Unjust Enrichment: A Guide for the Perplexed

“Unjust enrichment” is a very evocative legal phrase. The use of the term “unjust” tells us that something important is happening that merits our attention, and indeed that is the case. Generally, that significant event is a Judge ordering that property in the hands of one person (the defendant) is to be taken and given to someone else (the plaintiff). Remember that normally in litigation a successful plaintiff is awarded damages, which puts them in the position of a creditor in respect of the defendant. As all creditors know, having a damages award does not necessarily mean you will get paid. The defendant may be insolvent or may hide assets, meaning that the damages award may be practically worthless or very difficult to enforce. The ability of “unjust enrichment” to lead to “proprietary relief” and not merely damages is what all the fuss is about.

In many of the old cases dealing with the law of constructive trusts (a form of proprietary remedy), “unjust enrichment” often appears as a sort of loose rationalizing factor. The problem with such a loose approach is what critics term “palm-tree justice”. That is, unjust enrichment was used to mask what was otherwise a form of idiosyncratic judicial decision-making based on the Judge’s own subjective view of the equities of the case. Such an approach is essentially discretionary, which can lead to uneven application of the law in substantially similar circumstances.

The current view of unjust enrichment is a 20^th century development; that is, the use of “unjust enrichment” as an organizing principle for “restitution”. We rightly credit Warren Seavey and Austin W. Scott (both Harvard professors of law) for this development through their first Restatement on the Law of Restitution: Quasi Contracts and Constructive Trusts published by the American Law Institute in 1937. Thereafter, the subject became a matter of intense scrutiny by academics and appellate courts in various jurisdictions. Robert Goff (later Lord Goff) and Gareth Jones published a widely read and influential English text on the subject in 1966,¹ which traced the principle from the famous case of Moses v Macferlan². Later, Oxford Professor Peter Birks wrote widely, and influentially, on the subject. In Canada, The Law of Restitution³ by Professors John D. McCamus and Peter D. Maddaugh has been influential in the development of the Canadian law of unjust enrichment.

In Canada, one can chart the recent history of unjust enrichment from the judgment of the Supreme Court of Canada in Deglman v Guaranty Trust Co. of Canada.⁴. Here a disappointed nephew was promised a testamentary gift by an aged aunt in exchange for his services. The aunt didn’t leave the gift to the nephew in her Will and the nephew sued on the promise. The Supreme Court of Canada held that the claim for the services rendered was valid notwithstanding that the oral promise was not enforceable given its obvious non-compliance with the Statute of Frauds. Cartwright J. for the majority held:

In my opinion when the Statute of Frauds was pleaded the express contract was thereby rendered unenforceable, but, the deceased having received the benefits of the full performance of the contract by the respondent, the law imposed upon her, and so on her estate, the obligation to pay the fair value of the services rendered to her.

Rand J. held for the concurring minority:

There remains the question of recovery for the services rendered on the basis of a quantum meruit. On the findings of both courts below the services were not given gratuitously but on the footing of a contractual relation: they were to be paid for. The statute in such a case does not touch the principle of restitution against what would otherwise be an unjust enrichment of the defendant at the expense of the plaintiff. This is exemplified in the simple case of part or full payment in money as the price under an oral contract; it would be inequitable to allow the promissor to keep both the land and the money and the other party to the bargain is entitled to recover what he has paid. Similarly is it in the case of services given.

Given that there was no contract between the aunt and the nephew, what is the ultimate rationale for liability in Degleman? It can’t be the contract alleged to have existed; both the majority and the concurring minority rejected a contractual basis for relief. Rather than contract, then, it was the principle of unjust enrichment (the retention of a benefit without valid reason) but through the instrument of a legal fiction called ‘quasi contract’.

The law of unjust enrichment in Canada has moved on substantially since Deglman v Guaranty Trust Co. of Canada. There is no doubt that there now exists an independent action for unjust enrichment in Canada that is not parasitic on an established common law, equitable, or statutory cause of action. That is, it stands on an equal footing with traditional common law causes of action (like breach of contract) as well as equitable wrongs (like breach of fiduciary duty). It is not, however, a form of wrong-doing. Rather, we accept that there is no reason to allow the defendant to retain a benefit obtained to the detriment of the plaintiff, and thus it should be returned.

Thus, rather than speaking of an ‘action for quantum meruit’ or ‘quasi contract’ in respect of the services at issue in Deglman, we now more usefully speak of remedies properly arising as a response to a valid contract (on which damages may be calculated on a quantum meruit basis) or remedies arising on a successful action in unjust enrichment (which might be remedied with a money award to the same ends). We no longer have to rely on quantum meruit as an indistinct concept that describes the variety of factors that might support the remedy outside conventional contract, whether in law or equity or otherwise. Rather, we ventilate the inquiry through the law of unjust enrichment which provides for a more structured approach.

Thus, at the very least, we can now say with confidence:

A remedy based upon unjust enrichment may be ordered where there is

(a)  a benefit to or enrichment of one party, and
(b)  a corresponding detriment to or deprivation suffered by the other party, and
(c)  the absence of any juristic reason for the benefit or enrichment to be retained.

The ‘juristic reason’ involves consideration of (i) traditional categories that would allow the benefit to be retained and (ii) fact-specific reasons and new categories of general application that would allow the benefit to be retained tested on both the reasonable expectations of the parties and public policy considerations.⁵ In recent years the courts have used this action to create new models of law to resolve otherwise thorny problems, like division of property on the breakdown of a non-marital spousal relationship.⁶

Where does this leave us? The use of unjust enrichment as both a concept and an autonomous action allows for a more precise and rational development of principles that seek to reverse an improper retention of property by one person that properly belongs to another without reliance on fictions – and, as such, unjust enrichment will become an increasingly important area of law in Canada. In future blog posts, we will examine the law in greater detail.