Restitution Claims
Cases
Procter & Gamble Philippine Manufacturing Corp v. Peter Cremer GmbH
[1988] 3 All ER 843
Hirst J: Therelevant principles are common ground between the two parties, and are con eniently set out in the leading textbook on the law of restitution, Goff and Jones The Law of Restitution (3rd edn, 1986) p 148, as follows:
‘The general principle should be that restitution should always be granted when, asa result of the plaintiff’s services, the defendant has gained a financial benefit readily realisable without detriment to himself or has been saved expense which he inevitably must have incurred’.
This forms part of a section headed ‘Restitutionary Claims; where the defendant has gained an incontrovertible benefit’, a neat phrase which in my judgment epitomises the whole doctrine under consideration here.
Counsel for the buyers submits that the board of appeal have found, and rightly found, that the sellers did indeed obtain an incontrovertible benefit, in that, as a result of the buyers’ fund ing the extra freight, they had the advantage of being able to sell the goods in Rotterdam rather than locally, and were saved expense.
In my judgment this is not a proper interpretation of the supplemental award. I am unable to derive any findings from it that an incontrovertible benefit was conferred; at most it amounted to the finding that, in the difficult circumstances of the shipowners’ insolvency, [Recourse and Recovery Bureau MV of Rotterdam], on behalf of the (presumably European) cargo interests collectively, formed the view that, to make the best of a bad job, the most favourable solution all round was for the vessel to sail to Rotterdam. This falls far short even of a general finding of incontrovertible benefit, still less of a finding (which in my judgment would be essential to justify relief under this heading) that the present sellers viewed in isolation received an incontrovertible benefit. It is not sprprising that the board of appeal did not focus on this critical point, since the question of restitution was, it seems clear, never argued before them. Nor is there any finding that the sellers were saved any expense which they would ‘inevitably have incurred’; indeed it is by no means clear that such was the case, since, as a cor poration themselves based in the Philippines; they might well have thought it prudent from their own point of view to withdraw the cargo there in the hope of an upturn in the market. It follows, in my judgment, that there was no proper basis for the award based on restitution.
BP Exploration Co. (Libya) Ltd v. Hunt (No 2)
1979] 1 WLR 783,
Robert Goff J: … it is always necessary to bear in mind the difference between awards of restitution in respect of money payments and awards where the benefit conferred by the plain tiff does not consist of a payment of money. Money has the peculiar character of a universal medium of exchange. By its receipt, the recipient is inevitably benefited; and (subject to prob lems arising from such matters as inflation, change of position and the time value of money) the loss suffered by the plaintiff is generally equal to the defendant’s gain, so that no difficulty arises concerning the amount to be repaid. The same cannot be said of other benefits, such as goods or services. By their nature, services cannot be restored; nor in many cases can goods be restored, for example where they have been consumed or transferred to another. Furthermore the identity and value of the resulting benefit to the recipient may be debatable. From the very nature of things, therefore, the problem of restitution in respect of such benefits is more com plex than in cases where the benefit takes the form of a money payment….
The principle underlying the 1943 Act is prevention of the unjust enrichment of the defendant at the plaintiff’s expense. Where, as in cases under section 1(2), the benefit conferred on the defendant consists of payment ofa sum of money, the plaintiff’s expense and the defendant’s enrichment are generally equal; and, subject to other rel evant factors, the award of restitution will consist simply of an order for repayment ofa like sum of money. But where the benefit does not consist of money, then the defendant’s enrich ment will rarely be equal to the plaintiff’s expense. In such cases, where (as in the case ofa benefit conferred under a contract thereafter frustrated) the benefit has been requested by the defendant, the basic measure of recovery in restitution is the reasonable value of the plaintiff’s performance–ina case of services, a quantum meruit or reasonable remuneration, and ina case of goods,a quantum valebat or reasonable price. Such cases are to be contrasted with cases where sucha benefit has not been requested by the defendant. In the latter class of case, recov ery is rare in restitution; but if the sole basis of recovery was that the defendant had been incon trovertibly benefited, it might be legitimate to limit recovery to the defendant’s actual benefit-a limit which has (perhaps inappropriately) been imported by the legislature into section 1(3) of the Act….
Ministry of Defence v. Ashman
(1993) 66 P & CR 195
Kennedy LJ: … The second defendant was at all material times a Flight Sergeant in the Royal Air Force and the first defendant was his wife. After they separated she stayed on in the mar ried quarters which they had occupied together. The issue raised by this appeal is the way in which, in such a situation, mesne profits should be calculated. Should they be calculated by reference to the market rent, by reference to the subsidised rent paid by the serviceman so long
as he and his family remained in lawful occupation or in some other way?
[After setting out the facts in greater detail, together with the reasoning of the county court Judie, he continued:how should the judge have approached the problem of quantifying damages in this case. In my judgment it is helpful to start, as Mcgaw LJ did in Swordheath Properties v. Tabet1 with the statement of principle to be found in Halsbury’s Laws of England. The para graph begins Particular rules have been evolved in cases of trespass to land. A plaintiff is entitled to nominal damages for trespass even if no damage or loss is caused; if damage or loss is caused, he is entitled to recover in respect of his loss according to general principles.
A little later there is a passage cited by Mcgaw LJ which reads thus:
Where the defendant has by trespass made use of the plaintiff’s land the plaintiff is enti tled to receive by way of damages such sum as should reasonably be paid for the use. It is immaterial that the plaintiff was not in fact thereby impeded or prevented from himself using his own land either because he did not wish to do so or for any other reason.
In further support of that passage Mcgaw LJ referred to Penarth Dock Engineering Co. Ltd v. Pounds. There the defendant failed to recover a pontoon he had purchased from the plaintiff company which could not of itself point to any loss. Lord Denning MR said, The test of the measure of damages is not what the plaintiffs have lost, but what benefit the defendant obtained by having the use of the berth If he had moved it elsewhere,
he would have had to pay on the evidence £37-IOs a week for a berth for a dock of this kind.
Damages were claimed in that case at a lower rate. That rate was awarded. As Mcgaw LJ later explained, damages in the Penarth Dock case were calculated by reference to ‘the proper value to the trespassers of use of the property.’
In the Swordheath Properties case the Court of Appeal was able to apply that approach, which may be somewhat analogous to quasi-contractual restitution, to a claim by a landlord against occupants of residential property who had remained in unlawful possession. The landlord was held entitled to recover ‘the proper letting value of the property’ for the relevant period, that being in an ordinary case, in a free market, the value to the trespassers of its use.
But where, as in the present case, the property is not normally let on the open market, and the trespasser only remains in possession because she is in no position to move anywhere else, it seems to me that more assistance as to the proper value to Mrs. Ashman of the use of the property might be gained by looking at what she would have had to pay for suitable local authority accommodation, had any been available, than by focusing on evidence given on behalf of the Ministry as to market rent.
Accordingly I would allow the appeal and remit the matter to the County Court judge so that he may decide what was in that relevant period the value to Mrs. Ashman of the use of the prop erty. For the purposes of that hearing Mrs. Ashman might be wise to obtain from the local authority information as to what rent she would have had to pay for three bedroom accommo dation for the period from May 16, 1991, to April 4, 1992, had such accommodation been avail able.
Hoffmann LJ: A person entitled to possession ofland can make a claim against a person who has been in occupation without his consent on two alternative bases. The first is for the loss which he has suffered in consequence of the defendant’s trespass. This is the normal measure of damages in the law of tort. The second is the value of the benefit which the occupier has received. This is a claim for restitution. The two bases of claim are mutually exclusive and the plaintiff must elect before judgment which of them he wishes to pursue. These principles are not only fair but, as Kennedy LJ demonstrated, well established by authority.
It is true that in the earlier cases it has not been expressly stated that a claim for mesne profit for trespass can be a claim for restitution. Nowadays I do not see why we should not call a spade a spade. In this case the Ministry of Defence elected for the restitutionary remedy. It adduced no evidence of what it would have done with the house if the Ashmans had vacated. In my judg ment such matters are irrelevant to a restitution claim. All that matters is the value of benefit which the defendant has received.,· ..
That leaves … the question of how one values the benefit which Mr. and Mrs. Ashman received. In Swordheath Properties Limited v. Tabet Megaw LJ said, ‘in the absence of anything special in the particular case’ it will ordinarily be the rating value of the property in the open market. This the judge found to be £472 a month as against the concessionary licence fee of £95 a month which Mr. Ashman had previously been charged. As the only special feature found by the judge was the estoppel we have held to be unsustainable, the Ministry asks that we substitute a figure of £472 a month for that ordered by the judge.
In my judgment, however, the law of restitution is not so inflexible. The open market value will ordinarily be appropriate because the defendant has chosen to stay in the premises rather than pay for equivalent premises somewhere else. But such benefits may in special circum stances be subject to what Professor Birks, in his Introduction to the Law of Restitution has con veniently called subjective devaluation. This means a benefit may not be worth as much to the particular defendant as to someone else. In particular, it may be worth less to a defendant who has not been free to reject it. Mr. and Mrs. Ashman would probably have never occupied the premises in the first place if they had to pay £472 a month instead of the concessionary licence fee of £95. Mrs. Ashman would certainly not qave stayed in the premises at the market rate if she had any choice in the matter. She stayed because she could not establish priority need to be rehoused by the local authority until the eviction order had been made against her. Once the necessary proceedings had been taken she was able to obtain local authority housing at £145 a month.
In my judgment, therefore, the special circumstances in this case are created by the combi nation of two factors. First, the fact that the Ashmans were occupying at a concessionary licence fee. Secondly, the fact that Mrs. Ashman had, in practice, no choice but to stay in the premises until the local authority were willing to rehouse her. The first factor is important because I think if the Ashmans had voluntarily paid the ordinary market rate, they could not claim the premises had become less to them because they could not find anywhere else to go.
The second factor is important because I do not think the defendant can say the premises were worth less to him than suitable accommodation he could realistically obtain. In the cir cumstances of this case the value to Mrs. Ashman was no more than she would have had to pay for suitable local authority housing, if she could have been immediately rehoused. Allowing subjective devaluation in circumstances like this case will not cause any injustice to a landlord. Ifhe has suffered greater loss, (for example, because there would have been a re-letting at mar ket value) it is always open to him to elect for the alternative tort measure of damages. Although Mrs. Ashman produced an agreement of the local authority showing the rent she now pays, there was no evidence on this point before the judge. The action must therefore be remitted to the County Court.
Rathwell v. Rathwell
(1978) 83 DLR (3d) 289, Supreme Court of Canada
Dickson J: …Theconstructive trust … comprehends the imposition of trust machinery by the Court in order to achieve a result consonant with good conscience. As a matter of principle, the Court will not allow any man unjustly to appropriate to himself the value earned by the labours of another. That principle is not defeated by the existence of a matrimonial relationship between the parties; but, for the principle to succeed, the facts must display an enrichment, a corresponding deprivation, and the absence of any juristic reason–such as a contract or dispo sition of law-for the enrichment. Thus, if the parties have agreed that the one holding legal title is to take beneficially an action in restitution cannot succeed….
Itseems to me that Mrs. Rathwell must succeed whether one applies classical doctrine or
constructive trust. Each is available to sustain her claim. The presumption of common inten tion from her contribution in money and money’s worth entitles her to succeed in resulting trust. Her husband’s unjust enrichment entitles her to succeed in constructive trust….
Peel (Regional Municipality) v. Canada
(1993) 98 DLR (4th) 140
Supreme Court of Canada
McLachlin J: … The question thus reduces to this: how should ‘benefit’ in the general test for recovery for unjust enrichment be defined? More particularly, can it encompass payments which fall short of discharging the defendant’s legal liability?
We have been referred to no cases in Canada or the commonwealth where a ‘negative’ bene
fit has been found in the absence of an underlying legal liability on the defendant….
Notwithstanding the absence of authority, some scholars (Goff and Jones, and Maddaugh and McCamus) perceive a ‘whittling away’ of the hard and fast rule barring recovery absent proof of a defendant’s legal obligation to undertake the expense or perform the act which the plaintiff claims to have accomplished on the defendant’s behalf. They suggest that where the plaintiff has conferred on the defendant an ‘incontrovertible benefit’, recovery should be avail able even in the absence of a defendant’s legal liability….
An ‘incontrovertible benefit’ is an unquestionable benefit, a benefit which is demonstrably apparent and not subject to debate and conjecture. Where the benefit is not clear and manifest, it would be wrong to make the defendant pay, since he or she might well have preferred to decline the benefit if given the choice. According to Justice Gautreau of the District Court of Ontario, where an unjust benefit is found ‘one discharges another’s debt that is owed to a third party or discharges another’s contractual or statutory duty’:J. R. Maurice Gautreau, ‘When Are Enrichments Unjust?’ (1988-89) 10 Adv.Q258. The late Justice Gautreau cites this court’s decision in County of Carleton v. City of Ottawa as an example of such a case but adds the fol lowing pertinent remarks at pp. 270-1:
While the principle of freedom of choice is ordinarily important, it loses its force if the benefit is an incontrovertible benefit, because it only makes sense that the defendant would not have realistically declined the enrichment. For example, choice is not a real issue if the benefit consists of money paid to the defendant or paid to a third party to satisfy the debt of the defendant that was owing to the third party. In either case there has been an unques tionable benefit to the defendant. In the first case, he can return it or repay it ifhe chooses; in the second, he had no choice but to pay it, the only difference is that the payee has changed. Likewise, the principle of freedom of choice is a spent force if the benefit covers an expense that the defendant would have been put to in any event, and, as an issue, it is weak if the defendant subsequently adopts and capitalizes on the enrichment by turning it to account through sale or profitable commercial use.
The principle of incontrovertible benefit is not the antithesis of freedom of choice. It is not in competition with the latter, rather, it exists when freedom of choice as a problem is absent.
Justice Gautreau’s comment takes us back to the terms of the traditional test; the discharge of a legal liability creates an ‘unquestionable’ benefit because the law allowed the defendant no choice. Payment of an amount which the defendant was under no legal obligation to discharge is quite another matter.
The same requirement of inevitable expense is reflected in Mcinnes’ discussion of the notion of incontrovertible benefit: Mcinnes, He asserts, at p. 346, that ‘restitutionary relief should be available to one who has saved another an inevitable or necessary expense (whether factually or legally based)’. Arguendo, he suggests that recov<,ry may lie where one ‘has discharged an obliga tion which the obligee would likely have paid another to discharge’ [emphasis added]. He goes on, at p. 347, to caution that ‘although otherwise warranted, restitutionary relief should be denied if the benefit was conferred officiously, or ifliability would amount to a hardship for the recipient of the benefit’. Mcinnes concludes at p. 362 that’ the case law provides only theoretical and not express support for the incontrovertible benefit doctrine and suggests that, as such relief is ‘some what extraordinary’, it ‘should not be imposed unless the equities of the circumstances demand it’. It is thus apparent that any relaxation of the traditional requirement of discharge of legal obligation which may be effected through the concept of ‘incontrovertible benefit’ is limited to situations where it is clear on the facts (on a balance of probabilities) that had the plaintiff not paid, the defendant would have done so. Otherwise, the benefit is not incontrovertible.
Where does this discussion of ‘benefit’ in the doctrine of unjust enrichment bring us? Accepting for the purposes of argument that the law of restitution should be extended to incon trovertible benefits, the municipality still falls short of the law’s mark. The benefit conferred is not incontrovertible in the sense in which Goff and Jones define that concept; the municipality has not shown that either level of government being sued ‘gained a demonstrable financial bene fit or has been saved an inevitable expense’. Nor is it ‘unquestionable’, to use Justice Gautreau’s test; the federal and provincial governments were under no legal obligation and their contention that they were not benefited at all, or in any event to the value of the payments made, has suf ficient merit to require, at the least, serious consideration. It was neither inevitable nor likely, in Mcinnes’ phrase, that in the absence of a scheme which required payment by the munici pality the federal or provincial government would have made such payments; an entirely dif ferent scheme could have been adopted, for example….
Planche v. Colburn
(1831) 8 Bing. 14
Tindal CJ: In this case a .contract had been entered into for the publication of a work on Costume and Ancient Armour in ‘The Juvenile Library’. The considerations by which an author is generally actuated in undertaking to write a work are pecuniary profit and literary rep utation. Now, it is clear that the latter may be sacrificed, if an author, who has engaged to write a volume of a popular nature, to be published in a work intended for a juvenile class of readers, should be subject to have his writings published as a separate and distinct work, and therefore liable to be judged of by more severe rules than would be applied to a familiar work intended merely forchildren. The fact was, that the Defendants not only suspended, but actually put an end to, ‘TheJuvenile Library;’ they had broken their contract with the Plaintiff; and an attempt was made, but quite unsuccessfully, to shew that the Plaintiff had afterwards entered intoa new contract to allow them to publish his book as a separate work.
I agree that, when a special contract is in existence and open, the Plaintiff cannot sue ona quantum meruit: part of the question here, therefore, was whether the contract did exist or not. Itdistinctly appeared that the work was finally abandoned; and the jury found that no new con tract had been entered into. Under these circumstances the Plaintiff ought not to lose the fruit of hislabour; and there is no ground for the application which has beenmade.
Bosanquet J: The Plaintiff is entitled to retain his verdict. The jury have found that the contract was abandoned; but it is said that the Plaintiff ought to have tendered or delivered the work. It was part of the contract, however, that the work should be published ina par ticular shape; and if it had been delivered after the abandonment of the original design, it might have been published in a way not consistent with the Plaintiff’s reputation, or not at all.
Greenwood v. Bennett
[1973] QB 195, Court of Appeal
Lord Denning MR: … The judge held that Mr. Bennett’s company was entitled to the car, and that Mr. Harper was entitled to nothing for the work he had done on it. He held thatMr. Harper had no lien and no remedy. The judge said: ‘It seems to me that the loss here must lie where it fa.lls… Mr. Harper must be left with his worthless remedy againstMr.Searle.’ So the judge ordered the car to be handed over to Mr. Bennett’s company. The chief constable obeyed thatorder. It was handed over, and Mr. Bennett’s company have resold it for £400 or so. Mr. Harper now appeals to this court. He asks that he should be paid £226 for the work he did on the car and of which the company have had the benefit.
If Mr. Bennett’s company had brought an action against Mr. Prattle for specific delivery of the car, it is very unlikely that an order for specific delivery of the car would be made. But ifit had been, no court would order its delivery unless compensation was made for the improve ments. There is a valuable judgment by Lord Macnaghten in Peruvian Guano Co. v. Dreyfus Brothers (S Co. [1892] AC 155, 176, where he said:
‘I am not aware of any authority upon the point, but I should doubt whether it was incumbent upon the court to order the defendant to return the goods in specie where the plaintiff refused to make a fair and just allowance.’
So if this car was ordered to be returned to Mr. Bennett’s company, I am quite clear the court in equity would insist upon a condition that payment should be made to Mr. Harper for the value of the improvements which he put on it.
Applying the principles stated by Lord Macnaghten, I should have thought that the county court judge here should have imposed a condition on the plaintiffs. He should have required them to pay Mr. Harper the £226 as a condition of being given delivery of the car.
But the judge did not impose such a condition. The plaintiffs have regained the car, and sold it. What then is to be done? It seems to me that we must order the plaintiffs to pay Mr. Harper the £226; for that is the only way of putting the position right.
Upon what principle is this to be done? [Counsel for Harper] has referred us to the familiar cases which say that a man is not entitled to compensation for work done on the goods or prop erty of another unless there is a contract express or implied, to pay for it. We all remember the saying of Pollock CB: ‘One cleans another’s shoes; what can the other do but put them on?’: Taylor v. Laird (1856) 25 LJ Ex. 329, 332. That is undoubtedly the law when the person who does the work knows, or ought to know, that the property does not belong to him. He takes the risk of not being paid for his work on it. But it is very different when he honestly believes him self to be the owner of the property and does the work in that belief Here we have an inno
cent purchaser who bought the car in good faith and without notice of any defect in the title to it. He did work on it to the value of £226. The law is hard enough on him when it makes him give up the car itself. It would be most unjust if the company could not only take the car from him, but also the value of the improvements he has done to it-without paying for them. There is a principle at hand to meet the case. It derives from the law of restitution. The plaintiffs should not be allowed unjustly to enrich themselves at his expense. The court will order the plaintiffs, if they recover the car, or its improved value, to recompense the innocent purchaser for the work he has done on it. No matter whether the plaintiffs recover it with the aid of the courts, or without it, the innocent purchaser will recover the value of the improvements he has done to it.
In my opinion, therefore, the judge.ought not to have released the car to the plaintiffs except on condition that the plaintiffs paid Mr. Harper the £226. But now that it has been released to them and they have sold it, we should order Mr. Bennett’s company to pay Mr. Harper £226 in respect of the improvements he made to the car. I would allow the appeal accordingly.
Phillimore LJ: I agree. This was a case in which I should have thought that in the ordinary way no order for specific restitution of the chattel would have been made, because this was an ordinary commercial article; but the judge has, in effect, dealt with it as if by an order of spe cific restitution in allowing Mr. Bennett to take the car back. In those circumstances it seems to me perfectly clear that on equitable principles someone who has improved the car since it was originally converted and who is not himself a wrongdoer-and it is not suggested that Mr. Harper was in any way a wrongdoer-should be credited with the value of the work which he had put into the car by way of improving it. It was not seriously disputed in this case that the
£226 had improved the value of the car, making its value far above what it was; and I entirely agree with Lord Denning MR that the judge having failed to allow Mr. Harper’s claim to be repaid his £226 as a condition of Mr. Bennett recovering the motor car, the only course which this court can now take is to make an order that Mr. Bennett should pay directly to Mr. Harper that sum which indeed ought to have been a condition of Mr. Bennett being allowed to take possession.
I agree therefore that this appeal should succeed to that extent.
Cairns LJ:I agree. The main issue in this appeal is one on which there is no authority directly in point. The matter has been very well argued on both sides in this court. If the car had, before any proceedings were brought, reached the hands of Mr. Bennett, it is difficult to see that Mr. Harper could have had any claim against him for the expenditure that he was put to in making the repairs to it. If, on the other hand, the car had remained in the possession of Mr. Prattle, and Mr. Bennett had sued Mr. Harper, then it appears to me that probably the action would have had to be in conversion, and that in assessing the damages for conversion a deduction would have to be made for the expenditure that Mr. Harper had incurred. Alternatively, if there could have been an action for detinue against Mr. Harper, then similarly, on the principles laid down in Munro v. Willmott [1949) I KB 295 and in the speech of Lord Macnaghten in Peruvian Guano Co. v. Dreyfus Brothers (5 Co. [1892) AC 166, 175-7, Mr. Harper’s expenditure would have had to be allowed. It appears to me that in interpleader proceedings similar considerations come into play as those which would affect an action for detinue; and an order for delivery of the car to Mr. Bennett now having been [$de and carried out, it seems to me that the result must be that Mr. Harper ought to receive from Mr. Bennett the amount of his expenditure on the car. I agree, therefore, that the appeal should be allowed and that the order proposed ought to be made.
Lumbers v W Cook Builders Pty Ltd (in liquidation)
[2008] HCA 27 (18 June 2008)
GLEESON CJ. In September or October 1993, W Cook & Sons Pty Ltd (“Sons”) entered into an oral agreement with the appellants, Mr Matthew Lumbers and Mr Warwick Lumbers, to construct a house at North Haven, near Adelaide. Mr Matthew Lumbers owned the land and Mr Warwick Lumbers had an unregistered lease for life over the property. For present purposes, it is unnecessary to distinguish between Mr Matthew Lumbers and Mr Warwick Lumbers (“the Lumbers”) as parties to the contract. The house was described by the primary judge as “quite distinctive”. It ultimately cost more than $1 million to build. It was completed in May 1995.
….
In the light of the subsequent history of the litigation, it is possible to deal with this issue briefly. Judge Beazley rejected Builders’ argument for two reasons. First, he was concerned about the high degree of personal confidence placed by the Lumbers in Sons when the original building contract was made. The identity of the builder was a matter of importance to Mr Warwick Lumbers. The substitution, without his consent, of another corporate entity, even one associated with the Cook group, as the recipient of the benefit of the contract would have made a significant difference to him. Builders was a company in which Mr McAdam had no personal interest. Mr Warwick Lumbers relied on being able to negotiate personally with Mr McAdam about matters such as defects and fees. The judge referred to Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd[2], and Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd[3]. Mr Lumbers, whose evidence the judge accepted, was adamant that he would not have agreed to such an assignment, and the judge considered there were good reasons for this. Secondly, the judge was unable to find, in the state of the evidence, that there was any intention on the part of Sons to assign the benefit of the contract to Builders or otherwise to effect any assignment as alleged in the Statement of Claim. Again, the absence of Mr McAdam was critical. The judge concluded that Builders performed its work on the project, not as an assignee of the benefit of the contract, but as a subcontractor to Sons. The allegations made by Builders in its Statement of Claim as to its contract with Sons are set out above. At trial, the Lumbers did not dispute that there was a contract between Sons and Builders, although they did not profess to know its terms, and challenged the assertion that its “legal effect” included an assignment of the benefit of the 1993 contract or the amount ultimately to be paid under that contract. The only direct evidence of the contract was Mr Jeffrey Cook’s account of a conversation he had with Mr McAdam. Although his account was vague, he was clear about the fact that it was agreed that, after the “changeover”, the building work (including the work presently in question) was to be done by Builders. The evidence of Mr Cook supported the allegations in the Statement of Claim except in one important respect, that is to say, the matter of the alleged assignment of rights from Sons to Builders. It was consistent with the evidence of Mr Cook that, as alleged in the Statement of Claim, Builders became contractually bound to Sons to perform future work and supervision on the building. As the primary judge said, once the allegation of an agreement as to assignment is rejected, it is appropriate to describe this as a subcontract.
In the alternative, Builders argued that it was “entitled to fair and just compensation for the benefit or enrichment accepted by the Lumbers.” The judge said (references omitted):
“At all times there was extant an agreement between the Lumbers and Sons which covered the work said to have been undertaken by Builders. Insofar as a claim ought to have been made by Builders it ought to have been against Sons. Sons remained liable under the Contract with the Lumbers. It cannot be said that the Lumbers have an obligation to make restitution to Builders, irrespective of whether Builders was mistaken as to its position when allegedly constructing the house. There was of course no evidence at all as to the allegedly mistaken understanding of Builders. In my opinion Builders could not succeed against the Lumbers under this alternative claim.”
The decision of the Full Court
The Full Court of the Supreme Court of South Australia, by majority (Sulan and Layton JJ, Vanstone J dissenting) upheld Builders’ appeal[4].
All three members of the Full Court rejected Builders’ case on assignment. The majority regarded the trial judge’s conclusion that there was insufficient evidence to find the existence of an intention to assign as soundly based. They found it unnecessary to deal with the question whether the contract was of such a nature that assignment was not possible. Vanstone J pointed out that, under the building contract, it was for the builder to determine the payments that were to be made over the course of construction. She considered that it would have been inconsistent with the trust reposed in Mr McAdam by Mr Warwick Lumbers, which accounted for the informal and in some respects open-ended nature of the contract, to permit another party to stipulate the amount of those payments. She concluded that the contract was of a personal nature and incapable of assignment.
The majority also decided that any claim by Builders to recover what they described as “contractual damages” would have been defeated by s 39 of the Builders Licensing Act. Vanstone J found it unnecessary to deal with this point. The majority said, however, that “[w]here an unlicensed person carries out building work, they may nevertheless bring an action in unjust enrichment in which damages will be calculated on a quantum meruit basis.” They went on to deal with the claim described by Builders in its Statement of Claim as “restitution/unjust enrichment”.
The majority commenced their reasoning by putting to one side the subsisting contractual relationship between Sons and the Lumbers. This was a rather important, and controversial, first step. They justified it on two grounds. First, they referred to the letter signed by Mr Malcolm Cook, in February 1999, in which Sons said that it had no claim against the Lumbers. They did not discuss the legal effect of the letter, or explain how it would operate to defeat a claim by Sons. They simply referred to its existence. As mentioned earlier, the evidence did not show how it came to be written. Nor did it show that the Lumbers altered their position or otherwise acted in reliance on the letter. No doubt they were pleased to have it, but that does not mean that it was of legal consequence. Secondly, the majority said that Sons did not perform its obligations under the contract. Presumably they meant by this that Sons, without the knowledge of the Lumbers, delegated the performance of its obligations to Builders. Again, it is not clear what was said to be the legal consequence of this as between Sons and the Lumbers. If the delegation constituted a breach of contract by Sons, then the Lumbers might have had a claim for damages against Sons, if they could show they suffered harm. The contract, however, was never terminated; the building was built, generally to the satisfaction of the Lumbers; and the majority did not express a conclusion as to whether the Lumbers were liable to Sons under the building contract and, if not, why not. Furthermore, the majority gave no express consideration to the question of Builders’ rights against Sons. They appear to have regarded those as irrelevant.
Understandably, the majority introduced their discussion of the subject of restitution by referring to the decision of this Court in Pavey & Matthews Pty Ltd v Paul[5]. That was a building case. There was only one contract, that is to say, a contract between an owner and a builder. Because the contract was not in writing, it was (by statute) unenforceable by the builder. The issue[6] in that case was whether the builder, in bringing a quantum meruit claim, was attempting to do that which the statute prohibited, that is, attempting to enforce the contract. In answering that question in the negative, the Court explained that the nature of the builder’s claim against the owner was restitutionary, not contractual. The general principles stated in the course of that explanation have been taken up in later decisions. The majority referred to some of those decisions.
The present was not a case of the performance by Builders of services for the Lumbers at the request of the Lumbers; or of acquiescence in the provision of services by Builders knowing that the services were not being rendered gratuitously; or of the provision of services necessary for the protection of the Lumbers’ property. The majority, however, identified the case as one “where the service conferred incontrovertible benefit on the defendant, and it would be unconscionable for the defendant to keep the benefit of the service with paying a reasonable sum for it”[7]. There are, they said, “three basic elements of unjust enrichment”, subject to any available defence. The first is that the defendant must receive a benefit. The second is that the benefit must be received at the plaintiff’s expense. The third is that it would be unconscionable for the defendant to retain the benefit. They discussed “incontrovertible benefit” and “free acceptance”.
As to the former, they said:
“The first point that may be noted was that the services provided by Builders saved the Lumbers from an expense. A significant part of Builders’ claim is for expenses that it incurred during the course of the construction, in addition to the part of Builders’ claim relating to its own provision of services. These expenses were incurred on the Lumbers’ behalf.
However, even that portion of Builders’ claim which pertains to the cost of the services it provided directly, can be characterised as saving the Lumbers from an expense. The Lumbers decided to construct a house, and expected to pay the full amount for its construction. The cost of the construction of the house, including the expenses incurred by Builders, and the cost of the services provided directly by Builders, was a cost that the Lumbers chose to incur. Builders, by incurring costs on their behalf and providing services, saved the Lumbers from an expense that they would otherwise have incurred.
Secondly, we consider that having the house constructed was an incontrovertible benefit independently of the question whether this saved the Lumbers from an expense. The provision of a house in which to live, which also represented an improvement to the land, conferred a benefit which no reasonable person could deny. The Lumbers have had a house constructed to their specifications and are able to live in that house. The Lumbers have also had an improvement to their land which has a realisable value upon sale.
It is also true that the Lumbers intended that the constructed house would have the ‘pedigree’ associated with having been constructed by Sons, a reputable and established firm. However, the fact that they did not receive the benefit of the ‘pedigree’ of the house does not render the benefits they did in fact receive any less valuable, given the matters referred to above.”
As to the latter, they said (references omitted):
“In this case, Builders incurred actual expenses from which the Lumbers benefited. There was acceptance by the Lumbers of the services of subcontractors for which Builders incurred a cost. Furthermore, the services provided were with the knowledge of Lumbers. The Lumbers benefited. The benefit was conferred at the expense of Builders. The Lumbers agreed to the work being carried out. The Lumbers, by moving in and occupying the house, accepted the benefit. The Lumbers knew that the services were not being provided gratuitously, as they had made a request to Sons for the provision of the services, and had made arrangements for payment with David McAdam.
The only factor which could be said to vitiate the free acceptance by the Lumbers is the fact that they were unaware that the work was being conducted by Builders rather than Sons. The fact that Warwick Lumbers said he would not have accepted the benefit if he had known Builders was doing the work, and because he relied on Sons’ name and the fact that Sons was licensed and, therefore, insured is, in our view, ultimately not to the point. There has been no suggestion that there was any difference in the quality of the construction of the house as a consequence of its having been built by Builders rather than Sons. In this regard, it is relevant that Jeffrey Cook acted as the supervisor. Also, David McAdam acted as the administrator of the building work and was responsible for sourcing materials and labour in the same way, presumably, that he would have been had the project been on the books of Sons rather than Builders. There was no suggestion that the house would have been built differently, or to a higher standard, had Sons completed the project. Indeed, the evidence of the [Lumbers] was that externally, there was nothing to indicate that it was Builders that was building the house rather than Sons. The fact that the Lumbers were mistaken about who provided the benefit does not vitiate their acceptance of it.
It should be noted that the conduct of Builders and Sons in failing to inform the Lumbers about their internal arrangements is not inconsequential. Builders is unable to recover the contractual sum to which Sons would have been entitled had it completed the work. Instead, Builders can recover solely on a quantum meruit basis, as identified above.”
The majority went on to find that it was clear that the provision of services, and the payments to subcontractors, were at Builders’ expense and that it would be unconscionable for the Lumbers to retain the benefit without payment.
Vanstone J, dissenting, said that there was no free acceptance of, or conferring of, any benefit. There was a contract between the Lumbers and Sons, and another contract between Sons and Builders. Builders’ work on the Lumbers’ project was performed under obligations owed by Builders to Sons. Its remedies lay under its contract with Sons. It had no additional or alternative restitutionary claim against the Lumbers.
For the reasons that follow, the conclusion of Vanstone J is to be preferred.
The restitutionary claim
In considering Builders’ restitutionary claim, the contractual relations between the Lumbers and Sons, and between Sons and Builders, cannot be put to one side as an inconvenient distraction. The original structure of the litigation has been described above. The circumstances that, by reason of a failure on the part of Builders to comply with an order for security for costs, Sons has taken no active part in the litigation, and that, by reason of the absence of any evidence from Mr McAdam, what went on between Sons and Builders is obscure, do not displace the necessity of identifying the contractual position. The case was conducted and decided in the South Australian courts on the basis that, as Builders alleged, there was a contract between the Lumbers and Sons. Builders claimed that there was an assignment to it by Sons of the benefit of that contract. That claim failed. The primary judge held that the work performed by Builders was performed pursuant to a further contract which was made between Sons and Builders; a contract that was entered into without the knowledge of the Lumbers. That finding was not reversed in the Full Court, although it is not clear how the majority accommodated it to their reasoning. It was adopted by Vanstone J. The finding should be accepted. No reason has been shown to doubt that it was correct. As the trial judge pointed out, once the possibility of assignment is rejected, and in the absence of any suggestion of novation, the characterisation of the “arrangements” between Sons and Builders as a contract is appropriate. Even if the conduct of Sons in making such a contract and thereby delegating the performance of its obligations amounted to a breach of its contract with the Lumbers, the contract between the Lumbers and Sons remained in force. There was, therefore, a head contract between the Lumbers and Sons, and a subcontract between Sons and Builders.
So far as appears from the evidence, Builders had, and may still have, a viable claim against Sons. The claim was not defeated on the merits or otherwise in any relevant respect rendered worthless. Builders and Sons have their own separate creditors and members. The contractual arrangements that were made effected a certain allocation of risk; and there is no occasion to disturb or interfere with that allocation. On the contrary, there is every reason to respect it. There was no mistake or misunderstanding on the part of Builders. It was accepted on both sides in argument that in the ordinary case a building subcontractor does not have a restitutionary claim against a property owner, but must look for payment to the head contractor[8]. That was said to be subject to exceptions[9], but the difficulty for Builders was to show that the case fell within any recognised exception or within general principles justifying a new exception.
In Pan Ocean Shipping Co Ltd v Creditcorp Ltd[10], Lord Goff of Chieveley said:
“I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party (see, eg, Goff and Jones on the Law of Restitution, 4th ed (1993), pp 55 et seq, and (for a particular example) Burrows on the Law of Restitution, (1993) pp 271-272). But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract.”
In some Australian jurisdictions, there has been legislation enacted to protect the interests of building subcontractors, but such protection is confined within a certain statutory framework[11]. The fact that such legislation exists should discourage, rather than encourage, attempts to extend the scope of restitutionary claims beyond the bounds set by legal principle[12], especially where to do so would be to cut across or disturb contractual relationships and established allocation of risk.
To repeat, Builders’ services were not performed at the request of the Lumbers, but pursuant to a contact between Sons and Builders. There was no acquiescence by the Lumbers in the provision of services by Builders. The Lumbers were unaware of the existence or role of Builders. As far as they were concerned, the services were being provided by Sons under the building contract. That was not provision of services for the protection of the Lumbers’ property.
The majority in the Full Court decided the case on the basis that Builders performed services that conferred an incontrovertible benefit on the Lumbers, and that it would be unconscionable for the Lumbers to keep the benefit of those services without paying a reasonable sum for them. In their application to the facts of the present case, each of the two elements in that proposition should be rejected.
As to the concept of conferring of benefit, what was involved was the performance of building work on property owned by the Lumbers in circumstances where there was a building contract between the Lumbers and Sons obliging Sons to perform that work and the Lumbers to pay Sons for it, and a subcontract between Sons and Builders obliging Builders to perform the work and Sons to pay Builders. As it happens, there was no material difference between the total price to be paid under the contracts. However, the case for Builders can be tested by supposing that there had been such a difference. Furthermore, the unusual agreement as to progress payments made between the Lumbers and Sons, an agreement that was closely connected with the personal relationship between Mr Warwick Lumbers and Mr McAdam, highlights the significance of the 1993 contract as, from the point of view of the Lumbers, the source of their legal rights and obligations. In Steele v Tardiani[13], which in one sense was a simpler case than the present because there was only one contact involved, Dixon J explained the problems of identifying, for the purpose of a quantum meruit claim not based on the contract, a “benefit” conferred on a building owner by the performance of work otherwise than in accordance with the contract. He accepted that, where building work is done outside the contract, and the benefit of the work is taken, there may arise an obligation to pay for the work. He went on to refer, however, to “the dilemma in which a building owner is placed”. He quoted Collins LJ who said, in Sumpter v Hedges[14]:
“Where, as in the case of work done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract … The mere fact that a defendant is in possession of what he cannot help keeping, or even has done work upon it, affords no ground for such an inference.”
The reference to an “inference of a new contract” may reflect an approach since overtaken by Pavey & Matthews Pty Ltd v Paul, but the problem involved in identifying a conferring or accepting of a benefit remains.
The concept of “free acceptance” invoked by the majority in the Full Court, whatever its exact scope, is commonly related to a defendant who “did not take a reasonable opportunity open to him to reject the proffered services”[15]. That was not the situation of the Lumbers in the present case. Similarly, what was sought to be characterised as an “incontrovertible benefit” was that which Sons had undertaken to provide for the Lumbers and for which the Lumbers had agreed to pay Sons. If the principle relied upon by Builders extends to the claim by Builders against the Lumbers, it is difficult to see why it would not extend also to the work performed by the numerous subcontractors engaged by Sons and later by Builders. Much, perhaps most, of the physical construction work on the site was performed, and many of the physical materials brought to the site were supplied, by such subcontractors. Why Builders was in a different position from them vis-à-vis the Lumbers was not explained. In a broad colloquial sense, they were conferring benefits on the Lumbers, and the Lumbers were accepting those benefits, but that was not so in any legal sense.
It was argued that the Lumbers had received a “windfall” and that it would be unconscionable of them to refuse to pay Builders for the work in question. This characterisation proceeds upon assumptions as to the respective rights and obligations of the Lumbers, Sons and Builders which, for reasons already stated, have not been justified. Insofar as the Lumbers have been relieved from liability to pay the full agreed price for the work done on their property it appears principally to be the consequence of Builders’ failure to make or pursue a prompt claim against Sons, and Builders’ failure to pursue its claim against Sons in the present proceedings. If that claim had been pursued, it may well have resulted in a claim by Sons against the Lumbers. Alternatively, it may be the consequence of the unexplained attitude of Sons in the letter written by Mr Malcolm Cook in early 1999. The procedural and evidentiary deficiencies in the case make it impossible to conclude that the conduct of the Lumbers in refusing to pay Builders is unconscionable. If they have been enriched, it is at the expense of Sons. If any party has been enriched at the expense of Builders, it is Sons.
The restitutionary claim of Builders has not been made out.
Builders Licensing Act
In view of the conclusion reached above, it is unnecessary to consider the defence based on s 39 of this Act.
Conclusion
The appeal should be allowed. The orders of the Full Court of the Supreme Court of South Australia should be set aside and in their place it should be ordered that the appeal to that Court be dismissed with costs. The respondent should pay the costs of the appellants of the appeal to this Court.
GUMMOW, HAYNE, CRENNAN AND KIEFEL JJ. Between about February 1994 and April or May 1995 a house was built in a suburb of Adelaide. The house was large, of unusual design, and expensive. The respondent, W Cook Builders Pty Ltd (In Liq) (“Builders”) claims that the appellants – “the Lumbers” – have not paid all that should be paid for building the house. That claim was first made by the liquidator of Builders more than four years after the building work was completed.
The first appellant, Mr Matthew Lumbers, owned the land on which the house was built. He granted his father, the second appellant, an unregistered lease of the property for life. It was the father, Mr Warwick Lumbers, who had most of the dealings about building the house, but for the most part it will not be necessary to distinguish between the appellants.
The Lumbers say that they never had any dealings with Builders. They say their dealings were with a different company – W Cook & Sons Pty Ltd (“Sons”) – and that they have paid Sons all that Sons has ever asked them to pay. The Lumbers first became aware of Builders, and of the claimed involvement of Builders in the matter, in August 1998, more than three years after the building work was completed.
It is not, and never has been, disputed that the Lumbers agreed with Sons that Sons would build the house. Neither that agreement, nor any of the other agreements or arrangements to which it will be necessary to refer, was reduced to writing. The agreement the Lumbers made with Sons about building the house was constituted by conversations between Mr Warwick Lumbers and a Mr David McAdam. It is not, and never has been, disputed that Mr McAdam was then acting on behalf of Sons or that the conversations constituted an agreement for Sons to build the house according to the design and instructions of a named architect. No price was fixed for the work. It was agreed that Sons would be paid “cost plus”. Yet it is Builders, not Sons, who now claims for the balance of the price of the work of building the house. These reasons will show that Builders’ claim fails.
Work was performed by subcontractors. But it should be indicated at once that this was not a case where by reason of supervening events, such as the insolvency of the head contractor, an unpaid subcontractor seeks to recover by direct action against the owner, whether under a “mechanics’ lien” statute such as the Worker’s Liens Act 1893 (SA) or under the general law[16]. Further, Builders made no claim under that statute as a subcontractor of Sons.
Neither the issues that are to be decided in this appeal, nor the way in which those issues are decided, can be understood without first observing some features of the way in which the litigation developed.
Builders’ pleaded case
Builders brought proceedings in the District Court of South Australia against not only the Lumbers but also Sons. By its pleading, Builders made claims in contract and in “Restitution/Unjust Enrichment”. It made some other claims as well, including a claim to enforce a lien under the Worker’s Liens Act as a “contractor”[17], but it will not be necessary to examine those other claims.
Builders alleged in its pleading that the Lumbers (or one of them) had made an oral building contract with Sons. Builders further alleged that, some months after the Lumbers had made their contract with Sons, Builders made an oral contract with Sons by which the benefit of Sons’ contract with the Lumbers was assigned to Builders, and Builders was obliged (to Sons) to perform the work that had to be done under the Lumbers contract with Sons. Builders pleaded that, as a result of the agreement between the Lumbers and Sons, and the subsequent agreement between Builders and Sons, either the Lumbers were (or one of them was) liable to Builders on the basis that the building contract had been assigned to Builders or, if the building contract had not been assigned, the Lumbers were (or one of them was) liable to Sons. If the Lumbers’ liability was to Sons, Builders alleged that Sons was liable to Builders for the amount owing under the building contract.
Builders pleaded claims in “Restitution/Unjust Enrichment” against the Lumbers and alternative claims against Sons. As against the Lumbers, Builders alleged that they received the benefit of the completed house “at the expense of” Builders (because it, Builders, had done the work) and alleged that “[i]t would be unconscionable, unconscientious and unjust” for the Lumbers “to accept such benefits without making payment of the full value of the construction work carried out on the land”.
Builders’ claim in “Restitution/Unjust Enrichment” against Sons took generally the same form as the claim against the Lumbers. But on this branch of its claim, Builders alleged that the benefit which Sons had received was Sons’ right to sue the Lumbers for the price of the work done, and Sons having met its contractual obligations to perform the building contract. Again, Builders alleged that this benefit was obtained at the expense of Builders because Builders did the work and paid for it, and it was said to be “unconscionable, unconscientious and unjust” for Sons to retain that benefit without making payment to Builders. The pleading, which was not settled by counsel, failed to specify with the necessary clarity the material facts upon which Builders relied to demonstrate that conclusion in law. The pleading was embarrassing in the technical sense of that term[18]. This deficiency in the pleading by Builders of its case has contributed to difficulties apparent at all subsequent stages in the litigation.
The Lumbers’ defences
As noted earlier, the Lumbers admitted that they had made a building contract with Sons. They denied any knowledge of the alleged agreement or arrangement between Builders and Sons. The Lumbers alleged that Builders was not licensed under the Builders Licensing Act 1986 (SA) (in force at the time of building) or the Building Work Contractors Act 1995 (SA) (which later repealed and replaced the earlier Act) and that, by operation of one or other of those Acts, Builders was precluded from recovering “any fee or other consideration in respect of the building work”[19] unless the failure to hold and maintain a licence was inadvertent, which the Lumbers alleged was not the case here.
The Lumbers counterclaimed for damages, for allegedly defective work, but the detail of that counterclaim need not be examined.
Builders’ case at trial
Builders’ case at trial was much affected by the fact that, before trial, Sons obtained an order requiring Builders to provide security for its costs. Builders did not provide that security and further proceedings by Builders against Sons were then stayed. The case that Builders prosecuted at trial was, therefore, radically different from the case which it had pleaded. The case which Builders had pleaded had made alternative claims against the Lumbers and Sons. The case which Builders prosecuted at trial made claims only against the Lumbers.
At trial, the chief weight of argument on behalf of Builders was placed upon its contention that Builders and Sons had made a contract by which Sons assigned the benefit of its building contract with the Lumbers to Builders. The Lumbers denied any knowledge of the arrangements which it was alleged had been made between Builders and Sons; there was no evidence to the contrary. Builders’ assignment argument failed and its claims against the Lumbers were dismissed.
Builders’ case in the Full Court
On appeal to the Full Court of the Supreme Court of South Australia there was a marked shift in the way in which Builders put its case. Chief weight was then placed upon its restitution claim against the Lumbers. A majority of the Full Court (Sulan and Layton JJ; Vanstone J dissenting) held that the restitution claim should succeed[20]. The majority concluded that the Lumbers had received “an incontrovertible benefit”[21] which the Lumbers had freely accepted[22], that the benefit was received at Builders’ expense[23], and that it would be unconscionable for the Lumbers to retain the benefit without paying for it[24]. That Builders was not licensed under the Builders Licensing Act, and that the failure to hold a licence was not inadvertent, was held[25] not to preclude its recovering the sum it claimed from the Lumbers.
Builders’ appeal, therefore, was allowed. The judgment entered at trial in favour of the Lumbers was set aside and judgment entered for Builders.
It is against those orders that the Lumbers now appeal to this Court. The appeal to this Court should be allowed, and orders made restoring the judgment entered at trial dismissing Builders’ claims against the Lumbers.
The framework for analysis
The analysis undertaken by the majority in the Full Court proceeded from principles stated at a high level of abstraction. There were four elements in the framework of the analysis made by the Full Court: “benefit” (or “incontrovertible benefit”[26]), “acceptance” (or “free acceptance”[27]), “expense”, and unconscionability. Obviously, much turns on what is meant by those terms and upon what are the features said to make retention of the “benefit” unconscionable. Adding words like “incontrovertible” and “free” to some of the terms emphasises the evident difficulties of definition. As is especially relevant here, much also turns on the particular facts and circumstances to which the terms are to be applied. None of the terms, “benefit”, “acceptance” or “expense”, can usefully be defined or applied without deciding whether attention is to be confined to the party who is identified as conferring the benefit and the recipient of that benefit, or account must be taken of the legal relationships that exist between one or other of those two parties and some third party or parties in relation to the events and transactions said to constitute conferring a “benefit”, its “acceptance”, or the incurrence of “expense”.
In the present case, the majority in the Full Court directed principal attention to the relationship which it was held should be found to exist between Builders and the Lumbers. The legal relationship between the Lumbers and Sons was put to one side. Two bases for taking that step were identified. First, it was said[28] that Sons “did not perform its obligations” under its contract with the Lumbers. It was said[29] to be “not to the point for the Lumbers to claim that they are not liable to Builders because they have a contract with Sons, if Sons did not perform their part of the contract”. Secondly, emphasis was given to the fact that Sons had acknowledged[30] that it has no claim against the Lumbers. The majority in the Full Court concluded[31] that in these circumstances “to uphold a claim in restitution by Builders in no way interferes with the contractual relationship between Sons and the Lumbers”.
These reasons will demonstrate that the legal relationship between Sons and the Lumbers cannot be dismissed from consideration, whether on the bases assigned by the majority in the Full Court or otherwise. When proper account is taken of the rights and obligations that existed between Sons and the Lumbers under their contract, the analysis made by the majority in the Full Court is shown to be flawed. The Lumbers are not shown to have received a “benefit” at Builders’ “expense” which they “accepted”, and which it would be unconscionable for them to retain without payment. No less importantly, proper analysis of the legal relationships revealed by the evidence will illustrate the dangers inherent in “top-down reasoning”[32].
The application of a framework for analysis expressed only at the level of abstraction adopted in this case, by reference to “benefit”, “expense” and “acceptance” coupled with considerations of unconscionability, creates a serious risk of producing a result that is discordant with accepted principle, thus creating a lack of coherence with other branches of the law[33]. There are two reasons of particular relevance to this case why that is so. They may be identified by reference to two questions which, although expressed separately, will later be seen to intersect in several ways. First, does applying the posited framework for analysis to the facts of the present case extend the availability of recovery beyond the circumstances in which a claim for work and labour done (or money paid) for and at the request of the defendant would be available? Secondly, and no less importantly, how is the result of applying this framework for analysis consistent with the obligations relevant parties undertook by their contractual arrangements?
The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a “benefit” at the “expense” of another which the recipient “accepts” and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this Court’s decision in Steele v Tardiani[34], an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd[35], “serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract”. In a similar vein, in the Comments upon §29 of the proposed Restatement, (3d), “Restitution and Unjust Enrichment”[36], the Reporter says:
“Even if restitution is the claimant’s only recourse, a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.”
Likewise, it is essential to consider whether the facts of the present case yield to analysis as a claim for work and labour done, or money paid, because where one party (in this case, Builders) seeks recompense from another (here the Lumbers) for some service done or benefit conferred by the first party for or on the other, the bare fact of conferral of the benefit or provision of the service does not suffice to establish an entitlement to recovery. As Bowen LJ said in Falcke v Scottish Imperial Insurance Company[37]:
“The general principle is, beyond all question, that work and labour done or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will.” (emphasis added)
The principle is not unqualified. Bowen LJ identified[38] salvage in maritime law as one qualification. Other cases, including other cases of necessitous intervention, may now be seen as further qualifications to the principle but it is not necessary to examine in this case how extensive are those further qualifications or what is their content. For the purposes of this case the critical observations to make are first that Builders’ restitutionary claim does not yield to analysis as a claim for work and labour done or money paid and secondly, that Builders’ restitutionary claim, if allowed, would redistribute not only the risks but also the rights and obligations for which provision was made by the contract the Lumbers made with Sons.
A claim for work and labour done or money paid?
At trial, Builders did not frame its claim against the Lumbers as a claim for work and labour done or money paid at the Lumbers’ request. Builders, therefore, did not seek to prove that the Lumbers had ever asked Builders to do whatever Builders did in connection with building the Lumbers’ house. And the evidence that was led at trial showed that the Lumbers had never asked Builders to do anything in connection with the Lumbers’ house.
On the hearing of the appeal to this Court, however, Builders submitted that acceptance of a benefit, without a request, would be sufficient, at least in this case, to found an action by Builders for work and labour done or money paid. Builders submitted that this conclusion was supported, if not required, by this Court’s decision in Pavey & Matthews Pty Ltd v Paul[39]. That is not so.
In Pavey & Matthews, a majority of this Court held[40] that the right to recover on a quantum meruit does not depend on the existence of an implied contract but on a claim to restitution or one based on unjust enrichment. The concept of unjust enrichment was described[41] by Deane J in Pavey & Matthews as constituting:
“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.”
It is important to recognise two points about Pavey & Matthews. First, there was no issue in that case about whether the plaintiff, a builder, had a claim for work and labour done and materials supplied. The issue in the case was whether that claim was defeated by a statutory provision[42] analogous to s 4 of the Statute of Frauds 1677 (UK) (“no action shall be brought upon any agreement … unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized”). In particular, the issue was whether the builder’s action on a quantum meruit was a direct or indirect enforcement of the oral contract the parties had made. The majority in Pavey & Matthews held[43] that because “the true foundation of the right to recover on a quantum meruit does not depend on the existence of an implied contract” the action was not “one by which the plaintiff seeks to enforce the oral contract”.
The second point to be noted is that unjust enrichment was identified as a legal concept unifying “a variety of distinct categories of case”[44]. It was not identified as a principle which can be taken as a sufficient premise for direct application in particular cases. Rather, as Deane J emphasised[45] in Pavey & Matthews, it is necessary to proceed by “the ordinary processes of legal reasoning” and by reference to existing categories of cases in which an obligation to pay compensation has been imposed. “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.”[46] On the contrary, what the recognition of the unifying concept does is to assist “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” (emphasis added)[47].
Builders’ submission that acceptance of a benefit, without a request, suffices to found an action for work and labour done or money paid thus finds no direct support in Pavey & Matthews. That issue did not arise and was not decided in that case. Rather, the question to which Pavey & Matthews directs attention is whether the long-established and well-recognised category of cases constituted by claims for work and labour done or money paid at the request of another should be extended or developed in the manner for which Builders contended. And in that regard Builders emphasised what had been said by Doyle CJ, for the Full Court of the Supreme Court of South Australia, in Angelopoulos v Sabatino[48].
It is convenient to consider the decision in Angelopoulos by reference to Builders’ submission that, subject to one immaterial qualification, all the nine factors identified[49] by Doyle CJ in Angelopoulos as relevant to “acceptance” of a benefit, were present in this case. It is important, however, to preface that consideration by observing that although Builders’ argument was directed immediately to demonstrating that “acceptance” of a benefit suffices to found an action for work and labour done or money paid, its arguments about the availability of an action for work and labour done or money paid were directed ultimately to the proposition that adopting the framework for analysis used by the majority in the Full Court in this case was not inconsistent with long-established principles governing actions for work and labour done or money paid.
Adapting what was said by Doyle CJ in Angelopoulos to the facts of this case, the nine factors identified by Builders as supporting its claim were:
(a) the plaintiff (here, Builders) did not do the work gratuitously;
(b) Builders did not act “entirely at [its] own initiative”[50] but at the implied request of the Lumbers;
(c) payment for doing the work was not subject to fulfilment of a subsequent condition;
(d) the work was not done “on a basis from which [Builders] chose to depart”[51];
(e) the Lumbers benefited from what Builders did;
(f) the benefit was conferred at the expense of Builders;
(g) the Lumbers “approved of or agreed to”[52] Builders carrying out the work it did;
(h) the circumstances were such that the Lumbers “must have known as … reasonable [persons] that [Builders] expected to be remunerated for [its] services”[53]; and
(i) there is no particular circumstance (such as change of position) by virtue of which it would be unjust to require the Lumbers to remunerate Builders.
It will be noted that the second of the matters identified was the making of an “implied request” by the Lumbers to Builders to do the work and to pay money. At once it should be pointed out that, if Builders did whatever work it did and paid whatever money it paid at the Lumbers’ request, Builders’ claim for a reasonable price for the work and for the money it paid would fall neatly within long-established principles. It would matter not at all whether the request was made expressly, or its making was to be implied from the actions of the parties in the circumstances of the case[54]. Builders would have an action for work and labour done or money paid for and at the request of the Lumbers.
And if Builders did work or paid money at the Lumbers’ request, it would also follow that it would be neither necessary nor appropriate to consider any of the other eight factors identified in Angelopoulos in deciding whether Builders could recover a fair price for the work it had done and the amount it had paid for and at the request of the Lumbers. To the extent that Angelopoulos is understood as requiring separate or additional consideration of those other factors, where a plaintiff seeks to recover a fair price for work done at the defendant’s request, or the amount the plaintiff has paid for the defendant at the defendant’s request, Angelopoulos is wrong and should not be followed.
But in the end Builders did not submit that it could be found that the Lumbers had made any request directed to Builders. Rather, Builders’ arguments proceeded from the premise that, in the present case, the Lumbers’ request (or requests) for work to be done and money paid was (or were) directed to Sons and not to Builders. Although Builders thus accepted that, unlike Angelopoulos, it could not be said that the Lumbers made any request directed to Builders, this difference from Angelopoulos was said to be immaterial. The identity of the party to whom the request was directed was said to be of no moment because confusion about which company in a group of companies is party to a contract is a common occurrence in modern corporate life[55]. And although no case of mistake was run at trial, or on appeal to the Full Court, the possibility of confusion of identity between Sons and Builders was said by Builders to be reason enough to treat the fact of a request, regardless of the identity of the party to whom the request was directed, as the relevant consideration.
The propositions just described take several steps that would require the closest consideration before they could be accepted. First, it may greatly be doubted that any sufficient foundation was laid in the evidence adduced or arguments advanced in the courts below for either an argument based in mistake about the identity of the party with whom the Lumbers dealt, or an argument based in some confusion of identity between Sons and Builders. Secondly, even if it were to be accepted that confusion about the identity of the relevant contracting parties can and sometimes does occur when a contract is made with one of a group of companies, the legal consequences of any such confusion have hitherto been determined by application of the law of contract and doctrines of mistake[56].
It is not necessary, however, to pursue these aspects of the matter further. Rather, it is important to recognise that, although expressed in different terms, Builders’ argument that the identity of the party to whom the Lumbers directed their request to do work and pay money should be dismissed as irrelevant, was an argument that sought to treat the contract made between the Lumbers and Sons as irrelevant.
And it will be recalled that it was a necessary element of the reasoning of the majority in the Full Court to put aside further consideration of the contract between Sons and Lumbers. It will further be recalled that the majority in the Full Court took that step on the bases, first, that Builders “did the work” and Sons “did not perform its obligations” under its contract with the Lumbers, and secondly, that Sons acknowledged it had no claim against the Lumbers.
Both bases for putting aside the contract between Sons and Lumbers are flawed.
Builders did the work?
The first proposition made by the majority in the Full Court was expressed in several different ways but each can be seen as a variant of a single compound proposition: that “Builders did the work, and Sons did not”. To say that “Builders did the work, and Sons did not”, elides a number of different ideas. Neither Builders nor Sons “did” any work. Each is a corporation. The work that was done in the construction of the house, whether it was done at the building site or in an office, was done by individuals. Before deciding which company “did” the work it would be necessary to identify for which company the relevant individuals were working. Here, as in so much else of the trial of this litigation, the evidence was exiguous and such evidence as was adduced was less than clear.
On any view of the matter, Mr McAdam was an important participant in relevant events. He negotiated the original contract with the Lumbers. As noted earlier, there was no dispute that he did this on behalf of Sons. But Mr McAdam was also, so it seems, the originator of the idea that Builders should “take over” the work on the Lumbers’ contract from Sons. And it was Mr McAdam who was said to have made the agreement or arrangement between Builders and Sons that Builders would “take over” the work, and it was he who then carried that agreement or arrangement into effect. But neither side in the present litigation called Mr McAdam to give evidence.
Such little evidence as was given about the relationships between Builders and Sons was given by Mr Jeffrey Cook. Two aspects of those relationships require examination: first, the corporate relationship between the two entities and second, the agreement or arrangement made between them to effect a “changeover” of the company that was to be responsible for the construction of the Lumbers’ house.
The evidence led at trial suggested that, in 1993, Sons was, and for many years had been, the chief building company in a group of companies associated with several members of the Cook family who were third or subsequent generation descendants of the eponymous W Cook. The companies traced their history to about 1910.
Mr Jeffrey Cook was a director of Sons up to at least 1993, the year before Sons made its contract with the Lumbers. At that time there were two shareholders of Sons: an investment company associated with Mr Jeffrey Cook and his family, and another investment company associated with another branch of the Cook family. The shareholding and directorate of Builders were said to differ from those of Sons, but no details of those differences were given in evidence. In 1993, Mr Jeffrey Cook “sat at the top of the apex for managing the building side of the business” of Sons. Sons also operated a joinery workshop and in 1993 Mr Jeffrey Cook managed that part of the business as well.
Mr McAdam began working in the Cook businesses in 1959. He was appointed a director of Sons in 1964, the year in which it was incorporated. In 1993, he was responsible for the financial and contract administration of Sons.
At the start of 1994, Mr McAdam proposed to Mr Jeffrey Cook “separating” the joinery business of Sons from its building business. Mr Cook agreed that this should be done, and agreed that, “after the changeover”, building work would be done by Builders (then a company which did not operate in any way). This “changeover”, Mr Cook said, was done by book entries and took effect from about April 1994. At trial he said that he understood the changeover “was going to be effective in relation to probably the separation and then the viability of keeping them [the joinery and the building businesses] separate to make them more financial”. Mr Cook’s evidence-in-chief was that the so-called “changeover” was effected “in the books”. He said that Sons carried out the work on the Lumbers’ house until the changeover, but that after the changeover “[i]n the books it was W. Cook Builders” (emphasis added).
At the outset of the trial, counsel then appearing for the Lumbers indicated that there was no dispute that “the subcontractors were, in fact, paid by [Builders]”. Given that it was not disputed that the Lumbers had paid some subcontractors directly, this statement of what was not disputed was expressed too widely. Nonetheless, the conventional basis upon which the litigation has been conducted at all stages is that Builders paid those subcontractors whom the Lumbers did not pay.
The books in which entries were made to effect the “changeover” about which Mr Jeffrey Cook gave evidence were not tendered. No evidence was led to show what happened, if anything, about employment contracts or bank accounts. In particular, the trial judge was unable to say whether payments made to subcontractors after the changeover were made from a separate bank account of Builders or from what he described as “Cook Group funds, with the payments being debited through journal entries to the Builders accounts”. As his Honour went on to say:
“Externally … nothing appeared to have changed. The same employees, including Mr Jeffrey Cook, continued with the building work. Mr McAdam continued to occupy an office adjoining that of Mr Cook, and maintained direct contact with Mr Warwick Lumbers. Neither Mr Jeffrey Cook nor Mr McAdam made any mention to the Lumbers or the architect Mr Fielder of the existence of Builders, or even the re-organisation.”
As noted earlier, Mr Warwick Lumbers paid directly some subcontractors who worked on the house. Otherwise, all payments made by the Lumbers were directed to Sons; none was directed to Builders. The payments the Lumbers made to Sons were made in response to oral requests by Mr McAdam. No written progress claims or invoices were said to have been prepared or sent to the Lumbers, whether on behalf of Sons or on behalf of Builders.
There was a dispute at trial about what amount should be allowed for supervision of the work that was done. (The claim for supervision was the largest part of the claim that Builders made against the Lumbers.) The trial judge found that 10 per cent of cost was a fair allowance for supervision. This finding is not now challenged and the dispute about the quantum of this aspect of the claim may be put aside. But while the evidence at trial assumed that Mr Jeffrey Cook played an important part in supervising the construction of the house, no evidence was led of what he did, or of what were the arrangements pursuant to which he undertook that work.
Who “did the work”?
To say, in these circumstances, that Builders “did the work” obscures what were the legal relationships that brought about the result described. The end result described is as consistent with Builders having performed or procured performance of the work in satisfaction of an obligation it owed to Sons, as it is with Builders performing or procuring performance of the work in satisfaction of an obligation it understood that it owed to the Lumbers. And if Builders performed or procured performance of the work in satisfaction of an obligation it owed to Sons, Sons thereby procured the performance of the obligation it owed the Lumbers.
Issues about the possible intersections between contractual arrangements, on the one hand between Builders and Sons, and on the other between the Lumbers and Sons, were not explored at trial. The evidence that was led at trial required the conclusion, however, that whatever may have been the legal effect of the arrangements which Mr McAdam had sought to effect between Builders and Sons, and whatever it was that Builders later did in performance of those arrangements, anything that Builders did in relation to the building of the Lumbers’ house was done with the knowledge and assent of Sons.
It is possible that the informality of the “changeover” arrangements which Mr McAdam made was such that it could not be said that Builders and Sons agreed upon terms to effect that “changeover” that were sufficiently certain to be enforceable as a contract between Builders and Sons. If that were so, it may not be apt to describe the relationship between those entities as a subcontract. It is also possible, however, that despite the informality of the arrangement, an enforceable agreement was reached that Builders would perform Sons’ work under the Lumbers contract. Indeed, making such an agreement was an important element in the assignment case Builders had advanced at trial.
It is only in this Court that Builders sought for the first time to advance a different case and argue (under cover of a notice of contention) that the arrangements between Builders and Sons were too uncertain to admit of enforcement. It is too late for Builders to advance such a case[57]. If the point had been taken at trial different evidence may well have been adduced.
In any event, however, if no concluded agreement was made between Builders and Sons before work was done or money was paid, there is no doubt that, if the work was done by Builders it was done at Sons’ request, or that, if Builders paid money, it did so at Sons’ request. It follows that, if Builders did work or paid money, it had a claim against Sons for work done and money paid at Sons’ request. That is, if Builders did work or paid money, Builders could look to Sons for payment for the work it did and the money it paid at the request of Sons in performance of the building works which Sons had agreed to perform under its contract with the Lumbers. However, if an enforceable contract were made then no action would lie for a quantum meruit while the contract remained on foot[58].
It also follows that, if Builders did work or paid money, Sons could point to that work or that payment by Builders as done or paid in performance of Sons’ obligations to the Lumbers. Sons could do that because nothing in the evidence suggested that Sons could not engage persons other than its employees to build the Lumbers’ house. Such evidence as was led at trial suggested that, in accordance with common building practice, both the Lumbers and Sons assumed that subcontractors would be engaged to perform the work.
It follows that the compound premise for the conclusions reached by the majority in the Full Court, that “Builders did the work and Sons did not”, obscured much more than it illuminated. To the extent that the proposition identifies who paid subcontractors or material suppliers, it is a proposition that is incomplete in relevant respects. It is incomplete because it does not identify what were the legal relationships that governed those payments. Further, to the extent that the proposition asserts that it was employees or subcontractors of Builders who worked at the site of the Lumbers’ house, the proposition is again incomplete in a relevant respect. It is incomplete to the extent that it does not reflect the evidence led at trial that demonstrated that Sons procured Builders to do the work that Sons had contracted to perform. It procured that result either by making a contract with Builders to that effect or, if there was no contract, by asking that Builders do it. And contrary to the conclusion reached by the majority in the Full Court it follows that the evidence led at trial did not establish that Sons had “failed” to do the work its contract with the Lumbers required it to perform, or that Sons was otherwise in breach of its contract with the Lumbers in any relevant respect.
For these reasons, the first of the two bases on which the majority in the Full Court put aside, as irrelevant, the legal relationship between the Lumbers and Sons (that Builders did the work and Sons did not) is shown to be wrong. What of the other basis relied on by the Full Court: Sons’ disavowal of any claim against the Lumbers?
Sons makes no claim?
By a letter dated 1 February 1999, signed by Mr Malcolm J Cook as a director of Sons, Mr Warwick Lumbers was told that “there are no outstanding amounts owing either by yourself, or any other person or entity, to [Sons] in relation to the construction” of the Lumbers’ house. Reference was made in that letter to “a restructuring of the Company [Sons] in 1994” and to Mr Jeffrey Cook taking over “all building & construction operations currently in progress, operating as [Builders] … and [continuing] building operations until May 1998, when [Builders] went into liquidation”. The letter said that “[a]ll invoicing & receipts in relation to [the Lumbers’ house] (and all other building projects) were through the accounts system of [Builders]”. The letter concluded by saying that “Mr Jeffrey Cook has had no input into this reply” and that he had “had no contact with [Sons] in relation to the day-to-day operations of the Company, since about May of 1998”.
No evidence was led at trial about how or why this letter was written. In particular, Mr Warwick Lumbers was not asked any question about how the letter came about. Be this as it may, it is plain from the letter’s text that, at least in February 1999, Sons made no claim to any further payment in respect of the construction of the Lumbers’ house. And there was no evidence led at trial that Sons had thereafter sought any further payment from the Lumbers.
The majority in the Full Court treated the fact that Sons has made no claim for further payment from the Lumbers as bearing upon whether allowing a claim in restitution by Builders “interferes with the contractual relationship between Sons and the Lumbers”[59]. But the absence of any claim by Sons against the Lumbers does not, without more, say anything about the nature or the content of the contractual relationship between Sons and the Lumbers. And the absence of a claim by Sons does not demonstrate, as the majority in the Full Court assumed, that the Lumbers would obtain some “windfall” unless the Lumbers were found liable to Builders.
It is necessary to say something more about both the relevance of the contractual relationship between Sons and the Lumbers and about the notion of “windfall”. Because the two matters are related it will be convenient to begin by saying something about the notion of “windfall”.
An important element in the reasoning of the majority in the Full Court was that if the Lumbers were not held liable to Builders they would have obtained a house for which they had not paid enough. The amount paid was characterised as not “enough” by taking the amount that had been outlaid for subcontractors and materials, adding an amount for supervision and the agreed profit margin, and comparing that with the total payments made by the Lumbers. And because the total of outlays, supervision, and profit exceeded the total payments made, it was said that the Lumbers would receive a “benefit”, a “gain” or a “windfall” if they were not found to be liable to Builders.
The accuracy and the relevance of any such characterisation depends upon whether the Lumbers had performed their obligations under their contract with Sons. If the Lumbers have not fully performed their obligations under their contract with Sons, by not paying all that is due to Sons, it is evident that the Lumbers have not received any benefit, gain or windfall. They would remain liable to Sons. Questions of benefit, gain or windfall could arise only if Sons has no further claim against the Lumbers. Two possible bases for the conclusion that Sons has no further claim against Lumbers should be examined.
If the Lumbers have paid all that they owe Sons under the agreement they made with Sons, it may then be possible to say that Sons made an improvident bargain. But whether that description of the bargain is apt is not now relevant. What is presently important would be the conclusion that the Lumbers have satisfied their obligations to Sons, not any commercial characterisation of the bargain. Yet as earlier explained, notions of “benefit”, “gain” or “windfall” employed in this case do not depend upon an analysis of the legal obligations of the parties. They seek to invoke some broader economic analysis comparing the “worth” or “value” of the end product (determined by totalling the outlays made to construct the house) with the amount the Lumbers have paid.
If, on the other hand, the Lumbers have not paid Sons all that Sons could lawfully demand under the agreement between the Lumbers and Sons, there may be some question about the legal effect of the letter written on behalf of Sons. If that letter were to be held to now stand in the way of Sons recovering amounts otherwise due under the agreement, the sending of the letter may again be described as improvident or commercially unwise. But again such a characterisation of the letter is not to the point. If the letter does provide an impediment to further recovery by Sons from the Lumbers, the Lumbers would have obtained, in effect, a sufficient discharge from Sons of their obligations. But no matter whether the Lumbers have paid all that they owe, or the letter written by Sons presents some legal obstacle to Sons’ recovering further sums owed by the Lumbers, it is not right to describe the result as one in which the Lumbers have in any sense obtained a “windfall”. The economic result arrived at follows either from the bargain that Sons made with them, or from the way in which Sons has subsequently dealt with that bargain. It is not a result that follows from anything that the Lumbers sought to have Builders do or refrain from doing.
For these reasons, the second of the bases upon which the majority in the Full Court put aside from consideration the contractual obligations undertaken by the Lumbers and Sons is also flawed.
The relevance of the contract between the Lumbers and Sons
When account is taken of the contractual relationship between the Lumbers and Sons several observations may then be made.
First, the Lumbers accepted no benefit at the expense of Builders which it would be unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If either the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been fully performed (because all that is owed by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against the Lumbers, parties with whom Builders has no contract.
Because Builders had no dealings with the Lumbers, Builders has no claim against the Lumbers for the price of any work and labour Builders performed or for any money that Builders may have paid in relation to the construction. Builders has no such claim because it can point to no request by the Lumbers directed to Builders that Builders do any work it did or pay any money it did. Reference to whether the Lumbers “accepted” any work that Builders did or “accepted” the benefit of any money it paid is irrelevant. It is irrelevant because it distracts attention from the legal relationships between the three parties: the Lumbers, Sons and Builders. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that.
The second observation to be made is more general. It is that identification of the rights and obligations of the parties, in this as in any matter, requires close attention to the particular facts and circumstances of the case. Necessarily that requires close attention to what contractual or other obligations each owes to the other.
Conclusion and Orders
Builders claim in restitution against the Lumbers fails. It is then not necessary to consider the Lumbers’ defence to that claim founded in the Builders Licensing Act or the Building Work Contractors Act.
The appeal should be allowed with costs, the orders of the Full Court of the Supreme Court of South Australia set aside and in their place there should be orders that the appeal to that Court is dismissed with costs.
[1] See Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491 at 497; [1988] HCA 12.
[2] [1902] 2 KB 660.
[3] [1994] 1 AC 85.
[4] W Cook Builders Pty Ltd (in liq) v Lumbers [2007] SASC 20; (2007) 96 SASR 406.
[5] (1987) 162 CLR 221; [1987] HCA 5.
[6] [1987] HCA 5; (1987) 162 CLR 221 at 245.
[7] cf Monks v Poynice Pty Ltd (1987) 8 NSWLR 662.
[8] Hampton v Glamorgan County Council [1917] AC 13.
[9] See Restatement of the Law: Restitution and Unjust Enrichment, 3d, Tentative Draft No 3 (2004) at §29.
[10] [1994] 1 WLR 161 at 166; [1994] 1 All ER 470 at 475.
[11] eg Worker’s Liens Act 1893 (SA); Subcontractors’ Charges Act 1974 (Q).
[12] cf Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 at 843; Esso Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; (1999) 201 CLR 49 at 62 [24]; [1999] HCA 67.
[13] [1946] HCA 21; (1946) 72 CLR 386 at 402-403; [1946] HCA 21.
[14] [1898] 1 QB 673 at 676.
[15] cf Goff and Jones, The Law of Restitution, 7th ed (2007) at [1-019].
[16] cf Hampton v Glamorgan County Council [1917] AC 13; Winterton Constructions Pty Ltd v Hambros Australia Ltd [1991] FCA 171; (1991) 101 ALR 363; Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161; [1994] 1 All ER 470; Watts, “Does a subcontractor have restitutionary rights against the employer?”, (1995) Lloyd’s Maritime and Commercial Law Quarterly 398.
[17] Defined in s 2 of the Worker’s Liens Act 1893 (SA) as “a person (not being a sub-contractor) contracting with or employed by another person to do work, or to procure work to be done, or to furnish materials in connection with work” (emphasis added).
[18] Winterton Constructions [1991] FCA 171; (1991) 101 ALR 363 at 375-376.
[19] Builders Licensing Act 1986 (SA), s 39; cf Building Work Contractors Act 1995 (SA), s 6(2) – “fee, other consideration or compensation under or in relation to a contract”.
[20] W Cook Builders Pty Ltd (in liq) v Lumbers [2007] SASC 20; (2007) 96 SASR 406.
[21] [2007] SASC 20; (2007) 96 SASR 406 at 422 [75].
[22] [2007] SASC 20; (2007) 96 SASR 406 at 423-424 [83]- [84].
[23] [2007] SASC 20; (2007) 96 SASR 406 at 424 [86].
[24] [2007] SASC 20; (2007) 96 SASR 406 at 426 [95].
[25] [2007] SASC 20; (2007) 96 SASR 406 at 426 [99]- [100].
[26] The word “incontrovertible” has been used in this context to direct attention to whether what has been done results in an accretion to the defendant’s wealth. As Beatson pointed out in Guest et al (eds), Chitty on Contracts (“Chitty”), 26th ed (1989), vol 1 at 1317 [2040]: “[i]n the case of the rendering of services as opposed to the payment of money, ‘the identity and value of the resulting benefit to the recipient may be debatable’ [BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 799]”.
[27] The word “free” has been used in this context to direct attention to whether the recipient of a benefit had an opportunity to accept or reject the benefit. Cf Munro v Butt [1858] EngR 216; (1858) 8 E & B 738 [120 ER 275]; Sumpter v Hedges [1898] 1 QB 673; Forman & Co Pty Ltd v The Ship “Liddesdale” [1900] AC 190. Writing in successive editions of Chitty, Beatson suggested that English law “appears hostile to claims for services rendered or work done in the absence of a contract (express or implied) between the parties [and that] [t]he mere receipt of a benefit, when the defendant had no real option to accept or reject it, does not justify a claim for quantum meruit” (footnotes omitted). See Chitty, 25th ed (1983), vol 1 at 1153 [2050], 26th ed (1989), vol 1 at 1408-1409 [2145], 27th ed (1994), vol 1 at 1490 [29-127], 28th ed (1999), vol 1 at 1564 [30-186]; cf 29th ed (2004), vol 1 at 1698 [29-109], 1708 [29-131].
[28] [2007] SASC 20; (2007) 96 SASR 406 at 416 [45].
[29] [2007] SASC 20; (2007) 96 SASR 406 at 416 [47].
[30] [2007] SASC 20; (2007) 96 SASR 406 at 416 [45].
[31] [2007] SASC 20; (2007) 96 SASR 406 at 416 [45].
[32] Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 544 [73] per Gummow J; [2001] HCA 68; McGinty v Western Australia [1996] HCA 48; (1996) 186 CLR 140 at 232 per McHugh J; [1995] HCA 46.
[33] See Sullivan v Moody (2001) 207 CLR 562 at 580-581 [53]-[55] per Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ; [2001] HCA 59.
[34] (1946) 72 CLR 386; [1946] HCA 21.
[35] [1994] 1 WLR 161 at 166; [1994] 1 All ER 470 at 475.
[36] Tentative Draft No 3, 22 March 2004. Section 29 deals with the topic of restitution in cases of “Self-Interested Intervention”.
[37] (1886) 34 Ch D 234 at 248.
[38] (1886) 34 Ch D 234 at 248.
[39] (1987) 162 CLR 221; [1987] HCA 5.
[40] [1987] HCA 5; (1987) 162 CLR 221 at 227 per Mason and Wilson JJ, 256-257 per Deane J.
[41] [1987] HCA 5; (1987) 162 CLR 221 at 256-257.
[42] Builders Licensing Act 1971 (NSW), s 45.
[43] [1987] HCA 5; (1987) 162 CLR 221 at 227 per Mason and Wilson JJ; see also at 256 per Deane J.
[44] [1987] HCA 5; (1987) 162 CLR 221 at 257 per Deane J.
[45] [1987] HCA 5; (1987) 162 CLR 221 at 257.
[46] [1987] HCA 5; (1987) 162 CLR 221 at 256 per Deane J.
[47] [1987] HCA 5; (1987) 162 CLR 221 at 257 per Deane J.
[48] [1995] SASC 5230; (1995) 65 SASR 1.
[49] [1995] SASC 5230; (1995) 65 SASR 1 at 12-13.
[50] [1995] SASC 5230; (1995) 65 SASR 1 at 13.
[51] [1995] SASC 5230; (1995) 65 SASR 1 at 13.
[52] [1995] SASC 5230; (1995) 65 SASR 1 at 13.
[53] [1995] SASC 5230; (1995) 65 SASR 1 at 13.
[54] Birmingham and District Land Company v London and North Western Railway Company (1886) 34 Ch D 261 at 274 per Bowen LJ; Way v Latilla [1937] 3 All ER 759 at 765 per Lord Wright.
[55] cf Qintex Australia Finance Ltd v Schroders Australia Ltd (1990) 3 ACSR 267 at 268.
[56] Qintex (1990) 3 ACSR 267 at 276-277.
[57] Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12.
[58] Matthes v Carter (1955) 55 SR (NSW) 357 at 364; Gino D’Allesandro Constructions Pty Ltd v Powis [1987] 2 Qd R 40 at 59.
[59] [2007] SASC 20; (2007) 96 SASR 406 at 416 [45].
Jeremy D. Stone Consultants Ltd & Anor v National Westminster Bank Plc & Anor
[2013] EWHC 208 (Ch) (11 February 2013)
Mr Justice Sales :
Introduction
In these proceedings the Claimants claim the return of monies paid into accounts held with the First Defendant (“NatWest”) and damages or equitable compensation from the Defendants in relation to losses suffered by them as a result of being persuaded by an old friend of the Stone family, Mr Jolan Saunders (“Mr Saunders”), to invest in a business which, the Claimants later learned, was a fraudulent Ponzi scheme operated by Mr Saunders. The Claimants’ investments were made between June 2009 and April 2010.
The Second Claimant (whom, for simplicity, I will call Jeremy) had amassed considerable personal wealth by early 2009 from his employment in and part ownership of a hedge fund investment company, which had been sold in early 2008 at a large profit. The First Claimant (“JDSCL”) is a company established to manage investments by Jeremy and others. JDSCL is managed by Martin Stone (“Martin”) and Emily Stone (“Emily”), who took on responsibility for managing Jeremy’s investments and personal wealth. Martin is Jeremy’s father. He is an experienced accountant who runs his own corporate finance advisory business called Jemstone Financial Ltd (“Jemstone”). Emily is Jeremy’s younger sister.
……..
Legal Analysis
In the light of my findings of fact, I now address in turn the legal claims advanced by the Claimants.
(i) Dishonest assistance by Mr Aplin in breach of fiduciary duty by Mr Saunders and SEWL
Dishonesty on the part of a defendant is the relevant standard for liability under this head of claim: see Twinsectra Ltd v Yardley [2002] 2 AC 164; Aerostar Maintenance International Ltd v Wilson [2010] EWHC 2032 (Ch), at [178] per Morgan J.
As I have made clear in my account of the facts, Mr Aplin was not dishonest. He was unaware that Mr Saunders and SEWL were perpetrating a fraud on the Claimants. Although, near the end, from 22 February 2010, he was aware that Martin had a different understanding than he did about the destination of the hotel receipts, he did not doubt that SEWL’s hotel business was genuine and legitimate and in all major respects in line with Martin’s understanding about that business. Mr Aplin did not think that Mr Saunders was acting in breach of any fiduciary duty owed to the Claimants. This claim therefore fails.
(ii) Deceit by Mr Aplin
In my judgment, Mr Aplin made no false statements or representations to the Claimants. He acted honestly throughout, and did not intend to mislead them by anything he said or did. Therefore this claim also fails.
(iii) Conspiracy by Mr Aplin with Mr Saunders and Mr Strubel to injure the Claimants by unlawful means
Mr Aplin was not a party to any conspiracy with Mr Saunders and Mr Strubel to injure the Claimants. For the same reasons as are set out above in relation to (i) and (ii), this claim fails.
(iv) Unjust enrichment of NatWest by its receipt of monies paid by the Claimants into SEWL’s accounts with NatWest on the basis of mistake
The Claimants undoubtedly did pay money into SEWL’s NatWest accounts (principally the No. 2 account) on the basis of their mistaken belief that the hotel business was genuine. The Claimants therefore have a cause of action against SEWL in unjust enrichment to reclaim the payments made, but SEWL has no money to meet such claims. The issue, therefore, is whether the Claimants also have claims in unjust enrichment against NatWest, which received the Claimants’ payments into SEWL’s accounts.
In my judgment, the Claimants have no good claim in unjust enrichment against NatWest, either because NatWest was not enriched by the payments or because (even if on proper analysis it was enriched) it has a good defence.
As to the issue of enrichment, it is true that when the Claimants paid sums to NatWest for the account of SEWL, NatWest received those sums and added them to its stock of assets as monies to which it was beneficially entitled. However, the increase in its assets was matched by an immediate balancing liability, in the form of the debt which NatWest owed SEWL reflected in the increase in SEWL’s bank balance as a result of the payments. This is how the relationship between bank and customer works. There was no basis – at any rate none known to NatWest at the relevant time as the receipts came in, credit entries were made on the accounts and payments were made out against those credit entries – on which NatWest had any entitlement to withhold payment of sums representing credit balances on the accounts when instructed by SEWL to pay.
Therefore, in my judgment, NatWest was not enriched by the payments made by the Claimants into SEWL’s bank accounts (in that regard see Box v Barclays Bank Plc [1998] Lloyd’s Rep. Bank. 185 and Compagnie Commercial Andre SA v Artibell Shipping Co. Ltd 2001 SC 653, Court of Session, Outer House, at [16] per Lord Macfadyn). The Claimants’ proper unjust enrichment claim is against SEWL, whose assets were increased upon the making of the payments to its bank accounts by the increases in its balances on those accounts (representing the debt owed to it by NatWest).
Even if I am wrong about that, and NatWest was enriched in a relevant sense by the Claimants’ payments, I consider that it would have a good defence to the claim based on the fact that it had a contractual obligation to pay out the sums in SEWL’s account in accordance with the instructions of its customer, and did so. Mr Wardell submitted that this gave rise to a defence of good faith change of position and/or to a distinct defence of ministerial receipt (see Portman Building Society v Hamlyn Taylor Neck (A firm) [1998] 4 All ER 202, 207-208).
In my judgment, both defences are available for NatWest. I would particularly emphasise the availability of the defence of ministerial receipt, in the sense that NatWest received the payments in question and became subject to an obligation to its customer transfer them out of the accounts again according to its instructions. In my view, that defence is clearly established even in the period after 22 February 2010, when Mr Aplin first became aware that Martin was mistaken about the account into which Mr Saunders had arranged for the hotel receipts to be paid. At that stage, Mr Aplin still had no idea that Mr Saunders was committing a fraud against the Claimants, and NatWest had no good grounds to refuse to honour its contractual obligations to SEWL to pay out the money in the No. 1 and No. 2 accounts according to SEWL’s instructions. In such circumstances, it would be unjust to impose any liability on NatWest in relation to its receipt of sums which it was then obliged to pay out again on SEWL’s instructions.
The defence of good faith change of position, recognised in Lipkin Gorman v Karpnale [1991] 2 AC 548, is in my judgment also available. For the purposes of this defence, relevant bad faith “is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself” (Niru Battery Manufacturing Co. v Milestone Trading Ltd [2002] EWHC 1425; [2002] 2 All ER (Comm) 705 at [135] per Moore-Bick J); and see the discussion on appeal at [2003] EWCA Civ 1446; [2004] QB 985 at [143]-[165] per Clarke LJ, in particular at [162], where he endorsed Moore-Bick J’s approach and said: “the essential question is whether on the facts of a particular case it would in all the circumstances be inequitable or unconscionable, and thus unjust, to allow the recipient of the money paid under a mistake of fact to deny restitution to the payer”.
In my view, the actions of Mr Aplin and NatWest did not involve any bad faith, according to this standard. Mr Aplin believed that Mr Saunders and SEWL were conducting a legitimate business in the form of the hotel business as described to him. He had good reasons for believing that. He did not shut his eyes to the truth. He did not act incompetently or in breach of the standards to be expected of a relationship manager in NatWest (even if such incompetence were capable of amounting to bad faith according to the standard set out in Niru Battery, which I doubt: see Abouh-Rahman v Abacha [2005] EWHC 2662, at [88]).
Up until 22 February 2010, Mr Aplin had no reason to think that the Claimants were mistaken in any way. On the contrary, they emphasised to him the extent of their involvement in and control over the hotel business, so Mr Aplin thought that they were far better informed than him about the operation of the business.
From 22 February 2010, Mr Aplin was aware that the Claimants appeared to misunderstand the mechanics of which account the hotel receipts were actually paid into, but he still did not doubt that the hotel business was genuine and legitimate. The Claimants still appeared to have the benefit of the debenture in relation to the hotel receipts, whether they were paid into an account at Barclays or at NatWest. They were far better informed than Mr Aplin about the operation of the hotel business and appeared to be entirely happy with it. Indeed, it was the Claimants who by that stage were pressing NatWest to finance the business, on the basis of what they told NatWest about it. In my view, Mr Aplin and NatWest rightly took the view that in these circumstances they were bound by a duty of banking confidentiality according to Tournier which prevented them from telling the Claimants about the operation of and transactions on the No. 2 account. They acted in accordance with what they understood to be a binding legal obligation, both in omitting to correct the Claimants’ error and in continuing to pay out sums in the account according to SEWL’s instructions. In those circumstances, it is not inequitable, unconscionable or unjust to allow NatWest to avail itself of the defence of change of position.
On this aspect of the case, the Claimants also sought to suggest that NatWest should not be entitled to avail itself of the defence of change of position because it was a “wrongdoer”. Lord Goff in Lipkin Gorman said that “the defence should not be open to a wrongdoer” ([1991] 2 AC 548 at 580). The Claimants maintained that NatWest was a wrongdoer because it failed to monitor its relationships with SEWL, ZFL and CCL in accordance with regulation 8(1) of the Money Laundering Regulations 2007 and because Mr Aplin failed to report suspected money laundering to the authorities as required by section 330 of the Proceeds of Crime Act 2002. I do not accept either of these points.
So far as concerns section 330 of the 2002 Act, I accept Mr Wardell’s submissions that Mr Aplin did not breach any obligation in that Act and also that, even if he did, such breaches would constitute strict liability regulatory failures which were insufficiently grave to debar NatWest from relying on the change of position defence, according to the standards of behaviour required by the relevant test of good and bad faith in Niru Battery. In my view, Lord Goff did not have this sort of breach of regulatory standards in mind when he referred to a “wrongdoer” in Lipkin Gorman. The proper understanding of the notion of “wrongdoer” in this context is that explained in Niru Battery. The main point, however, is that Mr Aplin did not act in breach of section 330. He did not suspect money laundering; was entitled on the basis of the information he had received from various sources not to suspect it; and he believed that NatWest’s AML department had fully investigated matters and made such reports as might be necessary to the authorities.
Regulation 8(1) of the 2007 Regulations provides that “A relevant person” (here, NatWest) “must conduct ongoing monitoring of a business relationship”, meaning (see regulation 8(2)):
“(a) scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, his business and risk profile; and
(b) keeping the documents, data or information obtained for the purpose of applying customer due diligence measures up-to-date.”
In my judgment, the Claimants have failed to show that NatWest breached its obligation in regulation 8. NatWest did conduct appropriate monitoring of its banking relationships (including those with SEWL, ZFL and CCL) by a combination of automated transaction monitoring and relationship managers keeping in touch with clients from time to time as necessary to understand the customers, their needs and the nature of their businesses. The measures which NatWest took were in line with the relevant JMLSG guidance and industry standards (see paras. [56]-[58] above).
Further, even if there had been a breach of regulation 8 it would, in my view, have been relatively technical in nature and would not have been of a character which would justify the Court in disbarring NatWest from relying on the change of position defence, according to the standard of good faith behaviour explained in Niru Battery.
(v) Negligence on the part of Mr Aplin
The Claimants submit that Mr Aplin assumed responsibility for the accuracy of information he gave the Claimants in relation to the joint venture (see Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, HL, at 837 per Lord Steyn, and James McNaughton Paper Group Ltd v Hick Anderson & Co. [1991] 2 QB 113 at 125 per Neill LJ; cf Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181) and that he failed to take reasonable care to ensure that such information was accurate. The Defendants deny both these allegations.
In my judgment, Mr Aplin did not assume any responsibility to the Claimants in relation to the accuracy of information supplied by him. In fact, mindful as he was of his obligations of confidentiality owed to SEWL, he took care not to lead the Claimants to believe that they could rely on him for information about what was happening on SEWL’s accounts. Mr Aplin did not know, and had no reason to believe, that the Claimants were using their communications with him as a means of obtaining information about the No. 2 account or as to whether the hotel business was genuine. He thought that they had conducted their own investigations about that, and had far more information about the business than he did.
Despite their protestations that they regarded him as the bank manager for the joint venture, the Claimants appreciated that he was in fact the relationship manager for SEWL, not them. Mr Aplin explained to them that he was bound by duties of confidentiality to SEWL, so they could not reasonably look to him for information about SEWL’s accounts or business.
Nor could it be said that it would be fair, just or reasonable in the circumstances to impose a duty of care on Mr Aplin of the form alleged by the Claimants (see Caparo Industries Plc v Dickman [1990] 2 AC 605). He gave them no assurance that they could rely on him for these purposes. The context of Mr Aplin’s contacts with the Claimants was very informal. Martin and Jeremy were experienced businesspeople who had available to them other and better means of knowledge about SEWL’s affairs, namely by asking Mr Saunders and SEWL directly. If Martin and Jeremy were unsatisfied by their responses, they could have chosen not to deal with SEWL.
Further and in any event, I do not consider that Mr Aplin made any representations to the Claimants which were false; nor any which involved carelessness on his part. Even at the meeting on 2 March 2010, when in my view Mr Aplin was aware about Martin’s mistake about whether the hotel receipts were paid into the No. 2 account, the context of the meeting was such that Mr Aplin made no implied false representation about that matter.
I therefore also dismiss the Claimants’ claim in negligence. It is therefore unnecessary and inappropriate to address in any more detail than I have done in the course of the judgment the Defendants’ alternative defence of contributory negligence. Had it been necessary to do so, I would have found that there was a significant element of contributory negligence on the part of the Claimants.
Conclusion
For the reasons set out above, I dismiss all the Claimants’ claims. It is unnecessary to address the further submissions made by the Defendants regarding the quantum of losses claimed by the Claimants.
Bellis & Ors v Challinor & Ors
[2015] EWCA Civ 59
Lord Justice Briggs :
Introduction
In late August and early September 2007, the Appellant solicitors’ firm Juliet Bellis & Co (“the Firm”) received into its client account payments from the Respondents, a group of 21 intending investors in a property investment scheme relating to land at and around an airport in Surrey known as Fairoaks. The aggregate amount paid by the Respondents to the Firm was £2.28 million. The amount paid by each investor ranged between £30,000 and £250,000.
The bulk of that sum was shortly thereafter paid out by the Firm in two tranches to Royal Bank of Scotland, in reduction of short-term borrowing (“the RBS equity bridge”) of some £7 million incurred by a client of the Firm, Albemarle Fairoaks Limited (“AFL”), a single purpose Guernsey company which had been acquired off the shelf as the vehicle for the Fairoaks scheme, and which had acquired the airport land before the payments were made. Much later, a further amount was transferred from its client account to its office account in settlement of a liability of AFL to the Firm for professional fees.
The Fairoaks scheme did not prosper, and AFL was eventually placed in insolvent administration in 2010. Although some of the Respondent investors lodged claims against AFL as creditors, there was, and remains, little prospect of any significant distribution on account of those claims.
Trust or Immediate Loan
This is, in my view, the decisive issue in this appeal. It is immediately decisive of the main way in which the Respondents succeeded before the judge, but it also has important consequences for their alternative cases based on lack of authority and unjust enrichment.
A remarkable feature of the case (viewed as one in which a Quistclose type of trust was found to have been established) is that, apart from the payment of money, there were no dealings of any kind between the Respondents as alleged settlors and the Firm as alleged trustee with regard to the subject matter of the trust. Restrictions as to the use to which the money could be put were neither imposed by the Respondents nor proffered by the Firm. In such a case it is, I think, important to identify and then apply the basic principles applicable to the creation of Quistclose-type trusts, rather than to treat the unusual facts as justification for engaging in some kind of equitable free-for-all. In the summary which follows, I use the phrase “Quistclose-type trust” as a label not only for what the Judge called Quistclose trusts in the strict sense, but also to accommodate analogous trusts which share the same essential characteristics.
Quistclose-type trusts – the Basic Principles
Following the decision of the House of Lords in Barclays Bank v Quistclose Investments Limited [1970] AC 567, from which the Quistclose-type trust takes its name, its jurisprudential analysis remained rather uncertain for many years. On the particular facts of the Quistclose case itself, Lord Wilberforce identified a primary purpose trust of the money (namely to use it for payment of a dividend), and a secondary trust for the transferor in the event that the primary purpose could not be carried out. The difficulty with that analysis was that it left uncertain the ownership of the beneficial interest in the money during the period between its transfer and the failure of the primary purpose.
Those difficulties of analysis were authoritatively resolved by Lord Millett in Twinsectra v Yardley [2002] 2 AC 164. I say ‘authoritatively’ because, although he gave a dissenting speech, two of his colleagues (Lords Hutton and Steyn) agreed with his legal analysis of the question whether a trust was created, while Lord Hoffmann (with whom Lord Slynn agreed) reached the same essential conclusion in more abbreviated terms: see paragraphs 25 (Lord Hutton), 7 (Lord Steyn), 13 (Lord Hoffmann) and 2 (Lord Slynn). The summary which follows therefore draws heavily upon Lord Millett’s compelling analysis. I dwell upon those aspects of it which I regard as being central to the issues in this appeal.
Quistclose-type trusts are a species of resulting trust which arise where property (usually money) is transferred on terms which do not leave it at the free disposal of the transferee. That restriction upon its use is usually created by an arrangement that the money should be used exclusively for a stated purpose or purposes: see Twinsectra at paragraph 74.
There must be an intention to create a trust on the part of the transferor. This is an objective question. It means that the transferor must have intended to enter into arrangements which, viewed objectively, have the effect in law of creating a trust: see Twinsectra at paragraph 71.
In this respect, Quistclose-type trusts are no different from any other trusts. In particular, they are not presumed to exist unless a contrary intention be proved, as in the case of the traditional type of resulting trust where a person makes a gratuitous transfer of property to an apparent stranger.
A person creates a trust by his words or conduct, not by his innermost thoughts. His subjective intentions are, as Lord Millett said, irrelevant. In the Twinsectra case, a Quistclose trust was established despite the transferor having no subjective intention to create a trust. But the objectivity principle works both ways. A person who does subjectively intend to create a trust may fail to do so if his words and conduct, viewed objectively, fall short of what is required. As with the interpretation of contracts, this process of interpretation is often called the ascertainment of objective intention. In the contractual context the court is looking for the objective common intention, whereas in the trust context the search is for the objective intention of the alleged settlor.
Usually, the question whether the essential restrictions upon the transferee’s use of the property have been imposed (so as to create a trust) turns upon the true construction of the words used by the transferor. But where, as in Twinsectra and indeed the present case, the transferor says or writes nothing but responds to an invitation to transfer the property on terms, then it is the true construction of the invitation which is likely to be decisive.
In such cases the invitation usually comes from the transferee. In Twinsectra it took the form of a solicitor’s written undertaking, the terms of which, as Lord Millett put it, were “crystal clear” in restricting the use of the money transferred for the specified purpose of the acquisition of property.
But I am content to assume, as the judge did in the present case, that the invitation may come from someone other than the transferee. A may say to B:
“If you transfer money to C, it will be used solely for a specified purpose.”
The proper interpretation of B’s conduct in transferring money to C pursuant to that invitation is that he thereby created a Quistclose-type trust. Whether C will be liable for breach of that trust by using the money for some other purpose will then depend on whether C knew of the terms of A’s invitation before disposing of the money.
Where property is transferred on terms that do not leave it at the free disposal of the transferee then the Quistclose-type trust thereby established is one under which the beneficial interest in the property remains in the transferor unless and until the purposes for which it has been transferred have been fulfilled: see Twinsectra at paragraph 100. That beneficial interest ceases to exist if and to the extent that the property is used for the stated purposes, but not otherwise. The application of the property for the stated purpose is a power vested in the transferee, not (usually at least) a primary purpose trust.
It follows from that analysis (as Mr. Sutcliffe was at pains to point out) that if the property cannot be applied for its stated purpose due to some lack of clarity in the identification of purpose, then the transferor’s beneficial interest continues in existence. As Lord Millett put it, in Twinsectra at paragraph 101:
“Uncertainty works in favour of the lender, not the borrower…”
But Lord Millett did not mean thereby that uncertainty whether the property was to be at the free disposal of the transferee also worked in favour of the transferor. In Twinsectra, the denial of any such freedom to the transferee was crystal clear. Nor indeed was the power to dispose of the money within the confines of the transferee’s undertaking in Twinsectra uncertain in the relevant sense: see per Lord Hoffmann in paragraph 16.
Finally, where it is not demonstrated that money apparently advanced by way of loan is not to be at the free disposal of the transferee, the ordinary consequence is that the money becomes the property of the transferee, who is free to apply it as he chooses, leaving the lender at risk of his insolvency: see Twinsectra at paragraph 68. This is the true default position, in which the transfer of the legal title carries with it the beneficial interest. Although Lord Millett speaks of the Quistclose-type trust as one under which the transferor “does not part with the entire beneficial interest in the money” (Twinsectra, paragraph 100), he was not, I am sure, intending thereby to depart from the following well-known dictum of Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington Borough Council [1996] AC 669, at 706 E-F:
“A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estate, there is no separate equitable title. Therefore to talk about the bank “retaining” its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust.”
We were referred by counsel to a number of other first-instance authorities in which Quistclose-type trusts had been recognised in circumstances said to be analogous to the present case. They were Re Nanwa Goldmines Limited [1955] 1WLR 1080; Kingate Global Fund v Knightsbridge (19.11.09, Bermuda Court of Appeal); Bieber v Teathers Limited [2012] 2 BCLC 585, [2013] 1 BCLC 248 (CA) and Brown v InnovatorOne PLC [2012] EWHC 1321 (Comm). For my part, I found that they added little to an understanding of the basic principles which I have summarised. Each of them concerned the true construction of the detailed terms of the invitation to invest and, in every case (although the language of the earliest of them is of course different), the Court’s concern was to ascertain whether the money transferred was at the free disposal of the transferee.
Analysis
In the present case, the Respondent investors transferred their money to the Firm pursuant to written invitations to do so in common form, consisting of the two emails from Mr. Egan attaching respectively the Teaser and the draft Loan Note, i.e. the offering documents. Although some of the Respondents said there had been conversations with Mr. Egan about the Fairoaks project, none of them could recall in any sufficient detail what had been said, so that the judge had no alternative than to treat the offering documents as constituting all that was provable about the invitations which they had received.
Similarly, although one Respondent had apparently recalled a conversation with Mrs. Bellis about the terms upon which she was to hold his money, the judge preferred Mrs. Bellis’ evidence that no such conversation had occurred. The result was, again, that the judge proceeded on the basis that no relevant conversations or exchanges took place between any of the Respondents and the Firm in relation to the payments which they made in connection with the Fairoaks project (at least until after the relevant monies had been disbursed). As I have said, the judge found that the Firm was not aware of the precise terms of the offering documents.
The judge’s conclusion that the Firm had limited knowledge of the terms of the offering documents led him to treat them with some caution in his objective analysis of the intentions both of the Respondents and of the Firm. This is because he carried out his analysis of objective intention mainly in relation to the question whether a contractual escrow relationship had been established between each of the Respondents and the Firm. In that context, the search is for objective common intention and depends upon documents and aspects of the factual matrix known to both parties, rather than to one side alone. The result was that he analysed objective intention first, without reference to the offering documents and second, taking them into account. I rather think that, by the time he addressed the offering documents at the second stage of his analysis, his view that a trust for the investors was intended had already become unshakeable. Furthermore his later analysis of the question whether a trust was created was powerfully influenced by his conclusions at the earlier contractual stage of his analysis.
The demise of the contractual claim (not revived by Respondents’ Notice) makes it easier for this court to focus strictly on the question of objective intention in the trust context. For that purpose, for the reasons which I have given, I consider it not merely legitimate but essential to address the issue as to the Respondents’ objective intention by reference to the offering documents, regardless what the Firm knew about them. Since they constitute the whole of the invitation material to which the Respondents each responded by making their payments they must in my view lie at the heart of the analysis of what, if any, restrictions the Respondents sought to place, when paying the Firm, upon the use that could be made of their money. The offering documents need of course to be read in their context, which consists of each Respondent’s participation in one or more previous Albemarle schemes, but that context must be used as a tool for the proper interpretation of the invitations to which they responded, rather than as a means of subverting their meaning.
On their face, the two emails read together (and with their attachments), seem to me clearly to invite the making of an investment by way of immediate loan to AFL, with no restrictions upon the use which AFL or the Firm can make of the loan monies. It is plain from the Teaser email that investment contributions are being sought “straight away”, “prior to formal fundraising” and at a stage when the Guernsey Closed Ended Fund through which investors were ultimately to be enabled to control AFL had yet to be created. Interest was offered so as to “commence immediately” and loan notes were promised to be issued “immediately” after money transfers by investors in the following week.
By the same token, the Loan Note email again makes it clear that loan money is being requested immediately, with loan notes to be issued straightaway thereafter, and all prior to completion of the Unit Trust. The attached draft Loan Note makes it crystal clear that the obligations arising from the payment of the money are to fall on AFL rather than the Firm, both as to repayment of principal and payment of interest. The method of payment to the client account of the Firm is, on the face of the Loan Note email, not specified so as to give the investors some protection, or a continued beneficial interest, but simply as a means of enabling willing investors to make immediate transfers of loan money, pursuant to their wish to do so generated by the Teaser.
The context in which those invitations to invest were received was that most of the Respondents had invested in Albemarle Shoreham (and I shall assume that all had been invited to invest in that project). Some had invested or been invited to invest in projects which, unlike Albemarle Shoreham, did not offer an escrow arrangement for their investments pending the receipt of sufficient funding to enable the project to proceed, with the investors controlling the SPV. But against that background of the clear and specific offer of escrow arrangements in some, or even most, previous Albemarle schemes, the invitation to make early investment in Fairoaks conspicuously lacked any such offer. On the contrary, it was an invitation to make immediate investments by way of loan, ahead of formal fundraising.
Had I been considering this issue afresh, on the judge’s findings of primary fact, I would have said that it turned upon a relatively straightforward question of construction of the offering documents, which plainly did not invite investment of money on terms that it was not to be at the immediate free disposal of AFL, and that the background, consisting of the Respondents’ participation in other Albemarle schemes on very different terms, did not lead to a contrary conclusion. A fortiori I would have concluded that no restriction was placed upon the Firm such as would prevent the immediate payment of the money to AFL, or for AFL’s benefit.
It must however be acknowledged that the judge, after a much greater immersion in the detail of this matter than has been possible in three days in the Court of Appeal, came to the opposite conclusion. Although he was analysing the same facts (so that his decision does not depend upon his privilege of having seen and heard the witnesses give evidence) his conclusion was nonetheless one of those multi-factorial exercises which command the respect of an appellate court, so that it is necessary to address his detailed reasoning in order to see whether it justifies a different conclusion than that which I have just set out.
The judge concluded that payments by each of the Respondents into the Firm’s client account in response to the offering documents, set against the background of their previous involvement in Albemarle schemes, connoted (paragraph 561 of the judgment):
(a) that the monies paid by the Respondents into the Firm’s client account were not thereupon immediately to belong to or be subject to the directions of AFL;
(b) that until the final agreement on the terms of any loan and the finalisation of KYC and regulatory consents the monies were to be retained in the Firm’s client account, at least
(c) pending agreement, some future instruction by or on behalf of the Respondents, or the happening of a pre-stipulated event (the achievement of “safety”).
At paragraph 562 he concluded in addition that:
“It is to be inferred from the same circumstances that if, for whatever reason, the scheme failed, or no definitive agreement (whether or not documented) could be reached as to the terms of the loan, then the money should be remitted back to the payers, and not to AFL.”
Adopting submissions from Mr. Sutcliffe for the Respondents at trial, the judge identified nine factors about the circumstances in which the Respondents’ payments had been made which led him to those conclusions. They are (at paragraph 560) as follows:
“1) the lack of any sensible explanation in all the circumstances for the requirement for payment into a client account other than (a) to prevent its being available to the ultimate intended recipient pending some further event or instructions and (b) to provide that in the meantime it is to be held under the control of a solicitor for the benefit of the payer;
(2) the marketed and obvious characterisation of the transaction as an Albermarle investment scheme with the basic characteristics common to such schemes, in none of which had the investors ever made unsecured loans without an immediate right to a matched equity investment element;
(3) the Claimants’ familiarity with those basic characteristics, and their expectations accordingly that what they would obtain by subscribing money was a combination of a loan and ‘equity’ participation (albeit that the documents to evidence that right might follow after the application of the monies invested);
(4) the arrangements in Albermarle Shoreham, which took place only a few months before, and in which the Defendant Firm was both adviser and escrow agent, and where monies were required to be remitted to the same client account with the Defendant Firm acting as escrow agent on terms set out in a document attached to the Information Memorandum for that transaction and expressly agreed between the investor and the Albermarle Shoreham vehicle, Albermarle (Shoreham) LLP, as a term of the application form required to be subscribed;
(5) the inherent unlikelihood that the Claimants would ever have agreed to lend monies without any security, on terms that were not finalised, without control of the SPV (AFL) and so without any identified right to, or ability to require to be made available to them, some form of ‘equity investment’ in AFL or in a fund above it;
(6) the fact that at the time of the transfer of the Claimants’ monies, Mrs Bellis knew that no formal and final documentation had been provided to them, still less agreed by them;
(7) the fact that in this case (unlike what might be thought the more standard case) the monies to be remitted to the client account came from a number of persons;
(8) all giving rise to the inference that, at the very least pending the agreement of formal documentation and the completion of any steps necessary to ensure there was no impediment to its issue and signature, the monies transferred should be held to the order of the payers;
(9) the fact that, as a solicitor, and in light of her previous experience in respect of the Albermarle Shoreham transaction, Mrs Bellis could be expected to know, and did know, all the above and that (a) it was necessary for AFL’s directors formally to approve borrowing in accordance with specified and formal documentation before accepting money from investors (and the concomitant repayment obligation to them) and (b) it was not permissible for her to accept and apply monies received from investors unless and until ‘know your customer’ and Consent to Borrowing (“COBO”) and any other regulatory requirements in Guernsey had been completed.”
Taking those in turn, it is evident both from paragraph 560 and elsewhere in the judgment that the judge regarded the invitation to the Respondents to make their payments into a solicitor’s client account as being of fundamental importance in support of their case. He began by quoting the following dictum from Lord Hoffmann’s speech in the Twinsectra case, at paragraph 12:
“Money in a solicitor’s client account is held on trust. The only question is the terms of that trust.”
To my mind, the fact that the Loan Note email requested interested investors to make payments into the Firm’s client account is, at best, neutral, if not positively adverse to the Respondents’ case. Of course, money paid into a solicitors’ client account is held on trust, but where a party to a transaction pays money at the other party’s request to that other party’s solicitor, then the default position is, and has been for over a century, that payment to the solicitor is equivalent to payment to the solicitor’s client, so that the money is held on trust for the client: see Ellis v Goulton [1893] 1QB 350. By ‘the default position’, I mean the position in the absence of any agreement or arrangement to the contrary.
In the present case, the offering documents invited interested investors to make immediate payments by way of loan to AFL, in return for promised loan notes in which AFL acknowledged its immediate obligations as borrower, and to do so by making those payments into the Firm’s client account. In my view the clear implication from those two emails, read together, is that the Firm was being identified by Mr. Egan as AFL’s agent for the receipt of loan monies, and AFL as the Firm’s client for that purpose. The identification of a client account of the Firm (rather than, for example, an office account) is no more than an ordinary incident of an arrangement to pay a commercial counter-party through a solicitor agent.
I am, with respect, wholly unpersuaded by the notion that the only sensible explanation for the identification of the Firm’s client account as the receptacle for investments was that the money should be held to the investors’ order pending further events. AFL was a recently formed Guernsey company which a reader of the emails and their attachments would understand had just made a major property acquisition in England and which might perfectly sensibly be understood to be using English solicitors for the handling of incoming payments designed to assist in the funding of the transaction. For Mr. Egan to direct that investors’ payments should be made to those English solicitors called for no explanation at all.
The judge’s second, third and fourth factors may all be described as part of the Albemarle background. As to point (2), it does not seem to me that the judge’s detailed findings of fact about the Croydon, Shoreham and Brighton schemes entirely bear out his observation that investors had never made unsecured loans without an immediate right to a matched equity investment element, although that matching was a general characteristic. But the important point about the offering documents in relation to Fairoaks was precisely that investors wishing to invest early were indeed being invited to make unsecured loans ahead of the formation of the Unit Trust in which, in due course, they no doubt expected to receive equity, and through which they would, together with all other investors, eventually control AFL.
I disagree with the judge’s third point for the same reason. Assuming the Respondents’ familiarity with the typical Albemarle linkage of loan and equity, the two emails plainly presented an opportunity to lend before obtaining equity, rather than at the same time, again because both emails emphasised that the equity vehicle had yet to be set up.
As for point (4), it is true that the same client account of the Firm was used to hold monies upon an escrow agreement for the Shoreham investors, but this was pursuant to detailed written terms which formed part of the invitation pursuant to which they invested. In sharp contrast, no such protection was offered to early round investors in the Fairoaks scheme. It is, to my mind, the contrast between the offering documents in Shoreham and Fairoaks, rather than the similarities between the two schemes, which points to a conclusion that no restrictions upon the use of the investors’ monies were imposed in the latter scheme.
Turning to point (5), the judge was evidently much impressed by the submission (backed by a number of the Respondents when giving oral evidence) that to lend at 1% over base on unsecured subordinated loan notes with no attached equity giving control of the SPV was so uncommercial that it could not have been what the investors objectively intended to do. At paragraph 345 he said:
“It simply makes no commercial sense at all to be locked into a five-year unsecured, subordinated loan that could not be repaid before RBS was repaid in full, with an interest rate of 1% over base rate.”
If the making of a loan in accordance with the terms of the draft Loan Note is viewed strictly on its own, it is, as the Judge said (and even Mrs. Bellis agreed in evidence), an unattractive investment. So, viewed on their own, were the usually interest-free unsecured personal loans made as part of the typical Albemarle scheme. In relation to Fairoaks, the investors were invited to assume that, once formal fundraising began and the equity vehicle had been established, they would in due course receive equity shares proportionate to their loans, as in other Albemarle schemes. But in being invited to make loans on those terms ahead of the establishment of the equity vehicle, they were plainly taking the risk that it might never be set up. The reward which the Teaser email offered for taking that risk was not merely the interest on the loan but also the opportunity to subscribe early, and thereby avoid the consequences of over-subscription about which warnings had been given in the application form for the Shoreham scheme.
As I see it, the real risk being taken by investors making early loans in response to Mr. Egan’s two emails was that the scheme might prove to be seriously undersubscribed, and then dissolved without them ever obtaining control through an equity share. The fact that AFL might in due course prove to be insolvent was a risk which investors would take even if they did obtain proportionate equity shares and control of the Unit Trust. It was a risk taken by investors in relation to all the Albemarle schemes. The first two typical classes of victims of insolvency are equity investors and unsecured lenders, because they stand last in the queue for distribution. Absent insolvency, the making of early loans followed by a failure of the scheme to be fully subscribed would lead to the investors being paid in full by AFL, albeit no doubt after a considerable delay, but compensated for that delay by interest.
The Judge did not assess the commerciality of making early loans to AFL in the way which I have described. But the fact that in so doing the investors took the risk of the scheme not being fully subscribed is not a matter which, in my judgment, permits the offering documents to be interpreted as proffering something completely different from that which they describe.
Points (6) and (8) can be taken together, since they dwell on the absence of formal documentation at the time of the payment of the Respondents’ monies. Again, they do not seem to me to be significant elements favouring a conclusion that no immediate loans were being invited. There was nothing in the offering documents to suggest to potential investors that there were some potentially insuperable impediments to the issue and signature of loan notes in accordance with the draft Loan Note, and both Mr. Egan’s emails promised, without reservation, the immediate issue of loan notes to those investors who advanced money early in accordance with his invitation. In lending against the draft Loan Note the Respondents were, in my judgment, plainly agreeing to make loans in accordance with the terms set out in the draft, regardless whether they received formally issued loan notes thereafter, and AFL would have been bound by the terms of the draft as well, subject only to issues as to Mr. Egan’s authority, which were completely invisible to the investors.
I have been unable to understand why the judge’s point (7) supports his conclusion. It seems to me to be entirely neutral.
Finally, the judge’s observations about Mrs. Bellis’s knowledge in point (9) are irrelevant to an analysis of the question whether by their words or conduct the Respondents imposed restrictions upon the use to be made of their monies sufficient to give rise to a Quistclose-type trust. Furthermore, whatever Mrs. Bellis may have known about the requisite formalities within AFL and the requirement to obtain regulatory consent in Guernsey, all these were entirely unknown to the Respondents, and therefore irrelevant to an interpretation of terms upon which they made their payments.
I have not therefore been persuaded by the judge’s reasons for treating the Respondents’ payments as made to the Firm on terms that they were not to be at the immediate disposal of its client AFL. On the contrary, I consider that, on the judge’s findings of primary fact, the Respondents made their payments to the Firm as immediate loans to AFL, paying into the Firm’s client account at what they understood to be AFL’s direction, and therefore lending to AFL by payment to the Firm as its agent. Subject to the agency issue, to which I shall shortly come, the Firm received those payments into its client account as trustee for AFL and committed no breach of any obligation owed to the Respondents when it disbursed them for AFL’s benefit.
Issue 2: The Firm’s Knowledge
My conclusion that the Respondents did not by their conduct impose a Quistclose-type trust (or any trust) in relation to the payments which they made to the Firm means, if my Lords agree, that this issue does not arise. Whatever may have been Mrs Bellis’s incomplete knowledge about the terms of the offering documents, and about the relevant background, the Firm cannot, by her, have known of the imposition of terms as to the use of their money sufficient to create a Quistclose-type trust when none were in fact imposed.
The judge made serious findings about Mrs Bellis’s state of mind, including abdication of her responsibilities towards the Respondents while in a position of conflict between her duties to them and her, and her family’s interest in connection with the Fairoaks project scheme. They were, much later in the judgment, relied upon by the judge in reaching his provisional conclusion that the Firm had no change of position defence to an alternative claim in restitution, on the ground that Mrs Bellis acted with a want of commercial probity. I will therefore deal with those findings, to the extent necessary, when addressing the alternative restitution claim, pursued by Respondents’ Notice.
Issue 3: Resulting Trust due to Lack of Authority
The Respondents succeeded at trial on the alternative basis that, if there was no Quistclose-type trust, there was nonetheless an immediate resulting trust of the monies deposited by the Respondents in the Firm’s client account, because AFL had neither authorised borrowings from the Respondents, nor authorised the Firm to receive their money as its agent.
The Judge’s analysis contained the following three main stages:
i) Mr Cummings was not authorised by AFL to retain the Firm in accordance with the terms of the Engagement Letter because (a) he did not become the beneficial owner of AFL’s shares until some days after the date of the letter (13th July 2007); (b) he could not as a mere beneficial owner of 100% of AFL’s shares commit the company to anything, since the ‘own acts’ principle did not apply to beneficial owners of a company’s shares, at least in the circumstances of this case. Nothing other than the Engagement Letter was put forward as authorising the Firm to receive loans from the Respondents.
ii) There being no such authority when the payments were made, the consequence of them being made into the Firm’s client account was that an immediate trust arose in favour of the Respondents.
iii) There was no subsequent ratification by AFL of the receipt of the money pursuant to the authority purportedly contained in the Engagement Letter, and any supposed ratification would have come too late to defeat the third party interest in favour of the Respondents constituted by the immediate resulting trust in their favour.
I have, from start to finish, encountered a sense of unreality about this debate. Its necessary starting point is, as I have concluded (and the judge needed to assume, contrary to his own conclusion, when dealing with this issue), that the Respondents paid their monies into the Firm’s client account as a means of making immediate loans to AFL. In the relevant objective sense, they must be taken to have intended that the money should belong beneficially to AFL from the moment when it reached that client account, in exactly the same way as it would have, if they had paid AFL direct.
Regardless of Mr Cummings’ alleged lack of authority to sign the Engagement Letter, the Respondents have always accepted (at least on this appeal) that by the time that the payments were made the Firm had become AFL’s solicitors for the purposes of handling its purchase of its part of the Fairoaks Airport site, which completed in July 2007. This was a purchase based upon funding from RBS and Erinaceous, including the RBS equity bridge which had to be repaid from monies advanced by private investors.
Shortly after the payments were received, almost all of them were indeed used by the Firm to reduce AFL’s liability under the RBS equity bridge. Although at a much later stage an attempt was made to persuade RBS to repay that money, so that AFL could repay the Respondents, that was not done. The position at the beginning of the trial was that AFL (by then in administration) regarded RBS as a creditor by an amount reduced by those payments, and regarded the Respondents as creditors in the amounts which they had each paid. Save for relatively small amounts later disbursed by the Firm on account of AFL’s alleged liabilities for professional fees (both to the Firm and to other solicitors and Legis) the Respondents’ payments had all been disbursed for AFL’s benefit long before any request was made by any of the Respondents to have their money back.
On those relatively straightforward facts, it would cause me grave misgivings if the law compelled a conclusion that the Respondents’ monies were, from the moment of receipt by the Firm, held on immediate resulting trust for the Respondents, such that the Firm’s application of them at Mr Egan’s direction, for the purpose, beneficial to AFL, for which Mr Egan had sought to raise the money in the first place, constituted a breach of that trust.
Mr Ian Croxford QC for the Firm attacked every stage of the judge’s analysis and at some length. As to stage (i), he said that the better view on the facts was that Mr Cummings became the beneficial owner of AFL’s shares on 13 July, rather than a few days later, and that the ‘own acts’ doctrine should be treated as applicable to decisions taken for a company by a beneficial owner of all its shares. He added that, in any event, since the Firm had become AFL’s solicitors for the purposes of the completion and funding of the Fairoaks transaction by the end of July 2007, receipt of investors’ monies with which to repay bridging finance was within the Firm’s usual authority.
As to stage (ii), he submitted that where a person transfers money or other property to a trustee to be held on trust for a named beneficiary, it is irrelevant whether the beneficiary has authorised the trustee to receive the money on its behalf. The court will enforce that trust regardless of the beneficiary’s authority.
As to stage (iii), Mr Croxford submitted that the judge was wrong to have rejected the Firm’s case of ratification, for detailed reasons which I need not describe.
For my part, I would not wish to burden an already long judgment with a detailed analysis of the judge’s stages (i) and (iii). I consider that the essential flaw in his reasoning lay at stage (ii). The resulting trust argument adopted by the judge is in my view wrong for substantially the same reasons as those given by Lord Browne-Wilkinson, giving the leading speech in the House of Lords in the Westdeutsche case. There, the bank made payments to the local authority believing itself to be contractually obliged to do so pursuant to swap contracts which, unbeknown to the bank, were void as being ultra vires the local authority. The local authority admitted that the money was repayable, but the question whether the payments gave rise to a resulting trust arose because of a dispute about whether the bank should be awarded compound interest in equity. The Court of Appeal had concluded that the payments, made under void contracts, did give rise to a “resulting trust not of an active character”, following Sinclair v Brougham [1914] AC 398. Overruling that case, the House of Lords held that the bank’s payments to the local authority passed the whole of the legal and beneficial title to the Local Authority, leaving the bank only with a personal claim for its recovery.
In the present case, both the Respondents and the judge acknowledged that, if the Respondents had paid AFL direct without imposing restrictions giving rise to a Quistclose-type trust, then the Westdeutsche case would have applied so as to rule out any claim for recovery by the Respondents as beneficial owners under a resulting trust: see paragraph 625. In that event, it would have availed the Respondents nothing if (as the judge found) the borrowing from them was not authorised by AFL. The Respondents would have had a claim for their money back in debt, and possibly in restitution, but not in trust. In my judgment that concession was correctly made and accepted.
But the judge accepted the Respondents’ submission that payment of the money into the Firm’s client account made all the difference. This was because, he said, a client account:
“Is necessarily a trust account, with legal ownership and beneficial ownership being divided.” (paragraph 626)
He continued, at paragraph 627:
“Put another way, … the problem for the Defendant Firm is that if it did not have authority to receive money for AFL, the beneficial title did not vest in AFL, but cannot have been intended to vest in the Defendant firm, and therefore must have remained in the Claimants (as the only remaining candidates) given that “the equitable, or beneficial interest, cannot remain in the air…” (per Lord Wilberforce in Vandervell v IRC [1967] 2AC 291 at 1412 (in fact 329)”
Later, the judge cited this passage from Lord Upjohn’s speech in the Vandervell case, at page 313:
“If A intends to give away all his beneficial interest in a piece of property and thinks he has done so but, by some mistake or accident or failure to comply with the requirements of the law, he has failed to do so, either wholly or partially, there will, by operation of law be a resulting trust to him of the beneficial interest of which he has failed effectually to dispose. If the beneficial interest was in A and he fails to give it away effectively to another or others or on charitable trusts it must remain in him.”
Finally, at paragraphs 633-4, the judge concluded:
“Now, of course, the present case is not a case of gift; nor is it one where there is a pre-existing equitable interest in specific property. However, as it seems to me, the like principles apply, since the payment was not intended for the recipient and the recipient had no authority to receive it for anyone else. The money, like the wrongly addressed letter, must be returned to sender, address (as it were) unknown.
I should stress that this is an unusual case. As the Claimants accepted, as indicated above, failure of consideration would not lead to the transferor retaining its equitable interest; it is doubtful whether mistake would either; and property may pass even in a transaction induced by fraud. It is the combination of the receipt into a trust account of borrowed monies where the borrower had not authorised the borrowing or such receipt, that, in my judgment, makes the case exceptional.”
In my judgment the flaw in that analysis lies in the judge’s unexplained assumption that a payment made by A to a solicitor’s client account for the benefit of the solicitor’s existing client B is not sufficient to confer the beneficial ownership upon B where B has not authorised the solicitor to receive it. I consider that if the solicitor accepts A’s payment on those terms then he holds it on trust for B. If, upon learning of his solicitor’s receipt of the payment, B declines to receive it, then B may direct the solicitor thenceforth to hold the money for A or to A’s order. But until then (and this did not happen in the present case) the solicitor holds the money for B.
There is in those circumstances no lacuna in the beneficial interest which, applying the Vandervell case, needs to be filled by a resulting trust in favour of the transferor. The Respondents paid their money to the Firm in some cases expressly earmarked “AFL” but in all cases by conduct which, objectively interpreted, was intended to confer the whole beneficial interest upon AFL, even whilst legal title remained in the Firm (or, strictly, in its bankers). AFL might in theory have repudiated the payments on grounds of lack of authority, and directed the Firm thenceforth to hold them for the Respondents. But it did not, and could not have done so once the payments had been applied for AFL’s benefit. AFL might perhaps have done so in relation to the modest residue left after the payments to RBS, at the same time as Mr Dickinson sought to persuade RBS to repay what it had received, in December 2007. But nothing was done to transfer that residue back to investors, or even to transfer beneficial ownership of it.
A useful way of testing the judge’s thesis that payment into a client account made all the difference is to ask what if any difference to the outcome in the Westdeutsche case would have ensued if the swap arrangements had provided for the bank to make payments into a trust account held by a solicitor or other professional trustee for onward transmission to the local authority. The local authority’s lack of vires to enter into the transaction would have meant that the trustees were not duly authorised to receive the bank’s payments. But the outcome would have been the same. Transfer of the bank’s money to the trustees would have transferred both legal and beneficial title, and the beneficial title would, from the moment of transfer, have been held by the trustees for the local authority. Using Lord Browne-Wilkinson’s classification of resulting trusts in the Westdeutsche case at [1996] AC 669, at 708, a type A presumed resulting trust would have been rebutted by the intention of the bank to make an outright transfer, and a type B resulting trust would have been impossible because of the immediate vesting of the entire beneficial interest in the local authority. By parity of reasoning, there could be no presumed resulting trust in the present case because the objective interpretation of the Respondents’ conduct was that they intended to make an immediate loan. There could be no Vandervell type resulting trust because the making of a loan necessarily carries with it an intention to transfer the whole beneficial interest in the subject matter to the borrower, even if the money is paid to the borrower’s solicitor to be held on a statutory client account trust for the borrower. I would add that at no time has there been any suggestion in this appeal that the Respondents could rely upon a presumed resulting trust.
My conclusion about stage (ii) of the judge’s analysis is sufficient to lead me to the view that this alternative basis of the Respondents’ case must fail. It is with some relief that I find it unnecessary to decide the detailed questions going to the issues whether in fact the Firm had AFL’s authority to receive the Respondents’ money by way of loan. In particular, the question whether a single beneficial owner of all the shares in the company can direct the conduct of its affairs without going through any of the formalities required by the company’s constitution is a difficult and contentious one about which there are a number of conflicting first instance authorities from distinguished judges. I would prefer to leave that question unresolved until a case in which it has to be decided.
Issue 4: Unjust Enrichment
The restitutionary claim was advanced at trial on the alternative bases of mistake and failure of consideration. As to the first, the alleged mistake (as recorded in paragraph 29 of the judgment) was that the Respondents believed that their money was to be held by the Firm on escrow terms and to remain beneficially theirs until the escrow conditions were satisfied. As to the second, (advanced against the risk that the judge might find that an immediate loan was intended) the case was that no loan relationship was established because of the absence of authority to borrow on the part of AFL.
Against the obvious question why solicitors holding money in client account (and therefore in trust for others) could be said to be unjustly enriched, the judge recorded the Respondents’ concession that the restitutionary claim would lie only:
“If and to the extent that the monies paid into its client account were not held by it on trust either for the Claimants or for AFL” (paragraph 658).
In pursuing the restitutionary claim on appeal, Mr Sutcliffe sought to broaden the case on mistake by submitting that the operative mistake consisted of, or included, a mistaken assumption that the Firm was authorised by AFL to receive the loan monies.
There are in my judgment two insuperable obstacles to the restitutionary claim. The first is, as I have already concluded, that from the moment of receipt the Firm held the Respondents’ monies on client account trust for AFL. The Firm was, therefore, not enriched at all by the receipts. Even the transfers to office account of a small part of those monies on account of fees was not an enrichment, because it was a transfer of money belonging at that stage beneficially to AFL for the purpose of discharging a debt owed by AFL to the Firm. The absence of unjust enrichment where the recipient holds the money on trust was effectively conceded by the Respondents at trial, as the judge recorded in the passage to which I have just referred.
The second obstacle is that, in my view, the Firm would have had a change of position defence if a restitutionary claim had otherwise been available. The judge provisionally rejected a change of position defence on the ground that, by disbursing the money without sufficient certainty as to the basis upon which the payments had been made by the Respondents into her Firm’s client account, or as to the Firm’s authority to receive such payments, Mrs. Bellis failed to act in a commercially acceptable way, within the meaning of that phrase set out by Moore-Bick J (as he then was) in Niru Battery Manufacturing Co v Milestone Trading Limited [2002] EWHC 1425 (Comm). It is evident from elsewhere in the judgment that the judge regarded Mrs. Bellis as having abdicated her responsibilities toward the Respondents, and as having allowed herself to do so because of a serious conflict between their interests and those of herself and her family.
The difficulty with that (albeit provisional) analysis is that, in my view, Mrs. Bellis owed no duties or responsibilities to the Respondents at all, because they advanced their monies by way of immediate loan to her client AFL.
There is real force in the judge’s criticism of Mrs. Bellis, namely that she received and disbursed the Respondents’ monies without checking the precise terms upon which Mr. Egan had solicited them, relying merely upon his assertion that the incoming monies were loan monies which could immediately be disbursed to pay down the RBS equity bridge. But since more diligent enquiry as to the terms of Mr. Egan’s two emails would (or ought) in my view to have confirmed her understanding that the payments were proffered by way of immediate loan, her lack of diligence in this respect can hardly be treated as commercially unacceptable conduct vis a vis the Respondents.
Similarly, Mrs. Bellis may well have been less than properly cautious about the questions whether either Mr. Egan or Mr. Cummings had formal authority to commit AFL, but again, her omission to consider the question of their authority more thoroughly was a matter about which, in the event, only AFL rather than the Respondents could complain.
For my part, whatever may be the confines of the concept of commercially unacceptable conduct in the consequence of a change of position defence, it cannot include conduct about which the person seeking restitution has no basis for complaint.
For those reasons, the Respondents’ restitutionary claim is in my judgment misplaced. Since in my view the judge was also wrong to accede to either of the Respondents’ alternative claims based in trust, this appeal should therefore be allowed.
Lord Justice Underhill
I agree.
Lord Justice Moore-Bick
I also agree.
Costello & Anor v MacDonald & Ors
[2011] EWCA Civ 930
Lord Justice Etherton :
This is an appeal against an order of Mr Recorder Abbott in the Bournemouth County Court dated 16 August 2010. By that order the Recorder gave judgment for the respondents (the claimants in these proceedings) for building work carried out by them on land owned by the first and second appellants, Mr and Mrs Costello. The work was carried out pursuant to an oral contract (“the contract”) made in July 2007 between the respondents and the third appellant, Oakwood Residential Limited (“Oakwood”), a company owned by Mr and Mrs Costello and of which they are the directors.
The order against Oakwood was on unpaid invoices submitted by the respondents pursuant to the contract and for additional work outside the terms of the contract. The order against Mr and Mrs Costello was a monetary restitutionary award for unjust enrichment. It said:
“The 1st and 2nd Defendants, having been unjustly enriched at the expense of the Claimants do stand jointly and severally liable with the 3rd Defendant to the Claimants in the sum of £89,716.81 such sum to be paid forthwith.”
At the hearing of the appeal the respondents applied for permission to cross-appeal (1) the decision of Recorder Abbott on 16 March 2010, following the trial of preliminary issues, that Oakwood did not enter into the contract as agent for Mr and Mrs Costello, and also (2) the decision of the Recorder in his judgment on 16 August 2010, following the trial of the action in July 2010, that Mr and Mrs Costello were not liable in damages for procuring or inducing a breach of the contract by Oakwood.
The issue
The issue of principle on the appeal is whether Mr and Mrs Costello can be held liable in restitution for unjust enrichment when the services of the respondents from which they have benefited were given pursuant to a contract between a third party, Oakwood, and the respondents.
The facts
For the purpose of this appeal, the relevant facts can be stated shortly.
Mr and Mrs Costello wished to develop land owned by them at 11 Kinston Park Road, Bournemouth (“the Site”) by the construction of 8 houses. They entered into discussions with the respondents, who were builders, and who had carried out building work for them previously at another property in East Bournemouth. Mr and Mrs Costello informed the respondents that, for tax reasons, they would use Oakwood for the development and that payments would be made through that company. Oakwood had been used previously on the earlier development in East Bournemouth. Mr and Mrs Costello were the only shareholders and directors of Oakwood.
Mr and Mrs Costello made arrangements with their bank to provide finance to them personally for the development, which they would then channel through Oakwood to pay the respondents. The respondents assisted Mr and Mrs Costello in obtaining that finance by writing to the bank with details of the construction costs and the stage payments to be made. The Recorder found that the contract was in due course made between Oakwood and the respondents. The Site remained in the ownership of Mr and Mrs Costello. Oakwood had no significant assets of its own. It was a vehicle set up and utilised by Mr and Mrs Costello purely for tax and financial purposes and solely to act as a conduit for the making of payments.
Work was carried out by the respondents on the Site. Invoices presented by the respondents were paid in full by Oakwood until September 2008. Only part of the invoice submitted in that month was paid. There were disputes about whether the works had been completed and to the right standard. The respondents stopped work and left the Site. Nothing was paid on an invoice submitted in November 2008, leaving a total of £65,038 outstanding on the invoices.
These proceedings were initially commenced against Mr and Mrs Costello alone for the amount outstanding on the invoices on the basis of an alleged contract between Mr and Mrs Costello and the respondents for £739,920. The defence was that the correct defendant was Oakwood, the contract sum was £711,486, and the works were incomplete and had not been carried out to a proper standard and with proper materials. There was a counterclaim for damages for breach of contract. The respondents served an amended Claim Form, joining Oakwood as a defendant. There was an order for the trial of preliminary issues as to the identity of the contracting parties and the scope of the contract.
That trial of the preliminary issues took place over two days in February 2010. The respondents argued that the contract was between the respondents and Mr and Mrs Costello because Mr and Mrs Costello could not hide behind the corporate veil of Oakwood, or, alternatively, Oakwood contracted as agent for Mr and Mr Costello. In his judgment on the preliminary issues delivered on 16 March 2010 the Recorder held, contrary to those arguments, that the contract was between Oakwood and the respondents and not between the respondents and Mr and Mrs Costello. The Recorder also found that the agreed price of the contract works was £739,486. He made various other decisions in relation to the scope of the contract which are not relevant to this appeal. There was no appeal from that judgment.
Following the trial of the action in July 2010 the Recorder handed down his judgment on 16 August 2010, in which he found in favour of the respondents, and against Oakwood, on the amounts outstanding under various invoices and for additional building works carried out by the respondents. He awarded damages to Oakwood on the counterclaim, leaving a balance due in favour of the respondents from Oakwood under the contract. As I have said, the Recorder also made an award against Mr and Mrs Costello in restitution for unjust enrichment. They had not been legally represented at the trial. He held that they were liable, jointly and severally with Oakwood, in the amount of £89,716.81. That amount was for the value of the respondents’ services calculated at the contract rate and after deduction of the damages under the counterclaim.
Although there has been no appeal by Oakwood from the Recorder’s order against it, Oakwood has not paid the balance due to the respondents. Notwithstanding that non-payment, Mr and Mrs Costello appeal the order against them. They have retained the houses, let them, and are currently receiving the rents from them. They apparently justify Oakwood’s refusal to pay the judgment debt to the respondents, despite there being no appeal against that part of the Recorder’s order and the continuing receipt by them of the rents from houses on the Site, on the ground that (as they claim) the respondents have failed to co-operate in obtaining and handing over NHBC certificates. The consequence, they say, is that the houses cannot be sold as originally intended.
The Recorder’s judgment on unjust enrichment
In his careful and conscientious judgment, the Recorder said there was no easy answer to the issue of unjust enrichment in the circumstances of the present case. He said that there was no direct authority on the point or on the factual situation here. Having referred to various academic texts and several cases, he concluded as follows:
“62. … the loss has been occasioned by Oakwood and so merely to say that this loss equates to the benefits to the Costellos is too simplistic. On the other hand the benefit definitely exists because the very purpose of the contract was not just to build the houses but to develop the site and the only reason for this was to create a valuable asset capable of growth. So why not say that the value of the building services supplied to the Defendants by virtue of the contract which is between the Third Defendant and the Claimants, has by definition benefited the First and the Second Defendants to the same extent.
63. Well doing the best I can and looking to the realities of the fact that all the benefits have done to the Costellos I find that they are jointly and severally liable to account to the Claimants in the sums claimed as this represents the extent of their benefit. I am able to do this by saying that the benefit is a different thing to the losses even though they amount in value to the same.”
The appeal
Notwithstanding the able submissions of Mr Philip Flower, the respondents’ counsel, I would allow the appeal.
There can be no doubt that Mr and Mrs Costello have benefited from, or in restitutionary terms, have been enriched by, the work carried out by the respondents on the Site. Mr Flower submitted with force that the circumstances show clearly that their enrichment has been achieved by their unconscionable conduct.
As regards unconscionable conduct, Mr Flower referred to Blue Haven Enterprises Limited v Tully and Robinson [2006] UKPC 17 in which the appellant claimed that the respondent Robinson should compensate it for improvements carried out to a coffee plantation at a time when the appellant thought it was the owner of the planation but, in fact, Robinson was the owner. The appellant in that case relied upon the principles (usually associated with proprietary estoppel) in Ramsden v Dyson (1866) LR 1HL 129, Willmott v Barber (1880) 15 CH D 96 and Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133. The opinion of the Judicial Committee of the Privy Council, delivered by Lord Scott, described the claim ([1] and heading to [20]) as one for unjust enrichment. They said ([20]) that the critical question was not whether Robinson had been enriched at the appellant’s expense, but whether the circumstances in which that enrichment came about placed Robinson under an equitable obligation to compensate the appellant accordingly. The Privy Council quoted with approval the following passage in the judgment of Oliver J in Taylor Fashions at 151-152:
“the more recent cases indicate, in my judgment, that the application of the Ramsden v Dyson … principle – whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial – requires a much broader approach which is directed at ascertaining whether, in particular circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour.”
The Privy Council said, at [24]:
“Oliver J’s reference to “proprietary estoppel, estoppel by acquiescence, estoppel by encouragement” might appear to suggest that in every case the claim must be based on some species of misrepresentation made by the defendant. But Oliver J’s key that unlocks the door to the equitable remedy is unconscionable behaviour and although it might be difficult to fashion the key without a representation by the defendant it would not, in principle, necessarily be impossible to do so. Enrichment of A brought about by improvements to A’s property made by B otherwise than pursuant to some representation, express or implied, by acquiescence or by encouragement, for which A is responsible would not usually entitle B to an equitable remedy. But the reason would be that A’s behaviour in refusing to pay for improvements that he had not asked for or encouraged could not, without more, be described as unconscionable.”
On the facts of that case (simplifying them for present purposes) the Privy Council dismissed the appeal because Robinson had done his best to draw his prior interest to the appellant’s attention and could not be regarded as having made any representation that the appellant was entitled to develop the estate as a coffee plantation, and so Robinson’s conduct could not be described as unconscionable.
In the present case, the respondents’ claim against Mr and Mrs Costello is not one based on proprietary estoppel. Mr Flower submitted, however, that it is consistent with the broad principle described by Oliver J in Taylor Fashions and approved in Blue Haven Enterprises to regard Mr and Mrs Costello’s conduct as unconscionable for the following reasons. They engaged the respondents and, with their assistance, obtained bank finance on the basis that the development project would be for Mr and Mrs Costello’s personal benefit. Mr and Mrs Costello wished to use Oakwood, their corporate creature established purely for tax and financial purposes, merely as a conduit to make the payments due to the respondents. There was no contract between Mr and Mrs Costello and Oakwood, and Oakwood never provided them with any services. Having had the personal benefit of the respondents’ services, Mr and Mrs Costello now seek to shelter behind Oakwood’s separate corporate identity to avoid payment. Those facts are sufficient, Mr Flower submitted, to show that their enrichment is unjust and that there is a restitutionary remedy for it.
The submission gives rise to two points of legal principle. The first is whether, in terms of causation, Mr and Mrs Costello’s enrichment can be said to have been at the expense of the respondents. In one sense, of course, it was. The respondents have provided the services which have benefited Mr and Mrs Costello, and for which they expected to be paid, but they have not been paid. On the other hand, those services were provided solely because of, and pursuant to a contract between the respondents and Oakwood. Mr and Mrs Costello have been enriched because Oakwood has allowed the benefit of the contract to be conferred on them. The benefit has, in that way, come directly from Oakwood and only indirectly from the respondents. The question is whether the respondents should be permitted to leapfrog Oakwood in order to claim against Mr and Mrs Costello.
The second point of principle is whether a restitutionary claim should be allowed to undermine the contract between Oakwood and Mr and Mrs Costello, that is to say the way in which the parties chose to allocate the risks involved in the transaction. The parties arranged the transaction as one in which legally enforceable promises were made only between Oakwood and the respondents, even though the benefit of the contract was to be conferred on Mr and Mrs Costello. The obligation to pay for the respondents’ services, and so the risk of non-payment, was contractually confined to Oakwood. If a claim was permitted directly against Mr and Mrs Costello, it would shatter that contractual containment. It would also alter the usual consequences of Oakwood’s insolvency, which was one of the risks assumed by the respondents in contracting with Oakwood, since a direct claim against Mr and Mrs Costello would improve the respondents’ position over Oakwood’s other unsecured creditors.
On the hearing of the appeal Mr Clifford Darton, the appellant’s counsel, made only a passing reference to the indirect nature of the benefit conferred by the respondents on Mr and Mrs Costello. That issue was not addressed at all by Mr Flower. I do not propose, therefore, to examine further whether the appeal should be allowed simply on the basis that there can be no claim against Mr and Mrs Costello for unjust enrichment since that enrichment was only indirectly from the respondents.
I am clear, on the other hand, that the unjust enrichment claim against Mr and Mrs Costello must fail because it would undermine the contractual arrangements between the parties, that is to say the contract between the respondents and Oakwood and the absence of any contract between the respondents and Mr and Mrs Costello. The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have similarly allocated and circumscribed the consequences of non-performance. That general rule reflects a sound legal policy, which acknowledges the parties’ autonomy to configure the legal relations between them and provides certainty, and so limits disputes and litigation. The following cases support its application to the present case.
In Hampton v Glamorgan [1916] AC 13 the appellant was a subcontractor who carried out work for a school built for the respondent pursuant to a lump sum contract between the respondent and the main contractor. The main contactor having failed to pay and having become insolvent and unable to pay, the appellant sued the respondent for the unpaid balance of his fee. The House of Lords held that, as the main contractor had not acted as the respondent’s agent, the appellant could not recover from the respondent.
In Brown & Davis Ltd v Galbraith [1972] 1 WLR 997 the defendant’s car was damaged in a collision. It was taken to the plaintiff’s garage for repair. The defendant’s insurers contracted with the defendant to pay for the repairs for a specified amount. The plaintiff carried out repair work, and the defendant collected the car. The defendant did not agree that the repairs were satisfactory, and so the insurers refused to pay. The insurers collapsed. The plaintiff sued the defendant for payment. The County Court Judge found in favour of the plaintiff on the ground of an implied contract that the defendant would pay, if the insurers did not. The Court of Appeal, allowing the defendant’s appeal, held that, although there was an implied contract between the plaintiff and the defendant that the work would be done with reasonable skill and care and within a reasonable time, it did not include an obligation on the defendant to pay for the repairs if the insurers did not pay.
In PanOcean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161 the appellant time-chartered a vessel from Trident Shipping Co Ltd (“Trident”) on terms which provided for advance payments. As part of arrangements for credit facilities from the respondent, Trident assigned to the respondent receivables due under the charter. The charterparty provided for the repayment of money paid in advance and not earned and for the immediate repayment of overpaid hire. The appellant made an advance payment while the vessel was off-hire awaiting and then undergoing repairs. When the repairs were complete the vessel was unable to proceed because Trident failed to pay for the repairs. The appellant accepted Trident’s conduct as a repudiation of the charterparty. Trident’s financial position meant that it was not worth suing. The appellants claimed to recover from the respondent the advance payment on the ground that it was paid for a consideration that had wholly failed. It was held by the House of Lords, dismissing the appellant’s appeal, that there was no obligation on the respondent to re-pay. Lord Goff made the following comments (at pp. 164,165 and 166) which are highly pertinent to Mr and Mrs Costello’s appeal in the present case:
“All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate. Of course, if the contract is proved never to have been binding, or if the contract ceases to bind, different considerations may arise, as in the case of frustration … [B]efore the date of determination of the contract, Trident’s obligation under clause 18 to repay the hire instalment in question had already accrued due; and accordingly that is the relevant obligation, as between Pan Ocean and Trident, for the purposes of the present case.
It follows that, in the present circumstances and indeed in most other similar circumstances, there is no basis for the charterer recovering overpaid hire from the shipowner in restitution on the ground of total failure of consideration. …
… [A]lthough the benefit of the contract debt had been assigned to Creditcorp, with the effect that payment to Creditcorp by Pan Ocean constituted a good discharge of the debt, nevertheless the burden of the contract remained upon Trident. … Trident remained contractually bound to repay to Pan Ocean any overpaid hire, notwithstanding that such hire had been paid not to Trident but to Creditcorp as assignee. Mr. Hirst, for Pan Ocean, accepted in argument that this was so; but he nevertheless maintained that Pan Ocean had alternative courses of action open to it — either to proceed against Trident in contract, or to proceed against Creditcorp in restitution. His argument proceeded on the basis that, in ordinary circumstances, a charterer has alternative remedies against the shipowner for the recovery of overpaid hire, either in contract or in restitution; and that here, since the hire had been paid to Creditcorp as assignee, Pan Ocean’s remedy in restitution lay against Creditcorp in place of Trident. However, for the reasons I have already given, I am unable to accept this argument. This is because, in my opinion, Pan Ocean never had any remedy against Trident in restitution on the ground of failure of consideration in the present case, its only remedy against Trident lying under the contract. …
I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party (see, e.g., Goff and Jones on the Law of Restitution, 4th ed. (1993), pp. 55 et seq., and (for a particular example) Burrows on the Law of Restitution, (1993) pp. 271–272). But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract.”
In Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] 4 LRC 683 the appellants (“the Lumbers”) entered into a contract with Cook & Sons Ltd (“Sons”), a building company, for the construction of a house on land owned by the Lumbers. Shortly after building work began, Sons, without the knowledge or consent of Lumbers, handed over responsibility for the construction to the respondent (“Builders”), an associated company. After the house was completed Builders went into liquidation. Builders’ liquidator claimed from the Lumbers sums said to be owing in respect of the cost of building the house. The High Court of Australia allowed the Lumbers’ appeal from the Supreme Court of South Australia, which had held that Builders was entitled to damages on a quantum meruit for unjust enrichment. In the High Court the majority (Gummow, Hayne, Crennan and Kiefel JJ) said:
“[79] The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a ‘benefit’ at the ‘expense’ of another which the recipient ‘accepts’ and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this court’s decision in Steele v Tardiani (1946) 72 CLR 386, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 2 LRC 492 at 497, ‘serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract’. In a similar vein, in comments upon Restatement of the Law: Restitution and Unjust Enrichment (3d), tentative Draft No 3 (22 March 2004), B29 (which deals with the topic of restitution in cases of ‘Self-Interested Intervention’), the reporter says:
‘Even if restitution is the claimant’s only recourse a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.'”
“[124] When account is taken of the contractual relationship between the Lumbers and Sons several observations may be made.
[125] First, the Lumbers accepted no benefit at the expense of Builders which it would unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If either the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been fully performed (because all that is owned by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against the Lumbers, parties with whom Builders has no contract.
[126] Because Builders had no dealings with the Lumbers, Builders has no claim against the Lumbers for the price of any work and labour Builders performed or for any money that Builders may have paid in relation to the construction. Builders has no such claim because it can point to no request by the Lumbers directed to Builders that Builders do any work it did or pay any money it did. Reference to whether the Lumbers ‘accepted’ any work that Builders did or ‘accepted’ the benefit of any money it paid is irrelevant. It is irrelevant because it distracts attention from the legal relationships between the three parties: the Lumbers, Sons and Builders. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that.”
Mr Flower correctly submitted that all those cases differ from the present one on the facts. He emphasised that the respondents in the present case were not sub-contractors and there was nothing equivalent to a main contract, as in Hampton. In Brown & Davis the plaintiff’s case was argued solely on the basis of an implied contract. In PanOcean the respondent was an assignee for value. In Lumbers the appellants had had no dealings with the respondent and were unaware that the respondent had taken over the building of the house from the company with which the appellants had contracted.
Mr Flower further argued that the respondents, in contracting with Oakwood, had assumed the risk of Oakwood’s insolvency, but they never agreed to assume the risk that Mr and Mrs Costello would fail to fund Oakwood.
All those points are fairly made on behalf of the respondents. Nevertheless the policy considerations articulated by Lord Goff in PanOcean and by the majority of the High Court of Australia in Lumbers, as well as the outcome of all the cases cited above, clearly support the general policy of refusing restitutionary relief for unjust enrichment against a defendant who has benefited from the plaintiff’s services rendered pursuant to a contract to which the defendant was not a party. For the reasons I have given, that is a sound legal policy.
Further, as Mr Darton pointed out, the existence of two remedies, one in restitution and one in contract, is capable of producing anomalous results. Contractual damages are calculated by reference to the contract price and terms. Compensation for unjust enrichment as a result of the plaintiff’s services is calculated by reference to the value of the services (generally at the date of their receipt), which may or may not be the same as the contractual rate. This raises the possibility of compensation in restitution at a higher rate than the contractual rate, so enabling a claimant to improve on a bad bargain, and with consequential implications for contribution by the defaulting contracting party.
Furthermore, the actual facts of the present case justify the application of the general rule so as to restrict the respondents to their rights against Oakwood under the contract. In reaching his decision in March 2010 that the contract was with Oakwood and not Mr and Mrs Costello, the Recorder stated ([8] to [10]) that the respondents had worked for Oakwood before “and knew the position”; Mr Costello had always made it clear that Oakwood was to be used to develop the site and help with the tax situation; the respondents “must be deemed to have gone into the agreement with their eyes open”; the quote and the schedule of works which were the substance of the contract gave Oakwood’s name and address; all the invoices were delivered with Oakwood’s name and paid from Oakwood’s bank account; e-mails were sent to Oakwood’s address; and the structural drawings used by the respondents had Oakwood’s name on them. It was perfectly clear, then, that the respondents were fully aware, and accepted, that Oakwood was their contracting counter-party, and that Mr and Mrs Costello were insisting on that arrangement because of tax reasons which would be put at risk if there were direct contractual relations between themselves and the respondents. There was a perfectly straightforward and standard way in which the respondents could have limited their exposure in the event of default, including insolvency, on the part of Oakwood, namely by taking guarantees from Mr and Mrs Costello. The respondents did not do so. I can see no basis, on those facts, for saying that in principle the law does or should provide a remedy directly against Mr and Mrs Costello because of Oakwood’s breach of contract.
For those reasons, I would allow Mr and Mrs Costello’s appeal.
The respondents’ notice
As I have said, the respondents applied at the hearing of the appeal for permission to cross-appeal the decisions of the Recorder that Oakwood did not enter into the contract as agent for Mr and Mrs Costello, and also that Mr and Mrs Costello are not liable in damages for procuring or inducing a breach of the contract by Oakwood. We indicated at the conclusion of the hearing that we refused permission. Our reasons can be stated very shortly.
The Recorder decided on 16 March 2010, following the hearing of the preliminary issues in February 2010, that the respondents’ contract was with Oakwood, and not Mr and Mrs Costello. That finding was necessarily a rejection of the respondents’ agency argument, to which the Recorder expressly referred in his judgment on the preliminary issues. It is now far too late for the respondents to appeal that decision. Not only are the respondents long out of time for appealing the decision, but, critically, the trial of the action in July 2010 subsequently proceeded on the basis of the Recorder’s earlier decision. That was the whole purpose of the preliminary issues.
So far as concerns the respondents’ case that Mr and Mrs Costello are liable for procuring or inducing Oakwood to breach the contract, the Judge rejected that claim on the ground that Mr and Mrs Costello, as directors of Oakwood, acted bona fide in a mistaken belief as to the effect of the contract, and they did not have the requisite intention to break the contract: see [52] of the 16 August 2010 judgment. Mr Flower submitted that the Judge was plainly wrong on the facts in reaching that conclusion as to Mr and Mrs Costello’s good faith because they knew, at the time Oakwood failed to pay the whole of the September 2008 invoice and the November 2008 invoice, that the full contract price (even if it was in the lower amount for which they contended) had not yet been paid. It appears, however, as the Judge stated in [7] of his decision on the preliminary issues, that there were already disputes between the parties at September 2008 as to whether the contractual works had been fully and properly completed by the respondents. It is not suggested that Mr and Mrs Costello acted in bad faith in disputing those matters, and indeed the Judge made an award in favour of the appellants on their counterclaim. Accordingly, the cross-appeal against the Recorder’s findings of fact as to Mr and Mrs Costello’s good faith and the absence of any intention on their part to procure a breach of the contract has no prospect of success.
Lord Justice Patten
I agree.
Lord Justice Pill
I also agree.
McDonald v Coys of Kensington
[2004] EWCA Civ 47 (05 February 2004)
Lord Justice Mance:
Introduction
This is a case about a personalised (or “cherished”) car registration number, TAC 1, with a value, as found by the judge, of £15,000. The Part 20 defendant, Mr McDonald, appeals in respect of a judgment for that sum given against him by HHJ Simpson in the Mayor’s and City of London Court on 3rd April 2003. The judgment was in favour of the defendant (the Part 20 claimant), Coys of Kensington (Sales) Limited (“Coys”), who recovered the sum in two parts and on two bases: (i) £1,391.88 pursuant to a claim assigned to Coys by the original claimants in the action, Mr and Mrs Cressman, and (ii) £13,608.12 by way of contribution under the Civil Liability (Contribution) Act 1978. Coys also recovered their costs of the Part 20 claim from Mr McDonald on an indemnity basis.
The late Mr T. A. Cressman owned a Mercedes 280SL car carrying the registration TAC 1. Mr and Mrs Cressman are his executors. Coys are car auctioneers. Mr Cressman, no doubt for Mrs Cressman also, instructed Coys on or about 17th November 2000 to sell the car without its personalised registration mark. Mr McDonald was the successful bidder when Coys auctioned the car on 11th December 2000. These proceedings arise from Coys’ failure to retain the mark, when the car was paid for by and delivered to Mr McDonald on 12th December 2000, and from Mr McDonald’s subsequent refusal to re-transfer the mark.
…..
Benefit
On this basis, the next submission advanced on Mr McDonald’s behalf is that his receipt of the mark was insufficient to amount to a benefit or enrichment. What was necessary was either realisation of its value or at the least proof of an intention to benefit by realising its value. Our attention was drawn to the discussion on the nature of the benefit required in leading academic works, particularly An Introduction to the Law of Restitution by Professor Peter Birks at pp.114-128, The Law of Restitution (6th Ed.) by Goff and Jones at paras. 1-017 to 1-032 and The Law of Restitution (2nd Ed.) by Professor Andrew Burrows at pp.16-25.
Arguments about the respective merits of the differing approaches taken in these works were not very fully developed before us, and we were not shown the articles to which I refer in the next paragraph of this judgment. So far as possible, I shall therefore avoid expressing positive conclusions favouring any one of the approaches. But they contain much common ground and give considerable guidance as to the type of factors which are likely to be relevant when determining whether a defendant has received a sufficient benefit to enable a claimant to assert that he has been enriched for the purposes of a claim for unjust enrichment. It seems to me, however, that the parties’ submissions failed generally to give due weight to the fact that the academic debate in the passages cited about ‘free acceptance’ and ‘indisputable benefit’ relates primarily to situations (typically the supply of services) where any benefit is not readily returnable.
The law’s general concern is with benefit to the particular defendant, or so-called ‘subjective devaluation’. Mr McDonald has not actually realised or received any monetary benefit from the mark. Professor Birks and Goff & Jones both identify (a) free acceptance and (b) incontrovertible benefit as two main categories of case in which a defendant who has not realised any actual monetary benefit may be treated as unjustly enriched. Professor Birks (in response to a critique by Professor Burrows) has stressed that ‘free acceptance’ should not be understood as meaning that the recipient values the thing in question, but as unconscientious conduct precluding him or her from exercising the usual right to assert that he or she was not subjectively benefited: see In Defence of Free Acceptance in Essays on the Law of Restitution (ed. Burrows) (1991) pp. 105-146. Professor Burrows disagrees about the possibility of free acceptance – cf Free Acceptance and the Law of Restitution (1988) 104 LQR 576 and The Law of Restitution pp. 20-23 – basically because free acceptance may amount to “nothing more than indifference to the objective benefit being rendered”. Consistently with that objection, he suggests that ‘reprehensible seeking-out’ (where a recipient’s conduct clearly shows that he wants the benefit, but also that he is unwilling to pay for it) should suffice as a test of benefit (pp. 24-25). Citing some extreme examples (holding a pistol to a doctor’s head and demanding medical treatment, stealing goods and intentionally using another’s land without permission), he goes on:
“Although there are no authorities specifically on this point, the defendant in such situations must be regarded as benefited (by the objective value of the subject matter). He cannot rationally say that he was indifferent to receiving the thing: and he cannot be allowed to raise the argument ‘I was not willing to pay’ because his reprehensible conduct shows a disregard for the bargaining process (ie the market system).”
In a footnote he comments at this point:
“It is arguable the ‘seeking-out’ is sufficient to outweigh the subjective devaluation objection. But as the argument for this test is one of principle, without direct support from the case law, it has been considered preferable to focus on the stronger case whether the conduct is also reprehensible”
It is of interest to recall that Professor Birks’ explanation of the theory of ‘free acceptance’ is that the recipient’s ‘unconscientious conduct’ precludes him or her from denying subjective benefit. Professor Burrows’ text continues:
“Clearly this test runs close to free acceptance. But it is crucially distinct because in requiring a ‘seeking-out’ of the benefit rather than a standing-by it overcomes the indifference argument. Moreover the test is a test of benefit only. It is not intended to establish that the enrichment is unjust.”
‘Free acceptance’ and ‘reprehensible seeking out’ represent tests focusing on the circumstances under which Mr McDonald came to have a car carrying the registration mark TAC 1, while ‘incontrovertible benefit’ focuses on the subjective value to him of the mark once acquired, regardless of those circumstances. Here, because of Coys’ mistake, Mr McDonald acquired a car on 12th December 2000 which had, under the statutory scheme, a right to the mark TAC 1. His acquisition of the car on that date cannot have involved any ‘free acceptance’ of either the mark or the right to it. Mr Brownlee of Coys had reminded or told him and he knew on 12th December that he was not to get the old mark. But the process by which Mr McDonald came to have a car carrying that mark can, I think, be regarded as extending beyond 12th December 2000. In order to register himself as keeper he applied for a registration document, entering on the form V62 the mark TAC 1 in the knowledge that this would lead to the car being registered in his name with that mark. Notes B, C and E to the form Retention of Vehicle Registration Number V778/1 (trial document E14) indicate that Mr McDonald could, even on 13th December 2000, have applied to retain the mark, with a view to re-transferring it to the estate or its order. But he made, so far as appears, no enquiry and certainly did not pursue the obvious possibility that such a step could be taken.
Further, on 3rd January 2001, it is clear that his discussion with the DVLA covered the possibility of retention by the sellers, and he must have been aware that this was also a course open to him. By 5th January 2001, Mr McDonald was aware that the estate and Coys would be pursuing claims against him in relation to the mark. Notwithstanding that, he still did not make any application to retain the mark, with a view to its re-transfer to the estate. Only on or about 10th January 2001 did the DVLA register him as the keeper of the car with the mark TAC 1, so that he had every opportunity to correct the position before the mistake made in his favour was consolidated.
It is a salient feature of this case that Mr McDonald could have exercised a right of “retention” so as to re-transfer the registration mark to the Cressmans’ order, and would then in lieu have received from the DVLA the age-related mark which he had expected; he could have done this at any stage after his acquisition of the car – at least until its gift to his partner which, as I have said, cannot have been before 8th February 2001; and he refused to do this knowing that he had received the mark by mistake contrary to the auction bargain. The mark was here not just realisable, but easily returnable. The case lies outside the scope of Pollock CJ’s aphorism in Taylor v. Laird (1856) 25 L.J. Exch. 329, 332: “One man cleans another’s shoes. What can the other do but put them on?”.
If the case turned on whether there was ‘free acceptance’ or ‘reprehensible seeking-out’, it would be borderline. Bearing in mind the circumstances in which Mr McDonald came to register in his name a car carrying the mark TAC 1, it could, I think, be regarded as falling within the general principle of free acceptance advocated by Professor Birks and Goff & Jones. On and after 13th December 2000 Mr McDonald was acting unconscientiously in seeking and in insisting upon such registration, in the knowledge that this was not in accordance with the bargain made and that there had been an obvious mistake. Professor Burrows’ test of “reprehensible seeking-out” is on its face more stringent. But it is designed to overcome any suggestion of indifference, and it could be consistent with this rationale if the test were, if necessary, given a slightly wider re-formulation to cover circumstances such as the present. The qualification “reprehensible” derives from what Professor Burrows himself describes as “the stronger case” where the defendant shows a ‘disregard for the bargaining process”. Mere ‘seeking-out’ might in his view suffice. Here, there was positive conduct aimed at the registration in his name of his car with the old cherished mark contrary to the known bargain. What happened involved sufficient elements of knowledge, choice and action to overcome any suggestion of indifference, and can once again be seen as reprehensible in so far as it was in conscious disregard of the prior bargain. However, the case does not need to turn on whether or not its facts can be brought within a concept of ‘free acceptance’ or ‘[reprehensible] seeking-out’.
The alternative basis of restitutionary recovery on which Coys rely is “incontrovertible benefit”. This does not depend on analysis of the circumstances in which the benefit came to be acquired and fully enjoyed. It depends on the nature and value of the benefit as and when acquired. This basis of recovery was approved in principle by Hirst J in a dictum in Procter & Gamble Philippine Manufacturing Corpn. v. Peter Cremer GmbH (The Manila) [1988] 3 AER 843. In BP Exploration Co. (Libya) Ltd. v. Hunt (No. 2) [1979] 1 WLR 783, Robert Goff J used a similar phrase at p.805D in relation to the Law Reform (Frustrated Contracts) Act 1943, which he explained at p.799D as grounded on principles of unjust enrichment. Professor Birks suggests as the test of incontrovertible benefit whether “no reasonable man would say that the defendant was not enriched”. However he emphasises the major difference, in his view, between this and “the adoption of a straightforward objective standard of value” (p.116), and identifies two main cases in which the test should, in his view, be satisfied. They are cases of necessary expenditure (not here in issue) and cases of realised benefit. While he also identifies, under a third heading of “(c) others”, some cases in which courts “simply took the view that the benefit was ‘obvious'” (page 124), he evidently regards them as incompletely explained and exceptional cases of recourse to an objective standard.
In contrast, Goff & Jones in addressing incontrovertible benefits submit that it should be sufficient “that the benefit is realisable” and that it should not be necessary to show that it has been realised (para. 1-023). They comment:
“It is said that the principle of respect for the subjectivity of value would be subverted if this were accepted. But it may not be unreasonable, in some circumstances, to compel a person to sell an asset which another has mistakenly improved”
Goff & Jones recognise that not every financial gain may be said to be realisable, and refer in this connection to the landowner who “subject to the equitable doctrine of acquiescence, is not obliged to make restitution to the mistaken improver even though the land can of course be sold or mortgaged”. In The Manila Hirst J recorded that it had been common ground between the parties that the test in cases of receipt of services was appropriately set out in Goff & Jones as being whether the defendant had “gained a financial benefit readily realisable without detriment to himself” (p.855f). In Marston Construction Co. Ltd. v. Kigass Ltd. (1989) 46 BLR 109, HHJ Bowsher QC preferred Goff & Jones’s to Professor Birks’ approach.
Professor Burrows advocates an approach lying midway between realisation and realisability. He suggests as the test of benefit whether it is reasonably certain that the defendant will realise the positive benefit in the future. He puts the position at p.19 as follows:
“A problem with the narrow Birks view is that the date of trial is made crucial. Realisation of the benefit after trial is ignored and wily defendants may therefore be encouraged simply to wait before realising the benefit. Goff and Jones’ view avoids this problem but has its own weakness because what is realisable cannot depend just on whether it is land or a chattel that is improved. The circumstances of the individual are also relevant. An improvement to a car is not realisable to the person who cannot afford to sell it and buy a suitable replacement. An improvement to land may be realisable to an owner who does not live on the land. In any event if it is clear that the defendant will not realise the benefit can it be said that he is so obviously benefited just because he could easily realise it? The best approach seems to be to take Birks’ realised test but to add that the defendant will also be regarded as incontrovertibly benefited where the court regards it as reasonably certain that he will realise the positive benefit. Assessment of the defendant’s future conduct is necessarily speculative but the courts commonly have to predict future conduct in assessing damages for loss, precisely to avoid the nonsense of rigidly cutting off loss at the date of trial.”
Mr Purchas for Coys supports Goff & Jones’s approach, while Mr Swirsky submits on behalf of Mr McDonald that we should adopt Professor Burrows’ intermediate approach. However, I think that Professor Burrows’ approach might perhaps be open to the comment that it is too restrictive, and that a requirement of proof of intention might itself also encourage tactical stances or manoeuvring not too dissimilar to that which he fears on Professor Birks’ approach.
Here, Mr McDonald received the mark. He did not realise any financial benefit from it, so if one were to treat Professor Birks’ suggested requirement of actual realisation as relevant, it would not be met. However, Mr McDonald could easily have arranged for re-transfer of the mark to any car nominated by the estate and its financial value was easily realisable on the market, if he had so wished. If the test suggested by Goff & Jones were accepted, there would of course be no difficulty in concluding that Mr McDonald received a readily realisable benefit. That he subsequently gave it away to his partner could go at most to a possible defence of change of position. Professor Burrows’ modified approach, requiring us to consider whether it was also reasonably certain that Mr McDonald would realise the financial benefit, would seem difficult to apply in or adapt to the present situation. It would fit a case where the defendant retains the alleged benefit at trial, not a case where he has apparently chosen to give it away, in knowledge of the relevant facts and claims (unless perhaps one could treat the gift away as the realisation of a benefit). Even if one were to attempt to ignore the gift away, it would be difficult, if not impossible, to consider what a defendant’s intention would have been regarding realisation, if he had not given the benefit away, when giving it away is what he actually chose to do.
Looking at the matter generally, I have no doubt that justice requires that a person, who (as a result of some mistake which it becomes evident has been made in the execution of an agreed bargain) has a benefit or the right to a benefit for which he knows that he has not bargained or paid, should reimburse the value of that benefit to the other party if it is readily returnable without substantial difficulty or detriment and he chooses to retain it (or give it away to a third party) rather than to re-transfer it on request. Even if realisable benefit alone is not generally sufficient, the law should recognise, as a distinct category of enrichment, cases where a benefit is readily returnable. A person who receives another’s chattel must either return it or pay damages, commonly measured by reference to its value. The mark is not a chattel, and it was not suggested before us that its return could at any stage (even before the gift to the partner) have been enforced, or that its non-return could sound in damages. (There were allegations below of implied duties to co-operate in the return of the mark, but the judge did not accept them, and there is no appeal in that respect.) However, Mr McDonald’s insistence on keeping the mark and the absence of any obvious means of compelling its re-transfer are reasons for analysing this case in terms of unjust enrichment. Mr McDonald knew that he had not bargained or paid for the mark. The mark or its benefit was in practice easily returnable. If Mr McDonald chose to keep it, then I see every reason for treating him as benefited.
It also seems to me unrealistic to suppose that Mr McDonald did not in the circumstances himself attach value to the mark. By refusing to effect a re-transfer, and by later giving the car with its mark away to his partner, Mr McDonald was exercising a deliberate preference to give himself and/or his partner the practical enjoyment of the mark for the meantime and the possibility of realising its monetary value in the longer term. Before giving the car to his partner, he could have re-transferred the mark to the estate’s order, or he could have given her the car on the understanding that she would re-transfer the mark to the estate’s order, if he so required. Further, although I would not go as far as the judge did in equating Mr McDonald and his partner for all purposes, the practical effect of their relationship and of Mr McDonald’s evidence about it cannot be ignored. They were living together with a young family, and the car was for their joint use. The expectation would have been that both would continue to benefit both by the supposed cachet and by any future sale of the mark.
Mr McDonald’s responses under cross-examination were to the general effect that the registration mark was a matter of indifference to him and to his partner (cf transcript pp.9-10 and judgment p.11F). If that had been so, then, as the judge said, it would be difficult to understand why he took the attitude he did and did not co-operate in a re-transfer to the estate. To my mind, Mr McDonald’s attitude in and after December 2000, and his conduct in giving his partner the mark with the car, show that he attached and attaches a value to the mark. Whatever their motives, numbers of car-owners pay good money to have a personalised plate. The inference is that Mr McDonald, despite his denials, attached real value to the mark, and determined that it should be retained for that reason.
In these circumstances, and in agreement with the judge, I would conclude that Mr McDonald received an incontrovertible benefit in the market value of the mark. Viewing the matter in the terms in which counsel presented it, there could be no difficulty in reaching this conclusion on the simple test of realisability advocated by Goff & Jones. Even if realisability is not alone generally sufficient, the ability to realise the mark in the future, coupled with the enjoyment of its possession and use in the meantime, seem to me considerable arguments in favour of a conclusion that Mr McDonald regarded himself as subjectively benefited by the mark and should be treated as benefited by its value. I would regard Professor Birks’ test of realised benefit, if it were to be applied to this situation, as overly narrow, and Professor Burrows’ test as inappropriate and inapplicable in the present context (unless in each case one were to treat the gift to the partner as a realisation of benefit, which seems artificial). In my view, however, the law must in any event recognise as a distinct category of enrichment cases of readily returnable benefit, of which the present is an example. I therefore conclude that Mr McDonald did obtain a benefit which he should prima facie reimburse, if not in kind then in cash.
Change of position
To rebut this prima facie conclusion, Mr Swirsky repeated before us the submission advanced below to the effect that Mr McDonald had changed his position and deprived himself of any benefit by giving the car with its mark to his partner. The wide view of the doctrine of change of position is that it “looks to any change of position, causally linked to the mistaken receipt, which makes it inequitable for the recipient to be required to make restitution”: Scottish Equitable plc v. Derby [2001] EWCA 369; [2001] 3 AER 818, paras. 30-31 per Robert Walker LJ. Assuming this to be the correct view, still there can be nothing in the suggested defence in this case, having regard to the findings regarding the factual position set out in paragraphs 18-21 above. By the time Mr McDonald gave the car away, he knew that there had been a mistaken failure to obtain any right of retention under the statutory scheme and that both the estate and Coys would be pursuing him to recover the mark or its value. This negatives both any causal link and any inequity. A gift away made in such circumstances cannot have been made in reliance on the validity of the original receipt of the mark and cannot be regarded as having been made “in good faith”, so there can be no defence of change of position: see Lipkin Gorman v. Karpnale Ltd. [1991] 2 AC 548, 560C per Lord Templeman and 580C per Lord Goff; and Niru Battery Manufacturing Co. v. Milestone Trading Ltd. [2002] EWCA 1425 (Comm.), paras. 134-5 per Moore-Bick J, approved [2003] EWCA (Civ) 1446. Even if I had found that the gift to the partner took effect on the evening of 13th December 2000, I would also have considered that Mr McDonald was by then in possession of sufficient knowledge to exclude causal reliance and inequity or good faith: see paragraph 21 above.
It follows that Mr McDonald became liable to the estate for unjust enrichment, to the extent of £15,000. The trial below proceeded on the basis that all but £1,391.88 of that liability was met by Coys’ settlement payment to the estate in March 2003; and that any further recovery by Coys could only be sought by way of contribution under the 1978 Act.
Benedetti v Sawiris & Ors
[2013] UKSC 50 (17 July 2013)
URL: http://www.bailii.org/uk/cases/UKSC/2013/50.html
Cite as: [2013] WLR(D) 286, 149 Con LR 1, [2014] AC 938, [2013] UKSC 50, [2013] 3 WLR 351, [2013] 2 All ER (Comm) 801, [2013] 4 All ER 253, [2014] 1 AC 938
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JUDGMENT
Benedetti (Appellant) v Sawiris and others (Respondents)
Sawiris and others (Appellants) v Benedetti (Respondent)
before
Lord Neuberger, President
Lord Kerr
Lord Clarke
Lord Wilson
Lord Reed
JUDGMENT GIVEN ON
17 July 2013
Heard on 26, 27 and 28 February 2013
Appellant
Mark Howard QC
Andrew Twigger QC
Jennifer Seaman
(Instructed by Herbert Smith Freehills LLP) Respondent
Laurence Rabinowitz QC
Richard Hill QC
Gregory Denton-Cox
(Instructed by Kirkland & Ellis International LLP)
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.
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 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.
LORD NEUBERGER
The background
Introductory
Two questions require to be determined. The first, which is raised by Mr Benedetti’s appeal, is what sum he should be awarded for the services which he carried out for Mr Sawiris and his companies (which, for present purposes, can be elided with Mr Sawiris) in connection with the acquisition of Wind Telecomunicazioni SpA (“Wind”). The second issue, which is raised by Mr Sawiris’s cross-appeal, and only arises if the appeal is dismissed, is whether Mr Benedetti’s entitlement to that sum should be treated as satisfied, because a company which he owns and controls has already received €67m.
Each issue raises a point of principle, but is complicated by the very unusual facts of this case. Those facts are set out in the judgment of Lord Clarke in paras 3-8 and 35-66, and, while it is unnecessary to repeat them in any detail, I shall begin by identifying what seem to me to be the salient features in connection with the issues raised in this appeal and cross-appeal.
……
The issue to be determined
The Judge held that Mr Benedetti had a claim in unjust enrichment and that was accepted by the Court of Appeal. The circumstances in which such a claim can arise are multifarious, but they can all be said to involve the conferment of a benefit on a defendant at the expense of a claimant in circumstances where it would be unjust for the defendant not to pay the claimant. Examples of the circumstances in which such a claim can be made include where the benefit has been conferred by or under a mistake, duress, undue influence, incapacity or compulsion. (I express these examples in the most general of terms: in many such cases, the enrichment may not be unjust and so no claim arises). The present claim is in another category, namely, to use a well-established if not wholly apt expression, where there has been a failure of consideration. This arises where there was a contract, but, in whole or in part, it was ineffective (eg due to illegality, frustration or unenforceability), or it ceased to apply for some reason.
It is, and always has been, accepted by Mr Sawiris that (subject to his argument on the cross-appeal) Mr Benedetti has a valid claim in unjust enrichment in respect of the Services. This is because (i) by providing the Services, Mr Benedetti conferred a benefit on Mr Sawiris, (ii) the provision of the Services was at the “expense” of Mr Benedetti, (iii) because the scheme fell away, this was a case where the consideration failed, (iv) it would be unjust if Mr Benedetti was not paid for the benefit, and (v) save as a result of the receipt of the €67m (which is relevant to the cross-appeal), Mr Sawiris has no defence to the claim. The appeal is thus concerned with how the sum to be paid to rectify the injustice of the enrichment is to be assessed.
That sum has been described throughout this case as being a quantum meruit. It is, I think, arguable that this is a mischaracterisation. It is true that the original contractual arrangement, which identified Mr Benedetti’s consideration, fell away. It is also true that the new arrangement which developed did not involve any such identification. However, it seems to me that the new arrangement probably gave rise to a contract, arising from the parties’ words and conduct in April and May 2005. That contract did not specify Mr Benedetti’s remuneration, but it must be at least arguable that there would be implied into the contract a term that he should be paid a reasonable sum. I say no more about this possible point of distinction, as (i) the point was not argued, (ii) the point may be wrong, (iii) even if it is right, the point may involve an issue of terminology rather than principle, and (iv) even if there is an issue of principle, I am confident it makes no difference to the outcome of this appeal, given the conclusion I have reached.
The term quantum meruit, expressed as it is in the old language of the forms of action, might fairly be said to “conceal … as much as it reveals about the nature of a claim” – to quote from Goff & Jones on The Law of Unjust Enrichment, 8th ed (2011), para 1-29. In this appeal, the quantum meruit refers to the value of the services rendered by Mr Benedetti, in circumstances where there was no contract which expressly provided how the price he was to be paid for the Services was to be quantified. In awarding a quantum meruit for a benefit, the court is essentially deciding how much is deserved for the conferment of that benefit (and, as Arden LJ pointed out in the Court of Appeal, the literal translation of quantum meruit is “as much as he deserves” – [2010] EWCA Civ 1427, para 2).
The appeal therefore turns on whether the quantum meruit which Mr Benedetti claims for the Services which he performed for Mr Sawiris is (i) the open market value of the Services as assessed, now unchallengeably, by the Judge, €36.3m, or (ii) the higher sum which Mr Sawiris was prepared to pay for the Services, namely (at least) €75.1m. The former figure can be characterised as the “objective” value in the sense that it does not depend on the particular view or assessment of either party. I am prepared to assume that the latter figure can be characterised as the “subjective” value, in the sense of being what the Services were assessed by Mr Sawiris to be worth to him. It is true that, on the Judge’s findings, the offer of €75.1m was substantially over the market value and was seen by Mr Sawiris himself as being “generous”. However, it was offered by a very experienced and very successful businessman, with access to the best advice. It can therefore, at least arguably, be explained on the basis that it represented what the Services were worth to Mr Sawiris (or, as Mr Benedetti would say, the minimum amount that they were worth to Mr Sawiris, as the figure represents an unaccepted offer).
The prima facie position
Where, as is agreed to be the position here, a claimant is entitled to a quantum meruit based on the fact that he has enriched the defendant by the provision of benefits, which have an assessable market value, it seems to me pretty clear that the sum prima facie to be awarded is the market value of those benefits. That conclusion is consistent with commercial common sense, the authorities, and the leading academic works on the topic of unjust enrichment.
It is hard to identify a rational alternative basis to market value, in the absence of a good reason to the contrary on the particular facts of a particular case. It seems to me that, even to those who might favour a generally subjective approach to the assessment of quantum meruit in unjust enrichment cases, there must be a presumption that the value of a particular benefit to the defendant is its market value. The nearest one can get to the value of a good or service, at least in a capitalist system (which can be said to equate price with value, which has echoes of Oscar Wilde’s cynic), is its market value, and I agree with Lord Reed’s description of that expression in paras 104-108. If a different valuation, in this case a subjective valuation, is said to be appropriate in a particular case, the onus must be on the person seeking to justify the different valuation to establish that it exists and differs from the market value as a matter of fact, and that that different valuation is justified as representing the quantum meruit in that particular case.
In his judgment in BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783, 822 and 839-841, Robert Goff J said in terms that any quantum meruit is to be assessed by reference to market value. More recently, Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, paras 41-42, rejected the suggestion that a quantum meruit was to be assessed by reference to the increase in the value of the defendant’s property thanks to the claimant’s services, and held the claimant entitled to what those services would cost in the market. Further, although the issue involved can be said to be slightly different, namely payment under a mistake, the approach of Lord Hope and Lord Nicholls, in the House of Lords decision in Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561, paras 45-47 and 113-116 respectively, seems to me, as it did to Etherton LJ at [2010] EWCA Civ 1427, para 144, to indicate that market value is the prima facie basis of valuation in this area of law. Also like Etherton LJ four paragraphs later in his judgment, I do not regard the reasoning of the House in Way v Latilla [1973] 3 All ER 759 as inconsistent with this conclusion, as it was found that there was no open market value assessable for, or to use Lord Atkin’s words, no “trade usage” as to, the services which were in issue in that case.
The academic support for a prima facie objective valuation includes Professor Burrows, A Restatement of the English Law of Unjust Enrichment (2012) section 34, Goff & Jones op cit, para 6-69, Virgo The Principles of the Law of Restitution, 2nd ed pp 98 and 103, and Birks, Unjust Enrichment, (2nd ed, (2005), pp 52-63.
There may be penumbra round this otherwise clear prima facie principle, but I consider that they will normally involve arguments about the precise basis upon which market value is to be assessed in a particular case. Thus, there could be cases where the defendant would, for some reason or another, be able to negotiate an unusually low price for the benefits in the open market – eg he could be a particularly active and prestigious client, so the provider of the benefits would hope for repeat business; or the service-provider’s reputation and goodwill would be enhanced by it being known that he had acted for that client. In my view, in such a case, the very fact that the particular defendant would be able to negotiate a lower price in the open market provides the answer: if it was shown that the market would have appreciated that factor and would have been likely to take it into account, then the market value should reflect it. (Lord Reed gives some instructive and colourful examples in paras 101, 102, 105 and 106). One should not ignore objective characteristics of one or both of the parties, which would be known to, and taken into account by, the market, when assessing market value, at least in the instant context. The claimant as a provider of the benefits, would, by the same token, be able to seek more, on a market value basis, if he had a particular expertise or experience, provided that he could show that that was a factor which would have been appreciated by the market and could have been expected to be reflected in the market for the particular benefits in question.
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
Dublin Corporation v BATU
The Right Honourable the Lord Mayor, Aldermen and Burgesses of the City of Dublin v Building and Allied Trade Union and its Trustees, James Foley, Frederick Hosford, Dermot Gray, James Lyons and Laurence O’Brien
1996 No. 112
Supreme Court
24 July 1996
[1996] 2 I.L.R.M. 547
KEANE J
(Hamilton CJ, O’Flaherty, Blayney and Barrington JJ concurring) delivered his judgment on 24 July 1996 saying: In 1982 the plaintiffs/respondents (whom I shall refer to as ‘the corporation’) acting in its capacity as road authority decided to widen Cuffe Street. To that end, they made a compulsory purchase order which was duly confirmed by the Minister for the Environment on 2 September 1983. One of the properties affected by the order was a building known as the Bricklayers’ Hall which was owned by the defendants/appellants (whom I shall refer to as ‘the union’) who were then described as ‘the Ancient Guild of Incorporated Brick and Stonelayers’. The front façade of the building was, appropriately enough, a fine example of the stonemasons’ and bricklayers’ craft.
*551
At an arbitration conducted by Mr Sean M. McDermot, the duly nominated property arbitrator, to determine the amount of compensation to be paid to the union, its secretary, Mr Kevin Duffy, gave evidence on oath that:
(a) the Bricklayers’ Hall was an integral part of the union’s activity,
(b) the union was unlikely to be in a position to rent similar premises with the same facilities, and
(c) it was the intention of the union to rebuild the Bricklayers’ Hall and to reinstate the façade.
Two alternative bases for the assessment of the compensation to be paid to the union were presented to the arbitrator. The first was on the basis that the corporation acquired the entire building, and not merely the front portion required for road widening, and sold or similarly disposed of the remainder to recoup their expenditure. The second was on the basis that the corporation only acquired so much of the property as was needed for road widening, thereby enabling the union to reinstate the building, complete with façade, on the reduced site.
Prior to the arbitration the corporation and the union, acting through their professional advisers, sensibly agreed the sums that would be payable, depending on which basis the compensation was to be assessed. Under the first method, it was £87,857. Under the second, it was £224,414. The arbitrator, having heard the evidence, issued his award on 27 May 1985 and awarded the union the latter sum, together with the costs and expenses of preparing and submitting its claim and the costs and expenses of and incidental to the reference to arbitration. By a conveyance of 30 December 1985, the portion of the site the subject of the compulsory purchase order was conveyed to the corporation by the union in consideration of the sum of £224,414 paid to the union.
Following the award and prior to that conveyance, most of the Bricklayers’ Hall was demolished by the union and since then no attempt has been made to rebuild the buildings, including the façade, on the site which it retained.
The corporation thereupon instituted the present proceedings, in which it claims:
(a) a declaration that the union holds the sum of £224,414 in trust for the reconstruction of the Bricklayers’ Hall and the reinstatement of the front façade;
(b) a mandatory injunction requiring the union to apply the money in the reconstruction of the Bricklayers’ Hall and the reinstatement of the façade;
(c) payment by the union to the corporation of the sum of £136,557 (the difference between the two agreed sums) together with appropriate interest, as being an amount by which the union has been allegedly unjustly enriched.
The relief sought in paragraph (c) was obviously sought as an alternative to the reliefs claimed in the preceding paragraphs to provide for the contingency that the union might have put it out of its power to reinstate the building by disposing of the cleared site.
*552
A defence was delivered on behalf of the union in which it was pleaded that the statement of claim disclosed no cause of action and that the corporation were in any event estopped by the doctrine of res judicata from making the claim. It also denied that the union was under any duty to the corporation to reconstruct the Bricklayers’ Hall or reinstate the façade, that the sum of £224,414 was held by it on any trust for the corporation or otherwise and that it had been unjustly enriched.
The case was at hearing in the High Court for eight days. Most of the hearing, was, however, taken up by legal submissions; the facts, as already summarised in this judgment, were not in dispute. Evidence was given on behalf of the corporation by Mr John Faley, a valuer, Mr Eugene Farrelly, a quantity surveyor, Mr Charles Clancy, an architect and Mr Michael Reynolds, an architect and town planner. No evidence was given on behalf of the union.
In a lengthy judgment, Budd J concluded that the claim of the corporation was well founded and that it was entitled to be paid the sum of £158,957 by the union. From that judgment, the union have now appealed to this Court.
On behalf of the union, Mr Patrick Keane SC submitted that the proceedings were an undisguised attack on the finality of the award in the arbitration proceedings. He said that the High Court had been invited, in effect, to consider the award of the property arbitrator in the light of changed circumstances and reassess the compensation which he had awarded. He further submitted that the union was under no legal obligation to reinstate the building and there was no evidence to support the case made, implicitly if not expressly, on behalf of the corporation that it had in some sense acted in bad faith. There was no allegation that the award of the arbitrator had been procured by fraud and, in those circumstances, the union was entitled as a matter of law to the sums paid to it on foot of the award.
Mr Keane further submitted that there was no evidence of any representation by the union to the corporation or any commitment on its behalf that the building would be reinstated. The agreement entered into between the professional advisers to the corporation and to the union as to the cost of reinstatement was no more than that; it was in no sense an undertaking on behalf of the union that, in the event of being awarded compensation on that basis, it would carry out the work in question. There was also no evidence, he said, to support the corporation’s contention that the corporation paid over the amount of the award as a result of ‘a mistake of fact’. He said there was no evidence to support the contention that, as of December 1985 when the existing building was allegedly demolished, the union had changed its mind. Those facts, even if proved, which, he said, they were not, only supported an inference that the union did not propose to proceed with the reinstatement in the precise terms of the plans which formed the basis of agreement as to the amount of the compensation.
In a further elaboration of his submission that the corporation were precluded *553 by the doctrine of res judicata from pursuing its claim, Mr Keane submitted that, insofar as the decision in Moses v. Macferlan (1760) 2 Burr 1005 was authority for the proposition that a final judgment of a court or tribunal of competent jurisdiction could be reopened where it appeared to another court unjust and inequitable, it had been strongly criticised and should not be followed by this Court. He relied in this context on the decision of Eyre CJ in Phillips v. Hunter (1795) 2 H B1 402 and the statement of the law in Goff & Jones on the Law of Restitution , 4th ed., at pp. 763–4.
Mr Keane further submitted that, if the legislature had intended that monies paid on foot of an award made in accordance with the relevant statutory provisions could be recovered by the acquiring authority in circumstances such as the present, they could have so provided but had chosen not to do so.
On behalf of the corporation, Mr Eoghan Fitzsimons SC submitted that the proceedings instituted by the corporation were not in any sense an attempt to reopen the arbitrator’s award. He said that the corporation accepted that it was bound by the arbitrator’s finding that, at the date of the hearing before him, the union bona fide intended to reinstate the building. Nor was it suggested on their behalf that the union was precluded from subsequently changing its mind, as it obviously had, in declining to proceed with the reinstatement. He submitted, however, that it was unconscionable for the union to change its mind and retain the compensation which it had been awarded on the basis of reinstatement. He submitted that the doctrine of unjust enrichment had been firmly established in Irish law, at least since the decision in East Cork Foods Ltd v. O’Dwyer Steel Co. Ltd [1978] IR 103, and that all the requirements for its invocation in the present case were met. The corporation had not simply asserted that the unarguable enrichment of the union was ‘unjust’ in any loose or imprecise sense; it relied on the specific circumstances of the present case as rendering the enrichment unjust.
Mr Fitzsimons submitted that the circumstances in the present case which rendered the enrichment unjust were the unqualified representation at the arbitration that the building would be reinstated, the effective demolition, within a few months of the publication of the award, of the building, putting it out of the power of the union to reinstate the building in accordance with the plans furnished to the corporation and the failure of the union to give any evidence at the hearing in the High Court as to why it had changed its mind. He submitted that, since the trial judge had given it every opportunity of adducing evidence, it was reasonable to infer that the reasons for its change of mind were such as to render its retention of the money inequitable.
Mr Fitzsimons submitted that in these circumstances the corporation were clearly entitled to the repayment by the union of such an amount as would undo the unjust enrichment which had occurred. Alternatively, Mr Fitzsimons submitted that the monies paid on foot of the award were impressed with a *554 constructive trust, citing in support the much quoted words of Cardozo J in Beatty v. Guggenheim Exploration Co. (1919) 225 NY 380 at p. 386 that:
A constructive trust is the formula through which the conscience of equity finds expression.
In considering these submissions, I should at the outset refer to the statutory provisions applicable to the payment of the sum of £224,414 to the union.
S. 2 of the Acquisition of Land (Assessment of Compensation) Act 1919 (hereinafter ‘the 1919 Act’) which, it was accepted, applies to this as it does to many other forms of compulsory purchase, provides (as amended) that:
In assessing compensation, a property arbitrator shall act in accordance with the following rules …
(2) The value of land shall, subject as hereinafter provided be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise: Provided always that the arbitrator shall be entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.
(5) Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the property arbitrator is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.
S. 6, as amended, provides that:
(1) The decision of a property arbitrator upon any question of fact, shall be final and binding on the parties, and the persons claiming under them respectively, but the property arbitrator may, and shall, if the High Court so directs, state at any stage of the proceedings, in the form of a special case for the opinion of the High Court, any question of law arising in the course of the proceedings, and may state his award as to the whole or part thereof in the form of a special case for the opinion of the High Court.
S. 41 of the Arbitration Act 1954 provides that:
An award on an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order to the same effect and, where leave is so given, judgment may be entered in terms of the award.
S. 27 of the same Act provides that:
Unless a contrary intention is expressed therein, every arbitration agreement *555 shall, where such a provision is applicable to the reference, be deemed to contain a provision that the award to be made by the arbitrator or umpire shall be final and binding on the parties and the persons claiming under them respectively.
Both of these provisions are applicable to arbitrations under the 1919 Act except to the extent that Part II of the 1954 Act is inconsistent therewith.
The compulsory purchase procedure under which the corporation acquired the land in question from the union is different in almost every respect from a purchase by agreement. Although rule (2) provides for the assessment of compensation on the basis of the value of the land on the open market, some of the other rules, and the manner in which they have been judicially construed, make it clear that the assessment of compensation is more in the nature of an award of damages for the expropriation of his property against the wishes of the owner. Although the acquisition is effected in the public interest, both parliament and the courts have been at pains to ensure that the award of compensation reflects, not merely a price that might have been agreed by a willing vendor and purchaser, but also all the elements of loss suffered by someone dispossessed of land against his will.
Hence, the provision in rule (5) for the assessment of compensation on ‘the reasonable cost of equivalent reinstatement’ where that is appropriate. Where the arbitrator is satisfied that the owner bona fide intends to reinstate the building, be it a church, a museum or whatever, on some other site, the extent of his loss will not necessarily be reflected in the open market value of the land, since he will be unlikely to find a purchaser who will be prepared to pay him that sum if it happens to exceed the market value.
The ‘equivalent reinstatement’ basis of compensation thus provides the machinery, in cases where it is appropriate, of compensating the owner of the property in full in circumstances where he would not be fully compensated by being awarded the open market value. I emphasise this aspect of rule (5), because the learned High Court judge at a number of points in his judgment appears to treat the corporation as having acquired, in consideration of the payment of the compensation, a benefit in the form of the preservation of the façade of the building. That approach, however, overlooks the fact that the acquisition was not being effected by the corporation in its capacity as a planning authority and the question as to whether or not, in that capacity, it would have stipulated the preservation of the façade was irrelevant to the amount of compensation which it was required to pay arising out of its acquisition of the land in question as a road authority.
It is accepted by the corporation that the award in this case was final and binding on both itself and the union. The doctrine of res judicata applicable to this, as to every final judgment or award of any competent court or tribunal, has the consequence that the parties are estopped between themselves from litigating *556 the issues determined by the award again. The justification of the doctrine is normally found in the maxim interest rei publicae ut sit finis litium and it is important to bear in mind that the public interest referred to reflects, in part at least, the interest of all citizens who resort to litigation in obtaining a final and conclusive determination of their disputes. However severe the stresses of litigation may be for the parties involved — the anxiety, the delays, the costs, the public and painful nature of the process — there is at least the comfort that at some stage finality is reached. Save in those exceptional cases where his opponent can prove that the judgment was procured by fraud, the successful litigant can sleep easily in the knowledge that he need never return to court again.
That finality is, of course, secured at a cost. The defendant who discovers as soon as the case is over that the award of damages against him is grossly excessive because of facts of which he was wholly unaware and was unable to bring before the court cannot, in the absence of fraud, resist the enforcement of the judgment against him. The plaintiff who similarly finds out that his damages are far less than those which would have been awarded had the court been in possession of evidence not available at the hearing is equally precluded from disputing the finality of the judgment. The interest of the public in that finality is given precedence by the law over the injustices which inevitably sometimes result.
These principles apply with even greater force to an award under the 1919 Act. Not merely is a disappointed claimant precluded from reopening the award should he find that there was evidence which he could have brought before the arbitrator which would have resulted in a far higher level of compensation: he has not even the opportunity, available to those claiming damages arising out of civil wrongs as opposed to a statutory expropriation, of having the findings at first instance tested on appeal.
It is claimed, however, on behalf of the corporation that, in the case of assessments carried out under rule (5), that finality is significantly abridged. It is conceded, and inevitably so, that had the union elected to give evidence which demonstrated, that, owing to circumstances unforeseen by it at the time of the arbitration, it was no longer possible for it to reinstate the building and that the costs of acquiring suitable premises elsewhere would in any event exhaust the award, no question of ‘unjust enrichment’ would arise. It is quite right in submitting that, given the remarkable alacrity with which the union proceeded to demolish the building, it is singularly unlikely that the union would have been in the position to give any such evidence. But the general principle for which it contends cannot be solely tested by reference to the facts of the present case. A claimant who, without any element of fraud, is awarded compensation on the basis of equivalent reinstatement is either entitled to treat the litigation as at an end or he is not. If he can be called to account for his conduct in not reinstating the building at some indeterminate stage in the future, then, however else the *557 award in his favour may be described, it is certainly not final in any meaningful sense. Thus, if the case made on behalf of the corporation is well founded, a body which has given evidence in good faith to the arbitrator that it intends to reinstate the building on another site and which subsequently discovers that, because of difficulties arising from planning constraints, problems of title, the effect on neighbouring properties or a myriad of other considerations, reinstatement is impossible and which also finds that the money awarded will do no more than cover the acquisition of another building, may legitimately be subjected to all the hazards of a further court action at some stage in the future. It will be in vain for it to plead res judicata: on proof by the acquiring authority that it has not in fact reinstated the building, it will be compelled to adduce evidence as to the reasons why it has not done so.
It is necessary to emphasise again that there is nothing to suggest that such were the circumstances in the present case, but the question as to whether the award is in every sense final or is merely final in a qualified sense cannot be determined solely by reference to the facts of one case. That would be a classic instance of hard cases making bad law. It must be determined as a matter of legal principle.
It also follows inevitably from the submissions on behalf of the corporation that s. 6(1) of the 1919 Act must be read as though it were subject to a proviso that, in the event of the compensation having been assessed by reference to rule (5), and the equivalent reinstatement not having been thereafter effected, the owner must refund to the acquiring authority such proportion of the compensation as a court of competent jurisdiction deems to be just and equitable. It is of interest to note that in the Local Government (Planning and Development) Act 1963 (which itself, in the Fourth Schedule, introduced additional rules to those contained in the 1919 Act) a provision of such a nature was expressly enacted to deal with certain cases where an owner of property suffers loss as a result of a decision involving a refusal of planning permission or a grant of such permission subject to conditions. S. 73(1) provides that no person is to carry out any development to which that section applies on land in respect of which an award of compensation has been registered at any time during the succeeding fourteen years without making an appropriate repayment to the planning authority.
These consequences — the qualified application of the res judicata principle and the amendment by implication of the 1919 Act — are, it is submitted, necessitated by what is said to be the application of the concept of unjust enrichment to the facts of the present case.
It is clear that, under our law, a person can in certain circumstances be obliged to effect restitution of money or other property to another where it would be unjust for him to retain the property. Moreover, as Henchy J noted in East Cork Foods Ltd v. O’Dwyer Steel Co. Ltd, this principle no longer rests on the fiction *558 of an implied promise to return the property which, in the days when the forms of action still ruled English law, led to its tortuous rationalisation as being ‘quasi-contractual’ in nature.
The modern authorities in this and other common law jurisdictions, of which Murphy v. Attorney General [1982] IR 241 is a leading Irish example have demonstrated that unjust enrichment exists as a distinctive legal concept, separate from both contract and tort, which in the words of Deane J in the High Court of Australia in Pavey & Matthews Pty Ltd v. Paul (1987) 162 CLR 221 at pp. 256–257:
… explains why the law recognises, in a variety of distinct categories of cases, 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 process of legal reasoning, of the question of whether the law should, in justice, recognise the obligation in a new or developing category of case.
The authorities also demonstrate that, while there is seldom any problem in ascertaining whether two essential preconditions for the application of the doctrine have been met — i.e. an enrichment of the defendant at the expense of the plaintiff — considerably more difficulty has been experienced in determining when the enrichment should be regarded as ‘unjust’ and whether there are any reasons why, even where it can be regarded as ‘unjust’, restitution should nevertheless be denied to the plaintiff.
As to the first of these difficulties, the law, as it has developed, has avoided the dangers of ‘palm tree justice’ by identifying whether the case belongs in a specific category which justifies so describing the enrichment: possible instances are money paid under duress or as a result of a mistake of fact or law or accompanied by a total failure of consideration. Whether the retention by the union of the entire compensation in the present case falls within such a category or not, however, it would in any event be necessary to consider whether restitution is precluded because of other factors. In the latter context, the following passage from the judgment of Henchy J in Murphy v. Attorney General, at p. 314 is of particular significance:
Over the centuries the law has come to recognise, in one degree or another, that factors such as prescription (negative or positive), waiver, estoppel, laches, a statute of limitation, res judicata, or other matters (most of which may be grouped under the heading of public policy) may debar a person from obtaining redress in the courts for injury, pecuniary or otherwise, which would be justiciable and redressable if such considerations had not intervened.
In the present case, confronted with this difficulty the corporation seek to *559 rely on Moses v. Macferlan, as authority for the proposition that, in the circumstances of this case, it would be unjust for the union not to refund the money at least in part.
The facts in that case, which is usually regarded as the starting point of the lengthy and fitful journey of English law towards a doctrine of unjust enrichment, can be briefly summarised. The plaintiff, Moses, endorsed to the defendant, Macferlan, four promissory notes in order to enable Macferlan to recover the money in his own name. However, before endorsing the notes, Macferlan agreed that Moses should not be liable for the payment of any part of the money. Contrary to this agreement, Macferlan sued Moses in the Court of Conscience for the sums in question and that court, holding that they could not admit any evidence of the agreement between the two, gave judgment against Moses. Moses having paid the money into court and Macferlan having taken it out, Moses brought an action on the case in the King’s Bench Division before Lord Mansfield. A verdict was found by him in favour of Moses, but subject to the opinion of the court upon the question:
whether the money could be recovered in the present form of action, or whether it must be recovered by an action brought upon the special agreement only.
The hearing of the motion to set aside the verdict in favour of the plaintiff entered by Lord Mansfield at nisi prius having come before the full court, the question was resolved in favour of Moses. Lord Mansfield, who again delivered the judgment with which all the other members concurred, said that:
this kind of equitable action, to recover back money which ought not in justice to be kept, is very beneficial and therefore much encouraged … 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.
However, while that statement of the law was the genesis of the law of unjust enrichment as it ultimately became, there has been little or no support for the view of the court in that case that the ‘ties of natural justice and equity’ justified the setting aside of the decree of a court of competent jurisdiction.
In Phillips v. Hunter, Eyre CJ said that:
The case of Moses v. Macferlan is, I believe, the only decided case that countenances such an action, but I cannot subscribe to the authority of that case….
Having gone on to consider the case in some detail, he summarised his view as follows:
*560
I believe that the judgment did not satisfy Westminster Hall at the time; I never could subscribe to it; it seemed to me to unsettle foundations.
In Goff and Jones on the Law of Restitution (4th ed.), the learned editor, having observed (at pp. 763–764) that:
this maxim ( interest rei publicae ut sit finis litium ) is as important in the law of restitution as in any other branch of English private law
adds:
Lord Mansfield’s decision, although just, was a blatant attack upon, and a de facto reversal of, the judgment of a competent court, and his observations have not been accepted as authority for any exception to the principle of res judicata.
I am satisfied that Moses v. Macferlan is not a satisfactory authority for the proposition that the doctrine of res judicata can be significantly abridged by the invocation of the concept of unjust enrichment. Res judicata, on the contrary, as Henchy J pointed out in Murphy v. Attorney General, is one of the factors the application of which may render a seemingly unjust enrichment irreversible. I am also satisfied that in the present case, for the reasons I have elaborated, its successful invocation would involve the addition by judicial decision of a significant qualification to the operation of rule (5) in s. 2 of the 1919 Act, which the legislature, as was their privilege, decided not to enact.
I think it is unnecessary to determine whether the retention by the union of the entire compensation constituted an unjust enrichment of it, because I am satisfied that those two considerations — public policy as reflected in the doctrine of res judicata and the exclusive role of the Oireachtas in legislation — are such as to render any such unjust enrichment, in the circumstances of the present case, irreversible.
I would allow the appeal, discharge the order of the learned High Court judge and substitute therefor an order dismissing the claim of the corporation.