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Dalkie, Paul F --- "The difficulty with a concept of relative fault in restitution" [2021] OtaLawRw 6; (2021) 17 Otago LR 143

Last Updated: 24 August 2023

The Difficulty with a Concept of Relative Fault in Restitution


The Difficulty with a Concept of Relative Fault in Restitution

Paul F Dalkie*


If money is paid away by mistake, it is not right for the payee to keep it. The recipient is unjustly enriched as a result of the mistake that caused the payment to be made. The enrichment is by the amount of the payment received, to which there is no entitlement to possession; the lack of entitlement makes it unjust.

Unjust enrichment is an ancient legal concept. The Romans had a principle – “it is natural justice that no one should unjustly enrich himself to the detriment of another.” Restitution provides the remedy to the payer for the mistake, and requires the money to be repaid.

Natural law,1 derived by applying a positive system of values to human nature, dictates the money cannot be retained. It must be paid back.2 Most people and companies know how much is in their bank accounts, and when money is deposited, whether they are entitled to it, or not.3 Especially now, with e-banking, unidentified payments are quickly identified and isolated. The payer has lost out by the mistake made, and the payee is better off by the amount received. The sense of value by right thinking members of society would say the money should be paid back. The payer should not be punished for making a mistake. It should not matter what kind of mistake was made, provided it is a pure mistake.

The Statutory Defence in New Zealand

New Zealand has a statutory change of position defence. Originally, it was contained in s 94B of the Judicature Act 1908. That has since been

* Barrister. I would like to thank Professor Charles Rickett for his helpful comments on a draft of this article.

  1. Natural law is a system of law based on a close observation of human nature, and values intrinsic to human nature that can be deduced and applied independent of positive law.
  2. German Law has a principle to this effect. It assesses whether there should be repayment of the money based on whether the recipient knew it was money to which there was no entitlement to hold, or whether it did not. So, it is a sort of morality assessment between innocent receipt and knowing receipt of the money.
  3. Re Jones Ltd v Waring & Gillow Ltd [1926] AC 670 (HL) at 696: “I may not be bound to know the payer’s accounts but I ought to know my own”.


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repealed and replaced with s 74B of the Property Law Act 2007, which is in these terms: 4

Payments made under mistake of law or fact not always recoverable Relief, whether under section 74A or in equity or otherwise, in respect of any payment made under mistake, whether of law or of fact, [shall] must be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his or her position in reliance on the validity of the payment that in the opinion of the court, having regard to all possible implications in respect of other persons, it

is inequitable to grant relief, or to grant relief in full, as the case may be.

The new provision is the same as the old, except for the change of one word; “shall” in s 94B has been replaced by “must”. This is the provision where it seems there is the opportunity in the court to consider relative fault; that is, to weigh the position and conduct of one party against the other. The parties in question are the payer and the payee.

Mistakes Restitution deals with

The kind of mistake restitution allows for, and provides a remedy, is in relation to an incorrect belief or assumption about a past or existing state of affairs or facts. Restitution does not assist in recovery of a payment made based on a mistake, where the so-called mistake has an aspect of assumption, judgment or prediction about a future event or series of events.5 The judgment or assessment brought to bear on a decision about a payment, must, prima facie, rest with the decision maker. Therefore, the mistake must exist in the mind of the payer at the time the money is paid away. For example, payment of money to a broker for purchase of shares based upon representations that the share price will increase, when the share price then tanks, would not result in a claim for restitution. The payer might say – I have made a mistake in judgment – but that does not entitle restitution. Equally, there is no enrichment in the payee.6

  1. Section 74B, Property Law Act 2007. The legislative history of this section is – s 94B of the Judicature Act 1908 was repealed by s 182(2) of the Senior Courts Act 2016, and then introduced by s 6 of the Property Law Amendment Act 2016. There was a tidying up of legislation concerned with courts and their structure, and the Property Law Act 2007 seemed to be the most convenient place to relocate s 94B.
  2. See Hookway v Racing Vic [2005] VSCA 310; (2005) 13 VR 444 (CA) at 61–62; ASB Securities Ltd v Geurt [2005] 1 NZLR 484 (HC), citing Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, [2001] UKPC 50 at 44.
  3. It could give rise to a claim for misleading or deceptive conduct depending on what facts were known and then in the possession of the representor at the time the representation was made.

The Difficulty with a Concept of Relative Fault in Restitution 145

The legal principle that enables money paid by mistake to be recovered

The clearest statement of the central legal principle remains that from

Kelly v Solari:7

...where money is paid to another under the influence of a mistake, that is upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was

untrue, an action will lie to recover it...

The principle is solidified in terms of the kinds or types of mistakes

in this passage –

...but if it [money] is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it.

In this statement of principle, carelessness by the payer is not a factor. There is an almost strict liability about the starting point where two elements are required, a mistake in the terms described above, and then a payment away of money based on the mistake. If carelessness was taken into account, then it would, potentially, erode the precise basis of the claim in the first place.

A law that requires money paid by mistake be returned should not be subject to any qualitative assessment of the kind of mistake made that led to the money being paid over.

Change of position

Originally, the only defence available to a claim for money paid by mistake was estoppel.8

  1. Kelly v Solari [1841] EngR 1087; (1841) 9 M&W 54, 152 ER 24 (Exch) at 26 per Parke B. Lord Mansfield wrote with the same clarity in Moses v Macferlan [1760] EngR 713; (1760) 97 ER 676 (KB) about the common law action for money had and received where a plaintiff could plead “that the money was received to his use”, and a defendant could defend “by everything which shows that the plaintiff, ex æquo & bono, is not intitled to the whole of his demand, or to any part of it.” (at 679).
  2. See Re Jones Limited, above n 3. If estoppel is open as a defence to payment by mistake, the element of it which will likely be the battle ground at any trial will be the question whether the recipient suffered any detriment.


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Change of position at common law can stand alone as a defence in New Zealand, that is separate from, and co-existing with, s 74B of the Property Law Act 2007.9 The defence of change of position was succinctly stated in Lipkin Gorman v Karpnale Ltd10 as follows

...the defence [of change of position] is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.

Lord Goff said there were two restrictions on the defence, bad faith, or where the defendant was the wrongdoer. Therefore, for a defendant to rely on change of position as a defence it must have acted in good faith.11 It is logical that if the change of position is not permanent, so it could be unwound, then there is no inequity to grant restitution of the money to the plaintiff. A change of position must involve a loss of some part, or the whole, of the money received. If not, then there is no inequity to the recipient. All that has happened is the character of the money has changed. For example, the recipient takes the money to which there is no entitlement and buys shares with it that would never have otherwise been purchased. The defendant cannot say it is inequitable it should pay the money back. The defendant has the benefit of the money, now in the form of shares; there is no reason not to order it be paid back. Good faith on the part of the payee is the absolute starting point for a payee to attempt to establish change of position. And, it is the same starting point for a defence under s 74B. The onus of proof to show good faith is on the defendant.

Relative fault and Dextra Bank Trust Co Ltd v Bank of Jamaica Introduction

It was unsuccessfully argued in Dextra Bank Trust Co Ltd v Bank of Jamaica12 that assessing relative fault of the parties should be an element of change of position. The argument was, that in assessing change of position, the court should look at the fault of the parties; so, it amounted to an

  1. See Goss v Chilcott [1996] 3 NZLR 385, [1996] AC 788; National Bank of NZ Ltd v Waitaki Int Processing (NI) Ltd [1999] 2 NZLR 211 at 219 (per Henry J), 226 (per Thomas J) and 232 – 233 (per Tipping J).
  2. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at [1991] 2 AC 548, 580, per Lord Goff.
  3. See above n 9 and Lipkin Gorman v Karpnale Ltd above n 10 at 579 lines F–G; 580 line C.
  4. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5. See also Scottish Equitable Plc v Derby [2001] EWCA Civ 369, [2001] 3 All ER 818; Mercedes- Benz (NSW) Pty Ltd v National Mutual Royal SB Ltd [1996] 363 (NSWCA) per Sheller JA [10]–[11].

The Difficulty with a Concept of Relative Fault in Restitution 147

exercise in – “who did what”, “who is to blame”, and – “how did this happen?”. The Privy Council expressly rejected this argument. In their view, change of position depended on the payee establishing it had acted in good faith. On the other side, in looking at the conduct of the payer, they referred to Kelly v Solari13 as established authority proscribing the legal analysis why the common law recognizes payment by mistake as a cause of action. The Privy Council emphatically rejected the idea that restitution should recognize and embrace a concept of relative fault; that is, looking at the respective conduct of the parties to assess the fault of each and weigh the outcome.

It is this aspect I now want to examine in detail. This requires looking at whether the so-called relative fault of each of the parties should be a concept developed as a principle in restitution. Determining relative fault is an exercise in weighing the evidence at trial to assess the conduct of each party, in order to assess fault, and balance or apportion liability

– that is, fault or blame as to how a payment came to be made, and then how the loss occurred. The idea that a court should assess relative fault of the parties, and apportion blame in mistaken payment cases, has met with next to no enthusiasm in Commonwealth countries or common law countries. The extent of the reception of assessing relative fault can be seen from the argument of the appellant in Dextra. The Privy Council14 were very dismissive of it, saying they were “most reluctant” to recognize it was correct in principle to introduce a “concept of relative fault”.15

What is relative fault in this context?

Assessing relative fault has two parts.

The first is that the money was received in good faith. Good faith equates to innocent receipt of the money. That means the recipient had no reason, or cause, to believe anything other than it is entitled to receive, and retain, the payment. If not, then the converse maintains; the payee must know that any payment of money to it is plainly a mistake made by the payer. That knowledge affects what the payee can do with the money, so the payee cannot do anything with the money contrary to the interests of the payer. I do not suggest there is a positive duty to enquire, but that will factor against good faith being found, and more so when the payee uses some or all of the money in a direction against

  1. Kelly v Solari, above n 7.
  2. In a joint judgment for the Committee delivered by Lords Bingham and Goff.
  3. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5 at [45]. The problem with this approach is it results in grading mistakes, and trying to apportion blame with the use of discretion, and nothing else.


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the interests of the payer. These issues only ever arise when some or all of the money paid by mistake is paid to a third party by the payee, and then lost. The inequity that arises is where the amount of money that has been paid away by the recipient should be repaid by reason that it was received in good faith at the time it was paid. I do think even the mere possibility that a claim might be made against the money received by the payee for its return is sufficient to vitiate good faith.

The second is relativity, or the counter balance to the position of the recipient, in other words to then assess what the payer did at the time the money was paid away, and afterwards. If we go back to the statement at Roman law, largely repeated by Parke B in Kelly v Solari, the reason the law entitles an order for restitution is because of the mistake made. It is the same reason the Privy Council rejected the concept of relative fault, or assessing the parties conduct to arrive at a solution which is, or supposed to be, fair or equitable. However, the assessment of relative fault requires an analysis of the payer’s conduct. At best this can only can be a subjective assessment from a Judge from the well of weight and discretion. On any view this is unsatisfactory, and was the very reason the Privy Council in Dextra so emphatically dismissed the correctness of introducing a concept of relative fault.

The idea of relative fault is, having “weighed up” each side, the Judge then decides the apportionment of blame that should be allocated.

The facts in Dextra

A fraudster induced Dextra to pay about US$3 million to the Bank of Jamaica (BoJ). Dextra understood the payment was a loan to BoJ, for which it had expected to get a promissory note from BoJ as security. BoJ understood it was receiving the money in a foreign currency transaction to buy Jamaican dollars. One fraudster persuaded an agent for BoJ to draw cheques on the strength of the money coming in from Dextra from the BoJ payable to third parties. There was a prior course of dealing between the agent and the fraudster where the agent would pay out against funds yet to arrive. All but one of the third-party cheques had been presented and cleared prior to the Dextra cheque being presented. As well, the BoJ had reimbursed the agents for the amounts they had paid out. Each party was deceived about the intention of the other in the transaction.

What were the mistakes in Dextra?

There were two mistakes asserted by Dextra. First, Dextra contended it paid the money under a mistake of fact – that it had intended to make a loan, so the payment over was money advanced for the loan to BoJ.

The Difficulty with a Concept of Relative Fault in Restitution 149

The Committee thought that was not a mistake, but a wrong prediction about a future event, a “misprediction”. They said it was not a mistake about a specific fact; instead, it was a wrong prediction about what would happen in the future once the transaction came into existence (so on delivery and depositing of the cheque). That is not actionable mistake.16

The second mistake Dextra asserted was it was deceived into believing BoJ was taking a loan from it, and that was the reason for the money being paid over. The Privy Council accepted that was a mistake of fact. However, instead of communicating directly with BoJ, Dextra instructed Mr Phillips, one of the fraudsters, to only hand over the cheque in exchange for delivery of the promissory note as security. He did not do that. He gave it to an associate Mr Beckford who presented it after the third-party cheques had been drawn and paid. The Privy Council found this caused the loss, so not by a mistake of fact, but by a wrong assumption as to a future event, namely Phillips would do as he was instructed and a loan would come into existence.17

The appeal failed at that point. However, the Privy Council went on to consider the second argument Dextra raised, namely, whether BoJ could have relied on its argument under change of position, had mistake been made out. Within that context it looked at the question of relative fault in the change of position defence.18 Although that part of the judgment could be said to be obiter because the appeal failed on the first ground, it is probably better to view the judgment read as a whole. There is a modern trend now where such passages in judgments in final courts tend to be read as authoritative.19

Relative fault

It is important to appreciate the Privy Council accepted that even if the mistake was avoidable that was no bar to a claim for mistake, if one had been made.20 This is a finding consistent with the conclusion they arrived
  1. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5 at 29. 17 At 30.
    1. It was Dextra that raised this issue.
    2. See for example National Bank of New Zealand Ltd v Waitaki International Processing Ltd [1999] 2 NZLR 211 (CA) per Thomas J at 226–231, where Thomas J accepts the writings of Peter Birks as authoritative. That has been the practice in Australia, for example, for some time. In Dextra, the joint judgment was written by Lord Goff and Lord Bingham, the former being an expert on restitution; so that is especially so here. A recent example of this has been where the judgments of Lord Hoffman on contract interpretation have been extensively analysed, and applied in their many component parts in NZ. (That line of authority was not followed in Australia however: see Western Export Service Inc v Jireh International Pty Ltd [2011] HCATrans 297, per Gummow J).
    3. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5 at 29.


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at that relative fault had no place in restitution. There is no room to make a qualitative assessment of the conduct by which the payer arrived at the point of making the mistake that caused the payment. Objectively, every payment by mistake is careless at some point in its process. Restitution is the natural justice remedy for a payment carelessly made.

Dextra drew support from two sources for their argument for relative fault.

A The Restatement of Restitution (USA)

Section 142(2)21 was in these terms:

Change of circumstances may be a defense or a partial defense if the conduct of the recipient was not tortious and he was no more at fault for his receipt, retention or dealing with the subject matter than was the claimant.

Notice that here the balancing test requires the payee to be “no more at fault” than the payer. This element is not found in s 74B,22 nor under the common law change of position defence. It follows the defence is only available to a payee and starts if the court’s assessment on the evidence is an equal apportionment of fault or blame in the balancing exercise. The Restatement has the same clarity about the ability to recover money paid by mistake as that expressed by Parke B in Kelly v Solari. It appears in s 22 to the effect that if someone mistakenly pays an individual money, believing that individual is someone else, there is an entitlement to restitution from the individual that was mistakenly paid.

The Privy Council disposed of any reliance on s 142(2), influenced by an article strongly dismissive of a test of comparative fault.23 The better approach, said Professor JP Dawson, was to look at:24

  1. WA Seavey & AW Scott; American Law Institute, Restatement of the Law of Restitution: Quasi Contracts and Constructive Trusts (St Paul, Minn, American LAW institute Publishers, 1937). Since substituted by American Law Institute, Restatement of the Law Third: Restitution and Unjust Enrichment (St Paul, Minn: American Law Institute, 2011).
  2. Nor is it found in legislation that copied s 74B (and its predecessor) as a boiler plate viz, s 65(8) of the Trustees Act 1962, and s 125(1) of the Property Law Act 1969, both from the State of Western Australia.
  3. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5 at 43.
  4. John P Dawson “Restitution without Enrichment” (1981) 61 Boston UL Rev 565 at 572. Peter Birks supported this view, as the Privy Council observed. See Peter Birks “Change of Position and Surviving Enrichment” in William Swadling (ed) The Limits of Restitutionary Claims: A Comparative Analysis ( The United Kingdom National Committee of Comparative Law, London, 1997) 36 at 41.

The Difficulty with a Concept of Relative Fault in Restitution 151

whether accountability for a gain to which its receiver was not entitled, a gain he acquired at another’s expense, will be reduced or extinguished because its value to him has for some other reason diminished.

So, for Professor Dawson the examination of what occurred must focus on the recipient, and not on some squaring the ledger exercise. He gave examples where the recipient uses the money to pay off debts25 (just switching creditors) or buying an investment property (a change in the nature of the money)26 as examples which produce no change of position. The same, he said, should apply to any exchange of the money received by mistake for something else at the free will of the recipient.27 Finally, he said change of position had a “built in” requirement of good faith, and there could be no good faith where the recipient was aware of the duty to return the money. More explicitly, a good faith element is plain in s 142(3)(b) where if the payee knows of the error, change of position as a defence is barred.

Section 142(2) on its face, appears to allow for an examination of the carelessness of the payer by making the payment, and creating a belief in the payee of an entitlement to the money. This I think is the very defect in s 142(2) that Professor Dawson may have had in mind.28 It is difficult to accept mere payment of money into someone’s bank account would make them think they are entitled to it when the payment was made under a mistake. It is inherently unlikely a payee will not know the payment is a mistake, and the payee has no entitlement to the money. Subsequent careless spending of the money by the payee, so it is lost in whole or in part, does not alter the starting point and that is, when the payment arrived, the payee knew or ought have known the money did not belong to it.

  1. Dawson, above n 24 at 573. 26 At 574.

27 At 574.

28 For a commentary on Prof Dawson’s views, see Professor JD McCamus “Rethinking Section 142 of the Restatement of Restitution: Fault, Bad Faith, and Change of Position” (2008) 65 Wash & Lee L Rev 889, 920–925.


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B The Change of position defence in s 74B29

Very few cases have looked at s 74B. There are two principal cases that have; Thomas v Houston Corbett & Co,30 and National Bank of NZ Ltd v Waitaki Int Processing (NI) Ltd.31

Thomas v Houston Corbett & Co

(i) The material facts

Dr Thomas wanted to invest money for a short term. He knew Mr Cook, a law clerk employed by Houston, Corbett & Co, a law firm. Dr Thomas met with Mr Cook at his office at the law firm and they discussed an investment, described as providing temporary finance for a client of the law firm to buy land. At Mr Cook’s request, Dr Thomas wrote two cheques, one for $30032 pay the law firm and another for $100 pay Mr Cook, or bearer.

A few months later Dr Thomas told Mr Cook he wanted his money back. After a minor delay Mr Cook told Dr Thomas the whole of the proceeds from the land transaction were paid into his bank account and Dr Thomas would have to give him a cheque for $840 for the other investors, which he did. The amount deposited was $1,381 by cheque drawn on the account of the law firm. That gave Dr Thomas a net profit of $141. The law firm sued for the return of the $1,381 as a payment by mistake. At first instance the evidence was Dr Thomas was unsophisticated in business matters, and relatively naïve.33 He was also described by the trial judge as a disarmingly honest witness. Critical to the claim for payment by mistake was to separate the activities of Cook completely from the law firm so he was neither the agent of the law firm, nor acting in the normal course of his duties.

At first instance the Judge found none of the payments made concerned a solicitor client relationship. Hence the firm’s claim for payment by mistake of $1,381 was successful. Dr Thomas also failed in his attempt to claim relief under s 74B.34 At no stage did Dr Thomas know or become aware of the dishonesty of Cook until after the event.

  1. For a legislative history on s 74B, see above n 4.
  2. Thomas v Houston Corbett & Co [1969] NZLR 151 (CA).
  3. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19. The judgment at first instance, per Gallen J, is reported at [1996] NZHC 1682; [1997] 1 NZLR 724. I appeared as counsel for the Bank. I advised the Bank at the time to appeal to the Privy Council; the Bank did not take my advice.
  4. As the events occurred in 1965, it was New Zealand pounds.
  5. He was a house surgeon, so a first year doctor, 25 years old.
  6. Which largely focused on the $840 payment.

The Difficulty with a Concept of Relative Fault in Restitution 153

(ii) Wrong analysis of the facts affects whether the payment was by mistake

On appeal, counsel for Dr Thomas, quite properly, argued Cook was the agent of the law firm, and the trial judge was wrong to characterize the relationship as one purely between Dr Thomas and Cook. That meant, as the agent of the firm, Cook had ostensible authority.35 Taken to its logical conclusion, that would have meant the payment of $1,381 was not made by mistake at all. The firm’s knowledge was also that of Cook, albeit his dishonesty and dishonest motives were not. So, as between the payer and the payee, the payment of $1,381 was intended to be made.36 If he (Cook as agent for the firm) intended to make it, which he did, there was no mistake.

In my opinion the trial judge got it wrong. There was no doubt Cook had ostensible authority on the facts. However, the Court of Appeal was disinclined to disturb findings of fact on this point.37 There was actually no reason for the Court of Appeal not to have disturbed findings of fact on appeal, and to have treated the findings of fact at first instance as though they could not be disturbed.38 There were no material facts in dispute. As well, the judge’s assessment of the demeanour of Dr Thomas as a witness meant credibility did not arise.

(iii) Assessment of relative fault under s 74B

On appeal, the Court proceeded then on the basis the appellant never was a client of the firm. That meant the payment of $1,381 could be characterized as by mistake caused by the false statements Cook made to the law firm for the cheque to be drawn. The Court found the appellant

  1. This case, so far as it concerns the law clerk Cook and the question of agency and ostensible authority is very similar to Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZCLC 261 (CA).
  2. The firm could then have brought its own claim against its employee.

Likely it would not have been covered by insurance because of the dishonesty aspect.

  1. Thomas v Houston Corbett & Co, above n 30, at 160 lines 50–55 and 161 lines 1–10 per North P; 166 lines 3–26 per Turner J; 172 lines 8–14, per McGregor J.
  2. Austin Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141. The Court observed an appellant is entitled to judgment in accordance with the opinion of the appellate Court. That is so even if the opinion is an assessment of fact and degree requires a value judgment. If the appellate Court’s opinion is different from the conclusion at first instance, then the decision under appeal is ‘wrong’ to the extent necessary. So, it would be an error to simply accept the lower Court’s assessment of the acceptability and weight to be accorded to the evidence without question, rather than forming its own opinion.


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did come within s 74B. They said when he paid out the $840 he altered his position and did so in reliance on the receipt of $1,381 coming into his bank account.39

Even though the Court did not disturb the finding that the appellant dealt directly with Cook, and so not the firm, two judges thought it was important to comment, in assessing the “fault” of the appellant, that he was entitled to deal with Cook on the basis he was a trusted employee of the law firm.40

The arbitrariness of the exercise of the discretion to assess relative fault could be seen in each judgment. Each appreciated that neither the appellant nor the law firm were directly responsible for the loss. None considered that the whole series of events were initiated by Cook, and had he been properly supervised, then the events would never have occurred.41 In the juggling exercise, each referred to the failure of the law firm to properly supervise Cook as a factor. On this point North P thought the law firm should “accept a greater responsibility”. However, he then arrived at an apportionment of about 2/3rds 1/3rd in favour of the law firm, and ordered the appellant pay (about) $821 to the law firm.42 He did not say what aspect of the appellant’s conduct militated against him. Turner J thought the loss of $840 should be divided equally. He seemed to think that was on the basis that if there were no sufficient reasons for some other division then 50/50 must be the answer. He polished the brass of an old equity maxim as though that supported his reasoning, which it did not. A problem of logic with this approach is that it tends to read 50/50 as the starting point written into s 74B. However, to go along with the others this judge then recorded he would change his mind and agree with the North P apportionment.43 Lastly, McGregor J, thought that, although the appellant was “foolish”, the law firm’s failure to properly supervise their employee Cook meant it should suffer a greater share. He then said what the apportionments should be, caused him difficulty, but he too ceded to the opinion of North P. There was no reasoned basis on which the final apportionments were arrived at. By some unclear process, but the need to have a single outcome, the divisions changed from (a) 2/3 and 1/3; (b) 50/50; and (c) the appellant repaid less than 50%. The apportionment of North P prevailed.

  1. Thomas v Houston Corbett & Co above n 30 at 164 lines 15–25, per North P; 176 lines 15–55, 177 lines 1–7, per McGregor J.
  2. At 164 lines 51–54 per North P; 170 lines 37–40, per Turner J.
  3. It is readily open to conclude that Dr Thomas would never have dealt

with Cook but for the fact he was an employee of the law firm.

  1. Thomas v Houston Corbett & Co above n 31 at 165, per North P.
  2. At 171 lines 30–40 per Turner J.

The Difficulty with a Concept of Relative Fault in Restitution 155

What this case shows is the plainly unsatisfactory nature of a concept of apportioning blame or assessing relative fault. It is a very good example of why a concept of assessing relative fault is unworkable. Dr Thomas knew he was entitled to get his $400 paid back to him. He also knew that he was not entitled to receive the payment of $1,381. He relied on its receipt to pay out the $840. The end result was Dr Thomas had to pay the $840 twice with the result he was in the red at the end of the transactions. If the desire was to achieve an equitable outcome, then this case failed. The law punished an honest man whose only flaw was foolishness through his own commercial naivety (he was plainly an intelligent man) against a law firm who failed to properly supervise one of its employees and fared better.

National Bank of NZ Ltd v Waitaki Int Processing (NI) Ltd

There were no decisions, around the time in 199944 the appeal in the National Bank case was argued, that looked at the similar provisions in Western Australia.45 The National Bank case concerned a payment by mistake by the bank to its customer of US$500,000 arising out of foreign currency transactions. It was wrongly decided.

The defendant, a meat processing company hedged against currency fluctuations in its export contracts. It was a regular customer of the Bank for foreign currency purchases. There was an error in reconciling the Bank’s account with the defendant.46 The error was that the Bank thought US$500,00 was due to the defendant. The defendant had an employee, Mr Nichols,47 who was their foreign currency dealer. Mr Nichols knew straight away that the payment was a mistake, and he told the Bank as much. Later, the Bank insisted to Mr Nichols the money belonged to

  1. Elise Bant and Peter Creighton “The Statutory Change of Position Defences in Western Australia” (2003) 31 UWAL Rev 48 at 50, n 14. There is now at least one decision since 1999 of note, see Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd [2008] 66 ACSR 594 (WASCA).
  2. See above n 22.
  3. At that time the Bank ran its foreign currency deals through Lloyd’s Bank in New York, its nostro account. A nostro account is simply an account one bank holds for another. Here the confusion arose because the National Bank traded USD with Lloyd’s money it held. So, it was a question of reconciling the debits and the credits during each financial period between the National Bank and its customers and its customer Lloyd’s Bank, which was the source of the money the National Bank traded.
  4. Mr Nichols was the fourth defendant in the case. I am not sure that is readily apparent from the reports. Mr Nichols was not going to give evidence in the case, and so the Bank subpoenaed him, and called him in its case.


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the defendant and paid it over. Mr Nichols, knowing that was not the position at all, and that the payment was a mistake, acquiesced in the Bank’s insistence. This is entirely consistent with Mr Nichols’ evidence – “he took it under protest and placed it on deposit because he thought the time would come when the bank would require it back.”48 Mr Nichols took the money and deposited with a company that subsequently went into liquidation. All the money was lost.

(i) The High Court

At first instance the Judge found the money was paid by mistake, and that the defendant was enriched at the expense of the Bank. The Judge found the money remained the property of the Bank, the defendant could have no claim to it, and its retention from the Bank was unjust.49

As to s 74B, which the Judge described as an exercise in – “apportionment to recognize the equities”,50 so the part where he looked at relative fault, on the side of the Bank, he thought three items weighed: 51

One, “the bank promoted the transaction against the wishes of Mr Nichols...”;

Two, the Bank did not follow its own procedures; and

Three, the delay from the transaction until the Bank took steps for recovery.

The Judge tended to merge the relief available to the defendant under s74B with the change of position defence as stated by Lord Goff in Lipkin Gorman.52 So, he made no distinction. To the limited extent he referred to the earlier case of Thomas v Houston Corbett & Co he did so as authority of a prior example of taking into account the equities, and apportioning the amount to be recovered.53 The Court of Appeal did the same.54 The Judge then arrived at an apportionment of 10% to the Bank, so 90% to defendant.

  1. National Bank of New Zealand Ltd v Waitaki International Processing Ltd

[1996] NZHC 1682; [1997] 1 NZLR 724 (HC), 727–728.

49 At 731.

50 At 733 lines 17–19.

51 At 734 lines 3–52.

52 At 732 lines 20–47 and 733 lines 15–20.

  1. At 731 lines 54–55 and 732 lines 1–7. The Judge otherwise wrongly recorded the facts where he said Dr Thomas was a client of the law firm; it was found he was not.
  2. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA) above n 19 at 220, lines 13–18, per Henry J; 229 lines 24–35, per Thomas J; p232 lines 30–40, per Tipping J.

The Difficulty with a Concept of Relative Fault in Restitution 157

Considering these three items, the first two are a direct function of making a mistake and nothing else. In terms of the mistake that was made, it did not matter Mr Nichols insisted it was the Bank’s money. Looking at the mistake in this way is to apply a purely subjective assessment of judgment as to how the mistake occurred. So, the Bank made a bad or obvious mistake, or one it could have avoided especially when the other side of the transaction said no it is your money. Not following the Bank’s own procedures55 should not have exacerbated the nature of the mistake. That would have been no more than part of arriving at the point of a mistake. The Bank could equally have arrived at the same conclusion of thinking the money belonged to the defendant even if it did follow its own procedures.

So, whilst the court found the money could be recovered, because it was paid by mistake, it then engaged in a process where it looked at the type of mistake that resulted in the payment being made. That was a purely subjective, and arbitrary, assessment of how fault should be apportioned.56 To emphasize the point, we see the trial Judge saying – “The matter can only be looked at overall and in the round.”57 This is the very exercise the Privy Council in Dextra eschewed in strong language “most reluctant” and “indeed decline to do so”.58

No statement of legal principle that entitles a claim to be made for recovery of a payment by mistake, then enquires into the nature of the mistake and how it occurred. As I said, the statement at Roman law has the same clarity as what Parke B wrote in Kelly v Solari. This, I think, is why the Committee’s decision in Dextra very quickly associated their rejection of a concept of relative fault with the basis of the cause of action in Kelly v Solari.59

Before looking at the judgment in the appeal, there has been some criticism of Gallen J’s view that although Waitaki was unjustly enriched by the receipt of the money the Bank retained title.60

  1. Banks have manuals that prescribe procedure.
  2. It could have been any apportionment at all.
  3. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (HC), above n 48, at 734 line 42. So, this was how he got to the 10/90 against the Bank apportionment.
  4. Dextra Bank & Trust Co Ltd v Bank of Jamaica, above n 5, at [45]. 59 At [45].

60 National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19, at 226 per Thomas J. See also Ross Grantham and Charles Rickett “Change of Position and Balancing the Equities” (1999) 7 RLR 158 at 159.


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My own view is that Gallen J made this finding, which is somewhat confused, conflating two facts that were immutable over the period of the whole factual matrix. The first is that the Bank made a mistake; the mistake caused the payment. Anything else it did was no more than consistent with the Bank having made the mistake in the first place. So, the Bank’s conduct in insisting it was right to Mr Nichols and he should take the money is consistent with its mistake. The nature of a mistake often involves one side insisting, contrary to the actual position, that they are right. The second fact is that, at all times, and irrespective of the event when the Bank insisted the money belonged to the defendant, Mr Nichols, so the defendant, always knew the money was the Bank’s and a mistake had been made. Add those two facts together and what you have is a continuum where, the Bank did nothing more than make a mistake and only engaged in conduct consistent with that mistake, and all the while the defendant knew about the mistake. The defendant always knew it had the Bank’s money; that became loosely written as title in the money never passed.61

(ii) The Court of Appeal

Turning now to the judgments on appeal, there are several concepts to examine.

A The majority found s 74B did not apply

In the leading judgment Thomas J found s 74B did not apply because the respondent had not changed its position. He said: 62

Knowing of the mistake, the company accepted the payment and invested it, in effect, for and on behalf of the bank, believing that ultimately the bank would admit to its mistake and seek recovery.

Tipping J agreed.63

  1. The Lipkin Gorman principle64
It was within the application of this principle that the Court of Appeal found it had power to engage in an exercise of assessing relative fault

  1. Another commentator, suggested the court should have viewed the legal connexion between the parties as one of involuntary bailment, see Peter Watts, Restitution and Change of Position (1999) 115 LQ Rev 198, 201.
  2. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19, at 227 lines 25–37.

63 At 232 lines 5–25.

64 See above under the heading Change of Position.

The Difficulty with a Concept of Relative Fault in Restitution 159

and apportioning how much money ought to be paid back. The elements within the opinion of Lord Goff that must be considered are:

whether it would be inequitable to require repayment; and bad faith; and whether the defendant was the wrong doer.

C Does the phrase the validity of the payment in s 74B equate with the notion of good faith?

Oddly, Henry J thought not. He said the idea behind s 74B was to relieve the strict nature of a claim for payment by mistake when repayment would be an “unfair burden” where the money had been lost in whole or in part.65 He earlier said it would be too narrow an interpretation of s 74B to confine it to circumstances where the payee knew there was no entitlement to the payment and retention of it.66 Effectively, this opinion gives no weight at all to “good faith”, an element specifically referred to in s 74B. As to the broad interpretation Henry J chose to give s 74B, there is no principle of statutory interpretation that requires a statute to be interpreted more broadly than it is written. Parliament must be deemed to have intended to give s 74B the scope it has, however narrow it might be. He also thought it did not matter whether the exercise of assessing relative fault was done under s 74B or the Lipkin Gorman principle. Thomas J thought the company received the payment in good faith, but knowledge did affect what it then did with the payment. He, along with Tipping JJ, thought knowledge and good faith tended to equate.67

  1. Knowledge under the Lipkin Gorman principle and s 74B
All Judges thought s 74B could operate side by side with the common law change of position defence.68 The general view was that the change of position defence was potentially much wider than the position under s 74B. Tipping J noted that s 74B filled a gap when enacted,69 and the tenor of the comments was that s 74B may have been taken over by the Lipkin

  1. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (NZCA), above n 19 at 218 lines 17–25. I say ‘oddly’ because although it worked in favour of the appellant, in the juggling fault exercise, it was ignored on properly assessing whether the appellant deal with the law firm (so through Cook as its agent).
  2. At 217 lines 45–4 and 218 lines 1–4.
  3. At 227, lines 5–24, per Thomas J; 231 lines 46–40 and 232 lines 1–15, per Tipping J.
  4. Lipkin Gorman v Karpnale Ltd, above n 10. See also Elise Bant and Peter Creighton, above n 44.
  5. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19 at 232 lines 30–51 and 233 lines 1–14. Something North P in Thomas v Houston Corbett & Co, above n 30 also observed at 164.


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Gorman principle. Thomas J said Waitaki received the money in good faith because he reasoned, even though it had knowledge of the mistake, it “reluctantly” kept the money after telling the Bank of its mistake.

They also found that mere knowledge of the mistake, and therefore of the possibility that the payer would realize its mistake, did not exclude the possibility of the change of position defence. They took a very broad view of how the defence should operate. Bearing in mind we are looking at a defence that only operates where it would be inequitable to require repayment, that is a very curious point to arrive at.

Thomas J observed “If justice is to be done, it cannot be accepted that knowledge will be invariably fatal.”70 This seems to say there can still be a defence (which I apprehend is the only thing you can squeeze in the word “justice” where Thomas J uses it) even though the recipient knew the money was paid by mistake. More pithily, you can still get “justice” even if you did not receive the money in good faith. Thomas J relied on an opinion of Professor Peter Birks to the effect that care must be taken to ensure the recipient’s knowledge is not necessarily determinative of whether change of position is available. Thomas J then said he “endorsed” what Birks had written, which he then quoted. However, the passage in question was doing no more than postulating hypotheticals, especially the sentence – “Though the recipient knows that he is not entitled he may have been led to believe that he must apply what he has received in a particular way.” Because it is so speculative, no one could dismiss the possibility of it occurring. However, it is no basis on which to found legal reasoning. Further, apart from the Bank insisting the money belonged to Waitaki, it did not direct how the money was to be applied or invested

– Mr Nichols did that by himself. The very nature of the Bank’s mistake was confined to it thinking the money belonged to Waitaki so it could have had no power or ability over what happened to it.

Thomas J concluded the knowledge of Waitaki that the money never belonged to it was no longer relevant after the Bank had been told it was making a mistake more than once but still took the money after the Bank insisted.71

The very similar (to s 74B) Western Australia provision, s 125(1) of the Property Law Act 2007 has now been considered to a limited extent in at

  1. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19, at 228.
  2. At 228 lines 40–45. The other judges took a similar view. Tipping J thought knowledge should be a “small ingredient in the equitable mix”, see at 233 lines 3–4.

The Difficulty with a Concept of Relative Fault in Restitution 161

least one case.72 Although the Court did not analyse s 125(1) in any detail it did state the obvious point that the receipt had to be in good faith.

E Why knowledge matters

The knowledge must be in the possession of the payee at the time payment was received, or any time after, up until the time the payment away of some, or all, of the money was made. Given electronic banking systems, it is more likely than not the payee will know a mistake has been made soon after the amount appears in the bank account. That is the reality and makes the possibility of constructive knowledge remote. It will be the actual knowledge of the payee in fact of how much it has in the bank, and the sources from which it is likely to receive further deposits. The payee must have been instrumental in causing the loss. It cannot be a payee with knowledge of no entitlement to retain the money is liable for a loss from a supervening event over which the payee had no control or took no active part.73 In these situations there is no reliance by the payee on the receipt of the money; the loss was caused by external events. Clearly the point in time when a payee becomes liable for any loss is when the payee treats the money as its own. That must involve taking an active step with the money and paying it out of the account into which the payer mistakenly paid it. Any loss incurred from that time onwards must be on the liability ledger of the payee.

There is support for this view of the effect of knowledge in s 142(3)(b) of the Restatement of Restitution (USA) which says the payee is barred from claiming a change of position defence if that change occurred after the payee – “had knowledge of the facts entitling the other to restitution and had an opportunity to make restitution.”

Contrary to the opinion of Thomas J and that of the court, knowledge of Waitaki was fatal. It affected several elements of the change of position defence as formulated by Lord Goff.74 The first is the defence is only available if it is “inequitable”75 to require repayment. If at the time the payment was received the payee knew there was no entitlement to receive the money then it could not be inequitable to require repayment. The payee should have just retained the money or paid it back. Doing anything with the money contrary to the knowledge possessed that it

  1. Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd, above n 45, per Buss JA (Steytler P agreeing). See in particular [188]–[210].
  2. Such as the bank where the money is held being placed into liquidation.
  3. Lipkin Gorman v Karpnale Ltd, above n 10; knowledge has the same effect on s 74B. Although the words used in the statute are different than those from Lord Goff as he stated the principle in Lipkin Gorman.
  4. At 580 per Lord Goff.


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belonged to the payer must disentitle reliance on the defence. The payee treated the money as his/her own and must suffer the consequence of liability for any loss.

Second, any change of position where there is a loss because of the actions of the payee could not be an “injustice”76 for the same reason that the payee must be responsible for the loss at the point in time when the payee treated the money as his/her own.

Third, knowledge goes directly to bad faith. That could not be more plainly stated by Lord Goff in Lipkin Gorman where he said: 77

...the defence is not open...where a payee...has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution....

That is the antithesis of what the Court of Appeal said.

F Balancing/Relative fault

The variety of ways in which recipients might change position to their detriment on the faith of a receipt of a mistaken payment was emphasised in Scottish Equitable plc v Derby.78 Good faith is a prerequisite to the defence and equates with “reliance on the validity of the payment”. There can only be reliance on the validity of the payment if the payee has no notice of the mistake.

Although Thomas J relied on a comment from Moses v Macferlan where a court “is obliged by the ties of natural justice and equity to refund the money”79 as part of fairness and justice within equity, as supporting his view the court can engage in an exercise in allocating loss, I think that authority negates any division loss based on an exercise in juggling blame where good faith is absent.

Knowledge of the mistake extinguishes good faith. Any recipient with knowledge of the mistake cannot be said to be acting reasonably, and so could not raise a change of position defence. That must be bad faith; the recipient should not be doing anything at all with the payer’s money.

Thomas J said where the court is to allocate loss it should “have regard, not only to the net enrichment of the recipient, but also to the relative and comparative fault of the parties.” And, as to that approach he then said:

  1. At 579 per Lord Goff.
  2. At 580 per Lord Goff.
  3. Scottish Equitable Plc v Derby, above n 12 at [32] per Robert Walker LJ.
  4. National Bank of New Zealand Ltd v Waitaki International Processing Ltd (CA), above n 19, at 230 lines 13–14.

The Difficulty with a Concept of Relative Fault in Restitution 163

“Justice as between the parties may not be achieved unless regard is had to their respective responsibility for the loss.”80 Not surprisingly, having reached this view Thomas J did not agree with academic opinion that criticised the notion of assessing the relative fault of the parties because it gave judges far too much discretion. Thomas J commented he would have placed greater weight on what the defendant did but declined to interfere with the exercise of what was a discretion at first instance.

For his part Henry J thought the fact the Bank insisted the money belonged to the defendant, as well as not following its own procedures weighed against it in the balancing exercise.81 Tipping J described the defendant’s conduct benignly in terms of its contribution to the loss as – “The only significant fault...was its acquiescence in an insufficient margin for security...”.82 This was in reference to the defendant taking the money which it always knew belonged to the Bank, and depositing it with a finance company that went into liquidation.

Support from other commentators

Giving structure to how the defence of change of position should operate following what Lord Goff wrote in Lipkin Gorman v Karpnale Ltd,83 since he left open its basis except to exclude bad faith or where the defendant was the wrongdoer,84 has consumed much academic writing. Consideration has been given to how “bad faith” and the notion of a “wrongdoer” should work in terms of whether the defence is open at all.85 Examining what is this thing, the defence of change of position – and what is the basis for it – has also been a topic of extensive consideration.86

The desire of the law is for structure, and certainty.87 Giving a broad discretion under a statute or at common law is antithetical to looking

80 At 229 lines 25–30.

81 At 222.

  1. At 233 lines 4–5.
  2. Lipkin Gorman v Karpnale Ltd, above n 10.
  3. Lord Goff also said very little about ‘bad faith’ and what conduct would constitute wrongdoing in terms of the net position between the payer and the payee where the defence arises. (The defence only ever arises when the payee pays some of or all the money in another direction). It is not surprising Lord Goff left these questions open since his judgment is generally accepted as the genesis of the defence.
  4. Jessica Palmer “Chasing a Will-o’-the-Wisp: Making Sense of Bad Faith and Wrongdoers in the Change of Position” (2005) 13 RLR 53.
  5. Elise Bant The Change of Position Defence (Hart Publishing, Oxford 2009).
  6. Andrew Burrows thought the approach in National Bank v Waitaki would result in “too much uncertainty” and result in cases ending up in “disputes about comparative blameworthiness.” See Andrew Burrows “Change of Position: The view from England” (2003) 36 Loy LA L Rev 803 at 817.


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for parameters for the exercise of that discretion in a principled manner. Vague concepts are not something that assists; they create arbitrary and uncertain outcomes.

There is support for the view relative fault is not an appropriate mechanism for legal thinking in this area. In a paper that considers how structure and principle can be built around “bad faith” and “wrongdoing” in the defence of change of position, and what is a relevant change of position, the author said, of relative fault, it should be – “condemned for the unguided and unpredictable way in which it would inevitably be applied in practice.”88

In her book Professor Bant said arguments and theories developed in estoppel by representation, rescission, and an agent’s defence of payment over (or away) establish a structure for how (the thinking of) the defence of change of position works, or should. Giving structure gives certainty to how the defence operates. The converse is that it is not applied in a vague way not supported by reasoned analysis, but rather as a result of juggling in the exercise of a broad discretion. She observed it has been argued relative fault could be used to deny the defence where the defendant (payee) was “more at fault” than the plaintiff (payer) and thought it should only apply in those circumstances. That, she said, was because of the difficulty in trying to apportion the relativity of blame, a problem commonly found when courts attempt to apportion causation where there is contributory negligence.89 However, if the facts are that the defendant was instrumental in whole or in part in causing the mistake that led to the payment, then that would make the defendant a wrongdoer, and according to Lord Goff,90 not entitled to rely on the defence at all. I think this is a more concise way of thinking which gives certainty. Negligence is a very broad concept that can arise in a wide

  1. Palmer, above n 85 at 75. The author, a leading commentator, looked at various theories as to how the change of position defence should be applied. She concluded the preferable theory was to consider the end position of the recipient. So, assuming there was no bad faith and the defendant was not the wrongdoer, it would be the simple mathematical difference between the payment received and then the amount paid away by the recipient. It is no surprise Peter Birks was the originator of this theory. There is a very attractive clarity of thought about this approach. However, disputes can arise that are not always easy to solve so simply. Legal thinking in this area should bear that in mind and keep open the possibility the recipient could remain enriched but entitled to the defence because distinctive aspects of the factual matrix lend itself to that outcome: RBC Dominion Securities Inc v Dawson (1994) 111 DLR (4th) 230 is such an example.
  2. Bant, above n 87 at 182.
  3. Lipkin Gorman v Karpnale Ltd, above n 10.

The Difficulty with a Concept of Relative Fault in Restitution 165

variety of circumstances. When courts assess contributory negligence, it is not always the facts that determine apportionment, or if there is any contribution at all. There can be external influences such as public policy.91 What the analogy does show is how difficult it is to assess relative positions of parties, and the extent to which various factors can have influence or not.

Within the different components of the change of position defence they considered, each of Professors Palmer and Bant write compelling arguments for structure and certainty. Each tends to support the Peter Birks92 promulgated disenrichment theory. That is not surprising, since it is easy to grasp and see what the outcome will be. It also fits with giving the defence identifiable components. Then engaging in an exercise in balancing the scales of what each side did to arrive at an outcome destroys the fabric not only of the defence, but also of the legal right to recover in the first place, namely a mistake was made.

The fault of the plaintiff is not relevant to the cause of action being brought. The mistake the plaintiff made is the reason the action can be brought; that is plain from the Roman Law origin of the cause of action. Some commentators93 argue that, even so, you can examine this fault in the context of assessing what has contributed to the loss under the change of position defence. One writer has looked at whether the conduct of the payer after the payment by mistake is made should be considered in looking at the defence.94 However, unless the plaintiff has engaged in some further conduct beyond the original mistake, then that means the court assesses the mistake. That could only involve an exercise of

  1. Sometimes seen in personal injuries cases. Judges that regularly hear personal injuries cases over time tend to build up their own assessment of what ‘feels right’ as a contribution assessment. And, that can vary from judge to judge. It being an exercise of discretion, makes it difficult to appeal from.
  2. I acknowledge Peter Birks changed his mind about some aspects when he wrote Unjust Enrichment (2nd ed (Oxford University Press, 2005). He was recorded as saying he had changed his mind about nearly everything he had said before, and it all needed burning. Peter Birks new views have not been universally accepted by leading academics in the field. Elise Bant, for example does not comment on them. In a later paper John McCamus does, and critically: see The Restatement (Third) of Restitution and Unjust Enrichment (2011) 90 Can Bar Rev 439. In Unjust Enrichment at 219 Peter Birks maintained his criticism of assessing relative fault, which he described as “entirely arbitrary”, and also for the important reason that the actions (so fault) of each of the payer and payee cannot be measured by the same standards. He said they were “incommensurable.”
  3. Goff & Jones The Law of Unjust Enrichment (9th ed, Sweet & Maxwell, London, 2016) at 27–47, 795.
  4. Struan Scott, “Mistaken payments and the change of position defence: rare cases and elegance” [2012] OtaLawRw 2; (2012) 12 Otago LR 645.


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discretion with its caravan of problems. Returning to Dr Thomas, the transactions that caused the loss was the $840 paid to Cook against the receipt of (the asserted payment by mistake) the $1,381 all we can really say is he was “foolish” as the court put it. But that is conduct consistent overall with his actions, and nothing he did was the operative mistake giving rise to the cause of action. Similarly, in the National Bank case, the Bank’s insistence Waitaki took the money was entirely consistent with the mistake it made.


The notion of balancing fault or blame in restitution is arbitrary. The Privy Council in Dextra was absolutely right to avoid it, and reject National Bank of NZ Limited v Waitaki.

Introducing a concept of relative fault gives courts far too much discretion. Too much discretion means too much uncertainty. It weakens development of legal concepts in a principled way. All too often courts seek to rely on the safe harbour of a weight and discretion assessment, that does injustice to the parties. Exercising a discretion can be an exercise in avoiding a principled analysis. That is against the idea that certainty is an important aspect of the rule of law.

You cannot divorce “good faith” from reliance on the defence of change of position. It must be a prerequisite before the defence can be raised.

Good faith must and does have a direct connexion to knowledge of the mistake. You cannot ignore knowledge because it directly relates and proves up good faith, or not, as the case may be.

It is right that s 74B is narrower than the defence of change of position in Lipkin Gorman v Karpnale. However, it is wrong in principle to try and give s 74B a wide meaning as Henry J attempted to do. It is not necessary to interpret s 74B any wider than it is actually written.

The Bank made a mistake and paid the money away. That was the sum total of what it did. The payment by itself did not cause or contribute in any way to the loss. If that is not right, then, per se, any payment away by mistake is a contributing factor because every time it puts the money in the hands of a payee who can then do what they like with it. Payment by mistake would then be a redundant cause of action.

Relative fault erodes the very purpose of a cause of action in mistake as prescribed in Kelly v Solari.

As the Privy Council said in Dextra, the gate keeper element is good faith.95 If the money was received in good faith, then the prerequisite for

  1. Dextra Bank Trust Co Ltd v Bank of Jamaica, above n 5 at [45].

The Difficulty with a Concept of Relative Fault in Restitution 167

the defence has been met, and change of position is open as a defence if available on the facts.

Any argument that restitution should engage in an exercise of comparative fault is acceptable because the law does it in other areas, such as negligence, fails to recognize that the event of a mistake invariably occurs within a narrow band of elements. By comparison negligence per se is a much wider legal concept.

When the Bank paid the money away by mistake it insisted it was right. Doing that is part of the human condition. We make mistakes but insist we are right. That does not make the mistake worse, or alter the kind of mistake made. As soon as you start looking at fault, or the reason for the mistake, a court engages in the impossible task of grading mistakes.

Uncertainty with relative fault is a longstanding problem. Justice Martland, commenting on unjust enrichment, said guidelines were needed; he said how – “is a judge to determine what constitutes unjust enrichment? The only test would be his individual perception of what he considered to be unjust.” He said it could end up being an exercise in “palm tree justice”.96

  1. Pettkus v Becker [1980] 2 SCR 834 at 859.

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