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CORRESPONDENCE OF GAIN AND LOSS

(A) THE CORRESPONDENCE PRINCIPLE

The requirement that the defendant’s enrichment must have been received at the claimant’s expense serves to show that the defendant’s gain is reflected by a loss suffered by the claimant.[1] But it is a matter of particular controversy as to whether it is necessary to show an exact correspondence between the claimant’s gain and the defendant’s loss. On one view[2] it is not necessary to show an exact correspondence, because the function of the requirement that the benefit was obtained at the claimant’s expense is simply to show that there is a causal link between the claimant’s loss of an enrichment and the defendant’s gain. Once this causal link has been established it is no longer necessary to consider the ‘at the claimant’s expense’ requirement, since the law of restitution is only concerned with the identification and valuation of the benefit which was received by the defendant and is not concerned with compensating the claimant’s loss. It follows that, if the defendant’s gain is greater than the claimant’s loss, the claimant can still recover the full amount of the defendant’s gain. This was expressly recognized by Lord Hope in Sempra Metals Ltd v IRC,[3] who emphasized that the defendant in that case had to give back the whole of the benefit it had received from the claimant without regard to the extent of the claimant’s loss, and that the process was ‘one of subtraction, not compensation’.

The alternative view is that the claimant’s restitutionary claim is limited by the need to show an exact correspondence of gain and loss.[4] The justification for this interpretation of the ‘at the claimant’s expense’ requirement is founded on the notion of corrective justice which underpins the unjust enrichment principle.[5] The significance of corrective justice is that the defendant is liable to make restitution to the claimant, without proof of fault, because the gain obtained by the defendant is reflected by a loss suffered by the claimant. The function of the law of unjust enrichment is not the giving up of enrichment but the reversal of transactions.[6] For some commentators on the law of unjust enrichment the validity of this correspondence principle is highly significant because of the wide definition they give to unjust enrichment, particularly encompassing proprietary claims. The correspondence principle is, however, much less significant for the law of unjust enrichment as interpreted in this book. It is not necessary to consider how the correspondence principle affects claims to recover property and substitute property, because such issues are covered by the vindication of property rights principle, which does not require the claimant to establish that the defendant was unjustly enriched at the claimant’s expense.[7] Similarly, it is not relevant to claims for restitution for wrongs, since such claims are founded on the commission of the wrong and not unjust enrichment. Even as regards the unjust enrichment principle as interpreted in this book the correspondence principle is not particularly important. Most unjust enrichment claims involve the receipt of money from the claimant. In such cases the benefit gained by the defendant will usually correspond precisely with the loss suffered by the claimant. Similarly, where the enrichment is goods, the claimant’s objective loss will usually correspond precisely with the defendant’s gain. Recognition of the correspondence principle may, however, be significant where the defendant has received services which are worth more to the defendant than the loss suffered by the claimant. Even here the correspondence principle is much less likely to be relevant following the decision of the Supreme Court in Benedetti v Sawiris,[8] which has expanded the scope of objective valuation of services by reference to the market value of the service, including particular circumstances of the defendant which would be taken into account by the market, so that the objective value of the claimant’s loss is much more likely to correspond precisely with the objective value of the defendant’s gain. If the defendant is able to devalue subjectively the service, so that it is valued less than the claimant’s loss, whether or not the correspondence principle is recognized will make no difference because the defendant’s liability will inevitably be capped by the value of the enrichment on either approach. If the principle of subjective over-valuation was recognized, such that the defendant’s gain was greater than the claimant’s loss, then whether the correspondence principle was recognized would matter, because the effect of that principle would be to cap the defendant’s gain at the value of the claimant’s loss. The Supreme Court in Benedetti v Sawiris, however, refused to recognize the subjective over-valuation principle, so this problem cannot arise.66

There may, however, be certain very exceptional circumstances where the objective value of the defendant’s enrichment might be greater than the claimant’s loss. For example, if the claimant mistakenly transfers a vase to the defendant worth ?10,000, and the defendant already owns that vase’s identical twin, such that the value of having both vases is ?30,000, the claimant’s loss would be ?10,000 but the defendant’s gain would be ?20,000, consisting of the value of the second vase and the marriage value arising from possessing the pair. In such circumstances, should the defendant be required to make restitution of the gain of ?20,000 or should this be capped at the claimant’s loss of ?10,000?

This requires a decision to be made as to whether the correspondence principle should be recognized. The preferable view is that the restitutionary remedy should indeed be capped by the claimant’s loss, by virtue of the recognition of the principle of corrective justice. That principle justifies the award of a restitutionary remedy to correct the injustice arising from the defendant’s unjust gain being at the claimant’s expense. But this injustice can be corrected simply by requiring the defendant to ensure that the loss suffered by the claimant is removed. It is not necessary for any additional gain obtained by the defendant to be transferred to the claimant, since this would over-correct any injustice.

Despite the logic of the use of the corrective justice principle to justify the recognition of the correspondence principle in the law of unjust enrichment, there have been some indications in the cases that the defendant should be required to give up all gains even though this exceeds the loss suffered by the claimant. So, for example, where the defendant’s enrichment involves benefiting from the use value of the money paid by the claimant, the defendant’s objective gain might be greater than the claimant’s loss, particularly having regard to the defendant’s particular circumstances which would mean that it would cost more for the defendant to borrow an equivalent amount of money than the claimant, meaning that the defendant’s gain from the use of the money would be greater than the claimant’s loss in not having the use of the money.67 It has been recognized that in such circumstances the claimant can still recover the value of the defendant’s benefit, contrary to the correspondence principle.68 But, even in this context, where the value of the defendant’s gain is greater than the value of the claimant’s loss, the restitutionary remedy should be capped by the claimant’s loss.

  • [1] Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221, 237 (Lord Clyde).
  • [2] See Birks, Unjust Enrichment (2nd edn), 78-86; M Rush, The Defence of Passing On (Oxford: HartPublishing, 2006), 172.
  • [3] [2007] UKHL 34, [2008] 1 AC 561, [31].
  • [4] See LD Smith, ‘Restitution: The Heart of Corrective Justice’ (2001) 79 Texas LR 2115; McInnes,‘Interceptive Subtraction, Unjust Enrichment and Wrongs—A Reply to Professor Birks’, 708; RB Granthamand CEF Rickett, ‘Disgorgement for Unjust Enrichment?’ (2003) CLJ 159; A Simester, ‘Correcting UnjustEnrichment’ (2010) OJLS 579, 594. See also Lord Wright, ‘Sinclair v Brougham (1938) 6 CLJ 305, 306. See alsoRelfo Ltd v Varsani [2014] EWCA Civ 360, [2015] 1 BCLC 14, [98] (Arden LJ).
  • [5] See p 4, above.
  • [6] C Mitchell, ‘The New Birksian Approach to Unjust Enrichment’ [2004] RLR 265, 267.
  • [7] See further Chapter21. 4 [2013] UKSC 50, [2014] AC 938. See Chapter4.
  • [8] 66 See p 98, above.
 
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