15

Proprietary Relief as Restitution

IN RECENT years much work has been done to distil from the disorderly material of case law a logical structure that can explain and justify restitution as a discrete category within the private law. Most of these efforts have been directed at the task of revealing the hidden structure of the law of proprietary remedies, which has emerged as “the most difficult question in the law of restitution”.1 This chap-

ter explores the limits of this endeavour.

At the forefront of contemporary restitution scholarship is Professor Peter Birks. His analysis of the law of restitution in terms of a relatively crystalline logical framework has done much to contribute to the boom in interest the subject has enjoyed in England and elsewhere in the Commonwealth. Birks notes the difficulties that result from the “too rich growth” of techniques for thinking our way from events to remedies and of “obscure terms which have an unstable reference hovering between event and technique”.2 Citing the metaphor of “Occam’s razor”,3 he sets out to cut through this verbiage. In the process, he claims to reveal the nature of proprietary remedies, the principles determining their availability and their place within the law of restitution.

The gist of this chapter is that things are not so simple. Proprietary remedies resist explanation in terms of restitution. The fact that these remedies involve judicial readjustment of property rights has tended to generate a good deal of unease among jurists, and the strange rhetoric found in the jurisprudence of the area owes much to an impulse to obscure the reality that sacred axioms of property are being contravened. The rhetorical strategies deployed to assuage fears about interference with property rights have imposed a logic of their own on the development of the substantive law in this area, often leading to dysfunctional results. Consequently, if we are to rationalise the law of proprietary remedies, we must be prepared to engage directly the policy issues that arise in this context.

I. BIRKS’ ACCOUNT OF PROPRIETARY REMEDIES

Birks offers a rather radical interpretation of proprietary remedies. He recognises that these doctrines involve, not the enforcement of existing property rights, but

1Sir Peter Millett, “Book Review” (1995) 111 LQR 517. For a similar view see A Burrows, The Law of Restitution at 35.

2P Birks, An Introduction to the Law of Restitution at 75.

3Ibid.

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the creation of new ones.4 However, he seeks explanations, not in the policy considerations that may pertain in particular contexts, but in formal principles that supposedly underlie the judicial treatment of these doctrines. In his analysis, property is not to be used instrumentally as a remedy. Instead, a plaintiff seeking proprietary relief must be able to point to a “proprietary base”.5 We can appreciate the role this concept plays in Birks’ account of the law of restitution by examining his analysis of particular proprietary remedies.

1. Tracing Value

(a) Tracing Metaphors

Lord Mansfield once observed that “nothing in law is so apt to mislead as a metaphor”.6 Subsequently, Judge Benjamin Cardozo commented that “metaphors in law are to be narrowly watched, for starting out as devices to liberate thought, they end often by enslaving it”.7 The truth of this observation is borne out by the law of tracing.8 While it may be true that we can never escape metaphor and that it may play an indispensable role in our thought, we should be wary of being beguiled by unexamined metaphors. While a metaphor may help us to grasp an explanation or justification, it cannot, in itself, explain or justify.9 We should be able to appreciate just why a metaphor is apposite before we give it a place in legal doctrine.10

I have already criticised Birks’ influential claim that tracing is a neutral process of identifying value as metaphoric and misleading.11 Nonetheless, Birks places considerable importance on clarity of language. In his view:

No subject can ever be rationally organised or intelligibly applied so long as it is dominated by the language of fiction, of deeming, and of unexplained analogy. Hence terms such as “quasi-contract” and “constructive trust” must be rooted out, except to the

4See, e.g., Birks, An Introduction to the Law of Restitution, at 15 and 69. See also Burrows, The Law of Restitution at 372.

5Birks, An Introduction to the Law of Restitution at 378.

6Quoted by Lord Westbury in Knox v. Gye (1872) LR 5 HL 656 at 675.

7Berkey v. Third Avenue Railway Co. 244 NY 84, 94 (Ct. App. 1926); cited in Mitchell, The Law of Subrogation at 145.

8See supra, ch. 5.II–III.

9While the description does not fully capture their complexity, metaphors often are understood as a form of analogy, and, when used in legal reasoning, metaphors and unexamined analogies give rise to very similar considerations. In themselves they are inadequate modes of justification. See R Posner, “Rhetoric, Legal Advocacy, and Legal Reasoning” in Overcoming the Law (Cambridge, Mass., Harvard University Press, 1994) 498 at 518; N McCormick, Legal Reasoning and Legal Theory (Oxford, Clarendon Press, 1978) 186.

10For a good example of how one may gauge whether a metaphor is apposite, see Ernest Weinrib’s account of how the fiction of an employer acting through an employee found in the doctrine of respondeat superior essentially reflects a view that enterprises should be responsible for accidents that result from their activities: E Weinrib, The Idea of Private Law (Cambridge, Mass., Harvard University Press, 1995) 185–7.

11See supra, ch. 5.II.3.

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extent, if any, that they can be shown to do work which is necessary and in which their fictions are openly recognisable and demonstrably harmless.12

Yet, Birks’ explanation of tracing as identifying “units of value [that] can be said to have passed into other assets”13 is, indeed, “the language of fiction, of deeming, and of unexplained analogy”. Birks criticises “obscure terms which have an unstable reference between event and technique”, giving as examples the terms “quasicontract”, “constructive trust” and “subrogation”.14 Yet, the ink that has been spilt on the question of its precise juridical nature suggests that there is no better instance of such an expression than “tracing”.

In common with traditional analyses of this remedial process, Birks eschews a functional analysis of tracing as the allocation of entitlement to substituted assets, and focuses instead on that which is “traced” as an entity with a life of its own. The metaphor of tracing suggests that there is something “out there” being followed— some essence to which title attaches. Ultimately, it is difficult to see the advantage of exchanging talk of tracing things for talk of tracing value; the latter is as irredeemably metaphysical as the former.15

Birks’ own lapse into metaphor reflects the impossibility of simply “weeding out” such usage from legal doctrine and replacing it with more prosaic language without changing the law in the process. Often, such metaphorical reasoning brings with it its own form of logic that may lead the law in directions in which the courts would not otherwise venture. If we were to remove the metaphors completely we would be liable to feel utterly lost. Without the metaphysics, these doctrines need fresh justifications—and we would find that the positive law corresponds only imperfectly with any we might offer.

(b) Is Tracing Restitutionary?

What then is the attraction of depicting the doctrine in terms of tracing value? After rejecting the vivid rhetoric of transmuting things, why not shift to a description of the law as it functions—as the exercise of a power to assert title to particular assets as provided by the positive law? Why move instead to the metaphorical conceptualisation of the law as the process of identifying “paths of value” through transactions and claiming “surviving value”? A great attraction of analysing tracing in terms of value is that it suggests that the doctrine should be placed quite squarely in the law of restitution. Just as the metaphor of tracing things gains its power from its capacity to suggest that this form of judicial intervention is linked to conventional notions of property, the notion of tracing value is beguiling

12Birks, An Introduction to the Law of Restitution at 7; and, for similar sentiments, see ibid. at 22 and 39.

13P Birks, “Persistent Problems in Misdirected Money: A Quintet” [1993] LMCLQ 218 at 230.

14Birks, An Introduction to the Law of Restitution at 75.

15Similarly, Lionel Smith argues that talk of tracing things is metaphoric but assumes somehow that talk of tracing value is not: L Smith, The Law of Tracing at 15.

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because it implies a connection with the law of restitution. Yet, ultimately, in both cases, the connection is a chimera.

Birks regards tracing as “a restitutionary right”16 and the notion that tracing involves the identification of value suggests that it is essentially concerned with the reversal of unjust enrichment. Yet, is this necessarily so? While very often tracing will have this effect, by no means will this always be the case. Consider a situation in which B steals A’s car, and exchanges it for a motorcycle with C, who in turn exchanges it for a van with D. Our law allows A to bring a claim based on her rights to the van (the exchange-product of the car) against C through the process of tracing. Yet has C been enriched? B has obviously been enriched, as he now owns the motorcycle, which he acquired only as a result of trading it with the car he stole from A. On the other hand, if C had given full value for the car, the net worth of C’s estate would be unaffected by the fact that A’s property passed through his hands. A is given a remedy against C in these circumstances, not because C has been unjustly enriched, but because the rules of tracing provide that A may treat the van as if it were her property.

The fact that tracing is not invariably restitutionary highlights how arbitrary it is. We can understand why we might choose to allow A a personal claim against C.17 This would serve to deter people improperly dealing with the property of others. Of course, this claim would be for compensation rather than restitution. However, the rules of tracing allow A to claim a constructive trust over the van.18 If the effect of the remedy is not restitutionary, it is difficult to see that there is any justification for giving A priority over C’s general creditors in bankruptcy.19

(c) The Retention of a Proprietary Base

Another attraction of the metaphorical language of tracing is that it tends to obscure a lacuna in Birks’ analysis. He does not explain why the fact that one thing is exchanged for another indicates that the plaintiff should have a claim to it. In traditional tracing discourse, the gist of the justification is clear enough, if thoroughly metaphysical20: plaintiffs are able to trace their original asset into its proceeds and, consequently, they can enforce their property rights over those proceeds. In contrast, in Birks’ analysis, we are told in very formal terms that, where a particular asset has been acquired in exchange for another asset without

16Birks, “Persistent Problems in Misdirected Money”, supra n. 13 at 232.

17Because of the view that an election to trace cannot retrospectively give rise to a claim of conversion, presumably the personal claim in this case would be for money had and received. See Lipkin Gorman v. Karpnale Ltd. [1991] AC 548 at 573 per Lord Goff.

18While there is little authority for this proposition given the tendency to insist on a fiduciary relationship, the view that the proceeds of theft will be held on constructive trust was recently promoted by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] AC 669 at 716.

19See supra, ch. 4.III.

20See supra, ch. 5.II.1.

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the owner’s consent, the proprietary base remains extant and hence a proprietary remedy is available. Yet we are not told why.21

Birks indicates that the only basis for asserting a proprietary claim to proceeds is by demonstrating that “at the beginning of the story he had a proprietary right in the subject matter, and that nothing other than substitutions or intermixtures happened to deprive him of that right”.22 Yet this conveniently assumes that the proprietary base subsists through substitutions and intermixtures without explaining why this should be so. Talk of tracing value tends to obscure this omission. As long as we think in terms of plaintiffs as tracing value from one thing to another, it seems convincing to say that a proprietary base must subsist—this base can be found in the value that is being traced. If, however, we were to drop the rhetoric of tracing and no longer assume that there is something that is actually followed from one asset to another, it becomes entirely unclear why we should say that the plaintiff’s “proprietary base” subsists.

2. Vitiated Transfers

The proprietary base analysis seems to have little utility in this context. Where proprietary relief is made available in the aftermath of a vitiated transfer, it will often be easy enough to analyse the response as enforcing a subsisting proprietary base. However, this analysis will do nothing to assist us to explain or predict such outcomes. For the only indication of whether it may be said that a proprietary base survives is that a proprietary remedy is available. Certainly, Birks’ own analysis in this area has not proved very prescient. Conventional analysis of the resulting trust views the remedy as arising in order to give effect to the transferor’s intention to retain a beneficial interest in the property transferred or its proceeds.23 Birks challenged this view, arguing instead that, wherever an owner did not have the intention to pass title to the transferee, a resulting trust arises. In his view, the absence of a positive intention to confer title ensured that the transferor’s proprietary base subsisted.24 Moreover, Birks argued that a resulting trust would arise where an owner’s intention to transfer title was vitiated in some way. This suggested a role for the remedy that was far greater than had previously been envisaged. Ultimately, however, this view was rejected in large part for policy reasons by the House of Lords in Westdeutsche Landesbank Girozentrale v. Islington LBC.25 It is such considerations that should guide us in this context.

21As Burrows observes, the idea of tracing as the identification of value surviving is not persuasive because, “without the link of ownership, it is hard to see what the force of value surviving is meant to be”: Burrows, The Law of Restitution at 373.

22Birks, An Introduction to the Law of Restitution at 379.

23W Swadling, “A New Role for Resulting Trusts?” [1996] LS 110.

24P Birks, “Restitution and Resulting Trusts” in Goldstein (ed.), Equity: Contemporary Legal Developments (1992) 335; “Trusts Raised to Reverse Unjust Enrichment: The Westdeutsche Case” [1996] RLR 3. This view was further developed in R Chambers, The Resulting Trust (Oxford, Oxford University Press, 1997). For an analysis, see supra, ch. 6.II.2(b).

25[1996] AC 669. See supra, ch. 6.II.2(c)(ii).

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3. Enrichment by Wrongs

While in the case of tracing and subrogation it is rather difficult to understand why there is a subsisting proprietary base, in the context of enrichment for wrongs it is easy enough to appreciate Birks’ view that plaintiffs making such claims do not enjoy such a base. Thus, in terms of Birks’ analysis, because the plaintiff in Lister & Co v. Stubbs26 had never owned the secret commission received by his employee, he could not point to a proprietary base and his claim had to fail.27 A difficulty, of course, is that the decision in AG for Hong Kong v. Reid28 runs counter to this analysis and so threatens the plausibility of the concept of the proprietary base. It is hard to see how the Hong Kong government could be said to have had a proprietary base in a bribe that the defendant received from a third party. On the other hand, since Reid, Birks has tentatively suggested that the case may be explained as an instance in which the events in question gave rise to a proprietary base.29 Yet if this is so, the same explanation could be offered in any situation in which a proprietary remedy is made available. This indicates that the concept is too malleable to provide a useful explanatory or predictive tool.

To the extent that Birks takes account of policy considerations, he demonstrates a concern that proprietary rights “must not be lightly conceded” in view of their importance in insolvency.30 Subsequently, Professor Roy Goode has vigorously espoused the merits of the proprietary base concept as a means of limiting the potential of the constructive trust and other forms of proprietary relief to work injustice in bankruptcy.31 Yet, in this context, the “proprietary base” analysis is poorly designed to deal with such concerns. For instance, Birks suggests that, even where there is no subtraction from plaintiffs’ wealth, the fact that profits have been earned as a result of misusing their property may satisfy the requirement of a proprietary base and entitle them to proprietary relief.32 This conclusion is consistent with an essentialist view of property that any profits derived from the use of an object must belong to the owner of that object.33 Yet why should the distinction between those wrongs that breach property rights and wrongs which breach personal rights determine whether proprietary relief is available? It is not obvious that

26(1890) 45 Ch. D 1. See supra, ch. 9.II.

27Birks, An Introduction to the Law of Restitution at 387–9.

28[1994] 1 AC 324. See supra, ch. 9.III.

29See, e.g., P Birks, “Establishing a Proprietary Base: Re Goldcorp” [1995] RLR 83 at 84.

30Ibid. at 378.

31See R Goode, “Ownership and Obligation in Commercial Transactions” (1987) 103 LQR 433; “Property and Unjust Enrichment” in A Burrows (ed.), Essays on the Law of Restitution (Oxford, Clarendon Press, 1995) 215; “The Recovery of Directors’ Improper Gains” in E McKendrick (ed.),

Commercial Aspects of Trusts and Fiduciary Obligations (Oxford, Clarendon Press, 1992) 135.

32Birks, An Introduction to the Law of Restitution at 474.

33See H Dagan, Unjust Enrichment (Cambridge, Cambridge University Press, 1997) 18; and “The Distributive Foundation of Corrective Justice” (1999) 98 Mich. L Rev. 138 at 148–9; C Rotherham, “Property and Justice” in M Kramer (ed.), Rights, Wrongs and Responsibilities (London, Macmillan, 2001) (forthcoming); cf. E Weinrib, “Restitutionary Damages as Corrective Justice” (2000) 1

Theoretical Inquiries in Law 1 at 11–12.

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cases of enrichment resulting from the former type of wrongs present a stronger claim to priority than those flowing from the latter.

4. Quasi-matrimonial Property Relief

Birks has invested little energy in this subject. He does not regard the judicial response in this area as restitutionary. In his view it is “a special class” of action for “‘economically oppressed quasi-spouses’, on behalf of whom public policy required a robust protective response”.34 This is just one example of a technique Birks has adopted to characterise some doctrines as policy motivated. In analysing the law of restitution, this has enabled him to isolate some doctrines from the “principled” mainstream of restitution that consists only of those doctrines that can be analysed in volitional terms as responding to non-voluntary transfers or free acceptance, or as reversing enrichment for wrongs.35 Birks is right to argue that judicial intervention in this area is not restitutionary.36 However, while his reliance on a dichotomy between policy and principle reflects a perspective that is pervasive in the analysis of proprietary remedies,37 it is ultimately unsustainable and unhelpful.38

5. Subrogation

Perhaps no doctrine throws the inadequacies of Birks’ account of proprietary remedies into sharper relief than does subrogation. For very few instances in which the courts permit a plaintiff to assume the proprietary rights of another by subrogation can be forced within the proprietary base theory.

Birks suggests that we should cast the language of subrogation aside. In his view, “[t]he metaphorical nature” of subrogation:

is brought out by the fact that exactly the same conclusion can be expressed without speaking of any substitution. It could be said simply that I acquire a right having characteristics and content identical to that formerly enjoyed by the [lender]. . . . [T]he notion of a substitution is vivid. But strictly speaking it is unnecessary.39

34Birks, An Introduction to the Law of Restitution at 57. See also brief discussions of the area at 127–8 and 285. That Birks did not characterise the area as responding to the parties’ common intention perhaps reflects that fact that his monograph was written at a time in which, thanks largely to the contribution of Lord Denning MR, the basis for judicial intervention in this context was unsettled. See supra, ch. 10.IV.2(a)(iii).

35Also analysed in this way, e.g., are cases that reflect a policy of “encouragement of rescue at sea”: ibid. at 304.

36See supra, ch. 10.II.2. See also Burrows, The Law of Restitution at 38.

37See supra, ch. 3.IV.

38See supra, ch. 10.VI.

39Birks, An Introduction to the Law of Restitution at 95.

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This is surely right. Yet we could make the same observation about the rhetoric of tracing. However, not only has Birks clung to “vivid” notions of substitution that pervade tracing discourse rather than abandoning them for a more prosaic account of the remedy, he has sought to import those notions into the analysis of subrogation. While rejecting the metaphoric language of subrogation, Birks has turned to the equally metaphorical language of tracing. Thus, for Birks, subrogation is about the capture of surviving enrichment. The debtor is enriched to the extent that the surety has met the debtor’s obligations, and the surety should be able to recover this enrichment. In Birks’ view, “the plaintiff’s money” may be “traced into this negative species of surviving enrichment”.40 Thus, proprietary claims should be available where money paid by or received at the expense of the plaintiff has had the effect of discharging a security. To Birks, this is no different from a plaintiff asserting rights over a car acquired by the defendant using the plaintiff’s money.41 He concludes that:

if the plaintiff’s circumstances were such that, had the money which was received from him been spent on some corporeal asset or been put into a mixed fund, he would have been entitled to a claim in rem in the enrichment identified as surviving at the time of the claim, then, if the money is instead traced into a discharged mortgage, he ought to be able to revive that security. . . . The crucial fact is that the money passed to you through an event in which my proprietary base was preserved.42

There is something conclusory about this explanation. Why is the plaintiff’s proprietary base “preserved” in these circumstances? While this issue arises in relation to tracing generally, it is particularly puzzling in this context. We apparently have to be content with Birks’ view that the absence of any tangible thing into which we may trace is no obstacle to the preservation of the plaintiff’s proprietary base.

Thus, in Birks’ account, subrogation is effectively reduced to a form of tracing. Yet, if this is so, why has it not conventionally been characterised in these terms? The problem with any account of tracing something into a “negative species of enrichment”, such as an extinguished security, is that the interest into which we trace is too abstract for the metaphor of tracing to capture our imagination in the same way as it does with claims made against subsisting assets. Tracing is not capable of performing the ritual of obfuscation that is needed to shift our attention from the readjustment of property rights that takes place in this context. Consequently, instead of employing tracing, which puts the matter in terms of the substitution of the locus of enrichment, we employ subrogation, which conceptualises the matter in terms of the substitution of right holders.

40Birks, An Introduction to the Law of Restitution at 96.

41Ibid.

42Birks, An Introduction to the Law of Restitution at 390. Birks refers to situations in which the plaintiff “for reasons of his own pays off the defendant’s mortgage” (citing Ghana Commercial Bank v. Chandiram [1960] AC 732). Presumably he may apply the same reasoning to explain the rights conferred upon sureties who have been called upon to fulfil the principal debtor’s obligations (see supra, ch. 11.IV.1). However, the ascription of such an intention to sureties in these circumstances would be even more artificial than it is in other contexts.

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Whatever other difficulties Birks’ account of subrogation possesses, it fails comprehensively as an analysis of the positive law. There are some instances in which the law allows a plaintiff to revive a vendor’s lien or a mortgagee’s interest in which the plaintiff clearly has a proprietary right until the point that the interest in question is discharged.43 However, the law goes beyond this and permits subrogation when plaintiffs were motivated to make the payment in question by a mistake. Birks offers two explanations for this result. First, where there is a contract between the lender and the mortgagee, he is content to rely on the presumption that such plaintiffs intend to keep the security in question alive for their own benefit.44 Not only is this plainly an unsatisfactory fiction,45 it sits uneasily with Birks’ own criticism of such devices.46 Secondly, where there is no valid contract between the lender and the mortgagor or mortgagee, Birks argues that the effect of a mistake is that the lender retains a proprietary base.47 Yet, it is unlikely that such a mistake would, in itself, give the plaintiff a proprietary interest in the money transferred.48

6. Rights Preventing Over-indemnification or Over-compensation

Birks suggests that Lord Napier and Ettrick v. Hunter49 “may be the rare exception” to the rule that “the claimant must have an orthodox proprietary base” in order to establish a proprietary remedy and that the case is “not a model for future judicial action”.50 However, this analysis has not been heeded by the courts, which have indeed used that case as a guide for development.51 Moreover, Napier v. Hunter need not be regarded as an entirely isolated example of a proprietary remedy arising by operation of law to prevent over-indemnification or over-compensation. A parallel may be drawn between the approach taken in that case and the trust arising in favour of a carer of a tort victim over moneys recovered from a tortfeasor.52 In addition, there is some suggestion that, where a plaintiff is allowed to recover for a breach of contract where the risk of loss is actually with another, the moneys recovered will be held on trust for the benefit of the party who has actually suffered the loss.53

43See, e.g., Boscawen v. Bajwa [1995] 4 All ER 769; McCullough v. Marsden (1919) 45 DLR 645. See supra, ch. 11.III.1.

44Birks, An Introduction to the Law of Restitution at 390.

45See supra, ch. 11.I.2.

46See supra, text accompanying n. 12 .

47Birks, An Introduction to the Law of Restitution at 393.

48See, e.g., Morley v. Morley (1855) 5 De GM & G 610; Butler v. Rice [1910] 2 Ch. 277; Ghana Commercial Bank v. Chandiram [1960] AC 732. See supra, ch. 11.III.2.

49Lord Napier and Ettrick v. Hunter [1993] 1 AC 713. See supra, ch. 12.I.

50“Proprietary Restitution: An Intelligible Approach” (1995) 9 Trusts Law International 43 at 44.

51Lonhro v. Export Credit Guarantee Department [1996] 2 Lloyd’s Rep. 649. See supra, ch. 12.II.

52Cunningham v. Harrison [1973] QB 942; Hunt v. Severs [1994] 2 AC 350. See supra, ch. 12.IV.

53Joseph v. Knox (1813) 3 Camp. 320. See supra, ch. 12.III.

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7. Proprietary Estoppel

Birks accepts that, to the extent that proprietary estoppel is concerned with the enforcement of expectations, it “belongs to contract and has nothing to do with restitution”.54 However, he argues that estoppel by acquiescence is concerned with the reversal of unjust enrichment. In making this distinction, he draws a line between “inducing” and “not undeceiving” expectations.55

This distinction is understandable. Fulfilling expectations in acquiescence cases is objectionable in terms of a vision of the private law according to which obligations arise only where they are voluntarily assumed or are imposed to provide compensation or restitution for a breach of another’s rights. Equally, the provision of proprietary relief in estoppel by acquiescence cases conflicts with the notion that property rights are to be redistributed only with an owner’s consent. Thus, Birks’ analysis envisages a limitation on the relief provided in cases in which it is difficult to say that the owner promised the interest claimed.56

Nonetheless, the distinction favoured by Birks is certainly not one consistently drawn by the judiciary. Indeed, in many cases involving acquiescence, the courts have given relief that has enforced the defendant’s expectations.57 Consequently, Birks has been criticised for “dismembering presently intelligible doctrines to satisfy restitution’s imperialism”.58 Ultimately, there has been little support for the suggestion that restitution should be the proper measure of relief in this area. In fact, courts and scholars have shown more interest in examining the extent to which relief in estoppel cases should be limited to reliance loss.59

Birks is particularly concerned with the “remedial uncertainty” that marks this field of law.60 He notes that the discretion that the courts have countenanced in proprietary estoppel poses “special intellectual difficulties for the organisation of Restitution, because at the moment it is impossible to say, till after the court has spoken, whether a restitutionary or a non-restitutionary response will be made”.61 Indeed, the discretionary nature of the process of awarding proprietary relief in this area poses real problems for his account of proprietary remedies. For one thing, given the use of the constructive trust as a remedy in proprietary estoppel cases, it is difficult to accept Birks’ assertion that the remedial constructive trust is not part of English law.62 Secondly, it is equally difficult to see that the provision

54Birks, An Introduction to the Law of Restitution at 292.

55Ibid. at 291.

56On the difficulties in analysing estoppel by acquiescence cases as involving an informal agreement see supra, ch. 13.II.1.

57See, e.g., ER Ives. Investment v. High [1967] 2 QB 379. See J Dietrich, Restitution: A New Perspective

(Sydney, Federation Press, 1998) 86.

58P Finn, “Mr Beatson’s ‘Unfinished Business’ ’’ (Unpublished Paper delivered to Restitution Group SPTL Conference Aberdeen 1991) 15–16; cited in Deitrich, supra n. 57, at 84.

59See supra, ch. 13.III.1.

60Birks, An Introduction to the Law of Restitution at 290.

61Ibid. at 293.

62See, e.g., P Birks, “The End of the Remedial Constructive Trust?” (1998) 12 Trust Law International 202. See also supra, ch. 1.III.4–5 and ch. 2.III.1.

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of proprietary relief in estoppel by acquiescence cases can be explained in terms of Birks’ proprietary base analysis.

II. THE “PROPRIETARY BASE” AS AN EXPLANATION FOR PROPRIETARY REMEDIES

Birks argues that “[i]f we know the reason for restitution, we know where to find the cases on how property behaves in relation to that reason”.63 His rhetoric is oddly both positivistic and naturalistic; while he aims “to look downward to the cases”,64 his language rather suggests that property is an entity with a life of its own, and not simply a set of rules determined for instrumental reasons. In his view, the courts “must discover the proprietary base on orthodox principles”.65 Yet what is orthodox in this convoluted area? Elsewhere, Birks suggests that the issues surrounding the availability of proprietary remedies should be resolved through “tough legal reasoning . . . in the traditional style of the law of property, with the emphasis on legal certainty, against a background in which it is taken for granted that property rights must be closely defined precisely because they hurt third parties”.66 Yet, how can it be said that the fictions and metaphors that litter this area of the law represent “tough legal reasoning”? And what does Birks’ newly developed proprietary base concept have to do with “the traditional style of the law of property”?

The proprietary base has a strange relationship with the more familiar concept of property. This new entity seems to amount to some odd residue of property— something which “subsists”, even when it is clear that there is no continuing proprietary interest. The concept is used to fulfill a similar function to property in delineating a sphere of legitimate judicial action.67 The attraction of the notion of a subsisting proprietary base seems to lie in its capacity to suggest that the courts are not involved with the redistribution of property rights.68 However, the proprietary base is too anæmic and unfamiliar a concept to convince us in this regard. In Birks’ theory the line between ownership and obligation begins to blur. Ultimately it begs the question. If property is less than inviolable, what is a “proprietary base” and why is it a necessary prerequisite for proprietary relief? We intuitively understand the rationale behind a claim to protect pre-existing rights to particular assets. However, when described in terms of the proprietary base, the basis for the remedies of tracing and subrogation remain obscure.

It is difficult not to conclude that the notion of the proprietary base breaches one of the fundamental tenets of Birks’ own method, as is apparent in his adoption of the principle of “Occam’s razor” according to which: “entities are not to be

63P Birks, “Trusts Raised to Reverse Unjust Enrichment”, supra n. 24 at 5.

64Birks, Introduction at 23.

65Birks, “Establishing a Proprietary Base”, supra n. 29 at 85.

66Birks, “Trusts Raised to Reverse Unjust Enrichment”, supra n. 24 at 15.

67See supra, ch. 2.II.1.

68In Birks’ view, such exercises should be undertaken only by the legislature: Birks, “Establishing a Proprietary Base”, supra n. 29 at 84.

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multiplied without necessity”.69 From another point of view, it could be said that the concept provides a rather less effective ritual than those that it is intended to replace. Notions of “tracing things”, of subrogation and of fictional intention, connect the remedies given with the conceptual system that structures private law discourse.70 In contrast, the unfamiliar notion of the proprietary base says nothing to us.71

What is more, malleable as it is, the proprietary base does not appear capable of accommodating a number of doctrines that permit interference with property rights. Thus, it is difficult to see how, for example, proprietary estoppel, many instances of subrogation, the relief given in AG for Hong Kong v. Reid, proprietary relief in cases of overindemnification or over-compensation and the approach taken in the context of equitable liens can be reconciled with Birks’ prescriptions.

Birks argues that, while “[c]ivilian systems do not like the idea of unjust enrichment reversed through proprietary as opposed to personal rights, . . . the common law takes a different view”.72 This is a misconception. From the fact that we interfere with property rights, it does not follow that we are quite comfortable with the matter. Indeed, the great difficulty we have in openly recognising redistributive remedies does much to explain the contorted jurisprudence in this area. Fictions and similar contrivances allow the law to function in ways that diverge from ideals that a legal culture would like to regard as inviolable. However, the cost of such formal consistency is a degree of substantive irrationality that precludes the possibility of deducing a logical normative structure from the law.

III. RATIONALISING RESTITUTION: THE LIMITS OF THE PROJECT

Birks’ analysis of the law of proprietary remedies can be understood as the product of a broader methodological vision. His work reflects a positivistic stance combined with a commitment to revealing the underlying logic of the law.73 Suspicious of legal realism and its legacy, Birks is sanguine about the prospects of “a rational science of the common law” and of what can be achieved through “a sound taxonomy”.74 He draws parallels between his endeavour to reveal the “anatomy” of the law of restitution and that of the writers of nineteenth-century contract treatises.75 The comparison is apposite but problematic, for that tradition

69Birks, An Introduction to the Law of Restitution at 75.

70See supra, ch. 2.IV.3.

71An indication of this is that Birks does not connect the proprietary base with his analysis of “unjust factors” that indicate when restitution should be available. See Burrows, The Law of Restitution at 372.

72P Birks, “Overview, Claiming and Defences” in P Birks (ed.), Laundering and Tracing (Oxford, Oxford University Press, 1995) 317.

73His analysis of unjust enrichment is not designed to “lead or change the law but only to provide a text to structure the analysis of all the circumstances in which the cases incoherently require that restitution should happen”. P Birks, “Restitution and Freedom of Contract” [1983] CLP 141 at 159.

74P Birks, “Equity in the Modern Law: An Exercise in Taxonomy” (1996) 26 UWALR. 1 at 4.

75Birks, An Introduction to the Law of Restitution at 2.

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has recently been reinterpreted as having brought unity to the private law largely by imposing upon it a framework derived from a particular vision of social order.76 Consequently, others have recalled the rationalisation of contract law in that period in order to question the legitimacy of contemporary developments in restitution scholarship.77

In Birks’ view, his analysis of restitution “is a scheme for better ordering specific instances” of restitution and “adds nothing to the existing law and effects no change except what comes from better understanding what is there already”.78 It was in response to this assertion that the Australian academic and Federal Court Judge W.M.C. Gummow observed:

The difficulty is that the formulation of a scheme for better ordering specific instances in the decided cases involves the making of exceptions and qualifications so that in the end the outlines of the scheme are Gothic rather than classical. Further, in the quest for symmetry, there will also be a temptation to fit decided cases within the scheme when this can only be done by adding or subtracting from what in truth, on any proper reading, the case really decided.79

This is a fair criticism of Birks’ project. As an explanation for legal rules, he tends to seek not policy rationales, but legal principles: underlying concepts that generate legal rules. This reflects the assumption that the doctrines that he is examining form a coherent system developed as a response to the logical dictates of unjust enrichment. The analysis crumbles if it can be shown that the law in this area has been shaped by less logical considerations. The reality is that the common law has developed in a piecemeal fashion under the influence of judges and jurists of divergent legal and political visions. Moreover, the norms that have been handed down to us are often the result of highly metaphysical musings of a variety that would be better left in the past.

Birks’ efforts to deduce principles from the positive law have been most successful when the principles he has offered have some intuitive normative appeal. For instance, his account of the law of enrichment by subtraction is both plausible as an interpretation of the positive law and normatively persuasive because it is structured largely by notions of volition.80 We are likely to find the concepts upon which he relies intuitively plausible because we understand that volition must play an important role in any adequate moral theory and because it seems likely that

76The classic analysis is, of course, P Atiyah, The Rise and Fall of Freedom of Contract (Oxford, Clarendon Press, 1979).

77S Hedley, “Restitution: Contract’s Twin?” in DF Rose (ed.), Failure of Contracts: Contractual, Restitutionary and Proprietary Consequences (Oxford, Hart Publishing, 1997) 247. See also P Atiyah, “Contracts, Promise, and the Law of Obligations” in Essays on Contract (Oxford, Clarendon Press, 1990) 10 at 48.

78Birks, supra n. 2 at 27.

79WMC Gummow, “Unjust Enrichment, Restitution and Proprietary Remedies” in P Finn (ed.), Essays on Restitution (Sydney, Law Book Co, 1990) 47 at 55.

80In Birks’ account, transfers may be regarded as being non-voluntary in the sense that the plaintiff’s intention was either completely absent, vitiated or qualified. See Birks, supra n. 2 at 100–3.

338 Restitution and Property Rites

judges, in deciding cases, must have felt the pull of considerations of this nature.81 In contrast, some of the concepts that Birks has formulated do not have such resonance. Not only do some of these concepts not appear to turn on any moral distinction that we would readily recognise as significant, they sometimes seem too malleable to assist us to explain or predict the law.

An example is Birks’ thesis that the availability of restitution for wrongs could be explained by a distinction between anti-harm and anti-enrichment wrongs.82 According to Birks, where the purpose of recognising the wrong was the prevention of harm as opposed to the prevention of enrichment, recovery would be restricted to compensation for loss. Yet, in general, it seems impossible to judge in the abstract whether a wrong is one type or the other. Whether a wrong is directed at enrichment or harm can only really be determined by examining the remedies that are given. It follows that Birks’ analysis produces an unhelpfully circular explanation: restitution is given because what is involved is an anti-enrichment wrong—a conclusion that can be deduced only from the fact that restitution is given. If we want to understand why a particular remedy is or should be given, we would do better to focus on the policy considerations that motivated the recognition of the wrong in question. Moreover, the availability of restitutionary damages may well be linked not simply to the type of wrong involved, but to additional considerations such as the blameworthiness of the defendant.83 Indeed, Birks eventually conceded that, in explaining this area of law, “there is no hope of certainty in the pursuit of a purely conceptual line” and, instead, offered a compelling analysis of the policy concerns at issue in this context.84

A similar change of direction would improve Birks’ analysis of the law of proprietary remedies. Constructs such as “surviving value” and the “proprietary base”, like the notion of anti-enrichment wrongs, are unlikely to shed much light on the problems faced in this context. The sooner we recognise the limits of conceptual analysis and shift our focus to the questions of policy at issue, the better.

IV. CONCLUSION

The law of proprietary remedies reflects some of our anxieties about social order and the legitimacy of judicial law-making. The strange doctrines that we find in this area are best understood as rituals for assuaging these anxieties. As Felix Cohen noted long ago, property is one of the “magic ‘solving words’ of jurisprudence”, and reasoning about property is apt to degenerate into “transcendental nonsense”.85 Much of the reasoning found in this area of law is essentially

81Thus, Birks’ account of this area is very much the same as that offered by Ernest Weinrib in his more openly normative account of restitution as a form of corrective justice. See Weinrib, supra n. 33.

82Birks, An Introduction to the Law of Restitution at 328.

83See, e.g., Dagan, supra n. 33 at 101–5.

84P Birks, Civil Wrongs: A New World (London, Butterworths, 1991) 97.

85F Cohen, “Transcendental Nonsense and the Functional Approach” (1935) 35 Col L Rev 809 at

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irrational. As a consequence, the quest to distill from this area some underlying rational structure is misconceived. Ultimately, a jurisprudence built on metaphors, fictions and obfuscatory evidential devices is apt to deflect our attention from fundamental normative questions. If we are to rationalise this area, to a large degree we must remake it anew.

Part IV

Conclusion

16

Conclusion: Redistributive Proprietary

Remedies and the Moral Limits of

Property

I. REDISTRIBUTIVE PROPRIETARY REMEDIES AND THE ABSOLUTIST

PARADIGM OF PROPERTY

1. The Diversity of Property and the Implausibility of the Absolutist Paradigm

THE KEY to understanding the law of proprietary remedies lies in grasping the centrality of an absolutist conception of property in English legal thought.

Much of the complexity of the law in this area arises from the fact that often these remedies cannot be reconciled with the notion that property cannot be redistributed without an owner’s consent. The second part of this book offers an examination of doctrines that provide for the creation or transfer of rights of ownership and security. While this does not purport to provide an exhaustive account of the ways in which judicially developed doctrines provide for the redistribution of property rights,1 it provides an indication that the doctrines in question need not be regarded as anomalous. Rather, these doctrines can be understood as part of a rich tradition within our law that recognises the moral limits of property.

2. The Obfuscation of Redistribution and its Consequences

What most of the doctrines that provide for the redistribution of property have in common is that they are clothed in fictions, metaphors and convoluted evidential

1 A full account of judicial redistribution of property would include means of acquiring easements through prescription. See, e.g., J Gaunt and P Morgan, Gale on Easements (16th edn., London, Sweet & Maxwell, 1997) 169–234. It would also discuss self-help remedies such as the common law possessory lien and the law of distress. In addition, such an account would have to consider the readiness of the courts to limit owners to damages in lieu of an injunction to prevent a continuing breach of property rights thereby effectively either awarding positive easements (see e.g., Jaggard v. Sawyer [1995] 1 WLR 269) or abrogating negative easements (see, e.g., Carr Saunders v. Dick McNeil & Associates [1986] 1 WLR 922). Finally, such a work would require an account of defences available to bona fide purchasers. See, e.g., W Swadling, “Restitution and Bona Fide Purchase” in W Swadling (ed.), The Limits of Restitutionary Claims: A Comparative Analysis (London, UKNCCL, 1997) 79.

Conclusion: The Moral Limits of Property 345

Consequently, it would be wise to treat much property talk with caution. For, as Kevin Gray—who has explored the moral limits of property in relation to rights of exclusion so fruitfully3—has noted:

We are still not far removed from the primitive, instinctive cries of identification which resound in the playgroup or playground: ‘That is not yours; it’s mine . . . Almost all of our everyday reference to the property concept is unthinking, naive and relatively meaningless. Property talk is generally careless and vacuous; property talk is mutual deception. In our crude way we are seldom concerned to look behind the immediately practical or functional sense in which the term is employed.4

This criticism is particularly true of the law of proprietary remedies, where the analysis of judges and jurists is littered with metaphor and fiction.

2. From the Absolutist Paradigm to a New Discourse

The notion that property is inviolable serves to delineate neatly the power of the judiciary from that of the legislature. However, when the obfuscatory discourse pervading the law of proprietary remedies is peeled away, it becomes clear that the notion that the judiciary has no role in redistributing property rights is not tenable. The multitude of situations in which judicially created doctrines provide for the readjustment of proprietary interests makes it apparent that in some circumstances the judiciary cannot resist the urge to intervene in this way. The recognition of this is an essential preliminary step to a more rational discourse in this area.

The possibilities offered by such a shift in legal discourse are illustrated by a tendency of courts in the United States, Canada, Australia and New Zealand to consider redistributive proprietary remedies openly.5 This change in attitude has its roots in the thought and practices of American legal realism that emerged partly as a cause, and partly as an effect, of the breakdown of the classical legal vision in the United States. In legal realist discourse, property is viewed less as a fundamental limit to judicial intervention than as a product of it.

The benefits of and obstacles to a shift toward a more open discourse in this area in English law are apparent when one compares the state of the doctrine of subrogation with that of tracing. In analysing subrogation, the judiciary has to some extent managed to extricate itself from the enslavement by metaphors and fictions that continues to mar the law of tracing. We have managed to accept that subrogation does not require plaintiffs to be given all the privileges enjoyed by those into

3See K Gray, “Property in Thin Air” [1991] CLJ 252; K Gray, “Equitable Property” (1994) 47(2) CLP 157; K Gray and SF Gray, “Private Property and Public Propriety” in J McLean (ed.), Property and the Constitution (Oxford, Hart Publishing, 1999) 11. See also J Singer, “The Reliance Interest in Property” (1988) 40 Stan. L Rev. 611; J Singer, “No Right to Exclude: Public Accommodations and Private Property” (1996) 90 North Western University L Rev. 1283.

4K Gray, “Equitable Property”, supra n. 3 at 159.

5See supra, ch. 3.

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whose shoes they step.6 On the other hand, we are unable to take the metaphor of tracing less literally, as illustrated by the assumption that plaintiffs who trace must be entitled to recover the product of their property regardless of its value.7 We have recently witnessed judicial efforts to deconstruct subrogation: to get behind the rhetoric that beguiled our forebears and to identify a rationale that could be used to explain existing case law and to guide future development. In contrast, our efforts to understand tracing continue to be hampered by metaphor.

3. The Nature of the New Discourse

A willingness to recognise the redistributive nature of some proprietary remedies need not require us to abandon completely our understanding of what property entails. If property is to remain a meaningful concept, there will have to be consequences that customarily follow from the fact that particular resources are owned by one party. In this way, we can accept what is one of the core premises of our legal tradition—that we should have a private law: a body of norms that provides the basis of a sphere of individual freedom and that is relatively free from distributive considerations. However, through convention we may establish exceptions where, in the interests of justice, the ordinary consequences of property will not apply. The private ordering model associated with the absolutist conception of property may not be natural, but it contains a core of good sense. While the absolutist paradigm of property generally provides an effective means of maintaining a just distribution of entitlements, there are situations in which departures from it may be merited.8

The absolutist approach to property serves us well enough where the market functions properly. Where this is the case, the market may be regarded as “a morally free zone”.9 However we should be prepared to intercede when the premises upon which our faith in markets is based are absent. For example, the intervention of the courts in distributing property rights in the context of intimate relationships may be justified because those in such relationships do not generally act as rational welfare-maximising individuals and there may be problems with asymmetries of information.10

In addition, redistribution of property may be justified in order to confer priority in bankruptcy. A different set of considerations arises here, as bankruptcy already represents an interference with the market: assets are marshalled and distributed equally to creditors of the same class. Against this background, courts have stepped in and readjusted property rights in order to give priority to certain claimants rather than leaving them to share pari passu with unsecured creditors.

6Banque Financière de la Cité v. Parc (Battersea) Ltd. [1999] 1 AC 221 at 236 per Lord Hoffmann.

7Foskett v. McKeown [2001] 1 AC 102; Jones & Sons (Trustee) v. Jones [1997] Ch. 159.

8See, e.g., supra, ch. 10.IV.3–5.

9See, e.g., J Coleman, Risks and Wrongs (Cambridge, Cambridge University Press, 1992) at 4.

10See supra, ch. 10.IV.5, ch. 11.IV.1(b) and 12.IV.