When a corrupt enrichment is not necessarily unjust

CAB image, via CAB siteMy attention was drawn today to the fascinating decision of Feeney J in Criminal Assets Bureau v J W P L [2007] IEHC 177 (24 May 2007), in which the nature of an action for restitution of unjust enrichment was discussed. The basic question was whether the common law action in unjust enrichment was analogous to a statutory action taken by the the Criminal Assets Bureau (CAB) to confiscate a defendant’s “corrupt enrichment”. In the event, Feeney J held that since any enrichment of the defendant would not usually (or at all) be at the expense of the plaintiff, the common law claim to restitution of an unjust enrichment would not be made out where the statutory action to recover a corrupt enrichment would be, the claims were not analogous with one another. In which case, it would probably have been better to have avoided the issue in the first place by describing the statutory action in different terms, perhaps by using a simpler synonym for “enrichment” such as “gain” – after all, the aim of the proceeds of crime legislation is to get at criminals’ ill-gotten gains.

Section 12 of the Proceeds of Crime (Amendment) Act, 2005 (also here) inserted new sections 16A and 16B in the 1996 (also here). In particular, section 16B(2) provides

Where, on application to it in that behalf by the applicant, it appears to the Court, on evidence tendered by the applicant … that a person (a ‘defendant’) has been corruptly enriched, the Court may make an order (a ‘corrupt enrichment order’) directing the defendant to pay to the Minister or such other persons as the court may specify an amount equivalent to the amount by which it determines that the defendant has been so enriched.

This section is a significant weapon in CAB’s arsenal (see Richard Barrett “Proceedings Taken by the Criminal Assets Bureau” [2007] (2) Judicial Studies Institute Journal 229 (pdf)). In this case, pursuant to s16B, CAB made an application against a defendant domiciled in the UK. The defendant objected that the claim fell within the scope of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Article 2 of which requires that the defendant be sued in the court of the jurisdiction in which it is domiciled. In other words, the defendant maintained that the claim against it should have been pursued in the UK and not in Ireland. In particular, the defendant claimed that an action pursuant to section 16B was functionally equivalent to a civil law claim for unjust enrichment.

The defendants’ objection failed on the grounds that a common law claim for restitution of an unjust enrichment is not a civil analogue of the statutory claim for a corrupt enrichment order because CAB is a public body acting in the exercise of its unique public law powers in making an application pursuant to s16B. As a consequence, Feeney J held that proceedings pursuant to section 16B are not civil and commercial matters within the scope of Article 1 of the Regulation, and the defendant’s ingenious objection to CAB’s application failed.

Fenney J’s analysis of a civil unjust enrichment claim was crucial to this outcome:

3.1 A civil claim for unjust enrichment arises from the law of restitution. That law imposes an obligation, on a person who receives an unintended benefit, to repay the sum by which he or she has been “unjustly enriched”. A distinguishing feature is that the law of restitution applies to cases where the person who received the benefit may have done no wrong. Restitution is not concerned with compensation for losses but rather with the return of unjust enrichments.

3.2 A definition of the law of restitution is provided in the text book Goff and Jones The Law of Restitution (7th Edition) at para. 1.001:

The law of restitution is the law relating to all claims, quasi contractual or otherwise, which are founded upon the principle of unjust enrichment. Restitutionary claims are to be found in equity as well as at law. But the common laws of quasi-contract is the most ancient part of restitution.

The authorities and the text books demonstrate that the civil law provides for a civil relief based upon reversing unjust enrichment on the part of a defendant. In doing that it involves removing from the defendant some accretion to his wealth which, in the eyes of the law, he should not be entitled to retain or making the defendant pay for some non-money benefit on the basis that it be wrong to allow him to retain it for nothing.

3.3 … [He referred to the passage Corporation of Dublin v Building and Allied Trade Union [1996] 1 IR 468 in which Keane J followed in East Cork Foods Limited v O’Dwyer Steel Co [1978] IR 103, Murphy v AG [1982] IR 241, Pavey & Matthews Proprietary Ltd v Paul [1987] HCA 5, (1987) 162 CLR 221 (4 March 1987).]

In considering the civil claim for unjust enrichment Keane J identifies two essential preconditions which require to be met namely an enrichment of the defendant at the expense of the plaintiff and a determination that such enrichment should be regarded as unjust. Those two elements are described as essential preconditions for the application of the doctrine.

3.4 The essential precondition of enrichment of the defendant at the expense of the plaintiff requires consideration in the light of the facts of this case. The straightforward position of a claim for unjust enrichment would be a situation where a plaintiff could identify that the benefit gained by the defendant is the same as the loss suffered by him. That would arise where the plaintiff had paid money or rendered services or delivered goods which the defendant received from the claimant. However that is not the end of the matter as the scope of unjust enrichment extends beyond such claims. In dealing with this matter Goff and Jones (at para. 1-050) stated:

…if the claimant’s claim is based upon the defendant’s wrongful act, there may or may not be an equation between what the claimant has lost and what the defendant wrongdoer has gained. Nonetheless the gain is said to be made at the claimant’s expense.

There is an equation between loss suffered and benefit gained if, for example, the defendant converts and sells the claimant’s chattels, or if the defendant, in breach of his fiduciary duty, buys trust property at an undervalue. But there may be no such equation if the fiduciary exploits his position of trust to acquire an asset which his principal could not have acquired.

It is not at all clear from the decided case law whether a particular wrongdoer is required to disgorge gains where the injured party has suffered little or no loss. For example, not all torts ground a restitutionary claim. Existing authority suggests that only tortuous acts which infringe the claimant’s proprietary or possessory title can ground a restitutory claim.

3.5 In its submissions the defendant seeks to rely on the House of Lords authority of AG v Blake [2000] UKHL 45, [2001] 1 AC 268 (27 July 2000). Reliance is placed upon that authority to suggest that a claim for unjust enrichment can lie in circumstances even where the plaintiff has suffered no comparable loss. In that case the House of Lords held that exceptionally, a court may order an account of profits made from a breach of contract if it is proper to do so, even though the plaintiff has suffered no comparable loss. It was identified as an exceptional situation but was linked to a breach of fiduciary duty in that there had been a breach of the duty of loyalty by the defendant to his principles. It was that link which enabled the court to order the defendant to disgorge the profit that he had made from his wrongful acts. The court made it clear that there was no common law power to take or confiscate property without compensation.

3.6 The above authorities demonstrate that absent extraordinary or exceptional circumstances an essential precondition for the application of the doctrine of unjust enrichment is a requirement to establish the enrichment of the defendant at the expense of the plaintiff. Whilst there does not have to be a direct equation between what the claimant has lost and what the defendant wrongdoer has gained it is certainly the case that, except in exceptional cases, that the gain must be capable of being identified as having been made at the claimant’s expense. The extent to which there might be an exception to that is limited to exceptional cases and situations requiring the existence of an obligation or contractual duty such as fiduciary duty. Even if one was to accept the extension to exceptional cases identified in AG v Blake it would still be the situation that a number of claims which the CAB could make under s16B for a corrupt enrichment order would be outside or over and above the claims that could be brought in civil proceedings. On the facts of this case the claim brought pursuant to statute by the CAB does not require for it to be established that the alleged unjust enrichment of the defendant is at the expense of the plaintiff or indeed of any party nor could it in any way be suggested that the exceptional jurisdiction identified in AG v Blake could arise as there is no suggestion of any breach of duty fiduciary or otherwise.

This is a hugely significant judgment for the development of the Irish law of restitution on the grounds of the unjust enrichment of the defendant at the expense of the plaintiff. First, he rightly eschews an equation of unjust enrichment with discretionary principles of justice. Instead, Fenney J rightly identifies an enrichment as unjust either if the plaintiff did not intend to enrich the defendant (see para 3.3: “an unintended benefit”) or if the defendant committed a wrong against the plaintiff (see para 3.5: breach of contract or breach of fiduciary duty). On the facts of this case, the plaintiff did not confer an unintended benefit upon the defendant, and the defendant committed no wrong akin to a breach of contract or breach of fiduciary duty. Of course, it may be argued that the proceeds of crime derive from wrongdoing against the state, but this argument was not advanced in the case, and it strikes me unpersuasive. Hence there was no unjust enrichment, even if there was a s16B corrupt enrichment.

Second, Feeney J quite properly considered that there has to be a connection between the plaintiff and the enrichment in the hands of the defendant: the defendant’s enrichment must be at the expense of the plaintiff (see para 3.6), and it was on this rock that the defendant’s case foundered. Even if the defendant was corruptly enriched, it did not acquire this enrichment from the plaintiff, either directly or indirectly.

This is not the first time that an unjust enrichment claim has been raised in the context of proceeds of crime. In Dun Laoghaire Rathdown County Council v Shackleton (Supreme Court, unreported, 17 June 2002), the applicants failed to obtain an interlocutory injunction to restrain the respondent from proceeding with an arbitration relating to the compulsory acquisition of property, on the grounds that the value of the property had been inflated by a corrupt rezoning, such that the owners of the property would be unjustly enriched by the enhanced payment. It has since been reported that CAB is to bring a s16B corrupt enrichment action against the property owners.