(E) CONTRACT WITH A THIRD PARTY
Where the claimant has transferred a benefit to the defendant pursuant to a contract between the claimant and a third party, the existence of that contract will bar a claim in unjust enrichment against the defendant.[1] [2] This is most likely to be significant where the third party is insolvent, and thus not worth suing, and the claimant seeks recovery from another party by means of a separate claim in unjust enrichment. But, if the contract between the claimant and third party still subsists, the unjust enrichment claim will fail. This is illustrated by MacDonald Dickens and Macklin v Costello,[3] where the claimant had entered into a building contract with a company to build houses. The houses having been built, the company had failed to pay for the work, so the claimants sought to recover the value of their services from the defendants, who were the sole directors and shareholders of the company and who had incorporated the company for tax reasons. This claim failed, however, even though the defendants had received the benefit of the claimant’s services, because it was held that the award of a restitutionary remedy would undermine the contractual arrangement between the claimant and the company, regardless of the fact that there was no such contract between the claimant and the defendants. As Etherton LJ recognized,[4] the parties had chosen to allocate the risks in the transaction by virtue of a contract between the claimant and the company, such that the obligation to pay was borne by the company alone and so that the claimant bore the risk of non-payment only by the company. He justified this conclusion as follows:6
The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have similarly allocated and circumscribed the consequences of non-performance. That general rule reflects a sound legal policy which acknowledges the parties’ autonomy to configure the legal relations between them and provides certainty, and so limits disputes and litigation.
Etherton LJ61 provided a further significant justification for the primacy of contract, relating to the difference between restitutionary and contractual remedies. Damages for breach of contract will be assessed with reference to the contract price and terms, whereas the restitutionary remedy will be calculated with reference to the value of the services, which may be different. If the restitutionary remedy is worth more than the contractual remedy, the claimant should not be able to avoid the bargain by resorting to a claim in unjust enrichment, at least where the contractual regime is still operative.
The primacy of the contract between a claimant and a third party is also reflected in the significant case of the High Court of Australia in Lumbers v W Cook Builders Pty Ltd,62 where the claimant wished to sue a non-contracting party who had benefited from the claimant’s services. The case involved an oral contract made between Lumbers and Cook and Sons Ltd (‘Sons’) to build a house. Without the knowledge of Lumbers, Sons entered into a sub-contract with Cook Builders Pty Ltd (‘Builders’), an unlicensed builder, to do most of the building work. Sons having gone into liquidation, Builders then sued Lumbers for the value of its services. The High Court held that this claim should fail. Various reasons were suggested for this. The majority considered that the contract between Lumbers and Sons barred any restitutionary liability to Builders.[5] But it was not made clear why this contract, to which Builders was not a party, should bar the claim. As Gleeson CJ recognized, the claim should be barred because of the contract between Builders and Sons. There was indeed a contract between Lumbers and Sons which had not been terminated, but the provision of the services by Builders, which benefited Lumbers, could not be attributed to this contract. Rather, the provision of the benefit by Builders could be attributed to its contractual obligation to Sons, as a result of which Sons was contractually liable to pay Builders for this work. The continued existence of the contract between Builders and Sons meant that Builders bore the risk that Sons would not pay for the service. This was specifically recognized by Gleeson CJ:[6]
The contractual arrangements that were made effected a certain allocation of risk; and there is no occasion to disturb or interfere with that allocation. On the contrary, there is every reason to respect it. There was no mistake or misunderstanding on the part of Builders. It was accepted on both sides in argument that in the ordinary case a building subcontractor does not have a restitutionary claim against a property owner, but must look for payment to the head contractor.
- [1] Ibid, [92] (Leggatt LJ).
- [2] Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161. See also Brown & Davies Ltd v Galbraith[1972] 1 WLR 997; Esso Petroleum v Hall Russell & Co [1989] AC 64.
- [3] [2011] EWCA Civ 930, [2012] QB 244. 59 Ibid, [21]. 60 Ibid, [23].
- [4] 61 Ibid, [31]. 62 [2008] HCA 27.
- [5] Ibid, [77] (Gummow, Hayne, Crennan, and Kiefel JJ). 64 Ibid, [46].
- [6] 65 N Andrews, ‘Mistaken Settlements of Disputable Claims’ [1989] LMCLQ 431. See also S Arrowsmith,
