Supreme Court finds there is no claim in unjust enrichment for compound interest on mistaken payments

In a recent decision, the Supreme Court held that claimants could not bring claims in unjust enrichment to recover compound interest on taxes paid under a mistake of law: Prudential Assurance Company Ltd v Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 39.

In doing so, the Supreme Court departed from the House of Lords decision in Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, considered here, which held that such a claim was available. In the present case, the court disagreed with the view taken in Sempra Metals that the time value of money could be considered a separate benefit for the purposes of the law of restitution, in addition to the payment of the unlawfully levied tax. Accordingly, the Supreme Court held, there was no additional benefit to be reversed by the award of compound interest once the tax itself had been repaid. Instead, the court could award simple interest under section 35A of the Senior Courts Act 1981.

The Supreme Court noted that, in Sempra Metals, the House of Lords had also held that compound interest was available as damages, where it was the measure of the loss foreseeably suffered by a claimant from the loss of use of his funds. That point was not in issue in the present case and, the court said, nothing in its judgment was intended to question that aspect of the decision.

The decision is significant in clarifying the law on unjust enrichment, and in particular reversing the previous case law under which a claim for compound interest was available. However, it does not affect the question of whether and in what circumstances compound interest may be awarded as damages to compensate a claimant who is out of pocket as a result of a defendant’s wrongdoing (such as a breach of contract, or the non-payment of a debt).

Julian Copeman and Ajay Malhotra, a partner and senior associate in our disputes team, consider the decision further below. Continue reading

Supreme Court confirms no liability in tort to undisclosed principal provided with bank reference

A recent decision of the Supreme Court confirms that, where a bank reference is requested on behalf of an undisclosed principal, the bank providing the reference does not owe a duty of care to the undisclosed principal receiving it: Banca Nazionale del Lavoro SPA v Playboy Club [2018] UKSC 43.

The decision gives helpful confirmation of the circumstances in which a duty of care will be owed in relation to a statement passed on to and relied on by a third party, confirming that these circumstances do not include where the third party is an undisclosed principal of the party to whom the statement was made.

Lord Sumption, who gave the leading judgment, explained that where a party makes a statement to A which is passed on to and relied upon by B, the first party will owe a duty of care to B only if:

  • it knew the statement would be communicated to and relied upon by B; and
  • it was part of the statement’s known purpose that it should be communicated to and relied upon by B.

Otherwise the party making the statement cannot be taken to have assumed responsibility to B. Here, as the bank had no reason to suppose that the party requesting the reference was acting for someone else, the bank did not assume any responsibility to the third party.

For more information see our Banking litigation e-bulletin on the decision.

Supreme Court confirms employers’ duty of care to employees does not extend to the conduct of litigation

The Supreme Court has held that where an employer is sued on the basis that it is vicariously liable for the acts of its employees, it does not owe those employees a duty to defend the proceedings in such a way as to protect their economic or reputational interests: James-Bowen & Ors v Commissioner of Police of the Metropolis [2018] UKSC 40.

The court considered that to recognise such a duty would amount to an extension of employers’ previously recognised duties. It unanimously concluded that it would not be “fair, just and reasonable” to impose it – either as a standard implied term in employment contracts or as a concurrent tortious duty.

In particular, given that the interests of an employer and employee in such circumstances will often be in direct conflict, the court considered that to impose such a duty would potentially stifle an employer’s defence of claims and would require it to “constantly look over its shoulder” for fear of exposing itself to claims by employees that the defence should have been run differently.

The decision provides welcome reassurance for any employer (or quasi-employer, as in this case) facing claims based on the alleged wrongdoing of its employees, particularly where fraud or other serious wrongdoing is alleged and there is potential for the employees to face public criticism. Notably, the decision is not limited to rejecting a particular formulation of the proposed duty but appears to be a wholesale rejection of any suggestion that an employer’s general duty to its employees restricts it in any way from defending such proceedings in whatever manner it thinks best to serve its own interests. Continue reading

Supreme Court breathes new life into “no oral modification” clauses

The Supreme Court has overturned a decision that contractual clauses requiring amendments to be in writing would not preclude amendments subsequently being effected orally: Rock Advertising Ltd v MWB Business Exchange Centre Ltd [2018] UKSC 24.

This is an important judgment which means that “no oral modification” (or NOM) clauses will generally be given effect so as to prevent contracting parties being bound by a subsequent variation unless the specified formalities are complied with. The decision will be welcomed by commercial parties who agree NOM clauses in their contracts in the interests of commercial certainty.

The Supreme Court recognised that there is the risk of injustice where a party acts on the contract as varied and then finds that it is not binding, but said the law of estoppel would provide a safeguard, where the circumstances are such that the counterparty should be prevented from enforcing its strict contractual rights. The Supreme Court did not seek to define the circumstances in which such an estoppel would arise. However, it would require at the very least some words or conduct which unequivocally represented that the variation would be valid despite being agreed informally; the informal promise itself would not be sufficient for that purpose.

In light of its decision, the Supreme Court did not need to consider the Court of Appeal’s conclusion that an agreement to accept payment of an existing debt by instalments was supported by consideration in the form of a practical benefit received by the creditor. Interestingly, however, it noted that the long-standing rule in Foakes v Beer (that part payment of a debt is not good consideration for the release of the whole) “is probably ripe for re-examination”, but said that any departure from that rule should be a matter for an enlarged panel of the court where its decision would be more than obiter dictum.

Rachel Lidgate and Maura McIntosh consider the decision further below. Continue reading

Supreme Court decision clarifies basis for the award of Wrotham Park damages

In a recent decision, the Supreme Court overturned a Court of Appeal judgment which potentially expanded the availability of “Wrotham Park” or negotiating damages, and signalled a return to more orthodox reasoning in relation to the award of damages for breach of contract and the quantification of economic loss: Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20.

The key issue before the Supreme Court was: where a party is in breach of contract, in what circumstances, if any, will the counterparty be entitled to an award of damages assessed by reference to a hypothetical negotiation between the parties, for such amount as the claimant might reasonably have demanded to release the defendant from its obligations?

The Supreme Court rejected the idea that negotiating damages would be available whenever the court considers them to be the “just” response. It held that such an award would not be justified by any of: the deliberate nature of the breach of contract; the difficulty of establishing precisely the resulting loss; or the claimant’s interest in preventing the defendants profiting from the activities that had put them in breach. The Supreme Court stressed that damages for breach of contract are not a matter of discretion; they are claimed as of right, and they are awarded or refused on the basis of legal principle.

The court held that negotiating damages can be awarded for breach of contract where it would be appropriate to measure the claimant’s loss by reference to the economic value of the contractual right that has been breached. The question is whether a breach of the contractual right results in an identifiable loss equivalent to the economic value of the right. That may be the position where the breach results in the loss of a valuable asset created or protected by the relevant right (for example, in relation to the breach of a restrictive covenant over land). However, it is not an approach that is applicable to most contractual disputes, even if it is difficult precisely to quantify the loss incurred.

James Baily, a partner, and Ramyaa Veerabathran, an associate in our dispute resolution team, consider the decision further below. Continue reading

Supreme Court finds contempt of court constitutes unlawful means for the tort of conspiracy

The Supreme Court has held that contempt of court can constitute unlawful means for the purpose of the tort of conspiracy: JSC BTA Bank v Khrapunov [2018] UKSC 19.

The decision is significant as it confirms that third parties may find themselves exposed to litigation and subject to damages if they conspire in the commission of a contempt of court. The Supreme Court made a number of interesting observations on the scope of the economic torts more generally and, on a matter of wider interest, also hinted that the law might develop to allow litigants to recover damages for contempt of court in the absence of a conspiracy.

The latter point could have potentially far-reaching practical consequences. Until now, contempt of court has generally been regarded as a matter between the wrongdoer and the court, rather than a wrong actionable by private parties who have suffered loss as a result. This decision leaves the door open for a litigant to argue that civil damages are recoverable for an opponent’s contempt of court.

Gary Milner-Moore and Kate Emanuel from our disputes team consider the conspiracy aspect of the decision further below.  The decision is also of interest for its consideration of the issue of jurisdiction, which is considered in a separate blog post here. Continue reading

Supreme Court holds English court has jurisdiction over tort claim where conspiracy hatched in England

The Supreme Court has held that the place of the event giving rise to damage in a claim alleging the tort of conspiracy to injure by unlawful means is where the conspiratorial agreement was made. As that was England, the English courts had jurisdiction: JSC BTA Bank v Khrapunov [2018] UKSC 19.

More generally, the decision confirms that when looking for the place of the event giving rise to damage, the court should focus on the events which set the tort in motion.

The decision is also of interest for its consideration of what amounts to unlawful means for the purposes of the tort of conspiracy to injure by unlawful means. That part of the decision will be considered in a separate blog post to be published shortly.

The Supreme Court’s decision upholds the Court of Appeal’s decision on both issues. For our earlier posts on the Court of Appeal’s decision see here and here. Continue reading

Supreme Court decision makes it harder for directors to establish limitation defence where they have benefited from breach of fiduciary duty

For the purposes of limitation, directors of a company are treated as trustees, given that they owe fiduciary duties to the company. There is a six year limitation period for actions by a beneficiary to recover trust property or in respect of any breach of trust (section 21(3) of the Limitation Act 1980). However, there is no limitation period where the trustee was fraudulent, or where the action is to recover trust property or its proceeds in the possession of the trustee or previously received by the trustee and converted to his or her use (section 21(1)(b)).

In a recent case the Supreme Court held that, as directors are fiduciary stewards of the company’s property, they are treated as being in possession of that property from the outset. Accordingly, where directors have benefited from the misappropriation of company property, they will not be entitled to a limitation defence in claims by the company – regardless of whether the directors ever had legal or beneficial ownership of the property: Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.

For more information see this post on our Private Wealth and Trust Disputes Notes blog.

Supreme Court refuses to validate service retrospectively where there was no prior agreement to email service

In a recent decision, the Supreme Court declined to order that steps taken by the claimant to draw the claim form to the attention of the defendant by email should amount to good service despite the claimant (a litigant in person) having failed to jump through the necessary procedural hoops for email service. The result was that the claim form expired unserved in circumstances where a fresh action by the claimant was likely to be time-barred: Barton v Wright Hassall LLP [2018] UKSC 12.

This case acts as a reminder that proceedings may be served by email only if the party to be served (or its solicitor) has previously indicated in writing that it is willing to accept service by email, which will include where the solicitor’s notepaper sets out an email address and states that it may be used for service. The Supreme Court in this case suggested that this provision may be ripe for reconsideration by the Civil Procedure Rules Committee, but in the meantime that remains the rule.

The decision also illustrates that litigants in person cannot generally expect greater indulgence than legally represented parties in terms of compliance with rules and court orders. As Lord Sumption put it, “unless the rules and practice directions are particularly inaccessible or obscure” (which he did not consider was the case here), it is reasonable to expect litigants in person to familiarise themselves with the applicable rules. Continue reading

Supreme Court considers that there is no requirement of direct damage in England for permission to serve tort claim outside the jurisdiction at common law

The Supreme Court has found, by a majority and in obiter comments, that direct damage in the jurisdiction is not required to come within the tort jurisdictional gateway in the CPR, disagreeing with the Court of Appeal: Lady Christine Brownlie v Four Seasons Holdings Incorporated [2017] UKSC 80 (our post on the Court of Appeal decision can be accessed here).

According to the majority, the test under the common law is, therefore, different from the test under the recast Brussels Regulation, where direct damage in the jurisdiction is a requirement.

This is unlikely to be the last word on this issue. A strong dissenting opinion was given by Lord Sumption, with whom Lord Hughes agreed. Lady Hale, giving the lead judgment for the majority, stressed that her comments should be treated with “appropriate caution” as they were obiter and Lord Wilson, who agreed with her judgment, was clearly concerned that there may have been less full argument than the importance of the issue required.

The door therefore appears to be open (or at least ajar) for further argument before the Supreme Court in the future. Continue reading