Where one party has carried out work for another, the party who performed the work has (broadly speaking) two options for seeking payment for that work. The choice depends on whether there is a concluded contract and, as always, the facts of the case. If there is a concluded contract, that’s great, bring a claim under that. However, if there is no contract, all is not lost. You may be able to bring a claim under the law of restitution.
The law of restitution
The law of restitution tries to redress any unjust enrichment which one party may have gained at the expense of another. The law works by reversing that unjust enrichment and giving the relevant benefit back to the claimant. Circumstances where this may arise could be where one party has performed services at the request of the other or where work has been done in anticipation of a contract but that contract does not, in fact, come into existence.
While unjust enrichment can occur in any area of commerce, construction and engineering companies may come across it in a situation where the parties have entered into a non-binding letter of intent, or where construction works or services have started in haste, with little regard to any contract.
Claiming for unjust enrichment
When can you bring a claim for unjust enrichment? First, you have to decide whether you have a contract. This is a huge topic in itself and the answer is heavily dependant on specific facts. I am not going to touch on that area here.
If you know you do not have a contract, how can you go about claiming restitution? Again, this area of law is heavily fact sensitive, but some general principles do apply. A person making a claim in restitution must establish three things:
- That the defendant has received some sort of benefit. That is, it has been “enriched”.
- That the enrichment was unjust.
- That the enrichment was at the expense of the claimant.
In Benourad v Compass Group Plc, Mr Justice Beatson dealt with the law of restitution and provided a useful analysis of the case law in this area. He also gave some detailed guidance on a number of propositions which are a helpful reminder of what will be considered in a claim for restitution:
- Nature of the benefit received. If there is an “incontrovertible benefit”, for example an immediate financial gain or a saving, then it is more likely that “enrichment” can be established.
- Were the services given freely? If the defendant accepted the services when offered to them and knew they were not intended to be given freely, the court is more likely to impose restitution.
- Unconscionable behaviour. A claim in restitution is more likely to be successful if there has been “unconscionable behaviour” on the part of the defendant in declining to make payment. This prevents the defendant from benefiting from his own unconscionable actions and reflects the already-established principle that, if the defendant himself caused the contract not to be concluded, then a claim in restitution is more likely to succeed.
- Assumption of risk. If the claimant has taken the risk that he would not be paid in the event that a contract was not concluded then it is unlikely that restitution would be imposed.
- Preliminary work. If the work carried out by the claimant was simply work preliminary to a contract, for example where the claimant carries out works or services that will put it in the position of being able to win or perform work on a future contract, then this will weigh against a restitutionary claim. This goes to the enrichment point – if your endeavours merely enable you to be in a position to carry out future works or services for the defendant, then there is no direct benefit to the defendant.
The judge warned that there are no clear general principles to govern the factual situations in which a claim in restitution would succeed. His warning serves as a reminder that this can be a difficult area of law. However, if (for good reasons or bad) you do not have a contract in place, restitution should not be forgotten as a potential route to recovery.
The judge’s analysis is certainly helpful guidance to those in the perilous position of making a claim in the absence of a contract.