#10028 - Change Of Position - Restitution of Unjust Enrichment

CHANGE OF POSITION

DEFENCES GENERALLY

1. As restitution expands, the defences have to respond and develop accordingly to prevent too much restitution

2. Ways restitution has expanded:

1. acceptance of ‘but for’ causation test for mistake

2. abolition of the mistake of law bar

3. willingness to evade the requirement of total failure of consideration

3. The legal burden of proof switches to D once prima facie liability is established

ACCEPTANCE OF THE DEFENCE IN LIPKIN GORMAN

1. Lipkin Gorman v Karpnale – HL recognised it by Lord Goff:

1. ‘At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full’

2. There is some stuff on the history leading up to accepting this pp. 524-525 (really not relevant I don’t think)

BROAD NOTION OF FAIRNESS? - NO

1. Commerzbank AG – Munby J interpreted Lord Goff’s statement as though he intended that the defence should be based on broad notions of fairness or equality between C and D BUT

2. Lord Goff also said ‘the recovery of money is not, as a general rule, a matter of discretion for the court’ THUS

3. Philip Collins v Davis – Parker J confirmed that it’s not a discretionary defence. Lord Goff was just stating the defence broadly so that subsequent courts could fill in the detail

ELEMENTS OF THE DEFENCE (need all 3)

1. D’s circumstance have changed detrimentally

2. The change of circumstances was caused by receipt of the enrichment

3. He is not disqualified from relying on the defence

DISENRICHMENT PROVIDES THE JUSTIFICATION FOR THE DEFENCE

1. What

1. Burrows - Essentially, D has lost the enrichment

2. So even though D was initially enriched, the change of position defence responds to the fact that enrichment has subsequently (or in anticipation of the initial enrichment) been countered by causally related loss or detriment so that overall D has not been enriched

2. Birks’ Contrary View

1. He thought the defence exists to ensure that people are free to dispose of wealth that appears to be theirs BUT

2. this would mean the defence would only where D has made an active decision to change his position (so wouldn’t include where money was stolen from him)

3. Disappointed Expectations

1. Aren’t included

4. UE is not related to wrong

1. Unjust enrichment’s imposition of strict liability is merited so long as an inncent defendant is not required to put its hand in its pocket

2. Burrows - Basically, UE is not about correcting a wrong, it’s about returning the status quo to both parties (ie. corrective justice). Change of position recognizes where this is not possible on the defendant’s side

5. Irreversibility

1. Edelman and Bant – say it’s not about disenrichment, it’s to protect D’s security of receipt. So it’s only where D has irreversibly changed his position that he can rely on it BUT

2. Burrows – if a rich person is enriched by 100 and then uses other money to bet on a horse (which he wouldn’t otherwise have done), he has a change of position of defence were he to lose. But, he could still reverse the benefit, it’s not irreversible. So Edelman and Bant are wrong

DEBT

1. Scottish Equitable – ROBERT WALKER LJ - paying off a debt will not usually be detrimental change of circumstances BUT

2. Can be where for example D gave up a job as a result of paying of a debt (eg. Gertsch v Atsas)

ASSET

1. Uncertainty

1. this is untested

2. Best view

1. Burrows - If D has changed his position by buying an asset, then can only rely on change of position to the extent that the asset is lower in value than original enrichment

3. Authority?

1. Lipkin Gorman – Lord Templeman (dissenting judgment in this case) seemed to approve this view

4. Alternative View

1. Applying subjective devaluation, D does not want to sell asset and can’t take objective value of a realizable benefit (Burrows criticizes this)

CAUSATION

1. But For Test is the Correct Test

1. Scottish Equitable v Derby – D must prove that, but for receipt of the enrichment, he or she would not have suffered the detrimental change of circumstances

2. However

1. There are other cases that use different language for a causal test ie.

1. Phillip Colins v Davis – ‘referable’ to the receipt of the enrichment

2. Commerzbank – ‘relative connect’ with the payment

3. Extraordinary

1. Doesn’t have to be extraordinary, owing to Lord Goff’s words in Lipkin Gorman

4. Not a general hardship defence

1. Scottish Equitable v Derby - Has to be a link between D’s UE and his loss. So just because D has fallen on bad times since the enrichment, doesn’t mean he’s had a change of position

DETRIMENTAL RELIANCE NOT NEEDED (part of the causation test?)

1. Narrow View

1. Birks – change of position is just like estoppel without the need for representation. THUS

2. Narrow view = must be shown that D acted to his detriment relying on the receipt of the benefit

2. Wide View

1. Goff and Jones – detrimental reliance is unnecessary

3. Arguments favouring the Wide View

1. Wasn’t stated as being necessary in Lord Goff’s formulation of the defence in Lipkin Gorman

2. Burrows – wide view responds to the idea that D can be causally disenriched without reliance. So, if D’s bank pay her 100k by mistake, and then this is immediately stolen from D, it is unfair that D can be held strictly liable to make restitution of 100k.

3. It prevents too much restitution, in that it means the defence can apply in more situations

4. Approved

1. Scottish Equitable v Derby – CA supported that there is no need for detrimental reliance, citing Burrows’ work. But, obiter, so still waiting for direct approval, although seems likely

5. Exception – Anticipatory Change of Position

1. Dextra Bank (Privy Council) – where the change of position occurred before the enrichment. This case approved anticipatory change of position

BAD FAITH

1. Principle

1. Lipkin Gorman – defence isn’t available to D who acts in bad faith when changing their position

2. Lord Goff – ‘it is commonly accepted that the defence should not be open to a wrongdoer’

3. Although it is thought by Burrows and Briggs that Goff was referring here to restitution for wrongs, in any event, it is now accepted that bad faith means D is exempted from relying on the defence with rest for UE

2. Civil Wrong

1. Burrows – construed the wrongdoer part of Lord Goff’s judgment as perhaps meaning the defence couldn’t be relied on where there was a civil wrong

3. What Does Bad Faith Mean?

1. Niru Battery Manufacturing – CA applied broad test of whether it was made ‘inequitable’ or ‘unconscionable’

4. Contra Neg? - NO

1. Dextra Bank v Bank of Jamaica – careless D can still invoke the defence

5. Example

1. Cressman v Coys – D who consciously changes his position despite knowing that the payment was made by mistake

6. Suspicion

1. Niru Battery Manufacturing – Moore-Bick J = D may be acting in bad faith where he suspects the payment is made by mistake and fails to make reasonable enquiries. Moore-Bick J’s first instance judgment was then clouded on appeal

2. Abou-Rahmah v Abacha – D had taken checks required by law so was held to have acted in good faith

3. Burrows – says that the differing views amongst CA in Abou-Rahmah shows how good faith is a ‘fuzzy-edged concept’

7. Illegality

1. Barros Mattos – no room for discretion here. Where D is relying on change of position that involved some illegal activity the defence is lost BUT

2. Burrows – says this is too rigid an approach, and the better approach is to consider the seriousness of the illegality with the consequences of allowing restitution

FAULT SHORT OF BAD FAITH

1. Contra Neg in New Zealand

1. Thomas v Houston – New Zealand case which showed that ‘contra neg’ could be taken into account under the statutory defence of change of position

2. This was based on an exercise of ‘balancing the equities’

2. Should England Follow?

a) Burrows – he says no. It would introduce too much uncertainty and hamper out-of-court settlements

3. English Authority

1. Dextra Bank v Bank of Jamaica (Privy Council) – rejected fault short of bad faith. They referred to this as ‘relative fault’

4. Contradictory Views

1. Commerzbank AG v Gareth – fault was considered here with Munby J saying that D had ‘only himself to blame for his predicament’ and thus was unable to rely on change of position

2. Burrows – he says that this case showed ‘obscure and unprincipled reasoning’ which doesn’t help. Whilst fault short of bad faith wouldn’t seem to disregard the defence, Commerzbank has muddied the water with this

5. BUT – risk takers

1. Goss v Chilcott – if D has taken the risk that they won’t be repaid, then they can’t rely on the defence

SCOPE OF THE DEFENCE

1. Generally

• Burrows – should apply to every type of enrichment and any type of unjust factor (provided there’s no bad faith which will often disallow duress, undue influence, exploitation of weakness although not always). BUT

2. Failure of Consideration

• There is some dispute as to whether it applies to failure of consideration BECAUSE

• D knew that...