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The Interaction of Rights of Relief and Unjustified Enrichment in Scots Law

Document Cited in Related
Vincent
Published date01 May 2020
DOI10.3366/elr.2020.0627
Author
Date01 May 2020
Pages202-231
INTRODUCTION

Over the past four decades, the combined efforts of academics and the judiciary have served to transform the Scottish understanding of unjustified enrichment, imposing structure on a legal area that was ill-defined and whose constituent causes of action were muddled and diffuse.1 In spite of this radical development, often dubbed the “enrichment revolution”,2 debates persist as to the subject's scope and placement within the wider law of obligations. While there is a broad consensus as to the internal organisation of the Scots law of unjustified enrichment, namely that it should be structured according to a modern civilian approach,3 uncertainties remain as to its boundaries, and the extent to which it overlaps with, even subsumes, other legal areas not hitherto associated with the reversal of enrichment.4 Notable among these taxonomical boundary disputes is the status of rights of relief, which allow one obligant to recover full or partial compensation from another obligant bound in the same obligation.5 In recent years, the Scottish judiciary has suggested that such rights exist to reverse,6 or prevent,7 unjustified enrichment: a view largely rejected by “enrichment” scholars, who insist that rights of relief and unjustified enrichment are distinct areas of law.8 While the debate features prominently in discussions of taxonomy and the structure of Scots private law, comparatively little has been said regarding its implications for litigants and practitioners, and the merits of framing a particular claim in terms of “relief” or “enrichment”. The present article sets out to confront such issues and to clarify the distinct, but often complementary, roles that “relief” and “enrichment” perform. The implications are far-reaching: whenever multiple persons become bound in the same obligation, whether in the case of a cautionary obligation granted for one's spouse's, civil partner's or cohabitant's business debts, five parties undertaking joint and several liability for a joint loan or an insurer granting a performance bond for a company's completion of a building project, rights of relief are potentially relevant.

Before embarking on a comparison of “relief” and “enrichment”, it will be necessary to define each on its own terms. That is the focus of the next two Sections (B and C). Once those definitional issues have been addressed, the article proceeds to consider how rights of relief and unjustified enrichment interact (Sections D and E). To that end, a number of authorities are considered, but particular attention is devoted to the early twentieth century case of Reid v Lord Ruthven.9 The reasons for focusing on that case will become clearer as the article progresses, but they are briefly as follows. It already holds an important status under the law of unjustified enrichment: it is regarded as a leading case on unjustified enrichment via the voluntary discharge of another's obligation.10 Indeed, in a relatively new legal area in which there is often a dearth of directly relevant authority, and in which the courts are still struggling fully to “come to grips with the law”,11 the insights of even one case from the early twentieth century can be very valuable. However, what makes Reid v Lord Ruthven especially relevant to an examination of “relief” and “enrichment” is the borderline character of its facts: a feature of the case which has hitherto escaped academic attention. The case was one in which “enrichment” and “relief” seemed to vie for relevance; hence, it is particularly well-placed to clarify the boundaries of those legal areas.

 WHAT ARE RIGHTS OF RELIEF? Overview

Rights of relief can be divided into contractual rights of relief and non-contractual rights of relief. Contractual rights of relief arise from a contractual agreement between the party seeking relief and the party from whom it is sought; non-contractual rights of relief arise from a particular conception of “equity”, explored in detail below. However, before delving into the precise bases for rights of relief, it is worth considering some simple examples of those rights and the contexts in which they might arise. Suppose that Bob wishes to buy a car on credit. A finance company agrees to lend him money for the purchase price on condition that his mother guarantees the monthly repayments of £100 as a secondary debtor known as a “cautioner”, or, in more universal parlance, as a “guarantor” or “surety”.12 The upshot of this arrangement is that, if Bob defaults on his obligation to repay the finance company £100 every month, his mother, in her capacity as cautioner, will be obliged to do so in his stead.13 However, if put to the trouble of paying £100 to the finance company, the mother will be entitled to reclaim that amount from her son via a right of total relief.14 Sometimes a cautioner's right of relief is merely partial. Indeed, where, say, two or more cautioners become liable for the same debt, there is a rebuttable presumption that each cautioner must ultimately bear an equal share of that debt and thus that one who pays the whole amount may seek a pro rata contribution from the other(s).15 To alter the “car purchase” example, suppose that both Bob's mother and father agree to stand cautioner for him. They become bound “jointly and severally” to the finance company, meaning that either one of them may be sued for the whole £100 should their son fail to pay.16 As before, the mother pays £100 to the finance company when Bob defaults. In principle, she enjoys a right of total relief but let it be assumed that this is of little use owing to her son's insolvency. Nevertheless, the mother enjoys a right of pro rata relief against her husband, entitling her to half of the amount paid to the finance company (£50).17 A right of relief often consists, as in the previous examples, of a direct action against the party from whom relief is sought, but the pursuer might also desire an assignation of the creditor's rights. Thus, Bob's mother may, on paying the finance company £100, demand an assignation of the company's rights against her son.18 This can be useful in practice because, inter alia, it allows the cautioner to benefit from securities held by the creditor over the principal debtor's estate.19 As explored in more detail below, the relationship between the cautioner's right of relief and an assignation of the creditor's rights is complex. Suffice it to say that, as in the first example, the cautioner has a right of total relief against the principal debtor and this arises without a formal assignation of the creditor's rights. However, in addition to that right of relief, a cautioner may demand an assignation from the creditor of the latter's (potentially secured) rights against the principal debtor. In that guise, an assignation is simply the “machinery” with which the cautioner's right of relief is sometimes given effect.20 That means, inter alia, that, if the cautioner's right of total relief entitles him to £100, he can recover no more than £100 via the rights assigned to him by the creditor.

In more generalised terms, a right of relief is a claim by one obligant (D1) against another obligant (D2) in the same obligation,21 stemming from D1's fulfilment of the common obligation.22 Thus, to cite two aforementioned examples, a right of total relief stems from a cautioner's payment of a debt owed by both him and the principal debtor; a right of pro rata relief from a cautioner's payment of a debt owed by both him and the other cautioner(s). Rights of relief can be classified according to their content (total compensation or partial compensation) or, as explored immediately below, according to the causes of action (contractual or non-contractual) that underpin them. While such rights have a strong association with the law of caution, their role extends to such analogous areas as co-principal liability,23 bills of exchange24 and insurance.25 In the last context, rights of relief are typically couched in the language of “subrogation” (total relief) and “contribution” (pro rata relief).26

 Cause(s) of action

The law of obligations is concerned to explain what connects two or more parties, the pursuer and the defender(s), such as to vest a right in one and impose a correlative obligation on the other(s).27 In the case of rights of relief, the obligatory connection is sometimes contractual. If a prospective borrower persuades his friend to stand cautioner, it has often been said that there is a contract between the borrower and the cautioner akin to a mandate, and that any payments by the cautioner to the creditor can be treated as expenses flowing from that “mandate”, hence recoverable from the borrower.28

The question remains: what is the basis of a cautioner's claim, if any, where he and the party from whom relief is sought have never met, still less entered into a contractual relationship? In such cases, a right of relief is said to spring from a certain conception of “equity”;29 one which receives a particularly lucid exposition in the writings of Lord Kames.30 In his view, rights of relief existed because a creditor with multiple debtors for the same debt should not be allowed arbitrarily to saddle one of those debtors with the whole burden thereof.31 Where, for example, a creditor has two cautioners for a debt of £100, and one of those cautioners pays the full amount, the creditor is obliged to assign his rights to the paying cautioner so that the latter can recover pro rata relief from his co-cautioner (£50).32 The result is a compromise between the creditor's convenience, allowing him to exact the whole debt from one source, and an ultimately equal distribution of liability between the cautioners.

According to Kames, a creditor was obliged to assign the debt in such cases because it would have been arbitrary for him to refuse.33 Having received full payment, the creditor could in no way be prejudiced by an...

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