Lloyd's Maritime and Commercial Law Quarterly
THE ACTS AND STATE OF KNOWLEDGE OF AGENTS AS FACTORS IN PRINCIPALS' RESTITUTIONARY LIABILITY
Peter Watts*
This article examines the ways in which the acts and states of knowledge of agents can impact on the restitutionary liability of principals. There are at least three roles that agents can play. First, they may have been responsible for the acquisition by the principal of the assets the subject of the restitutionary claim. Second, they may have been responsible for the ground of restitutionary challenge brought against their principals. Third, the agent may have known of the ground for a restitutionary claim, either at the time the principal acquired the asset or at the time the principal acted in reliance on its acquisition of the asset. Agents can fill more than one of these roles concurrently. There are reasons for thinking (the case law is inconclusive) that principals can be more readily exposed to restitutionary liability for the acts and states of knowledge of their agents than they can be to contractual or tortious liability. One explanation for this may be that surrendering enrichment is less onerous than paying compensation. But in many circumstances the acts or knowledge of agents can create or crystallise restitutionary liability even though the principal has not been, or is no longer, enriched. An alternative explanation, therefore, is that the more bounded nature of restitutionary claims (the principal cannot be liable for more than the receipt, plus interest), compared with contractual or tortious ones, justifies the principal’s broader exposure. The areas from which the article derives its case law are the law relating to the rescission of contracts, the defence of bona fide purchase, and the defence of change of position.
A. THE BACKGROUND PROBLEM THAT IS “UNJUST ENRICHMENT”
When agents become interposed in restitutionary fact patterns, legal issues of considerable difficulty arise, especially on the recipient’s side of the equation. The difficulties have often not been identified by busy courts, let alone resolved. They attach to the legal
* QC; Professor of Law, University of Auckland. This article is based on a lecture delivered in Oxford in 2016 in the author’s capacity as Leverhulme Visiting Professor. Gratitude is expressed to the Leverhulme Trust and to the Oxford Law Faculty for their support, and to FMB Reynolds and Rob Stevens for commenting on a draft. The following abbreviation is used:
Bowstead & Reynolds: P Watts and FMB Reynolds, Bowstead & Reynolds on Agency, 20th edn (Sweet & Maxwell, London, 2014); Watts, UECL: P Watts, “Imputed Knowledge in Restitutionary Claims—Rationales and Rationes”, ch.21 of S Degeling and J Edelman (eds), Unjust Enrichment in Commercial Law (Law Book Co, Sydney, 2008).
386