- The appeal by
Commerzbank AG (the Bank) against the decision of Mr David Phillips QC, sitting
as a Deputy High Court Judge, raises two issues. The first turns on the construction
of two employment contract documents. The second is of more general interest.
It concerns the circumstances in which change of position and disenrichment
defeat a claim of unjust enrichment.
- By the order
of the Deputy Judge dated 17 December 2002 the Bank was required to pay to
the claimant, Mr Gareth Price-Jones, the sum of £250,000. The Bank had withheld
payment of £250,000, to which Mr Price-Jones was entitled, on the ground that
by mistake it had already paid him £250,000, to which he was not entitled
and which he refused to repay. The Bank was also ordered to pay interest and
costs. The Deputy Judge gave permission to appeal.
Background
- At the age of
30 Mr Price-Jones began working for the Bank as an investment banker from
10 April 2000. He was made redundant on 16 November 2001. During the contract
period he received a total of £1m "compensation." That is the word
used in the investment banking world to describe a combined package of salary,
guaranteed bonuses and buy-out payments. The package reflected the Bank’s
view of him as "exceptional." It was keen to employ him in order
to plan and direct its investment strategy for corporate clients involved
in, or affected by, the internet.
- In his claim
form dated 7 March 2002 Mr Price-Jones contended that he was entitled to be
paid a further sum of £250,000, as a guaranteed bonus due for payment on 31
December 2001. The Bank accepted that he was entitled to a guaranteed bonus
in respect of the performance year 2001, but it sought to set off against
that sum the £250,000 paid to him by mistake on 15 December 2000.
- The case turned
principally on the construction of the two employment contract documents.
- The first was
the initial written contract in the form of a five page letter dated 18 February
2000 and signed by Mr Price-Jones on 24 February 2000. According to that letter
he was to be paid a basic annual salary of £120,000 gross, buy-out payments
of £280,000 for loss of entitlement to benefits resulting from his commencing
employment with the Bank (£130,000 gross with his first month’s salary and
£150,000 gross 6 months after he commenced employment, which, at his request,
was in fact paid four months early on 23 June 2000) and guaranteed minimum
annual bonuses of £250,000 for two years. He was also eligible to participate
in the Bank’s discretionary bonus scheme.
- Under the heading
"Guaranteed Bonuses" the contractual provision in the letter
of 18 February was as follows-
"In
respect of the 2000 performance year the Bank confirms that you will receive
a minimum bonus award of £250,000 gross, paid no later than 31st
December 2000 and in respect of the 2001 performance year the Bank confirms
that you will receive a minimum bonus award of £250,000 gross, paid no later
than 31st December 2001. You will receive these bonuses unless
on the date that each bonus is payable:
(a)
you have resigned or given notice to resign from the Bank’s employment; or
(b)
the Bank has terminated or given notice of the termination of your employment
for gross misconduct or for any grounds entitling the Bank to terminate your
employment summarily including those set out in Section B Paragraph 17 of
the Employee Handbook."
- The second
document was a letter dated 29 June 2000 in which Mr Price-Jones was informed
by the Bank-
"In
respect of the 2000 performance year the Bank confirms that you will receive
a minimum bonus award of £265,000 gross, paid when the Bank makes its bonus
payments, but in any event not later than 31st March 2001. You
will not receive this payment if, on the date due:
(a)
you have resigned or given notice to resign from the Bank’s employment; or
(b)
the Bank has terminated or given notice of the termination of your employment
for gross misconduct or for any grounds entitling the Bank to terminate your
employment summarily including those set out in Section B Paragraph 17 of
the Employee Handbook.
All
of your other terms and conditions of employment remain unchanged."
- As requested,
Mr Price-Jones acknowledged receipt of the letter and signified "acceptance
of the terms and conditions outlined above" by signing a copy on 5 August
2000 and returning it to the Bank.
- The Deputy Judge
described the background to the letter of 29 June 2000. The Bank was pleased
with the initial performance of Mr Price–Jones, whom they regarded as a high-flyer;
his particular function was very valuable to the Bank; there was intense competition
for investment bankers like Mr Price-Jones with expertise in the telecoms,
media and technology sector; remuneration packages were at unprecedented levels;
and in June 2000 there were rumours of merger talks between the Bank and Dresdner
Bank AG, which created an urgent need to "lock-in" valued staff
to prevent them from leaving. Members of the Bank’s London research department,
in which Mr Price-Jones worked, were informed by Mr Dahlman, the head of the
Bank’s securities business, in mid–June that the Bank would be issuing staff
with guaranteed bonuses, so that they would not be financially disadvantaged
in the event of a merger. There were no general or individual discussions
between the parties. Letters awarding very large bonuses were sent out to
Mr Price-Jones and other staff.
- The Deputy Judge
accepted the evidence of Mr Price-Jones that he had read the letter as awarding
him a "lock-in payment" of £265,000 in addition to his existing
contractual package. At the trial Mr Price-Jones accepted that the Bank had
intended to award him only £15,000 extra bonus and that the £265,000 bonus
was to supersede his existing guaranteed bonus of £250,000 for the year 2000.
- The Bank in
fact paid £250,000 to Mr Price-Jones on 15 December 2000, as provided for
in the letter of 18 February 2000. At the trial Mr Price-Jones accepted that
the Bank had made that payment by mistake. In March 2001 the Bank paid him
the further sum of £265,000 mentioned in the letter of 29 June 2000.
- The construction
issue was simply whether, in respect of the performance year 2000, Mr Price–Jones
was entitled to be paid (a) both of the payments in fact received by him from
the Bank, totalling £515,000; or (b) only the payment of £265,000 received
by him in March 2001.
- Mr Price-Jones
contended that he was contractually entitled to both payments. He refused
to comply with the Bank’s request on 11 October 2001 for re-payment of £250,000.
- The Bank contended
that Mr Price-Jones was only entitled to the sum of £265,000. It accordingly
set off against the £250,000 bonus due for the performance year 2001 the £250,000
overpayment made in December 2000. Mr Price Jones sued the Bank to recover
the 2001 guaranteed bonus.
The
Judgment
- The Deputy Judge
held that
"…the
true meaning of the letter of 29th June 2000 is that the Bank was
obliged to pay the sum of £265,000 in addition to the sum of £250,000. It
follows that Mr Price-Jones’ claim must succeed."
- It was strictly
unnecessary for the Deputy Judge to decide the Bank’s restitutionary claim,
but, in case he was wrong on the construction issue, he dealt with mistaken
payment and with the defence of change of position. He found that the subjective
intentions and beliefs of the parties differed. The Bank intended to replace
the existing contractual commitment to Mr Price-Jones by substituting a new
guaranteed bonus of £265,000 for the existing guaranteed bonus of £250,000.
Mr Price-Jones, however, understood the letter of 29 June to be, and accepted
it as, an offer of an additional payment of £265,000 for the performance year
2000. It was common ground that on the issue of construction neither of the
parties’ subjective beliefs and intentions were admissible. The Deputy Judge
went on, however to hold that, if he had been in favour of the Bank on the
construction issue, he would have ruled that
"…the
Bank was prevented from recovering the mistaken payment of £250,000 by reason
of Mr Price Jones’ change of position."
- In particular,
he found that, had it not been for the 29th June letter and "his
understanding of it", Mr Price-Jones would have decided in late June
2000 to leave the Bank and seek employment with another investment Bank and
that he had a very good chance of obtaining similar employment elsewhere.
The
Construction Issue
- I am unable
to agree with the Deputy Judge’s construction of Mr Price-Jones’ employment
contract documents.
- There is no
dispute about the proper approach of the court to the task of construing the
letters of 18 February and 29 June 2000. Obviously the later letter should
be read with the earlier letter. The letter of 29 June expressly stipulated
that the terms and conditions in the earlier letter remained unchanged, save
for the changes made by the later letter. The letters, read together and as
a whole, should be given their "ordinary and natural meaning in the context
of the agreement, the parties’ relationship and all the relevant facts surrounding
the transaction so far as known to the parties": see BCCI v. Ali [2002]
1 AC 251 per Lord Bingham of Cornhill at p. 259F, paragraph 8. An objective
judgment on those materials must be made by the court. On the issue of construction
the subjective states of mind of the parties are excluded from consideration.
- The aim of construction
is to determine from the documents, read, of course, in their factual setting,
what the parties agreed. It is not the function of the court to substitute
for the agreement of the parties what it thinks would have been the sensible
commercial agreement for the parties to have made.
- The conclusion
of the Deputy Judge on construction was that
"26.
It is common ground that the purpose of the exercise carried out by the Bank
in late June 2000 was to ensure that it retained key personnel. The only construction
of the letter of 29th June 2000 that achieves this end is the one
contended for by Mr Price-Jones. Accordingly, it is the only construction
that produces the commercial result that the Bank was seeking to achieve and
is therefore the only construction that is commercially sensible."
- Detailed reasons
for this conclusion were given by the Deputy Judge in the two preceding paragraphs.
"24……In
my view, the proper construction of the letter of 29th June 2000
is that the Bank was obliged to pay the sum of £265,000 in addition to the
sum of £250,000. I have arrived at this construction for the following reasons-
1.
Mr Price Jones had been very highly regarded by the Bank at the time of his
employment. Between April and June 2000 he had fulfilled the Bank’s expectations
and had proved himself to be a specialist in what was then thought to be an
important growth area. He was, therefore, a valuable and valued employee.
2.
Mr Dalman’s visit to the research department had confirmed what was said in
the press comment, namely that the Bank wished to lock in its key employees.
That is, in any event, the normal practice in the industry and is therefore
only to be expected.
3.
As a valuable and valued employee, Mr Price–Jones was someone who the Bank
would wish to lock in.
4.
The construction of the letter of 29th June 2000 advanced by the
Bank offered no real added benefit. This, in my view, is a very important
point. It gave an additional £15,000 only at the price of deferring by three
months payment of the £250,000. That three month period was the one in which
the impact of the merger, if it had gone ahead, would be likely to have been
felt. Accordingly, it did not amount to any additional lock-in.
5.
Further, the construction advanced by the Bank would not be seen as an incentive
to stay but would be seen by an employee in Mr Price-Jones’ position as a
signal that he was not highly thought of.
6.
Accordingly, the construction advanced by the Bank would have had the opposite
effect to that which it would be expected to want to achieve. Faced with an
additional £15,000, at a price of deferring by three months payment of £250,000
(which would have constituted a signal that he was not valued) Mr Price-Jones
would have been likely to have left.
25.
The only construction that achieves the end that the Bank would have wanted
to achieve is that contended for by Mr Price-Jones. £265,000 may be a large
sum, but it is the only way in which what the Bank did in June 2000 can be
seen as constituting an incentive to Mr Price-Jones to stay. I have considered
whether the sums that were already payable under the contract represented
a sufficient lock-in. I have come to the conclusion that they did not. Mr
Price-Jones was in the position of a seller in a seller’s market. By that
I mean that he was well thought of in the industry at a time when the industry
was flourishing. He would therefore be seen as an attractive proposition by
the headhunters who operate in this industry. Any potential employer would
know, as the Bank had in February 2000, that it would have to offer compensation
that would match an employee’s existing benefits. Given Mr Price-Jones’ position
as a seller in a seller’s market, the prospects of a potential employer matching
Mr Price-Jones’ existing package was not unreasonable. Put succinctly-
1.
The Bank thought Mr Price-Jones to be worth the package when it offered it
to him in February 2000.
2.
Between then and June 2000 Mr Price–Jones’ reputation had not diminished,
the area in which he specialised remained in vogue, and the market for investment
bankers remained buoyant.
3.
There is no reason to believe that Mr Price-Jones would be seen by a different
bank in June 2000 to be worth less than he had been seen to be worth by the
Bank and by the others who were clearly interested in him in February 2000."
- As Mr Hollander
QC, appearing for the Bank, pointed out, there is no reference in the reasons
and conclusions of the Deputy Judge to the actual language of either of the
letters. The entire discussion centres on the context in which the two letters
were written, in particular the merger talks and the need for "lock-in"
payments. I agree with Mr Hollander that the Deputy Judge paid insufficient
attention to the actual language of the documents. He placed far too much
reliance on what, in the surrounding circumstances, would have been the sensible
commercial agreement between the parties. In the result he constructed from
the context alone a contract that the parties in their respective situations
might have made. In doing so he has not construed the language of the two
letters in which the terms of the contract were in fact formally expressed.
Of course, the context of a contract matters as an aid to construction, but
it should not be used to construct a contract which does not properly reflect
the language employed in formal contractual documents.
- When the documents
are read together and in context their objective meaning and effect is plain.
It is not suggested that there is any problem with the meaning and effect
of the initial letter of 19 February 2000. It was, and continues to be, the
principal employment contract. As for the letter of 29 June, its ordinary
and natural meaning is that the original minimum guaranteed bonus of £250,000
for the performance year 2000 was to be changed by inserting in its place
a similarly worded provision but with a new minimum guaranteed bonus figure
of £265,000.
- If the new bonus
figure was to be in addition to the initial bonus producing the total annual
bonus of £515,000, for which Mr Price-Jones contends, the letter of 29 June
would have been very differently structured and worded. The 29 June letter
closely tracks the original wording of the material part of February letter
relating to guaranteed bonuses. It looks like and reads as a variation of
the guaranteed bonus sum mentioned in the earlier letter. The provision for
the new sum mentioned in the letter of 29 June 2000 was to be inserted and
absorbed into the relevant part of the text of the earlier letter. It replaced
in almost identical wording the original term for guaranteed minimum bonus
payments, while expressly leaving all other terms and conditions of employment,
as set out in the earlier letter, in force and unchanged.
- The use of the
adjective "a minimum" in respect of each bonus sum is significant.
It contemplates that there will be only one guaranteed bonus for the performance
year 2000. The idea of two "minimum" guaranteed bonus payments for
one year does not make sense. The letter of 29 June would have been drafted
differently if the agreement was that Mr Price-Jones would receive a minimum
guaranteed bonus of £515,000 for one performance year.
Change
of Position and Disenrichment: the Law
- As the Bank
mistakenly made an overpayment of £250,000 to Mr Price-Jones on 15 December
2000 it is entitled to restitution of that sum, unless Mr Price-Jones can
establish that his position so changed that it is inequitable in all the circumstances
to require him to make full restitution to the Bank.
- In Lipkin
Gorman v. Karpnale Ltd [1991] 2 AC Lord Goff said that
"
…Where an innocent defendant’s position is so changed that he will suffer
an injustice if called upon to repay or to repay in full, the injustice of
requiring him so to repay outweighs the injustice of denying the plaintiff
restitution… [at p. 579f]….
At
present I do not wish to state the principle any less broadly than this: 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.[ at p.580f]
- Lord Goff added
that it was not appropriate to "attempt to identify all those actions
in restitution to which change of position may be a defence" and that
"nothing should be said at this stage to inhibit the development of the
defence on a case by case basis, in the usual way."
- Since Lord Goff
first formulated his great principle there have been other cases and a considerable
body of academic writing, this being an area in which legal scholars have
been very active and influential in recent years: see the judgments in Philip
Collins Limited v. Davis [2000] 3 All ER 808; Scottish Equitable v.
Derby [2001] 3 All ER 818; National Westminster Bank v. Somer International
(UK) Limited [2002] 3 WLR 64; Dextra Bank and Trust Co Limited v. Bank
of Jamaica [2002] 1 All ER (Comm) 193; and Niru Battery Manufacturing
Co & anor v. Milestone Trading Limited & ors [2003] EWCA Civ 1446;
and the commentaries in Goff & Jones The Law of Restitution (6th
ed), Professor Andrew Burrows The Law of Restitution (2nd ed) (2002)
and Professor Peter Birks, Unjust Enrichment (2003).
- The scope of
the defence is slowly taking shape. The decided cases steer a cautious course,
aiming to avoid the dangers of a diffuse discretion and the restrictions of
rigid rules.
- Applying the
current state of the case law to the facts found by the Deputy Judge, I am
unable to agree with him that a defence is available to Mr Price-Jones in
respect of the mistaken overpayment of £250,000 on 15 December 2000. He has
not been disenriched. His position has not so changed as to make it inequitable
in all the circumstances for him to repay the full amount of the overpayment
The
Facts of the Defence
- The relevant
facts found by the Deputy Judge were based on his acceptance of the evidence
of Mr Price-Jones, whom he regarded as a reliable witness. He reached two
important conclusions on that evidence:
(1)
Mr Price–Jones decided "to stay at the Bank as a result of 29th
June 2000 letter and his understanding of it." The letter "caused
Mr Price–Jones to change his position."
(2)
If, in late June 2000, Mr Price–Jones had "decided to leave the Bank,
he stood a very good chance of obtaining similar employment elsewhere."
Reference was made to his profile in the market and to the buoyant nature
of the market in which he was working "in a vogue area."
- The Deputy Judge
added that a detriment was suffered "notwithstanding the fact that there
may have been no actual reduction of his assets." It was of the kind
falling within the broad category envisaged by Lord Goff in Lipkin Gorman.
He explained his conclusions by reference to (a) the high opinion that
Mr Price-Jones had of himself, which was encouraged by the Bank; (b) the fact
that he was working in a key job in a specialist area when the investment
banking business was still buoyant; (c) the belief formed by Mr Price-Jones
that the 29 June 2000 package "as intended by the Bank" was a disincentive
to stay, as £15,000 was in the scheme of things a very small sum and the postponement
of £250,000 by three months was a significant detriment, which together "sent
a signal" that he was not well regarded by the Bank; and (d) his belief
that the merger had changed everything.
"[4]..…..As
he put it, he had joined in peace time but it was now war. Accordingly, the
existing compensation that had appeared generous in February 2000 was no longer
so generous in June 2000 when merger talks were in the air. Mr Price-Jones
would have been willing to forego the financial benefits of staying with the
Bank in exchange for the certainty of employment and career development elsewhere.
He expected that the benefits elsewhere would match those that he received
from the Bank, but even if they did not he would nevertheless have been willing
to accept a slightly lesser sum for the certainty of continued employment.
[5]
Mr Price-Jones’ self regard is such that I have no doubt that he believed
he would be able to obtain a similar job elsewhere.
I
have no hesitation in finding that, if it had not been for 29th
June 2000 letter, Mr Price-Jones would have taken steps in late June 2000
to seek employment with another investment Bank.
Three
Points Discussed
A.
Chronology
- The first point
is chronological. The change of position proposed by Mr Price-Jones occurred
before the overpayment of £250,000 was received by him on 15 December
2000. In general and in practice a relevant change of position is more likely
to occur after receipt of the overpayment. For example, a person receives
payment in good faith and then spends it, gives it away, or loses it. Depending
on the particular circumstances it can be said that the recipient has, to
borrow the expression used by Professor Birks and Professor Burrows, suffered
disenrichment, so as to make it inequitable to require restitution.
- In this case
the change of position pleaded by Mr Price-Jones was his decision not to move
from the Bank. His decision was made after the letter of 29 June 2000, but
before he received the £250,000 in December 2000. He made the decision in
the mistaken belief that he would be entitled to receive two guaranteed bonuses
totalling £515,000 for the performance year 2000. The additional lock-in payment
of £265,000 sent him a signal that he was a valued employee. If, however,
he would only be entitled to an additional bonus of £15,000 paid three months
later than was originally agreed, that would have sent a signal to him from
the Bank that he was not well regarded and so he would not have stayed.
- In my judgment,
the mere reversal of the normal order of events does not affect the availability
of the defence. As was held by the Judicial Committee of the Privy Council
in the Dextra Bank case at p.204, the question whether it would be
inequitable to require restitution can arise in cases of "anticipatory
reliance" where a recipient of an overpayment has already changed his
position in good faith in the expectation of receiving a future benefit.
B.Change
- The second point
is whether there was, on the findings of fact made by the Deputy Judge, any
relevant disenrichment or change of position on the part of Mr Price-Jones.
It was for him to establish that, in all the circumstances, it would be inequitable
to require him to make restitution. The obvious cases occur where there has
been a reduction in the assets of the recipient of the overpayment. In those
cases he must prove that there has been a reduction of assets, although it
is unnecessary for him to produce precise financial calculations quantifying
the amount of the reduction. Lord Goff did not, however, restrict the scope
of the defence to cases in which there has been a reduction of assets. The
defence would also be available, in my view, in various employment situations
in which the recipient has made a relevant change of position as a result
of the mistaken payment to him: for example, by giving up his current job
to lead a life of leisure in circumstances where it would be difficult to
find another job, or by turning down a firm offer of a better paid job.
- In my judgment,
however, it is not inequitable to require Mr Price-Jones in his circumstances
to make restitution to the Bank of the full amount of the overpayment. There
has been no disenrichment. He has still got the money. He has not spent it,
given it away, or lost it. The fact that, but for his expectation of a very
large additional bonus, he would have decided to seek similar employment elsewhere
is not sufficiently significant, precise or substantial in extent to be treated
as a change of his position, which would make full restitution inequitable.
Even though the Deputy Judge found that he had a "very good chance of
obtaining similar employment elsewhere", his decision not to seek such
employment falls outside the scope of the defence
C.
Causation
- On the facts
of this case the defence runs into difficulties on another front. According
to the cases the defence is not available to Mr Price-Jones unless he can
show that there is a sufficient "causal link" between the change
of position by him and the actual or anticipated payment under a mistake.
- Mr Price-Jones’
case was that, but for his expectation of an additional bonus of £265,000
under the letter of 29 June, he would not have remained at the Bank and would
have taken steps to seek employment with another investment bank. A bonus
package of the kind intended by the Bank would have sent him a signal that
he was not well regarded and so he would not have stayed. In those respects,
it was contended, there was sufficient causal link entitling him to succeed
in his defence.
- There was discussion
during oral argument about the approach to causation in cases of change of
position. In my judgment, it is neither necessary nor desirable to carry across
to the issue whether it is inequitable to require restitution and to impose
on it all the mass of learning on causation questions generated by the cases
on the recoverability of damages for tort. Change of position is based on
a principle of justice. It is a broad defence to a claim for restitution,
which is itself based on a broad principle of unjust enrichment. In deciding
whether the particular circumstances render it inequitable to require the
recipient of an overpayment to make full restitution, the need for a sufficient
causal link should not be narrowly applied. The important point is that there
should be a relevant connection between the change of position and the actual
or anticipated payment. As was said by Jonathan Parker J in the Philip
Collins case at p. 827 the change of position must in some way be "referable
to" the actual or anticipated payment of money by which the recipient
is enriched.
- On the facts
of this case there was no relevant connection between Mr Price-Jones’s decision
to remain at the Bank and payment of the bonus actually promised by the Bank
in the letter of 29 June 2000 for the performance year 2000. The true position
is that Mr Price-Jones’s decision to stay at the Bank was not connected with
what the Bank actually promised to pay him. It was based on his erroneous
belief, for which the Bank was not responsible, that he would in the future
receive two guaranteed bonus payments for the performance year 2000 and on
a belief that the bonus package, as intended by the Bank, would send him a
signal that he was not well regarded by the Bank.
Result
- To sum up, Mr
Price-Jones was unjustly enriched. There can be no doubt about that. He received
£250,000 to which he was not entitled. The payment was a mistake. He has still
got the money. There is no obstacle to repaying it. He has not been disenriched.
A just man would recognise that it was unjust to keep it and that he ought
to repay it. He would not rely on his decision at the end of June 2000 to
remain with the Bank as making it inequitable to repay. That decision did
not have a significant, precise or substantial adverse impact on him nor was
it connected in a relevant way with the payment actually promised by the Bank
at that time. His decision did not stem from the actual payment of the bonus
or from the actual promise of payment. It stemmed from his erroneous belief
that the Bank was promising to make two very large minimum guaranteed bonus
payments for one performance year and that, in the absence of the additional
bonus, the Bank would have sent a signal that he was not well regarded. That
belief and the circumstances in which he formed it do not make it inequitable
to require him to repay the money. I would allow the appeal.
Lord
Justice Sedley
- I agree.
Mr
Justice Munby :
- I agree with
my Lord. I add some words of my own only because in one of its aspects this
case raises important points of principle in relation to the still developing
doctrine of change of position as a defence to a claim in restitution. I am
emboldened to do so, in particular, because the very interesting arguments
we have heard have tended at times to assume an approach as to how the law
in this field should develop which I am not sure is either very helpful or
indeed very desirable.
- I start with
a general point. Mr Hollander quite properly took us to Robert Walker LJ’s
endorsement in Scottish Equitable plc v Derby [2001] EWCA Civ 369,
[2001] 3 All ER 818, at para [34], of the point made by Professor Burrows
(see now Burrows, The Law of Restitution (ed 2, 2002) p 514) that the
defence of change of position should not "disintegrate into a case by
case discretionary analysis of the justice of individual facts, far removed
from principle". In a field of law which has benefited more than most
from much distinguished academic and other non–judicial writings it would
be churlish not to acknowledge the huge debt we all owe to those whom Megarry
J once described (Cordell v Second Clanfield Properties Ltd [1969]
2 Ch 9 at p 17A) as "fertilisers of thought". But if I may be permitted
to say so, we need to be on our guard against over–refined analysis which
may look all very well on the scholar’s page but which may seem less convincing
when exposed to "the purifying ordeal of skilled argument on the specific
facts of a contested case." I agree entirely with Robert Walker LJ when
he said that "the court must proceed on the basis of principle, not sympathy".
But so long as we always keep the fundamental principles in mind this does
not entail that we should allow ourselves to be beguiled into over subtle
or over complicated attempts to refine or elaborate what is, after all, intended
to be a broadly stated concept of practical justice. This is an area, it seems
to me, in which technicality and black–letter law are to be avoided.
- What are the
fundamental principles? The starting point is obviously the speech of Lord
Goff of Chieveley in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.
The key passages have already been set out by my Lord but they bear repeating.
They need to be read in the context of what Lord Goff had earlier said at
p 578D:
"The
claim for money had and received is not … founded upon any wrong committed
by the club against the solicitors. But it does not … follow that the court
has carte blanche to reject the solicitors’ claim simply because it thinks
it unfair or unjust in the circumstances to grant recovery. The recovery of
money in restitution is not, as a general rule, a matter of discretion for
the court. A claim to recover money at common law is made as a matter of right;
and even though the underlying principle of recovery is the principle of unjust
enrichment, nevertheless, where recovery is denied, it is denied on the basis
of legal principle."
The
classic statements of principle follow at pp 579E and 580F:
"why
do we feel that it would be unjust to allow restitution in cases such as these?
The answer must be that, where an innocent defendant’s position is so changed
that he will suffer an injustice if called upon to repay or to repay in full,
the injustice of requiring him so to repay outweighs the injustice of denying
the plaintiff restitution … 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."
- Lord Goff prefaced
his statement of principle with these important words: "At present I
do not wish to state the principle any less broadly than this". Quite
clearly, as it seems to me, Lord Goff saw his statement of principle as sufficiently
meeting the standard of adequately defined legal principle.
- The other important
observation by Lord Goff that needs to be kept in mind was his emphatic statement
at p 580C:
"I
am most anxious that, in recognising this defence to actions of restitution,
nothing should be said at this stage to inhibit the development of the defence
on a case by case basis, in the usual way."
Lord
Bridge of Harwich said much the same thing at p 558H:
"I
agree with my noble and learned friend, Lord Goff of Chieveley, that … in
expressly acknowledging the availability of this defence for the first time
it would be unwise to attempt to define its scope in abstract terms, but better
to allow the law on the subject to develop on a case by case basis."
- Some ten years
later that same approach still commended itself to the Judicial Committee
of the Privy Council. In Dextra Bank & Trust Co Ltd v Bank of Jamaica
[2002] 1 All ER (Comm) 193 at para [36] Lord Bingham of Cornhill and Lord
Goff of Chieveley referred with approval in their joint judgment to the fact
that in Lipkin Gorman the House of Lords:
"appears
to have adopted a broad approach based on practical justice, and to have avoided
technicality".
They
went on at para [38] to say that:
"The
defence should be regarded as founded on a principle of justice designed to
protect the defendant from a claim to restitution in respect of a benefit
received by him in circumstances in which it would be inequitable to pursue
that claim, or to pursue it in full."
- The focus of
debate is accordingly to identify whether in the particular case it would
in all the circumstances be an "injustice" or "inequitable"
to require the overpaid recipient to make restitution of that which the payer
is prima facie entitled to recover as of right. That is not, with all respect
to those who might suggest otherwise, an exercise in judicial discretion.
It is an exercise in judicial evaluation. The judge is required to make a
value judgment in the light of all the relevant circumstances. And there is
nothing particularly difficult or unusual about this. It is an exercise of
a type familiar in many different areas of both law and more particularly
equity. The pages of Snell’s Equity are replete with examples of situations
where the essential question for the court is whether someone’s conduct has
been, or whether some outcome would be, equitable or inequitable.
- Now there may
be advantage in the courts identifying on a case by case basis matters which
are not determinative of the question or identifying on a case by case
basis matters which do not have to be established in order to make
good the defence of change of position. An important and beneficial application
of that approach can be seen in this court’s acceptance in the Scottish
Equitable case at paras [30]–[32] of the ‘wide’ in preference to the ‘narrow’
version of the defence (as to which see Burrows at pp 513–516). I respectfully
agree that the wide version is to be preferred. The consequence is that, as
a matter of law, the defence of change of position is not dependent
upon proof of some representation by the payer, nor is it dependent upon proof
of any detrimental reliance on the part of the payee. There will, no doubt,
be certain factual circumstances where absent proof of detrimental reliance
it will be unlikely, or perhaps even impossible, for the defence to be made
out. But that is a long way from saying, and there is in law no warrant at
all for saying, that proof of detrimental reliance is a prerequisite to making
good a defence of change of position. Another example of this same approach
can be seen in the rejection in the Dextra Bank case at para [45] of
the concept of ‘relative fault’ in this branch of the law. In this context,
as the Privy Council pointed out, good faith on the part of the recipient
is sufficient.
- What, though,
is much more questionable, however tempting the exercise may seem, is to seek
to define, in more qualified or restrictive terms than those used by Lord
Goff, the requirements which, so it may be said, have to be established if
the defence is to be made good. And there is, if I may say so, particular
danger in seeking to elevate into general principles of law what are in truth
no more than the particular factors which, in the particular circumstances
of a specific case, have been judicially identified as more or less significant
in leading to the conclusion that the defence in that case either is or is
not made out.
- We need, if
I may say so, always to bear in mind that, at the end of the day, the simple
question that has to be asked in every case, and in the final analysis it
is the only potentially determinative question that ever has to be asked,
is this: Has the position of the payee so changed that it would be inequitable
in all the circumstances to require him to make restitution, or alternatively
to make restitution in full? That is the test formulated by Lord Goff in the
Lipkin Gorman case and reaffirmed by Lords Bingham and Goff in the
Dextra Bank case. There is, in my judgment, no need to gloss or refine
it. Indeed any attempt to do so is likely to be not merely unnecessary but
fraught with potential difficulty.
- This takes me
to the first of the four specific points that I wish to make. It relates to
the question of causation.
- Our attention
was drawn to the statement by Jonathan Parker J in Philip Collins Ltd v
Davis [2000] 3 All ER 808 at p 827f that "there must be a causal
link between the change of position and the overpayment." And some emphasis
was placed on the fact that in the Scottish Equitable case Robert Walker
LJ referred no fewer than three times (at paras [30]–[32]) to the need to
show a sufficient causal link. I have no particular difficulty with the general
principle that some such kind of causal link has to be shown, though I note
that there is no reference to any such requirement in Lord Goff’s statement
of principle. But I should be very concerned to see this translated into a
dogmatic legal rule, let alone into a legal analysis of the principles of
causation of the kind that already bedevils too many areas of the common law
or into a theoretical debate as to what particular test of cause and effect
is appropriate or what particular kind of causal link has to be established.
- For my own part
I much prefer the way in which Jonathan Parker J put it in the Philip Collins
case when, at p 827h, he said that the "change of position … must,
on the evidence, be referable in some way to the payment of [the] money."
This is an approach familiar to any equity lawyer. It is the approach which
we see in relation to the maxim that ‘he who comes into equity must come with
clean hands’, where what has to be shown is misconduct which has "an
immediate and necessary relation to the equity sued for": see Snell’s
Equity (ed 30) para 3–15 citing Eyre LCB in Dering v Earl of Winchelsea
(1787) 1 Cox Eq 318 at p 319. And it is the approach which we see in the
requirement of the doctrine of part performance that the acts of part performance
relied upon must be "referable" to the contract sued on: see Snell
at para 40–38 referring to the classic statement of principle by Lord
Selborne LC in Maddison v Alderson (1883) 8 App Cas 467 at p 479. As
my Lord has said (and the phrase captures the same essential concept) the
important point is that there should be a relevant connection between the
change of position and the actual or anticipated payment.
- My second point
relates to the much debated question of whether an anticipatory change of
position can be a good defence to a restitutionary claim. In South Tyneside
Metropolitan BC v Svenska International plc [1995] 1 All ER 545, Clarke
J, following Hobhouse J in Kleinwort Benson Ltd v South Tyneside Metropolitan
BC [1994] 4 All ER 972, said at p 565e that
"save
perhaps in exceptional circumstances, the defence of change of position is
in principle confined to changes which take place after receipt of the money
… It does not however follow that the defence of change of position can never
succeed where the alleged change occurs before the receipt of the money."
Following
on from this, Jonathan Parker J suggested in the Philip Collins case
at p 827g that
"whether
or not a change of position may be anticipatory, it must … have been made
as a consequence of the receipt of, or (it may be) the prospect of receiving,
the money sought to be recovered."
- Now with all
respect this might be thought not to be particularly clear. And Clarke J’s
reference to "exceptional circumstances" is potentially an invitation
to the over–analytical to develop what is surely an entirely unnecessary jurisprudence
of what can or cannot be an exceptional circumstance – a jurisprudence which,
if allowed to flourish, would likely serve only to distract attention away
from the true question identified by Lord Goff.
- Clarke J’s decision
was criticised in Goff & Jones, The Law of Restitution (ed 5, 1998)
pp 822–824, criticisms repeated in the following edition (ed 6, 2002) para
40–004. By then, the Privy Council had decided the Dextra Bank case.
Lord Bingham and Lord Goff in their joint judgment said this:
"[37]
The response by the BOJ to Dextra’s argument has been that it is no less
inequitable to require a defendant to make restitution in full when he has
bona fide changed his position in the expectation of receiving a benefit which
he in fact receives than it is when he has done so after having received that
benefit. Of course, in all these cases the defendant will ex hypothesi have
received the benefit, because the context is an action by the plaintiff seeking
restitution in respect of that benefit. For those who support the distinction,
however, their reply appears to be that, whereas change of position on the
faith of an actual receipt should be protected because of the importance of
upholding the security of receipts, the same is not true of a change of position
in reliance on an expected payment, which does not merit protection beyond
that conferred by the law of contract (including promissory estoppel).
[38]
Their Lordships confess that they find that reply unconvincing. Here what
is in issue is the justice or injustice of enforcing a restitutionary claim
in respect of a benefit conferred. In that context, it is difficult to see
what relevant distinction can be drawn between (1) a case in which the defendant
expends on some extraordinary expenditure all or part of a sum of money which
he has received from the plaintiff, and (2) one in which the defendant incurs
such expenditure in the expectation that he will receive the sum of money
from the plaintiff, which he does in fact receive. Since ex hypothesi the
defendant will in fact have received the expected payment, there is no question
of the defendant using the defence of change of position to enforce, directly
or indirectly, a claim to that money. It is surely no abuse of language to
say, in the second case as in the first, that the defendant has incurred the
expenditure in reliance on the plaintiff’s payment or, as is sometimes said,
on the faith of the payment. It is true that, in the second case, the defendant
relied on the payment being made to him in the future (as well as relying
on such payment, when made, being a valid payment); but, provided that his
change of position was in good faith, it should provide, pro tanto at least,
a good defence because it would be inequitable to require the defendant to
make restitution, or to make restitution in full. In particular it does not,
in their Lordships’ opinion, assist to rationalise the defence of change of
position as concerned to protect security of receipts and then to derive from
that rationalisation a limitation on the defence. The defence should be regarded
as founded on a principle of justice designed to protect the defendant from
a claim to restitution in respect of a benefit received by him in circumstances
in which it would be inequitable to pursue that claim, or to pursue it in
full. In any event, since (as previously stated) the context of a restitutionary
action requires that the expected payment has in any event been received by
the defendant, giving effect to ‘anticipatory reliance’ in that context will
indeed operate to protect the security of an actual receipt."
- Mr Hollander
sought to explain – in truth he sought to explain away – the decision in the
Dextra Bank case on the basis that the anticipatory change of position
and the subsequent receipt were so close together in point of time that they
could really be treated as part and parcel of one transaction. He sought to
persuade us that no anticipatory change of position could be relied on unless
it formed part of the res gestae. This, with all respect to him, will not
do. It is not what the Privy Council said: it is in fact, as it seems to me,
quite inconsistent with the emphatic rejection by Lords Bingham and Goff of
the distinction with which they were pressed. It is contrary to principle.
It is the kind of rule which may sound all very good in theory but which in
reality sits most uncomfortably with a principle which seeks to distinguish
what is equitable from what is inequitable. And it is, if I may be permitted
to say so, a good example of the impermissible attempt to use the facts of
a leading case to control the principles expounded by the judges in deciding
the case. There is here no legal rule or principle of the kind for which Mr
Hollander contends. The only point is that expressed by the learned editors
of Goff & Jones at para 40-005:
"in
Dextra Bank, the defendants had been enriched soon after they had changed
their position. The facts led to the conclusion that BOJ had relied on the
fact that the Dextra cheque, when cleared, would reimburse it. The burden
of establishing the defence will become much greater if the evidence does
not suggest a link with the anticipatory payment and the subsequent receipt
of a payment, particularly if the receipts are received sometime after the
anticipatory change of position. But in each case it will be a question of
fact for the court to determine."
Precisely
so: there is no point of legal principle here, it is a question of fact.
- Commenting on
the decision in the Dextra Bank case the editors of Goff & Jones
predicted at para 40–005 that "English courts will now follow the
advice of the Privy Council, rather than the first instance decisions, … and
will hold that anticipatory change of position is a good defence to a restitutionary
claim." We should follow that invitation. In my judgment this court should
now take the opportunity to say, clearly and unequivocally, that an anticipatory
change of position is in principle a perfectly good defence to a restitutionary
claim. Whether or not an anticipatory change is actually a good defence will,
of course, depend upon the facts of the particular case.
- My third point
arises out of Mr Hollander’s submission that there can be no change of position
sufficient to found the defence in the absence of either financial detriment
or, at the least, some detriment measurable in financial – by which I understood
Mr Hollander really to mean pecuniary – terms. Perhaps not surprisingly,
because in my judgment the point is completely unsound as a matter of principle,
Mr Hollander was unable to point to any authority supportive of his submission.
The passages in Burrows to which he directed our attention do not bear
the weight of the argument any more than does the passage in Lord Goff’s speech
in the Lipkin Gorman case at p 580H to which he also directed our attention.
- In the Scottish
Equitable case, Robert Walker LJ at para [32] gave as "the most obvious
example" of the kind of decision made by a payee which, even though it
involves no immediate expenditure, will nonetheless give rise to the defence
of change of position, the voluntary giving up of a job at an age when it
would not be easy to get new employment. Now if that decision can, as in appropriate
circumstances it plainly can, give rise to the defence of change of position,
why should not a decision for example to divorce? Can it really make any difference
that in the first case it is possible to calculate the pecuniary cost to the
payee of his decision to abandon his employment (that, after all, being the
kind of exercise conducted in personal injury and fatal accident cases every
day of the week) whilst in the second case it may not be possible to measure
in pecuniary terms the cost to the payee of his decision to divorce? Surely
not. It is, in my judgment, a distinction without a difference. It is, as
it seems to me, a distinction which lacks any justification when tested by
reference to the "broad approach based on practical justice" enshrined
in Lord Goff’s formulation of the principle. And it is, moreover, a distinction
which is hardly consonant with the approach of equity in other more or less
analogous situations.
- Consider, for
example, the kinds of detriment which have been held to give rise to a proprietary
estoppel (see Snell at para 39–14). Or consider, for example, Sutton
v Sutton [1984] Ch 184, where a husband and his wife agreed that in consideration,
inter alia, of the wife consenting to the husband divorcing her under section
1(2)(d) of the Matrimonial Causes Act 1973 (two years’ separation and consent),
he would transfer the matrimonial home to her. A decree absolute was made
on the husband’s petition but he refused to carry out his part of the bargain.
It was held (at p 193C) that the wife’s consenting to the divorce as agreed
was an act of part performance, being an act referable to the contract. As
the judge put it, "her consent to the petition was in itself, in the
circumstances, tied to the contract about the house". The judge went
on to say (at p 193F) that the husband "stood by and let her perform
that part of her bargain irretrievably, and that raised an equity" in
her favour.
- Thus the approach
of equity. But consider the facts which I recently had to consider, albeit
in a wholly different legal context, in X v X (Y and Z intervening) [2002]
1 FLR 508: an agreement under which the quid pro quo for the payment of a
sum of money was a husband’s agreement not to defend his wife’s petition for
divorce grounded on his behaviour (even though he believed that he had grounds
for divorcing her for adultery) and his agreement also to give her a Jewish
religious divorce – a get. Now if, as Robert Walker LJ tells us, giving up
a job is capable of giving rise to the defence of change of position, then
why should not the husband’s actions in X v X equally be capable of
giving rise to such a defence? And why should it make any difference that
it is quite impossible to put any pecuniary value on what the husband did?
For, as I remarked in X v X at paras [111]–[112]:
"[111] …
A number of the factors in play are simply unquantifiable on any objective
basis. How is a secular judge to evaluate the combination of the get and a
decree based on the husband’s conduct rather than the wife’s adultery for
a family apparently exercised by the possible religious and social ramifications?
How am I to put a price on the cost to the husband of a divorce obtained by
his wife against him on the ground of his behaviour rather than a divorce
obtained by him on the ground of her adultery? …
[112] There
are no means by which a secular judge, who may himself be an adherent of the
same or a different faith or of no faith at all, can evaluate, let alone attribute
some pecuniary value to, something as personal and of such religious significance
as a get."
- As counsel submitted
in that case, and I agreed, "the husband has wholly fulfilled his side
of the bargain and … it would be grotesquely unfair if the wife were able
now to walk away with the two things she desired whilst wholly avoiding her
obligations under the agreement." True it is that the legal context in
which I there had to consider the matter was wholly different from that with
which we are here concerned, but surely it would be just as grotesquely unfair
not to allow a husband to rely on such conduct were the question to arise
in the context of an asserted defence of change of position.
- I do not believe
that anything I am saying is in any way inconsistent with anything Robert
Walker LJ said in the Scottish Equitable case. But equally there is,
in my judgment, no support to be found in that case for Mr Hollander’s submissions.
The point in Scottish Equitable at the end of the day was simply this:
that if the circumstances do not otherwise justify a defence of change of
position it makes no difference that the demand for repayment will come as
a bitter disappointment, or even as a devastating blow, to the payee.
- My fourth and
final point arises out of the assertions by Fung & Ho, Change of Position
and Estoppel (2001) 117 LQR 14 at p 17 that:
"
… the defence of change of position only protects actual reduction
of the recipient’s wealth. A recipient who acts upon a receipt (and representation)
to forego a foreseeable and quantifiable opportunity to improve his wealth
would not be protected. … change of position seeks to undo the overpayment
– and nothing more – by measuring the precise extent of the defendant’s surviving
enrichment … "
That
appears in what is in fact a case–note commenting on the decision at first
instance in the Scottish Equitable case and thus ante–dates not merely
the decision of this court in the Scottish Equitable case but also
the decision of the Privy Council in the Dextra Bank case.
- This article
was mentioned in passing by Potter LJ giving the main judgment of this court
in National Westminster Bank plc v Somer International (UK) Ltd [2001]
EWCA Civ 970, [2002] QB 1286. At para [47] he said:
"
… as pointed out by Fung and Ho … "change of position" only protects
actual reduction of the transferee’s assets following receipt."
It
is to be noted that this observation, which I do not read as being any part
of the ratio decidendi of the case, was made in the context not of a discussion
of the defence of change of position but rather of a defence based on estoppel
by representation. Moreover, as the editors of Goff & Jones bleakly
comment at para 40–013, "The Lord Justice cites no authority for that
statement, and we know of none." In my judgment, and with all respect
both to Potter LJ and to the learned authors he was citing, there is no authority
for any of these propositions, and the assertions by Hung & Fo which I
have quoted are not an accurate statement of the law.
- So much for
principle and law. I turn to the facts of the present case.
- As set out in
his witness statement the defendant’s case is that he had expected to receive
a substantial ‘lock-in’, that he stayed with the Bank through what he calls
"a period of extreme uncertainty" because of his lock-in, and that
had he been offered only an additional £15,000 "I would not have shouldered
that risk. I would have assumed that I was not a valued employee and I would
have taken the opportunity to find alternative employment at a time when other
employers in the market were still hiring. The current downturn has meant
that most employers in the market are not now hiring".
- The Deputy Judge
accepted the defendant’s evidence which, as set out by the judge in paragraphs
[16] and [30] of his judgment, came to this:
- The defendant
was pleased to receive the letter of 29 June 2000, which he read as meaning
that he had been awarded a lock-in payment of an additional £265,000. He
was pleased not only because he was to receive an extra £265,000 but also
because this was a ‘signal’ that he was a valued employee.
- If such a
lock-in had not been offered the defendant would have decided to look for
employment elsewhere, even though this would have meant him losing the £250,000
guaranteed bonus payable in December 2000 and the £250,000 guaranteed bonus
payable in December 2001 and also having to repay the £150,000 buy-out payment
that, although due on 15 October 2000, had been paid early on 23 June 2000.
- If he had
understood the letter of 29 June 2000 as meaning that he was to receive
only an additional £15,000, he would have treated it as being intended by
the Bank to be a disincentive to stay because (a) £15,000 was in the scheme
of things a very small sum, (b) the postponement of payment of £250,000
by three months was a significant detriment and (c) together these two features
would have "sent a signal that he was not well regarded by the Bank."
- The defendant
would have been willing to forego the financial benefits of staying with
the Bank in exchange for the certainty of employment and career development
elsewhere, and would have been prepared to accept "slightly lesser"
remuneration elsewhere for the certainty of continued employment.
- The Judge accordingly
held that:
- The defendant
decided to stay at the Bank as a result of the 29 June 2000 letter and his
understanding of it.
- If it had
not been for that letter the defendant would have taken steps in late June
2000 to seek employment elsewhere.
- If he had
done so, the defendant stood a very good chance of obtaining similar employment
elsewhere.
- Accordingly,
the letter of 29 June 2000 caused the defendant to change his position,
as a result of which he has suffered a detriment.
- In opening his
attack on the Deputy Judge’s reasoning, Mr Hollander rightly draws attention
to the chronology and to the narrow and limited basis upon which the defendant
– necessarily in the light of his own evidence – has to seek to found his
defence. My Lord has set out the facts in some detail. All I need do here
is to recall that the crucial letter was dated 29 June 2000, that it was counter-signed
by the defendant on 5 August 2000, that the payment of £250,000 was made on
15 December 2000 and that the additional payment of £265,000 was made on 23
March 2001. The defendant’s change of position, according to his evidence,
and accepted by the Deputy Judge, occurred in late June 2000, that is, long
before either payment was made. And as Mr Hollander points out, although the
defendant had earlier sought to mount a case based on change of position as
a result of receipt of the additional money (namely, that he had used it to
repay his mortgage) that case was abandoned at trial. As Mr Hollander puts
it, what caused the defendant to change his position was not the receipt of
the money but the ‘signal’ which the letter gave him.
- It follows,
says Mr Hollander, and I agree, that properly understood the defendant’s case
comes down to this: By definition the issue only arises on the premise that
the court has accepted – as in fact it has – that the letter of 29 June 2000
should be interpreted in the manner submitted by the Bank. It follows that
the defendant’s case is – has to be – that he changed his position based on
his mistaken interpretation of the letter. But, says Mr Hollander, that mistaken
interpretation was neither shared by nor, more importantly, in any way contributed
to by the Bank. It is at this point that, in the particular circumstances
of this case, it is important to remember that at the relevant date the Bank
had not even made the erroneous payment. So all the Bank had done at the crucial
point at which the defendant changed his position was to send him the letter.
- As a matter
of law the letter of 29 June 2000 means what it would have conveyed to a reasonable
person in the defendant’s position having all the background knowledge that
would reasonably have been available to the defendant and the Bank in the
situation which they were then in. And, judged by that standard, I agree with
my Lord that the letter means not what the defendant believed but rather what,
as the Deputy Judge found, the Bank believed and intended it to mean. So the
mistaken interpretation which is thus the very foundation of the defendant’s
case was not in any way shared or contributed to by the Bank. And as Mr Hollander
points out, if the defendant had asked the Bank what its letter meant (which
of course he never did) he would no doubt have been told that it meant £265,000
in total, for this, as the Deputy Judge found, is what the Bank believed and
intended. Moreover, as Mr Hollander also points out, if the defendant had
contacted the Bank he would have discovered that he had completely misread
the position and that, far from the letter being a signal that he was not
valued by his employers, he was in fact, as the Deputy Judge found, seen by
the Bank as a valuable and valued employee. Furthermore, it necessarily follows
that the defendant’s mistaken belief is not that which would have been held
by a reasonable person in his position.
- In these circumstances,
says Mr Hollander, the defendant’s case on change of position amounts to no
more than a decision by him not to seek to change his job based on his own
mistaken interpretation of the effect of the letter. But, says Mr Hollander,
the law does not permit those who rely upon mistaken interpretations of contracts
to use their own error as a legal defence. For otherwise the defendant is
being allowed to profit from his own error, nothing more and nothing less.
On that simple point, says Mr Hollander, the defendant’s case breaks down.
- The Deputy Judge
held that in these circumstances it would be inequitable to require the defendant
to make restitution. With all respect to the Judge, as also to Mr Englehart’s
valiant attempts to persuade us that the Judge was correct, I profoundly disagree.
Where is the justice, where is the equity, in allowing the defendant to retain,
to the Bank’s detriment, the fruits of what is simply his own mistake – and
a mistake which, as I have said, was in no way caused or contributed to by
the Bank? What is there in any way inequitable or unjust in the Bank seeking
to recover its own money – and, as Lord Goff has pointed out, seeking to do
so as a matter of right – when the only matter that can be prayed in aid in
resisting that claim is the defendant’s own mistake, a mistake which, to repeat,
was not in any way caused or contributed to by the Bank and which, moreover,
had nothing to do with anything either done or not done by the Bank? In my
judgment, equity and justice are quite plainly in these circumstances on the
side not of the defendant but rather of the Bank.
- Mr Englehart
says that Mr Hollander’s argument is based on a fallacy, namely that the objective
interpretation by the reasonable man which is used to answer the question
as to what the letter means as a matter of construction has a part to play
in assessing the merits of a defence of change of position to a restitution
claim. With all respect to him I cannot accept Mr Englehart’s submission.
Why on earth, in an appropriate case, should Mr Hollander’s point not have
a part to play in assessing where the balance of justice and equity lies?
And why on earth is this not precisely the kind of case where the point has
a part – and, as it seems to me, a significant part – to play in striking
the balance? Mr Englehart further submits that Mr Hollander’s approach is
ruled out by the Privy Council’s express condemnation in the Dextra Bank
case of the concept of relative fault. I do not agree. I accept, as I
have already said, that relative fault has no role to play in this branch
of the law. But this does not mean that the court is required to blind itself
to the fact, if fact it be, that someone seeking to make good the defence
of change of position has only himself to blame for his predicament, having
acted on a view which is not merely erroneous but which, moreover, fails to
meet the standard of the reasonable man.
- Mr Englehart
submits that the inquiry here is simply whether or not the defendant bona
fide believed that he was entitled to money he anticipated receiving and whether
he changed his position in that belief. That, with respect to Mr Englehart,
is not the relevant question. The question is whether or not it is inequitable
to deny the defendant a defence based on change of position when his decision
to change his position was not in any way caused or contributed to by anything
done or not done by the Bank but, on the contrary, was based entirely on his
own erroneous understanding of what the Bank’s letter meant. I can see nothing
inequitable in denying the defendant such a defence. On the contrary, it would
in my judgment be inequitable in the circumstances of this case to deny the
Bank the right to recover its money.
- I have not ignored
the fact – and fact it is – that the Bank also made mistakes when it made
the payments to the defendant on 15 December 2000 and 23 March 2001. The errors
were thus not all on one side. But the Bank’s errors, egregious though they
may have been, are largely irrelevant for present purposes. For, as I have
said, they long post-dated and therefore cannot have been operating on the
defendant’s mind at the time when, on his case, he changed his position.
- Mr Hollander
put forward various other arguments as to why, as he would have it, the defendant
could not rely upon the defence of change of position. Those arguments were,
in the final analysis, based upon propositions of law which, for the reasons
I have already set out, I cannot accept. I say no more about his arguments.
I should, however, make clear my agreement with Mr Englehart’s submission
that there is no material difference in substance in this kind of case between
voluntarily giving up a job (the situation postulated by Robert Walker LJ
in the Scottish Equitable case) and voluntarily choosing to
stay in a job (what the defendant did here). Either may, in appropriate circumstances,
suffice to found a defence of change of position; in other circumstances,
neither may suffice. It all depends on the facts.
- There is one
final point. When I prepared this judgment I was not aware of the decision
of this court in Niru Battery Manufacturing Co and anor v Milestone Trading
Ltd and ors [2003] EWCA Civ 1446, the judgments in which were handed down
on 23 October 2003. As I read them there is nothing in those judgments which
is in any way inconsistent with the views I have expressed. On the contrary,
Clarke LJ made clear (see para [162]) that: