The role for restitutionary remedies for unjust enrichment: Review of Recent Cases

22 April 2022

The Supreme Court tells us the law of unjust enrichment “is designed to correct normatively defective transfers of value” and “reflects an Aristotelian conception of justice as the restoration of a balance or equilibrium which has been disrupted” (per Lord Reed in Investment Trust Companies v HMRC [2018] AC 275 at §42).

Case after case the courts are tasked with grappling with what this means in practice. This is one thing where there is no contract in the mix, perhaps where money is paid or services are performed where the performing party’s intention is wholly absent or impaired (i.e. where the transferee is labouring under a mistake or has been induced by the recipient to render a benefit), in order to discharge another’s legal obligation or pursuant to a statutory obligation which is subsequently determined to be void. More difficult questions arise when a contractual party seeks to reverse a transfer of value on the ground that there is said to have been a total failure of basis where, on the face of it, the value was transferred to the other pursuant to a contractual obligation.

In these cases, one party may invoke restitution contending that the contract is incomplete and does not extend to allocating the risk of the losses flowing from the situation that has arisen, perhaps unexpectedly, causing the basis for performance to fail; whereas the other will no doubt argue that the contract is exhaustive of the parties’ rights and remedies and resort to restitutionary remedies will undermine that contractual allocation of risk.

The difficulty is in identifying exactly when there is a gap in the contract which restitutionary remedies can plug without involving a subversion of the parties’ bargain. There are cases falling on either side of the line. The majority of cases rule out restitution, but there are a handful which go the other way.

Dargamo

Recent Court of Appeal authority confirms that cases in the latter category are likely to be rare. In Dargamo Holdings Limited v Avonwick Holdings Limited [2021] EWCA Civ 1149 (“Dargamo”), the Court of Appeal dismissed the appellant’s appeal seeking restitution of a sum of US$82.5 million out of a total purchase price of US$950 million paid under a SPA for assets (beyond the shares which were the subject of the SPA) which were never transferred to it (the “Further Assets”). Importantly, the sellers owed no contractual obligation under the SPA to transfer those Further Assets but it was common ground[1] that the purchase price of US$950 million was intended to include payment for them (albeit this understanding was omitted from the terms of the SPA as executed).

In dismissing the appeal, Carr LJ held that an unjust enrichment claim could not succeed. Under the terms of the SPA the purchase price was paid in consideration for the sale of the “Shares” which were defined by the SPA and, importantly, defined so as not to include the Further Assets. That was the express basis of payment agreed in the SPA the validity of which was not (and could not be) impugned. In those circumstances, Carr LJ held (at §116)[2]: “… there is no scope for the law of unjust enrichment to intervene by reference to a basis which is not only alternative and extraneous, but which also directly contradicts the express contractual terms. None of the authorities begin to go that far.”

Premier League v PPLive

The Football Association Premier League Limited v PPLive Sports International Limited [2022] EWJC 38 (Comm) (“Premier League v PPLive”) is another recent decision confirming a trend to confine the scope of restitution claims where benefits have been rendered in performance of valid contractual obligations.

Premier League v PPLive concerned two contracts (a Live Package Agreement and a Clips Package Agreement) (together the “Contracts”) granting PPLive the rights to broadcast Premier League football matches in main land China and Macau. The 2019/2020 season was severely disrupted by the COVID-19 pandemic; it was temporarily suspended on 13 March 2020 and formally suspended on 3 April 2020. The league resumed in June 2020 but under very different conditions: matches were played in empty sports stadiums without fans in attendance, the remaining fixtures were played within a compressed five week timetable in June/July 2020 with a higher proportion of mid-week matches and kick off times were modified (see §§59-63).

PPlive failed to pay two instalments under the contracts which fell due for payment in March and June 2020 in the sums of US$210.3 million and US$2.63 million respectively. The Premier League continued to provide PPLive with the relevant feeds of matches under both contracts for the remainder of the season before serving a termination notice and commencing proceedings to seek payment of the two outstanding instalments. The Premier League applied for summary judgment on the basis that PPL had no real prospect of successfully defending the claim.

The LPA contained a fundamental change clause entitling PPLive to “enter into a period of good faith negotiations with the Premier League” in the event of a “fundamental change …hav[ing] a material adverse effect of the exercise” of PPlive’s rights as licensee. PPLive’s primary argument in defence of the summary judgment application was that the interruption caused by COVID-19 and the change of conditions under which the season resumed in June 2020 constituted a “fundamental change” within the meaning of clause 12.1(d). That argument was rejected; there was no change to the format of the competition and the matters that were changed were within the discretion of the Premier League.

In the alternative, PPLive submitted that the sums payable under the two Contracts fell to be characterised as ‘advanced payments’ made in consideration of matches to be shown live at a future date. As such, PPLive submitted they could be apportioned either to individual matches or seasons in which case, PPlive submitted, not only were no further sums owing but PPLive had in fact overpaid. PPLive therefore claimed restitution of those sums invoking failure of basis as the applicable unjust factor.

Fraser J dismissed the claim, drawing parallels with the Court of Appeal’s judgment in Dargamo. At §102, Fraser J held:

“…There is simply no unjust factor, and the Premier League is merely attempting to keep PPL to the contractual bargain. PPL is seeking to override the way the fee was to be paid, and what it was for…That analysis, based on the express terms, would be overridden were PPL to be permitted to deploy the principle of unjust enrichment. It would wholly rewrite the contract terms were the court to permit this. In any event, there is no injustice in permitting the Premier League to enforce its contractual rights.”

Fraser J then analysed the contractual provisions and the admissible factual matrix before holding that any re-calculation or re-apportionment of the fees by reference to individual matches was inconsistent (a) with the express contractual terms of the Contracts which (i) provided that in the event of termination of the contracts the Premier League would be entitled to retain the amounts of the Fees then paid by PPLive (see §§104-106), and (ii) contained express provisions limiting the occasions where the Premier League would be obliged to make repayment (see §107), and (b) the factual matrix which showed that payment by instalments was intended to provide financial security to the Premier League.

Against the relevant contractual backdrop PPLive’s contractual obligation to pay – and the Premier League’s corresponding entitlement to be paid – both outstanding instalments had accrued; and the Premier League’s entitlement to retain those instalments had arisen simultaneously with the accrual of PPLive’s obligation to pay. The right to retain post-receipt was not conditional upon satisfaction of any future condition or continuation of any extra-contractual state of affairs. The basis upon which the sums became due for payment and the Premier League became entitled both to be paid and to retain those sums had therefore not failed. There was no normatively defective transfer of value to reverse.

Cases on the other side of the line

By contrast, there are cases which have allowed claims in restitution to succeed where instalments are paid as advance payments and mathematically it is possible to apportion sums across or between individual events upon which the sum(s) then later become ‘earned’ by the payee and the right to retain the sum(s) accrues upon that future date (i.e. after the initial right to claim payment has accrued).

A recent example in this category is  Olympic Council of Asia v Novans Jets LLP [2022] EWHC 88 (Comm) (“Olympic Council”) where Moulder J (albeit in obiter dicta) held that it was possible to apportion consideration paid under an Aircraft Lease to Purchase Agreement between block hours permitting an unjust enrichment claim to succeed in respect of that portion of the price which owed to unused block hours following termination (see §§182-203). An older example is Dies v British and International Mining and Finance Corporation Limited [1939] 1 KB 724 (“Dies”) where a buyer of rifles and ammunition was permitted to recover a part payment of the purchase price (subject to a deduction for a sum which was treated as a deposit forfeited upon termination) upon validly terminating the contract prior to delivery. In neither case had the payee’s right to retain those portion of the sums which had not been earned by the payee’s performance by the date of termination accrued.

A more contentious example is the High Court of Australia’s decision is Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 (“Roxborough”) where a restitution claim succeeded in the context of a valid and subsisting contract (as opposed to Olympic Council and Dies which were both cases where the unjust enrichment claim was considered in the context of terminated contracts).

In Roxborough, tobacco retailers (Roxborough) bought tobacco products from licenced wholesalers (Rothmans) under a series of contracts on terms that the invoiced ‘cost’ comprised the wholesale price of the products and a further discrete amount, representing a licence fee imposed by State law. Rothmans’ standard form invoice separated the amount due for the tobacco licence fee. The prices charged by Rothmans to Roxborough involved payments to the wholesaler in anticipation of the licence fees which were to be incurred at a future date. Roxborough had a direct interest in Rothmans’ payment of these fees, since it relieved Roxborough of a corresponding liability to pay. Roxborough in turn passed on the cost of the licence fees in the prices that it charged to its customers. The licence fee was held subsequently to be a duty of excise and the relevant legislation thereby rendered invalid. Roxborough claimed to be entitled to repayment of the sums it had paid to Rothmans (which Rothmans had not been required to remit onwards to the revenue authorities) in respect of the license fees. Roxborough’s unjust enrichment claim succeeded with the majority of the High Court of Australia[3] holding that as a result of the invalidity of the relevant legislation there had been a failure of a distinct and severable part of the consideration for the purchase of the goods.

The Court of Appeal in Dargamo acknowledged that Roxborough has “proved to be a controversial decision” and noted the academic criticism it has attracted (see §121). Whist Carr LJ notably refrained from expressing a clear view on whether the majority’s decision in Roxborough was correctly decided, and whether an English court ought to follow it, Carr LJ held that “standing backRoxborough was “on any view” a very different case to Dargamo since (i) the relevant basis which was said to have failed was entirely consistent with the terms of the contract and did not turn on a wider enquiry extending beyond the terms of the valid and subsisting contract, and (ii) the licence fee was treated by the parties as a separate and distinct sum (see §§122-123). By contrast, in Dargamo the basis alleged to have failed was no where to be found in the SPA and was, as per the Court of Appeal’s analysis quoted above, inconsistent with the SPA’s express contractual terms.

Conclusion

Recent cases continue to confirm – quite rightly – that unjust enrichment cannot be allowed to subvert the contractual allocation of risk for which the parties have bargained; its role must be confined to complementing contract liability rather than undermining it. Unless the contract is rendered void ab initio or voidable by the unjust factor in play (such as in cases of undue influence or duress), in practice, ensuring that restitution is not allowed to disturb the parties’ bargain is likely to confine  restitution to having a subsidiary role but the relationship between contract and unjust enrichment is likely to continue to be a source of litigation nonetheless. Just one example of a case which will require further judicial analysis on the topic in the near future is Barton v Gwyn-Jones [2019] EWCA Civ 1999 (“Barton”) now on appeal to the Supreme Court.[4] Barton concerns a scenario related to those considered above. In Barton, a contracting party sought a remedy in unjust enrichment in respect of services performed pursuant to an oral contract. The Court of Appeal permitted an unjust enrichment claim to succeed notwithstanding that the conditions entitling the claimant to claim the stipulated contractual fee from the defendant had not been met.

The court’s assessment of whether restitution claims complement or subvert the parties’ contractual arrangements in any given case will principally depend on questions of contractual construction but the courts may well be prepared to embark upon a wider inquiry to identify the basis upon which payments were made in order to analyse whether the payee’s right to retain the sums in question accrued simultaneously with the payor’s obligation to pay or whether, instead, it was subject to the future satisfaction of any further conditions.

Factors relevant to assessing whether the payee’s retention of the consideration was conditional and, if so, whether that condition has or has not been met will include: (i) the ease of apportionment and whether it is possible for the court to divide up the consideration by reference to a metric or formulation consistent with the parties’ contract or whether, instead, the sum paid (or payable) is an indivisible and single aggregate amount; (ii) the contractual terms and, more specifically, whether there are any terms (a) limiting the occasions where payment(s) will become repayable, and (b) dealing with the payee’s right to retain payment(s) post-termination; and (iii) whether the failure of basis was externally imposed or not negotiated – as in Roxborough – in order to examine whether the failure of basis was something that was within the parties’ contemplation (and was therefore something within the parties’ gift or purview to manage and control) at the time of contracting.

The difficulty with placing too much significance on the latter is that whilst the event that does occur might have been unforeseeable the risk of an unforeseen event occurring itself is something that contracting parties may well be taken to have foreseen at the outset.

 

[1] See §§17, 48, 107-108.

[2] On this point the Court of Appeal was unanimous; see §141 per Sir Timothy Lloyd (“…there is no legal basis for subverting the terms of [the SPA] by reference to the surrounding negotiations”) and §142 per Asplin LJ (“In the light of the express terms of the Castlerose SPA, there was no “unjust factor” in this case. To put the matters another way, the Taruta Parties sought to use the principle of unjust enrichment to override rather than completement the express contractual obligations contained in the CastleRose SPA.”)

[3] Kirby J dissented from the majority.

[4] Permission was granted in February 2021.

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