Mr and Mrs Costello wanted to build eight houses on some land that they owned. The party that entered into the building contract with the builders, however, was Oakwood Residential Limited, a vehicle set up by the Costellos purely for tax and financial purposes and to act as a conduit for payments. It had no significant assets and the Costellos were the only shareholders and directors. Finance for the project was provided to the Costellos personally by their bank but payments to the builder were channelled through Oakwood. There were disputes about completion, quality and payment, the builders left site and sued the Costellos and, subsequently, Oakwood. The first instance judge found both Oakwood and the Costellos liable to pay a balance due to the builders. The Costellos, who let the houses and received the income, had no contract with the builders and were unrepresented at the trial but the judge found them liable on the basis of unjust enrichment.

The Court of Appeal said that, although the Costellos had benefited from the builders’ work, the unjust enrichment claim must fail because it would otherwise undermine the parties’ contractual arrangements, i.e. the builders’ contract with Oakwood and the lack of any contract between the builders and the Costellos. The general rule, which provides certainty, should be to uphold parties’ contractual arrangements as to their obligations and the consequences of non-performance. In addition, the builders had gone into the agreement “with their eyes open”; they could have obtained guarantees from the Costellos but did not.

Costello & Anor v MacDonald & Ors [2011] EWCA Civ 930