#6822 - Amstrong V. Winnington Network Ltd - Restitution of Unjust Enrichment BCL

Amstrong v. Winnington Networks Ltd.

Facts

Armstrong is a company with its registered office in Germany. It is a producer of PVC and linoleum floor coverings and is part of a group of companies owned by Armstrong World Industries Inc, a US listed company.

Winnington is a company registered in England with a head office in Crewe. It is engaged in the business of facilitating the supply and distribution of new and high demand technology products.

Negotiations on behalf of Zen: On 25 January 2010, a Mr Bhovinder Singh, claiming to represent a company in Dubai called Zen Holdings Limited ("Zen") contacted Winnington to inquire whether it was interested in trading EUAs with Zen. Further conversations and emails ensued between Winnington and Zen and Mr Singh on that day and on 26 January 2010.

Fraudulent Transfer: On 28 January 2010, 21,000 EUAs owned by Armstrong were transferred from Armstrong's Delmenhorst account with the German Registry into Winnington's account with the UK Registry.

That transfer was done without the authority of Armstrong and was the result of a "phishing" email fraud perpetrated upon Armstrong. On the same day, Winnington agreed to purchase 21,000 EUAs from Zen Holdings Limited ("Zen") for a price of 267,645 ("the Transaction"). Pursuant to that agreement to purchase, at 1130am on 28 January 2010 Winnington received into its account the 21,000 EUAs transferred from Armstrong's account. At that point in time, Winnington did not know that the holder of the account from which the EUAs had been transferred was Armstrong (as opposed to Zen or anyone else). Winnington then immediately sold on the 21,000 EUAs through TFS Green at a price of 272,500. At between 1318 and 1330 on the same date, Winnington effected payment of the purchase price to Zen to the latter's bank account with Standard Chartered Bank ("SCB") in Dubai.

Amstrong’s claim: Armstrong's essential claim on the facts is that Winnington's due diligence procedure (known as "KYC") was insufficient and was not followed through, that at the point of entering and concluding the Transaction, Winnington knew very little about the counterparty Zen, and that in all the circumstances it knew or consciously closed its eyes to the risk that the Transaction was fraudulent or improper or alternatively that it knew of circumstances which would have led a reasonable person in its position to have made further inquiries.

Winnington’s claim: Winnington's case on the facts is that it did not know that the Transaction was fraudulent and that there was nothing inherently suspicious about the Transaction or the lead up to its conclusion. Accordingly Winnington did not have relevant "notice" nor was its conduct "unconscionable" or other than in good faith.

Holding

Nature of EUA as property

There is no dispute between the parties that EUAs are capable of constituting, and do constitute, property as a matter of law. As a matter of substance, I do not consider that the holder of an EUA has a "right" which he or she can enforce by way of civil action. It is not a "right" (in the Hohfeldian sense) to which there is a correlative obligation vested in another person. It does not give the holder a "right" to emit CO2in this sense. Rather it represents at most a permission (or liberty in the Hohfeldian sense) or an exemption from a prohibition or fine. But for the entitlement to the EUA, the holder would either be prohibited from emitting CO2beyond a certain level or at least would be required to pay a fine if he did so. In this way, the holding of the EUA exempts the holder from the payment of that fine.

Rather I am satisfied that an EUA is "intangible" property… Thus in my judgment, applying the three fold test identified by Morritt LJ in In re Celtic Extraction leads to the conclusion that an EUA is certainly "property" and intangible property under the statutory definition there in place. First, there is, here, a statutory framework which confers an entitlement on the holder of an EUA to exemption from a fine. Secondly, the EUA is an exemption which is transferable, and expressly so, under the statutory framework. Thirdly the EUA is an exemption which has value.

Nature of claims – proprietary claim and personal claim - unjust enrichment?

Mr Harris puts Armstrong's case for "restitution" at common law on two distinct bases: a "proprietary restitutionary claim" to vindicate the claimant's persisting legal property in the EUAs, and alternatively, a claim in restitution for "unjust enrichment".

Restitution for unjust enrichment is based upon the notion that the defendant has been "enriched" at the claimant's expense. It gives rise to a personal remedy to disgorge or pay the amount of the enrichment to the extent that it is unjust. By definition, such a claim would suggest that the claimant has lost, and the defendant has gained, property in a relevant asset. By contrast, a proprietary restitutionary claim is based on the notion that the claimant has, at all times, retained legal title to the relevant asset, which asset has been transferred away from the claimant and it (or its substitute) has found its way into the hands of the defendant. Here the claimant can claim restitution of value from the indirect recipient of the asset, regardless of the fact that the recipient has not retained the assets or its substitute.

Proprietary restitutionary claim

In my judgment, on the current state of the authorities and in particular the three leading cases referred to above, there is a basis of claim which can conveniently be labelled a "proprietary restitutionary claim" which is distinct from a claim for restitution on grounds of unjust enrichment.

The essence of such a claim at common law is that the claimant is seeking to enforce his subsisting legal property rights in an asset held by the defendant. The asset in respect of which the claimant is asserting a claim may be identified by "following" the claimant's original asset into the defendant's hands or by "tracing" it into a substitute asset in the defendant's hands. Furthermore, in a case of "following", where the asset claimed is the claimant's original asset, there is no scope for the conceptual difficulties identified in the academic debate surrounding the "tracing" claims.

In my judgment, there is no reason why, in an appropriate case, a claimant does not have a personal claim at law to vindicate his legal proprietary rights in respect of a chose in action or form of other intangible property. Nor does any authority preclude such a claim.

In these passages, Smith contemplates that a claim might lie for receipt of property other than money which are the traceable proceeds of the claimant's legal property. Whilst he does not, in terms, address the position of intangible property other than money (nor consider the "label" of such a claim), nevertheless, in addressing the position in relation to goods, he is using "goods" as an example to illustrate a broader proposition of general application covering Type B claims (ie proprietary restitutionary claims) in respect of money and all other forms of assets.

In my judgment, as a matter of authority and principle,ifand where legal title remains with the claimant, a proprietary restitutionary claim at common law is available in respect of receipt by the defendant of a chose in action or other intangible property.

Distinct UAEs – Following, not tracing

In my judgment, given the unique reference number of each EUA, and their transferability between accounts, a specific numbered EUA transferred from one registry account to another constitutes the same "asset" or item of property. (This is confirmed by the evidence of Mr Pursell at paragraph 10 of his witness statement). Thus, to the extent that Armstrong's claim is based upon receipt by Winnington of the EUAs into its account, then that claim does not involve any question of tracing, but rather it is a case of "following" the original asset.

On the other hand, to the extent that Armstrong's claim is made in respect of the proceeds of Winnington's onward sale of the EUAs to TFS Green (in the sum of 271,266.25), then such a claim would necessarily involve "tracing" the EUAs into the money or chose in action which represents those proceeds.

No Unjust Enrichment, when proprietary restitution is established

If, on the facts of the present case, there is a proprietary restitutionary claim, then in my judgment, there is no claim for restitution based on unjust enrichment. This follows from my acceptance of the two distinct types of claim, based on Lord Millett's analysis inFoskett v McKeownand upon the view thatLipkin Gormanis a proprietary restitutionary claim. Based on that separation, the present case falls clearly on the side of being a proprietary restitutionary claim.

A key element of a claim based on unjust enrichment is that the defendant has been "enriched". Where the defendant has given full value for the benefit received, it is hard to see that he has been enriched at all: see Lord Templeman at 560A-B. The present case is very different on the facts fromLipkin Gorman.

Defences for Proprietary Restitution

Proprietary Restitution

Bona fide purchaser for value: I agree with Mr Joffe that bona fide purchase for value without notice is a defence to a proprietary restitutionary claim. As a matter of principle, given the proprietary nature of this cause of action, then bona fide purchase for value should be available.

Change of position: As regards change of position, whilst both counsel appear to accept that this too is a defence to a...