Supreme Court: Res inter alios acta, transferred loss and restitution

24/04/17

On 11 April 2017 the Supreme Court gave judgment in Lowick Rose LLP v Swynson Ltd, overturning the decisions of the CA and of Rose J in favour of the Claimant.  Despite feeling some sympathy for the Claimant’s position, the Court unanimously held that the claim failed.  The facts, in summary, were as follows.  The Defendants had advised Swynson, a company controlled by Mr Hunt, a wealthy businessman. In reliance on the Defendants’ advice Swynson lent in excess of £15m to a company, EMSL, which company ultimately was unable to repay the loan. Subsequently, Mr Hunt personally lent £18.663m to EMSL in order to enable it to repay Swynson.  Mr Hunt was left with a loss of the sum lent to EMSL.  The issue was whether Mr Hunt or Swynson could recover the loss from the Defendants.  Rose J had held that no duty of care was owed to Mr Hunt and that finding was not appealed.  However, she and the CA found that the repayment by EMSL via the loan advanced by Mr Hunt was res inter alios acta which meant that Swynson could still recover from the Defendants. That decision was upheld in the CA (Longmore, Davis and Sales LJJ).  Mr Hunt additionally argued that even if Swynson could not recover, he could recover by reason of the doctrine of transferred loss or in restitution relying on the principle of equitable subrogation. The Supreme Court rejected each of the routes to recovery:

1. As to the claim by Swynson, the repayment of the loan by EMSL could not be ignored. It was irrelevant that the funds to repay the loan were provided by Mr Hunt.  The repayment had discharged the loan and that meant that no loss was suffered. Mr Hunt’s problem was that he had failed to appreciate the distinction between the legal personality of his company, Swynson, and himself.

 

2. The principle of transferred loss is an exception to the fundamental principle of the law of obligations. The cases consider a “broader” and a “narrower” principle. The Supreme Court considered that there is much to be said for the broader principle but did not have to decide the point because it was plain that neither principle was of assistance since the engagement of the Defendants was not to benefit Mr Hunt and the subsequent lending by him had nothing to do with the Defendants.

 

3. As to equitable subrogation as a remedy for unjust enrichment, the Supreme Court considered the circumstances in which such a remedy was available. Whilst the Court did consider that subrogation to personal rights was possible and could be used to prevent or reverse unjust enrichment, the Court was clear that the law of unjust enrichment is part of the law of obligations, it is not a matter of judicial discretion. It can be used in the case of defective transactions but they must be defective in the sense that the claimant paid money on the basis of an expectation which failed. In this case the loan by Mr Hunt to EMSL was not a defective transaction – it achieved its object, namely the repayment by EMSL to Swynson. The fact that Mr Hunt did not realise that the effect would be to prevent Swynson suing the Defendants and leave him bearing the loss was irrelevant – it might have been an error on his part but not one which fell to be corrected by the law of equitable subrogation and restitution.

The leading judgment in the Supreme Court was delivered by Lord Sumption. Lord Mance delivered a concurring judgment in which he expressed some sympathy for Mr Hunt’s position. Lord Neuberger agreed with Lord Sumption on all issues and with Lord Mance on res inter alios acta and transferred loss but also pointed out that he did not see any significant variation in the reasoning of each of his fellow Justices on the unjust enrichment issue.

The judgment is here.