Unjust Enrichment: Do Subcontractors Have Common Law Remedies Against Owners?

Introduction

Typically, subcontractors will only have a contractual relationship with a party directly above them in the construction pyramid and they will have no contractual relationship with the owner who is the source of funds for payment. As a result, subcontractors lower down the pyramid who contribute work or materials have limited remedies in the event their payor defaults. Where there is a direct contract, subcontractors can rely on contractual remedies to secure payment. Where there is no direct contract, subcontractors must rely on builders' lien legislation to recover the value of the services or material they provide.

In situations where the subcontractor has no contractual relationship with the parties further up the pyramid, and where the subcontractor has failed to adhere to the strict requirements of the builders' lien legislation, some subcontractors have attempted to assert a third remedy; bringing a common law unjust enrichment claim. However, recent case law from British Columbia continues to emphasize the challenges that subcontractors face when alleging unjust enrichment against an owner.

Unjust Enrichment: The Test

In the construction context, unjust enrichment claims by subcontractors usually involve a claim that the owner or general contractor received a benefit (the enrichment), as a result of work done or materials supplied by the subcontractor. The argument is that the enrichment is unjust because the subcontractor was not paid for the work done or material supplied, yet the non-contracting owner or general contractor still receives the benefit.

In order to win an action for unjust enrichment, the subcontractor must meet the following three part test: (1) Show that the owner was enriched; (2) Show that there was a corresponding deprivation suffered by the subcontractor; and (3) Show that there is no juristic reason a reason recognized in law to justify the enrichment. At first glance, an unpaid subcontractor that provides goods or services to a construction project seems to have a strong claim. The owner has been enriched by the value of the goods or services and the subcontractor has been deprived of the same. However, case law suggests that the validity of unjust enrichment actions against a non-contracting party will most often fail since the contract between the owner and the defaulting payor is a valid juristic reason for the enrichment. Further, courts have held that an unjust enrichment claim against a...