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Proprietary Restitution Notes

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Proprietary Restitution Revision

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1. Lloyds Bank v Independent Insurance - suggested that there is a 5th question to be asked after the 4 in Battersea: what remedy

2. Personal rights to restitution are realized by personal remedies ie. they follow a person

3. Proprietary rights to restitution are effected by proprietary remedies (ie. they follow property)

4. KEY QUESTION: when should restitution for UE be proprietary rather than personal


1. It potentially avoids direct providers rule, so C can still have a claim for UE

2. Gives C priority on the property where D goes insolvent, so the property is not available for distribution amongst D's general creditors


1. Burrows - Right to proprietary rest is a new right created in response to UE. It's not about protecting pre-existing proprietary rights.

2. Virgo - Tracing cases rely on reasoning of 'That property remains mine and I want it back' (Burrows quote). So Virgo argues that UE only triggers personal restitution. The reason why C can claim property is because it's about vindication of proprietary rights in substitute property and not with UE - which Burrows says relies on the fiction of persistence FOSKETT v McKEOWN (HL)

whilst not mentioning Virgo, the House of Lords agreed with his stance.



Lord Millett - leading speech (great quote): 'The transmission of a claimant's property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment … The claimant succeeds if at all by


virtue of his own title, not to reverse unjust enrichment …' This is a real problem with Burrows' analysis as no matter what he says, this case says otherwise. But he says this case 'cannot, and must not, be regarded as the last word' on the matter


1. In an unauthorized substitution case, according to Burrows, if C can show that his property (ie. a pig) has been substituted to a horse and then to a car 
because holder of the car has been unjustly enriched at C's expense NEW proprietary rights are created in the car to 'correct' the injustice of C losing the pig. Whereas Virgo says that C has the SAME proprietary rights in the car because he owned the pig


1. Burrows says there are a number of examples and it's the best explanation of equitable proprietary rights after tracing: a) Chase Manhattan Bank - the trust imposed on the mistaken payment b) Cooper v Phibbs - equitable liens imposed over mistakenly improved land c) Neste Oy - the trust imposed in this case, in respect of the payment received by the defendant after its resolution to cease trading so that, at the time of receipt, there was bound to be a failure of consideration d) Car and Universal Finance - rescission of an executed contract, for misrepresentation or duress or undue influence. When exercised, rescission


at law straightaway revests the legal title to goods or land transferred under the contract


1. NEED IDENTIFIABLE PROPERTY a) Burrows - Can only have proprietary restitution where there is identifiable property to which the right can be attached

2. NOT ANYTIME PERSONAL RESTITUTION APPLIES a) Burrows -one view is that proprietary restitution should exist whenever personal restitution does. That whenever the claimant wants it, it should be allowed, because it achieves restitution more precisely because it doesn't require any valuation BUT b) Burrows says this isn't the case, as if a debtor fails to repay a loan to its creditor, the creditor is not entitled to proprietary restitution for failure of consideration even if the debtor retains the loaned money (or its traceable substitute). To grant proprietary restitution 'at a stroke, would destroy the established law on insolvency' as it'd turn most unsecured creditors into secured creditors

3. CONDITIONS FOR WHEN PROPRIETARY RESTITUTION IS AVAILABLE a) no period of unrestricted beneficial ownership I. Birks and Chambers - Dividing line between unjust factors which do and do not trigger UE are whether there is a period of time where D has unrestricted beneficial ownership of the enrichment. So, duress, mistake, ignorance and undue influence, there is an injustice at the point of transfer from C to D. So D never had the beneficial ownership. Whereas, failure of consideration, this beneficial ownership came later b) C hasn't taken the risk of insolvency



Providing proprietary restitution will give C priority on D's insolvency, SO Burrows suggests this should not be allowed where it will undermine the present law on insolvency. One way of determining this is to ask whether C has taken the risk of


insolvency (Lord Goff asked this in Westdeutsche v Islington) Burrows suggests that this 'test' needs fleshing out

Fleshing Out Above Test

1. Burrows is essentially asking whether C is, or is analogous to, a secured creditor. With failure of consideration, he's not. He made the payment or conferral of benefit under the contract and it is only later (when D fails to reciprocate his obligations under the contract) that C is entitled to restitution. Thus, up until this point C took the risk that D might not provide the consideration. To allow restitution would essentially give C priority on insolvency 'by the back door' WHEREAS

2. Where the unjust factor relates to an impairment of consent (ie. duress, mistake, undue influence) or no consent (ie. ignorance) then C will normally be analogous to a secured creditor, because he never intended D to be enriched at all THUS

3. GENERAL RULE: a) failure of consideration = C took the risk b) impaired consent, no consent unjust factors = C didn't take the risk to


analogous to a secured creditor HOWEVER, Burrows suggests a circumstance where even where mistake is the unjust factor, C took the risk. So, for example where C made a payment under contract due to a mistake of law, believing the contract was valid where it was void. It is arguable that C still the risk here, as he knew there was a chance D would become insolvent at some point.


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