Recovering Money Paid by Mistake

Recovering money paid by mistake is a claim in restitution for unjust enrichment because of mistake.

If you have accidently made a payment to the wrong person – paid into the wrong bank account, overpaid an invoice, etc. then you may have a claim.

Overall, there are three (3) components for an unjust enrichment case, they are:

The enrichment; and
The enrichment being obtained at the plaintiff’s expense; and
The enrichment being unjust.

If a payer makes a mistaken payment to a payee, there are some defences to a restitutionary claim for unjust enrichment.

If you are a payer of money by mistake, or you are the payee of money by mistake, then this article will explain the causes of action and any possible defences.

If you are a recovering money paid by mistake, or you are the payee of money by mistake, then contact us to explain the causes of action and any possible defences

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The Courts have decided that monies paid by mistake give rise to a prima facie obligation to make restitution to the payer.

In ANZ Group Ltd v Westpac Banking Corporation [1988] HCA 17, the joint decision of Mason CJ, Wilson, Deane, Toohey and Gaudron JJ said:

[R]eceipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment.

The basic elements for a restitutionary claim for unjust enrichment because of money paid by mistake are as follows:

There must have been a payment to the payee (enrichment); and
The payment must have been at the detriment of the payer; and
The payment must be unjust.

I will explain these in more detail below.

There must have been a Payment to the Payee

Obviously, for an action in restitution for a mistaken payment, there must have been a payment from the payer which enriches the payee.

The payment must also be at the detriment of the payer.

The Payment must have been at the Detriment of the Payer

When recovering money paid by mistake, another basis of the unjust enrichment is that the payee has suffered a detriment. This means that the money paid must be from the payer’s own funds.

In Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68 the High Court of Australia discuss this in relation to the passing on of the tax obligation to their clients. Gleeson CJ and Gaudron and Hayne JJ said:

It is clear that, in a direct and immediate sense, the payments were made by the appellants, out of their own funds, to the respondent

If the payer makes a payment to the payee from his/her/its own funds, which enriches the payee at the detriment of the payer, then the enrichment must also be unjust.

The unjust factor is the third element when recovering money paid by mistake.

The Payment must be Unjust

This article is not going to deal with all unjust factors in law. This article will simply focus on the unjust factors in relation to recovering money paid by mistake.

The unjust factor when recovering money paid by mistake is “mistake”.

In Citibank Limited v Department of Public Works and Services [2001] NSWSC 1066, Newman AJ said:

… once a payment has been made to another by mistake there is a prima facie obligation on the part of the person receiving that payment to make restitution.

So, the prima facie obligation rests on the fact that the payer’s payment due to a mistake, in itself makes the payee’s enrichment unjust.

The mistake can be either in fact or in law. This was decided in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48 in which Mason CJ, Deane, Toohey, Gaudron and McHugh JJ said:

When a defendant receives a payment which he has no right to receive and which the plaintiff has paid to him by mistake, the injustice of the defendant’s enrichment does not depend on the nature of the mistake that caused the payment to be made. Whether the plaintiff made a mistake of law or a mistake of fact, the defendant, having no right to receive the payment, is unjustly enriched by its receipt.

So, just the receipt of money from a payer to the payee that the payee has no right to, paid by mistake or law or of fact, unjustly enriches the payee.

Examples of Money Paid by Mistake

The types of things which allow recovering money paid by mistake can include:

Money paid into the incorrect bank account; or
Money paid pursuant to a contract that was not due and payable; or
Mistaken overpayments – money had and received.

If these things have happened by mistake, at the detriment of the payer, which enriches the payee, then the payer can make a claim in restitution against the payee, subject to any defences.

Defences to a Claim Recovering Money Paid by Mistake

As the cases above illustrate, there is a prima facie right to restitution in relation to recovering money paid by mistake. This essentially acts the same way as a legal presumption.

Therefore, the onus is on the payee defendant to raise any of the legal defences open to them.

In Barclays Bank Ltd v W J Simms Son and Cooke (Southern) Ltd [1979] 3 All ER 522 Lord Goff J stated:

If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done so.

The only two (2) considered in this article are:

The payment is made for good consideration; and
The payee has changed his/her/its position.

I will discuss these in more detail below.

The Payment is Made for Good Consideration

Consideration is defined in Butterworths Concise Australian Legal Dictionary as:

The price, detriment, or forbearance given as value for the promise.

In contract law, consideration must flow from both sides, and is the value exchanged. Commonly, money in exchange for goods and/or services.

Therefore, if the payee defendant has given consideration for the money paid by the payer plaintiff, then it would not be unjust for the defendant to keep it, or part of it.

This defence is most commonly raised in matters where money is paid pursuant to a contract that was not due and payable. As with all contractual interpretation, the term must be read in conjunction with the contract as a whole.

The other arguable defence is the change of position defence.

The Payee has Changed His/Her/Its Position

The basis for the change of position defence is that the payee defendant has received the money in good faith and has changed its position in reliance of the receipt of the money paid by mistake.

In Lipkin Gorman v Karpnel Ltd [1991] AC 548, the House of Lords said:

… the defence is available to a person whose position has so changed that it would be inequitable in all circumstances to require him to make restitution, or alternatively to make restitution in full.

This was seemingly accepted in Australia in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48 in which Mason CJ, Deane, Toohey, Gaudron and McHugh JJ said:

If we accept the principle that payments made under a mistake of law should be prima facie recoverable, in the same way as payments made under a mistake of fact, a defence of change of position is necessary to ensure that enrichment of the recipient of the payment is prevented only in circumstances where it would be unjust.

The change of position defence essentially means that a right to restitution may be denied if it would cause a greater injustice to the payee defendant, who has acted to his/her/its detriment on the faith of the receipt, than the injustice being suffered by the payer plaintiff.

The elements of the defence can be made out if:

The payee is no longer enriched; and
The payee has acted to their/its detriment on the faith of the receipt; or
Because the enrichment has been taken away from them in circumstances beyond their control; and
The recipient’s position changed is as a result of the enrichment; and
It would be more unjust to require the recipient to make restitution.