QUEENS’ BENCH DIVISION

B e f o r e:

B E T W E E N:

SCOTTISH EQUITABLE plc
Claimant

GORDON DERBY
Defendant

__________

MR. JUSTICE HARRISON: In this case the plaintiff, Scottish Equitable plc, a life assurance company, seeks restitution of monies paid to the defendant, Mr. Derby, under a mistake of fact.

The facts of the case, so far as material, are that in the spring of 1988 the defendant was made redundant by his employers, Baltic Sawmills, as a result of which he was given a redundancy payment of £125,000, out of which he invested £90,000 by way of a single premium in an individual pension policy with the claimant. In 1989 his wife’s business, running two clothing shops, was in financial difficulties. The bank had a charge over their house, and it was putting pressure on the defendant to clear the debts under threat of calling in its charge over the house.

As a result, in August 1989 the defendant investigated the possibility of taking early retirement benefit from his policy with the claimant. He received quotations, showing that the cash available to purchase an annuity stood at £84,880. He selected one of the quoted options, and steps were taken by the claimant to settle those benefits, but, shortly thereafter, the defendant cancelled those instructions. However, as a result of increased pressure by the bank, in January 1990 he again requested quotations from the claimant for taking early retirement benefit, and quotations were provided by the claimant.

In early February 1990 the defendant, then aged 59, decided to take one of the options for early retirement benefit that had been quoted by the claimant, namely, a tax-free payment of £36,588, together with a residual single life pension of £4,655 per annum, escalating at 3% per annum from the date of first payment. The tax-free payment was made to the defendant, who paid it in its entirety to his bank.

He continued to receive the annual pension from the claimant, although, in error, they failed to escalate it at 3% per annum until it was pointed out to them fairly recently, as a result of which they compensated him by paying the amount which should have been paid together with interest.

The defendant’s evidence was that, after those early retirement benefits were paid, he knew that there would be about £50,000 remaining in his fund. As a result of their financial circumstances, the defendant’s wife took employment with the Kent Probation Service in January 1991, but in August 1993 she had a nervous breakdown and was off work for 11 months, eventually returning to that work in July 1994, where she is still employed, earning £1400 net per month.

In April 1995, with his 65^th birthday approaching on 1^st May 1995, the defendant telephoned the claimant to enquire what would happen to his annual pension with the claimant when he started to receive his state pension. He said that he was told that his annuity would remain, and that he would be very pleasantly surprised at what he would receive when he was 65. He asked how much it would be, and he was told that he would, in due course, receive a letter stating the exact amount.

On 22^nd May 1995 there was a telephone conversation between the defendant and the claimant. 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.

Three days after that telephone conversation, on 25^th May 1995, the claimant sent the defendant a statement purporting to show the retirement benefits available to him. It showed a fund of over £201,000 with options which included a tax-free sum together with a single life pension. That fund was almost four times the size of the fund remaining in February 1990 after the defendant had taken his early retirement benefit. The defendant said that he was very pleasantly surprised by the figures and that he telephoned the claimant to seek reassurance that the figures in the statement were correct because he was about to embark on his financial planning for the future, which included making some substantial payments to a building society, and he needed to be satisfied that they would be forthcoming without difficulty. He said that he was naïve in pension matters, there was no way in which he could validate the figures and he wanted to be absolutely sure that they were correct. He said that the person to whom he spoke checked the figures and advised him quite categorically that they were correct. The defendant said that he pointed out that he was already in receipt of an annuity, but he was still told that the figures were correct. Relying on that reassurance, he said he realised he could now slow down and have an opportunity to enjoy life.

The defendant then instructed Mr. Donald of Fairmount Trust plc, financial advisors, to advise him how to deal with the benefits that he would receive. On 1^st June 1995 Mr. Donald wrote to the claimant raising various queries in relation to the statement. According to the defendant, Mr. Donald received verbal and written confirmation from the claimant that the figures in the claimant’s statement of retirement benefits were correct. As a result, on 9^th June 1995, the claimant sent Mr. Donald a statement of retirement benefits, including four options. On 16^th June 1995, on Mr. Donald’s advice, the defendant exercised option 3, which consisted of a tax-free cash payment of £51,333 and an open market option of £150,604, the open market option being a right to receive a fund conditional upon it being reinvested in an individual pension provided by another pension company. In this case the defendant chose to reinvest it with the Norwich Union. The tax-free payment and the open market option together amounted to a total of £201,938. The open market option of the £150,604 was quoted as producing an annual pension of £13,521.

On 20^th June 1995, the claimant sent the defendant the tax-free sum of £51,333, and they sent the open market option sum of £150,604 to the Norwich Union. Since then, the defendant has been receiving the annual pension of £13,521 from the Norwich Union, as well as his original annual pension of £4,655 from the claimant. If there had not been the overpayment, the only additional pension he would have received was a minimum guaranteed pension of £2,637.

Unfortunately, the figures which had been set out in the statement of retirement benefits, and the consequent payments made to the defendant in June 1995, were incorrect. It transpires from the evidence of Miss Duncan, a project team manager in the data quality department of the claimant, that 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^th 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.

As a result of the claimant’s failure to realise that the defendant had already taken the early retirement benefits in February 1990, the payment made to the defendant in June 1995 constituted an over-payment of £172,451, because the accrued fund under his policy was in fact £29,486, being the open market option fund necessary to pay his guaranteed minimum pension.

The defendant’s evidence was that, at the time when the payments were made by the claimant in June 1995, he was under considerable financial pressure. Indeed, he accepted that he was on the breadline at that time. After receiving the tax-free payment of £51,333 from the claimant, he used £41,671 of that sum to redeem approximately two-thirds of the mortgage on his home. The effect of that payment was that he did not have to continue to pay the building society interest on that sum and that the equity in the house was increased by that amount.

In his witness statement, the defendant said that between the time of receiving the monies from the claimant in June 1995 and the time when he was told of the mistake in October 1996, he did not try to put more resources into the recruitment business in which he was involved at the time, and he did not try to improve his position by seeking alternative sources of income or by restricting his expenditure or by making additional savings. Also, he did not delay the redemption on his mortgage. However, 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 £9,661 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.

The claimant did not discover the mistaken overpayment until October 1996, some 15 months afterwards. On 4^th October 1996 the claimant wrote to the defendant, informing him of the mistake, apologising to him for it and asking him to return the sums overpaid. There then followed correspondence between the claimant and the defendant’s solicitors and Mr. Donald, during which the claimant’s solicitors requested that the defendant should place the amounts of the annuity that he was receiving in excess of that to which he was entitled in a suspense account pending the resolution of the matter. However, no proposals were put forward on behalf of the defendant and so these proceedings were commenced on 13^th March 1997. No repayment has been made by the defendant of any of the monies overpaid by the claimant.

From April 1999 onwards the claimant entered into correspondence with the Norwich Union to find out if they would be prepared to unwind the policy and, if so, on what terms. All that correspondence was copied contemporaneously to the defendant’s solicitors. The net result of that correspondence was that the Norwich Union agreed, exceptionally, to unwind the defendant’s policy, either completely, leaving no ongoing entitlement to receive any further pension payments, in which case the sum to be returned would be £153,701, or partially, so as to leave the defendant with an ongoing entitlement to receive a pension of £2,637 per annum, i.e. the pension to which he would have been entitled if the correct amount of £29,486 had been invested with the Norwich Union. In those circumstances, the repayment would be £123,096.

Mr. Evans, an actuary with the Norwich Union, gave evidence confirming the agreement of Norwich Union to unwind the policy if requested by the defendant. Indeed, it emerged during his evidence that, at the request of the defendant, the Norwich Union had previously expressed a willingness to unwind the policy in June 1998. The defendant’s wife is the nominee under the policy, which gives her certain benefits in the event of her husband’s death. She is aware of the position, and it is not suggested that that gives rise to any impediment to the unwinding of the policy.

In a supplementary witness statement served on the day before the hearing, the defendant said that he and his wife had recently decided to separate and to sell the matrimonial home. He is now aged 69. He explained how his health problems had deteriorated, in particular his heart condition, and that there is now talk of him having to have a pacemaker fitted. He is impotent, and he has little energy, getting tired very easily. His wife is 15 years younger than him, and he does not think that he is a very good companion to her. They made the decision to separate in July or August 1999, but they have not yet taken legal advice on whether there should be a divorce or a judicial separation. The house will soon be put on the market at a sale price of about £140,000, the outstanding amount on the mortgage being about £42,000, although £30,000 of that amount relates to a loan taken out by his wife secured on the property.

He estimates that his annual expenditure, if he has to live on his own, disregarding some life policies with no surrender value, would be about £18,000, and he has credit card debts of £7,900. His present net annual income is £22,380. If the Norwich Union policy were partially unwound, his net income would reduce to about £14,000 per annum. He said that he did not know how he would survive if he had to repay the money mistakenly paid by the claimant, although he accepted that the reason for his future financial difficulties arose out of his forthcoming separation from his wife.

The claimant’s claim against the defendant is for the return of the total amount overpaid. It is made up of three amounts: first, £121,118, being the amount paid to the Norwich Union of £150,604, less the amount that should have been paid of £29,406. Second, the sum of £41,671, being the part of the tax-free sum of £51,333 which the defendant used to redeem some of the mortgage. Third, the sum of £9,661, being the remaining part of the tax-free sum, which was spent by the defendant. It was, however, made clear that no claim is pursued in relation to the sum of £9,661, if the Court is satisfied that the defendant did not know of the mistake when the money was spent.

It was submitted that the defendant had been unjustly enriched by the amount overpaid, and that if a person pays money to another under a mistake of fact which caused him to make the payment, he is prima facie entitled to recover it as money paid under a mistaken fact – see Barclays Bank Ltd v. W.J. Simms, Son and Cooke (Southern Ltd) and Another [1980] 1 QB 677 per Goff J. at 665 - subject to any defence that the defendant may have. In this case the main defences raised by the defendant were change of position and estoppel. I will come to consider those defences in due course, but I should first deal with what I will call a preliminary point raised by the defendant.

Mr. Emerson submitted on behalf of the defendant that the Court has a residuary discretion not to order the repayment of money paid under mistake of fact, where the person paying the money had been careless and had declined to investigate the matter properly, or had waived all enquiry. That submission was based on the dicta of Lord Abinger C.B. and Park B. in the case of Kelly v. Solari (1841) 9 M&W 54. At page 26 Lord Abinger said:

"There may also be cases in which, although he might by investigation learn the 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."

Park B. stated:

"If indeed the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all enquiry 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 enquire into the fact."

Mr. Emerson referred to the memorandum of 22^nd May 1995 as evidence that the claimant had been told that the defendant was already being paid an annuity. He submitted that the claimant had ignored that information, or had declined to investigate it. Reliance was also placed on the previous errors of failing to record the early retirement benefit in 1990, and failing to rectify the error when it was discovered in 1992, as well as the importance of the information being given, in that it related to a large amount of money which would be relied on by the defendant to govern his decisions for the rest of his life.

Mr. Handyside, however, submitted on behalf of the claimant that carelessness does not preclude recovery of money paid under mistake of fact. He referred to the judgment of Goff J., as he then was, in Barclays Bank Ltd v. W.J. Simms Ltd, when he referred at page 686 to the case of Kelly v. Solari as providing the basis of the modern law on the topic of payment of money under mistake of fact. Having summarised the facts of that case, he stated at page 686F:

"The principle issue in the case was, therefore, whether negligence on the part of a plaintiff precluded recovery. It was held that it did not, a conclusion that has stood ever since."

Mr. Handyside also referred to the dictum of Lord Goff in Lipkin Gorman v.Karpnale Ltd [1991] 2 AC 548, when he said at page 578D:

"But it does not, in my opinion, follow that the Court has carte blanche to reject the solicitor’s claim simply because it thinks it 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. 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."

I am satisfied that the general rule is that mere carelessness by itself does not preclude recovery of the money. Furthermore, it cannot be said on the facts of this case that the claimant ignored or failed to investigate the information given by the defendant on 22^nd May 1995, nor can it be said that they meant to waive all enquiry. The annotation on the memorandum of 22^nd May indicates that the information given by the defendant was investigated, but that, in error, the person investigating mistakenly thought that the defendant had changed his mind and had not taken early retirement benefit. The likelihood is that that person had reached that view by looking at the record of the defendant’s cancellation of his decision to take early retirement benefit in 1989, without noticing his subsequent decision in February 1990 to request early retirement benefit again.

I therefore conclude that, whilst there were a number of errors made by the claimant which were regrettable and which do not inspire confidence in the efficiency of their systems at that time, the claimant is, nevertheless, prima facie entitled to recover the money mistakenly overpaid, subject to consideration of the defences of change of position and/or estoppel raised by the defendant.

In dealing with those defences, I first of all deal with the question whether the defendant knew of the claimant’s mistake when he received the payment of the money. To his knowledge, his fund had almost quadrupled in five years, and he had the services of Mr. Donald, a financial advisor. Nevertheless, he insisted that he did not know that a mistake had been made. I am bound to say that I was at first sceptical, and I am surprised that he did not realise that a mistake had been made. However, having heard him and seen him give his evidence, I have formed the view that he was an honest witness, who was naïve in pension matters. 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.

In those circumstances, I conclude, on the balance of probabilities, that the defendant did not know of the claimant’s mistake, when he received payment of the money.

I have also considered the defendant’s evidence relating to the spending of the sum of £9,661, being the balance of the tax-free sum after the defendant had paid £41,671 off his mortgage. There is nothing in the evidence to suggest that he knew of the claimant’s mistake when he spent that money in the way he described in his evidence. Nor does the claimant advance an affirmative case that the defendant did know of their mistake. My finding, therefore, is that the defendant did not know of the claimant’s mistake when he spent the sum of £9,661. In those circumstances, the claimant does not pursue their claim to that sum, and I conclude that they are not entitled to it.

That leaves the claimant’s claim for the sum of £121,118 invested with the Norwich Union, and the sum of £41,671 used to redeem some of the mortgage. When dealing with those sums, it is convenient to deal with the defence of change of position first, because, as that defence has only been recognised by English law relatively recently, the defence of estoppel has to be considered in the light of the recognition of that defence.

The defence of change of position was expressly recognised for the first time by the House of Lords in Lipkin Gorman. It only operates pro tanto to the extent of the part of the money received in respect of which the recipient has changed his position. Lord Goff said that he was most anxious, in recognising the existence of that defence to actions of restitution, that nothing should be said at that stage to inhibit the development of the defence on a case by case basis. He said, at page 580F:

"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."

In the case of South Tyneside Metropolitan Borough Council v. Svenska International plc [1995] 1 AllER 545 Clark J., as he then was, said that those statements were made by Lord Goff in the context of a change of position after receipt of the money. He said that the defence of change of position is designed to protect a person, who in good faith receives money which does not belong to him, but who thereafter alters his position in some way in which he would not have done if he had not received the money, so making it unjust to require him to return the money to the owner.

In Burrows, The Law of Restitution, it is suggested that there are two views of the extent of the defence of change of position: the narrow view, and the wide view. The narrow view is that the defence of change of position is the same as estoppel, minus the representation, in that the defendant must have detrimentally relied on the benefit being his to keep. Reference is made to the New Zealand legislation under which the person receiving the payment in good faith must have so altered his position in reliance on the validity of the payment that it would be inequitable to grant relief or to grant relief in full.

The wide view is simply that the defendant should have a defence, where his position has so changed that it would be inequitable to order restitution. The author suggests that the wide view is tentatively supported by Lord Goff in Lipkin Gorman. However, the author expresses the opinion that the wide view must be implicitly assumed to be subject to the limitation that there is a sufficient causal link between the defendant’s unjust enrichment and his subsequent change of position. In other words, the defence must be concerned with loss of benefit, and not with general hardship suffered by the defendant.

The author goes on to say:

"It is imperative that, even on the wide formulation, there is sufficient causal link between the defendant’s unjust enrichment, and his subsequent pecuniary loss. A crucial question is what the test for that sufficient causal link should be. At the very least, it should be for the defendant to show that, but for the enrichment received, he would not have suffered the subsequent loss."

That test was accepted by Mr. Emerson on behalf of the defendant. Nevertheless, he submitted that the broad principle enunciated by Lord Goff in Lipkin Gorman meant that a balancing exercise had to be carried out to consider what would be fair and equitable as between the parties, bearing in mind the consequences for both sides. He submitted that the defendant had been denied the opportunity between June 1995 and October 1996 to provide for himself and his wife, whether by work, by saving, or in some other way, which he otherwise might have done, and that now, at the age of 69, he is likely to be divorced and to have to sell his house, and to use such share of the capital released as he is allowed to have in order to provide for his accommodation for the rest of his life, in circumstances where his income will be less than his expenditure, and his heart condition threatens the possibility of surgery.

It was submitted that, compared to the loss that will be suffered by the claimant, who had acted incompetently, the balance came down firmly in favour of the defendant, whose position had so changed that it would be inequitable, in all the circumstances, to require him to make restitution.

In my view, there must be some causal link between the receipt of the payment and the change of position such that it would be inequitable to require the recipient to return the money to its owner. In the circumstances of this case, I do not consider that the defendant’s general financial difficulties arising from the future separation or divorce from his wife are causally linked in any way with the money mistakenly paid by the claimant. Nor has it been shown by the defendant, on the balance of probabilities, that he would have taken certain steps, or abstained from taking certain action, between June 1995 and October 1996 if he had not received overpayment of the money by the claimant. On the evidence, the defendant was in no position to make any savings, and there was no realistic prospect of the defendant obtaining increased employment, bearing in mind his age and his health.

The defendant accepted in his evidence that the only way in which he changed his position after receiving the money was to pay the £41,671 off the mortgage and to live slightly better by using the remaining £9,661 from the tax-free sum, together with the increased income from the Norwich Union policy. The claimant does not now pursue the sum of £9,661. The improvements in the defendant’s style of living were in any event very modest and did not constitute irreversible commitments.

In my view, it cannot realistically be said that there has been a change of position so far as the overpaid sum of £121,118 invested with the Norwich Union is concerned. The Norwich Union are prepared to unwind the policy so as to release the sum of £123,096, slightly in excess of the amount overpaid, which will leave the defendant with a continuing right to receive the annual pension of £2,637, to which he would have been entitled if the mistaken overpayment had not been made. He will, therefore, be put back into the same position as if the payment had not been made. In so far as some of the improvements to the defendant’s lifestyle may be said to be due to the increased income from the Norwich Union policy, they are very modest and not irreversible, and, in any event, they would not be sufficient to make it inequitable to require the defendant to make restitution. My conclusion, therefore, is that the defence of change of position does not succeed in relation to the sum of £121,118.

That leaves the defence of change of position in relation to the sum of £41,671. As I have mentioned, the defendant used that sum to pay off two-thirds of the mortgage. That was an existing debt that would have had to be paid in any event. He has, therefore, used the windfall payment to pay off the debt earlier than he otherwise would have done.

In the Canadian case of RBC Dominion Securities Inc v. Dawson (1994) 11 DLR (4^th) 230, a decision of the Newfoundland Court of Appeal, it was held that the use of money mistakenly overpaid in order to pay off a Visa debt earlier than otherwise would have been the case did not give rise to the defence of change of position, as no detriment was caused.

In this case, it is very difficult to discern any detriment that would be caused to the defendant if he had to repay the sum of £41,671 to the claimant. He has had the benefit of the increased equity of that amount in the house, and also the reduced mortgage repayments. On the pleaded case, the house is the defendant’s house. In his supplementary statement served on the day before the hearing, the defendant stated that his wife owns the house. Objection was understandably taken by the claimant to the late introduction of that evidence on the basis that they had had no opportunity to investigate that assertion which, if true, might have resulted in them wishing to involve Mrs. Derby in these proceedings. I therefore ruled against the admission of that evidence. On the basis of the pleaded case, the asset of the increased equity in the house could therefore be realised by the defendant for repayment to the claimant by recharging that sum on the property. In any event, the evidence was that the house was to be sold very soon, in which case the defendant would be able to realise his beneficial interest in the property and repay the claimant. In either event, he would be put back into the same position as he would have been if he had never received the mistaken payment in the first place. In those circumstances, he will cease to enjoy the benefit to which he was never entitled, and he will revert to a position where he is no worse off than he would have been if the windfall had not come his way in the first place. Applying the test laid down by Lord Goff in Lipkin Gorman, I do not consider that the defendant has so changed his position in relation to the sum of £47,671 that it would be inequitable in all the circumstances to require him to make restitution.

I have considerable sympathy with the defendant because this all arose from the incompetence of the claimant, and because the repayment of the money will leave him in a difficult financial position. However, it is clear that he would have been in a difficult financial position anyway if the mistaken payment had never been made. On his own evidence, he was in a difficult financial position when the mistaken payment was made, and his pension position simply reflects the investment that he made for his retirement in 1988, together with his decision to take early retirement benefit in February 1990. In so far as his financial position is now potentially worse because of the envisaged separation from his wife and sale of the house, that is wholly unconnected with the overpayment made in June 1995. Indeed, it is something that has arisen since these proceedings were brought by the claimant. In those circumstances, I have regretfully come to the conclusion that the defence of change of position cannot succeed in relation to the sum of £41,671.

My overall conclusion, therefore, in relation to the defence of change of position is that it only succeeds to the extent of the sum of £9,661.

I turn finally to consider the defence of estoppel. Mr. Emerson relied heavily on the Court of Appeal decision in the case of Avon County Council v. Howlett [1983] 1 WLR 605. That was a case where the defendant, a teacher at one of the plaintiff’s schools, had been mistakenly overpaid by the plaintiff over a period of time whilst he was off work following an injury in an accident at the school. The amount of the overpayment was £1,007 and the plaintiff claimed that sum as monies paid to the defendant by mistake. The defence as pleaded was that the defendant had suffered detriment in the sum of £546, and that the plaintiff was estopped from claiming the overpayments. The judge found that the defendant had spent the whole sum of £1,007 and invited amendment of the defence to specify that sum as the detriment suffered rather than the sum of £546. The defendant, however, declined to make the amendment, requiring the Court’s decision on a purely hypothetical question of detriment because it was, apparently, important to other cases in which the plaintiff and the defendant’s union were concerned. The trial judge held that, as the defendant had, on the pleaded defence, only suffered detriment in the sum of £546, the plaintiff was entitled to recover the remaining balance of £461. The Court of Appeal, in allowing the defendant’s appeal, held that the defence of estoppel could not operate pro tanto and that the plaintiff’s case therefore failed in its entirety.

In relying on that case, Mr. Emerson submitted that, in the present case, the claimant had made representations to the defendant that he was entitled to the amounts claimed, that the defendant genuinely believed that he was entitled to those payments as a result of which he had acted to his detriment and that the defence of estoppel was therefore available to prevent the claimant from recovering any of the money overpaid.

In relying on estoppel as a complete defence, Mr. Emerson primarily relied on the detriment as being the loss of opportunity between June 1995 and October 1996 for the defendant to make future provision for himself and his wife so as to avoid by some means the situation of hardship in which he now finds himself. I am not persuaded that the mere loss of an opportunity in that sense is sufficient to show detriment. In my view, the defendant must show, on the balance of probabilities, that he suffered detriment either by doing something that he otherwise would not have done, or by refraining from doing something that he otherwise would have done during that period. For reasons that I have already given when dealing with the change of position defence relating to the sums of £121,118 and £41,671, I do not consider that the defendant can show detriment in relation to those sums. However, the defendant can show that he acted to his detriment in relation to the sum of £9,661 because he has spent that money.

The issue still, therefore, arises as to whether the defence of estoppel can provide a complete defence in relation to the total overpayment of over £172,000, although the only detriment suffered amounted to £9,661.

In the Avon County Council case, Slade L.J. said at page 622G:

"So far as they go, the authorities suggest that in cases where estoppel by representation is available as a defence to a claim for money had and received, the courts similarly do not treat the operation of the estoppel as being restricted to the precise amount of the detriment which the representee proves he has suffered in reliance on the representation."

Then at page 624D he said:

"I think that no authority has been cited other than the judgment of the judge, which directly supports the proposition that estoppel is capable of operating merely pro tanto in a case such as the present, where it is otherwise capable of being invoked as a complete defence to an action for money had and received. For the reasons that I have given, I conclude that such a proposition is contrary to principle and authority."

Eveley L.J. said at page 611C:

"However, not without some hesitation I have reached the same conclusion as Slade L.J., namely that once the defendant had shown detriment which prevented the plaintiffs from asserting the truth behind the payment, that obstacle barred the whole of their claim, for, pleaded simply as a mistake, evidence of the defendant’s true entitlement was essential if the plaintiffs were to succeed."

Cumming-Bruce L.J. also stated at page 609H that he agreed with the judgment of Slade L.J., although he went further in saying that the judge should not have agreed to decide a hypothetical question.

On the face of it, therefore, the Avon County Council case provides strong support for the defendant’s submission that, some detriment having been shown, estoppel should operate as a complete defence. However, it is important to bear in mind two matters. Firstly, the reservations expressed by the Court of Appeal as to the ambit of the decision in that case, and, secondly, the fact that that case was decided before the House of Lords recognised the defence of change of position in the Lipkin Gorman case.

Dealing, firstly, with the reservations expressed by the members of the Court of Appeal as to the ambit of their decision in the Avon County Council case, Slade L.J. said at page 624H:

"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 having 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."

Evelely L.J. said at page 611H:

"However, I am far from saying that whenever the recipient of money paid under a mistake has been led to think that it is his, then he would be entitled to retain the whole by demonstrating that he has spent part of it..… there may be circumstances which would render it unconscionable for the defendant to retain a balance in his hands."

Finally Cumming-Bruce L.J. stated at page 608G:

"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."

In my judgment, it would be unconscionable, or clearly inequitable, to allow the defendant to keep the whole of the overpayment of £172,451 when his detriment is limited to £9661 of that amount. In those circumstances, and having regard to the dicta of the Court of Appeal, which I have just quoted, I do not consider that I am bound by the Avon County Council case to hold, in the circumstances of this case, that estoppel must operate as a complete defence.

Secondly, there is the fact, as I have mentioned, that the case was decided before the House of Lords recognised the defence of change of position in the Lipkin Gorman case. In the latter case Lord Goff remarked that previously these kind of cases had been dealt with on the basis of estoppel. He said at page 579:

"Where a change of position has been relied upon by the defendant, it has been usual to approach the problem as one of estoppel …. But it is difficult to see the justification for such a rationalisation."

Having remarked that, in cases of restitution, the requirement for a representation appears to be unnecessary, he continued below letter D by saying:

"Again, it was held by the Court of Appeal in Avon County Council v. Howlett that estoppel cannot operate pro tanto, with the effect that if, for example, the defendant has innocently changed his position by disposing of part of the money, a defence of estoppel would provide him with a defence to the whole of the claim. Considerations such as these provide a strong indication that in many cases estoppel is not an appropriate concept to deal with the problem."

Mr. Handyside drew my attention to some textbooks suggesting that the operation of estoppel as a complete defence, rather than change of position as a defence pro tanto in circumstances such as exist in this case, would be unjust – see, for instance, Goff and Jones, The Law of Restitution, 5^th Edition page 829, and Burrows, The Law of Restitution at page 423. Also, my attention was drawn to the Newfoundland Court of Appeal case of RBC Dominion Securities Inc v. Dawson, where Cameron J.A., giving the judgment of the Court, said at page 237:

"The estoppel defence, while protecting the innocent payee, may unnecessarily maintain the inequity for the payor. To make the estoppel defence one which operates pro tanto would be inconsistent with the most commonly accepted view of estoppel, that it is a rule of evidence which prevents evidence of the event which resulted in the change of circumstances from being considered. We conclude that estoppel is no longer an appropriate method of dealing with the problem. The change of circumstances defence is the one which most fairly balances the equities. It is, as Klippert stated in Unjust Enrichment, ‘tailored to the general principles of unjust enrichment’. The defence of estoppel to actions for recovery of money paid under mistake of fact is rejected."

It would not be appropriate for me to make a general statement of principle about the applicability of estoppel as a complete defence in all cases where the defence of change of position gives a defence pro tanto. I confine my remarks to the particular circumstances of this case where I have held that the defence of change of position only gives rise to a defence to the extent of £9,661. In other words, I have held that the defendant has not so changed his position as to make it inequitable to require him to make restitution of the sums of £121,118 and £41,671, but that he has so changed his position in relation to the sum of £9,661 as to make it inequitable to require him to make restitution of that sum. That is the extent to which he has acted to his detriment. His general financial situation is unconnected with the overpayment, and would have existed if the overpayment had never been made.

In those circumstances, as I have previously indicated, I consider that it would be unconscionable and clearly inequitable to allow the defendant to retain the vast bulk of the overpayment when his detriment is limited to such a small amount of that overpayment. It is, in my view, just the sort of situation that the Court of Appeal must have had in mind in the Avon County Council case when expressing reservations about the ambit of that decision. 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. I therefore reject the defence of estoppel, but uphold the defence of change of position to the extent of £9,661.

I should say that I have, during this judgment, eschewed references to pence when dealing with the sums of money involved. However, taking the pence into account, the claimant is entitled to judgment in respect of the sums of £121,118.50 and £41,671.87, making a total of £162,790.37. Having heard argument relating to the interest payable on those sums, there will be interest payable on both sums from 12^th October 1996 at 1% above Bank of England base rate. The interest payable on the sum of £121,118.50 amounts to £26,687.00 and the interest payable on the sum of £41,671.87 amounts to £9,167.64. There will therefore be judgment for the resulting total sum of £198,645.01.