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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Costello & Anor v MacDonald & Ors [2011] EWCA Civ 930 (29 July 2011)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2011/930.html
Cite as: [2012] QB 244, [2011] 47 EG 106, [2012] 1 All ER (Comm) 357, 137 Con LR 55, [2011] BLR 544, [2011] 3 EGLR 87, [2011] CILL 3081, [2011] 3 WLR 1341, [2011] EWCA Civ 930

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Neutral Citation Number: [2011] EWCA Civ 930
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
29/07/2011

B e f o r e :

LORD JUSTICE PILL
LORD JUSTICE ETHERTON
and
LORD JUSTICE PATTEN

____________________

Between:
COSTELLO & ANOR
Appellants
- and -

MACDONALD & ORS
Respondents

____________________

(Transcript of the Handed Down Judgment of
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____________________

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

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Etherton :

  1. 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.
  2. 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:
  3. "The 1st and 2nd Defendants, having been unjustly enriched at the expense of the Claimants do stand jointly and severally liable with the 3rd Defendant to the Claimants in the sum of 89,716.81 such sum to be paid forthwith."
  4. 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.
  5. The issue

  6. 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.
  7. The facts

  8. For the purpose of this appeal, the relevant facts can be stated shortly.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. The Recorder's judgment on unjust enrichment

  17. 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:
  18. "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

  19. Notwithstanding the able submissions of Mr Philip Flower, the respondents' counsel, I would allow the appeal.
  20. 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.
  21. 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 Ramsden v Dyson (1866) LR 1HL 129, Willmott v Barber (1880) 15 CH D 96 and Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133. The opinion of the Judicial Committee of the Privy Council, delivered by Lord Scott, described the claim ([1] and heading to [20]) as one for unjust enrichment. They said ([20]) that the critical question was not whether Robinson had been enriched at the appellant's expense, but whether the circumstances in which that enrichment came about placed Robinson under an equitable obligation to compensate the appellant accordingly. The Privy Council quoted with approval the following passage in the judgment of Oliver J in Taylor Fashions at 151-152:
  22. "the more recent cases indicate, in my judgment, that the application of the Ramsden v Dyson principle whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial requires a much broader approach which is directed at ascertaining whether, in particular circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour."
  23. The Privy Council said, at [24]:
  24. "Oliver J's reference to "proprietary estoppel, estoppel by acquiescence, estoppel by encouragement" might appear to suggest that in every case the claim must be based on some species of misrepresentation made by the defendant. But Oliver J's key that unlocks the door to the equitable remedy is unconscionable behaviour and although it might be difficult to fashion the key without a representation by the defendant it would not, in principle, necessarily be impossible to do so. Enrichment of A brought about by improvements to A's property made by B otherwise than pursuant to some representation, express or implied, by acquiescence or by encouragement, for which A is responsible would not usually entitle B to an equitable remedy. But the reason would be that A's behaviour in refusing to pay for improvements that he had not asked for or encouraged could not, without more, be described as unconscionable."
  25. On the facts of that case (simplifying them for present purposes) the Privy Council dismissed the appeal because Robinson had done his best to draw his prior interest to the appellant's attention and could not be regarded as having made any representation that the appellant was entitled to develop the estate as a coffee plantation, and so Robinson's conduct could not be described as unconscionable.
  26. In the present case, the respondents' claim against Mr and Mrs Costello is not one based on proprietary estoppel. Mr Flower submitted, however, that it is consistent with the broad principle described by Oliver J in Taylor Fashions and approved in Blue Haven Enterprises to regard Mr and Mrs Costello's conduct as unconscionable for the following reasons. They engaged the respondents and, with their assistance, obtained bank finance on the basis that the development project would be for Mr and Mrs Costello's personal benefit. Mr and Mrs Costello wished to use Oakwood, their corporate creature established purely for tax and financial purposes, merely as a conduit to make the payments due to the respondents. There was no contract between Mr and Mrs Costello and Oakwood, and Oakwood never provided them with any services. Having had the personal benefit of the respondents' services, Mr and Mrs Costello now seek to shelter behind Oakwood's separate corporate identity to avoid payment. Those facts are sufficient, Mr Flower submitted, to show that their enrichment is unjust and that there is a restitutionary remedy for it.
  27. The submission gives rise to two points of legal principle. The first is whether, in terms of causation, Mr and Mrs Costello's enrichment can be said to have been at the expense of the respondents. In one sense, of course, it was. The respondents have provided the services which have benefited Mr and Mrs Costello, and for which they expected to be paid, but they have not been paid. On the other hand, those services were provided solely because of, and pursuant to a contract between the respondents and Oakwood. Mr and Mrs Costello have been enriched because Oakwood has allowed the benefit of the contract to be conferred on them. The benefit has, in that way, come directly from Oakwood and only indirectly from the respondents. The question is whether the respondents should be permitted to leapfrog Oakwood in order to claim against Mr and Mrs Costello.
  28. The second point of principle is whether a restitutionary claim should be allowed to undermine the contract between Oakwood and Mr and Mrs Costello, that is to say the way in which the parties chose to allocate the risks involved in the transaction. The parties arranged the transaction as one in which legally enforceable promises were made only between Oakwood and the respondents, even though the benefit of the contract was to be conferred on Mr and Mrs Costello. The obligation to pay for the respondents' services, and so the risk of non-payment, was contractually confined to Oakwood. If a claim was permitted directly against Mr and Mrs Costello, it would shatter that contractual containment. It would also alter the usual consequences of Oakwood's insolvency, which was one of the risks assumed by the respondents in contracting with Oakwood, since a direct claim against Mr and Mrs Costello would improve the respondents' position over Oakwood's other unsecured creditors.
  29. On the hearing of the appeal Mr Clifford Darton, the appellant's counsel, made only a passing reference to the indirect nature of the benefit conferred by the respondents on Mr and Mrs Costello. That issue was not addressed at all by Mr Flower. I do not propose, therefore, to examine further whether the appeal should be allowed simply on the basis that there can be no claim against Mr and Mrs Costello for unjust enrichment since that enrichment was only indirectly from the respondents.
  30. I am clear, on the other hand, that the unjust enrichment claim against Mr and Mrs Costello must fail because it would undermine the contractual arrangements between the parties, that is to say the contract between the respondents and Oakwood and the absence of any contract between the respondents and Mr and Mrs Costello. The general rule should be to uphold contractual arrangements by which parties have defined and allocated and, to that extent, restricted their mutual obligations, and, in so doing, have similarly allocated and circumscribed the consequences of non-performance. That general rule reflects a sound legal policy, which acknowledges the parties' autonomy to configure the legal relations between them and provides certainty, and so limits disputes and litigation. The following cases support its application to the present case.
  31. In Hampton v Glamorgan [1916] AC 13 the appellant was a subcontractor who carried out work for a school built for the respondent pursuant to a lump sum contract between the respondent and the main contractor. The main contactor having failed to pay and having become insolvent and unable to pay, the appellant sued the respondent for the unpaid balance of his fee. The House of Lords held that, as the main contractor had not acted as the respondent's agent, the appellant could not recover from the respondent.
  32. In Brown & Davis Ltd v Galbraith [1972] 1 WLR 997 the defendant's car was damaged in a collision. It was taken to the plaintiff's garage for repair. The defendant's insurers contracted with the defendant to pay for the repairs for a specified amount. The plaintiff carried out repair work, and the defendant collected the car. The defendant did not agree that the repairs were satisfactory, and so the insurers refused to pay. The insurers collapsed. The plaintiff sued the defendant for payment. The County Court Judge found in favour of the plaintiff on the ground of an implied contract that the defendant would pay, if the insurers did not. The Court of Appeal, allowing the defendant's appeal, held that, although there was an implied contract between the plaintiff and the defendant that the work would be done with reasonable skill and care and within a reasonable time, it did not include an obligation on the defendant to pay for the repairs if the insurers did not pay.
  33. In PanOcean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161 the appellant time-chartered a vessel from Trident Shipping Co Ltd ("Trident") on terms which provided for advance payments. As part of arrangements for credit facilities from the respondent, Trident assigned to the respondent receivables due under the charter. The charterparty provided for the repayment of money paid in advance and not earned and for the immediate repayment of overpaid hire. The appellant made an advance payment while the vessel was off-hire awaiting and then undergoing repairs. When the repairs were complete the vessel was unable to proceed because Trident failed to pay for the repairs. The appellant accepted Trident's conduct as a repudiation of the charterparty. Trident's financial position meant that it was not worth suing. The appellants claimed to recover from the respondent the advance payment on the ground that it was paid for a consideration that had wholly failed. It was held by the House of Lords, dismissing the appellant's appeal, that there was no obligation on the respondent to re-pay. Lord Goff made the following comments (at pp. 164,165 and 166) which are highly pertinent to Mr and Mrs Costello's appeal in the present case:
  34. "All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate. Of course, if the contract is proved never to have been binding, or if the contract ceases to bind, different considerations may arise, as in the case of frustration [B]efore the date of determination of the contract, Trident's obligation under clause 18 to repay the hire instalment in question had already accrued due; and accordingly that is the relevant obligation, as between Pan Ocean and Trident, for the purposes of the present case.
    It follows that, in the present circumstances and indeed in most other similar circumstances, there is no basis for the charterer recovering overpaid hire from the shipowner in restitution on the ground of total failure of consideration.
    [A]lthough the benefit of the contract debt had been assigned to Creditcorp, with the effect that payment to Creditcorp by Pan Ocean constituted a good discharge of the debt, nevertheless the burden of the contract remained upon Trident. Trident remained contractually bound to repay to Pan Ocean any overpaid hire, notwithstanding that such hire had been paid not to Trident but to Creditcorp as assignee. Mr. Hirst, for Pan Ocean, accepted in argument that this was so; but he nevertheless maintained that Pan Ocean had alternative courses of action open to it either to proceed against Trident in contract, or to proceed against Creditcorp in restitution. His argument proceeded on the basis that, in ordinary circumstances, a charterer has alternative remedies against the shipowner for the recovery of overpaid hire, either in contract or in restitution; and that here, since the hire had been paid to Creditcorp as assignee, Pan Ocean's remedy in restitution lay against Creditcorp in place of Trident. However, for the reasons I have already given, I am unable to accept this argument. This is because, in my opinion, Pan Ocean never had any remedy against Trident in restitution on the ground of failure of consideration in the present case, its only remedy against Trident lying under the contract.

    I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party (see, e.g., Goff and Jones on the Law of Restitution, 4th ed. (1993), pp. 55 et seq., and (for a particular example) Burrows on the Law of Restitution, (1993) pp. 271272). But, quite apart from the fact that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract."
  35. In Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] 4 LRC 683 the appellants ("the Lumbers") entered into a contract with Cook & Sons Ltd ("Sons"), a building company, for the construction of a house on land owned by the Lumbers. Shortly after building work began, Sons, without the knowledge or consent of Lumbers, handed over responsibility for the construction to the respondent ("Builders"), an associated company. After the house was completed Builders went into liquidation. Builders' liquidator claimed from the Lumbers sums said to be owing in respect of the cost of building the house. The High Court of Australia allowed the Lumbers' appeal from the Supreme Court of South Australia, which had held that Builders was entitled to damages on a quantum meruit for unjust enrichment. In the High Court the majority (Gummow, Hayne, Crennan and Kiefel JJ) said:
  36. "[79] The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a 'benefit' at the 'expense' of another which the recipient 'accepts' and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this court's decision in Steele v Tardiani (1946) 72 CLR 386, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 2 LRC 492 at 497, 'serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract'. In a similar vein, in comments upon Restatement of the Law: Restitution and Unjust Enrichment (3d), tentative Draft No 3 (22 March 2004), B29 (which deals with the topic of restitution in cases of 'Self-Interested Intervention'), the reporter says:
    'Even if restitution is the claimant's only recourse a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.'"
    "[124] When account is taken of the contractual relationship between the Lumbers and Sons several observations may be made.
    [125] First, the Lumbers accepted no benefit at the expense of Builders which it would unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If either the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been fully performed (because all that is owned by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against the Lumbers, parties with whom Builders has no contract.
    [126] Because Builders had no dealings with the Lumbers, Builders has no claim against the Lumbers for the price of any work and labour Builders performed or for any money that Builders may have paid in relation to the construction. Builders has no such claim because it can point to no request by the Lumbers directed to Builders that Builders do any work it did or pay any money it did. Reference to whether the Lumbers 'accepted' any work that Builders did or 'accepted' the benefit of any money it paid is irrelevant. It is irrelevant because it distracts attention from the legal relationships between the three parties: the Lumbers, Sons and Builders. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that."
  37. Mr Flower correctly submitted that all those cases differ from the present one on the facts. He emphasised that the respondents in the present case were not sub-contractors and there was nothing equivalent to a main contract, as in Hampton. In Brown & Davis the plaintiff's case was argued solely on the basis of an implied contract. In PanOcean the respondent was an assignee for value. In Lumbers the appellants had had no dealings with the respondent and were unaware that the respondent had taken over the building of the house from the company with which the appellants had contracted.
  38. Mr Flower further argued that the respondents, in contracting with Oakwood, had assumed the risk of Oakwood's insolvency, but they never agreed to assume the risk that Mr and Mrs Costello would fail to fund Oakwood.
  39. All those points are fairly made on behalf of the respondents. Nevertheless the policy considerations articulated by Lord Goff in PanOcean and by the majority of the High Court of Australia in Lumbers, as well as the outcome of all the cases cited above, clearly support the general policy of refusing restitutionary relief for unjust enrichment against a defendant who has benefited from the plaintiff's services rendered pursuant to a contract to which the defendant was not a party. For the reasons I have given, that is a sound legal policy.
  40. Further, as Mr Darton pointed out, the existence of two remedies, one in restitution and one in contract, is capable of producing anomalous results. Contractual damages are calculated by reference to the contract price and terms. Compensation for unjust enrichment as a result of the plaintiff's services is calculated by reference to the value of the services (generally at the date of their receipt), which may or may not be the same as the contractual rate. This raises the possibility of compensation in restitution at a higher rate than the contractual rate, so enabling a claimant to improve on a bad bargain, and with consequential implications for contribution by the defaulting contracting party.
  41. Furthermore, the actual facts of the present case justify the application of the general rule so as to restrict the respondents to their rights against Oakwood under the contract. In reaching his decision in March 2010 that the contract was with Oakwood and not Mr and Mrs Costello, the Recorder stated ([8] to [10]) that the respondents had worked for Oakwood before "and knew the position"; Mr Costello had always made it clear that Oakwood was to be used to develop the site and help with the tax situation; the respondents "must be deemed to have gone into the agreement with their eyes open"; the quote and the schedule of works which were the substance of the contract gave Oakwood's name and address; all the invoices were delivered with Oakwood's name and paid from Oakwood's bank account; e-mails were sent to Oakwood's address; and the structural drawings used by the respondents had Oakwood's name on them. It was perfectly clear, then, that the respondents were fully aware, and accepted, that Oakwood was their contracting counter-party, and that Mr and Mrs Costello were insisting on that arrangement because of tax reasons which would be put at risk if there were direct contractual relations between themselves and the respondents. There was a perfectly straightforward and standard way in which the respondents could have limited their exposure in the event of default, including insolvency, on the part of Oakwood, namely by taking guarantees from Mr and Mrs Costello. The respondents did not do so. I can see no basis, on those facts, for saying that in principle the law does or should provide a remedy directly against Mr and Mrs Costello because of Oakwood's breach of contract.
  42. For those reasons, I would allow Mr and Mrs Costello's appeal.
  43. The respondents' notice

  44. As I have said, the respondents applied at the hearing of the appeal for permission to cross-appeal the decisions of the Recorder that Oakwood did not enter into the contract as agent for Mr and Mrs Costello, and also that Mr and Mrs Costello are not liable in damages for procuring or inducing a breach of the contract by Oakwood. We indicated at the conclusion of the hearing that we refused permission. Our reasons can be stated very shortly.
  45. The Recorder decided on 16 March 2010, following the hearing of the preliminary issues in February 2010, that the respondents' contract was with Oakwood, and not Mr and Mrs Costello. That finding was necessarily a rejection of the respondents' agency argument, to which the Recorder expressly referred in his judgment on the preliminary issues. It is now far too late for the respondents to appeal that decision. Not only are the respondents long out of time for appealing the decision, but, critically, the trial of the action in July 2010 subsequently proceeded on the basis of the Recorder's earlier decision. That was the whole purpose of the preliminary issues.
  46. So far as concerns the respondents' case that Mr and Mrs Costello are liable for procuring or inducing Oakwood to breach the contract, the Judge rejected that claim on the ground that Mr and Mrs Costello, as directors of Oakwood, acted bona fide in a mistaken belief as to the effect of the contract, and they did not have the requisite intention to break the contract: see [52] of the 16 August 2010 judgment. Mr Flower submitted that the Judge was plainly wrong on the facts in reaching that conclusion as to Mr and Mrs Costello's good faith because they knew, at the time Oakwood failed to pay the whole of the September 2008 invoice and the November 2008 invoice, that the full contract price (even if it was in the lower amount for which they contended) had not yet been paid. It appears, however, as the Judge stated in [7] of his decision on the preliminary issues, that there were already disputes between the parties at September 2008 as to whether the contractual works had been fully and properly completed by the respondents. It is not suggested that Mr and Mrs Costello acted in bad faith in disputing those matters, and indeed the Judge made an award in favour of the appellants on their counterclaim. Accordingly, the cross-appeal against the Recorder's findings of fact as to Mr and Mrs Costello's good faith and the absence of any intention on their part to procure a breach of the contract has no prospect of success.
  47. Lord Justice Patten

  48. I agree.
  49. Lord Justice Pill

  50. I also agree.


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