Nature abhors a vacuum…

By Legal Eagle

… whereas the present Australian High Court abhors restitution lawyers.

On that point, I’m going to do something I don’t normally do, and talk “shop”, which may be boring for all those not obsessed with unjust enrichment, but I have to get it off my chest. After all, I am a restitution lawyer of sorts, although a moderate one rather than a zealot.

Last year, as I have described in this post, the High Court put the boot into restitution law very thoroughly in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, rejecting the New South Wales Court of Appeal’s restitutionary analysis of knowing receipt of property in breach of fiduciary duty.

So I was a little nervous when I heard that the High Court had just handed down its decision in Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27. The good news is that the judgment is not nearly as bad as I thought it might be. Of course, the High Court rejects the restitutionary arguments of the respondent, but not with quite the same amount of contempt as Farah.

The facts of Lumbers are a little unusual, which may explain the result of the case.

In 1993, the Lumbers made an oral contract with a construction company called W Cook & Sons (“Sons”), which had an established reputation in the building industry. Sons was to build a large, unusual and expensive house on certain land in South Haven, South Australia for the Lumbers. W Cook Builders Pty Ltd (“Builders”) was a company in the same corporate group as Sons, but with a different director. Unlike Sons, it was not a licensed builder. At some point, without the knowledge or consent of the Lumbers, the companies underwent an unofficial corporate reorganisation, and Builders completed most of the construction of the Lumbers’ house. However, Lumbers only ever dealt with the director of Sons, and as far as they were aware, Sons were responsible for the building of the house. Payments for the work were made on request by the director of Sons on an ad hoc basis which did not actually reflect the value of the work done or the cost of the materials. The house was completed in May 1995.

In 1998, Builders went into liquidation, and in 1999, it made a demand of the Lumbers for a certain amount of money representing outstanding sums for work done but not paid for. Builders also made the same demand against Sons, but was unable to proceed against Sons because it could not provide security for costs. Unfortunately, as the trial judge noted, great difficulties arose from the “casual basis on which the parties have chosen to deal with each other”.

Builders made two claims: that the benefit of the 1993 contract between the Lumbers and Sons had been assigned to it, or alternatively, that it was entitled to a quantum meruit representing the value of the work done on the basis of principles of unjust enrichment. Obviously, there were difficulties with the claim against the Lumbers, because the Lumbers had never had any dealings with Builders, had not known about the arrangement between Builders and Sons or consented to it, and the demand for payment was made well after the Lumbers thought that the payments for the house had been fully settled to the satisfaction of Sons. And most importantly, there was no contractual relationship whatsoever between the Lumbers and Builders.

In the event, Builders’ claim failed on both bases before the High Court. Gleeson CJ delivered a separate judgment, and Gummow, Hayne, Crennan and Kiefel JJ delivered a joint judgment, but the essence of the judgments was the same.

The High Court (like the Full Court of South Australia) rejected the argument that there had been an assignment of the benefit of the contract to Builders from Sons. However, unlike the majority of the Full Court, the High Court also rejected the notion that the Lumbers had been “unjustly enriched” by receipt of work for which they had not given value. They held that the Full Court had been wrong to set aside the contractual relationship of the parties when considering principles of unjust enrichment. Both judgments cited the decision of Lord Goff in Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161, 166; [1994] 1 All ER 470, 475 in which his Lordship said:

I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party… But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that 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.

Of course, the joint judgment couldn’t resist making a few little digs at restitution law – the usual stuff about “top-down reasoning” and unjust enrichment creating incoherence in other areas of private law came out at paras [77] – [78]:

“The Lumbers are not shown to have received a “benefit” at Builders’ “expense” which they “accepted”, and which it would be unconscionable for them to retain without payment. No less importantly, proper analysis of the legal relationships revealed by the evidence will illustrate the dangers inherent in “top-down reasoning”.

The application of a framework for analysis expressed only at the level of abstraction adopted in this case, by reference to “benefit”, “expense” and “acceptance” coupled with considerations of unconscionability, creates a serious risk of producing a result that is discordant with accepted principle, thus creating a lack of coherence with other branches of the law.

Secondly, at para [85], the High Court expressly refuted the suggestion that Deane J had created an overarching principle of unjust enrichment in Australian law in Pavey & Matthews v Paul [1987] HCA 5; (1987) 162 CLR 221:

The second point to be noted is that unjust enrichment was identified as a legal concept unifying “a variety of distinct categories of case”. It was not identified as a principle which can be taken as a sufficient premise for direct application in particular cases. Rather, as Deane J emphasised in Pavey & Matthews, it is necessary to proceed by “the ordinary processes of legal reasoning” and by reference to existing categories of cases in which an obligation to pay compensation has been imposed. “To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate.” On the contrary, what the recognition of the unifying concept does is to assist “in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case” (emphasis added).

These points are consistent with the judgment of Gummow J in Roxborough v Rothmans of Pall Mall [2001] HCA 68; (2001) 208 CLR 516.

What now for the law of unjust enrichment in Australia? Does it have a future? Or has it been reduced to a vague and toothless “concept”? I sincerely hope the latter is not so. I continue to believe that unjust enrichment law has a valid and separate place in Australian law, and that it can provide answers where no other area of the law of obligations can do so.

I also think that it makes sense to add a little more order to the law. I don’t really understand the High Court’s aversion to “top-down reasoning” (where the Court considers areas of the law which are not strictly raised by the facts in an effort to organize or explain an area of law more clearly, often in light of theory or broader principle). Surely if you rule out top-down reasoning, strictly speaking you rule out the concept of obiter dictum entirely? Richard Posner, law and economics scholar and US judge, has argued that there is a role for both “top-down reasoning” and “bottom-up reasoning” by courts, and I think he is right. I certainly wouldn’t suggest that judges can totally reorganise 200 years of established law on a whim, but one can tidy it a little so that it is easier for practitioners and litigants to understand and apply!

Galileo proved that vacuums occur in nature, and so it is not actually true that nature abhors a vacuum.

In the end, I hope the abhorrence of restitution will go the same way, and the High Court will come to a sensible “middle ground” which accepts some operation of unjust enrichment law, without letting unjust enrichment take over the law of obligations altogether where it is not appropriate for it to do so.

8 Comments

  1. Posted June 19, 2008 at 9:44 pm | Permalink

    This is an area of the law I wish I knew more about – it pretty much stopped at quantum meruit for me – IIRC the relevant case there involved builders as well. It’s very much an Oxford thing – lots of people here are heavily into restitution/unjust enrighment (in fact, Brasenose is pretty much the ‘restitution college’ – I’m the odd party out, what with evidence and jurisprudence and all).

    At least one Oz BCL-er at Brasenose decided to give restitution a miss based on the HCA attitude towards it, though.

  2. pedro
    Posted June 22, 2008 at 5:12 am | Permalink

    When I was at school the lecturers thought restitution was the future of contract law. Thank god they were wrong. Working with contracts everyday means you find yourself scratching around looking for certainty. I expect that the HC has been sensible enough to recognise that. The problem with top down reasoning is that the common law makes bigger jumps.

  3. pedro
    Posted June 22, 2008 at 8:02 am | Permalink

    That should be “was at school”. Just read Farah, good decision I think. The commercial certainty argument is exactly right.

  4. Posted June 23, 2008 at 11:44 am | Permalink

    Personally, I cannot see how this case got as far as it did. On the facts presented, Lumbers were not even aware of Builders existence – nevermind that they had any involvement in the building of their house. nor that they had not paid full value on the build.
    Were the liquidators just trying to justify or increase their fees?

  5. Posted June 23, 2008 at 5:47 pm | Permalink

    The failure to provide security for costs leading to injustice (or just plain silliness, as here) is something that – I think – could be remedied through permitting contingency fees.

  6. Posted June 24, 2008 at 9:21 am | Permalink

    SL,
    I would agree. The nature of the contract between the client and lawyer should be no business of the court. Unless, of course, it amounts to unjust enrichment…

2 Trackbacks

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    […] Nature abhors a vacuum… The application of a framework for analysis expressed only at the level of abstraction adopted in this case, by reference to “benefit… […]

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    […] Eagle manages to make the principles of unjust enrichment accessible and almost […]

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