(ii) Risk-taking

Whilst it is clear that, if the claimant bore the risk that the anticipated contract might not be made, restitution will be denied,^[1] the identification of whether the claimant did indeed bear the risk of the contract not being made is, however, fraught with uncer- tainty.^[2] This has proved to be especially significant in cases where the parties have made an agreement which is ‘subject to contract’, in other words the agreement is subject to a formal written contract being made. Just because an agreement was ‘subject to contract’ does not automatically exclude a restitutionary claim,^[3] but it is important to consider whether the claimant should be considered to have borne the risk of no contract being made.

In Regalian Properties plc v London Docklands Development Corporation²²⁷ restitution was denied to a claimant who had incurred expenditure after entering into an agreement which was subject to contract. The claimant had entered into the agreement with the defendant for the development of the defendant’s land. This agreement was expressly made subject to contract. The defendant requested the claimant to obtain designs from architects and encouraged it to incur other preliminary expenditure amounting to almost ?3 million, so that the claimant was in a position to obtain the building lease from the defendant and so that it could perform the contract once the lease was obtained. Because of a fall in property values no contract was ever made, but the claimant sought restitution from the defendant. The trial judge held that the claim failed because, as the agreement was subject to contract, the parties were free to withdraw at any time, so the expenditure which was incurred in anticipation of the contract had been incurred at the claimant’s risk. Whilst the judge was correct to reject the restitutionary claim, the reasons given for his conclusion are not satisfactory, particularly because of the apparent inconsistency with Chillingworth v Esche,²²⁸ which was not cited, where the claimant did obtain restitution even though the agreement was ‘subject to contract’. In fact, Regalian is easily distinguishable from Chilling- worth v Esche, for in that case the claimant had paid money to the defendant, so there was an obvious enrichment. In Regalian, although the claimant had incurred expenditure in preparation for the performance of the contract, this did not benefit the defendant in any way, as was recognized by the trial judge,^{[4] [5]} because the expenditure was incurred to place the claimant in a position to obtain and perform the expected contract. If the question of enrichment is put to one side, it was possible to conclude that there had been a total failure of basis, since the condition on which the claimant’s expenditure was contingent was the making of a contract and, since the agreement was expressly made subject to contract, this was a condition of which the defendant was aware. But without any enrichment, the fact that the basis had failed totally was irrelevant.

Presumably, therefore, if the defendant in Regalian had received an enrichment the restitutionary claim would have succeeded, because the case would then appear to be indistinguishable from Chillingworth v Esche. But the trial judge in Regalian emphasized that the restitutionary claim failed specifically because the agreement was subject to contract such that the claimant had incurred the expenditure at its own risk. If this is correct, why was the fact that the agreement was ‘subject to contract’ in Chillingworth considered to be irrelevant, when it was treated as barring the claim in Regalian? The only satisfactory explanation for this is that in Regalian the fact that the agreement was ‘subject to contract’ was interpreted as allocating the risk that no contract would ever be made to the claimant.^[6] This was indeed recognized by the trial judge:

Each party to such negotiations must be taken to know (as in my judgment Regalian did in the present case) that pending the conclusion of a binding contract any cost incurred by him in preparation for the intended contract will be incurred at his own risk, in the sense that he will have no recompense for those costs if no contract results.^[7]

The fact that the negotiations were made ‘subject to contract’ should only be considered to be relevant, however, if it really can be said that the clause is intended to allocate the risk of no contract being made. This would be a way of distinguishing Regalian from Chilling- worth v Esche, if it is possible to conclude that making the agreement subject to contract in the latter case was not intended to allocate the risk of no contract being made to the claimant. The different contexts of the two cases suggest that such a distinction could be drawn. Chillingworth v Esche involved the sale of land, where agreements are automatically made subject to contract, so it is not possible to assume that the parties have deliberately allocated the risk of no contract being made. In Regalian, however, there was no practice of making such agreements subject to contract, so the fact that this is what occurred suggests that there was a deliberate decision to allocate the risk of no contract being made. If this explanation is correct it means that the particular context of the agreement will always need to be considered carefully when determining the consequences of the agreement being made subject to contract.

In Yeoman’s Row Management Ltd v Cobbe²³² the restitutionary claim succeeded even though the agreement made between the parties was an oral agreement in principle which, whilst not expressly made subject to contract, was dependent on a written contract for the sale of land being made. Even though the claimant, who had obtained planning permission to develop the land, was considered to be a risk-taker in doing so, and this barred the claims that the property was held on constructive trust or that proprietary estoppel could be established, risk-taking was not even considered as regards the restitutionary claim. This might be explained by analogy with Chillingworth v Esche, as another case involving sale of land where agreements are automatically made subject to contract, but the parties in Yeoman’s Row had not yet reached that point in their negotiations. That the claimant could be considered to be a risk-taker for one claim but not for another is incomprehensible. Surely, if the claimant was considered to have taken the risk that a written contract might not be made, then the restitutionary claim should also have failed.

Wilmot-Smith²³³ has identified certain canons of construction to assist in the determination of whether the claimant can be considered to have borne the risk of no contract being made. These include that the claimant is less likely to bear the risk where the work the claimant has done is anticipatory rather than preparatory and where the work is more likely to benefit the defendant. But ultimately determination of risk allocation requires careful examination of all the facts of the case.

• [1] MSM Consulting Ltd v United Republic of Tanzania [2009] EWHC 121 (QB), [171] (Clarke J).
• [2] F Wilmot-Smith, ‘Replacing Risk-Taking Reasoning’ (2011) 127 LQR 610 considers that the questionwhether the claimant is a risk-taker does not involve the operation of a distinct bar but is determined throughproper construction of the relevant basis for the work which the claimant has undertaken. In the context ofanticipated contracts at least this appears to be correct. Sometimes the allocation of risk will be express: EugenaLtd v Gelda Corp Ltd [2004] EWHC 3273 (QB), [123] (Judge Hegarty QC).
• [3] See Valencina v Llupar [2012] EWCA Civ 396, where the allocation of risk by an agreement being made subject to contract was not considered. 227 [1995] 1 WLR 212.
• [4] [1924] 1 Ch 97. See p 316, above. 2 Ibid, 225.
• [5] 230 That pre-contract deposits are usually recoverable save if there is a precise, clear, and express agreement
• [6] to the contrary was recognized in Robinson v Lane [2010] EWCA Civ 385, [15] (Sir Richard Buxton); Sharma v
• [7] Simposh [2011] EWCA Civ 1383, [2012] Ch 23, [51] Toulson LJ. 4 [1995] 1 WLR 212, 231.