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Hohfeld’s Power-Liability/Right-Duty Distinction in the Law of Restitution

Published online by Cambridge University Press:  20 July 2015

Peter Jaffey
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Extract

In the first part of the article it is argued that a debt, which is generally taken to be a standard example of a Hohfeldian right-duty relation, is properly understood as a power-liability relation, although a separate right-duty relation can arise in respect of it. This understanding provides a solution to a problem devised by MacCormick and discussed in the jurisprudence literature concerning a right to a payment from the estate of a deceased person. The main part of the article is concerned with the restitutionary claim to recover money or property invalidly transferred, and it is argued that this claim is also a Hohfeldian power, not a right correlated with a duty to return the money or property. The recipient’s liability to the exercise of the power is to be distinguished from his or her duty to return or to preserve the money or property invalidly transferred. This analysis provides a solution to the controversy in the literature over the strict liability and fault-based approaches to restitutionary claims, and it explains and supports the traditional understanding of the equitable proprietary claim and the claim for knowing receipt. The discussion leads to some consideration of the harm principle and duties of positive action.

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Research Article
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Canadian Journal of Law & Jurisprudence , Volume 17 , Issue 2 , July 2004 , pp. 295 - 313
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Copyright © Canadian Journal of Law and Jurisprudence 2004

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References

I am grateful to David Campbell, Dennis Klimchuk and David Fraser for their comments.

1. For a concise account see Simmonds’ introduction to Wesley Hohfeld, N., Fundamental Legal Conceptions as Applied in Judicial Reasoning, ed. by Campbell, David & Thomas, Philip A. with an introduction by Simmonds, Nigel E. (Aldershot, UK: Ashgate, 2001).Google Scholar

2. This is a standard example from Simmonds: see ibid. at xiv. In relation to transfers of money and property, the power is proprietary or in rem. An effective transfer may require the consent of the transferee, i.e., the exercise of a power by the transferee as well as well as by the transferor.

3. Especially where, as in the case discussed here, the power-holder exercises the power for his or her own benefit.

4. On my understanding of ordinary legal usage “claim” is used either in this sense or to mean an assertion or demand.

5. See, e.g., Hohfeld, supra note 1 at xiii; Lyons, D., “The Correlativity of Rights and Duties” (1970) 4 Noûs 45 at 46.Google Scholar

6. Ripstein, Arthur, “Philosophy of Tort Law” in Coleman, Jules & Shapiro, Scott, eds., The Oxford Handbook of Jurisprudence and Philosophy of Law (Oxford: Oxford University Press, 2002) at 671.Google Scholar

7. The situations mentioned do not necessarily involve insolvency, where the debt diminishes in value or is extinguished.

8. “Ought implies can”: sometimes described as the “Kantian Maxim”. There are no doubt difficulties concerning this proposition, but I do not think they affect the main argument. Some might object that although the maxim might be sound for moral duties, it does not apply in the law, since there can be claims based on the breach of a “strict liability” duty that can arise from an act of the defendant that he or she could not have avoided and was not at fault for. For the purposes of a claim for compensation, it may make no practical difference whether the act is properly described as a breach of duty or not, and an ordinary “black letter” exposition of the law might be prone to disregard the distinction. But nevertheless to say that the defendant committed a breach of duty by doing something he or she could not have avoided doing is to use the ex Pression “duty” in an instrumental way, as a verbal formula to denote that liability results from the act in question. The liability is not truly based on a breach of duty. The legal consequences may be different, and the nature of the justification for the claim will be different also.

9. For some purposes it may be better to adopt a sense of “duty” by which the defendant’s duty depends on the actual facts, irrespective of his or her knowledge of them: see, e. g., Thomson, Judith Jarvis, The Realm of Rights (Cambridge, MA: Harvard University Press, 1990) at 171–73 Google Scholar, referring to this as the “objective ought” as opposed to the “subjective ought”. (Thomson is also concerned with the assessment of what the subject ought to do in the light of the known facts.) As Thomson notes, on this approach, breach of duty cannot be equated with fault. With respect to a legal duty, where we are concerned with liability based on fault the subjective sense appears to be appropriate.

10. The actual satisfaction of the debt will generally require some formal act of transfer and it may be accompanied by a physical act of transfer.

11. See Zipursky, Benjamin C., “Philosophy of Private Law” in Coleman, & Shapiro, , eds., supra note 6 at 633 Google Scholar. This is not the same as saying, with the “will theory” or “choice theory” of rights, that a right is necessarily in all circumstances associated with a power to enforce or waive.

12. One might object that if a debt takes the form of a power-liability relation, and the power is the power to take legal proceedings, then a debt has no significance other than by reference to and on the terms of the legal system, whereas a debt characterised as a right-duty relation can be understood independently of a legal system, as one would expect should be the case in principle. But in the absence of a legal system a debt can be characterised as a power to seize the sum owing from the debtor. There is good reason for such a power to be displaced by a power to act exclusively through the legal system.

13. The proceedings will generally give notice to the debtor and so generate a duty. But this is not the purpose of the proceedings, nor the legal change effected by the exercise of the power. The objection reflects the assumption that the exercise of a power always operates to alter a right-duty relation, so that a claim can arise from the exercise of the power only indirectly by way of the creation of a duty: see, e.g., Simmonds, N. E., Central Issues in Jurisprudence: Justice, Law and Rights, 2ed. (London: Sweet & Maxwell, 2002) at 221.Google Scholar But this is not the case here.

14. E.g., where judgement is executed by way of seizure or attachment. The exercise of the power will involve the imposition of a duty to act on officials.

15. Thus the power is “conditional and mediated”: see Zipursky, supra note11 at 633, discussing the commonly held position described above.

16. In fact English law does not usually allow punishment in civil proceedings even for what is clearly a breach of duty: cf. the U.S. law considered next.

17. California Casualty General Insurance v. Superior Court, 173 Cal. App. 3d 274 at 276 (1985). There has been controversy over the issue of contributory negligence (“comparative fault”), where the insurer argues that the delay was also due to, e.g., a failure by the claimant to substantiate the claim: see, e.g., Kransco v. American Empire Surplus Lines Insurance Company, 23 Cal. 4th 390 (2000).

18. MacCormick, Neil, “Children’s Rights: a Test-Case for Theories of Right” in Legal Right and Social Democracy: Essays in Legal and Political Philosophy (Oxford: Clarendon Press, 1982) at 161-62Google Scholar. MacCormick’s general concern is with the controversy over the interest and will theories of rights, which is not discussed here.

19. MacCormick emphasises the point by noting that the child may be entitled to be appointed as administrator, so that the right of the child is the basis for his or her subsequent appointment and so must exist before the appointment. It seems that this is why MacCormick uses the case of an administrator in intestacy rather than an executor.

20. Simmonds, supra note 13 at 286; see also Penner, J.E., “The Analysis of Rights” (1997) 10 Ratio Juris 300 at 309–10 Google Scholar. Cf. Harris, J. W., Legal Philosophies, 2nd ed. (London: Butterworths, 1997) at 92 Google Scholar, who refers to a “duty-shaped gap” before the appointment of the administrator.

21. I.e., beneficial ownership in equity. This seems to be Kramer’s assumption in Kramer, M.H., Simmonds, N.E. & Steiner, H., A Debate Over Rights (Oxford: Oxford University Press, 1998) at 27-28.Google Scholar

22. One can distinguish between two approaches to proprietary or in rem rights. On Hohfeld’s approach the child has an indefinite number of distinct but equivalent legal relations with every other person in respect of his or her part of the estate: Hohfeld, supra note 1 at 70. On this approach it appears that there is a right against the estate that is without a correlate. Some commentators prefer to say that the child has a single right that subsists as against all third parties, and so is not without a correlate. But it is surely still inadequate to say that the child has a right to a part of the estate that binds third parties but not the estate itself.

23. See Penner, supra note 20; and Kramer, supra note 21.

24. It is open to question whether the correlativity thesis can be challenged at all in the way that MacCormick attempts. A right in the strict sense according to Hohfeld is by definition correlated with a duty. If the legal relation between two parties does not involve a duty on one party, the other has no right in this sense, so the correlativity thesis is not in issue. The real question is whether the relation in question can be described in terms of any of the other relations that with the right-duty relation, make up Hohfeld’s scheme. If not, there is a problem with Hohfeld’s scheme, but it does not concern the correlativity thesis.

25. Furthermore, when the administrator does incur a duty, it is not simply a duty to the child to pay the amount due, but a duty to perform his or her office as administrator by distributing the estate, which duty is owed to all the beneficiaries and creditors of the estate, and is not equivalent to, although it may sometimes entail, the simple duty of payment to the child.

26. One might object (echoing the argument above, text accompanying note 13) that, if the child exercises the power by going to court before an administrator is appointed, the court will simply appoint an administrator, who will have a duty to make the payment. Then the payment is actually paid pursuant to a duty of the administrator. But nevertheless the court does not rely on an existing duty of payment to the child, and if it makes a declaration of a sum to which the child is entitled, this cannot refer to a right correlated with a duty of payment. In any case, it is surely possible in principle that judgement against the estate could be given and executed without the appointment of an administrator at all.

27. I.e., transferable value, including money in the bank, investments, etc.

28. A qualification should be noted here. It is widely assumed in the academic literature that there is a distinction between (1) a claim to reverse a transfer based on the claimant’s original ownership and arising because the transfer was invalid, and (2) a claim to reverse a transfer that arises from a valid transfer that is nonetheless defective or vitiated in some way, so that the claim is based not on the original right of ownership but on the “principle of unjust enrichment”. This is sometimes ex Pressed as the distinction between title-based and non-title-based claims. This supposed distinction has been ignored here and in my view is spurious: see Jaffey, Peter, “In Rem Claims to Wealth and Surviving Value” (2002) 55 Google Scholar Curr. Legal Prob. 263 [Jaffey, “In Rem Claims”]. If the distinction is accepted, the thesis advanced here is not undermined, although there would be some complications in the argument.

29. I.e., where there is a claim in respect of an exchange product or part of a mixture derived from the property received. There is controversy over the nature of tracing and traceable proceeds which it is not necessary to address here.

30. This is generally assumed rather than argued for in the literature, as noted by Smith, Stephen A., “Justifying the Law of Unjust Enrichment” (2001) 79 Tex. L. Rev. 2177 at 24n.Google Scholar

31. A point made in this context by Smith, ibid.. Supporters of the idea that a duty arises on receipt sometimes imply that the duty is not a true duty, but a sort of instrumental or notional duty, by virtue of which a claim arises from an act or event that is not genuinely a wrong. Smith suggests, ibid at 2185, that Birks is guilty of this: according to Smith, Birks’s approach “strips these terms [sc ‘obligation’ and ‘unjust’] of normative content”. Cf. supra note 8. As considered below, this denatured duty is actually a liability.

32. Smith, ibid., refers to a duty of non-interference, not a duty of return, as considered further below. Cf. Birks, P., “The role of fault in the law of unjust enrichment” in Jones, Gareth & Swadling, William, eds., In Search of Principle: Essays in Honour of Lord Geoff of Chieveley (Oxford: Oxford University Press, 2000).Google Scholar

33. Smith, ibid. at 2194.

34. Birks, supra note 32.

35. This appears to be Smith’s view, supra note 30. Alternatively one might argue that there is a right without a correlate. Following the argument above I discount this in favour of the power-liability analysis discussed below.

36. See text accompanying note 23.

37. I.e., beneficial ownership. Cf. a “general power” of appointment under a trust—a general power is recognised to be equivalent to beneficial ownership. The power-liability relation can be personal, as in the case of the debt discussed above, but in the case of the equitable proprietary claim it is proprietary.

38. It may be that in some circumstances no power is exercised by an owner who reverses an invalid transfer by retrieving the property: he or she is free simply to collect it, and this involves no change in the legal position of the recipient. But generally an invalid transfer does change the legal position of the recipient and its reversal does involve the exercise of a power. An invalid transfer of money in the bank can be reversed only by taking legal proceedings. In equity this is reflected in the fact that the recipient acquires legal title signifying the power to dispose of the money vis-à-vis the bank: see further Jaffey, “In Rem Claims”, supra note 28, and see supra note 12. Even for tangible things, an invalid transfer may not be reversible simply by retrieval of possession but may require legal proceedings. Even where self-help retrieval of property is possible, this will generally entail the exercise of a power and not merely a liberty because the recipient’s possession is not merely a matter of fact but affects his or her legal position in relation to the property and this will be altered by its retrieval. (Otherwise there would probably not be said to be a transfer at all, as opposed to an invalid transfer.)

39. The claim is said to arise from a “breach of trust”, but it is the fact that the transfer was beyond the power of the trustee, not the fact that the trustee was in breach of duty to the beneficiary, that invalidates the transfer vis-à-vis the recipient and third parties.

40. Subject to the equity’s darling or bona fide purchase defences.

41. Generally, the recipient will learn of the invalidity of the transfer through notification of proceedings, and this may cause the recipient to incur a duty of payment if he or she did not already have one. But as noted above, it is possible that the whole procedure could be followed and judgement executed without the recipient’s ever having incurred a duty in respect of the property received. And, in any case, such a duty is not a condition of the equitable proprietary claim. The recipient’s incurring a duty is not the change of legal position effected by the claimant’s exercise of power. The imposition of such a duty results from knowledge which may or may not come to the recipient through the proceedings.

42. This amounts to a defence of change of position, but see infra note 75.

43. It has become controversial whether constructive knowledge is sufficient for liability, or whether actual knowledge or suspicion is required, as recently considered in BCCI v. Akindele, [2001] Ch. 437 [BCCI]. See the section on the duty of inquiry below.

44. Or the value remaining at the time when knowledge is acquired. See, e.g., Twinsectra v. Yardley, [2002] 2 AC 164, para 105, per Lord Millett; Nicholls, Lord, “Knowing Receipt: The Need for a New Landmark” in Cornish, W. et al., eds., Restitution Past, Present and Future: Essays in Honour of’Gareth Jones (Oxford: Hart Publishing, 1998) at 238 Google Scholar; Birks, Peter, Restitution:The Future (Annandale, NSW: Federation Press, 1992) at 26ff.Google Scholar

45. Presumably subject to conditions concerning double or excess recovery. This argument is associated with Birks, see, e.g., Birks, ibid.; see also Nicholls, ibid.

46. A version of this approach is set out in Jaffey, Peter, “The Nature of Knowing Receipt” (2001) 15 Tru. L. Int’l 151.Google Scholar

47. BCCI, supra note 43 at 445. The knowing receipt claim is not a right correlated with a duty in respect of the property; it is a claim for compensation arising from a breach of such a duty. The claim will actually take the form of a power-liability relation like a debt claim or the equitable proprietary claim.

48. This analysis also implies that compensation for consequential loss resulting from the wrongful dissipation or disposal of the property should in principle be available, and also disgorgement or even punitive damages, as mentioned above. Disgorgement in the form of an account of profits or constructive trust is a standard response in equity in such circumstances. As to consequential loss, compare Kuwait Airways v. Iraqi Airways, [2002] 2 AC 883 concerning a claim for conversion.

49. A full analysis requires consideration of change of position and tracing: see Jaffey, “In Rem Claims”, supra note 28.

50. The “knowing assistance” claim, with which the knowing receipt claim was traditionally associated, is also tortious by nature: this was implicitly accepted in Royal Brunei Airlines v. Tan [1995] 3 All E.R. 97, where Lord Nicholls recognised (at 103-04) that knowing assistance has the same rationale as procuring breach of contract. Knowing assistance and knowing receipt seem to have become dissociated in recent Years, maybe because one is thought of as tortious and one restitutionary.

51. This would be a so-called “in personam ad rem” right a personal right in respect of specific property. Only the recipient can be subject to a duty of return or a duty of preservation, although third parties could be subject to a duty of non-interference. For this reason also, the equitable proprietary claim, being a proprietary claim, cannot be a right to the property correlated with a duty of return as the orthodox view supposes.

52. Re Montagu [1987] Ch. 264; Westdeutsche Landesbank Girozentrale v. Islington, BC [1996] AC 669.

53. A trustee of an ex Press trust is obviously subject to a more onerous duty than the simple duty to preserve the property or make it available for collection.

54. Wrongfulness is now considered as part of the doctrine of change of position.

55. Consequently, it seems possible in certain circumstances to recover for consequential loss: supra note 45.

56. Supra note 30 at 2180.

57. Ibid. at 2194. Smith is not explicitly concerned with the correlativity thesis or Hohfeld.

58. The “duty of preservation”, which includes a duty of non-interference, was proposed in Jaffey, P., The Nature and Scope of Restitution: vitiated transfers, imputed contracts and disgorgement (Oxford & Portland, OR: Hart Publishing, 2000) especially at 234–35.Google Scholar

59. This is sometimes described as the issue of neutrality as between judgments of what constitutes a worthwhile activity: see, e. g., Simmonds, supra note 13 at 14-15, 21-25. Of course there is room for controversy over the manner and extent to which particular activities do actually affect others.

60. Stovin v. Wise, [1996] AC 923 [Stovin]. Compare, say, R. v. Brown, [1993] 2 All E.R. 75, a case in the House of Lords that does concern the harm principle.

61. Stovin, ibid, per Lord Hoffmann at 944, Lord Nicholls at 930-31. An aspect of this problem is the difficulty of saying who should act, which may be a problem in the case of, say, a duty of rescue.

62. E.g., Goldman v. Hargrave, [1967] 1 AC 645, referred to in Stovin, ibid. Here there is clearly no problem in of determining who should act.

63. The relevant factors identified by Lord Nicholls in Stovin, ibid. at 930–31, were: “foreseeability of damage…; control by the occupier of a known source of danger; dependence, or vulnerability, of the neighbour; and the prospect of damage or injury out of all proportion to the preventive steps required.”

64. At least where the recipient was not responsible for the invalid transfer and is not in a contractual relationship with the claimant: cf. the duty of an insurance company to settle, supra note 17. A duty to notify the owner of receipt of the invalid transfer would surely be justifiable.

65. For example, placing a valuable item in a secure place, or depositing money in a separate trust bank account. Thus strictly speaking the duty is to take reasonable measures to preserve the property. There is an obvious analogy with an ex Press trustee’s duty of investment, although clearly this is much more demanding. The recipient should be able to claim the cost of taking such precautions for the benefit of the owner—cf. the doctrine of “agency of necessity”.

66. Supra note 43.

67. The duty of inquiry, together with the duty of preservation, is a duty to take reasonable steps to prevent harm to property owners, and is susceptible to economic analysis in the same way as a duty of care in negligence. On the economic approach, the appropriate level of duty for recipients is the level that will minimise the aggregate costs of recipients and property owners, including the costs of inquiries, monitoring by owners, and property lost. There is a vast literature on this issue in relation to negligence and it has received some attention in relation to recipients of invalid transfers: see, e.g., Beatson, J. & Bishop, W., “Mistaken Payments in the Law of Restitution” (1986) 36 U.T.L.J. 149 CrossRefGoogle Scholar; Jaffey, , “In Rem Claims”, supra note 28 at 344-46Google Scholar; Thomas, S.B., “‘Goodbye’ Knowing Receipt. ‘Hello’ Unconscientious Receipt” (2001) 21 Oxford J. L. Stud. 239 CrossRefGoogle Scholar.

68. And inquiries can be facilitated by institutional arrangements regulating transfer: i.e., a public register.

69. In relation to bona fide purchase, the absence of constructive knowledge is a condition for taking good title. This should be understood to mean that where the recipient has a duty of inquiry he or she cannot rely on the validity of the transfer. It follows that the recipient also incurs a duty of preservation in respect of the property received and can be liable for knowing receipt.

70. For example, consider a duty on the part of an employer to carry out diagnostic examinations of employees who may or may not have an illness to which the nature of the employment renders them susceptible.

71. See supra note 9.

72. Smith, Supra note 30 at 2182.

73. A recipient cannot have a duty not to receive a transfer over which he or she has no control. See supra note 27.

74. Smith, supra note 30 at 2182-83.

75. This point is made by Perry, S.R., “The Moral Foundations of Tort Law” (1992) 77 Iowa L. Rev. 449 at 454Google Scholar. There has been no discussion here of the legal relation between the parties in respect of the claimant’s wealth or property before the invalid transfer—i.e., the primary legal relation—which is not actually a power-liability or right-duty relation.

76. The rationale above requires that the claim should be limited to the amount by which the recipient’s estate exceeds the value it would have had in the absence of the receipt. This is generally ensured by the doctrine of change of position, which reduces the measure of the claim by the amount of any loss from the estate that would not have occurred in the absence of the receipt (typically exceptional expenditure in reliance on the receipt), and sometimes by the law of tracing, but the law of tracing is defective in failing to give the recipient the benefit of change of position in some circumstances: see further Jaffey, “In Rem Claims”, supra note 28.

77. The recipient could presumably take out insurance against restitutionary liability, just as one could take out insurance against the risk of strict liability for harm, but there is no need if liability is properly limited in accordance with change of position.