Revaluation and indignation

'Unjust enrichment' occurs when a defendant has been enriched at the expense of a claimant in a manner deemed to be unjust.  A common example of these types of claims is where an employee has been accidentally paid his or her salary twice and refuses to repay their employer.  However, a more complex example is the performance of services in the absence of a contract. The difficulty in this type of instance is how such enrichments should be valued.  The recent English Supreme Court case of Benedetti v Sawiris and other [2013] UKSC 50 considered this issue.

Benedetti (B) and Sawiris (S) planned to acquire a subsidiary of Enel S.P.A, the largest energy company in Italy. To this end, they incorporated a company (WI SA) on behalf of which B was to carry out negotiations with Enel and S would inject capital. On behalf of WI SA, B (as the director) agreed to pay a company (ITM) controlled by him EUR 87m for brokerage services, although in the proceedings described below, the judge at first instance found that B created the brokerage agreement opportunistically in order to "provide a justification for the payments he was intending to draw."

This initial scheme was abandoned, having failed to find co-investors, and S agreed with Enel that he would purchase the majority shareholding in the subsidiary through a new company (WI Sarl). B was appointed a director of WI Sarl and he participated in the negotiations leading up to the sale. On the same day as the Sale and Purchase Agreement was signed, he used his position as director of both companies to transfer the rights and obligations under the brokerage agreement from WI SA to WI SARL without informing S.

S was unhappy with the size of the brokerage fee, but agreed to pay EUR 67m. However, no agreement was reached regarding remuneration for services performed by B personally (separate to those performed by his company), and B commenced a claim against S (as well as various companies associated with S which had played a part in the transaction) for unjust enrichment after rejecting an offer of EUR 75.1m from S. S had continued make this offer after becoming aware that B had personally received the EUR 67m paid to ITM.

The quantum of liability for unjust enrichments is generally "the price which a reasonable person in the defendant's position would have had to pay" for the service, and in this case the 'market value' was assessed at EUR 36.3m. However, B argued that S ought to be required to pay a larger sum on the basis that S valued B's services at a higher level than their market value, as demonstrated by his offer to pay B EUR 75.1m. He claimed that since the courts acknowledge 'subjective devaluation' (whereby defendants may not be liable for the full market value of an unjust enrichment if they subjectively valued it at below the market level) there must also be a principle of 'subjective revaluation' (i.e. that Defendants ought to be liable for more than the market price of a service if they overvalue it).

The Supreme Court rejected this argument, and the majority (represented by Lord Clarke) noted that subjective devaluation aims to protect a Defendant's freedom to choose whether or not to receive a service by introducing a degree of subjectivity when assessing the value received. Subjective revaluation cannot be explained on this basis.

In any event, all of the services performed by B fell within the scope of the brokerage agreement and the fees paid were received by him personally. Therefore, there was no service performed for which he had not in fact been remunerated, and no amount was outstanding given that the EUR 67m exceeded the market value of EUR 36.3m.

Lord Reed reached the same conclusions as the majority, but reasoned that the purpose of restitution is to restore to the Claimant the value of the services provided, which would be compromised if value is determined by reference to the Defendant's idiosyncrasies. So far as protecting 'freedom to choose' is concerned, he suggested that the legal analysis would be clearer if free acceptance of the service is a factor determining whether the enrichment was unjust (rather than introducing subjective valuations to alter the amount payable by the Defendant).

Subjective revaluation has therefore been rejected, although the different opinions regarding devaluation reflect the uncertainty in this developing area of law. In particular, 'free acceptance' of a service by a Defendant may affect whether there is a claim at all (since without free acceptance there may have been no 'enrichment'), rather than just the value of the claim. This could introduce greater certainty and limits the risk of letting the Defendant "name his price".

 Please contact Gareth Thomas or Richard Norridge of our Hong Kong Dispute Resolution team if you have any questions.