Restitution is the name given to a collection of types of claim which can come into play when there are no contractual terms that exist between parties and, similarly, liability cannot be established in tort, but where one party has received, for example, money (the benefit received does not have to be money) and it is judged that the money (or other benefit received) should be returned because if not the recipient will be unjustly enriched.
The law of restitution can therefore be applicable to a range of scenarios in which banks may find themselves. For example, either as a result of its own mistake or a mistake of its customer, a bank may have remitted funds to an account belonging to an unintended recipient.
Alternatively, a bank may be put on notice that funds that it has received into a customer’s account, whether from a bank or other third party, have been sent in error. The latter example can result in the receiving bank being asked to return the money or, at least, to protect the money from being withdrawn, whilst at the same time the bank’s customer may dispute the situation and seek to challenge the bank if it prevents the customer from withdrawing the funds.
The main elements of a restitutionary claim are:
- The defendant to the claim has been enriched or has received a benefit
- The enrichment is unjust
- The defendant’s enrichment has come at the expense of the claimant.
The main defence to a claim based in restitution is ‘change of position’ made in good faith. It is not necessary to show that the recipient has been dishonest to counteract such a defence. This is because, although the tests are not rigid, even if the recipient has acted honestly as such, if the recipient ought to have made inquiries or was put on notice that the money had been paid to them by mistake, then the court is likely to dismiss a defence of change of position, when asking itself a question along the lines of would it be inequitable or unconscionable to allow the recipient to keep the monies paid over by mistake?
Two practical points for banks, that stand out from cases that have come before the court are:
- If it is put on notice that a payment has been made or received in error, it needs to look at the situation without delay. Court’s rarely prescribe exactly what steps would be sufficient in such scenarios, but the theme of acting with the appropriate amount of urgency has been emphasised.
- If the paying party has asked for funds to be ring-fenced or a receiving party believes it may be necessary to preserve funds to enable the situation to be determined, then the court has indicated that receiving banks should consider asking for an indemnity from the party or asking for the funds to be preserved.
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