Restitution and Disgorgement

• Author: John D. Mccamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 961-992

CHAP TER 24

RESTITUTION AND

DISGORGEMENT

A. INTRODUCTION

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

teenth century as t he law was gradually t ransformed from its orig ins

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

subjects of the law recogni zable to the contemporary lawyer.1 It was not

until the twentieth centur y, however, that a similar process gathered

together various doctrine s 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 St ates in the f‌i rst hal f of the century.

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

statement of Restitution.2 The subtitle of the volume, Quasi-Contracts

and Constructive Trust, signalled to the reader that the Restatement in-

corporated doctrines of the common law often referred to as the law

of quasi-contracts and cert ain doctrine s of equity related to the law of

trusts. The organi zing premise or thesis of the Restatement was that

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

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

2 American L aw Institute, Restatem ent of Restitution, Qu asi-Contracts and Con-

structive Trusts (St. Paul: American L aw Institute, 1937). For the early history

and development of the an alytical framework underl ying the Restatement, see A.

Kull, “James Bar r Ames and the Early Moder n History of Unjust Enrichme nt”

(2005) 25 Oxford J. Legal Stud. 297.

961

THE LAW OF CONTR ACTS962

these seemingly disparate materia ls could be organized and rest ated

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

against unjust enr ichment. The underlying principle was stated boldly

in the f‌i rst section of the Restatement in the following terms: “A person

who has been unjustly enr iched at the expense of another i s required

to make restitution to the ot her.”3 The work then proceeds to restate, in

the manner of the America n restatements, the various rules and doc-

trines of common law and e quity that the in stitute considered to be

unif‌i ed by or explained by that principle. Subsequent chapters of the

volume restated the rules relating to the recovery of benef‌i ts conferred

in a n eme rgenc y, by mist ake, under coerc ion or u nder i neff ectiv e tra ns-

actions and of benef‌i ts acquired through wrongful conduct of various

kinds, including bre ach of f‌i duciary obligation.

Recovery of money paid under a m istake provides a simple illus-

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

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

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

sid ered reco vera ble. O bvio usly, such recov ery is no t gro unde d on ei ther

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

ted to repay the money nor is the receipt of mistaken pay ment itself

tortious. Though the idea had developed that relief could be explai ned

on the basis of an implied undert aking to repay, the institute adopted

the view that the implied contract was a mere f‌i ction and that the pref-

erable, indeed coherent, explanation for recovery was t hat, otherwise,

the mistakenly paid party would be unjust ly enriched.

In response to the institute’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 doctrine of unjust enr ichment recog-

nized in English law.”5 In recent decades, however, the basic approach

adopted in the Restatement appears to have been accepted in the older

3Ibid., s. 1.

4 Some evidence of th is is to be found in the subseque ntly published and updated

volumes 2 and 3 of the Restatement, above note 2, which consist of brief su m-

maries of t housands of American c ases referring to a nd applying sections of

the Restatement. See also G. Pa lmer, The Law of Restitution, (Boston: L ittle,

Brown, 1978). Although it is true th at the Institute’s attempt to develop a second

restatement fa ltered after publishing a s eries of tentative draf ts, substantial

progress ha s now been made on a third restate ment, now titled, Restatement of

Restitutio n and Unjust Enrichment 3d.

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

Restitution a nd Disgorgement 963

commonwealth jurisdictions and lengthy treatises on the subject have

appeared in England,6 Australia,7 New Zealand8 and Canada.9 Indeed,

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

wealth jurisdictions. The American approach was e ssentially adopted

by the Supreme Court of Canada in a rema rkable series of decisions

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

In this chapter, we consider var ious restitutionary cl aims th at may

arise in a transactional or contract ual setting. Of principal concern are

the restitutionar y remedies available upon discharge of an agreement

by breach.11 As we shall see, for the innocent party, the victi m of the

breach of contract, a claim i n restitution for the value of benef‌i ts con-

ferred on the other part y may provide an attractive alternative to t he

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

suggested that a fur ther alternative claim avail able to the innocent party

may be a claim to recover the prof‌i ts secured by the party in bre ach as

a result of the breach of contract. This type of claim, here referred to

as a claim for disgorgement of prof‌i ts, is well recognized in the context

of other kinds of wrongful conduct and, although the point is not free

from content ion, the Restatement and modern treatises on the law of

restitution include an account of disgorgement claim s as an aspect of

the law of restitution. Thus, for example, clai ms for the disgorgement

of prof‌i ts may arise where a defendant has prof‌i ted through crime,12

tort,13 breach of f‌i duciary obligation14 and breach of conf‌i dence.15 Until

recently, however, it has been assumed that such a claim did not lie

where the defendant has merely committed a bre ach of contract. In

6 Lord Goff and G. Jones, The L aw of Restitution, 6th ed. (London: Sweet &

Maxwell, 2 002); A. Burrows, The La w of Restitution, 2d ed. (London: Butte r-

worths, 20 02); G. Virgo, The Principles of the Law of Re stitution (Ox ford: Oxfo rd

University P ress, 1999); S. Hedley and M. Halliwell , eds., The Law of Restitution

(London: Butterworths LexisNexis, 2002).

7 K. Mason and J.W. Carter, Restitutio n Law in Australia (Sydney: Butterworth s,

1995).

8 R.B. Granth am and C.E.S. Rickett, Enr ichment and Restitut ion in New Zealand

(Oxford: Hart, 20 00).

9 P.D. Maddaugh and J.D. McCamus, The Law of Restit ution, 2d ed. (Aurora: Can-

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

1992).

10 [1954] S.C.R. 725.

11 See Chapter 15.

12 See, for example, Mad daugh and McCamus, above note 9, c. 23.

13 Ibid., c. 24.

14 Ibid.,c. 27.

15 Ibid., c. 28.