Restitution and Contract

Andrew Skelton

• Publisher: Informa Law from Routledge
• Year: 2020
• Print ISBN: 9780952649939
• eBook ISBN: 9781000288971
• Topic: Law
• Subtopic: Financial Law
• Index: Law

A comprehensive review of the practical implications of the numerous recent cases on swaps and derivatives.

1

Introduction and Fundamental Concepts

A. INTRODUCTION

In recent years, the English law of restitution has undergone remarkable development. At the cutting edge of this process, few areas continue to deserve more attention than the relationship between restitution and the other legal categories which border it.¹ This study deals with one aspect of the relationship between the law of restitution and the law of contract. Where a contract is rendered ineffective because, for example, it is discharged for breach or by frustration, or it is void or unenforceable, the circumstances may give rise to one party having an action in unjust enrichment for restitution of money or non-money benefits (such as services and goods) conferred on the other party during performance of the contract. A question then arises as to the relevance, if any, that the terms of the ineffective contract, particularly those relating to price,² should have to the level of restitutionary recovery. This resolves itself into an issue as to whether the contract price should operate as a “cap” or “ceiling” on the restitutionary award.

The contract ceiling issue arises, principally, where the restitutionary plaintiff has made a bad bargain or finds himself in a contract which has become a bad bargain because of subsequent events, for example, an adverse movement in market prices. In these circumstances, the uninhibited restitutionary claim may present the plaintiff with the opportunity to escape from the bad bargain and effectively reverse the allocation of risk.³ For example, suppose that X enters into a contract with Y to build a house for £100,000. In fact, this is a bad bargain for X because the actual cost of doing the job is £150,000. When X is halfway through construction, Y repudiates the contract by failing to give X access to the site. The contract is discharged. In an action for damages, X’s loss calculated from an expectation base would be £50,000; the anticipated loss on the contract deducted from the contract price. However, on a quantum meruit (assum-ing for present purposes that Y has a claim in unjust enrichment), X may recover the reasonable value of the benefit he has conferred, say £75,000.

¹ See K Barker, “Unjust Enrichment: Containing the Beast” (1995) 15 OJLS 45, proposing a ground theory for the law of restitution which would explain large parts of the subject in corrective justice terms.

² For a discussion on the relevance of contract terms generally to restitutionary claims arising out of ineffective contracts, see Mason & Carter, para 1419.

³ See eg Bush v Canfield (1818) 2 Conn 485; Boomer v Muir (1933) 24 P 2d 570.

There appear to be two main versions of the contract ceiling argument. The first version invokes the ceiling to avoid “competition” between the measures of recovery available in two different causes of action: contract and unjust enrichment.⁴ The plaintiff is restricted to the sum he would have recovered in an action on the contract, ie he is restricted to his expectation loss. The basis for this restriction is that, as the measures reflect contradictory policies, ie one seeks to protect the plaintiff’s expectation interest and the other seeks to protect the principle against unjust enrichment, one policy must be made subservient to the other. This version applies to both claims for money and for non-money benefits.

Conversely, the second version applies only to claims for non-money benefits. It can be divided into two alternative sub-versions.⁵ The first subversion is that the measure of the plaintiff’s recovery ought to be such proportion of the contract price as the work done bears to the whole work embraced by the terms of the contract (ie the pro rata contract price). The basis for this sub-version is that it apportions the risks and benefits of contract performance between the parties according to the degree to which performance has unfolded. The second sub-version is that the restitutionary award ought to be measured by the market rate, but the plaintiff should never recover more than the total contract price, ie the total amount payable under the contract.⁶ The basis for this sub-version is that it protects the expectations of both parties to the contract. The expectations of the defendant are protected because the total contract price is said to be the extent of the exposure to which he consented. Further, the possibility of recovery up to the level of the total contract price is said to fully protect the expectations of the plaintiff.⁷

⁴ See P Birks, “Restitution after Ineffective Contracts: Issues for the 1990s” (1990) 2 JCL 227, 231–232; Birks, Free Acceptance, 135–136.

⁵ See Goff & Jones, 426-27 and infra ch 3.

⁶ The total amount payable under the contract would include, for example, sums payable under a variations clause in a construction contract. See infra ch 4.

⁷ Goff & Jones, 426–427; Beatson, 12–15.

B. SCOPE AND STRUCTURE

This study is confined to consideration of the contract ceiling issue in circumstances where a contract has been discharged for breach and either the innocent party or the defaulting party has a personal claim⁸ in unjust enrichment against the other party⁹ for money or non-money benefits. Incidental references only are made to the position in relation to other categories of ineffective contract. The position of the innocent party following discharge for breach is the principal focus because it is only in this situation that a direct “competition” arises between the contractual action for damages and the action in unjust enrichment. As discussed above, it is the desire to avoid this “competition” which gives rise to one of the two main versions of the contract ceiling argument. The intention is to establish the position in English law, but the discussion draws on other common law jurisdictions, particularly the USA.

This study sets out to establish that:

1. Where a contract is discharged for breach and it is established that the innocent party or the defaulting party has a claim in unjust enrichment for either money or non-money benefits conferred on the other party, the restitutionary award should not be restricted by either version of the contract ceiling argument.

2. However, because of the fundamental distinction between money and non-money benefits – that the latter may be subjectively devalued – claims for non-money benefits may be restricted by the contract price where, in the absence of i...

Table of contents

• Cover
• Title Page
• Copyright Page
• Foreword
• Preface
• Table of Contents
• Table of Cases
• Table of Statutes
• Table of Abbreviations
• Chapter 1. Introduction and Fundamental Concepts
• Chapter 2. Claims for Money
• Chapter 3 Claims for Non-Money Benefits I: The Position in the Case Law
• Chapter 4 Claims for Non-Money Benefits II: Analysis of the Position in the Case Law and Proposed Solution
• Chapter 5 The Position of the Defaulting Party
• Chapter 6 Summary
• Bibliography
• Index