In Webber v Department for Education, the High Court provided guidance on the operation of the good faith exception to the change of position defence in a mistaken payment case. The exception is drawn from Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 where Lord Goff explained that “the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution” (at 580).

In this case, Mr Webber had returned to work following a short period of retirement. He notified his pension fund of his return, but, despite receiving a letter requesting that he update the fund on any changes in his circumstances (such as his 55th birthday), he failed to do so. As a result, his pension was overpaid for several years. The fund sought to recoup the overpayments. Mr Webber complained to the Pensions Ombudsman that he had changed his position in reliance on the overpayments. A Deputy Ombudsman found that as Mr Webber had turned a blind eye to the need to inform the fund of any change in his circumstances he was precluded from relying on the change of position defence.

On appeal, Mr Webber argued that his failure to inform the fund was merely negligent and did not amount to a lack of good faith. Nugee J (at [61]) applied the consideration of the good faith exception in Niru Battery Manufacturing Co v Milestone Trading Ltd [2002] EWHC 1425 (Comm); [2003] EWCA Civ 1446 where the Court of Appeal and the judge at first instance described the exception as requiring a consideration of whether it was “inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake … to deny restitution to the payer” (CA at [162]).

Applying this approach, Nugee J held that (at [62]):

If a person appreciates that the payment he is receiving may be an overpayment … and can make a simple enquiry of the payer to check whether this is so but chooses not to do so, I do not see anything wrong in the conclusion that the defence is not open to him. … If it turns out that the payment was indeed an overpayment, it would be inequitable or unconscionable for such a person to deny restitution by relying on a change of position defence.

Therefore, because Mr Webber turned a blind eye to the need to notify the fund of any change in his circumstances he could be taken to have anticipated that he may be being overpaid. The onus was on him to make enquiries with the fund. His failure to do so meant that he took the risk that he was not entitled to the money. It was therefore unconscionable for him to rely on the defence (at [62]).

Webber v Department for Education [2014] EWHC 4240 (Ch), 19 December 2014