We all make mistakes and it sometimes happens that individuals receive money that has been paid to them in error.  For instance, workers might discover that they have been over-paid by their employers, or individuals might receive unexpected sums of money into their bank accounts.

The law in this area is not straightforward and Anthony Gold recently defended a client who faced exactly the situation described above. He received into his personal bank account three separate lump sum payments totalling around £30,000. The payments were received from a large organisation with whom our client had been dealing with at around the same time. He therefore genuinely believed that the payments were meant for him.

The organisation realised their mistake and took steps to recover the money that had been paid to our client, instead of the intended individual with the same name. The case was eventually settled out of court as it was not in the interests of either party to incur the stress or expense of a trial.

The law of restitution applies when one person has been ‘unjustly enriched’ by another, due to a payment mistakenly made to them. Our client in this case had been ‘enriched’, but the question was whether or not that enrichment had been ‘unjust’ and whether he would be legally entitled to keep the money.

Usually, a party who mistakenly pays money to another is entitled to recover it. The fact that a defendant honestly believes they were entitled to receive money is not a valid defence.

However, a valid defence may instead arise if, as a result of the payment made, the defendant has changed their position in good faith and to such an extent that it would be unjust to require them to repay the money. The mere spending of money will not be enough to establish this defence and the innocent party must have incurred expenditure which he or she would not have incurred otherwise. There must be a causative link between the receipt of payment and the defendant’s changed position.

A defendant will be unsuccessful in defending a claim if he or she has spent the money without making reasonable inquiries as to why it was received into their account. Further, if there is an element of bad faith (for example failing to take any action when becoming aware of the mistake) then a defence will also fail.