Unjust Enrichment – Keeping What’s Not Yours

I)        Basic Premise

Unjust enrichment is premised on the maxim that no one should benefit at the expense of another. Its name is suggestive of its nature – that a person should not be enriched in an unjust manner.

Its premise is simple enough but what are the mechanics for this concept to apply in law?

Picture this scenario: You have a good buddy, A, whom you trust. A tells you that if you pay RM 1 million to his associate, B, you will get a return of RM 2 million within 6 months. You do not know B but thought, “This is a good deal”. You make the payment to B. After 6 months, A is nowhere to be found. You managed to contact B but he says that such a deal did not exist and refuse to return the money to you.

Understanding the law of unjust enrichment and the right to restitution may offer you a solution to the above scenario.

II)       Development of the Law

Whilst it is tempting to delve into the long history of this area of law, which goes back to Roman times, this article would strive to be current – at the very least, it would be kept within the period of the past century.

Whilst there may have been earlier cases, opinions seem to suggest that the seminal authority on this area of law is the English House of Lords’ decision of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [1943] AC 32, where Lord Wright stated the following at page 61:

"It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi-contract or restitution.”

‘Since then, English law has recognised an independent law of unjust enrichment by recognising a claim for restitution based on unjust enrichment’.

(see: Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 441, which will be explained and elaborated in greater detail below).

In Lipkin Gorman a firm v Karpnale Ltd & Anor [1992] 4 All ER 512, the House of Lords had the opportunity to deal with this area of law and to recognize the defence of change of position. The facts are somewhat interesting – a solicitor had fraudulently used money in his legal firm’s client account to gamble at a club (which has a casino). The firm subsequently discovered the fraud and attempted to recover the money in action against the club.

A brief and concise analysis of this case can be found in the High Court decision of

AmBank (M) Bhd v KB Leisure (M) Sdn Bhd [2012] 7 MLJ 364 where Nallini Pathmanathan J (later FCJ) stated the following at pages 373-374:

“The House of Lords, allowing the claim in part, held that a recipient of stolen money was under an obligation to restore an equivalent sum to the victim if he had not received in good faith and given full consideration for it, and had thus been unjustly enriched at the expense of the true owner. Here, it was held that the casino had not given good consideration as gambling contracts were null and void under the law and the casino was under no legal obligation to honour the bets. However, equity required taking into consideration that the casino had also paid out winnings to the fraudulent solicitor, so the amount that the firm could recover from the casino was limited to the casino's net winnings against the solicitor over the entire course of betting.

…

[28] Lord Templeman added that in a claim for money had and received by a thief, the plaintiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched, (Emphasis added.) An innocent recipient of stolen money may not be enriched at all. But an innocent recipient of stolen money will be enriched if the recipient has not given full consideration.

[29] Lord Goff of Chieveley explained that at common law, property in money, like other fungibles, is lost as such when it is mixed with other money. However, equity will in appropriate circumstances allow the tracing of stolen money by its rightful owner into the hands of subsequent recipients. As such, an action for money had and received is not usually founded on any wrongdoing by the third party, but on the fact that the third party cannot in conscience retain the money, or … for the third party to retain the money would result in his unjust enrichment.”

(Emphasis added).

TLDR: The law of unjust enrichment has its roots since Roman times; in modern times, it has been as an independent area of law, starting with its development by the UK Courts.  Simply, the recipient of monies or properties not intended for them has an obligation to restore those monies/properties (or the value thereof) to the victim/payor if the recipient did not receive the money in good faith and had given full consideration for it; in such a scenario he has been unjustly enriched at the expense of the true owner and will have to restore the benefit of what he has received to the true owner.

III)     The Law Today – in Malaysia

Whilst there are Malaysian cases dealing with this area of law prior to 2015, the leading authority is the Federal Court decision of Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ 441. In that case, the Federal Court took the opportunity to discuss and define the extent of this area of law.

The Federal Court stated that ‘there is now no longer any question that unjust enrichment law is a new developing area of law which is recognised by our courts’ and ‘the time has come for this court to recognise the law of unjust enrichment by which justice is done in a range factual circumstances, and that the restitutionary remedy is at all times so applied to attain justice’.

It went on to explain that ‘unjust enrichment is not an abstract moral principle to which the courts must refer when deciding cases, it is an organising concept that groups decided authorities on the basis that they share a set of common features, namely that in all of them the defendant has been enriched by the receipt of a benefit that is gained at the claimant's expense in circumstances that the law deems to be unjust.’

This highlights one of the main advantages of pursuing a claim in unjust enrichment – there is no necessity to show wrongdoing on the part of the recipient of the monies; rather, the question is whether he has been enriched by a benefit gained at the expense of another and whether the enrichment is unjust.

The objective in an action in unjust enrichment is the right to restitution as a remedy.

‘Restitution simply means that a party who has received a benefit must restore the benefit received by him.’ ‘It is clear on principle and on authority that the idea of justice behind this aim is that no one should be made richer through loss to another’.

To succeed in a cause of action in unjust enrichment to give rise to a right to restitution, the prospective plaintiff has to establish that:

(a) the defendant must have been enriched;

(b) the enrichment must be gained at the plaintiff’s expense;

(c) that the retention of the benefit by the defendant was unjust; and

(d) there must be no defence available to extinguish or reduce the defendant’s liability to make restitution.

The Federal Court went on to deal with the question of determining whether the enrichment is unjust, or more accurately, whether it is unjust for the recipient to retain the benefit in question. In this regard, the Federal Court adopted the ‘absence of basis’ approach (which was taken from Goff & Jones on The Law of Unjust Enrichment).

Simply, the question to ask to the enriched party is – ‘Do you have basis to retain the benefit?”.

In applying this approach, the recipient of the benefit (i.e., the enriched party) can escape restitutionary liability by showing that there was a legal ground to receive the benefit; failure to do so would prima facie mean that the enrichment was unjustified and the plaintiff would have a right to restitution. The Federal Court explained as follows:

[130] On the factual matrix of the present case, in our judgment, injustice has occurred to such an extent that the defendant has not only suffered a loss, but the plaintiff is at the same time made richer by the defendant's loss by the same amount. On that note, the point to make here is this. This sense of injustice at the defendant's expense is central to the foundation of the relief of restitution based on the law of unjust enrichment. The plaintiff should not be allowed to reap the windfall at the expense of the defendant. The defendant lawfully constructed the mall on the land not intending to do so gratuitously with the plaintiff enjoying its benefit. On this basis, it warrants judicial intervention as a legal response triggered by an unjust enrichment in the fact situation of the present case.

[131] To conclude, we hold that the defendant had made out a cause of action in unjust enrichment in that the plaintiff has been enriched, that this enrichment was gained at the defendant's expense, and that the plaintiff's enrichment was unjust.”

(Emphasis added).

Having established unjust enrichment, the next question is the remedy – as stated earlier, it is restitution but how and to what extent? The Federal Court went on to discuss and conclude that it essentially to restore the value received by the defendant to the plaintiff. The Federal Court cited with approval a passage from Goff & Jones on The Law of Unjust Enrichment, where part of it reads as follows:

“As Lord Hope said in Sempra Metals Ltd v IRC, 'the law of restitution is the law of gain-based recovery, just as the law of compensation is the law of loss-based recovery' and 'the remedy of restitution differs from that of damages. It is the gain that needs to be measured, not the loss to the claimant. The gain needs to be reversed if the claimant is to make good his remedy'.”

(Emphasis added)

TLDR:

• To succeed in a cause of action in unjust enrichment to give rise to a right to restitution, the prospective plaintiff has to establish that:

(a) the defendant must have been enriched;

(b) the enrichment must be gained at the plaintiff’s expense;

(c) that the retention of the benefit by the defendant was unjust; and

(d) there must be no defence available to extinguish or reduce the defendant’s liability to make restitution.

 

• Restitution simply means that a party who has received a benefit must restore the benefit received by him.
• In determining whether the enrichment is unjust, the question to ask to the enriched party is – ‘Do you have basis to retain the benefit?”. If there is an absence of basis, then the enrichment is unjust.

IV)     Defences

There are 2 common defences to a claim premised on unjust enrichment. They are:

(a)  The defence of change of position – where the defendant has changed his or her position as a result of the enrichment; and

(b) The defence of being a bona fide purchaser for value – where the defendant would argue that he or she should not be deprived of an entitlement that he or she has received for good consideration and in good faith.

The latter is easily understood – if the defendant had provided good consideration for the receipt of the benefit, he or she cannot be said to be unjustly enriched.

The former, namely the defence of change of position, requires some further explanation. The origin of this defence can be found in the English House of Lords’ decision of Lipkin Gorman (above). The Court of Appeal in Ooi Meng Khin v Amanah Scotts Properties (KL) Sdn Bhd [2014] 6 MLJ 488 had referred to Lipkin Gorman (above) and also the Singaporean Court of Appeal decision in Parkway Properties Pte Ltd & Anor v United Artists Singapore Theatre Pte Ltd [2003] 2 SLR 103 where it was stated at page 113 as follows:

“[36]  This defence would appear to have its origin in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 where Lord Goff said (at 580):

‘At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.’

[37] A little earlier in his judgment (at 579) Lord Goff gave the following illustration as to how such a defence could be invoked:

‘If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these.’

[38] In Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd [2002] 2 SLR 1 this Court distilled the three elements in this defence which must be satisfied before it can be successfully raised:

[(a)] The [payee] has changed his position;

[(b)] The change is bona fide;

[(c)] It would be inequitable to require him to make restitution or to make restitution in full.”

(Emphasis added).

TDLR: The recipient can rely on the defence of change of position to defeat a claim in unjust enrichment, by satisfying that he has bona fide changed his position and that it would inequitable to require him to make restitution or to make restitution in full.

V)       Illustration

Returning to this scenario: You have a good buddy, A, whom you trust. A tells you that if you pay RM 1 million to his associate, B, you will get a return of RM 2 million within 6 months. You do not know B but thought, “This is a good deal”. You make the payment to B. After 6 months, A is nowhere to be found. You managed to contact B but he says that such a deal did not exist and refuse to return the money to you.

You may consider initiating a claim premised on fraud or conspiracy or knowing receipt. However, the difficulty lies in proving the elements for these causes of action – which would necessarily involve the element of knowledge or unconscionability. In a cause of action premised on unjust enrichment, there is no requirement to establish knowledge or fault on the part of the recipient, but whether the recipient was unjustly enriched at your expense.

Applying the principles of unjust enrichment, you may succeed in recovering the money by initiating a claim premised on unjust enrichment against B. You will need to establish the following:

(a) B have been enriched;

(b) the enrichment was gained at your expense;

(c) that the retention of the benefit by the B was unjust; and

(d) there is no defence available to B to extinguish or reduce the his liability to make restitution.

In deciding whether the retention of the benefit B was unjust, you will ask the question: ‘Does B have any basis to retain the benefit (i.e., keep the RM 1 million)?”

If B can prove that there is basis, for example, that he had sold all his luxury watches to A after receiving the RM 1 million from you (which was promised to him by A), he may be able to defeat your claim, as he would be a bona fide purchaser for value.

If B can prove that after receiving the RM 1 million from you which was represented to him as a repayment of a debt owed to him by A, and thereafter that he has utilised the RM 1 million to pay off his own debts, he may be able to rely on the defence of change of position provided it was bona fide.

VI)     Conclusion

The recognition of this area of law by the Federal Court in Dream Property (above) is most welcome and represents a significant development in this area of law in Malaysia, which would allow the Courts to better achieve justice in situations where the law of contract, tort or equity do present an immediate answer.