In Kowalishin v Roberts and another [2015] the High Court considered whether there was a binding contract between the parties and, if not, the basis for calculating the amount to be repaid under a restitutionary claim.


On 29 August 2007 Mr Kowalishin (K), a successful financier, paid £50,000 to Tech 21 UK Ltd (the Company), in anticipation of entering into an agreement to invest, with other investors, up to £250,000 in return for shares. Mr Roberts (R), the sole director of the Company, proposed that 30% of the equity would be issued to the investors in consideration of the anticipated aggregate investment of £250,000. K did not advance any further money to the Company, although, due to the parlous state of the Company’s finances, R was keen that he should do so. However, no heads of agreement or formal agreement were ever concluded between the parties and no shares were issued to K.

R subsequently appeared on the television show Dragons’ Den and secured investment in the Company from the Dragons (allegedly fraudulently by characterising the money paid by K as a director’s loan which thereby enabled a going concern statement to be made in the Company’s accounts). The Company subsequently became profitable with annual profits of over £500,000. However, at the time K paid the money to the Company, its overdraft facility with its bank was fully utilised. Further bank borrowing beyond the overdraft limit would attract an interest rate of 29.5%. The Company was desperate for cash and the £50,000 ‘investment’ came at a critical time and enabled the Company to return to credit.

A draft agreement was prepared by R’s solicitors which anticipated payments totalling £250,000 with shares being issued after payment of each tranche, but K never read it or commented on it. R argued that this was contrary to his instructions and that in any event no contract was ever agreed. However, if there was a binding contract, K had breached it, by not investing more than £50,000.

K did not seek specific performance but rather brought a claim (some years later) for damages on the ground that he was entitled to at least 6% of the equity under a binding agreement that he would be entitled to shares in return for the £50,000 payment.

It was common ground that, if there was no binding contract, K was entitled to the return of the money plus an amount representing the value of it over the time involved. The court had to decide whether that amount should be calculated by looking at the subjective value of the money to the Company or the objective value of the money to the Company, which is the value of the money to someone in the financial position of the Company in 2007.

Contractual claim

The court had to decide whether there had been a binding contract between the parties. K argued that any imprecision in the terms of the agreement should not render it void for uncertainty and that the court can and should fill the gaps and make a declaration as to the shareholding to which K was entitled. R argued that the arrangement remained subject to contract and important terms were never agreed.

The court reviewed the relevant principles of contract law, which can be found in three decisions of the Court of Appeal, including Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] in which Rix LJ said:

“Where no contract exists, the use of an expression such as ‘to be agreed’ in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty. This may be summed up by the principle that ‘you cannot agree to agree’.

"Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence, again on the ground of uncertainty.

"However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that they had a binding contract, the Courts are willing to imply terms, where that is possible, to enable the contract to be carried out.

"Where a contract has once come into existence, even the expression ‘to be agreed’ in relation to future executory obligations is not necessarily fatal to its continued existence.

"Particularly in the case of contracts for future performance... where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the Courts will assist the parties to do so, so as to preserve rather than destroy bargains... 

"This is particularly the case where one party has either already had the advantage of some performance which reflects the parties’ agreement on a long term relationship, or has had to make an investment premised on that agreement.

...Even in the absence of express language, the Courts are prepared to imply an obligation in terms of what is reasonable.”

Contract claim decision

The court held that, on the facts, ‘the parties did not intend to be contractually bound at best until heads of terms had been agreed.’ This had not occurred. In order to agree heads of terms, the parties would have to agree the dates for the payment of the remaining £200,000; how many shares would be issued in respect of the £50,000; or whether K could bring in other investors and, if so, on what terms. K paid the £50,000 in advance of reaching an agreement and in anticipation of doing so. R had a pressing need and K trusted R and expected him to act honourably.

The judge said “If I were to find that Mr Roberts agreed to give any shares (let alone 6%) in return for £50,000, I would not simply be filling the gaps in an incomplete bargain; I would be making a bargain for the parties which they themselves never made.”

The contractual claim was dismissed.

Restitutionary claim

The court applied the decisions of the House of Lords in Sempra Metals Ltd v Inland Revenue Commissioners [2008] and Benedetti v Sawiris [2014] when deciding how to calculate a claim for restitution and the time value of the money. In the Sempra case, the majority of the House of Lords held that Sempra had a claim in restitution on the ground that a sum had been paid under a mistake. The basis of the resititutionary right is the unjust enrichment principle and the process is one of subtraction not compensation.

It was common ground that the same principle applied in the present case, if the Company received K’s money under an anticipated contract which never materialised. The court interpreted the two decisions as being that the court should calculate the time value of the sum retained on the basis of what it would cost someone in the Company’s position to borrow that money. Just as the court assumed a notional licence fee even in cases where the parties would never actually have agreed a licence, so the court should assume a notional loan even in cases where the enriched party would never actually have been able to borrow money in the market. That is the objective valuation. However, it was open to the enriched party to displace this prima facie valuation by showing that the use of the money was actually worth less to him, e.g. because he did not need or use the money. This adjustment has become known as subjective devaluation.

In Benedetti v Sawiris, Lord Clarke said:

“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’ ...); or (ii) to increase that amount [beyond what he would have to pay on a market value basis] (sometimes known as ‘subjective revaluation’). ...The consensus of academic opinion seems to favour the recognition of subjective devaluation. ...”

The Benedetti case appeared to rule out subjective revaluation (except in exceptional circumstances) but approved subjective devaluation.

K argued for an objective valuation with a subjective revaluation as from 2009, to take account of the benefit to the Company resulting from the misrepresentation in the accounts, which would not have been possible but for the failure to repay the £50,000. However, as mentioned above, the Benedetti case ruled out subjective revaluation.

R argued for an objective valuation which should take account of the fact that the Company could have raised the finance from other sources without having to pay interest. In the view of the judge, however, an objective valuation depended on the market rate that would be paid by someone in the enriched party’s financial position. The court accepted that it was open to the enriched party to establish a subjective devaluation by showing that the Company could have obtained the money from friends or family. However, the court was satisfied that this did not arise on the facts of this case, as no other source of finance was available. 

Restitutionary Claim Decision

The court took as its starting point an objective valuation based on the Company’s financial position and assuming that the Company went into the market in August 2007 to obtain a loan of £50,000. The only market evidence before the court was the terms of the Company’s Nat West loan and overdraft. The Bank was prepared to allow an overdraft of £15,000 at 9.25%; above that sum, the interest rate rose to 29.5%. These terms were accepted by the Company. In the court’s judgment this represented the market rate at which the Company would notionally have borrowed a further £50,000 in August 2007. Even though the Bank’s rate of 29.5% was based on simple interest, it would not have been envisaged by the Bank that this would be a long-term loan. In the event of a long-term loan, the right course is to award compound interest with quarterly rests.

The court accordingly ordered the return of the £50,000 to K with interest to be paid at the rate of 29.5%, compounded with quarterly rests, from 29 August 2007 to the date of the judgment. 


As regards restitution, this case follows the judgments in Sempra Metals and Benedetti that a recipient will need to return the whole of the benefit of unjust enrichment including the time value. The test for calculating the time value is primarily an objective assessment but it is open to the recipient to show, subjectively, that there was no actual enrichment when he received the money or that the money was actually worth less to it than the market value. The court also made clear (referring to Lord Clarke’s judgment in Benedetti) that any valuation, whether objective or subjective, should be undertaken at the date of the advance and cannot take into account subsequent events, such as the benefit resulting from R’s alleged misrepresentation in the accounts.