Unjust Enrichment and Construction Contracts – A Cinderella Story?
- Andrew Tweeddale
Two decades ago, unjust enrichment was described as “the Cinderella of law, barely 10 years old but growing up rapidly. Until recently unrecognised and overshadowed by the ugly sisters, Contract and Tort, Cinderella’s day has arrived.”1 In England a claim for unjust enrichment was initially referred to as a claim in ‘quasi contract’. This language has now been abandoned and unjust enrichment has a strong foothold in the landscape of commercial law and its role and limits are becoming more clearly defined. Despite this, it is only infrequently pleaded in construction cases and when argued it is often set out in broad terms where the facts do not support such a claim. However, this is cause of action that should not be overlooked by a contractor or employer – especially if they have claims that fall outside the four corners of their construction contract.
The Principle of Unjust Enrichment The principle of unjust enrichment under English law2 is that no one should receive a benefit at another person’s detriment without being required to pay a reasonable value for that benefit. The court needs to ask itself four questions: (a) Has the Defendant been enriched? (b) Was the enrichment at the Claimant’s expense? (c) Was the enrichment unjust? (d) Are there any defences available to the Defendant? In the recent case of Bank of Cyprus UK Limited v Menelaou3 the Supreme Court applied these principles to a claim by a bank that it should have a charge over a property where the bank had lent money for the purchase of that property but had not exercised a valid charge against the owner. The Defences There are a number of defences to a claim for unjust enrichment. The first, and perhaps the most significant, is that the parties’ rights and remedies are set out within a contract. If the parties have agreed to a contract, then they will be bound to the terms and conditions of that contract and the law will not permit a claim for unjust enrichment to be used to avoid the consequences of that contract. The second defence is where restitution would be impossible; for example, where goods have been destroyed.4 The third defence is where one party has changed its position following his enrichment;5 for example, where a party has spent the monies it received in good faith.6 The fourth defence is that of illegality. Unjust Enrichment and Construction Contracts As stated above, a claim for unjust enrichment will fail where the rights and remedies of the parties are determined by a valid contract. So, for example, where a variation to a contract occurs, the contractor must claim under the variation provisions of the contract. Only in cases where there are no variation provisions in the contract or the variation falls outside of the variation provisions may a claim for unjust enrichment succeed.