Scottish Court of Session Decisions

At advising on 6th November 1990,—

LORD JUSTICE-CLERK (Ross).—In this action the pursuers are seeking payment from the defenders of the sum of £18,631. Their claim is quasi-contractual being based upon the principle of repetition. A proof before answer took place at which it was agreed that the defender should lead, the burden of proof being upon him in respect that he admitted receiving payment of the sum sued for which the pursuers claimed had been paid in error and in ignorance of the fact that it was not due. Many of the material facts were admitted in a joint minute. At the proof evidence was given by the defender, his bank manager, a police officer and one other witness. At the end of the day the Lord Ordinary pronounced decree for payment by the defender to the pursuers of the sum of £631 with interest. Against that interlocutor the pursuers have now reclaimed.

The Lord Ordinary has dealt fully with the facts, and it is unnecessary to go into these now in great detail. He has described the circumstances under which a cheque for £631.63 drawn by a firm of solicitors on their account with the pursuers in favour of a limited company was fraudulently altered so that it bore to be payable in the sum of £18,631 to the order of the defender. That cheque was presented for collection in London and was negotiated by way of bank giro credit transfer to the defender's account with a branch of the Trustee Savings Bank in Edinburgh. The cheque was accepted by the pursuers in good faith and was credited to the defender's said account. On the day following its being so credited the defender asked at his bank if a sum had been paid into his account, and on being informed that his account had been credited with £18,631, the defender withdrew £18,000 in cash from his account.

In his opinion the Lord Ordinary has summarised the evidence of the defender. He described how he had in the latter half of 1987 met a man called Pratt at the Bianco bar and how he had got into conversation with Pratt who led him to believe that he was a car dealer or agent for Rolls Royce. Apparently in the course of the discussion Pratt indicated that he required large sums of cash for business purposes when he was in Scotland purchasing cars. According to the defender he gave Pratt his name and telephone number as Pratt was to keep a look-out for a particular type of Volkswagen car which the defender wanted. Some time later Pratt telephoned the defender and wanted to transfer money to the defender's bank account in Edinburgh to draw cash for the purchase of cars. The figure mentioned was £180,000 and the defender refused to contemplate a transfer of such a large sum. About a week later Pratt again telephoned suggesting this time a transfer of about £18,000. The defender proceeded to give Pratt the details of his bank account, namely the code number and the account number. Pratt informed the defender that he would telex the amount to the defender's account. A few days later Pratt again telephoned to say that the money had been telexed and that the defender should check with his bank that it had been cleared. The defender did go to his bank and confirmed that the transfer had been made. When Pratt telephoned again the transfer had been made. When Pratt telephoned again he instructed the defender to withdraw the money in cash and to take it straight away to the Sheraton hotel in Edinburgh where he would meet him. This is what the defender did and after receiving the £18,000 in bundles of bank notes from his bank he put them into a carrier bag and drove straight to the Sheraton hotel where he saw Pratt in the lobby and handed over the bag of money to him. He never saw or heard from Pratt again. The Lord Ordinary considered certain other evidence which he heard and stated that he accepted that on a balance of probability the defender had proved a transaction of the kind which he had averred in his defences and to which he had spoken in evidence.

The Lord Ordinary states in his opinion that the essential issue of fact between the parties was whether the defender could prove that he did not benefit from the payment mistakenly made to him or that it would be inequitable for him to repay it to the pursuers. In his opinion, the Lord Ordinary considers certain legal authorities to which he was referred and thereafter concludes that it cannot reasonably be held that the defender benefited in any material sense from the £18,000 which was credited to his account and then immediately withdrawn by him and handed over to Pratt. The Lord Ordinary expresses the opinion that on the evidence the person who retained the sum of £18,000 and benefited from it was Pratt. Although the Lord Ordinary deals at some length with the question of whether the defender was shown to have benefited from the payment mistakenly made to him he does not appear to consider at all the question of whether it would be inequitable for him to require to repay the money to the pursuers. His decision appears to be based purely upon his conclusion that it cannot reasonably be held that the defender benefited in any material sense from the £18,000 which had been credited to his account and then immediately withdrawn by him and handed to Pratt.

For the pursuers counsel submitted that the Lord Ordinary had erred in law in apparently considering that the principle of repetition upon which the pursuers relied raised only one issue, namely whether or not the defender could be said to have benefited in any real sense from the payment into his account of this money. He submitted that the Lord Ordinary's approach was flawed, in that he had failed to recognise that the plea of repetition is an equitable one. Since the remedy was an equitable one, counsel maintained that the task of the court was to investigate and consider all the circumstances, and then to balance the factors in any particular case in order to determine where ultimately the equities lay. Counsel maintained that when all the circumstances were examined it was plain that at best for the defender he was extremely naive in allowing himself to be used by Pratt, and at the worst he was careless to the point of being reckless. He submitted that a reasonable man in the circumstances would have been put on suspicion that all was not in order. He also submitted that the Lord Ordinary had been wrong in holding that the defender had obtained no benefit from the transaction. He submitted that the defender had obtained benefit from the transaction.

Counsel for the defender submitted that the Lord Ordinary had been well-founded in concluding that the defender had not benefited from the £18,000 which was credited to his account. Under reference to authorities such as Lawrence Building Co. Ltd. v. Lanark County Council 1978 SC 30 at p. 41, he submitted that for the pursuers to succeed they must establish that the defender was lucratus, and under reference to authorities such as Trayner's Latin Maxims and Phrases he further submitted that "lucratus" meant enriched. "This word imports only clear gain, or profit". He proceeded to submit that merely having his account credited with the money did not confer any gain or profit upon the defender. The money no sooner entered his account than it was withdrawn and passed over to Pratt. It was wholly artificial to look at the matter solely at the time when the defender's bank account was credited with the money. It was necessary to look at the whole circumstances, and not to look at these too narrowly. The reality of the situation was that the defender all along held the money which was paid into his bank account as trustee for Pratt, and he never derived any gain or profit from the money. Nor in any realistic sense did he retain the money. Counsel maintained that the defender's bank account was simply used as a facility for transferring funds. Counsel recognised that the defender had retained and benefited from £631 in his bank account (and he did not challenge the decree for that amount pronounced by the Lord Ordinary), but he maintained that the defender could not be said to have benefited in any real sense for any of the sum in excess of that figure. He submitted that it was essential for the pursuers to establish that the defender had been lucratus. If that was not established, he maintained that no question of equity arose at all. On the other hand even if the defender were shown to have been lucratus then equity involved looking at the defender's position, and he maintained that since bad faith had not been established, it would not be equitable to require the defender to repay the money to the pursuers.

In my opinion it is important to recognise the basis upon which the pursuers are seeking to succeed in this action. Theirs is not a claim for recompense but a claim for repetition. There appears to me to be both in the argument of counsel for the defender and in the Lord Ordinary's opinion some confusion between these two principles. No doubt as Professor Walker says in his Contracts (2nd edn.), para. 35.1, the basis of all these kinds of obligation is the avoidance of undue enrichment. Nevertheless it is important to distinguish between the two principles, and the extent by which one party has gained is critical in the case of recompense, but not in the case of repetition. Professor Bell's classic definition of recompense is as follows:

"Where one has gained by the lawful act of another, done without any intention of donation, he is bound to recompense or indemnify that other to the extent of the gain"

(Bell's Principles, sec. 538). That definition is now considered to be too wide, and in Lawrence Building Co. Ltd. v. Lanark County Council the Lord President, under reference to Varney (Scotland) Ltd. v. Burgh of Lanark 1974 SC 245 said:

"it may be taken to be clear that there are three factors which are essential to the success of any claim based on recompense. The first is that the pursuers must have incurred a loss. The second is that the defenders must be lucrati by the action of the pursuers. The third is that there must have been no intention of donation on the part of the pursuers towards the defenders. In all such cases too it must be shown that in all the circumstances it would be equitable for the pursuers to be reimbursed."

Repetition, on the other hand, has been defined by Professor Walker (Walker on Contracts (2nd edn.), (para. 35.3) as follows:

"If property has been delivered or money paid under an erroneous conception of duty or obligation it may be recovered on the ground of equity; provided the person receiving it has no reason, or natural right, implied donation, or compromise, to rely on the acquisition as his own. This obligation is enforced by an action for delivery or payment, called, following the Roman law, a condictio indebiti."

Of condictio indebiti Professor Gloag says:

"Closely akin to the condictio causa data causa non secuta is the condictio indebiti, a term which is still commonly used in Scotland to denote an action having for its object the recovery of money paid under the mistaken belief that it was due"

(Gloag on Contract (2nd edn.) p. 60).

Professor Gloag also emphasises that condictio indebiti is an equitable right:

"Repayment of money paid by mistake has always been regarded as an equitable claim, not to be sustained unless it appears that retention of the money would be inequitable"

(p. 61).

Similar statements are to be found in Credit Lyonnais v. George Stevenson & Co. Ltd. (1901) 9 S.L.T. 93 per Lord Kyllachy and in Haggarty v. Scottish Transport and General Workers Union 1955 SC 109 per Lord Sorn.

The present case is one where money was paid in error, and in such a situation the equitable remedy of repetition is available. The emphasis is not upon the extent to which the party receiving the payment has been enriched, but upon whether that person has any good and equitable reason to refrain from repaying the money to the person who paid it under a mistake. Is it inequitable that he should return the money paid to him in error? (Gloag on Contract supra, p. 61; Haggarty v. Scottish Transport & General Workers Union .) In the present case I have reached the clear conclusion that when the defender discovered that the sum of £18,631 had been credited to his bank account, he must have known that he himself had no right to the money because he had given no consideration for it. It was suggested on his behalf that the defender was truly holding the money in trust for Pratt, but, in my opinion, in the circumstances a reasonable man would have been put on suspicion that all was not in order. It was not disputed that the onus was on the defender to show that it would be inequitable for him to have to repay the money to the pursuers. In my opinion he could only show that if he could establish that he had acted reasonably in the circumstances. I am not satisfied that the defender had acted reasonably. There are several different things that he might have done when Pratt invited him to assist him by having money credited to his account. He could have refused the request, just as he had refused the earlier request in relation to the larger sum of £180,000. Alternatively he could have made some investigation into Mr Pratt who was a virtual stranger by seeking for a bank reference or the like. Apart from all else he could have made some enquiry of Pratt as to what the source of this money was. He certainly could have asked Pratt for some detailed explanation as to why the money had to be transferred in this way; for example, why could Pratt not open a bank account himself? Other alternative steps that the defender might have taken would have been to go to the police, as the witness Langlands eventually did, or to consult his bank manager as to what he ought to do in the light of the proposal that had been put to him. The defender did none of these things, and, in my opinion he did not act in a reasonable manner and he has therefore failed to prove that it would be inequitable for him to repay the money to the pursuers.

Before this court a great deal of the argumjent related to the question of whether the Lord Ordinary was well-founded in concluding that the defender had obtained no benefit from the £18,000. Counsel for the defender urged us not to look at the matter too narrowly, and maintained that the Lord Ordinary was well-founded in concluding that the defender had not been lucratus. In this connection he referred in particular to New Mining and Exploring Syndicate Ltd. v. Chalmers & Hunter 1912 S.C. 126 and in particular to Lord Mackenzie at p. 138. I have not found this case of great assistance. Firstly the claim for repayment was made under the provisions of sec. 11 (b) of the Partnership Act 1890. Secondly in so far as the claim was also considered at common law it appears to have been based upon recompense—nemo debet ex alieno damno lucrari. Thirdly although the reasoning of Lord Mackenzie is not entirely clear to me, he appears to have concluded that payment into the firm's bank account did not enrich the firm because the account at that time was overdrawn. In the present case there is no question the defender's account with the bank having been overdrawn at the material time.

Although the point is a narrow one, I have reached the conclusion that the proper conclusion from the evidence is that the defender did benefit from the £18,000 which was credited to his account. As soon as the £18,631 was transferred to his account, a benefit was conferred upon the defender. Whatever arrangement he may have had with Pratt, so far as his bankers were concerned he could do with the money as he pleased. He had a right to dispose of the money and he did dispose of the money. What he in fact did was to retain £631 for his own use, and he withdrew £18,000 in cash. It is accepted that he handed that money over to Pratt but he could have done what he liked with the money. I do not consider that the Lord Ordinary is correct in concluding that on the evidence it was Pratt who retained the sum of £18,000 and benefited from it. Once Pratt had arranged for the transfer of that money to the defender's bank account, it passed out of Pratt's control, and he could not thereafter get his hands on the money or make use of the money without action on the part of the defender. Once the money had been credited to the defender's account, if he had declined to perform his part of the alleged agreement and had sought to retain the money, Pratt would have had to seek repayment of the money under the principle of repetition or recompense and that emphasises that once the money had passed into the defender's bank account, he had obtained a benefit.

In all the circumstances I am of opinion that the Lord Ordinary's approach in this case was flawed, and that in addition he arrived at the wrong conclusion so far as the question of the defender's obtaining benefit is concerned. In my opinion this case should properly be treated as one of repetition; the money was paid under mistake and it therefore may be recovered by the pursuers unless the defender succeeds in showing that it would be equitable that he should retain the money and inequitable that he should repay the money to the pursuers. On the evidence I am satisfied that the equities favour the pursuers. It was not disputed that the pursuers had acted reasonably and had been the innocent victims of fraud. Further the defender has failed to establish that he acted reasonably, and he has failed to qualify any right to retain the money or to resist repayment in the circumstances. The pursuers are accordingly entitled to the remedy which they seek. I would accordingly move your Lordships to allow the reclaiming motion, to recall the interlocutor of the Lord Ordinary, and thereafter to sustain the first two pleas-in-law for the prsuers and to pronounce decree in their favour for the sum concluded for in the first conclusion of the summons with interest also as concluded for. I would also repel the whole pleas-in-law for the defender.

LORD MAYFIELD .—This is a reclaiming motion from a judgment of the Lord Ordinary after a proof before answer. The pursuers and reclaimers, the Royal Bank of Scotland, brought an action against the defender or respondent for payment of the sum of £18,631. As stated in their plea-in-law it is a claim for repetition of that sum paid in error by them to the defender. Both parties had pleas to the relevancy and a proof before answer was allowed at which it was agreed that the defender should lead, the burden of proof being upon him in that he admitted payment. There was a joint minute of admissions as to many of the material facts in the case. The essential facts were that on 19th October 1987 a cheque for £631.63 was drawn by Messrs W. & J. Burness, W.S., 16 Hope Street, Edinburgh on an account which they held with the pursuers. The cheque was made payable to the order of New Business Financial Services Ltd. and was crossed and marked "not negotiable" and "a/c payee only". That cheque was fraudulently altered so that it bore to be payable in the sum of £18,631 to the order of the defender. On 21st October 1987 the cheque in its altered form was presented for collection at the Finsbury Branch of the Trustee Savings Bank in London and was negotiated by way of bank giro credit transfer to the defender's account with the Trustee Savings Bank, St James Centre Branch, Edinburgh by a person giving the name "S. Rodgers". The pursuers accepted the cheque in good faith and on Monday 26th October 1987 credited the defender's account with the sum of £18,631. On the morning of Tuesday 27th October 1987 the defender enquired at his bank at St James Centre, Edinburgh if the sum had been paid into his account. On being so informed that his account had been credited with £18,631 he requested a cash withdrawal from his account of £18,000. The manager of the bank agreed and around noon on that day the defender left the bank with £18,000 in cash which was debited to his account. The Lord Ordinary stated that the essential issue of fact between the parties, on the basis that the defender admitted payment to his account of the proceeds of the fraudulently altered cheque, was whether the defender could prove that he did not benefit from the payment made to him or that it would be inequitable for him to repay it to the pursuers. It was not disputed that the pursuers debited the account of Messrs W. & J. Burness and credited the defender's account with the sum stated in the altered cheque in the belief that that sum was due to the defender in terms of the cheque. It was also not disputed that the cheque which was fraudulently altered was originally drawn for a much smaller sum and for a different payee. The evidence before the Lord Ordinary was that the defender was a self-employed window cleaner who banked at the St James Centre TSB. In the latter half of 1987 the defender had met a man called Pratt at the Bianco bar which he frequented partly for business reasons. He got into conversation with this man who after a time gave him the impression that he was a car dealer or agent for Rolls Royce purchasing specific models for clients who wanted them. He had an English accent and indicated that he worked from the south of England travelling throughout the country to purchase cars. The defender understood that Pratt needed large sums of cash for business purposes when he was in Scotland to purchase cars. The defender informed Pratt that he was interested in a particular Volkswagen coupé and Pratt said he might be able to help and would keep a look out for that model of car. The defender accordingly gave Pratt his name and telephone number. Some time later Pratt telephoned the defender. He wanted to transfer money to the defender's account in Edinburgh to draw cash for the purchase of cars. The figure he mentioned was £180,000. The defender refused to contemplate a transfer of such a large amount of money. Pratt accepted his refusal. About a week or so later however Pratt phoned again suggesting a transfer of about £18,000. The defender then agreed to help him and Pratt said that he would telex the amount to the defender's account if he gave him the details of it. The defender did so. A few days later Pratt again phoned to say that the money had been telexed and that the defender should check with his bank that it had been cleared. Pratt arranged to phone back later for the money to be handed over to him. The defender went to his bank and confirmed that the transfer had been made. When Pratt telephoned he instructed the defender to withdraw the money and take it straight away to the Sheraton Hotel in Edinburgh where he would meet him. The defender requested the withdrawal of £18,000. The teller would not give him cash without reference to the bank manager, Mr Austin, who came and tried to dissuade the defender from drawing cash. He suggested instead a bank draft or guarantee cheque. The defender insisted on cash and Mr Austin said it would take time to pick up the notes and he should call back later. The defender did so and was given £18,000 in bundles of bank notes which he put into a carrier bag. He then drove his car straight to the Sheraton Hotel where he saw Pratt in the lobby and handed over the bag of money to him. He never saw or heard from Pratt again. The Lord Ordinary accepted and believed the defender's account. The Lord Ordinary took the view that on the evidence, and on the balance of probabilities, the defender had proved the transaction averred in his defences. He concluded that it could not be reasonably held that the defender benefited in any material sense from the £18,000 which was credited to his account and which was immediately withdrawn by him and handed over to Pratt. He did not retain that sum of money in any substantial sense. Pratt had been the person who benefited. He accordingly held that the pursuers' action failed so far as it sought repetition of the £18,000. In relation to the balance however, the defender's evidence was that it had been accepted between the defender and Pratt that the defender with hold £200 in relation to a possible bank charge. He drew only £18,000 of the money from the bank. The defender explained that he had had £400 of his own with him when he had gone to the Sheraton to hand the £18,000 over to Pratt. He maintained that he had given Pratt the £18,000 plus £400 of his own money and was told by Pratt not to worry about the £31. Accordingly the benefit to the defender was limited to the £231 as no bank charges were in fact levied. The Lord Ordinary did not accept the evidence of the defender as to handing over the £400 of his own money. He drew the inference that the defender had benefited to the extent of £631. Accordingly he pronounced decree for payment of that sum. The conclusion the Lord Ordinary reached was based on the finding that the defender had not benefited from the transaction.

Counsel for the pursuers submitted that the Lord Ordinary had erred in law when applying the law of repetition by concentrating exclusively on whether or not the defender had benefited. He had failed to consider the equitable nature of the remedy; had not considered all the circumstances and, as a result, had failed to balance all the factors in order to assess where the equities lay. He submitted that the defender at best had been naive and at worst careless and even reckless. The suspicions of a reasonable man would have been aroused. The Lord Ordinary had been wrong in concluding that the defender had not benefited.

Counsel for the defender submitted that the Lord Ordinary had correctly held that the defender had not benefited from the sum of £18,000 which had been credited to his account. He referred to Lawrence Building Co. Ltd. v. Lanark County Council 1978 SC 30 and submitted that for the pursuers to succeed they had to establish that the defender had been lucratus. Trayner's Latin Maxims and Phrasesdefined lucratus as meaning enriched. The money had only been in the defender's account for a short period. The matter should not be viewed narrowly. The defender had not benefited in any real sense (but for the sum of £631). If lucratus was not established no question of equity arose. Even if there had been a benefit to the defender it would not be equitable to require the defender to repay the sum since bad faith on his part had not been established.

In my opinion it is clear that the claim by the pursuers is based on the principle of repetition. Counsel for the pursuers referred to a number of sources of definition of the principle. One of the sources, Professor Walker (Contracts (2nd edn.), para. 35.3), stated:

"If property has been delivered or money paid under an erroneous conception of duty or obligation it may be recovered on the ground of equity; provided the person receiving it has no reason, or natural right, implied donation, or compromise, to rely on the acquisition as his own. This obligation is enforced by an action for delivery for payment, called, following the Roman law, a condictio indebiti."

Counsel for the pursuers also referred to Credit Lyonnais v. George Stevenson & Co. Ltd. (1901) 9 S.L.T. 93. In that case Lord Kyllachy stated at p. 95:

"I do not, however, myself consider that the present is anything else than an ordinary condictio indebiti, of which the rules are well established in our law. The money in question was paid in error under a mistake of fact. It was therefore reclaimable, unless (the pursuers' remedy being equitable) there was an equitable defence to repetition."

In my opinion Lord Kyllachy expresses the matter accurately. In Haggarty v. Scottish Transport and General Workers Union 1955 SC 109 Lord Sorn who gave the leading opinion stated:

"The condictio indebiti is an equitable remedy and the position with regard to it is, I consider, correctly stated in Gloag on Contract (2nd edn.) at p. 61: ‘Repayment of money paid by mistake has always been regarded as an equitable claim, not to be sustained unless it appears that retention of the money would be inequitable ’."

In that case it was also held that proof be allowed (overturning the sheriff substitute) and the court should hear evidence in order to put itself in a position to judge whether or not the retention of money would be inequitable. Lord Sorn referred to an adjustment of the equities.

None of the authorities to which reference was made support the view submitted by counsel for the defender that in order to succeed in the claim of repetition the pursuers must establish that the defender was lucratus. That in my view is the essential difference between the remedy of repetition and recompense. In the latter remedy gain is vital. That is apparent from the definition of recompense in Bell's Principles (10th edn.), para. 538 where it states:

"Where one has gained by the lawful act of another, done without any intention of donation, he is bound to recompense or indemnify that other to the extent of the gain."

In my view benefit may be a factor in a claim of repetition but in my view it is not an essential element where equitable considerations prevail. The case referred to by counsel for the defender Lawrence Building Co. Ltd., was a case concerning recompense and has no application to the present circumstances.

In the present case it is clear that money was paid in error and accordingly the equitable remedy of repetition is available. The question in this case is whether it is inequitable that the defender should return the money. In my view the pursuers' claim is well-founded. I agree with the submission of counsel for the pursuers that a reasonable man would have been put on suspicion by the nature of the transaction. He must have known he had no right to the money because he had given no consideration for it. Nor was I convinced by the submission by counsel for the defender that the defender was entitled to regard himself as a trustee. There was no evidence that the pursuers had been informed that the defender was acting as a trustee. This is not a case of a trustee or agent acting for a principal. (Unigate Food Ltd. v. Scottish Milk Marketing Board and Ors. 1972 S.L.T. 137 per Lord Stott at p. 138).

It was not in dispute that the onus was on the defender to show that it would be inequitable for him to have to repay the money to the pursuers. In my opinion the Lord Ordinary erred in reaching the conclusion that because the defender had not benefited from the transaction he should not repay the money. He did not consider all the factors relevant to an equitable consideration of the matter. He did not consider whether or not the defender had acted reasonably. I am not satisfied that the defender did. The defender could have made some investigation into Mr Pratt, who was a stranger, by seeking for a bank reference. He could of course have refused the request to participate in the transaction. It is observed that he refused an earlier request in relation to the sum of £180,000. He might have ascertained why Pratt could not open a bank account himself. He might indeed have gone to the police. He did none of those things and in my view he has failed to prove that it would be inequitable for him to repay the money to the pursuers.

In any event I have come to the conclusion that the facts indicate that the defender did benefit from the sum which was credited to his account. Benefit was conferred upon the defender when the money was transferred. He then had a right to dispose of the money and in fact did dispose of the money. He could have done what he liked with the money. He in fact retained £631 for his own use and that in my view is an indication that he had power of disposal. Further he was advised by the bank manager not to draw the money in cash. He did not take that advice. It had been open to him to go to the meeting with Pratt with a banker's draft. In my opinion the defender did benefit from the transaction.

In my opinion the pursuers' claim based on repetition succeeds. The money was paid by mistake. The pursuers can recover the money unless the defender establishes that it would be equitable that he should retain the money. In my opinion when all the equities are considered the balance favours the pursuers. They are thus entitled to the remedy which they seek. I therefore agree with your Lordship in the chair that the reclaiming motion should be allowed.

LORD MCCLUSKEY .—The facts in this cause have been determined by the Lord Ordinary after a proof before answer, in the course of which parties lodged an extensive joint minute of admissions dealing with many of the material facts. It is not necessary for me to rehearse all the facts found established by the Lord Ordinary but it may be of value if I draw attention to what I see as the salient facts that are material to the decision of the legal issues raised by this case.

The original cheque was drawn by Messrs W. & J. Burness, W.S., on an account which they held with the pursuers. That cheque was for £631.63 and was payable to the order of New Business Financial Services Ltd. It was crossed and marked "not negotiable" and "a/c payee only". On 21st October 1987 the same cheque, now fraudulently altered so that it bore to be payable in the sum of £18,631 to the order of the defender, was presented for collection at a branch of the Trustee Savings Bank in London, apparently by a person who gave as his name, "S. Rogers". Thereafter, the pursuers accepted the cheque in good faith and as a consequence the defender's account with the Trustee Savings Bank, St James Centre branch, Edinburgh, was credited with the amount in the altered cheque, £18,631, on Monday 26th October 1987. Within the Trustee Savings Bank the same amount was transferred from the London branch to the Edinburgh branch by way of bank giro credit transfer. On the morning of Tuesday 27th October 1987, the defender called at the St James Centre branch of the Trustee Savings Bank and asked if a sum had been paid into his account. When he was informed that his account had been credited with £18,631 he requested a cash withdrawal from his account of £18,000. That request could not be granted immediately because it would take some time to make that sum available in cash; the manager sought to persuade the defender to take the money in a form other than cash. The defender, however, insisted upon cash and a few hours later, at midday, received £18,000 in cash. He left the bank with that cash in a carrier bag. The bank debited his account accordingly.

It is thus abundantly clear that the pursuers caused the defender to be paid a sum of money, £18,631, because and only because they mistakenly believed that their account holders, Messrs W. & J. Burness, had drawn a cheque for that sum in favour of the defender. That mistake was a mistake of fact. The defender was not entitled to the money. The pursuers were in no way culpable and no one suggests that any blame of any kind attaches to them in respect of their honouring the cheque. It would seem an elementary matter that the pursuers should be entitled to recover from the defender the sum which they had mistakenly caused to be paid into his account.

The defender, however, maintains that he is not liable to pay back the money because of the circumstances surrounding his receipt and disposal of it. His account of events, and it was largely accepted by the Lord Ordinary, is that in the latter half of 1987, in an Edinburgh bar, he met for the first time a man who said he was called "Pratt", that he gained the impression that Pratt was a car dealer working from the south of England but travelling the country and that from time to time Pratt needed large sums of cash for business purposes when he was in Scotland to purchase motor cars. Pratt also indicated that he might be able to find a car of a kind the defender was then looking for, so the defender gave Pratt his name and telephone number. Some time later Pratt telephoned the defender and asked if he, Pratt, could transfer £180,000 to the defender's Edinburgh bank account so that cash might be drawn from that account to be used by Pratt for the purchase of cars. The defender declined to co-operate because he thought that the payment of such a large amount into his account might give rise to difficult questions and suspicions. About a week or so later Pratt phoned again suggesting a similar arrangement, but in respect of only £18,000 or thereby. This time the defender agreed to help. He gave details of his Trustee Savings Bank account in Edinburgh to Pratt who said he would "telex" the money to the account. A few days later Pratt telephoned to say that the money had been telexed and that the defender should check with his bank that it had been "cleared". It was this that led to the defender's arriving at the bank on the morning of Tuesday 27th October 1987 to enquire if a sum of money had been credited to his account. It was, he said, in accordance with Pratt's telephoned instructions that he sought and ultimately obtained cash, though it appears that it was he himself who decided that he should withdraw £18,000 not £18,631. When he left the bank with £18,000 in bundles of bank notes inside a carrier bag he drove to the Sheraton Hotel, Edinburgh where Pratt had arranged to meet him; Pratt was waiting for him in the lobby. The defender handed over the bag containing the money. It does not appear that Pratt either counted the money in the bag or was asked for or gave any receipt for it. Shortly thereafter Pratt departed. He is not now to be found. According to the defender, though the Lord Ordinary disbelieved him, the defender, before handing over the cash, made the total up to £18,400 by adding to the bundle of cash £400 of his own money, thus retaining a net £231, partly in respect of possible bank charges of £200 and partly in respect of the £31 balance which Pratt allegedly told him not to bother about. In these circumstances, the defender argues that he was not lucratusexcept to the extent of £631 and that, accordingly, the court can order repetition only of £631.

I need only summarise the submissions made by counsel for the parties. Counsel for the appellants argued that this was a claim for repetition of a sum of money paid by mistake to the defender. As the plea was an equitable one the court had to have regard to all the circumstances in order to see where the equities lay. That was the express reason for the allowance of proof in Haggarty v. Scottish Transport and General Workers Union 1955 SC 109. It was also the basis of the decision in Unigate Food Ltd. v. Scottish Milk Marketing Board 1972 S.L.T. 137. It was not wrong in looking at the circumstances to take account of the fact to which the Lord Ordinary had given exclusive and decisive weight namely the question whether or not the defender had benefited from the £18,000; but it was necessary to look at all the circumstances, including, in particular, that the pursuers were wholly innocent and blameless; they had been excusably duped by a clever piece of forgery; and also at the defender's role in the whole transaction. Of the defender, the best that could be said was that he was extremely naive in allowing himself to be used by the fraudster; he had been careless to the point of recklessness. In accepting that assessment, counsel invited us to consider the whole involvement of the defender beginning with the casual meeting with a stranger and ending with the handing over to that stranger of a very large sum of cash on the occasion of their second meeting. Any reasonable man would have been put on suspicion that matters were not above board. It could properly be said that he had been "at least culpably negligent" in the broad non-technical sense in which Lord Kyllachy had used that term in Credit Lyonnais v. George Stevenson & Co. Ltd. (1901) 9 S.L.T. 93 at p. 95. Once it was shown that he had received money paid to him in innocent factual error, the onus was upon him to demonstrate that the equities were such that he was not obliged to repay. That could hardly be done given his behaviour and his failures. He could and should have acted with much greater care. He could have refused to co-operate altogether in such a dubious transaction. He might have asked for a reference from Pratt. He could have enquired where the money was coming from. He could have asked for some explanation as to why it was necessary or preferable to use his bank account rather than one opened in Pratt's own name. He could have alerted the police. He could have sought the advice of his bank manager, or even taken the advice that his bank manager had actually offered. In any event the Lord Ordinary's view, expressed thus:

"It cannot reasonably be held that the defender benefited in any material sense from the £18,000 which was credited to his account and then immediately withdrawn by him and handed over to Pratt"

was incorrect. Although it was unnecessary for the pursuers to show that the defender was lucratus, he was in fact lucratus when the sum of £18,631 was credited to his account. The fact that he handed it over to Pratt was res inter alios acta. What mattered was that once the money was credited to his account he benefited in the sense that it had been paid to him and he had the power of disposal. There was no sound basis for the suggestion made by counsel for the defender that the defender was in some sense a trustee for Pratt.

Counsel for the defender argued that the obligation to make restitution was an obligation quasi ex contractu and that the basis of all such claims was the avoidance of unjust enrichment. An action such as the present could not succeed if it were shown that the defender was not lucratus. It was wrong to look technically and artificially at this matter; money paid in error could be recovered only to the extent that the payee had truly benefited from the payment. Furthermore, in order to discover whether or not the payee was lucratus, it would, he said, be "wholly artificial to look at matters except in the light of how matters of fact were at the date of the raising of the action." He referred to Lawrence Building Co. Ltd. v. Lanarkshire County Council 1978 SC 30, per Lord President Emslie at p. 41, a recompense case in which, he maintained, the same principles applied. Even if it were correct to regard the defender as being lucratus during the whole or some part of the period that elapsed between the crediting of the sum of money to his bank account and the delivery of £18,000 in cash to Pratt the Lord Ordinary was right to say that the defender had not benefited "in any material sense" from the £18,000, as he had immediately handed it over to Pratt. Although the defender would hardly have put it this way, he, the defender, was in effect at all material times a trustee for Pratt and held the money as a mere intermediary for Pratt. He had no benefit from it at all: New Mining and Exploring Syndicate Ltd. v. Chalmers and Hunter 1912 S.C. 126, per Lord Mackenzie at p. 138. Once it was shown that the defender was not lucratus that, he submitted, was an end of the matter. Other equitable considerations did not then come into play. However it was worth noting that allegations about the defender's alleged culpability and about what he might have done in order to check the wholeness of the transaction had not been put to the defender when he gave evidence.

The Lord Ordinary lists a number of cases and texts to which he was referred to illustrate the application of the maxim nemo debet ex alieno damno lucrari or where the claim was based upon the condictio indebiti. He did not find that any of these cases showed any close parallel with the present case. We were referred to other authorities and texts but it cannot be said that there is any authority specifically governing a case such as the present. In my opinion it is necessary to look at the character of the remedy sought and the principles underlying it. In Stair's Institutions I. vii. 9. the condictio indebiti is dealt with under the general heading of "restitution" and narrates, "When any party through error delivereth or payeth that, which he supposeth is due, or belongeth to another: if thereafter it appear, that it was not due to that other, he who received it is obliged to restore, and yet not by paction or contract." From this "natural obligation" there are said to be certain exceptions, none of which has any bearing upon the present case. Title VIII deals separately with a different natural obligation, that of "Recompense or Remuneration" in which it is noted (para. 6) that recompense is "due in quantum lucratus". Erskine's Institute III, 1, 10 and 11 deals with obligations which arise from the natural duty of restitution and, separately, with "another kind of obediential obligations … that of recompense, by which a person who is made richer through the occasion, or by the act of another, without any purpose of donation, is bound to indemnify that other, either of his whole expense, or at least in so far as he himself is a gainer." The same distinction is drawn in Bell's Principles (10th edn.) where paras. 531 et seq. deal with repetition and paras. 538 et seq. deal with recompense. In all these texts, the idea of an undeserved benefit which it would be unjust to allow the recipient to retain is seen to be an essential feature in claims based upon recompense. But the need to establish that the recipient has been lucratus, that he has derived some material benefit, though it is undoubtedly an equitable consideration, is not an essential element in all cases where equitable considerations underlie the remedy allowed by the law. In particular, there is no reason in principle that I can detect why the extent of the recipient's benefit should necessarily delimit the right of the true owner to recover what he has paid or handed over under a mistake of fact. It is even less apparent that the true owner has to show that the payee or recipient still enjoys a benefit at the time when the claim is brought to court. It is easy to see, of course, that where the person who receives money paid under a mistake of fact receives it as the known agent of a known principal, that is to say as "a mere intermediary", he is under no obligation to refund that money cf. Continental Caoutchouc Co. v. Kleinwort 1904 IX Comm. Cases 240. But in such a case the true position, in my opinion, is that the money has been paid not to the agent but to the principal and it is, therefore, to the principal that the payer must look for that money to be refunded. It is not because the principal is lucratus that he must repay; it is because he has been paid that which he was not due to receive. Equally, it is not because he is not lucratus that the agent would not be obliged to repay, but because it was not he, but his principal, who was the true recipient of it. In my opinion, the matter is put accurately by Lord Kyllachy in Credit Lyonnais at p. 95 where he says:

"I do not, however, myself consider that the present is anything else than an ordinary condictio indebiti, of which the rules are well-established in our law. The money in question was paid in error under a mistake of fact. It was therefore reclaimable, unless (the pursuers' remedy being equitable) there was an equitable defence to repetition."

Now it cannot be an equitable defence for the defender in the present case to say that he gave the money away to a stranger. It cannot be an equitable defence to say:

"I facilitated this fraud though I was innocent. It is true you have lost your money, but then I have behaved like a fool from start to finish so you cannot have it back from me."

The argument that the defender was entitled to regard himself as a trustee for the elusive Pratt or as a mere intermediary might, in the context of the condictio indebiti,have had some validity if, when the pursuers were asked to pay, they had been put in possession of information to show that the payee was receiving the money as a trustee or agent. That, of course, is not the position here. In my opinion, this is sufficient for the decision of the case and the Lord Ordinary fell into error in supposing that some kind of enduring material benefit on the part of the defender was a necessary precondition of the pursuers' claim against him.

In any event, I consider that the facts clearly establish that the defender did derive a material benefit from the transaction which he facilitated. I can see neither authority nor justification in principle for the submission that, in a condictio indebiti, the pursuer must show that the benefit endures as at the date of the raising of the action. Counsel for the defender conceded, and I believe rightly conceded, that the defender was lucratus for at least some part of the time between the moment when his account was credited and the carrier bag passed into the hands of Pratt. For myself, I cannot follow Lord Mackenzie's reasoning in New Mining and Exploring Syndicate Ltd.; but in any event, it can be distinguished from the present case on the basis indicated by your Lordship in the chair. I also think it is entirely accurate to say, as counsel for the pursuers submitted, that the transaction in the Sheraton Hotel between the defender and Pratt was res inter alios acta so far as the pursuers were concerned. I can see no difference in principle between the circumstances in which the defender in fact parted with the cash and other circumstances which were figured in the argument, such as his running away with the cash himself, or betting it on a losing horse, or otherwise dealing with it for his own purposes and to his own benefit whether temporary or permanent. It was his purpose, not the pursuers', that the money should go to Pratt. Equally, it is obvious that if the defender had been apprehended on his way from the bank to the Sheraton Hotel the pursuers then could have recovered not only the £18,000 which he had in the bag, but the £631 which still stood to the credit of his account. I can see no warrant for the proposition that because he chose to hand over the cash in the circumstances described to Pratt the pursuers' right against him should be lost then and by that act. It is also noteworthy that the defender himself chose to leave £631 in the bank and thus to draw out only part of the total sum paid in. This leads inevitably to the conclusion that he was dealing with the money in such a way as to show that he had a power of disposal. The bank manager advised him not to draw cash; he could have taken that advice and gone to the Sheraton Hotel with a banker's draft for the sum which he intended to pay to Mr Pratt. He was free to do that; that would not have been a breach of any trust between himself and Pratt. Indeed there is no legal basis shown from which there derived an obligation upon the defender to hand over a large sum in cash. In the whole circumstances, applying what I believe to be the principles applicable to this kind of claim of restitution, I consider that the defender has no valid defence to the claim. I therefore agree with your Lordship in the chair that the reclaiming motion should be allowed.