Introduction
Facts
First instance decision
Court of Appeal decision
Supreme Court decision


Introduction

The Supreme Court judgment in Benedetti v Sawaris ([2013] UKSC 50) has clarified the basis on which a court should evaluate the remuneration (or quantum meruit) for the value of a person's services based on the unjust enrichment of the person receiving the services.

The principle of unjust enrichment is that no one should be permitted to receive a benefit at another's detriment without paying for the reasonable value of that benefit. According to this decision, the court asks itself four questions when faced with a claim for unjust enrichment:

"(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?"(1)

If the answer to each of the first three questions is "yes" and no defences are available to the defendant, the court may make a restitutionary award.

The issue that the court had to consider in this appeal was the valuation of the restitutionary award – that is, the basis on which a claim for payment of services should be calculated.

Facts

In late 2002 the appellant, Mr Benedetti, and the respondent, Mr Sawaris, entered into discussions regarding the purchase of Wind Telecommunicazioni SpA. The parties entered into an agreement in January 2004 that contained provisions for remuneration in relation to Benedetti's services. Benedetti handled the negotiations and Sawaris proved support and advice, but their attempt to secure funding from third parties for the acquisition of Wind ultimately failed.

Benedetti subsequently arranged for Wind to be acquired through a newly incorporated company (Weather I), of which he was a director. On March 25 2005 99% of the shares of Weather I were transferred to Sawaris through Benedetti. Without the knowledge of Sawaris, and on the day before the transfer of shares in Weather I, Benedetti signed agreements with his own companies on behalf of Weather I for the provision of brokerage services. One agreement between Weather I and International Technologies Management (ITM) Ltd dated March 24 2005 (the first brokerage agreement) provided for a fee of 0.7% (€87 million) of the final acquisition value of Wind for brokerage services provided by ITM.

In order to complete the deal, it became necessary for Sawaris (together with his associated companies) to provide the funds for the acquisition of Wind. On May 26 2005 an agreement was signed between the seller of Wind, Enel SpA, Enel's holding company and Sawaris's associated companies for the majority of the shares in Wind. The deal was structured so that Wind was transferred through a company called Weather Investments Srl (Weather Italy), of which Benedetti was a director. Without Sawaris's knowledge, Benedetti caused the rights and liabilities of Weather I to be transferred to Weather Italy on the same day as the signing of this agreement. This included the obligations under the first brokerage agreement of Weather I to pay ITM the €87 million brokerage fee.

In June 2005 Sawaris discovered the existence of the first brokerage agreement. He considered that the €87 million fee to ITM for brokerage services was for Benedetti to distribute between third parties that assisted in the deal. However, Sawaris did not believe that such a distribution would occur and the sum would ultimately be kept by Benedetti. Sawaris also considered the amount to be unreasonable and requested that Benedetti reduce the brokerage fee to €75.1 million. Benedetti did not agree to that amount, but in July 2005 signed an agreement (backdated to May 26 2005) between Weather Italy and ITM (the revised brokerage agreement) that ITM would be paid 0.55% (€67 million) of the value of the deal for its brokerage services. Weather Italy paid ITM €67 million under the revised brokerage agreement.

First instance decision

The trial judge held that the market value of the services provided by Benedetti would have been €36.3 million at the relevant time. Taking into account the €67 million paid to ITM in August 2005 under the revised brokerage agreement and the amount of work that the court considered to have been carried out under that agreement (60% of the total work), the judge held that the €36.3 million fee for the work should be reduced by 60% to €14.52 million on a quantum meruit basis.

However, the judge also decided that in a claim for a quantum meruit it is permissible for the court to have discretion "to award what it considers to be a fair and reasonable sum for the services".(2) As such, the trial judge made an award in favour of Benedetti for the amount offered by Sawaris in June 2005 (€75.1 million). It was held that this should be in addition to the €67 million already paid pursuant to the revised brokerage agreement, as it was considered that the offer made by Sawaris was in full knowledge of the fact that ITM had received a fee under the revised brokerage agreement.

Court of Appeal decision

The appeal judges upheld the conclusions of the trial judge, save for the decision to award Benedetti the amount of €75.1 million. It was held that the trial judge was wrong to award an amount greater than the market value of the services at the relevant time on the basis of Sawaris's offer in June 2005. The correct amount owed to Benedetti for the brokerage services on a quantum meruit basis was €14.52 million. That figure was arrived at again by calculating the proportionate amount of work that the court considered to have been carried out under the revised brokerage agreement and applying that to the market value of €36.3 million.

Supreme Court decision

The court unanimously dismissed Benedetti's appeal and held that the value of the benefit of services performed will usually be the objective market value of those services. In calculating the market value, the court will look to the characteristics of the defendant – for example, its relative buying power in the relevant market or whether the defendant is a repeat client. The court also discussed whether the market value can be revised downwards in circumstances where the defendant subjectively valued the services at less than the market value (subjective devaluation). Three out of the five judges considered that the market value of services can be reduced by subjective devaluation.

On reviewing the lower courts' decisions, the Supreme Court found that the decision at first instance was at odds with the correct approach for determining, on an objective basis, the value of the services at the time of receipt and upheld the appeal court's decision. Significantly, it held that the first instance award to Benedetti of €75.1 million, in accordance with the offer of Sawaris in June 2005, was wrong, finding that "the offers could not be treated as overriding the evidence as to the market rate on the basis that Mr Sawaris's personal scale of values was the proper measure of a resitutionary award".(3) It is not permissible for the market value to be displaced and revised upwards (ie, subjective revaluation) in cases of unjust enrichment, save in exceptional circumstances.

The appeal court was wrong to award Benedetti €14.52 million, as he had already received €67 million through ITM under the revised brokerage agreement. An award relating to 40% of the brokerage services provided by Benedetti was inconsistent with the fact that payment would normally be made in a single transaction representing the total value of that transaction. Benedetti had also exhausted his role by the time of the revised brokerage agreement; no further services were to be provided after that date.

It was held that the payment to Benedetti of €67 million under the revised brokerage agreement was payment for all the services provided to that point. Sawaris had not been unjustly enriched by the services carried out by Benedetti, having already paid for those services under the revised brokerage agreement.

For further information on this topic please contact Gareth Lang at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (gareth.lang@rpc.co.uk).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

Endnotes

(1) [2013] UKSC 50, Paragraph 10.

(2) [2009] EWHC 1330 (Ch), Paragraph 58.

(3) [2013] UKSC 50, paragraph 145.