Unjustified Enrichment: Key Issues in Comparative Part 5 doc

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of ‘received enrichment’ and not ‘surviving enrichment’. Once the defence
of change of position is recognised, this explanation of model III will no
longer do.
(j) The loss lies where it falls
Some apply the maxim ‘the loss lies where it falls’ and argue that in the
current example the loss fell on A and he should not be able to shift it
on to B without good reason. But the argument is flawed. Under model II
loss of the horse falls on B. It will lie there unless B has a good reason to
shift it on to A. With model III the loss of the horse falls on A. It will lie
on A unless there is some justification for shifting it on to B. These two
models start from opposite ends. The maxim ‘the loss lies where it falls’
is of no argumentative value when deciding whether to follow model II
or model III.
(k) He who seeks equity must do equity
In English and Scots law, this principle is mentioned as being at the
root of model III.
98
It seems to mean that a person seeking to unwind a
contract should himself be in a position to give back what he received.
The reference to equity is helpful as long as both the horse and the cow
are in existence. However, equity is not of much help once the horse has
ceased to exist.
(l) Summary
In England, Scotland and Germany, but also in America and among
Romanists, there are a number of arguments that seem to suggest that
model III is preferable. But none of these arguments were compelling
enough to justify the conclusion that model III is the right choice for
unwinding mutual contracts.

2. Are there internal arguments for a particular model?
The question I am concerned to answer in this subsection is whether or
not any of these models achieve equitable results and provide the tools to
deal with different possible fact patterns.
(a) Model I
I will not spend any time on total failure of consideration. It is now
accepted in English law that total failure of consideration should be
98
Aguilar v. Aguilar (1820) 5 Madd 414 at 416 n. 1; Scotland North British and Mercantile
Insurance Co. v. Stewart (1871) 9 M 534 at 537.
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interpreted in such a way that all that is needed is counter-restitution.
The case law is starting to follow the lead of legal academics. Model I is
slowly being replaced by model III.
99
(b) Model II
Model II is that of the Zweikondiktionentheorie. A can claim back the cow.
It does not affect A’s claim against B that he himself is not able to give
back the horse. B cannot claim anything from A, since A can rely on the
defence of change of position: he has lost the horse. Thus, the risk of loss
of the horse is usually on B. If that were the end of the story, the results
would be in many, though not in all, cases unjust. However, German law
offers a number of tools whereby B can shift the loss on to A.
(i) If A rescinds the contract for mistake, he has to make good B’s reliance
damage:
§ 122 I BGB. In reliance on the validity of the contract, B has
transferred the horse to A. A has to make good B’s reliance damage
either by transferring back the horse or by making good its value. It is

no defence to the claim for damages that A has lost the horse.
(ii) If the contract is void for impossibility (
§ 306 BGB) and one party knew
or ought to have known that, then the other party can claim back his
or her reliance expenditures (
§ 307 BGB). Thus, if A was to give two
cows in exchange for B’s horse and A has so far transferred only one,
while the other was already dead when the contract was formed, then
the contract is void. A can claim back the one cow that he has already
delivered to B for impossibility. It does not affect his claim that he
cannot offer the horse back. However, if he knew or ought to have
known that the cow was dead, he is liable to make good B’s reliance
damage.
(iii) If the contract is void for illegality (
§ 134 BGB) and A knew or ought
to have known of the illegality, B can claim his reliance damages from
A(
§§
309, 307 BGB).
(iv) Similar results may be achieved with culpa in contrahendo, with
§ 826
BGB, and with
§§ 823 II BGB, 263 StGB. Therefore, although in principle
the risk of loss of the horse is on B, B can shift it on to A in all cases
in which A is either responsible for the unwinding factor or in which
he knew or ought to have known of the unwinding factor before B
transferred the horse to A.
(v) Furthermore, B can always shift the loss on to A where A knew or ought
to have known that he was not entitled to the horse and was at fault
in dealing with the horse in such a way that it ceased to exist:

§§ 989,
990 BGB;
§§ 989, 292, 818 IV, 819 I BGB; §§ 989, 347, first sentence, BGB.
99
See the references in n. 36, above.
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unwinding mutual contracts 279
The results achieved with model II are therefore acceptable, but only
if backed up by legal tools with which B can shift the loss on to A.
German law offers these tools, as shown. English law does not have com-
parable actions to claim reliance damage, such as on grounds of culpa in
contrahendo. For this reason, model II is not open to English law.
100
(c) Model III
As already seen, model III may be achieved by a number of means, of
which counter-restitution, restitutio in integrum and the Saldotheorie are
the most important. All of these aim to unwind the contract in toto.
A’s claim against B and B’s claim against A are not looked upon as dis-
tinct, but as just two steps in the same story: unwinding the proprietary
and factual consequences of the contract. The conclusion which model
III draws from this is that A is within his rights to have the contract
unwound only if he offers counter-restitution to B either in specie or in
value. As a consequence, the risk of the loss of the horse is on A not
on B.
There are, however, exceptions to this rule:
(i) If to allow A to unwind the contract only on offering counter-restitution
would subvert the policy consideration that renders the contract void,
then A need not make counter-restitution.
101

(ii) If loss of the horse is attributable to B, A is again able to claim back
the cow without making counter-restitution. The most important case
is where A wants to have the contract unwound because the horse is
defective, but the horse ceased to exist owing to this same defect.
102
(iii) Furthermore, the Saldotheorie does not apply where B has fraudulently
induced A to enter into the contract.
103
English and Scots law do not
know this exception. A even has to offer restitutio in integrum to B if he
wants to rescind the contract for fraudulent misrepresentation.
104
The results achieved by model III are acceptable.
100
Model II might be open to Australian law which has claims for reliance damages
comparable to those of German law: Waltons Stores (Interstate) Ltd v. Maher (1988) 164
CLR 387; Commonwealth of Australia v. Verwayen (1990) 170 CLR 394; Justine Munro, ‘The
New Law of Estoppel’, (1993) 23 Victoria University of Wellington Law Review 271; Michael
Spence, ‘Australian Estoppel and the Protection of Reliance’, (1997) 11 Journal of
Contract Law 203; Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable
Estoppel (1999).
101
See, e.g., Guinness plc v. Saunders [1990] 2 AC 663; Erskine, Institute, Book I, Title VII, 41.
102
Kinnear v. Brodie (1901) 3 F 540; Head v. Tattersall (1871) LR 7 Ex 7; RGZ 94, 253.
103
BGHZ 53, 144. See Dernburg, Pandekten, § 143.5; Vering, Geschichte und Pandekten,
§ 134 VII; von Wening-Ingenheim, Lehrbuch, Book VI, § 11.
104
For example Spence v. Crawford 1939 SC (HL) 52.

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(d) Model IV
Under model IV the loss is split between the parties. This is the most
flexible approach. It can take into account the special circumstances of
each case. Prima facie it is the most attractive model. However, there are
a number of problems with it.
(i) First, there needs to be a catalogue of factors that can be taken into
consideration when apportioning the loss. Some might tend to argue that
this should be left to the judge.
105
He will best be able to work out which
factors should influence the loss apportionment in a given case. However,
one should be able to agree on a catalogue of factors which should and
those which should never influence the result of a given case. If this cannot
be done in principle, how is the judge expected to do so? In German, Scots
and English legal literature as well as in the case law a number of factors
have been suggested: responsibility for the unwinding factor; responsibil-
ity for the loss; policy considerations of the unwinding factor; which party
can better bear the loss; for whose benefit the contract was made.
106
(ii) It is not enough just to enumerate the different factors. One has to
decide how these factors come into play.
107
The law faces a similar problem
with contributory negligence: if the loss of the plaintiff has been caused
not only by the defendant but also by his own negligence, his claim for
damages may be reduced.
108

In the case of contributory negligence both
the acts of the plaintiff and the acts of the defendant have caused the loss.
However, the problem here is slightly more complicated. If B induced A to
enter into the contract by fraudulent misrepresentation and A killed the
horse, then A is responsible for the loss of the horse; B is responsible for
the unwinding factor. Each is responsible for a different fact. How should
these two responsibilities be weighed against one another? If B had not
fraudulently induced A to enter into the contract, A would never have re-
ceived the horse, and would never have been in a position to kill it. Should
the loss therefore be on B? One possible answer is that B’s misrepresenta-
tion only influences the loss apportionment, if the fact misrepresented to
A caused the loss.
109
B fraudulently tells A that the horse is fit for work
and in fact it is not. If A kills the horse, the loss will be on him. If the
horse only dies because it was not fit for work, the loss will be on B. If A
105
Haggarty v. Scottish Transport and General Workers Union 1955 SC 109 at 114–15 per Lord
Sorn; Gamerco SA v. ICM/Fair Warning Ltd [1995] 1 WLR 1226 at 1236–7 per Garland J;
Axel Flessner, Wegfall der Bereicherung. Rechtsvergleichung und Kritik (1970), 156 ff.; Edgar
Deplewski, Die Risikoverteilung im nichtigen Synallagma (1976), 164 ff.
106
Flessner, Wegfall, 115 ff.; Deplewski, Die Risikoverteilung,85ff.
107
Kohler, Die gest
¨
orte R
¨
uckabwicklung, 249; Rengier, ‘Wegfall der Bereicherung’, 428.
108

Law Reform (Contributory Negligence) Act 1945; § 254(1) BGB.
109
See Canaris, ‘Die Gegenleistungkondiktion’.
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by using the horse breaches his diligentia quam in suis and the horse dies,
but a horse which was fit for work would have been able to manage this
situation, the loss may be split.
It is therefore already difficult to explain how only two factors may in-
fluence the loss apportionment.
(iii) It is not yet clear which loss is to be apportioned. Let me again
modify the hypothetical case. B transferred his horse to A. The value of the
horse at the time of performance was
£400. The value of the cow that B was
to get in exchange was
£300. B has made a bad bargain. Before A performs
his side of the bargain the horse declined in value. It is now worth only
£200. Finally, the contract is frustrated and the frustrating event also kills
the horse. Since neither party is responsible for the frustrating event and
since neither party is responsible for the death of the horse, it can be
assumed that the loss is best split equally between the parties. But is it
the loss of
£200, £300 or £400 which is to be split?
In conclusion, model IV is unattractive for English and Scots law,
because it is not at all clear how it functions. Leaving all these questions
to the discretion of the judge would be capitulation to the problems of
principle.
3. Summary
In English and Scots law, the unwinding of mutual contracts should be

further developed on the basis of model III. This should apply regardless
of the unwinding factor, how the claim is categorised, and which method
is adopted to unwind the contract.
V. The meaning of
restitutio in integrum
Model III needs a name. For English and Scots law, counter-restitution
or restitutio in integrum seem to be suitable candidates. I would suggest
that restitutio in integrum is the most appropriate.
110
But what is meant by
restitutio in integrum needs to be carefully defined. The term has been used
at different times in Scottish and English legal history in different senses:
(i) to denote an action;
111
(ii) to describe the plaintiff ’s aim in bringing the
110
Virgo, Principles, 32 ff. apparently prefers counter-restitution.
111
See the old cases of unwinding contracts for minority. See also Percival Gane’s
‘Translator’s note’, in: The Selective Voet: Being the Commentary on the Pandects by Johannes
Voet (1989), IV, 1. This was also the pandectist sense of the term: see, e.g., Mackeldey,
Lehrbuch,
§ 207.c.1; Puchta, Pandekten, § 100; Friedrich Carl von Savigny, System des
heutigen R
¨
omischen Rechts (1848), vol. VII, 93–4, 98 ff.; Alois Brinz, Lehrbuch der Pandekten
(2nd edn, 1873),
§ 115.
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282 phillip hellwege
action (to be put in integrum);
112
(iii) to refer to a requirement of rescis-
sion (the defendant needs to be put in integrum);
113
(iv) as a synonym for
‘total restitution’ or that both parties have to be put into their status quo
ante contractum.
114
This last sense is to be preferred because it describes
the unwinding of a mutual contract in its totality: A asks for restitutio in
integrum and in order to be successful has to offer restitutio in integrum.
Restitutio in integrum means that someone is put back into his status
quo ante. Is it ever possible that both parties are put back into their
status quo ante ?Ifrestitutio in integrum or status quo ante is understood too
literally, then this will rarely be so.
First, if one party has incurred any expenditure in reliance on the con-
tract, one of the two parties will have to bear this loss. This party will be
worse off than he was before the contract so not returned exactly to his
status quo.Butrestitutio in integrum has always disregarded reliance expen-
diture. Restitutio in integrum only means that both parties have to give back
benefits received under the contract.
Secondly, if one party has lost what he received, exact restitutio in inte-
grum will be impossible. But the preferable view is that restitutio in integrum
need not be exact. In the example used in this chapter it is sufficient that
A makes good the value of the horse if he wants to claim back the cow.
Literally, neither A nor B is put back into his status quo ante.Bonlygetsthe
value of the horse and not the horse in specie. A is financially worse off.
Thirdly, if the contract is terminated or frustrated, it will stay in force

for some purposes; to that extent the parties are not put back into their
status quo ante contractum. This must be disregarded as well.
All that restitutio in integrum means is that both parties have to give back
what they received under the contract either in specie or in value.
VI.
Restitutio in integrum
v. the defence of change of position
Having now determined how a mutual contract is unwound, I can properly
discuss the question how the defence of change of position can be applied
in this context. There are two questions: (i) is restitutio in integrum merely an
application of the defence of change of position? (ii) are the two distinct?
112
See the Scottish cases on minority and, e.g., Burnes v. Pennell (1849) 2 HLC 497 at 515
per Lord Campbell.
113
See, e.g., Houldsworth v. City of Glasgow Bank (1879) 6 R 1164 at 1173 per Lord Deas.
114
See, e.g., Stuarts v. Whiteford and the Duke of Hamilton (1677) Mor 16489 at 16493; Boyd &
Forrest v. Glasgow and South Western Railway Co. 1914 SC 472 at 496 per Lord Dundas;
Graham v. Western Bank of Scotland (1864) 2 M 559 at 564 per Lord Ordinary Kinloch.
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Can they be applied in the same case, or is the defence only applicable
where restitutio in integrum does not apply?
I have already observed that there are two possible applications of the
defence in the example. First, B could rely on the defence of change of
position. He could say to A: ‘In reliance on the contract I have given you
my horse. I have thereby changed my position. Give it back, before you
get your cow back.’ On the other hand, A could rely on the defence. He

could argue: ‘I have received your horse, but now it has ceased to exist.
I have therefore changed my position.’ It would be nonsensical to allow
both parties to rely on the defence in this way. In each case only the fate
of the horse is in question. If A and B are both allowed to rely on the
defence, no policy decision has been taken as to who should bear the loss.
If A is the plaintiff, the loss would be on him, because the defence is open
to B. If B is the plaintiff, the loss would be on him, because the defence
is open to A.
115
There would also be a cumulative risk on the plaintiff.
116
If A can claim that the contract should be unwound, the loss of the cow
will be on him, because B can rely on the defence of change of position;
equally the loss of the horse will be on him, because B can rely on the
defence of change of position.
1. Should B be able to rely on the defence?
B has given the horse to A. That could count as a change of position.
The question is whether restitutio in integrum is nothing but this defence
of change of position. For a number of reasons the answer has to be a
clear ‘No’:
(a) It is thought that the defence of position only applies to parties who
change their position in the honest belief of their entitlement to the
enrichment. Thus, if B were fraudulent, he would not be able to rely
on the defence. But the case law is very clear that restitutio in integrum
works in favour even of a party who is fraudulent.
117
(b) The problem of anticipatory reliance comes into play: B might have
given his horse before he received the cow from A. B therefore relied not
115
Bremecker, Die Bereicherungsbeschr

¨
ankung, 69–70; Oertmann, ‘Bereicherungs-
angspr
¨
uche’, 1065; Oertmann, ‘Noch einmal’, 335; Pawlowski, Rechtsgesch
¨
aftliche Folgen,
41–2; Schneider, ‘Zur Bestimmung’, 179–80.
116
Bremecker, Die Bereicherungsbeschr
¨
ankung, 66–7; Deplewski, Die Risikoverteilung, 13, 23;
Kohler, Die gest
¨
orte R
¨
uckabwicklung, 168–9; Leser, Saldotheorie, 14–15.
117
Peter Birks, ‘Change of Position and Surviving Enrichment’, in: William Swadling
(ed.), The Limits to Restitutionary Claims: A Comparative Analysis (1997), 36, 55 ff.; Peter
Birks, ‘Change of Position: The Nature of the Defence and its Relationship to other
Restitutionary Defences’, in: McInnes (ed.), Structure and Challenges, 49, 66; McKendrick,
‘Total Failure’, 239.
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on his enrichment but on the expectation of A’s performance. The case
law indicates that anticipatory reliance might not be sufficient for a
successful defence of change of position.
118

However, for the application
of restitutio in integrum it is totally irrelevant who performed first.
119
(c) In addition, the following arguments have been put forward in German
legal literature. Take the following modification of the example: B has
given the horse to A, but A has not yet transferred the cow to B. The
defence of change of position fails in this situation because B never
received an enrichment from which he could deduct his own perfor-
mance. However, the principle of restitutio in integrum is capable of deal-
ing with this case. A has to render restitutio in integrum if he wants to
rescind the contract, not just if he wants to claim his cow back.
(d) Finally, A does not have to offer restitutio in integrum to B if the horse
ceases to exist due to B’s fault. This exception cannot be explained on
the basis of the defence of change of position.
2. Should A be able to rely on the defence?
Should A be able to rely on the defence in a claim by B? He has lost the
horse. Again, the answer needs to be ‘No’.
(a) With restitutio in integrum the parties either have to restore what they re-
ceived in specie or they have to make up its value regardless of whether
they are still enriched. Hence, with restitutio in integrum it is of no con-
cern whether A changed his position or not.
(b) Suppose that the contract in our example is void. The contract is fully
performed. The loss of the horse is on A. He can only claim back the
cow if he makes good the value of the horse. However, if only B has
performed the contract, then the loss of the horse would be on B, if
A were able to rely on the defence of change of position. Yet whether
the contract has been fully performed or not should not influence the
allocation of risk. It is most consistent with restitutio in integrum that in
this case, too, A should make good the value.
VII. Summary

1. In the unwinding of mutual contracts, our particular concern was
with the question of what effect it should have on A’s claim against B
that A is himself unable to give back what he received under the con-
tract. In English, German and Scots law the answer to this question
depends on a number of factors: (i) the unwinding factor; (ii) cate-
gorisation of the unwinding factor; (iii) the method for unwinding
118
South Tyneside Metropolitan Borough Council v. Svenska International plc [1995] 1 All ER 545.
119
Burrows, Law of Restitution, 429.
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unwinding mutual contracts 285
the contract in toto; (iv) whether the contract as agreement, the pro-
prietary consequences of the contract, or the factual consequences of
the contract need to be unwound; and (v) the nature of the perfor-
mance. It was argued that none of these factors should influence the
answer to the problem. A unified approach needs to be found.
2. For English and Scots law, the most appropriate candidate for such
an approach is restitutio in integrum.
3. Restitutio in integrum means that the party who seeks to unwind the
contract needs to give back what he received under it. Offering resti-
tutio in integrum is a requirement for each step of unwinding the con-
tract. If one party at his choice can unwind the contract as agreement
(as is the case with rescission), then restitutio in integrum is a require-
ment for rescission. If the contract is (for example) ipso iure void, then
restitutio in integrum is a requirement for the claim to have the pro-
prietary and factual consequences of the contract unwound. If the
contract and the transfer of property are void, then restitutio in inte-
grum is a requirement for claiming that the factual consequences of

the contract should be unwound.
4. With restitutio in integrum the parties have to give back what they re-
ceived in specie or by making good its value. Only in very exceptional
cases will attention be paid to the fact that one party has lost what
he received and that that party is no longer enriched. Only two such
exceptions exist: where requiring a party to offer restitutio in integrum
would subvert the policy underlying the unwinding factor; or where
loss of what was received is attributable to the other party. The most
prominent example of this second exception is where the object re-
ceived ceased to exist owing to an inherent defect.
5. The defence of change of position and restitutio in integrum are two
distinct legal institutes. Furthermore, the one is not compatible with
the other. In the example used here, with restitutio in integrum the rule
is that A has to give back the horse or its value regardless of whether
or not he is still enriched. The risk is usually on A. With the defence
of change of position one would have to start from the other end. It
would be the rule that A had only to give back his surviving enrich-
ment. The risk of the horse would be on B. Thus, restitutio in integrum
and the defence of change of position exclude each other. Restitutio
in integrum governs the unwinding of mutual contracts. Hence, the
defence of change of position should not be applicable to unwind-
ing mutual contracts. If it were allowed, there would be a risk of
subverting the results achieved by restitutio in integrum. Furthermore,
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the defence of change of position is limited to the law of unjustified
enrichment. But not every step of unwinding a mutual contract is
governed by the law of unjustified enrichment. In German law, un-
winding a contract following a breach of contract is regulated by the

law of contract. This would mean that in the process of unwinding
a mutual contract the defence might sometimes be applicable and
sometimes not. That would contradict the thesis of this chapter, that
the process of unwinding mutual contracts should be governed by
only one set of rules. It is therefore preferable to exclude the defence
of change of position altogether.
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part vi
Illegality
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10 The role of illegality in the English law
of unjust enrichment
W. J. Swadling
I. Introduction
When English unjust enrichment lawyers talk of ‘illegality’, they gener-
ally do so in the context of the unravelling of partly performed illegal
contracts. Two parties enter into an illegal contract. What generally hap-
pens is that one pays for a service to be performed but fails to receive the
agreed exchange. Can that party recover the value he has transferred to
the non-performing recipient? The law in this area is complex and difficult
to state with any accuracy.
There are a number of reasons why the judges do not find it easy to come
to an agreed answer to this problem. The consequence of a finding of ille-
gality in English law is that the contract is null and void. No action may be

brought for compensation for non-performance, nor will an order for spe-
cific performance be available. With such a harsh attitude taken to contrac-
tual performance, the pressure falls entirely on the law of unjust enrich-
ment to sort out the mess. And the difficulties are only exacerbated by the
fact that English law adopts an extremely wide view as to what amounts to
an illegal contract.
1
Not only does it include contracts to commit crimes,
as, for example, a contract to kill or to injure another person, but also
contracts of which performance, though not illegal in any criminal sense,
will not be enforced for various reasons of public policy. Examples are
marriage brokerage contracts, contracts to commit civil wrongs, contracts
to indemnify another against liability for unlawful acts, contracts in
restraint of marriage, contracts promoting sexual immorality, contracts
of insurance where there is no insurable risk, contracts purporting to
oust the jurisdiction of the courts, trading with the enemy, and contracts
1
For a general account of illegality in the context of contractual undertakings, see
G. Treitel, The Law of Contract (10th edn, 1999), 392–452.
289
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290 w. j. swadling
restricting personal liberty. The merits of the plaintiff who pays a hit-man
to murder a business rival are clearly different from one who pays a
premium on an insurance policy in which he has no insurable interest.
A further difficulty is caused by the fact that in many cases the role
contractual illegality is playing is ambiguous. Though in some it clearly
provides a defence to what would be an otherwise valid claim for restitu-
tion of unjust enrichment, in others the illegality, at least at first sight,

appears to provide a ground of claim in itself. In other words, the illegality
gives rise to a liability to make restitution of an unjust enrichment which,
in the absence of the illegality, would not be present. Unfortunately, this
distinction – between illegality as a defence to a claim for restitution of
unjust enrichment and illegality as a cause of action in unjust enrich-
ment – is not always cleanly drawn, either in the case law
2
or the academic
literature. The cases on illegality as defence and illegality as cause of ac-
tion tend simply to be run together, making an already difficult subject
almost impossible to comprehend. This essay, adopting the scheme first
suggested by Peter Birks,
3
proceeds on the basis that the role of illegality
in unjust enrichment claims cannot be understood unless a separation
is first made between cause of action and defence. The test that will be
adopted here to decide on which side of the line any particular case falls
is as follows. If the illegality is put aside, will the plaintiff still have a good
cause of action? If the answer to that question is yes, then the illegality is
operating as a defence. But where, conversely, the removal of the illegality
would cause the claim to fail, the illegality goes to the existence of a cause
of action, and is not operating as a defence.
But there is yet another difficulty of a similar nature. Little attempt is
made by the majority of writers, both judicial and academic, to distinguish
between claims based on the unjust enrichment of the defendant and
those in which plaintiffs are seeking to enforce rights not generated by
the unjust enrichment of the defendant – more particularly, property
rights not generated by the unjust enrichment of the defendant.
4
Claims

2
The worst offender in this regard is probably the decision of the Privy Council in Kiriri
Cotton Co. v. Dewani [1960] AC 192, discussed below (at 302).
3
P. Birks, An Introduction to the Law of Restitution (revised edn, 1989), 299–303, 424–32.
4
This is not to deny the possibility, at least in English law, of property rights being
generated by the defendant’s unjust enrichment, as witness the decision of Goulding J
in Chase Manhattan Bank NA Ltd v. Israel-British Bank (London) Ltd [1981] Ch 105 (recipient
of a mistaken payment said to hold it on constructive trust for the payee). On the
question whether it is correct for the courts to create property rights as a response to
unjust enrichment, see W. J. Swadling, ‘Property and Unjust Enrichment’, in: J. W.
Harris (ed.), Property Problems: From Genes to Pension Funds (1997).
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for the enforcement of property rights generated by the defendant’s un-
just enrichment and claims for the enforcement of property rights not
generated by unjust enrichment are clearly two different things,
5
for they
are rights generated by different causative events, and to which different
defences may or may not be available. As will be shown below, it was pre-
cisely this failure to distinguish between the two species of rights in Bigos
v. Bousted
6
that led the court into error.
The aims of this essay are relatively modest. What it does not purport to
do is to provide an answer to the difficult question, ‘when will illegality
bar an otherwise valid claim for restitution of unjust enrichment?’.

7
What
it instead seeks to do is much more basic. First, it will demonstrate the
need to keep distinct the operation of the defence of illegality where the
claim is one to the enforcement of property rights not generated by un-
just enrichment from one where the claim is to the restitution of unjust
enrichment. Secondly, it will ask whether, in the law of restitution of un-
just enrichment, illegality really does have the bivalent role ascribed to it
above, namely that it operates both as a defence and as a cause of action
(‘unjust factor’). It will be seen that, though well established as a defence
to claims for restitution of unjust enrichment, the authority for saying
that illegality also operates as a cause of action is weak. The so-called
‘repentance’ cases apart, the decisions in which illegality looks to be oper-
ating as an unjust factor can all be explained on alternative grounds. And
what is more, even the repentance cases themselves provide no author-
ity for claims in unjust enrichment, for they are in the main concerned
with claims in respect of property rights not generated by unjust enrich-
ment, and, moreover, are cases in which the illegality of the transaction
is operating, albeit unsuccessfully, as a defence, not a cause of action. The
conclusion which will be drawn is that in English law illegality operates
only as a defence to claims for restitution of unjust enrichment and never
as a cause of action.
II. Illegality as defence
The defence of illegality is not unique to claims for restitution of un-
just enrichment. We have already seen that it will bar claims in respect
5
Though this is something which the word ‘restitution’ tends to disguise: see P. Birks,
‘Misnomer’, in: W. R. Cornish et al. (eds.), Restitution: Past, Present and Future (Oxford,
1998).
6

[1951] 1 All ER 92.
7
Those seeking an answer to this question should consult P. Birks, ‘Recovering Value
Transferred Under an Illegal Contract’, (2000) 1 Theoretical Inquiries in Law 155.
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of compensatory damages for the non-performance of contractual prom-
ises. It can also bar claims for compensatory damages for torts
8
and, more
controversially, for the enforcement of property rights not generated by
unjust enrichment. Since cases in the latter category are often run to-
gether with claims for restitution of unjust enrichment, it is to those that
we must first turn.
1. Illegality as a defence to claims for the enforcement of property
rights not generated by unjust enrichment
This is a complex issue. In order to make any sense of the law in this
area it is necessary to examine separately the position at law from that
obtaining in equity.
(a) Common-law property rights
So far as the common law is concerned, illegality does not operate as a
defence to claims for the enforcement of property rights not generated
by the defendant’s unjust enrichment. The reason seems to be that, un-
like claims for the enforcement of purely executory contractual rights,
the owner does not seek to extract his rights from any illegal act, but
rather from rights which were in existence before the illegal act occurred.
In asserting such rights, therefore, the holder has no need to rely on
any unlawful conduct on his part. An example is Bowmakers Ltd v. Barnet
Instruments Ltd.

9
Machine tools were delivered pursuant to an unlawful
hire-purchase agreement. Not all the instalments under the agreement
were paid by the purchaser and the seller brought conversion when his
demand for the return of the tools was not met. The purchaser defended
the claim by pointing to the illegality of the hire-purchase agreement. The
Court of Appeal held that this was no defence. Du Parcq LJ, delivering the
judgment of the Court, said:
a man’s right to possess his own chattels will as a general rule be enforced against
one who, without any claim of right, is detaining them, or has converted them
to his own use, even though it may appear either from the pleadings, or in
8
In National Coal Board v. England [1954] AC 403 at 429, Lord Asquith said: ‘If two
burglars, A and B, agree to open a safe by means of explosives, and A so negligently
handles the explosive charge as to injure B, B might find some difficulty in
maintaining an action for negligence against A.’ For a general account of the defence
of illegality in tort, see W. V. H. Rogers, Winfield & Jolowicz on Tort (15th edn, 1998),
866–71.
9
[1945] KB 65.
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the course of the trial, that the chattels in question came into the defendant’s
possession by reason of an illegal contract between himself and the plaintiff,
provided that the plaintiff does not seek, and is not forced, either to found his
claim on the illegal contract or to plead its illegality in order to support his
claim.
10
The same result was reached in Singh v. Ali.

11
The plaintiff haulier wanted
to acquire a lorry but knew that, because he did not satisfy certain gov-
ernment conditions, he would not be granted a haulier’s permit by the
relevant authorities. He therefore entered into an agreement with the de-
fendant haulier, who did satisfy those conditions, under which the defen-
dant would buy the lorry, register it in his own name and sell it on to
the plaintiff, all the while concealing the second sale from the authorities
by keeping the registration unchanged. The defendant did acquire such a
lorry, registered it in his own name, and sold and delivered it to the plain-
tiff. The parties later fell out, and the defendant seized the lorry from the
plaintiff, who thereupon sued him in detinue. The defendant set up the
illegality of the second sale as a defence. The trial judge, Smith J, held
that the defence succeeded, that there was a ‘moral estoppel’ generated
by the illegal design which prevented the plaintiff from recovering. The
Judicial Committee of the Privy Council disagreed. Although the transac-
tion between the plaintiff and the defendant was illegal, property in the
lorry passed through the act of delivery. The plaintiff could assert his title
to the lorry against all the world, not because he had any merit of his
own, but because there was no one who could assert a better one. As Lord
Denning explained:
The court does not confiscate the property because of the illegality – it has no
power to do so The parties to the fraud are, of course, liable to be punished
for the part they played in the illegal transaction, but nevertheless the property
passes to the transferee.
12
That must be right. As Lord Denning makes clear, it is not for the civil
court to punish the plaintiff for his illegal conduct. In any case, the ‘pun-
ishment’ that would be meted out might bear no relation to the serious-
ness of the conduct involved. As Singh v. Ali demonstrates, a fairly minor

criminal infringement, which might attract a fine of only a few hundred
pounds from a criminal court, could well be visited with a confiscation
of property worth many thousands of pounds were the court to allow
10
Ibid. at 71.
11
[1960] AC 167.
12
Ibid. at 177.
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illegality to operate as a defence to the enforcement of property rights
not generated by unjust enrichment.
(b) Equitable property rights
The position here is more complex. Until recently, the exact opposite to
that which obtained at common law prevailed. Applying the maxim ‘he
who comes to equity must do so with clean hands’, the courts refused relief
to a plaintiff who was party to an illegal design where what was claimed
was an equitable, as opposed to a legal, property right. An example is
provided by Chettiar v. Chettiar,
13
a decision of the Privy Council on appeal
from the Court of Appeal of Malaya of almost the same vintage as Singh
v. Ali, with Lord Denning once again delivering the opinion of the Board.
There, a father owned 139 acres of land. In order to evade administrative
regulations as to its use, he transferred forty acres into his son’s name, on
the express understanding that the son was to hold it for him on trust.
The father later contracted to sell the land and asked his son for a power
of attorney to do so. The son refused and the father sought a declaration

that the son held the land for him on trust, founding his claim not on
the express trust
14
but on the resulting trust which is presumed in the case
of gratuitous transfers of property rights.
15
The trial judge, who had also
decided Singh v. Ali at first instance but who had been reversed on appeal,
held that the plaintiff’s possible turpitude was ‘no reason for denying him
the orders which he seeks’. The Judicial Committee of the Privy Council,
however, disagreed:
In Singh v. Ali the plaintiff founded his claim on his right of property in the
lorry and his possession of it. He did not have to found his cause of action on an
immoral or illegal act. He was held entitled to recover. In the present case the
father has of necessity to put forward, and indeed, assert, his own fraudulent
purpose He is met therefore by the principle stated long ago by Lord Mansfield
‘No court will lend its aid to a man who founds his cause of action upon an
13
[1962] AC 294.
14
It is unclear why a claim was not made on the basis of the express trust. One
probable reason is that there was no written evidence of the declaration, a statutory
requirement in English law by virtue of the Law of Property Act 1925, s. 53(1)(b), and
its predecessor, the Statute of Frauds 1677, s. 7. If the 1677 statute had not been in
force in Malaya at the time the case was decided, it would have only been because it
had been replaced by a more modern piece of legislation to the same effect.
15
‘If a man seised of land make a feoffment thereof and it appeareth not to what use
the feoffment was made, nor it is not upon any bargain or other recompence, then it
shall be taken to the use of the feoffor, except the contrary can be proved’:

Christopher St Germain, Dialogues between a Doctor of Divinity and a Student of the
Common Law (1532), Second Dialogue, Chapter XXI.
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immoral or an illegal act’, see Holman v. Johnson (1775) 1 Cowp 341, 343. Their
Lordships are of opinion that the courts should not lend their aid to the father
to obtain a re-transfer from the son.
16
Being entirely at odds with the attitude taken by the common law, and
with its tendency to impose a disproportionate punishment on the plain-
tiff, it is not surprising that the equitable position is subject to a number
of exceptions. The first is that relief will be given where the purpose for
which the illegal trust was created fails to take effect. So, in Symes v.
Hughes
17
the plaintiff, who was in financial difficulties, conveyed leasehold
property to a widow with whom he was ‘on intimate terms’ to hold for
him on trust, the intention being to keep the leasehold property out of the
hands of his creditors should he become bankrupt. Not surprisingly, the
conveyance made no mention of the trust, instead falsely declaring that
the widow had given valuable consideration for the transfer. Although he
did become bankrupt three years later, the widow had in the meantime
conveyed the lease to her son-in-law. After her death, the plaintiff sought
a reconveyance from the son-in-law, alleging that the latter took the lease
with notice of the former’s equitable interest. Lord Romilly MR held that
the plaintiff’s claim was not defeated by the illegality. He said that where
the purpose for which the assignment was given was not carried into
execution, and nothing was done under it, the mere intention to effect
an illegal object when the assignment was executed did not deprive the

assignor of his right to recover the property from the assignee.
18
A further inroad into the confiscatory attitude of equity was made much
more recently by a majority of the House of Lords in Tinsley v. Milligan,
19
where the clean hands rule was held to be confined to the situation in
which the plaintiff somehow had to plead his own illegality as part of the
evidential basis of his case. If he could plead his case without mentioning
the illegality, then even though that illegality might later be disclosed
during the trial of the action, the plaintiff would still be given equitable
relief.
In Tinsley v. Milligan the plaintiff and the defendant bought a house with
joint funds. In order to enable both parties to make fraudulent claims to
welfare benefits, the property was conveyed into the name of the plaintiff
alone, although the agreement between the parties was that it would
16
[1962] AC 294 at 303.
17
(1870) LR 9 Eq 475.
18
Ibid. at 479.
19
[1994] 1 AC 340. The minority, Lords Goff of Chieveley and Keith of Kinkel, adhered to
the old position that once the court was apprised of the illegality it should
automatically refuse relief.
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be held by her on trust for the two of them. Fraudulent claims were
in fact made by both parties, but, having now made her peace with the

authorities, and having fallen out with the plaintiff, the defendant sought
a declaration that the plaintiff held the property on trust for them both.
As in Chettiar v. Chettiar, she relied not upon the express trust but on
the presumed trust that arose through the device of a purchase money
resulting trust.
20
A majority of the House of Lords allowed the plaintiff’s claim. Lord
Browne-Wilkinson said that she won her case simply because it was not
necessary on the pleadings for her to rely in any way on the illegality. He
said that the common-law principle enunciated in Bowmakers Ltd v. Barnet
Industries Ltd
21
should apply with equal force to claims in equity:
English law has one single law of property made up of legal and equitable in-
terests. Although for historical reasons legal estates and equitable estates have
differing incidents, the person owning either type of estate has a right of prop-
erty, a right in rem not merely a right in personam. If the law is that a party is
entitled to enforce a property right acquired under an illegal transaction, in
my judgment the same rule ought to apply to any property right so acquired,
whether such right is legal or equitable.
22
His Lordship said that the mere fact of her contribution to the purchase
price of the house was enough to give the plaintiff an interest under a
resulting trust and her motive for leaving her name off the title could not
affect that result.
But the differences between common law and equity have not been
completely eradicated, as the subsequent case of Tribe v. Tribe
23
shows.
There recovery was allowed, but only under the Symes v. Hughes principle.

24
Had the illegal purpose been achieved, the plaintiff’s interest would have
been forfeit, something which, as Singh v. Ali
25
demonstrates, could not
have happened at common law. In Tribev.Tribea father owned 459 out of
500 shares in a family-run clothing company. The father also held a lease
of two shops, which the company occupied as licensee. The shops were in
a state of disrepair and, worried about his liability under the repairing
covenants and that he might, in order to meet those liabilities, be forced
20
‘ the trust of a legal estate, whether freehold, copyhold, or leasehold; whether
taken in the names of the purchasers and other jointly, or in the names of others
without that of the purchaser; whether in the one name or several; whether jointly or
successive – results to the man who advances the purchase-money’: per Eyre CB in Dyer v.
Dyer (1788) 2 Cox Eq 92 at 93.
21
[1945] KB 65. See discussion at 292–3, above.
22
[1994] 1 AC 340 at 371.
23
[1996] Ch 107.
24
(1870) LR 9 Eq 475.
25
[1960] AC 167.
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to dispose of his shares in the family company, the father transferred

the shares to his son to hold for him on trust, the purpose of the trust
being to keep the shares out of the hands of the father’s creditors. But the
crisis passed, the matter being settled with the landlords by a surrender
of the lease in the one case and a purchase of the reversion in the other.
At no stage did the fact that the shares were in the hands of the son
affect the outcome of the settlements. The father later sought the return
of the shares from his son, not on the basis of the express trust,
26
but
by arguing that the gratuitous nature of the conveyance gave rise to a
resulting trust in his favour. Not surprisingly, the son in turn argued that
a presumption of advancement (gift) operated in his favour,
27
which could
only be rebutted by the father leading evidence of his illegal purpose,
which Tinsley v. Milligan
28
prevented him from doing.
The Court of Appeal found for the father. Tinsley v. Milligan was a liberal-
ising decision, and was certainly not to be seen as abolishing the Symes v.
Hughes exception, with the result that because the father had not in fact
defrauded his creditors he would be allowed to lead evidence of the illegal
purpose in order to rebut successfully the presumption of advancement
in favour of his son. Any other result, said the court, would have been
nonsensical. As Nourse LJ remarked:
If Miss Milligan was able to recover against Miss Tinsley even though she had
succeeded in defrauding the Department of Social Security over a period of years,
it would indeed be a cause for concern if a plaintiff who had not defrauded
his creditors in any way was prevented from recovering simply because the
defendant was his son.

29
It will thus be apparent that there are a number of difficulties with
the operation of the illegality defence where a claim is made to the en-
forcement of equitable property rights not generated by the unjust enrich-
ment of the defendant. If, as Lord Denning pointed out in Singh v. Ali,
30
a common-law court has no power to confiscate such property rights be-
cause of illegality, the question which then arises is why the position in
equity should be any different. For as Chettiar v. Chettiar illustrates, the
26
Although there are no formality requirements attaching to a declaration of trust of
personalty, this tactic probably explained by the fact that the writ was issued before
the decision of the House of Lords in Tinsley v. Milligan [1994] 1 AC 340 had been
handed down.
27
‘ the circumstance of one or more of the nominees being a child or children of the
purchaser, is to operate by rebutting the resulting trust’: per Eyre CB in Dyer v. Dyer
(1788) 2 Cox Eq 92 at 93.
28
[1994] 1 AC 340.
29
[1996] Ch 107 at 122.
30
[1960] AC 167 at 177.
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potential for confiscation still exists, the reasoning in that case being left
untouched by Tinsley v. Milligan. Secondly, the operation of the illegality
defence in equity is arbitrary. Recovery depends upon who is forced to

play the illegality card. As Millett LJ pointed out in Tribe v. Tribe,therule
that the plaintiff wins so long as he does not have to rely on his own
illegality:
is procedural in nature and depends on the adventitious location of the bur-
den of proof in any given case. Had Mr Tribe transferred the shares to a stranger
or distant relative whom he trusted, albeit for the same dishonest purpose, it
cannot be doubted that he would have succeeded in his claim.
31
As it was, Mr Tribe only succeeded because he was able to bring himself
within the Symes v. Hughes exception. Had his illegal design succeeded, his
interest would have been forfeited to his son.
2. Illegality as a defence to claims for restitution of unjust
enrichment
The illegality of a contract will sometimes operate not only to prevent
enforcement of that contract, but also to disqualify the plaintiff’s right to
restitution of benefits transferred pursuant to it, in what would otherwise
be a valid claim based on more familiar unjust factors such as mistake or
failure of consideration. The operation of the defence is governed by two
overlapping maxims, ex turpi causa non oritur actio (no disgraceful matter
can ground an action) and in pari delicto potior est conditio defendentis (where
the guilt is shared the position of the defendant is the stronger). As noted
above, the exact limits of the defence are the subject of much conjecture
and this essay will not be entering into that debate. All that need be
done is to note that illegality undoubtedly does sometimes have the effect
of barring what would otherwise be valid claims for the restitution of
unjust enrichments.
An example of a claim in respect of a mistaken payment barred by ille-
gality is provided by Parkinson v. College of Ambulance,
32
where the secretary

of a charity fraudulently misrepresented to the plaintiff that either he
or the charity was in a position to undertake that the plaintiff could be
got a knighthood in return for a large donation to the charity. The plain-
tiff made the donation but did not receive the promised knighthood. He
sued to recover the money which he had paid on the ground that the
payment had been induced by fraud (a species of mistake). Lush J refused
31
[1996] Ch 107 at 134.
32
[1925] 2 KB 1.
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the claim. Although it was true that the plaintiff had been defrauded, he
knew that the contract into which he was entering was illegal and one
which he ought not to have made. He could not therefore claim that he
was not in pari delicto with the defendant. He had only himself to blame for
his loss. Applying the test set out above,
33
the illegality is here clearly op-
erating as a defence since, if the illegality is put aside, the plaintiff would
undoubtedly have had a good cause of action based on his mistaken
transfer.
The same is true of cases involving a failure of consideration, an example
being Berg v. Sadler & Moore.
34
The plaintiff tobacconist had been put on
a stop-list by the Tobacco Trade Association. He tried to get supplies by
putting up another person to buy them with his money, an action that
amounted to a criminal offence. After the money had been paid over but

before the goods were delivered, the defendant wholesalers realised what
was happening. They declined either to deliver the goods or to return
the money. The Court of Appeal refused the tobacconist restitution of the
moneys he had paid. Since, in the absence of the illegality, the plaintiff
would have had a claim for restitution of unjust enrichment based on a
total failure of consideration, the illegal nature of the design is clearly
operating as a defence here, too.
But the mere fact that the contract is illegal will not always operate as
a bar. An exception is implicit in the wording of one of the maxims used
in this area. If the rule is in pari delicto potior est conditio defendentis, then,
in cases where the plaintiff does not share the defendant’s guilt, recovery
ought to be allowed. So, for example, in Hughes v. Liverpool Victoria Legal
Friendly Society,
35
the plaintiff was induced by a fraudulent misrepresenta-
tion to pay premiums on policies on lives in which she had no insurable
interest. The contract of insurance, since it did not relate to an insur-
able interest, was an illegal one.
36
The plaintiff sought recovery of the
premiums which she had paid but was met with the defence of in pari
delicto. She succeeded none the less. The Court of Appeal held that, as the
victim of a fraud, she was innocent and so entitled to say that she was
not in pari delicto with the defendant who by a false representation had
induced her to believe that the transaction was an innocent one and one
that was enforceable in law. Once again, therefore, illegality is operating
as a defence, though this time it is found to have no application to the
facts of the case in hand.
33
Above, 290.

34
[1937] 2 KB 158.
35
[1916] 2 KB 483.
36
Life Assurance Act 1774, s. 1.
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III. Illegality as cause of action
Unjust enrichment apart, nowhere in any other branch of English private
law does illegality per se provide a plaintiff with a cause of action he
would not otherwise have. Although illegality operates in contract and
tort to bar what would otherwise be valid claims, it never creates a cause
of action in itself. Nor does illegality ever give rise to property rights, at
least not property rights not created as a response to unjust enrichments.
But, it is said, this is not the case in claims for the restitution of un-
just enrichment. Lord Goff of Chieveley and Gareth Jones, for example,
while acknowledging that it in general it operates as a defence, assert
that ‘there are situations where a plaintiff is able to rely on illegality it-
self as the ground to support his restitutionary claim’.
37
This is also the
view of Andrew Burrows, who devotes separate chapters to ‘Illegality as
a ground of restitution’ and ‘Defences’, one of which is illegality.
38
The
question which will now be addressed, and the point which is the main
focus of this essay, is whether this is right. Does illegality, or, more accu-
rately, ‘transfer of benefits pursuant to an illegal contract’, ever constitute

a ground of restitutionary claim?
What should be immediately obvious is that the ground as formulated
does not allege any vitiation or qualification of the plaintiff’s consent to
the transfer. If it comes anywhere, therefore, it has to come under some
head of policy-motivated restitution. But before addressing the question
whether it does fall under that heading, we must first clear away two po-
tential distractions. The first is that there are some cases that are claimed
as examples of restitution for illegality but which can be explained on
more orthodox grounds, as cases in which the unjust factor is the vitia-
tion of the plaintiff’s consent to the transfer. The second is that an illegal
contract is a void contract, and there is an argument which says that a
void contract is itself a ground of claim.
1. Illegality within vitiated consent
There are some cases that are claimed as examples of illegality operating as
a cause of action but which, on closer examination, are better explained
as examples of restitution for vitiated consent. Some are clearer than
others.
37
The Law of Restitution (5th edn, 1998), 607.
38
A. S. Burrows, The Law of Restitution (1993), chaps. 11 and 15.
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A clear case is Smith v. Bromley,
39
where the ground of claim was duress.
The plaintiff’s brother was bankrupt. The defendant, his chief creditor, had
taken out a commission against him, but afterwards, finding no dividend
likely to be paid, refused to sign his certificate unless he was paid

£40
and given a credit note for a further
£20. The plaintiff paid the money
and the defendant signed the certificate. When the plaintiff sought to
recover the money, the defendant argued that the consideration for the
payment was illegal and that the plaintiff was party to that illegality. Lord
Mansfield nevertheless allowed recovery. The case was, he said, analogous
to Astley v. Reynolds
40
(a case of duress of goods), and, the plaintiff not
being in pari delicto, the illegality presented no bar to her claim.
41
The
fact pattern of this case is, therefore, exactly the same as that in Hughes v.
Liverpool Victoria Legal Friendly Society.
42
Illegality is being raised as a defence,
though a defence which fails on the particular facts of the case because the
parties are not in pari delicto. In no way is the illegality of the transaction
operating as a cause of action.
Next, there is a group of cases in which the ground of claim can also be
explained as non-voluntary transfer, though this is admittedly more con-
troversial. I will call these cases the ‘protected class’ cases.
43
In Kiriri Cotton
Co. v. Dewani,
44
a landlord charged a premium for the grant to a tenant of
a seven-year lease. By virtue of section 3(2) of the Uganda Rent Restriction
Ordinance, a landlord committed an offence in demanding or receiving

such a premium. But the ordinance was poorly drafted, and both parties
honestly and reasonably believed that the provision did not apply to their
transaction. The tenant went into possession, but, upon discovering that
the restriction did in fact apply to his lease, sought the return of the
premium. In his defence, the landlord argued that the tenant’s claim was
barred because he was guilty of aiding and abetting a criminal offence.
He also denied the existence of any ground of claim, the mistake on the
39
(1760) 2 Doug 696; Goff and Jones, Law of Restitution, 613 would appear to claim this as
an example of illegality as a cause of action, though it must be admitted that their
treatment of it is ambiguous.
40
(1731) 2 Str 915.
41
The case has parallels in the Roman law, where the condictio ob turpem vel iniustam
causam would have been available to such a litigant.
42
[1916] 2 KB 483, discussed above (at 299).
43
Although the plaintiff in Smith v. Bromley was in a protected class, this fact went to the
inapplicability of the defence (because she was not in pari delicto) rather than to the
cause of action itself, which in this case was duress.
44
[1960] AC 192.