Source: http://blog.wealthplanning.tv/?p=261
Timestamp: 2019-04-19 21:12:47+00:00

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‘Although the normal remedy for equitable wrongdoing is restitutionary … the notion of equitable compensation is recognised by English law. Although this remedy has sometimes been called restitutionary, since the effect of it is to restore the claimant to the position which he or she occupied had the wrong not been committed, the remedy has nothing to do with the law of restitution as such simply because it is not assessed by reference to the gain made by the defendant but is instead assessed by reference to the loss suffered by the claimant… It is still unclear, however, to what extent the prevalence of restitutionary remedies for equitable wrongdoing will be affected by the growing recognition of equitable compensation.’ The Principles of the Law of Restitution by Graham Virgo.
‘Equitable compensation is not compensation for loss, it is restitution of the trust fund. If the defaulting trustee cannot restore the assets to the trust fund, then he must pay money into the trust instead. How much has to be paid into the trust fund is assessed by looking at the matter with hindsight to see what would be comprised in the trust fund but for the breach. Issues of remoteness, causation and mitigation have no place in the assessment of equitable compensation as they do with damages.’ Equitable Compensation: The Traditional View by Penelope Reed QC, presented to the Chancery Bar Association 5 May 2017.
Whilst the remedy is not limited by foreseeability, remoteness, and other considerations which affect the recovery of common law damages, there must be a causal link between the breach and the loss to the trust fund. It is important to work out the nature of the breach, as a breach by a fiduciary which is not a breach of fiduciary duty but breach of his duty of care, will be treated like a claim for damages.
When establishing an unjust enrichment claim, the claimant must show that the defendant is enriched at the claimant’s expense. To assert a proprietary claim, it is generally thought necessary to establish a proprietary base, which is done by way of a following or tracing exercise. In the case of disposition, the claimant (A) is deprived of the proprietary interest in the asset if the defendant (B) disposes of the property in the asset to a third party, say by selling it to C, who raises an ‘exception’ to nemo dat quod non habet [i.e. the rule that the purchase of a possession from someone who has no ownership right to it denies the purchaser any ownership title], and B is vested with the proceeds of the disposition, as C pays the price under the contract of sale to C. Although B has not obtained A’s asset it can be said that B obtained the value of A’s asset for the purposes of a claim in unjust enrichment. In order to establish a proprietary base, it can be said that B has obtained proceeds of realization, effecting A’s loss of the proprietary interest, that is, changing the legal position of A insofar as his proprietary rights are concerned. If B were simply to destroy A’s asset, the proceeds of realization would be zero. When considering the notion of enrichment in Lowick Rose LLP v Swynson Ltd  Lord Sumption emphasised that the repayment of the debt is said to be a matter of ‘reality rather than the formal shape of a transaction, or of a co-ordinated series of transactions’. See below and paragraphs 6.35, 6.37, and 6.40 of ‘The Law of Tracing in Commercial Transactions’ by Magda Raczynkska, OUP (2018).
The determination of this appeal involves two essential questions. The more important question in the appeal is whether Lord Browne-Wilkinson’s statement in Target Holdings of the fundamental principles which guided him in that case should be affirmed, qualified or (as the bank would put it) reinterpreted. Depending on the answer to that question, the second is whether the Court of Appeal properly applied the correct principles to the facts of the case.
Two main criticisms have been made of Lord Browne-Wilkinson’s approach. They have been made by a number of scholars, most recently by Professor Charles Mitchell in a lecture on “Stewardship of Property and Liability to Account” delivered to the Chancery Bar Association on 17 January 2014, in which he described the Court of Appeal’s reasoning in this case as incoherent. He expressed the hope that “if the case reaches the Supreme Court their Lordships will recognise that Lord Browne-Wilkinson took a false step in Target when he introduced an inapt causation requirement into the law governing … substitutive performance claims.” He added that if it is thought too harsh to fix the solicitors in this case with liability to restore the full amount of the loan (subject only to a deduction for the amount received by the sale of the property), the best way to achieve this is “not to bend the rules governing substitutive performance claims out of shape”, but to use the Trustee Act 1925, section 61, to relieve them from some or all of their liability.
(3) a duty of undivided loyalty, which prohibits the trustee from taking any advantage from his position without the fully informed consent of the beneficiary or beneficiaries.
Historically the remedies took the form of orders made after a process of accounting. The basis of the accounting would reflect the nature of the obligation. The operation of the process involved the court having a power, where appropriate, to “falsify” and to “surcharge”.
In a case of breach of a trustee’s management stewardship duty, through the process of an action on the basis of wilful default, a court could similarly falsify or surcharge so as to require the trustee to make good the loss resulting from the breach. The phrase “wilful default” is misleading because, as Brightman LJ explained in Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2)  Ch 515, 546, conscious wrongdoing is not required. In this type of case the order for payment by the trustee of the amount of loss is referred to by some as “reparative compensation”, to differentiate it from “substitutive compensation”, although in a practical sense both are reparative compensation.
In a case of breach of the duty of undivided loyalty, there are possible alternative remedies. If the trustee has benefited from it, the court will order him to account for it on the application of the beneficiary. In Bristol and West Building Society v Mothew  Ch 1 Millett LJ described such relief as “primarily restitutionary or restorative rather than compensatory”. Alternatively, the beneficiary may seek compensation in respect of his loss.
The history of the account of profits is more complex than this summary might suggest, and the whole concept of equitable compensation has developed and become far more prominent in the law since Nocton v Lord Ashburton. However, what I have said is sufficient to identify the main criticism advanced against Lord Browne-Wilkinson’s approach in Target Holdings. It is said that he treated equitable compensation in too broad-brush a fashion, muddling claims for restitutive compensation with claims for reparative compensation.
The relevant principle, it is suggested, in a case of unauthorised dissipation of trust funds is that “the amount of the award is measured by the objective value of the property lost, determined at the date when the account is taken and with the benefit of hindsight”, per Millett NPJ in Libertarian Investments Ltd v Hall  1 HKC 368, para 168. In determining the value of what has been lost, the court must take into account any offsetting benefits received, but it is not relevant to consider what the trustee ought to have done. The court is concerned only with the net value of the lost asset.
This argument has the approval of Edelman J in Agricultural Land Management Ltd v Jackson (No2), and there are statements in the authorities cited by him which support that approach, for example, by Lord Halsbury LC in Magnus v Queensland National Bank (1888) 37 Ch D, at paras 466, 472, although the issue in that case was different. The defendant advanced an argument which Bowen LJ, at para 480, likened to a case where “A man knocks me down in Pall Mall, and when I complain that my purse has been taken, the man says, ‘Oh, but if I had handed it back again, you would have been robbed over again by somebody else in the adjoining street.'” It is good sense and good law that if a trustee makes an unauthorised disbursement of trust funds, it is no defence to a claim by the beneficiary for the trustee to say that if he had not misapplied the funds they would have been stolen by a stranger. In such a case the actual loss has been caused by the trustee. The hypothetical loss which would have otherwise have occurred through the stranger’s intervention would have been a differently caused loss, for which that other person would have been liable. Bowen LJ’s example is far removed in terms of causation of loss from the present case, where the loan agreement involved the bank taking the risk of the borrowers defaulting, and the fault of the solicitors lay in releasing the funds without ensuring that the bank received the full security which it required, with the consequence that the amount of the bank’s exposure was greater than it should have been.
In Bank of New Zealand v New Zealand Guardian Trust Co Ltd  1 NZLR 664 Tipping J rightly observed that while historically the law has tended to place emphasis on the legal characterisation of the relationship between the parties in delineating the remedies available for breach of an obligation, the nature of the duty which has been breached can often be more important, when considering issues of causation and remoteness, than the classification or historical source of the obligation.
There are arguments to be made both ways, as the continuing debate among scholars has shown, but absent fraud, which might give rise to other public policy considerations that are not present in this case, it would not in my opinion be right to impose or maintain a rule that gives redress to a beneficiary for loss which would have been suffered if the trustee had properly performed its duties.
The same view was expressed by Professor Andrew Burrows in Burrows and Peel (eds.), Commercial Remedies, 2003, pp 46-47, where he applauded Target Holdings for impliedly rejecting older cases that may have supported the view that the accounting remedy can operate differently from the remedy of equitable compensation. Despite the powerful arguments advanced by Lord Millett and others, I consider that it would be a backward step for this court to depart from Lord Browne-Wilkinson’s fundamental analysis in Target Holdings or to “re-interpret” the decision in the manner for which the bank contends.
All agree that the basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Where there has been a breach of that duty, the basic purpose of any remedy will be either to put the beneficiary in the same position as if the breach had not occurred or to vest in the beneficiary any profit which the trustee may have made by reason of the breach (and which ought therefore properly to be held on behalf of the beneficiary). Placing the beneficiary in the same position as he would have been in but for the breach may involve restoring the value of something lost by the breach or making good financial damage caused by the breach. But a monetary award which reflected neither loss caused nor profit gained by the wrongdoer would be penal.
The purpose of a restitutionary order is to replace a loss to the trust fund which the trustee has brought about. To say that there has been a loss to the trust fund in the present case of £2.5m by reason of the solicitors’ conduct, when most of that sum would have been lost if the solicitors had applied the trust fund in the way that the bank had instructed them to do, is to adopt an artificial and unrealistic view of the facts.
I would reiterate Lord Browne-Wilkinson’s statement, echoing McLachlin J’s judgment in Canson, about the object of an equitable monetary remedy for breach of trust, whether it be sub-classified as substitutive or reparative. As the beneficiary is entitled to have the trust properly administered, so he is entitled to have made good any loss suffered by reason of a breach of the duty.
A traditional trust will typically govern the ownership-management of property for a group of potential beneficiaries over a lengthy number of years. If the trustee makes an unauthorised disposal of the trust property, the obvious remedy is to require him to restore the assets or their monetary value. It is likely to be the only way to put the beneficiaries in the same position as if the breach had not occurred. It is a real loss which is being made good. By contrast, in Target Holdings the finance company was seeking to be put in a better position on the facts (as agreed or assumed for the purposes of the summary judgment claim) than if the solicitors had done as they ought to have done.
Other considerations reinforce my view that the House of Lords did not take a wrong step in Target Holdings.
Most critics accept that on the assumed facts of Target Holdings the solicitors should have escaped liability. But if causation of loss was not required for them to be liable, some other way had to be found for exonerating them from liability (unless the court was to use section 61 of the 1925 Act as a deus ex machina). The solution suggested by the bank is that the solicitors in Target Holdings should be treated as if the moneys which had been wrongly paid out had remained in or been restored to the solicitors’ client account and had then been properly applied after the solicitors had obtained the necessary paperwork. There is something wrong with a state of the law which makes it necessary to create fairy tales.
As to the criticism of the passage in Target Holdings where Lord Browne-Wilkinson said that it would be “wrong to lift wholesale the detailed rules developed in the context of traditional trusts” and apply them to a bare trust which was “but one incident of a wider commercial transaction involving agency”, it is a fact that a commercial trust differs from a typical traditional trust in that it arises out of a contract rather than the transfer of property by way of gift. The contract defines the parameters of the trust. Trusts are now commonly part of the machinery used in many commercial transactions, for example across the spectrum of wholesale financial markets, where they serve a useful bridging role between the parties involved. Commercial trusts may differ widely in their purpose and content, but they have in common that the trustee’s duties are likely to be closely defined and may be of limited duration. Lord Browne-Wilkinson did not suggest that the principles of equity differ according to the nature of the trust, but rather that the scope and purpose of the trust may vary, and this may have a bearing on the appropriate relief in the event of a breach. Specifically, Lord Browne-Wilkinson stated that he did not cast doubt on the fact that monies held by solicitors on client account are trust monies, or that basic equitable principles apply to any breach of such trust by solicitors. What he did was to identify the basic equitable principles. In their application, the terms of the contract may be highly relevant to the question of fact whether there has been a loss applying a “but for” test, that is, by reference to what the solicitors were instructed to do. If the answer is negative, the solicitors should not be required to pay restitutive monetary compensation when there has in fact been no loss resulting from their breach. That is not because special rules apply to solicitors, but because proper performance of the trustee’s obligations to the beneficiary would have produced the same end result.
I agree with the view of Professor David Hayton, in his chapter “Unique Rules for the Unique Institution, the Trust” in Degeling & Edelman (eds), Equity in Commercial Law (2005), pp 279-308, that in circumstances such as those in Target Holdings the extent of equitable compensation should be the same as if damages for breach of contract were sought at common law. That is not because there should be a departure in such a case from the basic equitable principles applicable to a breach of trust, whether by a solicitor or anyone else. (If there were a conflict between the rules of equity and the rules of the common law, the rules of equity would prevail by reason of section 49(1) of the Senior Courts Act 1981, derived from the provisions of the Judicature Act 1875.) Rather, the fact that the trust was part of the machinery for the performance of a contract is relevant as a fact in looking at what loss the bank suffered by reason of the breach of trust, because it would be artificial and unreal to look at the trust in isolation from the obligations for which it was brought into being. I do not believe that this requires any departure from proper principles.
This argument constricts too narrowly Lord Browne-Wilkinson’s essential reasoning. Monetary compensation, whether classified as restitutive or reparative, is intended to make good a loss. The basic equitable principle applicable to breach of trust, as Lord Browne-Wilkinson stated, is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. In this case, proper performance of the obligations of which the trust formed part would have resulted in the solicitors paying to Barclays the full amount required to redeem the Barclays mortgage, and, as Patten LJ said, the bank would have had security for an extra £300,000 or thereabouts of its loan.
When Lord Browne-Wilkinson spoke of completion he was talking about a commercial transaction. The solicitors did not “complete” the transaction in compliance with the requirements of the CML Handbook. But as a commercial matter the transaction was executed or “completed” when the loan monies were released to the borrowers. At that moment the relationship between the borrowers and the bank became one of contractual borrower and lender, and that was a fait accompli. The Court of Appeal was right in the present case to understand and apply the reasoning in Target Holdings as it did.
The further argument advanced on behalf of the bank in this court about the Solicitors’ Accounts Rules takes matters no further, for the reasons which Mr McPherson gave in his response to it. The solicitors were at fault in not reporting to the bank what they had done and in failing at that stage to remedy their breach of trust by ensuring that the shortfall was paid to Barclays. Their failure to do so was a breach of the rules, which could have disciplinary consequences but it does not affect the outcome in the present appeal. There is, as Mr McPherson submitted, no satisfactory logical reason why the question of the solicitors’ liability to provide redress to the bank for a loss which it would have suffered in any event should turn on their compliance or non-compliance with their obligations under rule 7.
‘Notwithstanding some differences, there appears to be a broad measure of consensus across a number of common law jurisdictions that the correct general approach to the assessment of equitable compensation for breach of trust is that described by McLachlin J in Canson Enterprises and endorsed by Lord Browne-Wilkinson in Target Holdings. In Canada itself, McLachin J’s approach appears to have gained greater acceptance in the more recent case law, and it is common ground that equitable compensation and damages for tort or breach of contract may differ where different policy objectives are applicable.
Following that approach, which I have discussed more fully at paras 90-94, the model of equitable compensation, where trust property has been misapplied, is to require the trustee to restore the trust fund to the position it would have been in if the trustee had performed his obligation. If the trust has come to an end, the trustee can be ordered to compensate the beneficiary directly. In that situation the compensation is assessed on the same basis, since it is equivalent in substance to a distribution of the trust fund. If the trust fund has been diminished as a result of some other breach of trust, the same approach ordinarily applies, mutatis mutandis.
The measure of compensation should therefore normally be assessed at the date of trial, with the benefit of hindsight. The foreseeability of loss is generally irrelevant, but the loss must be caused by the breach of trust, in the sense that it must flow directly from it. Losses resulting from unreasonable behaviour on the part of the claimant will be adjudged to flow from that behaviour, and not from the breach. The requirement that the loss should flow directly from the breach is also the key to determining whether causation has been interrupted by the acts of third parties. The point is illustrated by the contrast between Caffrey v Darby, where the trustee’s neglect enabled a third party to default on payments due to the trust, and Canson Enterprises, where the wrongful conduct by the third parties occurred after the plaintiff had taken control of the property, and was unrelated to the defendants’ earlier breach of fiduciary duty.
It follows that the liability of a trustee for breach of trust, even where the trust arises in the context of a commercial transaction which is otherwise regulated by contract, is not generally the same as a liability in damages for tort or breach of contract. Of course, the aim of equitable compensation is to compensate: that is to say, to provide a monetary equivalent of what has been lost as a result of a breach of duty. At that level of generality, it has the same aim as most awards of damages for tort or breach of contract. Equally, since the concept of loss necessarily involves the concept of causation, and that concept in turn inevitably involves a consideration of the necessary connection between the breach of duty and a postulated consequence (and therefore of such questions as whether a consequence flows “directly” from the breach of duty, and whether loss should be attributed to the conduct of third parties, or to the conduct of the person to whom the duty was owed), there are some structural similarities between the assessment of equitable compensation and the assessment of common law damages.
Those structural similarities do not however entail that the relevant rules are identical: as in mathematics, isomorphism is not the same as equality. As courts around the world have accepted, a trust imposes different obligations from a contractual or tortious relationship, in the setting of a different kind of relationship. The law responds to those differences by allowing a measure of compensation for breach of trust causing loss to the trust fund which reflects the nature of the obligation breached and the relationship between the parties. In particular, as Lord Toulson explains at para 71, where a trust is part of the machinery for the performance of a contract, that fact will be relevant in considering what loss has been suffered by reason of a breach of the trust.
The party recovering is accountable to the third party for any damages recovered: ibid, p 844.
In Linden Gardens Trust v Lenesta Sludge Disposals Ltd  1 AC 85, this rationale was extended to contracts generally. A contractor had done defective work in breach of a building contract with the developer but the loss was suffered by a third party who had by then purchased the development. The developer recovered the loss suffered by the purchaser. Lord Griffiths, however, suggested (at p 97) that the result could be justified on what has become known as the “broader ground”. This is that the developer had himself suffered the loss because he had his own interest in being able to give the third party the benefit that the third party was intended to have. He could recover the cost of rectifying the defects because it represented what the developer would have to spend to give the third party that benefit, even though he had no legal liability to spend it. On the broader ground, the principle would not be limited to cases where the loss related to transferred property.
Most of the cases are indeed about subrogation to securities, but the principle applies equally to allow subrogation to personal rights: Cheltenham & Gloucester Plc v Appleyard  EWCA Civ 291, at para 36; Commissioners for HM Revenue and Customs v Investment Trust Companies (In Liquidation)  UKSC 29.
In Banque Financière de la Cité v Parc (Battersea) Ltd  1 AC 221, Parc had borrowed money from R on the security of a first legal charge over property, and from an associated company, OOL, on the security of a second legal charge. The plaintiff bank partially refinanced the borrowing from R. For regulatory reasons the refinancing was structured as a loan to the general manager of the group holding company, who in turn lent it to Parc who used it to pay off part of the loan from R. The plaintiff’s loan was made on the strength of an undertaking by the general manager that intra-group loans to Parc would be postponed to the plaintiff’s loan. The undertaking was intended to bind all the companies of the group, but in fact bound only the holding company because it was given without the subsidiaries’ knowledge or authority. OOL accordingly sought to enforce its second charge ahead of the plaintiff. The plaintiff sought to defeat this attempt by claiming to be subrogated to R’s first charge. This depended on the contention that OOL would otherwise be unjustly enriched by the indirect use of the plaintiff’s money to discharge indebtedness which ranked ahead of theirs. The House of Lords accepted that contention, holding that the plaintiffs were subrogated to R’s first charge, but only as against intra-group creditors who would have been postponed had the general manager’s undertaking been binding on them.
He identified as the unjust factor in OOL’s enrichment the defeat of the plaintiff’s expectation of priority over intra-group loans which was the basis on which it had advanced the money. This was so, notwithstanding that that expectation was not shared by OOL who had nothing to do with the transaction and was unaware of it.
“In a case in which the whole of the secured debt is repaid, the charge is not kept alive at all. It is discharged and ceases to exist … It is important to remember that … subrogation is not a right or a cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is ‘kept alive’ for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched.
In Cheltenham & Gloucester Plc v Appleyard  EWCA Civ 291, the Plaintiff Building Society lent money to Mr and Mrs Appleyard to refinance debts owed to the Bradford & Bingley Building Society secured by a first charge on their home, and to BCCI secured by a second charge. The plaintiff put its solicitors in funds and the solicitors paid the outstanding balance of both debts to the respective creditors. The Appleyards executed a legal charge over the property in favour of the plaintiff. But the charge could not be registered as a legal charge at HM Land Registry because BCCI (which was in liquidation) refused to recognise that it had received the money or to consent to the discharge of its own security, and the terms of that security prohibited any charge subsequent to its own. The plaintiffs were held entitled to be subrogated to the legal charge of Bradford & Bingley to the extent of the value of the Bradford & Bingley mortgage at the time it was paid off. This was because otherwise the Appleyards would be unjustly enriched to the extent that their property was burdened with a lesser security.
In Banque Financière and the earlier cases cited by Lord Hoffmann the defendants did not share the expectation of the claimant, whereas in Cheltenham & Gloucester they did. But in either case the intentions of the defendants were beside the point. The reason was that the claimant had bargained for the benefit which failed, whereas from the defendant’s point of view the discharge of the prior indebtedness was a windfall for which they had not bargained. If they had given consideration for it the result would have been different.
This point may be illustrated by the other leading modern case, Bank of Cyprus UK Ltd v Menelaou  AC 176. The decision is authority for the proposition that a third party who pays the purchase price of property may be subrogated to the vendor’s lien for the purchase price, if the purchaser would otherwise have been unjustly enriched. The Menelaou parents proposed to sell the family home to release capital to be spent on (among other things) buying a house for their daughter. To enable this to happen, the claimant bank, to whom the family home was mortgaged, agreed to release its charges on condition that it would receive a charge over the house to be acquired for the daughter. This expectation was defeated because she was unaware of the arrangement and the signature on the charge was not hers. The daughter was enriched, not by the mere fact of acquiring a house, which she owed to the benevolence of her parents, but by the fact that she acquired it free of the charge which the bank expected to have and without which the transaction should not have proceeded. The main issue on the appeal was whether that enrichment occurred at the bank’s expense, given that the money to pay the purchase price had come from her parents out of the proceeds of sale of the family home, and not directly from the bank. Once that question was answered in the bank’s favour, it was held that the enrichment was unjust. This was because the bank’s consent to the use of the proceeds of the family home to buy the daughter a house had been conditional on it obtaining a charge. That condition had failed and the daughter had consequently been enriched. To reverse the enrichment, the bank was subrogated to the vendor’s lien, on the footing that the purchase price secured by that lien had in substance been paid with the bank’s money. The daughter’s intentions were irrelevant because the absence of a valid charge had been a windfall for her. As Lord Neuberger pointed out (para 70), this was because she did not pay for it. If she had been a bona fide purchaser for full value it might well have been impossible to characterise any enrichment arising from the absence of the intended charge as unjust.
The cases on the use of equitable subrogation to prevent or reverse unjust enrichment are all cases of defective transactions. They were defective in the sense that the claimant paid money on the basis of an expectation which failed. Many of them may broadly be said to arise from a mistake on the part of the claimant. For example, he may wrongly have assumed that the benefit in question was available or enforceable or that his stipulation was valid, when it was not. However, it would be unwise to draw too close an analogy with the role of mistake in other legal contexts or to try to fit the subrogation cases into any broader category of unjust enrichment. It is in many ways sui generis. In the first place, except in the case of voluntary dispositions, the law does not normally attach legal consequences to a unilateral mistake unless it is known to or was induced by the other party. But it does so in the subrogation cases. This is, as I have explained, because the windfall character of the benefit conferred on the defendant means that it is not unjust to give effect to the unilateral expectation of the claimant. Secondly, where money is paid under a contract, restitution is normally available only if the contract can be and is rescinded or is otherwise at an end without performance (eg by frustration). This is because the law of unjust enrichment is generally concerned to restore the parties to a normatively defective transfer to their pre-transfer position. Subrogation, however, does not restore the parties to their pre-transfer position. It effectively operates to specifically enforce a defeated expectation. Thirdly, as Lord Clarke suggested in Menelaou (para 21), the rule may be equally capable of analysis in terms of failure of basis for the transfer. Restitution on that ground ordinarily requires that the expectation should be mutual, whereas this is not a requirement for equitable subrogation. But some cases, such as Boscawen v Bajwa and Cheltenham & Gloucester v Appleyard, cannot without artifice be analysed in any other way, since the payer does not seem to have been mistaken about anything. His expectation was simply defeated by some subsequent external event. What this suggests is that the real basis of the rule is the defeat of an expectation of benefit which was the basis of the payer’s consent to the payment of the money for the relevant purpose. Mistake is not the critical element. It is only one, admittedly common, explanation of how that expectation came to be disappointed.
Two things, however, are clear. The first is that the role of the law of unjust enrichment in such cases is to characterise the resultant enrichment of the defendant as unjust, because the absence of the stipulated benefit disrupted a relevant expectation about the transaction under which the money was paid. The second is that the role of equitable subrogation is to replicate as far as possible that element of the transaction whose absence made it defective. This is why subrogation cannot be allowed to confer a greater benefit on the claimants than he has bargained for: see Paul v Speirway Ltd  Ch 220, 232 (Oliver J), Banque Financière, at pp 236-237 (Lord Hoffmann), and Cheltenham & Gloucester v Appleyard, at paras 38, 41-42 (Neuberger LJ). It can be seen that the fact that all the cases relate to defective transactions is not just an adventitious feature of the disputes that happen to have come before the courts. It is fundamental to the principle on which they were decided.
The present case is entirely different from the kind of case with which equitable subrogation is properly concerned. The December 2008 refinancing was not a defective transaction. Mr Hunt intended to discharge EMSL’s debt to Swynson. Otherwise he would not have achieved his objective of cleaning up Swynson’s balance sheet and reducing its liability to tax. He received the whole of the benefit from the transaction for which he had stipulated: the covenant to repay, the security over EMSL’s assets, the tax advantage and the presentational advantage of removing a large non-performing debt from Swynson’s books. It is of course true that he did not receive repayment of his loan, because EMSL was (or became) insolvent and its assets were worth much less than the debt. But that was a commercial risk that he took with his eyes open, and it was not what enriched HMT. In these circumstances, subrogation is not being invoked for its proper purpose, namely to replicate some element of the transaction which was expected but failed. It is being invoked so as to enable Mr Hunt to exercise for his own benefit the claims of Swynson in respect of an unconnected breach of duty under a different transaction between different parties more than two years earlier.
Mr Hunt’s alleged mistake contributes nothing to this analysis. I need not enter into the long-standing controversy about whether a transaction may be set aside on account of a mistake relating to the consequences or advantages of a transaction as opposed to its terms or character, or whether any causative mistake of sufficient importance will do. That issue is discussed by Lord Walker in Pitt v Holt  2 AC 108 at paras 114-123 and by the editors of Goff & Jones, The Law of Unjust Enrichment, 9th ed (2016), paras 9-135 – 9-142. But it does not arise here. Mr Hunt is not seeking to set aside the December 2008 refinancing and would not be entitled to do so. He is trying to invoke a remedy which the law provides for a specific purpose, and to deploy it for a different one. When Mr Hunt entered into the December 2008 refinancing, he did not in any sense bargain for a right to recover substantial damages from HMT. Nor was he mistaken about what he was going to get out of the refinancing. At best, he was mistaken about the effect that the discharge of EMSL’s debt to Swynson would have on the latter’s claims under the very different transaction which it had entered into in 2006 when it engaged HMT to carry out the due diligence. In fact, however, his evidence does not even go that far. What it shows is that he wrongly believed that he had already bargained for a right to substantial damages from HMT back in 2006. This was because he considered that as the owner of Swynson he was as much entitled under Swynson’s contract with HMT as Swynson was. “As between me and Swynson,” he wrote in the passage from his witness statement cited by the judge, “the consideration of who technically would be entitled to recover the money from HMT did not matter as I was the owner of Swynson.” As a result, he did not think that by discharging EMSL’s debt to Swynson two years later he would diminish his own entitlement. As between Swynson and himself, it was “implicitly understood” that whichever of them made the recovery it would be shared between them pro-rata according to the unpaid lending advanced.
This was an error, but it does not follow that its consequences constitute an injustice which falls to be corrected by the law of equitable subrogation. Unless the claimant has been defeated in his expectation of some feature of the transaction for which he may be said to have bargained, he does not suffer an injustice recognised by law simply because in law he has no right. Failure to recognise these limitations would transform the law of equitable subrogation into a general escape route from any principle of law which the claimant overlooked or misunderstood when he arranged his affairs as he did.
‘Mitigation and res inter alios acta?
HMT’s submission failed at first instance before Rose J and in the Court of Appeal before Longmore and Sales LJJ, with Davis LJ dissenting. Rose J and the majority in the Court of Appeal held that the transaction effected on 31 December 2008 fell to be regarded as res inter alios acta, as between Swynson and HMT. They considered, clearly correctly, that the transaction did not constitute mitigation by Swynson of its damage, since Swynson was in no position to, and did not effect, the transaction itself. But they regarded the transaction as in fact avoiding loss in a way which should only be brought into account, if it arose out of HMT’s breach of duty and in the ordinary course of business. They cited in this connection from Viscount Haldane LC’s speech in British Westinghouse Co Ltd v Underground Electric Railways Co Ltd  AC 673, 690.
It can readily be accepted that there was a causal link between Mr Hunt’s action in funding EMSL to repay Swynson and HMT’s negligence, and also that Mr Hunt was not acting in the ordinary course of business, but in the grip of a continuing and somewhat disastrous course of events brought about by that negligence. But, as has been held, Mr Hunt himself has no claim against HMT for negligence, and his action brought about the repayment of the loan granted to Swynson independently of any action by Swynson itself. In the passages cited, Viscount Haldane LC was speaking of loss mitigated by the claimant him- or itself in circumstances where there was no obligation to mitigate loss. Here, the payment off of the indebtedness was not undertaken by or at the request of Swynson. It was initiated by Mr Hunt in his personal capacity deciding that it would suit Swynson’s and his own interests to procure repayment by EMSL of its indebtedness to Swynson. Swynson and Mr Hunt are distinct legal personalities, and Mr Hunt’s conduct cannot be attributed to Swynson.
Recovery for transferred loss can, in my view, be addressed quite briefly. The normal principle is that a claimant in action for breach of contract cannot recover damages in respect of loss caused by the breach to some third person not party to the contract: see The Albazero  AC 774, 846 B-C per Lord Diplock. But there are, as Lord Diplock went on to say, exceptions. One exception, recognised and applied in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and St Martins Property Corp Ltd v Sir Robert McAlpine Ltd (“St Martins”)  1 AC 45 exists where it was in the contemplation of the parties when the contract was made that the property, the subject of the contract and the breach, would be transferred to or occupied by a third party, who would in consequence suffer the loss arising from its breach: see Darlington Borough Council v Wiltshier Northern Ltd  1 WLR 68 and the narrow ground of decision expressed by Lord Browne-Wilkinson at p 114G-H in St Martins, in which all members of the House joined. In such a situation, the claimant is seen as suing on behalf of and for the benefit of the injured third party and is bound to account accordingly: see St Martins, per Lord Browne-Wilkinson at p 115A-B and McAlpine Construction Ltd v Panatown Ltd (“Panatown”)  1 AC 518, per Lord Clyde, at pp 530E-F and 532D-E.
Another broader principle was suggested by Lord Griffiths in St Martins, at p 96F-97D and reviewed inconclusively by Lord Browne-Wilkinson at pp 111F-112F as well as by the members of the House in Panatown. This is that a contracting party might itself have an interest in performance enabling it to claim damages without proving actual loss. In both cases the principle was being suggested in the context of contracts for supply, whether of goods or services. In St Martins the suggestion was made in circumstances where the claimant had actually incurred costs of repair, but was entitled to recover them from the associated company to which the building had been transferred before the breach. In Panatown the property was from the outset owned by an associated company of the company which contracted for its construction, and the construction defects which emerged did not lead to the latter company incurring any outlay. The reason why, in the majority view, the latter company was not entitled to recover damages was not that it had incurred no outlay, but was that there existed a deed of care deed entitling the owning company to make a direct claim against the contractors. Potential difficulties about the theory of performance interest are that it cannot prima facie embrace consequential losses suffered by the company actually (as opposed to contractually) interested in the quality of the property or services and that it is not clear whether or on what basis the company contractually entitled may be liable to account to the company actually interested: see on this latter point per Lord Clyde in Panatown at pp 532E-F, 534B-C and 535F.
Neither the narrow or the broad version of the transferred loss principle is in my view of assistance to Swynson. As to the narrow principle, it is clear that Swynson did not contract with HMT on behalf of or for the benefit of Mr Hunt. As to the broad principle, even if accepted, I do not see how it can apply in circumstances where Swynson itself suffered loss through being induced to support the management buyout by lending to EMSL, but the loan was ultimately repaid by EMSL. This is not a case where Swynson had any performance interest other than being indemnified in respect of the loss which it incurred in lending moneys to support the management buyout. That performance interest has been satisfied. The fact that it was satisfied by Mr Hunt making moneys available to EMSL to repay Swynson does not bear on or expand Swynson’s performance interest.
I turn then to unjust enrichment. Swynson’s and Mr Hunt’s submission is that relief by way of unjust enrichment is available to preserve Swynson’s otherwise discharged claim against HMT for the benefit of Mr Hunt to the extent necessary to meet what are, it is submitted, the imperatives of the circumstances in which Mr Hunt effectively enriched HMT by arranging the repayment of the sums outstanding under the first two loans made by Swynson to EMSL, by reference to which sums HMT’s liability would, otherwise, have fallen to be measured. Longmore and Davis LJJ were not prepared to accept this as a potential basis of recovery for two reasons. The first was difficulty in seeing how subrogation could arise in favour of Mr Hunt in respect of a claim by Swynson which had been discharged, “unless”, Longmore LJ relevantly added, “the theory of fictionalised assignment expounded by Lord Hoffmann in Banque Financiere (see para 20 below) at p 236E solves this particular problem”. The second was doubt whether any mistake had been sufficiently demonstrated. Both Longmore and Davis LJ saw the case as involving causative ignorance, rather than any incorrect conscious belief or incorrect tacit assumption, referring for this distinction to Pitt v Hunt  2 AC 108. Sales LJ took a different view and would, if necessary, have recognised Mr Hunt as enjoying a right of subrogation to Swynson’s discharged claim against HMT.
The basic questions in a claim in unjust enrichment were summarised by Lord Steyn in Banque Financière de la Cité v Parc (Battersea) Ltd  1 AC 221, 227A-C in terms recently adopted by the Supreme Court in the judgment delivered by Lord Reed in Commissioners for Her Majesty’s Revenue and Customs v The Investment Trust Companies (In Liquidation) (“ITC”)  UKSC 29. The four questions are: (1) Has the defendant benefited or been enriched? (2) Was the enrichment at the expense of the claimant? (3) Was the enrichment unjust? (4) Are there any defences? More detailed examination and application of these questions in particular cases has proved controversial: see in particular Menelaou v Bank of Cyprus  1 WLR 854 and its academic aftermath. However, the comprehensive review of their significance in Lord Reed’s judgment in ITC now provides the essential basis for further consideration and application of the questions.
As to the first, there is, in the light of my conclusions on the issue of res inter alios acta, no doubt that HMT were, indirectly, enriched by the discharge by EMSL of the loan due to Swynson. The discharge had the immediate effect of reducing (in this case to nil) the damages in respect of the 2006 and 2007 loans which (subject to the overall £15m cap) Swynson could otherwise have recovered from HMT on account of HMT’s negligence. A relevant benefit for the purposes of unjust enrichment can consist in the discharge of a debt or (as in Banque Financière) of the promotion of a second charge due to the discharge of part of a prior secured debt. In principle, it seems to me that it can consist in the reduction of a loss, which would otherwise be recoverable by way of a claim for damages for breach of contract and/or duty.
The second question raises the issue what counts as enrichment “at the expense” of the claimant. That this issue can prove less straightforward is evident from the examination of its conceptual base in paras 37 to 63 in ITC. Usually, as Lord Reed points out (paras 46-50) the parties will have dealt directly with one another, but there are situations which are legally equivalent to direct provision and there may be other apparent exceptions or possible approaches, which it is not intended to rule out. The claimant must incur a loss by conferring a benefit on the defendant, but “economic reality” is not the test (paras 59-60). However, the reality, rather than the formal shape, of a transaction, or of a co-ordinated series of transactions, can show that the claimant has conferred a benefit on the defendant, despite the absence of a direct relationship between them.
Thus, in Banque Financière itself, the transaction was structured so that Banque Financière (“BFC”) advanced the relevant moneys to Mr Herzig who on-lent on different terms to Parc; the purpose was to reduce Parc’s borrowing from Royal Trust Bank (Switzerland) (“RTB”), which had a first charge over Parc’s assets; the moneys was actually remitted directly by BFC to RTB; and BFC believed, on the basis of a postponement letter written by Mr Herzig, that there had been agreement by all relevant companies in the Parc group that the advance made to Parc would have priority over other inter-group lending to Parc, including by OOL. In fact Mr Herzig had no authority to write the letter and so there had been no such agreement. The unintended effect of the advances paying off RTB was therefore to promote OOL’s second charge on Parc’s assets pro tanto. In these circumstances, BFC was treated, as against OOL, as subrogated to RTB’s (otherwise discharged) secured debt to the extent necessary to cover the advance which it had made. BFC’s failure to take proper precautions to ensure that Mr Herzig had authority to write the postponement letter was no ground for holding that the enrichment was not unjust: see per Lord Hoffmann at p 235F-G.
In Boscawen v Bajwa, money was advanced by a building society for the purchase of a property and were to be secured by a first charge. The purchaser’s solicitors passed the money on to the vendor’s solicitors, who, in circumstances not involving any want of probity but to some extent contributed to by the purchaser’s solicitors’ issue of a dishonoured cheque, used it to discharge a mortgage on the property without any transfer of the property to the intended purchaser ever occurring. The building society was held entitled to be subrogated to the discharged mortgage to the extent of its outlay, on the basis that the moneys were traceable into the discharged mortgage debt. Where claimant’s property is traceable into a receipt or property held by the defendant, there is the equivalent of a direct transfer.
In the present case, there is also no difficulty in tracing the advance made by Mr Hunt to EMSL into the discharge of Swynson’s borrowing from EMSL. It was a term of Mr Hunt’s loan to EMSL that it should be used for such discharge: para 7 above. Without more, this discharge would have been a benefit to Swynson alone, and that was no doubt how Mr Hunt saw it at the time. In fact, as I have held, the discharge of EMSL’s indebtedness to Swynson had the unforeseen consequence of eliminating any loss which Swynson would be able to show in respect of the 2006 and 2007 loans if it pursued a claim for damages against HMT, and did so moreover in circumstances in which Mr Hunt himself might (as proved to be the case) have no personal claim himself against HMT. But the transfers which Mr Hunt arranged cannot be regarded as received by HMT, or as traceable into any sort of discharge of HMT’s liability to Swynson.
It can however be argued that, even in Banque Financière, the transfers made by Banque Financière were not actually received, or converted into property held, by OOL. OOL was simply enriched by the promotion of its charge, which occurred due to BFC’s payment off of RTB’s loan. So here, it may be argued, HMT was enriched at Mr Hunt’s expense by the payment off through EMSL of Swynson’s loan. This is however to over-simplify and there are a number of potentially significant points that need to be considered. First and most importantly, in Banque Financière BFC bargained for, and mistakenly believed it was obtaining, priority over other group claims when it provided the moneys to discharge RTB’s loan. In the present case, Mr Hunt was not dealing with HMT, or addressing or discharging, or bargaining either to preserve or to step into the shoes of Swynson for the purposes of, any contractual or tortious claim which Swynson had against HMT.
Second, HMT submits that there can be no relevant benefit if all that can be shown is that the defendant “is not liable because a fundamental component of the cause of action against him (namely loss) is missing”. But subrogation by virtue of unjust enrichment is an equitable remedy which operates by adjusting relationships on a fictionalised basis. Thus, in Banque Financière, part of RTB’s secured claim was treated as alive, as against OOL only, as if it had not been discharged by payment by BFC, but had been assigned to BFC (see per Lord Hoffmann, p 236E-F). So, here, it seems to me that it could be possible, if the other ingredients of subrogation were all present, to treat Swynson’s claim against HMT as alive as if Swynson’s loss had not been discharged by the payment arranged by Mr Hunt through EMSL, and as if Swynson’s claim had been assigned to Mr Hunt. Longmore LJ’s qualification recognising the potential relevance of this fictionalised basis of subrogation was to that extent well-founded.
Third, Mr Hunt, when advancing to EMSL the money necessary to repay the first and second loans made by Swynson, acquired a countervailing right in law to repayment of those loans by EMSL. The value of that right depended on Evo and its future performance. The December 2008 refinancing was made on the basis that the EMSL loan was “impaired” (see per Rose J, paras 47-48 and Longmore LJ, para 7). Mr Hunt’s letter of claim of 24 August 2010 stated that Evo had long been in desperate straits and that it had never in Mr Hunt’s view been more than a “pig in a poke”. But the management accounts, summarised in the expert report of Ian Robinson produced at the request of Swynson and Mr Hunt for use before Rose J, indicate that there still existed hope that Evo might return to profitable trading in and after 2010. Mr Robinson’s opinion was also that as at December 2008 Evo had a net asset value in the order of USD 8m or a value on an earnings basis in the order of USD 4 to 5m. Evo did ultimately yield some realisations (para 42 above), though this fell far short of covering Mr Hunt’s loan and the interest under on it. In summary, it would seem unrealistic to regard Mr Hunt as suffering no loss at all in December 2008, as a result of advancing the money he did to EMSL to pay off Swynson. With the benefit of hindsight, it seems clear that his loss increased thereafter, as Evo’s position continued, despite his efforts, to deteriorate. However, this analysis highlights a feature of Mr Hunt’s claim that HMT has been unjustly enriched at his expense. The existence and extent of any enrichment could not be determined by simple reference to the amount that Mr Hunt lent to EMSL in December 2008. They would depend on Evo’s and EMSL’s subsequent fortunes.
A fourth point, arising from some observations of the Supreme Court in ITC, concerns the significance of the limited “benefits” intended and obtained from the repayment of the first and second loans made by Swynson to EMSL. These consisted in a tax saving (para 43 above) and the removal of the perceived disadvantage to Swynson of having an impaired debt on its books: see Rose J’s judgment, para 47. In different ways, the existence of a tax liability without receipt of any corresponding income and the impaired debt were both disadvantages resulting from the original management buyout on the basis of HMT’s original negligent advice. Their elimination was a step taken by Mr Hunt in the course of dealing with that disastrous investment. But it was a step taken by him personally, albeit in order to benefit his company Swynson. The difficulties on this appeal arise because (a) the step he took had the unforeseen, consequential effect of depriving Swynson of any claim against HMT and (b) the highest that Mr Hunt can put the matter is to say that he himself thereby suffered loss in his capacity as owner of Swynson, in circumstances where, as has been held, he himself had no direct right of action against HMT.
A fifth point, which I mention in passing, is that, had Swynson’s loan to EMSL been good, the same tax liability would have been incurred but in respect of moneys actually received, while the impairment would have been avoided. Apart from the repayment of the EMSL loan procured by Mr Hunt on 31 December 2008, Swynson’s damages claim against HMT could have included the full amount of the interest which EMSL had failed to pay to Swynson (which would no doubt have been taxable in Swynson’s hands as a business receipt, even if EMSL had paid it). Swynson having in fact been repaid by EMSL, Mr Hunt, if he were to have any subrogation claim against HMT, would probably have to give credit, against his gross loss for the purposes of that claim, for the amount of the tax on interest in respect of which he in effect indemnified Swynson (any subrogation recovery by him from HMT in respect of such interest not presumably being taxable). I understood Mr Sims QC for Mr Hunt to accept as much (transcript, 22 November 2016, p 125 ll.22-23.) But, in any event, as Mr Sims went on to point out, this would be likely to be irrelevant, as any such reduction in Mr Hunt’s gross claim for subrogation purposes would not reduce it below HMT’s maximum liability of £15m as at 31 December 2008, plus interest since then.
Turning to the significance of these points for Mr Hunt’s claim to be subrogated to Swynson’s claim against HMT, in ITC, paras 52 to 58, Lord Reed noted that, where the provision of a benefit to a third party is incidental to work done or expenditure incurred in pursuit of a person’s own interests, any enrichment may either not be regarded as being at the expense of the person doing the work or incurring the expenditure or may not be regarded as unjust. “One man heats his house, and his neighbour gets a great deal of benefit” – the classic example given by Lord President Dunedin in Edinburgh and District Tramways Co Ltd v Courtenay 1909 SC 99, , 105 – clearly involves circumstances in which it would be “absurd”, as the Lord President said, to suppose that the former could claim a contribution from the latter. The case of TFL Mangement Services v Lloyds Bank plc  EWCA Civ 1415 was wrongly decided for this reason, as the Court held in ITC and as the Scottish jurisprudence cited by Lord Reed at para 55 in ITC presciently suggested nearly two centuries ago.
In such situations, the questions whether a benefit was obtained “at the expense of” the claimant and whether it would be “unjust” for the defendant to retain it are likely to be difficult to separate. If a person with a view to obtaining a small benefit for himself at the same time unintentionally and by mistake incurs a much larger loss in conferring a much larger benefit on a third party, the picture changes, and one is again potentially in the field of unjust enrichment. The particular features of the present appeal, on which attention must necessarily focus, are that it concerns deliberately structured transfers (by Mr Hunt to EMSL and EMSL to Swynson) which had unforeseen, consequential effects on Swynson’s separate relationship with a third party, HMT, and/or on Mr Hunt, as noted, particularly, in paras 62 and 65 above.
In these circumstances, I turn to consider whether there is here an “unjust” factor, which may make it appropriate to recognise the benefit conferred on HMT by the repayment of the first and second Swynson loans as giving rise to a claim by Mr Hunt. The primary case now sought to be advanced is that Mr Hunt was labouring under a mistake when he advanced the money to EMSL to pay off the loans. In the alternative, it is submitted that the unjust factor can be found in the failure of the “basis” on which Mr Hunt made such advance, or, in the further alternative, upon a more general policy-based approach recognising the suggested unfairness of what has happened. I do not see these two alternative submissions as adding in the present case to the primary submission or offering any real prospect of success if it fails. In the present case, the basis of the advance could hardly be said to fail, if there was no relevant mistake. Likewise, it is difficult to see any reason why Mr Hunt should have a remedy in respect of an advance if he made it without any mistake, particularly when it offered his company, Swynson, some advantage.
Having said that, there are cases which can be analysed as accepting such a subrogation claim simply in order to redress the defeat by unforeseen events of an expectation of benefit on the basis of which the claimant made a payment: see eg Banque Finanière and Cheltenham & Gloucester plc v Appleyard  EWCA Civ 291. The underlying rationale of subrogation to redress unjust enrichment may well be to redress the defeat of such an expectation, mistake being only one context in which this can occur. But in each case, the nature of the expectation or mistake is also critical in determining whether there exists a subrogation claim to redress any enrichment. This brings one back to its closeness of its relationship with the right to which the subrogation claim relates.
The first problem which arises on this appeal regarding mistake is that it was not explicitly pleaded, leading to a submission by HMT that it would be unfair to treat it as a basis on which this appeal could or should be decided against them. This makes it necessary to examine the way in which the case was put and has developed. The first relevant reference in the pleadings is in the reply dated 14 June 2013, where in para 35d the defence plea that HMT owed no separate duty to Mr Hunt was addressed, and Swynson advanced three heads of positive case: in summary, res inter alios acta, equitable subrogation and transferred loss. The second was put simply on the basis that “Swynson suffered the losses claimed herein before any refinancing and is entitled to recover the same for itself and Mr Hunt on the basis that Mr Hunt should be treated in equity, by way of equitable subrogation or otherwise, as entitled to his pro rata share”.
Rose J recited the three heads of case which were advanced, decided the case on the basis of res inter alios acta, and did not need to consider the other two heads: see paras 49 and 55 of her judgment.
“not enough for subrogation. For subrogation, there needs to have been a right bargained for and not achieved.
The Court of Appeal did not deal formally with the admissibility of the case based on mistake. But, having heard these submissions, it gave a judgment on 25 June 2015 in which all three members of the Court dealt on the merits with the issue of unjust enrichment based on the case of mistake which Swynson had advanced before it. Longmore and Davis LJJ rejected that case on its merits, for reasons summarised in para 55 above, while Sales LJ would have accepted it.
In these circumstances, I conclude that the Court of Appeal determined that the case based on mistake was fairly open to Swynson, and should be addressed on its merits, although the majority concluded that it should fail on the evidence. I see no basis on which to reach a different conclusion on the question whether the case was and is open. Indeed, I would myself have reached the same conclusion. The case on mistake needs to be addressed on its merits accordingly.
In my opinion it is clear that Mr Hunt was labouring under a form of mistake when he was advised to and did arrange to fund EMSL to pay off Swynson’s first and second loans. Not only did he have no intention thereby to relieve HMT of any liability, he gave positive evidence which Rose J accepted that “As far as I was concerned the claim against HMT remained unaffected by this refinancing and [the refinancing] was of no concern of theirs” (para 72 above). The fact that he did not think it important whether the claim against HMT was Swynson’s or his does not seem to me to matter in assessing whether he was acting under a mistake. It clearly belonged to one or other. What matters is that he mistook the significance of payment off of the Swynson loans.
In the present case, I consider that, contrary to the view taken by the majority of the Court of Appeal, the accepted evidence, recited in paras 71 and 78 above, is of a conscious belief on Mr Hunt’s part that funding the repayment of the Swynson loans would have no effect on any claim against HMT. At the very least, however, it establishes a tacit assumption. This belief (or assumption) has been shown to be mistaken (a) as regards a negligence claim by Mr Hunt personally against HMT, by Rose J’s judgment and (b) as regards a claim by Swynson against HMT, by the Supreme Court’s present judgment. As to (a), if he had had a claim in his own name, then he would have been able to recover in full from HMT. His repayment of the Swynson loans would in this context have constituted a step taken in continuing mitigation of the effects of HMT’s breach of duty towards him. As to (b), if Swynson had retained a claim against HMT, Mr Hunt would, as Swynson’s owner, have been covered indirectly in respect of any loss arising to him from the December 2008 arrangements.
How far Mr Hunt was acting under advice in the arrangements he made is not known. It is certainly possible to suggest that it was in a general sense careless to make them without considering their implications. At least in so far as his mistake was to think that Swynson would, if necessary, retain its claim against HMT despite the December 2008 arrangements, it could be said in response that the mistake was understandable, since the Supreme Court has concluded that it was shared by both courts below. But, even if it were right to conclude that any mistake by Mr Hunt involved carelessness, that by itself is no bar to equitable relief, unless the circumstances show that Mr Hunt deliberately ran, or must be taken to have run, the risk of being wrong: see Banque Financière, 235E-G per Lord Hoffmann (cited in para 58 above) and Pitt v Holt  2 AC 108, 114, per Lord Walker. It seems clear that Mr Hunt did not intend to run or believe that he was running any such risk. Nonetheless, the arrangements he in fact made did involve the risk that he might himself have no direct claim, while paying off EMSL’s debt to Swynson meant that Swynson could no longer claim to have suffered loss recoverable from HMT, with the result that there was no basis on which either Swynson or Mr Hunt could claim any substantial damages from HMT.
Was any mistake causative? Like Sales LJ (para 59), I do not think that there is any chance that Mr Hunt would have made the payments in the way he did had he thought that they might have the effect of eliminating the liability of HMT in respect of the 2006 and 2007 loans. The advantages for Swynson in terms of tax and standing (para 43 above) would have been dwarfed by the loss of a claim for £15m (plus interest) against HMT. He could not conceivably have allowed any claim by Swynson to be fatally undermined in this way.
Lord Walker was speaking in the particular context of the equitable jurisdiction to set aside a transfer for mistake. Mr Hunt has no possible claim to set aside the transfers which he arranged. If one takes Lord Walker’s approach, admittedly out of context, and applies it to the present context, it highlights a difficulty which Mr Hunt faces in showing any sufficient connection between the transfers to which he directed his attention and the relationship between Swynson and HMT under which HMT benefitted as a result of those transfers.
The message here, and in the passages cited, is that subrogation cannot improve a lender’s position, by giving him more than he expected to get. The lender need not actually to have “contracted for” or “agreed” some benefit which he did not obtain. Thus, it was enough in Banque Financière that BFC thought, however carelessly, that it had obtained such a benefit by virtue of the postponement letter. But any transfer of value must have been on the mistaken basis that it would yield a benefit which did not materialise. Subrogation can redress the position where a claimant has bargained for a benefit which does not materialise, by putting the claimant in the position which he expected. Here, Mr Hunt bargained for nothing in relation to Swynson’s claim against HMT. The most that he can say is that there was an indirect transfer of value by him to HMT, as the unforeseen and indirect result of the directly intended effects of the actual arrangements he made on a separate relationship pre-dating those arrangements by over two years.
That is in my opinion the crux of this appeal. Mr Hunt’s loan to EMSL and EMSL’s consequent discharge of Swynson’s loan were exactly as Mr Hunt specified and intended. They had indirect consequences, evidently overlooked by Mr Hunt or his advisers, for Swynson, for Swynson’s separate relationship with HMT, and so indirectly for both Swynson and Mr Hunt: see, in particular, paras 62, 65 and 68 above. These circumstances do not establish any normative or basic defect in the arrangements which Mr Hunt made.
In so far as Mr Hunt thought that he might, as owner of Swynson, himself have a claim for breach of contract and/or duty against HMT, he was not mistaken in any way which concerned the relationship between Swynson and HMT or which could give him any arguable claim to be subrogated to a claim by Swynson against HMT. In law, however, the only person with a claim against HMT was Swynson, as Rose J held. Again, the arrangements he made for EMSL to pay off Swynson did not address or concern the relationship between Swynson and HMT, or the consequences of such arrangements for any claim which Swynson might have against HMT. Again, Mr Hunt never envisaged obtaining any sort of direct interest in any such claim. Further (although I should not be taken as suggesting this is critical to the outcome of the issue of unjust enrichment), the arrangements which Mr Hunt made were not by way of gift, but by way of a loan to EMSL, which in December 2008 had at least some prospect, however remote, of being repaid. What matters is that any transfer of value by Mr Hunt to HMT was not just unintended, it was incidental and indirect and arose from the consequences of Mr Hunt’s deliberately structured arrangements on a relationship quite separate from that which the arrangements addressed in exactly their intended way.
In these circumstances, I do not consider that Mr Hunt can establish a basis for being subrogated to any claim which Swynson would have had against HMT, had its loss in respect of the 2006 and 2007 loans not been reduced to nil. In a very general sense, I can understand it being said that it is an injustice to Swynson or Mr Hunt and a pure windfall for HMT, if HMT benefits by avoiding paying damages. This is particularly so, when (as I believe to be the case) Mr Hunt made a mistake which was causative in the “but for” sense, that, apart from the mistake, he would not have structured the arrangements in the way he did. But mere “but for” causation is not sufficient: see ITC, para 52. Any benefit which HMT has from Mr Hunt’s mistake is no more than an indirect and incidental consequence of those arrangements on Swynson’s separate and pre-existing relationship with HMT. This is too remote to be the basis for a claim that HMT has been unjustly enriched at Mr Hunt’s expense, or for reversal of the consequences of Mr Hunt’s arrangements by treating him as having a (fictionalised) interest which he never expected, in respect of a claim by Swynson to recover from HMT a loss otherwise reduced to nil by the arrangements he made. This conclusion can be explained under the scheme indicated in Banque Financière either on the basis that there was no sufficiently direct transfer of value from Mr Hunt to HMT, or on the basis that there is no relevant unjust factor, or both. More generally, this conclusion underlines the fact that it is not the role of the law of unjust enrichment to provide persons finding to their cost that they have made a mistake with recourse by way of subrogation against those who may indirectly have benefitted by such a mistake under separate relationships which those making the mistake were not addressing.

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