Thanks Matthew. I’m worry that this case, which ultimately dodges the important questions, has left the law in a less clear state that it was previously. Setting aside the worrying suggestion at [85] that CoP and counter restitution should be ‘applied on a case-by-case basis to produce just outcome on particular facts’, there are a number of points of principle which are worth considering.

One difficulty I have with the case is drawing a straight analogy between counter-restitution for rescission and counter-restitution following a failure of basis (at e.g. [39]-[43]):

• With rescission, the law wipes out the contract retrospectively, and a condition of it doing so is that the parties return everything that passed between them because those performances  have no (present) legal basis. As Lord Leggatt suggests in Delta Petroleum [2020] UKPC 23 at [50], no reason for restitution is needed beyond the fact that the contract is being unwound as if it was never made. So in such circumstances counter-restitution looks a lot like a condition on recovery.

• With a failure of basis, there was a reason for the parties to make the transfer, but it has simply failed. I know some members of this group take the view that where a contract is ultra vires, a transfer on condition is also not something the party subject to an incapacity can effect, but whether that is true depends, I think, on the statutory limitation of vires and I don’t think it is relevant here as Foxton J concluded there was a condition which failed (at [423])). In those circumstances, the whole contract is not necessarily being ‘unwound’ so to speak, only each transfer under it where the condition has failed. So it is possible to conceive of certain transfers which were unconditional even in what turns out to be a void contract (or for which the condition was fulfilled even if the contract is void for want of formality i.e. Sharma v Simposh [2012] 3 WLR 503 (cf. Popplewell LJ’s per incuriam comment in SFM at [73]). The only reason this looks a lot like rescission in SFM is that it is an ultra vires contract and so in almost every case every transfer under such a contract will be a failed condition given that SFM could never ‘win’ under the contract because of the Auckland Harbour Board principle.

• But in FoB cases generally, the justification for counter-restitution, as Foxton J seems to find ([2020] EWHC 1477 (Comm) at [13]-[20]), looks like a question of cross claims for each particular benefit recoverable, which are then netted off.

I think a future court would be best trying to separate out different kinds of claims and different instances of restitutio in integrum. I’m not sure cases like Erlanger help in answering this case.

Indeed, another big question which was not addressed in this case is whether change of position is a defence to FoB (as opposed to mistake or Auckland Harbour Board) claims at all. True as it is that SFM spent money performing the contract for the College. But (to borrow from Professor Stevens) one can clearly accept that if SFM had spent the money on dividends, it would still have to return the money, because the condition of transfer was “we pay you and you supply us with buildings”. It was not “we pay you and you either supply us with buildings OR you pay out dividends”. The difference, I suspect, is that it is implicit in the condition of transfer that the money could be spent on performance of the contract (and the same would be true if it were a rescission claim like in Whittington v Seale-Hayne). But this is not therefore change of position in the sense recognised in Lipkin Gorman, which is a freestanding legal doctrine not dependent on the parties’ mutual intentions. It would again be best to keep the two separate.

Despite that, it is good to see Popplewell LJ at [55]-[56] acknowledge that CoP is based upon some external justification (‘principles of what is just and equitable’) and is not concerned with “disenrichement”. It is a shame that the court did not rule out the “no-enrichment” based reasoning (at [34](1)) for counter-restitution – as this whole case shows, the level of counter-restitution is set to the market value of the service provided, not to the level of benefit enjoyed by the claimant. If the market value of the benefits transferred net off then there is no claim. It does not matter that overall the claimant was still enriched because of other benefits he derived from the transaction.

Best,

Matthew

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