Defences to a Claim of Unjust Enrichment

You may be an estate trustee defending an estate against a claim for unjust enrichment.¹ You may be a common-law partner, who believes that the benefit(s) you received arising from your relationship are fair and deserved. You might be designated as a beneficiary on a policy of life insurance and someone argues that they should get the money instead. This blog will examine some of the defences that can be asserted to a claim for unjust enrichment.

What is Unjust Enrichment?

Firstly, what is unjust enrichment? Unjust enrichment is best described as a cause of action whereby person A seeks either a monetary or proprietary award against person B on the basis that B was enriched at A‘s expense without any good legal reason to allow B to retain that enrichment.

The test for unjust enrichment has been settled authoritatively. It is as follows:

1. Has there been an enrichment;
2. Has there been a corresponding deprivation; and
3. Is there a juristic reason for the enrichment? This means a reason/explanation for the enrichment that makes it fair and “just”²

Defence 1: The “Established Categories”

The law states that if an unjust enrichment claim falls within one of the “established” categories of juristic reasons, the claim fails. If the claim does not, the claimant has a prima facie case.³ The “established” categories include the following:

1. The intention to make a gift;⁴
2. The existence of a contract;
3. The disposition of law;⁵ and
4. Other valid common law, equitable or statutory obligations.⁶

If the unjust enrichment claim does not fall within one of the “established” categories, a prima facie case for unjust enrichment has been made. What this means is that the onus then shifts to the person defending the claim to show that there is some other valid reason to deny recovery.

Defence 2 – Reasons to Deny Recovery

In Garland v. Consumers Gas Co.,⁷ the Supreme Court of Canada introduced two possible reasons to deny recovery; public policy and reasonable expectations. In Garland, the public policy consideration was that a criminal should not be permitted to keep the proceeds of their crime.⁸

The reasonable expectations of a person will be decided on a case-by-case basis. The court will consider the nature of the benefit received and whether it was imparted in circumstances resembling the existence of a gift or, on the other extreme, an implied contract. The court has stated that potential new categories of juristic reason may be established by considering moral or policy arguments and the expectations of the parties.⁹ As such, unjust enrichment claims are a developing area of the law.

Defence 3 – The Six “General Defences”

The court has held that there are six general defences to an unjust enrichment claim, including the following:

1. Change of position;
2. Estoppel;
3. Statutory defences;
4. Laches and acquiescence;
5. Limitation periods; and
6. The impossibility of counter-restitution.¹⁰

Change of position

Change of position provides a defence to a defendant where it would be inequitable to compel him or her to make restitution. It is best explained by way of example: Larry mistakenly receives a $4,000 dividend on shares. Delighted with his apparent good fortune, Larry treats his daughter to a car which he could never have afforded otherwise. If Larry was later required to provide restitution, he would legitimately feel aggrieved. The cost of the car would fall upon him, rather than upon the source of the apparent dividend. The law of unjust enrichment, therefore, provides Larry with a defence.¹¹

Estoppel

The law of estoppel, generally, acts to stop person A from benefiting from actions taken by person B as a result of A’s promises. What if A promised B that he would get an interest in a house and B, subsequently, spends a lot of money improving the house. If A does not give B an interest in the house in his Will, should the law permit A’s estate to benefit? Estoppel acts to prevent A from retaining the benefit.

If the claimant was under a statutory obligation to provide the benefit, then this will act as a defence to the claim.

Laches and acquiescence

Laches arises when a claimant has unreasonably and inexcusably delayed in bringing an action and the delay has prejudiced the defendant.¹²   Acquiescence is akin to a waiver. It will act as a defence to an unjust enrichment claim where the claimant has delayed asserting their rights for so long that the claimant is adjudged to have acquiesced to the alleged unjust enrichment. In the circumstances, it is considered unfair to the defendant to provide restitution.

Limitation periods

Ontario’s Limitations Act, 2002, generally, places a two-year limitation on most types of actions. Equitable claims against something other than land (e.g., an RRSP or a pension), have a two year limitation period.¹³

For unjust enrichment claims relating to real property, however, the deadline for the claimant to bring their claim is 10 years.¹⁴

The impossibility of counter-restitution

Before a claimant can recover any benefit from the defendant, the claimant must return any benefit, which they have received from the defendant. Thus, in any case where there has been an exchange of benefits, if the claimant is unable to give counter-restitution, their claim will be barred.

Defence 4 – Other Defences

The “clean hands” doctrine

Unjust enrichment is an equitable remedy and those who seek to rely on equitable remedies must come to court with clean hands. Martek v. Martek¹⁵ is a good example.

Set off¹⁶

Take the example of Mavis v. Mavis¹⁷ where the Court found that the parties’ contributions offset each other with the wife’s contributions primarily financial and the husband’s primarily physical in terms of his labour to improve the property.

Paying their “fair share”

A claim for unjust enrichment may fail when the claimant’s contributions of money and labour are very small and could be considered as a fair contribution to some of the household expenses. See the court’s comments in Prelorentzos v. Havaris.¹⁸

Properly remunerated for services

In Derakhshan v. Narula,¹⁹ the plaintiff’s claim for unjust enrichment did not succeed where the court found that he was paid for all services rendered.

Failure to show corresponding loss

A claim for unjust enrichment will fail where there is a benefit to the defendant, but the claimant fails to show a corresponding loss.²⁰

Conclusions

While the above defences may be asserted to a claim of unjust enrichment, it is important to bear in mind that this area of the law is far from settled. Each case must be carefully examined to determine whether an existing defence applies or whether the facts of the case support a potentially new category of defence.