Change of Position Defense Essay

Introduction

The ‘change of position’ defense to a claim of restitution has been widely recognized. The defense is however recognized in situations where the defendant’s change of position is so great that it will be unfair to force him to make restitution.¹ The defense was first recognized in the landmark case of Lipkin Gorman v. Karpnale Ltd.² In this case, the plaintiffs brought a claim of restitution against the defendants.

In their claim, they contended that the defendants had acquired some amount of money that had been stolen from them by one of their partners. The defendants, on their defense, argued that they had changed position; hence the claim for restitution could not stand. Lord Goff in his judgment argued that by compelling an innocent defendant whose position has so changed will be subjecting him to unjust suffering.

In his opinion, the injustice of compelling the innocent defendant to repay overshadows the injustice of refuting restitution. This paper will critically analyze the rationale of the defense and further ascertain how Lord Goff prediction regarding the ‘change of position’ defense has proved to be correct.

The Principles Governing The Defence Of Change Of Position

The House of Lords in Lipkin case was placed with the burden of interpreting the decision made in Baylis v. Bishop of London.³ Justice Hamilton, in dismissing the defense, stated that the defense of change of position was not recognizable and termed it as a ‘vague’ and ‘unprincipled’ justice that should not be upheld in the twentieth century. However, the court in Lipkin’s case held a differing opinion.

According to Brant, the nature of unjust enrichment depends on the basic structure of the claim.⁴ He explains this notion by arguing that for a claim of unjust enrichment to qualify, certain conditions must be established. First, the defendant must show that he was enriched.

That particular enrichment should beat the expense of the plaintiff. Secondly, it should be inferred that the enrichment made was unjust. Lord Goff attempted to explain the concept of unjust enrichment by stating that the process to recover money in restitution was not purely placed under the discretion of the court but rather as a matter of right.⁵

In light of this opinion, it is imperative to argue that the courts’ discretion to exercise their right to decide on the applicability of the defense in an idiosyncratic manner is limited. This has led to the development of a very strong consensus in the corridors of justice. In Phillip Collins Ltd v. Davis⁶, the court argued that a slip into the discretionary intercession of the defense would resort to the court’s plunging back into the dark era of the subject⁷.

It should, however, be noted that even though a consensus has been established on the notion that change of position depends on principle as opposed to the unbridled discretion, the application of the defense lack comprehensible articulation of a core rationale.

This can be explained by the fact that most courts, in their attempt to apply the defense, failed to elucidate the nature of ‘inequitability’ hence falling back to the rift of discretionary intercession which Lord Goff was so keen to shun.⁸

In Scottish Equitable Plc v. Derby⁹, the High Court rejected the defense by arguing that the court should act based on principle and not sympathy. It was apparent that the plaintiff had acted honestly but the court failed to apply the discretionary ‘inequitability’ approach set in Lipkin’s case and dismissed the defense.

It is therefore arguable that the courts have proceeded to recognize the basic principles that govern the defense as set out by Brant. The most prominent principle is the fact that the onus to proof is on the defendant to proof all the elements necessary to support the defense.¹⁰

The other recognizable principle is the need for the defendant to have changed his position. It is arguable that the defense work pro tanto. This, therefore, requires the defendant to have used up the money acquired by mistake when the claim is being bought forward. Further, the defendant should show to the court that his assets’ worth was reduced through his omission or that of another interested party.

This is important for the court to uphold the claim of ‘disenrichment¹¹ Also, the courts have recognized omissions that have been caused by natural events such as theft, a scenario that Burrows refers to as the ‘wide view’ of change of position.¹² The other decipherable principle provides that for the defense of change of position to be upheld, the defendant should demonstrate that the change of position was done in an honest manner and good faith.¹³

The defense can, therefore, pass if the defendant changed his position without the knowledge that a claim for unjust enrichment would arise. The House of Lords in the recent case of Haugesund Kommune v. Depfa ACS Bank¹⁴Unanimously agreed that the defense would automatically be rejected if the defendant knew that the enrichment has to be refunded to the claimant at one time or another.

The defendant, therefore, has the onus to demonstrate to the court that the change of position was in good faith. He should also prove to the court that he is not a ‘wrong doer¹⁵

Criticism As To The Applicability And Interpretation Of The Basic Principles Recognized By The Courts

It is not in dispute that Lord Goff set a precedent on the basic principles that should be considered to ascertain the validity of the defense.¹⁶ However, the general applicability and interpretation set out in the basic principles in recent cases are almost uncertain.

First, it is not in question that the burden of proof lies with the defendant to disclose all the elements to uphold the defense, but rather how it is done.¹⁷ In Derby’s case, the court argued that it was not a mandatory requirement for Derby to prove the exact details of his spending, but it was necessary for him to satisfy the court on how his level of spending would have been lower if the enrichment would not have occurred.¹⁸

Further, the courts have failed to establish what would amount to ‘relevant disenrichment¹⁹ What about instances where the defendant has advanced money to charity and can bring forward a successful claim against the charity for the refund of the same advance paid to the defendant by mistake?

Would it, therefore, change the applicability of the principle if the charity would be willing to refund the money even without going to court? The concept of ‘wide view’ has been placed under scrutiny.²⁰ It is not clear whether the defense would apply in instances where the money was stolen from the defendant while he was gambling.²¹

It is also not clear how the courts test the ‘innocence’ of the defendant and the extent to which the principle extends for the defense to succeed. In Niru Battery Manufacturing Co v. Milestone Trading Ltd²², the court thought that the defendant acting in good faith does not necessarily imply acting without bad faith. Further, the defense applies to situations where the defendant acts in a commercially unacceptable manner.²³

In the Haugesund Kommune case, the court was fast to dismiss the defense in a situation where the defendant paid to a third party a certain amount of money that he had received by entering into a void contract, but with the knowledge that the contract was valid.²⁴

Lord Goff claims that the defendant should not be a ‘wrongdoer’ to succeed in his defense of change of position is not clear. In his judgment in Lipkin case, he thought that the action by the defendant to pay out money to a gambler in what was said to be a ‘void’ transaction could not be termed as a wrongdoer.²⁵

However, Justice Laddie in Barros Mattos Junior v. Macdaniels Ltd²⁶ Held that the process to exchange the currency by the defendants was unlawful. This creates a rift between void acts that can be said to be ‘lawful’ and those void acts that can be said to be ‘unlawful²⁷

Summary of The Defence Upheld in Lipkin’s Case

The words by Lord Goff in Lipkin’s case regarding change of position have triggered a lot of debate. However, it is not in doubt that the defense received its first recognition as a result of the judgment rendered in this case. The question that the case attempted to answer was whether a person could keep an overpayment that was done by mistake? Further, how does a change of position apply for the defense to be upheld?

The House of Lords, in this case, decided that the current position of the defendant whose claim has been brought against should be considered before ordering him to make restitution. Failure to do so would amount to injustice on the side of the defendant.

In the recent case of Commerzbank AG v. Price-Jones²⁸, the courts reconsidered the change of position defense by dealing with two important issues. In this case, the defendant received two guaranteed payments from the plaintiffs. The plaintiffs sought restitution by arguing that the defendant was not entitled to one of the payments.

The defendant in his defense argued that his position had so changed. He further contended that were it not for the second payment, he would have looked for another job, and this fact alone constituted to pertinent change of position.

The first issue that the court sought to answer was whether the chronology of events should be considered before upholding the defense. Could a defendant be allowed to rely on the beneficial prospect to plead for a change of position? The court unanimously agreed that there was a likelihood of an occurrence of a pertinent change of position if the defendant received the overpayment which allowed him to spend it.

However, the court was quick to add that a meager turnaround of normal events could not tamper the availability of change of position defense. This can be interpreted to mean that a defendant can apply the defense in instances where his position has been changed in good faith with the hopes of acquiring a future benefit. The court nonetheless has the jurisdiction to determine whether the facts of the case are good enough to declare a defense ‘good.’

The other issue that the court sought to determine was whether the change of position had to assume a monetary nature. The court argued that it was not in doubt that the change of position has been attributed to the reduction of assets of the defendant in most cases.

The court, in this case, assumed a different position by acknowledging that the defense should not be restricted to the scope of financial nature alone. However, there should be a correlation between the defense and the actual or expected benefit.

The Acceptance Of The Defence

Given the above discussion, the applicability of the change of position defense as recognized by Lord Goff has been widely accepted.²⁹ The argument by Edelman that the defense is unsuitable about awarding restitutionary damages does not hold water.³⁰ In his opinion, the law must always act in the interest of the aggrieved party and thereby order that the money wrongfully paid to be paid back.

The implication is that failure for the court to act in the interest of the aggrieved party would be legitimizing the wrong done. However, this argument has been disputed.

First, it would be entirely wrong to infer that a wrong has been legitimized by invoking a change of position.³¹ By allowing the defense, the courts would be operating on the merits of such consideration that the hardship of the defendant who has changed his position in good faith is not jeopardized.

It is therefore right for the restitution for wrongful transfer to have consideration for the above concern even though the basis of the transfer was as a result of civil wrong.³²

It has also been widely accepted that the defense supersedes the prima facie legal concern of reversing the value so transferred hence qualifying the concept of unjust enrichment.³³ The concept of unjust enrichment thereby brings to fore the need for the court to consider the facts of the case and determine whether the defendant has proved a relevant change of position.

This has been interpreted by the courts to mean that the absolute need to demand the transfer of value is not pleasant.³⁴ The desire by the court to reverse the value can be important in such situations that defense is repugnant to the underlying principle behind that particular wrong. The fact that the remedy is derived from a wrong as opposed to unjust enrichment is immaterial.³⁵

Conclusion

The defense of change of position is premised on concepts of equitability. This brings to fore the importance when ascertaining the injustice or hardship suffered by the innocent defendant. Demanding a defendant whose position has so innocently changed to make restitution would be unfair.

The courts have trended carefully in applying the principles governing the rationale behind the defense of change of position. This is because in allowing the innocent party to invoke the defense, the courts have to maintain some levels of fairness as required by law as the defense is not entirely confined to claims of unjust enrichment.

Reference List

Barros Mattos Junior v. Macdaniels Ltd (2005) WLR 247.

Baylis v. Bishop of London (1913) 1 Ch 127.

Beatson, J, The Use and Abuse of Unjust Enrichment: Essays on the Law of Restitution, Clarendon Publishers, Oxford, 1991.

Brant, E, The Change of Position Defense, Hart Publishing, Oxford, 2009.

Bryan, M, Private Law in Theory and Practice, Routledge-Cavendish, New York, 2007.

Birks, P, Unjust Enrichment, 2^nd edn, Oxford University Press, Oxford, 2005.

Burrows, A, ‘Change Of Position: The View from England’, Loyola of Los Angeles Law Review, vol. 36, no.2, 2003, pp. 803-816.

Burrows, A, The Law of Restitution, 2^nd ed, Oxford Press University, Oxford, 2002.

Burrows, A, The Law of Restitution, 3^rd edn, Oxford University Press, Oxford, 2010.

Commerzbank AG v. Price-Jones (2003) EWCA Civ 1663.

Dagan, H, Restitution and Slavery: On Incomplete Commodification, Intergenerational Justice, and Legal Transitions, HeinOnline, 2004. Web.

Degeling, S, Restitutionary Rights to Share in damages: Carer’s Claims in Common Law, Cambridge University Press, New York, 2003.

Dietrich, J, Restitution: A New Perspective, The Federation Press, Sydney, 1998.

Eldeman, J, Gain-based damages: contract, tort, equity, and intellectual property, Hart Publishers, Oxford, 2002.

Erbacher, S, Australian Restitution Law, 2^nd edn, Cavendish Publishers, London, 2012.

Friedmann, D, Restitution for Wrongs: The measure for recovery, HeinOnline, 2000. Web.

Harry, H, ‘Changing The Shape Of Change Of Position’, King’s Law Journal, vol. 15, no. 2, 2004, pp. 301-402. Web.

Haugesund Kommune v. Depfa ACS Bank(2010) EWCA Civ 579.

Hood, P, Principles of Lender, Oxford University Press, Oxford, 2012.

Hudson, A, Equity and Trusts, Cavendish Publishing Limited, London, 2005.

Kull, A, Defenses to Restitution: The Bona Fide Creditor, HeinOnline, 2001. Web.

Kull, A, ‘Rationalizing Restitution’, California Law Review, vol. 83, no. 5, 1995, pp. 1191 1212.

Lipkin Gorman v. Karpnale Ltd (1991) 2 AC 548.

Machtel, F, The Defence of “Change of Position” in English and German Law of Unjust Enrichment, Private Law, 2004. Web.

McCamus, Rethinking Section 142 of the Restatement of Restitution: Fault, Bad, Faith and Change Of Position, HeinOnline, 2008. Web.

Neyers, J & M Mclnnes, Understanding Unjust Enrichment, Hart Publishing, Portland, 2004.

Niru Battery Manufacturing Co v. Milestone Trading Ltd (2003) EWCA Civ 1446; [2004] QB 985 at 1004 [164]

O’Donovan, J, Lender Liability, Sweet and Maxwell Limited, London, 2005.

Pawlowski, M & J Brown, Undue Influence and the Family Home, Cavendish Publishing Limited, London, 2002.

Phillip Collins Ltd v. Davis (2000) 3 All ER 808.

Ramjohn, M, Cases and Materials on Trusts, Cavendish Publishing Limited, London, 2004.

Scottish Equitable Plc v. Derby(2001) EWCA Civ 369, [2001] 3 ALL ER 818.

Tettenborned, A, Law of Restitution in England and Ireland, 3^rd edn, Routledge Cavendish, London, 2002.

Weinrib, E, ‘Restoring Restitution’, Virginia Law Review, vol. 91, no. 3, 2005, pp. 861 890.

Virgo, G, The Principles of The Law of Restitution, Oxford University Press, Oxford, 1999.

Footnotes

1. G Virgo, The Principles of The Law of Restitution, Oxford University Press, Oxford, 1999, p. 3.
2. (1991) 2 AC 548.
3. (1913) 1 Ch 127.
4. E Brant, The Change of Position Defense, Hart Publishing, Oxford, 2009, p. 10.
5. L Harry, ‘Changing The Shape Of Change Of Position,’ King’s Law Journal, vol. 15, no. 2, 2004, p. 301-402. Web.
6. (2000) 3 All ER 808
7. F Machtel, The Defence of “Change of Position” in English and German Law of Unjust Enrichment, Private Law, 2004. Web.
8. S Erbacher, Australian Restitution Law, 2^nd edn, Cavendish Publishers, London, 2012, p. 23.
9. (2001) EWCA Civ 369, [2001] 3 All ER 818.
10. E Weinrib, ‘Restoring Restitution,’ Virginia Law Review, vol. 91, no. 3, 2005, pp. 861-890.
11. H Dagan, Restitution and Slavery: On Incomplete Commodification, Intergenerational Justice, and Legal Transitions, HeinOnline, 2004. Web.
12. A Burrows, The Law of Restitution, 2nd edn, Oxford University Press, Oxford, 2002, p. 515.
13. A Kull, Defenses to Restitution: The Bona Fide Creditor, HeinOnline, 2001. Web.
14. (2010) EWCA Civ 579.
15. A Burrows, The Law of Restitution, 3^rd edn, Oxford University Press, Oxford, 2010, p. 696.
16. A Kull, ‘Rationalizing Restitution,’ California Law Review, vol. 83, no. 5, 1995, pp. 1191-1212.
17. A Burrows, ‘Change Of Position: The View from England,’ Loyola of Los Angeles Law Review, vol. 36, no.2, 2003, pp. 803-816.
18. J McCamus, Rethinking Section 142 of the Restatement of Restitution: Fault, Bad, Faith and Change Of Position, HeinOnline, 2008. Web.
19. P Birks, Unjust Enrichment,2^nd edn, Oxford University Press, Oxford, 2005, 103.
20. D Friedmann, Restitution for Wrongs: The measure for recovery, HeinOnline, 2000. Web.
21. A Tettenborned, Law of Restitution in England and Ireland, 3^rd edn, Routledge Cavendish, London, 2002, p. 14.
22. (2003) EWCA Civ 1446; [2004] QB 985 at 1004 [164].
23. J Beatson, The Use and Abuse of Unjust Enrichment: Essays on the Law of Restitution, Clarendon Publishers, Oxford, 1991, p. 54.
24. J O’Donovan, Lender Liability, Sweet and Maxwell Limited, London, 2005, 413.
25. J Neyers & M Mclnnes, Understanding Unjust Enrichment, Hart Publishing, Portland, 2004, 72.
26. (2005) WLR 247.
27. A Hudson, Equity and Trusts, Cavendish Publishing Limited, London, 2005, p.34.
28. (2003) EWCA Civ 1663
29. M Ramjohn, Cases and Materials on Trusts, Cavendish Publishing Limited, London, 2004, p. 313.
30. J Eldeman, Gain-based damages: contract, tort, equity, and intellectual property, Hart Publishers, Oxford, 2002, p. 234.
31. S Degeling, Restitutionary Rights to Share in damages: Carer’s Claims in Common Law, Cambridge University Press, New York, 2003, p. 218.
32. J Dietrich, Restitution: A New Perspective, The Federation Press, Sydney, 1998, p. 234.
33. M Pawlowski & J Brown, Undue Influence and the Family Home, Cavendish Publishing Limited, London, 2002, 169.
34. M Bryan, Private Law in Theory and Practice, Routledge-Cavendish, New York, 2007, p. 243.
35. P Hood, Principles of Lender, Oxford University Press, Oxford, 2012, 158.