Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd
(1988) 165 CLR 107[1988] HCA 44
(Judgment by: Gaudron J)
Between: Trident General Insurance Co Ltd
And: McNiece Bros Pty Ltd
Judges:
Mason CJ
Wilson J
Brennan J
Deane J
Dawson J
Toohey J
Gaudron J
Subject References:
Insurance
Judgment date: 8 September 1988
Judgment by:
Gaudron J
Subject to one matter pertinent to my consideration of this appeal the facts are fully set out in the judgment of Mason C.J. and Wilson J.
The matter to which I would additionally advert is that by its statement of defence the appellant admitted that it had agreed for reward to indemnify Blue Circle Southern Cement Limited, its subsidiary, associated, and related companies, and all contractors, subcontractors and/or suppliers as alleged in the statement of claim filed by the plaintiff, the respondent in the present appeal. The "reward" so admitted was the payment of a premium calculated provisionally at $233,450.00 and expressed in the policy to be "payable 50% at inception and 50% 12 months thereafter." No issue has been raised to suggest that the premium was not paid in accordance with the terms of the policy.
2. It is necessary to refer to the question of payment of premium because although I agree generally with the reasons for judgment of Mason C.J. and Wilson J., I differ from their Honours in two significant respects. It is as well to state them at the outset. In my view a promisor who has accepted an agreed consideration for a promise to benefit a third party comes under an obligation to the third party to fulfil that promise and the third party acquires a right to bring an action to secure the benefit of that promise.
The right of the third party is not a right to sue on the contract: rather, it is a right independent of, but ordinarily corresponding in content and duration with, the obligation owed under the contract by the promisor to the promisee.
3. The doctrine of privity of contract and the related requirement that consideration should be provided by the person seeking to enforce a contractual obligation do not deny the binding nature of a contractual promise the performance of which will benefit a third party. Breach of the contractual obligation may sound in damages at the suit of the promisee.
However, it is not clear on existing authority whether the promisee is restricted to recovering damages for his loss only or whether damages can also be recovered by the promisee for the third party's loss: Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 119 CLR 460 , at pp 501-502; Olsson v. Dyson (1969) 120 CLR 365 , at p 392; Beswick v. Beswick [1968] AC 58 , at pp 73, 81, 88 and 102. If damages are an inadequate remedy, the promisee may obtain a decree of specific performance of the contract: Coulls, at pp.478, 499 and 502-503; Beswick, at pp.78, 82, 88-89 and 101-102; Olsson, at p.392. The third party, however, cannot institute an action for breach of contract or for specific performance unless he can bring himself within one of the recognized exceptions to or qualifications of the rules. Commonly the position of the third party is expressed in terms of inability to sue on the contract. See, for example, Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd. (1956) 95 CLR 43 , at p 67; Coulls, at pp 478 and 494.
4. Although the position of the third party is commonly expressed - and in my view accurately expressed - in terms of inability to sue on the contract, common understanding is that the consequence of the rules is that no obligation is owed by the promisor to the third party and no right is created in the third party to secure the benefit of the contract. For the sake of simplicity I leave out of account conduct by the promisor which may create some other recognizable obligation to the third party, or which may lead to an assumed state of affairs by reference to which their mutual rights and obligations will be determined.
5. The source of the obligation to perform a contractual promise is the contract itself, but there is no reason in logic or in law why the existence of a contract should preclude the existence of another obligation ordinarily corresponding in content and duration with the contractual obligation, but having its source in law rather than in the contract. Thus an obligation to pay a debt to which a contract has given rise is separate and independent from the contractual obligation, although corresponding in content with it.
An action to recover the debt is an action on the debt and not an action on the contract. In Young v. Queensland Trustees Ltd. (1956) 99 CLR 560 , the position was put as follows (at p 567):
"The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money ...".
See also Turner v. Bladin (1951) 82 CLR 463 , at p 474; Pavey & Matthews Pty. Ltd. v. Paul (1987) 162 CLR 221 , per Brennan J. at pp 233-234 and Dawson J. at pp 265-267.
6. So too, if consideration has been wholly executed under an unenforceable contract, the law imposes an obligation or imputes a promise to make compensation for the benefit accepted: Pavey & Matthews, at pp.227-228, 255-256 and 269. The obligation may be limited by the terms of the contract to correspond in content with the unenforceable contractual obligation, but it is an obligation which has its source in law and not in the contract.
7. In Pavey & Matthews it was stated by Deane J. (at p.256) (and accepted by Mason and Wilson JJ. (at p.227)) that the basis of the obligation imposed by law to pay compensation for a benefit accepted under an unenforceable contract was preferably to be seen as lying in restitution. Deane J. added (at pp.256-257):
"That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case".
8. The obligation to make restitution and the concept of unjust enrichment are not limited to situations in which the parties stand in a contractual relationship, or would so stand but for some matter rendering the contract invalid or bringing the relationship to an end. So much seems to have been accepted by Lord Wright M.R. (in Brook's Wharf and Bull Wharf, Ltd. v. Goodman Brothers (1937) 1 KB 534 ) who described the obligation to make restitution as "a debt or obligation constituted by the act of the law, apart from any consent or intention of the parties or any privity of contract" (at p.545).
The concept of unjust enrichment suggests actual enrichment, which might be thought not to occur until there is actual impoverishment. However, as Windeyer J. pointed out in Mason v. New South Wales (1959) 102 CLR 108 , at p 146, the concept of impoverishment as a correlative of enrichment, whilst it may be relevant to some fields of continental law, is foreign to our law.
Thus obligations having their source in notions of unjust enrichment may arise prior to, and indeed independent of, any actual impoverishment of the party to whom the obligation is owed and the concept of unjust enrichment is apt to include a consideration that there is a possibility of unjust enrichment occurring as a result of a benefit having been received under a contract - an idea which underlies the imposition of a constructive trust in cases of mutual wills. Thus in Birmingham v. Renfrew (1937) 57 CLR 666 , Dixon J. stated at p 690:
"The objection that the intended beneficiaries could not enforce a contract is met by the fact that a constructive trust arises from the contract and the fact that testamentary dispositions made upon the faith of it have taken effect. It is the constructive trust and not the contract that they are entitled to enforce."
9. Where the consideration is wholly executed in favour of a promisor under a contract made for the benefit of a third party a rule that the third party may not bring action to secure the benefit of the contract permits of the possibility that the promisor may be unjustly enriched to the extent that the promise is not fulfilled. Certainly that is so if the promisee is unable or unwilling to bring an action on the contract. It will also be the case if action by the promisee will result only in the award of nominal damages. True it is that the possibility of unjust enrichment does not exist in all cases, but, as Mason C.J. and Wilson J. demonstrate in their reasons for judgment, the right of action available to the promisee and the limited rights available to the third party by operation of trust or estoppel, fail to provide a universal guarantee that the contractual obligation will be fulfilled, or if not fulfilled, will attract legal consequences proportional to its non-fulfilment.
10. In my view it should now be recognized that a promisor who has accepted agreed consideration for a promise to benefit a third party is unjustly enriched at the expense of the third party to the extent that the promise is unfulfilled and the non-fulfilment does not attract proportional legal consequences. Although exceptions to and qualifications of the rules of privity and consideration and the doctrines of trust and estoppel operate in certain circumstances to preclude any unjust enrichment, the exceptions, qualifications and doctrines should not be seen as reasons to impede the development of legal principle which will obviate all possibility of unjust enrichment. Rather, their existence should be seen as demonstrating the necessity for the recognition of such an obligation.
11. The possibility of unjust enrichment is obviated by recognition that a promisor who has accepted agreed consideration for a promise to benefit a third party owes an obligation to the third party to fulfil that promise and that the third party has a corresponding right to bring action to secure the benefit of the promise. It may be that the perceived pre-eminence in the field of contract law of the writ of assumpsit , with its associated requirements of privity and consideration, has delayed the recognition of an enforceable obligation and corresponding right as between promisor and third party. Whether or not this be so, there is no legal principle to preclude the recognition of an obligation and corresponding right as between promisor and third party separate from the contractual obligation existing between promisor and promisee. Rather the fact that the law, as it is presently understood, permits of the possibility of unjust enrichment provides a compelling reason for the recognition of such an obligation of the same nature of the obligation imposed by law to compensate for a benefit received under an unenforceable contract.
12. To recognize an obligation on the part of a promisor who has accepted agreed consideration for a promise to benefit a third party, is not to abrogate the doctrine of privity of contract. It is merely to confine it to the only area in which it can properly operate, viz. the area of rights and obligations having their source in contract. The matter can be put another way. A right to enforce an obligation imposed by law by reason of the acceptance of agreed consideration for a promise to benefit a third party is no more a right to sue on the contract than an action to recover a debt on an executed consideration is an action upon a contract.
13. The circumstances which warrant the imposition of an obligation, viz. the acceptance of agreed consideration for a promise to benefit a third party, also necessarily require that the content and duration of that obligation should ordinarily correspond with the content and duration of the contractual obligation owed to the promisee. Thus should the obligation as between promisor and promisee be varied, modified or extinguished, then correspondingly the obligation of the promisor to the third party will be varied, modified or extinguished. It may be that in a particular case there will be some intervening circumstance which will create an obligation not to vary, modify or extinguish the promise or which will create an assumed state of affairs such that the mutual rights and obligations of the promisor and third party are to be ascertained by reference to that state of affairs rather than by reference to the contract between the promisor and promisee. But these considerations aside, the content and duration of the obligation by the promisor to the third party will correspond with the contractual obligation of the promisor to the promisee.
14. On the basis that the appellant received the agreed consideration specified in the policy of insurance - a matter that has not been disputed - it came under an obligation to the respondent to fulfil its promise to indemnify it as provided in the policy.
The respondent is entitled to maintain an action to enforce that obligation. Accordingly the appeal should be dismissed.