Costello & Anor v MacDonald & Ors

Factual and Procedural Background

This appeal arises from an order of Mr Recorder Abbott in Bournemouth County Court dated 16 August 2010, which awarded judgment in favour of the respondents for building work carried out on land owned by the first and second appellants. The building work was performed pursuant to an oral contract made in July 2007 between the respondents and the third appellant, Company A, a company owned and directed by the first and second appellants. The order against Company A was for unpaid invoices and additional work, while the order against the first and second appellants was a monetary restitutionary award for unjust enrichment.

The respondents sought permission to cross-appeal two earlier decisions of the Recorder: first, that Company A did not contract as agent for the first and second appellants, and second, that the first and second appellants were not liable for procuring a breach of contract by Company A.

The appellants owned land on which they wished to develop houses and used Company A as a corporate vehicle for tax and financial reasons, with payments to the respondents made through Company A. The respondents carried out work and were paid until September 2008, after which payments ceased amid disputes over the quality and completion of work.

Proceedings initially commenced against the first and second appellants alone, alleging a contract with them, but Company A was later joined as a defendant. A trial of preliminary issues in February 2010 determined that the contract was between Company A and the respondents, not with the first and second appellants.

Following a trial in July 2010, the Recorder found in favour of the respondents against Company A for outstanding payments and additional work, and also awarded restitutionary damages against the first and second appellants for unjust enrichment. The appellants appealed the order against them despite Company A not appealing the order against it and having not paid the judgment debt.

Legal Issues Presented

1. Whether the first and second appellants can be held liable in restitution for unjust enrichment when the services benefiting them were provided pursuant to a contract between the respondents and a third party, Company A.
2. Whether the first and second appellants are liable for procuring or inducing a breach of contract by Company A.
3. Whether Company A acted as agent for the first and second appellants in entering into the contract with the respondents.

Arguments of the Parties

Appellants' Arguments

• The first and second appellants argued that the contract was solely between the respondents and Company A, and that they should not be liable personally.
• They justified Company A's refusal to pay the judgment debt on the ground that the respondents failed to cooperate in obtaining necessary certificates, which prevented the sale of the houses.
• They contended that allowing a restitutionary claim against them would undermine the contractual allocation of risks and obligations, as the parties had deliberately structured the transaction to limit liability to Company A.

Respondents' Arguments

• The respondents contended that the first and second appellants had been unjustly enriched by the building work carried out on their land and that their conduct was unconscionable.
• They argued that the appellants used Company A merely as a conduit for tax and financial reasons, and should not be allowed to avoid payment by hiding behind the corporate veil.
• The respondents relied on principles of unjust enrichment and unconscionable conduct as recognized in relevant case law to support a restitutionary claim directly against the appellants.

Table of Precedents Cited

Court's Reasoning and Analysis

The court acknowledged that the first and second appellants had been enriched by the respondents' building work and that their conduct could be seen as unconscionable. However, the court emphasized the importance of respecting the contractual arrangements made by the parties, which confined liability to Company A. The contract was clearly between the respondents and Company A, with the appellants using Company A as a corporate vehicle for tax and financial purposes.

The court considered whether the enrichment of the appellants was at the respondents' expense, noting that the benefit was conferred indirectly through Company A. It also examined whether allowing a restitutionary claim against the appellants would undermine the contract between the respondents and Company A, concluding that it would disrupt the allocation of risks and obligations agreed by the parties.

The court reviewed relevant case law supporting the principle that restitutionary relief should not be granted against a party who was not a contracting party and who had arranged the transaction to limit liability to a third party. It highlighted policy considerations favoring contractual certainty and the autonomy of parties to define their legal relations.

Furthermore, the court noted that the respondents were aware and accepted Company A as their contracting party and had the opportunity to protect themselves through guarantees but chose not to do so. The possibility of anomalous results arising from allowing both contractual and restitutionary claims was also noted.

Accordingly, the court concluded that the unjust enrichment claim against the appellants must fail because it would undermine the contractual framework established by the parties.

Regarding the respondents' cross-appeal, the court refused permission, holding that the respondents were too late to challenge the preliminary decision that Company A was the contracting party and that the appellants acted in good faith without intention to procure a breach of contract.

Holding and Implications

The court ALLOWED THE APPEAL by the first and second appellants, overturning the restitutionary award against them for unjust enrichment.

The direct consequence is that the respondents' remedy is confined to their contractual rights against Company A, and the first and second appellants are not personally liable for the unpaid invoices or additional work. The court reaffirmed the principle that contractual arrangements and risk allocations agreed by parties should be upheld, and restitutionary claims should not be permitted to circumvent these agreements.

No new precedent was set; the decision applies established legal principles respecting party autonomy and contractual certainty in the context of unjust enrichment claims.