that other person, not intending to do so gratuitously, and the other person enjoys the benefit thereof, he is bound “to make compensation to the former in respect of, or to restore, the thing so done or delivered.” The issue here is that whether this is a restitutionary remedy or a compensatory remedy. This same issue also arises on the text of Section 65 of the Contract Act which deals with payments made under a void contract. The fundamental difference between restitution and compensation is that the former is concerned with the return of the benefit derived by the defendant while the latter is concerned with compensating the loss suffered by the plaintiff. Going further in Indian law, Section 72 states that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. This section does not contemplate pure services; and again, is restricted to mistake/coercion. Hence, the status of the law of restitution was considered by the Supreme Court in Mahabir Kishore v. State of Madhya Pradesh [6] . The Court stated:

“The doctrine of ‘unjust enrichment’ is that in certain situation it would be ‘unjust’ to allow the defendant to retain a benefit at the plaintiff’s expense.”

The court justifies restitution on the basis of the judgement given in Gibb v. Maidstone & Tunbridge Wells NHS Trust by the UK Court of Appeal and stated that:

“Enrichment may take the form of direct advantage to the recipient wealth such as by the receipt of money or indirect one for instance where inevitable expense has been saved…”

Subsequently, however, High Courts have clarified that recourse to the law of restitution would be available even outside the Contract Act as a matter of common law. High Court has noted in Ganganagar SugarMills v. Madanlal Ramswaroop [7] that,

“It may be seen that provisions under Chapter V of Contract Act only gives some of the instances of obligations arising from certain circumstances, not arising from contract but on general principle, to wit to prevent a man from retaining the money of or some advantage derived from another which it is against conscience that he should keep in the words of Lord Wright. But the fact that Contract Act gives statutory recognition to some of the circumstances does not preclude availability of remedy of restitution in other cases…”

Consequently, common law developments in this area would continue to be of relevance to Indian law, whether or not the principles laid down in the Contract Act are relevant.

Therefore, from the above analysis we can deduce that the gulf between the civil and the common law regarding the law of restitution is gradually narrowing.

Right or Remedy

The law of restitution states that in case of unjust enrichment on the part of the defendant he is either under a legal duty to return the benefit or he is under court’s order to do something for the transferor of the benefit. The point of confusion is to understand the relationship between the two above stated categories of unjust enrichment principle in order to know whether the latter obligation adds anything substantive to the former.

According to one view, dominant in England, the two categories collapse into one—at least in cases involving mistaken payments and other defective transfers. This “direct enforcement” view regards court orders to make restitution (“restitutionary orders”) in such cases so that the defendant perform his primary obligation [8] . Restitutionary orders in this view merely replicate the defendant’s original obligation to return the benefit. A second view, which finds more support in American jurisprudence, regards the two categories as distinct. This “remedial” view regards restitutionary orders as orders that a defendant repair the harm caused by his wrongly failing to perform his primary obligation. This Article asks which, if either, of these views is correct and whether law of restitution is a right or a remedy?

The answer to this question forms an integral part of the general explanation of the principle of unjust enrichment. A complete explanation of any legal rule or group of legal rules must address both normative questions about the justification, if any, for the rule(s) and analytic questions about the characteristic features of the rule(s).

The analytical approach determine two things: (1) whether or not the primary obligation counts as a contractual obligation, tort law and so on, or (2) whether or not the legal response counts as a remedial, punitive or direct enforcement of the primary obligation. On the other hand, from a normative perspective, it is essential to determine—why rules of this kind and of that kind are needed and then to determine how to apply those rules effectively to the appropriate factual scenarios. Furthermore it is necessary to draw analytic distinctions between rules, as well as between the kinds of events they are meant to deal with. Analytical thinking requires normative categories/perspective to analyse a legal question.

In order to clarify the doubt whether the law of restitution is a remedy or a right and displease, both, those who think restitutionary orders are direct enforcement orders and those who think they are remedial orders, it is necessary to understand that restitutionary orders can rightly be regarded as either remedial orders or as direct enforcement orders. For the convenience of the readers the functional definition of the terms, “direct enforcement” and “remedial order” has been explained as follows:-

“Direct enforcement orders” are those orders which compel an individual to perform his primary legal obligation or duty. These primary duties are those that arise not from breaching another duty, but from a “non-wrong” such as entering the jurisdiction (in the case of the above tort duty), doing a non-wrongful act (in the case of contractual duties and most duties to pay tax), or attaining a certain status (in the case of duties to support one’s children).

The term “remedial order” is taken in the narrow sense in this article to draw an analogy with judicial order which is also passed by the courts in response to a claim of “subtractive unjust enrichment” [9] .Therefore it can be said that the remedial orders are therefore compensatory orders. It has been conventionally understood as an order passed against a defendant who was found to have wrongfully caused the plaintiff a personal injury or a loss has to pay or compensate the plaintiff a monetary sum equivalent to the loss or damage so caused. Orders that cannot be classified as remedial in this sense include punitive damages, nominal damages, declarations, and injunctions to prohibit continuing or anticipated torts.

In order to determine whether a particular judicial order is a remedial or a direct enforcement order we need to analyze the preconditions of making each order. If the precondition for making a remedial order is not satisfied in which case a restitutionary order is given then the restitutionary order is not remedial but a direct enforcement order. To further prove the above, various theories can be looked into—(1) Consequentialist Accounts of Direct Enforcement and Remedial Orders and (2) Deontological theory, in passing a decision as to which kind of order can be given thereafter.

Further to examine whether or not the restitutionary order is regarded as remedial order or the direct enforcement of primary duties. Three kinds of evidence needs to be examined:

(1) The Judicial Explanation of Restitutionary orders;

In case of unjust enrichment it is important to outline the needs of the plaintiff. Usually in such cases reference has been made to restitutionary damages, which is nothing but a reference to restitutionary awards. At this juncture it is important to point out the precise meaning of the term “restitution” which means “giving back” rather than “compensation for loss” or anything similar. Judicial language and judicial explanations must be given significant weight in any explanation of the law [10] . In this case the so called judicial language is strongly based on the “direct enforcement view” which states that plaintiff’s complaint about the defendant and the plaintiff’s request to the court: are two sides of the same coin. This is leads to total distortion of the term “Restitution”. Therefore the history of Restitution is highly littered as it is with the false understanding and misinterpretation of the term by both the lawyers and judges [11] .

(2) The Content of Restitutionary Orders;

In many cases, the status of a judicial order as remedial or direct enforcement can be established by the content of the order. Where the relevant primary obligation is a monetary obligation, the content of a direct enforcement order will be the same as the content of remedial order—to pay a sum of money to the defendant. This is the case in respect of most restitutionary orders. In principle, a remedial order should, in at least some cases, include a sum intended to compensate for consequential losses. The amount of money a defendant must pay in restitutionary claims is consistent with both views of restitutionary orders. The direct enforcement view offers the more natural explanation of the rule against recovery of consequential losses; the remedial view offers the more natural explanation of the rule providing for monetary awards in cases involving chattels. In the end, however, both rules are explicable by both approaches.

(3) The Preconditions for Restitutionary orders

It is essential to establish a precondition for granting direct enforcement and remedial order. In case of remedial order, it is essential to establish that a wrong has been committed by the defendant for which the requirement of loss is needed to be satisfied. While on the other hand, it isn’t essential for the plaintiff to prove that the defendant failed to return the relevant benefit but to show that he was and is unjustly enriched.


From the above analysis it can be stated that the single restitutionary order cannot be both remedy and direct enforcement. Sometimes they will be the former, sometimes the latter. This classification clearly depends on how the court is responding to the plaintiff’s request. History shows that most of the judgments have been based on direct enforcement order which was consistent with the “dual role view”. This view does not require the plaintiff to make any specific request but to understand that he has an option of making either.


Hence, it can be concluded that the law of restitution is the law of gains-based recovery which is to be contrasted with the law of compensation, which is the law of loss-based recovery. They are two types of legal response. When a court orders restitution it orders the defendant to give up his gains to the claimant. When a court orders compensation it orders the defendant to compensate the claimant for his or her loss. The following example might clear the difference between the two remedies. A commits a wrong against B and B sues in respect of that wrong. A will certainly be liable to pay compensation to B. If B seeks compensation then the court award will be measured by reference to the loss that B has suffered as a result of A’s wrongful act. However, in certain circumstances it will be open to B to seek restitution rather than compensation. It will be in his interest to do so if the profit that A made by his wrongful act is greater than the loss suffered by B.

In the case, Attorney Genaral v. Blake [12] , an English court found itself faced with the following claim. The defendant had made a profit somewhere in the region of £60,000 as a direct result of breaching his contract with the claimant. The claimant was undoubtedly entitled to claim compensatory damages but had suffered little or no identifiable loss. It therefore decided to seek restitution for the wrong of breach of contract. The claimant won the case and the defendant was ordered to pay over his profits to the claimant. However, the court was careful to point out that the normal legal response to a breach of contract is to award compensation. An order to make restitution was said to be available only in exceptional circumstances.

Moreover in conclusion, it is apt to point out that it is a well established principle that every right has a remedy. Therefore in case of law of restitution, the common law provides a right against the wrong-doings but on the contrary in civil codified law, a remedy is provided in case of a wrong doing. Therefore we can conclude that under the civil law there is an implicit right of restitution to which there is a remedy in case of wrongdoing. Henceforth Law of Restitution is a right as well as a remedy in itself.

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