At the expense of Flashcards
ITC v Commissioners for HMRC HC and CA
Held that you usually need a direct enrichment but there are cases where having regard to the economic realities of the case yuo can show that in reality the D’s gain derived from the claimant even though not direct.
REJECTED BY SC
ITC v Commissioners for HMRC SC FACTS
o Claimants were investment fund companies. They received supplies of services from investment managers.
o They paid the managers for the services and also paid VAT e.g. £100 to the managers.
o The managers paid the Revenue output tax (tax charged for their services) less reclaimed input tax (VAT which they had paid to third parties for supplies received in the course of business), e.g. £100 - £25 = £75
o Turned out that investment management services should have been exempt from VAT. Common ground that all parties proceeding under a mistake of law.
o Managers were refunded by the Revenue in relation to the net amounts paid (and not for time barred periods). Managers forwarded reimbursements to the claimants (i.e. £75).
o Accepted that had the Managers known the input tax would be non-deductible, they would not have sought to increase the price of their services to the claimants.
o Amount reimbursed was not the full VAT paid, so claimants brought proceedings against the Revenue on grounds of unjust enrichment & breach of EU law (to recover the £25).
o There was no direct enrichment, because the Investment Trust Companies had paid to the Managers, who paid the tax to HRMC. The Managers may have paid the tax before they even received any money from the customers.
HMRC v ITC SC findings on why previous tests bad
the previous case law on this issue was too vague and uncertain. The test of “transfer of value” too vague bc doesnt identify fact that reversal of UE is premised on the C also having suffered a loss through the provision of the benefit.
Economic reality was not enough because purpose of restitution not to compensate for loss but reverse a defective transfer, so looking for who has suffered economic loss is not the appropriate way to identify the C
HMRC v ITC SC findings on test to apply
In the context of personal claims, whether a defendant has been enriched “at the expense of the claimant” depends on whether there has been a transfer of value between the parties in the sense that the defendant has received a benefit from the claimant and the claimant has suffered some form of economic loss through the provision of the benefit. The transfer will usually be direct but could be a situation which the law treats as equivalent to a direct transfer:
a) through an agent
b) X has assigned claim to C
c) via claimant discharging a debt owed by D to 3rd party (D directly enriched bc payment discharges his debt)
d) intervening transaction was a sham e.g. Relfo No 2
e) there was a set of co-ordinated transactions and to treat each separately would be unrealistic e.g. Banque Financiere, Menelaou
f) D receives property from a 3rd party into which C can claim an interest (i.e. trace)
(nb SC does not mention interceptive subtraction e.g. X owes money to C, D intervenes to take what X was transferring to C, but the texts do)
CLAIM FAILED - NO DIRECT ENRICHMENT
Relfo No 2
Treated as direct enrichment at C’s expense because sham.
” R made a payment to the bank account of Mirren Ltd prior to going into voluntary liq. R’s liquidator sought to recover payment by tracing it into V’s bank account.
“ Circumstances in which V received payment were in reality equivalent to a direct payment.
incidental benefit
according to SC in ITC, the claimant must incur a loss through its provision of a benefit and this is normally not satisfied where the provision of the benefit was an incidental or collateral result of expenditure e..g Edinburgh and District Tramways Co Ltd v Courtenay, Ruabon, example of heating house)
Virgo’s views on ITC SC
this is a significant restriction on the ambit of unjust enrichment liability, showing that the purpose of the “at the expense of” requirement is to narrow the ambit of unjust enrichment to look at the nature of the particular transaction which has been vitiated.
G&J, writing prior to SC’s ITC decision
prevailing academic view was that enrichment had to be direct because:
“ The claimant has recourse to other parties through direct claims against them.
“ Wider definition threatens transactional security
“ Prevents multi party disputes
G&J outlined problems with direct approach:
“ Requires a line to be drawn between qualifying and non qualifying transfers of value when direct transfer has no natural or agreed meaning
“ Direct transfer rule is a blunt way to limit the reach of claims in unjust enrichment.
“ Suggested a causal transactional link
MacDonald Dickens and Macklin v Costello (CA)
treated in ITC as correctly decided, example of a case failing because no direct enrichment
” Claimant provided services to a company
“ Company went bust, claimant wanted to sue the sole directors and shareholders.
“ The direct enrichment was with the company and the claimant could only sue the company. The defendants were not directly enriched at the expense of the claimants.
relevance of unintended benefit on part of C
It was held in TFL Management Ltd v Lloyds TSB Bank plc that there was no bar of incidental benefit (A had incurred legal costs bringing claim against C. C had defended claim on basis that sum was in fact due to B. B recovered debt. A sued B on basis that A had conferred a benefit in clarifying B’s legal rights). ITC (SC) held that TFL was wrongly decided - the fact that the claimant has acted selfishly does defeat a claim in unjust enrichment. “At the expense of” has to be a willed action, for the benefit of the defendant. In TFL, B had received an incidental benefit as the result of A’s pursuits of its own interests.
It is possible that the requirement of intending to benefit the defendant might be opening a can of worms - what about a case like Exall v Patridge where C paid X in order to discharge D’s liability, could we really say that C was acting to discharge D’s liability, or was C acting selfishly to get its cart back?
Judicial Support for correspondence principle
ITC Lord Reed stated that the reversal of an unjust enrichment is premised on the defendant having received a benefit from the claimant, such that the claimant has incurred a loss as a result of the provision of the benefit. However, he did not go on to say that that caps the extent of the enrichment but Virgo thinks this is implicit, supporting a requirement for correspondence between gain and loss, and that this is consistent with corrective justice.
Relfo v Varsani (CA) “it is a well established rule that in general a claimant may not recover more than his loss.” Arden LJ
G&J reasons for correspondence principle
” In cases where the defendant has committed no wrong and there is no contract between the parties, there is no normative justification for ordering the defendant to compensate a claimant for loss unless the defendant has received a corresponding benefit. No normative justification for making defendant disgorge a gain that doesn’t correspond to the claimant’s loss either.
“ Wastes judicial resources to use the court system to reallocate the burden of a loss or benefit of an enrichment between the parties when neither of them positively deserves to bear the burden or enjoy the benefit.
Virgo’s views on correspondence principle
correspondence principle is founded on the notion of corrective justice underpinning the unjust enrichment principle. “The significance of corrective justice is that the defendant is liable to make restitution to the claimant, without proof of fault, because the gain obtained by the defendant is reflected by a loss suffered by the claimant.” Likely to be less important following Benedetti because taking into account the market value of the service means that the objective value of the claimant’s loss is more likely to correspond to the objective value of the defendant’s gain. To require the additional gain of the defendant to be transferred to the claimant would “over-correct any injustice.”
Burrows on correspondence prinicple
argues it doesn’t apply, as shown by:
non-money benefit cases wherein the court values the defendant’s enrichment although this may exceed the claimant’s loss
o also shown by ability to recover use value of money which may exceed any loss of use of the money that the claimant would have had e.g. Sempra found the claimant’s position irrelevant in assessing the defendant’s restitutionary liability for use of the money
o also shown by tracing
o supported by CA rejection of passing on in Kleinwort Benson v Birmingham City Council on basis that there is no general restriction that the defendant’s gain must correspond to a loss in the claimant’s hands.
o would even say there is no need for the claimant to suffer any loss
McInnes
“At the Plaintiff’s Expense: Restitutionary Relief” argued unjust enrichment provides a basis for a claimant to retrieve an enrichment only to the extent of his loss, as it is based on corrective justice, so its normative justification expires once the claimant has been restored to the status quo.
