Originally Published 8th October 2008
Lumbers v W Cook Builders Pty Ltd (in liquidation)  HCA 27
In the recent decision of Lumbers v W Cook Builders Pty Ltd (in liquidation)  HCA 27, the High Court held that the respondent, W Cook Builders Pty Ltd (Builders), had no right to claim payment from Lumbers for work done or money spent where there was no contract between them.
In essence, the High Court found that unjust enrichment (which is a type of restitution) will not arise if there is a contract. This is the case even if the contract reflects a bad deal and unjust enrichment would cure a problem caused by imperfect documentation (together with evidentiary and practical problems in the litigation).
In 1993, Lumbers entered into an oral building contract with W Cooks & Sons Pty Ltd (Sons) for the construction of a house. Sons was specifically selected due to the longstanding relationship of trust between Lumbers and Mr McAdam, a director of Sons.
In 1994, Sons underwent a corporate restructure. Consequently, Sons, by an oral contract, arranged for a different company, Builders, to carry out the building work for Lumbers.
Lumbers was not informed of the corporate restructure and in response to oral requests from Mr McAdam, continued to make payments to Sons. Construction was completed in May 1995.
In 1999, Builders commenced proceedings against both Lumbers and Sons claiming an outstanding payment for the building work on the following bases:
- that as a result of Builders' oral contract with Sons, Lumbers' contractual liability had been assigned from Sons to Builders
- that Lumbers was liable to Builders because it had been unjustly enriched
- that Sons was liable to Builders as a result of the oral contract.
Lumbers argued they had no knowledge of Builders' involvement, that they only ever dealt with Sons and had paid Sons for the building work.
For there to be unjust enrichment, the following criteria must be established:
- the principal (Lumbers) was enriched by some 'benefit'
- the benefit was accepted at the claimant's (Builders') expense
- it would be unjust in the circumstances to allow the principal to retain the benefit without payment.
The trial judge found no claim for unjust enrichment and no assignment of Lumbers' contract. The claim against Sons under the oral contract was stayed due to Builders' inability to provide security for costs.
Builders appealed to the Full Court of the Supreme Court of South Australia and was successful. The Full Court held there was a claim for unjust enrichment as Lumbers had accepted a benefit at Builders' expense which would be unconscionable to retain without payment. Lumbers appealed to the High Court.
The High Court unanimously allowed the appeal. The majority found that the Full Court's decision was inherently flawed by the 'top-down reasoning' employed in directing "principal attention to the relationship which it was held should be found to exist between Builders and Lumbers". It demonstrated that a proper account of the "rights and obligations that existed between Sons and Lumbers under their contract" showed that Lumbers did not accept any benefit at Builders' expense. Importantly, the Court noted that Lumbers never knew of Builders' involvement.
The majority noted that in considering a restitutionary claim it is essential "to ask whether and how that claim fits with any ... contract" because "difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract"1.
The majority emphasised that "conferral of [a] benefit or provision of [a] service does not ... establish an entitlement to recovery". It referred to Falcke v Scottish Imperial Insurance Company2 where Bowen LJ said "liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will".
Builders submitted that acceptance of the benefit could found a claim for work done or money paid and was supported by Pavey & Matthews Pty Ltd v Paul (Pavey)3. This submission was not accepted.
The majority stated that in Pavey, "the Court held that the right to recover on a quantum meruit does not depend on the existence of an implied contract but on a claim to restitution or unjust enrichment".
The majority clarified Pavey explaining that unjust enrichment is a unifying legal concept which is not sufficient alone to found a claim for damages, but which explains the distinct categories of recovery that the court will recognise. It also explained that unjust enrichment cannot be used to "redistribute risks for which provision has been made under an applicable contract".
Builders submitted that the identity of the party to whom Lumbers' requests for work were directed was of no consequence. The majority rejected this argument as it "sought to treat the contract made between Lumbers and Sons as irrelevant".
The majority noted that as Builders did work and made payments at the request of Sons, "Builders could look to Sons for payment", either under a contract, or if there was no contract between Builders and Sons, then by unjust enrichment.
The majority further noted that Lumbers was not unjustly enriched because Lumbers had paid Sons for the building work under the contract between them.
Builders' claim in restitution against Lumbers failed. The order of the Full Court was set aside and orders were made that the appeal to that Court be dismissed with costs.
The case illustrates that, as is already well established, courts will be reluctant to interfere with bargains struck by commercial entities. Therefore it is important that parties take great care when entering into contracts and ensure that all aspects of a contract or corporate restructure are properly documented.
Finally, it is worth noting the Chief Justice's remark that "the restitutionary principles....were designed to overcome what otherwise would have been deficiencies in the law, but in the present case they appear to have been called in aid principally to overcome deficiencies in evidence and unusual aspects of procedure". Therefore when undertaking litigation, parties must properly and purposefully choose their defendant and carefully present their evidence.
1 Pan Ocean Shipping Co Ltd v Creditcorp Ltd  1 All ER 470 at 475.
2 (1886) 34 Ch D 234 at 248.
3  HCA 5.
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