The counter-restitution principle defined

12/07/21

In an important decision in the law of unjust enrichment, the Court of Appeal has defined the counter-restitution principle for the first time after detailed argument about its basis and scope.

The law

Lord Justice Popplewell (Nicola Davies and Dingemans LJJ agreeing) said “I would not state the counter-restitution principle any more narrowly than being that the benefits for which the claimant must give credit are those which are sufficiently closely connected with the benefits provided to the defendant that justice requires him to do so.” The principle can thus be applied consistently with the defence of equitable set-off.

However, Popplewell LJ expressly declined to state whether counter-restitution was a principle referable to (i) whether the defendant had been enriched, (ii) whether the enrichment was unjust, (iii) a cross-claim by the defendant, or (iv) a condition imposed on the claimant’s recovery. He found support in the authorities for all four approaches.

The critical question in this case was whether counter-restitution was applied before or after a defence of change of position. Popplewell LJ was inclined to think there could be no inflexible rule that one trumps the other, but it was not necessary to express a concluded view on that question.

The facts

The appellant College had hired a modular building from the respondent company, SFM. Between 2013 and 2017 (the “First Period”), the College made payments under the hire contract. It then ceased to do so and argued that the contract was void because it was ultra vires the College. Between 2017 and trial in 2020 (the “Second Period”), payments were not made but the College retained the building. At trial Foxton J held that the contract was indeed ultra vires and void (because it was a finance lease and therefore a borrowing, contrary to the Education Act). The College’s claim for restitution of the payments it had made in the First Period was wholly defeated by SFM’s defence of anticipatory change of position, because SFM had paid more to acquire and deliver the building than the College had paid in hire charges. SFM’s claim for restitution of the value of the benefit of the building in the Second Period succeeded and judgment was given in favour of SFM for £711,323.

On appeal, the College argued that the counter-restitution principle meant that its payments under the contract should be set off against the value of the use of the Building in both Periods, to reach a balance in its favour, which would then be defeated by SFM’s change of position defence, to arrive at a final judgment of zero, rather than the £711,323 in favour of SFM.

Thus, the issue raised by the College on appeal was framed as being whether counter-restitution must be applied before the change of position defence.

Application of law to facts

On the facts, Popplewell LJ upheld the Judge’s view that the payments in the First Period were not referable to the use of the building in the Second Period. They were referable to the use of the building in the First Period and to the capital element of the finance lease, but not to any future use and they could not be treated as some kind of “restitution voucher” to carry forward. It followed that the counter-restitution principle, properly understood, did not require credit to be given for those payments against SFM’s claim for restitution of the benefits conferred on the College in the Second Period. The appeal was thus dismissed.

The judgment is here.