No unjust enrichment claim for total failure of consideration where valid contract
23 September 2021
This case is about the principle of unjust enrichment where there is an alleged total failure of consideration. It was “set in the context of bitter litigation … surrounding the division of the shared business interests of three wealthy and powerful Ukrainian businessmen” acting through Dargamo, Avonwick and Azitio.
Dargamo claimed USD82.5 million paid to Avonwick as part of a total consideration of USD950 million under a share purchase agreement for the shares in Castlerose. This sum was said to have been included in the total consideration on the understanding that the parties would enter into contracts obliging Avonwick to transfer to Dargamo further assets. They were, however, never transferred.
Having examined the (relatively short) history of unjust enrichment, the Court of Appeal held that the following questions needed to be answered: (1) has the defendant been enriched; (2) was the enrichment at the claimant's expense; (3) was the enrichment unjust; and, (4) are there any defences?
The central question was whether the enrichment was unjust. This is not a general assessment of fairness but rather a question of whether a specific “unjust factor” has been made out, here: failure of consideration. This the court said would be where “a benefit has been conferred on a joint understanding that the recipient's right to retain it is conditional”.
The court found that Avonwick was solely obliged to transfer the shares in Castlerose for USD950 million and the continuing negotiations between the parties did not result in any agreement as to the transfer of additional assets. Rather, the parties had deliberately omitted these assets from the consideration in the share purchase agreement.
The court held that it would be “extreme” to say Dargamo was entitled to recover these monies. The fluid commercial negotiations ran directly contrary to an express agreement in circumstances where the facts did not afford any basis for a claim for rectification. It would be a very rare case where failure of consideration could be made out despite the existence and performance of a valid contract.
Judgment: Dargamo v Avonwick