Southage Pty Ltd v Vescovi [2015] VSCA 117 is a recent decision of the Victorian Court of Appeal dealing with the change of position defence where a wife, herself a lawyer, believed her husband had provided the deposit for a property purchased in her name from his own money.  In fact the deposit had been borrowed by him forging a mortgage over another property owned independently by her.  Had she known that she would not have proceeded with the purchase. 

 

In dismissing the lender’s appeal for restitution of the money it had paid for her benefit the Court analysed the case in this fashion:

 

61. “As to the approach to be taken when determining whether the defence has been made out, French CJ observed in Hills Industries:

As a general proposition, the change of position defence should be applied in a way that is faithful to its origins in Moses, reflected in the general rubric of “inequitable” recovery adopted in Lipkin Gorman. The acceptance of that standard as the foundation of the defence does not involve the acceptance of an arbitrary judicial discretion. The application of the standard on a case-by-case basis, according to the common law process, as foreshadowed by Lord Goff, allows for the development of criteria adapted to particular classes of case.[43]

[43]         Ibid 525 [23].

62.                        The joint judgment in Hills Industries similarly affirmed that the approach to be taken when determining whether the defence is made out is to proceed on a case by case basis, without adopting a narrow or technical approach:

It will be observed that these conclusions are not reached by first attempting to state comprehensively what is encompassed by the notion of a change of position, or the circumstances in which a defence described in that way is available to meet a claim for recovery of money paid under mistake. As has been explained, to apply reasoning of that kind would be sharply at odds with the established doctrine and unchallenged decisions of this court in this area.

Attempts to describe the defence comprehensively, or to chart its metes and bounds, are apt to mislead by distracting attention from the content of the principle to the manner of its expression.[44]

[44]         Ibid 542 [97]–[98] (citations omitted).

63.Justice Gageler held:

The explanation comes to this. The fact that a payment is caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the recipient to make restitution. That is because causative mistake is a circumstance which the law recognises to be prima facie sufficient to make the recipient’s receipt, and retention, of the payment unjust. To displace that prima facie obligation, the recipient must establish some other circumstance which the law recognises would make an order for restitution unjust. The defence of change of position comprehends one of those circumstances. The defence, if established, results in the prima facie obligation of the recipient being in whole or in part displaced at the time an order for restitution is sought.[45]

[45]         Ibid 543 [106].

64.                        His Honour proposed a two-part test for determining when the defence was made out:

The defence of change of position is established where a defendant proves the existence of two conditions. The first condition is that the defendant has acted (that is, done something the defendant would not otherwise have done) or refrained from acting (that is, not done something the defendant would otherwise have done) in good faith on the assumption that the defendant was entitled to deal with the payment which the defendant received. The defendant need not for the purpose of meeting this condition have acted on knowledge derived from the payer. Whether the defendant needs also to have acted reasonably is a question which does not now arise for determination. The second condition is that, by reason of having so acted or refrained from acting, the defendant would be placed in a worse position if ordered to make restitution of the payment than if the defendant had not received the payment at all. The detriment constituted by that difference in position need not, in every case, be financial or pecuniary. If financial or pecuniary, it need not, in every case, be established with precision. It can be an opportunity forgone. It must, in every case, be shown by the defendant to be substantial.[46]

[46]         Ibid 559 [157] (citations omitted).

65.We consider that the formulation of the defence as proposed by Gageler J in Hills Industries is consistent with the defence and the principles on which it is based as set out by the majority.

66.                        On the question of the kind of causal relationship that must obtain between the receipt and the detriment in order for the defence to be made out, the joint judgment held:

Whether English cases subsequent to Lipkin Gorman have taken a wider view of the defence, one which eschews a requirement of detrimental reliance in favour of a mere causal link, cannot alter what was said in David Securities regarding the defence. Whether the conclusion reached in the English cases, including Lipkin Gorman, is different from that which would be reached by reference to equitable principles is a moot point. In any event, consistently with an enquiry as to whether it is unconscionable for the recipient to retain the moneys, it is necessary in cases such as the present to consider what was done by the recipient in reliance upon the receipt.[47]

[47]         Ibid 538 [81] (citing Scottish Equitable plc v Derby [2001] 3 All ER 818 (CA); Commerzbank AG v Price-Jones [2003] EWCA Civ 1663).

67.Whatever the position may be in England, the decision in Hills Industries makes clear that the requirement of reliance is the relevant causal link.[48]  While there may be other circumstances where reliance does not provide a relevant causal link — for example if a mistaken payment is received and is then immediately stolen — such circumstances do not arise in this case.  If it is shown that the respondent was acting in reliance on the receipt of the deposit when she entered the transaction that caused her detriment, the required causal link will be satisfied.  Equally, if it is shown that the respondent would have entered into the transaction in any event, the detriment that resulted from the purchase cannot be said to be causally related to the receipt and therefore falls outside the operation of the defence.

[48]         Hills Industries (2014) 307 ALR 512, 538 [81].

68.                        In accordance with the principles set out in Hills Industries and the cases to which it refers, the ultimate inquiry is whether it would be inequitable in all the circumstances to require the respondent to make restitution.  The focus for the Court in answering this question is on what was done by the recipient in reliance upon the receipt.

 

…

 

79.The trial judge was correct to find that were it not for the respondent’s belief that the deposit had been paid by her husband, she would not have entered into the transaction.  The cross-examination does not provide a basis to doubt the trial judge’s finding on this point, or for refusing to accept the respondent’s evidence.  Indeed, the respondent’s evidence on this critical point was unchallenged.  It follows that the respondent has established the first limb of the change of position defence.

80.                        It is also plain that by the time the appellant’s claim in restitution was brought, the respondent had suffered irreversible detriment, such that she would be in a worse position if ordered to repay the Southage money than had she not received the Southage loan at all.  The trial judge’s findings were that the respondent had signed a mortgage for more than 95% of the $2,695,000 purchase price of the Kew property, that she had thereby become liable to pay the interest that accrued on that principal sum, and that she had subsequently sold the property at a loss with NAB taking all proceeds from the sale.  By the time the restitution claim was brought, the respondent retained none of the value inherent in the Southage loan.  Those findings were undisputed and are sufficient to establish the second limb of the change of position defence.

 

81. It follows that the trial judge was correct to hold that in the circumstances it would be inequitable to now require the respondent to repay the Southage money.”