Under the English law principle of unjust enrichment a claimant can seek a restitutionary remedy in circumstances where it can be shown that the defendant was enriched at the claimant’s expense, that such enrichment was unjust and that there is no specific defence available to the defendant. This important and long‑standing principle offers an alternative to seeking compensatory damages, instead enabling a claimant to recover the relevant enrichment. However, the question of whether a defendant has in fact been unjustly enriched can be complex, particularly in circumstances where it appears the enrichment was no more than an “incidental benefit”, as the Court of Appeal’s recent decision in TFL Management Services v Lloyds Bank demonstrates.

The decision arose out of a dispute over unpaid commissions between three companies: the assignor of two agreements, the assignee, and the ultimate debtor under the agreements. The assignee brought proceedings against the debtor, but in the Court of Appeal it was held that the assignee was only entitled to commissions under one agreement, the right to commissions under the second agreement having been retained by the assignor. The Court of Appeal acknowledged that the assignor may wish to bring proceedings against the debtor in relation to those commissions and the assignor did so, ultimately settling its claim for over £1.18 million, which was recovered by the defendant bank under the terms of a debenture. The assignee contended that throughout the proceedings, the bank and the assignee had mistakenly believed that the benefit of both agreements had been assigned, with the result that the assignee had incurred legal costs in the litigation, which in turn conferred a valuable benefit on the bank. It was therefore contended that the bank had been unjustly enriched at the assignee’s expense. However, at first instance it was held that any enrichment conferred on the bank as a result of the litigation was an “incidental benefit” and could not form the basis of a claim for unjust enrichment. Therefore the claim was struck out. The assignee appealed.

The Court of Appeal noted that, although academic writers have acknowledged a concept which precludes recovery in a claim for unjust enrichment of benefits which have been incidentally conferred on a defendant by a claimant acting in his own self‑interest, there are no clear authorities which support the existence of such a rule. In this case the Court was therefore being invited to formulate such a rule for the first time. Although various cases could be put forward which appeared to give some support to the concept, they could also be explained by reference to the traditional requirements of a claim for unjust enrichment. Holding that there was no reason to consider that those traditional requirements were inadequate, the Court of Appeal therefore refused to formulate a general “incidental benefits” exception, holding that any such rule was too unclear both as to its formulation and its conceptual basis to form a secure foundation on which to strike out the action in this case.

It is important to remember that this decision was reached in the context of an application for a strike out, and the Court of Appeal’s refusal to formulate a rule that incidental benefits cannot form the basis of a claim for unjust enrichment is therefore not the end of the story. Nevertheless, on the basis of this decision it would be advisable for a defendant to argue that a claim for unjust enrichment should fail on the basis that it does not fulfil one of the traditional requirements, rather than seeking to rely on academic arguments as to incidental benefits.

TFL Management Services Ltd v Lloyds Bank Plc [2013] EWCA Civ 1415