Why the public might doubt the idea of unjust enrichment

Abstract

Restitutionary claims are important. They are even relevant to such scenarios as restitution of improperly collected taxes and mistaken payments. However, what is the organising idea behind these claims? This question is critical for clarifying the existing law and setting the scene for legal reform. For the first time, this article empirically tests the public’s perception of the current predominant rationale behind restitutionary claims – the notion of unjust enrichment. Since the findings question whether the public supports this rationale, the article joins the growing volume of literature which is sceptical of unjust enrichment.

The recent High Court decision in Redland City Council v Kozik ¹ (Redland) illustrates the significance of restitutionary claims. In this case, landowners argued that Redland City Council (the Council) should not retain improperly levied charges as this would result in the Council being ‘unjustly enriched’. ² The Council argued, among other things, ³ that it would be unjust to return the money to the landowners, as it had already been spent on other publicly desirable projects, and restitution might lead to the financial instability of the Council. ⁴

The application of the ‘unjust enrichment’ theory is not limited to the case of improperly collected taxes. ⁵ Commonly, it is said that a case of mistaken payment epitomises the application of this theory. ⁶ If a plaintiff mistakenly transfers money to a defendant, the reason for making restitution of the money to the plaintiff lies in the argument that it would be ‘unjust’ for the defendant to retain the money. In addition to instances of improperly collected taxes and mistaken payments, unjust enrichment theory aims to provide a unifying rationale for a wide range of restitutionary claims. These may include mistaken improvements to another’s property, mistaken provision of services, disputes between cohabitants, gains received as a result of a wrong payment of another person’s debt and remedies which follow contract frustration. ⁷ Stated in these terms, unjust enrichment theory is relevant for a wide range of societal interactions and commercial dealings.

Within the common law world, it is the late Professor Peter Birks (1941–2004) ⁸ who is considered the founding father of the theory of unjust enrichment, ⁹ and an eminent scholar who ‘sparked a[n unjust enrichment] revolution’. ¹⁰ Following Birks’ works, unjust enrichment was recognised by the House of Lords in the notable Lipkin Gorman ¹¹ case in the United Kingdom (UK), which was swiftly followed by many common law jurisdictions, including Canada, Hong Kong and Singapore, ¹² treating Birks’ ideas as deserving a ‘near-universal approbation’. ¹³ Nowadays, unjust enrichment provides what Birks called a unifying ‘skeleton’ ¹⁴ – the normative underpinning of the majority of restitutionary claims.

Australia stands at a notable crossroads with respect to unjust enrichment theory. The High Court of Australia somewhat ambiguously ¹⁵ has said that unjust enrichment theory should function as an ‘analytical framework’ for restitutionary claims, ¹⁶ leading scholars to wonder whether it could be reasonably argued that Australia has already followed its common law counterparts in adopting this theory. ¹⁷ The situation is particularly puzzling due to the repeated reference to the ‘equity’ foundations of unjust enrichment in the Australian High Court’s decisions. ¹⁸ It was precisely the objection to ‘equity’ that led Birks to advance the theory in the first place, emphasising that equity cannot serve as an appropriate analytical framework for understanding the nature of restitutionary claims. ¹⁹ Notably, the rhetoric of unjust enrichment is evidenced throughout the Court’s reasoning in Redland, ²⁰ characterising unjust enrichment as expressing the ‘conclusion that follows the exposed process of reasoning’. ²¹ It seems fair to say that Australian jurisprudence stands at the crossroads of a full-scale recognition of the unjust enrichment theory. ²²

This article aims to contribute to the present debate about unjust enrichment theory and its possible adoption in Australia. For these purposes, first, the article elaborates on the unjust enrichment theory and the opposition raised against it. Secondly, and for the first time, it offers insight from an empirical study ²³ which tested the public’s perception of some of the basic ideas of unjust enrichment, expressing further concerns about the integration of this theory into Australian jurisprudence.

Unjust enrichment and the emergence of unified opposition

According to unjust enrichment theory, a defendant should return a benefit received from a plaintiff when it would be ‘unjust’ for the defendant to retain this benefit. Peter Birks offered the following formula, ²⁴ which was recently restated by the High Court in Redland, ²⁵ to capture the essence of this idea:

1. Defendant’s enrichment – a plaintiff must demonstrate that the defendant received some benefit or ‘value’ from the plaintiff;

2. At the plaintiff’s expense – a plaintiff must demonstrate a causal link between them and the defendant’s enrichment;

3. The enrichment is ‘unjust’ – a plaintiff must demonstrate that the claim falls within one (or more) of the restitution categories previously recognised by courts, such as mistake, duress, undue influence;

4. Defences – once a plaintiff establishes the first three elements in the formula, it is open to the defendant to raise one (or more) of the defences previously recognised by the courts which could deny restitution.

So, returning to the abovementioned ‘core’ case of mistaken payments, the plaintiff would argue that the defendant received an enrichment/money; the enrichment/money was received from the plaintiff (‘at the expense’); the claim falls within one of the previously recognised categories of restitution – ‘mistake’. The defendant, on the other hand, could argue that they relied on the received enrichment/money and spent it in good faith, invoking the so-called ‘change of position’ defence.

Despite the notable advances in unjust enrichment theory across jurisdictions, resistance against it grows. Thus, Professor Robert Stevens recently published a comprehensive monograph, The Laws of Restitution, ²⁶ challenging the theory of unjust enrichment. Stevens argues that a careful review of UK jurisprudence reveals an inconsistency between this theory and the case law. For example, Stevens shows that the straightforward application of the ‘at the plaintiff’s expense’ element of the formula sometimes leads to absurd results. To demonstrate this point, Stevens offers the following imaginary scenario: the plaintiff and the defendant each own a rare stamp. There are only two stamps of this kind in the world. When the plaintiff accidently destroys their stamp – without any involvement of the defendant – the value of the defendant’s stamp naturally increases. Stevens makes a striking point that, under the theory of unjust enrichment, the defendant should pay to the plaintiff the value of that increase, as the situation perfectly follows the ‘at the expense’ element of the formula. ²⁷ Similarly, Stevens argues that, since the introduction of the notion of unjust enrichment in the UK, the courts have been struggling with such vague concepts as ‘value’ and ‘defences’ and have failed to coherently integrate the various elements of the formula in their reasoning. ²⁸

Fundamentally, Stevens shows that a careful review of the case law challenges what perhaps represents the most important element of the formula – the defendant’s enrichment. As Stevens notes, the judicial reasoning is more concerned with a particular transaction at hand and an objective manifestation of the intentions of the parties, rather than with the question of whether a given defendant was enriched, suffered a loss or remained in the same position. ²⁹ A significant number of restitutionary claims could be understood, according to Stevens, through the notion of defective transactions which focuses on a particular interaction between the parties and is impartial to the consequences of such an interaction. ³⁰ In other words, the courts’ practice suggests that a defendant’s enrichment is a redundant and unnecessary element for the purposes of finding them liable in restitutionary claims; the true unifying basis of those claims must therefore lie elsewhere.

Furthermore, a number of scholars across jurisdictions have recently united in their opposition to the advances of unjust enrichment. Scholars from the UK, Australia, Canada, Hong Kong, New Zealand and the United States (US) have not only joined Stevens in his doctrinal concerns regarding the operation of the unjust enrichment’s formula, but have also grounded their objections in the interdisciplinary perspectives of history, sociology and theory. ³¹ Thus, for example, sceptics have questioned whether the notion of unjust enrichment can be traced in classical common law reasoning. ³² The united opposition has also pointed to the discrepancy between the notion of unjust enrichment and the basic conceptual ideas of justice and fairness governing private dealings. ³³ Finally, sociological concerns have been expressed about the way in which Birks’ ideas have found their place in judicial decisions across jurisdictions. At times, the incorporation of unjust enrichment theory into the jurisprudence could simply be attributed to timing rather than to the normative appeal of the theory. ³⁴

Sceptics of unjust enrichment theory insist it is the underlying rationale of restitutionary claims that matters. In some cases, the application of the 4-step formula of unjust enrichment (or its variations) is just a matter of problematic judicial reasoning, inconsistent rhetoric and poor justification. By following the unjust enrichment formula, the courts have nonetheless reached logical outcomes in some cases. ³⁵ Other cases are more concerning since, in addition to problematic reasoning, the application of unjust enrichment theory has led to implausible results. ³⁶

Within the context of the growing antagonism towards the notion of unjust enrichment, and the clear prospect of its recognition in Australia, one would think that the time is ripe for empirical studies which would test the public’s perception and acceptance of unjust enrichment’s ideas. Empirical studies have become the ‘bread and butter’ of the socio-legal movement which extends its normative inquiry beyond the formal sets of legal rules. ³⁷ Importantly, the alignment (or misalignment) between the public’s vision of a plausible legal response to a given social interaction and the content of the legal rules applicable to that interaction is essential for upholding such critical societal values as trust, compliance and legitimacy of the legal systems. ³⁸ Not surprisingly, it has been recently argued that the public’s view on legal doctrine must play the most central role in the design, operation and reform of private law rules. ³⁹ There is no reason to exclude the field of restitutionary claims from the imminent need to test the public’s support of the current leading legal justification of those claims.

The next section of this article takes a first step in this direction by detailing an introductory study undertaken by the authors which tests unjust enrichment’s justification of: (1) the core case of mistaken payments; and (2) the case of improperly collected taxes, which was recently considered by the High Court in Redland.

The empirical study

The questions and their optional justifications

In this introductory empirical study, we asked respondents to select their preferred outcomes, and reasons for that outcome, in two scenarios.

Question 1:

Joanna goes to pay a $300 electricity bill online. Accidentally, she mixes up the numbers and mistakenly transfers the $300 to Jacob. Should Jacob return the money to Joanna?

• No – there is no reason to return mistakenly transferred money;

• No – if Jacob has already spent the money in good faith, reasonably believing that the $300 was a gift from a friend;

• Yes – because it is Joanna’s money;

• Yes – because otherwise Jacob would be ‘unjustly enriched’ at Joanna’s expense;

• Maybe – while there is no legal obligation for Jacob to return the money to Joanna, Jacob might do so based on moral/ethical reasons.

Question 2:

Joanna pays the tax authority $3000, which it mistakenly requested. Once the authority finds out the tax was improperly collected, it argues that the amount (or part of it) should not be returned to Joanna. Should Joanna receive all the money back from the tax authority?

• No – there is no reason to return improperly collected taxes;

• No – if the tax authority proves that returning money to taxpayers would lead to financial difficulty for the tax authority;

• No – if the tax authority proves that it had already spent the money on other public projects, such as roads, schools, etc;

• Yes – the tax authority must return the money unconditionally, as a matter of the rule of law and the role of public authorities in modern liberal democracies;

• Yes – the tax authority must return the money, as it would otherwise be ‘unjustly enriched’ at Joanna’s expense.

Question 1 follows the core restitutionary case – the case of mistaken payments. Peter Birks, for example, perceived this case as a paradigmatic example for application of unjust enrichment theory, ⁴⁰ arguing that the traditional legal doctrine cannot rationally explain money restitution in that case without invoking some implausible legal fictions. ⁴¹ Our question presents a trivial scenario where the payor (Joanna) mistakenly transfers money to the payee (Jacob). The question tests the public’s perception of such claims (whether the basis of such a claim is legal or moral), unjust enrichment’s justification and the abovementioned ‘change of position’ defence. Importantly, Question 1 also tests the validity of an alternative justification of the mistaken payment case, according to which Jacob must make restitution simply because the money belongs to Joanna. ⁴²

Question 2 follows Redland and other decisions across jurisdictions that have applied the unjust enrichment theory in the context of improperly collected taxes. ⁴³ The question tests the abovementioned unjust enrichment defences of financial instability and ‘change of position’, under which the tax authority could retain the collected amount, or at least a part of it. Importantly, the question also offers an alternative understanding of improperly collected taxes. According to this understanding, restitution is required for reasons of public law regardless of whether the tax authority experiences was enriched, would suffer financial difficulties if required to return the payment, or spent the money on other projects. While the High Court in Redland only briefly mentioned Canadian jurisprudence on this point, ⁴⁴ the Supreme Court of Canada made it clear that improperly collected taxes must be returned as a matter of public justice and the concept of the rule of law, ⁴⁵ while characterising the unjust enrichment theory as ‘ill-suited to deal with the issues’ ⁴⁶ of improperly collected taxes. In other words, it could be argued that a claim for return of improperly collected taxes belongs to the ‘public’ side of the private-public divide and has nothing to do with the private law doctrine of unjust enrichment. ⁴⁷

Methodology

The survey was conducted online using a widely recognised platform known for its user-friendly interface and robust data collection capabilities. ⁴⁸ The survey methodology ensured reliability through several key measures. The sampling strategy had chosen a random selection of 110 respondents, minimising selection bias and enhancing the reliability of findings. The chosen sample size and demographic diversity aimed to achieve a margin of error of ±9.35 per cent at a 95 per cent confidence level, aligning with the best practices in social science research. ⁴⁹ By ensuring a sufficiently large and varied sample, we strengthened the reliability of our findings, allowing for meaningful comparisons across demographic groups and ensuring that the survey results were generalisable to the broader Australian adult population.

Moreover, the reliability of the survey was reinforced through careful questionnaire design. The unambiguous wording in the questions facilitated consistent understanding by the respondents, ensuring their clear answers, minimising response variability and enhancing the reliability of the data collected. ⁵⁰ In addition, the chosen online survey platform’s administration protocols further mitigated potential sources of error, ensuring consistency in data collection procedures. ⁵¹ These protocols included detailed guidelines on the recruitment of respondents, the phrasing and order of questions, and the method of survey distribution. By adhering to these standardised procedures, we minimised variations in how the survey was presented to respondents, reducing the likelihood of introducing biases or inconsistencies in their responses.

Online administration offered several advantages, including accessibility, cost-effectiveness, and the ability to reach a geographically dispersed audience. ⁵² Reminders and incentives for completion were utilised to enhance respondent engagement and ensure a representative sample.

The use of the chosen online platform enabled automated data collection, which further reduced human error and ensured precise recording of responses. ⁵³ The platform's built-in features, such as mandatory response fields, helped to maintain the integrity of the data collection. These features ensured that respondents completed the survey in a structured manner, addressing all relevant questions without skipping critical sections. Additionally, periodic monitoring and auditing of the data collection process enabled the identification and rectification of any anomalies.

Demographic variables, such as age, gender and geographic location, were carefully considered to ensure a balanced representation of the population. ⁵⁴ By including respondents from these variables, the survey aimed to capture diverse perspectives. This approach mitigated potential biases and ensured that findings were reflective of varied viewpoints and regional areas.

Finally, ethical considerations are paramount in survey research. ⁵⁵ Respondents received clear, transparent information about the survey's purpose, the fact that participation was voluntary, and the confidentiality of their responses. Informed consent was obtained from each respondent, affirming their understanding of the survey's objectives and their rights regarding data privacy. ⁵⁶ Measures were in place to protect respondent anonymity and confidentiality throughout the data collection process, ensuring that individuals felt comfortable providing honest and candid responses. ⁵⁷ By adhering to ethical standards, the survey aimed to uphold trust and respect among respondents, contributing to the validity and reliability of the findings.

Findings and conclusions

The findings have confirmed the growing concerns over unjust enrichment theory. With respect to Question 1, which tested the public’s perception of the core case of mistaken payments, the clear majority of respondents (57.27 per cent) said that the reason for restitution in those cases lies in the enforcement of a proprietary right that a given payor holds against a given payee. The money must be returned to the payor because it belongs to them. Despite the fact that a payee received temporary possession or control over the mistakenly transferred funds of $300, the public position says that it does not mean that the proprietary right to the fund has not remained with the payor. An interesting option was proposed by 22.73 per cent of respondents, who suggested that the restitutionary right of the payor could be grounded in ethical/moral rather than legal considerations. This finding opens an opportunity for further research to explore the interrelation between ethical/moral and legal grounds in the context of restitutionary claims. ⁵⁸ The respondents firmly rejected the inherent unjust enrichment theory defence of ‘change of position’ (0 per cent of the respondents) and the option that the defendant should not be liable at all (1.82 per cent of respondents).

The antagonism towards unjust enrichment’s rationale could be also traced with respect to Question 2. The question tested the public’s perception of restitutionary claims for improperly collected taxes. The findings in this context illustrate an even stronger opposition towards unjust enrichment reasoning. Thus, a clear majority of the respondents indicated that the $3000 must be returned to the taxpayer as a matter of public justice and rule of law (69.09 per cent of the respondents). The public authority simply could not keep the funds. The public felt that it does not matter whether restitution would jeopardise the financial stability of the tax authority (only 0.91 per cent of the respondents supported this option) or whether the authority had spent the money on other projects in good faith (only 2.73 per cent of the respondents supported this option).

These findings shed light on the recent Redland decision, mentioned in the opening paragraph of this article and which favoured restitution to the taxpayers. Redland was decided by the majority of three judges favouring restitution ⁵⁹ against two judges opposing it. ⁶⁰ While all judges based their reasoning on the private law theory of unjust enrichment (supported by only 26.36 per cent of the respondents), the public favours a justification which bases restitution on the public nature of the claim. One could argue that the proper question in Redland should not have been ‘has the public authority been enriched?’, but rather, ‘what is the role of public authorities in modern liberal democracies’? While the Court in Redland appears to have reached a plausible result using problematic unjust enrichment reasoning, in other cases ⁶¹ this reasoning may also lead to unfortunate outcomes.

Restitutionary claims can arise from daily social interactions. Understanding the nature of those claims is critical for operating current legal doctrine and contemplating the direction of legal reform. This article has joined growing contemporary scepticism about the predominant scholarly rationale for grasping the underlying basis of restitutionary claims – the theory of unjust enrichment. Our empirical research suggests that the public might doubt the basic idea of this theory, including the central notion that it is a defendant’s enrichment which grounds restitutionary claims.