Enrichments and reasons for restitution: protecting freedom of choice.

• Author: McInnes, Mitchell
• Position: Canada

This article analyzes the role of freedom of choice in the Canadian law of unjust enrichment. Courts must balance the plaintiff's interest in recovering a benefit, with which she did not freely part, against the defendant's interest in controlling the allocation of resources in his possession. The primary means of resolving this tension has in the element of enrichment: The defendant will not be considered legally enriched unless he either chose to assume financial responsibility for the benefit that he received from the plaintiff or, in the circumstances, had no choice to make.

The author argues that, since the defendant's autonomy is sufficiently protected by the element of enrichment, the courts should not additionally protect that same interest when formulating the reasons for restitution at the third stage of the unjust enrichment analysis. Liability generally should be strict--it should be triggered by the plaintiff's lack of intention. Decisions that premise liability upon a "special relationship" or "knowing receipt" unduly favour the defendant's interests and therefore should be reconsidered by Canadian courts.

Cet article analyse le role de la liberte de choix en matiere d'enrichissement injustifie au Canada. Les tribunaux doivent equilibrer l'interet de la partie demanderesse a recuperer un benefice auquel elle n'a pas librement contribue, avec l'interet du defendeur controler la repartition des ressources en sa possession. Le principal moyen de resoudre cette tension repose sur l'element d'enrichissement. Le defendeur ne sera pas repute enrichi a moins qu'il ait choisi d'assumer sa responsabilite financiere pour le benefice recu de la partie demanderesse, ou si les circonstances ne lui permettaient pas de faire ce choix.

L'auteur affirme ensuite que puisque l'autonomie du defendeur est suffisamment protegee par l'element d'enrichissement, les tribunaux ne devraient pas ajouter a cette protection lorsqu'ils enoncent les motifs de restitution a la troisieme etape du test de l'enrichissement injustifie. La responsabilite devrait generalement demeurer stricte, en ce sens qu'elle devrait etre declaree par l'absence d'intention de la partie demanderesse. Les decisions qui fondent la responsabilite sur un <> ou un <> favorisent indument les interets du defendeur, et devraient par consequent etre reconsiderees par les tribunaux canadiens.

Introduction

Introduction

The law must carefully balance competing interests when formulating the scope of restitutionary relief. It must respect the plaintiff's claim to recover the value of a benefit that she conferred upon the defendant. It must also, however, respect the defendant's desire to control the disposition of wealth in his possession. Rules that unduly favour one interest over the other will produce unfair results. Too little restitution will allow the defendant to be improperly enriched at the plaintiff's expense. The defendant will be allowed to retain a benefit that, in justice, ought to be returned. Too much restitution, ironically, will allow the plaintiff to be improperly enriched at the defendant's expense. The former will be allowed to take from the latter more than is unjustifiably received.

There are various strategies for striking a balance between the parties' interests. These strategies are tied to the three elements of the cause of action in unjust enrichment, to which restitution invariably responds: (1)

1. an enrichment to the defendant,

2. a corresponding deprivation to the plaintiff, and

3. an absence of any juristic reason for the enrichment. (2)

   The second element of unjust enrichment provides relatively little scope for mediating a compromise between the parties. Although greater subtlety occasionally is required, (3) there are, for the most part, only two options. (4) Moreover, the difference between these options tends to be significant only in a narrow band of cases that involve the concept of passing on. The Australian case of Roxborough v. Rothmans of Pall Mall Australia Pty. Ltd. (5) provides a useful illustration. (6) In that case, the government had imposed a tax upon a cigarette wholesaler. The wholesaler collected the appropriate amount from a retailer, who in turn shifted the expense onto individual consumers in the form of increased prices. Before the wholesaler paid the money over to the government, the tax was declared invalid. The funds clearly were not available to the government, and there was no real possibility that the money would ever be returned to the individual consumers. (7) The issue therefore was straightforward: should the windfall representing the consumers' payments remain with the wholesaler or should it be shifted back to the retailer in the form of restitutionary relief?

   There is no obviously correct answer to this sort of question. A balance must be struck between the desire to reverse an unwarranted transfer and the desire to let an enrichment lie where it fell. A choice must be exercised between two possible interpretations of the notion of a corresponding deprivation or, as it is sometimes phrased, "the plaintiff's expense". Canadian law tips the balance toward the defendant. (8) It imposes liability only to the extent that the defendant's gain ultimately corresponds to the plaintiff's loss. On the facts of Roxborough, the loss attendant upon the wholesaler's gain was, in the final analysis, suffered not by the retailer, but rather by the retailer's customers. As between two innocent parties, there is no compelling reason to incur the societal expense of judicially shifting the windfall from the defendant to the plaintiff. Anglo-Australian law, in contrast, exercises a different choice. (9) It tips the balance toward the plaintiff. The defendant's gain need merely be at the plaintiff's immediate expense. It is enough that the wholesaler received money from the retailer, even though the retailer in turn collected an identical sum from its customers. (10)

   Although the second element in unjust enrichment is occasionally used to strike a balance between the parties' interests, most of that work is done at the first and third stages of analysis. Significantly, both of those stages focus on the same concept: freedom of choice. At its core, the law of unjust enrichment is concerned with the exercise of autonomy or lack thereof. Consequently, under the first element, the recognition of an enrichment requires proof that the defendant either chose to accept the risk of financial responsibility for the benefit that he received from the plaintiff or that, in the circumstances, there was no choice to be made. Unless that burden is met, liability is denied, even if the recipient consequently is left with a windfall. The notion of freedom of choice recurs, in two different manifestations, at the third stage of analysis. Despite being awkwardly phrased, the requirement of an "absence of any juristic reason for the enrichment" pertains to reasons for allowing the plaintiff to recover a benefit, rather than to reasons for allowing the defendant to retain a benefit. (11) In most instances, this requirement is satisfied by proof that the plaintiff did not truly intend to confer an enrichment upon the defendant. For instance, she may have acted pursuant to a mistake or under duress. In any event, the law responds to her lack of free will. Sometimes, however, restitution is premised upon proof that the defendant voluntarily received a benefit to which he knew or ought to have known he was not entitled. In such circumstances, the law responds, at least in part, to the defendant's free will. This is true, for instance, when liability is predicated upon the defendant's free acceptance or knowing receipt, or when a court refuses to impose liability in the absence of a "special relationship." (12)

   This paper presents two arguments. The first is that the legal concept of enrichment invariably reflects the defendant's freedom of choice. Canadian law has embraced several tests of enrichment, but it has seldom recognized their unifying theme. The second argument is that since the defendant's autonomy receives protection in connection with the element of enrichment, it need not be additionally protected in connection with the unjust factor (i.e., the reason for reversing the impugned transfer of wealth). To do so unfairly tips the balance toward the defendant and may unnecessarily deprive the plaintiff of relief.

   1. The Nature of Enrichment

   The concept of enrichment is surprisingly complex. This is true for a number of reasons, two of which must be mentioned at the outset. First, as suggested above, the real focus is not so much on enrichment per se, but rather on freedom of choice. The discussion that follows demonstrates that most of the difficulties in that regard can be overcome by applying a three stage analysis:

1. Did the defendant receive an objective benefit?

2. Can the defendant subjectively devalue that benefit?

3. Can the plaintiff overcome subjective devaluation?

   The second source of difficulties arises from the fact that the concept of enrichment serves a dual purpose: It most obviously satisfies the first element of unjust enrichment (i.e., an enrichment to the defendant), but assuming that the other components of the action are similarly met, it also governs, along with the concept of a corresponding deprivation, the quantification of relief. These two purposes are inextricably linked. The plaintiff's claim consists of proof that she conferred upon the defendant a benefit that he cannot retain. The associated remedy is restitution. In one form or another, he must give back what he received from her. (13) The defendant is not responsible for more than he actually gained and the plaintiff cannot recover more than she actually lost. The appropriate order therefore is easily determined in a case of specific restitution. The defendant must simply return the very thing that he received from the plaintiff. The...