Restitution, unjust enrichment and the written contract

In a recent case, the Court of Appeal has considered the law of unjust enrichment and its relationship with the written terms of a contract.

The case concerned transactions between companies controlled by three Ukrainian businessmen – Vitali Gaiduk, Sergiy Taruta and Oleg Mkrtchan – and their associates. By a share purchase agreement dated 18 December 2009, Avonwick Holdings Limited (controlled by Mr Gaiduk) agreed to sell its interest in the Industrial Union of Donbass (IUD), a large Ukrainian metals company, to Dargamo Holdings Limited (controlled by Mr Taruta) and Azitio Holdings Limited (controlled by Mr Mkrtchan). The SPA provided that Dargamo and Azitio would each purchase 50% of the shares in Castlerose Limited, which held one third of the share capital of IUD, for an aggregate purchase price of $950 million.

It was common ground between the parties that the purchase price was intended to include payment not only for the shares in Castlerose (valued at $750 million) but also for Mr Gaiduk’s interests in two other Ukrainian companies (referred to as NET and Agro Holding), together with certain other assets. Drafts of a side letter and memorandum of understanding concerning the transfer of these other interests were discussed by the parties, but not agreed or executed. In 2011 and 2012, Mr Mkrtchan and his associates received 50% of Mr Gaiduk’s interest in NET and Agro Holding (having paid additional ‘technical consideration’, as required by Ukrainian law to complete the transfer), but Mr Taruta and his associates did not.

The Taruta parties brought various claims against the Gaiduk parties, among them a claim for specific performance of the Gaiduk parties’ alleged obligation to transfer 50% of their interests in NET and Agro Holding to the Taruta parties or, in the alternative, a claim that the Gaiduk parties had been unjustly enriched by $82.5 million (being the portion of the $475 million paid by the Taruta parties said to be consideration for the obligation to transfer the NET and Agro Holding shares). The High Court dismissed both claims. The Taruta parties were given permission to appeal in relation to unjust enrichment.

Giving the leading judgment in the Court of Appeal, Carr LJ (with whom Asplin LJ and Sir Timothy Lloyd agreed) held that a claim of unjust enrichment arises where ‘a claimant has a right to restitution against a defendant who is unjustly enriched at the claimant’s expense’. In deciding such a claim, the court should consider whether the defendant has been enriched, whether that enrichment was at the claimant’s expense, whether the enrichment was unjust, and whether there are any defences.

Examples of factors that might found a claim for unjust enrichment include ‘mistake, duress, undue influence, failure of consideration, necessity and legal compulsion’. A claimant would have to plead one of these unjust factors: an unjust enrichment claim ‘is not based on a wide-ranging and open-ended assessment of fairness (or justice) in the round’.

In this case, the Taruta parties argued that the unjust factor was a failure of consideration, or ‘failure of basis’, as far as the interests in NET and Agro Holdings were concerned: since the price paid was partly attributable to those assets, the Gaiduk parties had been unjustly enriched to the extent that they had not transferred them.

While this argument might appear reasonable, the problem for the Taruta parties was that the SPA made no mention of NET or Agro Holdings. Referring to the Castlerose shares as ‘the Shares’, the relevant clause simply stated: ‘The consideration for the sale of the Shares shall be US$950,000,000 (the Consideration).’ Having found that this wording was (for whatever reason) deliberate, and not simply a mistake, Carr LJ held: ‘In such circumstances, there is no scope for the law of unjust enrichment to intervene by reference to a basis which is not only alternative and extraneous, but which also directly contradicts the express contractual terms.’ The High Court’s judgment in favour of the Gaiduk parties was therefore upheld.

This case explores the limits of the doctrine of unjust enrichment where explicit provision is made in a contract. It confirms that, in disputes about consideration, the courts will enforce express contractual terms over any informal understandings the parties may have.

Dargamo Holdings Ltd and anor v Avonwick Holdings Ltd and ors [2021] EWCA Civ 1149

For further information on the article above please contact Brendan Biggs.