That's a bit rich

BENCHMARKS

District Judge Stephen Gerlis explains why the law on unjust enrichment makes a second check of solicitors' draft completion statements so worthwhile

A capitalist society thrives on the concept of profit - making money legitimately is perfectly lawful.

However, sometimes a windfall goes over and beyond a lawful profit and amounts to unjust enrichment.

This windfall may not have been deliberate.

Indeed, in most cases it as a result of a mistake.

Common examples include banks crediting too much into a customer's account or a solicitor sending excessive completion monies to a vendor on the sale of property.

While knowledge by the receiver that the enrichment was unintended is not a necessary precursor for proceedings for restitution to be brought by the unintended payer, clearly it is of significance in the subsequent proceedings and will indeed affect any defence.

There is a temptation on the part of the receiver of such unexpected and unintended largesse to look this particular gift horse firmly in the mouth and fritter away the bonus.

If they do so to the extent that they have irretrievably 'changed their position', there may be an available defence.

This was recognised in the grand-daddy of restitution cases, Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512, HL.

The concept of a 'changed position' is a complicated one and will depend on the facts of each case.

But it is intended to be available to a person whose position has changed to such an extent that it would be inequitable in all the circumstances to require him to make restitution or full restitution.

This defence is not likely to be to be available to those who knew they were not entitled to the enrichment.

In addition, for such a defence to succeed there must be some causal link between the unjust enrichment and the subsequent change in position.

Merely spending the bonus might not be enough if the money would have been spent anyway.

Two recent cases provide different examples of unjust enrichment and the difficult defence of 'change of position'.

In the first case, Jones v Commerzbank AG [2003] EWCA Civ 1663, Mr Jones was a high- flying investment banker with the defendant bank.

His written contract of employment guaranteed him, among other things, bonuses of 250,000 for the years 2000 and 2001.

Some time later he received a further letter from his employer saying he would get a minimum bonus of 265,000 for the year 2000.

Towards the end of 2000 the claimant received 250,000 from his employer.

But the employer was confused because three months later it paid him an additional 265,000.

The bank realised its mistake and asked for 250,000 back.

The claimant refused, saying he was entitled to both payments.

The claimant was made redundant before the end of 2001 and the bank recouped its overpayment from the bonus due to the claimant for 2001.

The claimant sued for the money back.

Perhaps, somewhat surprisingly, the judge at first instance gave him the money, saying that the arrangement was that the 265,000 was in addition to the 250,000.

Even if he was wrong, said the judge, the claim by the claimant that, had he known that he was not entitled to both payments, he would have sought alternative employment, amounted to a 'change of position'.

And such a change of position would render it inequitable for the bank to hold on to the deducted monies.

The Court of Appeal was not so impressed by the claimant's case and allowed the bank's appeal.

It said that, on a true construction of the documents, the sum of 265,000 was in substitution for the original sum of 250,000 and not in addition to it.

Furthermore, the claimant's decision not to seek alternative employment fell outside the scope of the 'changed position' defence.

The Appeal Court did not consider that defence in this case as 'sufficiently significant, precise or substantial.' In addition there was an insufficient causal link between the claimant's decision to remain at the bank (before redundancy) and the true promised bonus.

The case of Cressman v Coys of Kensington [2004] EWCA Civ 47, was more complicated.

It involved not large sums of money, but a personalised number-plate.

Mr Cressman owned a car with the plate.

Unfortunately, he died and his executors instructed the defendant car auctioneers to sell the car.

They made it clear that the sale was not to include the personalised plate.

However, the defendants failed to apply and obtain a right of retention of the plate as required by regulations because they sent a defective application to the Driver and Vehicle Licensing Agency.

The car was sent into auction and it was an express term of the auction contract that the purchaser would not receive the vehicle's existing registration number.

The car was sold but because the defendants failed to get the retention rights, the number remained assigned to the car on sale and the purchaser became entitled to register the number in his name.

The executors commenced proceedings against the auctioneers who in turn joined the purchaser as a Civil Procedure Rules 1998 part 20 defendant.

The defendants sensibly settled the claim with the claimants.

But they then sought a contribution from the purchaser on the basis that he had been unjustly enriched by receiving, at the expense of Mr Cressman's estate, a benefit in the form of the personalised plate that he knew, or ought to have known, he was not contractually entitled to.

The purchaser denied that he had obtained enrichment because the benefit of the number passed as a result of the statutory scheme.

He also contended that he had changed his position because, since acquiring the number, he had given the car to his partner.

The Court of Appeal upheld the decision of the trial judge to order the purchaser to pay a 100% contribution to the auctioneers.

The fact that the purchaser had obtained the registration mark as a result of the statutory scheme, did not prevent any enrichment having taken place.

It would be unjust for the purchaser to have retained the number since it was an express term of the contract that he should not receive it.

He could have co-operated with the auctioneers with regard to the proper transfer of the number back to the estate of the deceased, as he had been invited to do.

By the time the purchaser had given the car away, he had been fully aware of the mistake on the part of the auctioneers and that he would be pursued for the number-plate.

That negated any causal link and the defence of 'change of position'.

It is probable that the smaller the amount received, the more likely the receiver can convince a court that it was thought to be genuinely payable.

Once the receiver has innocently utilised the enrichment to the extent that his position has changed, it will be more difficult for the payer to get the windfall back.

District Judge Stephen Gerlis sits at Barnet County Court