High Court on the Action for Money Had and Received

By 11/05/2014Restitution
money had and received

In Australian Financial Services and Leasing Pty Limited v Hills Industries Limited [2014] HCA 14, the High Court dismissed an action for money had and received where the appellant made mistaken payments to the respondents despite those payments being made as a result of fraud committed by a third party.

Background

The appellant, AFSL, was a business financier and the respondents, Hills Industries and Bosch Security Systems, were manufacturers and suppliers of commercial equipment.

In August and September 2009, Mr Skarzynski, a director and shareholder of various companies in the Total Concepts Projects group (TCP), forged invoices for the purchase of equipment by TCP from Hills and Bosch.  He presented these false invoices to AFSL.  AFSL agreed to purchase the equipment and lease it back to TCP.

AFSL paid the amounts of each invoice directly to Hills and Bosch.  Mr Skarzynski fraudulently induced Hills and Bosch to believe that the payments were in reduction of debt owed to them by TCP.  As requested by Mr Skarzynski, Hills and Bosch credited TCP’s accounts with the amount of the payments.

AFSL paid the amounts acting under the mistaken impression that it was paying for the purchase of equipment for the purposes of leasing it back to TCP.  In fact the equipment did not exist. However from time to time TCP made payments to AFSL under various lease agreements.  Mr Skarzynski’s fraud was not detected until late March or early April 2010, when AFSL discovered its mistake.

On or about 6 April 2010 AFSL demanded that Hills and Bosch repay the money paid to them by mistake, and claimed that Hills and Bosch had been unjustly enriched.  Each rejected the demand on the basis that they had changed their positions on the faith of the payments:

  • Hills received $308,000 from AFSL which it applied to discharge TCP’s existing debt in that amount, then re-opened TCP’s credit account, advanced further credit and continued to supply TCP on credit;
  • Bosch received $198,000 from AFSL, on the basis of which it consented to the setting aside of default judgments supporting garnishee orders in that amount against TCP and TCP’s directors, and resumed trading with TCP.

On 12 April 2010, six days after AFSL made its demands for repayment, the Commonwealth Bank, a secured creditor of TCP, appointed receivers and managers to TCP.  On 5 July 2010 a liquidator was appointed to TCP, who subsequently reported that TCP’s total realisable assets were zero, and that its total liabilities were $11.1 million.

The result

The High Court unanimously dismissed AFSL’s appeal, and held that AFSL was not entitled to maintain an action for money had and received by reason of Hills’ and Bosch’s changes of position.  Their changes in position constituted a complete defence to the action.

French CJ

French CJ held that at the time AFSL demanded repayment, Hills and Bosch had suffered economic detriment of a kind that fell well within the class of detriment relevant to the change of position defence.  In particular the prospect of recovering the debt that TCP owed them prior to AFSL’s payments no longer existed.  The relevant detriment was also attributable to the passage of time from when the payments were made to the date of demand (at [29]).

The majority (Hayne, Crennan, Kiefel, Bell and Keane JJ)

The majority justices noted that it was important to appreciate that this case involved transactions in a commercial context, rather than the simple receipt and retention by an individual of the benefit of a mistaken payment.

Further the conduct of parties in their business dealings and the extent of any risk assumed by them may in some cases be relevant to the question whether it is inequitable to deny recovery or require repayment of monies (at [55]).

The majority went on to say that the question was whether it would be inequitable in all the circumstances to require Hills and Bosch to make restitution.  The answer to that question did not depend on any “principle” of unjust enrichment (which was “not the basis of restitutionary relief in Australian law”), but rather on an enquiry “directed to who should properly bear the loss and why” (original emphasis) (at [69], [78]).

To make out a defence of change of position it is necessary to find a detriment that flows from reliance upon an assumption, when the assumption is to be departed from.  The detriment must be substantial, but need not consist of expenditure of money or other quantifiable benefit (at [87]-[88]).  In this case the detriment lay in the result to Hills and Bosch if AFSL were to be permitted to recover payments mistakenly made where those payments had been applied by Hills and Bosch.

In this case Hills and Bosch not only continued to trade with TCP on the basis of the payments received (which entailed commercial risk), they discharged TCP’s debts and no longer sought to recover them (at [93]).  The detriment lay in the fact that these decisions were irreversible, for example even if the discharges of debt were reversible Hills and Bosch would become unpaid creditors of TCP in its liquidation (at [95]).

In the circumstances the detriment that Hills and Bosch would suffer if they were required to repay the monies each had received from AFSL was such that it would be inequitable for them to do so (at [96]).

Gageler J

In Gageler J’s view, the defence of change of position was established because Hills and Bosch gave up a commercial opportunity to recover TCP’s debts, the substantial value of which was lost due to the intervening liquidation of TCP.  However, unlike the other justices, Gageler J would have been prepared to reduce the amounts Hills and Bosch were entitled to retain, if it were to appear that the value of the commercial opportunities foregone were able to be quantified as other, lesser amounts (at [166]).

Comment

This case shows the importance, in trade, of appreciating that when monies are paid over by mistake, the recipient may not necessarily be required to make repayment.  The prima facie obligation to make repayment will be displaced where an order for restitution would be unjust, for instance, as in this case, where the recipient has so changed its position that it would be inequitable to do so.

Join the discussion One Comment

  • There is useful consideration of this case in Lampson (Australia) Pty Ltd Fortescue Metals Group Ltd [No 3] [2014] WASC 162

    Edelman J’s observations in Lampson are illuminating, particularly for construction lawyers. His Honour begins by characterising the concept of “unjust enrichment” as a “taxonomic category”, rather like “torts”. Just as it would constitute defective pleading of a claim for damages in negligence, assault, battery, conversion, nuisance, trespass to land, trespass to goods, etc. simply to allege a “tort”, so would it be to allege an “unjust enrichment” in a claim for restitution.

    His Honour also reminds us that apparently minor factual differences can have legally significant consequences. Of particular note for construction lawyers is His Honour’s example of the relevant difference between the facts of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 and of Stocznia Gdanska SA v Latvian Shipping Company [1998] 1 WLR 574. As His Honour points out at [110], “Lord Lloyd distinguished between a contract (and, I interpolate, a request) for an end product, or a transfer of title, and one ‘which also includes the provision of services prior to delivery’”.

    Construction contracts imposing a presumptively entire obligation on contractors to deliver substantially the whole of the agreed scope of works (see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1973] 3 All ER 195), the importance of Edelman J’s observation in a construction context is clear.