The law of restitution would apply when a Defendant has been ‘unjustly enriched’ by the Claimant due to a payment inadvertently made to them. Whilst it is obvious that the Defendant would have been ‘enriched’ consequent to the payment error, the question for determination is whether the enrichment had been ‘unjust’ and whether the client would be legally entitled to keep the money.

The starting point is that a party, in this case – the Claimant, who mistakenly pays money to another is entitled to recover it. The fact that a Defendant honestly believes they were entitled to receive money is not a valid defence.

However, a valid defence may instead arise if, as a result of the payment made, the Defendant has ‘changed their position’ in good faith and to such an extent that it would be unjust to require them to repay the money. This is often referred to as the ‘change of position’ defence in English law. Accordingly, mere spending of funds transferred will not be suffice for establishing this defence and the innocent party must have incurred expenditure which would have not been otherwise incurred. There must be a causative link between the receipt of payment and the Defendant’s change of position.

A Defendant will be unsuccessful in defending a claim if he or she has spent the money without making reasonable inquiries as to why it was received into their account. Further, if there is an element of bad faith (e.g. failing to take any action when becoming aware of the mistake), then a defence will also fail.