Dargamo v Avonwick

Although the law of unjust enrichment operates independently within the law of obligations,1 it shares a close relationship with the law of contract. For instance, the orthodox principle accepted amongst restitution scholars and practitioners is that a valid contract precludes a claim in unjust enrichment.2 There are two reasons for this. First, given that the transferee’s receipt of the benefit was premised on a legally valid ground, to allow a claim will contradict the original source of obligation underlying the initial transfer (ie, the contract itself).3 Second, to allow the claim would upset the parties’ agreed distribution of rights, obligations and risks.4 Commentators thus often view the law of restitution as “subservient” to contract.5

However, modern authorities have deviated from this by permitting exceptional claims in unjust enrichment notwithstanding the presence of a valid contract between the parties. Although courts should do justice in deserving situations, this development poses theoretical and practical difficulties. Theoretically, the principles underlying the law of unjust enrichment must not develop in a manner that undermines other well-established laws of obligations. Practically, it is important to ensure that courts do not inadvertently rewrite the parties’ contractual bargain, which would undermine commercial certainty.6

For these reasons, the English Court of Appeal’s decision in Dargamo Holdings Ltd v Avonwick Holdings Ltd 7 helpfully clarifies the boundaries for permitting an unjust enrichment claim where a valid contract exists. Additionally, this note will explore the court’s approach in ascertaining the basis of a transaction in the presence of a valid contract, as well as the controversial doctrine of apportionment. Before considering these issues, a summary of the facts is appropriate.