In Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] HCA 27 (18 June 2008), the High Court considered an appeal from the Full Court of South Australia, where the majority (Sulan and Layton JJ), allowing an appeal from a refusal to grant restitution, adopted a top-down analysis of a claim based on unjust enrichment and failed to take into account the parties’ existing contractual relationships. The case is significant to practitioners because it gives guidance on how to approach and plead claims based on unjust enrichment.
Facts
In 1993, W Cook & Sons Pty Ltd (“WC Sons”) entered into an oral, costs plus building contract with Matthew and Warwick Lumbers to build a house. The house was completed in May 1995 to the Lumbers’ general satisfaction. As a result of an informal restructure of the relevant group of companies in early 1994, the plaintiff, W Cook Builders Pty Ltd (“WC Builders”), performed most of the building work required under the contract. The Lumbers never requested services from WC Builders and they had no notice or knowledge of any change from WC Sons.
In June 1998, WC Builders went into liquidation and, in 1999, its liquidator requested the Lumbers pay to it the difference between the cost of the construction and the payments made by the Lumbers to WC Sons: payments by the Lumbers fell short about $180,000. Later, this claim increased by about $90,000 to include a supervision fee allegedly due under the contract. The Lumbers refused to pay and WC Builders commenced proceedings against them seeking damages based on an equitable assignment of the contract and, alternatively, restitution calculated on a quantum meruit basis.
In 1999, in mysterious circumstances, WC Sons notified the Lumbers it had no claim against them under the contract.
Earlier decisions
The trial judge dismissed WC Builders’ claim to damages because there was no evidence of an assignment of the contract from WC Sons to WC Builders. The trial judge found WC Builders had done the work either under an agreement with, or at the request of, WC Sons. The trial judge dismissed WC Builders’ claim for restitution because the Lumbers remained liable to WC Sons under the contract for all work completed, and thus had not been enriched. There was also no suggestion WC Builders laboured under a mistake.
By a majority, the Full Court allowed WC Builders’ appeal against the dismissal of its claim based on unjust enrichment. Whilst the majority accepted the principle that restitution wouldn’t be awarded if the entitlements and obligations of the parties were governed by contract, they rejected the submission that WC Builders’ claim in restitution, if upheld, would override the existing contractual arrangement between the Lumbers and WC Sons. The majority explained that the claim in restitution would not interfere with that contractual relationship because WC Sons had accepted it had no claim against the Lumbers under the contract and WC Sons had not performed its obligations under the contract. The Full Court identified the real issue as being whether WC Builders could recover in restitution against the Lumbers in circumstances “where [WC] Builders did the work and the Lumbers have the benefit of the work and have not paid for it”.
After considering the principles applicable to, and elements of, unjust enrichment, particularly, free acceptance and incontrovertible benefit as exceptions to the principle that services rendered without prior request will not be regarded as beneficial, the Full Court concluded that, having received a house, having been spared the full expense of that house, and at all times expecting to pay for the services rendered, the elements of unjust enrichment had been made out. Accordingly, the majority concluded WC Builders was entitled to recover on a quantum meruit basis. The Lumbers appealed.
High Court’s decision
In reasons given by Gleeson CJ and jointly by Gummow, Hayne, Crennan and Kiefel JJ, the High Court unanimously allowed the appeal and set aside the orders of the Full Court.
Gummow, Hayne, Crennan and Kiefel JJ were critical of the majority of the Full Court’s “topdown reasoning” and their failure to properly analyse the legal relationships between the parties. They considered that in claims based on unjust enrichment, if an analysis based only on “benefit”, “expense” and “acceptance” together with considerations of unconscionability were adopted, there would be created a serious risk that the result would be discordant with accepted principles and incoherent with other branches of the law.Referring to Deane J’s reasons in Pavey & Matthews, unjust enrichment was said to be a legal concept unifying a variety of distinct categories of cases and, whilst it was of assistance in determining whether the law should recognise a new or developing category of case where restitution would be granted, it was not itself a principle capable of direct application. In all cases, it was necessary to proceed by reference to existing categories of cases in which an obligation to pay compensation had been imposed. This view had earlier been endorsed by Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, 544 [72]-[75].
The majority of the Full Court failed to have due regard to the existing contractual relationships because they were unduly focussed on the relationship they thought should be found to exist between the Lumbers and WC Builders. Their approach caused them to erroneously impose upon the Lumbers an obligation to make restitution in circumstances where that obligation constituted a “radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed”. The majority of the High Court held that, on a proper analysis of the facts, there remained a valid and enforceable contract between the Lumbers and WC Sons and any benefit obtained by the Lumbers arose either from that contract or from WC Sons’ failure to enforce that contract. It was not as a result of anything the Lumbers sought to have WC Builders do or refrain from doing. On this analysis, WC Builders’ claim didn’t fall within a recognised category of case where compensation or restitution should be granted.
In separate reasons, Gleeson CJ emphasised the importance of the contractual arrangements between the parties and the maintenance of the allocation of risk thereby produced. In his view, on a proper analysis of the facts, WC Builders had performed services pursuant to an agreement with, or at the request of, WC Sons, and WC Sons had entered into a contract with the Lumbers for the provision of those services. The majority of the Full Court ignored this. Gleeson CJ concluded that any enrichment or benefit flowing to the Lumbers arose under the contract with, and at the expense of, WC Sons. If any party had been enriched at the expense of WC Builders, it was WC Sons.
What should we take away from this case?
The decision of the High Court in Lumbers v W Cook Builders Pty Ltd is not groundbreaking in the sense that it adopted and applied the principle that claims for restitution arising in a contractual context should respect the consensual allocation of risk and benefits. The decision is also consistent with the view that unjust enrichment is inherently subsidiary in nature and unnecessary when a claimant has an existing, alternative right to recover the alleged enrichment.
This case has greater significance at a practical level. In all claims for restitution, practitioners should be mindful of the subsidiary role unjust enrichment plays and closely examine any existing contractual relationships that govern the allocation of risk between the parties. It is not good enough for claims to be presented merely in terms of the elements of unjust enrichment. Generally, it is an error to begin with theory and seek to explain past decisions and to pigeonhole and discard facts in terms of that theory. Instead, a bottom-up approach should be adopted whereby, save in those rare cases when a claimant seeks to pursue a new or developing category of case, the facts of a case are analysed with a view to identifying the applicable category of case where an obligation to make compensation has been recognised.
Christian Jennings
T. J. Ryan Chambers
