TAKING STOCK OF THE CHANGE OF POSITION DEFENCE

• Date: 01 December 2015
• Published date: 01 December 2015
• Author: TANG Hang Wu Phd, Llm (cambridge), Llb (national University Of Singapore); Advocate And Solicitor (singapore); Professor, School Of Law, Singapore Management University; Academic Director, Centre For Cross-border Commercial Law In Asia.

The change of position defence is a developing doctrine and debate continues as to its true rationale and various facets of the defence remain unclear. Many issues surrounding the following two fundamental questions await clarifications from the courts: (a) What constitutes change of position? (b) What kind of conduct disqualifies a person from relying on the change of position defence? This article attempts to map out the contours of the debate which would hopefully be useful in framing the debate when this matter next comes before the courts.

I. Introduction

1 Change of position1 as a defence to a claim in unjust enrichment was first formally recognised in England in Lipkin Gorman v Karpnale Ltd2 (“Lipkin Gorman”) in 1991. Three years later, the defence was accepted in Singapore in Seagate Technology Pte Ltd v Goh Han Kim3 (“Seagate Technology”) More recently, Chan Seng Onn J said in Cavenagh Investment Pte Ltd v Kaushik Rajiv:4“In the realm of restitution for an unjust enrichment, one can today confidently say that the change of position defence has been established as being a central and important defence.”5

2 How does the defence of change of position work? A simple illustration demonstrates the operation of the change of position defence. Let us suppose a shopkeeper mistakenly overpays a shopper $100 in extra change. The shopper does not notice the overpayment and carries on with her shopping. Later in the day, after looking into her

purse, she notices that she has $100 left. She is used to spending all the money in her purse on her shopping day. The shopper proceeds to treat herself to a lunch at a fancy hotel which costs her $100 instead of her usual chicken rice lunch which would have cost $5. In this case, the shopper has a defence of change of position of $95. It is important to note from the outset that change of position is not a general hardship defence. There must be some causal connection between the change of position and the mistaken payment. So for example, if the shopper had been fined $100 for jaywalking after the mistaken payment, this will not count as a change of position. Also, the change of position defence may only operate where the defendant had acted in good faith.6 So in our present scenario, if the shopper had been aware of the overpayment and deliberately spent all the money, she would not be entitled to rely on the change of position defence.

3 A leading commentator observed that the “defence is riddled with uncertainty, both as to when it will be applicable, but, even more significantly, as to what it is actually for”.7 As the change of position defence is a relatively new defence, this article attempts to take stock of recent developments in Singapore and the Commonwealth and seeks to map out the contours of the defence.

II. Rationale of the change of position

4 Although the defence of change of position has been recognised both in Singapore and England for close to 20 years, there is disagreement as to the underlying rationale of the defence. Virgo points out that “[t]his is significant, since, if we do not know what the defence is for, it is impossible to determine how it should be defined”.8 The competing justifications for the change of position defence are as follows: (a) the defendant's disenrichment; (b) protecting the defendant's security of receipt; (c) based on considerations of equity, justice and conscience; (d) protecting the defendant's autonomy; and (e) a dual rationale of the justificatory reasons.9 The position taken in this article is that a dual rationale best explains the change of position defence.

A. Disenrichment

5 Most leading commentators view the normative force of a restitution claim from the perspective of the defendant enjoying a continuous unjust gain at the expense of the claimant. As Birks said, “[t]he independence and necessity of the law of unjust enrichment derives from the peculiar normativity of extant gain”.10 The change of position defence is analysed almost exclusively from the perspective of the defendant's disenrichment in good faith.11 Take a simple example of A mistakenly paying B $100. Suppose in reliance on the payment and in good faith B spends $50 on something she would not have bought if she had not received the money. Leading restitution theorists would argue that B is liable only to pay A $50 since B has changed her position by $50. In other words, change of position is seen primarily as a defence based on the disenrichment of the payee. B, by spending the $50 in good faith, has been disenriched by the same amount. It must be pointed out that the change of position must be in good faith.12 Suppose in the example, B knows of A's mistaken payment and spends the money immediately before A asks for restitution. In this situation, B would not be able to rely on the change of position defence because the change of position was not in good faith.

6 The disenrichment approach has the obvious advantage of making the law in this area simple and certain. But it could be argued that the price of certainty is at the expense of doing justice in individual cases. The disenrichment approach effectively ignores that a restitution claim may affect the autonomy interest of the defendant. Hanoch Dagan trenchantly criticises this approach as not appreciating that the stability of the payee's receipt is “an autonomy based concern of the recipient, which parallels the interest of the mistaken party in correcting her involuntary transfer”.13 Elise Bant has also perceptively pointed out that the disenrichment approach struggles to accommodate cases:14

… where the defendant's change of position is irreversible but defies a balance-sheet analysis, as where a defendant decides to conceive a

child in reliance on his receipt, or remains enriched on a balance-sheet approach but has re-ordered his life radically and irreversibly in reliance on his receipt.

As a matter of “fit”, the disenrichment approach struggles to explain why change of position is not available to a defendant who acted in bad faith. James Edelman J rightly says extra-judicially that if disenrichment is the sole explanatory force “then the defence should be available regardless of whether the defendant acted in bad faith”.15

B. Security of receipt

7 It is sometimes said that the rationale of change of position is that it protects the defendant's security of receipt. The problem with this rationale is that security of receipt per se cannot explain the workings of the defence. Andrew Burrows rightly observed that security receipt cannot be the primary rationale of the defence. If this was so, “mere reliance, or even the mere raising of an expectation that an enrichment is the defendant's to retain, would be sufficient to trigger the defence; yet the case law clearly establishes that detriment is required”.16 Edelman J, writing extra-judicially, has also observed: “‘Security of receipt’ is not a rationale; it is the effect of the defence. The rationale explains the degree of security which is given to the defence” [emphasis in original].17

C. Equity, justice and conscience

8 The reference to equity to justify the change of position defence is from the judgment in Lipkin Gorman where Lord Goff said that the change of position would be available to a person where “it would be inequitable in all the circumstances to require him to make restitution”.18

In subsequent cases such as Dextra Bank and Trust Co Ltd v Bank of Jamaica19 (“Dextra Bank”), the Privy Council has said the approach in Lipkin Gorman“appears to have adopted a broad approach based on practical justice, and to have avoided technicality”.20 Similarly, Munby J in Commerzbank AG v Gareth Price-Jones21 stressed that the defence was “intended to be a broadly stated concept of practical justice” and that

“technicality and black letter law are to be avoided”. Niru Battery Manufacturing Co v Milestone Trading Ltd (No 1)22 is another significant case because the Court of Appeal advocated a more flexible approach to the change of position defence. Clarke LJ thought that “the essential question is whether it would be inequitable or unconscionable, and thus unjust to allow the recipient of money paid under a mistake of fact to deny restitution to the payer”.23 Similarly, Sedley LJ also thought that the theme of the change of position defence was a broad approach based on practical justice and one which avoided technicality. Both judges made references to Bank of Credit and Commerce International (Overseas) Ltd v Akindele24 where a similar analysis was advocated for the liability for unconscionable receipt. It is also significant that both judges said that the defence falls to be elaborated on a case-by-case analysis and is not tied to a single rigid standard.25

9 In a case note,26 Burrows argued that to describe the change of position defence as a matter of whether it is inequitable, unconscionable or unjust to deny restitution “would be to take us back to the dark ages of the subject [of the law of restitution]”.27 In his view, “such broad tests tell us almost nothing”.28 From the more recent judgments on change of position, the judges envisage that the change of position is a very fact-dependent defence. With regard to this general theme, the present writer is in complete agreement. However, what is more controversial is the judges' observation that this necessarily means that the change of position defence is contingent on the question of whether it was unconscionable, inequitable or unjust to allow restitutionary liability. Although this writer has considerable sympathy to construct a more sensitive defence capable of taking into account the factual matrix, Burrows is right in saying that it is not very helpful just to say that the test is premised on unconscionability, unjustness or inequity.29 It is likely that the Singapore courts would be inclined to adopt Burrows' view. As

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