Goss v Chilcott

At first instance Neazor J had held that the company could not make a claim in restitution as there had been no total failure of consideration. The Privy Council disagreed, but took a different approach from the New Zealand Court of Appeal. Lord Goff referred to the "much-quoted" speech of Viscount Simon LC in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32:

... when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise ... If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled.[4]

Lord Goff noted that normally a failure to repay a loan results in a claim in contract, but on the facts of this case that remedy was not available because of the fraudulent changes to the documentation. Accordingly, he turned to the problem of whether there had been a total failure of consideration. He noted that "although no part of the principal sum had been repaid by the appellants, two instalments of interest had been paid; and the question arises whether these two payments of interest precluded recovery on the basis that in such circumstances the failure of consideration for the advance was not total."[5] He then answered that the view of the Court was that it did not. Payments of interest were different from payments of capital sums. However the court noted that it was possible that the documents were altered prior to one of the payments, in which case the payments would be treated as repayment of capital. However Lord Goff was unequivocal: "even if part of the capital sum had been repaid, the law would not hesitate to hold that the balance of the loan outstanding would be recoverable on the ground of failure of consideration; for at least in those cases in which apportionment can be carried out without difficulty, the law will allow partial recovery on this ground (see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 383)."[5]

Lord Goff then addressed briefly the suggestion that Mr and Mrs Goss had never received the advance (because it had been paid over directly to Mr Haddon). Lord Goff unceremoniously rejected this.[6] When the sums were paid, at their direction, to Mr Haddon, that was effectively payment to them (or, more accurately, to their order).

Lastly, Lord Goff turned to whether Mr and Mrs Goss had a defence of change of position. In his judgement he noted that in New Zealand the defence of change of position was codified in the New Zealand Judicature Act 1908, section 94B.[7] However, in his view the position in New Zealand was the same as that under the common law.

The Board felt unable to accept that, on the facts of the case, there was a change of position on the part of the appellants such as to render it inequitable to require them to make restitution. Even before the fraudulent amendment to the instrument, Mr and Mrs Goss were required to repay the money which had been advanced to them by the company. That obligation was not affected by the fact they had on-loaned it to another person. By lending that money on to Mr Haddon they were necessarily taking the risk that he might not be able to repay them, "in which event they themselves would have to repay it without recourse to him."[8] The court stated that any action by Mr and Mrs Goss against Mr Haddon would now be fruitless,[9] and that by claiming change of position they were essentially seeking to shift that loss onto the company. Lord Goff was clear: "This, in their Lordships' opinion, they cannot do. The fact that they cannot now obtain reimbursement from Mr. Haddon does not, in the circumstances of the present case, render it inequitable for them to be required to make restitution to the company in respect of the enrichment which they have received at the company's expense."[8]

Lord Goff also summarily dismissed the argument that this was a case of "ministerial receipt" where Mr and Mrs Goss received the money as agents for an undisclosed principal (Mr Haddon).[10] The trial judge had found as a fact that there were two loans; one from the company to Mr and Mrs Goss, and a second loan from them to Mr Haddon.