- This is an appeal from
an order of Harrison J made in the Queen’s Bench Division on 1 October 1999.
He gave judgment in favour of the claimant, Scottish Equitable plc, for a
principal sum of a little over £162,000, and accrued interest, in its claim
against the defendant, Mr Gordon Derby. The judge’s judgment is reported at
[2000] 3 AER 793. The case raises questions of some general interest and importance
as to claims for money paid under a mistake and the defences of change of
position and estoppel.
The facts
- Neither the appellant’s
notice nor the respondent’s notice attacks any of the judge’s findings of
primary fact. There is however some criticism of his characterisation of some
of the facts (for instance, whether Scottish Equitable was guilty of mere
carelessness or, as Mr Derby contends, gross and repeated negligence) and
there is an issue as to how broad a view the judge should have taken on change
of position. It is therefore necessary to set out the facts as found by the
judge in some detail. Further detail can be found in the reported first-instance
judgment.
- At the beginning of 1988
Mr Derby was aged 57. He was a married man with two stepchildren at fee-paying
schools. He and his wife lived in Kent in a house then worth about £90,000
subject to a mortgage of about £35,000. He was employed by a company called
Baltic Sawmills. His wife (who is fifteen years younger) had her own business,
running two clothes shops, but the business was not prospering (and it was
to get worse rather than better).
- In the spring of 1988
Mr Derby was made redundant. On his redundancy he received a total sum of
£125,000 of which £90,000 seems to have been a transfer payment under his
occupational pension scheme. The transfer payment went into a single-premium
pension policy with Scottish Equitable. As an alternative source of earned
income Mr Derby went into partnership as a recruitment consultant to the timber
trade but until 1998 (when the partnership came to an end) he never derived
more than about £13,000 a year from it. In 1989 his wife’s business difficulties
increased and he and his wife were under pressure from their bank.
- In these circumstances
Mr Derby considered, and eventually decided on, exercising an option to take
early retirement benefits under his policy with Scottish Equitable. What happened
(and it helps to explain, although it does not excuse, the mistakes which
were later made) was that in August 1989 Mr Derby asked for figures to be
quoted for the option, decided to take it, and then changed his mind; and
then in February 1990 he again asked for a quotation, decided to take it,
and this time did not change his mind. The option which he took was for a
tax-free lump-sum payment of £36,588 and an immediate single-life pension
of £4,655 a year, escalating at 3 per cent per annum. (I follow the judge
in disregarding odd pence throughout.) In fact through another quite separate
error the escalator was not applied for several years, but Mr Derby has been
compensated for that and there is no issue on it. After exercising the option
Mr Derby thought, correctly, that his remaining rights under the policy were
worth about £50,000.
- Mrs Derby’s retail business
came to an end and in 1991 she took employment with the Kent Probation Service.
She was still in that employment at the time of the trial although she had
had nearly a year off with ill-health during 1993-4.
- In April 1995 Mr Derby
was approaching his 65th birthday (1 May 1995) and he telephoned
Scottish Equitable (at its Customer Services Division in Edinburgh) to inquire
what would happen to his pension when he became entitled to the state pension.
On 22 May 1995 there was another more important telephone conversation which
was recorded in a manuscript note made by an employee of Scottish Equitable
(and subsequently annotated, it seems, by another employee). The judge’s findings
about this were as follows:
"It would appear
from the claimant’s memorandum of that conversation that the defendant probably
told the claimant that he was already receiving an annuity from them. The
defendant cannot recall that conversation although his telephone bills show
that he made a call to the claimant on that day. Another entry on the memorandum
contains an internal instruction that a quotation should be prepared. A subsequent
annotation on the memorandum suggests that the defendant’s records were checked,
but that it was concluded, wrongly, that the defendant had not received early
retirement benefit, because the person checking the records had only looked
at the defendant’s cancelled decision to take early retirement benefit in
August 1989, without looking at the rest of the microfiche."
- On 25 May 1995 Scottish
Equitable sent Mr Derby a print-out statement showing that his policy had
a value of £201,938. Mr Derby’s evidence was that he was very pleasantly surprised
by this (since the fund value appeared to have increased by a factor of four
within five years) but that he was naive in pension matters. The judge said
that he had initially been sceptical about Mr Derby’s evidence, especially
as he had engaged a financial consultant, Mr Colin Donald of Fairmount Trust
plc, to advise him. But having seen and heard Mr Derby give evidence the judge
accepted him as an honest witness:
"I find, on
the balance of probabilities, that he did inform the claimant that he was
already receiving a pension from them, and that he was nevertheless assured
by them that the figures quoted in the statement of retirement benefits were
correct. I am surprised that the mistake was not discovered by Mr Donald,
his financial advisor, but I feel I must accept the defendant’s evidence that
Mr Donald did not tell him that a mistake had been made."
- Mr Donald raised various
queries with Scottish Equitable and on 9 June 1995 Scottish Equitable issued
a further statement of retirement benefits with four options. These were permutations
on the choice between taking part of the benefits in the form of a tax-free
lump sum or taking them all in the form of a retirement pension and widow’s
pension, and the choice between taking the benefits from Scottish Equitable
or from some other provider. On 16 June Mr Derby, acting on Mr Donald’s advice,
chose option 3, which was to take a lump sum of £51,333 from Scottish Equitable
and to have £150,604 (referred to as the ‘balance open market option’) paid
to Norwich Union.
- On 20 June 1995 Scottish
Equitable sent Mr Donald a cheque for £51,333 in favour of Mr Derby and a
separate cheque for £150,604 in favour of Norwich Union. The fact that there
were two separate payments is relied on in the respondent’s notice. Norwich
Union had quoted for a (non-escalated) pension of £13,521 for Mr Derby and
a widow’s pension of half that amount. So from June 1995 Mr Derby was receiving
a pension at the annual rate of £4,655 from Scottish Equitable (the 3 per
cent escalator having been overlooked) and a pension at the annual rate of
£13,521 from Norwich Union.
- In quoting a fund value
of £201,938 Scottish Equitable had made a serious error. It had not taken
account of the early retirement benefits which Mr Derby had taken (after a
false start) in 1990. Evidence about the mistake was given by Miss Phyllis
Duncan, a project team manager in Scottish Equitable’s data quality department
in Edinburgh. The judge’s findings were as follows:
" ... when
the defendant was paid his early retirement benefits in February 1990 his
computer records should have been amended to show that only his residual fund
necessary to pay his guaranteed minimum pension remained. That residual fund
should have been £29, 486, producing the guaranteed minimum pension of £2,637.
That had not been done, as a result of which the claimant mistakenly paid
to the defendant the amount to which he would have been entitled had he not
taken the early retirement benefits under the policy in February 1990.
The mistake
should have come to light in December 1992, when Miss Duncan was working as
an assistant manager in the claims department on a project to check that the
files were correct for the end of year valuation. When she was carrying out
that exercise, she noticed that the records did not tally, in so far as the
annuity payment system for the defendant in 1992 showed that an annuity had
been set up, but the VPR record did not show that a tax-free lump sum had
been paid. As a result, Miss Duncan sent a memorandum dated 11 December 1992
to Mr Clark, her section manager, requesting his department to alter the VPR
records for the defendant’s policy. If that had been done, the record would
have been updated to show that the defendant had received early retirement
benefit in 1990 and, therefore, show the true value of his remaining fund.
Miss Duncan did not take any further action to check if the record had been
corrected because she moved to another department. Mr Clark, in his evidence,
said that he had no recollection of that memorandum, but it would have been
his procedure to have passed such a memorandum to someone in his section to
update the VPR records. However, for some reason, it was not allocated to
a specific member of staff and he could not say why the instruction to update
the records was not actioned."
(No-one in
court was able to tell the judge what ‘VPR’ stood for, but it was part of
the computerised system. Paper records were stored on microfiche.)
- It was common ground that
the amount of the overpayment was £172,451 (being the difference between £201,938
and £29,486). It was also not in dispute that of the £51,333 received by Mr
Derby himself, £41,671 was used to reduce (by about two-thirds) the mortgage
on the matrimonial home. The disparity between the evidence as to the size
of the mortgage in 1988 and 1995 is not fully explained either in the judgment
or in the witness statements, but it appears that at some stage there was
a further advance of £30,000 to Mrs Derby.
- In his witness statement
Mr Derby stated that between June 1995 and October 1996 (when Scottish Equitable
discovered its mistake) he omitted to take various steps which he would or
might have taken, had he realised the true financial position. But (as the
judge recorded) his oral evidence was rather different:
" ... he agreed
in evidence that the only thing he did differently after receiving the monies
was to pay off the sum of £41,671 from the mortgage, and to use the remaining
£9,662 from the tax-free sum of £51,333, together with the increased income
under the Norwich Union policy, to live a little better by improving the lifestyle
of himself and his family in very modest ways, which he agreed were not irreversible
commitments. The defendant accepted that, without those payments, he would
not have been in any position to save any money. He was on the breadline,
he had no spare cash and he was borrowed up to the hilt. He also accepted
that his age precluded him from obtaining useful employment. He said: ‘Once
you are 65, it’s impossible to get employment.’ When asked in re-examination
what he could have done to improve his position, he said, ‘Not very much’,
although he would have stayed in the recruitment business, but done less."
- When Scottish Equitable
discovered the mistake in October 1996 it asked Mr Derby to repay the overpayment,
but he declined to repay it. It is clear that without the co-operation of
Norwich Union he could not possibly have repaid it, but Norwich Union has
accepted in open correspondence with Scottish Equitable (copied to Mr Derby’s
solicitors) that in the wholly exceptional circumstances of this case it would
unwind the pension policy which it had granted. It would do so either completely
or to the extent necessary to reduce Mr Derby’s pension to the annual rate
of £2,637. This was confirmed at trial by the evidence of Mr John Evans, an
actuary with Norwich Union.
- Proceedings were commenced
by Scottish Equitable on 13 March 1997. No repayment has been made by Mr Derby.
It is unnecessary to comment on the course of the proceedings except to mention
that on the last day before the hearing Mr Derby’s solicitors served a supplementary
witness statement made by Mr Derby stating that he and his wife had decided
to separate and to sell the matrimonial home, marketing it for £140,000. Mr
Derby referred in the statement to his and his wife’s health problems. He
also stated that the house belonged not to himself but to his wife, but the
judge excluded that evidence (as being contrary to Mr Derby’s pleaded case,
and impossible to investigate at that very late stage).
The issues
- Scottish Equitable conceded
at trial that if the judge found that Mr Derby did not know of the mistake
when he received the payment, it would not seek to recover the sum of £9,662
spent by Mr Derby on modest improvements to the family’s style of life. The
judge made such a finding, on the balance of probability, and so the total
claim was reduced by £9,662. But for the purposes of some of the arguments
it is necessary to look at the sequence of events as a whole.
- In this court, as before
the judge, the legal argument has been directed to three main issues. First,
at what stage (if at all) does carelessness or recklessness on the part of
the payer give the court a discretion to decline to order repayment? Second,
how far does the defence of change of position (first unequivocally recognised
in English law by the House of Lords in Lipkin Gorman v Karpnale [1991]
2 AC 548) assist the payee in the circumstances of this case? Third, what
part (if any) has estoppel to play, now that the defence of change of position
has been recognised?
- The judge resolved all
these issues (except in relation to the sum of £9,662) in favour of Scottish
Equitable. His detailed reasoning is examined below. Consequently he gave
judgment against Mr Derby for £162,790 with interest from 12 October 1996
at one per cent over base rate. He refused permission to appeal but it was
granted by Otton LJ in open court on 3 April 2000.
Mere carelessness
- On this issue the argument
(in this court, as below) started with the well-known decision of the Court
of Exchequer in Kelly v Solari (1841) 9 M&W 54, which Robert Goff
J (in Barclays Bank v Simms Son & Cooke (Southern) [1980] QB 677,
686) described as providing the basis of the modern law. It was a case of
a mistaken payment by a life office, Argus, on a life policy for £200 effected
in 1836, which had lapsed shortly before the death of the life assured in
1840. A director of the company had written ‘lapsed’ on the policy but this
was overlooked. Argus paid £987 to his widow, the executrix, on the lapsed
policy and two other policies (presumably for a total of £800) which had not
lapsed. After discovering the error Argus claimed £187 from the executrix
as money paid under a mistake of fact.
- The issue was whether
the Chief Baron (who was himself a member of the court) had been right in
ruling at trial that if the directors of the life office had knowledge, or
the means of knowledge, of the policy having lapsed, the claim must fail.
Lord Abinger C.B. accepted that he had put the matter too broadly at trial
by using the expression ‘means of knowledge’, which he described as a very
vague expression. He expressed his considered view as follows:
"The safest
rule however is, that if the party makes the payment with full knowledge of
the facts, although under ignorance of the law, there being no fraud on the
other side, he cannot recover it back again. There may also be cases in which,
although he might by investigation learn the state of facts more accurately,
he declines to do so, and chooses to pay the money notwithstanding; in that
case there can be no doubt that he is equally bound. Then there is a third
case, and the most difficult one, - where the party had once a full knowledge
of the facts, but has since forgotten them. I certainly laid down the rule
too widely to the jury, when I told them that if the directors once knew the
facts they must be taken still to know them, and could not recover by saying
that they had since forgotten them. I think the knowledge of the facts which
disentitles the party from recovering, must mean a knowledge existing in the
mind at the time of payment."
- Parke B agreed and set
out his view in a much-quoted passage:
"If, indeed,
the money is intentionally paid, without reference to the truth or falsehood
of the fact, the plaintiff meaning to waive all inquiry into it, and that
the person receiving shall have the money at all events, whether the fact
be true or false, the latter is certainly entitled to retain it; but if it
is paid under the impression of the truth of a fact which is untrue, it may,
generally speaking, be recovered back, however careless the party paying may
have been, in omitting to use due diligence to inquire into the fact. In such
a case the receiver was not entitled to it, nor intended to have it."
- Gurney B and Rolfe B also
agreed, the latter mentioning two views of the facts which the jury might
possibly reach at a retrial:
"first, that
the jury may possibly find that the directors had not in truth forgotten the
fact; and secondly, they may also come to the conclusion, that they had determined
that they would not expose the office to unpopularity, and would therefore
pay the money at all events."
- In his judgment the judge
referred at some length to Kelly v Solari and he may be taken to have
recognised that deliberate waiver of inquiry, where there are circumstances
which put the payer on inquiry, will preclude recovery. Such cases are akin
to cases of settlement of or deliberate submission to an honest claim (see
Goff & Jones The Law of Restitution, 5th ed (1998) pp.53-5
and also the American cases mentioned at pp.198-9, including Meeme Mutual
Home Protection Fire Insurance Co v Lorfeld (1927) 194 Wis 322). But deliberate
waiver of inquiry or acceptance of risk is not to be equated with carelessness
or negligence (even if it is termed gross negligence).
- It is reasonably clear
that when the judge referred ([2000] 3 AER at p.800 C) to the general rule
that mere carelessness does not preclude recovery, he did not (by his use
of the word ‘mere’) intend to make a contrast with some more heinous type
of carelessness or negligence, since he had just quoted Parke B’s words, "however
careless the party paying may have been", and Robert Goff J’s comment
(in the Simms case at p.687) that that conclusion has stood ever since.
(Some of the most important cases in which it has been followed are mentioned
in the speech of Lord Shaw in Jones v Waring and Gillow [1926] AC 670,
688-9). The judge was making a contrast between carelessness, however culpable,
and the situation where the paying party is on inquiry but consciously decides
to pay without making further inquiry. In this case Scottish Equitable did
take steps to investigate the matter. Its investigation was inadequate, but
there was no deliberate waiver of inquiry.
- The judge was therefore
right to follow the observations of Lord Goff in Lipkin Gorman [1991]
2 AC 548, 578,
"But it does
not in my opinion follow that the court has carte blanche to reject the [claimants’]
claim simply because it thinks it is 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."
Change of Position
- The facts of Lipkin
Gorman, in which the House of Lords recognised the defence of change of
position, are well known. The gaming club had received large sums of money
misappropriated by a solicitor who was addicted to gambling, but it had changed
its position by paying out on his winning bets. Lord Goff (with whose speech
Lord Bridge, Lord Griffiths and Lord Ackner agreed) noted that in the past,
where change of position had been relied on by the defendant, it had been
usual to treat the problem as one of estoppel (as in, for instance, Jones
v Waring and Gillow [1926] AC 670 and Avon County Council v Howlett
[1983] 1 WLR 605).
- There were two main objections
to that sort of approach. First, estoppel required there to have been a representation
made by one party on which the other had placed reliance and had acted to
his detriment: but in many cases involving a dishonest third party (such as
Lipkin Gorman itself) the true owner had done nothing that could possibly
be regarded as the making of a representation. (Jones v Waring and Gillow
was another case involving a fraudster, a confidence man whose plan might
have been frustrated by an unexpected contact between the two innocent parties;
the House of Lords were divided as to whether that equivocal contact amounted
to a representation.) Second, estoppel was (as this court had held in Avon,
a case to which it will be necessary to return) an inflexible all-or-nothing
defence. Lord Goff observed (at p.579 E):
"Considerations
such as these provide a strong indication that, in many cases, estoppel is
not an appropriate concept to deal with the problem."
- Lord Goff went on:
"In these circumstances,
it is right that we should ask ourselves: 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.
If the plaintiff pays money to the defendant under a mistake of fact, and
the defendant then, acting in good faith, pays the money or part of it to
charity, it is unjust to require the defendant to make restitution to the
extent that he has so changed his position."
He noted the
general acceptance of the defence in other common law jurisdictions (his citations
could now be supplemented by reference to the decision of the High Court of
Australia in David Securities v Commonwealth of Australia (1992) 109
ALR 57).
- Lord Goff said (at p.580
C, F-H):
"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 ... At present I do not wish to state
the principle any less broadly than this: that the defence is available to
a person whose position has so changed that it would be inequitable in all
the circumstances to require him to make restitution, or alternatively to
make restitution in full. I wish to stress however that the mere fact that
the defendant has spent the money, in whole or in part, does not of itself
render it inequitable that he should be called upon to repay, because the
expenditure might in any event have been incurred by him in the ordinary course
of things. I fear that the mistaken assumption that mere expenditure of money
may be regarded as amounting to a change of position for present purposes
has led in the past to opposition by some to recognition of a defence which
in fact is likely to be available only on comparatively rare occasions. In
this connection I have particularly in mind the speech of Lord Simonds in
Ministry of Health v Simpson [1951] AC 251, 276."
- The judge noted the view,
put forward by Andrew Burrows (The Law of Restitution (1993) pp.425-8) that
there is a narrow and a wide version of the defence of change of position,
and that the wide view is to be preferred. The narrow view treats the defence
as "the same as estoppel minus the representation" (so that detrimental
reliance is still a necessary ingredient). The wide view looks to a change
of position, causally linked to the mistaken receipt, which makes it inequitable
for the recipient to be required to make restitution. In many cases either
test produces the same result, but the wide view extends protection to (for
instance) an innocent recipient of a payment which is later stolen from him
(see Goff & Jones, The Law of Restitution 5th ed (1998) p.822,
also favouring the wide view).
- In this court Mr Stephen
Moriarty QC (appearing with Mr Richard Handyside for Scottish Equitable) did
not argue against the correctness of the wide view, provided that the need
for a sufficient causal link is clearly recognised. The fact that the recipient
may have suffered some misfortune (such as a breakdown in his health, or the
loss of his job) is not a defence unless the misfortune is causally linked
(at least on a ‘but for’ test) with the mistaken receipt. In my view Mr Moriarty
was right to make that concession. Taking a wide view of the scope of the
defence facilitates "a more generous approach .. to the recognition of
the right to restitution" (Lord Goff in Lipkin Gorman at p.581;
and compare Lord Goff’s observations in Kleinwort Benson v Lincoln City
Council [1999] 2 AC 349 at p.385 A-F).
- The criticisms of the
judgment made by Mr Bernard Weatherill QC (appearing with Mr Paul Emerson
for Mr Derby) were directed, not so much to the principles of law enunciated
by the judge, as to the way in which he applied those principles to the facts
as he found them. Before considering those criticisms in detail I think it
may be useful to note that when a person receives a mistaken overpayment there
are, even on the narrow view as to the scope of the defence, a variety of
conscious decisions which may be made by the recipient in reliance on the
overpayment. Some are simply decisions about expenditure of the receipt: the
payee may decide to spend it on an asset which maintains its value, or on
luxury goods with little second-hand value, or on a world cruise. He may use
it to pay off debts. He may give it away. Or he may make some decision which
involves no immediate expenditure, but is nevertheless causally linked to
the receipt. Voluntarily giving up his job, at an age when it would not be
easy to get new employment, is the most obvious example. Entering into a long-term
financial commitment (such as taking a flat at a high rent on a ten-year lease
which would not be easy to dispose of) would be another example. The wide
view adds further possibilities which do not depend on deliberate choices
by the recipient.
- Mr Weatherill criticised
the judge for looking simply at particular items of expenditure (the £9,662
which was conceded, the sum used to pay off the mortgage and the sum paid
to the Norwich Union) and for paying insufficient attention to Mr Derby’s
decision to slow down his work, and his omission to take alternative steps
to provide for the future of himself and his family. I would readily accept
that the defence is not limited (as it is, apparently, in Canada and some
states of the United States: see David Securities Pty v Commonwealth Bank
of Australia (1992) ALJR 768, 780, noted in Goff & Jones at p.819)
to specific identifiable items of expenditure. I would also accept that it
may be right for the court not to apply too demanding a standard of proof
when an honest defendant says that he has spent an overpayment by improving
his lifestyle, but cannot produce any detailed accounting: see the observations
of Jonathan Parker J in Philip Collins v Davis [2000] 3 AER 808, 827,
with which I respectfully agree. The defendants in that case were professional
musicians with a propensity to overspend their income, and Jonathan Parker
J took a broad approach (see at p.830).
- In the present case, however,
the judge made some clear findings of fact, set out in para 13 above, to the
effect that the improvements which Mr Derby was able to make in his family’s
lifestyle, between June 1995 and October 1996, were very modest and not irreversible,
and that there was nothing that he could usefully have done to make provision
for the future. Mr Weatherill has submitted that that seriously understates
the devastating effect which the demand for repayment has had on Mr Derby,
with his annual income after tax being reduced at a stroke from a sum of the
order of £20,000 to a sum of the order of £12,000 (these figures do not include
Mrs Derby’s earned income). It is easy to accept that Scottish Equitable’s
demand for repayment must have come as a bitter disappointment to Mr Derby,
and it is impossible not to feel sympathy for him, beset as he now is by financial
problems, matrimonial problems and health problems. But the court must proceed
on the basis of principle, not sympathy, in order that the defence of change
of position should not (as Burrows puts it at p.426) "disintegrate into
a case by case discretionary analysis of the justice of individual facts,
far removed from principle". Mr Weatherill took the court to various
passages in the transcript of Mr Derby’s oral evidence but I am not persuaded
that the judge erred in his findings of fact or that he failed to take advantage
of seeing and hearing the witnesses.
- Mr Weatherill submitted
that the payment-off of the mortgage was a change of position, but I cannot
accept that submission. In general it is not a detriment to pay off a debt
which will have to be paid off sooner or later: RBC Dominion Securities
v Dawson (1994) 111 DLR (4th) 230. It might be if there were
a long-term loan on advantageous terms, but it was not suggested that that
was the case here; and as the judge said (at p.803 f) the evidence was that
the house was to be sold in the near future.
- In relation to the Norwich
Union policy it was argued below that Mrs Derby had certain rights or claims
because of the impending divorce, and this argument is put forward again in
paragraph 16 of the grounds of appeal and in oral argument. I found this argument
rather surprising since it appears from the terms of the policy that Mrs Derby
is named as a payee in respect of a reversionary annuity of £6,760 a year
but that her right to the annuity ceases on divorce (although Mrs Derby may
be able to take advantage of the new pension-sharing arrangements introduced
by the Welfare Reform and Pensions Act 1999). However it was only by reference
to the impending divorce that Mr Weatherill attacked the judge’s conclusion
(at p.798 e) that Mrs Derby’s rights were no impediment to the unwinding of
the policy to which Norwich Union is prepared to agree. Her potential rights
on divorce do not depend on her having a power to veto the unwinding of the
policy, nor do they have the effect of conferring such a power on her. They
do not in my view assist Mr Derby’s argument on change of position.
- For these reasons the
judge was in my view correct to accept the defence of change of position only
in relation to the sum of £9,662.
Estoppel
- I have already quoted Lord Goff’s
observation in Lipkin Gorman ([1991] 2 AC 548 at p.579) that estoppel
is not an appropriate concept to deal with the problem, partly because of
its ‘all or nothing’ operation. The same view has been widely expressed, both
by academic writers and in the courts. The Newfoundland Court of Appeal (in
RBC Dominion Securities v Dawson) has flatly rejected it. Jonathan
Parker J (in Philip Collins v Davis [2000] 3 AER 808, 825-6) has described
it as no longer apt. In doing so he referred to the judgment now under appeal,
in which the judge avoided a general statement of principle but (on the facts
of this case) distinguished Avon County Council v Howlett [1983] 1
WLR 605 and said (at p.807 c)
"In my judgment,
the justice of the situation is met by the extent to which the defence of
change of position has succeeded and it would be wholly unjust and inappropriate
in those circumstances to allow estoppel to operate so as to provide a complete
defence to the whole of the overpayment."
- In considering this part
of the case the judge proceeded on the footing that Scottish Equitable had
made to Mr Derby a representation that he really was entitled to the payment
made to him in June 1995. It is not entirely clear whether the judge made
a positive finding to that effect, or simply set out counsel’s submission
(at p.804 f) and assumed for the purposes of argument that it was correct;
but on any view there was ample evidential material to justify such a finding.
- The decision of this court
in Avon County Council v Howlett was discussed at length both below
and in this court and it calls for detailed mention. Mr Howlett was a schoolteacher
who had an accident at work and was off work (but still employed) for more
than a year and a half. After his employment had been terminated the county
council, his employer, found that during his time off work it had paid him
for eight months (rather than six months) at the full rate of pay and for
a further eleven months (rather than six months) at half-rate. It claimed
£1,007 from him as money paid under a mistake of fact. In his defence Mr Howlett
pleaded that he had spent £460 on a suit and a second-hand car and that he
had refrained from claiming social security benefit of £86. He pleaded that
this detrimental reliance estopped the employer from recovering any part of
the £1,007.
- At trial Mr Howlett’s
evidence was that he had in fact spent all the money. But his counsel (who
was instructed at a trade union’s expense and wished to treat the matter as
a test case) declined to apply for permission to amend his pleadings. Judgment
was given against Mr Howlett for the balance sum of £460 (which was, by a
confusing coincidence, the same sum as Mr Howlett had spent on the suit and
the car). In this court Cumming-Bruce LJ took an adverse view of counsel’s
expedient. He was (at p.608) disinclined
"to give a
judgment founded on estoppel on facts which exist only in the mind of the
pleader. The law does not and should not develop by such a device, and the
ratio of such a decision is liable to be seriously misleading. I do not consider
that the decision of this court in the instant appeal is authority for the
proposition that where, on the facts, it would be clearly inequitable to allow
a party to make a profit by pleading estoppel, the court will necessarily
be powerless to prevent it."
Cumming-Bruce
LJ thought that the judge should have refused to decide the case on a basis
which was neither pleaded (that is, that it would be inequitable to allow
the defendant to retain part or all of the benefit) nor supported by evidence.
- Eveleigh LJ gave a fairly
short judgment agreeing, with some hesitation, with Slade LJ. Slade LJ gave
a fairly long judgment, approaching the matter by the established legal principles
governing estoppel. He emphasised that estoppel by representation is in origin
a rule of evidence, and that that is what confers its ‘all or nothing’ character.
He referred to some well-known cases including Skyring v Greenwood
(1825) 4 B&C 281 and Holt v Markham [1923] 1 KB 504, commenting
that if estoppel by representation could operate in a limited and proportionate
way the courts which decided those cases (at p.624)
"would have
been bound to conduct a much more exact process of quantification of the alteration
of the financial positions of the recipients, which had occurred by reason
of the representations."
- However Slade LJ also said (at
pp.624-5)
"I recognise
that in some circumstances the doctrine of estoppel could be said to give
rise to injustice if it operated so as to defeat in its entirety an action
which would otherwise lie for money had and received. This might be the case
for example where the sums sought to be recovered were so large as to bear
no relation to any detriment which the recipient could possibly have suffered."
Eveleigh LJ
had made similar observations (at p.611), and I have already quoted the remarks
of Cumming-Bruce LJ (para 41 above). Harrison J (at p.807 c) treated the present
case as "just the sort of situation that the Court of Appeal must have
had in mind in Avon County Council v Howlett when expressing reservations
about the ambit of that decision".
- I would be content to
follow the judge in refraining from attempting any general statement of principle
and treating this case as comfortably within the exception recognised by all
three members of this court in Avon County Council v Howlett. We cannot
overrule that case but we can note that it was not seen, even by the court
which decided it, as a wholly satisfactory authority, because of its fictional
element.
- I should record one further
novel and ingenious argument addressed to us by Mr Moriarty (but generously
attributed by him to his junior, Mr Handyside). That is that, since Lipkin
Gorman, the defence of change of position pre-empts and disables the defence
of estoppel by negativing detriment. Detriment must, it was correctly submitted,
be judged at the time when the representor seeks to go back on his representation,
since
" ... the real
detriment or harm from which the law seeks to give protection is that which
would flow from the change of position if the assumption were deserted that
led to it. So long as the assumption is adhered to, the party who altered
his situation upon the faith of it cannot complain. His complaint is that
when afterwards the other party makes a different state of affairs the basis
of an assertion of right against him then, if it is allowed, his own original
change of position will operate as a detriment."
(Dixon J in
Grundt v Great Boulder Pty Gold Mines (1938) 59 CLR 641, 674-5, quoted
in Spencer Bower and Turner, The Law Relating to Estoppel by Representation
3rd ed (1977) pp.110-1).
- The argument can be simply
explained by an illustration in the form of a dialogue. A pays £1000 to B,
representing to him "I have carefully checked all the figures and this
is all yours". B spends £250 on a party and puts £750 in the bank. A
discovers that he has made a mistake and owed B nothing. He learns that B
has spent £250 and he asks B to repay £750.
B: "You
are estopped by your representation on which I have acted to my detriment."
A: "You
have not acted to your detriment. You have had a good party, and at my expense,
because I cannot recover the £250 back from you."
The facts that
B has spent £250 in an enjoyable way, and that A readily limits his claim
to £750, put the argument in its most attractive form. But it seems to have
some validity even if B had lost £250 on a bad investment, and A began by
suing him for £1000.
- I find this argument not
only ingenious but also convincing. If I prefer to base my conclusion primarily
on the grounds relied on by the judge it is partly because the argument is
novel and appears not to have been considered by any of the distinguished
commentators interested in this area of the law. But at present I do not see
how the argument could be refuted.
- Will estoppel by representation
wither away as a defence to a claim for restitution of money paid under a
mistake of fact? It can be predicted with some confidence that with the emergence
of the defence of change of position, the court will no longer feel constrained
to find that a representation has been made, in a borderline case, in order
to avoid an unjust result. It can also be predicted, rather less confidently,
that development of the law on a case by case basis will have the effect of
enlarging rather than narrowing the exception recognised by this court in
Avon County Council v Howlett. That process might be hastened (or simply
overtaken) if the House of Lords were to move away from the evidential origin
of estoppel by representation towards a more unified doctrine of estoppel,
since proprietary estoppel is a highly flexible doctrine which, so far from
operating as ‘all or nothing’, aims at "the minimum equity to do justice"
(Crabb v Avon District Council [1976] Ch 179, 198). Paul Key has drawn
attention (Excising Estoppel by Representation as a Defence to Restitution
[1995] CLJ 525, 533) to two decisions of the High Court of Australia (Waltons
Stores (Interstate) v Maher (1988) 164 CLR 387 and Commonwealth of
Australia v Verwayen (1990) 170 CLR 394) which he describes as a fundamental
attack on the traditional perception of estoppel as a complete defence.
- The remarks in the last
four paragraphs are no more than tentative observations on points which were
not fully argued, as not being necessary for the determination of the appeal.
For the reasons given earlier in this judgment - which are essentially the
reasons given by the judge in his admirable judgment - I would dismiss this
appeal.
Lord Justice Keene:
- I agree.
Lord Justice Simon
Brown:
- I too would dismiss this appeal
for the reasons given by Lord Justice Robert Walker which, as he observes,
are essentially those of the Judge below.
- In doing so, however, I would
not wish to be thought unsympathetic to Mr Derby’s position. He is now beset
by grave financial problems albeit, on the Judge’s findings, that would have
been so even without the mistaken over-payment. He has suffered in addition
the great disappointment of being called upon to repay the bulk of this money
some sixteen months after it was paid and after he had begun to accustom himself
to a standard of living and a level of security beyond his true means. During
those sixteen months not only was he spending the £9,662 now acknowledged
to be irrecoverable, but also he was enjoying a pension from the Norwich Union
at the rate of £10,884 p.a. more than it should have been (£13,521 p.a. instead
of £2,637 p.a.) and having to service a mortgage debt which was £41,671 less
than it should have been - short-term benefits of which, like the £9,662,
it is not now sought to deprive him. These bald figures apart, one has here
on the one hand an impoverished elderly man entering upon retirement who,
having initially taken the trouble to question the extent of his entitlement,
is then left for sixteen months honestly believing in his good fortune, and
on the other a rich and incompetent insurance company who, despite Mr Derby’s
"protestations", carelessly pays out £172,451 too much and then
takes sixteen months to discover its mistake.
- Tempting though it is, however,
to take these additional factors into account with a view to mitigating the
hardship of Mr Derby’s present plight, Mr Moriarty QC has satisfied me that
strictly they fall to be ignored and that to give effect to them would simply
involve what Scrutton LJ in Holt v Markham [1923] 1 KB 504, 513 called
"well-meaning sloppiness of thought". As Lord Goff observed in Lipkin
Gorman (a firm) v Karpnale Limited [1991] 2 AC 548, 578:
"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."
- In my judgment there is no legal
principle properly entitling the Court to disallow recovery here by Scottish
Equitable to the extent ordered below. That leaves Mr Derby with the benefit
of an enhanced standard of living for the sixteen months it took to notify
him of the mistake - since to that extent he had changed his position by increased
spending - but deprives him of any further benefit from the overpayment -
since on the Judge’s findings, once he learned of the mistake, he would be
no worse off having paid the amount ordered to be repaid than if the mistake
had never been made.