Change of position and restitution for wrongs: 'ne'er the twain shall meet'?

• Jurisdiction: Australia
• Author: Walker, Paul A.
• Date: 01 April 2009

[Since its inception into Australian law less than two decades ago, change of position has become firmly established as the most important defence to a claim for restitution based on the concept of unjust enrichment. A lingering uncertainty, however, is the extent to which the defence can apply where restitution is claimed as a remedy for civil wrongs, such as conversion or breach of fiduciary duty. The author examines the nature and rationale of change of position and the policy behind restitutionary claims for conversion and breach of fiduciary duty, and argues that change of position should be applicable in these situations, provided the defendant has acted in good faith at all relevant times.]

CONTENTS I Introduction II Taxonomy and Essential Concepts III The Nature of Change of Position A Lord Goff's Dictum 1 The Nature of Wrongdoing 2 The Wider Effect of Lord Goff's Dictum B The Rationale of Change of Position 1 Disenrichment 2 Security of Receipts 3 Inequitability C The Merits of a Broad Defence IV Change of Position and Strict Liability Wrongs A Change of Position and Remedial Compatibility B The Tort of Conversion 1 The Rationale of Conversion 2 Restitutionary Remedies for Conversion 3 The Irrelevance of a Corresponding Loss 4 Judicial Support for a Relaxation of Strict Liability 5 Conclusions C Breach of Fiduciary Duty 1 The Nature of Strict Liability in Equity 2 Disgorgement of Profits 3 Restitutionary Damages 4 Conclusions V Conclusion INTRODUCTION

The law of unjust enrichment postulates that a person who is unjustly enriched at the expense of another must make restitution of that enrichment. (1) In the early 1990s, the highest courts in England and Australia recognised that a defendant was excused from making restitution where the defendant could establish a change of position defence. (2) Change of position appears to be a viable defence to any claim for restitution based on unjust enrichment, (3) but the relevance of the defence to other restitutionary claims remains undetermined. (4) This uncertainty is troublesome because Anglo-Australian law seems to have always awarded restitution for reasons other than the reversal of unjust enrichment, such as in response to certain civil wrongs. (5) The applicability of change of position to these restitutionary claims ('restitution for wrongs') is perhaps the greatest remaining ambiguity concerning the defence. This issue has never been comprehensively evaluated, and academic opinion is fleeting and divided on how to address it. (6) Its resolution, however, is potentially of great significance to our understanding of change of position and the defence's relatively untapped potential to do practical justice between plaintiff and defendant in any number of situations.

This article does not intend to examine the precise elements of the change of position defence in any detail, preferring instead to focus on whether the defence can and should be extended to restitutionary claims based on wrongdoing. Nevertheless, a general understanding of the nature of the defence is worthwhile. In Australia, it appears that change of position is established when a defendant, acting in good faith, (7) irreversibly changes their position in reliance on the receipt of a benefit. (8) There is some suggestion that the English defence is wider, in that there may not be a strict requirement that the change of position occur in reliance on the receipt. (9) For present purposes, this article proposes to deal only with the Australian version of the defence, drawing on English authority where appropriate. Issues as to the scope of the English conception of change of position and the bearing this may have on its extension beyond unjust enrichment in English law are likely to require specific consideration, which is not possible in this article. It may be, however, that if a case can be made as to why the narrower Australian conception of change of position should apply beyond unjust enrichment claims, any wider conception of the defence would also be suitably accommodated.

The nature of change of position is best explained by an example. Suppose A mistakenly pays B $30 000 and B, having no reason to doubt their entitlement, spends $25 000 of it on an overseas holiday. When A realises the mistake and brings an action in unjust enrichment, B may object, arguing that they changed their position by spending the money, that the change cannot now be reversed, that they believed in good faith that they had title to the money, and that they acted in reliance on its receipt. Due to the change in position, B must only restore the extant money. The defence is therefore tied to the defendant's gain and is intrinsically linked to restitution, the gain-based remedy. (10) This particular example arises in the context of unjust enrichment but, where analogous facts occur in the area of restitution for wrongs, change of position should also be applied to reduce the defendant's liability.

This article argues that there is an intrinsic link between change of position and restitution which transcends any taxonomical demarcation between wrongs and unjust enrichment. The mere fact that restitution is claimed as a remedy, regardless of whether this claim is based on unjust enrichment or wrongdoing, is sufficient to warrant the availability of a change of position defence where the elements of the defence can be satisfied. Change of position should, therefore, be applicable to claims of restitution for wrongs where the defendant has changed position bona fide in reliance on a benefit obtained by a wrong (that is, the defendant is an 'innocent wrongdoer'). It will also be shown that the defence has an important role to play in tempering a strict liability approach to certain civil wrongs. (11)

Part II examines the theoretical framework underpinning this analysis of change of position and restitution for wrongs. It briefly sets out the taxonomy and nature of unjust enrichment and restitution. Part III analyses the character and potential scope of the defence in light of its rationale and theoretical basis. It is contended that not only is change of position readily applicable beyond unjust enrichment, but that the merits are broadly in favour of this move. Finally, Part IV applies change of position to the wrongs of conversion and breach of fiduciary duty and argues that strict liability to make restitution for these wrongs should be abandoned in favour of an approach tempered by change of position.

It is concluded that change of position addresses a universal concern in relation to restitutionary remedies, namely, how much gain a defendant should be required to give up. This issue cannot logically be confined to unjust enrichment. As a result, change of position should be extended to restitution for wrongs where the interests of practical justice require it, specifically where the defendant is an innocent wrongdoer.

II TAXONOMY AND ESSENTIAL CONCEPTS

One cannot assess the scope of change of position without appreciating the theoretical framework of unjust enrichment and restitution. When this article refers to unjust enrichment, it denotes a concept which unifies a category of private law obligations running parallel to contract and tort. (12) Unjust enrichment encompasses a number of legally significant events for which only the remedy of restitution is available. (13) The unjust enrichment inquiry, which requires proof that a defendant was unjustly enriched at the plaintiff's expense, explains the operation of these legal events. (14) When this is proven, the defendant must make restitution. (15) Unjust enrichment, however, is arguably not the only event that gives rise to a restitutionary response. (16)

Peter Birks's taxonomy of private law describes a range of legal events that can give rise to restitution. (17) This article is concerned with restitution as a remedial response to civil wrongs. What constitutes a wrong is not settled, but two common indicia are that the conduct constitutes a breach of duty and that damages are potentially available as an alternative remedy to restitution. (18) This article specifically considers two wrongs: conversion and breach of fiduciary duty. (19)

To reiterate: restitution is always a remedial response to unjust enrichment, and potentially also to other legal events. One fundamental truth is revealed by a comparison with compensation: compensation reverses the plaintiff's loss from an event, (20) whereas restitution undoes the defendant's gain. (21) There is disagreement, however, as to how narrowly this gain-based response should be defined. Restitution may be a giving up of something (22) or merely a giving back of something. (23) One can confine restitution to a giving back, namely, giving back transfers of value made at the plaintiff's expense. (24) So, for instance, if A mistakenly pays B $400, assuming no defences apply, B must restore the $400 to A (that is, the transfer of value). In this example there is a corresponding detriment to A; (25) however, this does not seem essential. (26) Unjust enrichment only ever leads to restitution in this giving back sense, but other legal events arguably also result in restitution, both in this sense and others.

Some scholars contend that where there is no transfer of value, restitution does not follow. (27) So, an account of profits for breach of fiduciary duty is not restitutionary because there is no transfer of value from the plaintiff to the defendant; it is a giving up, but not a giving back. Although the defendant makes a gain, it accrues from the breach of duty, not from a transfer of value at the plaintiff's expense. The defendant's obligation to account is said to be based on deterrence rather than reversing transfers of value. (28) This remedy is often termed disgorgement. (29)

While this approach has merit, (30) many commentators appear to support a restitutionary view of disgorgement, (31) and...