Introduction

The case of School Facility Management Ltd & Ors v. Governing Body of Christ The King College ([2021] WLR(D) 383) presented a pivotal examination of restitutionary claims within the framework of unjust enrichment under English law. This appeal centered on whether a provider of benefits under a contract deemed void as ultra vires must credit for all benefits received, even when a change of position defense is available. The Court of Appeal's decision has significant implications for future cases involving void contracts and restitutionary claims.

Summary of the Judgment

The case involved the College, formed from the merger of two faith-based schools, seeking to expand its facilities by entering into a hire contract for a modular building with Built Offsite Limited (BOS) and its associates. The contract was later deemed ultra vires and void due to the College's lack of authority to enter into such borrowing agreements without consent from the Secretary of State.

The core dispute revolved around whether SFM, a party to the contract, could claim restitution for the hire payments made by the College, despite the contract's void status, and whether the College was entitled to credit for the benefits received. The initial judge ruled that the College was not required to credit SFM for the benefits, a decision later scrutinized and ultimately upheld by the Court of Appeal.

The Court of Appeal affirmed that the counter-restitution principle must be applied based on the specific periods and nature of the benefits conferred, distinguishing between payments made under the purported finance lease and the usage of the building post-termination. The appeal was dismissed, reinforcing the necessity of treating counter-restitution and change of position defenses as part of a balanced, case-specific analysis.

Analysis

Precedents Cited

The judgment extensively referenced foundational cases and academic theories shaping the doctrine of unjust enrichment:

• Banque Financière de la Cit v Parc (Battersea) Ltd [1991] 1 AC 221: Established the four-factor test for unjust enrichment.
• Benedetti v Sawiris [2014] AC 938: Clarified that enrichment must be assessed at market value.
• Islington LBC v Westdeutsche Landesbank Girozentrale [1994] 4 All ER 890: Addressed netting off payments in financial transactions.
• Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548: Confirmed the change of position defense in unjust enrichment claims.
• Additional cases like Hicks v Hicks (1802) 3 East 17, and academic works by Professor Birks and Lord Burrows were also influential.

Legal Reasoning

The Court of Appeal delved deep into the mechanics of unjust enrichment, focusing on the interplay between counter-restitution and the change of position defense. The Judge's legal reasoning emphasized that:

• The contract was void as ultra vires, categorizing the hire agreement as a finance lease rather than an operating lease.
• Payments made under the finance lease were split between use of the building and capital acquisition costs, with only the former pertinent to restitution for use.
• Past payments for use were not offset against future claims for use, as they pertained to different periods and types of benefits.
• The change of position defense was valid only for specific periods, ensuring that unjust enrichment claims were assessed fairly without rigid procedural constraints.

The decision underscored the necessity of a nuanced approach to unjust enrichment, rejecting rigid sequential applications of principles in favor of flexible, fact-dependent analyses.

Impact

This judgment sets a significant precedent in the realm of unjust enrichment, particularly in scenarios involving void contracts and restauration:

• Clarifies that counter-restitution must consider the specific nature and timing of benefits conferred, preventing blanket credit for all benefits received.
• Affirms the flexibility of applying defenses like change of position on a case-by-case basis, rather than adhering to rigid procedural orders.
• Strengthens the understanding that different components of a contract (e.g., capital acquisition vs. usage) must be treated distinctly in restitutionary claims.
• Guides future courts in balancing counter-restitution and defense mechanisms to achieve equitable outcomes.

Complex Concepts Simplified

Unjust Enrichment

Unjust enrichment occurs when one party benefits at the expense of another in circumstances deemed unjust by law. The enriched party may be required to make restitution (return the benefit) to rectify the imbalance.

Counter-Redemption Principle

This principle dictates that if both parties have conferred benefits upon each other, each must account for the benefits received. Essentially, one cannot claim restitution without giving credit for what they received in return.

Change of Position Defense

A defendant may argue that they have changed their position in reliance on the receipt of benefits, making restitution impractical or unjust. This defense recognizes the hardships that immediate repayment might impose.

Void Contract (Ultra Vires)

A contract is void if it exceeds the authority granted to one of the parties, rendering it unenforceable. In such cases, certain restitutionary principles come into play to address benefits conferred under the void contract.

Finance Lease vs. Operating Lease

A finance lease is treated as an acquisition of an asset with financing, where payments contribute to ownership. An operating lease, conversely, is purely for the use of an asset without transfer of ownership. The distinction impacts how payments are treated in restitutionary claims.

Conclusion

The Court of Appeal's decision in School Facility Management Ltd & Ors v. Governing Body of Christ The King College intricately navigates the complexities of unjust enrichment within void contractual contexts. By distinguishing between different types of benefits and their corresponding periods, the court reinforced the necessity for equitable restitution while respecting defenses like change of position. This judgment not only clarifies the application of counter-restitution principles but also ensures that future cases will benefit from a balanced, fact-specific approach to unjust enrichment claims, enhancing fairness and predictability in legal outcomes.