Unjust Enrichment and Contractual Integrity: Insights from Dargamo Holdings Ltd & Anor v. Avonwick Holdings Ltd & Ors ([2021] EWCA Civ 1149)

Introduction

The case of Dargamo Holdings Ltd & Anor v. Avonwick Holdings Ltd & Ors ([2021] EWCA Civ 1149) adjudicated by the England and Wales Court of Appeal (Civil Division) on July 28, 2021, delves into the intricate interplay between the principles of unjust enrichment and contractual obligations. This appeal centers on whether a claim in unjust enrichment can succeed amidst a valid contractual allocation of risk, particularly when there is an alleged total failure of consideration or basis.

The litigants include three prominent Ukrainian businessmen—Sergiy Taruta, Vitali Gaiduk, and Oleg Mkrtchan—who previously held shared business interests in the Ukrainian metallurgical sector. The dispute arises from the allocation and payment under a share purchase agreement (SPA) concerning the sale of shares in Castlerose Limited ("Castlerose"), conducted through their respective corporate entities.

Summary of the Judgment

The initial trial concluded with Picken J dismissing the claims brought by Avonwick and counterclaims by Dargamo and Azitio, including the unjust enrichment claim by the Taruta Parties. The Court of Appeal upheld this dismissal, affirming that under the terms of the Castlerose SPA, the payments made by Dargamo were appropriately allocated to the transfer of Castlerose shares, and there was no total failure of consideration that would justify an unjust enrichment claim. Consequently, the appeal by the Taruta Parties was dismissed.

Analysis

Precedents Cited

The judgment extensively references pivotal cases that have shaped English law's approach to unjust enrichment. Notably:

Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; where the High Court of Australia allowed for failure of consideration in a context where separate parts of a payment were identified for distinct assets.
Barnes v Eastenders Cash & Carry plc [2014] UKSC 26; which dealt with the complexities of unjust enrichment in public authority contexts.
Fairfield Sentry Ltd (in liquidation) v Migani [2014] UKPC 9; reinforcing the Obligation Rule, which states that an unjust factor does not override a valid legal obligation.
Grocers’ example cases such as Chillingworth and Cobbe v Yeoman’s Row Management Ltd; illustrating the scenarios where deposits and anticipatory contracts give rise to unjust enrichment claims when consideration fails.

These cases collectively underscore the necessity for an "unjust factor" and delineate the boundaries of when contractual obligations preclude or permit claims in unjust enrichment.

Legal Reasoning

The Court of Appeal dissected the principle of unjust enrichment, emphasizing that the existence of a valid, subsisting contract typically negates the possibility of a restitutionary claim unless specific exceptions apply. The key legal principles include:

Obligation Rule: A claimant cannot pursue unjust enrichment to override a valid contract where consideration has been provided properly under the contract terms.
Failure of Basis: Differentiating between failure of promissory consideration and failure of the underlying basis or state of affairs, commonly referred to as "failure of consideration" or "failure of basis."

The judgment concluded that the Taruta Parties' claim attempted to bypass the clear contractual allocation of risk under the Castlerose SPA. The payment of US$950 million was explicitly designated as consideration for Castlerose shares, and there was no contractual obligation to transfer additional assets. Therefore, the alleged "failure of basis" outside the contract could not be used to substantiate an unjust enrichment claim.

Impact

This judgment reinforces the sanctity of contractual terms in English law, particularly in complex commercial arrangements. It affirms that unjust enrichment claims cannot be leveraged to subvert or reinterpret the express terms of a valid contract. Future cases will likely cite this decision when addressing the limits of unjust enrichment in the presence of clear contractual allocations, especially in scenarios involving multifaceted commercial transactions.

Complex Concepts Simplified

Unjust Enrichment

Unjust enrichment occurs when one party benefits at the expense of another in circumstances deemed unjust by law. For a successful claim, a claimant must demonstrate that the defendant was enriched, the enrichment was at the claimant's expense, and the retention of the benefit is unjust.

Failure of Consideration/Basis

This concept refers to a situation where the basis upon which a payment was made fails to materialize. It's different from failure of contractual consideration, as it pertains to the underlying reason or state of affairs that justified the payment, not the contractual obligations themselves.

Obligation Rule

This rule posits that if there is a valid and enforceable contract between parties, it generally precludes claims of unjust enrichment. The obligations outlined in the contract take precedence, and unjust enrichment cannot be used to override or reinterpret these terms unless exceptional circumstances apply.

Doctrine of Apportionment

This doctrine allows for the allocation of specific parts of a payment to distinct elements of a benefit. If some parts of the consideration have failed while others have been fulfilled, the court may apportion the payment to reflect this, permitting partial restitution.

Conclusion

The Court of Appeal's decision in Dargamo Holdings Ltd & Anor v. Avonwick Holdings Ltd & Ors underscores the primacy of contractual terms over unjust enrichment claims in English law. By affirming that the express allocation of risk within a valid contract cannot be undermined by separate understandings or expectations, the court reinforces contractual integrity in complex commercial dealings. This ruling serves as a pivotal reference point for future cases grappling with the boundaries between contract law and restitutionary claims, ensuring that unjust enrichment cannot be wielded as a tool to circumvent clear contractual agreements.

Ultimately, the judgment affirms that parties must adhere strictly to their contractual commitments, and that unjust enrichment remains a complementary, not overriding, facet of private law obligations. This decision provides clarity and predictability in commercial transactions, fortifying the legal framework that supports contractual freedom and stability.