Duncan Sheehan

A pays B £1000 by mistake. B promptly treats his friends to a posh dinner at a restaurant. A realises the error and demands the money back. It may be unfair on B to make him repay because he has changed his position by spending the money and done so in reliance on the belief that he is entitled to the money.

In my article, ‘The scope and rationale(s) of the change of position defence’ in the Northern Ireland Legal Quarterly, I explore when and why the law allows B such an argument. The defence is often said to be a defence to all unjust enrichment claims and to no others, but it might not in fact be available to all unjust enrichment defendants. One who has subjected the claimant to duress to obtain a payment may not be able to rely on the defence because the fact of the duress implies receipt of the money was in bad faith. In Cavenagh Investments Pte v Kaushik [2013] SGHC 45, Rajiv Kaushik was sued for trespass for his unlawful occupation of an apartment owned by the claimant. Yet Kaushik had been deceived into thinking he was paying rent lawfully to the claimants. That rent was allowed into account as a change of position. Proprietary claims where a trustee has misappropriated money and paid it to a third party who then changes his position by taking his friends out for dinner are also – or should in principle be – susceptible to the defence.

That then is when the defence is (or should be) allowed? But why should it be allowed? One view I canvass is that the defendant is disenriched. For an unjust enrichment claim to lie the defendant must be enriched. If he is not enriched, or enriched any more, he is not liable. While there is a pleasing symmetry to this, it does not quite work. First, changes of position can be non-disenriching. Elise Bant suggests the example of having a baby. Secondly, not all disenrichments count. If I know of your mistake, I cannot rely on my disenrichment. Thirdly, sometimes the defence is available even if I am still enriched. In RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230, the defendant bought new furniture with the money. She was still enriched to the value of the furniture she would not otherwise have purchased, but she successfully invoked the defence.

The High Court of Australia in the case of AFSL v Hills Industries [2014] HCA 14 therefore rejects disenrichment and instead invokes the idea of irreversible detriment. In short, it represents the sense that the good faith defendant should not be rendered ‘worse off’ by restitution. This has several advantages over disenrichment. First it catches those non-disenriching changes of position. Secondly, by cutting the link with the enrichment enquiry it allows the defence to cover cases outside the law of unjust enrichment.

The next question is ‘No worse off than what?’ We need to choose a baseline from which to decide if the defendant is worse off. Ratan invokes an idea of ‘outcome responsibility’ to justify such a baseline. Ratan suggests that the defendant should not be worse off than had the claimant not made the mistake because the claimant – by making the mistake – bears sufficient outcome responsibility for the defendant’s actions. The account fails, however, to explain all the cases where change of position is normatively attractive and which the irreversible detriment view allows. Outcome responsibility is in part constitutive of our identity. We are thinking agents because we are responsible for the outcomes of our actions. Otherwise, stuff just happens; nobody is responsible for anything, and nobody really does anything. Outcome responsibility then allows us to morally attribute responsibility. This is what it adds to purely factual causation, but it still depends on causation because our actions must be a sufficient cause of the outcome. This is the first problem with Ratan’s thesis. What does ‘sufficiently cause’ mean? In the example with which I started the blog, B needs to be able to say that A is sufficiently responsible for B’s change of position that A is disentitled from asking for the money back. A is responsible in the sense that A paid the money (without which B could not have gone out for dinner), but so is B; B made the decision to spend the money. If C steals the money before B can go to the restaurant, is C not responsible? If C is responsible, how can A be and how can B then avail himself of the defence? Ratan also fails to explain why innocent wrongdoers should have the benefit of the defence. In Cavenagh Investments, Dr Kaushik did trespass by occupying the apartment. Outcome responsibility must surely fix the wrongdoer with greater responsibility than the innocent victim, barring change of position. But arguably this is the wrong answer. The condominium owner’s property rights are not absolute, and the innocent defendant should be afforded the freedom to decide his own spending priorities. Dr Kaushik is made irreversibly worse off by a restitutionary claim and this is not what restitution is for. The same argument applies to the trustee cases. If a trustee (T) misappropriates funds and pays them to A, who relies on the receipt and takes his friends out to dinner and the beneficiary (B) then sues, who has outcome responsibility for the change of position? It cannot surely be B. B might have entrusted assets to T, but that cannot extend to responsibility for A’s actions. A must be outcome responsible and change of position barred, but again this seems the wrong answer. It should not matter whether the money spent on dinner is the exact money paid by the trustee (in which case it is untraceable and unclaimable) or is arbitrarily paid from a different bank account, albeit still relying on the belief that the recipient can keep the money paid. The third party must be free to determine his spending priorities and there seems no reason for his creditors to suffer either.

The ‘no worse off’ thesis seems the best justification for the defence; we need to bolster that with a defence of a baseline – ‘no worse off than what?’ Ratan’s ingenious thesis, however, cannot provide that.