Somerset Equipment Finance (UK) Limited v Lan Support Limited

A change of position defence to restitution is governed by legal principle, applied flexibly to all the circumstances. Payment away under a contract later found void can still be a transaction and may constitute a qualifying detriment. The court should consider causation, irreversibility, good faith and the surrounding circumstances; neither the absence of contractual entitlement nor a possible restitutionary claim against a third party necessarily defeats the defence.

Summary judgment is inappropriate where the defence raises materially disputed facts or an unsettled area of law likely to benefit from findings at trial. Security for costs may be ordered where a claimant’s ability to pay depends on unsupported assurances from a foreign parent company.

The claimant, an asset finance company, sought restitution of sums paid to the defendant under purported equipment-sale arrangements. The equipment did not exist, so the parties agreed that the contracts were void ab initio and that the defendant was prima facie liable to repay the money.

The defendant relied on change of position, alleging that it had paid almost all the money to an intermediary in the intended back-to-back transactions. The claimant applied for summary judgment on that defence. The defendant also applied for security for costs, relying on the claimant’s balance-sheet insolvency and its dependence on a United States parent company.

The issues were whether the change of position defence had no real prospect of success and whether there was reason to believe that the claimant could not pay an adverse costs order.

1. Summary judgment. The claimant’s application was dismissed. The applicable test under Civil Procedure Rules 1998, rule 24.2, required the claimant to show that the defence had no real prospect of success and that there was no other compelling reason for trial. The court should be cautious where the law is uncertain or developing and the issue would benefit from facts found at trial.
2. Change of position. The defence recognised in Lipkin Gorman v Karpnale is based on legal principle, not an uncontrolled discretion. Its broad formulation requires consideration of whether it would be inequitable, in all the circumstances, to require full restitution. The defendant’s pleading was therefore sufficient to raise the defence.
3. The fact that money was paid under a contract later held void did not prevent the payment from being a transaction or amounting to a detriment. A transaction concerns what the parties did; the legal consequences of their acts are a separate question. The defendant therefore had a real prospect of proving that its payment to CMI constituted a qualifying disenrichment.
4. The possible reversibility of the loss was relevant but was not an exhaustive test. The defendant was not shown to have no real prospect of proving an irreversible detriment merely because it might have a restitutionary claim against CMI, particularly when recovery ultimately depended on claims against an insolvent company. The law on the extent to which a defendant must pursue third-party recovery remained uncertain.
5. The claimant failed to establish that the defendant had assumed the risk of repayment in the manner recognised in Goss v Chilcott. The application also raised arguable issues concerning the relevance of causation, the parties’ knowledge of the transaction structure, alleged rental payments, VAT recovery and relative fault. These matters required fuller factual investigation. The observations on relative fault in Dextra Bank & Trust Co Ltd v Bank of Jamaica were obiter and had been criticised.
6. Security for costs. The defendant’s application was granted. The threshold in rule 25.13(2)(a) was crossed because the claimant was balance-sheet insolvent and its ability to meet an adverse costs order depended entirely on the future willingness and ability of a foreign parent company, unsupported by direct evidence or an enforceable guarantee. Security was fixed at £58,000, subject to review when the parties had prepared their costs estimates.

First-instance decision. No prior appellate decision was stated in the judgment.