Restitution and Disgorgement

• Author: John D. McCamus
• Pages: 1140-1173

1140

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

Restatement of Restitution.2 The subtitle of the volume, Quasi-contracts

and Constructive Trust, signalled to the reader that Restatementof Res-

titution incorporated doctrines of the common law often referred to as

the law of quasi-contract s and certain doctrines of equity related to t he

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

these seemingly disparate materials could be organized and restated

1 See, generally, JH Bake r, An Introduction to English Legal Histor y, 4th ed (London:

Butterworth s LexisNexis, 2002) ch 11, 16, & 17.

2 American L aw Institute, Restateme nt of Restitution: Qua si-contracts and

Constructive Trusts (St Paul: Amer ican Law Institute, 1937) [Restateme nt of

Restitution]. For the early hi story and development of the analy tical framework

underlying t he Restatement, see A Kull, “James Bar r Ames and the Early Modern

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

Restitut ion and Disgorgement1141

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 Restatementof Restitution in the following ter ms: “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 ineffec-

tive 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 illus-

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

where the payer 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 recovery 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 more coherent, explanation for recovery was that, other-

wise, the mistakenly paid party would be unjustly 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 enrichment recogni zed

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

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

commonwealth jurisdictions and lengthy treatises on the subject have

3 Ibid, s 1.

4 Some evidence of th is 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 referr ing to and applying

sections of the or iginal volume. See also G Pa lmer, The Law of Restitution

(Boston: Little, Brow n, 1978). Although it is true that t he Institute’s attempt

to develop a second rest atement faltered after publish ing a series of tentative

drafts, a t hird restatement has b een published. See America n Law Institute,

Restateme nt of the Law (Third), Restitution and Unju st Enrichment (St Paul:

American L aw Institute, 2011).

5 Orakpo v Manson Investment L td, [1978] AC 95 at 104 (HL),Lord Diplock.

THE LAW OF CONTR ACTS1142

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 agreement

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 con-

ferred 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 fur ther alternative claim avail able to the innocent 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, the Restatementof Restitution and modern treatises

on the law of restitution typically 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 prof‌ited

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

6 C Mitchell, P Mitchell & S Watterson, ed s, Goff & Jones,The Law of Unjust

Enrichment, 9th ed (London: Sweet & Max well, 2016); A Burrows, The

Law of Restitut ion, 3d ed (Oxford: Oxford University Pre ss, 2011); G Virgo,

The Principles of the L aw of Restitution,3d ed (Oxford: Oxford Univer sity

Press, 2015); S Hedley & M Hall iwell, eds, The Law of Restitutio n (London:

Butterworths LexisNexis, 2002).

7 K Mason, JW Ca rter & GJ Tolhurst, Restit ution Law in Australia,3d ed (Sydney:

LexisNex is, 2016); J Edelman & E Bant, Unjust Enr ichment (Oxford: Hart

Publishing, 2 016).

8 RB Grantham & CES Ric kett, Enrichment and Restitu tion in New Zealand

(Oxford: Hart Publi shing, 2000).

9 PD Maddaugh & JD McCamus, The Law of Re stitution, looseleaf (Toronto:

Thomson Reuters, 200 4–) [Maddaugh & McCamus]; GHL Fridman, Restitution,

2d ed (Toronto: Carswell, 1992).

10[1954] SCR 725 [Deglman]. For a brief account, se e JD McCamus, An

Introduction to the Can adian Law of Restitution an d Unjust Enrichment (Toronto:

Thomson Reuters, 2020) ch 2.

11See Chapter 15.

12S ee, for example, Maddaugh & McCamus, above note 9, ch 23.

13 Ibid, ch 24.

14Ibid, c h 27.

15Ibid, ch 28.