Derby v Scottish Equitable Plc

Money paid under a mistake of fact is generally recoverable despite the payer’s carelessness, however culpable. Recovery is barred where the payer consciously waives inquiry or accepts the risk that the supposed fact may be untrue.

An innocent recipient has a defence where a causally connected change of position makes full restitution inequitable. Mere expenditure, repayment of an ordinary debt, disappointment or an unrelated misfortune is insufficient. The defence is not confined to identifiable expenditure, and proof of lifestyle spending may be approached broadly.

Estoppel should not operate as a complete defence where that would be disproportionate to the recipient’s detriment. Restitution is determined by legal principle rather than an unfettered discretion based on sympathy or general fairness.

Scottish Equitable plc mistakenly valued Mr Derby’s pension fund without accounting for early retirement benefits already paid. Despite Mr Derby having indicated that he was receiving an annuity, the company paid retirement benefits based on the erroneous valuation. Part went towards reducing his mortgage and most of the balance funded a Norwich Union pension.

Harrison J ordered repayment of £162,790 with interest, while allowing £9,662 spent on modest lifestyle improvements to be retained under the defence of change of position: [2000] 3 AER 793. Mr Derby appealed.

The principal issues were whether the payer’s serious carelessness could preclude restitution, how broadly the defence of change of position should operate, and whether estoppel could provide a complete defence after the recognition of change of position.

1. Appeal dismissed unanimously. Robert Walker LJ delivered the leading judgment. Keene LJ agreed, and Simon Brown LJ agreed for substantially the same reasons.

2. A mistaken payment is generally recoverable despite the payer’s carelessness, however culpable. The relevant distinction is between carelessness and a conscious decision to pay without inquiry despite circumstances putting the payer on inquiry. Scottish Equitable investigated Mr Derby’s entitlement. Its investigation was seriously inadequate, but it had neither deliberately waived inquiry nor accepted the risk that he was not entitled.

3. The court has no general discretion to refuse restitution merely because recovery appears unfair. A claim for repayment is governed by legal principle. Sympathy for an innocent recipient and criticism of an incompetent payer cannot themselves displace the payer’s right.

4. The broad form of the change of position defence was accepted. A change need not consist of detrimental reliance or an identifiable item of expenditure. It must, however, be causally connected with the mistaken receipt and make full restitution inequitable. Mere spending is insufficient where the expense would ordinarily have been incurred. Courts may take a broad and undemanding evidential approach to an honest account of lifestyle expenditure.

5. The judge correctly confined the defence to the £9,662 spent on modest lifestyle improvements. Mr Derby’s reduction of his workload and failure to make other provision caused no proved detriment. Paying £41,671 towards an ordinary mortgage was not detrimental because the debt would ultimately have required payment and no advantageous loan terms were shown. The Norwich Union policy could be unwound, and Mrs Derby’s possible claims on divorce did not prevent that course.

6. The case fell comfortably within the exception recognised in Avon County Council v Howlett. It would be unjust and disproportionate for estoppel to defeat the whole restitutionary claim when change of position already protected the actual detriment. Robert Walker LJ also considered, tentatively and obiter, that change of position might pre-empt estoppel by removing the detriment on which estoppel depends. That broader question was unnecessary to the decision.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The repayment order was upheld. Permission to appeal to the House of Lords was refused.
2. High Court, Queen’s Bench Division: Harrison J gave judgment for Scottish Equitable plc for £162,790 plus interest, allowing Mr Derby to retain £9,662 under the defence of change of position: [2000] 3 AER 793. The judge refused permission to appeal.
3. Permission to appeal: Otton LJ granted permission in open court on 3 April 2000.