Mishcon de Reya successfully acted for a Claimant who had invested £50,000 in a technology company in 2007, but who did not sign a contract with the Defendants. The technology company needed funds in order to develop a product: mobile telephone cases.
The Claimant and First Defendant were introduced to one another by a mutual friend. The Claimant was a banker and had invested in several start-up companies. The First Defendant was an entrepreneur. The Claimant and First Defendant had several meetings and telephone calls in relation to the investment. In August 2007, after some pressure from the First Defendant who said he needed funds urgently, the Claimant transferred £50,000 to the Second Defendant. Although both parties agreed when giving evidence in court that the intention was that the Claimant would receive shares in exchange for these funds, they disagreed as to when this was to take place.
The Claimant's position was that he would not have provided £50,000 to the company without being assured that he would receive some shares in return.
The First Defendant claimed that the agreement had been for the Claimant to invest a total sum of £250,000, not £50,000, and that their arrangement remained subject to contract.
The Claimant claimed there was an oral contract between the parties and that consequently he had a contractual entitlement to shares in the Second Defendant. Alternatively, the Claimant claimed a substantial restitutionary award to reflect the unjust enrichment of the Second Defendant through its use of his money over time.
The Defendants asserted that there was no contract, and that any entitlement to restitution was limited to the return of the £50,000. In fact, after the Claimant initially emailed him in 2013 to ask about his shares, the Defendants had responded via a solicitor's letter to say that the Claimant was only entitled to that sum.
During the course of the five day trial it became apparent that the funds provided by the Claimant had been essential to the survival of the Defendant company- the Judge described the company’s financial position at the time the £50,000 sum was injected as "parlous".
The Court found that there was no binding contract between the parties, but that the Second Defendant should return the £50,000 under the principle of unjust enrichment.
A defendant who is unjustly enriched must return to the Claimant the whole of the benefit of the enrichment which it has obtained. The value of having the use of money is calculated by determining the reasonable cost the defendant would have incurred in borrowing the amount in question for the relevant period, as held in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners  UKHL 34,  1 A.C. 561.
Plainly, it would have been extremely difficult for the Second Defendant to borrow money at the time. The British economy was suffering and borrowing money from banks was not easy. The Judge made a valuation based on the Second Defendant's financial position and the difficult economic conditions at the time. He concluded that if the Second Defendant had gone to the market in 2007 to borrow the £50,000, it would not have been able to borrow at a rate more favourable than that offered by its bank at the time for any sum over £15,000 - 29.5%, compounded quarterly.
This produced an award to the Claimant of more than £440,000.
Counsel for the Claimant also raised the issue of the accounting practices which had taken place after the transfer of the Claimant's funds. He argued that the accounting showed that without the First Claimant's funds, the company would have foundered in 2007. Its current value is still to be confirmed.
Although the Court rejected a further alternative claim for an exceptional 'subjective re-valuation' of the money transferred by reference to its subsequent mis-accounting by the Defendants, it found that both the First Defendant and the Second Defendant's Finance Director, a chartered accountant, had given dishonest evidence, and that the former had behaved fraudulently and the latter had created deliberately misleading accounts.
Unjust enrichment, a cause of action which is often ignored, has been given a boost in this recent case determined by the High Court.