Restitution and Disgorgement

• Author: John D. McCamus
• Pages: 1030-1062

1030

CHAPTER 24

RESTITUTION AND

DISGORGEMENT

A. INTRODUCTION

The law of contracts and torts adopted its modern shape in the nine-

teenth century as the law was gradually transformed from its origins

in medieval common law and equity into a set of modern categories or

subjects of the law recogniz able to the contemporary law yer.1 It was not

until the twentieth century, however, that a similar process gathered

together various doctrines of common law and equity and reshaped

them as the modern law of restitution. The invention or recognition of

the subject occurred in the United States in the f‌irst half of the century.

In 1937, the American Law Institute published its ground-breaking Re-

statemen t of Restitution.2 The subtitle of the volume, Quasi-contracts and

Constructive Trust, signalled to the reader that Restatementof Restitu-

tion incorporated doctrines of the common law often referred to as the

law of quasi-contracts and certain doctrines of equity related to the

law of trusts. The organizing premise or thesis of the volume was that

these seemingly disparate materials could be organized and restated

1See generally J.H. Ba ker, An Introduction to English Legal History, 4th ed. (Lon-

don: Butterwort hs LexisNexis, 20 02), cc. 11, 16, and 17.

2American L aw Institute, Restatemen t of Restitution: Quasi-contrac ts and Con-

structive Trusts (St. Paul: Amer ican Law Institute, 1937) [Restateme nt of Restitu-

tion]. For the early hi story and development of the analy tical framework under-

lying the Restatement, see A. Kull, “James Barr A mes and the Early Modern

History of Unjust En richment” (2005) 25 Oxford J. Legal Stud. 297.

Restitution a nd Disgorgement1031

on the basis of a common underlying principle, termed the principle

against unjust enrichment. The underlying principle was stated boldly

in the f‌irst section of Restatement of Restitution in the following terms:

“A person who has been unjustly enriched at the expense of another is

required to make restitution to the other.”3 The work then proceeds to

restate, in the manner of the American restatements, the various rules

and doctrines of common law and equity that the institute considered

to be unif‌ied by or explained by that principle. Subsequent chapters of

the volume restated the rules relating to the recovery of benef‌its con-

ferred in an emergency, by mistake, under coercion, or under ineffect-

ive transactions and of benef‌its acquired through wrongful conduct of

various kinds, including breach of f‌iduciary obligation.

Recovery of money paid under a mistake provides a simple illustra-

tion. Under traditional law, moneys paid under mistake of fact — as

where the payor mistakenly believes he is indebted to the payee or mis-

takenly believes that the payee is some other person — has been con-

sidered recoverable. Obviously, such recover y is not grounded on either

contract or tort. There is no contract under which the payee is commit-

ted to repay the money nor is the receipt of mistaken payment itself

tortious. Though the idea had developed that relief could be explained

on the basis of an implied undertaking to repay, the institute adopted

the view that the implied contract was a mere f‌iction and that the pref-

erable, indeed coherent, explanation for recovery was that, otherwise,

the mistakenly paid party would be unjustly enriched.

In response to the In stitute’s initiative, recognition of restitution as

a separate discipline or subject of the law developed rather quickly in

American law.4 Recognition came only more slowly, however, in other

common law jurisdictions. Thus, as recently as 1978, an English judge

stated: “[T]here is no general doctri ne of unjust enrichment recogn ized

in English law.”5 In recent dec ades, however, t he basic approach adopted

in Restatement of Restitution appears to have been accepted in the older

commonwealth jurisdictions and lengthy treatises on the subject have

3Ibid., s. 1.

4Some evidence of thi s is to be found in the subsequent ly published and updated

volumes 2 and 3 of Restate ment of Restitution, above note 2, whic h consist of

brief summ aries of thousands of Ame rican cases refer ring to and applying sec-

tions of the ori ginal volume. See also G. Pal mer, The Law of Restitution (Boston:

Little, Brown, 1978). Although it is tr ue that the Institute’s attempt to develop a

second restateme nt faltered after publishin g a series of tentative dra fts, a third

restatement ha s been published. See Americ an Law Institute, Restate ment of the

Law (Third), Restitution and Unjust Enrichme nt (St. Paul: American Law In stitute,

2011).

5Orakpo v. Manson Investment Ltd ., [1978] A.C. 95 at 104 (H.L.), Lord Diplock.

THE LAW OF CONTR ACTS1032

appeared in England,6 Australia,7 New Zealand,8 and Canada.9 Indeed,

in Canada, recognition came more quickly than in the other common-

wealth jurisdictions. The American approach was essentially adopted

by the Supreme Court of Canada in a remarkable series of decisions

beginning in 1956 with Deglman v. Guaranty Trust Co. of Canada.10

In this chapter, we consider various restitutionary claims that may

arise in a transactional or contractual setting. Of principal concern

are the restitutionary remedies available upon discharge of an agree-

ment by breach.11 As we shall see, for the innocent party, the victim of

the breach of contract, a claim in restitution for the value of benef‌its

conferred on the other party may provide an attractive alternative to

the claim for damages for breach of contract. In recent years, it has

been suggested that a further alternative claim available to the inno-

cent party may be a claim to recover the prof‌its secured by the party

in breach as a result of the breach of contract. This type of claim, here

referred to as a claim for disgorgement of prof‌its, is well recognized

in the context of other kinds of wrongful conduct and, although the

point is not free from contention, Restateme nt of Restitution and moder n

treatises on the law of restitution include an account of disgorgement

claims as an aspect of the law of restitution. Thus, for example, claims

for the disgorgement of prof‌its may arise where a defendant has prof-

ited through crime,12 tort,13 breach of f‌iduciary obligation,14 and breach

of conf‌idence.15 Until recently, however, it has been assumed that such

a claim did not lie where the defendant has merely committed a breach

6Lord Goff & G. Jones, The Law of Restitutio n, 6th ed. (London: Sweet & Max-

well, 2002); A. Burrows, The Law of Restit ution, 3d ed. (Oxford: Oxford Univer-

sity Press, 2011); G. Virgo, The Principles of the Law of Restit ution, 2d ed.(Oxford:

Oxford University P ress, 2006); S. Hedley & M. Halliwel l, eds., The Law of

Restitution (London: Butte rworths LexisNe xis, 2002).

7K. Mason, J.W. Carter, & G.J. Tolhurst, Restitu tion Law in Australia,2d

ed.(Sydney: LexisNex is, 2008); J. Edelman & E. Bant, Unjust Enrichm ent in Aus-

tralia (Melbourne: Oxford Universit y Press, 2006).

8R.B. Grantham & C.E.S. R ickett, Enrichment and Restit ution in New Zealand

(Oxford: Hart Publi shing, 2000).

9P.D. Madd augh & J.D. McC amus, The Law of Restitution, looseleaf (Aurora: Can-

ada Law Book, 20 04–); G.H.L. Fridman, Restitution, 2d ed. (Toronto: Carswell,

1992).

10[1954] S.C .R. 725 [Deglman]. For a brief account, see J.D. McCamus, “Forty

Years of Restitut ion” (2011) 50 Ca n. Bus. L.J. 474.

11See Chapter 15.

12See, for example, Madd augh & McCamus, above note 9, c. 23.

13 Ibid., c. 24.

14 Ibid.,c. 27.

15 Ibid., c. 28.