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Supreme Court Judgments

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Cite as: July 2015 89 (7) LIJ, p.59

  • Money paid under a mistake of fact.
  • In restitution action what constitutes a change in position by recipient of such money so as to preclude restitution.
  • Court needs to be satisfied that inequitable to order restitution.
  • Money paid under a mistake of fact – whether order for restitution unjust
    Southage Pty Ltd v Vescovi [2015] VSCA 117 (unreported, 22 May 2015, S APCI 2014 0051, Warren CJ, Santamaria JA and Ginnane AJA).

    The appellant was a money lender. Money was lent by the appellant to the respondent’s husband. The money was used to part pay a deposit due on a property in Kew. Repayment of the loan was secured by a mortgage over a property in Williamstown owned by the respondent. That mortgage was forged by the respondent’s husband. She had no knowledge of it. The Kew purchase was settled and the property registered in the name of the respondent. It was subject to a mortgage to the NAB.

    There was a default under the NAB mortgage. The respondent was persuaded to sell the property, albeit at less than its purchase price. The NAB took all the settlement proceeds.

    There followed litigation brought both by the appellant and respondent. It was accepted by the appellant that the mortgage to it had been forged together with the loan application associated with it. It followed that the mortgage was unenforceable. Was the appellant able to recover the money it had advanced? It argued that it was entitled to recover the money as money paid under a mistake of fact, namely that the loan and mortgage documents purportedly signed by the respondent had been signed by her, in an action for restitution.

    It was not disputed by the respondent that the money had been paid by the appellant under a mistake of fact. Recovery by the appellant depended upon a consideration of three matters:

  • Did the respondent receive a benefit from the Southage [appellant] money by which she was enriched?
  • If so, was that enrichment unjust?
  • If so, did the respondent change her position on the faith of the receipt such that she has a good defence to the claim? [27]
  • The first point was not really in issue. The respondent had received a benefit.

    It was really possible to pass immediately to the third point as the second was bound up with it.

    On appeal, the appellant conceded at [37] that the respondent’s belief that her husband provided the money for the deposit was ongoing and that is was a belief she was entitled to hold. However, it was argued at [38]–[39] that:

    “. . . it was not the respondent’s belief that her husband had provided the money for the deposit from his own funds that was the cause of her entering into the transaction to purchase the Kew property, or the subsequent sale of the property under forced circumstances. Rather, it was the respondent’s risky decision to commit to the transaction knowing that she was borrowing more than 95 per cent of the value of the property she was to purchase, together with her erroneous belief that her husband had the capacity to meet the mortgage repayments on the NAB loan. It contended that the defence of change of position should fail because the respondent had not discharged her onus of establishing the requisite causal link between the Southage [the appellant] money, her entry into the transaction and the detriment she suffered.

    “The appellant identified the critical date as being 12 February 2010, as this was the date at which the respondent entered into the NAB loan, mortgage and guarantee and bound herself to the transaction that resulted in her detriment. By this date, it was apparent that the plan that her husband would sell his $2 million in shares to fund the purchase would not eventuate. Despite the fact that the basis for the transaction – as the respondent had understood it – had changed significantly, the respondent did not seek to withdraw from the purchase. The appellant submitted that at least as at 12 February 2010, there was a basis for the respondent to mistrust any claim that her husband was able to finance the purchase of the property. In those circumstances, it submitted that the judge should have found that the respondent took a predetermined risk to enter the transaction. It was this and not her mistaken belief that her husband had paid the deposit from his own funds that was the real cause of her detriment”. [39]-[40]

    Further, the appellant submitted at [40] “that the trial judge ought to have held that the respondent’s belief that her husband’s business had provided funds for the 10% deposit on the purchase of the Kew property was neither a necessary nor sufficient condition of the respondent’s deciding to enter into the NAB loan and the NAB mortgage and therefore did not cause her to change her position”.

    The Court of Appeal referred to the relevant authorities including David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 and Australian Financial Service and Leasing Pty Limited v Hills Industries Limited (2014) 307 ALR 512. The Court of Appeal said at [52]:

    “As the various judgments in the High Court have explained, the common law action for money had and received had its roots in equitable principles. And, as those judgments make clear, what is now termed the defence of ‘change of position’ is simply a modern description of one form of disadvantage that a defendant would suffer were an order made that he or she repay moneys paid where, for example, there has been a total failure of consideration or the payment was made under mistake”.

    Reference was made to the approach taken in England and the Court of Appeal said at [67]–[68]:

    “Whatever the position may be in England, the decision in Hills Industries makes clear that the requirement of reliance is the relevant causal link. While there may be other circumstances where reliance does not provide a relevant causal link – for example if a mistaken payment is received and is then immediately stolen – such circumstances do not arise in this case. If it is shown that the respondent was acting in reliance on the receipt of the deposit when she entered the transaction that caused her detriment, the required causal link will be satisfied. Equally, if it is shown that the respondent would have entered into the transaction in any event, the detriment that resulted from the purchase cannot be said to be causally related to the receipt and therefore falls outside the operation of the defence. [endnote omitted]

    “. . . the ultimate inquiry is whether it would be inequitable in all the circumstances to require the respondent to make restitution.”

    Significantly, the Court of Appeal concluded at [73]-[74]:

    “The fundamental problem for the appellant is that it was never put to the respondent that her belief that her husband paid the deposit from his own funds was not operative at the time she entered into the transaction. It was never put to the respondent that by 12 February 2010 she would have entered the transaction in any event. The effect was that the respondent’s evidence on this point went unchallenged.

    “We do not consider that anything turns on the fact that the respondent did not take steps to withdraw from the transaction once it became apparent that she would be taking out a substantial loan. Although it is plain that the respondent (and counsel for the appellant) assumed that she was bound to complete the purchase from the time she accepted the nomination, it is not apparent why she should have withdrawn. The evidence was that at that time she believed that her husband had paid the deposit and was able to service the mortgage. It was not put to her that she had reason to believe her husband had misled her or that her belief was unreasonably held. She believed he had assets, and a business of substantial value. She may have believed that he had sufficient assets to pay the purchase price, but instead of committing his capital to the house, thought it preferable that they borrow the money. None of this was explored with the respondent in evidence”.

    In summary, like the trial judge, the Court was satisfied that it would be inequitable to order the respondent to make restitution.

    The appeal was dismissed.

    Professor Greg Reinhardt is executive director of the Australasian Institute of Judicial Administration and a member of the Faculty of Law at Monash University, ph 9600 1311, email The numbers in square brackets in the text refer to the paragraph numbers in the judgment. The full version of this judgment can be found at


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