The Law To Know

Restitution · United Kingdom · about 4 minutes

Unjust enrichment

The ledger with a wrong entry

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In one breath

Unjust enrichment gives a claim for the value of a benefit the defendant received at the claimant’s expense, where the law regards keeping it as unjust, as when money is paid by mistake. The usual questions are whether the defendant was enriched, whether at the claimant’s expense, whether the enrichment was unjust, and whether a defence applies.

The picture

The ledger with a wrong entry

A bookkeeper finds that five thousand pounds has been entered in the wrong account. She asks a short series of questions. Did the account gain? Did the money come from the other account? Is there a reason in the books that makes it right to keep it? And if not, is there something, such as the holder having spent it in good faith, that makes it unfair to ask for it back? She does not ask who was careless or what anyone promised.

Unjust enrichment follows these four questions. The defendant must be enriched. The enrichment must be at the claimant’s expense. It must be unjust, which means there is a recognised reason for reversing it, such as mistake (Kleinwort Benson v Lincoln City Council), failure of the basis on which a payment was made (Fibrosa) or an unlawful demand for tax (Woolwich). And no defence must apply, notably change of position by an innocent recipient (Lipkin Gorman v Karpnale).

Where the picture stops working

A ledger has a printed rulebook, whereas the law grew case by case, and scholars still debate whether the right test is a list of recognised unjust factors, as in English law, or the absence of any legal basis, as in civilian systems. The claim measures the defendant’s gain, not the claimant’s loss. Scots law has its own law of unjustified enrichment, with a different framework and terms.

How it really works

  1. 1Ask whether the defendant was enriched: did they receive a benefit that can be valued in money, such as a payment, goods or services?
  2. 2Ask whether the enrichment was at the claimant’s expense. Usually the benefit came directly from the claimant.
  3. 3Ask whether it was unjust. Look for a recognised reason, such as a mistake, a failure of the basis on which the payment was made, duress, or an unlawful demand.
  4. 4Consider the defences. The most important is change of position by an innocent recipient who has spent the money in good faith; others include illegality.
  5. 5If the claim succeeds, the usual remedy is a sum equal to the value of the benefit, and not compensation for the claimant’s loss.

Why people get it wrong

  • Treating unjust enrichment as a general claim to fairness. There must be a recognised reason why the enrichment is unjust.
  • Confusing it with a claim for wrongdoing. The claimant need not show a wrong by the defendant, only an unjust gain.
  • Thinking the amount depends on the claimant’s loss. It reflects what the defendant received.
  • Forgetting change of position. A recipient who spent the money in good faith, and would be worse off if made to repay, may keep the loss.

A worked example

The facts are invented

By a clerical error, Hallam Bank transfers eight thousand pounds to Matt’s account. Matt, believing he has won a prize, spends three thousand on a holiday he would not otherwise have taken and sets five thousand aside.

Matt was enriched, at the bank’s expense, and the reason is a mistake. The bank can recover the five thousand he still holds. For the three thousand, Matt may have a change of position defence, since he spent it in good faith, in a way he would not have done but for the receipt. If Matt had realised the error and spent the money anyway, no such defence would be open to him.

Try it

A bank pays eight thousand pounds into a customer’s account by mistake. The customer, believing it a gift, spends part of it on a holiday he would not otherwise have taken. Which statement is closest to the law?

Landmark authorities

Read the sources themselves; this list is a starting point.

  • Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, [1943] AC 32
  • Lipkin Gorman v Karpnale Ltd, [1991] 2 AC 548
  • Woolwich Equitable Building Society v Inland Revenue Commissioners, [1993] AC 70
  • Kleinwort Benson Ltd v Lincoln City Council, [1999] 2 AC 349

Where to go next

More hard concepts in United Kingdom law

This page is an educational overview. It is not legal advice and not a substitute for the sources: the statute, the rule, the case itself. The United Kingdom has three legal systems: England and Wales, Scotland, and Northern Ireland. These pages mostly describe the law of England and Wales and say where Scots law differs when it clearly does; Northern Ireland law is often similar to English law but is not covered separately. Parliament is sovereign, but the devolved legislatures also make law within their powers. Each page states the usual formulation of the rule and names landmark decisions; check the primary sources before relying on any rule.