Recovering Money Paid by Mistake

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

If you have accidentally paid 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 of an unjust enrichment case, they are:

1. The enrichment and
2. The enrichment being obtained at the plaintiff’s expense and
3. The enrichment is unjust.

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

Suppose you are a payer of money by mistake or the payee of money by mistake. In that case, our debt recovery lawyers explain the causes of action and any possible defences in this article.

Recovering Money Paid by Mistake

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 essential elements for a restitution claim for unjust enrichment because of money paid by mistake are as follows:

1. There must have been a payment to the payee (enrichment), and
2. The Payment must have been at the detriment of the payer and
3. 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 that enriched the payee.

The payment must also be at the payer’s detriment.

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 funds.

In Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68, the High Court of Australia discussed passing 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 funds, which enriches the payee to 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 will not deal with all unjust factors in law. It will simply focus on the unjust factors related 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 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, the receipt of money from a payer to the payee that the payee has no right to, paid by mistake, law, or fact, unjustly enriches the payee.

Examples of Money Paid by Mistake

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

1. Money paid into the incorrect bank account or
2. Money paid under a contract that was not due and payable or
3. Mistaken overpayments – money had and received.

If these things have happened by mistake, to the detriment of the payer, enriching 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 about 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 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:

1. The Payment is made for reasonable consideration and
2. 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, it is 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 when money is paid under a contract that was not due and payable. As with all contractual interpretations, the term must be read with the contract.

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 based on 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 acted to his/her/its detriment on the faith of the receipt, than the injustice suffered by the payer plaintiff.

The elements of the defence can be made out if:

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

Recovering Money Paid into the Wrong Bank Account

The most common reason for money being paid by mistake is money accidentally paid into the incorrect bank account.

It is extremely difficult to recover money paid by mistake into the wrong bank account if the payee does not want to give it back because the bank will usually not assist.

The bank may try to contact the account holder, but banks do not have the power to return the funds if they have already been transferred.

Further, the banks will evoke privacy by refusing to provide the payer with any details so that we can attempt to collect these funds.

This ultimately leaves you with no money, no (or very little) assistance from the bank, and no idea who to sue to recover these funds. We can help!

Rule 208C(2)(b) of the Uniform Civil Procedure Rules 1999 (Qld) allows a mistaken payer to obtain orders from the Court to ascertain the identity or whereabouts of a prospective defendant—this is sometimes called preliminary disclosure.

Preliminary Disclosure to Find a Debtor

Rule 208C(2)(b) states:

(2) The court may order that the other person:
(b) produce to the applicant a document or thing relating to the identity or whereabouts of the prospective defendant as directed by the order.

This Court order allows you to seek an order ordering the bank to provide the identity or whereabouts of the mistaken payee. The bank will then have to give the mistaken payer with information such as (but not limited to):

1. The residential addresses and mailing addresses for the holder or holders of the Account.
2. Contact phone numbers for the holder or holders of the Account and
3. email addresses for the holder or holders of the Account.

Example of an Order for Preliminary Discovery

We successfully obtained orders for preliminary discovery, which enabled us to recover a significant amount of money for clients who had inadvertently paid money into the wrong bank account. The Typical order would be:

The order of the court is that pursuant to rule 208C(2)(b) of the Uniform Civil Procedure Rules 1999 (Qld):

1. By 4:00pm on a date seven days after the entry of orders for discovery, the respondent make discovery to the applicant of the following documents in relation to the [BANK] account (BSB: 000-000 Account: 000 000 00) which received $XXXXXX on or about [DATE] from [PAYER] account number ending XXXX held in the name of the applicant, [PAYER NAME]:

(a) a document or record showing the name of the holder or holders of the Account and persons authorised to operate and transact on the Account for the period 1 November 2021 to the date of these orders;

(b) a document or record which discloses the following information for the period 1 November 2021 to the date of these orders:

(i) the residential addresses and mailing addresses for the holder or holders of the Account and any persons authorised to operate the Account;

(ii) contact phone numbers for the holder or holders of the Account and any persons authorised to operate the Account; and

(iii) email addresses for the holder or holders of the Account and any persons authorised to operate the Account;

2. There be no order as to costs.

The application should be accompanied by an affidavit with evidence of all the steps taken by the payer and the bank to recover these funds and the final notice from the bank that the payee will not return the funds and that they can do nothing else.

It is common that the bank, as a defendant, will not consent to or oppose these orders or similar orders. Therefore, this type of order can be made in chambers without the need for an oral hearing.

Once the orders are made, serve them on the bank. The bank will provide you with the payee’s details, and you can start the process of recovery and enforcement.

Recovering Money Paid by Mistake

Recovering money by mistake in restitution for unjust enrichment is complicated. We strongly advise seeking qualified legal advice.

If you are a mistaken payer of money, contact us about the causes of action and commencing legal action in Court.

If you are the payee of money by mistake, contact us about any possible defences, such as valuable consideration or a change of position.