Graham Virgo, ‘Conscience or Unjust Enrichment?: The Emperor’s Old Clothes: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd‘ (19 May 2014).

Elise Bant, ‘Change of Position in the High Court: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd‘ (9 May 2014).

The High Court has unanimously dismissed an appeal against the decision of the NSW Court of Appeal in a case concerning (among other things) the scope of so-called ‘defences’ to restitutionary claims, specifically the change of position defence.

A fraudster presented false invoices for goods purportedly bought from Hills Industries Ltd and Bosch Security Systems Pty Ltd to Australian Financial Services and Leasing Pty Ltd (AFSL). AFSL paid for the purchases on behalf the fraudster and entered into leaseback agreements with companies owned by him relating to the non-existent goods, believing it would own those goods. Other companies related to the fraudster were in debt to Hills and Bosch, and the money he gained from AFSL was used to repay those debts. After receiving those payments, Hills refrained from taking proceedings against the debtor companies, and Bosch consented to the setting aside of default judgments that it had already obtained against the companies and abandoned other proceedings. When AFSL discovered the fraud it sought to recover the payments from Hills and Bosch as being paid under a mistake of fact (namely, that the goods existed). Among other defences to restitution, Hills and Bosch invoked the defence of change of position. The precise requirements of the defence are heavily contested by lawyers and academics, but in general terms it requires that a defendant to a claim of restitution for unjust enrichment show a change in their position that was made in good faith and in reliance on the receipt of a benefit, and that cannot now be reversed.

Although the FCAFC was split on other issues, the Court unanimously held that a change of position defence was made out because following the fraudster’s payments received in good faith, Hills and Bosch had given up both the debts owed by the companies and a real and potentially valuable opportunity to secure repayment, and that those circumstances would make it unjust to order restitution to AFSL.

The plurality (Hayne, Crennan, Kiefel, Bell and Keane JJ) rejected AFSL’s argument on the extent to which Hills and Bosch were ‘disenriched’ because it did not examine whether it would be inequitable to require the recipient to repay the money, at [78]:

This approach seeks to give effect to an understanding of unjust enrichment as a principle of direct application, which operates by measuring the extent of enrichment or, where a defence of change of position is invoked, the extent of disenrichment subsequent to that receipt. Such a “principle” does not govern the resolution of this case because the concept of unjust enrichment is not the basis of restitutionary relief in Australian law. The principle of disenrichment, like that of unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia. Disenrichment operates as a mathematical rule whereas the enquiry undertaken in relation to restitutionary relief in Australia is directed to who should properly bear the loss and why. That enquiry is conducted by reference to equitable principles.

After examining those equitable principles, the plurality held that as the payments were made to discharge the fraudster’s indebtedness to Hills and Bosch even if they could be reversed Hills and Bosch would become unpaid creditors of TCP in its liquidation. The disadvantages that Hills and Bosch would suffer if required to repay AFSL would be sufficiently serious to make it inequitable to require them to do so. French CJ and Gageler J, in separate judgments, also dismissed the appeal.