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(B) CONTINUING CONTRACTUAL REGIME

Where a benefit is transferred to the defendant pursuant to a contractual obligation, the continued existence of the contract will usually defeat the restitutionary claim.12 A contract will therefore constitute a lawful basis, save where it can be shown to be void, has been rescinded or has been discharged for breach.13 This was recognized by Millett LJ in Portman Building Society v Hamlyn Taylor Neck:14

The continuing validity of the transaction under which the money was paid to the firm is, in my judgment, fatal to the society’s claim. The obligation to make restitution must flow from the ineffectiveness of the transaction under which the money was paid and not from a mistake or misrepresentation which induced it. It is fundamental that, where money is paid under a legally effective transaction, neither misrepresentation nor mistake vitiates consent or gives rise by itself to an obligation to make restitution.

The contractual obligation to transfer the benefit to the defendant may be express or implied. So, for example, where the claimant has provided services to the defendant whilst negotiating a contract, but before the contract is completed, the courts may be able to imply a genuine contract where there is sufficient evidence to indicate what terms the parties objectively intended to agree.15 Even where the parties have made an express contract for the provision of services, it may make no provision for remuneration. In such circumstances the law will normally imply a term into the contract that the remuneration will be reasonable in all the circumstances, this being consistent with the intention of the parties objectively ascertained.16 This has sometimes been called a claim in quantum meruit. But, since the focus of the court is on identifying the objective intention of the parties, the claim lies in contract and not in unjust enrichment. The courts have, however, recognized that a contract or a term will only be implied where it is consistent with the parties’ intentions. In Whittle Movers Ltd v Hollywood Express Ltd17 Waller LJ emphasized that the court should not strain to find a contract where terms are still under negotiation, because, if a contract cannot be implied, it may still be possible to bring a claim in unjust enrichment. Whilst an implied contract is a useful device to respect the intentions of the parties, even where these have not been clearly expressed, a contract should only be implied where it is clear that the parties did intend the contract to be made or would have intended it to be made had they thought about the matter. If contracts are implied in circumstances beyond this, contract will become a fiction, with consequent uncertainty. It does not follow that implied contracts have no role to play in the law of obligations; clearly they do,18 but their role must not be abused by artificial extension.

The extent to which it is appropriate to imply a contract between the parties is illustrated by Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd,19 where the claimant architects were engaged in an extensive property development for which the defendant property developer had refused to execute a printed contract. The New South Wales Court of Appeal was able to infer that the defendant had accepted the terms of this

Engineering Ltd v Cauldron Foods Ltd [2005] EWHC 153 (TCC); Berezovsky v Edmiston [2010] EWHC 1883 (Comm), [2010] CLC 126, [70] (Field J); Sandher v Pearson [2013] EWCA Civ 1822. See also Foran v Wright (1989) 64 ALJR 1, 13 (Mason CJ).

  • 13 Barclays Bank Ltd vWJ Simms, Son & Cooke (Southern) Ltd [1980] QB 677,695 (Robert Goff J). See also Brittain v Rossiter (1879) 11 QBD 123, 127; Gilbert Partners v Knight [1968] 2 All ER 248, 250 (Harman LJ); Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161, 164 (Lord Goff).
  • 14 [1998] 4 All ER 202, 208.
  • 15 RTS Flexible Systems Ltd v Molkerai Alois Muller GmbH [2010] UKSC 14, [2010] 1 WLR 753.
  • 16 Benedetti v Sawiris [2013] UKSC 50, [2014] AC 938, [9] (Lord Clarke).
  • 17 [2009] EWCA Civ 1189, [15]. See also Sharab v Prince Al-Waleed Bin Talal Bin Abdul-Aziz Al-Saud [2012] EWHC 1798 (Ch), [2012] 2 CLC 612, [58] (Sir William Blackburne).
  • 18 See S Hedley, ‘Implied Contract and Restitution’ (2004) 63 CLJ 435.
  • 19 (1988) 14 NSWLR 523.

contract by virtue of its conduct, even though it had not signed the contract. Consequently, the claimants were able to sue on the contract for the value of the benefits which had been provided. The ratio of the case can be found in a dictum of McHugh JA who

•J 20

said:

Where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the terms of the offer, it is open to the tribunal of fact to hold that the offer was according to its terms.

This case falls just above the threshold of what constitutes an acceptable implication of a contract. But this dictum shows the danger of implied contracts. Since the decision essentially turned upon an analysis of the facts of the case to identify the objective intentions of the parties, there is clearly scope for judges to manipulate the facts to secure what they believe to be the just result. This could easily escalate into the fiction of implying a contract as a matter of law where the justice of the case demands it. This is unacceptably uncertain and should be rejected. The implication of a contract to pay for benefits which have been received should be confined to those exceptional cases where it is possible to conclude that the relationship between the parties really was governed by a contract. Consequently, a contract should not be implied where the facts as found negate the existence of such a contract. For example, if two parties are negotiating a contract and the claimant, encouraged by the defendant, incurs expenditure in preparing to perform the contract, it will not be possible to imply a contractual obligation that the defendant should reimburse the claimant for this expenditure if the parties intended that the reimbursement would be paid for out of the proceeds of the contract. Nevertheless, there may still be scope for the imposition of restitutionary liability.[1] [2]

The principle that a claim in unjust enrichment cannot be established if the contractual regime is considered to subsist is especially well illustrated by Taylor v Motability Finance Ltd,[3] where the defendant employer terminated an employment contract with the claimant. The claimant argued that this constituted a repudiatory breach so that a restitutionary remedy could be awarded outside of the contract for the work he had done. This argument was rejected because the claimant had fully performed the contract by providing services to the defendant and so, although the primary obligation to continue to perform had been revoked, the contractual regime subsisted in terms of the secondary obligation to pay damages for breach.[4] Cooke J said:

Not only is it true to say that, historically, restitution has emerged as a remedy where there is no contract or no effective contract, but there is no room for a remedy outside the terms of the contract where what is done amounts to a breach of it where ordinary contractual remedies can apply and payment of damages is the secondary liability for which the contract provides.[5]

This is consistent with the presence of basis bar, in that the right to payment was considered to have already accrued under the contract before it was terminated. Where, however, a claimant has paid money to the defendant, rather than providing a service, and received nothing in return, Cooke J in Taylor v Motability Finance suggested that, once the contract had been terminated, the contractual regime no longer applied and a restitutionary claim for the money would lie.[6] Although this difference of approach depending on whether the enrichment involves money or services is artificial and unconvincing,[7] [8] [9] Taylor v Motability Finance does at least recognize that, if the contractual regime subsists, restitution should not be available. This was acknowledged in Howes Percival LLP v Page27 as being particularly significant where a solicitor had entered into a conditional contract, whereby the solicitor would only be paid if the case being pursued on behalf of the defendant was successful. The defendant repudiated the contract with the solicitor, who had already done significant work on the case. In such circumstances, if the solicitor was allowed to bring a claim for the reasonable value of his or her services, this might undermine the purpose of the contract. So, for example, if the defendant stood little chance of winning her case, it would follow that the solicitor would be unlikely to have recovered anything under the contract. This result should not be avoided by bringing a claim for restitution instead. Consequently, it was held in Howes that the solicitor would be confined to a claim in damages for breach of contract. If the defendant was unlikely to have won her case, then the loss suffered by the claimant might be assessed as zero. This can be justified on the ground that the conditional contractual regime should be considered to continue to operate after the contract has been breached, thus excluding a claim for restitution.

The analysis of restitutionary claims for the value of services provided under a contract which was adopted in Taylor Motability Finance was qualified in Elek v Bar- Tur.28 The trial judge in that case reluctantly recognized that he was bound by authority to find that a claimant, who had provided services pursuant to a contract which had been repudiated following a breach by the defendant, could bring a restitutionary claim to recover the value of the services.[10] But this was considered only to apply where the claimant was unable to complete his or her contractual performance by virtue of the breach, so that the defendant’s obligation to pay was not yet due. Where the claimant had fully performed and was entitled to payment under the contract, the claimant could not bring a claim for unjust enrichment, presumably because in such a situation the contractual regime would continue to apply, so the claimant could only sue for breach of the contract. This would be significant where the objective value of the service was greater than the contract price. This advantage would disappear, however, if, as seems likely, the value of the enrichment for purposes of a claim in unjust enrichment was capped by the contract price.[11]

Although it has been recognized that a claimant can bring a restitutionary claim in respect of services provided pursuant to a contract, this has been criticized. In Sopov v Kane Constructions Pty Ltd (No 2)31 the Victorian Court of Appeal in Australia held that, where a building contract had been repudiated by the landowner after building work had been substantially performed, the builder could elect to claim a quantum meruit rather than compensatory damages, although the court only reached this decision because the judges felt bound by authority. The judges felt that the arguments in favour of confining the claimant to compensatory damages were very powerful.[12] Similarly, in Elek v Bar-Tur David Donaldson QC said:[13]

I regard the rule as conceptually unsound and fertile with unattractive consequences, [but] doctrinal purity and logic does not always win out in the common law, and if it is now to be rejected, that will have to occur at a much higher level in the judicial hierarchy than I occupy...

If, however, focus is placed on whether the contractual regime continues to apply, sense can be made of the law. Where the claimant has transferred a benefit to the defendant, whether it be money, goods, or services, pursuant to a contract which is terminated for breach, the contractual regime as a general rule should no longer be applicable, save where the claimant has fully performed under the contract so that the defendant’s contractual counter-performance is then engaged before the contract is repudiated, or where the defendant’s counter-performance is intended by the parties to be dependent on the claimant satisfying all relevant conditions which had not been satisfied on the facts.

Sometimes, however, it has been recognized that a claim for restitution can lie despite the continued existence of the contractual regime. If this is adopted generally, it would undermine the lawful basis bar. This problem is especially well illustrated by the decision of the High Court of Australia in Roxborough v Rothmans of Pall Mall Australia Ltd,[14] where the defendant was licensed as a wholesaler of tobacco products. The defendant sold those products to the claimant retailers for a price which included a licence fee, which the defendant was required by statute to pay to the State government. The statute which imposed this liability on the defendant was held to be unconstitutional. Had the defendant paid the money it had received to the government, it would have been able to recover it because the statute which authorized the licence fee was declared to be invalid, so there would have been no basis for the payment.[15] But the statute was declared invalid before the defendant had paid the money that it had received from the claimants to the Revenue. So the claimants sought restitution of the money from the defendant and their claim succeeded on the ground that the basis for the payment had failed.[16] The problem with this conclusion was that the licence fee had been paid to the defendant pursuant to a contract for the sale of tobacco which had not been set aside. The significance of this was recognized by Kirby J, who dissented partly because the contract had not been terminated. Most ofthe majority failed to consider the requirement that the contract must be terminated before restitution could be awarded. Callinan J did consider the point and suggested that restitution could be awarded either where performance of the contract was not possible or, if formal termination of the contract was required, the bringing of proceedings for restitution would be sufficient. But this would contradict the presence of basis bar, for, if payment is made pursuant to a valid contract this should be sufficient to defeat the restitutionary claim. Beatson has argued that there might be exceptional circumstances where restitutionary relief can be awarded even though the contract has not been terminated, but only where this would not subvert the contractual allocation of risk.[17] Even if this is correct, it could not justify the success of the restitutionary claim in Roxborough because there was no evidence that the risk of the liability to pay the licence fee being declared invalid had been placed on the defendant rather than the claimants. The only way that the success of the claim to recover the payment of the licence fee can be justified is on the basis that the money paid to the defendant can be apportioned between payment for the tobacco, which remained valid, and payment of the licence fee, which was invalid. Indeed, this notion of apportionment was adopted by the majority to distinguish restitution of the licence fee from restitution of the purchase price for the tobacco products, the basis for which had not failed.[18] [19] This focus on apportionment of the constituent parts of the payment, suggests that it is possible to treat the contract as valid in part, as regards the purchase of the tobacco products, and void in part, as regards the licence fee payment.

In England a similar scenario to that in Roxborough arose in Investment Trust Companies v HMRC,39 where customers successfully sought restitution of money which had been paid to the suppliers of services, who had accounted for this amount of money to the Revenue in discharge of their tax liability, the full amount of which was not actually due to the Revenue. The customers were able to recover some of the money paid by the suppliers from the Revenue, even though the customers had paid money to the suppliers as a result of a contractual obligation. Despite this, the Revenue conceded that the contract between the customers and the suppliers should not bar the claim against the Revenue. Had this not been conceded, it would have been possible, following the approach in Roxborough, to apportion the payments to the suppliers between the payment for the services which were valid and the tax component which was not.

Such apportionment was also recognized in the difficult decision of the Supreme Court in Barnes v Eastenders Cash and Carry plc,40 but this case illustrates the dangers of ignoring a contract as a bar to an unjust enrichment claim. The case concerned a contractual arrangement between the Crown Prosecution Service (CPS) and the claimant receiver, whereby the CPS arranged for the receiver to manage assets of a company whilst a criminal investigation was being undertaken. The parties expected that the claimant would be remunerated for his services from the assets which he was managing, over which he had a lien. It was specifically agreed that the CPS would not indemnify the claimant if the assets were insufficient to remunerate him. The Supreme Court recognized that the receiver therefore accepted the risk that those assets might be of insufficient value to provide appropriate remuneration. The Supreme Court held, however, that the lien was invalid and that the claimant could not use the assets he was managing to recover his remuneration. But it was also held that the claimant could recover the value of his services from the CPS in an action for unjust enrichment, on the ground that the claimant expected to be paid for the services and had received nothing from them. The difficulty with this conclusion is that there was a contract between the claimant and the CPS and the claimant had accepted the risk that he would not be fully remunerated for his services. The Supreme Court did not deal with this issue explicitly. Rather, Roxborough was cited and the principle of what was called ‘severance of the consideration’ was approved. But it is unclear how that was relevant to the facts of the case, since, whereas in Roxborough it was necessary to apportion the money paid between the price of the goods and the licence fee, there was nothing to apportion in Barnes, since the claimant had provided services and had received no payment at all. Further, the award of restitution in this case appears to undermine the clear allocation of risk of non-payment, which was borne by the claimant rather than the CPS, as emphasized by the fact that the parties agreed that the CPS would not indemnify the claimant. The essence of the decision of the Supreme Court appears to be that, where the claimant has provided a service pursuant to a contract and receives no payment for that service, the beneficiary of the service will be liable in unjust enrichment, despite the existence of a contract between them. This is inconsistent with Taylor v Motability Finance, and the claim for restitution was much stronger in that case because there had been a breach of contract by the defendant which could be treated as terminating the contractual regime. There was no breach of contract in Barnes.

The decision of the Supreme Court in Barnes is potentially important, although the judgment lacks any significant engagement with the problems arising from there being a continued contractual relationship. The preferable view remains the strict one that, where a contract continues to operate, and a benefit is transferred to the defendant pursuant to that contract, there is no role for a claim in unjust enrichment. In Barnes itself the contract between the parties had not been discharged, so the claimant could only have sought a remedy under the contract. Since the claimant had accepted the risk that he might not be fully remunerated for his services, it is unlikely that a claim for breach of contract could have been brought. In those circumstances it is unacceptable for the contractual allocation of risk to be subverted through the law of unjust enrichment. Further, the reference to the apportionment of payments in Roxborough, and acknowledged in Barnes, betrays an unacceptable confusion between identifying whether there has been a total failure of basis as a ground of restitution[20] [21] and whether a contractual regime continues to operate. Consequently, even in Roxborough restitution should have been denied. The payment of the licence fee was a contractual requirement and recovery of that fee could only occur once the contract had been set aside. The concession of the Revenue in the Investment Trust Companies case, that the existence of the contractual obligation to pay the amount of tax to the suppliers, might be treated as justifiable in that that there was no contract as between the claimant and the defendant. But, as we will see,[22] the contractual bar on a claim in unjust enrichment also extends to where there is a contractual obligation between the claimant and a third party to provide a benefit to the defendant. In such circumstances the existence of the contract also defeats the claim in unjust enrichment, suggesting that the concession was incorrectly made.

It is important to emphasize, however, a significant limitation on the bar involving the continued existence of a contract, namely that it should only apply where the benefit which the claimant has transferred to the defendant has been transferred pursuant to a contractual obligation. It follows, for example, that if the claimant has paid more to the defendant than is due under the contract, the claimant can bring a claim for restitution of the excess on the ground of mistake, despite the continued existence of the contract.[23] This is because the excess payment was not transferred pursuant to a contractual obligation. Roxborough, Investment Trust Companies and Barnes were all different, because in each case the enrichment which was transferred or provided by virtue of the explicit contractual obligation to do so.

There is one further difficulty which the claimant might face in establishing that the contractual regime is no longer operative so that a claim in unjust enrichment is available. Where the claimant has transferred a benefit to the defendant pursuant to an illegal contract,[24] [25] the contract is void so it will not appear to operate as a bar to the restitutionary claim. It has been recognized, however, that if the claimant needs to refer to illegality in his or her pleadings, the claim for restitution will be barred for reasons of public policy, 6 save if another doctrine can be applied to avoid the operation of illegality.[26] Since the claimant will need to refer to the illegality to show that the contract no longer applies, this artificial rule operates as a significant bar to restitution, which should be rejected.[27]

  • [1] Ibid, 535.
  • [2] See William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932, discussed at p 345, below.
  • [3] [2004] EWHC 2619 (Comm). Approved in Howes Percival LLP v Page [2013] EWHC 4104 (Ch).
  • [4] See Johnson v Agnew [1980] AC 367; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
  • [5] Taylor v Motability Finance Ltd [2004] EWHC 2619 (Comm), [23].
  • [6] Ibid, [25] (Cooke J). 26 See further p 125, above. 27 [2013] EWHC 4104 (Ch).
  • [7] 28 [2013] EWHC 207 (Ch).
  • [8] 29 Planche v Colburn (1831) 5 Car & P 57, 172 ER 876; De Bernardy v Harding (1853) 8 Exch 822, 155 ER
  • [9] 1586; Lodder v Slowey, [1904] AC 442; Lusty v Finsbury Securities Ltd (1991) 58 BLR 66. See further
  • [10] Chapter 13. 30 See p 99, above.
  • [11] 31 [2009] VSCA 141.
  • [12] Ibid, [11]. 2 Elek v Bar-Tur [2013] EWHC 207 (Ch), [12].
  • [13] 34 [2001] HCA 68, (2001) 208 CLR 516.
  • [14] 35 Whether the claimants could have sued the Revenue would depend on whether the Revenue could be
  • [15] considered to have been indirectly enriched at the claimants’ expense. See p 107, above.
  • [16] See Chapter 13.
  • [17] J Beatson, ‘Restitution and Contract: Non-Cumul?’ (2000) 1 Theoretical Inquiries in Law 83.
  • [18] See further p 321, below.
  • [19] [2015] EWCA Civ 82. See p 108, above, for analysis of how the enrichment was considered to be at the
  • [20] [2004] EWHC 2619 (Comm). See p 136, above. 2 See p 321, below.
  • [21] 43 See p 142, below. 4 See further p 144, below, concerning discharge of a debt.
  • [22] 45 See p 716, below, for the definition of illegality.
  • [23] 46 Patel vMirza [2014] EWCA Civ 1047, [2015] 2 WLR405, [20] (Rimer LJ). This artificial rule was rejected
  • [24] by Gloster LJ, ibid, [79], who considered that the question is whether illegality of necessity forms an essential
  • [25] part of the claimant’s cause of action.
  • [26] Such as withdrawal from the illegal transaction, as operated in Patel v Mirza itself. See further p 719,
  • [27] below. 48 See further p 719, below.
 
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