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United Kingdom Supreme Court
You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Benedetti v Sawiris & Ors  UKSC 50 (17 July 2013)
Cite as:  UKSC 50,  1 AC 938,  2 All ER (Comm) 801,  WLR(D) 286,  3 WLR 351, 149 Con LR 1,  4 All ER 253,  AC 938
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 UKSC 50
On appeal from:  EWCA Civ 1427
Benedetti (Appellant) v Sawiris and others (Respondents)
Sawiris and others (Appellants) v Benedetti (Respondent)
Lord Neuberger, President
JUDGMENT GIVEN ON
17 July 2013
Heard on 26, 27 and 28 February 2013
Mark Howard QC
Andrew Twigger QC
(Instructed by Herbert Smith Freehills LLP)
Laurence Rabinowitz QC
Richard Hill QC
(Instructed by Kirkland & Ellis International LLP)
LORD CLARKE (with whom Lord Kerr and Lord Wilson agree)
The claims, the judgment and the appeals
The legal principles
Market value and subjective devaluation
"Much of the uncertainty concerning the definition of enrichment stems from the lack of consensus about where the analysis should start. Essentially there are two options available. Either we start with an objective test, ascertained by asking whether reasonable people would consider the defendant to have received something of value, or we start with a subjective test, by considering whether the defendant considers that he or she has received something of value. Whilst both the objective and subjective tests are relevant to the identification of an enrichment, the better view is that the objective test should always be considered first..." (p 64)
"People have different means and spending priorities, and they value benefits differently according to their personal tastes. Consequently, as Lord Nicholls said in Sempra, 'a benefit is not always worth its market value to a particular defendant', and 'when it is not it may be unjust to treat the defendant as having received a benefit possessing the value it has to others'. The common law 'places a premium on how to spend one's money' [see Peel v Ontario  3 SCR 762 at para 25, per McLachlin J], and this right might be unfairly compromised if a defendant were forced to make restitution of the market value of a benefit which he would not have bought at all. To avoid this, the court may therefore assess the value of the benefit by reference to the defendant's personal value system rather than the market."
Professor Andrew Burrows makes the same point at Burrows p 44:
"The question of whether the defendant has been benefited/has received value is not straightforward because of the need to respect freedom of choice and individuality of value. Even if the defendant has been objectively benefited (i.e. a reasonable man could regard himself as benefited by what has occurred or, put another way, the claimant's 'performance' has a market value) he or she may validly argue that benefit has been of no value to him or her."
"What is ultimately important in the law of restitution is whether, and to what extent, the particular defendant has been benefited: see Burrows, The Law of Restitution, 2nd ed (2002), p 18. A benefit is not always worth its market value to a particular defendant. When it is not, it may be unjust to treat the defendant as having received a benefit possessing the value it has to others. In Professor Birks's language, a benefit received by a defendant may sometimes be subject to 'subjective devaluation': An Introduction to the Law of Restitution (1985), p 413."
"A defendant is unlikely to persuade a court that he attached a low value to a benefit simply by relying on self-serving testimony that he has a (previously unexpressed) value system that attributes a low value to such benefits, particularly if this testimony is not borne out by his previous conduct. If a defendant can produce stronger evidence of his personal spending preferences, however, then we believe that he should be able to rely on this evidence consistently with the view expressed in the foregoing authorities that the law is concerned to protect his freedom to make his own spending choices."
"The principles in Ashman may, in my judgment, be summarised as follows: first, an owner of land which is occupied without his consent may elect whether to claim damages for the loss which he has been caused or restitution of the value of the benefit which the defendant has received. Secondly, the fact that the owner if he had obtained possession would have let the premises at a concessionary rent, or even would not have let them at all, is irrelevant to the calculation of the benefit for the purposes of a restitutionary claim. What matters is the benefit the defendant has received. Thirdly, a benefit may be worth less to an involuntary recipient than to one who has a free choice as to whether to remain in occupation or move elsewhere. Fourthly, the value of the right of occupation to a former licensee who has occupied at a concessionary rent and who has remained in possession only because she could not be rehoused by the local authority until a possession order has been made, would ordinarily be whichever is the higher of the former concessionary rent and what she would have paid for local authority housing suitable for her needs if she had been rehoused at the time when the notice expired."
Market value and subjective revaluation
"It is possible to argue that the law should go even further than 'subjective devaluation' in recognising the subjectivity of value; and that where there is evidence (e.g. using the request test) that the particular defendant overvalues something that has no (or a lower) objective value, it is the defendant's own valuation rather than the objective market value that should count.
So, for example, if the defendant requests services at a higher rate than the market rate then, in so far as there is a claim for restitution of an unjust enrichment (eg because there is no valid contract) it would seem that the contract price is the best guide to the value of the services to the defendant and that that, therefore, should be central to the measure of restitution."
" ... logically and for reasons of consistency it should be possible to use the defendant's own valuation of what has been received to identify an enrichment, even though the reasonable person would not regard the defendant as having received anything of value." (Virgo, pp 68-69)
The legal principles - summary
The Acquisition Agreement point
The 75.1m point
"570. The real issue is whether I should increase the fee payable to Mr Benedetti to take account of the 75m which Mr Sawiris offered to pay under the October agreement. Although Mr Benedetti clearly believes that he is entitled to more, it is difficult to ignore the fact that Mr Sawiris was prepared to pay him considerably more for his efforts than a strict application of market rates would produce. Mr Sawiris says in his witness statement that he regarded the 75m figure as generous but that is not inconsistent with it representing what he considered Mr Benedetti's services to be worth. These negotiations did not take place under the shadow of threatened litigation and can properly be considered in my view as a genuine attempt by Mr Sawiris to pay to Mr Benedetti a proper value for what he had achieved.
571. The best evidence of Mr Sawiris's thoughts on this matter is contained in the June and September e-mails from Mr Abdou quoted in paragraphs 187-189 above. They indicate both the importance which Mr Sawiris attached to Mr Benedetti's role and the reasons why his remuneration should be limited to the payment of a fee. I think that it would be wrong to ignore this evidence when considering the value to be attributed to Mr Benedetti's services. He is entitled, in my judgment, to the 75.1m in addition to the brokerage fee which he has already received."
"187. In the first of these e-mails, Mr Abdou wrote:
'I had two discussions with Naguib regarding your deal. I will tell you exactly his response. First of all he very much appreciates all what you have done and he acknowledges that without you, there would be no deal. However, he feels he has been clear with you from the beginning that the deal was never meant to be this big and that when you two signed the agreement over one year ago, the deal has totally changed. But even then, he told you and the agreement says, that he will not pay commissions etc. for a deal that merges or has OT as a party and rather the intent and spirit of the deal was that he would lend you your 1/3 of the Euro 50M target capital to be repaid with interest after exit so that you would not have to put in money yourself and that you would look to raise money for a deal that had his investment maximum at 200 to 300m euro. Today, Weather is no longer a passive investment for Naguib but rather a vehicle which he put in all his value that he owns (and a part of his family's wealth). He very much wants you involved in the BOD of the company and to be able to do other deals in the future. He sees the relationship between you two as strong and positive but he asks for you to be reasonable in what you ask. When I told him your request and the logic, he was quite upset as he did not expect you to ask for so much. While of course he sees that the original agreement needs to change, he does not agree with your request. In addition, while positive things happened to improve the deal, a few serious restrictions arose such as the need for Euro 500M cash (vs 200 to 300) and the limited financial partners and the somewhat restrictive IMI loan. The only reason he says this is to make the point that the deal today is totally different than the original and as such what he is prepared to offer you is l% of Weather for free and he can pay it to you in shares or give you a put option to take it in cash. If you choose cash, he wants to agree with you a timetable so that he can plan his cash sourcing.'
188. In the second e-mail, he said this:
'I talked to Naguib again. He wanted me to tell you that he feels 1% (which is Euro 75M today and may double if we succeed in Wind), is by far more than what you two had agreed to in the beginning when the deal was simple to lend you Euro 17M in cash to invest. As I mentioned before, he even crossed out all the sections related to OT and fees in the original deal because that was never his intention. He insists that he is being very generous with his offer and again wants to continue the relationship for a long time. He told me that if he really thought that you wanted hundreds of millions compensation, he would not even have done the deal at all. Alessandro, please look at the initial deal and the current offer. We are talking about Euro 75M versus Euro loan plus interest. Think strategically, long term. I am telling you as a friend that Naguib truly believes this is a very generous offer and this is not an attempt to negotiate with you.' (Emphasis added)
189. Finally, on 13 September Mr Abdou wrote:
'Also, have you concluded the issue of the 1% of free shares in Weather? Let me advise you with something and I refer to is what I told you months ago about Naguib. I have talked to him many times on this point and I have succeeded (in my opinion) to get you the 1% free shares even though Naguib has never in his life given free shares to anyone and certainly not an amount of Euro 75M. He had offered this willingly to you because of what you have done and he has repeatedly thanked you for it. But I must tell you, he is quickly getting upset because he does not understand why you are not happy. The original deal was to loan you 1/3 of Euro 50M which was to be repaid. The original deal never included OTH (and in fact he crossed out the reference to paying a success fee on integrating OTH). The deal was to have other financial partners ... you know how that ended. In any case, never was the amount paid to you supposed to even get close to 75M. In addition, the fact that they are free and not a loan is a really big deal that you seem to be underestimating. I know Naguib and I am telling you that he will not increase the offer ever and the longer things drag on, the higher the probability that this ends badly. He wants to have a strong relationship with you in the future as he values you highly. However, he can not do anything that will put his family's interests at risk, either financially or otherwise.'" (Emphasis added)
"You paid 400m Euro in commissions including banks and the advisor Alessandro Benedetti. "L'Espresso" calculated that Benedetti received 90m, although he denied it. Doesn't that seem like a high price to pay?!
When it came to discussing the fee, I went to a bank that wasn't involved in the operation. I paid 50 thousand Euro for them to give me an opinion on the fee structure because I had the same feeling. They told me it was alright. On the other hand Benedetti worked for me for two and a half years without asking for anything, he took costs at his own risk, so the bill at the end wasn't too much."
The judge noted at para 439 that, when asked in cross-examination based on the article, whether he believed that Mr Benedetti had received the fee, he said that he had always felt that Mr Benedetti was lying about the 67m and that he had received the fee. Mr Sawiris said in his witness statement that by the time of the Cairo meeting he suspected that that was the case. At para 450 the judge referred to a letter which confirmed the basic agreement made in Cairo.
What, if anything, is Mr Benedetti entitled to?
"It is difficult to see how that conclusion would be unjust. I accept that if it had been agreed between the parties that Mr Benedetti' s remuneration from the Defendants should not take into account the sums received under the brokerage agreement then the position would be different. But that is not this case. There was no agreement with Mr Sawiris that Mr Benedetti should be paid a brokerage fee in addition to what he received under the Acquisition Agreement. As explained earlier, the signing of the First Brokerage Agreement was essentially a piece of opportunism on the part of Mr Benedetti and, in so far as it had any historical justification, that lay in the arrangements between Mr Benedetti and IPE. When the fees schedules were prepared and it became clear that ITM was to receive the brokerage fee the original assumption on the part of Mr Abdou and Mr Sawiris was that the money would be used to pay Mr Benedetti's costs and other liabilities to third parties."
"The definition of 'brokerage services' in the Revised Brokerage Agreement makes it clear that the 67m was paid in respect of the work carried out by Mr Benedetti in the negotiation of the purchase of Wind from Enel and the raising of the acquisition debt from the banks. Mr Benedetti is not entitled, in my judgment, to seek a quantum meruit for this work when he has already been paid for it. The sum of 36.3m which, on the evidence, would be the market rate for the services he performed ought therefore to be apportioned to take account of this. Being generous to Mr Benedetti, I think that a fair apportionment· would be to attribute 60% of the 36.3m fee to the work covered by the brokerage agreement and the remaining 40% to the services not obviously within the agreement. On this basis, Mr Benedetti would be entitled to receive 14.52m in addition to the 67m brokerage fee."
THE ACQUISITION AS CONTEMPLATED BY THE ACQUISITION AGREEMENT
FIRST CLOSING on 11 August 2005
SECOND CLOSING on 8 February 2006
The effect of the contractual remuneration
The measure of restitution where a person has been unjustly enriched
"Restitution is a tool of corrective justice. When a transfer of value between two parties is normatively defective, restitution functions to correct that transfer by restoring parties to their pre-transfer positions. In Peel (Regional Municipality) v. Canada  3 SCR 762, McLachlin J (as she then was) neatly encapsulated this normative framework: 'The concept of 'injustice' in the context of the law of restitution harkens back to the Aristotelian notion of correcting a balance or equilibrium that had been disrupted' (p 804)."
"There was no intention to enrich [the defendant] in the events which happened The payment was originally conditional. The condition of retaining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simultaneously fail."
Mutatis mutandis, the same might be said where services have been provided on a basis which has not been fulfilled, subject to the qualification that since the services themselves cannot be returned, the remedy must take the form of restitution of their monetary value.
"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."
"When the argument from the subjectivity of value (subjective devaluation) is available, it does not consist in an appeal to and proof of the tastes and priorities of the particular recipient but, on the contrary, only requires the recipient to show he made no choice to receive the benefit" ("In Defence of Free Acceptance", in Essays on the Law of Restitution (1991), ed Burrows, p 129).
It is of course the benefit by which the recipient has been unjustly enriched which has to be valued for the purpose of making a restitutionary award; but its valuation is conceptually distinct from the identification of the enrichment or the decision whether (or to what extent) it was unjust.
Subjectivity and value
"Here, as elsewhere, the law of restitution is sufficiently flexible to achieve a just result. To avoid what would otherwise be an unjust outcome the court can, in an appropriate case, depart from the market value approach when assessing the time value of money or, indeed, when assessing the value of any other benefit gained by a defendant. What is ultimately important in restitution is whether, and to what extent, the particular defendant has been benefited: see Burrows, The Law of Restitution, 2nd ed (2002), p 18. A benefit is not always worth its market value to a particular defendant. When it is not it may be unjust to treat the defendant as having received a benefit possessing the value it has to others. In Professor Birks's language, a benefit received by a defendant may sometimes be subject to 'subjective devaluation': An Introduction to the Law of Restitution (1985), p 413. An application of this approach is to be found in the Court of Appeal decision in Ministry of Defence v Ashman  2 EGLR 102.Whether this is to be characterised as part of the 'change of position' defence available in restitution cases is not a matter I need pursue."
This reference to "subjective devaluation" was in turn referred to in the speeches of Lord Walker (at paras 184 and 187) and Lord Mance (at paras 232-233). Lord Walker preferred to adopt an approach to recovery in such cases based on equity, and Lord Mance correctly explained that Birks's concept of "subjective devaluation" was concerned with the existence of an unjust enrichment rather than the measure of restitution.
"A restitutionary award, i.e. damages calculated according to the value of the benefit received by the occupier, is rightly decided by an objective determination of what the wrongful occupation was worth to the trespasser."
The present case
The approach of the trial judge
The approach of the Court of Appeal
A brief summary of the relevant facts
The decisions of the courts below and the issues before the Supreme Court
(a) The acquisition agreement was abandoned some time in April 2005, once the parties accepted that virtually no third party interest could be found, and that Mr Sawiris was effectively on his own so far as paying to acquire Wind was concerned;
(b) Mr Benedetti's contention that he should be paid for his services on the basis of an express contract, a contract supported by equity, fiduciary duty, or estoppel should be rejected;
(c) Nonetheless, as Mr Sawiris accepted, he was liable to pay Mr Benedetti a quantum meruit for his services, as otherwise Mr Sawiris would be unjustly enriched;
(d) There was a market for the sort of services provided by Mr Benedetti, and, in that market, he would have been paid 36.3m (the top end of the figures provided by the expert called by Mr Sawiris, but far less than the figure suggested by the expert called by Mr Benedetti);
(e) In view of the 67m paid to Mr Benedetti's company, ITM, under the revised brokerage agreement, the 36.3m should be reduced by 60% to 14.52m, as the revised brokerage agreement covered at least 60% of the work referable to the quantum meruit;
(f) However, as Mr Sawiris had been prepared to pay Mr Benedetti 75.1m, and had maintained that position after he knew that ITM had received the 67m, the correct figure to award Mr Benedetti as a quantum meruit was 75.1m.
(a) Rejected Mr Benedetti's contention that he should have received more than the 75.1m on the basis that the acquisition agreement supported a larger award;
(b) Upheld Mr Sawiris's contention that the Judge should not have awarded more than the market value of Mr Benedetti's services by way of a quantum meruit; and
(c) Rejected Mr Sawiris's contention that the whole of the 36.3m quantum meruit award had effectively been satisfied by ITM's receipt of the 67m.
Accordingly, the Court of Appeal overturned the Judge's award of 75.1m in favour of Mr Benedetti, and replaced it with an award of 14.52m (being 40% of the 36.3m quantum meruit award).
The first issue: the sum to which Mr Benedetti is entitled
The unusual factual position
The issue to be determined
The prima facie position
Conclusion on the first issue
The second issue: the extent to which the quantum meruit should be reduced
The nature of the issue
Was the 67m attributable to the revised brokerage agreement?
"On 24 March  Mr Benedetti responded to the prospect of Mr Ross's and IPE's departure from the transaction by using the opportunity presented by his appointment as director of Weather [Investments] and the transfer of shares to procure two agreements for his own benefit without the prior approval of Mr Sawiris and without disclosing to him or Mr Abdou the fact that he would receive a substantial fee from the transaction. [T]he payment of a brokerage fee in addition to the shares received under the acquisition agreement was not a term of that agreement or part of the alleged Understanding and the first brokerage agreement gave Mr Benedetti the security of a payment out of the transaction that was not dependent on any agreement with Mr Sawiris about the terms of his remuneration or on IPE remaining involved in the transaction so as to give him a return under the collaboration agreement."
"It seems clear that Mr Abdou originally understood that the 87m figure was not intended as a payment to Mr Benedetti for his brokerage services but was to be used to discharge his liabilities to third parties. [Mr Benedetti led] Mr Abdou and Mr Sawiris to believe that the money was to be used to pay third parties who had assisted in the transaction. But when Mr Benedetti was asked to identify precisely who was going to receive the money he did not answer. ...
Mr Sawiris said that this caused him to have doubts about the story that the money was needed to pay third party advisers but that as he intended to reward Mr Benedetti for his efforts and owed him money, he was content to let the 67m be paid and to sort it out later. Mr Benedetti says that he therefore agreed to reduce the payment from 0.7% (87m) to 0.55% (67m). He then arranged for the revised brokerage agreement to be prepared which was identical in terms to the first brokerage agreement except for the fee. [T]his Agreement was executed in July or August but backdated to 26 May."
The interpretation of the revised brokerage agreement