Lumbers v W Cook Builders Pty Ltd ((in Liquidation))

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: Gleeson CJ.,Gummow,Hayne,Crennan,Kiefel JJ.
• Judgment Date: 18 June 2008
• Neutral Citation: 2008-0618 HCA A,[2008] HCA 27
• Docket Number: A39/2007
• Date: 18 June 2008

Matthew Lumbers and Anor

Appellants

and

W Cook Builders Pty Ltd (In Liquidation)

Respondent

[2008] HCA 27

Gleeson CJ Gummow, Hayne, Crennan and Kiefel JJ

A39/2007

HIGH COURT OF AUSTRALIA

Lumbers v W Cook Builders Pty Ltd (in liquidation)

Quantum meruit — Services performed and subcontractors paid — Entitlement to compensation — Appellants entered into oral agreement with building company for construction of domestic dwelling — Respondent performed some of the construction work — Appellants did not request respondent perform any services or pay any subcontractors — Whether claim for quantum meruit or money paid available.

Restitution — Unjust enrichment — Appellants accepted benefit of construction work performed by and at the expense of respondent — Claim that it would be unconscionable for appellants to retain benefit — Appellants made no direct request of respondent — Whether restitutionary claim available.

Contract — Domestic building contracts — ‘Cost plus’ oral agreement between building company and owners — Informal reorganisation within building company's corporate group — Benefit and burden of oral agreement informally assigned by building company to related company — No notice given to owners of reorganisation or assignment — Some subcontractors paid directly by owners — Acknowledgement by building company that owners had met all progress claims made and paid all monies due under the oral agreement — Whether related company can demand compensation from owners for difference between amounts paid by owners and amounts outlaid by related company together with margin for supervision and profit.

Words and phrases — ‘expense’, ‘free acceptance’, ‘incontrovertible benefit’, ‘unjust enrichment’, ‘windfall’.

Representation

D F Jackson QC with M R Burnett for the appellants (instructed by Lynch Meyer Lawyers)

G O'L Reynolds SC with R D Ross-Smith and B R Kremer for the respondent (instructed by Rick Schroeder)

ORDER

1. Appeal allowed with costs.

2. Set aside the orders of the Full Court of the Supreme Court of South Australia made on 1 March 2007 and, in their place, order that the appeal to that Court be dismissed with costs.

1 Gleeson CJ. In September or October 1993, W Cook & Sons Pty Ltd (‘Sons’) entered into an oral agreement with the appellants, Mr Matthew Lumbers and Mr Warwick Lumbers, to construct a house at North Haven, near Adelaide. Mr Matthew Lumbers owned the land and Mr Warwick Lumbers had an unregistered lease for life over the property. For present purposes, it is unnecessary to distinguish between Mr Matthew Lumbers and Mr Warwick Lumbers (‘the Lumbers’) as parties to the contract. The house was described by the primary judge as ‘quite distinctive’. It ultimately cost more than $1 million to build. It was completed in May 1995.

2 In circumstances that will be described below, most of the work required by the contract, which included the engagement of building subcontractors and supervision of their work, was performed, not by Sons, but by W Cook Builders Pty Ltd (in Liquidation) (‘Builders’). This change in the identity of the builder occurred without the knowledge or approval of the Lumbers. Builders and Sons were members of the same corporate group, but their shareholders and directors were not identical, and at some stage, for reasons that were not made clear in the evidence, their interests diverged. The proceedings giving rise to this appeal arose out of claims by Builders to be remunerated for its services. The claims included claims for reimbursement of amounts paid to various subcontractors, and a fee for supervision. The Lumbers made progress payments to Sons, as requested, at intervals over the period from April 1994 to May 1995. Without the knowledge of the Lumbers, Sons paid those amounts to Builders. Builders claimed that a balance (ultimately found to be $261,715) remained due and unpaid.

3 The making of the 1993 building contract by the Lumbers and Sons was asserted by Builders in its Statement of Claim, and was not denied. It was never suggested that there was a novation of the contract, or that the contract was terminated, either by the Lumbers or by Sons. The trial judge found that the payments made to Sons by the Lumbers did not cover the whole of the cost of the building work. The possibility that the Lumbers remain indebted to Sons is a matter upon which the Lumbers rely in resisting the claim made against them by Builders.

4 In November 1999, more than a year after Builders went into liquidation, Builders demanded payment from the Lumbers of a certain amount. Builders also claimed the same amount from Sons. This appeal concerns only the claim against the Lumbers. As will appear, the adjudication of the claim in the South Australian courts was constrained by the course of the proceedings, and by the absence of the evidence of at least one key potential witness.

5 Builders commenced an action in the District Court of South Australia, joining as defendants the Lumbers and Sons. It was alleged that the Lumbers, or alternatively Sons, were or was liable to Builders for ‘the contract price less the amount paid’. That was a reference to the 1993 contract. It was alleged by Builders that, in addition to the contract between the Lumbers and Sons, there were ‘arrangements’ between Sons and Builders, under which Builders would carry out the building work required by the Lumbers. It was not alleged that the Lumbers were parties to those ‘arrangements’. The Statement of Claim alleged oral ‘proposals’, made by Sons in early 1994, and said to have been accepted by Builders. The proposals are referred to in more detail below under the heading ‘Reorganisation’. The Statement of Claim alleged that the ‘proposal and acceptance constituted a contract between [Sons] and [Builders].’ It alleged that, under the contract, Builders became legally bound to Sons to take over responsibility for the construction work and, further, that Sons assigned to Builders the benefit of the 1993 building contract. As will appear, the primary judge accepted the first part of that allegation of the legal effect of what occurred, but not the second. The Statement of Claim went on to allege that the amount claimed was due by the Lumbers to Builders, or alternatively to Sons ‘to be held on trust for’ Builders. The claims against the Lumbers were based on contractual assignment or, alternatively, ‘restitution/unjust enrichment’.

6 Before the action was fixed for hearing, Builders was ordered to provide security for Sons' costs. Such security was not provided. The action against Sons was stayed, although it appears from an observation of the trial judge that it could still be revived. He said it was ‘in a static condition’. Hence, Sons was not an active party in the proceedings at trial or on appeal. The claim by Builders against Sons has never been litigated. Because of the stay order, something in the nature of an interpleader was not possible. Builders, at trial, pursued its action against the Lumbers separately from its claim against Sons. The trial judge described the effect of the stay order as follows:

‘The Orders were however conditioned so that Builders could not pursue any derivative claims … Builders could therefore no longer claim that, if Sons were the correct plaintiff, Builders was beneficially entitled to any sum owed by the Lumbers to Sons. Nor could it argue that Sons was entitled to recover the balance outstanding on Builders behalf in the event of “a legal black hole”.’

7 The claim against the Lumbers based on assignment was dismissed in the South Australian courts and is not now pursued. That leaves this Court to deal with the claim based on ‘restitution/unjust enrichment’ in the context just described; a claim that failed at first instance but succeeded on appeal in the Full Court of the Supreme Court of South Australia. Before turning to the relevant principles it is necessary to say more about the facts, and the history of the litigation.

The Cook group of companies

8 In 1993, Sons was the main operating company of the Cook family, which had established a significant reputation in the building industry since about 1910. The respondent, Builders, was another in the Cook group of companies. At the time of the reorganisation referred to below, Builders was a dormant company. Mr Jeffrey Cook managed the practical side of the business of Sons, and later Builders, but had little or no involvement in the administration of either company. Mr David McAdam was a long-time employee of the Cook group. Mr McAdam's mother was married to Mr Jeffrey Cook's father. Though Mr McAdam and Mr Cook had known each other for 50 years, it appears that their relationship was, or became, strained. Mr McAdam was secretary of Sons and, until March 1994, a director of Builders. He had been responsible for financial management and contract administration of all of the companies in the Cook group since 1963. A partnership operating under the name of Portrush Traders employed all employees of the companies in the group. The evidence does not reveal the identity of the partners. After Builders ceased to be dormant, Builders and Sons shared common staff and administration and operated a common bank account. Mr McAdam entered into the respective company journals the sums to be allocated to each company. At the relevant times, the shareholders in Builders were members of Mr Jeffrey Cook's immediate family. Mr Jeffrey Cook was a director. After the reorganisation Mr McAdam resigned as a director of Builders. He continued as a director of Sons, which was then under his control.

The building contract

9 Negotiations for the construction of the house were conducted between Mr Warwick Lumbers and Mr McAdam. Much of the confusion, and many of the deficiencies in the evidence, in this case...