1 All references to statutory provisions are to the Act unless indicated otherwise.

2 [1986] Ch. 447 (“Precision Dippings”).

3 [2001] EWCA (Civ) 712; [2002] B.C.C. 91, [2001] 2 B.C.L.C. 531 (‘Bairstow”)

4 [2004] UKHL 28; [2004] 1 W.L.R. 1846 (‘Criterion Properties”).

5 In contrast to a case of restitution for wrongs, where liability arises precisely because enrichment has arisen through or in connection with some wrongful behavior on the part of the recipient. Subsequent references to ‘unjust enrichment’ should, unless the context indicates otherwise, be taken to refer to autonomous, strict liability unjust enrichment.

6 [2004] 1 W.L.R. 1846.

7 [2002] EWHC 496 (Ch); [2002] 2 B.C.L.C. 151.

8 Criterion Properties, para. [4].

9 Lord Nicholls’ acknowledgement of the availability of parallel causes of action in strict liability autonomous unjust enrichment and knowing receipt liability may represent a slight change in his views. Writing extra-judicially, he had formerly taken the view that knowing receipt should be discarded in favor of strict liability in unjust enrichment—see “Knowing Receipt: The Need for a New Landmark” in Cornish, W., Nolan, R., O’Sullivan, J. and Virgo, G. (eds.), Restitution past present and future—Essays in honor of Gareth Jones (Oxford 1998), 231.Google Scholar An examination of the merits (or otherwise) of reformulating knowing-receipt as a form of autonomous unjust enrichment would go beyond the scope of this paper. However, the debate continues—see, e.g., Birks, P., “Misdirected Funds: Restitution from the Recipient” [1989] L.M.C.L.Q. 286Google Scholar; Birks, P., “Equity in the Modern Law: an Exercise in Taxonomy” (1996) 26 U.W.A.L.R. 1, 73–76Google Scholar; Birks, P., Restitution—The Future (Sydney 1992), 26–42Google Scholar; Goff, and Jones, , The Law of Restitution (London 2002)Google Scholar, para. [33-030] (“Goff & Jones”); Burrows, A., The Law of Restitution, 2nded. (London 2002), 194–206Google Scholar (“Burrows’ Restitution”); Virgo, G., The Principles of the Law of Restitution (Oxford 1999), 555Google Scholar (“Virgo’s Principles”); Halliwell, M., “Assistance in a Breach of Trust and Receipt of Trust Property” in Hedley, S. and Halliwell, M. (eds.), The Law of Restitution (London 2002) para. [5.57]—[5.58]Google Scholar; Finn, P., “The Liability of Third Parties for Knowing Receipt or Assistance” in Waters, D.W.M. (ed.), Equity, Fiduciaries and Trusts (Scarborough, Ontario 1993), 195Google Scholar; Davies, D., “Restitution and Equitable Wrongs: an Australian Analogue” in Rose, F.D. (ed.), Consensus Ad Idem: Essays in the Law of Contract in Honor of Guenter Treitel (London 1996), 167.Google Scholar

10 This is explored in greater detail in section II.A.1. below.

11 see, in particular, sections II.A.2 and 3 below.

12 Payne, J., “Unjust Enrichment, Trusts and Recipient Liability for Unlawful Dividends” (2003) 119 L.Q.R. 583Google Scholar (“Unjust Enrichment”).

13 Being shareholders who, at the time of receipt of the dividends, were unaware of their illegality.

14 Payne, “Unjust Enrichment”, at p. 583.

15 Following Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] A.C. 669 (” Westdeutsche“﹜. This is on the assumption that the transfer of title was volitional, albeit mistaken. In the case of a completely non-volitional transfer, no title would pass and arguably, recovery ought to be founded in tort and not unjust enrichment. This is explored further in s. II.B.3 below.

16 The validity of these arguments, however, is debated in the next section.

17 Grantham, R., “Illegal Transactions and the Powers of Company Directors” (1999) 296 L.Q.R. 296, 309–323Google Scholar.

18 Payne, “Unjust Enrichment”, at p. 595-598.

19 Payne, “Unjust Enrichment”, at p. 590.

20 See s. II below.

21 Payne, “Unjust Enrichment”, at pp. 591-593.

22 Payne, “Unjust Enrichment”, at p. 591.

23 Payne, “Unjust Enrichment”, at p. 592.

24 Birks, P., Unjust Enrichment (Oxford, 2003)Google Scholar (“Birks’ Unjust Enrichment”).

25 Severn & Wye Co. [1896] 1 Ch. 559; although there remains some doubt as to whether the debt is special (following Re Artisans’ Land and Mortgage Corporation [1904] 1 Ch. 796) or otherwise (following Re Compania de Electricidad de la Provincia de Buenos Aires Ltd. [1980] Ch. 146).

26 Lagunas Nitrate Company Ltd. v. Schroeder & Co. and Schimdt. (1901) 85 L.T. 22.

27 Reg. 103 of Table A of the Act reads, “Subject to the provisions of the Act, the directors may pay interim dividends if it appears to them that they are justified by the profits of the company available for distribution. …” (emphasis added). Given such wording, it is plain that should it appear to the board that there is no justification for payment, they may refuse to pay.

28 Re Jowitt [1922] 2 Ch. 442, 447.

29 [1980] Q.B. 677 (“Barclays Bank“), 695.

30 See text to and following note 25 above.

31 Similarly, a resolution by the board of directors to declare an interim dividend which breached ss. 263-281 might also loosely be said to be ultra vires.

32 E.g. Westdeutsche, [1996] A.C. 669.

33 Precision Dippings, [1986] Ch. 447, at pp. 457-458.

34 Hannigan, B., Company Law (London 2003), at p. 623Google Scholar.

35 The following cases were cited by Hannigan in support of her proposition in Company Law: Flitcroft’s Case (1882) 21 Ch.D. 519; Allied Carpets Group pic v. Nethercott [2001] B.C.C. 81; Bairstow v. Queens Moat Houses pic [2001] 2 B.C.L.C. 531 (C.A.), [2001] 1 B.C.L.C. 549 (Ch D); Aveling Barford v. Perion Ltd. [1989] B.C.L.C. 626; Precision Dippings Ltd. v. Precision Dippings Marketing Ltd. [1985] B.C.L.C. 385; Re Halt Garage (1964) Ltd. [1982] 3 All E.R. 1016.

36 [1986] Ch. 246 (Court of Appeal), per Browne-Wilkinson L.J. at pp. 302-303.

37 Grantham, R., “Illegal Transactions and the Powers of Company Directors” (1999) 296 L.Q.R. 296, 301–302Google Scholar.

38 Discounting, for the moment, the ‘saving’ of ultra vires transactions by s. 35 of the Act.

39 Rolled Steel Ltd. v. British Steel Corporation [1986] Ch. 246 (C.A.), 303.

40 This is examined below at s. II.A.3.

41 Precision Dippings, note 2 above, at 458.

42 Payne, “Unjust Enrichment”, at p. 585.

43 Payne, “Unjust Enrichment”, at p. 586.

44 Payne, “Unjust Enrichment”, at p. 586.

45 This is so, without even having to take into account the view that unjust enrichment takes a broader, less technical view of “consideration,” details of which were recently discussed in Cunnington, R., “Failure of basis” [2004] L.M.C.L.Q. 234Google Scholar.

46 See text at and following note 31 above.

47 Payne, “Unjust Enrichment”, at p. 595.

48 See note 39 above, and accompanying text.

49 Payne, “Unjust Enrichment”, at p. 586.

50 Payne, “Unjust Enrichment”, at p. 586, footnote 24.

51 [1980] Q.B. 677.

52 [1961] 1 Q.B. 374, 390.

53 Treitel, G.H., The Law of Contract, 11th ed. (London 2003), 488Google Scholar.

54 St John Shipping Corporation v. Joseph Rank Ltd. [1957] 1 Q.B. 26.

55 Payne, “Unjust Enrichment”, at p. 585

56 Payne, “Unjust Enrichment”, at pp. 585-586.

57 Payne, “Unjust Enrichment”, at p. 597.

58 [2001] EWCA Civ 712; [2002] B.C.C. 91, [2001] 2 B.C.L.C. 531, at [44].

59 Re Exchange Banking Co, Flitcroft’s Case (1882) 21 Ch. D. 519.

60 Treitel, Contract, at p. 488.

61 Subject, of course, to the possibility that the board of directors might repent of the illegality prior to performance—see s. II.A.4 below.

62 Section 277(2), emphasis added.

63 Payne, “Unjust Enrichment”, at p. 583, wherein reference is made to the following: DTI, Modern Company Law for a Competitive Economy: Company Formation and Capital Maintenance (October 1999) at p. 53; DTI, Modern Company Law for a Competitive Economy: Completing the Structure (November 2000) at pp.152-153; DTI, Modern Company Law for a Competitive Economy: the Final Report (June 2001) at Chapter 10.

64 The broader issue raised here, of course, is whether unjust enrichment liability should be imposed as a matter of public policy. This is discussed in greater detail below in s. II.D.

65 Section 263(2).

66 Hannigan, B., Annotated Guide to the Companies Act (London 2001) at p. 516Google Scholar.

67 Or, if they had been acting fraudulently, have decided to turn away from their fraud.

68 It may be noted that although Joyce J. accepted the opinions set out in Lindley on Company Law, 5th ed. (London 1887), 437 and Buckley on the Companies Acts, 7th ed. (London 1897), 551 that, “where a [final] dividend is declared it becomes a debt due from the company to the shareholders,” he expressly left open the question as to what would happen if it was discovered before the dividend was paid that it was not properly payable—see Lagunas Nitrate Company Ltd. v. Schroeder & Co. and Schimdt (1901) 85 L.T. 22 at p. 23.

69 Law Commission Consultation Paper No. 154.

70 At [7.49]-[7.56].

71 See s. II.B.4 below.

72 Payne, “Unjust Enrichment”, at p. 602. Payne cites the following in support: Burrows’ Restitution—see Chapter 4; and Birks, P. (ed.), English Private Law (Oxford 2000), vol. IIGoogle Scholar, para. [15.49]—[15.54] (‘English Private Law”’).

73 Payne, “Unjust Enrichment”, at p. 602.

74 Payne, “Unjust Enrichment”, at p. 602.

75 Payne, “Unjust Enrichment”, at p. 603.

76 Meridian Global Funds Management v. Securities Commission [1995] 2 A.C. 500 (P.C.), 506 (“Meridian”).

77 Being wording suggested by Lord Hoffmann in Meridian.

78 Goff & Jones at para. [4-001].

79 Given Lord Hoffmann’s explanation in Meridian (at p. 506) that generally, only a board resolution or a unanimous resolution of the shareholders will be deemed to be acts of the company.

80 Given the board’s gestalt nature, it is tentatively suggested that even in a case where a majority of the directors had acted fraudulently, so long as the minority were misled by the majority’s fraud, it may be more accurate to describe the board’s decision as being mistaken. This, of course, might not hold in the face of express attribution rules which provide that the decision of the board is to be the decision of the majority of its directors.

81 Swadling, W., “A Claim in Restitution?” [1996] L.M.C.L.Q. 63Google Scholar.

82 For example, when new title is created in the bona fide purchaser for value.

83 For example, as in Westdeutche, when the sums received are paid into an overdrawn bank account.

84 This has been criticised by Professors Grantham and Rickett on the basis that since restitution is concerned with the unjust enrichment of the defendant as measured in terms of value enhancement, as opposed to merely title to assets, Swadling’s assertion that there is no unjust enrichment without loss of title by the plaintiff is inaccurate—see “Restitution, Property and Ignorance—a reply to Mr. Swadling” [1996] L.M.C.L.Q. 463. For a defence of Swadling, see Bant, E., “Ignorance as an Unjust Factor—can it Survive?” [1998] L.M.C.L.Q. 18Google Scholar.

85 Birks, P., “Property and Unjust Enrichment: Categorical Truths” [1997] N.Z. Law Review 623, 654Google Scholar.

86 Grantham, R. and Rickett, G., “Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?” [1997] N.Z. Law Review 668Google Scholar.

87 Foskett v. McKeown [2001] 1 A.C. 102. See also text in and accompanying note 114 below.

88 Goff & Jones at para. [20-012]; Burrows’Restitution at pp. 323-324; Virgo’s Principles at p. 329; Birks, P., Introduction to the Law of Restitution (Oxford 1985)Google Scholar (“Birks’ Introduction”﹜, 47 and 464.

89 Birks’ Introduction at pp. 46-47.

90 See ss. II.A.1 and II.A.2 above.

91 Which makes it clear that any obligation which might be imposed upon recipients of unlawful dividends apart from s. 277 would be unaffected by the Act.

92 See text to and following note 62 above.

93 Pan Ocean Shipping Co. Ltd. v. Creditcorp Ltd. (“The Trident Beauty”) [1994] 1 W.L.R. 161 (H.L.), 164.

94 Tettenborn, A., “Subsisting Contracts and Failure of Consideration” [2002] R.L.R. 1Google Scholar. Arguments in favor of a narrower conception of the contract-bar may be also found in Beatson, J., “Restitution and Contract: Non-Cumul?” [2000] 1 Theoretical Inquiries in Law 83Google Scholar. See also Cunnington, R., “Failure of basis” [2004] L.M.C.L.Q. 234Google Scholar; Smith, S.A., “Concurrent Liability in Contract and Unjust Enrichment: The Fundamental Breach Requirement” (1999) 115 L.Q.R. 245, esp. pp. 250–255Google Scholar.

95 Tettenborn, A., “Subsisting Contracts and Failure of Consideration” [2002] R.L.R. 1Google Scholar (“Subsisting Contracts”), 3.

96 Tettenborn, “Subsisting Contracts”, at p. 4.

97 Cunnington, R., “Failure of Basis” [2004] L.M.C.L.Q. 234, 251.Google Scholar

98 J. Beatson, “Restitution and Contract: Non-Cumul?”, at p. 94.

99 (2002) 76 A.L.J.R. 203 (High Court of Australia).

100 Beatson, J. & Virgo, G. J., “Contract, Unjust Enrichment and Unconscionability” (2002) 118 L.Q.R. 352, 356.Google Scholar

101 Cunnington, “Failure of Basis”, at p. 251.

102 Flitcroft’s Case (1882) 21 Ch.D. 519, 531.

103 Nor should this bar be limited to contract. Putting it more broadly, restitution cannot be permitted where, “The principle which denies restitution applies irrespective of whether the obligation arises under a statute or was imposed by the common law or the rules of equity. It is also immaterial that the obligation was voluntarily assumed (either by simple contract or a document under seal) or was impose ex lege. To allow restitution would undermine the rules which originally imposed the obligation, and would lead the law of restitution to a direct conflict with that branch of the law which is the source of the obligation.”—see D. Friedmann, “Valid, Voidable, Qualified and Non-existing Obligations: An Alternative Perspective on the Law of Restitution,” in Burrows, A. (ed.), Essays on the Law of Restitution (Oxford 1991) at p. 248.Google Scholar

104 Smith, S.A., “Concurrent Liability in Contract and Unjust Enrichment: The Fundamental Breach Requirement” (1999) 115 L.Q.R. 345, 255Google Scholar.

105 [1999] 2 A.C. 349.

106 Birks’ Unjust Enrichment at p. 98, adopting the views of Meier, S. and Zimmerman, R., “Judicial Development of the Law, error iuris and the Law of Unjustified Enrichment” (1999) 115 L.Q.R. 556Google Scholar.

107 Meier, S., “Restitution after Executed Void Contracts” in Birks, P. and Rose, F. (eds.), Lessons of the Swaps Litigation (London 2000), at p. 211Google Scholar.

108 Payne, “Unjust Enrichment”, at p. 604.

109 [2002] B.C.C. 91, [2001] 2 B.C.L.C. 531.

110 [2002] B.C.C. 91, [2001] 2 B.C.L.C. 531.

111 (1882) 21 Ch.D. 519.

112 In Re Sam Weller & Sons Ltd. [1990] Ch. 682, Peter Gibson J. accepted that it was at least arguable that non-payment or payment of very low dividends could be “unfairly prejudicial” within the provisions of section 459.

113 E.g. Re a Company (No 00370 of 1987), ex p Glossop [1988] 1 W.L.R. 1068.

114 See, e.g., Chapter 8 of Birks’ Unjust Enrichment which puts forward the proposition that in principle, in rem liability for unjust enrichment should also accompany all cases of failure of basis. Where the failure of basis occurs right from the outset, prior to or simultaneously with the transfer of value which led to the enrichment, an in rem response should be automatically available. However, where the failure of basis occurs at a subsequent point in time, an in rem response should only be available if the value transferred was in some sense ‘ring-fenced’ so as to limit the freedom of the transferee to subsequently deal with the enrichment received. Admittedly, Birks’ views would require a review of the apparent halt to further development of in rem responses to unjust enrichment by the House of Lords in Westdeutche. However, as Birks has pointed out, the decision in Westdeutche is unclear as to whether it was decided on an initial failure of basis or a subsequent failure, and whether the resistance to in rem recovery in unjust enrichment should be applied to both types of failure, or only to subsequent failures. The validity of this line of reasoning, however, remains debatable. As noted in G. Virgo, ‘Restitution Through the Looking Glass’ in J. Getzler (ed), Rationalizing Property, Equity and Trusts: Essays in Honor of Edward Burn (London 2003) (Virgo, “Through The Looking Glass”) at 100-101, this position appears to ignore the empirical evidence of the decided cases. Virgo notes that Foskett v. McKeown [2001] 1 A.C. 102 precludes an in rem response for autonomous unjust enrichment. Further, the authority of cases which have been relied upon to support Birks’ conclusion is now doubtful following Westdeutche which overruled Sinclair v. Brougham [1914] A.C. 398 and re-interpreted Chase Manhattan Bank v.Israel-British Bank [1981] Ch. 105.

115 See, e.g., Chapter 12 of Burrows’ Restitution. See also Birks’ Introduction at pp. 300-303; P. Birks and C. Mitchell, “Unjust Enrichment” in English Private Law at para. [15.168][15.172].

116 Payne, “Unjust Enrichment”, at pp. 603-604.

117 One might try to argue that the bar is not applicable to companies because a company cannot be said to be party to transactions which are purportedly entered on its behalf by directors who have acted illegally. However, this argument is precluded by the analysis of Professor Grantham who has demonstrated that companies are invariably held to be party to the transactions entered into by its officers, be they illegal or otherwise—see Grantham, R., “Illegal Transactions and the Powers of Company Directors” (1999) 115 L.Q.R. 296Google Scholar.

118 Grantham, R., “Illegal Transactions and the Powers of Company Directors” (1999) 115 L.Q.R. 296, 299Google Scholar. See also Virgo’s Principles at p. 740; Burrows’ Restitution at p. 424.

119 It should be noted that the defence of change of position appears not to be available in cases of restitution for wrongs. See Lord Goff’s speech in Lipkin Gorman v. Karpnale Ltd. [1991] 2 A.C. 546 (House of Lords), at 580.

120 [1981] Ch. 105 (“Chase Manhattan”).

121 Stevens, J., “Simple interest only? Autonomous unjust enrichment and the Relationship between Equity and Common Law” [1996] L.M.C.L.Q. 441.Google Scholar

122 This was because by the time the parties realised their mistake, the sums in questions had already been paid into an account which had gone into overdraft. As a result, it was no longer possible to trace the value received.

123 Admittedly, there was some sympathy in the House of Lords in Westdeutche for such a remedy to be developed. However, they ultimately held that such a development should await some future case where the point would be directly in issue. This result was, no doubt, because the issue on appeal was merely the question as to whether compound interest should have been ordered.

124 Stevens, “Simple interest only?”, at p. 444. It may be noted that this re-analysis remains inherently uncertain. Virgo has noted that the effect of a more significant gap in time between receipt and awareness of the invalidity remains obscure—see Virgo, “Through the Looking Glass”, at p. 93. It certainly seems difficult to resist the notion that had the gap in time in Chase Manhattan been more significant, say, a lapse of two years, imposition of a constructive trust over any traceable substitutes in favor of the payor bank would have been inequitable. Perhaps the answer is to look to the behavior of the mistaken payor—whether the payor took immediate steps to notify the payee of the circumstances of the mistake promptly, and that the ‘wrong’ only arises upon failing to give restitution following such notification?

125 (1856) 6 E. & B. 327.

126 Bank of Credit and Commerce International (Overseas) Ltd. v. Akindele [2001] Ch. 437 (C.A.), 456.

127 (1990) 1 A.C.S.R. 691 (Supreme Court of New South Wales), per Giles J. at p. 708.

128 [2004] 1 WL.R. 1846.

129 [2002] B.C.C. 91, [2001] 2 B.C.L.C. 531.

130 [1986] Ch. 447.