Written by Youssef Maksisi, Associate

In Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512 (Australian Financial Services v Hills), the High Court of Australia relied upon the concept of detriment as a unifying principle to justify the prevention of inequitable and unconscionable results. However, the Court left open the question of how detriment was to be assessed.

The Facts of the Case

The case of Australian Financial Services v Hills concerned an action to recover in unjust enrichment for moneys paid under mistake.

Hills and Bosch, were trade creditors of a collection of companies controlled by a person known to the parties (referred to collectively as TCP). The finance company, Australian Financial Services and Leasing Pty Ltd (Australian Financial), claimed that it had been induced by way of a fraud perpetuated by TCP to make payments to Hills and Bosch. It was also alleged that, in turn, TCP further induced Hills and Bosch to apply the payments that they had received from Australian Financial towards trade debts which were owed by TCP to Hills and Bosch. In part due to those payments, Hills refrained from taking any recovery action against TCP. While, in the case of Bosch, there was a discontinuance of recovery proceedings that Bosch had already commenced. Subsequent to this, Bosch and Hills resumed their trading relationship with TCP.

Subsequent to all of these arrangements, TCP ceased trading and became insolvent. Australian Financial, after discovering the fraud, commenced proceedings against Hills and Bosch for restitution of the money Australian Financial had paid to them (as explained above).

The Decision at First Instance and on Appeal

The Supreme Court of New South Wales upheld part of Australian Financial’s claim against Hills and Bosch. While, when the matter was before the NSW Court of Appeal, that Court rejected Australian Financial’s claim to restitution from Hills and Bosch on the basis that those parties had ‘changed their position’ upon receiving payment from Australian Financial.

The NSW Court of Appeal overturned the judgment at first instance and found that both Hills and Bosch had acted on the receipt of the funds from Australian Financial, and that their action(s) had caused them, respectively, sufficient detriment to enable them to rely on the defence of change of position [see paragraph 166 of the judgment].

The High Court’s Decision

The main questions posed by this case are: How much detriment must be established before the person making the representation will be ordered to make good the representation? How much detriment must be established before court will intervene to protect the innocent recipient of a mistaken payment?

The High Court considered, on 7 May 2014, in Australian Financial Services v Hills the defence of ‘change of position’ to a claim in restitution based upon a claim of mistake of payment. The court determined that the appeal by Australian Financial should be dismissed, holding that in cases where a party seeks relief by way of restitution on the basis of money paid by mistake the equitable notions of unconscionability should be the guiding principles. The High Court also held that, in considering the relief sought by such a party, it was imperative that the court undertake an assessment in relation to who should bear the loss and why [see paragraph 78 of the judgment].

The High Court, in dismissing the appeal, found that where a party established to the court’s satisfaction that the detriment suffered by that party was/is ‘substantial’, then the recipient of the money mistakenly paid is not required to establish a ‘quantifiable financial detriment’ in order to succeed [see paragraph 88 of the judgment]. A further issue which was significant (both on the particular facts of this case, as well as in the court’s reasoning), was that forbearance by a party in relation to its right is relevant to the issue of detriment.

In considering the issue of what degree of detriment must be established before the court will intervene, it is important to consider that the High Court upheld the decision of the Court of Appeal (see above for a summary of that decision).

What Degree of Detriment Must Be Established?

In order to understand what degree of detriment a party is required to establish, it is instructive to consider the argument raised by the appellant, Australian Financial, in order to understand the reasons for the High Court ultimately rejecting this argument.

Australian Financial argued that a Court should consider the extent to which the recipient was ‘disenriched’ after the mistaken payment had been received by that party. The Court, in rejecting this argument, held that the preliminary principle of the doctrine of restitution is that a mistaken payment gives rise, prima facie, to an entitlement to the repayment of that amount.

Whereas, the second enquiry the Court should undertake is to determine whether it is inequitable for the recipient to retain the benefit, in all of the circumstances. The Court rejected any suggestion that the principle of ‘unjust enrichment’ is the overriding principle which governs the law of restitution in Australia, holding instead that that the law of restitution as it is in Australia is governed by equitable principles [see paragraphs 15 and 16 of the judgment].

The Court further held that the primary consideration, where such equitable principles are concerned, is a consideration of who is to bear the loss that has been occasioned by the mistaken principal and why. Essentially, the relevant consideration is whether or not an inequitable outcome occurs as a result.

What if there is an Inequitable Outcomes?

The Court considered that an order for restitution may result in an inequitable outcome in circumstances where the recipient relies on the receipt of the money to such an extent that should that party be forced to repay the amount it would suffer detriment [see paragraph 17 of the judgment]. Consistent with the approach of determining whether it is inequitable for the recipient to retain the benefit in all of the circumstances, the Court then assessed the circumstances surrounding the parties’ reliance on the payments made, and what actions (or omissions) those parties took which gave the basis for a claim that they would be exposed to a substantial detriment were they forced to repay the amounts (mistakenly paid to them) back. Clearly, the Court refused to engage in a complete assessment or determination of the scope of the ‘change of position’ defence.

In their joint reasons, their Honours concluded that were they to engage in such an assessment or determination it would “mislead by distracting attention from the content of the principle to the manner of its expression” [see paragraph 98 of the judgment]. Given this approach, the Court’s decision has given credence to the argument that relief by way of restitution can be considered in a wide range of circumstances.

The Court, effectively, determined that such relief would be considered with reference to the particular circumstances of the case, and with particular reference to the practical effect of that relief, were it to be granted. The Court, therefore, rejected the argument that a rigid test or mathematical calculation of loss or detriment is necessary in such cases.