Unjust Enrichment Principle Cannot Override Express Terms
Businesses and individuals contracting for the sale and purchase of commercial assets are reminded to ensure their contractual terms are clear and complete, following an unsuccessful claim for ‘unjust enrichment’. Unfortunately, the buyers never received some of the assets for which they had paid – but were not able to recover the relevant proportion.
What’s the background?
Two buyers entered into a share sale agreement for the purchase of shares. The purchase price as stated represented payment for the shares, as well as payment in advance for shares in other companies which were to be later transferred under an agreement not yet concluded.
In the event, the additional shares were never transferred to one of the buyers despite the full price of US$950 million being paid. That buyer brought proceedings to recover part of the purchase price attributed to the shares not yet transferred on the basis of ‘unjust enrichment’. The amount claimed was US$82.5 million.
Unjust enrichment arises when the recipient of money or assets has been unjustly enriched at the expense of the claimant who made the transfer. The successful claimant is entitled to restitution.
In this case, the Court of Appeal ruled that the buyer could not recover the element of the purchase price allocated to other assets that had not been transferred.
Although on the facts, the parties had intended to apply the purchase price in part to assets other than the shares in the company, the share sale agreement had not referenced those assets. This was deliberate, so this was not a case where rectification was a viable option.
The parties had stuck to their contractual obligations, the purchase price was paid and the shares as stated were transferred. There was no obligation on the seller to transfer the other assets and no such transfer ever took place.
This was the fundamental reason why the buyer’s unjust enrichment claim could not succeed. The judge stated: “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.”
Key takeaways
The ruling is a clear example of how the courts approach contractual terms that are clear and unambiguous, especially where the wording was deliberate. Even where there is an understanding about a separate transfer to follow, the contract will be interpreted in accordance with normal rules of contractual interpretation.
The decision is another example of where the court will not willingly undo a bad bargain if it is otherwise clear and set out in express terms.
Where a contract governs the sale of goods and other assets, the parties must ensure all assets to which the purchase price is intended to relate are clearly and fully stated. Where a later transfer is to occur, the original contract should govern the risk should such a transfer is not forthcoming, for instance, setting out any remedies that will be available to the purchaser.
In this case, had there been some ambiguity, there may have been a meritorious claim for unjust enrichment. But, in the words of Asplin LJ, “the buyers sought to use the principle of unjust enrichment to override rather than complement the express contractual obligations”. This failed to wash with the appeal judges.
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