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Article: September 2013 London Litigation Update

September 01, 2013
Business Litigation Reports

UK Supreme Court Rules on Unjust Enrichment and Subjective Devaluation.
Benedetti v. Sawiris & Ors [2013] UKSC 50
. The Supreme Court has recently confirmed that where a claim for unjust enrichment relates to services received by a defendant, the starting point for identifying the value of the benefit conferred on the defendant is the price that a reasonable person in the position of the defendant would have agreed to pay for the services at the time that they were received (i.e. their objective market value). Importantly, however, the Court also accepted that a defendant is entitled to prove that he subjectively valued the services in question at less than their market price and so reduce the valuation accordingly (a principle known as ‘subjective devaluation’). Conversely, save in exceptional circumstances (which the Court did not specify), the principle of ‘subjective revaluation’ should not be recognised (meaning that a claimant may not invoke a defendant’s subjective willingness to pay a higher sum for the benefit as a reason for valuing the benefit at a higher rate).

The dispute arose out of the acquisition of Wind Telecomunicazioni SpA by entities associated with the Egyptian businessman Naguib Sawiris. Mr. Alessandro Benedetti, an Italian businessman resident in Switzerland (described in the High Court has having “extremely varied and largely opportunistic” business activities), had performed a facilitative role in the context of the transaction, having originally approached Mr. Sawiris as a potential investor in 2002. At around the time of the acquisition in 2005, Mr. Sawiris and Mr. Benedetti discussed the fee for his services and Mr. Sawiris offered to pay him €75.1 million (far less than the amount Mr. Benedetti sought). Separately, and without Mr. Sawiris’ knowledge, Mr. Benedetti (acting as a director of a company incorporated for the purposes of the transaction) had entered into a brokerage agreement with one of his own companies (ITM) pursuant to which ITM was to be paid €87 million. That amount was ultimately reduced to €67 million and was paid to ITM in August 2005.

Mr. Benedetti claimed that he had not been properly compensated for his services. Both at first instance and in the Court of Appeal it was accepted that the objective market value of the services Mr. Benedetti had performed was €36.3 million, but the amount that he was ultimately awarded differed significantly.

The Supreme Court held that the starting point for valuing the unjust enrichment where services had been provided was the price that a reasonable person in the position of a defendant would have agreed to pay for them (that assessment may also take into account the personal characteristics of a defendant). In this case, the objective market value of Mr. Benedetti’s services at the time that they were received by the defendants was €36.3 million. The Court refused to recognise the principle of ‘subjective revaluation’ and so did not permit Mr. Benedetti to recover more than the market value on the basis that Mr. Sawiris had arguably valued his services at a higher price (by reference to his offer of €75.1 million). In any event, the Court considered there was insufficient evidence to establish Mr. Sawiris’ true, subjective opinion of the value of Mr. Benedetti’s services at the relevant time such as to warrant a departure from the market rate. As to further remuneration, the fact that Mr. Benedetti had already received €67 million through the payment to ITM meant that he was not entitled to any further payment.

The decision is significant as it represents a new authority on the principle of ‘subjective devaluation’ (even though, on the facts, this was not applicable as there was no suggestion that Mr. Benedetti’s services should be valued below the accepted market rate). As a result, where appropriate, a defendant to an unjust enrichment claim will now be entitled to adduce evidence to try and reduce the value ascribed to the benefit that they have received from the claimant so as to try and reduce the amount of any restitutionary award. The Court acknowledged, however, that this is a developing area of law. It remains to be seen how effective this new approach will be in practice.

Court of Appeal Provides Guidance on Bases for Non-Domiciled Defendants.
Joint Stock Company ‘Aeroflot Russian Airlines’ v. Berezovsky and Others [2013] EWCA Civ 784.
The Court of Appeal has recently ruled on various different bases for finding jurisdiction against defendants not domiciled in England and Wales, clarifying important interpretations in relation to Article 6(1) of the Brussels Regulation and 2007 Lugano Convention as well as Section 9 of the Arbitration Act 1996.

The Claimant brought claims for fraud against Berezovsky, Glushkov and various companies which were said to have been created or controlled by those individuals. Even though only Berezovsky and Glushkov were domiciled in England, the claims were issued in the English High Court in respect of all of the Defendants. The non-domiciled Defendants challenged the English Court’s jurisdiction in the High Court and the Court of Appeal.

Two features of the Court of Appeal’s decision provide important clarification as to key legal standards to be applied in determining jurisdiction challenges.

First, the Court considered one Defendant’s argument that there was a Swiss ICC arbitration agreement that ousted the Court’s jurisdiction in respect of the claim against it. The Claimant argued that the arbitration agreement was null and void under Section 9(4) of the Arbitration Act 1996. The Court of Appeal held that the standard of proof under Section 9(4) is one of the balance of probabilities and that a court should carry out that exercise in considering a jurisdiction challenge (as opposed to leaving the matter to the Tribunal). In this case, the Claimant failed to meet that test and so a stay of the Court proceeding against the relevant Defendant was ordered under section 9(1) of the Arbitration Act.

Secondly, two of the Defendants argued that the claims against them did not have a sufficient connection to the claims against the English-domiciled defendants to justify jurisdiction under Article 6(1) of the Brussels Regulation and Lugano Convention (which establishes jurisdiction over foreign defendants within the EU where an ‘anchor defendant’ is domiciled within the jurisdiction and the claim against the foreign defendant is closely connected to the claim against the anchor defendant). The Court of Appeal did not accept that a claimant had to surmount a substantive merits test in order to establish co-defendant jurisdiction under Article 6(1): what is required is not a “good arguable case” on the substantive merits, but merely a “good arguable case” that there is a sufficient connection between the claim against the anchor defendant and the claim against the foreign defendant, such that there is a risk of irreconcilable judgments if the claims were determined separately in separate jurisdictions. This conclusion is a strong affirmation of the principle that a Court will not ‘look behind’ the claim against an ‘anchor defendant’ in applying Article 6(1).