Date: Thu, 2 May 1996 18:39:08 +0100 (BST) To: restitution@majordomo.srv.ualberta.ca From: eodell@tcd.ie (Eoin O' Dell) Subject: restitution Casenote Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Hi all, I've been in email contact with a colleague of ours in Canada, in which I berated the loneliness of the long distance restitution lawywer, commenting that as the only person in Ireland doing restitution I had no-one to bounce ideas off etc, and he commented that thing were much the same in Canada where there were a few such persons but spread across the continent. Then he said that he had hoped that the restituiton list would supply that sense of community which is missing when one is the only person as far as the eye can see reading / writing / eating / breathing / sleeping restitution (sorry I got a bit carried away, perhaps not sleeping). Anyway, he has a point. And I've got a note I'd like to run by you. It's drafted as an LQR note, though I suspect that it's too long for the LQR and will have to be sent elsewhere. But that's for when I decide to send it to a journal. Right now I just want to know whether colleagues think it should be sent anywhere (except perhaps a morgue). To those of you who read further, many thanks. Eoin O'Dell. Trinity College, Dublin. Negligent Solicitors and Wills: A Further Footnote. Equitable Maxims, Trusts and Restitution. Consider the following fact scenario. A donor retains the services of a professional to ensure that the plaintiff will get certain of the donor's property, but the professional directs it intead to the recipient. Here, the intended beneficiary, the plaintiff, has lost and the recipient has gained by virtue of the actions of the professional. In principle, the plaintiff can sue the professional in tort for negligence; it may be that he can in the alternative sue the recipient in restitution. The negligence action is secure at least since the House of Lords' decision in White v. Jones [1995] 2 A.C. 207 (H.L). Tony Weir, commenting on that case in an earlier volume of this Quarterly, suggested that a better solution would be provided by an action based upon the Inheritance (Provision for Family and Dependants) Act 1975, by which the plaintiff sued the recipient directly ((1995) 111 L.Q.R. 357). However, S.M. Cretney subsequently pointed out that this statutory mechanism is not suited to this end ((1996) 112 L.Q.R. 54). A contemporary Irish case suggests, however, that the recipient may be held to have received the proceeds on trust for the plaintiff. That being so, the trust provides an alternative mechanism by which to achieve Weir's suggestion. The Irish case is Shanahan v. Redmond (High Court, unreported, 21 June 1994, Carroll J; [1996] - I.R. -- (forthcoming)). The donor had originally instructed a life assurance company to name the defendant as beneficiary of a trust comprised in a life assurance savings policy, but subsequently sought to install the plaintiff as the beneficiary in the defendant's place. His first attempt to achieve this by a Deed of Appointment having failed, he gave clear instructions, sufficient according to the terms of the policy, to the insurance company to cancel the policy and replace it with a similar one under which the plaintiff would be the beneficiary. These instructions were never carried out, and the recipient was paid on foot of the policy. Carroll J. held that the policy must be treated as if it were a substitute policy in which the plaintiff was named as the sole beneficiary in place of the beneficiary, on the basis of the application of the equitable maxim that equity regards as done that which ought to be done. The obligation on the insurance company under the policy following the written notice ought to be treated as if it had been performed. In effect, the recipient held on trust for the plaintiff (which was the express result of the earlier and similar McMechan v. Warburton [1896] 1 I.R. 435 (Chatterton V.C.); aff'd [1896] 1 I.R. 441 (C.A.)). Applying the same principle to the facts of White v. Jones, the beneficiary under the will would therefore be deemed to hold the proceeds on trust for the intended beneficiary. Conversely, the White v. Jones principle, (and its Irish antecedent, Wall v. Hegarty [1980] I.L.R.M. 124 (H.Ct.)) could easily have been applied on the facts of Shanahan so that the plaintiff would have had a cause of action against the insurance company to recover the value of the disposition which he would have received if the company had been negligent in directing it to the recipient. (Of course, if both remedies exist, the plaintiff would have to elect between them rather than have the benefit of both; and it may be that if the plaintiff successfully sues the recipient, the recipient in turn, to the extent that he relied upon the receipt, may have an action against the negligent professional). Of the two competing remedies, the merits of the tort claim have been analysed in the many commentaries on White v. Jones, of which Weir's note is an important example; it is submitted here that the solution in Shanahan is not justified in terms of the doctrines of equity deployed in the case, though a personal remedy in restitution probably would be. It is the unarticulated consequence of the decision that the recipient held on trust for the intended beneficiary, and it thus supplies an example of the (putative) "perfection" aim of constructive trusts (see Elias, Explaining Constructive Trusts (Oxford, 1990) esp p. 50). However, it is a cardinal principle of equity that it will not perfect a gift, (e.g. "Š the expectant donee has no equity to compel the completion of the gift. That is good sense and good law." Re Wilson [1933] I.R. 729, 739 per Johnston J.); indeed, it could not be otherwise, given that equity will presume a gift to be held on resulting trust for the donor, unless there is good reason to the contrary. The argument gave the Vice-Chancellor in McMechan much trouble, though, on the facts, he held that since the donor was settling her disposition upon a trust, she was within an exception to the rule. Elias's treatment of the "perfection" aim does not convincingly displace the rule that equity will not perfect a gift, and what the court in effect did here was impermissibly to perfect a gift in favour of the intended beneficiary. Again, the beneficiary under a life assurance policy is usually a volunteer, and it is clear that "volunteers are unable to take advantage of the maxim" that equity regards as done that which ought to be done (Meagher, Gummow and Lehane, Equity. Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992) p. 95) Be that as it may, Shanahan has already been criticised academically in Ireland on the ground that it gave the benefit of this maxim to a volunteer (Delany, Equity and the Law of Trusts in Ireland (Round Hall Sweet & Maxwell, Dublin 1995) p. 32). In this regard, two issues must be separated. First, take the general case posited in the scenario at the beginning of this note. There the intended beneficiary is indeed a volunteer, and he would not be entitled to the benefit of the maxim. Second, Shanahan in fact represents a subtle twist on the general case. When the donor sought to replace the recipient as the beneficiary, he instructed that he, the donor, would be the new beneficiary. Thus, on the facts, both the donor and the intended beneficiary were the same person; the donor was the payor of the premia on the life assurance policy and since he had indeed thereby given value, it may be said that the intended beneficiary, who is also the donor, is not a volunteer and is thus properly able to take advantage of the maxim. However, the courts are astute to distinguish the capacities in which a person acts, and actions done in one capacity may have no effect when that person acts in another capacity. Thus, in Beswick v. Beswick [1968] A.C. 58 (H.L.), it was held that Mrs. Beswick as a stranger to a contract which had been made for her benefit could not enforce the contract in her own right, but that, in her capacity as executor of one the parties to the contract, she could enforce it. Similarly, here, though the donor and the intended beneficiary happen to be one person, he had two separate capacities, as Mrs. Beswick had; in his capacity as the intended beneficiary, he was a volunteer, unable to take advantage of the maxim. Furthermore, a lesson of Walsh v. Lonsdale (1882) 21 Ch.D. 9 is that it is only to the extent that a court will order specific performance that the maxim is properly applicable (see e.g. Coughlan, Property Law in Ireland (Gill & Macmillan, Dublin, 1995, p. 311). Whether or not the donor can compel the professional to carry out his instructions, in the general case the intended beneficiary certainly cannot. In the specific example of Shanahan, where donor and intended beneficiary are the same person, Beswick may very well insist upon distinguishing the two capacities, so that qua intended beneficiary, such specific performance would still be unavailable. Thus, the equitable maxim equity regards as done that which ought to be done does not provide any foundation upon which to predicate liability both in our general case and on the facts of Shanahan, (and, parenthetically, the rules that equity will not perfect a gift, that a volunteer cannot call in aid the maxim that equity regards as done that which ought to be done, and that it is only if equity can order specific performance that it will give a plaintiff the benefit of the maxim, are all therefore seen to amount to three different ways of expressing the same proposition.) Nevertheless, underlying the result in Shanahan is the intuition that the intended beneficiary should have a remedy as against the recipient. Such a result may be explained on the basis that the remedy prevents the recipient being unjustly enriched at the expense of the intended beneficiary. Certainly, the recipient has received funds intended for him and is thereby enriched at his expense. However, one must ask whether, for the purposes of the law of restitution, it can properly be said that the recipient's enrichment is unjust. The best candidate "unjust" factor is "ignorance"; which is "that factor which calls for restitution when wealth is transferred to a defendant wholly without the knowledge of the plaintiff" (Birks, An Introduction to the Law of Restitution (Clarendon Press, Oxford, 1985, revised 1989, p. 142). The condition of receipt by the defendant without the plaintiff's knowledge is satisfied both when the plaintiff expects to receive the enrichment and subsequently discovers that it is has in fact gone to the recipient, and when the plaintiff does not know that he was to have been the recipient until after the defendant's receipt. Thus, on the facts both of White v. Jones and Shanahan there would seem to be at least a prima facie case in favour of a remedy in restitution. Of course, as is almost inevitable in a dynamic and developing subject, such a simple analysis is contestable. First, in a casenote on the decision of the Court of Appeal in White v. Jones, Barker suggested that such an action in restitution ought not to be available, principally because to do so "provides little incentive to the negligent solicitor to take care". ((1994) 14 O.J.L.S. 137, 138-139; citing Cane (1983) 99 L.Q.R. 346, 349). This assumes that the restitution action necessarily excludes a tort action; but if the claims are concurrent, then the hortatory threat of the negligence action remains, and does not of necessity exclude the restitution action. Second, and more fundamentally, the notion of ignorance as an unjust factor is deeply controversial. Thus Goff and Jones "doubt whether ignorance can properly be of itself the ground of restitutionary claim" (p. 107), though if that which renders an enrichment unjust in principle is that it has been received unintentionally, non-consensually, or non-voluntarily, it is difficult to resist Birks' conclusion that receipt without knowledge is a paradigm example of such an unjust enrichment (cp. Burrows (The Law of Restitution (Butterworths, London, 1993) p. 139). Third, there are difficulties with whether it can properly be said that the recipient's enrichment is at the expense of the intended beneficiary. Where a defendant directly takes the plaintiff's money, he is enriched by subtraction from the plaintiff. Where, however, the defendant intercepts money certainly intended for the plaintiff, then, for Birks, he is as surely enriched at the plaintiff's expense. Birks describes this enrichment by intervention as an "interceptive subtraction". This notion of interceptive subtraction has come in for cogent criticism from Smith, especially on facts such as those in White v. Jones or Shanahan. ((1991) 11 O.J.L.S. 481). His critique is primarily twofold. First, he argues (at pp. 486-487) that it is difficult in fact to be sure that the enrichment "would certainly have arrived in the plaintiff if it had not been intercepted by the defendant" (Birks, pp. 133-134; emphasis supplied). Second, Smith argues that in principle the intended beneficiary has lost nothing, since the recipient "has been enriched at the expense of the donor, not of the intended beneficiary" (Smith, p. 517). As to certainty, difficulties of fact should never impugn the validity of a principle (any principle), such factual problems merely serve to limit the number of successful cases. Furthermore, in both McMechan and Shanahan, it was specifically held that the donor's instructions to the solicitor and insurance company respectively were sufficient (hence Carroll J's invocation of the equitable maxim in Shanahan; cp. Smith p. 486, n. 21). Indeed, it is the fact that the donor has done all that he can do (but someone else later in the chain has not) that distinguishes this situation from the cases in which equity will not complete a gift, since, in those cases, the reason why the gift is incomplete is that the donor did not do all that he must. As to Smith's second point, it is telling, but it may be objected that if the donor has intended to part with the enrichment, and has done all that he can do to direct the enrichment to the intended beneficiary, it is difficult to understand how anyone's enrichment in respect of something with which the donor has intentionally parted can be an enrichment at his (the donor's) expense. Consequently, if the recipient's enrichment is at anyone's expense, it must be at the expense of the intended beneficiary. If all such arguments are resolved in favour of interceptive subtraction and ignorance, then these concepts provide a ready explanation for the result in Shanahan. Indeed, the ease with which these concepts explain it suggests strongly that the issues of principle should be resolved in their favour. Any such remedy in restitution would in the first instance be a personal one, consisting of a duty to pay the value of the enrichment received. A proprietary remedy would require to fulfil further conditions the precise scope of which is still contested (contrast, for example, the relatively active role perceived for such remedies in Goff and Jones, The Law of Restitution (4th ed., Sweet & Maxwell, London, 1993) pp. 93 - 102, with Burrows' assertion that in general there is "no convincing justification for giving proprietary, rather than personal, restitutionary remedies" (Burrows, p. 43; cp. pp. 369 et seq. )). Nevertheless, in A.G. for Hong Kong v. Reid [1994] 1 A.C. 324 (P.C.), Lord Templeman held that the recipient of a bribe was to account for it to his principal at the moment when he received it; and, as equity regards as done that which ought to be done, the very money he received became, in equity, the property of his principal, who could thus maintain a proprietary claim to the money and property purchased with it. Controversy surrounds both the proprietary result (e.g. Crilley, [1994] R.L.R. 57; Pearse, [1994] L.M.C.L.Q. 189) and the application of the maxim to that end (Oakley, [1994]C.L.J. 31, 32-33; Gardner, [1995] C.L.J. 60, 61-63), and, as we have already seen, it is certainly inapplicable both in our general case and on the facts of Shanahan. Thus the imposition of a trust upon the recipient to prevent his unjust enrichment at the expense of the intended beneficiary is inappropriate. It will also usually be unnecessary: on the facts both of Shanahan and of White v. Jones, the personal remedy would have been sufficient. Finally, another chancery case having a bearing on the facts in White v. Jones was brought to greater prominence by virtue of a note in this Quarterly by K.R. Handley ((1994) 110 L.Q.R. 55); it is Bulkley v. Wilford (1834) 2 C.&F. 102; 6 E.R. 1094. In that case, the negligent attorney was himself the recipient, and was deemed to hold the estate on trust for the intended beneficiary. Elias sees this as a case which serves the (putative) "restitution" aim of constructive trusts (Elias, pp. 66 - 71). Nevertheless, it is too special a case from which to derive any but the most oblique support for the restitution remedy argued for here, because that liability is strict, whereas the liability in Bulkley seems to have been fault-based, imposed for the attorney's fraudulent or negligent "breach of duty" (Cp. Seagrave v. Kirwan (1828) 1 Beatt. 157, 166; Lysaght v. McGrath (1882) 11 L.R.(Ir.) 142). In conclusion, then, where a donor hires a professional to ensure that an intended beneficiary will get certain of the donor's property, but the professional directs it instead to the recipient, in principle the intended beneficiary can sue either the professional in tort or the recipient in restitution. Certainly, the trust in Shanahan had this latter effect, and if it is justified, then it may provide a mechanism by which Weir's preferred solution could be implemented; in any case, a personal restitutionary action would have the same effect. Date: Sat, 04 May 1996 15:00:38 +1000 From: Robert Chambers Subject: Re: restitution Casenote To: "restitution@majordomo.srv.ualb" Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Reply to: RE>restitution Casenote Dear Eoin, I appreciate "the loneliness of the long distance restitution scholar", finding myself far from the hum of activity generated by restitution scholars in England (especially the SPTL All Souls seminars organised by Peter Birks). I am fortunate to be working now with 2 other restitution lawyers here at Melbourne: Michael Bryan & Mitchell McInnes. I enjoyed reading your case note and thought that many important points were well handled. There was one hurdle to the argument which I couldn't get over: that the unjust enrichment of an unintended beneficiary under a negligently prepared will was at the expense of the intended beneficiary. One can certainly argue that there has been a non-voluntary transfer to the recipient under the will, which should lead to a (resulting) trust for the donor's estate. However, a trust (or liability) in favour of the intended beneficiary would not be restitutionary. It cannot be explained solely by reference to the unjust enrichment, but depends on the donor's intention to benefit that beneficiary. Those intentions have not been expressed in an effective form and any trust (or liability) in favour of the intended beneficiary would be, in Elias' terms, "perfectionary". Whether one ought to perfect the intentions of the donor is another question. Perfectionary constructive trusts (eg secret trusts, under mutual wills, of family property) depend on an element of reliance or inducement which is missing in the case of a negligently prepared will. It is difficult to find a sufficient justification for ignoring the requirements of the Wills Act, although the fact that the donor is no longer able to perfect those intentions may carry some weight. Anyway, thank you for an excellent contribution to this discussion group. More traffic would be appreciated. Many thanks to Lionel Smith for getting this going. I hope someone will be able to keep it going when Lionel moves to St Hugh's, Oxford (if not Lionel himself at the new location). Robert Chambers U Melbourne Law School Date: Mon, 6 May 1996 14:45:53 -0700 To: restitution@majordomo.srv.ualberta.ca From: liosmith@maildrop.srv.ualberta.ca (Lionel Smith) Subject: Re: restitution Casenote Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Greetings to all from Edmonton, where it is snowing today. Be grateful for your respective climes. Robert Chambers wrote: >I hope someone will be able to keep going when Lionel moves to >St Hugh's, Oxford (if not Lionel himself at the new location). Yes, the list will continue. I have been in touch with the technical people at Oxford and they will be happy to support us. I am not sure how the transition will work, and it may be necessary for everyone to send a new subscription request to the new server. Probably, though, it will be even easier and you will just have a new address for postings. Lionel Smith Date: Thu, 9 May 1996 11:47:49 +0100 (BST) From: Simon Evans To: restitution@majordomo.srv.ualberta.ca Subject: restitution Warman v Dwyer. Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Further to Robert Chambers' questions about the decision of the High Court of Australia in Warman International Ltd v Dwyer (1995) 182 CLR 544 I have one or two of my own. In the conclusion to the judgment it was said that the order should include the following: "That part of the amount found due on the taking of the account which relates to B.T.A.'s profits ... should be secured by an equitable charge over the assets of B.T.A. and that part of that amount which which relates to E.T.A.'s profits ... should be secured by an equitable charge over the assets of that company." Similarly at first instance in United States Surgical Corporation v Hospital Products International Pty Ltd the judge held that the liability of one defendant company (HPI) to account should be secured by a lien over shares in a second defendant company (HPL) that represented the proceeds of the sale to HPL of the business conducted in breach of fiduciary duty. He also concluded that the liability of that other company should not be secured by a lien because of the potential harmful effects on its creditors. (The assumption that a lien might otherwise be available perhaps supports the idea that a proprietary remedy is available in respect of general enrichment.) In Hospital Products, the judge said that he was following Goff and Jones imposing the lien in the exercise of his discretion. There is no discussion of the basis of the charge in Warman v Dwyer. The order in Warman might perhaps be regarded as part of the enforcement of the personal remedy rather than as a proprietary remedy in itself were it not for the fact that a charging order is generally unavailable until the amount due has been ascertained. Does the charge in Warman operate only from when the account has been completed? Without reading too much into this one sentence in the judgment, this does not seem to be what was intended. So what is the basis of these orders? Is anyone aware of any other cases where an account was ordered to be secured in this way? Thanks for any information or insights. Simon Evans. +----------------------------+ | Simon Evans | | Gonville and Caius College | | Cambridge CB2 1TA | | | | (01223) 506940 | +----------------------------+ Date: Thu, 09 May 1996 16:05:54 +1000 From: Robert Chambers Subject: restitution accessory liability To: restitution users Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca In Warman Int Ltd v Dwyer (1995) 182 CLR 544, the High Court of Australia found that the defendant Dwyer, a manager of Warman, was in breach of his fiduciary duty to Warman and liable to account for profits made in a competing business. Two other defendants were companies set up by Dwyer and they were also required to account for profits. However, the companies were liable for knowing assistance. The HCA relies on Gibbs J's judgment in Consul Dev v DPC Estates (1975) 132 CLR 373, 397, for the proposition that an accessory is liable to account for profits, but that case does not provide any authority in support. The HCA gives Warman an election between compensation for loss and account of profits and goes on to say at 569 that "It is arguable that any order for an account of equitable compensation for the loss sustained by Warman should have been made against Dwyer only", ie that accessories should not be liable to compensate for losses. I find this puzzling, for it seems that the opposite should be true: that the normal rule of compensating for harm caused by wrongdoing should apply to the accessory and that there ought to be a reason for allowing restitutionary recovery. The breach of the fiduciary's obligation to subordinate his interests to the plaintiff is sufficient basis for restitutionary recovery (disgorgement) in the absence of loss to the plaintiff, but what is the basis for the same measure of relief against the accessory? I'm not opposed to profit stripping in this case, but find it odd that the HCA thinks that the normal rules are reversed without much consideration of the point. Does anyone know of any authorities on this point (or have any opinion)? Most commentators tend to focus on the degree of knowledge or notice required for accessory liability and not the appropriate measure of liability. Thanks, Robert Chambers U Melbourne Law School From: lsmith@LAW.UALBERTA.CA Date: Thu, 09 May 1996 16:27:45 +0200 To: liosmith@gpu.srv.ualberta.ca Subject: FWD>Warman -Forwarded Date: 5/10/1996 12:23 am (Friday) From: JUDGE.SMTP."Robert_Chambers@muwayf.unimelb.edu.au" To: JUDGE.SMTP("Robert_Chambers@muwayf.unimelb.edu.au") Subject: FWD>Warman Received: from muwayf.unimelb.edu.au by muwayb.ucs.unimelb.edu.au (PMDF V5.0-7 #7200) id <01I4J8ONS05C00MRL9@muwayb.ucs.unimelb.edu.au> for lsmith@law.ualberta.ca; Fri, 10 May 1996 08:26:00 +1000 X-Mailer: Mail*Link SMTP-QM 3.0.2 Content-transfer-encoding: 7BIT Mail*Link(r) SMTP FWD>Warman Hello, Robert. I've tried to send this message twice to the list, but it's bounced. So I'm sending it to you directly. If and when the list comes back up, I'll send it there too. In the meantime: for you delectation ... Best regards, Eoin. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> message >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Robert Chambers asks us for our opinions about Warman v. Dwyer. He characterised the liability of the first defendant as restitutionary and that of the second and third defendants as based on knowing assistance. As to the liability of the first defendant, Robert says that the High Court of Australia >gives Warman an election between compensation for loss and account of >profits and goes on to say at 569 that "It is arguable that any order >for an account of equitable compensation for the loss sustained by Warman >>should have been made against Dwyer only", ie that accessories should not >be liable to compensate for losses. > >I find this puzzling, for it seems that the opposite should be true: >that the normal rule of compensating for harm caused by wrongdoing should >apply to the accessory and that there ought to be a reason for allowing >restitutionary recovery. The breach of the fiduciary's obligation to >>subordinate his interests to the plaintiff is sufficient basis for >>restitutionary recovery (disgorgement) in the absence of loss to the >plaintiff, but what is the basis for the same measure of relief against >the accessory? I'm not opposed to profit stripping in this case, but find >it odd that the HCA thinks that the normal rules are reversed without much >>consideration of the point. I am puzzled by Warman for all sorts of reasons, but I simply thought that this was a product of distance. Robert's questions, and those from Simon Evans, are reassuring in that at least I am in good company. But, for what it's worth this is my take on that aspect of the case (it's hasty, ill-thought out, and probably wrong, but if I can't run it up this particular flagpole, where can I discuss it; and anyway, Robert, you asked for it (heh, heh, heh [evil laugh to fade ...]). I agree with you that we must distinguish between the liability of the receiver and the liability of the dealer. That of the receiver turns upon the fact of receipt, that of the dealer upon the fact of his dishonesty. However, it will not always be so clear whether a given person must be characterised as a reciever or a dealer. For example, every receiver is also a dealer, (or if you will, everyone who receives trust funds is necessarily an accessory in the breach of trust) and could be liable either a reciever or as a dealer, or as both (though usually the issue does not arise and liability is imposed on the basis of receipt). If one wants to go after receipts, one goes after him as a receiver. If one wants to go after compensation, one goes after him as a dealer. Now, what about (as in Warman v. Dwyer) going after him for profits he made from the breach. Restitution lawyers will say this is restitution for unjust enrichment by wrongdoing, and will say that he is being made liable as a receiver. However, I think that the High Court only saw _receipt_ based liabilty as restitutionary, and did not see profit-stripping as restitutionary, since they denied that the basis of the liability here was "unjust enrichment". That being so, they have to characterise his liability as that of a dealer, and characterise the remedy as compensation. Since the liability of a dealer is based on knowledge/dishonesty, that is why the Court speaks this language. In other words, the Court thinks that it is dealing *only* with dealers and not with any receivers. A theme of recent academic work and case law has been the need to develop a coherent statement of the principles of such dealer (accessory) liability, issues such as causation, remoteness, calculation of the measure of compensation, etc. If it is the case that the Court thinks that it is dealing only with dealers, then it may be that the statement puzzling Robert (that it "is arguable that any order for an account of equitable compensation for the loss sustained by Warman should have been made against Dwyer only") is simply an incohate remoteness test in respect of the point beyond which there will be no further liability for dealers. Does this make any sense at all ? Eoin. EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !! ------------------ RFC822 Header Follows ------------------ Received: by muwayf.unimelb.edu.au with SMTP;10 May 1996 03:25:56 U Received: from sun1.tcd.ie (sun1.tcd.ie) by muwayb.ucs.unimelb.edu.au (PMDF V5.0-7 #7200) id <01I4IY76UWYO010ZMM@muwayb.ucs.unimelb.edu.au> for Robert_Chambers@muwayf.unimelb.edu.au; Fri, 10 May 1996 03:25:36 +1000 Received: from [134.226.248.23] (law023.law.tcd.ie [134.226.248.23]) by sun1.tcd.ie (8.7.1/8.6.10) with SMTP id SAA27502 for ; Thu, 09 May 1996 18:25:29 +0100 (BST) Date: Thu, 09 May 1996 18:25:29 +0100 (BST) From: eodell@tcd.ie (Eoin O' Dell) Subject: Warman To: Robert_Chambers@muwayf.unimelb.edu.au Message-id: <199605091725.SAA27502@sun1.tcd.ie> MIME-version: 1.0 Content-type: text/plain; charset="us-ascii" Content-transfer-encoding: 7BIT From: lsmith@LAW.UALBERTA.CA Date: Thu, 09 May 1996 16:28:10 +0200 To: liosmith@gpu.srv.ualberta.ca Subject: FWD>Thanks for your comment -Forwarded Date: 5/10/1996 12:24 am (Friday) From: JUDGE.SMTP."Robert_Chambers@muwayf.unimelb.edu.au" To: JUDGE.SMTP("Robert_Chambers@muwayf.unimelb.edu.au") Subject: FWD>Thanks for your comment Received: from muwayf.unimelb.edu.au by muwayb.ucs.unimelb.edu.au (PMDF V5.0-7 #7200) id <01I4J8PW3CDS00W85B@muwayb.ucs.unimelb.edu.au> for lsmith@law.ualberta.ca; Fri, 10 May 1996 08:26:58 +1000 X-Mailer: Mail*Link SMTP-QM 3.0.2 Content-transfer-encoding: 7BIT Mail*Link(r) SMTP FWD>Thanks for your comments Robert, Many thanks for your encoraging reply. You make two related points, first that it is difficult to see how the enrichment of the recipient is at the expense of the intended beneficiary and not the estate, and second, and in support of the first, that >Whether one ought to perfect the intentions of the donor is another question. >Perfectionary constructive trusts (eg secret trusts, under mutual wills, of >family property) depend on an element of reliance or inducement which is >missing in the case of a negligently prepared will. It is difficult to find a >sufficient justification for ignoring the requirements of the Wills Act, >although the fact that the donor is no longer able to perfect those intentions >may carry some weight. Unsurprisingly, I have conducted a long email exchange with Lionel Smith about this issue, and the note in its current form is a consequence of that. He too insisted on the need to justify the perfection of a gift outside the will. My answer to him and to you is that any such remedy in restitution would in the first instance be a personal one. Indeed, since this remedy is personal and not proprietary, it does not undermine the property rules established by the Wills Act, 1837 (or equivalent legislation such as Ireland's Succession Act, 1965). I will include a sentence or two to this effect in the next interation of the casenote. You might be interested to learn that a US court has however imposed such a constructive trust in Estate of Tolin (1993) 622 So. 2d 988; [1995] R.L.R. #164# 291, a conclusion with which I cannot agree since I am concerned to defend only a personal remedy. As to the problems about "at the expense of" the recipient, first, as a matter of authority, Andrew Tettenborn refers me to Rusden v. Pope (1868) L.R. 3 Ex. 269 in which Kelly C.B. held that where a debtor paid the assingnor rather than the assignee of the debt, the assignee could claim against the recipient-assignor. Second, as a matter of principle, I agree that it is troubling, hence my concession that Lionel's point is telling, and I have no better defence than the (weak) argument in the note and the final rhetorical flourish that the ease with which the concepts ignorance and interceptive subtraction explain the intuition and result in Shanahan suggests strongly that the issues of principle should be resolved in their favour. Though it is difficult to convey an equivocal position in a short note, my position on Shanahan is equivocal, so that it is only if the problems with interceptive subtraction are satisfactorily resolved that I would commit to the personal remedy. Anyway, many thanks again for the reply. If ever you need Irish material, do let me know. Finally, do you think that I should send the final version of the note to the LQR or equivalent journal ? Best regards Eoin. EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !! ------------------ RFC822 Header Follows ------------------ Received: by muwayf.unimelb.edu.au with SMTP;6 May 1996 02:36:24 +1000 Received: from sun1.tcd.ie (sun1.tcd.ie) by muwayb.ucs.unimelb.edu.au (PMDF V5.0-7 #7200) id <01I4DB9QRG0W00WSV7@muwayb.ucs.unimelb.edu.au> for Robert_Chambers@muwayf.unimelb.edu.au; Mon, 06 May 1996 02:35:58 +1000 Received: from [134.226.248.23] (law023.law.tcd.ie [134.226.248.23]) by sun1.tcd.ie (8.7.1/8.6.10) with SMTP id PAA07422 for ; Sun, 05 May 1996 15:05:41 +0100 (BST) Date: Sun, 05 May 1996 15:05:41 +0100 (BST) From: eodell@tcd.ie (Eoin O' Dell) Subject: Thanks for your comments To: Robert_Chambers@muwayf.unimelb.edu.au Message-id: <199605051405.PAA07422@sun1.tcd.ie> MIME-version: 1.0 Content-type: text/plain; charset="iso-8859-1" Content-transfer-encoding: quoted-printable Date: Thu, 09 May 1996 17:59:07 +1000 From: Robert Chambers Subject: Re: restitution accessory li To: "restitution@majordomo.srv.ualb" Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Reply to: RE>restitution accessory liability Further to my question re Warman v Dwyer, Michael Bryan has kindly pointed out that Ford & Lee, Principles of the Law of Trusts, 2d ed, para 2222.1 and Scott on Trusts, para 506, say that third-party participants in a fiduciary's breach of duty are liable to account for profits they make thereby. Robert Chambers U Melbourne Law School Date: 10 May 1996 09:26:43 U From: "Peter Watts" Subject: Re: restitution accessory li To: "restitution@majordomo.srv.ualb" Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Reply to: RE>restitution accessory liability Perhaps Warman and Consul Developments are not true accessory cases, but quasi-receipt cases, where the court finds that the opportunities which are exploited in breach of fiduciary duty are not trust property and cannot be subject to ordinary receipt principles, but at the same time considers that liability ought to be "traceable" to third parties to whom the fiduciary redirects the fruits of the opportunity. Gathergood v Blundell Brown Ltd (No 2) [1992] 3 NZLR 643, CA is a case involving so-called trust property, but also assumes that the duty to account is transmissible by operation of law. I have ceased to find it odd that the HCA pro tem finds itself free to fashion its own reasons for decision. We are told that appellate courts are there to make law. The declaratory theory, now buried, was a well-meaning lie or otherwise a naive tenet of our primitive ancestors. Peter Watts. -------------------------------------- Date: 9/5/96 6:21 PM To: Peter Watts From: restitution@majordomo.srv.ualb In Warman Int Ltd v Dwyer (1995) 182 CLR 544, the High Court of Australia found that the defendant Dwyer, a manager of Warman, was in breach of his fiduciary duty to Warman and liable to account for profits made in a competing business. Two other defendants were companies set up by Dwyer and they were also required to account for profits. However, the companies were liable for knowing assistance. The HCA relies on Gibbs J's judgment in Consul Dev v DPC Estates (1975) 132 CLR 373, 397, for the proposition that an accessory is liable to account for profits, but that case does not provide any authority in support. The HCA gives Warman an election between compensation for loss and account of profits and goes on to say at 569 that "It is arguable that any order for an account of equitable compensation for the loss sustained by Warman should have been made against Dwyer only", ie that accessories should not be liable to compensate for losses. I find this puzzling, for it seems that the opposite should be true: that the normal rule of compensating for harm caused by wrongdoing should apply to the accessory and that there ought to be a reason for allowing restitutionary recovery. The breach of the fiduciary's obligation to subordinate his interests to the plaintiff is sufficient basis for restitutionary recovery (disgorgement) in the absence of loss to the plaintiff, but what is the basis for the same measure of relief against the accessory? I'm not opposed to profit stripping in this case, but find it odd that the HCA thinks that the normal rules are reversed without much consideration of the point. Does anyone know of any authorities on this point (or have any opinion)? Most commentators tend to focus on the degree of knowledge or notice required for accessory liability and not the appropriate measure of liability. Thanks, Robert Chambers U Melbourne Law School ------------------ RFC822 Header Follows ------------------ Received: by law.auckland.ac.nz with SMTP;9 May 1996 18:19:13 U Received: from quartz.ucs.ualberta.ca (quartz.ucs.ualberta.ca [129.128.5.19]) by mailhost.auckland.ac.nz (8.7.3/8.7.3-ua) with ESMTP id SAA28617; Thu, 9 May 1996 18:11:08 +1200 (NZST) Received: (from majordom@localhost) by quartz.ucs.ualberta.ca (8.7.5/8.7) id AAA18584 for restitution-outgoing; Thu, 9 May 1996 00:07:58 -0600 Received: from muwayb.ucs.unimelb.EDU.AU (muwayb.ucs.unimelb.EDU.AU [128.250.20.7]) by quartz.ucs.ualberta.ca (8.7.5/8.7) with ESMTP id AAA15251 for ; Thu, 9 May 1996 00:07:52 -0600 Received: from muwayf.unimelb.edu.au by muwayb.ucs.unimelb.edu.au (PMDF V5.0-7 #7200) id <01I4IAISMLCG00VA6C@muwayb.ucs.unimelb.edu.au> for restitution@majordomo.srv.ualberta.ca; Thu, 09 May 1996 16:07:43 +1000 Date: Thu, 09 May 1996 16:05:54 +1000 From: Robert Chambers Subject: restitution accessory liability To: restitution users Message-id: X-Mailer: Mail*Link SMTP-QM 3.0.2 Content-transfer-encoding: 7BIT Sender: owner-restitution@majordomo.srv.ualberta.ca Precedence: bulk Reply-To: restitution@majordomo.srv.ualberta.ca Date: Fri, 10 May 1996 09:27:59 -0700 To: restitution@majordomo.srv.ualberta.ca From: liosmith@maildrop.srv.ualberta.ca (Lionel Smith) Subject: restitution couple of cases Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Greetings all, I have two short points relating to recent discussions. On Eoin O'Dell's very thoughtful note and Robert Chambers' reply, I might mention that _Re Dreger Estate_ (1994) 97 Man R (2d) 39; [1994] 10 WWR 293; [1995] RLR #98 (CA) is an interesting case. On Warman v. Dwyer, Simon Evans wrote: >So what is the basis of these [charging] orders? Is anyone aware of any >other >cases where an account was ordered to be secured in this way? In _The Wa-Yas_ (1992) 55 FTR 1; [1993] RLR #53 (Fed Ct. Trial Div); aff'd 159 NR 238; [1995] RLR #76 (CA), the plaintiff did work on the defendant's vessel. He was awarded a quantum meruit, and the trial judge added a constructive trust for no other reason than to secure the claim, opining that the defendant might render himself unable to satisfy the judgment. The CA affirmed. Even in Canada, where constructive trusts are rather easier to get than elsewhere, I was a little surprised at this. Moreover, it should really have been a lien/charge, not a trust. Lionel Smith Faculty of Law, University of Alberta Edmonton, Alberta, Canada T6G 2H5 Tel 403 492 2599; Fax 403 492 4924 Date: Fri, 10 May 96 10:17 BST X-Sender: at10006@cus.cam.ac.uk To: restitution@majordomo.srv.ualberta.ca From: at10006@cus.cam.ac.uk (Andrew Tettenborn) Subject: Re: restitution accessory liability Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca >In Warman Int Ltd v Dwyer (1995) 182 CLR 544, the High Court of Australia >found that the defendant Dwyer, a manager of Warman, was in breach of his >fiduciary duty to Warman and liable to account for profits made in a competing >business. Two other defendants were companies set up by Dwyer and they were >also required to account for profits. However, the companies were liable for >knowing assistance. The HCA relies on Gibbs J's judgment in Consul Dev v DPC >Estates (1975) 132 CLR 373, 397, for the proposition that an accessory is >liable to account for profits, but that case does not provide any authority in >support. > >The HCA gives Warman an election between compensation for loss and account of >profits and goes on to say at 569 that "It is arguable that any order for an >account of equitable compensation for the loss sustained by Warman should have >been made against Dwyer only", ie that accessories should not be liable to >compensate for losses. > >I find this puzzling, for it seems that the opposite should be true: that the >normal rule of compensating for harm caused by wrongdoing should apply to the >accessory and that there ought to be a reason for allowing restitutionary >recovery. The breach of the fiduciary's obligation to subordinate his >interests to the plaintiff is sufficient basis for restitutionary recovery >(disgorgement) in the absence of loss to the plaintiff, but what is the basis >for the same measure of relief against the accessory? I'm not opposed to >profit stripping in this case, but find it odd that the HCA thinks that the >normal rules are reversed without much consideration of the point. > >Does anyone know of any authorities on this point (or have any opinion)? Most >commentators tend to focus on the degree of knowledge or notice required for >accessory liability and not the appropriate measure of liability. > >Thanks, >Robert Chambers >U Melbourne Law School > > > I agree that it is rather curious that the Dwyer companies should not have to pay equitable compensation, assuming they had the requisite degree of knowledge (or, at least in English law, `dishonesty': see Royal Brunei Airlines v Tan (1995)). As for their liability to disgorge, isn't the best way to deal with this to say that the liability for knowing assistance in a breach of trust or fiduciary duty is - in substance if not in form - a liability for a wrong? Although it has in the past been called a species of constructive trust, this is a misnomer: the defendant isn't a trustee of anything, since there isn't anything for him to be a trustee of. And, of course, if we say that the knowing assister is liable for a wrong, then it isn't too hard to say that his duty to disgorge profits is simply a variety of restitution for wrongs? Andrew Tettenborn, Pembroke College, Cambridge, UK. Date: Sun, 12 May 1996 11:26:20 +0100 (BST) To: restitution@majordomo.srv.ualberta.ca From: eodell@tcd.ie (Eoin O' Dell) Subject: restitution Warman v. Dwyer Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Hello, all. Robert Chambers asks us for our opinions about Warman v. Dwyer. He characterised the liability of the first defendant as restitutionary and that of the second and third defendants as based on knowing assistance. As to the liability of the first defendant, Robert says that the High Court of Australia >gives Warman an election between compensation for loss and account of >profits and goes on to say at 569 that "It is arguable that any order >for an account of equitable compensation for the loss sustained by Warman >>should have been made against Dwyer only", ie that accessories should not >be liable to compensate for losses. > >I find this puzzling, for it seems that the opposite should be true: >that the normal rule of compensating for harm caused by wrongdoing should >apply to the accessory and that there ought to be a reason for allowing >restitutionary recovery. The breach of the fiduciary's obligation to >>subordinate his interests to the plaintiff is sufficient basis for >>restitutionary recovery (disgorgement) in the absence of loss to the >plaintiff, but what is the basis for the same measure of relief against >the accessory? I'm not opposed to profit stripping in this case, but find >it odd that the HCA thinks that the normal rules are reversed without much >>consideration of the point. I am puzzled by Warman for all sorts of reasons, but I simply thought that this was a product of distance. Robert's questions, and those from Simon Evans, are reassuring in that at least I am in good company. But, for what it's worth this is my take on that aspect of the case (it's hasty, ill-thought out, and probably wrong, but if I can't run it up this particular flagpole, where can I discuss it; and anyway, Robert, you asked for it (heh, heh, heh [evil laugh to fade Š]). I agree with you that we must distinguish between the liability of the receiver and the liability of the dealer. That of the receiver turns upon the fact of receipt, that of the dealer upon the fact of his dishonesty. However, it will not always be so clear whether a given person must be characterised as a reciever or a dealer. For example, every receiver is also a dealer, (or if you will, everyone who receives trust funds is necessarily an accessory in the breach of trust) and could be liable either a reciever or as a dealer, or as both (though usually the issue does not arise and liability is imposed on the basis of receipt). If one wants to go after receipts, one goes after him as a receiver. If one wants to go after compensation, one goes after him as a dealer. Now, what about (as in Warman v. Dwyer) going after him for profits he made from the breach. Restitution lawyers will say this is restitution for unjust enrichment by wrongdoing, and will say that he is being made liable as a receiver. However, I think that the High Court only saw _receipt_ based liabilty as restitutionary, and did not see profit-stripping as restitutionary, since they denied that the basis of the liability here was "unjust enrichment". That being so, they have to characterise his liability as that of a dealer, and characterise the remedy as compensation. Since the liability of a dealer is based on knowledge/dishonesty, that is why the Court speaks this language. In other words, the Court thinks that it is dealing *only* with dealers and not with any receivers. A theme of recent academic work and case law has been the need to develop a coherent statement of the principles of such dealer (accessory) liability, issues such as causation, remoteness, calculation of the measure of compensation, etc. If it is the case that the Court thinks that it is dealing only with dealers, then it may be that the statement puzzling Robert (that it "is arguable that any order for an account of equitable compensation for the loss sustained by Warman should have been made against Dwyer only") is simply an incohate remoteness test in respect of the point beyond which there will be no further liability for dealers. Does this make any sense at all ? Eoin. EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !! Date: Wed, 15 May 1996 22:13:00 -0700 To: restitution@majordomo.srv.ualberta.ca From: liosmith@maildrop.srv.ualberta.ca (Lionel Smith) Subject: restitution New case on constructive trusts Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Greetings all, I have just made available to everyone on this list a recent decision of the Ontario CA on constructive trusts: Barnabe v Touhey (1995) 26 OR (3d) 477. It is very brief but important, I think, at least for Canada. It holds that you cannot have a constructive trust imposed for no other purpose than to provide priority in a bankruptcy. The decision says nothing of the facts, so if you want them you will have to read the trial judgment at (1994) 18 OR (3d) 370 (or you can rely on the summary at [1995] Restitution Law Review #111). It might be of interest to know that one member of the panel (Catzman JA) is an authority on secured lending (he wrote the book in Ontario ... literally ... I think to a large extent he wrote the governing Act too). Although the judgment is given as "By the Court," I suspect he was the driving force. To get the case, you need to send an email to our majordomo server, that is majordomo@majordomo.srv.ualberta.ca (not restitution@majordomo.srv.ualberta.ca, the address for postings). Leave the subject line blank and in the body of the message put get restitution restfiles/barnabe.txt You will get the case as an email. Let me know if there are any difficulties. By the way, for those who do not know about the Restitution Law Review, there is info on the Web at http://gpu.srv.ualberta.ca/~liosmith/rlr.html All the best, Lionel Date: Mon, 20 May 1996 21:51:28 +0100 (BST) To: restitution@majordomo.srv.ualberta.ca From: eodell@tcd.ie (Eoin O' Dell) Subject: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca The defence of "passing on" is getting a very bad press. _Air Canada_, we are told, doesn't fly; the High Court of Australia has, it seems, come out against it. Now the Court of Appeal is beginning to get in on the act. In today's Lodon Times comes a report of _Kleinwort Benson Ltd v Birmingham City Council_, a case in which the defence was not allowed to a local authority in ultra vires receipt of a loan for swaps. (A summary of the Times summary follows). I don't understand the utter rejection of the defence. If we focus on Air Canada, we find that La Forest says first that there is a defence of passing on, and second, that the fiscal chaos which would otherwise happen makes the defence desirable on the facts. In the equivalent Irish case of _Murphy v AG_ [1982] IR 241 (unjustly ignored except by Prof Birks), Henchy J held that taxes paid pursuant to an unconstitutional taxing statute were exacted colore offici, and that the plaintiffs had a prima facie cause of action (partially) met on the facts (in respect of most potential defendants) by the defence of change of position, and _after_ he had dicussed the defence, he too seemed to refer to the fiscal chaos which made a defence desirable on the facts. In other words, fiscal choas, if valid, is a policy which makes a defence desirable when the government is a defendant, it is not peculiarly attached to the defence of passing on. Having separated out the issues of passing on and fiscal chaos, and putting to one side the issue of fiscal choas, it is possible to address the issue simply of the desirability of the defence of passing on; and in principle I incline to the view that it is desirable: if A demands that B pay A, and B having paid, increases his costs to C, then the enrichment in A's hands is at C's expense not B's. We can say that B has passed on his loss, and thus that B is not the proper plaintiff, C is. If that is all that the defence of passing on asserts, then it seems to me sound in principle. Why should it change matters that there is only one B and many Cs ? C (or all of them) should sue A, and if that is felt improbable, then consider the number of class action suits that there have been. Anyway, what do colleagues think of the above ? Eoin O'Dell. And, now: the case which is the excuse for this rant: Kleinwort Benson Ltd v Birmingham City Council (The Times, 20 May 20 1996; Court of Appeal 9 May 1996) The defence of passing on or windfall gain was not available to a local authority which had entered into interest-rate swap contract with a bank and sought to counter a claim for restitution based on unjust enrichment by asserting that the bank had or might have hedged the contract so as to suffer no loss. The Court of Appeal (Lord Justice Evans, Lord Justice Saville and Lord Justice Morritt) so held when dismissing an appeal by Birmingham City Council against a decision of Mr Justice Gatehouse on December 9, 1994 refusing leave to amend its points of defence and counterclaim and entering final judgment for the plaintiff, Kleinwort Benson Ltd, for £166,479.65 with interest of £184,597.59. LORD JUSTICE EVANS said the council's obligation was to refund or repay the amount it had received and which it was unjust it should keep. It was inconsistent with the principle of repayment to give the concept of loss in this type of case a wider meaning equivalent to "overall losses on the transaction". EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !! Date: Mon, 20 May 1996 08:34:09 +1000 X-Sender: johnm@ecn.net.au To: restitution@majordomo.srv.ualberta.ca From: johnm@ecn.net.au (John Murphy) Subject: Re: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca >The defence of "passing on" is getting a very bad press. _Air Canada_, we >are told, doesn't fly; the High Court of Australia has, it seems, come out >against it. Now the Court of Appeal is beginning to get in on the act. In >today's Lodon Times comes a report of _Kleinwort Benson Ltd v Birmingham >City Council_, a case in which the defence was not allowed to a local >authority in ultra vires receipt of a loan for swaps. (A summary of the >Times summary follows). > >I don't understand the utter rejection of the defence. If we focus on Air >Canada, we find that La Forest says first that there is a defence of >passing on, and second, that the fiscal chaos which would otherwise happen >makes the defence desirable on the facts. In the equivalent Irish case of >_Murphy v AG_ [1982] IR 241 (unjustly ignored except by Prof Birks), Henchy >J held that taxes paid pursuant to an unconstitutional taxing statute were >exacted bhernand@sjulawfac.stjohns.edui, and that the plaintiffs had a prima facie cause of >action (partially) met on the facts (in respect of most potential >defendants) by the defence of change of position, and _after_ he had >dicussed the defence, he too seemed to refer to the fiscal chaos which made >a defence desirable on the facts. In other words, fiscal choas, if valid, >is a policy which makes a defence desirable when the government is a >defendant, it is not peculiarly attached to the defence of passing on. > >Having separated out the issues of passing on and fiscal chaos, and putting >to one side the issue of fiscal choas, it is possible to address the issue >simply of the desirability of the defence of passing on; and in principle I >incline to the view that it is desirable: if A demands that B pay A, and B >having paid, increases his costs to C, then the enrichment in A's hands is >at C's expense not B's. We can say that B has passed on his loss, and thus >that B is not the proper plaintiff, C is. If that is all that the defence >of passing on asserts, then it seems to me sound in principle. Why should >it change matters that there is only one B and many Cs ? C (or all of >them) should sue A, and if that is felt improbable, then consider the >number of class action suits that there have been. > >Anyway, what do colleagues think of the above ? > >Eoin O'Dell. > >And, now: the case which is the excuse for this rant: > >Kleinwort Benson Ltd v Birmingham City Council (The Times, 20 May 20 1996; >Court of Appeal 9 May 1996) > >The defence of passing on or windfall gain was not available to a local >authority which had entered into interest-rate swap contract with a bank >and sought to counter a claim for restitution based on unjust enrichment by >asserting that the bank had or might have hedged the contract so as to >suffer no loss. > >The Court of Appeal (Lord Justice Evans, Lord Justice Saville and Lord >Justice Morritt) so held when dismissing an appeal by Birmingham City >Council against a decision of Mr Justice Gatehouse on December 9, 1994 >refusing leave to amend its points of defence and counterclaim and entering >final judgment for the plaintiff, Kleinwort Benson Ltd, for £166,479.65 >with interest of £184,597.59. > >LORD JUSTICE EVANS said the council's obligation was to refund or repay the >amount it had received and which it was unjust it should keep. It was >inconsistent with the principle of repayment to give the concept of loss in >this type of case a wider meaning equivalent to "overall losses on the >transaction". > > >EOIN O'DELL >Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie > >Trinity College ph (+ 353 - 1) 608 1178 >Dublin 2 fax (+ 353 - 1) 677 0449 >Ireland > >(All opinions are personal; no legal responsibility whatsoever is accepted.) > > Live Long and Prosper !! > > > As a matter of principle, I never place any credence in Governments (or their defence lawyers) claiming the sky will fall in if they lose. It hasn't yet!. It seems to me that if B demands payment from A and A thereby increases his charges to C (however many C's there are), then B should still repay A. The Cs may or may not be ultimately recompensed by the reverse process of A passing on the "saving" The point is that B ought not be unjustly enriched - period. This is particularly so in the case of governments. An order for restitution might focus attention on the sloppy behaviour of those responsible and might lead to their smartening themselves up - to put it crudely. A might have a windfall. So what? A gets a "windfall" in most cases where an account is ordered. The real point, as far as I am concerned is that the defaulting party ought not be allowed keeep its ill-gotten gains (which it does, regardless of the existence of C) unless it is made to disgorge them. This argument has particular cogency, in my view, in the case of public authorities because they are in the positionof trustees - holding their positions, poweres and property in trust for the public and every member of it. Date: Mon, 20 May 1996 08:36:02 +1000 X-Sender: johnm@ecn.net.au To: restitution@majordomo.srv.ualberta.ca From: johnm@ecn.net.au (John Murphy) Subject: Re: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Sorry, forgot to sign the message on "passing on." regards John Murphy 160 Hellawell Road Sunnybank Hills Qld 4109 Australia +61 7 3273-7193 Date: Tue, 21 May 1996 12:55:52 -0700 To: restitution@majordomo.srv.ualberta.ca From: liosmith@maildrop.srv.ualberta.ca (Lionel Smith) Subject: Re: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Eoin O'Dell and John Murphy have been discussing "passing on." I think that the fact that you get can get a windfall in an account of profits based on disgorgement of the profits of wrongdoing does not help us with whether passing on is a defence in subtractive unjust enrichment. In disgorgement for wrongdoing, we do not care whether the plaintiff has suffered a loss or ends up better off (eg Keech v Sandford); in subtractive ue, we are supposed to be reversing a transfer (at least on some views ..). I think Eoin is clearly right that La Forest J in Air Canada intended that passing on and fiscal chaos are two distinct ideas. Indeed, it is not always noticed that he denied the airlines' claim *first* on the basis that the fuel taxes in question were passed on to passengers, with the fiscal chaos point as an alternative. In fact, before he even got to the restitution discussion, La Forest J (with a clear majority on his side) held that the fuel taxes in question had been validly imposed (to put compendiously a complicated legislative history). Thus all of the restitution stuff (in respect of which he was speaking for only three of six judges anyway) could be seen as *obiter*; that includes the abolition of the distinction between mistakes of law and fact. But the bit on fiscal chaos is, as it were, doubly *obiter*, since it comes after two other alternative reasons, each sufficient to deny the claim. It is also not always noticed that a companion case to Air Canada v BC was Canadian Pacific Airlines Ltd v BC, [1989] 1 SCR 1133, 59 DLR (4th) 218. This case was about a different tax, which had been imposed on (i) aircraft and aircraft parts and (ii) in-flight liquor sales. The taxing statute was valid but the court held that it applied to neither of (i) or (ii). Only one airline sought recovery of the taxes. It was allowed to recover in respect of (i) but not (ii). In this case La Forest J was speaking for five of the six judges, and Wilson J's concurring judgment is to the same effect. Relying on the Air Canada decision, La Forest J held that the province could not resist recovery on the basis of mistake of law. Thus, the discussion on mistake of law which was technically *obiter* in Air Canada becomes central in this case. One wonders about Beetz and McIntyre JJ, who expressly chose not to comment on this discussion in Air Canada, but then concurred with La Forest J in CP Air. But more germane to the present discussion is this: although the airline was allowed to recover the tax imposed on aircraft and parts, it was not allowed to recover that imposed on in-flight sales of alcohol. The reason for the latter was not passing on as such, but rather a conclusion that the tax had in fact been paid by the passengers, with the airlines collecting it as agent of the Crown. Leaving that aside as yet another possibility, the result is that in Air Canada the fuel taxes were not recoverable due to passing on; in CP Air, the tax on aircraft and parts was recoverable and passing on was rejected. The BC CA tried to reconcile these positions in Allied Air Conditioning Inc v BC (1993), 87 BCLR 207, 109 DLR (4th) 463, [1994] RLR #60. The majority suggests that the difference is between taxes paid on capital assets (not passed on) versus taxes paid on operating costs (passed on), but the gist is that it is a factual issue. They rejected the trial judge's idea that it depended on whether the tax had been specifically broken out in the charges made to the customer. The last few RLR's will show a number of other Canadian cases that have tackled this issue. The emerging consensus (now supported by Air Canada v Ontario (Liquor Control Board) (1995) 24 OR (3d) 403; 126 DLR 4th 301 (Ont CA), which is on its way to the SCC) (man those airlines like to litigate) is that passing on is a question of fact. I am not sure that it shouldn't be considered a matter of law. We are assuming that P has paid money to (or otherwise enriched) D, but that P has somehow passed on the burden of this to third party (3P). In other words, 3P has in turn paid (or otherwise enriched) P, and there is some connection between the two transactions. It might be that 3P has a claim against P, eg because the basis of 3P's payment to P was that P had to pay a corresponding amount to D. Once it turns out that P did not have to pay D, the basis of 3P's payment to P fails and the payment is recoverable. If anything, this should strengthen P's claim against D, should it not? Another possibility is that 3P has a claim against D. In CP Air, that was because P was acting as D's agent to collect from 3P. I suppose there are other possible ways this could arise? Then, although we are usually averse to letting people pray in aid the rights of others, could D not legitimately defend against P? Not just or even at all because of passing on, but because D is liable for the same amount and cannot be made to pay twice. Most commonly, 3P will have no claim against anyone (as in Kleinwort Benson Ltd v Birmingham City Council, summarized by Eoin); or at least, any such claim will be unclear in litigation between P and D. Then I am not sure that the transaction between 3P and P can be prayed in aid by D. D has to pay P, and if 3P wants to try to claim against P, that is an independent claim based on an independent transaction. To put that another way: assume that P has made out a case against D which is perfect in every way (ie recovery would otherwise follow) except for the passing on argument. If we allow that argument and reject P's claim, are we saying that 3P has a claim against D? Are we saying that 3P might have a claim against D? Are we saying that 3P doesn't have a claim against P? Maybe we should forget passing on, and always allow P to win against D. We then say to 3P: if you have a claim against P, go ahead and prove it; if you establish a claim against D, you will not be able to recover against D because D will be able to plead change of position (assuming D has satisfied the judgment P got against D); but this change of position by D will generate a claim by 3P against P, even if there was not one before. Then neither of D nor P will be able to keep an enrichment which actually came at the expense of 3P (assuming, as we always have to do, that 3P chooses to assert its rights). Lionel Date: Tue, 21 May 1996 13:33:41 +0100 (BST) To: restitution@majordomo.srv.ualberta.ca From: eodell@tcd.ie (Eoin O' Dell) Subject: Re: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca In reply to my rant, John Murphy argued that >It seems to me that if B demands payment from A and A thereby >increases his charges to C (however many C's there are), then B should still >repay A. The Cs may or may not be ultimately recompensed by the reverse >process of A passing on the "saving" The point is that B ought not be >unjustly enriched - period. I agree that B ought not to be unjustly enriched, but B's unjust enrichment is not at A's expense but at C's; therefore the proper plaintiff is C, and to prevent B's unjust enrichment, C and not A should sue. And that is all the "defence" of "passing on" says: it merely says that as between the current parties to the action, the current plaintiff is not the proper plaintiff. For example, in tort, if a defendant breaches his duty of care, we all agree that he should make compensation, but the proper plaintiff is the person who is injured by the breach, not some other person. Thus, if some other person were to sue, the defendant would have as a defence the plea that the current plaintiff is not the proper plaintiff. Likewise here, the recipient must make resitution, but to the person at whose expense he is enriched, not to some other person. >A might have a windfall. So what? A gets a "windfall" in most cases where >an account is ordered. But the difference between A here and the recipient of an account is that in the latter case it is at his expense that the defendant has been enriched, and any windfall in the account comes from difficulties in calculation of the measure of enrichment which are resolved against the defendant. A's windfall here is the same as in the tort example above of a person who was not injured succeeding against a tortfeasor simply because we think that the tortfeasor should pay. Certainly, the tortfeasor should pay, but only the injured party. Likewise, the unjustly enriched defendant should make restitution, but only to the person at whose expsense he is in fact enriched. Otherwise we ignore completely the "at the expense of" stage of the enquiry (or, in Canada, the requirement that there be "a CORRESPONDING deprivation".) EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !! Date: Tue, 21 May 1996 20:21:18 +1000 X-Sender: johnm@ecn.net.au To: restitution@majordomo.srv.ualberta.ca From: johnm@ecn.net.au (John Murphy) Subject: Re: restitution and "passing on". Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca In reply to EOIN. Firstly, us Irish never, never rant - got that? Maybe I'm trying to make the law fit a gut feel, but here goes again. In pure economic loss tort cases there is an underlying policy to prevent the floodgates opening. The High Court of Australia developed (I think) its concept of "proximity" - which Dawson J never agreed with - precisely in response to the floodgates argument; it is an attempt to limit the possible plaintiffs and eliminate those persons who may be ill-defined and very numerous when the tort occurs. So, for instance, where a road gang cuts the electricity lines and my business suffers because my computers crash, I probably cannot sue. Now, I will accept arguendo that I should not have a cause of action for pure economic loss except in certain circumstances where my loss is closely coupled to the defendant's breach. By a sort of converse analogy, the defendant in the these sorts of cases should not escape by pointing to a possibly very large number of ill-defined "Cs" who may have suffered a loss in fact by the defendant's unjust enrichment and be allowed to say, "These other people (I can't really define them) are the real losers and therefore the proper defendants." Part of the policy of the law of torts is deterrence, in my view. Again, by analogy, the defence of passing-on seems to remove any deterrent effect on the offender. Regards John Murphy 160 Hellawell Road Sunybank Hills 4109 Australia +61 7 3273-7193 Date: Wed, 22 May 1996 08:30:09 -0600 (EDT) From: Andrew Kull To: restitution@majordomo.srv.ualberta.ca Subject: restitution Re Barnabe X-Sender: akull@law.emory.edu Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Dear Lionel, Inspired by your note I have looked at the Re Barnabe decision--actually the role of constructive trust in bankruptcy is a hot issue in US restitution these days, the only pity is that the bankruptcy lawyers arguing about it don't realize that it is restitution-- Anyway, my reaction from the point of view of US law, for what it's worth, is two-fold: (1) The broad statements of the Ont Ct of Appeal about the purposes of constructive trust are unnecessary to decide the case, since it has always been necessary to TRACE the funds claimed; here the ct's statement that the partnership account "has generally been in negative balance" is enough to decide right there, because of the rule of "lowest intermediate balance." (2) The ct's statement that a constr trust cannot be imposed for the purpose of granting the beneficiary a priority over the creditors misconceives the function of the constr trust remedy in these circumstances: the real unjust enrichment (where it exists) is precisely the enrichment of the creditors at the expense of the claimant, in that the debtor's obligations are being satisfied with the claimant's (traceable) funds.... So that properly understood, the only time when the constr. trust remedy makes sense in bankruptcy is indeed when the object is to create a priority for the claimant. I think that what I am saying here is absolutely main-line orthodoxy so far as US restitution is concerned; I am curious whether it strikes a Canadian observer as equally obvious. For all I know you may find these suggestions untoward. Best regards Andrew Kull akull@law.emory.edu Date: Thu, 23 May 1996 17:09:11 +0100 (BST) From: Simon Evans To: restitution@majordomo.srv.ualberta.ca Subject: restitution Westdeutsche decided at last. Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Yesterday, the House of Lords decided Westdeutsche Landesbank Girozentrale v Islington LBC yesterday and by a majority of 3:2 allowed the appeal and awarded simple interest from 18 June 1987, the date the Council received the payment from the bank. Lords Goff and Woolf dissented. The speeches run to 69 pages. In briefest outline: All were agreed that there should be no proprietary remedy. The majority would and the minority would not overrule Sinclair v Brougham, Lord Goff regarding it as irrelevant to the decision of the appeal. Professor Birks' tentative advocacy of the resulting trust as a mechanism of restitution found no supporters; William Swadling's recent piece on the subject was enthusiastically adopted. The minority would and the majority would not extend the equitable jurisdiction (and the equitable auxiliary jurisdiction in aid of common law rights of restitution) to award compound interest to cases where it was necessary in order to effect full restitution of the benefits of having the principal sum derived by a payee. The minority regarded the legislature's intervention into the field of interest as making it inappropriate for the courts to extend the jurisdiction. Much ink was spilt in discussing just what President of India v La Pintada [1985] AC 104 decided. The case is full of interesting suggestions and raises a host of issues. No doubt it will keep the readers of this list occupied for some time. Particularly interesting are the observations of Lord Browne-Wilkinson on the possibility of the remedial constructive trust making its way into English law: "Although the resulting trust is an unsuitable basis for developing proprietary restitutionary remedies, the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward. The court by way of remedy might impose a constructive trust on a defendant who knowingly retains property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences are capable of being given effect." Lord Goff saw the case as particularly simple: "Once the character of an interest swap transaction has been identified and understood, and it is appreciated that, because the transaction was beyond the powers of the Council, it was void ab initio, the basic question is whether the law can restore the parties to the position they were in before they entered into the transaction. That is, of course, the function of the law of restitution. I feel bound to say that, in the present case, there ought to be no difficulty about that at all. This is because the case is concerned solely with money. All that has to be done is to order that each party should pay back the money it has received - or, more sensibly, to strike a balance, and otder that the party who has received most should repay the balance; and then to make an appropriate order for interest in respect of the balance. It should be as simple as that. ... The question has arisen whether the Bank should also have the benefit of an equitable proprietary claim in the form of a resulting trust. The immediate reaction must be - why should it? Take the present case. The parties have entered into a commercial transaction. The transaction has ... , for technical reasons, been held to be void from the beginning. Each party is entitled to recover its money ... . But why should the plaintiff Bank be given the additional benefits which flow from a proprietary claim ... ? After all, it has entered into a commercial transaction, and so taken the risk of the defendant's insolvency just like the defendants other creditors who have contracted with it, not to mention other creditors to whom the defendant may be liable to pay damages in tort." Nonetheless he was detained for some 21 pages on Sinclair v Brougham, resulting trusts and President of India v La Pintada. Hopefully someone will make the full text of the speeches available on the list. For the moment, I have included at the end of this posting my brief notes taken on reading the decision today in the hope that some may find them interesting. +----------------------------+ | Simon Evans | | Gonville and Caius College | | Cambridge CB2 1TA | +----------------------------+ Lord Goff saw no reason for awarding a proprietary remedy in such a commercial transaction; the Bank had taken the risk of the Council's insolvency; it was not for the House to attempt to formulate general principles of the law of proprietary remedies; were Sinclair v Brougham to arise today, a personal claim in restitution would not be regarded as enforcing the ultra vires contract; Sinclair v Brougham would therefore fade into history; it should not be overruled on this occasion because any such determination would be obiter; it should stand for the proposition that those who are caught in the trap of advancing money under ultra vires borrowing contracts will not be denied appropriate relief; Professor Birks' argument, written to test the temperature of the water, for a wider role for the resulting trust in the field of restitution has found the water to be decidedly cold; no resulting trust arises; it is unnecessary to consider Chase Manhattan. The question reduced to the jurisdiction to award compound interest in equity in the absence of a proprietary claim; plainly Hobhouse J was correct to regard compound interest as appropriate; the jurisdiction of the court is designed to do justice in the cases that come before it; it is startling that it should be argued that the jurisdiction is limited in a manner that prevents that from being done; where jurisdiction is founded on principles of justice it should not be defined but illustrated by particular categories of case; compound interest is be available where the defendant has wrongfully profited or may be presumed to have profited from having the use of another person's money; it is available in equitable personal claims as well as proprietary claims; without this power the common law remedy would be inadequate so compound interest is available in equity's auxiliary jurisdiction. The appeal should be dismissed. Lord Browne-Wilkinson said that it was common ground that in the absence of agreement or custom there was no jurisdiction to award compound interest at law or under s 35A of the Supreme Court Act 1981; in the absence of fraud equity only awarded compound interest against fiduciaries, by way of recouping improper profits. There could not be a constructive trust imposed because once the Council acquired relevant knowledge there was no possible trust fund. There should be held to be no resulting trust: William Swadling's argument (16 LS 133) was persuasive; such a trust with its tracing and priority implications was inappropriate in relation to a commercial contract that all parties believed was valid and in a context where noone was aware of the existence of the trust; "a new unmanageble risk [would] be introduced into commercial dealings"; there was never a time at which both (a) there was defined trust property and (b) the conscience of the local authority in relation to such defined trust property was affected - the basic requirements of a trust were never satisfied. It could not be argued that something in the transaction caused the Bank to *retain* its equitable title to the money it paid over because prior to payment it was the absolute owner of the money - there was no divided equitable title. The Bank must demonstrate circumstances which raised a trust when the Council received the money or paid it into the mixed account. A resulting trust gives effect to presumed intention: the existence of automatic resulting trusts doubted. There was no need to raise a resulting trust to fill a gap in beneficial ownership; and any presumption of a resulting trust was rebutted by the fact that the Bank paid and the Council received the money with the interntion that the money so paid should become the absolute property of the Council. An actual intention to pass property - and not just an intention to make a gift - rebut the presumption. The misapprehension as to the existence of a binding contract did not alter the acutal intentions of the parties at the date the payment was made or at the date the money was mixed in the bank account. Professor Birks' argument elides (a) rights in the property transferred with (b) rights to the value transferred. A trust cannot exist without defined trust property. Secondly, the idea that a recipient becomes trustee of property under a contract which is subsequently found to be void or the consideration for which subsequently fails is inconsistent with the basic premise that a trust does not arise unless the conscience of the trustee is affected: in the two cases posited there are no circumstances at the date of receipt that impinge on the conscience of the recipient, rendering him or her a trustee. Thirdly, an arbitrary and unprincipled modification would be required to ensure that a resulting trust does not arise when there has only been a failure to perform a contract. As a matter of authority the assertion that there should be a trust fails also. (i) The reasoning of Sinclair v Brougham was no longer sound. (a) Sinclair v Brougham should be overruled in so far as it held that the claim for moneys had and received is based on implied contract. In that case there had been a total failure of consideration. The Court of Appeal in this case was correct to hold that the swap monies were paid on a consideration that wholly failed. The consideration for one party making a payment is an obligation on the other party to make counter-payments over the whole term of the agreement. (b) The decision in Sinclair v Brougham as to rights in rem ought to be overruled: no single ratio may be detected; all the reasoning is open to serious objection; it was only intended to deal with cases where there were no trade creditors in competition. No doubt should be cast by this overruling on the principles of tracing as established in Re Diplock. (ii) Goulding J's reasoning in Chase Manhattan could not be accepted: it is based on a concept of retaining property in money where prior to the payment there was no existing equitable interest; the recipient's conscience cannot be affected at a time when he or she is not aware of any mistake. (Moreover, New York law accepts the existence of the remedial constructive trust; English law "for the most part" has only recognised an institutional constructive trust.) Nonetheless, Chase Manhattan may have been correctly decided: retention of the money once the recipient became aware of the payor's mistake may provide the foundation for a constructive trust. (iii) In re Ames Settlement cast no light on the present question whether *in the absence of an express trust* monies paid on a consideration which wholly fails are held on a resulting trust. Stolen monies are traceable in equity. The law of resulting trusts if developed alond the lines suggested by "those concerned with developing the law of restitution" would confer on the plaintiff a right to recover property from, or at the expense of, those who have not been unjustly enriched at his or her expense at all (for example, the lender whose debt is secured by a floating charge and all other third parties how have purchased an equitable interst only, albeit in all innocence and for value). "Although the resulting trust is an unsuitable basis for developing proprietary restitutionary remedies, the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward. The court by way of remedy might impose a constructive trust on a defendant who knowingly retains property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences are capable of being given effect." Interest should start to run from the date of payment. Compound interest should not be available in equity's auxiliary jurisdiction (as suggested by Lords Goff and Woolf) because Parliament has twice since 1934 considered the issue amd failed to enact that compound interest was available at common law; and at trial the bank advanced no such argument as that put by Lords Goff and Woolf. The appeal should be allowed and simple interest awarded from the date of payment. Lord Slynn agreed with Lord Browne-Wilkinson that Sinclair v Brougham should be departed from; compound interest was only available in equity in cases of fraud and cases involving fiduciaries; but for the existence of legislation, it would have been open to hold that courts could award compound interest either at common law or in the auxiliary jurisdiction of equity; but Parliament having acted further developments were for Parliament. The appeal should be allowed and simple interest awarded from the date of payment. Lord Woolf said that any decision other than one to award compound interest would be inconsistent with the court's ability to grant full restitution. The reasoning of Lords Goff and Browne-Wilkinson convinced Lord Woolf that the Bank had no proprietary claim and the Council did not owe fiduciary duties to the Bank. A wholesale importation of equitable principles is not necessarily the consequence of a finding that the courts have the equitable jurisdiction to make an order for the payment of compound interest in conncection with a the grant of a remedy of restitution. The issue was not primarily one of equitable principles but of equitable remedies. Compound interest would be awarded because it would be unconscionable to allow the Council to make a profit out of a contract which was void because it had exceeded its own powers. Where there is a duty to make restitution equity can achieve full restitution by granting simple or compound interest. It will be appropriate to do so when the defendant has made an actual or presumed profit from being the recipient of a principal sum which he or she has not repaid. If the case is one where there is jurisdiction to award equitable interest then whether compound or simple interest is recoverable depends on the facts of the particular case, depending on what the defendant would have earned. Equity in the case of both compound and simple interest looks to the benefit which the payee has derived from the payment. The common law is concerned with the loss suffered by the payer. In President of India v La Pintada counsel did not address the House on the limits of the equitable jurisdiction to award compound interest. Lord Brandon's remarks were obiter. Nothing in them makes it inappropriate to extend the right in equity so that it extends to the recovery of compound interest ancillary to a restitutionary order. (If there had been a contract in this case and a nonpayment of sums due under the contract, the bank could have recovered compound interest.) Lord Lloyd agreed with Lord Browne-Wilkinson that Sinclair v Brougham should be overruled. The jurisdiction to award compound interest should not be extended in this case: (i) the point was scarcely argued; Hungerfords v Walker was not considered; (ii) the invocation of the auxiliary jurisdiction was difficult to reconcile with the ratio of President of India v La Pintada, and Parliament having acted the further extension of the power to award compound interest can only be achieved by Parliament; (iii) a discretionary power to award compound interest would (as Lord Goff had also observed) be of the greatest use in commercial cases where compound interest reflected the true loss of the claimant, but in commercial cases certainty was paramount and disputes would be fought (rather than settled for simple interest). Date: Thu, 23 May 1996 10:29:39 -0700 To: restitution@majordomo.srv.ualberta.ca From: liosmith@maildrop.srv.ualberta.ca (Lionel Smith) Subject: Re: restitution Westdeutsche decided at last. Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Many thanks to Simon Evans for his generous gift of his notes on Westdeutsche. I expect to get a transcript of the case from the HL office and I will scan it and make it available to the list when it arrives. That is likely to be in a week or so. If anyone has an electronic copy of the judgment already, let me know and we may be able to speed the process. Lionel Lionel Smith Faculty of Law, University of Alberta Edmonton, Alberta, Canada T6G 2H5 Tel 403 492 2599; Fax 403 492 4924 liosmith@gpu.srv.ualberta.ca Date: Thu, 23 May 1996 19:21:41 +0100 (BST) To: restitution@majordomo.srv.ualberta.ca From: eodell@tcd.ie (Eoin O' Dell) Subject: Re: restitution Westdeutsche decided at last. Sender: owner-restitution@majordomo.srv.ualberta.ca Reply-To: restitution@majordomo.srv.ualberta.ca Lionel has expressed: >Many thanks to Simon Evans for his generous gift of his notes on Westdeutsche. Can I second that emotion ? My first paper on restitution was "Restituion and Ultra Vires Contracts" which I delivered to the SPTL in September 1992 (see Birks (1993) UWALR note 4), and I've been waiting for Westdeutsche to come down so that I can finally publish it. Thanks Simon for telling me that the long wait is finally over. The consequence of course is that my mad ideas about Westdeusche will be tried out first on this list. Eoin. EOIN O'DELL Barrister, Lecturer in Law Email: EODELL@mail.tcd.ie Trinity College ph (+ 353 - 1) 608 1178 Dublin 2 fax (+ 353 - 1) 677 0449 Ireland (All opinions are personal; no legal responsibility whatsoever is accepted.) Live Long and Prosper !!