• Who Says I’ve Been Enriched? Subjective Devaluation and Revaluation in Restitution for Unjust Enrichment
  • August 28, 2013 | Author: Timothy Froese
  • Law Firm: McCarthy Tétrault LLP - Calgary Office
  • In an interesting decision that will no doubt influence the calculation of restitutionary awards and quantum meruit payments in Canada and elsewhere, the United Kingdom Supreme Court recently engaged in, in the words of Lord Clarke, “a wide-ranging discussion of the principles relevant to an aspect of unjust enrichment which has been the subject of lively debate among academics.” The Court considered whether restitution for services rendered in the absence of a contract could take into account the defendant’s opinion of the value of those services.  The Court held that it could - but only to decrease, not increase, the award.

    Background

    The Plaintiff provided services to the Defendant in furtherance of a multi-billion euro acquisition of a telecommunications company. The Plaintiff’s action for compensation under his Acquisition Agreement with the Defendant failed, as the trial judge found that the investment arrangement that it contemplated had not been concluded. Only the Plaintiff’s claim for quantum meruit, defined in the trial judgment as a reasonable sum for services provided outside of a contractual relationship, succeeded.

    The trial judge found, based on expert evidence, that the total market value of the Plaintiff’s services was €36.3 million. However, the Defendant had paid €67 million for 60% of those services, and had offered an additional €75.1 million for the remainder - an amount that the Plaintiff did not accept. The trial judge, relying upon the Defendant’s assessment of the value of the services received but not paid for, awarded €75.1 million.

    The Court of Appeal reduced the award to 40% of €36.3 million, or €14.52 million, to reflect the market value of the unpaid services.

    The Plaintiff appealed on the basis that the value of the unpaid services to the Defendant exceeded their objective market value. The Defendant cross-appealed, arguing that the Plaintiff was not entitled to anything as he had already received more than the fair market price.

    The Decision

    This appeal was driven by the Defendant’s apparent willingness to pay the Plaintiff much more than the market price. The Plaintiff argued that the Defendant’s calculation of the benefit that he received should be taken into account when determining the value of the unpaid services.

    The Plaintiff’s argument sprung from the academic debate surrounding “subjective devaluation”. According to that concept, the measure of unjust enrichment may be reduced below the market price if the defendant subjectively views the services as having a lesser value. The Plaintiff argued that fairness requires that an award should be similarly increased if the value to the Defendant exceeds that assigned by the marketplace. This concept was dubbed “subjective revaluation”.

    The Court unanimously rejected this argument. While three sets of reasons were written adopting different approaches, the Justices agreed that the measure of quantum meruit is the amount by which the defendant has been unjustly enriched, and is prima facie the objective market value of the services.

    The majority held, in obiter, that subjective devaluation could reduce a restitutionary award below that value, even if the defendant expressly requested the services. It justified this principle by the need to protect a defendant’s freedom of choice. In some circumstances, injustice could arise from measuring the benefit to a particular defendant by the value placed on it by others. A particular defendant may have chosen to purchase the services only for a discount below the market price, or not at all.

    However, the Court could not find any similar rationale for subjective revaluation. If the Defendant paid the Plaintiff the market value of the services, then any resulting enrichment from those services could not be considered “unjust”. This would leave no basis for restitution.

    It should be noted that Lord Neuberger suggested in separate reasons that subjective revaluation may be appropriate in exceptional circumstances, such as when a defendant has led the plaintiff to believe that it would be willing to pay more than market value. However, he submitted that such a claim may be more properly framed in estoppel or breach of contract than unjust enrichment.

    The Court dismissed the appeal, finding that for the purposes of restitution the appropriate value of the services was €36.3 million, notwithstanding that the Defendant had paid, and was prepared to pay, much more. The cross-appeal was allowed and restitution denied on the basis that the payment by the Defendant already exceeded the total value of the services.

    Potential Significance

    This case offers a useful discussion of the principles underlying restitution for unjust enrichment, and endorses the principle that a defendant’s subjective view of the benefit that it received can potentially reduce an award of quantum meruit below market value. It rejects the superficially corresponding argument that the award can exceed the market value if the defendant places a higher value on the services.

    As such, this decision persuasively rejects the argument that a plaintiff should be able to rely on a defendant’s overvaluation of its services in the absence of an enforceable contract.

    Case Information

    Benedetti v. Sawiris, [2013] UKSC 50

    Date of Decision: July 17, 2013