Valuable consideration, bona fide purchase, discharge of debt and change of position
80Each of the above phrases, at varying degrees of generality, is apt to encompass one aspect of what has been recognised to be a defence. Whether they should be separated and what each covers need not be the subject of theoretical analysis in any detail, though, to a degree, it is a relevant matter to consider. Bona fide purchase is more easily recognised in bilateral or two-party circumstances where questions of title to property intrude. Consideration or good consideration is more easily recognised in an exchange relationship, whether contractual or not, in which some sense of transactional bargain can be perceived. Discharge of debt may focus on the existence or not of the extinguishment of rights against a party. Some (such as the authors of the latest (8th) edition of Goff & Jones, The Law of Unjust Enrichment (Sweet & Maxwell, 2011) at 721-722 [29-19]-[29-22]) would prefer to see good consideration or bona fide purchase not treated as a distinct defence or distinct defences, but as reflective of more thematic principles: as part of the facts that would deny the unjustness of the enrichment, or, as an aspect of the defence of change of position, or as part of a bona fide purchaser defence.
81The defences of good consideration and change of position were seen as separate in Lipkin Gorman. The expression of principle of Goff J in Barclays Bank at 695 has been either directly utilised or approved by the High Court in David Securities, by the Court of Appeal in Lloyds Bank Plc v Independent Insurance Co Ltd [2000] QB 110 at 125-127, by the Hong Kong Court of Final Appeal in Takahashi v Shu at [37]-[41] and by the Supreme Court of Canada in BMP Global Distribution Inc v Bank of Nova Scotia [2009] SCC 15; [2009] 1 SCR 504 at [21]-[22].
82One particular question for consideration here is the importance of the phrase "to discharge" in (2)(b) of Goff J's statement of principle in Barclays Bank: "if the money is paid to discharge, and does discharge, a debt owed to the payee ... by a third party by whom he is authorised to discharge the debt". The relevance of the question for present purposes is revealed by the facts here. AFSL did not, either subjectively or objectively (it is unnecessary to decide which basis should govern), intend to discharge any debt of TCP or Mr Skarzynski. AFSL paid the money to buy goods it thought to exist to discharge what it thought (mistakenly) to be its debt by way of purchase price to Hills or Bosch. But as between Hills or Bosch and the TCP company, they (Hills and TCP or Bosch and TCP) intended to discharge existing debts. I do not say here "did discharge" for the purposes of principle (2)(b) in Barclays Bank; but I will examine this later.
83The significance of the question was adverted to by Lord Goff in Lipkin Gorman at 580-581 when comparing "bona fide purchase" with "change of position". The former may be invoked without enquiry (in most cases, his Lordship said) into the adequacy of the consideration. Thus, here, if (2)(b) applies because the debt of the relevant TCP company has been discharged, no enquiry will be made as to the worth of the debt that was discharged - that is whether the TCP company was ever likely to be in a position to repay it at any relevant time or, put another way, whether its position was materially changed. The difference can be seen to be rooted in different underlying legal policies to which it will be necessary to refer in some more detail later: transactional security in exchanges in respect of consideration and the remedying of injustice in change of position.
84It is tolerably clear that in circumstances where the payer intends that the third party's debt to the payee be discharged, and the third party authorised the payment and discharge, and discharge has occurred, the payer cannot recover from the payee: Aiken v Short (1856) 1 H & N 210; 156 ER 1180; Barclays Bank at 695; and Porter v Latec Finance (Qld) Pty Ltd [1964] HCA 49; 111 CLR 177; Restatement of the Law: Restitution, Quasi-Contracts and Constructive Trusts (American Law Institute, 1937) sec 14(1) and comments thereon (by Professors Seavey and Scott) at 55-59; Palmer, The Law of Restitution (Little Brown, 1978) Vol III sec 16.5-16.6 at 480-505 and the 2000 Cumulative Supplement at 629-638; and Restatement of the Law Third: Restitution and Unjust Enrichment (American Law Institute, 2011) sec 67 and comments thereon (by Professor Kull) at 561-564 and 578-579.
85Aiken v Short was discussed by Goff J in Barclays Bank at 687-688. The plaintiffs paid money to the defendant payee in discharge of a debt which one Carter had incurred to the defendant. The plaintiffs did so to secure the removal of an equitable mortgage on the property of Carter (an inheritance it was thought he had) held by the defendant/payee. When the lack of inheritance in Carter was discovered the plaintiffs sought recovery from the payee. The case is also important as to the nature of the relevant mistake, which it is unnecessary to discuss here. The precise bases of decision of Pollock CB, Platt B and Bramwell B (Martin B being present at the argument but absent when judgment was given) are less than clear. I do not repeat what Goff J said in Barclays Bank at 687-688 about the analysis of the reasons in Aiken v Short. One can see in the passages quoted by Goff J from the reasons of both Pollock CB and Platt B (set out in Barclays Bank at 688) the seeds of the distinction discussed in Porter v Latec: whether it is a payment by the payer to the debtor who pays the creditor/payee, or whether it is a payment by the payer to the creditor/payee with the debtor's authority. In the former case, the lack of remedy in the payer against the creditor is clearer - the payer can be viewed as not having paid the creditor, but as having paid the debtor, who then paid the creditor. This distinction was important for the reasoning of some of the justices in Porter v Latec.
86Before turning to Porter v Latec, it is helpful to bear in mind the fact that we are not concerned with title to chattels where the principle of nemo dat quod non habet will or may govern to lessen the effect of notions of bona fide purchase or consideration. Nor are we dealing with tracing in equity, where the notion of bona fide purchase for value without notice would take its place in an analysis of property rights. The subject here is cash or its equivalent by electronic funds transfer. There was no argument but that Hills and Bosch, as payees, obtained title to the moneys they received. The claims against them by AFSL are personal, and not dependent on any analysis of title or its defeasance.
87In Porter v Latec one LH Gill perpetrated a fraud on Porter and Latec of a kind that was simple (and for a time effective) and that is reflected in the facts of similar frauds in other places (to which I will later refer). LH Gill fraudulently impersonated HH Gill, the registered proprietor of certain land, and obtained £1,500 from Porter, part of which was paid to an existing mortgagee bank to obtain a discharge of mortgage. LH Gill forged the signature of HH Gill on a document purporting to be a bill of mortgage in favour of Porter. Later, again impersonating HH Gill, LH Gill requested Latec to lend him £3,000, again forging HH Gill's signature on the loan application and second purported bill of mortgage. The £3,000 was received by Latec's solicitors to pay, in accordance with the written authority of LH Gill (forged as HH Gill), to Porter £1,592 2s 10d and to LH Gill the balance (thinking him to be HH Gill). The money owing to Porter was given to him by the solicitors in exchange for the certificate of title and bill of mortgage held by him. The Full Court of the Supreme Court of Queensland on a stated case ordered Porter to refund the £1,592 2s 10d to Latec. It reasoned that the payment to Porter was by Latec, not LH Gill, the authority to the solicitors having been forged; and the payment was made under a mistake of fact. The High Court, by majority (Barwick CJ, Taylor and Owen JJ, over the dissent of Kitto and Windeyer JJ) reversed the Full Court.
88The ratio of the decision of Barwick CJ was that the payment to Porter was by or on behalf of the rogue LH Gill, not Latec (it having lent him £3,000). As Barwick CJ said at 185: "The question ... is not whose money was it that was used for the payment, but on whose behalf the money was paid." The answer to this was the same as that given by Pollock CB in Aiken v Short - the amount paid, undoubtedly out of the payer's funds, was paid because its borrowing client had referred the payee/encumbrancee to it for payment. The payer was paying as agent for the debtor. Barwick CJ disagreed with the Full Court's distinguishing of Aiken v Short on the ground that in that case, unlike here, there was a real underlying debt owed to the payee. Barwick CJ said that there was a claim against LH Gill by Porter for the amount he had borrowed even though LH Gill had acted fraudulently. Payment to him with the (albeit fraudulent) authority of LH Gill (to Latec and its solicitors) extinguished Porter's claim against LH Gill, and procured the release of the forged security.
89By way of obiter dicta, Barwick CJ at 186-187 reasoned that even if the payment is to be seen as having been made on behalf of Latec it was not recoverable. The first reason for this conclusion was a matter of convenience (and prudence) only, namely that it paid itself rather than through its borrower. Thus it paid its borrower's debt believing it would be able to recover from him. This was a payment to which the identity of the borrower (being the relevant mistake) was not fundamental, though it "would be a motivating fact". This distinction need not be discussed. The second reason for this conclusion was that Latec obtained by the payment what it sought to obtain, as did the payer in Aiken v Short, though what it got was not of the significance that it thought. From what appears at 187, the central consideration in this part of Barwick CJ's reasoning was the lack of the fundamental character of the mistake, not the notion of payment for good consideration.
90Taylor J at 198-199 decided the matter on the basis that the moneys were paid for and on behalf of the borrower LH Gill, thus giving no "title to relief" to Latec. His Honour found it thus unnecessary to consider whether the matters of mistake were fundamental to the transaction.
91Owen J likewise (at 208-209) decided the case on the basis that it was a payment made on behalf of the payer's debtor, LH Gill.
92Thus, the majority's reasons in Porter v Latec can be seen to be consistent with, but not in terms to dictate, the expression of principle by Goff J in paragraph (2)(b) in Barclays Bank at 695. Porter v Latec was a case where the intention (objective and subjective) of the "payer" was to discharge the debt owed the payee. This was clear as the debt was known and the payment was made directed to its discharge on behalf of the debtor, albeit out of moneys of the "payer".
93In dissent, Kitto J reasoned that Latec's mistakes were fundamental: that the property was subject to the burden of the securities entered on the register, that Porter had the authority of the owner to free the property from that burden and that repayment by the person who was the registered proprietor would be secured by a first mortgage of the land and a bill of sale of the chattels. The voidness of Porter's security (that was being released) and of the letter of authority apparently from the owner of the property to pay off the securities went to "the very foundation of the payment" and "spell[ed] the complete frustration of the purpose which the payment was intended to effectuate" (189). The defence of discharge was dealt with by refusing any operation to it for a payment to discharge the apparent debt of HH Gill when there was no such debt, nor a debt by loan to LH Gill, albeit that LH Gill was liable for his false pretences. Kitto J was of the view that no contract of loan ever came into existence between Porter and LH Gill. Kitto J distinguished Aiken v Short on the basis that there the mistake had not been fundamental and the debt intended to be discharged did exist.
94Kitto J, at 191-192, also expressed the matter from Aiken v Short that conforms entirely with principle (2)(b) in Barclays Bank in a way that is apposite here:
"Aiken v. Short would support a proposition that a payment of money by A. to B. on behalf of C., made with C.'s authority either antecedently given or created retrospectively by ratification, amounts to two payments, one by A. to C. and the other by C. to B.; so that even though A. made the payment under a mistake of fact he cannot recover it back from B., because the money was received by B. not as A.'s money but as C.'s money. But, where C. has neither authorized the payment beforehand nor made it his own by ratification, it is impossible to say that the money is received by C. otherwise than as A.'s and, that being so, the recoverability of the money by A. on the ground of mistake of fact must depend only upon the question whether it was fundamental to the payment by A. that a fact should have existed which A. believed to exist but which in truth did not exist." (footnotes omitted)
(The last reference to "C" in that passage should, I think, be to "B".) The proposition did not permit Porter's defence because here, Kitto J said, C was HH Gill, not the rogue, LH Gill. In any event, on the facts, Kitto J did not consider the payment to have been made on behalf of LH Gill.
95Also in dissent, Windeyer J, like Kitto J, saw the fraudulent impersonation as crucial. There were no contracts of loan; both were void for mistake. Porter's claims, at the time of his lending, were against LH Gill for moneys had and received or for damages for fraud and a charge by way of equitable lien against HH Gill's land equivalent to the amount paid off under the existing bank mortgage. Windeyer J was of the view that Porter was paid by Latec, not on behalf of LH Gill, nor HH Gill.
96Porter v Latec does not dictate the result of this appeal. What was said about the character of the relevant mistake must now be understood as overtaken by David Securities at 376-377, 395-396 and 402 and the notion of causative mistake. The payment by AFSL was not on behalf of any TCP company; it was not made to discharge any debt of AFSL actually owed (of which there was none) or of a TCP company actually owed (of which there were some). Kitto J's analysis of the principle reducible from Aiken v Short conforms with Goff J's expression of principle in Barclays Bank.
97The nature of the fraud in Porter v Latec was not original. A rogue telling lies (and possibly different lies) to more than one lender in succession occurs from time to time. The responses of courts has often reflected the division in Porter v Latec. In Walker v Conant 69 Mich 321; 37 NW 292 (1888) the Supreme Court of Michigan (by majority) denied a claim of a second lender who, being prepared to lend to one V and desiring to take what he thought to be a first mortgage from a first lender to V (which mortgage was forged), paid out of the loan funds to V enough to pay off the first lender. The majority expressed the matter in terms of receipt in good faith, in the ordinary course of business and for good consideration. The latter could only have been the discharge of the debt that was intended to be discharged. The majority called in aid the policy of certainty of receipts; the minority emphasised the lack of substantive change of position of the payee.
98In Strauss v Hensey 9 App DC 541 (1896) the Court of Appeals of the District of Columbia, faced with a similar fraud, permitted recovery by the second defrauded lender from the first whom he had paid out. The fraud involved impersonation of a man of substance. The payment for a void note of security was held to be no consideration or value and there was no change of position of the payee.
99Likewise in Grand Lodge of the Ancient Order of United Workmen of the State of Minnesota v Towne 136 Minn 72; 161 NW 403 (1917) the Supreme Court of Minnesota permitted recovery by the second lender obtaining the forged security by paying out the first lender; the analysis, as in Strauss v Hensey, was that there was no valuable consideration and no change of position.
100An important decision in the United States is Gaffner v American Finance Co 120 Wash 76; 206 P 916 (1922) of the Supreme Court of Washington. The facts were somewhat different. The thief stole a motor car; mortgaged the car by a note that was signed by him; and then purported to sell the car to an innocent purchaser. There was a loan to the thief, Hughes, though the mortgage was invalid. The purchaser paid the lender to discharge a real debt. There was therefore, it was held, consideration, although the security released was not valid. The point of distinction for the Court of the cases where the later payer had recovered from the earlier paid out creditor, such as Grand Lodge and Strauss v Hensey, is not clear but appears to have been on the basis that the debt discharged here was real and not made by reason of the impersonation of the identity or forgery of the signature of the person thought to be the borrower, such that both the debt and security were tainted with fraud. Here, there was no mistake as to the indebtedness that was paid.
101Another influential American decision is that of the Supreme Judicial Court of Massachusetts in National Shawmut Bank of Boston v Fidelity Mutual Life Insurance Co 318 Mass 142; 61 NE 2d 18 (1945). A dishonest insurance broker forged the insured's signature to obtain a loan from the insurance company on the security of the insured's life policy. Later, by another forgery, a loan was obtained from a bank which took the policy as security, paying out the insurance company. The Court, having referred to Gaffner and like cases, accepted that as a general principle "[o]ne receiving money or negotiable securities in payment of, or as security for, an existing debt, is not bound to enquire where the money or securities were obtained" (147; 21); and further said that "[i]t has often been decided in this commonwealth that a pre-existing debt is a valuable consideration for a payment made, or a security given, on account of it" (147; 21). The cases cited for this last proposition included two earlier decisions of the Supreme Judicial Court of Massachusetts: Spaulding v Kendrick 172 Mass 71; 51 NE 453 (1898) and Smith v Knapp 297 Mass 466; 9 NE 2d 399 (1937); and one of the Court of Appeals of Kentucky: Union Central Life Insurance Co v Glasscock 270 Ky 750; 110 SW 2d 681 (1937). Nevertheless, in Shawmut the bank recovered because the insurance company was held to have no valid claim against its supposed debtor, the insured. Rather, it only had a claim in fraud against the agent in respect of which claim the money was not paid. Further, there was no injurious change of position: no rights were lost against the agent; the claim against him for fraud was maintainable.
102It is helpful to examine the cases cited in Shawmut as to consideration. In Spaulding, one Hobbs misappropriated $5,000 of a bank's money. The money was transferred to Kendrick who was a surety of Hobbs. Receiving it in good faith as security for a larger sum, Kendrick forbore to prosecute his petition for relief as a surety on the bond in question. The principle expressed by Knowlton J on behalf of the Court (at 72; 454) in rejecting the claim against him was as follows:
"If a thief gives stolen money, or negotiable securities before their maturity, in payment of his debt, or as security for it, to one who in good faith receives the money or securities as belonging to him, the creditor can hold the property as against the true owner. As between the payor and the payee there is no mistake which affects the validity of the transaction. One receiving money or negotiable securities in payment of, or as security for, an existing debt, is not bound to inquire where the money or securities were obtained."
Though dealing with title to stolen funds (not being the case here where there was no question but that Hills and Bosch received title to the funds, albeit mistakenly thinking it was Mr Skarzynski's to direct application of) the case is clear authority for the operation of a good faith consideration defence.
103Smith v Knapp was also a case framed by reference to the tracing of property. One Helen Tripp fraudulently induced the plaintiff to give her $2,000 to invest for the plaintiff in securities. The defendant and Ms Tripp had lived together as friends, sharing living expenses, Ms Tripp paying board without any amount being fixed. The defendant had a mortgage over the premises. On occasions, Ms Tripp paid the mortgage instalments as a contribution to the living expenses account between her and the defendant. During the period 1927 to 1932 Ms Tripp fell well behind in contributions to common expenses. In 1931 the mortgage was in arrears. Ms Tripp made up a story to the defendant about coming into an inheritance. The defendant did not know the plaintiff. The $2,000 turned over to Ms Tripp by the plaintiff was to invest on the latter's behalf. Ms Tripp used $1,400 to pay off the defendant's mortgage which was discharged. On the defendant hearing of the fraud (she being found innocent of any complicity) members of her family made restitution to the plaintiff in the sum of $1,250. The Supreme Court (per the Chief Justice) found (at 469; 401) that it was to be inferred that there was an implied contractual obligation of Ms Tripp to pay for her living expenses, and that there was at least as much owing to the defendant under this obligation as was used by Ms Tripp to discharge the mortgage. This pre-existing debt (and its discharge by the payment of the mortgage) was enough to make the defendant a purchaser for value of the discharge of mortgage. This conclusion was founded on the discharge of Ms Tripp's debt to the defendant. It was necessary for the defendant to ratify and adopt the payment made to the bank on her behalf and this was done. Rugg CJ concluded at (470-471; 401):
"The payment of the mortgage by Miss Tripp, subsequently accepted and ratified by the defendant in satisfaction of her claim against Miss Tripp, was in effect equivalent to direct payment to the defendant by Miss Tripp in discharge of her obligation to the defendant. The defendant was a transferee for value of the discharge which Miss Tripp had purchased from the bank. In these circumstances there is no imputation of knowledge of fraud based upon any principle of agency, or an imposition of the burden of fraud upon one who accepts the benefit. In the absence of imputed or constructive knowledge by the defendant of the fraud of Miss Tripp, the plaintiff has no right to follow the money into the hands of the defendant."
104Both cases reveal a clear basis of a lack of liability in the receiver or payee of funds where (irrespective of the intention of the owner of the funds) a recipient in good faith and without relevant notice gives value or consideration. The discharge of a real and existing liability (even if owed by the wrongdoer, as in Smith v Knapp) will suffice. There, without that discharge of Ms Tripp's debt, the defendant would have been a volunteer and the plaintiff would have succeeded under an equitable lien to the bank mortgage that had been discharged.
105The third case cited in Shawmut was Union Central Life v Glasscock. Glasscock purchased land from one Beard for $1,900 mistakenly believing that the land was clear of encumbrance. The $1,900 was paid over by Beard to Union Central as mortgagee for a discharge of mortgage. There was in fact (only discovered some three years after the sale and payment out of Union Central) a mortgage on the land, which was prior ranking to the Union Central mortgage. Glasscock sought to set aside the sale and recover from Union Central the $1,900 that he had paid to Beard the vendor, who paid it over to Union Central. The claim was a personal one for restitution of moneys paid under mistake. The Court stated that there was no doubt about the rule (described as equitable) requiring restitution of money or property paid under mistake that has resulted in unjust enrichment of one at the expense of another making it against conscience to retain that received, and on that basis the vendor must repay the purchase price, there being an entire failure of consideration. The claim against Union Central was rejected by the Court on the basis that it had received the payment in good faith and applied it to a debt then owing. No particular point was made by the Court that the vendor paid Union Central rather than Glasscock directly. It was the bona fide discharge of debt that was critical. In so deciding, the Court relied on an earlier decision of the Supreme Judicial Court of Massachusetts delivered by Chief Justice Gray (later appointed to the Supreme Court) in Merchants Insurance Co v Abbott 131 Mass 397 (1881) where an arsonist assigned his fire claim to a creditor who received payment from the insurer, neither knowing that the insured/debtor deliberately lit the fire. The insurer's claim against the creditor in restitution was rejected.
106Before continuing, it is appropriate to recognise at this point that to the extent that one were to be concerned with tracing of property in equity or the priorities involving equitable and later legal interests or title, value, for the doctrine of bona fide purchaser for value without notice, may be seen to extend to the satisfaction of an existing debt: Thorndike v Hunt (1859) 3 De G & J 563; 44 ER 1386; Taylor v Blakelock (1886) LR 32 Ch D 560 at 570; Maitland, Equity (Cambridge UP, 1936) at 134; Young, Croft and Smith, On Equity (Thomson Reuters, 2009) at 136; and Megarry and Wade, The Law of Real Property, 5th ed (Sweet and Maxwell, 1984) at 143; cf Pomeroy's Equity Jurisprudence, 5th ed (Bancroft-Whitney, 1941) Vol 3 sec 749 at 29-33 and Fratcher, Scott on Trusts, 4th ed (Little Brown, 1987) Vol 4 secs 304 and 305. To the extent that there may be a divergence of view in the American cases on this question reflected in cases described in Pomeroy and Scott, it seems accepted that where the trust property transferred is a negotiable instrument or money, discharge of a pre-existing debt or other obligation is value: The Restatement of the Law Second: Trusts (American Law Institute, 1959), Vol 2 sec 304 at 93 and Scott on Trusts (4th ed) Vol 4 at 172-174.
107In support of this rule as to the discharge of past indebtedness being value sufficient to protect the taker of a negotiable instrument or cash, Scott on Trusts quotes at length from the decision of Andrews J writing for a unanimous New York Court of Appeals in 1879 in Stephens v Board of Education of Brooklyn 79 NY 183. The case was concerned with following money or negotiable instruments and the defence of giving value. In a highly influential and powerful passage, the Court stated at 186-188:
"The money having been obtained by Gill from the plaintiff by fraud and felony the former acquired no title thereto and the plaintiff could recover it from Gill if found in his possession, or he could follow it into the hands of any person who received it from Gill without consideration or with notice of the fraud by which he obtained it. The money when deposited by Gill in the bank, was still the money of the plaintiff. The bank was a mere depository and while it so remained, the plaintiff could have compelled the bank to restore the money to him as the rightful owner. ... The plaintiff, however, passing by the bank to whose possession the money first came from Gill, claims to recover of the defendant on the ground that the defendant, having received it from Gill in payment of an antecedent debt, cannot be permitted to retain it as against the plaintiff. No authority has been cited which sustains this position. The rule has been settled by a long line of cases, that money obtained by fraud or felony cannot be followed by the true owner into the hands of one who has received it bona fide and for a valuable consideration in due course of business. This, said Lord Holt in 1 Salk., 126, is 'by reason of the course of trade which creates a property in the assignee or bearer'-and in Miller v. Race (4 Burr., 452), Lord Mansfield said: 'The true reason is upon account of the currency of it; it cannot be recovered after it has passed into currency.' ... It is said that the case is to be governed by the doctrine established in this State that an antecedent debt is not such a consideration as will cut off the equities of third parties in respect of negotiable securities obtained by fraud. But no case has been referred to where this doctrine has been applied to money received in good faith in payment of a debt. It is absolutely necessary for practical business transactions that the payee of money in due course of business shall not be put upon inquiry at his peril as to the title of the payor. Money has no ear-mark. The purchaser of a chattel or a chose in action may, by inquiry, in most cases, ascertain the right of the person from whom he takes the title. But it is generally impracticable to trace the source from which the possessor of money has derived it. It would introduce great confusion into commercial dealings if the creditor who receives money in payment of a debt is subject to the risk of accounting therefor to a third person who may be able to show that the debtor obtained it from him by felony or fraud. The law wisely, from considerations of public policy and convenience, and to give security and certainty to business transactions, adjudges that the possession of money vests the title in the holder as to third persons dealing with him and receiving it in due course of business and in good faith upon a valid consideration. If the consideration is good as between the parties, it is good as to all the world. 'Money,' said Lord Mansfield, in Miller v. Race, before cited; 'shall never be followed into the hands of a person who bona fide took it in the course of currency and in the way of his business.' The question involved in this case was considered by Johnson, J., in Justh v. Bank of Commonwealth (56 N. Y., 478), and he says: 'In the absence of trust or agency I take the rule to be that it is only to the extent of the interest remaining in the party committing the fraud that money can be followed as against an innocent party having a lawful title founded upon consideration; and that if it has been paid in the ordinary course of business, either upon a new consideration or for an existing debt, the right of the party to follow the money is gone.' The case perhaps did not call for a decision upon the point whether an existing debt was a sufficient consideration to uphold a title to money fraudulently obtained by a debtor, and by him paid to his creditor, as against the defrauded party; but we think it correctly declares the rule of law upon the subject." (emphasis added)
108In substance, the issue for consideration is whether the same rule should obtain in respect of an in personam claim in restitution, as here.
109Professor Palmer in The Law of Restitution (Little Brown, 1978) Vol 3 secs 16.5 and 16.6 at 480-505 discusses the defence of bona fide purchase and what he extracts as a separate defence of bona fide discharge. Central to his discussion was the then existing Restatement on Restitution, Quasi-Contracts and Constructive Trusts (1937) with reporters' notes by Professors Seavey and Scott. Palmer refers to many cases, to some of which I have referred. Some involve the payer intentionally paying off the known debt of the debtor (eg Union Central v Glasscock), others do not (eg Smith v Knapp). Essential to the defence in Palmer's view (see Vol 3 at 495) is the receipt of the payment in discharge of a known claim which was valid. Palmer discusses the legal policy behind any such defence of discharge, even where the antecedent debt is valueless, being the same policy as expressed by the New York Court of Appeals in Stephens: finality of payment in business transactions. See also the discussion by W A Keener in "Recovery of Money Paid Under Mistake of Fact" (1887) 1 Harv LR 212 at 220-221.
110A more recent decision vindicating Palmer's position is Banque Worms v BankAmerica International 77 NY 2d 362; 570 NE 2d 189 (1991). The Court of Appeals for the Second Circuit certified a question on New York law for the New York Court of Appeals. The question was whether the "discharge for value" rule would apply to mistaken transfers of funds by electronic means or whether money could be recovered unless a change of position had been caused that would make repayment unjust. The Court, unanimously, applied the discharge for value rule. The facts were that Spedley Securities, an Australian company, instructed its agent bank in New York, Security Pacific International, to send by electronic transfer almost $2m into the account of Banque Worms at BankAmerica which was also in New York. Banque Worms was a creditor of Spedley. Spedley countermanded its direction and replaced it with an order to Security Pacific to pay the same sum to National Westminster USA. Overlooking the countermand, Security Pacific made both transfers by EFT and debited Spedley's account. When the mistake was discovered, it re-credited Spedley's amount with one of the payments and requested repayment by BankAmerica and Banque Worms. BankAmerica returned the funds under an indemnity from Security Pacific. Banque Worms refused to return the funds and disputed BankAmerica's debiting of its account upon that refusal. Eventually the litigation was reduced to Security Pacific and Banque Worms. The Court examined various decisions, some apparently adopting a discharge for value rule, some relying on change of position or detrimental reliance. After considering the nature of electronic funds transfer and the terms of the Uniform Commercial Code (UCC) provision which incorporated the law of restitution, the Court, in reliance on cases that included Stephens, said at 372-373; 195-196:
"This concern for finality in business transactions has long been a significant policy consideration in this State. In a different but pertinent context, we observed in Hatch v Fourth Natl. Bank 147 NY 184, 192 that 'to permit in every case of the payment of a debt an inquiry as to the source from which the debtor derived the money, and a recovery if shown to have been dishonestly acquired, would disorganize all business operations and entail an amount of risk and uncertainty which no enterprise could bear'.
A consequence of this concern has been the adoption of a rule which precludes recovery from a third person, who as the result of the mistake of one or both of the parties to an original transaction receives payment by one of them in good faith in the ordinary course of business and for a valuable consideration (see, Ball v Shepard, 202 NY 247, supra). This rule is grounded in 'considerations of public policy and convenience for the protection and encouragement of trade and commerce by guarding the security and certainty of business transactions, since to hold otherwise would obviously introduce confusion and danger into all commercial dealings' (44 NY Jur, Payment, s 107; see also, Southwick v First Natl. Bank, 84 NY 420). We have previously held that from these considerations, '[t]he law wisely ... adjudges that the possession of money vests the title in the holder as to third persons dealing with him and receiving it in due course of business and in good faith upon a valid consideration.' (Stephens v Board of Educ., 79 NY 183, 187-188.)
The 'discharge for value' rule is consistent with and furthers the policy goal of finality in business transactions and may appropriately be applied in respect to electronic funds transfers. When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation."
The Court then had recourse to the relevant article of the UCC, but this does not detract from or qualify the general statements of principle.
111This approach equiparates the position of a person who receives negotiable instruments or cash which is stolen or the property of another and a person who receives good title to negotiable instruments or cash but in a transaction vitiated by a factor open to give rise to a right of restitution. If the recipient in good faith and without notice gives consideration or value by discharging a debt in exchange for the payment, he will take title to the funds if stolen or otherwise owned by another and will defeat a restitutionary claim. The relevance to the analysis of title and the need for the discharge for value rule to equate to the position of good faith purchase of title for consideration can be seen in the relationship between secs 13 and 14 of the Restatement (1937) and the Reporters' Notes thereon at pp 7-9.
112The topic of the defences to restitution and of discharge for value are lucidly discussed by Professor Kull (the reporter for the Restatement Third: Restitution and Unjust Enrichment) in "Defenses to Restitution: The Bona Fide Creditor" (2001) 81 Boston University Law Review 919 and in Restatement of the Law Third: Restitution and Unjust Enrichment in sec 67, at Vol 2 pp 558ff. There the principle is stated relevantly as follows: A payee without notice takes payment free of a restitutionary claim to which it would otherwise be subject, but only to the extent that the payee accepts the funds in satisfaction or reduction of the payee's valid claim as creditor of the payer or of another person.
113The question arises whether the defence, to the extent it should be recognised in Australia, is limited to the circumstance where the payer intends to make the payment to the payee on account of the debt of the third party (leaving to one side the distinction that may be made as to whether the debt is real or void: compare the majority and minority in Porter v Latec, or compare Gaffner with Shawmut Bank). The expression of the matter in proposition (2)(b) in Barclays Bank appears to require the intention of the payer to pay off a debt for there to be "good consideration". Further, the third party's authority or ratification is required for there to be a discharge, by the payment. So much can be accepted as an expression of how a payer's payment, of itself, can discharge the debt of another. Barclays Bank, Porter v Latec, Aiken v Short, Gaffner, and Shawmut itself (as long as the underlying debt is real) can be taken as authority for this proposition. Implicit in all these cases is the proposition that discharge of the debt of the third party debtor, achieved by the payment, so intended and so received and with authority, makes restitution to the payer unjust or retention by the payee not unjust. No additional act of prejudice, such as giving up security, or other change of position is required. These cases can be rationalised in a way that makes the payer's intention relevant as reflecting the bargain or exchange that it was making and what it intended to achieve. But what is essential for there to be consideration or value is the question of discharge of the third party's debt. If that has occurred, by the payment, the law will consider repayment unjust. One way that the discharge of debt is brought about (by the payment itself) is by the circumstances underlying Barclays Bank principle (2)(b) being present.
114Here, plainly, AFSL was not intending to pay TCP's debts. It was buying "goods", or so it thought. It intended Hills and Bosch to receive the funds for that purpose. They did receive them, as their own. They did not receive qualified title to the moneys so received. The funds were theirs to keep, subject to restitutionary claims by AFSL. Because of mistakes different to the mistake made by AFSL, Hills and Bosch (because of different lies of Mr Skarzynski) each thought that the funds that it had received came directed by TCP or Mr Skarzynski and were available to discharge TCP debt. That arrangement to discharge TCP's debt was made honestly and in good faith by Hills and Bosch with their debtors. There is no reason in law why, as between those parties, that discharge was other than final. It occurred between parties capable of contracting, concerned valid debts and saw the creditor apply funds which they had received. The payment of itself did not discharge the debts, the arrangement and agreement (to discharge existing debts) between debtor and creditor did. There could be no doubt that as between Hills and Bosch and the relevant TCP company the latter's debt was discharged.
115Discharge in this circumstance, like payment to the customer in ANZ v Westpac at 674, is to be examined as a matter of substance and not form. There, Mason CJ, Wilson, Deane, Toohey and Gaudron JJ said:
"a mere book entry which has not been communicated to the third party or which can be reversed without affecting the substance of transactions or relationships will ordinarily not suffice (see, e.g., Buller v Harrison (1777) 2 Cowp 565; 98 ER 1243; Cox v Prentice (1813) 3 M & S 344; 105 ER 641; The Colonial Bank v The Exchange Bank of Yarmouth, Nova Scotia (1886) 11 App Cas 84). It must appear that the third party has effectively received the benefit of the payment with the consequence that the prima facie liability to make restitution has become his."
See also ANZ v Westpac at 680-684.
116It is necessary to return to Barclays Bank. It is first to be noted that the payment referred to in the expression of principle (2)(b) is not in terms said to be exhaustive of payment for good consideration: see the words "in particular". Following the expression of principle, his Lordship said at 695 about proposition (2)(b):
"This is founded upon the decision in Aiken v. Short, 1 H. & N. 210, and upon dicta in Kerrison v. Glyn, Mills, Currie & Co., 81 L.J.K.B. 465. However, even if the payee has given consideration for the payment, for example by accepting the payment in discharge of a debt owed to him by a third party on whose behalf the payer is authorised to discharge it, that transaction may itself be set aside (and so provide no defence to the claim) if the payer's mistake was induced by the payee, or possibly even where the payee, being aware of the payer's mistake, did not receive the money in good faith: cf. Ward & Co. v. Wallis [1900] 1 Q.B. 675, 678-679, per Kennedy J."
117Undoubtedly Aiken v Short supports the proposition; but there is nothing in Aiken v Short to deny the validity of a wider proposition of discharge for value as reflected in the Restatement, Palmer and cases such as Knapp v Smith and Banque Worms.
118Nor does the decision in Kerrison v Glyn, Mills, Currie & Co deny the validity of a wider proposition of discharge for value. The difference between Hamilton J and the House of Lords (on the one hand) and the Court of Appeal (on the other) was principally factual as to whether the payment was conditional or not. Lord Atkinson, who gave the leading speech in the House of Lords, recognised at 468 that if a payment made under a mistake discharged an existing debt of a principal on whose behalf the payee was authorised to receive payment, the payment was not recoverable.
119Here, AFSL intended Hills and Bosch to have the funds as their own to use (albeit under a mistake as to the existence of the goods). The funds were then used to appropriate and discharge a debt of TCP, influenced by another mistake.
120Two decisions of the House of Lords are relevant to the question of the scope of any defence of discharge for value, beyond the words of proposition (2)(b) in Barclays Bank: Kleinwort, Sons & Co v Dunlop Rubber Co (1907) 97 LT 263 and R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670.
121In Kleinwort, Kramrisch, rubber merchants, sold rubber to Dunlop with a direction to pay one of its bankers, Brandts, who had security over the rubber. Dunlop mistakenly paid Kleinwort, another banker of Kramrisch. Kramrisch failed. Dunlop was required to pay Brandts. Dunlop sought to recover against Kleinwort. The trial was before a jury. There were three questions asked of the jury that were answered as follows:
"1. 'Was the money paid to Kleinwort and Co. as principals or as agents?' - Answer: 'It was paid as agents for Kramrisch.'
2. 'Did Kleinwort and Co. receive the money as principals or as agents?' - Answer: 'As principals, and in their own right.'
3. 'Were the defendants led by the plaintiffs' mistake to alter their position to Kramrisch to their own disadvantage?' - Answer: 'No'."
122The facts otherwise set out in the speech of Lord Loreburn LC indicate that Kramrisch owed Kleinwort a sum in the order of the mistaken payment. His Lordship said at 264:
"They placed the money so received to the credit of the account, and continued the account for some little time longer, making further advances."
123Lord Loreburn LC then went on (at 264) to express the principle very broadly in a way that would deny discharge for value, separately from change of position:
"The appellants contended that this sum had been paid to them as agents, and that they had accounted for it to their principals in a way equivalent to payment. The respondents asserted that in receiving this money Messrs. Kleinwort, Sons, and Co. were really principals, and therefore liable to repay it, whether they had paid it over to others or not. In the view which I take of the case this is immaterial; for it is indisputable that, if money is paid under a mistake of fact and is redemanded from the person who received it before his position must be altered to his disadvantage, the money must be repaid in whatever character it was received."
124One should note, however, the significance of the jury's finding in this regard set out at 264:
"Channel, J. put the question very plainly to the jury, and explained to them the contention of the appellants (which I need not examine in detail) that they would not have continued, as they did continue, to make advances to Kramrisch and Co. if it had not been for this payment of 3263l. 16s. 4d. by the Dunlop Company. This contention the jury refused to accept."
125Lord Atkinson at 265 explained with clarity the issue litigated as to whether the funds were received as principal or as agent:
"Many authorities were cited to your Lordships, the decisions in which are little more than applications of the broad principle laid down by Lord Mansfield, C.J. in Butler v Harrison (2 Cowp. 565). They seem to establish that, whatever may in fact be the true position of the defendant in an action brought to recover money paid to him under a mistake of fact, he will be liable to refund it if it be established that he dealt as a principal with the person who paid it to him. Whether he would be liable if he dealt as agent with such a person will depend upon this, whether, before the mistake was discovered, he had paid over the money which he received to the principal, or settled such an account with the principal as amounts to payment, or did something which so prejudiced his position that it would be inequitable to require him to refund."
126ANZ v Westpac was, of course, an illustration of the circumstances of receipt as agent, there agent bank. Further, Lord Atkinson thought that the finding by the jury as to the third question was fatal to any argument based on settlement of accounts with Kramrisch. Thus, for Lord Atkinson, if money was received as principal only a change of position would suffice.
127Kleinwort is thus consistent with a party receiving funds by mistake as a principal being required to repay unless it has detrimentally changed its position. What is not clear is what part in the factual consideration of detrimental change of position the discharge of an existing debt would play. In this regard, the comments of Lord Atkinson on counsel's arguments at 265-266 are apposite:
"And, secondly, because I do not think that what took place between Kramrisch and Co. and Kleinwort and Co., as appears from the correspondence from the 19th to the 21st Jan. 1903, was of such a convincing character that the jury were not justified in finding, as they apparently did find, in answer to the third question, that no settlement of account equivalent to payment had taken place then at all. On the second issue covered by the third question left to the jury - namely, the issue whether Kleinwort and Co. had, by reason of the receipt of the amount of this cheque prejudiced their position by making further advances to Kramrisch and Co., or giving them extended credit - the jury had the evidence before them. I think that Channel, J. directed their attention to it fairly, and instructed them properly as to how they should deal with it. He said nothing which amounted to a misdirection, and though possibly the conclusion to which the jury came is not that at which one would be disposed to arrive, still I do not think that their finding can be disturbed as being against the evidence, or the weight of evidence. It was quite competent for them, after having heard the evidence, to come to the conclusion that if this money had never been received by Kleinwort and Co. at all, they would have made the further advance, and given further credit to Kramrisch and Co. as in fact they did." (emphasis added)
128One can see in this discussion of the questions put to the jury the view that some change of position consequent upon receipt is required for there to be a defence. The payment on by an agent to its principal can be seen as a separately recognisable category of defence - hence the questions (in particular the second) that were asked of the jury.
129Jones v Waring and Gillow is the English case closest to the essential factual structure here. A rogue, Bodenham, had obtained valuable furniture from Waring and Gillow (the innocent payee of the impugned payment). After default under the hire purchase agreement (by the cheque for a £5,000 deposit not being met), Waring and Gillow had repossessed the furniture. Bodenham went to Jones and told them a concocted story about an international car company setting up business in England and if Jones wanted to be a distribution agent then that could be arranged, but it would require a cheque for £5,000 made out to Waring and Gillow, who, he said, were principals behind the venture. There were defects in the first cheques given to Waring and Gillow, which they raised. They were given another cheque which they cashed, restoring the furniture to Bodenham and giving him some more. After the fraud came to light Waring and Gillow retook possession of the furniture. The Court of Appeal overturned the primary judge's order for restitution. Pollock MR did so ([1925] 2 KB 612 at 630-632) on the question of mistake - that it was not a mistake as between the payer and payee. That approach was the focus of Goff J's concern in Barclays Bank and need not be the subject of discussion here. The judgment of Scrutton LJ in the Court of Appeal is of particular relevance to the question of defences. At [1925] 2 KB at 639-640, Scrutton LJ articulated what was in effect a defence of consideration by discharge for value. Waring and Gillow, having a valid contract with Bodenham under which they were owed money, acting bona fide did not have to refund moneys paid under mistake. Scrutton LJ said:
"The law in regard to money had and received appears to be this, that where the defendant has no legal relationship with the plaintiff but receives money which has in fact come from the plaintiff bona fide and for valuable consideration from a third party with whom he has a legal relationship, he can keep the money so obtained from the plaintiff under a mistake of fact if he, the defendant, was not a party to that mistake and did not contribute to it."
130The House of Lords, however, reversed the Court of Appeal. To the extent that it had been argued that Waring and Gillow was a holder in due course of the cheque, that was rejected on the ground that the payee cannot be a holder in due course. As to restitutionary principle, the decision is principally important for a wider view of relevant mistake than dealt with by the Court of Appeal. The majority (Lord Shaw of Dunfermline, Lord Sumner and Lord Carson) upheld the appeal and ordered restitution. Viscount Cave LC (with the concurrence of Lord Atkinson) would have remitted the matter to arbitration to ascertain the extent of Waring and Gillow's change of position.
131The majority distinguished Watson v Russell (1862) 3 B & S 34; 122 ER 14; (1864) 5 B & S 968; 122 ER 1090 (a case where money had been paid to the payee/creditor of a third party with a condition as to future events which was not communicated to the payee/creditor) and rejected the proposition that because Waring and Gillow was owed a sum equivalent, it gave good consideration. Lord Sumner (at 692-693) examined the position by reference to an asserted estoppel against Jones, which he rejected, saying:
"I am unable to take the view, on the admissions made, that, by the production of the two cheques by Bodenham, Waring & Gillow, Ld, were led to believe (what was not the fact) that Jones, Ld, were their debtors, or that they were brought to them by him on the part of Jones, Ld, for such purposes as Bodenham on his part might happen to state. How the case would have stood had all this been proved in fact, I need not, therefore, discuss. I only add that the Kramrisch cases (Continental Caoutchouc Co v Kleinwort and Kleinwort v Dunlop Rubber Co), particularly Lord Loreburn's proposition in 97 LT, at p 264, and Kerrison's case, all refer to the defence to a claim for money paid under a mistake of fact, which an agent may set up, if, before discovery of the mistake, he has paid it over to the principal for whom he received it, but, as at present advised, I do not think they go further on the question of estoppel. The direct communications between Jones, Ld, and Waring & Gillow, Ld, by telephone or letter, did not constitute representations by Jones, Ld, nor was it on the faith of anything so said or written that Waring & Gillow, Ld, changed their position towards Bodenham." (footnotes omitted)
Lord Carson, also, at 701-702, dealt with the matter on the basis of estoppel. Estoppel and change of position were not distinguished.
132The reasoning of the majority and the minority is, however, inconsistent with a defence (by someone who received money as a principal) of bona fide discharge of an existing debt. The reasoning of the minority is consistent with a defence of change of position on the faith of the receipt; that of the majority with the need to show an estoppel, unless the payee is an agent who has paid over to its principal.
133It should be noted that at 684 Viscount Cave LC referred to authorities that to a degree support an approach to deal with change of position stringently when one has (as there) bills of exchange or (as here) effectively cash payments. His Lordship referred to the rule in Cocks v Masterman (1829) 9 B & C 902; 109 ER 335 that dishonour of a bill must be made on the day of presentation, to the judgment of Mathew J in London and River Plate Bank Ltd v Bank of Liverpool Ltd [1896] 1 QB 7 at 11-12, and the judgment of Buckley LJ in Morison v London County and Westminster Bank Ltd [1914] 3 KB 356 at 378. The reasons stated by Mathew J in London and River Plate Bank for the rule in Cocks v Masterman were based on the necessity for those in business to be able to rely upon the certainty and stability of bills of exchange not dishonoured on the day. Such considerations may permit a principle, conformable with the statements of legal policy by the New York Court of Appeals in Stephens, that the exigencies of payment in business require a stringency to any operation of the change of position defence in appropriate circumstances. In this respect, however, the comments of the Privy Council in Imperial Bank of Canada v Bank of Hamilton [1903] AC 49 are to be noted.
134Before turning to change of position, reference should be made to two further cases that were heavily relied on by Hills and Bosch: Lloyds Bank Plc v Independent Insurance Co Ltd [2000] 1 QB 110 and Clarke v Abou-Samra [2010] SASC 205.
135In Lloyds Bank, the plaintiff bank paid moneys to an insurer to which the bank's customer, an insurance agent, owed money. The mistake of the payer bank concerned the lack of clearance of funds to support the payment. The Court of Appeal disagreed with the trial judge that the payment was not authorised by the customer/debtor. The proposition in (2)(b) in Barclays Bank was approved and applied. Whilst there are expressions of the matter (see 125 D-F) that may, loosely read, support a wider principle than that stated in proposition (2)(b), their Lordships in Lloyds Bank were dealing with an attack on the validity of what Robert Goff J had said in Barclays Bank. Lloyds Bank should be so understood. Waller LJ, who gave the leading judgment, appears, at 123-127, to discuss discharge and the operation of proposition (2)(b) in Barclays Bank as an illustration of the change of position defence.
136Peter Gibson LJ at 130 recognised the separateness of defences of good consideration and change of position in propositions (2)(b) and (2)(c) of Barclays Bank. At 132 he recognised the development of the English law of restitution and the possible preference for an analysis based on change of position rather than bona fide purchase or discharge of a debt.
137In Clarke v Abou-Samra, Mr Samra was the principal of a company, ALC. ALC borrowed money from clients at high rates of interest on the representation of on-lending to property developers in need of funds. Both Mr and Mrs Clarke and Mr and Mrs Abou-Samra were clients of ALC. The Clarkes delivered to ALC a bank cheque for $207,518.20 in the belief that the money was to be a loan to the Abou-Samras. The cheque was delivered by ALC to the conveyancing agent of the Abou-Samras to put towards the purchase of a house. The Abou-Samras thought it was a repayment by ALC of their prior loan to it and a small additional borrowing. ALC collapsed. The Clarkes claimed the $207,518.20 from the Abou-Samras. One basis of recovery was mistake of fact: that it was a loan to the Abou-Samras. Kourakis J (as the Chief Justice then was) stated at [5]:
"However, by delivering the bank cheque to Samra who, through an employee of ALC, deposited it into the trust account of Eckermann Steinert, Mr and Mrs Clarke allowed ALC to effectively discharge its indebtedness to Mr and Mrs Abou-Samra. Their debt was discharged because, objectively viewed, ALC's depositing the bank cheque with Eckermann Steinert on account of Mr and Mrs Abou-Samra was performance by ALC of its obligation to repay them the balance of their investment in accordance with Samra's representation to them that he would cause ALC to do so. To the extent that the payment discharged the pre-existing debt of ALC to Mr and Mrs Abou-Samra, they have a good defence to the claim for payment made under mistake. As to any excess, Mr and Mrs Abou-Samra can have no claim to retain the money against Mr and Mrs Clarke. They had authorised Samra to obtain a loan for the shortfall in accumulating the purchase price and they are therefore bound by his conduct even though he exceeded their authority by purporting to borrow more than that amount. Mr and Mrs Abou-Samra have had the benefit of the shortfall procured by their agent and cannot in equity be allowed to retain a windfall benefit by appropriating to their use money obtained for and on their behalf by Samra merely because they were ignorant of the identity of the lender. They are estopped for [sic: from] denying his agency by their conduct in taking the use of that part of the proceeds of the bank cheque which funded the shortfall."
138His Honour elucidated these conclusions at [57] and following. He concluded that the Clarkes did not pay the Abou-Samras by delivering the cheque to ALC's office: [78]. Samra and ALC were not the agents of the Abou-Samras. Kourakis J at [83] said the intention of the Clarkes was not critical; rather, what was critical was whether there was in fact a discharge of the indebtedness of ALC to the Abou-Samras:
"In this case, there was at the relevant time a debt owed by ALC to Mr and Mrs Abou-Samra. The amount of the indebtedness is disputed, but the difficulties presented in cases of forgery, which were discussed in Porter, are not present in this case. True it is that Mr and Mrs Clarke did not intend to allow the bank cheque to be used to discharge the ALC debt, but the effect of the payment by ALC must be considered from the perspective of Mr and Mrs Abou-Samra and ALC. In my view, it cannot be said that a payment was made by A to B unless A knows that he is making a payment to B, and B knows that he is receiving a payment from A. When Samra caused the bank cheque to be delivered to Eckermann Steinert by ALC's employee, he did so with the intention of discharging ALC's debt. He did not intend to leave Mr and Mrs Abou-Samra responsible for the repayment of the money to Mr and Mrs Clarke. He had promised them that he would repay ALC's indebtedness and that he would obtain a loan only for the balance of the settlement funds. From Mr and Mrs Abou-Samra's perspective, the payment into their conveyancer's trust account was made by ALC in accordance with Samra's promise to discharge ALC's indebtedness to them."
His Honour's reasoning can be explained by recognising that the Clarkes lent to ALC in order for it to on-lend to the Abou-Samras and thus that the claim of the Clarkes for repayment lay with their payee (ALC) and not the on-borrower. His Honour does, however, express the matter from the point of view of the discharge of the third party debt, though the actual intentions of the Abou-Samras and ALC (through Mr Samra) appear to have been relevant in this regard. The decision is consistent with the defence of discharge or consideration by discharge operating in Australia.
139Thus far I have dealt with the matter otherwise than as a matter of change of position. It may equally be the case that, at least in the circumstances here, the matter can be analysed by reference to change of position. I deal with change of position more fully below by reference to a wider context of the events up to April 2010. Nevertheless, the reality of the receipt of Hills and Bosch was that they both thought (through the lies practised on them) that they were receiving the moneys of or owed to their debtor. The agreement to use the funds to discharge the debt was in substance to pay the funds to the debtor and to receive back the funds in payment and discharge. This is the analysis referred to by Rugg CJ in Smith v Knapp at 470-471, by Keener at 221 and at the other references to which Meagher JA refers at [187]. If one views the matter thus, Hills and Bosch each paid away the funds on the faith of the receipt (on the faith of the receipt being conceded). If the facts had stopped there and the debtor company had decamped, it could be concluded that Hills or Bosch had changed its position by paying away the funds: Lipkin Gorman at 579. It did not decamp, but repaid its debt and received a discharge.
140The question of the payment away alone in those circumstances (given the obvious operative effect of Mr Skarzynski's lies to Hills and Bosch) would raise questions of whether it was paid on the faith of the receipt. That question was not the subject of debate. It is unnecessary to say anything in detail here, save to say that on the evidence here there can be no doubt that the concession that each of Hills and Bosch acted on the faith of the receipt was rightly made. Each may have also laboured under the influence of Mr Skarzinski's lies, but neither would have acted without believing in the validity of the receipt. It was the central causal element to the action each took.
141Looking at the matter thus, the discharge that occurred could be seen to be consequential upon the change of position by payment away to the debtor and receipt back and discharge. In the circumstances it is more realistic to view the notional payment away, payment back and discharge as one commercial exchange.
142The legitimate refusal, at this point, to enquire into the value of the consideration given by the discharge comes in part from its relationship to the payment away of moneys not thought to be beneficially held by the payee on the faith of the receipt and what should be the refusal to enquire into the value of the discharge consonant with equity's refusal to do so in like circumstances, in cases such as Taylor v Blakelock at 570 (see [106] above).
143In this way the analysis of the matter from the point of view of change of position reaches the same position as the expression of the matter by an application of a defence of discharge expressed in a manner as by Palmer and for similar underlying legal policy reasons.
144It is unnecessary to explore the extent of any defence of discharge of a third party debt any further. In the absence of binding High Court authority in an area requiring case by case development of principle, "courts of this country will continue to obtain assistance and guidance from the learning and reasoning of United Kingdom courts... [and] of other great common law courts": Cook v Cook [1986] HCA 73; 162 CLR 376 at 390. The persuasiveness of the reasoning of the American cases and texts to which I have referred is conformable with the principles otherwise applicable to the analysis of tracing and priorities to which I have referred at [106] above in respect of cash, negotiable instruments and electronic funds transfers. This approach is, in my respectful view, to be preferred to Kleinwort and Jones v Waring and Gillow, being decisions given when restitutionary recovery and defences to restitutionary claims were not recognised in England in the more coherent way they are now, in both Australia and England (even if there be an incipient difference of approach between the laws of the two countries). In this respect I would respectfully adopt what was said by McPherson JA in Port of Brisbane Corporation v ANZ Securities Ltd (No 2) [2003] 2 Qd R 661 at 676 [25].
145Both analyses reach the same result. It may be that the former, based on the American cases, may need more precise formulation by reference to specific facts. It suffices to say that in circumstances such as the present, the conduct of Hills and Bosch in acting as they did provides a defence, irrespective of the assessment of the then commercial worth of the TCP debt, either because of a bona fide discharge or because such, with the payment away, can be seen as a change of position.
146This approach to the matter would see the legal rights of the parties conform with closely analogous circumstances. If, for instance, Mr Skarzynski had stolen the funds (or otherwise obtained them in breach of a trust or fiduciary relationship) and paid Hills or Bosch with them, a claim based on equitable tracing would be defeated by a defence of bona fide purchase, the consideration being the discharge of his past debt: see [106] above. Equally, if Mr Skarzynski had practised a slightly different fraud on AFSL, borrowing money directly from it on the basis of a chattel mortgage over non-existent goods, and then using the proceeds to pay Hills and Bosch, there would be no claim against either of them because they were not payees of AFSL, and tracing would be defeated for the above reason.
147Further, at least on the facts here, the principle conforms with the operation of the change of position defence based on payment away and receipt in full discharge.