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fraud, duress and unjustified enrichment 197

any otherartifice’.11 As far as South African law is concerned, the meaning

of ‘fraud’ has long been uncertain, due to a strange convergence of civil￾and common-law influences. At first it was equated with the very broad

civilian concept of dolus malus, which covered all sorts of cases involving

intentional deception, cheating orcircumvention.12 However, under the

influence of the common law, ‘fraud’ later came to be interpreted more

restrictively, along lines very similar to that of the English law as set out

above. Thus, in all these systems, fraud, or its equivalent, at least consists

in knowingly or intentionally making a false representation. Although it

could still covergross negligence undercommon law, it is clearthat it

certainly does not cover mere negligent or innocent misrepresentation.

It is as a descriptor of the basic ‘fact pattern’ of particularly serious types

of misrepresentation that the concept of ‘fraud’ will be used here.13 The

differences in where the cut-off point lies can for present purposes be

regarded as of secondary importance.14

However, a difference which is especially important in the context of the

law of unjustified enrichment is the way in which these different systems

perceive the relationship between fraud and certain other improper ways

of obtaining consent. In English contract-law texts, fraud is viewed as a

species of misrepresentation,15 and therefore as a specific means of induc￾ing an error. It is also not traditionally grouped together with duress. This

stands in contrast to the position in German and Dutch law, which reflect

11 Art. 3: 44(3) BW; also see A. S. Hartkamp, Mr. C Asser’s Handleiding tot de Beoefening van

Het Nederlands Burgerlijk Recht – Verbintenissenrecht (1997), vol. II, nn. 199–204, where it

is indicated that the expression ‘through any other artifice’ (door een andere kunstgreep)

should be interpreted restrictively. Bedrog essentially requires an intention to

deceive. 12 See Lubbe, ‘Voidable Contracts’, 265 referring to the definition of dolus malus in Ulp.

D. 4, 3, 1, 2. 13 See generally Zweigert and Kotz, ¨ Introduction, 425 ff. In some systems, ‘specially

deceptive practices’ are required, but as Zweigert and Kotz point out, ‘[e]ven so, it is ¨

admitted on all hands that a simple lie can constitute deceit’ (ibid., 425). 14 In the English common law and in South African law, these differences were

particularly important in determining whether a claim for damages would be

available: traditionally, such a claim could only succeed in those cases of

misrepresentation which amounted to fraud; rescission, on the other hand, could be

obtained even in the event of innocent misrepresetation; see Lubbe, ‘Voidable

Contracts’, 270 ff. 15 See generally Treitel, Law of Contract, 317 ff.; Anthony Guest (ed.), Chitty on Contracts

(28th edn, 1999), vol. I §§ 6-001 ff., 6-045. The law of misrepresentation covers all cases

of error induced by misrepresentation. In fact, it has been said that the term

‘mistake’ could be used to refer only to those cases of error not caused by

misrepresentation; see Zweigert and Kotz, ¨ Introduction, 421.

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the traditional civilian preference for linking these notions.16 There, in￾nocent and negligent misrepresentation are generally dealt with in the

context of the law relating to error, whereas the more serious cases of

fraudulent representation (the terrain of the law of arglistige Tauschung ¨

and bedrog) are grouped with duress.17 But why view fraud in this light?

If it in any event causes an error, and if error is a ground for relief, why

not simply deal with it as a special case of error? Apart from obvious

historical considerations, it would seem that the answer lies in the fea￾ture of fraud identified earlier, namely that the means used to induce

error in these cases are so seriously improper that the normal rules ap￾plying to the restitution of transfers made in error are inappropriate. It

is recognised that the victim deserves special protection. This could be

provided, for example, by not requiring that his error be material or fun￾damental. In other words, he could be allowed to escape from liability

even though the fraud simply caused an error in motive.18 It also means

that he should be provided with a fuller spectrum of remedies, and that

he should be able to recover more than the person who merely acted un￾der an innocent or negligent misrepresentation. But these are issues more

relevant to the effect of fraud than its content, and will be returned to

lateron.

2. Duress or unlawful threats

The (originally Norman French) term ‘duress’ is derived from the common

law. Traditionally, it only covered the situation where a person was un￾lawfully subjected to actual or threatened personal physical harm.19 This

means that in some other cases where a person was subjected to pressure,

relief had to be provided on different grounds – usually ‘undue influence’

in equity.20 However, the scope of duress has broadened over the years

so as also to accommodate harm to economic interests, and nowadays

the difference between the two concepts is rather indistinct. German and

Dutch law, on the otherhand, have avoided these problems. Although a

16 On the historical background to the law of dolus and metus see Zimmermann, Law of

Obligations, 664 ff. 17 On the relationship between error and misrepresentation in English law, as opposed

to German and Dutch law, see Michael H. Whincup, Contract Law and Practice: The

English System and Continental Comparisons (3rd edn, 1996), §§ 11.49, 11.56 ff. 18 Zweigert and Kotz, ¨ Introduction, 425; Englard, ‘Restitution of Benefits’, § 5-81. See

further Larenz, Allgemeiner Teil, § 20; Hartkamp, Mr. C Asser’s Handleiding, n. 199. 19 See Beatson, Anson’s Law of Contract, 271–2; Treitel, Law of Contract, 375; Skeate v. Beale

(1841) 11 A & E 983; Cumming v. Ince (1847) 11 QB 112 at 120; Biffen v. Bignell (1862) 7 H

& N 877. 20 See Treitel, Law of Contract, 375, 378; Zweigert and Kotz, ¨ Introduction, 428.

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fraud, duress and unjustified enrichment 199

traditionally narrow conception of metus required that at times additional

relief had to be provided on different grounds,21 it is recognised nowadays

that duress covers all cases where a person is unlawfully subjected to ac￾tual or threatened harm.22 Because the fearhas to emanate from the per￾son who made the threat, there can be no duress if the pressure is (merely)

the consequence of some situation of need ordistress.23 No distinction is

drawn between forms of duress according to the nature of the interests

(forexample, physical oreconomic) harmed.24 The key question is simply

whether the threat is unlawful. South African law again bears the im￾print of both civil- and common-law influences: it received the civil law of

metus (translated as ‘duress’), which was flexible enough to accommodate

a broad range of threats of harm, but under the influence of the common

law it somehow adopted a restrictive approach to providing relief in what

could be termed cases of ‘economic duress’. It further felt the need to

supplement the law of metus with the common law of undue influence.

Curiously though, the justification for this development was not sought in

the civil law of metus (and especially ‘reverential fear’ or metus reverentialis).

In fact, it was with reference to the idea that in civil law restitutio in inte￾grum would be provided in cases of dolus (interpreted in the broad sense

indicated above) that the reception of undue influence from the common

law was facilitated.25

As in the case of ‘fraud’, it is not necessary to analyse the meaning of

‘duress’ in great detail. However, one important observation needs to be

made. It deals with the much-disputed basis forproviding relief.26 Is the

victim protected because his mental ability to make a decision is affected

by the duress, or is it because of some other ground, such as an unlawful

limitation of the freedom of choice through subjecting a person to threats

of harm? Civilians as early as Paulus have held that the basis for relief is

not a defect in mental ability: what is willed undercompulsion, none

21 Most notably the law of the condictiones (see Jacques E. du Plessis, Compulsion and

Restitution (unpublished Ph.D. thesis, University of Aberdeen, 1998), 16 ff., 40 ff., 60 ff.,

121 ff., 134 ff.; John P. Dawson, ‘Economic Duress and the Fair Exchange in French

and German Law’, (1937) 11 Tulane LR 345, 348. 22 See Zweigert and Kotz, ¨ Introduction, 428. On Drohung in German law see Kramer in:

Munchener Kommentar ¨ , § 123, n. 33; and in Dutch law art. 3:44(2) BW. 23 See Zweigert and Kotz, ¨ Introduction, 428; Kramer in: Munchener Kommentar ¨ , § 123, n. 33.

In cases of vis absoluta, where the person is being physically overpowered, he

obviously does not act at all. See Zweigert and Kotz, ¨ Introduction, 428; Kramer in:

Munchener Kommentar ¨ , § 123, n. 32. 24 On the historical background see Zimmermann, Law of Obligations, 659. 25 See Lubbe, ‘Voidable Contracts’, 286 ff. 26 For a historical overview, see Gordley, ‘Contract in Pre-commercial Societies’, §§ 2–4 ff.

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200 jacques du plessis

the less is willed (coactus volui, tamen volui).27 The victim could be quite

rational, and not even be afraid: his problem is that he cannot freely decide

what he wants to do because the available choices have been restricted

unlawfully.28 The emphasis is then on the nature of the methods used to

influence his will, and not on a deficiency in the will itself. In the common

law, by contrast, it has been said that duress ‘overbears’ the victim’s will,29

thereby influencing his mental ability to make a decision. However, some

common lawyers have criticised this approach; after all, if all that has to

be proven is an ‘overborne will’, even the victim of lawful pressure should

be able to escape liability on grounds of duress.30

From the overview above it should be apparent that fraud and duress

deal with serious violations of individual autonomy. In the case of fraud,

the victim’s freedom of choice cannot be exercised properly, because he

was made to act on wrong information ‘conveyed’ in a particularly un￾acceptable manner, while in the case of duress his freedom of choice is

restricted by actual or threatened harm. It then stands to reason that

these violations justify a strong measure of protection – stronger at least

than the case where the actions are prompted by a spontaneous error

or the sorts of pressures which are part of daily life. It will now be consid￾ered how the law of restitution or unjustified enrichment can fulfil this

function.

III. The effect of fraud and duress

In the course of the eighteenth century, German legal scholars devised the

concepts of the ‘declaration of intent’ (Willenserklarung ¨ ) and the ‘legal trans￾action’ (Rechtsgeschaft ¨ ).31 In essence, a declaration of intent is a declaration

27 Paul. D. 4, 2, 21, 5. See Zimmermann, Law of Obligations, 652 ff.; Du Plessis, Compulsion

and Restitution, 6 ff. 28 See Du Plessis, Compulsion and Restitution, 161 ff. 29 See Pao On v. Lau Yiu Long [1980] AC 614. 30 See Lynch v. DPP. of Northern Ireland [1975] AC 695 B–C; Patrick S. Atiyah, ‘Economic

Duress and the “Overborne Will”’, (1982) 98 LQR 197; Nicholas Seddon, ‘Compulsion in

Commercial Dealings’, in: P. D. Finn, Essays on Restitution (1990), 138, 142 ff.; Beatson,

Anson’s Law, 273 ff. 31 See Werner Flume, Allgemeiner Teil des Burgerlichen Rechts ¨ (3rd edn, 1979), vol. II, §§ 2, 4.

Flume indicates that the Roman concepts such as actus and negotium could not fulfil

such a function. The notions were never received in South African law, whose civilian

roots lie in seventeenth- and eighteenth-century Roman-Dutch law. Modern

introductory textbooks on South African law refer to concepts such as ‘legal act’ or

‘juristic act’ (regshandeling), but only as pedagogical tools; see, forexample, H. R.

Hahlo and E. Kahn, The South African Legal System and its Background (1968), 100 ff.

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fraud, duress and unjustified enrichment 201

indicating that certain legal consequences are intended32 and it is essen￾tial forthe validity of many legal transactions, of which the contract is

but one.33 These concepts (which were unknown in Roman law, and which

are still of scant relevance in modern South African law) have influenced

othercivil-law codes. Dutch law, forexample, recognises similarconcepts,

most notably that of the ‘legal act’ (rechtshandeling).34 These are acts that

produce a legal effect or consequence because they were intended to do

so.35 This intention has to be manifested in a declaration. The important

point for present purposes is that in these systems fraud and duress could

affect the validity of all declarations of intent and legal transactions or

acts,36 by rendering them voidable.37 This means that the person enti￾tled to annul can decide whetherto uphold the validity of the legal act.

The effect of annulment is retrospective, so that the legal relationship of

the parties is restored to the state in which it was before the act was

performed.38

But let us move from the general to the particular. Of all the types of

declarations of intent or acts that can be influenced by fraud and duress,

the present concern is with those relevant when determining liability

based on unjustified enrichment. For present purposes, the most impor￾tant of these are declarations or acts aimed at (1) creating contractual

obligations, (2) achieving fulfilment orperformance of all types of obliga￾tions and (3) transferring ownership. As far as the difference between the

32 See, generally, Larenz, Allgemeiner Teil, § 19, and the authorities quoted there. 33 Cf. Zweigert and Kotz, ¨ Introduction, 348 ff. 34 See A. R. Bloembergen, Rechtshandeling en Overeenkomst (1995), 2 ff. on the notion of a

rechtshandeling and Flume, Allgemeiner Teil, §§ 2, 4 on the influence of the German Civil

Code on Meijers’s draft of the New Dutch Civil Code, and also on its influence on the

position in France, Italy and Greece. 35 See art. 3:33 BW and generally Hartkamp, Mr. C Asser’s Handleiding, n. 2. 36 § 123(1) BGB. The reason why a declaration of will, and not only a juristic act, is

affected is that the compilers of the BGB wanted to provide maximum protection to

a person acting under duress (Benno Mugdan, ‘Denkschrift zum BGB’, in: Benno

Mugdan (ed.), Die gesammten Materialien zum Burgerlichen Gesetzbuch f ¨ ur das deutsche Reich ¨

(1899), vol. I, 834). 37 See § 123(1) BGB; art. 3:44(1) BW; Arthur S. Hartkamp and Marianne M. M. Tillema,

Contract Law in the Netherlands (1995), §§ 36, 99. On the historical background

regarding the consequences of voidability as opposed to voidness, see Zimmermann,

Law of Obligations, 660, 671 ff. It is only in certain cases of fraud that the error it

causes is so material that the act should be regarded as void (see section II, 1, above,

on the relationship between misrepresentation and error). In the case of absolute

duress or vis absoluta (e.g. where a person’s hand is held and thus forced to make a

signature) there obviously is no declaration of intent at all. This renders any act

affected by it automatically void. 38 See § 142(1) BGB; art. 3:53 BW.

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first two categories is concerned, attention is usually focused on the situ￾ation where a contract is concluded and restitution is sought of what was

performed thereunder. This is, of course, an important category of cases,

but it should not be ignored that fraud and duress can also influence the

conferring of a benefit outside a contractual context. For example, they

may move a person to perform ex lege obligations, oreven to engage in acts

that do not involve performance at all, such as to make a bequest, declare

a dividend or grant a licence. These cases do not concern the validity of a

contract between the victim and the wrongdoer, but rather some other act

whose validity is suspect. As faras the difference between the second and

third categories is concerned, it is important from a civilian perspective

to distinguish between the intention to fulfil an obligation (that, is to per￾form), and the intention to transfer ownership. The position in practice

normally would be that the person who intends to transfer ownership of

something does so in order to fulfil an obligation, but this need not be

the case – he might, forexample, intend to make the transfernow with a

view towards creating a loan agreement or donation in the future. A ques￾tion that is of particular importance in this regard is the extent to which

fraud or duress may prevent ownership from passing in the first place,

and so entitle the owner to vindicatory relief, rather than relief based on

unjustified enrichment. The last category therefore deals with the border￾line between the laws of property and unjustified enrichment. But first

consider the borderline between the laws of unjustified enrichment and

contract.

1. The effect of fraud and duress on the validity of contracts

(a) Rescission and restitutio in integrum

In the civilian systems under review, the question whether fraud and

duress affect the validity of a contract has not traditionally been the con￾cern of the law of unjustified enrichment. From a historical perspective,

this is perfectly understandable. In Roman times, the praetor did not try to

counteract fraud or duress through developing the law of the condictiones.

39

He dealt with the problem head-on by exercising his extraordinary powers

to order restitutio in integrum, thus ensuring that both parties were restored

to their previous position, and by awarding an actio quod metus causa, which

apparently was aimed at inducing the victim to make restitution through

39 A possible, and problematic, exception is the extorted stipulatio; see Pomp. D . 12, 5, 7;

Du Plessis, Compulsion and Restitution, 23 ff.

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fraud, duress and unjustified enrichment 203

subjecting him to fourfold damages if he did not.40 The fact that restor￾ing parties in integrum generally took place in the context of rescission

of contracts explains how in some systems restitutio in integrum came to

be regarded as ‘contractual’ in nature, something tailor-made for cases of

improperly obtained consent. This is still the position in modern South

African law, which (mainly due to differences in the measure of recovery)

expressly rejects the idea that a duty of restitution in cases of fraud or

duress is based on unjustified enrichment.41

However, other modern civilian systems view matters rather differently.

Already at the end of the nineteenth century, the compilers of the German

code regarded it as unnecessary to recognise a remedy styled restitutio in

integrum.42 Where a declaration of intent was rescinded on grounds of

fraud or duress, any juristic act of which this declaration of intent formed

part would be invalid. If such a juristic act was supposed to act as the le￾gal ground or causa of a transfer, that legal ground would be regarded as

neverhaving existed.43 It is only here that the law of unjustified enrich￾ment would enterthe scene.44 By determining that the contract is invalid,

the law regarding the validity of declarations of intent and legal transac￾tions has already done the hard work of indicating that a performance

is retained without legal ground. The law of unjustified enrichment only

40 See Berthold Kupisch, In integrum restitutio und vindicatio utilis bei

Eigentumsubertragungen im klassischen r ¨ omischen Recht ¨ (1974); Zimmermann, Law of

Obligations, 656 ff.; Du Plessis, Compulsion and Restitution, 13 ff. 41 Foran exposition of these views and criticism, see D. P. Visser, ‘Rethinking

Unjustified Enrichment: A Perspective of the Competition between Contractual and

Enrichment Remedies’, [1992] Acta Juridica 203, 211. 42 The reasons for not incorporating a provision dealing with restitutio in integrum

mainly relate to problems with its application in earlier times, and changed

procedural views and institutions (Benno Mugdan, ‘Motive’, in: Mugdan, Die

gesammten Materialien, vol. II, 566 ff.). It was considered unnecessary because the

provisions on unjustified enrichment could perform this role satisfactorily (see

Visser, ‘Rethinking Unjustified Enrichment’, 215 ff.). The actio quod metus causa

likewise was dropped because general provisions were adopted on delict and

unjustified enrichment, and there was a desire not to burden the code with

unnecessary provisions (Mugdan, ‘Motive’, 423). The same was true of the condictio ex

iniusta causa, which was used in the German ius commune law to reclaim illegally

extorted bestowments (see Detlef Konig, ¨ Ungerechtfertigte Bereicherung: Tatbestande und ¨

Ordnungsprobleme in rechtsvergleichender Sicht (1985), 47). 43 On the retrospective operation of rescission, and exceptions thereto, see Theo

Mayer-Maly, in: Munchener Kommentar zum B ¨ urgerlichen Gesetzbuch ¨ (3rd edn, 1993), vol. I,

§ 142, n. 14 ff. 44 See Manfred Lieb, in: Munchener Kommentar zum B ¨ urgerlichen Gesetzbuch ¨ (3rd edn, 1997),

vol. V, § 812, nn. 144, 148; Zimmermann, ‘Unjustified Enrichment’, 407; Englard,

‘Restitution of Benefits’, § 5-9.

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has to regulate what has to be restored in so far as this has not already

been done by specific rules of the law of contract. However, this still leaves

the problem of ensuring some reciprocity in the restitution of what the

parties performed. One solution is simply to say that rescission would

not be granted if restitutio in integrum is impossible.45 Such an approach

could operate rather harshly on the victim, and therefore cannot be fol￾lowed without exception. In this regard, it is of interest that Dutch law

recognises the qualification that the victim may be protected by allowing

‘equitable monetary adjustments’.46

However, in modern German law, the situation is viewed somewhat dif￾ferently. In essence, the inability to provide restitution does not preclude

rescission; the victim can obtain rescission, but the entitlement to and

measure of enrichment-based relief is affected in three ways. First, under

§ 814 BGB the victim is not entitled to relief, if at the time of performance

of a contract he knew that he was not obliged to perform. Thus, if he knew

that the validity of the contract was tainted by fraud, but still performed,

his enrichment claim would be barred. It can justifiably be asked why he

did not refuse to perform when he had the chance. (It is obvious that the

victim of duress has to be treated differently: it is precisely because of the

compulsion that he cannot refuse even if he knows that he is not obliged

to perform. Duress indicates that an enrichment remedy should not be

barred.) In this regard it has been argued that the reason for excluding a

claim where the transferor knew that the transfer was not due is to pre￾vent him from acting contrary to his previous conduct (venire contra factum

proprium).47 Secondly, under § 819(1) BGB, the wrongdoer is not entitled to

plead loss of enrichment or change of position if he was aware that he was

not entitled to keep the enrichment. In other words, he cannot plead that

his liability should be restricted to what remains in his hands, instead

45 See, forexample, in the context of Scots law, Du Plessis, Compulsion and Restitution,

92 ff., 167 ff. 46 Art. 3:53 BW. On the position in the common law, see the contribution of Mindy

Chen-Wishart to this volume. Although restitutio in integrum is regarded as a condition

to rescission (see Erlanger v. New Sombrero Phosphate Co. (1878) 3 App Cas 1218 at 1278),

it is also acknowledged that the innocent party’s right to rescind is not automatically

barred due to his own inability to provide restitution (Robert Goff and Gareth Jones,

The Law of Restitution (5th edn, 1998), 273 ff.; Treitel, Law of Contract, 350-1; Englard,

‘Restitution of Benefits’, §§ 5-74, 5-88). 47 See PeterSchlechtriem, in: OthmarJauernig (ed.), Burgerliches Gesetzbuch ¨ (7th edn,

1994), § 814, nn. 1, 5; see further Markesinis, Lorenz and Dannemann, Law of

Contracts, 736. On the influence of duress on the recoverability of undue transfers

outside the contractual context, see section III, 2, (a) and (b), below.