Commerzbank Ag v Price-Jones

Contractual language must be given its ordinary and natural meaning in its factual and commercial setting. Context assists construction, but cannot be used to create a commercially sensible agreement that the parties’ formal words do not express.

A recipient of a mistaken payment has a change of position defence where the recipient’s position has so changed that full restitution would be inequitable. Anticipatory change of position may suffice. The change need not involve measurable financial loss, but it must have a relevant connection with the actual or anticipated payment. A decision founded solely on the recipient’s own erroneous contractual interpretation may fail that requirement.

An investment banker claimed a guaranteed bonus of £250,000 for 2001. His employer admitted the contractual entitlement but set off a mistaken payment of £250,000 made in 2000. The dispute concerned whether a later contractual letter awarded an additional £265,000 bonus or merely increased the existing 2000 guaranteed bonus from £250,000 to £265,000.

A Deputy High Court Judge construed the later letter as awarding an additional bonus and ordered the employer to pay £250,000. Alternatively, he held that the employee’s decision to remain in employment, made in anticipation of the additional payment, established a change of position defence.

The employer appealed on contractual construction and on the requirements of change of position in restitution.

1. The appeal was allowed unanimously. The two contractual letters, read together, provided for one minimum guaranteed bonus for the 2000 performance year. The later letter substituted £265,000 for the original figure of £250,000. It did not create an additional bonus. The Deputy Judge had relied too heavily on the commercial context and insufficiently on the contractual words. Context is an aid to construction, but cannot be used to construct a contract that the formal language does not express: per Mummery LJ, with whom Sedley LJ and Munby J agreed.

2. The employee had consequently received £250,000 by mistake and was prima facie obliged to restore it. Under the principle in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, change of position applies where the recipient’s position has so changed that restitution, in whole or in part, would be inequitable. The inquiry is an evaluation governed by legal principle and practical justice, rather than an unstructured discretion.

3. A change occurring before receipt may establish the defence. There is no rule confining change of position to conduct following payment or to exceptional cases. An anticipatory change made in good faith in expectation of a benefit may suffice when the expected benefit is subsequently received. Whether it does so depends on the facts.

4. The defence is not confined to an actual reduction in assets or to detriment measurable in pecuniary terms. Nor does it invariably require a representation by the payer or detrimental reliance. Giving up employment, declining a firm offer, or choosing to remain in employment may amount to a qualifying change in appropriate circumstances.

5. There must nevertheless be a relevant connection between the change and the actual or anticipated payment. That requirement should not be burdened with the technical rules of causation developed for damages. The change must be referable in some way to the payment.

6. The employee had retained the money. His decision not to seek other work lacked a sufficiently significant, precise or substantial adverse impact. It was also based on his own erroneous interpretation of the letter, which the employer neither shared nor caused, rather than on the payment actually promised. Full restitution was therefore equitable.

7. The Deputy Judge’s judgment was set aside. Judgment was entered for the employer on the claim and counterclaim, with a declaration permitting set-off of the restitutionary claim against the 2001 bonus entitlement.

1. Court of Appeal (Civil Division): The employer’s appeal was allowed unanimously. The Deputy Judge’s judgment was set aside, and judgment was entered for the employer on the claim and counterclaim.

2. High Court, Queen’s Bench Division: Mr David Phillips QC, sitting as a Deputy High Court Judge, ordered the employer to pay the employee £250,000. He held that the later contractual letter awarded an additional bonus and stated alternatively that change of position would defeat restitution.