Unjust Enrichment
Cases on Basic Principles
Moses v. Macferlan
(1760) 2 Burr. 1005,
Lord Mansfield [it was objected] ‘That no assumpsit lies, except upon an express or implied contract: but here it is impossible to presume any contract to refund money, which the defendant recovered by an adverse suit.’ Answer. If the defendant be under an obligation, from the ties of natural justice, to refund;
‘ the law implies a debt, and gives this action, founded in the equity of the plaintiff’s case, as it were upon a contract (‘quasi ex contractu,’ as the Roman law expresses it)….
it was also objected that where money has been recovered by the judgment of a Court having competent jurisdiction, the matter can never be brought over again by a new action.
Answer. It is most clear, ‘that the merits of a judgment can never be over-haled by an ori ginal suit, either at law or in equity.’ Till the judgment is set aside, or reversed, it is conclusive, as to the subject matter of it, to all intents and purposes.
But the ground of this action is consistent with the judgment of the Court of Conscience…. The ground of this action is not, ‘that the judgment was wrong:’ but, ‘that, (for a reason which the now plaintiff could not avail himself of against that judgment,) the defendant ought
not in justice to keep the money.’…
This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies only for money which, ex requo et bono, the defendant ought to refund: it does not lie for money paid by the plaintiff, which is claimed of him as payable in point of honor and honesty, although it could not have been recov ered from him by any course of law; as in payment of a debt barred by the Statute of Limitations, or contracted during his infancy, or to the extent of principal and legal interest upon an usurious contract, or, for money fairiy lost at play: because in all these cases, the defen dant may retain it with a safe conscience, though by positive law he was barred from recover ing. But it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition, (express, or implied;) or extortion; or oppression; or an undue advantage taken of the plaintiff’s situation, contrary to laws made for the protection of persons under those circumstances. ·
In one word, the gist of this kind of action is, that the defendant,. upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.
Therefore we are all of us of opinion that the pl intiff might elect to wave any demand upon the foot of the indemnity, for the costs he had been put to; and bring this action, to recover the 6l which the defendant got and kept from him iniquitously.
Sinclair v. Brougham
[1914] AC 398, House of Lords
Viscount Haldane LC I propose to consider in the first place the question whether an action for money had and received would have lain against the society on the footing that although its conduct in receiving the depositors’ money was ultra vires, it had become improperly, as between itself and the depositors, enriched thereby, so that the amount received was money held to the depositors’ use and recoverable as a debt, independently of any right to trace and follow. Two authorities were cited in support of the argument that such an action could have been brought successfully. One of these was a judgment of Sir William Page Wood V.-C. in the case of the Phrenix Life Assurance Co.1 The other was a decision of the Court of Appeal in Ireland which followed his judgment in Flood v. Irish Provident Assurance Co.2 In these cases the principle of tracing was not relied on, but it was apparently held that the amount of certain premiums which had been paid 1in respect of pol icies, the issue of which was ultra vires, could be recovered as money had and received.
My Lords, if these decisions had related to the recovery of borrowed money I should find it difficult to reconcile them with principle. If it be outside the power of a statutory society to enter into the relation of debtor and creditor in a particular transaction, the only possible rem edy for the person who has paid the money would on principle appear to be one in rem and not in personam, a claim to follow and recover specifically any money which could be earmarked as never having ceased to be his property. To hold that a remedy will lie in personam against a statutory society, which by hypothesis cannot in the case in question have become a debtor or entered into any contract for repayment, is to strike at the root of the doctrine of ultra vires as established in the jurisprudence of this country. That doctrine belongs to substantive law and is the outcome of statute, and cannot be made different by any choice of form in procedure.
It is, therefore, binding both at law and in equity. In the jurisprudence of England the doc trine of ultra vires must now be treated as established i a stringent form by Acts of the Legislature and decisions of great authority which have interpreted these Acts. This is a prin ciple which it appears to me must to-day be taken as a governing one, not only at law but in equity. I think it excludes from the law of England any claim in personam based on the cir cumstance that the defendant has been improperly enriched at the eiJ,ense of the plaintiff by a transaction which is ultra vires. All analogies drawn from other systems, such as that of the Roman law, appear to me to be qualified in their application by two considerations. The first is that, broadly speaking, so far as proceedings in personam are concerned, the common law of England really recognizes (unlike the Roman law) only actions of two classes, those founded on contract and those founded on ‘tort. When it speaks of actions .arising quasi ex contractu it rcfcn merely to a class of action in theory based on a contract which is imputed to the defendant by
a fiction of law. The fiction can only be set up with effect if such a contract would be valid if it really existed. This is a point to which I shall have to return later on in what I have to say. The second consideration is that where an Act of Parliament imposes a restriction on capacity, that restriction is binding in equity as much as at law, the principles of which equity follows.
My Lords, notwithstanding the wide scope of the [action for money had and received], I think that it must be taken to have been given only, as I have already said, where the law could consistently impute to the defendant at least the fiction of a promise. And it appears to me that as matter of principle the law of England cannot now, consistently with the interpretation which the Courts have placed on the statutes which determine the capacity of statutory societies, impute the fiction of such a promise where it would have been ultra vires to give it. The fiction becomes, in other words, inapplicable where substantive law, as distinguished from that of pro cedure, makes the defendant incapable of undertaking contractual liability. For to impute a fic titious promise is simply to presume the existence of a state of facts, and the presumption can give rise to no higher right than would result if the facts were actual.
I am accordingly of opinion that while the decisions of Sir William Page Wood and of the Irish Court of Appeal to which I have referred may possibly, notwithstanding that the issue of the policies was ultra vires, be supported on the ground that they related merely to the failure of consideration for the premiums paid (a question on which it is unnecessary for me to express any opinion), they cannot be invoked as authoritiei, for the proposition that an action for money had and received would have lain in a case ofbortowing ultra vires….
Lord Dunedin: … Let me now examine the position where the money is received under a contract to repay and where that contract is founq to be ultra vires. That there can be no result ing proper contractual obligation is clear Itis here that the difficulty comes in in extend
ing the action for money had and received to such a case. For, in the first place, if that action lay it would have the effect of bringing in A., who has, ex hypothesi, no binding contract to urge against B., pari passu with the ordinary creditors of B. who have got binding contracts; and in the second, how is it possible to say that there is a fictional contract which is binding in cir cumstances in which a real contract is not binding? My Lords, I confess that for a person not bred to the common law to express an opinion as to the true meaning and extent of common law actions is to handle periculosa: plenum opus alaa:. But to the best of my comprehension, and notwithstanding the case of Ph<Enix Life Assurance Co., I have come to the conclusion that the action for money had and received cannot be stretched to meet the situation….
Lord Parker of Waddington: … Ithas been settled that an ultra vires borrowing by per
sons affecting to act on behalf of a company or other statutory association does not give rise to any indebtedness either at law or in equity on the part of such company or association. It is not, therefore, open to the House to hold that in such a case the lender has an action against the company or association for money had and received. To do so would in effect validate the trans action so far as it embodied a contract to repay the money lent. The implied promise on which the action for money had and received is based would be precisely that promise which the com pany or association could not lawfully make. At the same time there seems to be nothing in those decisions which would bind the House, if they were considering whether an action would lie in law or in equity to recover money paid under any ultra.vires contract which was not a con tract of borrowing; for example, money paid to a company or association for the purchase of land which the company had no power to sell and the sale of which as therefore void, or money paid to the company or association by way of subscription for shares which it had no power to issue. In such cases the implied promise on which the action for money had and received depends would form no part of, but would be merely collateral to, the ultra vires con tract. It will therefore be well to postpone consideration of such cases as the Pha:nix Life Assurance Co. and Flood v. Irish Provident Assurance Co. till the question actually arises….
Lord Sumner: … The depositors’ case has been put, first of all, as consisting in a right
enforceable in a common law action. It is said that they paid their money under a mistake of fact, or for a consideration that has wholly failed, or that it has been had and received by the society to their use. My Lords, in my opinion no such actions could succeed. To hold other wise would be indirectly to sanction an ultra vires borrowing. All these causes of action are com mon species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay. The law cannot de jure impute promises to repay, whether for money had and received or otherwise, which, if made de facto, it would inexorably avoid.
In these straits, Lord Mansfield’s celebrated account of the action of money had and received in Moses v. Macferlan was of course relied upon. It was said that for any one to keep the depos itors’ money as against them would be unconscientious, while that they should get it back would be eminently ex requo et bono, though it appeared also that conscience had nothing to say against payment of the depositors in full at the expense of the shareholders, though all alike must be deemed cognizant of the invalidity of the society’s banking business. [After considering,
and casting some doubt on Phrenix Life Assurance Co (J862) 2J cS H 441, Lord Sumner contin
ued:] The other cases cited seem to me insufficient to support the appellants’ claim to any com mon law right. The action for money had and received cannot now be extended beyond the principles illustrated in the decided cases, and although it is hard to reduce to one common for mula the conditions under which the law will imply a promise to repay money received to the plaintiff’s use, I think it is clear that no authority extends them far enough to help the appel lants now.
Resort was then had to equity, and, as I understood it, the argument was that the action for money had and received was founded on equity and good conscience, and imported a head of equity (apart altogether from its possibly too limited application at law), namely, that whenever it is ex requo et bono for A. to repay money which he has received from B., and would be against conscience for A. to keep it, then B. has an equity to have A. decreed to repay it. For this again Lord Mansfield’s authority in the same case was invoked.
My Lords, I cannot but think that Lord Mansfield’s language has been completely misun derstood. [Lord Sumner considered the judgment of Lord Mansfield and its subsequent development and continued:] There is now no ground left for suggesting as a recognizable ‘equity’ the right to recover money in personam merely because it would be the right and fair thing that it should be refunded to the payer.
US Restatement of the Law of Restitution.
Restatement of the Law of Restitution (1937, American Law Institute)
s. I Unjust enrichment
A person who has been unjustly enriched at the expense of another is required to make resti tution to the other.
s. 2 Officious conferring of a benefit
A person who officiously confers a benefit upon another is not entitled to restitution therefor.
s. 3 Tortious acquisition of a benefit
A person is not permitted to profit by his own wrong_at the expense of another.
s. 160 Constructive trust
Wherea person holding title to property is subject to an equitable duty to convey it to another
on the ground that he would be unjustly enriched if he were permitted to retain it, a construc tive trust arises.
Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd
[1943] AC 32,
Viscount Simon LC: Thelocus classicus for the view which has hitherto prevailed is to be
found in the judgment of Collins M.R. in Chandler v. Webster. It was not a considered judgment, but it is hardly necessary to say that I approach this pronouncement of the then Master of the Rolls with all the respect due to so distinguished a common lawyer. When his judgment is stud ied, however, one cannot but be impressed by the circumstance that he regarded the proposition that money in such cases could not be recovered back as flowing from the decision in Taylor v.
Caldwell.1 Taylor v. Caldwell, however, was not a case in which any question arose whether
money could be recovered back, for there had been no payment in advance, and there is nothing in the judgment of Blackburn J., which, at any rate in terms, affirms the general proposition that ‘the loss lies where it falls.’ The application by Collins M.R. of Taylor v. Caldwell to the actual
problem with which he had to deal in Chandler v. Webster2 deserves close examination. He said: ‘The plaintiff contends that he is entitled to recover the money which he has paid on the ground that there has beena total failure of consideration. He says that the condition on which he paid the money was that the procession should take place, and that, as it did not take place, there has beena total failure of consideration. That contention does no doubt raise a question of some dif ficulty, and one which has perplexed the courts to a considerable extent in several cases. The prin ciple on which it has been dealt with is that which was applied in Taylor v. Caldwell-namely, that where, from causes outside the volition of the parties, something which was the basis of, or essential to the fulfilment of, the contract has become impossible, so that, from the time when the fact of that impossibility has been ascertained, the contract can no further be performed by either party, it remainsa perfectly good contract up to that point, and everything previously done in pursuance of it must be·treated as rightly done,; but the parties are both discharged from further performance of it. If the effect were that the contract were wiped out altogether, no doubt the result would be that money paid under it woul<t have to be repaid as on a failure of consideration. But that is not the effect of the doctrine; it only releases the parties from further performance of the contract. Therefore the doctrine of failure of consideration does not apply.’
It appears to me that the reasoning in this crucial passage is open to two criticisms: (a) The claim ofa party, who has paid money under a contract, to get the money back, on the ground that the consideration for which he paid it has totalJy failed, is not based on any provision con tained in the contract, but arises because, in the circumstances that have happened, the law givesa remedy in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because in the circum stances that have happened the money must be regarded as received to the plaintiff’s use. It is
true that the effect of frustration is that, while the contract can no further be performed, ‘it remainsa perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done,’ but it by no means folJows that the situation existing at the moment of frustration is one which leaves the party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of money paid on the ground of total failure of consideration is not to vary the terms of the contract in any way. The claim arises not because the right to be repaid is one of the stipulated conditions of the contract, but because, in the circumstances that have happened, the Jaw gives theremedy. It is the failure to distinguish between (1.) the action of assumpsit for money had and received ina case where the consideration has wholJy failed, and (2.) an action on the contract itself, which explains the mistake which I think has been made in applying English law to this sub ject-matte.r… Once it is realized that the action to recover money for a consideration that has wholly failed rests, not on a contractual bargain between the parties, but, as Lord Sumner said in Sinclairv. Brougham,3 ‘upon a notional or imputed promise to repay,’ or (if it is preferred to omit reference toa fictitious promise) upon an obligation to repay arising from the circum stances, the difficulty in the way of holding that ll prepayment made undera contract which has been frustrated can be recovered back appears to me to disappear. (b) There is, no doubta, dis tinction between cases in which a contract is ‘wiped out altogether,’ e.g., because it is void as being illegal from the start or as being due to fraud which the innocent party has elected to treat as avoiding the contract, and cases in which intervening impossibility ‘only releases the partiesfrom further performance of the contract.’ But does the distinction between these two claaes of case justify the deduction of Collins M.R. that ‘the doctrine of failure of consideration docs not apply’ where the contract remains a perfectly good contract up to the date of frustration? This conclusion seems to be derived from the view that, if the contract remains good and valid up to the moment of frustration, money which has already been paid under it cannot be regarded as having been paid for a consideration which has wholly failed. The party that has paid the money has had the advantage, whatever it may be worth, of the promise of the other party. That is true, but it is necessary to draw a distinction. In English law, an enforceable con tract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act-I am excluding contracts under seal-and thus, in the Jaw relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is consid ering the law of failure of consideration and·of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.,The money was paid to secure performance and, if per formance fails the inducement which brought about the payment is not fulfilled.
If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled: see the notes in Bullen and Leake’s Precedents of Pleading, 9th ed., p. 263. In this connexion the decision in Rugg v. Minett4 is instructive. There the plaintiff had bought at auction a number of casks of oil. The contents of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff until this had been done. The plaintiff paid in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while the others had not. The plaintiff’s action was to recover the money he had paid as money received by the defendants to the use of the plaintiffs. The Court of King’s Bench ruled that this cause of action succeeded in respect of the casks which at the time of the fire had not been filled up to the prescribed quantity. A simple illustration of the same result is an agreement to buy a horse, the price to be paid down, but the horse not to be delivered and the property not to pass until the horse had been sold. If the horse dies before the shoeing, the price can unquestionably be recovered as for a total failure of consideration, notwithstanding that the promise to deliver was given. This is the case of a contract de certo corpore where the certum corpus perishes after the contract is made, but, as Vaughan Williams
L.J.’s judgment in Krell v. Henry5 explained, the same doctrine applies ‘to cases where the event which renders the contract incapable of performance is the cessation or non-existence of an express condition or state of things, going to the root of the contract, and essential to its per formance.’ I can see no valid reason why the right to recover prepaid money should not equally arise on frustration arising from supervening circumstances as it arises on frustration from destruction of a particular subject-matter. The conclusion is-that the rule in Chandler v. Webster is·wrong, and that the appellants can recover their 1000l.
While this result obviates the harshness with which the previous view in some instances treated the party who had made a prepayment, it cannot be regarded as dealing fairly between the parties in all cases, and must sometimes have the result of leaving the recipient who has to return the money at a grave disadvantage. He may have incurred expenses in connexion with the partial carrying out of the contract which are equivalent, or more than equivalent, to the money which he prudently stipulated should be prepaid, but which he now has to return for reasons which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands. These results follow from the fact that the English common law does not undertake to apportion a prepaid sum in such circumstances-<:ontrast the provision, now contained in s. 40 of the Partnership Act,1890, for apportioning a premium if a partnership is prematurely dissolved. It must be for the legislature to decide whether provision should be made for an equitable apportionment of pre paid moneys which have to be returned by the recipient in view of the frustration of the con
tract in respect of which they were paid. I move that the appeal be allowed, and that judgment be entered for the appellants.
Lord Wright: My Lords, the claim in the action was to recover a prepayment of 10001. made on account of the price under a contract which had been frustrated. The claim was for money paid foar consideration which had failed. It is clear that any civilized system oflaw is bound to provide remedies for cases of what has been called unjust enrichment _or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived ‘from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in c’ontract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi-contract or restitution. The root idea was stated by three Lords of Appeal, Lord Shaw, Lord Sumner and Lord Carson, in R.E. Jones, Ltd.v. Waring (S Gil/ow,Ltd.,6 which dealt with a particular species of the category, namely, money paid under a mistake of fact. Lord Sumner referring to Kelly v. Solari,7 where the money had been paid by an insurance company under the mistaken impression that it was due to an executrix under a policy which had in fact be91 cancelled, said: ‘There was no real intention on the company’s part to enrich her.’ Payment under a mistake of fact is only one head of this cat egory of the law. Another class is where, as.in this case, there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such cir cumstances no intention to enrich the payee. This is the class of claims for the recoyery of money paid for a consideration which has failed. Such causes of action have long been familiar and were assumed to be common-place by Holt C.J. in Holmes v. Ha/18 in 1704. HoltC.J. was there concerned only about the proper form of action and took the cause of the action as beyond question. He said: ‘If A give money to B to pay to C upon C’s giving writings, etc., and C will not do it, indebit will lie for A against B for so much money received to his use. And many such actions have been maintained for earnests in bargains, when the bargainor would not perform, and for premiums, for insurance, when the ship, etc., di not go the voyage.’ The Chief Justice is there using earnest as meaning a prepayment on account of the price, not in the modem sense of an irrevocable payment to bind the bargain, and he is recognizing that the indebitatus assumpsit had by that time been accepted as the appropriate form of action in place of the pro
cedure which had been used in earlier times to enforce these claims such as debt, account or case.
By 1760 actions for money l;iad and received had increased in number and variety. Lord Mansfield C.J., in a familiar passage in Moses v. Macferlan, sought to rationalize the action for money had and received, and illustrated it by some typical instances. ‘It lies,’ he said, ‘for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition (express, or implied;) or extortion; or oppression; or an undu advantage taken of the plaintiff’s situation, contrary to laws made for tl;ie protection of persons under those circumstances. In one,word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.’ Lord Mansfield prefaced this pronouncement by observations which are to benoted.
‘If the defendant be under an o ligatio ‘from the ties of natural justice, to refund; the law , impliesa debt and gives this action [sc. indebitatus assumpsit] founded in the equity of the plaintiff’s case, as it were, upon a contract (“quasi ex contractu” as the Roman law expresses it).’ Lord Mansfield does not say that the law imp es a promise. The law implies a d bt or obligation which is a different thing. In fact, he denies that there is a contract; the obligation is as efficacious as if it were upon a contract. The obligation is a creation of the law, just as much as an obligation in tort. The obligation belongs to a third class, distinct from either contract or tort, though it resembles contract rather than tort. This statement of Lord Mansfield has been the basis of the modem law of quasi-contract, notwithstanding the criticisms which have been launched against it. Like all large generalizations, it has needed and received qualifications in practice. There is, for instance, the qualification that an action for money had and received does not lie for money paid under an erroneous judgment or for moneys paid under an illegal or excessive distress. The law has provided other remedies as being more convenient. The stand ard of what is against conscience in this context has become more or less canalized or defined, but in substance the juristic concept remains as Lord Mansfield left it.
The gist of the action is a debt or obligation implied, or, more accurately, imposed, by law
in much the same way as the law enforces as a debt the obligation to pay a statutory or cus tomary impost. This is important because some confusion seems to have arisen though perhaps only in recent times when the true nature of the forms of action have become obscured by want of user. If I may borrow from another context the elegant phrase of Viscount Simon L.C. in United Australia, Ltd. v. Barclays Bank, Ltd.,9 there has sometimes been, as it seems to me, ‘a misreading of technical rules, now happily swept away.’ The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and the assumpsit. The former was the basis of the claim and was the real cause of action. The latter was merely fictitious and could not be traversed, but was necessary to enable the convenient and liberal form of action to be used in such cases. This fictitious assumpsit or promise was wiped out by the Common Law Procedure Act, 1852. As Bullen and Leake (Precedents of Pleading, 3rd ed., p. 36) points out, this Act, bys. 3, provided that the plaintiff was no longer required to specify the particular form of action in which he sued, and by s. 49 that (inter alia) the statement of promises in indebita tus counts which there was no need to prove were to be omitted; ‘the action of indebitatus assumpsit,’ the authors add, ‘is [that is by 1868] virtually become obsolete.’ Lord Atkin in the United Australia case,10 after instancing the case of the blackmailer, says: ‘The man has my money which I have not delivered to him with any real intention of passing to him the prop erty. I sue him because he has the actual property taken.’ He adds: ‘These fantastic resem blances of contracts invented in order to meet requirements of the law as to forms of action which have now disappeared should not in these days be allowed to affect actual rights.’ Yet the ghosts of the forms of action have been allowed at times to intrude in the ways of the living and impede vital functions of the law. Thus in Sinclair v. Brougham,11 Lord Sumner stated that ‘all “these causes of action [sc.’ for money had and received] are common species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay.’ This observation, which was not necessary for the decision of the case, obviously does not mean that there is an actual promise of the party. The phrase ‘notional or implied promise’ is only a way of describing a debt or obligation arising by construction of law. The claim for money had and received always rested on a debt or obligation which the law implied or more accurately imposed, whether the procedure actually in vogue at any time was debt or account or case or indebitatus assumpsit. Even the fictitious assumpsit disappeared after the Act of 1852. I prefer Lord Sumner’s explanation of the cause of action in Jones’s case.12 This agrees with the words of Lord Atkin which I have just quoted, yet serious legal writers have seemed to say that these words of the great judge in Sinclair v. Brougham closed the door to any theory of unjust enrich ment in English law. I do not understand why or how. It would indeed be a reductio ad absur dum of the doctrine of precedents. In fact, the common law still employs the action for money had and received as a practical and useful, if not complete or ideally perfect, instrument to pre vent unjust enrichment, aided by the various methods of technical equity which are also avail able, as they were found to be in Sinclair v. Brougham.
Must, then, the court stay its hand in what would otherwise appear to be an ordinary case for the repayment of money paid in advance on account of the purchase price under a contract for the sale of goods merely because the contract has become impossible of performance and the consideration has failed for that reason? The defendant has the plaintiff’s money. There was no intention to enrich him in the events which happened. No doubt, when money is paid under a contract it can only be claimed back as for failure of consideration where the contract is termi nated as to the future. Characteristic instances are where it is dissolved by frustration or impos sibility or by the contract becoming abortive for any reason not involving fault on the part of the plaintiff where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue, as in Rugg v. Minett. The claim for repayment is not based on the contract which is dissolved on the frustration but on the fact that the defen dant has received the money and has on the events which have supervened no right to keep it. The same event which automatically renders performance of the consideration for the payment impossible, not only terminates the contract as to the future, but terminates the right of the payee to retain the money which he has received only on the terms of the contract perfor mance..
The decision reached in Chandler v Wbster is criticized by Williston on Contracts: s. 1954,
p. 5477: see, too, s. 1974, p. 5544, and has not.been followed in most of the States of America. Nor is it adopted in the Restatement of the !Jaw of Contract by the American Law Institute,
s. 468, pp. 884, et seq. Indeed, the law of the United States seems to go beyond the mere rem edy of claims for money had and received and allow the recovery of the value of the benefit of any part performance rendered while performance was possible. Such and similar claims should be recognized in any complete system of law, but it is not clear how far they have been admit ted in English law. The Scots law upheld in Cantiare Sen Rocco S.A. v. Clyde Shipbuilding and Engineering Co Ltd13 may seem to be generalll like the English law and to be limited to recov ery of money payments. The opinion which I have been stating perhaps brings the two laws into substantial accord, though in the passage quoted by Lord Birkenhead in the Cantiare case from Lord President Inglis’s judgment in William Watson (S Co. v. Shankland1• that judge seems to accept that the payer who had paid in advance should give credit to the extent that he is lucratus by any part performance. I do not wish to discuss how far, if at all, this is open in English law. That was a case of advance freight, which Scots law treats as a prepayment on account, but I think it is clear both in English and Scots law that the failure of consideration which justifies repayment is a failure in the contract performance. What is meant is not con sideration in the sense in which the word is used when it is said that in executory contracts the promise of one party is consideration for the promise of the other. No doubt, in some cases the recipient of the payment may be exposed to hardship if he has to return the money though before the frustration he has incurred the bulk of the expense and is then left with things on his hands which become valueless to him when the contract fails, so that he gets nothing and has to return the prepayment. These and many other difficulties show that the English rule of recovering payment the consideration for which has failed works a rough justice. It was adopted in more primitive times and was based on the simple theory that a man who has paid in advance for something which he has never got ought to have his money back. It is further imperfect because it depends on an entire consideration and a total failure. Courts of equity have evolved a fairer method of apportioning an entire consideration in cases where a premium has been paid for a partnership which has been ended before its time: Partnership Act, s. 40; contrary to the common law rule laid down in Whincup v. Hughes.15 Some day the legislature may intervene to remedy these defects..
Deglman v. Guaranty Trust Co of Canada and Constantineau
[1954] 3 DLR 785 Supreme Court of Canada
Rand J: There remains the question of recovery for the services rendered on the basis oaf quantum meruit. On the findings of both Courts below the services were not given gratuitously but on the footing oaf contractual relation: they were to be paid for. The statute in sucha case does not touch the principle of restitution against what would otherwise be an unjust enrichment of the defendant at the expense of the plaintiff. This is exemplified in the simple case of part or fulpl ay ment inmoney as the price under an oral contract; it would be inequitable to allow the promisor to keep both the land and the money and the other party to the bargain is entitled to recover what he haspaid.Similarly is it in the case of services given [T]he respondent is entitled to recover
for his services andoutlays what the deceased would have had to pay for them ona purely busi ness basis toany other person in the position of the respondent. The evidence coversgenerally and perhaps in theonly way possible the particulars, but enough is shown to enable the Court to makea fair determination of the amount called for; and since it would be to the benefit of the
other beneficiaries to bring an end to this litigation, I think we should not hesitate to do that by fixing the amount to be allowed. This I place at the sum of $3,00.0…
Cartwright J: It remains to consider the respondent’s alternative claim to recover for the value of the services which he performed for the decease.d…
I agree with the conclusion of my brother Rand that the respondent is entitled to recover the
value of these services from the administrator. Thjs right appears to me to be based, not on the contract, but on an obligation imposed by la.w…
InScott v.Pattison, [1923]2 KB 723, the plaintiff served the defendant undera contract for service not to be performed within one year which was held not to be enforceable by reason of the Statute of Frauds. It was held that he could nonetheless sue in assumpsit on an implied con tract topay him according to his deserts. While I respectfully agree with the result arrived at inScottv.PattisonI do not think it is accurate to say that there was an implied promis.e…
In the case at bar all the acts for which the respondent asks to be paid under hisalternative claim were clearly done in performance of the existing but unenforceable contract with the deceased that she woulddevise 548 Besserer St. to him, and to infer from thema fresh contract topay thevalue of the services in money would be to draw an inferencecontrary to the fact.
Inmy opinion when the Statute of Frauds was pleaded the express contract was thereby ren dered unenforceable, but the deceased having received the benefits of the full performance of the contractby therespondent, the law imposed upon her, and so on her estate, the obligation topay the fair value of the services rendered to her…
Pavey and Matthews Pty. Ltd v. Paul
(1986) 162 CLR 217, High Court of ustralia
Mason and WilsonJJ.:.
Deane J., whose reasons for judgment we have had the advantage ofreading, h concluded that an action on a quantum meruit, such as that brought by the appellant, rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the respondent’s acceptance of the benefits accruing to the respondent from the appellant’s perfor mance of the unenforceable oral contract. This conclusion does not accord with the acceptance· by Williams, Fullagar and Kitto JJ. in Turner v. B/adin1 of the views expressed by Lord Denning in his articles in the Law Quarterly Review, vol. 41 (1925), p. 79, and vol. 55 (1939), p. 54, basing such a claim in implied contract. These views Wfre a natural reflecti«?n of prevail ing legal thinking as it had developed to that time. The members of this Court were then unaware that his Lordship had, in his judgment in James v. Thomas H. Kent (5 Co. Ltd.,Z as reported in the authorized reports, discarded his earlier views in favour of the restitution or unjust enrichment theory. Since then the shortcomings of the imP,lied contract theory have been rigorously exposed (see Goff and Jones, The Law of Restitution, 2nd ed. (1978), pp. 5-11) and the virtues of an approach based on restitution and unjust enrichment, initially advocated by Lord Mansfield and later by Fuller and Perdue (see ‘The Reliance Interest in Contract Damages’, Yale Law Journal, vol. 46 (1936-37), pp. 52,373, esp. at p. 387), widely appreciated (Goff and Jones, op. cit., p. 15 et seq.; and see Deg/man v. Guaranty Trust3). We are therefore now justified in recognizing, as Deane J. has done, that the true foundation of the right to recover on a quantum meruit does not depend on the existence of an implied contract.
Once the true basis of the action on a quantum meruit is established, namely execution of work for which the unenforceable contract provided, and its acceptance by the defendant, it is difficult to regard the action as one by which the plaintiff seeks to enforce the oral contract. True it is that proof of the oral contract may be an indispensable element in the plaintiff’s suc cess but that is in order to show that (a) the benefits were not intended as a gift, and (b) that the defendant has not rendered the promised exchange value: Fuller and Perdue, toe. cit.p, . 387 n.125. The purpose of proving the contract is not to enforce it but to make out another cause of action having a different foundation in law.
If the effect of bringing an action on a quantum meruit was simply to enforce the oral con tract in some circumstances only, though not in all the circumstances in which an action on the contract would succeed, it might be persuasively contended that the action ona quantum meruit was an indirect means of enforcing the oral contract. So, if all the plaintiff had to prove was that he had fully executed the contract on his part and that he had not been paid the con tract price, there would be some force in the suggestion that the proceeding amounted to an indirect enforcement of the contractual cause of action. However, when success in a quantum meruit depends, not only on the plaintiff proving that he did the work, but also on the defen dant’s acceptance of the work without paying the agreed remuneration, it is evident that the court is enforcing against the defendant an obligation that differs in character from the contractual obligation had it been enforceable.
Deane J.: At material times, the appellant company (‘the builder’) was the holder of a licence under the Builders Licensing Act 1971 (N.S.W.) (‘the Act’). It carried out the work and supplied the materials involved in the renovation of a cottage at Swansea Heads in New South Wales for the respondent, Mrs. Paul. It is common ground that the work was ‘building work’ within the meaning of s. 45 of the Act and that it was carried out pursuant to an oral contract, between the builder and Mrs. Paul, to the effect that the builder would do the work requested byMrs. Paul and that Mrs. Paul would pay the builder ‘a reasonable remuneration for that work, calculated by reference to prevailing rates of payment in the building industry’. After the work had been completed and Mrs. Paul had accepted the benefit of it and taken up occupation of the reno vated cottage, the builder instituted proceedings in the Supreme Court of New South Wales for what is claimed to be the balance (after giving credit for $36,000 already paid) owing to it in respect of the work. Its claim was for money payable as on a quantum meruit and corre sponded with the old common indebitatus count for work done and materials provided. By her (amended) statement of defence, Mrs. Paul put in issue certain matters of fact and denied the reasonableness of the charges. She also pleaded that the contract pursuant to which the work had been carried out was a building contract which was not epforceable by the builder by reason of the provisions of s. 45 of the Act. By consent, it was ordered in the Supreme Court that the issue raised by the defence based on s. 45 be determined, upon agreed facts, as a separate pre preliminary issue. It is with that issue that the present appeal is concerned.
Section 45 of the Act relevantly provides that a contract under which a licensed builder ‘undertakes to carry out … any building work is not enforceable against the other party to the contract’ unless it ‘is in writing signed by each of the parties or his agent in that behalf and
sufficiently describes the building work the subject of the contract’. Plainly enough, the oral contract between the builder and Mrs. Paul was of the kind described in the section and failed to satisfy its requirements. The issue between the parties on the present appeal is whether the words of the section should be construed as applying to preclude the builder from suing to recover recompense for building work completed under an oral contract in circumstances where the work has been fully completed by the builder and accepted by the building owner. Whatever may be the merits of the present case, where Mrs. Paul claims to have already paid all that is reasonably due, such a construction of the section would inevitably lead to injustice in those cases where a builder had discharged all his obligations under the building contract only to find that he was unable to recover any payment at all by reason of some innocent fail ure to ensure that the contract satisfied the requirements of the section. Since the section does not preclude enforcement of the contract against the licensed builder, that broad construction could also give rise to the oppressive situation in which a builder was contractually bound to continue and complete building work under a contract in circumstances where the section oper ated to preclude recovery by him of any recompense at all on completion of the work. A likeli hood of consequential injustice and oppression does not, of course, warrant a refusal to give effect to the legislative intent disclosed by the relevant words of the Statute. It does, however, call for careful scrutiny of those words to determine whether any such legislative intent can properly be discerned in them.
At first instance in the Supreme Court, Clarkq J. resolved the preliminary issue in favour of the builder. His Honour upheld a submission that the action was not one to enforce the oral contract which was rendered unenforceable by s. 45 of the Act for the reason that the builder’s claim was ‘quite independent of the contract and based upon the fact that the consideration moving from the plaintiff had been fully executed’. Mrs. Paul appealed from Clarke J.’s decision on the preliminary issue to the Court of Appeal. There, a contrary view prevailed. It was held that the words of s. 45, in the context of the legislative policy to be discerned in the Act as a whole, precluded any action by the builder to recover payment for the work done under the unenforceable building contract. That determination of the preliminary issue disposed of the builder’s claim and the Court of Appeal ordered that judgment be entered in Mrs. Paul’s favour. The appeal to this Court is from the judgment and orders of the Court of Appeal.
..the basis of the obligation to make payment for an executed consideration given and received under an unenforceable contract should now be accepted as lying in restitution or unjust enrichment Insuch a case, the underlying obligation or debt for the work done, goods sup
plied, or services rendered does not arise from a genuine agreement at all. It is an obligation or
debt imposed by operation of law which ‘arises from the defendant having taken the benefit of the work done, goods supplied, or services rendered ‘ (per Starke J., Phillips v. El/inson Bros.
Pty. Ltd.4) and which can be enforced ‘as ifit had a contractual origin’ (emphasis added) (In re
Rhodes, per Lindley L.J.5) • • • [I]t is clear that the old common indebitatus count could be utilised to accommodate what should be seen as two distinct categories of claim: one to recover a debt arising under a genuine contract, whether express or implied; the other to recover a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make compensation for a benefit accepted. In the first category of case, the action was brought upon the genuine agreement regardless of whether it took the form of a special or a common count. It follows from what has been said above that the cases in which a claimant has been held entitled to recover in respect of an executed consideration under an agreement upon which the Statute of Frauds precluded the bringing of an action should be seen as falling within the second and not the first category. In that second category of case, the tendency of common lawyers to speak in terms of implied contract rather than in terms of an obligation imposed by law should be recognized as but a reflection of the influence of discarded fictions, buried forms of action and the conventional conviction that, if a common law claim could not properly be framed in tort, it must necessarily be dressed in the language of contract. That tendency should not be allowed to conceal the fact that, in that category of case, the action was not based upon a genuine agreement at all. Indeed, if there was a valid and enforceable agreement gov erning the claimant’s right to compensation, there would be neither occasion nor legal justifi cation for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agree ment or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.
To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay com pensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unen forceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, r such an obligation in a new or devel oping category of case: see Muschinski v. Dodds;6 Goff & Jones, op. cit., p. 11ff. In a category of case where the law rccognizcs an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, as is pointed out subsequently in this judgment, also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case.
The fact that the action which can be brought on a common indebitatus count consistently with the Statute of Frauds is founded on an obligation arising independently of the unenforce able contract does not mean that the existence or terms of that contract are necessarily irrele vant. In such an action, it will ordinarily be permissible for the plaintiff to refer to the unenforceable contract as evidence, but as evidence only, on the question whether what was done was done gratuitously. In many cases, such as where the claim is for money lent or paid, the obligation to make restitution will plainly involve the obligation to pay the precise amount advanced or paid. In those cases where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may … be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation. If the unenforceable contract has not been rescinded by the plaintiff or otherwise terminated, the defendant will be free to
rely on it as a defence to the claim for compensation in a case where he is ready and willing to perform his obligations under it: see T/irnnas v. Brown.’ The defendant will also be entitled to rely on the unenforceable contract, if it has been executed but not rescinded, to limit the amount recoverable by the plaintiff to the contractual amount in a case where that amount is less than what would constitute fair and reasonable remuneration.
It was submitted on behalf of Mrs. Paul that the cases establishing the right of a claimant to recover compensation for an executed consideration under an agreement upon which the bring ing of an action is precluded by the Statute of Frauds could not be applied, by analogy, to sstain the right of the builder to sue her on a common indebitatus count in the present case to recover a liquidated amount representing reasonable remuneration for the work done and mate rials provided under the contract which was rendered unenforceable against her by the provi sions of s. 45 of the Act. The primary basis of this submission was the distinction between a provision precluding the bringing of an action by either party upon an agreement (such as the Statute of Frauds) and a provision that an agreement is not enforceable by a designated party against the other party to it (such ass. 45 of the Act).
On the approach accepted in Turner v. Bladin8, namely that the action which could be brought consistently with the Statute of Frauds was a common indebitatus assumpsit count based on the fictional promise to pay the actual debt arising under the agreement, there was obvious force in this submission since it would not necessarily follow from an acceptance of the view that such an action was not technically brought ‘upon’ the unenforceable agreement that the action could not properly be seen as none the less brought to enforce it. Once the approach in Bladin is rejected, however, the force in the submission disappears. The common indebita tus count for compensation does not involve enforcing an agreement which is unenforceable by the builder under s. 45 of the Act any more than it involves bringing an action upon an agree ment upon which the bringing of an action is precluded by the Statute of Frauds. As has been seen, the basis of such an action lies not in agreement but in restitution and the claim in resti tution involves not enforcing the agreement t recovering compensation on the basis that the agreement is unenforceable.
There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus count to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner: cf. Johnsons Tyne Foundry Pty. Ltd. v. Maffia Corporation.9 Nor, upon ‘a consideration of the words of s. 45 in their con text in the Act, am I able to identify any legislative intent to deprive the builder of that ordin ary common law right. The section does not make an agreement to which it applies illegal or void. Nor do its words disclose any legislative intent to penalise the builder beyond making the agreement itself unenforceable by him against the other party. It may be that the bringing of an action as on a common indebitatus count would conflict with the apparent legislative policy underlying s. 45 if the claimant in such an action were entitled as of right to recover the amount which the building owner had agreed to pay under the unenforceable agreement. I am, how ever, unpersuaded that the bringing by a builder of an action on the common indebitatus count in which he can recover no more than what is fair and reasonable in the circumstances as com pensation for the benefit of the work which he has actually done and which has been accepted by the building owner conflicts with any discernible legislative policy. Plainly enough, the sur vival of the ordinary common law right of the builder to recover, in an action founded on resti tution or unjust enrichment, reasonable remuneration for work done and accepted under a contract which is unenforceable by him does not frustrate the purpose of the section to provide protection for a building owner. The building owner remains entitled to enforce the contract. He cannot, however, be forced either to comply with its terms or to permit the builder to carry it to completion. All that he can be required to do is to pay reasonable compensation for work done of which he has received the benefit and for which in justice he is obligated to make such a payment by way of restitution. In relation to such work, he can rely on the contract, if it has not been rescinded, as to the amount of remuneration and the terms of payment. If the agreed remuneration exceeds what is reasonable in the circumstances, he can rely on the unenforce ability of the contract with the result that he is liable to pay no more than what is fair and reasonable.
The tendency in some past cases to see the rationale of the right to recover remuneration for a benefit provided and accepted under an unenforceable contract as contract or promise rather than restitution has tended to distract attention from the importance of identifying the basis upon which the quantum of the amount recoverable should be ascertained. What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the rel evant circumstances, fair and just compensation for the benefit or ‘enrichment’ actually or con structively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (e.g. remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied). In some categories of case, however, it would be to affront rather than satisfy the requirements of good conscience and justice which inspire the concept or principle of restitution or unjust enrichment to determine what constitutes fair and just compensation for a benefit accepted by reference only to what would represent a fair remuneration for the work involved or a fair market value of materials supplied. One such category of case is that in which unsolicited but subsequently accepted work is done in improving property in circumstances where remuneration for the unsolicited work calculated at what was a reasonable rate would far exceed the enhanced value of the property. More relevant for present purposes is the special category of case where restitution is sought by one party for work which he has executed under a contract which has become unenforceable by reason of his failure to comply with i:he require ments of a statutory provision which was enacted to protect the other party. In that category of case, it would be contrary to the general notions of restitution or unjust enrichment if what con stituted fair and just compensation for the benefit accepted by the other party were to be ascer tained without regard to any identifiable real detriment sustained by that other party by reason of the failure of the first party to ensure that the requirements of the statutory provision Were satisfied. Thus, if it is established on the hearing of the present case that Mrs. Paul has sus tained an identifiable real detriment by reason of the failure of the builder to ensure that there was a written memorandum of the oral contract which satisfied the requirements of s. 45 of the Act, that would be an important factor in determining what constituted fair and just restitution in the circumstances of the case for the work done and materials supplied of which she has accepted the benefit. The mere fact that the reasonable remuneration for the building work done at Mrs. Paul’s request exceeded Mrs. Paul’s expectations would not, however, of itself constitute any such identifiable real detriment since it is not necessary for the purposes of s. 45 of the Act that a written contract contain either an agreed price for the building work or an esti mate of what the cost of it to the building owner will ultimately be.
Lipkin Gorman v Karpnale Ltd
[1991] 2 AC 548, House of Lords
Lord Bridge of Harwich: I agree with my noble and learned friend, Lord Goff of Chieveley, that it is right for English law to recognise that a claim to restitution, based on the unjust enrichment of the defendant, may be met by the defence that the defendant has changed his position in good faith. I equally agree that in expressly acknowledging the availability of this defence for the first time it would be unwise to attempt to define its scope in abstract terms, but better to allow the law on the subject to develop on a case by case basis. In the circumstances of this case I would adopt the reasoning of my noble and learned friend, Lord Templeman for the conclusion that the club can only rely on the defence to the extent that it limits the club’s liability to the solicitors to the amount of their net winnings from Cass which must have been derived from the stolen money.
Lord Templeman: … law imposes an obligation on the recipient of stolen money to pay an equivalent sum to the victim if the recipient has been ‘unjustly enriched’ at the expense of the true owner. In Fibrosa Spollta Altcyjna v. Fairbairn La11Json Combe Barbour Ltd. [1943) AC 32, 61, Lord Wright said:
It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retain ing the money of or some benefit derived from another which it is against conscience that he should keep.
The club was enriched as and when Cass staked and lost to the club money stolen from the solicitors amounting in the aggregate to £300,000 or more. But the club paid Cass when he won and in the final reckoning the club only retained £154,695 which was admittedly derived from the solicitors’ money. The solicitors can recover the sum of £154,695 which was retained by the club if they show that in the circumstances the club was unjustly enriched at the expense of the solicitors.
In the course of argument there was a good deal of discussion concerning tracing in law and
in equity. In my opinion in a claim for money had and received by a thief, the plaintiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched. An innocent recipient of stolen money may not be enriched at all; if Cass had paid £20,000 derived from the solicitors to a car dealer for a motor car priced at £20,000, the car dealer would not have been enriched. The car dealer would have received £20,000 for a car worth £20,000. But an innocent recipi ent of stolen money will be enriched if the recipient has not given full consideration. If Cass had given £20,000 of the solicitors’ money to a friend as a gift, the friend would have been enriched and unjustly enriched because a donee of stolen money cannot in good conscience rely on the bounty of the thief to deny restitution to the victim of the theft. Complications arise if the donee innocently expends the stolen money in reliance on the validity of the gift before the donee receives notice of the victim’s claim for restitution. Thus if the donee spent £20,000 in the purchase of a motor car which he would not have purchased but for the gift, it seems to me that the donee has altered his position on the faith of the gift and has only been unjustly enriched to the extent of the secondhand value of the motor car at the date when the victim of the theft seeks restitution. If the donee spends the £20,000 in a trip round the world, which he would not have undertaken without the gift, it seems to me that the donee has altered his posi tion on the faith of the gift and that he is not unjustly enriched when the victim of the theft seeks restitution. In the present case Cass stole and the club received £229,908.48 of the solic itors’ money. If the club was in the same position as a donee, the club nevertheless in good faith allowed Cass to gamble with the solicitors’ money and paid his winnings from time to time so that when the solicitors’ sought restitution, the club only retained £154,695 derived from the solicitors. The question is whether the club which was enriched by £154,695 at the date when the solicitors sought restitution was unjustly enriched.
If Cass had been gambling with his own money, the gaming system operated by the club would have ensured that Cass paid his gambling losses contemporaneously and that the club paid their gambling losses in arrears. The gaming contracts were void but section 18 of the Act of 1845 does not, as between gamblers, prevent a gambling loss from being paid contempora neously or in arrears. A gambling loss, whenever paid, is a completed voluntary gift from the loser to the winner. But Cass was gambling with the money of the solicitors who have never gambled and never made a voluntary gift to the club.
When Cass lost and paid £154,695 to the club as a result of gaming contracts, he made to the club a completed gift of £l54,695. The club received stolen money by way of gift from the thief; the club, being a volunteer, has been unjustly enriched at the expense of the solicitors from
whom the money had been stolen and the club must reimburse the solicitors….
Lord Goff: …
The solicitors’ appeal
I turn then to the solicitors’ appeal in respect of the money, which they claim from the respondents as money had and received by the respondents to their use. To consider this aspect of the case it is, in my opinion, necessary to analyse with some care the nature of the claim so made.
The solicitors’ claim is, in substance, as follows. They say, first, that the cash handed over by the bank to Chapman in exchange for the cheques drawn on the solicitors’ client account by Cass was in law the property of the solicitors. That is disputed by the respondents who say that, since the cheques were drawn on the bank by Cass without the authority of his partners, the legal property in the money immediately vested in Cass; that argument was however rejected by the Court of Appeal. If that argument is rejected, the respondents concede for present pur poses that the cash so obtained by Cass from the client account was paid by him to the club, but they nevertheless resist the solicitors’ claim on two grounds: first, that they gave valuable consideration for the money in good faith, as held by a majority of the Court of Appeal; and second that, in any event, having received the money in good faith and having given Cass the opportunity of winning bets and, in some cases, recovering substantial sums by way of win nings, it would be inequitable to allow the solicitors’ claim.
At the heart of the solicitors’ claim lies Clarke v. Sliee and Johnson, I Cowp. 197; Lofft 756. In that case the plaintiff’s clerk received money and negotiable notes from the plaintiff’s cus tomers, in the ordinary course of the plaintiff’s trade as a brewer, for the use of the plaintiff. From the sums so received by him, the clerk paid several sums, amounting to nearly £460, to the defendant ‘upon the chances of the coming up of tickets in the State Lottery of 1772,’ con trary to the Lottery Act 1772. The Court of qµeen’s Bench held that the plaintiff was entitled to recover the sum of£ 460 from the defendant as money had and received by him for the use of the plaintiff. The judgment of the court was delivered by Lord Mansfield. He said, at pp. 199-201:
‘This is a liberal action in the nature of a·bill in equity; and if, under the circumstances of the case, it appears that the defendant cannot in conscience retain what is the subject mat ter of it, the plaintiff may well support this action … the plaintiff does not sue as stand ing in the place of Wood his clerk: for the money and notes which Wood paid to the defendants, are the identical notes and money of the plaintiff. Where money or notes are paid bona fide, and upon a valuable consideration, they never shall be brought back by the true owner; but where they come mala fide into a person’s hands, they are in the nature of specific property; and if their identity can be traced and ascertained, the party has a right to recover. It is of public benefit and example that it should: but otherwise, if they cannot be followed and identified, because there it might be inconvenient and open a door to fraud. Miller v. Race, I Burr. 452: and in Golightly v. Reynolds (1772) Lofft 88 the iden tity was traced through different hands and shops. Here the plaintiff sues for his identi fied property, which has come to the hands of the defendant iniquitously and illegally, in breach of the Act of Parliament, therefore they have no right to retain it; and consequently the plaintiff is well entitled to recover.’
It is the solicitors’ case that the present case is indistinguishable from Clarke v. Shee and Johnson. In each case, the plaintiff’s money was stolen-in that case by his servant, and in the present case by a partner-and then gambled away by the thief; and the plaintiff was or should be entitled to recover his money from the recipient in an action for money had and received. It is the respondents’ case that the present case is distinguishable on one or more of the three grounds I have mentioned. I shall consider those three grounds in turn.
Title to the money
The first ground is concerned with the solicitors’ title to the money received by Cass (through Chapman) from the bank. It is to be observed that the present action, like the action in Clarke v. Shee and Johnson, is concerned with a common law claim to money, where the money in question has not been paid by the appellant directly to the respondents-as is usually the case where money is, for example recoverable as having been paid under a mistake of fact, or for a consideration which has failed. On the contrary, here the money had been paid to the respondents by a third party, Cass; and in such a case the appellant has to establish a basis on hich he is entitled to the money. This (at least, as a general rule) he does by showing that the money is his legal property, as appears from Lord Mansfield’s judgment in Clarke v. Shee and Johnson. If he can do so, he may be entitled to succeed in a claim against the third party for money had and received to his use, though not if the third party has received the money in good faith and for a valuable consideration. The cases in which such a claim has succeeded are, I believe, very rare: see the cases, including Clarke v. Shee and Johnson, collected in Goff and Jones, The Law of Restitution, 3rd ed. (1986), p. 64, note 29. This is probably because, at com mon law, property in money, like other fungibles, is lost as such when it is mixed with other money. Furthermore, it appears that in these cases the action for money had and received is not usually founded upon any wrong by the third party, such as conversion; nor is it said to be a case of waiver of tort. It is founded simply on the fact that, as Lord Mansfield said, the third party cannot in conscience retain the money–or, as we say nowadays, for the third party to retain the money would result in his unjust enrichment at the expense of the owner of the money.
So, in the present case, the solicitors seek to show that the money in question was their prop erty at common law. But their claim in the present case for money had and received is never theless a personal claim; it is not a proprietary claim, advanced on the basis that money remaining in the hands of the respondents is their praperty. Of course there is no doubt that, even if legal title to the money did vest in Cass immediately on receipt, nevertheless he would have held it on trust for his partners, who would accordingly have been entitled to trace it in equity into the hands of the respondents. However, your Lordships are not concerned with an equitable tracing claim in the present case, since no such case is advanced by the solicitors, who have been content to proceed at common law by a personal action, viz, an action for money had and received. I should add that, in the present case, we are not concerned with the fact that money drawn by Cass from the solicitors’ client account at the bank may have become mixed by Cass with his own money before he gambled it away at the club. For the respondents have conceded that, if the solicitors can establish legal title to the money in the hands of Cass, that title was not defeated by mixing of the money with other money of Cass while in his hands. On this aspect of the case, therefore, the only question is whether the solicitors can establish legal title to the money when received by Cass from the bank by drawing cheques on the client account without authority.
Before your Lordships, and no doubt before the courts below, elaborate argument was
advanced by counsel upon this issue. The respondents relied in particular upon two decisions of the Privy Council as showing that where a partner obtains money by drawing on a partner ship bank account without authority, he alone and not the partnership obtains legal title to the money so obtained. These cases, Union Bank of Australia Ltd. v. McClintock (1922) 1 AC 240 and Commercial Banking Co. of Sydney Ltd. v. Mann [1961) AC 1, were in fact concerned with bankers’ cheques; but for the respondents it was submitted that the same principle was applic able in the case of cash. The solicitors argued that these cases were wrongly decided,·or alter natively sought to distinguish them on a number of grounds. I shall have to examine these cases in some detail when I come to consider the respondents’ cross-appeal in respect of the banker’s draft; and, as will then appear, I am not prepared to depart from decisions of such high author ity as these. They show that, where a banker’s cheque payable to a third party or bearer is obtained by a partner from a bank which has received the authority of the partnership to pay the partner in question who has, however, unknown to the bank, acted beyond the authority of his’ partners in so operating the account, the legal property in the banker’s cheque thereupon vests in the partner. The same must a fortiori be true when it is not such a banker’s cheque but cash which is so drawn from the bank by the partner in question. Even so, I am satisfied that the solicitors are able to surmount this difficulty, as follows.
It is well established that a legal owner is entitled to trace his property into its product, pro vided that the latter is indeed identifiable as the product of his property. Thus, in Taylor v. Plumer (1815) 3 M & S 562, where Sir Thomas Plumer gave a draft to a stockbroker for the urpose of buying exchequer bills, and the stockbroker instead used the draft for buying American securities and doubloons for his own purposes, Sir Thomas was able to trace his property into the securities and doubloons in the hands of the stockbroker, and so defeat a claim made to them by the stockbroker’s assignees in bankruptcy. Of course, ‘tracing’ or ‘following’ property into its product involves a decision by the owner of the original property to assert his title to the product in place of his original property. This is sometimes referred to as ratifica tion. I myself would not so describe it, but it has, in my opinion, at least one feature in com mon with ratification, that it cannot be relied upon so as to render an innocent recipient a wrongdoer (cf. Bolton Partners v. Lambert (1889) 41 Ch.D 295, 307,perCotton LL: ‘an act law ful at the time of its performance [cannot] be rendered unlawful, by the application of the doc trine of ratification.’)
I return to the present case. Before Cass drew upon the solicitors’ client account at the bank, there was of course no question of the solicitors having any legal property in any cash lying at the bank. The relationship of the bank with the solicitors was essentially that of debtor and creditor; and since the client account was at all material times in credit, the bank was the debtor and the solicitors were its creditors. Such a debt constitutes a chose in action, which is a species of property; and since the debt was enforceable at common law, the chose in action was legal property belonging to the solicitors at comm9n law.
There is in my opinion no reason why the solicitors should not be able to trace their prop erty at common law in that chose in action, or in any part of it, into its product, i.e. cash drawn by Cass from their client account at the bank. Such a claim is consistent with their assertion that the money so obtained by Cass was their property at common law. Further, in claiming the money as money had and received, the solicitors have not sought to make the respondents liable on the basis of any wrong, a point which will be of relevance at a later stage, when I come to consider the defence of change of position. •
Authority for the solicitors’ right to trace their property in this way is to be found in the decision of your Lordships’ House in Marsh v. Keating (1834) 1 Bing. (NC) 198. Mrs. Keating was the proprietor of £12,000 interest or share in joint stock reduced 3 per cent. annuities, standing to her credit in the books of the Bank of England, where the accounts were entered in the form of debtor and creditor accounts in the ledgers of the bank. Under what purported to be a power of attorney given by Mrs. Keating to the firm of Marsh, Sibbard & Co., on which Mrs. Keating’s signature was in fact forged by Henry Fauntleroy, a partner in Marsh, Sibbard & Co., an entry was made in the books of the Bank of England purporting to transfer £9,000 of Mrs. Keating’s interest or share in the stock to William Tarbutt, to whom, on the instruc tions of Henry Fauntleroy, the stock had been sold for the sum of £6,018 15s. In due course, the broker who conducted the sale accounted for £6,013 2s. 6d. (being the sale price less com mission) by a cheque payable to Marsh & Co. Upon the discovery of the forgery, Mrs. Keating made a claim upon the Bank of England; and the bank requested Mrs. Keating to prove in the bankruptcy of the partners in Marsh & Co. in respect of the sum so received by them. Mrs. Keating then commenced an action, pursuant to an order of the Lord Chancellor, for the pur pose of trying the question whether the partners in Marsh & Co. were indebted to her, in which she claimed the sum so received by Marsh & Co. as money had and received to her use. The opinion of the judges was taken, and their opinion was to the effect that Mrs. Keating was enti tled to succeed in her claim. Your Lordships’ House ruled accordingly. It must follow a fortiori that the solicitors, as owners of the chose in action constituted by the indebtedness of the bank to them in respect of the sums paid into the client account, could trace their property in that chose in action into its direct product, the money drawn from the account by Cass. It further follows, from the concession made by the respondents, that the solicitors can follow their prop erty into the hands of the respondents when it was paid to them at the club.
Whether the respondents gave consideration for the money
There is no doubt that the respondents received the money in good faith; but, as I have already recorded, there was an acute difference of opinion among the members of the Court of Appeal whether the respondents gave consideration for it. Parker LJ was of opinion that they did so, for two reasons. (l) The club supplied chips in exchange for the money. The contract under which the chips were supplied was a separate contract, independent of the contracts under which bets were placed at the club; and the contract for the chips was not avoided as a contract by way of gaming and wagering under section 18 of the Gaming Act 1845. (2) Although the actual gaming contracts were void under the Act, nevertheless Cass in fact obtained in exchange for the money the chance of winning and of then being paid and so received valuable consideration from the club. May LJ agreed with the first of these two
reasons. Nicholls LJ disagreed with both.
I have to say at once that I am unable to accept the alternative basis upon which Parker LJ held that consideration was given for the money, viz. that each time Cass placed a bet at the casino, he obtained in exchange the chance of winning and thus of being paid. In my opinion, when Cass placed a bet, he received nothing in return which constituted valuable consideration. The contract of gaming was void; in other words, it was binding in honour only. Cass knew, of course, that, if he won his bet, the club would pay him his winnings. But he had no legal right to claim them. He simply had a confident expectation that, in fact, the club would pay; indeed, if the club did not fulfil its obligations binding in honour upon it, it would very soon go out of business. But it does not follow that, when Cass placed the bet, he received anything that the law recognises as valuable consideration. In my opinion he did not do so. Indeed, to hold that consideration had been given for the money on this basis would, in my opinion, be inconsistent with Clarke v. Shee and Johnson, 1 Cowp. 197. Even when a winning bet has been paid, the gam bler does not receive a valuable consideration for his money. All that he receives is, in law, a gift from the club.
However, the first basis upon which Parker and May LJJ decided the point is more difficult. To that I now turn.
In common sense terms, those who gambled at the club were not gambling for chips: they were gambling for money. As Davies LJ said in C.H.T. Ltd. v. Ward [1965) 2 Q!1 63, 79:
‘People do not game in order to win chips; they game in order to win money. The chips are not money or money’s worth; they are mere counters or symbols used for the conve nience of all concerned in the gaming.’
The convenience is manifest, especially from the point of view of the club. The club has the gambler’s money up front, and large sums of cash are not floating around at the gaming tables. The chips are simply a convenient mechanism for facilitating gambling with money. The prop erty in the chips as such remains in the club, so that there is no question of a gambler buying the chips from the club when he obtains them for cash.
But this broad approach does not solve the problem, which is essentially one of analysis. I think it best to approach the problem by taking a situation unaffected by the impact of the Gaming Acts.
Suppose that a large department store decides, for reasons of security, that all transactions in
the store are to be effected by the customers using chips instead of money. On entering the store, or later, the customer goes to the cash desk and obtains chips to the amount he needs in exchange for cash or a cheque. When he buys goods, he presents chips for his purchase. Before he leaves the store, he presents his remaining chips, and receives cash in return. The example may be unrealistic, but in legal terms it is reasonably straightforward. A contract is made when the customer obtains his chips under which the store agrees that, if goods are purchased by the customer, the store will accept chips to the equivalent value of the price, and further that it will redeem for cash any chips returned to it before the customer leaves the store. If a customer ffers to buy a certain item of goods at the store, and the girl behind the counter accepts his offer but then refuses to accept the customer’s chips, the store will be in breach of the contract for chips. Likewise if, before he leaves the store, the customer hands in some or all of his chips at the cash desk, and the girl at the cash desk refuses to redeem them, the store will be in breach of the contract for chips.
Each time that a customer buys goods, he enters into a contract of sale, under which the cus tomer purchases goods at the store. This is a contract for the sale of goods; it is not a contract of exchange, under which goods are exchanged for chips, but a contract of sale, under which goods are bought for a price, i.e. for a money consideration. This is because, when the customer surrenders chips of the appropriate denomination, the store appropriates part of the money deposited with it towards the purchase. This does not however alter the fact that an independ ent contract is made for the chips when the customer originally obtains them at the cash desk. Indeed that contract is not dependent upon any contract of sale being entered into; the cus tomer could walk around the store and buy nothing, and then be entitled to redeem his chips in full under the terms of his contract with the store.
But the question remains: when the customer hands over his cash at the cash desk, and receives his chips, does the store give valuable consideration for the money so received by it? In common sense terms, the answer is no. For, in•substance and in reality, there is simply a gra tuitous deposit of the money with the store, with liberty to the customer to draw upon that deposit to pay for any goods he buys at the store. The chips are no more than the mechanism by which that result is achieved without any cash being handed over at the sales counter, and by which the customer can claim repayment of any balance remaining of his deposit. If a tech nical approach is adopted, it might be said that, since the property in the money passes to the store as depositee, it then gives consideration for,the money in the form of a chose in action cre ated by its promise to repay a like sum, subject to draw-down in respect of goods purchased at the store. I however prefer the common sense approach. Nobody would say that the store has purchased the money by gaming to repay it: the promise to repay is simply the means of giv ing effect to the gratuitous deposit of the money with the store. It follows that, by receiving the money in these circumstances, the store does not for present purposes give valuable consider ation for it. Otherwise a bank with which money was deposited by an innocent donee from a thief could claim to be a bona fide purchaser of the money simply by virtue of the fact of the deposit.
Let me next take the case of gambling at a casino. Of course, if gaming contracts were not void under English law by virtue of section 18 of the Gaming Act 1845, the result would be exactly the same. There would be a contract in respect of the chips, under which the money was deposited with the casino; and then separate contracts would be made when each bet was placed, at which point of time part or all of the money so deposited would be appropriated to the bets.
However, contracts by way of gaming or wagering are void in English law. What is the effect of this? It is obvious that each time a bet is placed by the gambler, the agreement under which the bet is placed is an agreement by way of gaming or wagering, and so is rendered null and void. It follows, as I have said, that the casino, by accepting the bet, does not thereby give valu able consideration for the money which has been wagered by the gambler, because the casino is under no legal obligation to honour the bet. Of course, the gambler cannot recover the money from the casino on the ground of failure of consideration; for he has relied upon the casino to honour the wager-he has in law given the money to the casino, trusting that the casino will fulfil the obligation binding in honour upon it and pay him if he wins his bet-though if the casino does so its payment to the gambler will likewise be in law a gift. But suppose it is not the gambler but the true owner of the money (from whom the gambler has perhaps, as in the pres ent cue, stolen the money) who is claiming it from the casino. What then? In those circum stances the casino cannot, in my opinion, say that it has given valuable consideration for the money, whether or not the gambler’s bet is successful. It has given no consideration if the bet s unsuccessful, because its promise to pay on a successful bet is void; nor has it done so if the gambler’s bet is successful and the casino has paid him his winnings, because that payment is in law a gift to the gambler by the casino.
For these reasons I conclude, in agreement with Nicholls LJ, that the respondents did not give valuable consideration for the money. But the matter does not stop there; because there remains the question whether the respondents can rely upon the defence of change of position.
Change of position
I turn then to the last point on which the respondents relied to defeat the solicitors’ claim for the money. This was that the claim advanced by the solicitors was in the form of an action for money had and received, and that such a claim should only succeed where the defendant was unjustly enriched at the expense of the plaintiff. If it would be unjust or unfair to order resti tution, the claim should fail. It was for the court to consider the question of injustice or unfair ness, on broad grounds. If the court thought that it would be unjust or unfair to hold the respondents liable to the solicitors, it should deny the solicitors recovery. Mr. Lightman, for the club, listed a number of reasons why, in his submission, it would be unfair to hold the respondents liable. There were (1) the club acted throughout in good faith, ignorant of the fact that the money had been stolen by Cass; (2) although the gaming contracts entered into by the club with Cass were all void, nevertheless the club honoured all those contracts; (3) Cass was allowed to keep his winnings (to the extent that he did not gamble them away); (4) the gaming contracts were merely void not illegal; and (5) the solicitors’ claim was no different in principle from a claim to recover against an innocent third party to whom the money was given and who no longer retained it.
I accept that the solicitors’ claim in the present case is founded upon the unjust enrichment of the club, and can only succeed if, in accordance with the principles of the law of restitution, the club was indeed unjustly enriched at the expense of the solicitors. The claim for money had and received is not, as I have previously mentioned, founded upon any wrong committed by the club against the solicitors. But it does not, in my opinion, follow that the court has carte blanche to reject the solicitors’ claim simply because it thinks it unfair or unjust in the circum stances to grant recovery. The recovery of money in restitution is not, as a general rule, a mat ter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrich ment, nevertheless, where recovery is denied, it is denied on the basis of legal principle.
It is therefore necessary to consider whether Mr. Lightman’s submission can be upheld on the basis of legal principle. In my opinion it is plain, from the nature of his submission, that he is in fact seeking to invoke a principle of change of position, asserting that recovery should be denied because of the change in position of the respondents, who acted in good faith through out.
Whether change of position is, or should be, recognised as a defence to claims in restitution is a subject which has been much debated in the books. It is however a matter on which there is a remarkable unanimity of view, the consensus being to the effect that such a defence should be recognised in English law. I myself am under no doubt that this is right.
Historically, despite broad statements of Lord Mansfield to the effect that an action for money had and received will only lie where it is inequitable for the defendant to retain the money (see in particular Moses v. Macfer/an (1760) 2 Burr. 1005), the defence has received at most only partial recognition in English law. I refer to two groups of cases which can arguably be said to rest upon change of position: (1) where an agent can defeat a claim to restitution on the ground that, before learning of the plaintiff’s claim, he has paid the money over to his prin cipal or otherwise altered his position in relation to his principal on the faith of the payment; and (2) certain cases concerned with bills of exchange, in which money paid under forged bills has been held irrecoverable on grounds which may, on one possible view, be rationalised in erms of change of position: see, e.g. Price v. Neal (1762) 3 Burr. 1355, and London and River Plate Bank Ltd. v. Bank of Liverpool [1896] 1 Q!3 7. There has however been no general recog nition of any defence of change of position as such; indeed any such defence is inconsistent with the decisions of the Exchequer Division in Durrant v. Ecclesiastical Commissioners for England and Wales (1880) 6 Q!JD 234, and of the Court of Appeal in Baylis v. Bishop of London [1913] 1 Ch. 127. Instead, where change of position has been relied upon by the defendant, it has been usual to approach the problem as one of estoppel: see, e.g. R. E. Jones Ltd v. Waring and Gil/ow Ltd [1926] AC 670 and Avon Council v. Howlett [1983] 1 WLR 605. But it is difficult to see the justification for such a rationalisation. First, estoppel normally depends upon the existence of a representation by one party, in reliance upon which the representee has so changed his position that it is inequit ble for the representor to go back upon his representation. But, in cases of restitution, the requirement of a representation appears to be unnecessary. It is true that, in cases where the plaintiff has paid money directly to the defendant, it has been argued (though with difficulty) that the plaintiff has represented to the defendant that he is entitled to the money; but in a case such as the present, in which the money is paid to an innocent donee by a thief, the true owner has made no representation whatever to the defendant. Again, it was held by the Court of Appeal in Avon County Council v. Howlett that estoppel cannot operate pro tanto, with the effect that if, for example, the defen ant has innocently changed his position by
disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim. Considerations such as these proyide a strong indication that, in many cases, estoppel is not an appropriate concept to deal with the problem.
In these circumstances, it is right that we should.ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an inno cent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to,repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognised throughout the com mon law world. It is recognised in the United States of America (see American Law Institute, Restatement of the Law, Restitution (1937), section 142, pp. 567-78 and Palmer, The Law of Restitution (1978), vol. III, para. 16.8); it has been judicially recognised by the Supreme Court of Canada (see Rural Municipality of Storthoaks v. Mobil Oil Canada Ltd (1975) 55 DR, (3d) l); it has been introduced by statute in New Zealand Oudicature Act 1908, section 94B (as amended)), and Western Australia (see Western Australia Law Reform (Property, Perpetuities and Succession) Act 1962, section 24, and Western Australia Trustee Act 1962, section 65(8), and it has been judicially recognised by the Supreme Court of Victoria: see Bank of New South Wales v. Murphett [1983] 1 VR 489. In the important case of Australia and New Zealand Banking Group Ltd v. Westpac Banking Corporation (1988) 78 ALR 157, there are strong indications that the High Court of Australia may be moving towards the same destination (see especially at pp. 162 and 168, per curiam). The time for its recognition in this country is, in my opinion, long overdue.
I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his posi tion in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration. They do not arise in the present case. Here there is no oubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents. It is not however appropriate in the present case to attempt to identify all those actions in restitution to which change of position may be a defence. A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, where the plaintiff’s money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received. At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present pur poses has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions. In this connection I have particularly in mind the speech of Lord Simonds in Ministry of Health v. Simpson [1951] AC, 251,276.
I wish to add two further footnotes. The defence of change of position is akin to the defence of bona fide purchase; but we cannot simply say that bona fide purchase is a species of change of position. This is because change of position will only avail a defendant to the extent that his position has been changed; whereas, where bona fide purchase is invoked, no inquiry is made (in most cases) into the adequacy of the consideration. Even so, the recognition of change of position as a defence should be doubly beneficial. It will enable a more generous approach to be taken to the recognition of the right to restitution, in the knowledge that the defence is, in appropriate cases, available; and while recognising the different functions of property at law and in equity, there may also in due course develop a more consistent approach to tracing claims, in which common defences are recognised as available to such claims, whether advanced at law or in equity.
I turn to the application of this principle to the present case. In doing so, I think it right to
stress at the outset that the respondents, by running a casino at the club, were conducting a per fectly lawful business. There is nothing unlawful about accepting bets at a casino; the only rel evant consequence of the transactions being gambling transactions is that they are void. In other words, the transactions as such give rise to no legal obligations. Neither the gambler, nor the casino, can go to court to enforce a gaming transaction. That is the legal position. But the prac tical or business position is that, if a casino does not pay winnings when they are due, it will simply go out of business. So the obligation in honour to pay winnings is an obligation which, in business terms, the casino has to comply with. It is also relevant to bear in mind that, in the present case, there is no question of Cass having gambled on credit. In each case, the money was put up front, not paid to discharge the balance of an account kept for gambling debts. It was because the money was paid over, that the casino accepted the bets at all.
In the course of argument before your Lordships, attention was focused upon the overall position of the respondents. From this it emerged, that, on the basis I have indicated (but excluding the banker’s draft), at least £150,960 derived from money stolen by Cass from the solicitors was won by the club and lost by Cass. On this approach, the possibility arose that the effect of change of position should be to limit the amount recoverable by the solicitors to that sum. But there are difficulties in the way of this approach. Let us suppose that a gambler places two bets with a casino, using money stolen from a third party. The gambler wins the first bet and loses the second. So far as the winning bet is concerned, it is readily understandable that the casino should be able to say that it is not liable to the true owner for money had and received, on the ground that it has changed its position in good faith. But at first sight it is not easy to see how it can aggregate the two bets together and say that, by paying winnings on the first bet in excess of both, it should be able to deny liability in respect of the money received in respect of the second.
There are other ways in which the problem might be approached, the first narrower and the second broader than that which I have just described. The narrower approach is to limit the impact of the winnings to the winning bet itself, so that the amount of all other bets placed with the plaintiff’s money would be recoverable by him regardless of the substantial winnings paid by the casino to the gambler on the winning bet. On the broader approach, it could be said that each time a bet is accepted by the casino, with the money up front, the casino, by accepting the bet, so changes its position in good faith that it would inequitable to require it to pay the money back to the true owner. This would be because, by accepting the bet, the casino has committed itself, in business terms, to pay the gambler his winnings if successful. In such circumstances, the bookmaker could say that, acting in good faith, he had changed his position, by incurring the risk of having to pay a sum of money substantially larger than the amount of the stake. On this basis it would be irrelevant whether the gambler won the bet or not, or, if he did win the bet, how much he won.
I must confess that I have not found the point an easy one. But in the end I have come to the conclusion that on the facts of the present case the first of these three solutions is appropriate. Let us suppose that only one bet was placed by a:gambler at a casino with the plaintiff’s money, and that he lost it. In that simple case, although it is true that the casino will have changed its position to the extent that it has incurred the risk, it will in the result have paid out nothing to the gambler, and so prima facie it would not be inequitable to require it to repay the amount of the bet to the plaintiff. The same would, of course, be equally true if the gambler placed a hun dred bets with the plaintiff’s money and lost them all; the plaintiff should be entitled to recover the amount of all the bets. This conclusion has the merit of consistency with the decision of the Court of King’s Bench in Clarke v. Shee and Johnson, 1 Cowp. 197. But then, let us suppose that the gambler has won one or more out of one hundred bets placed by him with the plain tiff’s money at a casino over a certain period of time, and that the casino has paid him a sub stantial sum in winnings, equal, let us assume, to one half of the amount of all the bets. Given that it is not inequitable to require the casino to repay to the plaintiff the amount of the bets in full where no winnings have been paid, it would, in the circumstances I have just described, be inequitable, in my opinion, to require the casino to repay to the plaintiff more than one half of his money. The inequity, as I perceive it, arises from the nature of gambling itself. In gambling only an occasional bet is won, but when the gambler wins he will receive much more than the stake placed for his winning bet. True, there may be no immediate connection between the bets. They may be placed on different occasions, and each one is a separate gaming contract. But the point is ,that there has been a series of transactions under which all the bets have been placed by paying the plaintiff’s money to the casino, and on each occasion the casino has incurred the risk that the gambler will win. It is the totality of the bets which yields, by the laws of chance, the occasional winning bet; and the occasional winning bet is therefore, in practical terms, the result of the casino changing its position by incurring the risk of losing on each occasion when a bet is placed with it by the gambler. So, when in such circumstances the plaintiff seeks to recover from the casino the amount of several bets placed with it by a gambler with his money, it would be inequitable to require the casino to repay in full without bringing into account win nings paid by it to the gambler on any one or more of the bets so placed with it. The result may not be entirely logical; but it is surely just.
For these reasons, I would allow the solicitors’ appeal in respect of the money, limited however to the sum of £150,960.
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council
[1996] 2 WLR 802, House of Lords
Lord Browne-Wilkinson The House of Lords was unanimous in rejecting the claim by the ultra vires depositors to recover in quasi-contract on the basis of mon eys had and received. In their view, the claim in quasi-contract was based on an implied con tract. To imply a contract to repay would be to imply a contract to exactly the same effect as the express ultra vires contract ofloan. Any such implied contract would itself be void as being ultra vires.
Subsequent developments in the law of restitution demonstrate that this reasoning is no longer sound. The common law restitutionary claim is based not on implied contract but on unjust enrichment: in the circumstances the law imposes an obligation to repay rather than implying an entirely fictitious agreement to repay: Fibrosa Spo/ka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] AC 32, 63-4, per Lord Wright; Pavey (S Matthews Pty. Ltd v. Paul (1987) 162 CLR 221, 227, 255; Lipkin Gorman v. Karpnale Ltd [1991] 2 AC 548, 578c; Woolwich Equitable Building Society v. Inland Revenue Commissioners [1993] AC 70. In my judgment, your Lordships should now unequivocally and finally reject the concept that the claim for moneys had and received is based on a implied contract. I would overrule Sinclair v. Brougham on this point.
It follows that in Sinclair v. Brougham the depositors should have had a personal claim to recover the moneys at law based on a total failure of consideration. The failure of consideration was not partial: the depositors had paid over their money in consideration of a promise to repay. That promise was ultra vires and void; therefore the consideration for the payment of the money wholly failed. So in the present swaps case (though the point is not one under appeal) I think the Court of Appeal were right to hold that the swap moneys were paid on a considera tion that wholly failed. The essence of the swap agreement is that, over the whole term of the agreement, each party thinks he will come out. best: the consideration for one party making a payment is an obligation on the other party to make counter-payments over the whole term of the agreement.
If in Sinclair v. Brougham the depositors had been held entitled to recover at law, their per sonal claim would have ranked pari passu with other ordinary unsecured creditors, in priority to the members of the society who could take ,nothing in the liquidation until all creditors had been paid.
Lord Goff(dissenting): For present purposes, I approach this case in the following way. First, it is clear that the problem which arose in Sinclair v. Brougham, viz. that a personal remedy in restitution was excluded on grounds of public policy, does not arise in the present case, which is not of course concerned with a borrowing contract. Second, I regard the decision in Sinclair
v. Brougham as being a response to that problem in the case of ultra vires borrowing contracts, and as not intended to create a principle of general application. From this it follows, in my opin ion, that Sinclair v. Brougham is not relevant to the decision in the present case. In particular it cannot be relied upon as a precedent that a trust arises on the facts of the present case, justify ing on that basis an award of compound interest against the council.
But I wish to add this. I do not in any event think that it would be right for your Lordships’ House to exercise its power under the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 to depart from Sinclair v. Brougham. I say this first because, in my opinion, any decision to do so would not be material to the disposal of the present appeal, and would therefore be obiter. But there is a second reason of substance why, in my opinion, that course should not be taken. I recognise that nowadays cases of incapacity are relatively rare, though the swaps litiga tion shows that they can still occur. Even so, the question could still arise whether, in the case of a borrowing contract rendered void because it was ultra vires the borrower, it would be con trary to public policy to allow a personal claim in restitution. Such a question has arisen in the past not only in relation to associations such as the Birkbeck Permanent Benefit Building Society, but also in relation to infants’ contracts. Moreover there is a respectable body of opin ion that, if such a case arose today, it should still be held that public policy would preclude a personal claim in restitution, though not of course by reference to an implied contract. That was the opinion expressed by Leggatt LJ in the Court of Appeal in the present case [1994] 1 WLR 938, 952E-F, as it had been by Hobhouse J; and the same view has been expressed by Professor Birks (see An Introduction to the Law of Restitution (1985), p. 374). I myself incline to the opinion that a personal claim in restitution would not indirectly enforce the ultra vires con tract, for such an action would be unaffected by any of the contractual terms governing the bor rowing, and moreover would be subject (where appropriate) to any available restitutionary defences. If my present opinion were to prove to be correct then Sinclair v. Brougham will fade into history. If not, then recourse can at least be had to Sinclair v. Brougham as authority for the proposition that, in such circumstances, the lender should not be without a remedy. Indeed, I cannot think that English law, or equity, is so impoverished as to be incapable of providing relief in such circumstances. Lord Wright, who wrote in strong terms (‘Sinclair v. Brougham’ [1938] CLJ 305) endorsing the just result in Sinclair v. Brougham, would turn in his grave at any such suggestion. Of course, it may be necessary to reinterpret the decision in that case to provide a more satisfactory basis for it; indeed one possible suggestion has been proposed by Professor Birks (see An Introduction to the Law Restitution, pp. 396 et seq.). But for the present the case should in my opinion stand, though confined in the manner I have indicated, as an assertion that those who are caught in the trap of advancing money under ultra vires borrow ing contracts will not be denied appropriate relief.
Benedetti v Sawiris & Ors
[2013] UKSC 50 (17 July 2013)
LORD CLARKE (with whom Lord Kerr and Lord Wilson agree)
Introduction
This is an unusual case. It involves a claim for unjust enrichment and, in the course of the argument, has led to a wide ranging discussion of the principles relevant to an aspect of unjust enrichment which has been the subject of lively debate among academics. It will be necessary to give consideration to at least some of the principles but, as is so often the case, the appeal can be determined on the facts without the necessity for the Court to express a final view on all the legal issues which have been the subject of argument.
The parties
Mr Benedetti is an Italian citizen resident in Switzerland. Mr Sawiris is an Egyptian and American national and was at all material times the Chairman and CEO of Orascom Telecom Holding SAE (“Orascom”), an Egyptian company quoted on the Egyptian Stock Exchange and (through Global Depositary Receipts) on the London Stock Exchange, which operates a telecommunications business concentrated in the Middle East, Africa and South East Asia. Cylo Investments Ltd (“Cylo”) is Mr Sawiris’ BVI registered company. April Holding (“April”) and OS Holding (“OS”) (“the Holding Companies”) are Cayman Island companies set up by Mr Sawiris’ brother and father respectively (who had held the shares in Orascom before the two companies were created), and held under discretionary trusts for the benefit of the wider Sawiris family. Immediately before the relevant events, Cylo had a holding of 4.1% in Orascom, April had a holding of 34.6% in Orascom and OS had a holding of 17.7% in Orascom; so that, between them, they held about 56.4% of Orascom’s shares, with the remaining 43.6% of the shares being publicly held.
The claims, the judgment and the appeals
Mr Benedetti issued these proceedings in August 2007. In them he made a very large claim against all the respondents. At its most extravagant it amounted to €3.7 billion. He put his claim in a number of ways. His primary claim was made in contract under an agreement dated 31 January 2004 (“the Acquisition Agreement”). His alternative claims were variously based on an alleged oral understanding (which he said was enforceable in equity by reason of the principle in Pallant v Morgan [1953] Ch 43), collateral contract, breach of fiduciary duty, unconscionable receipt, estoppel and quantum meruit. All the claims were in the same amount. The trial came before Patten J as he then was (“the judge”) and lasted for some 31 days in the first half of 2009. In a very impressive judgment of 576 paragraphs, which was handed down on 15 June 2009, the judge dismissed all Mr Benedetti’s claims except the claim for quantum meruit. He awarded Mr Benedetti €75.1m.
The judge rejected the principal ways in which Mr Benedetti had put his claim for quantum meruit but held that he was entitled to the sum of €75.1m on the basis of a proposal first made on behalf of Mr Sawiris in June 2005.
Ironically, this alternative claim was only made by Mr Benedetti at a very late stage of the trial. Until closing submissions it had been maintained on his behalf that the offer of €75.1m was irrelevant and inadmissible. This had the effect, which can now perhaps be seen as unfortunate, that the evidential basis for the claim which ultimately succeeded was not as fully explored as might otherwise have been the case. However that may be, the judge rejected the submission made on behalf of Mr Sawiris that it was too late for Mr Benedetti to alter his case to rely upon it. The judge held that all the respondents were jointly and severally liable to Mr Benedetti in that amount.
Mr Benedetti appealed to the Court of Appeal on the ground that the amount awarded was calculated on the wrong basis and should have been more. Mr Sawiris and Cylo cross-appealed on the basis that the sum should have been nil and, in any event, argued that it should have been less than €75.1m. The Holding Companies cross-appealed on the same basis. The Court of Appeal (Arden, Rimer and Etherton LJJ) handed down their judgments on 16 December 2010. So far as relevant in this appeal, Arden LJ identified the issues as being (1) whether the court should use the Acquisition Agreement as a template for determining the award by way of quantum meruit; (2) whether the judge should have taken Mr Sawiris’ offer of €75.1m into account in valuing Mr Benedetti’s services; (3) whether any award should have been made given the payment of the sum of €67m brokerage fee and, if so, what; and (4) whether the Holding Companies should be held liable.
The Court of Appeal answered the questions raised by issues (1) and (2) in the negative. The Court held that the correct approach was to take, at least as a starting point, the ordinary market value of the services in fact rendered by Mr Benedetti, which the judge held to be €36.3m. However, they held that Mr Sawiris had not been unjustly enriched in that amount because Mr Benedetti had already received a sum of €67m. They rejected the submission that, given that the figure of €36.3m was less than €67m, Mr Benedetti was not entitled to anything. Rather, in relation to issue (3), it was held that he was entitled to €14.52m calculated as follows. The judge had held that the figure of €67m was referable to 60 per cent of the services in respect of which Mr Benedetti was claiming a quantum meruit in this action. The Court of Appeal held that it followed that Mr Benedetti had been paid for 60 per cent of those services and that Mr Benedetti was therefore entitled to receive the market value of the remaining 40 per cent of the services, that is to say 40 per cent of €36.3m, namely €14.52m. The Court of Appeal accordingly reduced the amount which Mr Sawiris was liable to pay Mr Benedetti from the €75.1m ordered by the judge to €14.52m. In relation to issue (4), the Court of Appeal held that the Holding Companies were not liable.
There were a number of other issues before the Court of Appeal, including issues of interest and costs, but they are not relevant in this appeal. The issues in this appeal as between Mr Benedetti and Mr Sawiris and his company Cylo are whether the judge and the Court of Appeal were correct to disregard the Acquisition Agreement (“the Acquisition Agreement point”), whether the judge was correct to have regard to the offer of €75.1m (“the €75.1m point”), both of which arise on Mr Benedetti’s appeal, and whether the Court of Appeal were correct to award anything to Mr Benedetti, which arises on Mr Sawiris’ and Cylo’s cross-appeal. Permission to appeal and cross-appeal respectively was in each case given by this Court. Mr Benedetti also appealed against the part of the decision of the Court of Appeal in which they held that the Holding Companies were not liable to him. However, shortly before the hearing of this appeal he abandoned that part of his appeal.
The legal principles
It is common ground that the correct approach to the amount to be paid by way of a quantum meruit where there is no valid and subsisting contract between the parties is to ask whether the defendant has been unjustly enriched and, if so, to what extent. The position is different if there is a contract between the parties. Thus, if A consults, say, a private doctor or a lawyer for advice there will ordinarily be a contract between them. Often the amount of his or her remuneration is not spelled out. In those circumstances, assuming there is a contract at all, the law will normally imply a term into the agreement that the remuneration will be reasonable in all the circumstances. A claim for such remuneration has sometimes been referred to as a claim for a quantum meruit. In such a case, while it is no doubt relevant to have regard to the benefit to the defendant, the focus is not on the benefit to the defendant in the way in which it is where there is no such contract. In a contractual claim the focus would in principle be on the intentions of the parties (objectively ascertained). This is not such a case. Mr Benedetti did initially argue that Mr Sawiris, Cylo and the Holding Companies were in breach of the Acquisition Agreement, on the basis, inter alia, that an implied variation had taken place (see para 31A of the amended particulars of claim) or that they were in breach of a collateral contract. Those claims did not, however, rely on an implied term requiring the payment of a reasonable sum. In any event, those arguments were rejected by the judge and there has been no appeal against his judgment in that respect. Mr Benedetti does not now rely upon a contractual claim, whether on the basis of a request for the services or otherwise. The focus is only on the law of unjust enrichment.
It is now well-established that a court must first ask itself four questions when faced with a claim for unjust enrichment as follows. (1) Has the defendant been enriched? (2) Was the enrichment at the claimant’s expense? (3) Was the enrichment unjust? (4) Are there any defences available to the defendant? See Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 at 227 per Lord Steyn; Investment Trust Companies v HMRC [2012] EWHC 458 (Ch) at para 38, per Henderson J.
On the facts of this case it is common ground that the first three of those questions must be answered in the affirmative. It is not disputed that Mr Benedetti did render services to Mr Sawiris which conferred a benefit on him and thus enriched him. The enrichment was at Mr Benedetti’s expense and the enrichment was unjust, or would have been if Mr Sawiris did not pay for the relevant services. As to the fourth question, there are no defences available to Mr Sawiris. The question remains what is the value of the unjust enrichment.
Market value and subjective devaluation
There are essentially two issues which arise. The first is whether Mr Sawiris is liable to pay the market value of the services or something more than the market value and, if so, what. That issue requires consideration of whether it is permissible to have regard to a defendant’s subjective opinion of the value of services rendered to him in order to: (i) reduce the amount which he would have to pay on a market value basis for those services (sometimes known as “subjective devaluation”, a phrase first coined by Professor Peter Birks in 1985 in An Introduction to the Law of Restitution at p 109); or (ii) to increase that amount (sometimes known as “subjective revaluation”). As appears below, the consensus of academic opinion seems to favour the recognition of subjective devaluation. The second issue is whether Mr Benedetti has already been paid all or part of the sum so determined out of the €67m he received as explained in more detail below.
The basic principle is that a claim for unjust enrichment is “not a claim for compensation for loss, but for recovery of a benefit unjustly gained [by a defendant] … at the expense of the claimant”: Boake Allen Ltd v HMRC [2006] EWCA Civ 25, [2006] STC 606 para 175, per Mummery LJ; see also Goff and Jones, The Law of Unjust Enrichment, 8th ed (2011) (“Goff and Jones”), para 4-01. Given that Mr Benedetti’s other claims have fallen away, the concern in the present case is not the value of Mr Benedetti’s loss but of Mr Sawiris’ gain. The question is whether an objective or subjective approach should be adopted when calculating that gain.
Whichever approach is adopted, it is clear that the enrichment is to be valued at the time when it was received by Mr Sawiris: BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 802, per Robert Goff J; see also Goff and Jones, para 4-34. As appears at para 52 below, in the present case, the services rendered were completed for all practical purposes by 26 May 2005, by which time there was no possibility of, or need for, further services from Mr Benedetti. Similarly, it is clear that, whether an objective or a subjective approach is taken to the evaluation of the benefit, the question is what is the value of the services themselves, not of any end-product or subsequent profit made by the defendant: see eg Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752 at paras 41-42, per Lord Scott.
In my view, the starting point in valuing the enrichment is the objective market value, or market price, of the services performed by Mr Benedetti. That is consistent with the view taken by Professor Graham Virgo in The Principles of the Law of Restitution, 2nd ed (2006) (“Virgo”):
“Much of the uncertainty concerning the definition of enrichment stems from the lack of consensus about where the analysis should start. Essentially there are two options available. Either we start with an objective test, ascertained by asking whether reasonable people would consider the defendant to have received something of value, or we start with a subjective test, by considering whether the defendant considers that he or she has received something of value. Whilst both the objective and subjective tests are relevant to the identification of an enrichment, the better view is that the objective test should always be considered first…” (p 64)
I agree. Although Professor Virgo is there considering the approach to the question whether a benefit has been conferred on the defendant at all, as opposed to the question how such a benefit should be valued, it is clear that he takes the same view in relation to valuation: see Virgo at p 98, where he says that the general test of valuation which should be adopted is an objective test. Both the editors of Goff and Jones (eg at para 4-08) and Professor Andrew Burrows in The Law of Restitution, 3rd ed (2011) (“Burrows”), (at p 61) also take this view. The approach is supported by, eg: BP Exploration v Hunt [1979] 1 WLR 783, 840, per Robert Goff J; Cressman v Coys of Kensington (Sales) Ltd [2004] EWCA Civ 47, [2004] 1 WLR 2775, at para 40, per Mance LJ; Cobbe v Yeoman’s Row at para 42, per Lord Scott; and Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] AC 561, at paras 116-119, per Lord Nicholls. It is to be noted that Professor Virgo, in the passage quoted above, does not list as an available option the value which the claimant considers that he conferred on the defendant. That is because, as he puts it at p 69, “it is not the function of the law of restitution to assess relief by reference to the claimant’s loss … compensation is not a function of the law of restitution.” It is to my mind for this reason that Mr Benedetti’s request for €200-300m in June 2005 has little or no relevance. For these reasons I agree with Lord Neuberger and Lord Reed (whose judgments I have read in draft) that the general test, or prima facie position, is that the court should apply an objective test to the issue of market value.
There is a question as to exactly what the objective approach entails. Professor Virgo states the test (at p 98) as the identification of the market value, namely the sum “a willing supplier and buyer would have agreed upon”. However I agree with Etherton LJ (at para 140) that the test is “the price which a reasonable person in the defendant’s position would have had to pay for the services”. On that approach, although a court must ignore a defendant’s “generous or parsimonious personality”, it can take into account “conditions increasing or decreasing the objective value of the benefit to any reasonable person in the same (unusual) position” as the defendant (para 145). The editors of Goff and Jones note that such conditions would seem to include the defendant’s buying power in a market “so that a defendant who can invariably negotiate a better price for a product than any other buyer will be allowed to say that this price reflects the ‘objective’ value of the product to him, or in effect that there is one market for him and another for everyone else” (para. 4-10). Thus far, I detect no difference between my approach and that of Lord Neuberger or Lord Reed.
The question then arises whether it is permissible to reduce the objective market value in order to reflect the subjective value of the services to the defendant. In my opinion, it is. The present case does not, of course, concern subjective devaluation, but that is the hook on which Mr Howard seeks to hang the principle of “subjective revaluation”. It is on the possibility of subjective devaluation that my approach and that of Lord Reed is I think somewhat different. A defendant, in my view, is entitled to prove that he valued the relevant services (or goods) provided by the claimant at less than the market value. That principle is widely accepted by academic commentators and is based on the fundamental need to protect a defendant’s autonomy. It is important to note that subjective devaluation is not about the defendants’ intentions or expectations but is an ex post facto analysis of the subjective value of the services to the defendant at the relevant time. The editors of Goff and Jones put it thus at para 4-06:
“People have different means and spending priorities, and they value benefits differently according to their personal tastes. Consequently, as Lord Nicholls said in Sempra, ‘a benefit is not always worth its market value to a particular defendant’, and ‘when it is not it may be unjust to treat the defendant as having received a benefit possessing the value it has to others’. The common law ‘places a premium on how to spend one’s money’ [see Peel v Ontario [1992] 3 SCR 762 at para 25, per McLachlin J], and this right might be unfairly compromised if a defendant were forced to make restitution of the market value of a benefit which he would not have bought at all. To avoid this, the court may therefore assess the value of the benefit by reference to the defendant’s personal value system rather than the market.”
Professor Andrew Burrows makes the same point at Burrows p 44:
“The question of whether the defendant has been benefited/has received value is not straightforward because of the need to respect freedom of choice and individuality of value. Even if the defendant has been objectively benefited (i.e. a reasonable man could regard himself as benefited by what has occurred or, put another way, the claimant’s ‘performance’ has a market value) he or she may validly argue that benefit has been of no value to him or her.”
It is clear (from p 61) that Professor Burrows takes the view that subjective devaluation applies to both the identification and the value of a benefit. See also, to the same effect, Virgo at pp 67 and 68, where he noted that, even if the defendant used what had been received it does not necessarily follow that he or she valued it because, as Pollock CB said in his well-known dictum in Taylor v Laird (1856) 25 LJ Ex 329 at 332, ‘[if the claimant] cleans another’s shoes, what can the other do but put them on?” As Mance LJ said in Cressman v Coys at para 28, “[t]he law’s general concern is with benefit to the particular defendant, or so-called ‘subjective devaluation’.”
I would not accept Mr Rabinowitz’s submission that a distinction is to be drawn between the identification of a benefit and the value of the benefit to a defendant and that, while the former can be subjective, the latter is to be objective. He relied upon the approach adopted by Justice James Edelman as to ‘The Meaning of Loss and Enrichment’ in Philosophical Foundations of the Law of Unjust Enrichment (eds Chambers, Mitchell and Penner, 2008), pp 211-241). In my opinion Professor Burrows is correct to conclude (Burrows at p 61) that “a sharp distinction between choice and valuation may … be artificial” because “a person may choose something but only at a particular price or even on the basis that it is gratuitously rendered”.
After the claimant has adduced evidence of the objective value of the benefit which the defendant received, the burden of proof falls upon the defendant to prove that he did not subjectively value the benefit at all, or that he valued it at less than the market price: Goff and Jones, para. 4-08; Virgo, pp 64 and 66-67. That principle was established by the majority of the House of Lords in Sempra Metals: see para 48 per Lord Hope, para 116 per Lord Nicholls and para 180 per Lord Walker. The minority took a different view, namely that it was for the claimant to establish the actual benefit obtained by the defendant: see especially per Lord Mance at paras 231-232 and Lord Scott at para 147. As I see it, the difference between them is really no more than a different approach to the burden of proof. In each case the question is what was the value to the defendant.
When I first drafted this judgment I thought that Sempra was an example of subjective devaluation in practice. It was held that the claimant could not recover the market interest rate on the sums it had paid to the Revenue by way of unlawfully levied advance corporation tax because the Government was able to borrow money at lower rates than the market rate. The amount saved by the Government was thus less than that which would have been saved by a commercial entity borrowing the same sums of money (see Goff and Jones at para 4-07). However, having read Lord Reed’s judgment I can now see that it may be an example of the objective value of the money to a person in the position of the defendant, namely the Government. This perhaps shows the narrowness of the difference between our two approaches. This can I think be seen from an important passage in the speech of Lord Nicholls at para 119:
“What is ultimately important in the law of restitution is whether, and to what extent, the particular defendant has been benefited: see Burrows, The Law of Restitution, 2nd ed (2002), p 18. A benefit is not always worth its market value to a particular defendant. When it is not, it may be unjust to treat the defendant as having received a benefit possessing the value it has to others. In Professor Birks’s language, a benefit received by a defendant may sometimes be subject to ‘subjective devaluation’: An Introduction to the Law of Restitution (1985), p 413.”
Recognising the principle of subjective devaluation raises the question of what a defendant relying on that principle must prove. A defendant can always simply assert that he valued a benefit at less than the market value. However, a court will be very unlikely to accept such an assertion unless there has been some objective manifestation of the defendant’s subjective views. In principle, this can occur before or after a transaction, although conduct after the transaction is likely to carry little weight. Goff and Jones put it thus at para 4-09:
“A defendant is unlikely to persuade a court that he attached a low value to a benefit simply by relying on self-serving testimony that he has a (previously unexpressed) value system that attributes a low value to such benefits, particularly if this testimony is not borne out by his previous conduct. If a defendant can produce stronger evidence of his personal spending preferences, however, then we believe that he should be able to rely on this evidence consistently with the view expressed in the foregoing authorities that the law is concerned to protect his freedom to make his own spending choices.”
An example of subjective devaluation in practice is perhaps Ministry of Defence v Ashman (1993) 25 HLR 513, although caution is needed because that was a case about restitution for a wrong (trespass). The Ministry of Defence in that case were awarded, not the market rent for the property, but a rent equivalent to what would have been charged for suitable local authority accommodation because “Mr and Mrs Ashman would probably never have occupied the premises in the first place if they had to pay £472 a month [i.e. the market rate] instead of the concessionary licence fee of £95” (see p 520, per Hoffmann LJ). See also Ministry of Defence v Thompson (1993) 25 HLR 552, where, in a differently constituted Court of Appeal, Hoffmann LJ, with whom Glidewell LJ and Sir John Megaw agreed, said this:
“The principles in Ashman may, in my judgment, be summarised as follows: first, an owner of land which is occupied without his consent may elect whether to claim damages for the loss which he has been caused or restitution of the value of the benefit which the defendant has received. Secondly, the fact that the owner if he had obtained possession would have let the premises at a concessionary rent, or even would not have let them at all, is irrelevant to the calculation of the benefit for the purposes of a restitutionary claim. What matters is the benefit the defendant has received. Thirdly, a benefit may be worth less to an involuntary recipient than to one who has a free choice as to whether to remain in occupation or move elsewhere. Fourthly, the value of the right of occupation to a former licensee who has occupied at a concessionary rent and who has remained in possession only because she could not be rehoused by the local authority until a possession order has been made, would ordinarily be whichever is the higher of the former concessionary rent and what she would have paid for local authority housing suitable for her needs if she had been rehoused at the time when the notice expired.”
If the principle of subjective devaluation is accepted, it can be defeated by a claimant proving that: (i) the defendant received an incontrovertible benefit (eg if the services saved the defendant necessary expense), or (ii) the defendant requested or freely accepted the benefit: see Goff and Jones, paras 4-12 – 4-33 and (as to free acceptance) chapter 17; Virgo, pp 72-88; Burrows pp 47-60). These sources show that many different problems may arise, but it is fortunately not necessary in this case to define the circumstances in which the principle of subjective devaluation can be defeated. I agree with Lord Neuberger that the difference between my approach and that of Lord Reed is not likely to lead to a different result in more than very few cases.
The only real difference may be this. We agree that in the case where services have been rendered which, viewed objectively, confer a benefit on the defendant, but a benefit which the defendant did not and does not want and would not have paid for, as in the examples of Pollock CB’s cleaned shoes or Professor Virgo’s cleaned windows (at Virgo p 67), the claimant is not entitled to payment for the services because failure to pay would not unjustly enrich the defendant. The question is whether, in such circumstances, where there was no free acceptance of the services before or at the time they are rendered, but the defendant has accepted that he has received some benefit but not that the value of the benefit is as much as its market value, the defendant’s figure should be accepted. In my opinion it should be open to the court so to conclude on the basis, on the one hand there would be unjust enrichment if the defendant paid nothing but, on the other hand, that it would not be just to award more than the benefit conferred on the defendant so calculated. Such an approach seems to me to respect the principle of freedom of choice or autonomy and to meet the case where the defendant sees the value of the benefit but would not have ordered the services save perhaps at a substantial discount to the market rate. I see no reason why a court should not take into account a defendant’s subjective opinion of the value of the claimant’s services in order to reduce the value of them to him, provided of course that the court is satisfied that it is his genuine opinion. If Lord Reed’s approach would produce a choice between a nil award and an award of the market value of the services, I would respectfully disagree. I prefer a nuanced approach, which seems to me to be more consistent with principle. However, given Lord Reed’s conclusions in para 138 of his judgment, there may be little, if anything, between us, especially since we both recognise the importance of respect for the defendant’s autonomy or freedom of choice. It is not necessary to reach a final conclusion on these questions on the facts of this case. I certainly agree with Lord Reed that the expression ‘subjective devaluation’ is somewhat misleading.
Market value and subjective revaluation
The real issue in the present case is whether a defendant should be required to pay the claimant more than the market value of his services if it can be shown that the defendant subjectively valued the claimant’s services at a sum in excess of the market value (ie subjective revaluation, sometimes called subjective overvaluation). The editors of Goff and Jones suggest (at para 4-11) that, if one accepts the principle of subjective devaluation, it might be argued that fairness between the parties requires subjective valuation arguments to cut both ways, so that the claimant is entitled to rely upon subjective revaluation. Professor Burrows says at Burrows p 60:
“It is possible to argue that the law should go even further than ‘subjective devaluation’ in recognising the subjectivity of value; and that where there is evidence (e.g. using the request test) that the particular defendant overvalues something that has no (or a lower) objective value, it is the defendant’s own valuation – rather than the objective market value – that should count.
So, for example, if the defendant requests services at a higher rate than the market rate then, in so far as there is a claim for restitution of an unjust enrichment (eg because there is no valid contract) it would seem that the contract price is the best guide to the value of the services to the defendant and that that, therefore, should be central to the measure of restitution.”
In his recent work Restatement of the English Law of Unjust Enrichment, 2012, (“Restatement”) p 158, Professor Burrows states that “the correct view is probably that, without a valid contract, the claimant should not be entitled to overvaluation. In other words … restitution allows downward subjectivity only so as to protect a defendant”. This view is expressed in the light of the decision of the Court of Appeal in the present case and it is possible that Professor Burrows prefers the view expressed at Burrows p 60 quoted above. In relation to the question of whether a defendant has received a benefit at all (because the goods or services had no market value), Professor Virgo, after referring to the principle of subjective devaluation, states:
” … logically and for reasons of consistency it should be possible to use the defendant’s own valuation of what has been received to identify an enrichment, even though the reasonable person would not regard the defendant as having received anything of value.” (Virgo, pp 68-69)
However, in my view, the principle of subjective revaluation should not be recognised. Unlike the principle of subjective devaluation, it is not necessary in order to protect a defendant’s freedom of choice. It is for this reason, as it seems to me, that it would not be unprincipled to recognise subjective devaluation whilst rejecting the notion of subjective revaluation. In any event, the principle of subjective revaluation seems to be unnecessary in the context of identifying whether a defendant received a benefit at all, that is in cases where the services or goods have no market value. In such a case, the defendant would in most cases be estopped from denying that the service constituted a benefit: see Virgo at pp 90-91.
In the present case, it is accepted that Mr Benedetti’s services had an objective value. The issue is whether subjective revaluation can be relied upon, not in order to identify a benefit, but in order to value the benefit so conferred. In my opinion, that is not permissible. Although there is some academic support for such a solution, there is no authority for the proposition that, in cases where a benefit has an objective market value, the claimant should be entitled to invoke the defendant’s subjective willingness to pay a higher sum for the benefit as a reason for valuing the benefit at a higher rate.
I agree, for the reasons given above, that there should be no subjective revaluation in the two hypothetical examples described by Professor Burrows in his Restatement (at pp 158-159). In example 2, C enters into a contract for the carriage of D’s goods by sea. D is most anxious to secure the services of C and therefore agrees to pay twice the market rate. After C completes two-thirds of the journey, the contract of carriage is frustrated when war breaks out and the ship is requisitioned. The goods are unloaded and D is able to complete their carriage by a different route at a cheaper rate. Assuming that C is entitled to a restitutionary monetary award (or quantum meruit) for the value of C’s services based on unjust enrichment, it seems to me that the assessment should be based on the market rate. C would only be entitled to the agreed higher rate if it could bring a contractual action.
In example 3, C mistakenly delivers heating oil to D (rather than D’s neighbour) just before Christmas. D’s neighbour has plenty of oil and was just topping up out of an abundance of caution. By contrast, D was running on near-empty, facing a houseful over Christmas, and would have happily paid double the market rate. Without a valid contract with D, it is hard to see that C should be entitled to restitution for the enhanced value of the oil to D. Rather, in a claim in unjust enrichment, C would be entitled to a restitutionary award against D for the value of the oil assessed at the market rate. (Restatement, p 158).
In these examples the enrichment of the defendant is, in my view, only unjust insofar as it represents the market value. The law of restitution, unlike the law of contract, is not primarily concerned with the intentions of the parties.
The legal principles – summary
In summary, in my opinion, in a case of this kind, (i) the starting point for identifying whether a benefit has been conferred on a defendant, and for valuing that benefit, is the market price of the services; (ii) the defendant is entitled to adduce evidence in order subjectively to devalue the benefit, thereby proving either that he in fact received no benefit at all, or that he valued the benefit at less than the market price; but (iii) save perhaps in exceptional circumstances, the principle of subjective revaluation should not be recognised, either for the purpose of identifying a benefit, or for valuing a benefit received.
The facts
I turn to the facts, so far as they are relevant to the issues identified above. This involves a consideration of the Acquisition Agreement point, the €75.1m point and of what, if anything Mr Benedetti is entitled to. I will focus only on the facts which are directly relevant to the issues in this appeal. The full facts are set out with admirable clarity in the judge’s judgment.
The Acquisition Agreement point
The Acquisition Agreement was signed on 31 January 2004. The story however began in 2002 when Mr Benedetti became aware that Enel SpA (“Enel”), which was the largest energy company in Italy, might be willing to sell its wholly owned subsidiary Wind Telecomunicazioni SpA (“Wind”). Mr Benedetti and Mr Sawiris met in Cairo in December 2002. The events were explained in detail by the judge at paras 102-117. The judge held that Mr Benedetti sought to persuade Mr Sawiris that it would be possible to acquire control of Wind through a pyramid structure with only a limited equity investment. Mr Sawiris made it clear that he would not be prepared to consider an investment of more than €50m. Between paras 118 and 168 the judge described in detail the events between the meeting in December 2002 and the signing of the Acquisition Agreement in January 2004. He also gave his reasons for rejecting Mr Benedetti’s case that there was any relevant oral understanding between himself and Mr Sawiris. During that period Mr Benedetti explored alternative deals in connection with Wind.
The judge described the events leading up to the signing of the Acquisition Agreement in paras 169-190 and his conclusions as to the true construction of it are at paras 191-225. His findings in this respect are not and could not be challenged. In short, the Acquisition Agreement provided by clause 2 for the establishment, within a limited period, of a special purpose vehicle to be called Rain Investments SpA (“Rain”), of which Mr Sawiris’ company would initially own two-thirds and Mr Benedetti’s company would own one-third. Each company would provide two of the four directors in Rain, although the chairman would be appointed by Mr Sawiris’ company and would have the casting vote. The purpose of the Acquisition Agreement was expressed to be the acquisition of Wind. By clause 4 the negotiation was to be handled by Mr Benedetti with the support and advice of Mr Sawiris, both of whom were to use their best endeavours to obtain all finance obtained from third parties for the acquisition and Mr Benedetti was to use his best endeavours to obtain the necessary co-operation and approval of the Italian government and the management of Wind. By clause 5, Mr Sawiris’ company was to subscribe €200,000, of which Mr Sawiris was to subscribe two-thirds and Mr Benedetti one-third. For that purpose, Mr Sawiris agreed to lend Mr Benedetti his share, namely just under €67,000 which, by clause 5.6, was to be repayable out of dividends when Rain became profitable or was able to declare dividends. By clause 5.4, the companies were to use their best efforts to raise between €1 billion and €1.2 billion to complete the acquisition. The only other provision of the Acquisition Agreement which entitled Mr Benedetti to payment was clause 6, which provided by clause 6.1 that all directors were entitled to receive directors’ fees and expenses and, by clause 6.2, that in consideration of Mr Benedetti allocating approximately 60 per cent of his working time to Rain and the acquisition, he would be entitled to €5,000 per month until the acquisition was completed.
Thus, under the Acquisition Agreement Mr Sawiris was to invest no more than €50m and it was the role of both Mr Benedetti and Mr Sawiris to find third party investors. The remuneration to be paid to Mr Benedetti under it was limited. It was no doubt hoped that both Mr Benedetti and Mr Sawiris would be able to earn very substantial sums as a result of the investments made by others. The judge and the Court of Appeal held that the parties abandoned the Acquisition Agreement and that the transaction which replaced it was very different from it: see in particular the judge’s judgment at paras 463 to 477 and para 493. As Arden LJ put it in the Court of Appeal at para 3, the parties had an agreement under the Acquisition Agreement for other services but no agreement for the services in issue, namely the services in respect of which the claim in quantum meruit is advanced. In short, their agreement under the Acquisition Agreement was for the provision of services in connection with Wind by a different route from that ultimately adopted. In para 493 the judge held that the parties knew that the Acquisition Agreement had no relevance to the changed circumstances.
It did not prove possible for the parties to the Acquisition Agreement to find third party investors, so that it was not possible for Mr Benedetti to receive any payment from that source. It is true that, as the judge held at para 143, Mr Sawiris accepted that at some stage he agreed that Mr Benedetti should have one-third of the €50m share capital on the terms of a loan but the judge held that there is no evidence that that arrangement was ever extended to cover the totality of Mr Sawiris’ eventual investment. The proposed position under the Acquisition Agreement is set out diagrammatically in para 15 of Arden LJ’s judgment which is reproduced as ANNEX 1 to this judgment.
From para 226 the judge described in detail the events after the signing of the Acquisition Agreement. A critical aspect of the Acquisition Agreement was that third parties would invest in a company controlled by Mr Sawiris and Mr Benedetti, in which Mr Sawiris would have the majority share. When it proved difficult to find investors Mr Benedetti began to look for other ways of proceeding, but they came to nothing. The judge held that Mr Sawiris was at no stage willing to proceed on any basis other than that he would have control of the new company. Under the new arrangement there were no third party investors of the kind anticipated under the Acquisition Agreement, so that the basis upon which Mr Benedetti had hoped to make a substantial profit fell away.
The judge held at para 493 that the Acquisition Agreement ceased to have effect. It is not now contended that he was wrong about that but it is said that the Acquisition Agreement continues to have some effect relevant to the assessment of the benefit which Mr Benedetti conferred on Mr Sawiris by his services. I would not accept that submission. As Arden LJ concisely described the position in the Court of Appeal at para 16, in spite of Mr Benedetti’s best endeavours, by 2005 it had become apparent that there would be no outside investors. Instead of a maximum investment of €50m, Mr Sawiris, Cylo and the Holding Companies invested very substantially more in a new scheme described by the judge in detail at the beginning of his judgment. On 26 May 2005 Enel and its holding company Enel Investment Holding BV entered into a sale and purchase agreement (“the SPA”) for the disposal of 62.75% of the issued capital of its subsidiary Wind for €2.986 billion. The SPA contained an option enabling Enel to dispose of further shares in Wind for €328m which it subsequently exercised. The transaction was brought into effect by means of two closings, the first on 11 August 2005 and the second on 8 February 2006.
The acquisition, as contemplated as at the First and Second Closings, is set out in diagrams at Annexes 2 and 3 of this judgment respectively. ANNEX 2 is taken from para 17 of the judge’s judgment and ANNEX 3 is taken from para 17 of Arden LJ’s judgment and para 24 of the judge’s judgment. As can be seen, the new arrangements were radically different from those contemplated under the Acquisition Agreement. In these circumstances, I can see no basis upon which it can be relevant to an assessment of the benefit which Mr Benedetti conferred upon Mr Sawiris. It is wholly irrelevant to the market value of the services rendered. Nor is it relevant to the issue of subjective revaluation.
The €75.1m point
It is not in dispute that Mr Benedetti rendered services to Mr Sawiris of considerable value. In the course of his judgment, the judge described them in some detail. He summarised them between paras 534 and 571. He correctly rejected the relevance of the Acquisition Agreement at para 550. He then considered (at paras 551-563) in some detail the evidence of two expert witnesses, namely Mr Sottile on behalf of Mr Sawiris and Mr Reynolds on behalf of Mr Benedetti. He preferred the evidence of the former, who said that Mr Benedetti’s role was essentially that of a broker or adviser, to that of Mr Reynolds, who said that he was a promoter and that, as such, his remuneration package should be that relevant to other types of market participants, such as private equity firms or hedge funds.
In essence, the judge concluded at para 560 that equity based awards were only typically available when the person involved would continue to have some part to play in the management of the company or the investment after the transaction completed, that it was clear from the Acquisition Agreement itself that it was never the intention that Mr Benedetti should assume that role and that he did not seek remuneration on that basis. In paras 561 and 562 the judge concluded that all the tasks carried out by Mr Benedetti fell within the agreed scope of a broker or adviser role. He accepted Mr Sottile’s evidence that on that basis a fair fee in the market for what Mr Benedetti did would be within the range 0.1% to 0.3% of the transaction value, which would amount to between €12 and €36.3m. The judge concluded that it would in all the circumstances be appropriate to take a figure at the top end of the range. He accordingly held that the market price for the services in fact performed by Mr Benedetti for Mr Sawiris was €36.3m.
Those conclusions were not directly challenged on behalf of Mr Benedetti. In any event I see no basis upon which they could be challenged in this Court. In so far as there were or appeared to be suggestions in the course of the argument that the market in which Mr Benedetti was rendering the services was different from that assessed by Mr Sottile, whose evidence the judge accepted, I would not accept them. I therefore proceed on the basis found by the judge, namely that the objective market value of Mr Benedetti’s services was €36.3m.
The judge did not, however, award that sum but the greater sum of €75.1m. He did so on the basis that Mr Benedetti was entitled to more than the market rate because there was evidence that Mr Sawiris himself regarded the benefit of the services to him as being at least €75m. The Court of Appeal disagreed and awarded him only €14.52m on the basis described at para 7 above. Mr Benedetti says that he is entitled to significantly more than €75.1m but that he is in any event entitled to that sum (as the sum awarded by the judge). Mr Sawiris relies upon the fact that Mr Benedetti had already received €67m in support of the submission that, since that is more than the market value of €36.3m, he is not entitled to anything. In the alternative he submits that the maximum to which Mr Benedetti is entitled is €14.52m for the reasons given by the Court of Appeal.
In order to resolve these issues it is necessary to consider the findings of the judge as to the circumstances in which Mr Benedetti came to receive €67m, the circumstances in which Mr Sawiris offered to pay €75.1m and the relationship between them. Mr Benedetti continues to assert that he is entitled to more than €75.1m but I can see no possible basis for such a claim given the judge’s findings of fact.
At para 226 et seq the judge described various steps taken by Mr Benedetti in order to protect his position if the Acquisition Agreement did not go ahead. In January 2005 Weather Investments SA (“Weather I”) was incorporated by Investors in Private Equity (“IPE”). The shares were held by IPE and a subsidiary of IPE. In March 2005, at a time when one of the potential investors in Rain, Mr Ross, dropped out, Mr Sawiris asked Mr Benedetti to transfer the shares in Weather I to him. On 23 March 2005, Mr Benedetti was appointed a director of Weather I. On 24 March, IPE transferred 99% of the shares in Weather I to Mr Benedetti and the one remaining share to Mr Abdou, who worked for Mr Sawiris. On the next day, Mr Benedetti transferred his shares in Weather I to Mr Sawiris. As of then, the idea of a purchase by an IPE led consortium was effectively a dead letter.
On 24 March 2005, Mr Benedetti made two agreements without the prior approval of Mr Sawiris and without, at that stage, disclosing to him or Mr Abdou the fact that he would receive a substantial fee from the transaction. By the first agreement Mr Benedetti signed a Brokerage Agreement on behalf of Weather I (“the First Brokerage Agreement”), pursuant to which Weather I appointed International Technologies Management Ltd (“ITM”), an English company owned and controlled by Mr Benedetti, to provide “Brokerage Services” (as defined in the agreement) on behalf of Weather I in accordance with instructions from the company. In return for the provision of these services ITM was to receive 0.7% of the transaction value as defined in the agreement, which included the total amount paid to acquire Wind at its enterprise value including the amount necessary to refinance its debts. A striking feature of the arrangements was that Mr Benedetti was able to make the agreement on behalf of Weather I because he had just been appointed a director and he was able to procure the agreement of ITM, which was subsequently signed by a Mr Nounou on its behalf, because he controlled it. He did not send a copy of the First Brokerage Agreement to Mr Sawiris or Mr Abdou, and they were not made aware that Mr Benedetti was to receive a brokerage fee until much later. The judge described the creation of the agreement as essentially a piece of opportunism on the part of Mr Benedetti: see paras 334 and 565.
Mr Benedetti signed a second agreement on the same day, 24 March 2005 (the “Support Agreement”), on behalf of Weather I, which provided that Managest Media SA, a company in which Mr Benedetti had a 60% stake, would receive a flat fee of €3.4m plus expenses in return for the provision of support and logistic services to Weather I in connection with the acquisition, in accordance with instructions from Weather I. On 25 March, Mr Benedetti transferred the shares in Weather I to Mr Sawiris.
By early to mid April 2005, IPE were forced to pull out of the deal as they were not able to secure or find any other suitable investors. Mr Sawiris, together with his family and companies controlled by his business associates, was left as the only potential investor. By May 2005, when Weather Investments II SARL (“Weather II”) was incorporated to replace Weather I, the structure of the acquisition had changed to include Weather Italy. Mr Benedetti had no beneficial interest in any of these entities, although, when the SPA was executed on 26 May, he signed the SPA on behalf of Weather Italy, of which he was a director at the time. Also on 26 May the First Brokerage Agreement and the Support Agreement were assigned by Weather I to Weather Italy. The structure of the new deal is set out in ANNEX 2, as at the first Closing on 11 August 2005. On or shortly after 11 August 2005 Mr Benedetti resigned as a director of Weather Italy.
It is important to note that at para 404 the judge found as follows. Mr Benedetti confirmed in his first witness statement that with the signing of the SPA on 26 May 2005 his role in the acquisition was, for all practical purposes, over. Although detailed work remained to be done by the lawyers and the banks in relation to the closing arrangements, these were matters of detail with which Mr Benedetti was not concerned. The judge added that the subsequent history of the transaction was therefore relevant only to two issues: the discussions which took place with Mr Abdou and Mr Sawiris about remuneration and the payment to Mr Benedetti of the €67m brokerage fee. I take the story of the €67m brokerage fee largely from paras 59-63 of the agreed Statement of Facts and Issues, which are based on paras 424-438 of the judge’s judgment.
As of 27 July 2005, Mr Abdou was aware that a brokerage fee of about €87.76m, which had been listed in the costs of the transaction as being payable to ITM, would go to Mr Benedetti personally. He and Mr Nasr (CFO of Orascom) originally understood that the €87m figure was not intended as a payment to Mr Benedetti for his brokerage services but was to be used to discharge his liabilities to third parties. Mr Sawiris was very angry about the scale of the expenses of the transaction; so Mr Benedetti agreed with Mr Sawiris to reduce the payment from €87m to €67m, saying that that was the amount he needed at First Closing. The judge held (at para 432) that Mr Benedetti led Mr Abdou and Mr Sawiris to believe that the money was to be used to pay third parties who had assisted in the transaction. Mr Sawiris doubted this, but because he intended to reward Mr Benedetti for his efforts and owed him money, he was content to allow the €67m to be paid with a view to sorting the position out later.
Mr Benedetti then arranged for a new agreement between ITM and Weather Italy to be prepared called “the Revised Brokerage Agreement”. It was executed in late July or August but backdated to 26 May 2005, which was (as just stated) after Mr Benedetti’s services had been concluded. It provided for a fee of €67m (0.55% of the transaction value) to be paid to ITM in respect of “brokerage services”. The agreement was signed by Mr Benedetti on behalf of Weather Italy. Mr Abdou first saw the Revised Brokerage Agreement on or about 3 August 2005, before the fee was paid. The €67m fee was paid to ITM on about 12 August 2005, following the First Closing. The fee was paid as a transaction cost: in other words, it was paid by Weather Italy out of the money raised to finance the transaction. On 13 September 2005, following a meeting in Rome on 12 September 2005 attended by Mr Sawiris and Mr Benedetti, Mr Abdou sent an email to Mrs Shimi (an employee of Orascom) asking her to print off the Revised Brokerage Agreement which he sent as an attachment in readiness for Mr Sawiris’s return from Rome, saying that Mr Sawiris was expecting it.
Mr Sawiris’ knowledge of the payment of the €67m is relevant to Mr Benedetti’s case that, as the judge held, he is entitled to at least €75.1m. It is also relevant to the cross-appeal (see below). The judge awarded this sum on the basis that he was entitled to have regard to negotiations between the parties as to the value to be placed on Mr Sawiris’ services, even though the negotiations took place after the services were completed. He held, in particular, that Mr Sawiris offered to pay the figure of €75.1m and that that offer was evidence of the value which Mr Sawiris, as the paying party, placed on Mr Benedetti’s services, albeit with the benefit of hindsight: see para 568.
The judge held that the reason for the admission of the parties’ pre-service agreements as set out in cases such as Way v Latilla [1937] 3 All ER 759 is that they provide strong evidence of the value which they put on the services and that, subject to appropriate safeguards, post-acquisition dealings may do the same. In my opinion, that is not quite correct. It is true that what Lord Atkin called the bargainings of the parties may be of assistance in order to ascertain the market value of the services. They may also be of assistance in establishing whether there is a case for subjective devaluation. However, this is not of course a case of subjective devaluation but, if anything, of subjective revaluation. I have already expressed the view that there is no room in principle for increasing the market value to take account of subjective revaluation in a case of this kind. It follows that, in my opinion, the Court of Appeal were correct to hold that the judge was wrong in principle to award €75.1m.
In the light of the detailed submissions that were made, I will however consider the position on the facts. The question is whether the evidence establishes that Mr Sawiris subjectively valued Mr Benedetti’s services at €75.1m or more. The judge expressed his conclusions concisely in paras 570-571 as follows:
“570. The real issue is whether I should increase the fee payable to Mr Benedetti to take account of the €75m which Mr Sawiris offered to pay under the October agreement. Although Mr Benedetti clearly believes that he is entitled to more, it is difficult to ignore the fact that Mr Sawiris was prepared to pay him considerably more for his efforts than a strict application of market rates would produce. Mr Sawiris says in his witness statement that he regarded the €75m figure as generous but that is not inconsistent with it representing what he considered Mr Benedetti’s services to be worth. These negotiations did not take place under the shadow of threatened litigation and can properly be considered in my view as a genuine attempt by Mr Sawiris to pay to Mr Benedetti a proper value for what he had achieved.
571. The best evidence of Mr Sawiris’s thoughts on this matter is contained in the June and September e-mails from Mr Abdou quoted in paragraphs 187-189 above. They indicate both the importance which Mr Sawiris attached to Mr Benedetti’s role and the reasons why his remuneration should be limited to the payment of a fee. I think that it would be wrong to ignore this evidence when considering the value to be attributed to Mr Benedetti’s services. He is entitled, in my judgment, to the €75.1m in addition to the brokerage fee which he has already received.”
There were three emails dated 11 June and 12 and 13 September 2005, all written by Mr Abdou. As the judge found at para 186, they were sent at a time after the signing of the SPA, when Mr Sawiris was seeking an agreement with Mr Benedetti about what he should receive for his role in the transaction. The judge set them out in paras 187-189:
“187. In the first of these e-mails, Mr Abdou wrote:
‘I had two discussions with Naguib regarding your deal. I will tell you exactly his response. First of all he very much appreciates all what you have done and he acknowledges that without you, there would be no deal. However, he feels he has been clear with you from the beginning that the deal was never meant to be this big and that when you two signed the agreement over one year ago, the deal has totally changed. But even then, he told you and the agreement says, that he will not pay commissions etc. for a deal that merges or has OT as a party and rather the intent and spirit of the deal was that he would lend you your 1/3 of the Euro 50M target capital to be repaid with interest after exit so that you would not have to put in money yourself and that you would look to raise money for a deal that had his investment maximum at 200 to 300m euro. Today, Weather is no longer a passive investment for Naguib but rather a vehicle which he put in all his value that he owns (and a part of his family’s wealth). He very much wants you involved in the BOD of the company and to be able to do other deals in the future. He sees the relationship between you two as strong and positive but he asks for you to be reasonable in what you ask. When I told him your request and the logic, he was quite upset as he did not expect you to ask for so much. While of course he sees that the original agreement needs to change, he does not agree with your request. In addition, while positive things happened to improve the deal, a few serious restrictions arose such as the need for Euro 500M cash (vs 200 to 300) and the limited financial partners and the somewhat restrictive IMI loan. The only reason he says this is to make the point that the deal today is totally different than the original and as such what he is prepared to offer you is l% of Weather for free and he can pay it to you in shares or give you a put option to take it in cash. If you choose cash, he wants to agree with you a timetable so that he can plan his cash sourcing.’
188. In the second e-mail, he said this:
‘I talked to Naguib again. He wanted me to tell you that he feels 1% (which is Euro 75M today and may double if we succeed in Wind), is by far more than what you two had agreed to in the beginning when the deal was simple to lend you Euro 17M in cash to invest. As I mentioned before, he even crossed out all the sections related to OT and fees in the original deal because that was never his intention. He insists that he is being very generous with his offer and again wants to continue the relationship for a long time. He told me that if he really thought that you wanted hundreds of millions compensation, he would not even have done the deal at all. Alessandro, please look at the initial deal and the current offer. We are talking about Euro 75M versus Euro loan plus interest. Think strategically, long term. I am telling you as a friend that Naguib truly believes this is a very generous offer and this is not an attempt to negotiate with you.’ (Emphasis added)
189. Finally, on 13 September Mr Abdou wrote:
‘Also, have you concluded the issue of the 1% of free shares in Weather? Let me advise you with something and I refer to is what I told you months ago about Naguib. I have talked to him many times on this point and I have succeeded (in my opinion) to get you the 1% free shares even though Naguib has never in his life given free shares to anyone and certainly not an amount of Euro 75M. He had offered this willingly to you because of what you have done and he has repeatedly thanked you for it. But I must tell you, he is quickly getting upset because he does not understand why you are not happy. The original deal was to loan you 1/3 of Euro 50M which was to be repaid. The original deal never included OTH (and in fact he crossed out the reference to paying a success fee on integrating OTH). The deal was to have other financial partners … you know how that ended. In any case, never was the amount paid to you supposed to even get close to 75M. In addition, the fact that they are free and not a loan is a really big deal that you seem to be underestimating. I know Naguib and I am telling you that he will not increase the offer ever and the longer things drag on, the higher the probability that this ends badly. He wants to have a strong relationship with you in the future as he values you highly. However, he can not do anything that will put his family’s interests at risk, either financially or otherwise.'” (Emphasis added)
The first of the three emails also contains a statement that Mr Sawiris had asked for a letter saying that Mr Benedetti had received the €67m. At para 437 the judge rejected a submission that that showed that Mr Sawiris knew that Mr Benedetti had received that sum personally. The judge held that it showed that Mr Sawiris had his suspicions on the point. He added that the second part of the email showed that the €75m was to be the total amount paid to Mr Benedetti for his work.
Those emails undoubtedly contain an offer to pay €75m, which was approximately the value of the 1% of the shares being referred to. Negotiations continued in 2005 and for much of 2006. They are described by the judge at paras 438-460. They included a meeting in Cairo in January 2006. By that time Mr Sawiris suspected that Mr Benedetti had taken the €67m for himself. He nevertheless offered €75m, which it appears was to be on top of the €67m, and Mr Benedetti agreed in principle to accept it. It was not suggested that there was a binding agreement to that effect.
On 3 February 2006, an interview that Mr Sawiris gave to “L’Espresso” about the transaction was published, including the following question and answer:
“You paid 400m Euro in commissions including banks and the advisor Alessandro Benedetti. “L’Espresso” calculated that Benedetti received 90m, although he denied it. Doesn’t that seem like a high price to pay?!
When it came to discussing the fee, I went to a bank that wasn’t involved in the operation. I paid 50 thousand Euro for them to give me an opinion on the fee structure because I had the same feeling. They told me it was alright. On the other hand Benedetti worked for me for two and a half years without asking for anything, he took costs at his own risk, so the bill at the end wasn’t too much.”
The judge noted at para 439 that, when asked in cross-examination based on the article, whether he believed that Mr Benedetti had received the fee, he said that he had always felt that Mr Benedetti was lying about the €67m and that he had received the fee. Mr Sawiris said in his witness statement that by the time of the Cairo meeting he suspected that that was the case. At para 450 the judge referred to a letter which confirmed the basic agreement made in Cairo.
Finally, as the judge explained at para 457, on 18 October 2006 Mr Abdou sent Mr Benedetti an email attaching two draft agreements. The first was a draft Supplemental Agreement to the Revised Brokerage Agreement dated 25 May 2005, to be signed by Mr Sawiris and Mr Benedetti, between Weather II and ITM which expressly acknowledged receipt of €67m by ITM and which provided that Weather II would pay a final fixed success fee of €75.1m to ITM. The second was a termination agreement formally bringing the Acquisition Agreement to an end. Mr Benedetti did not reply to the email. He said in his witness statement that he regarded the offer as insulting and proceeded to consult his lawyers.
It can readily be seen why the judge said at para 567 that it was clear from the evidence and from the terms of the draft Supplemental Agreement that by October 2006 Mr Sawiris was aware that Mr Benedetti had received the €67m and that the €75.1m success fee was to be an additional payment.
Thus, in the end and in spite of the apparent agreement, Mr Benedetti never accepted the offer of €75.1m. It is submitted by Mr Howard that the negotiations between the parties show that both parties took the view that Mr Benedetti’s services were worth at least €75m and that Mr Sawiris personally valued his services in at least that amount. The judge accepted Mr Sawiris’ evidence that he regarded the offer as generous, although he said that that was not inconsistent with the conclusion that it represented what he considered the services to be worth. One might think that it was consistent with a lower figure. The passages which I have italicised in the above quotations seem to me to be saying that Mr Sawiris regarded the offer as very generous. They also suggest to me that, in spite of the protestations, and indeed the finding of the judge, these exchanges were indeed part of a negotiation.
Etherton LJ has given detailed reasons for the conclusion that, even if it were possible in an appropriate case to increase a restitutionary award above the usual market rate for the services rendered, such an award would not be justified in the present case. I agree and, save perhaps for the last sentence of para 156, I cannot improve on his reasons, which are set out in his paras 155 to 158 and can in essence be summarised as follows. The June emails were written before Mr Benedetti had received the €67m and the Revised Brokerage Agreement was not executed until July or August 2005 and was backdated to 26 May 2005. At the time of the September 2005 email Mr Sawiris was probably unaware that Mr Benedetti had received the money personally, although he had his suspicions. When the sum was paid on 12 August 2005 Mr Benedetti had asked for it to be paid to third parties. Accordingly the emails are no support for the conclusion that at that time Mr Sawiris would have been willing to pay Mr Benedetti both €67m and €75.1m (ie a total of €142.1m), or indeed more than €8.1m, which is the difference between the two figures. Etherton LJ added that if, as the judge thought, the emails are the best evidence of Mr Sawiris’ state of mind, they are not inconsistent with an outcome whereby Mr Benedetti is entitled to retain the €67m pursuant to the Revised Brokerage Agreement (for which there has been no claim for repayment) and is awarded €14.52m on the basis described above.
By the time of the draft October 2006 agreement, litigation was plainly in prospect. Clause 5 of the draft expressly provided for a discharge of liabilities on both sides. As the judge recognised, it is dangerous to rely upon offers made in such circumstances. I would accept the submission made by Mr Rabinowitz that the finding of the judge in para 570 that the negotiations for the draft October agreement did not take place under the shadow of threatened litigation cannot be justified. Mr Benedetti himself said in a witness statement that in Cairo in January 2006 he said to Mr Sawiris that, if he did not agree with Mr Benedetti, they could go to court and see who was right. The judge recorded at para 447 Mr Sawiris’ evidence at that time as being that the offer of €75m was “to finish the matter there and then”. In Mr Benedetti’s closing submissions before the change of tack to rely on the €75.1m point, it was submitted (in support of a submission that the negotiations should not be considered) that “those later bargainings [were] in the nature of some kind of settlement discussions”.
In short Mr Sawiris’ position varied considerably from time to time. There is little evidence of his true opinion as to the value of Mr Benedetti’s services. If the point had been taken at the outset, the evidence might have been more coherent but, as I see it, the evidence falls far short of what would be required to establish Mr Sawiris’ subjective opinion of the value of Mr Benedetti’s services. Accordingly, even if the principle of subjective revaluation were to be recognised, I would dismiss the appeal on both the Acquisition Agreement point and the €75.1m point.
What, if anything, is Mr Benedetti entitled to?
It follows from the above that, subject to the cross-appeal, I would uphold the decision of the Court of Appeal to award Mr Benedetti €14.52m. It is submitted, however, on behalf of Mr Sawiris that, given that the judge held that the market value of Mr Benedetti’s services was €36.3m and that he has already received €67m, he has been fully compensated for any unjust enrichment. It is submitted that, if he is entitled to retain €14.52m as well as €67m he will have received €81.52m, which would be manifestly unjust.
The judge approached the matter in this way. In para 563 he identified the point being taken by Mr Rabinowitz, namely that credit must be given for the €67m brokerage fee paid to Mr Benedetti through ITM. In para 564 he identified two points made on behalf of Mr Benedetti in support of the conclusion that the award to Mr Benedetti should be in addition to the €67m received under the Revised Brokerage Agreement. The first point was that the agreement was made between different parties and the transaction cost was payable by all investors in Weather Italy. The second was that the agreement covered different services from those contained in the Acquisition Agreement. In particular the definition of “brokerage services” did not include bringing the investment opportunity to Mr Sawiris or obtaining the co-operation of the Italian Government or the management of Wind.
The judge’s conclusions are contained in just two paras of his judgment, paras 565 and 566. In para 565, as I read it, the judge rejected the first point. He noted that the claim for unjust enrichment was based on the premise that Mr Benedetti was entitled to be compensated for the value of the services he performed because it would be unjust for those who have received them to take them without payment. If such compensation has in fact been provided as a cost of the transaction there was no reason in principle why Mr Benedetti should not be required to bring it into account in any determination of what is the fair reward for the services he performed, assuming of course that the payment relates to the same services. The judge added at the end of para 565:
“It is difficult to see how that conclusion would be unjust. I accept that if it had been agreed between the parties that Mr Benedetti’ s remuneration from the Defendants should not take into account the sums received under the brokerage agreement then the position would be different. But that is not this case. There was no agreement with Mr Sawiris that Mr Benedetti should be paid a brokerage fee in addition to what he received under the Acquisition Agreement. As explained earlier, the signing of the First Brokerage Agreement was essentially a piece of opportunism on the part of Mr Benedetti and, in so far as it had any historical justification, that lay in the arrangements between Mr Benedetti and IPE. When the fees schedules were prepared and it became clear that ITM was to receive the brokerage fee the original assumption on the part of Mr Abdou and Mr Sawiris was that the money would be used to pay Mr Benedetti’s costs and other liabilities to third parties.”
As it seems to me, the judge thus rejected the first point on the ground that Mr Benedetti had personally received the sum of €67m. Both Arden and Etherton LJJ disagreed with that approach. Arden LJ said at para 93 that if Mr Benedetti has been wrongly paid the €67m fee to any greater extent than the amount apportioned by the judge, the paying company has or would have had remedies against him, which it can pursue and that it would not be right to short circuit the pursuit of those remedies and give Mr Sawiris all that could be obtained in proceedings brought for that purpose by treating the €67m as a deduction from an award. Etherton LJ made a similar point at paras 161 and 162 where he observed that the Revised Brokerage Agreement was between different legal entities.
Mr Rabinowitz submits that those points are irrelevant. He submits that, quite apart from the dubious nature of the Brokerage Agreement and the Revised Brokerage Agreement, in these proceedings the focus is on the monies that Mr Benedetti received personally. He submits that in a claim for unjust enrichment the claimant must show that he rendered services which conferred a benefit for which he has not been paid and it follows that, if Mr Benedetti personally received payment for the totality of the services which conferred the benefit, he is not entitled to anything more. I would accept those submissions. The judge held that Mr Benedetti received the whole sum of €67m personally. The question is whether that sum was in respect of all the services in respect of which this action is brought.
As I see it, the judge recognised that that was the question. He said at para 566:
“The definition of ‘brokerage services’ in the Revised Brokerage Agreement makes it clear that the €67m was paid in respect of the work carried out by Mr Benedetti in the negotiation of the purchase of Wind from Enel and the raising of the acquisition debt from the banks. Mr Benedetti is not entitled, in my judgment, to seek a quantum meruit for this work when he has already been paid for it. The sum of €36.3m which, on the evidence, would be the market rate for the services he performed ought therefore to be apportioned to take account of this. Being generous to Mr Benedetti, I think that a fair apportionment· would be to attribute 60% of the €36.3m fee to the work covered by the brokerage agreement and the remaining 40% to the services not obviously within the agreement. On this basis, Mr Benedetti would be entitled to receive €14.52m in addition to the €67m brokerage fee.”
It seems to me that the quarrel that Mr Rabinowitz has with that paragraph is not with the first two sentences but with the last sentence. Here all the services were rendered before the 26 May 2005. The judge accepted the evidence of Mr Sottile (at para 552) that brokers or advisers in the position of Mr Benedetti were compensated for their services by transaction fees, (normally success fees), which varied between 0.1% and 0.3% of the transaction value for transactions of the size of the Wind acquisition and included all ancillary services. It was on that basis that the judge assessed the market value of Mr Benedetti’s services, having taken the top of Mr Sottile’s range, namely 0.3%.
The point was clearly made in the course of the argument by Lord Reed. He said (Day 3 pp 340-341) that he appreciated that there are factual situations where a clear distinction can be drawn between different services and the way in which they would be remunerated in the market, but in this case we were told that the services as a whole would be remunerated in the market by a unum quid fee calculated as a percentage commission of the value of the entire transaction. That amount would work out at a maximum of €36.3m. Lord Reed posed the question whether, if Mr Benedetti has actually received €67m, one cannot say in that situation that he cannot possibly have a claim in unjust enrichment, even if the agreement was a perfectly regular agreement. The alternative is that he will be remunerated, say, to the tune of €81 or 82m, as the Court of Appeal held, in the name of avoiding unjust enrichment. He suggested that that was to say the least a paradoxical result, if the correct starting point is that appropriate remuneration would have been €36.3m. Mr Rabinowitz naturally accepts that way of putting it. He submits that the market value of €36.3m was in respect of all the services and asks rhetorically how Mr Benedetti can possibly be entitled to more.
Mr Howard’s answer (at Day 3 p 387) to those questions is based on the judge’s apportionment. As he put it concisely, the €67m was paid in respect of services A but services B were also provided by Mr Benedetti and the unjust enrichment is Mr Sawiris’ failure to pay for services B. Mr Howard submits that that is in effect what the judge held at para 566.
As I see it, the problem with the judge’s apportionment is that the judge gives no reason for his conclusion and it seems to me to be inconsistent with his conclusions at para 561, where (as stated in para 44 above) the judge concluded that all the tasks carried out by Mr Benedetti fell within the agreed scope of a broker or adviser role. He reached that conclusion on the basis of the evidence of Mr Sottile referred to in para 74 above.
Mr Rabinowitz is very critical of the Revised Brokerage Agreement but it is important to note that it was made in July or August and backdated to 26 May 2005, by which time all Mr Benedetti’s services had been completed. Moreover, taken at its face, its recitals show that it was intended to cover the remuneration for ITM’s services (ie Mr Benedetti’s services) in the past as well as the future. There were no services rendered in the future. By clause 7.2 the “Broker’s fee” was described as “a success fee of 0.55% of the Transaction Value”. Although the numbers are different, that was precisely the same approach as that advanced by Mr Sottile and accepted by the judge. In these circumstances, even taking the Revised Brokerage Agreement at face value, I cannot see any basis for the apportionment adopted by the judge. It appears to me to be clear that it covered the same services as the services in respect of which compensation is sought in this action.
In the course of the argument Lord Wilson drew attention to the third and fourth recitals to the draft agreement of October 2006, which were prepared on behalf of Mr Sawiris, at which time he was willing to settle on the basis that Mr Benedetti could keep the €67m and receive €75.1m in addition. The recitals in the draft agreement accepted that ITM performed a wider scope of services than the Brokerage Services referred to in the Revised Brokerage Agreement and recognised that Weather wished to supplement that agreement in order to compensate Mr Benedetti for those wider services. The suggestion is that these recitals are inconsistent with the conclusion that the services rendered under the Revised Brokerage Agreement were the same as those in respect of which payment is sought in this action. I would not accept that suggestion. The draft was no more than a draft settlement agreement under which Mr Sawiris was willing to pay over €142m to Mr Benedetti in order to bring this whole affair to an end.
The draft seems to me to be inconsistent with the basis upon which the services were assessed by Mr Sottile and the judge, namely that there should be a single fee to cover all the services performed by Mr Benedetti and that the market value of all those services was €36.3m. A conclusion which entitles Mr Benedetti to €81.52m does not seem to me to be just.
I would add that, as Mr Rabinowitz submits, and as appears above, the figure of €67m was agreed by way of reduction from €87.76m without reference to the Revised Brokerage Agreement, which had not yet been created, or to the First Brokerage Agreement and at a time when Mr Benedetti was claiming that the money was going to third parties. Moreover the first Brokerage Agreement was, as the judge held at para 334, opportunistically created by Mr Benedetti in order to provide a justification for the payments he was intending to draw. In truth the figure of €67m was not arrived at by reference to his remuneration at all and there is no evidence that it was intended to compensate him for some but not all of the services he had provided. In these circumstances, it seems to me that the definition of “brokerage services” in the Revised Brokerage Agreement relied upon by the judge and the Court of Appeal is not a sound basis for the apportionment exercise carried out by the judge and upheld by the Court of Appeal.
For all these reasons I have concluded that the whole of the €67m, which Mr Benedetti received personally, should be taken into account in deciding whether he is entitled to anything further for the services he rendered to Mr Sawiris. Since that figure is significantly greater than the market value of the services rendered, namely €36.3m, it follows that he is not entitled to any further payment. I would therefore allow the cross-appeal.
CONCLUSION
In all the circumstances I would dismiss the appeal and allow the cross-appeal.
ANNEX 1
THE ACQUISITION – AS CONTEMPLATED BY THE ACQUISITION AGREEMENT
ANNEX 1
ANNEX 2
FIRST CLOSING on 11 August 2005
ANNEX 2
ANNEX 3
SECOND CLOSING on 8 February 2006
ANNEX 3
LORD REED
I too would dismiss Mr Benedetti’s appeal and allow Mr Sawiris’s cross-appeal, for largely the same reasons as Lord Clarke and Lord Neuberger, although I adopt a different approach to some extent to the subject of “subjective devaluation”.
The case, as advanced on behalf of Mr Benedetti, is concerned with services provided and accepted in the expectation of reward under a contract which in the event was not concluded. A contract, referred to as the acquisition agreement, had been entered into at an early stage in the parties’ dealings with one another, but it had envisaged a venture of an entirely different character from that subsequently entered into, and the only inference which could be drawn from the parties’ conduct was that they had tacitly agreed to abandon that agreement. Mr Benedetti nevertheless provided his services to Mr Sawiris and his companies (which can for present purposes be elided with Mr Sawiris) in circumstances where it was understood that Mr Benedetti expected to receive some form of reward, but where there was no agreement, or even a loose understanding, as to the form which such a reward might take or as to its amount. It might perhaps have been possible in those circumstances to argue that there was a contract with an implied term that reasonable remuneration would be paid, and the court would then have determined what, in the whole circumstances, ought to be regarded as reasonable remuneration. The case has not however been brought on that basis. Instead, Mr Benedetti has brought a claim based on unjust enrichment: a claim of a fundamentally different character.
There is no doubt that Mr Sawiris was enriched by the provision of Mr Benedetti’s services; that the enrichment was at the expense of Mr Benedetti, in the sense that he expended his labour to provide those services, and his labour was a marketable commodity; and that, in the absence of some reward for those services, the circumstances called for restitution by Mr Sawiris, since he accepted Mr Benedetti’s services in the knowledge that Mr Benedetti expected to be rewarded for providing them. There was, on that footing, what is sometimes described as a failure of consideration (not using that term in its strict contractual sense): the services were provided on the basis that arrangements would be agreed for Mr Benedetti to be rewarded, but no such arrangements eventuated.
Mr Sawiris however relies on the fact that Mr Benedetti received €67m as remuneration under a contract referred to as the revised brokerage agreement. He maintains that there is no scope for applying the concept of unjust enrichment, or at least that Mr Benedetti’s receipt of the €67m has to be taken into account. Mr Benedetti on the other hand maintains that the revised brokerage agreement remunerated him for only part of the services which he provided. He therefore claims that he is entitled to a restitutionary award in respect of the remainder of his services.
It may be helpful at this stage to note that the revised brokerage agreement and its predecessor, known as the first brokerage agreement, were entered into after Mr Benedetti’s services had been provided. He entered into the first brokerage agreement as a director of the company which was to be used by Mr Sawiris as the vehicle for the venture, and of which Mr Sawiris was about to become the sole shareholder. The other party to the agreement was Mr Benedetti’s service company. Mr Benedetti then concealed the true nature of the agreement from Mr Sawiris, maintaining untruthfully that the €87m payable under the agreement was to be used to meet liabilities which he had incurred to third parties in connection with the venture. When Mr Sawiris expressed concern about the amount, Mr Benedetti drew up the revised brokerage agreement, under which the amount payable was reduced to €67m. That amount was then paid to his service company by Mr Sawiris’s vehicle company.
There is also an issue as to the value to be placed on Mr Benedetti’s services, so far as he may not already have been remunerated for them. The trial judge, Patten LJ, found that the market value of the whole of the services was €36.3m. Mr Benedetti however maintains that his services were valued by Mr Sawiris at a much higher figure. In response to Mr Benedetti’s demands for payment for his services, Mr Sawiris offered him €75.1m. He did so initially at a time when he did not know that Mr Benedetti had personally received the €67m, and in circumstances in which there was an awareness of the possibility of legal proceedings. Mr Sawiris subsequently renewed the offer of €75.1m at a time when he knew that Mr Benedetti had personally received the €67m. In those circumstances, Mr Benedetti maintains that a restitutionary award ought to be at least €75.1m.
The questions raised by the case can be summarised as follows. First, does Mr Benedetti have any claim under the law of unjust enrichment at all, given that he received €67m under a contract for his remuneration? Secondly, on the assumption that Mr Sawiris was unjustly enriched notwithstanding Mr Benedetti’s receipt of that contractual remuneration, by how much was he enriched where (1) the services rendered had a market value of €36.3m, (2) Mr Sawiris offered to pay €75.1m for the services after they had been rendered, at a time when Mr Benedetti was maintaining that the €67m payment covered liabilities incurred to third parties and Mr Sawiris did not know that that was untrue, and (3) Mr Sawiris continued to offer €75.1m, in addition to the €67m already paid, after he knew that Mr Benedetti had received the €67m as remuneration?
The effect of the contractual remuneration
It seems to me that the logical starting point is to consider the effect of the contract under which the €67m was paid. If the contract made provision in respect of Mr Benedetti’s remuneration for the whole of the services provided, to which Mr Benedetti agreed, then on the unchallenged assumption that the contract was valid, no question of unjust enrichment can in my view arise.
The trial judge, in the course of an impressive judgment dealing with a multiplicity of issues, construed the revised brokerage agreement as covering only 60% of the services provided by Mr Benedetti. On that basis, he considered that no remuneration had been paid for the remaining 40%, and that Mr Sawiris had to that extent been unjustly enriched. The market value of the services as a whole was found to be €36.3m. Rather than awarding 40% of that figure, which would be a sum of €14.52m, the judge held that Mr Benedetti was entitled to a further €75.1m, on the basis that that amount had been offered by Mr Sawiris at a time when he knew about Mr Benedetti’s receipt of the €67m. The Court of Appeal on the other hand considered that no weight could be attached to the offer of €75.1m, for a variety of reasons which I shall discuss. Proceeding like the trial judge on the basis that the revised brokerage agreement covered only 60% of the services provided and that Mr Sawiris had been unjustly enriched in respect of the remaining 40%, the Court of Appeal concluded that he should be ordered to make restitution of 40% of the value of the entire services, which they took to be €36.3m. On that basis, it awarded Mr Benedetti €14.52m.
Lord Clarke and Lord Neuberger have explained the circumstances in which the first brokerage agreement was concluded. As the trial judge found, the agreement gave Mr Benedetti the security of a payment for his services which was not dependent on any agreement with Mr Sawiris: Mr Benedetti had taken advantage of his directorship of Mr Sawiris’s vehicle company to secure the payment for himself. The revised brokerage agreement between the vehicle company then being used by Mr Sawiris and Mr Benedetti’s service company merely reduced the amount to €67m, which was then paid.
I agree with Lord Clarke and Lord Neuberger that the implication of the judge’s findings is that the purpose of the brokerage agreements was to ensure that Mr Benedetti received €67m for the services he had provided. No-one has questioned the validity of the agreements. Taken at face value and considered in their factual context, agreements under which Mr Benedetti was to be remunerated for his services, which were entered into after the completion of the services between his service company and the vehicle company to be used for the venture, would naturally be expected to cover the entirety of the services, unless their terms clearly indicated otherwise. The terms of the agreements do not appear to me to point clearly away from that construction. I therefore agree with Lord Clarke that the trial judge erred in construing the revised brokerage agreement as relating to only 60% of the services provided. It appears to me to follow that no question of unjust enrichment arises. Mr Benedetti’s appeal should be dismissed, and Mr Sawiris’s cross-appeal should be allowed.
I also agree with Lord Clarke that, even if the contract related to only part of the services provided by Mr Benedetti, he would be unable on the evidence in this case to maintain a claim for restitution of the value of the remaining services. According to the evidence, services of the kind provided by Mr Benedetti are valued as a whole, rather than being broken down into distinct elements each with its own value. Indeed, even if it were assumed that the elements hypothetically excluded from the scope of the contract might have a value in themselves, there is no evidence as to what that value might be. In those circumstances, if the contractual remuneration exceeded the value of the services as a whole (as I would hold, in agreement with Lord Clarke and Lord Neuberger), then I cannot see how Mr Benedetti can establish a claim to a further payment on the basis of unjust enrichment.
The measure of restitution where a person has been unjustly enriched
As I have explained, there is no dispute in this case, subject to the questions arising from the payment under the revised brokerage agreement, that Mr Sawiris was enriched by the provision of Mr Benedetti’s services, that the enrichment was at the expense of Mr Benedetti, and that the circumstances called for restitution by Mr Sawiris, since he accepted Mr Benedetti’s services on the basis that they were not being provided gratuitously. The issue in dispute is the amount to be paid by way of restitution. That issue has to be considered at this stage on the hypothesis that there was no contract between the parties.
In Kingstreet Investments Ltd v New Brunswick (Finance) [2007] 1 SCR 3 Bastarache J, giving the judgment of the Supreme Court of Canada, stated at para 32:
“Restitution is a tool of corrective justice. When a transfer of value between two parties is normatively defective, restitution functions to correct that transfer by restoring parties to their pre-transfer positions. In Peel (Regional Municipality) v. Canada [1992] 3 SCR 762, McLachlin J (as she then was) neatly encapsulated this normative framework: ‘The concept of ‘injustice’ in the context of the law of restitution harkens back to the Aristotelian notion of correcting a balance or equilibrium that had been disrupted’ (p 804).”
That dictum might be related to Lord Wright’s observation in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, 64-65, in the context of unjust enrichment arising from the frustration of a contract after part of the contract price had been paid:
“There was no intention to enrich [the defendant] in the events which happened … The payment was originally conditional. The condition of retaining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simultaneously fail.”
Mutatis mutandis, the same might be said where services have been provided on a basis which has not been fulfilled, subject to the qualification that since the services themselves cannot be returned, the remedy must take the form of restitution of their monetary value.
The object of the remedy in a case of the present kind is therefore to correct the injustice arising from the defendant’s receipt of the claimant’s services on a basis which was not fulfilled. That injustice cannot be corrected by requiring the defendant to provide the claimant with the reward which either party might have been willing to agree. That is because, in the absence of a contract, neither party’s intentions or expectations can be determinative of their mutual rights and obligations. Nor can the court make the parties’ contract for them: a contract which might have included many other terms and conditions besides a price. In such circumstances, the unjust enrichment arising from the defendant’s receipt of the claimant’s services can only be corrected by requiring the defendant to pay the claimant the monetary value of those services, thereby restoring both parties, so far as a monetary award can do so, to their previous positions.
Prima facie, the monetary value of the services can be fairly ascertained by determining what a reasonable person in the position of the defendant would have agreed to pay for them. That will depend on how much it would have cost a reasonable person in the position of the defendant to acquire the services elsewhere in the market (assuming that a relevant market exists, as will normally be the case). The payment by the defendant of the value of the services to a reasonable person in his position will normally achieve a result which is just to both parties in a case of this kind, since the claimant will receive the amount for which he could have sold his services to another recipient in the same position, and the defendant will pay the amount which the services would have cost a reasonable person in his position to acquire from another supplier in the market. The basis of the valuation is thus consistent with the purpose of the valuation exercise.
A question arises as to what is meant by “the position of the defendant”. The answer can be derived from the purpose of the valuation exercise. In order to arrive at an award which is just to both parties, it is necessary to take account of circumstances which would affect the value placed upon the services by a reasonable person receiving them. Those are also circumstances which would affect the cost to a reasonable person in that position of acquiring the same services in the market, and the amount which the claimant could have received if he had sold his services to another recipient in the same position. Such circumstances will include in particular the availability and cost of similar services provided by alternative suppliers (as in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007] UKHL 34; [2008] AC 561), and prevailing rates and practices in the relevant market (as in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752). They will include any relevant characteristics of the defendant, such as, in the context of borrowing, its credit rating, or whether it belongs to the public or the private sector (as in Sempra Metals). They will include other personal characteristics, such as the defendant’s age, gender, occupation or state of health, if they bear on the price at which such a person could obtain the services in question in the market. To give one example, a film star may not have to pay the ordinary price for a designer dress, as the fashion house may allow her a discount to reflect the fact that her wearing the dress will enhance its brand image. Her being a film star is thus an objective aspect of her position which affects the cost to her (or anyone else in her position) of obtaining such a dress, and therefore affects the value of the receipt of such a dress to a person in her position. The circumstances which are relevant to determining the value of the services to a reasonable person will not however include the personal preferences of the individual defendant, or any idiosyncratic views which the defendant may hold as to the value of the services, since the preferences or views of the particular recipient do not affect the services’ value to a reasonable recipient.
There may of course be goods or services which are so tailored to the preferences of a particular recipient that the idea of a reasonable recipient (other than the actual recipient) becomes unrealistic: an example might be the costumes designed for the stage performances of some pop artists. Even in such cases, however, the value of the goods or services is not assigned by the recipient, but is likely to be ascertainable on the basis of objective evidence (which may, according to the circumstances, relate to such matters as the cost of obtaining the goods or services from alternative suppliers, or the cost in the market of the materials and services involved and the profit margin which the evidence suggests would be reasonable in the circumstances).
The adoption of the objective approach to valuation which I have described, as the normal measure of a restitutionary award, is consistent with the relevant authorities. In particular, in BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 840, Robert Goff J said, in relation to restitutionary awards for services, that “in making such an award, it is the market value of the services which is taken”; and in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, 511 the same judge held that the defendant should pay “a reasonable sum”. In Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007] UKHL 34; [2008] 1 AC 561, para 45 Lord Hope of Craighead stated that “questions of this kind are normally approached objectively by reference to what a reasonable person would pay for the benefit that is in question”; and Lord Nicholls of Birkenhead said in the same case (para 103) that the measure of a restitutionary award in respect of the use of money was “the market value of the benefit the defendant acquired”. In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752, para 41 Lord Scott of Foscote observed, in relation to his well-known example of the locksmith, that the extent of the unjust enrichment was “the value of the locksmith’s services”. In the case at hand, the developer’s award was to be “assessed at the rate appropriate for an experienced developer” (para 42), that is to say at the rate ordinarily applicable in the market to a developer comparable to the claimant.
In relation to this approach, it may be helpful to say a word about the concept of “market value”, which has been employed in some of the authorities (eg BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 840; Sempra Metals, para 103). It is an expression which can be used in more than one way, but the definition used by the Royal Institution of Chartered Surveyors captures the essence of the concept:
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
So understood, market value is specific to a given place at a given time. That point can be illustrated by the episode in Vanity Fair in which Becky Sharp sells her horses during the panic which grips the British community in Brussels after the battle of Waterloo, when rumours reach the city that Napoleon has defeated Wellington and that his army is approaching. The circumstances create a market in which horses are exceptionally valuable, and Becky obtains a price which is far in excess of the ordinary value. It is, nevertheless, the value of the horses in the market in which they are sold.
That example illustrates the general point that market value depends critically on the identification of the relevant market, since there are different markets for many types of goods and services. That is reflected, for example, in the variability in the price of a haircut, or the cost of a meal in a restaurant, or the fees charged by solicitors, or the salaries of professional footballers, depending on the market in which they are operating.
The case of Sempra Metals provides another example. The defendant, as a public body, could purchase the benefit in question (the use of money) at a lower price than commercial enterprises. The benefit arising from the mistaken payment of tax before it was due was therefore valued on the basis of the public sector borrowing rate rather than ordinary market rates of interest. Equally, it is conceivable that money might be paid mistakenly to, and used by, a defendant with a poor credit rating who could borrow money only at rates above ordinary market levels. In such a case the benefit to that defendant, calculated as in Sempra Metals in terms of “the rate of interest … appropriate to the enrichee’s circumstances” (per Lord Hope at para 46) or “the reasonable cost the defendant would have incurred in borrowing the amount in question” (per Lord Nicholls at para 103), would exceed that measured according to ordinary market rates of interest. It would still however be an objective value, which had nothing to do with the defendant’s personal perception of the value of the money. Indeed, it would be a market value: the defendant in such a case would borrow in a different market from ordinary commercial borrowers, just as public sector borrowers constitute a distinct market. The higher rate of interest would reflect the risk of the defendant’s inability to repay the money, and thus could be said to reflect the value transferred by the claimant, who would be bearing that risk.
There may be room for argument in particular circumstances as to whether the variation in the value of a benefit according to the position of the recipient is more aptly described as an aspect of market value or as a departure from it. The fact that the cost of an annuity may depend on the age, gender, state of health and personal habits of the annuitant would probably be regarded by most people as an aspect of market value: the annuity market differentiates between relatively young female non-smokers in good health and older male smokers in poor health. An economist might take the same view of the more favourable terms on which a film star may be able to buy a designer dress; but most people would probably say that the film star obtained the dress for less than its market value. I shall refer to “ordinary market value” to describe the amount which would be agreed in the market in the absence of some unusual characteristic of the particular purchaser.
It follows that some other vocabulary has to be found to describe the departure from ordinary market value which will be required where, as in the case of the film star, the value of the benefit to the reasonable person in the position of the defendant will be different from its ordinary market value. I shall refer to the objective value of the benefit, which will usually be its ordinary market value, but may in particular circumstances be either more or less than that amount.
“Subjective devaluation”
Counsel for Mr Benedetti argued that there was an established principle of “subjective devaluation”, according to which the amount of a restitutionary award could be reduced below the objective value of the benefit in order to reflect the defendant’s personal view of its value, and that by analogy a principle of “subjective revaluation” (or, perhaps more aptly, “subjective over-valuation”) could justify on the same basis the making of an award in excess of the objective value.
It has to be emphasised that this is not an argument for the uncontentious proposition that the objective value of a benefit to the defendant may be less than its ordinary market value (as, for example, in Sempra Metals, or in my example of the film star), or may conceivably be greater than its ordinary market value (as might be said of the example from Vanity Fair, although that might also be regarded as an illustration of how the ordinary market value can vary according to the specific place and time; or as in my example of a mistaken payment made to a recipient who has a poor credit rating). The proposition being advanced is that the value of a benefit received by a defendant is not in principle arrived at objectively, but depends on the defendant’s personal opinion of its value, or at least that an objective approach to valuation can be displaced by establishing that the defendant did not in fact value the benefit at its objective value.
The expression “subjective devaluation” has appeared occasionally in judgments where references have been made to the work of the late Peter Birks, who employed the expression in some of his writings in relation to the question whether the recipient of a benefit in kind had chosen to accept it and should therefore be taken to have been enriched (see eg Introduction to the Law of Restitution (1985, revised 1989), pp 109 and 413). As used by Birks, “subjective devaluation is an argument whose premiss is that where something has not been chosen by its recipient it cannot normally be said to have been of value to him” (Introduction to the Law of Restitution p 266; emphasis in original). Accordingly, “a defendant who has freely accepted the benefit cannot use that argument” (ibid).
Whether the recipient of a service can be taken to have assumed responsibility to pay for it is undoubtedly relevant to the question whether he is under a liability to make restitution of its monetary value on the basis of unjust enrichment (but it is important to add that it is not conclusive of that question: there are circumstances in which the receipt of a service may call for restitution of its monetary value even if the receipt was involuntary). Nothing I say about so-called “subjective devaluation” is intended to question that principle. As Pollock CB famously asked (albeit in the context of an analysis based on implied contract), “One cleans another’s shoes; what can the other do but put them on?” (Taylor v Laird (1856) 25 LJ Ex 329, 332). I am however doubtful of the aptness of the expression “subjective devaluation” to describe that principle, since it seems to me that the reason for declining to make a restitutionary award based on ordinary market value in such a case is most aptly understood as being, not the defendant’s idiosyncratic valuation of the service, but the importance of respecting his right to choose whether, and on what basis, to assume responsibility to pay for it. The issue is therefore not at bottom a matter of valuation; and, on one view, it is to be judged objectively. This point has been noted by a number of academic writers. For example, the Canadian academic Mitchell McInnes has written, “The important point is not the defendant’s personal valuation of a benefit, but rather his personal choice to accept the risk of financial responsibility for it” (“Enrichment Revisited”, in Understanding Unjust Enrichment (2004), eds Neyers, McInnes and Pitel, p 175 fn 44 (emphasis in original). See also Edelman and Bant, Unjust Enrichment in Australia (2006), pp 107-108, and Lodder, Enrichment in the Law of Unjust Enrichment and Restitution (2012), chapter 6).
Birks himself recognised that the central issue underlying his concept of “subjective devaluation” was choice:
“When the argument from the subjectivity of value (subjective devaluation) is available, it does not consist in an appeal to and proof of the tastes and priorities of the particular recipient but, on the contrary, only requires the recipient to show he made no choice to receive the benefit” (“In Defence of Free Acceptance”, in Essays on the Law of Restitution (1991), ed Burrows, p 129).
It is of course the benefit by which the recipient has been unjustly enriched which has to be valued for the purpose of making a restitutionary award; but its valuation is conceptually distinct from the identification of the enrichment or the decision whether (or to what extent) it was unjust.
The recipient’s freedom of choice is relevant not only to the all-or-nothing case where he either did or did not assume responsibility to pay for the service, but also, as Birks recognised (see eg “In Defence of Free Acceptance”, loc cit, p 129), to the case where the recipient assumed responsibility for payment, but only on a particular basis: for example, that the service was to be provided at half price as an introductory offer, or that the cost of the service would be a specific sum. In practice, most such cases are likely to fall within the scope of the law of contract, but some could fall within the scope of unjust enrichment (eg if a contract were void or unenforceable). The qualified nature of the recipient’s acceptance of responsibility may then be relevant to limit any liability based on unjust enrichment. On the other hand, although I accept that a contract price in excess of the ordinary market value might be evidence of the objective value in particular circumstances, I have difficulty, like Lord Clarke and Lord Neuberger, in seeing how the recipient could be required, in the absence of a contract, to pay more than the objective value of the benefit on the basis of unjust enrichment.
Birks’s use of the expression “subjective devaluation” to describe a principle concerned with issues relating to freedom of choice reflects his view that such issues should be addressed at the stage of determining whether the defendant has been enriched. On that approach, since enrichment involves a transfer of value, and the involuntary nature of the receipt of a benefit does not diminish the objective value transferred, the existence of enrichment must be denied, where necessary to protect the defendant’s autonomy, by asserting that, subjectively, no (or only a limited) value was transferred.
Since the object of this principle is to protect the defendant’s freedom to choose whether to assume responsibility to pay for a benefit in kind (and if so, on what basis), it seems to me that it might contribute to clarity of analysis if the principle were explicitly concerned with freedom of choice rather than “subjective devaluation”. I would also comment that, although the expression “subjective devaluation” reflects Birks’s treatment of the question whether and to what extent the defendant assumed financial responsibility for the benefit as part of the inquiry into whether there has been “enrichment”, it is not self-evident that that is the most apt way of addressing the question: indeed, like some other academic authors (eg Goff & Jones, The Law of Unjust Enrichment, 8th ed (2011), eds Mitchell, Mitchell and Watterson, para 17-02), Birks in some of his writings also treats “free acceptance” as an “unjust factor” or ground of liability, so that the question whether the imposition of liability would be consistent with respect for the defendant’s autonomy is taken into account at more than one stage of the analysis.
Another possible approach might be to treat enrichment as dependent upon the objectively beneficial nature of the receipt, and to consider at a later stage of the analysis, when determining whether it would be just to impose liability to make restitution (at all, or on a particular basis), the question whether the imposition of such a liability would be compatible with respect for the defendant’s autonomy or freedom of choice. I note that the Canadian Supreme Court has taken a straightforward economic approach to the questions whether the defendant has been enriched by the plaintiff and whether the plaintiff has suffered a corresponding deprivation, and has dealt with other considerations, including arguments concerning individual autonomy, at the stage of deciding whether the defendant’s retention of the benefit is unjust: see for example Kerr v Baranow [2011] 1 SCR 269 at paras 37, 41 and 45. That approach appears at first sight to have the virtue of simplicity, in so far as it groups normative issues under an explicitly normative heading, and applies Occam’s razor to Birks’s repeated reliance on the concept of “free acceptance”. It does not entail a descent into unstructured reasoning about injustice. I should add that, as Lord Nicholls indicated in Sempra Metals at para 119, the defence of change of position may also be relevant in some circumstances to the protection of the defendant’s autonomy, especially if such a defence may be based on an anticipatory change of position, as the Privy Council accepted in Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, para 38.
Interesting and important as these issues as to the conceptual framework of unjust enrichment may be, they do not need to be decided in the present case, where there is no doubt that Mr Sawiris freely accepted Mr Benedetti’s services on the basis that a reward would be provided. All that need be said is that, at whatever stage in the analysis the defendant’s freedom of choice is best taken into account, I am inclined to think that it is preferable that it should be done explicitly rather than on the basis of so-called “subjective devaluation”. I would also observe that this area of the law is at an early stage in its development, and that it remains to be seen whether we have yet found the most suitable analytical scheme.
“Subjective over-valuation”
Some academic writers (eg Burrows, The Law of Restitution, 3rd ed (2011), pp 60-61; Virgo, The Principles of the Law of Restitution, 2nd ed (2006), pp 88-89) have also used the expression “subjective revaluation” (or “over-valuation”) in relation to the question how the benefit should be valued where services are provided in order to create an end-product which has no objective value. Examples sometimes discussed, which illustrate the nature of the issue, are those of a landowner who chooses to have a folly erected on his land, or a person who chooses to have his house decorated in execrable taste, adding nothing to its value. It is argued by Virgo (ibid) that, in such a case, a reasonable person would not regard the claimant’s work as valuable, and that a restitutionary award is therefore based on the value subjectively attached to the work by the defendant.
As Burrows recognises (ibid), however, there is no need in relation to such examples to rely on a notion of “subjective over-valuation”. The claimant benefited the defendant by providing his services. Those services had an objective value in the market: competitive quotations could have been obtained for the erection of the folly or the decoration of the house. A restitutionary award would therefore be based on the market value of the services.
Subjectivity and value
There is in addition an inherent conceptual difficulty about the notion of subjective valuation. Value, in the economic sense which is relevant in the context of the valuation of services or other non-monetary benefits, is not established by individual attribution, but by exchanges between different individuals, usually in a market. It is the cumulative preferences of consumers which are important to the interaction of supply and demand that determines economic value, rather than the preferences of an individual party to a specific transaction. Even in situations where goods or services are tailored to the preferences of an individual party, their value is likely to depend on the supply and demand for the materials and services required, as is illustrated by the examples of the folly and the pop artist’s costume. If on the other hand a person declares, for example, that coal is more valuable than diamonds, and intends to be understood as describing the relative monetary value of the two commodities, then one would be inclined to suppose that he has taken leave of his senses. He cannot make the monetary value of coal greater than that of diamonds by personal fiat. If a character in a science fiction film says that, on her planet, coal is more valuable than diamonds, one imagines a society where that might be true: where diamonds are plentiful and coal is scarce, where jewellery is made out of coal, and so forth: in other words a society in which market forces and consumer preferences could establish the relative value of coal and diamonds in the opposite sense to that operating in our own society. That is not to say that everyone has the same preferences. A woman who had no interest in fashion might not attach any more importance to a handbag from a fashion house than to one from a chain store, and might be unwilling to spend any more on the one than the other. But she would acknowledge that the former handbag was more valuable than the latter (and would doubtless claim its market value under her insurance policy if it were stolen), unless she was using the word “valuable” in a sense other than its economic one.
In the particular context of making a restitutionary award for unjust enrichment, there is a further reason why it is problematical for the valuation of a benefit to depend on the idiosyncrasies of the recipient. As I have explained, the purpose of restitution, where unjust enrichment has resulted from the receipt of services, is in my view to achieve a just result by restoring to the claimant the monetary value of the services which he has provided to the defendant. That aim will be compromised if the services are valued on a basis which depends on the idiosyncrasies of one party, rather than one which is even-handed as between them both.
The authorities
Three authorities were said to support the existence of a principle of “subjective devaluation” in the sense for which Mr Benedetti contended: that is to say, that a restitutionary award for unjust enrichment resulting from the receipt of a service should be based on the defendant’s personal valuation of the service. On examination, none of them appears to me to provide support for it.
In the first case, Cressman v Coys of Kensington (Sales) Ltd [2004] 1 WLR 2775, Mance LJ referred at para 28 to Birks’s discussion of “subjective devaluation” in the context of the question whether the defendant had been unjustly enriched by his receipt of a personalised number plate, as the result of a mistake. It was held that he had been, as he had chosen to retain the plate in circumstances in which he could easily have returned it but had refused to do so. The context, in other words, was a discussion of whether the recipient of a benefit as the consequence of a mistake had chosen to retain it and should therefore be taken to have been unjustly enriched (or, as it might be put, whether the imposition of liability for unjust enrichment would be consistent with respect for the recipient’s autonomy): not whether a restitutionary award should be based upon the defendant’s personal valuation of the benefit.
The second case, Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007] UKHL 34; [2008] 1 AC 561, concerned restitution for unjust enrichment arising from the premature payment of tax as the result of a mistake. The majority of the House of Lords held that the Revenue had obtained a benefit, identified as being “the opportunity to turn the money to account” (per Lord Hope at para 33) during the period before the payment was due. The claimant sought to value that benefit according to commercial rates of interest. It was held however that the benefit should be valued according to the public sector borrowing rate.
That conclusion is consistent with the approach which I have described. The claimant had provided the Revenue with the benefit of the possession of the money for a period of time. The time value of money is assessed by applying a rate of interest. The appropriate rate of interest in the circumstances was one which was applicable to the public sector, since the circumstances involved the provision of money to an organisation in the public sector. A reasonable lender and borrower in the position of the claimant and the Revenue would have agreed on the public sector borrowing rate, since that was the rate at which alternative funds were available to the Revenue.
The case is thus an example of the way in which the position of the defendant can affect the objective value of the benefit which he receives. Just as Becky Sharp’s horses had a higher value to a purchaser in Brussels during the panic than they would have had to a purchaser in ordinary circumstances, so the use of the taxpayer’s money had a lower value to a public body than it would have had to a commercial enterprise.
The reasoning by which the majority of their Lordships arrived at their conclusion, so far as based on restitutionary remedies available at common law, was consistent with this approach. Lord Hope said that questions of this kind were normally approached objectively by reference to what a reasonable person would pay for the benefit (para 45), and explained the importance of focusing on the circumstances of the enrichee in order to determine the extent of the enrichment (para 49). Lord Nicholls stated that the relevant measure was “the market value of the benefit the defendant acquired”, which was the reasonable cost the defendant would have incurred in borrowing the amount in question for the relevant period (para 103). This was described as an objective measure (paras 116, 117). The third member of the majority, Lord Walker of Gestingthorpe, favoured an approach based on the court’s equitable jurisdiction to award interest.
Lord Nicholls added, obiter, that in other circumstances it might be unjust to order the recipient of a mistaken payment to pay interest: for example, where the recipient had made no use of the money and had repaid it when the mistake came to light, it might be most unfair to order him to pay interest (para 118). That is evidently correct: in such a case, the recipient had the opportunity to enrich himself through the use of the money, but did not choose to do so. Lord Nicholls continued (para 119):
“Here, as elsewhere, the law of restitution is sufficiently flexible to achieve a just result. To avoid what would otherwise be an unjust outcome the court can, in an appropriate case, depart from the market value approach when assessing the time value of money or, indeed, when assessing the value of any other benefit gained by a defendant. What is ultimately important in restitution is whether, and to what extent, the particular defendant has been benefited: see Burrows, The Law of Restitution, 2nd ed (2002), p 18. A benefit is not always worth its market value to a particular defendant. When it is not it may be unjust to treat the defendant as having received a benefit possessing the value it has to others. In Professor Birks’s language, a benefit received by a defendant may sometimes be subject to ‘subjective devaluation’: An Introduction to the Law of Restitution (1985), p 413. An application of this approach is to be found in the Court of Appeal decision in Ministry of Defence v Ashman [1993] 2 EGLR 102.Whether this is to be characterised as part of the ‘change of position’ defence available in restitution cases is not a matter I need pursue.”
This reference to “subjective devaluation” was in turn referred to in the speeches of Lord Walker (at paras 184 and 187) and Lord Mance (at paras 232-233). Lord Walker preferred to adopt an approach to recovery in such cases based on equity, and Lord Mance correctly explained that Birks’s concept of “subjective devaluation” was concerned with the existence of an unjust enrichment rather than the measure of restitution.
If, by “market value”, Lord Nicholls means what I have called ordinary market value, then his observations are consistent with the approach I have described. Lord Nicholls did not in that passage endorse valuation based on the idiosyncrasies of the defendant, and I would not interpret the passage as bearing that implication, given first that the remainder of his speech followed an objective approach, secondly that such an approach would have conflicted with authorities of which Lord Nicholls will have been well aware, and thirdly his citation of the decision of the Court of Appeal in Ministry of Defence v Ashman (1993) 66 P & CR 195.
The case of Ashman, followed on similar facts in Ministry of Defence v Thompson (1993) 25 HLR 552, was concerned with the liability of a trespasser for her wrongdoing. The Ministry rented married quarters to the second defendant, who was serving in the RAF, at a concessionary rent. His wife, the first defendant, remained in the premises after they separated, despite a notice to quit, as the local authority would not re-house her until an eviction order had been made. Once the necessary proceedings had been taken she moved into local authority accommodation at a higher rent. The Ministry sought to recover mesne profits based on the open market rental value of the premises. An award made on that basis was overturned on appeal, and the court remitted to the court below to reassess the award on the basis that it should be based on the rent which the first defendant would have paid for local authority housing if it had been provided.
Hoffmann LJ, with whose judgment neither of the other members of the court expressed agreement, treated the claim as one for restitution. He referred in the course of his judgment to Birks’s discussion of “subjective devaluation”, which he treated as being relevant on the basis that the first defendant “had no choice but to stay in the premises”. In other words, the “involuntary” nature of the first defendant’s continued occupation of the premises, after she had ceased to be entitled to do so at the concessionary rent, supported the conclusion that she was not enriched by her wrongful occupation of the premises to the full extent of their value. If she had been free to choose whether to accept the benefit of continued occupation of the premises, she would not have done so, but would have moved into local authority accommodation and paid the rent of such accommodation. The only enrichment arising from her occupation of the premises was therefore the amount of rent which she had avoided paying on that basis.
I would observe that if, as Hoffmann LJ considered, the first defendant had no choice but to occupy the premises, the application of Birks’s approach would have led to the conclusion that she had not been unjustly enriched at all. The decision may perhaps be better rationalised, in terms of the law of restitution, as raising a question of change of position, as Lord Nicholls suggested in Sempra Metals. The central point was arguably not whether the first defendant chose the benefit of occupying the premises, but rather that her receipt of that benefit prevented her from receiving the equivalent benefit from the local authority at a lower cost. Her receipt of the benefit thus altered her position in such a way that she would be worse off if she were required to make restitution of the market value of the benefit than if she had never received it.
The important point for present purposes however is that the case is not an example of “subjective devaluation” in the sense in which that expression has been used in the present case. Hoffmann LJ’s judgment provides no support for the idea that the valuation of a benefit can be based on the recipient’s personal ideas about its value. On the contrary, Hoffmann LJ’s approach to the valuation, on the basis of the rental of the alternative accommodation which might reasonably have been available to a person in the first defendant’s position, was objective. He rejected a subjective approach to that issue, saying that, if the defendants had been occupying the premises at the open market rent before they separated, they could not claim that the premises had become less valuable to them because they could not find anywhere else to go; nor could they say that the premises were worth less to them than suitable accommodation they could realistically obtain. As Simon Brown LJ observed in relation to the case of Ashman in Gondal v Dillon Newspapers Ltd [2001] RLR 221, 228:
“A restitutionary award, i.e. damages calculated according to the value of the benefit received by the occupier, is rightly decided … by an objective determination of what the wrongful occupation was worth to the trespasser.”
These cases do not therefore appear to me to involve subjectivity: the valuation of the benefit in Sempra Metals or Ashman was not an attempt to discover the price which the individual defendant would in fact have been willing to pay, and therefore did not depend on the defendant’s personal views. As was said in a Scottish appeal to the House of Lords, in a case where a person had erected a building on land in the mistaken belief that he was the proprietor, “it is not according to the fancy of the owner or the builder that the improvement upon the estate is to be estimated” (York Buildings Co v Mackenzie (1797) 3 Paton 579, 584 per Lord Loughborough LC). The point illustrated by Sempra Metals is that there are differences between the circumstances of individuals which may affect the objective value to them of a given benefit in kind. The ratio of Ashman is less readily identified, and need not be decided now: views may differ as to whether the case is best understood as a further example of objective value being below the ordinary market value, or as relating to “enrichment”, or as relating to a defence to the imposition of liability. It appears however to be concerned with the effect of constraints upon the choices made by a defendant in relation to the receipt of a benefit, and with the avoidance of imposing a liability which would leave the defendant worse off than if the benefit had not been received, rather than with a subjective approach to the valuation of benefits.
The present case is not one where any issue arises as to freedom of choice, since Mr Sawiris accepted Mr Benedetti’s services freely, on the basis that Mr Benedetti would be rewarded, and without any cap on the reward. Nor is this a case in which it is said that the recipient of the benefit has particular characteristics which affected its objective value. The authorities cited do not appear to me to support a principle of “subjective devaluation” in the sense in which that expression is employed in the present case, namely the valuation of a benefit by which the recipient was unjustly enriched according to his personal opinion of its value.
In relation to para 26 of Lord Clarke’s judgment, I should add, for the avoidance of doubt, that the ideas which I have discussed as possible alternatives to an analysis based on “subjective devaluation” do not appear to me to be less flexible or more liable to lead to windfalls for defendants. In particular, I entirely accept that there are circumstances in which a defendant may be unjustly enriched by the involuntary receipt of a benefit, and in which a restitutionary award may therefore be appropriate: see para 113. I also accept that a court can make a restitutionary award which is below the market value of the benefit conferred, in particular where that is necessary to respect the defendant’s autonomy or freedom of choice: see para 115. An approach which explicitly respects freedom of choice, rather than adopting a concept of “subjective valuation”, can be equally nuanced. Similarly, the adoption of an approach which addresses issues relating to autonomy at the stage of considering whether enrichment was unjust, rather than at the stage of considering whether there was enrichment at all, need not alter the outcome of cases. Finding the most suitable analytical framework to help the courts to reach principled decisions on particular facts and to articulate reasons for their decisions is nevertheless not unimportant.
The present case
In the present case, the amount which Mr Sawiris offered to pay Mr Benedetti for his services, after they had been provided, is significant only in so far as it provides evidence of the objective value of the services at the time they were provided (as in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752, para 44). The fact that the offer was made after the services had been provided does not render it irrelevant, although it is important to bear in mind that the services are to be valued as at the time when they were received (see, amongst other authorities, BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 802). Equally, the fact that the amount offered exceeded the amount which, according to other evidence, would be the ordinary market value of those services, does not make it irrelevant: as I have explained, it is possible that the objective value of services in particular circumstances may be more or less than their ordinary market value. These facts may however greatly affect the weight to be placed on the offer as an indication of objective value, in the absence of any identified circumstances which could account for the divergence from the value indicated by other evidence. As is familiar to practitioners in fields such as valuation for rating or rent reviews, the sums agreed in respect of comparable subjects, in comparable circumstances, can vary greatly, and outlying figures, even if relating to the very subjects to be valued, may have to be discarded if they cannot be reconciled with other evidence which is considered to be more reliable.
The significance of the sums offered by Mr Sawiris therefore depends upon whether they provide evidence of the objective value of Mr Benedetti’s services at the time they were provided. In that regard, the fact that Mr Sawiris offered €75.1m for services which would ordinarily be valued at €36.3m plainly calls for an explanation. Was there something exceptional about the circumstances which rendered Mr Benedetti’s services exceptionally valuable? The judge did not identify anything about the circumstances in which the services were provided which would indicate that they had a higher objective value in those circumstances than their ordinary market value. Or was Mr Sawiris’s offer influenced by extraneous factors, such as the desire to settle Mr Benedetti’s claim in the shadow of potential litigation? If so, the offer would not be reliable evidence of the objective value of the services at the time they were received. Or was Mr Sawiris simply being generous, as Mr Abdou said in the relevant emails, and as Mr Sawiris maintained in his witness statement? If so, the offer would again not be reliable evidence of the objective value of the services: generosity (or parsimony) may influence a person’s attitude towards paying a given price, but it does not affect the objective value of what he has received. Or was Mr Sawiris influenced by the success of the venture in connection with which Mr Benedetti’s services had been provided? If so, the offer would again not be reliable evidence of the objective value of the services, since that value has to be determined as at the time when the services are received, and cannot be quantified with hindsight in the light of their success.
The fact that Mr Sawiris renewed his offer of €75.1m after he had discovered that Mr Benedetti had already received €67m under the revised brokerage agreement calls even more strongly for an explanation. Had his valuation of Mr Benedetti’s services increased to €142.1m? Or can one infer from his successive offers, as counsel for Mr Benedetti argued, that his valuation of Mr Benedetti’s services was even higher? Or should one infer from the surrounding circumstances that the increased offer was a further attempt to avoid litigation, there being evidence that the possibility of litigation had been discussed by that time? Or was it further evidence of his generosity?
These questions were not explored at the trial, where the parties sought to establish the objective value of Mr Benedetti’s services by leading expert evidence. That evidence, as assessed by the judge, demonstrated that Mr Benedetti’s services would ordinarily be remunerated by a fee of between 0.1% and 0.3% of the transaction value. Selecting the top end of that range, and applying the scale fee to the value of the transaction in question, the judge assessed the market value of the services at €36.3m. It was only in closing submissions that counsel for Mr Benedetti sought to place any reliance on the offers made by Mr Sawiris, having maintained throughout the trial that they were irrelevant. Even at that stage, it was suggested that they could be used mainly as a check on a valuation based on the expert evidence. In the absence however of any explanation of their being far in excess of the market value established by the expert evidence, other than Mr Sawiris’s generosity (a factor which is not relevant to the measurement of the benefit, as I have explained), or his desire to avoid litigation (which would be equally irrelevant), and given the real possibility of their being influenced by extraneous considerations, they could not reasonably be regarded as reliable evidence of value.
The approach of the trial judge
In dealing with this evidence, the trial judge’s starting point was that a “claim to a quantum meruit gives the court a wide discretion to award what it considers to be a fair and reasonable sum for the services” (para 58). That is not the correct approach. As I have explained, the court has to determine the objective value of the services at the time of receipt, that is to say the price which a reasonable person in the defendant’s position would have paid for the services. That exercise may involve the exercise of judgment, but it does not involve the exercise of discretion (Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 578; Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, 385; Sempra Metals at para 46 per Lord Hope).
Although in principle evidence of negotiations between the parties might be relevant to that exercise, it is not clear that the judge treated the offers made by Mr Sawiris as evidence of the objective value of Mr Benedetti’s services. He stated that “regard must also be had to any prior negotiations or agreement between the parties which indicate that they put a particular value on the services in question” (para 528), and that the evidence relating to the offers was admissible “if and so far as that evidence does show the value which the paying party (albeit with the benefit of hindsight) considered that the services were actually worth” (para 568). As I have explained, however, the object of the exercise is not to discover what the defendant thought the claimant’s services were worth, either before or after they were provided, but what they were objectively worth at the time they were received. As I have explained, the offers might in principle have been significant if and in so far as they indicated the objective value of Mr Benedetti’s services at the time those services were rendered. It was not however established that the offers had been made on that basis. In view of the absence of any explanation of the disparity between the offers and what the judge described as the market rate for the services Mr Benedetti performed, other than Mr Sawiris’s generosity or his desire to avoid litigation, the judge could not reasonably have treated the final offer of a further €75.1m, in addition to the €67m already received, as determinative of the value of Mr Benedetti’s services.
In the event, the judge appears to have awarded Mr Benedetti the €75.1m, in addition to the €67m already received, on the basis that it represented “what [Mr Sawiris] considered Mr Benedetti’s services to be worth”. As I have explained, however, that is not the proper measure of a restitutionary award. The offers could not be treated as overriding the evidence as to the market rate on the basis that Mr Sawiris’s personal scale of values was the proper measure of a restitutionary award.
The approach of the Court of Appeal
In reaching that conclusion I am in agreement with the Court of Appeal. Arden and Etherton LJJ however differed in the reasoning by which they reached that conclusion, and Rimer LJ agreed with both judgments in relation to the valuation of the services. I am in agreement with the judgment of Etherton LJ, who adopted an objective approach to valuation.
I should explain why I do not entirely agree with the thoughtful analysis of Arden LJ. She appears in some parts of her judgment to have proceeded on the basis that an award in restitution should reflect the parties’ common intention. On that basis, an unaccepted offer could not even in principle be relevant evidence of value. This appears to me to be incorrect in principle, and inconsistent with the significance attached in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752, para 44, to an unaccepted offer in settlement, made in the course of the proceedings, as an indication of the amount a quantum meruit might provide. I would not therefore agree with her comment (para 85) that it was an error on the part of the trial judge to take the figure of €75.1m into account because it was not agreed. Nor would I agree with the example she gives of a plumber who charges 10% over the market rate. In her view, if a customer had agreed to that rate in the past, the court, if awarding an amount by way of quantum meruit to the plumber against the customer on a further occasion, would take into account the parties’ course of dealing in the past in preference to market rates. The point of the example, as stated by Arden LJ, is that “the court must look to the outward manifestation of the parties’ common intentions” (para 72). It appears to me that that would be the proper approach if the award were being made on the basis of an implied contract, but not on the basis of unjust enrichment. I would add that it is important to bear in mind that although the term “quantum meruit” is used both in the context of contract and in the context of unjust enrichment, the basis on which a quantum meruit award is made differs according to which context is relevant.
The approach adopted in the passages I have mentioned, which treats the quantification of the benefit in a case of the present kind as resting on some common intention or understanding, has echoes of the old view that a restitutionary claim rests on an implied contract; and Arden LJ appears to have been influenced by Lord Atkin’s speech in Way v Latilla [1937] 3 All ER 759, which proceeded on the footing that there was in that case an implied contractual term to pay reasonable remuneration. Lord Atkin stated that there “existed between the parties a contract of employment under which Mr Way was engaged to do work for Mr Latilla in circumstances which clearly indicated that the work was not to be gratuitous”, and that Mr Way was therefore “entitled to a reasonable remuneration on the implied contract to pay him quantum meruit” (p 763). The present case is not however based on implied contract, and Way v Latilla therefore does not appear to me to be of assistance: the implied contract approach to restitutionary awards for unjust enrichment was decisively rejected in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669. On the other hand, Arden LJ was in my opinion on sounder ground in rejecting the relevance of the offer of €75.1m on the basis that there was nothing in the evidence relating to the offer to shed light on the market value of Mr Benedetti’s services as opposed to an offer that for whatever reason Mr Sawiris was prepared to make (para 86).
Having rejected the relevance of the offer of €75.1m and taken the value of the services to be €36.3m, the Court of Appeal then awarded Mr Benedetti €14.52m on the basis that his contractual remuneration of €67m under the revised brokerage agreement related to only part of the services he had provided. As I have explained, I disagree with that understanding of the effect of the agreement.
Conclusion
I would therefore dismiss Mr Benedetti’s appeal against the decision of the Court of Appeal, and allow Mr Sawiris’s cross-appeal.
LORD NEUBERGER
…..Subjective devaluation
Having identified the prima facie position, the next stage in the argument involves addressing the proposition that the quantum meruit should be reduced in a case where the defendant establishes that, for one reason or another, the benefits provided by the plaintiff were worth less to him than the open market value; in other words, where the subjective value of the benefits to the defendant in the particular case is less than the objective, market, value. This proposition, known as subjective devaluation, is treated by most academic writers as being correct – see eg per Burrows op cit, section 34.2, Goff & Jones op cit, paras 4-06 to 4-11 and 6-69, Virgo’s Principles op cit, p 98, and Birks, op cit, pp 52-63. However, others, notably Edelman and Bant in Unjust Enrichment in Australia (2006, p. 108), appear to challenge the whole notion of subjective devaluation, primarily on the basis that the enquiry into whether the defendant desired the receipt of the benefit should be objective, referring to Deane J’s description of the issue as one of “constructive acceptance” of a benefit by a defendant: see Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 256-257 and Foran v Wight (1989) 168 CLR 385, 438.
There is some judicial support for subjective devaluation in Ministry of Defence v Ashman (1993) 25 HLR 513, 519-520, a case concerned with damages for trespass, where Hoffmann LJ (whose reasoning was adopted by a subsequent Court of Appeal in which he sat in Ministry of Defence v Thompson (1993) 25 HLR 552, in a passage cited by Lord Clarke at para 24) specifically referred to subjective devaluation with approval. He explained that “a benefit may not be worth as much to the particular defendant as to someone else. In particular … to a defendant who has not been free to reject it”. To describe a former tenant who remains in occupation of the premises as a trespasser in this way may, I think, be questionable in this context: the former landlord has not voluntarily conferred any benefit on him. I share Lord Reed’s view expressed at para 136 that this is not the occasion to consider that question further. The speeches of Lord Hope and Lord Nicholls in Sempra Metals [2008] AC 561, paras 49 and 118-119 respectively, at first sight provide some support for subjective devaluation in an unjust enrichment case, although that case was concerned with payment of money by mistake. However, as Lord Clarke says at para 22, Lord Reed’s analysis at paras 126-131 convincingly establishes that the analysis, and indeed the conclusion reached, in those speeches are both consistent with a market valuation approach, in line with what he says in paras 101-106 (and with what I say in para 184).
In my view, it may well be that, in some cases of unjust enrichment, subjective devaluation could be invoked by a defendant to justify the award of a smaller sum than that which would be prima facie payable, namely a sum based on the market value of the benefits conferred on him. Lord Clarke discusses the question in paras 18-26, and Lord Reed does so in paras 110-118. Lord Clarke adopts a so-called subjective devaluation approach, which involves a two-stage process, at the second stage of which the defendant may deny that the benefit conferred on him was worth as much as its market value, and leaves it to the court to decide on the facts whether he can justify such a subjective devaluation, and if so to what figure. Lord Reed, on the other hand, tends to favour a so-called choice of benefit approach, which concentrates on whether the defendant was in some way responsible for the conferment of the benefit, and deals with the question of value as part of a holistic question of enrichment.
Given that it is unnecessary to do so, I would prefer to express no concluded view as to which approach is correct. I can see attractions and problems in each of the two approaches, and it appears that there are even differing views as to what each approach entails or should entail. Broadly speaking, the subjective devaluation approach has the attraction of making the defendant pay for the benefit in so far as it has improved his position, but it may involve a greater risk of letting the defendant name his price. The choice of benefit approach has the merit of greater simplicity in some cases, but it may be more likely to lead to a defendant receiving what many might regard as a windfall at the expense of the claimant, in circumstances where the defendant would (or, on some views, should) have been prepared to pay for the benefit.
I suspect that in the great majority of cases where unjust enrichment is raised these two approaches will lead to the same result. Indeed, the difference between the two approaches may turn out to be one of procedural analysis rather than outcome, particularly given what Lord Clarke says at para 26 and Lord Reed says at para 138. Whether that is right or wrong, where, as in this case, there is no doubt that the benefit was conferred at the defendant’s request, or with his prior consent, it is hard to see how the two approaches would lead to different results. In particular, on either approach, I do not consider that subjective devaluation would be open to a defendant in a case such as the present, where, in the context of an arm’s length commercial relationship, he voluntarily accepted the benefits, and said nothing to the claimant, before the benefits were conferred, or even while the benefits were being conferred, to suggest that they would be worth less than their market value to him, or that he expected to pay less than market value. This was a case of a claimant conferring a benefit on a defendant who was not merely free to reject it, but who positively encouraged the claimant to provide it, and who did so without ever suggesting that he would not pay the market value, or that the benefit would have limited value to him.
Assuming subjective devaluation is available in some cases, it would, in my view, require a very unusual case indeed before a defendant could rely on subjective devaluation where (i) the services were provided at the defendant’s request or by agreement between the parties, (ii) either the request or agreement failed in some way to have legal effect, or it had no effective basis for quantifying the remuneration to be paid to the claimant, (iii) the defendant never gave the claimant to understand that the services had a lower than market value to him, or that he was not prepared to pay market value for them, and (iv) the claimant never gave the defendant to understand that he expected to be paid less than the market value. I am not prepared to say that subjective devaluation could never be relied on in such circumstances, but, as presently advised, I find it impossible to conceive of a case which includes these features where it could.
Equally, where the defendant can return the benefit, it seems hard to justify a departure from market value, if he chooses not to return it – as in Cressman v Coys of Kensington (Sales) Ltd [2004] 1 WLR 2775. On the other hand, in some other circumstances, most obviously the classic case of an unreturnable benefit being conferred on a defendant without his prior or contemporaneous consent or knowledge, there is obvious force in the argument that, once he has paid the claimant a sum equal to what the benefit is worth to him, the enrichment he has gained thanks to the claimant cannot be unjust. Equally, in some cases, it may often be unreasonable for a claimant to claim a market-based payment, when he has taken the risk of providing benefits to a defendant without the protection of a contract specifying how his remuneration is to be quantified, or where there have been prior discussions and the defendant has indicated that he would not be prepared to pay as much as the market price for the benefit.
It would seem wrong, at least in many such cases, for the claimant to be better off as a result of the law coming to his rescue, as it were, by permitting him to invoke unjust enrichment, than he would have been if he had had the benefit of a legally enforceable contractual claim for a quantified sum. However, I would expressly leave open how far the personal tastes, or even the eccentricities and idiosyncrasies, of a defendant can be taken into account when assessing the subjective value – a point which would be of some potential relevance in this case if subjective valuation had been a maintainable argument – see para 179 above. As a general proposition, I would have thought that the more personal, and in particular the more objectively dependent on personal taste, a particular benefit is, the more powerful the case for giving great weight to the defendant’s particular priorities and preferences. I should add that, not least for this reason, I agree with Lord Clarke and Lord Reed that the expression “subjective devaluation” may not be a happy one.
Subjective revaluation
Of course, Mr Benedetti is not seeking to rely on subjective devaluation in this case. However, it is a step in his argument. Having concluded that (i) the prima facie basis of assessing a quantum meruit payment in an unjust enrichment case is by reference to the market value of the benefits, and (ii) in some cases, it may be open to the defendant to reduce the sum otherwise payable by relying on subjective devaluation, the final question is whether it is open to the claimant in this case to rely on subjective revaluation. In other words, is it open to a claimant, as Mr Benedetti contends it is, to recover more than the market value of the benefits where the value of the benefit to the defendant is greater than the market value of the benefits?
There is a seductive simplicity in the contention that, if a defendant can take advantage of subjective devaluation, then a claimant should be able to take advantage of a subjective revaluation. That is a contention which receives a degree of support from some academic writers. Thus, Virgo acknowledges that subjective revaluation could be said to follow “logically and for reasons of consistency” from subjective devaluation in his Principles op cit p 64. However, in his Restatement, op cit p 158, Professor Burrows says that “[t]he correct view is probably that, without a valid contract, the claimant should not be entitled to an overvaluation”. The same view appears to be taken in Goff & Jones op cit, para 4-11 (and see paras 6.63-6.74), although the arguability of the contrary view is acknowledged.
In my view, while, once again, this is not the occasion to lay down firm rules, I find it difficult to think of circumstances where subjective revaluation would be available to a claimant in an unjust enrichment claim to increase the quantum meruit above the open market value of the benefits he has conferred on the defendant. Even assuming that subjective devaluation is available to a defendant in some cases, it does not follow that subjective revaluation should be available to a claimant, and, if it is, it appears to me that it would be more difficult to establish than subjective devaluation. A closer analysis of the two situations indicates that part of the argument which supports subjective devaluation actually helps negative, rather than support, the case for subjective revaluation.
Where a benefit is conferred on a defendant by a claimant, it would, at least in the absence of special circumstances, be hard to describe the defendant’s consequent enrichment as “unjust” if he pays the claimant the market value of the benefit. Viewing the matter from the other perspective, if the defendant could have gone into the market and purchased the benefit for the sum which he has to pay the claimant, it is hard to see what injustice there could be to the claimant if he cannot claim any more, whichever of the two approaches briefly summarised in para 187 above one adopts.
In many cases where the benefit has a special, higher, value to the defendant, it will by no means be clear that, if the parties had agreed a contractual quantification of the claimant’s remuneration, that factor would have been taken into account. That is particularly true given that one is considering cases where the reason the benefits would have a special value to the defendant would not be known to the market or would not be reflected in the market value – see para 184 above.
It would, at least in general, be surprising if a claimant could obtain more by pursuing an unjust enrichment claim, which can be said to involve the law coming to his rescue because, for one reason or another, he does not have the benefit of a contractual claim, than he would have been likely to receive if he had had the benefit of a legally enforceable contractual claim. This argument, which appears to help to undermine subjective revaluation, is the mirror image of an argument which seems to me to help to justify subjective devaluation – see para 192 above.
A possible exception to the rule that a claimant cannot claim subjective revaluation may be where the defendant has led the claimant to believe that he will be prepared to pay more for the benefits than the market value, and the claimant reasonably and foreseeably relies on that indication. However, the claimant’s case in such circumstances may, on analysis, be said to involve an overlay of estoppel on top of, or even a contractual claim in lieu of, his claim in unjust enrichment.
Even if subjective revaluation is available in some unjust enrichment claims, it seems to me clear that it should not be available in a case such as this, where (i) the Services were provided voluntarily by the claimant with the agreement, or at the request, of the defendant, (ii) the request or the agreement failed in some way to have legal effect, or it had no effective basis for quantifying the remuneration to be paid to the claimant, (iii) prior to the Services being provided, the defendant never gave the claimant to understand that the Services had a higher than market value to him, or that he was prepared to pay more than the market value for them, and (iv) prior to the Services being provided, the claimant never gave the defendant to understand that he expected to be paid more than the market value.
Conclusion on the first issue
Accordingly, in agreement with Lord Clarke, Lord Reed and the Court of Appeal, I conclude that the sum to which Mr Benedetti is entitled by way of quantum meruit, based on unjust enrichment, is €36.3m, rather than the €75.1m determined by the Judge. I would accordingly dismiss Mr Benedetti’s appeal. That means that the cross-appeal must be addressed.
The second issue: the extent to which the quantum meruit should be reduced
The nature of the issue
Mr Sawiris’s case on the cross-appeal is simple. It is that (i) Mr Benedetti is entitled to a quantum meruit of €36.3m for the Services which he provided for Mr Sawiris; (ii) following first closing, he was paid far more than that, namely €67m; (iii) accordingly, even before he began these proceedings, he had received more than he was entitled to; and (iv) therefore his claim should have been dismissed.
That argument was rejected by the Judge on grounds which the Court of Appeal held were open to him. The Judge’s reasoning may be summarised in the following propositions: (i) the €67m was paid to ITM, Mr Benedetti’s company, for “brokerage services” under the revised brokerage agreement; (ii) the scope of those brokerage services under that agreement, as a matter of construction, only covered (what on a view generous to Mr Benedetti was) 60% of the Services (ie the total Services which he provided); accordingly (iii) the €67m included a payment in respect of 60% of the Services; so that (iv) the quantum meruit of €36.3m should be reduced by 60%; resulting in (v) an award of €14.52m, if the €75.1m were left out of account.
Mr Benedetti’s case is primarily that any attempt on the part of Mr Sawiris to attack the Judge’s analysis and conclusion is bound to fail because, properly analysed, it is an appeal against a finding of fact, and, indeed, a finding of fact which the Court of Appeal upheld. I would accept that the Judge’s findings of primary fact should be interfered with only in exceptional circumstances, on the very well established ground that such issues are best left to the trial judge, especially when his conclusions have been upheld by the Court of Appeal. I would also accept that many of the Judge’s inferences from primary fact should not be interfered with for very similar reasons. Thus, if he was right in his conclusion that the revised brokerage agreement should be accepted at face value and that it covered some, but not all, of the Services which Mr Benedetti provided to Mr Sawiris in terms of introducing Mr Sawiris to the possibility of acquiring Wind and negotiating the sale and purchase agreement, then we should not interfere with the conclusion that it covered 60% of the Services. The very fact that this assessment had to be no more than a rough and ready assessment is a good reason for leaving it to the trial judge: having considered, read and heard oral and documentary expert and factual evidence over more than thirty days, he was in a far better position to make such an assessment than an appellate court.
However, that is not the basis on which Mr Sawiris attacks the Judge’s conclusion. He puts his case in two ways. First, he contends that the Judge should have concluded that the terms of the revised brokerage agreement were irrelevant because the payment of €67m was not really attributable to that agreement. Alternatively, he says that, if, as the Judge found, the revised brokerage agreement did apply, then, properly construed, it covered all aspects of the Services which Mr Benedetti provided to Mr Sawiris. I shall consider those two arguments in turn.
Was the €67m attributable to the revised brokerage agreement?
Mr Sawiris’s basic submission under this head is that (i) the €67m which Mr Benedetti was paid had, in reality, nothing to do with any Services he supposedly provided under the first brokerage agreement or the revised brokerage agreement, but (ii) it was a payment which Mr Benedetti engineered for his own benefit as a result of being involved in the acquisition of Wind, and to which he was not entitled, so in these circumstances (iii) Mr Sawiris is entitled to have it taken into account on the determination of how much is to be paid to Mr Benedetti for the Services, and, accordingly, (iv) as the payment exceeds the quantum meruit to which Mr Benedetti would otherwise be entitled to be paid, he should receive nothing.
In this connection, it is necessary to look at the findings which Patten LJ made about the first and revised brokerage agreements and the payment of the €67m in a little more detail. At [2009] EWHC 1330 (Ch), para 334, the Judge described the creation of the first brokerage agreement in this way:
“On 24 March [2005] Mr Benedetti responded to the prospect of Mr Ross’s and IPE’s departure from the transaction by using the opportunity presented by his appointment as director of Weather [Investments] and the transfer of shares to procure two agreements for his own benefit without the prior approval of Mr Sawiris and without disclosing to him or Mr Abdou the fact that he would receive a substantial fee from the transaction. … [T]he payment of a brokerage fee in addition to the shares received under the acquisition agreement was not a term of that agreement or part of the alleged Understanding and … the first brokerage agreement … gave Mr Benedetti the security of a payment out of the transaction that was not dependent on any agreement with Mr Sawiris about the terms of his remuneration or on IPE remaining involved in the transaction so as to give him a return under the … collaboration agreement.”
The assignment of the rights and liabilities of Weather Investments under the first brokerage agreement to Weather Italy was effected, without the knowledge of Mr Sawiris or Mr Abdou, by Mr Benedetti two months later, on 26 May 2005, the day on which the sale and purchase agreement was executed. Accordingly, Mr Sawiris and Mr Abdou were unaware of the existence of a potential contractual claim by Mr Benedetti or his companies until after 26 May 2005.
The first time Mr Sawiris or Mr Abdou had any sort of notice of such a claim was at the end of July 2005, when Mr Abdou received details of all the fees to be paid in anticipation of first closing. This included €87m payable to ITM, which was reduced to €67m as Mr Sawiris thought it was too high. There was a dispute at trial as to the purpose to which Mr Benedetti led Mr Abdou and Mr Sawiris to understand that this money would be put. The Judge reached this conclusion at [2009] EWHC 1330 (Ch), paras 432-433:
“It seems clear … that Mr Abdou …originally understood that the €87m figure was not intended as a payment to Mr Benedetti for his brokerage services but was to be used to discharge his liabilities to third parties. … [Mr Benedetti led] Mr Abdou and Mr Sawiris to believe that the money was to be used to pay third parties who had assisted in the transaction. But … when Mr Benedetti was asked to identify precisely who was going to receive the money he did not answer. …
Mr Sawiris said that this caused him to have doubts about the story that the money was needed to pay third party advisers but that as he intended to reward Mr Benedetti for his efforts and owed him money, he was content to let the €67m be paid and to sort it out later. … Mr Benedetti says that he therefore agreed to reduce the payment from 0.7% (€87m) to 0.55% (€67m). He then arranged for the revised brokerage agreement to be prepared which was identical in terms to the first brokerage agreement except for the fee. [T]his Agreement was executed in July or August but backdated to 26 May.”
Information as to what then happened to the €67m is very limited. At [2009] EWHC 1330 (Ch), para 434, the Judge said that “Mr Benedetti was cross-examined about [the €67m] and accepted that part of the money was spent on items such as antique candlesticks which were used to furnish his office”. He continued by saying that, although “this has a certain resonance with other recent events, there is, as [Mr Benedetti’s counsel] pointed out, no counterclaim for the recovery of these sums on the grounds that they were in some way misappropriated and the issue of expenses is not, I think, ultimately relevant to what I have to decide.”
In the light of the Judge’s conclusions in the passages I have set out above, it seems to me that the argument advanced on behalf of Mr Sawiris on this issue is correct. In summary, the position appears to me to be as follows. (i) The €67m was received by Mr Benedetti, or at least a company wholly owned by him, either for nothing or for the very benefits which he had conferred on Mr Sawiris, namely the Services; (ii) I do not consider that anything which passed between Mr Sawiris and Mr Benedetti calls that conclusion into question; (iii) if the €67m was received for nothing, then, particularly as it was obtained as a result of Mr Benedetti’s involvement with the very transaction for which he provided the Services and for which he claims quantum meruit, it must be set off against that quantum meruit; (iv) if, on the other hand, the sum was received for the Services, then a fortiori it must be set off against the quantum meruit; (v) whether (iii) or (iv) is correct, as the quantum meruit to which he was entitled, according to the Judge’s analysis (as adjusted by the Court of Appeal), was less than the sum of €67m, his claim must be dismissed.
It is appropriate to examine those conclusions in a little more detail.
The Judge’s analysis of the circumstances in which the first brokerage agreement was executed, as quoted in para 207 above, is important not merely because it shows that Mr Benedetti concealed the creation of that agreement from Mr Sawiris. It is also important because it shows that the purpose of the agreement was to enable Mr Benedetti to obtain “the security of a payment out of the transaction” and a payment which “was not dependent on any agreement with Mr Sawiris about the terms of his remuneration” or on any other contingency.
It seems to me very hard to argue against the proposition that this means that the purpose of the first brokerage agreement was to ensure that Mr Benedetti got at least something for the Services he had agreed to provide. There is nothing in the findings of the Judge to suggest that he was envisaging that he would be paid for something different. It is true that the Judge was saying that Mr Benedetti was seeking to insulate himself against the loss of other possible sources of income, resulting from IPE and Mr Ross pulling out, or under the alleged understanding, but that cannot assist Mr Benedetti. IPE and Mr Ross did pull out, and he therefore had no claim to anything in that connection, and, as the Judge found, the alleged understanding never existed.
If the purpose of the first brokerage agreement was not to provide a basis for ensuring that Mr Benedetti was paid something for the Services when a transaction in relation to Wind eventuated, it seems to me that it can only have been a sham document prepared for the purpose of extracting money from the transaction, because, if the “brokerage services” therein referred to were not the Services for which Mr Benedetti should receive a quantum meruit, there seem to have been no other Services to which they could refer.
The next stage is the assignment on 26 May 2005, which was also effected by Mr Benedetti without Mr Sawiris or Mr Abdou’s knowledge. Other than confirming the secret nature of the whole brokerage arrangement, that takes matters no further.
One then gets to late July and early August 2005, when the existence of a possible contractual claim came to light, and the purpose of what was originally the €87m was discussed. It seems to me that Mr Benedetti misled Mr Sawiris as to the purpose of the €87m (which was reduced to €67m in those very discussions). He said that it was to pay third parties, but in my view that cannot be accepted, in the light of the following points, which have particular force, given that the onus must be on Mr Benedetti to establish that the €67m was paid out to third parties: (i) the absence of any reliable evidence from Mr Benedetti as to the identity of the alleged third parties; (ii) the absence of any evidence of any specific payment having been made to any third parties; (iii) the purpose of the agreement as described by the Judge in the passage quoted at para 207 above; (iv) Mr Benedetti’s rejected contention that there was the alleged understanding, which would have entitled him, not third parties, to brokerage; and (v) the Judge’s admittedly laconic finding as to what happened to the €67m, as quoted in para 210 above. Even if (which appears unlikely) any significant proportion of the €67m went to third parties, I find it impossible to accept, on the evidence at trial and on the Judge’s findings, that Mr Benedetti did not retain the lion’s share – ie much more than half, and, crucially, more than the €36.3m to which he was entitled by way of quantum meruit.
I do not consider that the fact that Mr Sawiris may have had doubts as to whether the €67m was going to third parties can possibly assist Mr Benedetti on this issue. It has not been suggested that the €67m was intended to be a gift to Mr Benedetti. In so far as it was not going to third parties as Mr Benedetti had said, it seems to me that the €67m was probably viewed by Mr Sawiris as a payment on account for the Services (and hence he was prepared to “sort it out later”). If that is the right analysis, then one is led straight back to the point raised by the appeal, namely that the correct measure for the quantum meruit is objective market value, not some species of subjectively revalued value.
Apart from the actual payment of the €67m, the only other relevant fact was the execution of the revised brokerage agreement. Neither of these events takes the matter much further, save that the fact that Mr Benedetti found it relatively easy to agree to such a significant reduction in the sum payable under the revised brokerage agreement provides mild support for the notion that it was to be retained by him rather than being payable to third parties.
The Judge decided that the payment of the €67m under the revised brokerage agreement was, in the light of the definition of “brokerage services” in that agreement, partly, but only partly, in respect of the Services supplied by Mr Benedetti. The Court of Appeal agreed with the Judge or at least considered that the Judge was entitled to reach that conclusion. But, as I see it, that approach was wrong because it treated the revised brokerage agreement as representing the basis upon which Mr Sawiris agreed that ITM should be paid €67m. However, in the first place, the Judge had already reached his conclusions described and discussed in paras 213-214 above, which amounted to finding that, giving it the explanation that is the most creditable from Mr Benedetti’s point of view, the revised brokerage agreement, reflecting the first brokerage agreement, was to protect his claim for a quantum meruit. Secondly, although the revised brokerage agreement was a document which, on its face, did justify the payment, the truth is that, as explained and discussed in paras 209 and 213 above, the payment was only authorised and agreed by Mr Sawiris after he had been told by Mr Benedetti that it was to reimburse third parties, whereas Mr Benedetti kept at least most of it, and probably all of it. Thirdly, over and above these two points, I agree with what Lord Clarke says in paras 74-77, namely that, despite the Court of Appeal’s approval, it was, on analysis, inappropriate and arbitrary to apportion the remuneration in the way that the Judge did.
In the Court of Appeal, Arden LJ relied on the fact that there was no counterclaim for the €67m. But I do not see that as a problem. The fact that Mr Sawiris did not allege that Mr Benedetti had been paid too much does not preclude him from contending that Mr Benedetti had, at its lowest, been paid enough to satisfy his quantum meruit claim.
Another point touched on by Arden LJ was that the brokerage agreements were between ITM and Weather Italy, whereas the Services were negotiated, and were treated as being provided, as between Mr Benedetti and Mr Sawiris. I accept that a court must be very wary of treating companies as if they were the individuals who own or control them – see Salomon v A Salomon and Co Ltd [1897] AC 22 and Prest v Prest [2013] UKSC 34, [2013] 3 WLR 1. However, properly analysed, it seems to me that Mr Benedetti and (in so far as he was aware of the involvement, or even existence, of ITM) Mr Sawiris were treating Mr Benedetti’s right to compensation from Mr Sawiris as satisfied by the obligation of Weather Italy, a company owned and controlled to a significant extent by Mr Sawiris, to ITM, a company owned and controlled by Mr Benedetti. That would appear to follow from the Judge’s explanation of Mr Benedetti’s thinking behind the execution of the first brokerage agreement (see para 207 above), and Mr Sawiris’s approach to the payment of the €67m (see para 209 above), as well as being inherent in the 60% reduction to the €36.3m quantum meruit made by the Judge and approved by the Court of Appeal.
Etherton LJ also made the point that the fact that Mr Benedetti had executed the first brokerage agreement, the revised brokerage agreement (and the assignment of the first brokerage agreement) for both parties did not invalidate those agreements. While I agree with that as far as it goes, it does not go very far in answering the points which can, for the reasons given above, be validly made by Mr Sawiris in support of his cross-appeal.
The interpretation of the revised brokerage agreement
The alternative argument raised by Mr Sawiris is that, even on the Judge’s approach, the payment of the €67m was a payment in respect of all the Services which Mr Benedetti had provided. That argument turns on whether the definition of “Brokerage Services” in the revised brokerage agreement extended to all the Services provided to Mr Sawiris by Mr Benedetti.
The expression “Brokerage Services” is defined as meaning “the effecting of transactions of and/or relating to the purchase of and dealing in Securities in the name and for the account of [Weather Italy] as well as the assistance in the negotiation with the prospective seller, raising of acquisition debt and further raising of financial debt for Wind”.
It is said on behalf of Mr Sawiris that the Judge did not make it quite clear in his judgment which aspect or aspects of the Services provided by Mr Benedetti was or were not included in that definition. However, I think Etherton LJ was right at [2010] EWCA Civ 1427, para 160, to say that the Judge “clearly accepted Mr Benedetti’s argument that the definition … did not include bringing the investment opportunity to Mr Sawiris or obtaining the co-operation of the Italian government and the management of Wind”. The question is whether Etherton LJ was right to add this was a “finding [which] cannot properly be criticised”.
I accept that, on a literal, relatively narrow, approach to the definition of “brokerage services”, it would not include introducing Mr Sawiris to the possibility of purchasing Wind, which can fairly be said to be an action which occurred before the activities covered by the definition. However, the revised brokerage agreement must, like any document, be construed contextually, and there obviously is an argument that the definition can and should be interpreted relatively widely to extend to all the Services which Mr Benedetti provided, in the light of the purpose which he had in mind when executing the first brokerage agreement – see para 207 above.
However, the conclusion I have reached on Mr Sawiris’s first argument to support his cross-appeal renders it unnecessary to consider this alternative argument, and I do not think that it is right to decide it. First, the extent of the definition under scrutiny is not a point of any general importance. Secondly, given the somewhat artificial circumstances in which the first brokerage agreement was executed, it is not easy to identify the factual matrix. Thirdly, there could be difficult questions to be resolved – eg (i) is everything in Mr Benedetti’s mind at the time of execution admissible, as he signed on behalf of both parties, and (ii) must the meaning of the terms in the revised brokerage agreement be the same as in the first brokerage agreement. Fourthly, the issue was not the subject of much argument before us.
Conclusion
Accordingly I have reached the conclusion that, in agreement with Lord Clarke and for much the same reasons, I would dismiss Mr Benedetti’s appeal, and allow Mr Sawiris’s cross-appeal. It therefore follows that Mr Benedetti’s claim is dismissed.
Wasada Pty Limited v State Rail Authority of New South Wales (No.2)
[2003] NSWSC 987 (15 December 2003)
JUDGMENT
1 HIS HONOUR: I delivered judgment in this matter on 14 October 2003: Wasada Pty Limited v State Rail Authority of New South Wales [2003] NSWSC 894. At the time of delivering those reasons for judgment I made a declaration that the State Rail Authority of New South Wales was entitled to possession of the land in dispute, and directed that the matter be restored before me, on a date to be arranged with my Associate, for argument about any further orders which might be appropriate.
2 The matter was restored on 30 October 2003, on which date, by consent, I made orders in the following terms:
1. Order that the plaintiff’s summons filed on 30 May 2003 is dismissed.
2. Order that the injunction granted to the plaintiff on 30 May 2003 is discharged.
3. Declare that the defendant is entitled to possession of land situated at and known as 94A Bay Road, Waverton, comprising part of Folio Identifier 3/224574 and Volume 3893 Folio 71 being Lot 1 in Deposited Plan 746295 (the “Land”).
5. Order that the plaintiff deliver up possession of the Land and return the keys to the premises, if any, to the defendant/cross, but so as not to disturb the occupation of the Sub-tenants, namely:
list of sub-tenants]
3 There remained a dispute between the parties about the quantum of mesne profits. I gave directions on 30 October 2003 for the filing of evidence going to that dispute.
4 The matter was further heard on 21 November 2003. By that time, the parties had settled their dispute about the quantum of mesne profits, and I made orders quantifying the amount of mesne profits, and making some consequential orders for payment out of various monies held in a controlled money account pending the determination of the proceedings. I also resolved a dispute about whether costs should be paid on the ordinary basis or on an indemnity basis.
Before the orders had been entered, the solicitors for Wasada wrote to my Associate, on 1 December 2003, asking to have the matter restored for the purpose of requesting that I determine a claim for unjust enrichment which Wasada had made. The matter was restored on 11 December 2003.
6 Mr Hale SC, for Wasada, requested that I give consideration to providing further reasons in relation to Wasada’s claim for unjust enrichment. It was not submitted that any further argument on that topic should be permitted. Though Mr Frawley, counsel for SRA, submitted that no further reasons were required, I ruled that I would deliver such, if any, further reasons as seemed appropriate after I had reconsidered the matter.
The Unjust Enrichment Claim as Pleaded
7 Wasada’s claim went to trial on the basis of Further Amended Points of Claim filed 26 August 2003. It pleaded the making of representations by SRA to Mr Hatton at what was referred to as “the Second Meeting” in June or July 1985 (para [14]), the making by SRA of a representation in October 1986 that the terms of the development proposal in question were acceptable to it (para [16]), SRA’s failure, prior to March 1997, to inform Wasada that a further lease at a rental based on the unimproved capital value of the land would not be granted (para [17]), and that on and from the Second Meeting, each of Wonsana, Wasada and SRA conducted themselves on the basis of the representations set out in para [14] constituting binding terms of their contractual or other relationship (para [18]). The pleading continued:
“19. Acting on the basis of, and in reliance upon, the representations referred to in paragraphs 14 and 16 and the conduct referred to in paragraph 17 above, and the assumptions set out in paragraph 18 above, Wonsana and/or its successor Wasada:
(a) entered into an interim lease with SRA;
(b) prepared, and submitted to North Sydney Council on 21 November 1985, a development application;
(c) prepared, and submitted to North Sydney Council on 3 February 1986, a building application;
(d) prepared and submitted engineering drawings to North Sydney Council;
(e) completed the development described in the Second Development Proposal on 3 March 1988;
(f) entered into a number of sub-lease agreements with the following sub-tenants:
(i) Shop 1 – Peter Hatton;
(ii) Shop 2 – Peter Stevis;
(iii) Shop 3 – Peter Stevis;
(iv) Shop 4 – Moses Quasbian trading as Waverton Meats;
(v) Shop 5 – Tower Taxi Trucks;
(vi) Shop 6 – Tower Taxi Trucks;
(g) incurred expenditure in undertaking and performing the matters referred to in sub-paragraphs (a) to (f);
(h) expended an amount of $115,673.00 refurbishing the garage buildings on the Premises, which amount has since been repaid by Wasada to Wonsana;
(i) expended approximately $210,529.78 in constructing the building on the Premises;
(j) in return for Hilrest Pty Limited, a company controlled by Hatton, contributing an amount of $186,696.00 in constructing the building on the Premises, allowed Hatton to occupy a portion of the Premises rent free from 1988;
(k) expended an additional amount of $67,950.00 in rent paid to SRA between the period 1 November 1984 and 30 June 1988 prior to receipt of any rent from sub-tenants of Wasada at the Premises whilst the 798 square metre building was being constructed and the sub-tenants’ shops were being fitted out.
(l) entered into the Lease registered No. 780254;
(m) forwent seeking other development opportunities and other locations from which to conduct its business.”
8 The pleading then alleged reliance by Wonsana, and Wasada, on the representations and assumed state of affairs as giving rise to an estoppel, and it pleaded the making of the representations and failure to make them good constituted a contravention of sections 52 and 53A(1)(b) of the Trade Practices Act 1974 (Cth), and sections 42 and 45(1)(b) of the Fair Trading Act 1987 (NSW). It then continued:
“38. Further, and in the alternative, in the circumstances set out above, the Defendant has obtained a benefit from the work conducted by the Plaintiff as set out in paragraph 19 above.
PARTICULARS
The Defendant has obtained a benefit in the form of the development of the Premises and the construction of a building thereon, together with a history of commercial rental of those premises and current tenants.
39. The benefit referred to in paragraph 38 above was obtained at the Plaintiff’s expense.
PARTICULARS
The Plaintiff repeats the matters set out in paragraph 19 above.
40. In the circumstances pleaded above, it would be unjust and unconscionable to allow the Defendant to retain the benefit set out in paragraphs 38 and 39 above without making restitution to the Plaintiff.
41. As a consequence of the matters pleaded in paragraphs 38 to 40 above, the Plaintiff [sic] is liable to compensate the Plaintiff for that benefit or unjust enrichment.”
The Reasons for Judgment
9 The reasons for judgment delivered on 14 October 2003 recorded in para 1 that Wasada, “… seeks certain orders for restitutionary relief … connected with the value of buildings which have been erected on the Land.” At para [113], after considering the evidence about the alleged representation at the Second Meeting, I concluded,
“For all these reasons, I am not persuaded that the plaintiff has made out its case concerning the making of the representations which Mr Hatton alleges. When that is so, all the various causes of action upon which the plaintiff sues must fail.”
10 Thus, Wasada’s claim for unjust enrichment had been determined, by a decision that it should fail. Wasada’s submission, on 11 December 2003, was that the failure of the case concerning making of representations does not provide sufficient reason for the failure of the unjust enrichment claim. Wasada submits that its arguments on unjust enrichment were not dealt with by the reasons for judgment of 14 October 2003. I have decided it is appropriate to provide these supplementary reasons.
Wasada’s Written Submissions
11 Wasada’s written submission on the topic of unjust enrichment consisted of the following four paragraphs:
“33. The elements of unjust enrichment are as follows:
(a) that the defendant received a benefit for which it did not pay;
(b) that the benefit was at the plaintiff’s expense;
(c) that it would be unjust for the defendant to retain the benefit without payment.
See, for example: Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd (2002) 55 IPR at [34] per Spigelman CJ; Mason & Carter, Restitution Law in Australia, Butterworths 1995.
34. In Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 – a case which reinforced the notion that an action for recovery lies where there is unconscientious retention of a benefit in reliance on a legal right – Gummow J at para [75], speaking of restitutionary remedies, observed (footnotes omitted):
These remedies do not let matters lie where they would fall if the carriage of risk between the parties were left entirely within the limits of their contract. Hence there is some force in the statement by Laycock:
‘The rules of restitution developed much like the rules of equity. Restitution arose to avoid unjust results in specific cases – as a series of innovations to fill gaps in the rest of the law’.
35. In a claim based on unjust enrichment:
(a) it is not necessary to search for some agreement, promise or representation because it is not founded upon an implied agreement – while facts which might support an implied agreement may be relevant to a claim in restitution, it is not necessary to search for something akin to an agreement or request from which a promise to pay might be applied;
(b) it is not necessary to find some clear, unequivocal representation such as might be required in cases of equitable estoppel.
36. In the present case:
(a) the SRA knew – or a reasonable person in the position of the SRA would have known – that Wasada was undertaking the construction of the building on the premises expecting to remain in possession of the premises for a time sufficient for it to recoup its expenditure;
(b) the construction of the building was undoubtedly of benefit to the SRA and it encouraged Wasada to undertake the works;
(c) the SRA encouraged – both through its conduct and failure to speak – Wasada to believe that the only risk in not being granted further leases on the unimproved value of the land after the expiry of the 10 year lease was if quadruplication were required or the land were required by another department.
(d) at the expiry of the 10 year lease, the SRA was prepared to grant a new lease but only on the basis of rent calculated on the improved value of the land;
(e) in taking this position and the subsequent course of conduct, the SRA unconscientiously and unjustly took advantage of its position to obtain a benefit at the expense of the plaintiff.”
The “Elements of Unjust Enrichment” – paras 33, 34 and 35 of Wasada’s Written Submissions
12 Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd [2002] NSWCA 263; (2002) 55 IPR 542 was a case where architects sought, and failed to receive, remuneration when their building plans were used by a different entity to the one for whom the architects had prepared those plans. Spigelman CJ (with whom Foster AJA agreed) said, at [34],
“… in the absence of proof that it acquired a license to use the plans under the mortgage, it appears that the respondent received a benefit for which it did not pay. However, benefit is not the only element in such a claim. The benefit must be at the appellant’s expense and there must be an element of injustice: see, for example, Mason & Carter, Restitution Law in Australia Butterworths, Sydney, 1995 paras [221], [327] and [226].”
13 The reference to para [327] of Mason & Carter in this quotation is a typographical error, and should, I suspect, be reference to para [227]. (Para [327] deals with tracing, a topic which has no connection with the subject which Spigelman CJ was dealing with.)
14 It would be a complete misunderstanding of this paragraph of Spigelman CJ’s judgment to treat it as stating that a plaintiff has an action in any circumstances where it could be said that the defendant received a benefit for which he did not pay, the benefit was at the plaintiffs expense, and it would be unjust for the defendant to retain the benefit without payment. To treat it that way is to ignore the plain English of his Honour’s statement. When his Honour says, “there must be an element of injustice”, he is not saying that any element of injustice, according to anyone’s standards, will do — he immediately specifies the type of element of injustice he means by referring the reader to the identified passages in Mason & Carter. Para [221] in Mason & Carter is not relevant to the “injustice” element, as it deals with the “at the expense of the plaintiff” element.
15 However, the learned authors said, at [226],
“There is an “unjust enrichment” if there was an element of injustice, unfairness or inequity in the circumstances in which the enrichment was conferred. Alternatively, the conduct by which the defendant seeks to retain the enrichment must be capable of being described as unjust, unfair or unconscionable.”
16 The learned authors continued, at [227]:
“… restitution for unjust enrichments must have a rational – principled – basis. However, because restitution developed so pragmatically (in its quasi contractual era) it is somewhat difficult to formulate legal principles governing injustice in the unjust enrichment concept. But to the extent that these have been developed they may be termed “unjust factors”. “Unjust” is the “generalisation of all the factors which the law recognises as calling for restitution”. Because we need to search for recognised factors, examination of which involves an analysis of case law, the reference to “injustice” as an element of unjust enrichment, is not a reference to judicial discretion. Normal judicial processes are involved and it is only in cases where there is no recognised basis for saying that injustice has arisen that problems can arise.
The mere fact that there is no precedent is not conclusive. One of the principal virtues of the law of restitution for unjust enrichment is to provide a principled means for analysis of such cases. To a large extent, the unjust factors are themselves expressions of policy and policy concerns. Since policy evolves, the list below may not exhaust all the possible bases for a conclusion that an enrichment is unjust. As is explained, compulsion, as a basis for injustice, is one name for a collection of factors. The categories of compulsion are not closed, and further refinement of the concept may occur …”
17 The learned authors then go on to give examples of recognised categories of injustice which give rise to a claim for unjust enrichment, categories such as mistake, compulsion, and total failure of consideration.
18 The existence of these categories of situation, in which retention of a benefit is recognised by the law as being unjust, is fundamental to the operation of the law concerning unjust enrichment. “Unjust enrichment” is not a cause of action, but rather,
“a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case.”
Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 256-257; David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 378-379; Hill v Van Erp (1997) 188 CLR 159 at 239.
19 One of the recognised categories where there can be an obligation to make restitution is that involved in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, described by Deane J at 256 as “circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement”. In the present case, the SRA has received a benefit, namely that at the termination of the lease term and holding over period it received back premises which were developed, and tenanted. Further, that is a benefit which has been received at the expense of either Wasada or Wonsana. However that this happened was a consequence of Wasada’s obligation to yield the premises up, and the ordinary operation of the law of fixtures at the termination of the lease term and holding over period – the building was a fixture on the lessor’s land, and so the lessor had title to it and an immediate right to occupy it at the end of the lease term and holding over period. That SRA received that sort of benefit, in those circumstances, fits within no recognised category of injustice. No argument was put that some new category should be recognised to accommodate the facts of the present case.
20 Wasada’s submission that Roxborough “reinforced the notion that an action for recovery lies where there is an unconscientious retention of a benefit in reliance on a legal right” may well be correct (provided that it is recognised that the word “unconscientious” refers to being unconscientious in accordance with established legal standards), but of no help to Wasada in the present case. As a matter of binding authority, Roxborough does not apply to the present case, because Roxborough is a case concerning recovery of money paid where there was a partial failure of consideration. The present is not a case concerning recovery of any money paid. No attempt was made to argue that there was some way in which Roxborough could be applied by analogy, as a persuasive precedent. I recognise that there may be some scope for such an argument, particularly arising from Gummow J having in that case given a detailed examination of the way in which equitable notions of property which in justice and equity belongs to a plaintiff influenced the common law action for money had received. Yet if I were now to look for analogies to equitable rights, and seek to apply them in the present context, the only candidate which comes to mind is an equitable right arising by estoppel. Yet it is precisely that equitable right which I have already held does not exist.
21 The remark quoted by Gummow J in Roxborough that “restitution arose to avoid unjust results in specific cases — as a series of innovations to fill gaps in the rest of the law” is consistent with the way that a particular category of situation in which retention of a benefit is recognised as unjust must exist before a claim based on unjust enrichment can succeed.
22 I accept the proposition contained in paragraph [35] of Wasada’s written submissions. In saying that, however, I also bear in mind that “unjust enrichment” is not itself a cause of action, but rather an explanatory concept. Thus, a claim is “based on unjust enrichment” when it seeks to remedy an unjust enrichment. One needs to look to other legal standards to find out what is an unjust enrichment. Saying what is not a necessary element of unjust enrichment is not advancing the explanation of what is an unjust enrichment very far.
23 Wasada’s Further Amended Points of Claim failed to identify and plead facts which give rise to any recognised category of injustice which can lead to a restitutionary remedy. Nor did it identify facts which were argued, by the ordinary processes of legal reasoning, to give rise to a new category. Wasada’s case on unjust enrichment therefore had no proper conceptual foundation. It was an appeal to the “justice of the case”, said to arise from certain factual matters which were not fitted into a recognised conceptual framework. The approach I took in my earlier reasons for judgment was to not point out the legal incoherence of Wasada’s claim for unjust enrichment, but to regard as a sufficient reason for rejecting it that its factual basis was not made out.
Para 36 of the Written Submissions – The Factual Basis
24 I reject the proposition in paragraph [36(a)] of Wasada’s written submissions, to the extent that it identifies Wasada as being the person that SRA knew was undertaking the construction of the building. As set out in my earlier reasons for judgment, construction of the building took place during a time when the site was occupied by Wonsana under an Agreement to Let or Take, which made Wonsana a tenant from month to month (paras [27]–[28]), construction took place over the period March 1987 to March 1988 (para [55]), the first notification to the SRA of Wasada having any interest in the matter was by Philip Fox’s letter of 7 August 1987 (para [59]), the lease to Wonsana was not executed until 7 June 1988, and it was on 6 June 1988 that Wonsana, Wasada, and the SRA entered a Deed of Covenant and Consent which related to the transfer of the lease (para [61]). I would, however, accept that the SRA knew, or a reasonable person in the position of the SRA would have known, that whoever it was that was undertaking construction of the building expected in some way to be able to recoup their expenditure.
25 But, the proposal put forward by Mr Sprague in his letter of 26 April 1985 (para [19]) and Mr Bugden’s letter to the SRA of 19 March 1987 (para [49]) gave the SRA no reason to believe that whoever was spending the money in erecting the building was not expecting to be able to recoup it within the 10 year term of the lease. Nor was there any other communication which gave SRA reason to believe that whoever was erecting the building was not expecting to recoup it within the 10 year term.
26 As well, Wasada’s case was (understandably) not put on the basis that the mere fact that, as things turned out, Wasada failed to recoup its expenditure over the ten-year term of the lease would make it unjust for the SRA to keep the value of the improvements at the end of the lease without making some payment to Wasada for the shortfall. There was an express contractual promise in clause 9 of the lease requiring the Lessee to yield up the premises “at the expiration or sooner determination of the term”. The Deed of Covenant and Consent made on 6 June 1988 (my earlier judgment para [61]) bound Wasada to that covenant. In circumstances where there had been no representation which qualified or vitiated that covenant, and no other circumstances which qualified or vitiated the covenant, it could hardly be unjust for Wasada to be required to perform it. Further, it is not as though Wasada in fact had only a ten-year term in the premises, at a rental below a market rental for the improved premises – the lease expired on 28 February 1996, but a notice to quit was not issued until 22 April 2003, expiring on 31 May 2003 (para [74]). Further, the question of whether Wasada had actually recovered its costs is not one which was pleaded, nor was it squarely addressed in the evidence as a topic to be litigated rather than mentioned in passing.
27 I accept the propositions in paragraph [36(b)] and (d) of Wasada’s written submissions.
28 However I do not accept the proposition in paragraph [36(c)]. The only basis on which it could be alleged that “SRA encouraged … Wasada to believe that the only risk in not being granted further leases on the unimproved value of the land after the expiry of the 10 year lease was if quadruplication were required or the land were required by another department”, is if Wasada’s case concerning the representations alleged to have been made by the SRA were accepted. For the reasons given in my earlier judgment, I do not accept it. Thus a fundamental part of the factual basis on which Wasada put its restitutionary case is not made out.
The Oral Argument
29 Consideration of the oral argument presented does not lead to any different conclusion. Mr Hale SC took me to paras [226] and [227] of Mason & Carter, Restitution Law in Australia, the paragraphs quoted above which deal with the “injustice” element in a claim based on unjust enrichment.
30 Those passages in Mason & Carter led to the following exchange in submissions:
HIS HONOUR: But what they say is you need to fit yourself into a category, [of] which they give examples.
HALE: And there are a variety of categories and it must be said they are categories which are not suggested to be exhaustive, but from our point of view it would have been better if we could —
HIS HONOUR: Do you accept you don’t fit within a recognised category?
HALE: We fit in parts of categories. For example one can see it in terms of mistake for example. What we do is we build the building, confer the benefit on the State Rail Authority and to our detriment because of our belief and understanding the arrangement is that we will get a further term. Or put another way, the duress that is ultimately involved in having the State Rail Authority having acquired the benefit because we have expended the money to construct the building, they are saying unless you pay a commercial rent then you will be required to vacate the premises, but ultimately one concentrates on the facts of this case in the context of the three principles.
Here there is a building that the State Rail, assuming our submissions as to facts is correct, the State Rail Authority gets a building which it didn’t pay for which we paid for, the building having been constructed upon the assumption that we will get 25 year lease, rental being paid at the unimproved value.
Now, on any view of it, certainly on our case, the State Rail Authority achieved a significant benefit in bricks and mortar and that benefit is not only the benefit of having a building which it can now rent out to other parties at as commercial rent, it’s a benefit in that the site had been cleared, a problem site had been cleared up by the plaintiffs as part of this particular arrangement and in the expectation it would receive leases up to twenty-five years on the basis I have mentioned, undoubtedly it was the expense, it was a benefit that the State Rail Authority obtained or would obtain at our expense.”
31 At the risk of some repetition, two observations can be made about this submission. The first is that the pleading in the Further Amended Statement of Claim did not plead any of the recognised categories of injustice which leads to a restitutionary claim, such as mistake or duress. Rather, by the harking back to paragraph [19] of that pleading, it incorporated a reference to the representations which had been pleaded.
32 The second matter is that the factual matters which Mr Hale SC pointed to, as founding injustice, were all dependent upon the plaintiff having a belief, understanding or expectation that it would obtain a 25 year lease. No basis for that belief, understanding or expectation was put forward in the case, apart from the representations alleged to have been made to Mr Hatton. I have held that I am not persuaded that the plaintiff has made out its case concerning the making of those representations.
33 It is for these reasons that the failure of the plaintiff to make out its case concerning the representations means that its restitutionary claim failed.
34 No further orders are called for in the case, and there is no reason why the orders already made should not be entered.
Goodman v. Minister for Finance
[1999] IEHC 197; [1999] 3 IR 356 (8th October, 1999)
Judgment of Ms. Justice Laffoy delivered on the 8th day of October, 1999.
THE RELIEF CLAIMED
1. Each of the Plaintiffs claims a declaration of entitlement to interest as and from 29th July, 1994, on the costs payable under Orders dated 29th July, 1994, made in favour of each at the conclusion of the Tribunal of Inquiry which has become known colloquially as the Beef Tribunal. Further, each of the Plaintiffs claims an order for payment of such interest as and when the same is determined.
…
UNJUST ENRICHMENT
48. Counsel for the Plaintiffs took as a starting point for their argument that the Plaintiffs are entitled to interest on the costs under the doctrine of unjust enrichment, the passage from the judgment of McCarthy J. in Cooke -v- Walsh , which I have quoted above, which they pointed to as establishing that a broad principle of equity underlies the entitlement of a party to interest on costs awarded to him in legal proceedings. They argued that the Plaintiffs are entitled to invoke this equitable principle to found their claim for interest on the costs to which they are entitled by virtue of the Orders of the Tribunal, because the basis on which they were awarded costs in the Orders was on a party and party basis, that is to say, on an indemnity basis. They also pointed to the fact that it was recited in the Orders of the Tribunal that it was equitable that the Defendant should pay their costs as provided for in the Orders.
49. Counsel for the Plaintiffs advanced two formulations of the Plaintiffs’ entitlement to interest on the basis of a restitutionary action. The first is based on the fact that the Plaintiffs have discharged the whole of the disbursements and most of the solicitor’s instruction fee on account, which is not disputed by the Defendant, and have been at the loss of these monies. The Defendant, on the other hand, whom they contended has been under a legal liability to discharge the costs since the date of the Orders of the Tribunal has had the benefit of the monies. It is unjust in those circumstances that the Plaintiffs should have to bear the loss. On the authorities, they argued, in such circumstances the party who has had the benefit of the monies is required to compensate the party who made the payment. The second is based on the fact that the Plaintiffs were under an obligation to discharge the costs and they have done so. Thus the Plaintiffs have discharged a liability imposed on them but it is a liability which they are entitled to recover from the Defendant. Under the principle enunciated in Moule -v- Garrett, [1872] L.R. 7 Ex 101 to which I will refer later, the Plaintiffs contended that they are entitled to recover from the Defendant because under compulsion of law they have paid money for which the Defendant is ultimately liable. The existence of a restitutionary cause of action for the primary amount carries with it a right to interest.
50. In their submissions, Counsel for the Defendant rejected the proposition that an entitlement to interest arises under the doctrine of unjust enrichment. They put the provisions of the 1979 Act into their historical context. Before the enactment of the 1979 Act, a person who was authorised to be represented before a Tribunal of Inquiry had no entitlement to be indemnified in respect of his legal costs by any other person. Section 6 of the Act of 1979 empowered a Tribunal to make an Order for costs but it did not empower a Tribunal to make provision for the payment of interest on the costs. It would be inappropriate, it was submitted, to invoke the ill-defined doctrine of unjust enrichment to alter the statutory regime embodied in the Act of 1979. In any event, it was submitted on behalf of the Defendant, the circumstances which prevail in the instant case do not come within the doctrine of unjust enrichment. The common thread running through the authorities relied on by the Plaintiffs, it was urged, is the existence of a wrongful act or omission by the party required to make restitution. In the instant case, the Defendant is obliged to pay the costs not in the context of the righting of a wrong, but in the context of a statutory provision which provides for a type of ” quasi legal aid .” The costs alone could not be the subject of a restitutionary claim. While the Defendant has had the benefit of the monies, he is entitled to retain the monies until the taxation process is completed.
51. Before considering the authorities relied on by the Plaintiffs, I think it is useful to call to mind the comment made by Keane J. in O’Rourke -v- The Revenue Commissioners [1996] 2 I.R. 1 at page 18 that, as in other common law jurisdictions, the doctrine of unjust enrichment has been developed in this jurisdiction incrementally on a case by case basis, so as to ensure that a vague and unchartered area of the law in which “palm tree justice” flourishes is not judicially encouraged.
52. Chronologically, the earliest authority relied on by the Plaintiffs is the decision of the Supreme Court in East Cork Foods Limited -v- O’Dwyer Steel Company Limited There, a plaintiff had settled his personal injuries action in the High Court against the two defendants for £25,000 and the issues between the defendants were tried by the trial judge, who apportioned blame between the first named defendant and the second named defendant on a 20%/80% basis. On appeal to the Supreme Court, that Court found the first named defendant 100% at fault. On foot of the Order of the High Court, the second named defendant had contributed £20,000, being 80% of the agreed damages, to the first named defendant. The issue was whether the first named defendant should repay the sum of £20,000 to the second named defendant together with interest, or, alternatively, a sum for loss of profit.
53. As to the basis on which the second named defendant was entitled to a return of the sum of £20,000, Henchy J. stated as follows at page 108-109:-
“…it was paid in compliance with what was then a real legal liability and not a mistaken one. The second defendant rightly considered itself to be bound by the High Court order. As that order has now been reversed, it is no longer binding on the second defendant. In those circumstances, the rule to be applied is that which was adopted by Cockburn C.J. in Moule -v- Garrett at p.104 of the report:-
‘where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount’.”
54. The claim for interest was made under section 53 of the Act of 1840 and failed for non-compliance with the formalities stipulated in that section. In dealing with the claim for loss of profit, Henchy J. analysed what had happened when the second named defendant paid the monies to the first named defendant in the following passage at page 111:-
“The second defendant should never have been required to pay the money. It was the unjustified claim of the first defendant for contribution that induced the incorrect order under which the money was paid over. When that order was made and the money was paid on foot of it, the first defendant was entitled to treat the money as rightfully its own. But when the second defendant served a notice of appeal, the first defendant should then have known that, unless and until the appeal was determined in its favour, it was not entitled to treat the £20,000 as being its own as of right. The first defendant should have been cognisant of the risk that at the end of the day the whole (or at least some) of that money might be held by this Court to be the property of the second defendant. Fair dealing and common sense should have told the first defendant that it had a fiduciary responsibility in regard to the money. In the event, it has been held that the first defendant was not entitled to be paid any part of the £20,000, so the law must treat that defendant as a constructive trustee of the whole of that sum for the second defendant.”
55. Later in his judgment, at page 112, Henchy J. considered the consequences of the sum of £20,000 having been held by the first named defendant as a constructive trustee in the following passage:-
“It would be manifestly unconscionable for the first defendant to retain a profit made by it on the £20,000 at the expense of the second defendant . That the law will not allow a person to become unjustly enriched in such fiduciary circumstances ( Phipps -v- Boardman ) is made more understandable when it is remembered that the first defendant has now been held to have been solely at fault for the accident. In those circumstances it would be clearly unjust if the second defendant, which was in no way at fault for the accident, was to be left at a loss through not having the use of the £20,000 while the first defendant, which was solely at fault, was to be allowed to retain all the profit it had made through having the use of the £20,000. In such circumstances the order in favour of the second defendant should be as fully restitutive as the justice of the case will allow.”
56. The claim for loss of profit did not succeed because there was no evidence that the second named defendant made a loss or that the first named defendant made a profit. What is interesting is that, if the second named defendant had been awarded an accretion to the sum of £20,000, it would have been on the basis that it was part of the measure of damages to which he was entitled in order to achieve restitution, and the basis of his entitlement to restitution was that the first named defendant was at fault in securing the payment of the sum of £20,000 to itself and held that sum as a constructive trustee.
In Folens -v- Minister for Education [1984] I.L.R.M. 265 McWilliam J. allowed a claim founded on quasi contract for the profit to which the plaintiff was entitled for carrying out work on the production of a children’s encyclopaedia in Irish for the Department of Education. In relation to the plaintiff’s claim for interest on the sum payable from the date by which it should have been paid, McWilliam J. stated as follows at page 272:-
“On the first point, I have been referred to the case of East Cork Foods -v- O’Dwyer Steel [1978] I.R. 103…[Henchy J.] indicated that there could be circumstances, as where a defendant had made a profit out of the money that was not paid and a plaintiff had made a loss, in which interest could properly be payable. Where sums of money are being considered it seems to me that a person usually either invests his money and makes a profit or is relieved from having to borrow money and so saves having to pay interest on borrowed money. Either way, the plaintiff in the present case must have suffered from the loss of interest or the use of the money unless it can be suggested that the money would have been put in the proverbial ‘stocking’. Accordingly, it seems to me that, in a court of equity, interest should be allowed on a transaction such as the present.”
57. In that case, interest was allowed as part of the measure of the plaintiff’s measure of damages in quasi contract.
58. The next authority relied on by the Plaintiff is Private Motorist Protection Association Limited -v- Private Motorist Provident Society Limited , in which an unreported judgment was delivered by Murphy J. on 27th June, 1994. That case was decided at a time when both the plaintiff company and the defendant society, which were closely related, were in liquidation. What was at issue was the amount of interest, if any, which should be paid to the plaintiff on monies which had been paid by the plaintiff to the defendant on foot of a transaction which was ultra vires the plaintiff and void. Having quoted the last passage of the judgment of Henchy J. in East Cork Foods -v- O’Dwyer Steel , which I have quoted earlier, Murphy J. stated that the reality of the case before him was that the defendant had never received any proper title to the monies and necessarily held the monies in a fiduciary capacity and would therefore be accountable for any profit made thereon, if appropriate evidence to that effect were available. However, the basic right of a beneficiary in such circumstances was to “the Court rate” on his money. Murphy J. rejected an argument that the plaintiff was entitled to some more advantageous rate of interest than the Court rate, which he described as ” a sum awarded or allowed by way of restitution independently of the efforts of the parties and, of course, free from any element of risk”.
59. The last authority relied on by the Plaintiffs is O’Rourke -v- The Revenue Commissioners . The facts in that case were that in each year from 1979/80 to 1987/88 the defendants had received sums which had been deducted from the plaintiff’s salary on the basis that he was taxable under Schedule E rather than under Schedule D of the Income Tax Act, 1967, which resulted in an agreed overpayment to the defendants of £23,139, which sum was refunded to the plaintiff on 23rd June, 1989. The issue on the Circuit Appeal was whether the plaintiff was entitled to interest on the sums which had been deducted up to 23rd June, 1989 and, if so, at what rate. In his judgment, Keane J. stated that it was important at the outset to identify the basis in law on which the sum of £23,139 was repaid by the defendants to the plaintiff. As to the consequences of one possible basis he stated as follows at page 9:-
“If, however, the plaintiff was entitled as a matter of law to the repayment of these sums as and from the time when they were deducted from the payments made by the Department of Social Welfare and transmitted to the defendants, then it would seem to follow inevitably that the defendants were unjustly enriched at the expense of the plaintiff and that the plaintiff is entitled to be paid a sum which fairly represents the extent of that unjust enrichment. The obvious measure of the unjust enrichment is the interest which would have accrued on the monies withheld, although the actual rate to be applied is another matter.”
60. Later in his judgment, at page 18, Keane J. found that such indeed was the basis on which the repayment was made to the plaintiff in the following passage:-
“I am satisfied that where a person has deducted sums from monies paid to another person purportedly under the PAYE system and transmitted them to the Revenue in circumstances where the Revenue are in the result overpaid, the person affected is entitled as of right to the repayment of those monies, even where the deductions have been acquiesced by him without protest. It follows that, in the circumstances of this case, the defendants were unjustly enriched as a result of the retention by them of these monies and that the measure of the plaintiff’s loss is the amount of interest which the money might have earned, had they not been withheld.”
61. Keane J. went on to hold that neither the overdraft rate nor the deposit rate of interest was appropriate and that the appropriate rate of interest was the Court rate.
In O’Rourke -v- The Revenue Commissioners Keane J. followed the decision of the House of Lords in Woolwich Building Society -v- Inland Revenue Commissioners [1993] AC 70. Having quoted from the speeches of the majority in the House of Lords what he considered to be the essence of the decision in the case, Keane J. went on to state on page 13:-
“It seems to me that, if the law as laid down in those passages is also the law applicable in Ireland, the tax overpaid by the plaintiff was recoverable as a matter of right. It would follow automatically from that conclusion that the plaintiff was entitled to interest so as to compensate him for the unjust enrichment effected at his expense by the defendants. I do not consider that any meaningful distinction can be drawn in this context between tax paid under a regulation subsequently found ultra vires, as in the Woolwich case, and excessive amounts paid by a tax payer because the taxing authority has misconstrued a relevant statute or regulation, which is the position here.”
62. The rationale of the decision of Keane J. was that the tax in question was paid to the Revenue Commissioners under a mistake of law and was recoverable as a matter of right and the plaintiff was entitled to interest on it as part of the measure of his damages.
63. While, in my view, it is unnecessary for present purposes to consider the theoretical basis on which the principal monies with interest or loss of profit were, or subject to the proofs being in order, would have been recoverable in the foregoing authorities, even a superficial analysis of them reveals that in all of them the party against whom the claim for restitution was made had received the monies or retained the monies in issue in circumstances which involved unconscionable conduct or wrongdoing in the broadest sense of that word: in circumstances in which he was under an obligation to repay or pay the monies to the claimant but he had not done so, so that the monies were thereafter held by him in fiduciary circumstances. The entitlement of the party claiming restitution to loss of profit or interest arose as part of the measure of his damages on his claim for restitution.
64. In my view, there is no way in which the principles to be derived from the authorities can support the Plaintiffs’ claim for interest. By virtue of the Orders of the Tribunal made on foot of the power conferred by section 6 of the Act of 1979 the Plaintiffs have an entitlement to and the Defendant has an obligation to pay costs on the basis stipulated in the Orders as taxed by a Taxing Master of the High Court. There is no other basis whatsoever on which the Plaintiffs are entitled to or the Defendant is obliged to pay the Plaintiffs’ the costs or any of them. The Defendant’s liability is for costs “as taxed”. The process of taxation is ongoing. It is a process which the Defendant is entitled to exhaust by initiating a review before the Taxing Master, a review in this Court and an appeal to the Supreme Court, in the quantification of his liability. Until the taxation process is completed and the liability of the Minister is quantified by the issue by the Taxing Master of a certificate of taxation, there is no wrongdoing or unconscionable conduct involved in the failure of the Defendant to pay the costs and there is no basis on which he could be regarded as holding the monies in question in fiduciary circumstances or circumstances in which he is unjustly enriched at the expense of the Plaintiffs. Apart from the Defendant’s liability on the interim certificate of taxation, which I understand has been discharged, no liability has arisen to pay the costs to date. It follows that no question arises of the Defendant being unjustly enriched and there is no basis on which the Plaintiffs are entitled to interest as part of a restitutionary claim.
DECISION
65. The Plaintiffs have failed to establish an entitlement to interest on any basis and their claim is dismissed.
Dun Laoghaire Rathdown County Council v Shackleton
RESPONDENT
Ex-tempore Judgment of the Court delivered the 17th day of June, 2002 by Keane C.J.
This is an appeal from a judgment and order of the High Court (Mr. Justice O’Sullivan), in which he granted an interlocutory injunction restraining the first named defendant to the proceedings, that is Mr. John R. Shackleton, a property arbitrator, from proceeding to hear and determine the compensation claim of the second named defendants Jackson Way Properties Limited, arising from the compulsory acquisition of part of its land for the South-eastern motorway, including injurious affection to its retained land, pending the final report by the sole member of the tribunal of inquiry into certain planning matters and payments affecting the lands of the second named defendants at
Carrickmines in the County of Dublin, that is Mr. Justice Flood, until the trial of this action in the meantime. This order was made subject to a proviso that, in the absence of agreement between the plaintiff and the second named defendant, arrangements should be made for the assessment of the compensation admittedly due by the plaintiff to the second named defendant, counsel for the first named defendant having indicated that he would be prepared to make an interim award in that regard, that is the arbitrator having indicated that he would be prepared to make an interim award.
I am satisfied that this is an interlocutory injunction which should never have been granted. It is, of course, the case that the High Court enjoys a power to grant an interlocutory injunction preserving the status quo, pending the determination of the action where it is satisfied that there is a fair question to be tried and that the balance of convenience points in favour of the injunction being granted. That, of course, all rests on the premise that the plaintiff in the proceedings have not merely, one might say, an arguable case, that test would now, I think in modern conditions, be regarded as setting the threshold at a somewhat low level, but that there is a fair question to be tried between the parties.
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I am satisfied in the present case that the plaintiffs have entirely failed to show that there is any question to be tried between the parties in these proceedings, in the manner in which they have framed their proceedings. It is a little difficult to categorise them at this stage, because quite remarkably they have never proceeded beyond the plenary summons stage. The plenary summons was certainly issued some time ago, I think in January of this year at the latest. So one has to spell out what their claim is from the plenary summons itself, which claims a variety of reliefs from the notice of motion and the affidavits and indeed from the submissions of counsel both to the High Court and this court.
Their cause of action is given the generous title of unjust enrichment and that of course, is well known to be a somewhat generous and somewhat necessarily, perhaps imprecise phrase that has become more usual in the law than it once was. That is not to say, of course, that such a cause of action does not exist, it undoubtedly does exist and in a large part it has been formulated by the courts it would be correct to say in order to get rid of the old fiction that, where it was inequitable for somebody to retain money because in the particular circumstances it would be unjust and inequitable that they should retain money which belonged to another person, the courts invented the fiction of an implied promise to repay and an implied contract between the parties. In this
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jurisdiction since the well known judgment of Mr. Justice Henchy in the East Cork Food case, the courts have departed from that and as I have said in such cases where the doctrine is appropriate it should be treated for what it is, as an unjust enrichment claim.
Nothing of the sort arises here, because one begins with the stark fact that not merely has the been no payment of any money by the plaintiff/local authority to the defendants: on the contrary, they have ensured that there would be no such payment by issuing these proceedings and obtaining an interlocutory injunction to restrain the arbitrator from proceeding with the arbitration. This is, in circumstances where they accept that they have served a notice of entry, as they are perfectly legally entitled to do, and are in possession of the land. So this arbitration, which they themselves say is concerned with a claim for the largest sum of money in respect of any of the land which they have required for the purpose of this motorway, they seek to hold up at least until the trial of the action and, as originally envisaged, until the tribunal presided over by Mr. Justice Flood shall have delivered its report. That is on the basis that the tribunal in question, which I shall refer to as the Flood Tribunal, issued or made a statement to this effect:
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“the tribunal has received information to the effect that substantial monies were paid to elected members of Dublin County Council by and on behalf of Paisley Park Investments Limited and/or Jackson Way Properties Limited [the second named defendants] for the purpose of securing the rezoning of lands at Carrickmines being the land comprised in Folio 4940 County Dublin prior to the making of the 1993 Dublin County Development Plan and the current Dun Laoghaire Rathdown Development Plan. The tribunal is inquiring into this matter pursuant to paragraph AS of its terms of reference.”
That is the only factual basis for the claim, not that the defendants have been unjustly enriched, because they have not received any compensation, – on the contrary, their land has been taken from them and the plaintiffs are in possession of it – but for the allegation that at some time in the future when the Flood Tribunal reports if the Flood Tribunal concludes that in its opinion this indeed has taken place, at that stage, not that that matter will have been determined against the second named defendants in any judicial sense, because it will not have been, but that there will then or may be evidence in existence which would entitle them to make a claim that the defendants had been unjustly enriched.
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I think it is not overstating matters to say that, reduced to simple language, that means that there is not, in legal terms, a scintilla of evidence in existence that the defendants did anything improper in relation to the rezoning of these lands. Yet, it is on that basis that the plaintiffs sought and indeed, obtained an interlocutory injunction in the High Court and I am satisfied that they obtained it in circumstances where there was simply no cause of action demonstrated to the court. One does not create or establish a cause of action by saying that in the future, dependent on certain contingencies, dependent on evidence which is not now available to me but which I think may, at some time in the distant future be available to me, I may be able to establish a claim of future, even at that stage, future, unjust enrichment. That provided no cause of action of any sort. It is not a case of there being a fair question to be tried: on that view of the matter there was no question to be tried.
It also appears, remarkably enough, that if the plaintiff’s claim is correct, well founded in the factual sense, that is, if the rezoning was improperly obtained by the defendants, the consequences, far from the defendant’s claim for compensation being increased, would be that it would be actually reduced, in the events that have happened, because it is quite clear that this is a claim, for the value of land taken for the purposes of the motorways, some 22 acres I think. In relation to that, of course, it would be assessed on the basis of both
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the rezoning of the Northern lands for industrial use and the existing zoning of the Southern lands for agricultural use and, to that extent the amount of compensation would be increased. There is also a very substantial claim for injurious affection and of course, Mr. O’Neill on behalf of the defendants accepts that he has to establish that claim. He has to establish that there would have been some prospect of residential development on all of these lands previously zoned agricultural and he would hope to establish that and establish a claim for injurious affection but of course he would have to set off against that the value of the lands zoned for industrial development, which have an actual value and in the result, if anything, his compensation would be reduced in value. That certainly appears to be the position and of course, in saying that I do not say in any way what the arbitrator, and that will be a matter for him, decides in relation to all this. This court can only decide the matter as the High Court could only decide the matter on the basis of what the evidence is and that is certainly the evidence of the valuer retained by the defendant and it is the only evidence as to value which was before the High Court or this court.
Of course, the court using its common sense would know perfectly well that agricultural land solely used for agricultural purposes would have the lowest value of all virtually in the greater Dublin area and that residential use or industrial use would of course, be a very significantly higher valuation that
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lands zoned for agricultural purposes only. Some attempt was made to suggest that the plaintiff county council were prepared to approach the matter on the basis that the Northern lands – the lands the subject of the Flood Tribunal Inquiry, if I can put it like that, as to a possible improper procurement of a rezoning to industrial use-the arbitration could be approached on the basis that those lands should be treated as zoned agricultural and that the arbitration could proceed on that basis.
If that offer were being genuinely and bona fide made by the county council, then if the valuer on behalf of the defendants is correct, it would mean to that extent an increased value in the land because the lands would no longer be zoned industrial and, on that view, they would have a lesser residual value. But when one looks at what was actually said at the High Court – and this was said for the first time in the High Court, as Mr. Collins on behalf of the plaintiff concedes – what was said was that it was solely agricultural value which the county council were prepared to agree to at that stage. A valuation could take place solely on the base of agricultural value and the plaintiffs would concede, if concession is the right word for this, that the defendants would be entitled to be paid that amount but no more. Now that is apparently as recorded, the submission in the High Court. But it is sufficient to say that whatever approach was being adopted and that appears to have been the approach
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adopted at the eleventh hour by the plaintiff county council, no such indication was given at any stage prior to the hearing in the High Court. One only has to read the plenary summons, the affidavits and the correspondence, to know that the county council were seeking to restrain that payment of any money whatever, to the defendants until such time as the Flood Tribunal had reported on these lands. It is accepted that no one knows how long that is going to take. The tribunal has been sitting as a matter of public record for quite some time now. It is likely to continue sitting for quite some time and it was in that time framework, and that time framework alone, that the plaintiffs were putting forward their claim that the entire of the arbitration and the payment of every penny to which the defendants are entitled, their, land having been taken from them, should on this flimsiest of factual basis, as matters now stand, be put off for that indefinite period of time. The attempts of the plaintiffs to try to mitigate the extremely unjust and inequitable consequences of that approach appear to have found favour with the learned High Court judge. They do not find any favour with me. I am satisfied that, not only should the interlocutory injunction never have been granted, but on the factual and legal basis put forward there was no justification for the issuing of the proceedings in the first place.
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I would allow the appeal and substitute for the order of the High Court judge an order dismissing the claim for an interlocutory injunction.
Coughlan v Moloney and Wife
Supreme Court of Judicature.
Court of Appeal.
19 April 1905
[1905] 39 I.L.T.R 153
Lord Ashbourne C. Walker Holmes L.JJ.
Palles, L.C.B.—The statement of claim is properly framed, and under it the plaintiff could have recovered, either on the special contract, if he had given evidence that it had been fulfilled, or upon the indebitatus count, if the law entitled him to recover on an indebitatus count. As to the special contract, there were three matters in controversy with regard to its terms. First, the question of price; secondly, the question of time; and thirdly, the question of the extent of the subject-matter of the work which was to be included in the contract. All these questions were left to the jury, and the jury found each of them in favour of the defendants. There was evidence to support each of these findings, and we cannot go behind the answers of the jury to these questions. In the result, then, what was it? A contract that before Christmas, 1902, the work deposed to by Mrs. Maloney should be performed by the plaintiff for £200. There was no provision for payment by instalments; therefore, the legal result was that the money was not to become due until complete performance. The jury found that the work was not performed before Christmas, 1902; that it was not performed within a reasonable time; that it was not performed at the time of action brought, and, therefore, it is impossible for the plaintiff to recover on the special contract. Nor can he recover by reason of any wrongful act *153 having been done by the defendants. He relies upon the work having been taken up, and says he was excluded from the performance before the period of performance had come to an end. The Judge left this to the jury in the proper form:—“Was the plaintiff wrongfully prevented by the defendants from completing the house and earning the amount of the contract?” The answer is “No.” and that puts an end to this aspect of the case. If the plaintiff is entitled to a new trial it must be in consequence of some error having taken place with reference to the right to recover upon the quantum meruit. Now, first, I wish to put out of consideration a contract which is plainly implied by law under the circumstances of this case. Christmas, 1902, was the date of performance. Plainly, after that date the plaintiff continued to perform work, and plainly either at the request or with the consent of the defendants, so there is ground for implying a contract to pay for this performance after the date fixed for completion. There is no evidence as to whether this implied contract was a contract in the terms of the old contract. It was an implied contract to do the work within a reasonable time. Taking it that the plaintiff sues on this implied contract under his indebitatus count, the answer to it is that the work was not completed within a reasonable time, or at all, and, consequently, on this contract he would not be entitled to recover. Ultimately, the question comes to what were the plaintiff’s rights in reference, not to the mere taking over and entering upon this building by the defendants. but to the circumstances under which it was so entered. Evidence was given of two letters asking the plaintiff to furnish particulars of the work that he had done. and for an estimate of its value. in order that the matter should be finally wound up. I do not say that if the terms of these letters had been assented to by the plaintiff that there would not have been a complete contract to pay on a quantum meruit. But, then. there was no assent to those terms by the plaintiff, and, on the contrary, it is clear that from that time and alwavs he has been insisting on his right to recover on the special contract. The plaintiff’s right to recover upon this quantum meruit depended on a state of facts which it would have been impossible for the jury to have found. I am clear that the view of counsel was that they were entitled to recover on a quantum meruit, based not upon any contract found by the jury, but upon the fact that possession was taken up of the work by the defendants-that they retained the benefit of it-and that under the circumstances the plaintiff was entitled to recover the full value of his work. That proposition, stated nakedly, is simply that Munro v. Butt, and cases of that description, are not law. It is going upon the principle applicable to chattels, that if a certain thing is done, not in performance of a contract, but under circumstances under which the defendant is able to obtain benefit from it, and if the defendant accepts and avails himself of it, then the plaintiff is able to recover on a quantum meruit. The decision in Munro v. Butt is that this principle does not apply to a house on a man’s land, because there is no possibility of rejecting the benefit of what has been done, unless he destroys the house built on it. Again, it was argued that if there was nothing more than the mere taking up of possession-that is, if the possession was availed of, and the house improved, that would render the defendant liable. I am of opinion that it cannot. I do not go into the question of hardship. Cutter v. Powell is always apt to work hardship, but I think that this application should be refused with costs, and that the verdict for the defendants should stand.
O’Brien, K.C., and C. Atkinson, for the plaintiff and appellant:—There was a waiver after Christmas, 1902. When we were excluded in Nov., 1903, an exclusion on such a basis, coupled with an offer to pay, at least entitled us to a question to the jury with reference to the quantum meruit.
[Holmes, L.J.—If the contract was broken in a way giving the defendants a right to take up the work, would not a promise to pay for the work done be void for want of consideration?]
Admitting that merely taking up possession is not enough to raise a contract entitling the plaintiff to sue on a quantum meruit, the taking up of possession is sufficient when coupled with an offer to pay, as in the letter of Oct., 1903, “I think it about time to close up our matter, send me your estimate of the value of the work you have done.”
[Holmes, L.J.—Is there evidence that the defendant took up the possession on the terms that the work done should be paid for? How did the plaintiff accept those terms?]
Authorities cited:
Cutter v. Powell, 2 S. L. C. 1;
Munro v. Butt, 8 E. & B. 738;
Sumpter v. Hedges, [1898] 1 Q. B. 673;
Whitaker v. Dunn, 3 T. L. R. 602;
Byrne v. Millar, 4 Taunton 745.
Bourke, K.C., P. Fleming, K.C., and P. Lynch, for the defendants, were not called upon.
Lord Ashbourne, C.
The special contract being gone by the findings of the jury, was there anything to justify a question as to a new contract on a quantum meruit? There was no evidence to support such a contract, and you cannot lightly supply this in the case of lands. A building cannot be left upon the land in an unsightly condition. It must be taken over, even if it has been improved. There was no request asking the Judge in terms to leave a question whether the parties had agreed to payment upon a quantum meruit. I do not think there was any evidence of such a thing. Notwithstanding the letters referred to the plaintiff never said, for example— “we will cry quits on the special contract. In the name of peace let us find the value on a quantum meruit. Pay us and let us go.” I entirely agree with the judgment of the Lord Chief Baron.
Walker, L.J.
I quite concur. The only question is that of the quantum meruit. The defendants were, by the findings of the jury, justified in serving notice and taking up possession. To enable the plaintiff to recover, something more than the defendants merely taking the benefit of the work done upon the land, is necessary, from which a new contract may be *154 inferred. There is no evidence of such a kind here. The most favourable case for the plaintiff would be that possession was taken up on the terms that he should be paid on a quantum meruit. But terms mean terms agreed upon on both sides. The acts of the plaintiff show that he never adopted this view. The principle of Munro v. Butt is quite applicable to this case.
Holmes, L.J.
From the questions suggested by plaintiff’s counsel at the trial it is evident that they rested their case on the original contract. Their case was that it had not been broken, but that prior to its completion the defendants had wrongfully excluded the plaintiff from the premises. Before the Divisional Court, when it was evident that the original contract had gone by the answers of the jury, it was first suggested that the defendants had taken over the work on the special terms alleged. I never care to decide a case on what is called “the course of the trial.” But it would be a hardship to invent new issues. However, there is no need for such a decision here. The evidence would not have justified the Judge in allowing that question to go to the jury. It is clear that the offer in the letters referred to was never accepted by the plaintiff. Down to the hearing before the Divisional Court the plaintiff contended that there was no new contract, but that he was entitled on the original contract. The appeal is accordingly dismissed with costs.
Webb v. Ireland
[1987] IESC 2; [1988] IR 353; [1988] ILRM 565 (16th December, 1987)
Finlay C.J. (Henchy and Griffin JJ concurring)
1. This is an appeal brought by the defendants against the order of the High Court made on 10 December 1986 directing the return to the plaintiffs of certain valuable antique articles constituting what has become known as the Derrynaflan Hoard upon payment of £25,800 by the plaintiffs to the defendants, or in the alternative at the option of the plaintiffs an order that the plaintiffs do recover against the defendants the sum of £5,510,200 .
2. The Derrynaflan Hoard consists of a chalice, silver paten, silver and bronze paten stand, gilt bronze strainer and a bronze basin. It has been described as one of the most significant discoveries ever made of Christian art. The chalice is believed to date from the ninth century and the entire find constitutes an immensely important contribution to knowledge.
3. The plaintiffs, who are father and son, on 17 February 1980 went to a place near Killenaule in County Tipperary, known as Derrynaflan which consisted of an island of pasture land surrounded by a very large area of bog. It contains the remains of a church and other buildings which formed part of an abbey and also a tomb which is supposed to be that of the Guban Saor. Buildings described as Derrynaflan Abbey or Guban’s Church and Grave were the subject matter of a Preservation Order made by the Minister for Finance under s. 8 of the National Monuments Act 1930, which order was made on 8 June 1935.
4. The lands known as Derrynaflan were at the time of the finding of the hoard jointly owned in unequal shares by a Mr. Denis O’Brien and a Mr. John O’Leary.
5. Each of the plaintiffs had with him a metal detector and the purpose of their visit to these lands which they reached by travelling on a raised road going through the bog was to search for metal objects which might be buried in the lands. They did not seek any permission from the owners of the lands before entering on them. After a relatively short time searching with the metal detectors one of the plaintiffs got a positive reaction and upon digging into the bottom of a bank close to the abbey and buildings with a small hand trowel the plaintiffs succeeded in unearthing the objects which constitute the hoard. They brought these objects back to their house in Clonmel and having consulted an archaeologist as to their importance and also having received the advice of their solicitor, Mr. Binchy, the first-named plaintiff delivered the articles the following day to the National Museum, bringing with him a letter written by his solicitor in the following terms:
18th February 1980
Dear Sir,
6. We have been consulted by Mr. Michael T. S. Webb with reference to certain articles which he and his son, Mr. Michael Webb, Junior, found on the 17th February 1980. These articles appear to be a chalice, tray and screener and it is possible that they may constitute treasure trove. Our client has been advised that these articles should with the minimum possible delay and handling be delivered to the care and custody of experts who have the facilities for examination and preserving same. We have accordingly advised our client that he should deliver these articles to your care for the present and pending determination of the legal, ownership or status thereof; and also of course subject to any rights to payment or reward which our client and his son have.
7. Yours faithfully
O’BRIEN & BINCHY
8. The articles were received by Dr. Breandán Ó Ríordáin, the Director of the National Museum, who immediately recognised their general value and importance and it was established at the trial that Dr. Ó Ríordáin told Mr. Webb that he thought that the articles making up the hoard were treasure trove but that with regard to that aspect of the matter he would have to be guided by the Attorney General’s advice. He also told Mr. Webb that he (Mr. Webb) would be honourably treated.
9. Shortly afterwards the first-named plaintiff met officials of the museum and pointed out the precise place where the hoard had been found by him and his son.
10. Within a short time the museum having ascertained the owners of the land and having received their permission carried out further excavations on the site and these, which lasted for approximately six weeks resulted in a number of missing parts and components being found, belonging either to the paten, the strainer or the bronze basin. A reconstruction was then carried out together with preservation work, partly by the National Museum and partly by the British Museum at the request of the National Museum, resulting in the restoration, to a very great extent, of the articles consisting of the hoard in what must have been their original condition.
11. The solicitors for the plaintiffs on 9 October 1980 wrote the Dr. Ó Ríordáin reminding him of the undertaking that the plaintiffs would be honourably treated with regard to the finding of the hoard and asking that this promise would be implemented. To that letter a reply was sent, stating that the matter was being considered by the head of the Department of Education. No further communication was received, however, from Dr. Ó Ríordáin and the solicitors for the plaintiffs wrote again on 2 March 1981 asking for a firm commitment within one month. On 16 June 1981 the Chief State Solicitor wrote to the solicitors for the plaintiffs referring to the letter of 18 February 1980 addressed to Dr. Ó Ríordáin and stating that the Government would be willing to make an award of £10,000 to the plaintiffs in respect of their interest in the finds. There does not appear to have been a direct response to that letter but on 23 November 1981 the plaintiffs’ solicitors wrote seeking the return of the hoard to the plaintiffs. Reminders were sent but no response to that demand was made until 8 February 1982 when the Chief State Solicitor wrote to the solicitors for the plaintiffs pointing out that his instructions were that the hoard was the property of the State and that the Government was prepared to make an award of £10,000 to the plaintiffs as had been stated in his letter of 16 June 1981. These proceedings were then instituted by plenary summons on 11 March 1982.
12. In March 1980 a solicitor acting on behalf of the owners of the land, Messrs. O’Brien and O’Leary, had written making a claim to an award. Considerable correspondence took place between the State and these owners and eventually both agreed to accept a sum of £25,000 each, and in consideration of that payment to convey to the Minister for Education all rights, property or interest that they may have in the objects now known as the Derrynaflan Hoard. Mr. O’Brien and Mr. O’Leary executed a document on 7 July 1981 acknowledging the payment of the sum of £25,000 and transferring to the Minister for Education all their rights and interests in accordance with the agreement.
13. In his judgment leading to the making of the order of 10 December 1986, the learned trial judge reached the following conclusions:-
(1) That applying the decision of this Court in Byrne v Ireland [1972] IR 241 with regard to the question of a State immunity from suit that the former royal prerogative of treasure trove as contained in the common law was not carried into our law by the Constitution of Saorstát Éireann in 1922 and was not carried into our law by virtue of the Constitution.
(2) That in the absence of a right of treasure trove the State had not got, at the time of the delivery of the hoard to the Museum, any title to it and that, therefore, the Museum as the agent of the State received the hoard as a bailee under an ordinary contract of bailment.
(3) As bailee the State was estopped from denying the title of the plaintiffs to the hoard and was not entitled to assert a title in itself, even if that was validly conferred on it by the conveyance from Messrs. O’Brien and O’Leary.
(4) Although he found that the plaintiffs in entering upon the lands of Derrynaflan had an implied permission from the owners who had permitted access to the National Monument, they had not got any permission to dig on the lands and as soon as they commenced to dig, became trespassers. He ruled, however, that the fact that they obtained the hoard by an act of trespass did not affect the plaintiffs’ right to the return of the hoard.
(5) He specifically ruled that the terms of the letter from the solicitors for the plaintiffs delivered at the same time as the hoard, on 18 February 1980, did not alter the right of the plaintiffs as bailors to the return of the hoard.
14. Having reached the conclusion as a matter of law that the State was estopped from challenging the title of the plaintiffs to the hoard because it was placed estopped with them and accepted on a bailment, the learned trial judge did not find it necessary to decide the question of the right or title of the landowners to the hoard. He expressed his opinion that the action was not an action concerned with the ownership of the hoard but was an action between a bailor and a bailee and the sole issue was whether the plaintiffs as bailors were entitled to the return of the hoard from the State. The action, he stated, is not concerned with the ownership of the hoard and will not determine its ownership.
15. The first issue which falls to be determined on this appeal, from a logical point of view, is the question as to whether, assuming that the hoard was received by the National Museum as agent for the State in the capacity of a bailee, there must be an implied term in that bailment that the plaintiffs as bailors had a good title to the goods. The decision of the High Court was based on the decision of the Court of Appeal in Rogers Sons & Co v. Lambert & Co [1891] 1 QB 318
16. I have considered that decision and I have come to the conclusion that on the facts of this case there can not be implied into the arrangements between the plaintiffs and the defendant, surrounding the deposit of the hoard with the Museum, any term establishing a title in the plaintiffs to the hoard. The terms under which the hoard was deposited are clearly set out in the letter written by the solicitors for the plaintiffs which was brought to the director of the Museum at the same time as the articles were. The reference in that letter, which I have already quoted in full, to deliver these articles to your care for the present and pending determination of the legal ownership (emphasis added) is, in my opinion, wholly inconsistent with implying into any bailment arising from that delivery an acknowledgment or admission of the plaintiffs’ title to the goods. Whilst, therefore, I would accept as a general proposition of law that bailment involves an implied term as to the title of the bailor of the goods, it can only do so to the extent and in the instances where such an implied term is not by the express terms of the bailment excluded. I am satisfied that this case is one in which such an implied term is by the express terms of the letter excluded from the bailment.
17. It is next necessary to consider the issue as to whether even assuming that the title of the plaintiffs to the goods is not an implied term in this bailment, the State is by reason of the bailment estopped from asserting its own title to the goods which it claims it derived from the landowners, O’Brien and O’Leary.
18. The decision of the learned trial judge in this context was again based largely on the decision in Rogers Sons & Co v. Lambert & Co and also in Biddle v. Bond (1865) 6 B & S 225 which is cited with approval in that case. There can be no doubt that Rogers Sons & Co v. Lambert & Co is a clear authority for the proposition that if a bailee seeks to refuse the return of goods, asserting the right of a third party to the possession and ownership of them, that he can only do so expressly on behalf of and with the authority of the third party, and that having asserted such a right he must prove it. The decision, however, does not appear to me to exclude or indeed to deal at all with the situation where a bailee asserts not the right of a third party to the goods but his own title to them, even if it has been acquired subsequent to the original bailment. The facts of Rogers Sons & Co v. Lambert & Co where the plaintiffs had purchased copper from the defendants and paid for it and whereby the defendants expressly undertook to warehouse the copper and upon payment of the proper warehousing charges to deliver it to the plaintiffs or their order, made it, of course, quite unnecessary to consider any assertion by the defendants of a title in themselves to the copper. In considering the nature of jus tertii which can be asserted by a bailee Lopes LJ at p. 328 of the report quotes with approval from the decision in Biddle v. Bond where Blackburn J delivering the judgment of the Court of the Queen’s Bench said:-
19. We think that the true ground on which a bailee may set up the jus tertii is that indicated in Shelbury v. Scotsford, viz., that the estoppel ceases when the bailment on which it is founded is determined by what is equivalent to an eviction by title paramount.
20. In my view, the true legal position which arises where a bailee asserts and establishes a title in himself to the goods is that he establishes the termination of the bailment and that by reason of that termination any estoppel which would otherwise arise between a bailee and a bailor ceases to operate. Such a view of the law appears to be logical and, in my view, appears also to yield a just result for there could be significant injustice if a bailee having lawfully and properly acquired a title to the goods which had been bailed with him were obliged to return them to the bailor by virtue of an estoppel and presumably left to the remedy of a subsequent second action for the delivery back of the goods to himself again. I, therefore, conclude that it is necessary in this appeal to determine the question as to whether by virtue of the contracts and conveyances made between the State acting through the Minister for Education and the owners of the land the State had, by the time of the institution of these proceedings acquired a title to these articles as against the plaintiffs.
21. The defendants assert a title to the goods derived through the landowners, Messrs. O’Brien and O’Leary, on two separate grounds. Firstly, they allege that the landowner had a title to any chattel found in the land against any finder of it, under any circumstances. Secondly, they allege that the plaintiffs, having found the chattels and obtained possession of them by an act of trespass as found by the learned trial judge, namely, the digging in the land, and/or being guilty, as it is alleged, of an offence under s. 14 of the National Monuments Act 1930, cannot derive any lawful title to the goods thus acquired.
22. In the submissions before this Court it was suggested on behalf of the defendants that an offence against s. 26 of the National Monuments Act 1930 may also have been committed and it was in addition suggested that
the taking away of the goods from the lands might have constituted the offence of larceny. Neither of these two allegations was pleaded at any time in the action, even after a very late amendment was granted of the defence, and, in my view, neither is substantiated or proved by any evidence in the action and I would unreservedly reject both of these allegations.
Rights of the Landowner against the Finder
23. The decision of Chitty J in Elwes v. The Brigg Gas Company (1886) 33 Ch D 562, is a clear and unequivocal authority for the proposition that the owner of a fee simple interest in land is entitled to any chattel which may be in the land as against the finder of that chattel, even where the finder is excavating the land with the licence of the owner. I have carefully considered the judgment in that case and I find it a very persuasive precedent.
In the case of South Staffordshire Water Co v. Sharman [1886] 2 QB 44 Lord Russell CJ quoted with approval the following passage in Pollock and Wright’s Possession in the Common Law:-
24. The possession of land carries with it in general, by our law, possession of everything which is attached to or under that land, and, in the absence of a better title elsewhere, the right to possess it also. And it makes no difference that the possessor is not aware of the thing’s existence It is free to anyone who requires a specific intention as part of the de facto possession to treat this as a positive rule of law. But it seems preferable to say that the legal possession rests on a real de facto possession constituted by the occupier’s general power and intent to exclude unauthorised interference.
25. Later on in his judgment the Chief Justice stated this principle in somewhat different form and, in particular, appeared to apply it to things which may be upon or in the land, where the statement would appear to apply to everything which is attached to or under the land. This slight qualification, if it is such, of the earlier statement is dealt with in the judgment of McNair J in London City Corporation v. Appleyard [1963] 2 All ER 843. I am satisfied that the true legal position is that there must be distinguished, with regard to the question of control, things which are on land and things which are attached to or under it. This distinction makes consistent the decision in Bridges v. Hawkesworth (1851) 21 LJ QB 75, and the decision in Parker .v. The British Airways Board [1982] ER 834 which dealt with objects on land and with an absence of control over them with the decisions in the cases to which I have referred, dealing with objects attached to or under the land. The extent to which, where objects are attached to or under the land, an absence of control may deprive the owner against a finder is probably limited to cases such as Hanna v. Peel [1945] KB 509, where the owner of a house had never entered into possession of it though the title had developed upon him. There is no evidence in this case of anything approaching that type of absence of control on the part of the landowners. From a consideration of all these cases, although it is clearly obiter to the facts contained in it, I would find the general propositions set out by Dolandson LJ in Parker v. British Airways to be a careful and, in my opinion, correct assertion of the relevant principles applicable. Two of the propositions he there states are relevant to the issues arising in this case, the first being that an occupier of land has rights superior to those of a finder over chattels in or attached to that land, and the second being that the finder of a chattel acquires very limited rights over it if he takes it into his care and control…in the course of trespassing.
26. I, therefore, conclude that on the facts of this case the owners of the lands, Messrs O’Brien and O’Leary had a right to possession of these chattels, superior to the plaintiffs who were finders of them, and that by the agreements made between the State and those two landowners these rights have become vested in the State.
27. That conclusion would obviate the necessity to reach a conclusion as to whether the plaintiffs, by reason of the fact that their finding of these objects constituted a trespass by the digging in the soil would, in any event, lose any right to possession they might have. This matter was very fully argued, however, and I feel that although it is not necessary for the decision of this case that I should express a view upon it. I do not consider that having regard to the fact that the allegation that the plaintiffs acted contrary to s. 14 of the National Monuments Act 1930 is an allegation of the commission of a criminal offence, that the evidence could support such a conclusion. The subsection involved is s. 14 (1)(6) of the Act which makes it an offence to excavate, dig, plough or otherwise disturb the ground within, around, or in proximity to any such national monument without or otherwise than in accordance with the consent hereinafter mentioned. Such evidence as was given, and it does not appear to have been in any way emphasised or fully investigated with regard to the relationship between the area in which the hoard was found and the buildings constituting the national monument does not appear to me to form a safe base for even prima facie establishing a criminal offence.
28. With regard to the question of trespass, however, the position would appear to be as follows. The learned trial judge found that the act of digging was an act of trespass, and even though the plaintiffs may have entered with the implied licence of the owners, as was found by him, this would lead to the legal conclusion that they then became, upon commencing to dig, trespassers ab initio.
29. As such, the general principle of public policy seems clearly to be that they should not, because of that trespass, acquire any rights of ownership to the land or things found in it.
30. It was submitted on behalf of the plaintiffs that their trespass was minimal or certainly not very serious and that this altered what otherwise might have been the legal position.
31. There can be no doubt that the plaintiffs in this case behaved extremely responsibly once they found these objects and that their conduct subsequent to the finding of them, both in the discretion with which they approached the Museum and the expedition with which they did so, and in the very active co-operation which they subsequently gave to the officials of the Museum concerning the find, was exemplary.
32. The principle which I have shortly outlined, that the law leans against the acquisition by a person of property rights by trespass, save in cases of prescription, is based on the requirement of the common good that the ownership and right to possession of land shall be protected from an unlawful invasion of it. There does not appear to me to be any grounds in logic or justice for a rule of law that a person who by a trespass of little extent obtains possession of a very valuable chattel would be exempt from this provision of the law, whereas a person committing a larger or more extensive trespass, and possibly deriving a much smaller profit would be penalised by it.
33. I would, therefore, conclude that even if the right of ownership of the hoard as between the owners of the land and the finders were different from what I have stated it to be, that the fact that these plaintiffs are finders by an act of trespass would disentitle them to any rights in the objects found, certainly as between them and the owners of the land.
34. On behalf of the plaintiffs challenge was made to the validity of the ‘conveyances’ obtained by the State from Messrs O’Brien and O’Leary. This was based on the fact that they are described as conveyances and yet do not appear to have been executed under seal. I am satisfied that there is nothing in this submission. What was being conveyed was the right to possession and ownership of the two owners of the land in the objects which had been found in it. These were, of course, chattels, and in the circumstances the written acknowledgment of the agreed consideration, coupled with the asserted transfer of the rights of ownership and title were sufficient to vest all the rights of the landowners in the State.
35. I am, therefore, satisfied that upon the execution of these documents and the payment of the money, the receipt of which is acknowledged in them, that the State became entitled to the ownership and possession of these objects subject only to the establishing by some person of a title to ownership as the ‘true owner’. In other words, it would be necessary to deprive the State of its ownership for a person to assert and establish that he was validly the successor in title to the person who owned the objects and was entitled to possession of them at the time they were, as was found by the learned trial judge, concealed in the pit in the bank.
36. Having regard to this view, it was not for the purpose of the main claim made by the plaintiffs in this action, namely, for the return of the hoard, necessary to determine the issue as to whether and to what extent the right or prerogative of treasure trove is part of the law of Ireland.
37. The plaintiffs, however, in the alternative, have claimed that in the event of their submission that the right of treasure trove was not part of the law of Ireland failing that, a constituent part of that right was the entitlement of the finder of treasure trove to a reward; that they the plaintiffs as finders of so much of the hoard as constituted treasure trove were entitled to such a reward and that on the facts of the case and, in particular, on the statements made on behalf of the State by the Director of the National Museum, that they had a legitimate expectation to a reasonable reward, enforceable in the courts.
38. To deal with this claim it is necessary, in the first instance, to determine whether the right or prerogative of treasure trove is part of our law.
39. The defendants have submitted that it is part of the law on two quite separate grounds.
40. Firstly, it is contended that the prerogative of treasure trove was a loyalty or franchise within the territory of the Irish Free State and that as such it was expressly vested in the Irish Free State by the provision of Article II of the Constitution of the Irish Free State (the 1922 Constitution). That being so, it is argued, the provisions of Article 49.1 of the Constitution vest that prerogative in the People and the provisions of Article 49.2 provide that it shall be exercised by or on the authority of the Government.
41. The second and quite alternative ground on which it is alleged the prerogative of treasure trove has survived into the law of Ireland is an assertion that as part of the wider and more general right of bona vacantia it is an inherent and necessary attribute of a sovereign State and that since this State is by virtue of Article 5 of the Constitution declared to be a sovereign State that it must follow that it is entitled to the prerogative of treasures trove.
42. To examine these two contentions it is, in my view, necessary, as shortly as possible to consider the nature and to some extent the history of what is known in law as the prerogative of treasure trove.
43. Treasure trove as we know it, is a creature of the common law. It is part of the more general right of bona vacantia which is the common law of England belonged to the Crown. The general purpose of the vesting of the property in bona vacantia in the Crown is usually stated to have been to prevent the strife and contention to which title by occupancy might otherwise give rise in relation to goods, land or rights to which no one can make a lawful claim.
44. With regard to that prerogative of treasure trove, however, it would seem clear that, historically, it also had the major purpose of being a source of revenue for the Royal Mint.
45. It applied only to valuable chattels which it could be established were concealed for the purpose of protecting them and with the intention of subsequently recovering them by the person who hid them and which were made of the precious metals of silver or gold, a combination of them or an alloy containing a substantial ingredient of either or both of them. The right of the Crown to the possession and ownership of such treasure trove was subject always to the obligation to restore it or its value to the ‘true owner’ if he could be found.
46. It would appear obvious that the confining according to the common law of the right of treasure trove to gold and silver objects or objects substantially made of either or both of these metals was directly associated with the purpose of enriching the Royal Mint, and it is stated in most of the textbooks concerning this topic that in early days treasure trove when recovered by the Crown was frequently melted down into coin.
47. It would appear that since the accession of George III the right to treasure trove vested in the Crown has been part of the surrendered revenue of the Crown, surrendered by each succeeding monarch to the Treasury for his lifetime in return for the provision of the Civil List.
48. It would appear that from the earliest times the right to treasure trove was enforced on the one hand by penalties imposed on the finders of such treasure trove who failed to reveal to the appropriate authorities the find and failed to yield them to the Crown, and on the other hand by the giving of rewards to those who did reveal their finds and yielded them to the Crown.
49. By the 19th Century it is quite clear that the prerogative treasure trove in England and in Ireland continued to be exercised on behalf of the Crown by the Government of Great Britain and Ireland but for a purpose wholly different from that which had been its historical origin. Its purpose now clearly was the retention by the State, for the common good, of antiquarian objects, interest and value, which formed part of the heritage of the people.
50. Thus, during this period it would appear, for example, that internal arrangements were made by the Treasury of the British Government, dealing with the scale and measure of rewards for the finding of treasure trove which were quite inconsistent with the possibility of the acquisition by the State of the objects of treasure trove for the purpose of profit. Furthermore, the right or franchise of treasure trove in Ireland was apparently de facto exercised on behalf of the State by the Royal Irish Academy who received a grant from the Treasury for the purpose of providing rewards and who do not appear to have had any obligation to account in any way to the State for the value of what they might have acquired under this right.
51. In general terms, it would appear that at common law the payment of a reward to the finder of treasure trove was an act of grace and the finding and giving up of treasure trove to the State or its agent was not considered to confer on the finder any right enforceable at law to the payment of any particular reward or of a reward at all.
52. Having regard to this very brief summary of the apparent history and characteristics of the prerogative of treasure trove, I have, with regard to the submissions made on behalf of the defendants, under two separate headings, come to the following conclusions.
53. I agree with the view reached by the learned trial judge in this case that on the authority of Byrne v. Ireland no royal prerogative in existence prior to the enactment of the Constitution of 1922 was by virtue of the provisions of that Constitution vested in the Irish Free State. I agree with the judgment of Walsh J in Byrne v. Ireland which was expressly concurred in by a majority of the court that the provisions of Article 2 of the Constitution of 1922 declaring the Irish Free State to be a Sovereign State and the provisions of Article 51 of the same Constitution expressly vesting in the King certain executive functions, being the executive functions of the Irish Free State, are inconsistent with the transference to that State of any royal prerogative. As is also set out in the decision in Byrne v. Ireland it must follow from this conclusion that the royal prerogatives were not prerogatives exercisable in Saorstát Éireann immediately before 11 December 1936 and were therefore not captured by Article 49.1 of the Constitution.
54. It was contended on this appeal that it was possible to distinguish between a prerogative of immunity from suit, which was the subject matter of the decision in Byrne v. Ireland and which could be traced to the royal dignity of the King and a prerogative of treasure trove which it was stated could be traced or related not to the dignity of his person but to his position as sovereign or ruler. Such a distinction does not alter the view which I have expressed with regard to the effect of the provisions of the Constitution of 1922, and appears to me to ignore the essential point which is that by virtue of the provisions of the Constitution of 1922 what was being created was a brand new sovereign State and that the function, power or position of the King in that sovereign State was such only as was vested in him by that Constitution and by the State created by it.
55. With regard to the second submission made by the defendants concerning the question of the prerogative of treasure trove, I have come to the following conclusions.
Article 5 of the Constitution declares that ‘Ireland is a Sovereign, Independent, Democratic State’.
56. Article 10.1 of the Constitution provides as follows:-
57. All natural resources, including the air and all forms of potential energy, within the jurisdiction of the Parliament and Government established by this Constitution and all royalties and franchises within that jurisdiction belong to the State subject to all estates and interests therein for the time being lawfully vested in any person or body.
58. Article 10.3 provides as follows:-
59. Provision may be made by law for the management of the property which belongs to the State by virtue of this Article and for the control of the alienation, whether temporary or permanent, of that property.
60. I am satisfied that the phrase ‘all royalties’ contained in Article 10.1 of the Constitution, construed in the light of Article 5, must be widely construed and must include one of the definitions of royalty to be found in the Shorter Oxford English Dictionary, namely, the sovereignty or sovereign rule of a State.
61. It would, I think, now be universally accepted, certainly by the People of Ireland, and by the people of most modern States, that one of the most important national assets belonging to the people is their heritage and knowledge of its true origins and the buildings and objects which constitute keys to their ancient history. If this be so, then it would appear to me to follow that a necessary ingredient of sovereignty in a modern State and certainly in this State, having regard to the terms of the Constitution, with an emphasis on its historical origins and a constant concern for the common good is and should be an ownership by the State of objects which constitute antiquities of importance which are discovered and which have no known owner. It would appear to me to be inconsistent with the framework of the society sought to be protected by the Constitution that such objects should become the exclusive property of those who by chance may find them.
62. The existence of such a general ingredient of the sovereignty of the State, does, however, seem to me to lead to the conclusion that the much more limited right of the prerogative of treasure trove known to the common law should be upheld not as a right derived from the Crown but rather as an inherent attribute of the sovereignty of the State which was recognised and declared by Article 11 of the 1922 Constitution.
63. For the purpose of determining the issues in this case, therefore, I would conclude that there does exist in the State a right or prerogative of treasure trove, the characteristics of which are the characteristics of the prerogative of treasure trove at common law which I have already outlined in this judgment as they stood in 1922.
64. As I have already indicated, it would appear that the characteristics of the right to prerogative of treasure trove at common law included the practice of rewarding a diligent and honest finder who revealed his find and yielded the object of it to the Crown. This practice is, however, apparently established as one of grace only and not conferring a legal right enforceable by the courts.
65. The plaintiffs’ alternative claim for the enforcement by this Court of a right of reward in respect of so much of the hoard as constituted treasure trove is based on an assertion that a combination of the practices both of the British Treasury prior to 1922 and of the State through the agency of the National Museum since that time and the particular conversations and conduct of the officials of the National Museum acting as agents for the State after the finding of this hoard gave to the plaintiffs a ‘legitimate expectation’ of the making to them of a substantial reward by the State which they are entitled to enforce in the courts.
66. In support of the assertion that they are entitled to rely on a ‘legitimate expectation’ the plaintiffs point to the evidence which was adduced, some of it undoubtedly being hearsay but apparently without objection, as to the rewards which had been paid in the past by the Museum in respect of the finding of antique objects and in respect of interdepartmental or administrative minutes and decisions made with regard to the general
approach to such rewards. In particular, of course, they rely on the statement already noted in this judgment and accepted by the learned trial judge, made by the Director of the National Museum at the very first interview with the first-named plaintiff that he would be treated honourably.
67. It would appear that the doctrine of ‘legitimate expectation’ sometimes described as ‘reasonable expectation’, has not in those terms been the subject matter of any decision of our courts. However, the doctrine connoted by such expressions is but an aspect of the well-recognised equitable concept of promissory estoppel (which has been frequently applied in our courts), whereby a promise or representation as to intention may in certain circumstances be held binding on the representor or promisor. The nature and extent of that doctrine in circumstances such as those of this case has been expressed as follows by Lord Denning in Amalgamated Investment & Property & Co Ltd v. Texas Commerce Investment Bank Ltd [1982] QB 84, 122:-
68. When the parties to a transaction proceed on the basis that an underlying assumption – either of fact or of law – and whether due to misrepresentation or mistakes makes no difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.
69. Applying the law as there stated, which seems to me to accord with fundamental equitable principles, I am satisfied that the unqualified assurance given to the first-named plaintiff by the Director of the National Museum that he (Mr. Webb) would be honourably treated was an integral part of the transaction under which the hoard was deposited in the Museum and accepted on behalf of the State, and that the State cannot now go back on the assurance. It must be given effect to in the form of a monetary award of an amount which is reasonable in the light of all the relevant circumstances.
70. It is not necessary to rule on the submission made on behalf of the plaintiffs that, regardless of any specific assurance given on behalf of the State, the plaintiffs are entitled as of right, as finders, to appropriate monetary payment for the treasure trove acquired by the State. As I have indicated, the right to treasure trove asserted by the State in this case is essentially the right vested in the State by reason of its sovereign nature bearing the characteristics attached to it by the common law prior to 1922. Prior to 1922 it appears to have been the practice in this country to give monetary rewards to finders of treasure trove. The defendants contend that such rewards were mere honoraria given as a matter of grace and not on foot of any legal liability to give them. The plaintiffs on the other hand contend that the giving of rewards to finders of treasure trove was so well-established and regular that the expectation of a reward in this case was so well-founded that the courts should give effect to it.
71. It is not necessary for the resolution of this case to choose between those two submissions. In my opinion the plaintiffs’ claim for compensation rests solidly on the fact that the assurance given to Mr. Webb that he would be honourably treated (which should be held to mean that he would be reasonably rewarded) was an integral part of the transaction whereby he deposited the hoard in the National Museum. It would be inequitable and unjust if the State were to be allowed to repudiate that assurance and give only a meagre and disproportionate award. For the State to avoid giving the plaintiffs a reasonable reward would not be to treat them honourably.
72. Evidence of the amounts paid in respect of previous finds of valuable antiques tendered in the High Court does not appear to me to assist in any particular way as to the appropriate amount which should be paid in this case for no distinction seems to have been made in those circumstances between objects of antique or historical value which were gold and silver and those which were not. In particular, the only comparable object which was found and brought into the possession of the National Museum would appear to be the Ardagh Chalice and certainly the evidence tendered with regard to the amounts paid to various people in respect of that find would indicate a total absence of relationship between its true commercial or market value and the amounts paid.
73. Having reached the conclusion, however, as I have done in this judgment, that treasure trove is a royalty or franchise vested in the State by virtue of its sovereign nature and having reached the further conclusion that there is associated with that a right of the plaintiffs in the particular circumstances of this case to a reasonable reward, I find that I am dealing with a situation in which a finder has got a right to a reward for which the law has not yet provided a precise method of assessment.
74. Whilst I have already decided that the fact that the finding of them arose from an act of trespass, namely, the digging in the land to enter which they had an implied licence would, apart from other considerations, defeat any right they had to the possession of the objects as between them and the owners of the land, I do not consider that the extent and the nature of the trespass in this case, having regard in particular to the subsequent conduct of the plaintiffs with regard to the hoard, could or should, as a matter of public policy, disentitle them to a reasonable reward. In particular, the statement upon which they rely which was in my view properly made, by the Director of the National Museum, after he had been made aware of the circumstances of the finding of this hoard, would be inconsistent with any such loss of rights.
75. It is not possible at this stage and in the absence of specific legislation to set out in any exhaustive detail the factors which might or should, as a matter of policy cover the assessment of what is a proper or reasonable reward for the finding of objects of treasure trove. As I have already indicated, evidence with regard to past payments made for antiquities are of little value, having particular regard to the fact that there is a great
absence in most of the cases of evidence with regard to the nature of the contents of such antiquities or to any independent assessment of their value.
76. It would appear to me that factors which would be certainly of relevance are the general value and importance of the objects found; the circumstances of their finding; and the nature and extent of rewards granted in other instances of treasure trove. Lastly, and of very considerable importance, is the attitude and conduct of the finders of the objects after they have been found and the alacrity with which their finding is disclosed and their possession is surrendered to the appropriate authorities. Consideration must also, in my view, be given to a situation where objects are found by an act of trespass, even though that may be not of any flagrant type and even though that may not, as on the facts of this case, disentitle the finders to their reward.
77. It appears to me that on the evidence which is before this Court and which was before the High Court, coupled with the finding by which this Court is bound, with regard to the market value of the objects found, that this Court is in as good a position as would be the High Court to assess a reasonable reward, having regard to the considerations which I have above outlined. In those circumstances, in litigation which has not in the courts had anything like a lengthy history but which being brought to the courts was delayed from the time of the finding of these objects, I think it is proper that this Court should itself assess the appropriate reward.
78. Having regard to all the considerations which I have set out above, I would assess a sum of £50,000 as a reward to the finders of this hoard to be divided equally between the two plaintiffs.
79. I do not intend to imply by anything contained in this judgment that the right or prerogative of treasure trove which I find to be vested in the State may not be enlarged or varied by legislation.
80. Indeed, the circumstances of this case may be thought to point to the necessity for such legislation. The right to treasure trove with which I have been dealing in this judgment is but an outmoded remnant of the mediaeval prerogatives which were vested at common law in the monarch. As such, its characteristics which restrict the nature of the articles to which it applies; the circumstances to be inferred as to the hiding or concealment of those objects and the vagueness as to the respective rights of the State and the finder may indicate that a variation and extension of the State’s rights in regard to ownerless articles of national importance which have been found may be called for.
81. It may be thought proper, for instance, to provide that all (or specified kinds of) articles or items of archaeological, historical, antiquarian or cultural value or interest should when apparently ownerless on being discovered or brought to light be deemed to vest in the State subject to the claim if established of the true owner. Such a provision might well abolish both any distinction between objects made of different materials and any request for evidence that the objects had been hidden for safe keeping. In ordinary cases it would probably be desirable to have a system of reward so as to encourage finders to deliver up articles or items so found. It may be thought proper that any such system of reward should be counterbalanced by penalties applicable to improper excavation of such articles or to their concealment when found.
82. However, what precise changes should be made in the law is something outside the jurisdiction of this Court and is exclusively a matter of legislative policy.
83. I would allow this appeal by setting aside the order appealed against and substituting for it an order
(a) Dismissing the plaintiffs’ claim against the State, that they (the plaintiffs) are entitled to the return of the Derrynaflan Hoard.
(b) Declaring the State to be the owner of the hoard subject to the rights of any person capable of proving ‘true ownership’.
(c) Ordering the State to pay to each of the plaintiffs as finders of the hoard a sum of £25,000 as a reward.
Walsh J .
84. The facts of this case have been so fully set out in the judgment which has just been delivered by the Chief Justice that I do not find it necessary to repeat any of them.
85. The Chief Justice has set out in five paragraphs the conclusions of the learned High Court judge. The sequence is not exactly the same as that of the High Court judge in his own judgment but I propose to deal with the matters in the order which has been followed by the Chief Justice.
86. The defence raised in the High Court by the defendants was to rely upon the claim that the former royal prerogative in relation to treasure trove was still applicable in the sense that it was claimed that the State was the successor in title of such prerogative. The claim which the State made to the ownership of the chattels in question was founded on that assertion and was to the effect that it superseded any claim of right of the plaintiffs. For the reasons given by the Chief Justice in the course of his judgment I am of the opinion that this claim by the defendants based on succession to the royal prerogative was rightly rejected by the learned High Court judge and that it cannot be sustained in this or any court. If the State has a rightful claim then it must be found elsewhere. That is a matter to which I shall return later in this judgment. However, so far as the High Court is concerned once the learned High Court judge has reached his decision to reject the State’s claim to a royal prerogative the question of bailment became of great importance. The claim of the museum authorities, voiced through the State, to retain the articles in question notwithstanding that they were bailees of the objects had to be rejected as the claim was based, and apparently solely based, upon the title claimed through the royal prerogative. I agree with the view expressed by the learned High Court judge that all other things being equal, a bailee is not entitled to challenge the title of the bailor.
87. In this case the chattels were left with the museum authorities, as a State agency, and they were left with them for safe keeping pending the outcome of any determination of legal ownership. The bailment was a gratuitous bailment which conferred no rights upon the bailee as such even though it may have imposed certain liabilities. This case is not concerned with that latter aspect of bailment. A gratuitous bailee is precluded from using a chattel bailed in any manner whatever without the express and complete consent of the bailor, unless such use is needful for its preservation. The chattels were not bailed to the bailee for the purpose of being used for any certain time, or at all, but solely for safe keeping pending the outcome of the establishment of legal title. Being a gratuitous bailment it was open at any time to the bailor, in this case the respondents, to call for the return of the article. Other things being equal the bailee could not legally refuse to return them. The objects were bailed to the museum authorities as agents of the appellants and they were not received by the museum authorities as stakeholders or in any similar capacity.
88. In this case, the bailee’s principal, namely the State, asserted a title based on the alleged succession to the royal prerogative of treasure trove. That being the case, then the judge, in my view, was perfectly correct in holding that as the claim to title set up by the bailee in the defence to the claim for return of the goods could not be sustained he was obliged to order the return of the goods to the bailor without determining the title of the bailors. I am of opinion that the use of the words ‘pending determination of the legal ownership’ adds nothing to the matter once the bailees have failed, or their principles have failed, to establish the title which they asserted. It is also my opinion that if a claim for the return had been made before, and without waiting for the title to be established, the bailees would have no legal answer to the claim to return the goods on demand having regard the nature of the bailment unless they were able to establish a claim of title on behalf of themselves or their principals. This they failed to do. This aspect of the case does not concern any claim by a third party because the bailees were quite clearly acknowledged to be and were treated as agents of the appellants. At no time did the bailees, namely the National Museum authorities, assert a claim on behalf of any part other than the State. Obviously if the bailee can establish a title for himself or for his principals he has ousted the title of the bailor and the matter ceases to be one of bailment. However, that is not what happened in the present case.
89. But in so far as the learned High Court judge held that the bailees could not avail of a title to the goods acquired after the bailment, it appears to me that he was not correct.
90. The second ground of defence which was offered by the appellants in the High Court was that if they did not have a right to the title before the bailment, they did acquire the title by assignment from those who had it before it was sought to determine the bailment. This post bailment title, which is asserted, is claimed to be derived from the owners of the lands in which the chattels were found, namely Messrs O’Brien and O’Leary. The landowners had by an agreement, for consideration of £25,000 to each of them, assigned to the State all their title to the chattels found. Naturally, this was only effective to pass title if they had any title.
91. This claim is based on the argument that the owner of the fee simple of the land is entitled to any chattel which may be on the land against any finder of the chattel upon the land. There is legal authority for such proposition and, also, there is legal authority to distinguish between a claim which the owner of land may assert in respect of objects found upon this land as from those which are found in or under the land surface. The Chief Justice in his judgment has referred in some detail to the legal authorities in question and has analysed them.
92. These cases reflect that the importance which appears to have been attached to the ownership of lands was such as to denigrate, if not obliterate, the true title claimed in respect of the chattels themselves.
93. I think it is true to say that there is no such thing as a chattel which has never had an owner. In this particular case the judge found as a fact that the chattels had been placed in or on the land for safe keeping. I say in or on the land because I have regard to the number of centuries that has elapsed which makes it difficult to say whether the initial hiding place was beneath the surface of the soil or simply achieved that situation through the course of time. On the view I take of this case it is not necessary for me to decide whether some distinction should be drawn between the chattels found upon the land and those found in land or under land. Leaving aside any question which might arise under the Statute of Limitations, 1957, which was not relied upon in this case, it cannot be asserted that these articles were abandoned in the sense that ownership had been abandoned. If chattels are expressly or by implication abandoned in favour of a particular and ascertainable person or persons then the chattels become the property of that person or those persons if they accept them. If they do not accept them then the chattels have no particular owner. Articles cannot be regarded as lost if they are intentionally placed in a particular situation. In my opinion it would be a great injustice if the true owner of the chattels, having intentionally placed them in a particular place for safe keeping and then cannot recall where he placed them, or where he did not have an opportunity to come back to recover them, should be deemed to have lost his title in favour of the owner of the lands in which he placed them. Strictly speaking nothing can be said to be lost in the literal sense if it continues to exist even though its owner may be unknown or because it has been unknowingly misplaced. Notwithstanding the number and the weight of the authorities cited it is my opinion that the owner of the land upon which mislaid or unremembered chattels are intentionally placed for safe keeping, whether in or under the surface, cannot claim to be the owner of the chattels simply by reason of his being the owner of the land. To so hold would be fail to vindicate the rights of property of the true owners of the chattels so placed and would permit the type of injustice which Article 40.3 of the Constitution is designed to prevent. The owner of such land is to be deemed to be in bare possession of the chattels even if he does not know of their existence on his lands. He can assert a good claim to possession, as distinct from ownership, against any claimant whether it be trespasser, or otherwise, whose claim is based on simply unearthing and removing the chattels in question. Even the former royal prerogative of treasure trove acknowledged that in so far as treasure trove was concerned the true owner, or his successors in title, could always claim ownership and possession of the treasure if he could establish title.
94. In the present case the owners of the land never sought to recover possession of the property. They simply sold their right of title, if any, which in my view was nil, to the State. They could not assign a right to bare possession divorced from ownership when they had already got permission. The Museum authorities, in accepting the goods as bailees, at no stage attempted to set up a true jus tertii in favour of or for the benefit of the owners of the land.
95. In so far the appellants sought to base their case on alleged breach of s. 141(b) of the National Monuments Act of 1930, I take the same views as those expressed by the Chief Justice.
96. The case does not concern chattels which are lost in the literal sense of the term or which were abandoned. The essential finding of fact by the trial judge was told that the chattels were left for safe keeping. Therefore, I am not concerned to offer any view on what might be the situation if the chattels were truly lost or abandoned.
97. In this Court the appellants sought to base their claim to ownership upon the provision of Article 10 of the Constitution of Ireland. In effect they abandoned the unsuccessful claim as successors of a royal prerogative.
98. I fully agree with the view expressed by the Chief Justice that it would now be universally accepted by the people of Ireland that one of the most important national assets belonging to the People is their heritage and the knowledge of its true origins, and the buildings and objects which constitute the keys to their ancient history. I also agree with him in his statement that it is a necessary ingredient of the sovereignty of a modern state, and for the reasons he gives, that is for the common good that there should be ownership in the State of all objects which constitute antiquities of importance and which are discovered to have no known owner. When I speak of ownership in this context, I speak of a claim of ownership as against all the persons except those who can establish a title by succession to the original owner of the chattels and other materials which make up this heritage. However, I do not wish to be understood as saying that it would not be within the competence of the Oireachtas to vest ownership in the State in the interest of the common good, in accordance with Article 43 of the Constitution, and subject to the payment of just compensation, if in the circumstances justice required to payment of any compensation. I fully agree when the Chief Justice says that it would be inconsistent with the framework of the society which is created by the Constitution and which is sought to be protected by that Constitution that such objects could become the exclusive property of those who by design or by chance discover them and take possession of them. In my view that opinion applies to the owners of the land in or on which they are found or to any other persons who find them in or upon lands. But unless and until legislation be enacted the State must be regarded as owners in the sense of having a better right to possession than anyone else. I am content to base my opinion upon what I believe to be the fundamental duty of the State to safeguard all the national assets whether truly in the ownership of private individuals and more importantly, where the owner is not known or cannot be ascertained. It cannot be doubted that the chattels which are the subject of this case, fall within that category. I see no reason why it should be confined to such items as fall within the definition of treasure trove under the former law. In this country this definition would be of little benefit as so many of our antiquities in chattel form are not made of either gold or silver.
99. I regret that I cannot subscribe to the view that Article 10 of the Constitution rules this case. To understand Article 10 of the Constitution it is first necessary to look at Article 11 of the Constitution of Saorstát Éireann. It provided that:-
all the lands and waters, mines and minerals, within the territory of the Irish Free State (Saorstát Éireann) hitherto vested in the State . . . and also all the natural resources of the same territory (including the air and all forms of potential energy, and also all royalties and franchise within that territory shall . . . belong to the Irish Free State (Saorstát Éireann), subject to any trusts, grants, leases or concessions then existing in respect thereof, or any valid private interest therein and shall be controlled and administered by the Oireachtas.
100. This was considered and analysed by Kingsmill Moore J in Irish Employers Mutual Insurance Association Ltd, In re [1955] I.R. 176 at p. 220 to 222. (The judgment was actually delivered in 1950).
101. I agree with his conclusions that Article 11 owed its political philosophy and statement of principle to, and indeed reflected, the Declaration of Independence and the Democratic Programme issued by the First Dáil at its first meeting in January, 1919. The latter document proclaimed the right to the ownership of Ireland in the following terms:-
102. We declare, in the words of the Irish Republican proclamation, the right of the people of Ireland to the ownership of Ireland. We declare that the Nation’s sovereignty extends not only to all men and women of the nation, but to all its material possessions, the nation’s soil and all its resources.
103. That was a categorical rejection of all notions of royal rights or privileges and this was repeated by Article 11 of the Constitution of Saorstát Éireann where Article 11 differed in some details from the Democratic Programme of 1919 was that Article 11 did not speak of ‘all its material possessions’ or to ‘all its resources’. Those expressions were sufficiently wide to capture chattels and artifacts. Article 10 of the Constitution of Ireland provides in section 1 that all natural resources, including the air and all forms of potential energy, within the jurisdiction of the Parliament and Government established by this Constitution and all royalties and franchises within that jurisdiction belong to the State subject to all estates and interests therein for the time being lawfully vested in any person or body.
104. That Article is for all practical purposes in this case the same as Article 11 of the Constitution of Saorstát Éireann. The word ‘lands’ and the word ‘waters’ which appeared in the former Article 11 are not repeated in the present Article 10.1. That is of no consequence as the expression ‘all natural resources’ captures both. The effect of the article is that the State is the ultimate owner of all the matters therein mentioned and is by Act of the Oireachtas the ultimate intestate successor of all property capable of being the subject of succession; see s. 65 of the Succession Act 1965 . It is to be noted that the State’s immediate interest in mines and minerals arises largely from various provisions of the Land Acts which reserved to the Land Commission mining rights in respect of land sold by the Commission and vested them in the State and the development of them was dealt with by the Mines and Minerals Act 1979.
105. This case is concerned with artefacts, that is to say, with the product of human art and workmanship. Artefacts are quite distinct from similar and other objects naturally produced. When Article 10 speaks of ‘all natural resources’ it cannot, in my opinion be held to include artefacts. They could have been captured by the wording of the Democratic Programme of 1919 where it spoke of ‘all its material possessions’ and also where it spoke of ‘all its resources’, because of the reasons already given articles of the nature of those the subject of the case must in the context of the national heritage be regarded as part of the ‘natural resources’. However as I have already mentioned these phrases were omitted from the former Article 11 and the present Article 10 and therefore cannot be captured under the heading of ‘natural resources’, instead they are to be regarded as ‘national resources’.
106. What then is the meaning to be attached to the reference to ‘all royalties and franchises’ in the context in which these expressions appear. In their primary and original meanings both words were related to the royal privileges and prerogatives. A franchise was a royal privilege in the nature of a prerogrative when enjoyed by the King but became a privilege when he granted it to a subject.
107. As was pointed out in the Attorney General of Ontario v Mercer (1882) 8 App. Cas. 767 at pp. 778 and 779 the expression ‘royalties’ in its primary and natural sense is merely the English translation or equivalent
of jura regalia or ‘royal rights’. Having regard to the history of the former Article 11 and the present Article 10 the word cannot be so construed in this case. In the Canadian case referred to above the phrase under consideration was ‘all lands, mines, minerals, and royalties belonging to the several provinces of Canada. . .’ which appeared in s. 109 of the British North America Act 1867. The question was whether ‘royalties’ referred to the lands, mines and minerals or only to the mines and minerals. The Privy Council, which was dealing with royal rights, saw no reason to restrict the interpretation to mines and minerals to the exclusion of lands on the basis that ‘it is a sound maxim of law, that every word ought, prima facie, to be construed in its primary and natural sense, unless a secondary or more limited sense is required by the subject or the context’.
108. In the present case for the reasons given it is quite clear that the expression ‘royalties’ cannot be given its primary meaning. Therefore the question is, is there a secondary meaning available in keeping with the context of Article 10 of the Constitution? In view of the references to ‘natural resources’ and ‘all forms of potential energy’ it is my opinion that ‘royalties’ is to be construed as referring to the sums paid or payable for the use or exploration of the natural resources, particularly in respect of mines and minerals and the sources of potential energy all of which belong to the State by virtue of Article 10 subject to all estates and interests for the time being lawfully vested in any person or body. In my opinion to equate the word ‘royalties’ in the context in which it appears in Article 10 with the sovereignty or the sovereign authority of the State would be to say that the sovereignty of the State is conferred by Article 10 whereas it is asserted and declared by Article 5 of the Constitution.
109. I am satisfied that the people as the sovereign authority having by the Constitution created the State, and by Article 5 declared it to be a sovereign State, have the right and duty, acting by the State which is the juristic person capable of holding property by virtue of the Constitution, to exercise dominion over all objects forming part of the national heritage, whether they be found or not, subject always to the lawful title of a true owner if and when the true owner is discovered and to exercise full rights of ownership when no true owner can be ascertained.
110. It is within the power of the Oireachtas, acting on behalf of the people, to make such arrangements as it sees fit by legislation for the disposal or other use of all such objects, subject to all provisions of the Constitution as the Oireachtas deems proper in the interest of the common good. While it is not for this Court to indicate to the Oireachtas how this power should be exercised it is the duty of this Court to state that pending any such legislation the State is entitled to possession of all such objects unless and until the true successors in title of those who hid them for safe keeping can be ascertained.
111. With regard to the claim that the plaintiffs/respondents should be entitled to some reward for discovering and taking possession of these articles special considerations apply. I fully recognise that as a matter of prudence and indeed as a way of safeguarding similar such objects as may in the future be found that it could well be regarded as expedient on the part of the State, not merely to reward such persons but generously to reward them for the sake of ensuring, or assisting in ensuring, that the objects will be disclosed to the State and will be dealt with by the State, for the benefit of the common good in accordance with the law for the time being in force. There is evidence that experience in other countries indicates that the more generous the reward the greater is the assurance of the continued availability or even survival or such objects. While it is hoped that the State in its legislation or in the exercise of its other powers might see matters in the same way, particularly in the case of persons as honest and as frank as the present plaintiffs that is a matter for the Oireachtas. For the reasons I have already given I take the view that the owners of the land were not entitled to assert a claim to ownership. It was their good fortune that the State saw fit to pay them. On the basis of ordinary justice it appears to me that the plaintiffs should be equally entitled, if not more entitled, legitimately to expect to be rewarded on a no less generous scale. I agree with the opinion of the Chief Justice on this topic already expressed in his judgment.
Mc Carthy J.
112. It is difficult to exaggerate the importance, nationally, historically, and aesthetically of the Derrynaflan Hoard, all objects of religious significance, found within the precinct of an ancient monastery, and appearing to range in date from the later 8th and the 9th century. The trial judge found that the hoard had clearly been buried in the pit in which it was found with the object of concealing it. It had probably been there since the later 9th or 10th century. It was found by the first-named plaintiff together with his son, the second-named plaintiff, using metal detectors, on 17 February 1980 when they had the implied permission of the owners of the land to go there, but did not have any permission to dig in the lands as they did when the metal detectors disclosed the presence of what turned out to be this hoard of treasure of such quality and nature as to produce a reaction of numbness in the Keeper of Irish Antiquities in the National Museum and editor and part author of ‘The Derrynaflan Hoard – I – A Preliminary Account’, to which I am indebted for the summary I have given. Apart from the items found by the Webbs, in the course of further excavations carried out by the National Museum, a number of missing components were found in the spring of 1980. On 18 February 1980, when Mr. Webb, senior, delivered the hoard as found by him and his son to Dr Ó Ríordáin, the Director of the Museum, he did so with an accompanying letter from the Webbs’ solicitors stating ‘we have accordingly advised our client that he should deliver these articles to your care for the present and pending determination of the legal ownership or status thereof; and also, of course, subject to any rights to payment or reward which our client and his son have.’ Dr. Ó Ríordáin told Mr. Webb that he would be honourably treated but no approach was made to him until 16 June 1981 when the Chief State Solicitor, on behalf of the Government, made an offer of an award of £10,000 to the plaintiffs, which offer was rejected on 23 November. The National Museum had set about ascertaining who were the owners of the land and on 7 July 1981 the Minister for Education paid the owners £25,000 each as consideration for the conveyance to the Minister
absolutely and free from charges or encumbrances, all rights, property or interest that I may have in the objects now known as the Derrynaflan Hoard and in the possession of the National Museum of Ireland and mentioned in the schedule hereto which were found on or about 17 February 1980, and on dates subsequent thereto, on the lands…
113. Dr. Ryan had valued the hoard at between 2.5 and 3 million pounds; the learned trial judge subsequently found the value to be over 5.5 million pounds. The National Museum sought to honour its undertaking; other agencies took a more niggardly view resulting in the offer of £10,000.
Estoppel No. 1
114. The State, through the Minister for Education, has bought whatever title the landowners had. If the landowners had a good title in possession, that is, paramount to such right of possession as the plaintiffs might have had as finders, then such title passed to the Minister. I do not find any estoppel.
Rights of the Landowners
115. I have considered the observations of the Chief Justice and of Walsh J holding that the landowners had a right to retain possession (Walsh J) or a right to these chattels, superior to the plaintiffs who were the finders of them (the Chief Justice).
Estoppel No. 2
116. Assuming that such right as the landowners had was limited to a right of possession, it would seem to follow that when the National Museum took as I believe they did take the hoard as bailee, it was an implied term of the bailment that the bailor, the Webbs, had a good title. Whilst I recognise that the terms of the solicitor’s letter ‘pending determination of the legal ownership’ recognises that such ownership may lie elsewhere, it does not, in my view, affect the limited implication of the bailment that the bailor had a better title than the bailee. Accordingly, I would accept the conclusion of the learned trial judge that the State is estopped from denying the title of the bailor and so is estopped from claiming that the plaintiffs’ possession was unlawful. This is no way inconsistent with my conclusion that the first plea of estoppel is not good in law.
The Right Itself
117. Despite the authority cited by the Chief Justice, which, in this context, was not considered by the trial judge, who held against the State on estoppel No. 1, I am far from satisfied that ownership of land necessarily carries with it either ownership or a right to possession or other right in respect of chattels found in or over the land as against the claim of a finder. By definition, the owner, until the find, is unaware of the presence of the chattels; if the owner is a purchaser, he has bought and the vendor has sold for a price that takes no account of the chattels; these circumstances are quite apart from the problems that arise from the possible existence of a series of superior or inferior titles to the land, which term must, for this purpose, include real property of any kind. In this regard I find most persuasive the judgment of Whitehouse J, giving the judgment of the Supreme Judicial Court of Maine in Weeks v. Hackett (1908) 71 Atl. Rep. 858 where English and American authorities up to that date (1908) were cited. In Armory v. Delamarie 1 Strange 505 , a chimneysweeper’s boy found a jewel (presumably in a chimney) and brought it to the defendant who was a goldsmith to know what it was; the goldsmith gave it to his apprentice who, under pretence of weighing it, took out the stones, and called to the goldsmith to let him know it came to three halfpence, where upon the goldsmith offered the boy the money; he refused to take it and insisted on having it back whereupon he got the socket without the stones. Pratt CJ ruled:-
1. That the finder of a jewel, though he does not by such finding acquire an absolute property of ownership, yet he has such a property as will enable him to keep it against all but the rightful owner, and consequently may maintain trover.
2. That the action well lay against the master, who gives a credit to his apprentice, and is answerable for his neglect.
3. As to the value of the jewel several of the trade were examined to prove what a jewel of the finest water that would fit the socket would be worth; and the Chief Justice directed the jury that unless the defendant did produce the jewel and show it not to be of the finest water they should presume the strongest against him and make the value of the best jewels the measure of their damages; which they accordingly did.
In Parker v. British Airways Board [1982] 1 All ER 834, Donaldson LJ cited Armory’s case at 837 stating that the rule as stated by Pratt CJ must be right as a general proposition and proceed to qualify it, particularly in the case of the trespassing finder. He said:-
The person vis-à-vis whom he is a trespasser has a better title. The fundamental basis of this is clearly public policy. Wrongdoers should not benefit from their wrong-doing. This requirement would be met if the trespassing finder acquired no rights. That would, however, produce the free-for-all situation to which I have already referred, in that anyone could take the article from the trespassing finder. Accordingly, the common law has been obliged to give rights to someone else, the owner ex hypothesi being unknown. The obvious candidate is the occupier of the property on which the finder was trespassing. Curiously enough, it is difficult to find any case in which the rule is stated in this simple form, but I have no doubt that this is the law.
118. Public policy is an unruly horse; it is a form of judicial policy making, in this instance to be used to establish a right in someone who was unaware of the subject matter of that right until it was brought to his attention by the person who is to be denied that right. Because of the view I take on what I regard as the most fundamental issue in this appeal, I do not find it necessary to express any concluded view; I do not accept that the defendants have established a right consequent on the transaction of 7 July 1981.
Article 10
119. In the defence it is contended that the Derrynaflan Hoard is treasure trove and as such the property of the State. Blayney J, relying upon the judgment of Walsh J in Byrne v. Ireland [1972] I.R. 241 concluded that what had been the royal prerogative of treasure trove was not carried over by Article 49.1 of the Constitution. In their notice of appeal the defendants challenged the judge’s conclusion in:-
8. Holding that all royal prerogatives which had been part of the common law of Ireland ceased to be part of the law of Saorstát Éireann on the enactment of the Constitution of Saorstát Éireann, 1922.
9. Holding that the royal prerogative of treasure trove was not part of the law of Saorstát Éireann and was not carried over by Article 49.1 of the Constitution of Ireland and is not part of the law of Ireland.
10. Failing to distinguish the royal prerogative of treasure trove from the royal prerogative of immunity from suit.
11. Failing to hold that all or some of the articles which constitute the Hoard constitute treasure trove and are the property of the State.
120. Section C of the appellants’ written submissions dealt with whether the Hoard is the property of the State as treasure trove. Nowhere in the submission is there a reference to Article 10 of the Constitution or Article 11 of the Constitution of Saorstát Éireann. It appears to have been during the argument in this Court that for the first time the question arose as to whether or not the State might claim title to the chattels by virtue of Article 10. The Chief Justice recites this argument as:-
121. Firstly, it is contended that the prerogative of treasure trove was a royalty or franchise within the territory of the Irish Free State and that as such it was expressly vested in the Irish Free State by the provisions of Article 11 of the Constitution of the Irish Free State (the 1922 Constitution). That being so, it is argued, that the provisions of Article 49.1 of the Constitution vest that prerogative in the People and the provisions of Article 49.2 provide that it shall be exercised by or on the authority of the Government.
122. The second and quite alternative ground on which it is alleged the prerogative of treasure trove has survived into the law of Ireland is an assertion that as part of the wider and more general right of bona vacantia it is an inherent and necessary attribute of a sovereign state and that since this State is by virtue of Article 5 of the Constitution declared to be a sovereign State that it must follow that it is entitled to the prerogative of treasure trove.
123. The Chief Justice rejects the first but upholds the second submission that a necessary ingredient of sovereignty in a modern state and certainly in this State having regard to the terms of the Constitution is and should be ownership by the State of objects which constitute antiquities of importance which are discovered and which have no known owner. With this view I fully agree. Like Walsh J, I do not subscribe to the view that Article 10 of the Constitution covers the matter; I am content to found in my view upon the attributes of sovereignty possessed by the State derived from the People and identified by Article 5. What were formerly the subject of the royal prerogative as treasure trove or bona vacantia do not appear to me to fall within the term ‘natural resources’ or ‘royalties and franchises’; whether or not the subjection to all estates and interests for the time being lawfully vested in any person or body qualified both natural resources and royalties and franchises, by definition such estate or interest cannot be identified. The further sections of Article 10, in my view, lend force to the conclusion that the Article is concerned essentially with what is covered by ‘all natural resources’ and the royalties and franchises affecting or derived from them and not otherwise. For my part, I would not seek to indicate to the Oireachtas how the power to make arrangements for the disposal of or other use of such chattels should be exercised.
Reward
124. Whilst it may be contended that the plaintiffs were merely complying with law when they brought the Hoard to the attention of the National Museum, in my view, for the reasons that are set out in the judgment of the Chief Justice, they were entitled to rely on a legitimate expectation that the State would make to them a substantial reward and that they are entitled to enforce this in the courts. In this area of the case, indeed, I believe that public policy plays a significant role. Whatever criticism may be made of the plaintiffs in the use of metal detectors or for the fact that they dug below the surface in order to retrieve the Hoard, their subsequent conduct and attitude has been entirely praiseworthy; I would wish that I could say the same of those responsible for the assessing of the offer of £10,000 made to the plaintiffs, when the owners of the land ignorant of the existence of the treasure until found by the plaintiff and who had done nothing whatever save own the land, were each paid the sum of £25,000 from the same source.
125. I would allow this appeal accordingly and concur in the order proposed.