Breach of contract – Restitution and non-party liability

Barry Riley

The Court of Appeal has confirmed that a non-party to a contact would not be liable to make restitution for unjust enrichment where one of the contract parties had failed to pay sums due to the other contract party.

The law of unjust enrichment addresses the unjust enrichment of a defendant. The remedy seeks to reverse the unjust enrichment by restoring the relevant benefit or enrichment to the claimant.

The particulars of the case turned on the fact that one company had instructed builders to do works but, for tax reasons, they wanted payments to be made through another company (of which they were the owners and directors). Subsequently, the second company didn’t pay the invoices of the builders, who issued proceedings for recovery of the sums in question. The High Court held that the contract was made between the second company and the builders, made orders for them to pay the invoices and against the first company for monetary restitution for unjust enrichment.

Generally the courts have historically refused restitutionary relief for unjust enrichment against the defendants that have benefited from claimants services rendered under contracts to which the defendant was not a party. In this recent case, the Court held that the general rule should be to uphold the contractual arrangements between the parties This reflects sound legal policy, acknowledging the parties freedom and autonomy to configure legal relations between them. It also provides certainty, so as to limit disputes and litigation.

This decision is another example of the courts unwillingness to circumvent a contract agreed between two parties, and to prevent parties from escaping their contractual obligations, including any risks they have taken, especially when such risks were taken with “eyes open”, irrespective of how meritorious the restitution claim appears on the facts.

Costello and another v MacDonald and others (2011)

Barry Riley
DDI – 0117 9453 042


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