Unjustified Enrichment: Should South Africa Venture into the Thick Forest of Passing-on Defence?

• Jurisdiction: South Africa
• Date: 16 August 2019
• Author: Aimite Jorge
• Published date: 16 August 2019
• Citation: (2017) 4(1) Journal of Comparative Law in Africa 145
• Pages: 145-164

145

UNJUSTIFIED ENRICHMENT: SHOULD SOUTH

AFRICA VENTURE INTO THE THICK FOREST

OF PASSING-ON DEFENCE?

AIMITE JORGE*

University of Namibia, Namibia

There is usually a tension in the law of unjustified enrichment when it comes

to sanctioning a defence of passing on. The concept “passing on” in the law of

unjustified enrichment essentially entails that the claimant has shifted onto a third

party the “financial” burden that is consequent upon the defendant’s unjustified

enrichment. Several jurisdictions formulate their enrichment doctrine requiring a

“mirror-image loss-gain”, that is to say, the claimant can only recover from the

defendant what he has lost to the defendant. If the claimant were allowed to recover

more than his loss, the law would be punishing the defendant and enriching the

claimant at the defendant’s expense. For this and other reasons some think that

there should exist symmetry in the law of unjustified enrichment in that where

the defence of change of position (loss of enrichment) is recognised, the passing-

on defence should equally be sanctioned as the reverse face of change-of-position

defence on the claimant’s side. This paper explores these issues in depth and argues

that the need for such symmetry is misconceived. The defence of passing on is,

however, sustainable in certain cases and should be recognised not only for policy

reasons but also for reasons of principle.

Résumé: Il y a habituellement une tension dans le droit de l’enrichissement

injustifié si l’on admet la défense de transmission («passing on») ou non.

Plusieurs juridictions formulent leur doctrine de l’enrichissement exigeant une

«image-miroir perdu-gagné», c’est-à-dire que le demandeur ne peut récupérer

du défendeur seulement ce que lui a perdu. L’argument en faveur d’une telle

équation de gain-perte est que si le demandeur était autorisé à récupérer plus

que sa perte, la loi punirait. d’une part, excessivement le défendeur et, d’autre

part, enrichirait le demandeur aux frais du défendeur. Pour cette et pour d’autres

raisons, certains auteurs pensent qu’il devrait exister une symétrie dans le droit de

l’enrichissement injustifié dans la mesure où la défense de changement de position

(perte d’enrichissement) est reconnue, la défense de transmission devrait également

être admise comme l’inverse de la défense de changement de position du défendeur.

Cet article explore ces questions en profondeur et soutient que la nécessité d’une

telle symétrie est mal conçue. La défense de transmission est cependant soutenable

dans certains cas et doit être reconnue non seulement pour des raisons politiques,

mais aussi pour des raisons de principe.

Keywords: passing-on, mirror-image loss-gain, unjust enrichment

* Dr Aimite Jorge is a senior lecturer at the University of Namibia Law School where he teaches

Contract Law, Insurance, International Economic Law and Construction Law.

(2017) 4(1) Journal of Comparative Law in Africa 145

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146 JOURNAL OF COMPARATIVE LAW IN AFRICA VOL. 4, NO. 1, 2017

Introductory remarks

While many jurisdictions around the world have discussed the notion of

passing-on defence in their law of unjustified enrichment, discussion of

this nature is virtually non-existent in South African law. However, the

principles upon which this defence is premised and has been advanced in

other jurisdictions are not necessarily strange to the South African legal

system. The concept of passing on arises mainly in the tax context and

to some extent in antitrust (competition) law.1 Passing on as a concept in

the law of unjustified enrichment essentially entails that the claimant has

shifted onto a third party the “financial” burden that is consequent upon

the defendant’s unjustified enrichment. In the most common scenario,

a business apparently liable for tax makes payment to the government,

but it also attempts to recoup its losses by raising the prices it charges

its customers. When the tax is subsequently determined to be improper

or inapplicable, the business seeks repayment as a relief. The government

resists such a claim, arguing that its enrichment came not at the claimant’s

expense, but rather at the expense of the claimant’s customers.

As the concept of passing on arises mostly in the tax context and in

antitrust (competition) law, it is also obvious that the ideals governing

these bodies of law in South Africa are to some extent similar to those

of other jurisdictions. In South African law, for example, these ideals are

encapsulated in the rule of law or the principle of legality2 enshrined

in the Constitution of the Republic of South Africa, 1996 (ss 1–2); the

rule of law that entrenches the Constitution as the supreme law of the

land; the rule that a right enshrined in the Bill of Rights can only be

overridden by a law of general application (Constitution, s 35); and the

duty entrusted to the courts to develop the common law in line with

constitutional principles, to cite a few examples.

The principle of legality is relevant especially when the claim arises from

“unlawfully demanded taxes or levies” because at one level passing on is

“related” to the illegality defence – and can present the features of the in

pari delicto rule or simply as a one-sided illegality allegation. On another level

it raises problems of good faith in connection (if taken together) with the

knowledge requirement. If the claimant knew (or suspected) that the tax

1 See, for example, the recent Dutch cases TenneT v ABB (Hoge Raad, 8 July 2016) confirming

the availability of passing-on defence under Dutch law (in antitrust cases) with the application

of arts 6:95–97 of the Dutch Civil Code (BW) and the deduction of collateral benefits under

art 6: 100 of the Dutch Civil Code (BW). This is an appeal from Gerechtshof Arnhem-Leeuwarden

case No 200. 126. 185 (2/9/2014). See also the recent English case Sainsbury’s Supermarkets Ltd v

MasterCard Incorporated (Competition Appeals Tribunal case No 1241/5/7/15 (T) (14 July 2016). See

also Kleinwort Benson Ltd v South Tyneside Metropolitan BC (1994) 4 All ER (Com Ct) and Kleinwort

Benson Ltd v Birmingham City Council (1997) QB 380 (CA).

2 Jorge discusses in detail the significance of the rule of law and the principle of legality in

relation to the passing-on defence. See A Jorge. 2009. “The change of position defence in comparative

perspective”. (Unpublished PhD Thesis, University of Cape Town, Cape Town), at 250–267.

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