Money: Solicitors paid money into client’s account by accident
A client who received a mistaken payment of £177,000 from a south-west law firm and only paid back £144,000 has failed to overturn a judgment in default.
Sharif Hendawi argued that he could rely on “change of position” as a defence to the claim, if the judgment for £36,400 – including interest and costs – was set aside.
His Honour Judge Paul Matthews, sitting as a High Court judge, said the parties agreed that the money was paid into Mr Hendawi’s bank account by mistake and Wards Solicitors could rely on unjust enrichment.
Exactly how the mistake occurred was not explained, the judge said, but the firm was at the time acting as solicitor for the Mr Hendawi’s company.
He said Mr Hendawi’s case was that, by paying off a £25,000 debt to a friend, he had changed his position in a way he would not have done without the mistaken payment.
Rejecting this, HHJ Matthews said: “The fact that the identity of the creditor changes, and the debtor may not have such an easy ride, is simply one of the vicissitudes of life.
“It is comparable to the case where a creditor dies, and the heir is less accommodating to the debtor, or the creditor becomes bankrupt, and the trustee in bankruptcy seeks to realise the assets of the estate for the benefit of the bankrupt’s creditors.”
HHJ Matthews said the fact that, “however unwittingly”, Mr Hendawi used “some of the money mistakenly paid to him to repay the debt he undoubtedly owed” to the friend did not mean that he changed his position.
The judge said similar reasoning applied to the £8,000 overdraft Mr Hendawi’s bank automatically paid off when it received the mistaken payment from the solicitors.
“The defendant did not decide, knowing of the payment in, to pay off his overdraft. It happened automatically, without his knowledge.
“The fact that the bank may (if it did) decline to reinstate the overdraft facility, thus enabling the defendant to use money borrowed to pay off the unjust enrichment claim, is irrelevant in law. It is entirely separate.”
Giving judgment in Wards Solicitors v Hendawi [2018] EWHC 1907 (Ch) [1], HHJ Matthews said that, given his conclusions on the £25,000 debt and the overdraft, he did not need to consider whether the defendant acted in bad faith, depriving him of the defence of change of position.
The judge said the claim form for the outstanding £33,000 was issued in December 2006 but sent to an old address, with the result that nothing “substantive” happened until the claimant issued a statutory demand under the Insolvency Act 1986 against the defendant in August 2017, followed by a bankruptcy petition.
However, he said this did not amount to a ‘good reason’ to set aside the judgment in default.
“If the defendant had known about the claim and the judgment earlier than August 2017, he would have had more warning of the possibility of the threat of bankruptcy, but in my judgment that is not enough.”
HHJ Matthews went on: “Nor is it a good reason that the claimant has delayed so long before seeking to have the defendant made bankrupt. The claimant is entitled to enforce the judgment, or not, during such period as the rules allow.”
The judge said Mr Hendawi took legal advice from solicitors in August 2017, but did not issue his application until March 2018.
“On any view this is not prompt. No satisfactory explanation has been given for the delay. The fact that the defendant was not represented might justify taking a little longer before issuing an application, but not nine months.
“The rules are drafted so as to ensure that there is some finality in litigation of this kind. Accordingly, even if the defendant had an arguable defence to the whole claim, I would not have set aside the judgment.”