Australian Financial Services and Leasing Pty Ltd v Hills Industries Limited  [2014] HCA 14

On 7 May 2014, the High Court unanimously held that Hills Industries Ltd (Hills) and Bosch Security Systems Pty Ltd (Bosch) established the defence of change of position.  Hills and Bosch were not required to repay monies to Australian Financial Services and Leasing Pty Limited (“AFSL”), the party who had paid them monies as a result of a third party’s fraud.  AFSL appealed from the decision of the NSW Supreme Court of Appeal.  The appeal was unanimously dismissed.

Background

Mr Skarzynski, on behalf of his associated companies (TCP), fabricated invoices for the purchase of equipment from Hills and Bosch. Mr Skarzyinski presented these invoices to AFSL for the purpose of obtaining finance, whereby AFSL agreed to purchase and lease back equipment. AFSL paid the amounts of the false invoices to Hills and Bosch under the mistake that the equipment existed. TCP was indebted to Hills and Bosch. The payments upon being received were treated by Hills and Bosch as reducing TCP’s indebtedness. Also on the faith of the receipt, Hills withdrew a threat of legal action and recommenced trading with TCP. Bosch consented to setting aside default judgments against TCP and also resumed trading with TCP. Upon AFSL’s discovery of the fraud, it commenced proceedings for restitution against Hills and Bosch.

Applicability of the defence

AFSF submitted that because the change of position comprised a loss of opportunity or loss of property rights, it was necessary to assess the ‘value’ of the lost rights and opportunities in order to measure the extent to which Hills and Bosch were enriched. AFSL submitted that the defence would only operate to the extent of that value.  In doing so, AFSL invited the Court to accept the ‘disenrichment’ principle that would require the Court to consider the extent to which Hills and Bosch had been ‘disenriched’ subsequent to the receipt.

AFSL’s submission, was rejected by the Court. The majority of the Court held that the concept of unjust enrichment is inconsistent with the law of restitution, as it has developed in Australia. The enquiry undertaken in relation to restitutionary relief in Australia is conducted by reference to equitable principles. Thus, the proper question is whether it would be inequitable in all the circumstances to require Hills and Bosch to repay the money. This requires consideration as to what was done by the recipients in reliance upon the receipt. In assessing the disadvantage Hills and Bosch would suffer if they were required to repay the monies, the Court noted that the consequences for Hills and Bosch were irreversible, as were the consequences of the decision to continue trading with TCP. The Court held that the disadvantages were such that it would be inequitable to require Hills and Bosch to repay the monies.

Discussion:

The defence of change of position was first accepted by the High Court in David Securities Pty Ltd v Commonwealth Bank of Australia.[1] However, the Court on that occasion did not provide a detailed explanation of the defence.

This judgment is significant, as it articulates the scope of the defence, particularly as it relates to the assessment of whether the one has acted to its detriment on the faith of a receipt. This judgment traces the historical development of the change of position defence from its earliest origins contained in the proposition of Lord Mansfield in Moses v Macferlan.[2]

The Court has distanced itself from the ‘disenrichment’ theory, which has been accepted in the United Kingdom and endorsed by some academics.