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THE AVAILABILITY OF PROPRIETARY RESTITUTION IN CASES OF MISTAKEN PAYMENTS

  • David Salmons

Abstract

This article is concerned with the availability of “proprietary restitution” in cases of mistaken payments. It is argued that the mistake of the claimant is an insufficient justification for proprietary restitution, but a close analysis of the case law demonstrates that the presence of additional factors can justify the availability of proprietary restitution in specific circumstances. The basis of proprietary restitution is to be found in the breach of a duty which arises separately from the claim for unjust enrichment. The significant contribution of this article is the analysis that knowledge merely creates a duty to maintain the fund until restitution is made, and that knowledge cannot establish the breach of this duty. Importantly, breach of this duty is established by a second condition which is demonstrated by the wilful misconduct of the recipient. It is this conduct which justifies the imposition of the constructive trust. By adopting this analysis, the proprietary claim in the context of mistaken transfers can be classified as forming part of the law of wrongs, rather than the law of unjust enrichment.

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Corresponding author

*Address for Correspondence: Aston Law, Aston Business School, University of Aston, Birmingham, B4 7ET, UK. Email: d.salmons@aston.ac.uk.

References

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1 A. Burrows, “The English Law of Restitution: A Ten-Year Review” in J. Neyers, M. McInnes, and S. Pitel (eds.), Understanding Unjust Enrichment (Oxford 2004), 23.

2 Armitage v Nurse [1998] Ch. 241, 252, per Lord Millett.

3 P. Birks, An Introduction to the Law of Restitution, revised ed. (Oxford 1989), 313; Birks, P., “Rights, Wrongs, and Remedies” (2000) 20 O.J.L.S. 1, 31–32. This is discussed at the text to note 105 below.

4 E.g. Getronics v Logistic & Transport Consulting (Q.B., 30 April 2004). See also Deutsche Bank AG v Vik [2010] EWHC 551 (Comm), at [4], per Burton J.

5 B. McFarlane, The Structure of Property Law (Oxford 2008), 305–07. Somewhat tentative support is evident in G. Virgo, “The Role of Fault in the Law of Restitution” in A. Burrows and Lord Rodger (eds.), Mapping the Law: Essays in Memory of Peter Birks (Oxford 2006), 92–94.

6 Fitzalan-Howard v Hibbert [2009] EWHC 2855 (Q.B.); Pertemps Recruitment Partnership Ltd. v HMRC (2011) UKUT 272 (TCC).

7 E.g. Chase Manhattan Bank NA v Israeli-British Bank (London) Ltd. [1981] Ch. 105.

8 E.g. Commerzbank Aktiengesellschaft v IMB Morgan plc [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564.

9 Birks, An Introduction to the Law of Restitution, p. 140.

10 See text following note 155 below. This distinction is drawn from Grantham, R. and Rickett, C., “Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity” (1997) 5 N.Z.L.Rev. 668, 684. E.g. Lipkin Gorman v Karpnale [1991] 2 A.C. 548.

11 G. Virgo, The Principles of the Law of Restitution, 2nd ed. (Oxford 2006), 585–89.

12 R. v Middleton (1873) L.R. 2 C.C.R. 38.

13 R. v Ashwell (1885) 16 Q.B.D. 190.

14 R. (1873) L.R. 2 C.C.R. 38.

15 W. Swadling, “Unjust Delivery” in A. Burrows and Lord Rodger (eds.), Mapping the Law: Essays in Memory of Peter Birks (Oxford 2006), 292–94.

16 Ibid., at pp. 294–96.

17 Sherwin, E., “Restitution and Equity: An Analysis of the Principle of Unjust Enrichment” (2001) 79 Tex.L.Rev. 2083, 2107.

18 Millett, P.J., “Restitution and Constructive Trusts” (1998) 114 L.Q.R. 399, 400.

19 R. Chambers, Resulting Trusts (Oxford 1997), 222–24.

20 Ibid., at pp. 23–25.

21 Millett, “Restitution and Constructive Trusts”, pp. 415–16. Another way of phrasing this is the “vindication of property rights”; G. Virgo, “What is the Law of Restitution About?” in W.R. Cornish et al. (eds.), Restitution Past, Present and Future: Essays in Honour of Gareth Jones (Oxford 1998), 312–16.

22 Virgo, The Principles of the Law of Restitution, pp. 585–89; P. Millett, “Proprietary Restitution” in S. Degeling and J. Edelman (eds.), Equity in Commercial Law (Sydney 2005), 320.

23 Ibid., Virgo, at pp. 585–89; ibid., Millett, at p. 320.

24 Virgo, The Principles of the Law of Restitution, p. 613; ibid., Millett, at p. 321.

25 See text to note 53 below.

26 W. Swadling, “Ignorance and Unjust Enrichment” (2008) 28 O.J.L.S. 627, fn. 92. Another academic who shares this view is R. Calnan, Proprietary Rights and Insolvency (Oxford 2010), at [4.15] onwards.

27 Ibid., Swadling, at p. 642, fn. 92; also ibid., Calnan: “[i]f the issue were free from authority, one might ask why he should be able to [establish a claim for proprietary restitution]”, at para. [4.75].

28 Commerzbank Aktiengesellschaft [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564.

29 Swadling, “Ignorance and Unjust Enrichment”, p. 628.

30 P. Birks, Unjust Enrichment (Oxford 2005), 192; A. Burrows, Understanding the Law of Obligations: Essays on Contract, Tort and Restitution (Oxford 1998), 67.

31 On this general trend of claimant-centred justifications in the theory of unjust enrichment; Hedley, S., “The Empire Strikes Back? A Restatement of the Law of Unjust Enrichment” (2004) 28 Melbourne Univ.L.Rev. 759, 767.

32 Chase Manhattan Bank NA [1981] Ch. 105.

33 Burrows, A., “Proprietary Restitution: Unmasking Unjust Enrichment” (2001) 117 L.Q.R. 412, 423–28; Birks, Unjust Enrichment, p. 192.

34 Burrows notes that the general availability of trusts in response to unjust enrichment would have a significant impact on the current state of law; Burrows, Understanding the Law of Obligations, pp. 67–68.

35 Fitzalan-Howard [2009] EWHC 2855 (Q.B.).

36 Ibid., at para. [50]. The claim was instead for dishonest assistance, but the presence of a trust was necessary for the success of the claim.

37 “If a constructive trust does arise, it can only be from the point at which the conscience of the recipient is affected”, at [49].

38 Pertemps Recruitment Partnership Ltd. (2011) UKUT 272 (TCC), at [82]–[83].

39 Birks, An Introduction to the Law of Restitution, p. 378. See also Chambers, R., “Constructive Trusts in Canada” (1999) 37 Alberta L.R. 173: “[t]he law has had difficulty working out precisely why and when an unjust enrichment will generate a trust”, p. 219.

40 A. Burrows, “The Relationship between Unjust Enrichment and Property” in S. Degeling and J. Edelman (eds.), Unjust Enrichment in Commercial Law (Sydney 2008), 333–34.

41 Birks, Unjust Enrichment, p. 192. Similarly, Chambers, Resulting Trusts, pp. 108–09 and Burrows, A, “Restitution of Mistaken Enrichments” (2012) 92 B.U.L.Rev. 767, 786.

42 Swadling, “Ignorance and Unjust Enrichment”, p. 641; Calnan, Proprietary Rights and Insolvency, at [4.126]. Virgo also states that this would provide “excessive protection” in The Principles of the Law of Restitution, p. 574.

43 A. Burrows, The Law of Restitution (Oxford 2011), 176–79.

44 Duggan, A., “Proprietary Remedies in Insolvency: A Comparison of the Restatement (Third) of Restitution & Unjust Enrichment with English and Commonwealth Law” (2011) 68 Wash. & Lee L.Rev. 1229, 1253.

45 E.g. Shalson v Russo [2003] EWHC 1637 (Ch); [2005] Ch. 281.

46 The idea that one could describe consumers as “taking the risk of insolvency” seems hard to reconcile with a case such as Re Farepak Food and Gifts Ltd. [2006] EWHC 3272 (Ch); [2008] BCC 22, at [2], where Mann J. referred to the “considerable disappointment and disadvantage” of consumers when the company in question had become insolvent.

47 Chambers, Resulting Trusts, p. 235.

48 Burrows, “Restitution of Mistaken Enrichments”, p. 786.

49 See also Millett, “Proprietary Restitution”, p. 322.

50 Sherwin, E., “Why In Re Omegas Group Was Right: An Essay on the Legal Status of Equitable Rights” (2012) 92 B.U.L.Rev. 885.

51 Ibid., at p. 895. Also Duggan, “Proprietary Remedies in Insolvency”, p. 1244.

52 Burrows, “Restitution of Mistaken Enrichments”, p. 788.

53 El Ajou v Dollar Land Holdings plc [1993] 3 All E.R. 717, although similar reasoning was applied by Atkin L.J. in Banque Belge pour l'Etranger v Hambrouck [1921] 1 K.B. 321, 332.

54 Shalson [2003] EWHC 1637 (Ch); [2005] Ch. 281, at [122].

55 London Allied Holdings Ltd. v Lee [2007] EWHC 2061 (Ch), at [276].

56 Häcker, B., “Proprietary Restitution after Impaired Consent Transfers: A Generalised Power Model” (2009) 68 C.L.J. 324. See also Bant, E., “Reconsidering the Role of Election in Rescission” (2012) 32 O.J.L.S. 467.

57 Ibid., Häcker, at pp. 339–41.

58 Lonrho plc v Fayed (No 2) [1992] 1 W.L.R. 1, 12, per Millett J.; D. Fox, Property Rights in Money (Oxford 2008), at [6.53]–[6.59].

59 Worthington, S., “Reviewing Rescission: Real Rights or Mere Possibilities” (2003) 1 Insolvency Lawyer 14, 14.

60 O'Sullivan, J., “Rescission as a Self-Help Remedy: A Critical Analysis” (2000) 59 C.L.J. 509, 528; Fox, Property Rights in Money, at [6.64]–[6.66].

61 Häcker, “A Generalised Power Model”, p. 351. Also Worthington, “Reviewing Rescission”, pp. 19–20, 22; Bant, “Reconsidering the Role of Election in Rescission”, p. 483; Fox, Property Rights in Money, pp. 230–32; Independent Trustee Services Ltd. v GP Noble Trustees Ltd. [2012] EWCA Civ 195; [2012] 3 W.L.R. 597, at [53], per Patten L.J.

62 Chambers, Resulting Trusts, pp. 171–84; El Ajou [1993] 3 All E.R. 717, 734, per Millett J.

63 Häcker, “A Generalised Power Model”, p. 357: “[o]ne advantage of the power model is that it does not present a black-or-white choice in the matter of proprietary restitution.”

64 See text to note 34 above.

65 See text to note 38 above.

66 Pertemps Recruitment Partnership Ltd. (2011) UKUT 272 (TCC).

67 Vandervell v IRC 1967] 2 A.C. 291; S. Worthington, Proprietary Interests in Commercial Transactions (Oxford 1997), 212.

68 Jerome v Kelly [2004] UKHL 25; [2004] 1 W.L.R. 1409, at [36]–[37], per Lord Walker.

69 See P. Watts, “Birks and Proprietary Claims” in C. Rickett and R. Grantham (eds.), Structure and Justification in Private Law: Essays for Peter Birks (Oxford 2008), 375–76; Swadling, W., “Rescission, Property and the Common Law” (2005) 121 L.Q.R. 122; Millett, “Proprietary Restitution”, p. 320, fn. 31.

70 E.g. In re Eastgate; Ex p. Ward [1905] 1 K.B. 465.

71 Calnan, Proprietary Rights and Insolvency, at [4.105].

72 Re Goldcorp [1995] 1 A.C. 74, 102: “[w]hat the customers would recover on rescission would not be ‘their’ money, but an equivalent sum”, per Lord Mustill.

73 Millett, “Restitution and Constructive Trusts”, p. 416. Also Millett, “Proprietary Restitution”, p. 321.

74 El Ajou [1993] 3 All E.R. 717. Notably, although Millett J. had discussed the possibility of rescission in El Ajou, A.J. Oakley notes that Millett later indicated that this was merely for the purposes of establishing a personal claim for knowing receipt, and that “different considerations would have arisen had an equitable proprietary remedy been sought”, “Restitution and Constructive Trusts: Commentary” in W.R. Cornish et al. (eds.), Restitution, Past, Present and Future (Oxford 1998), 229.

75 Re Goldcorp [1995] 1 A.C. 74.

76 Ibid., at pp. 102–03.

77 Tennent v City of Glasgow Bank (1879) 4 App. Cas. 615: “if the company has become insolvent … a wholly different state of things appears to me to arise …. The repudiation of shares which, while the company was solvent, would not or need not have inflicted any injury upon creditors must now of necessity inflict a serious injury on creditors”, 622, per Earl Cairns L.C. The case law indicates that rescission must occur before insolvency or the winding-up of the company; Mycock v Beatson (1879) 13 Ch. D. 384.

78 E.g. Commerzbank Aktiengesellschaft [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564.

79 Re Goldcorp [1995] 1 A.C. 74; Tennent (1879) 4 App. Cas. 615.

80 This criticism is noted by Birks, P. in “Trusts Raised to Reverse Unjust Enrichment: The Westdeutsche Case” (1996) 4 R.L.R. 1, 21.

81 A way around this may be to treat these cases as examples of mispredictions, which would preclude even a personal claim in restitution, as demonstrated by Dextra Bank v Bank of Jamaica [2002] 1 All E.R. (Comm) 193. However, it is accepted in cases such as Tennent that the claimant could have effectively rescinded before the insolvency of the company.

82 Re Goldcorp [1995] 1 A.C. 74, 102–03, per Lord Mustill; Eldan Services Ltd. v Chandag Motors Ltd. [1990] 3 All E.R. 459, 462.

83 Rickett, C. and Grantham, R., “On the Subsidiarity of Unjust Enrichment” (2001) 117 L.Q.R. 273.

84 See Virgo, The Principles of the Law of Restitution, p. 610. E.g. Lonrho plc [1992] 1 W.L.R. 1, 11–12.

85 Compare Tennent (1879) 4 App. Cas. 615 with Reese River Silver Mining Co. Ltd. v Smith (1869–70) L.R. 4 H.L. 64.

86 Halley v Law Society [2003] EWCA Civ 97; [2003] W.T.L.R. 845, at [47]–[48], per Carnwarth L.J.; Campden Hill v Chakrani [2005] EWHC 911. Also, the possibility of a proprietary claim where a contract was never capable of being performed was described as a “viable” argument by Ward L.J. in Maqsood v Mahmood [2012] EWCA Civ 251, at [40].

87 Tennent (1879) 4 App. Cas. 615.

88 Westdeutsche Landesbank Girozentrale v London Islington Borough Council [1996] A.C. 669, 689–90; B. McFarlane, “Trusts and Knowledge: Lessons from Australia” in J. Glister and P. Ridge (eds.), Fault Lines in Equity (Oxford 2012); McFarlane, The Structure of Property Law, pp. 305–12.

89 Westdeutsche Landesbank Girozentrale [1996] A.C. 669, 716.

90 Ibid., at p. 716. Ward L.J. described this proposition as merely “tentative” and not part of the ratio of Westdeutsche in Maqsood [2012] EWCA Civ 251, at [37]. It has also been questioned by Rimer J. in Shalson [2003] EWHC 1637 (Ch); [2005] Ch. 281, at [110].

91 Ibid., Westdeutsche Landesbank Girozentrale, at p. 716.

92 See text to note 166 below.

93 Westdeutsche Landesbank Girozentrale [1996] A.C. 669, 715.

94 Birks, “Trusts Raised to Reverse Unjust Enrichment”, pp. 19–20; Chambers, Resulting Trusts, p. 208. See also Watts, “Birks and Proprietary Claims”, p. 363.

95 McFarlane, “Trusts and Knowledge”, p. 173. Also McFarlane, The Structure of Property Law, pp. 305–12.

96 P. Birks, “The Role of Fault in the Law of Unjust Enrichment” in W. Swadling and G. Jones (eds.), The Search for Principle: Essays in Honour of Lord Goff of Chieveley (Oxford 1999), 271–74.

97 Cox v Paxton (1810) 17 Ves. Jr. 329.

98 Ibid., at p. 331.

99 Port Line Ltd. v Ben Line Steamers Ltd. [1958] 2 Q.B. 146, 167. Swadling, “Ignorance and Unjust Enrichment”, fn. 92.

100 Fitzalan-Howard [2009] EWHC 2855 (Q.B.).

101 Pertemps Recruitment Partnership Ltd. (2011) UKUT 272 (TCC).

102 See text to notes 175–178 below.

103 For example, Mann J. in Re Farepak Food and Gifts Ltd. [2006] EWHC 3272 (Ch), at [39]: “[i]t is not just the pricking of the conscience that gives rise to the constructive trust; there is something more.”

104 Fitzalan-Howard [2009] EWHC 2855 (Q.B.) and Pertemps Recruitment Partnership Ltd. (2011) UKUT 272 (TCC).

105 See note 3 above. Birks also noted that a breach of duty has a “whiff of blameworthiness”, which would readily apply to the breach of duty set out in this article; Birks, “Rights, Wrongs, and Remedies”, p. 31.

106 Birks, “The Role of Fault in the Law of Unjust Enrichment”, pp. 236–39; and Virgo, “The Role of Fault in the Law of Restitution”, pp. 84–85.

107 Santander UK plc v National Westminster Bank plc [2014] EWHC 2626 (Ch).

108 Norwich Pharmacal v Customs and Excise [1974] A.C. 133, at [12], per Lord Reid.

109 Santander UK plc [2014] EWHC 2626 (Ch), at [25]–[26].

110 “Unjust enrichment is, always, a not-wrong”, Birks, “Rights, Wrongs, and Remedies”, p. 28.

111 Santander UK plc [2014] EWHC 2626 (Ch), at [24]–[25].

112 To bring into play this principle, the claimant merely needs to show an arguable case that wrongdoing has occurred; P. Matthews and M. Hodge, Disclosure (Sweet & Maxwell 2012), 3.06–3.07.

113 See text to note 96.

114 Bank of Credit and Commerce International (Overseas) Ltd. v Akindele [2001] Ch. 437, 455, per Nourse L.J.

115 Ibid., at p. 455, per Nourse L.J.: “The recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt.”

116 Birks, Unjust Enrichment, pp. 157–58.

117 Arthur v Attorney General of the Turks and Caicos Islands [2012] UKPC 30, at [31], per Etherton L.J.

118 Royal Brunei Airlines v Tan [1995] 2 A.C. 378.

119 Lord Nicholls, “Knowing Receipt: The Need for a New Landmark” in W.R. Cornish et al. (eds.), Restitution, Past, Present and Future (Oxford 1998), 243–44.

120 Royal Brunei Airlines [1995] 2 A.C. 378, 390, emphasis added.

121 Mediterranean Raffineria Sicilliana Petroli SpA v Mabanaft GmbH (CA, 1 December 1978); Bankers Trust Co. v Shapira [1980] 1 W.L.R. 1274; A. v C. (1) [1981] Q.B. 956; Santander UK plc [2014] EWHC 2626 (Ch).

122 Colonial Bank v Exchange Bank of Yarmouth (1885) 11 App. Cas. 84, 91.

123 Freeman v Jeffries (1868–69) L.R. 4 Ex. 189, 200.

124 Ashmole v Wainwright (1842) 2 Q.B. 837, 845.

125 H Clapham v JB Culucundis (1921) 7 Lloyd's Rep. 42, 43.

126 Ibid., at p. 43. Also see Attorney General's Reference (No 1 of 1983) [1985] Q.B. 182, 189 where Lord Lane C.J. stated that “there was a legal obligation on the respondent to restore that value to the receiver when she found that the mistake had been made”.

127 Papamichael v National Westminster Bank plc [2003] EWHC 164 (Comm); [2003] 1 Lloyd's Rep. 341, at [230].

128 Virgo, The Principles of the Law of Restitution, p. 611.

129 Eldan Services Ltd. [1990] 3 All E.R. 459, 462; Deutsche Bank v Vik [2010] EWHC 551 (Comm), at [32], per Burton J. This would also explain how the approach in this article can be reconciled with the unavailability of proprietary restitution in Westdeutsche Landesbank Girozentrale [1996] A.C. 669.

130 Commerzbank Aktiengesellschaft [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564, at [36].

131 Birks, “The Role of Fault in the Law of Unjust Enrichment”, p. 273.

132 See e.g. when Birks referred to the role of unconscionability as a “fifth wheel on the coach” in “Trusts Raised to Reverse Unjust Enrichment”, p. 20.

133 Niru Battery Manufacturing v Milestone Trading Ltd. [2003] EWCA Civ 1446; [2004] Q.B. 985, at [157], per Clarke L.J. See Virgo, “The Role of Fault in the Law of Restitution”, p. 88.

134 This appeared to have been a concern in Glen Dimplex Home Appliances Ltd. v Smith [2011] EWHC 3392 (Comm), at [55].

135 Getronics (Q.B., 30 April 2004), at [18].

136 Ibid., at para. [49].

137 Armitage [1998] Ch. 241.

138 Ibid., at p. 252. Spread Trustee Co. Ltd. v Hutcheson [2011] UKPC 13; [2012] 2 A.C. 194, at [54]–[55], per Lord Clarke.

139 See Gladstone v Hadwen (1813) 1 M. & S. 517, 526, per Lord Ellenborough: “the property may be considered as having passed from the defendant to Sill and Co.: but if it did, it was under such circumstances as a Court of Equity on a bill filed would have directed the property to be restored.”

140 E.g. Pendray Sousa v Parselt Ltd. (Ch, 25 April 1980).

141 This is the explanation provided in this article for Chase Manhattan Bank NA [1981] Ch. 105.

142 Duggan, “Proprietary Remedies in Insolvency”, p. 1269; Sherwin, “Why In Re Omegas Group Was Right”, p. 895.

143 See Rotherham, C., “Policy and Proprietary Remedies: Are We All Formalists Now?” (2012) 65 C.L.P. 529.

144 Many of the cases here could give rise to criminal liability, even the deliberate attempt to keep a mistaken payment (Theft Act 1968, s. 5(4)).

145 E.g. Re Empire Assurance Corporation (1870–71) L.R. 6 Ch. App. 469, 473, per James L.J.

146 Huguenin v Baseley (1807) 14 Ves. Jr. 273, 289.

147 May v Platt [1900] 1 Ch. 616, 623, per Farwell J., in discussing the case of Garrard v Frankel (1862) 30 Beav. 445.

148 Garrard (1862) 30 Beav. 445, 451, per Sir John Romilly M.R. See also Broughton v Hutt (1858) 3 De G. & J. 501, 505, per Knight Bruce L.J.; and Ward & Co. v Wallis [1900] 1 Q.B. 675, 678, per Kennedy J.

149 Pitt v Holt [2012] Ch. 132, at [165], per Lloyd L.J. Also Nocton v Lord Ashburton [1914] A.C. 932, 954, per Viscount Haldane L.C.; and Kitchen v Royal Air Force Association [1958] 1 W.L.R. 563, 573, per Lord Evershed M.R.

150 A similar view is adopted in Etherton, T., “The Role of Equity in Mistaken Transactions” (2013) 4 T.L.I. 159, 169.

151 Therefore, proprietary restitution in this context does not equate to specific performance, which would enforce a primary right to have the specific property conveyed.

152 By analogy, see Ex p. Kelly & Co. (1879) 11 Ch. D. 306.

153 L. Smith, “Fusion and Tradition” in S. Degeling and J. Edelman (eds.), Equity in Commercial Law (Sydney 2005), 33.

154 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; [2014] 3 W.L.R. 535, at [46].

155 Virgo, “The Role of Fault in the Law of Restitution”, p. 101.

156 Seldon v Davidson [1968] 1 W.L.R. 1083.

157 Swadling, W., “Explaining Resulting Trusts” (2008) 124 L.Q.R. 72, 79.

158 Re Diplock [1948] Ch. 465; Re Brown (1886) 32 Ch. D. 597.

159 Re Robinson [1911] 1 Ch. 502, 513.

160 Re Horne [1905] 1 Ch. 76.

161 Ibid., at p. 81.

162 An exception to this rule is where the mistake is made by an agent acting on behalf of the principal, and in this type of case the agent's actions can be attributed to the principal; Colonial Bank (1885) 11 App. Cas. 84. See Virgo, The Principles of the Law of Restitution, p. 108.

163 Quarry Products Ltd. v McClurg (1967) 10 W.I.R. 524.

164 Re Hallett's Estate (1880) 13 Ch. D. 696, 711.

165 See text following note 121 above.

166 Shalson [2003] EWHC 1637 (Ch); [2005] Ch. 281, at [110], per Rimer J.; London Allied Holdings Ltd. [2007] EWHC 2061 (Ch), at [256], per Etherton J.; Solomons v Williams (Ch, 23 May 2001); Bank Tejarat v Hong Kong and Shanghai Banking Corp. [1995] 1 Lloyd's Rep. 239, 245, per Tuckey J.; the limits of common law tracing were also mentioned recently in FHR European Ventures LLP [2014] UKSC 45; [2014] 3 W.L.R. 535, at [44], per Lord Neuberger.

167 Re Diplock [1948] Ch, 465, 530, per Lord Greene.

168 Foskett v McKeown [2001] 1 A.C. 102, 128–29, per Lord Millett, and 113, per Lord Steyn. Also Trustee of the Property of FC Jones and Sons (a Firm) v Jones [1997] Ch. 159, 170, per Millett L.J.; and Bracken Partners Ltd. v Gutteridge [2003] EWHC 1064 (Ch), at [31], per Leaver Q.C. This position has now been adopted in Canada; B.M.P. Global Distribution Inc v Bank of Nova Scotia (2009) S.C.C. 15 (Sup Ct (Canada)), at [85], per Deschamps J.

169 Barclays Bank plc v Kalamohan [2010] EWHC 1383 (Ch), at [24]. It is not clear from the case report whether the money was actually mixed.

170 Ibid., at para. [74].

171 The conclusion that the customer was a fiduciary seems difficult to reconcile with Foley v Hill (1848) 2 H.L. Cas. 28.

172 H. Norman, “Tracing Proceeds of Crime” in P. Birks (ed.), Laundering and Tracing (Oxford 1995), 111.

173 See also L.D. Smith, The Law of Tracing (Oxford 1997), 128; and S. Hedley, A Critical Introduction to Restitution (London 2001), 299.

174 A similar statement was made by Spector J. in In re Dow Corning Corp 192 BR 428 (Bankr. Ed. Mich. 1996). When referring to the finding of a fiduciary relationship in Chase Manhattan Bank NA [1981] Ch. 105, Spector J. stated that “the holding, in actuality, seems to dispense with the requirement”, at 431.

175 Kalamohan [2010] EWHC 1383 (Ch).

176 Commerzbank Aktiengesellschaft [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564.

177 Getronics (Q.B., 30 April 2004). Although it is not explicitly stated that the money was mixed, this case involved overcharges so it is implicit that the mistaken payments would have been mixed with money that could not be recovered upon the moment of receipt. Also, Bank Tejarat [1995] 1 Lloyd's Rep. 239, 248, per Tuckey J.

178 Bank of Ireland v Pexxnet [2010] EWHC 1872 (Comm), at [56]–[57]. Although the courts in Shalson [2003] EWHC 1637 (Ch); [2005] Ch. 281, London Allied Holdings Ltd. [2007] EWHC 2061 (Ch), and Banque Belge pour l'Etranger [1921] 1 K.B. 321 applied a rescission analysis, these cases (1) illustrate that one can trace into mixtures without the existence of an initial fiduciary relationship and (2) would have been decided in the same way under the approach that is proposed in this article.

179 Support can also be found in Friends Provident v Hillier Parker May & Rowden [1997] Q.B. 85, 106, per Auld L.J.; Deutsche Bank AG [2010] EWHC 551 (Comm), at [32], per Burton J.; Halley [2003] EWCA Civ 97; [2003] W.T.L.R. 845, at [45]–[47]; Re Farepak Food and Gifts Ltd. [2006] EWHC 3272 (Ch); [2008] B.C.C. 22, at [39]–[40], per Mann J.; Campden Hill Ltd. [2005] EWHC 911, at [74], per Hart J.

180 Fox, Property Rights in Money, at [5.144].

181 Ibid., at para. [5.146].

182 Chase Manhattan Bank NA [1981] Ch. 105; Getronics (Q.B., 30 April 2004).

183 Ibid., at paras. [17], [23].

184 Relfo Ltd. (In Liquidation) v Varsani [2014] EWCA Civ 360, at [60], per Arden L.J.; and Foskett [2001] 1 A.C. 102, 128, per Lord Millett.

185 Ibid., at p. 113, per Lord Steyn; p. 120, per Lord Hope; and p. 128, per Lord Millett.

186 D. Sheehan, The Principles of Personal Property Law (Hart 2011), 234–35.

187 E.g. Mediterranean Raffineria Sicilliana Petroli SpA (CA, 1 December 1978); Bankers Trust Co. [1980] 1 W.L.R. 1274; A. v C [1981] Q.B. 956; Santander UK plc [2014] EWHC 2626 (Ch).

188 See also Smith, The Law of Tracing, pp. 11–14.

189 This could arguably be called a “proprietary base”, although Birks argued that an “undestroyed” proprietary base is needed to be present at the moment of receipt; P. Birks, “Overview: Tracing, Claiming and Defences” in Birks (ed.), Laundering and Tracing (Oxford 1995), 312.

190 El Ajou [1993] 3 All E.R. 717.

191 Ibid., at p. 737.

192 It has been suggested that a claim can be made against secondary recipients where there is a “sufficient link” between the original payment and the payment to the second recipient; Relfo Ltd. (In Liquidation) [2014] EWCA Civ 360, at [69]–[99], per Arden L.J.

193 E.g. Getronics (Q.B., 30 April 2004).

194 Foskett [2001] 1 A.C. 102, 128, per Lord Millett.

195 Hart J. recognised this was a “controversial” point in Campden Hill [2005] EWHC 911, at [84]. The reasoning of Morris Q.C. Armstrong DLW GmbH v Winnington Networks Ltd. [2012] EWHC 10 (Ch); [2013] Ch 156, at [103], provides tentative support for the availability of change of position defence.

196 Although Foskett [2001] 1 A.C. 102 involved pre-existing beneficial interests, Lord Millett rejected “change of position” generally as a defence to a claim based on an equitable interest. It should be noted though that this was an obiter comment, at 129.

197 Jones v Churcher [2009] EWHC 722 (Q.B.); [2009] 2 Lloyd's Rep. 94.

198 Relfo Ltd. (In Liquidation) [2014] EWCA Civ 360, at [1], per Arden L.J.

199 Niru Battery Manufacturing [2003] EWCA Civ 1446; [2004] Q.B. 985, at [157], per Clarke L.J.; Virgo, The Principles of the Law of Restitution, p. 710.

200 Bank of America v Arnell [1999] Lloyd's Rep. Bank 399.

201 Lipkin Gorman [1991] 2 A.C. 548, 580.

202 Another reason for adopting knowing receipt is that the burden of proof in establishing the state of mind of the subsequent recipient is placed on the claimant rather than the defendant.

203 E.g. Commerzbank Aktiengesellschaft [2004] EWHC 2771 (Ch); [2005] 2 All E.R. (Comm) 564.

204 E.g. Pearce v Lloyds TSB Bank plc [2001] EWCA Civ 1907; and Citibank NA v Brown Shipley & Co. Ltd. [1991] 2 All E.R. 690.

205 Chase Manhattan Bank NA [1981] Ch. 105.

206 Westdeutsche Landesbank Girozentrale [1996] A.C. 669, 715.

207 The financial difficulties of the recipient are documented in R. v Landy [1981] 1 W.L.R. 355 (CA), 357–61, per Lawton L.J.; and Israel-British Bank (London) Ltd. v Federal Deposit Insurance Corp. 536 F.2d 509 (2d Cir. 1976).

208 Re Thellusson [1919] 2 K.B. 735. Although both Warrington L.J., at 751, and Duke L.J., at 753, appeared to conclude that the claimant had been operating under a mistake of fact, Atkin L.J. appeared to indicate that the real issue was the frustration of the loan agreement, at 765. Notably the award in that case allowed the claimant to recover the money even after bankruptcy, but Warrington L.J. approved previous case law which denied that the money was subject to a trust, at 747–48.

209 Ibid., at p. 765, per Atkin L.J.

210 Ibid.

211 Section 227 of the Companies Act 1948. The same position is true under Insolvency Act 1986, s. 127. See Watts, “Birks and Proprietary Claims”, p. 374.

212 Lewis v Great Western Railway Company (1877) 3 Q.B.D. 195, 211.

213 Although it is in a very different context, Lloyd v McMahon [1987] A.C. 625 also demonstrates that the failure to act in sufficient time where the defendant is aware there is a need to act can be appropriately regarded as wilful misconduct.

214 Chancery Division, 25 April 1980.

215 Ibid.

216 Getronics (Q.B., 30 April 2004).

217 Ibid., at para. [18].

218 Fitzalan-Howard [2009] EWHC 2855 (Q.B.).

219 See text to note 35 above.

220 Fitzalan-Howard [2009] EWHC 2855 (Q.B.), at [38], per Tomlinson J.

221 Ibid., at para. [38].

222 Pertemps Recruitment Partnership Ltd. (2011) UKUT 272 (TCC).

I would like to thank Dr. Astrid Sanders for reading various versions of this article, as well as the invaluable comments of the two anonymous reviewers. This article was based on a paper delivered at the 2012 Society of Legal Scholars Conference at the University of Bristol. I would also like to thank the comments of those who were in attendance for the paper.

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