Chancery lawBy Dov Ohrenstein, barrister, 3 New Square, LondonRestitution and change of positionScottish Equitable Plc v Gordon Derby, CA, 16 March 2001The case analyses the nature of the defence of change of position and the effect which an estoppel by representation can have on a restitutionary claim.The claimant overpaid the defendant 172,000 of retirement benefits.

The defendant questioned the amount, but was reassured by the claimant that the sum was correct, and he honestly believed he was entitled to it.Sixteen months later, the claimant realised its error and demanded return of the money.

By that time the defendant had spent 9,600 on general living expenses, 41,000 on reducing his mortgage, and the balance of the payment on purchasing a pension annuity.

Unusually, the annuity provider was prepared to agree to unwind the annuity.The Court of Appeal upheld the decision of Mr Justice Harrison ([2000] 3 All ER 793) that the defendant had to refund all of the overpayment except the 9,600.

It held that carelessness or recklessness on the payers part gives the court no discretion to decline to order repayment.

Such a situation must be distinguished from a deliberate waiver of inquiry or acceptance of risk.In dealing with how far a payee could rely on the defence of change of position, the Court of Appeal considered that detrimental reliance was not a necessary ingredient, but looked at change of position in a wider sense.

For example, there might be change of position but not detrimental reliance where a person spends money on improving his lifestyle.However, the court held that so long as there is a sufficient causal link, any change in position which made it inequitable for the recipient to be required to make restitution could amount to a defence.

Lord Justice Robert Walker stated that it may be right for the court not to apply too demanding a standard of proof when an honest defendant says he has spent an overpayment by improving his lifestyle, but cannot produce any detailed accounting.The Court of Appeal made clear that using money to pay off the mortgage was not a relevant change in position as it is generally not a detriment to pay off a debt (except one on unusually advantageous terms) which will have to be paid off sooner or later.

Therefore, it was not inequitable for the defendant to have to repay that money.

Using subrogation as a remedy was not addressed, the Court of Appeal could have considered granting the claimant a charge on the defendants property (thus restoring him to his previous position) rather than simply giving a money judgment.The Court of Appeal illustrated a novel analysis, which it found persuasive, using the example of a defendant who is mistakenly paid 1,000, of which he spends 250 on a party or bad investment before the claimant claims the unspent 750.

The defendant cannot claim detrimental reliance because he has not spent any of the sum claimed.

The only detriment would have been suffered by the claimant who paid for the party or investment.The traditional view of the doctrine of estoppel by representation is that it is a rule of evidence which can operate as a total defence even if this may lead to unjust enrichment (Avon CC v Howlett [1983] 1 WLR 605).

On that view, where a large sum is paid by mistake, the recipient might be able to keep the full amount even if it exceeds the amount of detriment suffered.

Such an approach has been criticised at first instance (Phil Collins v Davis [2000] 3 All ER 808) and in Commonwealth cases.

In the instant case the Court of Appeal distinguished Avon v Howlett, although it will require a decision of the House of Lords if the inflexible remedy accorded by estoppel by representation is to be comprehensively replaced by a change of position defence.