Paper Reclaim Limited v Brown HC Dunedin CIV-2006-412-000915

[2007] NZHC 1702

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2006-412-000915

BETWEEN  PAPER RECLAIM LIMITED Plaintiff

AND  MICHAEL PATRICK BROWN First Defendant

AND  DONNA LESLEY ROWE Second Defendant

Appearances: MIS Phillipps for Plaintiff

QJC Stratford for Defendants

Judgment:      28 March 2007

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

as to Quantum

[1]      By my decision dated 27 February 2007 I found Paper Reclaim was entitled to summary judgment against the defendants for monies had and received in circumstances where it was unjust the defendants be permitted to retain them.   I declined summary judgment in respect of the claim alleging deceit.

[2]      The defendants do not dispute Paper Reclaim’s claim regarding the sums paid to them, nor indeed was there any dispute regarding the sum paid by the defendants to Paper Reclaim.   In the result, Paper Reclaim claims to recover $248,145.96.   I expressed the view there may be reasons to reduce this sum because:

a)        Some of the money received by the defendants was paid to the Inland

Revenue Department;

PAPER RECLAIM LIMITED V BROWN AND ANOR HC DUN CIV-2006-412-000915  28 March 2007

b)       Mr Brown may have expended effort and expense in the belief he was providing some benefit to PMP.

[3]      I reserved my final decision in relation to quantum until further submissions were received from counsel.  These submissions are now to-hand.

Considerations

[4]      In my judgment I explained why the affidavit evidence might not support Paper  Reclaim’s  claim  of  deceit.     I  referred  to  certain  facts  suggesting  the defendants’ actions were atypical of persons intent on fraud.   They have willingly provided information detailing their expenditure of funds received from Paper Reclaim.    There  was  no  aspect  of  extravagance  in  this  spending.    They  even registered for and made payments on account of taxation due.  Regardless, I could find no basis to support Mr Brown’s claim that he was entitled to those payments he received from Paper Reclaim.  At best, I considered there might be some basis for reducing the amount required to be paid to Paper Reclaim for, in general terms, reasons that  they had  changed  their  position on account  of having  received  the payments.   A change of position defence is available at law, as it is in equity.   In Lipkin Gorman v Karpnale Limited [1992] 2 All ER 512, Lord Goff (when considering a claim for monies had and received) described the defence as arising where:

… an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full [money received from the plaintiff] [and] the injustice of requiring  him so to repay  outweighs  the injustice of denying the plaintiff restitution.

[5]      The question for me is whether, in the circumstances of this case, there is any proper basis for the defence to exist because it should only be available to the extent that the change of position renders recovery unjust.

[6]      Likewise, under s94B of the Judicature Act 1908 which provides statutory relief for a change of position defence, it is clear relief will only be available if:

a)       the defendants received the money in good faith; and

b)       they altered their position in reliance on the validity of the payment;

and

c)        the Court considers it equitable to grant relief.

[7]      A defence of change of position may survive at common law even though it might not do so pursuant to s94B.

[8]      I accept Mr Phillipps’ assessment that the defendants cannot succeed under s94B or in the common law defence of change of position if:

a)        they did not receive the monies in good faith;

b)       they did not rely on the validity of the payment;

c)        they did not alter their position;

d)       relative fault lies with them;

e)        they will not suffer an injustice if called upon to repay;

f)        they do suffer an injustice by being required to repay, but it does not outweigh Paper Reclaim’s injustice if denied restitution.

The defendants’ position

[9]      A statement from the defendants’ accountant indicates a liability for tax of approximately $87,000 on payments received from Paper Reclaim.  In addition there is a GST liability for about $30,000.  Mr Stratford, for the defendants, submits that the tax paid and owing by the defendants is money that has not been retained by them.  They may have received it, but they have paid it on to the IRD for no gain. Because no ruling or decision has been forthcoming from the IRD regarding their tax liability, Mr Stratford submits that, because of my judgment,  it  is premature to require repayment until the position of the IRD is known.

[10]     The defendants seek repayment of the cost of air tickets for travel undertaken by Mr Brown.

[11]     The defendants claim in addition that a defence of contributory negligence is available to them.   Mr Stratford submits that although a defence of contributory negligence may not be available with the outstanding claim of deceit, it may nevertheless be available in respect of those claims for money had and received. Although the defendants do not need to plead a duty of care between them and Paper Reclaim, such duty of care is owed by the plaintiffs to themselves to ensure they take reasonable care of themselves.  The defendants state that had an appropriate check been carried out by Paper Reclaim, Paper Reclaim would have quickly ascertained its  payment  should  have  been  sent  to  PMP  and  not  to  the  defendants.    Paper Reclaim’s contract was with PMP Print, yet the letter requesting Paper Reclaim to redirect its payments came not on PMP Print letterhead, but on PMP Distribution letterhead.  Also, the bank account to which the funds were requested to be directed was the personal account of the second defendant.  Finally, communication with the defendants was through personal email and not through an email to PMP.

[12]     In summary, Mr Stratford submits these factors should have been warning enough to ensure that a full check was made by Paper Reclaim before diverting what was a significant income stream to a personal bank account.

The plaintiff’s position in reply

[13]     Mr  Phillipps  suggests  the  defendants’  accountant’s  letter  raises   more questions  than  it  answers.    It  refers  to  the  second  defendant  “trading  as  Paper Reclaim” and it refers to the nett profit of “Paper Reclaim”.  Mr Phillipps submits these details might support an inference of a clumsy attempt to disguise the basis of the payments made.

[14]     Also, the letter does not identify any tax already paid.  Further, he submits a declaration by the IRD does not impact on the quantum of judgment, for if judgment is entered for the full sum, the judgment amount will be satisfied in part, by the refund or by the issue of a credit.  Obviously Paper Reclaim could not recover twice

for the same amount from the defendants and from the IRD.  That however is not a reason to deny judgment for the full sum.

[15]     Because  the  “payment  arrangement”  operated  from  November  2005,  Mr Brown cannot claim a refund of the cost of air tickets for trips made prior to that date because the money could not have been spent in reliance upon the validity of the payment as required for a change of position defence.  This leaves only airfares in a sum of $233 paid for after the payment arrangement came into effect.  Mr Phillipps submits the trip in question has no relevance to the arrangement which was confined to paper supplied by PMP’s Auckland outlets to Paper Reclaim.

[16]     Finally, Mr Phillipps submits the defence of contributory negligence is not available to a claim for monies had and received.  He notes it is a claim in restitution and not a claim for damages.   The defendants are not being asked to compensate Paper Reclaim for its loss.   They are being asked to return to Paper Reclaim that which is theirs and to which the defendants were not entitled.   Accordingly, blameworthiness is irrelevant.

[17]     In my view the points made by Mr Phillipps in answer to the defendants’ position  are  conclusive  in  answer  to  the  defendants’  claim  for  quantum  to  be reduced.

Considerations and reasons for judgment

[18]     I have already found Mr Brown did not have express or written authority to make the payment arrangements he did with Paper Reclaim; and

there was never a proper contractual basis for the receipt of the monies;

and,

even on Mr Brown’s evidence there was no agreement which entitled him

to receive payment; and,

there  was  no  sound  basis  for  accepting  the  defendants  considered themselves entitled to those payments; and,

the facts do not support Mr Brown’s claim he reached an agreement with

PMP through its manager, Mr Stevens.

[19]     The evidence of the extent  of the  payments  made  by  the  defendants on account of tax and GST is unclear.  There appears to be confirmation of the payment of provisional tax of $25,000, but evidence of further payment appears equivocal. Whether or not any tax has been paid with respect to “income” received from Paper Reclaim, it seems highly unlikely any tax liability would remain in view of my finding Paper Reclaim’s payments were not properly due to the defendants – indeed, were required to be repaid.

[20]     Mr Brown wants the costs of airfares repaid, but if he has any claim in that respect it should properly be directed to PMP.  It cannot be directed in reduction of any amount claimed by Paper Reclaim, for he did no work for it.  It follows that even if he did benefit PMP in some way, this could not be taken into account in relation to Paper Reclaim’s restitutionary claim.  Regardless, there is no detail provided by Mr Brown of any particular work or expense he provided after the payment arrangement was put in place.

[21]     Although  not  displaying  characteristics  of a  scheme  embarked  upon  and perpetuated  for  unlawful  purpose,  it  seems  to  me  that  those  same  reasons  Mr Stratford raises as factors suggesting lack of care by Paper Reclaim may also equally support a proposition of deceit.  That is as far as I can take it, for I have already held that the affidavit  evidence does not  support an irresistible inference of a deceit. Rather I prefer to think the position is equivocal.   Although it should be conceded the defendants have an arguable defence to an action of deceit, the Court does not underestimate the task before them.  It is equally open to the Court at this time to

consider a sinister view might be taken of the facts:

Mr Brown was at all times appearing to represent PMP.

The defendants did not disclose that the use of a personal bank account or personal email was for personal purposes and not for PMP.

[22]     Although a defence of contributory negligence does not depend on any duty being owed to a plaintiff, that does not mean the defence is available as a defence to restitutionary claims.  As Smellie J stated in Equiticorp Industries Group Limited (In Statutory Management) v The Crown (Judgment No. 47) [1998] 2 NZLR 481:

Where  the  claim  is  restitutionary  based  there  can  be  no  room  for  the application of considerations analogous to contributory negligence.

Judgment

[23]     Being satisfied that the defendants have no defence, I order that judgment be given against them in the amount claimed: namely $248,145.96.  Interest upon that sum shall accumulate at 7.5% per annum from the date the plaintiff’s proceeding was filed on 21 September 2006.

Solicitors:

MIS Phillipps, Auckland for Plaintiff O’Neill Devereux, Dunedin for Defendants (Counsel: QJC Stratford)