Portman Building Society v Hamlyn Taylor Neck (A Firm)

A restitutionary claim requires enrichment of the defendant, unjustness, and enrichment at the claimant’s expense. A mistaken payment alone is insufficient. Where a solicitor receives money as the client’s agent, holds it to the client’s order, and applies it under an unrevoked mandate, the solicitor is an accounting party but is not enriched by the receipt. A legally effective transaction is not unwound by mistake or misrepresentation unless the payer rescinds or otherwise withdraws from it. Once the money has been properly applied under the mandate, there is no restitutionary balance to recover.

Portman Building Society advanced money for the purchase of a property and instructed Hamlyn Taylor Neck to complete the transaction. The Society alleged that the solicitors knew the property would continue to operate as a guest-house and failed to disclose that part of the purchase price represented goodwill.

The Society abandoned or accepted the dismissal of its other claims, including claims in contract, tort, trust and fiduciary duty. The remaining claim sought an account and repayment of money paid under an alleged mistake of fact. The Vice-Chancellor struck out that claim. The central issue on appeal was whether the solicitors were liable to make restitution after receiving and applying the money in accordance with the Society’s instructions.

1. The appeal was dismissed with costs. The application for leave to appeal to the House of Lords was refused.
2. Per Lord Justice Millett, restitution for unjust enrichment requires consideration of three questions: whether the defendant was enriched, whether the enrichment was unjust, and whether it was at the claimant’s expense. Mistake is only one possible factor making enrichment unjust. It cannot supply a restitutionary remedy where the defendant was not enriched.
3. The solicitors received the money as trust money belonging in equity to the Society. They held it to the Society’s order, did not receive it for their own use, and applied it in exchange for the mortgage in accordance with an unrevoked mandate. They were therefore accountable, but the account showed that nothing was due.
4. The ordinary mistake-of-fact cases concern money paid to the defendant’s own use or for a third party’s benefit. They do not apply where an agent receives money for the principal’s own use and properly applies it to the principal’s order. An agent who has paid money to the principal or to the principal’s order has obtained a good discharge.
5. The agent’s liability rules concerning payment by a third party to an agent were inapplicable. Here the solicitors received the money from their own principal and acted under the principal’s authority. The Society’s mistake did not automatically revoke or invalidate the mandate. Misrepresentation makes a transaction voidable, not void. Until rescission, the transaction remains effective and the recipient’s right to deal with the money remains defensible.
6. Lord Justice Morritt and Lord Justice Brooke agreed with Lord Justice Millett. The Society’s claim was misconceived because the whole of the money had been expended on its behalf.

• High Court, Chancery Division: The Vice-Chancellor struck out the remaining restitutionary claim for disclosing no reasonable cause of action.
• Court of Appeal (Civil Division): The court dismissed the appeal with costs and refused leave to appeal to the House of Lords.