The Law of Unjust Enrichment in China: Necessary or Not? (China-EU Law Series, 8) 3031061772, 9783031061776

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China-EU Law Series  8

Siyi Lin

The Law of Unjust Enrichment in China: Necessary or Not?

China-EU Law Series Volume 8

Editors-in-Chief Fei Liu, China-EU School of Law, Beijing, China Hinrich Julius, University of Hamburg, Hamburg, Germany Series Editors China-EU School of Law, At the China University of Political Science and Law, China-EU School of Law, Beijing, China Björn Ahl, University of Cologne, Cologne, Germany Ronald Monty Silley, China-EU School of Law, Beijing, China Tianshu Zhao, China-EU School of Law, Beijing, China

A peer-reviewed book series in which Chinese law, comparative China-EU law, legal relations, international law and human rights related to China and the EU are the central focus. The books include introductory monographs on (domains of) Chinese law, advanced studies of Chinese law, edited volumes and monographs on comparative China-EU issues or on EU legal aspects also of relevance to China, and books on international law and human rights, with a focus on China and the EU. The books are published in English under the auspices of the China-EU Law School in Beijing (www.cesl.edu.cn).

Siyi Lin

The Law of Unjust Enrichment in China: Necessary or Not?

Siyi Lin Faculty of Law The Chinese University of Hong Kong Hong Kong SAR, Hong Kong

This work was supported by The Chinese University of Hong Kong. ISSN 2198-2708 ISSN 2198-2716 (electronic) China-EU Law Series ISBN 978-3-031-06177-6 ISBN 978-3-031-06178-3 (eBook) https://doi.org/10.1007/978-3-031-06178-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Acknowledgements

This book builds on my four-year PhD project completed at the Faculty of Law, The Chinese University of Hong Kong. First and foremost, I thank my supervisor, Prof. Lutz-Christian Wolff, for all his contributions of time and invaluable ideas, which made this research possible. I am so thankful for his guidance, suggestions, and encouragements that mean a lot to me. Special thanks go to my co-supervisors Prof. Mimi Zou and Prof. Steven Gallagher. Prof. Zou was the person who inspired my interest in the law of unjust enrichment in the first place. Prof. Gallagher joined my supervisory team at the beginning of the third year and his advice and input helped me proceed through the doctoral program. I feel a special debt of gratitude to Prof. Elise Bant at Melbourne Law School who read the draft of my thesis and kindly gave me invaluable and inspiring comments. I am very thankful to other professors, co-workers, and friends for their support, help, and encouragement during my PhD journey. These include Prof. Anatole Boute, Prof. Gregory Gordon, Prof. Jyh-An Lee, Prof. Michelle Miao, Prof. Jae Woon Lee, Prof. Chao Xi, Prof Robin Huang, Qian Xu, Qing Zhang, Chunyang Zhang, Jenny Ying Chan, Becky Leung, Wang Chao, and Hui Jing. I also want to express my special thanks to Henry You for his encouragement and support over these years. Finally, I thank my family, my parents, Lin Jiasheng and Lin Rong for their love, selfless support, and inspiration which were my driving force. I hope my completion of the book makes them proud.

v

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Background and Research Questions . . . . . . . . . . . . . . . . . . . . . . 1.2 Demarcation of the Research Area . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Research Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Research Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2 Doctrinal Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.3 Comparative Research . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.4 Cases Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Book Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 4 6 7 7 8 8 10 11 12 12

2

Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Unjust Enrichment and Restitution . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Restitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 The Relationship Between Restitution and Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.3 Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 Benefit, Gain and Enrichment . . . . . . . . . . . . . . . . . . . . . . 2.4 Related Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.1 ‘Restitution’ and ‘Disgorgement’ . . . . . . . . . . . . . . . . . . . 2.4.2 ‘Unjustified Enrichment’ and ‘Unconscionable Enrichment’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15 15 16 16 17 18 18 19 19 20 20 20 22 22 22 vii

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Contents

2.4.3

Performance-Based Unjust Enrichment and Non-Performance-Based Unjust Enrichment . . . . . . . . . . 2.4.4 ‘Defendant’ and ‘Claimant’ . . . . . . . . . . . . . . . . . . . . . . 2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

. . . .

23 24 24 25

The Goal(s) of the Law of Unjust Enrichment in China . . . . . . . . . . 27 3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.2 Introduction to the Chinese Legal System . . . . . . . . . . . . . . . . . . . 28 3.2.1 China’s Legal System During the Mao Era . . . . . . . . . . . . 28 3.2.2 The Chinese Legal System After 1979 . . . . . . . . . . . . . . . 29 3.2.3 Sources of the Current Chinese Law . . . . . . . . . . . . . . . . . 30 3.3 Introduction to Chinese Civil Law . . . . . . . . . . . . . . . . . . . . . . . . 32 3.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.3.2 The GPCL, General Provisions and the Chinese Civil Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.3.3 Chinese Property Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.3.4 Excursus: Causality and Abstraction in Chinese Law . . . . . 37 3.3.5 Chinese Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.3.6 Chinese Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.4 The Origin and Development of Unjust Enrichment in China . . . . . 41 3.4.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.4.2 Ancient China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.4.3 In the Late Qing Dynasty . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.4.4 In the Republic of China . . . . . . . . . . . . . . . . . . . . . . . . . 44 3.4.5 The Law of Unjust Enrichment in the PRC Prior to the Enactment of the Chinese Civil Code . . . . . . . . . . . . . . . . 46 3.4.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.5 China’s Current Law of Unjust Enrichment . . . . . . . . . . . . . . . . . 52 3.5.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.5.2 The Current Effective Legal Provisions of Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.5.3 Constitutive Elements of Unjust Enrichment . . . . . . . . . . . 55 3.5.4 Liability for Unjust Enrichment . . . . . . . . . . . . . . . . . . . . 60 3.5.5 The Law of Unjust Enrichment as Part of the Chinese Legal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 3.6 The Goals of the Chinese Law of Unjust Enrichment . . . . . . . . . . 77 3.6.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 3.6.2 Statutory Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3.6.3 Commentators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3.6.4 Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 3.6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Contents

4

5

ix

Do We Need a Chinese Law of Unjust Enrichment? . . . . . . . . . . . . . 4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Problems Generated by the Regulation of Unjust Enrichment . . . . 4.3 Core Scenarios of Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . 4.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.2 Excursuses: Basics of Other Subject Areas . . . . . . . . . . . . 4.3.3 Performance-Based Unjust Enrichment . . . . . . . . . . . . . . . 4.3.4 Non-Performance-Based Unjust Enrichment . . . . . . . . . . . 4.3.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.2 Mistaken Payments of Money . . . . . . . . . . . . . . . . . . . . . . 4.4.3 Unsolicited Services Supplied Mistakenly . . . . . . . . . . . . . 4.4.4 Money Transferred or Services Provided in Anticipation of a Future Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.5 Unauthorized Use of Another’s Property with No Damages Incurred or Losses Suffered by the Owner . . . . . . 4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125 125 126 128 128 129 135 150 167 168 168 168 170

171 172 173

Comparative Study: The English Law of Unjust Enrichment . . . . . . 5.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Introduction to the English Legal System . . . . . . . . . . . . . . . . . . . 5.2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 Sources of Law in England . . . . . . . . . . . . . . . . . . . . . . . . 5.2.3 Common Law and Equity . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Brief Introduction to English Private Law . . . . . . . . . . . . . . . . . . . 5.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.2 The English Law of Contract . . . . . . . . . . . . . . . . . . . . . . 5.3.3 The Law of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.4 Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.5 Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.6 Tracing and Following . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 History of the English Law of Unjust Enrichment . . . . . . . . . . . . . 5.5 The Elements of Claims in Unjust Enrichment . . . . . . . . . . . . . . . 5.5.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.2 Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.3 At the Expense of the Plaintiff . . . . . . . . . . . . . . . . . . . . . 5.5.4 Unjust Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.5 Justifying Ground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.6 Defences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.7 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 The Law of Unjust Enrichment in English Private Law . . . . . . . . . 5.6.1 The Current Status of the Law of Unjust Enrichment . . . . .

177 177 178 178 178 179 181 181 181 185 190 193 195 198 204 204 205 211 212 225 226 229 230 230

171

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Contents

5.6.2

Controversies over the Independence of the Law of Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 The Goals of the English Law of Unjust Enrichment . . . . . . . . . . . 5.7.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.2 Conscience and Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.3 Reversal of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.4 Filling Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Summary of Comparative Observations . . . . . . . . . . . . . . . . . . . . 5.9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

7

Proposals for the Future of the Chinese Law of Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Two Ways Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Solutions to ‘Gap Scenarios’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2 Mistaken Payments of Money . . . . . . . . . . . . . . . . . . . . . . 6.3.3 Unsolicited Services Supplied Mistakenly . . . . . . . . . . . . . 6.3.4 Money Transferred or Services Provided in Anticipation of a Future Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.5 Unauthorized Use of Another’s Property with No Damages Incurred or Losses Suffered by the Owner . . . . . . 6.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

232 239 240 240 240 243 244 246 248 252 252 257 257 257 259 259 260 268 274 277 281 282

Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

About the Author

Siyi Lin is currently a lawyer at Fangda Partners in China. She holds a PhD and an LLM from The Chinese University of Hong Kong and an LLB from China University of Political Science and Law. Her research focuses on civil law, trust law, and commercial law, particularly on the law of unjust enrichment. Her recent publications include “The Translation of Quistclose Trusts in China” (with Hui Jing) Journal of Equity 15 (2021), pp 153–180; “Looking Back and Thinking Forward: the Current Round of Civil Law Codification in China” The International Lawyer 52 (3) 2019, pp 439–467; “The History of a Mystery: the Evolution of the Law of Unjust Enrichment in Germany, England and China” (with Lutz-Christian Wolff and Steve Gallagher), International Comparative, Policy & Ethics Law Review 3 (2) 2020, p. 337–381; and “China’s New Charity Law: A New Era of Charitable Trusts” Trusts & Trustees 24 (8) 2018, pp 768–777.

xi

Abbreviations

CFI CPC CSI NPC NPCSC PC PCSC PRC SPC SPP

Court of First Instance Communist Party of China Court of Second Instance National People’s Congress Standing Committee of National People’s Congress People’s Congress Standing Committees of People’s Congress People’s Republic of China Supreme People’s Court of the People’s Republic of China Supreme People’s Procurator of the People’s Republic of China

xiii

Chapter 1

Introduction

1.1

Background and Research Questions

The law of unjust enrichment, sometimes known as the law of restitution, is among the most debated private law subjects in many jurisdictions and is regarded as one of the most complicated of all areas of law.1 Generally, the law of unjust enrichment provides rules, under which if one is enriched without a legal ground2 or as a result of certain ‘unjust factors’,3 the party suffering a loss therefrom is entitled to recover what has been lost. In China,4 the law of unjust enrichment has not received much attention from lawmakers, academia and legal practitioners. For the past several decades, the statutory framework concerning unjust enrichment was rather simple. Only one legal provision, i.e. Article 122 of the General Provisions of the Civil Law of the People’s Republic of China (‘General Provisions’)5 and previously Article 92 of the 1 Percy Winfield once described unjust enrichment or restitution as ‘no man’s land. . . not in the sense that there are constant battles for it, but that nobody wants it’. Winfield (1931), p. 118; See also Burrows (2004), p. 14. 2 Civilian and mixed systems, e.g. Germany, Scotland, South Africa and China, commonly have organized their laws of unjust enrichment based on the ‘absence of basis’ approach. Canada, as a common law jurisdiction, recently shifted to the ‘absence of basis’ approach as well. Garland v Consumer’s Gas Co., [2004] 1 SCR 629. 3 Common law jurisdictions adopting the ‘unjust factors’ approach to unjust enrichment include England, the USA and Australia. 4 In this book, ‘China’ and ‘Mainland China’ are used to refer only to the People’s Republic of China, excluding Macau Special Administrative Region, Hong Kong Special Administrative Region and Taiwan Region. 5 Zhonghua Renmin Gongheguo Minfa Zongze (中华人民共和国民法总则) [General Provisions of the Civil Law of the People’s Republic of China] (Promulgated by the National People’s Congress (‘NPC’) on 15 March 2017, effective since 1 October 2017, expired on 1 January 2021). When promulgated in 2017, the General Provisions was designed to be incorporated into and become Book I of the Chinese Civil Code planned to be promulgated in 2020. Therefore, when

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 S. Lin, The Law of Unjust Enrichment in China: Necessary or Not?, China-EU Law Series 8, https://doi.org/10.1007/978-3-031-06178-3_1

1

2

1

Introduction

General Principles of Civil Law of the People’s Republic of China (‘GPCL’),6 sets out the general principle of unjust enrichment. Article 122 of the General Provisions stipulates, ‘Where a person acquires unjust benefits without a legal basis, the person who so suffers a loss shall have the right to require him to return the unjust benefits’.7 In addition, one judicial interpretation issued by the Supreme People’s Court of the PRC (‘SPC’) determines the extent of the return of enrichment acquired unjustly, i.e. Article 131 of the Opinions of the SPC on Several Issues Concerning the Implementation of the General Principle of Civil Law of the People’s Republic of China (‘Opinions on the GPCL’).8 It stipulates, ‘The returned unjust benefits shall include the original object and the fruits arising therefrom; other benefits obtained by using the enrichment obtained unjustly shall be taken over by the state after deducting the expenses of labour services overheads’. These two articles constituted the entire statutory law of unjust enrichment in China since 1980s. Rules at such an abstract level obviously could not provide a comprehensive regulation of unjust enrichment and fail to give proper guidance in judicial practice. The abstractness of the law of unjust enrichment has also attracted a barrage of criticisms from academia.9 The Chinese legislator seemed to be aware of problems existing in the law of unjust enrichment and intended to improve the current situation. When China finally passed its first-ever civil code since the establishment of the People’s Republic of China (‘PRC’) on 28 May 2020, i.e., the Chinese Civil Code of the PRC (‘Chinese

the Chinese Civil Code of the People’s Republic of China comes into effect on 1 January 2021, the General Provisions was incorporated as Book I of the civil code and repealed simultaneously. See Liu (2020b). Zhonghua Renmin Gongheguo Minfa Dian (中华人民共和国民法典) [Civil Code of the People’s Republic of China] (promulgated by the NPC on 28 May 2020, effective since 1 January 2021). 6 Zhonghua Renmin Gongheguo Minfa Tongze (中华人民共和国民法通则) [General Principles of the Civil Law of the People’s Republic of China] (promulgated by the NPC on 12 April 1986, effective since 1 January 1987, last amended on 27 August 2009, expired on 1 January 2021). For a discussion of the relationship between the GPCL and the General Provisions, see Sect. 3.3.2 in Chap. 3. 7 Article 92 of the GPCL regulates the concept of unjust enrichment in a similar way to Article 122 of the General Provisions, which stipulates, ‘Where a person acquires unjust benefits without a legal basis and causes another’s loss, the person shall return the unjust benefits to the person who suffers a loss’. For a more detailed account of the provision concerning unjust enrichment in the GPCL, see Sect. 3.4.5.5 in Chap. 3. 8 Zuigao Renmin Fayuan Guanyu Guanche Zhixing Zhonghua Renmin Gongheguo Minfa Tongze Ruogan Wenti De Yijian (Shixing) (最高人民法院关于贯彻执行hh中华人民共和国民法通则ii 若干问题的意见(试行)) [Opinions of the SPC on Several Issues Concerning the Implementation of the General Principles of Civil Law of the People’s Republic of China (For Trial Implementation)] (promulgated by the SPC on 26 January 1988, effective since the same date, expired on 1 January 2021). 9 E.g., Huo (2006), pp. 83 and 87; Tang (2013), p. 128.

1.1

Background and Research Questions

3

Civil Code’),10 the General Provisions is incorporated as Book I of the Chinese Civil Code. Therefore, Article 122 of the General Provisions introduced previously turns into Article 122 of the Chinese Civil Code, providing the general principle of unjust enrichment. In addition, one chapter concerning specific issues of unjust enrichment was added in the Chinese Civil Code, i.e., Chapter 29 of Book III Contract of the Chinese Civil Code. However, a more in-depth analysis reveals that the new unjust enrichment chapter, which consists of only four articles, is neither formulated after long deliberation nor comprehensive to tackle various problems existing in this field of law. Even though more attention has been paid to unjust enrichment after the promulgation of Chinese Civil Code,11 literature providing a detailed and comprehensive analysis of unjust enrichment is still limited.12 Moreover, a rather fundamental question, why the law of unjust enrichment is needed in the Chinese legal system in the first place, remains unanswered. In contrast, vast academic ink has been spilt over the law of unjust enrichment and there has been an explosion of writings in the last two decades on this topic in many other jurisdictions, especially in England.13 Unjust enrichment has been recognized as one of the three principal strands of the law of obligations alongside contract and tort in England.14 Facing such an under-explored field of law in China, this book aims to first explore the goal(s) of the law of unjust enrichment in China to address the most fundamental issue of this area of law. The goals of an area of law are commonly understood as its objectives or purposes, which demonstrate why the area of law exists. The goals of an area of law influence decisively its explication and development. It is noteworthy that this book does not aim at any speculation regarding the thinking of the legislators as to the goal(s) of the law of unjust enrichment in China. 10

Zhonghua Renmin Gongheguo Minfa Dian (中华人民共和国民法典) [Civil Code of the People’s Republic of China] (promulgated by the NPC on 28 May 2020, effective since 1 January 2020). 11 Much academic ink has been spilt over the new Chinese law of unjust enrichment after the promulgation of the Chinese Civil Code. A few examples are listed here: Liu (2020a), p. 26; Chen (2020), p. 5; Wang (2020), p. 51. 12 Legal textbooks on Chinese civil law usually contain a chapter introducing ‘unjust enrichment’. For example, Jiang (2011); Wei (2007), pp. 592–598. However, there are still only a handful of comprehensive analyses of Chinese law of unjust enrichment. For details, see infra Sect. 3.6.3.1 in Chap. 3. 13 Goff and Jones published their pioneer work, The Law of Restitution, in 1966 when the subject was barely known in England and its 9th edition Goff and Jones: The Law of Unjust Enrichment has been published in 2016. Goff and Jones (1966). Later, many other textbooks (notably, Peter Birks, Unjust Enrichment, Graham Virgo, The Principles of the Law of Restitution and Andrew Burrows, A Restatement of the English Law of Unjust Enrichment) and numerous collections of essays contributed to the development of the law of restitution and unjust enrichment. Birks (2005); Virgo (1999); Burrows (2012). The discussion of unjust enrichment also gave birth to a specialized academic journal, Restitution Law Review, which updates the latest information on the subject internationally. 14 Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL) 227; Johnston and Zimmermann (2002), pp. 8–9.

4

1

Introduction

Instead, it tries to identify the goal(s) through rational analysis of the statutes and judgments. The ultimate question is whether the existence of a general law of unjust enrichment is justifiable given the goal(s) it intends to achieve within the Chinese legal system. Specific questions explored by this book are as follows: • What are and what should be the goal(s) of the law of unjust enrichment in China as compared to the English law of unjust enrichment? • Does the current law of unjust enrichment in China achieve its goal(s)? • Are there any problems caused by the current Chinese unjust enrichment legal framework? • Can other branches of law achieve the goal(s) of the law of unjust enrichment in China? • Is there a need for the law of unjust enrichment or reforming this law in China? • How should the Chinese law of unjust enrichment develop in the future?

1.2

Demarcation of the Research Area

Unjust enrichment can occur in an incredibly wide range of circumstances and the law of unjust enrichment does not deal with many of the enrichment scenarios, which are seen as ‘unjust’ at first glance. For instance, the law of unjust enrichment usually does not mandate the return of property acquired through bribery or tax evasion, which is governed by other laws. The term ‘restitution’ is often referred to as a form of compensation, which is not only used in the law of unjust enrichment but also in criminal law, administrative law, etc. For the sake of a focused discussion, it is therefore necessary to first set out the scope of unjust enrichment discussed in this book. Firstly, this book only explores unjust enrichment in the private law context. Private law refers to laws regulating the relationships among persons including natural persons and legal persons, i.e. entities, which are equal in terms of their legal status.15 Contrarily, public law, e.g. criminal law, is concerned with the interactions between individuals and the state, and the interrelationships between individuals that are of concern to society. Under Chinese law, the acquisition of benefits without a legal basis may be regulated by both private law and public law. For example, one stealing another’s property is enriched unjustly without a legal basis. Article 122 of the Chinese Civil Code entitles the owner to seek return of the property. Meanwhile, criminal law compels the thief to return the property and

15

Chinese Civil Code, art 2.

1.2

Demarcation of the Research Area

5

punishes him if the conduct constitutes a theft crime.16 This book will not consider unjust enrichment, restitution and other liabilities in public law. In private law, the law of unjust enrichment is closely related to other fields of law, including contract law, tort law and property law.17 The law of unjust enrichment is concerned with restitution of benefits acquired without a legal basis or as a result of an unjust factor, namely a process of gain-based recovery.18 A contract is an agreement among equal parties concluded through mutual consent.19 Benefits may be conferred under a void, revoked or terminated contract, which does not constitute a legal basis for retaining benefits, and restitution of such benefits is included in our discussion. Where a person obtains benefits through a tortious act at the cost of an injured person, the law of unjust enrichment and tort law may both demand that the defendant should disgorge the benefits acquired through the tortious act.20 Cases of this kind are included in this study. If one retains another’s property without a legal basis, the Chinese property law already involves straightforward restitutionary remedies to protect the owner’s proprietary interests.21 The rules of property law also have an impact upon the law of unjust enrichment. For example, whether the researched jurisdiction adopts an abstract or causal approach regarding the transfer of ownership22 has a direct impact on the design of the law of unjust enrichment. The relevant aspects of property law are also covered by this study. Secondly, to explore the goal(s) of the law of unjust enrichment, this book inevitably has to deal with the concepts of justice and fairness to some extent. However, this book does not involve itself in the task of exploring the philosophical foundations or the normative basis of unjust enrichment liabilities.23 Instead, this book is confined to a doctrinal analysis by reviewing the rules applicable in China as compared with the English law of unjust enrichment and also combining this exploration with judicial practices. It aims to deduce the goal(s) of the law of unjust enrichment from the doctrines rather than considering further whether the doctrines

16

Zhonghua Renmin Gongheguo Xinfa (中华人民共和国刑法) [Criminal Law of the People’s Republic of China] (promulgated by the NPC on 1 July 1979, effective since 1 October 1997, last amended on 26 December 2020), arts 64 and 264. 17 Dannemann (2009), p. 4. 18 Chinese Civil Code, art 122; Birks (2005), p. 11. 19 Chinese Civil Code, art 464. 20 Zhang and Guo (2008), p. 12. 21 Chinese Civil Code, art 235. 22 The ‘abstract or casual approach’ is about whether a particular legal system separates the validity of the real act to transfer property ownership from the validity of the underlying obligatory contract and whether the validity of the obligatory contract and the validity of the real act affect each other. For a more detailed discussion, see infra, Sect. 3.3.4 in Chap. 3. 23 Exploring the theoretical foundations of the law of unjust enrichment and inspecting what justice demands is a distinct and complicated area. A number of private law theorists have offered discussions of the philosophical foundations of unjust enrichment. e.g. Chambers et al. (2009); Webb (2016); Klimchuk (2004).

6

1

Introduction

and their goal(s) accord with social justice. The scope of this book does not allow for a comprehensive discussion of jurisprudential aspects of related issues.

1.3

Research Contribution

Chinese law does not regulate unjust enrichment in a comprehensive and systematic manner as demonstrated by the fact that there are only a few provisions comprising the whole law of unjust enrichment in the civil code. As demonstrated in the following chapters in this book, such a limited framework is insufficient to provide a workable basis for dealing with various types of unjust enrichment.24 In addition, comprehensive and deep academic research on the law of unjust enrichment is rare in China. The brevity of the legislation and the lack of proper research leave the Chinese law of unjust enrichment obfuscated and make the determination of the actual status of the law very daunting if not an impossible task. There are divergent views regarding the function, constituent elements and the practical application of the law of unjust enrichment, which has caused serious confusion in the judicial application of related rules and doctrines in China.25 It is therefore time for a comprehensive study that analyses the status quo and offers systematic guidance for the way forward. The existing academic research on unjust enrichment in China mainly focuses on the constituent elements of an unjust enrichment claim, the categorizations of unjust enrichment scenarios and the relationships between unjust enrichment claims and other claims.26 However, academia overlooks the most fundamental question: What is the goal of the law of unjust enrichment? Why do we need a law of unjust enrichment in the first place? The goals decide the values of the machinery and provide justifications for the need of a certain field of law. With regard to other branches of Chinese private law, the goals and functions are relatively definite. For instance, according to the prevailing opinion, the dominant goal of contract law is to provide an effective and fair regulatory framework for contractual exchange.27 Tort law recognizes compensation for harms as a general duty28 and nobody doubts that wrongdoers who infringe upon the interests of other people without their consent should 24 Problems existing in the current Chinese law of unjust enrichment are discussed in Sect. 4.2 of Chap. 4. 25 Cf. Liu (2013), p. 221. Although in comparison to previous regulations, the Chinese Civil Code expands provisions of unjust enrichment, some highly controversial issues in practice remain unsettled under the current Chinese law of unjust enrichment. For details, see infra, Sect. 4.2 in Chap. 4. 26 For instance, Lou (2012), p. 110; Hong and Zhang (2003), p. 42; Liu (2020b). 27 Wang (2011), pp. 107 and 109. The same view is proposed by scholars in other jurisdictions. Steyn (1997), pp. 433 and 434. See also Brownsword (2000), p. 23. 28 Wang (2011), pp. 109–110.

1.4

Research Methodologies

7

compensate the victims. The primary goal of tort law is to provide a mechanism for those who suffer a loss due to another’s fault to obtain compensation.29 Conversely, when discussing the goal(s) of the Chinese law of unjust enrichment, it is easy to lapse into circularity. The law of unjust enrichment aims to reverse benefits transferred without a legal basis because it is unjust to obtain benefits without a legal basis. In other words, unjust enrichment is unjust because no law justifies it.30 The underlying rationale of unjust enrichment is undefined. There is no general duty of disgorgement of enrichments. Specifying the goals is a pre-requisite to understand the nature of a field as a whole and the goals decide what functions a system should have. The goals of the law of unjust enrichment determine the definition and constituent elements of unjust enrichment31 and decide how the law of unjust enrichment should be designed. What unjust enrichment is and how to develop the rules of unjust enrichment will remain inaccessible until the goals of the mechanism are clear. It is for these reasons that this study aims to identify the existent goal(s), if any, and the desired goal(s) of the law of unjust enrichment in China. After having identified the goal(s) of the Chinese law of unjust enrichment, this book explores whether other fields of Chinese law can fulfil these goal(s). This is done in order to assess if there are overlaps, if different areas of law supplement each other and if they can substitute or replace each other. Consequently, this book does not confine its analysis to the very limited statutory provisions of the current law of unjust enrichment but also explores whether the goal(s) of the law of unjust enrichment are or can be achieved via other legislative or judicial tools. By exploring the goals of the law of unjust enrichment in China this study will fill an important gap in the legal literature. More significantly, it will also form the basis for future research and future legislation concerning the law of unjust enrichment in China.

1.4 1.4.1

Research Methodologies Overview

Three research methodologies are applied in this book, namely doctrinal research, comparative research and case studies. Doctrinal research and comparative research are intertwined and used to explore the Chinese and English laws of unjust enrichment. Case studies focus mostly on the application of the law of unjust enrichment in China with the goal of supplementing the results obtained through the other methods. The different methodologies are explained in more detail in the following.

29

Scholars in other jurisdictions also propose the same view. See Robertson (2009), p. 3. The circularity problem happens not only in the Chinese law of unjust enrichment, but also in the law of unjust enrichment in common law jurisdictions. Nadler (2008), pp. 245 and 246. 31 Kull (1995), pp. 1191 and 1193. 30

8

1.4.2

1

Introduction

Doctrinal Research

First of all, this book engages in doctrinal research to analyze the legal principles underpinning the law of unjust enrichment. Doctrinal research is research in law, also described as research of ‘black-letter law’, providing a systematic interpretation and analysis of the principles and rules governing a particular legal area as well as their applications.32 It also takes into account the relationships between rules and their status with a particular social context.33 In addition to legislation and case law, i.e. the primary sources of law, doctrinal research is also concerned with secondary sources, e.g. books, journal articles and written commentaries on the legislation and case law,34 which are examined to facilitate the understanding of legal rules. In this study, the primary sources explored include the legislation and cases in the chosen jurisdictions, namely China and England, whilst laws in other jurisdictions, both civil law jurisdictions and common law jurisdictions are also considered occasionally where they are relevant. Examples are primary sources of Germany, Japan and Australia. Secondary sources considered for the doctrinal research conducted in the context of this book are books, articles and other commentaries reflecting the opinions—in the first place—of Chinese, but also of other overseas academics and practitioners regarding the law of unjust enrichment and related areas of law. The review of primary and secondary sources aims to understand the Chinese law of unjust enrichment, to explore its goal(s) on the basis of previous studies, and to assess whether its goal(s) can be achieved by other branches of law.

1.4.3

Comparative Research

Comparative legal research involves the exploration of both similarities and discrepancies between different legal systems.35 Comparative law may serve a number of purposes, including the acquisition of better knowledge of legal rules and institutions and the imitation of foreign legal models for the reform of domestic law.36 Through exploring and comparing the law of different jurisdictions, it is possible to assess a legal system or systems critically and present a new or at least different perspective in regards to the same discipline of law.37 As Professor Alan Watson suggests, the vivid practice of borrowing legal rules and institutions from other systems has always been the main motor of legal progress.38 Comparative legal research is 32

Hutchinson and Duncan (2012), pp. 83 and 101. Dobinson and Johns (2007), p. 22. 34 Ibid 19. 35 Reitz (1998), pp. 617 and 620; Dannemann (2006), pp. 384–385. 36 Sacco (1991), pp. 1–5; Schlesinger et al. (1988), p. 309. 37 Watkins and Burton (2013), pp. 100–101. 38 Watson (1993), p. 95. 33

1.4

Research Methodologies

9

helpful to a process of legal development when a law in a certain jurisdiction needs modification or amendment.39 This book compares the Chinese law of unjust enrichment with the English law of unjust enrichment for two reasons. First, the English law of unjust enrichment is taken as a benchmark to evaluate the conclusions of the research on the Chinese law of unjust enrichment. Second, the experience of the English law of unjust enrichment seems extremely valuable in order to bring benefits, offer future proposals, and provide warnings of possible difficulties to the Chinese law of unjust enrichment. The selection of particular jurisdictions for comparative purposes must be methodologically sound.40 Consequently, it must be explained why for this study English law has been chosen to be compared with Chinese law. Three main reasons have determined this selection. First, although the English law of unjust enrichment is far from free of controversy, in recent decades, it has achieved a strikingly rapid development that may take other areas of law a century to reach.41 The English law of unjust enrichment is much more specific and comprehensive compared with the Chinese law of unjust enrichment, thus Chinese law can benefit from this analysis. In other words, as compared with Chinese law the English law of unjust enrichment appears to have reached a higher level of development and can, therefore, ‘teach you something’.42 Second, for every comparative study, it is necessary that the compared legal system has a certain amount of homogeneity, which makes the comparison possible.43 In other words, comparative legal research should normally not be conducted in totally different legal, social, political and economic contexts.44 While the Chinese and the English legal systems are obviously very different, both the Chinese and English laws of unjust enrichment are still in a process of development. From this viewpoint, the development experience of the English law of unjust enrichment can provide valuable insights for an assessment of China’s situation. Last, Chinese law is generally regarded as following the civil law legal tradition.45 It therefore seems useful to compare the Chinese law of unjust enrichment with the system which is the most prominent representative of the common law legal tradition, i.e. English law. The Chinese law of unjust enrichment follows the

39

Palmer (2005), pp. 261, 284. Cf. Oderkerk (2001), p. 293; also compare Wolff (2018), p. 151; Gallagher et al. (2020), pp. 337 and 339. 41 Dannemann (2009), p. 2. 42 Oderkerk (2001), p. 313. 43 Sacco (1991), p. 6. 44 Oderkerk (2001), p. 303. 45 The statement that China is a civil law country is not free from controversy and some may assert that China’s legal system is hybridized in nature or is a ‘socialist system with Chinese characteristics’ as proclaimed by itself. However, in terms of the fundamental distinguishing elements between civil law jurisdictions and common law jurisdictions, China is a civil law country. Chinese law and regulations are made by its legislative and administrative branches, which do not originate with judicial decisions made by courts over time. See Wan (2012), ch 9. 40

10

1

Introduction

‘absence of basis’ approach to ascertain whether a defendant’s retention of an enrichment is unjust.46 This approach is adopted by most civilian and mixed legal systems. In contrast, English law adopts the ‘unjust factors’ approach, viewing unjust enrichment from a different perspective.47 Selecting English law for comparative purposes, therefore, allows us to benchmark Chinese law against an (extreme) different position for testing purposes and may provide greater insights. Having explained the reasons for selecting English law for the comparative purposes of this study, it must also be acknowledged that many other legal systems could have been chosen for the same purposes. However, this study does not focus on the comparative analysis of English law, but rather uses the comparison with English law to refine the analysis of Chinese law. While this and the limited scope of this study explain why (only) English law is selected for the said benchmarking purposes, the resulting limits of the comparative assessment are duly acknowledged. This book engages in comparative research from three perspectives: history, doctrine, and function. It is not possible to learn from a foreign institution without understanding its history. In particular, the English law of unjust enrichment is the product of a complicated history that has an ongoing impact. This book will examine the history of unjust enrichment in China and England. This book will also map out the current doctrines of unjust enrichment in Chinese law and English law and discuss the similarities and differences of the laws. The functional approach is the most important one. Zweigert and Kötz assert that ‘The basic methodological principle of all comparative law is that of functionality’ because ‘in law the only things which are comparable are those which fulfil the same function’.48 As outlined above,49 the focus of this book is to explore the goal(s) of the Chinese law of unjust enrichment and to see whether, given the goal(s), other branches of law within the system can achieve those goal(s). For this purpose, it analyzes the functions of the law of unjust enrichment in China and in England. In other words, the analysis of functionality stands at the core of this study.

1.4.4

Cases Studies

This book also employs case studies looking into the judicial practice in China to supplement the doctrinal and comparative analyses. The case studies are meant to offer an understanding of how the rules work in practice which the analysis of legal rules cannot provide.

46

Chinese Civil Code, art 122. Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL) 234. See infra, Sect. 5.5 in Chap. 5. 48 Zweigert and Kötz (1998), p. 34. 49 Supra, Sect. 1.2 in this chapter. 47

1.5

Book Structure

11

The exploration into the decision-making of Chinese courts not only examines the judges’ attitudes toward the goal(s) of the Chinese law of unjust enrichment but also reflects the problems, if any, existing in the application of the rules. The case studies can show in what kind of cases a claimant may raise a claim in unjust enrichment and whether a court may support his or her claim or not based on what kind of reasons. Due to the limited scope of this research, only ten judgments delivered by courts in Beijing have been identified as case studies and analyzed. The study is conducted by employing an authoritative and also widely used database, Bei Da Fa Bao, also known as PKU Law.50 The cases have been read and analyzed with the following research questions in mind: (1) What are the grounds proposed by the claimant to argue that the defendant’s receipt of enrichment lacked a legal basis, such as an invalid contract? (2) Could a different cause of action have been used instead of ‘unjust enrichment’? (3) What are the circumstances under which the court supported the claim in unjust enrichment? (4) How did the judges interpret the law of unjust enrichment in China? (5) Are the judges’ applications of the law of unjust enrichment consistent with the goals of the law of unjust enrichment identified in this study? It is important to note that the case studies conducted for the purpose of this book do not aim at finding empirical truth. The case studies are rather meant to supplement the doctrinal and comparative analysis which stand at the centre of this book.

1.5

Book Structure

This book is structured as follows: This chapter first introduces the general concept of unjust enrichment, the regulations about unjust enrichment in China, the reasons why the goals of the law of unjust enrichment need to be explored and the methodologies used in this study. Chapter 2 clarifies terminology. As the law of unjust enrichment is a controversial area of law, different terminologies have been used in this field representing different and identical or at least similar conceptual approaches. To allow for a focused discussion and to avoid confusion, these terminological differences and similarities first need to be identified so as to develop a terminological framework for this book. Chapter 3 discusses the goal(s) of the law of unjust enrichment in China. First, a general introduction to the history and development of the Chinese legal system, private law, and the law of unjust enrichment is given. Then the current goal(s) of the law of unjust enrichment are explored through three perspectives, namely statutory rules, the opinions of commentators, and judgments made by courts. If there are

50

Bei Da Fa Bao (北大法宝) (Pkulaw), online: Pkulaw < http://www.pkulaw.cn/>.

12

1

Introduction

explicit goal(s) of the law of unjust enrichment, the question that whether the goal (s) are appropriate for China’s situation or not are to be assessed. Chapter 4 first discusses the problems caused by the deficient regulation of unjust enrichment in China. It then focuses on the question of whether the goal(s) of the Chinese law of unjust enrichment identified in Chap. 3 can be achieved by other branches of law through the analysis of hypothesized scenarios. This question is important because an affirmative answer to this question means that one may have to conclude that China does not really need a law of unjust enrichment. Chapter 5 focuses on the English law of unjust enrichment. A brief introduction to the English legal system is given to set the scene with a focus on the history of the English law of unjust enrichment. This chapter then discusses the constituent elements of unjust enrichment and restitutionary remedies, the status of the law of unjust enrichment in private law, and the interrelationships of unjust enrichment with other branches of law in the English legal system. On the basis of a broad literature review, this chapter then explores the goals of the English law of unjust enrichment. It concludes by benchmarking the Chinese law of unjust enrichment against English law. Chapter 6 imports ideas acquired by way of the assessment of English law to Chinese law and makes proposals for legislative action in China. Chapter 7 summarizes the findings and concludes with general final remarks.

Cases Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL) Garland v Consumer’s Gas Co., [2004] 1 SCR 629

References Books, Book Chapters, Articles, Websites and Blogs Birks P (2005) Unjust enrichment, 2nd edn. Oxford University Press Brownsword R (2000) Contract law: themes for the twenty-first century. Butterworths Burrows A (2004) The English law of restitution: a ten-year review. In: Neyers JW, McInnes M, Pitel SGA (eds) Understanding unjust enrichment. Hart Publishing Burrows A (2012) A restatement of the English law of unjust enrichment. Oxford University Press Chambers R, Mitchell C, Penner J (eds) (2009) Philosophical foundations of the law of unjust enrichment. Oxford University Press Chen Z (2020) Bu Dang De Li Fa Tixi Zhi Zai Goucheng – Weirao Minfa Dian Zhankai [The reorganization of the system of the law of unjust enrichment – a discussion surrounding the Chinese Civil Code]. North Leg Sci 5:5 Dannemann G (2006) Comparative law: study of similarities or difference? In: Reimann M, Zimmermann R (eds) The Oxford handbook of comparative law. Oxford University Press

References

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Dannemann G (2009) The German law of unjustified enrichment and restitution: a comparative introduction. Oxford University Press Dobinson I, Johns F (2007) Qualitative legal research. In: McConville M, Chui WH (eds) Research methods for law. Edinburgh University Press Gallagher S, Lin S, Wolff L-C (2020) The history of a mystery: the evolution of the law of unjust enrichment in Germany, England and China. Int Comp Policy Ethics Law Rev 3(2):337 Goff R, Jones G (1966) The law of restitution, 1st edn. Sweet & Maxwell Hong X, Zhang L (2003) Bu Dang De Li Fanhuan Qingqiu Quan Yu Qita Qingqiu Quan De Jinghe Yanjiu [Research on the concurrent relationship between the unjust enrichment claim and other claims]. Mod Law Sci 5:42 Huo Z (2006) Zhongguo Bu Dang De Li Zhidu De Goujian Yu Wanshan – Yi Bijiao Fa Wei Shijiao [The establishment and improvement of the Chinese law of unjust enrichment – a comparative law perspective]. Seeking Truth 2:83 Hutchinson T, Duncan N (2012) Defining and describing what we do: doctrinal legal research. Deakin Law Rev 17:83 Jiang P (ed) (2011) Minfa Xue [The civil law theory], 2nd edn. China University of Political Science and Law Press Johnston D, Zimmermann R (2002) Unjustified enrichment: surveying the landscape. In: Johnston D, Zimmermann R (eds) Unjustified enrichment: key issues in comparative perspective. Cambridge University Press Klimchuk D (2004) Unjust enrichment and corrective justice. In: Neyers JW, McInnes M, Pitel SGA (eds) Understanding unjust enrichment. Hart Publishing Kull A (1995) Rationalizing restitution. Calif Law Rev 83:1191 Liu Y (2013) Bu Dang De Li Fa De Xingcheng Yu Zhankai [The formation and development of the law of unjustified enrichment]. Law Press Liu S (2020a) Minfa Dian Bu Dang De Li Qingqiuquan De Dingwei ji Xiangguan Susong Wenti [The position of claims in unjust enrichment in the Chinese Civil Code and relevant litigation issues]. Natl Judges College Law J 19:26 Liu D (ed) (2020b) Zhongguo Minfadian De Dansheng! [The birth of the Chinese Civil Code]. http://www.npc.gov.cn/npc/c30834/202005/1247ca1d376e47e9b02a3053dd438e2d. shtml. Accessed 21 Sept 2021 Lou A (2012) Bu Dang De Li “Meiyou Hefa Genju” Zhi Gainian Chengqing- Geiyu “Jifu” Gainian De Zhongguo Fa Chongshi [Clarification of the concept ‘Without a Legal Basis’ of unjust enrichment- providing the concept of ‘Performance’ with an interpretation in the context of Chinese Law]. Sci Law (J Northwest Univ Polit Sci Law) 6:110 Nadler JM (2008) What right does unjust enrichment law protect? Oxf J Leg Stud 2:245 Oderkerk M (2001) The importance of context: selecting legal systems in comparative legal research. Netherlands Int Law Rev 48:293 Palmer V (2005) From Lerotholi to Lando: some examples of comparative law methodology. Am J Comp Law 53:261 Reitz JC (1998) How to do comparative law. Am J Comp Law 46:617 Robertson A (2009) Introduction: goals, rights and obligations. In: Robertson A, Wu TH (eds) The goals of private law. Hart Publishing Sacco R (1991) Legal formants: a dynamic approach to comparative law (installment I of II). Am J Comp Law 39:1 Schlesinger R et al (1988) Comparative law: cases, text, materials, 5th edn. Foundation Press Steyn J (1997) Contract law: fulfilling the reasonable expectations of honest men. Law Q Rev 113: 433 Tang C (2013) Deguo Bu Dang De Li Fa De Gouzao Yu Zhongguo Bu Dang De Li Fa De Wanshan [The structure of the Geman law of unjust enrichment and the perfection of the Chinese law of unjust enrichment]. Beihang Law Rev 1:128 Virgo G (1999) The principles of the law of restitution. Oxford University Press

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Introduction

Wan M (ed) (2012) Reading the legal cases: cross-currents between law and the humanities. Cavendish Publishing Wang L (2011) Qinquan Zeren Fa Yu Hetong Fa De Jiefen – Yi Qinquan Zeren Fa De Kuozhang Wei Shiye [The distinction between tort liability law and contract law – from the perspective of the expansion of the tort liability law]. China Leg Sci 3:107 Wang D (2020) Minfa Dian Zhong Bu Dang De Li De Lifa Jiedu He Sifa Shiyong [Legislative interpretation and judicial application of the law of unjust enrichment in the Chinese Civil Code]. Chin Procurators 15:51 Watkins D, Burton M (2013) Research methods in law. Cavendish Publishing Watson A (1993) Legal transplants: an approach to comparative law, 2nd edn. University of Georgia Press Webb C (2016) Reason and restitution: a theory of unjust enrichment. Oxford University Press Wei Z (ed) (2007) Minfa [Civil law]. Peking University Press Winfield PH (1931) The province of the law of tort. Cambridge University Press, p 118 Wolff L-C (2018) Comparing Chinese law . . . but, with which legal systems? Chin J Comp Law 6: 151 Zhang X, Guo M (2008) Qinquan Zeren Qingqiu Quan Yu Zhaiquan De Guanxi [The relationship between tort liability claims and obligatory claims]. In: Yi J (ed) Si Fa [Private law]. Huazhong University of Science and Technology Press Zweigert K, Kötz H (1998) An introduction to comparative law (trans: Weir T), 3rd edn. Oxford University Press

Chapter 2

Terminology

2.1

General

The law of unjust enrichment is surrounded by intense controversy. There is not even agreement in relation to the most basic terminology. In fact, a great variety of terms and concepts in this field are rife with academic debates. The terms ‘restitution’ and ‘unjust enrichment’ have been competing with each other to provide the generic name for this area of law for several decades.1 The terminological confusion has bedevilled this area.2 To facilitate the study of the law of unjust enrichment, it is necessary to develop a terminological framework with the ultimate goal to allow for a discussion of the same issues by using the same language. This chapter, therefore, seeks to define the legal terms in this area of law and thus to establish a terminological framework. The purpose is not only to ensure terminological consistency throughout this book and to help readers understand my starting premises, but also to facilitate any future discussion in this area.3 This chapter first deals with two core terms: ‘restitution’ and ‘unjust enrichment’. The meaning of the two words, their nature and the relationships between restitution and unjust enrichment are established. In addition, related terms having vague meanings are also explored, e.g. benefit, enrichment and disgorgement.

1

For example, Peter Birks based the law of restitution totally on the principle of unjust enrichment in his book An Introduction to the Law of Restitution published in 1985 but rejected to name the area the law of unjust enrichment for a fear of uncertainty of the word ‘unjust’. However, later he made a few recantations to his own work and claimed that the law of unjust enrichment should be separated from the law of restitution and that it is never correct to say that restitution was squarely based on the law of unjust enrichment. Birks (1985a); Birks (1998); Birks (1999), p. 13; Birks (2005). 2 Kull (1995), p. 1191. 3 Many scholars have explained the reasons why using legal terms in a consistent manner is important. For instance, Fullagar (1957), p. 1. Gutteridge emphasized the importance of the consistency of legal terminology in the field of comparative law. Gutteridge (1938), p. 401. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 S. Lin, The Law of Unjust Enrichment in China: Necessary or Not?, China-EU Law Series 8, https://doi.org/10.1007/978-3-031-06178-3_2

15

16

2

Terminology

Although the focus of this book is on the law of unjust enrichment in China, the establishment of a terminological framework has to refer to English literature because this book is written in English. The work of scholars who worked on the English law of unjust enrichment is taken for references, including Peter Birks, Robert Goff, Gareth Jones, and Andrew Burrows last but not least because this book selects English law to be the comparative benchmark for the assessment of the current situation. They are prominent common law scholars who have made their name in the area of the law of unjust enrichment and restitution and have contributed greatly to shape the subject. Although their definitions differ on certain points and there may be divergent voices propounded by other scholars, they still represent the most widely accepted definitions in the common law world.

2.2 2.2.1

Unjust Enrichment and Restitution Overview

Due to historical reasons, ‘the law of restitution’ is a better-known name than ‘the law of unjust enrichment’. In 1936, the Restatement of the Law of Restitution: Quasi Contracts and Constructive Trusts (‘US Restatement’) was published by the American Law Institute as the first book on the modern law of restitution.4 In 1966, the first edition of Goff & Jones: The Law of Restitution was published, which was the English response to the US Restatement.5 Both the US Restatement and Goff & Jones: The Law of Restitution unequivocally stated that the law of restitution was established on the principle of unjust enrichment.6 The two books were both significant achievements and their choice of naming this area as ‘the law of restitution’ was also emulated by many other scholars.7 However, in more recent works, ‘unjust enrichment’ prevails in naming this field of law.8 Peter Birks provided the 4

American Law Institute (1936). Warren A Seavey and Austin W Scott served as reporters for this project. 5 Goff and Jones (1966). 6 Seavey and Scott (n 4), p. 1. The first article of the US Restatement provides immediately, ‘A person who has been unjustly enriched at the expense of another is required to make restitution to another’, which shows that the subject of this US Restatement is actually the law of unjust enrichment. Goff & Jones is also opened with the sentence that ‘The law of restitution is the law relating to all claims, quasi-contractual or otherwise, which are founded on the principle of unjust enrichment’. Ibid 3. 7 E.g. Birks (1985a); Hedley (2001); Virgo (1999); Burrows (2002). 8 Peter Birks made a recantation, using the title ‘the law of unjust enrichment’ instead of ‘the law of restitution’ in his works. Birks (1985b). The third edition of the US Restatement was published in July 2010 and renamed as Restatement (Third) of Restiution and Unjust Enrichment. American Law Institute (2010). The newly published edition of The Law of Restitution by Goff and Jones is renamed as Goff & Jones: The Law of Unjust Enrichment in 2011. Mitchell et al. (2011) [Goff & Jones on Unjust Enrichment 2011]; Andrew Burrows who wrote a book The Law of Restitution,

2.2

Unjust Enrichment and Restitution

17

reason for this trend by explaining that other groups of the law of obligation, i.e. contract law and tort law, are named after the causative events rather than the remedy, and so should the law of unjust enrichment.9 In fact, the law of restitution and the law of unjust enrichment do not refer to the same areas of law as further explained in the later section.10

2.2.2

Unjust Enrichment

It is generally acknowledged that unjust enrichment refers to a causative event that comprises of facts and causes the existence of rights, which can be realized in court and is parallel to a contract and a tort.11 This book focuses on the law of unjust enrichment in China and also discusses the English law of unjust enrichment for comparison. In the context of Chinese law, unjust enrichment refers to an event where a person is enriched without a legal basis resulting in another person’s loss.12 In the context of English law, unjust enrichment refers to a situation where a person is unjustly enriched at the expense of another with the presence of an unjust factor.13 It is noteworthy that in this book the term ‘unjust enrichment’ is referred to in the phrases of ‘reversing unjust enrichment’ or ‘the return of unjust enrichment’ occasionally. In such contexts, ‘unjust enrichment’ does not mean the event where a person is unjustly enriched but refers to the benefits acquired in unjust enrichment cases.

published A Restatement of the English Law of Unjust Enrichment in 2012 as well. Burrows (2002); Burrows (2012). 9 Birks (2003), p. 1, 20. Birks proposes that it is inelegant to categorize the law by contract, tort and restitution because the law should be categorized by events rather than responses. In addition, the most distinguishing feature within the law of restitution is the principle of unjust enrichment. By admitting restitution can be trigger by events other than unjust enrichment, restitution fails to identify a discrete body of law. Birks (1985b), p. 1, 283. 10 Infra, Sect. 2.2.4 in this chapter. 11 Birks (1985b), p. 20; Mitchell (2011), p. 4. 12 Chinese Civil Code, art 122. 13 Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL) 227 (Lord Steyn), 234 (Lord Hoffmann). The Chinese and English laws of unjust enrichment follow two divergent approaches, the ‘absence of basis’ approach and ‘unjust factors’ approach, which are discussed in Chaps. 3 and 5 in detail respectively.

18

2.2.3

2

Terminology

Restitution

For the purpose of this book, the term ‘restitution’ shall mean ‘the reversal of an enrichment’, i.e. a remedy or, more generally, a response to causative events parallel to other responses, e.g. compensation and punishment.14 In Chinese law, the remedy for unjust enrichment provided by Article 122 of the Chinese Civil Code is the return of the defendant’s enrichment to the person who suffers a loss. Meanwhile, Article 988 of the Chinese Civil Code imposes an obligation to return on a third party to the extent that he gratuitously receives benefits obtained unjustly from the defendant. This indicates that under Chinese law restitution, as a response to unjust enrichment, is not limited to the return of enrichment obtained unjustly by the defendant but also by third parties. English law scholars have made an assertion that restitution refers to not only a defendant’s return of enrichment to the claimant but also giving up the benefits obtained unjustly.15 This book therefore adopts this broader meaning of restitution by referring to (i) the return of enrichment to a claimant; (ii) the removal of enrichment obtained unjustly.16 Restitution is determined by a defendant’s enrichment, not by the loss or harm suffered by a claimant, which distinguishes it from other remedial responses, such as compensation for losses or making good of expectations.17 In this sense, a restitutionary right is a right that entitles a person to require another to give up an enrichment.18 The law of restitution refers to the law dealing with all claims where a claimant seeks a restitutionary remedy measured and assessed by reference to the gain of a defendant.19

2.2.4

The Relationship Between Restitution and Unjust Enrichment

Previously, numerous American and English scholars agreed that restitution is the only possible response to unjust enrichment and unjust enrichment is the only event which could generate a right to restitution.20 If that was the case, then the law of restitution and the law of unjust enrichment are the flip sides of the same coin. Furthermore, in this case, it would not matter whether this area of law is named as

14

Birks (1989), p. 9, 16; Birks (1990), p. 1, 4. Birks and Mitchell (2000), p. 591. 16 Lodder (2012), p. 7; Kull (1995), pp. 1212–1213; Birks (1985b), p. 67, 70. 17 Dietrich (1998), p. 8. 18 Birks (2001), p. 231, 232. 19 Virgo (1999), p. 17. 20 Birks (1989), p. 17; Goff and Jones (2002), p. 3, 14; Burrows (1995). p. 149; Millett (1998), p. 399, 408; Pitel (2004), p. 344. 15

2.3

Enrichment

19

‘the law of unjust enrichment’ or ‘the law of restitution’ as they concern the same subject either from a response-based perspective or event-based perspective.21 Birks called this overlap the ‘quadration’ of restitution and unjust enrichment.22 However, as later agreed by commentators, the law of restitution and the law of unjust enrichment do not identify the same area of law.23 Although restitution is the most common response triggered by unjust enrichment, it is not the only response of unjust enrichment.24 According to Article 987 of the Chinese Civil Code, where the defendant had knowledge of the lack of legal basis for obtaining the benefit, in addition to restitution, the claimant can also raise a claim for compensation.25 On the other side, restitution, as a gain-based remedy, is a multi-causal response.26 A right to restitution may arise not only from unjust enrichment but also from other events. For example, a breach of contract or any tortious action may also give rise to gainbased remedies.27 Hence, the term ‘law of restitution’ describes a collection of rules concerning claims for a restitutionary remedy assessed by reference to a defendant’s enrichment.28 This may be broader than what is covered by the term ‘law of unjust enrichment’.

2.3 2.3.1

Enrichment Overview

The law of unjust enrichment deals with the transfer of value between claimants and defendants.29 A claim in unjust enrichment is for the recovery of enrichments gained by the defendant. Therefore, whether the defendant has been enriched or not is a key question. To explain the definition of ‘enrichment’, this section starts from the two related concepts at a higher level of generalization, ‘value’ and ‘wealth’. It then discusses the definition of ‘enrichment’ and other synonymous terms to ‘enrichment’, i.e. ‘gain’ and ‘benefit’.

21

Mitchell et al. (2011), p. 4. Birks (1989), p. 17. 23 Birks (1985b), p. 4; Virgo (1996), p. 20. 24 See Mitchell (2015), p. 240. 25 For a detailed account of the claimant’s entitlement to compensation for unjust enrichment, see Sect. 3.5.4 in Chap. 3. 26 Birks (1985b), p. 4; Mitchell et al. (2011), p. 4; Pitel (2004), p. 344. 27 Mitchell et al. (2011), p. 4. Unjust enrichment is not the only event causing gain-based remedies in Chinese law. For example, restitution may be awarded for the commission of a tort to a personal right or interest of another person in certain circumstances according to Article 1182 of the Chinese Civil Code. For a more detailed discussion, see infra, section “Tort Law” in Chap. 3. 28 Birks (1985b), p. 11, 22, and 25. 29 Mitchell et al. (2011), p. 81. 22

20

2

2.3.2

Terminology

Value

Value is the quality of things.30 In addition to monetary value, value can also be understood as sentimental, cultural, academic or emotional.31 However, the law of unjust enrichment only pays attention to monetary value and is only concerned with other kinds of value to the extent that non-monetary value can be quantifiable as monetary value.32 Therefore, in this book, the value is restricted to the concept of monetary value. Transfer of value refers to the shift of monetary value between parties.33

2.3.3

Wealth

This book follows the opinion of Peter Birks to define wealth in two ways, the discrete and the abstract.34 The discrete conception of wealth envisages wealth of a person as a list of assets, including both corporeal and incorporeal, such as a house, car, money, and shares.35 In the abstract conception of wealth, an individual’s wealth is a single fund with monetary value that nets corporeal and incorporeal assets held against valuable obligations owed to others.36

2.3.4

Benefit, Gain and Enrichment

The words ‘enrichment’, ‘benefit’ and ‘gain’ are often used in discussions related to the law of unjust enrichment but are regularly employed without precise definitions. This makes the analysis of unjust enrichment confusing. In the US Restatement, the concept of ‘benefit’ was described as follows: A person is enriched if he has received a benefit. . . A person confers a benefit upon another if he gives to the other possession of or some interest in money, land, chattels, or choses in action, performs services beneficial to or at the request of the other, or in any way adds to other’s security or advantage.37

30

Lodder (2012), p. 34. Ibid 14. 32 Ibid. 33 Ibid 20. 34 Birks (1985b), p. 52. 35 Ibid. 36 Ibid. For a detailed discussion of the definition of wealth, see also Lodder (2012), pp. 31–32. 37 American Law Institute (1936), p. 12. 31

2.3

Enrichment

21

This statement implies that a ‘benefit’ refers to discrete rights and properties (‘possession of or some interest in money, land, chattels or choses in action’) or the receipt of value, whether or not it enhances the wealth of the defendant (‘services beneficial to or at the request of the other’), or even includes ‘non-wealth’ (‘any way adds to the other’s security or advantage’).38 To be consistent with the above definitions and also to be more concise, in this book a ‘benefit’ shall connote something of monetary value,39 including discrete assets, a right, or the performance of services. In this sense, any transfer of value requires the receipt of a benefit or benefits.40 The term ‘gain’ is used in this book exclusively as reference to an accretion to the wealth of the defendant. Therefore, the term ‘gain’ is different from ‘value received’ and ‘benefit’, which may not increase the defendant’s wealth. An example of such benefit is the receipt of services which does not leave any residue in the recipient’s hand or improve the value of the recipient’s property, e.g. the provision of policing services. What counts as an ‘enrichment’ is a controversial issue. For instance, a number of commentators argue about whether the receipt of a property where the ownership does not pass qualifies as enrichment.41 Various classifications of enrichment have been proposed by scholars, including value-based and rights-based enrichment,42 and factual and legal enrichment.43 This book has no intention to contribute to this issue. For the sake of simplicity and consistency of terminology, this book takes enrichment as a broad term that refers to any kinds of benefit with a monetary value. An enrichment may be in a positive form adding to the defendant’s wealth or in a negative form where it saves expenditure for the defendant. The terms ‘enrichment’ and ‘benefit’ are used interchangeably. The word ‘transfer’ is frequently used in this book. When mentioning the ‘transfer of benefits’ or ‘benefits transferred’, it means the shift of value, benefits or enrichments between parties. The word ‘transfer’ does not necessarily mean that the plaintiff renders the benefit to the defendant through his or her own performance. It also includes situations where a defendant is enriched by his own act or a third party’s act.

38

Lodder (2012), p. 34. Mitchell et al. (2011), p. 81. 40 Lodder (2012), p. 34. 41 Ibid ch 3; Birks (1997), pp. 2, 7–8. 42 The distinction of value-based and rights-based enrichment is based on whether the defendant is enriched by the value of the received benefit or by a specific right. Chambers (2009). 43 Generally, a defendant is factually enriched if he or she has received something that has a value, i.e. money, the use of an asset and the provision of a service. A defendant may be legally enriched through ‘the acquisition of a right, or the release of an obligation owned’. Lodder (2012), ch 3. 39

22

2.4 2.4.1

2

Terminology

Related Terminology ‘Restitution’ and ‘Disgorgement’

Some scholars claim that ‘restitution’ is not the best word to represent the ‘gainbased recovery’ for two main reasons. The first one is that restitution, literally, implies the meaning of restoration of a person to the position before a given event, which usually denotes compensation for loss.44 The second reason is that the ordinary meaning of ‘restitution’ is ‘giving back’ something to someone. However, gain-based recovery includes not only ‘giving back’ benefits received from the plaintiff, but also ‘giving up’ what the plaintiff did not own, such as fruits and other benefits obtained by using the unjust enrichment.45 Defining ‘restitution’ as ‘giving up’ an enrichment to someone is an artificial expansion.46 Some scholars propose that ‘disgorgement’ should describe all gain-based recovery, irrespective of the source of the gain, and ‘restitution’ should be confined to the return of benefits that originally belonged to the claimant.47 However, the legal community has already become accustomed to referring to restitution as a gainbased remedy.48 To avoid confusion, for the purpose of this book, ‘restitution’ shall therefore stand for any gain-based remedies, and ‘disgorgement’ shall be taken as its synonym.

2.4.2

‘Unjustified Enrichment’ and ‘Unconscionable Enrichment’

‘Unjustified enrichment’49 or ‘unconscionable enrichment’50 sometimes are regarded as synonymous to ‘unjust enrichment’. In these phrases, the adjectives ‘unjust’, ‘unconscionable’ and ‘unjustified’ act as descriptive labels to emphasize that a common feature, a ‘justification’ is missing in the transfer of benefits, which calls for restitution. It is unsettled whether the meanings of ‘unjust enrichment’, ‘unconscionable enrichment’ and ‘unjustified enrichment’ are identical.

44

Birks (1985b), p. 281. See supra, Sect. 2.2.3 in this chapter. 46 Birks (1985b), p. 282. 47 Edelman (2002), pp. 65–80; Smith (1992), p. 672; McInnes (1999), pp. 118, 120–122. 48 Pitel (2004), p. 348. 49 ‘Unjustified enrichment’ is used by some scholars in replace of unjust enrichment. For example, Johnston and Zimmermann (2002); Nicholas (1962), p. 605. 50 Moses v Macferlan (1760) 2 Burr 1005, 1012. Lord Mansfield referred the money as the enrichment, which could not in conscience be retained. There are scholars using the term ‘unconscionable enrichment’ in replace of unjust enrichment or certain kinds of unjust enrichment. See Saprai (2009). 45

2.4

Related Terminology

23

Some authors argue that ‘unjustified enrichment’ and ‘unconscionable enrichment’ cannot be taken as identical concepts with ‘unjust enrichment’. ‘Unjustified enrichment’ is an enrichment lacking an adequate legal justification, but ‘unjust enrichment’ focuses on the moral justification, referring to enrichment which results in unfairness.51 The former is a term used principally in civil law jurisdictions and the latter is generally used in common law jurisdictions.52 However, for the purpose of this book, these subtle differences shall be disregarded because both Chinese law, largely a civil law system, and English law, a common law representative, are discussed here. Rather the view shall be adopted that whichever adjective is chosen to qualify ‘enrichment’ does not matter so much.53 As ‘unjust enrichment’ is shorter and more flexible, it is favoured among authors writing in English.54 To avoid confusion, this book follows this approach and only employs the term ‘unjust enrichment’ and does not consider the other variants.

2.4.3

Performance-Based Unjust Enrichment and Non-Performance-Based Unjust Enrichment

This section defines the terms performance-based unjust enrichment and nonperformance-based unjust enrichment. This typology stems from the German law of unjust enrichment.55 The terms are defined here because this typology plays a significant role in the later analysis of the Chinese law of unjust enrichment in this book.56 The word ‘performance’ in this context means an intentional and purposeoriented enlargement of the wealth of another person.57 To constitute performance-based unjust enrichment, the person who renders the performance to another person needs to have a specific reason in mind, such as to discharge an

51

Giglio (2003), p. 455; Zimmermann (1995), p. 403. Ibid. 53 Birks (1989), p. 19. 54 Dannemann (2009), p. 26; Birks (1985b), p. 275. 55 Dannemann (2009), pp. 156–157. Section 812 of the German Civil Code stipulates that ‘[a] person who, without a legal cause, obtains something by way of another person’s performance or in some other way at another’s expense, is obliged to surrender to that person what he has so obtained’. It is widely accepted that the performance serves the bright line that divides unjust enrichment into the two categories. But there was and still is much debate on this distinction. For an account in English of this debate, see Krebs (2001), pp. 201–237; Zimmermann and du Plessis (1994), pp. 14, 24–30; Juentgen (2002), p. 505, 515. 56 Infra, Sect. 4.3 in Chap. 4. 57 Juentgen (2002), p. 514; Zimmermann and Du Plessis (1994), p. 26; Schermaier (2006), p. 363, 372. 52

24

2

Terminology

obligation, to create an obligation or to make a gift, even if no such obligation exists.58 Non-performance-based unjust enrichment is a negative description referring to unjust enrichment cases where benefits shifted from a claimant to a defendant in a way other than by performance, which calls for restitution.59 Non-performancebased unjust enrichment can be divided into three categories: enrichment resulting from interference with another’s rights, enrichment where the claimant has expended his own assets and/or labour on another’s property, and enrichment deriving from the valid discharge of another’s debt to a third party.60

2.4.4

‘Defendant’ and ‘Claimant’

In this book, the term ‘defendant’ refers to the enriched party in unjust enrichment cases. The terms ‘claimant’ or ‘plaintiff’ refer to the person who suffers a loss due to the defendant’s enrichment and claims that the defendant should bear restitutionary liabilities. Although the words ‘claimant’, ‘plaintiff’ and ‘defendant’ are used, it does not necessarily mean that a lawsuit has been brought or will be brought to court. Alternatively, this book may use the terms ‘enriched party’, ‘transferee’, ‘recipient’ and ‘favoree’ in place of the term ‘defendant’. The terms ‘owner’, ‘transferor’, ‘performer’, or ‘provider’ may be used in place of ‘claimant’ and ‘plaintiff’ depending on whether the benefit transferred is property or the provision of services.

2.5

Conclusion

For the purpose of this book, the term ‘unjust enrichment’ is regarded as a causative event whereby a defendant is enriched at the expense of a claimant without a legal basis or as a result of an unjust factor. Restitution means the return or removal of an enrichment, which is a legal response. A restitutionary right is the right of a claimant to require a defendant to give up his or her enrichment.61 In addition to unjust enrichment, restitution can also be triggered by other causative events. The topic of this book is the law of unjust enrichment rather than the law of restitution. The main reason for choosing the law of unjust enrichment is that Chinese law does not provide a branch of law unified by a legal response,

58

Juentgen (2002), p. 515; Dannemann (2009), p. 34; Zimmermann (1995), p. 405. Dannemann (2009), p. 87. 60 Ibid. The three subdivisions of non-performance-based unjust enrichment are described as interference (Eingriff), expenditure (Verwendung), and recourse (Rückgriff). Von Bar and Swann (2010), p. 102. 61 Birks (1989), p. 26. 59

References

25

i.e. restitution. The distinction of the law of restitution and the law of unjust enrichment only exists in English law, or other common law jurisdictions for historical reasons.62 Furthermore, in English law, classifying the law into contract, tort and restitution has attracted a lot of criticism and scholars have turned to discuss the law of unjust enrichment instead of restitution as mentioned above.63 This book only explores the goals of the law of unjust enrichment.

References American Law Institute (1936) Restatement of the law of restitution: quasi contracts and constructive trusts. American Law Institute Publishers American Law Institute (2010) Restatement (third) of restiution and unjust enrichment. American Law Institute Publishers Birks P (1985a) An introduction to the law of restitution. Clarendon Press Birks P (1985b) Unjust enrichment - a reply to Mr Hedley. Leg Stud 5:67 Birks P (1989) An introduction to the law of restitution, Rev edn. Clarendon Press Birks P (1990) The independence of restitutionary causes of action. Univ Queensl Law J 16:1 Birks P (1997) On taking seriously the difference between tracing and claiming. Trust Law Int 11:2 Birks P (1998) Misnomer. In: Cornish WR et al (eds) Restitution: past, present and future: essays in honour of Gareth Jones. Hart Publishing Birks P (1999) The law of restitution at the end of an epoch. Univ West Aust Law Rev 28:13 Birks P (2001) Property, unjust enrichment, and tracing. Curr Leg Probl 54:231 Birks P (2003) A letter to America: the new restatement of restitution. Global Jurist Front 3:1 Birks P (2005) Unjust enrichment, 2nd edn. Oxford University Press Birks P, Mitchell C (2000) Unjust enrichment. In: Birks P (ed) English private law. Oxford University Press Burrows A (1995) Understanding the law of restitution: a map through the thicket. Univ Queensl Law J 18:149 Burrows A (2002) The law of restitution, 2nd edn. Butterworths Burrows A (2012) A restatement of the English law of unjust enrichment. Oxford University Press Chambers R (2009) Two kinds of enrichment. In: Chambers R, Mitchell C, Penner J (eds) Philosophical foundations of the law of unjust enrichment. Oxford University Press Dannemann G (2009) The German law of unjustified enrichment and restitution: a comparative introduction. Oxford University Press Dietrich J (1998) Restitution: a new perspective. Federation Press Edelman J (2002) Gain-based damages: contract, tort, equity and intellectual property. Hart Publishing Fullagar WK (1957) Legal terminology. Melbourne Univ Law Rev 1:1 Giglio F (2003) A systematic approach to “unjust” and “unjustified” enrichment. Oxf J Leg Stud 23: 455 Goff R, Jones G (1966) The law of restitution, 1st edn. Sweet & Maxwell Goff R, Jones G (2002) The law of restitution, 6th edn. Sweet & Maxwell Gutteridge HC (1938) The comparative aspects of legal terminology. Tulane Law Rev 12:401 Hedley S (2001) A critical introduction to restitution. Butterworths

62 63

The origination of the English law of restitution is discussed in infra, Sect. 5.4 in Chap. 5. See supra, Sect. 2.2.1 in this chapter.

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Terminology

Johnston D, Zimmermann R (eds) (2002) Unjustified enrichment: key issues in comparative perspective. Cambridge University Press Juentgen DA (2002) Unjustified enrichment in Germany and New Zealand law. Canterbury Law Rev 8:505 Krebs T (2001) Restitution at the crossroads: a comparative study. Cavendish Publishing Ltd Kull A (1995) Rationalizing restitution. Calif Law Rev 83:1191 Lodder A (2012) Enrichment in the law of unjust enrichment and restitution. Hart Publishing McInnes M (1999) Restitution, unjust enrichment and the perfect quadration book. Restitution Law Rev 118 Millett P (1998) Restitution and constructive trusts. Law Quart Rev 114:399 Mitchell C (2015) Unjust enrichment. In: Burrows A (ed) Principles of the English law of obligations. Oxford University Press Mitchell C, Mitchell P, Watterson S (eds) (2011) Goff & Jones: the law of unjust enrichment, 8th edn. Sweet & Maxwell Nicholas B (1962) Unjustified enrichment in the civil law and Louisiana law. Tulane Law Rev 36: 605 Pitel SGA (2004) Characterisation of unjust enrichment in the conflict of laws. In: Neyers JW, McInnes M, Pitel SGA (eds) Understanding unjust enrichment. Hart Publishing Saprai P (2009) Unconscionable enrichment? In: Chambers R, Mitchell C, Penner J (eds) Philosophical foundations of the law of unjust enrichment. Oxford University Press Schermaier MJ (2006) “Performance-based” and “non-performance based” enrichment claims: the German pattern. Eur Rev Priv Law 3:363 Smith L (1992) The province of the law of restitution. Canadian Bar Rev 71:672 Virgo G (1996) Reconstructing restitution. Trust Law Int 10:20 Virgo G (1999) The principles of the law of restitution. Oxford University Press Von Bar C, Swann S (2010) Unjustified Enrichment: (PEL Unj. Enr.) (trans: Swan S, McCannon P, Singleton S). Oxford University Press Zimmermann R (1995) Unjustified enrichment: the modern civilian approach. Oxf J Leg Stud 15: 403 Zimmermann R, du Plessis J (1994) Basic features of the German law of unjustified enrichment. Restitution Law Rev 14

Chapter 3

The Goal(s) of the Law of Unjust Enrichment in China

3.1

General

After having established the terminology framework in Chap. 2, this chapter now discusses the goal(s) of the law of unjust enrichment in China. It is divided into two parts. The first part gives a brief overview of the Chinese legal system, Chinese civil law as well as the historical development of the law of unjust enrichment in China. The introduction aims to provide necessary background information and to facilitate understanding of the subsequent discussion of the current Chinese law of unjust enrichment. The introduction to Chinese civil law1 revolves around the discussion of Chinese Civil Code, which integrates various pieces of laws and regulations covering most aspects of civil activities and relations, including but not limited to real rights, contracts, marriage and family, tort and personal rights. As the law of unjust enrichment closely interacts with other areas of private law,2 especially contract, tort and real rights, it is necessary to stress regulation of these areas of laws in the Chinese Civil Code and the concerned wider areas of law briefly. The second part of this chapter introduces the current Chinese law of unjust enrichment in more detail. It then explores the goals of the Chinese law of unjust enrichment from three perspectives: statutes, the opinions of commentators, and judgments made by courts in Beijing.

1 It should be noted that in this part (Chap. 3) of the book, ‘civil law’ does not mean the continental or Romano-Germanic legal system. Chinese civil law refers to all the laws adjusting property relationships and personal relationships between civil subjects with equal status, namely natural persons, legal persons and unincorporated associations. Chinese Civil Code, art 2. 2 Under Chinese law, unjust enrichment refers to benefits acquired without a legal basis, which results in other people’s loss. In order to determine the legal basis, it is inevitable to look into other areas of law. Cf Wang (2015b), p. 2.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 S. Lin, The Law of Unjust Enrichment in China: Necessary or Not?, China-EU Law Series 8, https://doi.org/10.1007/978-3-031-06178-3_3

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3.2

3

The Goal(s) of the Law of Unjust Enrichment in China

Introduction to the Chinese Legal System

After the establishment of the PRC, the Communist Party of China (‘CPC’)3 renounced the ‘nationalist’ legal system set up by the Kuomintang and started constructing the new legal system with ‘socialist’ characteristics.4 To have a clear picture of Chinese law, this section introduces the Chinese legal system after the PRC’s establishment. It is divided into two stages: the Mao era5 (1949–1978) and the Deng Xiaoping and post-Deng years (1979 to the present).6 In addition, this section also discusses the sources of Chinese law and their hierarchies. Here ‘law’ refers to any formal legally binding authority, which is used in a broad sense.

3.2.1

China’s Legal System During the Mao Era

After the PRC’s establishment, the CPC started to establish an entirely new legal system and promulgated a diverse range of laws and regulations.7 However, Mao and his party8 took a hostile view towards law, seeing law as ‘creating constraints upon their power’.9 Law-making and legal practices were heavily influenced by the Soviet experience during this era.10 The policies of the CPC and the State were taken as more important than legal rules and law was thought of as being flexible or manipulable.11 From the mid-1950s, the Anti-Rightist Movement, which was a reaction of Mao and his party to the people who criticized their ruling, put an end to the work of legal construction.12 During the Anti-rightist Movement, the CPC labelled the concepts of legality, equality before the law, and judicial independence as bourgeois ideas and

3

The Communist Party of China is the founding and ruling party of the PRC founded in 1921. The Kuomintang was the ruling political party of the Republic of China in Mainland China (1928–1949). During their time in power, the Kuomingtang regime had promulgated many laws, which not only imported and adopted legal institutions and legal theories from western countries but also reserved some characteristics of China’s traditional legal system. On 22 February 1949, the CPC promulgated the Instruction of Abolishing the Six Codes of Kuomingtang and Determining the Judicial Principles of Liberation Area. Wang and Madson (2013), p. 56; Fu and Zhu (2012), p. 4. 5 The Mao era started from the founding of the PRC and lasted to Deng Xiaoping’s grip onto power and the reversal of policy at the Third Plenary Session of the Eleventh Central Committee of the CPC in 1978. 6 Wang and Madson (2013), p. 56. 7 Wang (1997), p. 10. 8 ‘His party’ here refers to Mao’s communist supporters within CPC when he was in power. 9 Wang and Madson (2013), p. 56. 10 Ibid. 11 Wang (1997), p. 10; Zhu et al. (2007), p. 4. 12 Wang (1997), p. 11; Zhu et al. (2007), p. 4. 4

3.2

Introduction to the Chinese Legal System

29

said they should be discarded completely.13 The subsequent ten years of the ‘Cultural Revolution’14 put the whole country into chaos and social development was totally suspended. Laws were abolished, and the only source of rules was the policies of the CPC and Mao’s work.15 During the Cultural Revolution and before the introduction of the new policy of ‘Opening and Reform’ proposed by Deng Xiaoping, the PRC consequently lacked a formal legal system.16

3.2.2

The Chinese Legal System After 1979

After the end of the Cultural Revolution, the Third Plenary Session of the Eleventh Central Committee of the CPC declared in 1978 that ‘the emphasis of the Party’s work should be shifted to socialist modernisation’.17 The importance of rebuilding the legal system was emphasized by the CPC to facilitate the development of the economy. Many fundamental laws were enacted after 1978, including the Constitution of the People’s Republic of China (‘PRC Constitution’)18, the Criminal Law of the People’s Republic of China,19 and the Economic Contract Law of the People’s Republic of China (‘Chinese Economic Contract Law’).20 The goal of establishing a ‘socialist market economy’ was not set by the CPC until 1992, which was an

13

Wang (1997), p. 11; Li (2004), p. 31, 32. The Cultural Revolution was a political movement launched from 1966 by Mao Zedong and the ruling class of the CPC at that time. After the end, the CPC officially disowned the Cultural Revolution, stipulating that ‘the Cultural Revolution is a civil strife launched by leaders mistakenly and used by anti-revolution groups, which brought great catastrophe to the CPC, the state and Chinese people’. The CPC News, ‘The Decision about Several Historical Problems of the CPC since the Establishment of PRC’ (The 6th Plenary Session of the 11th CPC Central Committee, 29 June 1981) accessed 24 September 2021. 15 Wang (1997), p. 11. 16 Ibid; Jerome A Cohen, ‘The PRC Legal System at Sixty’ (East Asia Forum, 1 October 2009)

accessed 24 September 2021. 17 Liu (2004), pp. 82–83. 18 Zhonghua Renmin Gongheguo Xian Fa (中华人民共和国宪法) [Constitution of the People’s Republic of China] (promulgated by the NPC on 4 December 1982, effective since 4 December 1982, last amended on 11 March 2018). 19 Zhonghua Renmin Gongheguo Xinfa (中华人民共和国刑法) [Criminal Law of the People’s Republic of China] (promulgated by the NPC on 1 July 1979, effective since 1 October 1997, last amended on 26 December 2020. 20 Zhonghua Renmin Gongheguo Jinji Hetong Fa (中华人民共和国经济合同法) [Economic Contract Law of the People’s Republic of China] (promulgated by the NPCSC on 13 December 1981, effective since 1 July 1982, expired on 1 October 1999). 14

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ideological breakthrough.21 Since then, the focus of the legislative task moved to the establishment of a legal system serving the socialist market economy.22 As there was an urgent need for laws to support and facilitate economic development, Deng Xiaoping insisted that China had no time to wait for a ‘complete set of equipment’. It was better to have some laws rather than none and to have them earlier rather than later.23 As a consequence, legal construction at that time was unsystematic, and a large number of legal norms of different types were produced, including laws, administrative rules, local regulations and judicial interpretations. By 2010 when the CPC proclaimed the completion of the task of creating ‘a socialist legal system with Chinese characteristics’, the NPC and the NPCSC had passed 236 laws, and the State Council had enacted more than 690 pieces of administrative regulations.24 More than 8600 pieces of local regulations have been issued by different levels of local People’s Congresses (‘PCs’) and their Standing Committees (‘PCSCs’).25

3.2.3

Sources of the Current Chinese Law

The current Chinese legal system basically follows the continental European legal tradition, of which the sources of law are statutes and written legal documents.26 The great diversity of Chinese statutory law makes China’s legal system complicated and legal research rather difficult. It is therefore necessary to briefly introduce the sources and hierarchies of Chinese laws and regulations before going a step further to explore the Chinese law of unjust enrichment. The PRC Constitution sets out the general legal principles and establishes a hierarchical legal system consisting of norms at different levels. The hierarchy of legal norms and their effect are confirmed by the Legislation Law of the People’s Republic of China (‘Chinese Legislation Law’),27 which are introduced below. The PRC Constitution is the highest legal authority and has the overriding legal effect, which can only be amended by the NPC.28 The NPC is the PRC’s highest organ of state power, but it only convenes for one plenary session per year, usually in

21 The 14th CPC National Party Congress in 1992 declared that economic reform of China would be accelerated toward the direction of establishing a ‘socialist market economy’. Wang (2013), p. 1. 22 Fu (2010), p. 43. 23 Deng (1984), p. 158. 24 Chen (2011), p. 45. The State Council is the Central People’s Government of the PRC. 25 Ibid. See also Cai (2007), p. 154. 26 Wang (1997), p. 15. 27 Zhonghua Renmin Gongheguo Lifa Fa (中华人民共和国立法法) [Legislation law of the People’s Republic of China] (promulgated by the NPC on 15 March 2000, effective since 1 July 2000, last amended on 15 March 2015). 28 PRC Constitution, art 62; Chinese Legislation Law, art 87, 88.

3.2

Introduction to the Chinese Legal System

31

March.29 When the NPC is not in session, the NPCSC, defined as the permanent body of the NPC, performs most of the functions of the NPC.30 At the next level under the PRC Constitution are laws, which are promulgated and enacted by the NPC and the NPCSC.31 Below the laws are administrative rules enacted by the State Council,32 local regulations enacted by local PCs and PCSCs,33 ministry rules enacted by the ministries and departments of the State Council and other administrative agencies,34 and local administrative rules.35 If subordinate legislation contravenes superordinate legislation, the legislation should be modified or revoked by the corresponding authority.36 If there is any discrepancy between special provisions and general provisions, special provisions shall prevail.37 If the discrepancy arises between new provisions and old provisions, new provisions shall prevail.38 In addition to the laws and regulations listed above, the NPCSC empowered the SPC, the Supreme People’s Procurator (‘SPP’), the State Council and PCSCs to interpret laws and regulations.39 The SPC has issued more interpretations than other organs in the need of adjudication work.40 The term ‘judicial interpretation’ refers specifically to interpretations made by the SPC in this book. Chinese law is a codified legal system and case law is not one of the sources of law.41 An earlier court judgment thus does not bind later court proceedings in China. However,

29

Li and Otto (2002), p. 3. PRC Constitution, art 57. 31 Chinese Legislation Law, art 7. 32 Chinese Legislation Law, arts 65 and 88. 33 Chinese Legislation Law, art 72. PCs of a province, autonomous region, municipality directly under the central government and their respective PCSCs may enact local regulations. In specific cases, PCs and PCSCs in a major city may also enact local regulations. 34 Chinese Legislation Law, art 80. 35 Chinese Legislation Law, art 82. 36 Chinese Legislation Law, art 96. 37 Chinese Legislation Law, art 92. Chinese law does not provide definitions regarding ‘general provisions’ and ‘special provisions’. It is generally agreed by academics and practitioners that they are a pair of relative concepts. General provisions apply to common people and general matters nationally before they are abolished. Special provisions are laws and regulations that are of more special attributes compared with general provisions, applying to certain matters, certain areas, or certain people. Editorial Committee of the Law Dictionary of Institute of Law of Chinese Academy of Social Science (2003), p. 1383, 1734. 38 Chinese Legislation Law, art 92. 39 Quanguo Renmin Daibiao Dahui Changwu Weiyuanhui Guanyu Jiaqiang Falv Jieshi Gongzuo de Jueyi (全国人民代表大会常务委员会关于加强法律解释工作的决议) [Resolution of the Standing Committee of the National People’s Congress Providing an Improved Interpretation of the Law] (promulgated by the NPCSC on 10 June 1981, effective since the same date). 40 Chen (2003), p. 23, 25. 41 Zhang (2014b), p. 105. 30

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judicial interpretations issued by the SPC have full legal force,42 which shall be quoted when the courts make decisions on the basis of judicial interpretations.43 As noted, judgments are not legally binding in the Chinese legal system. However, on 26 November 2010, the SPC started to establish a system of guiding cases44 and released four cases as the first set of guiding cases on 20 December 2011.45 Subsequently, more guiding cases have been published. The guiding cases are selected by the SPC from the cases reported by the provincial Higher People’s Courts. Article 7 of the Provisions of the Supreme People’s Court on Case Guidance Work provides, ‘People’s courts at all levels shall use the guiding cases issued by the SPC as reference.’46 Although the guiding cases have no formal legal authority,47 it has been observed that they have a ‘factual binding force’ or the so-called ‘de facto binding force’ because they have a general effect on all people’s courts.48

3.3 3.3.1

Introduction to Chinese Civil Law Overview

Despite being a civil law jurisdiction, China lacked a unified civil code for decades due to complex historical reasons.49 Instead, a large number of individual laws had been enacted to deal with civil matters according to the principle ‘only including well-developed provisions’.50 The core statutes governing civil legal relationships include the General Principles of Civil Law of the PRC (‘GPCL’),51 the Contract 42

Zuigao Renmin Fayuan Guanyu Sifa Jieshi Gongzuo de Guiding (最高人民法院关于司法解释 工作的规定) [Provisions of the Supreme People’s Court on the Judicial Interpretation Work] (promulgated by the SPC on 23 March 2007, effective since 1 April 2007), art 5. 43 Ibid, art 27. 44 Zuigao Renmin Fayuan Guanyu Anli Zhidao Gongzuo de Guiding (最高人民法院关于案例指 导工作的规定) [Provisions of the Supreme People’s Court on Case Guidance Work] (promulgated by the SPC on 26 November 2010, effective since the same date). 45 Zuigao Renmin Fayuan Guanyu Fabu Diyipi Zhidao Xing Anli de Tongzhi (最高人民法院关于 发布第一批指导性案例的通知) [Notice of the Supreme People’s Court on Issuing the First Set of Guiding Cases] (promulgated by the SPC on 12 December 2011). 46 N 44. 47 Deng (2015), p. 449, 468. 48 Ibid; Jia (2016), p. 2213. 49 One reason contributing to the absence of a comprehensive civil code in China is the pragmatic and piecemeal approach adopted by the CPC in the 1980s to enacting individual civil law statutes first, as noted above. See supra, Sect. 3.2.2 in this chapter. For a detailed discussion of the complex historical reasons, see Zheng (2013), p. 1; Ran and Du (2005), p. 66, 68; Lin (2019), p. 439. 50 成熟一条制定一条. Wang (2011), p. 26. 51 Zhonghua Renmin Gongheguo Minfa Tongze (中华人民共和国民法通则) [General Principles of the Civil Law of the People’s Republic of China] (promulgated by the NPC on 12 April 1986, effective since 1 January 1987, last amended on 27 August 2009, expired on 1 January 2021).

3.3

Introduction to Chinese Civil Law

33

Law of the PRC (‘Chinese Contract Law’),52 the Property Law of the PRC (‘Chinese Property Law’)53 and the Tort Liability Law of the PRC (‘Chinese Tort law’).54 Since 2014, China initiated a new round of civil law codification with a ‘two-step’ strategy, the promulgation of the General Provisions of the Civil Law of the People’s Republic of China (‘General Provisions’)55 in 2017 and the completion of the whole civil code in 2020.56 This first step was achieved when the General Provisions were issued and came into effect in 2017. On 28 May 2020, China completed the second step with the promulgation of the Chinese Civil Code, which consists of seven books and 1260 articles. The Chinese Civil Code is an amalgamation of existing laws, regulations and judicial interpretations of the key areas of civil law but also include a number of new provisions. Before the Chinese Civil Code entered into effect, the rules of unjust enrichment were provided by the General Provisions and the GPCL. Therefore, an introduction to these two sets of legislation and their relationship with the Chinese Civil Code is provided in this section first. This section then introduces the main categories of Chinese civil law, i.e. contract law, property law and tort law.

3.3.2

The GPCL, General Provisions and the Chinese Civil Code

From the beginning of the reform process, China needed a piece of legislation providing general principles, basic legal concepts, and basic institutions of civil law. The GPCL was enacted on 12 April 1986 to meet these demands. The GPCL consists of nine chapters and 156 articles. The GPCL not only sets forth general rules to deal with civil matters but also provides provisions governing particular civil law subjects, e.g. contracts, tortious conduct and the protection of intellectual property rights. It has been described as a ‘quasi’ civil code although not a comprehensive one.57 Many provisions of laws, regulations and judicial interpretations enacted in

52

Zhonghua Renmin Gongheguo Hetong Fa (中华人民共和国合同法) [Contract Law of the People’s Republic of China] (promulgated by the NPC on 15 March 1999, effective since 1 October 1999, expired on 1 January 2021). 53 Zhonghua Renmin Gongheguo Wuquan Fa (中华人民共和国物权法) [Property Rights Law of the People’s Republic of China] (promulgated by the NPC on 16 March 2007, effective since 1 October 2007, expired on 1 January 2021). 54 Zhonghua Renmin Gongheguo Qinquan Zeren Fa (中华人民共和国侵权责任法) [Tort Liability Law of the People's Republic of China] (promulgated by the Standing Committee of the National People’s Congress (‘NPCSC’) on 26 December 2009, effective since 1 July 2010, expired on 1 January 2021). 55 Zhonghua Renmin Gongheguo Minfa Zongze (中华人民共和国民法总则) [General Provisions of the Civil Law of the People’s Republic of China] (Promulgated by the National People’s Congress (‘NPC’) on 15 March 2017, effective since 1 October 2017, expired on 1 January 2021). 56 See Lin (2019), p. 453. 57 Liu (2011), p. 2.

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the area of civil law afterwards contravene and replace the rules of the GPCL. As a consequence, the GPCL seems to be increasingly out of date.58 On 15 March 2017, the NPC issued the General Provisions setting out basic principles commonly applicable to different branches of civil law and building the basic legal framework for China’s civil legal system. The General Provisions provided the basis for the formulation of the rest of the Chinese Civil Code, i.e. the individual books and later became the general part, i.e., Book I General Provisions, of the Chinese Civil Code. Clearly, the General Provisions overwrite many provisions of the GPCL but does not include those provisions concerning specific civil law subjects in the GPCL, e.g. contract, intellectual property and tort liability. As mentioned previously, China’s long-expected Chinesse Civil Code was finally promulgated in May 2020. In addition to Book I General Provisions (Articles 1 to 204), the Chinese Civil Code consists of six individual books: Book II Property Rights (Articles 205 to 462), Book III Contract (Articles 463 to 988), Book IV Personality Rights (Articles 989 to 1039), Book V Marriage and Family (Articles 1040 to 1118), Book VI Inheritance (Articles 1119 to 1163), and Book VII Tort Liability (Articles 1164 to 1258). The Chinese Civil Code repeals and replaces nine separate statutes governing civil law matters,59 namely the GPCL, the General Provisions, the Marriage Law of the PRC,60 the Law of Inheritance of the PRC,61 the Adoption Law of the PRC,62 the Guarantee Law of the PRC,63 the Chinese Contract Law, the Chinese Property Law, and the Chinese Tort Law. Although the Chinese Civil Code does not itself fundamentally changes the existing civil law regime, taking a comprehensive view, the enactment of the code still marks significant progress in the enhancement of clarity and internal consistency of Chinese civil law.64 Concurrently with the taking effect of the Chinese Civil Code on 1 January 2021, the SPC issued a batch of new judicial interpretations and revised a series of

58

Chen (2015), pp. 492–493. Chinese Civil Code, art 1260. 60 Zhonghua Renmin Gongheguo Hunyin Fa (中华人民共和国婚姻法) [Marriage Law of the PRC] (promulgated by the NPC on 10 September 1980, effective since 1 January 1981, last amended on 28 April 2001, effective since the same date, expired on 1 January 2021). 61 Zhonghua Renmin Gongheguo Jicheng Fa (中华人民共和国继承法) [Law of Inheritance of the PRC] (promulgated by the NPC on 10 April 1985, effective since 1 October 1985, expired on 1 January 2021). 62 Zhonghua Renmin Gongheguo Shouyang Fa (中华人民共和国收养法) [Adoption Law of the PRC] (promulgated by the NPCSC on 29 Dececmber 1991, effective since 1 April 1992, last amended on 4 November 1998, effective since the same date, expired on 1 January 2021). 63 Zhonghua Renmin Gongheguo Danbao Fa (中华人民共和国担保法) [Guarantee Law of the People’s Republic of China] (promulgated by the NPCSC on 30 June 1995, effective since 1 October 1995, expired on 1 January 2021). 64 For a detailed discussion of the succession and innovations of the Chinese Civil Code, see Nie (2021), p. 105. 59

3.3

Introduction to Chinese Civil Law

35

existing judicial interpretations to support the application of the Chinese Civil Code.65

3.3.3

Chinese Property Law

The Chinese Property Law promulgated in 2007 once formed the central piece of China’s property legislation for more than one decade. Beforehand, the basic rules for the regulation of property rights were provided by the GPCL.66 The Chinese Property Law was repealed and became ineffective when the Chinese Civil Code takes effect. Book II Property Rights of the Chinese Civil Code (‘Book II Property Rights’) is formulated based on the Chinese Property Law and the Guarantee Law of the PRC, adddressing civil relations arising from the attribution and use of property.67

65

See the compilation of new and revised judicial interpretations regarding the Chinese Civil Code by the SPC: https://file.chinacourt.org/f.php?id¼cc056d3b2c559102&class¼enclosure. The new batch of judicial interpretations mainly include the provisions on the retroactivity of the Chinese Civil Code and interpretations on the books concerning property rights, marriage and family and succession, and guarantee system. Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minfadian Shijian Xiaoli De Ruogan Guiding (最高人民法院关于适用hh中华人民共 和国民法典ii时间效力的若干规定) [Several Provisions of the Supreme People’s Court on the Retroactivity in the Application of the Civil Code of the People’s Republic of China] (promulgated by the SPC on 29 December 2020, effective since 1 January 2021); Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minfadian Wuquan Bian De Jieshi Yi (最高人民法院关 于适用hh中华人民共和国民法典ii物权编的解释(一)) [Interpretation I of the Supreme People’s Court on the Application of the Book Real Right of the Civil Code of the People’s Republic of China] (promulgated by the SPC on 29 December 2020, effective since 1 January 2021); Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minfadian Youguan Danbao Zhidu De Jieshi (最高人民法院关于适用hh中华人民共和国民法典ii有关担保制度的解释) [Interpretation of the Supreme People’s Court on the Application of the Relevant Guarantee System of the Civil Code of the People’s Republic of China] (promulgated by the SPC on 31 December 2020, effective since 1 January 2021); Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minfadian Hunyin Jiating Bian De Jieshi Yi (最高人民法院关于适用hh中华人民共 和国民法典ii婚姻家庭编的的解释(一)) [Interpretation I of the Supreme People’s Court on the Application of the Book Marriage and Family of the Civil Code of the People’s Republic of China] (promulgated by the SPC on 29 December 2020, effective since 1 January 2021); Zuigao Renmin Fayuan Guanyu Shiyong Zhonghua Renmin Gongheguo Minfadian Jicheng Bian De Jieshi Yi (最 高人民法院关于适用hh中华人民共和国民法典ii继承编的解释(一)) [Interpretation I of the Supreme People’s Court on the Application of the Book Succession of the Civil Code of the People’s Republic of China] (promulgated by the SPC on 29 December 2020, effective since 1 January 2021). 66 Zhonghua Renmin Gongheguo Wuquan Fa (中华人民共和国物权法) [Property Rights Law of the People’s Republic of China] (promulgated by the NPC on 16 March 2007, effective since 1 October 2007). 67 Chinese Civil Code, art 205.

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According to the General Part of the Chinese Civil Code, property includes real property (or immovables) and personal property (or movables).68 A ‘property right’, or called as ‘real right’, is defined as an exclusive right of direct control enjoyed by a right-holder according to law over specific property.69 A property right is an absolute right, which entitles the right holder to exclude any other person’s interference.70 Any third party should respect and not infringe upon the holder’s property right. This is the so-called ‘principle of absoluteness of property rights’.71 Another principle of property law in China is the ‘principle of legal prescription of property rights’. It means that the types and content of property rights can only be defined by law.72 Under this principle, there are only three kinds of property rights in China, namely the ownership, usufructuary right and real rights for security.73 The Chinese Civil Code rewrites the provisions in the Chinese Property Law in respect of the establishment, alteration, transfer and extinguishment of property rights, distinguishing that of immovables from movables.74 The establishment, alteration, transfer and extinguishment of immovables shall become effective after registration unless otherwise provided by law.75 The creation and alteration of property rights of movables take effect upon delivery, except otherwise prescribed by law.76 Delivery usually means a physical handing over and the pass of the actual possession of the movable property. In exceptional circumstances, the physical requirements of the delivery may be attenuated, e.g. where the transferee is already in possession of the object77 or where the transferor and transferee agree that the transferor will continue to possess the movable after the transfer of ownership occurs.78 Besides, there is a category of ‘special movable property’, including vessels, aircrafts or motor vehicles.79 The creation, alteration, transfer or elimination

68

Chinese Civil Code, art 115. Chinese Civil Code, art 114. 70 Liu (2008), p. 21, 22. 71 Ibid. 72 Chinese Civil Code, art 116. Li (2010), p. 7. 73 Chinese Civil Code, art 114(2). A usufructuary right describes the right to possess, use and benefit from immovable property owned by someone else. Chinese Civil Code, art 323. Article 386 of the Chinese Civil Code provides the concept of real rights for security, which stipulates, ‘the holder of real rights for security shall enjoy priority to receive payments from the property for security in case the obligor fails to pay its due debts or the circumstance for the realization of real rights for security as stipulated by the parties concerned occurs, unless it is otherwise prescribed by any law’. 74 Chinese Civil Code, arts 208, 209, 224. 75 Chinese Civil Code, art 209. 76 Chinese Civil Code, art 224. 77 Chinese Civil Code, art 226. 78 Chinese Civil Code, art 228. 79 Chinese Civil Code, art 225. 69

3.3

Introduction to Chinese Civil Law

37

of property right over a special movable property is not protected from bona fide third party if it is not registered.80 In addition to contracts, other legal processes, like court adjudication, arbitration awards, or requisition decisions of governments, inheritance and wills may also lead to the creation, alteration, transfer or extinction of property rights.81

3.3.4

Excursus: Causality and Abstraction in Chinese Law

This section discusses the relationship between the transfer of ownership and the contract to transfer ownership in Chinese law and explores the question whether the existence of a valid legal basis is a pre-requisite for the effectiveness of a property transfer. Depending on different answers to this question, transfer systems can be divided into two kinds: causal and abstract. The validity of a transfer of ownership in a causal transfer system depends on the existence and validity of a legal basis for the transfer. In contrast, in an abstract transfer legal system, the validity of a transfer of ownership does not in any way depend on a valid legal basis, contractual or otherwise.82 Whether the transfer system in Chinese law is causal or abstract is crucial for the later discussion of the Chinese law of unjust enrichment and its interactions with property law. Typically, the legal basis for transfer is an obligation, often a contractual one, on the part of the transferor to effect the transfer of ownership.83 Under a causal transfer system, the contract and transfer of ownership can either be contained in one single transaction or be two distinct acts. In the former case, an intended transfer of ownership validly occurs upon the conclusion of the valid obligatory contract.84 In the latter case, the conclusion of contract and the ownership transfer are separate because usually the legal system concerned requires some form of “publicity” to be satisfied for the transfer of ownership, such as the delivery of a movable property by the transferor or the registration of the transfer of ownership in immovable property.85 The distinction of the contract and the transfer of property is known as the

80 Ibid. The term ‘bona fide third party’ refers to the third party who has paid reasonable consideration for buying the vessel, aircraft or motor vehicles and has completed the registration for transfer the property right without knowing the ownership of the property has been transferred. The transfer of the property between the original two parties is valid upon delivery. However, if the bona fide third party wants to claim the ownership of the property, the property needs to be transferred to the third party. Wang (2015a), p. 86; Cui (2011), p. 89. 81 Chinese Civil Code, arts 229–231. 82 For a detailed discussion of the causality and abstraction of transfer systems, see Häcker (2010). 83 Häcker (2010), p. 201. 84 This is the position in English law in terms of the sales of goods. Infra, Sect. 5.3.3.4 in Chap. 5. 85 Häcker (2010), p. 201.

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‘principle of separation’.86 The adoption of the ‘principle of separation’ is a condition for a transfer system to be abstract, but an abstract transfer system goes further. It maintains that the validity of a transfer of ownership is not dependent on the existence of a valid underlying contractual or other legal bases. This is the so-called ‘principle of abstraction’.87 It is widely agreed that Chinese law adopts the principle of separation and takes a contract to transfer ownership and the transfer of ownership as distinct transactions.88 The transfer of ownership of movable and immovable property shall become effective upon delivery and registration respectively.89 Articles 215 and 597 (1) of the Chinese Civil Code indicates that the validity of an obligatory contract is not affected by the impossibility of the subsequent transfer of ownership.90 However, there is more controversy regarding that to what extent the principle of abstraction has been accepted in Chinese law. It is incorrect to say in reverse that the validity of the underlying contract and other legal basis does not influence the intended transfer of ownership. Under Chinese law, where an ownership is transferred under a void or revoked contract or other civil juristic act, Article 157 of the Chinese Civil Code requires the property to be returned. In particular, Article 20 of the Interpretation I of the SPC on the Application of the Book Real Right of the Civil Code of the PRC (‘Interpretation I of the Book Real Right’) specifies that where a transfer contract is determined as void, the transferee’s claim for obtaining the property ownership through bona fide acquisition should not be supported.91 These provisions indicate that the validity of a transfer of ownership is dependent on the existence of a valid legal basis, e.g. a valid sales contract.92 If a valid legal basis is lacking, there will be

86 For more discussions of the principle of separation, see Markesinis et al. (2006), p. 27; Häcker (2013), p. 49. 87 The principles of separation and abstraction originated from German law, which are two of the most intriguing peculiarities of German private law. Under the German mode, any transfer of ownership is legally separate from the underlying contract to make such transfer. Wolff (2005), p. 473, 485; Sadowski (2015), pp. 237, 238–240. 88 Dong (2011), p. 54; Jia (2009), p. 42. 89 Supra, Sect. 3.3.3 in this chapter; Chinese Civil Code, art 209 and art 224. 90 Article 215 of the Chinese Civil Code stipulates, ‘A contract concluded by the parties concerned on the creation, change, transfer or elimination of the real right in an immovable shall become effective upon the conclusion of the contract, except it is otherwise prescribed by any law or agreed by the parties; and whether the real right has been registered does not affect the validity of the contract’. Article 597 (1) of the Chinese Civil Code states: “Where a seller fails to acquire the right to dispose, rendering the transfer of ownership of the subject matter impossible, the buyer may rescind the contract, and claim liability of the seller for breach of contract.” 91 N 65. For a detailed introduction of bona fide acquisition in Chinese law, see infra Sect. 4.3.2.3 in Chap. 4. Article 20 of the Interpretation on Book Real Right stipulates, ‘Where the transferee claims acquirement of ownership in accordance with Article 311 of the Civil Code, such a claim shall not be supported under any of the following circumstances: (1) the transfer contract is determined as void; (2) the transfer contract is revoked’. 92 Other legal reasons, based on which property ownership can be validly transferred, include succession, legal decisions and government decisions. Chinese Civil Code, arts 229 and 230.

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Introduction to Chinese Civil Law

39

no valid transfer of ownership. This view has also been widely agreed by Chinese scholars.93 Therefore, this book adopts the position that Chinese law is a causal transfer system.

3.3.5

Chinese Contract Law

Before the enactment of the Chinese Contract Law in 1999,94 there were three major laws governing contractual relationships in China: the Chinese Economic Contract Law,95 the Law of the People’s Republic of China on Foreign-Related Economic Contracts96 and the Law of the People’s Republic of China on Technology Contracts.97 Besides, the GPCL has 23 articles concerning contractual liabilities and contractual relationships.98 However, with the change toward a more marketoriented economy and the increasing complexity of transactions, the redundancy, inconsistencies and inadequacies of the three pieces of legislation concerning contracts had become more and more apparent and unacceptable.99 The Chinese Contract Law was formulated and became effective on 1 October 1999, unifying and replacing the previous three pieces of legislation, and adding additional provisions to create a modern contract law regime catering to the needs of China. Compared with its predecessors, the Chinese Contract Law is relatively complete, comprehensive and compatible with international practice. However, as a result of the short history of legislation and the immature lawmaking standard, the Chinese Contract Law still has many deficiencies.100 The Chinese Contract Law ceased to have effect upon entry into force of the Chinese Civil Code on 1 January 2021. Since then, contractual law is regulated by Book III Contracts of the Chinese Civil Code, cconsisting of 526 provisions, which almost account for half of the total provisions of the Chinese Civil Code. Book III Contracts is divided into 29 chapters with three sub-books: Sub-book I General Provisions, Sub-book II Typical Contracts and Sub-book III Quasi-Contracts. Sub-book I provides general rules on contracts, governing in particular the 93

See Wu and Zhu (2006), p. 32; Liu (2013), p. 426; Liang and Chen (2007), p. 83; Mao (2020), p. 107, 118. 94 N 52. 95 N 20. 96 Zhonghua Renmin Gongheguo Shewai Jinji Hetong Fa (中华人民共和国涉外经济合同法) [Law of the People’s Republic of China on Foreign-Related Economic Contracts] (promulgated by the NPC on 21 March 1985, effective since 1 July 1985, expired on 1 October 1999). 97 Zhonghua Renmin Gongheguo Jishu Hetong Fa (中华人民共和国技术合同法) [Law of the People’s Republic of China on Technology Contracts] (promulgated by the NPCSC on 23 June 1987, effective since 1 November 1987, expired on 1 October 1999). 98 GPCL, arts 27, 53, 72, 80, 81, 84, 85, 88-89, 93, 106, 107, 111-116, 134 and 145. 99 Luo (1999), p. 8. 100 Zhong and Yu (1999), pp. 1, 22–30; Liang (2001), p. 92.

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conclusion, validity, performance, preservation, modification and assignment, termination of contract as well as liability in case of breach of contract. Sub-book II prescribes detailed rules for nineteen types of “typical contracts”, such as sales contracts, gift contracts, leasing contracts, storage contracts and partnership contracts. Sub-book III sets forth two forms of the so-called quasi-contracts: negotiorum gestio and unjust enrichment. The concept ‘quasi-contract’ is new to China’s civil law and there is no definition of ‘quasi-contract’ that has ever been provided. It is still controversial why the Chinese Civil Code categorizes negotiorum gestio and unjust enrichment as “quasi-contracts” and whether it is appropriate to locate this sub-book in Book III Contract. These questions are to be discussed in more detail later in this chapter.101

3.3.6

Chinese Tort Law

China did not have a single statute governing tort liabilities until the enactment of the Chinese Tort Law in 2009.102 Perviously, the GPCL provides 17 provisions regulating tort liabilities in Chap. 6 under the title ‘Civil Liabilities’.103 The Chinese Tort Law expanded the 17 tort-law related provisions in the GPCL to 92 articles, thus establishing a much more comprehensive framework governing tortious acts, liabilities and remedies.104 It not only covers general rules of liabilities for torts but also contains rules pertaining to special torts and the liability of various tortfeasors, such as tortious liabilities caused by defective products or medical mistreatment. After the Chinese Civil Code enters into force, tort-related matters are governed by Book VII Tort Liability of the Chinese Civil Code instead. Similar to other chapters of the Chinese Civil Code, Book VII Tort Liability is also formulated based on the revisions of existing tort related laws and regulations, i.e., the Chinese Tort Law and relevant judicial interpretations with a number of significant improvements and innovations being achieved.105 The Chinese Civil Code does not define the concept of tort. Article 120 of the Chinese Civil Code provides that a person whose civil rights and interests are infringed is entitled to require the tortfeasor to assume tort liability. This implies that a tort is an infringement of another’s civil rights and interests, which does not require unlawfulness.106 In principle, the fault of the tortfeasor is one of the preconditions for tort liability unless otherwise prescribed by law.107 The victim of a

101

See infra Sect. 3.5.5.2 in this chapter. N 54. 103 GPCL, arts 117–124. 104 Zhang (2011), p. 415. 105 For a detailed discussion, see Zhang (2020), p. 109. 106 Zhang (2011), p. 425. 107 Chinese Civil Code, arts 1165 and 1166. 102

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tort is entitled to require the tortfeasor to assume tort liabilities, such as compensation for damages, cessation of infringement, removal of obstruction and elimination of danger.108 It is worthwhile to note that Article 1165 of the Chinese Civil Code emphasizes that for fault-based liabilities only when the tortfeasor’s act causes damages should the tortfeasor bear tort liabilities.109

3.4 3.4.1

The Origin and Development of Unjust Enrichment in China Overview

Instead of being an indigenous part of China’s legal system, the concept of unjust enrichment was transplanted into China in 1911 when the Qing dynasty drafted China’s first modern civil code by reference to the German Civil Code. Nevertheless, the notion against being enriched without justifications can be traced back to ancient China. This section explains the historical evolution of the law of unjust enrichment in China chronologically, which is of significance for a better understanding of the current status of the Chinese law of unjust enrichment.

3.4.2

Ancient China

Although the modern concept of unjust enrichment was not founded in ancient China, there were scattered legal rules divesting individuals of benefits obtained without justifications in different dynasties. In the Warring States period, Fa Jing, the first systematic code in Chinese history, declared that a person who picked up lost property should be put to death.110 Tang Lv Shu Yi, the code of the Tang dynasty, provided that if one claimed ownership of a slave or property of others as his own, he would be punished as though he had committed a crime and be whipped

108

Chinese Civil Code, art 1167 and Chapter II of Book VII Tort Liability of the Chinese Civil Code. 109 Article 1165 of the Chinese Civil Code states, “The person who is at fault for infringement upon another’s civil right or interest, causing damages, shall be subject to the tort liability.” Previously, the Chinese Tort Law imposes tort liabilities on tortfeasors if their acts infringe another’s right or interest while the cause of damages is not a requisite. See Chinese Tort Law, art 6. 110 Zhou (1985), p. 181.

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forty times.111 Codes in the Ming and Qing dynasties also had rules compelling the return of lost property.112 The kings and emperors of ancient China used law as a tool to reign, which was essentially a compilation of ethical values and emphasized power rather than rights.113 The ancient Chinese compiled all branches of law in a single comprehensive code with no distinction between the public and private laws.114 The integration of the criminal and civil laws explains why the rules not only deprived the gains lacking any justifications but also imposed criminal punishments on the enriched. Although such rules were not intended to protect the individual’s property rights but to protect the social hierarchy and state interests, the rules indicate that ancient Chinese ethics saw the receipt of a windfall gain at the expense of another as morally unacceptable.

3.4.3

In the Late Qing Dynasty

From 1902 onwards, the late Qing government initiated a modernization of China’s legal system under the pressure of domestic and foreign demands.115 In 1911, the Qing government formulated the Draft Civil Code of the Great Qing (‘Qing Civil Code’) with the assistance of Japanese judges and scholars.116 This was the first attempt to establish a civil code in Chinese legal history.117 The code was heavily influenced by the German Civil Code (Bürgerliches Gesetzbuch) via Japan118 and brought the concept of unjust enrichment to China for the first time. One chapter in Book II ‘Obligatory Rights’ of the Qing Civil Code devoted sixteen articles to unjust enrichment, i.e. Article 929 to Article 944.119 Unjust enrichment was designated as a

111

Zhangsun (1993), p. 381. Tang Lv Shu Yi is China’s earliest and most integrated existing legal coded. It was compiled by Zhangsun Wuji and others, and promulgated in 653 by Emperor Gaozong of Tang. 112 Huai (1999), p. 82; Zhang (1999), p. 271. 113 Liang (1987), p. 17, 19–20; Yu (2014), pp. 27, 32–33. 114 This peculiarity of the law in ancient China is summarized as ‘Zhu Fa He Ti, Min Xin Bu Fen’ (the integration of various laws with no differentiation between civil and criminal laws)’. Zhang (2014a); Zhang (1998), p. 1; Yu (2014), pp. 30–31; Epstein (1998), pp. 153, 162. In Chinese history, there was no recorded attempt to make a separate code governing civil matters until the end of the Qing Dynasty. Chen (2015) ch 1. 115 Cheng (1924), p. 233. 116 The Qing government appointed the Japanese scholar, Yoshimasa Matsuoka, to help with the drafting of the Qing Civil Code. Zhang (2004a), p. 140. 117 Li (2003), p. 154; Chang (1973), p. 34. 118 Chang (1973), pp. 283–286; Zhang (1998), pp. 252–261. 119 Yang (2002), pp. 121–123.

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causative event giving rise to obligatory rights alongside with tort, contract, and negotiorum gestio.120 The main contents are set out below. Article 929 of the Qing Civil Code set out the general principle of unjust enrichment, stipulating: A person who obtains benefits from another person’s performance or in any other way without legal grounds and results in another’s loss is bound to return the benefits back to him. The duty also exists if the legal grounds fall away subsequently or if a transfer fails to produce the result it was intended to produce in accordance with the contents of the legal act. Acknowledgement of the existence or non-existence of an obligation shall be deemed as performance.121

The provision was nearly identical to section 812 of the German Civil Code,122 following the distinction of unjust enrichment claims into performance-based and non-performance-based. In fact, the Qing Civil Code borrowed the whole chapter regulating unjust enrichment from the German Civil Code. Article 930 provided that if one had a defence against another’s claim that he failed to invoke and performed to satisfy the claim, the performer was entitled to restitution.123 Article 933 classified benefits acquired in violation of law and good customs as unjust.124 The Qing Civil Code also specified a series of situations where the claimant could not claim for restitution. An unjust enrichment claim would fail if the claimant knowingly paid off a non-existent debt, paid in satisfaction of a moral obligation, or paid to discharge a time-barred debt (Article 931).125 A claimant could not assert an unjust enrichment claim if he paid to achieve certain results while knowing that the results would not occur or obstructing the achievement of the results deliberately against the principle of good faith (Article 932).126 The underlying rationale was that the person ignoring his rights was unworthy of legal protection. Articles 934 and 935 regulated the restitutionary liability of a person who disposed of another’s property without authority.127 Article 936 determined the extent of restitution for unjust enrichment, which included the benefits acquired unjustly, fruits, other benefits arising from using the unjust benefits and any compensation received due to the reduction, damage or embezzlement of the benefits.

120

Negotiorum gestio refers to a situation where a person manages the business of another to prevent damage to the interest of another under no statutory or contractual obligation. For a detailed introduction of this concept, see infra, section “Negotiorum Gestio” in this chapter. 121 Yang (2002), p. 121. 122 Article 812 of the German Civil Code stipulates, ‘A person who obtains something without legal basis as a result of the performance of another or by other means at his expense without legal basis is obliged to return it. This duty also exists if the legal grounds later lapse or if the results intended to be achieved by those efforts in accordance with the contents of the legal transaction do not occur’. 123 Yang (2002), p. 121. This provision is similar to Article 813 of the German Civil Code. 124 Ibid 122. This provision is similar to Article 817 of the German Civil Code. 125 Ibid 121–122. This provision is similar to Article 814 of the German Civil Code. 126 Ibid 122. This provision is similar to Article 815 of the German Civil Code. 127 Ibid. These two provisions basically duplicate Article 816 of the German Civil Code.

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Article 936 also specified that the enriched person should reimburse the price of the enrichment if the enrichment could not be returned in kind.128 The Qing Civil Code distinguished mala fide defendants who knew the absence of legal basis for the receipt of an enrichment (Article 938) or received the enrichment against the law or social ethics (Article 941) from bona fide defendants.129 The defendant was relieved from the obligation to make restitution if he was no longer enriched unless he was a mala fide defendant.130 Article 944 said that if a defendant transferred the enrichment gratuitously to a third party, the third party should bear the liability to make restitution to the extent of the defendant’s reduced obligation.131 As the Qing Civil Code was drafted under extreme time pressure,132 unjust enrichment was transplanted to China without in-depth research of its history, operation and setting in the general legal system. Due to the impending collapse of the Qing dynasty, the Qing Civil Code was never implemented, but ‘it paved the way for the future Chinese civil laws’133 and laid the foundation for the evolution of the Chinese law of unjust enrichment.

3.4.4

In the Republic of China

The 1911 revolution led by Dr. Sun Yat-Sen turned China into a republic.134 Despite the political turmoil, the Republican government did not cease efforts to establish a modern civil code.135 In 1925, the Beiyang Government formulated the Draft of Civil Law of the Republic of China, which was built on the Qing Civil Code.136 The number of provisions concerning unjust enrichment was reduced to 13 (Articles 273 to 285), but the content remained largely the same. In 1930, the Nationalist Government enacted the Civil Law of the Republic of China (‘Republican Civil Law’).137 The Republican Civil Law was never really 128

Ibid. This provision is a replicate of Article 816 (1) and (2) of the German Civil Code. Ibid 123. Articles 938 and 941 of the Qing Civil Code are similar to Article 819 of the German Civil Code. 130 Ibid. Qing Civil Code, arts 937, 938–942. 131 Ibid. This provision is a replicate of Article 822 of the German Civil Code. 132 Chen (2012a), p. 89. 133 Chen (2012b), p. 198. 134 Cf. Yu (1991), p. 895. 135 Li (2002), p. 124, 126. 136 Beiyang Government was the first government acknowledged by international society after the Revolution of 1911, which represented that the Republic of China came into being. The Draft of Civil Law of the Republic of China was not promulgated officially due to complex historical reasons. Cf Dong (2000), p. 172; Pound (1955), pp. 277, 280. 137 Zhonghua Minguo Minfa Dian (中华民国民法典) [Civil Law of the Republic of China] has five volumes, including Volume I General Provisions, Volume II Obligations, Volume III Property Rights, Volume IV Family and Volume V Succession. Volume I General Provisions was 129

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enforced in Mainland China. This was because of the political instability and continuing wars at that time, and the fact that it was too sophisticated to govern daily life operations in China during that period.138 The Republican Civil Law recognized unjust enrichment as one of the causative events generating obligatory liabilities as well. However, the number of provisions concerning unjust enrichment shrunk to five (Article 179 to Article 183) as compared with 16 provisions in the Qing Civil Code and 13 provisions in the Draft of Civil Law of the Republic of China.139 Article 179 provided the general unjust enrichment principle, stating, ‘A person who acquired benefits without legal grounds and resulting in another’s loss should return the benefits. The duty also exists if the legal ground later lapses’.140 This was a simplified version of Article 929 in the Qing Civil Code and discarded the dichotomy of performance and non-performance based unjust enrichment in the Qing Civil Code. Article 180 set out the situations where restitution should not be allowed. This included scenarios where the claimant paid under a moral obligation, discharged an undue debt, or knowingly paid off a non-existent debt.141 Article 181 determined the scope of restitution, including unjust benefits and other benefits arising from using the unjust benefits and if the return was impossible due to the nature of the benefits or other reasons, the defendant should reimburse the estimated price.142 Article 182 distinguished restitutionary liabilities of bona fide favorees who had no knowledge of the lack of legal basis from mala fide favorees who knew the lack of legal grounds at the time of the receipt of the enrichment or later.143 Bona fide favorees had no liability to return the benefit or the value of the benefit if the benefit did not exist anymore, while mala fide favorees were not entitled to such exemption. Mala fide favorees were required to return the received benefits or benefits that still existed at the time the mala fide favorees became aware of the lack of legal basis, plus interest and should make compensations if there were any damages to the obtained benefits. Article 183 imposed restitutionary liabilities on the third party who received unjust benefits transferred by the favoree gratuitously. The basis of the Republican Civil Code was the Qing Civil Code, but a large number of ‘otiose’ provisions were eliminated to achieve brevity and to give space

promulgated on 23 May 1929 and became effective since 10 October 1929. Volume II Obligations was promulgated on 22 November 1929 and came into force on 5 May 1930. Volume III Property Rights was promulgated on 30 November 1929 and came into force on 5 May 1930. Volume IV Family and Volume V Succession were promulgated on 26 December 1930 and came into force on 5 May 1931. Civil Law of the Republic of China is still currently implemented in Taiwan region although each book has been amended for several times. 138 Liang (2002), pp. 75, 80. 139 Liu (2013), p. 204. 140 Ibid 204. 141 Ibid 207–208. 142 Ibid 208. 143 Ibid 209.

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for local customs.144 The law of unjust enrichment was preserved presumably because it was perceived as in accordance with good morals against reaping without sowing in the Chinese culture.145 The simplification may, however, be a sign that lawmakers had considered the provisions concerning unjust enrichment in the Qing Civil Code excessive and may have thought that such an inarguable notion outght not to be regulated in such a complex way.

3.4.5

The Law of Unjust Enrichment in the PRC Prior to the Enactment of the Chinese Civil Code

3.4.5.1

Introduction

Since the establishment of PRC, the CPC has initiated five rounds of civil law codification. The first four attempts in the 1950s, 1960s, 1980s, and 1990s have failed outright, during which numerous draft civil codes were produced. As introduced above,146 until 28 May 2020, the long-expected Chinese Civil Code was finally promulgated by the NPC in the latest round of civil law codification. This section discusses the provisions concerning unjust enrichment in those draft civil codes and laws effective before the enactment of the Chinese Civil Code to present a roadmap showing how the law of unjust enrichment developed to the current status.

3.4.5.2

Unjust Enrichment in the Draft Civil Codes in the 1950s

The first round of civil law codification in the 1950s (from 1954 to 1956) created three versions of a ‘Law of Obligations’ modelled after the Soviet Union.147 As China adopted a a centrally planned economy during the time, the law of obligations did not receive much attention.148 Nonetheless, all three drafts contained three provisions on unjust enrichment and recognized unjust enrichment as a source of obligations alongside tort, contract, planning legislation, etc.149 The provisions set out the principle of unjust enrichment and addressed the beneficiary’s restitutionary and compensation liability and the beneficiary’s claim for necessary expenses

144

This explanation is made by Hu Hanmin, one legislator of the Republic Civil Law. Zhang (2004b), pp. 207–208. See also Pound (1955), p. 278. 145 For the moral idea of ‘reaping without sowing’ in the Chinese culture, see Ye et al. (2007), p. 391. 146 Supra, Sect. 3.3.1 in this chapter. 147 Zhang (2006), p. 30. 148 Liu (2013), p. 211. 149 He et al. (2003a), pp. 179–180, 204, 247.

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incurred.150 However, the concept of unjust enrichment varied in different drafts. According to the first version, unjust enrichment occurred where benefits were acquired without a legal basis, leading to another person’s loss, and the acquisition of benefits was not as a result of the defendant’s positive conduct.151 The second version stated that unjust enrichment occurred where benefits were acquired without a legal basis, resulting in another person’s loss, and the acquisition of benefits was due to the negligence of the aggrieved party rather than the defendant’s intent.152 The third version provided that unjust enrichment occurred when a person, neither intentionally nor negligently, acquired benefits without a legal or contractual basis from another’s losses.153 The changing concepts indicate that the draftsmen were uncertain about what unjust enrichment truly was. Even for the most fundamental element, the absence of legal basis, the legislators were unsure whether the ‘legal basis’ include contractual basis or not as the contractual basis was listed separately in the third version. Moreover, each draft imposed additional limitations for unjust enrichment, such as the exclusion of benefits acquired by the defendant’s positive conduct or the requirement that the benefits should be acquired due to the aggrieved party’s negligence. The limitations were aimed to exclude situations where defendants obtained benefits deliberately or negligently by their positive conduct and should thus be liable in tort. It appears that the draftsmen were not certain as to how to distinguish unjust enrichment liability from tort liability.154

3.4.5.3

Unjust Enrichment in the Draft Civil Codes of the 1960s

The second attempt to draft a civil code (from 1962 to 1964) failed during the time of the chaotic Cultural Revolution. As part of this effort, China’s party leaders and scholars made efforts to sweep away the impact of the Soviet model and create a civil code with Chinese characteristics.155 The drafts produced during this period refused to borrow from any foreign legislative experience, but focused on the planned economy and state intervention instead.156 ‘Conventional’ civil law concepts, such

150 Ibid. According to the drafts, the defendant’s restitutionary liability of unjust enrichment was to return the benefits received without a legal basis in kind to the person suffering a loss. The defendant had to bear ‘compensatory’ liability if the obtained property without a legal basis was damaged as a result of the defendant’s fault or gross negligence. The defendant was entitled to claim for compensation if he or she had paid any expenses beneficial or necessary for the obtained property. 151 Ibid 179. 152 Ibid 204. 153 Ibid 247. 154 Ibid 250. 155 Liang (2002), p. 5; Chen (2010), p. 159, 174. 156 Chen (2010), p. 174; Liu (2013), p. 216.

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as ‘right’, ‘obligation’, ‘legal person’, were all missing in those drafs.157 Provisions concerning unjust enrichment disappeared as well.158

3.4.5.4

Unjust Enrichment in the Draft Civil Codes in the 1970s and 1980s

The PRC did not launch its third round of codification until the late 1970s when economic reforms and the so-called open-door policy has been started.159 Four drafts appeared between 1979 and 1982, all of which only contained a single provision concerning unjust enrichment. The provisions of unjust enrichment in the first and second drafts were identical and located in the chapter concerning ‘liabilities for damages’ in the first draft and the chapter concerning ‘tort liabilities’ in the second draft.160 The provisions stipulate: Benefits acquired without a legal basis and resulting in another person’s damages should be returned to the person who suffers damages therefrom or should be turned in to the state. The benefits still need to be returned where there was a legal basis supporting the transfer but the legal basis lapses later. The beneficiary who did not know the absence of a legal basis and is no longer enriched bears no restitutionary liability.161

The third and fourth drafts placed the provision concerning unjust enrichment in the chapter titled ‘Civil Liabilities’.162 The content of the provisions on unjust enrichment in the third and fourth draft remained roughly the same as the provision in the first and second draft, while the former specified that unjust benefits should be turned in to the state only when the victim could not be traced. At this time, Chinese academics began researching unjust enrichment.163 Unjust enrichment was considered as an event generating liabilities rather than obligatory rights, which indicated its condemnable nature. The draft provisions held that benefits acquired without a basis were unacceptable and should be confiscated when the victim was unknown. The confiscation of benefits shows the influence of socialist ideology on the law, leading to the state’s intervention in civil affairs. The third round of civil law codification ended before any of the drafts produced during that period was ever put in place.164 The civil law codification was then temporarily put on hold because the economic and social relations to be regulated by

157

Liu (2013), p. 216. Ibid. 159 Liang (2002), pp. 6–7. 160 He et al. (2003b), p. 430, 484; See also Fu (2019), p. 116, 119. 161 He et al. (2003b), p. 430, 484. 162 Ibid 556, 618. 163 Liu (2013), p. 217. 164 Chen (2015), p. 336. 158

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the civil code were in upheaval.165 Moreover, the ‘war’ waged between civil law and economic law scholars contributed to the end of the third round of civil codification because each side tried to defend their own disciplinary ‘territory’.166 The failure to reach a consensus between the two schools of thought also reveals the inadequate theoretical preparation for enacting a civil code at the time. The lawmaker soon opted for a pragmatic, ‘piecemeal approach’ of enacting separate civil law statutes first to meet the urgent need of economic and social development.167 A series of individual statutes concerning civil law matters were enacted against this backdrop, including the GPCL drafted on the basis of the fourth draft of civil law produced in 1982.168

3.4.5.5

Unjust Enrichment in the GPCL and the Draft Civil Code in 1990s

Since its promulgation in 1986, the GPCL played the role of an interim and simplified version of a civil code for over thirty years. Article 92 of the GPCL set out the general principle of unjust enrichment, which is located in Section 2 ‘Obligatory Rights’ of Chap. 5 entitled ‘Civil Rights’. This provision reached the peak of brevity. Later, the fourth round of civil law codification began in 1998 after the historical abandonmen of planned economy and the announcement of developing a ‘socialist market economy’ by the 1993 Constitutoinal Ammendments.169 The civil law draft produced during this round adopted Article 92 of the GPCL without any changes concerning unjust enrichment.170 It can be concluded that China’s law of unjust enrichment has been stabilized since the enactment of the GPCL.

165

Ibid 335. Zhang (2016), p. 106, 111; Chen (2015), pp. 461–462; Chen (1995), pp. 56–66. Civil law regulates the property and personal transactions between equal parties. Economic law can be defined as laws governing private transactions from the viewpoint of the public interest, which is considered as existing between private law and public law, such as the antitrust law, and laws concerning price and distribution controls. During the ‘war’ between the civil law scholars and economic law scholars, the proponents of economic law contended that the legal relationships between enterprises fell into the region of economic law and civil law should only address legal relationships between individuals and claimed exclusivity over a large part of contract law, intellectual property law and other laws of a quasi economic-administrative nature, which narrowed the scope of civil law significantly. The disputes were about the appropriate scope and method of state intervention or governance in economic arenas. Kato (1982), pp. 429, 437–438. 167 Ibid. 168 Wang Hanbin, ‘Guanyu Zhonghua Renmin Gonghe Guo Minfa Tongze (Caoan) De Shuomin1986 Nian 4 Yue 2 Ri Zai Di Liu Jie Quanguo Renmin Daibiao Dahui Di Si Ci Huiyi Shang’ [An Illustration to the Draft of the GPCL-On the Fourth Session of the Sixth National People’s Congress] (The NPC of China, 2 April 1986) accessed on 26 October 2020. 169 Zhang (2016), p. 113. 170 Fu (2019), p. 120. 166

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As the only legal provision concerning unjust enrichment at the time, Article 92 of the GPCL simply stipulates, ‘If one acquires unjust benefits without a legal basis and results in another person’s loss, the unjust benefits should be returned to the person suffering a loss’. At the first glance, Article 92 of the GPCL is similar to the provisions in the drafts produced during the third attempt of civil law codification. However, the nature of unjust enrichment liability was substaintially changed by the GPCL. In the previous drafts of civil code, the liability to return under unjust enrichment is labelled either as a ‘liability for damages’, ‘tort liability’ or ‘civil liability’, while in the GPCL, unjust enrichment is categorized as an event giving rise to obligatory rights. One of the constitutive elements of unjust enrichment, ‘another person’s damage’, is replaced by ‘another person’s loss’, which also reflects that unjust enrichment was not deemed as a liability for damages or in tort anymore.171 As unjust enrichment is shifted to an event generating a right for recovery, the preceding requirement that the benefits obtained without a legal basis should be turned into the state was also deleted in the GPCL. At this stage, the SPC supplemented one judicial interpretation regarding the implementation of Article 92 of the GPCL, i.e., Article 131 of the Opinions of the SPC on Several Issues Concerning the Implementation of the General Principle of Civil Law of the People’s Republic of China (‘Opinions on the GPCL’).172 This provision specifies the scope of return of benefits obtained unjustly. It states: “The returned unjust benefits shall include the original object and the fruits arising therefrom; other benefits obtained by using the enrichment obtained unjustly shall be taken over by the state after deducting the expenses of labour services overheads.” With only one general principle and one judicial interpretation, the scarce and abstract law of unjust enrichment resulted in unfairness and inconsistencies in judicial practices, which had been subject to strong criticisms for decades.173 Several fundamental issues are discussed here brieftly. First, the Chinese law of unjust enrichment at this stage allows claimants to seek return of whatever has been obtained by the defendant without a legal basis. What if a transferor enriched a defendant knowing that there was no legal basis for such enrichment? From the perspective of fairness and efficiency, should a legal system grant restitution to a plaintiff who first enriched a defendant in spite of having been aware of the absence of an obligation to perform? The Chinese law of unjust

171

Fu (2019), p. 120. Zuigao Renmin Fayuan Guanyu Guanche Zhixing Zhonghua Renmin Gongheguo Minfa Tongze Ruogan Wenti De Yijian (Shixing) (最高人民法院关于贯彻执行hh中华人民共和国民 法通则ii若干问题的意见(试行)) [Opinions of the SPC on Several Issues Concerning the Implementation of the General Principles of Civil Law of the People’s Republic of China (For Trial Implementation)] (promulgated by the SPC on 26 January 1988, effective since the same date, expired on 1 January 2021). 173 Scholars express their dissatisfaction of the Chinese law of unjust enrichment at this stage in a number of books and articles. A few examples are provided here. Huo (2006b), p. 87; Tang (2013), p. 128. 172

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enrichment at this stage is excessively concise and does not exclude restitutionary claims in these situations. Second, the law of unjust enrichment imposes strict liability in the sense that a defendant who is enriched without a legal basis is bound to return the enrichment even though he or she is not at fault. Article 92 of the GPCL appears to require defendants to bear the same liability regardless of the defendants’ participation, acquiescence or knowledge. This indiscrimination may lead to unfairness to the defendants, especially in cases where the enrichment cannot be returned in kind. For example, a plaintiff cleaned a defendant’s shoes without any obligations. The defendant may induce the plaintiff to clean his shoes with ill intention, passively accept the plaintiff’s provision of service with an opportunity to reject it or have no knowledge of the fact that the plaintiff cleaned his shoes. In this regard, the law may force an innocent defendant who had no opportunity to reject the provision of services to pay for what he has never requested. Even if the claimant provided the service maliciously knowing that the defendant had never requested his or her provision of services but claimed for repayment, the defendant still bears the liability to return the value of the services.174 Such imposition of liability infringes the innocent defendant’s freedom to choose how to distribute his resources, which potentially violates the principle of fairness. Besides, the judicial interpretation, Article 131 of the Opinions on the GPCL, requires other benefits obtained by using benefits acquired unjustly to be taken over by the state after deducting the labour costs with no further explanation regarding the meaning of ‘other benefits’. The requirement to handover such benefits to the state reflects the state intervention into private legal relationships with socialist characteristics.175 As parties in unjust enrichment cases have equal legal relationships, the confiscation of such ‘other benefits’ is incompatibility with the framework of private law and had been subject to commentators’ criticisms.176 Other issuses unsolved at this stage include but not limited to: (i) the lack of guidance on the measure of value of the benefit where restitution in kind is impossible, (ii) the murky relationship between unjust enrichment and other areas of law, and (iii) the inconsistency in terms of the distribution of burden of proof in unjust enrichment cases. As these issues are still not addressed by the Chinese Civil Code, they are discussed in detail in the next chapter where problems generated by the current regulation of unjust enrichment are explored.177

174 Where unjust enrichment cannot be returned in kind, it is generally agreed that the defendant should return the value of the enrichment. See infra, section 3.5.4.2 in this chapter. 175 Liu (2013), p. 220. 176 Chen (2017) pp. 59, 65–66; Fu (2019), p. 120. 177 See infra, Sect. 4.2 in Chap. 4.

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3.4.6

The Goal(s) of the Law of Unjust Enrichment in China

Summary

The modern Chinese concept of unjust enrichment is a legal transplant from German law via Japan.178 It appears that due to the underdevelopment of the legal system and traditions in the late Qing Dynasty, the ‘import’ of the law of unjust enrichment took place without adequate understanding and a profound theoretical or practical basis. In spite of being continuously simplified, the Chinese law of unjust enrichment was preserved in most of the draft civil codes and constantly followed the German-style absence of basis approach through the ages without dramatic changes regarding the basic rationale. The notion of unjust enrichment accords with a deep-rooted condemnation of reaping without sowing in the Chinese culture. Throughout the course of history, legal provisions contained in different draft laws concerning unjust enrichment were reduced from 16 provisions to 1 provision eventually. The performance and non-performance typology of unjust enrichment, the distinction between mala fide and bona fide defendants, the defences reduing or extinguishing defendants’ restitutionary liability were discarded gradually in the course of evolution. The constant slight modifications to the definition of unjust enrichment and simplification of unjust enrichment rules reveal the legislators’ lack of deep understanding of the subject. This can be taken as evidence that the legislators were unsure about the concept, goals and functions of the law of unjust enrichment when formulating the Chinese law of unjust enrichment.

3.5 3.5.1

China’s Current Law of Unjust Enrichment Overview

The previous sections have introduced the Chinese legal system, China’s civil law regime as well as the historical development of the law of unjust enrichment in China. This section now discusses the current status of the Chinese law of unjust enrichment. It first explains the legal provisions regulating unjust enrichment and then discusses the constitutive elements of an unjust enrichment claim in Chinese law and the remedies provided. In the last part, the nature of unjust enrichment and its relationships with other branches of Chinese law are considered.

178

See supra, Sect. 3.4.3 in this chapter.

3.5

China’s Current Law of Unjust Enrichment

3.5.2

The Current Effective Legal Provisions of Unjust Enrichment

3.5.2.1

General Principle of Unjust Enrichment

53

The current Chinese law of unjust enrichment consists of one provision, Article 122 in Book I General Provisions, and four provisions, Article 985 to 988, in Chapter 29 of Sub-book III Quasi-Contracts of Book III Contract of the Chinese Civil Code. Article 122 of the Chinese Civil Code stipulates, ‘Where a person acquires unjust benefits without a legal basis, the person who so suffers a loss shall have the right to require him to return the unjust benefits’. This provision is nearly the same with Article 92 of the GPCL in substance, but they are not exactly identical.179 One difference between the two provisions is that Article 92 of the GPCL required the unjustly benefited person to return the benefit to the person suffering a loss. However, Article 122 of the Chinese Civil Code states that the person suffering a loss has the right to seek return of the benefit. Instead of imposing a liability, Article 122 of the Chinese Civil Code focuses more on the grant of right to the person suffering a loss. The other difference is that Article 122 of the Chinese Civil Code says that the person suffering a loss is entitled to seek return of the benefit, while Article 92 states that only where the acuiqistion of the unjust benefits has resulted in another’s loss, should the benefit be returned. Article 92 of the GPCL seems to emphasize the requirement of a ‘causal link’ between the defendant’s enrichment and the plaintiff’s loss. In spite of these slight differences, there are no substaintial distinctions in terms of the general principle of unjust enrichment provided by these two provisions. According to Article 122 of the Chinese Civil Code, three elements are required to constitute an unjust enrichment claim: (a) the obtainment of benefits; (b) the lack of a legal basis supporting the obtainment of the benefits; and (c) another person’s loss. The legal consequence is that the person suffering a loss is entitled to require the defendant to return the benefits obtained without a legal basis.

3.5.2.2

Specific Provisions in the Chapter ‘Unjust Enrichment’

Chapter 29 of Book III Contracts of the Chinese Civil Code is titled ‘Unjust Enrichment’, which is located in the Sub-book III Quasi-Contracts. It remains to be discussed that whether labeling unjust enrichment as a kind ‘quasi-contract’ is appropriate.180

Article 92 of the GPCL states: “If one acquires unjust benefits without a legal basis and results in another person’s loss, the unjust benefits should be returned to the person suffering a loss’.” 180 See infra, Sect. 3.5.5.2 in this chapter. 179

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Chapter 29 ‘Unjust Enrichment’ consists of four legal provisions (from Article 985 to Article 988). Articles 985 of the Chinese Civil Code provides a series of defences against an unjust enrichment claim, stipulating: Where a person obtains unjust benefits without a legal basis, the person suffering a loss can request the enriched party to return the obtained benefits, except under any of the following circumstances: (1) performance made to fulfill a moral obligation; (2) payment of an undue debt; (3) payment of an obligation knowing that there is no obligation to pay.

Article 986 and Article 987 distinguish the restitutionary liability of bona fide defendants from that of mala fide defendants. Article 986 states, “An enriched person who did not know and should not have known the lack of a legal basis supporting the obtainment of enrichment shall be under no obligation to make restitution of the enrichment if the enrichment does not exist anymore.” Article 987 states, “Where an enriched person knew or should have known the lack of a legal basis supporting the obtainment of enrichment, the person suffering a loss therefrom shall be entitled to require the enriched person to return the enrichment and make compensation for losses in accordance with the law.” Article 988 of the Chinese Civil Code concerns the restitutionary liability of a third party, specifying that “if the enriched party gratuitously transfers the obtained unjust benefits to a third party, the party suffering a loss can require the third party to bear restitutionary liability in the corresponding range.” As the historical exploration shows, since the law of unjust enrichment was transplanted into Chinese law in the late Qing dynasty, it has been continuously simplified.181 The newly-added provisions of unjust enrichment in the Chinese Civil Code represent for the first time Chinese legislators made efforts to build a more comprehensive institution of unjust enrichment. The added provisions indeed respond to some of criticism that the previous Chinese law of unjust enrichment faced and optimize the law of unjust enrichment to a certain extent. Previously, Article 92 of the GPCL has been criticized for indistinctive imposition of the liability to return on defendants, resulting in unfairness in practice.182 It did not matter whether the claimant enriches another knowing perfectly well that he is subject to no obligation or whether the defendant was aware of the lack of legal basis for being enriched and with an opportunity to reject the enrichment or not. As a response, Article 985 provides defences that can be raised against performance-based unjust enrichment, including the claimant’s knowledge of lack of legal basis. Articles 986 and 987 distinguish the scope of restitutionary liability on the defendant based on their knowledge on the absence of legal basis for obtaining the enrichment. For bona fide defendants who did not know and should not have been aware of the absence of legal basis, their restitutionary liabilities are limited to the extent that the

181 182

Supra, Sect. 3.4 in this chapter. See supra, Sect. 3.4.5.5 in this chapter.

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recipients are still enriched. In this way, the imposition of restitutionary liability will not lead to decrease of the wealth of bona fide recipients. The bar to recovery and limitation of restitutionary liability avoid certain situations where the operation of the law of unjust enrichment obviously leads to injustice and rounds out this branch of law to a certain degree. However, the provisions of unjust enrichment are actually borrowed from the German Civil Code, which already appeared in the previous civil code drafts in China’s history, especially the Republican Civil Code and are not innovative.183 No explanation has been given why the draftsman chose these particular provisions to flesh out the law of unjust enrichment in China, while other issues still remain unregulated.184 In particular, what should be returned by a defendant in an unjust enrichment case is an essential issue, which is left out of the new unjust enrichment chapter. Meanwhile, some parts of the added provisions are seemingly unnecessary for perfecting the Chinese law of unjust enrichment. For example, there seems to be no difference for adding the defence, performances corresponding to an udue debt, as an undue debt already constitutes a valid legal basis for receiving a benefit and the unjust enrichment claim cannot be established in the first place.185 One conclusion can thus be reached that the attempt to perfect the Chinese law of unjust enrichment in the current round of civil law codification is cursory and not satisfactory.

3.5.3

Constitutive Elements of Unjust Enrichment

3.5.3.1

Introduction

According to the current Chinese law of unjust enrichment introduced above, four requisite elements to establish an unjust enrichment claim are: (1) the defendant’s enrichment; (2) the claimant’s loss; (3) the lack of a legal basis supporting the obtainment of the enrichment; and (4) no available defences.186 This section discusses these four elements in detail in the following.

183 Supra, Sect. 3.4 in this chapter. The defences of unjust enrichment provided in Article 985 can be found in the German Civil Code (Section 814), the Qing Civil Code (Article 931) and the Republican Civil law (Article 180). The distinction of liabilities of bona fide defendants and mala fide defendants in Article 986 and Article 987 exists in the German Civil Code (Section 819), the Qing Civil Code (Article 938) and the Republican Civil Law (Article 182). The third party’s restitutionary liability receiving unjust benefits from the defendant in Article 988 can be found in the German Civil Code (Section 816 (1)), the Qing Civil Code (Article 934) and the Republican Civil Law (Article 183). 184 See infra, Sect. 4.2 in Chap. 4. 185 See also Chen (2017), p. 63. 186 Chinese Civil Code, art 122 and Chapter 29 of Book III Contracts.

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Enrichment

Whether the defendant is enriched is the first question to be answered when assessing an unjust enrichment claim. Chinese law does not offer a definition or give any other explanation of what an enrichment is. According to Chinese scholars, an enrichment can be positive or negative.187 Positive enrichment increases the wealth of the defendant directly and positively.188 A person’s wealth is increased if he receives something tangible, such as money, chattels or an apartment or intangible, such as shares and intellectual property. The term ‘negative enrichment’ refers to an enrichment that saves necessary expenditures and therefore benefits the defendant negatively. For example, the receipt of services, unauthorised enjoyment of another’s property or discharge of debts can all be considered as a kind of negative enrichment.189

3.5.3.3

Excursus: Possession as Enrichment?

A difficult question about enrichment arises when someone obtains actual possession of another’s property while the owner still holds ownership. The issue is whether pure possession of a property without ownership acquisition can be regarded as enrichment. For example, if A dropped his wallet in B’s house, the ownership of the wallet remains vested in A. Can it be said that B has been enriched? The law provides no answer. It has been argued that there is no room for an unjust enrichment claim in such a case because the defendant is simply not enriched.190 However, if the defendant is actually in control of the property and has the opportunity to use the property, it seems that there is a strong case to be made that he is enriched. Within the framework of the Chinese poperty law, possession refers to the state of factual control over something. Factual control can exist regardless of whether a possessor has a right to possession. Possession may be rightful or unauthorized. Rightful possession means that a possessor has a legal basis to possess a thing, such as a right in rem or a contractual right to possession.191 The most common legal basis which justifies possession is ownership.192 In addition, a holder of a usufructuary

187

Burrows (2002), p. 17; Liu (2009), p. 123; Yang (2012), pp. 109–110. Xiao (2004), p. 263; Liu (2009), p. 123; Yang (2012), pp. 109–110. 189 Xiao (2004), p. 263; Liu (2009), p. 123; Yang (2012), pp. 109–110; Zhou (2019), p. 20, 21. 190 Wang (1991), pp. 571–577. 191 A lease contract is an example that someone can rightfully possess another’s property based on a contractual relationship. Chinese Civil Code, art 703. 192 Chinese Civil Code, art 240. 188

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right193 or a real right for security,194 i.e. a pledge195 or lien,196 also enjoys the right to possession of the property. Unauthorized possession refers to a situation where a possessor has no legal basis for possession. Most scholars in China agree that possession is a kind of benefit that carries a monetary value and thus can be an enrichment.197 This is a convincing argument as possession provides the possessor with a valuable opportunity to use, sell or exchange any rights to the thing even if the property ownership does not pass to the possessor.198 In this way, the law of unjust enrichment may step in to deter unauthorized possession, requiring the unauthorized possessor to return the property.

3.5.3.4

Another Person’s Loss

When discussing the element “the claimant’s loss”, two issues must be considered. One is the definition of “loss” and the other is the causal link between the loss and enrichment. Loss is the opposite to gain, referring to both the reduction of a claimant’s existing wealth and the loss of benefits that could have been obtained.199 The requirement of a loss usually only receives fleeting mention in the analysis of unjust enrichment because one’s gain is regularly attached with damage to another.200 The existence of a loss is overtly straightforward which is effectively taken for granted and thus under-analyzed. It is not enough for the claimant to merely prove his loss and the defendant’s enrichment. There must also be a causal link between the loss of the claimant and the enrichment of the defendant. Causation provides the justification for why it is the claimant who has the right to restitution against the defendant. Although Chinese law does not pinpoint how to establish the causal link between the claimant’s loss

193

Chinese Civil Code, art 323. Regarding the concept of a usufructuary right, see n 73. Regarding the concept of a real right for security, see n 73. There are three kinds of real rights for security, mortgage rights, pledge rights and lien rights. Only the right holder of a pledge right or lien right has the right to possess the secured property. Chinese Civil Code, arts 394, 425 and 447. 195 Chinese Civil Code, art 425. A pledge is established where a debtor or a third party transfers a movable property to the creditor for possession as a guarantee of the creditor’s rights. If the debtor fails to pay the due debt or falls under any circumstance where the pledge shall be exercised as agreed upon by the parties, the creditor shall have the priority of compensation made from such a movable. 196 Chinese Civil Code, art 447. Article 447(1) stipulates, “Where the debtor fails to pay the due debt, the creditor may exercise a lien over the legally possessed movable of the debtor, and has the priority of compensation made with such a movable.” 197 Yang (2011), p. 137; Pan et al. (2006), p. 81; Liu (2013), p. 230; Zou (2000), pp. 55, 60–61. 198 Under Chinese law, an unauthorized possessor may validly sell the property and transfer the property ownership to a third party in certain circumstances. See infra, Sect. 4.3.2.3 in Chap. 4. 199 Peng (2002), p. 539; Xiao (2004), p. 263; Pan et al. (2006), p. 82; Ji (2006), p. 264. 200 Cf Chen (2014), pp. 279–280; Cui (2013), p. 286, 292. 194

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and the defendant’s enrichment, it is generally agreed that the claimant does not need to show that his loss corresponds exactly with the defendant’s enrichment.201 The requirement of a causal link is satisfied if the enrichment and the loss are resulted in by the same set of facts.202

3.5.3.5

Without A Legal Basis

‘Without a legal basis’ means that the receipt of an enrichment is without a contractual or any other kinds of legal basis.203 Vice versa, it also means that the receiver of an enrichment does not have a legal basis to cause another’s loss.204 It should be noted that ‘without a legal basis’ does not only mean that the enrichment is without a legal basis when obtained. If a benefit is obtained with a legal basis, but later the legal basis lapses, an unjust enrichment claim can also be established for recovery of the benefit.205 One example in this regard would be an enrichment transferred under a revoked contract. An enrichment may be obtained without a legal basis for a whole variety of reasons. However, the law of unjust enrichment is not concerned with the question of why there is no legal basis for the enrichment, which is entirely irrelevant. The requirement that the obtainment of benefits lacks a legal basis can be described as that no other laws provide any justifications for the defendant’s retention of benefits. It is the other branches of law outside the law of unjust enrichment that decide whether an enrichment is justified or not. Among the constituent elements of an unjust enrichment claim, the element ‘without a legal basis’ is special because the other two elements, ‘enrichment’ and ‘loss’ are both positive facts, whereas ‘without a legal basis’ is a negative fact. According to Article 64 of the Civil Procedure Law of the People’s Republic of China (‘Chinese Civil Procedure Law’),206 a plaintiff should provide evidence to prove the facts on which his claim is based. Therefore, the plaintiff should prove all the three constitutive elements of an unjust enrichment claim. However, ‘without a legal basis’ is a negative precondition and the law does not stipulate how something non-existent can be proved. As a consequence, it is heatedly debated which party bears the onus to prove the absence or presence of a legal basis with different views being proposed by Chinese scholars. The prevalent views include: (1) burden on the

201

Peng (2002), p. 539; Xiao (2004), p. 263; Pan et al. (2006), p. 82. Wang et al. (1988), p. 424; Ji (2006), pp. 265–266. 203 Liu (2009), p. 123. 204 Ibid; Pan et al. (2006), p. 82. 205 Liu (2009), p. 123. 206 Zhonghua Renmin Gongheguo Minshi Susong Fa (中华人民共和国民事诉讼法) [Civil Procedure Law of the People’s Republic of China] (promulgated by the NPC on 6 April 1991, last amended on 17 June 2017, effective since 1 July 2017). 202

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defendants;207 (2) burden on the plaintiffs;208 (3) distribution of burden depending on the categorizations of unjust enrichment, performance-based unjust enrichment and non-performance-based unjust enrichment.209

3.5.3.6

Defences

This section considers defences against performance-based claims that are provided by the newly-added unjust enrichment provision, i.e., Article 985 of the Chinese Civil Code. The defences include claimant’s moral obligation, payment of an undue debt, and claimant’s knowledge of lack of legal basis.

Claimant’s Moral Obligation Pursuant to Article 985 of the Chinese Civil Code, the defendant is relieved from restitutionary liability if the claimant is under a moral obligation to perform. Moral obligations refer to duties that persons ought to perform to comply with morality but are not legally bound to fulfil. Moral obligations are not enforceable by law and thus cannot serve as a legal basis, but once a person perfoms his moral obligation, it will be immoral for him to require the return of the enrichment that follows from a moral duty. The recognition of moral obligations as a defence by the law of unjust enrichment thus reconcile the contradictions between the law of unjust enrichment and morality. However, Chinese law does not clarify what constitutes a moral obligation. Examples of performing moral obligations that are commonly agreed include supporting relatives without such obligations in law210 or believer’s donations to churches or temples.211

Discharge of Undue Debt The second defence provided by Article 985 of the Chinese Civil Code is discharge of an undue debt. If a debtor pays a debt before the debt falls due, no claim lies in unjust enrichment. From the perspective of autonomy of will, a debtor is entitled to pay off his debt in advance, while Article 530 of the Chinese Civil Code grants a creditor the right to reject the debtor’s early performance unless the advance performace will not prejudice the creditor’s interests. If a debtor has voluntarily discharged a debt prior to the due date and the creditor accepts the early

207

Tan (2008), p. 510; Zhou (2010), p. 83. Liu (2013), pp. 438–446; Yang and Dou (2007), p. 54. 209 Bi (2009), pp. 442–443; Zhang (2010), p. 165. 210 Wang (2015b), p. 110. 211 Cui (2020), p. 180, 189. 208

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performance, the discharge of debt constitutes a legal basis.212 Since the debt, though undue, is discharged by the debtor’s payment, the creditor does not receive additional benefits. In this sense, strictly speaking, the receipt of an undue debt does not constitute an unjust enrichment. Article 985 recognizes the discharge of undue debts as a bar to recovery no matter whether the debtor knew the debt was undue or not to clarify this point for avoidance of doubt.

Claimant’s Knowledge of Lack of Obligation Article 985 of the Chinese Civil Code also prevents restitution if the claimant were aware of that he was subject to no obligation to perform at the time of performance. That is to say, a claimant will succeed in an unjust enrichment claim only if he was mistaken when enriching the defendant no matter whether the mistake arose from his negligence or not.213 The behind rationale is that if the claimant knowing he was not obligated to peform was willing to do so but then seeks recovery of the shifted benefits, he violates the principle of good faith and is not worthy of protection by law.214 The defence of knowledge, although not mentioned in Article 985 of the Chinese Civil Code, shall only apply to voluntary performance, namely without illegitimate exertion of pressure upon the claimant, otherwise it will be contrary to the principle of fairness.

3.5.4

Liability for Unjust Enrichment

3.5.4.1

The Scope of Liability Under the Law of Unjust Enrichment

Article 122 of the Chinese Civil Code compels the unjustly enriched person to return the benefits obtained without a legal basis. According to Article 118 of the Chinese Civil Code, unjust enrichment only triggers obligatory rights.215 It means that a claimant who holds an unjust enrichment claim enjoys an obligatory right to require the defendant to return the benefits obtained unjustly. Previously, Article 131 of the Opinions on the GPLC specifies that what must be returned includes the original object received and any fruits of the object with other benefits being taken over by the state after deducting labour costs.216 However, after the Chinese Civil Code took

212

Ibid. Wang (2015b), p. 113. 214 Cui (2020), p. 190. 215 Article 118 of the Chinese Civil Code states: “An obligatory right is a right holder’s right to request that a specific obligor to perform or not perform certain conduct, arising from contracts, torts, negotiorum gestio, unjust enrichment and other provisions of laws”. 216 See supra, Sect. 3.4.5.5 in this chapter. 213

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effect, the Opinions on the GPCL was repealed at the same time.217 As a result, currently, no legal provision clarifies the scope of return under an unjust enrichment claim. As this book focuses on the most fundamental problem, namely the goal(s) of the law of unjust enrichment, the question of the scope of liability for unjust enrichment is not explored in depth here. When encountering this question, for the sake of simplicity, this book follows the previous approach that what should be returned by the defendant to the claimant includes the object received and any fruits arising therefrom. ‘Fruits’ refers to things produced by another thing (the original object), either naturally or legally.218 Natural fruits are profits arising due to the nature of the property, which are part of the original object before being separated.219 Legal fruits are profits acquired as a result of legal relationships, e.g. interest earned on money.220 Besides, it needs to be clarified that as Article 122 of the Chinese Civil Code requires any kinds of benefits obtained unjustly to be returned, in addition to ‘objects’, unjust enrichment to be returned should also include other rights and interests, i.e. obligatory rights and labour services.

3.5.4.2

The Return of Enrichment

Restitution in Kind Article 122 of the Chinese Civil Code grants the person who suffers a loss the right to seek ‘return of the benefits’. Previously, Article 131 of the Opinions on the GPCL also stipulates, ‘The returned benefits should include the original object and fruits’. The provisions indicate a clear preference for the return of the object in kind as the primary remedy of unjust enrichment. If an enrichment transferred unjustly is a piece of tangible property, this very piece of tangible property obtained by the defendant should be returned to the claimant. The Chinese position seems very much object-oriented instead of value-oriented.221 If the law does not compel the defendant to return the property in kind when he is able to do that but allows the defendant to return the monetary value of the property, the law indeed forces the plaintiff to sell his property to the defendant. There is no reason for that. A similar rule exists in contract law in China that specific performance is the primary remedy when a party breaches a non-monetary 217

Zuigao Renmin Fayuan Guanyu Feizhi Bufen Sifa Jieshi Ji Xiangguan Guifanxing Wenjian De Jueding (最高人民法院关于废止部分司法解释及相关规范性文件的决定) [Decision of the Supreme People’s Court on the Repeal of Some Judicial Interpretations and Relevant Regulatory Documents] (promulgated by the SPC on 29 December 2020, effective since 1 January 2021). 218 Ling (2002), p. 358. 219 Werthwein (2013), p. 215. 220 Lin (2010), p. 464. 221 Gerhard Dannemann proposed a similar view regarding the position of German law of unjust enrichment. Dannemann (2009), p. 125.

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obligation under a contract.222 Nonetheless, the recipient of money is only bound to return the same sum, because money as the universal medium of exchange is highly substitutable and it makes no sense to request the recipient to return the same notes and coins. If the defendant is unable to provide for restitution in kind, the fallback position is to return the value of the enrichment, which is discussed in the next section.223

Restitution Other Than in Kind Not all kinds of enrichment can be returned in kind. A tangible object may be replaced by, inseparably combined into or inseparably mixed or intermingled with another object(s). A tangible object may also have been destroyed, damaged or lost. A benefit may take the form of intangible property, the supply of a service, the use of a thing, or a legal enrichment such as the discharge of debt, which cannot be returned by nature. Chinese law provides no answers regarding how to return benefits in the aforesaid circumstances. Hence, solutions must be developed by considering the regulations in other branches of law or on the basis of the commentators’ views. The restitutionary liability must be in the form of an obligation to pay the amount of money equal to the value of the enrichment. This is the starting point and most Chinese commentators support this view.224 First, an initial enrichment received by the defendant may be substituted by another thing. For example, where the defendant has disposed of the ownership of the initial object to a third person via sale or exchange, the defendant will receive money or other equivalents in return. The claimant can require the defendant to surrender what he has received for disposing of the initial object, which should be a reasonable price of the object, because only if the transfer was made at a reasonable price can the bona fide third party obtained the ownership.225 If the initial object of enrichment has been destroyed or damaged, the defendant should return the insurance money, damages or indemnities—if any—obtained from the destruction or

Chinese Civil Code, art 580. It stipulates, ‘Where a party fails to perform the non-monetary obligations or its performance of non-monetary obligations fails to satisfy the terms of the contract, the other party may request the party to perform the obligation except under any of the following circumstances: (1) the obligation is unable to be performed in law or in fact; (2) the subject matter of the obligation is unfit for compulsory performance or the performance expenses are excessively high; (3) the obligee does not request performance within a reasonable time’. 223 Infra, section “Restitution Other Than in Kind” in this chapter. 224 See Cui (2020), pp. 191–192; Pan et al. (2006), p. 88; Yang (2011), p. 152. 225 According to Article 311 of the Chinese Civil Code, a bona fide third person may acquire the ownership in certain circumstances even if the disposer has no right to dispose of the property. See infra, Sect. 4.3.2.3 in Chap. 4. One of the conditions for bona fide acquisition is that the transfer must be made at a reasonable price. Therefore, donations or gifts through which the defendant receives nothing in return are not discussed here. 222

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damage to the claimant.226 This requirement is also consistent with the property law rule that where a possessed movable or immovable is destroyed, damaged or lost, the possessor should return the insurance money, compensatory damages, or indemnity obtained as a result of the damage or loss to the right holder.227 The defendant in such an unjust enrichment case is also a possessor of property. Second, the obtained benefits may have left nothing in the defendants anymore, such as the use of a thing, provision of services or discharge of debt. To return the value of the benefits, the first question is how to ascertain the value. To determine the value of a discharged debt is relatively easy. Also, the provision of services and the use of a thing usually have a market value and can be measured in monetary terms. However, the market price can be different from the price at which a recipient may wish to offer, who may not wish to pay for the benefit no matter at any price. Nevertheless, Chinese scholars have for long adopted the object method of valuation as the orthodox view228 and there is no room for a defendant to claim for subjective devaluation of the enrichment from his perspective.229 For the sake of a focused discussion, this book does not further discuss the methods of valuation where restitution cannot be provided in kind. It will simply assume that a claimant is entitled to recover the market value of an enrichment if the enrichment cannot be returned in kind without making final conclusions at this point regarding the precise calculation of the recovery. But it is still noteworthy that a defendant may be enriched with ill intent or passively without any wrongding or even the knowledge of being enriched. To impose the same restitutionary liabilities on the defendants seems inconsistent with the principle of fairness. The Chinese Civil Code attempts to address this issue by confining the restitutionary liabilities of bona fide defendants to the actual increase of the defendants’ wealth, which are discussed in the next following two sections.230

3.5.4.3

Disenrichment

Articles 986 and 987 of the Chinese Civil Code distinguish the restitutionary liability of a bona fide defendant from that of a mala fide one. For a bona fide defendant who did not know and should not have known the lack of legal basis of his enrichment, restitution is not owed to the extent that ‘the enrichment does not exist anymore’.231 226

Cui (2020), p. 191. Chinese Civil Code, art 461. It stipulates, ‘In cases where a real property or movable property under possession is damaged or lost, and the holder of this real property or movable property requests for compensations, the possessor shall return the insurance money, damages or indemnities obtained from the said destruction or loss to the holder; and in cases where the damage to the right holder has not been sufficiently made up, a malicious possessor shall also be liable for compensation’. 228 See Zhao (2015), p. 1171. 229 The concept of subject devaluation is discussed in detail in the discussion of the English law of unjust enrichment. Infra, Sect. 5.5.2.2 in Chap. 5. 230 Infra, Sects. 3.5.4.3 and 3.5.4.4 in this chapter. 231 Chinese Civil Code, art 986. 227

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The requirement for the defendant to have no knowledge of and also should not have known the absence of legal basis indicates that the defendant was in good faith and was not negligent.232 Such situation is called “disenrichment”. Disenrichment may occur where the enrichment is a physical object that has been lost, destroyed or given away to a third party or where the defendant has paid extra expenses for the maintenance or improvement of the object after the defendant received the enrichment.233 ‘Disenrichment’ thus can also be viewed as a defence that only a bona fide defendant is entitled to raise. It acts as a measure of liability limiting unjust enrichment claims against bona fide defendants to the the extent that the defendants’ assets remain swollen. This disenrichment issue becomes more complicated where the defendant is enriched by accepting services or enjoying the use of property rather than receiving a tangible object. The current provisions concerning unjust enrichment do not provide any guidance, and this issue has not attracted much attention from Chinese scholars.234 Again, as the focus of this book is on the goal of the law of unjust enrichment, it does not present the perfect occasion to go into this discussion very deeply. The purpose of the disenrichment limitation is to confine unjust enrichment claims to the increase of assets that still remain in the bona fide defendant’s hands so that his wealth will not be affected adversely as a consequence of the initial enrichment.235 Therefore, this book takes the view that a received benefit should be considered as still existing to the extent that it leaves a markable residue in the defendant’s hands which increases the defendant’s wealth no matter whether the benefit is tangible or intangible. In addition, a bona fide defendant’s disenrichment may lead to the creation of a new defendant. Article 988 of the Chinese Civil Code addresses the sitution where a favoree has transferred the obtained enrichment gratuitously to a third party. The party suffering a loss has the right to require the third party to make restitution to the corresponding extent. The phrase, ‘to the corresponding extent’, means that the third party’s restitutionary liability corresponds to the liability, from which the initially enriched party has been relieved. The third party is then treated as if he received the benefit from the claimant.236

232

Jiang and Cheng (2020), pp. 62, 63. Chen (2017), p. 66. 234 Some scholars have discussed the disenrichment limitation of restitutionary liabilities in unjust enrichment, while there is no prevalent view so far regarding how to determine whether the defendant remains enriched when the received benefits are services or use of property. See Cui (2020), pp. 191–192; Jiang and Cheng (2020), p. 63; Chen (2017), p. 66. 235 Cui (2020), pp. 191–192; Jiang and Cheng (2020), p. 63. 236 Cui (2020), p. 193. 233

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Increased Liability of Mala Fide Defendants

Pursuant to Article 987, a mala fide defendant who knew or should have known that his enrichment was without a legal basis is disallowed to rely on the disenrichment defence. The claimant suffering a loss due to the mala fide defendant’s enrichment is not only entitled to require the defendant to return the enrichment no matter whether the enrichment still exists or not but also raise a claim for damages, if any.237 Accordingly, the restitutionary liability of a mala fide defendant’s does not mirror the defendant’s gain-based enrichment anymore but is extended to cover the plaintiff’s extra loss, if any, by the Chinese Civil Code. This extra liability on mala fide defendant is actually accord with Article 459 of the Chinese Civil Code, which imposes compensatory liability on a possessor ‘in bad faith’ where the possessor causes any damages due to the use of possessed immovable or movable. The behind rationale of the disenrichment rule is to protect innocent recipients. The law intends to cream off benefits received lacking a legal basis while without making the innocent recipient suffer detriment as a result of being ordered to make restitution in full. Mala fide defendants who knew of or should have known of the paucity of legal basis for the enrichment are unworthy of such protection.

3.5.4.5

Special Features of the Liability for Unjust Enrichment

Unjust enrichment liability is different from other civil liabilities such as contractual liability or tort liability. Contractual liability or liability for breach of contract arises out of a legally recognized agreement between parties. A defendant has to bear tortious liability usually because he has committed a wrong that violates the claimant’s right. Nevertheless, liability in unjust enrichment is strict, which arises irrespective of whether the defendant was at fault or not.238 As noted above, a bona fide defendant is only liable to return enrichment that still exists. Prima facie, for a bona fide defendant, the law merely takes away an enrichment that the defendant obtained without a legal basis and he is made no worse off than if he had never been enriched in the first place. However, such liability is ‘passive’ that arises regardless of the defendant’s participation in, and even regardless of the defendant’s knowledge of the facts that he has been enriched. The unilateral creation of a right against someone who was passively enriched without any fault gives rise to a puzzle: what is the justification for such a rule? The justification can only be answered if the goal(s) of the law of unjust enrichment has been clarified and the need for the law of unjust enrichment can be understood. Therefore, no answer is provided at this point regarding the justification of such a law of unjust enrichment in China.

237 238

Chinese Civil Code, art 987. Supra, Sects. 3.5.2 and 3.5.3 in this chapter.

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3

The Goal(s) of the Law of Unjust Enrichment in China

3.5.5

The Law of Unjust Enrichment as Part of the Chinese Legal System

3.5.5.1

Introduction

This section examines the status of the law of unjust enrichment in the Chinese legal system and then discusses its relationships and interactions with other branches of Chinese private law. As noted, this book aims to identify the goal(s) of the Chinese law of unjust enrichment and then to find out whether other branches of law can achieve the goal(s).239 For these purposes, this book cannot solely look at the law of unjust enrichment, but together with other laws.

3.5.5.2

The Status of the Law of Unjust Enrichment

As defined in Chap. 2, unjust enrichment refers to a causative event triggering legal responses. Article 122 of the Chinese Civil Code setting out the rule of unjust enrichment is located in Chapter 5 ‘Civil Rights’ in Book I General Provisions. Article 118 of the Chinese Civil Code explicitly recognizes unjust enrichment as a causative event giving rise to obligatory rights, stipulating: The parties to civil legal relations enjoy a creditor’s rights in accordance with the law. A creditor’s right is the right holder’s right to request a specific obligor to perform or not perform certain conducts, arising from contracts, torts, negotiorum gestio, unjust enrichment and other provisions of laws.

It can be concluded that unjust enrichment is a causative event generating obligatory rights.240 As mentioned previously, the chapter addressing specific issues of unjust enrichment is located in Sub-book III Quasi-Contracts in Book III Contracts of the Chinese Civil Code.241 The only other chapter in this sub-book is Chapter 28 ‘Negotiorum Gestio’. The legislator acknowledged that this Sub-book ‘Quasi-Contracts’ is created due to the absence of a book concerning general provisions of the law of obligations in the Chinese Civil Code.242 Article 468 in Sub-book I General Provisions of Book III Contracts states, “For a creditor-debtor relationship not arising

239

Supra, Sect. 1.1 in Chap. 1. In Chinese law, claims are divided into those based on an obligatory right and those based on a proprietary right. This is discussed in a later section in this book. Infra, Sect. 4.3.2.4 in Chap. 4. 241 Supra, Sect. 3.5.2.2 in this chapter. 242 Tao Honglin (ed), ‘Guanyu