After Change of Position: Good Faith Exchange in the Modern Law of Restitution

Abstract

This chapter models the defence of bona fide purchase as it exists in the modern law of restitution in the wake of the recognition of the defence of change of position in English law. It counters suggestions that the latter defence has rendered the former redundant and suggest a new way of understanding it that severs the defence from its traditional association with title-based property claims. It posits the following conclusions:

First, the defence still has a place in the modern law of restitution, though its principal function is different to that of change of position. Whereas the latter aims to protect recipients against individual injustices stemming from actual or potential losses caused by their receipt, the former deploys a broad policy of transactional security in exchange dealings, with the primary (economic) objective of facilitating the free transfer of wealth.

Second, the defence logically applies in those cases in which a defendant has received a benefit under a contract with a third party (one other than the plaintiff). Where a defendant enters an exchange transaction with the plaintiff himself (or one acting as agent for the plaintiff), the requisite guarantees of transactional security are provided by the law of contract; in particular by the principle of contract law known as the 'objective principle.' Although the good faith of the defendant is relevant in these cases, the defence of bona fide purchase has no part to play.

Third, the defence is legitimately to be regarded as a defense, with the onus on the defendant to prove both that value has been given and that it was given in good faith, without notice of the plaintiff's rights. Discussions about the defendant's 'knowledge' of the plaintiff's rights in three-party cases must, on this basis, be shifted squarely within the parameters of the defence debate.

Fourth, the defence must be available both in the law of property and in the law of restitution.

Finally, following on from this, the defence must be available in both personal and proprietary claims and the conditions for its operation of the defence should be the same in either case.

One important, potential consequence of this analysis is that the availability of the defence in the law of restitution should not depend, as it currently does, on a recipient having actually executed an exchange for benefits it has received from the third party. Logically speaking, it should be sufficient that it has contracted for those benefits in good faith. The current insistence on executed exchange can be seen, on this approach, to give too little protection to the security of receipts in commercial transactions.