Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] HCA 27 (18 June 2008)

In Lumbers v W Cook Builders a land owner (Lumbers) entered into an oral contract with a building company, W Cook & Sons Pty Ltd (Sons), to perform building works. In actual fact, and unbeknownst to Lumbers, those building works were carried out by another related building company, W Cook Builders Pty Ltd (Builders) after a Sons company restructure.

Sons were not an active party in the trial proceedings or on appeal as Builders could not provide security for Sons' costs. The court was required to determine whether Builders could succeed in a claim against Lumbers for restitution when Builders, after going into liquidation, claimed that it had been short paid by Lumbers for the work performed. This was despite the fact that Lumbers didn't have a contract with Builders or knowledge that Builders was conducting the works. The Court found that the relationship between Builders and Sons was a contractor-subcontractor relationship.

The High Court ultimately found that a claim in restitution could not succeed because it would "redistribute not only the risks but also the rights and obligations for which provision was made by the contract Lumbers made with Sons." It was a critical issue that Lumbers had not requested Builders to perform the Works but rather, those works were carried out pursuant to a contract between Sons and Builders to which Lumbers was not a party to nor had knowledge of its existence.

Legally, the decision demonstrates that the Courts are unlikely to provide equitable relief where there is a commercial arms length contractual chain that could be applied, especially where to do so would extend the scope of restitutionary claims beyond the bounds set by legislation (such as the Security of Payment legislation).

Practically, the case reminds us of the importance for parties to understand their contractual relationships, and particularly where a claim for payment may lie. This is especially important in circumstances where parties have complex corporate structures in place that may change over the course of a project.

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