Limits to Recovery
General Limits to Recovery
There are limits to recovery under principles of restitution.
Restitution may be avoided by a contract to the contrary. A contract might provide, for example, that a deposit is irrecoverable in all circumstances. Provided that the contract is valid, the right of restitution is limited.
Where assets are given by way of a gift, they are intrinsically irrecoverable, provided the gift has been perfected.
Many rights of recovery are equitable in nature so that they are defeated if the assets sought to be recovered, pass into the hands of a bona fide purchaser who gives substantial value for them.
Settlement, Waiver and Estoppel
Restitutionary rights may be settled in much the way as contractual and tortious right. There may be a waiver on the part of the person who would otherwise have had a claim to restitution, where he has acquiesced in or is estopped from denying that there is a settlement.
A legal claim may be settled notwithstanding the underlying merits. Provided there is a bona fide settlement, it cannot be reversed by restitution irrespective of the merits.
Estoppel may apply so as to resist a claim for restitution. Generally, estoppel is narrower than a change of defence position. Where there is an action or a statement, representation spoken or unspoken, upon which the addressee relies in good faith and changes his position, it may be inequitable to allow the person making the representation to enforce his strict legal rights.
Rights and claims may be waived. The waiver may become irrevocable by acquiescence, in the absence of a contract. Acquiescence with knowledge of the right to restitution may waive a right or claim where a party has changed his position in good faith on the basis of the waiver. Restitution may be denied if, and to the extent, it would be inequitable.
Overpayments
The principles of estoppel and change of position may be applicable where a person is overpaid or where monies are credited to an account in excess of the correct amount.
If a person receives benefits in circumstances where he assumed that he would be allowed to retain them and he had no reason to know of the possibility of a claim for restitution and he has disposal of the benefit or has been deprived of it, such as to make it inequitable that it be returned, then a defence to recovery on restitutionary grounds, will be available to this extent.
The classic example of where the right to recover is lost or limited is where a bank credits a customer’s account, who spends the money in the honest belief that it is his. The expenditure must be such that it would otherwise have been made.
Where the expenditure is made on other assets which can be realised, it may not be inequitable to require restitution. Similarly, restitution may be allowed to the extent to which the expenditure would ordinarily have been incurred, e.g. in discharging debts.
Generally, it does matter how or in what form the change of position may have occurred. If the recipient acts to his prejudice whether by spending money, giving gifts or otherwise taking steps that are not reversible in reasonable reliance on having the assets concerned, then the defence to restitution may be available. There is a view that the defence is not available to wrongdoers.
Change of Position and Estoppel
Change of position is a distinct defence in relation to restitution. Estoppel is a more general concept. It constitutes a change of position as a result of a representation expressed or implied that the strict legal position or restitutionary rights will not be relied on together with detrimental reliance and being unjust to go back on the same.
Where a person has been overpaid, questions it and has been told specifically that there is no mistake, then estoppel may arise. Estoppel may arise in the circumstances.
Although on the face of it, estoppel is more difficult to assert than a change of position, it is wider in other respect. It may be available to a person who is a technical wrongdoer.
There have been cases where estoppel has been allowed as a total defence to recovery and not just proportionate to the actual expenditure lost/incurred in circumstances which a person has relied upon to his detriment. The cases have been criticised and it is arguable that estoppel should be limited to the extent of the detrimental reliance.
Estoppel
If a person receives money to his account which he did not otherwise know about and undertakes expenditure which he might not otherwise afford, in circumstances where he reasonably believe it was a gift, estoppel is likely to be available. Equitable considerations will arise.
An intention to give a gift negates a right of recovery. A gift must be freely given and the intention to make it must be shown or inferred. In contrast, in the case a loan, it is clear that it is not a gift so that where there is no loan contract there is likely to be restitution
A mere change of position by the recipient by itself is not enough. There must be an estoppel binding on the person who has paid the money for restitution to be limited or barred. See generally the sections on estoppel.
Change of Position I
A change of position is a defence only to the extent that there is, in fact, a change of position. If, for example, a person has spent part of monies which he thought which was credited to his account, it would operate as a defence only as to the part spent being coterminous with the detriment suffered.
The person must have received the benefit in question in good faith and believing he was entitled to keep it, had no reason to believe that he might be liable in restitution and because of this, dispose of the asset or was deprived of it in circumstances such that it would be unjust to require him to repay or refund it.
It must be such that it is unjust to require him to refund. The mere fact that he spent monies may not be sufficient where there are new assets purchased in substitution. He may have saved living cost he would otherwise have incurred. If however the funds were spent on something frivolous, unrealisable or lost, restitution is likely to be refused.
In a case heard by the Privy Council, the fact that the defendant had loaned the funds, funds onward to an un-creditworthy defendant, did not shield him from liability to restitution to the plaintiff. He took the risk that the monies would be thus irrecoverable.
Change of Position II
In principle, it should not make any difference why the change of position has occurred. It may have occurred as a result of a voluntary act of the defendant against whom restitution is sought or due to other circumstances such as that the monies were stolen or lost.
The focus is on the injustice in requiring him to repay in such circumstances. However, even theft may have occurred even without the enrichment so that the defendant is nowhere soft. In this instance, defence through restitution would not be available.
Where a person has changed his position by reason of receiving the monies subject to restitution, the question of equities arises as to recovery. Monies paid in expectation of receiving a benefit which is ultimately the subject of restitution may constitute a change of position. There must be reliance.
The change of position defence is not available to wrongdoers, such as a person who has committed a crime or fraud or taken a bribe. However, it is unclear how far it applies to so-called innocent wrongdoers who unwittingly convert assets. It is argued that it should not extend this far.
There is authority that a respondent who has received funds in consequence of misrepresentation may not claim for change of position. The relative equities are likely to be considered.
The defence does not appear to be available in a claim by an executor to recover estate monies wrongfully distributed. There is also authority that may not be recoverable by State authority. It is not clear whether this authority would still hold.
Illegality; No Recovery
Where the subject matter of a contract is illegal, recovery may be denied on both contract and restitution grounds. Generally, with an illegal transaction, the loss lies where it falls.
Where payments have been made on foot of contracts which were unlawful, to the knowledge of both parties, then traditionally, the loss lies where it falls and there is no recovery. This covers not just criminal legality, but many instances of statutory illegality.
The Supreme Court in the Quinn case has introduced a more nuanced and policy orientated approach to recovery in illegality cases. It requires the court at look at the to the totality of the legislative policy to discern whether it was intended that the loss should fall where it lies.
Illegality; One Party Recovery
Where one person is not aware of the facts and circumstances making the transaction illegal, then the innocent party can generally obtain restitution,
- where a person withdraws from an illegal transaction, before any part of the other person’s
- where legislation is designed to protect one weaker party over another, that latter may be able to enforce by restitution. When one person is significantly more at fault than the other, recovery may be allowed notwithstanding the illegality of the transaction.
Where a claim may be sustained without relying on the unlawful transaction, restitution may be allowed. Where, the unlawful element is part of the claim, restitution or enforcement will be denied. In some cases, it may be possible to rely on independent property rights to reclaim assets which have been transferred.
Certain types of contracts are prohibited or only valid if certain formalities are followed. In some cases the courts allow recovery on the basis that it is not against public policy to allow recovery to avoid injustice, even though recovery on the underlying transaction might be void.
Illegality Withdrawal
Where a person withdraws or repents, he must do so in good time before the critical point. This would be typically where the illegality, deceit or deception occurs after it is planned but before it occurs.
In essence, what is left is a total failure of consideration without a bar to recovery by way of illegality. Once the legality has been carried into effect in any substantial manner, renunciation is not possible.
Innocent or Protected Party
Where one person is substantially less to blame than others, then the more innocent party may be entitled to recover notwithstanding illegality. They are not equally at fault. This may occur, for example, where legislation is truly aimed at promoting the interest of one party, typically a party in a weaker bargaining position.
In many schemes, statutory schemes are aimed at protecting the rights of one weaker class of persons over other. In this case, the weaker person may be able to recover. While the person in the protected class may be able to recover from the other in circumstances where the other would not be able to recover from the person in the protected class.
Consumer Credit Acts make specific provision providing unenforceability of certain types of agreement. It is clear that this may not be circumvented by restitution.
In cases under the moneylender’s legislation, the predecessor of the Consumers Credit Act, it was held that the moneylender was not subrogated to the previous mortgagee who has been paid off on public policy ground.
Independent Proprietary Rights and Legality
A right of property may be established in some cases without reference to the legal contract right. It may be enforced in itself. This is subject however to the principles of unlawful trusts. If, for example, a resulting trust can be shown without reference to the illegality, it may be enforced on the basis of the proprietary right.
Where the sole ground of the claim to the proprietary interest is the illegal agreement and not the presumption of trust, the trust will be held to be unenforceable. If assets are transferred to another for an illegal purpose, equity will not enforce the resulting trust. The Supreme Court has emphasised the importance of the particular statutory provision in terms of recovery, in this context.
Technical Unenforceability
Where the issue of legality is technical and relates to a matter of form, it is a question of interpretation whether public policy precludes recovery in both restitution and contract. The presumptive position is that actions in restitution not being based on contract are presumptively unaffected by rules of contractual unenforceability.
For example, rules requiring that contracts for the sale of an interest in land or sale of goods are to be evidenced in writing, do not preclude recovery in restitution. There is a total failure of consideration where the claimant does not get what he has contracted for, because of the statute. The principle has also been held to apply to gaming contracts until monies are appropriated to losses by the recipient.
In such cases, the fact that legal action may not be available for the price because of lack of evidence of writing does not necessarily preclude action by way of quantum meruit or quantum valebat for a reasonable sum.
Several leading Irish cases have involved informal agreements to transfer of property in return for working on a farm or looking after an owner. Such cases are commonly enforceable by way of estoppel.
Where there is an oral contract, it would be unenforceable by the absence of writing. However, the absence of writing is no bar to a restitutionary recovery for work performed under the contract and not paid.