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SIMONE DEGELING*
Unjust enrichment law struggles to accommodate the position of a subcontractor who does work but is not paid, or at least not adequately paid, for the work which has been done. Such configurations bring into view three parties: the beneficiary of the work (usually the property owner), the contractor and the subcontractor. In Lumbers v Cook Builders Pty Ltd (in liq) (‘Lumbers’)[1] the High Court of Australia denied a claim brought by a subcontractor against a property owner, relying in part on the contractual allocation of risk to refuse a claim in unjust enrichment. As will be discussed below, it is submitted that Lumbers should be treated with care. The Court’s remarks about enrichment must be contextualised, taking into account the difficult evidentiary and procedural issues raised in the case. In addition, the case demonstrates the difficulty in dealing with three party cases and the risk of one party accumulating value.
Lumbers is a three party case which arises out of a building contract. Matthew (son) and Warwick (father) Lumbers (the ‘Lumbers’) contracted in 1993 with W Cook & Sons Pty Ltd (‘Sons’) for the construction of a house which was described as being ‘large, of unusual design and expensive’.[2] The house was built on land owned by Matthew Lumbers.[3] The contract was an oral agreement, the details being worked out by conversations between Warwick Lumbers and David McAdam, a senior executive with the Cook group of companies. Arrangements between the Lumbers and Sons were relatively informal. No contract price was agreed for the work, it being agreed between Sons and the Lumbers that Sons would be paid ‘costs plus’.[4] No written progress claims or invoices were issued. Instead, an oral demand would periodically be made by David McAdam, advising Warwick Lumbers that an amount was owing. This would cause a cheque to be drawn in favour of Sons.[5]
Work on the project was initially commenced by Sons (or, as emphasised by the joint judgment, individual contractors employed by Sons).[6] However, in April 1994 the Cook group was restructured and the joinery business of Sons was separated from the building business of W Cook Builders Pty Ltd (‘Builders’). After the changeover it was agreed between Builders and Sons that all building work for the Lumbers would be carried out by Builders, the change in entity responsible for the project being recorded only ‘in the books’.[7] There was no novation or termination of the building contract and, as is discussed below, no assignment either. Although the evidence indicated the Lumbers paid some contractors directly, after the changeover it was accepted that it was Builders who paid those contractors who were not paid directly by the Lumbers. Importantly, the Lumbers were not informed or consulted about the change. So far as the Lumbers were aware, the work for their house was being done by contractors supplied by Sons and it was still Sons to whom all cheques were drawn and sent.[8] By internal journal entry these amounts would then be credited to Builders. No direct payments were ever made by the Lumbers to Builders.
The arrangement between Sons and Builders, by which it was agreed the latter would be responsible for the work on the Lumbers’ house, was a purely verbal agreement. There was no writing and any alleged statutory assignment did not comply with the formalities.[9] The possibility of a purely equitable assignment had been rejected in the courts below on two grounds: first, the high degree of personal confidence placed by Mr Lumbers in the identity of the builder arguably meant that the contract was not capable of being assigned;[10] and more importantly, because the evidence did not show an intention on the part of Sons to assign the contract to Builders.[11] Having failed in the South Australian courts, Builders did not pursue a claim based on assignment in the High Court.[12]
Leaving to one side the issue of assignment, the question whether or not the agreement between Sons and Builders was enforceable was not adjudicated. On one view, there was a head contract between Sons and Lumbers and a subcontract between Sons and Builders. In the High Court, counsel for Builders attempted to argue that the arrangements between Sons and Builders were not sufficiently certain and were therefore unenforceable.[13] However, this argument was not permitted, it being held it was ‘too late’ to advance this point, and the judgment of Gummow, Hayne, Crennan and Kiefel JJ noted: ‘if the point had been taken at trial different evidence may well have been adduced’.[14] In addition, it was alleged that Builders was not licensed under the Builders Licensing Act 1986 (SA) or the Building Work Contractors Act 1995 (SA) the effect of which was to prevent Builders from recovering any fee for work done.[15]
Work on the Lumbers’ house was completed and the Lumbers had moved into their new home by December 1994, although there was some further construction until May 1995. Although there were some defects, the value of which were agreed between Sons and the Lumbers, the Lumbers were satisfied the building work was completed to an acceptable standard.
On 1 February 1999, Malcolm Cook, a director of Sons, wrote to Warwick Lumbers informing him of the reorganisation of the Cook group which had occurred some years before and confirming that ‘[w]e cannot comment on any claims made by the liquidator of [Builders], however we do advise you that there are no outstanding amounts owing either by yourself, or any other person or entity, to [Sons] in relation to the construction of the above residence’.[16] The legal effect of this letter was never decided. Builders went into liquidation on 22 June 1998. The liquidator of Builders then served the Lumbers with a notice of demand for payment of $274 791. This was made up of $181 904, which Builders argued was for reimbursement of amounts paid to various subcontractors and $92 887 on account of a 10 per cent ‘supervision fee’. The same amount was also claimed from Sons but, as described below, this was not in the end litigated.
Builders commenced proceedings against both Sons and the Lumbers. Before the matter came on for hearing, Builders was ordered to provide security for Sons’ costs. No security was provided and the action against Sons was stayed, never to be reactivated. The only claim ultimately pursued was Builders’ suit against the Lumbers in unjust enrichment. After success in the South Australian Court of Appeal, Builders lost against the Lumbers in the High Court of Australia. As a result, having paid the amounts demanded by Sons, the Lumbers were not required to pay any more for the construction of their home.
This article has three objectives. First, a brief discussion of contractual risk and the interrelationship between contract and unjust enrichment. Second, an examination of Lumbers, arguing that although the outcome in the case might be defensible, this was achieved with some cost to coherence in unjust enrichment law. Finally, to locate Lumbers with other three party cases. Three party cases often arise across categories such as contract, tort and unjust enrichment and are best understood in this environment of intersecting rights and obligations. Although the High Court did engage with the mesh of contractual obligations, and whether or not one of the parties may have received a windfall (although the court eschewed that term),[17] further analysis is possible. As will be seen, the difficulties in evidence and pleading in the case meant that not only the Lumbers, but potentially also Sons, accumulated or received a windfall. Arguably not all accumulations must be reversed. However, where as in Lumbers, a party obtains a benefit without paying full value, an inquiry into the alignments of benefits and burdens is warranted.[18] As will be shown below, in Lumbers, arguably both Sons and Lumbers accumulated value.
The existence of hierarchies of category is not novel. There must be a way of resolving competition between different legal paradigms purporting to solve the same problem. The presence of the contract between Lumbers and Sons — and arguably the arrangements between Builders and Sons — immediately brings into view the need to mediate between a contractual analysis and the unjust enrichment claim which was brought by Builders. As emphasised by the joint judgment, ‘Builders’ restitutionary claim, if allowed, would redistribute not only the risks but also the rights and obligations for which provision was made by the contract the Lumbers made with Sons’.[19] The accepted position is that an unjust enrichment claim will not be permitted if to do so would redistribute or alter a contractual allocation of risk.[20] The difficulty is in applying this rule in circumstances where it is not clear that any contractual risk will be upset. Arguably, the decision in Lumbers does very little to clarify the relationship between unjust enrichment and contract because crucial elements were not known, or least did not form part of the evidence available, for the High Court’s consideration. It is not disputed that there exists a hierarchy of categories between unjust enrichment and contract. Rather, it is suggested that the particular history of the matter, combined with the Court’s highly conservative approach, meant that it was very difficult to do justice in the case. Although the result reasserts the primacy of contract, it does so accepting the risk that both Lumbers and Sons will receive a windfall or accumulate value.
On its face, there is some tension between the decision in Lumbers and the High Court’s earlier decision in Roxborough v Rothmans of Pall Mall (‘Roxborough’).[21] Lumbers strongly emphasises the primacy of contract. However, in Roxborough, the High Court permitted restitution for unjust enrichment notwithstanding that a valid contract existed between the parties to the claim. A pricing structure which was agreed between tobacco wholesalers and retailers was driven by a licensing fee imposed by the New South Wales government. This fee was externally imposed and not arrived at by negotiation between the parties. After the retailer had paid the wholesaler the licensing fee, having been put in funds by payments from tobacco consumers, the whole licensing system was struck down as being unconstitutional.[22] The retailer was permitted to recover the amount of the licence from the wholesaler in unjust enrichment, the claim being that the basis for the payment had totally failed. As explained by the joint judgment, ‘[t]o permit recovery of the tax component would not result in confusion between rights of compensation and restitution, or between enforcing a contract and claiming a right by reason of events which have occurred in relation to a contract’.[23]
In determining whether or not an unjust enrichment claim is available, it is therefore essential to evaluate the effect of an unjust enrichment claim on contractual risk. In Roxborough, the licensing fee was not a matter about which the parties had negotiated. The common intention of the parties was that the burden of the tax would be borne by tobacco consumers and transferred through the contractual structure to the ultimate destination, the Commissioner for Taxation. The High Court therefore concluded that to allow a claim in unjust enrichment would not impact on this allocation of contractual risk.
In Lumbers, there was a contract between the Lumbers and Sons and the relevant contractual risk appears to be that the Lumbers should only pay for the work once, presumably by paying Sons. The status of the arrangements between Builders and Sons remained unresolved. As has been said, counsel for Builders unsuccessfully attempted to argue in the High Court that the arrangements between Builders and Sons were unenforceable but were not permitted to make this argument.[24] In addition, the suit against Sons was abandoned since Builders would not provide security for costs. Obviously, to the extent that Sons was contractually obligated to pay Builders, it would undermine this risk allocation if Builders were permitted to look instead to the Lumbers for payment. However, this did not arise for decision.
Of greater difficulty is the ambiguity as to whether or not the Lumbers remained contractually obligated to pay Sons. It was found by the trial judge that the payments made by the Lumbers to Sons did not cover the whole of the building work cost.[25] In addition, the letter written by Mr Malcolm Cook, a director of Sons, to Lumbers advising that ‘there are no outstanding amounts only either by yourself, or any other person or entity, to [Sons] in relation to the construction of the above residence’[26] was never tested in court. It was therefore wholly unclear whether or not the Lumbers were still liable to Sons for the additional $247 791 claimed by Builders. It was not possible for the High Court to evaluate whether or not contractual risk as to payment would be disturbed.[27] If the Lumbers’ obligation was completely discharged, then the proper defendant for Builders’ claim was Sons. Since it was not possible to determine whether or not the Lumbers were still liable to Sons, the Court accepted the risk that the Lumbers might obtain a benefit without having to pay the full price for it. These uncertainties in the facts, together with difficulties with pleadings in the case (which were not settled by counsel)[28] mean that we should treat Lumbers with care. It was not a good vehicle to examine the relationship between contract and unjust enrichment nor, as the following section will demonstrate, the elements of an unjust enrichment claim.
As has been said, the High Court excluded any unjust enrichment claim for Builders on the basis that to do so would undermine contractual risk. However, the analysis did pay some attention to unjust enrichment principles which potentially applied to Builders’ claim against the Lumbers. It will be argued below that the court adopted a highly restrictive interpretation of enrichment which, given difficulties of pleading in the case, should not be given wider currency. In addition, the discussion below examines the question of unjust factor which was not dealt with by the High Court. In particular, the facts of the case illustrate the potential operation of the policy against accumulation, the policy motivated unjust factor which arguably lies at the heart of three party configurations.
The alleged enrichment received by the Lumbers was a non monetary benefit: the construction of their home in accordance with their architectural plans. In the South Australian Court of Appeal, enrichment was established on the basis of incontrovertible enrichment and also free acceptance. The facts said to support these arguments were that the Lumbers had moved into their completed home, it had been built in accordance with their instructions (albeit given to Sons not Builders), and that the work had improved their land. Contrary to the South Australian Court, the High Court held that Builders did not even meet the threshold requirement of enrichment. In a case which was perceived to threaten the parties’ own allocation of risk, we should not be surprised that great pressure was placed on the conceptual armoury of unjust enrichment. In relation to enrichment this arguably produced distortions of principle which were not necessary.
The most important observation is the apparent rejection of incontrovertible enrichment as a method of overcoming subjective devaluation, at least in relation to services improving land. In discussing incontrovertible enrichment the High Court seems to have rejected any parity of reasoning which applies to claims for monetary and non monetary benefits. Incontrovertible benefit, which was persuasive in the Court of Appeal, did not rate a serious mention. Gleeson CJ mentioned the possibility only to dismiss it, stating ‘what was sought to be characterised as an ‘incontrovertible benefit’ was that which Sons had undertaken to provide for the Lumbers and for which the Lumbers had agreed to pay sons.’ [29]
His Honour suggests that the construction and subsequent occupation of a house on land would not be incontrovertibly enriching within the parameters of that principle.[30] This conclusion must be open to question given that construction of the house arguably constituted inevitable expenditure and improved the value of the land.[31] The house was constructed in conformity with architectural plans and drawings the existence of which might support the argument that the Lumbers held a firm intention to do the work. To the extent that the Lumbers were committed to building a house it might be regarded as factually inevitable expenditure, although weighing against this was the evidence that the identity of the builder was a matter of some importance to the Lumbers. Further, although the benefit was not realised, it was clearly realisable and improved the value of the land. There is of course a debate about whether improvements which are merely realisable rather than realised will count as enriching.[32] In thinking about the facts of Lumbers, although it was a family home rather than a commercial asset, this was not a case of a completely random benefit conferred where we might have concerns about the officiousness of the intervention.[33] Rather it was a solicited realisable improvement and arguably should have been held to be enriching on this basis.
In addition, Gleeson CJ seemed to reject a conclusion of incontrovertible enrichment because on this view if the Lumbers were enriched then there would be a multiplication of liability as each sub-subcontractor (i.e., a subcontractor engaged by Builders) who had done the work might have some entitlement against the Lumbers.[34] With respect this conflates analysis and places factors properly relevant to ‘at the expense of’ or ‘defences’ into enrichment. Leaving aside the obvious point that the sub-subcontractors may well have contractual claims against Builders, thus falling foul of the prohibition on re-writing contractual risk, it is not clear that the other elements of the liability equations would be met in such a case.
The more serious difficulty with the Court’s treatment of enrichment lies in its apparent rejection of the notion that money and non money benefits are subject to the same regime. Gummow J interjected during argument that ‘[i]ncontrovertible benefit is just a slogan’[35] and in the joint judgment there is a rejection of principles, such as ‘incontrovertible benefit’, stated ‘at a high level of abstraction’.[36] In Lumbers, the High Court adopted a highly restrictive interpretation of enrichment, in the context of a case plead as reasonable remuneration for work done. The traditional requirement for such a case was a requirement that the defendant make a request, whether express or implied.[37] Modern commentary[38] and some authority lends support to the proposition that enrichment could be established, even in the absence of request, if the services were incontrovertibly enriching[39] or were accepted (acceptance is dealt with below). Lumbers is a return to a narrow interpretation which rejects the logic that monetary and non monetary cases are to be treated equally. According to this erroneous view, incontrovertible enrichment as a test of enrichment is completely secure only in relation to money.[40] Lumbers emphasises that to qualify as incontrovertibly enriching, the services must be necessary to protect property.[41] As has been said, the fact that land may be improved and realisable for greater value by the work of the plaintiff is not referred to by the High Court. According to this regime, the only other way services are enriching is if they meet a request.
The Court also reverts to a narrow position in relation to acceptance as a test of enrichment. Principle and authority establish that acceptance without request
will suffice to establish enrichment. The key elements are that the plaintiff received a benefit in circumstances where a reasonable person would realise that the benefit was being provided non gratuitously and in circumstances where the defendant had an opportunity to reject the benefit.[42] A defendant who freely accepts a benefit indicates by their conduct that objectively speaking the benefit has been chosen, or as good as chosen, by the defendant. Requiring the defendant to return the benefit or its value will therefore not infringe the defendant’s freedom of choice. He cannot appeal to subjective devaluation. As explained by Professor Birks, ‘a recipient who [accepts] the benefit in question when he might have rejected it is in no position to resist, unless that choice was made on the assumption that it was offered gratis or at a price lower than the market price’.[43] After Lumbers, at least in relation to services, mere acceptance has been rejected. As stated in the joint judgment:
if Builders did whatever work it did and paid whatever money it paid at the Lumbers’ request, Builders’ claim for a reasonable price for the work and for the money it paid would fall neatly within long-established principles. It would matter not at all whether request was made expressly, or its making was to be implied from the actions of the parties in the circumstances of the case. Builders would have an action for work and labour done or money paid for and at the request of the Lumbers.[44]
Particularly difficult in this paragraph is the statement that an implied request would bring the case within the ambit of the request principle. A search for an implied request will always be an unstable and perhaps artificial exercise. Rather than basing the test for enrichment on a legal fiction, it is regrettable that the Court did not instead recognise that in such cases acceptance is sufficient.[45]
The discussion in the High Court never engages fully with the question of unjust factors because the claim failed at the enrichment hurdle. What is striking is that the case could have gone forward as a claim by Builders against the Lumbers in mistake. This possibility is briefly averred to by the justices in their joint judgment, but is not pursued given the evidence available on appeal, the history of the case in the courts below, and the High Court’s views about the relationship between the law of contract and the law of unjust enrichment.[46]
The dealings between Builders and Sons were a mess. The original statement of claim alleged Sons assigned to Builders the benefit of the building contract.[47] The claim based on assignment was dismissed in the lower courts and was not pursued again in the High Court of Australia.[48] The Lumbers stated that they had no knowledge that the work was being done by contractors hired by Builders.[49] It was assumed by the Lumbers throughout that Sons was responsible for the construction of their home. However, this was apparently not known by Builders who dealt throughout with Sons. There is certainly no suggestion that Builders was a risk taker, or intermeddler.
Builders arguably mistakenly believed that the contract had been assigned so that it mistakenly believed that it was the assignee of the benefit of the contract between Sons and Lumbers. Builders clearly viewed itself as obligated to perform the work under the head contract between Lumbers and Sons. This was after all why Builders had done the work. It is not difficult to see how this argument could be run to meet the requirements of causative mistake.[50] The argument is in part rehearsed by Professor Woodward[51] who explored the existence of a claim for restitution in circumstances where A (Builders) renders a benefit to B (Lumbers) with the intention of charging for it and B (Lumbers), reasonably believing he is dealing with C (Sons), accepts the work with the intention of paying for it. Woodward concludes that where, as on the facts of Lumbers,[52] C has failed to assign the benefit of the contract to A, B may be liable to make restitution to A.[53] There was no suggestion that Builders was officious or had taken the risk of non payment.[54] Rather, Builders did the work because it mistakenly believed that it was the assignee of the building contract and had become obligated to do so in return for the right to receive the income stream from Lumbers.[55]
As has been said, Lumbers may usefully be located with other three party cases which lie at the boundary or intersection of various categories including tort, unjust enrichment and contract. The discussion below examines Lumbers through the lens of subrogation, and then considers the risk of unjust enrichment by accumulation which arguably is present in the facts.
The above discussion explores a possible claim by Builders against Lumbers in unjust enrichment. If the assignment of the building contract had been effective, Builders would have been entitled to sue Lumbers in its own name in contract and would have been entitled to the fruits of that litigation. However, the assignment was ineffective, which raises the possibility that Builders might have been entitled to stand in the shoes of Sons via some type of subrogation and enforce Sons’ contractual rights to payment.[56]
Professor Mitchell has extensively researched and modelled subrogation and its associated doctrines of contribution and reimbursement.[57] As we know, taken literally subrogation means substitution.[58] It is in fact necessary to be exceptionally careful when using the label. Lord Hoffmann has reminded us that ‘the subject of subrogation is bedevilled by problems of terminology and classification which are calculated to cause confusion’.[59] Strictly speaking subrogation refers only to the right of one party to control litigation, and it is in this sense that Mitchell uses it. However, there is a broader meaning in which subrogation also encompasses a second right, the right to share in the fund.[60] Mitchell adopts the labels ‘simple’ and ‘reviving’ subrogation to describe the case where the rights to be subrogated continue (simple subrogation) or are extinguished (reviving subrogation). Mitchell’s simple subrogation model is of utility in shedding light on the configuration in Lumbers.[61]
Mitchell’s model describes the relationship between three parties: PL, RH and S. PL is primarily liable to one of the other parties in the picture. This primary liability may arise because PL has acted wrongfully, for example committed a tort or as in Lumbers, PL is contractually liable. The person who holds these rights against PL is the Right Holder, designated in the model as RH. The third party is the party who will seek to rely on principles of subrogation and is designated S.
PL owes RH an obligation. S pays or otherwise transfers value, for example by providing services, to RH in respect of this obligation. If PL’s obligations are not discharged and RH’s rights continue to subsist, there is a risk that RH will be unjustly enriched. Notwithstanding that S has intervened, the possibility arises that RH may pursue his rights against PL despite the fact that S has already transferred value to RH. If RH is paid by PL (or other performance rendered) the possibility arises that RH will in effect be paid twice, thus being enriched in respect of one transfer or value. By permitting subrogation, so that S stands in the shoes of RH in enforcing any rights against PL, any enrichment of RH is prevented/reversed. Mitchell explains that the secondary function of subrogation in this context is to ensure that PL’s obligations are enforced.[62] In some circumstances it is easy to imagine that RH, already having received value from S, will not be motivated to pursue PL. In result, PL might escape his obligations to perform. By allowing S to stand in the shoes of RH against PL both of these outcomes are avoided.
Applying this model to the facts of Lumbers we can see that Builders arguably was entitled to be subrogated to Sons’ rights against Lumbers. Although as a matter of fact Builders worked on the land owned by Lumbers, in effect this was a transfer of value to Sons. Builders placed Sons ‘in services’ to allow Sons to meet its building obligations to Lumbers. However, this transfer of value did not discharge the contractual debt owed by Lumbers to Sons. If the story had ended there, we might have argued that Builders (S) was entitled to stand in the shoes of Sons (RH) and demand payment from Lumbers (PL). In this way Lumbers (PL) would not have escaped payment and Sons would have been divested of any rights against Lumbers.
However, as we know, in consequence of the work being done, Sons periodically contacted Lumbers and Lumbers paid Sons. It is at this point that Sons’ spontaneous letter to Lumbers — confirming that ‘“there are no outstanding amounts owing either by yourself, or any other person or entity, to [Sons] in relation to the construction” of the above residence’[63] — becomes problematic. The effect of this letter was never tested in court. However, it is possible that by this acknowledgement Sons ensured that no rights against Lumbers remained unperformed. The possibility of subrogation, in the narrow sense of substitution to enforce rights, therefore cannot apply. Put simply, there are no rights left to be subrogated to. In addition, Builders’ failure to provide security for costs in the action against Sons meant that the latter claim was stayed.[64] However, the other ‘subrogation right’, the right to share in the fund, remains relevant.
In Lumbers, there was discussion about whether by denying the claim Lumbers would experience a windfall, in having the benefit of a house without paying for the full cost of construction.[65] However, as will be seen, the facts also entail the risk of a windfall or accumulation in the hands of Sons.
As has been said, independently of the right to control litigation, S (Builders) may also have the right to share in the fund or value held by RH (Sons). This discussion explores the possibility that, analogously to the insurer’s[66] or (in those jurisdictions where it exists), the carer’s[67] entitlement to share in the fund, and other non loss categories in which the intervener arguably has a similar right to share,[68] Sons must pay Builders to reverse the accumulation which would otherwise remain. Builders transferred value to Sons which allowed Sons to meet its contractual obligations to Lumbers. Depending on whether or not Sons was entitled to receive further payment from Lumbers, the configuration entails the risk that Sons accumulated in respect of the same debt.
As we know, there are two categories of unjust factor: those which respond to the plaintiff’s intention and those which give restitution for reasons of legal policy. The law arguably discloses a type of policy motivated unjust factor or family of unjust factors, labelled policies against accumulation, which may apply whenever the claimant (RH) receives a benefit or has the right to recover a debt or damage from another party (S) and receives or has the right to receive value in respect of the same debt or damage from a third party (PL). In this situation the law must decide whether RH is entitled to accumulate and if not, which transfer must be reversed.[69]
In evaluating the application of the policy against accumulation to Lumbers, everything turns on the one fact that we do not know: was Sons entitled to claim further from the Lumbers, or was the claim exhausted? The impact of Sons’ letter apparently confirming that the Lumbers’ debt was discharged was not considered by the High Court. To the extent that Sons had paid Builders and had no further claim against Lumbers, there is no risk of accumulation. Assuming that Sons had passed value back down the chain to Builders in respect of the latter’s contribution, Sons would not have accumulation by receiving from both Lumbers and Builders. However, to the extent that Lumbers remained indebted to Sons, the risk of accumulation arises since Sons (RH) has the potential to receive from both Builders (S) and Lumbers (PL) in respect of the same debt or obligation.
In order to determine whether or not Sons (RH) is entitled to accumulate, the point must be made that if the contractual arrangements between Builders and Sons, as well as Sons and Lumbers, had been secure no accumulation problem arises. Apart from the obvious point that the relationships would be governed by enforceable contracts, by agreeing a price or basis for its dealings with Sons, Builders would accept the risk that Sons might accumulate. On the facts of Lumbers however, it is not clear that Builders did accept this risk.[70] To the extent that the burden of Sons’ performance obligation was met by Builders, Sons is arguably not entitled to accumulate. Amounts received by Sons from Lumbers in respect of the contribution of Builders should be reflected in a transfer of value from Sons to Builders.
Of course, no direct claim against Sons was possible because of the failure by Builders to provide security for Sons’ costs. However, in another case this obstacle would not be present. The core configuration revealed in Lumbers shows that other unjust factors might have a role to play in any direct unjust enrichment claim by Builders against Sons, or at least between other parties standing in their position. Mistake or failure of basis would obviously be relevant. However, neither of these unjust factors responds to the interconnection between the position of the three parties. The policy against accumulation operates at a structural level and demonstrate why RH’s enrichment is unjust by reference to the intersecting relationships present in three party cases. In Lumbers this can be seen in the fact that Lumbers is obligated to pay to Sons in respect of services provided by Builders. Stated another way, Builders had put Sons ‘in services’ to meet the obligation to construct the Lumbers’ home. The position of Sons was ameliorated to the extent that it was Builders, not Sons, which bore the burden of construction.
Legal analysis in Lumbers was hindered by the fact that the claim against Sons could not proceed since Builders would not provide security for costs. In addition, the difficulties in pleading and the fact that crucial evidence was not able to be considered by the Court, specifically the letter from Malcolm Cook (a director of Sons) to Warwick Lumbers informing him that there were no outstanding amounts owing to Sons in relation to the construction of the property, meant that many of the crucial issues central to the problem in Lumbers were unable to be examined by the Court. The case is arguably therefore not a particularly helpful set of facts from which to draw many lessons for the relationship between unjust enrichment and contract or indeed the elements of an unjust enrichment claim. However, the case is of some utility as it once again highlights the difficulties of understanding three party cases and the need for an analysis which can accommodate the structural links between the parties.
[1] Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; (2008) 232 CLR 635 (‘Lumbers’); noted in James Edelman, ‘Unjust Enrichment and Contract: Lumbers v Cook’ [2008] Lloyd’s Maritime and Commerical Law Quarterly 444; Joshua Getzler, ‘Quantum Meruit, Estoppel, and the Primacy of Contract’ (2009) 125 Law Quarterly Review 196; Amy Goymour, ‘Too Many Cooks: Three Parties, Contracts and Unjust Enrichment’ (2008) 67 Cambridge Law Journal 469.
[2] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 657.
[3] Matthew Lumbers owned the land on which the house was built and had granted a lease of the property for life to his father Warwick Lumbers. The High Court stated ‘for the most part it will not be necessary to distinguish between the appellants’: ibid 657–8.
[4] Ibid.
[5] W Cook Builders Pty Ltd (in liq) v Mathew Lumbers [2007] SASC 20; (2007) 96 SASR 406, 410; ibid 670.
[6] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 668.
[7] The books in which this changeover is said to have occurred were not tendered in evidence and ‘[n]o evidence was led to show what happened, if anything, about employment contracts or bank accounts’: ibid 669. There was little transparency about the new corporate structure and its internal administration.
[8] W Cook Builders Pty Ltd (in liq) v Mathew Lumbers [2007] SASC 20; (2007) 96 SASR 406, 410.
[9] Law of Property Act 1936 (SA) s 15 requires writing, express notice to debtor.
[10] This was argument was not considered by the South Australian Court of Appeal, the absence of Sons’ intention to assign being sufficient to dispose of the issue: Lumbers [2008] HCA 27; (2008) 232 CLR 635, 650.
[11] Ibid 649–50.
[12] Ibid 642.
[13] Ibid 670–1.
[14] Ibid 671.
[15] The impact of the legislation was therefore more dramatic than mere unenforceability, as had been the case in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221. This legislation precluded Builders from recovering ‘any fee or other consideration in respect of the building work’ unless the failure to hold a licence was inadvertent. Since the High Court found against Builders it was not necessary for the court to consider the impact of the legislation: ibid 648. This article does not consider the effect of any illegality.
[16] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 647.
[17] Ibid 673.
[18] See Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269, in which the High Court of Australia recognised the importance of a principled allocation of benefits and burdens in three party situations, per Gummow, Hayne, Heydon, Kiefel and Bell JJ.
[19] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 664. In a similar vein, Gleeson CJ emphasised that ‘[i]n considering Builders’ restitutionary claim, the contractual relations between Lumbers and Sons, and between Sons and Builders, cannot be put to one side as an inconvenient distraction’: at 654.
[20] In reaffirming this proposition the High Court relied on its decision in Steele v Tardiani [1946] HCA 21; (1946) 72 CLR 386, §29 of the proposed Restatement and Lord Goff’s statement in Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161, 166 where he warns ‘serious 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’: at 663.
[21] [2001] HCA 68; (2001) 208 CLR 516 (‘Roxborough’).
[22] Ha v New South Wales [1997] HCA 34; (1997) 189 CLR 465.
[23] Roxborough [2001] HCA 68; (2001) 208 CLR 516, 528 (Gleeson CJ, Gaudron and Hayne JJ) (emphasis added).
[24] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 670–1 (Gummow, Hayne, Crennan and Kiefel JJ).
[25] Ibid 641.
[26] Ibid 647.
[27] When considering contractual risk, it is important to specify which risks are allocated by the contract and are thus likely to be disturbed. In Lumbers, it was the obligation to pay which was of concern. Professor Woodward makes the point that in protecting contractual allocation of risk we must separate a party’s interest in determining the identity of those with whom he will initially contract from the assignability of the contract. Unless the contract is by its nature not capable of assignment, this is not a risk which is allocated by the contract: Frederic Campbell Woodward, The Law of Quasi Contracts (Little, Brown and Company, 1913) 90–3.
[28] Lumbers [2008] HCA 27; (2008) 232 CLR 635. The difficulties in evidence and pleading were identified by Gummow, Hayne, Crennan and Kiefel JJ at 659, and by Gleeson CJ at 644–5, 647–8, 657.
[29] Ibid 656.
[30] Ibid 655–6.
[31] There is some mention of the fact that there were allowances in the claim for ‘defects’ in the work but there was argument that the work did not satisfactorily conform to the approved plans: ibid 648.
[32] See Gareth Jones (ed), Goff and Jones: The Law of Restitution (Sweet and Maxwell, 6th ed, 2002) 25, arguing that benefits which are merely realisable are incontrovertibly enriching; Peter Birks, Unjust Enrichment (Oxford University Press, 2nd ed, 2005) 62 seemed to concede that it would in some circumstances be acceptable to count as enriching benefits which had not yet been realised; Andrew Burrows, The Law of Restitution (Butterworths, 2nd ed, 2002) 19 who suggests that enrichment is a function of whether the court holds it is ‘reasonably certain’ that the enrichment will be realised.
[33] James Edelman and Elise Bant, Unjust Enrichment in Australia (Oxford University Press, 2006) 110. The authors argue that we should ‘take into account the nature of the benfit conferred, the difficulty involved in realising the benefit in money and the identity and individual circumstances of the defendant’.
[34] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 656–7 (Gleeson CJ).
[35] Ibid 638. See also the remark by Gummow, Hayne, Crennan and Kiefel JJ: ‘The word “incontrovertible” has been used in this context to direct attention to whether what has been done results in an accretion to the defendant’s wealth. As Beatson pointed out, “‘[i]n the case of rendering services as opposed to the payment of money, ‘the identity and value of the resulting benefit to the recipient may be debatable’”’: at 661, n 71 (citations omitted) (Gummow, Hayne, Crennan and Kiefel JJ).
[36] Ibid 661–2 (Gummow, Hayne, Crennan and Kiefel JJ).
[37] See Jones (ed), above n 32, 4.
[38] Peter Watts argues for a division between property and services in Peter Watts, ‘Restitution — A Property Principle and a Services Principle’ (1995) 3 Restitution Law Review 49.
[39] Monks v Poynice Pty Ltd (1987) 8 NSWLR 662 following Craven–Ellis v Cannons Ltd [1936] 2 KB 403; Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26; Angelopoulos v Sabatino [1995] SASC 5230; (1995) 65 SASR 1; Rowe v Vale of White Horse District Council [2003] 1 Lloyd’s Rep 418.
[40] BP Exploration Co (Libya) Ltd v Hunt [No 2] [1982] 1 All ER 925; Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371, 375 (Gibbs CJ); Schmierer v Taouk [2004] NSWSC 345 (7 May 2004).
[41] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 652, 655 (Gleeson CJ).
[42] ABB Power Generation Ltd v Chapple [2001] WASCA 412; (2001) 25 WAR 158, 167 (Templeman J); Andrew Shelton & Co Pty Ltd v Alpha Healthcare Ltd [2002] VSC 248; (2002) 5 VR 577, 600–5 [98]–[117] (Warren J); Angelopoulos v Sabatino [1995] SASC 5230; (1995) 65 SASR 1, 12–13 (Doyle CJ); Brenner v First Artists’ Management Pty Ltd [1993] VicRp 71; [1993] 2 VR 221, 259 (Byrne J); Damberg v Damberg [2001] NSWCA 87; (2001) 52 NSWLR 492, 528–30 ( JA, Spigelman CJ and Sheller JA agreeing); Oliver v Lakeside Property Trust Pty Ltd [2005] NSWSC 1040 (18 October 2005) [80] (Barrett J); Rowe v Vale of White Horse District Council [2003] 1 Lloyd’s Rep 418, 421 [12] (Lightman J).
[43] Birks, above n 32, 56. Earlier statements of Professor Birks’ views are located in Peter Birks, An Introduction to the Law of Restitution (Oxford University Press, revised ed, 1989) ch V, as further explained in Peter Birks, ‘In Defence of Free Acceptance’ in Andrew Burrows (ed), Essays on the Law of Restitution (Oxford University Press, 1991) 105.
[44] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 666 (citations omitted).
[45] Of course, it would then be necessary to be clear about what would constitute acceptance and much work has been done on this question. See the literature on ‘free acceptance’ which includes: Birks, Unjust Enrichment, above n 32, 54–5; Birks, ‘In Defence of Free Acceptance’, above n 43, 105, 128–9; Burrows, The Law of Restitution, above n 32, 20–3. It would be difficult to justify purely passive receipt qualifying as acceptance, but in any case the Lumbers had an opportunity to reject, or at least not pay for, the building work. The building had a number of defects for which allowances were made in calculating the value of the claim: ibid 648. Free acceptance reasoning has, of course, not been universally accepted. See, eg, Jack Beatson, ‘Benefit, Reliance and the Structure of Unjust Enrichment’ in The Use and Abuse of Unjust Enrichment (Oxford University Press, 1991) 21, 39–44 (arguing that so called pure services are not enrichments); Andrew Burrows, ‘Free Acceptance and the Law of Restitution’ (1988) Law Quarterly Review 576 (suggesting the ‘bargained for benefit’ test); Michael Garner, ‘The Role of Subjective Benefit in the Law of Unjust Enrichment’ (1990) 10 Oxford Journal of Legal Studies 42.
[46] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 667.
[47] Ibid 642.
[48] As explained above, the Supreme Court of South Australia held that the statutory formalities were not met and an equitable assignment had been ruled out given that Sons had no intention to assign. The argument that the contract was of a type not capable of assignment was not considered by the Court of Appeal.
[49] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 659.
[50] David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353.
[51] Woodward, above n 27, 90–3.
[52] [2008] HCA 27; (2008) 232 CLR 635.
[53] Ibid 92.
[54] Peter Watts, ‘Does a Subcontractor Have Restitutionary Rights against the Employer?’ [1995] Lloyd’s Maritime and Commercial Law Quarterly 398. Professor Watts argues that there should typically be no recovery by a subcontractor because such a party suffers no injustice. Pursuant to his ‘volunteer analysis’ the subcontractor is a risk taker who should not be permitted to recover. Unlike the homeowner, the subcontractor has full knowledge of the circumstances. If mistaken, Builders would clearly have fallen outside Watts’ analysis.
[55] It must be acknowledged that Lumbers may have had a defence to the claim. In particular they may have given good consideration for the transfer of value from Builders.
[56] The subrogation solution is very briefly alluded to in Doug Rendleman, ‘Quantum Meruit for the Subcontractor: Has Restitution Jumped off Dawson’s Dock?’ (2001) 79 Texas Law Review 2055, 2080.
[57] Charles Mitchell, The Law of Subrogation (Clarendon Press Oxford, 1994); Charles Mitchell, The Law of Contribution and Reimbursement (Oxford University Press, 2003); Charles Mitchell and Stephen Watterson, Subrogation Law and Practice (Oxford University Press, 2007).
[58] Mitchell, The Law of Subrogation, above n 56, 3, citing R W Burchfield, The Compact Edition of the Oxford English Dictionary (Oxford University Press, first published 1971, 1987) vol III, 3126.
[59] Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221, 231.
[60] Lord Napier and Ettrick v Hunter [1993] AC 713, 732, 738 (Lord Templeman).
[61] [2008] HCA 27; (2008) 232 CLR 635.
[62] Mitchell, The Law of Subrogation, above n 56, 10.
[63] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 647.
[64] Ibid 642 [6]. The trial judge described the effect of this stay order as follows: ‘Builders could not pursue any derivative claims ... Builders could therefore no longer claim that, if Sons were the correct plaintiff, Builders was beneficially entitled to any sum owed by the Lumbers to Sons. Nor could it argue that Sons was entitled to recover the balance outstanding on Builders behalf in the event of a “legal black hole”’: at 642 [6].
[65] Ibid 672–3.
[66] Lord Napier and Ettrick v Hunter [1993] AC 713.
[67] Hunt v Severs [1994] UKHL 4; [1994] 2 AC 350; Thornton v Board of School Trustees of School District No 57 (Prince George) (1976) 73 DLR (3d) 35 (British Columbia Court of Appeal); Thornton v Board of School Trustees of School District No 57 (Prince George) [1978] 2 SCR 267.
[68] Simone Degeling, ‘The Defence of Passing on and Policies Against Accumulation: Consumers and Unjust Enrichment’ [2004] Restitution Law Review 25.
[69] Simone Degeling, ‘A New Reason for Restitution: The Policy Against Accumulation’ (2002) 22 Oxford Journal of Legal Studies 435; Simone Degeling, Restitutionary Rights to Share in Damages (Cambridge University Press, 2003) ch 8; ibid. See also Mitchell, The Law of Contribution and Reimbursement, above n 56, ch 7, where Mitchell identifies circumstances in which a creditor may not accumulate recoveries.
[70] Lumbers [2008] HCA 27; (2008) 232 CLR 635, 670–1.
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