1.  I will focus my remarks on those aspects of the proposed Regulation which relate to the Law of Restitution. The nature of the Law of Restitution in English law is rapidly becoming clearer, but its precise boundaries and key principles remain uncertain and controversial. The application of the proposed Regulation needs to be assessed in this light. My view is that, although Article 9 is broadly acceptable in principle as providing a degree of certainty and consistency in the choice of law rules for unjust enrichment and other claims (including equitable claims), the draft is far from ideal and a number of matters need clarification. Article 24 on the other hand is a cause of real concern. It has nothing to do with private international law, but, if adopted, will have a profound effect on the restitutionary remedies which are available in English law.

The English Law of Restitution

  2.  Although the matter is not free from doubt, the preferable analysis of the modem law of restitution in English law is that it is that body of law which is concerned with whether a claimant can recover a benefit from the defendant, rather than whether the claimant can be compensated for loss suffered. Restitutionary remedies are therefore distinct from those which are traditionally available in contract or in tort. The House of Lords has recognised that restitutionary remedies are available where the defendant has been unjustly enriched at the expense of the claimant. [22]It appears, however, that this is not the only principle which will trigger restitutionary remedies, since such remedies may also be awarded where the defendant has obtained a benefit by the commission of a wrong or where the claimant can bring a claim to recover property held by the defendant in which the claimant has a proprietary interest. [23]

  3.  This tripartite division of the law of restitution will have consequences for the determination of the appropriate choice of law rule:

 (a)   Unjust enrichment

  4.  It is unclear what is the relevant choice of law rule for restitutionary claims founded on the reversal of the defendant's unjust enrichments.[24] The appropriate choice of law rule may depend, at least to some extent, on the ground of restitution on which the claim is founded. Where the restitutionary claim arises from a contract which has been held to be null and void the Rome Convention is inapplicable.[25] But in such cases the putative proper law of the contract appears to be the most appropriate governing law, since this will generally reflect the intentions of the parties as to the law which should govern any disputes between them.[26] It will also be the law which determines whether or not the contract was void, so it should also determine the remedial consequences of that invalidity. However, in Baring Bros v Cunnighame DC[27] Lord Penrose held, in the context of a void financial transaction, that the putative proper law of the contract was irrelevant, because there was no valid contract. Rather, he suggested that the appropriate choice of law rule was the proper law of the obligation to make restitution. Whether this is the appropriate test should, perhaps, depend on the reason why the contract was null and void, since this may affect the reliability of the putative proper law of the contract. So, for example, the putative proper law of the contract should not be referred to in cases of mistake or duress where it is not possible to conclude that there has been a meeting of minds.

   5.  In many cases involving restitutionary claims founded on the reversal of the defendant's unjust enrichment the claim does not arise from a contract at all. In such cases a choice of law rule should perhaps be determined from the nature of the relationship between the parties. In such circumstances the proper law of the obligation to make restitution is probably the most appropriate test which could be adopted.[28] So, for example, where the claimant pays money to the defendant by mistake, in circumstances where there is no contractual relationship between the parties, the proper law of the obligation to make restitution should apply. This proper law should be identified with reference to all the circumstances of the case, including perhaps the place of enrichment and the parties' domiciles.

  6.  Even if it is accepted that the appropriate choice of law rule for claims founded on the reversal of the defendant's unjust enrichment is the proper law of the obligation to make restitution, it is still necessary to decide whether any sub-rules should be identified to assist in the determination of the proper law. For example, in Dicey and Morris the choice of law rule for such claims is considered to be the proper law of the obligation to make restitution, but, in cases which do not relate to contract or to land, this is presumed to be the law of the country where the enrichment occurs. Alternatively, in Baring Bros v Cunninghame DC Lord Penrose considered that the proper law of the obligation should be determined with a great deal of flexibility. Essentially this debate concerns whether choice of law "rules" should be formulated as strict rules or flexible discretion; whether choice of law rules should be concerned with identifying a certain result or to enable a just result to be obtained.

 (b)   Restitution for wrongs

  7.  Where the restitutionary claim is founded on wrongdoing, the relevant choice of law rule should be that which relates to the wrong. This is because the underlying cause of action for the claim is the wrong itself. It is consequently appropriate that the law which determines whether or not the claimant is liable for the wrong should also determine whether the wrong is of a type which triggers restitutionary relief. So, for example, restitutionary remedies for tort claims will be governed by the choice of law rule for tort. Similarly, the applicable law of the contract should govern those claims involving restitutionary remedies for breach of contracts.[29] It is unclear what the appropriate choice of law rule should be for those claims founded on the commission of an equitable wrong, such as breach of fiduciary duty. Presumably, being neither contract nor tort, such claims would fall within Article 9 of the proposed Regulation.

 (c)   Proprietary restitutionary claims

  8.  Where the restitutionary claim is founded on the vindication of property rights then the most appropriate choice of law rule is that which applies to the vindication of that type of property right. That this is the proper analysis has now been accepted by the Court of Appeal in Macmillan v Bishopsgate Investment Trust (No 3)[30] where the court had to determine the appropriate choice of law rule for a claim to recover shares which had been transferred to the defendant by a third party in breach of trust and the lex situs was applied.

  9.  For the most part this type of restitutionary claim has nothing to do with a Regulation which is concerned with identifying the law applicable to non-contractual obligations. Non-contractual obligations are presumably defined as those obligations for which personal rather than proprietary remedies are available. But there are certain causes of action, such as the action for money had and received and the equitable actions for knowing receipt and dishonest assistance, which are properly characterised as proprietary but for which personal remedies are available. Such claims are not founded on unjust enrichment, and it is unclear what the choice of law rule is for such equitable claims, but presumably they will be caught by Article 9 of the draft Regulation, which is not confined in its operation to unjust enrichment claims.

Article 9 of the Regulation

  10.  Article 9(1) is broadly in line with the perceived choice of law rule at common law for unjust enrichment claims: see para 4 above. Certainly, by focusing on the governing law of an existing relationship, it follows that a restitutionary claim grounded on total failure of consideration following the transfer of a benefit under a contract later discharged for breach, would be governed by the applicable law of that contract. This is appropriate. Where the contract was void ab initio, the application of the provision is less clear. There would have been the previous relationship between the parties but, since the contract is void, it is unclear what the governing law of that relationship might be. My view is that this should be the applicable law of the contract had the contract been valid. But this is a matter which needs to be clarified.

  11.  There will be other situations where a benefit has been transferred pursuant to a relationship outside of a contract. For example, where benefits are transferred in anticipation of a contract which is being negotiated. There will be not applicable law of the contract, so what law should govern the negotiation relationship? In equity, a benefit may be transferred in breach of a fiduciary relationship. This relationship may not be contractual and, again, it may be unclear what the governing law of the relationship should be.

  12.  Although the applicable law of the pre-existing relationship is an appropriate choice of law rule to adopt, the identification of that applicable law is not necessarily obvious. In essence an objective proper law test should be adopted, so that the nature of the relationship and its connections with various countries can be considered. This should be clarified in the Regulation.

  13.  Article 9(2) provides an alternative choice of law rule where benefits are transferred pursuant to a previous relationship. This is acceptable in principle, although the use of the word "damage" is very odd and potentially confusing. As regards unjust enrichment claims this presumably should mean the place of enrichment (which would be consistent with paragraph 3). References to "damage" may encourage judges to focus on where the claimant suffered loss. This may be what is intended, but this seems difficult to defend in the restitutionary context.

  14.  There will be a number of restitutionary claims which are grounded on the defendant's unjust enrichment where there is no pre-existing relationship between the parties. This will include claims for recovery of mistaken payments and also claims in equity for knowing receipt and dishonest assistance. The proposed choice of law rule of the law of the place of enrichment is defensible in principle. An alternative choice of law rule would have been the proper law of the obligation to make restitution, which is consistent with the approach in paragraph 1 (where there is a pre-existing relationship) and encourages the courts to focus on a variety of connecting factors. However, such an approach lacks certainty, which might be considered to be essential in this area. The law of the place of enrichment should usually provide a clear choice of law rule. The place of the enrichment will usually be the place where the defendant received the property, benefit or service which constitutes the enrichment. This may, of course, be entirely fortuitous and so the appropriateness of this law applying is not obvious. Further, what if the claimant mistakenly pays the defendant in a number of different countries? Surely it is not appropriate for the claimant to bring different claims, each of which will have a different choice of law rule. Further, there will be some situations where the place of the enrichment will not be obvious, especially where the enrichment is negative in the sense that the defendant has been saved an inevitable expenditure. Presumably the place of the enrichment would be the place where the defendant would have incurred the expense, but this might not be obvious.

  15.  Paragraph 3 needs to have a further provision to assist in the identification of the enrichment or to state what should happen if paragraph 3 cannot be applied for any reason. My own preference is still for a proper law of the obligation to make restitution choice of law rule. Such a solution is effectively adopted by means of paragraph 5, although the use of the word "manifestly" suggests that it will only apply in an exceptional case.

Article 24

  16.  For hundreds of years English law has recognised that where a defendant has profited from the commission of a wrong, one remedy which should be available is to transfer the benefit obtained to the victim of the wrong. In some cases the profit gained will equate with the loss suffered by the claimant, and so the description of the remedy as either restitutionary or compensatory is of no significance. But in other cases the gain made by the defendant will be greater than the loss suffered by the claimant, as where the defendant has received a bribe from a third party. In such cases the remedy is properly characterised as restitutionary, since it is assessed with reference to the defendant's gain, or as a disgorgement remedy. The chief example of such a remedy is the account of profits, which has operated in equity for hundreds of years and will be available whenever the defendant has committed an equitable wrong, such as a breach of fiduciary duty or breach of confidence. Similar remedies are also available where the defendant has committed a tort and, recently, such disgorgement remedies have been recognised as being available exceptionally where the defendant has breached a contract.[31] Further, there is potential for these remedies to be available as well where the defendant has committed a crime. These remedies are not exemplary or punitive damages, but neither are they compensatory remedies and so they would be caught by Article 24. This is patently unacceptable. These remedies have an important function within the law of obligations and it is vital that this function be preserved. Such remedies are fundamentally different from exemplary and punitive damages and, although the case for regarding these latter remedies as contrary to Community public policy is not proven, there is no reason of policy for restitutionary and disgorgement remedies to be awarded. It is essential that this is avoided by means of clarifying precisely what is meant by non-compensatory damages.

9 February 2004

23   Foskett v McKeown [2001 ] 1 AC 102. Back

24   For important contributions to this debate see Rose (ed.) Restitution and the Conflicts of Law' (1995). Back

25   Since article 10(l)(e) of the Convention does not have the force of law in the United Kingdom. Back

26   See Bird, "Choice of Law and Restitution of Benefits Conferred Under a Void Contract" [1997] LMCLQ 182. Back

27   (1996) (unreported) (Court of Session, Outer House). Back

28   See Macmillan v Bishopsgate Investment Trust (No 3) [1996] 1 WLR 387, 418 (Aldous LJ). Back

29   A-G v Blake [2001] 1 A.C. 268. Back

30   [1996] 1 W.L.R. 387. Back

31   A-G v Blake [2001] 1 AC 268. Back