A. Comparative Domestic Laws of Restitution

It is never a good idea to be overly dependent on domestic requirements and classifications for conflicts purposes,Footnote ⁹ but a quick overview of the state of the English domestic law of restitution provides a good idea of the hurdles faced at the conflicts level.Footnote ¹⁰ It is trite law that restitution is now no longer subsumed under the label of ‘quasi-contract’Footnote ¹¹ but is instead recognised as being a separate branch of law.Footnote ¹² That much is clear; the rest is regrettably murkier. The main problem in the domestic law of restitution that also impinges at the choice of law level is the uncertainty concerning its scope and taxonomy.Footnote ¹³ Three different types of claims could be said to fall within the rubric of the ‘law of restitution’ under domestic law. First are claims relating to the conferment of a benefit on the defendant; examples being a claim for money had and received and a quantum meruit Footnote ¹⁴ claim. Second would be actions which seek to prevent a wrongdoer from profiting from his or her wrong, such as an action for an account of profits pursuant to a breach of fiduciary duty. The third potential type of claim would be founded upon property rights; for example, a claim that money paid over pursuant to a mistake is impressed with a constructive trust. The first type of claim is universally recognised as being based on the reversal of unjust enrichment. The other two, which can be referred to as restitution for wrongs and proprietary restitution respectively, have a more cloudy basis. The question is whether these two latter forms of claims are also based on the principle of unjust enrichment.Footnote ¹⁵ There are advocates on each side of the fence.Footnote ¹⁶ On the one hand, the quadrationists hold the view that restitution is only ever about reversing unjust enrichment, whilst on the other hand the multi-causalists argue that restitution can arise from a number of events, one of which is unjust enrichment.Footnote ¹⁷ So, for example, whilst quadrationists argue that the cause of action for restitution for wrongs is still unjust enrichment,Footnote ¹⁸ the multi-causalists argue that the cause of action is the wrong itself.Footnote ¹⁹

A look at how other jurisdictions handle the same issues of taxonomy and role to be played by the unjust enrichment principle might help illuminate matters. After all, the law of obligations in civil law systems has long recognised a right to restitution on the basis of unjust enrichmentFootnote ²⁰ and the American Law Institute published the Restatement of the Law of Restitution in 1937. In contrast, unjust enrichment was only recognised as being part of English law in 1991.Footnote ²¹

The role to be played by the unjust enrichment principle appears clearer under US law. The draft of the Restatement (Third) of Restitution and Unjust Enrichment classifies restitution of profits from a wrongful act as being based on unjust enrichment.Footnote ²² The draft Restatement also recognises that restitution has a role to play in vindicating a claimant's proprietary rights.Footnote ²³ Therefore, proprietary remedies such as a constructive trust,Footnote ²⁴ subrogation and equitable lien are considered to be examples of remedies preventing the unjust enrichment of the claimant.

What about our continental cousins? It used to be said that a continental lawyer might regard himself as ‘entering another world’Footnote ²⁵ when approaching the common law conceptions of restitution, but this may no longer be quite true.Footnote ²⁶ For example, the German law of unjustified enrichment can be divided into two main categories: Leistungskondiktionen and Eingriffskondiktionen.Footnote ²⁷ The former covers claims based on a transfer; for example, a loan contract that is rescinded by the bank on the grounds of fraud.Footnote ²⁸ The latter is based on encroachment by the defendant, such as where a person lets his cattle graze in someone else's meadow.Footnote ²⁹ One can surmise therefore that Leistungskondiktionen is analogous to the English concept of unjust enrichment by subtraction whilst Eingriffskondiktionen appears to approximate the English concept of restitution for wrongs.Footnote ³⁰ However, in contrast with debates by English scholars as to whether restitution for wrongs is founded on the principle of unjust enrichment, it is accepted that this is so for the concept of Eingriffskondiktion.

It is usually said that civil law systems do not admit proprietary restitution.Footnote ³¹ Yet in a comparative survey of restitution and unjust enrichment, it was noted that ‘the interrelationship between purely personal unjust enrichment claims and proprietary actions is … subject to many debates even within most of the legal systems under review ….’Footnote ³² The matter therefore may not be as clear-cut as believed. For example, if a vendor sells a painting pursuant to a void contract, title passes even if the underlying contract is defective under the German concept of Abstraktionprinzip. The vendor however can invoke §812(1) BGB, which is the general clause pertaining to rights arising from ‘unjustified enrichment’ and demand restitution of the benefit conferred, that is, ownership of the painting.Footnote ³³ Under French domestic law, a claimant may also pursue an action based on unjust enrichment to retain or regain title to property which is in the defendant's hands. However, the fundamental difference with the common law is that these are personal claimsFootnote ³⁴ whereas the common law conception of proprietary restitution generally involves the claimant asserting a proprietary interest.Footnote ³⁵ On French law, it is said that ‘the revesting of title to the property in the transferor merely forms the background to a personal claim based on the other party's unjust enrichment … The idea of a claim in rem based on the principle of unjust enrichment would strike a French lawyer as a contradiction in terms.’Footnote ³⁶ Yet, bar situations involving insolvency, the end result in common law and civil law systems would be the same in most cases. Moreover, rei vindicatio claimsFootnote ³⁷ found in civil law systems import ‘restitutionary’ principles despite being dealt with within the law of property.Footnote ³⁸ The important point though is that vindicatio claims are not dependent on there being some unjustified enrichment.

From the above cursory study of various domestic laws of restitution, it appears that a choice of law rule that purports to be for ‘restitution’ should not just seek to cover claims based on the principle of reversing unjust enrichment. It cannot be assumed that all ‘restitutionary’ claims will be based on the principle of unjust enrichment. In fact, given this uncertainty, it may well be that the more appropriate route is to have a choice of law rule for ‘unjust enrichment’ and not a choice of law rule for ‘restitution’. This issue will now be examined.

B. Reasons Against a Choice of Law Rule for ‘Restitution’

The fact that the label ‘restitution’ rather than ‘unjust enrichment’ came to be the more popular label for this area of law in the common law world could be said to be a result of historical happenstance. It was under the label of ‘restitution’ that ‘the first serious attempts were made to overcome the problems of misdescription and misclassification which deprived unjust enrichment of its own place on the map of that law.’Footnote ³⁹ This attempt started in the US in the 1930s and culminated in the Restatement of Restitution. However, there is now a concerted effort to redirect attention to the core of the subject, that is, the principle of unjust enrichment. The project to replace the original Restatement of Restitution restores the full title, Restitution and Unjust Enrichment, which was first proposed but eventually dropped from the official text published in 1937. The aim of this reinstatement is to emphasize ‘that the subject matter encompasses an independent and coherent body of law, the law of unjust enrichment, and not simply the remedy of restitution.’Footnote ⁴⁰

This brings us to the next point. Claims that are potentially discussed under the rubric of ‘restitution’, that is, claims to reverse unjust enrichment, claims for restitution for wrongs and claims for proprietary restitution, all have the common feature of depriving the defendant of a gain rather than compensating the claimant for loss suffered. In other words, ‘restitution’ is a term of art and the law of restitution can more accurately be defined as the area of law concerned with the ‘award of a generic group of remedies.’Footnote ⁴¹ When this definition is transposed onto the conflicts of law landscape, one problem is clear: choice of law rules are predicated upon causes of action, not remedies. If the law of restitution concerns remedies, then it is fallacious to speak of a choice of law rule for restitution. Remedies, according to conflicts orthodoxy, are categorized as being procedural in nature. Matters of procedure do not raise choice of law issues; they are always governed by the lex fori.Footnote ⁴² In contrast, ‘unjust enrichment’ is not usually conflated with remedies.

In addition, ‘restitution’ as a term of art does not appear to be confined to the common law.Footnote ⁴³ Under French law, a party to a loan, hire or deposit contract owes the other party an obligation de restitution but these obligations are contractual in nature.Footnote ⁴⁴

Another problem with the ‘restitution’ label for choice of law purposes stems from the uncertainty of the scope of the subject. There is a growing body of opinionFootnote ⁴⁵ that argues that claims for restitution for wrongs should be characterized in accordance with the ‘wrong’ and governed by the law that governs the wrong.Footnote ⁴⁶ The cause of action is the ‘wrong’ itself, albeit with a restitutionary remedy. In a similar vein, claims for proprietary restitution should be characterized as being concerned with ‘property’ and governed by the property choice of law rules.Footnote ⁴⁷ This approach accords with the multi-causalist argument that restitution for wrongs and proprietary restitution are not based on unjust enrichment.

C. Problems With and Reasons for a Choice of Law Rule for ‘Unjust Enrichment’

The above makes the case that having the category of ‘restitution’ for choice of law purposes is inappropriate. However, there are also detractors for the alternative; some argue that ‘unjust enrichment’ as a characterization category is not ideal either.

One of the arguments put forward is that ‘unjust enrichment’ is merely a principle and not a cause of action in its own right.Footnote ⁴⁸ There are two ways to counteract this. First, characterization at the conflicts level is not an exact science. The ‘thing’ that is characterized is variously said to be the cause of action,Footnote ⁴⁹ issue at stake,Footnote ⁵⁰ rule of law,Footnote ⁵¹ or even a combination or variation of these at the same time.Footnote ⁵² If unjust enrichment is merely a principle, no doubt this will not be fatal to its forming a ‘thing’ that can be characterized for conflicts purposes. The flexibility inherent in the characterization process should be able to accommodate putting cases which concern the unjust enrichment principle in a ‘box’ together.Footnote ⁵³ Secondly, and compellingly, it is incorrect to state that unjust enrichment is merely a principle. A cause of action can be defined as a fact or combination of facts which gives rise to a right of action.Footnote ⁵⁴ In order to succeed in an action for unjust enrichment, the claimant is not relying on any abstract proposition of doing justice as might be inferred from use of the word ‘unjust’.Footnote ⁵⁵ For example, under English law, the claimant has to prove three component elements, namely: (i) that the defendant has been enriched; (ii) that the enrichment was at the claimant's expense; (iii) that the enrichment was unjust.Footnote ⁵⁶ All these elements are then defined in considerable detail and a claimant who proves these three elements is plainly relying on facts to establish his right to a remedy.Footnote ⁵⁷ In fact, there have been judicial dicta referring to unjust enrichment as a cause of action.Footnote ⁵⁸

A different argument that suggests that ‘unjust enrichment’ should not form a separate category for characterization purposes is made by Atiyah and Hedley.Footnote ⁵⁹ They argue that cases interpreted as being concerned with unjust enrichment can actually be accommodated within the well-established categories of contract, tort and property law.Footnote ⁶⁰ Whatever the merits of this argument, the law has progressed to the point where unjust enrichment is recognized as being an independent branch of the law. Lord Steyn in Banque Financière de law Citè v Parc (Battersea) Ltd stated that ‘unjust enrichment ranks next to contract and tort as part of the law of obligations. It is an independent source of rights and obligations.’Footnote ⁶¹ Other jurisdictions as well evidently adhere to this view.Footnote ⁶² For example, a comment found in the draft Restatement (Third) of Restitution and Unjust Enrichment affirms that the law of unjust enrichment ‘is itself a source of obligations, analogous in this respect to tort or contract’.Footnote ⁶³ Another example is the German Civil Code, whose structure clearly reveals that unjustified enrichment forms an independent category in the law of obligations alongside contracts and torts.Footnote ⁶⁴

In addition, from a comparative viewpoint, ‘unjust enrichment’ is a term which has ‘wide currency throughout Europe’.Footnote ⁶⁵ The acceptance of the unjust enrichment principle in the domestic law of legal systems, not only within Europe but throughout the world,Footnote ⁶⁶ in contrast with just a generalized right to restitution with different underlying bases, is a persuasive point in support of a category of ‘unjust enrichment’ rather than ‘restitution’ for conflicts purposes. Indeed, when one shifts to the choice of law level, the conclusion that unjust enrichment must be the correct label is borne out when one looks at the provisions in other countries who have generally adopted the terminology of unjust enrichment for choice of law purposes.Footnote ⁶⁷ Article 10 of the Rome II Regulation thus is suitably headed ‘Unjust enrichment’.Footnote ⁶⁸

D. Conclusion on the Terminological Question

Article 10's choice of label is advantageous from the viewpoint of English lawyers as it would accord with both the quadrationist and multi-causalist camps. The quadrationists should approve as this characterization emphasises the centrality of the unjust enrichment principle within the law of restitution, whilst also appeasing the multi-causalists as they would presumably characterize restitution for wrongs in accordance with the particular wrong involved and proprietary restitution as property. Having said that, Recital 11 of the Rome II Regulation makes it clear that the concepts covered by the Regulation are subject to European autonomous meanings. This though may be difficult in view of the divergences in the domestic systems of restitution. For example, if the claim relates to the defendant using a machine belonging to the claimant, the German court would likely characterize the claim as lying in the unjust enrichment categoryFootnote ⁶⁹ and hence within the scope of Article 10, whereas the English court, if it accepts the arguments of the multi-causalists, would characterize it in accordance with the ‘wrong’, that is, as a tortious claim and outside the scope of Article 10.Footnote ⁷⁰ Given that the state of the English law of restitution is currently still precarious, it is all the more important that English courts take to heart Recital 11 and undertake the characterization process for restitutionary claims in a generous spirit pending guidance from the European Court of Justice. One is reminded of Briggs's counsel that:

Although it may be concluded that Article 10 is labelled appropriately, this is by no means the end of the matter as far as unjust enrichment and conflicts of law is concerned. The next question is what should form its content. Coming up with choice of law rules for unjust enrichment is problematic as the formulation would have to satisfy the various views on what claims belong within the ‘unjust enrichment’ box. How well Article 10 of the Rome II Regulation achieves this will now be examined.

A. The Recognition of Party Autonomy: Article 14

The concept of party autonomy has long been recognised in the field of contract.Footnote ⁸³ This is due to the principle of freedom of contract and the desirability of increasing certainty and efficiency in international contracts. Party autonomy, however, has had a slower rise in relation to non-contractual obligations even though the advantages of recognising this concept, such as certainty, predictability and avoiding litigation just on the issue of what law governs a claim, apply for both contractual and non-contractual obligations.

In so far as unjust enrichment is concerned, a number of commentators have in the past proposed that since the restitutionary obligation is imposed by law and is not of the parties' volition, party choice should not be relevant.Footnote ⁸⁴ However, the fact that the restitutionary obligation is imposed by law is not a reason to say that the parties should not have the autonomy to choose the law governing the unjust enrichment claim. As has been pointed out by Brereton, frustration of a contract is not a matter of volition but is imposed by law; yet few would suggest that frustration is not a matter to be governed by the expressly chosen law of the contract.Footnote ⁸⁵ This gives the lie to the notion that obligations imposed by law cannot be governed by a law chosen by the parties.

A limited form of party autonomy is recognised in the Swiss Federal Statute on Private International Law. Article 128(2) allows the parties to choose the lex fori if the unjust enrichment does not relate to a relationship between the parties. In relation to tort and delict, a more generous approach was taken by the Law Commission and the Scottish Law Commission who recommended that the parties' choice should not be restricted to the lex fori and that the choice can be made before or after the occurrence of the tort or delict.Footnote ⁸⁶

This most liberal understanding of party autonomy is not readily accepted for non-contractual obligations. While there is growing awareness that restricting party choice to the lex fori may be overly parochial, most instruments, like Article 42 of the EGBGB, restrict autonomy to a choice made after the unjust enrichment occurs. The decision to allow a post ante but not ex ante choice seems to be based on the concern to protect weaker parties.Footnote ⁸⁷ However, allowing a choice only after the dispute arises is also no guarantee that the weaker party is not taken advantage of.Footnote ⁸⁸ For example, unless one can be sure that a less economically advantaged party has access to the same quality of legal advice which would be available to a wealthier party, there is no reason to suppose that a stronger party who has imposed his will on the weaker party prior to the dispute will not seek to do so after the dispute arises. In fact, the stronger party will be all the more anxious to do so. The weaker party may be better off relying on the standard public policy and mandatory rule provisions commonly found in choice of law instruments for protection.

The Rome II Regulation chooses a halfway house approach. Article 14(1)(a) allows the parties to choose the applicable law after the event giving rise to the ‘damage’Footnote ⁸⁹ occurs. Article 14(1)(b) then provides that ‘where all the parties are pursuing a commercial activity’, a choice that is ‘freely negotiated before the event giving rise to the damage occurred’Footnote ⁹⁰ will be given effect. There are two points to note about Article 14.Footnote ⁹¹ First, the restriction to ‘commercial activity’ and emphasis on a ‘freely negotiated’ choice are aimed at safeguarding weaker parties' interests.Footnote ⁹² The provision probably achieves its objective as it would most clearly cover contracting parties who have later cause to sue in unjust enrichment.Footnote ⁹³ If the contract falls within the scope of the Rome Convention, any choice made by the parties would have to pass the protectionist rulesFootnote ⁹⁴ set out in that Convention anyway, thus rendering a choice made to govern their contract ‘safe’ for use for any consequential unjust enrichment claim. The stress in Article 14 on free negotiation would help protect parties who do not have the benefit of the Rome Convention's safeguards.

Secondly, Article 14(1)(b) goes some way towards rectifying an anomaly inherent in the Commission's first draft which only allowed a choice made after, but not before, a dispute arises. However, under that first draft, an ex ante choice made to govern, say a contract between the parties, would be given effect under Article 10(1)Footnote ⁹⁵ as the law governing the relationship between the parties to govern any consequential unjust enrichment claim if the contract later fails. In practical terms this means that a choice of law made before the dispute but which is not expressly stated to cover non-contractual obligations would be given effect in relation to an unjust enrichment claim, whereas an express indication in the contract that a law is chosen specifically to govern disputes arising from their transaction would not. The parties in the latter situation were being penalized for having the foresight to choose a law to govern disputes before any dispute arises. Thus the acceptance by the Commission that a choice may be made before a dispute arises is in the interest of autonomy of the parties and would avoid unnecessary litigation.Footnote ⁹⁶

B. Law Governing the Relationship: Article 10(1)

In the absence of party autonomy, it is commonly accepted that the law governing the relationship should govern the action founded on unjust enrichment if the unjust enrichment claim arises out of a relationship between the parties.Footnote ⁹⁷ The rationale for this is well put by Zweigert and Müller-Gindullis:

The law governing the relationship should only govern the unjust enrichment claim when the relationship is the sine qua non of the restitutionary claim.Footnote ⁹⁹ For example, if A has rendered services to B pursuant to a contract but B refuses payment, A could rescind the contract and pursue a quantum meruit claimFootnote ¹⁰⁰ against B.Footnote ¹⁰¹ The contract forms the basis upon which B is enriched and it is appropriate that the governing law of the contract governs the unjust enrichment claim. It is the law of closest connection to the claim.

The importance of there being a strong link between the relationship and the enrichment before this choice of law rule comes into play is recognized explicitly by some statutes. Article 128(1) of the Swiss Federal Statute on Private International Law states that ‘[c]laims for unjust enrichment are governed by the law that governs the actual or assumed legal relationship by virtue of which the enrichment occurred.’Footnote ¹⁰² Article 38(1) of the German EGBGB also makes clear the importance of the connection between the relationship and the claim: ‘Claims for unjust enrichment based on performance rendered are governed by the law applicable to the legal relationship with respect to which the performance was rendered.’Footnote ¹⁰³ In contrast, the language used by Article 10(1) of the Rome II Regulation is more vague as it does not insist on a direct correlation between the relationship and the enrichment:

‘Concerns’ and ‘closely connected’ have been criticized as not making sufficiently clear the degree of closeness that is required between the relationship and the restitutionary obligation.Footnote ¹⁰⁵ However, despite the potential ambiguity of the phrasing used,Footnote ¹⁰⁶ Article 10(1) should also work to weed out claims which do not arise out of the relationship. For example, if A transfers assets to B pursuant to a void contract and B thereupon transfers the same asset to C, an argument could be made that the ‘contract’ between A and B is ‘closely connected’ to A's claim against C since but for that ‘contract’, C would not have been enriched. However, the wording of Article 10(1) refers to ‘the relationship between the parties’ so the relevant connecting factor here is the relationship between A and C, not between A and B. The putative governing law of the contract between A and B will not be relevant at all. To give another example,Footnote ¹⁰⁷ where trust money is mistakenly paid to a third party recipient, the existence of the trust, although incidental to the main unjust enrichment claim which may be brought against the third party, may be thought to supply the ‘close connection’ required by Article 10(1). But since one is concerned with the relationship between the parties to the action, and not the relationship between the parties to the trust, the law governing the latter relationship would not come into play under Article 10(1). These conclusions must be correct as the unjust enrichment claims do not have their roots in the ‘contract’ between A and B in the first example, or the trust in the second example.

One should therefore only rely on this choice of law rule when the relationship forms an essential component of the unjust enrichment claim and not where it merely forms the backdrop to the claim. This will have the advantage of ensuring that this choice of law rule only applies when the law governing the relationship is the law of closest connection to the claim.

There are other advantages in adopting this choice of law rule. Since the law governing the relationship would also govern matters prior to the restitutionary claim, consistency of result will be achieved by having the same law govern the restitutionary claim itself. This is because both stem from a single state of affairs.Footnote ¹⁰⁸ In addition, it would be rational to conclude that if the parties had given any thought to the matter, they would have expected that the law governing their relationship would govern any matters arising from that relationship. Thus, the parties' legitimate expectations are preserved.

Another point that could be raised is that, to a certain extent, this choice of law rule is able to deal with the problem of uncertainty over the scope of the law of restitution and the unjust enrichment principle that was discussed above. This is done primarily by minimising characterization problems. To revert back to domestic English terminology, both quadrationists and multi-causalists accept that claims arising out of a failed contract would be classed as unjust enrichment claims. Dealing with these claims at the choice of law level is straightforward—they would be governed by the governing law of the contract in accordance with this choice of law rule. However, what about the more contentious categories of restitution for wrongsFootnote ¹⁰⁹ and proprietary restitution?Footnote ¹¹⁰ For example, a claim for an account of profits made due to a breach of fiduciary duty would be considered by some to be based on the reversal of unjust enrichmentFootnote ¹¹¹ and therefore fall within the scope of a choice of law rule for unjust enrichment. Where there is a pre-existing relationship between the parties, this choice of law rule would apply and point towards the law governing the relationship between the fiduciary and principal.Footnote ¹¹² Others however, would class this type of claim as an example of restitution for wrongs and one which is not based on the principle of unjust enrichment.Footnote ¹¹³ In so far as the claim relates to breach of duties arising from voluntary undertakings within consensual relationships, Yeo suggests that the law governing the pre-existing relationship should also govern the claim for unauthorized profits. However, Yeo's suggestion is based on the premise that such claims are analogous to contractual claims and should thus in the first place be characterized as contractual.Footnote ¹¹⁴ The contract choice of law rule points towards the law governing the relationship between the parties, that is, the governing law of the contract.Footnote ¹¹⁵ Therefore the same result is reached irrespective of whether the claim is classed as being an unjust enrichment claim or as a contractual claim.

If we now turn towards the field of proprietary restitution, scholars such as BirksFootnote ¹¹⁶ and BurrowsFootnote ¹¹⁷ argue that such claims are again based on the unjust enrichment principle. Virgo, on the other hand, thinks claims for proprietary restitution are based on the law of property and the principle of vindication of property rights.Footnote ¹¹⁸ If one transposes these arguments to a choice of law level, Virgo's views would lead to characterizing the claim as a property one which is governed by the property choice of law rule. So if the claimant is arguing that land in Canada is held on a constructive trust for him, Canadian law would apply as the lex situs in accordance with the property choice of law rule.Footnote ¹¹⁹ On Birks's and Burrows's alternative viewpoint, the claim should presumably be characterized as being an unjust enrichment claim for conflicts purposes. It is suggested that Canadian law would also be the law governing the relationship between the parties for the particular issue of whether the land is held on trust for the claimant. Even if there is, say, a contract between the two parties relating to the land that is governed by some other law, arguably, since the land is situated in Canada, Canadian law trumps the governing law of the contract because the precise issue at stake relates to title and ownership of the land. Canadian law is the law which would govern the rights and obligations of the parties towards each other vis-à-vis the land, that is, Canadian law is the law that governs the relationship between the parties on this particular issue. Thus, under either route, Canadian law arguably should end up governing the claim.Footnote ¹²⁰

Therefore, having this choice of law rule in a restitutionary choice of law formulation helps to minimise characterization problems. It would not matter whether the claim is characterised as being contractual or restitutionary, proprietary or restitutionary, as the same choice of law rule would apply. In view of its myriad advantages, it is unsurprising that this choice of law rule is given primacy in Article 10Footnote ¹²¹ as Articles 10(2) and 10(3) only apply if there is no pre-existing relationship.

C. Law of Common Habitual Residence of the Parties: Article 10(2)

Article 10(2) of the Rome II Regulation provides that where the claim does not concern a relationship between the parties, if ‘the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply.’

This choice of law rule is commonly found in tort choice of law. Article 4(2) of the Rome II Regulation sets out the same choice of law rule for tortious cases but examples can be found in earlier statutes. Article 133(1) of the Swiss Federal Statute on Private International Law Statute, and Article 40(2) of the German EGBGBFootnote ¹²² and §32(3) of the Hungarian Decree on Private International Law set out tort choice of law rules in favour of the law of common habitual residenceFootnote ¹²³ or common domicile.Footnote ¹²⁴

Although there have not been as many explicit provisions in favour of the common personal law of the parties in the field of unjust enrichment as for tort, some statutes provide for the application of the law of common habitual residence in a more indirect manner. Section 221(2)(d) of the Restatement (Second) of Conflict of Laws lists the ‘domicil, residence, nationality, place of incorporation and place of business of the parties’ as a contact to be taken into account for choice of law for restitutionary actions and the commentary states that ‘the fact that the domicil and place of business of all parties are grouped in a single state is an important factor to be considered in determining the state of the applicable law.’Footnote ¹²⁵ After setting out primary choice of law rules in favour of other laws,Footnote ¹²⁶ Article 41(1) of the German EGBGB provides a displacement rule in favour of the law of closest connection.Footnote ¹²⁷ The fact that both parties are habitually resident in the same place at the time the causal facts took place is listed as an indication that there might be a substantially closer connection to the unjust enrichment claim than the law designated by the primary choice of law rules.Footnote ¹²⁸ The explicit provision for the law of common habitual residence for claims for unjust enrichment in the Rome II Regulation is therefore an unsurprising progression of status.

It might be speculated that the rationale for this choice of law rule stems from the American governmental interest doctrine and the series of tort cases where the parties' common home state overrode the lex loci delicti.Footnote ¹²⁹Babcock v Jackson Footnote ¹³⁰ concerned resident New Yorkers who had an accident in Ontario. In an action by the passenger against the driver for injuries suffered during that accident, the court held that New York law had a greater interest in being applied than Ontario law. What was at issue in Babcock was the extent of the driver's liability towards her passenger. Ontario had a ‘guest’ statute under which a driver was not liable for injuries caused to gratuitous passengers, whilst New York had no such law. Since the parties were both from New York, the purposes of the Ontario ‘guest’ statute, amongst which were to protect Ontario drivers and insurance companies, were not germane; whereas New York law, New York being the place where the guest–host relationship arose and the start point and supposed end point of the trip, had a greater claim to be applied. So New York law was not applicable merely because New York was the home state of both parties; it was applicable because it was thought to provide the ‘centre of gravity’ for the particular issue at stake.Footnote ¹³¹ There is no mechanism for this type of sophisticated analysis under Article 10(2) of the Rome II Regulation as it merely sets out a rigid rule in favour of the law of common habitual residence outside relationship-based claims.Footnote ¹³²

The rationale for this choice of law rule therefore cannot be that the law of the common habitual residence has the closer connection to the claimFootnote ¹³³ merely because both parties reside in that jurisdiction. Its rationale must lie in more simple and uncomplicated reasons. For one, the fact that the parties are habitually resident in the same place means that trial will likely take place there too. The convenience of the court applying its own law need hardly be stated. For another, since the parties come from the same environment, they would likely have the same or similar expectationsFootnote ¹³⁴ and it therefore makes sense that their common law would govern any claims arising between them.

Nevertheless, there are objections against a choice of law rule prefaced on the personal law of the parties. The main complaint is that it leads to fortuitous results.Footnote ¹³⁵ This form of choice of law rule used to be directed towards the common nationality of the partiesFootnote ¹³⁶ before being expanded to encompass common residence.Footnote ¹³⁷ The criticism of fortuity has credence if common nationality were to be the connecting factor;Footnote ¹³⁸ however, the modern focus on the place where the parties normally reside and live means that there is the likelihood that this choice of law rule would result in a court applying its own law and protecting parties' shared expectations as mentioned above. These practical advantages outweigh the fortuity point.

Having said that, the law of common habitual residence must play second fiddle to the law governing the relationship if the enrichment arises out of a relationship between the parties. The former, for the reasons stated above, is the more appropriate choice of law rule in relationship-based cases. The hierarchy adopted in the Rome II Regulation is correct.

D. A Territorially-Based Choice of Law Rule: Article 10(3)

There has always been considerable enthusiasm for a territorially based rule for at least some, if not all, unjust enrichment claims. In earlier choice of law proposals, a territorially based choice of law rule for unjust enrichment was based on an analogy with the lex loci delicti rule for torts and the vested rights theory.Footnote ¹³⁹ This analogy has been shown to be inappropriate.Footnote ¹⁴⁰ Even though both unjust enrichment and tort involve non-consensual legal consequences attaching to factual events,Footnote ¹⁴¹ unjust enrichment arises by operation of law and not from acts or omissions as torts do.Footnote ¹⁴² In addition, for some multi-causalists at least, unjust enrichment is not wrong-basedFootnote ¹⁴³ and therefore is not focused on the defendant's acts. Furthermore, the vested rights theory has now been largely discredited.Footnote ¹⁴⁴

Nevertheless, the rejection of the vested rights theory and the tortious analogy does not mean that a territorially based rule should be summarily dismissed; other grounds can be found on which to substantiate support for such a rule. The problem is that there are three main potential loci: the place of the act giving rise to the enrichment, the place of loss, and the place of enrichment.

The law of the place of loss was principally proposed by CohenFootnote ¹⁴⁵ and has few other supporters. There are more authorities in favour of the law of the place of the act and the law of the place of enrichment. The relevant draft provision in the Rome II Regulation vacillated between these two options. In the Commission's first draft, the choice of law provision was in favour of ‘the law of the country in which the enrichment takes place.’Footnote ¹⁴⁶ However, Wallis, the Rapporteur for the European Parliament's Committee on Legal Affairs, argued against application of the law of the place of enrichment on the grounds that the place of enrichment could be entirely fortuitous; for example, the applicable law would then be dependent upon where a fraudster chooses to open the bank account to which monies are fraudulently paid over.Footnote ¹⁴⁷ Instead, she advocated application of the law of the country in which the event giving rise to the unjust enrichment substantially occurred. Although the Commission indicated that it accepted this amendment,Footnote ¹⁴⁸ Article 10(3) of the final version of Rome II seems to reinstate the Commission's first draft's preference and is worded in terms of ‘the law of the country in which the unjust enrichment took place.’Footnote ¹⁴⁹ The question to be considered is whether the better option has been chosen.

E. Displacement Rule in Favour of the Law of Closest Connection: Article 10(4)

Most choice of law rules seek to identify a connecting factor which will point towards the law of closest connection to the claim.Footnote ¹⁸⁰ So, for example, torts are generally thought to be most closely connected to the place where the tort occurred; hence the predominance of the lex loci delicti rule for torts. Unjust enrichment claims which arise out of a relationship are seen to be most closely connected to that relationship and therefore, as seen above, the law governing the relationship is generally accepted to be the choice of law rule for this particular situation.

Some go further and think that the law of closest connection should be the only choice of law rule for unjust enrichment claims.Footnote ¹⁸¹ This suggestion usually takes the form of a proper law of the restitutionary obligation. Lord Penrose in Baring Brothers v Cunninghame District Council held that first, the restitutionary obligation is governed by the proper law of that obligation and, secondly, the proper law of the obligation is the law of the country with which, in the light of the whole facts and circumstances, the critical events had their closest and most real connection.Footnote ¹⁸²

A fully flexible choice of law rule however raises the problem of too much uncertainty. Indeed, most unjust enrichment choice of law frameworks are content with a displacement rule which allows courts to disregard the applicable law that is determined according to the general rules in favour of the law of closest connection in certain situations. Article 10(4) of the Rome II Regulation, like Article 41 of the German EGBGB and Article 15 of the Swiss Federal Statute on Private International Law, is to this effect.Footnote ¹⁸³ Whilst the provisions in Article 10 points towards sensible connecting factors and would, in the main, point towards the law of closest connection anyway, a displacement rule in favour of the law of closest connection forms a useful component in any unjust enrichment choice of law framework given the various permutations in which claims may arise. The problem is ensuring that courts do not invoke the displacement rule so freely that it becomes the norm rather than the exception.

Article 10(4) seeks to prevent this from happening. The standard that is required before it can be invoked appears to be very high. Article 10(4) states that the law of a country other than that pin-pointed by the prior choice of law rules applies only ‘where it is clear from all the circumstances that the non-contractual obligation is manifestly more closely connected’ to that other country.Footnote ¹⁸⁴ One may wish to compare this form of words with that in Article 4(5) of the Rome Convention, which provides that the presumptions set out earlier in Article 4, which point towards the law of closest connection of the contract where the parties have made no choice of applicable law of the contract, is rebutted if ‘it appears from the circumstances as a whole that the contract is more closely connected with another country’. There have been a number of cases considering whether Article 4(5) is to be applied restrictively or liberally, with courts in different Member States not reaching any consistent interpretation.Footnote ¹⁸⁵ However, similar litigation and disparity between the courts should be avoided for Article 10(4) as it is clear from the stronger form of words used for Article 10(4) that it should only be invoked in limited circumstances.

Having said that, the role to be played by Article 10(4) may prove to be more extensive than initially envisaged. This displacement rule may potentially be able to, on the one hand, cater to the differences of opinion between quadrationists and multi-causalists in domestic English law, and, on the other hand, help smooth over the gaps that exist between civil law and common law conceptions of unjust enrichment. This will be considered in section IV next, in the context of examining how restitution for wrongs and proprietary restitution could be dealt with under the Rome II Regulation.

F. Conclusion to Section III

The choice of law rules set out in the Rome II Regulation can be justified and will, in most cases, point towards the law of closest connection. The recognition of party autonomy and the rule in favour of the law of common habitual residence are not concerned with identifying the centre of gravity of the case, but there are persuasive practical reasons underlying these rules.

Although there is much to support about Article 10, there remain a few problems. In view of the uncertainty of the scope of restitution and the unjust enrichment principle under domestic English law, the main concern for common lawyers may be how claims for restitution for wrongs and proprietary restitution can be dealt with at the choice of law level. These topics deserve separate treatment in their own right and therefore only a brief discussion can be offered below. In particular, how such claims fit within Article 10 of the Rome II Regulation will be considered. A related issue, that of renvoi and unjust enrichment, will also be looked at.

A. Restitution for Wrongs

Restitution for wrongs raises fraught choice of law problems. Not everyone agrees that this category is based on the principle of reversing unjust enrichmentFootnote ¹⁸⁶ and therefore whether such claims should be characterized as unjust enrichment for conflicts of law purposes and governed by the unjust enrichment choice of law rules is unclear. Having said that, some equitable wrongs have been characterised as being restitutionary and governed by the unjust enrichment choice of law rule. In El Ajou v Dollar Land Holdings Millett J stated that a knowing receipt claim is the ‘counterpart in equity of the common law action for money had and received. Both can be classified as receipt-based restitutionary claims.’Footnote ¹⁸⁷ His Lordship thought, obiter, that Dicey, Morris and Collins's now Rule 230(2)(c)Footnote ¹⁸⁸ would be applicable to knowing receipt claims, ie the law of the country where the defendant received the money. Sub-rule (2)(c) has also been considered in other knowing receipt cases such as Trustor v Smallbone.Footnote ¹⁸⁹ In Berry Trade Ltd v Moussavi,Footnote ¹⁹⁰ the defendant had ‘laid his hands’ on the claimant's goods. This was held to concern liability for usurpation under Iranian law which was recognized as being broadly analogous to the English tort of conversion or unlawful interference with goods. However, Cooke J accepted that if there had not been a tort, the claim would be governed by the law of place of receipt of proceeds, that is, Canada and England, on the basis of application of sub-rule (2)(c).Footnote ¹⁹¹ The obligation to pay over bribes or misappropriated money received in breach of fiduciary duty has also been held to be governed by sub-rule (2)(c).Footnote ¹⁹² Similarly, in Kuwait Oil Tanker v Al Bader (No 3),Footnote ¹⁹³ Moore-Bick J applied sub-rule (2)(c) to derive the proper law of the relationship between parties when it was claimed that the defendants, who were members of the senior management of the claimant company, were unjustly enriched when they breached their duties of good faith and honesty by conspiring to steal money from the claimant.Footnote ¹⁹⁴ In Douglas v Hello! Ltd (No 6),Footnote ¹⁹⁵ the Court of Appeal characterised a breach of confidence claim as being restitutionary and governed by the law of the country where the enrichment occurred.Footnote ¹⁹⁶

Although the above cases seem to indicate that the law of the place of enrichment should be applicable in wrongs-based restitutionary claims, Collins J concluded after an extensive review of case law in this area that the authorities in favour of Rule 230(2)(c) were weak.Footnote ¹⁹⁷ In fact, there are those who persuasively argue that restitution for wrongs should not be characterized as restitution or unjust enrichment. The causative event is the wrong, so characterization should instead be carried out in accordance with the underlying wrong even if the remedy is gain-based.Footnote ¹⁹⁸ So, for example, an account of profits for the commission of a tort should be governed by the choice of law rules for tort.Footnote ¹⁹⁹ If restitutionary damages are awarded for breach of contract then the claim should be characterized as being contractual in nature and governed by the contractual choice of law rules.Footnote ²⁰⁰

In the field of equitable wrongs, Yeo's important thesis fleshes out this approach of characterizing in accordance with the wrong. First of all, he convincingly argues that the distinction between law and equity is not relevant for choice of law purposes.Footnote ²⁰¹ This means that equitable claims should be treated in a similar manner as all other legal claims and that any domestic classifications as to the nature of a claim only become relevant once the law of that particular country is pinpointed by the relevant choice of law rule. He then argues that claims that would be equitable wrongs under English law or analogous to equitable wrongs under English law should be characterized under the main choice of law categories like contract, tort, property or restitution.Footnote ²⁰² For example, if there is a breach of fiduciary duties arising from a contract, then the claim should be characterized as being contractual and governed by the governing law of the contract.Footnote ²⁰³ If the duty arises from a consensual relationship not amounting to a contract, then by analogy the claim should still be characterized as being contractual.Footnote ²⁰⁴ If the wrong is committed by a third party assisting in a breach of trust or fiduciary duty, the claim to reverse unjust enrichment should be characterised as tortious and governed by the law governing the tort.Footnote ²⁰⁵

Some of the above propositions can be fitted within the structure of Article 10.Footnote ²⁰⁶ A claim for restitutionary damages for breach of contract, if not characterized as being contractual in the first place, would still be governed by the governing law of the contract under Article 10(1). The same would happen for a claim for breach of fiduciary duties. In all other cases, Article 10(4) will have to be relied upon, if possible, to achieve the same result as would have occurred if the claim had been characterized in accordance with the underlying wrong.

B. Proprietary Restitution

It has been seen above that it is unclear whether civil law systems have a form of proprietary restitution and that English domestic law has not settled the question of whether such claims are based on unjust enrichment. Constructions such as the constructive trust, however, are acknowledged to arise from unjust enrichment in certain circumstances in common law jurisdictions like the US and Canada so it is necessary to determine how claims for proprietary restitution will be dealt with, if at all, under the Rome II Regulation.Footnote ²⁰⁷

The first question must be whether such claims even fall within the scope of the Rome II Regulation. One might assume that since the Regulation is phrased in terms of non-contractual obligations, the natural meaning would be that its scope is limited to claims requesting personal remedies and would not cover claims requesting proprietary remedies. In fact, Article 1(2)(e) specifically excludes obligations arising from express trusts from the Regulation's scope. The initial draft of Article 1(2)(e) was more ambiguous and raised the question whether the exclusion covered claims arising from a resulting or constructive trust.Footnote ²⁰⁸ In her report, Wallis suggested a change of terminology from the Commission's initial draft of Article 1(2)(e) ‘to avoid difficulty or confusion arising from the employment of the trust in common-law jurisdictions as a device for dealing with situations such as unjust enrichment.’Footnote ²⁰⁹ The Commission said that it accepted the principle of the amendment, although it preferred to adopt the wording of the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985 instead of the phrasing suggested by Wallis.Footnote ²¹⁰ The Hague Trusts Convention covers choice of law rules for express trustsFootnote ²¹¹ and therefore it is clear that obligations arising out of express trusts do not fall within the scope of the Rome II Regulation. However, it is less clear what is meant to fall within the scope of the Regulation by the change of terminology of Article 1(2)(e). Use of the trust as an unjust enrichment ‘device’ in the common law could be construed in two ways. On the one hand, there is the concept of a ‘constructive trusteeship’ which denotes the personal liability of a wrongdoer to account for losses caused to the principal or profits obtained from abusing a fiduciary position. Claims alleging a ‘constructive trusteeship’ have been held to fall within Rule 230 of Dicey, Morris and Collins.Footnote ²¹² On the other hand, there are the proprietary constructions of a resulting and constructive trust which some also think arise in response to unjust enrichment.Footnote ²¹³ Which of the two (or is it both) is intended to fall within the scope of the Rome II Regulation?

The former notion of ‘constructive trusteeship’ would be an example of restitution for wrongs and should be dealt with as discussed above. The latter involves proprietary restitution. It is suggested that claims for proprietary restitution should really be classified as being proprietary in nature and not restitutionary or for the reversal of unjust enrichment.Footnote ²¹⁴ This is because claims that property is held on a constructive or resulting trust are ultimately proprietary actions even if the cause of action is framed in terms of unjust enrichment. The claimant is pursuing an in rem claim when asserting beneficial ownership of the property. Such property cannot form part of the defendant's patrimony and would not be available to the defendant's creditors. Furthermore, once beneficial entitlement is established, the claimant would normally wish to terminate the trust and compel the defendant to transfer the property to the claimant, that is, gain absolute ownership of the property.Footnote ²¹⁵ Therefore, the property choice of law rules should be applicable.

Having said that, the European Court of Justice has held that a declaration that immovable property is held on trust does not relate to a right in rem.Footnote ²¹⁶ Coupled with the ambiguity over the intention behind the change of terminology of Article 1(2)(e), equitable rights such as being a beneficiary under a trust, which common lawyers would classify as being proprietary, may well be interpreted as being personal in nature and hence fall under the Regulation and within the scope of Article 10. If this happens, the choice of law rules therein should be used so as to simulate the result that would be achieved if the claim had been classified as being proprietary. In so far as the claim involves title to land and tangible movables,Footnote ²¹⁷ a proprietary characterisation would lead towards application of the lex situs. Under Article 10(3), the law of the place of enrichment would probably be synonymous with the lex situs.Footnote ²¹⁸ An argument has been made earlier that it might be possible to regard Article 10(1) as pointing towards the lex situs too.Footnote ²¹⁹ In cases where the same law does not end up being applied under an unjust enrichment characterization as under a proprietary characterization, recourse could be had to Article 10(4).

The foremost reasons for the lex situs rule when questions of title are concerned are practicality and control: the courts of the situs have the greatest interest and ultimate power in regulating how property within its jurisdiction is transferred.Footnote ²²⁰ These justifications have the greatest force when land is concerned. However, it is important not to conflate claims in which title is affected with personal claims for restitution which are concerned in some way with land. The latter is also sometimes suggested to be governed by the lex situs. For example, Dicey, Morris and Collins's Rule 230(2)(b) states that if the obligation to restore the benefit of an enrichment obtained at another person's expense arises in connection with a transaction concerning land, the lex situs should be applied.Footnote ²²¹ It is clear from their citationFootnote ²²² of Batthyany v Walford Footnote ²²³ that this rule would cover personal obligations arising in connection with ownership of land. Thus, for example, a claim for the value of improvements made to someone else's land would fall under the scope of this sub-rule. The Restatement (Second) of Conflict of Laws also lists the situs of a physical thing, particularly land, as a contact pointing towards the law of the state which has the most significant relationship to an action for restitution.Footnote ²²⁴ However, the commentary notes that: ‘There are still other contacts to be considered. Normally, the physical thing will have been located in the state where either the enrichment was received or the benefiting act was done.’Footnote ²²⁵ This indicates that the lex situs is not in and of itself the preferred choice of law rule with respect to unjust enrichment claims concerning land. This seems sensible as while there may be a good basis to apply the lex situs to claims involving assertions of title, as would be the situation in cases of proprietary restitution, it is more questionable whether the same choice of law rule should be applicable when the issue at stake concerns a mere personal obligation. Ruritanian law does not have a special interest in whether A is entitled to be remunerated for improving B's house, just because the house is situated in Ruritania. Neither would a Ruritanian court justifiably be offended if another law decides whether A gets remunerated. Just because land is involved should not entail a knee-jerk reaction that application of the lex situs is paramount. This applies a fortiori when the property in question is a movable.

Although it may be possible to manipulate Article 10 satisfactorily to deal with claims for proprietary restitution, two potential problems arise. First is Article 14 whereby parties are given the autonomy to choose the law governing the non-contractual obligation. Article 14 prevails over Article 10. In proprietary claims however, it is inappropriate for parties to be able to choose the applicable law governing their claim for the reasons of practicality and control mentioned above, especially if title to land is concerned.Footnote ²²⁶ The policy reasons which may arise when proprietary restitution is concerned are not catered for by the Rome II Regulation.Footnote ²²⁷ The second problem concerns renvoi and is considered next.

C. Renvoi

This is not the place for an extensive review of the strengths and weaknesses of the doctrine of renvoiFootnote ²²⁸ but merely a brief examination of its applicability to unjust enrichment claims.

The German EGBGB accepts the principle of renvoiFootnote ²²⁹ apart from choice of law in contractFootnote ²³⁰ and instances where the parties have exercised their autonomy to choose the applicable law.Footnote ²³¹ In these situations, the applicable law is construed as its internal law. This has the result that if the unjust enrichment claim arises from a failed contractual relationship,Footnote ²³² renvoi would not applyFootnote ²³³ whereas the doctrine may be applicable if the unjust enrichment claim arises from some other situation.Footnote ²³⁴

Any form of renvoi for unjust enrichment claims is however rejected by the Swiss Federal Statute on Private International LawFootnote ²³⁵ and Restatement (Second) of Conflict of Laws. Footnote ²³⁶ The Rome II Regulation follows this latter approach.Footnote ²³⁷ This position is necessary if the applicable law according to the Regulation were the law of a Member State as circularity would otherwise ensue.Footnote ²³⁸ But even if the applicable law were not the law of a Member State, the rejection of renvoi in Rome II seems, except in one aspect discussed below, a sensible position to take.Footnote ²³⁹ Too often, renvoi is used as an escape device or tool to enable courts to arrive at the result which they wish to achieveFootnote ²⁴⁰ and it is wise to limit this device only to situations where it may achieve ‘the policy objectives of the particular choice of law rule’.Footnote ²⁴¹

Those policy objectives raise their head when one deals with questions of title. If, as may be the case, claims for proprietary restitution fall within the scope of the Rome II Regulation, then the outright rejection of renvoi in Article 24 is problematic. On the one hand, if such claims were characterised as being unjust enrichment claims falling within the scope of the Rome II Regulation, renvoi would be excluded. On the other hand, if the claims were classed as being proprietary in nature and therefore falling outside the scope of Rome II, renvoi may be applicable. If what is at issue is title to land situated abroad, English courts would apply not just the domestic law of the lex situs but also its private international law rules.Footnote ²⁴² If the claim is concerned with title to movables situated abroad, the authorities are weaker here but there are suggestions that renvoi would also be relevant.Footnote ²⁴³ Thus, claims for proprietary restitution may end up being decided differently depending on whether it is characterised as being a property matter or an unjust enrichment matter.Footnote ²⁴⁴