(ii) The Contract Price Should Not Operate as a Ceiling to the Valuation of the Benefit

It has sometimes been recognized, however, that the contract price should not be used to restrict the valuation of the enrichment received by the defendant.[1] Rover International Ltd v Cannon Film Sales Ltd (No 3)[2] involved a claim to recover the value of services provided in respect of a contract for the dubbing and distribution of films in Italy. The contract was void ab initio since it was made before the claimant company had been incorporated. Counsel for the defendant conceded that the claim could be established, so the only remaining issue related to the valuation of the benefit. Kerr LJ, with whom Nicholls LJ concurred,[3] held that the valuation of the benefit received by the defendant was not constrained by the amount which the claimant would have received under the contract for the provision of the service. Kerr LJ provided three reasons for this conclusion.[4]

  • (1) It would not be just for the defendant to rely on the contract to restrict the valuation of the benefit when it was the defendant who had initially relied on the invalidity of the contract to discontinue its performance. In other words, the defendant’s conduct had been such that it could not ignore the contract at one stage of the proceedings and rely on its terms when it was in its own interest to do so.[5]
  • (2) If the contract terms did constitute a ceiling on the restitutionary claim this would result in undesirable inconsistency in the law of restitution, particularly because when relief is awarded following the frustration of a contract the contract terms do not restrict the restitutionary claim.[6]
  • (3) It would be unprincipled to rely on the contract to restrict the restitutionary claim when that contract was null and void. Since such claims arise from the fact that the contract was non-existent, it would be illogical then to rely on that contract when valuing the benefit.

The first two of the judge’s reasons are unconvincing. The first reason, concerning the relative merits of the parties’ conduct, should not be relevant when considering the role of the contract in valuing the benefits provided, for that is the route to palm-tree justice and consequent uncertainty.[7] As regards the second reason, any inconsistency with the law concerning frustrated contracts may be undesirable but might be inevitable, since the implications of a contract being frustrated is now governed by statute. But the third reason is surely relevant in concluding that the claim should not have been circumscribed by the contract price. If the contract is null and void then how can its terms be relevant to the restitutionary claim? This explains why in Pavey and Matthews Pty Ltd v Paul254 the High Court of Australia held that the contract price operated as a ceiling on the restitutionary claim, because in that case the contract was merely unenforceable and not void, so the contract price continued to be relevant.

That the contract price should never be relevant to the assessment of the value of a service, even where the contract was not void, has sometimes been justified on the ground that, when a claim is founded on unjust enrichment, the contractual regime no longer applies. This was the approach adopted by the Court of Appeal of Victoria in Sopov v Kane Constructions Pty Ltd (No 2).255 Even though that court was persuaded by the argument that the termination of the contract did not mean that the contractual regime ceased to apply completely, the judges felt bound by previous authority to conclude that the claim for a quantum meruit is based on a fiction that the contract ceases to exist ab initio, so that it cannot limit the quantum meruit.256 But such fictions have no role to play in a modern law of unjust enrichment. Where a contract has been terminated for breach it is certainly the case that the claimant can opt to pursue a claim in unjust enrichment rather than for breach of contract,257 but it does not follow that the contract necessarily has no part to play in the unjust enrichment claim. It has already been noted that the contract may provide factual evidence of the objective value of the enrichment. Similarly, there is no reason of policy or precedent why the agreed contract price should not limit the claim as a matter of law, save where the contract was null and void, for then there is no contract price to limit the valuation of the benefit. Even then the price which the parties purported to agree may still be considered to be reliable evidence of the value of the benefit. This will depend on why the contract was void. If, for example, the contract was void because of the incapacity of the defendant, the contract price should be treated as unreliable evidence of how the defendant valued the benefit, since the defendant lacked capacity to enter into the contract and so cannot be considered to have consented to any of its terms. Where, however, the contract was void because of the claimant’s incapacity, as was the case in Rover International, it is much more difficult to justify the failure to treat the contract price as evidence of the defendant’s valuation of the benefit, since the defendant had the capacity to enter into the contract and did so voluntarily. Ultimately, whether the contract price is taken into account should depend on how reliable it is as evidence of either the objective value of the benefit or the defendant’s valuation of the benefit.

  • [1] Lodder v Slowey [1904] AC 442. See also Boomer v Muir 24 P 2d 570 (1933); Renard Constructions (ME)Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
  • [2] [1989] 1 WLR 9 1 2. 249 The other judge, Dillon LJ, did not consider the matter.
  • [3] 250 Ibid, 927-8.
  • [4] 251 See also Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 278
  • [5] (Meagher JA).
  • [6] Law Reform (Frustrated Contracts) Act 1943, s 1(3). See Chapter 13.
  • [7] See the rejection of relative fault when considering the operation of the defence of change of position:p 694, below.
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