Restitution: A remedy when a contract falls short?

12th December 2019

Lynsey Oakdene and Louise Norbury-Robinson, Directors in Walker Morris’ Commercial Dispute Resolution team, explain restitution – a remedy which can succeed when contractual arrangements fall short.

In the last edition of Disputes Matter, Gwendoline Davies explained the concept of quantum meruit, a principle of natural justice which, in the absence of any other (contractual, tortious or statutory) cause of action, may provide a claimant with a remedy based on what it deserves.  Quantum meruit is a facet of the equitable law of restitution (or ‘unjust enrichment’).  Two claims for restitution/unjust enrichment succeeded in the Court of Appeal and the High Court in late November 2019.

In times of economic uncertainty, heightened financial pressures on businesses can result in increased scope for disputes, and claims can be advanced in creative and wide-ranging ways.  Against this backdrop, Lynsey Oakdene and Louise Norbury-Robinson explain the law of restitution, and offer their practical advice.

What is restitution?

Restitution is a remedy which can operate alongside or distinct from contractual or tortious claims, and which can be available in a claim which arises either as a matter of law or in equity [1].  Restitution restores the claimant to the position it was in before the defendant had been unjustly enriched at its expense.

For a claim in restitution to succeed, the claimant must show that:

1. The defendant has been enriched.  This could be in terms of money, but can also be other benefits, whether direct or indirect, and includes saving from expense and discharging obligations;
2. The enrichment was at the claimant’s expense; and
3. The enrichment was unjust.  There may be one or more of a number of reasons why enrichment may be unjust, including (non-exhaustively) mistake, duress, undue influence, failure to provide consideration for a benefit, illegality, and so on.

A restitution claim advanced on the basis of unjust enrichment focuses on the benefit received by the defendant.

A restitution claim advanced on the basis of quantum meruit focuses on the benefit which the claimant deserves to receive.

Why are these cases of interest?

The cases of Barton v Gwyn-Jones [2] and Quinn Infrastructure Services v Sullivan & Ors [3] are of interest because:

• they are examples of circumstances in which restitution can assist a claimant where other causes of action do not exist or would fail;
• they reinforce the importance for commercial parties of a properly and comprehensively drafted written contract;
• they highlight the conceptual differences between unjust enrichment and quantum meruit claims; and
• they are potentially indicative of a growing trend towards claimants advancing and litigating commercial disputes in increasingly inventive ways.

The latter generally occurs less frequently in times of economic prosperity.  In uncertain times, therefore, it is prudent for potential commercial claimants and defendants alike to understand all available legal issues and options.

What practical advice arises?

Any restitution claim necessarily involves the court deciding what is just or fair.  In considering whether a party has been unjustly enriched or whether a party deserves an award, the court can take into account factual and commercial considerations such as:

• Whether the enrichment or service provided was of a kind that would normally be provided freely.
• The nature of the benefit received by the defendant.
• The nature of the risks incurred by the claimant.
• Whether the defendant has behaved unconscionably in declining to pay. (This latter consideration is likely to be a strong indicator in favour of making a restitutionary award.)

Whilst restitution can step-in where there is no other cause of action or where, say, a contract falls short, relying on such a claim is rarely the ideal solution for any party.  Case law has frequently confirmed that it is not the role of this area of law to create contracts for parties where they have failed to do so, and that there is no general right in English law to payment in the absence of a contract.  As such, when it comes to restitution claims, there can be no guarantee of success.

By far the better course is for parties to understand the basics of commercial contract formation and, in particular, to be alive to the risks associated with informality and inadvertent contract formation [4]. They should also ensure that their business arrangements are properly and comprehensively recorded in formal written contracts.

Sometimes the mere process of recording an arrangement writing – never mind instructing a specialist solicitor – immediately prompts the necessary questions: have we covered everything; what if this or that happens; who should pay for what and when; etc.  (It is easy to imagine, in Barton v Gwyn-Jones (see below), that had the parties tried at all to articulate their arrangement in writing, the question would immediately have arisen: what if we sell for some other amount?)

Proceeding to do business without a comprehensive written contract, and ultimately having to rely on a restitutionary remedy, can prove a false economy.  A written contract will ideally govern the parties’ dealings with each in such a way as to avoid disputes arising in the first place; and if/when disputes do arise, clearly drafted contracts can contribute hugely to their swift, amicable and efficient resolution.  However, it is of some comfort to know that where you do not have a contract, the law may still step in to assist you in some circumstances.

What happened in the particular cases?

In Barton v Gwyn-Jones the defendant had agreed to pay an introduction fee of £1.2 million if a property owned by it was sold for £6.5 million to a buyer introduced by the agent.  The arrangement between the defendant and the agent was an informal, oral agreement, rather than a formal written contract.  When the property sold to a buyer introduced by the agent for £6 million, the defendant refused to pay the (or any) introduction fee.  The Court of Appeal held that, whilst unjust enrichment claims should not be permitted to undermine the express allocation of risk and obligations set out in a contract [5], here the was no such express allocation – the contract was not comprehensive. It was simply silent on what would happen if a sale completed at below £6.5 million.  There was therefore nothing to preclude a restitution claim.

The agent had formulated its claim on the basis of unjust enrichment.  In fact, the Court of Appeal considered that the correct formulation was quantum meruit. (The claim’s focus was that the agent deserved to be paid a fee at a reasonable level, as the property had been sold to a party introduced by it, albeit at a price that had not been catered for in the informal oral agreement).  On the facts of this particular case that distinction didn’t matter because the restitutionary remedy would be the same calculated on either basis.  The Court of Appeal noted, however, that that would not necessarily be the case on different facts.

In Quinn, a number of different parties and contractual arrangements were in play.  Claims brought in contract and against the first, second and fourth defendants failed for various reasons, and it is the restitution claim against the third defendant that is of interest.  A contract arose between the claimant and the third defendant as a result of conduct (namely, the provision of services and invoices by one party, and payment by another).  There was no written contract to govern the arrangement between the parties.  When, as part of the overall arrangements, the third defendant took payment from the claimant for BT software hosting services and did not account to the claimant for savings made on those services when lesser sums were actually paid to BT, there was no contractual provision on which the claimant could rely.  The law of restitution stepped in, however, and a successful unjust enrichment claim saw the third defendant account to the claimant for hosting services savings in the sum of £76,000.

Further advice

For further advice or assistance in connection with your contractual arrangements, including whether you have any queries or concerns that a contract may not comprehensively or correctly represent your requirements; and whether or not any dispute is pending, please do not hesitate to contact Lynsey, Louise or any member of our specialist commercial dispute resolution team.

[1] At its broadest sense, equity in English law means ‘fairness’. The law of equity and equitable principles may, in some circumstances, be able to provide a fair solution where the common law or statute cannot
[2] [2019] EWCA Civ 1999
[3] [2019] EWHC 2863 (Comm)
[4] See our recent briefing for more detailed information and advice
[5] i.e. the Costello principle, Macdonald Dickens & Macklin v Costello [2011] EWCA Civ 930