Costello and Another v MacDonald and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Etherton,Lord Justice Patten,Lord Justice Pill |
| Judgment Date | 29 July 2011 |
| Neutral Citation | [2011] EWCA Civ 930 |
| Docket Number | Case No: B2/2010/2133 |
| Court | Court of Appeal (Civil Division) |
| Date | 29 July 2011 |
Lord Justice Pill
Lord Justice Etherton
and
Lord Justice Patten
Case No: B2/2010/2133
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOURNEMOUTH COUNTY COURT
RECORDER ABBOTT
8PH04384
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Clifford Darton and Portia O'Connor (instructed by Pegasus Legal) for the Appellant
Mr Phillip Flower (instructed by Harold G Walker) for the Respondent
Hearing dates: 20th July 2011
This is an appeal against an order of Mr Recorder Abbott in the Bournemouth County Court dated 16 August 2010. By that order the Recorder gave judgment for the respondents (the claimants in these proceedings) for building work carried out by them on land owned by the first and second appellants, Mr and Mrs Costello. The work was carried out pursuant to an oral contract ("the contract") made in July 2007 between the respondents and the third appellant, Oakwood Residential Limited ("Oakwood"), a company owned by Mr and Mrs Costello and of which they are the directors.
The order against Oakwood was on unpaid invoices submitted by the respondents pursuant to the contract and for additional work outside the terms of the contract. The order against Mr and Mrs Costello was a monetary restitutionary award for unjust enrichment. It said:
"The 1 st and 2 nd Defendants, having been unjustly enriched at the expense of the Claimants do stand jointly and severally liable with the 3 rd Defendant to the Claimants in the sum of £89,716.81 such sum to be paid forthwith."
At the hearing of the appeal the respondents applied for permission to cross-appeal (1) the decision of Recorder Abbott on 16 March 2010, following the trial of preliminary issues, that Oakwood did not enter into the contract as agent for Mr and Mrs Costello, and also (2) the decision of the Recorder in his judgment on 16 August 2010, following the trial of the action in July 2010, that Mr and Mrs Costello were not liable in damages for procuring or inducing a breach of the contract by Oakwood.
The issue
The issue of principle on the appeal is whether Mr and Mrs Costello can be held liable in restitution for unjust enrichment when the services of the respondents from which they have benefited were given pursuant to a contract between a third party, Oakwood, and the respondents.
The facts
For the purpose of this appeal, the relevant facts can be stated shortly.
Mr and Mrs Costello wished to develop land owned by them at 11 Kinston Park Road, Bournemouth ("the Site") by the construction of 8 houses. They entered into discussions with the respondents, who were builders, and who had carried out building work for them previously at another property in East Bournemouth. Mr and Mrs Costello informed the respondents that, for tax reasons, they would use Oakwood for the development and that payments would be made through that company. Oakwood had been used previously on the earlier development in East Bournemouth. Mr and Mrs Costello were the only shareholders and directors of Oakwood.
Mr and Mrs Costello made arrangements with their bank to provide finance to them personally for the development, which they would then channel through Oakwood to pay the respondents. The respondents assisted Mr and Mrs Costello in obtaining that finance by writing to the bank with details of the construction costs and the stage payments to be made. The Recorder found that the contract was in due course made between Oakwood and the respondents. The Site remained in the ownership of Mr and Mrs Costello. Oakwood had no significant assets of its own. It was a vehicle set up and utilised by Mr and Mrs Costello purely for tax and financial purposes and solely to act as a conduit for the making of payments.
Work was carried out by the respondents on the Site. Invoices presented by the respondents were paid in full by Oakwood until September 2008. Only part of the invoice submitted in that month was paid. There were disputes about whether the works had been completed and to the right standard. The respondents stopped work and left the Site. Nothing was paid on an invoice submitted in November 2008, leaving a total of £65,038 outstanding on the invoices.
These proceedings were initially commenced against Mr and Mrs Costello alone for the amount outstanding on the invoices on the basis of an alleged contract between Mr and Mrs Costello and the respondents for £739,920. The defence was that the correct defendant was Oakwood, the contract sum was £711,486, and the works were incomplete and had not been carried out to a proper standard and with proper materials. There was a counterclaim for damages for breach of contract. The respondents served an amended Claim Form, joining Oakwood as a defendant. There was an order for the trial of preliminary issues as to the identity of the contracting parties and the scope of the contract.
That trial of the preliminary issues took place over two days in February 2010. The respondents argued that the contract was between the respondents and Mr and Mrs Costello because Mr and Mrs Costello could not hide behind the corporate veil of Oakwood, or, alternatively, Oakwood contracted as agent for Mr and Mr Costello. In his judgment on the preliminary issues delivered on 16 March 2010 the Recorder held, contrary to those arguments, that the contract was between Oakwood and the respondents and not between the respondents and Mr and Mrs Costello. The Recorder also found that the agreed price of the contract works was £739,486. He made various other decisions in relation to the scope of the contract which are not relevant to this appeal. There was no appeal from that judgment.
Following the trial of the action in July 2010 the Recorder handed down his judgment on 16 August 2010, in which he found in favour of the respondents, and against Oakwood, on the amounts outstanding under various invoices and for additional building works carried out by the respondents. He awarded damages to Oakwood on the counterclaim, leaving a balance due in favour of the respondents from Oakwood under the contract. As I have said, the Recorder also made an award against Mr and Mrs Costello in restitution for unjust enrichment. They had not been legally represented at the trial. He held that they were liable, jointly and severally with Oakwood, in the amount of £89,716.81. That amount was for the value of the respondents' services calculated at the contract rate and after deduction of the damages under the counterclaim.
Although there has been no appeal by Oakwood from the Recorder's order against it, Oakwood has not paid the balance due to the respondents. Notwithstanding that non-payment, Mr and Mrs Costello appeal the order against them. They have retained the houses, let them, and are currently receiving the rents from them. They apparently justify Oakwood's refusal to pay the judgment debt to the respondents, despite there being no appeal against that part of the Recorder's order and the continuing receipt by them of the rents from houses on the Site, on the ground that (as they claim) the respondents have failed to co-operate in obtaining and handing over NHBC certificates. The consequence, they say, is that the houses cannot be sold as originally intended.
The Recorder's judgment on unjust enrichment
In his careful and conscientious judgment, the Recorder said there was no easy answer to the issue of unjust enrichment in the circumstances of the present case. He said that there was no direct authority on the point or on the factual situation here. Having referred to various academic texts and several cases, he concluded as follows:
"62. … the loss has been occasioned by Oakwood and so merely to say that this loss equates to the benefits to the Costellos is too simplistic. On the other hand the benefit definitely exists because the very purpose of the contract was not just to build the houses but to develop the site and the only reason for this was to create a valuable asset capable of growth. So why not say that the value of the building services supplied to the Defendants by virtue of the contract which is between the Third Defendant and the Claimants, has by definition benefited the First and the Second Defendants to the same extent.
63. Well doing the best I can and looking to the realities of the fact that all the benefits have done to the Costellos I find that they are jointly and severally liable to account to the Claimants in the sums claimed as this represents the extent of their benefit. I am able to do this by saying that the benefit is a different thing to the losses even though they amount in value to the same."
The appeal
Notwithstanding the able submissions of Mr Philip Flower, the respondents' counsel, I would allow the appeal.
There can be no doubt that Mr and Mrs Costello have benefited from, or in restitutionary terms, have been enriched by, the work carried out by the respondents on the Site. Mr Flower submitted with force that the circumstances show clearly that their enrichment has been achieved by their unconscionable conduct.
As regards unconscionable conduct, Mr Flower referred to Blue Haven Enterprises Limited v Tully and Robinson [2006] UKPC 17 in which the appellant claimed that the respondent Robinson should compensate it for improvements carried out to a coffee plantation at a time when the appellant thought it was the owner of the planation but, in fact, Robinson was the owner. The appellant in that case relied upon the principles (usually associated with proprietary estoppel) in...
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