Those who are members also of the ODG will have seen Mat Campbell’s posting last month about the decision of the Privy Council, on appeal from the Cayman Islands, in Skandinaviska Enskilda Banken AB (Publ) v Conway [2019] UKPC 36 <http://www.bailii.org/uk/cases/UKPC/2019/36.html>.

A company had redeemed some its shares previously held by the appellant SEB in the months before it went into liquidation. Redeemable shares are shares which can be returned to the company in exchange for money which generally leads to the shares’ ceasing to exist. When (as here) a company is used as a collective investment vehicle, shares redeemable at the option of the shareholder are often used (redeemable shares can also be redeemable at the option of the company). This allows investors to invest, or liquidate their investment, by transacting directly with the company rather than buying and selling shares in the market.

When SEB called for redemption of its shares, they were valued according to a formula based on the value of the company’s investments. SEB was paid according to this, but it turned out that an insider had committed various frauds and the company’s investments were worth far less than its records indicated. Combined with large volumes of redemption requests following the global financial crisis, this pushed the company into insolvency and liquidation. The question was whether the payments to SEB on the basis of flawed valuations were voidable preferences. The Cayman legislation on the point, like some but not all such legislation, required that the payments have been made ‘with a view’ to giving the creditor a preference, ie there is a requirement of preferential intention, not merely preferential effect. This point was established along with other requirements of the legislation, making the payments to SEB voidable.

SEB argued that its liability was in unjust enrichment and this entitled it to argue that it was not enriched, since it held the shares as a nominee, and also that it should be able to raise the defence of change of position by remitting the funds to its principals.

The majority of the Board (Lords Reed, Lloyd-Jones, Briggs) agreed with SEB that while the Cayman statute made the payments voidable, the consequences of avoidance were governed by the general law. Personal claims to recover such preferences used to be made in money had and received. Can one detect a trace of scepticism in these passages ([79]-[80])?

79. Following the abolition of the forms of action, the basis of such a claim was usually described as quasi-contract. … In more recent times, following the lead given by Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1932] AC 32, the basis of this type of claim to restitution has been described as unjust enrichment; but the legal substance of the claim remains as it was.

80. It may not be immediately obvious how the claim for restitution in a case such as the present fits the academic model of unjust enrichment which was adopted by Lord Steyn in Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221, 227: a model which may not, however, readily accommodate all the situations where personal claims lie for restitution, and should not become a Procrustean bed.

SEB failed on the enrichment point, on the basis that even if it was a bare trustee, it (and not its principals) was owed the money in question and was liable to repay it when the payments were avoided. It also failed on the change of position point:

95. Despite that broad statement [in Moses v Macferlan], however, the defence of change of position has received only partial recognition in English law, as Lord Goff of Chieveley acknowledged in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, 578.

The Board concluded that allowing the defence of change of position would be inconsistent with the legislative policy behind the voidable preference provisions. This apparently means that even the ‘agent’s accounting defence’ cannot be pleaded in relation to a claim to recover a voidable preference, potentially leaving the agent/nominee who has accounted to its principal to bear the loss arising from the liability in restitution. There is a little postscript ([123]) which suggests that any injustice so arising is for the legislature to address.

There is a minority judgment (Sir Donnell Deeny, Lord Wilson concurring) which agrees in the result but aims in part to deny that there is any injustice in SEB’s situation. These judges agree that change of position is not available in law, but they say (in common with some of the judges below) that even if it were, it would not be available on the facts. They basically say that SEB failed to protect itself in its dealings with its principals.

The case leaves me with the impression that there is an increasing disconnect between restitution and unjust enrichment at the UKSC and PC, or at least a recognition that unjust enrichment contains not a single normative principle but a plurality of them.

I would be most interested in the thoughts of others.

Lionel