Date: Thu, 19 Jul 2007 08:21

From: Neil Foster

Subject: Restitution and Interest - House of Lords, Sempra

Dear Colleagues

I'd be interested to see others' comments on the decision of the House of Lords in Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v. Her Majesty's Commissioners of Inland Revenue and another (Appellants) [2007] UKHL 34.

The two main features of the judgement, on a quick reading, seem to be

(1) over-ruling previous authority that no interest can be awarded at common law on damages for late payment of a debt or damages (a position, as the House generally notes, reached some years ago by the High Court of Australia in Hungerfords v Walker (1989) 171 CLR 125);

(2) comments on the awarding of interest in a claim for restitution based on mistake, rather than a tort.

On the second issue there seems to be a 3-2 majority holding that where someone has made a mistaken payment which can be recovered under the principles of unjust enrichment, then when the money is recovered there will usually be a claim for payment of compound interest. If in fact the person who had the use of the money did not invest it or otherwise get value from it, then the court should have a discretion to depart from this figure in a "subjective devaluation" (see e.g. Lord Nicholls at [119], generally agreed with by Lords Hoffmann and Walker).

The dissenters (Lords Scott and Mance) accept that compound interest may be OK where a restitutionary remedy is required for wrongdoing, but argue that in a case of mistake all the defendant is required to do is to account for the benefit he or she in fact enjoyed, and hence compound interest will not always be appropriate. (If they put it under the bed - Lord Mance, [233], then they are only required to pay back the actual principal.)

I must say the fact that the majority have to resort to what my old philosophy lecturer used to call the "arm-waving" notion of a case-by-case "subjective devaluation" makes me fairly sympathetic to the minority on this point.

Regards
Neil Foster

Neil Foster
Newcastle Law School
Faculty of Business & Law
University of Newcastle
Callaghan NSW 2308
AUSTRALIA
ph 02 4921 7430
fax 02 4921 6931

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