(iii) Restitutionary Claims Founded on the Vindication of Proprietary Rights

In Lipkin Gorman the House of Lords recognized that the defence of change of position should succeed on the facts of the case, where the defendant casino had received money belonging to the claimant firm of solicitors via a thief. If this case is treated as one involving the vindication of proprietary rights, rather than a claim founded on unjust enrichment,^{2 8} it follows that the defence of change of position is applicable to such claims. Some of the leading cases involving tracing or claiming in which the proprietary claim has failed have been analysed with reference to the defence of change of position. So, in Re Diplock’s Estate,²²⁹ where money was used by a charity to improve property, the proprietary claim failed because it was not considered to be equitable for the claimant to obtain a proprietary remedy over a mixed asset to which an innocent volunteer had also contributed. In Boscawen v Bajwa²³⁰ Millett LJ explained this result on the basis that the defendant charity had changed its position in good faith by spending the money.

In Foskett v McKeown there is an ambiguous dictum of Lord Millett that the defence of bona fide purchase^[1] applied to claims to vindicate property rights, whereas the change of position defence applies to claims to unjust enrichment.^[2] This is ambiguous, both because the issue was obiter since there was no evidence that the defendant children had changed their position, and because Lord Millett did not explicitly say that the change of position defence was unavailable to proprietary claims. However, he subsequently expanded on this extra-judicially^[3] and confirmed that he did not consider that a claim for a proprietary remedy should be subject to the defence of change of position. This has been recognized in other decisions.²³⁴

Whether this is correct needs to be considered as a matter of principle and of policy. Where the claimant seeks to obtain a restitutionary remedy to vindicate proprietary rights, there are four different scenarios in which change of position might operate.

(1) Dissipation of the Property

If the claimant’s property has been received by the defendant who then dissipates it in such a way that there is no traceable product or substitute, the restitutionary claim to recover the property will fail. But this is not because of the application of the defence of change of position, but simply because the defendant no longer has any property in his or her possession against which the claimant’s property rights can be vindicated.

(2) Dissipation of Alternative Property

If the claimant’s property has been received by the defendant who, in reliance on the validity of the receipt, dissipates other property, for example by selling some shares and spending the proceeds on a holiday, but retains the claimant’s property, for example by crediting money received to the defendant’s bank account, the elements of the change of position defence can be identified. For, in reliance on the validity of the receipt, the defendant’s position has changed detrimentally and extraordinarily. This is the difficult case. It might be argued that it would not be fair for the claimant to recover the money credited to the defendant’s bank account, since the defendant has suffered a detriment by selling the shares. If the defendant were also required to pay back to the claimant the money that had been credited to the bank account, the defendant would have suffered a net loss. But, against this, the claimant is able to show that the defendant has received and retained the value of the misappropriated money that is credited to the defendant’s bank account. Should the claimant’s proprietary right be defeated by the defendant’s innocent change of position? This is a matter of judgment, but the better view is that the claimant’s property rights should prevail and the defendant should not be able to plead the change of position defence. It follows that ‘hard-nosed property rights’^{2 5} should not be defeated by the defence of change of position.^{[4] [5]}

(3) Subrogation

Money in which the claimant has a proprietary interest might be used to discharge a debt owed by the defendant and the claimant might seek to be subrogated to the creditor’s discharged security right. This is different from the other two scenarios because, although the property in which the claimant had an equitable proprietary interest has been dissipated through the discharge of the debt, the claimant is seeking a proprietary right to be created through the resurrection of the discharged security. This is the scenario in which Millett LJ in Boscawen v Bajwa^[6] recognized that the claimant should have a defence of change of position. The operation of the defence in this context might be considered to be more defensible, because the claimant is not seeking to vindicate an existing property right. But the defence of change of position is not available in the law of unjust enrichment where the defendant has used money paid by mistake to discharge a liability,²³⁸ since the defendant will not suffer any detriment if he or she is held liable to the claimant who paid the money by mistake. The same would be true were the claimant to seek the remedy of subrogation. Where the claimant’s money has been used to discharge a secured debt, the resurrection of that debt in the claimant’s favour will not cause any hardship to the defendant, because a secured liability to the claimant will simply be substituted for the liability owed to the original creditor.

(4) Personal Claims to Vindicate Property Rights

If the claimant’s property has been received by the defendant who then dissipates it in circumstances where there is no surviving enrichment, then, although no proprietary remedy will be available, it may be possible to bring a claim for a personal remedy founded on the receipt of the claimant’s property; at Common Law by means of the action for money had and received,^[7] or in Equity by means of the action for unconscionable receipt.^[8] Where the claimant seeks the restitution of value rather than the property itself, there may be scope for the application of the defence of change of position, as was the case in Lipkin Gorman, where a personal restitutionary remedy was sought at Law by means of the action for money had and received. Here the argument founded on hard-nosed property rights will not be relevant since there are no longer any rights over property. Consequently, at least at Law, it is appropriate for the defendant’s innocent change of position to reduce or eliminate his or her liability to the claimant. This argument would not work, however, as regards the equivalent claim in Equity, at least in so far as that claim is presently defined. This is because the action for unconscionable receipt only applies where the defendant’s receipt can be characterized as unconscionable and the definition of unconscionability has been influenced by the definition of bad faith in the context of the change of position defence.^[9] It follows that, if the defendant’s conduct can be characterized as unconscionable, then, by definition, the defence of change of position will not be available because the defendant will have acted in bad faith.

• [1] Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch), [2013] Ch 156, [99]-[103]
• [2] (Stephen Morris QC); Test Claimants in the FII Group Litigation v HMRC [2014] EWHC 4302 (Ch), [348]
• [3] (Henderson J).
• [4] See Foskett v McKeown [2001] 1 AC 102, 108 (Lord Browne-Wilkinson).
• [5] Cf Birks, Unjust Enrichment (2nd edn), 210, who wanted the defence to apply to proprietary restitutionary claims to substitute property which he analysed as involving the reversal of the defendant’s unjustenrichment.
• [6] [1996] 1 WLR 328, 341 (Millett LJ). 238 See p 684, above.
• [7] See Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548. See p 642, above.
• [8] BCCI v Akindele [2001] Ch 437. See p 645, above. 241 See p 692, above.
• [9] 242 Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 578.