ON 7 MAY 2014, the High Court of Australia delivered Australian Financial Services and Leasing Pty Limited v Hills Industries Limited  HCA 14 (7 May 2014).
Australian Financial Services and Leasing Pty Limited (AFSL) had sought to recover monies had and received by the first and second respondents (Hills and Bosch) on the grounds that Hills and Bosch were paid under a mistake of fact arising from a fraud committed by a third party (Sharzynski) who controlled a group of companies (TCP) who traded with Hills and Bosch.
Sharzynski had led Hills and Bosch to expect that monies transferred from AFSL (TCP’s finance company) were for a reduction of debt owed to Hills and Bosch by TCP. On the faith of receiving the monies, Hills and Bosch continued to trade with TCP and chose not to pursue their remedies against TCP for the recovery of outstanding debts. However, the monies had been transferred from AFSL under a mistake of fact induced by a fraud committed by Sharzynski, who had falsified invoices from Hills and Bosch to represent that the monies in question were for AFSL to acquire equipment from Hills and Bosch to be leased back to TCP.
Hills and Bosch argued that on the faith of receiving the monies, they had suffered an irreversible detriment by choosing not to pursue their remedies against Sharzynski and TCP.
The NSW Court of Appeal held that Hills and Bosch were not required to repay the monies as they had established a complete defence that they had changed their position and suffered an irreversible detriment on the faith of the receipt of the payments.
The High Court unanimously rejected AFSL’s appeal of the Court of Appeal’s decision. The High Court held that the relevant inquiry is whether or not the retention of the monies would be inequitable in all of the circumstances and concluded that it would be inequitable if Hills and Bosch were required to repay AFSL. The High Court rejected the approach proposed by AFSL that it must take into account the extent to which Hills and Bosch had been “disenriched” as this principle, like the principle of unjust enrichment, is inconsistent with the Australian law of restitution.
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