The recent decision of the Court of Appeal for England and Wales in Gray v Global Energy Horizons Corporation  EWCA Civ 1668 (09 December 2020) has prompted me to reflect, briefly, on the role of policy in the law of restitution for unjust enrichment. In this post, I will consider that role in the context of the structure such claims restitution for unjust enrichment that the Irish and UK courts broadly apply.
In the case concerning The Bricklayers’ Hall, Keane J predicated the obligation to make restitution for unjust enrichment upon four “essential preconditions”: whether there was (i) an enrichment to the defendant (ii) at the expense of the plaintiff, (iii) in circumstances in which the law will require restitution, (iv) where there is no reason why restitution will be withheld (see Dublin Corporation v Building and Allied Trade Union  2 IR 468, 483;  2 ILRM 547, 558 (html) (Keane J; Hamilton CJ, O’Flaherty, Blayney and Barrington JJ concurring); see footnote).
Questions of policy overtly arise on the second and fourth of these four essential preconditions, and they will be discussed in the next two sections of this post.
The second essential precondition of a claim to restitution for unjust enrichment – whether there are circumstances in which the law will require restitution – essentially focuses upon the question of whether a cause of action has been made out. This is the “unjust” phase of the enquiry; and, as Keane J put it in the Bricklayers’ Hall case, the question here is “whether the case belongs in a specific category which justifies so describing the enrichment: possible instances are money paid under duress, or as a result of a mistake of fact or law or accompanied by a total failure of consideration” ( 2 IR 468, 484;  2 ILRM 547, 558). Thus, an enrichment of the defendant at the plaintiff’s expense will be unjust because the enrichment was transferred by mistake, or under duress, or for a consideration which had failed; that is to say, an enrichment of the defendant at the plaintiff’s expense will be unjust because a recognised cause of action has been made out.
Mistake, duress, and failure of consideration, all focus on the plaintiff’s lack of consent. To that extent they are plaintiff-sided and consent-related unjust factors. In principle, there may be unjust factors where the focus is not on the quality of the plaintiff’s consent but on the quality of the defendant’s receipt. Furthermore, as a matter of observation, there are some cases in which a strong policy elsewhere in the law has mandated a restitutionary response. For example, public law policies as to the scrupulousness and legality by which public bodies and the like gather their funds through taxes and rates have generated an unjust factor, a cause of action in restitution, by which the tax-payer can recover any such taxes exacted ultra vires the public bodies (Woolwich Equitable Building Society v Inland Revenue Commissioners  AC 70,  UKHL TC_65_265 (20 July 1992); O’Rourke v The Revenue Commissioners  2 IR 1 (Keane J); Harris v Quigley  1 IR 165,  1 ILRM 401,  IESC 79 (01 December 2005)). This is the first role for policy in the law of restitution for unjust enrichment: it generates policy-motivated unjust factors, as causes of action that stand beside plaintiff-sided consent-related unjust factors, and defendant-sided unjust factors.
The fourth essential precondition of a claim to restitution for unjust enrichment – “whether there are any reasons why, even where [an enrichment] can be regarded as ‘unjust’, restitution should nevertheless be denied to the plaintiff” – essentially focuses upon the availability of defences. These can be grouped into four broad categories: (i) those which deny an essential element of the principle against unjust enrichment, ie, those which answer one of the first three enquires in the defendant’s favour; (ii) those which would deny restitution even if the terms of the first three enquiries were answered in the plaintiff’s favour; (iii) those which are examples in the context of restitution for unjust enrichment of defences more generally in the law; and (iv) those which exemplify the application of a strong public policy.
In some cases, a strong public policy explicitly buttresses the application of a recognised defence in one of the first three categories. For example, the public interest in the security of the public purse underpinned a strong application of the defence of change of position in Murphy v Attorney General  IR 241 (SC) 320 (rtf via here) (Henchy J; Griffin and Parke JJ concurring; see (1998) 20 DULJ (ns) 101, 141-152). And the public interest in the finality of litigation underpinned the successful application of the defence of res judicata in the Bricklayers’ Hall case. In other cases, a strong public policy is sufficient in its own terms to preclude an award of restitution for unjust enrichment. For example, in Banque Financière de la Cité v Parc (Battersea) Ltd  UKHL 7,  1 AC 221, Lord Hoffmann noted that there could be “reasons of policy for denying a remedy” of restitution for unjust enrichment ( 1 AC 221, 234), and Lord Clyde remarked that “there may be circumstances where on grounds which may be described as grounds of public policy a remedy may be refused” (ibid, 237). The Bricklayers’ Hall case again provides an example: Keane J denied the Corporation’s claim for policy reasons, not only those underlying the defence of res judicata, but also to maintain the integrity of the planning code (see (1998) 20 DULJ (ns) 101, 165-167). This is the second role for policy in the law of restitution for unjust enrichment: it generates policy-motivated defences that stand beside the other three categories of defences.
Even though there are two contexts in which policy has legitimate roles to play, nevertheless care must be taken when deploying it. As the Chief Justice has recently reminded us, “public policy has often been described as an ‘unruly horse’ …” (HAH v SAA  IESC 40 (15 June 2017) [2.7] (Clarke J; O’Donnell, MacMenamin, Laffoy and O’Malley JJ concurring)). As Burrough J remarked, introducing the equine metaphor, “when once you get astride of … [the unruly horse,] you never know where it will carry you. It may lead you from the sound law. It is never argued at all but when other points fail” (Richardson v Mellish (1824) 2 Bing 229, 252; 130 ER 294, 303;  EngR 715 (2 July 1824) (pdf)). This is particularly true in the context of the law of restitution for unjust enrichment. There are many examples of unjust enrichment being equated with loose concepts such as unconscionability, or being said to be founded upon broad principles of equity or fairness or justice, or being treated simply as a vehicle for unfettered judicial discretion. Policy as a synonym for these concepts might be thrown into the mix. But this is unprincipled palm tree justice; and, as Keane J said in the Bricklayer’s Hall case, the law of restitution for unjust enrichment has avoided by palm tree justice by focussing on the four elements of the principle against unjust enrichment, and in particular – in the “unjust” phase of the enquiry – by focussing on whether the case belongs in a specific category of cause of action which justifies describing the enrichment the enrichment as unjust. The principle against unjust enrichment does not afford the court a discretion to apply subjective notions of unconscionability or unfairness or injustice; it is not a licence to rely upon public policy galloping away from legal principle. As Lord Reed put it in Revenue and Customs v The Investment Trust Companies  AC 275,  UKSC 29 (11 April 2017), a “claim based on unjust enrichment does not create a judicial licence to meet the perceived requirements of fairness on a case-by-case basis: legal rights arising from unjust enrichment should be determined by rules of law which are ascertainable and consistently applied” ( UKSC 29  (Lord Reed; Lords Neuberger, Mance, Carnwath and Hodge concurring; see also Lowick Rose LLP v Swynson Ltd  AC 313,  UKSC 32 (11 April 2017)   (Lord Sumption; Lords Neuberger, Clarke and Hodge concurring)). Hence, whilst there are legitimate roles for policy in the context of causes of action and defences, there is no role for in the law of restitution for unjust enrichment for policy as a synonym for unbound discretion.
Gray v Global Energy Horizons Corporation
At the first trial at first instance, Vos J held that Gray was in breach of fiduciary duties owed to Global Energy Horizons Corporation, for which he had to make an account of profits to them. At a subsequent Enquiry Hearing, Asplin J ordered Gray to pay US$3m and St£1.67m to Global. On appeal ( EWCA Civ 1668 (09 December 2020)) the Court of Appeal dismissed Gray’s argument that there was no link between his breaches of fiduciary duty and three of the assets for which he was found liable to account by Asplin J. In a joint judgment, Richards, Henderson and Rose LJJ observed:
123. It was common ground at the Enquiry Hearing that there needs to be “some causal link between the asset obtained and the breach of fiduciary duty” …
124. … We were also referred to the Ultraframe case [Ultraframe (UK) Ltd v Fielding  EWHC 1638 (Ch) (27 July 2005)], where Lewison J formulated the governing principles in “fashioning the account” in the following way, at :
“(i) The fundamental rule is that a fiduciary must not make an unauthorised profit out of his fiduciary position;
(ii) The fashioning of an account should not be allowed to operate as the unjust enrichment of the claimant;
(iii) The profits for which an account is ordered must bear a reasonable relationship to the breach of duty proved;
(iv) It is important to establish exactly what has been acquired;
(v) Subject to that, the fashioning of the account depends on the facts. …”
125. While that is a typically helpful summary, we would sound a note of caution in relation to Lewison J’s second principle (unjust enrichment). …
126. The point we wish to emphasise is that the basic equitable rule is indeed a stringent one which requires an errant fiduciary to account to his principal for all unauthorised profits falling within the scope of his fiduciary duty. The rule is intended to have a deterrent effect, and to ensure that no defaulting fiduciary can make a profit from his breach of duty. It does not matter if the result is to confer a benefit on the principal which the principal would otherwise have been unable to reap. …
127. It follows, in our view, that the doctrine of unjust enrichment has, at best, only a subsidiary role to play in limiting the liability of a fiduciary to account. We are here concerned with the obligation of a defaulting fiduciary to account for unauthorised profits, not with compensation for an equitable wrong, and still less with an independent cause of action in restitution to reverse an unjust enrichment of the defendant at the expense of the claimant … .
[Correction & clarification]:
In simple terms, any claim to restitution for unjust enrichment that Gray might have had against Global was defeated by the stringent equitable policies relating to the obligations of fiduciaries. In simple terms, an account for breach of fiduciary duty pursuant to the Ultraframe principles is effectively subject (by virtue of the second of those principles) to a counter-claim for to restitution for unjust enrichment. Here, in any account by Gray to Global for breach of fiduciary duty, any counter-claim to restitution for unjust enrichment that Global might have had against Grey was defeated by the stringent equitable policies relating to the obligations of fiduciaries. [End correction & clarification] This reflects the second role for policy in the law of restitution for unjust enrichment discussed above: it generates policy-motivated defences that stand beside the other three categories of defences. In Lipkin Gorman v Karpnale  2 AC 548,  UKHL 12 (06 June 1991)) Lord Goff observed that a “claim to recover money at common law is made as a matter of right; and, even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle. …” (ibid, 578 emphasis added). Gray v Global Energy Horizons Corporation stands as an excellent example of this dictum in action. [Update] Indeed, so stringent are the equitable policies relating to the obligations of fiduciaries, the consequence of Gray v Global is that they will almost certainly always defeat any counterclaim to restitution for unjust enrichment under the second Ultraframe principle. [End update]
See also Persona Digital Telephony Ltd v Minister for Public Enterprise  IECA 360 (16 December 2019)  (Donnelly J; Baker and Costello JJ concurring); Promontoria (Aran) Ltd v Sheehy  IECA 104 (16 April 2020)  (Haughton J; Faherty and Ní Raifeartaigh JJ concurring); compare Eoin O’Dell “The Principle Against Unjust Enrichment” (1992) 14 Dublin University Law Journal (ns) 27; see also Eoin O’Dell “Bricks and Stones and the Structure of the Law of Restitution” (1998) Dublin University Law Journal (ns) 101; compare Banque Financière de la Cité v Parc (Battersea) Ltd  UKHL 7,  1 AC 221 (HL) 227 (Lord Steyn), 234 (Lord Hoffmann; Lord Griffiths concurring), 237 (Lord Clyde); Benedetti v Sawiris  AC 938,  UKSC 50 (17 July 2013)  (Lord Clarke; Lords Kerr and Wilson concurring); Bank of Cyprus UK Ltd v Menelaou  AC 176,  UKSC 66 (4 November 2015)  (Lord Clarke),  (Lord Neuberger) (Lords Kerr and Wilson concurring with Lords Clarke and Neuberger); Revenue and Customs v Investment Trust Companies  AC 275,  UKSC 29 (11 April 2017) ,  (Lord Reed; Lords Neuberger, Mance, Carnwath and Hodge concurring); Lowick Rose LLP v Swynson Ltd  AC 313,  UKSC 32 (11 April 2017)  (Lord Mance).