By Professor Elise Bant
What is the change of position defence and why is it important?
The change of position defence provides nuanced protection to good faith defendants who irreversibly change their position in reliance on receipt of an impugned benefit (such as a mistaken payment) from a plaintiff. Since its recognition a little over two decades ago by the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia  HCA 48, the change of position defence has assumed a position of great importance within the Australian law of unjust enrichment. Its recognition has enabled courts to take a more principled approach to the operation of unjust factors such as mistake, obviating the need for fine and ultimately insupportable distinctions between different types of mistake that traditionally operated to restrict defendants’ restitutionary liability at the expense of legitimate claims by plaintiffs. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd  HCA 14 provides a stark illustration of why a change of position defence may be important, as the respondents received mistaken payments from the appellant as a result of the involvement of a third party fraudster. In reliance on those payments, they changed their position in various important ways. Unless they were successful in their pleaded defence, they would be placed in a worse position than they occupied prior to their receipt. In finding in favour of the respondents, the High Court has considered the rationale of the defence, whether it applies to non-reliance based changes of position, whether changes of position must always be valued in terms of specific monetary sums and the interplay between change of position and other defences such estoppel and the agent’s defence of payment over.
How did change of position become relevant in this case?
AFSL (a financier) was induced by a fraudster (S) to make payments to a number of businesses, including Hills and Bosch, for the purchase of non-existent equipment. S advised Hills and Bosch that the payments were for the discharge of debts owed to them by his companies (the ‘company debts’). In reliance on their receipts, Hills and Bosch treated the company debts as discharged, continued to trade with the companies and gave up the opportunity to pursue remedies in enforcement proceedings against the companies or their directors. Both recipients also gave up the opportunity of taking other steps to better their position, such as by seeking security from third parties. Continue reading