Taylor Fordyce Articles

Unjust Enrichment - the Law can come to your rescue!

November 2012

In the genteel world of the 19th century and which seems to have all but disappeared from our modern sophisticated society, ( some would argue we are all the poorer for its’ absence), it was believed that the word of a “gentleman” or an oral agreement completed only by a hand shake was sufficient to create a valid and enforceable contract. Surely that can no longer be the case you may think.

In fact it can still be said that an oral agreement will often be the basis of an enforceable contract or be able to give rise to a remedy but not in every case. Some contracts are governed by statutory provisions and regulations and these include such matters as consumer credit agreements and employment contracts which must be in writing.  As far back as 1925 came the statutory requirements  of the Law of Property Act which provides that all transactions involving land or property must be evidenced in some form of written note of agreement otherwise it will be invalid and unenforceable. Parliament very sensibly recognised that fraudulent property transactions would not be avoided without something in writing and the word of a “gentlemen” was not enough.     

But what about a land owner who signs a contract to sell his land having been persuaded by a developer to part with it for a pittance upon a “hand shake” and oral promise of sharing in the increased development value and then finds he has no valid contract that is enforceable but the developer has reneged on the deal?  Until very recently the answer was “tough”; his claim failed because he cannot prove a valid contract for the sharing of the profit due to the lack of a written memorandum of the agreement.

But times have changed and the common law (unlike the statutory framework) brings some good news that has evolved from the decisions of the High Court and now reaffirmed in a House of Lords decision in the leading case of Yeomans Row Management v Cobbe [2008] UKHL 55. The established law now provides for a different result.  If it is possible to trace the lost profit or increased value into the hands of the recipient a restitutionary remedy is available ( in the Yeoman’s case it was in fact the developer who had lost out when the land owner had reneged on the deal refusing to sell to him when planning permission had been acquired). The case is legal authority for the Court to recognise  it has  the power to provide a remedy and to make a Restitution Award based upon the doctrine of Unjust Enrichment; ie: that it would be manifestly unjust to allow someone to retain a benefit in circumstances whereby it has been obtained unfairly at the expense of someone else.

Decisions of the House of Lords are binding upon the lower courts and this important development based upon the decision in Yeomans will have a much wider impact and is not just restricted to land transactions. Other instances of restitutionary claims have included claims to monies paid under a mistaken belief that it was due, in cases where goods had been supplied and used although there was no contract or written order for them and in claims for professional services provided.

By use of the doctrine of Unjust Enrichment an innocent claimant can overcome the rogue or aggressive business operator who seeks to take advantage of errors or lack of contractual process. It must be observed that Restitution is a personal remedy and is to be compared with other remedies that might be available for example the laws relating to equitable remedies which might be relevant to partnerships or where there may be Trusts created between the parties.

This law of Restitution will be of growing importance in many areas of modern day commercial transactions which are often carried out hurriedly and without the benefit of legal advice particularly in the electronic world we now all live in.