The UK Supreme Court (“UKSC”) recently addressed the law on unjust enrichment (Benedetti v Sawiris & Ors [2013] UKSC 50and in particular the issue of how an enrichment should be valued.
Background
This case involved a dispute over the remuneration of the Claimant, Mr Benedetti, for his services to the Defendants in facilitating a corporate transaction. The Claimant had learned that a large Italian energy company was planning to sell one of its subsidiaries, he found a potential buyer and eventually a deal was signed. A dispute then arose regarding how much remuneration the Claimant was entitled to for his services and the Defendants, who had already paid the Claimant €67m, argued sufficient remuneration had already been paid and no more was due.
The Claimant commenced proceedings on various grounds, including breach of contract and breach of fiduciary duty. All claims were dismissed except one which related to quantum meruit, the legal principle that a claimant who has supplied services to a defendant may claim for a reasonable sum in respect of such services (meaning literally, “as much as he deserves”).
In this case, however, the Supreme Court found the Defendants’ enrichment to be valued at £37.3m and, having already received 67m, no further payment was therefore due.
Quantum meruit and unjust enrichment
Where services have been performed but there is no written contract, the court will resolve a quantum meruit claim by examining whether the Defendant has been unjustly enriched.
According to the UKSC there is a four-step approach to establishing unjust enrichment claims:
- Has the Defendant (D) been enriched?
- Was the enrichment at the Claimant’s (C) expense?
- Was the enrichment unjust?
- Are there any defences available to D?
In this case, limbs (i) to (iii) of the test were met, and there were no defences available, therefore the outstanding issue was the value of the enrichment.
Valuing unjust enrichment claims
The Supreme Court explained that the following process should be adopted to establish the value of the enrichment.
a) Establish the objective (market) value of the enrichment
The starting point is finding the objective market value (“price which a reasonable person in the defendant’s position would have had to pay”), which C must establish. This is, prima facie, the value. Note that objective value is:
- of the enrichment as of the time it was received;
- limited to the services provided (not the end product, subsequent profit etc.); and
- to a person ‘in the defendant’s position’. This considers characteristics relevant to the value (e.g. a film star may receive designer clothes at a discount so their career would be relevant), but not personal preferences or idiosyncrasies.
Where market value cannot be obtained (e.g. bespoke items for which there is no market), look to the item’s cost (and what alternative suppliers might charge).
b) Allow D to establish subjective value
Courts should consider D’s subjective opinion of the enrichment and de-value the enrichment accordingly (known as ‘subjective devaluation’). This is not about D’s expectations or intentions, but is an after the fact devaluation, as follows:
- after C has provided evidence of objective value, the burden of proof shifts to D to prove lower subjective value of enrichment
- D will have to prove lower value by adducing strong evidence (for example, an objective manifestation of his subjective view).
Here, C argued that D’s subjective valuation was higher than the objective market value, and instead of ‘subjective devaluation’, C sought ‘subject revaluation’. The Court disagreed, not only stating that subject devaluation did not apply in this case, but that as a principle it was not allowed. Lord Neuberger did however suggest if that subjective devaluation were permissible, it could only occur in exceptional circumstances (unlike this case).
Why allow subjective devaluation, but not subject revaluation?
Subjective devaluation protects D’s autonomy. For example, if D’s windows were cleaned without his request or knowing and he refuses to pay, D has still benefited and therefore been enriched (though perhaps not unjustly). In this situation though it would be unfair to hold D liable for the value of the service, it might also be unfair to find the service’s value as being nil. By applying subjective devaluation, the court can take a more nuanced approach to establishing enrichment.
By contrast, the majority of the UKSC judges hearing the case held that subject revaluation does not protect D’s autonomy and therefore it seems unnecessary and it would be illogical and inconsistent to adopt C’s valuation of D’s subjective value. Whilst Lord Reed’s view on this issue was less absolute, ultimately the court held there was no need to reach a conclusion on the matter in this case.
WAB Comment
The UKSC’s ruling in this case will provide welcome clarification for suppliers and customers of a wide range of services that when a court hears a quantum meruit claim to establish unjust enrichment in the absence of a binding written agreement for the services, it should:
- identify whether a benefit has been conferred on the defendant;
- establish the benefit’s objective market value;
- allow the defendant to adduce evidence to subjectively devalue the benefit, to establish either there was no benefit, or that the value of the benefit was less than the objective market value; and
- not consider (except possibly in exceptional circumstances) the principle of subjective revaluation.
