#6897 - National Westminster Bank V. Somer International - Restitution of Unjust Enrichment BCL

National Westminster Bank v. Somer International

Facts

Somer, which carried on business exporting computer equipment, was at all material times the customer of NatWest and from time to time received payment in dollars from foreign purchasers by sums paid to the credit of a dollar account maintained at NatWest. In summer 1996 Somer began trading with an African based company called Mentor, supplying computer equipment to Mentor for on-sale to African end users. Dealing in round figures by 1997 Mentor owed Somer 166,000 in relation to such supplies. In April 1997 Mentor remitted 100,000 to Somer and indicated shortly afterwards that a further payment of between US$70,000 and US$78,000 would be forwarded shortly. Somer were in touch with NatWest about the prospective receipt of such payment.

On 28 April 1997 as a result of an error within NatWest a sum of US$76,708.57, received by NatWest from a company called Moffett Engineering Ltd and intended for the account of another NatWest client called Somer Sundstrand Ltd, was credited to Somer's dollar account. On or about the same date NatWest notified Somer that the further dollar moneys which they were expecting had been received into that account. In the belief that, by such payment, Mentor had reduced the balance of its trading account with Somer, on 30 April 1997 Somer despatched goods to Mentor to the value of 5,221.99 and on 30 May 1997, in the same belief, made a further shipment of goods to the value of 7,958.58.

On 24 February 1998 the bank notified Somer that the dollar payment made on 28 April 1997 had been made in error and requested repayment. By this date Mentor had ceased to trade from its former premises in Africa and had effectively disappeared as a trading entity. The bank thereafter brought proceedings to recover the dollar payment of US$76,708.57.

Somer international relied on estoppel as a defence.

Holding

Representation may be express, or through conduct

It is unattractive that, in a case of moneys paid over under a mistake of fact and sought to be recovered on the basis of unjust enrichment, the extent of the recovery should depend on whether or not, at the time of the transfer of the moneys, the transferor represented by words or conduct that the transferee was entitled to such payment. When the mistake occurs, particularly in the context of a banker/customer relationship, whether or not an actual representation as to entitlement was made or can be spelt out is largely fortuitous and ex hypothesi the result of accident rather than deliberate conduct.

Estoppel, though a rule of evidence has substantive consequences – there is scope to avoid unconscionability

None the less, because of the decisive impact which estoppel by representation may have upon the outcome of any individual case, whether as a step on the way to establishing a cause of action, or as defeating a prima facie valid claim based on facts which (absent the representation) would entitle the claimant to recover, such estoppel undoubtedly gives rise to substantive legal consequences.

In the light of the state of the authorities and the clear statement in Avon County Council v Howlett [1983] 1 WLR 605 on a matter integral to the court's decision, it does not seem to me that it is open to this court at least to depart from the traditional classification of estoppel by representation as a rule of evidence.

Alleviating inequity that results from the “all or nothing approach”

That said, and accepting estoppel by representation to be a rule of evidence which ordinarily requires that a more than de minimis degree of detriment is definitive of the transferee's right to retain the entirety of a mistaken payment, it is plain that the court in Avon County Council v Howlett[1983] 1 WLR 605 and subsequently in Scottish Equitable plc v Derby[2001] 3 All ER 818 considered that there yet remained scope for the operation of equity to alleviate the position on grounds of unfairness or unconscionability, although in the latter case it failed to elucidate that conclusion by reference to authority other than the Howlett case which in turn quoted no authority to that effect.

Thus, whether or not the dicta of Lord Denning MR in Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225, 241 (see paragraph 37 above) be correct in terms of classification, it is clear that the doctrine of estoppel by representation stems from and is governed by considerations of justice and equity. That being so, it is difficult to see why equity should as between the parties be impotent in an appropriate case or category of case to require a person relying upon the defence of estoppel by representation to rely upon it only to the extent of any detriment suffered.

The “exception” in Avon is not confined to cases of glaring difference

It seems to me that the facts of this case are such that, assuming the judge was correct in holding that a representation had been made by NatWest upon which Somer acted to its detriment in consigning further goods to Mentor to the value of some 13,000 but in no further respect, it involves this court in facing directly the questions raised by Robert Walker LJ. In the Scottish Equitablecase [2001] 3 All ER 818 the actual detriment found by the court, and which Scottish Equitable conceded it would not seek to recover, was some 9,660 out of a total overpayment of 172,451, a ratio of 1:17, giving rise to an overpayment of 162,790.

While it could not be said that the detriment to Mr Derby was de minimis, it could readily be held that it was unconscionable and inequitable to allow him to retain the vast bulk of the overpayment, when his real detriment was limited to such a small proportion, and hence within the exception to the "all or nothing" rule recognised in Avon County Council v Howlett[1983] 1 WLR 605. The instant case is, by reason of the sums involved, a somewhat less glaring illustration of an unjustifiable windfall to the defendant. That said, however, in cases of payments made under a mistake of fact, it is difficult to see why principles of equity and unconscionability should not apply to cover any case in which it appears a substantial windfall would otherwise be incurred by the transferee at the expense of the mistaken transferor.

Estoppel and “change of position” exist as distinct defences

However, it is open to the court, acting on equitable principles, to take the view that some restitution is necessary, albeit the burden upon the defendant of proving the precise extent of his detriment should be a light one. In these circumstances the court may well have broad regard to, without being bound to follow, the developing lines of the courts' approach in "change of position" cases. However, the two defences will remain distinct, unless or until the House of Lords rules otherwise.

Differences between estoppel and change of position

First, in considering the equities between the parties, there are plainly arguments for holding...