The principle applies in tort/delict as well as in breach of contract claims and the simplest example of its operation is in the case of an accident. Say, for example, that a person is injured in a road accident and they are entitled to compensation from the guilty party. If the innocent victim's friends get together and set up an online fundraising effort for them, that fundraising would be res inter alios acta because it is not connected with the event that caused the loss to the victim. It does not, therefore, serve to reduce the liability of the guilty party.
The Swynson case was concerned with an altogether more complicated example of the principle operating in practice. Swynson is owned by Michael Hunt. In October 2006, Swynson lent £15million to a company called Evo Medical Solutions Limited ("EMSL") in order to enable it to buy out another company, Evo. In doing so it relied on a due diligence report by HMT solicitors (now Lowick Rose LLP). By July 2007, Evo was on the verge of financial collapse and so Swynson granted a further facility to EMSL. By October 2007, EMSL should have repaid the 2006 and 2007 loans but failed to do so. So, Mr Hunt caused Swynson to make a further loan to EMSL in June 2008. One of the effects of that transaction was that Mr Hunt gained an 85 per cent preferred ordinary shareholding in EMSL giving him majority control.
In 2007 there was then a "refinancing" of the 2006 and 2007 loans which was effected by EMSL and Mr Hunt entering into a loan agreement whereby Mr Hunt made funds available to EMSL (£18million approximately) and EMSL used these funds to pay Swynson the majority of the debt leaving only the 2008 loan outstanding. Evo then collapsed and the 2008 loan was never repaid to Swynson. Swynson then raised court action against Lowick Rose for the full amount of all the loans - the 2006, 2007 and 2008 loans - despite having received repayment of the first two of these loans. Lowick argued that it could only possibly be liable for the 2008 loan but the Judge, at first instance, held that the repayment made in the context of the 2008 re-finance was res inter alios acta and so did not extinguish Swynson's loss for the earlier loans. She accordingly awarded damages against Lowick for the full amount of the loans.
The Court of Appeal (by a majority) upheld the Judge's decision. They accepted that in arranging for EMSL to repay Swynson, Mr Hunt had not intended to relieve Lowick of liability for negligence. Had Mr Hunt simply given the money to Swynson as an act of benevolence there would have been no question that the payments did not enure to the benefit of the negligence adviser. To hold that the result would be difference just because payment had been made via EMSL would be a "triumph of form over substance". The payments made by EMSL were, therefore, collateral to the loss suffered and should not be taken into account in calculating a damages claim against Lowick.
The problem with that approach is, of course, that Swynson has, as a matter of fact, suffered no loss because the entire amount of the loans had been repaid. So, according to Lord Justice Davis (dissenting) on normal principles of recovery of loss, they should not be compensated again for their loss by Lowick. That the repayment was not collateral was demonstrated effectively by the structure of the repayment. Swynson had not been repaid by some third party acting benevolently but rather by EMSL - the very party who incurred the debt in the first place. To ignore the corporate structure involved and to treat the payment as having come from Mr Hunt was to pierce the corporate veil without good cause. Form was important as well as substance.
The Supreme Court is currently considering its decision and while the case raises various interesting questions of contract law and mitigation of loss it is perhaps difficult to see the decision of the majority being upheld. The application of the principle of res inter alios acta to the set of circumstances in Swynson pushes the boundaries of that principle to its very limits. It will be interesting to see what the Supreme Court decides. However, for practitioners the case is a useful reminder of a principle of recovery of loss which is often over-looked in this jurisdiction.
