Palmer v Blue Circle Southern Cement Ltd

COUNSEL : Mr B McManamey (Appellant) Mr L J Ellison (Respondent) SOLICITORS : Stacks - The Law Firm (Appellant) Hunt & Hunt (Respondent) CATCHWORDS : Restitution; defences; change of position; foregoing of benefit (failure to apply for social security) ACTS CITED : Workers' Compensation Act 1987 Local Courts (Civil Claims) Act 1970 G H Varley Pty Ltd v Thompson (unreported, NSWSC, 25 February 1998) Melesco Manufacturing Pty Ltd v Thompson (1996) 40 NSWLR 525 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 CASES CITED : The Council of the City of Sydney v Burns Philp Trustee Company Ltd (In Liquidation) & Anor (unreported, NSWSC, Com D, 13 November 1992) Kilham v Banque Nationale de Paris (unreported, Supreme Court of Victoria, Com D, 28 June 1994) Morgan Guaranty Trust Co of New York v Outerbridge 66 DLR (4th) 517 Barclays Bank Ltd v W J Simms & Son & Cooke (Southern) Ltd [1979] 3 All ER 522 Rural Municipality of Storthoaks v Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1 Hydro Electric Com'n of Township of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193 DECISION : See para 38

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

012891/98 - PALMER v BLUE CIRCLE SOUTHERN CEMENT LTD

1 HER HONOUR: This is an appeal by way of Stated Case against the determination of Mr Price, Magistrate, given on 11 June 1998. 2 In the proceedings before the Magistrate, the respondent to the present appeal sought to recover the sum of $10,998.20 which had been paid to the appellant in the period 16 September 1986 to 16 May 1988 pursuant to an award made by the Compensation Court of New South Wales on 8 June 1983. On 16 May 1998 that award was terminated with effect from 17 September 1986 by further order of the Compensation Court. In the proceedings before the Local Court the respondent contended that the payments in the period 16 September 1986 to 16 May 1988 had been made under "a mistake of fact and/or law". 3 The Magistrate gave judgment for the respondent in the sum of $10,998.20. 4 I set out below the facts as found by the Magistrate and recited in the Stated Case relevant to the issues in the way the matter was developed before me:

(a) An award was made by his Honour Judge Williams on 8 June 1983 in the Compensation Court of New South Wales in favour of the defendant who was then the applicant against the plaintiff, who was then the respondent. The award was entered on a continuing basis at the time due to the applicant worker's partial incapacity to continue employment as a truck driver.

(b) On 16 May 1988 Turner C in the Compensation Court terminated the award as from 17 September 1986 and the plaintiff was to have no further liability from that date.

(c) NEM General Insurance Association Ltd (In Liquidation) who were the insurers of the plaintiff had paid during the period 16 September 1986 and 16 May 1988 payments to the defendant totalling $10,998.20 gross being 86.6 weeks at $127 per week.

(g) The defendant, prior to receipt of the workers' compensation payments in 1983, received sickness benefits.

(h) Following the termination of the award by Turner C on 16 May 1988 he was paid an invalid pension.

(i) The defendant did not receive either sickness benefits nor an invalid pension for the period 16 September 1986 to 16 May 1988 as he was in receipt of workers' compensation benefits.

(j) Had he not been in receipt of workers' compensation payments the defendant would have applied for and received during the period referred to either sickness benefits or an invalid pension.

(k) The defendant is now barred from claiming those Commonwealth benefits or pension for the period referred to. 5 The Magistrate, inter alia, made the following determinations:

(2) In making the payments to the defendant the subject of the plaintiff's claim, the plaintiff was endeavouring to satisfy the award made by Williams J on 8 June 1983. The plaintiff had a conscious but mistaken understanding of its legal obligation to pay and of the defendant's legal right to receive the money.

(3) (i) The defendant was enriched when he was paid workers' compensation.

(ii) The monies which the defendant received from the plaintiff were spent by the defendant on ordinary living expenses. The defendant had not established the defence of change of position.

(4) The defendant had not suffered any prejudice as a result of the plaintiff's delay and had had the benefit of the award monies for a longer period then he otherwise would have done. The plaintiff was not barred by laches from claiming the relief sought.

(5) The delay on the plaintiff's part amounted to no more than a silence which was equivocal. There was no induced reliance that was prejudicial to the defendant and no unconscionable conduct on the part of the plaintiff. The plaintiff was not estopped from claiming the relief sought. 6 The Stated Case contains three grounds upon which it is contended that the Magistrate's determination was erroneous in point of law:

(1) That I was in error in law in holding that the Local Court has jurisdiction to hear and determine this claim, in that inter alia I misinterpreted the effect of Schedule 6 Part 4 Clause 13 of the Workers' Compensation Act 1987.

(2) That I was in error in law in holding that the subject monies had been paid under a mistake of fact or law.

(3) That I was in error in law in holding that the defence of change of position had not been made out. 7 Contention (1) was not pressed in the proceedings before me. 8 The principal challenge to the Magistrate's determination advanced on the hearing of the Stated Case was as to contention (3), namely, the Magistrate's determination that the defence of change of position had not been made out. 9 Mr McManamey who appeared for the appellant submitted that contention (2) was "ultimately a pleading point". Mr McManamey did not seek to contend that the respondent did not have a claim on general restitutionary principles. However, he noted that the respondent had pleaded its case as one involving the payment of monies under a mistake of fact or law. Mr McManamey submitted that there was no mistake of fact or law disclosed by the facts found by the Magistrate. The respondent had made payments pursuant to a valid award. There was no mistake of fact or law at the time the payments were advanced. Reliance was placed in this regard on the observations of Abadee J in G H Varley Pty Ltd v Thompson (unreported, NSWSC, 25 February 1998). 10 Mr Ellison who appeared for the respondent submitted that the case had been conducted on a practical basis where the issue litigated was one of restitution arising out of the unjust enrichment of the appellant. Nothing turned on the way the matter had been pleaded and the appellant had not been taken by surprise. 11 I note that in Melesco Manufacturing Pty Ltd v Thompson (1996) 40 NSWLR 525 the majority held that an employer might recover payments made under an award subsequently varied to nil in a claim for restitution before the Local Court. In Melesco the award was varied by consent. The consent orders included provision that the employer have credit for amounts of compensation paid to date. Whatever the significance of that might be no submission was advanced before me that, subject to the appellant's defence, the respondent did not have a prima facie entitlement to recover the over-payment. 12 In the light of Mr McManamey's concession that the respondent had a valid claim by reference to restitutionary principles (subject to the appellant's defence of change of position) I accept the force of Mr Ellison's submission that in the way this matter was conducted there is no merit to the pleading point. 13 The third contention advanced by the appellant is that the Magistrate erred in holding that the defence of change of position had not been made out. The Magistrate found that the monies received by the plaintiff were expended on ordinary living expenses. No challenge is made to this aspect of the Magistrate's determination. 14 Mr McManamey submits that the Magistrate misdirected himself in that he appears to have considered that the appellant's failure to apply for and receive Department of Social Security benefits during the subject period was not capable of giving rise to a defence of change of position. It was Mr McManamey's submission that throughout the period of receipt of the workers' compensation payments the appellant had foregone his entitlement to receive social security payments. Had he not received the weekly payments pursuant to the award made by Williams J, he would have received benefits from the Department of Social Security. He was not now able to make any claim on the Department of Social Security in respect of the subject period. The change of position was the non receipt of social security benefits in reliance on the receipt of payments under the award and not the expenditure of the monies received on ordinary living expenses. In those circumstances it would be unjust to require the appellant to repay the monies. 15 Mr Ellison submitted that contention (3) did not raise an error of law. The Magistrate's factual findings included reference to the circumstance that the appellant had foregone his entitlement to social security payments together with the evidence which disclosed that the workers' compensation monies had been applied on ordinary living expenses. The Magistrate had found that the defence of change of position had not been made out. This was a factual finding not open to review in proceedings by way of Stated Case. 16 This is an appeal by way of Stated Case brought pursuant to s 69(3) Local Courts (Civil Claims) Act 1970. Such an appeal is confined to errors of law. Mr Ellison referred me to Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 and, in particular, to the observations of Glass JA at 155: "To say of a finding that it is perverse, that it is contrary to the overwhelming weight of the evidence, that it is against the evidence and the weight of the evidence, that it ignores the probative force of the evidence which is all one way or that no reasonable person could have made it, is to say the same thing in different ways. Upon proof that the finding of a jury is vitiated in this way, it will be set aside because it is wrong in fact. Since the Act does not allow this court to correct errors of fact, any argument that the finding of a Workers' Compensation Commission judge is vitiated in the same way discloses no error of law and will not constitute a valid ground of appeal."

17 No complaint is made as to the Magistrate's findings of fact. It is contended that those findings are susceptible of a different conclusion in law if the principles as to the defence of change of position are as Mr McManamey submits. It is not a case of the Magistrate having arrived at findings of fact said to be contrary to the weight of the evidence. Rather, that he appears not to have considered those facts as capable of constituting a defence to the respondent's claim. In this sense it is contended that he must be taken to have misdirected himself; Azzopardi at p.156. 18 In para 3(ii) the Magistrate expresses his determination in terms consistent with an observation made by the majority in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 386: "In no jurisdiction, however, can a defendant resort to the defence of change of position where he or she has simply spent the money received on ordinary living expenses."

I should note that by agreement between the parties I was supplied with a copy of the Magistrate's reasons for judgment delivered on 11 June 1998. 19 It is the appellant's contention that the Magistrate erred in that he considered the finding that the award monies had been spent on ordinary living expenses was conclusive of the change of position defence. Having regard to his favourable factual findings as to the appellant's decision not to apply for social security benefits in reliance on the receipt of the award monies, it is an irresistible inference that the Magistrate did not consider this alternative basis as admitting of a defence of change of position. 20 I was not referred to any authority which would support the proposition that a defence of change of position might be made out by evidence that the recipient of the subject monies had foregone his or her entitlement to make a claim on another source. Mr McManamey submitted that the broad statement of principle to be found in the judgment of the majority in David Securities (at 385) was a sufficient basis to found the defence: "If we accept the principle that payments made under a mistake of law should be prima facie recoverable, in the same way as payments made under a mistake of fact, a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust . This does not mean that the concept of unjust enrichment needs to shift the primary focus of its attention from the moment of enrichment. From the point of view of the person making the payment, what happens after he or she has mistakenly paid over the money is irrelevant, for it is at that moment that the defendant is unjustly enriched. However, the defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt ." 21 Mr McManamey also relied on a passage in the judgment of Dawson J in David Securities appearing at pp.405-6: "The tentative acceptance of change of position as a defence to a claim for restitution may now I think be stated more positively in the light of the decision of the House of Lords in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. As Lord Goff of Chieveley observed in that case, it is basic to the concept of unjust enrichment that 'where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution'. Whilst unjust enrichment does not of itself constitute a cause of action, it provides a 'unifying legal concept' and serves to mark out the defences to claims in restitution."

22 As Mr McManamey submitted, the law with respect to restitution and the defence of change of position is in a developing state. In the passage immediately following the broad statement of principle for which he contends the majority make reference to the scope of the defence in Canada and the United States: "[T]he defence operates in different ways but the common element in all cases is the requirement that the defendant point to expenditure or financial commitment which can be ascribed to the mistaken payment. In Canada and in some United States decisions, the defendant has been required to point to specific expenditure being incurred because of the payment. Other cases in the United States allow a wider scope to the defence, such that a defendant can rely upon it even though he or she cannot precisely identify the expenditure caused by the mistaken payments." 23 The appellant does not point to expenditure or financial commitment which might be ascribed to the award payments. He relies on the detriment that he made no claim to payment from the Department of Social Security. I have been able to locate few authorities which support the proposition that a detriment, other than the expenditure of the monies mistakenly paid (on items other than ordinary living expenses) constitutes a change of position for the purpose of the defence. 24 In The Council of the City of Sydney v Burns Philp Trustee Company Ltd (In Liquidation) & Anor (unreported, NSWSC, Com D, 13 November 1992) Rogers CJ Com D considered the scope of the defence of change of position in the light of the decision in David Securities which had just been handed down. In that case the provisions of a lease between the Council as lessor and the Trustee Company as lessee provided that rent should be determined as a fixed percentage of the "unimproved land value" of the premises. In the event that the concept of "unimproved land value" was abandoned in the Valuation of Land Act a clause in the lease made provision for the parties to appoint a valuer to determine the valuation of the land. The concept of "unimproved land value" was abandoned. The Valuer General thereafter issued assessments as to the "land value" of the premises. Both parties to the lease acted for a number of years on the assumption that the latter was synonymous with "unimproved land value". Giles J in related proceedings found this assumption to be wrong. The Trustee Company brought a cross claim for recovery of overpayments of rent. Rogers CJ Com D accepted that the Council had changed its position to its detriment by not obtaining a private valuation. This entitled the Council to defeat the prima facie right to restitution to the extent of the detriment suffered by reason of that change of position (p.21). 25 In Killham v Banque Nationale de Paris (unreported, Supreme Court of Victoria, Com D, unreported, 28 June 1994) Hedigan J considered that the defendant bank would have a defence to a claim in restitution against it arising out of its assignment of its security. His Honour said this: "Firstly, the assignment of the debenture itself constituted some alteration in position because the bank gave up its security. That security, in my judgment, must have at least realised, if exercised, the amount of the overpayment namely approximately $244,000. … Its change of position in that respect was that instead of exercising its powers under the debenture, which I conclude would have enabled it to recover its debt, it would, if the plaintiff succeeded, be obliged to return the overpayment. In my judgment this constitutes a change of position with detriment. It has never been argued by the plaintiff that the monies were not lawfully due to the bank." 26 It should be noted that his Honour's observations in this regard were obiter. In the event, the plaintiff's claim in that case failed. 27 In Morgan Guaranty Trust Co of New York v Outerbridge (1990) 66 DLR (4th) p.517, Osborne J in the Ontario High Court of Justice considered the change of position defence in a case in which the defendant's bank had mistakenly credited the sum of $150,000 to his account. The defendant was a solicitor. He believed that the sum had been paid into his account on behalf of a client. Acting on the strength of that belief he had handed over his files with respect to that client to new counsel believing that his account had been paid in full. Osborne J reviewed the authorities concerning the defence of change of position. In particular, he referred to the judgment of Goff J in Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1979] 3 All ER 522 at 535 together with a number of Canadian authorities and concluded (at 551): "[I]f the defendant has changed his position so that it would be inequitable to require him to make restitution, then restitution will not be ordered."

His Honour went on to observe that the mere fact that the money or benefit conferred by the mistake has been spent is not sufficient to amount to a change in position, and in this respect he cited Rural Municipality of Storthoaks v Mobil Oil Canada Ltd (1975) 55 DLR (3d) 1 and Hydro Electric Com'n of Township of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193. His Honour accepted that the handing over of the defendant's files to new counsel had deprived him of the leverage that would have been immeasurably important in securing payment of the amount due to him on behalf of the client. In those circumstances his Honour was of the view that it would be inequitable for the defendant to be required to repay the monies to his bank. 28 I note that Morgan Guaranty was decided before David Securities and was not referred by the majority in the course of a review of the Canadian authorities. As already noted, their Honours commented on the trend of Canadian and some United States decisions in which the defendant had been required to point to specific expenditure being incurred because of the payment. 29 In David Securities the majority observed that it was not appropriate to give a detailed explication of the defence of change of position (p.386). They noted that in Lipkin Gorman it was held that English law should recognise the defence but, again, its scope had not been defined. In that case, Lord Bridge of Harwich observed (at 558): "I agree with my noble and learned friend, Lord Goff of Chieveley, that it is right for English law to recognise that a claim to restitution, based on the unjust enrichment of the defendant, may be met by the defence that the defendant has changed his position in good faith. I equally agree that in expressly acknowledging the availability of this defence for the first time it would be unwise to attempt to define its scope in abstract terms, but better to allow the law on the subject to develop on a case by case basis." 30 Lord Goff expressed the principle underlying the defence in this way (at 579): "In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution." 31 I note that in Restitution Law in Australia (Mason & Carter, Butterworths, 1995) at para. 2411 it is suggested that the broad statement of principle quoted above "may be too flexible a view of the defence". 32 I return to the principles which emerge from David Securities. There is a prima facie right to recovery of monies mistakenly paid. The defence of change of position ensures that the enrichment of the recipient is prevented only in circumstances where it would be unjust. The central element of that defence is that the defendant acted to his or her detriment on the faith of the receipt. Such a defence is not made out where the defendant has simply spent the money received on ordinary living expenses 33 In this case there was not one payment but rather over a period of some 87 weeks the appellant received periodic payments of $127. At the time of the receipt of each payment there was in existence a valid award of workers' compensation. On the faith of the receipt of those periodic payments throughout the period the appellant did not apply for or receive benefits to which on the Magistrate's findings he was entitled. 34 The circumstance that the award payments were applied to meet the appellant's ordinary living expenses seems to me to overlook the detriment suffered by the appellant in not claiming social security benefits in reliance on the receipt of the workers' compensation payments. 35 The defence of change of position assumes good faith on the part of the recipient. The Magistrate's findings do not suggest this was an issue. Further, there is nothing to suggest that the weekly payments of $127 were in excess of the weekly payments which the appellant would otherwise have received in the way of Department of Social Security benefit payments. 36 I consider having regard to the Magistrate's findings and in particular the finding set out in paragraph 4 (j) above that the appellant has made out his defence of change of position within the broad statement of principle enunciated in David Securities. 37 For these reasons I consider that the Magistrate erred in law in concluding that the appellant had not established the defence of change of position. 38 I answer the Stated Case as to contention (3) "Yes".

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