Unjust Enrichment and the Rome II Regulation

1. For courts in England and Wales questions concerning a potential conflict in the law applicable to contractual and non contractual obligations fall to be determined by a brace of EU regulations, namely Regulation (EC) No 593/2008 of the European Parliament and of the council of 17 June 2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) NO 846/2007 on the law applicable to non-contractual obligations (Rome II).
   
   
2. The latter of these instruments has recently been considered by the High Court in Banco Cantonale de Geneve v Polevant and others [2016] 2 W.L.R. 550 which involved claims in deceit and restitution against a company, Polevant and Victor Arixa by the Claimant bank based in Geneva. The claim related to monies transferred by the claimant (‘BCGE’) to an account of Polevent at the NatWest bank in London.  The transfer was made as a result of deceit practised upon the bank by the second defendant. Another creditor of Polevant, Enoi SpA (‘Enoi’) was joined in the action.
   
   
3. BCGE asserted that its claim against Polevant fell to be governed by English law whilst Enoi contended for the law of Geneva as the applicable law. The High Court (Teare J.) was called upon to determine which law should apply.
   
   
4. Regulation 593/2008 applies to disputes concerning non contractual obligations in which the events giving rise to the damage occurred after January 11^th 2009 and concern a civil or commercial matter other than defamation or violation of privacy rights or rights of personality.  Certain matters are expressly excluded from the scope of the Regulation by Article 1 (2).
   
   
5. Both instruments are intended to harmonise the approach of courts in the currently EU 28 to disputes involving a conflict of laws whether the laws in question be those of EU member states or third party states. In so far as Rome II is concerned, the instrument establishes a formulistic approach which a national court must follow in determining the correct law to apply.
   
   
6. The default position for non contractual obligations is contained at Article 4 which provides;
   
    ‘Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in   which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.’
   
   
7. Article 4 (2) modifies the effect of Article 4 (1) in so far as the tortfeasor and the victim share a common habitual residence. In this instance the law of their common habitual residence will apply.
   
   
8. A further modification is contained at Article 4 (3). This applies where it is clear from all the circumstances of the case that the tort/delict is ‘manifestly more closely connected’ with a country other than that in paragraphs 1 or 2 in which case the law of that country shall apply. Article 4 (3) provides that such manifestly closer connection might be based in particular on a pre-existing relationship between the parties, such as a contract , that is closely connected with the tort/delict in question.
   
   
9. Causes of action based on non contractual obligations which are not torts, including unjust enrichment, are afforded an autonomous basis for determining the applicable law. Claims in unjust enrichment are dealt with at Article 10. The Regulation affords no definition of unjust enrichment however there appears to be a general understanding that it applies to enrichments which occur independently from any breach of contract (which would fall within Rome I) or from any form of wrongful behaviour such as theft or misuse of confidential information which will be treated as a tort and one of the other provisions of the Regulation will apply.
   
   
10. Article 10 (1) provides; 
    
    ‘If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a  tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship.’
    
    
11. Article 10 (2) provides that where the applicable law cannot be determined on the basis of this formulae and 10 (1) and the parties have their habitual residence in the same country when the event giving rise to the unjust enrichment occurs, the law of that country shall apply. By Article 10 (3) where neither paragraphs 1 or 2 provide the answer the law applicable shall be the law of the country where the unjust enrichment took place.
     
12. A further alternative is set out at  Article 10 (4) which mirrors Article 4 (3) in providing that where it is clear from all the circumstances of the case that the non-contractual obligation arising out of the unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 10( 1) – (3) the law of that other country shall apply.
    
    
13. The High Court was tasked with determining which law should apply of the 2 candidates argued for by the creditors of Polevant. Article 4 (1) establishes the applicable law formulae for non-contractual obligations arising out of a tort/delict.  Fraudulent misrepresentation or deceit is a clearly established tort in England. On the facts the transfer of monies by BCGE which gave rise to the loss on which the claim was based had a clear causal basis in the deception practised by Mr Arixa. This had directly caused the employee of the claimant bank to effect the transfer of funds to London.
    
    
14. Enoi argued that Applying Article 4 (1) the initial point of reference would be to the law of the country in which the damage occurred.  Recital 16 refers to the country where the direct damage (lex loci damni) occurs. Applying Article 4 (1) to the facts it argued would indicate that the law of Geneva would apply. BCGE asserted that that claim fell to be determined by English law pursuant to Article 10 (3) as England was the country where the unjust enrichment took place. Enoi argued alternatively that Article 10 (1) or (4) pointed to the application of the law of Geneva.
    
    
15. Teare J concluded that on the facts 2 distinct causes of action were pleaded, deceit and unjust enrichment.  However at paragraph 13 of his judgment he appears to have reasoned that the predominant cause of action was that for unjust enrichment and the deceit, whilst facilitating the unjust enrichment claimed,  was not a necessary component element of the cause of action for unjust enrichment. On this basis he concluded that Article 4 (1) did not apply to assist the identification of the applicable law and instead Article 10 fell to be applied.
    
    
16. As noted at paragraph 10, Article 10 (1) refers to a relationship between the parties arising out of contract or tort/delict and stipulates that if a non-contractual obligation arising out of unjust enrichment concerns such relationship, then the non-contractual obligation shall be governed by the law which governs the relationship in question.
    
    
17. On the facts as between the claimant bank and the defendant the only relationship was that of tortfeasor and victim. Teare J, unsurprisingly, considered that this was not a relationship of the type contemplated by Article 10 (1). He based his view on the reference to a relationship existing between the parties which he considered must mean a relationship which pre-exists the act said to have brought about the unjust enrichment of one of the parties. In this case the only relationship which could be said to exit between the parties was one which did not exist prior to the act by which the unjust enrichment was enabled. There was therefore, concluded his Lordship, no relationship in the present case such as was contemplated by Article 10.
    
    
18. Having disregarded Article 10, and Article 10 (2) not being applicable in the facts, the applicable law fell to be applied pursuant to Article 10 (3) i.e. the law of the place where the unjust enrichment took place which on the facts was England.
    
    
19. English law might only be displaced by the ‘escape clause’ at Article 10 (4) which mirrors the general escape clause for tort/delict at Article 4 (3) namely if it was established that the non contractual obligation arising out of the unjust enrichment was manifestly more closely connected with some country other than that indicated in paragraphs 10 (1) –(3).
    
    
20. Teare J referred to a clear connection with Geneva (though he no doubt intended to refer to a connection with Switzerland). The connection was that Geneva was the place where the instruction to transfer the monies by which the Defendant was unjustly enriched was made. However there was also a connection with England as that was where the monies were received and ultimately the enrichment of the defendant unjustly had occurred. Though the Court did not state as such, it might be said that the events which occurred in Geneva were merely the events which gave rise to the damage (i.e. the unjust enrichment) in England. An alternative analysis would be that the events that occurred in Geneva were merely the travaux preparatoires for the enrichment which occurred in England. In any event the Court was not prepared to find a manifestly more closer connection with a country other than that indicated by Article 10(3).
    
    
21. The result was that English law was not displaced and fell to be applied by the Court to determine the liability of Polevent for the unjust enrichment that had occurred.
    
    Summary
     
22. The case is an interesting one in that the factual scenario in which the unjust enrichment occurred involved the commission of tortious conduct in the form of fraudulent misrepresentation/deceit. It is not wholly clear why the court disregarded the act of deceit as a relevant factor in the search for the applicable law, even if fault’ let alone deceit, is not a necessary ingredient of the cause of action for unjust enrichment.  It is arguable that Article 4 should have been applied as the unjust enrichment was the result of the tortious act of the defendant. For example Professor Adrian Briggs in ‘Private International Law in English Courts’ (Oxford University Press, 2014) at Paragraph 8.143 on the concept of unjust enrichment for the purposes of Article 10 comments;
    
    ‘ It may be sufficient to regard it as an enrichment to which gives rise a claim, but in relation to which the alleged obligation to pay over the enrichment is founded neither on a contract nor on a wrongdoing…Where a claimant sues a defendant for the handing over of gains wrongly made, whether made in consequence of the theft of tangible property or of the misuse of confidential information or the infringement of intellectual property rights, the enrichment is the product of what the Regulation treats as a tort and the claim is therefore not one of unjust enrichment. It is the ‘other’ forms of enrichment which are alleged to be unjust which identify the obligations which fall within Article 10’.
    
    
23. On the facts the enrichment was the product of what the Regulation would (or properly ought) to regard as a tort, namely active deceit. The fact that the Claimant pleaded the case on the basis of both deceit and unjust enrichment did not negate the fact that the enrichment was the product of the tort. On this basis the court should arguably have proceeded to determine the applicable law under Article 4 rather than Article 10.
    
    
24. Under Article 4 (1) the court is directed to apply the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurs. In this case the damage was the loss to the claimant bank of the monies that it was deceived into transferring. That damage would most probably have been held to have occurred in England when the transferred money reached the Defendant company account. The claimant’s action in Geneva in transferring the monies in reliance on the deceit is most probably correctly to be viewed as the event which led to the damage.
    
    
25. Therefore applying either Article 4 (1) or 10 (3) would lead to the conclusion that English law applied to determine the claim. In so far as Enoi argued that the application of Article 4 (1) would render the law of Geneva as the applicable law, it was most probably wrong.
    
    
26. Indeed Article 10 (3) may be rightly seen to echo the place of damage rule under Article 4 (1). Taking the place of enrichment as the relevant factor as opposed to the place of impoverishment seems more logically consistent with the overall structure of the Regulation.
    
    
27. One can imagine cases in which an electronic transfer of monies takes place from account A to account B and then is transferred out of that account to account C.  The issue would be whether the place in which account B is held should be deemed the place of enrichment or whether it is merely a staging post and that the place of account C if different from that of B will be deemed the place of enrichment.
    
    
28. From a practical perspective a Court in England will seek if it can to apply English law to disputes before it especially if there are competing arguments in favour of English law or some foreign law. A finding that a foreign law is the applicable law will inevitably add to the length and hence the costs of litigation. Obviously if the proper application of the Regulation points to a foreign country the law of that country must be applied and a court in England cannot avoid this outcome merely on the grounds of convenience for the court and the parties. 

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