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Restitution, Coercion by a Third Party, and the Proper Role of Notice

  • Eoin O'Dell

Extract

If a plaintiff makes a payment to a defendant under the coercion of a third party, it has been said that the plaintiff's action in restitution to recover the payment from the defendant is dependent upon whether the defendant had notice of the third party's coercion. That is an error, to which the analysis here is intended as a corrective. The true view is that the plaintiff's action in restitution is dependent only upon the fact of the coercion vitiating his consent; notice is relevant only to separate the question whether the defendant can rely on the defence of bona fide purchase for value without notice.

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1. For example, see the extract set out in the text to fn. 8 and the references in fn. 19 below.

2. [1994] 1 A.C. 180; see also C.I.B.C. v. Pitt [1994] 1 A.C. 200.

3. Dixon, M., “The Special Tenderness of Equity: Undue Influence and the Family Home” [1994] C.L.J. 21;Lawson, A., “O'Brien and its Legacy: Principle, Equity and Certainty?” [1995] C.L.J. 280;Mee, J., “Undue Influence, Misrepresentation and the Doctrine of Notice” [1995] C.L.J. 536.

4. E.g. G. Battersby [1995] L.S. 35; A. Berg [1994] L.M.C.L.Q. 34; 5. Cretney [1994] R.L.R. 3; M. Dixon and C. Harpum [1994] Conv. 421; B. Fehlberg (1994) 47 M.L.R. 467; Say Hak Goo (1995)15 O.J.L.S. 119; R. Hooley [1995] L.M.C.L.Q. 346; J.R.F. Lehane (1994)110 L.Q.R. 167; J. Mee (1995) 46 N.I.L.Q. 147; P. O'Hagan (1994) 144 N.L.J. 765; P. O'Hagan (1996) 47 N.I.L.Q. 74; P. Sparkes [1995] Conv. 250; M.P. Thompson [1994] Conv. 140. On subsequent applications of OBrien in the Court of Appeal, see A. Dunn [1995] Conv. 319; B. Fehlberg (1996) 59 M.L.R. 675; H.W. Wilkinson (1995) 145 N.L.J. 792.

5. [1991] 2 A.C. 548.

6. Cp. E. O'Dell, “The Principle Against Unjust Enrichment” (1993) 15 D.U.L.J. (n.s.) 27; cf. S. Hedley “‘Unjust Enrichment’” [1995] C.L.J. 578.

7. Barker, K., “After Change of Position: Good Faith Exchange in the Modern Law of Restitution” in Birks, P. (ed.), Laundering and Tracing (Oxford, 1995) p. 191 (hereafter: Barker). See also Fox, D., “Bona Fide Purchase and the Currency of Money” [1996] C.L.J. 547; Key, P., “Bona Fide Purchase as a Defence in the Law of Restitution” [1994] L.M.C.L.Q. 421; and Swadling, W., “Property, Restitution and the Defence of Bona Fide Purchase” in Swadling, W. (ed.), The Limits of Restitutionary Claims: A Comparative Analysis (British Institute of International and Comparative Law, forthcoming).

8. Birks, P., “Overview: Tracing, Claiming and Defences” in Birks, P. (ed.), Laundering and Tracing (Oxford, 1995), p. 289 (hereafter: Birks “Overview”) at p. 334.

9. E.g. Jones v. Waring & Gillow [1926] A.C. 670, 680 per Lord Cave; Porter v. Latec Finance (1964)111 C.L.R. 177, 204per Windeyer J.; National Bank v. O'Connor & Bowmaker (1969) 103 I.L.T.R. 73, 93 per Budd J.; Barclays Bank v. Simms [1980] Q.B. 677, 695 per Goff J.; Australia and New Zealand Banking v. Westpac Banking (1987–1988) 164 C.L.R. 662, 671 per curiam.

10. Birks, P. and Chin, N.Y., “On the Nature of Undue Influence” in Beatson, J. and Friedmann, D. (eds.), Good Faith and Fault in English Law (Oxford, 1995) p. 57; cf.Bigwood, R., “Undue Influence: ‘Impaired Consent’ or ‘Wicked Exploitation’?” (1995) 16 O.J.L.S. 403 (arguing that undue influence is concerned with supplying a remedy for exploitation).

11. See, e.g., Burrows, A., The Law of Restitution (London, 1993) (hereafter, Burrows) p. 161. Cp. J. Mee “An Alternative Approach to Third Party Undue Influence and Misrepresentation” (1995) 46 N.I.L.Q. 147, 149, 155–156 (arguing that such coercion should of itself be enough to vitiate a contract).

12. Goff, R. and Jones, G., The Law of Restitution (4th ed., London, 1993) (hereafter, Goff and Jones) p. 45; Pan Ocean Shipping v. Creditcorp (The Trident Beauty) [1994] 1 W.L.R. 161, 164f, 165d–e, 66e–f per Lord Goff; Pigs and Bacon Commission v. McCarren (1978) Journal of the Irish Society of European Law 77; E. O'Dell [1995] R.L.R. 187, 189.

13. In O'Brien and its progeny, no question of restitution seems so far actually to have arisen, as the cases usually involve a bank C seeking to enforce a security against B. Birks' proposition assumes that B has somehow paid C and is seeking (personal) restitution of that amount. This is most likely to arise in practice where B is a guarantor rather than a surety. This payment scenario is the only one which could implicate a remedy in restitution, and is the basis of the discussion here.

14. The text concentrates on the undue influence by A on B giving rise to a restitutionary cause of action on the basis of coercion. However, in O'Brien, Lord Browne-Wilkinson located the relevant equitable fraud in both undue influence and misrepresentation (e.g. [1994] 1 A.C. 180, 196); for examples see Midland Bank v. Massey [1995] 1 All E.R. 929; T.S.B. Bank v. Cornfield [1995] 1 All E.R. 951. As to a misrepresentation by A to B, which induces in B's mind a mistake as a consequence of which B pays C, if such a mistake gives rise to a cause of action in restitution (see Carey v. Ryan [1982] I.R. 179 (S.C.)), then the authorities (above, fn. 9) establish that B can still have restitution from C even though that mistake was induced by A, and the remainder of the analysis in the text applies mutatis mutandis.

15. Barclays Bank v. O'Brien [1994] 1 A.C. 180. Since the analysis developed here from the perspective of the law of Restitution would apply whatever test is applied in the law of Contract to the question of when a contract goes off for undue influence, no position need be taken here on the debate as to whether the test ought to be something other than notice. On that debate, see the notes cited in fnn. 3 and 4 (above), especially Mee, J., “An Alternative Approach to Third Party Undue Influence and Misrepresentation” (1995) 46 N.I.L.Q. 147; see also O'Dell, E., “Contract” in Byrne, R. and Binchy, W. (eds.) Annual Review of Irish Law 1993 (Round Hall Sweet & Maxwell, Dublin, 1996) p. 176 at pp. 194–209;O'Dell, E., “Contract” in Byrne, R. and Binchy, W. (eds.) Annual Review of Irish Law 1995 (Round Hall Sweet & Maxwell, Dublin, 1997, forthcoming).

16. If the test for the validity of the contract (above, fn. 15) were predicated on something other than notice, then notice would not even have this effect.

17. [1991] 2 A.C. 548.

18 Cp. Nelson v. Larhoh [1948] 1 K.B. 339 (Denning J.): C paid D on foot of a cheque drawn on B; C had given value (had purchased), but C's failure to make reasonable enquiries meant that he (had notice and) was not bona fide; hence B's action against C in restitution succeeded. See also Carey v. Ryan [1982] I.R. 179, 185; Millican v. Robinson [1993] 6 W.W.R. 539; [1994] R.L.R. § 54.

19. Birks “Overview”, p. 334; similarly, P. Birks and N.Y. Chin (above, fn. 10), at pp. 80–81; cp. Swadling [1995] All E.R. Rev. 438, 448–451 (semble making a similar assumption).

20. Barker, p. 208. Cf. P. Sparkes [1995] Conv. 250, 251.

21. Indeed, in another context. Professor Birks has strenuously argued against notice as an ingredient of a cause of action in restitution on the grounds that it goes to the availability of the defence of bona fide purchase; e.g. P. Birks, Restitution—The Future (Sydney, 1992) (hereafter, Birks, Future) chapter 2; (1989) 105 L.Q.R. 352; (1989) 105 L.Q.R. 528; [1989] L.M.C.L.Q. 296; [1991] L.M.C.L.Q. 473; [1993] L.M.C.L.Q. 218; (1993) 46(1) C.L.P. 157. Following Birks on this point, Barker also rejects notice in that context; Barker, pp. 193, 209.

22. The question of the validity of a contract according to the law of Contract, and the (consequent) availability of a remedy according to the law of Restitution if the contract is invalid, are in principle two separate enquiries. (See e.g. Friedmann, D., “Valid, Voidable, Qualified, and Nonexisting Obligations: An Alternative Perspective on the Law of Restitution” in Burrows, A. (ed.), Essays on the Law of Restitution (Oxford, 1991) p. 247, at pp. 260263, 277). The requirement of notice in O'Brien is directed (only) to the first of those enquiries; the analysis presented here is directed (only) to the second. Of course, strictly speaking, the remedy for undue influence is rescission on terms; on this view, the material in the text should be seen as defining the circumstances when such terms should amount to restitution.

23. Birks “Overview”, p. 334.

24. Ibid.

25 Barker, p. 198.

26 Ibid. Similarly, Burrows (at p. 472) says that “at root, the idea [behind the defence] appears to be one of maintaining the sanctity of contracts. The courts are generally not prepared to disturb a contract unless the purchaser for value was contracting in bad faith …”.

27 The defendant's notice of the third party's coercion means that the defendant is not bona fide: text with fn. 18 above.

28 Cp. Mee (above, fn. 14), at pp. 156–157, 160–161.

29 Barker, pp. 204–205; cp. pp. 200–201.

30 For example, B could be bankrupt, and have given the security as a fraudulent preference. Again, there could be a statutory provision, similar to s. 3 of Ireland's Family Home Protection Act, 1976 which limits a spouse's dealing with family property, and may render the guarantee void.

31 If the test for the validity of a contract procured by the undue influence of a third party is based on something other than notice (see above, fn. 15), then undue influence itself could also be added to this list.

32 Thus, where A obtains money from B, in circumstances giving B a claim against A, and A then pays it to a bank C, it may be that B could also have a claim in restitution against C, unless C has no notice of those circumstances (above, fn. 18) and has given value for its receipt, as by a prior loan or overdraft (Barker, pp. 202–203). Here, B sues C, who seeks to defend on the ground that it gave value to A (its repaying debtor); in the text, B sues C, who seeks to defend on the ground that it gave value to A (the borrower debtor). From C's perspective, its position in both cases is exactly the same; the defence is uncontroversially available in the first case, and the consequence of the argument in the text is that (pace Barker) it is also available in the second.

33 Barker, p. 204.

34 As a personal restitutionary claim, it would also be denied by those who confine the defence to pure proprietary claims, e.g. Key (above, fn. 7), pp. 424–427; Maddaugh, P.D. and McCamus, J.D., The Law of Restitution (Ontario, 1990), pp. 5759; Swadling (above, fn. 7). Birks was once of this view ([1989] L.M.C.L.Q. 296, 301; [1991] L.M.C.L.Q. 473, 490) but now supports the contrary view (Future, pp. 132–135; “Overview”, p. 333) which currently seems to command majority support: e.g. Barker, pp. 194–195, 213–214; Burrows, p. 473; Fridman, G., Restitution (2nd ed.,Toronto, 1992), pp. 451453; Goff and Jones, pp. 760–762. Mason, K. and Carter, J.W., Restitution Law in Australia (Sydney, 1995), p. 865 stop short of denying this position, but find “little support for a … bona fide purchaser defence to personal claims”.

35 Birks “Overview”, p. 334.

36 Ibid., p. 335.

37 Barker, p. 199, emphasis added.

38 A point with which Birks would not have disagreed when he characterised the defence thus: “the defendant says that, although he received it, yet because of this value received, and in exchange for it, he conferred a valuable benefit on the person (not being now the plaintiff) from whom he received it, so that his enrichment cannot be assessed as the value received”: Birks, Future p. 132; cf. Birks, P., Introduction to the Law of Restitution (Oxford, 1985, revised 1989), pp. 439447. Clearly, on our facts, C [who, because of the value received, and in exchange for it, conferred a valuable benefit on A (and not on the plaintiff B)] would have fulfilled that definition of the defence and had the benefit of it.

39 P. Birks and N.Y. Chin (above, fn. 10), at p. 80.

* Lecturer in Law, Trinity College, Dublin. For their comments on earlier drafts of this article, I would like to thank Sinead Agnew, Prof. Peter Birks, John Mee, Dr. Lionel Smith, W.J. Swadling, and, especially, Eunice O'Raw.

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Restitution, Coercion by a Third Party, and the Proper Role of Notice

  • Eoin O'Dell

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