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James Edelman
Thu, 19 Jul 2007 08:34:05 +0000


Dear Neil and others

I think the difference between Lords Hope, Nicholls and Walker (on the one hand) and Lords Mance and Scott (on the other) is that the former recognize two different measures of benefit. It is particularly clear, especially from paragraphs [32], [117] and [178]-[180] that each of the former recognizes that the free use of an asset (here, money) obtained unjustly from another is a benefit which is quite distinct from the actual profits derived from that use. The latter measure (an account of profits, or disgorgement) is a familiar measure when courts want to strip profits from a fiduciary or in cases of deliberately committed wrongdoing, such as breach of confidence. In my view such profit stripping is appropriate only in cases where deterrence is needed (including for prophylactic or general deterrent purposes). These three Lords are recognizing that the free use of an asset obtained unjustly is a separate measure of benefit. Unlike actual profits (which might be far greater, or far less, than the cost of use, and which may depend on pure chance), this restitutionary measure is derived ‘at the expense of’ the claimant [179].

Although the free use of an asset (something which, in commerce, everyone has to pay for) is an enrichment, difficulties can arise. For instance, how should the market value of the benefit be measured? There is no single market value for the use of money. Different people will pay different rates to borrow money. The majority fix upon the rate at which the Government would have had to pay to borrow the money. That is the objective value of the money to a person in the defendant’s position.

The biggest concern, ventilated at the hearing of the case, was the situation where the defendant obtains the free use of money but does not employ the money productively. Either puts it under her pillow or in a current account. Different labels are suggested: ‘equitable defence’, ‘subjective devaluation’. What seems to be common to a majority is that this is (1) a matter for the defendant to prove; (2) it is not truly ‘subjective’ in the sense that it does not depend on the defendant’s particular, idiosyncratic values (the defendant’s personal opinions about the value of money are irrelevant); (3) it will not always be available (for instance, if the defendant knew that he or she was the recipient of a mistaken payment). In my view, the elements of this defence that the Lords are describing are identical to the test for change of position. A defendant that has the valuable benefit of the free use of money but, in good faith, dissipates the time value of that use by not employing the money productively, has changed her position just as a defendant who fails to seek more profitable employment elsewhere following a mistaken payment (Commerzbank AG v Price Jones). Lord Nicholls seems to notice this point, but leaves it open at [119].


James Edelman


From: Neil Foster
Sent: 19 July 2007 08:21
Subject: ODG: Restitution and Interest - House of Lords, Sempra

Dear Colleagues;

I'd be interested to see others' comments on the decision of the House of Lords in Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants) [2007] UKHL 34.

The two main features of the judgement, on a quick reading, seem to be

(1) over-ruling previous authority that no interest can be awarded at common law on damages for late payment of a debt or damages (a position, as the House generally notes, reached some years ago by the High Court of Australia in Hungerfords v Walker (1989) 171 CLR 125);

(2) comments on the awarding of interest in a claim for restitution based on mistake, rather than a tort.

On the second issue there seems to be a 3-2 majority holding that where someone has made a mistaken payment which can be recovered under the principles of unjust enrichment, then when the money is recovered there will usually be a claim for payment of compound interest. If in fact the person who had the use of the money did not invest it or otherwise get value from it, then the court should have a discretion to depart from this figure in a "subjective devaluation" (see eg Lord Nicholls at [119], generally agreed with by Lords Hoffmann and Walker).

The dissenters (Lords Scott and Mance) accept that compound interest may be OK where a restitutionary remedy is required for wrongdoing, but argue that in a case of mistake all the defendant is required to do is to account for the benefit he or she in fact enjoyed, and hence compound interest will not always be appropriate. (If they put it under the bed - Lord Mance, [233], then they are only required to pay back the actual principal.) I must say the fact that the majority have to resort to what my old philosophy lecturer used to call the "arm-waving" notion of a case-by-case "subjective devaluation" makes me fairly sympathetic to the minority on this point.

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