Unjust enrichment – Building works – Works carried out by respondents pursuant to contract with appellants’ company – Claim for unpaid invoices – Appellants held jointly and severally liable with company on grounds of unjust enrichment – Whether restitutionary liability capable of arising where enrichment flowing from contract to which person enriched not a party – Appeal allowed
The respondent builders agreed to carry out a development of eight houses on land owned by the appellants. For tax reasons, the appellants used a company of which they were the directors and sole shareholders as a vehicle for the development; the respondents’ contract was with that company and all contractual payments were channelled through it.
The respondents carried out works on the site but stopped after certain of their invoices went unpaid. In proceedings brought by the respondents to recover the invoice sums, the appellants were found to be liable jointly and severally with their company in the sum of £89,716. The appellants’ liability was founded on unjust enrichment on the ground that they had benefited from the respondents’ works.
The appellants appealed. They contended that they could not be held liable in restitution for unjust enrichment when the services of the respondents from which they had benefited had been given pursuant to a contract with a third party.
Held: The appeal was allowed.
Although the appellants had benefited from the works carried out by the respondents and had been enriched at their expense, the respondents’ services had been provided solely because of, and pursuant to, a contract with the company. The parties had arranged the transaction in such a way that legally enforceable promises were made only between the company and the respondents, even though the benefit of the contract was to be conferred on the appellants. The unjust enrichment claim failed because it would undermine the contractual arrangements between the parties, namely the existence of a contract between the respondents and the company and the absence of any contract between the respondents and the appellants. The general rule should be to uphold contractual arrangements by which parties had defined, allocated and, to that extent, restricted their mutual obligations and the consequences of non-performance. That general rule reflected a sound legal policy that both acknowledged the parties’ autonomy to configure their legal relations and provided certainty so as to limit disputes and litigation. In general, therefore, restitutionary relief should be refused against a defendant that had benefited from services rendered pursuant to a contract to which it was not a party: Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161 and Lumbers v W Cook Builders Party Ltd (in liquidation) [2008] 4 LRC 683 applied. The respondents had been fully aware of the position and had accepted that the company alone was their contracting counter-party. Had they wanted to limit their exposure in the event of the company’s default or insolvency, they could have done so by taking guarantees from the appellants. They had not done that and, accordingly, were not entitled to a direct remedy against the appellants.
Clifford Darton and Portia O’Connor (instructed by Pegasus Legal LDP, of Birmingham) appeared for the appellants; Philip Flower (instructed by Harold G Walker Solicitors, of Bournemouth) appeared for the respondents.
Sally Dobson, barrister
