A significant question that has followed the recognition of the change of position defence in English law concerns the degree of fault that ought to deprive a defendant of its use. The central issue is whether the defence should be defeated only where the defendant has acted dishonestly, or if a lesser degree of fault, such as carelessness or having constructive notice of the claimant’s rights, should be sufficient to disqualify them. While modern restitutionary law accepts that dishonesty is a clear bar to the defence, there remains a persistent debate over whether other forms of fault should also lead to its defeat, a question left open in the seminal case of *Lipkin Gorman v Karpnale Ltd*.
The Position after Lipkin Gorman
The change of position defence was formally established by the House of Lords in *Lipkin Gorman v Karpnale Ltd* [1991] 2 AC 548. In that case, a solicitor stole money from his firm’s client account to fund his gambling addiction at the defendant casino. The firm sought to recover the money from the casino. Lord Goff, giving the leading judgment, confirmed the existence of the defence in English law, stating that it was available where a defendant’s position had “so changed that it would be inequitable in all the circumstances to require him to make restitution”. The key principles established were:
* The defence is grounded in the principle of fairness.
* It is available to a defendant who has changed their position in good faith.
* The defence will not be available to a “wrongdoer”.
Lord Goff’s repeated emphasis on concepts such as “good faith” and the lack of protection for a “wrongdoer” makes it plain that a defendant who knows they are not entitled to the money cannot rely on the defence. Dishonesty, therefore, unquestionably disqualifies the defendant. The judgment, however, did not explicitly define the boundaries of “good faith” or clarify whether conduct short of outright dishonesty would be enough to defeat the defence. This ambiguity is the source of the ongoing uncertainty.
Arguments for a Dishonesty-Only Standard
The case for requiring only dishonesty to defeat the defence is primarily based on certainty and the underlying purpose of the defence. The rationale is to protect a defendant who has innocently relied on the receipt of funds. If a defendant is not dishonest, they are, in a moral sense, innocent of any wrongdoing towards the claimant. To introduce lower standards of fault, such as negligence, would create significant uncertainty. For example:
* A receives a mistaken payment of £5,000. Believing it is a bonus, he spends it on a holiday.
* A claimant might argue A was negligent for not checking his payslip more carefully.
Requiring courts to investigate whether a defendant *ought* to have known about the mistake would involve a complex and fact-sensitive inquiry in every case, undermining the goal of preventing unjust outcomes for the defendant. The court in *Niru Battery Manufacturing Co v Milestone Trading Ltd* [2002] EWHC 1025 (Comm) supported this view, suggesting that it would be a “retrograde step” to allow negligence to defeat the defence. This approach prioritises a clear, bright-line rule.
Should a Dishonesty-Only Standard Be Adopted?
The question of whether it makes sense to require only dishonesty turns on a balancing of interests. On one hand, a dishonesty-only test provides clarity and protects defendants who, while perhaps careless, have not acted in bad faith. It ensures that the defence, which is itself based on equity, does not become an instrument of unfairness by punishing a defendant for mere inadvertence.
However, it can be argued that such a standard is too generous to defendants and unfairly prejudicial to claimants. A claimant who has lost money due to a mistake is entirely blameless. It seems questionable whether a defendant who carelessly fails to notice obvious signs that the money is not theirs should be in a better position than the innocent claimant. As some scholars like Goff and Jones (2016) have suggested, allowing a defendant to rely on their own carelessness to retain a windfall could be seen as unjust. Adopting a standard based on unconscionability or bad faith, which might include turning a blind eye to the truth, could offer a more flexible middle ground than a strict dishonesty-only requirement.
In conclusion, while the judgment in *Lipkin Gorman* clearly established that dishonesty defeats the change of position defence, the law remains unsettled on the issue of lesser fault. The prevailing judicial view appears to favour a high threshold of dishonesty, valuing the certainty this brings. While this approach makes sense in providing a clear rule, it continues to be criticised for potentially creating unfairness in situations where a defendant’s carelessness contributes to their change of position at the expense of an innocent claimant.
References
* Goff, R. and Jones, G. (2016) *The Law of Unjust Enrichment*. 9th edn. Sweet & Maxwell.
* *Lipkin Gorman v Karpnale Ltd* [1991] 2 AC 548.
* *Niru Battery Manufacturing Co v Milestone Trading Ltd* [2002] EWHC 1025 (Comm).
