John Ruskin College v Harley

In a claim for unjust enrichment, dishonesty prevents reliance on the defence of change of position. Negligence, uncertainty, or an honestly held insufficiently founded belief does not necessarily amount to bad faith. The defence requires extraordinary expenditure which would not otherwise have been incurred. Ordinary expenditure and payment of debts are insufficient. Where expenditure creates or preserves an asset, the defence is unavailable to the extent that the defendant remains enriched, including through betterment. An administrative order made on a unilateral application, without notice to the opposing party, does not necessarily prevent a restitutionary claim.

The claimant’s insurers had left £25,000 in court after settling an earlier personal injury claim brought by the defendant. Years later, the Court Funds Office traced the defendant and, following an application made without notice to the claimant, paid the money and accrued interest to him.

The claimant brought proceedings for unjust enrichment, alleging fraud, bad faith and, alternatively, seeking restitution despite the payment having been authorised by the Senior Master. The central issues were whether the defendant acted dishonestly or in bad faith, whether the court order was conclusive, and whether expenditure incurred after receipt of the money established a change of position.

1. Fraud and bad faith. The claim based on dishonesty failed. The defendant honestly believed that the Court Funds Office and the court would investigate whether the money was due to him. That belief was not dishonest, reckless, or commercially sharp practice. A lack of care or an honestly held belief on insufficient grounds does not by itself establish fraud under (1889) 14 App Cas 337. Negligence is not a bar to change of position.
2. Effect of the order. The order directing payment was essentially administrative and had been made on the application of one party, without the claimant’s knowledge. The principle in Marriott v Hampton [1775-1802] All ER Rep 631, and the related principle described in Wilson v Ray [1839] 10 Ad & El 82, did not apply. The order was not itself a defence to the claim.
3. Change of position. Applying Lipkin Gorman v Karpnale Ltd [1991] AC 548, the defendant could rely on extraordinary expenditure which would not otherwise have been incurred. Expenditure on wedding-related extravagances, holidays and a car, totalling £26,029.35, established a defence to that extent. The principles concerning good faith in Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985 were accepted.
4. Expenditure on garden works, bathroom renovation and windows was provisionally allowed at £19,741.50. The amount had to be reduced if the works produced betterment which left the defendant enriched. Expert evidence was required to determine that issue, and the question of any balance due was adjourned for a further hearing.

The judgment describes an earlier personal injury claim brought by the defendant against the claimant. That claim was settled in 2001 following acceptance of a payment into court and an interim payment. The present unjust enrichment proceedings were issued in 2013 and were determined at first instance by the High Court.