Costello & Anor v MacDonald & Ors

The appellants, the registered owners of development land, appealed a County Court order awarding the builders (respondents) monetary relief for work carried out under an oral contract made with a company owned by the appellants (Oakwood). The County Court had awarded the respondents sums due under invoices against Oakwood and a restitutionary monetary award against the appellants for unjust enrichment. The Court of Appeal was asked to determine whether the appellants could be held liable in restitution when the work was performed under contract with a third party company which the appellants had used as a payment conduit. The appeal engages the core question whether restitutionary relief may be permitted so as to bypass and alter the contractual allocation of risk and obligations between the parties.

• The court articulates a general rule that the law should uphold and give effect to the contractual arrangements by which parties have defined and allocated their mutual obligations; permitting restitutionary claims that bypass those allocations would undermine party autonomy and legal certainty and could reallocate commercial risks for which parties contracted (paras [21], [23], [30]–[31]).
• Policy and precedent demonstrate that where services are provided pursuant to a contract with a third party, a claimant is ordinarily restricted to contractual remedies against that contracting party and cannot generally “leapfrog” to a claim in restitution against a non‑contracting beneficiary (paras [24]–[27], [30]).
• Although unjust enrichment concepts (including unconscionability) remain relevant, the court rejected allowing restitution where it would overturn an existing contractual allocation of risk; the existence of a binding contractual regime makes a restitutionary remedy unnecessary and inappropriate in the ordinary case (paras [26], [30]).

• Court of Appeal (Civil Division) — hearing 20 July 2011; judgment handed down 29 July 2011: appeal allowed and County Court restitutionary award set aside.
• Bournemouth County Court — Recorder Abbott, judgments 16 March 2010 (preliminary issues: contract with Oakwood) and 16 August 2010 (trial judgment awarding sums to respondents and a restitutionary award against appellants).