(ii) Use Value

It was recognized by the House of Lords in Sempra Metals Ltd v IRC⁷⁶ that a defendant who has received money may also be enriched by the opportunity to use this money, what has also been described as ‘the time value of money’.^[1] This is a negative enrichment in the sense that it relates to what the defendant has saved by not having to borrow an equivalent amount of money from elsewhere. In Sempra Metals, where the claimant had mistakenly paid tax to the Revenue prematurely, the majority presumed that the Government had been enriched by the receipt of the money because it had the opportunity to use this money from the time of payment until the time when the tax liability would have been discharged had the taxpayer been able to delay payment. It was not necessary for the claimant to prove that the Government would necessarily have borrowed an equivalent amount from elsewhere had it not received the money from the taxpayer. The minority considered that a restitutionary remedy should only be available where the defendant has obtained an ‘actual benefit’ and not where the benefit was ‘assumed’.^[2] So, if the defendant could be shown to have decided not to borrow money because of the receipt of the tax from the claimant, the actual interest saved would be a benefit,^[3] but the fact that the Revenue might have saved interest by not having to borrow money from elsewhere was not considered to be an enrichment, because it was not proved to be an actual benefit. The key difference between the majority and the minority does not concern the definition of an enrichment, but how it is established. Ultimately, this difference of approach turns on the role of assumptions and allocation of the burden of proof. The judges in the majority were willing to infer that receipt of the money must have benefited the defendant. Whether or not it did so could, however, be taken into account when valuing the benefit. The approach of the majority is to be preferred, since it is appropriate to assume that the defendant has relied on the receipt of the money in some way and he or she is in the best position to show that no use had been made of the money. In other words, it is open to the defendant to establish that he or she ‘subjectively devalued’ the use of the money.^[4] Although Lord Nicholls used the language of subjective devaluation to explain this result, he did also suggest that this might involve the operation of the change of position defence,^[5] although it is difficult to see how failure to rely on the money received can be considered to involve any change in the defendant’s position, since the defendant’s position remains the same. Further, the operation of defences only arises once the unjust enrichment claim has crystallized. The key issue in Sempra Metals concerned the identification and valuation of an enrichment rather than the operation of a defence.^{[6] [7] [8]}

An additional issue in Sempra Metals was how the Government’s presumed use of the premature payment of tax should be valued. Following the analysis of the decision in Benedetti v Sawiris,⁸³ the ordinary market value of the use of the money was considered to be what a reasonable person would have had to pay to borrow an equivalent amount of money, namely compound interest at ordinary commercial rates. This objective value was, however, reduced, because the Government could borrow at a lower rate of interest.

This analysis of the use value of money as an enrichment was applied in Littlewoods Retail Ltd v HMRC,⁸⁴ another case which involved the premature payment of tax, but also the payment of tax which was not due. The Court of Appeal recognized that the Government had been enriched by its opportunity to use the money paid. The trial judge had recognized that the market value of the use of money is normally measured by compound interest and that the defendant should be treated as ifhe or she had received a loan of money on ordinary commercial terms for a borrower in his or her objective position.^[9] This normal measure will, however, be displaced if the defendant can establish that the receipt did not have its ordinary commercial use value for him or her, or that it had no value at all. This could be established, for example, if the defendant can show that he or she would never have borrowed the money from elsewhere, or if the defendant had placed the money received in a non-interest bearing bank account. The Court of Appeal emphasized that this second stage involves a subjective test of devaluation, with regard to a defendant-focused rate of interest rather than the market valuation. On the facts of the case, as in Sempra Metals itself, the Court could see no scope for an argument that the Government had subjectively devalued its use value of the money received.

The court’s recognition in Sempra Metals that there is a claim in unjust enrichment for the defendant’s use of money means that most claimants will have two claims relating to the transfer of money to the defendant. So, for example, where the claimant has paid money to the defendant by mistake, the defendant will be enriched both by the value of the money transferred and by the defendant’s presumed use of that money, save where the defendant can rebut that presumption.

• [1] Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] 1 AC 561, [10] (Lord Hope). Birks correctly describedthis as a non-money benefit: PBH Birks, Unjust Enrichment (2nd edn, Oxford: Oxford University Press, 2005),53. It follows that it is possible subjectively to devalue the benefit.
• [2] Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] 1 AC 561, [132] (Lord Scott), [231] (Lord Mance).
• [3] Ibid, [143] (Lord Scott). 80 See further p 71, above.
• [4] 81 See also Test Claimants in the FII Group Litigation v HMRC [2014] EWHC 4302 (Ch), [414]
• [5] (Henderson J).
• [6] Sempra Metals Ltd v IRC [2007] UKHL 34, [2008] 1 AC 561, [48] and [49] (Lord Hope), [233] (LordMance).
• [7] [2013] UKSC 50, [2014] AC 938. See p 66, above.
• [8] [2015] EWCA Civ 515.
• [9] [2014] EWHC 868 (Ch), [2014] STC 1761, [369] (Henderson J). 2 See p 78, below.