This dispute, of a kind all too common in custom-home construction, is of interest because it highlights the principles concerning unjust enrichment.

Subcontractor sues owner when contractor fails to pay

Subcontractor contracted to provide flooring material • Owner paid contractor $638,600 • Contractor fails to pay some subcontractors • Contractor files for bankruptcy • Adjudicator concluded that contract did not exist between subcontractor and owner therefore no unjust enrichment • Court overturns Adjudicator’s decision

Wacky’s Carpet & Floor Centre v. Joseph

This dispute, of a kind all too common in custom-home construction, is of interest because it highlights the principles concerning unjust enrichment.

Paul Jollymore and his company, Maritime Project Management Inc., were engaged by Dr. Paul Joseph to construct Joseph’s home in Nova Scotia. Jollymore contracted for a certain amount of flooring material from Wacky’s Carpet & Floor Centre for use in the Joseph’s home.

Some of this flooring material had been selected by Joseph and his wife when they visited the Wacky’s store with Jollymore. There was, however, no direct contact between Wacky’s and Joseph or his wife, and the purchasing of all material was left up to Jollymore who dealt with Wacky’s flooring manager. The goods were invoiced to Maritime and delivered and installed in the home.

Cheques to pay for the construction process and the services of subcontractors were provided by Joseph primarily to Jollymore. Other cheques and cash were paid out directly to various parties. Under Jollymore’s direction, Joseph paid out a total of approximately $638,600.

However, during the construction process, it became apparent that some of the subcontractors were not paid by Jollymore or Maritime, and Joseph did not receive a satisfactory explanation from Jollymore as to where the money went.

Wacky’s was owed $18,600 for flooring materials. Jollymore and Maritime declared bankruptcy, and failed to complete their obligations under the oral contract with the Josephs. However, the flooring remained in the Joseph’s home, yet Wacky’s remained unpaid.

Wacky’s commenced proceedings against Maritime, Jollymore and Joseph resulting in a trial on January 17, 2006 in the Small Claims Court. The Adjudicator dealt with two issues:

(1) did Wacky’s have a contract with Maritime, Jollymore or Joseph; (2) were Jollymore or Maritime agents of Joseph, and was Joseph unjustly enriched by Wacky’s?

The Adjudicator held that there had been a contract between Joseph and Maritime, but no contract between Wacky’s and Joseph. In his discussion of unjust enrichment, he relied on the decision of the Supreme Court of Canada in Pettkus v. Becker. In that case, the Court determined that there were three preconditions for this remedy:

(a) an unjust enrichment,

(b) a corresponding deprivation, and

(c) an absence of a juristic reason for the enrichment.

In his decision, the Adjudicator determined that all three criteria had been met but he also wrote:

The question then becomes, is there some nexus or special relationship between the parties. The only relationship the parties have with one another is that materials of [Wacky’s] are in the [Joseph’s] home. [Joseph] did not meet [Wacky’s], [Joseph] did not ask [Wacky’s] to sell him the materials, [Joseph] took no charge over the laying of the floor in question here, …did not order the materials and labour to install them in the home nor were they invoiced to [Joseph]. [Joseph] did not expect to pay for the material as he paid the other named [Jollymore] or his Company for same. As it turned out, [Jollymore] was a rogue in the sense he disappeared without meeting his obligations to [Wacky’s] and [Joseph].

Since there was no special relationship between Wacky’s and Joseph, he concluded, there was no unjust enrichment.

Wacky’s appealed to the Supreme Court of Nova Scotia. The principal issue before Justice Edwards was whether the remedy of unjust enrichment was available to Wacky’s.

The Adjudicator relied on the 1975 case Nicholson v. St. Denis as authority for the proposition that a special relationship is a prerequisite to recovery. Justice Edwards agreed with Wacky’s submission that the Nicholson decision simply suggested that special relationships form a significant thread which runs through the jurisprudence, but not that proof of such a relationship is an additional burden that must be met by a claimant.

The law, said the judge, is not as clear as one would hope. In the Nicholson decision, Justice MacKinnon of the Ontario Court of Appeal stated:

…It can be said, however, that in almost all of the cases the facts established that there was a special relationship between the parties, frequently contractual at the outset, which relationship would have made it unjust for the defendant to retain the benefit conferred on him by the plaintiff – a benefit, be it said, that was not conferred officiously.

This relationship in turn is usually, but not always, marked by two characteristics, firstly, knowledge of the benefit on the part of the defendant, and secondly, either an express or implied request by the defendant for the benefit, or acquiescence in its performance.

The Federal Court in Robert McLaren et al. v. R. discussed the significance of a special relationship. Justice Muldoon said in that case:

What is that special relationship? It may be contractual, fiduciary or matrimonial. It may be a very casual arrangement, or an unenforceable contract. It seems to be the sine qua non of success, but it is not an inevitable guarantee of success. A special relationship is a factor in all but two of the cases, cited here by counsel in which the plaintiffs have succeeded. It is the essential nexus between the defendants’ words and conduct, and the plaintiffs conferring of the benefit…

In Wacky’s case, the facts did establish that there was a “casual arrangement” as contemplated by Justice Muldoon in McLaren. In Nicholson, Justice MacKinnon stated that for there to have been a special relationship the defendant must have had knowledge of the benefit, and he must have either requested it, or acquiesced to its performance. In that case, the defendant was unaware that the work had been performed, and so it was held that no special relationship existed.

The same was not true in the case before Justice Edwards, as Joseph was clearly aware that the flooring had been supplied and installed, and had in fact selected the flooring from Wacky’s store.

On balance, concluded Justice Edwards, the presence of a special relationship will be persuasive but not necessarily conclusive in the court’s analysis. The absence of a special relationship will not necessarily defeat a claim. In the present case, the three criteria set out by the Supreme Court of Canada having been met, Wacky’s was entitled to be paid.

Nova Scotia Supreme Court
   Edwards J.
   November 30, 2006