The Court of Appeal has provided guidance on how to value a defendant’s benefit in a claim for unjust enrichment: Littlewoods Limited and others v The Commissioners for Her Majesty’s Revenue and Customs [2015] EWCA Civ 515.

A claimant in unjust enrichment does not claim damages for the loss it has suffered, but restitution of the benefit that a defendant has gained at the claimant’s expense. The starting point in calculating the defendant’s benefit is an objective market value.  Yet if the defendant can show that the actual value it received was less than the objective value, its liability will normally be reduced.

In the present case, however, the Court of Appeal said it was irrelevant that the actual value received by the defendant was less than the objective value: the defendant had had an opportunity to return or reject the benefit and had not done so. As it had “freely accepted” the benefit, it could not argue that the benefit was worth less to it than the objective market value. Although these principles have been discussed in judgments and academic writing, this is the first time they have been applied to form the basis of a judgment.

As a practical matter, and subject to any appeal to the Supreme Court (for which HMRC has said it will seek permission) this decision illustrates that if a defendant to an unjust enrichment claim wants to avoid the usual objective basis of assessment:

  • it needs to be able to demonstrate that the actual benefit it received was less than the market value; and
  • it will not be successful if the court concludes that it freely accepted the benefit.

Gary Milner-Moore and Dan Hoyle, a partner and senior associate in our dispute resolution team, consider the decision further below.


Unjust enrichment

Unjust enrichment (often known in the past as the law of restitution) is a distinct branch of law from both contract and tort. Unlike contract and tort, the principal focus of the law of unjust enrichment is not on compensating a claimant for the damage it has suffered. Instead, the focus is on transferring to a claimant the benefit that a defendant has received.

To succeed in a claim for unjust enrichment, a claimant must prove: 1) that the defendant was enriched; 2) that the enrichment was at the claimant’s expense; 3) that it would be unjust for the defendant to retain the benefit; and 4) that there are no defences available to the defendant.

The case

The claimant overpaid £204 million in VAT to HMRC over 30 years. HMRC later repaid the principal sum together with simple interest at the rates provided for in the VAT Act 1994. The claimant claimed that simple interest did not represent the value to HMRC of having the use of the VAT overpayments for that time (sometimes called the “time value” of money).  The claimant sought to recover interest on a compound basis instead, in a claim for unjust enrichment.  The claim for compound interest exceeded the simple interest available under the VAT Act by £1 billion.


A key issue before the Court of Appeal was how to measure the defendant’s benefit: should it be measured objectively or was the actual benefit to the defendant relevant?

Objective value can be displaced by proof that the actual benefit was less

HMRC accepted that the starting point for valuing the benefit was the objective market value. But it argued that this could be displaced if the defendant proved the actual benefit received was less.

The court accepted this argument. In doing so, it applied the House of Lords decision inSempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34 (see our post on that decision). Like the present case, that was a claim for the time value of tax overpaid to HMRC. A majority of the House of Lords held that the starting point was that the defendant’s benefit should be valued objectively (ie at market value). In identifying the appropriate market, the particular characteristics of the defendant had to be taken into account, so the appropriate market there was the government’s cost of borrowing, as opposed to commercial borrowing rates at the time. As the government could borrow money more cheaply than the average commercial borrower, the objective value was lower than it would have been for a non-government entity.

The House of Lords distinguished this objective rate from the actual benefit which HMRC had derived from the use of the money. The actual benefit was not in point as HMRC could not show what that actual benefit had been. The House of Lords did recognise, however, that if a particular defendant could show that it had valued the benefit at less than its objective value, the court could depart from the objective value. This process of reducing an award from the objective value of a benefit is generally known as “subjective devaluation”.

In the present case, HMRC had proved at first instance that the actual benefit it received from the overpayments was less than the objective market value. This was because HMRC used the overpayments for general expenditure. This did not reduce government borrowing and so HMRC’s gain was not equal to its rate of borrowing, so raising the possibility of “subjective devaluation” (or awarding a “defendant-focused rate” as the Court of Appeal described it).

If a defendant has freely accepted the benefit, it cannot argue that it valued the benefit at less than the objective value

The present case demonstrates, however, that this is not the end of the enquiry. The Court of Appeal went on to find that subjective devaluation was not available to HMRC in this case. This was because HMRC had “freely accepted” the VAT overpayments at the time they were made. That is to say, HMRC had had the opportunity to reject or return the overpayments and it had not done so. It would be unconscionable to claim in hindsight that it had valued those overpayments at less than their market value.

The court’s conclusion that HMRC was not an involuntary recipient of the VAT overpayments, but that it had freely accepted the benefit of receiving them, was based on the fact that repayments of tax paid in error were inevitable in a system of self-assessment and also that the government was free to use any overpayments to reduce borrowings. HMRC’s free acceptance of the overpayments therefore prevented it from awarding a defendant-focused rate (or subjectively devaluing the objective value of the benefit).

The Court of Appeal stated that in reaching this decision it was applying a principle set down in the Supreme Court decision in Benedetti v Sawiris [2013] UKSC 50.  In Benedetti the Supreme Court had considered in what circumstances the subjective value of a benefit to the defendant should trump its objective value where there was evidence that the defendant may have valued the benefit (services provided by Mr Benedetti) at more than its market value. The idea that a defendant might have to pay more than the market value is sometimes termed “subjective revaluation”.  The Supreme Court held that, save in exceptional circumstances, it is not possible in a claim for unjust enrichment to recover more than the objective value of a benefit from the defendant, regardless of the defendant’s own valuation of that benefit. (It should be noted as an aside that the Court of Appeal interpreted Benedetti as ruling out the possibility of subjective revaluation altogether, whereas in fact none of the judges ruled that it had no basis in law, just that it was perhaps highly unlikely that it would ever be possible on the facts).

The Supreme Court in Benedetti went on to discuss subjective devaluation and held that it could be relevant, although not on the facts of that case. The principle identified in Benedettiwas that the court should respect the freedom of choice of the defendant. A defendant may have benefitted involuntarily in circumstances where, given the choice, it would not have voluntarily accepted the benefit at market value; in those circumstances, it should not have to account for the benefit at market value.

In Benedetti, however, the issue of free acceptance formed no part of the Supreme Court’s decision. The present case is therefore the first time a court has applied the principle of “free acceptance” to prevent a defendant relying on subjective devaluation.


The case provides welcome clarification on two points concerning the law of unjust enrichment.

  1. First, the Court of Appeal has confirmed that unjust enrichment is not solely concerned with assessing the objective value of a benefit and that it is possible for a court to subjectively devalue the objective value to award a defendant-focused rate. The defendant’s actual use of a benefit can therefore be relevant.
  2. Second, the court has held that a defendant loses the right to claim that it valued a benefit at less than the market value, if it has freely accepted that benefit. This is a point that has been the subject of much academic and judicial comment, but has not previously formed the basis of a decision.

The law on valuing a benefit in an unjust enrichment claim therefore appears to be as follows:

  • The starting point is the objective market value. It is important to find the right “market”, and to do so the particular characteristics of the defendant (but not its subjective preferences) are taken into account.
  • It is open to the defendant to prove that the actual value of the benefit was worth less to it than the objective market value so that a defendant-focused rate is awarded, ie subjective devaluation is possible.
  • Subjective devaluation is not available in certain circumstances, including where the defendant freely accepted the benefit.