[1] In 1999 it was discovered that Karen Barr, trust account manager of the plaintiff, had been misappropriating trust account funds for several years. She pleaded guilty to a global charge of theft and was sentenced to imprisonment. The firm made good the trust account deficit and obtained judgment against Ms Barr for in excess of $3 million. Subsequently Ms Barr was adjudicated bankrupt.

[2] It emerged from the Serious Fraud Office investigation which led to Ms Barr's conviction that on 8 July 1996 the sum of $112,253 had been paid out of the plaintiff's trust account to the defendant, who is married to Ms Barr's sister. On the plaintiff's analysis the defendant was not entitled to this payment because he did not have any funds in the trust account at the time and the payment represented funds stolen from another client. There has never been any suggestion, however, that the defendant was in any way involved in criminal activity. The plaintiff's request for the funds to be returned was rejected.

[3] In this proceeding the plaintiff claims that when the payment was made no funds were held in its trust account to the credit of the defendant, the payment represented funds stolen by Ms Barr from another client, the defendant received the funds as a volunteer, and the defendant had no beneficial interest in or right to retain the payment. Those allegations are denied by the defendant who also advances four affirmative defences: the plaintiff has not established that he was unjustly enriched by the payment; in good faith he changed his position believing that the payment was valid; relief should be denied under s94B of the Judicature Act 1908; and the plaintiff should be denied relief because it assumed the risk of error.

[4] It is common ground that the defendant received the sum of $112,253 by way of a cheque drawn on the plaintiff's trust account. It is also accepted by the plaintiff that the cheque was signed by a Saunders & Co partner, but the cheque was not produced and the signing partner was not identified. A major complicating factor is the absence of complete trust account records for the period during which the defendant maintains he made his deposits.

 

CONTENTS
Background		Paragraph [5]
Plaintiff's case		Paragraph [14]
Defendant's case		Paragraph [23]
Issues		Paragraph [36]
The Amount (if any) Deposited By Mr Hague Into The Trust Account		Paragraph [39]
	Onus Of Proof	Paragraph [40]
	Deposits Requiring Consideration	Paragraph [46]
	ACC Monies	Paragraph [47]
	December 1992 Receipts	Paragraph [53]
	Receipt Of 27 September 1993	Paragraph [60]
	AMP Monies	Paragraph [75]
	Conclusions	Paragraph [77]
Restitution Based On Theft		Paragraph [81]
Restitution Based On Mistake Of Fact		Paragraph [86]
Affirmative Defences		Paragraph [92]
	Change Of Position/Section 94B	Paragraph [93]
	Plaintiff Assumed The Risk of Error	Paragraph [119]
Outcome		Paragraph [124]

Background

[5] After joining Saunders & Co as an accounts clerk in 1987 Ms Barr became the firm's trust account manager in 1990. Following discovery of an unauthorised transaction she was immediately dismissed on 20 September 1999 and the firm asked the Law Society to investigate. Within a short time the Serious Fraud Office became involved.

[6] Serious Fraud Office investigations revealed that between 15 January 1993 and 20 September 1999 Ms Barr had misappropriated a minimum of $2.693 million by making payments into accounts controlled by her and by utilising other funds to conceal earlier misappropriations. An unknown amount had been converted before 1993. With the exception of $384,000 that could be traced through accounts controlled by Ms Barr, incomplete trust account records meant that the Serious Fraud Office was unable to analyse and reconstruct misappropriations totalling $1.48 million occurring prior to October 1995. Those misappropriations had been subsequently repaid by later misappropriations. Apart from any destruction of records by Ms Barr, the deficiency in the firm's trust account records reflected computer problems and audit issues between 1992 and 1995. Those problems were eventually overcome when a new computer system came on line on 30 September 1995.

[7] According to the Serious Fraud Office, Ms Barr's initial modus operandi included the negotiation of trust account cheques signed by partners into bank accounts controlled by her and her former husband. After the firm adopted electronic banking Ms Barr utilised her status as an authorised user to transfer funds into bank accounts she controlled without obtaining approval. She created false accounts, receipted funds received from one client into the trust ledger of other clients and failed to credit clients' trust account ledgers with withdrawals. When clients from whom funds had been stolen required some or all of their funds Ms Barr would convert other clients' funds to make good the deficit. She maintained a close relationship with clients likely to require funds she had stolen so that she could handle funds directly. On the evidence available to it the Serious Fraud Office was satisfied that Ms Barr had acted alone and that no other person had been involved.

[8] Included in the report prepared by the Serious Fraud Office was a list of "Funds Misappropriated For The Credit Of Other Clients". That list recorded, inter alia, a payment of $112,253 to Mr Hague on 8 July 1996. Because Saunders & Co were unable to identify Mr Hague as an investor through the firm, the firm wrote to Mr Hague on 22 August 2000 seeking evidence that he had paid monies into the trust account justifying the payment to him. In that letter Saunders & Co mentioned that when Serious Fraud Office investigators had inquired about the payment Mr Hague had indicated that it was made up of three amounts, namely, an ACC payment to Mr Hague, a payment derived from the cancellation of an insurance policy, and monies obtained by Mrs Hague from ACC.

[9] In the meantime the Official Assignee was making similar inquiries as part of his administration of Ms Barr's estate in bankruptcy. When responding to the Official Assignee on 13 March 2001 Mr Hague's solicitor advised that because of the lapse of time since the money went into Saunders & Company's trust account his client was handicapped in providing the source of the money, but that from his notes it appeared ACC had paid $15,100 to Mr Hague and $13,648.63 to Mrs Hague and the balance of $86,727 had come from an AMP payment.

[10] When this proceeding was issued in June 2001 Saunders & Co sought summary judgment. One of its partners, Mr Lang, swore an affidavit in support of the application in which he deposed that the firm had checked through all trust account receipt books back to 1990 but could not find any deposits in Mr Hague's name. He deposed that from the firm's point of view Mr Hague was not a client of the firm, had not been in credit with the firm when he received the payment, the funds paid to Mr Hague had been stolen by Ms Barr, and if the money had been lodged on deposit as alleged by the defendant resident withholding tax on interest earned would have been paid, but no such payment had been made. It was the plaintiff's view that:

15. ... as the Defendant has been made aware that the funds came from stolen monies and that he had no monies with the Plaintiff that he is obliged to account to the Plaintiff for the funds received.

The plaintiff believed that the defendant did not have any defence to its claim.

[11] Summary judgment was opposed by the defendant. In his first affidavit the defendant deposed that "some" of the $86,727 he had received from surrendering AMP insurance policies had been deposited in the Saunders & Co trust account. He had been unable to establish exactly how much was deposited with Saunders & Co because bank records are only kept for seven years. Mr Hague also deposed that: sums of $15,1000 and $13,648 received from ACC by himself and his wife respectively "may also" have been deposited with Saunders & Co; because interest earned on the money was compounding he did not expect to receive interest payments; when he wanted to uplift his money he called his sister-in-law who arranged payment of $112,253 on 8 July 1996; and initially his daughter had been told by Saunders & Co that there was no record of her investment with Saunders & Co and she only succeeded in having her investment repaid after she located a copy of the bank cheque in favour of Saunders & Co.

[12] In his second affidavit Mr Hague exhibited cheque butts dated 10 December 1992 and 22 December 1992 which showed payments by him to Saunders & Co for $10,000 and $5,000 respectively. Bank statements showing withdrawals of those amounts from his bank account were also exhibited. Mr Hague deposed that he found the cheque butts when he was going through his accounts trying to locate evidence of the deposits. He understood the actual cheques had been destroyed by the bank.

[13] After summary judgment was refused by Fraser J on 28 September 2001 a further check of trust account receipts was undertaken by partners of Saunders & Co (the earlier check had been by an employee). Five trust account receipts issued by Saunders & Co were located:

• Receipt 13880 dated 11 June 1992 for $20,000 received from the National Bank for the credit of J Hague, account number 000684988, being "mortgage advance".

• Receipt 18466 dated 10 December 1992 for $10,000 received from John Hague for the credit of G J Kirby, account number 000662771, being "monies for term deposit".

• Receipt 18827 dated 22 December 1992 for $5,000 received from John Hague for the credit of G J Kirby, account number 000662771, being "monies for term deposit".

• Receipt 18828 dated 22 December 1992 for $3,000 received from Johns Auto Plaza Limited for the credit of G J Kirby, account number 000662771 being "monies for term deposit".

• Receipt 025132 dated 27 September 1993 for $20,000 from Johns Auto Plaza for the credit of G J Kirby, account number 000662771 being "repayment loan".

G J Kirby is Ms Barr's former husband and the G J Kirby account is one of the accounts used by Ms Barr for the dishonest transfer of funds. John's Auto Plaza Limited is Mr Hague's firm. With the exception of the first receipt dated 11 June 1992 those receipts are relied on by defendant.

Plaintiff's Case

[14] As pleaded the plaintiff's case is succinct. Having alleged that the payment of $112,253 received by the defendant came from the plaintiff's trust account the statement of claim continues:

4. AT the time of the payment no funds were held to the credit of the Defendant by the Plaintiff.

5. THE payment was debited to the Plaintiff's trust account by its then trust account manager, Karen Anne [Barr].

6. THE payment was stolen by Karen Anne [Barr] from funds held to the credit of another client of the Plaintiff.

7. AS regards the Plaintiff, the Defendant is a volunteer in relation to the payment and has no beneficial interest in or right to retain the payment.

On its face this is a claim for restitution of stolen funds received without consideration. However, as the trial progressed there was some modification. To counter the defendant's argument that the funds could not have been stolen in a literal sense because the cheque had been signed by a partner, Mr Davidson argued that the dishonest withdrawal of the funds by Ms Barr from the account of another client supported the same restitutionary principles. His fallback position was that the plaintiff was entitled to restitution by virtue of mistake of fact. There was no attempt to seek leave to amend the pleading.

[15] On the plaintiff's analysis it is immaterial whether the restitutionary claim is based on theft or mistake because the elements to be proved by the plaintiff to establish a prima facie case for recovery are essentially the same: first, that the defendant received the payment sought to be recovered (not in issue); secondly, that such payment came from the plaintiff's trust account (not in issue); and, thirdly, that those monies were either stolen or were paid under a mistake of fact (established by the evidence). Therefore the plaintiff has a prima facie right to recover the money and is entitled to judgment unless the defendant makes out one of its affirmative defences.

[16] According to the plaintiff the onus is on the defendant to establish that he deposited funds into the firm and the defendant is unable to discharge that onus because alleged individual deposits cannot withstand scrutiny, the defendant's expert (Mr Currie) could not advance the matter any further, and Mr Hague's evidence that he deposited funds should be rejected. Reasons advanced for rejecting Mr Hague's evidence include his changing explanations over time as to the source of the funds, absence of resident withholding tax payments, failure to make reference to any such deposits when completing a statement of assets and liabilities for a taxation audit, and the improbability that Mr Hague would have been depositing funds with Saunders & Co when it had been necessary for him to uplift a substantial bank loan in 1994. The plaintiff also contends that the defendant is unable to make out its affirmative defences.

[17] Three Saunders & Co partners, Messrs Lang, Bull and McSporran, gave evidence. Evidence was also given on behalf of the plaintiff by Mr Littlefair, the Law Society audit inspector who investigated the Barr misappropriations on behalf of the Law Society. The fifth witness for the plaintiff was Mr Hughey, the defendant's former chartered accountant.

[18] Mr Lang explained that the firm's attention had been attracted to the payment of $112,253 because the firm's records indicated that the defendant did not have any funds with the plaintiff at the time payment was made and there was no record of any resident withholding tax having been paid on any such investments. He had checked nominee company records back to 1992 but could not find any mention of Mr Hague or his family. Although computer problems before October 1995 prevented the looking up of transactions "on line", there were still source documents in the way of cheque authorities, receipt books, bank statements and condensed printouts of project matters (except to the extent that these had been destroyed by Ms Barr). Mr Lang also emphasised that the firm had worked closely with its auditors and with the Law Society in connection with the computer problems.

[19] Computer and audit problems between 1992 and 1995 were discussed in detail by Mr Bull. He attributed the audit problems to shortcomings in the firm's computer system which was ultimately replaced at the end of September 1995. Mr Bull said it was of great concern to the firm that bank reconciliations could not be completed, but there had not been a "scintilla of suggestion" that there was any dishonesty associated with the firm. Throughout the firm had done everything possible to resolve the computer difficulties and when the Canterbury District Law Society appointed an inspector under s85 of the Law Practitioners Act during 1994 the firm co-operated fully and the investigating solicitor's report was generally favourable. By mid 1994 things were "running well" and reconciliations since August 1993 had been completed although there were still difficulties in accessing older information within the system. Unfortunately hopes that the computer problems had been finally resolved were unfounded and by early 1995 the position seemed to be worse than ever and the firm was forced to install a new computer system which came on line on 30 September 1995. Thereafter there was no recurrence of the reconciliation problems. Mr Bull emphasised that the firm had always adopted the recommendations of its auditors, consultants and the District Law Society when attempting to solve the computer problems.

[20] Mr McSporran, who was the partner responsible for the trust account until 1993, acknowledged that he had a sexual relationship with Ms Barr during 1992 and 1993. Although he was instructed on a number of conveyancing transactions by Mr Hague's son and his son's company, he did not act for Mr Hague except on one occasion during 1996. He refuted the allegation by Mr Hague and Ms Barr that he was aware Mr Hague had invested funds through the Saunders & Co trust account.

[21] Mr Littlefair's investigation on behalf of the Law Society took several months to complete. His primary role was to determine which clients had trust funds missing and the value of these funds. This involved a systematic checking of the transactions for each of the clients whose funds were missing. He concentrated on transactions from the time the new computer system was introduced in October 1995. His investigation was hindered by missing data either on computer hard drive or on hard copy printouts which he believed had been deleted or destroyed by Ms Barr. Having studied Mr Currie's brief (the defendant's expert) he had concluded that with the possible exception of $10,000, (receipt 18466 dated 10 December 1992) and $5,000 (receipt 18827 dated 22 December 1992) the firm's records did not indicate that Mr Hague had deposited funds with Saunders & Co.

[22] Evidence was given under subpoena by Mr Hughey. He confirmed the contents of a letter he had written to Mr Hague's solicitor on 20 December 2001. That letter indicated that having checked the available records of John's Auto Plaza Limited and Hague Holdings Limited (both companies of the defendant) Mr Hughey had been unable to locate any deposits by those companies with Saunders & Co. Income tax returns prepared by Mr Hughey on behalf of the defendant and his wife for the years ended 31 March 1989 through to 31 March 1995 and a statement of assets and liabilities of Mr and Mrs Hague as at 31 March 1995 relating to a tax audit were also discussed. Mr Hughey said that he had no recollection of Mr or Mrs Hague or any of Mr Hague's companies having made any investments with Saunders & Co.

Defendant's Case

[23] According to the defendant mistake of fact is the only conceivable cause of action available to the plaintiff. To the extent that the plaintiff attempts to rely on any other cause of action the defendant believes the plaintiff has misconceived the situation because the $112,253 was paid to the defendant by the plaintiff, not by a theft from the plaintiff. As to the allegation of mistake, the defendant makes two primary points: first, mistake cannot be established because the defendant was entitled to receive the monies paid to him; secondly, the plaintiff's failure to discover or produce the cheque and to explain the circumstances surrounding the signing of the cheque means there is no evidential foundation for a finding of mistake.

[24] The defendant is also at odds with the plaintiff as to the onus of proving whether or not Mr Hague held funds in the trust account. Mr Mathieson submitted that the onus rests with the plaintiff to establish that the deposits had not been made. He also submitted that the defendant's evidence on that topic is "as good as he can muster after this lapse of time", that Mr Hague's evidence is corroborated by Mr Currie's analysis, that the absence of records "at the Hague end" is entirely attributable to the trust that Mr Hague placed in his sister-in-law, and that on the evidence $66,197.38 was deposited by Mr Hague into the Saunders & Co trust account and after allowing for accrued interest Mr Hague was entitled to the amount received.

[25] It is accepted that the defendant carries the onus on his affirmative defences. Mr Mathieson explained that the first affirmative defence that there had been no unjust enrichment was only included out of an abundance of caution and that it is in fact redundant because it duplicates the defendant's denial of the plaintiff's allegation that there were no funds in the trust account. As to change of position and s94B of the Judicature Act, the defendant contends that in all the circumstances it would be unjust to require the defendant to reimburse the plaintiff. And with reference to the assumption of risk defence the defendant particularly relies on the absence of inquiries by the cheque signing partner and failure of the firm over a long period to properly reconcile bank statements with cash book balances thereby increasing the risk that an internal fraud might escape detection.

[26] The defendant gave evidence on his own behalf. Other witnesses for the defendant were Mr Watson, the Ernst & Young partner responsible for the audit of the Saunders & Co trust account between 1992 and 1996, Ms Barr, and Mr Currie, a forensic accountant.

[27] Mr Hague said that during the late 1980s he and his wife decided to establish a nest egg which was to be properly invested for the specific purpose of rebuilding their family home. In 1989 he received $15,100 from ACC for the loss of an eye and in 1990 his wife received an Accident Compensation award of $13,097.38. He is sure that those funds were paid into Saunders & Co trust account. His sister-in-law, Karen Barr, was told why they were investing the money and she indicated that she would invest it at the maximum interest rate compounded quarterly. In 1993 Mr Hague cashed up three AMP life policies. He produced a John's Auto Plaza Limited bank statement showing that three AMP cheques totalling more than $85,000 had been paid into that account. He believes that over a period of time he had paid a considerable proportion of this money to Ms Barr for investment with Saunders & Co.

[28] Mr Hague did not find it unusual that no resident withholding tax certificates or other accounting information relating to the investments was provided to him because he placed "complete and utter" trust in Ms Barr to invest the money and keep it away out of his sight so that he would not be tempted to use it for purposes other than the new house. He tended to operate his business affairs in "separate boxes" and did not keep a diary of personal day to day financial matters. Mr Hague said that Mr McSporran always did his conveyancing in Christchurch during the 1990s and that he was continually in contact with Mr McSporran both in a professional capacity and also in a social capacity because of Mr McSporran's "close attention" to Ms Barr. He had discussed the new house proposal with Mr McSporran and had repeatedly mentioned to him that the funds he had in the trust account were earmarked for this project. When Saunders & Co demanded the money back he started looking for records of deposits but only "isolated bits of my records" were found. He had never kept very accurate personal records of his funds and after a number of years he destroyed all his old documents. Consequently he had very little evidence and engaged Mr Currie to assist in endeavouring to pick up the trail of his investments.

[29] Mr Watson gave evidence about the audit situation for the year ended 31 March 1992 through to 31 March 1996. He said that throughout the time that he was responsible for the Saunders & Co audit there were numerous breaches of the regulations and problems in obtaining bank reconciliations of the trust account. For example, during the period 7 July 1992 to 31 March 1994 14 letters were exchanged between Ernst & Young and Saunders & Co with copies of all his letters going to the Canterbury District Law Society, five promises by Saunders & Co were broken, and 21 months passed with minimal progress. In his letter to Saunders & Co of 16 November 1993 he acknowledged the problems Saunders & Co were experiencing with their computer system but pointed out that between April 1992 and July 1993 there had only been one reconciliation (October 1992) when all items on the reconciliation had been satisfactorily explained to the auditors. During a discussion with Mr Saunders, a partner in Saunders & Co, he raised the issue of Mr McSporran's relationship with Karen Barr which resulted in Mr McSporran being replaced as the audit contact.

[30] Because of the lack of progress in resolving outstanding issues Ernst & Young were unable to give an unqualified audit report in respect of the year ended 31 March 1995 and the Law Society subsequently discharged Ernst & Young from the duty to report on matters which it was unable to audit. His firm was also unable to provide an unqualified audit report for the 1995/96 year. In 1996 Ernst & Young withdrew from auditing solicitors' trust accounts, including the Saunders & Co account. Mr Watson considered that Saunders & Co had a substandard system of controlling its trust account and that over a three year period there was a lack of timely reconciliations which are a tool for preventing misappropriations.

[31] Ms Barr said that from about 1989 her sister and Mr Hague gave her various sums of money to invest in Saunders & Co with the request that the money be put aside so that they could build up a substantial fund for rebuilding their house. She believes that the first investment was derived from an ACC claim relating to an injury to Mrs Hague's knee (about $13,000) and the loss of Mr Hague's eye ($15,000). She cannot now remember the exact amounts nor the exact years that they were paid or whose cheque was used to pay the money into Saunders & Co. It was acknowledged by Ms Barr that she had not invested the money properly but had used it for fraudulent purposes "putting it in places where I had already stolen money". Her sister and brother-in-law trusted her implicitly and she had told them that the interest rate was very good. They did not seek details.

[32] Subsequently she was given other funds to add to their investment and once again she used the money to "block up holes in other accounts within the Saunders & Co trust account". When they requested their money in 1996 she drew one cheque covering their capital and interest. She kept track of all her victims' money so that everyone was able to receive the amount that they thought they were entitled to. She confirmed a longstanding sexual relationship with Mr McSporran and said that he was aware the Hagues had considerable funds in the Saunders & Co system.

[33] Mr Currie, who disclosed that he had been struck off as a chartered accountant, was instructed to assist the defendant in investigating the trust account records of Saunders & Co. He visited the firm's premises in February 2002 to review its records relating to the period during which the defendant's investments were said to have been made. In many respects the records were incomplete and not even the most basic of historical documentation had been retained for the period 1989 to 1995. Based on the records he was able to view he believed that it was reasonable to conclude that the amount of $66,197.38 had been deposited into the Saunders & Co trust account. He arrived at that figure by adding:

 

ACC funds	28,197.38
Trust account receipt 18466 of 10/12/92 - J Hague	10,000.00
Trust account receipt 18827 of 22/12/92 - J Hague	5,000.00
Trust account receipt 18828 of 22/12/92 - John's Auto	3,000.00
Trust account receipt 25132 of 27/9/93 - John's Auto	20,000.00

He calculated that if this amount had been deposited and interest was compounding then the payment in July 1996 would have been in the order of $112,982.66.

[34] Mr Currie also reviewed the audit files of Ernst & Young for the period 1989 to 1996. He noted the level of bank documentation in the audit records was poor which could be explained by the fact that the auditor had not received the required information from Saunders & Co to enable a full audit to be conducted. The worst year was 1993 when Saunders & Co completed no bank reconciliations for the 12 month period under review. He noted that the G J Kirby accounts were regularly used to misappropriate funds deposited to the general trust account or returned to the general trust account from the investment account. The only records available were month end reports showing account balances at the end of the month. Since all the receipts located had been mid month, no other records existed in respect of these transactions.

[35] Given the lack of prime records Mr Currie assumed that both the computer records and original documentation had been deliberately removed and that the lack of these records was far "far more serious than can be attributed to the computer or the destruction of records by the trust account manager". However, such records as there were supported the conclusion that the defendant had deposited funds with Saunders & Co. On Mr Currie's calculation of probable deposits a withdrawal in July 1998 of $112,253 would have been justified.

Issues

[36] Counsel agreed that the logical starting point is the amount (if any) deposited by Mr Hague into the Saunders & Co trust account. However, before that issue can be resolved it will be necessary to determine whether the plaintiff or the defendant carries the onus.

[37] Once the amount (if any) deposited into the trust account has been determined it will be possible to decide whether the plaintiff has established a prima facie case for recovery of any amount to which the defendant was not entitled. This aspect will be considered first under the head of theft and then under the head of mistake of fact. Under the mistake of fact head it will be necessary to revisit the pleadings.

[38] If the plaintiff establishes a prima facie case it will be necessary to consider the affirmative defences advanced by the defendant.

The Amount (if any) Deposited By Mr Hague Into The Trust Account

[39] This issue will be discussed under the following subheadings: onus of proof; deposits repairing consideration; ACC monies; December 1992 receipts; receipt dated 27 September 1993; AMP monies; conclusions.

Onus Of Proof

[40] Given the absence of complete records covering the relevant period, each party was eager to persuade the Court that the onus of proof rested with the other. Both the theft and mistake alternatives need to be considered.

[41] The plaintiff's pleading that it did not hold any funds to the credit of the defendant and that the defendant received the funds as a volunteer obviously reflects its stated reliance on Lipkin Gorman v. Karpnale Limited [1991] 2 AC 548 (HL). That case concerned the theft of a legal firm's trust account funds by a solicitor who gambled the funds away at the defendant's club. The House of Lords concluded that although the club had received the funds in good faith, it had not given valuable consideration and was consequently in the same position as a volunteer with the result that it had been unjustly enriched at the expense of the solicitors. Thus the solicitors were entitled to recover from the club on the basis that an innocent recipient of stolen money is obliged to reimburse the true owner where the recipient has not given valuable consideration.

[42] Like the plaintiff in Lipkin Gorman, Saunders & Co is alleging that Mr Hague was unjustly enriched at the firm's expense because he was not entitled to any payment from the trust account. That factual allegation having been denied by the defendant, the onus must rest on the plaintiff to establish its truth. Given the pleadings I cannot see how the plaintiff can expect any other outcome. The flaw in Mr Davidson's reasoning is that the three matters listed by him to establish a prima facie case based on theft by Ms Barr (see paragraph [15]) overlooks the unjust enrichment factor, a factor which was obviously not overlooked when the statement of claim was drafted. I also note that at a later point in the plaintiff's submissions an alternative formulation was offered as to the matters that the plaintiff needs to establish. This formulation was based on the view expressed in Tyree's Banking Law in New Zealand (Second Edition) that a plaintiff must show, first, proof of the enrichment by the receipt of a benefit, secondly, that the enrichment was at the expense of the plaintiff and, thirdly, that the retention of the enrichment is unjust. While much has been written about the role of unjust enrichment in restitution claims, National Bank of New Zealand Ltd v. Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 seems to be now generally accepted as authority for the proposition that at least in New Zealand that concept has a legitimate role to play.

[43] I should also make it clear that I cannot accept that there is any proper basis for concluding that the onus has somehow shifted from the plaintiff to the defendant in this case. I reject Mr Davidson's proposition that in a practical sense the defendant's pleading amounts to a counterclaim. As already mentioned, the first affirmative defence is superfluous. The other affirmative defences cannot have any bearing on the issue. In the end the onus simply reflects the plaintiff's allegations in its statement of claim and the defendant's denials.

[44] To the extent that the plaintiff is also relying on mistake of fact there must be a similar outcome. The plaintiff will have to prove a causative mistake. In other words, the plaintiff will have to prove that it was mistaken in its supposition that the defendant was entitled to the payment on account of funds held on his behalf in the trust account. This means that the plaintiff will have to prove that Mr Hague did not have funds in the trust account justifying the payment to him. Furthermore, as noted in Tyree's Banking Law in New Zealand at p480, although the law allows restitution for causative mistakes, that does not mean that restitution is available for all causative mistakes. The authors cite Barclays Bank Limited v. W J Simms, Son and Cook (Southern) Limited [1980] 1 QB 677 at p695 to support the proposition that a claim for restoration of a mistaken payment will fail where:

... the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee ... by the payer.

Reference is also made in that text to David Securities v. Commonwealth Bank of Australia [1992] 175 CLR 353 at p392 in which it is noted that if a defendant has a right to receive a payment in discharge of some liability owing to him, a mistake by the plaintiff in making the payment does not convert the receipt into an unjust enrichment, and to the extent that a payment satisfies a defendant's right to receive it, the defendant gives good consideration.

[45] I conclude that whether the claim is founded on theft or mistake the onus rests on the plaintiff to establish that the defendant was not entitled to the payment by virtue of funds held on his behalf in the trust account. It is now necessary to examine each alleged deposit.

Deposits Requiring Consideration

[46] The following table summarises the deposits alleged to have been made into the plaintiff's trust account:

 

	Date	Source/Document	Amount
1	August 89	ACC	15,100.00
2	June 90	ACC	13,097.28
3	10.12.92	Receipt 18466	10,000.00
4	22.12.92	Receipt 18827	5,000.00
5	22.12.92	Receipt 18828	3,000.00
6	27.09.93	Receipt 25132	20,000.00
7	Post August 1993	AMP Society	15,000.00

While it is necessary to consider each of these matters, it is convenient to group the ACC monies (items 1 and 2) and also the three receipts issued in December 1992 (items 3 - 5). It should also be added that the defendant's closing submissions and Mr Currie's evidence seem to indicate that item 7 is no longer an issue. But I will take the precaution of considering that matter in case my understanding is incorrect.

ACC Monies

[47] It is not disputed that in or about August 1989 Mr Hague received $15,100 from ACC and that in June 1990 Mrs Hague received an ACC payment of $13,097.38 net through her solicitors. Those payments are supported by documentary evidence. The issue is whether those monies were deposited with Saunders & Co as alleged by the defendant.

[48] In his affidavit of 7 August 2001 in opposition to the plaintiff's application for summary judgment Mr Hague deposed:

4. I ... received $15,100.00 from an A.C.C. payment ... My wife received $13,648.63 from a separate A.C.C. payment and both of these payments may also have been deposited in the Saunders & Co Trust account. (Underlining added).

By the time he gave evidence Mr Hague had become "sure" that these monies were invested with Saunders & Co, although it seems that no further records directly bearing on the issue had been located after the affidavit was sworn. His progression from a tentative recollection on oath in 2001 to an unequivocal recollection on oath at trial seems to be attributable to the passage of time more than anything else. When I also take into account that Mr Hague failed to declare any investments with Saunders & Co in his tax audit and his unsatisfactory responses under cross-examination on that matter I am forced to the conclusion that his evidence about depositing the ACC monies should be approached with caution.

[49] Having indicated that she believed the ACC monies had been invested with Saunders & Co, Ms Barr said that she had not invested the money properly but had used it for fraudulent purposes by putting it in places where she had already stolen money. It was not possible for the Serious Fraud Office to verify misappropriations prior to 15 January 1993. Thus it is not possible to verify Ms Barr's evidence that the ACC monies were deposited with Saunders & Co through her. Given Ms Barr's gross deception and dishonesty it would be unwise to rely on her evidence in the absence of some form of verification, preferably documentary. Apart from Mr Hague's evidence there is no verification.

[50] Although Mr Currie proceeded on the basis that the ACC monies had been deposited in the Saunders & Co trust account, he conceded under cross-examination that he could not offer any additional information to substantiate his stance which was simply based on Mr Hague's assertion that the monies had been deposited. A significant point did, however, arise from Mr Currie's evidence. Despite being highly critical about the lack of information made available to him by Saunders & Co, Mr Currie confirmed in response to questions from the Bench that when he went to Christchurch he was given Eastlight files covering receipts for the period that he was looking at, namely, from 1989 to 1996 and that his complaint about the lack of information did not cover receipts. It must follow that if there had been any serious suggestion that there were other receipts reflecting deposits of the ACC monies Mr Currie would have checked the firm's receipt books himself. Given that no other receipts have been identified it is likely that the receipts before the Court represent the totality of the receipts issued in relation to deposits from a Hague source. Consequently the absence of any receipts suggesting that the ACC monies were deposited with Saunders & Co must count against the proposition that this happened.

[51] Before leaving Mr Currie's evidence I should return to Mr Currie's criticism of the lack of prime records stored by Saunders & Co. He made the assumption that records and documentation had been deliberately removed, presumably by Saunders & Co. When Saunders & Co became aware that Mr Currie was suggesting that documents he had expected to see were not available a letter was written to Mr Hague's solicitors calling upon Mr Currie to identify what specific documents he claimed were unavailable. This invitation was not followed up. Mr Currie said that when he saw the letter from Saunders & Co he could only assume that there was another room with all the information in it and he did not expect to get any benefit by looking at the documents on discovery because they were not in date order and he did not think he would find any more information by looking at it. While Saunders & Co may not have been over helpful to Mr Currie, his assumption that records and documentation was deliberately removed is unsubstantiated and unjustified.

[52] In all the circumstances the absence of any receipts or any other documentary record indicating that the ACC monies were paid into the Saunders & Co trust account is significant. I am not prepared to accept the unsubstantiated evidence of Mr Hague and Ms Barr that the ACC monies were paid into the firm. I find that the ACC monies were not deposited with Saunders & Co.

December 1992 Receipts

[53] These trust account receipts for $10,000 (10 December 1992), $5,000 (22 December 1992) and $3,000 (22 December 1992) can be considered together because they are proximate in time. However, within that grouping it is convenient to start by considering the first two receipts.

[54] When Mr Hague's bank statements and cheque butts are linked to the first two Saunders & Co trust account receipts recording that the firm had received from Mr Hague "monies for term deposit" there is strong support for the defendant's claim that the first two payments represented investments through Saunders & Co. I reject the plaintiff's suggestion that the notation "Saunders & Co" and "Karen" on each cheque butt is much more consistent with a personal payment to Ms Barr than an investment through the firm. Those notations are perfectly consistent with the cheques being handed to Karen Barr for investment with Saunders & Co. It is possible that both Mr and Mrs Hague have completed different parts of the cheque butts, but I do not see anything untoward in that. I also note that Mr Littlefair does not appear to take serious issue with Mr Currie's conclusion that on the face of the documentation deposits of $10,000 and $5,000 were made. Thus on the face of these records I am satisfied there is a very strong case that $15,000 was invested.

[55] Mr Davidson argued, however, that the first two transactions could not be divorced from, and should fall with, the third transaction of $3,000 on 22 December 1992. He submitted that the evidence relating to the third transaction is thoroughly incompatible with the defendant's assertion that it represented an investment. His primary point arises from the notation "Karen Kirby part payment on car 271" appearing on the cheque butt. He said that this could only mean a personal payment to Ms Barr in connection with a car transaction. Mr Davidson also reminded the Court that Mr Hague had no personal recollection of this particular payment so that the matter effectively stood or fell on the documentation. Added to those points he noted the absence of resident withholding tax payments and Mr Hague's failure to disclose the investment when completing his tax audit declaration.

[56] Several documents support the defendant's contention that his company placed $3,000 with Saunders & Co for investment on 22 December 1992. The company's bank statement confirms a debit of $3,000 arising from a cheque with a sequential number corresponding with the exhibited cheque butt. The trust account receipt issued by Saunders & Co recording a deposit of $3,000 from the company being "monies for term deposit" ties in with those documents. And a computer generated banking slip located by Mr Currie is consistent with those records. So there is solid documentary support for the defendant's contention.

[57] On the other hand, the cheque butt in Mr Hague's handwriting suggests that the cheque was in part payment of a vehicle purchased from Ms Barr. If that is so the funds would have belonged to Ms Barr personally and could not in the absence of some other explanation have represented an investment with Saunders & Co by Mr Hague's company. There are further complications. Although Ms Barr acknowledged that she had bought cars from Mr Hague, she denied that she had ever received money from him for the sale of a vehicle. That evidence was contradicted by Mr Hague who said that Ms Barr had sold her car "back to us". Code 271 is consistent with that having happened. Mr Hague said he was unable to recall the transaction referred to on the cheque butt and said that he may have put it down as a purchase of a vehicle "that may not have been". He also suggested that he might have wanted to get the $3,000 out of the John's Auto Plaza Limited account. I was left with the impression that Mr Hague might have been less than frank about what was going on.

[58] To say the least it is difficult to reconcile the Saunders & Co receipt with the cheque butt. But I am perfectly satisfied that the funds were actually paid into the trust account. The issue becomes: were the funds deposited by Mr Hague's company or by Ms Barr in her personal capacity? Given that Ms Barr was probably stealing from her employer at that stage the odds must be against her paying her personal funds into the firm without some very good reason. It is also difficult to understand why, if she did so, she would have issued a receipt in favour of Mr Hague's company when she was the proper depositor. On the other hand, I can accept that for reasons he might be reluctant to disclose Mr Hague was prepared to record inaccurate information on his cheque butt. Possibly Mr Woods' suggestion that he was seeking to claim an expense yet have the benefit of the funds for investment is close to the mark.

[59] The onus rests with Saunders & Co and its own receipt is not helpful to it. I do not see the absence of resident withholding tax payments or Mr Hague's failure to disclose investments with Saunders & Co as decisive factors. Although this matter is relatively finely balanced I have concluded that the plaintiff has not discharged the onus with the result that I find that the sum of $3,000 (plus a further sum of $15,000 arising from the other two receipts) was deposited with Saunders & Co for investment on the dates recorded in the receipts.

Receipt Of 27 September 1993

[60] At first sight the Saunders & Co receipt 025132 for $20,000 received from John's Auto Plaza on 27 September 1993 seems to be in a different category to the three receipts discussed previously. First, it carries the narration of "Repayment loan". Secondly, it is shown as "DIRECT CREDIT". Thirdly, there is no bank statement or other documentation which enables the source of the funds to be verified with confidence.

[61] In his letter dated 20 December 2001 Mr Hughey advised that he had checked through the available records of John's Auto Plaza Limited and Hague Holdings Limited and had been unable to find any cheque for $20,000 drawn on either company bank account in September 1993. He also examined Mr Hague's current account and listed all cheques of a significant amount debited to that account. His letter also discussed funds introduced into John's Auto Plaza Limited during the year and credited to Mr Hague's loan account. Mr Hughey's letter concluded that neither company appeared to have made any deposits with Saunders & Co.

[62] When Mr Hague was cross-examined about the contents of Mr Hughey's letter the following exchanges occurred:

Q. So on the evidence we have and without any recollection by you, to the extent receipts suggest there was money from John's Auto Plaza there is no record of such whether from the company or you.

A. John's Auto Plaza did not have a loan, nor did John Hague.

Q. So the receipt is a complete fabrication.

A. What's written on the receipt in respect of John's Auto Plaza and a loan repayment, we haven't borrowed money off them and never have.

Q. So the receipt really in terms of both you and the company can't be correct.

A. What's written is not correct.

Q. John's never borrowed money Saunders & Co.

A. No.

Q. You haven't borrowed money from Saunders and Co.

A. No.

Q. So the receipt is clearly a fabrication.

A. That part is not correct.

Q. And there is no other circumstances in which money has flowed from John's Auto Plaza to Saunders & Co.

A. I don't believe so.

My interpretation is that Mr Hague virtually conceded that the $20,000 could not have come directly from his companies. Having regard to Mr Hughey's evidence and the bank statements that must be the case.

[63] On the other hand, Mr Hague mentioned that despite the fact that the receipt showed the company as payer, the $20,000 might in fact have come out of his private account. This prompted a challenge by Mr Davidson as to how he could have been "squirreling money away into Saunders & Co" when the company was in overdraft to the extent of around $81,000. Mr Hague's response was that the company was separate from him and had to stand on its own feet and that he kept his own money "well aside". When assessing the accuracy or otherwise of Mr Hague's assertion that the sum of $20,000 might have come out of his private account I am influenced by three matters. First, I accept that his inability to specifically recall the matter after almost 10 years without any documentary record to prompt his memory is probably genuine. Secondly, according to the company's bank statement, AMP cheques for $8,003.91, $14,895 and $62,653.61 (totalling $85,552.52) were paid into the company's account during August 1993 and an approximately equivalent amount was paid out soon thereafter. Mr Hughey noted that the cheque drawn for the payment out recorded "J Hague - pay back money from insurance policies". Under those circumstances it would not be at all surprising if Mr Hague "squirreled" some money away with Saunders & Co soon after the AMP policies were surrendered. Thirdly, although the annual accounts of the company for 31 March 1993 indicate a relatively lean year, the company's performance had improved significantly for the year ended 31 March 1994. For the latter year Mr Hague was paid or credited with a salary of $125,000 compared with $47,000 for the previous year. I accept, therefore, that after the AMP monies were received Mr Hague personally would have been in a financial position to invest $20,000 with Saunders & Co and that it might be expected that any investment would have been made reasonably soon after the AMP funds were received.

[64] Ms Barr said she specifically remembered the 1993 transaction involving $20,000 because on 14 September she had paid two personal cheques (each for $10,000) out of her BNZ account, one to Mr McSporran who had been pressing for repayment of a debt she owed him, and the other to herself (as far I can gather to plug a gap in the Saunders & Co trust account created by her dishonesty). To temporarily cover those two cheques she had simultaneously deposited in her BNZ account a cheque for $20,000 from her Westpac bank account. But she knew her Westpac cheque would be dishonoured and that this would mean her BNZ account would be overdrawn. So she rang Mr Hague to see if he had funds to invest. He obliged by giving her $20,000 which she paid into the trust account for the credit of G J Kirby and from there to her BNZ account. While I am not prepared to accept Ms Barr's unsubstantiated evidence, it has to be acknowledged that the entries in her BNZ account (payment into the account of $20,000, issue of two cheques for $10,000 each, dishonour of the $20,000 cheque and a further payment into the account of $20,000) are consistent with her explanation. It needs to be added, however, that under cross-examination Ms Barr conceded that if the amount of $20,000 credited to her BNZ account on 27 September 1993 came from Mr Hague it would have been applied to remedy the overdraft in her account, the inference being that it could not have been an investment with Saunders & Co. I will return to that proposition.

[65] Mr Currie assumed that the trust account receipt for $20,000 reflected an internal transfer of funds within the Saunders & Co trust account, probably from an interest bearing account into the general trust account. Mr Littlefair questioned that assumption and suggested that the narration "Repayment LOAN" could be interpreted as John's Auto Plaza repaying money through Saunders & Co that had been borrowed earlier. For present purposes the important point is that notwithstanding the indication on the receipt that it was a direct credit, Mr Littlefair seems to accept that the payment might have come from an outside source.

[66] Attention was drawn by Mr Currie to a document which I understand to be a computer generated general ledger listing of transactions for the G J Kirby account. On 27 September 1993 there is a credit of $20,000 with specific reference to receipt 025132 (the trust account receipt for $20,000 on the same date) and a notation "Repayment JOHN AUTO PLAZA LOAN" immediately followed by a debit for $20,000 with the notation "Funds as requested". Although Mr Currie considered that this general ledger entry provided a second step to the audit trail, he was not able to establish any direct linkage to any transaction within the John's Auto Plaza ledger and could not be sure whether the transaction involved cash although he was inclined to think real cash was involved. He could not say with any certainty whose funds were represented. Mr Littlefair did not directly address this aspect.

[67] On my interpretation of the available evidence there are four possible scenarios.

• That $20,000 was invested prior to 27 September 1993 and receipt 025132 records the transfer of those funds off deposit and into the general trust account.

• That Ms Barr received $20,000 from Mr Hague and deposited that sum into her BNZ account.

• That $20,000 was paid by Mr Hague into Saunders & Co where it was fraudulently credited by Ms Barr to the G J Kirby account and from there paid into her BNZ account.

• There was no payment of $20,000 from a Hague source.

The evidence is not particularly satisfactory. To a large extent this seems to be attributable to the passage of time and incomplete trust account records. Despite those problems it is necessary for me to resolve the matter one way or other.

[68] Several factors count against the first scenario. First, and most importantly, there is no Saunders & Co receipt recording the initial payment into the trust account and in that regard I come back to my observations in relation to the ACC monies (see paragraph [50]). Secondly, until the AMP funds came through there is no ready explanation as to the source of the payment. Thirdly, assuming Ms Barr's evidence that she asked Mr Hague for funds to be true, this would have been unnecessary if the funds had already been at her mercy within the trust account. In my assessment it is unlikely that this scenario represents actual events.

[69] The second scenario does not explain receipt 025132 or the entries in the G J Kirby ledger. Although there were two payments of $20,000 into Ms Barr's BNZ account, it is clear that the first payment (which Ms Barr says came from her Westpac account) was dishonoured and there has not been any real suggestion that this payment could have come from a Hague source. This leaves the other deposit of $20,000 on 27 September 1993. But the bank statement confirms that there was no payment or payments out of the BNZ account on that date that might account for receipt 025132 or the entries in the G J Kirby ledger. I conclude that this scenario is in a similar category to the first scenario.

[70] On the other hand, with the exception of three aspects of the receipt to be discussed shortly, the third scenario seems to be more compatible with the documentary evidence. It explains the receipt for $20,000 on 27 September 1993, the two entries in the G J Kirby ledger on the same day and the payment of $20,000 into Ms Barr's BNZ account, also on the same day. It is also consistent with Ms Barr channelling stolen funds through the G J Kirby account as described in the Serious Fraud Office report and with the Serious Fraud Office observation that she misappropriated funds when she knew that funds would not be required in the immediate future. However, balanced against those factors are three aspects of the receipt which might not readily fit that scenario, namely: the receipt is in favour of "John's Auto Plaza" whereas on my analysis the funds could only have come from Mr Hague personally; the narration "Repayment LOAN" does not reflect the evidence; and the possibility that the words "DIRECT CREDIT" indicate an internal transaction.

[71] I am not particularly troubled by the fact that the receipt is in favour of "John's Auto Plaza" and not Mr Hague personally. Obviously the receipt does not accurately record the identity of the depositor. If the depositor was the company the receipt should have been in favour of John's Auto Plaza Limited (the same as receipt 18828). And if it was Mr Hague personally it should have been in his name. So the name of the depositor cannot provide a reliable indicator as to whether the funds came from Mr Hague personally or his company. On the other hand the use of the Hague name suggests that the funds came from a Hague source. In this regard I note that no-one ventured any explanation as to why Ms Barr would have issued a receipt in favour of Mr Hague if the funds had not come from that source. I also note Ms Barr's answers to a series of questions from the Bench:

Q. Ms Barr, you told me that the funds were given to you for investment and using your words, "I receipted them fraudulently".

A. Yes.

Q. Tell me what you mean "I receipted them fraudulently".

A. I should have receipted them into an account, into John's account, but I didn't, some of it I receipted into my own account to use fraudulently, and some went to plug up holes in other accounts I used fraudulently as well. I should have receipted it straight into an account for John.

Q. So the fraudulent part was in the narration in the receipt.

A. Yes, but like a cover up if questions were asked.

This explanation does not suggest that Ms Barr falsified the identity of depositors when issuing receipts. That is consistent with the other evidence before the Court, including the Serious Fraud Office report. In all the circumstances it would be unsafe to read too much into the fact that the receipt was issued in favour of "John's Auto Plaza" rather than Mr Hague personally.

[72] The other aspects of the receipt are also indecisive. There seems to be general agreement that the transaction could not have been the repayment of a loan. So the notation must have been either a mistake or a falsification. Given that the payment has been falsely credited to the G J Kirby account it is probably the latter, although the purpose of that falsification is not readily apparent. The important point is, however, that the notation cannot provide a reliable indicator as to the actual purpose of the payment. As to the notation "DIRECT CREDIT", I note the differing interpretations of Mr Currie and Mr Littlefair. Given their evidence, and the fact that the onus is on the plaintiff, I am not prepared to take these words as a compelling indicator that the funds could not have come into the trust account from an outside source.

[73] The fourth scenario is in a similar category to the first two scenarios. It fails to explain the trust account receipt or the entries in the G J Kirby ledger.

[74] Again this is a finely balanced matter. On the limited information available the third scenario is the most probable. Indeed, it is the only scenario that is capable of explaining the trust account receipt and the entries in the G J Kirby ledger, which are in my opinion important indicators as to actual events. It also ties in with the deposit of $20,000 into Ms Barr's BNZ account on 27 September 1993. Despite the absence of documentary evidence as to the source of the funds, I am prepared to accept that Mr Hague was in a financial position to make the deposit and that the receipt is consistent with the funds having come from a Hague source. I conclude, therefore, that $20,000 was deposited by Mr Hague on 27 September 1993.

AMP Monies

[75] Having explained that he had cashed in AMP policies and deposited the three AMP cheques with his company, Mr Hague stated in his evidence in chief:

It is my honest belief that a considerable amount of this AMP money was over a period of time passed to Karen to add to the growing amount of money we had invested at Saunders. I believe that at least $20,000 was used out of the AMP monies to add to the investment. I have never said that the whole of that money from AMP was invested.

When he was questioned under cross-examination about whether he had invested a substantial portion of the AMP monies with Saunders & Co he emphasised several times that only "some" of that money had been invested.

[76] I have already found that the $20,000 deposited on 27 September 1993 was originally sourced from the AMP money. There is no documentary evidence to suggest that any further amounts were invested from that source. In my view the reference to $20,000 in Mr Hague's evidence reflects the truth of the matter.

Conclusions

[77] As a result of the foregoing I conclude that the following sums were deposited into the Saunders & Co trust account:

• $10,000 on 10 December 1992

• a total of $8,000 on 22 December 1992

• $20,000 on 27 September 1993.

It follows that on 8 July 1996 Mr Hague was entitled to a payment from the plaintiff's trust account of $38,000 plus interest less withholding tax.

[78] As to interest, it was Mr Lang's uncontested evidence that nominee company interest rates were:

• 10.5% until 4 October 1993

• 9.5% from 5 October 1993 to 1 December 1993

• 8.5% from 2 December 1993 to 18 July 1994

• 9.25% from 19 July 1994 to 12 December 1994

• 10% from 13 December 1994 to 23 February 1995

• 11% from 2 February 1995 to 8 July 1996.

Calculated at those rates, but without making any allowance for the compounding of interest or withholding tax, the principal and interest repayable on 8 July 1996 would have been $51,479. Ms Barr and Mr Currie calculated interest at 14% per annum compounding quarterly which would produce a figure of $58,717.

[79] At the close of submissions I agreed that counsel should be given an opportunity to advance further submissions as to interest in the event that I found deposits had been made into the trust account. Consequently I will refrain from finalising that aspect until further submissions are received. It may be helpful, however, if I signalled my preliminary view that interest should be at the nominee company rates because there is no evidence that any other rates were agreed between Mr Hague and Ms Barr. Indeed, the evidence is to the contrary. I have also formed the preliminary view that there should be some provision for compounding of interest. Resident withholding tax will, of course, have to be deducted.

[80] The foregoing means that Mr Hague was entitled on my calculations to a payment on 8 July 1996 of somewhere between $51,479 - $58,717 (less withholding tax). He actually received $112,253. The difference ($53,536 - $60,774) represents an overpayment. The next issue is whether the plaintiff has made out a prima facie case for restitution of the amount overpaid. I begin by considering that issue on the footing that the claim is based on theft.

Restitution Based On Theft

[81] According to the plaintiff the over payment was derived from funds stolen by Ms Barr from Stanmore Properties Limited. The plaintiff relies on the trust account records showing withdrawal of the sum of $112,253 from the Stanmore Properties Limited account and the payment to Mr Hague, coupled with the uncontested evidence about Ms Barr's dishonesty, to establish the necessary linkage between the unauthorised removal of the funds from the Stanmore Properties account and the payment to Mr Hague.

[82] Several challenges are mounted by the defendant: the plaintiff's allegation rests on the false premise that the payment to Mr Hague and the preceding wrongful transfer within the trust account can be "run together"; to the extent that the plaintiff is purporting to bring a subrogated claim in equity on behalf of Stanmore Properties Limited it is not able to do so; in any event, it has not been proved by the plaintiff that Stanmore Properties Limited was entitled to the money standing to its credit in the term deposit account; and since the cheque was signed by one of the Saunders & Co partners it was a payment by the plaintiff to the defendant and was not in the Lipkin Gorman category of a thief stealing from the true owner and then disposing of what has been stolen to the defendant who could not receive good title.

[83] On the evidence before the Court, particularly the Serious Fraud Office analysis, I can safely infer that $112,253 was dishonestly transferred by Ms Barr from the Stanmore Properties Limited account to the general trust account. For present purposes I am also prepared to accept that those funds belonged to Stanmore Properties Limited. But beyond that the plaintiff's case based on theft by Ms Barr runs into problems. The main problem is that the payment to Mr Hague was by way of a cheque signed by a Saunders & Co partner which clearly distinguishes this case from Lipkin Gorman and the other cases involving stolen funds discussed therein, all of which involved payment by the thief. This distinction was noted in the leading speech by Lord Goff of Chieveley at p572:

It is to be observed that the present action ... is concerned with a common law claim to money, where the money in question has not been paid by the appellant directly to the respondents - as is usually the case where money is, for example, recoverable as having been paid under a mistake of fact, or for a consideration which has failed. On the contrary, here the money had been paid to the respondents by a third party … and in such a case the appellant has to establish a basis on which he is entitled to the money. This (at least, as a general rule) he does by showing that the money is his legal property ...

It seems to me that Mr Davidson's submission that Mr Hague could not obtain property in the money because of the preceding dishonest conduct by Ms Barr fails to confront the reality of the situation. In this case the cheque signed by a partner must have passed legal property in the money to the defendant with the consent of the plaintiff. This is in complete contrast to a situation where the thief makes the payment without the knowledge or approval of the true owner. Naturally this does not mean that the plaintiff is without a remedy, but it does call into question whether the plaintiff has correctly identified the foundation for its claim. I also note that Lord Goff's analysis would suggest that mistake of fact is likely to represent the proper cause of action.

[84] Mr Davidson suggested that it can be reasonably inferred that Ms Barr fraudulently induced the partner to sign the cheque. I do not have the cheque or any information about the circumstances surrounding its signing, although I do have Mr McSporran's evidence that no cheques were ever signed without there being a supporting authority and that cheques would be signed by whichever partner was available. The Serious Fraud Office report also stated that payments required the completion of an "authority for cheque" which had to be signed by a partner. It is not clear to me why there is no information about the cheque. Possibly the cheque has been destroyed and no-one is now able to recall the circumstances surrounding its execution. But I do not think the absence of the cheque or information about the circumstances under which it was signed is critical. Having regard to the Serious Fraud Office statement that no-one apart from Ms Barr was involved in the misappropriations it can be safely inferred that the signing partner was not in league with Ms Barr. And once the evidence that Ms Barr withdrew funds from the Stanmore Property Limited account is linked to Mr Hague's evidence that he had asked her to arrange repayment of the Hague investment it must be reasonably obvious that Ms Barr was instrumental in arranging for the cheque to be signed by a partner and that the partner signing the cheque must have believed that Mr Hague was entitled to payment as a result of what was said or left unsaid by Ms Barr.

[85] That scenario is very similar to Thomas v. Houston Corbett & Co [1969] NZLR 151 (CA). In that case a dishonest law clerk employed by Houston Corbett & Co, solicitors, induced one of the principals in the firm to sign a cheque drawn on the firm's trust account in favour of Dr Thomas on the false representation of the law clerk that this sum was due to Dr Thomas in respect of the sale of a section. The law clerk then tricked Dr Thomas into paying most of the funds to him. When the true facts were discovered by the firm it commenced proceedings against Dr Thomas for recovery of the money on the ground of mistake. The Court of Appeal upheld the finding of this Court that the funds were prima facie recoverable by the solicitors because they had been paid under a mistake of fact (the Court of Appeal decided, however, that a proportion of the money could be retained by Dr Thomas pursuant to s94B of the Judicature Act, but that is irrelevant for present purposes). That decision confirms my impression that the proper foundation for the plaintiff's claim is mistake of fact, not theft by Ms Barr, and that nothing can be achieved by considering the theft possibility any further.

Restitution Based On Mistake Of Fact

[86] From an early time mistake of fact has been a live issue in this proceeding. In his second amended statement of defence filed on 13 May 2002 the defendant advanced an affirmative defence that relief should be denied under s94B of the Judicature Act 1908 which, of course, applies to payments made under mistake of law or fact. Given that there has never been any suggestion that a mistake of law might have arisen, the defendant was obviously contemplating the possibility that mistake of fact might be established. Without admitting that any such cause of action could succeed, the defendant's approach at trial was that mistake of fact represented the only arguable basis on which restitution could be ordered. As far as I can gauge counsel on both sides have approached the matter on the basis that the pleading might be wide enough to cover mistake of fact (for example, Mr Mathieson said in closing "if the statement of claim be taken to be pleading that there was a mistake of fact").

[87] To my mind the statement of claim is defective because it does not specifically include a pleading supporting the mistake of fact allegation. But there cannot be any suggestion that the defendant has been prejudiced or that the course of the trial has been altered by the failure to specifically plead mistake of fact. I can only assume that the plaintiff did not seek an amendment because it was considered that the pleading was wide enough as it stood. Generally a liberal approach is adopted in situations where there is no prejudice (see, for example, Elders Pastoral Limited v. Marr (1987) 2 PRNZ 383 (CA)) and to the extent that there is any defect in the statement of claim I amend the pleading pursuant to Rule 11 so that mistake of fact is specifically pleaded.

[88] Now I return to the merits of the plaintiff's fallback position that there was mistake of fact and to Thomas v. Houston Corbett & Co in which North P at p161 endorsed the following statement of principle in Kelly v. Solari (1841) 9 M&W 54:

... Where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, and it is against conscience to retain it ... 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.

North P concluded that it was sufficient for Houston Corbett & Co to establish, as it had, that it was induced by the fraudulent misrepresentation of the law clerk to pay the money into Dr Thomas's bank account in the mistaken belief that this sum was due to him by the firm. In his view this was a clear case of money paid under mistake of fact being prima facie recoverable. A similar approach was adopted by the other two members of the Court, Turner and McGregor JJ. Turner J concluded that it was only necessary for the plaintiff to prove:

... (1) Payment of money by A. to B.; (2) proof that the money would not have been paid, but for a mistake of fact which A. made. Where both these two essentials are shown, an action will lie in quasi-contract for moneys had and received, and all that is left by way of defence is estoppel, or the discretion now given by s94B of the Judicature Act 1908 ...

The essential elements of a claim based on mistake of fact have been recently restated by the Privy Council in Dextra Bank & Trust Co Ltd v. Bank of Jamaica [2002] 1 All ER (Comm) 193 at paragraph 28. The Privy Council confirmed that to succeed the plaintiff must identify a payment by him to the defendant, a specific fact as to which the plaintiff was mistaken in making the payment, and a causal connection between the mistake of fact and the payment of the money.

[89] To the extent that the amount paid to Mr Hague exceeds the amount properly payable, I am satisfied that a prima facie case has been made out by the plaintiff to recover the excess on the ground of mistake of fact. I reject Mr Mathieson's submission that there is insufficient evidential foundation for this finding. Notwithstanding the absence of detail surrounding the actual signing of the cheque, Ms Barr must have been instrumental in arranging the payment. It is not disputed that Mr Hague called Ms Barr at Saunders & Co to request that his money be withdrawn from the trust account and that she paid $112,253 to him by way of cheque dated 8 July 1996. It is also clear that Ms Barr arranged for that sum to be withdrawn from the Stanmore Properties deposit account and paid into the general account. Ms Barr must have arranged for the cheque to be signed by one of the partners. And, as I said earlier, I am perfectly satisfied that the partner was not in league with Ms Barr.

[90] The inference can be safely drawn that the partner signed the cheque because the partner believed that Mr Hague was entitled to the amount for which the cheque had been made out and that but for that mistaken belief the excess would not have been paid to Mr Hague. In other words, there was a payment, a mistake in relation to a specific fact, and a causal connection between that mistake and the payment. Ms Barr's precise role cannot be accurately determined, but that does not matter. A mistake was made. In substance the situation is indistinguishable from Thomas v. Houston Corbett & Co. It is possible, of course, that the signing partner was lax. But as the Privy Council confirmed in Dextra v. Bank of Jamaica at paragraph 45, in actions for the recovery of money paid under a mistake of fact it has been well settled for over 150 years (since Kelly v. Solari) that the plaintiff may recover however careless he or she may have been in omitting to use due diligence.

[91] A prima facie case for recovery of the excess having been established, it becomes necessary to consider the defendant's affirmative defences.

Affirmative Defences

[92] For reasons already discussed it is unnecessary to consider the first affirmative defence. The second and third defences (change of position and s94B of the Judicature Act) overlap and will be considered together.

Change Of Position/Section 94B

[93] Section 94B of the Judicature Act provides:

94B Payments made under mistake of law or fact not always recoverable

Relief, whether under section 94A of this Act or in equity or otherwise, in respect of any payment made under mistake, whether of law or of fact, shall be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.

The Court of Appeal accepted in National Bank of New Zealand Limited v. Waitaki International Processing (NI) Ltd that this section is not a code and that the equitable defence of change of position explained in Lipkin Gorman is available in New Zealand whether or not s94B applies. Tipping J considered that developments in the law of restitution not foreseen when s94B was enacted have reduced, if not eliminated, the need for the section.

[94] Like counsel on both sides I will focus on the change of position defence rather than on s94B. For present purposes it is unnecessary to trace this defence beyond Lipkin Gorman. In that case Lord Goff noted that there was a consensus that the change of position defence should be recognised by English law as a defence to claims in restitution. He explained at p580 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 ... 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.

Other members of the House endorsed that approach. As already mentioned, this principle is now acknowledged to be part of New Zealand law: National Bank of New Zealand Ltd v Waitaki International Processing (NI) Ltd.

[95] National Bank v. Waitaki International involved a situation where the bank concluded that it had incorrectly retained a substantial sum of Waitaki's money following some foreign currency transactions. It sought payment instructions from Waitaki. Over a three month period Waitaki disputed any entitlement to the money but in the finish Waitaki agreed to take the money and after the money was received the company invested it. The bank then found that it had made a mistake and that Waitaki had not been entitled to the money. In the meantime the finance company with which the money had been invested by Waitaki went into liquidation and the money was lost. The trial Judge concluded that the equitable defence of change of position was available to Waitaki and that on a balancing of equities 10% of the lost funds should be paid by Waitaki to the bank.

[96] The Court of Appeal upheld that decision. Henry J considered that the Lipkin Gorman principle enabled the Court to achieve a "just result" and that the inquiry was whether it was inequitable to require Waitaki to repay the money, whether in whole or in part. He considered that this assessment necessarily involved a value judgment and that it was necessary to look at the matter "overall" and "in the round". Despite his acknowledgment that the preponderance of academic opinion holds that the change of position defence should rest on the net enrichment (or its dissipation) rather than the notion of the justice in the sense of the relative fault of the parties, Thomas J considered that the Court should look at the relative fault of the parties. Tipping J appears to have adopted a similar approach.

[97] National Bank v. Waitaki International was considered by the Privy Council in Dextra v. Bank of Jamaica. In that case both the appellant and respondent had been duped by a third party and the appellant sought to recover from the respondent on various grounds including mistake of fact. For reasons that are presently irrelevant the Privy Council confirmed that the appellant could not succeed on that ground. Their Lordships then considered whether the respondent would have been able to rely on the defence of change of position which, they said, should be regarded as "founded on a principle of justice designed to protect the defendant from a claim for restitution in respect of a benefit received by him in circumstances in which it would be would be inequitable to pursue that claim or to pursue it in full". This prompted the Privy Council to discuss whether comparative fault of the parties was relevant to the defence.

[98] When considering that topic the Privy Council discussed Thomas v. Houston Corbett & Co and National Bank v. Waitaki International which, their Lordships noted, involved a balancing of equities by assessing the relative fault of the parties and apportioning loss accordingly. They responded:

45. Their Lordships are however most reluctant to recognise the propriety of introducing the concept of relative fault into this branch of the common law, and indeed decline to do so. They regard good faith on the part of the recipient as a sufficient requirement in this context. In forming this view, they are much influenced by the fact that, in actions for the recovery of money paid under a mistake of fact, which provide the usual context in which the defence of change of position is invoked, it has been well settled for over 150 years that the plaintiff may recover "however careless [he] may have been, in omitting to use due diligence": see Kelly v. Solari ... ". It seems very strange that, in such circumstances, the defendant should find his conduct examined to ascertain whether he has been negligent, and still more so that the plaintiff's conduct should likewise be examined for the purposes of assessing the relative fault of the parties. Their Lordships find themselves to be in agreement with Professor Peter Birks who, in his article already cited on Change of Position and Surviving Enrichment at p.41, rejected the adoption of the criterion of relative fault in forthright language. In particular he stated (citing Thomas v. Houston Corbett & Co. [1969] NZLR 151) that the New Zealand courts have shown how hopelessly unstable the defence [of change of position] becomes when it is used to reflect relative fault. Certainly, in the case of Thomas, the reader has the impression of judges struggling manfully to control and to contain an alien concept.

Upon reflection, and notwithstanding my initial impression that those remarks might be obiter, I have decided that I am bound by their Lordships pronouncement that relative fault should not be taken into account when considering the defence of change of position. I will, however, take the precaution of considering the defendant's arguments concerning relative fault.

[99] Mr Mathieson argued that the defence of change of position is available even where the defendant has not lost the value of the enrichment, provided the defendant has changed his position in reliance upon its validity. He submitted that in all the circumstances the defendant should be permitted to retain the enrichment, particularly by virtue of the following factors:

• Complete absence of fault on Mr Hague's part.

• Lapse of six years before this proceeding was commenced.

• Difficulty in now extracting the money from the house.

• Absence of complete trust account records before October 1995.

• Absence of timely reconciliations.

• Failure of cheque signing partner to check that everything was in order.

• Relationship between Ms Barr and Mr McSporran.

• Failure to take reasonable care by responding to matters reported by the auditor.

• Wrong assertions in the application for summary judgment.

Mr Mathieson also submitted that when balancing the equities in this case the Court should avoid unfair discrimination between Mr Hague and other clients of Saunders & Co. He warned that it would be inequitable to require Mr Hague to subsidise the Saunders & Co repayment of other defrauded clients.

[100] In response Mr Davidson submitted that the difficulty facing the defendant is that he has remained enriched and has not given on discovery or by evidence any detail as to the funding of the alterations to the house, the amount owing on the property (if any), his present income and ability to service any further debt, or indeed his ability to simply repay the amount without borrowing. Counsel noted that the tax returns before the Court indicate that Mr Hague had enjoyed a high income for most of the mid 90s and that on his own case the defendant has been involved in a "tax dodge". Mr Davidson submitted that in all the circumstances the equities are firmly in favour of the plaintiff. The specific factors listed by Mr Mathieson, and noted above, were discussed and rejected by Mr Davidson.

[101] I am satisfied that the evidence discloses a change of position by the defendant. In his second summary judgment affidavit Mr Hague deposed that just prior to requesting the money to be withdrawn from Saunders & Co, he and his wife invited tenders for the removal of the old house on their section, that it was sold and removed from the property, and that the funds uplifted from Saunders & Co were applied towards the building of a new house over a period of approximately three months between July and October 1996. That evidence was not challenged. Roll valuations before the Court indicate that the value of improvements on the property increased from $225,000 to $455,000. I am satisfied that Mr Hague changed his position in good faith by replacing the old house on the strength of the payment from Saunders & Co.

[102] Mr Hague has, however, remained enriched in the sense that he has retained the product of the payment (the house property), there being no suggestion that the property has diminished in value since 1996. In this respect Mr Hague's situation can be distinguished from National Bank v. Waitaki in which the enrichment was lost by Waitaki and Thomas v. Houston Corbett where the enrichment was substantially lost by Dr Thomas. In other words, unlike Mr Hague, those recipients no longer remained enriched. The issue arises whether the fact that Mr Hague has remained enriched deprives him of the benefit of the defence. There does not appear to be any New Zealand authority directly in point.

[103] In RBC Dominion Securities v. Dawson (1994) 111 DLR (4th) 230 the Newfoundland Court of Appeal concluded that the change of position defence is not limited to situations where the money had been spent and there is nothing left to show for it. A leading New Zealand text also supports that view. In Enrichment and Restitution in New Zealand (2000) Professors Grantham and Rickett conclude that the defence draws upon two analytically distinct matters:

The first is that restoration should not be ordered because a defendant who has incurred an expenditure or loss on the faith of the receipt is no longer enriched ... In terms of the principle of restoration enrichment, therefore, change of position affords a defence by denying the defendant's enrichment. The second matter, apparent on both descriptions, is one of the balance of justice between plaintiff and defendant. The change in the defendant's position makes it unfair or unjust to require restoration of the enrichment. This suggests a second version of the defence, which operates upon the justification for restoration by establishing factors which cancel out, or at least outweigh, the injustice to the plaintiff of denying him restoration. Thus, although the defendant remains enriched, the plaintiff's claim is nevertheless denied because of the injustice its success would inflict upon the defendant.

An article, "The Australian Change of Position Defence", in the Western Australia Law Review, Volume 30, March 2002 at page 208 et seq also discusses the change of position defence in situations where the enrichment has been retained. The authors conclude that a defence (which they would not necessarily confine to change of position situations) ought to be available even where the defendant has retained the benefit in its original form if the defendant would suffer excessive harm in having to restore the benefit to the plaintiff. I agree that the defence is still available in situations where the defendant remains enriched.

[104] Having reached that conclusion, it is necessary to determine the matters that can be properly taken into account in situations where the defendant remains enriched. Again a useful analysis can be found in Enrichment and Restitution in New Zealand at p337:

... the defendant cannot deny the original reasons for restoration. The defendant cannot, for example, wipe away the fact that the plaintiff was mistaken ... Conceptually, therefore, the defendant must raise matters which outweigh or offset the injustice which founds the plaintiff's claim, such that the justice of the plaintiff's claim no longer mandates restoration. Although much will turn on the particular factual context, there would seem, in principle, to be potentially two ways to establish this injustice. First, the defendant might point to the general hardship that would be visited upon him if he were required to make restoration. The defendant will thus rely upon factors wholly unrelated to the receipt of the enrichment, such as the loss of the defendant's own wealth, as matters showing that restoration would do more harm to him than good to the plaintiff. Secondly, the defendant might point to the hardship that would arise from his being obliged to restore the particular enrichment. Where, in reliance upon his receipt, the defendant has so dealt with either the enrichment or his own assets that restoration would now not merely strip him of the benefit, but would actually impose a cost upon him, through for example being forced to sell his own assets to raise money to make restoration, he may point to the penalty inherent in restoration in such circumstances ...

Upon further analysis the authors conclude that there must be some direct connection between the receipt of the enrichment and the factor relied on, with the result that wholly unrelated general hardship will not qualify. On the other hand, they accept that the nature of the enrichment or the use to which the defendant has in good faith put the enrichment might provide the necessary connection if the defendant would be seriously inconvenienced or prejudiced by having to make restoration in whole or part. Again I agree with the authors' reasoning.

[105] This leads me to the defendant's primary hardship argument, namely, that the defendant will have difficulty in extracting the money from the house (third factor in paragraph [99]). Unfortunately, there is no evidence about the defendant's current financial situation. I doubt that this is an oversight. Mr Hague's income tax returns for years ended 31 March 1989 to 31 March 1994 indicate a substantial income for most of those years. Although that evidence is reasonably remote from the present it tends to count against any hardship argument. The onus is on the defendant. As Mr Davidson noted, I do not have any evidence about the amount (if anything) owing on the property or about the ability of the defendant to repay the excess. At best the evidence indicates that the defendant would be inconvenienced by having to repay the excess, but I cannot accurately gauge the seriousness of the inconvenience.

[106] Now I return to the other factors relied on by the defendant, starting with the first factor - complete absence of fault on Mr Hague's part. It is not disputed that Mr Hague received the payment in good faith. But to the extent that this factor is advanced so that it can be compared with the plaintiff's fault, it must be contrary to the principles explained in Dextra v. Bank of Jamaica. Indeed, the Privy Council specifically regarded good faith on the part of the recipient as "a sufficient requirement" in the change of position context. As I see it the defendant is seeking to use this factor contrary to principle. Even if that is not so I doubt that receipt in good faith alone can carry much weight.

[107] Next the defendant relies on the lapse of six years before this proceeding was issued. Mr Mathieson noted that the delay in this case was much longer than in National Bank v. Waitaki. That is so. On the other hand, both the plaintiff and defendant were innocent victims of Ms Barr whose dishonesty was not exposed until 1999 and there does not seem to have been any suggestion that the plaintiff has slept on its rights. Thus if this factor is to influence the equities it must be by virtue of hardship to the defendant arising from the delay in issuing the proceeding. There is no evidence that the passage of time has made it more difficult for Mr Hague to repay the excess. This factor cannot influence the equities.

[108] It was submitted that the absence of trust account records before October 1995 was significant because:

Had such records existed then, even allowing for difficulties caused by Karen Barr's activities, they would probably have made it clear what monies had been paid in, thus virtually eliminating any dispute between the parties.

I have been able to determine what monies were paid in. Consequently while this consideration may be relevant to costs and/or judgment interest, I cannot identify any connection with the equities involved in requiring restitution. I am afraid it cannot be taken into account.

[109] Before considering the next four factors (absence of timely reconciliations, failure of cheque signing partner to check that everything was in order, relationship between Ms Barr and Mr McSporran and failure to take reasonable care by responding to matters reported by the auditor), two points applying to all those factors should be noted. First, because these factors are plainly intended to demonstrate fault on the part of the plaintiff they must be rejected for the reasons given in Dextra v. Bank of Jamaica. Secondly, even if that had not been the case, any suggestion that there is a connection between those factors and the overpayment on 8 July 1996 becomes tenuous when it is taken into account that Ms Barr continued to offend without detection for several years after those problems had been resolved. With those two points in mind I now individually review the four factors under consideration.

[110] Mr Mathieson submitted that the absence of timely reconciliations "must rank as a cause of the problem" and Mr Currie boldly asserted that the reconciliations would have prevented the offending. On the other hand, Mr Watson was not prepared to go that far and Mr Littlefair made the sobering observation that a determined and dishonest employee will find a way to offend. Unfortunately the fact that Ms Barr continued to offend for several years after the problems were overcome illustrates Mr Littlefair's point. I am not persuaded to the contrary by Mr Currie's argument based on opening balances. Thus even if comparative fault had been a relevant consideration, the evidence fails to establish the necessary connection between the absence of timely reconciliations and the overpayment to Mr Hague.

[111] It is the defendant's position that the partner signing the cheque should have checked that everything was in order and asked questions about the cheque. The absence of cheque signing authorities when cheques are drawn is also claimed to be significant. Mr Mathieson submitted that the plaintiff carries the evidential onus on these matters and that the Court should infer that the cheque had been "just signed" by the partner. Regardless of any evidential onus I believe that the defendant's propositions are flawed in several respects. First, the evidence indicates that cheque signing authorities were required when cheques were signed. Secondly, there is nothing to suggest that the partners or, indeed, the auditors, were put on notice that Ms Barr was other than a trusted employee of Saunders & Co (in just the same way as she was trusted implicitly by Mr and Ms Hague). Thirdly, she actually deceived everyone over many years and it would be naïve to think that she would have given honest answers if questions had been asked about the cheque.

[112] The next point relates to the relationship between Mr McSporran and Ms Barr. It is claimed that this relationship made it easier for Ms Barr to accomplish her dishonest purpose, especially when Mr McSporran was prepared to mix professional and personal matters by advancing Ms Barr $10,000. It is also alleged that Mr McSporran should have seen that money was disappearing into the Kirby account. At the same time Mr Mathieson fairly acknowledged that the defendant was not suggesting that Mr McSporran was knowingly involved in any of Ms Barr's fraudulent activities. Obviously the respective roles of Mr McSporran and Ms Barr in relation to the trust account rendered their relationship highly inappropriate. It opened up the possibility that Mr McSporran might be manipulated and that his ability to detect irregularities in the trust account might be impaired. However, the evidence does not suggest any connection between the relationship and the overpayment to Mr Hague. Ms Barr continued to deceive Saunders & Co and its auditors, and also deceived a Law Society inspector, long after Mr McSporran had ceased to be the trust account partner. Moreover, any suggestion that Mr McSporran should have seen the funds disappearing into the Kirby account can only be based on hindsight. No-one else did. Thus without in any way condoning the relationship, I do not think that it can help the defendant in this case.

[113] The final allegation in the group under consideration is that Saunders & Co failed to take reasonable care by responding to matters reported by the auditor. Mr Mathieson described this as "gross negligence" on the part of the firm. He was also critical of the absence of any general supervisory regime requiring Ms Barr to justify her actions, of the partners' failure to take sufficiently decisive action in connection with the relationship between Mr McSporran and Ms Barr, and of the firm's substandard system of controlling its trust account. Mr Mathieson said that it was "scandalous" that the partners were oblivious to these dangers.

[114] I have no difficulty in accepting Mr Watson's evidence that his firm had gone through several very frustrating years in conducting the Saunders & Co audit and that it was a relief to him when a national decision was made to withdraw from auditing solicitors' trust accounts. On the other hand, the trust account problems need to be viewed realistically and in context. It was obvious from the detailed cross-examination of Mr Watson that the computer problems were serious and that the firm was genuinely endeavouring to resolve those problems. Mr Watson acknowledged that the firm was frustrated by the computer software and hardware problems, that it was doing its very best to sort out the problems and that staff of the computer supplier were "always there". Mr Watson was aware that Saunders & Co had made a claim against the computer company. His cross-examination ended on this note:

Q. You were convinced they [Saunders & Co] had a rotten run with the hardware and software on their system.

A. Yes.

Mr Watson also accepted that once the question of the relationship between Mr McSporran and Ms Barr was raised the firm acted decisively and replaced Mr McSporran as the trust account partner. I also note that following its investigation under the Law Practitioners Act the Law Society decided not to take any further action. The evidence does not indicate to me that Saunders & Co failed to respond to matters raised by the auditors which it was within the firm's reasonable power to rectify or that the firm was running a substandard system by choice. With the benefit of hindsight it could probably be said that the firm should have replaced the faulty computer system long before it did. But the firm did not have the luxury of hindsight and I accept that it was genuinely endeavouring to resolve its computer problems with the benefit of the information and advice then available.

[115] It follows that even if relative fault had been a legitimate consideration, the four factors advanced by the defendant could not avail him because no connection between those factors and the overpayment could be established.

[116] It is not surprising that Mr Hague was affronted by the erroneous assertions in Mr Lang's affidavit that Mr Hague had not been a client of the firm and that he had not deposited any funds with the firm. Those allegations were wrong. On the other hand, the plaintiff has established that there was an overpayment and I cannot understand how the erroneous assertions in the application for summary judgment can affect the equities involved in requiring restitution. As I see it, this factor could only be relevant to the award of costs and/or judgment interest.

[117] It remains to consider the defendant's arguments, first, that restitution of the excess could give rise to unfair discrimination against Mr Hague compared with the other Saunders & Co clients who have been reimbursed and, secondly, that it could involve an element of subsidisation. I do not see how these arguments can be made out. The evidence about payment to other clients was relatively brief. There is no solid foundation for the suggestion (if indeed this is what is being suggested) that other clients were paid more than their entitlement. Presumably there have not been any other claims similar to this claim because no-one else has been in a similar position to Mr Hague, at least through the eyes of Saunders & Co. Given the evidence I do not see how it would be possible for me to responsibly delve any further into this topic. I am forced to conclude, therefore, that there has not been any discrimination or subsidisation.

[118] Having considered these factors individually and collectively I have not been persuaded that it would it be inequitable to require Mr Hague to restore the overpayment to the plaintiff. Although he received the payment in good faith he has nevertheless remained enriched. He can, of course, point to the inevitable inconvenience involved in having to disgorge that enrichment, but beyond that his argument based on hardship is not very strong. For reasons already given some of the factors relied on by the defendant are either irrelevant or contravene the principle expressed in Dextra v. Bank of Jamaica that relative fault does not have a part to play in the change of position defence. My analysis indicates that even if relative fault had been a legitimate consideration the factors relied on by the defendant to establish fault on the part of the plaintiff could not have produced a different outcome. In all the circumstances the change of position defence must fail. The related defence based on s94B of the Judicature Act also fails.

Plaintiff Assumed the Risk of Error

[119] This defence is based on the broad proposition that recovery by Saunders & Co should be denied because the firm assumed the risk of its mistake. In Kelly v. Solari Parke B said at p59:

If ... 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.

In the same case Lord Abinger CB commented at p58:

There may also be cases in which, although [the payer] 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 ... bound.

This defence is discussed in the Law of Restitution (5th Edition) by Goff and Jones at p197 et seq. The authors note that much depends on the circumstances in which the payment is made.

[120] According to the defendant Saunders & Co took the risk that internal fraud might not be revealed by failing (through the cheque signing partner) to make inquiries as to the true position and by failing to properly reconcile bank statements with cash book balances over a lengthy period. The defendant also claims that an inspection of receipts should have revealed that the G J Kirby account had been credited with amounts receipted from J Hague or his company.

[121] In my opinion any defence based on the assumption of risk must be of narrow application. It should not be allowed to undermine the well established principle confirmed by Dextra v. Bank of Jamaica that a person may recover money paid under a mistake of fact no matter how careless that person may have been in omitting to use due diligence. This suggests that the assumption of risk defence is only likely to be available in extreme situations where the payer has effectively waived any right to recover or possibly in situations where the payer's carelessness has been so gross that the payer must have assumed responsibility for the mistake. Whatever the test, it is clear that the defendant cannot make out such a defence in this case.

[122] Any suggestion that a legal firm was prepared to run the risk of internal fraud must represent a serious indictment against the firm. It implies that the firm has either intentionally or recklessly run the risk. In the case of Saunders & Co the evidence does not even come close to establishing the allegation. The implication that the firm should have been double checking every move of Ms Barr reflects hindsight, not information that was, or should reasonably have been, available to Saunders & Co at the time. She was regarded as a trusted employee by the firm. The auditors and Law Society inspector did not detect anything that aroused their suspicions. It is true that reconciliations were a major problem but, as I have already found, that was attributable to computer problems and any suggestion that the firm willingly condoned that situation is wide of the mark.

[123] The defence that the plaintiff assumed the risk of error also fails.

Outcome

[124] I have found that the defendant paid a total of $38,000 into the plaintiff's trust account and that on 8 July 1996 he was entitled to that amount plus interest less withholding tax: see paragraphs [77] to [80]. Although interest is yet to be finally determined, my calculations indicate that Mr Hague's entitlement including interest (but without taking into account resident withholding tax) is likely to be in the range $51,479 - $58,717. The plaintiff has established a prima facie case for restitution of the overpayment and the defendant has failed to establish any of his affirmative defences: see paragraphs [86] to [123]. The plaintiff is entitled to judgment for the overpayment which is likely to be within the range $53,536 - $60,774.

[125] Counsel are invited to submit further submissions as to interest on Mr Hague's deposits, judgment interest and costs. The plaintiff's submissions should be filed and served within 21 days. The defendant will have a further 14 days to respond. Any submissions in reply are to be provided within a further seven days.

[126] The interim suppression order concerning the relationship between Mr McSporran and Ms Barr is lifted. There are no grounds for continuing that order.

Delivered this 8th day of July 2003 at 10am.

Solicitors: Saunders & Co, Christchurch for Plaintiff
D A Wood, Timaru for Defendant