In a recent case, the English Commercial Court has determined that a claim in restitution based on unjust enrichment was governed by English law pursuant to EU Regulation 864/2007 (Rome II) and not the law of Geneva.
The Claimant, BCGE, is a bank in Geneva. On 24 March 2014 a caller to the accounting department of BCGE requested that a confidential message be sent to an e-mail address that the caller stated was the private e-mail address of a senior manager at BCGE. The accounting department did so and received a response (purportedly from the BCGE senior manager) instructing it to transfer EUR 6.9m from BCGE to an account with Natwest in London in favour of Polevent Ltd. After the payment had been made it was discovered that the e-mail had not been from a senior manager at BCGE at all. Once the fraud had been realised, BCGE requested return of the monies from Polevent.
Shortly before the fraud, however, a freezing injunction had been obtained against Polevent in favour of an Italian company, Enoi SpA. Consequently, Natwest had frozen Polevent's account.
Subsequently BCGE made two claims against Polevent:
- First, BCGE claimed damages for deceipt; and
- Second, BCGE made a further claim (articulated in the pleadings as a claim "Further of alternatively" to the first) in restitution as the amount paid by BCGE had been a mistake. Its argument was that, due to Polevent's knowledge that this payment was meade erooneously, the conscience of Polevent was affected in such a way that a constructive trust arose in favour of BCGE. BCGE argued that this provided BCGE with a proprietary claim in respect of the frozen assets.
It was agreed that the claim in deceit was governed by the law of Geneva. However, the parties disagreed as to the law governing BGCE's claim in restitution, with BGCE arguing for English law and Enoi arguing for the law of Geneva. This was critical to BGCE's claim because the law of Geneva does not recognise proprietary claims. If BGCE's proprietary claim in restitution was governed by English law, BGCE would (if successful in its claim) effectively rank ahead of Enoi as a creditor of Polevent. If BGCE's claim was governed by the law of Geneva, BGCE would (if successful) rank equally with Enoi.
Rome II Regulation
Determination of the law governing BCGE's claim in restitution depended upon an interpretation of the Rome II Regulation, which sets out rules by which EU member states determine the law applicable to non-contractual obligations.
Article 4 (General Rule) states:
(1) …the law applicable to a non-contractual obligation arising out of a tort/delictshall 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…
(3) where it is clear from all the circumstances of the case that the tort/delict ismanifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country 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.
Article 10 (Unjust enrichment) states:
(1) 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…
(3) Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place.
(4) Where it is clear from all the circumstances of the case that the non-contractual obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply.
Enoi claimed that in reality, the only cause of action alleged by BCGE was fraud and that the proprietary remedy sought was a remedy for that fraud assumed on a restitutionary basis. As such, the claim arose out of tort/delict. Article 4(1) therefore applied such that the governing law was the law of the place in which the damage occurred (ie Geneva, where the instructions for payment were made).
Its alternative argument, based on Article 10(1), was that the unjust enrichment concerned a relationship arising out of a tort/delict such that the governing law was the same law as that which governed that relationship. As a further alternative, Enoi relied on Article 10(4) on the basis that the obligation which had arisen from the unjust enrichment was manifestly more closely connected to Geneva.
BCGE relied on Article 10(3) of Rome II to assert that the claim in restitution was governed by English law as England was the country in which the unjust enrichment took place (the Natwest account was in London). BCGE rejected Enoi's assertion that BGCE had only one claim in fraud, and argued that there were two claims (one in fraud and the other alternative claim in restitution).
The judge found that there were two causes of action pleaded by BCGE pointing to the separate paragraphs of the pleadings dealing with each of these claims. He held that the articulation of the proprietary remedy was sufficiently wide to be both (i) a proprietary remedy as an incident of the claim in deceit and (ii) a proprietary claim as an incident of a claim in restitution for money paid by mistake (i.e. unjust enrichment). The judge did not consider that a claim for unjust enrichment was a "non-contractual obligation arising out of a tort/delict" within Article 4. Although deceit was the reason why the payment was made to Polevent, the deceit was not "a necessary ingredient of the cause of action".
On this basis the judge decided that Article 4 did not assist in this case and that the answer lay in Article 10. Article 10(1), however, was held not to be applicable, on the basis that it did not encompass the relationship of tortfeasor and innocent party, but was rather aimed at a relationship such as contract that is in existence prior to the claim. There had been no such relationship between BCGE and Polevent before the money had been paid into the Natwest account.
The matter therefore turned on Article 10(3) under which the applicable law was the law of the country in which the unjust enrichment had occurred (which was England). The judge further dismissed the assertion that English law was displaced under Article 10(4) on the basis that the obligation arising out of the unjust enrichment was "manifestly more closely connected" with Geneva. He stated that the obligation could be deemed to be just as closely connected with England (where Polevent received payment) as Geneva (where the payment instructions were made).
On this basis, the judge held that the applicable law in relation to the claim of unjust enrichment was English law.
Rome II (unlike the Rome I Regulation, which applies to contractual obligations) is still relatively new legislation. Its interpretation is still a matter of debate and this case will help to clarify aspects of it.
The case also demonstrates how the applicable law may depend on the precise formulation of the claim. The bank's loss occurred in Geneva, and the fraud claim was accordingly governed by the law of Geneva. However, on precisely the same facts, Polevent's gain took place in England and so the claim in restitution for unjust enrichment was governed by English law. Given the potential importance of being able to establish a claim under a particular law, parties need to pay close attention to the formulation of their claims.