Modern Relationship Between Common Law and Equity: A Report

This report examines the contemporary relationship between common law and equity, particularly focusing on the change of position defense in cases of unjust enrichment. It analyzes a case involving a finance company defrauded by a client, exploring the recovery of payments made to suppliers who received funds based on fraudulent invoices. The report discusses the essential elements of unjust enrichment, the change of position defense, and its application in various scenarios, including the significance of detrimental reliance. It contrasts the approaches of the English and Australian courts, referencing key cases like Lipkin Gorman and David Securities, and highlights doctrinal uncertainties and the need for reform in the Australian context. The analysis covers the interplay of legal principles, the impact of good faith, and the implications of change of position on the restitution process. The report concludes by emphasizing the need for a clear and consistent legal framework to address the complexities of the change of position defense.

Discuss the contemporary nature of the relationship between common law and
equity.
The issue in this case was related with the determination as to which entity was required to bear
the cost of a fraud. The brief facts of this case are that the finance company has rented out
purchased equipment to its clients.1 One of the clients was a fraudster and he entered into the
rental agreement with the finance company regarding the equipment that was never in existence.
The fraudster provided the finance company with fraudulent invoices, regarding the payments
made to different suppliers to whom the fraudster owed money and the finance company wanted
the return of payments that have been made by a mistake to these suppliers. However, the
suppliers refused to refund the money. Therefore, regarding the claim for unjust enrichment, it
was mentioned by the court that the three elements that are essential for the claimant to be
established in a claim for unjust enrichment:
 That a benefit should be received by the defendant (in this case,, money was received by
the suppliers);
 That in the legal sense, the benefit should be unjust (it was unconscionable on the part of
the suppliers to retain the money that has been paid on account of mistake of a genuine
invoice or fraud committed by a third party);
 That the benefit should have been made at the expense of the plaintiff (the finance
company did not obtained property in any equipment and therefore it was not able to
recover all the money from other parties).
In this case, the finance company was successful against the first and the third supplier. However
it could not succeed against the second supplier, who has successfully argued its change of
1 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512

position defense. On the other hand, it was argued by the first supplier that an injustice would be
suffered by him if he was required to be paid the money because he had changed his position by
forgoing the opportunity to take recovery actions against the fraudster. However, this argument
was dismissed by the court as being too speculative, because the recovery was considered to be
unlikely in view of the precarious financial position of the fraudster.
It was also argued by the second supplier that a change of position defense was available to act
on account of the fact that its judgment debts have been extinguished as a result of consent
orders when the money was received and this was irreversible because now the debris was not
possible on account of the financial position of the fraudster. The defense was successful in the
court because the second supplier was successful in showing real determinant on account of
extinguishment of its claim to the property of fraudster by relying on the payments received, so
that it will be unjust to require repayment.2 The court rejected the change of position defense
claimed by the third supplier, because it has suffered only disappointment of expectation instead
of a real detriment. It was stated that, "it is the real detriment instead of disappointment that is
required to make this successful change of position defense". But the court discovered that the
finance company has received certain benefits (a payment and import tax credit) that need to be
deducted on the amount that was going to be paid by the first and third suppliers.
It was alternatively claimed by the finance company that repayment should be made on account
of knowingly receiving trust property. However, the court stated that liability needs that the
recipient should be aware of it while receiving the property that it was trust property and that it
was being misapplied.3 Therefore in this context, knowledge can be actual knowledge, willful
2 Kit Barker and Ross Grantham, Unjust Enrichment (LexisNexis Butterworths, 1st ed., 2008)
3 Elise Bant, The Change of Position Defence (Hart Publishing, 1st ed., 2009).

and reckless failure to make the inquiries that would have been made by any honest and
reasonable person, willfully shifting eyes to the obvious, knowledge regarding circumstances
that indicate the facts to any reasonable and honest person and the knowledge of circumstances
that would have, would any reasonable and honest person on inquiry.
In this context, it was discovered by the court that the suppliers did not have knowledge
(evidence had been given that it was not unusual to receive payments from third-party finance
companies) and as a result, the claims failed.
Change of position defense: under the law of restitution, any payment is allowed that causes a
person to become enriched, to be detained, provided no ground is present for rendering the
retention of the payment unjust. On the other hand, there it would be unjust to retain the
payment; a defendant is required to make restitution of such enrichment. Such defendant can
resist the repayment Begin established the change of position defense. Although the level of
conceptual disagreement related with the operation of the defense makes it difficult to provide a
simple definition, it has been suggested by the experts that a valid defense constitutes the
following essential elements:
An amount of money is paid by the claimant to the defendant and the spontaneous mistake; and
The claimant pursue its personal rights to restitution for recovering the pavement; whereas
The defendant, while being in good faith and are relying on the security of the receipt of
payment, has changed its position by applying the payment to its benefit.

The basis of this defense: An early hint regarding the change of position defense can be found in
the 18th century case of Moses v MacFarlan.4 It was stated by the House of Lords that a person
who is resisting restitutionary claim as their defense available to him by everything that the
claimant ex aequo et bono (from equity and conscience) is not allowed by the law, to demand.
However, despite this statement, the House of Lords expressly mentioned against the presence of
an explicit change of position defense in 1913. In Baylis v Bishop of London,5 it was stated by
Hamilton LJ that a transparent legal system do not allow the resistance of a play on account of
vague, discretionary and unprincipled justice. The result was that this case will be a hurdle in the
legitimacy of the defense under English law. However in the significant case of Lipkin
Gorman,6 the prohibition imposed in Baylis was overruled by the House of Lords. Therefore it
can be considered as the modern starting point for examining the primary elements of change of
position defense.7 In Lipkin Gorman, the reasoning adopted by Lord Goff provides that the
defenses available to persons who has changed its position to such an extent that it would be in
equitable under the circumstances to ask the person to make restitution or alternative lead to
make restitution in whole.
It needs to be noted that in Lipkin Gorman, the key element in case of the change of position
difference was inequitablity due to which the court had to look at the equities of the situation of
the defendant and as a result. The ability of the defendant to make restitution to the claimant on
case to case basis. However this situation can be compared with the Australian formulation
mentioned in David Securities8, where the High Court had identified the following character as
being significant for the Australian change of position defense that the defendant should have
4 Moses v Macferlan (1760) 2 Burr. 1005
5 Baylis v Bishop of London [1913] 1 Ch. 12
6 Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 A. C. 548
7 Peter Birks, Unjust Enrichment (Clarendon Press, 2nd ed., 2005)
8 David Securities v Commonwealth Bank of Australia (1992) 127 CLR 353.

acted to his or her detriment by relying on the receipt. Even if, it has been argued that both in
Lipkin Gorman and David Securities, a unified defense has been envisaged these cases instead of
what is now generally considered as branches of analytically distinct reasoning, namely the
broad and narrow approach a change of position defense.9
Contemporary Approach adopted in Australia: The difference present in the broad approach
adopted in Lipkin Gorman and the narrow approach adopted in David Securities has been
recognized with differing emphasis. As mentioned above the narrow reliance version of the
change of position defense has been adopted by the law in Australia as a result of the decision
given in David Securities, a case focusing on detrimental reliance being the cornerstone of this
defense. However it is submitted that the imprecision in subsequent reception and application of
the defense has inadvertently resulted in broadening the nano version due to which Edelman J
has written academically that there is a lingering uncertainty regarding the basic principles of the
narrow defense.10 However, such uncertainty in the documents clearly undesirable and the fault
is two fold. First of all, it is present in the divergence of academic opinion related with unjust
enrichment law. That is particularly related with the blurred line present in broad and narrow
defenses, containing the ideas like "rigidly exclusive as they are forceful". However, it is also
significant to note that there appears to be an academic conflict related with the limits of the
broad and narrow conceptions that has built into the application of narrow principles by the
Australian judiciary. This means that the state of law as declared in somewhat chaotic.
In ANZ Westpac,11 a case before David Securities, the High Court of Australia had revealed its
willingness to recognize the change of position defense. It referred to the defense that it was
9 Andrew, Burrows, ‘Change of Position: The View from England’ (2003) 36 Loyola of Los Angeles Law Review
803
10 James, Edelman, ‘Change of Position: A Defence of Unjust Disenrichment’ (2012) 92 Boston University Law
Review 1009
11 Australia & New Zealand Banking Group v Westpac Banking Corporation (1988) 164 CLR 673

acceptable to have an adverse change of position by the recipient in good faith and by relying on
the pavement, which is recognized by the law to make restitution unjust.12 It is clear that the
body, but this approach, the narrow reliance test that was later on followed by the court in David
Securities has been foreshadowed.
It can be stated in the end that the Australian conception of change opposition defense has
received extensive but confuse examination under the common law. However this has proved to
be a mixed blessing for practitioners as well as academics. The High Court of Australia had
advanced detrimental reliance as the main element of change of position defense in David
Securities. This situation reveals the acceptance of the narrow branch of the defense by Australia
as compared to the broad approach adopted in Lipkin Gorman. However, the treatment of narrow
defense by an indecisive High Court and the unconsidered application of significant legal
analysis has resulted in the slow broadening of the narrow defense that has certain unwelcome
elements present in the inequitable analysis of the broad difference.. Under this trend, the need is
for decisive correction. Therefore the need is to draw on the form and not on the substance of the
present restatement models as Australia is required to draft clear and bad among restatement
framework so that the confusion in this regard can be ended. As the concession made by Lord
Goff in Lipkin Gorman that the English law and followed behind the other legal systems in the
field of unjust enrichment is now for Australia to accept that its position is also equally
untenable, and it is the time to introduce reforms related with the change opposition defense that
have been long overdue.13
12 James Gouldkamp and Charles Mitchell, ‘Denials and Defences in the Law of Unjust Enrichment’ in Charles
Mitchell and William Swadling (eds) The Restatement Third: Restitution and Unjust Enrichment Critical and
Comparative Essays (Hart Publishing, 2013)
13 Ben, Kremer, ‘Book Review: Restatement (Third) of Restitution and Unjust Enrichment by the American Law
Institute’ (2012) 35 Melbourne University Law Review 1197

It is revealed by the above mentioned discussion that there are significant doctrinal uncertainties
present in the current state of law in Australia. It has also been established that this ambiguity has
allowed the slow broadening of the narrow starting point that was adopted by Australia regarding
the change of position defense in David Securities. Although it is not possible to completely
reverse the nature of the response that is required for rectifying the doctrinal issues, but they
were certainly advances the argument that there is a strong need for reviewing the law related
with the change of position defense.

Bibliography
Australia & New Zealand Banking Group v Westpac Banking Corporation (1988) 164 CLR 673
Bant, Elise, The Change of Position Defence (Hart Publishing, 1st ed., 2009).
Barker, Kit and Ross Grantham, Unjust Enrichment (LexisNexis Butterworths, 1st ed., 2008)
Birks, Peter, Unjust Enrichment (Clarendon Press, 2nd ed., 2005)
Burrows, Andrew, ‘Change of Position: The View from England’ (2003) 36 Loyola of Los
Angeles Law Review 803
David Securities v Commonwealth Bank of Australia (1992) 127 CLR 353.
Edelman, James, ‘Change of Position: A Defence of Unjust Disenrichment’ (2012) 92 Boston
University Law Review 1009
Gouldkamp, James and Mitchell, Charles, ‘Denials and Defences in the Law of Unjust
Enrichment’ in Charles Mitchell and William Swadling (eds) The Restatement Third: Restitution
and Unjust Enrichment Critical and Comparative Essays (Hart Publishing, 2013)
Kremer, Ben, ‘Book Review: Restatement (Third) of Restitution and Unjust Enrichment by the
American Law Institute’ (2012) 35 Melbourne University Law Review 1197
Case Law
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512
Baylis v Bishop of London [1913] 1 Ch. 12
Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 A. C. 548
Moses v Macferlan (1760) 2 Burr. 1005